Asia Times: Worse than the Great Depression

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THE BEAR'S LAIR
Worse than the Great Depression
By Martin Hutchinson


In spite of Friday's alarming rise of 533,000 in US unemployment, there still seems little chance when you look at the near-term future that the current unpleasantness will turn into a rerun of the Great Depression, or anything like it.

Gross domestic product (GDP) may decline by more than the 3% to 4% declines seen in 1974 and 1981-82, but there seems no immediate danger of it shrinking anywhere near the magnitude of the 1929-33 decline. However, in the long term, things are not so rosy; over the next 15 years, Americans and Europeans may suffer a worse fall in their living standards than during the Great Depression, albeit played out agonizingly slowly.

Benchmarking first: According to Bureau of Economic Analysis statistics, GDP declined 26.6% between 1929 and 1933 while real personal income declined 25.7%. Real personal consumption expenditures declined 18.2%. Per capita, with US population increasing about 1.5% per annum during those years, real personal income declined 30% and consumption 23%. In terms of living standards, real per capita personal consumption expenditures did not recover to their 1929 level until 1941, giving American consumers 12 years of living standards lower than they had become used to.

There is only one way (apart from gross government ineptitude, which fortunately under president-elect Barack Obama seems fairly unlikely) that US or Western European GDP could fall anything like it did in the Great Depression, and that is through globalization.

It is now abundantly clear that, through the simultaneous arrival of the Internet and cheap cell-phone technology, the pace of globalization increased markedly around 1995, with global supply chains for time-sensitive products and services being for the first time possible without enormous effort, thus propelling new participants, notably India and China, into the global free-market economy.

This has had the apparently benign (though less so in reality) effect of allowing rich-country monetary authorities, particularly in the United States, to keep monetary conditions lax without stoking inflation, except in the prices of stocks and housing. The low interest rates and easy credit produced by the lax monetary policy in turn sped globalization by increasing the availability of capital for emerging-market production facilities and reducing the cost of conducting global trade. .......(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/JL10Dj02.html