By Manny Frishberg, JTNews Correspondent
Paul Krugman is either one of the wisest heads to be giving out his opinions on a regular basis or one of the most obnoxious examples of the East Coast media’s liberal bias, depending upon the side of the political spectrum from which you view him. Whatever else people may think, he is recognizably one of the most educated and intelligent people to grace the New York Times op-ed pages, with a regularly scheduled and nationally syndicated column.
Krugman, unlike most of the people whose opinion pieces appear alongside his, is not primarily a journalist. In his day job he is professor of economics and international affairs at Princeton University. Before moving to New Jersey in 1999, Professor Krugman spent 20 years on the faculty at MIT, leaving as the Ford International Professor of Economics. He has also had teaching stints at Stanford and Yale — though there is nothing in his biography to suggest that either George W. Bush or Howard Dean ever took one of his classes.
During the first Reagan Administration, Krugman served for a year as the senior international economist for the President’s Council of Economic Advisors. His other credits, include an economics column for the online magazine Slate.
Krugman, whose publicity photo makes him look like a congregational rabbi, spoke by telephone with the Jewish Transcript from a Midwest hotel room, where he was in the middle of a cross-country book tour. He will be in Seattle on Oct. 9 as part of the Foolproof Performing Arts’ lecture series.
Jewish Transcript: What do you plan to talk about in Seattle?
Paul Krugman: I’m obviously talking about the book [The Great Unraveling: Losing Our Way in the New Century – W.W. Norton, 2003] and I’ll be talking about the Bush Administration and its policies; some of the betrayals that I think have occurred on economic policy and how those are reflected elsewhere. The same kind of thing but going beyond economics.
JT: Can you give us some indication of what you man by “betrayals”?
PK: What we have is an administration that came into office on the promise that it was going to be moderate, that it was going to defend the programs that Americans count on — the basic things that provide a bit of a guarantee [of basic economic and social security]. Behind that was a hard-Right agenda which was masked. Now, having come into office its done two things: it [has] pushed a series of tax cuts which, for the benefit of a small number of very wealthy people, has gutted the revenue base that will ultimately result in a reversal of the tax cuts or severe cuts in programs like Medicare and Social Security.
At the same time, it’s failed to do its job of managing the economy. Its treated problems not as things to be solved, but as ways to rationalize what it wanted to anyway. The proof of the pudding is the half-trillion-dollar deficit and three million jobs lost. That’s a pretty serious betrayal of trust on the economic front.
JT: The administration claims the problems are the results of an economic downturn that started before they came into office, compounded by 9/11
PK: You can go to the Congressional Budget Office for a nonpartisan estimate, and you’ll find that that’s not true. The economic downturn is not that big a factor, that the cost of the war on terror is definitely not that big a factor, and the tax cuts loom larger every year. But the other point is: look, we have big expenses — along comes the war on terror, along comes an end to the high revenue that we had during the stock market bubble. Surely the response is, “Well, we have a government to maintain; we have things to do. We should have some shared sacrifice.” Instead of shared sacrifice, what we have is big tax cuts for people earning more than $1 million a year, in the face of a war. Nobody’s ever done that before.
If they say the war on terror [is the cause of high deficits], why on Earth should we be giving big tax breaks to the most privileged people in the country when the country is facing this additional burden? It’s an unbelievable case of political profiteering.
What’s odd — this is one of the things where we get a little puzzled — is that they certainly have done a lot of stuff, but the Bushies have studiously avoided doing the things that most economists would say are what you need to do in the face of this kind of slump. Their response to an economic slump is, “Let’s end taxation on dividends.” It’s hard to think of a policy that would do so much to increase the deficit while providing so little stimulus.
JT: Economic statistics like the budget deficits can be also be looked at as a percentage of the Gross Domestic Product (the measure of all domestic economic activity).
PK: That is the right way to measure these things, but the truth is it doesn’t actually look very good on those grounds. We’re running deficits that are nearly as big as the post-war peak, as a share of GDP. The most important point is that the Baby Boomers are 20 years closer to retirement than they were in 1983, so any given deficit poses a much more imminent threat to the economy’s future than it did 20 years ago. To be running deficits that are very close to record levels is monstrous folly. It’s just unbelievable. And to make excuses and say it’s really not that bad is, again, a sign of pretty deep irresponsibility.
JT: All the Democratic candidates for President are proposing, to various degrees, repealing at least some of he recent tax cuts. What would you advise them?
PK: Politically, I have no advice for them. In terms of what we now know about the budget outlook, there was never a usable surplus to give back as tax cuts. For long-term sustainability, if we don’t repeal all of the Bush tax cuts we’re going to have to find some other revenues to make up the difference. Ultimately that’s going to be the answer. Either that or severely curtail Medicare and Social Security. Dave Walker, the head of [General Accounting Office] gave a speech about the economy this weekend that, if anything, is more alarmist than what I’ve been saying. So, this is not an outlandish opinion.
