Nobel Prize Krugman: It’s Worse than the Great Depression

[Herbert Profile]

http://blogs.wsj.com/worldbusinessforum ... 99s-worse/

Princeton University economist, author and New York Times columnist Paul Krugman won the Nobel Prize in economics last year for his work on international trade — so the guy knows what he’s talking about when it comes to this subject. And he’s worried.

First, he offered a few comments about the U.S. economy:

1 - Based on GDP, “the recession is over, we’re back to a world of growth”

2 - But, “the jobs picture is continuing to deteriorate. The recession may be over, but the bad times are nowhere near over.”

3 - “This could be bad. Financial crises tend to produce prolonged hits to growth…and this is the mother of all synchronized financial crises so we almost certainly have a long, long slog before we’re fully recovered.”

Then, he turned to the topic of world trade. And the picture he painted was not a pretty one.

“When it comes to international trade, actually it’s not the Great Depression, it’s worse,” he said, presenting charts showing the decline in global trade activity falling much more steeply in the current downturn than during the Depression.

“The scale of the collapse of world trade has been so large that it has produced a degree of international linkage that surpasses what even the pessimists imagined,” he said. “World trade acted as a transmission mechanism,” spreading economic distress “even to those countries that had relatively healthy financial systems,” such as Germany.

“We really are one world economy in a way that has never been true before,” he said.

Despite the collapse in trade, Krugman downplayed concerns about protectionism.

The Obama administration’s move last month to impose tariffs on certain imports of Chinese tires raised much concern that nations are leaning towards protectionism — a move some economists say worsened and prolonged the Great Depression.

But Krugman isn’t convinced. First, he said, protectionism was an effect –– not a cause — of the Great Depression — a frequent misconception among economists, he said. And despite “incidents” it hasn’t really been a factor in the current downturn.

He added that as for the tire tariffs, they “aren’t really a big deal,” because they are “part of the rules” under world trade agreements and are temporary — rather than permanent — in nature.

He added these two zingers in a question-and-answer session on-stage with Financial Times writer Gillian Tett:

* Perhaps trade with China in recent years hasn’t been so unfair to the U.S., he joked: “They send us poisoned toys and tainted seafood and we send them toxic securities.”
* On the need for regulation: “Ground beef is like asset-backed securities — you really don’t know what’s in that burger.”