Paul Krugman has written an excellent book that should become required reading for every member of US Congress. It can also be understood by people, who care, are unbiased, and do not accept doctrines a priori and without analysis.
It is well written without too much jargon. Krugman suggests many practical solutions for dealing with the terrible consequences of a worldwide economic slump that an excessively greedy, U.S. financial industry has inflicted upon the world's economies. He avoids dealing with issues that get too deep into partisan politics and he refuses to analyze the unbelievable political power that the financial industry has acquired with financial "rewards" to politicians aligned with the financial industry's demands. The ugly and utterly deplorable repeal of the Glass-Steagall Act and its replacement by the bipartisan Gramm-Leach-Bliley Act is worth a book or an investigative report on its own "merits".
His analysis of the causes of the U.S. economy woes is incisive, inclusive, and very informative. His plan for getting the U.S. economy out of its present stupor lacks "shovel ready" projects and ideas. Some related issues were treated barely or not at all. Nevertheless, Dr. Krugman's book is a singularly important contribution to accelerating the much needed recovery from the damage our banks have heaped onto the USA's standing in the global economy and to the quality of life of the average U.S. citizen.
Some items that are missing from Krugman's otherwise excellent, clarifying, and new-ground-breaking book are:
o He never explored how big the GDP contribution of the financial industry actually is; this industry receives huge support from government and taxpayers while its actual contribution to the national economy remains cloaked in mystery
o We already know that economic losses, resulting from irresponsible behavior of the financial industry run into the tens of trillions; what needs to be done to avoid the next, potentially even larger financial crisis?
o He never mentions the sorry state that the SCIENCE of economy is in; mathematical models are useless when irrational human behavior is part of the modeled process and when common sense is replaced by doctrines at odds with factual data
o He studiously avoids to give his estimate for the amount of stimulus that was actually needed for stabilizing demand at the end of the Bush term; how does 2 trillion sound?
o He did not put the blame of our existing troubles on those, who were partly responsible like Reagan, Clinton, Bush, Rubin, Paulson, etc.
o He never tackled the ugly subject of unavoidable and economically mandatory redistribution of incomes
o He did not address the subject of increasing instability of financial markets
o He blames the slow recovery on the "liquidity trap" without suggesting effective countermeasures
o He suggests that lacking demand is at the foundation of our economic woes
o He does not give a clear solution for solving the imploding demand puzzle
o He never mentions the overpowering role that the lack of disposable income, defined as the dollars left after paying taxes, food, fuel, insurances, and contributing to the education of children, has for the lower ranks of the Middle Class and of the unemployed and how this amount effects the national demand of goods and services
o He never mentions the terrible toll that uncontrolled and unavoidable medical costs have on the disposable income of families with aging breadwinners
o He never addresses the total neglect of reducing unemployment by the Fed (after all it is the second of their two major missions; the first one being the maintenance of a low inflation rate)
o He admits that the Fed's initial focus on inflation and on subsequent flooding the national economy with "printing" money has shown to be ineffective
o He never stumbles over the idiosyncrasy of the Fed's inability to act on its two missions; the Fed admits that it is incapable of stimulating demand to increase modest inflation and it has factually abdicated its mission of reducing unemployment completely
o He does not discuss what national debt levels are safe; however, he states clearly and convincingly that debt issued in US Dollars does not have the same negative impact as debt taken in other countries' currencies
o He does not expand on his observation that the huge unemployment after the Great Depression did not result in an army of unemployables; unemployment was eradicated at the moment the economy was stimulated by defense expenditures and by recruiting after Pearl Harbor had been attacked and after the begin of World War II
o He never explores why the waging of the Afghanistan and Iraq Wars did not have the same effect
o He never addresses the issue of financial stability improvements; drivers of automobiles try to brake when an idiot runs a red light, financial institutions promote financial uncertainty and instability to reap maximum rewards from frightened politicians and taxpayers
o He never discusses the easy give-away of more than $700 billion to banks and the fact that a large part of that money was converted into huge, lowly taxed executive bonuses
Since Professor Krugman is hopefully continuing his writing for the New York Times, one can reasonably expect that he will review some of these omissions in due time. I am looking forward to the wisdom and intellectual clarity dispensed by one of the few economists, who truly deserved the Nobel Prize and the lasting esteem that comes with it.
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