A Conversation on the Economy with Joe Stiglitz and Paul Krugman

What do you get when you put two of the most well known and most widely cited economists in the world, both Nobel laureates, on stage together? A healthy dose of economic reality.
That's what happened Tuesday night at the Fashion Institute of Technology's Haft Auditorium in New York City at an INET-sponsored event featuring Paul Krugman and Joseph Stiglitz in a "Conversation on the State of the Economy," moderated by INET Executive Director Rob Johnson.

[@cmp3315]

Nobody is going to mention the fact that this video is almost 10 years old with this amazing quality? Big applause.

[@woodwardlj07]

I think this is Paul Giamatti's finest ever performance. His Krugman is a masterclass!

[@eddiebizi]

Stuff starts at 10:00

[@normankeena]

10:10

[@RalfLippold]

Amazing, just speechless, that the Fashion Institute of Technology has been the initiator of this great conversation. #EconomicInsights

[@dorniaki]

Extremely interesting video for a economy stundent like myself. It's extremely nice to see that those great economists engage in a productive discussion and its simply very enlightend to listen

[@joseph591]

That was a good lecture. These guys need to be on TV more so others and see some truth in our economic system.

[@jannmutube]

Secretary Geithner gave an interview on C-Span where he said that Medicare and Medicaid were actually a fairly small percentage of the GDP and that the main contributor to the national debt was the Bush tax cuts. And, as Ronald Reagan said "social security has nothing to do with the debt." It is also true that the Senate already passed a tax package largely representing the Simpson-Boles plan but, as speaker, Boehner wouldn't even offer it up for a vote.

[@albertedward04]

Wonderfully stimulating conversation. I'm British, living in poor old Portugal and have been a regular visitor to the US as well as countries around Europe. These blokes are talking what used to be the received economic wisdom...how did we let the ground get shifted to allow the present shambles?Let's shift it back.please.

[@sfjeff1089]

5) In economics, when we are taught supply and demand, for some reason, the most interesting case, the case where supply force turns around and points in the same direction as the demand force, is never taught from what I can tell. Of course the behavior is that you move very, very fast, and this is a perfect, simple explanation for several economic phenomena of moving very, very, fast (eg. V-shaped labor supply -> Great Depression, V-shaped foreign currency demand -> hyperinflation, etc.) Why?

[@brandonholt-smith8294]

Sound money, and a little bit of freedom will take us much farther than anything these two can create.

[@62426637]

Good Discussion of Arrow and health care systems and interface between medical costs and the budget 41:20 - 57:00

[@vonGleichenT]

Great to see them both on stage.

[@floopy312]

At 42:10 Paul Krugman mentions another economist, I couldn't hear, which one he said?

[@eliesputnik]

floopy312 Ken Arrow

[@floopy312]

Eli Gregory thank you :)

[@eliesputnik]

floopy312 parakalo :)

[@phoenix99941]

I don't know about Giamatti's performance as Paul Krugman. But Richard Dreyfuss' performance as Joe Stiglitz was outstanding. :)

[@wmsnedden]

Very funny! Have you given any thought to taking your show on the road?

[@sfjeff1089]

Paul Krugman makes some good points on the effects of free trade on wealth inequality, but I offer the following considerations. 1) People make much of the deficit we have had since 1980, but what they overlook is that it has happened in the face of a consistent strong dollar. In order to make basic supply and demand work, you have to balance that deficit with something and the only thing left is capital dollars. Thus the obscene deficit is related to obscene capital liquidity in origin.

[@sfjeff1089]

I actually kind of liked the intro. She covers in a very real way how the economic debate we are having is not an abstract concern, but instead a dramatic impact on the lives of her students.

[@OhSoVeryConfused]

In a depressed economy, where huge amounts of private capital are sitting idly by, expanding government borrowing doesn't take money from the private sector it gives it an opportunity to be productive via state action. Fact is, if we want to get out of this situation, demand needs to grow and government spending offers us a way to do so.

[@rdrush123]

Good to see these guys like each other so much. .

