In a recent article in The New York Times, Nobel laureate Paul Krugman raised the specter of a third
depression for the United States. A Nobel Memorial Prize in Economic Sciences is a strong credential,
and Krugman makes a strong case.

Krugman’s thesis is that the U.S. and Europe are now doing what the American government
notoriously did to create and prolong the Great Depression. He also refers to the years of deflation and
instability that followed the panic of 1873 as the “Long Depression.” In both cases the government
followed a policy of austerity and balanced budgets, which Krugman says exacerbated the financial
woes. Krugman believes we are either in a depression comparable to the 19th century model or about
to be in one comparable to the 20th century model.

Joining the debate is Robert Prechter, an advocate of the Elliott Wave theory who forecasts a long
slide bigger than either of the earlier depressions. He believes the Dow will fall to well below 1,000, in
a crash larger than the South Sea Bubble of 1720.

It is tough to argue with them. First, my credentials don’t begin to match either of theirs. My
education was in history and economics, and the law. I have been a businessman most of my life, but
also a lawyer and a public servant elected to statewide office. I have not won any prizes for any of
these – well, Rutherford Investment Management has received a five-star rating from Morningstar, but
nothing rivaling a Nobel Prize. They also have a lot of factual support for their point of view. My
college economics professor would have agreed with them.

In support of the Krugman thesis, housing prices have plunged in the U.S., and the […]