Summary Paul Krugman – Get us out of this crisis now!

Paul Krugman, an economist born in 1953, wrote a book published in 2012 by Flammarion entitled: Sortez-nous de cette crise… maintenant !

This book report lists for each chapter the key quotes and the most important sentences to understand and quickly read the chapter.

Chapter 1 – The extent of the damage – Get us out of this crisis now, Paul Krugman.

Summary: For Paul Krugman, the world economy is sick: it is malfunctioning, and the consequences are disastrous. He lists these consequences in this chapter, which are all symptoms of the disease.

1. The shortage of jobs

– 13 million unemployed in 2011 in America

—particularly acute suffering caused by voluntary unemployment

2. Shattered lives

—There are 4 applicants for every job that is created

3. dollars and cents

—According to CBO:“The US economy is running about 7% below its potential.”

4. Loss of future

“In the long run, we will all be dead” Keynes

5. Suffering without borders

—American suffering is not unique

6. Politics of Despair

—It would be foolish to minimize the risk to democratic values and institutions from a prolonged economic crisis

7. Do not give up

“For every job, so many men” Peter Gabriel & Kate Bush

Chapter 2 – Economics of the crisis – Get us out of this crisis now, Paul Krugman

Summary: According to Paul Krugman, the economy is broken. To get it going again, all we have to do is spend: the economy would start up again immediately. This remedy is the occasion for Krugman to develop the concept of “liquidity trap”.

1. It is all about demand

—The fact that your expenses are my income and your income is my expenses

—[We] do not spend enough

—“Keynes’” coil problem

2. The liquidity trap

—massive construction of housing

—high level of consumer spending

—[the Fed] lending the funds to the banks … is causing interest rates to fall

—[the Fed] cannot get them [interest] below zero, because when rates get close to zero, it becomes more attractive to sit on your money than to lend it to others

—That is what the liquidity trap is: it is what happens when zero is not low enough when the Fed floods the economy with liquidity

3. Structural problem?

[Arguments for a structural problem]

—unemployment remained high “because people do not have the job skills” according to Bill Clinton

—many companies have learned to become more efficient with fewer employees

[Krugman’s response to both arguments ]

—if mass unemployment were related to the fact that too many workers do not have the right skills, one would have to find a significant number of workers who do have them and make them work – but this is not the case.

4. Spend more earning more

—what we really need today is a false threat of alien invasion, which would trigger massive spending on anti-Martian defense

Chapter 3 – The Minsky Moment – Get us out of this crisis now, Paul Krugman.

Summary: Paul Krugman first identifies an economic situation, which he calls the“Minsky moment”. This situation, added to the effects of the liquidity trap, is making the economy worse.

1. The night they reread Minsky

—“Minsky’s” financial instability hypothesis

—Periods of economic stability … lead to increased indebtedness, because everyone is complacent about the risk that the borrower will not be able to repay.

—But this increased indebtedness eventually leads to economic instability.

“The Great Depression Theory of Debt and Deflation” by Irving Fisher: the more the debtor pays, the more he owes.

2. The Minsky moment

—debtors cannot spend and creditors do not want to spend

—once debt levels are high enough, anything can trigger the Minsky moment [Paul McCulley’s phrase]

—lenders rediscover the risk of debt, the debtor is forced to deleverage, and Fisher’s debt-deflation spiral begins.
Paul Krugman

3. The economy through the looking glass

—The combined effect of

a) the liquidity trap – even at zero, interest rates are not low enough to restore full employment –

b) and excessive debt

—has landed us in a world of paradoxes

a) the savings paradox”: In a depressed economy, the only thing that happens when everyone tries to save more (and therefore spend less) is that incomes fall and the economy slows down

b) the “debt relief paradox”: the more the debtor pays, the more he owes

c) the “flexibility paradox”: the generalized fall in wages leaves everyone at the same point, with one detail: it reduces everyone’s income, while the level of debt remains unchanged

Chapter 4 – Bankers on the rampage – Get us out of this crisis now, Paul Krugman

Summary: In this chapter, Paul Krugman regrets the excessive freedom of bankers, defends himself against those who accuse public agencies of being responsible for the crisis, and makes the observation that the economy, even when everything seemed to be going well, was in fact already sick.

1. Bankers on the run

—A bank guarantees its depositors liquidity but makes most of those funds grow.

-an increasingly deregulated system

2. The Big Lie

—the increase of the debt would be attributable to self-righteous progressives and public agencies that would have forced banks to lend to minority buyers and subsidized dubious housing loans

—[The credit booms and housing bubbles were extremely widespread

– the subprime loans were made by private lenders

3. The not-so-good years

– even the good times were not so good

Chapter 5 – The New Gilded AgeGet us out of this crisis now, Paul Krugman

Summary: For Krugman, the rich remained privileged during the crisis, because they did not have to face any competition, and remained untouchable. However, the role of these economic inequalities in the crisis should not be exaggerated. Moreover, Krugman reminds us that corruption still weighs on the economy all over the world.

