This is point of inquiry from Monday, January 28, 2013.
Welcome to Point of Inquiry.
I’m Chris Mooney one of inquiry is the radio show and podcast of the Center for Inquiry, the think tank Advancing Reason, Science and Secular Values in public affairs and at the grassroots.
If you don’t already, please follow us on Twitter at point of inquiry and also on Facebook, where we are slash point of inquiry.
Just an announcement for those of you who are going to be in Boston in February at the American Association for the Advancement of Sciences annual meeting. Don’t forget, we’re doing our first live show there and our guests will be none other than Steven Pinker. That will be February 17th at the annual meeting of the American Association for the Advancement of Science.
Eleven thirty in the morning. We are thrilled by our guest this week, who is not only one of the world’s most famous economists and economics commentators, but also a Nobel laureate in his field. Paul Krugman, I’m not sure it needs any introduction, but he is professor of economics at Princeton and a columnist for The New York Times, as well as the author of the blog on its website entitled The Conscience of a Liberal. The occasion for our interview is the release of his latest book, End This Depression, now in paperback. It is just out. And besides being a very lucid explanation of our current economic predicament, coming way too slowly out of recovering from the Great Recession. It’s also work that goes straight to the heart of a central concern of this show, which is what is science and what isn’t. And it poses and answers this question in a field that is perhaps even more politicized than other aspects of science, namely economics. Paul Krugman, welcome to Point of Inquiry.
Hi there.
It’s a thrill to have you. You know, when I was a college undergraduate. I saw you speak. The year was, I’m pretty sure, in 1989, New England Skeptic Society. I don’t know if you remember the topic was cults and cranks in economics. Do you recall that?
Very vaguely.
Well, I want to actually. That’s it’s so funny that ninety nine in today, it’s actually really what I still kind of one interview hear about is what is secure economic knowledge and what isn’t in your book. Fixed this economy now just out in paperback. I mean it’s sort of all built around that in a way.
Yeah. So you have to end this depression now. A large part of the the message is that actually we understand know we don’t understand everything is happened, but we have a pretty good framework that has worked pretty well.
They actually work very well and making sense of events here. So we actually do know what to do, except that we have a lot of bad ideas, a lot of cults and cranks getting in the way of doing what needs to be done. And so, yeah, this is really the crank factor that has actually let millions of people being unnecessarily unemployed.
So it’s very relevant right now.
So let’s get into what that means. I mean, the book is mainly built around the idea that austerity, if I can call it that, hurts economies and government spending is the way out of recession. So and this is basically Keynesianism, right.
So it’s important to say, by the way, it’s conditional austerity isn’t necessarily a bad thing. If you’re you’ve got a strong economy and and you’ve got a reserve or its counterpart abroad can cut interest rates.
But under conditions like these, which are very specific and rare, but unfortunately, we’re living through it right now, that’s the time when when austerity is really, really bad.
Mm hmm. And would you say that is a widely accepted view or should be widely accepted view? How do you characterize it?
I would say it’s widely accepted. But in the opposition to The View is probably a minority among professional economists, but not a small minority, as it should be. And in the sphere of public discourse, it’s it’s much more beleaguered because we have essentially half the political spectrum as pledged allegiance to to various kinds of crank economics. And it’s not that willing to look at the evidence at all.
What’s odd about this to me is that, you know, I was just reading economic news that I was reading CNBC today and I read a sentence that seems to basically take as rendered and assumed what you’re saying.
It says if the sequester goes through, it would have a one percent drag on gross domestic product and unemployment will go up. And that’s just some talking head on CNBC. They’re quoting it. I mean, isn’t that essentially the whole point? And they’re taking it is obvious, right?
Yeah. And so there is there is this funny state of debate here where, you know, in a lot of practive contexts, everyone takes it for granted.
If you like there, there are no anti Keynesians in foxholes.
Right in the way that when it comes to actually try to figure out what’s going to happen to the economy the next quarter of next year, the great bulk of people who make forecasts, great hope to try to do conditional analysis.
In fact, take it for granted that if you slash government spending under current conditions, it’s going to hurt the economy. But once you enter the realm of policy discussion, once you’re out of the realm of politics, you’re in this alternative universe with the usual rules of evidence don’t apply, and where people who’ve given consistent bad advice, advice that would have cost you a lot of money if you took it nonetheless, treated as as gurus whose whose whose words trump that. And then you’re a university economist.
