Nobel Laureate Paul Krugman Talks China's Economy

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Let's bring our first guest on The Asia Trade. Paul Kriegman is, of course, Nobel laureate and professor of economics at City University of New York. Professor Krieman, it's a pleasure to have you with us on this first episode of The Asia Trade. I wanted to start off with the US economic outlook because I know recently you've written about this idea of inflation brain right, the idea that you know, perhaps price pressures are the scapegoat for all

Okay, the first thing to say is that we are pretty sure the recent inflation data have been you know, there's noise, there's probably some funny stuff with season, but it basically inflation has been beaten. You know, we're we're arguing over whether underlying inflation is two point six or two point one percent. We're not that the range of disagreement there is fundamental disagreement is really small.

We're basically there.

And the the big uncertainty is how long can the economy continue to you.

Know, power along with rates this high.

And we're at this point now where they're just you know, faint hints soft data suggesting that we're starting to lose steam, that consumers are starting to falter. It's nothing drastic, but then it never is at this point.

And if you're beginning a downturn.

So it's the chance of reaccelerating inflation looks very small. If the Fed cuts rates, the chance that they will look back and say, my god, why didn't we take at least a little bit of precautionary action against the looming downturn looks very much larger. So I would I would go for the rate cut, if only to signal, hey,

Right, So, like a protective cut, and I think we've kind of talked about that a little bit with regard to other economies, as well. Do you worry about the potential for fiscal to undermine the monetary at this point?

Well, actually, you know not in the United States. Everything everything is up in the air because of the election. I don't worry about fiscal being as serious in the US.

You know, we have not gotten our house in order.

But the in terms of there being a significant fiscal boost if Biden is re elected not going to happen as where we've sort of done that. If Trump wins, then all bets are off. I mean his he's made it clear that he doesn't want the FED to retain its independence. He's shown in the past a clear inclination towards kind of a Turkey style, you know, print money to help me politically.

The it is talking about.

Unfunded tax cuts, but also tariffs that are directly inflationary. So no, if I mean, I have to say, markets are way too calm given that this is a toss up election. And then what the side would represent the huge departure on policy of every kind.

Especially with risks around trade tariffs also increasing. What is the view when it comes to geopolitical tensions arising that could further the real risk assets not to mention global economies that really have close training partnerships with the US.

Oh, if this is huge.

I mean we are very much regardless of who wins, we are at the end of an era. I mean, my political science friends talk about hegemonic stability.

Which was that we had a long era of pretty smooth globalization.

You know, the things worked because the US was number one, and the US kind of believed in a rules based order and all of that, and it was always kind of hypothetical, what would happen if we no longer had that.

Well it's gone right now we have.

You know, as long as it was the US and the Euro Area, then well we share a lot of views, share a lot of values. But with the US and China now is the two big players on the block, everything's wide open and the you know, it doesn't necessarily mean that we descend into a collapse of world trade right away, but it does mean that nothing, none of the ground rules that everybody counted on for the past several decades can be counted on anymore.

And here in the Asia and the columnies really watching this on I'm hearing in Japan now, and what and for the writering being is not. Actually, Japan has benefited a lot from the tensions between China and the United States that a lot of these businesses are now veering towards setting up more connections with Japan. Are you seeing a meaningful demand driven sort of inflationary pressure that can be sustainable finally in this country, it's very.

I mean, I've been worried about Japan for a long time, and I have to admit that I worried about LESCA. I said, worried about lots of other things, including my own country.

I'm not, I hope, So I'm not convinced.

When I try to look at the Japanese data, I still don't see the kind of you know, fundamental strength. I mean, a lot of Japan's long term weakness has to do with demography, has to do with extremely low fertility that hasn't changed. Although Japan is at least more open to immigration than it used.

To be, it's it's a long way. I mean, I would say that the talk about.

Exiting zero rates, I understand why Japan really wants to be able to declare that we've ended that period, but it's not all clear in the data that it really has.

And yet what choice do Japanese policy makers have when you have this immense pressure on the Japanese yen, Are you saying that this could potentially be another falls down when it comes to bog policy normalization?

It could well be. I mean, will you know, we'll see.

I mean it's you know, the bo j U leadership is not stupid to say the least.

Uh, they're they're watching this.

But I have to say what puzzles me is why Japan is so worried about the following yen? Uh, you know, it's it's uh, it's not as if I mean, yes, that does hurt consumer prices some.

But Japan, as we say, it's been a.

Country that has long had a problem in convincingly exiting defl and a weaker yen after a little, you know, give it a bit of a lag that's actually positive for demand for Japanese goods and services.

So the thing that I find.

Puzzling is why the weaker yen is inspiring as much panic as it seems to be.

Does it make more sense if you think about the sort of geostrategic tensions, right? Does it create more panic for Beijing for example?

Oh? For sure. I mean, look, I mean, China is in much worse shape. I mean a fundamental sense.

China has a whole economic model that is not sustainable. It has vastly inadequate domestic spending, vastly inadequate consumer demand, has run out of sufficient investment opportunities to keep the economy rolling, and but seems bizarrely unable to change its operating you know, to do even modest steps towards a refundocusing on domestic demand, and China sort of kind of it's still seems inclined to try to export its way out, which is not going to happen. The world is not

Professor Krugman, it's really great to have you with us. We appreciate your time, and we could continue this conversation and hopefully you'll join us again soon. That's a noble laureate and City University of New York professor Paul Krugman.

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