The Return of Depression Economics by Paul Krugman

[zoidberg]

Just finished this book last night. I highly recommend it to everyone.

An unsolicited book review by Zoidberg

Paul Krugman’s book, written in 1999, takes on monetary policy, globalization, high stakes international finance, and the worst economic disaster in recent history. Amazingly he produces a work that can be understood and appreciated by anyone who normally shies away from talk of interest rate and currency boards.

Krugman’s premise is that monetary and fiscal policy can be used to combat faltering demand in the economy. More government spending, tax cuts, lower interest rates, devaluing currencies and printing more money can all be tools to jumpstart a nation’s economy. The United States could have ended the Great Depression by printing more money. Japan could get out of its decade long recession by implementing a plan of controlled inflation. But since the learned men of economics know so much about how to fix the economy, how did the string of economic collapses in Asia and Latin America during the late 90s occur?

Well, it turns out that foolish decisions by the IMF, massive unregulated hedge funds (see George Soros) and self-fulfilling prophecies on the part of financial markets all damned many nations to collapse. While many nations committed economic sins such as over-regulation and crony capitalism, none of those sins warranted the terrible consequences that followed. Some regulation of capital markets is warranted to ensure that 90s-style depressions do not cripple developing economies in the future. The IMF should not demand higher interest rates and thorough reform of nations in order to secure help.

Free markets and globalization have helped hundreds of millions of people throughout the developing world substantially improve their lives. Financial speculation run amuck must not be allowed to ruin that.

[Merlin]

1. You sold me!

Krugman is the commentator of our time, just as Scotty Reston was back in the late 50s and early 60s, and George Will was in the early 80s.

We are very fortunate to have him.

I appreciate your comments on this because I wouldn't have read it otherwise. Just ordered it from Amazon:
http://www.amazon.com/exec/obidos/ASIN/0393320367/qid=1058460799/sr=2-2/ref=sr_2_2/002-9530638-6186453

[zoidberg]

4. Further Krugman reading

http://www.pkarchive.org/

This website has many of Krugman's articles and columns from before he went to the New York Times. His book The Accidental Theorist is made up almost entirely of old columns that can be found on this site. You can save yourself some money just by searching through here. :)

[TreasonousBastard]

2. I suppose I should read the book before shooting my mouth off...

but the problems of Argentina or Thailand aren't the problems of the US, Europe, or Japan.

Countries like Thailand are dependant economies that aren't self-sufficient in today's world. They have one foot in the door of an international economy, and have given up past sif-sufficiency in essentials like food and housing for the "dream" of a Western lifestyle. Argentina is a few steps up the ladder, buit still not htere yet, and dependant upon on external affairs. It even had its currency linked to the dollar until recently.

Developed economies have other problems. Japan, North America, and Europe have made some mistakes, but I suspect a fundamental problem is the saturation of demand. In a nutshell, everybody pretty much has everything they need, or can afford, and there just isn't a pent-up demand that throwing more money into the economy would seriously affect growth.

Truth is, in the US there is plenty of money around, and we don't have the liquidity crisis we had in the 30's. It just isn't being spent properly. Realigning wealth and income disparities is probably the best way to get things going again.

[zoidberg]

3. I didn't mean to imply that the problems were the same

The problem of the 'tequilla crisis' and the Asian crisis was that financial markets punished those currencies for rather small sins. The United States, Europe and even Japan can get away with quite a bit more because aren't going to pull out wholesell because of shaky news. Thailand, Indonesia and other countries were progressing quite nicely economically, with a better life across classes, until they were hit by an unfair and preventable depression in the late 90s.

As for demand in the rich world - I really don't see why 'need' would be an issue as far as stimulating the economy. I have everything I 'need' right now, but I certainly wouldn't bury a middle-class tax cut in my back yard.

[Tigermoose]

5. Hmm...yes...well...

if you have a massive trade deficit where the money does not flow back into the country because the international community no longer feels secure in your markets, then no matter how much money you print it will just flow to the rest of the world and not come back. And the more you do that, the less the money is worth overall, and the more expensive your imports are, thus making the vicious cycle worse.