The Topic of Depression Economics in a Nutshell - Grasping Reality with Both Hands

The Topic of Depression Economics in a Nutshell - Grasping Reality with Both Hands: "There are two ways to look at it: half-full and half-empty.

The half-full way is that of Alan Blinder, adviser to the Obama campaign, and Mark Zandi, adviser to the McCain campaign. They have a paper claiming that if the government had simply stepped back in the fall of 2008 and let the economy “liquidate” itself, that right now our unemployment rate would be 16%.

The fact that the unemployment rate now is only 9.6% rather than 16%—Henry Paulson who was Bush’s secretary of the treasury and Tim Geithner who is Obama’s secretary of the treasury take pride in that as a substantial accomplishment: their policies have kept 6.5% of the American labor force from becoming unemployed.

The half-empty way is to say: “Wait a minute. The unemployment rate ought to be 5%. Even an generous estimate of how much extra structural unemployment there is in America today the unemployment rate should still not be much above 6%. But it is 9.6%. It is way above where it ought to be if the market were working smoothly and well. Policy simply has not done enough.”

That is the spine of the topic of depression economics."