Weakest employment market since the Great Depression
by ilene - September 3rd, 2009 3:07 pm
Weakest employment market since the Great Depression
Courtesy of Edward Harrison at Credit Writedowns
Recently Allan Meltzer, a former Vice Chairman of the Federal Reserve wrote a widely noted and provocative article in the Wall Street Journal called “What Happened to the ‘Depression?’” He called for an end to deficit-inducing stimulus because the cries of Depression from noted mainstream economists has been proven false. His thesis is that these economists, most notably Paul Krugman and IMF Chief Economist Olivier Blanchard, are hyping the downturn to support a specific policy agenda with which he vehemently disagrees.
Conflating issues for ideological purposes
While his opinion piece deserves discussion, I find his argument disingenuous as he too is promoting a specific policy agenda. The crux of the matter is three-fold:
- How severe is this downturn and financial crisis?
- How severe would it have been had specific policy measures not been taken?
- Irrespective of the severity of the downturn, were these the right steps to have followed?
I delineate the argument as such because Meltzer, I believe purposely and misleadingly, conflates these issues for political purposes. His goal is to present a narrative in which stimulus, especially deficit-inducing stimulus is seen as wasteful and misguided. This may be the case (although I do believe certain types of stimulus are purposeful). I don’t intend to examine that issue because it is as much political and ideological as it is economic. It distracts from the real question: how severe could this downturn have been?
Nowhere near the Depression
When it comes to this core question, I agree wholeheartedly with Meltzer. This is not the Great Depression II, nor will it be, nor was it likely to have been. I wrote a fairly personal post on this very point at the height of the panic last year called “Worse than the Great Depression.” My point was that America, the world really, is much richer than it was in 1929. The social safety net is much more robust. And policy makers are more knowledgeable than they were eight years ago. Comparisons to the Great Depression are misplaced.
But, Alan Meltzer is incorrect when he compares this downturn to 1973-75. This downturn is clearly more severe. The financial system has been hit very hard with a number of prominent institutions either dying (Lehman, Bear Stearns, Washington Mutual, Merrill…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.