Paul Robin Krugman. Keynesian economic views. Paul Robin Krugman

The Insider offers a translation of a column by Nobel laureate economist and currency crisis expert Paul Krugman published in The New York Times.

If you're the kind of person who can be impressed by macho posturing, then Vladimir Putin should appeal to you. It's no surprise that many American conservatives seem to be crazy about this smug superhero. “This is a real leader,” enthused Rudy Giuliani, the former mayor of New York, after Mr. Putin invaded Ukraine without much debate.

But Mr Putin did not have the resources to indulge in such bravado. Russia has an economy about the same size as Brazil. And, as we now see, it is very vulnerable to a financial crisis - vulnerable for a reason that has a lot to do with the nature of the Putin regime.

For those who haven't been keeping track, the ruble has been gradually weakening since August, when Mr. Putin openly sent Russian troops into Ukraine. A few weeks ago, however, the decline turned into a crash. Extreme measures, including huge increases in interest rates and pressure on private companies to stop holding dollars, have only helped stabilize the ruble at levels well below its previous level. And everything indicates that the Russian economy is heading towards a severe recession.

The immediate cause of Russia's difficulties is, of course, the global fall in oil prices, which in turn is a consequence of rising shale oil production and weakening demand from China and other countries - all of which has nothing to do with Mr. Putin. And this could not but cause serious damage to the economy, which, as I said, does not have much to offer besides oil that may be of interest to other countries; sanctions imposed on Russia over the conflict in Ukraine have added to the damage.

But Russia's problems are disproportionate to the size of the shock: while oil did fall, the ruble fell even more, and the damage to the Russian economy extends far beyond the oil sector. Why?

There is no mystery here - in fact, fans of currency crises like yours truly have seen this thriller many times: Argentina 2002, Indonesia 1998, Mexico 1995, Chile 1982, the list goes on. The type of crisis Russia faces today is the result of problems created by an economy made vulnerable by large-scale borrowing from abroad - in particular, large-scale private sector borrowing, with foreign currency debt.

In this situation, an adverse shock in the form of a fall in exports could start a vicious circle. When a national currency falls, the balance sheets of local businesses—which have capital in rubles (or pesos or rupees) and debt in dollars or euros—collapse. This, in turn, causes serious damage to the national economy, eroding confidence and putting further pressure on the currency. Russia fits well into this standard scenario.

Except for one thing. Typically, a country usually ends up with a large external debt due to a trade deficit, using borrowed funds to pay for imports. But Russia does not have a trade deficit. On the contrary, it has consistently generated large trade surpluses, thanks to high oil prices. So why is she borrowing so much money, and where is that money?

Well, you can answer the second question by walking around Mayfair in London, or Manhattan's Upper East Side, especially in the evening, and seeing long rows of luxury apartments with all the lights off - apartments owned as you walk down the street. , Chinese princelings, Middle Eastern sheikhs and Russian oligarchs. The Russian elite accumulated assets mainly outside the country - luxury real estate is just one of the most obvious examples - and the downside of this accumulation was the growth of the national debt.

“The bubble burst and the very corruption that was the mainstay of Putin’s regime has left Russia in a desperate situation.”

Where does the elite get that kind of money? Putin's Russia is an extreme version of crony capitalism, a kleptocracy whose loyal supporters gain access to vast sums for personal use. This all looked sustainable as long as oil prices remained high. But now the bubble has burst and the very corruption that was the mainstay of Putin's regime has left Russia in dire straits.

How will this end? The standard response for a country in such a situation is an International Monetary Fund program that includes emergency loans and forbearance from creditors in exchange for reforms. Obviously, this will not happen here and Russia will try to get out on its own, among other things, trying to prevent the flight of capital from the country - a classic case of locking the barn door after the oligarch leaves.

This is all quite humiliating for Mr Putin. And his confident, strong-arm behavior helped lay the groundwork for disaster. A more open, accountable regime—one that Giuliani would not have been impressed with—would have been less corrupt, less deeply in debt, and better able to weather falling oil prices. Macho posturing, it turns out, is not so great for the economy.

