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Transcription of Paul Krugman on CNBC’s Squawk Box, July 11, 2012

July 13, 2012 1 comment

Paul Krugman on CNBC’s Squawk Box, July 11, 2012

 

Transcription

Andrew Ross Sorkin: “Today we are inducting a Nobel laureate into the Squawk Box Book Club. We are proud to present a Blue Chip award. I think this compares with the Nobel. I don’t know how you think about this?”

Michelle Caruso-Cabrera: “Way better.”

Andrew Ross Sorkin: “The book: ‘End This Depression Now.’ Paul Krugman walks us through the Financial Crisis that triggered the greatest downturn since the Great Depression, and offers us ways to move forward. Paul Krugman joins us on set this morning. Of course, he’s also the author of ‘End This Depression Now’ and ‘The Return of Depression Economics’ and ‘The Great Unraveling.’ And we have your award (Nobel prize for economics). How does this compare? Do you remember  the morning that you found out you got the Nobel, and then you got this (the actual award)?”

Paul Krugman: “Can you do a Swedish accent? I think it would be a little bit more impressive.”

Andrew Ross Sorkin: “Is it a woman who calls? Or how does it happen?”

Paul Krugman: “It was some guy with an obviously fake Swedish accent. I didn’t actually believe it until it was up on their website about a half an hour later.”

Andrew Ross Sorkin: “So Paul, I want to talk about economics, and I want to talk about what’s going on in the world. But tomorrow we have Simpson and Bowles. Erskine Bowles, Alan Simpson on the show. And from everything that I’ve read and seen that you’ve said before, you’re not a fan of this. And historically, I will tell you, we get a lot of people who sit around this table and say ‘We’ve got to find a compromise in Washington [D.C.]. This is a good model. At least it’s a starting point.’”

Paul Krugman: “It’s a model that’s heavily tilted toward things that are not good ideas. It’s heavily tilted toward inflicting pain on the most vulnerable. It is obsessed with cutting tax rates. I mean, it’s not unlike the Republican side of it. It isn’t really a balanced proposal. It’s actually a proposal that’s very heavily tilted toward spending cuts, not enough toward revenue increases. I guess we could do worse, and, given the way politics are going, we might.

This is not a well-crafted proposal. And by the way, there are huge magic asterisks. If you think that they’ve actually solved the problem, it turns out that all of the big savings in Simpson-Bowles are all ‘Savings to be determined later.’ They don’t actually lay out how they’re going to control health care costs. And it is fundamentally about health care costs. And that does not become clear, the way they present it.”

Michelle Caruso-Cabrera: “Medicare, in particular.”

Paul Krugman: “Well, but Medicare is part of a broader problem, right? Medicare costs have actually grown a little more slowly than private insurance costs over the years.”

Michelle Caruso-Cabrera: “I’m talking about the federal government right now has Medicare, right? And Medicaid to some degree.”

Paul Krugman: “That’s right. But Medicare. If we could suddenly have French health care costs instead of American health care costs, our budget problems would be solved forever, right? It is about the very high cost of the U.S. health care system. And you cannot resolve our budget problem without resolving that. If you do resolve that, then this thing becomes a whole lot easier.”

Joe Kernen: “Paul, I was excited when you were coming in, because I view you as almost a unicorn. You really exist in real life. Sort of an ancient species or a new species. Because I try to understand where you’re coming from on some of this stuff. And I’m confounded when I read your pieces. And I’m hoping we can have a philosophical discussion.”

Paul Krugman: “Look, can I say something? We came into this [Financial] Crisis, and that’s what my book is about. Back then there were some very different views about how this thing was going to work, about how things were going to play out. People like me had one set of views. Other people had very different views. There were some predictions. A lot of people thought people like me were crazy…”

Joe Kernen (interrupting): Right.

Paul Krugman (continued through interruption): [Other people thought] we can have budget deficits without raising interest rates.”

Joe Kernen (interrupting): “But, but bigger picture Capitalism versus a Social Democracy model. And I was going to just ask you, there was a time when we had 8% of government as GDP [Gross Domestic Product]. Then we got up to 15%. Now we’re at 25%, and it will be at 40 or 50% eventually with entitlements, if they’re not reined in. Is there a maximum amount of government spending as a percentage of GDP below 100 that you would? What would it be? Is 25% ok for a percentage of GDP?”

Paul Krugman: “When I’m in Europe, I will actually lecture them. They should let their stores open on Sunday. They have too much regulation. But we have European economics. Look at Sweden, which has been sailing through this [Financial] Crisis beautifully. It’s close to 50% GDP.”

Joe Kernen (interrupting): “But, but, but there’s more people in Newark [New Jersey].

Paul Krugman: “Come on. It’s not clear what difference. It is possible…”

Joe Kernen (interrupting): “Would you put up the economic record of any part of Europe with the way we do Capitalism her over the last 200 years? Which one?”

