Introduction
I used to really love Paul Krugman because he explains things in such an easy way. Recently people have been telling me Krugman isn't the most reliable economist around so I decided to re-read this book in particular which I thought was the best book ever written for a time because it’s so straightforward.
Style
The book is dedicated: ‘To the unemployed, who deserve better’ which tells you a lot about Krugman’s writing style. The book assumes an intelligent reader with no previous knowledge of economics so lots of important concepts that are thrown around during lectures are explained remarkably well. However only rarely does Krugman tell us what the concept is called ‘in the jargon’ so it’s not something that’s suitable to read the night before the Macro Theory exam.
Content
The first chapter explains the effects of unemployment and lost economic growth the result has been anger and despair that rivals that of the great depression. Krugman then speaks about how the depression led to the rise of Hitler in inter-war Germany (1).I know there’s a word for the fallacy of taking an argument and drawing it to a silly, worst case scenario conclusion but I don’t remember what it’s called. Maybe that fallacy applies here or maybe Krugman is just being rational when he warns that a depression brings out the worst in people.
This introduces Krugman’s central message: economists have learnt from the great depression and know what has to be done to fix it but the fix is difficult politically. The government needs to raise spending to boost demand (2) and this has to be done through fiscal policy as during a liquidity trap monetary policy becomes useless.(3)
The large part of the book is then taken up with the run-up to the current crisis, some common fallacies spread by political phrasing and generally refuting any arguments that could be levied against the conclusions drawn. I enjoyed this build up as Krugman is quick to draw comparisons and make snide remarks during what would otherwise be a dry section which makes the chapters easy to read.(4) For example, I am now informed that there is no ‘structural problem’ in unemployment or whatever other excuses politicians make up; they simply just don’t want to fork out the amount of money that would be necessary to end this recession.
We are reminded of the Obama stimulus bill, known as the ‘American Recovery and Reinvestment Act’ totalling $787billion. Krugman says fiscal stimulus of this size was ‘too small for the job’ and ended up discrediting the whole idea of fiscal stimulus. Reasons why opponents criticize fiscal policy are discussed and dismissed, including fears of debt and inflation.
Finally, a chapter is spent analysing the problems in Europe along with the dangers of austerity. Krugman ends the book with a five point plan to end the crisis and a summary of what has been discussed. The very last paragraph contains a call to put more pressure of the government to respond to the current economic situation before it’s too late.
Conclusions
Mr. Sean Rickard once said during a lecture that most economics books for the general public could probably be condensed into a slightly-too-long chapter and forget the extra 200 or so pages that come after. But without 200+ pages you can’t sell the book for £15. I think this might be one of those book.
The book is enjoyable to read due to the sarcastic way arguments are deflected but a lot of the information could be condensed without the irrelevant stories and comparisons. The conclusions of the book make sense after the detailed reasoning Krugman employs but I’m not sure whether his evidence supported his conclusions or whether they just refuted all other options.
Usefulness
Although not particularly relevant to a particular course, the chapters covering the current financial crisis are detailed and well explained. Background is also given on the great depression so that comparisons between the 1930s and 2008 can be made so there’s lots of economic history that students should really be aware of explained.
The book assumes an American reader so the reader will need to understand the barebones of the Federal Reserve System and a rudimentary knowledge of macroeconomics is useful if you want the knowledge to really stick in your head. If you have time to kill between macro theory and macro policy this book would be useful in creating a bridge between the two courses.
Notes
(1) This is immediately followed by a mention of
Godwin’s law which should have prompted that part of the chapter being summarily deleted but nevermind…
(2) Can I just say I am sick of this ‘
Great Capitol Hill Baby Sitting Co-Op Crisis‘ story? I don’t care how well it illustrates a point can we please find a different example of quantitative easing already?
(3) Which Tim Congdon disagrees with in ‘
Money in a Free Society‘ which kick started my whole ‘Someone disagrees with Krugman?!’ disillusioning process in which I learnt that many economists can seemingly be right at the same time while still disagreeing with each other.
(4) I particularly like the idea of a ‘garden- variety recession’ that is quickly turned around with quantitative easing. I mostly like this because other sources agree with this view and it’s less confusing for the poor undergraduate students when economists agree with each other.
