Tuesday, June 16, 2009

What's worse than stagflation? Hyperdepression, silly.

Economist Robert Murphy has been doing interviews for his new book The Politically Incorrect Guide to the Great Depression (what Tom Woods calls "an accessible and persuasive Austrian account of an essential period of American history that most people know only in propaganda form"), for which Murphy is always asked the question, "Will the present crisis turn out as bad as the 1930s?"

His answer - from which you can tell he is an economist -- is "yes and no."
On the one hand, there were very specific reasons that unemployment broke 25 percent in 1933, and we don't have those factors in place today. So I don't think the official unemployment rate will get anywhere near that catastrophic level, though it could very well come in at the #2 spot in US economic history.
However, even though unemployment rates will not be as severe, I still predict that we are in store for a miserable decade of economic stagnation. Given all of the huge assaults of the federal government into the private sector in just the past six months, I frankly don't understand how anyone except true believers in Karl Marx can be seeing "green shoots."
What is perhaps worse, laid on top of the stalled output in goods and services, I predict Americans are in store for the worst price inflation in US history. Just as
stagflation referred to the combination of high unemployment and price inflation rates in the 1970s — something Keynesians thought was impossible — we can use the term hyperdepression to refer to the mix of hyperinflation and a serious recession in real output.
Read on here for the explanation of this pessimistic outlook.

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