"The Return of Depression Economics"

Paper Summary:

Paul Krugman's book, The Return of Depression Economics, examines the economies of seven different countries that produce the majority of the economic output of the world, and how each has been affected by major economic slumps throughout the world. This interesting yet very complicated book offers a tour of the major economic crises which have spread across the world in the 1990s, including those of East Asia, Brazil, Mexico, and Russia. Paul Krugman provides brief accounts of the devaluation of Thailand's baht currency, the "financial doomsday machine" created by hedge funds, and the "liquidity trap" of the Japanese economy. Krugman's light journalistic style is easy to read for the most part and is well-targeted at his intended audience. Many of the nine chapters stand very well on their own as slightly extended versions of what is known in the US as op-ed pieces. For example, the chapter on hedge funds contains as clear an explanation of the operation of such funds as a layman could get anywhere. It also contains a number of brief, enlightening and well-written stories under sub-headings like 'The Legend of George Soros' and 'The Madness of Prime Minister Mahathir', and concludes with 'The Panic of 1998' which outlines the demise of Long Term Capital Management. In other chapters there are equally succinct and fascinating stories concerning Mexico, Argentina, Thailand and so on. Some of these extracts ought to make very useful reading to stimulate discussion on undergraduate macro, international or development economics courses. It is the purpose of this paper to examine the major themes of Krugman's book.

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