Paul Krugman: “Oh, sure. Sweden again. Sweden was a poorer country than we were 200 years ago. If you’re looking for the last 30-40 years, you know Europeans don’t actually look that bad. They’re now screwing up because they made this terrible mistake of one currency without one government. But as of 2007, before this [Financial] Crisis hit, the previous 10 years had looked pretty good compared to ours, in a lot of dimensions.”

Joe Kernen: “You are a capitalist?”

Paul Krugman: “Yeah.”

Joe Kernen: “Is there some kind of modification to Capitalism? What would I call it?”

Paul Krugman: “I’m a Free Market Welfare State guy.”

Joe Kernen: “Wait a minute. A Free Market Welfare State.”

Paul Krugman: “I believe you let markets mostly run themselves. You have an economy that’s basically driven by market forces. But you collect taxes to provide a safety net. A pretty strong safety net.”

Andrew Ross Sorkin: “How big does the safety net have to be?”

Joe Kernen: “It goes back to our forefathers, who said ‘Limited government, low taxes.’”

Paul Krugman: “Really? I don’t actually remember hearing about that?”

Joe Kernen: “Nothing about that? Nobody?”

Paul Krugman: “No, I don’t think that’s in there [Constitution of the United States].”

* Mr. Kernen immediately grabbed the computer mouse in front of him and looked at his computer screen.

Michelle Caruso-Cabrera: “Let’s talk safety net. So Medicare, by the nature when you look at actuary tables, actually becomes a benefit for the rich. Medicare is for everyone. We have billionaires who sit on this set, and they get Medicare. And if you are poor, the actuary tables bear out that you will die likely before you ever get your first Social Security check or Medicare. So how big is the Welfare State?”

Paul Krugman: “That’s actually, that’s not actually right, by the way. It’s certainly not true. What matters is life expectancy at age 65, and that is higher for more affluent people. But think about how many billionaires are there? The amount of money you can save by means-testing Medicare turns out to be trivial. And, by the way, if you do means-test it, what you have done is increased marginal tax rates because you’ve said if you make more money then you will lose your Medicare benefit. That’s actually reducing incentives.”

Andrew Ross Sorkin: “I’m going to turn it around then. Is it trivial? I don’t actually believe this, but I’m doing this almost as a Devil’s Advocate. Is it trivial then to increase taxes on the wealthy, since the amount of money you gain in the same way?”

Paul Krugman: “No, that’s not true.”

Michelle Caruso-Cabrera: “The converse is not true?”

Paul Krugman: “No, the converse is not true. The amount of Medicare that we spend on the richest .01% of the population is a tiny amount of money. The amount of money we can gain in taxes is not a tiny amount of money, because they are very, very rich. The health care of a rich person doesn’t cost a lot more. Actually, it costs a little bit less than the health care of a poor person. The income of a rich person is higher, by definition. So there’s a lot more taxes.

So this is not true. We cannot solve our budget problems entirely by raising taxes on the rich. But we can make a significant dent by raising taxes on the rich. And we actually cannot make a significant dent by doing things like means-testing Medicare.”

Andrew Ross Sorkin: “You talk a lot about the bond vigilantes. And I’m curious, how much do you think we can spend to quote-unquote grow the economy, if you think that would work, before the bond vigilantes have a problem?”

Paul Krugman: “Well, first of all. I guess the question is. We have to look at history. There’s no easy way to do this by looking at spreadsheets. We look at the fact that Great Britain had debt levels as a share of GDP [Gross Domestic Product] much higher than we currently have, for most of the 20th century. Never a problem. We look at Japan, which people have been predicting bond vigilantes will attack for 20 years now. No problem. So it looks as if countries that have their own currency, that are stable, advanced democracies have the ability to run to levels.

You know, I don’t like, I don’t want us to get up to a Japanese level of debt. But there is no sign that we’re anywhere close. There’s no sign that we’re close to [???] points of GDP debt levels.”

Joe Kernen (interrupting): “People use the analogy: ‘When you jump off a building, you think you’re flying until you hit the ground.’ People say if we doubled to 4% on what we need to pay to fund our expenses that we’re already headed for Europe.”

Paul Krugman: “That’s. Even. You know. Think about Europe for a second. Think about the fact that Britain has levels of debt that are basically the same as ours. And are actually a bit higher than that of Spain. Britain (the Pound) is a safe-haven currency. They can borrow at pretty much the same rates we can. Spain is obviously in the news today. It’s not actually about the debt level. It’s about the constraints of that terrible mistake of a single currency created. It’s not about the debt level.”

Joe Kernen: “But, but there would come a time where it would be hard to get Chinese.”

Paul Krugman: “When the economy is doing well, you should be paying down debt. And I spent a large part of the last decade screaming about Bush and his tax cuts and his unfunded wars, saying that this is not what we should be doing. We should be trying to get our debt down.”

Joe Kernen (interrupting): “But.”

