[OPE-L:6784] Paul Krugman

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Wed Mar 20 2002 - 19:53:22 EST

Paul Krugman gave a couple of lectures at Stanford. The first was on 
intractable slumps, which quickly summarized his book on The Return 
of Depression Economics.
He focused on Japan, and called again for the BoJ to set a 2 or 
%inflation target in order to discourage oversaving and a liquidity 
preference. He did not analyze the role of exchange rates at all 
though Stanford prof Ronald MacKinnon later challenged him on this.

I asked him why the marginal efficiency of capital seems to have 
fallen so precipitously. He replied that there had been faster 
capital build up in Japan...so that the capital per worker was higher 
there than in the US! That's it.  I truly believe that the whole idea 
of the declining marginal effiency of capital is tremendously 
confused. Does it fall because of Adam Smith like overcompetition? 
Because the Ricardian principle of diminishing returns applies to the 
capital stock? Is it an objective or subjective concept?

Fred often suggests that the rate of profit plays a marginal role in 
contemporary economics, but it seems to be center stage in Keynes' 
murky concept of the marginal efficiency of capital.

  He also lectured on currency crises. Argentina was his focus. He 
wanted to focus on what a bad idea currency boards are (he seemed 
convincing); again his proposed solution was monetary--devaluation.

I raised the problem of competitive devaluations. He said that while 
going off the gold standard did create that problem, the effect for 
example of the UK going off it in 1931 and the effective devaluations 
that followed thereafter were  to reflate the global economy to some 
extent and thus positive overall--he suggested that Barry Eichengreen 
had analyzed this in most detail.  He also suggested that the UK 
decision in 1931 probably saved Britain from an even worse depression 
and thus from the possibility of fascist take over.


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