Paul Krugman, Nobel Prize-winning economist and op-ed columnist for the New York Times. Professor of economics at Princeton University and centenary professor at the London School of Economics. Author of numerous books, including The Return of Depression Economics and the Crisis of 2008. His new book, End This Depression Now!, has just been published.
Public spending is under assault from the United States to Europe in the name of fighting deficits. Nobel Prize-winning economist Paul Krugman argues in his new book, "End This Depression Now!", that the hysteria over the deficit will constrain an economic recovery in a time of high unemployment and stagnating wages. "The economics is really easy," says Krugman, "If we were to spend more money at the government level and ... rehire the schoolteachers, firefighters, police officers who have been laid off in the last several years because of cutbacks at the state and local level, we would be a long way back towards full employment. ... Right now, there just is not enough spending, and we need the government, which can do it, to step in and provide the demand we need. ... We’ve had austerity in the face of a recession, in a way that we have never had before since the 1930s. ... And the results are clear: it’s disastrous." Krugman writes about the economy as a columnist for the New York Times and is a professor of economics at Princeton University. [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: Leaders of the G8, the Group of Eight, leading industrialized nations are gathering at Camp David for a two-day summit beginning Friday. The European economic crisis is expected to top the agenda as fears grow the eurozone could be unraveling. Greek voters will soon head to the polls for another round of elections, which will be viewed by many as a referendum on the euro. Meanwhile, France’s new finance minister has reiterated the country’s new Socialist government will not ratify the European Union’s fiscal pact calling for greater austerity.
A fight over austerity is also brewing in Washington. House Speaker John Boehner has revived the Republicans’ hard-line stance on the debt ceiling.
SPEAKER JOHN BOEHNER: We should not raise the debt ceiling without real spending cuts and reforms that exceed the amount of the debt limit increase. Now, from all the way up in Midtown Manhattan, I could hear the great wailing and gnashing of teeth. And over the next couple of months, I was asked again and again if I would yield on my position, that if I would budge. Each and every time, I said no, because it isn’t a position, it’s a principle. Not just that it’s the right thing to do, it is the right thing to do. When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase.
AMY GOODMAN: A similar move from Boehner and House Republicans last year nearly brought about a U.S. default on its national debt.
Well, for the remainder of the hour, we’re joined now by one of the world’s leading economists, Paul Krugman. He is a Nobel Prize-winning economist, an op-ed columnist for the New York Times, also professor of economics at Princeton University and centenary professor at the London School of Economics. His latest book is End This Depression Now!
Paul Krugman, welcome back to Democracy Now!
PAUL KRUGMAN: Good morning.
AMY GOODMAN: How do we end this depression now?
PAUL KRUGMAN: Spend. I mean, it’s really—it’s actually—the economics is really easy. If we were to spend more money at the government level, and actually, at this point, largely, just rehire the schoolteachers, firefighters, police officers who have been laid off in the last several years because of cutbacks at the state and local level, we would be a long way back towards full employment. Other things to do, we could talk about monetary policy, debt relief for homeowners and students. But the core of it is, right now, there just is not enough spending, and we need the government, which can do it, to step in and provide the demand we need.
AMY GOODMAN: To say the least, you’re going against the accepted dogma on all television among the so-called leaders of our country. Spend? In a time when the government has the debt the size it has?
PAUL KRUGMAN: Right. So you can always say, "Oh, you know, $14 trillion." Everything about the U.S. economy is huge. Investors don’t think it’s a problem. Investors are willing to lend the U.S. government money at 1.8 percent interest. This is not the time. I’ll be all for worrying about the budget deficit once the—once the economy is off the bottom. But it is not off the bottom. We are in a depression. This is the time to spend.
AMY GOODMAN: Where do you get the money?
