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Are We In The Third Depression?

 
 
Miller
 
Reply Tue 29 Jun, 2010 02:25 am
June 27, 2010
The Third Depression
By PAUL KRUGMAN
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.

NYTimes

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talk72000
 
  1  
Reply Tue 29 Jun, 2010 03:20 pm
@Miller,
Economics is also a soft science and there are no surefire solutions only sugesstions. Economics is the sum total of the activities of the nation(s) population. We only have partial understanding. War helped the elimination of the depression bykilling off a sizeable part ofthe population so the unemployment issue was solved.

A reductionist view of history would be that supply and demand dictates events. When there is scarcity the demand is reduced thru famine, disease, wars, drought. When the supply meets demand there is peace. When there over supply there is wealthand expansion. But man's activiies do affect the environment. Over grazing and turning forests into farmland deprives the earth of cover and water absorption by trees which are more proficient than grasses, create desertification.
0 Replies
 
Miller
 
  1  
Reply Wed 30 Jun, 2010 02:47 pm
Too many folks will or have lost their jobs, never to work again. So what will they do?

Starve until they die?
roger
 
  1  
Reply Wed 30 Jun, 2010 02:56 pm
@Miller,
They will become dependent on their government subsidies.

I think what is going to happen is that we will see several years of highly educated college graduate watching their skills depart or become out of date. Same for many skilled workers. A machinist can retain unused knowledge for years, but the slights of the trade go away more quickly. Who would hire them?
0 Replies
 
hawkeye10
 
  1  
Reply Wed 30 Jun, 2010 03:04 pm
@Miller,
Two interesting stories in the last day.

1) that distressed homes (foreclosure sales) are worth 1/3rd less than non distressed homes

2) there is a growing concern that unemployed workers are often not even considered for job openings, they are considered distressed assets and not worth what a currently employed person is on the job market...which makes sense given #1

This has major long term political repercussions...we may have just created a new underclass which is being discriminated against, and if so they are going to be all kinds of pissed when they figure this out.
Miller
 
  1  
Reply Wed 30 Jun, 2010 03:12 pm
@hawkeye10,
hawkeye10 wrote:




...unemployed workers ... are considered distressed assets and not worth what a currently employed person is on the job market...


What ever became of human dignity?
Miller
 
  1  
Reply Wed 30 Jun, 2010 03:14 pm
A growing problem today is the large number of individuals retiring without a pension.

It's nonsense to think they'll be able to survive on Social Security alone.

0 Replies
 
dyslexia
 
  1  
Reply Wed 30 Jun, 2010 03:17 pm
@Miller,
Quote:
What ever became of human dignity?
non sequitur.
0 Replies
 
hawkeye10
 
  1  
Reply Wed 30 Jun, 2010 03:19 pm
@Miller,
Quote:
What ever became of human dignity?
think about it from an searchers standpoint....if you have a job and way too many applicants searching through all of them is a lot of work. Yes, you might find a perfect person who is currently unemployed, but if you can find what you need from the people who are currently in the habit of getting themselves to work every day why go through all of that and take the chance on a person with no documented recent history?

The days when employers looked to give work to those most in need where over two generations ago, now it is all about the needs of the employer, the convenience of the employer.
0 Replies
 
Miller
 
  1  
Reply Wed 30 Jun, 2010 03:20 pm
Too many 40+ year old men and women, who now have lost their homes and have moved back to live with their 80-90 year old parents. Basically, these folks are living off their parents pensions and social security.
dyslexia
 
  1  
Reply Wed 30 Jun, 2010 03:25 pm
@Miller,
and the problem is?
hawkeye10
 
  1  
Reply Wed 30 Jun, 2010 03:25 pm
@Miller,
Quote:
Too many 40+ year old men and women,
Stealth age discrimination is certainly going on.....
0 Replies
 
Miller
 
  1  
Reply Wed 30 Jun, 2010 03:35 pm
@dyslexia,
dyslexia wrote:

and the problem is?


One problem is these unemployed folks are very fussy about the jobs they'll take. Look at the people who delivery your newspaper in the morning. Few speak English, and yet they get up at 3 am and hustle out the door to deliver their papers from 4-8 am. They make money, not a lot...but at least they're working.

There are jobs out there, as is evidenced by the growing number of illegals who'll do virtually anything to avoid starving.

