Nobel-prize winning economist Paul Krugman maintained his calls for government spending to create jobs after being labeled a “crude Keynesian” by fellow academic Jeffrey Sachs.
“The job of the government” is “to step in,” Krugman, a professor at Princeton University, said at a panel discussion at New York’s Metropolitan Museum of Art yesterday.
Sachs, an economics professor at Columbia University who also spoke on the panel, criticized Krugman earlier this month for not paying enough attention to the growing federal debt. Sachs said the government should focus more on investing in long-term programs like education instead of short-term stimulus measures.
“We need plans, we need decade-long investments,” said Sachs, whose books include “The Price of Civilization” and “The End of Poverty.” Instead, he said, “We get year-to-year improvisation that passes for some kind of stimulus.”
Krugman, 58, said more spending is needed to battle unemployment, which has held above 8 percent since February 2009, the longest such run since the monthly record-keeping began in 1948. Nonetheless, the rate is starting to drop, reaching a three-year low of 8.3 percent in January.
“Krugman has staked out a rather crude Keynesian position and unrelentingly so,” Sachs said Feb. 9, referring to John Maynard Keynes, the British economist who advocated government spending to spur growth during the Great Depression. Krugman “knows one thing, which is stimulus, stimulus, stimulus and expand deficit spending,” Sachs, 57, said in the television interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene.
Total federal debt held by the public has more than doubled as a share of U.S. gross domestic product in the last decade. It totaled 72 percent of GDP last year, compared with 35 percent in 2000, according to calculations by the Office of Management and Budget.
“So I’m the Keynesian on this panel,” Krugman said yesterday after fellow panelist and Nobel-prize winning economist Edmund Phelps also referred to “crude” Keynesianism. “I’ve been saying that the next guy who calls me ‘crude,’ I’m going to call him out and punch him in the schnoz,” he said to laughter from the audience of more than 700 in the museum’s Grace Rainey Rogers Auditorium.
Advance tickets cost $25 and were sold out, and standing-room tickets offered the same day also sold out an hour before the panel began. The discussion was organized by the Metropolitan Museum, the New York Review of Books Foundation and the Fritt Ord Foundation of Oslo and was moderated by Robert Silvers, editor of the New York Review of Books.
Phelps, also a professor at Columbia University, said that “entitlement spending has been exploding,” and that the idea that “by pushing the right buttons we can dial the unemployment levels we want” has been “discredited.”
Krugman, who is also a New York Times columnist, said the U.S. has a “short-run problem” that could be solved in a couple of years if the nation had the “political will and intellectual clarity.”
The U.S. economy is forecast to grow at a 2.2 percent rate this year, up from 1.7 percent in 2011, according to the median forecast of 79 economists in a survey by Bloomberg News conducted from Feb. 3 to Feb. 9.
Krugman, Sachs and billionaire investor George Soros, who was also on the panel, praised European Central Bank President Mario Draghi’s efforts to stem the sovereign debt crisis in Europe.
When Draghi “very deftly increased liquidity, it changed the perspective from what was unmitigated disaster and a self-fulfilling crisis over the cliff, to what is a very painful period for Greece but not a catastrophe, even for the other countries of Southern Europe,” Sachs said. “The mood is brighter.”
Draghi has pointed to signs of stabilization in the euro-area economy and said the ECB averted a credit crunch with its three-year loans to banks in December. The central bank will offer a second round of financing at the end of this month.
Soros said that Draghi “did relieve the credit crunch” in Europe, which is “very important.”
Euro-area governments are closing in on a deal to unlock a 130 billion-euro ($171 billion) aid package for Greece, seeking to avert the region’s first sovereign default.
Germany, the biggest country contributor to euro-area rescues, signaled that finance ministers may be ready to back Greece’s second bailout in two years when they meet Feb. 20 in Brussels. Germany has led pressure on Greek Prime Minister Lucas Papademos to enforce austerity in his country, stoking recrimination between Europe’s southern countries and their northern creditors.