Globalisation is bringing us full circle – to the Left Nobel economics winner star is on the rise

It’s hard to forget the first time I met Paul Krugman.

It was in the men’s room, in Singapore in August 1998, and I found myself washing my hands next to the economist – or at least trying to. As we chatted briefly about the speech he had just delivered on the “liquidity trap” undermining Japan, we realised the sinks in the lavatory were broken.”That’s the trouble with liquidity problems,” Krugman deadpanned.”They tend to follow you around the world.”The reason his joke comes back to me has less to do with him winning the Nobel prize for economics than the situation in which the global financial system finds itself.The question is whether central banks will lose their ability to control credit and, ultimately, economies.Krugman didn’t get the Nobel for his work on Japan’s lost decade, but for “analysis of trade patterns and locations of economic activity”.The Princeton University professor and New York Times columnist is among President George W Bush’s most prominent critics.Coming less than a month before an election, the award left some economists wondering if the Nobel committee was playing politics.Alan Greenspan also can’t be happy.Krugman’s columns often connect the dots between the former Federal Reserve chairman’s free-market policies and the credit crisis.Greenspan’s stock as a guru is falling as fast as Krugman’s is rising.Krugman’s work is getting considerable attention in Asia, and for good reason.His reputation in this region was made in the mid-1990s, when he was among the most consistent predictors of the 1997 Asian crisis.A couple of years later, Krugman correctly opined that Asia would stage an impressive comeback.His research on Japan’s monetary paralysis could prove equally prescient in Asia and beyond.”For all practical purposes, we’re in liquidity trap territory,” Krugman told Bloomberg’s Tom Keene on October 6.”[Tom] Bernanke [US Fed chairman] can cut rates some more, but it’s not going to have any impact on the real economy.So yes, traditional, conventional monetary policy is out of room.”America, Krugman added, “has turned Japanese”.Jon Corzine, the New Jersey governor and former chairman of Goldman Sachs, six days later in an interview with NBC: “We need a real economic stimulus.We’re in what you call a liquidity trap.”Krugman did as much as anyone to popularise the phrase generally thought to be coined by John Maynard Keynes.The Nobel committee seems part of a growing realisation that Keynesianism, with its emphasis on the government’s role in the economy, isn’t dead after all.At the rate the US is socialising its financial system, it seems only a matter of time before airlines, vehicle makers and major retailers find their way on to the government’s balance sheet.It would be the ultimate irony if the US had to bail out Wal-Mart Stores with borrowed Chinese money so that it can support all those Chinese factory workers.Globalisation is bringing the world full circle: from state-owned companies to privatisation to the renationalisation of those enterprises.It’s no wonder Venezuela’s President Hugo Chavez is referring to “comrade Bush” and saying: “Now Bush is to the left of even me.”The policies long advocated by Keynes, and more recently by Krugman, will have more sway than those of laissez-faire capitalism enthusiast Milton Friedman.You can bet worsening market turmoil will prompt Asian governments to follow the US’s lead on public bailouts.Japan’s credit system is more trapped than free.It’s a reminder things could get worse if other nations turn Japanese.Business Report-BloombergAs we chatted briefly about the speech he had just delivered on the “liquidity trap” undermining Japan, we realised the sinks in the lavatory were broken.”That’s the trouble with liquidity problems,” Krugman deadpanned.”They tend to follow you around the world.”The reason his joke comes back to me has less to do with him winning the Nobel prize for economics than the situation in which the global financial system finds itself.The question is whether central banks will lose their ability to control credit and, ultimately, economies.Krugman didn’t get the Nobel for his work on Japan’s lost decade, but for “analysis of trade patterns and locations of economic activity”.The Princeton University professor and New York Times columnist is among President George W Bush’s most prominent critics.Coming less than a month before an election, the award left some economists wondering if the Nobel committee was playing politics.Alan Greenspan also can’t be happy.Krugman’s columns often connect the dots between the former Federal Reserve chairman’s free-market policies and the credit crisis.Greenspan’s stock as a guru is falling as fast as Krugman’s is rising.Krugman’s work is getting considerable attention in Asia, and for good reason.His reputation in this region was made in the mid-1990s, when he was among the most consistent predictors of the 1997 Asian crisis.A couple of years later, Krugman correctly opined that Asia would stage an impressive comeback.His research on Japan’s monetary paralysis could prove equally prescient in Asia and beyond.”For all practical purposes, we’re in liquidity trap territory,” Krugman told Bloomberg’s Tom Keene on October 6.”[Tom] Bernanke [US Fed chairman] can cut rates some more, but it’s not going to have any impact on the real economy.So yes, traditional, conventional monetary policy is out of room.”America, Krugman added, “has turned Japanese”.Jon Corzine, the New Jersey governor and former chairman of Goldman Sachs, six days later in an interview with NBC: “We need a real economic stimulus.We’re in what you call a liquidity trap.”Krugman did as much as anyone to popularise the phrase generally thought to be coined by John Maynard Keynes.The Nobel committee seems part of a growing realisation that Keynesianism, with its emphasis on the government’s role in the economy, isn’t dead after all.At the rate the US is socialising its financial system, it seems only a matter of time before airlines, vehicle makers and major retailers find their way on to the government’s balance sheet.It would be the ultimate irony if the US had to bail out Wal-Mart Stores with borrowed Chinese money so that it can support all those Chinese factory workers.Globalisation is bringing the world full circle: from state-owned companies to privatisation to the renationalisation of those enterprises.It’s no wonder Venezuela’s President Hugo Chavez is referring to “comrade Bush” and saying: “Now Bush is to the left of even me.”The policies long advocated by Keynes, and more recently by Krugman, will have more sway than those of laissez-faire capitalism enthusiast Milton Friedman.You can bet worsening market turmoil will prompt Asian governments to follow the US’s lead on public bailouts.Japan’s credit system is more trapped than free.It’s a reminder things could get worse if other nations turn Japanese.Business Report-Bloomberg