Nobel Laureate Paul Krugman asks UMass “What’s the Matter with Economics?”
by Justine O’Brien
“Why did we seem so ill prepared for the things that happened (in 2008)?” mused Paul Krugman, the Nobel Prize-winning economist, before an audience of about 600 people at the Mullins Center at UMass Oct. 26. “We hadn’t kept up with the changing world.”
Krugman, renowned economist, op-ed columnist for the New York Times and an active tweeter (@paulkrugman), lived up to his nickname, “the explainer in chief,” when he gave the 2017 Philip Gamble Memorial Lecture.
The lecture series was established by Israel Rogosa, a 1942 graduate of UMass, and other family and friends, in memory of Philip Gamble, a member of the economics faculty from 1935–71. He was chair of the department from 1942–65. The annual lecture series features a prominent economist.
In his talk, Krugman drove home the notion that basic macroeconomic principles are sound and have been crucial in moving the country and the world economy forward after the 2008 recession. He also looked at what economists have learned since the bubble burst.
“I hope that people aren’t here to … [hear me] say what will happen in ten years, because I don’t know,” Krugman told the crowd.
Krugman began by focusing on the 2008 recession, which hit harder than many had foreseen and caught economists as off guard as everyone else when the crash came. He outlined three narratives that he typically hears associated with the fallout:
The first posits that economists had nothing useful to say about the crisis, which Krugman insisted was wrong.
“[After the recession] we saw how well basic macroeconomics worked, concepts I learned when I was around the age of some of the students here,” Krugman said.
The second narrative stems from the idea that people just don’t care about what economists have to say. Krugman said this was partially correct and that the reach of economists is much more limited than many realize.
The third narrative revolves around the idea that many of the basic concepts that economists “should have known or used to know got lost along the way.” While Krugman agreed that economists should have been more prepared for the recession, the situation itself was abnormal.
“If the economy is already depressed, the rules change,” Krugman said. “When you have a situation where the biggest housing bubble in history bursts, the rules of the game change.”
“When you have a situation where the biggest housing bubble in history bursts, the rules of the game change.” — Paul Krugman
The patterns that preceded the recession loomed large in Krugman’s analysis and he said that while the first impulse in these situations is to blame banks, crashes such as these are not typically their fault.
“Why don’t we cut spending?” Krugman asked the crowd. “Because most people don’t realize when it’s a recession.” He said employers typically don’t cut wages during recessions because they don’t want to dampen worker morale. The idea that people are not perfectly rational when it comes to their spending habits makes predicting the severity of the recession difficult.
Krugman said government spending also played a part in the severity of the crash. He said governments rarely make drastic financial decisions, with most large changes coming as the result of war; if the government was spending more in a downturn, it would have a stimulus effect, dampen the downturn and speed the economy towards recovery.
In addressing the reformation of macroeconomics (the study of economies as a whole), Krugman offered four suggestions; First, economists should be talking to people more to discover what they actually do when it comes to their finances; Second, economists should be analyzing microdata to spot underlying trends; Third, economists need to learn from history to guide the progress of the future; fourth, remind economists not to be obsessed with rigor.
“What economists do is valuable, but there are other types of research and we should be using them.” — Paul Krugman
Recovery after the recession has been slow, and while the general tone of the talk was about what economists have learned since 2008, Krugman was adamant that there will always room for improvement macroeconomics.
“What economists do is valuable, but there are other types of research and we should be using them,” Krugman said. “I’m quite worried. As much as we were disappointed with our handling of the 2008 crisis, we need to be prepared.”
The state of macroeconomics in our global market is an ever-changing and tricky topic for even the most experienced economists, Krugman said, and his final piece of advice for young, aspiring economists?
“Keep doing it … and better.”
Justine O’Brien is a senior at UMass Amherst studying journalism and media literacy. In her free time she loves photography, shoes and attempting to keep plants alive.
