Nobel Economics Laureate Paul Krugman: "I Was Wrong About Inflation Forecast"

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "I was wrong about inflation." Paul Krugman, a world-renowned economist and Nobel laureate at the City University of New York, publicly admitted that his views on inflation were mistaken.

On the 21st (local time), Professor Krugman revealed this in a column titled "I was wrong about inflation" published in The New York Times (NYT).

The part where Professor Krugman acknowledged his forecasting error relates to the $1.9 trillion (approximately 2,498 trillion KRW) stimulus package prepared in early last year, right after President Joe Biden took office to respond to COVID-19. He said, "Some warned that it would lead to dangerously high inflation, while others took it quite relaxed. I was part of Team Relaxed," adding, "That was a very poor judgment."

At the time, Professor Krugman predicted that even with such a stimulus package, its impact on inflation in the U.S. would not be significant. This was based on the judgment that Americans would choose to save the government support funds rather than spend them immediately, and that funds allocated to local governments would be used gradually over several years. On the other hand, the so-called "Team Inflation," which held opposing views, raised their voices saying the stimulus would overheat the economy and cause high inflation.

Professor Krugman reflected, "I thought that even if GDP and the employment market overheated temporarily, inflation would not rise sharply," explaining, "because past experience showed little correlation between employment and inflation." However, at this point, he admitted, "Inflation has surged anyway," interpreting that "a significant part of it seems to reflect disruptions related to the pandemic."

Professor Krugman diagnosed that the changes brought by COVID-19 not only shook global supply chains but also altered household consumption patterns. He explained, "Fear of infection and changes in lifestyle caused major shifts in spending. People reduced spending on services and increased purchases of goods," adding, "This disruption helps explain why inflation surged not only in the U.S. but also in many other countries." Furthermore, he noted that various factors in the labor market, such as early retirements and reduced immigration, combined to reduce economic productive capacity.

In particular, Professor Krugman suggested that historical experiences based on past economic models might have led to misinterpretations. He regretted, "Because past economic models fit the 2008 global financial crisis, I applied those models again last year," adding, "Considering that COVID-19 changed the world, that was not a safe prediction." He also pointed out that Russia's invasion of Ukraine and China's lockdowns further exacerbated the disruptions.

Professor Krugman recently diagnosed that the economy is cooling down. He added that many economic experts believe inflation has peaked or will soon peak.

Meanwhile, on the same day, NYT ran a series titled "I was wrong," in which eight columnists, including Professor Krugman, acknowledged forecasting errors in their past columns and offered revised opinions. Besides inflation, topics covered included Facebook, capitalism, supporters of former President Donald Trump, and senior Republican Senator Mitt Romney.

This content was produced with the assistance of AI translation services.