I may be in shock…
Krugman references the Great Depression, using the standard tools macroeconomics! No liquidity trap reverse-double-backflips. No quantum uncertainty. Just textbook monetary theory:
Actually, as Hugh points out, Latvia is still a long way from having brought prices and wages down to a competitive level. So it’s still faced with the prospect of years of grinding deflation and sky-high unemployment. But it’s a success!
By the same token, France in the mid-1930s — which stayed on the gold standard while other nations devalued, and whose recovery lagged far behind less doctrinaire economies — was also a success story.
I had always thought that in a “liquidity trap”, lead turned into gold and thus devalued gold against goods and services, increasing the price level.
On a more serious note, it is always good to have Krugman saying things that makes sense!