Paul Krugman: “The Putin bubble burst. Abstract: American Economist Paul Robin Krugman Paul Krugman Biography
The Insider offers a translation of a column by Nobel laureate in economics and currency crisis expert Paul Krugman published in The New York Times.
If you are one of those people who can be impressed by macho posturing, then you should like Vladimir Putin. Not surprisingly, many American conservatives seem to be crazy about this smug superhero. “This is a real leader,” enthuses Rudy Giuliani, the former mayor of New York, after Mr. Putin invaded Ukraine without further ado.
But Mr. Putin did not have sufficient resources to afford such bravado. Russia has an economy of about the same size as Brazil. And, as we now see, it is highly vulnerable to the financial crisis - vulnerable for a reason that has a direct bearing on the nature of the Putin regime.
For those who don't follow, the ruble has been steadily declining 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 growth interest rates and pressure on private companies to stop dollar holdings only helped to stabilize the ruble well below its previous level. And everything points to the fact that the economy Russia goes to a severe recession.
The immediate cause of the difficulties in Russia - of course, the global drop in oil prices, which, in turn, is a consequence of rising shale oil production and weakening demand from China and other countries - all have nothing to do with Mr. Putin. And this could not but cause serious damage to the economy, which, as I said, has not much to offer besides oil, from what other countries may be interested in; the sanctions imposed on Russia in connection with the conflict in Ukraine have increased the damage.
But Russia's troubles are disproportionate to the size of the shock: while oil did fall, the ruble fell further, and the damage to the Russian economy extends far beyond the oil sector. Why?
There is no mystery here - in fact, such fans of currency crises as yours truly have seen this thriller many times: Argentina 2002, Indonesia 1998, Mexico 1995, Chile 1982, the list goes on. The type of crisis that Russia is facing today is the result of problems arising in an economy that has become vulnerable as a result of large-scale borrowing from abroad - in particular, large-scale borrowing from the private sector, with debts in foreign currency.
In this situation, an adverse shock in the form of a drop in exports could start a vicious circle. When the 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 national economyundermining confidence and putting more pressure on the currency. Russia fits well into this standard scenario.
Except for one thing. As a rule, a country usually finds itself with a large external debt due to a trade deficit, using borrowed funds to pay for imports. But there is no trade deficit in Russia. On the contrary, it constantly received 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 watching the long rows of luxury apartments with 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 - elite real estate is just one of the most visible examples - and the reverse side of this accumulation was the growth of the national debt.
"The bubble burst and the very corruption that was the mainstay of the Putin regime left Russia in a desperate situation"
Where does the elite get that kind of money? Putin's Russia is an extreme version of clan capitalism, a kleptocracy whose loyal supporters gain access to huge sums of money for personal use. All of this looked stable as long as oil prices remained high. But now the bubble has burst and the very corruption that was the mainstay of the Putin regime has left Russia in a desperate situation.
How will it end? The standard response for a country in such a situation is the International Monetary Fund program, which includes emergency loans and patience from lenders 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 capital flight from the country - a classic case of locking the barn door after the oligarch leaves.
All of this is rather humiliating for Mr. Putin. And his overconfident, “strong hand” demeanor helped set the stage for disaster. A more open, accountable regime - one that would not impress Giuliani - would be less corrupt, not so deep in debt, and better weather the fall in oil prices. Macho posturing turns out to be not so great for the economy.
Paul Robin Krugman (eng. Paul Robin Krugman; genus. February 28, 1953, Long Island, New York) is an American economist and publicist, winner of the Nobel Prize in Economics (2008).
Paul Krugman was born on Long Island, New York to David and Anita Krugman, Jewish parents. He became interested in economics and history as a child under the influence of popular science books by Isaac Asimov. Studied at Yale University; Ph.D. (1977) from the Massachusetts Institute of Technology. He taught there, as well as at Yale, University of California (Berkeley campus), London School of Economics, Stanford; currently (since 2000) professor at Princeton University.
Awarded the J. B. Clarke Medal (1991). Since 2000, he is a well-known columnist: he writes an analytical column for the New York Times. Winner of the Adam Smith (1995), Recktenwald (2000) and Prince of Asturias (2004) awards. Honorary Member of the Munich Center economic research (1997). Member of the Group of Thirty.
In 2008 he received the Nobel Prize in Economics for his analysis of trade patterns and problems of economic geography.
