Paul Krugman's Speech at Berkeley (9/26) [realplayer format]

[Dudley_DUright]

The live event took place on September 26, 2003 in the Anderson Auditorium, Haas School, UC Berkeley.

Paul Krugman is a New York Times columnist and Professor of Economics and International Affairs at Princeton University.

Introduced by Orville Schell Dean, Graduate School of Journalism

Co-sponsored by: The World Affairs Council of Northern California Haas School of Business.

http://webcast.berkeley.edu/events/details.html?event_id=90

[gristy]

1. I'm watching it now.

Thanks for posting.

[gristy]

2. First question was on the budget deficit

Here is Krugman's answer to the first question about the effect of the budget deficit on U.S. Treasuries market, trade balance, etc.

- Budget deficit will not go away when/if the economy recovers. Looking at $400B/yr next 10 years, then it goes up. Krugman said earlier that budget deficit for this coming fiscal year is $550B.

- Effect of budget deficit on interest rates not the core issue.

- Have to talk about fundamental issues of solvency.

- Fed gov't taking in 75% of revenue as it needs to take in to fund existing programs. That's a lot.

- One of 3 things has to happen, or some combination: cut entitlement spending, increase taxes, or declare bankruptcy. Actually he just mentioned a fourth possibility: the U.S. "will inflate away its debt".

- So why isn't the bond market reflecting that? Krugman asks. He says the markets are in denial. That they think the political deadlock will be resolved. Krugman believes that a "crack-up" will occur and that this will show up in bond prices.

- At some point, the future will look so grim that the bond investors will "rebel". He says the U.S. will have a "Wiley Coyote" moment where the Coyote has run over the edge of a cliff and looks down and realizes what has happened.

- Somewhat in jest, Krugman predicts this will happen at 3:00pm in the afternoon of May 30, 2008. (hahaha)

- Some indication that foreign exchange markets are already having their Wiley Coyote moment.

He never really says what could happen to the bond market and what that means for the U.S. and world economy. I've written him a couple times specifically asking him to be clearer on this. But he never is.

[Dudley_DUright]

3. Good summary

I really liked the Wiley Coyote analogy. He has a gift for taking complex subjects and using very apt and descriptive analogies to explain them.

[mhr]

4. Excellent!

eom