Economist Paul Krugman

The Nobel Prize-winning economist assesses the battle over budget cuts and the state of the economy.

Called "the Mick Jagger of political/economic punditry," Paul Krugman is an economist, professor and New York Times op-ed columnist. Now at Princeton, he's taught at Yale, Stanford and MIT, where he earned his Ph.D. He's also been a consultant to the World Bank, International Monetary Fund and the United Nations and, during the Reagan administration, served on the Council of Economic Advisers. Krugman has won numerous awards, including the 2008 Nobel Prize for economics, and is the author/editor of 20 books, primarily about international trade and international finance, and several hundred professional journal articles.


Tavis: The battle over budget cuts continues to paralyze Washington while, at the same time, prompting some serious verbal brick-throwing from both sides of the ideological divide. This past week, President Obama reached out to Republicans in a series of meetings designed to gain some trust and break the gridlock. Joining us tonight from New York, Princeton professor, New York Times columnist and Nobel Prize-winning economist, our friend, Paul Krugman. Mr. Krugman, good to have you back on the program, professor.

Paul Krugman: Good to be on.

Tavis: Let me start by asking whether or not you think the outreach by the president across the aisle will have any impact.

Krugman: Not right away, anyway. Look, there’s a fundamental divide between the parties in terms of visions of the future and it’s not going to be changed because they made nice small talk over dinner. It’s going to be – I think if there’s going to be a break, it’s going to come when the American people are just so outraged at what is happening that at least some Republicans are willing to defect from their coalition. But until then, there’s not going to be any help. So this is not something that can be done by just having some good manners.

Tavis: So I take from your comment now that the American people have not been sufficiently outraged as yet, which raises two questions. Why not and when?

Krugman: Well, okay. I think the answer is that the public hasn’t really seen the full impact. So far, we’ve had a lot of chipping at the edges, but people haven’t really seen the impact particularly of this sequester and all of that. The real problems of essential government services being cut back hasn’t started to bite you. That will take time. And in general, I think the public hasn’t really fully appreciated just how radical the Republican agenda is and that may take longer.

When? I think we probably have to wait several months. I think people who thought that there was going to be a mass uprising against the sequester the moment it kicked in were misjudging. This is a much more, if you like, more fanatical Republican Party than most people have yet seemed to realize. So give it some time.

Tavis: Your New York Times stuff is always must-read copy for me and, for that matter, millions of others, I suspect. Your piece just a couple of days ago about what the markets are telling us, for those who didn’t see the piece, top line for me and for the audience what you believe, at least what you are hearing, the markets say to us.

Krugman: Okay. So we’ve been told for years now, you must slash Social Security, Medicare, Medicaid. You must cut the budget deficit even in the middle of a deeply depressed economy or the markets will punish you. Bond interest rates will soar. You must not be critical of business or try to extend healthcare to American who lack it because that’ll crash the stock market.

And guess what? We haven’t cut Social Security, Medicare or Medicaid. We have extended healthcare, the stock market is hitting record highs, interest rates are at historic lows. So all these people who claim to know what the market will do, which is basically the market will punish you unless you do what I want, have turned out to know nothing and are not to be believed.

Tavis: Which leads me to the next question about whether or not the time then is right or wrong to have a conversation about deficit reduction. You’ve been very clear for those of us who read your stuff that the time is not right. I had Alice Rivlin on my NPR show, my Public Radio show, the other day.

Alice Rivlin was on and she said, “I love Paul Krugman. We agree on everything except this” and she went right to that very point about timing, when the time is right to have this conversation about deficit reduction, given Simpson-Bowles and Domenici, Rivlin. Tell me why it is that you believe that the timing right now is so bad to even be engaging in this conversation about deficit reduction.

Krugman: Okay. So this is a really bad time to be trying to cut the deficit. That’s just straight economics. Right now, cutting the deficit is a largely self-defeating effort. It shrinks the economy, it hurts the long run. You end up, even in purely fiscal terms, not helping much, if at all. And, of course, it’s devastating for employment.

So now is certainly not the time to be actually cutting spending, cutting back. This is exactly the time when the government should be spending more, not less. Now there are people like Alice Rivlin who say, well, we should be talking about this. Yes, we should be helping the economy now, but we should be talking about the long run.

And then it’s a question of what do you think is realistic? Look at what’s happened in Washington for the past three years. It’s now three full years that we’ve been at this. As soon as people started talking deficits instead of the economic crisis, that took all of the air out of everything else. We’ve barely had any political discussion of jobs.

