Krugman Says IMF Research Ignored; Sees Romney on Wrong Track

Nobel Prize-winning economist Paul Krugman spoke about his expectations for the upcoming International Monetary Fund meeting, the impact of expansionary fiscal policy on economies, U.S. presidential candidate Mitt Romney, and South Korea’s place in the global economy. He spoke at a press conference at the World Knowledge Forum in Seoul today.

On recent reports by the International Monetary Fund on the economic outlook, and the IMF annual meeting:

“They basically make the case that we need to reverse fiscal austerity and we need strong monetary expansion, especially in Europe, which is all very interesting and obviously I agree with, and has almost no chance of being reflected in actual policy.”

“So we have a situation in which the hard work of the researchers at the IMF has led to the conclusion that the policies that we are actually following are all wrong, but there is essentially no political will to change course. So this is going to be a frustrating meeting.”

On expansionary fiscal policy versus austerity:

“Even for the countries that are experiencing sovereign debt problems, the evidence does not suggest that there’s a strong impact of current fiscal policy on those problems.”

“If anything, some evidence from the IMF suggest that fiscal austerity may actually widen the sovereign spreads, because the negative impact on growth has a greater impact on reducing investor confidence than any positive impact on the fiscal balance.”

“If you try to look at the arithmetic for the United States or the UK, given the extremely low interest rates at which we can currently borrow, the impact of fiscal expansion on the debt position is trivial.”

“It’s even possible, because of the effects on longer-term growth, that it’s positive.”

On the U.S. presidential election campaign and Mitt Romney:

“Romney’s party is operating from a view of the economy which is completely wrong.”

“Their view is that we had too much stimulus, too much spending, too expansionary a monetary policy, all of which is absolutely rejected by the evidence.”

“If you have a winning presidential candidate whose view is that we must do exactly the opposite of what the evidence suggests we should do, this is not a good prospect for the U.S. or the world economy.”

On South Korea’s role in the global economy:

“Korea is still a relatively small economy, and it’s not going to be the engine for the world.”

“Korea has done pretty well at coping with the crisis but to think of it as an engine is unlikely.”

“My take on Korea is that it tends to get pushed around in the short run by events in the world economy.”

“If there is a global recession, Korea will suffer substantially but temporarily in that recession.

“But at some level it’s not that serious. This economy does not have fundamental problems of the kind that the Europeans have or possibly even that China has.”

Editor: Brett Miller

To contact the reporters on this story: Rose Kim in Seoul at rkim76@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net

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