“The Return of Depression Economics” by Paul Krugman
Summary: This is a 5-page book review of the book “The Return of Depression Economics” by Paul Krugman. It provides a brief back ground of the writer and presents his theories, then continues to analyze the theories and reviews its application to today’s era.
Introduction:
The Book under review has been written by Professor Paul Krugman, the world famous economist who wrote in 1994 about the myth of Asian growth and in 1998 advocated capital controls for crisis-hit Asian countries. Over the years the Asian crisis, has heightened Krugman’s stature, for he stands at the center of academic debate on the causes of and responses to the implosion of the ”Asian Miracle”. Paul Krugman is an MIT professor who looks at the string of financial crises that shut various economies around the globe in the 1990s, especially the Asian contagion, and sees an “eerie resemblance to the Great Depression.” Instead of the “new world order” promised by the triumph of capitalism over socialism, “the world economy has turned out to be a much more dangerous place than we imagined.”
Krugman’s forecasts the return of depression economics, which “means that for the first time in two generations, failures on the demand side of the economy–insufficient private spending to make use of the available productive capacity–have become the clear and present limitation on prosperity for a large part of the world.” It’s the same problem that was at the root of the 1930s depression. And while it took a world war to solve that problem, Krugman sees solutions that are far less dramatic but that do require a willingness to chuck obsolete doctrines and think about old problems in new ways.
The Term Paper on Great Depression World Market 1929
OUTLINE THE MOST IMPORTANT CAUSES OF THE GREAT DEPRESSION. PROVIDE APPROPRIATE EVIDENCE TO ILLUSTRATE THE SCALE OF THE GREAT DEPRESSION IN ADVANCED NATIONS The Great Depression was the largest economical disaster ever to have happened. Unlike World War One, fifteen years earlier, the great depression had an astronomical effect world wide. The economist Hobsbawn (1995) describes the depression as ' ...
Over the years, Krugman has earned a reputation for translating the jargon that economists speak into something that anyone with an interest–not necessarily a Ph.D.–can understand. The Return of Depression Economics is another testament to Krugman’s ability to read and interpret today’s global economy.
Synopsis:
In his book, Krugman argues that the economic policies that governments adopted in the face of financial turbulence and economic weakness in the ’90s were seriously misguided, as they were in the 1930s when the same actions that governments and central banks undertook helped precipitate the Great Depression. From the Mexican and Asian to the Brazilian crises, governments repeated the same mistake by raising interest rates and thus dealing a further blow to already maimed economies. Japan, which had been the locomotive of Asian growth, did not get it right in trying to escape from the recession that struck in 1990, Krugman said. He recommended that Japan should opt for printing money as the way to bootstrap itself out of the depths of stagnation. It was widely recognized that if Japan could not put its economic house in order, it would not be able to tow the whole region out of the crisis. He also called for emerging-market governments to resort to capital controls to protect themselves from the volatility of the global capital markets. Shortly before Dr Mahathir Mohamad, the Malaysian prime minister, introduced capital controls in September 1998, including making offshore ringgit unconvertible, Krugman wrote an article in Fortune magazine advocating capital controls. He cited China as a case study of a country that was able to avoid the crisis by enforcing capital controls.
Analysis:
Paul Krugman is not predicting another depression, just the revival of a school of thought dealing with the question of how to prevent another depression. To oversimplify, the recurrent problem of the past 30 years has been too much money chasing too few goods. Some observers would blame government deficit spending and consumers eager to live it up on credit. Some would also blame tax disincentives and regulatory policies that discourage production. In any case, the overall tendency was toward inflation and stagnation culminating in the “stagflation” of the late 1970s.
The Essay on Japan Japanese Government Power
After 200 years of complete isolation, Japan opened itself to new ideas and influence that allowed a process of rapid modernisation to occur; that would have a drastic impact on every facet of Japanese society. This period became known as the Meiji Restoration, and under the Imperial Charter Oath of 1868, a new system of government was established and important aspects such as industrialisation ...
Krugman raises the question of whether the problem today is just the opposite: too much supply and not enough demand. If so, this carries a risk.
Though Krugman does not dwell on the word “deflation,” that’s what he’s talking about. In the 1930s, bank failures, unemployment, and “fear itself” undermined the willingness of consumers and businesses to spend. In our more closely interlinked world, a mild version of “fear itself” seems to have laid hold of the Japanese, who have refused since the 1990s to soak up their share of the world’s goods and services. They are aging; they may simply be nervous about the future; whatever the reason, the Japanese reluctance to spend was causing trouble for the smaller Asian economies even before the meltdown of the last two years.
