Monday, June 28, 2010

Paul Krugman: We are in the early stages of a major depression

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.
Read the rest here.


123 said...

That's right, public deficit spending in the near term with strong action in the mid- and long-terms to rein in deficit and debt as the private sector picks up.

Of course, it would have been better if our government wasn't already so indebted, but rainy days come unplanned for - but they always come.

DNY said...

Krugman's fears may be justified, but his prescription will guarantee that they are realized.

Japan's "lost decade" confirms the assessment of retrospective critics of the New Deal, that government attempts to substitute for private investment succeed--in substituting for private investment, which they discourage--but not in producing actual economic growth.

Visibilium said...

Zero probability of a double-dip recession, let alone a depression.

DNY, right on. Public spending crowds out private spending. Japan also showed us what was wrong with asset price rigidities.

Let's face it. Isn't public stimulus all about propping up the prices of misallocated assets, including labor?

The Anti-Gnostic said...

Krugman is hedging his bets. He got his head handed to him on the housing bubble and he knows it. So here we are with Obama spending even more than Krugman prescribed and it's still not working. Creating horrible distortions in fact, with banks loaning their reserves to failing governments instead of the private sector. Krugman's way out is to say they just didn't spend enough or not in the right ways.