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Paul Krugman

End This Depression Now! Audio CD – May 1, 2012

by Paul Krugman (Author)

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The Great Recession that began in 2007 is now more than four years old--and counting. Some 24 million Americans are unemployed or underemployed, and at recent rates of job creation we won't be back to normal levels of employment until late this decade. This is a tragedy. Do we have to accept it?
"No!" is the resounding answer given by Nobel Prize-winning economist Paul Krugman in this call to arms. We have seen this situation before and we know how to fix it; all we lack is the political will to take action.
Krugman walks us through the financial crisis that triggered the greatest downturn since the Great Depression and outlines the efforts that have been made thus far. The way forward is clear. Our priority must be to get ourselves back on the path to growth; every day that we lag behind normal production levels only adds to the astronomical economic loss of this depression. What we need for a rapid, powerful recovery is precisely what we've needed in crises past--a burst of government spending to jump-start the economy. We owe it not only to the unemployed, but to everyone affected by this tragedy to end this depression now.

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Books on Tape
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May 1, 2012
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0449806863
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978-0449806869
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Paul Krugman
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Publisher ‏ : ‎ Books on Tape (May 1, 2012)
Audio CD ‏ : ‎ 0 pages
ISBN-10 ‏ : ‎ 0449806863
ISBN-13 ‏ : ‎ 978-0449806869
Item Weight ‏ : ‎ 10.4 ounces

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Paul Krugman

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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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Clearest explanation of why it happened and what can be done

Reviewed in the United States on October 25, 2012

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Krugman makes it clear in the kind of prose that even middle school students can appreciate that what we need now is more spending not less. The problem for most of us is that we think about the US government's finances in the way we think about our household or small business finances. If we spend more than we take in we are in trouble. However the US economy as a whole doesn't work that way and neither does the government. As Krugman observes in reference to why we are still in what he calls (variously) "a slump," "a great recession," and in the title, "a depression": "...your spending is my income and my income is your spending." He asks, "if ordinary citizens are tightening their belts--spending less--and the government also spends less, who is going to buy American products?" (p. 28)

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"

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J. Alan Bock

We can do it

Reviewed in the United States on May 14, 2012

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In this book America's pre-eminent econcomist, Paul Krugman, offers his prescription for ending the depression that has been afflicting this country for five years. We know what to do, says Krugman, because the problems we have are recognizably similar to those of the 1930s. "Unfortunately we are not using the nowledge we have because too many people who matter - politicians, public officials, and the broader class of writers and talkers who define conventional wisdom - have, for a variety of reasons, chosen to forget the lessons of history and the conclusions of several generations' worth of economic analysis, replacing the hard won knowledge with ideologically and politically convenient prejudices. Above all, conventional wisdom among what some of us have taken to referring to, sarcastically, as Very Serious People has completely thrown away Keynes central dictum: "The boom, not the slump, is the time for austerity." Now is the time for government to spend more not less, until the private sector is ready to carrry the economy forward again - yet job-destroying austerity policies have instead become the rule."

One of the problems is long term unemployment. But Republican dogma says there is no such thing (ask Sharon Angle) - that anyone who wants a job can get one. Humorously, Krugman points out that the classic answer to such people comes from a passage near the beginning of the novel "The Treasure of Sierra Madre'' (the film starred Humphrey Bogart and Walter Huston): "Anyone who is willing to work and is serious about it will certainly find a job. Only you must not go to the man who tells you this, for he has no job to offer and doesn't know anyone who knows of a vacancy. This is exactly the reason why he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows of the world.."

Also, to those Chicago Board of Trade people who mocked anti-equality demonstrators by showering them with copies of MacDonald's job application forms advertising 50,000 new job openings, Krugman points out that roughly one million people applied!.

