Krugman: US "Depressed Economy" Could Last 5 Years

SEOUL, South Korea (AP) -- The United States may emerge from recession as early as this summer, though further job losses mean a "depressed economy" could last as long as five years, Nobel Prize-winning economist Paul Krugman said Tuesday.

"I think it's quite possible that industrial production in the United States and perhaps in the world as a whole will bottom out sometime in the next few months, that GDP growth in the United States will be positive in the second half of the year and maybe a little bit later than that in Europe," Krugman told a global financial conference in Seoul.

Krugman said that he would not be surprised if the U.S. recession, which began in December 2007, ended in August or September this year. But job losses were likely to continue into 2011, meaning "the period of a depressed economy" could last until 2013 or 2014, he said.

Krugman, who teaches at Princeton University, won the Nobel Memorial Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns. He also writes columns for The New York Times.

The U.S. economy, the world's largest, contracted a worse-than-expected 6.1 percent on an annualized basis in the first quarter. Americans increased purchases of cars, furniture and appliances, but businesses cut back spending and exports had their biggest drop in 40 years. The U.S. unemployment rate hit 8.9 percent in April and many economists expect it to reach 10 percent by year's end.

Krugman said that while economic indicators from around the world are improving, they suggest that the pace of economic decline has only slowed.

"I share the optimism that the worst of this may be over," he said, also noting a stabilization in financial markets. "What's really hard, however, is to say when does this go beyond stabilization to an actual recovery."

A general definition of recession is two straight quarters of economic contraction, although broader measures are also taken into account.

Krugman said that defining the beginning and end of recessions is tricky. He noted that in the United States they are officially dated by the National Bureau of Economic Research, which he said generally declares "that the end of a recession is when some major economic indicators begin improving. When it's no longer a case where everything is falling."

Krugman said that the last two U.S. recessions officially ended when industrial production turned up even though unemployment continued to worsen "long after the official end of the recession." As an example, he cited the one in 2001, which ended after eight months in November, though the unemployment rate didn't bottom out until June of 2003.

Comments

[AhnAmuru]

Oh, shut up Karl Marx!

[DrRoberts99]

I guess the good Dr. could be right, his advice to nationalize the banks was certainly right on. And then George W. Bush might just win the Nobel Peace Prize too. Economists should know better than to try and predict the future five years out.

[dargray]

The stimulus package will have no lasting impact on the economy the infrastructure spending may provide a short term boost to local areas but you can't sell a bridge.We have to rebuild our manufacturing capability and actually create goods for real martets.assembly line workers drive economies not colledge grads in an office.

[KillTheMessenger]

Actually... college grads in offices design the assembly lines for workers. The problem is... we don't have enough college grads who can do that. Engineering and science are hard and don't pay well, so we have told or kids to study law and banking, instead.

:-)

[dteg]

agreed engineering doesn't pay well for all the hard work headaches you put into it. CEO and executive boards take all the profits. They say we need more engineers and scientist, I guess teachers too but there is really no pay to it . This country gets basically what it rewards, entertainment.

[econ1]

If he had predicted the recession, I would be more inclined to take his view on the end of it.

[UUiJJ]

Agreed. He's not one of the ones who called it.
Nice guy though

[sposton]

Perhaps it would be beneficial for our country to have a democratic discussion of what kind of economy do we desire. Surely we must have discovered that one type of economy is preferable over another. The problem with economists is that they never talk about the quality of an economy. For them any economic activity is just as good as another. For an economist the aftermath of Exxon Valdez oil spill will be written down as economic activity as any other.

I think the biggest problem with the Obama economic team is that they just want to get us back where we paused and continue from there. The problem with that "strategy" is that it is just a matter of time before we have another meltdown. There is something more fundamentally wrong with our economy. In my opinion we are running out of bullets in a form of bubbles which get us out of one crisis to another. We need a general and thorough reevaluation of what would be a more desirable economy for the majority of us and then we ought to start working together towards it.

[KillTheMessenger]

"Perhaps it would be beneficial ..."

We have that. It's called "general elections". The problem is not that we can't chose. The problem is that we keep choosing poorly.

"Surely we must have discovered that one type of economy..."

Nope. It's not that simple. Every type of economy comes with one kind of problem or another. Social democratic economies (which is really what Americans mean when they talk about Europe style socialism) come with very high structural unemployment and relatively low social mobility. They are somewhat easier on the poor, but they are by no means a panacea to cure all ills.

"The problem with economists is that they never talk about the quality of an economy."

What you are asking for is a matter of politics and policy, not economics. Your question is like asking a chemist to judge the artistic quality of a painting by Rembrandt based on the oxygen content of the pigments on the canvass.

"For an economist the aftermath of Exxon Valdez oil spill ..."

That's the strength of economics, not its weakness. If you want moral judgment, ask a theologian or philosopher.

"The problem with that "strategy" is that ... have another meltdown."