[@carlostothe]

The quality of this video is thought ya'll! But seriously it is, especially for an economic discussion.

[@ShijuNesamony]

Expected a better and clearer answer for the question on moral code for economists to live by (asked by the second person from the audience)

[@sojutime]

Terrific discussion.

[@atiendejosemiguel]

Yep, I totally agree with you.

[@angemongpagong]

Hi all! Have you seen related to the Tube Cash Exposure? I discovered it on Google Search and found out quite a few wonderful stuff about it. Some of my neighbor also highly recommend me to look at it

[@sfjeff1089]

3) One thing you learn in the software industry is that custom products always have more bugs than mass market products even if they are written by highly skilled individuals. Do you have any evidence that a similar effect hurts rich people even when they have more money when they reduce the market size of their most high-end products? This would certainly change the discussion if it were true.

[@sfjeff1089]

... far faster than improved local efficiency can push the line out. And actually, contrary to what you hear on certain news stations, paying less dollars for people to spend the same amount of time doing the same amount of work does nothing to push the Pareto curve out. (BTW, I talk about the ratio of wages to revenues because that effectively removes inflation from the picture and lets you study economic structure in isolation).

[@erichami]

Canada cut public spending in the mid-90s, but the economy was not in recession and the Canadian dollar was low, which helped exports.

[@chetanasin9150]

Thanks

[@a24396]

"a rejection of both theory and evidence" I love this statement! But, I'll tell you what's hard to ignore is that Joe Stiglitz sounds just like Kent Hovand... BUT, that said... This was a great discussion! I'm really glad this video was posted...

[@catkinson1992]

While I am not a fan of Canadian monetary policy, (luckily Carney is leaving) but I feel so grateful that we do not have 'economists' such as these. I find it incredible that people can believe that short term stimulus and disregard long term gain. Truly one of the greatest declines in all of history in standard of living. Will be a great history book.

[@FX51]

Great speech FIT!

[@Joe11Blue]

You can't ease loaning standards and increase inventory at the same time, it inflates the prices un-naturally and you get a housing bubble.

[@danielocampo5777]

I think these two are spot on about just about everything, but I do wish Stiglitz would elaborate when he mentions that those countries with the high labour market flexibility have fared worse in the economic crisis than those with more rigid labour markets. European countries like Spain, France and Italy haven't done brilliantly..., and I think that the high unemployment in these places can be credited to this rigidity.

[@cyborganic99]

Agreed that the Fed did not do the right thing by exercising tight monetary policy. But the evidence (Japan, Great Recession) suggests that monetary policy alone may not have been enough.

[@blackshep01]

"Were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties-then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.” Paul Samuelson, 1943, Keynesian Economist.

[@jinedye]

People should consider those unrealistic assumptions before referring to any theories. I always feel rather surprised and curious that those people who are persuading and convincing people using theories that what should be considered as rational, what is rationality, what people would act under rationality seem to have violated their assumptions of rationality. If people are rational, there is no need to educate the people what is rational. The rationality should be reflected on their behavior

[@sfjeff1089]

4) At least to the layperson, one of the biggest arguments against free international trade is that of tax sovereignty. The classic example within the US is Red states will bid for industry with promises of low taxes and this has the effect of shifting tax burden from large companies to small companies. Similar issues occur across countries, but under agreements like NAFTA are even more extreme. Could you speak to the idea of zero tariffs really meaning negative tariffs?

[@BudFields]

What he said was: "and, thanks to Hitler", which is used in the context of "and, because of Hitler", which represents an historical fact. And, while you may fundamentally disagree with Krugman, he is absolutely not a fool.

[@KaSousek58]

This is very true. But with the addition of Federal spending on military industry, i.e. a boost.

[@TheRandalf90]

What do you mean by 'the stock of money is contracted'? .. And by the way, I agree with you that when banks (in the current banking system) stop loaning money, there will be foreclosures and everybody starts to fail. But you want to pursue a bad system, instead of changing it.

