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The Third Depression - Krugman

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JohnWxy Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 03:47 PM
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The Third Depression - Krugman
http://www.nytimes.com/2010/06/28/opinion/28krugman.htm...

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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, todays 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 wasnt the end of the third depression, just as the business upturn that began in 1933 wasnt 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 havent 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 isnt 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 wont authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

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slay Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 04:10 PM
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1. K&R
Krugman's is an opinion well worth taking into account. He has often been right in the past and what he says here makes sense.
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ixion Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Jun-30-10 04:21 PM
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2. Krugman has been giving them the benefit of the doubt up until now...
I'm glad to see he's finally come to his senses.
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