Tom Streithorst
Mars: unless we can start exporting here, we're going to need inflation
Inflation. There I’ve said it: the dirty word, that bad, bad thing all of us have been taught to fear. In his second lecture at LSE last night Paul Krugman was a bit circumspect—but, if you read just a tiny bit between the lines, The Professor was telling us that bad boy inflation is the one and only way out of our current economic crisis. Monetary policy won’t do it, increased exports won’t do it, inflation is the answer. Only problem, we’ve been trained to view inflation as the predicament, not the solution.
Let me back up. The lecture, entitled “The Eschatology of Lost Decades,” looked at the causes and cures to the financial crisis. His shtick on the causes was reasonably familiar. The collapse of a huge world housing bubble led to run on the shadow banking system while over-indebted households struggled to repair their personal balance sheets by spending and borrowing less. He told the tale well, but it is a tale that unfortunately we all now know.
The interesting part was his look at the endgame, his examination of how we get out of this mess. The essential problem is an oversupply of global savings relative to desired investment. The traditional solution—cutting interest rates to make savings less attractive and investment more—can’t work because interest rates are already close to zero. We can’t go below zero so monetary policy has no scope; it cannot be effective.
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Tom Streithorst
Krugman: more popular than Springsteeen
My son says I’m a nerd. Maybe he’s right. When I heard that Paul Krugman, 2008 Nobel prize winner in economics, scourge of the Bush administration, op-ed writer for the New York Times, was giving three lectures at the LSE on our current financial crisis, I was thrilled. Krugman may not be the Cassandra of our economic debacle (that would be either Nouriel Roubini or the long dead Hyman Minsky) but his analysis remains head and shoulders above most academics—who still seem desperate to show that their failure to predict the popping bubble doesn’t prove the bankruptcy of orthodox theory.
I decide to go online the second tickets became available. Of course I don’t manage get to my computer until 12 minutes later and by then, all seats to all three nights are gone. Krugman proves to be a tougher ticket than Bruce Springsteen. I guess I’m not the only economics nerd in London. No worries, I think, I’ll get in on a press pass. I inveigle the editor of American Conservative (which for some reason, despite its right-wing name, seems happy to publish my musings on the perfidy of financiers) to request a press ticket. No go. No press tickets left. Even Prospect, who I tell I’ll blog for free if they get me in has no luck with the LSE press office. Somehow I sweet talk my way onto the reserve list and show up at 5pm, an hour and a half before The Professor is to speak, to try and worm my way in.
Already people are lined up. I ask Mahmud, a retired economics professor if he thought back in 2006 that the bubble would burst. He nods his head. He didn’t know when, of course, but he didn’t think the exuberance that Gordon Brown and Alan Greenspan had staked their reputations on would last forever. “You don’t need Keynes,” he tells me, “just common sense.”
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