The audience for economist Paul Krugman’s talk in Founder’s Hall on Monday evening went far beyond standing room only. People crouched in the aisles, perched on window sills and lined the stairwell outside the room, eager to hear the Princeton University professor and New York Times columnist‘s talk, titled “An Economic Perspective on The Mess We’re In.”
The 2008 winner of the Nobel Memorial Prize in Economic Sciences (which awarded him $1.2 million), Krugman has been called “the Mick Jagger of political/economic punditry.” In her introduction, Associate Professor of Economics Anne Preston described him as “the closest thing to a household name an economist has ever been.”
“This looks like a revival meeting,” said Krugman, surveying the packed house as he stepped up to the microphone. “For a revival meeting, I should be saying something uplifting and inspiring, but, hey, this is economics.”
Krugman, who managed to inject a surprising amount of humor into a largely bleak analysis of the economic downturn, began with this observation: “Over the past three years we have faced the economic challenge of a lifetime, and we have failed completely.”
For the failure to see the crisis coming, to take steps to arrest it or to address its aftermath, Krugman indicted the field of economics (“We spent too much time working on the frontiers of research and not enough explaining the basics” ), the banking and finance industry (guilty of “state of the art mystification”), along with lax regulators and a polarized Congress. He also took some blame himself. “I was 90 percent wrong,” he said. “Of course, other people were 150 percent wrong. But I had no idea something like this was in the offing or that it was even possible.”
Economists, including those running the Federal Reserve, he said, believed “recessions, downturns were a solved problem. We thought, we have this thing under control. There might be a wobble, but then Uncle Al [Greenspan] or Uncle Ben [Bernanke] will step in and cut interest rates. That belief contributed to getting us into the mess we’re in.”
Krugman offered a snapshot of the situation now that we are three years past the plunge: “Officially we have an unemployment rate of nine percent, but if you think 91 percent of Americans are in good shape, you’re wrong.” A very large percentage of the population, he said, is underemployed or has given up looking for work. “Recent college graduates are finding employment prospects very bad. Men my age have lost jobs and have no chance of ever getting a job again.”
“And we’re not doing anything about it,” he said. “That is what is remarkable. The problem is not that no tools exist. It’s the lack of political will to use the tools we have.”
The economist, who authored The Return of Depression Economics and the Crisis of 2008, directed some of his sharpest criticism at the Obama administration, whose stimulus plan, he said, fell far short of what is really needed to create jobs, increase demand for goods and services and, thereby, rev up the economy. “We can end this, but what we need is a vigorous response,” he said. “It didn’t happen. A country like ours is capable of dealing with awesome challenges. We have the resources to do it. We lack the political consensus and the conviction to do it.”
While some believe the economy will heal itself eventually, Krugman told the crowd, “I’m actually pretty dreary about the prospects.”
Later, in response to questions from the audience, Krugman criticized the revolving door between government and the finance industry that has officials going off to earn big salaries at the companies they once set policy for. He suggested that the TARP bank bailout should have had “more strings attached,” and that it might have been a good idea to nationalize at least one big bank. He also shook his head over the sharp spending cuts going on in states across the country. “The way we deal with mass unemployment in this country now is to lay off lots of school teachers,” Krugman said. “That is not a good story.”
You can watch the talk for yourself here:
— Eils Lotozo
All photos by Jonathan Yu ’12