PAUL KRUGMAN: Borrow it, and then repay it later in better times, which is not at all—that may sound funny, but that’s exactly what we’ve done in the past. That’s exactly—how did we get out of the Great Depression? We got out of it by—actually, we got out of it before World War II, but thanks to the spending that preceded World War II, thanks to the military buildup. A little factoid people may not know, just this morning: Which of the major economies in the advanced world grew fastest in the first quarter of 2012? The surprise answer is Japan. Why is that happening? It’s because Japan is now spending a lot of money reconstructing after the tsunami. And that spending is driving rapid growth in Japan right now. We could all be doing that.
AMY GOODMAN: Let’s go to Mitt Romney for a moment, the presidential candidate’s economic plans and his critique of the Obama White House. This is what he said Wednesday at a campaign stop in Iowa.
MITT ROMNEY: President Obama is an old-school liberal whose first instinct is to see free enterprise as the villain and government as the hero. America counted on President Obama to rescue the economy, to tame the deficit and help create jobs. Instead, he bailed out the public sector, gave billions of your dollars to companies of his friends, and added almost as much debt to this country as all the prior presidents combined. The consequence is that we are now enduring the most tepid recovery in modern history.
AMY GOODMAN: Your response to Mitt Romney, Paul Krugman?
PAUL KRUGMAN: Boy, you know, don’t even know where to start. I mean, Romney’s technique is that—since basically every word he says is a lie, including "a," "and" and "the," you never know where to start. But this is—the idea that the—first of all, that Obama is responsible for the large deficits is just not true. It’s overwhelmingly the result of the Bush tax cuts, unfunded wars and a terrible economic crisis that began, of course, under Bush. The idea that the deficits are what’s holding us back is all wrong. The deficits are in fact what’s keeping us afloat. If we had tried to balance the budget, we would now be in a full, full-on replay of the Great Depression. So it’s all nonsense. It’s—and, by the way, the idea of Obama as somebody who governs from the left, I mean, Obama is—Obama’s positions are those of a moderate Republican circa 1992. It’s not—he’s not a leftist. What’s happening now is you have a radical-right Republic Party.
AMY GOODMAN: Well, let’s talk about the Republicans, to House Speaker John Boehner, recently addressed the Peter G. Peterson Foundation’s 2012 Fiscal Summit.
SPEAKER JOHN BOEHNER: The failure of stimulus, a word people in Washington refuse to say anymore, has sparked a rebellion against overspending, overtaxation and overregulation. Americans who take pride in living on a budget recognize that we can’t go on spending money that we don’t have. And our economy is stuck in large part because it is stuck with debt.
AMY GOODMAN: House Speaker Boehner also advocated making long-term changes to programs such as Social Security.
SPEAKER JOHN BOEHNER: We can eliminate all the unfunded liabilities in Social Security, Medicare and Medicaid tomorrow, and the effect on the congressional budget 10-year window could be minimal. That’s because changes to these programs take time and need to be phased in slowly.
AMY GOODMAN: That’s House Speaker Boehner, who has also just revived the debt ceiling—the debt ceiling threat.
PAUL KRUGMAN: Yeah, so—boy, again, let’s leave aside the long-run budget stuff for the moment, and let’s just talk about—the idea that stimulus failed, it was never tried. Take a look at the actual track of government spending in the United States, and take into account the state and local governments as well as the federal, and what you see is, far from actually having a big increase in spending, we’ve actually had much lower. We’ve had austerity in the face of a recession, in a way that we have never had before since the 1930s. So it’s actually been the reverse.
And look, we’ve just done an experiment with what happens if you cut government spending sharply in the face of a depressed economy. That’s what’s been going on in Europe. It’s been going on in an extreme form. I’ve been saying, actually, we’ve basically had a large-scale human experiment, the kind that is banned under Princeton University rules, going on on the people of Greece, Spain, Portugal and Ireland. And the results are clear: it’s disastrous. It leads to very, very sharp economic contractions. Here, we’re having a minor version, though still terrible, of the Great Depression; there, they’re having a full-on replay of the Great Depression.
AMY GOODMAN: Contrast it with Argentina.
