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Economic Solutions to Crises

Paul Krugman

Lesson time 9:02 min

Paul details monetary solutions vs. fiscal solutions, how to rethink deficit spending, and what to do to brace for the next crisis.

Paul Krugman
Teaches Economics and Society
Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.


The fact that Ben Bernanke printed lots of money and it just sat there was a problem. It's sobering. The Fed is our-- it is our first responder to economic emergencies. It's the over-the-counter medicine we take when we catch an economic cold. If they have lost traction, if they no longer have that power, if the economy has fallen too deep into the liquidity trap for the Fed to be able to pull us out, someone and something else has to step in. And that someone and something else pretty much has to be fiscal policy. Has to be government spending, maybe tax cuts. But certainly, the government is going to have to step in. The government proper. The executive branch and Congress are going to have to step in. And then you've opened a whole can of worms, because rescuing the economy is being put on the shoulders of elected politicians, many of whom are beholden to rigid economic ideologies, many of whom are answering to donors who believe stuff, many of whom are-- so I'm saying all those commentators on Fox and CNBC who are predicting hyperinflation. And so it gets much, much harder. You're now in a situation where in order to do what the economy needs or to do what has to be done, you have to win over people who maybe don't get it. If you are going to spend government money, there's going to be a fight over, spend it on what? Who gets it? Which district? What project? All of those things get in the way. So it was a really bad thing to find ourselves in a situation where good economic policy required something that went well beyond the normal sort of technocratic twiddling the dial thing that the Fed does. [MUSIC PLAYING] Terrible as it was, the crisis of 2008 and aftermath wasn't as bad as the Great Depression. But the funny thing is, it started out just as bad. First six months, the plunge in the world economy in 2008 was every bit as bad as it had been in 1929. The downturn and everything. Stock prices, trade, industrial production was tracking right along the Great Depression. Then turned around, leveled off, started to come back up this time. So we did not revisit the full horrors of the 1930s. And if you ask what did that, the answer was, well, we learned something. In 1929, 1930 for the most part, the Federal Reserve and its counterparts basically said, this is natural. We should let the economy go through this. It'll purge. Didn't work out too well. And this time around, Ben Bernanke and Mervyn King in England and others went out there and printed money. Obama had his stimulus plan. Also, we allowed budget deficits to grow temporarily, all of which were actually very important ways of cushioning it. So that what we had was bad, but it was a bad cold, and not a deadly fever that struck the world economy. [MUSIC PLAYING] When we talk about deficits, it's probably a really good idea to ask why they're a bad thing. It's one of those things where people just take it for granted they must be a bad thing. ...

Think like an economist

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.


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A fellow student

As interesting as these presentations are, they are quite focused on an anglo-saxon way of viewing the economy. My question would be, what do you recommend to European countries like France, Italy and Greece to reduce spending, make a surplus and lower the debt, without having a situation like the yellow vests, economic fragility and making the EU happy?

A fellow student

For someone like me with only a modest understanding of economic principles, these presentations are excellent. The stories are interesting and relevant and the pace is just right.


Paul - I am not sure when this was recorded but it feels VERY out of date. For instance Europe and Switzerland have had negative interest rates for several years and as I type this comment the market is implying negative short term US rates for the first time. When you refer to 'the crisis' nobody is thinking about the GFC, that was over 10 years ago! So tie for an update please - we would all be fascinated to hear your opinions.

Lucie F.

I truly wonder about the economic consequences of the Covid situation, it's actually what brought me to try this economic class. I wish Paul Krugman could share here his thoughts on what the world economy is gonna be like in the coming months, or maybe even years.

A fellow student

How does one rationalize "no Inflation" at zero interest rates accompanied by other programs (QE) etc which flood the economy with money? I have on my list "the shared economy" "productivity" "sophisticated devices (I Phones) which combine many other products but this hardly seems like enough. Guidance please.

A fellow student

When he metaphorically says "what we had was bad, but it was a bad cold and not a deadly fever that struck the world economy" 😭

Fiores F.

I'm watching the videos, reading the documents attached, and thinking about what is happening with COVID-19 and the economic consequences it will bring for the whole world, especially for developing countries (like the one I live in). It has not precedented, the economic consequences will be worse than the 2008 financial crisis and the downplay of some leaders makes it even worse. I would like to know the thoughts of the instructor about it, a live session would be great.

A fellow student

Several times Prof Krugman talks about a lower limit on interest rates of zero, but Germany and Japan have had negative interest rates for some time. The US recently had negative rates on 3mo notes. Is that a fundamental change in the ISLM model or change a minor adjustment at the edges?

Ash M.

Anyone would like to share their thought/opinions on the current recession cased by COVID-19?

Tarif B.

I have an idea about how we can help with COVID-19. As a child neurologist I noted many patients' parents have lost their jobs. So, why not use social media / radio/ TV to reach as many people in each state and ask for 10 dollars per month per person. Which means for example in Michigan even if we get half of the people donating it will be 45 million per month; then use that money to help small businesses and those who lost their jobs. I have been reaching out to NPR and politicians. I wonder if Paul is listening and see what he thinks and maybe he could help. I hope you all stay healthy and prayer to those infected. Tarif