"End This Depression Now" by Paul Krugman

Discussion in 'Reviews' started by Mustang, Jun 19, 2012.

  1. Mustang
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    Attention: This is a BOOK review, not an attempt to engage in a political argument! I can understand the other thread being moved to "Economy" and merged with a different thread since the original thread did not START with a book review, but I added one about half a dozen posts into it, and this is that same review. Consequently, I would appreciate it if the review could stand instead of being buried on post #316 of another thread where nobody could possibly find a review of the book if that's what they were looking for.


    I suppose that anyone who knows of Paul Krugman knows he's a columnist for economic and political matters (they're often interrelated) at the NYT, an unabashed Keynesian economist, an author of several books, and a recent recipient of a Nobel Prize in economics in 2008, as well as an occasional TV pundit. He's also routinely denounced by conservatives for many, if not most, of his positions, which is a shame considering that, regarding economic policy, he's routinely taken on Democrats as well as Republicans for years simply because he dislikes bad economic policy, regardless of which political party is pushing it. I get the impression that's because he believes that, too often, public policy is championed for reasons other than its merits. For example, sometimes people push certain policies because they benefit one group or segment of society. Sometimes it's because it's an ideological belief. Sometimes it's simply a lack of a working knowledge of both economics and the historical record of what has worked and what didn't work in previous recessions.

    While I've read the occasional column by Krugman, I had never read any of his books. This particular book was just published (April 30, 2012) and it seemed timely considering the current ongoing debate on how to revive the economy. I was also struck by the title (which I don't particular like) because I perceived it as essentially a plea for attention, or at least for serious consideration. But Krugman's title is meant more to describe the human toll that the economic downturn is having on families as opposed to a textbook definition of the state of the economy.

    In the book Krugman offers an explanation of our current economic crisis, how we got here, and how best to get out of it. In fact, he states several times that we really don't have to be going through this extended economic downturn at all. He offers historical perspective going back to before the great depression, and an analysis of differing approaches and offers his ideas for how best to solve our current economic problems.

    The book is intentionally written for the layperson. While there are a few graphs and charts (I would have preferred more, frankly), there's no math or complicated economic theorems to make the eyes glaze over. It's basically written in a very straightforward style.

    Of course Krugman discusses the concept of austerity and the notion of cutting back on national debt immediately as a way of addressing our current problems. And needless to say, Krugman is highly critical of that approach. He offers several example of how and why those policies would have the exact opposite of the intended consequences. Said plainly, Krugman states that such policies will only serve to dig us into a deeper hole. (But that doesn't mean our country won't try it anyway, does it?).

    That's not to say that Krugman doesn't think that our huge debt problem needs to be addressed. He does. He just doesn't think it's anywhere near being our most pressing problem, and he offers economic numbers to support his case. And like I said earlier, he says that attacking the debt problem at the wrong time (now) will only make our worst problem (the anemic recovery) worse still.

    Krugman also tackles a number of economic myths, both American and European, which he says are getting in the way of solving the economic problems simply because the decision makers don't have an accurate understanding of what the problem is. And as everyone knows, if you don't identify the core problem and how and why it developed in the first place, you're probably not going to make any progress in solving the problem unless blind luck or providence lend a hand.

    One of the European myths Krugman tackles is that all the European countries are in trouble because of profligate spending. Untrue, he says. While some countries like Greece have caused many of their own problems, other countries like Spain had actually been paying down their debt relative to GDP for years when the economic crisis struck. In other words, it was the economic crisis which led to the debt crisis, not the other way around.

    The one part of the book that I found particular surprising (don't ask me why) was Krugman's chapter on Austerians (Ch 11) where he gives a number of reasons why people embrace austerity. Of course ignorance of economics and history both play a role. Krugman also makes a good case that there's an emotional desire to 'punish bad nations' by making them suffer for their perceived economic sins despite the fact that they're often not at fault for the problem and that it's a counterproductive approach. But more disturbing still is Krugman's belief that powerful people have an economic interest in preventing a recovery even though a recovery would also help them as well as everyone else. If true, I guess we should never underestimate the possibility that powerful people may have suspect motives when their self-interest conflicts with the common good.

