The Return of Depression Economics and the Crisis of 2008

by Paul Krugman

Book Overview

In this major bestseller, Paul Krugman warns that, like diseases that have become resistant to antibiotics, the economic maladies that caused the Great Depression have made a comeback. He lays bare the 2008 financial crisis--the greatest since the 1930s--tracing it to the failure of regulation to keep pace with an out-of-control financial system. He also tells us how to contain the crisis and turn around a world economy sliding into a deep recession...

• Format: Paperback
• Language: English
• ISBN: 0393337804
• ISBN13: 9780393337808
• Release Date: September 2009
• Publisher: W. W. Norton & Company
• Length: 224 Pages
• Weight: 0.45 lbs.
• Dimensions: 0.6" x 5.6" x 8.2"

Customer Reviews

A "the world is round" view of economics

I'm sure you can find an excellent summary of this book by Googling about the web. So instead of attempting a broad summary, I will instead provide my impressions from reading it. If you are interested at all in macroeconomics, these (circa 2009) are the most interesting of times. We are seeing economic perturbations and (near) panics of the like not seen since the great depression. Unfortunately, talk radio and TV seem to have been taken over by people screaming "socialist" at policies that doubtless even Milton Friedman would have supported. Being a longstanding conservative, I read Alan Greenspan's "Age of Turbulence" first. Greenspan takes a long view, and prognosticates about the future. Krugman's book is of different focus and scope. Krugman reviews the 1997 Asian Financial Crisis as well as several similar crises in Latin America, plus Japan's "Lost Decade," and then analyzes the current worldwide recession by comparison to those historical crises. I do believe that great self-educated people arise from time-to-time, but it seems that far too many of our conservative talk-radio and talk TV hosts lack a formal education. Check your favorite one's biography out on Wikipedia and see. As a long time conservative, this causes me great distress, particularly now that our thought leaders seem very confused on macroeconomics. Government-created money systems (aka fiat money) require a certain level of active management. How do you take a person who believes in a flat earth and convince them that the earth is round, if you can't get them in an airplane? How do you take a person that can balance their own checkbook, and help them understand that central banks worldwide have been habitually and artificially creating and destroying "money" since the early 1900s? How do you get them to stop screaming "socialist" long enough to understand? Well, Krugman has an elegant answer to teaching about managing the money supply. He walks the reader through a very simple and very real economy, a baby sitting Co-op in Washington, DC, which uses a paper coupon system to represent babysitting credits. Krugman describes a very real historical "recession" that occurred in this Co-op, and the fix. He also takes the Co-op farther afield with several thought experiments. Krugman relates all this to historical crises (e.g., 1997 Asian Financial Crisis) as well as to our recession today. Krugman is not exactly a Greenspan fan. You will read plenty of criticism of Alan Greenspan's tenure, balanced by a few complements. Krugman is quite complementary about Ben Bernanke (Bernanke hired Krugman into Princeton), and yet pulls no punches, and here the book gets a little detailed. Krugman describes both monetarist and fiscal stimulus approaches to resolving the current crisis. I think he gives monetary policy its due, but Krugman clearly thinks we are doing too little Keynesian fiscal stimulus. If you can remove your ear from conservative talk radio/TV for a few hours,

Packed with Knowledge!

Economic scholar Paul R. Krugman investigates the forces that drive economic growth and recession, and makes sense of several complicated issues. His ability to maintain the essence of a topic while simplifying complex economics with examples and analogies is a hallmark of his work. Despite the gloomy title, the book is not depressing because, Krugman concludes, another Great Depression is not looming in our future. Capitalism has, overall, provided the foundation for prosperity in advanced and developing economies alike. Indeed, the information age has introduced entrepreneurs who have generated wealth while becoming romantic heroes for succeeding in spite of giant corporations. However, Krugman stays alert for dark forces, warning us against panic attacks in the international financial markets, where multiplying negative feedback can overwhelm the effects of monetary policy. We from getAbstract recommend Krugman's in-depth analysis to anyone with an interest in world economics and financial markets.

