… or, in an alternative translation of Luigi Pirandello’s classic, “The (coming?) Depression: Right You Are, If You Think You Are.” I’ve often debated with myself which is the more amusing and effective translation of the Italian playwright, but, in whatever version, the play itself came immediately to mind when I read the results of the new Rasmussen poll reporting 53% of Americans see our country headed for a Depression similar to the 1930s.
The US public appears to be preparing itself for a Depression. The question is whether this will be a self-fulfilling prophecy. Obama seems, largely inadvertently, to be encouraging this. I say “largely inadvertently” because I doubt a true Depression would be of great long term interest to him. The longer it lasts, the thinner the “Blame Bush” meme will be, especially now with the likes of David Gergen already threatening to jump ship. Obama, whose best point was seeming to be an inspirational leader, is showing himself weaker in that area than almost anyone expected.
What strikes me now more than ever is how deeply psychological all things economic are. Of course, we have all always known that, and of course there are substantive matters like a world’s worth of unpaid mortgages and weird paper that would turn Bernard Baruch into a pretzel, but still, investors have to have some measure of faith in the economy for business to continue in capitalist society. For the moment, that’s gone. It’s more like “Wrong You Are, If You Think You’re Right.”
Good points on psychology, Roger, but c’mon: north of 53% of the country probably believes in UFOs, a few-thousand-year-old earth and that 9/11 was an inside job. I suspect the poll respondents would define a “depression” as not being able to afford the latest iPhone right away or maybe (in a real horrific stretch) having to put off, say, a car purchase for a year.
Do this majority have the *slightest* idea of what the Great Depression was actually *like*? My 79-year-old mom was a kid then and while chatting with her about some esoteric food point regarding her granddaughters she mentioned that when she was little they were just worried about *getting enough to eat*. (And they were far from poor.) Somehow I don’t think any “Depression of 2009″ is going to quite approximate that.
Economy is psychological to a large extent, but not 100%.
I think Valjean is right about the real Depression versus imaginary depression. However, I am sure his numbers regarding the UFO believers and 9/11 truthers are wrong. In any case, whatever people believe in is more important after work; at work what people do is more important, and a large majority of Americans still go to work every day.
A financial newsletter I get described the current economic situation as:
Interest rates that have dropped to zero.
Bank stocks that have plunged by 90 percent or more.
The Federal Reserve’s balance sheet has exploded.
Credit spreads have widened to historic levels.
Massive asset deflation.
Debt being destroyed in record amounts.
Unemployment increasing each month.
The financial industry is shrinking radically.
Manufacturing activity has slowed sharply.
This situation is dramatically unlike anything Americans have seen since the Great Depression, and most Americans today were either not alive or are not old enough to remember what it was like back then. This is not just a cyclical recession, it is something far different. Does it foretell a depression? Who knows? But it’s sure scary.
I sometimes wonder if he isn’t driving it into a ditch for now, to continue the “crisis” to “not waste.” Then I realize that it’s probably just incompetence in the White House and a long repressed statist binge in the Congress.
“I sometimes wonder if he isn’t driving it into a ditch for now, to continue the “crisis” to “not waste.” Then I realize that it’s probably just incompetence in the White House and a long repressed statist binge in the Congress.”
It’s both, John. BO is an incompetent megalomaniac. Very scary.
People don’t know what they’re talking about. During the great depression banks collapsed and wiped out people’s entire life savings. Now just about every dollar in the system is insured. During the great depression, unemployment hit 25%. Now, unemployment for college-educated people over 25 is only 4.1% – all of the pain is at the lower end of the labor market in construction and retail. During the great depression, the money supply fell by 30% and the price of everything fell while people’s debts remained high. Now, Bernanke is pumping money into the system like there’s no tomorrow and trying to figure out how to lower rates below zero.
What we’re facing will be different from the Depression, undoubtedly because we’ll make completely different mistakes. This time it looks like millions of people will be unemployed by choice – as they’ll have free health care and decent benefits which can’t be matched by the free market – and rising prices due to inflation and multiple layers of taxes on every good and service. Then if the government starts chasing tax revenue, people will work off the books, producing tax-free goods and services to sell to each other in their off hours. That’s one scenario that’s played out elsewhere many times.
Gary,
I guess it’s better to have an incompetent megalomaniac than a competent one.
