The Daily Parker

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This isn't your father's recession

Krugman makes a succinct point about why the current recession isn't like 1981:

The 1981-2 recession was a very different kind of event from the 2007-9 recession: basically, it was a recession deliberately created by the Fed to bring down inflation. The Fed raised interest rates sky-high, causing a plunge in home construction, which was the main driver of the slump. When Paul Volcker believed that we had suffered enough, he cut rates, housing sprang back — and it was housing that mainly drove the recovery. Reaganomics was basically irrelevant.

The 2007-9 recession was driven by the collapse of a huge housing bubble, and the resulting financial fallout. The Fed couldn’t cut rates sharply, because they weren’t all that high to begin with; there couldn’t be a housing boom, because housing was already overbuilt.

The problem, as Krugman has patiently explained for months, is that anti-inflationary measures right now will bring about deflation, which is worse. If you have any debt at all, inflation is your friend. If you're a lender, deflation rocks. Three guesses why the Republicans are so eager to curb the non-existent inflation we have right now.

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