June 2002 [oberlin online]
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Prominent Economist Speaks of a New Economic Era
Library Wins Award for Excellence

Prominent Economist Speaks of a New Economic Era

Princeton Professor Paul Krugman Predicts Economic Difficulties
by Gail Taylor

The U.S. and other major economies may have entered a new era in which the standard tools economists use to prevent prolonged economic slumps - tools that they've been refining since the Great Depression - could prove inadequate.

Paul Krugman

So contended economist Paul Krugman in a February lecture at Oberlin titled "The Japan Syndrome: Why Can't We Lick the Business Cycle?"

Krugman is a rarity. A New York Times columnist and a prominent academic economist at Princeton (and a good bet for a Nobel Prize, according to Newsweek), he communicates enthusiastically and well with the public. His writings - which include numerous books, columns, and articles - are required reading for several Oberlin economics courses.

His talk, sponsored by the Robert S. Danforth Memorial Lecture Fund and delivered rapid-fire to a sizable audience in Finney Chapel, mixed complicated concepts with accessible explanations.

Japan - once the darling of the U.S. business press but now mired in a seemingly intractable downturn - provided Krugman's cautionary tale. Japan, he said, is caught in a conundrum in which a primary tool for stimulating spending and investment - the lowering of interest rates by the central bank - has failed to jump-start the economic engine. With interest rates almost at zero and the government having unsuccessfully deployed government spending, the other classic economy-revving tactic, there's no clear way out.

Krugman suggested that Japanese policymakers think twice about the strict anti-inflationary prudence that has characterized the world's independent central banks in recent years and convince consumers that the central bank will allow inflation to happen. The argument that anticipated inflation could break Japan's logjam goes like this: If people holding cash become convinced that prices are rising, they will spend now, before their buying power withers. Such a policy is equivalent to creating a negative rate of return for holding money.

As for the U.S., Krugman preaches that even if we have emerged from the most recent economic slump (which, as of February 12, he was unconvinced), we came perilously close to a Japan-like mire. The U.S. should be thinking seriously about the potential need for unorthodox measures.

"It may be that the U.S. has reached a recovery," Krugman said, "but it was a pretty close thing even if it turns out that's true. Interest rates were 6.5 percent at the beginning of 2001. The interest rate directly under the control of the Federal Reserve fell to 1.75 percent. There's not much further before we hit zero. So at best we dodged a bullet."

In the 1990s, inflation virtually vanished as a major economic problem, Krugman said. "What we hadn't realized," he went on, "was that a world without inflation was a world that had other kinds of problems - namely, a world in which sometimes you couldn't get interest rates low enough, and in which it turns out the tools you thought were adequate turned out not to be adequate for dealing with slumps."

"I think there are ways out," he continued, "and probably the most important thing to say is not to be too virtuous."

Central banks should stop anti-inflationary efforts a few points above equilibrium, he said, adding that this seems to be the Federal Reserve's implicit policy. "In some other places, where they're less mysterious and more rational, that's exactly the policy."

Those unequipped to analyze Krugman's theories can find extensive reading material at
his comprehensive web sites (http://web.mit.edu/krugman/www/ for older work and www.wws.princeton.edu/~pkrugman/ for newer material). He also provides a link to the Unofficial Paul Krugman Archive (www.pkarchive.org) while quipping, "I disavow any knowledge of its contents."

In a May 1998 Fortune article, Krugman suggested that people still investing in the stock market were victims of "prehistoric programming" that drove them to seek nourishment where others had found it, regardless of logic.

"The whole situation gives me the chills," he wrote. "It could be that I just don't get it, that I'm a Neanderthal too thick-skulled to understand the new era. But if you ask me, I'd say that there's an Ice Age just over the horizon." ATS

Library Wins Award for Excellence
Major Association Recognizes Oberlin's Services and Resources
by Betty Gabrielli

In recognition of "programs that deliver exemplary services and resources to further the educational mission of the institution," the staff of the Oberlin College Library has received the 2002 Excellence in Academic Libraries Award in the college library division from the Association of College and Research Libraries (ACRL) and Blackwell's Book Services.

"In many ways the description of the Oberlin College Library's many and varied activities read more like those of a major university library than that of a liberal arts college," said Larry Hardesty, ACRL selection committee chair.

The committee commended the library for "a tradition of leadership excellence both on campus and in the profession" and especially saluted Oberlin for its model programs aimed at recruiting students into the library profession.

"Winning the award is a testament to the dedication, professionalism, and service-orientation of our entire staff," said Ray English, director of libraries.

The library received $3,000 and a citation at an award ceremony held on campus May 1. The College will also receive special recognition at the ACRL President's Program during the American Library Association Annual Conference June 17 in Atlanta. Cornell University Library and the Andrew G. Truxal Library at Anne Arundel Community College, winners in the university and community-college categories, will also be honored.

ACRL is the only individual membership organization in North America that develops programs, products, and services to meet the unique needs of academic librarians. Blackwell's Book Services provides the funding for the annual Excellence in Academic Libraries Award Program. ATS

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