The Return of Depression Economics

Amazon.com

What do babysitting coops and liquidity traps have in common? Lots, according to Paul Krugman. In The Return of Depression Economics, the MIT professor looks at the alarming string of financial crises that plagued 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 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

Book Description

Surely the Great Depression could never happen again. Or could it? 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.

Customer Reviews:

The future that didn't work: Japan in the 1990s and 2000s........2006-06-06

In 1998 Japan produced less than it did in 1991. Between 1953 and 1973, Japan in the space of two decades became the world's largest exporter of steel and automobiles. However, in the early 1970 growth slowed from the record level growth of 9% too less than 4% after 1973. Bank loans and import licenses flowed to favor industries and firms; the economy's growth was at least partly channeled by government's strategic designs (MITI). The second factor influence Japanese affluence was keiretsu. Members of the Japanese keiretsu - a group of allied firms organized around a main bank - typically owned substantial quantities of each other's shares, making management largely independent of the outside stockholders. However, if the loans looked unstable, wouldn't the banks start lose depositors? But in Japan, depositors believed the government would never allow them to lose their savings. One by one the Japanese government targeted strategic industries that could serve as engines of growth. The strategy was to create an export drive that initially ignored profitability and meanwhile built market share and at the same time drove foreign competitors into the ground. The Japanese government was accumulating massive debt in a race to the top. At the beginning of the 1990s, Japan hot economy was experiencing a speculative real estate boom. Speculative investments in real estate almost caused a banking crisis in the 1970s.

Moral hazard occurs when one person assesses the risk of an endeavor and causes another person to bear the cost if things go badly. Borrowed money is inherently likely to produce moral hazard. Heads I win, tails you lose. Japanese banks forget normal placed restrictions on what borrowers could do with the loaned money and reduced or eliminated owner capital requirements. These banks loaned large sums of money, no questions asked. Investors in the bank had become careless about where they were storing their money. The depositors were not asking questions about the bank investment; instead, they were relying on the government to safeguard their investment. Bank Deregulation opened up more competition for public savings and increased freedom to make bad risk investments. Competition further eroded profit margins for banks to cling to old-fashioned ways of doing business. The bank loaned more and helped inflate the Japanese bubble economy. In 1990, the Bank of Japan raised interest rates and the air started to stream out of the bubble with land and stock prices dropping 60% below peak. "Japanese authorities seem to have regarded all of this as healthy-a return to more sensible, realistic asset valuations."

Instead a deepening economic malaise was setting in: unemployment hitting 10% and historical GDP contraction. Analyst called the phenomena a "growth recession", "liquidity trap", or "growth depression". Japan manufacturers were increasing producing, inventories stock piling, and consumer spending lagging. Spending was not keeping up with production. In 1996, Japan's Finance Ministry was running a 4.3% of GDP deficit. Japan was experience a baby bust and its working-age population were declining. The retired citizens were a heavy fiscal burden on the Japanese government. In 1997, Prime Minister Ryutaro Hashimoto increased taxes to reduce the budget deficit. The Japanese economy plunged into a recession. The debt to GDP ratio was 100% but the investors maintained faith in the long-term soundness of the Japanese government. The Japanese banking crisis paralleled the 1930-31 banking crisis inflicted by long-term damage to credit markets. Credit was not available, even when quality opportunities presented it. The market was starved for money. The eight-year stagnation was a time for repentance.

The European Central Bank could join BOJ and raise interest rates. The affect would appear as an attempt to dampen inflation in the euro. The affect would be a cascade the cool down and curtail a period of easy credit. The Stock markets in development countries will fall significantly. The tightening will lead to a slowdown in the world economy.

2000s, inflation caused by factors, such as, high-energy prices caused Japanese investors to sell Yen and buy dollars. The sudden rise in the Japanese stock market suggested an surge in speculative spending and rise in the overvaluation of the Japanese stock market. The Japanese market depended on US consumption and US consumption depended on cheap Japanese products and massive levels of credit. As the Japanese economy inflated Yen bought less domestic products and a save haven needed to be found. One haven was buying dollars, if the yields remained high enough for the risk. High yield investments in US Treasurer notes made overseas investment became attractive. Low yield Japanese bank notes had no holding power. The selling of the yen made Japanese products cheaper for foreigners too buy and foreign goods expensive. "The yen must, as a matter of sheer accounting, fall enough to match that trade surplus to the desired export of capital". Demand for Japanese goods would rise to a certain balance point. However, if the dollar was expected to fall then dollars converted back to yen would return less yen. The Japanese saver will be less enticed to transfer savings into overseas investments, if on the dollar/yen conversion a profit was not realized or if the Japanese investor believed a loss in the future was likely on the exchange. Therefore, Japanese savings would not be exportable without confidence in a save return, savings that fueled consumption.

