:00:16. > :00:18.other plants. Only Distin for HARDtalk. We are in a depression.
:00:18. > :00:21.So says Nobel Prize winning economist Paul Krugman, with
:00:21. > :00:27.unemployment at levels last seen during the 1930s, an economic
:00:27. > :00:33.crisis in the Eurozone and the prospect of worse to come. But he
:00:33. > :00:36.reckons that none of this needs to be happening. He believes that
:00:36. > :00:39.America and Europe should be richer than they were five years ago, that
:00:39. > :00:42.even now it would not take much to solve the problem. What debt-ridden
:00:42. > :00:52.governments should be doing, he says, is borrowing more to spend
:00:52. > :01:18.
:01:18. > :01:23.their way out of trouble. Welcome to HARDtalk. Hide it. Can you
:01:23. > :01:27.really solve the problem of excessive debt with more debt?
:01:27. > :01:32.you can. The thing to understand is that the problem is not so much the
:01:32. > :01:41.overall level of debt as the fact that right now everyone is trying
:01:41. > :01:47.to pay down the debt at the same time. The trouble with that is my
:01:47. > :01:52.spending is your income. You're spending is my income. If you and I
:01:52. > :01:57.both decide we have too much debt and slash spending the result is a
:01:57. > :02:02.depression which leads us both was off. What we need to do while the
:02:02. > :02:06.private sector is working on its debt levels his temporary the
:02:06. > :02:13.public sector needs to step in and do the spending the public sector
:02:13. > :02:20.will not. We are very much in a counter intuitive world, but one
:02:20. > :02:25.which economists are supposed to understand. Maynard Keynes, in the
:02:25. > :02:35.early part of the 20th century, said that the Boer, not the slump,
:02:35. > :02:36.
:02:36. > :02:42.is the time for austerity. One of his contemporaries also said the
:02:42. > :02:47.same thing in different phrases. You can take things that Keynes
:02:47. > :02:54.wrote and they read like there are about events today. His recipe for
:02:54. > :02:59.recovery is every bit as relevant now as then. And what you say in
:02:59. > :03:05.your book, in this depression now, is that the way to do it need not
:03:05. > :03:08.be painful or involves sacrifices. Yet here we are in something we
:03:08. > :03:17.have not seen in decades and it is very big and very painful. That's
:03:17. > :03:22.right. And there is a wonderful phrase that Keynes used in 1930. He
:03:22. > :03:31.talked about magneto trouble. That is an old fashioned term for
:03:31. > :03:37.trouble with the electrical system in your car. The assumption is that
:03:37. > :03:45.the car is fundamentally flawed and fixing it is painful and protracted.
:03:45. > :03:50.He says no, it is a small thing it just requires a replacement battery.
:03:50. > :03:57.I say, if your car is not running because of a dead battery but your
:03:57. > :04:03.husband refuses to admit that that is the problem and insists that you
:04:03. > :04:09.take buses instead, you have a problem. It may be difficult and
:04:09. > :04:16.insoluble, but you probably is not with a car. It is an intellectual
:04:16. > :04:19.problem, not an economic one. The UK has made much of its austerity
:04:19. > :04:24.programme and you have been very critical of what the British
:04:24. > :04:31.government has done since 2010. in one sense, they have not been
:04:32. > :04:35.doing that badly. The forecast for GP p the year after next is 2%. It
:04:35. > :04:42.would not be in this situation if it were not for the crisis of
:04:42. > :04:50.Europe, its main trading partner. That is exaggerated. It is the
:04:50. > :04:59.truth that British austerity so far has been not that much more than be
:04:59. > :05:08.de facto austerity. Not much relative to other places. What is
:05:08. > :05:15.special about Britain - we are all making a hash of policy, the
:05:15. > :05:20.eurozone, the US - but in both of those cases you can argue the
:05:20. > :05:29.Wright fundamental structural or political reasons. Eurozone has a
:05:29. > :05:33.currency that does not work. The US has political parties. The UK
:05:33. > :05:39.government does not have to be doing is. Out of a misunderstanding
:05:39. > :05:44.of the situation, it is choosing a destructive economic policy.
:05:44. > :05:50.look back at the situation in 2010 when this government came into
:05:50. > :05:57.power and at that stage UK public and private debt was higher than
:05:57. > :06:02.any country in the world apart from Japan. The Chancellor George
:06:02. > :06:08.Osborne based his moves on getting the market confidence initially.
