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End This Depression Now! Reprint Edition
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A New York Times best-selling call to arms from Nobel Prize–winning economist Paul Krugman.
How bad have things gotten? How did we get stuck in what now can only be called a depression? And above all, how do we free ourselves? Krugman pursues these questions with his characteristic lucidity and insight. He has a powerful message for anyone who has suffered over these past four years―a quick, strong recovery is just one step away, if our leaders can find the "intellectual clarity and political will" to end this depression now.
- ISBN-100393345084
- ISBN-13978-0393345087
- EditionReprint
- PublisherW. W. Norton & Company
- Publication dateJanuary 28, 2013
- LanguageEnglish
- Dimensions5.6 x 0.8 x 8.2 inches
- Print length288 pages
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Editorial Reviews
Review
― Dissent
"A thoroughly persuasive polemic against premature fiscal austerity in the wake of a deep recession."
― Financial Times
"[Krugman] makes an urgent, even passionate case that our economic problems are, at root, fairly simple, and we have the knowledge and the tools to solve them."
― Rolling Stone
"An important contribution to the current study of economics and a reason for hope that effective solutions will be implemented again."
― Kirkus Reviews
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- Publisher : W. W. Norton & Company; Reprint edition (January 28, 2013)
- Language : English
- Paperback : 288 pages
- ISBN-10 : 0393345084
- ISBN-13 : 978-0393345087
- Item Weight : 8.1 ounces
- Dimensions : 5.6 x 0.8 x 8.2 inches
- Best Sellers Rank: #2,506,537 in Books (See Top 100 in Books)
- #1,826 in Public Policy (Books)
- #2,029 in Economic Policy
- #2,349 in Political Economy
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About the author
Paul Krugman writes a twice-weekly column for the op-ed page of the New York Times. A winner of the John Bates Clark Medal who was also named Columnist of the Year by Editor and Publisher magazine, he teaches economics at Princeton University.
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So the solution to our economic problem, Krugman insists, is not austerity (which might work for households) but the opposite. We need the government to spend money to create jobs so that people can buy other people's goods and services. We especially need some infrastructure building here at home instead of in the Middle East.
"Collectively," Krugman asserts, "the world's residents are trying to buy less stuff than they are capable of producing, to spend less than they earn. That's possible for an individual, but not for the world as a whole. And the result is the devastation all around us." (p. 30)
The other thing to understand about governments, especially huge governments like the US with a $15-trillion a year economy is that government intervention can smooth out a crisis. This is because the US will not run out of people to buy its debt since its tax base is so huge that the risk of default is miniscule. When the economy gets back on its feet tax revenues will increase and the debts will be paid. Well, not paid in full. That is unlikely to ever happen, since it makes little sense. To borrow to buy something you don't need like luxuries is not wise. (Wars are usually luxuries for governments.) But to borrow to help grow the economy is a fine investment. Sound companies borrow because borrowing allows them to take advantage of their knowhow in producing goods and services that people will buy allowing the company to make money. Borrowing to party big time to impress the neighbors or your girlfriend grows no wealth. (Wars are sometimes shock and awe parties for heads of state looking to stay in power.)
Aside from offering the solution to our economic woes in simple, straightforward terms, Krugman also does an outstanding job of explaining how we got into this mess in the first place. I've read several books and a number of articles explaining the mortgage crisis, the "too big to fail" bank welfare fraud and the derivatives hustles, but nowhere is this spelled out in as clear as fashion as Krugman does here. He is simply the best economist writing for an informed non-professional public at work today. This is not to mention that he is also a Nobel Prize winning economist.
As for wages being too high, Krugman writes:
"...today it's often argued that more labor market `flexibility'--a euphemism for wage cuts--is what we really need" (to cure high unemployment). "But while an individual worker can improve his chances of getting a job by accepting a lower wage, because that makes him more attractive compared to other workers, an across-the-board cut in wages leaves everyone in the same place, except for one thing: it reduces everyone's income, but the level of debt remains the same. So more flexibility in wages (and prices) would just make matters worse." (pp. 52-53)
I think the average person, even the fairly well educated average person, doesn't really understand how banks work and how they make money. I didn't until I was well into my fifties. Certainly the core of the Tea Party doesn't, although some of the supporters of financial institution deregulation do and that is precisely why they want deregulation. Here's how Krugman explains this in part:
First he notes that the Glass-Steagall act of 1933 primarily did two things. It "established the Federal Deposit Insurance Corporation (FDIC) which guaranteed (and still guarantees) depositors against loss if their bank should happened to fail" (p. 59) Additionally, "Glass-Steagall limited the amount of risk banks could take. This was especially necessary given the establishment of deposit insurance, which could have created enormous `moral hazard.' That is, it could have created a situation in which bankers could raise lots of money, no questions asked--hey, it's all government-insured--then put that money into high-risk, high stakes investments, figuring that it was heads they win, tails the taxpayers lose."
