Paul Solman recently sat down with with Nobel-winning economist Paul Krugman.
Earlier we posted an excerpt from our interview with David Stockman, the former politician and businessman who’s out with a much talked about book, “The Great Deformation.” Stockman made the case that the 19th century American economic system was far superior to today’s thanks to “sound money,” “fiscal discipline,” and “free markets.” Nobel Prize-winning economist and columnist Paul Krugman begs to differ.
Paul Krugman: I think Stockman is an interesting sort of amalgam. Most of what he says is what I would think of as sort of standard “gold bug-ism.” He’s pretty much standard, you know, like the commenters on gold-bug blogs. It’s all “inflation” and “too much printing of money” and “excess” and “we’ve been doomed ever since [Franklin Roosevelt] took us off the Gold Standard.” Mixed in with a certain amount of “we need to crack down on the bankers,” and so there’s a little bit of liberal-sounding stuff in there.
Paul Solman: Well, more than a little.
Paul Krugman: Yeah, but mixed in with a view of economics — of broader economic policy — that takes us back 80 years in one step. I mean, it’s great that he’s not a completely standard-issue right-wing gold-bug type, but his willingness to be a little bit mean to the bankers doesn’t mean that the rest of his stuff makes any sense at all and it doesn’t, unfortunately.
Paul Solman: Well, he doesn’t want to take us just back 80 years. I think it would be fair to say he wants to take us back a hundred or more years. He thinks the 19th century, for example, where the free market more nearly reigned, was a period of ups and downs, but we came back quickly from the downs, and 1870 to 1912, he says, was the period of the highest growth in the history of the United States.
Paul Krugman: Actually, I think the period from 1947 to 1973 actually beats it, but they’re close. It was a pretty good period, fueled by a lot of immigration, but also good stuff, the Industrial Revolution and all that.
Paul Solman: Well, he said immigration is one of the signs that it was so good. People were coming here from all over the world because we were so vibrant.
Paul Krugman: They still would be if we let them, right? That’s kind of a bad way to make the analysis. If he thinks that we didn’t have a crisis or he thinks that they were short-lived, he’s not actually studying the history. I’ve looked. The data aren’t so great going back, but as far as we can tell, the aftermath of the panic of 1893 looked a lot like what we’re going through right now, which was years and years of a depressed economy.
You know, it all fades into the haze. We look back and we remember the railroads and the steel mills and we remember that America, looked at over a 40 year stretch, got much richer. But we forget the long intervals of misery that went along the way. I mean, there was a reason why William Jennings Bryan was a serious contender for president and it wasn’t because the farmers were stupid. It was because a lot of Americans were suffering.
Paul Solman: And that’s 1896 and Bryan’s “mankind shall not be crucified on a cross of gold” speech, meaning there should be more inflation, not such restrictive monetary policy.
Paul Krugman: Right, and that is taking place in the shadow that follows the Panic of 1893, right? That is a period that in some ways is like today, of a prolonged, depressed, economy where all of the “sensible” people said, “inflation is the great danger,” but they were probably wrong.
Paul Solman: So, no credibility at all to the idea that maybe we made a mistake by creating a Federal Reserve that thinks it can manage the economy when clearly there have been times when it has shown that it couldn’t?
Paul Krugman: I think no credibility at all. You have to just have a fantasy view of what pre-Fed America looked like. You have to just sort of dump the many, many financial crises and the many sustained depressions that we had before the Fed was created. You have to just put those down the memory hole and pretend they never existed. It’s just not true.
Paul Solman: There were great depressions before the 1930s?
Paul Krugman: Sure. They were not as great as the 1930s — that was a unique worldwide event — but you look at the aftermath of the Panic of 1873 or the Panic of 1893, and you see that they were really pretty bad, and the Panic of 1907 was averted only because J.P. Morgan acted as a sort of personal version of the Federal Reserve. That’s what led to the creation of the Fed. Because we said, “Hey, we won’t always have J.P. Morgan around to rescue the banking system.” So the idea that we had calm and that we didn’t have terrible periods of economic dislocation until the Federal Reserve came along — again, I think represents a blindness to the realities of our history.
Paul Solman: You called David Stockman in a column of yours “a cranky old man.”
Paul Krugman: I actually meant to say it was “cranky old man economics.” I don’t think he quite makes the old man designation yet because I’m not that much younger than he is.
Paul Solman: Yes, that was one thing I had noted, but he’s cranky?
Paul Krugman: Yeah, definitely. I mean anyone who thinks that the last 80 years, ever since FDR took us off gold, have been a doomed venture, that strikes me as kind of cranky, right? There seem to have been three generations of pretty good stuff along the way, so that’s what strikes me as being a crank vision.
Paul Solman: And when Neil Irwin of the Washington Post called the book “a spittle-filled diatribe,” you approve of that description?
Paul Krugman: Well, I was glad to see Neil do that because it made me look polite. In a way, I’m glad [David Stockman] wrote it because there are a lot of people for whom that kind of crankiness or spittle outflow has a kind of visceral appeal. This is the stuff that really grabs a lot of people, so it’s good in a way to bring it out into the open in one book so that we can all say, “Hey look, let’s explain why this is wrong.”
Paul Solman: So you welcome the opportunity to oppose David Stockman at almost every turn?
Paul Krugman: Well, there are a lot of other people I need to argue with too, but I was glad to have it come out because it’s very hard to have an argument with “those who say that.” Instead of saying “those who,” I say “Stockman.”
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions