I just completed a brisk read of Paul Krugman's new book called The Return of Depression Economics and The Crisis of 2008. For those of you who don't know Krugman, he is a Professor of Economics at Princeton University and the 2008 winner of the Nobel Prize in the same field. Even if you don't agree with all of Krugman's viewpoints, this book is an excellent source for understanding how we arrived at where we are today. Let me also say that Krugman is a fantastic writer who depicts economic concepts and issues with everyday language, humor and sharp wit. Translation: he is a very funny economics guy, which I am well aware is an oxymoron.
My first brush with Krugman was in graduate school, where I read his book titled The Accidental Theorist and Other Dispatches from the Dismal Science. It was a series of short essays on all types of real world economic issues. I recall laughing out loud on the couch while reading the book, which in turn caused my fiance at the time to ask me why I was not reading my economics book. Again, an oxymoron of sorts. While I don't always agree with all of Mr. Krugman's viewpoints, I must say that he provides an excellent real world education, and a sense of clarity on key economic issues that everyone should know about.
What I find even more interesting, is the fact that I had looked at my wife a few months back (yes, the same fiance who laughed at me in graduate school many years ago), and said that I needed to pull down The Accidental Theorist and re-read Krugman's piece on Japan and their deflationary lost decade. To me, Japan's scenario is door number two for the US economy. This will happen if we are able to tame inflation but not spur consumption.
So, fast forward several weeks and I find myself in the airport bookstore staring at his new book. I could not resist. Its under 200 pages and well worth the time invested. Krugman covers the Japan issue again, but in slightly more detail. While I agree with him that our scenario is slightly different, and we will most likely not slide into a similar situation (unless we really screw this up), it still is something we all must realize is on the table.
The idea of a lost decade is frightening to me. I would rather have inflationary growth versus utter stagnation. Japan waited too long to act on their "zombie banks", and failed to effectively jump start the credit flows back into the business and consumer channels. Let's hope we have learned from their mistakes.
So, for all of you folks who ignored basic economics in school, give Krugman a whirl. He is an entertaining and insightful, and there is not test at the end.