Nobel Prize-winning economist Paul Krugman offered cautious optimism — or silver-lined pessimism, depending on your point of view — to the crowd that filled Hill Auditorium from the orchestra to the mezzanine Friday afternoon.
“The apocalypse has been postponed, but it’s been a pretty shocking crisis and we are nowhere near being out of the woods,” he said.
Krugman, an op-ed columnist for The New York Times and professor of economics and international affairs at Princeton University, spoke as part of the 2009 Citigroup Foundation Lecture series.
The lecture was in honor of the career of Alan Deardorff, the associate dean of the Ford School of Public Policy and a professor of international economics and public policy.
Krugman primarily talked about what led to the globalization boom and the effects of international trade on world economies, as well as the current global economic crisis.
“Today’s world is extraordinarily complex with enormous volumes of trade,” he said, adding that what makes today’s global economy different are “these complex supply chains where things are in many stages of production.”
He credited the growth of globalization and the emergence of complex supply chains to advancements in technology, the utilization of “differences in competence” and advantages of scale in various developing economies.
These factors, he said, led to a phenomenon he called “fragmentation of production.”
“Is it a good thing or is it a bad thing? The answer, of course, is yes,” he said, causing laughter from the audience.
Globalization is good, he said, because it allows countries to specialize.
“We have countries concentrating on the things they do really, really well,” he said.
“We’ve got the whole world producing more efficiently, which means world wealth has gone up.”
On the negative side, he said, “There are many dislocations and many distributional effects.”
“The most obvious — and one that we worry about a lot — is that lower formal education workers in advanced countries are almost certainly hurt by the inequality,” he said. “It is wider to some extent because of globalization.”
“If you take a global citizen view,” he said, “those losses are less dramatic than the huge gains.”
Krugman said globalization exacerbated the effects of the global recession because world leaders were limited in their capacity to respond to it with coordinated policies.
“We created this global economy without creating the institutions we need to manage it,” he said. “We are to a certain extent holding the world economy together by Scotch Tape and chewing gum.”
“As a citizen of the world I am quite horrified about what we are going through,” he continued. “Little less frightening than it was six months ago, but I’m still in awe of the prospects.”
He added: “It’s a great time to study, unfortunately not to live through.”
After the lecture, audience members had mixed reactions.
First-year MBA student Steuart Botchford said he found the lecture to be thought-provoking.
“I thought it was really interesting to hear sort of a perspective on the world that takes globalization not necessarily as the be-all to end-all for saving the world,” Botchford said. “He really has a very nuanced perspective of the way the world works and how some things which always seem good may end up not being so good and some things which seem bad may actually end up being good.”
LSA senior Jacob Mirowitz was less impressed.
“To be honest, I was a little disappointed just because I read his articles every once in a while and he provides a pretty good overview of what’s going on in the economy and what the problems are with the current economic crisis,” he said. “Today, focusing on just international trade was a little bit boring and it was a little like sitting in an econ lecture that you really don’t want to be in.”
Dieter Burrell, summer program assistant director for the Inter-University Consortium for Political and Social Research at the University, agreed with Mirowitz.
“He seemed more nervous and I thought it would be more about contemporary issues,” he said.
Scott Kassner, assistant director for the LSA Honors Program, praised Krugman.
“I think Paul Krugman is brilliant and is particularly adept at taking very complex ideas and expressing them in a way that the general listener, the general reader can understand,” Kassner said. “He is by no means an optimist, but at least you leave listening to him having a sense that there are very smart people who are thinking about these issues.”