One of the most famous economists in the world, and a leading liberal voice in the media, New York Times columnist Paul Krugman is also the author of “End This Depression Now” out now in paperback. He joins the "Starting Point" team this morning to weigh in on proposed immigration reform.
He also discusses what it will take to strengthen the U.S. economy, and debates Rep. Marsha Blackburn on the elements that are holding the country back from growth.
Transcript available after the video.
BALDWIN: Nice to see you. Before we talk, there is so much we want to talk about. I know in one of your columns recently you were talking about the deficit, saying it's, I'm quoting you, "not our biggest problem by a long shot." We have to ask you about immigration because obviously a couple hours away from the president and his proposals in Vegas. As an economist, take your emotions out of this, as an economist, can you support this pathway to citizenship?
KRUGMAN: First of all, I support it as a human being. These are a lot of people who are here. We're not actually going to kick them out. We want to bring them into our society., ad that's also good economically. Again, the question is not should we have these 11 million people here, because they are here and we're not going to send them back. The question is: how do they best integrate into our economy and society?
The answer is by bringing them under the rule of law, bringing them into our system, not by pretending that they're not here or trying to have this sort of shadow economy of illegal workers. Bring them into the system, that's good for everybody.
BERMAN: One of the things being a columnist you leave a long paper trail, and in 2006 you wrote this about the immigration issue: "Immigration since 1980 has raised the total income of native-born Americans by no more than a fraction of one percent, and because Mexican immigrants have much less education than the average U.S. worker they increase the supply of less-skilled labor, driving down the wages of the worst-paid Americans."
So, again, from an economic standpoint what will the effects be of bringing these people legally into our economy?
KRUGMAN: Again, the point is all of those negative effects that I talked about, those are happening already, those people are already here, and we're not going to send them back, and it would be a crime against humanity to try and somehow send them to the border and shoo them out. So the economic effects are already in there.
And by the way, immigration, if you aren't torn about the immigration issue, there's something wrong with you, because on the one hand it does put some burden on the least skilled, lowest paid native-born Americans. On the other hand, it's a tremendous boon to the immigrants themselves, who are people also. But there are no moral dilemmas, because the people are here. We're not talking about allowing a new flood of immigration. We're just talking about bringing the immigrants who are already here into the American system.
BALDWIN: You're saying if you are torn there's something wrong.
KRUGMAN: No, if you're not torn. The immigration in general is a morally ambiguous issue, should be considered a morally ambiguous issue. But OK, we don't have to resolve that issue right now. That's not what's on the table.
ROMANS: In 1986, Ronald Reagan thought they fixed this. They thought they would put people in a line and end the line. Whenever you have a line, the economic draw of a job and the ability to raise your standard of living more than you could do anyplace else in the world by just coming here, how do you stop the line of illegal immigration?
KRUGMAN: Well, it's never going to go away completely, but actually illegal immigration, we have numbers in immigration which is a little bit funny because in principle we shouldn't know, but we have a pretty good guess, and it's actually dropped off quite a lot. It's dropped off partly because job opportunities are not so great here, partly because Mexico is changing. There is in the northern parts of Mexico the economy is improving. Their population is aging.
So this is a problem that won't go away, but it looks like it's a problem that's going to diminish. The big problem now is how do we deal with the people already here? And I think we're moving very much in the right direction.
ROMANS: Bigger numbers than in '86.
BERMAN: One of the things we've been writing and talking about is the debt, the idea of what we should do about the debt or not do about the debt. One of the things you seem to be suggesting we should not do is aggressively try to cut it before doing other things. I'm sure everyone's going to want a piece of this action right now, but I'll ask you to explain yourself first.
KRUGMAN: All right, the main thing is we are in a depressed economy, particularly we are in an economy where normally if you cut government spending, that's going to have a depressing effect on the economy, but you can offset that having the Federal Reserve cut interest rates. The Fed can't do that because interest rates are zero because the economy is so depressed they put the pedal to the metal. Which means that right now there are major negative economic impacts from any kind of attempt at fiscal austerity, which says this is not the time to do it. Later, once the economy is recovered, we're on the road to recovery, we're not there yet, but later you do it. This is, you know, this is very basic economics.
BERMAN: Marsha is shaking her head.
