“The third depression” – options, future and conclusion

Krugman (2010) provides some of the policy alternatives that can be beneficial in alleviating the current crisis. One of these alternatives is increased government expenditure focused on investment activities. Such an alternative would foster economic growth through a multiplier effect arising out of the initial employment that would arise from the firms that secure the government contracts. Secondly a policy focused on minimizing expenditure on recurrent expenditure of the government on such matters as military could help reduce the public debt.The advocacy for a laissez-faire approach does not appear to be well grounded at the moment. Since most of the leading economies are heavily indebted, there needs to be a more informed application of the fiscal and monetary policy initiatives to avert future crises.

Extrapolating into the Future

Business cycles are an integral part of economic development but the severity and duration of any stage is subject to the policy applied. With such an observation, the occurrence of future crises is highly probable based on the current state of affairs. Part of this arises from the fact that the world’s leading economy also doubles as the most highly leveraged one. With the U.S having high trade deficits in respect to many of its trade partners the occurrence of a depression would only be a matter of wrong application of policy. Out of the increased trend towards globalization the effects of such crises could also be aggravated by the number of countries affected.

Conclusion

Krugman (2010) article “The Third Depression” presents number of issues of concern within the macroeconomic sectors in the modern day. The article discusses the role of government in driving various outcomes and the correctness of the policy initiatives undertaken in the current credit crisis. The purpose of this article was to present a critique of the article through an overview of past depressions and comparative analysis of the current crisis with these past crises.

Out of the discussions presented the paper agrees with the author’s note of inappropriate policies adopted in the wake of the financial crisis. Notable among these is the application of a contractionary policy in Greece following its economic crisis. The paper also agrees with the author’s contention to increase government expenditure as a way of spurring growth but in addition presents an opinion that such expenditure should be focused on investments rather than welfare. Based on such observations, it is contended that future economic crises could be experienced out of misapplication of policy.

References

Colander, D. (2008). Macroeconomics. (7th ed.). New York: McGraw-Hill/Irwin.

Drawbaugh, K. (2010, January 14). Regulators admit failures in the U.S. financial crisis’, The Washington Post, Retrieved July 07, 2010 from http://www.washingtonpost.com/wp-dyn/content/article/2010/01/14/AR2010011400426.html

Huffman, W. E. & Lothian, J. R. (1984) The Gold standard and the transmission of business cycles, 1833-1932. In M. D. Bordo & A. J. Schwartz (Eds.), A Retrospective on the Classical Gold Standard, 1821-1931 (pp. 455 – 512). Chicago: University of Chicago Press. Retrieved July 07, 2010 from http://www.nber.org/books/bord84-1

Kirkpatrick, G. (2009). The corporate governance lessons from the financial crisis. Financial Market Trends, [pre-publication version vol. 2009/1], OECD, retrieved July, 07, 2010, from http://www.oecd.org/dataoecd/32/1/42229620.pdf

Krugman, P. (2010, June 27). The Third Depression. The New York Times. Retrieved July 07, 2010, from http://www.nytimes.com/2010/06/28/opinion/28krugman.html?_r=2&emc=eta1

Larson, M. D. (2007).How federal regulators, lenders and Wall Street created America’s housing crisis: Nine proposals for a long-term recovery, retrieved July, 07, 2010, from http://www.moneyandmarkets.com/files/documents/Housing_White_Paper.pdf

Rothbard, M. N. (2000). America’s great depression (5th ed.). Alabama: The Ludwig von Mises Institute Retrieved July 07, 2010, from http://mises.org/rothbard/agd.pdf

Rötheli, T. F. (2010). Causes of the financial crisis: Risk misperception, policy mistakes, and banks’ bounded rationality. The Journal of Socio-Economics, 39(2), 119-126. doi: 10.1016/j.socec.2010.02.016.

find the cost of your paper