posted November 15, 2010
Review of ‘Epic Recession: Prelude to Global Depression’ by Doug Dowd

by Doug Dowd,
October 2010

It’s Wakeup Time

There are thousands of economists in the USA and thousands more in the rest of the world but, as readers of this journal well know, not more than a handful of those thousands can be trusted to blow a warning horn when serious economic trouble is around the corner; or even when it has arrived. With his several books and many articles of recent years, Jack Rasmus has been a member of that tiny club; his Epic Recession makes him one of its leaders./1/ The term “epic recession? is seldom used, so it is appropriate to begin with the clarification given by Rasmus in his book’s “Glossary?:

Its characteristics are similar to both a normal recession and a depression; like a depression it is precipitated by financial instability. Quantitatively it is more severe than a normal recession but less severe than a depression in terms of depth, duration, deflation, and other indicators. But unlike a normal recession, forces of consumption and financial fragility are present…and processes of debt-deflation-default begin to emerge…. When the latter and dual forms of fragility intensify and are allowed by policymakers to deteriorate, the containment of an epic recession by traditional fiscal and monetary measures becomes increasingly difficult, may result in a second financial banking crisis, and its causal interdependencies may push the economy into a classic depression. If the debt-deflation-default processes and fragility are stabilized and prevented from deteriorating further, but not necessarily corrected and reversed, then epic recession may result in an extended period of economic stagnation in lieu of depression or sustained recovery.

This book has arrived none too soon, and it brings back disturbing memories of the 1930s. Then, month by month and year by year, as the financial crackup of 1929 was becoming the worst depression in history, the economics profession was humming “Prosperity is just around the corner? Even Keynes, the economist who finally understood how and why it was disaster– not prosperity, coming around the 1929 corner– did not see that until 1936(in his General Theory of Employment, Interest, and Money). By then horrendous damage had been done, with the official (then and still) understated unemployment rate of 25%. U.S. unemployment never went below 10% until World War II sent 16 million US workers into uniforms. The price was high: tens of millions dead and unknown millions wounded in Europe and countless ruined lives plus millions more in the Asian war. This time we can’t wait that long, if only (but not only) because in the next and all too possible world war (as a popular song of the 1960s put it) “We’ll all go together when we go.?

Economists are –or should be – infamous for making their arguments in the language of mathematics, as though determined that none but their fellow servants of the status quo will understand them. Rasmus is at home with the numbers game, but he also knows that ongoing socio-economic trends carry disaster with them unless the general public is enabled to understand today’s whys and wherefores and set ourselves on a healthy path. His book provides that understanding for all concerned. Not only does he write in readable language, he also provides a substantial set of lessons for understanding the relevant aspects of today’s political economy and proposes steps for achieving a safer and decent society. /2/

What follows attempts to convince its readers of the importance, the validity, and the clarity of this work, with the belief that having done so they will be prompted to increase their political efforts. Rasmus shows that, more than ever we must push politicians’ attention to the needs of the public and away from the wants of the powerful. Our Congress is thoroughly corrupted for a the top one percent; it is taking us always deeper toward a many-faced disaster.

The structure and content of this review is meant to have it read, its importance grasped by all; that we all become more involved politically. Unless we get to work to bring about a world “by and for the people,? the powerful minority now ruling us it will continue to take us – and the world –not only to global depression but into the worst war ever.

The book is divided into three parts: 1) the nature of an “epic recession?; 2) a survey of depressions and epic recessions of the past, and 3) a sustained analysis of today’s “epic recession.? The latter is followed by an “alternative program? for economic recovery; and the need for our substantial political activity if it s to be attained.

It is relevant to compare this book with The General Theory of Keynes (noted above): 1) This book is readable by all; Keynes wrote for economists, but Rasmus writes to the public and economists 2) he is a strong critic of capitalism; Keynes took capitalism for granted. 3) Although the reforms proposed by Keynes were much better than nothing, they were too little and too late; the alternative program for recovery of Rasmus is broad, deep, and comprehensive. 4) The strengths and virtues of his book not only give the reader a firm grasp of the many dangers of our time – economically, politically, militarily, and environmentally -– they also show that it is up to us if the dangers are to be dealt with safely and decently. When Keynes wrote, all hell had already broken loose with worse on its way in its political economy and its wars; in our day, it is all too possible that the future will be worse in both respects if those now in power stay in power. The intent of following discussions is to prompt you to read the book and act upon it. I begin with the book’s first three chapters.

