The Return of Depression Economics and the Crisis of 2008

The Return of Depression Economics and the Crisis of 2008In , In The Return Of Depression Economics, Paul Krugman Surveyed The Economic Crises That Had Swept Across Asia And Latin America, And Pointed Out That Those Crises Were A Warning For All Of Us Like Diseases That Have Become Resistant To Antibiotics, The Economic Maladies That Caused The Great Depression Were Making A Comeback In The Years That Followed, As Wall Street Boomed And Financial Wheeler Dealers Made Vast Profits, The International Crises Of The S Faded From Memory But Now Depression Economics Has Come To America When The Great Housing Bubble Of The Mid S Burst, The US Financial System Proved As Vulnerable As Those Of Developing Countries Caught Up In Earlier Crises And A Replay Of The S Seems All Too Possible In This New, Greatly Updated Edition Of The Return Of Depression Economics, Krugman Shows How The Failure Of Regulation To Keep Pace With An Increasingly Out Of Control Financial System Set The United States, And The World As A Whole, Up For The Greatest Financial Crisis Since The S He Also Lays Out The Steps That Must Be Taken 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 Will Become An Instant Cornerstone Of The Debate Over How To Respond To The Crisis This is a reworking of a book Krugman released in 1999, now new and improved It is a popular audience piece on the current economic debacle, focusing on the mechanics of banking Krugman gets what is going on in the world of economics better than just about anyone The Nobel committee would agree He links the current downfall to several that have come before across the world and shows how we have arrived at a sort of financial perfect storm condition It is readable and very incisive. This is an excellent review of the reasons why the American economy has turned into the debacle that is before us Must read explanation at the end of Chapter 8 which dispels all the partisan B.S and fingerpointing about the alleged causes behind the meltdown and focuses blame where it should properly reside Very interesting as well is the way that he deals with moral hazard not making judgments but allowing the reader to determine if this is a factor in causing fiscal chaos or not How much of economics is just an extension of psychology and sociology Well, Krugman doesn t say, but he shines a light on the topic and lets you decide Market prejudices, self fulfilling prophecies, short sale exacerbation of problems are all presented in matter of fact positions that outline them as trip wires in the process without calling them good or bad He takes on the Keynesian notions of free market and explains why Paulson s TARP and stimulus packages should work, but at least freely admits when they aren t as effective as predicted A great and easy read for the layman trying to understand the difficulties of the current economic crisis. This isn t nearly as good a book as it could have been the book it could have been is Freefall America, Free Markets, and the Sinking of the World Economy, which, if you were looking for a book to read on the GFC that is quick, easy and jaw dropping, that is the one I would recommend.This book was really looking at the Asian Financial Crisis, but has been updated to include information on the GFC of 2008 The most interesting parts of the book relate to the need to re regulate the financial system When capitalism is booming there is a general desire by capitalists to get rid of all regulations However, it is precisely this removal of regulations that sets up the Ponzi schemes what used to be called Pyramid Schemes that inevitably lead to bubbles and in their turn to crashes Capitalism s worst enemy is its own excessive self belief Was there ever a boom in which the participants did not claim busts had become a thing of the past Was there ever a boom in which participants warned that things might be getting out of hand or attempted to do something to take the heat out of the boom before the inevitable bust With the smashing of the wealth of Middle America, with the crushing impoverishment of large swathes of the US population lose your house and you lose most of your wealth , it will be interesting to see what happens next Will the vast majority of US citizens just roll over and take the consequences of their financial security evaporating into thin air Will the majority of Americans continue to accept that the only way to have a secure financial future is to direct ever billions to the people made rich in the bubble and who remained rich after it burst So far it looks like the most likely outcome of the GFC is that the Republicans will be re elected in the next election The most likely outcome of that will be another round of excessive social security directed at the already obscenely wealthy The kind of reverse Robin Hood syndrome you would think most people would find revolting in the extreme, but that the poorest seem to cheer along with as long as Fox News is singing its praises.We live in interesting times It is hard not to be pessimistic, in fact, I ve given up trying. Krugman analyzes the many financial crises the world had in the 20th century and this decade He derides the economists who say that the Depression is a thing of the past The first edition of the book did not have anything to point out, but Krugman was proved