Nobel Prize-winning economist Paul Krugman made waves when he proclaimed that the U.S. was “in the early stages of a third depression” in a recent New York Times column. Daily Telegraph business editor Ambrose Evans-Pritchard agreed, but many others were vehemently opposed to Krugman’s insistence that governments should quit their “belt-tightening” and focus on reviving the economy.
A recent Compas Inc. poll of Canadian CEOs found that only 5% of business leaders believe the current state of the world economy can be likened to the Great Depression that began in 1929. The majority though, with 58%, do believe that the world is in a severe recession. “We are experiencing a new era,” said one CEO of the current economic climate. “In the past, recessions were more local in nature, closely aligned with regions or countries. This is a new experience that is a result of world markets, and hiccups are felt worldwide.”
The chief executives had strong opinions on what causes economic recessions and depressions — 79% of them believe it’s a combination of the failure of free markets and of governments — and on what should be done about the world’s current economic problems. When asked which theory on jump-starting the economy was most similar to their own beliefs, 70% of CEOs disagreed with Krugman. They responded that governments should cut spending, because the current system is too unstable for investors and consumers to feel confident enough to spend money. “Governments trying to spend our way out will just leave us deeper in debt, which will delay the natural healing of our world economy,” said one business leader.
But 30% of CEOs said that governments need to keep spending today to inject money into the system. They agreed that governments should worry about debt only after economies have begun to recover. “Governments are supposed to spend when the economy is down and pay off debt when the economy is good,” said one respondent. “This has the effect of moderating inflation, and keeps the economy moving at a reasonable pace.”