The Return of Depression Economics and the Crisis of 2008, by Paul Krugman

Krugman analyzes the many financial crises the world had in the 20th century and this decade. He derides the economists who say that the Depression is a thing of the past. The first edition of the book did not have anything to point out, but Krugman was proved right with the collapse of the financial markets in 2008.

Krugman uses the example of a baby-sitting co-op to illustrate how money supply and inflation play their part in financial booms and busts. He also provides solutions on how the simple lessons from the coop can be applied to large-scale economies of countries. He explains the dangers of large financial firms in creating modern banking crises that can devastate the financial workings of countries.

The major shortcoming of this book is that it does not consider realpolitik in the formulation of economic policies. Of course, this is not Krugman's domain as he is an economist, not a politician. But as a practical matter, economic and financial policies in democracies are based on political considerations. Ignoring that means that the solutions will remain idealistic.

Tags: economics