REP. MARSHA BLACKBURN, (R) TENNESSEE: I understand where you're coming from, your train of thought, but I really disagree with this because when, it doesn't matter if I am in California or New York or Tennessee in my district. What I hear from individuals that are job creators and new start businesses is regulatory overreaching uncertainty is an impediment, lack of capital is an impediment. Much of this is driven by uncertainty that exists in Washington and out of control federal spending, and they want to see some kind of framework to bring this under control, so I think the time to do it is now.
KRUGMAN: There is a lot of evidence on that. We actually have surveys of what's holding back business. The ultimate answer is lack of sales, not this other stuff. And we also have, we can actually compare business investment. It turns out it's actually doing pretty well relative to this present state of the economy, business investment response, given that business investment is actually pretty strong. There's no hint in the actual data as opposed to what people who might want lobbying concessions say, there's no hint in the actual data that all of these issues that loom so large in our political conversation are playing any role.
BLACKBURN: I disagree with that. KRUGMAN: What's overwhelming in the actual data is just that we don't have enough spending in this economy.
BLACKBURN: The follow-along question to lack of sales is what is driving lack of sales? It is uncertainty, it is lack of capital. It is just a fear of what is happening in Washington, taxes that are going up. Let me tell you, you're talking to somebody that worked her way through college selling books door to door. I know what drives sales.
KRUGMAN: That's just not true. We just had the biggest bubble in American history burst, we have U.S. households who borrowed heavily to finance that housing bubble pulling back because of an excess of debt. Why do we need to reach for other explanations? This is the most transparent economic crisis I've ever seen in my lifetime.
BALDWIN: Let me jump in and try to give an analogy. Instead of talking about the U.S. economy, we're talking about a person or American family. Can we do this?
KRUGMAN: That's the famous fallacy, right, because if you're a household and you say, OK, I'm going to tighten my belt because times are hard, fine, that's the right thing you should do. The thing about the economy is that money moves in a circle. My spending is your income. Your spending is my income. If both of us decide we need to cut back because times are tough, the end result is we actually end up reducing both of our incomes, we end up make ourselves worse off. That's how depressions happen is because the economy adds up, because it's very different. An individual family can do stuff that if everyone tries to do at the same time ends up being destructive.
This is why we have a government which at a time when families do need to repair their balance sheets can sustain the economy until families are in better shape.
BALDWIN: What about 20 years from now?
KRUGMAN: Well, 20 years from now - I'm a deficit hawk, right, but 20 years from now or you know looking about where we're going to be but not while the economy is the at the bottom, not at a point when - look, there's a lot of growing evidence now that even in purely fiscal terms –
BLACKBURN: No time like the present.
KRUGMAN: No. In purely fiscal terms, cutting back right now, fiscal austerity is probably disruptive, because it increases the unemployment rate, a lot of the workers also never get reemployed, which means they will never pay taxes. It leads to lower business investment, the biggest thing holding down business investment is the weak economy, which means lower economic capacity, lower taxes in the future. And remember, the federal government can borrow at the lowest interest rates pretty much ever in history right now, and it can - inflation protected federal bonds have got a negative interest rate –
BALDWIN: How much hate mail do you get? KRUGMAN: I've got to be the national champion on that.
BERMAN: You haven't convinced Representative Blackburn here.
BERMAN: And you know what the political climate is in the U.S. right now where people are talking about cutting back if not flat out cutting spending. So you're not going to convince everyone.
KRUGMAN: I know I'm never going to convince everyone. Are we going to get the stimulus plan I would like? No, we're not. But have we managed to move the conversation? Have the prospects for another damaging round of short-term spending cuts diminished? I think they have. You can see measurably - not measurably. If you follow this stuff, if you read the complaining editorials from the deficit scolds you can see they have the feeling that they're losing this argument and people like me are winning it.
ROMANS: Is the economy getting better?
KRUGMAN: Yes, the economy is getting better, slowly. And that's part of the point. This is not a permanent condition. The housing bubble burst seven years ago. We build very few houses. Housing is coming back. So we're on the upswing, but we're not there yet.
BERMAN: We'll quit on a good note then the economy is getting better. Paul Krugman.
BALDWIN: From our future deficit hawk Paul Krugman.