Descent Into Depression

According to Nobel laureate economist Paul Krugman it may be a matter of political will or political posturing that decides whether America recovers from a deep recession or plunges headlong into a second, Great Depression. The New York Times columnist warns that Congressional Republicans are already donning the badly dented armour of Milton Friedman economics and preparing to sabotage attempts to implement a New New Deal:

...recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

...Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”

It turns out, however, that preventing depressions isn’t that easy after all. Under Mr. Bernanke’s leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.

John Maynard Keynes... ...argued that monetary policy is ineffective under depression conditions and that fiscal policy — large-scale deficit spending by the government — is needed to fight mass unemployment. The failure of monetary policy in the current crisis shows that Keynes had it right the first time. And Keynesian thinking lies behind Mr. Obama’s plans to rescue the economy.

But these plans may turn out to be a hard sell.

News reports say that Democrats hope to pass an economic plan with broad bipartisan support. Good luck with that.

In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years.

It sounds like we're back where this all began - hobbled by partisan politics fueled by fundamentalist, rightwing ideology. Faced with a stark choice between helping America recover from a mess they largely created or defending their supposed honour, the Republicans aren't going to be putting America first. Let's hope that Obama can lead the Democrats and the American people to stand up to Republican saboteurs.