I want to remind our listeners that Paul Krugman is latest book, End This Depression Now is just out in paperback.
You can order a copy through our website Point of inquiry dot org. How does the certainty with which we can say something like this compare to the certainty in a completely different kind of science, like evolution, climate change, to pick some non easy examples for some people. But I mean, how do you how do you tell people that, you know, things in economics just like you do in other sciences?
Well, I the two examples there are are ones that are closer to economics than a lot of a lot of the physical sciences are the the big difficulty you have with economics and pretty much any social science. It is the it’s not easy to do controlled experiments, though, you know, you can occasionally do a few things, although I guess people sometimes say even experimental social sciences gives you a pretty good idea of of how college sophomores pick these kinds of civilized doesn’t.
It may not tell you very much about what happens in the real world out there, but mitigate mostly you have to rely on history.
You rely on natural experiments with history just happens with giving you a set of events that provide a pretty clear test of all for you. But to some extent, that’s true of environmental sciences as well. And so we have a lot of stuff we don’t. There is there’s always going to be answer. And one thing that is true about economics, even about climate, is that it system changes over time and that today’s economy is not the same as the economy will be two years ago. But there’s a lot of things that you see in this booming state when we have a lot of a lot of hard evidence. A lot of a lot of those natural experiments out there.
There tell you what, what is going to you know, they give you they give you as much certainty as as you’re ever going to have.
And even if there is about the effects of economic policies and the national experience has just happened all over Europe, right?
That’s right. So you have the berries from look, we’ve actually just had a huge natural experiment.
We’ve had one one of the key points was what is the effect of budget deficits on interest rates, where you have one set of people like me saying under current conditions, not much, we’re not going to drive up interest rates. Other people say, hey, I’m going to drive up interest rates to go sky high. We had very large budget deficits. So the fact that interest rates, in fact, did not go up is telling you something. We had people saying that a big expansion of Federal Reserve money printing is going to be inflationary and other people saying it wasn’t. Again, we did not have a level level. And then in Europe, we have. If you want to know what the effect of changes in government spending is. Wow. We’ve had incredible teeth rattling austerity in in Greece and Ireland and to a lesser extent in Britain, which is is a case that looks a lot like the United States. They didn’t have to do it. They just did it because they thought they were convinced it was the right thing. And the evidence is in every place that has imposed austerity has seen a sharp economic downturn.
So, yeah, this is this is good. This is good as you’re gonna to get previous experiences, we can look at that wartime buildups where you get large changes in government spending and then at that postwar build downs.
And they also tell the same story, that under in a depressed economy, spending more leads to more output, least more employment, spending less these the reverse.
And that is the great natural experiment, World War two. And you see you see this in the book, but it still bends the mind for me to think that on the one hand, it seems obvious, you know, on the other hand, because you just had all these European natural experiments, because so many European leaders somehow didn’t get it and imposed austerity. So, again, I’m still struggling with why the obvious wasn’t paid attention to.
Well, think of it. Think of things like the history of public health measures.
I think you would find that not as much of an expert, I think, are expert here. But I think you would find that in many cases, public health measures lagged well behind the evidence because there were just instinct to or in some cases political reactions that that may. People in authority unwilling to hear what the scientists were telling there is. And anything that involves public policy, there are going to be special interests involved. And there’s also going to be just preconceptions involved.
This kind of stuff, macroeconomics is difficult, this everybody wants to think of running or a government as being like running a family, then they don’t.
Well, you know, if you’re facing hard times, you tighten your belt, which is a natural inclination. And but unfortunately, it turns out that everything we know says that’s wrong. But that in times when the economy is depressed, that’s when the government needs to spend more. But that’s a not obvious connection. And it’s very hard to get people to to think differently when particularly when there are a lot of political forces that would like people to hang on to that preconception.
