QUOTE
Depression Economics Returns
Friday 14 November 2008
by: Paul Krugman, The New York Times
The economic news, in case you haven't noticed, keeps getting worse. Bad as it is, however, I don't expect another Great Depression. In fact, we probably won't see the unemployment rate match its post-Depression peak of 10.7 percent, reached in 1982 (although I wish I was sure about that).
We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy - above all, the Federal Reserve's ability to pump up the economy by cutting interest rates - have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.
...
What does all this say about economic policy in the near future? The Obama administration will almost certainly take office in the face of an economy looking even worse than it does now. Indeed, Goldman Sachs predicts that the unemployment rate, currently at 6.5 percent, will reach 8.5 percent by the end of next year.
All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.
So the question becomes, will the Obama people dare to propose something on that scale?
Let's hope that the answer to that question is yes, that the new administration will indeed be that daring. For we're now in a situation where it would be very dangerous to give in to conventional notions of prudence.
LINK
Friday 14 November 2008
by: Paul Krugman, The New York Times
The economic news, in case you haven't noticed, keeps getting worse. Bad as it is, however, I don't expect another Great Depression. In fact, we probably won't see the unemployment rate match its post-Depression peak of 10.7 percent, reached in 1982 (although I wish I was sure about that).
We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy - above all, the Federal Reserve's ability to pump up the economy by cutting interest rates - have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.
...
What does all this say about economic policy in the near future? The Obama administration will almost certainly take office in the face of an economy looking even worse than it does now. Indeed, Goldman Sachs predicts that the unemployment rate, currently at 6.5 percent, will reach 8.5 percent by the end of next year.
All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.
So the question becomes, will the Obama people dare to propose something on that scale?
Let's hope that the answer to that question is yes, that the new administration will indeed be that daring. For we're now in a situation where it would be very dangerous to give in to conventional notions of prudence.
LINK
This administration is facing a whole new game, global in concept. My opinion is that all bets should be off...new day, new policies, no time to go into denial about how bad off this country really is.
