Expert Voices Speak Calm and Reason into Wall Street Crisis, Explaining Why There Won't be Another Great Depression
We're facing a 1980's type recession; not depression. "When the private economy collapsed, that was the whole economy. The banking system entirely collapsed in the 1930s. That's not going to happen. The worst-case scenario (now) is that losses in the banking system just get worse and the economy will slip into a recession."
The hurricane howling through Wall Street seems to be dominated by voices of fear and negativity; but voices of calm continue to speak reason into the situation. Such are the admonitions from a report in the Chicago Tribune claiming that experts say a repeat of the Great Depression—a common lament being bandied about in the press—won't happen.
The report notes: "Yes, banks are failing and the stock market plunged Monday. And yes, there is genuine concern that, regardless of the government's $700 billion bailout proposal, the United States still could land in a severe recession. But despite the alarms...economists insist there is no risk of a second Great Depression because, for some time now, the U.S. economy has been in the midst of a very different, less-threatening phenomenon: 'the Great Moderation.' The term refers to a U.S. economy shaped by more flexibility and far less volatile swings in growth. That flexibility, fueled by everything from financial deregulation and global trade to the shift toward a service economy, will keep the nation from sinking into a depression." (Photo: REUTERS)
"The Great Depression should not be the reference point," cautioned Erikk Hurst, an economics professor at the University of Chicago's Graduate School of Business. "When (Bush) says 'there goes the economy,' that doesn't mean one in four of us will be out of work. It means we're going to have a recession. There could be a drag on U.S. productivity for four to five years. We may get 1 1/2 or two years with little or no growth."
James Galbraith, a University of Texas economist and son of the late economist John Kenneth Galbraith, called talk of another Great Depression ”overheated rhetoric," noting that, "When the private economy collapsed, that was the whole economy. The banking system entirely collapsed in the 1930s. That's not going to happen. The worst-case scenario (now) is that losses in the banking system just get worse and the economy will slip into a recession."
When asked if there were any possibility of the nation's jobless rate reaching 25 percent, as during the Depression, Kenneth Rogoff, a Harvard University economics professor, replied, "Zero, just zero. Ten percent, that could happen. If we got to 10 percent, that would be pretty spectacular for the U.S. But it would take a lot of mistakes (by Congress) for a long time...if Congress takes the ball and it fumbles."
"Recessions aren't lethal," concluded David Stowell, a finance professor at Northwestern University's Kellogg School of Management. "People should be extremely cautious, not hysterical, in their personal management, irrespective of what happens in the coming weeks. We all need to be very careful and prudent in how we spend money."
