Krugman explains crisis and gives hope
November 14, 2009
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Paul Krugman, Nobel Prize-winning economist prominent for his liberal political views, spoke about “Confronting Global Economic Challenges” on Nov. 3 at the War Memorial Auditorium. Krugman’s lecture was the third of five Bryan Series programs. “If any one of you does not know anyone who has been negatively and greatly affected by the economic crisis, then you are living a very sheltered life,” said Krugman, addressing the far-reaching effects of the economic crisis.
Krugman delivered his speech in three major part: first asking the question “How did this happen?” then addressing the effects of the crisis, and finally discussing ways in which he thinks the global economy can recover.
He explained to the audience the series of complex events that led to the global economic crisis, starting with the bankruptcy of Lehman Brothers and the mistake that banks made by generously granting sub-prime loans. Krugman explained that sub-prime loans are loans that were given by banks to individuals who should not have qualified for these loans.
Krugman said that greed and irresponsible lending largely contributed to the crash of the real estate market. Many who were granted loans were not able to pay them back, which caused banks and investors to lose great amounts of money and also led to many housing foreclosures and eventual job losses.
He then described the state of the global economy after the worst of the crisis was over.
“Even though the acute ‘Oh my god the world is coming to an end’ phase is behind us, that’s a very, very long way from being out of the woods,” said Krugman as he moved into discussing our current economic situation.
Krugman compared the first year of our economic crisis to the first year of the Great Depression, stating that in many ways our crisis was just as bad or worse.
“We had one year of sheer terror,” said Krugman.
He then went on to talk about what was done right and what stopped the crisis from becoming like the Great Depression.
“The government is far bigger now than it was in 1930,” said Krugman. “It was the role of big government that provided crucial stabilization.”
Krugman’s ideas on recovery largely revolve around the role of the government and its efforts to get the economy back on track. He agreed with President Obama and his actions to help the economy.
Krugman did not shy away from voicing his political views, however. He called Obama’s stimulus package “too little of a good thing” and blamed the political process, and specifically the resistance of the right wing, for only allowing $775 billion in government spending instead of the $1.3 trillion that the economy needed.
Krugman, however, did not overlook the negative impacts of the crisis.
“We have avoided catastrophe but we have not avoided tragedy,” said Krugman. “It’s a really sad thing to have talented hard-working young people coming out into the job market when there really are no jobs.”
This has caused senior Aaron Woerner to have concerns about finding a job after school.
“I’m about to graduate, and the job market is scary as hell so I end up just trying not to think about it,” says Woerner.
Krugman’s words also resonated with junior Reginald Pettiford, who attended the lecture as part of his Business Law class.
“Krugman’s lecture was realistic and he put things in perspective,’ said Pettiford. “At first it was discouraging to hear that job market will be very slow to recover, but it was also good to hear that the economic crisis was not as bad as it could have been.”
Krugman emphasized the importance of moving forward and said, “Things will come along. Creativity will produce new technologies. Eventually, we will recover.