Great western slumps. Canada, USA, EU.
from Merijn Knibbe
Paul Krugman, the main spokesman for flexible monetary policies to combat the GFC, leads us to Pierre Fortin who published a graph on Canadian employment during ‘The Great Canadian slump, 1990-1995’. And it looks soooo familiar…. (graph 1). According to Fortin, the dismal 1990-1995 developments in Canada were caused by structural Canadian monetary rigidities. More flexible monetary policies in the USA led to a much less severe crisis and much faster recovery in the USA. Once that crisis was overcome, these flexible monetary policies of course also led to the run up of the dotcom crisis and even the housing crisis as well as undue mega subsidies to the banks and (in my view) an army and war bubble and a tax cut bubble…. But for now, it however does not seem as if the present crisis has been overcome – and the sheer length of the Canadian crisis (it took over a decade before the number of jobs was back to its 1990 level…) is a clear warning. And not just a warning to the USA. Today, coincidentally, Eurostat published new data on EU employment. There are very large structural, cyclical and cultural differences between European countries. But average EU employment is not yet improving (graph 2). European monetary policy clearly has to loosen – for instance by breaking up the Euro.
Graph 1. Employment in Canada and the USA, 1990-1995 and in the USA, 2008-2011
Sources: Bureau of Labor Statistics (BLS); Fortin (1996)
Graph 2. Employment in the EU and the USA, 2008-I till 2011-I (EU: rescaled -3%!)
and the USA, 2008-I till 2011-I
Sources: Eurostat, BLS
Technical notes: European employment has been decreased with 3% to enhance the comparison (don’t mutter about this: I also could have made indices with 2008-I = 100). Employment in the EU is not seasonally adjusted, the EU 2011-I is a guesstimate based upon countries for which data is available (which excludes Italy, France and Germany…).
Pierre Fortin, ‘The great Canadian slump’ in: The Canadian journal of economics 29-4 (1996) pp. 761-787
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Real-World Economics Review Blog 
The fundamental underlying problem is that all new money comes into existence as a debt to somebody. So, letting ever more money enter onto balance sheets ensures a crises down the road somewhere when the debt mountain gets high enough.
Left wingers want to loosen monetary policy (increase the debt mountain and push the problem a little further down the road.)
Right wingers want to tighten up now and let poor people bear the brunt of the pain.
The system itself is at fault and needs to be changed in order to deal with the recurring boom-bust phenomenon once and for all.
In order for that to happen, people at large have to understand how they are being manipulated to accept the status-quo.
A brilliant, pithy expression of the key cause of booms and busts, Helge
The recurring boom bust cycle is dependent on the money and land markets, both of which are dysfunctional. Loose money always feeds into land values because land is the one factor which cannot respond to price signals by increasing supply. Collect the rent for public benefit – it’s the only solution.