:06:08. > :06:13.was never that Britain was facing a crisis in its ability to borrow.
:06:13. > :06:19.The public, private debt being probably reflects the fact that
:06:19. > :06:23.London is a financial centre. It makes the numbers look like. But no
:06:23. > :06:30.country with its own car Rinsey have that in the difficulty
:06:30. > :06:38.borrowing. The US, UK, Sweden, Germany - look at the borrowing
:06:38. > :06:43.costs. At have all moved in tandem. Japan, with enormous levels of debt.
:06:43. > :06:46.None of these countries have faced immediate borrowing concerns.
:06:47. > :06:56.problem is that you look at the heavy weight figures who have
:06:56. > :07:03.looked at the British DEC, not least Christine Lagarde of the IMF.
:07:03. > :07:08.She said, I shiver when I tried to imagine what the situation would be
:07:08. > :07:18.today it's no fiscal consolidation had been attempted. It is
:07:18. > :07:22.interesting if you read that I am a statement. Its dark spine endorsing
:07:22. > :07:28.the Cameron government's policies and then point-by-point says,
:07:28. > :07:33.actually, this is wrong. If you read the analysis as opposed to the
:07:33. > :07:41.headline, there are saying that this was a terrible mistake.
:07:42. > :07:51.analysis says that it it is not working by November,....
:07:52. > :07:52.
:07:52. > :07:57.November? She did describes it as courageous. That is diplomacy. It
:07:57. > :08:04.is very difficult for Christine Lagarde to say, we screwed up at
:08:04. > :08:14.League Two. In practice, IMF's staff believe this was a terrible
:08:14. > :08:16.
:08:16. > :08:21.error. How do you know that? I can infer it. From the public comments?
:08:21. > :08:27.Yes, I do not have an inside pipeline. But they do know what the
:08:27. > :08:35.models look like and they are not very different to mine. They think
:08:35. > :08:44.it is a terrible mistake. A -- but they always say a lot of other
:08:44. > :08:49.things. The IMF has no special monopoly on wisdom. One thing that
:08:49. > :08:55.has not made it into the public debate here is that back when
:08:55. > :09:01.Maynard Keynes was writing about the need for debt suspended and
:09:01. > :09:07.stimulus UK debt to spending ratios were higher than the are now. This
:09:07. > :09:14.is not a uniquely different situation. Britain has all a long
:09:14. > :09:19.been a country with no immediate need to slash the deficit. We all
:09:19. > :09:23.have ageing populations, a lot of things to worry about. We all need
:09:23. > :09:29.to find a way to balance a Thank you budget, but not in the middle
:09:29. > :09:33.of the Depression. Greece is in deep trouble. How would your
:09:33. > :09:40.argument applied there? You can't seriously suggest that Greece Boris
:09:40. > :09:47.more. Greece was seriously irresponsible even in the good
:09:47. > :09:52.years. You can say there was some a bat in the UK and the US, but not
:09:52. > :09:56.at the same extent. Most will, Greece does not have its own
:09:56. > :10:06.currency - it cannot print euros. That creates an enormous
:10:06. > :10:07.
:10:07. > :10:13.vulnerability. All of the countries we think of has fiscal crisis
:10:13. > :10:22.countries are actually euro crisis countries. What do they do? If you
:10:22. > :10:29.are the prime minister are based more you -- of a small European
:10:29. > :10:36.country you have very few options. You can go a long or you can leave
:10:36. > :10:42.the euro. But that is similar to the Governor of a small US states.
:10:42. > :10:47.Europe as a whole has the option of being more expansionist. It is a
:10:47. > :10:53.terrible thing that it has happened. If you were advising the Greek
:10:53. > :10:59.government now, what would you say to them? I have had conversations -
:10:59. > :11:04.not with them, but with European politicians. With whom? I cannot
:11:04. > :11:11.tell you. Has there been a European government who has asked for your
:11:11. > :11:15.red eyes? No, I have just had conversations. If I were the Greek
:11:15. > :11:20.government Know What I would be in a state of some despair because I
:11:20. > :11:27.believe Greece must and will lead the euro. I believe there is no
:11:27. > :11:31.alternative. But I believe that he would actually makes that decision
:11:31. > :11:35.will have ended his political career. So there is a situation
:11:35. > :11:42.where this thing has to happen but it has to happen with no-one
:11:42. > :11:52.person's fingerprints on it. Windy think it will happen? It could be a
:11:52. > :11:52.
