Cassidy: Quite Likely We're in a Depression

January 15 2009 / by Alvis Brigis
Category: Economics   Year: 2009   Rating: 1


With the Obama administration gearing up for action, the Fall stock market crash fading from memory, and a new year underway many economists (especially most of the folks I regularly watch on CNBC and Bloomberg) are predicting recovery to commence in the second half of 2009.  Having noted the slow spread of the mortgage crisis, which some predicted several years before it ever began to look serious, I am more than a bit skeptical about their underlying assumptions and the likelihood of a near-term turn-around.

Fortunately there are some economists like Condé Nast Portfolio contributing editor John Cassidy who agree that economists may not be the best predictors of things economic. Pointing out their poor track record in 2008 (live by the Greenspan, die by the Greenspan), Cassidy now contrasts their 2009 forecasts against those of the general public and of finance professionals, revealing that the economists are far more optimistic than the rest. 

He then asks the obvious question:

So who are we to believe: the experts who failed to predict the current crisis or the great American public? With due respect to my fellow dabblers in the dismal science [economics], I share Joe the Plumber’s queasy feeling. Unless something miraculous happens in the next few weeks, the new inhabitant of the Oval Office will inherit an economy flailing under the weight of record debts and rising unemployment. If a depression is defined as a deep, extended recession of a severity that nobody under the age of 75 can recall, then it is quite likely that we are already in one.

CassidyCassidy goes on to argue that a prolonged downturn is likely even in the face of more government intervention:

Even allowing for another significant stimulus package sometime in the spring, consumer spending, business investment, and exports all seem set to fall throughout most of next year, which would rule out any meaningful recovery.

Considering widespread deflation, growing unemployment, a bigger than expected drop in consumer spending, an unknown amount of illusory value contained in unregulated derivatives still unaccounted for on the books of many major companies, and mounting infrastructure costs, this logic seems pretty compelling to me.  

But what do you think?

What's the likelihood that we enter into an economic depression?

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Comment Thread (2 Responses)

  1. This analysis is an attempt to make a direct comparison with the 1930’s, as the chosen photograph seems to indicate. This completely ignores one of the key themes of this blog, the fact that modern technologies advance faster than past ones. Although technologies cannot wave a magic wand to get rid of a recession, their effect on the economy in terms of improving productivity or, for example, speed of communication, should not be underestimated.

    Additionally, there is a lag time from research to application of technology, often five years or more (although like other timescales this is also compressing for many industries). In other words, the scientific advances of the ‘boom years’, say roughly from the early nineties recession until now, have not sunk down a black hole just because economic activity has stalled. I would go as far as to say that most of our current technology is the product of 90’s research and development. The 1930’s are different from this age in this respect.

    Since our civilisation is now defined by technologies and knowledge, ignoring it will cause any analysis to fail. I’m giving you extra credit by labelling your view an analysis, since it seems to based on only one oversimplified premise – that economists have a bad prediction track record. Indeed they do, but they share a characteristic with other groups who ignore or reject technology; they are too optimistic about the near future and too pessimistic about the medium and long term.

    The economists failed to see how overvalued our assets had become, and we will pay for that in the short term, but it’s not the 1930’s (an age, incidentally, not to be scoffed at, since the revolution in quantum physics was pieced together during this time). In fact part of the reason that financial traders caused a boom was due to overexcitement about our high energy, high tech age, which was generating a lot of wealth whilst simultaneously driving up the prices of commodities. We live in an age where events occur with greater speed, as the collapse of major financial players has demonstrated. The recovery will come, perhaps after a year or two, and in my view, most the decade 2010-2020 will be characterised by moderate economic growth and extremely impressive technology.

    To finish, with an eye on the future of technology as this site celebrates, today alone I read a decent handful of impressive scientific discoveries, one about nanotubes detecting cancer agents, another detailing a significant improvement in metamaterials for cloaking and other applications, several new computing discoveries such as spintronics and entanglement, and an interesting discovery about organic solar cells. Some will lead to quick applications, others will have to wait a few years, but today’s discoveries are just the tip of the iceberg, and I could hardly ever give a comprehensive account of the advancement of science since I can’t even keep up with my own field.

    But I can see enough to know that the world is changing rapidly, recession and all, and I think the economic news headlines have caused people to forget that. This is not to minimise people’s economic suffering, but we’re a long way from soup kitchens and abject poverty, since the boom was so vast that we have a long way to fall. The lucky ones of us, and I suggest that is most of us, will simply have to forgo the flatscreen tv, the exra holiday, or maybe even go through a demoralising but relatively short period of unemployment. Economists will only get this message when they have the benefit of hindsight.

    Posted by: CptSunbeam   January 17, 2009
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  2. @Alvis—From a historical perspective, I think the economy will pick up in about a year. Why? Obama is providing the needed psychological comfort the country needs, which will put more confidence in the market.

    @CptSunBeam—My heart does go out to the families suffering but I have plenty of money – even in this recession.

    Posted by: Covus   January 17, 2009
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