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The Contradiction of Interregnum

by Amity Shlaes
November 3, 2008

One of the books I’ve been paging through this week is Jordan Schwarz’s Interregnum of Despair. number #1,747,384 in Books on Amazon as I write. It should be higher for it is about a period like the one we are just entering, the period after election day and before inauguration. Another author, Robert Higgs, has written about the uncertainty that government can cause when it isn’t clear what government is going to do.

In those days the inauguration didn’t come until March. On February 18, 1933, Hoover wrote to FDR to warn of a financial collapse if they didn’t work together. By this point the lame duck was so nervous that he misspelled FDR’s name on the envelope: “Rosevelt.”

 FDR pretended not to receive the letters, as he would also pretend at other moments in this period. As Jonathan Alter, writes in his “Defining Moment,” “FDR chose not to respond for eleven critical days.” This was intentionally allowing the economy to sink lower, as Alter notes. The “damn the secretary” gambit, as Alter refers to it, had a purpose: Roosevelt’s rescue, when it came would look all the better against the dark backdrop of winter 1932-1933. But at a cost.

 But is there really always a cost?  In two of my Bloomberg columns I talk about periods when the economy is especially confident because it knows government can’t do much — Washington is either split between the parties, or on vacation. A mutual fund, the Congressional Effect Fund  bets that the market will go up more — or fall less — when Congress is out of session. It’s creator, Eric Singer, has also found that split governments — a Democratic president and a Republican Congress, say — are better for the market than governments of all one party — Democrat, Democrat, Democrat, or Republican, Republican, Republican.

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