TAP Talks to Paul Krugman

Ezra Klein: The Conscience of a Liberal. Tell me why you chose the name

Paul Krugman: On my wife's advice. It's a manifesto. There's a lot of history and there's a lot of analysis, but it is fundamentally a manifesto. We also wanted to convey the sense that we are at a turning point. Conscience of a Conservative was, much as I disapproved of where it went, a signal that there was a big turn in where America was going, and, I think -- I hope, and I believe -- that we're at another turn.

EK: And you know that Wellstone used the same title. Did you think about that at all?

PK: No, it actually slipped through the holes of my head. I might not have done if I had realized that.

EK: I thought it was interesting because of the parallels and contrasts between you and Wellstone. You are, as you've said, sort of a radicalized moderate at this point, a mainstream liberal who's been living in a radicalizing time. And it struck me that five, ten years ago, that there was a real difference between the sort of technocratic liberal that Paul Krugman was and the sort of populist labor liberal that Paul Wellstone was. There's been a convergence of those -- George W. Bush has expanded liberalism. Do you think that's right?

PK: Oh sure. You know, [under Bush], you realize who you actually have only technical disputes with, and that, more fundamentally, you share values. I think I said to Eric Alterman once that while people like you and me are having our disputes over trade policy, Sauron was gathering his forces in Mordor. There are arguments we can have that will eventually have to be hashed out, but they're relatively minor compared with this huge difference, do we believe in democracy, do we really believe in a broadly shared prosperity? And so now we have a lot of ground giving in all sides so that we have amazing consensus on things like healthcare.

EK: So let's begin then where I think Paul Wellstone would have. You talk in the book about the Great Depression, and you say that that lived on in our memory but what didn't was the Great Compression, the broad wage growth and creation of the middle class that occurred in the post-War years. I found that striking. Why do you think it is that liberals have not made the Great Compression a more central part of their history?

PK: Well I think partly it's people didn't want to be pushing conflict. For thirty years after WWII we had not just a middle-class society, but also a sort of bi-partisan acceptance of the New Deal, and so those struggles kind of fade into memory. And liberals got lazy, to be honest. They lost the talent for making their arguments effectively, for making them human. But it is amazing. And of course there is pressure on the schools. Everybody can teach about the Great Depression, but to talk about the Great Compression is in effect to be telling people about strife. There are a lot of things in American history that don't get taught in schools because they're too ... put it this way: I'm not sure how much people know about the homestead strike either. These things get pushed into the background.

EK: And I've also gotten the sense that liberals, to some degree, don't believe they should have to make that argument, which is to say that they tend to make the argument against Republican economic policies on grounds of fairness rather than efficiency. Our approach is touted as being better for the poorest man, rather than better for the common man.

PK: And it's taken a long time for people on the moderate left to appreciate just how bad things have gotten. They've taken a long to appreciate. I mean, even now, even now you'll find people who claim to be moderate to liberal democrats saying "well, you know, inequality isn't really that bad." And ten years ago there was much more denialism.

EK: And you were writing about inequality in The American Prospect ten years ago.

PK: That's 15 years ago now! It was one of my better pieces.

EK: The inequality debate has been sort of strange to watch, particularly the economics papers on it. It's reminded me a bit of that old joke where a man is searching for his keys under a street light, and a friend asks him where he lost them, and he points down the block. "So why are you looking here?" Asks the friend. "Because this is where the light is," the man replies.

You see a lot of papers arguing inequality due to aging, or family structure, or education, and some, as you put it in the book, saying that if it's not immigration or trade, it's got to be technology and skills. It's got to be something we can measure, in other words. I thought one of the great contributions of your book was to have an economist say, "Wait a second. Norms matter, and culture matters, and power matters, and politics matters." That hasn't so much been part of the conversation. It's stated in econom-ese, so it's stated very gently. But yeah, the persistence of the belief that it's all about the skill differential, it's all about college-educated versus non-college-educated, continues to be what lots of economists say, even though it's manifestly not true in the data.

PK:They say it because that's comfortable, that something we know how to model, it's not too politically controversial, it's sort of a safe thing to talk about. Also, most data, survey data, really doesn't tell you what's going on within the top 5 percent of the population, which is in fact where all the action is. So if you're only focusing on the bottom 95 percent, then it looks like it could be about education. And it's only when you have the information we have for income tax data and information we have from just looking around you as opposed to the official surveys that you see, what's happened is an explosion of wealth at the very, very top of the scale, and that tells you it can't be education. But the debate has been pretty weird.

