Many economists warn of tough economic times, but former Clinton Labor Secretary Robert Reich doesn’t just warn of a “recession,” he warns of a “depression.”
“I think there’s a 20 percent chance of a depression,” Reich said to the Business & Media Institute on March 14.
Reich, a professor at the
Reich’s comments came as more turmoil has surfaced in the financial sector. On March 14, it was reported [3] J.P. Morgan Chase & Co. (NYSE:JPM [4]) and the Federal Reserve Bank of
Reich referenced Marriner S. Eccles’ memoirs, “Beckoning Frontiers.” Eccles served as President Franklin D. Roosevelt’s chairman of the Federal Reserve from November 1934 to February 1948. In his memoirs, Eccles gave his view of what caused the Great Depression. According to Eccles, the dry up of credit, expansion of debt and a downward spiraling deflationary cycle of unemployment causing decreased consumption, downward pressure on prices and a lowering earning caused the Great Depression.
The technical definition of a depression [6] is “a severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.” Technical or not, it’s a word that references nearly 25 percent unemployment at its peak and conjures up images of soup lines and people losing everything.
Reich doesn’t think they’re higher than 20 percent because he has some confidence in monetary policy to prevent it.
“[U]nlike then, our monetary authorities know how and when to pump more money into the economy; our Congress and White House know how and when to stimulate with fiscal policy; and the US economy is more integrated with the rest of the world (which is riding out the storm better than we are) than then,” Reich wrote.
President George W. Bush wasn’t quite as downbeat about the economy in a speech he gave on March 14 at The Economic Club of New York. Bush admitted tough times in the housing and financial markets, but pointed out the positives.
“[I]n the long run, I’m confident that our economy will continue to grow because the foundation is solid,” Bush said. “Unemployment is low at 4.8 percent. Wages have risen. Productivity has been strong. Exports are at an all-time high. The federal deficit, as a percentage of our total economy, is well below the historic average.”
The mainstream media have made repeated comparisons to the Great Depression [7] in their news coverage, though current economic reality is far removed from those circumstances. For instance, unemployment now is 4.8 percent. During the Great Depression, it was nearly five times higher.
In 2006, ABC, CBS and NBC referenced the Great Depression 17 times [8] – even going so far as to use newspaper headlines from the 1929 stock market crash: “Wall St. Lays An Egg.”