06:57 am
Krugman: A Really, Really Long Period of Prolonged Economic Weakness
I believe the bars of Waterloo, Ontario did very well last night as CIGI ‘09 participants drowned their sorrows after a speech by Paul Krugman.
Actually I am told that non-economists like me found the speech depressing, while real economists found much to argue over in the remarks of the Nobel Prize winner, New York Times columnist, and Princeton professor.
“What a time,” Krugman began, “that is all I can say. For anyone interested in economics, these are fascinating times. But it is an awful time for anyone trying to make a living.”
Among the other things he said (paraphrased)…
- This is not over. The acute phase of the crisis is probably over. The end of the world has been put on hold.
- But now it is difficult to keep people focused on the fact that avoiding a depression is not enough.
- I worry that we will have a really, really long period of prolonged economic weakness.
- Nearly all phoenix-like recoveries (and more modest recoveries) have been driven by exports. But this is global. So unless we can find another planet to export to, we can’t all run trade surpluses. So the almost universal path of usual recovery has been closed of to us.
- There is no obvious driver for a full recovery out there.
- This would, therefore, be a really good time for someone to invent the railroad or the internet or something.
- We may be stuck in the woods for some time
- We do not have role models for the kind of recovery we need.
- But let’s assume we recover. Someday. We still have the problem of a bad system.
- So what do we need to do? I have a few thoughts and they all involve international arrangements.
- For sure we need: better regulation of financial intermediaries, and we need international liquidity/lender of last resort arrangements.
- And we arguably need international macro policy coordination and inflation targets (and the targets should be higher than we typically set).
- But it is very doubtful that any of this will happen. In some ways we stepped back from the economic abyss too soon to get the reform we really need.
- See a video blog with Krugman.
Following the speech, I said to Krugman that after delivering a message like this, he should buy us all a drink. He said, “Oh, I though I was actually more upbeat than usual.”
A final note, so far at CIGI ‘09 I have met three very good people from London’s Royal Institute of International Affairs, otherwise known as Chatham House. But I did not have the nerve to ask them if staff at Chatham House have to follow Chatham House rules 24/7. (OK, it is an inside joke for foreign policy geeks. The rest of you can Google it.)
(See CIGI ‘09 post #1 here.)
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