Krugman's LSE Lecture

You can listen to the 3 lectures that Paul Krugman just gave at the London School of Economics via this page.

Points he is making:

• This may not be a complete repeat of the Great Depression, but it is bad and a lot of people aren't taking it as seriously as they should.


• The collapse of world trade is worse now than in the Great Depression


• This kind of economic collapse was "not supposed to happen". Supposedly economics learned lessons from the Great Depression to prevent it from happening again.


• Economists thought that by manipulating the money supply the central banks could reflate the economy and avoid any Great Depression. So "really big" falls in demand couldn't happen. Japan proved that this wasn't true. And now this financial crisis shows it yet again.


• Monetary policy in the Great Depression might have had some positive effect in 1930/1931, but Krugman says that after that, because of the liquidity trap, monetary policy could do nothing to save the economy.


• The so-called "expansion of the money supply" is in fact just the US government acting as the bank lending facility of last resort. He explain show people have rushed to deposit money and banks then put that with the Federal Reserve which in turn does the lending which the banks should be doing but have stopped. So it isn't inflationary.


• He says that we need officials that know "where the bodies are buried". Unfortunately, those people are the ones that buried them.