Scientific achievements
His scientific works are indirectly related not only to the economy, but also to the political structure. Thus, at one time he wrote works on trade policy and market structure, as well as on spatial economics. Such a broad expansion of his scientific views has caused multiple responses in the circles of different scientific communities, and not only economic, but also humanitarian. He publishes and creates tutorials, which are in great demand among students of many universities around the world.
Scientific works
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Paul Krugman
Paul Robin Krugman - born February 28, 1953, Long Island, New York. American economist and publicist, Nobel laureate in economics (2008). Paul Krugman, whose number of articles in leading scientific journals can be counted on one hand; all of his major publications date from the 1970s to the early 1990s, i.e. approximately from the moment of graduating from graduate school until reaching the age of forty. Krugman received his Nobel Prize for achievements in two related topics - international trade theory and theory geographic location economic activity. These two theories are discussed sequentially in this paper.
The exact wording of his Nobel Prize sounded like: "for his analysis of trade patterns and location of economic activity", or "For 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 awarded the Nobel Prize: the Nobel economist Krugman
First of all, it is economic geography, as well as the effect of returns to scale.
Secondly, his criticism of the current economic situation in both the United States and Europe, in issues related to: unemployment, external public debt, aggregate demand and developing countries.
Krugman's main work was to create a "new international economy". The main prerequisite for the creation of this model was the problem of like-like goods. The essence of trade in similar-similar goods was that before the Second World War, the main trading partners were dissimilar countries that traded dissimilar, dissimilar goods. For example, if a country did not have the ability to produce wine, it bought this wine from other countries, in exchange for trading in goods that it could produce, but others could not. This trading model is fully explained by Ricardo's theory of comparative advantage, then augmented by Heckscher and Olin. However, over time, there has been a trend towards intra-industry trade. For example, cars of different brands. And this model was considered by Krugman in his theory, trade in similar-similar goods, since the theory of comparative advantage could not explain such a trade.
What is "new international trade"? First, there are positive theories of international trade that take into account domestic 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 recognition of oligopoly and strategic interactions between private firms, not between governments. In this context, the 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 as follows: two firms - domestic and foreign - compete in the market of a "third" country, selling goods that are not sold in their own markets.
The number of firms is fixed, that is, new firms cannot enter the market, being attracted by high profits. The model is formulated in such a way that the only factor that matters for national welfare of both countries is the profit of both firms, minus subsidies or taxes. In both countries, wages and (in the first stage of analysis) profit before tax are fixed. The goal of national policy is to redistribute profits from a foreign firm to a domestic one, although this may parallel redistribution of income from taxpayers in a given country to the owners of domestic firms. The cogeneration market is fixed; consumers compete with each other. The government of the "third" country is refraining from interfering. The more production of one firm, the less profit of another.
Krugman also examined the traditional terms-of-trade argument for protectionism that could 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 substitution of imports by domestic production, but also to stimulate exports.
The two firms compete in different markets (including the domestic one) playing Cournot and facing economies of scale. The national government protects the firm of its state in the domestic market. Such protection can be interpreted as a kind of subsidization. Naturally, this redistributes profits from the foreign firm to the domestic one. The marginal cost of the domestic firm decreases, while the foreign firm reduces production and its marginal cost increases. As a result, the domestic firm is expanding its exports. Thus, P. Krugman shows that import protection acts as a tool to promote export development.
In 1990, Krugman formulated a three-period model. Its essence was that: in the first period, entrepreneurs "invest" valuable resources in innovations that reduce costs. Those who succeed in doing so receive a temporary monopoly on their new technology in the second period; they have a rent due to a cost advantage over a manufacturer who still uses old technology. In the third period, this innovation becomes common property, and the source of rental income disappears. Such out-of-phase sequences 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 to two markets, with S\u003e S *. And that must pay the shipping costs for each unit shipped from one location to another. The producer has the choice of having either one or two plants; By opening a second plant, the manufacturer can eliminate transport 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\u003e фS *.
It goes without saying that this little show ignores market structure, prices, elasticity of demand, and more. But we know that we can inject it back, as Dixit-Stiglitz quite does, and the deception version conveys a significant intuition: if the economies of scale, as noted by F / S *, are large enough compared to transportation costs, production will be geographically concentrated, and that concentration, other things being equal, will be in the larger market.
