No future for the Big Three: Nobel economics laureate Krugman

08 December 2008

This year's Nobel economics prize winner Paul Krugman is a skeptical about any plans to bail out troubled American auto makers, including the Big Three – General Motors, Ford, and Chrysler.

Reports cited the Nobel economics laureate as has "massive doubts" about the future of the US car industry. Lawmakers in Washington are trying to put together a rescue package for the US auto makers from a collapse that most of them agree, is of their own making.

Krugman was reported by news agencies as saying that amongst lawmakers, there is a "correct lack of willingness to accept (responsibility for) the failure of a large industrial sector ... in the midst of a very, very severe recession." He predicts that eventually, these companies "probably will disappear".

Krugman pointed to lessons from the Japanese economic crisis of the 1990s. He is in favour of massive government spending on infrastructure and public works programs as a way to revitalise the slumping US economy, and was quoted in the media as saying that there was a need to be "grateful to the Japanese for ... simply (giving) us the realisation that such things can happen and which policies do and don't work."

He summed up the experience of Japan during the 1990s by saying that even if government spending did not produce a permanent cure, it could still greatly alleviate the pressures on the economy. He also said that lessons from the Great Depression of the 1930s and those from recent economic crises could be the only learning that would possibly ward off a new Great Depression.

The Princeton University professor, who is also a New York Times columnist, spoke to the media in Stockholm where he is due to receive the Nobel prize this week. He said that if the US had not "already experienced the Great Depression, I think we would be about to have another one. But the fact that we did have that Great Depression and have some economic analysis of how it happened, gives us some hope of avoiding a repeat."