#15. A Summary of ‘End This Depression Now!’ by Paul Krugman

‘End This Depression Now!’ by Paul Krugman (W.W. Norton & Company; April 30, 2012)

Table of Contents

i. Introduction/Synopsis


Section 1: How Bad the Problem Is & The Potential Long-Term Consequences

1. GDP Is Way Down

2. Unemployment Is Way Up

3. The Potential Long-Term Consequences

Section 2: What the Problem Is and Why It’s So Bad

4. The Crux of the Problem: Lack of Demand

5. The Root of the Problem: The Deregulation of the Financial Sector

6. The Story Behind Financial Deregulation

  • a. Wild Optimism & the Deregulation Movement
  • b. The Political Influence of the Financial Sector (and the Wealthy in General)


Section 3: The Solution is Government Stimulus (and a Few Other Reforms)

7. The Solution is Government Stimulus

8. Objection #1: Government Stimulus Doesn’t Spur the Economy (and Response)

  • a. Exhibit A: The Great Depression
  • b. The Initial Stimulus Effort Was Too Small

9. Solution Specifics

  • a. Stimulus Specifics
  • b. Additional Federal Reserve Actions
  • c. Housing Relief (et. al.)

10. Objection #2: The Danger of Government Debt (and Response)

  • a. The Problem of Investor Confidence
  • b. The Problem of Paying off the Debt in the Future

11. Objection #3: The Danger of Inflation (and Response)

Section 4: The Chances of Government Stimulus Being Implemented (and How to Improve Them)

12. Pragmatic Politics and the Coming Election

  • a. An Obama Sweep
  • b. An Obama Win, and a Divided Parliament
  • c. A Romney Victory

13. Conclusion

i. Introduction/Synopsis

Since the housing and financial crash of 2008, America’s economy has been stuck deep in the doldrums. Indeed, GDP has remained well beneath pre-2008 levels, and employment levels have failed to recover. In an effort to resuscitate the economy, the American government tried first to jump-start it through stimulus spending, and has now replaced this approach with greater austerity. Nothing seems to be working. For Nobel Prize winning economist Paul Krugman, though, the answer is clear: the problem is that the original stimulus effort was too small, and, since that time, the government is moving squarely in the wrong direction. Indeed, Krugman argues that America’s current situation bares a striking resemblance to the stagnation of the Great Depression, and that history has taught us what to do in such situations: the government must take an aggressive approach to stimulate the economy into recovery. This is the argument that Krugman makes in his new book ‘End This Depression Now!’

Now, Krugman is not a proponent of big government spending under normal conditions. Indeed, even in a recession, Krugman’s preferred approach is to drop interest rates in order to spur consumer spending. The problem now is that interest rates are already at zero, and this has not been enough to get consumer spending off the ground, thus leaving the economy in what is called a ‘liquidity trap’. For Krugman, the liquidity trap is actually quite common in economic downturns that follow financial crashes (as is the case with the current one, and as was the case with the Great Depression), and is why such slumps tend to be deep and prolonged.

According to Krugman, the best and surest way to save the economy from a liquidity trap is for the government to step in and undertake the spending that consumers won’t. That is, the government must stimulate the economy back into action, until consumers can get back on their feet enough to take over for themselves.  For Krugman, this is precisely what happened in America during WWII, when the government’s military spending served to stimulate the economy and save it from the grips of the Great Depression.

Now, Krugman’s opponents will point out that the American government has already tried the stimulus approach during this downturn, and that this strategy did not work, thus showing that it cannot be relied upon. What’s more, these same opponents argue that the government’s debt is already enormous, and indeed dangerously high, and that further government spending at this point may well render the debt completely unmanageable, if not force the government into insolvency (which is indeed a threat that is currently being faced by several countries in the European Union). Finally, Krugman’s detractors maintain that pumping more money into the economy at this time only threatens to drive up inflation to dangerous levels, perhaps even triggering a hyperinflationary spiral.

Krugman, though, claims that he has answers to all of these objections. In the first place, as noted above, the author maintains that the failure of the government’s first stimulus effort did not prove that this approach is ineffective, but that it simply wasn’t large enough to do the trick. Second, Krugman argues that though government debt does pose a concern, America’s debt is actually not that dangerous by historical standards. What’s more, since America has its own currency (unlike the countries of the European Union), it is able to print money to turn over its debt, thus preventing the possibility of bankruptcy. Finally, with regards to inflation, Krugman contends that inflation simply cannot get off the ground in a depressed economy (as the current situation would attest to), and that when it is triggered in an upturn the government can always reverse its policy, thus keeping it firmly in check.

Here is Paul Krugman speaking about his new book (Part II of the interview is available on YouTube):

What follows is a full executive summary of End This Depression Now! by Paul Krugman.


Section 1: How Bad the Problem Is & The Potential Long-Term Consequences

1. GDP Is Way Down

Krugman begins by way of establishing the gravity of the problems that America’s economy is currently facing. This can be seen in the numbers. To begin with, consider America’s Gross Domestic Product (GDP). As Krugman notes, GDP indicates “the total value of goods and services that are produced in an economy, adjusted for inflation… in a given period of time” (loc. 274). As such, GDP provides a general picture of how much an economy is producing, and how quickly it is growing. Between the Great Depression and the beginning of the current recession, America’s GDP grew at an average rate of between 2% to 2.5% per year (loc. 277).

