The Return of Depression Economics and the Crisis of 2008 by Paul Krugman (PDF)

Description

The New York Times bestseller: the Nobel Prize–winning economist shows how today’s crisis parallels the Great Depression―and explains how to avoid catastrophe. With a new foreword for this paperback edition. 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. Brilliantly crafted in Krugman’s trademark style―lucid, lively, and supremely informed―this new edition of The Return of Depression Economics has become an instant classic. A hard-hitting new foreword takes the paperback edition right up to the present moment.

User’s Reviews

Editorial Reviews: Review Krugman s facility with both arcane details and vast unified explanations boils down complexity so much that the reader often wonders: Why didn t I see it that way myself? “The most celebrated economist of his generation. “Krugman ‘s facility with both arcane details and vast unified explanations boils down complexity so much that the reader often wonders: Why didn t I see it that way myselfThe most celebrated economist of his generation. About the Author Paul Krugman, recipient of the 2008 Nobel Prize in Economics and best-selling author, has been a columnist at The New York Times for twenty years. A Distinguished Professor at City University of New York, he lives in New York City.

Reviews from Amazon users which were colected at the time this book was published on the website:

⭐Paul Krugman, Nobel Laureate in Economics, has recast an earlier publication of his 1999 work, “The Return of Depression Economics” to include the recession that has begun in the United States.The author traces the causes of economic hardships in this century in Thailand, Brazil, Japan, Argentina, Sweden, Mexico, and other Latin America countries. He examines their recessions and their solutions that exacerbated the problem or contained it. These solutions ranged from devaluing the currency to expanding or tightening credit, or changes in tax policy, etc.. His point is that all of these are lessons that the United States ignores at its peril.The book’s expansion focuses on the US and the pitfalls that were made back in 1930 that made our recession into a depression. According to Professor Krugman, many Americans believe that our economy is immune from a 1930s style Depression because of “safeguards” that were taken to prevent such a crisis from recurring. But in the 1980s, traditional banks were given more freedom to do what “they thought best” through deregulation. Unfortunately, deregulation was a double-edged sword that allowed banks to take bad risks,” with less incentive to avoid them.Some on the right blame the sorry state of economic affairs on the Community Reinvestment Act, which purportedly compelled banks to make risky loans to minorities who then defaulted. This law was passed in 1977; it is hardly likely that a law took 30 years to infect our economy. People on the left assert that it was the repeal of the Glass-Steagall Act, which might have moved us closer to our economic woes, but is not the main reason. Krugman believes unregulated institutions that took bad risks helped fuel our recession. When these “shadow banks” outgrew conventional banking, regulation and protection for the public did not follow.Case in point is the sub-prime mortgages that have failed. Mortgages were made to ninjas (no income, no job, no assets). This was of no consequence to the lender who didn’t care if the borrower could not make the payments so long as the cost of housing market kept rising. When housing prices started going to the basement, default rates started going to the attic. But these didn’t become ordinary mortgage foreclosures.The lenders weren’t banks but “loan originators.” They sold the loans to financial institutions “which in turn, sliced and diced pools of mortgages into collateralized debt obligations” known as CDO’s which were sold to investors who placed many of them in pension funds. The better shares were given AAA rating, which would have first dibs on payment. These were considered safe. It became apparent that even these weren’t risk-free when the housing bubble burst, and no one was paid.This brings us to “depression economics.” It is insufficient private spending to make use of the available productive capacity, or demand-side economics, which he believes is critical for prosperity. He dismissed supply side economics as a “crank doctrine that would have little influence were it not for editors and wealthy men.”Overcoming depression economics requires bold action. Professor Krugman advises an expansive, Keynesian recapitalization that is at least 4% or 5% of GNP. In other words, a stimulus of gigantic proportions. It will require more government control that borders on nationalization of our financial system until the economy is robust enough to return it to the private sector. He also advocates that the federal government lend money, temporarily to the non-financial sector. And it isn’t just the US economy that he is concerned about. By lending money to developing countries and Europe, we free up credit to be used here. The author contends that it is a global economy that requires fixing if we are to survive. “The worst thing we could do is failing to do what’s necessary out of fear that acting to save the financial system is somehow `socialist.'”What is exceptional about this book is the author’s ability to make complex economic models simple so even a simple rube, like myself, wouldn’t have to fast for a month in the nude, wondering if it would all come to me in a vision. Thanks to PK, I learned far more about the sub-prime mortgage lending, the inner working of hedge funds, than I had known before. Each chapter provided one lesson of instruction after another.As the professor states, it’s time we relearn what our grandfathers taught us.Being it’s April 15th, it’s also time for a cup of tea. (I’ll drink it instead of throw it).Also Recommended:Taibbi, Matt, “The Big Takeover,” Rolling Stone Magazine, April 2, 2009.

⭐Like: everything. Krugman’s writing is crystal clear. He tells the story of depressions around the world with depth and clarity for such short essays. The essays read almost like mystery stories. Snd added bonus is that he describes how to solve the depressions and return to more normal times.

