Your Garage Luxury Beauty Best Books of the Month STEM nav_sap_plcc_ascpsc Samsung S8 Launch Limited time offer Wickedly Prime Handmade Mother's Day Gifts hgg17 Book House Cleaning animestrike animestrike animestrike  Introducing Echo Look Starting at $49.99 Kindle Oasis Nintendo Switch Shop Now disgotg_gno_17
Customer Review

251 of 281 people found the following review helpful
4.0 out of 5 stars Demand Side Economics, November 27, 2008
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.
Help other customers find the most helpful reviews 
Was this review helpful to you? Yes No

[Add comment]
Post a comment
To insert a product link use the format: [[ASIN:ASIN product-title]] (What's this?)
Amazon will display this name with all your submissions, including reviews and discussion posts. (Learn more)
Name:
Badge:
This badge will be assigned to you and will appear along with your name.
There was an error. Please try again.
Please see the guidelines and FAQs here.

Official Comment

As a representative of this product you can post one Official Comment on this review. It will appear immediately below the review wherever it is displayed.   Learn more
The following name and badge will be shown with this comment:
 (edit name)
After clicking the Post button you will be asked to create your public name, which will be shown with all your contributions.

Is this your product?

If you are the author, artist, manufacturer or an official representative of this product, you can post an Official Comment on this review. It will appear immediately below the review wherever it is displayed.  Learn more
Otherwise, you can still post a regular comment on this review.

Is this your product?

If you are the author, artist, manufacturer or an official representative of this product, you can post an Official Comment on this review. It will appear immediately below the review wherever it is displayed.   Learn more
 
System timed out

We were unable to verify whether you represent the product. Please try again later, or retry now. Otherwise you can post a regular comment.

Since you previously posted an Official Comment, this comment will appear in the comment section below. You also have the option to edit your Official Comment.   Learn more
The maximum number of Official Comments have been posted. This comment will appear in the comment section below.   Learn more
Prompts for sign-in
  [Cancel]

Comments

Track comments by e-mail
Tracked by 1 customer

Sort: Oldest first | Newest first
Showing 1-10 of 13 posts in this discussion
Initial post: Dec 5, 2008, 9:56:28 PM PST
This seems to be a corner for "professional economists", I am not one. But I am 79 years old and have been in the business community since I was 20. I was VP of a building company until the mid 80s during which time we build about 10,000 homes. My part among other things was to manage selling homes with a 12 % interest rate in a 16% market. Sep 81 the US $100,000 long bond sold for as low as $64,375. We were perhaps the first building company to sell the loans at a diffierent time than we sold the houses. All of our home sales were based on fully amortized loans over a fixed period, mostly 30 years and mostly VA and FHA loans. No such thing as a free lunch at that time but the real problem began with the Great Society with LBJ. The most dangerous seed planted was by HUD, a FHA 235 i loan program that in the early 1970s gave credit to the additional dependents (expanded families) and even allowed the total cash investment of $200 be paid by Welfare ( State or Fed). A new 1200 sq ft home sold for $21,500 with 8% interest, however HUD paid 7 of the 8% interest leaving a total monthly cash payment of abouot $125.00. Such a home would have rented for about $200 per month. A new home for less than paying rent. What were the results of this great experiment??? By the way that same house was worth about $250,000 in California in 2006. The results were so bad it is difficult to find the statistics. My real estate company brokered 170. After 5 years only 10 of the original buyers owned the houses, 1 had sold and the rest were foreclosed and the loss covered by FHA insurance. Something for nothing is worth nothing.
That was the accelerating point of US governments attempt to buy votes by giving people a house they did not earn.

Most of the home loans being foreclosed included one or more automobiles, one or more credit limit credit card payoffs. Sometimes the family refinanced and sometimes they bought a new home, while keeping the old one as a rental. The 2 together did not have a payment equal to the fully amortized cost at real interest rates of even one.

Americans will feel better about themselves when the castle they have was earned by themselves. Most are so confused by professional economists manuevering the view of what happened they are in hibernation.

Last short story. In 1956 I purchased my first home, a new 1080 sq ft 3 bdrm 1 1/2 bath home. $1000 cash $8800 GI loan payable @$56.83 PITI. That home was selling for $300,000 in 2006. 360 X $56.83= $20,459 plus new roofs and other maintenance and improvements including interest of about $15,000 +$20459+$1,000= $36,459. Which means in 2006 I could have a reverse mortgage paying me about $3,500 / month for life. Something for nothing created by our economic system. No buyer of a home in California in the last 60 years that paid the monthly payments to payoff ever paid one penny rent to live in that home.
How can an economic system that pretends to give free rent for life plus a free retirement survive???????????
It cannot.
I am not proud of the problem we have handed our posterity.
Ron Rose
Riverside, Ca.

