Krugman advises on economic recovery, praises health insurance

Top American economist Paul Krugman, winner of the 2008 Nobel Prize in Economics, paid a two-day visit to Taiwan on May 14th as a part of his Asian tour.

In his first public speech, Krugman urged world governments to pay attention to the major threats to globalization, namely government protectionism aimed at shielding domestic industries from outside impacts, a return to mercantilism in Keynesian theory, and the long term imbalance of currency exchange rates.

Krugman believes that sooner or later world economies will bounce back and the recovery will be powered by investment from the private sector, noted a Central News Agency report. Although he did not predict when the current global economic slump is likely to come to an end, Krugman forecast that recovery would be generated by investment-led demand arising from fresh investment in technology innovation and low-emission policies.

President Ma Ying-jeou met with Krugman to ask his advice on strategies to help the island ride out the economic storm. Ma’s administration has taken many measures to deal with the global financial crisis, including offering full insurance coverage for bank deposits, issuing shopping vouchers to stimulate domestic consumption and increasing public investment.

As exports account for 64 percent of Taiwan’s gross domestic product, Ma asked Krugman what Taiwan could do to sustain its economic development if the US and European economics remain mired in recession.

Krugman’s responses were not known as the meeting was closed to the press, but in a Commercial Times editorial about economic recovery policies, Krugman said small economies depend on the demands of larger economies. So he believes small economies will not recover on their own unless super economies lead the way.

In addition to talking about the economy, Krugman praised Taiwan’s national health insurance system, saying he would recommend Taiwan’s model to the US public, the Taipei-based China Times newspaper reported.

He said people’s health is a public wealth and is essential to the establishment of the social security network, and the focus of private insurance companies is on making a profit. The US government cannot expect important policy like national health insurance to be fully implemented through private companies, he said.

At a forum held in Taipei on May 14, Krugman also noted that interactions between Washington DC and Beijing do not amount to a zero-sum relationship, the Taipei-based China Times reported. As a neighbor of China, Taiwan has no excuse not to improve trade relations with the country as long as political obstacles do not stand in the way.

In response to some who worry that Taiwan would lose its sovereignty with further strengthening relations with China, Krugman cited US-Canada relations as an example, adding, “countries can maintain extremely close relationships without being swallowed.”