With four days before the election, this is as good a time as any to take stock of the prospect that America's incipient recession might turn into a depression.
I don't pretend to offer a comprehensive survey here, just some broad brush-strokes on three of the major factors that led up to the Great Depression, and how it compares today.
1. Fiscal and monetary policy. Well, what can we say? Whatever the final outcome, we have a disaster on our hands. Certainly Helicopter Ben, determined to avoid a repeat of the Great Depression he studied so thoroughly, is living up to his nickname — judging by the Fed's balance sheet and the national debt figures. But all that new money he's created isn't circulating — yet. This was what happened in Germany during World War I — the printing presses were cranked up, but people just sat on all that new money until the war was over. Only then did they start to feel confident again and the monetary inflation began to manifest itself in rising prices. So while I won't take a stand on the inflation-deflation argument, it's hard for me to shake one of the inflationist arguments: What might look like deflation right now could very well be a mere slowdown in velocity — ordinary folks sitting on cash because they're scared. Likewise the banks, stuffing cash in a virtual mattress rather than lending it out (at least that portion they're not using for bonuses and acquisitions).
2. Tax policy. Hoover jacked up income taxes from about 25% to 63%. Great way to spur investment, huh? Neither of the presidential candidates is proposing to do anything like that. Sorry, but I can't get jacked up over the redistributionist meme that McCain is trying to stir up against Obama. Unless McCain is proposing a flat tax, and he's not, he's being a hypocrite. Likewise his running mate, who proudly lords over the Alaska Permanent Fund — one of the most socialistic, redistributionst programs created by man. And while Obama's proposed increases won't help matters, they'd be restoring rates on the highest incomes to Clintonian proportions — oppressive for sure, but a far cry from Hoover or FDR. (I'm waiting to hear Obama explicitly say he won't allow the Bush tax cuts to expire for those making less than $250k once we get to the year 2011.)
3. Trade policy. It doesn't look as if a Congress with an even bigger Democratic majority will revive the ghost of Smoot-Hawley. But that could change on a dime, and every so often we get bad omens, like the Chinese company that decided buying 3Com would be more trouble than it was worth.
None of this constitutes a prediction, just a series of observations, food for thought that may or may not have crossed your mind already. Basically what we're all about around here.