Actually, it's not. It's just a matter of time. Period. Life is not ideal and no system of rules and regulations invented by humans can make it ideal for any amount of time, let alone forever. To assume otherwise is to set the idealist trap once more.

[sposton]

My friend, you know very little about moral philosophy and its history. Did you know that Adam Smith was first and foremost a moral philosopher? And so were many other early liberal economists. Smith's never reduced himself to a mere economist in your sense of the word. Your statements are the end result of modern reductionism than liberal economists. Our current situation is precisely the result of this kind of thinking where one discipline is utterly divorced from another and all divorced from any moral or ethical anchor. Without such an anchor our knowledge is utterly devoid of any wisdom and that is what our world need now more anything else. This methodology may have brought some good results in science but on the other hand it has diminished us all.

In its own little thought universe all you have said makes some sense. The problem lies in the nature of your universe. It belongs more to the domain of our problems and less so to the domain of solutions.

[WASanford]

The problem with elections is that the choices are limited and in the main a good choice is seldom available.

Economics is a social science, it is a mistake to confabulate it with physics. While Adam Smith had some truisms, they lack the authority of physical law and can't always be relied on given that they describe human behavior. The closest Smith came to a physical law was his observation that price is settled by the balance between supply and demand. I'll hammer on that until you understand what it means in our current debates.

While your observation that economics is amoral is correct, we do have the ability to build justice into our economic scheme via regulations. Socialism is a fully regulated economic scheme while capitalism is a fully unregulated one. I favor something between the two but closer to the socialism end of the scale. I'll leave it to our experience with unfettered capitalism to understand why I lean that way.

Workers of the world unite! (that'll scare them)

[LDnearthesea]

Creating a green industry would be a good way for this country to dig its way out of the financial hole we are in. So would reviving Glass Steagall. Obama has mandated higher MPG, high speed rail is set to be built, and as shovel-ready projects get funded, people will slowly but surely get back to work.
In the private sector, investments in new tech and green industry and green jobs is a must to move forward, or other countries are going to leave us behind, and we will be buying German or Spanish made products that are green. In the public sector more stimulus is needed, not less. Government historically has been part of the solution to financial meltdowns, like FDR's New Deal. People were saved from starvation and chronic unemployment then. We really need another New New New Deal.

[EinChicago]

"Krugman" "depressed econmy could last 5 years" (under his breath "and I will do anything and say anything to make it so as that is the only way to string out my 15 minutes of fame even longer1"

[1logicalthinker]

For you to infer that Paul Krugman has had "only... 15 minutes of fame..." indicate ignorance on your part. Here is part of his record:

Paul Krugman's Awards
1991, American Economic Association, John Bates Clark Medal. Since it was awarded to only one person, once every two years (prior to 2009), The Economist has described the Clark Medal as 'slightly harder to get than a Nobel prize'.
1995, Adam Smith Award of the National Association for Business Economics
2000, H.C. Recktenwald Prize in Economics, awarded by University of Erlangen-Nuremberg in Germany.
2002, Editor and Publisher, Columnist of the Year.
2004, Fundación Príncipe de Asturias (Spain), Prince of Asturias Awards in Social Sciences.
2004, Doctor of Humane Letters honoris causa, Haverford College.
2008, Nobel Memorial Prize in Economics, formally The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel - for his contributions to New Trade Theory. He became the twelfth John Bates Clark Medal winner to be awarded the Nobel Memorial Prize.

When Bill Clinton came into office in 1993, he considered Krugman for a leading post; Krugman was flown out for a meeting in Arkansas. Krugman's outspokenness was reported to be "the main reason the Clinton administration didn't offer him a job."

[hill raiser]

Krugman is wrong.

maybe Geithner, Obama, and bernanke are doing a good job. Is the recession over??No more financial crisis?

More regulation will hurt the economy

The stock market keeps going higher

http://iamned.com/blog/ agree completely­...interes­ting

[Totto]

Oooh, goody! The Dow that was over 12,000 is, once again, nearing 8,500. Deregulation and a Reaganomics "bubble economy" got us here. We need an industrial policy with tariffs on imports as others do our goods, and well-paid jobs. We need to manufacture, not move money around.

[KillTheMessenger]

Tariffs are taxes by another name. They will hit us, not those who export to us.

"We need to manufacture, not move money around."

I agree. But in order to do that you need to start teaching two things to your children:

1) Not everybody can be rich.

2) Higher math.

[LDnearthesea]

More regulaton will actually help the economy. For one, regarding the polluters, putting them out of business would be a good thing while green businesses and a green industry get going with investments. Let me remind you that with Glass Steagall the mortgage meltdown might not have happened. De-regulating industry only allows the crooks to take advantage of the situation, make a quick buck and then de-invest leaving financial ruin in its wake.

[monkeysuit]

The man looks like he knows depression!!!



