This web site reviews Paul Krugman's book on The Return of Depression Economics even as a severe recession strikes the U.S. and, indeed, the world. Krugman's book offers recommendations to help resolve the economic disaster, but no absolute solutions. A very cogent expression in the book states that "bad things can happen to even good economies" and, to a certain extent, this appears to be what happened in 2007-09 as the world's economies spiraled downward almost out of control.
Just when economists think they have depression economics under control, and believe depressions and severe recessions are gone forever, the economic disaster of 2007-09 hit. In quick succession, we saw the oil price bubble, the housing bubble, and, finally, the biggest bubble of them all....the financial system bubble. They are calling this mess a severe recession, but did we barely avoid a depression?
Over the past few decades, the U.S. has observed financial crises strike a number of Latin American and Asian economies. Indeed, the U.S. and other developed nations have played major roles in the rescue of these economies - Argentina, Mexico, Hong Kong, Japan and several other Asian countries - from the economic doldrums to which they fell. Krugman discusses each of the economic crisis that befell the listed countries. He acknowledges that the causes of the crises are not completely known but his discussions will open the reader's eyes as to how economic systems work in the real world.
To me, the collapse of the Japanese economy was almost an unbelievable event. The reader will no doubt recall that 20 or 30 years ago, the Japanese were on their way to becoming the "rulers of the world." They were taking over everything including, of course, the automobile industry. The initiation fee for some of the Japanese country clubs reached $1 million. It was calculated that the value of the square mile of land on which the Imperial Castle sat was as worth as much as all the real estate in the entire state of California. It was only a matter of time until we would all be economic slaves of Japan. Then a few things happened to this powerful economy and the Japanese bubble popped. Japan still has a strong economy but they are not masters of the universe anymore.
Krugman describes in The Return of Depression Economics how the economic crises discussed above, were a forewarning of the great recession we found ourselves in during 2007-09. We should have known better than to make the same economic mistakes over and over again.
Already, the economic crisis of 2007-09 has had a pronounced effect on the American people. Politically, it ensured that there would be a change from the Republican administration to the Democratic administration, although, even without the present recession, the Democrats might have won power.....George Bush had become a very unpopular president!
Economically, the recession has caused a substantial increase in the unemployment rate, the government budget deficits increased drastically, many homeowners have lost their homes, and most countries of the world were dragged, kicking and screaming into the world-wide recession. It was not a pretty sight.
Possibly, the worst effect of the severe recession was a loss of confidence that we have the "depression thing" licked and that we never need to worry about a depression reoccurring. No, the depression blues are back again.
Recommendation: This book is highly recommended for anyone who wants to know how we got into the economic mess we found ourselves in. Paul Krugman is a Nobel-winning economist and a fine writer.
Last Updated: 09/30/12
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