Return of Depression Economics

Joshua Gans on Paul Krugman’s “The return of Depression Economics”.

Well I finished the revised edition of Paul Krugman’s The Return of Depression Economics. He wrote the original almost 10 years ago with much the same theme: that we have not solved the boom and bust cycle and risk of prolonged recession and even depression remains. He deserves kudos for considerable foresight then and it is worth remembering that in the updated version.

Krugman is more depressed in the revised edition than his first run. He doesn’t think there will be another depression but this time he wishes he could be sure of that. And in the intervening decade, there has been much to shake confidence. He lays much blame on the Greenspan era that allowed two bubbles to continue unabated but he leaves most scorn for the ’shadow’ financial economy that grew up away from regulators and about which we still have little knowledge — except that it was playing an important role that just disappeared.

The revised edition is a breezier read than the first. Lots have been cut out — including an index in the rush to press. And it is clear there are many bits of the story missing as I indicated yesterday. But it is timely and it provides an account of recent economic history that is clearly most relevant for the year ahead. It is a good time to pick this one up. Read it later and it might be too late.