The following is a conversation with Paul Krugman, Nobel Prize winner in economics,
Professor Cuny, and columnist at the New York Times. His academic work centers around international
economics, economic geography, liquidity traps, and currency crises. But he also is an outspoken
writer and commentator on the intersection of modern-day politics and economics, which places
him in the middle of the tense, divisive, modern-day political discourse. If you have clicked dislike
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that nobody knows the definitive right answer to. The role of government, the impact of automation,
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of the underlying algorithm. And now here's my conversation with Paul Krugman.
What does a perfect world, a utopia, from an economics perspective look like?
Wow, I don't really, I don't believe in perfection. I mean, somebody once said
that his ideal was slightly imaginary Sweden. I mean, I like an economy that has a really
high safety net for people, a good environmental regulation, and something that's not, that's
kind of like some of the better run countries in the world, but with fixing all of the smaller
things that are wrong with them. What about wealth distribution?
Well, obviously, total equality is neither possible nor I think especially desirable,
but I think you want one where basically one where nobody is hurting and where everybody lives
in the same material universe. Everybody is basically living in the same society. So I think
it's a bad thing to have people who are so wealthy that they're really not in the same world as the
rest of us. What about competition? Do you see the value of competition and what maybe its limits?
Oh, competition is great when it can work. I mean, I remember, I'm old enough to remember
when there was only one phone company and there was really limited choice. And I think the arrival
of multiple phone carriers and all that has actually been a really good thing. And that's
true across many areas, but not every industry is, not every activity is suitable for competition.
So there are some things like healthcare where competition actually doesn't work. And so
it's not one size fits all. That's interesting. Why does competition not work in healthcare?
Oh, there's a long list. I mean, there's a famous paper by Kenneth Arrow from 1963,
which still holds up very well, where he kind of runs down the list of things you need for
competition to work well. Basically, both sides to every transaction being well-informed, having
the ability to make intelligent decisions, understanding what's going on, and healthcare
fails on every dimension. Healthcare, so not health insurance, healthcare.
Well, both healthcare and health insurance, health insurance being part of it. But no,
health insurance is really the idea that there's effective competition between health insurers
who's wrong in healthcare. I mean, the idea that you can comparison shop for major surgery is just
when people say things like that, you wonder, are you living in the same world I'm living in?
You know, the piece of well-informed, that was always an interesting piece for me,
just observing as an outsider, because so much beautiful, such a beautiful world as possible
when everybody's well-informed. My question for you is, how hard is it to be well-informed about
anything, whether it's healthcare or any kind of purchasing decisions or just life in general
in this world? Oh, information, you know, it varies hugely. I mean, there's more information
at your fingertips than ever before in history. The trouble is, first of all, that some of that
information isn't true. So it's really hard. And then some of it, it's just too hard to understand.
So if I'm buying a car, I can actually probably do a pretty good job of looking up, you know,
going to consumer reports, reviews, you can get a pretty good idea of what you're getting when
you get a car. If I'm going in for surgery, first of all, fairly often it happens when
without your being able to plan it. But also, medical school takes many, many years and
going on the internet for some advice is not usually a very good substitute.
So speaking about news and not being able to trust certain sources of information,
how much disagreement is there about, I mentioned utopia perfection in the beginning,
but how much disagreement is there about what utopia looks like? Or is most of the
disagreement simply about the path to get there? Oh, I think there's two levels of
disagreement. One, maybe not utopia, but justice. What is a just society? And there are different
views. I teach my students that there are, broadly speaking, two views of justice. One,
focuses on outcomes. A just society is the one you would choose if you were trying to,
what the one that you would choose to live in if you didn't know who you were going to be,
that's kind of John Rawls. And the other focuses on process, that justice society is one in which
there is no coercion, except we're absolutely necessary. And there's no objective way to
choose between those. I'm pretty much a Rawlsian. And I think many people are. But anyway, so there's
a legitimate dispute about what we mean by a just society anyway. But then there's also
a lot of dispute about what actually works. There's a range of legitimate dispute. I mean,
any card-carrying economist will say that incentives matter. But how much do they matter?
How much does a higher tax rate actually deter people from working? How much does a
stronger safety net actually lead people to get lazy? I have a pretty strong view that the evidence
points to conclusions that are considerably to the left of where most of our politicians are.
But there is legitimate room for disagreement on those things. So you've mentioned outcomes.
What are some metrics you think about that you keep in mind, like the genie coefficient,
but really anything that measures how good we're doing, whatever we're trying to do,
what are the metrics you keep an eye on? Well, I'm actually, I'm not a fan of the genie coefficient.