[@cyborganic99]

The nature 1921 depression was very different from the Great Depression. The deflation of the Great Depression was powered by a storm of deleveraging due to the collapse of the credit bubble. as opposed to 1921 when it was simply a sudden change in the labor force and tight Fed policy-- very much like the recessions ranging from the 40s to the 80s. They're two very different diseases.

[@blackshep01]

Evidence suggest that the Great Depression was over in Great Britain by 1933, and Britain, in fact, enjoyed very rapid economic growth from 1931 onwards. Yes, they left the gold standard, but that was only because the US was not playing by the rules of the game with the gold standard. It's interesting how the FED has messed up so many times. They are responsible for the greatest economic calamity of all time. How would you reform the FED to prevent another Great Depression?

[@blackshep01]

The Great Depression was a deflationary depression caused by a failure of the Federal Reserve to act as it was intended to. In my opinion, monetary expansion, as the principal reason why the US got out of the Great Depression. In Great Britain, the Great Depression was over by 1933, and Britain, in fact, enjoyed very rapid economic growth from 1931 onwards.

[@dylan45044]

Correction, they ARE NOT NOBEL LAUREATES. Do the research. The economics prize was created by the Sweden Central Bank, 75 years after the Nobels were created.

[@tarpara]

Read Richard Koo's book to learn more about Japan. Japan maintained GDP growth despite national asset prices falling 25%. If you don't want to read his book, then watch his videos on KZbin. The videos make you appreciate actually what Japan did.

[@Kevin-xs8xn]

this. this. notes to come.

[@tarnopol]

For easier access: click here: 9:00

[@MarshallSponder]

Looks good - checking the social connections with a comment on this video.

[@JWY]

Read Duncan Lewis on decision making under uncertainty.

[@sfjeff1089]

It goes back further than that. The decline of England as a world economic power began in 1850 with the acceptance of Smith-Ricardo and the passing of the corn laws.

[@MarkoKraguljac]

9:00 skip commercials

[@wjksea]

Is austerity working for the Greeks? It's working well for global bankers who have been bailed out by governments perhaps.

[@dadrunkenmastamind4279]

12:35 sick dude

[@KaSousek58]

Except 250k employed in a single month (february, twice the amount expected) and Wall Street hitting over it's own historical record.

[@blackshep01]

From 1929-33, the total quantity of money in the US, the amount of currency and the amount of bank deposits, went down by 1/3. The total amount of banks went down by 1/3. Why did the quantity of the money supply decline? If the FED prevented the money decline, there may have been a recession, but it would have been a garden variety recession. The Great Depression was caused by the failure by the FED to implement responsible monetary policy.

[@cyborganic99]

"When that war spending ended, Keynesians cried disaster." That's a bold assertion. Of course you are wrong in making it considering that there really weren't any Keynesians at the time and they wouldn't have cried disaster anyway. What the WW2 spending did was allow the private sector to deleverage properly easing the deflationary pressure on the money supply and freeing up capital rather than having shops cope with decreased sales by laying off worker thus compounding the problem.

[@jannmutube]

If you look at history, after the Great Depression of the 30's, spending was necessary to climb out of the financial disaster. President Carter cut spending due to a mild recession when he was in office and it did finally came through after Reagan took office but people really suffered and thought Carter was disconnected. As long as the Bush tax cuts are taking money out of circulation by padding rich bank accounts, the only solution is to print more money.

[@cobracarg]

the correct phrase would be: some keynesians cried disaster, though you would have known that if you actually read Samuelson's articles (he calls these keynesians optimists ) and Keynes himself rejected Samuelson's view too. I would also note that the post war boom is perfectly consistent with Keynesian theory. Post War II era was a time of increased government spending and tax cuts with expansions on welfare

[@zg76]

Why does master Krugman does not want to debate R. Murphy for an hour and by that donate more than 100k to hungry New Yorkers !? krugmandebate com

[@TheBest-ff8zz]

I know this because, Paul Krugman himself admitted that he doesn't know how the government should tackle the debt in the future, (instead he advocated a 73 percent tax rate on rich people, alongside strong anti-competitive pro-big business regulations).

