The Return of Depression Economics and the Crisis of 2008 | 
| Author: Paul Krugman
Publisher: W. W. Norton
List Price: $24.95
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Rating:  19 reviews
Sales Rank: 79
Media: Hardcover
Pages: 224
Number Of Items: 1
Shipping Weight (lbs): 0.8
Dimensions (in): 9.4 x 6.3 x 0.9
ISBN: 0393071014
Dewey Decimal Number: 330.9
EAN: 9780393071016
ASIN: 0393071014
Publication Date: December 1, 2008
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Product Description
In 1999, in The Return of Depression Economics, Paul Krugman surveyed the economic crises that had swept across Asia and Latin America, and pointed out that those crises were a warning for all of us: like diseases that have become resistant to antibiotics, the economic maladies that caused the Great Depression were making a comeback. In the years that followed, as Wall Street boomed and financial wheeler-dealers made vast profits, the international crises of the 1990s faded from memory. But now depression economics has come to America: when the great housing bubble of the mid-2000s burst, the U.S. financial system proved as vulnerable as those of developing countries caught up in earlier crises and a replay of the 1930s seems all too possible. In this new, greatly updated edition of The Return of Depression Economics, Krugman shows how the failure of regulation to keep pace with an increasingly out-of-control financial system set the United States, and the world as a whole, up for the greatest financial crisis since the 1930s. He also lays out the steps that must be taken to contain the crisis, and turn around a world economy sliding into a deep recession. Brilliantly crafted in Krugman's trademark style--lucid, lively, and supremely informed--this new edition of The Return of Depression Economics will become an instant cornerstone of the debate over how to respond to the crisis.
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| Customer Reviews: Read 14 more reviews...
 Serious Flaws Concerning Current Crisis November 28, 2008
R. Martin (Corpus Christi TX)
121 out of 191 found this review helpful
Although I admire Mr. Krugman as one of the great economic thinkers of our time, I think he misses the point, on several accounts, vis-a-vis our current economic crisis.
When Krugman states that the current economic crisis is "functionally similar" to the Great Depression, nothing could be further from the truth, save the aspect of extending tremendous margins of credit with disastrous results.
There is no doubt in my mind, that what will be coming in the near and intermediate future, will make the Great Depression look like a walk in the park.
Some of the major important structural differences, now from then, are:
1. The United States economy is based almost 80 percent on consumer spending and home building -- other sectors, like agriculture and manufacturing are diminished or have disappeared to other countries.
2. Stratification of functional (dysfunctional) economies by countries (China is the manufacturing nation, the United States is the consumer, etc.).
3. The world is so woven into various trade agreements things appear more similar to alliances in Europe pre-World War I; agreements are transnational, yet any nation state attempting to dig its way through an economic crisis is dependent on countries where little or no influence can be leveraged.
4. Due to the structure and placement of the United States in the world's dysfunctional economic system, any efforts at infusing or pumping our economy, will result of most of those funds ending up in Asian nations. In the 1930's that money was cycled through our economy and our production base, not now. Bush, Obama, or whoever, might as well write a check to China and save a step.
5. During the Great Depression, the United States, and many countries in the world, had a strong agrarian base -- a large segment of the population still lived in single family farms. Many people in the cities, since they still had families "back on the farm" could return home during hard times and at least they wouldn't starve to death.
I received my degree in economics years ago from UCLA, and then went into another field, but it is my impression, that leaders and economists need to step back from their data and charts and take a much more "pragmatic" view of our current economic crisis. Imagine a game that goes something like this:
1. One country harvests apples, on country brings the apples to market, one country sells them and another country consumes them.
2. After a period of time the consumer country will run out of money to buy apples.
3. The consumer country, in order to continue to consume apples uses credit to purchase the apples.
4. Running out of credit the consumer country creates value for items in its possession (bubbles) to extend its credit base on an inflated assets.
5. The consumer country creates complex paper instruments to sell back the debt it's owed to other countries, and tricks them into believing it's an "investment."
