Its both prescription and warning. Our current obsession with slashing the deficit and avoiding that wellknown and worn fiscal cliff is killing us, krugman writes, getting in the way of what really needs to be done, which is dedicating government to creating jobs and getting us back to full employment. He blames not only congress but the white house. Paul krugman is professor of economics and International Affairs at princeton university. Since 1999, hes been an oped columnist at the New York Times and now also writes a blog for the paper titled the conscience of a liberal. According to the Search Engine technorati, its the most popular blog by an individual on the internet. Author or editor of some 20 books and more than 200 professional papers, krugman is a thinker so esteemed and widely known in his field hes become an icon. Not only has he won the nobel prize in economics, hes also the subject of this song by the balladeer Loudon Wainwright iii i read the New York Times thats where i get my news Paul Krugmans on the oped page thats where i get the blues cause paul always tells it like it is we get it blow by blow as if being immortalized by the blues isnt enough, there was even an Unofficial Campaign and petition in the last few days urging president obama to make paul krugman the next secretary of the treasury. It was an honor, as shakespeare would say, that mr. Krugman dreams not of. Paul krugman, welcome. Hi there. So, like William Tecumseh sherman you refuse to be drafted. Well, you know, fortunately it hasnt come to that point. But i think i probably would. But you remember what general sherman said when there was a movement to run him for president , i will not accept if nominated and will not serve if elected. That was the sherman like statement you issued. Thats, well, im not quite up to shermans standards and i dont think im quite ready to lay waste to georgia either. But a good, good man i admire actually. But the Grassroots Campaign in your behalf, unofficial, was serious. I mean, over 235,000 people signed on. You broke their hearts. Any regrets . No, because i probably have more influence than i, doing what i do now than i would if i were inside trying to, you know, do the court power games that come with any white house, even the best, which i dont think id be any good at. So no, this is fine. And what the president needs right now is he needs a hardnosed negotiator. And rumor has it thats what hes got, so. In jack lew . Thats right. The president cant pass major new legislation. He cant formulate major new programs right now. What he has to do now is bargain down or ride over these crazy people in the republican party. And we what we need now is not deep thinking from the treasury secretary. If the president wants deep thinkers, he can call joe stiglitz, he can call other people. What he needs from the treasury secretary is somebody whos going to be very effective at dealing with these wild men and making sure that nothing terrible happens. I understand that jack lew has depression art on his, the wall of his office, art done by the Works Progress administration. Which would be a good sign for someone like you who believes the depression is back. Thats, i have to say, the most reassuring thing ive heard about him. Wpa, you know, they produced a lot of art, which i think its almost inconceivable now. But also the wpa was one of the really good moments in american policy. In a time of economic disaster, hiring people, giving them jobs to do things that are good, much of which survives and is an important part of our physical planet today. This is great. And the fact that he thinks well of and admires what the wpa did, thats a very hopeful sign. What could jack lew do as treasury secretary that would make you think hes a Kindred Spirit . Campaign against this austerity obsession. Were not going to get a big new stimulus package, much as i would like to see it. No, were not going to get it this year, anyway. But id like to see him saying when somebody says, well, we need to slash here, we need to slash there. And he would say why would we want to be doing that now . Thats actually going to hurt the economy. But hasnt our economy changed so much since Franklin Roosevelt simply put people on the government payroll . Its, economics, the underlying rules change a lot more slowly than people imagine. People look and they say, oh, you know, back then they were taking ocean liners and now we fly jet airplanes. Or, back then we didnt have a global economy. Actually, we did. Its a little bit fancier now. But the basic rules are not are not much changed. It takes hundreds of years for those to change a whole lot. And this is, i can pretty easily assemble a bunch of headlines from the 1930s and they will sound like theyre right out of todays headlines. This is the same kind of animal that we confronted in the 30s. This is depression economics. And the nature of the solution is not really very different now from what it was then. What do you mean, depression economics . Well, two things really. One is, a recession is when the economys going down. A depression is when the economy is down. So, you know, the u. S. Economy was actually expanding through most of the 1930s, after a terrible big slump at the beginning and another slump later in the 30s. And then it was expanding in between. But we call that whole episode the Great Depression because it was all a period of high unemployment and a lot of suffering. And, of course, were in that now. Its not as bad as the Great Depression. You know, its a great recommendation. Not as bad as the Great Depression. Its terrible. We have a persistently depressed economy, persistent lack of jobs. So in that sense, its a depression. And theres also a more technical meaning. Depression economics is when the normal things you do to boost the economy, have the Federal Reserve cut Interest Rates a little bit, are no longer available or effective. Its a situation