According to Paul Krugman’s Op-Ed the world may well be moving into a Third Depression rather than out of the Great Recession. Here in Massachusetts, a prime mover in creating that Third Depression is our own Senator Scott Brown, by failing to vote in favor of extending unemployment and failing to extend medicaid stimulus funds – the so called “FMAP”- and thereby throwing 10,000 Massachusetts residents a week off a financial cliff.
As Krugman says
We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost – to the world economy and, above all, to the millions of lives blighted by the absence of jobs – will nonetheless be immense.
And this third depression will be primarily a failure of policy. Around the world – most recently at last weekend’s deeply discouraging G-20 meeting – governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
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, today’s 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 wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t 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.
Essentially, by rendering the long-term unemployed destitute, the building trades will remain in a depression in this country. Today the head of the Massachusetts Building Trades Union stated that of his 75,000 members, 25,000 are unemployed. I was there to hear this in front of the JFK Building at the protest attempting to wake Senator Scott Brown up and have him act like “the people’s senator” rather than a Wall Street Pawn. That is unemployment of 33% in the building trades. I guarentee you, not only will new home sales plunge and the tentative improvement in home prices stall – but a next wave of foreclosures is being created by the failure to extend unemployment compensation.
If 10,000 Massachusetts residents are losing 100% of their income due to Scott Browns filibuster – maybe he feels he is so popular he can flush 10,000 votes a week down the toilet. I cannot imagine those folks voting for Brown – no one can be THAT stupid as to follow a pied piper off a cliff.
But Krugman says it well:
In the face of this grim picture, you might have expected policy makers to realize that they haven’t 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 isn’t 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 won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.
Who knew that Hoover would be the channeled guru of 2010’s fiscal policy? Not like he had great success in 1929.
Personally, I truly hope Krugman is wrong when he says (bold is mine):
It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.
So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.
And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.