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Renowned Columnist Calls Economy 'Truly Lousy'

Nobel Prize-winning economist Paul Krugman delivered a speech at Cal Poly Pomona Friday titled "Year Five of the Slump: What Have We Learned?"

The gloomy weather that left the Southland drenched by rain seemed a fitting backdrop for New York Times columnist Paul Krugman’s speech Friday on the state of the economy.

The Nobel Prize-winning economist and professor came to Cal Poly Pomona, speaking to a crowd of several hundred in the Bronco Student Center’s Ursa Major.  His talk, which included a question and answer period, was titled “Year Five of the Slump: What Have We Learned?”

Krugman said that the “truly lousy economy” remains five years after the recession hit in summer of 2007 for a very key reason.

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“It’s a failure of demand,” he said.  “It is in fact possible for basically the nation as a whole, and to the larger extent, the world as a whole, to simply spend too little,” he said.  “The amount that people are willing to spend is less than the value that the economy would produce if it was at full employment.”

Krugman said that while it might be easy to get desensitized to the fledgling economy, the situation is “fundamental level crazy.”  He compared the U.S. slump to what Japan experienced in the 1990s.

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Recent unemployment numbers were disappointing, but there were several good reports before that, he said.  The uptick on the whole is slight and shows that we’re “still in a deep slump,” he said. Prime workers, between 25 and 54, can’t find jobs.  He also lamented the limited prospects for college students who will soon be looking to enter the workforce.

The story people tell, he added, is that the economy remains shaky because we’re all doing the wrong things, that workers need new skills, but that is not the case.

He gave the example of construction workers unemployed after housing market collapse.  Construction jobs did go down, but that is very little of the story.  Krugman said the Economic Policy Institute did research and found that if construction workers were taken out of equation, data showed that unemployment would be 8.6 percent instead of 8.9.

The economy is depressed across all occupations, industries, and regions, he said. He did offer one glimmer of hope in response to an engineering major's question about manufacturing.  While manufacturing in the U.S. won't ever return to the level it was, Krugman said he expects it to grow, with costs to operate plants in Asia and Europe increasing.

Krugman touched on the failure of the financial markets.

Eight months after Lehman Brothers failed, there was total panic in the markets, he said. Between Sept. 2008 and March 2009, the economy was “in freefall.”

“The first year of this crisis was worst than the first year of the Great Depression,” he said.

That freefall was stabilized, but the crisis continued. Krugman cited personal debt as an important factor in a slow recovery, he said.

“Highly indebted people will be forced to pay down their debt rapidly, while the people who are the creditors are not correspondingly forced to increase their spending,” he said.  “That is a huge drag on the economy.”

Those who analyze the economy are looking at the wrong things from how much money the Federal Reserve is printing to gas prices. That has nothing to do with what U.S. monetary policy is, he said.

Krugman said the available tool used in the past to get the economy moving would be for the public sector to spend if the private sector would not, but the current political climate makes that a tough sell.

He spoke about the Recovery Act, the $840 billion stimulus plan put in place to spark the economy, calling it “inadequate.” The self-described liberal often writes in his columns about how politics and economics intersect. He frequently takes on the right, but he has not been shy about criticizing Democrats as well, including President Obama during the 2009 stimulus process.

“I was tearing my hair out because I knew it was too small to be effective,” he said.

During the question and answer period, Krugman was asked about the push to cut taxes for the higher income earners as a way to rev up the economy.  He said that in 1993, President Clinton raised tax rates and the economy thrived, whereas President George W. Bush lowered them and it faltered.

“You need to think about interests,” he said of why some may still support tax cuts for the wealthy. “There is a lot of money pushing that tax cuts are a wonderful thing.”


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