Created
Wed, 11/01/2023 - 10:30
In his newsletter today, Paul Krugman discusses his early days working in the Reagan administration as a wonky, liberal whiz-kid during a time when the administration was strangling inflation with painfully high unemployment: Anyway, Marty and I had a working dinner on my arrival night, and he had one big question to ask: “Is the world economy about to collapse?” There were two main reasons for his concern. One was that Mexico had just announced it was unable to keep paying its debts, marking the beginning of the Latin American debt crisis. The other was that the Federal Reserve’s efforts to fight inflation had sent the U.S. economy into a tailspin, with the nation experiencing its worst recession since the 1930s, not to be rivaled until the financial crisis of 2008. But as it turned out, the world economy didn’t collapse. The debt crisis produced a “lost decade” in Latin America, with widespread economic suffering, but it didn’t spread into a global contagion.