right with the collapse of the financial markets in 2008.Krugman uses the example of a baby sitting co op to illustrate how money supply and inflation play their part in financial booms and busts He also provides solutions on how the simple lessons from the coop can be applied to large scale economies of countries He explains the dangers of large financial firms in creating modern banking crises that can devastate the financial workings of countries.The major shortcoming of this book is that it does not consider realpolitik in the formulation of economic policies Of course, this is not Krugman s domain as he is an economist, not a politician But as a practical matter, economic and financial policies in democracies are based on political considerations Ignoring that means that the solutions will remain idealistic. In how many ways can economic crises happen Paul Krugman answers a lot In his book The Return of Depression Economics, Krugman thrills us with the fact of how little we know about crises, how vulnerable our financial system is, and how dangerous globalization could be In fact, he gives us three reasons to be obsessed about our economy the breakdown of Japan, the vicious circle of financial crisis, and the haunting ghosts of non bank banks From 1953 to 1973, Japan stunned the world with its miracle of transforming into the second largest economy from the destruction of World War II The economy of Japan was superior with well educated workers, state of art technology, and high saving rate Krugman points out two important sources of Japanese propensity a prudent government with strategic designs and distinctive economic style with protections for major companies from short term financial pressure The result of this system was a country able to take a long view and develop stable development for strategic industries one by one Some would think that the propensity of Japan is unbreakable No, it is not The irony is that those same distinctive characterizes the cozy relationship between government and business, the extenuation of easy credit by government guaranteed banks to closely allied companies come to be labeled crony capitalism and seen as the root of economic malaise More traumatically, the direct cause was just a slight deregulation by the Japanese government over banking system the government gave banks freedom and competition A land bubble at the beginning of 1990 was the only need to make moral hazard spread throughout Japan s financial institution The bubble burst and Japan s economy plummeted Hence, Krugman shows us the first two ways that a sound economy can go wrong crony capitalism and bank deregulation The next obsession that Krugman notices us is the vicious circle of financial crisis This nightmare circle starts with one eerie word panic The distressing truth in economics is that the panic itself makes panic justified Similar to Japan, Thailand experienced estate and stock bubbles during 1990s, and suddenly, the bubble burst The confidence in Thailand s currency and economy shrank, and thus, in panic, investors exchanged baht for dollars or yen and plunged the value of the Thai currency Meanwhile, the Thai government was stuck with the confidence game and had to raise interest rates Consequently, financial institutions and companies were caught in a double trap of rising value dollars, and rising interest baht debts The combination of baht depreciation and high interest rate ultimately sank the economy in deeper recession, which further washed away the confidence The financial crisis fulfilled its vicious circle of melting down Thai economy More importantly, panic is contagious It turned out that whatever the differences among all those economies, one thing they did have in common was susceptibility to self validating panic The crash of Thailand initiated the domino effect leading to the crash of Asia Thus, Krugman tells us another stories of recession Just thinking about it chills our bones All economies depend on confidence A moment somebody somewhere loses his confidence, not only does his own economy quickly melt away, but also his neighbor s economy Finally, the evil speculator globalizes the financial system by forming a parallel banking system or shadow banking system, a set of institutions and arrangements that act as non bank banks If we take an overall view of all crises Tequila wreck, Japan s trap, and Asia s crash we find a striking pattern The banking system lacks proper regulation and engages in too many risks Then, estate and stock bubbles swell and burst Consequently, people lose confidence and panic starts Now you should shiver when knowing that a whole shadow bank system operated on a global scale that was never regulated in the first place Those financial institutions participate in different sorts of risky cross border bets The housing market crisis in U.S creates a transmission mechanism driving fresh rounds of crises overseas Also, there is a special point of vulnerability called carry trade in the emerging markets The borrowing from low interest rate countries and lending in high interest rate ones complete our picture of full scale financial globalization When the housing bubble in the U.S burst, all non bank banks, regardless of country borders, shrink together in a vicious cycle of deleveraging The mechanism of this circle is similar to the circle of financial