I read Paul Krugman’s The Return of Depression Economics. To summarize my thoughts, in order of recording them:
- I liked his use of simple models, especially the Washington babysitting cooperative
- I found he was dishonest in a key point, why the cooperative ran into its recession. While he talked about money supply, he purposefully neglected the reasons for the loss of liquidity in the market: some innovative babysitters who stockpiled their coupons. I believe he did this because it would be easily apparent to the reader that the solution would be to encourage the “rich” baby sitters to use their coupons…This is essentially supply side economics which he disagrees with.
- That said, I still found that I agreed to some degree with his arguments for monetary policy, a strong contrast to the arguments of Ron Paul in End the Fed.
- I found it interesting that the U.S. / IMF / World Bank policies force debtor nations to undertake austerity measures when highly leveraged speculators force foreign currency devaluations. This is the exact OPPOSITE of what happens in the U.S. When the U.S. has economic recessions, we loosen credit. Why is this interesting? Because it allows U.S. investors to make a killing at the expense of these 3rd world countries in 2 ways: U.S. lenders are protected and speculators make off with fortunes, both at the expense of the citizens and governments of these debtor countries. It is morally repugnant.
- I found the psychology aspect of both Latin American and Asian crisis in the late 90s oddly reminiscent of the 2008-9 American recession. It is hard to get investment and growth when everyone is predicting doom and gloom. I believe the Democratic negative campaigning in 2007 and 2008 was a big contributing factor to the severity of the economic downturn.
- I found it interesting that hedge funds and highly leveraged investments were a culprit in these earlier meltdowns…the same groups that contributed to the latest meltdown.
- I like how he talked about the moral hazard of loose lending. (p. 68-69) This was a big contributor to the market meltdown of 2008.
- I realized a number of Mr. Krugman’s analogies had a zero-sum analogy that wasn’t applicable in many economic scenarios. I think abundance mentality vs. zero-sum game is a very common conservative vs. liberal mindset difference. Unfortunately zero-sum mindsets prevent most win/win scenarios and justifies interventionist policies, more regulation, and wealth redistribution.
- Finally, I liked how Mr. Krugman admitted at the time of the book’s 1998 printing the superiority of capitalism when he stated, “Who can propose socialism with a straight face?” (p. 5-6). He also noted how regulation and nationalism failed in Argentina (p. 46). He concluded that capitalism helps everyone (p.18)
I also read The World is Flat by Thomas L. Friedman. Unfortunately, it is already sadly dated. It talked about things like outsourcing, in sourcing, supply chain efficiencies, the amazing capabilities of Google, iPods, VOIP and other technologies. As a business and technology consultant, I had been making these things happen in the 2000-2004 period. While it would have been fun to see my efforts finally getting mainstream attention in 2005, in early 2010, reading about these “new trends” that are now such common occurances seem funny. In fact, when he talks about the incredible abilities of a new company called Skype that allows you free voice calls over the Internet, I have to laugh since my 6 year old was using the free Skype video conferencing serve to talk to her grandparents on a mission in Spain when she was 2 1/2. I also thought it was interesting to read that oil at $25 a barrel was “the ideal range for sustainable global growth.”
I did like the significance of 9/11 versus 11/9 (the day the Berlin Wall fell). The discussion of the Golden Arches or Dell Theories…that is countries with interwoven supply chains (or economies) are less likely to go to war. I also agreed with his assumption that we are generally better off with free and open international trade. I also liked how he emphasized the importance of culture in economic success. He noted the difference between Dubai and Saudi Arabia…a difference that resulted in palpable security and economic disparities. He also noted the differences between Mexico and China. These differences are why Mexico is rapidly descending into a drug civil war and China is miraculously growing in a global recession.
Finally, I felt his insight about dreams vs. memories was important. America needs to get back into the business of knowing what we have done well…preserving freedom and offering dreams. He mentions “hope” as a defining factor of the middle class. I think Obama read this book before running for office. Once we’ve forgotten those basics, we are in danger of losing our position as the beacon for the world.
I am now reading Henry Paulson’s book On the Brink…and I’m off to alarming start…reading how he planned to ambush Freddie Mac and Fannie Mae with a takeover in September of 2008 to avoid having the CEOs of these huge companies making calls to their powerful friends in congress and stalling the process. A scenario that he believed would destroy international confidence in U.S. markets and the dollar.