On October 13, Paul Krugman, a professor at Princeton University in the United States, won the 2008 Nobel Prize in Economics. In an official statement, the organizing committee said that it was awarded for the analysis of trade patterns and location of economic activity (“for his analysis of trade patterns and location of economic activity”). For his theory explaining the impact of globalization and free trade on the world economy, the professor, journalist and writer will receive 10 million Swedish kronor - about one and a half million dollars.

The theory of Paul Krugman, who is called one of the most famous modern economists, was developed back in 1979. It is based on the premise that the production costs of many products can be reduced by large production volumes. These are the so-called economies of scale. Taking into account consumer demand for various types of goods, small production for the local market is gradually being replaced by large-scale production for the global market.

In conditions of large-scale production, trade expands not only between countries specializing in different types of goods (according to traditional economic theory). According to Krugman’s theory, states that are not only at the same stage of economic development, but also specialize in the export and import of a particular product, are gradually becoming dominant in the market. In turn, this leads to lower prices for products (due to the competition of economies on the world market).

Formally, the Nobel Prize in Economics is not a Nobel Prize. It was established by the Bank of Sweden in 1968 in memory of Alfred Nobel. The first such prize was awarded in 1969 to Ragnar Frisch (Norway) and Jan Tinbergen (Netherlands) “for the development and implementation of dynamic models in the analysis of economic processes.”

Krugman's theory also explains the reasons for the urbanization of the world economy. Large-scale production, on the one hand, and the struggle to reduce transport costs, on the other, lead to an increasingly large part of the population gravitating towards megacities. The growing population of cities, in turn, stimulates economic development and production growth, which, completing the circle, lead to a further increase in the number of inhabitants. As a result, regions are gradually divided into high-tech “core zones” and less developed “peripheries”.

Economist, teacher, writer

Paul Robin Krugman was born in 1953 in New York and studied at Yale University. He also received his PhD from the Massachusetts Institute of Technology (MIT). Krugman has taught at Yale, the University of California, the London School of Economics and Stanford. Since 2000, he has been a faculty member at Princeton University. Krugman is the author of several hundred scientific articles and dozens of books, including Strategic Trade Policy and the New International Economics (1986), Trade Policy and Market Structure and Market Structure", 1989), "The Return of Depression Economics", 1999) and "Currency Crises", 2000.

Krugman, 55, is known for more than just his research on international trade. Since 2000, he has written an analytical column for The New York Times and often criticizes the policies of US President George W. Bush. In the past few years, Krugman has been named as one of the likely Nobel Prize winners. In 1995, Krugman was awarded the Adam Smith Prize, in 2000 - the Recktenwald Prize (an economic award awarded since 1995 by the University of Nuremberg for the totality of scientific achievements).

In 1991, he was awarded the Clark Prize, given every two years to the most outstanding American economist under the age of 40. In 2004, Krugman received the Prince of Asturias Award, which is Spain's most prestigious award and is often called the Spanish Nobel Prize.

2007 - Leonid Gurvich, Eric Maskin and Roger Myerson, for “creating the foundations of the theory of optimal mechanisms”;
- 2006 - Edmund Phelps, "for the analysis of intertemporal relations in macroeconomic policy";
- 2005 - Robert Aumann and Thomas Schelling, "for their contributions to a better understanding of conflict and cooperation using game theory."

Other possible candidates for the economic Nobel Prize also included experts in the field of economic growth and the efficiency of markets. For example, the short list of the Russian National Association of Bookmakers included five scientists, among whom, by the way, Krugman is not. The most likely candidate was Eugene Fama, a professor at the University of Chicago specializing in research in financial theory, and Kenneth French, who researches the stock market with Fama.

Among the possible winners, bookmakers also named Robert Barro (Harvard University, studied the relationship between social religiosity and the level of economic development), as well as Christopher Sims ("Economic models and predictive risk assessments") and Lars Hansen (Lars Hansen, " Economic models in the labor market").

After Krugman learned of receiving the prestigious award, he said that it would definitely change his life, at least “temporarily.” He then hopes to continue his research.

Judging by the latest news, he will have something to do - after all, according to Krugman’s own forecast, although the world economy will face a recession, a collapse will not occur.