In a chapter entitled "Anatomy of An Inadequate Response", Krugman points out that the predicament Obama now finds himself in is largely of his own making. Whether he could have provided bold, innovative leadership like FDR in the 1930s is problematic. He didn' even try. His stimulus package was far too small for the job. While it mitigated the recession, it fell far short of what would have been needed to restore full employment, or even to create a sense of progress. There was nothing resembling an FDR-style Works Progress Administration. (At its peak the WPA employed three million Americans or about 10 percent of the workforce. An equivalent sized program today would employ thirteen million workers.) In answer to the question whether such a program was politically possible, Krugman says that his own take is that the politics of adequate stimulus were very hard, but we will never know whether they really prevented an adequate plan because Obama and his aides never even tried for something big enough to do the job. I would also like to point out that FDR does not seem to be one of Obama's heroes (at least he never talks about him.) On the other hand we do know that Obama considers Ronald Reagan to be the most transformative president of our times!

Krugman does address the problems of the deficit and inflation - the hobgoblins of Republican minds. First of all, he says, there was and is no evidence to support the shift in focus away from jobs and towards deficits. "Where the harm done by lack of jobs is real and terrible, the harm done by deficits to a nation like America in its current situation is, for the most part, hypothetical. The quantifiable burden of debt is much smaller than you would imagine from the rhetoric and warnings about some kind of debt crisis are based on nothing much at all. In fact, the predictions of the deficit hawks have been repeatedly falsified by events, while those who argued that deficits are not a problem in a depressed economy have been constantly right. Yet exaggerated fear of deficits retains its hold on our political and policy discourse."

For the past few years - especially since the election of Obama - the airwaves and opinion pages have been filled with dire warnings of high inflation just around the corner. Some have even predicted a full fledged hyperinflation along the lines of the Weimer Republic in the 1920s. The right side of the political spectrum has bught fully into theses fears of inflation. Ron Paul, a self-proclaimed devotee of Austrian economics, routinely issues apocalyptic warnings about inflation. The failure of his presidential aspirations should not blind us to his success in making his economic ideology Republican orthodoxy. Republican congressman berate Ben Bernanke for "debasing" the dollar and their presidential candidates compete over who can denounce the Feds allegedly inflationary policies most vehemently. But they are wrong. Three and a half years after the election of Obama the interest rate is still near zero. The Fed has continued to buy bonds and mortgages, adding even more to bank reserves; and budget deficits remain enormous. Yet the averge inflation rate over that period was only 2.5 percent, and if you included volatile food and energy prices, the average inflation rate was only 1.4 percent. The inflation rates were below historical norms. In particular, as liberal economists love to point out, inflation was much lower under Obama than it had been in Ronald Reagan's supposedly halcyon, "morning in America" second term.

This book, then, says Krugman, is an attempt to break the hold of that destructive conventional wisdom and to make the case for the expansionary, job-creating policies we should have been following all along. "I am trying to go over the heads of the Serious People who have, for whatever reason, taken all of us down the wrong path, at immense cost to our economies and our societies, and to appeal to an informed public opinion in an effort to get us doing the right thing instead."

Krugman' optimism is obvious on almost every page and he thinks that this job can be done - although it will be difficult "These are terrible times, and all the more terrible because it's all so unnecessary. But don't give up: we can end this depression, if we can only find the clarity and the will."

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Dr. R. G. Bullock

More than economics...

Reviewed in the United Kingdom on April 24, 2013

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Paul Krugman is Professor of Economics and International Affairs at Princeton University and a columnist at The New York Times. He won the Nobel prize for economics in 2008. His book, `End this Depression Now!', argues that the present economic depression, dating from 2008, is not essentially different from other depressions, notably the Great Depression following the Wall Street crash of 1929. He argues that the experiences, actions and research of the 1930s and 1940s, augmented by recent research, has given us the tools to bring the economic situation under control. They are simply being ignored by governments in the USA, the UK and Euroland, or governments haven't the courage to do it.

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?

8 people found this helpful

Rob Julian

Very Keynesian, Very Convincing, Very Readable, . . . and more than a little Disconcerting

Reviewed in the United Kingdom on June 1, 2012

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As the title to this review suggests, this book convincingly argues that America (and in most cases the rest of the developed world) needs a boost in government spending to return our economies to a healthy state. As with all Krugman's books, this is very well written in an easy conversational style, which makes it very accessible to all those whom have only recently become interested in economics due to the recent troubles.

