TEXTA Whiff of the 1930s IN THE SPRING of 1931, Austria’s largest

bank, the Credit Anstalt, was on the verge of collapse. In the end, the desperate government resorted to capital controls.

Unit SixThe Return of Depression Economics—Paul Krugman

Most modern economists—to the extent that they think about it at all—regard the Great Depression as a gratuitous, unnecessary tragedy. They believe that what might have been an ordinary, forgettable recession became a nightmarish slump thanks to the stupidity (or at least the ignorance) of policymakers.

Unit SixThe Return of Depression Economics—Paul Krugman

Perhaps we should have known better and realized, for example, that the dilemma Austria faced in 1931 could just as easily arise in the modern world, and that now as then there are no good answers.

Unit SixThe Return of Depression Economics—Paul Krugman

There is, in short, a definite whiff of the 1930s in the air.

We had better all start relearning our Depression economics.

Unit SixThe Return of Depression Economics—Paul Krugman

It’s the Short Run , Stupid

As early as 1923 John Maynard Keynes famously took his colleagues to task, admonishing them not to ignore the short run.

Unit SixThe Return of Depression Economics—Paul Krugman

But not until the Great Depression did economists realize that “short run” shortfalls of demand were crucially important. Perhaps slumps were still self-correcting in the long run, but would the economy survive to reach that long run?

Unit SixThe Return of Depression Economics—Paul Krugman

In the 1950s Paul Samuelson dubbed the resurrection of classical full-employment economic theory the “neoclassical synthesis.” It remains to this day the position of those who appreciate but do not worship free markets.

Unit SixThe Return of Depression Economics—Paul Krugman

In reality the Federal Reserve Board actively manages interest rates, pushing them down when it thinks employment is too low and raising them when it thinks the economy is overheating.

Unit SixThe Return of Depression Economics—Paul Krugman

To an adherent of the neoclassical synthesis like myself, then, the really disturbing thing about the world’s current problems is not so much the possibility that they will spiral into a new Great Depression. Instead, the problem is that for the first time since the 1930s, we cannot be sure that governments can or will increase demand when we need it.

Unit SixThe Return of Depression Economics—Paul Krugman

The Unholy Trinity

WHAT HAS gone wrong? On the face of it, there seem to be two quite separate issues: the problems of developing countries threatened with hot money flows and those of mature economies facing a “liquidity trap.”

As the Bretton Woods system of fixed exchange rates that had governed postwar world monetary affairs began to show signs of strain in the 1960s, a number of economists began to argue that there was a fundamental dilemma—or, more precisely, a “trilemma”—at the heart of international finance.

Three conflicting objectives in particular, sometimes dubbed the “irreconcilable trinity,” have preoccupied would-be international financial architects.

Unit SixThe Return of Depression Economics—Paul Krugman

The iron law of international finance is that countries can achieve at most two of the three. The logic of this law becomes apparent when one considers what happens if a country tries to have it all.

Unit SixThe Return of Depression Economics—Paul Krugman

The trilemma of international finance forces countries to choose among three basic exchange regimes: a floating exchange regime, which allows complete freedom of international transactions and lets the government use monetary policy to fight recessions at the cost of erratic fluctuations; a fixed rate, which purchases stability at the expense of monetary independence; or capital controls, which can reconcile a relatively stable exchange rate with some monetary independence but only at the cost of other problems.

Unit SixThe Return of Depression Economics—Paul Krugman

A country could avoid locking its exchange rate by reinstituting capital controls of the kind that prevailed for the first two decades of Bretton Woods, which allowed the pegs of that system to be truly adjustable, but the costs of such controls seem a high price to pay. A freely floating exchange rate, then, appears to be the lesser of three evils. As a general rule, the preferred alternative of most economists is a floating exchange rate. In particular, it is the one most consistent with the neoclassical synthesis, because it leaves countries free to pursue both free-market and full-employment policies.

(from Foreign Affairs, January/February 1999)

Unit SixThe Return of Depression Economics—Paul Krugman

Exercises Ⅰ. Translate the following into English, using the words or phrases

in the text:

1. 使一国外汇储备大大减少的资本外逃

capital flight depleting a country’s foreign exchange reserves

2. 贬值所引起的国内恶性通货膨胀domestic hyperinflation caused by devaluation

3. 为增加国民收入而采取扩张性财政政策

to adopt expansionary fiscal policy to increase national income

Unit SixThe Return of Depression Economics—Paul Krugman

Unit SixThe Return of Depression Economics—Paul Krugman

4. 面临总需求日益萎缩的危险

5. 受流动性陷阱困扰的资本市场capital market harassed by liquidity trap

6. 排除大规模投机活动的可能性to rule out the possibility of massive speculative activities

7. 以经济停滞为代价来压低国内的价格to drive down domestic prices at the expense of economic

stagnation

be faced with the danger of increasingly shrinking aggregate demand

Unit SixThe Return of Depression Economics—Paul Krugman

8. 以固定汇率为特征的国际金本位制

9. 热币流动对货币产生的压力the pressure of hot money flow on currencies

10. 以市场自发调节为中心的新古典主义理论the neoclassical theory centering on the spontaneous

adjustments of market

11. 运用多种手段来实现经济目标的聪明的决策者

intelligent policy-makers who will use various means to

achieve economic goals

the international gold standard system characterized by fixed exchange rates

Unit SixThe Return of Depression Economics—Paul Krugman

12. 能够帮助经济走出萧条的灵活的财政、金融政策

13. 发展中国家和成熟经济体所面临的不同困境the different dilemmas that the developing countries and the