When I want to go to the political forces in a second, a little more. But but what you just mentioned and you talk about this in the book, this analogy or metaphor, likening the finances of a government to the finances of a family. As I was reading that, I was thinking, well, we know that the brain, you know, processes a lot of things in metaphor. So mad at, you know, sort of the structure of thought is metaphoric. And that’s why we infer things so quickly like that. And we also know that, you know, people make up their minds often based on heuristics, which is almost the absence of thought. It’s in other words, you think something so quickly that you don’t even realize that you’re accepting it without processing it in a lot of detail and using up the brain energy to do that. And so this is the thinking fast and slow thing. And, you know, to compare the government’s finances to family finances and say, oh, you’ve got to tighten your belt. I feel like that’s a heuristic. And I feel like people are just snapping to that judgment. What do you think about that?
Yeah, I think that’s right. The it’s the first reaction, your your gut reaction, your juristic, if you like, as well.
No, I know what I do. I know if my if if I’m worried about my situation, I look troubled that I’m going to try to save more, spend less, hide my belt. Natural reaction. You’re a government official or somebody who’s an influential voice on policy?
I think there’s a natural reaction is to do the same thing.
And the process of saying, well, wait, let’s let’s step back.
Let’s think about that. Is this really a good, good analogy? What do the lessons of history have to say about it? That does not come naturally.
It also doesn’t help that there’s going to be there.
There’s a fair bit of dissension among the economists.
Not not as much as as the public would have, you know, public description with every belief, but even a few voices that that sound coming from authoritative sounding people saying, no, the those those guys talking. Been more of a role that could do a tremendous job as it doesn’t fire this tremendous amount to create the impression of an unsettled issue even when we need to settle. So, yeah, all of that is true.
People, boy, it’s night. Been one year, the government alongside.
It was always amazing how much. Well, I’ve got to spread that. He tells me that this business, X, Y, Z, trumps yo. Fifty eight white papers by the experts at the State Department.
It’s always going to be true. But you have a hard time getting past those shortcuts that people can make.
Mm hmm. And so the shortcuts, you know, in other words, Keynesianism is somehow nonintuitive. A little bit, I think is what we’re establishing. And then the second thing is then then you layer on top of that what is essentially morality, which is, you know, emotional reactions to how the world should be. And here I think it also kind of trips that wire and it gets people’s emotions of fire because they’re they and the emotion. If I’m getting it right, it seems to be people you know, if you’re not doing well, you should be you know, you deserved it. In other words, the individualist view view of things, which is the government should leave us alone. People should thrive or not thrive based upon their own merits. And if they don’t thrive, that’s just the way it is. So that that’s kind of going on in the background of this, too.
Yeah. And so if you like, what people like me are saying is the economy is. It’s an interactive system that your money flows in a circle.
My my spending is during this spending of my income. And that means that the effect of this one means that your destiny has a lot to do with what other people do, that you can lose your job, be in big trouble. Not because we’ve done anything wrong, but because there just isn’t enough spending and the economy’s depressed. And also means that the effect when a big player like the government decides to spend more or less, don’t want to think of it as being like an individual family, which can ignore the feedback from what it does. You need to think of all of the feedback that that’s a hard climb. And on the other side, you’ve got the actual quick, quick and dirty. Well, you know, times are tough with type myself. Plus, well, things are people are in trouble. It must be their fault. And what we see here is that the wages of sin and sin is being punished this way. Then the government should be even more virtuous than before.
So we need to balance that budget and all of that comes together.
And it’s really kind of toxic cocktail of misinformation that has gotten really, really bad in this economic crisis we’re still going through.
And what this says to me is that actually the rejection of Keynesianism and the rejection of climate science are so the same thing, because in effect, what’s happening is that both fly in the face of individuals values held by, for instance, libertarians, you know, climate science as the government has got to do something to cap emissions because the market’s not doing it and the individuals say, no, the government can’t be involved in doing this.
And you’re saying that similarly, you know you know, you can you can fail in your life to get a job. And it isn’t your fault. It’s actually the fault of something you have no control of, which is why the government has to do something. So in both cases, it’s flying in the face of them individual’s moral system and then it’s being rejected.
Well, that’s right. That’s the way that would be a good description of the United States.
I spent a fair time both in the book, both and in this depression now and in my head and in real life, arguing with Europeans where it’s a little more complicated. You’re going to have a country like Germany, which actually has got a very strong welfare state, is in many ways very interventionist. You will open your store when you eat so you can open your store and not otherwise. But where they still have this notion of of the morality of of or the immorality of debt. And so they they will, on the one hand, feel perfectly fine that the more interventionist the markets than I see. I think they should be at the same time pursuing these austerity policies, even in a depressed economy. So it’s more complicated. Take the European scene into account. But the United States for sure, the United States, it’s you know, it’s it’s kind of Ayn Rand ish vision of success or failure is all about the individual.