Not because- What is the genie coefficient? Yeah, the genie coefficient is a measure of inequality.
And it is commonly used because it's a single number. It usually tracks with other measures,
but the trouble is there's no sort of natural interpretation of it. You ask me, what does
a society with a genie of 0.45 look like as opposed to a society with a genie of 0.25?
And I can kind of tell you, 0.25 is Denmark and 0.45 is Brazil, but that's a really,
there's no sort of easy way to do that mapping. I mean, I look at things like what is,
first of all, things like what is the income of the median family? What is the income of the
top 1%? How many people are in poverty by various measures of poverty? And then I think
you want to look at questions like how healthy are people? How is life expectancy doing? And how
satisfied are people with their lives? Because there is, that sounds like a squishy number,
not so much happiness. It turns out that life satisfaction is a better measure than happiness.
But life satisfaction, that varies quite a lot. And I think it's meaningful,
if not too rigorous to say, look, according to that kind of, according to polling,
people in Denmark are pretty satisfied with their lives and people in the United States,
not so much so. And of course, Sweden wins every time.
No, actually, Denmark wins these things. Denmark and Norway tend to win these days.
Sweden doesn't do badly, but none of these are perfect. But look, I think by and large,
there's a bit of a pornography test. How do you know a decent society? Well, you kind of know
it when you see it. Right. Where does America stand on that? We are, have a remark, our society,
I mean, it's, there are a lot of virtues to America, but there's a level of harshness,
brutality, an ability for somebody who just has bad luck to fall off the edge that is really,
shouldn't be happening in a country as rich as ours. So we have somehow managed to produce a
a, a crueler society than almost any other wealthy country for no good reason.
What do you think is lacking in the safety net that the United States provides? You said
there's a harshness to it. And what, what are the benefits and maybe limits of a safety net
in a country like ours? Well, every other advanced country has some universal guarantee
of adequate healthcare. The United States, it's the only place where citizens can actually fail
to get basic healthcare because they can't afford it. That's, that's, that's, it's not hard to do,
everybody else does it, but we don't. We've gotten a little bit better at it than we were,
but still, that's, that's a big deal. We have remarkably weak support for, for children. We,
we, most countries have substantial safety. You know, parents of, of young children get
much more support elsewhere. They get often nothing in the US. We have limited care for people,
long-term care for, for the elderly is a very hit and miss thing. But I think that the really big
issues are that we don't take care of children who make the mistake of having the wrong parents.
And we don't take care of people who make the mistake of getting sick. And those are,
those are things that a country, a rich country should be doing. Sorry for sort of a difficult
question. But what you just said kind of feels like the right thing to do in terms of a justice
society. But is it also good for the economic health society to take care of, to care the people
who are the unfortunate members of society? By and large, it looks like the, the doing the right
thing in terms of justice is also the right thing in terms of economics. If we're talking about a
society that has extremely high tax rates that deter, you know, remove all incentives to provide
a safety net that is so generous that why bother working or striving? That could be a problem.
But that's, I don't actually know any society that looks like that, even, even in European
countries with very generous safety nets, people work and, and innovate and do all of these things.
And there's a lot of evidence now that lacking those basics is actually destructive that children
who grow up without adequate health care, without adequate nutrition are developmentally challenged.
They don't live up to their potential as adults. So the United States actually probably pays a price.
We're, we're, we're harsh, we're cruel, and we actually make ourselves poorer by,
as a society, not just the individuals by, by being so harsh and cruel.
Okay. So invisible hand, Smith, where does that fit in the power of just people acting
selfishly and somehow everything taking care of itself to where, you know, the economy grows.
Nobody, there's no cruelty, no injustice that the markets themselves, regulate themselves.
What is, is there power to that idea and where, what are its limits?
