4 ms·

A Second Great Depression, or Worse?

38 points by chailatte 15y ago

recoiledsnake 15y ago
Half the game is mental. If the people think things are going to slow down, they are going to do things(stop or put off purchasing, moving money to safer investments) that WILL make it slow down, which in turn will cause other people to do the same further slowing it down.
TomOfTTB 15y ago
I don't know what to think here. There seems to be some very obvious issues with his analysis that he didn't even mention. Now this is a very qualified guy so I hesitate to point these out but I can't help but think his agenda (to calm people) is clouding the issue. I'll run down the list... 1. The government has goosed numbers that are used to caclulate GDP like the CPI. See here: http://tinyurl.com/3rxzxhs http://tinyurl.com/3rxzxhs 2. Unemployment is calculated differently today because we factor out "discouraged workers". See here where Motley Fool put 2009 Unemployment closer to 17.5% : http://tinyurl.com/3lappx9 http://tinyurl.com/3lappx9 3. Yes the FDIC prevented people's savings from disappearing when the banks hit crisis mode and that prevented the banks from going out of business. But the wealth destruction still happened. All we did is shift it from the banks to the Federal Government thereby saving the banks (who wouldn't have survived with that much debt) while burdening the general populace for decades to come. I'm not saying he's wrong as much as I'm saying he clearly had an agenda here and is making the argument for that agenda without giving the other side of the coin. If you don't believe me ask yourself this: Why didn't he use GNP in his first comparison? We still calculate GNP and using GNP now vs GNP in the 30s (when that's all we tracked) makes a lot more sense than using GDP now and retroactively calculating GDP in the 30s. But economists agree GDP is more forgiving and makes the nation look wealthier in a global market than GNP would (since most manufacturing was still done domestically in the 30s). So again there seems to be an agenda here.
- RyanMcGreal 15y ago
  > Unemployment is calculated differently today because we factor out "discouraged workers" The author addresses that: > Even by the highest estimates - which include people discouraged from looking for a job, thus not registered as unemployed - the jobless rate reached around 16 to 17 percent.
  - TomOfTTB 15y ago
    Your point (and jabits below) is valid but my issue is he didn't spell out the fact that "discouraged workers" were counted in the Great Depression. Also (if you follow the link provided) you'll see we didn't hit the 20%+ numbers until 4 years after the crash and by that measure we still have over a year. I concede we're talking semantics I just think a more accurate way to say it would be "unemployment rose above 20% in the Great Depression while by that same standard we're only at around 17%". Rather than comparing their 20% to our 10% and then mentioning the real unemployment rate as an addendum.
    - trevelyan 15y ago
      17 percent is very much in the range of the Great Depression. Especially since the higher unemployment statistics from the 1930s included workers who were actually employed. Scroll down for the details: http://edgeofthewest.wordpress.com/2008/10/10/very-short-reading-list-unemployment-in-the-1930s/ http://edgeofthewest.wordpress.com/2008/10/10/very-short-rea...
    - RyanMcGreal 15y ago
      > you'll see we didn't hit the 20%+ numbers until 4 years after the crash and by that measure we still have over a year. It will be very interesting to follow this over the next year or so and watch how this trends. I'm not at all persuaded that this isn't another Depression; but like such things, it's hard to tell except in retrospect. Another ongoing employment issue in the USA is the extraordinarily high prison rate. In other countries, most of those inmates would be unemployed rather than incarcerated.
- jabits 15y ago
  ... 2. Unemployment is calculated differently today because we factor out "discouraged workers". See here where Motley Fool put 2009 Unemployment closer to 17.5% : http://tinyurl.com/3lappx9 http://tinyurl.com/3lappx9 ... I think he covered this here: "Even by the highest estimates — which include people discouraged from looking for a job, thus not registered as unemployed — the jobless rate reached around 16 to 17 percent. It’s a jobs disaster, to be sure, but not the same scale as the Great Depression."
- rauljara 15y ago
