Artful Dodger.

• Author: Henderson, David R.
• Position: Review

The Return of Depression Economics, by Paul Krugman, New York: W.W. Norton, 176 pages, $23.95

Paul Krugman, an economics professor at MIT, is probably the country's most famous economist under the age of 50. In addition to knocking out interesting technical articles, mainly on international economics, Krugman writes highly readable articles and books for a general audience. His latest popular book is The Return of Depression Economics, which displays his familiar strengths and weaknesses.

Krugman's main strength is his ability to weave a complex yet understandable story about recent economic events. His main weakness, which becomes more apparent the more you read him, is his tendency to leave out important facts that undercut his view of the world. A more glaring weakness is his sarcasm and fondness for putdowns, which make it easier for him to dismiss rather than refute thoughtful people with different views.

The title of this book illustrates another Krugman weakness: his tendency, which has gotten stronger as he has gotten more famous, to exaggerate. When I think of a depression, I think of a substantial decline in an economy's output: At the trough of America's Great Depression in the early 1930s, output was 30 percent below its 1929 peak. By Krugman's own admission, Japan, the only big economy in the world that has suffered a prolonged slump in the 1990s, has had only two years of low single-digit decline in real gross domestic product.

One of Krugman's strengths is his talent for analogies that help readers understand economic reasoning. He starts with an analogy, developed by Joan and Richard Sweeney in the February 1977 Journal of Money, Credit, and Banking, between a baby-sitting co-op in Washington, D.C., and a large, complex economy.

In the co-op, people earned one half-hour coupon by providing one half-hour of baby-sitting services. At one point there was too little scrip in circulation. Couples would try to earn more scrip by offering to baby-sit. But there weren't enough other couples wanting to go out, because they didn't want to run down their inventory of coupons, and so there was an excess supply of baby-sitting services. This baby-sitting economy with about 150 couples was in a recession.

As Krugman points out, this situation is analogous to an excess supply of goods in a real economy, and thus, he concludes, it shouldn't be hard for people to accept that a much more complex economy in which millions of good and services...