I am not so sure Congress’ statist binge has been repressed at all. It’s just that the Executive branch is shoveling fuel into the fire even faster.
I think that by setting expectations low enough, come 2012 virtually anything can be sold over an improvement over what might have been. (Jobs created or saved, remember?)
Keep in mind, FDR presided over a miserable economy for a decade and people never lost faith in him. As bad as it was, people assumed that he was making it better. And FDR *was* making it better, not in the sense that he helped America out of the Depression (evidence now is mixed but seems to indicate that he actually made it slightly worse), but in the sense that, for the people in the worst shape, he created a social safety net that gave them a roof over their heads and food for their kids until they could find a job. That’s something I think conservatives forget.
The problem for Obama is that most of the New Deal is still in place, in addition to Great Society. We have a huge safety net already. The only way people will be doing as bad as in the Depression is if the government’s budget falls apart; President Obama’s stimulus makes that more likely.
A cyclical downturn will in time right itself. What I am afraid of is that massive and perhaps unrecoverable destruction of America’s wealth-producing capability is taking place, driven in large part by “progressive” ideas and politics. Examples:
1)The hostility toward all practical forms of energy production and transmission
2)Mindless and destructive regulation, of which the new consumer product safety improvement act offers a dreadful example (see also here)
3)The increasing disconnect of the political classes from the make-and-sell economy
4)The continued unwillingness to seriously address the dysfunctional public schools, or to permit the evolution of any large-scale alternative to these schools
5)The excesses of the “self-esteem” movement, which are encouraging prickly and unpleasant behavior patterns unsuited for many if not most kinds of productive work
6)Excessive litigation, resulting in reduced risk-taking and less sense of individual freedom, as well as the direct economic harm
7)Too much credentialism, inhibiting social mobility and the effective use of human resources
8)A culture that–for whatever reason–seems to increasingly value “staff” jobs (analyzing and advising) over “line” jobs (making decisions and being accountable for their results)
The problem is that the term ‘depression’ is largely undefined (as opposed to ‘recession’).
We are now experiencing a destruction of wealth on a scale that is unprecedented. We have a government that is passing trillions of dollars of new spending that will do little to stimulate growth and add huge amounts of debt. The amount of waste in these ‘stimulus’ programs is mind-boggling. And the government intervention is likely to stifle growth, innovation and creativity and further contribute to lower growth for years to come
One relatively common definition of a depression is an economic condition in which traditional monetary and fiscal policy is rendered ineffective. If you accept this definition, a strong argument can be made that we are already in the midst of one.
There should be no reason for such pessimism. We only need to cut personal and corporate taxes and severely curtail government spending—and the stock market will take off like a rocket. It really is that simple.
It’s quite the same here in Italy, but while in the US the “jinx” is the ruling Administration, in Italy the wet blanket is the center-left opposition …
In 2008 the Italian economy contracted 1.0 per cent, its worst showing since 1975, and last Wednesday the Bank of Italy predicted that the economy would likely shrink by 2.6 per cent this year. There is absolutely nothing to be happy about, but, as common sense suggests, if there is something that can make things even worse, it is to paint this crisis as a tragedy—“Our greatest fear is that people will change their lifestyles just because they’re afraid, and thus worsen the crisis,” Prime minister Berlusconi said some days ago—and that is exactly what the opposition is doing.
By the way, believe me when I say that this inner attitude of mind is another reason why so many former liberals—and I am one of them—became conservative voters, and proud to be so.
re: #12
Um, David? I think your comment contains its own answer. Your solution is no doubt correct but there is absolutely no chance in hell that the government in Washington will ever allow it to happen short of a full bore revolution.
At best we can hope for is a slight majority of Repubs in congress in 2011. But, the politicians of both parties are in general cool with the Big Nanny State. Even if RWR arose and won in 2012 he could not implement your ideas.
But you know all that, you’re just being ironic.
Keep in mind, FDR presided over a miserable economy for a decade and people never lost faith in him.
Remember also that the Republicans took Congress in 1938 and the war probably kept Roosevelt from being defeated in 1940. Willkie ended within 600,000 votes of FDR in 1940 although the electoral college made it look less close. There was no body of knowledge then about what he was ding wrong. Now we know how bad Obama’s policies are.
