• Every Day Lost Matters Now: Talking to Paul Krugman

    Why should editors of economic textbooks start updating their “Externalities” chapters right now? Why should we think of today’s shelter-in-place orders as sound economic policy? When I want to ask those questions, I pose them to Paul Krugman. This present conversation focuses on Krugman’s book Arguing with Zombies: Economics, Politics, and the Fight for a Better Future. Krugman, a recipient of the Nobel Prize in Economics, has been a New York Times columnist for 20 years. He is a distinguished professor at the CUNY Graduate Center, and lives in New York City. Krugman and I talked by phone on the afternoon of March 27th, as the US House of Representatives voted on the Coronavirus Aid, Relief, and Economic Security Act.


    ANDY FITCH: In this book’s earliest written essay, you describe yourself as “facile with small mathematical models,” as possessing a knack for paring down abstruse concepts to make them more tractable, more portable, potentially more disarming. Could you flesh out what has made being “facile” (at various points in your career, and in various national debates) not such a bad thing?

    PAUL KRUGMAN: Well first off, a lot of academics would find writing two columns a week extremely hard. A lot of economists will, for good reason, labor for years over a single paper. Of course my New York Times columns don’t read like academic papers, but it does help to start from this habit of mind that strips down complex concepts to something pretty simple and straightforward.

    Other people write in other styles, which we also need. Economists really poring over data do critical research that benefits us all. We need the kind of work Anne Case and Angus Deaton do. And a lot of complex problems do demand complex solutions. But in this sort of first phase where most of the debate occurs about how we should define or assess a trend or pattern or idea or argument, figuring out how to Marie Kondo it, and get rid of the clutter, can be quite important.

    Arguing with Zombies gave me a much clearer sense of how your column has operated that way all along — even while most readers’ attention probably gets focused on the timely discussion taking place, rather than the argumentative form.

    Right, we broke up this book into broader topics, and then chronologically within a topic, you can see better how I keep working at an issue. What at first might have come across as quick momentary insights hopefully add up to something with more cumulative heft than just the conversation of the day — or now maybe of the hour.

    Still on this topic then of staying succinct, even while addressing complex multipart questions, that early “How I Work” essay lays out four basic rules for facile (in the positive sense) academic research. And then Arguing with Zombies’ introduction follows up, 30 years later, with its own four-point plan, now on effective punditry in a polarized era:

    1. Stay with the easy stuff

    2. Write in English (perhaps what poet Marianne Moore calls “plain American English which dogs and cats can read”)

    3. Be honest about dishonesty

    4. Don’t be afraid to talk about motives

    Effective-punditry rules number 3 and 4 might get the most attention, for characterizing your distinct and vital presence in many public conversations of our time. But rules 1 and 2 seem the most consistent across your career, and equally crucial. So how in your own recent writing have you sought to synthesize a more complex interpersonal/institutional accountability and this ongoing commitment to argumentative facility?

    The critique I receive most often comes from me acknowledging when a reasonable argument just isn’t taking place. And yes, that approach can detract from conveying whatever point I most want to get across, or from winning over certain readers. Calling out somebody’s motives can sound less authoritative or persuasive or sympathetic to some audiences. So I guess a more conciliatory approach might work, except my own experience suggests that, in America in 2020, when you try to offer a factual and conceptually clear analysis, without acknowledging the ugly realities of how our contemporary political conversations take shape, then you just get lost.

    We see this happening right now of course with our whole debate about responding to COVID-19. Certain economists and institutions have tried to offer solid plans and spell out basic principles. These efforts clearly made an impact on the thinking of Democrats in Congress, because those legislators actually might listen. But as far as I can make out, thoughtful economic proposals have had no impact whatsoever on Congressional Republicans. Their opening bids just started from the same old doctrines.

    Now if we do end up with this proposed two trillion-dollar response, then I’d give that a B. I’d certainly not grade that an A. But I’ll consider it much better than what I feared we’d get. And that decent outcome came about through some pretty hardball partisanship, with Democratic leaders basically saying: “Okay, we won’t pretend any constructive conversation is happening. We absolutely insist on this stuff. If you want a bill to pass, then you need to protect those already unemployed. You need to deliver benefits even to low-income families. You need to provide paid sick leave.”

