I want to bring a genuinely fascinating post from Sean Trende at RealClearPolitics to your attention. He posts on the actual economic history of the 1930s in the United States.
You most likely know that the federal government decreased spending from 1936 to 1937 and again from 1937 to 1938. You certainly know that if you’ve been reading Paul Krugman over the period of the last half dozen years. You most likely do not know that federal taxes increased from 1936 to 1937 and again from 1937 to 1938 and revenues increased substantially more than outlays did, three times as much from 1936 to 1937 and by roughly equal amounts from 1937 to 1938. A major offender in the tax increase was the newly-imposed FICA AKA payroll taxes.
Meanwhile, the Federal Reserve compounded the problems by doubling the reserve requirements for banks.
The simultaneous monetary contraction and fiscal contraction lead to the depression within a depression of 1937.
Read the whole thing.