The biggest downturn during this time occurred between 1979 and 1982, when America’s economy experienced a ‘double dip’ recession—which Krugman characterizes as essentially “two recessions in close succession that are best viewed as basically a single slump with a stutter in the middle” (loc. 283). At the low point of this recession, in 1982, America’s “real GDP was 2 percent below its previous peak” (loc. 283), meaning it basically went flat. However, the author continues, the economy rebounded very quickly in the immediate aftermath, “growing at a 7 percent rate for the next two years—‘morning in America’—and then returned to its normal growth track” (loc. 283).

When we look at the latest recession, we find that the low point occurred between 2007 and 2009. When compared with the recession of the late 1970’s and early 1980’s, we find that the latest “plunge… was steeper and sharper, with real GDP falling 5 percent over the course of eighteen months” (loc. 287). What’s more, the American economy has not seen a strong recovery this time around, as “growth since the official end of the recession has actually been lower than normal” (loc. 287). All in all, the author claims, “the U.S. economy is [currently] operating about 7 percent below its potential” (loc. 295), and has lost $3 trillion in value since the slump began (loc. 299). Most significant of all, though, is that the economy shows no signs of a major come back any time soon; thus leading Krugman to conclude that “at this point we’ll be very lucky if we get away with a cumulative output loss of ‘only’ $5 trillion” (loc. 299).

2. Unemployment Is Way Up

While the GDP numbers are certainly telling, the more significant numbers, according to Krugman, are those concerning unemployment. As the author reminds us, unemployment statistics cover only those who are looking for work but who can’t find it, and “in December 2011 that amounted to more than 13 million Americans, up from 6.8 million in 2007” (loc. 194). This is already a staggering number, but when you take into account all of those people who have stopped looking for work out of frustration, or who have taken part-time work out of desperation, this number balloons even higher: “by this broader measure there are about 24 million unemployed Americans—about 15 percent of the workforce—roughly double the number before the crisis” (loc. 202). And since the current slump has dragged on so long, the number of people who have been out of work long-term (meaning 6 months to 1 year, or longer [loc. 224]) has risen to levels not seen since the Great Depression. Indeed, Krugman writes that “not since the 1930’s have so many Americans found themselves trapped in a permanent stat of joblessness” (loc. 228).


*For prospective buyers: To get a good indication of how this (and other) articles look before purchasing, I’ve made several of my past articles available for free. Each of my articles follows the same form and is similar in length (15-20 pages). The free articles are available here: Free Articles

7 thoughts on “#15. A Summary of ‘End This Depression Now!’ by Paul Krugman

    • Thanks for the encouragement Grant. As for the business/management books, I have nothing against them, but I prefer to cover books that explore a larger aspect of psychology and only tangentially touch on the business side of things (such as habit, in ‘The Power of Habit’, and creativity in ‘Imagine: How Creativity Works’). Having said that, if a big idea comes out of the business world and the right book comes along, I would certainly be willing to cover it. On that note, if you happen to come across a brand new business book that you would like to see summarized (I generally only take on books that are less than 2 weeks old), drop me a line and I’ll definitely consider it.


      • I totally agree with you Aaron. I stopped reading reading business books years ago and moved on to ones on psychology or social psychology. As a qualified accountant and marketer working as a management consultant I feel pyschology/sociology books ‘fill the gaps’ that exist, not only in business books but university business training in general (especially in management, sales and marketing). I enjoy reading your summaries–they’re best on the web. I certainly appreciate your commentary when you make them as they are generally spot on and as a result add significant value to your writings. Your summaries are so good I’m surprised you don’t sell them. Keep up the good work.

      • Thanks for the praise Richard. I’m glad you’re liking the articles. As for charging for them, I do intend to monetize the website in the new year, but I would like to keep the content free of charge (in other words, you can expect to see a few more advertisements soon–I hope this won’t be an annoyance to you).


  1. Any particular reason why just new books? I think “The American Who Taught the Japanese About Quality” is just as valid as when it was first printed.

    • Fair point, Russell. I do very much agree with you that new books are not necessarily better than old (in fact, my favorite book is Plato’s ‘Republic’!). At the same time, though, I do think there is value in keeping up with what is most current. Plus, the fact of the matter is that newer books garner wider attention than old, and therefore stand to have a greater overall impact on how we collectively live our lives–and as someone who wishes to have an influence, this is very important to me. Last but not least, concentrating on books that have earned some measure of recent popularity ensures that my choices are not governed entirely by my own particular tastes, and so ensures that there is a certain democratic flavor to what I am doing, which I also believe is important. I hope that satisfies your curiosity.


  2. Thanks for the dueling book summaries. Isn’t Krugman’s “no boom, no inflation” theory difficult to reconcile with the stagflation reality of the 1970s?

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