Krugman then reminds us that this is exactly what happened during the savings and loan scandal of the Reagan administration. Likewise, the big investments banks knew during the later years of the George W. Bush administration that they were in fact too big to fail and the government in order to prevent a massive financial meltdown would have to bail them out if their Pandora's Box of risky derivatives (and other "financial instruments") went toxic. This knowledge gave them free rein to gamble like drunken sailors--well, that knowledge and the (how sweet it is!) deregulation of investment banking that took place primarily in the Reagan, Clinton and George W. Bush administrations. Toxic those gambles went and both the Bush and the Obama administrations found themselves with no choice but to bail the banks out lest the whole economy come tumbling down.
One of the results of deregulation has been the enormous increase in the wealth of the top one percent (yes, those people) and what has happened to the real income of most of the rest of us. Krugman has two charts on page 74 showing the growth in household income from 1947 to the present. While the rich have indeed gotten richer the average family has seen its income growth "slowed to a crawl."
But it's even worse than Krugman makes it appear. That's because the only reason middle income Americans have been able to tread water is because many of those families became two income families. In other words the head of household's real income has actually fallen.
Another factor in the actual decline in the average worker's buying power and the amazing increase in CEO compensation comes about, Krugman suggests, because worker's unions have lost a lot of their power. "It's surely relevant here to note the sharp decline in unionization during the 1980s, which removed one major player that might have protested huge paychecks for executives." (p. 82)
One more point. Krugman argues that the harsh austerity measures currently being acted out in Greece and other places in Europe are not only mistaken but based on a kind of "morality play" mentality. We all understand how it feels when our neighbors get away with something like buying houses they can't afford. We don't want the government to bail them out. They were fiscally irresponsible and should have to pay the piper. However even if that is true it doesn't help us by administering punishment in the form taking place in Greece, Ireland, Spain, and elsewhere. Our standard of living will suffer if we place our desire to punish others ahead of our doing what is necessary to grow the economy. It would help a lot if somehow some of the mortgage indebtedness were to be forgiven, is what Krugman suggests.
In short, there's a tremendous amount of economic wisdom in this book, so much so I would recommend it as a supplement to a college macroeconomics text. You'll find that a number of the sometimes difficult ideas in those texts are illuminated almost incidentally by Krugman as he explains how we got into this mess and how we can get out. I wish this were required reading for high school students and the members of the Congress of the United States.
--Dennis Littrell, author of "The World Is Not as We Think It Is"
Dr. Krugman makes clear that indeed we are in a depression. He defines our present circumstances as a liquidity trap in which the majority of the population cuts back on spending in order to reduce debt. Businesses do the same; they lay off workers and build up a reserve. Banks too deleverage to ride out the storm, but get right back into the shadow-banking, derivatives and chinagins that helped get us into this mess. (J.P. Morgan just lost two billion through misdirected dark derivative trading.) Consumers will not borrow even at zero percent and interest rates can't go much lower than that. Like Japan for a decade, we cannot grow out of the liquidity trap.
Krugman goes to great lengths to describe the polarization of economists in their conflicting understanding or misunderstanding of the causes and solutions to our dilemma. Economists apparently understood the causes of the Great Depression, and legislators as well enacted regulations and safeguards to prevent it happening again. Since the 1980s, however, legislators supported newer, more fashionable and erroneous economic beliefs, systematically repealing those earlier safeguards. I like Krugman's description of current economists as: salt water economists versus freshwater economists. Those may be euphemisms for Democrats and Republicans. In any case Salt Water Economists appear to be the good guys.
Quoting from the book, "Yet Lucas, a Nobel laureate who was a towering, almost dominate figure in macroeconomics for much of the 1970s and 1980s, wasn't wrong in saying that economists had learned a lot since the 1930s. By, say, 1970 the economics profession really did know enough to prevent a recurrence of anything resembling the Great Depression. --- And then much of the profession proceeded to forget what it had learned." Krugman goes on to explain, "How a mix of politics and runaway academic sociology, through which basically absurd notions, became dogma in analysis of both finance and macroeconomics."
