Surely the Great Depression could never happen again.
Today, the tragedy of the Great Depression looks gratuitous and unnecessary: Our economists and policy makers simply have gained too much experience since then. It could never happen again. Or could it? Over the course of the last two years, six Asian economies have experienced an economic slump that bears an eerie resemblance to the Great Depression. Russia defaulted on its debt in 1998―an event that, halfway around the world, drove Brazilian interest rates through the roof and terrified the U.S. bond market. Some of the brightest financiers in the world, working for the Long-Term Capital Corporation, thought they had the market licked only to find themselves in a jam that had all the makings of the overleveraged positions that caused the 1929 stock market crash. Paul Krugman, one of the world's top economists, recounts these events and more: He points out that they raise significant questions for which policy makers may not have answers. This paperback edition features a brand-new preface by Krugman on the financial realities of the past year."synopsis" may belong to another edition of this title.
Krugman uses the example of a Washington, D.C., babysitting coop to explain the dynamics of recession and inflation. He examines the remarkable emergence of Asia and the precursors to the Asian mess--the Tequila Effect of the mid-'90s that began in Mexico and Japan's fall in the early '90s into an economic malaise. He then analyzes the underlying reasons for the collapse of the Thai baht and other Asian currencies as well as the subsequent actions of the IMF and the murky role of hedge funds. In the end, Krugman sees 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.
Over the years, Krugman has earned a well-deserved 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 timely testament to Krugman's ability to read and interpret the tea leaves of today's global economy. Highly recommended. --Harry C. Edwards
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