[@sanford943]

I would have liked to have seen Professor Richard Wolf in this converstation

[@martonk]

well he is only slightly more socialist than these two gentlemen

[@sanford943]

@@martonk really great replying to a comment from 7 years ago.

[@martonk]

@@sanford943 well you did write back so it turned out not to be a waste of time. You could have just left me there looking like an idiot but you couldn't :P

[@sanford943]

@@martonk I just find it interesting that some one would see I comment I made so long ago. I could have been six feet under by now. I think Wolff is great as well as Michael Hudson. Neither one gets any mainstream media attention.

[@martonk]

@@sanford943 now that you put it like that I'm quite relieved that you are not 6 feet under, morbid thought. But I would say that Wolff does get some media coverage, I have first seen him when my business english teacher showed me one of his short interviews when he was on rtv, and there were many instances of that. Unfortunately I don't really see eye to eye with him to put it mildly, since I'm an economics students affiliated with the Austrian school

[@cyborganic99]

Wow. You certainly have a way of characterizing someone who you don't know or have never met. Do you use that style of analysis when you look at the economy?

[@mrzack888]

paul giamatti should play paul krugman in a movie.

[@theoakman80]

Maybe you could explain how all recessions were self correcting in the 1800s.

[@logicalspartan]

The key is demand. So the side arguing against debt believes there is pent up demand. I argue at zero interest rates, what is holding them back from growing? It is time to spend on infrastructure and to stop being wasteful on our offense department and on education.

[@cyborganic99]

Krugman did not advocate for a housing bubble. Read the source material. "Dubya's Double Dip."

[@cyborganic99]

What do you believe ended the great depression?

[@firstgenchevelleman]

I mean that when the money supply or stock of money, same diff to me. I would like a system where the public does not have to be liable to foreign governments. The government should not have to borrow money from any institution.

[@cyborganic99]

Well Britain never experienced the boom of the 1920s, so it is likely that they did not have a credit bubble in the same way we did. Any slump they may have felt was probably more of an aftershock from the crash of other countries.

[@KaSousek58]

None of those in any way show how he advocated creation of housing bubble, nor that he endorsed it. At best, it shows how he was a bit naive and optimistic. Though I can see why would Von Mises Instutite see it as if he was calling for a housing bubble.

[@sfjeff1089]

Re: Fatalism - excellent point and very well stated. Thank you! Ditto Arrow and the health care discussion. Now, If I were part of the question and answer: 1) Why do people ignore the strong growth between 1933 and 1938 especially since the problems of 1937 are so well understood? I would argue that all WWII did was get the country to 1944 GDP and employment in 1942 based on New Deal growth. I would suggest that liberals are just setting themselves up for the broken window argument.

[@AudioPervert1]

Fashion Institute of Technology ! Hmmm ... Lets hear Noam Chomsky speak of Joseph Stiglitz also.

[@cyborganic99]

And? He wanted more people to build houses. He didn't want the prices of housing to go up. I think if you were to look around his Blog you would find many posts where he called for stricter regulation.

[@firstgenchevelleman]

Recessions are caused when the stock of money is contracted. I agree that the government through various programs and subsidies can prop up markets. But I believe the real problem is that private banks control the money supply. And the debt is always greater than the actual money supply, since the money was created as debt. Therefore it cannot be paid back by borrowing more money(Stimulus). So no, austerity does not mean the world will end, when banks stop loaning money is when the world ends.

[@cyborganic99]

It was Quote mined. That's all. I know the original post. I have read it. Paul has already addressed what this post means several times. If you guys want to continue to call him a liar, it's only because you aren't willing to give up your straw punching bag.

[@cyborganic99]

All spending = income more spending= more sales= more production = more hiring= lower unemployment= recovery.