    So, I mean, if any two subjects demand technical expertise, epidemiology in a public-health crisis or macroeconomics in a financial crisis stand out. But instead we get this purely political battle, without any useful policy debate. And you can’t really speak to all of that unless you pick up rules 3 and 4.

    Zombie ideas, as described in your book, still shamble along years after we thought real-world outcomes had buried them (trickle-down economic models come to mind). So at this point, can you already extract some classic zombie ideas stitched into the Coronavirus Aid, Relief, and Economic Security Act? Or is this entire act built on a foundation of zombie ideas? Or is it still too soon for the zombies to come out? And where might they start to emerge with this bill’s implementation?

    I’d start from how the whole rhetorical response to this pandemic actually sounds pretty much identical to the so-called climate-change debate, except now playing out one hundred times faster. You have this blanket dismissal of some supposed liberal hoax. You have these suspicions about experts conspiring against Donald Trump, and imposing their socialism — while Trump protects us from this imagined threat or this “Chinese” plague. You could basically take what Trump and Trump-supporting media outlets have said about climate change, and superimpose those statements word-for-word onto this COVID conversation, and you’d get the same thing.

    Similarly, with the financial response (and again, even with COVID moving a hundred times faster than typical crises), Republicans still started off by proposing more tax cuts. I mean, I’ve heard some jokes about how the Black Death must only have happened because scientists hadn’t yet discovered tax cuts. And that familiar Republican fixation at first seemed like it might lead to a fundamentally unacceptable package: with low-income families basically getting nothing, with millions of people who just lost their jobs basically getting nothing. So, compared to that dismal scenario, this COVID bill feels like a triumph for now. The zombies got beaten back on this one — or at least got beaten 80 percent back. This bill definitely contains some corporate welfare. But we shouldn’t forget that, just about 10 days ago, we had a president asking something like: “Won’t cutting the payroll tax take care of it?”

    Your own academic research of course converged quite seamlessly with pressing concerns brought about by the 2008 financial crisis — with similar dynamics now coming to the fore again much faster than most of us would have anticipated. Certain repeated mistakes (for example, failure to redistribute more and to build out resiliency while we had sustained economic growth) already seem clear. Certain zombie ideas (such as claims that government, at least under a Democratic administration, always should prioritize acting “responsibly” and tighten budgets, even at moments of acute national distress) seem likely to soon shamble our way. So could you offer a couple key concepts or models, perhaps still ensconced in more technical domains, that can put a broadly informed public on a quick learning curve for thinking through whatever most momentous medium-term policy questions we now might face?

    Yeah, first we’d have to define the medium term, right? Does the medium term just mean weeks at this point?

    But like you said, I have been trying, and haven’t yet quite succeeded, at figuring out exactly how to address a couple ideas — and every day lost matters now. So how precisely to explain, for example, why, in times of war, we almost inevitably see governments adopt centralized control over key resources? Why don’t societies let the free market work its supposed magic to find the best prices and create incentives and fuel this wartime effort? We probably have good reason not to do that. Think about all the possibilities for profiteering during a crisis, or about today’s exorbitant prices for facemasks (and how wealthy people can hoard masks, which leaves others with no protection). But I’m still, pretty much as we speak, searching for the right terms to explain this choice for centralized control that societies almost instinctively make in wartime. It actually takes a lot of hard work to be simple [Laughter].

    I also want to write about our sudden (and presumably fleeting) moment of bipartisan agreement that we need to spend whatever it takes, and can’t worry too much right now about how we’ll pay for it all. Of course I have to assume certain supposedly responsible people will soon say: “Oh my God, wait, we just threw away two trillion dollars.” Many more Americans will start collecting food stamps, for example, and we’ll need to keep explaining why, in fact, we cannot focus on government debt as a big problem for America in 2020. We’ve made some good decisions for the moment, but absolutely should prepare for the counterargument that we now need to compensate by doing a lot of bad stuff. We’ll have to argue hard against that.

    So the zombies have been stumbling about this whole time, but they might start to coalesce again around this really narrow perspective that sees government intervention as always harmful, even in moments of extreme crisis. I would freely admit that command-and-control systems do not work well for running the economy as a whole, over the course of decades. But sometimes we need that kind of control over our markets. And the sooner (and the longer) that Republicans can acknowledge this basic point, the less bad the outcome for all of us.

