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Paul Krugman: Debt Commission Chair Alan Simpson is Wrong to Call For Greater Austerity, Budget Cuts

StoryMay 17, 2012
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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.

Earlier this week, former Sen. Alan Simpson, who co-chaired President Obama’s bipartisan deficit commission, attacked New York Times columnist Paul Krugman, saying his work "borders on hysteria." We ask Krugman to respond to Simpson, who has advocated for slashing spending despite the economic downturn. "We’re witnessing a gigantic experiment in the kinds of policies that people like Simpson want," Krugman says. "The Europeans have gone whole hog for [austerity]. Catastrophic results." Krugman says now is the time to increase government spending. "We’re not saying ignore the debt forever, but we’re saying it’s actually counterproductive to be slashing spending right now," he says. "It depresses the economy, it depresses long-term growth, it hurts long-term revenues." [includes rush transcript]

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: Earlier this week, former Republican Senator Alan Simpson—you know, the Simpson-Bowles commission, of course—criticized your arguments, Paul, that U.S. government spending would help lift the economy. Simpson co-chaired President Obama’s bipartisan deficit commission. He appeared on Bloomberg Television.

ALAN SIMPSON: Paul Krugman is a great economist, but let me tell you, he ain’t the best in the world, nor am I the best legislator or the best senator. I mean, this is nuts to have one guy, or me or him, being the total focus here. But you don’t have to have a brain to know that if you owe $16 trillion, when Italy has gone down the slope and their debt is $2.6 trillion, and ours is 16, and when you have—spend a buck and borrow 42 cents, and when every penny of revenue that came into this country last year, with income tax, excise taxes and tariffs, went to only three programs—three programs: Medicare, Medicaid and Social Security—and we borrowed for all the rest of it, ask Paul how the hell you get through that. This is totally predictable, totally unsustainable. I love to read his stuff, because it borders on hysteria about some—he talks about the lost souls of the past, and he’s in there, too.

AMY GOODMAN: So there you have it, the former Republican Senator Alan Simpson about Paul Krugman.

PAUL KRUGMAN: OK. The really interesting thing to say about all this is that things I’m saying—it’s not just me; actually, a large part of the economics profession is saying—but the things that people like me are saying, that is actually standard, textbook economics. It is saying that when you are in a depression, that’s the time to spend. As John Maynard Keynes said, the boom, not the slump, is the time for austerity. Now is not the time. So we’re not saying ignore the debt forever, but we’re saying it’s actually counterproductive to be slashing spending right now. Even in purely fiscal terms, it’s counterproductive, because it depresses the economy, it depresses long-term growth, it hurts long-term revenues. It’s actually going to make you worse off, even in purely budget terms.

So, and then people, like Simpson, make up their own version. They make up their own story, which suits their prejudices but is not borne out either by history or by what we know about how the economy works. And look, we’ve just seen—we’re witnessing a gigantic experiment in the kinds of policies that people like Simpson want. The Europeans have gone whole hog for it. Catastrophic results. And they have not even reassured the bond markets, right? All this was supposedly so that people would say, "Oh, well, those Spaniards, those Italians, they’re doing austerity, so that’s OK. We’ll lend to them." The Irish—the Irish have done everything that was asked of them: extremely harsh austerity, enormous efforts to cut back. Fifteen percent unemployment now, for years running. They still can’t borrow on the private markets. So, you know, we’ve just—we have some evidence here, and it does not support his view, and it does support mine.

AMY GOODMAN: So, finally, Paul Krugman, how do you shift the politics? You said, if you were president, that’s what would get in the way.

PAUL KRUGMAN: Right. Partly just by making the case. The harshest criticism I’ll have of President Obama is that much of his time he has tried, he has not made the contrary case. He has basically adopted the Republican arguments, but less so. Sort of, "I’ll do just what they did, but not as much of it. And I’ll be" — you know, and he needs to make a case. And last fall, he finally started pushing back. And it turns out that although the American public may say, "We’re against deficits," they are for job creation, they are for doing stuff, and it works politically.

AMY GOODMAN: And the comparison that the politicians continually make—we know that at home, when we have to balance our checkbook, what we have today—what we have to do—what is wrong with that analogy?

PAUL KRUGMAN: What’s wrong is that we are an economy, not a family, or we are a nation and not a family. And your spending is my income, and my spending is your income. And if we all try to slash spending at the same time, the result is that all of our income falls. The result is that we go into a depression, and we end up worse off. So, think of your—as we’re not an individual family, we are a whole nation. And what we are doing maybe individually sounds sensible, but collectively it’s very destructive.

AMY GOODMAN: Paul Krugman, I want to thank you for being with us. We’re going to continue this conversation online at Lots of questions are coming in on Twitter and Facebook. We’ll continue with the Nobel Prize-winning economist Paul Krugman. His latest book is called End This Depression Now!

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