Paul Krugman on Leadership, Delusion, and The Rise of “Zombies” (w/ Vincent Catalano)
VINCENT CATALANO: Just give us the definition of a zombie. Because I assume you're not talking about the '60s band, and I assume you're not talking about the walking dead. You're talking about policies that just seem to never want to die. PAUL KRUGMAN: A zombie idea is an idea that should be dead because it's been proved wrong, and it's been tried against experience, we have the evidence it should have died long ago, but it just keeps on going. It shambles along and eats people's brains. Something like the idea of cutting taxes pays for itself because of the wonderful things that does. A lot of our economic discussion in the United States and some other areas as well, but economics with those others folks and is not actually between, there's one group of reasonable people who think this and there's another group of reasonable people who think that, it's between what every reasonable person knows, and the zombie idea that refuses to die. VINCENT CATALANO: Well, one of the zombie ideas that you have in your book deals with the fear of deficit spending, and in these times, it would seem to me that we're about to get a boatload of deficit spending. Your thoughts on that? PAUL KRUGMAN: No problem. It should do it well, and it should never completely ignore deficits, but there's absolutely no reason to worry. For the United States, for the countries of Western Europe, for Japan, none of us-- we're all able to borrow money, extremely low interest rates, there's no hint of a problem. Markets are basically begging us to borrow money and now, we have a whole bunch of urgent needs to spend both directly to fight this pandemic and also to insulate our economies from the economic fallout. If we react to this the way that a lot of countries reacted to the financial crisis which was to get all frantic about budget deficits, we can turn what is already going to be a human catastrophe into an economic catastrophe as well. VINCENT CATALANO: During the Great Depression, they weren't able to engage deficit spending at that point with public works programs. If we can't work together, if we can't be in physical proximity to one another, what would you recommend would be the most effective approach in this environment right now in terms of the deficit spending, and the programs that they might institute because we can have public works programs? PAUL KRUGMAN: Well, in fact, construction will probably continue, but in any case, what we need right now, when this thing is unfolding with incredible speed, that's terrifying speed, it makes the financial crisis of 2008 look slow. You need stuff that can happen right away. The trouble with building new railroad tunnels and things like that is that those projects take years to reach peak spending. We should be doing them anyway but right now you need stuff that has very quick effect. The two big things are just plain give people cash, we can get probably some cash to everybody and we can give people who are especially hard hit by this thing extra cash and give state and local governments in the US which have balanced budget restrictions, who are themselves find themselves cash strapped. They can get aid from the federal government. At this point, it's really not about starting public works, it's about giving people money. VINCENT CATALANO: What about the Ben Bernanke era, thought about helicopter drops? PAUL KRUGMAN: People I think are a little confused by what helicopter drops, if the audience doesn't know this. It's actually something that came from Milton Friedman, who talked about sending a helicopter out to drop money on people's heads and as a thought experiment. The Federal Reserve, its counterparts are thinking just create money with a new way, they say a stroke of the pen, now it's with the click of a mouse. Anyway, they create money out of thin air, but people treat it as real money. The thing is, though, that they don't actually have the power to just give people money. All they can do is buy assets. When the Fed bails out banks, it does it by buying assets from the banks and I don't think legally they have the right to just plain drop money on people's heads. If we ask the question, if Congress votes to give people money, where's the money going to come from? Well, you don't actually have to sell bonds if the Fed can supply that money to you or you can sell the bonds to the Fed, which is just another arm of the government. Helicopter money is a fiscal thing. It's strictly speaking within the realm of things that only Congress has the right to do, but it can be financed by the Fed. You can't ask Jay Powell to do this on his own. I don't think that the law will allow him to. If Jay Powell and Nancy Pelosi and Donald Trump get together to do it, there's no problem. We can start it tomorrow. VINCENT CATALANO: Then, from a technical point of view, do we have to wait for two quarters to demonstrate that we are technically in a recession, or is it fair to say all indications are boom, we're there? PAUL KRUGMAN: Actually, the US doesn't even use the two-quarter definition. The US defines recessions, it's a recession if the recession dating committee says it's a recession and the recession dating committee looks at a bunch of stuff but at this point, look, we have the real world, first of all, just look around you. Companies are laying off thousand people, and then the early wave, the bleeding edge of the economic data, the manufacturing surveys, unemployment claims, they're all say it's a tsunami. If you wait for more evidence like well, geez, it's fine. The ocean's level has dropped out there. I wonder if something's about to happen. Now, there is a giant wave hitting this way and everybody knows it.