It’s a depression. You heard it here first.

I’m not being alarmist.  It’s worth noting that before the 1930s “depression” was the standard term for a substantial economic contraction, what would now be called a recession.  The 1930s depression was termed “great” because it was indeed the worst ever, so bad that it became a proper noun, the Great Depression.  Some are calling today’s slump the Great Recession, which is a waste of keystrokes.

I remember my father calling the 1982 recession a depression, and I think he was right:  the worst slump since World War II, 10% unemployment (peaking at 10.8%), including the permanent loss of millions of industrial jobs.

Now consider the evidence for the current one:

Fifteen straight months of recession and job loss, and no end in sight.

8.9% unemployment (if you ignore the seasonal adjustment, which to me seems proper), and a U-6 unemployment rate (including discouraged job-seekers and involuntary part-timers) of 16%.  Even the official, seasonally adjusted rate of 8.1% is the worst since 1983.

Eight million foreclosures expected in the next few years.

Zombie financial institutions continuing to eat taxpayer money and policymaker brains.

Two of the same people who got us into this mess in charge of the National Economic Council and the Treasury Department.

And in Japan, a 13% annualized drop in GDP in the most recent quarter.

How much worse does it have to get before someone else applies the d-word?

UPDATE, 9 March 2009:  Looks like I’m not alone — 30% of Americans say we’re in a depression, according to a Pew Research poll from February.   (Even in July 2008, eighteen percent said we were in a depression.)

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11 Responses to “It’s a depression. You heard it here first.”

  1. democommie Says:

    Ranjit:

    I’m calling GDII, as of yesterday.

    Listening to the braindead dipshits that were perfectly happy with the situation under Bushco saying it’s Obama’s fault makes me want to give them a little stimulus.

    Are you thinking, as I am, that the GOP will wait until about July of this year to trot out the “failed Dem policies theme”?

  2. Richard A Says:

    The GOP won’t wait that long; they are already saying it. That’s why it’s wise of Carville and Rahm, et. al., to tie the Republican Party to Rush Limbaugh and his pre-Inauguration statement that he hopes Obama fails.

    By not allowing a single GOP vote on the stimulus, by attacking the budget as socialist, the Republicans are demonstrating that they would rather see the Democrat President fail than to work with him to help this country. While Obama has done everything possible to include the opposition in coming up with solutions, the GOP is preferring to stand back and say “no” repeatedly.

    The GOP’s “solution” to the economic mess is not fundamentally different than their approach between 1929 and 1932 under the Hoover Administration: let the private sector work it out, avoid strong government oversight, and if banks fail and people starve, so be it: it’s their fault they were in that situation to begin with. And the Republicans did everything they could to block Roosevelt’s proposals once he took office.

    Sound familiar? It’s 1933 all over again.

  3. democommie Says:

    Richard:

    But at least this time we don’t have a bunch of sociopathic demagogues trying to take advantage of the situation to incite the downtrodden masses of some foreign country to war…oh, wait, never mind.

  4. Ranjit Says:

    Richard,

    I think you nailed it as regards the Republicans’ tactics. But I am very, very concerned that the Obama Administration does not seem to have a better or bolder alternative to continuing the lavish Bernanke-Paulson bailouts. If they want $2 trillion more to bail out the CDS holders and to overpay for the banks’ toxic assets, I’m actually not going to fault the Republicans for saying no.

    At some point, the administration is going to have to start saying no to some of the creditors of AIG and the big banks, and to the banks themselves. Thorough audits, as opposed to rigged stress tests, would be a great start. Closing the big problem banks will probably require international coordination, but I think Obama can obtain it. I simply cannot believe the only feasible options are all-out bankruptcy or bottomless bailouts.

  5. democommie Says:

    Ranjit:

    I think that the republicans are so used to getting their way without having to do anything more than threaten a dem minority with exclusion that they don’t know how to actually, y’know, negotiate. You’re right that Obama should stop bailing out the morons that have no intention of changing anything that they aren’t forced to change. At the same time I would love to see Obama simply tell the citizens of this country the truth about what’s going on in congress. Enough of this “my esteemed colleague” bullshit. Fuck the GOP, they have decided to be obstructionists in fact or in abetting the policies of the idiots who made this mess.

    I think indictments of a few of the bankers and WS guys (Paulson would be on the list) would go a long way towards sobering them up.

    In other fantasies I am sleeping with the entire cast of the SI Swimsuit Issue.

  6. Richard D. Says:

    @Richard A.

    You wrote: “The GOP’s “solution” to the economic mess is not fundamentally different than their approach between 1929 and 1932 under the Hoover Administration: let the private sector work it out, avoid strong government oversight, and if banks fail and people starve, so be it: it’s their fault they were in that situation to begin with. And the Republicans did everything they could to block Roosevelt’s proposals once he took office.”

