By Anneli Fogt
On Friday afternoon, the Ursa Major room of the Bronco Student Center was filled with people eager to hear Nobel Prize winning economist Paul Krugman’s speech about the ongoing American financial crisis.
Krugman was introduced to the Ursa Major stage by Provost Marten L. denBoer who stressed Krugman’s numerous achievements and his unique ability to explain economics in ways that the average person can understand.
Krugman then took the stage with his speech: “Year Five of the Slump: What Have We Learned?”
The speech lasted nearly an hour and explored the reasons why the country is in a crisis, what citizens have learned and the importance of history in solving this problem.
Throughout his speech, he made efforts to not use economics jargon and even apologized and corrected himself when he did, assuring to break down the concepts so that the majority could understand his points.
He stressed that “new economics thinking largely involves reading old books.”
As a Keynesian economist, Krugman’s ideas followed those of early 20th century’s english economist John Maynard Keynes.
Krugman believes that, like the Great Depression, the current economic crisis was caused by a lack of demand debunking the common myth that the crisis is due mostly to the housing bubble.
While Krugman addressed the housing issue, he disagreed with the belief that unemployed construction workers due to the lack of new homes led to the recession.
Instead, Krugman said the recession was caused simply by the nation as a whole not spending enough and having a huge trade deficit.
Keynesian ideas also dominated Krugman’s reasons behind how to get out of the crisis. Simply put: fiscal policy.
Krugman stressed that fiscal policy is America’s saving grace in this economy, arguing that the typical saving grace, low interest rates, are already at zero and can therefore go no lower.
He said fiscal policy now needs to come in and the government needs to spend to bring the country out of its spending slump.
Krugman continued by saying that changes in spending that go along with the economic state (spending when economy is good, not spending when it’s bad) only adds to the current state, so the opposite must be done. Therefore America must spend.
“I thought he was right”a lot of people think that the fiscal policy will not work, I think that’s the only thing we’ve got and he’s emphasizing that,” said Ercument Aksoy, professor of Economics at Los Angeles Valley College. “[It was] textbook application of Keynesian economics which was very well put.”
Krugman focused on the human element of the recession and how it affects people.
Throughout his speech, he brought up how the economy is affecting college graduates stating that America has had now five consecutive college classes graduating into a bad labor market.
Because of this human element, Krugman stated that the first year of this recession has been worse than the first year of the Great Depression because of just the sheer amount of people it has negatively affected, especially the young graduates and the old about to retire.
“I thought it was wonderful, he really gave a great analysis of what situation we are in. I think he’s right on,” said denBoer.
Derek Eng / The Poly Post
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