crisis The loss of confidence damages some institutions Highly leveraged players in the economic system suffered losses, which forced them into actions that led to further losses, and so on In this case the losses occurred through the collapsing value of risky financial assets rather than through the collapsing value of risky financial currency After providing us many obsessions about economies, Krugman alleviates our worries The world economy is not in depression it probably won t fall into depression, despite the magnitude of the current crisis although I wish I was completely sure about that For sure, he does not intend to scare us In fact, Krugman tries to lessen the gravity, voids all dry jargon, and enlivens the book with ton of questions and a quizzical tone Certainly you will enjoy reading the book However, the matter Krugman tries to convey is itself serious About 70 years ago, John Maynard Keynes said We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand Krugman simply repeats the machine is big and we know nothing. Paul Krugman, if you haven t been paying attention to economics for a while, writes a column for the New York Times He has a reputation as a modern day Cassandra, who repeatedly describes the state of modern economics and lays out policy goals for how to fix them, only to not be listened to by anyone in power His columns have definitely become annoyed over the past five years because of that, and he even has his own image macro which is honestly pretty appropriate, considering the utter idiocy coming from both sides of the political divide nowadays thought not in equal amounts, admittedly But this book was written before any of that happened Long before, actually the original The Return of Depression Economics was published in 2000 in response to the Asian financial crisis of the late 90s, and this version updates it with additional thoughts about the banking crisis of 2008 and how its roots are traceable in the same sort of problems that caused the Asian financial crisis.I originally had this as five stars, but changed it to four stars after a bit of thought The why is down at the end.Most of the beginning of the book is a parable of economics in the form of the Capitol Hill Baby Sitting Co op A group of couples composed of staffers on Capitol Hill get together and start a baby sitting co op, where they agree to provide baby sitting for each other They print up a bunch of coupons, distribute them evenly to all founding members, and each coupon is good for one hour of baby sitting Anyone who wants to go out will have to baby sit and save up the coupons to spend later Here, you have the basics of an economic system.Now, what happens if a group of couples are worried that in the future, they ll want to go out several nights in a row, and maybe a bit after that, and they won t have enough coupons saved up because the supply is limited They stop going out now and start looking for opportunities to baby sit The problem is, that reduces the pool of available baby sitting nights for everyone, so pretty soon people start worrying that they won t be able to go out when they want to, and they stop going out, which makes things worse and worse as and baby sitters are chasing fewer and fewer baby sittings Congratulations You re in a recession The main reason Krugman brings this is up is to show how malicious or stupid or both most arguments about recessions tend to be It s not because workers are lazy, or because their skills don t fit the new economy, or because regulations are too tight, or because of some quirk of Capitol Hill culture, or whatever the excuse is Perfectly rational people can drive an economy into recession by following perfectly rational goals.One way to fix this is for the co op to issue coupons If the supply of coupons is larger, than the couples worried that they won t have enough coupons will be assured that there will be plenty of chances to get them, so they start going out now, thus increasing the supply of chances of baby sit, thus mollifying everyone else who was worried, and bringing things back to normal And that s why banks issue money during recessions, and what the point of quantitative easing is.Another way is for coupons to devalue over time Since fewer people want to go out in the winter, the logical choice for any single couple is to baby sit in the winter and go out in the summer, but that leads to supply issues in both seasons But if each coupon buys one hour of babysitting in winter, but only 45 minutes of babysitting in the summer, couples have an incentive to spend them instead of hoarding them, thus keeping them circulating, and so the co op economy survives And that s why persistant inflation can be a good thing.Obviously, this is incredibly simplified, and in a real economy there are dozens or hundreds of other things to consider, but it s a surprisingly good example for how concise it is and how silly it seems.I don t want to go into too much detail about the various crises covered in the book, because Krugman does an excellent job, but a lot of them come down to three things A speculators gonna speculate or B failure by the government to properly regulate or C moral hazard Moral hazard is probably the most immediately relevant to Americans like myself, since it s a huge reason for the banking crisis that s currently still going on and was never