by Ruth Montiel:
Paul Krugman, a 2008 Nobel Prize winner, is renowned as much for his many innovations in economics as for his ability to combine economics and politics in his New York Times columns. It was for two strengths that Yale awarded Krugman the Henry Elias Howland Memorial Medal in a town hall gathering in Sprague Hall.
“I think that collapse is the wrong word,” Krugman explained in reference to the 2008–2009 financial crisis, which was the central topic of his talk. “You want to think of it more as a long siege.” According to Krugman, this siege must be waged not only through economic policy but also through political reform and a change in general perception of economic issues.
The United States and other highly developed economies, including those of Japan and the European Union, have unsuccessfully attempted to overcome the stagnancy of the past few yaers, but as of yet to little avail. Krugman called on the examples of South Korea and China as models of successful fiscal policy that lifted the two states out of economic turmoil.
Within this “nightmare” of an economic crisis, Krugman saw opportunity in emerging markets such as China and Brazil. But emerging markets comes with two caveats: firstly, these markets, although growing, still remain small; secondly, China in particular continues to impede foreign investment.
This latter of these two caveats was one of Krugman’s central sources of anxiety. Expressing great concern over China’s currency policies, Krugman explained, “China is keeping the currency artificially weak, that’s not really a question. They’re buying huge amounts of currency to keep the renminbi from rising, and they’re doing that because they have capital controls.”
Krugman’s talk was undeniably pessimistic, largely due to what he considers a lack of understanding of fiscal policy by the E.U., Japan, and the U.S., as well as restrictive Chinese policies. Looking ahead, options are limited, but must involve engagement with emerging markets in Asia and South America in a way that does not restrict growth for any country. It is only with these policies, Krugman argued, that we can hope to wake from this nightmare.
Ruth Montiel ’13 is a Political Science major in Trumbull College. Contact her at ruth.montiel@yale.edu.