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29 June 2010

Krugman: Bad Leaders Doomed Us

We're doomed. According to Paul Krugman, we are heading headlong into the Third Depression, which will be deep and last for years, because world leaders and domestic ones have responded with austerity measures, instead of stimulus.

I hope that he's wrong and I'm sure that he does too. There are certainly plenty of economic indicators that seem to show that we have begun a slow rebound from a deep and long recession already. The recovery may be fragile, certainly it is not irreversible. But, apart from the little tweaks that have come from the end of temporary Census jobs and the housing market rush that came with its demise followed by an inevitable slump, there are few signs that we are headed for a double dip recession.

Stimulus may make a recession less painful, but ultimately what matters is that the structural problems that existed before a recession have been addressed so that they will not recur. The consensus reached on financial reform that is likely to become law this week will be one major step towards resolving that problem. A bigger worry is that there may still be shoes left to drop in the housing crisis as shadow inventories return to the market, real estate investors give up trying to avoid taking losses, and delayed foreclosures start to run their course.

Weakened stimulus spending is still a concern, one that is driving a billion dollar plus hole in the Colorado general fund budget that Governor Ritter and Joint Budget Committee Chairman Mark Ferrandino have the unenviable job of trying to fix. But, if the economy catches its stride again, some of the cuts that they will be forced to propose can be withdrawn as revenue estimates return to normal levels.

1 comment:

  1. So... It sounds like you know a lot more about economics than I do so I'm going to ask what is probably a rather stupid question. What are the chances that this recession is not, in fact, a temporary thing but simply a beginning of a sort of leveling-off period where people are going to have to live smaller, and with less, in the context of the global economy?

    I graduated high school in 1999 and entered college in a time when people were essentially expected to become Internet millionaires immediately. However, I graduated college into the worst job market in 20 years and despite a degree and a strong work ethic, have basically lived paycheck to paycheck ever since.

    My generation may have been raised in the 80s and 90s but we've really never known adulthood with out economic hardship. We've been unemployed, we've been lifelong renters, we've done without vacations, fancy cars, big houses and dinners out for our entire adult lives. What if, in the face of Peak Oil, a skyrocketing national debt, and a stemming off of customer credit, we've simply all scaled back?

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