The D Word

Not deficit, with a small d, but Depression with a big one.

By now, everyone has come around to accepting that we are in a recession. Even though we have not had the rule-of-thumb two quarters of negative growth, rising unemployment, collapsing housing starts, drops in retail sales and so forth all tell us we are in a recession. Technically speaking, Canada’s first quarter GDP could rise by one-tenth of a percent, then drop steeply in the second quarter, then grow by another tenth of a percent in the third quarter, and so on — we could get through this without experiencing a recession defined strictly as two quarters of negative growth. But we are indeed in one. At the CCPA, we are contemplating coming up with our own methdology for calling a recession, so if you think that would be useful, chime in below.

Anyway, the real question is are we at the start of a Depression. My mental image of the Great Depression is of long lines at soup kitchens and men riding rail cars in search of employment, and that seems a long way off. But the essence of depressions is not just a deeper and longer recession. In a broader historical sense it is largely a dynamic of collapsing asset prices leading to a financial crisis — sound familiar — and that crisis taking years to work off the accumulated excesses.

I don’t think we will get back to those soup kitchens because we have built a fairly robust government sector that transfers income to people of various types (children, seniors, the unemployed, etc), provides a range of core public services, and has a civic bureaucracy that powers the machinery of government. The development of this counter-weight, which persists quite strongly in spite of attacks from the right, is itself a lesson of the Great Depression. Even though we certainly need more stimulus from federal and provincial governments than we have seen so far, by and large we have not caved in to the simplistic idea that “the public sector must tighten its belt, too.”

But you have to admit, the dynamics we are witnessing are more than those of a recession, as we have seen in the post-war years. We are beset by depressionary forces, and the sooner that becomes the conventional wisdom, the better, because it opens our minds to interventions that would have been considered taboo a year ago. Heck, deficits were taboo a year ago; today, printing money is a bona fide economic strategy being used by a country that used to rule the world. And the country that does rule the world is doing pretty much the same thing, though technically the new money is just a loan, for now. I’m not convinced they are engaging this strategy in the correct manner, but the point is that we are beyond the looking glass.

My hope is that we’ll look back on this as The Small Depression of 2009-10 because we leaned hard against those forces, righted the shortcomings of the private sector with some strong public interventions, and came out the other end on a more socially, economically and environmentally sustainable footing.

2 comments

  • Without the historical reality inside my brain, I can say from my readings and study that we are, and will be, witnessing something unique.

    The one painful hook that needs to somehow catch into the economic psyche of those leading us, (I refuse to say leaders especially in this country), is the process by which cutting, comes to an end. Cutting wages, cutting workforces, cutting salaries, cutting production, cutting working time, it has got STOP. It has to come to and end. Yes there are economic arguments and the cost of doing business behind these seemingly rational decisions.

    However the ends of such means are not rational. That is where this system’s fatal flaw now lay. How is it done.

    Fix the credit markets? It needs to be done, but that just leaves us where we were, a over leveraged consumption. Got to do this.

    Do we get closer to the root when we start fixing the institutions which helped keep consumption robust and were decimated by the 30 year neo-liberal assault. Got to do this.

    Do we lead up a massive program to fix the environment by turning our economic system into one that is ecologically accountable and sensitive. How do we pay for this and how does it get implemented, that is the hard question but we need to do it?

    Can the containment of the economic damage be shored up fast enough to prevent a build up of social unrest. Regionally across the globe the dynamics are at great variance and therefore we will get a wide spectrum of reactions. It must be contained by hurrying up the G20 plans. We need to ensure all countries put up their cash. (unlike Canada who administratively pretend to spend but realistically is free riding its way through it all , even though we are one of the few countries that could probably afford to spend. whew bad bad bad Mr. Harper! what free riding balanced budget, neo-con, blinded by the light, sad man he is)

    Will the kickstart from the G20 be enough to get a heart beat going. Lets hope that we are but witnessing some kind of collective deep breath right now, and we are just experiencing some ultra consumptive hysteria and soon once we all finally take that deep breath everyone will somehow finally open up their wallets and spend.

    In many many ways we have been told from history that this was going to happen. Yet fantastically the small voices that were the naysayers, were drowned out by the disgusting noises at the trough.

    To make yourself feel better go and watch a David Harvey video here. It helps me sleep at night knowing that guys like this are still giving it hell. Hats off.

    http://davidharvey.org/

    pt

  • The NBER doesn’t use any simplistic mechanical rule to call recessions, I don’t see why the CCPA should accept one. Go for it Marc!

    On the larger issue, the fear that keeps me awake at nights is that the global Depression of 2008 only really gets solved by the World War of c. 2012/2014. There’s actually a lot that’s been floating around the zeitgeist for years now, anticipating another one around that point. And there are plenty of flashpoints around, principally in Asia, that are ripe to give us one — and the rise of protectionist sentiment in the rich countries can hardly help matters.

    While there is essential work to be done pushing for greater socialization of the economy and its risks for working people, I think it’s also essential that we start building *now* to ensure that, if and when they try dragging us into another world-scale military “solution”, social democrats and the working class don’t cave in to bellicose nationalism like we did a century ago — and never recovered from.

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