The Return of Depression Economics and the Crisis of 2008 [Paperback]

Paul Krugman (Author)

Book Description

Publication Date: September 8, 2009

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.

Editorial Reviews

Review

“The most celebrated economist of his generation.” (The Economist )

“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?” (Boston Globe )

Book Description

Winner of the Nobel Prize in Economics

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Product Details

• Paperback: 224 pages
• Publisher: W. W. Norton & Company; Reprint edition (September 8, 2009)
• Language: English
• ISBN-10: 0393337804
• ISBN-13: 978-0393337808
• Product Dimensions: 8.2 x 5.6 x 0.6 inches
• Shipping Weight: 6.4 ounces (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (131 customer reviews)
• Amazon Best Sellers Rank: #30,238 in Books (See Top 100 in Books)

More About the Author

Paul Krugman is the recipient of the 2008 Nobel Prize in Economics. He writes a twice-weekly op-ed column for the New York Times and a blog named for his 2007 book "The Conscience of a Liberal." He teaches economics at Princeton University. His books include "The Accidental Theorist," "The Conscience of a Liberal," "Fuzzy Math," "The Great Unraveling," "Peddling Prosperity," and two editions of "The Return of Depression Economics," both national bestsellers.

Customer Reviews

Most Helpful Customer Reviews

232 of 262 people found the following review helpful:

4.0 out of 5 stars Demand Side Economics, November 27, 2008

By 

Izaak VanGaalen (San Francisco, CA USA) - See all my reviews
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This review is from: The Return of Depression Economics and the Crisis of 2008 (Hardcover)

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.

110 of 124 people found the following review helpful:

3.0 out of 5 stars Brief and concise, but not very deep, January 5, 2009

By 

SJ06830 (Greenwich, CT USA) - See all my reviews

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This review is from: The Return of Depression Economics and the Crisis of 2008 (Hardcover)

This is a slim book (<200 pages with big font and wide line spacing) that covers a lot of material. While I like Paul Krugman's clear, informal writing style and use of analogies to past crises, I didn't find these episodes to be explored as deeply as I would have liked. This book seems more suited to people who are new to macroeconomics. For example, the babysitting coop analogy is a classic, and still one of the clearest, simplest ways to explain the interaction between monetary policy, aggregate demand, and consumer behavior. More data and a few charts would have helped to illustrate the economic and market conditions around the asian and latin american crises, and helped to put the magnitude of these (and the current crisis) in perspective. I liked his discussion of when the severity of some crises seem disproportionate to what fundamental conditions would initially suggest, which sounds a lot like soros' reflexivity (e.g. people perceive a bank to be bad (whether accurate or not), pull their money, cause a run, bank fails, => people create the conditions in which their fears are realized).

Overall, this is a quick easy read, helpful as a concise, clearly written primer on what been going on recently.

13 of 16 people found the following review helpful:

4.0 out of 5 stars Read now before the flood of other books as its a valuable data point for the complex world we face, December 23, 2008

By 

Mark P. McDonald (Chicago, IL United States) - See all my reviews
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This review is from: The Return of Depression Economics and the Crisis of 2008 (Hardcover)

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.