where the normal rules of what you of economic policy, have to be put on hold, and you really need to do extraordinary stuff. Well, the fed has kept the interest late very low. And it has made a big difference, has it . I think it actually has. If they hadnt kept the Interest Rate low, things would be much, much worse. Meaning more people out to work. Thats right. We, you know, this is not as bad as the Great Depression. Again, our famous last words. But part of the reason is that the fed did learn something from the 1930s. Its learned that raising Interest Rates to stabilize the price of gold is a really bad idea in times like this. But the trouble is that zero, which is as low as it can get, is not low enough. And we actually know pretty well what you need to do. The other side of it is that people have been told so long, save money. Save money. Americans were not saving. Now if they save money, they make no money from their savings. Thats right. And, actually the truth is right now saving hurts us. Its because what, another way, yet another way to think about depression economics, depression economics is a situation where the total amount that people want to save is less than the amount that businesses are willing to invest. You can think of that as being the result, a lot of it is because of this overhang of personal Household Debt from the past. We had a housing bubble that burst, leaving us with too much construction. We have a Financial System thats disrupted. But all of that leads to the fact that theres, the amount that businesses are willing to invest is less than the amount that collectively we all want to save, including corporations that are trying to retain earnings. Which means that were awash in excess savings. And if you decide to save more, its not actually going to help society. I mean, things add up. If theres a crucial, one crucial thing to understand about all this it is that the global economy, money moves around in a circle. And my spending is your income, and your spending is my income. And if all of us try to spend less because we want to save more, we dont succeed. All we end up doing is creating a global depression. So your prescription in this book, and the book is an argument for the prescription, is that the government should spend more so that people can buy more. In other words, creating demand that will drive the economy. Thats the chief argument in here. Thats right. There are some other things you can do. Debt relief, where you can do it, will help because it will make people able to spend more. Therere some things that the, maybe the Federal Reserve can do, even though Interest Rates are zero. But the core thing, the thing that we know works, the thing that all the evidence of history says works in a situation like this is the private sector wont spend, government can step in and provide the spending that we need in order to keep this economy afloat. As you know, there is an argument on the other side that says that roosevelt, in spending in the 30s, did not really bring us out of the depression. It was, and you acknowledge this in the book, the war, in which so much money was spent, you couldnt help but put people to work. Thats right. But the fact that it was a war that finally got the u. S. Government to spend enough is not an argument against spending. Its an argument about politics. Its saying that then, as now, lots of people were saying, oh, it would be irresponsible to spend, and it wasnt until something external came along that the political restraints were released. And then, we didnt, we actually were, we had recovered from the Great Depression before pearl harbor, because the u. S. Economy really went to war in 1940. And presto. I mean, lots of people said, oh, spending more cant produce recovery. And then we started our military buildup because war had broken out in europe. And suddenly, we had recovery. I made it as a joke, but if we discovered a threat from space aliens and decided that to deal with that threat, we needed to actually, somehow or other we needed to do a lot of infrastructure spending. We needed to build roads and highspeed rail. We would have full employment. By full employment, you mean . Something like 5 unemployment. There essentially will always be a certain number of people who are not working for one reason or another. Yeah. Its a dynamic economy. Theres always going to be companies failing. Theres always going to be people quitting a job and taking some time to find a new one. Theres a lot of friction in the economy. So the fact of the matter is that normal, a normally pretty full employment economy is still going to have 5 measured unemployment. Thats okay. But theres a world of difference between that and right now the official number is in the high sevens. But a lot of measures suggest its a lot worse than that. I mean, and most important, we have 4 million whove been out of work for more than a year, which is unprecedented since the 1930s. Yeah, you write that we are in a depression that is essentially gratuitous. We dont need to be suffering so much pain and destroying so many lives. Gratuitous in the sense that theres nothing, the only obstacles to putting people to work, to having those lives restored, to producing hundreds of billions, probably 900 billion a year or so of extra valuable stuff in our economy, is in our minds. If i could somehow convince the members of congress and the usual suspects that deficit spending, for the time being, is okay, and that what we really need is a big job creation program. And lets worry about the deficit after weve had a solid recovery, it would all be over. It would be no problem at all, which is what, thats the lesson of 1940, 1941. Which is . You can find all kinds of people explaining what was fundamentally wrong with the u. S. Economy in 1940, that Technology Makes it impossible, workers dont have the right skill. Then along came a war in europe and we started spending. Actually, at