We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.There's good reason for that. The leadership of the world has become overly concerned with inflation when the true fear should be deflation. Every time the Federal Reserve meets to set the interest rates, I pray that they will increase interest, which will cause more people to save. Instead, they are slashing it to record lows.
In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.Once again, I call on King Clinton to save us from the our deficit. Why do we learn about history only to shun its lessons when we need them?
Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.In short, yesterday's dip in the stock market--to below 10,000--will not likely be the last. Nor will it be the lowest dip before this recession/depression is over. And what does that mean to you?
And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.And this is true of everyone, not just lawyers. So, put on your thinking cap and come up with a long term plan. It seems that we will all be needing one.