Paul Krugman: The Third Depression

[LongTomH]

Prof. Paul Krugman's latest op-ed in the NY Times warns of the danger of a "long depression" more like the 19th century's depression than the 'Great Depression' of the 1930's:

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. 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.

Will our leaders heed Krugman's warnings in time? Right now, it doesn't look like it, and the consequences will be borne by the working people of the world. I say 'of the world,' because this looks like a worldwide depression in the works.

Quoting Prof. Krugman:

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

http://www.nytimes.com/2010/06/28/opinion/28krugman.html?src=me&ref=general