A Permanent Depression?

Recommended reading: Today’s column by the Nobel Laureate economist Paul Krugman, he which he ponders the question of whether or not the ongoing recession is permanent, the new normal of our economy.

Krugman notes two factors that indicate we are in this new depressed normal: the rate of population increase is declining, which translates into lower demand (we don’t need as many new houses as we did in the past), and persistent trade deficits (Krugman doesn’t explain their effects, but perhaps one is that the deficits reveal that we are not making things ourselves as we used to).

I would add another possibility: the systematic attack on the income of the working and middle classes, including the breaking of the unions, the “off-shoring” of many manufacturing and customer service jobs, and the reduction in wages (when adjusted for inflation). When people have less money, and when a larger and larger proportion of their incomes go to housing and health care costs, they naturally either buy less (reducing demand) or go deeper into debt (also eventually reducing demand as people try to dig themselves out of debt and the burden of interest payments). Low demand means low sales which means a depressed economy. Making it cheaper for businesses to borrow money, for example, won’t solve the problem, because why would a business invest in growth when it cannot anticipate that there will adequate demand for its increased production? A kleptocracy always eventually runs into this problem.

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