Economics professor Paul Krugman fielded questions from the public regarding the issues facing the United States and global economies in a lecture on Saturday morning. “A Conversation with Paul Krugman” took place in a packed Dodds Auditorium and was also livestreamed in Robertson Bowl 02.
The lecture focused on the implications of Europe's financial woes for the global economy. Krugman attributed Europe’s continued struggle to recover financially to its dependence on the standard euro currency. He explained that the euro left many European economies inflexible to change because it created a unified currency without a unified government.
“What the creation of the euro did was essentially turn all of Europe into a third-world country,” he said.
Nonetheless, he downplayed globalization and the negative impact of Europe on the American economy, noting that the United States only sells about 2 percent of its GDP to Europe.
“I sort of divide my agonizing time between the United States and Europe,” Krugman said. “The globalization issue is real, but there is a tendency to overhype.”
Krugman also addressed domestic concerns about the economy and reflected upon the financial crisis of 2008. In response to a question about the $700 billion bailout, he said that while there were flaws, the public tends to forget all of its positive benefits.
“It might have helped to, first of all, in a real sense, to have more strings attached. That is, I believe that you had to save the major financial institutions. You had to keep them operating. You did not have to save the stockholders,” Krugman said. “I was actually for the Don Corleone approach.”
He also elaborated on the problems facing the Federal Reserve. Krugman stated that its main limitation is its inability to lower the interest rate beyond zero percent, which often is not enough to provide financial relief in times of economic need. Part of the solution is to expand the amount and range of financial products that the Federal Reserve buys, Krugman said.
“We are in a very weird environment in which none of the rules apply,” he said.
When asked about the ability of the Dodd-Frank Act to prevent another financial crisis, Krugman responded that this would depend on the ability of the administrators at the time. He noted that the 2008 financial crisis was not handled as well as it could have been.
“If this crisis had happened 40 years ago, then we probably would have had a better response than we did because economists knew a lot of stuff circa 1930 that they had forgotten,” he said.
Krugman also answered questions regarding the United States’s role as an oil producer with the emergence of hydrofracking technologies. Although he said he thought that the development was impressive, he stressed that energy has a limited impact on the economy because it only represents one of many industries and is worth just a fraction of a GDP percentage point.
The lecture was sponsored by the Woodrow Wilson School of Public and International Affairs.