I love the phrase, "runaway academic sociology." I take it as a foreshadowing of the trade deficit and the funneling of middle class wealth into the hands of the wealthy. I call it a money pump that drained wealth from the Middle Class, first to our trading partners and then back in the form of foreign investment into the hands of the nouveau riche plutocracy that so benefited from this flow of wealth, the 1% and the 0.01%. I thought - and I was mistaken - that Krugman would define academic-sociology as the near messianic belief that unregulated trade could do no wrong.
Krugman makes a compelling case for using the tools that we still have to end this depression. He argues soundly that the stimulus package did not go far enough. His suggestions listed first of all government-spending as the essential ingredient for getting us out of the liquidity trap. The list includes areas of immediate impact like funding states and local governments at such a level as to meet the need for projected but canceled spending on critical local measures -- such as teachers. The list further includes spending on critical infrastructure, not exotics, but things like the electric grid, rail-bed upgrades, roads, bridges and so forth. Interestingly, Krugman shows that a measured degree of inflation at around 4% could further stimulate production reduce the cost of debt and allow for a real interest rate below 0%. (The real cost of money must include inflation) Furthermore, Krugman establishes, at least to my satisfaction that inflation will not come roaring back. He additionally favors more and extended relief for those who struggle, and he further proposes mortgage payment relief through refinancing. He also mentioned the need to push China to follow the rules about the value of its currency.
Krugman attributes the depression to the systematic dismantling of the banking rules which had been designed to prevent the depression from recurring and the aggressive behavior of banks and other businesses as a result of loosening those safeguards.
I did not find any description of the role that the trade deficit did or did not play in this crisis. Last month's deficit in the balance-of-trade came in at over fifty billion dollars. The trade deficit just keeps growing -- and for many decades now. I do not know how you can explain the depression without acknowledging the not so slow drain on the US consumer from jobs, manufacturing and sales revenue going overseas. I do not see in Krugman's book, the big money flow that makes the 1 - 0.1% so wealthy and the middle class so poor. We all know that for generations now our wives have had to work. We also know the struggle to pay college tuition for our children, many if not most families deferring to college loans - but that's another story. Politically incorrect as it may be, the trade deficit looms as the unmentioned elephant in the livingroom. Six hundred billion a year amounts to over 4% of the GDP. Anyway we look at it that's a drain. Furthermore most of it returns in the form of foreign investment seeking a safe haven. It must keep hedge fund managers staying up at night thinking up investment instruments to sop up that transferred wealth. I don't see numbers equating the loss to the middle class by service jobs transfered overseas, or the loss of local jobs as a result of manufacturing overseas.
American companies' overseas profits remain overseas because of high corporate tax rates. Furthermore, domestic corporations reduce their tax burden by paying upper management inflated salaries. The executives manage tax shelters by their own means, thus paying less tax than the average middleclass consumer. So, the Middle Class not only unwittingly transfers wealth to the wealthy, but pays their share of the taxes on it as well.
Let's end this trade deficit now and end the money pump. Daddy Warbucks will scream his head off and pay a fortune in PR convincing the public that you can't do that. He is laughing all the way to the bank - he is the bank. Krugman's book stimulates these thoughts and questions in my mind. I hope more of the American public will ask these questions as well.
My economics was at Kansas. Not being too clear on Keynesian economics, I looked up my college professor's opinion of Keynesian theory. In John Ise's introduction to his 1950 text, Economics, He writes, "Although I do not regard Keynesian doctrine as the whole of the `new economics,` I have injected Keynesian theory at various points in the book, as well as in the new chapter."
Apparently, not all fresh water economists were anti Keynes, or was Kansas the exception with no water, just sod and wheat?
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Fundamental como complemento é assistir Inside Job (Trabalho Interno)!
By the way, Krugman faz parte dos Gênios. Não à toa, Nobel em Economia.
Most of the so called Economist Gurus will poopoo this thesis, as their hero has been debunked and they haven't learned to swim.
He begins by outlining the tremendous costs of a prolonged depression, especially in human terms. His humanity comes through strongly, not something one normally associates with economists. For example, he notes research which shows that a graduate qualifying during a downturn has his or her whole career affected adversely, not just for the duration of the recession. Long recessions cause permanent, irretrievable losses that leave nations with weak industries and poor skill bases, unable to take full advantage of any recovery. They can lead to political extremism - look at Hungary and Greece today.