Inflation drove Japanese money out of the country into higher US treasury yields, which promised foreign investment a safe return back. The Japanese foreign investment fueled the consumption of Japanese products: electronics, computers, steel, and automobiles. The stock market and real estate markets reflected behavioral and quantity factors that represented various levels of productivity, consumption, speculation, and confidence. However, rising interests in America would cause Bank of Japan to raise its rates, to bridle domestic inflation and slow down the exodus of yen and both side move rapidly into depression.

However, hedge funds could cause another scenerio to materialize. Historically, as inflation increased and the dollar devalued, US investors sought to put money in hedge funds seeking double digit returns investments in emerging markets. Some speculators borrowed new cheap Asian money and invested in higher yield US securities others reaped the benefits of hot money. Hedge funds seemed content to remain positioned in emerging markets, as long as US consumption remained strong. When foreign Asian markets becoming uncertain about the future panick set in. Panick was fueled by fears that US inflation will rise and US consumption decrease. This was a worst case scenerio because Asian markets were in the business of production not consumption and any changes in expectations of consumption could have massive impacts. The hedge fund remained root while profits were within the acceptable threshhold but as profits drops so did their confidence wain and these hedge funds could flee out of Asia back into US securities. The sudden increase in available liquidity would cause a surge in borrowing and business growth,further inflating the economy, drive down interest rates, and inflate the stock market. The surge in market capital in the stock market will cause a job boom, until balance is achieved then a massive depression will set in, lasting about 20-30 years.

Famously wrong, again and again.......2005-10-18

Paul Krugman has his head so far up his fundament he mistakes his flatulence for flashes of brilliance. Sadly, he has an army of similarly misinformed acolytes who bring tapers of toilet paper to his bonfire of vanities, of which this book is the chief offender.

Krugman's inadequacies are regularly chronicled in his innumerable "corrections" in The New York Times, and in various blogs and most notably Krugman Watch and various National Review Online criticisms. As numerous as Krugman's critics are, he needs more, for his entire approximation of thinking out loud in the public sphere deserves the contempt he inspires. He isn't even the last great Keynesian, he is the last great Johnsonian-small `d'-`democrat, who has never met a social ill that a command and control governmental response could not remedy, especially if it employs lots of bureaucrats in a Weberian utopia of human clerical ants.

But Krugman's cretinous weltanschauung does not for a bad book make: his smug leaden prose, however, does. For this is a horribly unreadable book in which he panders to a reader he considers as stupid as, oh, say, the average New York Times subscriber, and proceeds to make it simple for even that left-of-the median audience of the standard normal curve for intelligence. There are appreciative reviews here for Krugman making complex issues simple. But Krugman doesn't exactly do that. Instead, he glosses over important dimensions of difficult topics by not acknowledging that other possible solutions exist, and instead props up his smarmy policies with rhetorically comforting sticks from the standard normal response of a DNC press release. I'd laugh if I weren't choking on my own vomit from how bad a book this is.

There is a picture in modern dictionaries of intellectual dishonesty and misrepresentation of ideology as science. The example photograph is Paul Krugman, `economist.'

Not Just for Economists.......2005-02-25

The 1990s, if you remember the second half of that heady decade, was when many economies went haywire. For a while, Mexico was the talk of the town (if that town included economists) with its currency crisis and resulting debt crisis. Mexico soon gave way to Asia: Korea, Hong Kong, Malaysia, and Indonesia were severely hit. This was all in the context of Japan in recession since the beginning of the decade and experiencing, of all things, deflation and negative real interest rates. And let's not forget Russia's devaluation and Brazil's economic woes.

The average American (and perhaps European) can be forgiven for yawning over such arcane topics as hedge funds, supply-side economics, and debt rescheduling. But that is no excuse to ignore Paul Krugman's Return of Depression Economics, an engaging primer on how these economies went south and what governments can do to prevent similar disasters. Krugman has always been, even before he went off the deep end in his column for the New York Times, controversial. Vocal and egotistical, he has made a number of enemies in his brilliant career as one of the world's foremost economists. He undoubtedly recruited a few more members to the Krugman anti-fan club with the publication of the Return of Depression Economics, where he calls supply-side economics a "set of silly ideas" and "a crank doctrine". He argues that an orthodox free-market, laissez-faire ideology has clouded many economists' thinking, leading policy-makers to implement unsound policies that prolong developing countries' - and Japan's - recessions.

