Paul Krugman: The Noble Economist

Shafey Danish I had been reading Krugman’s columns in the Hindu - published in association with the NY Times - for a while before I came to any book of his. Therefore I was vaguely familiar with him, in the way one forms notions about people you have been reading, before I read his Return of Depression Economics. Krugman the columnist is funny, accessible and talks of problems in terms the common man would understand. Krugman the author was a daunting intellectual. I remember he had done a long criticism of the current market philosophy. Arguing historically how the cyclical nature of stock market booms and bursts had been ended with the constant growth model of the modern economy, and then gone on to explain how depression economics were making a comeback. But I did not register any of this; the only things that I registered was what he had written of the hedge funds. He had explained in that book how the hedge funds were the prime villians of the free market economy, and the prime movers in the Asian crisis of 1996. He darkly alleged that George Soros, himself the head of an investment firm, had precipitated a run on the British pound and he had discoursed in length how Long Term Capital Management managed to fail so spectacularly. The book provided me with a bird’s eye view of the how the market works. And the view was not reassuring. It told me how common chaps out to make a bit of money get taken for a ride by the big investors. It told me, though not very explicitly, that dear chap, the market is a huge Casino Royale and if you do not have the instincts of a gambler you better stay out of it. Maybe Krugman himself did not really say that. But the book spooked me enough to make me chary of investing in the stock market. Were it not for the government’s abominable policy of taking away your hard earned money in the name of taxes unless you invest in the market, I would have stayed out of it. As it is nowadays I start and end my day by cursing myself for choosing not to pay taxes, (one time pain) and going for a monthly investment plan (constant pain). Getting back to Krugman, the bio accompanying the book also told me that the geeky sounding author of the numerous columns I had read was actually a renowned economist. Paul Krugman is Professor of Economics and Foreign Relations at the Princeton University. He is also the winner of the John Bates Clark medal, a prize given to economists under 40 years of age. The Nobel committee cited his work on global trade, starting with a 10-page paper in 1979, which helped foster a better understanding of why countries produce similar products, for giving him the Nobel prize. Krugman is this year’s only winner of the $1.4 million award – normally shared by two or three economists – in the economics field. Perhaps because of his efforts to make the ‘dismal science’ accessible to the common people, he is quite well known outside the field of economics; as a public intellectual. A YouTube video of Krugman`s joint appearance with Fox News pundit Bill O`Reilly on "Meet the Press" has been viewed by more than 100,000 people. Two of his books, "The Great Unraveling: Losing Our Way in the New Century" and "The Conscience of a Liberal," written for the common public, have become bestsellers. (Both are currently out of stock on Amazon). Krugman is known for the twice weekly column he writes for the NY Times, in which he has outspokenly criticized the Republican Party calling it the "the party of the stupid" and that the economic meltdown made GOP presidential nominee John McCain "more frightening now than he was a few weeks ago." In 2006 I read an essay which has now become famous. “Nowadays the Americans make money by borrowing from the Chinese and selling houses to each other,” Krugman wrote. He went on the explain the huge bubble that had built up in the housing market and warned it was only a matter of time before it would begin to unravel, bringing disastrous consequences in its wake. Even a possible recession. Looking at the financial mess today, one can only wish he had been taken more seriously. Even though the extent of the crisis seems to have taken even Krugman by surprise, far exceeding his predictions in depth and magnitude. Krugman, in his columns has also been a scathing critic of the economic and foreign policies of the Bush administration. He has repeatedly found so many holes in them that they end up looking like Swiss cheese. He has repeatedly criticised the government policies on Iraq and attacked it on the handling of the rescue and rehabilitation effort post Hurricane Katrina that left New Orleans devastated. He has also criticized the $700 bn bailout package that the Bush administration has okayed for to stablise the financial system, calling it ill conceived, (this was before Treasury Secretary Paulson took a U-turn and decided to buy stakes in bank rather than just the toxic debt). Since the start of the US presidential campaign he has unabashedly taken the Democratic side, though he has been unlucky in his choice of candidates. He started by supporting John Edwards and switched to Hillary Clinton when he dropped out, only to move on to support Barack Obama when he was the only man left standing after the battle for the presidential nomination. Some critics of Krugman, notably right wing writer Donald Luskin, have argued that Krugman has strayed far outside his field in becoming a political commentator rather than restricting himself to economics. In arguing to the contrary, I fall back on the argument that Edward Said made in his introduction to Orientalism, and John Kenneth Galbraith also makes in his book The Affluent Society, that knowledge in the world cannot be compartmentalised. The problems that the world or a society faces is created out of the dynamics of the very many forces acting together, some falling with the purview of economics, other the subjects of science, and still others from the field of politics. In any case, the perceptiveness with which Krugman has written about politics is itself a sufficient justification for him to keep straying outside his field. Krugman is a self confessed supporter of the welfare state. And both his politics and economics reflect that. He has championed socialised medicine, in the form of American Medicare, throughout the presidential campaign. Criticizing even Democratic candidates in not going far enough in ensuring health care for all Americans. He has repeatedly called for a reduction in the huge pay packages that top executives of corporations receive and has called for a narrowing of the gap between the rich and the poor. He has blamed the ex Chairman of the Federal Reserves Alan Greenspan for allowing corporate profligacy, and has called for tighter regulation on the banks. The Nobel prize to Krugman is as much a recognition that the world needs to move away from the Milton Friedman style free economy to a more socialised and sane system as it is a recognition of the Krugman’s talent.