Photo: martinstelbrinkThat’s the judgment of the esteemed Richard Posner, whose forthcoming book, to be published in May, is called A Failure of Capitalism: The Crisis of ’08 and the Descent Into Depression. Here are a few excerpts from the preface:
The world’s banking system collapsed last fall, was placed on life support at a cost of some trillions of dollars, and remains comatose. We may be too close to the event to grasp its enormity. A vocabulary rich only in euphemisms calls what has happened to the economy a “recession.” We are well beyond that. We are in the midst of the biggest economic crisis since the Great Depression of the 1930′s. It began as a recession — that is true — in December 2007, though it was not so gentle a downturn that it should have taken almost a year for economists to agree that a recession had begun then. (Economists have become a lagging indicator of our economic troubles.)
That last line about economists is pretty biting, and not very arguable.
Here’s a bit more on Posner’s decision to call the current crisis a depression:
The word itself is taboo in respectable circles, reflecting a kind of magical thinking: if we don’t call the economic crisis a “depression,” it can’t be one. But no one who has lived through the modest downturns in the American economy of recent decades could think them comparable to the present situation. … It is the gravity of the economic downturn, the radicalism of the government’s responses, and the pervading sense of crisis that mark what the economy is going through as a depression.
This looks to be a good and important book. We will likely post something more substantial on it later.
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This thing isn’t over yet. You can’t really compare current statistics, like unemployment and GDP, and compare them to peak statistics of the Great Depression to argue that the current downturn is nothing like the Great Depression. Sure, *peak* unemployment during the Great Depression may have reached 25%, but before it reached 25%, it must have passed through 9%.
I hope that one of the results of this downturn will be that people will begin to worry about the size of companies as much as they pretend to worry about the size of government. The risk that big companies pose to citizens is much larger than the benefit they provide.
I think we do progress over time so this will not come to matching the Great Depression, but it may well rise to the next worse one since then. As we became accustomed to smaller fluctuations and living closer to the edge, the relative impact will still be great. The credit crisis nature of it makes it a qualitative depression even if it doesn’t match or exceed a quantitative one.
John D.
The wonderful thing is that they’ll go back and revise those initial GDP estimates later. If you track the Federal Reserve’s initial estimate of GDP growth for a quarter, the updated estimate, the reported number, and the subsequent revision, you’ll find the average change from the first reported number is something like 100%.
You can’t seriously hope to control something you can’t measure…so we get the feckless flailing on both sides of the aisle that you see today…
Seems like some opportunistic posturing due to the fact that there is no official definition of what makes a depression. Recent recessions have been very mild and then along comes a big one… let’s call it a depression!
Isn’t it kind of insulting to some of the older folk who actually lived through the Depression era. It’s akin to the liberal habit of calling a conservative a “Nazi” for expressing views they don’t like. Both devalue the terms, making them mere expressions.
“You can’t really compare current statistics, like unemployment and GDP, and compare them to peak statistics of the Great Depression”
…because if you did, you would see that there is no evidence [yet, at any rate] of anything happening that’s much worse than the early 80′s.
Granted, it could get worse, and unemployment probably will, since it’s a trailing indicator. But I do have the feeling that Posner’s new book may serve the same purpose, on the doom & gloom side, as “Dow 36,000″ did earlier on the cheerleading side; which is to serve as a contraindicator near a turning point.
Just my humble opinion, of course.
Posner’s a really smart guy, but his specialty is Constitutional law, is it not? The public discourse in this country is already dumbed-down by self-appointed lay experts like Thomas Friedman and David Brooks. Do we really need (even very esteemed) judges weighing in on the economy? Of course, economists haven’t done a great job recently, either, so I guess someone has to do it.
His book is called, A Failure of Capitalism? How can anyone take that seriously? What capitalism is he talking about?
Jeremy,
That is not true. Our major banks were already auto-correcting. They didn’t get too fat off the junk loans. They didn’t need to gorge on the sub-prime feast. They have stable market share, longterm customers, and decades of experience. So when the market fell, they didn’t. BofA and WF didn’t go to the government asking for help. The goverment went to them. Please, please read more than one side. Somewhere in the middle is the truth.
*I’m not a fan of the Republican load of rhetoric. I simply think the government shouldn’t be controlling the private sector.
**As for jobs, no worries. If the government succeeds in taking over the banking system, just get a job there, you’ll be layoff proof. Unlike those in the private sector. Like the people in the auto industry (me) who simply had to work harder, smarter, and a step ahead to stay open these last 6 months.