Posted on Dec 12, 2008, 9:53:45 AM PST
Phil says:
Izaac,

Your review says, "This is a re-issue of a book written by Krugman in 1999 after multiple economic crises in the decade of the 1990s."

Based on the other reviews and other info on this book's page, I believe that statement is incorrect and might lead some to not buy the book. Other info on the web page indicates that the author has added significant new information.

If your review erred in this regard, I encourage you to correct it. That would help, not mislead, other readers of your review.

Regards,
Phil

Posted on Jan 25, 2009, 11:41:34 PM PST
Michelle says:
Interesting review and comments. Thanks Ron, for posting your experiences.

I don't believe that regulation and control of the economy by any group or groups can work any better here than it did in the USSR, Red China, or Albania. Therefore Krugman is wrong. The best such tweaking can do is guarantee a looong slow decline. ...or worse. We have worse now (Jan 09). The problem is less real value than book value. To balance the books to reality you must reduce the book value. Someone Will Lose! (The only alternative is to increase the real value, which would take magic. Not likely.) We fool ourselves by playing a game, borrowing, inflating, shifting debt. That only delays the accounting. In our current crisis, as in previous ones, we are attempting to halt the downward plunge of book value. It's as if the real economic forces are trying to tell us that $1000 is really only $400 and as we plunge downward we muster our government PR to reply, "Would you believe $800?" "$700?" "How about $650?" Every time we have pulled out at some number above reality. Every time we do this we recover at an ever further number from reality. The hollow distance beneath us, between us and reality, is ever greater.

Millions of Americans do nothing, or next to nothing and still receive money, buy goods and services they have not earned in the economic sense. Not only welfare recipients, but so called employees in government and union jobs that process minuscule amounts of paperwork or watch others work, for large salaries, benefits, and retirement. Debt, especially government, is shifted around and never retired. How long can we purchase goods and services from abroad with dollars that really have little value, except that so many countries have them, they do not want to admit they have no value. Now there is a hope for magic.

In reply to an earlier post on Feb 7, 2009, 3:44:53 PM PST
[Deleted by Amazon on Mar 17, 2011, 11:47:17 AM PDT]

In reply to an earlier post on Feb 18, 2009, 7:21:23 AM PST
Last edited by the author on Feb 18, 2009, 7:21:53 AM PST
L. Tupper says:
To M. Alexander

I have read Krugmans book and based on what I got out of it, I respond as follows

"I don't believe that regulation and control of the economy by any group or groups can work any better here than it did in the USSR, Red China, or Albania"
Krugman doesn't believe that lack of regulation and control of the banking system (whether or not these institutions call themselves banks) can work any better than it did in the early part of this century in the US. That is, when you have an institution like Lehman Brothers which holds peoples money for interest and then goes out and invests that money, it is susceptible to a bank run and forced liquidation of assets. These institutions need to be regulated and backed by the FDIC (or something similar).
Also, controlling the economy through central planning is not quite the same as setting rules for the market.

"Someone will lose"
That is true, but it is possible to for wealth to be created through innovation and capital investment. Also, our nation stands in a worse position when it is producing far below its potential GDP. The countries debt after WWII was larger than today's when one normalizes by the GDP. We were able to pay off much of that debt because the economy grew very quickly in the years that followed. I think the idea with the government stimulus is the same. People hold onto their money because they don't want to invest in any risky ventures during a recession. They also cut back spending. The former limits the opportunities for wealth creation and the latter causes more job losses due to decreased demand. Government spending creates a dependable source of income which people are less afraid to spend. This counters the cautionary spending and produces more demand ultimately creating more private sector jobs.
In summary, the spending is up front, but much of the wealth needed to pay it back is created by the increased GDP which wouldn't be there if it weren't for the govt. spending (I believe this is Keynes multiplier?).

One final thing, you mention the difference between book value and market value. The market value is a time dependent quantity and depends on how quickly you want/need to sell the commodity. No one knows what these securities are worth(i.e. how risky they are) and their value depends greatly on other economic factors, so it is very possible that their value will greatly exceed their current value if unemployment starts decreasing and more people become potential home buyers.

In reply to an earlier post on Mar 2, 2009, 3:02:52 PM PST
[Deleted by Amazon on Apr 27, 2009, 12:41:38 PM PDT]

In reply to an earlier post on Mar 3, 2009, 12:09:59 AM PST
In reply to "I don't believe that regulation and control of the economy by any group or groups can work any better here than it did in the USSR. . etc." This is apparently posted by a right winger who has no desire to listen to and understand what Obama is doing. First of all, his program is going to create new Jobs in PRIVATE industry, building the new green economy by training people in America to build turbines and blades for the giant wind generators we need, and building and designing the best in the world solar panels etc. Next he doesn't understand that the policies are temporary, not permanent, unlike what George Bush tried to build. Next he does not understand that they are designed to pull us up before it's too late & it becomes a depression. Next he does not understand that the Regulations we are talking about are to keep the rich from just screwing the hell out of the rest of us Like They Have for the last 8 years (or actually much longer). Next he doesn't understand the difference between regulations devised to control greedy SOBs, vs regulations that only exist so a governmental person can make the rules, the latter being what we are not having here now in the new last chance to save our butts policies we are currently passing.

