By now you will probably have read an awful lot about the financial crisis. Perhaps I had been reading all the wrong stuff, but until now I had not managed to find answers to the most puzzling questions. If the crash of 2008 was preceded by an era of unprecedented prosperity, how come most of the people I know were not earning much? Deregulation of financial services was supposed to have made us all better off, so why did most of us have to live off credit to keep up? Now that it has all gone wrong, and everyone agrees we are in the worst crisis since the Great Depression, why are not we following the lessons we learned in the 1930s?
US President Barack Obama is the only world leader who has attempted a Keynesian stimulus program. Why has it been only minimally effective? Why do most other Western leaders still insist the only way out is to tighten our belts and pay off our debts, when that clearly is not working either? Also, how come the bankers, credit agencies and bond traders are still treated with cowed reverence — do not frighten the markets! — when they are the one that got us into this mess?
These mysteries were beginning to make me feel as if I must be going mad — but since reading Paul Krugman’s new book, I fear I am in danger instead of becoming a bore. It is the sort of book you wish were compulsory reading and want to quote to anyone who will listen, because End This Depression Now! provides a comprehensive narrative of how we have ended up doing the opposite of what logic and history tell us we must do to get out of this crisis.
Its author is a Nobel prize-winning economist who writes a column in the New York Times and teaches economics at Princeton University. An authority on John Maynard Keynes, Krugman wrote a book in 1999 called The Return of Depression Economics, largely about the Japanese slump, which drew ominous parallels between Japan’s economic strategy and the pre-New Deal policies of the early 1930s that turned a recession into catastrophic depression. At the time, unsurprisingly, most Western economists were not bowled over; in thrall to the seemingly endless boom, the Great Depression looked to them to be more or less irrelevant. Krugman’s latest book will be much harder to ignore.
He does not expect it will be an easy message to sell, though.
“As far as I can make out, the serious opposition to the [UK] coalition’s policy is basically a half-dozen economists and it looks as if I’m one of them — which is really weird,” he laughs, “since I’m not even here.”
Visiting London last week, he met lots of what he calls “very serious people.”
“And there are lots of things these people say that sound very wise and sensible, but it’s all upside down; it’s all wrong. Yet the power of their orthodoxy — even when it’s failing — is quite awesome,” he said.
These “very serious people” present economics as a morality play, in which debt is a sin, and we have all sinned so now we must all pay the price by tightening our belts together. They tell us the crisis will take a long time to resolve and must inevitably be painful. All of this, according to Krugman, is the opposite of the truth. Austerity is a self-imposed collective punishment that is not just unnecessary, but will not work. We know what would work, but for the complex political and historical reasons that his book explores, we have chosen to forget.