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Paul Krugman’s Solution to Getting Fiscal Stimulus? It Involves Aliens

June 18, 2012 at 12:00 AM EDT
Amid a tough economy, economist and New York Times columnist Paul Krugman has probably captured as much attention -- and notoriety -- as anyone else in his field. Part of his Making Sen$e of financial news series, Paul Solman speaks with Krugman whose new book "End This Depression Now" suggests some radical policy-making.
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GWEN IFILL: As the state of the economy continues to drive the national debate, economic and New York Times columnist Paul Krugman has probably captured as much attention and notoriety as anyone else in his field.

NewsHour economics correspondent Paul Solman spent some time catching up with Krugman recently. It’s part of his ongoing reporting Making Sense of financial news.

PAUL SOLMAN: In Harvard Square, a homecoming of sorts for economist Paul Krugman, partly because he went to grad school and taught for a while at nearby MIT, but mainly because in the academic left-leaning town sometimes teasingly titled the People’s Republic of Cambridge, these are his people.

PAUL KRUGMAN, columnist, The New York Times: He’s my lodestar.

PAUL SOLMAN: He’s your lodestar?

PAUL KRUGMAN: Absolutely.

MAN: A bit of a devotee, yes.

MAN: I definitely subscribe to him. I’m a strong Keynesian.

PAUL SOLMAN: Krugman was here to promote his new book, “End This Depression Now.”

TOM ASHBROOK, NPR: You say the word Depression, people think 1930s.

PAUL SOLMAN: Wait a minute, asked the event’s emcee, NPR’s Tom Ashbrook. Depression?

TOM ASHBROOK: Is Paul Krugman really saying we’re in a depression like that depression? What? Are we?

PAUL KRUGMAN: Yes. Yes, we are. This is not something that you can describe with the ordinary language of recession and recovery. This is something that is really terrible. And the damage is accumulating as we speak.

PAUL SOLMAN: And Krugman, Nobel laureate, Princeton professor, New York Times columnist, is determined to do his bit to turn things around.

PAUL KRUGMAN: The economics is actually quite easy. It’s only politics that’s standing in the way.

PAUL SOLMAN: The easy economics, Krugman told us at his home in Princeton, is that government should spend to goose the economy, because the private sector, for various reasons, simply won’t.

PAUL KRUGMAN: Markets are great things. And most of the time, you want to let markets rip. But there are certain times and certain conditions under which you don’t. When you’re in a prolonged slump, a depression, that’s when you need government intervention.

PAUL SOLMAN: No wonder Krugman’s home office sports a photo of an economic activist, President Franklin Delano Roosevelt. But it was science fiction master Isaac Asimov back in the 1950s and his vision of a manageable world — manageable through the analysis of data — that inspired the teenage Krugman to study economics.

And maybe it also inspired him to fantasize, as he did last year, about an otherworldly stimulus strategy.

PAUL KRUGMAN: There was a “Twilight Zone” episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don’t need it. We need it in order to get some fiscal stimulus.

And then after we’re fully recovered, we can say, whoops, sorry, not actually coming.

PAUL SOLMAN: A joke, but with a parallel to the economics of World War II.

PAUL KRUGMAN: The great military buildup that began in 1940 as the United States scrambled to get ready for the possibility of getting involved in this war was what brought us to full employment. And then, in two years, the non-farm employment rose 20 percent. That would be 26 million jobs right now.

PAUL SOLMAN: But we’re not likely to have a credible alien threat any time soon.

PAUL KRUGMAN: Right. I probably shouldn’t have said anything about this because I gave the game away. So, I should probably have broached the thing quietly to some people at NASA.

PAUL SOLMAN: But are you suggesting then that there needs to be some collective fiction?

PAUL KRUGMAN: No. We can get a lot of what we need not by doing anything exotic, but just by restoring services at the state and local levels.

PAUL SOLMAN: But spending means more borrowing, driving up the interest rate on U.S. government bonds, we’re told. Krugman counters that the interest rate is now at an all-time low.

PAUL KRUGMAN: If this isn’t the time to be spending a lot more on things that are useful, like educating our children and fixing the holes in our roads, when is the time? If you are a businessman and somebody said, OK, you have got a bunch of investment opportunities and right now we will let you borrow money for nothing, you would be derelict in your duty if you didn’t do it.

PAUL SOLMAN: But isn’t too much debt a bad thing?

PAUL KRUGMAN: Yes, of course it is. But by allowing this extremely high unemployment to persist, we are damaging the future. It’s not just current gain vs. future pain.

We have almost four million people who have been out of work for more than a year. Those people are, many of them are never going to reenter the work force. And those are the future taxpayers of America, which means we’re cutting into our future budget position. An amazing amount of the stuff we’re talking about is actually in Adam Smith.

PAUL SOLMAN: As a columnist, author and teacher, Krugman has been become known as a voice of the left. But back in the ’80s, he was a critic of union-backed anti-free-trade economics.

