One of the most important questions facing policy-makers is whether we are suffering from an ordinary recession--similar, say, to 1981 or 1991--or something resembling the Great Depression. If the former, then an $800 billion stimulus and another TARP-style bank bailout is probably not necessary. If the latter, we’re in big trouble; and these measures are probably insufficient to arrest our fall.

Here's what a prominent conservative economist thinks. New York Post columnist Alan Reynolds, an early promoter of supply-side economics, makes the case that we are in a recession. Recessions, Reynolds writes, “have almost always ended within a year or so, before there was a Federal Reserve or Keynesian theory.” He advises President Barack Obama not to make “untenable allusions to the Great Depression” in order to justify his stimulus program.

Reynolds' reasoning is a reminder of  the grave danger this country faces from conservative Republicans and their advisors. According to Reynolds, the degree of economic crisis should be measured by the “misery index” that economist Arthur Okun devised during John Kennedy’s administration. You add up the rate of unemployment and the rate of inflation. The higher the total, the more trouble we are in.

By this measure, Reynolds argues, the economy today is in much better shape than it was, say, in the 1970s when inflation was in double digits. “Assuming inflation was close to zero this January, the misery index would have been roughly the same as the unemployment rate, or 7.6 percent. By this standard, we have a very long way to go before the economy feels nearly as miserable as it did in 1975 or 1980.”

But there is one small problem with this argument. What has distinguished depression-like downturns--from the U.S. in the 1930s to Japan in the 1990s--is precisely the absence of inflation and the looming threat of deflation. Across this page, Joshua Rosner shows why this is so, and why a low misery index may indicate the onset of a depression rather than a recession. That’s pretty much economics 101--but even such elementary observations elude our Republican conservatives.


--John B. Judis