Welcome to the Greater Depression!

Soup LineI have this constant feeling that the world has gone crazy. Conservatives especially but by no means exclusively continue to be worried about inflation. But if you look at the ratio of employed people to total people here in the United States, you will see that it cratered in 2008 and has hardly come up at all over the past six years. It is still four percentage points below where it was at the start of 2008. Being worried about inflation in such an environment is like being worried about fashion in the middle of a war zone.

This morning, Brad DeLong posted an article, When Do We Start Calling This “The Greater Depression”? He goes over the history of what we’ve call this, from the “financial crisis” in 2007 to the “great recession” in 2009 to the “lesser depression” in 2011. Hence his question.

He presented some shocking information. In 2009, the GDP level was 11% below the trend indicated by the period from 2005-2007. Today, it is 16% below that same trend. So we are continuing to slip. The economy is growing, of course—just not as fast as it was when the economy was doing just okay. And note: this is not because Obama has been such a bad president. I am against many of his policy preferences. But it has been the Republicans who have been entirely against anything that would help the economy, and have actively pursued policies that have hurt the economy.

The situation is even worse in Europe. According to DeLong, although Europe was only 8% below its 1995-2007 GDP trend in 2009, it is 15% lower today. This is due to the mania for austerity there. Their initial downturn was not as bad and would not have been as bad. The second bounce down in GDP is entirely due to bad policy there. But no one in Europe with any real power seems to be willing to admit the problem. And conservatives here are extremely eager to join the “Let’s destroy our economy!” bandwagon.

And it is all about inflation. While it’s true that millions of people are out of work, none of the people who make policy are out of work. In fact, they are doing extremely well. They are part of the one percent. They own things. And they have to balance the interests of the millions whose lives have been destroyed by the terrible economy against the thought that inflation might in a few years actually go up slightly over our ridiculously low 2% inflation target. And we see whose interests are considered important.

Welcome to the Greater Depression!

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

4 thoughts on “Welcome to the Greater Depression!

  1. Hmmph … I read de Long’s post earlier today. It didn’t make me happy. It made me want to run around and scream and rant. Not that I did, of course. I’ll just take out my annoyance on you …

    Well not really. But a thought struck me while reading de Long, which is that liberal economists trying to steer the economy have a problem they sort of recognize but consistently fail to deal with, which is that most people — conservative AND liberal — really hate inflation, and they will do all sorts of damage to society in their attempts to keep prices from rising. It’s like swatting at hornets after you stumble into a nest; you know it isn’t helping intellectually but your reflexes just won’t let you stand still and wait for the nasty insects to stop stinging. Economists, on the other hand, are really fond of moderate inflation — they set it as a nice soothing emollient that lets costs easily adjust upwards and downwards in real terms, while concealing the details from non-economists behind an illlusion of steadily increasing nominal prices and wages.

    Unhappily, the game has gone along long enough that most consumers have come to understand that their five buck per week pay raises really are undone by rising gasoline and food prices, and that the windfall profits from selling their homes one day don’t really counterbalance the higher mortgages they incur with their next house purchases. Even more unhappily, for an awful lot of consumers, the rising costs of the goods they buy have not been truly balanced by their rising incomes for quite some time — like the last 30 to 40 years or so.

    The inflationary medicine the doctors of Keynesian economics have been prescribing just isn’t working any more, and people like de Long haven’t caught on to it. They’re still assuming that if only the evil Austrian quacks would shut up and get out of their way that we’d get a real recovery. But alas, Keynesians were in charge of things for most of the past 40-50 years and the economy got sick anyhow. (Let me add parenthetically that I feel a policy of treating serious ailments largely with placebos is morally obnoxious and ought to be expected to fail on logical grounds. But perhaps this only an echo of my primordial conservative instincts.)

    On balance, my feeling is economists ought to come to terms with conservative objections to inflation and try to gimmick up system some other way. Let prices rise and fall by tiny amounts, for example. I understand the evil inflexibilities of a gold-based system, but this is not 1908 any more, and we don’t carry our wealth in our pockets. We get our wages deposited in bank accounts by transfers of electrons; we buy goods and services with swipes of plastic cards; most of us handle our overdrafts and credit needs with signatures or tapping buttons. Our money lies in computers, not coins — even the destitute among us get our food stamps and welfare payments through EBT and plastic. So we could revert to an inflation-less economy and still have our smoothly varying prices and let interest rates revert to the measures of risk and convenience costs that they once were. And without their exciting daily potion of inflationary panic, conservatives might relax and the hysterics of the financial industry snake oil salesmen might be tranquilized. And perhaps we could get a calmer and more truthful appraisal of the actual American economy and start taking the political actions needed for improvement.

    I’m asking for too much, I know.

    • For year, I’ve said that I look forward to the day when I regularly disagree with Paul Krugman because the fact is that he is a lot more conservative than I am. But in modern America, things are so screwed up that we almost always agree. Having said that, I don’t think the problem is Keynesian economics. It wasn’t Keynesian economics that decided that the banks were over-regulated. It wasn’t Keynesian economics that have consistently moved the tax burden from rich to poor (all while claiming the rich are so abused). It wasn’t Keynesian economics that have rents more and more profitable and increased copyrights to ridiculous lengths. I think Dean Baker has a good narrative on the economy: everything is screwed up because those are our policy choices. I don’t see that the idea of recessions as demand-based is a problem.

      High inflation can be a problem, but it is clear that inflation is just an excuse to enact policies that move money from the poor to the rich. I’m still trying to figure out why it is we need constant growth. I understand if a population is growing. And I understand if people are poor. But why is it necessary to have a constantly bigger economy? And that’s especially true since the mid-1970s when the lower classes haven’t see any of that bigger economy. People ask why Americans don’t use increases in productivity as more time off. Because they don’t get the benefits of those increases in productivity! As it is, most people take Social Security the first year they can rather than waiting and getting more.

      I’ve been reading a lot of David Harvey, so I’m inclined these days to wonder about such things.

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