A picture of history

from Peter Radford

There is no serious effort in Washington to deal with our so-called debt crisis. I would like to think this is because people realize we don’t have one, but a more realistic interpretation on non-events is that the Republicans are stuck in a rut of obstruction. They have no policy other than to contradict whatever Obama says. Even if this means contradicting what they themselves said in the past. At the moment this obstruction produces gridlock on any constructive efforts to get the economy moving at a more rapid pace. It also means avoiding negotiating on the budget, even though both the Senate and the House now have working budget proposals. The problem seems to be that were the Republicans to engage in negotiations they wouldn’t be able to engineer a crisis atmosphere within which they could extort excessively. They want, apparently, to wait until we nudge back up against the debt ceiling at which point they can reload their hostage taking weaponry and cause the nation greater mayhem.

Length of US recessions 1948 to 2011: chart and graph

from David Ruccio

Increasingly long periods of high unemployment have followed the US recessions of the last two decades. From 1945 to the 1980s, employment rebounded roughly six months after GDP did. But in the wake of the 1990–91 and 2001 recessions, it recovered 15 and 39 months, respectively, after GDP had returned to the prerecession peak. At recent rates of job creation, the lag this time will be upward of 60 months.  http://www.mckinseyquarterly.com/newsletters/chartfocus/2011_11.htm

The Outlook

from Peter Radford

I read yesterday that Moody’s suggests a new recession has about a 40% chance of occurring in the foreseeable future. I think that’s a bit high. The problem we have at the moment is that our elite is doing everything in its power to diminish growth. Moody’s says that policies will chip about 1.7% off of GDP growth next year. That I agree with.

Nothing in the recent spate of numbers suggests great strength. I cannot detect anything lurking in the weeds capable of jump starting robust growth.

The European Central Bank is repeating an old mistake….

from Merijn Knibbe

On Voxeu, Douglas Irwin argues that the 1937 depression (an 11% contraction of GDP…) was caused by monetary tightening in a still depressed economy:

“If we are to avoid the mistakes of the past, it is important to have an accurate assessment of what those past mistakes were. The severity of the Recession of 1937-38 was not due to contractionary fiscal policy or higher reserve requirements. By contrast, the policy tightening associated with gold sterilisation was not modest – it did not simply reduce the growth of the monetary base by a few percentage points, it stopped its growth altogether. While the Federal Reserve is often blamed for its poor policy choices during the Great Depression, the Treasury Department was responsible for this particular policy error.

The recession of 1937-38 occurred long ago, but it does have policy lessons for today. It suggests that, in a weak recovery, a pre-emptive monetary strike against inflation (which was very low at the time, as it is today) is capable of producing a devastating recession.

Alas, the ECB is repeating this exact mistake… (see graph below).

Do liberals have to be losers?

from Dean Baker

National political discussion of the economics and budgets over the last two decades have been dominated by the debate over President Clinton’s tax increase and President Bush’s subsequent reversal of this tax hike. If we narrow down the focus to the hike on the richest 2 percent of the population, we are arguing over $50 billion a year, or 0.3 percent of GDP.

Meanwhile, we have seen the continuation of a massive upward redistribution of income that began under President Reagan.

Debate: The US Economy post the 2008 Crash

from Steve Keen

The ABC Radio National program Rear Vision is a current affairs program that presents “contemporary events and people in their historical context”.

I was recently interviewed by Rear Vision for a retrospective on the crisis, entitled “Here we go again: A look at the US economy post the 2008 GFC crash” which debated why the crisis is still with us today.

Other speakers were Ed Harrison from Credit Writedowns, with whom I’m very much in agreement, economic historian Richard Sylla from New York University, and Steve Hanke from John Hopkins with whom I almost completely disagree. 

U.S. and Europe: slow strangulation is much more likely than financial catastrophe

from Mark Weisbrot

The prevailing understanding of economic troubles in the U.S. and Europe, the world’s two largest economies, is misunderstood in a number of ways.  First: Imagine that you are driving a car down a road packed with snow and ice and you are worried about an accident. At the same time you are ignoring the fact that you are about to run out of gasoline, leaving you stranded and freezing in the middle of nowhere.

Such have been the main reactions to last week’s extreme volatility in financial markets: There has been much more fear of financial crisis than the slow strangulation that poses the greater risk.

Headed to recession?

from Peter Radford

Well it didn’t take long for the stock and credit markets to vote on the efficacy of American economic policy. Judging by last week’s massive stock market sell off, coupled with the steady decline of bond rates, the vote is clearly a negative one. The markets are giving us the collective thumbs down. Evidently sentiment is gathering behind the notion that the economy is weak, that we have no leadership, that we have no corrective policy, and that the risk of another recession is rising by the hour. To make matters worse there is an epidemic of economic incompetence worldwide, not least in Europe where the leadership seems determined that we need a re-run of 1937. Because, presumably, the first time through was such a thrill.

Mercantilism Works?

from Jim Stanford

I have gathered some interesting comparative information on the recent economic performance of the G7 economies.  My immediate goal was to try to puncture the national “triumphalism” which Canada’s ruling Conservative government has been (wrongly) wielding in an effort to deflect any criticism around Canada’s still-dismal labour market and macroeconomic circumstances. 

Double-Dip Recessions and the Strange Tale of Final Demand

from Dean Baker

The 2.4 percent GDP growth figure reported for the second quarter caused many economists to once again be surprised about the state of the economy. It seems that most had expected a higher number. Some had expected a much higher number. It is not clear what these economists use to form their expectations about growth, but it doesn’t seem that they have been paying much attention to the economy. For those following the economy, a weak 2nd quarter growth number was hardly a surprise.