There's a lot of power to that. I mean, there's a reason why I don't think sensible people want
the government running steel mills, or they want the government to own the farms, right? The,
the markets are a pretty effective way of getting incentives aligned of inducing people to do stuff
that works. And the invisible hand is saying that, you know, farmers aren't growing crops because
they want to feed people, they're growing crops because they can make money by it. But it actually
turns out to be a pretty good way of getting, of getting agricultural products grown. So the
invisible hand is an important part, but it's not, there's nothing mystical about it. It's a,
it's a mechanism. It's a way to organize economic activity, which works well, given a bunch of
preconditions, which means that it actually works well for agriculture. It works well for
manufacturing. It works well for many services. It doesn't work well for healthcare. It doesn't
work well for education. So there are, yeah, we, having a society which is kind of three quarters,
invisible hand and one quarter visible hand seems to be something, something on that order seems
to be the balance that works best. It's, you just don't want to, you don't want to romanticize or
mist, you know, make something mystical out of it. It's just, this is, is one way to organize stuff
that happens to have broad, but not universal application. So then forgive me for romanticizing
it, but it does seem pretty magical that, you know, that I kind of have an intuitive understanding
of what happens when you have like five, 10, maybe even a hundred people together, the dynamics of
that. But the fact that these large society of people for the most part acting in a self-interested
way and maybe electing representatives for themselves, that it all kind of seems to work
is pretty magical. The fact that there's, you know, that right now there's
a wide assortment of fresh fruit and vegetables in, you know, in, at the, in the local markets,
up and down the street. You know, who's, who's planning that? And the answer is nobody. That's
the, that's the invisible hand at work. And that's great. And, and that's a lesson that's that Adam
Smith figured out more than 200 years ago. And it's, it continues to apply. And the, the, but,
you know, even Adam Smith has a section in his book about why it's important to regulate banks.
So the invisible hand has its limits. Yeah. And that example is actually a powerful one in terms
of the supermarket of fruit. That was my experience coming from Russia, from the Soviet Union is
when I first entered the supermarket and just seeing the assortment of fruit, bananas. So I
don't think I've seen bananas before, first of all, but just the selection of fresh fruit was just
mind blowing and it, it beyond words. And the fact that like, like you said, I don't know what made
that happen. Well, that there is some magic to the market. But the, as, as showing my age, but
you know, the old movie quote, sometimes the magic works, and sometimes it doesn't. And you
have to have some idea of when it doesn't. So how do you get regulation, right? What can government
at its best do? Government, strangely enough, in this country today, seems to get a bad rap.
Like everyone seems to, everybody's against the government. Yeah. Well, a lot of money has been
spent on making people hate the government. But the reality is government does some things pretty
well. I mean, we government does health insurance pretty well. So much so. I mean, given our anti
government bias, it really is true that there are people out there saying, don't let the government
get its hands on Medicare. So government got people actually love the government health
insurance program far more than they love private health insurance. Basic education.
It turns out that your local public high school is the right place to have students trained and
private for certainly for profit education is a is a by and large a nightmare of ripoffs and
grift and people not getting what they thought they were paying for. It's in judgment case.
And it's funny, there are things, I mean, everybody talks, there's talks about the DMV as being,
you know, do you want the economy? Actually, my experience is that the DMV have always been
positive. Maybe I'm just going to the right DMVs. But in fact, a lot of government works pretty
well. So it you'd have to, to some extent, you can do these things on a priori grounds. You can
talk about the logic of why healthcare is not going to be handled well by the market. But
partly it's just experience. We tried, or at least some countries have tried nationalizing
their steel industries. That didn't go well. But we've tried privatizing education and that
didn't go well. So you find out what works. What about this new world of tech? How do you see,
what do you think works for tech? Is it more regulation or less regulation?
There are some things that need more regulation. I mean, we're finding out that
the world of social media is one in which competitive forces aren't working very well and
trusting the companies to regulate themselves isn't working very well. But I'm on the whole.
A tech skeptic, not in the sense that I think the tech doesn't work and it doesn't do stuff.
But the idea that we're living through greater technological change than ever before
is really an illusion. Ever since the beginning of the Industrial Revolution,
we've had a series of ethical shifts in the nature of work and the kinds of jobs that are
available. And it's not at all clear that what's happening now is any bigger or faster or harder
to cope with than past shocks. It is a popular notion in today's public discourse that automation
is going to have a huge impact on the job market now. There is something transformational happening
now. Can you talk about that? Maybe elaborate a little bit more. Do you not see the software
revolutions happening now with machine learning, availability of data, that kind of automation
being able to sort of process, clean, find patterns in data. And do you don't see that
disrupting any one sector to a point where there's a huge loss of jobs?
There may be some things. I mean, actually, translators, there's really reduced demand
for translators because machine translation ain't perfect, but it ain't bad. There are some kinds of
things that are changed. But overall productivity growth has actually been slow in recent years.
It's been much slower than in some past periods. So the idea that automation is taking away all
the jobs, the counterpart would be that we would be able to produce stuff with many fewer workers
than before, and that's not happening. There are a few isolated sectors. There are some kinds of jobs
that are going away, but that keeps on happening. New York City used to have thousands and thousands
of longshoremen taking stuff off ships and putting them on ships. They're almost all gone now. Now
you have these giant cranes taking containers on and off ships in Elizabeth, New Jersey.
That's not robots. It doesn't sound high tech, but it actually pretty much destroyed an occupation.
