Office of the Vice President for Global Communications

Monday, October 5, 2009

Prize-winning economist offers insights on current economic crisis

Paul Krugman, Nobel Prize-winning economist, New York Times columnist and Princeton University professor, offered a range of observations on the ongoing world economic crisis — some hopeful, some grim — to a packed Hill Auditorium on Friday.

“It does appear to have stabilized. It appears Armageddon has been put on hold,” Krugman said.

“As a citizen of the world I was quite horrified at what we were going through, but I’m less horrified than six months ago,” he said.

He said that while a globalized economy played a role in the crisis — “Everybody thought it was a great idea to deregulate banking all at the same time”— the idea that globalization seems to be surviving this crisis could be a positive sign, as it has not survived previous economic crises.

“We’re globalized whether we like it or not,” he said. “What comes next?”

Historically, Krugman said, national economies have recovered “by running big trade surpluses. There are no exceptions to this rule in modern times. That’s not available today. That’s not very encouraging.”

“We need to have some supervision of the whole thing (world economy),” he continued.

Krugman appeared as keynote speaker for a festschrift, a two-day economic conference, in honor of Alan Deardorff, associate dean at the Gerald R. Ford School of Public Policy.

Awarded the 2008 Nobel Memorial Prize in Economic Sciences, Krugman is a professor of economics and international affairs at Princeton University and a centenary professor at the London School of Economics.

In his New York Times column headlined “Mission Not Accomplished,” which also appeared Friday, Krugman wrote, “The conventional wisdom is that trying to help the economy now produces short-term gain at the expense of long-term pain. But … from the point of view of the nation as a whole that’s not at all how it works. The slump is doing long-term damage to our economy and society, and mitigating that slump will lead to a better future.”

Responding to questions from the audience, Krugman said that by mid-decade, “We were living in a very weird world (economically). In the United States we were selling each other homes paid for by borrowing from the Chinese.”

Krugman predicted the local manufacturing economy would recover to some degree. “I don’t know the fate of the auto industry. It’s going to be quite different,” he said.

On the issue of health care, Krugman said he’d prefer an “idealized version of Medicare for all,” but added other solutions could be viable.

“There’s a half a dozen ways to make this work,” he said. “We happen to be focused on none of those ways.”

Krugman’s appearance was sponsored by Ford School and the International Policy Center.