Nobel Laureate Krugman on 'Arguing With Zombies'

fight for a better future. He is joining us on the phone in Princeton, New Jersey, and he also, by the way, tweeted out that he just got his second vaccine, COVID vaccine today. Paul, it is great to have you here back on Bloomberg. How are you. I'm a little wearie. I think there's a little bit of the second day effect of the of the vaccine. But I'm fine. Okay, So you are feeling a little bit. We've heard that from a fair amount of people, So you do feel

a little something. Yeah, it's it's it's fine. It's the water is fine, jumped and we're ready. We're ready and eager. So let's talk about kind of this world where we are. We're gonna talk about your book in a moment, but I do want to ask you when you look at the US economy the impact of COVID. There are some economic reports that do feel like things are certainly getting better, labor markets still tough. How do you see the US economy?

I think we still have another six months of rough times because it is very hard to do normal business when people are rightfully still afraid of of of COVID, and so we're going to be a pandemic depressed economy for well passed in the middle of this year. But I'm actually I'm quite optimistic about after that. I think we are We don't have the same kind of overhanging of excessive debts and so on that we had after the last crisis. We are apparently on the version of

getting an adequate economic relief package. So I think we're going to have a probably gonna be feeling pretty optimistic by this time next year. Well, that's that's some that's some good news. Um, what about when it comes to the labor market specifically, how do we get millions of Americans who lost their job during this pandemic back to work. I think that's going to be a lot easier than

people imagine. Uh, the job losses are concentrated. Uh, there are a lot of It's not all there, but a lot of the job losses are concentrated in sectors that are basically shut down because of pandemic risks. And once we have widespread vaccination. You know, this is all assuming that the variants don't get ahead of us and we lose control of the pandemic again. But once we have widespread vaccination effective herd immunity, people will start eating in

restaurants again, people will start to travel again. There'll be some dislocations because we won't go back to exactly the same economy we had before. But you know, after the after the last crisis, there were many people were saying, oh, just those jobs are not coming back. Act workers don't have the right skills. They were totally wrong. It turns out that we were quite capable of getting back to

full employment, and there's no ways to think that is true. Again, do you think that when we get on the other side of this that we do you you're optimistic, obviously, as you said that we do have potentially a run in the economy, a run perhaps in the financial markets just like we had after the financial crisis, which was kind of low and slow but kept on going for a long time. Well, this one looks to me like

a lot faster. And there were reasons that there was a combination of reasons why it was so slow last time. One of it was that this there was this legacy of excess household debt, which is not the situation now. Another use that we had a lot of destructive disclosterity that was holding back to recovery. And uh, you know those bi elections in Georgia made all the difference. It means that this time and Democrats have learned a lesson.

So now that they have, even if it's a razor the majority, they're they're not going to make that mistake again. They're going to go for a big package. And so I actually think this is gonna be a very different story if you believe some of the projections out there about growth, Uh, it's gonna be it really is Morning in America style growth that we may be looking at. We may be looking at something like you know, over

a fourth quarter on fourth quarter six seven percent. This is this is looking at very very different, not at all the story you know, don't don't fight the last war on this one. Well, you know, it's interesting. So with that optimism, do you think we still need a stimulus package? And I think I know the answer to it because I know you've been supportive of it. Do you still think we need more help? Yeah? So it's not a stimulus package. It's mostly just not what it's about.

It's a it's an economic rescue package. It is we have a miserable time. We won't be back to anything like full employment even with all of this stuff, until early next year. And in the meantime, mass unemployment, lots of disruption, many businesses and great and under travel stress. The state, local governments, it's very uneven, but many of them are still in deep trouble. And it's all about getting people through this. Not there, there's no it's gratuitous.