Well, it wasn't fun for the longshoremen to say the least, but we coped, we moved on,
and that sort of thing happens all the time. You mean farmers. We used to be a nation which
was mostly farmers. There are now very few farmers left. The end reason is not that
we've stopped eating. It's that farming has become so efficient that we don't need a lot of farmers,
and we coped with that too. So the idea that there's something qualitatively different about
what's happening now so far isn't true. So yeah, your intuition is there is going to be a loss
of jobs, but it's just the thing that just continues. There's nothing qualitatively different
about this moment. Some jobs will be lost, others will be created, as has always been the case so
far. Maybe there's a singularity. Maybe there's a moment when the machines get smarter than we are
and SkyTech kills us all or something. But that's not visible in anything we're seeing now.
You mentioned the metric of productivity. Could you explain that a little bit? Because it's
a really interesting one. I've heard you mentioned that before, the new connection with automation.
So what is that metric? And if there is something qualitatively different, what should we see in
that metric? Well, productivity, first of all, production. We do have a measure of the economy's
total production, real GDP, which is itself, it's a little bit of a construct because it's
quite literally it's adding apples and oranges. So we have to add together various things which
we basically do by using market prices, but we try to adjust for inflation. But it's a reasonable
measure of how much the economy is producing. Is it goods and services? It's everything.
Okay. Productivity is divide that total output by the number of hours worked.
So we're basically asking how much stuff does the average worker produce in an hour of work?
And if you're seeing really rapid technological progress, then you'd expect to see productivity
rising at a rapid clip, which we did for the generation after World War II. Productivity rose
2% a year on a sustained basis, then it dropped down for a while, then there was a kind of a decade
of fairly rapid growth from the mid 90s to the mid 2000s. And then it dropped off again,
and it's not impressive right now. So you're just not seeing an ethical shift in the economy.
So let me then ask you about the psychology of blaming automation. A few months ago,
you wrote in the New York Times quote, the other day I found myself as I often do at a conference
discussing lagging wages and soaring inequality. There was a lot of interesting discussion,
but one thing that struck me was how many of the participants just assumed that robots are a big
part of the problem, that machines are taking away the good jobs, or even jobs in general.
For the most part, this wasn't even presented as a hypothesis, just as part of what everyone knows.
Yeah. So maybe can you psychoanalyze the public intellectuals or economists or us actually
in the general public, why this is happening? Why this assumption is just infiltrated public
discourse? There's a couple of things. One is that the particular technologies that are advancing now
are ones that are a lot more visible to the chattering class. When containerization did
away with the jobs of longshoremen, well, not a whole lot of college professors are close
friends with longshoremen. So we see this one. Then there's a second thing, which is we just went
through a severe financial crisis in a period of very high unemployment. It's finally come down.
There's really no question that high unemployment was about macroeconomics. It was about a failure
of demand. But macroeconomics is really not intuitive. I mean, people just have a hard time
wrapping their minds running. And among other things, people have a hard time believing that
something as trivial as, well, people who just aren't spending enough can lead to the kind of mass
misery that we saw in the 1930s or not quite so severe, but still serious misery that we saw
after 2008. And there's always a tendency to say, it must be something big. It must be technological
change. That means we don't need workers anymore. There was a lot of that in the 30s. And that's
same thing happened after 2008, the assumption that it has to be something, some deep cause,
not something as trivial as a failure of investor confidence and inadequate
monetary and fiscal response. And the last thing on wages,
a lot of what's happened on wages is at some level political. It's the collapse of the union
movement. It's the policies that have squeezed workers' bargaining power. And for kind of obvious
reasons, there are a lot of influential people who don't want to hear that story. They wanted to be
an inevitable force of nature. Technology has made it impossible to have people earn middle-class
wages. And so they don't like the story that says, actually, no, it's kind of the political
decisions that we made that have caused this income stagnation. And so there are a receptive
audience for technological determinism. So what comes first, in your view, the economy or politics
in terms of what has impact on the other? Oh, look, everything interacts. Actually,
that's one of the rules that was taught in economics. Everything affects everything
else in at least two ways. But the, I mean, clearly, the economy drives a lot of political stuff.
But also, clearly, politics has a huge impact on the economy. We look at the decline of unions
in America and say, well, the world has changed and unions don't have a role. But two-thirds
of workers in Denmark are unionized. And Denmark has the same technology and faces the same global
economy that we do. It's just a difference in political choices that leads to that difference.
So I actually teach a course here at CUNY called the Economics of the Welfare State,
which is about things like health care and retirement and, to some extent, wage policy and so on.
And the message I keep on trying to drive home is that, look, all advanced countries have got
roughly equal competence. We all have the same technology. But we make very different choices.
