The bar for economic policymakers has gotten incredibly low lately. The fact that we are not facing another Great Depression is now a mark of success. While it is certainly good that we are not in a depression, the evidence that we were going there, some of it mustered by Robert Samuelson in his column today, is not compelling. Samuelson contrasts the period of panic in the six month following the collapse of Lehman with the present where things have settled down. Supposedly firms were not willing to invest and consumers were not willing to spend in the panic period, whereas now everything is okay. The data don't quite support this story. If we look at orders for non-defense capital goods (excluding aircraft), August orders were up 5.5 percent from the absolute lows hit January, but August orders were less than 1.0 percent above the February levels and they are actually down 1.1 percent from the March level. There is not much of a story of renewed investor confidence here. The consumption data look even worse from this perspective. The saving rate in the panic-stricken first quarter was 3.7 percent. In spite of the calming effect of the financial rescue program the saving rate had risen to 4.9 percent by August. Samuelson also cites the turnaround of house prices as more evidence of increased confidence. Perhaps, but the government is now tossing in an $8,000 subsidy for first time home-buyers, an amount that is equal 4.7 percent of the median house price. It would be surprising if this government subsidy didn't have some positive impact on house prices. In short, the case that we faced another Great Depression was always a bit strained. There was panic in financial markets, but that mattered much more for the bankers and friends than the rest of us. The banks are doing very well right now (financial sector profits hit a new record as a share of corporate profits), however the rest of the economy looks very bleak -- but it is not the Great Depression.
--Dean Baker