Take a closer look at the economy and the debt
Interview: Princeton University---Krugman, Paul---Professor / Academic (slow)
>> Shares of beckman colter, maker of laboratory testing equipment jumped as much as 8.6% on news. the jury found that flextronics refused to continue making parts for a laboratory instrument and held its inventory hostage to coerce additional payments. the award includesed 850 in punitive damages and it’s the largest u.s. jury award so far this year. well, the u.s. economy is on the move thanks in part to the monetary and fiscal stimulus from washington. but the u.s. is running up quite a tab. the budget deficit could rise to more than $475 billion next year. joining us from san francisco to take a closer look at the economy and the debt is paul krugman, professor of economics and international affairs at princeton university. he’s also a new york timings columnist and the author of the book “great unraveling. losing our way in the new century.” welcome, professor, to the program.
>> good to be on.
>> we are going to hear tomorrow a debate from some of the democratic candidates and in fact i believe―i believe all of them will be joining in tomorrow for this on thursday. i wanted to ask you if you were asked to advise one of the democratic candidates which they may ask you to advise them on how to restore the economy and improve jobs, what would you tell them?
>> what we need is to vift focus. we’ve had an economic strategy based on tax cuts for wealthy people, just to summarize it. and it’s been very ineffective. yes, we are seeing some recovery in g.d.p., still nothing in jobs. deficits that will in fact be at least $500 billion next year. that’s equivalent to the salaries of 10 million workers. obviously we are throwing so many bucks at it that we are getting some recovery, but we are compromising the future by so doing. what we need is a shift to the kinds of things that we know work. that would include aid to state and local governments which are cutting back even as we are trying to get the economy to recover. it would mean some spending. there is a lot of neglected stuff. we need a miniature version of the w.p.a. to actually create jobs during this difficult time. we also need a plan 0 bring the deficit down. so right now we’ve got to a really screwed up economic policy that was an attempt to drive through some long-term goals of the republican right, without much concern for what the economy actually needs right now.
>> i want to ask you about a paper written by eric grow shen and simon potter for the federal reserve of new york. they suggested there were a lot of structural changes to the economy that had produced some of the job losses we’ve seen, as opposed to cyclical indicators that may be a lag in the recovery. in fact there are structural changes that have happened that have created permanence in our weak job environment. if that’s true, i guess the question to ask you is how much of the job weakness we are seeing comes from the long-term structural changes versus the fiscal policies you are criticizing?
>> i actually think it’s a good paper but i think people are misreading the implication. it does say that the specific jobs we’ve lost to manufacturing are not going to come back. it doesn’t explain why we aren’t seeing service jobs growing much more rapidly. the fundamental fact is that the economy is always changing. there is always structural change. at any given time the economy, even in prosperity, the economy loses several million jobs a year which don’t come back, but it gains that several million plus an additional million or two elsewhere that make up for the difference. and what’s―so it’s not really an excuse to say that we are losing one type of job and those particular jobs won’t come back. this is―i know people―put it another way. any time you have a prolonged period of poor employment growth people come along and say it’s structural, it’s structural. it won’t come back. but it always does once you get the right policies in place. this is a crutch. this is another excuse to explain a failed set of economic policies.
>> it seems that while the republicans may always argue the taxed should be flatter, the democrats typically argue it should be more progressive than what it is. i want to ask you about whether the clinton era tax cut was some sort of ideal progressivity in the sense that any flattening of it is a tax cut con, that it should never be flattened from whatever it was in, say, 1998.
>> i don’t think there is a question of ideal. the point is we need that revenue. the fact is we are running an enormous budget deficit with no hint that it’s going to turn around. the controller at the g.a.o. last week gave a very stiff warning about the really ominous long-term budget prospects. we were sold a tax cut which went overwhelmingly to very well off people in 2001 on the basis that there was plenty of money, that we could afford to do everything we wanted, plus run budget surpluses, plus shore up social security. it turns out that’s all wrong. it turns out the money wasn’t there. that we had a budget illusion coming out of a mixture of phony accounting and the stock market bubble. if you want to say―if you bear in mind we are running deficits that are much bigger than the tax cuts and we need all of the revenue from post 2000 tax cuts back plus, then you have to ask the question why should ordinary middle class americans bear the brunt of the tax increases that are going to have to come, rather than the people who we gave mistaken tax cuts in 2001 and 2003.
>> we are out of time. our thanks to paul krugman, professor of international affairs at princeton.
