Are we heading into a 'third depression'?

The G-20 nations agreed last weekend to halve their deficits by 2013, saying fiscal austerity measures are the best path to economic growth. President Obama and Indian Prime Minister Manmohan Singh, an economist, argued that cutting spending too soon will just make things worse; Nobel laureate and New York Times columnist Paul Krugman is going one step further, warning that austerity now will turn the fragile recovery into America's third full-fledged depression. Who's right? (Watch a CNBC discussion about Krugman's claims)

Spend now, cut later: Misguided Europeans and U.S. deficit hawks have us "in the early stages of a third depression," says Paul Krugman in The New York Times. Like in the Great Depression and Long Depression of the 1870s, foolish policymakers are foolishly "preaching the need for belt-tightening when the real problem is inadequate spending." It is "self-defeating" and cruel to cut spending while unemployment remains high.

"The third depression"

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Cut or perish: Given our "fathomless hole of debt," it's "sheer madness to borrow even more, as Krugman advises," says Rod Dreher in BeliefNet. Instead, how about this "irresistible" advice from Krugman's "principal antagonist," Niall Ferguson: To avoid the "terrible" specter of default, "we simply have no choice but to slash spending." A note to Obama: The French Revolution was "sparked principally by massive levels of government debt."

"Krugman: Here's the next Great Depression"

Why trust the architects of this disaster? The problem with "today’s deficit hysteria," says John Chandley in FireDogLake, is that it's being spread by the same geniuses that drove us into this ditch in the first place. It doesn't take a PhD in economics to understand that "the most important steps in reducing long-run deficits start with a fully recovered economy and putting people back to work." And that's a long way off.

"Economics is hard... especially for those who got everything wrong"