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248 of 278 people found the following review helpful
4.0 out of 5 stars Demand Side Economics
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...
Published on November 27, 2008 by Izaak VanGaalen

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126 of 141 people found the following review helpful
3.0 out of 5 stars Brief and concise, but not very deep
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...
Published on January 5, 2009 by SJ06830


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248 of 278 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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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.
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126 of 141 people found the following review helpful
3.0 out of 5 stars Brief and concise, but not very deep, January 5, 2009
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SJ06830 (Greenwich, CT USA) - See all my reviews
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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.
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41 of 52 people found the following review helpful
5.0 out of 5 stars Eye-opener, December 16, 2008
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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 sitting 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.
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7 of 7 people found the following review helpful
4.0 out of 5 stars Understanding, March 20, 2009
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Krugman makes the case in his new book, The Return of Depression Economics and the Crisis of 2008, that we have a scarcity of understanding, not resources. He claims that "the only important obstacles to world prosperity are the obsolete doctrines that clutter the minds of men." If you have any interest in uncluttering your mind and achieving some degree of understanding, consider reading this fine book. Krugman writes in a clear style, and uses plenty of examples to illustrate his key points. This book updates the one he wrote in 1999 on the same general topic. The intervening years have made his message even more compelling: we need to abandon the conventional thinking that's getting us nowhere. This engaging and thought-provoking book led me to reexamine my thinking, and to consider the degree to which my mind is cluttered with obsolete thoughts. I highly recommend this book to any reader interested in exploring our economic problems.

Rating: Four-star (Highly Recommended)
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14 of 18 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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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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19 of 25 people found the following review helpful
3.0 out of 5 stars Informative and timely, but where's the references?, January 12, 2009
By 
Evan DeVries (Seattle, Washington) - See all my reviews
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A history of economic disasters from the past 30 years reveals more about the U.S.'s current troubles, and scares the crap out of me in the process. Pretty easy read, and afterwords, I felt much more informed about the 2008 crash, and possible routes out of our current mess. Would've rated it higher but Krugman didn't see the need to include references or a bibliography. We're just supposed to believe him?
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2 of 2 people found the following review helpful
4.0 out of 5 stars Defense of regulation for the lay person, May 2, 2010
This review is from: The Return of Depression Economics and the Crisis of 2008 (Paperback)
Paul Krugman's book The Return of Depression Economics and the Crisis of 2008 is a defense of "depression economics" and greater financial regulation written for the lay reader.

Krugman begins by explaining the very possibility of recessions by using the example of a baby sitting coop. No doubt this is an oversimplification, as Krugman himself admits and as many of the reviewers on here have complained, but it makes immediate intuitive sense of the more abstract economic notion of a liquidity trap and is, therefore, very valuable for economic lay people (like me).

Krugman goes on to outline the financial crisis experienced by Mexico, Argentina, Japan and south east Asia in the 1990s and attempts to diagnose their causes. Krugman argues that these crisis were misunderstood by the general economics community and because they were misunderstood we were lulled into a false sense of security. As he says in regard to the crisis in Mexico "The lesson taken...was that Mexico's debacle was of little relevance to the rest of the world". It was not "about the way the world at large works" but had to do with the specifics of Mexico's economy. Basically the attitude among the economics community was "That can't happen to us, it's just those crazy Mexicans". Krugman believes this is a mistake because Krugman sees capitalism as being fundamentally unstable and a prey to self-fulfilling panics which can drive even a fundamentally sound economy into economic crisis.

In Krugman's section on Asia's crisis he outlines what he calls "The Vicious Circle of Financial Crisis". There are three parts to this vicious circle 1) Loss of confindence 2) Plunging currency, rising interest rates, a slumping economy, and 3) Financial problems for companies, banks, and households. The big problem is that each of these "factors" reacts positively on the others creating a feedback loop that can spiral even a healthy economy downwards. Even if an economy is fundamentally healthy a loss of confidence in the economy can lead to plunging currency, rising interest rates, and a slumping economy which in turn can create financial problems for companies, banks and households leading to a further decline in confidence, etc..

