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Past experience could ward off new Great Depression: Krugman
2008-12-07
STOCKHOLM (AFP) - Lessons learned from the 1930s depression and from more recent economic crises could be the only thing warding off a new Great Depression, the 2008 winner of the Nobel economics prize Paul Krugman said Sunday. "If we had not already experienced the Great Depression, I think we would be about to have another one," the Princeton University professor and New York Times columnist told reporters in Stockholm, where he will receive his Nobel prize this week. "But the fact that we did have that Great Depression and have some economic analysis of how it happened, gives us some hope of avoiding a repeat," he said. Krugman, who supports massive government spending on infrastructure and public works programmes as a way to revitalise the slumping US economy, said Sunday that Washington should also draw lessons from Japan's deep economic crisis in the 1990s. "I think we need to be grateful to the Japanese for ... simply (giving) us the realisation that such things can happen and which policies do and don't work," he said. "The experience of Japan in the 1990s was that indeed government spending, while it may not produce a permanent cure, can greatly alleviate the pressures on the economy," he said. Krugman has in his New York Time columns cautioned that US president-elect Barack Obama, who on Saturday vowed to make the largest investments in US infrastructure since the 1950s, may not act boldly enough to bring an end to the country's economic malaise. "I'm very concerned about how quickly the programmes can be brought online given the speed with which the economy is declining," he said Sunday. Public spending "is in fact our only response. This is a crisis situation and we need to provide support. The private sector cannot support itself," he added. Krugman, who won the Nobel prize for his work on the impact of free trade and globalisation, also praised Obama's pick of Timothy Geithner for Treasury chief, describing him as "very smart, very open-minded (and) quicker to realise the vulnerability of the financial system than most people." However, "he faces an extremely daunting task. The simple mechanics of producing a rescue for the world economy are very hard. The pace at which things are getting worse is so great," he said. While supporting government spending to rescue the US economy, Krugman expressed more scepticism to bailing out the country's floundering giant car makers. There is, he said, "a correct lack of willingness to accept (responsibility for) the failure of a large industrial sector ... in the midst of a very, very severe recession." "In the end these companies probably will disappear." Krugman will receive his Nobel gold medal and diploma along with 10 million Swedish kronor (1.2 million dollars, 929,000 euros) at a formal prize ceremony in Stockholm on December 10. When asked what he planned to do with the prize money, Krugman said he had yet to decide, pointing out that "My favorite congratulatory email said: 'Congratulations, I hope you can find a bank still standing'."
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