Yale university economist Robert Schiller is featured on CNBC’s Squawk Box Europe arguing that house prices may not yet have hit bottom and the new age of austerity was promoting recessionary lack of confidence. Schiller who is a very creative economist at Yale and contributes to the development of both Keynesian and behavioural economics as well as having developed the Case Schiller housing index has called the current circumstances “the late great depression.”
Certainly this is what Spain another key economy in Europe is suffering from, as its economy contracted 0.3 % in the first quarter of 2012. Year to year the Spanish economy has contracted 0. 4 %. Schiller usefully points out that for the first 50 years of the twentieth century house prices fell rather than rose, so a prolonged period of falling prices would not be unprecedented. This is precisely why those who advocate austerity as a cure ought to rethink their argument. It is bad medicine for an economy already immersed in falling prices.