So what can be done? Krugman does not provide a detailed answer to this question but gives two general answers. First, if an economy finds itself in this downward spiral and ordinary monetary or central banking policy has proven ineffective the government needs to step in with increased spending in order to stimulate effective demand and slowly rebuild the fundamentals of the economy as well as investor confidence. This is what Krugman means by "depression economics". This policy should not be used indiscriminately as it can give rise to inflation, but should only be used when the economy has proven itself unresponsive to other fixes. Krugman is a firm believer in the multiplier effect and believes that greater government spending can, if used properly, propel the economy out of a liquidity trap.

Secondly, and perhaps more importantly, the government can enforce greater financial regulations which will make the economy less prone to self-fulfilling panics. One of Krugman's major thesis is that the economic crisis in the United States in 2008 was caused by what he calls the "shadow banking system"; a group of bank like institutions that were not technically banks and so were able to engage in high risk lending and were not FDIC insured making them prone to "bank runs". Krugman argues that anything that acts like a bank needs to be regulated and FDIC insured in order to prevent another similar crisis.

Krugman is certainly a controversial figure. He is not shy about stating his own opinion. Krugman does not attempt, in this work, to carefully and cautiously lay out each competing opinion, in a fair and balanced manner, ultimately leaving it up to the reader to make up his own mind about what needs to be done. Part of Krugman's thesis is that in times of crisis the government needs to be decisive and cannot rely on half-and-half measures. For Krugman economic "compromise" can be disastrous. This book, therefore, takes a stance and attempts to defend it. Whether you ultimately agree with Krugman or not he always backs up his own opinions with reasoned arguments and statistical evidence when applicable. Even if you disagree with Krugman you will never have to guess why he thinks what he does. Krugman is, therefore, the most important liberal voice out there today, and I for one am glad that there is at least one person intelligent enough, and courageous enough, to openly defend liberal principles against the rising tide of conservatism, instead of falling back on a timid and feigned stance of "objectivity" and indecisiveness.

This book may not provide any new information for trained economists as it is written for the lay person. But I highly recommend it to any and all educated lay people who are interested in understanding the nature of our current financial crisis, as well as the nature of financial crisis in general, as well as one proposed solution to those crisis.
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5 of 6 people found the following review helpful
5.0 out of 5 stars The clear argument about liquidity traps, October 9, 2011
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This review is from: The Return of Depression Economics and the Crisis of 2008 (Paperback)
While the title of the book might lead one to believe that the core of the text is about the latest financial crisis, Krugman's writing comes from his thoughts about other financial crises in the late 1990s. He became persuaded that the Great Moderation of the late 20th century was a myth, that we were not finished with old-style depressions, and any country (including the United States) could slip into a liquidity trap.

Unfortunately, the world confirmed his judgment far sooner and more brutally than most thought possible. Lest you dismiss his work because you think of him as a domestic-policy critic from his writing for the New York Times, Paul Krugman won the 2008 Nobel Prize in economics for his work in international trade. Pay attention: agree or not, this is a coherent argument about the world we have inherited from 2008.
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2 of 2 people found the following review helpful
5.0 out of 5 stars Excellent overview of economic crises since the great depression, June 20, 2010
This review is from: The Return of Depression Economics and the Crisis of 2008 (Paperback)
The short 191 page book is a great overview of the world's economic crises since the great depression. It explained the different causes of economic crises in the Latin America, Japan, Thailand, Korea, Malaysia, UK, Hong Kong and the U.S. It discussed the roles of non-bank banks played in causing the present crisis. It is an easy and interesting read, especially for a book about economy. The book does not provide any specific suggestions for preventing a crisis from happening again. Like many of the reviewers have pointed out that the book is not very deep and lacks references. It is however, an excellent starting point for general readers that are interested in learning more about the causes of economic crises and strategies used for boosting recoveries. It is obvious to every hard working individuals now that one can no longer leave the decisions of economic policies to the economists, bankers and politicians. In the age of globalized economy and the internet, things are moving so fast and so inter-dependent, no one can maintain one's life style without an understanding of what is really happening in the financial markets and the world economy.
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4 of 5 people found the following review helpful
4.0 out of 5 stars Well written, enjoyable and easy read, August 13, 2009
By 
Sculpin (Torrance, CA) - See all my reviews
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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.
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The Return of Depression Economics and the Crisis of 2008
The Return of Depression Economics and the Crisis of 2008 by Paul Krugman (Paperback - September 8, 2009)
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