EK: I was speaking to another economist about this a while back, and I think it was actually in regards to a quote you gave to Chris Hayes in a Nation article that, on inequality you can't model power, and he said to me -- and this is a good guy, a liberal guy for that matter -- and he said, "Well you know what? I'll believe in the power of explanation when they figure out how to model it."

PK: Yeah, well look, I'm one of those guys too in a lot of ways. I prefer the stuff that you know how to model, but when you see stuff that is happening that you can't, the temptation to look, to only go for what's modelable is not entirely wrong unless you're missing the story, and in this case you're missing the story.

EK: And in this case when you talk about the norms, one of the things you mention is that these have changed, and they've changed in part because the forces that kept egalitarian norms and egalitarian culture in place have dissolved. And to some degree, to put it in Galbraith's terms, the countervailing powers have receded, you don't have the government in the same way, the unions in the same way, you don't have the media channeling outrage on this. But how did we get to the place where we've accepted it?

PK: Well I think the outrage is starting to happen now. It takes a while, and part of it is just people … I have the sense that a lot people don't understand how rich the rich are. For the middle-class, it's a lot of the frog in the slowly warming pot syndrome. That year to year the fact that you're falling behind, that you're not getting anywhere despite a growing economy, is not that obvious, and you can chalk it up to your individual experience. But you look back at 35 years of technological progress, rising productivity, and at best arguable gains for the median family, then you can really see it. And the forces at the top are so large that, in a way, they're unimaginable, it's hard to get people focused on it. People at the Times, when I did an article on inequality for the magazine five years ago, and they had artwork illustrating mansions, which I talked about in the article, but what they showed were not. Those were big new McMansions, $3 million dollar, 6,000 square foot homes. But they weren't what the truly rich were building. So people don't have a sense of how far it's gone.

EK: And you talk in the book a lot about political culture, and you touch a little bit on culture culture, but I want to focus on that. We've had "greed is good," Alex Keaton, corporate social responsibility … There's been this real move, not just in the politics and the taxes and so forth, but in the culture, to say, this is ok, even virtuous.

PK: It's the twenties all over again. We can think about what the cultural roots of this would have been, but I think the Great Depression and the war, and the fact that you had a powerful union movement, that forces of equality were big players in the society created a culture where people could say with full-throated voices we did that. And again it crept up on us, but Gordon Gekko won, I mean, he won the debate.

EK: And one thing you sort of suggest in the book is that universal health care isn't merely good policy but has the potential to act as the wedge on rolling a lot of this back, on changing how people think of government, what they think of what their responsibility to each other is -- that it has a cultural component.

PK: Yeah, I mean this is one of the few things on which William Kristol and I are in complete agreement. Bill Kristol had this famous memo during the defeat of the Clinton health care plan saying, we as Republicans must ensure that there is no plan because if there is a plan, if Clinton gets something, it will legitimize, re-legitimize the welfare state, and he's right. Universal health care is important and worth doing in its own right, but it also clearly would be a demonstration that you can do good things, that government can make society safer and more equitable, which is why conservatives are so hysterical over even S-CHIP. If we can get heath care, and I think we have slightly better than even odds that we can, it does change the whole set of norms.

EK: And why do you think there's slight better than even odds that we can get it? Why will this time succeed when so many others failed?

PK: First, there's a progressive movement where there wasn't one before. Clinton came in when the Democratic Party was basically an uncoordinated coalition of people with their own special interests. There is a real progressive movement now. They've learned something from the debate. And health care itself, a lot of the sense of crisis over health care in '92 was because the economy was in recession, and things got better on the health care front and the economy recovered even as Clinton was trying to get plan through. This time around private health insurance has been declining even in the midst of economic recovery, so the crisis is that much deeper. And because of the progressive movement, the Democrats have more or less coalesced on a plan. LBJ passed Medicare in July of '65 because he hit the ground running and knew what he wanted. Clinton didn't give his first speech on health care until September '93. This time around, we hope, if it's a Democrat in the White House, that he or she will be much closer to the position that Johnson was in when he passed Medicare.

EK: What worries me, too, are the arguments you make in the next chapter on solving inequality. It seems that Democrats are so much more comfortable making the argument that we need universal health care than that we may need a tax code that redistributes income a bit more, that gives government more revenue. Chuck Schumer opposing the hedge fund change was such a dispiriting image.

