DEBATING POLITICS, ECONOMICS AND OTHER TIMELY TOPICS WITH PAUL KRUGMAN OF THE NEW YORK TIMES

FRIDAY, NOVEMBER 6, 2015

PAUL KRUGMAN

The Conservative Aversion to Easy Money

In a recent Financial Times interview with the columnist Martin Wolf,
Ben Bernanke expressed exasperation
with claims that quantitative easing is
a giveaway to the rich (and at the same
time that it hurts savers go figure):
This is the fourth or fifth argument
against quantitative easing after all
the other ones have been proven to be
wrong, the former chairman of the
Federal Reserve told Mr. Wolf.
It is, indeed, kind of amazing. In the
eyes of critics, Q.E. is the anti-Veg-OMatic: It does everything bad slicing and dicing and pureing all good
things. Quantitative easing is inflationary; well, maybe not but it undermines credibility; well, maybe not
but it causes excessive risk-taking;
well, maybe not but it discourages
business investment (this argument,
I think, is a new one).
The economist Brad DeLong spent
what may be too much time dealing
with this last point on his blog (here:
bit.ly/1Md7uc4), citing a recent opWall Street Journal op-ed by the
economists Kevin Warsh and Mike
Spence. The pairs argument doesnt
make any sense, and it was deployed
to explain something that isnt happening business investment isnt
any lower than youd expect given
the relatively slow recovery. Im not
surprised to see Mr. Warsh going
down this road: Hes a permahawk
who used to warn about inflation, but
simply changed his arguments when
inflation failed to materialize. When
Mr. DeLong complains that there is
no coherent argument offered in the
article not a bad argument, but no
argument at all its pretty much
what one might expect from Mr.
Warsh.
Back in 2010, I reacted to one of his
speeches thus: So what weve got
here is an assertion that bad things
will happen if you do certain things,
without either any evidence to that
effect or any explanation of why
those things should happen. Yes,
maybe bond markets will punish us
if we dont slash spending right now;
also, maybe well have bad luck if we
step on cracks, or fail to turn aside
when Basement Cat crosses our path.
But why does this pass for judicious
policy discussion? (Read my blog
post here: nyti.ms/1PhsFdJ.)

Ben Bernanke, the

former chairman of the
Federal Reserve, at a
hearing on Capitol Hill
in 2009.

DOUG MILLS/THE NEW YORK TIMES

What I dont understand is why Mr.

Spence wants to associate himself
with this sort of thing.
But let me say, as I have before, that
this whole aversion to easy money,
on grounds that keep shifting and
dont seem to have much to do with
any intelligible economic argument,
evidently has deep roots in the conservative psyche and its in the id,
not the rational mind.

So where, asks Antonio Fatas, is the

grand rethinking of economic theory
and policy?
I asked the same question a
couple of years ago. Id add, as I did
in that earlier piece (here: nyti.
ms/1WuIIFM), that some of us anticipated much though not all of what
has gone wrong. Mr. Fatas, an economist at Insead, writes in a blog post:
But my guess is that even those
who agreed with this reading of the
Japanese economy would have never
thought that we would see the same
thing happening in other advanced
economies. Most thought that this
was just a unique example of incompetence among Japanese policy
makers.
Actually, though, I did write a 1999

An Unteachable Moment
It has been almost seven years
since the Fed cut interest rates to
zero. The era of lowflation-plus-aliquidity-trap now rivals in length
the era of stagflation in the 1970s,
and has been associated with much
worse real economic performance.

READER COMMENTS FROM NYTIMES.COM

Where All That Cash Is Going

There are two arguments against
quantitative easing. First, if constantly printing money was an
ideal strategy, it would have been
adopted long ago.
Second, if the infinite supply of
labor through outsourcing and inflation depresses wages to the point
that its impossible to raise consumer
prices, then inflation heads toward
assets. The last time this happened,
housing prices were inflated; this
time stocks are inflated. Eventually,

the bubble will burst.