Not that America always makes the wrong choices. We do some things pretty well. Our retirement
system is one of the better ones. But the point is that there's a huge amount of
political choice involved in the shape of the economy.
So what is a welfare state?
Welfare state is the old term. But it basically refers to all the programs that are there
to mitigate, if you like, the risks and injustices of the market economy.
So in the U.S., welfare state is social security, Medicare, Medicaid, minimum wages,
food stamps. When you say welfare state, my first sort of feeling is a negative one.
I probably generally, at least theoretically, like all the welfare programs.
Well, it's been demonized. And to some extent, I'm doing a little bit of thumbing my nose at
all of that by just using the term welfare state. Although it's not, I got you.
But every advanced country actually has a lot of welfare state, even the U.S.
That's fundamental part of the fabric of our society. Social security, Medicare, Medicaid
are just things we take for granted as part of the scene.
And so there's a lot of people on the right wing who are saying, oh, it's all socialism.
And, well, I guess, meaning what you want them to mean.
And just today, I told my class about the record that Ronald Reagan made in 1961,
warning that Medicare would destroy American freedom. But it sort of didn't happen.
On the topic of welfare state, what are your thoughts on universal basic income?
And not a generic, but a universal safety net of this kind?
There's always a trade-off. When we talk about social safety net programs,
there's always a trade-off between universality, which is clean, but means that you're giving a
lot of money to people who don't necessarily need it, and some kind of targeting, which makes it
easier to deal with the crucial problems with limited resources. But both has incentive problems
and kind of political, and I would say even psychological issues. So the great thing about
social security in Medicare is no questions asked. You don't have to prove that you need them.
It just comes. I'm on Medicare allegedly. I mean, it's run through my New York Times health
insurance, but I didn't have to file an application with the Medicare office to prove that I needed it.
It just happened when I turned 65. That's good for dignity, and it's also good for
the political support because everybody gets Medicare. On the other hand, and we can do that
with healthcare, to give everybody a guarantee of an income that's enough to live on comfortably,
that's a lot of money. What about enough income to carry you over through difficult periods,
like if you lose a job or that kind of? Well, we have unemployment insurance,
and I think our unemployment insurance is too short-lived and too stingy. It would be better to
have a more comprehensive unemployment insurance benefit. But the trouble with something like
universal basic income is that either the bar is set too low, so it's really not something you can
live on, or it's an enormously expensive program. And so at this point, I think that we can do far
better by building on the kinds of safety net programs we have. I mean, food stamps,
earned income tax credit, we should have a lot more family support policies. Those things can
deal with, can do a lot more to really diminish the amount of misery in this country. UBI is
something that is being, I mean, it goes kind of hand-in-hand with this belief that the
robots are going to take all of our jobs. And if that was really happening, then I might reconsider
my views on UBI, but I don't see that happening. So are you happy with discourse that's going
on now in terms of politics? So you mentioned a few political candidates. Is the kind of thing going
on both on Twitter and debates and the media through the written words, there's a spoken word,
how do you assess the public discourse now in terms of politics? We're in a fragmented world.
More so than ever before. More so than ever before. So at this point, the public discourse
that you see if Fox News is your principal news source is very different from the one you get
if you read the New York Times. On the whole, my sense is that mainstream political reporting,
policy reporting is A, not too great, but B, better than it's ever been. Because when I first
got into the pundit business, it was just awful. Lots of things just never got covered. And if
things did get covered, it was always both sides. I mean, it's the line that comes back from me
writing during the 2000 campaign was that if one of the candidates said that the earth was flat,
that the headline would be views differ on shape of planet. And that's less true. There's still
a fair bit of that out there, but it's less true than there used to be. And there are more people
reporting, writing on policy issues who actually understand them than ever before.
So, though, that's good. But I still I have how much the typical voter is actually informed
unclear. I mean, the the democratic debates, I think we I'm hoping that we finally get down
to having a not having 27 people on the stage or whatever it is they have. But they're reasonably
substantive, certainly better than before. And while there's a lot of still theater criticism
instead of actual analysis and the reporting, it's not as totally dominant as in the past.
Can I ask maybe a dumb question? But from an open minded perspective, when
you know, people on the left and people on the right, I think view the other the others as
sometimes complete idiots. Yeah. What do we do with that? You know, is it possible that
that the people on the right are correct about their what they currently believe?
Is that kind of open mindedness helpful? Or is this division long term productive for us to
sort of have this food fight? Well, the trouble you have to confront is that there's a lot of
stuff that just is false out there and but commands extensive political allegiance.
