Kudlow’s Money Politics

Shiller Backs Away from ‘Late Great Depression’ Remark

After declaring that the world is in a state of “late Great Depression” on Tuesday, renowned Yale economist Robert Shiller hedged his words on that evening’s Kudlow Report. “Did I say that?” he remarked. Well, I think there are a lot of analogies to what we’ve been going through to that of the Great Depression, but I don’t really think we’re in a depression, so I might have said it slightly wrong.”

Shiller, co-developer of the Case-Shiller index on housing trends and author of Finance and the Great Society, told me that while the U.S. is not in recession, certain elements of the economy resemble one. “The persistence of high unemployment is a problem,” he said, along with interest rates at “depression levels.”

On Monday, in an interview with Squawk Box Europe, Shiller said the world is in a “new age of austerity.”  He said, “Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now.”

And when I asked him on Tuesday whether the economy is in a recovery, Shiller said “not quite.”

“Depends on how you define these things. In some ways, we are not in a recovery. Look at the employment-population ratio. It’s stuck at 58.5 percent. That’s kind of close to the lowest it’s been in this whole debacle,” he said. “We haven’t recovered jobs. Unemployment rate is down, but that is because people have left the labor force.”

Shiller also reiterated his support for Keynesian stimulus. “I’ve been advocating raising taxes and expenditures as a temporary measure to get us out of the weak economy,” he said. “That’s the balanced-budget multiplier first proposed by William Salant and Paul Samuelson in the 1940s. Now’s the time to use it.”

And when I challenged him on the idea that President Obama’s stimulus hasn’t worked, Shiller defended it. “We’ve had a worse recession than anybody expected,” he said. “I don’t think it proves that the principle is wrong. I think we need to do that. We can’t give up on the economy.” Shiller claimed that the Obama stimulus has had “no impact on the natural debt.”

He did, however, say that he still believes in market forces. “I would like to see financial markets expanded,” he said, adding that he had faith that the stock market was still a good bet.

Asked to weigh in on Jeremy Siegel’s prediction that the Dow would hit 17,000 by the end of 2013, Shiller took a more modest outlook. “I agree with [Siegel] that stocks are a good investment,” he said. “I’m just not as high and gung-ho as Jeremy is.” 

Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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