57 – Paul Krugman on Liquidity Traps, the Great Recession, and Isaac Asimov
May 15, 2017
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Nobel Laureate Paul Krugman discusses liquidity traps, lessons from the Great Recession, and how Isaac Asimov inspired his career. Topics include Japan's slump, monetary policy challenges post-2008 crisis, fiscal policy recommendations, and the debate on nominal GDP targeting. Krugman explores the impact of technology on the US economy and finds optimism in global income growth.
Paul Krugman was inspired to become an economist by Isaac Asimov's science fiction, highlighting the unconventional paths to academic fields.
Krugman emphasizes the importance of engaging with real-world issues, finding independent and interesting topics in economics to avoid following technical trends.
Deep dives
Paul Krugman's Journey to Economics
Paul Krugman discusses his unique path to economics, influenced by childhood fantasies of being a scientist combined with a desire for structured analysis. His mentors advised him to understand real-world issues before delving into technical aspects, shaping his approach to economics.
The Evolution of Economic Topics
Krugman reflects on his diverse contributions to various economic areas such as new trade theory, liquidity traps, and optimal currency regions. He emphasizes the importance of engaging with the real world, finding interesting topics independently of technical trends, and avoiding minor extensions of existing work.
Krugman's Seminal Work on Liquidity Traps
Krugman delves into his 1998 paper on Japan's liquidity trap, revealing its genesis in challenging prevailing views on monetary policy effectiveness during zero lower bounds. He discusses how a credibility problem underlies liquidity traps, highlighting the need for central banks to promise irresponsible actions for monetary policy to be truly effective.
The Role of Fiscal Policy and Potential GDP Growth
In considering the impact of fiscal policy during recessions, Krugman acknowledges the importance of supporting demand through substantial government spending, especially in times of disrupted credit markets. He highlights the difficulty in predicting future potential GDP growth rates and expresses reservations about fixed nominal GDP targets due to uncertainty in real GDP growth projections.
Paul Krugman is a Nobel Laureate in economics, a columnist at *The New York Times,* and a Distinguished Professor of Economics at the Graduate Center of the City University of New York. He joins the show to discuss his work on liquidity traps, Japan’s Lost Decade, and lessons from the Great Recession. Paul also explains how Isaac Asimov’s science fiction inspired him to become an economist. David’s blog: http://macromarketmusings.blogspot.com/ Paul Krugman’s CUNY profile: https://www.gc.cuny.edu/stonecenter/Paul-Krugman Paul Krugman’s blog: https://krugman.blogs.nytimes.com/ Paul Krugman’s NYT archive: https://www.nytimes.com/column/paul-krugman David’s Twitter: @DavidBeckworth Paul Krugman’s Twitter: @paulkrugman Related links: “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap” by Kathryn M. Dominguez, Kenneth S. Rogoff, and Paul R. Krugman https://www.brookings.edu/bpea-articles/its-baaack-japans-slump-and-the-return-of-the-liquidity-trap/ "Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo approach" by Gauti Eggertsson and Paul Krugman https://www.gc.cuny.edu/CUNY_GC/media/LISCenter/pkrugman/The-Quarterly-Journal-of-Economics-2012-Eggertsson-1469-513.pdf “The New York Economic Geography, Now Middle-Aged” by Paul Krugman https://www.princeton.edu/~pkrugman/aag.pdf *Global Inequality: A New Approach for the Age of Globalization* by Branko Milanovic http://www.hup.harvard.edu/catalog.php?isbn=9780674737136
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