Face the Nation, December 28, 2008

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CHIP REID, host: With us now from New York City, Paul Krugman, winner of the 2008 Nobel Prize in economics. He's also the author of "Return of Depression Economics" and "The Conscience of a Liberal." Paul, thank you very much for joining us and congratulations on the Nobel Prize.

Mr. PAUL KRUGMAN (2008 Nobel Laureate in Economics): Well, thank you.

REID: How long do you see this recession lasting?

Mr. KRUGMAN: Oh, boy. It's not a simple question. I mean, I expect--if only because of all the money that the Obama administration is going to spend, I expect to see some pickup late 2009. But I think we're going to be in trouble for several years. This is going to be a tough long-term slog.

REID: In trouble. How deep do you see this going? And some people have made comparisons to the 1930s. Do you think that's fair and accurate?

Mr. KRUGMAN: You know, if we were as ignorant as we were in the 1930s, I think we would be facing a second Great Depression. You look at the scope of this thing, you look at--you know, we're in trouble, but go around the world. I mean, I've been looking at numbers for Ukraine which are terrible. All around the world there's this crisis taking place. The--really, the only reason that we're not headed for Great Depression II--at least I don't think we are--is that we think that we've learned a few things since then. So we're not trying to balance the federal budget in the face of a recession. But this is--this is big stuff. This is the worst thing, you know, in two lifetimes.

REID: I mean, people are moving very quickly on this Obama plan. You know, they want to have it on his desk--the economy recovery plan on his desk probably a week to 10 days, according to people in the Senate, after he is sworn in. Very different from back in the 1930s. I mean, you had the stock market crash in 1929, you didn't really have a depression until years later because they didn't do anything. Is that correct?

Mr. KRUGMAN: Well, it--they didn't do anything. In fact, they did perverse stuff. I mean, Herbert Hoover raised taxes in the face of a slump, he--people were cutting spending in the face of a slump, and the Federal Reserve of the time sort of didn't understand the risks. That said, it's not so easy to deal with this thing. I mean, everybody, I think, that I'm talking to is worried about time. We're talking about, you know, there may be stimulus package on Obama's desk a week or 10 days after he takes office, but these things take time to get going. It's going to take six months, probably, before you get any significant amount of stuff going through. Maybe they can do better than that, we'll see. Probably a year before a lot it really starts happening. And meanwhile, we lost more than half a million jobs last month, we're probably losing jobs at the rate of 600,000 a month now. The economy needs to add 100,000 jobs a month just to keep up with the population. So you know, time is passing, things are headed downhill and it's going to take--be a long time before--even with all of this speed, before the Obama plan gets any traction.

REID: David Axelrod, a top Obama adviser, a short time ago on this show said that he is still talking about a number of 675 billion to 775 billion, and I think that's a two-year figure.

Mr. KRUGMAN: Yeah.

REID: Do you think that's enough, or do you think it needs to be bigger than that?

Mr. KRUGMAN: I'd like to see it bigger. I understand that there's difficulty in actually spending that much money, and I--they're also afraid of the--of the T word. They're afraid of a trillion dollar for the two-year number. But you know, the back of my envelope says it takes roughly 200 billion a year to cut the unemployment rate by 1 percent from what it would otherwise be. In the absence of this program, we could very easily be looking at a 10 percent unemployment rate. So you do the math and you say, you know, even these enormous numbers we're hearing about are probably enough to mitigate but by no means to reverse the slump we're heading into. So this is--you know, I--they're thinking about it straight. I liked what Larry Summers wrote in The Washington Post. I think he was getting it right that the risks of being too small are much bigger than the risks of being too big. Nonetheless, I am actually concerned that this thing is not going to be really big enough.

REID: How do you see this recession and the response to it changing this country? I know you've been arguing for a more progressive government for a long time, and obviously at difficult times like this I don't want to suggest that a recession is a good thing. But if--looking back at this five years or some number of years from now, can you envision a country that is better off because of how it responded to this recession?

Mr. KRUGMAN: Well, if you believe as I do that we need a stronger social safety net, if we--that we need universal health care, then the revelation of just how vulnerable we are when things go wrong is going to help. If you believe that we've gone way too far in this belief that the market is always right and that regulation is always wrong, then this is one heck of a lesson in what happens if you don't adequately regulate financial markets. So I think we may be seeing a swing of the political pendulum as a result of this crisis that will hopeful leave us a better nation in the long run. We came out of the New Deal, we came out of the 1930s as a better country, a middle-class country where we had been in the Gilded Age. We came out as a country that took better care of its citizens. That doesn't mean that you hope for a depression, right? So we hope that this thing is relatively short, shorter than I expect it to be, and that it's not a bad as I expect it to be. But yeah, I mean, we're learning something and hopefully we'll make some use of those lessons.

REID: Barack Obama has talked a lot about the need to reach across the aisle on everything, on all of his policies, foreign policy and this. And clearly, in the Senate you can't get anything done with anything less than 60 votes. You need Republicans.

Mr. KRUGMAN: Right.

REID: And in fact, I've been told on Capitol Hill they want a lot more than 60 votes, they want this to be genuinely bipartisan. Which brings me to your book, which I was actually reading last night, and on page 272--I'm not playing gotcha, but I just wanted to see...

Mr. KRUGMAN: Yeah.

REID: You talk about the fact that the Republican Party is controlled by movement conservatives. You then say, quote, "The notion beloved of political pundits that we can make progress by bipartisan consensus is simply foolish." Are you suggesting that the kind of bipartisan consensus Barack Obama is looking for is foolish?

Mr. KRUGMAN: He's--you know, that--he's not going to get bipartisan consensus. He may be able to get some moderate Republican vote, he may be able to get the moderate Republicans in the Senate, both of them, to vote with the Democrats. There--the point is, you look at what John Boehner is doing in the House right now, the House Republican Leader. He's dead set against doing anything constructive right now. He's actually soliciting on his Web site, saying, `If there are any credentialed economists who are willing to, you know, say negative things about stimulus plans, please contact me.' So no, it's not--it's not going to be bipartisan in the sense that the leaders of both parties are going to get together. Reaching out across the aisle, trying to find some sensible people on the Republican side...

REID: Right.

Mr. KRUGMAN: ...is not the same thing.

REID: OK, great. Paul Krugman, thank you so much for joining us. Happy New Year.

Mr. KRUGMAN: Thanks a lot. Same to you.

REID: We'll be back in a moment.


Originally broadcast, 12.28.08