    How about baseline assumptions held by professional economists themselves that need rethinking right now? Which key conceptual models should they be reconceiving of as streamlined metaphors or as hypothetical conjectures — rather than as inevitable concrete realities?

    I’d probably start with how economists think about externalities: where your own behavior conveys benefits or imposes costs on other people, and where you don’t have any market incentives to change that behavior. Economists long have acknowledged various kinds of externalities, but also have ignored so many of them. Literally today, my wife and I are working on last-minute revisions to one of our economics textbook’s sixth edition, and realizing we need to bring pandemics into the externalities chapter. We can’t just describe the factory dumping poisonous chemicals into the river. Right now, your personal decision to go out drinking with friends might impose huge negative externalities on society. That’s only one of many ways in which we need to apply this externalities concept to a much bigger domain than anybody had realized.

    Of course this COVID crisis also sharpens debates about using dollar valuations to measure social value. Economists often get accused of only caring about GDP, and not about people. No reasonable economist actually operates that way, though some economists certainly have prioritized a quantifiable means of assessing social value, without facing serious challenges from within the profession. But now we find ourselves more or less deliberately shrinking GDP, by shuttering nonessential businesses and telling people to shelter at home. And we shouldn’t think of these social policies as somehow deviating from good economics. Economics should emphasize at its basis how to improve people’s lives, and if we need to shelter in place right now to save many lives, than we should consider that sound economic policy.

    By extension, in economics we might soon start hearing more from sociologists about the importance of separate domains — about how having money shouldn’t allow you to just buy intellectual prestige, and certainly how a lack of money shouldn’t mean you have no access to life-or-death medical treatment. I mean, lots of us have noticed over the past couple weeks all of these wealthy and prominent people getting diagnosed with COVID-19. So the question becomes: does this mysterious disease somehow seek out wealthy and prominent people? Of course it doesn’t. Instead, in a moment of scarce testing resources, the wealthy and the prominent have a much better chance of getting tested than anybody else. None of us should consider that acceptable.

    More broadly then, when you published Arguing with Zombies just a couple months back, it still made sense to refer to a basic partisan divide on questions of what scope our government should have to reduce the risks and inequalities inherent in a market economy. It still made sense to question our society’s (but really any society’s) capacities to commit in the long term to a moderate policy regime of the sort Paul Samuelson might have formulated: first securing (at a macro level) something like Keynesian full employment, and then (at a micro market level) letting Adam Smith’s invisible hand operate more freely. How (if at all) might societal fallout from COVID scramble this partisan thinking on government’s proper social and economic scope?

    Right, it will be interesting to watch how this plays out. Though for an initial response, I’d say not very much has changed. That partisan divide preventing any kind of moderate consensus still seems pretty strong. Both in terms of public opinion, and of specific responses by state governments, you see a sharp split in perceptions and policies. To take the four most populous states: we have California and New York treating this as an emergency requiring a wartime mobilization, while Florida’s governor has kept the beaches open. The Texas lieutenant governor (who, weirdly, because of Texas’s governmental structure, actually runs the state) keeps saying something like: “Well, if some old people have to die, the rest of us can live with that.” Or the governor of Alabama basically said: “We don’t need any special restrictions. We’re not California.” Though now it turns out that Alabama has a higher per-capita rate of disclosed cases than California does — still growing at about 30 percent a day.

    Then more broadly, I’d say that as this American political center (already of course much more conservative than what you’d find in most of the world) keeps breaking down, more Americans still fall off to the right side, rather than to the left. But could this current crisis open many people’s minds, or get them to think differently? I really can’t tell. The whole point with zombie ideas is that they just never die. So for all I know, within two or three weeks, every single state will impose the same kinds of containment measures implemented right now in California, New York, and New Jersey. But will that actually lead to some substantive rethinking? Or will it just go down the memory hole as soon as things return to something like normal? We’ll see.

    I will say that I did expect the 2008 financial crisis to lead to this kind of major rethinking. It amazed me how little impact those hugely destabilizing events had on political attitudes, even among professional economists. Within a couple years, I found myself back at finance conferences with people who’d spent their working lives writing about financial-market efficiency and stability, and who now seemed completely undaunted by what had just happened.