Hence the obvious, short step (which for some reason took me a decade) to a model of geographic concentration of factors of production. Think now of a world in which there are many businesses making the same kind of choice that 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 "free" production share of that market, and assume there are two symmetrical locations. Then we can think of a possible equilibrium in which all free factors are concentrated in one place. In this case, a different location — a smaller market — would require S (1 - m) / 2 units of our representative product.
And this concentration of production would be self-sustaining if F\u003e fS (1 - m) / 2, or F / S\u003e f (1 - m) / 2. Thus, 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. A self-sustaining concentration of production in space can occur if the economies of scale (F / S) are large, transportation costs are low, and sufficient production is mobile.
2. Which location the concentration of production will receive is arbitrary, and may presumably be a function of initial conditions or historical event.
Krugman's work does not end with the analysis of international trade. The Nobel laureate is considered the leading economist in the world, and also contributes his comments to the current order of things in economics. Krugman presented a large number of articles in which he speaks about the existing economic problems and how to solve them. The main place in his statements is taken by criticism of the actions of the authorities of both the United States and Europe. The economist believes that the problem modern economy - is not state debt, and aggregate demand and unemployment. Here is what Krugman says about it: “The real problem developed countries - insufficient expenses. And at a certain level, the solution to this problem does not look very difficult. After all, it is not only easy, but also pleasant - to spend more. But the problem is that the increase in spending must start with the state. But this, unfortunately, is not happening - for political reasons. America is now in political stalemate and intellectual confusion. Many cares budget deficitand somehow it turns out that unemployment does not bother them. "
With regard to the Belarusian economy: according to Krugman, in order to stay afloat, it is advisable to avoid Belarus large debts... Entry into a single economic space with Russia, Ukraine and Kazakhstan, free trade is also encouraging.
Krugman's policy regarding the problem of overcoming the crisis is to stimulate demand. The economist believes that neither public debt nor high inflation is killing the economy the way a decline in demand does. “The cost of one is the profit of the other,” says Paul Krugman. The Belarusian economy is well adapted to such conditions for overcoming the crisis. Public policy at the moment is aimed at improving the quality of life of citizens: the level of wages, labor markets and supply are increasing. There is a reduction in unemployment.
Speaking of the new international trade model, it is possible only in the case of large economies of scale, that is, in relation to a large enterprise with a large sales market.
Simply put, his models were designed more for large developed countries than for countries just getting on their feet. In addition, the international trade of Belarus is reduced more to the trade of 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 a predominantly similar-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 the European and American trade in similar-like 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
A revolution of increasing returns in trade and geography. Nobel Lecture, 8 December 2008. Available at: http: //n-mir.org/index.php? Option \u003d com_content & task \u003d view & id \u003d 635 & Itemid \u003d 31. Date of access: 25.11.2012.
American economist Paul Krugman. Access mode: http://www.kazedu.kz/referat/95814. Access date: 25.11.2012
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According to the Nobel Prize Committee, the prize was awarded for Krugman's work explaining patterns of international trade and geographic concentration of wealth by examining the impact of economies of scale and consumer preferences for various goods and services. In academia, Krugman is known for his work on international economics, including trade theory, economic geography and international finance, liquidity traps, and currency crises. According to the IDEAS / RePEc database, Krugman is ranked 15th among the most widely cited economists in the world today.
Krugman is the author of over 20 books and has published over 200 scientific articles in professional journals and collections of works. He also wrote over 750 reviews on current economic and political issues for The New York Times. Krugman's book International Economics: Theory and Policy, co-authored with Maurice Obstfeld, professor of economics at the University of California, Berkeley, has become a recognized textbook on international economics for American colleges. In addition, he writes on political and economic topics for the general public, and speaks up on a wide range of issues from income distribution to international economics. Krugman considers himself a liberal and even named The Conscience of a Liberal to one of his books and blog in The New York Times.
Paul Krugman, son of David Krugman and Anita Krugman and grandson of Jewish immigrants from Belarusian Brest (Brest, Belarus), was born on February 28, 1953 in Albany, New York (Albany, New York). He grew up in Nassau County, New York and graduated from John F. Kennedy High School in Bellmore. He is married to Robin Wells, a yoga instructor and economics scientist who worked with her husband on textbooks. This is his second marriage. Krugman also mentioned a distant kinship linking him to conservative journalist David Frum. In his own words, his interest in economics began with Isaac Asimov's Foundation series, in which scholars of the future used the fictional science of psychohistory in an attempt to save civilization. Since psychohistory in the sense that Azimov put into this word did not exist, Krugman turned to economics, which he considered the second best science in the world of knowledge.