But forget Krugman's thesis. His argument that Keynesian economics still has a place in today's world is less fascinating than his history of the crises in Latin America and Asia. Krugman does his best to avoid jargon and present the subject to the layperson, writing in a casual, colloquial style. Using the "Capitol Hill Babysitting Co-op" as a model, he easily explains what happens to economies when demand decreases and what the central government can do to stimulate this demand. He walks the reader through how a lack of investor confidence can turn into a self-fulfilling prophecy and leave economies in a shambles. And, of course, being Krugman, he takes every opportunity to point out when he was right in the past and others were wrong.

Will He Give Back The Money To Defrauded Enron Investors? .......2005-02-16

Krugman served on the advisory board at Enron in 1999 during the Clinton Administration. During that period, Enron was getting many Ex Im bank loans rubber stamped. Enron became a regular on the Ron Brown Commerce Department flights to drum up business overseas. The flights were obviously a pay for play deal. During this period, Enron was also shoveling $3 billion or more into the Dabhol power plant in India. Enron owned 65% of the plant but it became a black hole and was one of the straws that finally broke Enron's back.

If we are headed towards a depression as Mr. Krugman opines then it may have a lot to due with corrupt crony capitalism and fraud. Mr. Krugman should have given us more information on what he actually did at Enron. He wrote a lot of articles about the Enron fraud but he always left out how he was on an advisory board at the company.

A history of linked liquidity trap dynamics.......2005-01-29

I like Paul Krugman, having started enough of his books to recognize the ideas which are most familiar to him when he brings them up again. THE RETURN OF DEPRESSION ECONOMICS was published in 1999, when the possibility of something awful like a stock market crash in the United States was still hypothetical, but not fundamentally considered the major concern that would determine the sluggish future of global economic activity as a repeat of the years 1929 to 1941 if a decline in the capitalization values of major enterprises did slow things down a bit. When I started reading this book, I had to wonder if I read it before, but most of the ideas I encountered were easily tied to themes in Krugman's subsequent books and columns that are frequently brought to mind by the large number of daily reports on the financial picture. THE RETURN OF DEPRESSION ECONOMICS attempts to capture the dynamics of speculation in a global economy leading up to July 1, 1997, understood as a situation similar to Latin America in 1995, Japan in the 1990s, but subject to such shocks as the Hong Kong Monetary Authority's ability to use excess dollars to buy local stocks which hedge funds had sold short in order to force the hedge funds to lose money.

"And the reaction was fierce indeed. The government actions were `insane,' thundered Milton Friedman; the Heritage Foundation formally removed the city-state's designation as a bastion of economic freedom; newspapers linked Hong Kong with Malaysia, which had just imposed draconian capital controls." (p. 128).

The key point of view of Krugman might be captured best by his description of the reaction to a speculative attack on Brazil in the fall of 1997, after losing foreign currency at an alarming rate in August. Because interest rates were already high, the economy was sure to slow too much due to an IMF request to raise taxes and cut spending to reduce a deficit which "would actually have been fairly modest had the economy not been depressed and had interest payments not been so high--both of which were in large part consequences precisely of the markets' lack of confidence." (pp. 147-148). Three alternatives for dealing with such a situation have some support from Krugman, who thought a form of stability might be achieved after the Brazilian real was devalued by 8 percent on January 13, 1998.

"January 15: The central bank stops intervening in the markets and lets the real float. The market reaction is surprisingly favorable: the currency drops only 10 percent, much less than pundits expected--and the Brazilian stock market surges an amazing 33 percent, apparently believing that the end of the currency peg will allow the government to cut interest rates and engineer an economic recovery." (p. 149).

Then a bad weekend intervened.

"January 16-17: Brazilian officials fly to Washington and meet with IMF and Treasury officials, who insist that despite the good news on Friday interest rates must be raised, not lowered, to stabilize the currency." (p. 149).

Instead of getting better, the results seemed familiar.

"Indeed, Brazil's crisis had the feel of a recurrent nightmare: once again, as in Mexico, Thailand, Indonesia, and Korea, a seemingly successful economy had gone to Washington in its hour of need, tried its best to follow the plan Washington devised, and been rewarded with a catastrophe." (pp. 150-151).

