For the last 3 years or so, I kept bugging Hal Varian to grab Paul Krugman for a talk. Now Hal is fond of telling me that whoever I ask him to bring would be a bad speaker (though invariably he's wrong --- apparently the mere act of having to give a talk at Google brings out the best in people), but in the case of Krugman, his most response was, "I've invited him several times but he's always turned us down."
So when Paul Krugman came by, I made it a point to get to his talk, get his latest book signed, and ask a couple of questions (off the air, so don't expect to see me on the video). Hal and Meng convinced Paul to give a technical, economics talk, mostly on the housing crisis and what happened there. If you've followed his columns and blog, or read the excellent blog written by Calculated Risk, then none of it will be new. Nevertheless, several snippets Krugman said caught my ear:
- I'm known as an international trade expert. But nowadays, when I visit conferences in other countries, people ask me "Why haven't you been writing about Brazil, or Latin America, or currency crisis." My response has been, "I'm trying to save my own damn Republic here."
- We now have fair trade with China. We give them dollars, and they give us poisoned toys and fish.
- I have varying degrees of indifference about the falling dollar. First of all, it can't cause a lot of inflation not just because in the grand scheme of things even the huge amount of trade can create at most one or two percent of additional inflation. There are a lot of studies that show that when the dollar drops, foreign countries reduce their margins rather than trying to reduce their market share, and that compensation effect can be as much as 40%. Basically, the prices are set by micro-economics, not macro-economics. Finally, because US corporations own so much foreign assets, when the dollar falls, their balances actually improve. Latin American countries like Argentina get in trouble when their currencies fall because their debt is denominated in dollars. Our debt is also denominated in dollars, but it's our currency, so what happens is we get debt deflation when the dollar drops.
- The Republican nominees all have to say that we're on the downward sloping side of the laffer curve, meaning that if we cut taxes, tax revenues will go up. This is unprecedented. If you look at the 2000 election, even the Bush campaign did not say that for fear of looking irresponsible.
- On the chances of a recession next year? I can definitively tell you that I don't know. I've been wrong on things before. For instance, the strength of the 2003-2005 recovery surprised me. And currently, the strength of consumer spending also surprises me. For some reason, nothing can stop the American consumer.
You've convinced me of Obama's incompetence on important issues. Are there any candidates you particularly like?
You will note that I didn't attack Obama until his campaign started bashing me. I did point out the flaws in his healthcare proposal from the very beginning, which is the free-rider problem when you do not have a mandate, which is other candidate's methods of making sure that you can't just not have health insurance,and then when you need it sign up for it because there's no penalty for not having insurance. That's what Obama's plan does. In any case, I can't provide endorsements, but my personal preferences are Edwards, Clinton, and then Obama, in that order. In any case, there's actually not that much difference between the three candidates, but what a lot of people don't get is that in this case, Obama is the establishment candidate --- compared to both Clinton and Edwards, he's has the least progressive agenda, because he's trying to be a uniter. Both Clinton and Edwards come out with good policy ideas, but Edwards comes out with them first, so I like him more.
What are the chances of getting universal healthcare after this election cycle?
If a Democrat wins the White House, and we have a Democratic congress, a little better than even odds. That's because all the candidates now at least have plans so they can hit the ground running. Clinton squandered a lot of time by waiting until he was in office before doing healthcare. Johnson signed his Medicaid bill 6 months after he entered office, because it was the first thing on his agenda.
In 2004 I asked Brad De Long about the election. He said well, if the Democrats win we'll have a competent government. If they lose, we'll all get rich by buying international stocks and emerging market stocks. As the last 4 years have shown, that turned out to be incredibly lucrative advice. Can you top that?
If Giuliani wins, you better stock up on canned food, guns and ammo. His campaign advisers are made up of people who were too hawkish for the Bush administration. Of all the Republican candidates, the most reasonable one is Mitt Romney, but I have a bias, because if he gets the Republican nomination, the Democrats have a better chance of winning.
Why do you think China is refusing to revalue their currency? It seems to be doing them a lot of damage, because of the amount of inflation it's generating in their economy.
Well, having worked in government I can tell you why. Things are going well right now. They've had that peg for years, and it works well, so there's no reason for them to change it unless things get intolerable. The last time something like this happened was when Germany allowed the Mark to float back in the 1970s. And for them an intolerable amount of inflation was 2 or 3 percent. But that was Germany, with its memory of the inflation of the 1920s. The Chinese have no such history and have much more tolerance for inflation than the mere 10% a year they are seeing.
There are many who think the CPI under states inflation. What do you think?
The CPI includes a basket of goods that include things like electronics which fall in price, whereas the prices that people remember are things like food prices. The cost of a Thanksgiving turkey is up 11% compared to last year, and that's what people remember.
I'll edit this post if I remember more, but nevertheless, I am very glad to have met the one guy who was willing to keep needling the Bush administration all throughout the last eight years, even at times when it must have been very hard to do so. He is as smart as his essays and columns make him look, and yes Hal, he was a great speaker.