It was reading the latest op-ed piece in The New York Times by the Nobel prize winning economist Paul Krugman, The Third Depression, that has sent me back to delving into the kind of economic texts I have hardly glanced at for 50 years. I had, quite unthinkingly really, mentally discarded all that Keynesian stuff that still was taught when I went to university and accepted the new orthodoxies of fighting inflation first and foremost, pandering to the markets and balancing government budgets. Then this Professor Krugman bloke, who someone or other somewhere had thought worthy of a major gong and who wrote with an understandable simplicity about the most complex of subjects, came on my internet reading radar and I was right back to Economic History I with Lord Keynes at my side.
My complacent acceptance that stern and punishing economic matters were good for us in the long run has taken a more worrying turn as I read comments like this on the Krugman blog last week:
We’ve suffered the worst cyclical downturn since the Great Depression; in terms of unemployment and output gaps, we have recovered almost none of the lost ground. Millions of willing workers are idle because of lack of demand; let them stay idle, and we can turn this into a long-term structural problem, but right now it is precisely a short-term, cyclical problem.
So saying that we need to focus on the long term, and not worry our little heads about trivial short-term issues like the highest long-term unemployment rate since the Great Depression, may sound like wisdom — but it’s actually folly.
Oh, and one more point … about quite a few policymakers and economists: the attempt to shift the discussion away from the short run is not, as often portrayed, an act of vision of courage. On the contrary, it’s an act of cowardice, an attempt to evade responsibility for a disastrous state of affairs that we could fix, but choose not to. Keynes had it right: But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
That is a depressingly thought provoking commentary when you read it after looking at the communique from the world leaders at the G20 Conference just concluded in Canada. There was very little concern for the rising number of unemployed in Europe and the continuing 10% level in the United States in those formal words. Which is what provoked yesterday’s melancholy Prof. Krugman judgement:
“We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression [the panic of 1873 with the years of deflation and instability that followed it] than the much more severe Great Depression [of 1929-31and the years of mass unemployment that followed them]. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.”
So off I am scampering to swat up on this deflation business while all the time hoping that my concerns are simply the result of being influenced by a good writer rather than a man who is actually right. A long period of a proper Depression is just too depressing to contemplate.