About a week ago, I caught word that Paul Krugman would be coming to Michigan's campus to speak. In fact, it was hard not to hear about the event whether you wanted to or not. It's not every day that a speaker of this magnitude comes to our school and the buzz surrounding this event made me feel like I was in Econ class among Paul Krugman bumble bees. Krugman was originally slated to speak at the Rackham theatre. That didn't last very long. As demand for tickets was enormously high, Krugman's lecture was moved to a more fitting venue: the colossal and spectacular Hill Auditorium. On Friday, as I entered the auditorium for the first time waves of excitement ran through me. With the dramatic spherical shape bowed with bright arcs of light, the vast expanses of scarlet seats, and the golden organ pipes standing prominent on the stage, this auditorium was nothing short of stunning. I realized I would be in the presence of greatness, for it was quite clear that this auditorium demanded nothing less.
Dr. Krugman answers that demand in full form. Just take one look at his background and you will see he is a man of multiple talents. Dr. Krugman is currently professor of Economics and International Affairs at Princeton University, a centenary professor at the London School of Economics, and of course an op-ed columnist for The New York Times. Before joining The New York Times, Krugman spent 20 years of his time writing for Fortune, The New Republic, Foreign Policy, Newsweek, The New York Times Magazine, and wrote a non-economic column for the online magazine Slate. He has been called both the most important and celebrated economist of his generation. He has authored 20 books and over 200 professional journal articles. His book, The Great Unraveling, became a New York Times Bestseller in both hardcover and paperback. He has also teamed with his wife, Robin Wells, to write 2 textbooks (one of which I'm currently using in Econ 102). In recognition for his work he received the John Bates Clark Medal from the American Economic Association, an award given every 2 years to the best economist under the age of 40. He has also been granted the Austurias award by the King of Spain and the not too shabby Nobel Prize in Economic Sciences for 2008. Before teaching at Princeton, Krugman taught at Stanford, Yale, and MIT as the Ford International Professor of Economics. He was also the senior international economist under President Ronald Reagan. He has served as a consultant to the Federal Reserve Bank of New York, the World Bank, the International Monetary Fund, the United Nations, as well as to a number of countries. For an economist, one's background doesn't get much better than that.
In light of his background, as Dr. Krugman was called onto the stage he showed modesty that is hard to find in people of his stature. After thanking the University and all parties involved, he made sure to acknowledge and praise the work of Alan Deardorff, the man the weekend's economic festschrift was honoring. Instead of discussing what he knew most people wanted to hear about exclusively (the economic crisis), he mentioned that in honor of Deardorff he would discuss Deardorff's main field of work: globalization and international trade.
He began talking about the beginning of globalization in the late 19th century. At this time international trade was very slow and expensive but nonetheless significant. After the succession of WWI and WWII, protectionist policies on behalf of all countries involved led the way to inward looking economies and global trade was more or less diminished. Two main changes caused for the return of globalization: policy reform and technology. As the dust settled from the wars and people saw the potential gains to be made from international trade, protectionist policies were done away with. Technological advances were also necessary and the single most important advancement of the times, and perhaps of all time, was the all-glamorous box. Containers that could safely carry goods and be easily moved from port to port were essential to the progress of globalization. As these changes fed on themselves, globalization grew to ultimately bring us to the complex connected world we live in today. Intricate supply chains with lots of back and forth between countries allow for significant reduction in costs. Krugman referenced an interesting idea when he said, "It says on the iPod that it's 'made in china', but really only $1.50 of the assembly occurs there".
Krugman went on to discuss whether globalization is a good thing or a bad thing. His answer: yes. The gains from trade that could not be made without globalization make it a very good thing. The world is richer and better off because of it. The bad part is that the allocation of that wealth has proven to be largely unequal. Low education/high labor workers are hurt the most. After recognizing the mixed picture, Krugman showed his lean towards pro-globalization as he said that, "hundreds of millions, perhaps billions live a better life from globalization".
Inevitably, Krugman's talk came to the topic of today's economic crisis. Everyone in the auditorium was happy to hear him say that by all accounts it appears to be stabilized. Connecting the crisis to globalization, Krugman explained the role of international trade in propagating the crisis. According to Krugman, because of our extremely high level of interconnectedness, a conventional wisdom of the world has come into existence. In other words, we all think the same. Unfortunately, we all thought that unregulated banking was a good idea when it wasn't. To Krugman, today's economic crisis is "a banking crisis dressed in different clothes". He mentioned that today's crisis is not unlike what we've seen before; only that it's everything we've seen before all at once. The bank runs of the 1930's occurred today, only instead of everyone frantically running to the bank everyone was on the internet frantically clicking their mouses. Luckily, our experience from the Great Depression has taught us how to prevent the recession from becoming a total collapse.
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