So the idea, well, both sides need to listen to each other respectfully. I'm happy to do that
when there's a view that is worthy of respect. But a lot of stuff is not. And so take economics
is something where I think I know something. And I'm not sure that I'm always right. In fact,
I know I've been wrong plenty of times. But I think there is a difference between
economic views that are within the realm of we can we can actually have an interesting discussion.
And those that are just crank doctrines or things that that are purely being disseminated
because people are being paid to disseminate them. So there are there are plenty of good
serious center right economists that I'm happy to to talk to. None of those center right economists
has any role in the Trump administration. Trump administration and by and large Republicans
in Congress only want to listen to people who are cranks. And so I think it's being dishonest with
my readers to to pretend otherwise. There's no way I can reach out to people who think that
that reading Ayn Rand novels is is is how you learn about monetary economics.
Let me linger on that point. So if you look at Ayn Rand, okay, so you said center right,
what about extreme people who have like radical views? You think they're not grounded
in in any kind of data in any kind of reality? I'm just the sort of curious about how open we
should be to ideas that seem radical. Oh, radical ideas is fine. But then you actually have to ask
is there some basis for the radicalism? And if it's if it's a if it's something that is not
grounded in anything, then and particularly by the way, if it's something that's been refuted
by evidence again and again, and the people just keep saying it if it's a zombie idea,
and there's a lot of those out there, then there comes a point when it's not worth
trying to fake respect for it. I see. So there's through the scientific process,
you've shown that this idea does not hold water. But I like the idea zombie ideas, but they live on
through. It's like the idea that the earth is flat, for example, has been for the most part
disproven. Yeah. But it lives on actually growing in popularity currently. Yeah. And there's a lot
of that out there. And there you can't you can't wish it away. And it's you're not being fair to
either yourself or if you're somebody who writes for the public, you're not being fair to your
readers to pretend otherwise. So quantum mechanics is a strange theory, but it's testable. And so
while being strange, it's why they accept it amongst physicists. How robust and testable
are economics theories if we compare them to quantum mechanics and physics and so on?
Okay, economics, look, it's a complex system. And it's also one in which by and large, you
don't get to do experiments. And so economics is never going to be like quantum mechanics.
That said, you get natural experiments, you get tests of arrival doctrines, you know,
in the immediate aftermath of the financial crisis, there was one style, one, one basic
theory of macroeconomics, which ultimately goes back to John Maynard Keynes that made a few predictions,
it said, under these circumstances, printing money will not be inflationary, running big
budget deficits will not cause a rise in interest rates, slashing government spending, austerity
policies will lead to depressions if tried. Other people had, you know, exactly the opposite
predictions. And we got a fairly robust test and, you know, one theory one, interest rates
stayed low, inflation stayed low, austerity, countries that implemented harsh austerity
policies suffered severe economic downturns, you don't get much, you know, that's, that's
pretty clear. And that's not going to be true on everything. But there's a lot of empirical,
I mean, the younger economists these days are very heavy, heavily data based, and it's, and
that's great. And I'm, I think that's, that's the way to go. What theories of economics are,
is there currently a lot of disagreement about what you said? Oh, first of all, there's just a
lot less disagreement, really, among serious researchers and economics than people imagine.
When we actually, we can track that the Chicago Booth School has a panel, an ideologically
diverse panel, and they, you know, pose regularly posed questions. And on most things, there's a
huge, there's remarkable consensus, there's a lot of things where there, people imagine that
there's dispute, but the illusion of dispute is something that's basically being fed by
political forces, and there isn't really. I mean, there are, I think we, questions about
what are effective ways to regulate technology industries, we really don't know the answers
there. There's a, or look, I don't follow every part, minimum wages. I think there's,
there's pretty overwhelming evidence that, that a modest increase in the minimum wage from current
levels would be, would not have any noticeable adverse effect on, on jobs. But if you ask,
how high could it go? $12 seems pretty safe, given what we know. 15, is 15 okay? There's some
legitimate disagreement there, I think probably, but, but I can, people have a point. 20, where,
where is the line at which it starts to become a problem? And the answer is, truly, we don't know.
It's fascinating to try to, such a cool economics is cool in that sense. Because you're trying to
predict something that hasn't been done before, the impact effects of something that hasn't been
done before. Yeah, you're trying, you're going out of sample. And, and we have good reason to
believe that, that there are, you know, that it's nonlinear, that there comes a point at which it
doesn't work the way it has in the past. So as an economist, how do you see science and
technological innovation? When I took various economics courses in college, technological
innovation seemed like a no-brainer way of growing an economy. And, and we should invest in it
aggressively. I may be biased, but it seemed like the various ways to grow an economy seems like
the easiest way, especially long-term. Is that correct? And if so, why aren't we doing it more?
