Is this the Second Great Depression?

from David Ruccio

Readers know that I have come to refer to the current crises of capitalism as the Second Great Depression.

Apparently, at least one person agrees with me. And, after reading Dean Baker’s latest, she sent me the following question (which she also posted as a comment on Baker’s post):

Professor – I am NOT an economist but WHY would Dean Baker deny that we ARE in a GREAT DEPRESSION – how rich is he?  Yes, I am so livid at this dribble, his fairytale, I did post a comment. Regards,

Let me attempt a brief answer (brief only because, as a professor, I have lots of grading to catch up on). . .

In all honesty, I don’t know why Dean Baker writes that we’re not in a great depression (although it seems, at least from the post you’re referring to, he wants to argue it’s a myth the Obama administration saved us from falling into something akin to the depression of the 1930s). Of course, he could have made the opposite argument: the Obama administration’s policies failed precisely because we’re in the Second Great Depression. And while I can’t pretend to understand why Baker wants to debunk what he considers to the myth of the Second Great Depression, I’m not inclined to think about it in terms of how much money he makes. In any case, hopefully he will answer your question on the RWER blog.

All I can really explain is why I have come to refer to our current situation as the Second Great Depression. First, I really could be referring to the Third Great Depression, following on the Panic of 1873 (which, if memory serves me, was referred to as the Great Depression until the Great Depression of the 1930s). But, since the name has stuck for the crises of the 1930s, I decided to name our current situation the Second Great Depression. Second, the name I’ve adopted does not mean that the current situation represents an exact parallel to the First Great Depression. On this, Simon Johnson is right: the 1930s were characterized by a drop in output (by over 25 percent in real terms in the United States), a level of unemployment (over 20 percent), and a banking crisis (based on panics that provoked depositors to withdraw their funds from many commercial banks) that we have not witnessed in the aftermath of the crash of 2007-08.

But that doesn’t mean we’re not in another Great Depression, either. As you know, I think we are, based on the misery visited on the vast majority of the population since the recession began in 2007. What I’m thinking about are the following: the high level and long duration of unemployment (and the length of time over which both have persisted), the extraordinary number of home foreclosures, the difficulty in obtaining adequate medical care, the unprecedented rise in student debt, the growing ranks of poor people (and near-poor people), and so on. So, in my view, while there’s been a recovery for a tiny minority of the population (based on the return to record profits for U.S. corporations, the resurgence of the stock market, and the high salaries and growing wealth of those at the top), the best characterization for the situation in which the working classes find themselves is the Second Great Depression.

Why Dean Baker can’t or doesn’t want to see that is beyond me. Even more: I’m quite willing to credit both the Bush administration (with the passage of the Troubled Asset Relief Program) and the Obama administration (with its bailout of the automobile corporations and stimulus plan) from forestalling a complete meltdown of the U.S. and world economies, which I think was a real possibility in late 2008. But, of course, they could have done much more, to create a recovery for the majority of the population, and they chose not to do so. It’s also apparent that we’re not out of the woods yet, not with the accumulating tensions in the United States, Europe, China and India, and the Middle East. Not by a long shot.

So, in answer to your question, I want to continue to refer to our current situation as the Second Great Depression, for two major reasons: first, to signal that, once again after the Great Depression of the 1930s (and, counting the nineteenth century, at least for the third time in U.S. history), capitalism has caused a massive set of crises that has led to untold misery for vast numbers of poor and working people; and second, because the supposed recovery has been a recovery only for corporations and a tiny minority of the population, while everyone else is forced to listen to politicians and pundits argue that we aren’t now in now were we ever threatened with a Second Great Depression.

Update

At least one mainstream economist appears to agree we’re in a depression:

PLAYBOY: It seems every month various people debate whether we’re in a depression or a recession. Where are we—recession, depression? Or is it something else?

KRUGMAN: The recession officially ended in June 2009 because that was the point when some things—industrial production, GDP, but not employment—started to go up again. But I say we’re still in a depression. I’ve taken to calling what we’re in the Lesser Depression. It’s not as bad as the Great Depression, but it’s like the Great Depression. It’s a prolonged period. We’re now four years into high unemployment and lousy economic prospects for most people. If you’ve lost your job, your chance of getting another is small. The number of people who’ve been unemployed for long periods is at a level we certainly haven’t seen since the 1930s. What we’re experiencing is an economy that probably feels in a lot of ways like the U.S. economy in 1937, when, almost everyone now agrees, policy makers were way too complacent and should have kept on pushing for more employment. It’s lousy.