Why old problems bite back

The beginning of the previous decade saw the establishment of a new doctrine - and almost unbounded optimism about its power: triumph of markets over states, new role of IMF as a policemen of the world economy, "Washington Consensus" about the strict rules that "emerging market" countries are supposed to follow. Later, in the second half of the decade a new impetus was added - rapid development of the Internet and new telecommunication technologies. The olden stuff of economic theories - business cycle, limits of non-inflationary growth - seemed quaint and irrelevant. Isn't today's economy all about "faster, not bigger", bits, not atoms, megabytes per second, not megatons? Not so fast, argued Paul Krugman in this book. It turns out that problems and issues relegated to the history museum have a knack of coming back with a vengeance."The Return of The Depression Economics" doesn't mean that the whole world is about to experience the equivalent of the global "Great Depression" of 1930's. Rather, that many countries are now facing problems similar to big issues that occupied economists and policy-makers in the wake of the great shock of world economy in 1930's. At the core of these problems is a massive and long-term demand failure that some economies experience in the aftermath of previous booms. Unlike a recession - a temporary downturn which can be cured by lowering interest rates (injecting money into financial markets), a depression is a state of the economy so out of balance and with destroyed credibility of the financial system, that extra central banks money or fiscal programs is not transferred into productive investments, but stashed away into savings (or leave the country), which further decreases consumption and reinforces downward cycle."Depression economics" - a classical Keynesian approach originated from the Great Depressions - deals with problems that are usually tackled by "demand-side" recipes. Its own failures since then led to the emergence of the "supply-side" economics in the late '70-early `80s. It concentrated on unclogging the production side of the market equilibrium - such as cutting taxes, deregulation and privatization. Solid economic foundations of such policies were somewhat lacking (Krugman even dismissively calls them "crank theories"), but it did help solving some problems that plagued western economies in previous decades.This set of recipes, however, created its own problems. In case of "emerging markets" these prescriptions are incorporated in IMF and "Washington Consensus" orthodoxy. Although seemingly unrelated, they had much in common with "supply-side" ideology. They include restrictive anti-inflationary monetary policy, privatization, deregulation, opening to foreign markets and generally reducing role of the state. At first they seemed to be successful. In particular they led to dramatic reduction of inflation, endemic in the many developing countries. But that, as it increasingly turns out, was an easy pa

A must for anyone interested in real-life economics

This is clearly one of the best economics books I have read in recent years. Krugman is not only a brilliant economist, but a wonderful writer. He presents a very interesting insight into the recent Asian and Latin American crises and challenges (in a very intelligent and convincing manner) the prevailing economic ideologies shared by most western governments and multinational agencies (e.g.: IMF). This book was a true pleasure to read. Love or hate him, Krugman will make you think.

Krugman makes serious analysis fun to read.

From the July/August 1999 issue of FOREIGN AFFAIRS: A sober -- and sobering -- appraisal of the past two years of financial history. The book covers the unstable dynamics of financial crises, highly leveraged hedge funds, Japan's deflation and liquidity trap, and other economic pathologies. Krugman argues that deficient demand, which has not appeared on such a global scale since the 1930s, is again a potential problem. When appropriate, countries should pursue an expansionary monetary and fiscal policy -- to revive the "Keynesian compact," whereby they maintain free markets but provide government-assured adequate aggregate demand. Krugman also usefully reminds us that economics is a set of analytical tools applicable to diverse situations, not a rigid set of universal principles. He concludes that the Japanese government should generate inflationary expectations so that the real interest rate can decline further -- an unorthodox conclusion carefully derived from straightforward economic analysis. He tells his story in clear prose, without the diagrams economists love. Masterful at presenting complex ideas in simple and sometimes whimsical parables and analogies, Krugman makes serious analysis fun to read.