Letter - World economy is in depression, not recession

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Einstein once said you cannot solve a problem at the same level you create it. You also cannot solve a problem unless you can accurately describe it.

Referring to the economic problems besetting the U.S. and the world since the price collapse in 2008 as “The Great Recession,” guarantees that a solution remains beyond us. The world economy is in a depression, not a recession.

What’s the difference?

A recession is a superabundance of inventory. A depression is a superabundance of capacity. I wish this succinct differentiation was original, however, it is attributable to Christopher Wood, who 20 years ago held down the desk chair in Tokyo for The Economist magazine out of England. Wood is the author of “The Bubble Economy: The Collapse of the Japanese Economic Miracle.”

The industrial hind-end of the world economy based in the U.S., the European Union, Japan, China and other smaller players could readily make twice as many cars, cellphones, computers, refrigerators and other modern conveniences as the people with the wherewithal to buy them need. World factories are operating below 70 percent of their capacity, a superabundance of capacity.

The quantitative easing that the Federal Reserve Bank has been practicing for many years, dumping $85 billion a month into the top tier of the banking system has had no effect because the money isn’t circulating. Big banks and transnational corporations have huge balance sheets. It can’t go anywhere because it would have to go into production to make a profit, into the same industries that are already over capacity.

It is worth pointing out that this world economy involves only perhaps 3 billion of the world’s 7 billion people.

The other 4 billion people, anxious maybe to have their own cellphones and refrigerators, are actually in need of floors in their houses, water treatment plants, sewage treatment plants, good airports and harbors of their own, clinics, hospitals, schools, etc. — the basic infrastructure of civilization in other words.

These missing items were created in the First World over time by governments. Late-stage world capitalism can’t do it. It is in the fourth great price collapse since the one that ended the Middle Ages with the Black Death.

Charles Potts

Walla Walla

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