While much of the media and much of America was focused on primary voters in a tiny town in New Hampshire this week, everyone knows that the November elections won’t be determined by those results. They will be determined by what happens in the American economy.
And to talk about that, I was joined by Paul Krugman of The New York Times and Princeton University; and Ken Rogoff of Harvard University.
Here’s a transcript of our discussion:
Fareed Zakaria: Let me begin, Paul, by asking you about a column you wrote in which you talked about Mitt Romney and Bain Capital and the fact that he had not created a lot of jobs; he had destroyed them.
And it struck me that it was somewhat unfair, because Bain Capital seems to be, of all the private equity companies, not one of these companies that loads on a lot of debt on its – on its – on the companies it takes. It often acts as an early-stage investor, almost more like a venture capital company. Steve Rattner was a, you know, Democrat, worked for Obama, says that actually if you look at Bain Capital’s record, it’s quite remarkable. It’s mostly about having spotted successful companies and steered them well. What do you think?
PAUL KRUGMAN, “THE NEW YORK TIMES”: Well, what I actually did, I said it’s actually wrong to think about Bain as having either created or destroyed jobs.
On balance, it led to the destruction of relatively good jobs, and replaced them with jobs that are worse. No different – this is what private equity has done to a large extent in the U.S. economy. I don’t – I don’t think Bain stands out as an especially bad member of that industry. But that industry is doing stuff that it’s good for corporate bottom lines, but not terribly good for workers.
The main point is that Romney is saying I should be president because I know how to create jobs. And he actually does know how to make a lot of money in private equity, which is not at all the same thing as creating jobs. It’s not at all the same thing as what’s involved in running macroeconomic policy.
So the main point is not that he was an especially evil private equity investor. We don’t think so. It was that that has basically zero relationship to what he would have to do as president, and it’s an industry that has a somewhat mixed – the industry has arguably not been one of the things that – whose overall impact has been positive on America.
ZAKARIA: Let’s talk about the big issue, which is going forward, what the economy’s going to look like, and what the debate is going to be.
Paul, you had a column and a really striking graph, where you point out that if you’d asked yourself what has the market told us over the last three years, you know, the market’s verdict has been that the United States, which engaged in a big stimulus program, and then the Fed did quantitative easing and quantitative easing to – has found that its borrowing costs have just fallen and fallen and fallen.
KRUGMAN: That’s right. People are actually willing to basically pay the United States government to keep their money safe, which suggests that the market, at any rate, is not at all worried about U.S. solvency, which suggests that even leaving aside the whole question of multipliers and whether you can create lots of jobs, this would be a really good time to being doing a lot of public investment, because you can borrow the money for zero or actually negative cost. So it’s a pretty spectacular contrast with the rhetoric in Washington.
Listening to the discussion in Washington, you’d think that we’re on the verge of a debt crisis, that we have an intolerable, crippling deficit. But the market, people who are actually putting money on the line, are saying, actually, you know, we’re not worried about that, and we can’t see any better use for our money. So, here, please take it.
ZAKARIA: Ken, what do you say to that? Because it is now three years. It’s not a few months. The trend is pretty consistent and you can’t say that this is like subprime or something, that people didn’t know about. This is all we’ve been talking about for three years, and yet the interest rate keeps dropping. In other words, the market is saying, you know, we’re not worried about an American debt crisis. What we’re worried about is very slow growth in the United States. Correct?
KEN ROGOFF, HARVARD UNIVERSITY: Well, for one thing, interest rates are not an incredibly great predictor of what’s going to happen in the future. Iceland was borrowing at very low interest rates in 2006. You can point to lots of other examples. This has been studied a lot, and it’s hard to find evidence that they really can predict what’s going on.
And, of course, debt levels are surging, not just the United States, but across the advanced countries. And I think that’s really important, not just to look at public debt, but to look at the total picture on debt, which just looks like nothing we’ve ever had before.
We’re already a general government debt above World War II, but if you throw in private debt, which often becomes public debt, we’re very familiar with that. I mean, I don’t think it’s nuts to be worried about debt and to just point at the interest rates and say, well, this isn’t a concern. I think it’s too easy.
KRUGMAN: If I can – first of all, I think that the relevant thing here, at least the – what I’ve been doing is looking a lot at Japan, which is Japan in the ’90s was kind of a dress rehearsal for us now. And Japan has been subject to people warning of an imminent debt crisis for a long time now.
I mean, the S&P downgraded them in 2002 and nothing happened, which is what – why some of us successfully predicted that when S&P downgraded America nothing would happen.
Of course there are risks. There might be something that we don’t know. It may be that although Japan was able to get up to gross debt of 200 percent of GDP, now it’s still borrowing at an interest rate of less than 1 percent, maybe the United States would be different from that.
But that potential danger that we’re – is not apparently weighing very heavily right now, and the fact is, meanwhile, we have massive unemployment.
How heavily do you weigh something that might happen, but that history kind of suggests probably won’t happen very soon against something that is – against a clear and present damage that’s being done by our weak economy?
Source: CNN
