A depression? It’s his business to say it

Business journalists have been straining for months to describe the economy. Some have it “struggling” or “staggering.” They’ve labeled the downturn a “crisis” and a “meltdown.” Others have reached for metaphors -- “off the rails” or “in a ditch.”

That might have felt like strong stuff, but it pales in comparison to the alarms sounded by Paul Krugman, the New York Times columnist who topped himself Sunday.

“Let’s not mince words,” Krugman declared. “This looks an awful lot like the beginning of a second Great Depression.”

Most business editors in America would have blanched if their reporters turned in such copy. Even the editor who runs financial coverage at the Detroit Free Press in woebegone Michigan told me he’s not ready to have his reporters call the crisis, though “unprecedented,” a depression.

But in the brief, ugly history of these hard times, economists and commentators must play a different role than the garden-variety reporter. And they too often have been misguided by a blind optimism.

The record shows that, even when they had been put on notice, the people with the power in Washington wouldn’t act. Congress knew mortgage giants Fannie Mae and Freddie Mac needed fixing but couldn’t put aside partisan differences to do it.

Lawmakers hardly need more reason for inaction. Krugman put it to me this way Tuesday: “There’s at least as much risk that politicians will fail to appreciate the urgency of the situation as there is that the public will become excessively scared.

“So, all around, honesty is the best policy,” he continued, by e-mail. “And if the truth is scary, so be it.”

It’s important for people to remember that Krugman fulfills a far different role than the business reporter at their local paper. He’s a commentator, one of the few in the mainstream media who has spent years delving deep into macroeconomic theory. His recent Nobel Prize in economics confirms his stature.

And he has always been honest enough to wear his ideology on his sleeve. The name of both his 2007 book and ongoing blog: “The Conscience of a Liberal.”

He aimed his Sunday column not so much at the huge audience that found it online (it was still among the most e-mailed stories on nytimes.com late Tuesday) but at the incoming Obama administration and the hundreds of lawmakers who will soon be voting on an economic stimulus package.

Krugman calculates that the Obama plan could knock unemployment down less than we would like, perhaps a couple of percentage points. But he sees Republicans poised to pare even that proposal.

He fears the following scenario: “The plan limits the rise in unemployment, but things are still pretty bad with the rate peaking at something like 9% and coming down only slowly. And then [Senate Minority Leader] Mitch McConnell says, ‘See, government spending doesn’t work.’ ”

Barry Glassner, the USC sociologist, wrote “The Culture of Fear” to expose what he said was the media’s tendency to exaggerate the danger of various phenomena, such as road rage and workplace violence. He called TV news “by far the most breathless” in pumping up worries about the economy, but urged print journalists to be cognizant of their power.

“If we do a little thought experiment and imagine that the media suddenly told us everything is about to turn around,” Glassner said, “wouldn’t it seem a lot more likely we would call a broker and buy on the stock market, or make an offer on that house we have been waiting to move on, and so forth?”

But Krugman told me his job isn’t to be a booster. “This isn’t the Soviet Union; we expect the media to tell us what’s happening, not show clips of happy workers singing about their tractors.”

Most journalists aren’t paid or qualified to declare the onset of a depression. Even if they wanted to, they wouldn’t find a clear definition.

Not so a recession. Economists and business writers generally agree that two consecutive quarters of declining gross domestic product make a recession. With the lag in reporting, experts often declare recessions when they have ended or nearly ended. It was not until last month that the National Bureau of Economic Research, a nonpartisan think tank, declared America in a recession.

Therefore, many economists and journalists spent a good portion of 2008 only hinting at the possibility of a recession. The Business and Media Institute, a self-styled media watchdog, slammed TV networks for even going that far.

But what about a depression? The talk becomes even more heated.

Unemployment of about 7% doesn’t approach the peak 25% jobless rate of the Great Depression of the 1930s. We haven’t seen the extended, long-term deflation or the wholesale closure of commercial banks.

Krugman defended his use of the term, though. He said although we had not relived the depth of that crisis, there has been a “loss of traction for the [usual] corrective tools, with short-term interest rates at zero. Plus the large-scale financial collapse.”

“The reason for big fiscal stimulus WPA-style isn’t that America 2009 looks like America 1935,” Krugman told me, “it’s the fact that we don’t have policy alternatives.”

Even three months ago, Americans seemed resigned to worse times. When details of the Great Depression were read to them, nearly 60% in a CNN survey said they believed it was likely to happen again.

That won’t end the debate over semantics. But I would guess that Krugman has got at least a few more members of the House and Senate listening. That’s proof enough for me that he picked the right word.

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james.rainey.latimes.com