Well, you don't need a Nobel Prize to conclude how this game will end. In a very simplistic way, this is exactly what happened and none of the proposed remedies have addressed the fundamental and structural problems that created this crisis in the first place. The United States will need to consume significantly less and produce significantly more real goods to make our economy "whole" again.
As for the problem at hand... I have spoken to several economist in both the United States and in Germany who feel that this crisis will have a very bad ending that might include major civil and political unrest throughout the world and unrest that the United States will not escape.
This crisis will not be solved by unlimited government spending that places the burden of bad debt from the debtors to every man, woman and child in the United States for decades to come through increased taxations. Attacking the problem through deficit spending is only moving the bubble around; we will face the consequences for the past 20 years, one way or the other.
If the government is going to spend several $$$trillion, it needs to be spent to address the human misery that will soon be rolling across this country, not bailing out CEO's with corporate jets and $1,000.00 hairdressers. Hurricane Katrina should be a wake up call to everyone in regards to the limits of our own government.
Demand Side Economics November 27, 2008
Izaak VanGaalen (San Francisco, CA USA)
72 out of 92 found this review helpful
Depression economics is when conventional economic wisdom no longer applies. In a "normal" recession the Federal Reserve would lower interest rates in order to stimulate consumption and investment. According to Paul Krugman, that remedy is no longer getting any traction. He claims it's time to cast conventional economic wisdom to the wind. The economy is in such a deep hole that he's calling for another $600 billion in federal outlays. This is in addition to the $700 billion already asked for by Treasury Secretary Paulson, and looks very similar to Obama's spending plans for next year.
This is a re-issue of a book written by Krugman in 1999 after multiple economic crises in the decade of the 1990s. Japan had just lost a decade's worth of growth for responding too timidly to the bursting of their stock and real estate bubbles. Krugman also analyzes the various currency crises of that decade: from Britain and Sweden in the early 90s, to Mexico and Argentina in the mid-90s, and finally to Brazil and East Asia in the late 90s. These crises occurred as globalization was doing its work in the currency markets.
In his analysis of Japan's lost decade, he argues that everything must be done to increase aggregate demand. The collapse of demand caused by loss of confidence and fear had severely depressed spending and investment. At that point only government spending can lessen the severity of the recession and perhaps even turn the economy around. In Krugman's view, the lackluster response was the reason it took Japan so long to recover. He believes that one should only worry about deficits and debt when the economy is on the rebound. (This is completely contrary to what Robert Samuelson advises in The Great Inflation and Its Aftermath: The Past and Future of American Affluence.)
Krugman claims that the financial crises of 2008 is "functionally similar" to the Great Depression. He does not believe, however, that it will be as severe. We now have the financial tools and institutions - and the hindsight - to make for a softer landing. Nevertheless, this crisis has no end in sight yet. The one big thing that everyone seems to know now is that one does not increase taxes and implement budget cuts during a crisis, as Herbert Hoover did. And which FDR did several years into the Depression.
Another lesson that Krugman derives from the 90's is the need for greater regulation. As one country after another experienced currency problems from investor flight, there was one country that did better than others to weather the storm: that country was Malaysia. It's leader Mahathir Muhammed was of the same mind as Krugman. Managing the capital flows in and out of the country will soften the blows, should foreign investors decide to pull out. The conventional wisdom of the time was that price stability and currency convertibilty were the only things needed, and that the market would take care of the rest. However, in this case, a little more regulation saved them from a crisis.
Depression economics goes against the grain of conventional economic wisdom, and given the current crisis it is coming back into fashion, even among those who preached deregulation and fiscal restraint a decade ago. This theory should be applied sparringly, only in extreme cases - the present crisis probably qualifies. It should not be applied to every minor recession that comes along. The danger of overuse of depression economics is that it can cause a toxic brew of inflation and stagnation - not to mention corruption.
