That's not just my opinion, it's the opinion of Paul Krugman, the Nobel Prize-winning economist who is an expert on the economics of the Great Depression:
O.K., Thursday’s jobs report settles it. We’re going to need a bigger stimulus.
From Chart of the Day:
I can hear Republican and Blue Dog heads exploding at that thought, but Krugman goes on to make his case despite the political mess it will cause:
Let’s do the math.
Since the recession began, the U.S. economy has lost 6½ million jobs — and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we’re about 8½ million jobs in the hole. And the deeper the hole gets, the harder it will be to dig ourselves out.
The job figures weren’t the only bad news in Thursday’s report, which also showed wages stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse.
Lost decade, anyone?
Wait — there’s more bad news: the fiscal crisis of the states. Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from directly creating a great deal of misery, these cuts will depress the economy even further.
So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3 ½ million jobs by late next year. That’s much better than nothing, but it’s not remotely enough. And there doesn’t seem to be much else going on.
Now, when people hear "more stimulus", they correctly think "higher deficits", and in normal circumstances that usually means "higher inflation", but these are not normal circumstances: As per Krugman, we are definitely in a liquidity trap like Japan in the 1990's and America in the 1930's, and when an economy is in a liquidity trap, stimulus spending in the form of government deficits does NOT cause inflation, but inadequate stimulus DOES cause the kind of deflationary spiral that led to the Great Depression.
So, as bad as they were, the real "news numbers" out of Thursday's horrible jobs report were not the worsening "official" unemployment rate U-3 which was 9.5% and the more comprehensive underemployment rate U-6 which was 16.5%.
No, the really bad "news numbers" were the combination of two other numbers in the report:
The annualized rate of growth of wages dropped from 0.1% to 0.0% when the consensus was for an increase to 0.2%, and the length of the average hourly workweek dropped from 33.1 hours to 33.0 hours when the consensus was for an increase to 33.2 hours.
THOSE are the numbers to fear now; they are harbingers of Deflation.
They mean that not only are jobs getting harder to find -- no surprise there -- but they also mean that the jobs that still exist are cutting back hours AND paying less for those hours.
If THESE numbers continue to decline, then even if you keep your job, it will not be enough to maintain your standard of living. You will need more income just to keep up. And that means you will spend less, meaning prices decline, meaning less work, meaning lower prices, meaning less work, meaning lower prices, meaning less work, and so on.
That's the Deflationary Spiral that Krugman fears -- and you should, too.
Add to that the shocking rise in the number of jobs shed last month (-467,000) compared to expectations (-350,000) and it is clear that current levels of government stimulus are not adequate to curtail continued job losses.
Simply stated: (Not enough jobs) + (Deflationary Spiral) = Great Depression 2.0
America needs more stimulus money, now.
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UPDATE: Krugman addresses Vice President Biden's comments from earlier today on This Week that nobody realized how bad the ecomony was when they took office:
What’s important now is that we don’t compound the understimulus mistake by adopting what Biden seems to be proposing — namely, a wait and see approach. Fiscal stimulus takes time. If we wait to see whether round one did the trick, round two won’t have much chance of doing a lot of good before late 2010 or beyond.