Did you have a conversion experience? What happened?

PAUL KRUGMAN: No. In the current context, because I’m defending an active government role, it’s interpreted as some kind of a Marxist or a Stalinist, when actually all I’m doing is textbook macroeconomics.

PAUL SOLMAN: Are you surprised?

PAUL KRUGMAN: No. I’m well-accustomed now to the notion that anyone who challenges conventional wisdom and particularly anybody who calls out people on the right side of the political spectrum for what they actually do and say is going to be demonized, is going to be made out to be some kind of an extreme leftist.

PAUL SOLMAN: Krugman’s targets, meanwhile, have their own complaints.

“Krugman writes with more vitriol than I find attractive,” says Harvard economist Greg Mankiw. From a trio of George Mason University economists: “Krugman regularly demonizes his opponents. He treats anyone who disagrees with him as a mendacious idiot. He is an ideologue, rather than a truth seeker.”

Even center-left columnist Michael Kinsley says, “Krugman should stop bullying people.”

PAUL KRUGMAN: If standard economic analysis says that what important people, policy-makers, are doing is completely stupid, the normal tendency is to sort of shade it and say, well, there may be a case for what they’re doing. And I have been willing to say, no, actually, what they’re doing is completely stupid.

PAUL SOLMAN: But it helps to have moral support. Krugman gets plenty from his wife, Robin Wells, also an economist.

ROBIN WELLS, economist: Oh, great. “Budget cuts hurt Washington State’s response to whooping cough outbreak.”

PAUL SOLMAN: Their cats, by the way, are Albert Einstein and Doris Lessing, still purring after 19 years. Krugman and Wells have co-authored several textbooks together. She’s also his sounding board and editor.

ROBIN WELLS: I remember saying to him back during the Bush era, I said, you’re up against bullies. And with bullies, you can’t back down, because if you back down, it’s only going to get worse. They will not stop until they shut you up. You have to give back as good as you get.

PAUL SOLMAN: And so Krugman has.

PAUL KRUGMAN: I guess I don’t know how you can be honest about what is actually going on in this country without sounding partisan. That’s the old line, right? The facts have a well-known liberal bias, because, right now, we’re in a world where deficits are a good thing and a little bit more inflation would also be a good thing.

PAUL SOLMAN: A proposal that’s put him at odds with the man who hired him at Princeton, Fed Chairman Ben Bernanke.

Tom Ashbrook asked him about it.

TOM ASHBROOK: Ben Bernanke calls your proposal very reckless.

PAUL KRUGMAN: Odd, because he made the same proposal himself 12 years ago for Japan.

(LAUGHTER)

PAUL KRUGMAN: Those of us who have been calling for a bit more inflation are calling for 4 percent inflation, which is what we had back during the reign of Ronald Reagan in his second term. It didn’t seem that terrible to me at the time.

PAUL SOLMAN: But we could be taking a big risk, right? You have no know way of knowing whether or not the interest rate we’re going to have to offer to borrowers might change overnight, as it has often recently.

PAUL KRUGMAN: Well, I am reasonably sure that isn’t going to happen until or unless the U.S. economy is really on the path to recovery. And that’s the point also when — by the way, when I will support the austerity. Once we no longer need that support to keep the economy afloat, that’s when you do want to start raising taxes and cutting spending, but not now.

PAUL SOLMAN: And that seems to you completely obvious that we ought to do that?

PAUL KRUGMAN: Yes. It’s total obvious to me. Obviously, it’s not obvious to a lot of other people, but. . .

PAUL SOLMAN: Yes. So how come?

PAUL KRUGMAN: You can’t get too cynical. By and large, the people who are ranting about debt and deficits are the same people who thought it was perfectly fine for George W. Bush to cut taxes without any offsetting spending cuts.

They thought it was perfectly OK to have two unfunded wars. So deficits didn’t matter when their guy was in the White House. Now it matters because somebody else is in the White House. And, rest assured, if Mitt Romney is elected, they will suddenly find reasons why cutting taxes, even if it increases the deficit, is no problem.

PAUL SOLMAN: But that is a highly partisan remark and exactly the kind of thing that even people on your side of the spectrum say you’re too strident by constantly, constantly repeating.

PAUL KRUGMAN: Except it’s true, right? And people like me have been right so far. And that doesn’t mean we will always be right. But if you have got to choose who you’re going to believe, you might want to at least seriously consider the people who have called it right on how the economy was going to evolve these past three years or so.

PAUL SOLMAN: Paul Krugman, thank you very much.

PAUL KRUGMAN: Well, thank you for giving me all this time.

GWEN IFILL: Online, we get much more from Paul Krugman throughout the week. Today, the liberal economist takes on European austerity, and scholar Jacob Kirkegaard of the Peterson Institute offers a rebuttal.