I have an interview with Paul Krugman in today's edition of La
Vanguardia (in Spanish). Below I reproduce the English original. As
will be evident, there are many topics about which Paul and I are far
from being in complete agreement. But on one topic we are in complete
harmony: the diffficult situation which now faces Spain, the need for
internal devaluation, and the threat which continuing inaction on the
part of Spain's current leaders represents for the future of the entire
Eurozone.
One
Edward Hugh:
In your NYT article 'How Did Economists Get It All So Wrong', you state
what I imagine for many is the obvious, that few economists saw our
current crisis coming. The Spanish economist Luis Garicano even made
himself famous for a day because he was asked by the Queen of England
the very question I would now like to put to you: could you briefly
explain to a Spanish public why you think this was?
Paul Krugman:
I think that what happened was a combination of two things. First, the
academic side of economics fell too much in love with beautiful
mathematical models, which created a bias toward assuming perfect
markets. (Perfect markets lead to nice math; imperfect markets are a
lot messier). Second, the same forces that lead to financial bubbles –
prolonged good news tends to silence the skeptics – also applied to
economists. Those who rationalized the way things were going gained
credibility until the day things fell apart.
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