The Return of Depression Economics and the Crisis of 2008

If you think about it for a moment, Economic Depressions (such as 1929-1938 or so) make no sense at all.

There are lots of people walking around WANTING to work so they can get the stuff they need; factories are sitting around WAITING for people to work in them. How can an economy stabilize, with economic supply equal to economic demand, at a level leaving "one-third of a nation ill-housed, ill-clad, ill-nourished" in FDR's immortal phrase? It does not fit the classic picture of economics we're told about on TV. What the heck is going on?

Nobel Laureate Dr. Paul Krugman explains the problem in plain English in "The Return of Depression Economics and the Crisis of 2008".

In short, it seems that economies of any decent size need something like money to facilitate trade. When trading in money can be more profitable than trading in real stuff, the money trade becomes more powerful than the trade in real stuff. Disaster follows.

Of course, Krugman goes into a lot more detail, with a lot more explanations of recent events such as the economic disaster we're working with today. Rather than repeat what he writes, I suggest you just get the book and give it a read; it'll give you some new ways to think about the news.

What to do about the problem, or whether to do anything at all, is of course another question. Regulating the trade in money (banking and the like) seems like an obviously good idea but, as Krugman recounts in case after case, the profits to be made in the money trade makes regulations vulnerable to being repealed, run around or simply ignored. Worse: even well-run economies become vulnerable to problems created by other, less prudently regulated economies.

If you love mathematical equations, charts and footnotes, you won't get them here. I would like to see a more nerdish version of this work, with every paragraph citing to a source and illustrated with a bar chart or something. However, that would be a different work, possibly more valuable, except that it would be a lot slower read and therefore less likely to be read by the people who need to read it: the average person who is trying to figure out what the heck is going on.