Money & Politics with Larry Kudlow

Shiller Backs Off ‘Late Great Depression’ Remark


After declaring that the world was in a state of “late Great Depression” this week, renowned Yale economist Robert Shiller hedged his words.

“Did I say that? 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,” he said in an interview on CNBC’s “The Kudlow Report.”

The interview, which was conducted Tuesday, aired Wednesday.

Shiller, co-developer of the Case-Shiller index on housing trends and author of “Finance and the Great Society,” said that while the United States wasn’t in a recession, certain elements of the economy resembled one.

“The persistence of high unemployment is a problem,” he said, along with interest rates at “Depression levels.”

On Monday, Shiller told “Squawk Box Europe” that the world was in a “new age of austerity.”

“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,” he said in that interview.

Asked by host Larry Kudlow on Tuesday about whether the economy was 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 government stimulus.

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

Challenged on the idea that President Obama’s stimulus hasn't worked, Shiller defended the idea.

“We’ve had a worse recession than anybody expected. I don’t think it proves that the principle is wrong. I think we need to do that,” he said. “We can’t give up on the economy.”

“There’s no impact on the natural debt,” he added.

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Shiller also said he believed 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 Jones Industrial Average would hit 17,000 by the end of 2013, Shiller took a more modest outlook.

“I agree with him that stocks are a good investment,” he said. “I’m just not as high and gung-ho as Jeremy is.”

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