Paul Krugman

Paul Krugman is an American economist and professor of economics at Princeton University. He is a leading liberal voice in American policy debate and has been labelled one of the most influential academic thinkers in America. He was awarded the Nobel Prize for economics in 2008 in recognition for his work on international economics.

Krugman was born in Albany, New York on February 28, 1953, and grew up in Nassau County. He went to John F.Kennedy High School in Bellmore, before graduating with a B.A. summa cum laude in economics from Yale University in 1974.

Krugman did a PhD from the Massachusetts Institute of Technology (MIT) in 1977, under the guidance of his thesis advisor Rudi Dornbusch. In the late 1970s, Krugman began working on international trade and a new model of monopolistic competition within trade. Krugman later developed and popularised work on new trade theory. Krugman’s contributions were to be aware that trade increasingly could be explained, not by comparative advantage, but regional concentration and the economies of scale involved. He also explained the importance of consumers’ preference for diversity, which explains the survival of higher cost goods, which have a distinctive brand. This field of New Trade theory became one of his areas of expertise and would form the basis for his Nobel Prize. Krugman is generally supportive of free trade and globalisation. His work on New Trade Theory slowly evolved into New Economic Geography (NEG). His seminal 1991 paper on New Economic Geography (NEG) in the Journal of Political Economy became one of the most cited economic works in this field.

Krugman has worked at various top universities, such as MIT, London School of Economics, and Princeton University. In 1982, he spent a year working for the Council of Economic Advisers under the Presidency of Ronald Reagan.

Criticism of Bush

Krugman rose to public prominence for his columns in the Slate and New York Times, which were highly critical of the Bush administration. He also wrote a book ‘The Great Unravelling’ which criticised Bush’s economic and foreign policy. In particular, Krugman criticised the policy of cutting taxes for the rich, leading to budget deficits during growth. Krugman also believed Bush based his campaign on misinformation and false facts.

“Back in 2000, George W. Bush made a discovery of enormous consequence: you could base a whole political campaign on claims that were flatly untrue, like the claim that your big tax cuts for the wealthy went to the middle class, or the claim that diverting Social Security funds into private accounts would strengthen the system’s finances, and reporting would never point this out. That’s when I formulated my doctrine that if Bush said the earth was flat, headlines would read Views Differ on Shape of Planet.”
(2011, Lies, damned lies and elections – NYT)

Krugman was also an outspoken critic of the Iraq war and criticised the response of some politicians to the 9/11 terrorist attacks. Krugman became a leading critic of the growing income inequality in America. Blaming the Republican ideology for waging war on the poor. His book “The Conscience of a Liberal” details the growth in income inequality in the later part of the Twentieth Century in the US.

“I believe in a relatively equal society, supported by institutions that limit extremes of wealth and poverty. I believe in democracy, civil liberties, and the rule of law. That makes me a liberal, and I’m proud of it.”

– Paul Krugman

Macroeconomics and fiscal policy

Krugman has become more well known for his work on macroeconomics and fiscal policy. He studied the Japanese ‘lost decade’ and the Asian crisis. His book – ‘The Return of Depression Economics‘ highlighted the liquidity trap that Japan had fallen into.

After the 2008 economic crisis, Krugman was a leading critic of austerity. Krugman argued that leading economies were stuck in a classic liquidity trap. In this situation, Krugman argued governments could print money and run large budget deficits without causing a rise in interest rates or inflation. His model of liquidity trap broadly predicted the low inflation, low growth recovery. Krugman became a household name in part because of his ability to popularise and simplify complex economic problems. Krugman is also quite direct, openly criticising politicians and other economists. For example, he his openly critical of ‘Very Serious People’ – establishment figures who hold onto views, Krugman believes have been shown to be wrong.

“I use the phrase “Very Serious People” a lot; it seems to me to capture the way respectable opinion keeps demanding utterly foolish policies.”

He tends to take strong adversarial positions which create a strong reaction – both negative and positive from across the political spectrum. Martin Wolf, a journalist for the Financial Times, in the UK has written that Krugman is both the “most hated and most admired columnist in the US.”

Krugman was instrumental in recreating interest in the work of John M. Keynes. Krugman took a stricter Old Keynesian approach than some of the later ‘New Keynesians’ who downplayed the role of fiscal policy in managing demand. Krugman argued that in the lesser depression governments were failing to provide sufficient demand in the economy, and this was the main cause of a persistent recession and high unemployment. He wrote a book – “End this depression now!” which became a best-seller. Krugman wrote in the book:

“But don’t we have to worry about long-run budget deficits? Keynes wrote that “the boom, not the slump, is the time for austerity.” Now, as I argue in my forthcoming book*—and show later in the data discussed in this article—is the time for the government to spend more until the private sector is ready to carry the economy forward again.”

Economic views

Krugman views himself as a Keynesian economics. He has also promoted the IS-LM model invented by John Hicks. Although identified with elements of new-Keynesianism, he is critical of the complexity and rigidity of some of the New Keynesian models.

Krugman on Trump

In the 2016 election, Krugman was a strong supporter of Democratic nominee Hillary Clinton. Since Donald Trump’s win in the 2016 Presidential Election, he has been a stern critic of the President’s economic and foreign policy, and also the President’s willingness to lie and present misleading facts.

“Trump’s inaugural speech was, of course, full of lies — pretty much the same lies that marked the campaign. Above all, there was the portrayal of a dystopia of social and economic collapse that bears little relationship to American reality.”

(Krugman Blog, NY Times)

Personal life

Krugman has married twice. He is currently married to Robin Wells, his second wife, an academic economist. Krugman is a self-confessed Sci-fi geek. He credits Isaac Asimov’s Foundation novels for sparking off an interest in economics. Krugman describes himself as a bit of a loner and shy. He told NY Times – “Loner. Ordinarily shy. Shy with individuals,” He lives in Princeton, New Jersey.