The TPM book club discussion of Krugman's book "The Return of Depression Economics."

Tuesday, December 16, 2008

The TPM book club discussion of Krugman's book "The Return of Depression Economics."

The TPM Book Club hosted Paul Krugman discussing his updated book The Return of Depression Economics and the Crisis of 2008. A number of other authors have discussed the ideas Krugman presents.

If you want an outstanding discussion of why the current economic situation is the way it is, this is a great place to start. The comments to each post are in many ways as illuminating as the posts themselves. My post is intended to pull the related posts together into a single location for convenience.

(note: These posts are listed in oldest first order, which is the reverse of the traditional blog order found on the TPM Cafe website. This oldest first order is, however, the logical way to follow any stream of thought.)

Krugman starts out on December 15th with this comment which he titled "When the world's in crisis, the rules don't apply":

Right now the world economy is in a nosedive, and understanding what I call "depression economics" -- the weird world you get into when even a zero interest rate isn't low enough, and a messed-up financial system is dragging down the real economy -- is essential if we're going to avoid the worst.

The key thing, when you're in a situation like this, is realizing that normal rules don't apply. Ordinarily we'd welcome an increase in private saving; right now we're living in a world subject to the "paradox of thrift," in which private virtue is public vice. Normally we want to be careful that public funds are spent wisely; right now the crucial thing is that they be spent fast. (John Maynard Keynes once suggested burying bottles of cash in coal mines and letting the private sector dig them up -- not as a real proposal, but as a way of emphasizing the priority of supporting demand.)

The big test for the next few months will be whether policymakers here and abroad can wrap their minds around this Alice-in-Wonderland world. If they can't, nobody knows how deep the rabbit hole goes.

Click through to read the comments to this initial post. Below are the followup articles from December 15th through December 19th contributing to the discussion. The comments to each post are frequently as illuminating as the post itself.

December 15, 2008