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Paul Krugman, Liberal Bogeyman

Born 1953 in Long Island, New York. Currently teaching at Princeton

 “The most hated and also the most admired columnist in the US." (Martin Wolf, Financial Times)

 

A good way to start an argument

There can’t be many people with such an attractive ability to annoy. Krugman’s op-ed columns in the New York Times (“The Conscience of a Liberal”) are considered unmissable even by those who hate him, which is surely some sort of an accolade? His 20 books and his 200-odd academic papers are respected for their rigor even by his adversaries.

Essentially a Keynesian, Krugman has tackled far too many macro-economic topics over the years to list. But his Nobel Prize for Economics was for his pioneering work on the free trade principle. In between, he found time to teach to Harvard, Yale, Stanford, MIT and the LSE. Phew.

New Trade Theory and the Nobel Prize

Krugman’s Nobel Prize-winning study of the free trade principle was a re-thinking of the relationships between rich and poor nations. Until then, it had been assumed that most trade happened between unequal countries – with under-developed countries selling basic goods to rich ones in return for manufactured goods.

But in the late 20th century the reverse had become apparent – with much trade occurring between relative equals. Krugman said this was because consumers in both rich and poor nations demanded a diversity of product choice even among low-value goods.

Krugman’s ‘New Trade Theory’ used the same consumer choice argument to explain the inconvenient fact that minority brands of (for example) cars could survive even when better ones were being cheaply produced by the million. He concluded that this oddity opened the way for some countries to become niche producers to the worldwide market by achieving efficient economies of scale.

Falling out with four presidents

Krugman first cut his political teeth in 1982/83 as chief economic advisor to the Republican Ronald Reagan, which he described as "thrilling, then disillusioning". Having left, he later supported Democrat Bill Clinton’s economic programme in the 1990s, but failed to get a government job because he was considered too unpredictable.

But it was his increasingly polemical hostility to President GW Bush’s Republican policies that finally sealed his vilification among the right wing. He was also sharply critical of outgoing Fed chairman Al Greenspan for having failed to head off the 2007 mortgage crisis more courageously.

The Obama administration has not escaped his acid tongue. He called Obama’s stimulus plan after the 2007 crisis far too small and inadequate, and he lambasted the president for “spending too much to help large financial institutions”. This “money-for-nothing financial policy” would “eventually deplete [his] political capital.”

Falling out with the anti-globalisation lobby

Krugman’s support for the free trade principle has tested his popularity among liberals to the limit. Anti-globalisation protesters have accused him of helping to subjugate the developing world to the wishes of developed nations. No easy liberal, then.

Just to complete the awkward policy set, he has advocated a "surcharge" on Chinese imports to the US in response to Beijing’s cheap currency policy. Accusations of protectionism have been lightly brushed aside.

Tokyo, I told you so

A key thread in Krugman’s theory has been his claim that Japan has spent two decades in a liquidity trap from which there were few escapes as long as its interest rates were close to zero. The Tokyo central bank, he claimed, had no hope of incentivising growth through cheaper loans, so it must necessarily print lots of new money. Last year it agreed to do exactly that. A year later, the jury is still out on whether it will be enough.

 

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