For most of my life, I pretty much ignored economics, finding it fairly stale and boring stuff. As of late, as a writer of mostly political matters, it seemed prudent to learn a bit about the subject. After all, I’m all in favor of giving one’s opinion on most everything, but it sure helps if you know a little bit about what you are talking about.
It may be that Krugman speaks in a way that is easy to understand by the average lay person. He surely can, and this book is a testament to that fact. Mr. Krugman makes all that international monetary stuff actually understandable.
Given the big recession that we and the world are embraced by in a not very loving way, we need to understand how we got in this mess, and more importantly how we can get out.
A 2008 Nobel winner in economics doesn’t seem like a bad place to start.
Krugman is an avowed Keynesian, believing that the theories of John Maynard Keynes provides the most accurate understanding of how markets work. While among the fashionable economists in the Mideast and some of the West, this has fallen out of favor, Krugman points out that mostly it was because nobody has really pushed back and “tested” the theories of “free markets” made famous by Hayak and the monetary policies favored by Milton Friedman.
When such policies are indeed tested in the world (how did that work for ya), they are of course found most wanting. Krugman makes a good case that the Keynesian model best supports what we should expect to find today, based on what we have done.
And of course, this leads to the “way out” of the morass as well.
The history of the austerity programs ushered in by the crisis in Europe is not a pretty one. Cutting spending, the rally cry of the GOP and the extreme right, has not worked. In fact it has failed miserably. Deficits are not all equal, and the US deficit, Krugman argues is not the problem. In fact more spending is what will pull us out from this mess we are in.
The Right argues that inflation will come galloping forth, yet for all their bellowing over the last five years, inflation is still low, in fact lower than perhaps would be healthy right now. Lower taxes have not induced business expansion or investment. Business is hoarding huge stashes of cash.
We need, Krugman argues, to spend money, on infrastructure, on helping states and local towns, and by assisting the poor. All push money into the economy to selected groups. Those groups in turn spend the money–to hire back teachers and other government employees such as firefighters and police, but also to start back up renovations and repairs long ignored. Most importantly they put money in the hands of those who need it desperately, and they spend it.
Spending causes spending in other words, and that causes demand, and demand forces business to invest and produce. THAT causes hiring.
The rant of the Right, to cut taxes and regulations on the rich has been the model since 2001 or so when Bush pushed through his tax cuts, tax cuts that mainly favored the rich. They have not created jobs, in fact the unbridled greed of Wall Street resulted in the disaster we are still inch by inch clawing our way out of. How many more years must we witness this before we accept it as the failure it is?
Such is Krugman’s message.
The stimulus that President Obama did in 2009 was simply not big enough. The Fed cannot cut interest rates beyond zero, but they can do a whole lot of things in Krugman’s opinion to stimulate growth. As he points out, some will fail, but some will succeed magnificently.
Paul Krugman tells a history of affairs that leads to the Great Recession and tells us what he would do to get us out of it. He shows in stark words and graphs the result of unrestrained banking that the GOP and some Democrats opened the door to back in the Reagan and Clinton days. He explains carefully and persuasively that we don’t have to wait for years to recover from this painful situation in America or in the Europe.
Keynesian methods have proven themselves to be the key to the answer.
It becomes incumbent upon us, the taxpayer, to push our recalcitrant Congress toward fiscal responsibility.
This is a great book for the beginner to wade through the data, learn what data actually matters, and to see the outlines of the answer to our current economic woes. HINT: It has nothing to do with handling the economy as we would our personal family budget!
- Paul Krugman: Keynes Was Right (economistsview.typepad.com)
- Paul Krugman: The Urge to Purge (economistsview.typepad.com)
- Krugman and Stiglitz: Our Most Widely Ignored Public Intellectuals (economistsview.typepad.com)
- Paul Krugman: The Austerity Agenda (economistsview.typepad.com)
- Paul Krugman: Contractionary Policy Is Contractionary (delong.typepad.com)
- Conversations w/Great Minds – Paul Krugman – End This Depression Now (ritholtz.com)