Great Depression II? Not Even Close
I'm travelling today to give a talk at the Chicago Federal Reserve Bank branch in Detroit, so might not have a lot of time for new posts, but I have one here at AEI's Enterprise Blog.
In a few years when all of the economic analysis is complete, I think the "Great Recession" of 2008-2009 will be much, much closer in length and severity to the 1973-75 and 1981-82 recessions than anything close to the Great Depression.
11 Comments:
Your post almost implies that fears about the economic health of our country have been overblown.
Was this intended? Do you agree that without the dramatic fiscal and monetary actions (e.g. ZIRP, TARP, ARRA)we saw in 2008 and 2009, we would have seen economic conditions in this country that would have changed your post title from "Great Depression II?" to "Great Depression II!!!"
Apparently you and Vox Day disagree quite a bit, despite comeing from similar schools of thought re: economics.
This post is not even close to reality.
Go read To Big to Fail by Sorkin.
Actually as has been pointed in several comments the current episode more nearly tracks the panic of 1907. Short and steep and caused by a failure of speculation (in the current case housing) (in 1907 an attempt to corner the copper mining business). The bust in the one area lead to runs on a couple of banks and/or in the current case money market funds, leading to a financial panic. See the book on 1907 for more details. Note that there were a number of crooks involved in 1907 as in the current episode.
Maybe there's some new tools on the way to predict crashes, panics, etc...
From Technology Review: Forecasting Financial Crashes: The Ultimate Experiment Begins
Financial Crisis Observatory
Was this intended? Do you agree that without the dramatic fiscal and monetary actions
This is one of my biggest gripes with Mark and a lot of respected Conservative economists. They are all monetarists. They all understand the need for monetary stimulus. John Taylor of the Taylor Rule is as conservative as they come and has been one of the biggest critics of Obama's stimulus bill. But his Taylor Rule currently says we need to have -4% interest rates.
Anyway, my point is you never hear Mark Perry and John Taylor say "Fiscal stimulus is stupid. Stick to monetary stimulus."
At least, that's a legitimate argument that we can have. I would tell them we are in a liquidity trap, but that is not even the point. Mark never defends monetary stimulus. And I think its mostly for political reasons...
I don't buy that the world would have ended without TARP or the other programs. A GM or Chrylser bankruptcy was supposed to be the end of the world and went over with a whimper when it happened.
Citibank and AIG should have been allowed to break up and their very valuable assets sold off. Instead they're on a slow deterioration.
Counterparties like Goldman and many European banks would have taken huge hits, but they haven't borne enough of the losses they should have. B of A got out of subprime mortgages in 2003. They're in trouble now because of Merrill, which they wouldn't have bought without government support/prodding.
JPMorgan/Chase picked up Wamu clear of liabilities and look how they're doing compared to a year ago.
Fundamentally, Q4 GDP was down last year, but was higher than Q4 of 2007. Even with lots of panic, you weren't going to see 10% down.
Would things have been worse? Probably. But still nowhere near depression levels. And many assets would have been snapped up at bargain prices. Warren Buffett was thought to be a fool with his moves last year, but looks who's laughing now.
"John Taylor of the Taylor Rule is as conservative as they come and has been one of the biggest critics of Obama's stimulus bill"...
I think the answer to that is easy...
Taylor knows that the Manchurian Cretin is a communist...:-)
John Taylor interview
The author is forgetting that unemployment rates are not calculated in the same way as they were in the 1930s.
Unemployment is closer to 25% than the government would like people to believe.
In any case I wouldn't be counting any chickens just yet. The coming depression has hardly got started yet.
"The author is forgetting that unemployment rates are not calculated in the same way as they were in the 1930s."
Is there something about 1930s calculations that should lead you to conclude that we should always use them, without variation? After all, back in the 1930s, this nation had 10x the number of farm workers than now. Not to mention, women by-and-large were not in the work force, African-Americans were barely classified, Mexican farm labor was in the shadows.
I think that you are deluded. It seems clear the official statistics do not adequately reflect what is happening in the real economy and have been doctored for political purposes by a succession of administrations in order to make things look better than they actually are. If we look at the employment data in the same way as it was used before the Bush/Clinton administrations changed various definitions we see that the unemployment rate is a lot closer to 20% than the reported 10%. We also see GDP figures overstated at a time when the banking system, real estate companies, and the households are loaded up with debts that exceed the market value of their assets. We also see a massive growth of government that will add to the burden of the productive classes and will make it a lot harder to build wealth for the average citizen. The currency is in big trouble and seems to be heading for a major collapse over the next few years. Regulations will increase the burden on companies and individuals and the barriers to capital accumulation make it easier to deploy capital in other countries.
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