Over the past 20 years there has been a plethora of books on the macroeconomics purporting to address and enlighten us as to the whys and wherefores of the world economic down turn. Paul Krugman's "The Return of Depression Economics" joins the ranks of the over abundance of such books. However, in this case the contents of The Return of Depression Economics come from the pen of a highly esteemed professor of economics and Nobel Prize winner for economics. So has Krugman got anything new to say or does he bring clarity to a subject that can be dense and complex.
For a short, book Krugman is certainly ambitious in terms of the period and number of countries that he covers. He sets his arguments in the context of politics, reminding us of the now old fashion academic discipline known as political economy. Although it could be said that Krugman's economics is of a left leaning brand, he does not shirk from admitting that with the collapse of the Soviet Union the overall economic situation is nonetheless one in which capitalism has won out over socialism. That victory, however, comes with a caveat: "if the current economic crisis persists and deepens capitalism victor won't last forever other ideologies will emerge."
To return to my set question, I am not so sure that Krugman has anything new to say. What I particularly admire about the book was its avoidance of economic jargon and where possible technical and abstract economic concepts. Instead what we get from the book is a plain speaking narrative with Krugman doing his best to explain things by extended analogies for the uninitiated. I was fascinated by the analogy of the baby sitting coop which Krugman used to explain a number of important economic ideas such as the reason for increasing or decreasing interest rates, inflation and the lack of demand in an economy - just to mention a few.
The book attempts to examine most of the significant economic crises of recent times. To that effect it sometimes reads like an economic tour of some far flung countries such as Mexico, Argentina, Thailand, Malaysia, Indonesia, etc. In respect of these countries, along with the well established economies, Krugman gives a good explanation of boom and bust. He quite rightly castigates politicians and economist for not learning lessons from the past, for making poor decisions and for not being bold enough to make decisions in a timely manner.
To some extent the book reads like a political polemic. It is broadly a one-sided account of the problems faced by the world's major economies. Whilst Krugman does not explicitly acknowledge that it is a one-sided account he nevertheless implicitly does so. A subsection at the end of chapter states: "Most commentators on The Asian crisis would probably find some detail of the account in this chapter to quarrel with. Some would argue that the damage done by moral hazard-driven lending was greater than I suggest. Some would argue, on the contrary, that the economies were really in good shape, and that the crisis was wholly gratuitous."
For those of us who lack the ability to quickly grasp some of the economic ideas we hear in the daily news or miss the details of some of the interesting stories, Krugman provides brief but good explanations - for example, the workings of hedge funds. Then there are the interesting stories such as how George Soros managed to undermine the pound's position in the European Exchange Rate Mechanism. He also provides a good explanation of the development of banks and the coming into being of central banks.
The Return of Depression Economics is a short, highly readable book about the economic problems faced by a number of countries in recent years. The book is a little one-sided perhaps but nonetheless a book that I would recommend.
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