[@DavidByrne85]

Right, you get it. Also: 'Heritage foundation' 'Cato' 'FreedomWorks' 'Americans for Prosperity' 'Reason Foundation' 'Manhattan Institute' 'United States chamber of Commerce' 'Mercatus Centre' 'American Legislative Exchange Council' 'Fraser Institute' 'American Enterprise Institute' The chirping of parrots 'bah bah bah'

[@TheodorosPitikaris]

Scandinavia is blessed with a strong social capital. In other worlds there is a well established trust relationships between the members that consist the society but the society as whole and the state as the administration body as well) thus the ethical hazard for Cayman Islands is quiet low, is not like Deutschland where the government has to pay agents in order to "catch" the tax-avoiders.

[@blackshep01]

Using Krugman's logic, arming a bunch of school kids with rocks and having them break windows in our communities would help the economy. This is why I called him a fool. Production, not destruction, creates economic opportunities for us all. Hence, the broken window fallacy.

[@DavidByrne85]

I'm just a part time troll, really. Certain phrases trigger it in me 'Inflation is way higher than the fed says!' 'money printing!' 'deduction' 'malinvestment' 'coercion' 'artificially low' 'fiat currency' 'this is socialism' Etc.

[@crh97229]

"I Love The Smell Of Death Threats In The Morning. Haven’t gotten one of those in a while; I was starting to think I was losing my touch." Paul Krugman on his blog. Killing someone whose ideas are too persuasive is a good idea? Is this your idea of democracy? Are you fearful of that voters will be persuaded by a Nobel winner who documents his opinions on peer reviewed research?

[@scw3967]

Is Ron Paul an economist?

[@JamesR1986]

46:25

[@TheBalancedAmerican]

Government spending is not equal. Government should spend into the private economy, not increase spending by increasing the size of government. We need spending on infrastructure, not bureaucracies. But the largest problem is the process by which fiscal policy is allocated, which Prof. Krugman mentions several times. There is a disconnect between determining a prudent method of stimulus, and actually achieving this politically. =/

[@scottab140]

Wayne Vernon Why should government spend money on already placed infrastructure likes roads and highways? That would be the same process of driving the debt higher or it represents too high of taxes , a error of the and the local politician, as they did not lower taxes since recognition, needed to find a way to put money back into circulation.

[@TheBalancedAmerican]

scottab140 During a severe recession the private sector is in a ubiquitous deleveraging, which removes money from circulation. In order to maintain a stable quantity of nominal exchange, the Government should increase its deficit to prevent deflation. But you reinforce a point I made in my statement - that the political process can seldom deliver an efficient allocation of spending. So, spending money on roads that don't need repaired might be one possible outcome. I would hope for investments in more urgently needed infrastructure such as upgrades to the energy grid, or air traffic control systems. In any case, if you are in a deflationary spiral, government must increase its deficit to offset the decline in private money - this can be done with spending increases or tax cuts, but it must be done. The most dangerous way for government to spend is to establish new entitlement programs, which creates everlasting mandatory spending, which can lead to inflation when the economy normalizes. ;)

[@TheBalancedAmerican]

***** Yes, certainly, and i believe that to be the more prudent method of stimulus. I believe I covered that when I said, _"Government should spend into the private economy, not increase spending by increasing the size of government"_. If you mean that entitlement programs spend into the private economy, I would somewhat agree, but the danger of mandatory spending is that it is not discretionary. You want treasury spending to be counter-cyclical, and establishing large mandatory programs reduces the flexibility of treasury to act. In a deep recession, it is tough for treasury deficits to get too large, in a zero-rate environment it is near impossible, but you need to be able to back off the deficits when the economy normalizes as well. If you happen to establish large mandatory spending, then the deficit could only be reduced with tax increases, which would result in a "crowding-out" effect, in my opinion. Thanks. =)

[@lukepurse9042]

scottab140 Who said anything about roads and highways?

[@sfjeff1089]

That's not what you want to do of course if you look at savings as a buffer against middle class problems and slack in demand that can be used if production improves. I found this hilarious statement recently in an economics college textbook that is actually in use saying something like "one of the great mysteries in economics is why the propensity to spend savings decreased in the 1980s even as savings rates increased". Unfortunately, no (jk) or smiley...

