My Quiet Life My Quiet Life

The Return of Depression Economics

Despite the ominous title, this book is not all doom & gloom. Instead, Krugman plainly lays out his case for the return of economic circumstances very representative of the depression-era 1930s in the emerging markets of our global economy. He hints that their fate isn't so far-removed from ours, and that there are important lessons to be learned. Krugman's straightforward and unpretentious style is as apparent and helpful as ever, making this book enjoyable by economists and laypersons alike. First, Krugman attempts to dispel the myth that the recent crises in many emerging markets (particularly Asia) are simply punishment for some lack of discipline or other economic offense. He argues that while they may have committed offenses to the economic policy wisdom of the day, their punishment hardly befits their crime. Instead of writing off these crises as righteous retribution, we should be paying attention to a more serious emerging pattern of instability and fragility. Despite the focus on the current global situation, the book serves as a great education in the basics of our macroeconomic system. In order to make his case, Krugman uses many examples from the past few decades of various economic crises (Japan, Thailand, etc). In each, he outlines the policy decisions made leading up to the crisis, and details what caused the crisis itself. The decisions, he contends, were only bad in hindsight (which is always 20/20). At the time, however, they were reasonable and plausible policy decisions that didn't warrant the complete economic implosions they were delivered. Krugman also touches on his favorite pet subject, the dread "liquidity trap" (see [this][1] for more). Using Japan as his example, Krugman demonstrates how situations can arise where traditional monetary policy can become ineffective. Krugman's solution for Japan was simply to bite the bullet and accept inflation as a necessary evil and increase the money supply. Indeed, as I understand it, Japan has since heeded this advice. Reading a book with as many answers as questions it asks is always gratifying, and here, Krugman delivers. In addition to his ideas for Japan's liquidity problem, he also explains his theory on the evils of hedge funds and other forms of monetary/currency speculation and their effects on the artificial inflation of economies. Because of the differences in size between our economy and that of some emerging markets, speculation on or against the currency of these markets can dwarf that of the economy itself, leading to the dangerous inflation of the economy. This is no less a problem for established markets such as ours, except that we have the credibility to recover from a bubble-bursting, whereas the effects can be disastrous for smaller, emerging third-world markets. I can also credit this book with finally helping me understand how short-selling and hedge funds work, thanks to a short but dense footnote explaining how it works. All in all, a very well-written and obviously well-thought-out book from one of the best economists and thinkers of our time. If you're interested at all in macroeconomics and how it pertains to the politics of our world, this book is a great place to start. [1]: http://www.wws.princeton.edu/~pkrugman/trioshrt.html