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on November 27, 2008
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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on January 5, 2009
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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on December 16, 2008
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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VINE VOICEon March 20, 2009
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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on October 9, 2011
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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on September 30, 2012
I really appreciate the way Paul Krugman sorts through the fact and fiction to educate his readers on what is really happening. Too bad more of our leaders aren't listening.
Very good book. 'Enjoyed it very much.
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on July 7, 2013
I enjoyed Microeconomics, History and Finance in college, but found Macroeconomics too boring, dry and subject to too much speculation for my taste. I also did not pay too much attention to the news on the economic troubles of Asia and South America in the 1980's and 90's, or to the economic policies of much of the western world that lead to the current financial crisis that started in 2008 with the collapse of Lehman Brothers. This little book explains all these connections. It is not an economics textbook, but rather an easy read for laymen like me with limited knowledge of economics, written by a Nobel prize winner and recommended by a friend economist who knows much more about the subject than I will ever dream of. It helped me understand a lot of what is going on today, why some economic remedies work for some countries but not for others, and I'm very glad I read it.
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VINE VOICEon December 23, 2008
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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on July 29, 2013
Paul Krugman is an Economist with a common sense view of how we got into this recession and how to work our way out.

This man is not a "Doomsday writer" about our economic troubles. He has a prospective which is not necessarily compatible with much of the economists in the headlines and economic pages of today.

He is not a "talking head" with a pessimistic view. We are on our way up and out.

I felt much better about the future after I had read this book. I liked it very much.

Leon Emerson
Judge, Ret.
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on June 3, 2016
This book had some very interested stories in it. The hard part for me reading it was seeing how liberally skewed it was. I'm a conservative and am ok with reading books that are more liberal, but I think the other side should be acknowledged. I did learn a great deal about economics in the midst of depressed economic states and certainly think I benefitted from reading it.
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