By Raul O. Marcelo
HONG KONG—“We live in difficult times, but it’s going to work out in the end.”
This was the message conveyed by Nobel Prize-winning economist Paul Krugman at the ongoing Asian Financial Forum here.
Krugman told delegates that the world needed to focus on three Ds—deleveraging, demography and dogma—if it were to go back to the growth path.
The economist noted that global debt had increased so much, particularly until the year 2000. That period saw a large jump in households running debts and even a big number of people with mortgages in Europe. This later led to problems such as the subprime crisis in the United States.
Global debt, Krugman pointed out, was no longer getting manageable and “we have to cut it down.”
Demography is another major issue that should be addressed by governments around the world. Krugman said Japan’s stagflation was dreadful and this was being exacerbated by its negative population growth.
Europe, he added, was also seeing its population declining 3-4 percent a year and was going the way of Japan.
On the issue of dogma, Krugman lamented the world’s focus on the problem of inflation when it has not been rising to worrisome levels. He said the world should have a change in thinking and focus instead on taking the heat off crisis-stricken countries such as Italy and Spain.
He said China was scaring him the most because of the magnitude of adjustment that it needed to do to cope with an expected slowdown in growth, noting that half of the populous country’s gross domestic product (GDP) was investment and 30 percent, consumption.