“Part One: Theory.? The theory is complicated; but Rasmus has sensibly taken great pains to make these and his other analyses readable for non-economists, beginning with an explanation of “epic recessions?:

‘Epic recession’s dominating characteristics are: a) quantitative, b) qualitative, and c) in its dynamics. Quantitative characteristics differentiate “epic? from “normal? recessions by the depth and duration of their economic decline, and their debt, deflation, and default. b) The distinguishing qualitative characteristics include financial instability and fragility, a large “shadow banking system,? consumption fragility, a shift to speculative investing compared with traditional forms of investing, and global synchronization of the crisis. c) The dynamics include several sets of particular relationships and inter-dependencies between speculative and non-speculative investing and debt; between debt, deflation, and default; between defaults and financial and consumption fragility; and, between governmental fiscal and monetary policies and the key processes of debt-deflation-default and fragility. The dynamic characteristics focus on the processes by which quantitative and qualitative characteristics are mutually determined.’

“Part Two: History.? This part’s three chapters distinguish between “epic recession? and “depression.? Chapter 4 discusses the several depressions of the 19th century; Chapters 5 and 6 the “epic repressions? of 1907-14 and of 1929-31. The latter, of course, evolved into what came to be called “the Great Depression.? We will confine our attention to how the “epic recession? of 1929 evolved into the Great Depression; how and why will be specified as we proceed. I begin with quotations from Chapter 6, which – in showing the confusion and errors concerning that depression – can be of great value for today’s “epic recession? I quote:

‘The depression was not single monolithic event… but had several phases and phases within phases….. Started in 1929 and declined into 1933, punctuated by a series of four banking crises, each worse than earlier…. culminating in the near collapse of the entire financial system in March, 1933. From 1933 to 1935 the economy was partially stabilized with some recovery in 1934. By early 1935 a third phase of the depression began and continued into 1937 lightened by the New Deal. A fourth phase in 1937, as the New Deal began to be dismantled under pressure from business/ and the economy collapsed…, and substantial unemployment returned and consumption of durable goods declined….. Full recovery did not take place until 1941-42, as the USA went to war.’

As I now turn to the present and its fluttering recession, it is well to have that history in mind, lest we allow ourselves to go from one level of recession after another and then into depression, as Wall Street and its friends in D.C. continue to tell us that “prosperity is just around the corner.? There are, of course, many differences between that past and this present, but one similarity that should be alarming (and will be noted later) is that our ongoing economy remains weak despite trillions of military expenditures; although war billions got the USA out of 1930s depression, today’s war trillions don’t even get us out of a recession. The needed policies were not put in place by Wall Street’s Congress in the 1930s, World War II did that. Before the 2010 elections, Congress failed us; the new GOP Congress will be worse, so it’s up to us to organize and force what’s needed down their throats. Now to a quick look at the sluggish US economy, with the hope that readers will study the analysis in the book: /3/

“Part Three: Epic Recession, 2007-2010.? The analyses of Parts One and Two are concerned principally with the financial sector and the critical roles played by its excesses in ongoing recessions and (in Chapter 6), the 1930s depression. However, a comparison of that financial behavior with what became common from the 1980s to the present is to compare a reckless child with a maniac; a maniac, it needs adding, who bribed the police to look the other way. Because of the 1930s depression, Congress passed laws designed to prevent Wall St. from ever playing its interwar fun and games again. But from the 1980s on, at an always rising pace, not only were preventive laws such as the Glass-Steagall Act revoked, but, as Rasmus notes, “the Gramm-Bliley Act provided incentives to banks to enter speculative markets…..while, at the same time, what remained of controls to capital flows were also eliminated.? The foregoing is but a quick taste of how Wall St., much more powerful since the 1980s than ever before (which is saying a lot) has effectively transformed a political economy always favoring industry and Wall St’s rich and the powerful into one dominated even more narrowly by the always more powerful financial sector. That sector, once dominated by banks and their conservatism, became, as the 20th century ended, a gambling casino open to all comers: dominated and enriched (as Rasmous details) by its financial fragility whose “shadow banking enables wealthy investors – individual, corporate, and institutional – to move into always more speculative and profitable forms of investment…? Wall Street’s slogan has become “Let the Devil take the hindmost?; and he did.