    Yeah, I guess with your references to a wartime footing, I wondered what prospects you see for a consensus taking hold that we’re all in this COVID mess together — and that the wealthy, who still have resources to spare, will need to contribute much more to the common cause, at present and perhaps going forward. Or is that hope for some Depression- or World War II-like event to rekindle a (now more inclusive) collective solidarity just its own nostalgic left-leaning zombie optimism?

    Well that kind of change has happened in the past. Empirical research by political scientists shows that major social-safety-net expansions, first associated with the two World Wars, did lead to fundamental and lasting changes (not necessarily permanent, but enduring for a generation or more — both in terms of funding and in terms of public support for these institutions). So I don’t think we just tell ourselves a romantic fantasy when we look at those historical precedents. And they allow us to ask that interesting follow-up question you’re getting at: so why didn’t the 2008 financial crisis have a similar effect? One answer might come, in a peculiar way, from how policymakers’ foresight and central banks’ decisive actions combined to prevent any more all-encompassing financial meltdown. We didn’t get enough fiscal stimulus. But we got some, and perhaps more importantly, we now have a lot of automatic stabilizers built into our economy. So 2008 never became a complete economic eclipse along the lines of the Great Depression.

    By contrast, I do think we already can see that the impact of this current crisis will be much broader — both in terms of who loses their jobs, and unfortunately in terms of who loses their lives. We still can assume that only a fraction of a percent of the population will die from this, but pretty soon (certainly in the New York area by this point) everybody will know somebody who has come down with COVID, and the destruction of life will start to feel quite universal. So could this become one of those rare moments when large swaths of the population truly rethink basic social and economic assumptions? Again, I got that wrong with the Great Recession. A major expansion of healthcare access did emerge out of that recession, but I still would have expected much more. So even though I’m a pundit in real life [Laughter], I won’t make any further predictions right now.

    Well with Samuelson’s Neo-Keynesian synthesis still in mind, alongside your own moderate inclinations to save capitalism from its own excesses and vulnerabilities (rather than to replace it altogether), do you see room today for a progressive American left to better appreciate how much we all do rely on a dynamically functioning market economy (no doubt needing adequate regulation)? Why might we now find it harder to think about the well-being of workers, or of “the people,” without also factoring in, say, the health of small businesses, or even entire sectors?

    Here again I’d say that, given America’s overall right-leaning politics, the progressive left is pretty much already there. You hear less about overthrowing the capitalist system, and much more about reinventing an interventionist role for government. I’d include most of Bernie Sanders’ concrete policy proposals here, even if his rhetoric can sound quite different. And it turns out that only 30 percent of Democratic voters seem to have responded positively to that rhetoric, so you can’t really describe it as reflecting a national party position. But we do have a very different Democratic Party now (policy-wise) than we had when I wrote some of this book’s earliest essays. The party has become much more progressive, though still no actual socialism exists in America — aside from the few people who, for whatever reason, want to call themselves socialist.

    So I do sense that some momentum towards this kind of Samuelsonian approach you just described might be happening today — whether or not it can sustain itself. And of course the rhetoric of small business gets abused all the time. In many cases, these “small businesses” might consist of little more than tax shelters for wealthy individuals. In 2020 America, we should approach almost any small-business agenda with some suspicion. But I’d agree that we’re learning every day right now about how much we do value (and should value) genuine small businesses, which suddenly find themselves in such dire straits. They’ve taken such a huge hit. And it can sound almost crass to discuss the state of today’s financial markets, but when you look at the interest-rate spreads for small-business lending, they just keep skyrocketing. Many of your local merchants and small-scale suppliers might get wiped out fast, which none of us should welcome.

    For all of those reasons, I see no problem with 350 billion dollars in this bill going to small-business loans. And again, in part thanks to Democratic pushback, it seems that this bill’s structure might actually ensure that funds reserved for small businesses don’t get cynically redirected to S-corps and various tax shelters for wealthy individuals’ income. We may even see small businesses and organized labor (to take two of the most obvious players here) recognizing that they actually share a lot of economic priorities and common interests. So if we set aside that tiny group of people committed to posturing on Twitter about how the profit motive is always bad, and private commerce is always bad, do I see room for a broader range of us to commit to making and maintaining a decent society? I hope so.