Business, Community & Government

Economic Solutions to Crises

Lesson time 9:02 min

Paul details monetary solutions vs. fiscal solutions, how to rethink deficit spending, and what to do to brace for the next crisis.

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Topics include: Monetary Solutions vs. Fiscal Solutions • How We Learned From 1929 • Rethinking Deficit Spending • Brace for the Next Crisis

Paul Krugman

Teaches Economics and Society

Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.

Preview

The fact that Ben Bernanke printed lots of money and it just sat there was a problem. It's sobering. The Fed is our-- it is our first responder to economic emergencies. It's the over-the-counter medicine we take when we catch an economic cold. If they have lost traction, if they no longer have that power, if the economy has fallen too deep into the liquidity trap for the Fed to be able to pull us out, someone and something else has to step in. And that someone and something else pretty much has to be fiscal policy. Has to be government spending, maybe tax cuts. But certainly, the government is going to have to step in. The government proper. The executive branch and Congress are going to have to step in. And then you've opened a whole can of worms, because rescuing the economy is being put on the shoulders of elected politicians, many of whom are beholden to rigid economic ideologies, many of whom are answering to donors who believe stuff, many of whom are-- so I'm saying all those commentators on Fox and CNBC who are predicting hyperinflation. And so it gets much, much harder. You're now in a situation where in order to do what the economy needs or to do what has to be done, you have to win over people who maybe don't get it. If you are going to spend government money, there's going to be a fight over, spend it on what? Who gets it? Which district? What project? All of those things get in the way. So it was a really bad thing to find ourselves in a situation where good economic policy required something that went well beyond the normal sort of technocratic twiddling the dial thing that the Fed does. [MUSIC PLAYING] Terrible as it was, the crisis of 2008 and aftermath wasn't as bad as the Great Depression. But the funny thing is, it started out just as bad. First six months, the plunge in the world economy in 2008 was every bit as bad as it had been in 1929. The downturn and everything. Stock prices, trade, industrial production was tracking right along the Great Depression. Then turned around, leveled off, started to come back up this time. So we did not revisit the full horrors of the 1930s. And if you ask what did that, the answer was, well, we learned something. In 1929, 1930 for the most part, the Federal Reserve and its counterparts basically said, this is natural. We should let the economy go through this. It'll purge. Didn't work out too well. And this time around, Ben Bernanke and Mervyn King in England and others went out there and printed money. Obama had his stimulus plan. Also, we allowed budget deficits to grow temporarily, all of which were actually very important ways of cushioning it. So that what we had was bad, but it was a bad cold, and not a deadly fever that struck the world economy. [MUSIC PLAYING] When we talk about deficits, it's probably a really good idea to ask why they're a bad thing. It's one of those things where people just take it for granted they must be a bad thing. ...

About the Instructor

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.

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Paul Krugman

Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.

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