The foregoing discussion, of the “three parts? is a greatly compressed survey of over 200 pages of a detailed historical analysis. All who read the book will be rewarded with an education in political economy which today is as rare as it is essential; essential, that is, if we are ever to lift ourselves up and out of a society dominated by King Greed and his buddies. Now I turn attention to the final chapters: Chapter 8(a critique of the “Bush-Obama? recovery programs) and Chapter 9 (the sustained “Alternative Program for Economic Recovery? of Rasmus). I use the word “sustained? because the “Program? itself fills up more than 30 pages. I begin with his summary statement:

‘Unlike normal recessions Epic Recessions of the current type (2007-2010) are driven in the short run by processes of debt-deflation-default and the interactions of financial and consumption (fragility). But the longer run causes are rooted in the origins of financial and consumption (fragility)—i.e., the rising debt, debt repayment, and declining income. In the long run the major causes of rising debt and declining income derive from the growing relative shift toward speculative forms of investing, their negative consequences for investing in real assets, and the global money parade’s access to ever increasing availability of liquidity and credit…. Successful policies must address the processes of debt-deflation-default in the short run,
financial and consumption fragility in the intermediate term, and the global money parade and speculative investing in the longer run.’

He goes on to show that Obama’s administration has failed to meet those needs, explains how and why, and then shows what must be done to meet and overcome the causes of the ongoing crisis. We now turn to a selective summary of his program in Parts I to V. I and II both have five proposals, III has ten, IV has 5, and V has 4. Only a few of the 30 pages of those substantial proposals will be discussed; enough to give the reader an indication of why many substantial reforms are needed and their nature. You may rightly infer from that our economy is in very deep trouble.

Part I: “Homeowners’ Stabilization and Consumption.? No’s 1 and 2: Reset mortgage rates and principals for loans originated in 2002-07. Part II: “Job Creation and Retention.? No’s 6 and 7: $300 billion each for both infrastructure and public sector jobs. Part III: “Financing the Alternative Program.? No. 11: Offshore tax haven asset repatriation. No. 12: Foreign profits tax recovery. No. 18: Payroll tax on incomes of wealthiest 1 percent of households. Part IV: ?Long-term Income Restructuring.? No. 20: 20-80 percent coverage single-payer health care.
No, 23: Re-unionization of the private sector workforce. No. 24: Low and contingent wage indexation. Part V: “Banking and Financial Restructuring.? No. 25: Nationalizing consumer credit markets. No. 26: Democratizing the Federal Reserve. No. 28: Taming the global money parade.

That should indicate how much needs doing and, as well, the mountain of political organization and work there is to be done: by us, or not at all.

This writer is an old geezer of 91 years who has witnessed and sweated through the worst war and the worst depression ever. As an economic historian I have studied many economic crises. What we face today is more likely than not to match or be worse than both that military and economic past. If that disaster is not to descend upon us, “we the people? must lift and push what is now “their? society to become our society; to make it into a truly democratic society instead of what it is: dangerously phony. We moved a few inches toward that for a decade or two after World War II, but from the 1970s on we allowed ourselves to become creatures of a nation dominated by militarism and war, consumerism and debt. Now, once more, the rich and greedy, the exploiters, the racists, and the war lovers are licking their lips.


/1/ Rasmus is an econ prof at both Santa Clara University and St. Marys College and a lecturer at U.C. Berkeley, all in Northern California He is the author of several books, including War At Home: The Bush-corporate Offensive Against American Workers and (forthcoming) Obama’s Economy: Why Recovery Failed: What’s Next? He has written many articles for, among others,
Z Magazine, In These Times, and the Dispatcher, and is also a political playright. He can be reached at

/2/ He is not alone in that effort, but he makes understandable his many important economic arguments in ways both substantial and readable for all (and which might awaken the minds of socio-economic professors). He is not entirely alone in his efforts, of course: there is Paul Krugman, for example, whose critical arguments in the NY Times are timely and “on our side.? But he does not fill the need for the strong understanding which creates the determination to become political and fight back: Rasmus does.

/3/ This book was published as that recession has continued, deepened, and spread, Rasmus has been busy writing articles bringing his position up to date; in doing so he shows that the ongoing recession is all too likely to be allowed to flop into depression. See: “An Economic Crisis Balance Sheet,? and “Obama’s Failing Recovery,? in Z Magazine, July and November 2010, in that order.

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