Are we headed for a replay of 1937-38?

Most of the general public (not all, see the "don't know much about history" piece in yesterday's WSJ) is well aware of the Great Depression that started in 1929 and really did not end until World War II.  Fewer are aware of the depression within the depression that took place in 1937-38, when unemployment rose from 11 to 20 percent (it had peaked at 25 percent in 1933).

Yesterday WP economics columnist Robert Samuelson asks whether we are headed for a replay: There are eerie parallels between now and then. Then as now, commodity prices (grains, minerals) were rising rapidly; fears of inflation grew. Then as now, the federal budget deficit was criticized as too large. Then as now, the president was widely perceived as being anti-business.

Samuelson points out that both fiscal and monetary policy were responsible for the 1937-38 recession.  Roosevelt moved quickly to a balanced budget at the same time that the money supply tightened significantly.  Paul Krugman in a recent NYT op-ed argues that we will repeating those mistakes if government spending is cut and interest rates are increased.  Samuelson isn't convinced, mainly because (1) the magnitude of any spending cuts that might be approved by Congress pails in comparison to those enacted in the late 1930s and (2) the Fed remains committed to low interest rates for the foreseeable future.  My take: the economy continues to be in a fragile position and cutbacks in state and local government spending are not going to help.  An unexpected shock, such as $6/gallon gas or a failure to contain the fallout of Greece's likely default, might be enough to move the GDP growth number into the negative zone.