 Suggestions for where to go from here November 28, 2008
Daniel Bates (looking for answers)
50 out of 62 found this review helpful
Nearly a decade ago, Paul Krugman released the first edition of "The Return of Depression Economics," a book that took a close look at the economic crises in Asia and South America. Then he suggested that we were threatened to return to the economic conditions that caused the Great Depression. Since that time, Wall Street and our economy cooked (minus a minor recession) and people forgot all about his book.
Now that the housing bubble burst and the mortgage and subsequent financial crises have taken hold, Krugman created an updated edition of his original book. It's true that the book is greatly updated with lots of new content including:
~ The failure of regulation to keep pace with an increasingly out-of-control financial system
~ Steps that must be taken to contain the crisis (a rarity in the spate of books coming forth in response to the failing economy)
All in all, this book has its place in our analysis of the crisis and some of his suggestions for moving forward are good ones. His writing style is clever and well-informed.
Another book I recommend strongly that has been a tremendous help to me in dealing with the financial crisis and the mounting stress at work is The Emotional Intelligence Quick Book
Eye-opener December 17, 2008
Donald F. St Denis (Atlanta, GA USA)
18 out of 26 found this review helpful
Although the title makes the book sound dismal, Krugman's book is actually an enjoyable read. The author goes out of his way to avoid a dry, stuffy tone. Instead, he tells simple stories, like the one about the baby co-op in Washington, which he uses repeatedly throughout the book to explain progressively more complex ideas.
For me, the biggest eye-opener offered by this book is Krugman's explanation of the unregulated shadow banking system that emerged in recent years and has been caving in prior to and during this financial crisis. What are auction-rate securities, and why did the market for them collapse? And why didn't this get more coverage in the media? Krugman explains this, in part by drawing upon an alarming speech made by Timothy Geithner, Obama's nominated Treasury secretary, in June 2008 in which Geithner described a "parallel financial system vulnerable to a classic type of run, but without the protections such as deposit insurance that the banking system has in place to reduce such risks."
This is a great book: readable, informative and timely. I recommend it to anyone who's eager to dig into a deeper examination of the underlying causes of the financial crisis.
Read now before the flood of other books as its a valuable data point for the complex world we face December 23, 2008
M. McDonald (Chicago, IL United States)
10 out of 15 found this review helpful
The current financial meltdown is something that effects us all, but most of us do not have time to study the issue, its roots, or its potential remedies. Most of us are busy doing our jobs and working to get out of this mess. For us, Krugman's book does a good job of putting a body of information and explanation in one place and that alone is valuable.
Krugman's style and use of analogies is also helpful for people to understand what is going on -- it gets tough at times -- but overall you do not need a post graduate degree in economic to understand what he is saying and arguing. That is even more important as there will be a wave of books coming that treat the collapse in terms of hyperbole and demagoguery looking for easy scapegoats and even easier remedies. You see some of that already happening in other reviews of this book.
I would read this book as a start and to level set what is going on, before the barrage of books come out in the first quarter proclaiming to know what happened and what did not happen. I make this recommendation for several reasons.
The book is largely focused on what has happened and explaining the relationship between capital, consumer spending, investment, interest rates and foreign exchange rates. Those are complex things that are explained pretty clearly.
The book is short and focused, so it is readily accessible and written at a broad enough level to look at the problem without being so detailed that the reader gets lost.
The book knows its limits and stays focused on the events and actions rather than the individual actors. This is what separates it from popular books that look to vilify an individual.
Krugman has a bias in his view, but he does a fairly good job of keeping that bias in check in terms of explaining the economics, capital flows, etc. He also admits when he has called it wrong. That bias does come out most at the end, but by then you are ready for it.
Krugman's prescription for the economy - the need to stimulate demand - is playing itself out every day in the papers as we see demand just drying up as monetary policy becomes so accommodative and low interest rates are not getting it done. This time around is different and we need to recognize that difference and act accordingly.
I am not saying that he has all the answers, but this book is a good place to start in terms of understanding what has happened, why you did not feel it back in the 1990's and why this will be a tough few years to come. Not impossible and not `penance for our sins' just tough work that will hopefully set up another thirty years of economic growth.
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