  You seem to be accusing the man of ignoring "obvious" issues to push an agenda to calm people, but I don't think that's fair. 1) The CPI is controversial, but so is every proposed system to replace it. For the moment, the CPI is the gold standard, and even if it turns out that its universal adoption is as silly as the actual gold standard was, using it is certainly _not_ a sign of pushing an agenda. 2) He specifically mentions what you accuse him of not mentioning - "Even by the highest estimates — which include people discouraged from looking for a job, thus not registered as unemployed — the jobless rate reached around 16 to 17 percent. It’s a jobs disaster, to be sure, but not the same scale as the Great Depression." 3) Fair, there was a destruction of wealth. But I don't see how that would undermine any of his points. And your last un-numbered point about GNP is also kind of silly. There's a reason we use GDP now instead of GNP, GNP doesn't accurately reflect our wealth. One could argue that neither does GDP, but again, using the commonly accepted numbers isn't a sign of deliberately concealing an agenda. There are a billion ways one could measure the economy, and I'm sure we could do better than what we do now. But using them doesn't mean you're deliberately leaving things out in order to push an agenda. It means you're using the vocabulary that economists use.
- yummyfajitas 15y ago
  2. Unemployment is calculated differently today because we factor out "discouraged workers". You are correct that unemployment is calculated differently, but you are incorrect as to the reason. The BLS only started gathering proper data on unemployment in 1940. ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt http://www.bls.gov/cps/eetech_methods.pdf http://www.bls.gov/cps/eetech_methods.pdf The data before 1940 is based mostly on extrapolation and guesswork - I believe it was Christina Romer who pioneered this field.
patrickgzill 15y ago
Not a depression - a liquidation. It will be painful.
MikeCapone 15y ago
Deleveraging is never fun, but it usually leaves you with a stronger balance sheet.
dave_sullivan 15y ago
I think the author makes some good points about why this recession (or whatever you want to call it) is different from the great depression, in particular re: the decline in output and the importance of agriculture. Nonetheless, I am concerned about a couple issues not mentioned: a) Lots and lots of unemployed, broke, frustrated young men (for an extended period of time). This is bad on lots of levels, public safety being high on the list. b) The fallout of state cuts to certain services will likely get much worse. This will literally slow down the economy. b2) Related, there will be cuts to police, prisons, fire depts, hospitals, etc. The US (esp. in big cities) could become a bit more dangerous with fewer deterrents to those with nothing to lose. Not to be all doom and gloom, and although we've seen these issues in the past, I'm not sure that we've seen them to the extent that looks likely in the coming years.
billswift 15y ago
>the jobless rate reached around 16 to 17 percent. It’s a jobs disaster, to be sure, but not the same scale as the Great Depression. In many ways this is worse than the Great Depression. People are much more dependent on jobs today-in the thirties fewer people had mortgages they needed to pay and more lived in rural areas where food was more available (gardening or barter).
- a3camero 15y ago
  Although people today are far more wealthy as a result of astonishing increases in productivity that have led to much lower prices for goods. Consider how much you can buy at a dollar store for one hour's labour today. Then there are the much harder to calculate ways in which you are better off such as new medicines and technologies (e.g. the internet [Hacker News]).
  - billswift 15y ago
    Most people are better off, especially in what they can buy -- but in the context of NOT HAVING A JOB, and therefore not being able to afford anything, that doesn't matter.
    - a3camero 15y ago
      That's true, and although I don't know much about the US welfare system, I assume you're better off on welfare than many people were not on welfare 80 years ago (economically).
      - yummyfajitas 15y ago
        I'm willing to bet that the fraction of people with flush toilets is higher among people on welfare today than it was in the general population during the 20's or 30's.
bh42222 15y ago
I think the best comparison is Japan. Huge real-estate bubble fueled boom times, followed by a lot of spending to try and stimulate the economy Keynesian style. If it does not work, you get 20+ years of recession. At least America's population is growing so that might make a difference. Also America's infrastructure is in bad shape, as opposed to Japan which went into its recession with top notch infrastructure. This means infrastructure spending in the US could be more stimulative then it was for Japan.

