Krugman and Panics

Paul Krugman is an interesting character. While he is without a doubt a very smart economist, I personally am not a fan of him. I think his economic ideas are often too intertwined with his partisan attacks on Republican politicians, especially in his New York Times columns, but by reading the editorial page of the New York Times, I should expect that sort of thing. But I digress. In his book The Return of Depression Economics, Krugman lays out probably the biggest problem, in my opinion, about today's global economic system, which is the fear of contagion. In this chapter, which discusses the Asian crisis of the late 90s. Krugman underlines the fact that what started as Thailand poorly managing their debts and deficits, quickly spread to the rest of Southeast Asia. This economic catastrophe, which Krugman compares to the Great Depression, was abated due to the intervention of the IMF, yet it still forced Indonesian president Suharto from power. However, my point about the ills of contagion were what took place in the last few years, with the EU and the disastrous economies of Southern Europe, where debt-to-GDP was very high, the economies were too dependent on certain industries (tourism, for example), and frankly, none of these countries should have been in the Eurozone. But at the height of the crisis, the fears of a Greek exit from the Eurozone, or a Greek default, and the effects it would have on the economy were profound. Mainly, the fear was the Greek calamity would spread to either Spain or Italy, which are among the top 5 economies in the EU. Greece defaulting or leaving the Eurozone would have been bad, but not the worst thing in the 'big picture.' However, if either Spain or Italy had left or defaulted, then the Eurozone and quite possibly the entire EU would have gone bottoms up. Essentially, what I'm trying to say, and what I believe Krugman is also getting at, is in today's global economy, the main goal whenever there is an economic crisis, recession or the like, is containment. Stop the bleeding, and stop it quickly. This is exactly what the US did in 2008 with the bailouts, and the IMF did the same thing in Southeast Asia. Essentially, there is no room left anymore where people can actually allow for the free market to run its course in a major recession or depression. Sure people can talk about it, but with their backs to the wall, it likely that will never be the case again.