Of course you wont acknowledge
this core argument, Mr. Krugman,
let alone address it. You always seem
to find less plausible criticism to answer.
JERRY HOUGH, NORTH CAROLINA

Mr. Krugman, what exactly has

quantitative easing accomplished?
The strategy only seems to have
enriched the wealthy, increased
inequality, pumped up asset prices

and punished people with actual, real

savings.
I have yet to hear you address this.
I am neither a conservative nor a
permahawk, but I do have cash in
the bank. I dont trust the financial
markets as places to invest, and I
would like to earn at least a little interest on those savings.

book titled The Return of Depression Economics, basically warning

that Japan might be a harbinger for
the rest of us. True, I never expected
policy to be so bad that Japan ended
up looking like a role model.
The point is that by now we should
have expected at least as major a rethink of economic policy as occurred
in the 70s; but in fact, weve seen
almost no rethinking. Economists
who wrote that inflation is looming
in 2009 were warning about looming
inflation five years later.
And thats just the professional economists. As Josh Barro
noted in Bloomberg in 2012 (here:
bv.ms/1hcl2bn), conservatives who
imagine themselves to be intellectuals have increasingly turned to

Austrian economics, which explicitly

denies that empirical data needs to
be taken into account. Although, of
course, these conservatives would
have claimed vindication if the inflation they were predicting had actually materialized.
Back to Mr. Fatas: How long will it
take before the long stagnation of the
past few years has the kind of intellectual impact that stagflation did? Indeed, how long will it be before people
stop holding up the 70s as the ultimate
cautionary tale, even as we live in the
midst of a continuing economic disaster that makes the 70s look mild?
I dont know the answer, but its
clear that we have to understand this
phenomenon in terms of politics and
sociology, not logic.

mented under a Democratic administration. So it must be evil.

bankers and bondholders, who are

mostly rich.

J.G., NEW YORK

Quantitative easing caused the

prices of homes and stocks to reflate after the crisis, and capital
has since trickled down from that.
What Keynesians dont tell you is
that this sort of capital doesnt make
it into long-term risky investments,
which are required to grow the economy in years to come.
F., NEW MEXICO

STEVE SMITH, NEW HAMPSHIRE

The principal problem with quantitative easing is that it was imple-

When explaining human behavior, money is always the likeliest

answer. Higher interest rates benefit

NAME WITHHELD, CALIFORNIA

I think this argument all boils

down to one fact: Q.E. involves the
use of tax money. And conservatives
dont like taxes, unless, of course,
other people are paying them.
JEFF, ILLINOIS

ONLINE: COMMENTS
Comments have been edited for clarity
and length. For Paul Krugmans latest
thoughts and to join the debate online,
visit his blog at krugman.blogs.
nytimes.com.

BACKSTORY

Defending
Quantitative
Easing
In October, Ben Bernanke, the former chairman of
the Federal Reserve, released
The Courage to Act, a memoir of the financial crisis. In
several interviews promoting
the book, Mr. Bernanke has
sought to burnish his legacy
as chairman and rebut critics
of the quantitative easing policies that he pioneered.
Mr. Bernankes tenure at the
Fed (2006-14) was marked by
monetary policies that sought
to stimulate economic growth in
the United States by keeping interest rates low in order to spur
lending and investment, a strategy commonly known as easy
money. However, after the 2008
financial crisis, even an interest
rate close to zero couldnt spur
enough investment to sustain a
robust recovery, so Mr. Bernanke implemented an experimental technique called quantitative easing.
In its Q.E. programs, the Fed
created large sums of money
to purchase government bonds
from banks, which had been
holding them in huge quantities as safe-haven assets. The
purchases provided banks
with an excess supply of capital, and drove down the value
of the bonds even further, forcing bankers to seek out slightly
riskier, and often more productive assets. The increased investment funded by this technique stimulated growth, and
Mr. Bernanke and many other analysts credit quantitative
easing for much of the United
States recovery.
In an interview with Bloomberg Television on Oct. 8, Mr.
Bernanke compared the situation in America to that of Europe. The U.S. has done much
better than any industrial country. Europe is not yet back to
the pre-crisis level. What is the
main difference between the
U.S. and Europe? It took them
six years longer to do Q.E.
Mr. Bernanke has faced
fierce criticism from detractors
who have argued that creating
huge quantities of new money
would lead to rampant inflation
and debase the value of the dollar. However, inflation has remained low by historical standards, and the dollar remains
strong.

PAUL KRUGMAN

Shameless Pandering From Republicans

David Brooks recently wrote a
pro-Marco Rubio column in The
New York Times, and in passing said
this: At this stage its probably not
sensible to get too worked up about
the details of any candidates plans.
They are all wildly unaffordable.
What matters is how a candidate signals priorities.
It wont surprise you to learn that
I disagree deeply. My experience is
that the best way to figure out a presidential candidates true priorities
and get a sense of his or her character is to take a hard look at policy
proposals. My view here is strongly
influenced by the story of George W.
Bush. Younger readers may not know

