Gary Becker, the 1992 Nobel economics laureate, says we're not headed for a depression.
Yes, he says, this is the worst financial crisis since the 1930s, but it is smaller in comparison and will have less impact on the economy and employment. Gross domestic product has not yet fallen, and employment sits at just over 6 percent.
"Both figures are likely to get quite a bit worse, but they will nowhere approach those of the 1930s," Becker writes in The Wall Street Journal.
The much-debated $700 billion bailout is relatively simple in its aims, Becker contends. Nobody wants to buy mortgage-backed paper, so nobody knows what it is worth. In buying them up in an auction format, the Treasury is creating a price.
The expectation is that making the price known will jump-start the private market for them.
Becker suggests a few reforms he considers "reasonably likely" to reduce the chance of future crises: Increase capital requirements of banks, for one; sell off government lenders Fannie Mae and Freddie Mac; and, finally, no more bailouts.
"The 'too big to fail' approach to banks and other companies should be abandoned as new long-term financial policies are developed. Such an approach is inconsistent with a free-market economy," Becker writes.
Despite these reassuring words, a new CNN poll finds that six out of 10 Americans think a depression is likely, even though remarkably few understand what a depression really means
The CNN/Opinion Research Corp. poll asked more than 1,000 Americans if the United States would go into a depression, and cited these common measures of depression, including a 25 percent bank failure rate, widespread bank failures, and homelessness and hunger measured in the millions of Americans.
Even knowing what a depression really means, 21 percent said a depression is "very likely," and another 38 percent said "somewhat likely."
"We've been in a recession all year, and it's going to get worse," Anirvan Banerji, director of research for the Economic Cycle Research Institute, told CNN.
"We're going from a relatively mild recession to a more painful recession. But we're a long, long way from a depression."
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