Six years ago, Paul Rhyne, who has since served as chairman of the House Permanent Budget Committee and chief economist of the Republican Party, published an article in The Times. Under the headline "Thirty Years Later, Return to Stagnation," he warned that the Obama administration's and the Federal Reserve's attempts to reverse the financial crisis would return us to the problems of the 1970s, with both high inflation and unemployment. Yes, not all Republicans agreed with this assessment. On the contrary, many argued that we were heading towards Weimar hyperinflation. Is it necessary to talk about whose forecasts turned out to be fundamentally wrong? There was still no inflation. Job creation was slow at first, but momentum has picked up recently. There has been no repeat of the experience of the 1970s; on the contrary, we are now dealing with an economy that in many respects resembles the 1990s. To be fair, we note that there is a whole gulf between America in 2015 and America in the 1990s. Television is much better now, but the situation of workers is worse. Stocks are rising, there is even talk of a new boom in the high-tech sector, all that is missing is the euphoria that accompanied the boom in the 90s. Alas, nothing hints at a colossal surge in productivity a la 1995-2005, associated with the active use of information technology. And the labor market is still far from achieving employment growth rates comparable to the Clinton years. And it goes without saying that low inflation coupled with rapid job growth demonstrates the delusion of claims that Obamacare, or perhaps the president's unfavorable attitude, will destroy the private sector.

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I was impressed by how quickly and convincingly the Russian economy went off the rails. Obviously, the main reason was the fall in oil prices, but the ruble has actually depreciated more than Brent crude oil: oil has fallen in price by 40% compared to the beginning of the year, and the ruble has fallen by half.

What's going on? President Vladimir Putin appears to have managed to get into a confrontation with the West over Ukraine just as the price of his country's main export commodity has fallen, causing financial turmoil to spill over into trade.

However, it should be noted that severe negative impacts from trade shocks are quite common in developing countries where the private sector has significant foreign currency debt. The initial effect of lower export prices is a depreciation of the national currency, which creates balance of payments problems for private debtors, whose debt suddenly becomes more expensive in national currency, and this, in turn, further weakens the economy, undermines confidence, etc.

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Economics is a very strange science. It's almost like art. Some people like classics, others like postmodernism. Economists argue with each other all the time. Some people advocate for the “invisible hand of the market,” while others are confident that finances should be managed by the state. Some people call for spending more, while others convince everyone that they need to save. Nobel laureate economist Paul Krugman recently published a book with the ambitious title “There is a Way Out of the Crisis.” What exactly does a prominent scientist advise governments to do? And how will this affect the global economy and Russia?
"DEBT IS A USEFUL THING"
Hundreds of works have been written about the causes of the current crisis. Economists are always strong in hindsight. Krugman suggests looking at the problem from a different angle.
“In fact, debt is a very useful thing,” the American scientist writes in his book. - Our society would be much poorer if everyone who wanted to buy a house was forced to pay cash. If only every small business owner who wanted to expand had to pay for it out of their own pocket. However, debt does not make society as a whole poorer. One man's debt is another man's asset."

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Paul Krugman "There is a way out of the Crisis!" (book)

While reading the book, I had conflicting feelings. At times it seemed as if Krugman was a dissatisfied envious person with a grudge against the world, using the book to argue with his opponents on economic issues. Sometimes it seemed that this was pop fiction and there was nothing fundamentally new in it compared to “The Return of the Great Depression” (Krugman’s previous book about the crisis).

Nevertheless, after reading I was satisfied :) We can say that to some extent the book influenced my economic worldview.

What are the positive aspects of the book?

broadens my economic horizons (despite the fact that I have already read many books about crises)
reveals the place of Keynesianism in economics and its role in the fight against economic crises
convincingly proves the benefits of proactive budget policy during a crisis, and also demolishes the idea of budget savings
describes how you can painlessly reduce the US national debt
explains why it is not converted to inflation, etc. etc.
met with difficulty

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Paul Krugman

Paul Robin Krugman - born February 28, 1953, Long Island, New York. American economist and publicist, Nobel Prize laureate in economics (2008). Paula Krugman, whose number of articles in leading scientific journals can be counted on one hand; all of his serious publications occurred between the 1970s and the early 1990s, i.e. from approximately the time you graduate from graduate school until you reach the age of forty. Krugman received his Nobel Prize for his achievements in two related topics - the theory of international trade and the theory of the geographical distribution of economic activity. These two theories are discussed sequentially in this work.