JT: Can the U.S. rely just on productivity gains to support Social Security in the future or do we need to look at changing immigration policy to encourage more foreign workers to come in to supplement the workforce?
PK: The demographics are a problem, but not as big as people sometimes say. We’re going to go from three workers per retiree to two workers per retiree. That’s significant, but it’s not beyond what we can handle. The actuarial deficit for Social Security is not that big. It’s something we could handle with modest infusions of additional money. Medicare is a bit worse but a lot of the issues with Medicare have to do with rising medical costs more than with demographics.
It’s a problem but it’s nothing we couldn’t handle if only we had responsible, sensible people running the US government. I guess that’s a big step.
JT: Is the United States in danger of following the same economic path as Argentina?
PK: In budget terms, we are very much on that path. In terms of lack of seriousness of people running the country, we are very much on that path. We probably can’t have a full-blown Argentina-style economic crisis in the U.S. for the simple reason that our debts are in dollars. If the U.S. has a plunging dollar, it won’t cause the kind of balance-sheet wreckage that Argentina had when the peso crashed. But our policies are, by the numbers, really as irresponsible or more so than a lot of Third World countries that have come to grief. It’s pretty bad.
JT: What are the main concerns you see in the international arena and how should we be addressing them?
PK: If I think globally, what really worries me most is environmental. The good news is that economic growth has spread to a lot more places and we’re there, and we’re really participating more than we ever have been before. The bad news is that the environmental stress on the planet is really starting to look pretty alarming and I really do worry about that. If you’re taking a 20- or 30-year perspective, that’s probably far more scary than any foreign relations or even economic thing that you can look at.
JT: Considering the level of threat to the environment, it seems almost trivial to ask about the economic impacts, but that is an essential tenet of the Bush Administration’s approach to the environment.
PK: They try desperately to make it seem that the costs are much higher than they are. The truth is that when we’ve taken economically sensible, well-conceived approaches to environmental problems, it usually turns out that yes, it cost but it didn’t cost near as much as the industry tells you it will. The sulphur dioxide trading program, which is a prototype for how we ought to handle a lot of pollutants, has produced bigger reductions at much less cost than even the optimists thought. So I don’t think it’s hard but we do have rabidly anti-environmental politicians in charge now. We’re passing up on even the easy environmental measures we should be taking.
JT: Would you comment on the collapse of the WTO negotiating session in Cancun recently?
PK: I think free trade is the only route where really poor countries make significant progress. All of the good things that have happened in development in these past 50 years have been export-driven growth. I remain committed to an open world trading system.
I actually think the walk-out in Cancun was a very good thing, because it was poorer nations saying to the rich nations, “Look, you promised us a real system, not just a vehicle for your hegemonic aspirations and we’re not going to assist you in a pretext. If it’s all take and no give on your part, we can’t stop you, but at least we can deprive you of your cover story.”
With any luck that will eventually lead to some real negotiations.
JT: Talk about what you see happening in the Middle East, if you will.
PK: Oh, boy. I have no special expertise. I don’t know anything that any intelligent reader of the newspaper doesn’t know. I’ve spent a lot of time over the years in Israel and I try not to think about it because it’s so depressing.
JT: Can you comment on the economic crisis in Israel?
PK: I haven’t done the homework to say much about it, but yeah, Israel is a little bit of a perfect storm. Israel was a sort of Middle Eastern outpost of the tech boom and so it suffers disproportionately because of that. The political crisis also feeds in, so it’s a very nasty economic problem. Beyond that, I don’t have a lot. I have Israeli friends who say, “You’ve got to get to work on that,” and there isn’t enough of me.
JT: In a recent candidates’ debate, Howard Dean got in a lot of trouble by suggesting the U.S. should be more “even-handed” in its approach to the Israeli-Palestinian conflict. Should the U.S. policy toward Israel be “Their country, right or wrong?”
PK: I think the United States needs to be an extremely firm supporter of Israel and its right to exist. But being pro-Israel doesn’t mean being a supporter of Sharon. That’s a version of the same confusion as saying being patriotic means supporting Bush in whatever he does.
I’m not an Israeli, I have a lot of good friends who are. I am an American Jew and I care a lot about the future of Israel. I think that Sharon is doing more than any terrorist could to compromise the country’s future. I have to say there are hard-liners worse than him. But the hard-line Greater Israel thing is ultimately a path to disaster. The United States could do Israel a favor by saying to Israel, “You have to eventually have a peace with your neighbors.”
Paul Krugman will offer more of his insights and sign his book in an appearance at Seattle’s Town Hall on Oct. 9 at 7:30 pm. Tickets can be purchased from www.foolproof.org, or call 206-628-0888.