And any notion that the government might have a necessary role in keeping the economy from tanking is is anathema. It’s offensive politically, morally. And it’s just not it’s not a bad idea to be contemplated no matter what the evidence might say.
Let me remind our listeners again, the Paul Gauguin’s latest book, End This Depression Now, is just out in paperback. And you can order it through a link on our website, point of inquiry dot org. So we actually have listeners. I don’t know how many they are. It hasn’t been studied, but we have listeners who definitely lean libertarian.
And when we do climate change, they get annoyed at me. And with this, if my theory about individual home is right, they will be having the same reaction. What do you what would you try to say to them to show that this is not just your opinion and it’s not just your politics? What would you do? I mean, I’m not sure it would work, but what would you try to say?
Well, I mean, I do you know, sometimes I get people saying, why do you keep on top feeding in your blog how often you are right. And it’s not how often I was right.
I keep on saying, look, there’s evidence that stuff is what people said with different points of view. Here’s what actually happens. What do you think is actually there? There’s there’s a lot of other evidence. I think pounding, pounding the evidence, pounding the facts is always a good thing.
I try a little bit to also to the extent that you can to make these concepts a little more intuitive. I think one of the one of the things that actually economics has tended to do that economists do badly is intuitive explanations or for the broader public. There is the a lot of a lot of us, me included, tend to retreat into our equations, diagrams and so stories. I have a favorite story I tell about that the baby sitting co-op gone bad. To illustrate how it’s possible to have an economy that stumbles because they’re just not enough. And so which is a relatively small scale, actually real world, which turns out human example. So you try to get it and you try it every way you can. But I know I actually think that we’re winning the argument slow, much too slowly for the sake of the real economy up there in the millions and millions of people suffering. But over time, the accumulation of successful predictions from Keynesian economics and totally failed predictions from the other side is, I think, slowly chipping away at the idea that the wall up of misunderstanding that’s getting in the way of solving this problem.
Well, I read this the babysitting co-op story because I read the book. Do you want to just tell listeners? Because I think it is. I went, aha. When I read it. So maybe they will.
Yeah. The point of it is that it is on a human scale. So it’s not about 15 trillion dollar economy. It’s about a 150 couples’ economy, 150 couples that were members of a baby sitting co-op in the 1970s. Which is a region where people will babysit for each other’s children. And in order to keep the account balance, in order to keep everybody doing their fair share of babysitting, they use the script system. Everybody was issued on joint and copper issued pieces of paper saying one half hour of babysitting time and when you leave Congress post, return them.
And then when babysitting took place, that baby cities with the appropriate number of coupons, that baby sitters and everything was balanced. It turned out you got to a situation where basically everybody in the co-op was trying to accumulate more coupons. They they didn’t feel they had enough. They wanted to save up. And of course. Well, not, of course. But this is the crucial point. Collectively, they couldn’t do that one person.
So baby sitting is another person’s one one couples going out as another couple’s opportunity to baby sit. So when everybody tried to accumulate more coupons by going out or going out less and babysitting more, the result was a shortage of babysitting opportunities which became even more reluctant to go out with. The further shortage of babysitting opportunities, this little co-op fell into a depression. It came up with functioning far below.
There were there were just not if not a whole lot of activity going on in the baby sitting co-op. And it wasn’t because people were bad at babysitting. It wasn’t because they were unwilling or they lacked incentives. It was a monicker failure, a failure of sufficient demand, which in the end was solved just by issuing more coupons. That’s a that’s a miniature but basically valid picture of what’s now what’s been happening to the global economy since 2008. Everybody’s trying to accumulate coupons. Nobody wants to go out and spend them.
This is a time when somebody needs to take responsibility for making sure is not spending and that somebody is called the government of the United States, government of Great Britain, etc. And that’s effectively analogous to, quote, printing money, which I know it’s not actually being printed, but quantitative easing.
Oh, yeah. Now, Moustaki, a little technical. It’s yeah, they’re printing money and then that’s actually spending money.