    Krugman also discusses why the European Union's adoption of the Euro as a common currency is causing so many problems for Europe. For example, he points out that if all the countries still had their own currencies, countries like Greece could devalue their currency relative to the rest of Europe, and that's now that's not an option for any country that uses the Euro.

    Despite all the other reasons to read this book, it's worth reading if for no other reason than to better understand the nature of the liquidity trap in which we currently find ourselves, and that's tackled very early in the book.

    It's only 238 pp, and it's a great primer in understanding our current economic doldrums.
     
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    Last edited: Jun 19, 2012
  2. Mad Scientist
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    So it's not the debt itself, it's having the debt during a recession? Is THAT what he said?

    If so then the solution would be to have no debt ever since you don't know when the recessions are gonna' be?

    Right?
     
  3. Mustang
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    No, that's not it.

    One of the points of focusing on growing the economy first (as opposed to trying to pay down the debt even as the economy may be contracting) is because the debt goes down (as opposed to going up) as a percentage of GDP.
     
  4. waltky
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    Granny still waitin' fer her 2nd stimulus check...
    :eusa_eh:
    The $64,000 Question: How Much Has Debt Increased Per Taxpayer Under Obama?
    July 12, 2012 - The national debt has now increased by more than $64,000 per federal taxpayer since Barack Obama was inaugurated president.
    See also:

    Americans Will Work More than 6 Months to Pay Cost of Gov't in 2012
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  5. waltky
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    6 trillion more in debt since 2008...
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    Debt Up $6.35T Since Ryan Predicted--in 2008-U.S. Was Headed Toward Bankruptcy
    August 11, 2012 : Rep. Paul Ryan, whom Republican presidential candidate Mitt Romney has picked as his running mate, told CNSNews.com four years ago, in August 2008, that the U.S. was heading toward bankruptcy on the fiscal path it was then following and that it would be “mindboggling” to make the problem worse by adding the sort of health-care plan that then-Sen. Barack Obama was advocating in his presidential campaign.
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    Last edited: Aug 12, 2012
  6. KissMy
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    Krugman is an idiot! - Famous Paul Krugman quotes from 2001 as he was begging the Fed to create the housing bubble.

    - Die Zeit, Germany: (February 2001) - “During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?”

    - New York Times: (May 2, 2001) - "I’ve always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.

    However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.

    If we succeed in avoiding recession, this will mark a big win for let- bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come."

    - CNN: (July 18, 2001) - “KRUGMAN: I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).

    DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?

    KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know”

    - CNN: (August 8th, 2001) - “KRUGMAN: I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture.”

    - New York Times: (August 14, 2001) - “Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place.

    - New York Times: (Sept. 14, 2001) - The broken-window fallacy by professor Paul Krugman after 9/11: "Ghastly as it may seem to say this, the terror attack — like the original day of infamy, which brought an end to the Great Depression — could do some economic good." He went on to note how rebuilding would stimulate the economy by business investment and job creation.

    - New York Times: (October 7, 2001) - “Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.

    In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package”

    - New York Times: (Dec 28, 2001) - "The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged.”
     
  7. waltky
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    Granny says she ain't got dat kinda money - make dem politicians an' Wall St. bankers an' rich company owners dats been outsourcin' our jobs an' not payin' dey's fair share o' taxes pay fer gettin' us into dis mess...
    :mad:
    U.S. Debt On Track to Hit $16 Trillion Within Week
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  8. waltky
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    We're runnin' outta money - again...
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    Treasury says debt limit will be hit by late 2012
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  9. KissMy
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    Failure to raise the debt ceiling in time will cause another credit downgrade for US government treasuries.
     
  10. waltky
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    Granny says, "There dey go again - gettin' us deeper an' deeper in debt...
    :eusa_eh:
    Harry Reid on Raising Debt Limit to $18.794T: ‘We’ll Raise It’
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