On Friday, February 5th, Princeton professor Paul Krugman PhD ’77, 2008 Nobel Laureate in Economics, New York Times opinion columnist and former MIT professor spoke about the economic crisis, comparing it to the Great Depression.
His talk, planned by the Undergraduate Economics Association (UEA) and the Department of Economics, completely filled 32-123 and had several hundred people waiting outside.
The theme for the lecture was “What Have We Learned, If Anything?”, citing how America once again found itself in a situation similar to the Great Depression and referencing the mistakes the United States has made within the past few years.
The financial crisis of 2008, Krugman said, was strikingly similar in its progression to the events that led to the Great Depression 80 years ago. “We ended up having a teched-up, 21st century version of what happened in 1930,” he said.
Krugman discussed the “Mistake of 1937” as the reason for the length of the Great Depression. He said President Roosevelt was convinced that the economy had recovered from the first financial crash, and withdrew government support too soon, resulting in a severe recession.
People today, Krugman argued, forgot that lesson and thought they were safe. The extra banking regulation enacted after the Depression lulled people onto a false sense of security.
Krugman also accused people of not taking the recession seriously enough.
“The actual slump has not been as bad as the Great Depression,” he said, but there has since been “some self-congratulation about that, probably excessive.” He said that the United States is not yet out of the recession.
Krugman argued that the reason the recession was not as great this year because of the bigger government, not because of the guidance of the Federal Reserve. That “the world didn’t end on his watch is not good enough reason to make Ben Bernanke man of the year” Krugman said, jibing about the Federal Reserve Chairman.
He added that the continuing function of Medicare and social security aided in cushioning the crisis.
Still, keeping true to his stereotypical pessimism, Krugman forecasted a grim future over the next few years, especially for students who are just graduating. Stastitical estimates, he said, have shown that students who graduate into a bad market will be considerably more worse off than those students who graduate into a good market, even 25 years later. The biggest effect of the recession will be on “young people graduating from college facing a terrible job market.”
“Sorry about that, guys,” Krugman said to laughs.
Krugman furthermore predicted a second dip in our current recession. After the stimulus reaches its peak during the summer, it will fade out and we will face the same situation as the “Mistake of 1937,” he said.
Krugman largely blamed the political system for how things got so bad so quickly. There is a “real difficulty in getting things through” the political process, he said. Even if a decent policy makes it through the legal system, the political conclusion is that the policy failed if the economy continues to look bad.
Krugman also blamed his profession, saying that economists themselves were confused.
It was “startling to watch economists reinventing 1930s vintage fallacies as if they were fresh insights,” he said.
After the 40 minute speech, UEA President Charles Wu ’10 and UEA Vice President Manisha Padi ’10 presented Krugman with one of the UEA’s t-shirts — a green shirt that reads “Economists Do It with Models”. Krugman spent the following 25 minutes answering questions from students, ranging in topics from the future of Europe to what students should plan for the future.
Of all of the things at MIT, Krugman said he missed the healthcare the most.
“I thought that I got really good assisted care. I like socialized medicine,” he said, laughing.
“Princeton has a fine health plan, but they just hand you your UnitedHealthcare card and you’re on your own.”
Afterwards, Krugman had dinner with the faculty as the economics department’s guest.
The UEA did not expect the crowds that gathered at Stata on Friday, and Wu noted that the UEA expected only to fill 32-123. The UEA was unsuccessful in securing 10-250 or 26-100 for the talk. Had the talk been 10-250 or 26-100, it would have had to be much later in the day.
32-123 was filled by 3:30, forty five minutes before Krugman began his talk, and at 4:00, nearly 300 people were standing in the main hall.
Rachel Lee ’13 and Steve Drapcho ’13, who were seated in the second row, had arrived around 3:15.
“I read his blogs and I’ve always wanted to hear him speak,” Lee said.
“He’s talking about a topic that has a lot of relevance to us right now,” Drapcho said.
“He’s definitely an authority in this field.”
Earlier in the day, nineteen undergraduates and one faculty member sat around and chatted for an hour over cookies with Krugman.
Undergraduates in economics submitted questions to the UEA they wanted to ask Krugman in advance, and UEA officers invited the authors of the top 15 questions to the luncheon. The officers moderated the discussion by starting with the 15 questions and going from there.
“We talked a bit more about specific economics; the main lecture was a little more general,” Wu said, saying that they discussed the math of economics more in detail at the luncheon. They spoke at length about international trade theory, the field in which Krugman received his Nobel Prize, as well as some of his academic work.
Krugman’s talk is available online at the UEA website, http://web.mit.edu/uea/www. More information about the UEA and future speakers can be found at the UEA blog, http://uea.mit.edu/blog, or by contacting the UEA at firstname.lastname@example.org.