It is not surprising that Krugman is considered political and extremely one-sided in his point of view, but the idea that an increase in interest rates is likely to bring about a decline in economic activity in whichever country has the greatest need to attract dollars to maintain the basic imbalances in trade and government finance at the root of its economic problems continues to be relevant. Hedge funds borrowing Japanese currency at low interest rates in the years covered by this book are considered a major factor in the big swings in the exchange rate when much of the activity in this book occurred. Looking for irony now in how well China managed to restrict the flow of capital in those years, only to cause major upheaval in the petroleum market today as a result of the growing energy needs of the Chinese economy, might make investors weary of Krugman's concern for those who "have thus far managed to avoid being caught up in the maelstrom--usually because they have not played by the rules. The prime example is, of course, China--corrupt, crony-ridden, with terrible banks, but saved so far by its inconvertible currency." (pp. 151-152). How likely are we to chase China in the wrong direction?

Keynes's Vision: Why the Great Depression Did Not Return (Routledge Studies in the History of Economics)

Average customer rating:

Keynes's Vision: Why the Great Depression Did Not Return (Routledge Studies in the History of Economics)
J. P. Jones
Manufacturer: Routledge
ProductGroup: Book
Binding: Hardcover

General | Popular Economics | Business & Investing | Subjects | Books

General | Business & Investing | Subjects | Books
ASIN: 0415773024

Book Description

John Maynard Keynes was the most influential economist of the 20th Century, whose doctrines had a huge impact on American prosperity in the years following the Second World War. This new book by John Philip Jones describes the main features of Keynes's work, including the fiscal and monetary policies he recommended, together with a detailed tracking of how his theories played out in the American economy.

The book focuses on each individual aspect of Keynes's doctrines: his revolutionary emphasis on the economy as a whole (the study that would later become known as macroeconomics); consumer demand and where it leads; investment demand and where it leads; the rate of interest and the influence of monetary policy; the role of government in controlling fiscal policy; and the overarching importance of expectations, optimism and pessimism. The book concludes with the seven major lessons drawn from the American economy in the latter half of the 20th Century and how these lessons were forecast by Keynes.

An excellent introduction to Keynes and his legacy for students and non-specialist members of the public who want to know more about how the economy is controlled and stimulated, it is also of considerable interest to students of modern economic history.

Average customer rating:

Return of Depression Economics
Paul Krugman
Manufacturer: Penguin
ProductGroup: Book
Binding: Paperback
ASIN: B000K71UP2

Average customer rating:

Return of Depression Economics.

Manufacturer: 0
ProductGroup: Book
Binding: Hardcover
ASIN: B000ICJ3IA

The Return of Depression Economics.(Review) (book reviews): An article from: Finance & Development

Average customer rating:

The Return of Depression Economics.(Review) (book reviews): An article from: Finance & Development
Paul R. Masson
Manufacturer: International Monetary Fund
ProductGroup: Book
Binding: Digital

General | Business & Investing | Subjects | Books

Book Description

This digital document is an article from Finance & Development, published by International Monetary Fund on December 1, 1999. The length of the article is 620 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

Citation Details
Title: The Return of Depression Economics.(Review) (book reviews)
Author: Paul R. Masson
Publication: Finance & Development (Magazine/Journal)
Date: December 1, 1999
Publisher: International Monetary Fund
Volume: 36 Issue: 4 Page: 51

Article Type: Book Review

Distributed by Thomson Gale

Book Description

Employers that self-insure for workers' compensation have greater incentives than insured employers to return injured employees to work as quickly as possible. And because self-insured firms typically are larger, they often have more opportunities to offer injured workers modified work. This report examines the consequences of a disabling workplace injury for workers at 68 private self-insured employers in California from 1991 through 1995. Using employer-provided data on permanent disability claims, which were then linked to longitudinal data from the state of California on earnings before and after injury, the authors estimate the earnings losses associated with a permanent disability and examine the post-injury employment patterns of permanent disability claimants. They found significant earnings losses for claimants at the self-insured firms--more than 20 percent of earnings over the five years after injury. The authors compared the experiences of workers at self-insured firms with workers at insured firms and found lower proportional losses at self-insured firms, but also slightly lower replacement rates. They also found better return to work at self-insured firms. However, when controlling for pre-injury earnings, industry, and firm size, differences in earnings losses between workers injured at self-insured and insured firms are diminished.