PAUL KRUGMAN: Ah, Argentina is an interesting story, because they broke all the rules. There are two countries that we talk about now, actually, people like me. One is Argentina. Argentina had something that was a little bit like the euro. They had a supposedly permanent commitment: one peso, one dollar. Became impossible, fell apart. There was a period of about six months of economic chaos, following, to be honest, then a rapid recovery. Argentina bounced back strongly because they were competitive again. The weaker peso made them able to export. You know, and they defied all the predictions of ruin.
The other story, which is more contemporary, is Iceland, which, in effect, did the same thing. Iceland, because of—the funny thing is, Iceland, the sheer scale of the financial disaster meant that they could not be orthodox. It was not possible. So they were forced to allow a devaluation, have some temporary controls on capital, repudiate some of the debt their bankers ran up. Iceland has a lower unemployment rate than we do right now. So, those are the stories that we should be looking to as examples that say this does not have to be happening.
AMY GOODMAN: So, right now, President Krugman—and that’s not making a mistake—what do you do starting today?
PAUL KRUGMAN: So, the question, of course, is what do I have in the way of Congress, right? So, the—so I’m actually—at this point, I have a lot of—
AMY GOODMAN: Dennis Kucinich is not going to be running again.
PAUL KRUGMAN: Right, no, that’s a—I mean, I have a lot of criticisms. I was tearing my hair out during the first year of the Obama administration, because I thought they were—you know, they had to act much more strongly than they did. But that’s water under the bridge. Right now, the reality is, I think that President Obama gets a lot of this. Maybe not all of it, he gets a lot of it. But he has limited room for maneuver because of a hostile Congress.
If we didn’t have that, first thing to do is a big slug of aid to state and local governments, so they can rehire those schoolteachers, get back to repairing the roads. Right there, you have—by my rough math, you have enough to get the unemployment rate down to something like six-and-a-half percent. So get it for—you know, right there, you can get us to a dramatically better economic situation. Mortgage debt relief. Federal Reserve can do more stuff. We could end this. We could be out of depression territory. We could be, if not—something that would feel much more like full employment in 18 months to two years. It could be over faster than you believe. So it’s actually—the economics are really simple. This would be almost amazingly easy. Of course, the politics are very difficult, but that’s a different story.
AMY GOODMAN: Let me talk about the JOBS Act for a second. I want to ask you your thoughts on this legislation, but first I want to go to President Obama speaking the day he signed the bill.
PRESIDENT BARACK OBAMA: And for startups and small businesses, this bill is a potential game changer. Right now you can only turn to a limited group of investors, including banks and wealthy individuals, to get funding. Laws that are nearly eight decades old make it impossible for others to invest. But a lot’s changed in 80 years. And it’s time our laws did, as well. Because of this bill, startups and small business will now have access to a big new pool of potential investors—namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.
AMY GOODMAN: Paul Krugman, your response?
PAUL KRUGMAN: I mean, people who have studied it carefully that I trust say this is actually a really bad bill. It’s creating loopholes. It’s just not doing anything productive. And there’s this fetishism of small businesses, the idea—the idea that the problem with our economy right now is that people can’t afford to do startups. That’s not the problem. The problem with our economy right now is that there’s not enough demand from consumers, from the government, to make it worth expanding. So this is—this is all a great diversion, probably a bad bill just in and of itself. But the main point is, this has nothing to do with the real problem. I’m willing to cut the President some slack. I think he has to—he has to assuage people’s prejudices a little bit, although I wish he would be a bit more forthright about what the real problems are. But this is not it.
AMY GOODMAN: Can you talk about the title of your book, End This Depression Now!, which, of course, I think is psychological as well as economic, the play on that? And you dedicate your book to the unemployed, you say, who deserve better. How many unemployed there are, what are the real numbers, how are we in this mess?