38 points by chailatte 15y ago

Half the game is mental. If the people think things are going to slow down, they are going to do things(stop or put off purchasing, moving money to safer investments) that WILL make it slow down, which in turn will cause other people to do the same further slowing it down.

TomOfTTB 15y ago

I don't know what to think here. There seems to be some very obvious issues with his analysis that he didn't even mention. Now this is a very qualified guy so I hesitate to point these out but I can't help but think his agenda (to calm people) is clouding the issue. I'll run down the list... 1. The government has goosed numbers that are used to caclulate GDP like the CPI. See here: http://tinyurl.com/3rxzxhs http://tinyurl.com/3rxzxhs 2. Unemployment is calculated differently today because we factor out "discouraged workers". See here where Motley Fool put 2009 Unemployment closer to 17.5% : http://tinyurl.com/3lappx9 http://tinyurl.com/3lappx9 3. Yes the FDIC prevented people's savings from disappearing when the banks hit crisis mode and that prevented the banks from going out of business. But the wealth destruction still happened. All we did is shift it from the banks to the Federal Government thereby saving the banks (who wouldn't have survived with that much debt) while burdening the general populace for decades to come. I'm not saying he's wrong as much as I'm saying he clearly had an agenda here and is making the argument for that agenda without giving the other side of the coin. If you don't believe me ask yourself this: Why didn't he use GNP in his first comparison? We still calculate GNP and using GNP now vs GNP in the 30s (when that's all we tracked) makes a lot more sense than using GDP now and retroactively calculating GDP in the 30s. But economists agree GDP is more forgiving and makes the nation look wealthier in a global market than GNP would (since most manufacturing was still done domestically in the 30s). So again there seems to be an agenda here.

RyanMcGreal 15y ago
> Unemployment is calculated differently today because we factor out "discouraged workers" The author addresses that: > Even by the highest estimates - which include people discouraged from looking for a job, thus not registered as unemployed - the jobless rate reached around 16 to 17 percent.
- TomOfTTB 15y ago
  Your point (and jabits below) is valid but my issue is he didn't spell out the fact that "discouraged workers" were counted in the Great Depression. Also (if you follow the link provided) you'll see we didn't hit the 20%+ numbers until 4 years after the crash and by that measure we still have over a year. I concede we're talking semantics I just think a more accurate way to say it would be "unemployment rose above 20% in the Great Depression while by that same standard we're only at around 17%". Rather than comparing their 20% to our 10% and then mentioning the real unemployment rate as an addendum.
  - trevelyan 15y ago
    17 percent is very much in the range of the Great Depression. Especially since the higher unemployment statistics from the 1930s included workers who were actually employed. Scroll down for the details: http://edgeofthewest.wordpress.com/2008/10/10/very-short-reading-list-unemployment-in-the-1930s/ http://edgeofthewest.wordpress.com/2008/10/10/very-short-rea...
  - RyanMcGreal 15y ago
    > you'll see we didn't hit the 20%+ numbers until 4 years after the crash and by that measure we still have over a year. It will be very interesting to follow this over the next year or so and watch how this trends. I'm not at all persuaded that this isn't another Depression; but like such things, it's hard to tell except in retrospect. Another ongoing employment issue in the USA is the extraordinarily high prison rate. In other countries, most of those inmates would be unemployed rather than incarcerated.
jabits 15y ago
... 2. Unemployment is calculated differently today because we factor out "discouraged workers". See here where Motley Fool put 2009 Unemployment closer to 17.5% : http://tinyurl.com/3lappx9 http://tinyurl.com/3lappx9 ... I think he covered this here: "Even by the highest estimates — which include people discouraged from looking for a job, thus not registered as unemployed — the jobless rate reached around 16 to 17 percent. It’s a jobs disaster, to be sure, but not the same scale as the Great Depression."
rauljara 15y ago
You seem to be accusing the man of ignoring "obvious" issues to push an agenda to calm people, but I don't think that's fair. 1) The CPI is controversial, but so is every proposed system to replace it. For the moment, the CPI is the gold standard, and even if it turns out that its universal adoption is as silly as the actual gold standard was, using it is certainly _not_ a sign of pushing an agenda. 2) He specifically mentions what you accuse him of not mentioning - "Even by the highest estimates — which include people discouraged from looking for a job, thus not registered as unemployed — the jobless rate reached around 16 to 17 percent. It’s a jobs disaster, to be sure, but not the same scale as the Great Depression." 3) Fair, there was a destruction of wealth. But I don't see how that would undermine any of his points. And your last un-numbered point about GNP is also kind of silly. There's a reason we use GDP now instead of GNP, GNP doesn't accurately reflect our wealth. One could argue that neither does GDP, but again, using the commonly accepted numbers isn't a sign of deliberately concealing an agenda. There are a billion ways one could measure the economy, and I'm sure we could do better than what we do now. But using them doesn't mean you're deliberately leaving things out in order to push an agenda. It means you're using the vocabulary that economists use.
yummyfajitas 15y ago
2. Unemployment is calculated differently today because we factor out "discouraged workers". You are correct that unemployment is calculated differently, but you are incorrect as to the reason. The BLS only started gathering proper data on unemployment in 1940. ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt http://www.bls.gov/cps/eetech_methods.pdf http://www.bls.gov/cps/eetech_methods.pdf The data before 1940 is based mostly on extrapolation and guesswork - I believe it was Christina Romer who pioneered this field.

