The Coming Of Depression Economics 

Source: Alhambra Investment Partners, Jeffrey Snider

Like it or not, this is where we have been all along and a great many people are just now catching up. No matter what Janet Yellen says about the economy, she is talking out the side of her mouth. Internally, the recovery is gone, and it is never coming back. Externally, we have sub-5% unemployment so we all should be so happy, especially with, in her view, stable prices.

To their credit, many prominent economists aren’t so enthusiastic about those prospects. Among them are Larry Summers, Paul Krugman, and Brad DeLong, all who recognize that “something” just isn’t right and therefore “something” else should be done about it. Thus, the real economic debate over the coming years (unfortunately) will take shape around those two facets. Having wasted nearly a decade on purely central bank solutions that were never going to work, the real discoveries can now possibly take place.

The problem is as I wrote yesterday, where in a rush to do anything and everything “different” the Trump administration might actually spoil the process. De-regulation and income tax cuts, as well as the repeal of Obamacare, are all very good things that sorely need to be addressed; but they didn’t cause this depression and thus won’t get us out of it. And you can bet that none of Summers, Krugman, or DeLong will be in favor of those options, so if they all fail to restore economic growth, as I believe they will if left in isolation, then that will severely diminish those ideas for perhaps a generation or more. That would be a fatal mistake, especially since for the first time in many generations people outside of Economics are receptive to “new” ideas (that are only new because they have been out of practice and actively discouraged for so long).

Krugman actually described our predicament very well all the way back in 1999. Observing the Japanese fall into these very same conditions (it’s always the Japanese first because their lost decade then has become our lost decade now), he wrote at MIT:

Now you could argue that the experience of the Depression and after provides just such evidence. Many economists thought that with the end of World War II spending the United States would revert to Depression-type conditions; a whole school of thought, the “secular stagnation” hypothesis, was built around that idea. In fact, once jolted out of depression, the U.S. did not fall back.

This has led many economists to believe that World War II was the answer to “secular stagnation” the first. In orthodox parlance, Krugman describes it as an S-curve with multiple equilibria, being careful to pronounce such analysis as dangerous because such a model would be, “a device that can justify practically any policy.” Even still, that is exactly how not just the US economy but the world economy acted in the 1940’s.

Read More Here: The Coming Of Depression Economics | Alhambra Investment Partners

Categories: Financial/Societal Collapse and Dependence

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