At no time like the present is it more apt to call economics the “dismal science.” The economy itself has been dismal, with scant hope for a sustained, robust recovery. Merely talking and writing about it is misery enough. But somebody’s got to do it.

However, the talking and writing about economics is the silver lining to this otherwise dark cloud. We’re all learning bits and pieces about macroeconomics, especially, because of Paul Krugman, mostly, and several other economists who join him each day on the blogosphere.

In one of his posts this morning, Krugman gives us another insight into how the Great Recession was/is different from the recession that greeted Ronald Reagan. The head of the Federal Reserve at the time was Paul Volcker, who looked in horror at skyrocketing inflation, then took action by raising interest rates and squeezing the money supply.

In 1980 the inflation rate touched 14 percent, and we can see a correlation between the supply of money (M2) and CPI. Now things are different; we’ve had low inflation regardless of how much money is in circulation. Krugman:

Since then, however, inflation has been well under control, and booms have died of old age — or more precisely, they have died because of overbuilding and an excessive level of debt. The Fed is then in the position of trying to goose housing (which is the principal channel for monetary policy) even though housing may already be overbuilt (which was the point I was making, sarcastically, when I said long ago that the Fed has to create a housing bubble), and it is cutting rates from an initial level which isn’t that high. So the odds of running up against the zero lower bound are high, and recovery can be a long time in coming.

Krugman includes a chart from the St. Louis Fed. I’ve created my own based on the same data.

Krugman:

The early-80s slump was brought on by a huge rise in the Fed funds rate, which left lots of room for cuts, and was driven by a deep slump in housing, which meant that there was lots of pent-up demand when rates fell again. The 2007-? slump was brought on by the bursting of a housing and debt bubble, and left the Fed largely pushing on a string.

As the housing bubble expanded we took on more debt. The value of the housing has plummeted since the bubble burst, but the debt remains. Those with mortgages have either lost their homes or are underwater in increasing numbers. (Data from FRED.)

Meanwhile, the International Monetary Fund (IMF) brings us more good news. In an update to the organization’s World Economic Outlook we’re met with this:

The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated.

Back home, the Federal Reserve issued a statement two days ago. It will keep its rates low through the end of 2014, if not longer, because the economy is still very sluggish.

While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Of course, this is all Obama’s fault.