We have to be deep enough sloven that you have that just printing the money is not enough. You really need to have the government go out there and ending spending as well, because if you just print money, it just sits there. Just sit in the banks, which is it’s actually happening on a massive scale right now. So but but the basic principle is, is get more spending to take place. And have they have the public authorities take responsibility for pushing up spending?
I mean, some of this, as I understand it, used to be very accepted among conservatives because Milton Friedman supported at least some of this is not not right.
Yeah. Milton Friedman would be considered a dangerous leftist by the standards of today’s. He was he advocated very strongly expansionary monetary policies. I’m not sure that they that that would be. I don’t think that would be sufficient to stop that. You would not approve that as well.
But if you compare what Friedman was recommending, a treatment thinks the which are done in the 1930s or what Friedman thought Japan should have done when it got into a slump similar to ours in the 1990s. Compare that with the official doctrine of the Republican Party right now. You find that they would have considered the Friedman and the dangerously left wing dangerously tolerant of deflation. So, yeah, it’s Friedman. Friedman looks like Friedman looks like like a lefty by the standards of a lot of today’s politicians.
At the risk of getting plenty of angry comments. So let’s go further.
What what what views can legitimately in economics be called fringe or crank is gonna try some out on you.
In other words, do any real economists support them or even real economists support them? Shouldn’t be taken seriously. One of them is the stimulus bill that was President Obama passed on. I know you said you said it’s not enough. It wasn’t enough. But some people said it didn’t create jobs. What about that view?
That’s saying, let’s put this way. I’m not quite sure it’s fringe, but it’s pretty marginal. There is a significant.
There are unfortunately, the people who said it didn’t do anything and can’t do anything. Some very things. But if you look at, first of all, everything we know about how these things work. A lot of evidence has come in since the stimulus bill passed, both about that bill and about other stuff. It’s pretty clear that, yeah, actually, government spending does create jobs and we have some.
There have been some surveys of of economists which do show a very strong majority do believe that if they create jobs, there’s some dissention about how many some dissension about whether it was worth doing. But it’s a very, very marginal position to say it didn’t do any harm.
But there are some academics published, considered serious, who still do think that. I mean, how do they get their.
Well, it’s it’s it’s an interesting thing, and it’s, I agree, some polemics about this, you had some some well-known academics, some some well-known economists making arguments that were right out of fallacies that were exploded eighty years ago, but they didn’t know about that.
So they’re reinventing old mistakes and just some bad logic. And I’m sorry, but we do have, you know, at least at least one and maybe more Nobel laureates who lent their names to this stuff. So it’s not a happy situation for the profession that’s not cover yourself of glory in this crisis.
But also, I mean, am I not right in thinking that unemployment. Decreased or employment increased after the stimulus was.
But I mean, didn’t it tell you, though, was it was it was as much as you would hope. But it happened.
And also, it’s not the weekly. The recession did come to an end.
The official recession did come to an end about the time that the stimulus started to kick in. But it wasn’t the strong recovery. Unemployment continued to rise for quite a while afterwards. And always this is there’s a lack of controlled experiments. You can’t just say, well, we changed this policy and then the economy changed in a particular way because there’s all kinds of other things going on. So you don’t that that’s not as easy a test. I think in a lot of ways, the best way to evaluate the stimulus is not to look too hard at the stimulus because there’s so much else going on. You want to look at related policies elsewhere. You want to look at we get a stimulus which peaked at about two and a half percent of gross domestic product. But what you do is look at things like Greece, where they had a.. Stimulus austerity of 16 percent of gross domestic product.
That’s that’s where you become.
You can say, look, the overwhelming thing happening there is the change in fiscal policy and you’re the other other factors are going to be minor and you’re getting something weird, looking a lot more like a controlled experiment.
Let’s hop to another claim that’s definitely out there in prominence, and my understanding is, I don’t know, would you call it fringe? Would you call it this is tax cuts, increase revenue.
That’s that’s pure crap. There is nothing there.
There are. And there are no academic papers published in peer reviewed journals, which we have looked at. Lots of nonsense, get published in peer journals, but still there.
Even given that there are no there are no studies and peer reviewed journals making that providing any evidence. History is overwhelming against it. It just it just isn’t. Nobody believes that. Except except the entire Republican Party.