Paul Krugman
joined The New
York Times in 1999
as a columnist on
the Op-Ed page
and continues
as a professor of
economics and
international
affairs at Princeton
University. He was awarded the
Nobel in economic science in 2008.
Mr. Krugman is the author or editor
of 21 books and more than 200
papers in professional journals and
edited volumes. His latest book is
End This Depression Now!

or remember what things were like

back in 2000, but in those days the
universal view of the commentariat
was that Mr. Bush was a moderate,
amiable and honest guy. I was pretty
much alone in taking the Republicans economic proposals on taxes
and Social Security seriously. And
what I saw was a level of dishonesty,
irresponsibility and radicalism that
was unprecedented in a presidential
candidate from a major party. So I
was out there warning that no matter
how amiable he seemed, Mr. Bush
was a dangerous guy.
And how did that work out?
Now we have candidates who are
proposing wildly unaffordable tax

cuts. Can we start by noting that this

isnt a bipartisan phenomenon
that its not true that everyone does
it? Democratic candidate Hillary
Clinton isnt recommending wildly
unaffordable policies. Senator Bernie Sanders hasnt offered details
about how hed pay for single-payer
health care, but you can be sure that
he will propose something. And proposing wildly unaffordable policies
is itself a declaration of priorities:
Mr. Rubio is saying that keeping
the Hair Club for Growth happy is
more important to him than even
a pretense of fiscal responsibility.
Or if you like, what were seeing is a
willingness to pander without con-

READER COMMENTS FROM NYTIMES.COM

Unserious Contenders
Some of my friends often argue
about which Republican candidate
would make the best president.
My answer?
None of them should be seriously
considered for the job.
The candidates are all wildly
incompetent, so the right question
to ask is which of them would be the
easiest for Democrats like Hillary
Clinton or Bernie Sanders to beat in
the general election.
And I think the answer is Ben Carson, since hes the most transparently unprepared.
BENJAMIN STOCKTON, CALIFORNIA

Im glad to see that you are calling out David Brooks by name.
Many people are taken in by his
arguments because he speaks quietly and couches the most mean-spirited conservative cant in ways that
are pleasing to the ear and soothing
to the senses.
This is, by the way, how the
Wicked Witch of the West described
the poisonous poppies that derailed
Dorothy and her allies.
NAME WITHHELD, MASSACHUSETTS

In his column, Mr. Brooks also

wrote: Voters dont have to know

straint or embarrassment.
Also, Mr. Rubios insistence that
the magic of supply-side economics
will somehow pay for the cuts is a
further demonstration of priorities:
Allegiance to voodoo trumps all.
At a more general level, Id argue
that its a really bad mistake to wave
away policy silliness with a boyswill-be-boys attitude. Policy proposals tell us a lot about character
and the past 15 years have made
it clear that journalists who imagine
that they can judge character from
the way people come across on television or in personal interviews are
kidding themselves, and misleading
everyone else.

the details of their nominees

agenda, but they have to know
that the candidate is capable of
having an agenda.
This lack of details, along with
the wild claims from most of the Republican hopefuls, can indeed help
us determine their agenda. Their
goal is simply to lie to the American
people about anything, and in some
cases everything.
The recent Republican debates
have exposed an agenda based on
dishonesty, arrogance and deception. Whether theyre addressing
taxes, immigration or Planned
Parenthood, campaigns filled with
smoke and mirrors are an indication
of how a candidate would govern.
Its up to the media to demand policy details so that voters can make

SCOTT MORGAN/THE NEW YORK TIMES

Florida Senator Marco Rubio speaks with audience members after a

forum in Cedar Rapids, Iowa, in October.

informed decisions. But I wont be

holding my breath for the majority
of the media to step up and do their
journalistic duties.
RICHARD F., COLORADO

As soon as I read the lines you

quoted from Mr. Brookss column,
I stopped reading the rest.
BRIAN JOHNSON, ILLINOIS

Dont forget that its not just

blind allegiance to voodoo economics at play here. Republicans
are engaged in a deliberate starve
the beast strategy: Create deficits,
talk endlessly about how terrible
these defecits are and then solve the
problem with proposals like privatizing Social Security.
TOM WHITE, ILLINOIS

Lets not get worked up about

the details. Lets just rely on puppies and rainbows to solve all our
problems.
JOHN, CONNECTICUT

Marco Rubio must have had a

childhood ambition to become a
magician. This is obvious in the way
he tries to distract voters with his
pie in the sky rhetoric.
ROBERT PRENTISS, CALIFORNIA

The problem is that Mr. Rubio

and the other Republican candidates cant win the partys nomination without proposing wildly
unaffordable tax cuts.
Being sensible will get them run
off the stage.
PAUL SIMON, OREGON