properly dealt with The basic principle is that betting with other people s money means you don t really care as much when you lose, and most of modern finance is betting with other people s money without risk the government will always bail out the banks, then if they win they keep all the money, and if they lose they suck the extra from the government, and thus win either way I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank You are a den of vipers and thieves Andrew JacksonAnd almost 200 years later, things aren t that different.The book says that austerity is precisely the wrong way to deal with the kind of crises depicted within, because seizing up a market further when the flow of money has already been choked will just make things worse And in the years since this was written, with what s happened to Europe and it s own policies of austerity, which have multiple times threatened the very existence of the Euro and brought Greece to the brink of financial apocalypse youth unemployment is above 50% well, no wonder they call him a modern Cassandra Here is the warning, and it was not listened to He suggests that the government temporarily nationalize the banks and directly lend to the consumer while the financial system was sorted out Unfortunately, due to supply side idiocy and Protestant work ethic moralizing that economy needed to suffer to purge out the rot, none of that happened And now housing prices in Southern California are approaching or exceeding the level they were before the crash, bank profits are at an all time high, and unemployment remains above 7% Crash 2.0, anyone Unfortunately, the book loses a star from me because I don t think that the solutions proposed really work Krugman says that governments need to be sure to regulate the shadow banking system that provides a lot of the benefits of the actual banking system without the same restrictions Most of the solutions are on the national level, but as Krugman admits, a lot of the problems were caused by global finance, and without any sort of international organization to regulate that, the end result of regulations in any individual country are the creations of Monacos and Cypruses and Canary Islands.Exactly what form the next response should take isn t clear, but financial globalization has definitely turned out to be even dangerous than we realized.Indeed But if we, and Europe, can t even handle our own national financial systems, how can we regulate the international system If only we had an answer. Mostly very good Krugman s claim at the front of the book that he intends to make it readable to the wider non economic savvy public doesn t really hold up by the end sadly There are many head scratching paragraphs that I had to read multiple times to properly understand Economics to me is like most sciences, I m sorry, but no matter what people say, they are the sort of subjects that can never be fully accessible to the average Joe The very nature of their subject requires jargon, near impenetrable concepts and a hefty dose of a good Maths background to properly appreciate Still, Krugman is better than most, and has some very funny turns of phrases here and there His baby co op metaphor at the beginning of the book for the way the housing market was treated by banks was particular inspired, and an excellent way to clarify the complex clusteruck of CDOs, sub prime mortgages, derivatives and others that lead to the crash Overall, his analysis is one I agree with Unregulated banking, along with their wanton stupidity and their ever increasing, never ending demand for money that all capitalists share alike led to the collapse Not, as the pernicious, worthless, dishonest little scum in the UK Conservative Party have managed to suggest, because of Labour s spending A ludicrous claim How does a spending deficit cause a banking collapse Krugman provides a clear, insightful, hugely detailed outline of how things went wrong, and subsequently gives an informative plan for a global recovery Sadly, the book, being published in 2009, now seems a disappointingly lost cry, as his plans for a worldwide economic recovery V.Keynesian spending and growth increases have not been pursued In actuality, we have the perverse situation in which a neo liberal free market capitalist failure is trying to be resuscitated with a neo liberal, free market capitalist solution In continental Europe it s been an absolute disaster, with mass unemployment and huge political and economic unrest stemming as a result of it In the UK it would seem to be on the surface doing much better high employment, low inflation etc which is a shallow cover for a deeply flaky recovery, with jobs being self employed, very low paid until very recently, on zero hour contracts, and with no chance of it being a long term secure recovery It may well be shown to be made of sand when the winds of another economic judder which under neo liberal free capitalism is almost certain possibly putting people s lives at risk again Also, the wider and crucial point to make is that austerity, if not an economic red herring based on shaky and ill founded principles the report George Osbourne used to justify his austerity plans were subsequently proven to be dogshit, which numerous data errors in it , has utterly failed on a moral level It is an absolute obscenity to humanity It has produced a destroyed NHS health