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From Great Recession to Great Depression: Is It Possible?
According to the National Bureau of Economic Research (NBER) there have been as many as 47 recessions in the United States since 1790. It’s very important to point out that the difference between those economic low points and today’s current recession is, of course, the kamikaze effect. Our current economic low point doesn’t only represent an aggregate declination of demand, but it also represents a kind of maniacal market reluctance that’s maybe causing many consumers to lack confidence in the government’s ability to get our engine moving again. Not only aren’t people spending, but many are beginning to put monies under mattresses, in homemade safes; moreover many are investing in things like gold, as a form of monetary protection from a currency many believe is on a verge of collapse—it appears that a lot of U.S. savers (investors) are bracing themselves for the worst possible scenario.
What could be causing the post recessionary scare? Because the Fed exacerbated the dot.com low point by pouring the sub-prime real estate mess over it, our current low point has taken an even greater sadistic dive into an economic abyss. Other than the low point that followed the depression, no other recession has had such a profound effect on GDP, unemployment, consumer confidence and many other major economic indicators. What’s making this low point an all out economical crisis is very obvious: the heavily distorted U.S. monetary system has caused our currency to not have any real value—it now takes three to four time more dollars today to purchase the same items it did a few years back. We don’t have any adequate amount of savings to truthfully fight off inflation and this, my friend, is digging us into an even deeper hole.
The reason why this recession is cause for concern can’t be overstated: the Federal Reserve, autocratically, has been making it, “its business” to avoid an economic engine stall by shocking the lifeless economy back to life. In the days, weeks and months following the economic breakdown, the Fed, in essence became the last branch of the U.S. government. In addition to the executive, legislative, and judicial branches, Ben Bernanke, along with the Fed’s machination to take over steering of our economic engine, created the biggest post war economic “faux pas” since the Great Depression. To be precise, it wasn’t the government’s responsibility to reward bad behavior but that’s what they did when in 2008, they all but nationalized Merrill Lynch, AIG, Goldman Sachs and Morgan Stanley. If you don’t see macroeconomic folly on the part of the Fed, then you need to put your eyeglasses on...this careless mistake will cause major engine problems down the line. This act, created by the Fed was analogous to sweeping a recessionary sand-dune under a small rug. When the Fed just about bought all these investments firms, in essence, what they were doing was just buying time—time until at least, our economic engine catches up to it.
In historical review, the money that the Fed printed to infuse into all these firms wasn’t real money; and will prove to be a disaster to an already weak currency. Now you hear all this talk about double dip, V, W and L-shaped recessions. In the opinions of many, we’ve never truly left the initial recession of 2001; therefore, the shape of the recession is a moot point. They’re all low points. Logically, if you think about it, March 2011 should have marked our tenth year of the dot.com recession. Who cares if this economic low point is considered “Great” or not; fact is, because of “big gov’s” careless behavior over the years, this low point is unlike any we’ve seen since the one that was spawned by the “Great” Depression. Are we headed for another depression? Who knows, but the hole we’ve dug for ourselves isn’t a small one: recessions of the past have come and gone like a bad cold, but this low point is troubling do to its timing: 1) China’s no small potato anymore; 2) India’s slowly becoming a force to be reckoned with; 3) Latin America, lead by Brazil, has finally gotten rid of some its bad tendencies; and let’s be real, 4) For better or worse, free trade, hasn’t always benefited the U.S. economy.
The good news about a depression is that we’ve already seen one; thus, we should know what to look for. Economist shouldn’t only know the signs that led to the depression, but should have concrete evidence as how to avoid future depressions. In macroeconomics, you can’t get a better teacher than “trial & error”—and if you want to avoid a potential depression, all that’s needed are policies that don’t fall in line with the one that created the first one.
In terms of pure business cycle economics, depressions are the lowest that an economic engine can go—after a depression, an economic engine can only go one place and that’s up. This said, depression goes beyond the idea of an economic engine in cool-off mode, a depression is an economic engine catharsis—that is to say, an economic engine after a depression should’ve been rebuilt to resemble a brand new motor; which explains why—following the second world war— our economy was, hands down, the envy of the world. Economic conventional wisdom says that a progressive economy should take “bits & pieces” of its “past & present” as it slowly moves along.
Just look at the sport of basketball, Dr. J came in the 70s and broke all kinds of records. Nobody thought that there would be another person like him. Then guess who showed up in the 80s and 90: Michael Jordan! Just when Jordan raised the bar to unattainable heights, Kobe dragged along and now has a chance to surpass Jordan. So, who’s better Jordan or Kobe? To begin with, the question is an oxymoron—to be exact, it’s a contradiction within itself. If you believe in the principles of progressive change— holding many things constant—then Kobe should get the nod of having the “all-around” better game. The same goes for the science of economics, if you truly believe that the economy is capable of another depression, than you dismiss this very same principle: because Kobe learned from both Dr. J’s and Jordan’s “trial & errors,” Jordan can’t possible have a better game than Kobe. To be exact, Kobe’s game wouldn’t exist without Jordan’s game. Therefore, who’s better is subjective? Who was better for his era—thus greatest to ever play the game—is a different story? That’s Michael Jordan, w/o question!
It’s the same with an economy, today’s low point—although very bad—will never be as bad as yesterday’s low point because economist have used it as an empirical work in progress. Nevertheless, this recession is great in the sense that it’s prolonged and will take sometime and careful measures to see it through. What we can’t afford, at this particular juncture, is government making matters worst. There’s no “one-pill panacea” to a sick-slow-moving economy. What we really only need is two things: 1) A few pistons to slowly start moving again and; 2) Some good ‘ole fashion good luck.