Well, that's, okay. The first question is, yeah, I mean, all, it's pretty much overwhelming.
We think we can more or less measure this, although there are some assumptions involved,
but it's something like 70 to 80% of the growth and per capita income is, is basically the advance
of knowledge. It's not just, it's not just the crude accumulation of capital. It is, it is the fact
that we get, get smarter. A lot of that, by the way, is more prosaic kinds of technology. So, you
know, we, I like to talk about things like containerization, or, you know, in an earlier
period, the invention of the flat-pack cardboard box that had to be invented. And, and now all of
your deliveries from Amazon are made possible by the existence of that technology, that the
web stuff is, is, is important too. But, but what would we do without cardboard boxes? So,
but all of that stuff is really important in driving economic progress.
Well, why don't we invest more? Why don't we invest more in, again, more prosaic stuff? Why
aren't, why haven't we built another goddamn rail tunnel under the Hudson River? Which is the, for
which the need is, is so totally overwhelmingly obvious. How do you think about, first of all,
I don't even know what the word prosaic means, but I inferred it. But how do you think about
prosaic? Is it the really most basic, dumb technology innovation? Or is it just like
the lowest hanging fruit of where benefit can be gained?
When I say prosaic, I mean stuff that is not sexy and, and fancy and high tech. It's building
bridges and tunnels. Yeah. Having, inventing the cardboard box or the, I don't know, where,
where do we put an easy pass in there? That's a, it is, it is actually using some, you know,
modern technology and all that, but it, it's not going to have, I don't think you're going to make
a movie about, about the fact that the guy, whoever it was that invented easy pass. But,
but it's actually a pretty significant productivity booster.
To me, it always seemed like it's something that everybody should be able to agree on.
And just invest. So like, in the same way, there's the investment in the military
and the DOD is huge. So everyone kind of, not everyone, but there's a, there's a,
there's an agreement amongst people that somehow that a large defense is important.
It always seemed to me like that should be shifted towards, if you want to grow prosperity
of the nation, you should be investing in knowledge. Yes, prosaic stuff, infrastructure,
investing in infrastructure, and so on. I mean, sorry to linger on it, but do you have any intuition?
Do you have a hope that that changes? Do you have intuition why it's not changing?
It's unclear. More than intuition, I have a theory. I'm reasonably certain that I understand why,
why we don't do it. And it's, it's because, because we have a real values dispute about
the welfare state, about how much the government should do to help the unfortunate. And politicians
believe, probably rightly, that there's a kind of halo effect that surrounds any kind of government
intervention. That even though providing people with enhanced social security benefits is really
very different from building a tunnel under the Hudson River, politicians of both parties seem
to believe that the government is seen to be successful at doing one kind of thing. It will
make people think more favorably on it, doing other kinds of things. And so we have conservatives
tend to be opposed to any kind of increase in government spending, except military, no matter
how obviously a good idea it is, because they fear that it's the thin end of the wedge for
bigger government in general. And to some extent, liberals tend to favor spending on these things,
partly because they see it as a way of proving that government can do things well, and therefore
it can turn to broader social goals. It's clearly, there's a, if you like, the, what you might have
thought would be a technocratic discussion about government investment, both in research and in
infrastructure, is contaminated by the fact that government is government and people link it to
other government actions. Perhaps a silly question, but as a species, we're currently working on
venturing out into space, one day colonizing Mars. So when we start a society on Mars from scratch,
what political and economic system should it operate under? Oh, I'm a big believer in, first
of all, I don't think we're actually going to do that, but let's imagine, hypothesize that we
colonize Mars or something. Look, representative democracy is versus pure democracy. Well,
yeah, pure democracy where people vote directly on everything is really problematic, because
people don't have time to try and master every issue. I mean, we can see what government by
referendum looks like. There's a lot of that in California, and it doesn't work so good because
it's hard to explain to people the various things they vote for may conflict. So representative
democracy is, it's got lots of problems. And I think kind of the Winston Churchill thing, right?
It's the worst system we know, except for all the others. But so yeah, sticking with the representative
and basically the American system of regulation and markets and the economy we have going on
is a pretty good one for Mars. If you start from scratch, if you're gonna start from scratch,
you wouldn't want to send it where 16% of the population has half the seats.
