Paul Krugman, the Nobel-prize-winning economist is in Oxford until mid-June as the Sanjaya Lall Visiting Professor in Development and Business.
The liberal Princeton/NY Times professor just delivered his inaugural lecture asking the question (the almost-rhetorical question) Do We Face Secular Stagnation?
It follows on from his books The Age of Diminished Expectation, the Return of Depression Economics and articles like Is Capitalism Too Productive? The Myth of Asia’s Miracle and – suggested title – What Are You Laughing At, Can’t You See the State We’re In?
His proposition is that the glory days are behind us, that each recession has been harder to get out of than the last, that we will have extended periods of low-to-no growth, and that under-employment will create “dreary lives” for large numbers of people – because politicians will not listen to him and his $300bn job-creation schemes.
If Labour can get him onto a stage with Ed Miliband, the election will be in the bag. For the Tories.
He talked about the impulses to “austerity” saying that it’s as though governments want to engineer a gratuitous recession in order to have a pre-election year boom, “like the Government has done here” (cosy laughter from the full-to-overflow hall).
Small, bearded, charming, Prof Krugman looks like the oceanographer in Jaws. Remember, that clever fellow, expert in his field, ran up and down the beach warning the pleasure-seekers there was a giant shark out there waiting to devour them.
But the question for Krugman is: Where’s the shark?
Billions of jobs have been created since Krugman started writing, poor people in the Rhondda Valley have luxury goods, Third World life-expectancy is climbing. And even this last recession shows signs of ending, as recessions do.
We bucket along, whatever governments do to us, left or right. We boom, we bust. We live too well, we pay the price, but we still get to keep the flat screen TV.
Now, post-2007, inflation is at last down (Krugman said, just when we need 4 or 5 per cent inflation for full employment).
Savings are improving (but on Krugman’s account, that’s making everything worse on account of the “paradoxes of thrift, toil and flexibility” leading to the “liquidity trap”).
Growth is back (but built on unsustainable private debt).
Politicians won’t create demand (even though printing money is cost-free).
He describes recessions as technical monetary failures – “a magneto problem” that can be solved by politicians throwing the right switch. The resources are there, the models are there, leaders can create demand – it was a mystery why Treasury officials didn’t listen to him.
In this “bizarre world” he said, “virtue is vice and prudence is folly.”
He has also talked about the desire of people to see economics as “a morality play”.
That’s not only true but useful.
You are advising on development economics. You have two moral models to choose between.
Toil, thrift and low taxes on one side – state-created jobs and printing-press money on the other.
You don’t need black and white hats – or even a professor of economics – to know which is better than the other.