The Return of Depression Economics and the Crisis of 2008, a New York Times’ bestseller written by Paul Krugman provides key insights into the history of economic crises. Paul Krugman was actually a recipient of the Nobel Prize for Economics in 2008; he was honored for his work in economic geography and identifying international trade patterns. Krugman also served under President Ronald Reagan’s Council of Economic Advisors for a year as his chief staffer for international economics. His research into economics post World War II explicated the desire of consumers for variety and choice facilitated a countries ability to attain the scale required for profitable trade. Paul Krugman an exceptionally decorated Economist and writer publishing more …show more content…
Krugman refers to this analogy throughout the book and I find it to be an interesting way of looking at something so complex, whether you disagree or not this analogy allows for people who aren’t familiar with this subject matter to understand how something as devastating as the crash in 2008 could have occurred. This helps illustrate a frightening idea that Krugman helps to point out in that, you can have a recession even when an economy is seamlessly moving along. Moving to a historical example when Mexico was experiencing what is known as its tequila crisis, the citizens of Mexico were facing difficulties reminiscent of the Great Depression. Mexico was faced with a tough decision, whether or not to devalue their currency. Unfortunately do too Mexico’s indecisiveness their devaluation of the peso was screwed up. Krugman says “if you devalue at all, make the devaluation big enough. Otherwise you will simply set up expectations of more to come” (Krugman, 37). Mexican officials initially devalued the peso by fifteen percent, only half of what the expert economists were suggesting. Another rule broken by Mexico was to give the …show more content…
Depression economics, as Krugman puts it, is the study of situations where there is a free lunch if only we can figure out how to get our hands on it, because there are unemployed resources that could be put to work. Krugman is appalled by how little we have learned from history and how we hang on to economic orthodoxy. Knowing the nature of financial systems as being very complex you can never say never when it comes to potential financial collapses. However we must learn from these mistakes and policy makers must also be prepared with timely responses to these crises. The book covers a wide range of countries in various stages of development and how each of them has been affected by major financial crises. At its core is the importance of learning lessons from the Great Depression and crises faced by other nations. I believe the book makes an outstanding contribution to our understanding of financial crises. This book is a must read for those who are concerned with the financial crisis and its impacts on people around the