The books I value the most are those which generate within me challenging questions and gut reactions, and reading this book has left me with a disconcerting amount of both. Can it really be that simple? Why hadn't I seriously supported this before? Could America really just government spend it's way out of a recession? Imagine how much cash it would take! . . . But then I suppose back in the 1930s perhaps the prospect of more government debt was also very scary at the time, but after a few decades of growth and inflation the debt seemed paltry. (Reader warning, homespun analogy coming up): A number of years ago I was unemployed for a few months and became very conscious of what I was spending. After I returned to work I wished I had spent a sizeable bit of money on renovating my flat, which would have been a better use of my time!

One difference between now and the last depression was that back then America had valuable manufacturing strengths and advantages, not yet developed by the majority of the world. Where as now Asia has caught up by gaining many of these positive externalities. Krugman mentions in passing that: "it's long past time to take a tougher line on China and other currency manipulators, and sanction them if necessary".p221. Generally though this book is domestic in its subject matter, and does not for me (see my profile) include enough about the subject of trade and protectionism.

However to be fair, he does counter the Chinese peril / doom mongers (of which I am a paid up member) by arguing that in fact the US "net international investment position, the difference between our overseas assets and our overseas liabilities, is in the red only to the tune of $2.5 trillion. ... of an economy that produces $15 trillion of goods and services every year."p44. I suppose if I earned say £30,000 a year, I would feel quite comfortable owing what would be the equivalent of £5,000 in net terms. He argues that most of Americans' debt's are inherently between one another and importantly in their own currency, and therefore not as economically dangerous as some would lead us to believe. He also notes that free market believers are obliged to observe, against their own preferred analysis, that the bond markets currently have very little worries about increasing government debt, as shown by historically low interest rates / yields.

This international dimension (or lack of) to the debt issue seems the key point to me. If America's debt really is mostly owed to itself, then Krugman has a point. If on the other hand the narrative is that China has lent America the money to buy Chinese made manufactured goods, then this is decadence and a route to economic dependence and decline.

One of Krugman's earlier short books was titled "A Country is not a Company" and Krugman here also warns against us falling for the "Paradox of Thrift" by applying moral housekeeping notions of prudence admirable in an open system environment, to the economics of a country which is more of a closed system, i.e. my spending is your income. But again the international dimension matters. The large American economy is mostly a closed system, but the international imbalances of trading partners like China provide leakages and distortions. If my spending is Chinese income, and too much of their income becomes not their spending on my produce, but their lending to me and purchasing of Western assets, then the Keynesian spending loop is kind of broken isn't it?

Besides the main government spending policy recommendation, Krugman also convincingly argues that increasing inflation over the next few years would be beneficial, and that deflation alongside debt is in fact the real danger to be concerned about. Krugman's treatment of the causes of the credit crunch and the section on the particular problems of the Euro are also very good. Regarding the Euro he argues for increased inflation which would allow a heating up of the German economy, resulting in higher German wages, while allowing Greek wages to stagnate, restoring their relative competitiveness. With the unlikely help of Milton Friedman he convincingly argues that currency devaluation is a better way to restore competitiveness compared to the messy unequal process of trying to reduce nominal wages, and relatively more inflation in the stronger trade surplus countries compared to the weaker ones, would be the eurozone equivalent to this. Krugman helped me to see that German economic policy, while admirably cautious and thrifty in isolation, can appear more divisive if you factor in the competitive advantages they receive from having the strength of the currency they are in pulled down by weaker members, while they still maintain their distaste for strong stimulus spending and inflation.

Even if you do not buy the book, you have to read the extract Krugman provides below from Michael Kalecki 1943, on the subject of why right wingers and business leaders don't want governments to be able to independently solve a countries unemployment issues.

"We shall deal first with the reluctance of the "captains of industry" to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment). This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of "sound finance" is to make the level of employment dependant on the state of confidence."p94.

