Home > Euro, Fiscal Policy, Growth > Paul Krugman on BBC Hardtalk

Paul Krugman on BBC Hardtalk

Here is the first half of an interview on Hardtalk. Nobel economist Paul Krugman continues to see that the way out of the economic crisis is to spend more. He says that Greece will have to leave the euro as there is no alternative but whoever makes the decision for Greece to go would simultaneously be ending their own political career. He does state at the end of this clip that somebody who tries to bring in Weimar German and Zimbabwe as examples of hyper-inflation with further spending should be ‘ejected from the conversation’. Well worth a look.

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Categories: Euro, Fiscal Policy, Growth Tags: ,
  1. Simon
    June 5, 2012 at 10:10 pm

    Inflation acts as a means to transfer wealth from the poor to the rich. How the heck do you think they got to be rich? However if governments print or borrow and spend they can reverse the flow somewhat if they target the poor with their spending. Nevertheless as far as I can see if the debt ledger of a government gets excessively large interest rates do seem to be a threat.

    IMOP at some point all this debt needs to get written off and as long as enough people remain ignorant of the true nature of money the easiest way to do that is to inflate it away. For a government and everyone else with debt that means interest rates need to be negative for some considerable time. While this is true you do not want to be a saver any more than you need to be in order to borrow and invest in hard assets.

    Since banks create 90% of loan money out of thin air is it really doing anyone that much harm if the deposit turns to lose value through inflation?

    The big question is …will there EVER be any actual deflation? A deflationary environment is the only time you want to have cash. We had deflation for a wee while in 2008. Putting Japan to one side, deflation has typically been extremely rear for a long time now.

    Australia should adopt Paul Krugman since he looks so much like a Koala.

    As an aside …how is it that the 1984 labor government decided that they needed to sell state assets etc to stave off imminent bankruptcy? They could have just run the printing presses for a bit. It’s crazy. We did not have to go through the recession of 1989 to 1993 or so. The rural recession really went from about 1985 through to 1997. Just when the rest of the world (America) was entering a golden era of prosperity NZ economic leadership (Roger Douglas you are mad completely mad) put us through a good decade of economic hardship. I think John Key is tending to make a similar mistake. ie worrying excessively about debt. The Key thing is to make sure that any debt is denominated in the $NZ. Luckily he will probably not get away with it. We have our own blimmin currency. If our dollar is excessively high we clearly need a little extra liquidity.

  2. June 7, 2012 at 2:38 am

    The fundamental root cause: western countries (and people) borrowing a lot of money while effectively putting their stable and advanced societies up as collateral so that they can live way beyond their means for as long as possible. This is stupid, immoral and unsustainable all at the same time.

    Western economies over the past few decades have become total consumers. Their labor markets have shifted massively away from production and towards services that allow for easier consumption of stuff produced by other nations. In essence, our governments are borrowing money to allow us to continue on this consumption binge and promising the labor of our children as eventual compensation.

    Also, this “growing yourself out of debt” thing is not as easy as it used to be. Over the past few decades we have lived on a planet with virtually limitless resources, waste storage capacity and amazingly cheap fossil fuels just spilling out of the ground. You could get a lot of bang for your deficit spending buck back then. Now, however, we are living in a world with increasingly limited resources, the threat of climate change and more expensive (and taxed) fossil fuels. Growth is simply much harder in this environment, implying that deficit spending will no longer boost GDP as dramatically.

    In the end, we have simply been living beyond our means for far too long and will now need to start living within our means. It really is as simple as that. The longer people try to extend this debt-based illusion of prosperity, the harder the eventual fall will be.

    • June 8, 2012 at 10:43 pm

      Thanks Schalk – you talk a lot of sense. Financial Crises have a similar trait which involves living beyond your means. Credit expands – asset prices go up – wages go up – expectations go up – everyone is very content for a short period of time and then it all collapses around them. It is no different from previous crises

  3. Simon
    June 9, 2012 at 7:28 pm

    “In essence, our governments are borrowing money to allow us to continue on this consumption binge and promising the labor of our children as eventual compensation”

    The financial crises in Europe is not about profligate spending. Arguable it is much more about profligate lending. The problem Spain is having is not due to excessive government spending. It is due to the burden of private debt accrued during a property boom sparked by low interest rates and willing lenders. The most willing of lenders was Germany. She was happy to sell BMW’s and Mercedes to property developers throughout Southern Europe. As their labor costs rose She kept hers low. The result was much as is case for China – large trade surpluses. Trade surpluses require deficits for the other trading partner. In this case southern Europe. The flow of capital south was unsustainable and so it is now ending. Who’s fault was it. Germany thinks it was the fault of the debtor nations. But in reality it takes two to tango. At present Germany seems better off but when the flow of hot money escaping the southern states eventually stops and its trading partners are no longer willing buyers and its banks are wobbly due to defaulted Spanish debt then where will she be?

    • June 9, 2012 at 11:57 pm

      It indeed is a matter of opinion whether you see the spender or the lender as the guilty party. Personally, I was raised with a big fear of debt. Consumer credit is therefore totally out of the question for me and I could only take out a home loan when I could easily absorb a 10% interest rate hike without changing my lifestyle at all.

      However, I understand that the majority of citizens in the developed world were raised in a total consumer culture where living beyond your means is accepted as standard. If you see something that looks like a bargain, you buy it whether you need it or not. If this is your worldview, the majority of the blame does indeed fall on the lenders for simply providing too many “bargains” which the public was simply powerless to resist.

      From my worldview, however, I believe that people always have the choice to simply walk away from the “bargain”. Financial freedom is a much more valuable reward than a massive house, four German cars and a ton of debt.

      In the end our cultural trance of consumerism lies at the root of not only our economic crisis, but also our environmental and societal crises. It will be interesting to see how these things pan out over the next few years…

  4. Simon
    June 10, 2012 at 11:23 am

    It’s worth remembering that the overall financial framework citizens operate in is not established by them. This is true for the recently established and now seriously unstable European Union. What individual actors do within the system should not really matter in the scheme of things. When the entire system is on the verge of collapse the problem lies firmly with the system. That’s why I say its time for the “elites”, those geniuses of law and finance that operate the system, to earn their salt. Otherwise the grand experiment will be a gigantic failure.

    • June 11, 2012 at 5:24 pm

      This is another interesting chicken & egg question. I agree that our deeply flawed system is to blame for much of our ills. And I also think that our modern era of totally unbacked fiat currency and big government is doomed to fail quite spectacularly within the next decade simply because it brings out the very worst in human nature.

      However, I do believe that, in a modern democracy, this system is shaped by the general sentiment of the individuals that make up the electorate. Modern citizens don’t want to take responsibility for their health; therefore almost 70% of America is overweight and the government is actually insolvent due to the huge medicare liability. We don’t want to take responsibility for our personal finances; therefore we all have zero savings and massive debt and rely totally on social security “invested” in increasingly dubious government debt for retirement. We don’t want to take responsibility for our job security; therefore we don’t actively engage in personal and professional development and many western countries are rapidly losing competitiveness (and jobs) and increasing their already huge trade deficits. There are many more such examples…

      Our “elites”, as much as I would like to blame them for everything, can only work within some very narrow boundaries determined by the electorate. Before the electorate demands personal liberty, personal responsibility and sound money, they will just get more of the same. The elite can tweak the system, but only the people can facilitate real change.

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