Was wir von Roosevelts New Deal lernen sollten – wir werden es bald brauchen

A simultaneous devaluation of shares, real estate properties and mineral assets, deflation combined with a restrictive monetary and fiscal policy caused GDP in the USA to shrink by 25 percent in real terms and 50 percent in nominal terms between 1929 and 1933; the unemployment rate rose to 25 percent. For indebted farmers, house owners and entrepreneurs the situation became catastrophic. When Roosevelt became president in 1933 he first concentrated on a comprehensive effort to "tame" the financial sector, battling (youth) unemployment, relieving the debtors (rather than the banks), strengthening cooperation between employers and employees. In a next step he constructed a welfare state (unemployment and pension insurance, fair labour standards), enlarged the infrastructure and changed the tax system. The key to his efforts was turning the mood around, strengthening social security and changing incentives so as to benefit the real economy – i.e., rearranging the "rules of the game". What he did not do was enlarge state demand overly much by deficits – in actual fact, by 1937 the public spending ratio had declined slightly, the budget balance remained stable (at 1.5 percent of GDP). The attempt to achieve a balanced budget was, however, too early and resulted in the "Roosevelt recession" of 1937-38. In 2008-09, there was once again a simultaneous collapse of the prices of shares, real estate properties and mineral assets. However, the meltdown was not seen as a systemic cause of the crisis. Consequently, rather than restraining the financial wizards they were given an opportunity to develop a new game: speculating against states. Rather than helping debtors it was the banks that were supported, the social security systems were weakened and the mood became ever more depressed, Southern Europe was pushed into depression. The pseudo-Keynesian monetary policy fired up share prices rather than the real economy. In other words: the "rules of the game" remained the same. If we don't learn from our mistakes we are damned to repeat them: if share prices should once again decline at the rate of 2000-2003 and 2008-09, the next crisis will be at our doors. Then it's high time to do some concrete thinking and perhaps sprinkle it with some empathy – as did F.D. Roosevelt.