"Most important, we should stop panicking. One of the reasons we got into this mess was the Fed’s exaggerated fear in 2002 and 2003 that the U.S. was following Japan into a decade of stagnation caused by deflation (falling prices). To avoid a deflation the Fed created a bubble. Now the bubble has burst, and we’ve ended up with the deflation we feared! Panics end badly, even panics of policy; more moderate policies will be safer in the medium term.
There is little reason to fear a decade of stagnation, much less a depression. The U.S. economy is technologically dynamic and highly flexible. The world economy has tremendous growth potential if we don’t end up in financial and trade conflict, and if the central banks ensure adequate liquidity to avoid panicky runs on banks, businesses and sovereign borrowers. We should understand that the Great Depression itself resulted from a horrendous run on the U.S. banking system in an era without deposit insurance, and when the Fed and Congress did not understand the critical role of a lender of last resort. Moreover, the Gold Standard of the 1930s, which we long ago abandoned, acted like a kind of straightjacket on monetary policies.
In short, although the sharp downturn will unavoidably last another year or even two, we will not need zero interest rates and mega-deficits to avoid a depression or even to bring about a recovery. In fact, the long-term, sustainable recovery will be accelerated by a policy framework in which the budget credibly returns to balance over several years, the government meets its critical responsibilities in social services, infrastructure and regulation, and the Fed avoids dangerous swings in interest rates that actually contribute to the booms and busts we seek to avoid."
And then--of all places--Al Jazeera manages to discuss the long-term history of the current economic meltdown without degenerating into partisan references and blaming everything on Ronald Reagan and libertarian economic policies. An excerpt:
This massively unbalanced mechanism was not only rooted in the financial sector but the manufacturing and service industries as well.
Richard Wolff, a University of Massachusetts economist, says the crisis "grows out of the relation of wages to profits across the economy. It has profound social roots in America's households and families and political roots in government policies".
Since the 1820s, the US economy has experienced steady gains in productivity.
This led not only to steadily increasing profits for corporations but also to rising working class wages and, with it, consumption levels.
As wages and consumption rose, the "Protestant ethic" that had helped to generate capitalism's unprecedented economic power was discarded in favour of an ethic of commodity consumption.
People's identities were now increasingly defined by what they consumed rather than their religious beliefs or social actions.
The size of one's home, car and flat-screen TV, or the price of one's clothes, mobile phones and holidays became of paramount importance.
This economic ideology - based on the possibility, and desirability, of limitless growth - created an ethos of rampant materialism and individualism.
The economic dynamics that supported this ideology changed radically in the 1970s when neo-liberal globalisation introduced structural changes to existing financial systems.
Rapid development in computer, communications and transportation technologies fuelled an economic productivity which led to unprecedented growth in corporate profits.
Meanwhile, this process weakened the ability of workers to maintain wage growth at a rate comparable to productivity and profits.
In fact, around 1970 real wages for most non-management workers stopped increasing, and have stayed flat, and even declined, since then.
Wolff explains that rather than fight against the erosion of their incomes, working and middle class Americans began to work even longer hours, and then take on second and even third jobs, in order to continue to consume apace with the upper classes.
I don't personally subscribe to every jot and tittle in these two posts, but they are specifically notable for providing economic interpretations that don't depend on the overly simplistic ahistorical analysis that somehow won Paul Krugman a Nobel Prize for essentially calling anybody with different political beliefs than his a racist.