1. Why did the rich get so much richer?

– The highly educated minority would widen the gap with the less educated majority. Ben Bernanke: the 20% of highly skilled workers outpaced the 80% of less skilled workers

– People with high incomes do not live in a world of supply and demand

2. The inequalities of the crisis

– the main [reason] […] is political

—is there a direct causal arrow between income inequality and the financial crisis?

—correlation is not causation

3. The elite and the political economy of bad decisions

—There is a lot of outright corruption

—money opens certain doors, which provide personal influence

Chapter 6 – Economics of the Dark Age – Get us out of this crisis now, Paul Krugman

Summary: This chapter is, as it has been since the beginning of the book, highly oriented. The clearly unflattering title is no exception: by “Economics of the Dark Age”, Krugman aims at and criticizes all those who opposed Keynes: that is, the classical, neoclassical, and monetarist tradition.

1. Anti-Keynesianism

—William F. Buckley […] criticizes Yale University for allowing Keynesian economics to be taught

Human Events ranked Keynes’ General Theory among the ten most harmful books of the 19th and 20th centuries.

– Mort Zuckerman : « The growing tension between the Obama administration and the business community has the country worried. »

2. Some rare exceptions

—Greenspan: “With remarkably rare exceptions (2008, for example), the global ‘invisible hand’ has created relatively stable exchange rates, interest rates, prices, and wage indices.

3. Murmurs and snickers

—Robert Lucas declared […] that, in seminars, the mere mention of Keynesian theses would henceforth provoke “murmurs and sniggers”.

4. The economy of junk

—Friedman [said that] the Great Depression would not have happened if the Fed had done its job and that monetary intervention has the power to prevent the recurrence of any such event

—Ben Bernanke, “You are right, it is our fault

—Lucas took the liberty of calling the analysis of Christina Romer, Obama’s first economic adviser and a recognized expert (among others) on the Great Depression, “junk economics”.

Chapter 7 – Anatomy of an Inadequate Response – Get Us Out of This Crisis Now, Paul Krugman

Summary: Paul Krugman analyzes the course of the crisis: how it was triggered before 2008, and how the economic policies pursued then only led to the aggravation of this crisis. He questions not so much the nature of the measures, but rather their lack of ambition. According to Paul Krugman, it was necessary to react on a much larger scale than the one targeted by Barack Obama.

1. The crisis is happening

—The Minsky moment […] lasted two years

—bursting of the real estate bubble

—“toxic waste”

—credit crunch and decline in housing construction

—Lehman Brothers on September 15, 2008


2. Inadequate recovery

—fiscal stimulus

—American Recovery and Reinvestment Act very inadequate

—Joseph Stiglitz: “The fiscal stimulus package passed is ill-conceived and insufficient

—all the acceleration in spending is due to … emergency aid

3. The reasons for failure

—political limitation

—insufficient plan

—the Obama administration has taken the right measures but on a totally inadequate scale

4. The real estate fiasco

—plunges more than 10 million homeowners – more than one in five creditors – underwater

5. The road not taken

Chapter 8 – What about the deficit? – Get us out of this crisis now, Paul Krugman

Summary: After recalling the concepts he has already mentioned, Paul Krugman already warns of the remarks that could be made against him. How can we reduce the size of the debt by going further into debt? First of all, this debt is less serious than it seems. Moreover, the solution lies in distinguishing between several types of debt, notably public and private debt.

1. Unfindable vigilantes

—bond vigilantes (Ed Yardeni)

2. Understanding Interest Rates

—we speak of a liquidity trap if, despite the fact that interest rates are at zero, the population collectively refuses to buy as much as it is willing to produce

3. And the debt burden

—the weight is much lower than the rhetoric suggests

—as long as it is slower than the sum of inflation and economic growth

4. Nonsensical focus on short-term deficit

—even if spending cuts reduce future debt, it may also reduce future wages

5. Dealing with a debt-created problem through debt?

—when debt increases, […] some less patient individuals borrow from more patient individuals

—private debt will have been partly replaced by public debt

Chapter 9 – Inflation: Phantom Menace – Get us out of this crisis now, Paul Krugman

Summary: Paul Krugman argues in this chapter for moderate inflation, rather than disinflation (reduction of inflation that remains positive, i.e. above 0%) or deflation (negative inflation, i.e. below 0%).

