While the United States witnesses relatively positive economic news,such as the recent jobsreport, Europe continues to lag behind the recovery curve, economics professor Paul Krugman said at a lecture on Monday.
Krugman won the Nobel Prize in economics in 2008, and will be retiring from the University in June.
Krugman began the lecture by outlining the different outcomes for Europe and the United States.
“When all is said and done, the [United States] has had a gradual, if painfully slow improvement,” he said. “Europe has essentially had no recovery … they have done really, really badly.”
Europe’s recent experience is especially relevant to the United States, Krugman said, in the sense that the involved countries are all advanced, sophisticated, highly-educated and very productive.
“Obviously there are differences, but they are quite small compared to Brazil and the United States,” he said. “It pays to look at what goes on in the world at large and learn from it.”
Overall, Krugman said that he takes an encouraging lesson from Europe.
“[Basic macroeconomics] has actually worked pretty well,” he explained. “Intellectually, we didn’t see it coming, but what would happen if you did the wrong thing was actually pretty on.”
According to Krugman, many people are attempting to draw the wrong conclusions, such as the failure of the welfare state.
“The popular story that Europe is failing because it tried to be too nice to poor people is not the case,” he said as he displayed a scatter plot of per capita growth against the size of government. “The main thing you see is that, yeah, Europeans have a government bigger than the United States … but there is nothing to believe that their recovery has anything to do with the failure of the welfare state.”
The lessons that Krugman learns about Europe center on the dangers of borrowing in someone else’s currency, the accuracy of Keynesian predictions and that politicians can continue to make allegedly poor choices in the face of the economic evidence.
He called countries that do not have their own currencies “very dangerous,” explaining that, while the United States can continue to print dollars, there was a very real concern in the beginning of the crisis that Spain would run out of euros.
“The thing is that it took a couple years of disaster before the [European Central Bank] was willing to indicate that it would prevent that from happening in Spain,” he said.
Krugman also highlighted the Keynesian problem with austerity, namely that cutting spending or raising taxes in a depressed economy will lead to even worse problems.
“Countries in debt problems have been forced as a condition of emergency aid to extreme austerity,” he explained.
Krugman pointed to recent statements from policy makers as evidence that they have allegedly not learned from these experiences.
“Sometimes, you really do need to understand what is happening in the short run and act on it,” he noted.
Krugman spoke at 6 p.m. in McCosh 50. The lecture was titled “Learning from Europe.”
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