G20: Paving the way for a new Great Depression?
At the G20 summit in Toronto, world leaders agreed to halve deficits in three years. At least one prominent economist says spending, not cuts, is what's needed.
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President Obama, for his part, said he was in agreement with the need to reduce debt over time. But he and other US officials remain at least as concerned about continued efforts to stimulate job growth.
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The problem for the White House is that Congress is increasingly leery of spending money on any new large programs. That’s why legislation that would extend unemployment benefits, among other things, is currently stuck in the Senate.
“America is itself – through congressional inaction – on the verge of reversing its domestic fiscal stimulus,” writes Jacob Funk Kirkegaard, a senior fellow at the Peterson Center for International Economics, in his own G20 analysis.
The New York Times’ Krugman sees in all this parallels with the past. Following the Panic of 1873, unemployment remained stubbornly high for years. In 1933, US economic activity turned upwards, and the US government cut stimulus activities – and the Great Depression came roaring back.
However, these periods aren’t exactly analogous to today, says Scott Nelson, a professor of history at William and Mary and an expert on past US depressions.
In 1873, for instance, joblessness remained high on the East coast, as immigrants flooded into the US from Europe. But out in what was then the US West, and is today the Rust Belt, new industries were beginning to emerge.
As to today, it remains unknown just how much Obama’s big stimulus package contributed to the ongoing economic recovery, says Nelson, author of the forthcoming book “Crash: An Uncommon History of America’s Financial Disasters.” That means it is not necessarily foreordained that another such effort is necessary.
“I’m not sure I quite believe that’s right – that we just need more stimulus spending,” he says.
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