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Economics Search Economics EconomicsThe Return of Depression Economics and the Crisis of 2008
Allen Lane Search Allen Lane by Paul Krugman Search Paul Krugman
Customer Reviews:
pretty terrible book
I would expect a world class economist to put together a proper analysis of the depression and how that event relates to the current financial crisis. This book, however, is the equivalent of a weekend's worth of work and analysis - I would expect an educated and ambitious high school student to put together a more in depth, more insightful and better written work than Krugman has 'achieved' here in this work. This book is quite frankly an embarrassment. It is poorly written (it contains consistent syntactical and grammatical errors throughout), has no references to the great depression of any significance, and the references he does pull in - Japan in the 90s for instance - are not deeply delved into. There are few if any graphs or tables to support his thesis in any way.
Let's look at his analysis of the Japanese crisis. He does seem to grasp that Japan in the 90s bares some resemblance to the current situation but doesn't seem to grasp the real underlying cause. He appears to be constrained to see the world through a limited and perhaps one sided set theoretical tools and such constrains apparently cause him to miss fundamental points. The main problem that has plagued Japan and will currently plague the US and others is the balance sheet impact of a burst asset bubble; when people's assets decrease in value by 25-75%, they are less likely to go out and spend money and consume. It's really that simple.
In the late 80s, the Japanese people and hence Japanese banks were long - way long - real-estate assets; people were taking out 100 year mortgages to pay for these assets. Golly gee - when that bubble burst in the early 90s & their collective net worth went down 25-75% but they still held 100 year notes that were deep under water, is it any wonder then that they lost any interest in spending more money? Of course not Mr Krugman. Mr. Krugman introduces this 'macro' idea of a 'Liquidity trap' to describe what's happened - but he seems to confuse 'policy response' (increased liquidity) with ultimate cause. This idea of a 'liquidity trap' is really an obfuscation and a misunderstanding that focuses on the monetary side of things - the real issue is on the consumer side - banks and consumers were way under water financially b/c of the burst real-estate bubble and hence needed to 'save up' to get back to zero. Adding or removing liquidity from the system as a policy response is a separate issue. And as we've seen - infinite liquidity may be insufficient to make up for large balance sheet gaps - it simply takes time to 'make' money and add it back to the balance sheet to compensate for the negative impact of the burst asset bubble.
When Japanese banks and consumers have saved enough money to balance out the effect of the burst asset bubble (getting back to zero), then local consumption *might* take off again - not before. There are other issues at play in Japan (e.g. demographics of an aging population) but these are in addition to the central problem around collapsed balance sheets directly caused by the burst asset bubble - they are aggravating factors but not causative ones.
In short, this little book is a total waste of time and appears to be nothing more than a professor looking to make a few dollars off his notoriety and the current crisis. Such works do a disservice by not informing the public or worse by misinforming them.
Mr. Krugman gets on his bully pulpit every few weeks and lectures the planet from his perch at the NYT - if this little book is an indication of the depth of his understanding and the level of his scholastic abilities, I don't think anyone should pay much attention to anything he has to say.
Additionally, if this individual is any indication of the quality of output of economists in general, I think the whole profession needs to re-evaluate its fundamentals; this endless debate b/w 'macro vs. micro' and 'monetary vs. fiscal' is worthy of a school boy, intellectual context b/w 2nd rate academics - when the fate of modern capitalism and the lives of billions of people hang in the balance and resurgent socialism is rearing it's worthless, pathetic head in various corners (e.g. the white house), I would expect the best to do better.
I do not think anyone wants stone wheeled push carts to make a big come back since their heyday some 10k+ years ago.
There IS a free lunch 
In this book Paul Krugman analyzes the economic and financial crises from the 1980s on in Japan, Mexico, Argentina, Thailand and the US. He clearly points his finger at the lessons to be learnt and gives on a plate the evident solutions to clear up the mess and to put the world economy on a stable growth path again.
From the 1980s on, capitalism ruled the world unchallenged. But, its greatest enemies are as always, wars and depressions (`the Great Depression in the US in the 1930s came close to destroying both capitalism and democracy and led more or less directly to war.') `The Great Depression was brought to an end by a massive deficit-financed public works program, known as World War II.'
The Asian and Latin-American crises showed the dangers of foreign currency debts (countries are completely dependent on the goodwill of foreign investors), of use and abuse of the printing press (inflation), of rigid exchange rate systems, of cronyism and of economic policies based on `political connections'. Loss of market confidence led to self-fulfilling speculations and self-fulfilling economic panics.
In Japan, the main reason for the economic slump was a real estate bubble.
For Paul Krugman, the main culprit for the debacle in the US was the shadow banking system (not regulated non-bank banks) and the unacceptable risks these corporations took while betting on the concept of moral hazard (heads I win - the private investor, tails you lose - the government = the tax payers).
Actually we are confronted with failures on the demand side (insufficient private spending) together with a credit crunch. Through real and massive Keynesian anti-depression policies (public works), spending should be propped up and credit should be flowing again.
There is a real free lunch available because there are unemployed resources that could be put to work.
Concerning the Soros legend, as Gene G. Marcial unveils in his book `Secrets of the Street', G. Soros had a mole in the Bank of England. By the way, who was the second party in the monstrous anti-pound speculation and who lost the billions? The National Bank of Malaysia?
This eminent crash course for economists is a must read for all those who want to understand the world we live in.
Excellent Analysis of the current situation, light on solutions 
I liked the style of this book, Krugman is a good teacher and in his run-through of financial disasters both old and new he has a sure touch. His use of a baby sitting circle to demonstrate liquidity problems is inspired and this is a good read with lots of information.
The only problem is in the last chapter where he maintains that the heart of the problem is that we haven't concentrated on the supply side of the economic situation. I'm not sure what he means here, as far as I can see the supply side had been part of the problem, and he's not clear what his prescription would mean.
Other than that this is a fine book, readable and timely - I see he was warning about deflationary problems way back in 1999.
Understanding the basics
You don't need to have an extensive knowledge of economics to understand this book. It's written in such a way so you can understand the main principles and values that move the markets and the world economies. It certainly game me a better understanding of the roots of the current crisis, the difficulties the regulators faced and still facing. I would certainly recommend it.
Up there with the best popular writers
Krugman doesn't just make economics accessible to the layman but also provides his own unique insights, in this case to the global economic crisis we're currently in. He also has his own, idiosynchratically exciting way of explaining concepts. You will find differences with other accounts, such as Stiglitz's (whom I greatly admire and am more keen to agree with), which is good, because it provides more food for thought and challenge to the orthodoxy. If you are interested in the global economic state of affairs, you will greatly appreciate this work.
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