Fast-growing countries like Thailand, Indonesia, and Malaysia were hit by a modern version of that Depression-era curse, the bank run. Foreign investors suddenly pulled out their money and went home. Currencies plummeted. Banks failed. Businesses went belly up because they no longer could pay back their foreign loans. Why? Corruption and cronyism have been the cited reasons by the Western press, but Krugman disputes this: “There were real failings in these economies,” he writes, “but the main failing was a vulnerability to self-fulfilling panic.”
Because of the “stagflation” of the 1970s, we have all the wrong instincts in place to deal with such potential problems, Krugman writes. We’ve become too enamored of monetary discipline, of central bankers who refuse to print money to paper over fundamental economic problems. In Japan, exactly what’s needed today is a bit of monetary in-discipline: a deliberate, advertised policy of inflation. Then the Japanese would face the choice of spending their savings or seeing them eaten up by rising prices. If the U.S. or Western Europe were faced with a financial panic presaging a similar slump in consumer demand, we would be well advised to adopt the same policy: Damn the inflation torpedoes, flood the banks with liquidity (central banks do this by “creating” money and using it to buy bonds from the public).
The Term Paper on Asia 2
A large economic downturn in East Asia threatens to end its nearly 30 year run of high growth rates. It is hard to understand what these declines will actualy do to the world market. The crisis has caused Asian currencies to fall 50-60%, stock markets to decline 40%, banks to close, and property values to drop. The crisis was brought on by currency devaluations, bad banking practices, high foreign ...
In making out these prescriptions, Krugman is hardly the radical he seems to think he is. Pundits he would consider ideological Neanderthals have been arguing for years that Japan needs to run the printing presses to get out of its slump. Likewise, when the U.S. stock market crashed in 1987, Fed chairman Alan Greenspan made plenty of credit available to keep the banks alive and stop the ripples from reaching the larger economy.
Krugman admits to holding the same muddled views, as do most economists. If countries are going to devalue their currencies, they shouldn’t botch the job. If they are going to place limits on foreign investors, they should do it with a light hand. But Krugman overlooks the crucial question of whether such nations are getting their domestic politics right. Investors in the Asian countries may finally have bolted out of panic. But China and Indonesia were facing monumental and uncertain political transitions. The Japanese had dumped their one-party state after 40 years but had stalled on the way to something else. Malaysia was becoming more autocratic by the day. Thailand’s rowdy democracy had devolved into a bidding war between shifting factions of cronies.
Conclusion:
Krugman wrote Return of Depression Economics in the year when there still were no signs of an Asian recovery. As these countries were reaching for the next stage of development, what investors heard was a growing rant about “Asian values” and the obsolescence of the Western model. Krugman gripes about a “double standard” because the same investors who abandoned the Asian “tigers” have been happy to stick with Australia despite its yo-yoing currency. But investors know that Australia isn’t about to abandon the basic game plan of democracy, rule of law, and property rights. Maybe that’s the real message of the Asian crisis, a message critical to the future prospects not only of Asia, but of the West, too.
The Research paper on Asian Financial Crisis Economic International Analysts
... that Asia was simply the victim du jour. While some factors were certainly more important in some of the Asian countries then ... that the Asian financial crisis was the outcome of a foreign investor, most well-considered research of the causes of the Asian crisis now ... article by MIT economist Paul Krugman, who even then simply took issue with the sustainability of Asia's breathtaking pace of growth, ...
He came to the bold conclusion that the policy mistakes made by crisis-hit countries were similar to those seen in the 1930s, hence a return to depression economics. Still, he also blamed international monetary managers -who followed a herd instinct and acted on scarce information — for aggravating the crisis by yanking their funds out of the region all at once. Governments also disseminated inadequate information, thereby confusing investors and lenders.
Now that Asia is on a recovery course, it will be interesting to hear what Krugman has to say. Is the recovery sustainable? What more does Asia need to do to ensure future prosperity? Can Asia ever compete against the West? How can Asia learn to live with volatility? These are some of the questions that Krugman is likely to be well prepared to answer.
Krugman’s book may be out dated at the moment but his ability to write in a manner that addresses all the readers rather than a certain segment of it makes the reading worthwhile. Some of his theories may no longer be applicable but many have an eerie truth behind them that makes this book worthwhile.