patrickgzill 15y ago

Not a depression - a liquidation. It will be painful.

MikeCapone 15y ago

Deleveraging is never fun, but it usually leaves you with a stronger balance sheet.

dave_sullivan 15y ago

I think the author makes some good points about why this recession (or whatever you want to call it) is different from the great depression, in particular re: the decline in output and the importance of agriculture. Nonetheless, I am concerned about a couple issues not mentioned: a) Lots and lots of unemployed, broke, frustrated young men (for an extended period of time). This is bad on lots of levels, public safety being high on the list. b) The fallout of state cuts to certain services will likely get much worse. This will literally slow down the economy. b2) Related, there will be cuts to police, prisons, fire depts, hospitals, etc. The US (esp. in big cities) could become a bit more dangerous with fewer deterrents to those with nothing to lose. Not to be all doom and gloom, and although we've seen these issues in the past, I'm not sure that we've seen them to the extent that looks likely in the coming years.

billswift 15y ago

>the jobless rate reached around 16 to 17 percent. It’s a jobs disaster, to be sure, but not the same scale as the Great Depression. In many ways this is worse than the Great Depression. People are much more dependent on jobs today-in the thirties fewer people had mortgages they needed to pay and more lived in rural areas where food was more available (gardening or barter).

a3camero 15y ago
Although people today are far more wealthy as a result of astonishing increases in productivity that have led to much lower prices for goods. Consider how much you can buy at a dollar store for one hour's labour today. Then there are the much harder to calculate ways in which you are better off such as new medicines and technologies (e.g. the internet [Hacker News]).
- billswift 15y ago
  Most people are better off, especially in what they can buy -- but in the context of NOT HAVING A JOB, and therefore not being able to afford anything, that doesn't matter.
  - a3camero 15y ago
    That's true, and although I don't know much about the US welfare system, I assume you're better off on welfare than many people were not on welfare 80 years ago (economically).
    - yummyfajitas 15y ago
      I'm willing to bet that the fraction of people with flush toilets is higher among people on welfare today than it was in the general population during the 20's or 30's.

bh42222 15y ago

I think the best comparison is Japan. Huge real-estate bubble fueled boom times, followed by a lot of spending to try and stimulate the economy Keynesian style. If it does not work, you get 20+ years of recession. At least America's population is growing so that might make a difference. Also America's infrastructure is in bad shape, as opposed to Japan which went into its recession with top notch infrastructure. This means infrastructure spending in the US could be more stimulative then it was for Japan.