This extract puts words to what many people think and feel already: right-wing economic ideology serves to make society and governments more closely follow the interests of businesses and the rich. Krugman has a point when he criticises right-wing commentators for misleadingly overlaying potent concepts of morality and profligacy on these current issues. This narrative is very powerful as it can be understood (or misunderstood) by someone who knows nothing about economics. I have spoke to people who don't really grasp the complexities surrounding the competitiveness of regions within currency blocks, but who have heard all about 50 year olds in Greece getting generous pensions, and families of doctors in Greece paying no tax.

I noticed the broad range of star ratings for this book, suggesting that its bold thesis does not sit well with everyone. Perhaps some David Cameron supporters have read it, as his austerity approach comes in for criticism. If you are to the left and work for the state, you will love this book. If you are none of the above you should still read it, and you may find it disconcertingly convincing like I did.

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DAVID BRYSON

KEYNES REIGNS

Reviewed in the United Kingdom on June 27, 2012

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Paul Krugman caught my attention a few weeks ago in a discussion on the BBC's Newsnight with two of our current crop of hands-off-business evangelists. One was a particularly smug and odious know-all, and it was a pleasure to see him seen off as easily and urbanely as he was by Krugman. This gentleman's message to humanity appeared to be a version of what was known 80 years ago as either 'Say's Law' or `the Treasury View', which enunciated that any government spending would by its nature displace a corresponding amount of private spending. To anyone except a confirmed believer this must seem blithering nonsense, but I reflected that the person in question must know far more about the matter than I do, that I am not qualified to assess his grasp of such theories vis-a-vis Professor Krugman's, however we the public are simply abdicating our democratic duty if we leave the debate to the professionals and allow ourselves to be led slavishly by whichever school of oratory appeals more to us.

One has to start somewhere, and Krugman appealed more to me, so I picked up this recent book to see whether my own instinctive belief-system was gaining impetus or being beaten back. Regardless of political stance, I think any reasonable person has to admit that Krugman puts his case well. However I am also in no doubt that we are suffering a dangerous deficit of reasonable persons when it comes to economic argument. Obviously this can't be the wholly-owned vice of either side in the dispute, but Krugman's placid argumentation throws into sharp relief what has been plain for years, namely that the right wing are runaway winners in the petulance stakes, and that they have for some time been dominating the conversation through volume and irascibility. What Krugman does is basically what he did with the bore he demolished on Newsnight - he deals with the intellectual arguments intellectually, and he presents his reasoning intelligibly to the general public. That will of course get him nowhere with those who just do not want to know. This sector of society includes intellectuals, idealists and dreamers, and the category of persons who, to adapt Swift, would die for `no Keynesianism' and know not if it be Man or Horse. What they have in common is that they are on a high, but every high will over time be laid low like every mountain and hill in Handel's Messiah, and the impact of Krugman's advocacy really depends on whether he is attacking a school of thought that is on a rising or breaking wave.

Time by now must be starting to run out for the right wing, this book (and others) are suggesting to me. Modern communications allow the Keynesian school to be heard one way or another, the fire gradually dies in quasi-religious politico/economic convictions, that being the nature of trends and fashions generally, and to their great credit the Keynesian intellectuals are refusing to be shouted down. Something strange would have happened in academe if Krugman or the proponent of any contentious viewpoint were not told by his adversaries that failing to agree with them proves ipso facto that he does not understand the subject; and that kind of petitio principii can be kicked straight into touch by the least instructed reader, here and in academic disputes generally. What Krugman is doing is to restore Keynes. If anyone argues that Keynes is out of date, just think of the person I mentioned at the start who was thrilled by his rediscovery of something even older, and reflect on Galbraith's dictum that there are actually no new concepts in economics.