Book Description

The popular first edition of this text on risk analysis and management in agriculture has been almost wholly revised. The second edition includes much new material. It includes a revised chapter on incorporating decision makers' preferences into the analysis of risky choices that recognizes and gives consideration to some recently published challenges to the legitimacy of the expected utility hypothesis. While it is argued that the theory is still the best way to handle risk aversion, at least in prescriptive analyses, more attention is given to the practical problems of utility function elicitation. It is shown how estimates of (or ranges of) degree of risk aversion might best be obtained and consistently applied. The new edition has a much more thorough treatment of stochastic stimulation, including some novel yet simple methods for dealing with stochastic dependency between uncertain quantities. The treatment of policy aspects of risk in agriculture has been revised and extended to account for such important current issues as new approaches to crop insurance, the management of serious animal and crop diseases and food safety issues. As with the first edition, the book contains a blend of theory with simple illustrative examples to enable readers to see how the principles being discussed can be made operational using modern software.

RISK 21 -Coping with Risks due to Natural Hazards in 21st Century: Proceedings of the RISK21 Workshop, Monte Verita, Ascona, Switzerland, 28 November - 3 December 2004

Average customer rating:

RISK 21 -Coping with Risks due to Natural Hazards in 21st Century: Proceedings of the RISK21 Workshop, Monte Verita, Ascona, Switzerland, 28 November - 3 December 2004

Manufacturer: Taylor & Francis
ProductGroup: Book
Binding: Hardcover

Environmental Science | Earth Sciences | Science | Subjects | Books

General | Science | Subjects | Books

Water Supply & Land Use | Nature & Ecology | Science | Subjects | Books

Risks | Technology | Science | Subjects | Books

General | Agricultural Sciences | Science | Subjects | Books

Water Supply | Environment | Outdoors & Nature | Subjects | Books

General | Arts & Photography | Subjects | Books
ASIN: 0415401720

Book Description

Over the past two decades, there has been an increase in the number of natural hazards which have culminated in catastrophic consequences, severely impacting people and their livelihoods. This book includes contributions from more than 50 risk experts from nine countries and drawn from research institutions, private industry, governmental agencies and non-governmental organizations. It focuses on risk management and discusses possible ways of reducing disaster risk. Topics include economic, technical, and social issues related to disaster impact, risk analysis and assessment, risk perception and aversion, risk dialogue and sustainable risk management.

Coping with Risk in Agriculture.(Review): An article from: American Journal of Agricultural Economics

Average customer rating:

Coping with Risk in Agriculture.(Review): An article from: American Journal of Agricultural Economics
Jim Roumasset
Manufacturer: American Agricultural Economics Association
ProductGroup: Book
Binding: Digital
ASIN: B00098XLG8
Release Date: 2005-07-28

Book Description

This digital document is an article from American Journal of Agricultural Economics, published by American Agricultural Economics Association on August 1, 1999. The length of the article is 1624 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

Citation Details
Title: Coping with Risk in Agriculture.(Review)
Author: Jim Roumasset
Publication: American Journal of Agricultural Economics (Refereed)
Date: August 1, 1999
Publisher: American Agricultural Economics Association
Volume: 81 Issue: 3 Page: 749(3)

Article Type: Book Review

Distributed by Thomson Gale

Risk 21 -Coping with Risks Due to Natural Hazards in 21st Century

Average customer rating:

Risk 21 -Coping with Risks Due to Natural Hazards in 21st Century
Ammann Walter J , Dannenmann Stefanie , and Vulliet Laurent
Manufacturer: Taylor & Francis Group
ProductGroup: Book
Binding: Ring-bound

Water Supply | Environment | Outdoors & Nature | Subjects | Books

Water Supply & Land Use | Nature & Ecology | Science | Subjects | Books

Risks | Technology | Science | Subjects | Books

General | Agricultural Sciences | Science | Subjects | Books

Average customer rating:
The Source Regions of the Solar Wind

Manufacturer: Springer
ProductGroup: Book
Binding: Hardcover

Astronomy | Astronomy | Science | Subjects | Books
Astronomy | Astronomy | Professional Science | Professional & Technical | Subjects | Books
General | Arts & Photography | Subjects | Books
ASIN: 9027715378

Average customer rating:
Mapping the solar wind from its source region into the outer corona NASA grant NAG5-6192 : annual report for the period 1 August 1997 through 31 July 1998 (SuDoc NAS 1.26:208346)
Ruth Esser
Manufacturer: Smithsonian Institution, Astrophysical Observatory National Aeronautics and Space Administration National Technical Information Service, distributor
ProductGroup: Book
Binding: Unknown Binding
ASIN: B000110JGI

Books:

Books Index

Books Home

Recommended Books