The world, in the third depression
Paul Krugman The New York Times
NEW YORK .- The common recessions, the depressions are rare. For all I know, there were only two periods of economic history were described as widespread adoption "Depression" 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 nineteenth century and the Great Depression of the twentieth century were times of relentless decline. By contrast, both included periods when the economy grew. But those episodes of improvement never enough to repair the damage caused by the first fall, and were followed by relapses.
I fear that we are now in the early stages of a third depression. Probably more similar to the Long Depression that the much more serious Gran Depression.
But the cost to the global economy and, especially, for the millions of lives ravaged by the lack of jobs is enormous. And this third depression is primarily a policy mistake.
Worldwide, most recently in the very daunting G-20 summit in Toronto, governments are obsessed with inflation when the real threat is deflation, and preach the need to tighten their belts when the real problem is inappropriate spending.
In 2008 and 2009, it seemed that perhaps we had learned the lessons that history had given us.
Unlike their predecessors, which increased rates of interest in a financial crisis, the current leaders of the Federal Reserve and European Central Bank (ECB) lowered their rates and acted to support credit markets.
Unlike past governments that sought to balance their budgets when they were faced with a faltering economy, the government today allowed the deficit to rise. And best politicians that the world managed to avoid total collapse, it could be argued that the recession caused by the financial crisis ended last summer. Unemployment
catastrophic
But future historians will say that this was not the end of the third depression, such as the rise business that began in 1933 was not the end of the Great Depression.
After all, unemployment, in particular the long-term unemployment remains at levels that would have been considered catastrophic short time ago, and there is no indication that it will recover any time soon. And both the U.S. and Europe are moving towards traps Japan-style deflation.
Given this bleak picture, one would expect that politicians will realize that they had not done enough to promote recovery. But no: in recent months, there was a remarkable revival of the orthodoxy of hard money and balancing the budget. In
I referred to the rhetoric, the revival of the old religion is most obvious in Europe, where officials seem to draw their full sentences from speeches of Herbert Hoover, including the claim that raising taxes and reducing spending measures that truly are extended strengthen the economy and business confidence.
However, at a practical level, the United States does not make things better. The Fed seems aware of the deflationary risks, but what he proposes to do about these risks is, well, nothing.
Barack Obama administration understood the dangers of premature fiscal austerity? But as Republicans and conservative Democrats Congress did not authorize the additional aid to state governments, that austerity there anyway, in the form of state budget cuts.
Why this policy is wrong? To justify his stance, regularly invoke the most intransigent problems faced marginal Greece and other European nations.
It is true that investors have attacked the government with intractable deficits. But there is no evidence that short-term fiscal austerity, to a depressed economy, serve to reassure investors.
the contrary, Greece has agreed to strict austerity plan, only to find that country risk continues to grow, Ireland has imposed savage cuts to government spending, only to have the markets considered more risky than Spain.
The triumph of orthodoxy
It's almost as if the financial markets understand what the politicians do not seem to understand, that although the long-term fiscal responsibility is important, to slash spending in a depression, deepening it and giving way to deflation , is a truly self-destructive attitude.
So I do not think any of this is justified with Greece, or that is a realistic assessment of the compensation of the relationship between the deficit and employment.
is, however, the triumph of an orthodoxy that has little to do with rational analysis and whose fundamental premise is that to impose suffering on others is the way to demonstrate leadership in difficult times.
And who will pay the price for this triumph of orthodoxy? The answer is tens of millions of unemployed workers, many of whom remain unemployed for years, and some of them never return to work.
Paul Krugman The New York Times
NEW YORK .- The common recessions, the depressions are rare. For all I know, there were only two periods of economic history were described as widespread adoption "Depression" 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 nineteenth century and the Great Depression of the twentieth century were times of relentless decline. By contrast, both included periods when the economy grew. But those episodes of improvement never enough to repair the damage caused by the first fall, and were followed by relapses.
I fear that we are now in the early stages of a third depression. Probably more similar to the Long Depression that the much more serious Gran Depression.
But the cost to the global economy and, especially, for the millions of lives ravaged by the lack of jobs is enormous. And this third depression is primarily a policy mistake.
Worldwide, most recently in the very daunting G-20 summit in Toronto, governments are obsessed with inflation when the real threat is deflation, and preach the need to tighten their belts when the real problem is inappropriate spending.
In 2008 and 2009, it seemed that perhaps we had learned the lessons that history had given us.
Unlike their predecessors, which increased rates of interest in a financial crisis, the current leaders of the Federal Reserve and European Central Bank (ECB) lowered their rates and acted to support credit markets.
Unlike past governments that sought to balance their budgets when they were faced with a faltering economy, the government today allowed the deficit to rise. And best politicians that the world managed to avoid total collapse, it could be argued that the recession caused by the financial crisis ended last summer. Unemployment
catastrophic
But future historians will say that this was not the end of the third depression, such as the rise business that began in 1933 was not the end of the Great Depression.
After all, unemployment, in particular the long-term unemployment remains at levels that would have been considered catastrophic short time ago, and there is no indication that it will recover any time soon. And both the U.S. and Europe are moving towards traps Japan-style deflation.
Given this bleak picture, one would expect that politicians will realize that they had not done enough to promote recovery. But no: in recent months, there was a remarkable revival of the orthodoxy of hard money and balancing the budget. In
I referred to the rhetoric, the revival of the old religion is most obvious in Europe, where officials seem to draw their full sentences from speeches of Herbert Hoover, including the claim that raising taxes and reducing spending measures that truly are extended strengthen the economy and business confidence.
However, at a practical level, the United States does not make things better. The Fed seems aware of the deflationary risks, but what he proposes to do about these risks is, well, nothing.
Barack Obama administration understood the dangers of premature fiscal austerity? But as Republicans and conservative Democrats Congress did not authorize the additional aid to state governments, that austerity there anyway, in the form of state budget cuts.
Why this policy is wrong? To justify his stance, regularly invoke the most intransigent problems faced marginal Greece and other European nations.
It is true that investors have attacked the government with intractable deficits. But there is no evidence that short-term fiscal austerity, to a depressed economy, serve to reassure investors.
the contrary, Greece has agreed to strict austerity plan, only to find that country risk continues to grow, Ireland has imposed savage cuts to government spending, only to have the markets considered more risky than Spain.
The triumph of orthodoxy
It's almost as if the financial markets understand what the politicians do not seem to understand, that although the long-term fiscal responsibility is important, to slash spending in a depression, deepening it and giving way to deflation , is a truly self-destructive attitude.
So I do not think any of this is justified with Greece, or that is a realistic assessment of the compensation of the relationship between the deficit and employment.
is, however, the triumph of an orthodoxy that has little to do with rational analysis and whose fundamental premise is that to impose suffering on others is the way to demonstrate leadership in difficult times.
And who will pay the price for this triumph of orthodoxy? The answer is tens of millions of unemployed workers, many of whom remain unemployed for years, and some of them never return to work.
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