PAUL KRUGMAN: OK. I’m tempted to get way too wonkish here, so let’s try not to. So there’s 13 million official unemployed. That number is both too low and too high. Some of the people—we always have some unemployment. There’s always some thrashing. So, even if things were much better, we would probably have five or six million, at least, people who would be counted as unemployed. On the other hand, there’s a large number of people who—you’re only counted as unemployed if you’re actively looking for work. There’s lots of people who are not, because they know there’s no work to be found. There’s lots of people who are involuntarily working part-time. There’s lots of people who are working in jobs that are—don’t make any use of their skills. There’s an awful lot of college students with huge burdens of debt, and they’re working as baristas, because that’s all they can find. So, probably the real number—something like a third of the American population either are themselves, or someone close to them is suffering from this economy in a very direct way. So, it’s a huge number.
The things that really get me are that we have almost four million people who have been out of work for more than a year. That’s completely—you have to go back to the 1930s to find anything like that. That’s destroy—that destroys lives. That destroys families. That destroys people’s long-run prospects for ever getting back to work. We have an incredible drop in employment among recent graduates. That’s the thing—so those—the exact number doesn’t really—you know, we can argue—it doesn’t matter. The point is, this is horrific. This is an ongoing human disaster, it’s an ongoing economic disaster, and it’s crippling our future. It’s not just short-run pain. So this is—and that’s one of the reasons I use the word "depression," because this really is that bad.
AMY GOODMAN: You also talk, Paul Krugman, about even when unemployment goes down, that unemployment benefits are really going down.
PAUL KRUGMAN: That’s right. We’ve been—people have been dropping off. We had extended unemployment benefits, which were created, as they should be, during a period of a severe economic downturn. But those have been cut back way faster. I mean, the unemployment benefits were extended because we realized that there were going to be a lot of people experiencing longer-than-normal spells of unemployment. Those are being cut back rapidly, but the long-term unemployment has not come down hardly at all. You know, it’s fallen from four million to 3.9 million people who have been out of work for more than a year. So, this is just cruelty. And it also depresses the economy, because it’s taking money out of the hands of people who would spend it. So, it’s amazing to me how quickly our political system has turned towards blaming the victims of this depression.
AMY GOODMAN: Paul Krugman, questions are coming in Facebook and Twitter in droves. We asked listeners and viewers to send these questions to you. Kristen Franks has just written this on Twitter: "Mr Krugman can you please explain sub-prime economics and how compounding interest is legal when dealing with student loan debt agency."
PAUL KRUGMAN: Oof. No, I mean—I mean, compound—all right, interest will compound. The problem is not—this is going to happen with any kind of loan. The problem is that—two things. One is that the student loan game has been a disaster. It’s been a—we’ve privatized what is basically a public function. We have basically public—taxpayers’ money on the line in the form of guarantees, but we’ve run it through private sector middlemen for no reason. So it’s been way more expensive than it should be. And in any case, we should be providing adequate aid so that a college education is affordable for any student with the aptitude, whatever his or her social class. That’s what we used to do, mostly. We used to have good public universities that were affordable, but the aid has been cut back so much that they no longer are. We are now getting pretty much unique among advanced countries in being a place where a college education is only something that’s available if you come from the right class. So that’s the issue, not the details of the student loan.
AMY GOODMAN: OK. Elizabeth Bishop has just tweeted with this question: quote, "How has Occupy shifted public consciousness?"
PAUL KRUGMAN: I think Occupy did a great service, because I—obviously, I’m in the midst of this all the time. I’m tracking the pulse of the debate way too much. And in the—last summer, it was all deficits, debt. There was all—the whole thing, if you like—Pete Peterson was defining the whole terms of the debate, right? And then this scruffy group of people set up camp in Zuccotti Park and other places around the country, and somehow that changed. Everybody said, "Hey, you know, inequality, injustice, the failure to deliver employment, those are—those are the immediate problems. You know, those are the things we should be talking about." It didn’t change everything, obviously, but it had a tremendous—it was like somebody—it was basically "the emperor was wearing no clothes" moment on our economic debate. I thought it was enormously productive.
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