NEW YORK —
In all three cases, the full effects of the laws weren't felt until after the election. It was only in 1937 that Americans had to pay into Social Security, diverting cash from the economy. And it was only in 1937 that John L. Lewis, the labor leader, pushed his hardest for wage increases and strikes, forcing companies to pay higher wages than they could afford. In 1936 and 1937, the Fed increased reserve requirements, effectively doubling them. The consequence of these laws was reduced available cash, increased uncertainty and lower business confidence.
The obvious question is why an announcement by Obama or Roosevelt to cut back just after the election doesn't reassure those who dislike government expansion.
The answer is that the markets, which observe a giant march forward and then a step backward, don't believe the step back is permanent. Giants are giants. Expansionists tend to revert to expanding government, as FDR did, most drastically, in World War II. The mandate matters more than the austerity chatter.
Benjamin Anderson, the chief economist at Chase National Bank in the 1930s, tried to capture the problem of the big- government president by titling one of his books "When Government Plays God." His advisers warned him to suppress the title, arguing it might offend. Anderson shifted to the more banal: "Economics and the Public Welfare." But Anderson's phrase still reverberates: A government that "plays God," or at least "plays powerhouse," can spook markets and employers, whatever the decade.
Amity Shlaes, a Bloomberg View columnist, is the author of the forthcoming "Coolidge" and the director of the Four Percent Growth Project at the Bush Institute.