Paul Krugman, winner of the Nobel Memorial Prize in Economics Science, visited the University Philosophical Society today. He gave a short speech on epistemology in economics and then answered questions from the floor and from host Rosalind Ní Shúilleabháin, president of the Phil.
Professor Krugman began with a discussion on finding the right balance between “raw empiricism” and the “from first principles” approach, ie: between a purely factual and a purely theoretical approach. Problems with the former approach were, he said, illustrated by the recent Rogoff-Reinhardt article on the link between GDP growth and debt, whereas the latter approach was disconnected from real life.
Krugman admitted that the recession, while horrific on a human level, was academically interesting and provided an opportunity for economists to test their theories. He believed that the recession has proved his “side” right in the battle against the “austerians” and listed some of his counterintuitive predictions which had been proved correct by recent events: that QE wouldn’t lead to rampant inflation, that austerity would harm the economy, and that high debt didn’t necessarily cause subpar economic performance. Krugman felt reassured that he had not been a “phoney”.
On the other hand, Krugman said that the recession had also dismayed him by illustrating the dogmatism of most professional economists and the disinterest of policymakers in research that doesn’t already support their positions. He cited the example of the 27 economists who signed a manifesto urging the US Federal Reserve (the Fed) to avoid hyperinflation by not engaging in the quantitative easing programme. Those economists were subsequently proved wrong but none have admitted it. Policymakers meanwhile, according to the professor, never pay attention to research that doesn’t suit them. He hotly denied that he had had any influence on the Fed’s monetary policy – though many of them were his friends, none of them, he claimed, listen to his advice.
European politicians, Krugman thought, were particularly beholden to orthodoxy. Leaving the Euro was a “political impossibility” for Ireland. He expressed surprise that Ireland had guaranteed the unsecured bonds of mainly German investors and said that the IMF had been the “good guys” in the Troika whereas the EU commission and the ECB had insisted on the “morality play” narrative in which Ireland had to atone for its fiscal irresponsibility.
Professor Philip Lane, head of Trinity’s Economics Department and Whately Professor of Political Economy, questioned Krugman on whether he thought the incremental or “big bang” approach to policy making was more appropriate. Krugman answered that he preferred the latter. He also fielded questions on the Icelandic economic recovery, on banking regulation procedures, and on whether economics should be compulsory at secondary school level.
There was a general atmosphere of reverence in the GMB for the Nobel Prize winner – Krugman received a standing ovation at the beginning of the discussion and two rounds of sustained applause at the end. The genuflective atmosphere was broken only by one speaker who, in a tremulous voice, read out a prepared criticism of what he saw as Krugman’s insufficiently libertarian approach to market regulation. Krugman swiftly dispatched his critic – “letting markets work is a pragmatic not an ideological decision” he told the audience.
Photo Credit: Aifric Ni Chriodain