that point, spending a lot on infrastructure because we were getting ready for a war. And all of a sudden building harbors, building all kinds of and camps, training camps, there are a lot training the first thing that happened actually was a lot of Construction Spending on the giant new camps that the army was going need. And all of a sudden, all of those unemployable workers turned out to be extremely productive, if you gave them a job. All of those, you know, total inability to get the economy moving turned out to be totally easy to get the economy moving. And were basically in that situation right now. All the productive capacity is there. All thats lacking is the intellectual clarity and the political will. You make this so clear in the book, thats why i recommended that president obama read this book as the one book i would like to see him read before the inauguration next week. If he read it, what would you hope he would fasten on . I would hope that he would fasten on the notion, you know, he faces real political constraint. So we understand, he cant just pass legislation. But that the most important thing, his policy priority right now should be doing whatever he can to at least move in the direction of the kinds of policies that we want for full employment, that we need for full employment. And that the obsessions of washington about a grand bargain on the deficit are really pretty much beside the point right now. That, if given a choice between doing something that will help the economy in the next two years, and something that will allegedly settle our budget problems for all, you know, for all time, which is wouldnt, that he should go for the stuff that will help the economy now. That he should not bend on that point. I can imagine that if you were sitting across the table with him, he might reply, look, krugman, weve got a recovery coming on. Jobs are being created more steadily than ever. Measured unemployment is falling. Households are shaking off their burden of debt. I can see light at the end of the tunnel. I dont think this is the time to do what youre saying. I think he might have said that two, three years ago. I dont think that president , you know, we happen to have a very intelligent man as president. Hes for real. And he does understand. You can have real discussions with him. And i think he understands that, although things have improved some. We actually have had some progress on the economy in the past year. Its a glacial pace, compared with the way we should be. You can do this various ways. But if you think about the plunge that we took and you look at measures like the labor force, a fraction of prime age workers employed, whatever, we have maybe made up a quarter of the ground we lost in that great plunge in 2008, 2009. And itll take years and years to get back to anything that looks like prosperity at this rate. What makes this a depression . You know, my generation remembers the photographs of those long lines of people looking for jobs, men and women both. Remembers the sad eyes, the hungry stomachs. Remembers that men were becoming so desperate they were becoming militant. But today, even though you say the situation, in terms of joblessness, is like the 1930s, you cant obviously, you cant transparently look around and see the evidence of a depression. Thats right. Its, and partly that its not as bad. So by modern concepts the Great Depression had Unemployment Rates that were as high as 20something percent by modern measures. And even in 1937, when things had improved, before we went into the second leg of the Great Depression, it was still probably about a 9 Unemployment Rate by modern standards. And weve got a seven point something, 8 , whatever. So things are not as bad. But i think a lot of it is just that the optics have changed. Optics . The optic, the misery is there. I mean, is there anybody, i guess if you live in very rarified circles you dont know people who are desperate right now. But i live in pretty rarified circles and i do. I know, i have relatives, friends people i know who have, men my age whove lost jobs and see no prospect of getting another job and are just desperately trying to hang in there until they can collect their Social Security and get on medicare. There are young people whose lives have collapsed. You know, they graduate and theres nothing there. Yeah, you make a very powerful point in here of the impact of being out of work now on the lifetime career of a young person who has no job at the moment. We have pretty good evidence on, you know, how long does it take to make up for the fact that you happen to graduate from college into a bad labor market. And the answer is forever. You will never recover. How so, what do you mean . You will never get, youll miss years getting onto the career ladder. By the time you get a chance to get a job that makes any sense, you know, that makes any use of your skills, you will already be tarred as somebody, well, youre 28yearsold and you havent held a responsible position . Well, yeah, i couldnt because there were no jobs. It just shadows your whole life. And its very clear in the evidence from past recessions, which have been nowhere near as bad as this one. The other thing i think i want to say here is that we have, in some ways, made things more civilized but also more invisible. Somebody said that food stamps are the soup kitchens of the modern depression. That therere a lot of people who would be standing in line to get that soup, who are instead, and its a good thing, who are instead getting, i guess its now called snap, supplementary nutritional assistance program, but who are getting those debit cards, and are getting essential food stuffs. And theyre at the Grocery Store and they look like anybody else. But the fact of the matter is they are still as desperate, theyre getting by day to day with the aid of a trickle of government aid, just like the people who were on, standing in l