:11:52. > :12:02.couple of weeks in this next election. It's the reader does come
:12:02. > :12:07.
:12:07. > :12:12.in first. Or it East Europe refuse to lend them any more. Mark do you
:12:12. > :12:17.think that would be the kindest thing for Europe to do, to find a
:12:17. > :12:21.way to reject risk Kris Smith assuming that you have the new
:12:21. > :12:25.track no comedy venue in relation to the hero and you still have
:12:25. > :12:32.massive debts which are now denominated in the new drachma and
:12:32. > :12:36.therefore even bigger than they were before. The trouble is used
:12:36. > :12:43.they will be in euros. But they would be paid back in the new
:12:43. > :12:48.drachma. Except they probably will not be. Argentina is a role-model
:12:48. > :12:54.here and it is not entirely positive. Argentina had an
:12:54. > :12:58.irreversible commitment to 1%=$1 which inevitably failed. Eight had
:12:58. > :13:05.a lot of debts in dollars which they ended up paying about 30 in
:13:05. > :13:09.the dollar, said they ended up defaulting. They had one terrible
:13:09. > :13:16.year because of the disruption caused by or about followed by a
:13:16. > :13:23.very strong economic recovery. Greece probably would follow the
:13:23. > :13:31.same track. But the point is their current path for offers no prospect
:13:31. > :13:41.of recovery has Farris the eye can see. 50% youth unemployment and 150
:13:41. > :13:47.
:13:47. > :13:55.I know! It is a funny thing is about the Germans, how the 1923
:13:55. > :14:03.hyperinflation the cod into their memory. -- is co-owned into their
:14:03. > :14:13.memory, but not the key inflation that lend to you know what. At one
:14:13. > :14:14.
:14:14. > :14:19.stage in 1923, prices were doubling every few days. There are
:14:19. > :14:25.statistics for the price of bread at the time. I have been proposing
:14:25. > :14:32.a raw that anyone who brings the Weimar Republic or Zimbabwe into
:14:32. > :14:36.the discussion should be rejected from the debate. We are not talking
:14:36. > :14:44.about inflation out that level. In America, we are talking about
:14:44. > :14:51.having inflation at the same level as it was at during Ronald Reagan's
:14:51. > :14:56.presidency. But can you keep it at that level? There are concerns
:14:56. > :15:01.about runaway inflation. Angela Merkel says that you cannot spend
:15:01. > :15:09.more than you taking, you cannot live your life this way.
:15:09. > :15:16.trouble is, you also cannot collectively spend less than you
:15:16. > :15:23.Verna. -- value alone. Everyone is trying to run a surplus and slash
:15:23. > :15:33.spending. And the trouble is, my spending is your income, your
:15:33. > :15:34.
:15:34. > :15:44.spending is my income. She is wrong? Absolutely. The President of
:15:44. > :15:44.
:15:44. > :15:50.wonders though he is wrong? Yes. I have tried to lead France some
:15:50. > :15:55.evidence in this matter. One thing is that people who took at the
:15:55. > :15:59.situation in my way have been much more correct about what has
:15:59. > :16:09.happened with inflation, interest rates and the effects of posterity
:16:09. > :16:11.
:16:11. > :16:16.than those who have taking the Barber of view. -- the other view.
:16:16. > :16:26.Those who predicted that slashing spending would lead to an economic
:16:26. > :16:27.
:16:27. > :16:33.boom have been wrong. And yet this idea of confidence, some people say
:16:33. > :16:38.you are talking about a fairy-tale. Eat is not, it is the story of
:16:38. > :16:43.history. We spent our way out of the Great Depression. But look at
:16:43. > :16:52.what do you are talking about. Killing three your book, you set
:16:52. > :17:00.out of his picture and then you have your proposal. And what is
:17:00. > :17:05.that? To have a stimulus of $300 billion Polje in the US. To change
:17:05. > :17:11.the inflation target to 4%. And to allow households struggling with
:17:11. > :17:19.high interest rates on their mortgages to remortgage at lower
:17:19. > :17:25.rates. Yes and it is a surprisingly modest solution. Those are
:17:25. > :17:30.relatively modest things to do. Part of the point is that we
:17:30. > :17:36.actually have had some gradual prepare the month the US. Household
:17:36. > :17:41.balance sheets are better than they were five years ago. We are now in
:17:41. > :17:48.a position where recovery is not as difficult a proposition as it was.
