Paul Krugman's book lays it on the line well, with its acute analysis of how things went wrong.
One of the most striking features about this book is the way Krugman tracks economic meltdowns over the ages. And after a while, they start bearing a striking similarity. He looks at the implosion of the Japanese economy, Asia's crash, Russia's Potemkin economy, the crises in Latin America, casting his eye over other meltdowns like the Panic of 1907 and of course the Great Depression which, as he says, "was brought to an end by a massive deficit-financed public works program known as World War II."
Economists had a deal with the public – it will be okay to have free markets from now on because we know enough to prevent any more Great Depressions.
But the truth is people have not learned from the past. And as Krugman says, what we are seeing now is a replay of everything we have seen before. "I'm tempted to say that the crisis is like nothing we've ever seen before. But it might be more accurate to say that it's like everything we've seen before, all at once: a bursting real estate bubble comparable to what happened in Japan at the end of the 1980s; a wave of bank runs comparable to those of the early 1930s (albeit mainly involving the shadow banking system rather than conventional banks); a liquidity trap in the United States, again reminiscent of Japan; and most recently, a disruption of international capital flows and wave of currency crises all too reminiscent of what happened to Asia in the late 1980s."
Krugman says we are not in a Depression, and unlikely to get to one, but depression economics has returned. For the first time in two generations, there is a failure in the demand side of the economy. To put it bluntly, there is insufficient spending. The obvious solution is to put in more capital, something governments around the world are now doing.
And he says the US Government may well have to look at nationalizing banks, reprivatising it as soon as it safe to do so. He writes: "My guess is that the recapitalization will eventually have to get bigger and broader, and that there will eventually have to be more assertion of government control – in effect, it will come closer to a full temporary nationalization of a significant part of the financial system."
In effect, he takes issue with Milton Friedman's assertion that "there is no such thing as a free lunch". Depression economics is about the free lunch, and working out how we can get our hands on it.
no comment untill now