Krugman’s Thuggo State

by David Gordon
by David Gordon

The Return of Depression Economics and the Crisis of 2008, Paul Krugman, W.W. Norton, 191 pages

At first sight, Paul Krugman appears to have written exactly the book we need. Cries of recession go up everywhere. Nearly every day brings an account of a fallen financial giant or a major industry facing bankruptcy. Lenin’s famous question – though not, one hopes, his answer – inevitably arises: what is to be done?

Krugman seems ideally qualified to answer. He is an economic theorist of great distinction, the winner of the Nobel Prize for Economics in 2008. Moreover, unlike the vast majority of his fellow theorists, the popular New York Times columnist writes for the public in simple and clear prose. Agree with him or not, you know that Krugman will not try to bamboozle you with jargon.

The Return of Depression Economics begins promisingly. Economists, Krugman tells us, work by constructing models: “The only way to make sense of any complex system, be it global warming or the global economy, is to work with models – simplified representations of that system which you hope help you understand how it works.” Accordingly, he endeavors to give readers a simple model to enable us to grasp his prescription for our current disorders: a system devised by a group of parents to establish a babysitting pool.

During the 1970s the Sweeneys were members of ... an association of young couples ... who were willing to baby-sit each other’s children. This particular co-op was unusually large, about 150 couples, which meant not only that there were plenty of potential baby-sitters but also that managing the organization ... was not a trivial matter. ... the Capitol Hill co-op dealt with the problem by issuing scrip: coupons entitling the bearer to one hour of baby-sitting. When babies were sat, the baby-sitters would receive the appropriate number of coupons from the baby-sittees.

This sounds foolproof, but an imbalance overthrows the system. In the winter, most parents want to accumulate coupons: that way, they are able to go out in the summer without having to worry about babysitting. In winter, almost everyone wants to babysit, but few people want to go out then. The attempt to accumulate coupons fails.

Copyright © 2009 The American Conservative

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