At no point does Krugman suggest that debts, deficits and inflation are not serious issues, and don't believe anyone who tells you that he does. His message is that that they are not the whole story, and that the medicine being dished out is worse than the disease, not least in making the disease itself worse. This may actually be dawning on Britain's beloved Prime Minister Dave and his Chancellor Boy George who have been pursuing deficit reduction regardless, even with demand flat or declining as currently. It's no use treating austerity and the deficit as alternatives, because we can't escape an increasing deficit, and you can either add austerity to that or not. This is what is manifestly happening, only it's hard to admit. Borrowing is increasing, and bound to increase, because there is stagnant demand and no growth. There is no available strategy of decreased borrowing, but to view borrowing as the ultimate horror is just superstition, Krugman argues. Restore some demand the way Roosevelt did, keep the increase in the deficit below the aggregate of growth-plus-inflation, and the debt problem is under restraint and can be addressed at the proper stage, namely when we have some sustainable growth.

Is that really saying that inflation is not to be eliminated at all costs? Too true it's saying that, Krugman argues. High blood pressure is a bad thing, so we should all have low blood pressure according to some of our conservative brainstrust. Out of control, inflation can be horrific, but keep an eye on the real problem, which is lack of demand. (I don't want to rehash Krugman's arguments because you should read them for yourself.) His manner is calm and unexcitable, and just as methodology it's worth noting that we should be careful of associating effects with what may not have been their causes, only what we prefer to think were their causes. In particular there is a British school that argues that if we just look after the rich all will be well for everyone. This is purportedly proved by an increase in tax take when once one Chancellor reduced the high band of income tax. We don't need to be experts, we just need not to be idiots not to make that association.

Professor Krugman, thanks for your encouragement.

3 people found this helpful

Diz

Not for the Swabian Hausfrau

Reviewed in the United Kingdom on May 20, 2012

Verified Purchase

Paul Krugman's purpose in writing this book is to:

'...go over the heads of the Serious People who have, for whatever reason, taken all of us down the wrong path, at immense cost to our economies and our societies, and to appeal to informed public opinion in an effort to get us doing the right thing instead.' (Intro, Pxii).

He starts out by analysing just what has gone wrong. Many, many writers have already done this, of course - David Harvey , Nouriel Roubini , Massimo Amato to name but a few - but Krugman's analysis is still really useful. He draws exact parallels between the Great Depression and the current so-called 'Great Recession', not only in terms of cause and effect but also in the variety of responses. His central thesis, however, is that:

'...this doesn't have to be happening [italics in original]...the problem isn't with the economic engine, which is as powerful as ever. Instead, we're talking about what is basically a technical problem, a problem of organization and co-ordination.' (P22)

We have reached a 'Minsky Moment' - as an economy expands, debtors and creditors are happy to borrow and lend until, suddenly, something pops. At that point, we all look down and discover that, like Wile E Coyote running off a cliff, there is nothing holding us up, and the whole edifice comes crashing down in a 'debt-deflation spiral' (P48) Debtors are desperately trying to pay off their debts (de-leveraging) while creditors are extremely wary of lending any more - even when interest rates are virtually zero, nothing is moving. This is the liquidity trap:

'A liquidity trap happens when even at a zero interest rate the world's residents are collectively unwilling to buy as much stuff as they are willing to produce. Equivalently, the amount people want to save - that is, the income they don't want to spend on current consumption - is more than the amount businesses are willing to invest.' (P136)

And the solution is simple - print more money:

'The answer lies in depression economics, specifically in what I hope has become the familiar concept of the liquidity trap, in which even zero interest rates aren't low enough to induce sufficient spending to restore full employment. When you're not in a liquidity trap, printing lots of money is indeed inflationary. But when you are in one, it isn't; in fact, the amount of money the Fed prints is very nearly irrelevant.' (P152)

In fact, getting some inflation into the system would actually be beneficial. While deflation exacerbates the debt problem, inflation can do the opposite - and can price workers back into jobs as the real value of their wages is reduced in comparison to competitors.