The exact wording of his Nobel award was: “for his analysis of trade patterns and location of economic activity,” or “For the analysis of the structure of trade and the location of economic activity.”

The main problems that the economist raises in his articles, as well as those main problems for the study of which he was given the Nobel Prize: Krugman Nobel economist

First of all, this is economic geography, as well as the effect of returns to scale.

Secondly, his criticism of the current economic situation of both the United States and Europe, in matters relating to: unemployment, external public debt, aggregate demand and developing countries.

Krugman's main job was to create the "new international economy." The main prerequisite for the creation of this model was the problem of like-like goods. The essence of trade in like-like goods was that before World War II, the main trading partners were countries that were dissimilar to each other and traded in like-unlike goods. For example, if a country did not have the ability to produce wine, it bought this wine from other countries, in return trading goods that it could produce, but others could not. This pattern of trade is fully explained by Ricardo's theory of comparative advantage, then expanded by Heckscher and Ohlin. However, over time, a trend towards intra-industry trading has emerged. For example, cars of different brands. And Krugman considered this model in his theory, trade in like-like goods, since the theory of comparative advantage could not explain such trade.

What is the “new international trade”? First, these are positive theories of international trade that take into account internal economies of scale and the factor of monopolistic competition, integrating them into the structure of general equilibrium models. Although it can hardly be argued that the consideration of economies of scale is something new in the theory of international trade: its real novelty lies in the simultaneous consideration of economies of scale and monopolistic competition in the formal framework of general equilibrium analysis.

A truly new contribution to trade policy theory is the consideration of oligopoly and strategic interactions between private firms rather than between governments. In this context, a key model was first proposed by J. Brander and B. Spencer in 1985. This model and a discussion of its limitations are presented in Krugman's book Trade Policy and Market Structure. Briefly, the essence of this model is this: two firms - domestic and foreign - compete in the market of a “third” country, selling goods that are not sold in their own markets of their countries.

The number of firms is fixed, that is, new firms cannot enter the market, attracted by high profits. The model is formulated in such a way that the only factor that matters for the national welfare of both countries is the profits of both firms, minus subsidies or taxes. In both countries, wages and (at the first stage of analysis) pre-tax profits are fixed. The goal of national policy is to redistribute profits from a foreign firm to a domestic one, although there may be a parallel redistribution of income from the taxpayers of a given country to the owners of domestic firms. The size of the combined production market is fixed; consumers compete with each other. The government of the “third” country is restrained from interfering. The more production of one firm, the less profit of another.

Krugman also examined the traditional argument for protectionism, which is based on the terms of trade concept and which can be interpreted as evidence in support of an export tax. The economist believed that the introduction of a tariff could lead not only to the replacement of imports with domestic production, but also to stimulate exports.

Two firms compete in different markets (including the domestic one), playing “Cournot” and encountering economies of scale. The national government protects the firm of its state in the domestic market. Such protection can be interpreted as a type of subsidy. Naturally, this redistributes profits from the foreign firm to the domestic one. The domestic firm's marginal cost decreases, while the foreign firm reduces production and its marginal cost increases. As a result, the domestic firm expands its exports. Thus, P. Krugman shows that import protection acts as a tool to promote export development.

In 1990, Krugman formulated the three-period model. Its essence was that: in the first period, entrepreneurs “invest” valuable resources in innovations that reduce costs. Those who succeed in this gain a temporary monopoly on their new technology in the second period; they have a rent due to a cost advantage over the manufacturer who is still using the old technology. In the third period, this innovation becomes common property, and the source of rental income disappears. Such sequences that are out of phase can be “brought together,” which in turn gives a picture of a continuous process.