We should not be having a lot of people suffering when we know that the economy is going to be coming back, when America is not poor, but a lot of individuals and a lot of businesses and some governments are very cash strapped. So this is all about getting us through. This is a bridge, is it's a bridge across a chasm. That we know is there, but we know is limited in in width. Are you optimistic about

the political will to get something this large done? I mean, even as you write in your book, Paul Krugman, in century America, everything is political. This stimulus package certainly is one of those things. Yeah, it's uh, it's almost certainly. It's funny thing, the the simitly I hate calling it the stimulus package. The relief package is enormously popular, has

gigantic probably approval, relatively little disapproval. Even Republicans approve of it, and it will probably not get a single Republican vote in Congress. Right, there's a serious disconnect there. Then they're disconnected. The partisanship of the professional politicians is enormous. It's absolutely if it's if it's good for America, and as a Democrat is in the White House, they're against it, and

so it's going to be a party line vote. But at the moment, the Democrats, you know, Democrates, fifty senators plus Kamala Harris, they have a narrow majority in the House and they are probably going to stay unified. There may be a few things that are shaved off because the most conservative Democrats don't want them, but it's not. It's it's not going to be a modest package. It's going to be a really big thing all the same. Well, do you feel like some of those zombie ideas and

zombie arguments are going to come out? Which is what you write about in your book? Uh, you know, some of those erroneous economic ideas that in particular you find the politicians kind of you know, trotting out when they need it. So I'm just curious what you're getting ready for. Oh well, with the the uh death of death fears, which sun didn't matter as long as Donald Trump was from the White House, are now back that death is an existential threat as long as there's a D after

the president's name. Um, there are inflation, I mean there there is a better case for thinking that we might have some inflation now than there was last time. But the hyper inflation zombie is back in full force. And other stuff too. I mean, I think we're witnessing the birth of the new zombie. This whole thing in Texas where you have you know, the natural gas pipeline freeze and it's somehow or other windpower cost it. So that's a don't don't believe that evidence will ever change that.

For ten years from now, everybody on one side of the political spectrum will know that somehow it was the windmills that caused the Great Freeze of Texas. So now the zombies. That's the thing about zombies. No matter how times, how many times you think you killed them, they just keep on shaveling along eating our brains. So I want to make sure I I get see you're not concerned about inflation with a and I'll use your term relief package of this size. No, I mean it's it is

a big package. It could very well get us pretty much to full employment. But when I do the arithmetic, and when I think about the risk, it's anyone who thinks that we're going to be it's going to be nineteen seventy nine all over again, or something like that, it's the numbers just don't back there. Where this is a big package. It is so once it looks like it might actually be big enough, but it's not big

enough to produce something that is actually scary inflation. Well, and it's interesting, and I have someone actually tweeting at me and they said, could you ask Paul if the FED should start buying bitcoin to pay off the national dead. Uh. I think you know. The difference between Bitcoin and game stop is that game stop has a problem that there was an actual real business I used for it, which

meant that there was some kether to its value. Bitcoin, because no one actually uses it, it's purely speculative disguise. The limit. Well, what do you think ultimately happens? I mean, do you have you thought about I don't know, five years are we still talking about bitcoin? Is it now that it's through about? Is it? D like? What are your projections on how this plays out? Paul? I mean I have I have this problem, which is that the bitcoin has been around. It's hard to believe how long

has been around, and it's still not actually money. People don't actually use it for any significant amount transactions. On the other hand, it just floats out there, and a lot of the things you can say about the uselessness of bitcoin can also say about gold, and gold has kept its value for you know, for five years, despite basically being a very little real world use. So maybe bitcoin just hangs in there. Uh. I don't know, it's hard, it's hard to figure. I can't quite get into the

psychology but there it is. When you say hanging there, what do you what do you mean? Do you mean it becomes part of a balance sheet at corporations like Tesla said last week, like Elon Musk said, does it just hang out and continue to ride? Does it drop in value significantly? Not? Maybe out there, maybe there'll be

a bitcoin at you name a price. It's completely arbitrary that maybe people will continue to hold bitcoin and say, well, bitcoin is valuable because other people think it's valuable, and it's uh, and there's never a moment of reckoning. I mean, it's I mean, there's an alternative story where one day people we have a widely coyote moment, people look down, realize there's nothing supporting it, and it just crashes to earth.

