That's what John Taylor says this recovery is. I think he's probably right. What do you think?
This blog post majorly depressed me before going to bed last night, but the conclusion is hard to avoid. I think there are a couple things that are fooling people about how truly awful this all is:
1. First, the amplitude of the Great Depression was admittedly bigger than what we've got now. That's bad, of course, but they gained back ground quickly then whereas we're growing at rates that are modeslty more sluggish than historical trend. That's a recipe for long-term stagnation, even compared to the Great Depression (which was nothing if not a "long term" phenomenon) if things continue like this.
2. We're only a little less than four years into it. First the fact that I can say "only" in that first sentence should be a little scary. This should be over and done with by now. But the point remains again that we have the Great Depression as our benchmark. This still feels like a "short" crisis because we haven't seen our own future yet.
3. The post-war zero lower bound crisis and banking crises - Japan, etc. - do not bode well at all.
The amplitude point will always make ranking these tough, but the idea that this downturn is somehow the kid brother of the Great Depression is probably going to be tossed out the window eventually.
Saturday, August 4, 2012
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Indeed, Daniel Kuehn, it is depressing news not only for the United States, but for the world at large. China's facing a possible slow-down, the European Union still has currency problems, and all at the same time, the rise of the emerging markets means that the world economy's sustainability (when it comes to growth) is in question.
ReplyDeleteBut out of curiosity, do you agree with Dr. Michael Emmett Brady that this is a severe recession, like that of "1973-1975", or "1981-1983"? See the comments section for his evaluation, which he still stands by as of early 2012 and to the present (as far as I know).
http://www.amazon.com/review/R2V8KTVCHEUPXQ
Or is the situation far worse than those severe recessions?
I think the diagnosis he gives about debt loads and fragility is right, but I think this is much worse than those other downturns.
Delete73-75 was a supply shock in 73. 81-83 was engineered by the Fed much like 20-21 (although that time they knew what they were getting into unlike 20-21 where arguably they were caught a little off guard by the severity of it all).
This is nothing like that and there is no bounce-back the way there was back then. That's Taylor's whole point, really.
So you would say in this instance that Dr. Michael Emmett Brady is completely wrong regarding the recovery? What about in terms of the level of unemployment? At least the level of unemployment hasn't reached Great Depression levels...for now.
DeleteI'll take this recovery over the recovery from the Panic of 1837 any day.
ReplyDeleteThis is the recovery the Fed wants though, one from which there is no possibility of another boom or bust. Japan looks to them to be a success. Even as they doubt their ability to create more growth, they have no doubt at all they can prevent any decline. They should have more confidence in the former and less in the latter, but when they fail at the latter they will just conclude it was out of their power.
ReplyDeleteWe had a more rapid recovery during the Great Depression, **once we went off of the gold standard**. We are not on a gold standard now, so we cannot go off of it. {sardonic grin}
ReplyDeleteI suspect that a more pertinent benchmark for our Not So Great Depression may not be the Great Depression, but the Long Depression of the 19th century. Japan had its Lost Decade. I think that it is going to take us longer, as long as we have a plutocracy.
You're referring the the 1870s depression? Are you aware that some (Friedman and many Austrians) argue it never happened?
DeleteMy own instinct was to bring up the 1890s.
It wasn't the Fed that abandoned the gold standard though, it was FDR. The willingness to take monetary policy in his own hand made the difference. Obama and the Democrats appear to be too much of consensus players to take that risk.
DeleteYes, I am aware that not everyone characterizes the Long Depression (which, before the Great Depression, was also called the Great Depression) as a depression. But what about now? The Great Recession ended in '09. Yet who thinks that we are not in an economic malaise? Still, how many call it a depression? How many will call it a depression many years from now?
ReplyDeleteOur current situation is characterized by a lack of money in circulation. But there is money out there. Banks and firms are holding on to it. During the Long Depression there was a lack of money because the US had gone off of silver. That is why William Jennings Bryan, among others, was calling for the free coinage of silver as late as 1896. Prosperity returned with gold discoveries entering the world economy.
In the US (and many other parts of the world) reserve requirements were very high, the problems that occurred several times in the 19th century were more to do with that than the price or supply of gold.
DeleteThe interesting question is why reserve requirements were set so high.
Do you have references for the high reserve requirements in the US during the Long Depression? Thanks. :)
DeleteSee this Federal Reserve Bulletin starting on page.4 the section "The National Bank Era".
Deletewww.federalreserve.gov/monetarypolicy/0693lead.pdf
As you may expect the Federal Reserve are keen to talk up the need for a lender-of-last-resort. But, they are quite right that reserve requirements are a poor way to ensure the stability of banks. (I'm not sure that's what the architects of the National Banking system were actually trying to do though.)
Anyway, where there was free banking reserves were generally much lower.
Sorry, this is all I found that seemed pertinent to the Long Depression.
Delete"reserve requirements against national bank notes were lifted in 1873"
Which seems to go against what you said.
But they retained reserve requirements on deposits. Also, notes had to be backed by state bonds, they couldn't be backed by any asset. Practically speaking only national banks could issue them because there was a tax on other banks issuing them.
DeleteSorry, I do not see a convincing case that the Long Depression was the result of reserve requirements.
DeleteHowever, I mostly don't find Taylor very trustworthy during this entire crisis with his prophecies of "galloping inflation" and his worries over the fed balance sheet which is a red herring.
ReplyDeleteNow he's even less credible as he's saying it's the worst every to implicate Obama-he's now on the Romney team.
I hope your pessimistck take is wrong though I understand it's not wholly implausible.