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How far away is the US recession Adrian Ash | March 20, 2008 12:46 IST The Nobel laureate lined up behind Countrywide Financial (July '07), Wells Fargo (Nov. '07), former Treasury advisor Nouriel Roubini (Dec. '07), the National Association of Homebuilders (March '08) and pretty much everyone else in saying this is as bad as it gets. As in, well, the worst ever -- like finding nothing besides Of Mice & Men to order from Amazon, and nothing but Seabiscuit to rent at Blockbusters. The men now pulling the Fed's monetary levers sure agree. And while Ben Bernanke might see the shadow of depression where the rest of us glimpse a shade of recession, liquidating the mal-investments of 2002-2007 is certainly hurting. Imagine the US Treasury paid your wages each month; you'd jump to increase the money supply every chance you got, too. See, it's the only way to stop the Nazis taking over. Or the Commies. Or maybe even -- oh, horror! -- the Clintons... "Involuntary unemployment," as John F.Kennedy put it, way back in 1960, "is the most dramatic sign and disheartening consequence of under-utilization...We cannot afford to settle for any prescribed level of unemployment." Barely a generation after the worst recession in US history, backing labor over capital like this -- and thereby nabbing labor's far weightier vote -- meant JFK got to kick Richard Nixon around at the ballot box. When his turn at the top finally came round at the end of the '60s, Tricky Dicky didn't forget the kicking. In fact, "I [already] knew from bitter experience how, in both 1954 and 1958, slumps which hit bottom early in October contributed to substantial Republican losses in the House and Senate," as Nixon himself wrote in 1962. So come December of 1968, when Herbert Stein first met with Nixon as head of his Council of Economic Advisors � and he asked Stein to name the biggest problem they faced � "I started with inflation," said the economist. "[Nixon] agreed, but immediately warned me that we must not raise unemployment," Stein was to recall nearly 15 years later. "I didn't at the time realize how deep this feeling was or how serious its implications would be..." Fast forward to the brink of Easter '08, and the "serious implication" of the Great Depression once again today is the cost of not acting to prevent it. Or so everyone says. And I mean everyone... "The Liquidationists turned the 1930 recession into a slump," says Ambrose Evans-Pritchard for The Daily Telegraph here in London. "They insisted with Puritan zeal -- or malice -- that speculators should be driven to the wall amid a cathartic purge of the Roaring Twenties. "Among them were top bureaucrats at the US Federal Reserve and some of Europe's central banks. The consequence was the Br�ning deflation in Germany, ushering in the Nazis. Democracies snapped across half of Europe. If it had not been for the towering figure of Franklin Roosevelt, America might have splintered into a bedlam of Prairie populists, Coughlan Fascists and Huey Long extremism." Better anything -- even a bail-out of Wall Street's hated bankers today -- than jack-boots and Benzedrine addicts with Chaplin moustaches, right? And where better to start in getting the voters on-side than with Ben Bernanke's complete collection of The Waltons, series 1 to 9, on DVD...? "During the major contraction phase of the Depression, between 1929 and 1933," as Bernanke said in a speech of 2004, "real output in the United States fell nearly 30%. "During the same period, according to retrospective studies, the unemployment rate rose from about 3% to nearly 25%, and many of those lucky enough to have a job were able to work only part-time." By comparison, the 1973-75 recession -- "perhaps the most severe US recession of the World War II era," according to Ben "John Boy" Bernanke -- real output fell 3.4% and the unemployment rate merely doubled from 4% to 9%. So never mind about the double-digit inflation. Never mind that by the end of the '70s, "every business decision [had become] a speculation on monetary policy," as J.Bradford De Long put it in a 1995 essay (from which we're quoting liberally, by the way). Never mind that business can't function if money becomes a flickering variable, making the trade-off between inflation and jobs...bail-outs and growth...a loser both ways. "Other features of the 1929-33 decline included a sharp deflation," Bernanke went on in his speech, soup-ladle in hand and a Baker Newsboy flat cap on his head. "Prices fell at a rate of nearly 10% per year during the early 1930s � as well as a plummeting stock market, widespread bank failures, and a rash of defaults and bankruptcies by businesses and households." So no matter the cost, deflation must be defeated long before it arrives. Indeed, the higher the cost, the better! "In 1938, the Congress enacted the Fair Labor Standards Act," writes David Hackett Fischer in The Great Wave -- his sweeping review of history's longest inflations -- "which set the first national minimum wage. It also briefly considered a maximum wage, but that idea was quickly forgotten." Powered by  | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