PK: This is a big concern. As I wrote in the Times recently, we hope we're about to elect FDR but make sure we don't elect Grover Cleveland. That's why you want to start with health care. Health care is really compelling, and it's not at all abstract. If you look in Conscience of a Liberal, the chapter on health care is a lot more conviction than the chapter on inequality because I do think it's harder politically and economically. Other countries do a fair bit of it, and if health care reform makes us more of a social democracy, makes our politics start to look more like that of other advanced countries, then maybe we can start to as well.

EK: It seems to me that the taxation argument needs to be more concretely connected to health care. We raise taxes in a fuzzy way, and so they get to imagine they're subsidizing whatever their worst image of government is. But if you make it more concrete, as you do with Social Security and Medicare payroll taxes, and I think folks may judge the increase worth it.

PK: For what it's worth, if you look at the Nordic model, their taxes aren't all that much more progressive than ours. The taxes are accepted because they are linked to the programs, and that's the way you've got to do it. It's going to have to be, if not exactly dedicated taxes, at least saying we need this tax increase in order to do this. If the Democrats just came in and said we need to let some of the Bush tax cuts expire because were unfair, we're going to have a big problem. But fortunately it appears that's not what they're going to do. They're going to come in and say we're going to have to let the high end Bush tax cuts expire in order to have the money to pay for universal health care. And I believe that will be overwhelmingly popular.

EK: You have an interesting concept in your book, you made me think of it when you mentioned the Nordic model, of "status quo conservatism."

PK: The big three auto makers are enthusiastic supporters of single-payer health care … in Canada. It's an interesting question why they won't say that in the United States, and I think a lot of it is social pressure on the executives and political fear that they will be punished by a dominant right. And it's interesting. If we get this, I think there will be a real marginalization of the hard right in the years ahead, and we may also find that corporate American speaks up for single-payer health care and maybe for other things too, because they realize those policies are good for heading off erratic protectionism and draconian immigration restrictions.

EK: One could imagine that if our politics weren't so strange and tilted toward the right that you have something akin to the consensus in the fifties, that you have a general social welfare state, and you have a free and dynamic market, on and on and on, and there would be something to protecting that.

PK: I think also, this isn't in the book, the U.S. productivity surge and the fact the U.S. raced ahead on the Internet did a lot to make people think that everything we do, all the injustices in our system must be somehow necessary. That's over. Productivity growth is now converging around the advanced world; the U.S. has started to fall behind on the Internet, on broadband. It may be easier to make the case that we actually do need more of a, more of a strong social safety net in order to have a dynamic economy.

EK: Do you thinking we may losing a bit of the sense of American economic exceptionalism?

PK: I hope so. I hope so on a political basis, and I fear it on an economic basis because it looks to me as if we really had a good decade when, for a variety of reasons, the U.S. was a cutting edge, and that's looking like it's quickly ceasing to be the case.

EK: It's fascinating because toward the end of the book you speak a bit about France and the European model, and you mention how some of these statistics that people rip out of context show that France has low employment and everything have to do more with French individuals being in higher education. The conservative response to inequality is in this case to put everybody in more training and education, which would make us look like France.

PK: There are more French in higher education, and those who aren't are much less likely to work their way through it, so you have lower employment participation. The French, once you start to start to take a good look at it, the French have really screwed up pension policy. Everything else is arguably just different choice than ours, and in some cases, better choices.

EK: Toward the end of the book, you define a liberal as someone who believes in these ideas, and you differentiate that from a progressive as someone who takes action on these ideas. I'm curious where you got that, because I haven't heard it before.

PK: Yeah, it's my own. A lot of people use progressive because liberal has become a bad word, and I don't think that's ultimately a strategy that is going to work, so you might as well adopt the traditional label. But I think in terms of movements a lot. Movement conservatism is a very real force, and movement conservatives, which are by some standards not true conservatives whatever that means. Now we do have a movement, and progressive is mostly used to denote that movement. The American Prospect or the Center for American Progress are clearly progressive movement institutions. That seems to me to be a natural distinction. The values they're exposing are clearly those that have been traditionally associated with liberalism, but the progressive movement is something new. If we had that movement in 1991, as Trent Lott would say, "we wouldn't have all these problems today."