Monkeysuit
http://randompoliticalthoughtsandnews.blogspot.com/

[novoorganum]

Our one party system has forgotten this well thought and lucid ideal:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America


Today, it is more like, We the Multi-Corporate and Investor Class of the United States, in order to form a more perfect Union, we need to exploit the citizenry for profit and material gain, buy congress in order to advance our profit seeking ways, establish arbitrary and self-serving justice, insure domestic tranquility through corporate run media propaganda, provide for the the common defence to protect our ill gotten gains, promote the appearance of general welfare by forcing the population to seek their welfare by becoming slaves to debt and interest on that debt, and secure the Blessings of Liberty, if you can afford to, and saddle our children with debt for years to come through bank and corporate bailouts through taxation and, do ordain and establish this Constitution for the United States of America.

[greyhound2]

You can't spend 8 years giving American Corporations tax breaks to ship US jobs overseas to low cost labor pools to people who can't afford the tennis shoes they make. Other countries, like Germany, pay an extra tax to move off-shore and you don't get to dump the unemployment and welfare costs onto the counties and states. After the Revolutionary War, Congress passed tarriff laws to protect struggling US manufacturers from the large and more efficient manufacturers in Great Britian. To level the playing field again, we need to terminate unfair trade agreements which give unfettered access to the American markets as the unemployed people on welfare here can't afford new tennis shoes either!

[LDnearthesea]

the German law makes sense, but with those who only want to make a quick buck influincing the Senate and Congress a law like that won't pass. Still, with tax cuts, subsidies and proper investments by people willing to risk, a green industry will thrive here and jobs will be created. those green jobs won't be shipped overseas.

[plumnelly]

They have forgotten the majority of America is the middle class and it's powerful buying power. Greed has overtaken our democracy by the elite. Short sighted idiocy. Yesterday, I read, that in Texas, airplane mechanics repairing airplanes can't read the English manuals. Instead of paying an English speaking American $25/hr the companies decided to pay non-speaking English mechanics $10/hr. Due to incorrect placement of parts and people not understanding English, a US Air airplane in 2003 crashed in North Carolina and killed the people on board. We use to take for granted that Americans would put safety first. Also, remember the commuter plane that crashed, not too long ago. Those pilots were paid $16,000.00 a year, less than even our teachers. Even more alarming, the pilots didn't receive adequate training because of greed, it was too costly. ARE YOU KIDDING ME! America has become a third world country, it has happened folks. There is no safety controls in place, just WALL STREET LOOKING FOR PROFITS! What good is all the doo dads, even, upgraded new Windows for our computers if our basic infrasture is completely eroded. We need an overhaul and as the author, William Greider titled his book , " COME HOME AMERICA ".

[NCYvonne]

When ONE of Krugman's 2008/09 predictions right, he can speak. Until then, away with this self-important, know-nothing tool.

[olephart]

There are many factors that have been left out in his assessments. GDP, inflation and unemployment are measured and calculated using a number of complex algorithms that depend on basic assumptions. These have been manipulated over time for political reasons to yield a rosier scenario than most of us experience. In April of 2008 with oil and gasoline rising more than 10%, the "seasonal adjustment" calculated energy prices as FALLING! Similarly, unemployment calculations exclude millions of people from the workforce and add thousands of phantom jobs by the "birth/death" adjustments. The effects of inflation are factored out of GDP thus a lower inflation number yields a higher GDP. Things are actually worse than are reported.

The financial system is better because the Federal Reserve and Treasury have taken trillions of dollars of bad debt off the balance sheets of banks and have guaranteed trillions more bad paper still on the books. Remember when they announced that money market funds were guaranteed up to $250,000, your accounts would otherwise be toast. Taxpayers are now stuck with these bad debts and our National Debt will continue to reflect this. We exist at the mercy of those who are lending us trillions. We do not have the fortitude to put the banks into receivership or the courage to take our lumps by accepting a deep recession or paying the taxes required to fund a recovery. When our lenders realize that we will only borrow more and not pay them back we're history.

[Hailmaryyy]

Until people can get a loan to buy a car and a home no recovery is possible. So far I see no improvement in consumers access to credit.

http://www.escapethenewgreatdepression.com

[LDnearthesea]

Kinda like the 1920's all over again. then FDR came into office, Glass Steagall passed, and little by little things improved, until FDR tried to balance the budget in 1937.

[KillTheMessenger]

The problem is that people have been living on loans alone. Throwing more money at a problem that was caused by it in the first place will not help. All it does is to create false demand, which triggers over-investment, which leads to long term losses and inefficiency.

[Loompa]

Robert Barro, Harvard University, said of the Obama fiscal stimulus proposal: "This is probably the worst bill that has been put forward since the 1930s. I don't know what to say. I mean it's wasting a tremendous amount of money. It has some simplistic theory that I don't think will work ... I don't think it will expand the economy ... It's more along the lines of throwing money at people ... I think it's garbage." (Barro seems to be talking about any and all stimulus bills).

[KillTheMessenger]

And who is Robert Barro? Was he elected president of the United States? Is he in charge?

Just saying... you can always find someone who is against something. It just doesn't matter.