Critique and Analysis of “The Third Depression”

Krugman (2010), in his article, “The Third Depression” presents various issues of concern to the field of macroeconomics today. Following the great depression of the 1930s, economists started evaluating how the government could implement various policies to help derive short-term gains necessary to spur long run economical recovery. The output of such economical underpinning was the monetary and fiscal policy interventions structured to address various economic environments. Subsequently two broad macroeconomics propositions have developed both with a substantial backing and opposing contentions. While the pro-government intervention economists – now widely referred as Keynesian economists – advocate for government intervention to help short-run recovery that would act as a spring board for long term recovery; the other side of the board – the Classical economists – take the traditional approach – laissez-faire approach – that markets should be allowed to heal on their own since government intervention in most cases result into more grave outcomes (Colander, 2008).

In his article, Krugman (2010) argues out such perspectives differentiating between recessions and depressions. Through an historical analysis the article contends that the recent financial crisis was just a start of what the author advances to be the third depression with the other two being the post-1873-panic deflationary and instability trend (referred as the long depression) and 1930s unemployment trend mainly referred to as the great depression. The article further predicts the path through which such will be achieved – government policies aimed at curtailing expenditure as evidenced by the Greece crisis policy initiatives (Krugman, 2010). This paper purposes to critique the article by evaluating the propositions presented in light of propositions in macro economical literature. First an historical analysis is presented then a comparative analysis between the last two depressions and the current crisis presented. After such comparative assay, an opinion into the author’s contentions is presented with alternative solutions to the current crisis and extrapolations into the future being discussed thereafter. Got to part 2 here.

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