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June 26, 2012 1:28 PM If Paul Krugman Is Right and It’s 1931, What Happens Next?

By Andrew Gelman

The New York Times columnist writes:

Suddenly normally calm economists are talking about 1931, the year everything fell apart… . And it’s happening again, both in Europe and in America… . None of this should be happening. As in 1931, Western nations have the resources they need to avoid catastrophe, and indeed to restore prosperity — and we have the added advantage of knowing much more than our great-grandparents did about how depressions happen and how to end them. But knowledge and resources do no good if those who possess them refuse to use them.

In some ways, things might even be worse now than in 1931, as there seem to be a lot of opinion-makers in the U.S. who are rooting for Europe to fall apart economically, as this would represent a discrediting of the social-democratic political system that holds in the leading countries of Western Europe. The attitude on the part of these Americans, I think, is better for Europeans to have the pain sooner than later.

What happens next?

A couple years ago I suggested that much of the 2008 election was held under the storyline that it was 1933 all over again—-but actually it was 1930. Instead of Obama coming in like FDR and presiding over a substantial (if incomplete) economic recovery in his first term, he has been in the awkward position of Hooverishly wavering between stimulus and budget cutting.

So now let’s suppose that, as Krugman fears, it’s 1931 now. What will happen next? The economy will continue to slide and then bounce back. If things fall apart during the next several months, Obama loses. President Romney comes in and saves the day. As I’ve already written, I am skeptical of Krugman’s claim that Romney, if elected, would contract the economy. I think he’d expand the economy but in a way that conservatives could describe as contracting (for example, cutting taxes, selling off assets, increasing spending on the military, and shifting around various government accounts). The long-term message will be that Obama’s stimulus didn’t work while Romney’s conservative policies did. Krugman will argue that the economy recovered on its own and with the help of Romney’s expansionary policies, but he’ll be fighting a strong storyline in the other direction.

[Cross-posted at The Monkey Cage]

Andrew Gelman is a professor of statistics and political science and director of the Applied Statistics Center at Columbia University.

Comments

  • boatboy_srq on June 26, 2012 2:34 PM:

    The more appropriate model seems not the US in 1931, but France in 1933: weathering the global turmoil least badly, indifferent to the other nations' woes and not doing enough to shore up their situation.

    In that case, while the economy might bounce back, it won't be during any pResident Romney's term - unless he's given a four-year vacation between terms while the economy continues to tank.

  • emjayay on June 26, 2012 2:42 PM:

    Let's hope we don't have the opportunity to find out what Mitt would do. But you're right. He would keep the reich wing happy with all manner of anti-gay stuff and handing churches (like for instance LDS) money. Boatloads of money for God don't count as actual federal spending of course.

    He has already made the usual ridiculous claim about how we need to spend more on military, keeping the flag wavers happy while spending money that apparently doesn't count, but bolsters the economy as much as evil Democratic spending does. No useful infastructure results, but on the other hand it's the only way for Americans to get any job training or afford any education these days. The military is right wing socialism. But it's military so it doesn't count.

    So he will spend as much or more to prop up the economy, but all, in the eyes of rightists, wolves (stimulus) in sheep's clothing (guns and God, plus antigay and anti women's rights for extra diversion).

  • T2 on June 26, 2012 3:02 PM:

    aside from economics, there is a strong parallel with 1931, especially when you consider the state of affairs in Germany during that time. A hardcore political party, preaching out against "the others", displaying militancy, claiming to have the popular support of the public although elections continued to say otherwise. Claiming the elections were not valid. Engaging in over the top rhetoric which emphasizes the opposition as bringers of certain ruin. Yes, every TeaParty sign saying "take our country back", every Big Lie told follows the script from 1931. Fortunately Mitt Romney isn't bless with charisma.

  • Texas Aggie on June 27, 2012 12:57 AM:

    How is what you describe Romney doing in any way expansionist? Cutting taxes for the fabulously wealthy doesn't leave more money to be spent. It leaves more money to be socked into off shore accounts and taken out of circulation when the government could have spent it on investing in the infrastructure that the country needs to improve our economy.

    And how can any of the policies you mention help improve the economy? Since Romney has promised to double down on Bush's policies, why do you think that the results will be in any way better?