All Things Considered, December 30, 1992: Interview with Paul Krugman


Eric Weiner reporting: By almost any measure, the economy has improved since November 3rd. Unemployment continues to decline, consumer confidence is surging, factory output and business investment are up. Today's optimistic report from the Commerce Department is just more evidence that after several false starts, this recovery looks as if it is actually going to stick. Paul Krugman is professor of economics at the Massachusetts Institute of Technology.

Paul Krugman (MIT): It's probably the real thing. This is probably the real recovery that--that takes you out, that builds momentum on itself, that--that will go on until the economy is back down to less than 6 percent unemployment.

Weiner: Some economists, such as Ira Kaminow, president of Capital Insights Group, a Washington, DC, consulting firm, believe that the improving economy can't mean anything but good news for Bill Clinton.

Ira Kaminow (Capital Insights Group): He doesn't have to worry about the economy tipping back into a recession. That leaves him free or a little freer to take care of the economy's long-term problems. Weiner: You would think that that would come as a relief for Clinton, but in economics, there's rarely such a thing as purely good news, and some say that the brighter economic picture may have come just a little too early for Bill Clinton. It may end up masking some of the underlying problems with the economy.

Krugman: We've abruptly moved from a s--from a recession mentality to an incipient boom mentality.

Weiner: Again, MIT's Paul Krugman.

Krugman: And that suddenly means that the choices are very different, and as it turns out, given the kind of rhetoric of--that was used in the campaign, the choice--the political choices are much harder for Clinton. You may say people are better off. Of course they are. Everybody--almost everybody, except Bill Clinton, is going to be happier that the economy is recovering.

Weiner: The reason that Clinton's task is now more difficult, according to Krugman, is that his current economic plan was drafted last summer when the economic landscape looked very different.

Krugman: It was a--a recession-minded program. It had in mind that you were going to be able to invest without worrying about paying for it right away because when you're in the middle of a long recession, nobody really worries about the deficit.

Weiner: But now that the recession is over, says Krugman, reducing the budget deficit becomes more important, and spending money on programs aimed at getting the economy going in the short term less so. That means that Clinton may end up spending less than the $ 20 billion a year he planned on spending on public infrastructure--new roads, bridges and the like. You can see this shift in emphasis reflect in Clinton's Cabinet choices. Leon Panetta and Alice Rivlin, number one and two at the Office of Management and Budget, are renowned deficit hawks. They'll no doubt be dusting off Clinton's campaign plans to cut the deficit in half over the next four years. Clinton didn't place too much emphasis on that plan during the campaign. The reason, according to Joel Prakken, an economist at Saint Louis-based Laurence Meyers & Associates, is that the deficit-reduction plan is based on faulty calculations.

Joel Prakken (Laurence Meyers & Associates): I think they've come to realize that the numbers in the original sets of proposals didn't quite add up, and they're going to have to--something's going to have to give. What's it going to be--the promise on the deficit or the promise on the social agenda? My sense is that they're getting increasingly concerned about the possibility of blowing their deficit promise.

Weiner: As evidence for this, Prakken points to the fact that Clinton seems to be warming to ideas that he rejected out of hand during the campaign. For instance, Clinton now says that he might consider the possibility of a gasoline tax as a way to raise money, money that could be put toward reducing the budget deficit. Some economists, such as MIT's Krugman, would like to see Clinton make more drastic changes to his economic plan.

Krugman: I would have liked to hear a flat, explicit statement, more for symbolism than reality, by the president-elect that--that middle-class tax cuts certainly, even a symbolic one, is completely out of--out of bounds, that we just can't afford it.

Weiner: But then it...

Krugman: That would have been a good signal.

Weiner: It also would have been a signal of a broken campaign promise.

Krugman: Well, he's going to have to break a lot of campaign promises. The world looks quite different than the way it did, let's say, in the summer.

Weiner: That's the view that Bill Clinton doesn't necessarily share. He's been careful not to make too much of the more promising economic figures that have come out since the election. This is what he had to say at a news conference following his economic summit in Little Rock earlier this month.

President-elect Bill Clinton: Are we coming out of this recession? I don't think the evidence is in. Am I convinced there's been any progress on the structural problems of the economy that we started out with? Absolutely not.

Weiner: In other words, analysts say, the president-elect wants to ensure that his bold long-term economic plan isn't derailed by a little good news that may have come a little too soon. This is Eric Weiner in Washington.

Originally broadcast, 12.30.92