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by Paul Krugman
Premium summary · Opens in the app · 30 min read
In the years following World War II, a remarkable consensus emerged among economists and policymakers. The Great Depression, they believed, could never happen again. The tools were now understood. Central banks knew how to manage the money supply. Governments knew how to use fiscal policy to stimulate demand. Deposit insurance had eliminated the threat of bank runs. The business cycle had been tamed.
**Author:** Paul Krugman
**Estimated Reading Time:** 45 minutes
**What You'll Learn:**
Why financial crises keep happening despite decades of economic progress. How the Great Depression, Japan's lost decade, the Asian financial crisis, and the 2008 global meltdown are connected by common threads. What liquidity traps are and why they terrify central bankers. Why shadow banking nearly destroyed the global financial system. And what we must do to prevent the next catastrophe.
**Who This Book Is For:**
Anyone who wants to understand why the global economy periodically lurches toward disaster. Readers who lived through 2008 and wondered how it happened. Students of economics who want a clear explanation of depression economics without the mathematical apparatus. Policymakers, investors, and curious citizens who recognize that financial stability is too important to leave to chance.
In the years following World War II, a remarkable consensus emerged among economists and policymakers. The Great Depression, they believed, could never happen again. The tools were now understood. Central banks knew how to manage the money supply. Governments knew how to use fiscal policy to stimulate demand. Deposit insurance had eliminated the threat of bank runs. The business cycle had been tamed. This confidence lasted for decades. The post-war period saw unprecedented prosperity across the developed world. Recessions came and went, but they were mild affairs, brief interruptions in an otherwise steady march toward greater wealth. Economists spoke of the "Great Moderation," a period of reduced volatility in output and employment. Some went so far as to declare that the problem of depression had been solved, that macroeconomics had completed its mission. Then came Japan. In the late 1980s, Japan's economy seemed unstoppable. Its corporations dominated global markets in automobiles, electronics, and consumer goods. Its banks were the largest in the world. Its real estate market had reached astonishing heights, with the grounds of the Imperial Palace in Tokyo reportedly worth more than all the real estate in California. Japanese investors were buying up American landmarks, from Rockefeller Center to Pebble Beach golf course. And then the bubble burst. What followed was not a sharp crisis followed by recovery, but a slow, grinding stagnation that persisted for more than a decade. Japan's economy, which had grown at an average rate of nearly 4 percent per year in the 1980s, managed barely 1 percent annual growth in the 1990s. Interest rates fell to zero, and still the economy refused to recover. Prices began falling, a phenomenon economists call deflation, and the economy entered what would come to be known as a liquidity trap. The economics profession was caught off guard. The tools that had worked so well for decades seemed to have stopped functioning. Japan's experience forced economists to…
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Get the complete summary in the appDepression economics, the study of situations where normal policy tools fail, has returned to the world stage.
Financial crises follow a predictable pattern: speculative bubble, loss of confidence, banking panic, and economic contr
The liquidity trap occurs when interest rates are at zero and monetary policy is ineffective. Unconventional tools and f
The paradox of thrift means that when everyone tries to save more, aggregate savings may fall. Government spending can o
The shadow banking system performed bank-like functions without bank-like regulation. Its collapse triggered the 2008 cr
Self-fulfilling panics can devastate economies even when fundamentals are strong. Loss of confidence becomes self-justif
"The Return of Depression Economics and the Crisis of 2008" is a strong fit if you want practical ideas around economics, finance, business, especially themes like depression economics, the study of situations where normal policy tools fail, has returned to the world stage; financial crises follow a predictable pattern: speculative bubble, loss of confidence, banking panic, and economic contr. The MinuteRead summary distills these concepts into a focused read, whether you're deciding whether to buy the book or applying its lessons at work.
Motivated to help readers with 1) Economic crises often stem from financial bubbles and mismanaged banking systems 2) The Asian financial, Paul Krugman wrote “The Return of Depression Economics and the Crisis of 2008” to package those ideas for a fast, focused read. In “The Return of Depression Economics and the Crisis of 2008”, Paul Krugman focuses on 1) Economic crises often stem from financial bubbles and mismanaged banking systems 2) The Asian financial. Through “The Return of Depression Eco…
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