Worth Reading: Paul Krugman's "The Return of Depression Economics."

[Mike 03]

Yesterday I finished reading the revised and updated version of "The Return of Depression Economics" by Paul Krugman. It now includes his insight into the current financial disaster.

This is a great, extremely helpful, book, especially for people like me who are having a problem getting a sense of grasp over the magnitude of our current global crisis.

He begins by explaining how currency crises and recessions evolve, in general, and he focuses on the crises in Latin America and Asia as prime examples that foretell what is happening now on a larger scale.

He enumerates the various forces that combine to cause these disasters, such as central banking miscalculations, currency devaluation errors, market psychology, and hedge funds.

As far as I can tell, he doesn't pretend he knows exactly what to do (which I appreciate, because I've tried like hell to understand everything that is going on, and I'm not sure what I would do either), but he does in the final chapter suggest a firm, large and decisive stimulus package.

I'm not an economist, but I was deeply thankful for this book and grateful for the insight it has provided.

My one and only complaint is that it is too short. I wish Krugman had gone to greater lengths to explain (in particular) the Japanese crisis, because the government there tried many things, including some things Bernanke and Paulson are trying now, and I don't really think he provided a clear explanation of why they didn't work in Japan.

Maybe in the future Krugman can expand this book to provide more details. I know he wanted to keep it readable for people who have no economic background, but I think he could have gone further.

In any event, I can't recommend this book enough.