You probably would want one which is actually more representative than what we have. And the
details, it's unclear. I mean, when times are good, all of the various representative democracy
systems, whether it's parliamentary democracies or a US style system, whether you have a prime
minister or the head of state as an elected president, they all kind of work well when
times are good and they all have different modes of breakdown. So I'm not sure I know what the
answer is, but something like that is given what we've seen through history, it's the least bad
system out there. I'm a big fan of the TV series, The Expanse, and it's kind of gratifying that
out there, it's the Martian Congressional Republic. In a brief sense, so amongst many things, you're
also an expert at international trade. What do you make of the complexity? So I can understand
trade between two people, say two neighboring farmers. It seems pretty straightforward to me,
but international, when you start talking about nations and nations trading seems to be very
complicated. So from a high level, why is it so complicated? What are all the different factors
that way that objectives need to be considered in international trade and maybe feeding that into
a question of do you have concerns about the two giants right now of the US and China and the
intention that's going on with the international trade there with the trade war? Well, first of all,
international trade is not really that different from trade among individuals. It's vastly more
complex, and there are many more players. But in the end, the reasons why countries trade are
pretty much the same as the reasons why individuals trade, countries trade because they're different
and they can derive mutual advantage from concentrating on the things they do relatively
well. And also, there are economies of scale. Individuals have to decide whether to be a
surgeon or an accountant. It's probably not a good idea to try and be both, and countries
benefit from specializing just because of the inherent advantages of specialization.
The fact it's a big world, and we're talking about millions of products being traded, and in
today's world often trade involves many stages. So that made in China, iPhone is actually assembled
from components that are made all over the world. But it doesn't really change the fundamentals all
that much. There's a recurrent, I mean, the dirty little secret of international trade conflict
is that actually it's not, conflicts among countries are really not that important. Most trade
is beneficial to both sides, to both countries, but it has big impacts on the distribution of
income within countries. So the growth of US trade with China has made both US and China richer,
but it's been pretty bad for people who were employed in the North Carolina furniture industry
who did find that their jobs were displaced by a wave of imports from China. And so that's where
the complexity comes in. Not at all clear to me. We have some real problems with China,
although they don't really involve trade so much as things like respect for intellectual property.
Not clear that those real problems that we do have with China have anything to do with the
current trade war. The current trade war seems to be driven instead by a fundamentally wrong
notion that when we sell goods to China that's good and when we buy goods from China that's bad
and that's misunderstanding the whole point. Is trade with China in both directions a good thing?
Yeah, we would be poorer if it wasn't for it. But there are downsides as there are for any
economic change. New technology makes us richer but often hurts some people. Trade with China
makes us richer but hurts some people. And I wouldn't undo what has happened, but I wish we
had had a better policy for supporting and compensating the losers from that growth.
So we live in a time of radicalization of political ideas, Twitter mobs and so on.
And yet, here you are in the midst of it, both tweeting and writing in New York Times articles
with strong opinions, writing this chaotic wave of public discourse. Do you ever hesitate or feel
a tend your fear for exploring your ideas publicly and unapologetically?
Oh, I feel fear all the time. It's not too hard to imagine scenarios in which this is going to,
you know, I might personally find myself kind of in the crosshairs. And I mean, I am the king
of hate mail. I get amazing correspondence. Does it affect you?
It did when it started these days. I've developed a very thick skin. So I don't usually get, in
fact, if I don't get a wave of hate mail after a column, then I probably wasted that day.
So what do you make of that as a person who is putting ideas out there? If you look at the
history of ideas, the way it works is you write about ideas, you put them out there. But now,
when there is so much hate mail, so much division, what advice do you have for yourself and for
others trying to have a discussion about ideas, difficult ideas? Well, I don't know about advice
for others. I mean, if for most economists, just do your research. We can't all be public
intellectuals and we shouldn't try to be. And in fact, I'm glad that I didn't get into this
business until I was in my late 40s. I mean, this is probably best to spend your decades of
greatest intellectual flexibility addressing deep questions, not confronting Twitter mobs.
And as for the rest, I think when you're writing about stuff,
the dance is like no one's watching, right? Like nobody's reading, right? What do you think is
right? Trying to make it, obviously, trying to make it comprehensible and persuasive, but
don't let yourself get intimidated by the fact that some people are going to say nasty things.
It's, you can't do your job if you are worried about criticism.
Well, I think I speak for a lot of people and saying that I hope that you keep dancing like
nobody's watching on Twitter and New York Times and books. So Paul, it's been an honor.
Thank you so much for talking to me. Okay, great.
Thanks for listening to this conversation with Paul Krugman. And thank you to our
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Freedman. And now let me leave you some words from Adam Smith in The Wealth of Nations,
one of the most influential philosophers and economists in our history. It is not from the
benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their
regard to their own interest. We address ourselves not to their humanity, but to their self-love
and never talk to them of our necessities, but of their advantages. Thank you for listening
and hope to see you next time.