Krugman received his BA in economics from Yale University in 1974 and his Ph.D. from the Massachusetts Institute of Technology (MIT) in 1977. During his studies at MIT, Krugman was part of a small group of students sent to work in central bank Portugal (Central Bank of Portugal) for three months in the summer of 1976, two years after the Carnation Revolution.
From 1982 to 1983, he worked for President Ronald Reagan's administration with the Council of Economic Advisers.
Krugman has taught at Yale University, MIT, UC Berkeley, London School of Economics and Stanford University, and in 2000 became a professor at Princeton. In addition, he is a member of the so-called "Group of Thirty", an international economic organization... Since 1979, Krugman has been a Research Fellow at the National Bureau of Economic Research, most recently Dr. Krugman was President of the Eastern Economic Association.
Six years ago, Paul Ryne, who has since served as chairman of the House Standing Budget Committee and chief economist for the Republican Party, published an article in The Times. Under the headline "Thirty Years On, Return to Stagnation," he warned that the Obama administration and the Federal Reserve's efforts to deal with the financial crisis would bring us back to the problems of the 1970s, with high inflation and unemployment at the same time. Yes, not all Republicans agreed with this assessment. On the contrary, many have argued that we are heading towards Weimar hyperinflation. Do I need to talk about whose predictions turned out to be fundamentally wrong? There was no inflation, and no. Jobs were created slowly at first, but in recent times the dynamics gained momentum. No repetition of the experience of the 1970s happened; on the contrary, we are now dealing with an economy that in many respects resembles the 1990s. For the sake of fairness, we note that there is a whole abyss between America in 2015 and America in the 1990s. Television is now much better, and the situation of workers is worse. Stocks are growing, there is even talk of a new boom in the field of high technologies, the only thing 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 active use information technologies... And the labor market is still far from the employment growth rates comparable to those of the Clinton years. And it goes without saying that low inflation, coupled with rapid employment growth, amply demonstrates the delusional claims that Obamaker, or perhaps the president's ill-will, 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 actually depreciated more than Brent crude oil: oil fell by 40% compared to the beginning of the year, and the ruble - by half.
What's going on? President Vladimir Putin appears to have gotten himself involved in a confrontation with the West over Ukraine just as prices for his country's main export fell and financial turmoil superimposed on trade as a result.
However, it should be noted that sharply negative consequences as a result of trade shocks is quite common in developing countriesin which the private sector is heavily indebted in foreign currency. The initial effect of the decline in export prices is a fall in the exchange rate of the national currency, which creates problems with the balance of payments for private debtors, whose debt suddenly rises in price. national currencyand this, in turn, further weakens the economy, erodes confidence, etc.
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Economics is a very strange science. It's almost like art. Some like the classics, others - postmodernism. Economists argue with each other all the time. Someone stands up for the “invisible hand of the market”, while someone is sure that the state should manage finances. Someone calls to spend more, while someone convinces everyone that it is necessary to save. Nobel laureate in economics Paul Krugman recently released a book with the ambitious title "There is a way out of the crisis." What exactly is a prominent scientist advising 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.
“Debt is actually a very useful thing,” the American scientist writes in his book. “Our society would be much poorer if everyone who wants to buy a house had to pay cash. If only every small business owner looking to expand their business had to pay out of their own pocket. However, debt does not make society as a whole poorer. One's debt is another's asset. "
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Paul Krugman "There is a way out of the crisis!" (book)
As I read the book, I had conflicting feelings. In places, it seemed that Krugman, an unsatisfied envious person, offended by this world, was using the book to argue with his opponents on economic issues. Sometimes it seemed that it was pop fiction and there was nothing fundamentally new compared to The Return of the Great Depression (Krugman's previous book about the crisis).
Nevertheless, according to the results of reading I was satisfied :) We can say that to some extent the book influenced my economic outlook.
What are the positive aspects of the book?
- expands the economic horizons (despite the fact that I have already read many books about crises)
- reveals the place of Keynesianism in economic science and its role in the fight against economic crises
- convincingly proves the benefits of a proactive budget policy during a crisis, and also blows the idea of \u200b\u200bbudget savings to smithereens
- told how you can painlessly reduce the US national debt
- it tells why it is not converted to inflation, etc. etc.
- met with work