delong.typepad.com/sdj/2008/11/worst-economic.html
Grasping Reality with Both Hands: The Semi-Daily Journal of Economist Brad DeLong A Fair, Balanced, Reality-Based, and Two-Handed Look at the World Office Hours: Evans 601, W10-12, 2-3, and by appointment;
Mit Schlag November 14, 2008 Worst Economic Downturn since the Great Depression? It has been the worst financial crisis since the Great Depression. I am now going to stick my neck out and say it will probably be the worst downturn since the Great Depression.
Total sales for the August through October 2008 period were down 13 percent from the same period a year ago. Retail trade sales were down 31 percent from September 2008 and were 50 percent below last year. The following graph shows the year-over-year change in nominal and real retail sales since 1993. To calculate the real change, the monthly PCE price index from the BEA was used (October PCE prices were estimated based on the increases for the last 3 months)...
This is the largest YoY decline since the Census Bureau started keeping data. Retail sales are a key portion of consumer spending and real retail sales have fallen off a cliff.
Depression Economics Returns: The economic news, in case you haven't noticed, keeps getting worse. We are already, however, well into the realm of what I call depression economics... virtue becomes vice, caution is risky and prudence is folly....
ith no possibility of further interest rate cuts, there's nothing to stop the economy's downward momentum. Rising unemployment will lead to further cuts in consumer spending, which Best Buy warned this week has already suffered a "seismic" decline. Weak consumer spending will lead to cutbacks in business investment plans. And the weakening economy will lead to more job cuts, provoking a further cycle of contraction. To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress -- and the stimulus plan won't come soon enough or be strong enough unless politicians and economic officials are able to transcend several conventional prejudices. In normal times, it's good to worry about the budget deficit -- and fiscal responsibility is a virtue we'll need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice.... Another prejudice is the belief that policy should move cautiously.... Finally, in normal times modesty and prudence in policy goals are good things. Under current conditions, however, it's much better to err on the side of doing too much than on the side of doing too little.... The Obama administration will almost certainly take office in the face of an economy looking even worse than it does now.... My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion. So the question becomes, will the Obama people dare to propose something on that scale? it would be very dangerous to give in to conventional notions of prudence.
Will the economy recover to the point that stimulus is no longer needed, before the level of public debt becomes ruinous? What if this is an L shaped slowdown, and some nontrivial level of stimulus is needed for a significant period of time.
November 14, 2008 at 11:46 AM Does this mean our gracious host think that unemployment will now go higher than 10%? I thought he was on record as saying that he would admit to be wrong about cutting interest rates in the past, were unemployment or inflation hit 10% in the present recession. Or, rather than sticking his neck out, is he simply hedging his forecasting bets, so that if unemployment does go above 10%, he can now be both right and wrong at the same time?
November 14, 2008 at 12:02 PM "If the tide of financial distress sweeps the Fed and the Treasury away--if we find ourselves in a financial-meltdown world where unemployment or inflation kisses 10%--then I will unhappily concede, and say that Greenspanism was a mistake."
The Shrill John Emerson and Friends Tyler Cowen and Alex Tabarrok Making Light Mark Kleiman and Friends Kevin Drum and Friends Joshua Micah Marshall and Friends Mark Thoma and Friends Oliver Willis Amanda Marcotte and Friends Spencer Ackerman Matthew Yglesias Firedoglake The Ancient and Hermetic Order of the Shrill A Rising Sun * "I now know it is a rising, not a setting, sun" --Benjamin Franklin, 1787 Economics Must-Reads From Brad DeLong * J Bradford DeLong, Professor of Economics at UC Berkeley, a Research Associate of the NBER, a Visiting Scholar at the Federal Reserve Bank of San Francisco, and Chair of Berkeley's Political Economy major.
Contribute to Funding These Weblogs * Leigh Speakers' Bureau: The Eighteen-Year-Old is going to college next year, which means that I need to think about making more money.
Leigh Speakers' Bureau which also handles, among many others: Chris Anderson; About Brad DeLong * J Bradford DeLong is a professor of economics at the University of California at Berkeley, chair of its political economy major, a research associate of the National Bureau of Economic Research, a visiting scholar at the Federal Reserve Bank of San Francisco, and was in the Clinton administration a deputy assistant secretary of the US Treasury. His best work extends from business cycle dynamics through economic growth, behavioral finance, political economy, economic history, international finance to the history of economic thought and other topics.
"The Invisible College," Chronicle of Higher Education: Right now I'm looking out my office window, perched above the large, grassy, Frisbee-playing, picnicking, and sunbathing area that stretches through Berkeley's campus. It's a view that I marvel at every dayI wonder why the chancellor hasn't confiscated such offices and rented them out to hedge funds to improve the university's finances. I walk out my door and look around: at the offices of professors who know more about topics like the history of the international monetary system or the evolution of income distribution than any other human beings alive, and at graduate students hanging out in the lounge. It's a brilliant intellectual community, this little slice of the world that is our visible college. You run into people in the hall and the lounge, and you learn interesting things. I would like a larger college, an invisible college, of more people to talk to, pointing me to more interesting things...
"Speculative Microeconomics for Tomorrow's Economy," First Monday: Governments and societies that bet on the market system become more materially prosperous and technologically powerful. The lesson usually drawn from this economic success story is that in the overwhelming majority of cases the best thing the government can do for the economy is to set the background rules - define property rights, set up honest courts, perhaps rearrange the distribution of income, impose minor taxes and subsidies to compensate for well-defined and narrowly-specified "market failures" - but otherwise the government should leave the market system alone. The main argument for the market system is the dual role played by prices. On the one hand, prices serve to ration demand: anyone unwilling to pay the market price does not get the good. On the other hand, price serves to elicit production: any organization that can make a good, or provide a service, for less than its market price has a powerful financial incentive to do so. What is produced is made by the organizations that can make it the cheapest. And what is produced is whatever the ultimate users value the most. The data processing and data communications revolutions shake the foundations of this standard case for the market...
"Sailing into Harm's Way versus the Dangerously Eloquent Jeff Faux," TPMCafe: I think it's time to put myself seriously in harm's way here.... I reply: There aren't many commissars-turned-capitalists. Scratching on the back of my envelope, I find that at current exchange rates, China's GDP per worker--and there are 800 million workers--is $3,000 per year. This elite of some 800,000 do live considerably better in their homes in Shanghai than America...
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