Paul Krugman delivers our keynote speech, running through his views on the current economic situation -- no surprise if you've been keeping up with his work at the New York Times. The Nobel Prize-winning economist touched on a number of points, but the most important was his focus on the need for public investment. “We have spent thirty years short-changing public investment because 'government is bad,'" Krugman said. "It’s about time to start moving that pendulum back a long ways in the other direction.” A questioner in the audience wondered if it would be more difficult to gin up support for a public investment program now that society has become older, on average, than in the past. This led Krugman to recall the debate over social security privization in 2005, when Republicans tried to buy off retirees by promising that current recipients would not have their benefits affected, just the next generation. “People think about the system, they want their children to have the same kind of security they did," he said. "Americans are better than that. Appeal to people, talk about the country’s future, and you’ll get that response.”

Regarding the recently announced Geithner plan, Krugman downplayed the term "toxic asset."

"People are thinking of it as, these things infect the rest of the balance sheet. It’s a really bad metaphor. If a bank wants to get the toxic assets off its balance sheets, all the banks have to do is write them down zero. The problem is that financial institutions have lost a lot of money…if they’re not insolvent, they’re close to it."

... [I hope that during] the stress test, where they’re going to go into the financial institutions and look hard at their books, that they will say, 'Oh my god' with fake surprise. Five, maybe seven, of these institutions are not viable, put them into receivership, basically what the FDIC three times every week to smaller banks. Avoid saying nationalization, get something that cleans this up dramatically. ... I’m going to at least fantasize that we’re going to back into doing that."

True to form, when asked about Obama's comments on bank nationalization, Krugman replied, "There's something about it on my blog."

Bonus Krugman tech-savvy: The economist doesn't watch TV often, because "if there’s something that I need to see, it’ll be on Youtube.”

-- Tim Fernholz

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