But but you know that hasn't happened so far, and it's been around for a while, so maybe who knows. I mean, it's it's one of those things where I don't know that it that it's hard to make any rational argument about where the price should be. And maybe

because there's no rational argument, it can be anything. One thing I did want to ask you, going back to the economy, Paul, is you know new administration but the four years of Donald Trump and his administration, what impact or lasting impact do you think that that had on the USC call to me, Well, there was a lot of wasted time, you know, we we had we spent uh whatever it was, I guess two hundred and eight weeks waiting for infrastructure weeks to actually happen, and it

ever did. Um, So we didn't do any investment in the future. But I think one thing we did learn Trump uh ran really a quite stimulative fiscal policy. We it wasn't efficiently stimulative, but we did have sustained budget deficits and nothing bad happened as a result of those deficits. And we also learned that the economy could run hotter than people a lot harder than people have thought. I've looked back at the said thought four on the playlet was full employment, and so we we learned that the

economy has more room to run. And that's something that somebody else, you know, something that Biden can can take advantage of that discovery and maybe actually usually the running room to actually build some infrastructure too. So it's it's it's one thing to get back to full employment, but it's it's another thing to tackle inequality in this country.

And one thing that's happened and been laid bare during this pandemic has been the gap between the haves and have nots has grown, has grown even more than it was before. What is the best way to tackle inequality in the US? I think you have to do just it's you have to do a bunch of things. There's no single magic magic bullet. I mean, child child task credits can do a lot because it doesn't take a whole lot of money to vast and improve the lots

of the lives of millions of children. Um minimum wage. I'm not sure we're going to get the fifteen dollars, but I'll hire minimum wage helps labor. One of the things, sort of under the radar things is that the bid administration is more pro union organizing than any administration we've had in decades, and that might make a difference in terms of enhancing workers bargaining power. And then there's other stuff.

I mean, I don't know whether an Elizabeth were in wealth taxes is anywhere in their future, but you can make a start. There's certainly, um there's no one thing. What you just need is a government of Congress that that tries to improve the lot of people who are in the bottom half of the income distribution, and um, we really haven't done that at all for a long time, so we might be surprised at how well it works

if we finally started doing it. Are are you concerned that a wealth tax would would drive people out of the country, would drive the wealthiest out of the country. I think it's would the mean a little bit. But you know the fact of the matter is that, let's put this way. Taxes are in New York City, which is where I spend most of my time, the tax rate on high income people in New York City is considerably higher than it is in, uh, you know, in other parts of the country. And they don't see a

lot of wealthy people moving to Kansas. They're going to Miami. They're going to Miami, but some but even that, there's there's some mobility of people. But it's the idea that everybody is ready to move. There are a lot of things that matter in life more than your tax rate, and that that will continue to be true. Hey, listen, one thing I wanted to get your thoughts on, Paul, because we caught up our David Weston for this week's Wall Street Week caught up with Larry Summers, former U S.

Treasury Secretary, and they talked about the stimulus plan. You know, Summers has been actually hang on for a second, because President Biden is walking to a podium. He's in Michigan. He is been touring a visor factory. Uh, and he is expected to make some comments. Looks like he's getting a little bit of an introduction by the folks that are guiding him on his tour. Do we want to go there or do we want to hold off? Guys? All right, we're gonna hold on. Let's so let's let's

stay with um Paul Krugman, who's still with us. But he's been critical, and I think his concern is I was going to play some sound, but he cites used to cifically needs, concerned about people. I think you've talked about maybe people kind of shoring up their own finances, and he's concerned that that's not the best use of any kind of relief package, COVID relief package. What do

you say to that? Oh, I uh. The there are different parts of the relief package, and the part that's the most popular, which is the fortune hundred dollar checks. Is also the least targeted, So some of that money will go to people who really badly need it, but a lot of the money will go to people who have been doing okay in the pandemic. Um. And if we were sure if money, I would worry about that, but we're not. The government can borrow an incredibly low

interest rates. Debt is not a pressing concern. Um, Larry is I understand? I mean, Larry is, Larry is not stupid. Let's say let's say that, I mean, we actually had a debate on this at the Princeton webinar last week. Um. And it's a if people will spend a lot of that,

there is some risk of overheating. But I think the the odds are that to the extent that we're giving a lot of money to people who are not urgently needed, but they're also likely to not spend it right away, So that I think it's you know, if we had unlimited time to craft a very careful proposal, and had unlimited ability to distinguish who really needed the money, then you could probably achieve what we needed with us somewhat

smaller package. But that's not where we are. We need to get this thing out the door now, and so I'm okay with it. So yeah, so okay if some people save a little bit and shore up their finances. But you're thinking, you know, and I think I've we've heard this a lot that if we overshoot it, it's okay because there's a lot of people who are really hurting right now. Yeah, we've had an object lesson in from from two thousand nine about what happens if you understood,

which is you don't get a second chance. That's a great but that's a great point, right we learned in the financial crisis. Yeah, well that's right. Occasionally some of us, uh, you know, the zombies keep on shamble along regardless, but some of us actually do, I hope, learn some lessons from from experience. Hey, Paul Kruegman, did you get a chance to check out yesterday's testimony from the CEO of Robin Hood and CEO of Reddit, CEO of Citadel and more.