care system, which as Noam Chomsky has so astutely identified is a classic case of stealth privatisation, where you defund something to the point of collapse, look at the numerous failings, let the media go look See Public services don t work and then usher in for the private vultures to come and feast on it The benefit social security system has ripped to pieces, with the mass majority of people who need benefits to, you know, live, being cruelly stripped off it, leaving them starving and reduced to poverty because of the fanatical determination of the Conservatives to stamp out the minuscule crime of benefit fraud which counts for something like 3.0% of benefit spending Disabled people have suffered even worse through the social cleansing programmes, being chucked out of their wheelchairs in order to be shunted back to work, and sometimes actually killing themselves out of despair.For the youth of today, they have seen public education struggle, their EMA cut, and higher tuition fees For women, lack of money into the police force they are failing to record 800,000 crimes a year, including one in four sex offences in the UK Also, 74% of austerity money grabbing has come from women s pockets, with women now being the majority of low paid workers Women are left caring for both small children and the elderly as their childcare services are cut Funding for refuges and rape crisis centres has also been cut At local levels, councils have essentially become a pointless club where councillors and local MPs meet to sit around twiddling their funds, as local government money have been so slashed it has left services such as local NHS hospitals in dreadful states, and libraries constantly under threat of closure, and with little to no power left to them I could go on There is a litany of abuses and abominations committed under the guise of a rational technocrat way of dealing with the economy It is of course, not technocratic, but deeply ideological The right wing have always hated the concept of the state They ve always hated social democracy They ve always hated the idea of helping the poor and protecting the weak They ve always sneered and spat on the concept of a society worthy of being called one, where the poor, the working, women, ethnic and racial minorities, the disabled and the young are treated equally and with fairness and decency They ve harboured these hatreds since the end of WW2, but put on a brave face and pretended to go along with the enormous social and economic changes produced after WW2 Thanks economic crash, it has given the Right the chance to utterly and finally destroy the state, and drag us all back to their utopia of the 1930s reborn Their decades long plan to get rid of all that universal suffrage bullshit in the words of fanatical Right winger and hack blogger Paul Staines is nearly complete.I feel glad that people like Paul Krugman are around to constantly poke holes and demonstrate the lies and idiocy surrounding right wing neo liberal thinking I only wish people had listened to him The three stars is because although very detailed, and containing a vast knowledge of economic catastrophes of roughly the past 30 years, it s still quite dry It acts like a textbook sometimes than a work of political theory which is probably what it was meant to roughly be But it is still very erudite, and a great educational tool for understanding the mess we re in now In conclusion, when reading Krugman s account of the myriad of economic recessions and crashes from the 80s onwards, finally ending in its tragic crescendo with the 2008 09 crash, never before have Marx s words about how under the constant insatiability of capitalism All that is solid melts into air, all that is holy is profaned seemed so apt. I just finished reading The Return of Depression Economics and the Crisis of 2008 by Paul Krugman, recipient of the 2008 Noble Prize in Economics Great read This book, given as a gift to me by my step mother for xmas, turned out to be a real gem Putting it all into perspective, I believe I have a better understanding of how complex economies of scale seemingly always return into major depressions for some time, even despite vast regulations meant to compensate for sharp short term fluctuations.In the book, we revisit the crises of mid 90 s Mexico aka The Tequila Crisis , 97 98 Asian markets, 2000 US market, 2002 Argentina crash, and the recent 2007 8 US and world market collapse Most of these crashes can be attributed to situations where the markets distance themselves too far from market fundamentals Unregulated activity and financial loopholes allow some speculators to take advantage of many situations In the case of Britain in 1992, George Soros was able to net a cool 1 Billion dollars in a short amount of time, merely by provoking the GBP to deflate I knew this story in passing already, but the book has the gritty details of what made this possible.Additionally, I learned about the IMF, and how the US utilizes them to bail out flaky third world economies to ensure that they don t fall into complete disarray, thus perhaps ensuring their dependence on the US even further, and thus perhaps even enslaving them to our superiority Hrmmm, chew on that In conclusion, I now recognize the gravity of the crises we are currently in If the book is correct, our markets are in for much damage in the coming months