You've got to hustle to make it in this world.
hawkeye10
 
  1  
Reply Wed 30 Jun, 2010 03:46 pm
@Miller,
Quote:
One problem is these unemployed folks are very fussy about the jobs they'll take
there are a lot of people working jobs that pay 30-50% less than their last job, so not everyone is in this trap....but the magnitude of the drop in fortunes is the problem, not the willingness to accept that things have changed at all. The huge rapid collapse in wage potential is too much for many to accept, kinda like the person who wants to sell a house that three years ago would have sold for $280,000, but the only offers come in at $175.000. The mind cant make the jump, these people cant bring themselves to pull the trigger and accept the deal.

Employers could hire unemployed who expected a much better deal but could not find it, the problem is that these people will always have an underlying bitterness about what has happened to them. They do not make ideal employees.
Atredivum
 
  1  
Reply Sun 11 Jul, 2010 10:19 am
@Miller,
Is there not some sort of ethical issue here when the common man has to "hustle in this world just to make it", and on the other side of the city sits the privileged individual, not really hustling for anything, and has everything. That is the first moral dilemma that arises when job loss elevates....comments that "justify" why it's OK for one person to struggle to survive and another person to enjoy any luxury, even if these two people have identical intelligence and workplace capabilities
Miller
 
  1  
Reply Sun 11 Jul, 2010 11:51 am
@Atredivum,
Atredivum wrote:

...on the other side of the city sits the privileged individual, not really hustling for anything, and has everything.


Someone had to hustle at some point in time, to get that old bustle! Razz
0 Replies
 
Miller
 
  1  
Reply Sun 11 Jul, 2010 11:55 am
@hawkeye10,
hawkeye10 wrote:

Quote:
One problem is these unemployed folks are very fussy about the jobs they'll take
there are a lot of people working jobs that pay 30-50% less than their last job, so not everyone is in this trap....but the magnitude of the drop in fortunes is the problem, not the willingness to accept that things have changed at all. The huge rapid collapse in wage potential is too much for many to accept, kinda like the person who wants to sell a house that three years ago would have sold for $280,000, but the only offers come in at $175.000. The mind cant make the jump, these people cant bring themselves to pull the trigger and accept the deal.

Employers could hire unemployed who expected a much better deal but could not find it, the problem is that these people will always have an underlying bitterness about what has happened to them. They do not make ideal employees.


Think of all the Iranians who left Iran to become American citizens. Many were well educated MDs, who couldn't practice medicine in the US. So what did they do? They didn't go on unemployment. They didn't sit at home and suck their thumbs or wet their pants. They went out and began a new profession, often times starting at the bottom of the ladder and working their way up. Same is true of many, many Asian immigrants to the US. These guys take the jobs available, save their money and work up the social/ economic ladder.

As far as I know,tears will never build a bank account.
hawkeye10
 
  1  
Reply Sun 11 Jul, 2010 01:53 pm
@Miller,
Quote:
Same is true of many, many Asian immigrants to the US. These guys take the jobs available, save their money and work up the social/ economic ladder.
You are comparing apples and oranges....these immigrants who sucked it up and remade themselves started with faith that America offered reward for success, and they had faith that since they made themselves once they could do it again. Americans now for the most part lack this faith, both in themselves and in the economic system. Too many people to know too many people who got eliminated from one profession, sucked it up and drove on to another profession (usually at a lot less money), only to get eliminated again, leaving them broke and broken.
Miller
 
  1  
Reply Tue 13 Jul, 2010 05:24 am
@hawkeye10,
If life in the USA is so terrible, why then do we have at least 10 million illegals living here ( and more arriving each day )? Did they come for a better life?

Don't you think that illegal workers in the stock yards and farms throughout America have had to suck it up to make any money and a better way of life for themselves and their families? Do you know what rotting blood ( stock yards) smells like when the temp is 100 degrees with 70% humidity. Would you like to be standing in fermenting bloody waste ( in the Yards ) in the Summer, trying to earn a dollar?

People who endure this kind of torture have guts and goals for themselves and their families.

They hustle and they suck it up. They know there is no other noncriminal way.

In this life you get nowhere ( unless you're very rich ) without effort.

To me, haweye, you sound like an individual who's never lived the life of the real unfortunate in America.
Atredivum
 
  1  
Reply Tue 13 Jul, 2010 05:53 am
@Miller,
Just because people are flocking here from a different country does not automatically make the United States great, it just means the other country is in even worse shape.
I'll agree with you Miller that those who will do anything to strive for a better life for themselves and their families are admirable...however the disappointing end result of this is that many of these still go through life having nothing.
Then the underlying real problem is that though these hard workers display hard work ethic and good character, money still defines what they are able to do, and there's the top 2% that own the ungodly high amount of wealth.
So really I'm with you most of the way other than the implication that the U.S is so terrific
0 Replies
 
 

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