I you know, I read the accounts of it. I didn't sit through, and you know, I have to say, I just cannot get worked up about any of this. Why not, because look, we have a we have a huge problem of inequality. And I said, we have a huge problem that ordinary people are not not getting enough and are not are not don't have adequate lifestyles. Um, the way out of that is not for everybody to become a day trader. Al Right, this is not this

is this is always going to be marginal. And the this whole stock trading thing that there are no good guys in this story. I mean the obviously the hedge funds are not lovable, but you know, putting a short squeeze uh on on on a hedge fund, even if it's done by a bunch of small investors, it's also

not a lovable thing to be doing. And people are complaining that, you know that Robin Hood stopped trading, but the people who are blocked from buying at that point actually, in many cases were prevented from losing a lot of money because they would have been buying a game stop at ridiculous prices. So I but altogether this is like, this is like a drama that involves people and issues that I don't see why the rest of us should

care about, but it does. It does raise a point, which is that regular people have access to financial markets now in a way that they have never had before with zero commission trading, and they can do what used to cost hundreds of dollars to do to make a single trade. Is that a good thing? Is it good to have that kind of access? Probably not in the end. I mean, I'm not going to say that should be denied because we can. It's a it's a free country, and if if this can be done, I don't want

to be to paternalistic. But the fact that matter is that if you're an ordinary investor, you should not be doing You should not be stock picking, you should not be you don't have the resources to figure that out. And the uh, you know what what all the personal finance experts tell you buy index funds, do things that you know you should probably should be in the market some, but you should not be playing the market. And this is so making that easier for people to do is

actually not a good thing. So I want to squeeze in because I know we will have to ultimately go to the president. But I want to ask you about something in your book, and you're right, you know, in terms of things that are important, the most important thing is and you say, sometimes I wonder whether I'm wasting my time talking about any other issue other than climate change. If we don't get that, right, if we don't put

policies in place, nothing else matters. That's right, if if, if we really have climate change is potentially a civilization destroying fent. This is and it's you know, I don't really care about productivity as if there's no civilization to be productive in and so um so that is the most important thing. The the the technology is our friends. Renewable energy has been a miraculous story this past fifteen years, and the possibilities with actually fairly moderate policies to bring

climate climate change under control are huge. So that's something that we should be very um excited about that we have to do it. And of course we have to go around and we have to be reasonable and not say somehow that windmills caused natural gas pipe plants to freeze. Right, that's you took the words right out of my mouth. I mean, we saw it happen this week with the

governor of Texas. Um. I do wonder, in this political, politically charged environment, what is an effective way to get the urgency of the climate change message across Because there are a large number of people in Washington who do not think it's a priority, Well that's what that's what what may do them. And I don't know what what you can do except to try to make the case, and for those who who do have some power to do something about it, to to use the leavers they have.

It's I mean, we're luckily. It turns out there was a time when finding climate change looks like a real kind of eat your spinage root connect. I think that it was going to be extremely expensive and hard, and and it looked hopeless. Now it looks like just a fairly modest financial nudges towards climate frantic technologies can actually make all the difference, and maybe, just maybe we can do that. We better hope so for the sake of

the next few generations. Paul kog if you're sitting down with the president and his team or the president one on one and you said, hey, this is one economic policy you've got to get right right now, what would you say? Oh, I mean right, I mean they I'm for I guess we're not supposed to call the Green New Deal, build back better, But I think a kind of a combination of infrastructure investment with a strong climate change focus is the way to go, how we're going

to do it. Good stuff, Paul Krugman, thank you so much. His book Arguing with Zombies, Economics, Politics, and the Fight for a Better Future. It is in paperback and you can find it now. Paul Krugman, of course New York Times columnist, Nobel laureate, and thank you so much for all that time. What a great conversation. Yeah, it was fantastic.