Third Depression Watch

May 25, 2011 by Paul Krugman, NY Times

Last year I warned that we seemed to be heading into the “Third Depression” — by which I meant a prolonged period of economic weakness:

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

Brad DeLong points us to Macro Advisers, which has now downgraded its estimates for second-quarter growth. As Brad says, these estimates now suggest that we have now gone through a year and a half of “recovery” that has failed to make any progress toward closing the gap between what the economy should be producing and what it’s actually producing.

And nobody in power cares!

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Krugman: “Third Depression Watch”

by bobswern

It should not surprise any folks that have been closely following our economy (at least those following it with any degree of objectivity) when they read Paul Krugman’s Wednesday blog post, “Third Depression Watch,” as he references economist Brad DeLong’s commentary and notes:

…[G.D.P.] estimates now suggest that we have now gone through a year and a half of “recovery” that has failed to make any progress toward closing the gap between what the economy should be producing and what it’s actually producing.

An editorial in Wednesday’s NY Times pretty much sums it all up in the headline: “As Housing Goes, So Goes the Economy.” If that doesn’t convince you of where our economy is right now, perhaps a read of my post from early Tuesday -- where I discuss the inconvenient reality that roughly half of our nation’s mortgageholders will be underwater by year’s end — will.

While many Democrats parrot the now-totally-distorted Bureau of Labor Statistics’ U.3 Index numbers, the truth is the BLS’ U.5 Index provides us with a more accurate, apples-to-apples comparison between jobless measurements now versus publicized statistics from just two or three decades ago. And, the U.5 Index is currently at 10.4%, which is just a half-point less than it was a year ago.

With oil projected to remain relatively high from this point forward, as we segue into true peak oil over the next few years, the truth is that it’s highly unlikely that this country will be (net) exporting its way out of this economic downturn anytime soon.

And, last but not least, any manufacturing renaissance in America (where manufacturing accounts for a paltry 13.5% of our—primarily--services-driven economy) will, IMHO, take a decade or more to come to fruition, as well (if that ever happens, at all).