On Monday, Princeton economist and New York Times columnist Paul Krugman addressed a full house at the Kellogg School of Management, discussing the current economic crisis and the factors that contributed to it. The event, which launched the Kellogg Distinguished Lecture Series, also marked Krugman’s first public appearance since winning the Nobel Prize on October 13th.
Krugman, an international trade expert, offered a gloomy economic forecast to the more than 1,000 people who gathered to listen to him, noting the spread of the U.S. currency crisis to the rest of the world. The $700 billion rescue plan recently passed by Congress, Krugman said, “still looks weak, and it looks small.”
Calling the current situation “one hell of a mess,” Krugman rattled off a lengthy list of what he considers to have been the chief contributing factors.
The first was the unraveling of a theory espoused by many economists, himself included, that developing countries were “decoupled” from economies like the U.S. and Europe and therefore immune to implosions there. That “turns out to be entirely wrong,” Krugman said, noting the rapid-fire worldwide spread of the crisis.
He also blamed former Federal Reserve Chairman Alan Greenspan’s decision to reduce interest rates and keep them low following the dotcom crash earlier this decade for setting the stage for the market bubble in the housing sector.
Calling the housing market bubble “pretty predictable,” he cited its rupture as a key part of the present crisis and predicted that house values, which have already plummeted 25 percent, likely still face an additional 15 percent drop.
Krugman participated in a question-and-answer period with Kellogg students after his address, during which time he offered up his view on how the United States might begin to get itself out of the current mess.
Public work projects, including infrastructure repairs on bridges, roads and railways, could be beneficial, he said. Calling himself a “big New Deal romantic,” he said he also sees a role for commissioned artists.
An agenda like the one he describes would be more probable under a Democratic president, he said, pointing out that the financial crisis has made it more likely that voters will choose Barack Obama over John McCain. But no matter who wins next week, he said, “This is no time for a lame-duck administration and a lack of authority.”
Krugman has written more than 20 books, including a recent examination of the rise and fall of the middle class entitled The Conscience of a Liberal. Through his work, he helped establish “new trade theory,” which provides rationale for why only a few countries, similar to one another, dominate international trade. He won the Nobel Memorial Prize in Economic Sciences earlier this month for his research in this field.
Krugman’s appearance, which was open to the entire Kellogg community and telecast to alternate locations to meet high demand, was the first in the newly launched Kellogg Distinguished Lecture Series, an initiative by the school to bring real-world insights into academic discourse. Future speakers in this series will include preeminent thinkers from the worlds of academia, journalism and business.
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