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Bad timing could sink Democrats

By Julian E. Zelizer, Special to CNN
  • Some Democrats, worried about midterms, are calling for spending cuts
  • Julian Zelizer says they should look at what happened to Franklin D. Roosevelt in 1930s
  • He says Roosevelt cut spending, choking off recovery from the Depression
  • Zelizer: Fighting unemployment, not budget deficit, more urgent course for Democrats

Editor's note: Julian E. Zelizer is a professor of history and public affairs at Princeton University. He is the author of "Arsenal of Democracy" and a book on former President Carter and editor of a book assessing former President George W. Bush's administration, to be published this fall by Princeton University Press.

Princeton, New Jersey (CNN) -- With the real possibility of a Republican takeover of the House of Representatives, many Democrats are starting to argue for budget cuts.

In New Hampshire, Democratic Senate candidate Paul Hodes has called for $3 billion in cuts, saying, "For too long, both parties have willfully spent with no regard for our nation's debt."

This criticism will become louder this week with the president's proposal for a $50 billion infrastructure package to improve the nation's roads, airports and railways. These budgetary pressures will only intensify if the political strength of conservatives increases following the midterm elections.

But Democrats need to proceed with caution and avoid the pressure to target federal spending before the economy shows signs of stronger recovery. They should recall what happened in 1937 when a member of their party, President Franklin D. Roosevelt, decided to reduce federal spending to please fiscal conservatives and demonstrate that the New Deal had succeeded.

The strategy severely backfired as the spending cuts helped to push the economy into a severe recession and did almost nothing to stop the growing criticism from his conservative opponents.

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The pressure to cut spending had intensified at the beginning of 1937. The economy seemed to be on its way to recovery. National income had risen, unemployment had declined, and prices had increased. In response to these signs of improvement, Treasury Secretary Henry Morgenthau pushed the president to cut spending. Morgenthau believed that the budget could be balanced in 1938 with existing revenues, as long as new expenditures were not added.

Bursting with confidence, Morgenthau said that it was time "to strip off the bandages, throw away the crutches and see if American enterprise could stand on its own two feet."

During the spring of 1937, Roosevelt decided to balance the budget. Roosevelt had always been sympathetic to balancing the budget, though until this moment he had felt that the nation needed more government spending. Liberals in the White House warned that spending cuts would stifle economic recovery.

But FDR persisted. On April 20, he informed Congress that he wanted to do everything possible to "eliminate this deficit during the coming fiscal year." The Budget and Relief Message of 1937 called for a balanced budget in light of the success of the New Deal. The media portrayed Morgenthau as a leader of this campaign within the administration. The Wall Street Journal reported that "he stands today as probably the strongest advocate within the administration of an honest-to-goodness balanced budget ..."

The timing could not have been worse. The summer after FDR launched his drive to balance the budget, the economy fell into a major recession, reversing the recovery that had been under way since 1933. Over the next few months, stock prices tumbled, unemployment skyrocketed, and production declined. "We are in for a rather bad winter," lamented former presidential adviser Adolf Berle.

Economists still debate whether reductions in federal spending or Federal Reserve decisions were responsible for the recession of 1937-1938, but the evidence remains strong that the spending cuts were an important part of the mix.

Politically, the "Roosevelt Recession," as it was called, was devastating. The administration had already been struggling. After Roosevelt's landslide victory in 1936, a series of controversial decisions, including the plan to expand the size of the Supreme Court, had given rise to a conservative coalition of Southern Democrats and Republicans on Capitol Hill who were determined to block the administration's domestic agenda.

As a result of the recession, the president had lost his biggest asset going into the midterms: the evidence that his policies had reversed the devastating economic conditions that existed when he took office.

By January 1938, Roosevelt softened some of his rhetoric. Still calling for economy in government, the president outlined certain conditions that were necessary before he cut spending further. He also mocked budget hawks, saying that when he asked them, "What present expenditures would you reduce or eliminate," the "invariable answer has been 'that is not my business -- I know nothing of the details, but I am sure that it could be done.' That is not what you or I would call helpful citizenship."

Roosevelt would eventually drop his concern with the budget and focus instead on stimulating consumer demand through more government spending.

The economy would not fully recover from the recession until World War II. The high rate of unemployment and the weak economy harmed Democrats in the 1938 midterm election. The conservative coalition vastly increased its strength, even though FDR personally campaigned against key opponents. Democrats lost 70 seats in the House and seven in the Senate. Southern Democrats and Republicans now had the numbers they needed to block the administration's domestic legislation.

In the coming months, Obama and Democrats will face a choice similar to the one FDR had to make in the spring of 1937. The temptation to cut spending will only intensify. But Obama should think hard about taking this path. As FDR learned, he might very well help send the country into a "double dip" recession.

Given that unemployment is a major factor fueling electoral discontent with the Obama administration, he will do little to strengthen his approval ratings while conservative critics will only continue to attack. This would leave Obama and the Democrats in the worst of all possible worlds by 2012.

The opinions expressed in this commentary are solely those of Julian E. Zelizer.