So it’s it’s a now that that’s even.
Even Greg Mankiw, who was George Bush’s top economist in the first edition of his textbook, referred to this stuff as the work of charlatans and cranks. Christie took that box out in later editions of the textbook and say, you got more politically ambitious.
Well, what is so behind that one is just it purely supports the views of people who want tax cuts. And they just I mean, just rationalize or is there any kernel of something might be right. So, I mean, you do cut taxes because you want the economy to do better.
Well, that’s always one one justification by doing.
But now the arguments, it tends to be a clinging that is not impossible in principle. Right. It’s out that, you know, if you have a 95 percent tax rate and you cut it to 90 percent, it’s it’s quite possible that you’ll actually end up.
People will be more more economic activity will move out of the black market into the market economy and the revenue might actually go up.
So it’s not that that this is something that’s really impossible. It’s just that given where we actually given the tax rates we actually have, there’s there’s not a bit of evidence suggesting that this is true and a lot of evidence saying clearly that it isn’t. How do people rationalize it? Well, one thing is they just it’s what everybody they talk to knows that these kind of close a collateral or not, cause we’re all worlds of discussion and then you can lie with statistics. This is particularly used in economics because there is other stuff going on because we’ve for a long time had a little bit of inflation and the economy grows. So, look, Ronald Reagan cut taxes and eight years later, revenue was higher than it was before. So you have all of that was because of because there was some inflation. So those dollar dollar value of everything went off and the economy was bigger. So that really isn’t proving anything. But the faithful will seize upon it because frankly, in their minds, you know, definitive evidence that their view is right.
Well, OK. So I think we’ve covered a good bit of ground.
And much of this is, of course, in your book in much more detail and listeners will go get it. But of what is what is known, what is and what is science, what is pseudoscience in your field? Economics.
Since then, the question becomes clearly the actual political world isn’t acting on knowledge as we’ve defined it. So, I mean, what do you do? I hate to make it seem like such a simple question because obviously it’s not simple. But I mean, where’s your hope? Because it seems like ideology is more powerful than facts.
Yeah, but it’s not all powerful, I guess, is what I would say, that that there is a that that there are some people who are persuadable and that you just.
Do what you can, hammer at it. So look at some of these issues. It does seem to me that if I look at the state of public discussion, we have actually moved.
At least a partly backwards towards a real life reality based discussion in the last year or so that it took forever, it seems. And if it’s not having nearly as much positive effect on policy as it should. But we have, in fact, made some progress. Not everybody is. Completely closed minded. To some extent, you can also have an effect by getting people who who basically accept the science, if you like, but are not. Not doing so with a lot of conviction, if you can. Put that put the facts in front of them, make it clear just how strong the case is. You can make them try harder in the political sphere. So if you were looking for this world in which public public policy is uniformly emphasized based upon the best knowledge available, good luck. It’s not going to happen. But if you’re if you’re looking for making some progress and bringing a public policy on economics or anything else closer to where it should be, then you have a task that you can at least feel that you’re doing some good in pursuing. Yes, but you do have to be ready.
You have a pretty thick skin and a lot of tolerance for disappointment. Otherwise, you’re going to give up and and leave the field open to the cranks.
Well, Paul Krugman, I want to thank you for being, I think, probably the most prominent prominent person who is actually doing this and defending this. And, you know, I really enjoy the book and I know that a lot of others will as well. So thanks for being with us on Point of Inquiry.
Thank you. This has been fun. Thanks a lot.
Thank you for listening to this episode of Point of Inquiry to join the discussion about today’s show, you can visit us at point of inquiry dot org. You can also send questions and comments to feedback at point of inquiry, dawg. And you can find us and respond to us on Twitter at point of inquiry and on Facebook at slash point of inquiry. If you enjoyed this episode, please remember our shows are made possible by donations from listeners like you were part of a nonprofit organization, the Center for Inquiry. So whether you can afford to give ten dollars or one hundred dollars, you can go to our website point of inquiry dot org and you can make a contribution today. The views expressed on point of inquiry are not necessarily the views of the Center for Inquiry, nor of its affiliated organizations.
McQuire is produced by atomizing and amrs New York, and our music is composed by Emmy Award winning Michael Waylan. Today’s intro featured Debbie Goddard. I’m your host Chris Mooney.
