Paul Krugman on What to Do When Your Economy Dies (w/ Vincent Catalano)
VINCENT CATALANO: One of the other zombies in your book deals with tax cuts. One of the thoughts that's being bandied about as a solution is tax cuts. Is there a way to balance that businesses are going to need some help, small businesses will need help, et cetera, how would you strike that balance? PAUL KRUGMAN: Some businesses may need help, but then if you want to help people, give them help. There's no particular reason. If you do any across the board cut in taxes, the question is, is that directing money to the people who need to help most? By and large, people who are going to be paying the most taxes are going to be the ones who need the help least. Worried about that millions of people are going to lose their job if you cut the Social Security tax, that doesn't do anything for somebody who isn't earning any money. I won't say the tax cuts never have a role here but there's hard to come up with any reason why that should be if we're going to be trying to direct money to people, why two or three tax cuts except because it fits an ideology which had said the tax cuts are the magical answer to everything? VINCENT CATALANO: Understood. One of the other zombies deals with austerity. I think it's fair to say that's the zombie that is there going to be at least asleep for a while, would you say? PAUL KRUGMAN: That's an interesting question. The idea that the government should tighten its belt in hard times because that's what people do, is that is a zombie. It never dies. It always comes back at some places more than others. I wouldn't count on it. In the United States, I think it's not an issue right now. I think the Republicans never actually believed in austerity, they only believed in hobbling democratic presidents, but in Europe, they failed to reach an agreement on any Europe wide stimulus. In a way, the problem with austerity in America was a problem because Republicans pretended to believe and that in Europe, it's a problem because the Germans actually do believe in it. Unfortunately, I think they still do even at the time of pandemic. VINCENT CATALANO: Even now. PAUL KRUGMAN: Even now. Even now, they're saying oh, we're going to do some stimulus, but you actually look at it and it's ridiculously tiny, not remotely up to so we have a real problem. The two biggest obstacles to seeing economic policy right now are let's let people on the Republican Party in the United States and the entire nation of Germany. VINCENT CATALANO: Who should take the lead then do your think in Europe? Clearly, there's got to be some leadership, some aspect of that, correct? PAUL KRUGMAN: Well, yeah. The question is Europe is a real leadership gap. There are no individuals who have the stature, Angela Merkel still has considerable personal stature, but she's never used it on economics. Nobody else, the French are talking more sense than the Germans are, but not clear that they have the weight in the European Union. This is a case when the British might be helpful, but they just left so I'm not sure who's going to do this. It's down. We have a definite date. We are approaching this this crisis. It's even worse. In 2008, we had problems. We had some weak leadership in some places, and there are a lot of but compare the people particularly not just at the highest level, but a couple of levels down, finance ministers around the world, compared with a dozen years ago. It's like we've become an inferior race of human beings. We just have a really, really poor collection of people in charge now. VINCENT CATALANO: Are you concerned about a feedback loop because it is a global economy? Okay, and if Europe really doesn't do enough of the things that they really should do, then could we have that feedback loop between Europe and the United States and the world economy because they're not stepping up enough? PAUL KRUGMAN: Yeah, I know some of those things are a little bit weaker than people imagine. When all is said and done, US sends about 2% of what we make to Europe and the Europeans send them maybe 2.5% of what they make to us. It's not as if there's a tremendous amount of direct market linkage. There's some and there's a lot of psychological spillover and financial spillover, too. If Europe slides into a recession, which was actually I think it's everyone's sliding to a recession, all of these things. The Chinese are-- we think of China only as a competitor, but it's also a market. China appears to have had its first economic contraction, literal fall in GDP since the Cultural Revolution. There's a lot of global feedback going along. Each of us is messing up individually, but collectively, we're making it even worse.