The Third Depression - Paul Krugman

[Matorbogl]

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

So what do you think?

 

[Dr.Demento]

Nothing to worry about tbh. Why worry about things you don't have control over? Still, I have mixed feeling about the world recession.

On one hand, it sucks because I know unless world leaders and CEOs of major financial firms don't change their opportunist ways, things are only going to get worse.

On the other hand, I've always thought the recession was overhyped. The media tends to blow things way out of proportion which causes panic. If that's the case, then we very well may be on the verge of another depression.

 

[T-6000]

Over here where I live this Recession certainly isn't overhyped. There are alot of houses that are up for sale, many that haven't been sold for months, and many apartments and office spaces still haven't been rented out. My dad and I painted nearly a dozen office spaces and apartments for a man named Doyle Dover, and so far he hasn't found anyone that was willing to lease them. It frustrated him, since he never ran into this problem before. My brother took a course in Computer Systems Network in college, and after nearly 8 years he's still looking for work in this area. Though his computer skills was very handy when we upgraded our gaming rig, it's still a shame to see all that time and expense go to waste. He had to settle for work in McDonald's, but recently he had to put in a 2 weeks notice since the McDonand's he's working for is so horribly mismanaged. He can't find work anywhere else so he's planning on joining the National Guard. My sister also recently lost her job at a video rental store, and at her last 2 weeks there those assholes cheated her out of her pay. At least her fiance has managed to find some good factory work. So far my dad and I are doing ok with our Painting Buisness, but we don't get as much work as we use to.

Rising Prices and outsourcing are taking their toll on our nation, along with an ever increasing debt. I can't see how we'll recover anytime soon with more buisnesses either closing down or moving off shore.

 

[Dr.Demento]

Over here where I live this Recession certainly isn't overhyped. There are alot of houses that are up for sale, many that haven't been sold for months, and many apartments and office spaces still haven't been rented out. My dad and I painted nearly a dozen office spaces and apartments for a man named Doyle Dover, and so far he hasn't found anyone that was willing to lease them. It frustrated him, since he never ran into this problem before. My brother took a course in Computer Systems Network in college, and after nearly 8 years he's still looking for work in this area. Though his computer skills was very handy when we upgraded our gaming rig, it's still a shame to see all that time and expense go to waste. He had to settle for work in McDonald's, but recently he had to put in a 2 weeks notice since the McDonand's he's working for is so horribly mismanaged. He can't find work anywhere else so he's planning on joining the National Guard. My sister also recently lost her job at a video rental store, and at her last 2 weeks there those assholes cheated her out of her pay. At least her fiance has managed to find some good factory work. So far my dad and I are doing ok with our Painting Buisness, but we don't get as much work as we use to.

Rising Prices and outsourcing are taking their toll on our nation, along with an ever increasing debt. I can't see how we'll recover anytime soon with more buisnesses either closing down or moving off shore.

Assuming you live in the U.S., things are different depending on where you live. For example, I heard that West Coast housing prices is ludicrous but the cost of living, (i.e. gas prices, food, etc.) isn't so bad. On the other hand, the opposite is true over here in the south eastern part of the country.

 

[T-6000]

Assuming you live in the U.S., things are different depending on where you live. For example, I heard that West Coast housing prices is ludicrous but the cost of living, (i.e. gas prices, food, etc.) isn't so bad. On the other hand, the opposite is true over here in the south eastern part of the country.

It's true that it depends on where you live, but overall almost everywhere in the U.S. it is rough. It's difficult to find a job and prices are rising here, and I've noticed that some of our taxes have risen. Especially in Missouri where I live. Thankfully housing isn't too expensive here and property tax isn't too demanding. My brother had just turned in his 2 week notice for McDonald's and since he can't find work anywhere else he's planning on joining the national guard. I just hope his computer skills are put to good use in the Guard.

 

[Dr.Demento]

It's true that it depends on where you live, but overall almost everywhere in the U.S. it is rough. It's difficult to find a job and prices are rising here, and I've noticed that some of our taxes have risen. Especially in Missouri where I live. Thankfully housing isn't too expensive here and property tax isn't too demanding. My brother had just turned in his 2 week notice for McDonald's and since he can't find work anywhere else he's planning on joining the national guard. I just hope his computer skills are put to good use in the Guard.

The common escape these days from minimum wage jobs is usually the military fs.

Lots of patriotic types around here though don't agree with the whole, "career" approach saying, "they should it to serve their country!!!", but the reality is that it needs to be that way to be enticing for potential new recruits in an all volunteer military.

Yeah, those days of old are long gone.

 

[Vegeta897]

Goodbye recession, hello depression!

 

[RakuraiTenjin]

Paul Krugman tries to say the US Fed spending IS the same as private enterprise.

The government needs to STOP spending so much, and STOP producing so much physical cash. It is killing the nation. That will help prevent a third depression, not ratcheting up spending like he suggests (lunacy)

 

[Maestro]

Paul Krugman tries to say the US Fed spending IS the same as private enterprise.

The government needs to STOP spending so much, and STOP producing so much physical cash. It is killing the nation. That will help prevent a third depression, not ratcheting up spending like he suggests (lunacy)

Keynesian thinking is what created this mess in the first place. You can't print more money to get more money. Deficit spending is a terrible idea when we are already in a hole so deep we will never see the light of day again to begin with.

Know why Texas is doing so well? We didn't inflate the **** out of our housing and put stock in the idea of expanding business, not government spending. That's why California is damned near bankrupt: spending money they don't have.

 

[RakuraiTenjin]

Keynesian thinking is what created this mess in the first place. You can't print more money to get more money. Deficit spending is a terrible idea when we are already in a hole so deep we will never see the light of day again to begin with.

Know why Texas is doing so well? We didn't inflate the **** out of our housing and put stock in the idea of expanding business, not government spending. That's why California is damned near bankrupt: spending money they don't have.

Exactly. Thinking like Krugman will just lead us further into the abyss

 

[Mr Stabby]

To be fair to Keynes, he never advocated deficit spending when times were good, which is the problem, over the past 15 years many countries have lived on the credit card.

If America had balanced its budgets for the last 8 years, then deficit spending to stimulate the economey now would be a no brainer.