    There’s substantial research demonstrating that Hoover did not in fact follow laissez-faire policy prescriptions (as, for example, liquidationists and Austrian economists would have argued for). His major contributions were to

    (1) attempt to artificially keep wage rates high (under the guise that high wages create productivity growth and hence economic progress–kind of putting the cart before the horse here) which is quite likely to have stimulated vast unemployment (there is research discussing that real wages actually rose during the Depression, which doesn’t make sense from an economic standpoint unless something [likely government force] caused business and workers to not reach an equilibrium in the labor markets) , and

    (2) initiate (failed) government programs to prop up falling agricultural prices, thereby tying resources up in agriculture that could have been used elsewhere in the economic system (eventually, these government programs failed and huge surpluses of agricultural products were thrown onto the open market, destroyed the livelihood of farmers and creating a climate of uncertainty specifically targeted to destroy any possibility of increased business investment). This can be partially used to explain the “starvation” that you allude to, though I would also like to point out that a president–or any person–cannot simply decide that the laws of nature are not going to hold during this period, and these laws include both physiological and economic laws.

    In conclusion, to say Hoover was a “relatively laissez faire” president, one would have to compare him to what came after, rather than with what came before. This is absurd. For a modern-day example, say industries begin closing one by one in this country, but the government steps in to nationalize them for fear of a “downward spiral” in the economic system (a classic case of Industry X fallacy–and trying to avoid this form of counterargument by saying that the banking system is somehow more important than other industries is illogical as well), and, say, this occurred after the Obama administration. Then we would say that Obama was a president who supported laissez-faire policies! Clearly this is unreasonable. One has to compare human actions with precise ideological definitions, not historical context!

  7. Ranjit Says:

    Granted, Hoover was quite active in his response to the Depression and rejected the liquidationist advice of his Treasury Secretary, Andrew Mellon. But I think Richard A. was fair in saying that Hoover basically did leave things up to the private sector.

    The no-wage-reductions policy is really a red herring. Business leaders had been championing high-wage policies for years, and the no-reductions pledges that industrialists made at the late 1929 White House conferences were neither coerced nor binding. (Henry Ford said he was even going to increase wages by $1 a day!) Real wages went up in 1929-31 because prices fell while most firms maintained nominal wages. For the next two years, beginning in mid-1931, nominal wages actually fell faster than prices, despite rather severe price deflation, so that real wages fell. By mid-1933 (before FDR’s First Hundred Days were up), real wages were barely higher than in 1929.

    The rise in real wages during the Great Contraction of 1929-33 was historically unexceptional. Even in the contraction of 1920-22, which liquidationists sometimes tout as a model because wages fell rapidly and the economy recovered quickly, the wage deflation was not severe enough to keep up with the torrential price deflation of that episode. Real wages actually rose faster in 1920-22 than in 1929-33.

    The Federal Farm Board is more of a historical footnote. It was, as you note, ineffectual in stemming the farm price deflation. But I don’t think it amplified the already-severe misery of farmers at that time.

  8. Richard D. Says:

    It makes sense that it would be unexceptional for wages generally not to fall dramatically (or at all) during a period of liquidation, since the major source of malinvestment would be the capital stock, not the labor stock. Labor is, after all, more fluid than invested capital, and therefore likely to not fall as dramatically as capital prices (including prices of goods in inventory). However, that is besides the point. Any government policy that tries to keep wages or prices at any point of disequilibrium will be damaging to the economy. Even the threat of action if wages were to fall is enough, since government has coercive power over business.

    The Federal Farm Board tried many policies to buy up surpluses in agricultural markets, which essentially pushed inevitable market collapse into the future. Such practices are not just footnotes; they are especially destructive to the agricultural markets, and they create extensive uncertainty. Since agriculture was still a key component of the economy (it really is still a key component today, since raw materials derive from agriculture–quantitative economists may say something like “agriculture is just 2% of the economy” or whatnot, but shut down that 2% and you’ve shut down civilization) this undoubtedly damaged the production structure a whole heck of a lot.

    Further, it is interesting and important that you point out that businesses themselves thought (and perhaps economic theory of the time concluded) that high wages lead to economic growth. I hope we can agree that this is not exactly true. It is capital accumulation, technological advance, and productivity increases that, among other things, lead to increases in production and therefore real income; and the converse is not true (and could only be true statistically if we mix up our theory). Transfer wealth from profits, rents, and interest to wages, and one has done nothing to actually stimulate the economy. This is important, since big-government advocate Jeffery Madrick argues about a hundred-thousand times in his book _The Case for Big Government_ that we need higher wages in order to stimulate demand and therefore growth–demonstrating that this sort of reasoning is still alive and well.

  9. Just words « Blogging Through the Wreckage Says:

    […] to denote a period of economic weakness, just as 1929-early 1941 was the Great Depression.  I argued in March that we were in a depression, but if “depression” sounds too harsh because people […]

  10. After the binge, the purge « Blogging Through the Wreckage Says:

    […] said before, we’re in a depression.  Still hoping to be proved […]

  11. Yes, it’s a depression (cont’d) « Blogging Through the Wreckage Says:

    […] this isn’t a depression, then economists and the media have redefined depression to mean “something that occurred when Hoover and Roosevelt were president.” […]

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