Clouds Gathering on the Horizon

We are now well over a year into the latest economic calamity. I've watched as economists move from a mood of "oh, it will be a modest recession" to "this is a bigger problem we thought, this could be a serious recession" to "oh my gosh, this is the worst thing we've seen since the Great Depression" and on and on with bleaker and bleaker assessments.

Paul Krugman is now much more worried that the recession will become a depression. Here is a bit of his reasoning from his blog:

In the United States, the Republican party remains committed to a belief in that old tax-cut magic, with no willingness to rethink its doctrine in the face of catastrophe. In Europe, the ECB is basically operating on the principle that unorthodox policy would be very hard, so we must assume that no such policy is needed. And so on.

And economists, who should be helping introduce some clarity, are on the whole making things murkier. I had thought that the lessons of the Depression would help guide us through this crisis; but it turns out that a large part of the profession knows nothing about those lessons, and is peddling fallacies exploded three generations ago as if they were profound new insights.

So yes, we can have another depression — because those who refuse to learn from history may be condemned to repeat it.