Paul Krugman on Why The Corona Bailouts Shouldn’t “Reward Bad Behavior” (w/ Vincent Catalano)
VINCENT CATALANO: In a larger context, neoliberalism, and let's use that as an economic theory since Hayek, Friedman, 1980, political change takes place with Reagan and Thatcher, et cetera. Do you think that now, we're going to see a shift in that to another economic ideology that that takes hold? PAUL KRUGMAN: Well, it's [indiscernible], I think neoliberalism is a useful term. It's less than economic theory than an attitude. It's private sector, good government, bad except in very exceptional circumstances. It should take a hit that we should have a much more expansive view of the role of the government. Of course, that should have happened after the financial crisis too, and didn't have nearly as much as I thought it would. Maybe we go through this one as well. Although a lot of what goes on, I do talk about this in arguing with zombies. A lot of what goes on in political economy of this stuff is that conservatives tend to oppose even government programs that don't obviously hurt rich people, because they fear this big halo effect. If people see that government action is effective in one area, they tend to become more sympathetic towards government action and other and to the extent that I think they're right about that, and so the neoliberal attitude because that's really what it is. It's more of an attitude than a theory, the neoliberal attitude has got to take a hit from this. We've just seen that. Why was Donald Trump spending weeks pretending that there was no real threat? Because he was afraid that if people did think there was a threat, they would demand the government action that he doesn't want to do. Now, he's being forced into at least something. I think that's an omen for the future. VINCENT CATALANO: Do you think that after the 2008 Global Financial Crisis and great recession and all that, that there should have been more pain, more punishment [indiscernible] that about some should have been taken to task banks, et cetera. Now, we can't really point to someone other than I heard the criticism of United Airlines and stock buybacks and that type of thing. Now, they need money. PAUL KRUGMAN: I wanted to temporarily nationalize, take into receivership a couple of big banks, because we knew that those banks were surviving only because people were assuming that they were going to be bailed out, or they actually were bailed out. In the end, the government didn't lose much money in doing so but that we didn't know that at the time. It was clear that the option of the prospect of a bailout was the only reason their stock was worth anything. I thought that the government should have said look, you exist only because we're there to support you. There's no reason why stockholders should come out of this with any money left and there's no reason why current management should remain in place. That's why I wanted to see the government take a couple banks under receivership partly just as a little bit of justice and a little bit to encourage the others, as Napoleon would have said, and just for the public to see that some justice was done. I tried to make that case, there was actually among some of us now infamous lunch of economists with President Obama in which we failed to convince him of that. It's also true that was legally a little bit difficult. Actually, the law makes it easier to do that now than it did it did then. We should have done something and right now, if we're going to be bailing out the airlines, we should not be bailing out airline stockholders. If you want to keep-- I personally use United a lot. I'd like to see United remain a viable business entity, but I don't see why United stockholders should get anything out of this. VINCENT CATALANO: How do we expect the balance then in terms of the programs? You had the infamous lunch, as you said, from a while back. Now, you're in another lunch. You're there and you're there with Steve Mnuchin and others and you're engaging the conversation. What's the advantage that they're hearing from you? PAUL KRUGMAN: Yeah, that lunch is not going to happen but I would say at the same time, I'm reasonably sure, actually, that we can use the authority created by the Dodd Frank financial reform bill to in effect, it's a nationalized, but it's not really-- nobody wants the government to be running businesses on a sustained basis but we do, I believe, have the ability to do what effectively was done with the auto companies. The federal government got for a while controlling stake in the auto companies, it never tried to take over the business of building autos, but it kept the auto companies in business while making sure that taxpayers were not-- you don't want to socialize the losses and privatized the profits. That's where we are right now. We are probably going to have to rescue some airlines. Some other but what remains to be seen, but if we do, then we should just do so in a way that is not rewarding bad behavior. You don't want to be rewarding on an airline company for having used all of its profits to buy back stocks during the good years.