Government safety nets in export-driven economies like Vietnam are the best way to weather the global economic slump, which could last the better part of a decade, according to renowned economist Paul Krugman.
Asked what developing Asian economies, traditionally reliant on exports to the US, should do as that market contracts, Krugman cautioned against lumping countries together as he spoke at a Ho Chi Minh City press conference Wednesday.
But using China as an example, he suggested that "a stronger social safety net" would help deal with the problem, "not just for spending, but so there's no need for emergency savings."
Krugman, who won the 2008 Nobel Prize in economics, said no one wanted to be in a situation where "you have to stop at the bank on the way to the hospital."
The New York Times columnist and Professor of Economics and International Relations at Princeton University is hosting a day-long seminar today on what Vietnamese businesses can do to meet the challenges of the global economic crisis.
"These are exciting economic times, but not in a good way," said Krugman opening a press conference held to promote the seminar.
However, the global response to the exciting times has been "inadequate" and "worse than I expected," he said.
Krugman repeated what has been his constant refrain since the beginning of the crisis: economic stimuli in large economies need to be bigger.
"The US is as depressed as it was in the 1980s," he said, arguing that stimulus packages needed to be 50-100 percent larger than they are.
Though Krugman has become known for sounding alarm bells before catastrophes emerge - he warned against the economic practices that brought about both the Asian crisis of 1997 and the global crisis of 2008 before disaster struck - he says the outcome of the current downturn is unpredictable.
Analogizing in his trademark style, Krugman said the patient has been rushed to the hospital and is no longer in critical condition, but he's still sick and no one's sure when he can leave.
"We're passed the stage of panic and have moved on to chronic anxiety."
The mechanisms that generate production are damaged, he said.
Admitting that standard economic medicine such as government intervention had been paying off so far, Krugman said he would still not be surprised if the world didn't pull itself out of the slump for another five years.
"As for a full recovery, I have no idea where that comes from."