In 1999, Princeton economics professor Paul Krugman wrote a book with the now-prescient title The Return of Depression Economics. The book has just been re-released in a revised and updated edition, which examines the roots of the crisis now affecting the global economy. Earlier this year, Krugman was awarded the Nobel Prize in Economics for his work on international trade theory. He is also the author of a twice-weekly column and daily blog for The New York Times.
A transcript follows.
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Paul Krugman: Hi everyone. This is Paul Krugman. I'd like to say thanks to the Post for inviting me here.
A few words about my new book, The Return of Depression Economics and the Crisis of 2008.
This is a heavily revised new edition of The Return of Depression Economics, originally published 9 years ago. When I wrote the original version, I had Asia on my mind: I looked at the crisis that swept Southeast Asia, and at Japan's monetary trap, and argued that these were omens - that similar things could happen to us.
Now they have. The world economy is in a nosedive, and understanding what I call "depression economics" - the weird world you get into when even a zero interest rate isn't low enough, and a messed-up financial system is dragging down the real economy - is essential if we're going to avoid the worst.
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North Carolina: Why do you say that just one American automobile industry bankruptcy will bring down the entire American automobile industry?
Paul Krugman: The answer is that the Big 3 rely on a lot of the same suppliers. If, say, GM goes bust, that will doom a lot of the companies that produce parts for Ford and Chrysler; that will bring the whole traditional industry down.
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Ellicott City, Md.: Where do you think we would be today if the bank bailout package hadn't passed in September? Was it worth the haste?
Paul Krugman: I think that without the bank bailout the whole system would have collapsed. In the first couple of weeks after Lehman went down, nothing was moving in the credit markets, and it looked as if a series of dominoes might fall. Even though things are terrible now, they would probably have been a lot worse without the bailout.
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Watertown, Conn.: Do you agree that the Community Reinvestment Act (CRA) is the cornerstone of subprime lending, the root cause of financial meltdown?
Paul Krugman: No, and I'm glad someone brought that up. CRA has been in existence since 1977; plus, it only applies to depository institutions (regular banks). Meanwhile, we had a subprime bubble that mostly took place after 2002, with most of the loans made by institutions that weren't subject to the CRA.
That's why everyone who's looked at this honestly says that the Community Reinvestment Act had nothing to do with the crisis.
The attempt to blame it all on the CRA is just an attempt at blame-shifting -- an attempt to make liberals and nonwhite people the villains of a story that is actually about runaway financial institutions and the free-market ideologues who refused to regulate them.
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