There is a real sense of exasperation running through the book - to Krugman, the Keynesian solutions are there, ready and waiting. We could get out of the current depression within the space of about two years if we simply learnt from the past. But his kind of 'salt water' economics (east and west coast universities) are not in fashion and haven't been for some thirty years. Instead, the current orthodoxy is taken from the 'fresh water' Chicago school and the 'Austerians'. The battle, then, is not simply between differing macroeconomic theories, but inevitably between political ideologies too. At this point, Krugman echoes Thomas Frank and Jeffrey Sachs in talking about the 'revolving door' between the regulators and those they are supposed to regulate. He sounds again like Thomas Frank ( Pity the Billionaire ) when he suggests that:

'...saltwater - freshwater is about pragmatism versus quasi-religious certainty that has only grown stronger as the evidence has challenged the One True Faith.' (P104)

This rather reminded me of Ronald Suskind's 'faith-based versus reality-based America'. Krugman is first and foremost a pragmatist.

Towards the end of the book, Krugman turns his attention to Europe. Again, we see the insistence on 'austerity measures' really not benefitting either the economies or, more importantly, the people of Europe:

'If you look at what Austerians want - fiscal policy that focuses on deficits rather than job creation, monetary policy that obsessively fights even the hint of inflation and raises interest rates even in the face of mass unemployment - all of it in effect serves the interests of creditors, of those who lend as opposed to those who borrow and/or work for a living. Lenders want governments to make honoring their debts the highest priority; and they oppose any action on the monetary side that either deprives bankers of returns by keeping rates low or erodes the value of claims through inflation.' (P207)

And that is precisely what we are seeing in Greece, Spain, Ireland - countries Krugman refers to as 'GIPSI's (perhaps slightly more attractive than 'PIIGS'). Prioritising the repayment of debt over the welfare of the people of Europe will simply prolong the pain and do nothing at all to promote growth.

This is a powerful and extremely timely book. Finally, we are hearing calls for growth over austerity from some quarters - but we are still, here in Europe, faced with both Swabian hausfraus and those that think that 'unemployment is a price worth paying.'

At times, the writing style is a bit irritating - I don't really need to be advised to go watch Stagecoach to learn about bankers. But, quibbles aside, this book goes a long, long way in debunking the 'One True Faith' and provides an immediate way forward by learning from, and not simply forgetting or ignoring, the past.

The book is dedicated 'To the unemployed, who deserve better.'

59 people found this helpful

Mr T

More of the same ... please?

Reviewed in the United Kingdom on July 28, 2012

Verified Purchase

Prof Krugman must sometimes feel that he is a bit of a lone voice in the wilderness. There are very few un-reconstructed Keynesians around at the moment, but he certainly fits the bill. As even Obama falls under the spell of, or dare one suggest into the mire with the unholy alliance between the investment bankers (don't start blaming your high street branch workers, please), the academic 'elites' and the finance ministries, we are all facing several more years of austerity. David Cameron says we are all in it together ... like hell we are. The Wall Street winkies (or other w-words one could use) and the City Slickers are back with their snouts in the trough; but the ordinary working man is truly 'up against it'. In the US, it is characterised as Wall St versus Main St. Well, I am afraid there is no contest. The finance hogs have had this one stitched up for years. The irony is that they took us into this mess, but now governments all live in fear of being judged by 'the markets'; in other words, just those reckless traders and wheeler-dealers who brought us all down in the first place.

So what does Krugman propose? Well the accent might be different, as is the facial hair, but here we have a proposal of good old-fashioned deficit financing of a public works programme, or in the current case of the US, simple re-instatment the public services that have been slashed in the past few rounds of cuts. It all seems so reminiscent of what good old Maynard Keynes was proposing in the '30s. The case is well made, if a little too impassioned to be seen as an academic analysis. But then, hey, that is not the target-audience that Krugman is aiming for. He seeks to be given an audience by intelligent people who might just have the nous, the guts to stand up for the ordinary man, rather than continuing to look after the vested interests of the big backers of political parties on either side of the Atlantic. I wonder what kind of postscript could be spun out of the latest Barclays/LIBOR scandal?

Read this book, but do not expect an easy ride. Krugman wants to bash your ears, tear at your emotions, assault your sensibilities. In a world of complacent 'haves' and exhausted 'have-nots', perhaps we need more of this raw passion. As the Housemartins one sang, "Too many Florence Nightingales, not enough Robin Hoods ...".

3 people found this helpful

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