mature economies are faced with

14. 以牺牲充分就业来实现高产出率

to sacrifice full employment to achieve high output rate

15. 会导致另一国货币贬值的对这种货币的需求增加

the increased demand for this currency that will lead to the

devaluation of another currency

flexible fiscal and financial policies that can help the economy out of depression

Unit SixThe Return of Depression Economics—Paul Krugman

Ⅱ. Translate the following sentences into English:

1. 该国出现的这场经济混乱引起了中央银行和财政部的互相指责，该事件反映了一国的货币政策和财政政策相互配合的重要性。 (take...to task)

The economic turmoil in that country made the central bank and the treasury department take each other to task, which reflected the importance of the collaboration of a country’s monetary and fiscal policies.

Unit SixThe Return of Depression Economics—Paul Krugman

2. 如今，政府陷入了这样的两难境地： 要改善国际收支就要降低汇率，而汇率的降低又会导致国内的通货臌胀。(dilemma)

The government has now slipped into such a dilemma that if it wants to improve its balance of payments, it will need to lower the exchange rate, but to lower the exchange rate will lead to inflation.

Unit SixThe Return of Depression Economics—Paul Krugman

3. 虽然贬值能扩大出口，但它也能导致外债的增加，甚至导致政府信用的崩溃。所以，该国政府不敢贸然采取货币贬值政策。 (magnify)

Although devaluation will magnify exports, it can also lead to the increasing foreign-currency-denominated debt ； it can even cause the collapse of people’s confidence in the government. Therefore, the government did not dare to adopt the devaluation policy without careful consideration.

Unit SixThe Return of Depression Economics—Paul Krugman

4. 外债的增加并非是经济发展的必不可少的成本，因为外债的增加虽然会在短期内提高经济增长速度，但从长期来看，它会加重国内企业负担，导致国际收支不平衡。 (in the short/long run)

The increase of foreign-currency-denominated debt is not necessarily the indispensable cost of economic development. Because, although it may promote economic growth in the short run, it will increase the burden of domestic enterprises and lead to imbalanced balance of payments in the long run.

Unit SixThe Return of Depression Economics—Paul Krugman

5. 主要资本主义国家曾一直将金本位视作经济实力强大的象征，但在大萧条时期，他们都被迫彻底放弃了金本位。 (see...as; for good)

Major capitalist countries had been seeing gold standard as a symbol of strong economic power, but they were forced to give it up for good during the Great Depression.

Unit SixThe Return of Depression Economics—Paul Krugman

Ⅲ. Put the following passage into English:

处于危机中的亚洲国家的经济证明，它们具有许多政策和制度上的缺陷。但是，如果美国或欧洲明年或后年也陷入危机，我们可以断定，一些分析家回过头来同样会挑出一些有关西方价值观和制度方面的毛病来。很难说 90 年代亚洲的政策比过去几十年更糟糕，那么最近为何会出现如此糟糕的情况呢 ?

答案是，世界在目前的危机面前变得如此脆弱并非因为经济政策没有得到改进，而是因为已经得到了改进。世界各国对大萧条后政策中真正存在的缺陷所作出的反应是退回去重新实行过去的一套制度，这种制度在大萧条前自由市场的资本主义中具有许多优点。然而，当我们在恢复老式资本主义的这些优点的同时，也恢复了它的一些缺陷，最引人注目的莫过于易于遭受动荡和经济持续萧条这一点了。

Unit SixThe Return of Depression Economics—Paul Krugman

Troubled Asian Economies have turned out to have many policy and institutional weaknesses. But if America or Europe should get into trouble next year or the year after, we can be sure that in retrospect analysts will find equally damning things to say about Western values and institutions. And it is very hard to make the case that Asian policies were any worse in the 1990s than they had been in previous decades, so why did so much go so wrong so recently?

Unit SixThe Return of Depression Economics—Paul Krugman

The answer is that the world became vulnerable to its current travails not because economic policies had not been reformed, but because they had. Around the world countries responded to the very real flaws in post-Depression policy regimes by moving back toward a regime with many of the virtues of pre-Depression free-market capitalism. However, in bringing back the virtues of old-fashioned capitalism, we also brought back some of its vices, most notably a vulnerability both to instability and sustained economic slumps.

Unit SixThe Return of Depression Economics—Paul Krugman

Exercise 2

1.b

2.a

3.b

Exercise 3

1.Broadest:c Narrowest:a

2.Broadest:b Narrowest:a

3.Broadest:b Narrowest:c

Ⅳ. Answer key for Writing research papers