Yes, both alarmist and depressing at the same time, sort of like an uppers-and-downers soup. But he makes his case, and by reference to the actual Great Depression and not just some generic horrifically large catastrophe.
Economist Dean Baker, writing in The New Republic, begins by comparing the bank bailouts of 2008 to the lack of bank bailouts in the 1930s. According to Baker, the lack of bailouts in the Hoover era was not what caused the prolonged tragedy of the Great Depression — it was the failure of government spending to address unemployment.
Mr. Baker (bolding mine):
Allowing the cascade of financial collapses at the start of the first Great Depression was a mistake. However, there was nothing about this initial collapse that necessitated the decade of double-digit unemployment that was the central tragedy of the Great Depression. This was the result of the failure of the federal government to respond with sufficient vigor to mass unemployment. Indeed, the economy only broke out of the Depression when the federal government undertook massive deficit spending to fight World War II. Deficits peaked at more than 25 percent of GDP. This would be the equivalent, in today’s economy, of running annual deficits of $4 trillion.The article continues with good wonk material: information about the decline in consumption, the role of trade in a possible recovery, and reasons that trade won't do the trick.
There was no economic reason that the government could not have spent on this scale in 1931, as opposed to 1941; the obstacles were political. Then, as now, politicians in Washington were obsessed with the budget deficit. They never would have countenanced such spending, apart from the threat to the nation posed by Hitler and the Axis powers. The New Deal deficit spending helped boost the economy and bring the unemployment rate down to single-digit levels, but fear of deficits limited the scale of New Deal programs and caused Roosevelt to reverse course and cut back on spending in 1937, just as the economy was gaining momentum.
Unfortunately, the country seems destined to follow the same course in the current slump as it did in the 30s.
He closes where he started, and where others have gone:
[T]here are more factors pointing to slower growth than faster growth going forward. In addition to the state and local cuts kicking in next month, the new fiscal year for the federal government begins October 1. This is also likely to involve further cuts in spending. ... At some point, the pain of high unemployment across the country may lead to some new thinking in Washington, but until that time, welcome to the second Great Depression.This considered, a simple double dip might be one of the kinder outcomes. But ask yourself: What do you see politically in the next five years that will cause government to address unemployment and to stimulate consumer demand?
Me, I don't see much — just that pesky 2012 election, the need for Obama to raise $1 billion in campaign contributions from the only folks with money, and the need to pay them back when he's done.
Jeez; now I'm depressed.
GP