Some commenters have made the point that in the Great Depression banks failed, wiping out savings, but now that cannot happen because the government guarantees bank deposits. Suppose I restate what happened then as, the government was not connected to the banks, so they could fail without taking down the government’s finances — but now government and the banks are connected, so what we’re facing is the potential for (at least financial) failure of both the government and the banks. I agree about the strong mass-psychology component of the economy. In a sense deflation feeds on itself as people learn to overvalue the future — that is, what the same amount of money will buy in the future as prices continue to fall — at the expense of the present. Looking at things that way, you could say that WWII helped to end the great depression and its associated deflation by making the future seem less valuable — after all, during a war victory is by no means a sure thing, and in general all that destruction makes the idea of living in the present, and spending money now rather than later when it may be too late, the more sensible attitude. Hence consumers changed their attitudes toward money and savings, ending first deflation and then the Great Depression. (It also, of course, helped that North America was one of the few regions of the civilized world to come through WWII with an undamaged industrial base. If you wanted a factory-made product, you had to buy it from us.)
“But you know all that, you’re just being ironic.”
What can I tell you? I can only offer advice. It is bizarre how many citizens believe the government knows how to spend their money better than they do.
Unprecedented wealth destruction. I think that is relative. Let us imagine it is 1905 and the Tsar is starting to have real trouble in Russia. This man rules over 1/6th of the world’s land mass.
In the next 15 years old Russia will be destroyed, millions will lose their lives and the Soviet Union will be born.
There will also be a world war that will kill millions and will destroy much of Europe.
There will be a pandemic that will effect 1 in 5 people in the world. It will kill more people than the black death. Influenza.
After that 15 years we are at 1920. In the following 15 years Hitler will rise in Europe and the world will be plunged into the Great Depression. Millions will suffer real hunger and privation.
Then it is 1935. In the next 15 years the world will be plunged into WW2. 60 million people will die. The Soviet Union and the United States will enter the Cold war. China will fall to the communists.
And here we are under the impression that what we face today is the worse wealth destruction in history.
I doubt that very much.
But I do think Obama is doing some heavy duty fear mongering.
These charts posted at Powerline are interesting. If the decline in percentage of GDP is considered an important indicator, we are actually doing better than the administration would like us to believe. Much better. Just look at the mindbending GDP bar in the second graph, representing the Great Depression:
http://www.powerlineblog.com/archives/2009/03/023039.php
But hey, records are made to be broken! And if anyone besides the indispensible Mr. Geithner was in place at Treasury to answer the phone, they would probably tell you the same thing.
One glaring difference between Obama nd FDR is that FDR inspired confidence in Americans. Obama, who campaigned on “hope, is in fact, like most on the left, a pessimist at heart and cultivates pessimism. He believes people are helpless pawns, not the engineers of their own destinies, except insofar as they choose to elect messiahs like him to deliver us all from our own ineptitude. He believes commerce and wealth creation to be sinful. He believes that wealth is a static commodity and that the “rich” don’t create new wealth, but steal it from the rest. He believes in his soul that America is a racist, greedy, inherently sinful country that needs to be punished, cleansed of its sins by a redeemer who must first insist on an accounting of sins. His statements clearly reflect this view.
This is why he doesn’t appear to care much about the Great Collapse: he doesn’t. He expects it as the natural wages of our sins. Some say he and the Left want collapse to make us all wards of the state. Maybe, but it may be even simpler. They simply see what is happening now as deserved, as the natural consequences of the immoral ways of capitalism.
When Obama promised “fundamental change,” he meant it. Because, as all people on the left believe, he believes justice comes not from raising up the less fortunate but in tearing down the “fortunate,” the achievers, he no doubt thinks the mighty capitalist engine being laid low is a good thing for all. From that perspective, financial disaster is a good thing. He wants to punish success, because he thinks property is theft and therefore success is theft. To him, the thieves are getting their just deserts.
Capitalism is really based on “HOPE” since about 40% of businesses do not make any money in normal times. Without hope people don’t risk and the whole thing goes down.
Unfortunately the right wing claims he’s a horrible leftist when he tries to implement tiny changes; And the left claims they are radical when they try to implement miniscule changes… They scare everyone, which is bad, and at the same time they take a baby step, in the wrong direction. Our congresscritters are idiots.