In reply to an earlier post on Mar 7, 2009, 8:48:33 PM PST
Last edited by the author on Mar 7, 2009, 9:14:58 PM PST
BigBadVlad says:
When these "greedy SOBs" get in trouble by making bad decisions, it is Obama (and Bush) and the rest that step in and bail them out. In an actual capitalist society they would be on the street already. The governmental intervention is what will keep people like this in business.
I'm quoting Warren Buffet's yearly letter:
"This unprecedented "spread" in the cost of money makes it unprofitable for any lender who doesn't
enjoy government-guaranteed funds to go up against those with a favored status. Government is determining the
"haves" and "have-nots."...Though Berkshire's credit is pristine - we are one of only seven AAA corporations in the country - our
cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the
moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one."

It is a mistake to think that Bush's "pro-business" policies were actually pro-capitalist. In a sense, he was doing what Obama is doing now. Also: think of all the companies that made huge profits directly because of government (Lockheed Martin, etc.)

In regards to the current crisis, I refer you to Ronald D. Rose's post. The housing market is way overpriced due to various reasons and we need to let it readjust before we can have housing that's affordable to hardworking Americans.

I haven't read this book but I have read a few Krugman's newspaper articles. Considering that there are economists who predicted this crisis, I think it is time to stop listening to the likes of Krugman, Bernanke and Greenspan, who had no clue what was going on and were partially responsible for getting us into this mess.
This crisis is very similar to the Great Depression and what Obama is doing is very similar to what FDR did. That Depression lasted a decade. Now compare that to other Depressions and panics: http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States Typically the government interfered little and the recessions were shorter.
The recession of 1921 is the most interesting because it was a severe correction to a serious overexpansion and was only ten years away from the Great Depression. It corrected very quickly. It is important not to learn wrong lessons from history.

In reply to an earlier post on Mar 12, 2009, 10:37:36 AM PDT
M. Atwood says:
"In summary, the spending is up front, but much of the wealth needed to pay it back is created by the increased GDP which wouldn't be there if it weren't for the govt. spending (I believe this is Keynes multiplier?)."

So if the Keynes multiplier works why not spend 100T or infinite amounts of money? You see the problem? We're in a situation that has come about from loose credit standards and lots of debt (we can argue the underpinnings of that some other time). In order to fix the situation you don't go into more debt.

I've read a lot of Krugmans posts and pretty much disagree with everything he writes. Still, it would intellectually dishonest to not read all sides of an issue. His book should be here in a couple of days.

In reply to an earlier post on Apr 4, 2009, 4:44:37 PM PDT
Vladamir wrote: "I haven't read this book but I have read a few Krugman's newspaper articles. Considering that there are economists who predicted this crisis, I think it is time to stop listening to the likes of Krugman, Bernanke and Greenspan, who had no clue what was going on and were partially responsible for getting us into this mess."

Have you really read Krugman's articles? Because the original version of this book was published in 1999 and did exactly that: "predicted the crisis." Most of the other economists who "predicted the crisis" that you allude to, did this based on this book exactly. Krugman's articles, while they have been very pro-Obama on the spending side, have been very anti-Obama, anti-Bernake, anti-Paulson and anti-Bush on the financial side. Krugman's view is that if a company wants government funds, then it would have to do it under onerous terms (receivership, bankruptcy, socialism, whatever-you-want-to-label-it), which would free up Berkshire's position greatly-as you point out, nobody wants Berkshire's money when they can have the government's money for free. The Obama/Geithner plan is to give money first to stabilize the market and then "stress test" it later. Krugman believes that this is a bad plan, and the problems of Berkshire are exactly the ones you allude to.

Finally the original edition book was written in 1999, before Krugman predicted the housing bubble (he started to write columns worrying about that in 2002). So, like you Krugman seems to see the problem with the financial industry as more fundamental and that the housing bubble as more symptomatic.

Not to say that you and others don't have cause to diasagree with Krugman, but honestly label him in a group with Bernanke and Greenspan, to claim that he supports bailout, and to claim that he thinks the housing bubble is anything more than the trigger of the "return to depression economics" calls into question whether you've read ANY of Krugman's papers, columns (for the New York Times) or blog entries.
‹ Previous 1 2 Next ›

Review Details