Economist Paul Krugman writes a repair manual for this depression

TheStar.com – opinion/editorialopinion
Published On Sun Jun 24 2012.   By Heather Mallick, Star Columnist

Stop calling it a recession.

“A recession is when things are going down,” the economist Paul Krugman says. “A depression is when things are down.” His new book, End This Depression Now, doesn’t mince words.

Things are dreadful — Krugman predicts this will last many more years so hunker down — as politicians continue to embrace economic punishment in hard times.

We fear for our jobs and our kids’ job hopes, home ownership seems a distant dream, we can’t afford car insurance, our pensions are withering or non-existent, we are grateful to be Canadian because worrying about paying for health care would just about do us in, we hope to win a lottery or a slot on a reality show to humiliate ourselves for cash . . . these are all daily signals that we are in a depression.

I keep wanting to type “Depression” with a capital D. Readers who lived through the 1930s will tell me I am talking nonsense. But when I see newspaper features on how to save money by mixing laundry detergent at home or making luggage out of old rubber bands and Twist-ties, I want to refer to the bad D.

We have the tools to understand our dilemma. I encourage you to read John Maynard Keynes, but if you’re not feeling up to it, just read Krugman’s book, which is a road map of our trip to disaster but also an economic dictionary, work of history and Keynesian repair manual. It’s actually quite cheering, even if no one in power is taking his advice.

Keynes, who believed in government spending to kick-start stalled economies, is out of fashion right now. Milton Friedman is still in, the wisdom of the markets and all that. Look at us now. Clever little markets!

Krugman, who teaches at Princeton, has a talent for explanation, one reason his New York Times column and blogare so popular. Here’s the essence: National economies aren’t like a household budget, which was an old Thatcher bromide intended to make you think the deficit was as shameful as your kids’ credit card debt. They’re not the same.

“Your spending is my income, and my spending is your income,” Krugman writes. This means that when 10,000 teachers, scientists and food inspectors are laid off, that’s 10,000 salaries that don’t shop, buy a house, pay federal, provincial and local taxes and generally make the world go round. As their spending stopped, so did your income.

What’s true of North American layoffs is just as true of European trade. As Greece, Spain and Portugal suffer under EU-imposed austerity, so do German exports to those nations whose purchasing helped make Germany so prosperous. Germany’s hurting now too. Austerity’s a bullet and the damage spreads like a blood pool.

It’s a myth that debt is always bad. Much of the time, it keeps things ticking over. Now everything has ground to a halt.

Example: Stephen Harper always dreamed of shrinking the federal government. We knew that and let him have his majority, fair enough. The problem, aside from the long-term devastation of human lives, is that he is increasing unemployment at the worst possible time. Interest rates can’t go lower. No one ever dreamed they would have to. Hard-right orthodoxy in the EU, Canada and the U.S. won’t let governments spend, Krugman summing up their thinking as, “If fiscal profligacy was the problem, fiscal rectitude must be the solution.”

And so we’re stuck.

Krugman does a masterful job of explaining how deregulation let banks run wild and the consequences of their gambles, which continue as in the case of JP Morgan’s “whale” trades. As for the governments, opinionators and economists who say debt is the enemy, not the financial casino, Krugman quotes Upton Sinclair: “It is difficult to get a man to understand something, when his salary depends on not understanding it.”

If destructive economic policies don’t damage you personally — or you don’t think they’re going to — you’re hardly going to protest their enforcement.

Krugman, a one-percenter himself, must feel quite alone right now.

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