Be prepared Also, we probably won t find our way out of this official depression until 2010, judging by the data presented We will also likely see a stimulus on the order of 4% of US GDP at least Much of this, the author claims, would be wise to place into infrastructure revitalization, since this slump will probably be longer lived than most, thus ensuring longer term projects are formidable Interesting stuff Let s see what happens Cheers and happy new year This book was disappointing In every way, disappointing.The book was about the return to depression Economics What are depression economics, you ask I don t know He never actually explains what he means by that He ends the book by saying we have to go back to good old Keynesian macro economics But he never explains what that means either The book is SUPPOSED to be for non economists That s the whole reason he uses the Capital City Baby Sitting Co op in a whimsical fashion to explain stuff Well, suffice it to say, he didn t succeed I like my stories just as much as the other person, and the first time he did it, it kind of sort of made sense, because he explained what it meant, but the rest of the book was basically just him self congratulating himself on predicting various economic downfalls.Basically the book was a litany of economic recessions, slumps, and liquidity traps where economic growth didn t happen and what the governments did to get out of them It was kind of funny though He was like, in Asia the governments did this and it didn t work In Mexico the government did this.and it didn t work In the U.S.A the government did this and it didn t work In Japan the government did this.and it didn t work In Argentina the government did this.and it didn t work Surprisingly, in most cases, the government did what the central bankers and economists wanted it to do andit didn t work You would think that he would catch up on the underlying theme here, but he didn t There are only two things I got from this book economists like the author are full of themselves and think that they are smart enough to manage the complexity of global markets as central bankers and they aren t The arrogance was palpable It was as if he was saying If I had been in charge it would have been fine I m pretty sure if he had been in charge the slumps would still have happened The other thing is that economists like the author are idiots He said at one point that there wasn t enough coupons ie money in circulation so they should just print It s likeumthat s inflation I don t know about you, but having lived in a couple of countries now where inflation ran wild, it is definitely not a good thing And here he is thinking he will know exactly how much inflation is good and how much is bad I don t think he, or anyone, is smart enough to manage an economy like that There are too many variables.The other thing I came away with is I am starting to think that credit is a terrible idea For most of the depressions, slumps and recessions since the 1930s the problem came about essentially because banks overextended themselves in the credit that they offered people They lent out too much of the money that people had entrusted to them and then didn t have enough cash on hand to pay them all back, they lost money on bad ventures and didn t have enough cash to pay their depositors back That was basically the underlying theme Once the banks were regulated, savings and loans over extended themselves on credit Once those went out of business, hedge funds and securities accounts over extended themselves on credit And yet somehow he came to the conclusion at the end of the book that we need MORE credit The mind boggles I suppose that some credit in small amounts is good, but this over dependence on credit where people buy houses, cars, and whatever else they want purely on credit, then struggle for decades to pay it all back seems kind of stupid to me The only people who get money off of that are those who are already well to do Finally, he keeps talking about millions and trillions of dollars in wealth disappearing Um I don t agree That wealth isn t wealth It s inflation.basically So the housing market in the U.S was a bubble, houses were worth than they actually were, so when the market adjusted back to a suitable price for houses, the overprice wealth disappeared But it never actually existed It was just a projected value A projected value that turned out to be wrong because no one could or would pay for it You can t really call that lost wealth like dashed expectations I m not saying that it didn t have awful consequences on the people it happened to I m saying that viewing something this ethereal as wealth in the first place is the wrong attitude.

Paul Robin Krugman is an American economist, liberal columnist and author He is Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs, Princeton University, Centenary Professor at the London School of Economics, and an op ed columnist for The New York Times In 2008, Krugman won the Nobel Memorial Prize in Economics for his contributions

[Reading] ➹ The Return of Depression Economics and the Crisis of 2008 By Paul Krugman –
  • Hardcover
  • 288 pages
  • The Return of Depression Economics and the Crisis of 2008
  • Paul Krugman
  • English
  • 27 July 2018
  • 9780393071016

Leave a Reply

Your email address will not be published. Required fields are marked *