Three cheers for aggressive fiscal and monetary policy

[wiegie]

The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents

 

Abstract

This paper compares the depth of the Recent Crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the Recent Crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the Recent Crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators overall will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and priced, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated. During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the Recent Crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but it shows that the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit the depth of the Recent Crisis.

 

http://www.economics-ejournal.org/economic...onpapers/2010-9

[AtomicCEO]

Well hell, let's elect a republican and have another one! Piece of cake!

[wiegie]

Bump for those people who are actually interested in having an intelligent discussion about fiscal policy.

[Choppy]

Is sound fiscal policy really that difficult? I think we all learned to only spend what we could afford, that saving for a rainy day was a good thing, that we are responsible for ourselves and as we age our famlies as well. I know that the financial guru's of this country feel a great burden to lead us out of the current mess but somehow I think a simple 5th grade economics refresher course would serve them better than trying to impress us all with their great knowledge of all things economic.

 

No matter how many fiscal or financial articles I read, whether left or right leaning, it always occurs to me. Maybe we should just stop spending more than we earn. That starts with individuals and families but shouldn't stop there. Remember, the financial guru's in government today were once 5th graders and learned the same things.

 

Wiegie, not sure this is the kind of discussion you were looking for but thanks for the chance to vent.

 

Rant over.

[Jimmy Neutron]

I think you're right, Choppy. It seems like many economists believe our own economy is "too big to fail" so the government spends, spends, spends to prevent an immediate catastrophy. That's all fine and dandy, but I think that approach has saddled us with an even larger catastrophy down the road.

[BeeR]

Bump for those people who are actually interested in having an intelligent discussion

No liberals. Got it.

 

Choppy what you said was so basic, but as you pointed out, we could use a real dose of that. Our gov't has been effing this up for longer than any of us has been alive, "left and right."

[Brentastic]

+1 for both Choppy and Jimmy Neutron. If we are in fact in a recovery (I'm still not buying it) then the financial 'experts' of this country will keep over-spending and manipulating the financial system, which only delays the inevitable. The inevitable is that our economy is propped up by poopy and is bound to implode. If this stimulus succeeds in the short-term (I still say it won't) then it only supports more bad habbits in the future and that's really not a good thing for anybody, especially for people like me in their 30s. This crap needs to get cleaned out now. Everyday consumers like all of us AND the goverment need to get back to good business sense - spend what you have and save anything extra. Trust me, the truth will surface soon enough, whether it's in the next year or two like I believe or if it's another decade or two - it will correct itself, that we can be sure of.

 

I picture our economy as a big mansion with many maintenance issues. Instead of fixing the problems correctly, we have used a bunch of duct tape and spackle. Eventually this money pit will need proper attention, I hope it's sooner than later.