[@SomeOne1121]

We're indeed doing fairly well in Sweden! And Stockholm in summer is unparalleled! ;)

[@sfjeff1089]

2) If you look at Ronald Reagan's history, then I don't think that the missing revenue from tax breaks for the rich really explain the full effects of Reaganism. For example, I don't see why they explain the massive trade deficits. Based on what I have seen, the extra money in the hands of the rich have actually distorted the economy in ways that hurt growth even if you run up big deficits, don't stop spending, and just consider it "free money". Is that going too far?

[@SameBasicRiff]

but.. wheres bob murphy?

[@economixxxx]

Ballers

[@mufcrulz]

Rothbard (again! the guy was a genius after all) gave a good lecture on the character of Keynes which you can find here on youtube. Just search 'keynes the man' - It's the first vid. Not that you'll actually bother to watch it. Lmfao.

[@KroniklyCanuck]

I am not 100% sure but I believe government debt to GDP is only around 67-69%. And if recall correctly after world war two it was well over 100%, and government spending continue to grow. The size of your government debt is quite substantial, but it certainly is not unique in your countries history.

[@sfjeff1089]

2) I think that Dr Krugman and I agree in direction, but disagree in magnitude on how wealth inequality is impacted by free trade. My personal reasoning starts with the idea that Pareto efficiency is not really as relevant to real world economics as most economists assume. Instead, in a right-wing economy like the US, distance from the curve (Pareto inefficiency) is far more important than location of the curve. Weak wage pricing power pushes you inward (cont)

[@TheBest-ff8zz]

I'm not pissed off at all, i just advocated for a certain helpful economic policy.

[@MrOscarAndra]

Maby the saving rate is lower because the debt ratio to the economy as a whole is higher. Even if the interest is low now in %, the amount of money that are debt and therefore interest burded money make a greater share of the total economy. The interest rate is just one factor as the amount of debt burded capital is another. So 2% interest in an economy with, lets say 60% debt out of the total GDP is a lower amount of total interest than in an economy with 90% debt of total GDP. So the conclusion is that when debt ratio grows the interest must descend to compensate the growing debt based share of the economy.

[@MrOscarAndra]

Yeah, thats obvious. But my perspective doesn´t collide with yours. Your perspective is about how the actors/operators react on incitaments, mine is structural. I don't miss anything obvious, I add something to it.

[@MrOscarAndra]

My point is that the interest should be compared with the Debt/GDP ratio rather than compared with the debt itself. If you do that, the interest of 2% is higher now than it was 50 years ago.

[@MrOscarAndra]

For the individual the rate is on low levels, but for the financial structure it´s the opposite. The free individual reacts on incitament, the financial structure does not. Here we have a problem.

[@kynismos]

How often do you have to be wrong to become a famous economist?

[@teamtoken]

Did you know the time when keynesian economics was the most widely used in politics and the market was the post WW2 economic miracle in the western world and japan just sayin...

[@wjksea]

The people must demand that the bankers control of the monetary system be restored to the benefit of society and not to the service of private bankers.

[@cyborganic99]

Well those two jokes did happen to call the bubble and a recession. Krugman has articles back in 2005 warning of the housing bubble. No one could have known when exactly it would hit--not even Peter. The point is despite calling it, Peter still lost his clients loads of money during the housing collapse. Every other component of his thesis was actually the inverse of what happened. There were people who weren't even aware of a bubble who did better than peter. It's actually embarrassing.

[@finarrykahn13]

I'm not going to debate with you because I think Keynesianism has merit--empirically and intuitively--in a crisis. But I'll make two points 1) Krugman's social ideology infects his economics--e.g. his endorsement of inflation as a redistributionary instrument; and 2) Of course stimulus will work better than austerity in the short term--the neoclassical counter that this is a myopic position to take. Are they right? I think there is long term evidence to suggest not--but that wasn't your point.

[@markseb2003]

This doesn't seem that unreasonable. There were massive dislocations after WWII ended. USA went into recession (which led the Dems to lose congress after years of domination in 1946) and Germany went into a currency crisis. USA reformed German currency and engaged in Keynesian policies (the Marshall Plan) to help get the economy back on track.