Paul Krugman - The Return of Depression Economics

When it comes to economics, I take an intellectual pass. Which is to say: Economics does not greatly interest me. I am only interested in the big picture. The nitty-gritty particulars of economics are boring to me. So when it comes to trying to understand the world's current economic tribulations, I look for someone to trust, and for me, that person is the most recent Nobel winner in econ, Paul Krugman, professor of economics at Princeton.

Krugman is proudly progressive, as I am. I check his blog---http://krugman.blogs.nytimes.com
daily.

This book is a revision of the same book Krugman published in the 90's. The original issue dealt with then current economic crises in Asia and Mexico. Krugman warned that the troubles affecting those areas of the world come visit this counry one day. One day has come.

We are in a situation of what Krugman calls depression economics. The conventional answer to a recession is a lowering of interest rates by the Fed. The Fed seeks to keep interest rates low enough to promote economic growth but not so low as to bring on inflation. It's a delicate balancing act.

But now the Fed discount rate is practically zero, and this will not be enough. What to do?

According to Professor Krugman, two things. One is to properly regulate what he calls shadow banking. The problem is not unregulated coventional banks; the problem is shadow banking, which was unleashed in 1999 by a Republican sponsored act of Congress that allowed insurance companies to act like banks. The failure of these type of companies---Lehman Brothers, AGI, etc.--- is what has dried up the credit system. We need to do whatever is necessary to properly loosen up credit, while at the same time, implementing proper regulation of shadow banking.

And we need massive federal spending on infrastructure to get the economy moving again. Fiscal responsibility needs to take a temporary backseat to governmental stimulation of the economy. Not rebates like Bush put in earlier this year, but direct governmental spending.

This is what Krugman says, and I go along with his views.

We should combine direct governmental stimulation with individual responsibility. The days of cheap and artificial prosperity in the US based on credit are over. We will return to economic basics, which means consuming less and living within our means. It's about time.

And it's about time for a New Deal a la FDR for 2009.