'Stimulus plan not adequate,' says Nobel Prize Winner Paul Krugman
Paul Krugman, winner of the 2008 Nobel Memorial Prize in Economic Sciences, delivered the spring Atkinson Lecture Friday, Jan. 30, at Willamette.
Earlier in the day, students asked Krugman what he would say if he had five minutes alone with Barack Obama. "I would make the stimulus plan 50 percent larger," he replied.
"I'm not sure if the $800 billion stimulus plan is adequate to the problem. We're facing one hell of a crisis and we'll need more than a band-aid. The plan will limit the rise in job loss, but we're still looking at three years of unemployment. My guess is that the administration will be back later this year for a second round."
"There is a limit to the amount of public debt we can run up," Krugman said, "and there's a danger if the stimulus spending goes on too long, but other advanced countries are closer to the edge than we are. There's a threat, but we're not there yet."
As a second measure, Krugman recommends nationalizing some of the more troublesome banks on a temporary basis. "We don't actually want government managing our banks -- government doesn't run banks well -- but it should take on the responsibility of guaranteeing funds, and then sell the banks to a private owner. The goal is not to own the banks, but to deliver the necessary bailout without handing a windfall to stockholders.
"There was probably no way to stop the housing bubble and bust, but it could have been less devastating." Krugman speculates that housing prices probably won't rise until 2012. "Housing prices continued to fall for six years after the bubble burst in California," he said. "We probably have years to go before things turn around.
"There's a jigsaw puzzle aspect to trying to find the right solution. Right now the policy goal is to construct a bridge to this uncertain future. One thing we do need is more regulation. Anything we have to rescue in a crisis needs to be regulated when there's not a crisis.
"I sometimes get asked if the press should try to be less negative about the economic situation," Krugman said. "That's not our role. Our role is to tell the truth."
One student asked what advice Krugman had for "us soon-to-be college grads. "I have no idea what to say," he said with a laugh. "One thing I certainly never had was a carefully planned career."
But he does have advice for the average citizen. "Live within your means, put aside reserves, and play it safe. And support politicians who are trying to fix things, because it's up to the policy makers to solve the problem."
Krugman is an influential Op-Ed columnist for The New York Times and professor of economics and international affairs at Princeton University. He received the Nobel Prize in October for his analysis of trade patterns and location of economic activity. He is well known for his work in international economics, including trade theory, economic geography and international finance, and has a unique ability to explain complex issues with wit and passion.
His books include The Return of Depression Economics and the Crisis of 2008, The Great Unraveling: Losing Our Way in the New Century and The Conscience of a Liberal.
Krugman earned his bachelor's degree in economics from Yale University and his doctorate from MIT. From 1982-83 he worked at the White House as a staff member of the Council of Economic Advisors. Before joining the Princeton faculty, he taught at Yale, MIT, the London School of Economics, Stanford University and the University of California, Berkeley.