⭐Maybe I didn’t read the critical reviews closely enough before buying The Return of Depression Economics and the Crisis of 2008, but this book wasn’t quite what I expected. Paul Krugman is a well-known liberal who also wrote a book, that I haven’t read, called The Conscience of a Liberal. I expected The Return of Depression Economics and the Crisis of 2008 to spend a lot of time beating up conservatives and pushing Krugman’s own opinions. It did that to some extent, but turned out to be mostly a good history book on various recent economic crises. Krugman includes a discussion of the Latin American crisis of the 1980s, Japan’s crisis that began in the early `90s and really continues to today, and Asia’s crash of the late `90s. He does a nice job relating those crises to the crisis that we are in today, and includes a discussion of hedge funds, Greenspan’s impact, and the shadow banking system.There were a few interesting comments in the book that surprised me. Krugman uses a babysitting co-op example from the 1970s to help explain some economic concepts. It is a useful and helpful analogy. But, to my amazement, he says, “And so the co-op’s story ought to inoculate us against fatalism and pessimism. It seems to imply that recessions are always, and indeed easily, curable.” (emphasis mine) He uses the word “always” strongly in that context based on an extremely simple analogy. It is quite a stretch to draw such a strong conclusion from a simple analogy. Another quote that I found surprising was with respect to Japan’s crisis, “…why not just print enough money to keep spending up so that the economy makes full use of the capacity it has?” I can think of many reasons not to do this, such as the debt load created, inability of congress or the fed to reign in spending or money, etc.. He certainly knows the same arguments and probably disagrees with them; unfortunately, he doesn’t bother to address them. He just leaves that statement hanging there. I found that disappointing, as I would have liked to have read his arguments.While I didn’t agree with all of Krugman’s conclusions, I liked the book. Most of it told of historical events, and while he threw in his analysis and conclusions, and took a few potshots at conservatives, I believe that anyone from any political or economic persuasion should enjoy reading it. It is thoughtful, well written, and easy to read. It is not written as a textbook, but in a style that anyone can read and enjoy.

⭐Over the past 20 years there has been a plethora of books on the macroeconomics purporting to address and enlighten us as to the whys and wherefores of the world economic down turn. Paul Krugman’s “The Return of Depression Economics” joins the ranks of the over abundance of such books. However, in this case the contents of The Return of Depression Economics come from the pen of a highly esteemed professor of economics and Nobel Prize winner for economics. So has Krugman got anything new to say or does he bring clarity to a subject that can be dense and complex.For a short, book Krugman is certainly ambitious in terms of the period and number of countries that he covers. He sets his arguments in the context of politics, reminding us of the now old fashion academic discipline known as political economy. Although it could be said that Krugman’s economics is of a left leaning brand, he does not shirk from admitting that with the collapse of the Soviet Union the overall economic situation is nonetheless one in which capitalism has won out over socialism. That victory, however, comes with a caveat: “if the current economic crisis persists and deepens capitalism victor won’t last forever other ideologies will emerge.”To return to my set question, I am not so sure that Krugman has anything new to say. What I particularly admire about the book was its avoidance of economic jargon and where possible technical and abstract economic concepts. Instead what we get from the book is a plain speaking narrative with Krugman doing his best to explain things by extended analogies for the uninitiated. I was fascinated by the analogy of the baby sitting coop which Krugman used to explain a number of important economic ideas such as the reason for increasing or decreasing interest rates, inflation and the lack of demand in an economy – just to mention a few.The book attempts to examine most of the significant economic crises of recent times. To that effect it sometimes reads like an economic tour of some far flung countries such as Mexico, Argentina, Thailand, Malaysia, Indonesia, etc. In respect of these countries, along with the well established economies, Krugman gives a good explanation of boom and bust. He quite rightly castigates politicians and economist for not learning lessons from the past, for making poor decisions and for not being bold enough to make decisions in a timely manner.To some extent the book reads like a political polemic. It is broadly a one-sided account of the problems faced by the world’s major economies. Whilst Krugman does not explicitly acknowledge that it is a one-sided account he nevertheless implicitly does so. A subsection at the end of chapter states: “Most commentators on The Asian crisis would probably find some detail of the account in this chapter to quarrel with. Some would argue that the damage done by moral hazard-driven lending was greater than I suggest. Some would argue, on the contrary, that the economies were really in good shape, and that the crisis was wholly gratuitous.”For those of us who lack the ability to quickly grasp some of the economic ideas we hear in the daily news or miss the details of some of the interesting stories, Krugman provides brief but good explanations – for example, the workings of hedge funds. Then there are the interesting stories such as how George Soros managed to undermine the pound’s position in the European Exchange Rate Mechanism. He also provides a good explanation of the development of banks and the coming into being of central banks.The Return of Depression Economics is a short, highly readable book about the economic problems faced by a number of countries in recent years. The book is a little one-sided perhaps but nonetheless a book that I would recommend.

⭐Nobel Laureate Krugman writes with his customary incisiveness and authority about the 2008 global financial crash.Firstly he reminds the layman of the extent to which market values are affected by volatile emotional factors, such as trader confidence. (This is explored further in Akerlof and Schiller’s `Animal Spirits’.)The main impact of the book, however, is the description of the huge scale of financial speculation and gearing within the parallel banking system. Krugman lays before us the scandalous lack of regulation which he holds as the primary culprit of the collapse. Once he has us reeling with this frightening depiction of unrestricted and irresponsible financial wizardry, he goes on to recount the multiple opportunities taken – in the forms of press leaks etc – to manipulate the markets, in order to complete the process of siphoning off the money from those of us who felt the system was in some way trustworthy.If you’d like to understand where all your savings went, look no further than Krugman’s crisp, timely account.

⭐The most important thing about this book is that it was written in the aftermath if the 2008 crises. Think of it as “the big short” by an expert. There aren’t really any solutions in here. I’m reviewing this in 2017. Something a bit more up to date is required.That said if you want to know what went wrong read this. Excellent writer for the non expert. An enjoyable romp through our recent financial foolishness . This is why it all went wrong.

⭐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.

⭐Some Nobel winning economists are terrible writers – Krugman is easily the best when it comes to engaging prose.As an aside, some Nobel winning economists are terrible economists as well, but this isn’t the time nor place for that…

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