Krugman's second most important discovery is his model of geographic concentration. In his Nobel lecture, the economist explains it this way:

“We assume that the manufacturer has set sales of S, S* units of goods to two markets, with S> S*. And it must pay the shipping costs for each unit shipped from one location to another. The manufacturer has the choice of having either one or two plants; by opening a second plant, the manufacturer can eliminate transportation costs, but must pay additional fixed costs F.

Clearly, if a manufacturer opens only one plant, it will be in a larger market.

But will this concentrate production? Only if F> fS*.

It goes without saying that this little show ignores market structure, prices, elasticity of demand, and more. But we know that we can put it back in, as quite Dixit-Stiglitz does, and the hoax version conveys a significant intuition: if economies of scale, as noted by F/S*, are large enough relative to transport costs, production will be geographically concentrated, and that concentration, other things being equal, will be in a larger market.

From here is an obvious, short step (which for some reason took me a decade) to a model of geographical concentration of factors of production. Think now about a world in which there are many businesses making the same kind of choices I just described, and also where some, but not all, resources are mobile. Let S be the size of the total market, m be the share of that market attributable to "free" production, and assume there are two symmetrical locations. We can then think of a possible equilibrium in which all free factors are concentrated in one place. In this case, another location—a smaller market—would require S(1 - m)/2 units of our representative good.

And this concentration of production would be self-sustaining if F> fS (1 - m)/2, or F/S> f (1 - m)/2. So this is our criterion for creating a self-sustaining concentration of production in space."

Krugman also gives two conditions for the model to work correctly:

1. Self-sustaining concentration of production in space can occur if economies of scale (F/S) are large, transport costs are low, and sufficient production is mobile.

2. Which location the concentration of production will be is arbitrary, and may presumably be a function of initial conditions or historical chance.

Krugman's work does not end with the analysis of international trade. The Nobel laureate is considered the world's leading economist, and also makes his comments on the current order of things in economics. Krugman presents a large number of articles in which he speaks out about existing economic problems and ways to solve them. The main place in his statements is criticism of the actions of the authorities of both the United States and Europe. The economist believes that the problem of the modern economy is not government debt, but aggregate demand and unemployment. Here's what Krugman says about it: “The real problem in developed countries is insufficient spending. And at a certain level, solving this problem does not seem very difficult. After all, it is not only simple, but also pleasant - to spend more. But the problem is that increased spending must start with the government. But this, unfortunately, does not happen - for political reasons. There is political gridlock and intellectual turmoil in America right now. Many people are concerned about the budget deficit, and somehow it turns out that unemployment doesn’t bother them.”

With regard to the Belarusian economy: according to Krugman, in order to stay afloat, it is advisable for Belarus to avoid large debts. Joining a single economic space with Russia, Ukraine and Kazakhstan and free trade are also encouraged.

Krugman's policy in dealing with the crisis is to stimulate demand. The economist believes that neither government debt nor high inflation kills the economy as much as a decline in demand does. "One man's costs are another man's profits," says Paul Krugman. The Belarusian economy is well adapted to such conditions of recovery from the crisis. Government policy is currently aimed at improving the quality of life of citizens: wages are rising, markets and labor supply are increasing. There is a reduction in unemployment.

Speaking about the model of new international trade, it is possible only in the case of large economies of scale, that is, in relation to a large enterprise with a large market.

Simply put, his models were designed more for large developed countries than for countries just getting on their feet. In addition, international trade in Belarus comes down more to trade in dissimilar and dissimilar goods. Therefore, we can say that his ideas are very relevant at the present time for countries with a large sales market, a large volume of goods, as well as with predominantly like-like international trade.

To implement his ideas in the practice of Belarusian foreign trade, it is necessary to significantly change the structure of trade, i.e. make it more like European and American trade in similar goods. However, Belarus is not yet ready for such a policy and is unlikely to be ready in the future. For such a step, Belarus needs a large resource base and high-tech production.

List of sources used

The revolution of increasing returns in trade and geography. Nobel lecture, December 8, 2008. Access mode: http://n-mir.org/index.php?option=com_content&task=view&id=635&Itemid=31. Access date: 11/25/2012.

American economist Paul Krugman. Access mode: http://www.kazedu.kz/referat/95814. Access date: 11/25/2012

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