Paul Krugman: “But now is a time when we have an economic emergency where there really is no good alternative. If we try to balance the budget under these circumstances, all we do is throw ourselves into a deeper Depression.”

Joe Kernen: “What would be a number? What’s the maximum amount that the government should spend as a percentage of GDP [Gross Domestic Product]? Do you have a number for me? I’m just trying to figure it out.”

Paul Krugman: “Well.”

Joe Kernen (interrupting): “Well, I’m trying to figure it out. You know [hand gestures from Mr. Kernen].”

Paul Krugman: “Look, when it gets above 50.”

Joe Kernen: “When it gets above 50.”

Paul Krugman: “Then I start to wonder.”

Joe Kernen: “Government spending as a percentage of GDP [Gross Domestic Product]?”

Paul Krugman: “We have several European countries that are right at the 50 line.”

Joe Kernen: “But is there anything to the notion that money is treated better in the private sector, where there’s accountability and people minding the store?”

Paul Krugman: “There are some things that government does better that the private sector, like taking care of people who are in desperate need. Health care seems to be something. Health Insurance the government runs better.”

Joe Kernen (interrupting): “Do you see innovation continue if the government?”

Paul Krugman: “Of course. That’s. There are so many myths out there. Half the time, more than half the time, when anybody tells you about some great innovation, ‘That wouldn’t have happened under socialized medicine,’ it turns out the innovation was made in Europe or Australia, not here.”

Michelle Caruso-Cabrera: “A lot of the critics of that approach would say in Europe they have rationing. Let me finish. What happens is that you end up not giving care to the elderly as much as you would to younger people, because they’re going to live longer. They’re more deserving. What a lot of people here say is ‘Look, we all ration, right? We all have unlimited wants but limited means.’ And the question comes down to who will do the rationing? Will it be the individual or will it be the government? And should it be the person who is in charge of their own life to make their choices, and have good choices about health insurance rather than ceding to the government?”

Paul Krugman: “What planet are those people living on? As far as I can make out, it’s my insurance company, not me, who is making those choices. And I have insurance.”

Michelle Caruso-Cabrera: “Because it’s provided by your employer, right?”

Paul Krugman: “Right.”

Michelle Caruso-Cabrera: “Because it’s 3rd party payer. Will you acknowledge that? No?”

Paul Krugman: “No, when you get a private personal insurance policy, which by the way that market has never worked anywhere.”

Michelle Caruso-Cabrera (interrupting): “Because there is very heavy government intervention in that market.”

Paul Krugman: “No, that market has never worked well anywhere.”

Michelle Caruso-Cabrera: “It’s never functioned ever. It’s never been allowed.”

Paul Krugman: “It functions worst where there’s the least intervention. But, but this notion of rationing. The notion that. Look, everybody talks about hip replacements. It’s true that you have a longer wait for a hip replacement in Canada than here. Who pays for hip replacements in America? Medicare. This myth that the rationing is coming because we have a private system. We actually have less rationing because we spend more money. The French system has almost no rationing. It’s a very heavy government intervention…”

Joe Kernen (interrupting): “I want you to come back. I have questions about the two kinds of fairness. Somehow the government figures out outcomes, rather than a meritocratic system?”

Paul Krugman: “I think we could go on like this for a while.”

Joe Kernen: “Equal outcomes for our citizens?”

Paul Krugman: “No, but there’s a long distance between that and saying. I mean, if you had talked to people in 1925 and talked about the economy we had in 1955, with Social Security and Unemployment Insurance and these kinds of things, they would have said ‘This capitalism will collapse.’ In fact, the post-War [World War II ended in 1945] generation was the best economic growth we’ve had in a very long time.”

Joe Kernen (interrupting): “I’m scared of 50% government spending. I can’t go there with you.”

Paul Krugman: “But it’s not going to happen here, right?”

Joe Kernen: “You said you’d let it happen.”

Paul Krugman: “No, I said that’s where I start getting nervous.”

End of the interview.

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Read more:

http://video.cnbc.com/gallery/?video=3000101427

http://krugman.blogs.nytimes.com/2012/07/11/zombies-on-cnbc/

http://www.businessinsider.com/cnbc-host-blasts-paul-krugman-on-air-after-krugman-calls-him-a-zombie-2012-7

http://www.cnbc.com/id/15838087/

http://www.huffingtonpost.com/2012/07/11/paul-krugman-cnbc_n_1664771.html

http://www.cjr.org/the_audit/daily_show_eviscerates_santell.php?page=all

www.businessweek.com/news/2012-07-11/peregrine-customers-claims-priced-at-25-cents-on-dollar

http://dealbook.nytimes.com/2012/07/10/regulators-charge-futures-brokerage-with-fraud/

http://money.cnn.com/2012/07/11/investing/pfg-wasendorf/index.htm

http://www.nytimes.com/2012/07/13/opinion/krugman-whos-very-important.html?hp

http://www.archives.gov/exhibits/charters/constitution_transcript.html

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