There’s another element in the euro crisis, another weakness of a shared currency, that took many people, myself included, by surprise. It turns out that countries that lack their own currency are highly vulnerable to self-fulfilling panic, in which the efforts of investors to avoid losses from default end up triggering the very default they fear.
This is an economics book by the Nobel awarded economist, Paul Krugman, where he presents his neo-Keynesian ideas in dealing with the 2008–2012 global recession. Krugman sees as the solution to economic crisis an increase in government expenditure, to balance the consumer decline in purchasing and reignite the economy. Government expenditure is made by the central bank (Federal Reserve in the US) creating money, with which governmental bonds, for example, are purchased, which in turn are used to make governmental projects or purchases.
In the European Union, the central bank bought eurobonds and company bonds, that is corporate debt, debt used by companies for investment or keeping production, in order to stop the vicious circle.
The US indeed had an expansionary economy, but Professor Krugman considered that the level of government expenditure was not enough to alleviate the consequences of the economic crisis. Ben Bernanke, the Federal Reserve Chairman, was a history economist and an expert in the Great Depression.
For the austerity policies adopted in several countries of the European Union, he considered that they only create unnecessary pain, calling for the stop of austerity and the end of economic depression.
His economic ideas are drawn from the Great Depression that took place mostly during the 1930s, of which Keynes considered that the government should intervene and balance the private production with public demand, until the economy is reignited. Indeed, largely until the New Deal of President Roosevelt, the Federal Reserve focused mainly on keeping the federal budget and the inflation in check. To recall, the New Deal created numerous public projects, such as government buildings, airports, hospitals, schools, roads, bridges and dams, around 35,000 overall.
A critical review comes from the Austrian school of economy, which notes that, despite significant spending from governments, the crisis continued, hence the measures were inefficient. Furthermore, the reasons that created the crisis will not be corrected, if the government kept pouring money.
Professor Krugman got his Nobel prize for his contributions to New Trade Theory and New Economic Geography.
The book manages to give a solid macro-economy insight into the world economic crisis of 2008-2012, while having an attractive writing style.