I 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!