1. The Zimbabwe and Weimar coup

—When we are not in a liquidity trap, issuing large quantities of money is undoubtedly likely to cause inflation

2. Money, demand and inflation (or the lack thereof)

—the Fed’s method, when it decides to apply it, is to buy assets

—Karl Smith came up with a useful name for the belief that issuing money can raise prices in a way that transcends the usual forces of supply and demand: “immaculate inflation.

—no boom, no inflation

3. And first, what is the level of inflation really?

—Falling inflation, and even worse, possible deflation, will make it very difficult to emerge from this crisis. What we should be aiming for is the opposite: moderately higher inflation.

3. The case for higher inflation

—there are three reasons why higher inflation would be useful in the current situation

a. would ease the constraints arising from the inability to get interest rates below zero

b. reduce this real value[of the debt]; and

c. [wages have] downward nominal rigidity

Chapter 10 – Eurodämmerung – Get us out of this crisis now, Paul Krugman

Summary: In this chapter, Krugman focuses on the case of the European Union. The recipe for curing the crisis there is always the same: the government must spend more, and inflation must be kept moderate.

1. The problem of the (single) currency

—devaluation [impossible]

—Friedman, The Case for Flexible Exchange Rate

2. The Eurobubble

—[the creation of the euro has] given people the confidence to invest their money in countries previously considered risky

—real estate booms/bubbles


3. The Great European Illusion

—the belief that the crisis is essentially due to fiscal irresponsibility

4. The real problem of Europe

[The problems]

—self-fulfilling panics

—its own budget its own labor market but not its own currency



5. Saving the euro

—that the ECB agrees to buy government bonds

—very expansionary monetary policy

—prolonged austerity

Chapter 11 – The Austerians – Get Us Out of This Crisis Now, Paul Krugman.

Summary: In this chapter, Krugman takes up the criticism against his old enemies, the austerians: those who are in favor of less government intervention, less spending, less income distribution. He is surprised by their success with the general public, while trying to understand it.

1. The game of fear

—the Greek crisis

2. The confidence fairy

—[the belief that cuts lead to lower demand, and that] “confidence” […] would more than compensate for this direct effect

—[But] they have to be quite strong [these confidence effects]

3. The British experience

—the confidence of the business community has melted away

—the British economy remains deeply depressed

4. The work of the crises

—the “liquidationist” school, whose theses affirmed in substance that the suffering generated by depression is good and natural

—in 2010 liquidation arguments

5. The why of the how

—Keynes: “There is something singular and mysterious about a victory as decisive as Ricardo’s

—The fact that an economic doctrine requiring austerity is also a more general justification for social injustice and cruelty, and that this gives it authority, rings particularly true.

—Michal Kalecki – If there is no other way to return to full employment than to somehow restore the confidence of the business community, he says, then business lobbies effectively hold veto power over government action

—which is what the austerians are demanding […] all of this serves the interests of the creditors

—the urge to turn the economy into a moral play, a fable where depression is the necessary consequence of prior sins

Chapter 12 – The Cost of Getting Us Out of This Crisis Now, Paul Krugman

Summary: Paul Krugman’s message in this chapter could be summed up in the following formula: “It is going to be tough, but we can do it and we will do it!” By taking the lead, he immediately responds to the criticisms that might be leveled against him, and gives directions for getting the global economy back on track.

1. No, it is not going well

—Has the need for action passed? No, certainly not.

2. Spend now, pay later

—the private sector does not want to spend enough

—the state spends where the private sector refuses to

[3 usual objections made to this]

a) fiscal stimulus does not work

b) increasing the deficit would undermine confidence

c) not good enough projects worth spending on


a) the Obama stimulus was not a failure; it was simply insufficient.

b) In fact, mandatory market confidence may even increase at the prospect of accelerated growth

c) a large increase in spending would be relatively easy to achieve today.

3. The Fed

—“voluntary paralysis” Ben Bernanke

—Ben Bernanke has been assimilated by the Borg [Star Trek reference] of the Fed

4. Real Estate

Home Affordable Refinance Program (Obama)

—too cautious

5. Other fronts

—toughen up on China and other exchange rate manipulators

—environmental regulation

Chapter 13 – Get us out of this crisis! – Get us out of this crisis now, Paul Krugman

Summary: In this last chapter, Paul Krugman addresses politicians in particular. The economy is really a political affair, and more than that, it is only through a firm political intervention that the economy will be able to recover. The results of this intervention will be for Krugman the best proof of the validity of his action.

1. Nothing succeeds like success

—the most politically rewarding economic strategy is not the one that gets the approval of consumer panels, let alone the editorial writers of the Washington Post; it is the one that gets results.

2. The universe of political possibilities

—hammering home the message about the need to create jobs can be politically rewarding, and it can also put enough pressure on the other side to get the right things done

3. A moral imperative

—The only thing preventing this recovery is the lack of intellectual clarity and political will.

—We can put an end to this depression