The lessons of the Great Depression are outlined. Krugman sees himself as a "sorta-kinda New Keynesian" and argues that depressions are essentially due to lack of demand. This can be counteracted effectively by government spending of particular types - infrastructure spending, mortgage debt relief, temporary higher target rates for inflation, and effective devaluation of the currency and "printing of money". He criticises the stimulus package of President Obama as being far too timid and small to be really effective. Krugman does not think debts should not be paid off, but this should be done when the economy is stronger.
His remedies mainly apply to America but there is also discussion of the UK and Europe. He is scathing about the economic policies of the coalition government. As the UK has its own currency and central bank, Krugman states that we could easily apply a stimulus package without causing a troublesome run on the currency (he talks about the "confidence fairy" in debunking the excessive weight given to "confidence" in the design of policy). He shows that such countries (the USA, Japan, the UK, Sweden) are much less prone to being at the mercy of the market compared to those in the Eurozone. He contrasts Sweden and Denmark with Finland: very similar economies but as Finland is in the Eurozone, has suffered much greater speculative pressure. However, he is much more pessimistic about the Eurozone as a whole. The individual countries do not have their own currency, nor their own central bank and this, Krugman maintains, makes all the difference. The only solution he can see is Germany enacting, for a time, strong inflationary policies - totally against the grain in that country - combined with general wage reduction in southern Europe, again not likely to happen voluntarily.
So far, so Keynesian, but the really fascinating parts of the book lie elsewhere. For example, the "paradoxes": the "Paradox of thrift", where everyone saves (and so spends less) leading to generally declining income and shrinking of the economy. The "Paradox of deleveraging" - the more debtors pay, the more they owe. And the "Paradox of flexibility" - lack of demand leads to a cut in prices e.g. for labour - in short, wage cuts. Across the board wage cuts, incomes all reduced, but debt remains the same. It is such things which really counter the usual objection - you cannot cure debt by more debt. Krugman says we need to change the metaphors used to describe the economy in slumps. He shows that in a slump, normal concepts do not apply. He likens it to being on the other side of the looking glass, and I then saw it as akin to quantum mechanics compared to Newtonian physics, or the peculiar properties of materials at extremely low temperatures, e.g. superconductivity. Certain states need ways of thinking that are superficially not logical and counter-intuitive.
Another strong theme of the book is the increasing inequality in Western societies since the early 1980s (the time of President Reagan and "Reaganomics"). Krugman sees this time as the one where the dominant economics changes from Keynesian ideas to those of the laissez-faire economists who believe that human beings are logical and markets always do the right thing. This has the ring of doctrine, not science, and Krugman mentions the messianic tendencies of some of this ilk. Keynesian ideas were seen by conservatives as the thin end of the wedge - socialism would surely follow. Keynes was certainly not a socialist.
It was the time of deregulation of the banking sector and failure to regulate the "shadow banks" and the repeal of the Glass-Steagall act (to legalise, retroactively, an illegal merger in the banking sector!) All this went hand in hand with the increasing polarisation of politics in American (and the UK). The rich, consisting of corporate executives and "financial wheeler-dealers" in the main, somehow monopolised any increase in the GDP, leaving the incomes of the vast majority flat-lining. The rich managed to do this by fixing thing to their advantage: "soft corruption" at a political level: they had and have more access to power, they are articulate and influence disproportionately. They even influenced which economists had the strongest voice: To quote Krugman:
"The preferences of university donors, the availability of fellowships and lucrative consulting contracts...must have encourages [economists] not just to turn away from Keynesian ideas but to forget much that had been learned in the 1930s and 1940s".
Not only this, but Keynesians were actively discriminated against at some universities. This could sound like a conspiracy theory but it is not a club of rich people colluding to do something. It is a myriad of such people acting in their own interest in a myriad of separate, disconnected actions. These actions carry more weight than that of "little people". There is a net vector to such actions.
He outlines the story of the housing bubble, the subprime mortgage scandal and the ludicrous idea that risk can virtually be eliminated from the financial sector by complex "instruments".
The scope of the book is far wider than one might think from the title. He outlines much of what has gone wrong in the Western democracies over the past thirty years or so. The "culture wars" in the USA, sadly spreading to our blessed isle. The disregard of experts in favour of pure ideology. The disappearance of calm but passionate political discussion in favour of ad hominem attacks. In his postscript, he says: "Tribal allegiance should have no more to do with your views about macroeconomics than with your views on, say, the theory of evolution or climate change...hmm, maybe I'd better stop right there". Who says Americans don't do irony?