9 January 2011

Just how deeply are we in it?

No bottom that Ambrose Evans-Pritchard can detect. He is the only Anglo journo who combines deep erudition, wide life experience, courage (he was one of only two journos to risk his life to visit the Contras in Nicaragua) and an uncompromising commitment to the truth (see The Secret Life of Bill Clinton, which got him informally PNG'd from Washington).

So, I tend to pay a lot of attention to what he writes. And what he writes in today's Telegraph makes very grim reading, not least because it eschews facile political partisanship. He argues that "the US is drifting from a financial crisis to a deeper and more insidious social crisis".
The numbers of people on food stamps have reached 43.2 million, an all time-high of 14 percent of the population. Recipients receive debit cards - not stamps - currently worth about $140 a month under President Obama’s stimulus package. The US Conference of Mayors said visits to soup kitchens are up 24 percent this year. There are 643,000 people needing shelter each night.

Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell from 9.7 percent to 9.4 percent was that so many people dropped out of the system altogether. The actual number of jobs contracted by 260,000 to 153,690,000. The “labour participation rate” for working-age men over 20 dropped to 73.6 percent, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).
The Gini Coefficient used to measure income inequality has risen from the mid-30s to 46.8 over the last quarter century, touching the same extremes reached in the Roaring Twenties just before the Slump. It has also been ratcheting up in Britain and Europe.

Raghuram Rajan, the IMF’s former chief economist, argues that the subprime debt build-up was an attempt – “whether carefully planned or the path of least resistance” – to disguise stagnating incomes and to buy off the poor. “The inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly,” he said.
But then he gets weird on me:
There is no easy solution to creeping depression in America and swathes of the Old World. A Keynesian `New Deal’ of borrowing on the bond markets to build roads, bridges, solar farms, or nuclear power stations to soak up the army of unemployed is not a credible option in our new age of sovereign debt jitters. The fiscal card is played out.

So we limp on, with very large numbers of people in the West trapped on the wrong side of globalization, and nobody doing much about it. Would Franklin Roosevelt have tolerated such a lamentable state of affairs, or would he have ripped up and reshaped the global system until it answered the needs of his citizens?
For God's sake - FDR's New Deal did not end the Great Depression in the US: the massive stimulus and forced saving and investment of World War II did that, along with some very shrewd management of the US economy to prevent the vast increase in liquidity triggering out of control inflation once wage and price controls were relaxed after the war.

If even the great Ambrose E-P is looking to a mythical past for a precedent that may salvage the present, we're deeper in it than I thought - and that is really, really deep.

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