The whole issue of trying to do something about what is still incredibly severe unemployment in America went right out the window as soon as the focus turned to the deficit. So people said, well, we should be able to have a mature conversation where we talk about what we’re going to do about the state of paying for Medicare in the year 2025 at the same time that we talk about creating jobs in the year 2013.

Yeah, I’d like to live in that world, but that is not in fact the world we live in. It’s not the country we live in right now. It’s not possible to have all of this discussion about deficits while actually dealing with the real problem, which is mass unemployment.

Tavis: I’ll come back to unemployment in just a second. But for those who think that issues like the debt ceiling and sequestration are really phantom issues masquerading as a conversation about austerity, you’d say what?

Krugman: Right. Well, no, I’d say that that those are – I mean, they’re crazy, right? This is no way to run any country, certainly not the greatest nation on earth, that we have a party that basically lost an election. There was a referendum on what kind of policies we’re going to have. What are we going to do about the social safety net? What are we going to do about taxes on the wealthy?

They lost, but partly because of the quirks of our districting system, they still have of one piece of the government and they’re using that to threaten the United States with one crisis after another. It’s pure hostage-taking and this is no way to live. So there is no economic reason to be having a sequester. There is no economic reason to be having a series of debt crises. This is all about truly unacceptable political behavior.

Tavis: So even on this side of the election season, the campaign season, one of the things I hate about Washington these days, as you well know, the campaigning never stops. That’s another conversation for another time. But even on this side of that election and the referendum, whatever it might have been, that came along with it, how and when do we get to a real conversation about the main issue which you raised a moment ago, jobs, jobs, jobs with a living wage for every American?

Krugman: Well, I think the president needs to hammer on this. I think he’s tried now for, again, for three years to try and bridge the divide. He’s to some extent bought into this deficit focus when he shouldn’t have. He thought some of it’s sincere, some if it was thinking that that was the way to get the other side to agree to do something on jobs. It’s not working, so he needs to hammer it home.

Our chance of actually getting legislation before the next election is zero. It’s not going to happen. There are some things that the White House can do on mortgage relief and so on, but actual legislation? Nothing will pass the House.

So we need it to the extent that we can. We need to make the mid-term elections a referendum on job creation and then, of course, we will have a presidential election and hopefully the economy will have recovered, but maybe not. And we will have a presidential election again and maybe this one will finally be decisive enough that we have some return to rational politics and rational discussion.

Tavis: Every day there’s an article somewhere here or there suggesting that the economy is starting to slowly pick up. Are you seeing signs of that?

Krugman: Oh, yeah. I mean, if it weren’t for the mess in Washington, I think we’d be starting to feel pretty good. You know, we haven’t built any houses hardly. We’ve had very low home construction for six years now. Consumers have gradually reduced their debt levels. So the things that drove us into this crisis which were a massive housing bubble and a huge growth in consumer debt leaving us in this, where we needed government help to support the economy, those things are fading away.

Those things are disappearing gradually in our rear view mirror, so the economy is getting ready to recover. You can see that there’s a virtual circle of improving housing, improving jobs, falling debt that is starting to take hold, but of course, really bad policies from Washington can put an end to all of that favorable development.

Tavis: So let me close on that question. Is it your belief or should we, the American people, be concerned about the fact that what appears to be an economy that wants to get lift-off, are you suggesting to me that that economy that wants to get some take-off might be hampered by the very people who we elect to keep us out of this mess?

Krugman: Oh, sure. I mean, this has happened many times in history before. It happened in the 30s that the economy was recovering pretty strongly and then premature austerity in 1937 killed the recovery. It happened in Europe which was starting to have an economic recovery and austerity has killed. If we’re going to have really inappropriate cutbacks in federal spending and we’re going to have a really inappropriate slamming on the brakes, then we can mess this up.

I mean, in a way it’s almost more tragic than before because you can see the exit is right there in front of us and we look like a lot of people in Washington are trying to make sure that we turn off that course and slam into a wall instead.

Tavis: Paul, always honored to have you on this program and deeply appreciate your insights.

Krugman: Thanks a lot.

Tavis: That’s our show for tonight. See you back here next time on PBS. Until then, goodnight from L.A, and keep the faith.

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Last modified: March 14, 2013 at 1:53 pm