:17:48. > :17:53.Five exactly, and there is growth. The US is doing better than any
:17:53. > :18:00.other in G8 country. They have not followed your medicine thus far.
:18:00. > :18:06.But think about what is going on. The reason why I use the word
:18:06. > :18:14.depression rather than recession - a recession is when things are
:18:14. > :18:17.heading down and a depression is when the things I've down.
:18:17. > :18:24.Unemployment is down but only because people have dropped out of
:18:24. > :18:32.looking for work altogether. Think of the enormous humility of damage
:18:32. > :18:36.this does to people's lives. -- cumulative. That is why we want to
:18:36. > :18:46.end the depression now rather than wait over ten years to slowly
:18:46. > :18:51.return to an economic position. Why not cut that with a fairly modest
:18:51. > :18:58.prospect of economic recovery? angry are you about this? Your
:18:58. > :19:07.language has been quite strong. Of Ben Bernanke, you have said it is
:19:08. > :19:13.like he has been assimilated by the ball but, that he is reckless.
:19:13. > :19:16.is reckless. The amount of human damage that has been done by this
:19:16. > :19:23.he is enormous. We have 4 million people out of work for more than
:19:23. > :19:29.one year. There has been nothing like that since the 1930s. It is
:19:29. > :19:35.destroying people's lives. College graduates are graduating into a
:19:35. > :19:40.market that has no use for them. And if they leave college with very
:19:40. > :19:47.large guess that they will never be able to pay off. Allowing this to
:19:47. > :19:54.resist is incredibly cruel. Bernanke says that your comments do
:19:54. > :19:59.not make sense. That it does not make sense to actively seek a
:19:59. > :20:06.higher rate of inflation in order to pursue employment. They say this
:20:06. > :20:11.is worthless. Because it is doubtful. People have the wrong
:20:11. > :20:17.notion of what is reckless. It is considered reckless to take any
:20:17. > :20:22.action to try to bring down this incredibly high unemployment level
:20:22. > :20:28.when, in fact, that long-term unemployment is inflicting damage
:20:28. > :20:35.as we speak. It is considered responsible to let that persist and
:20:35. > :20:42.it to not try something different. We should have Rooseveltian resolve,
:20:42. > :20:48.we should be able to do what every it takes. Yours is an experiment as
:20:48. > :20:55.much as theirs is an experiment. have some evidence from history.
:20:55. > :21:02.Doing what ever it takes and trying new things, not let it slide. The
:21:02. > :21:08.person who called for that in 2000 it was Ben Bernanke. The idea that
:21:08. > :21:16.we have become acclimatised to this horrible situation, to this
:21:16. > :21:22.senseless, gratuitous claim -- pain, that we should accept it - that
:21:22. > :21:26.should make people angry. People must be angry with you for
:21:26. > :21:32.suggesting that they are expecting it. One of your critics has said
:21:32. > :21:37.that if your opinion is not closely related to the reality in which Ben
:21:37. > :21:41.Bernanke is being forced to operate. That he has a responsibility to
:21:41. > :21:45.steer the economy through treacherous waters and that you
:21:46. > :21:53.have the luxury to sit in your office and send articles to the New
:21:53. > :22:00.York Times. I would love to know what Ben Bernanke's private
:22:01. > :22:08.opinions are. I suspect he is not as orthodox as he sounds in public.
:22:08. > :22:12.The truth is that he faces political constraints. I can
:22:12. > :22:20.understand that he is not able to just go ahead and be as aggressive
:22:20. > :22:25.as I would like. But I think I am doing him a favour because he is
:22:25. > :22:30.being attacked from the right saying he should it do less, but I
:22:30. > :22:38.am saying to do more. One of the aims of your book is to brew
:22:38. > :22:46.pressure by means of an informed public. You want the public to get
:22:46. > :22:50.angry. Do you want them to take to the streets? A little bit, yes. The
:22:50. > :22:59.Occupy movement in the US it was a little bit Inca hates and a little
:22:59. > :23:04.bit scrappy, but it changed the conversation in a very positive
:23:04. > :23:09.direction. Before this began, the issue of unemployment and
:23:09. > :23:14.inequality was not part of the debate. This movement has pointed
:23:14. > :23:21.attention to the real suffering that is out there and the political
:23:21. > :23:24.establishment took notice. To what extent? You have been very rude
:23:24. > :23:30.about the Republicans in an election year. What action should
:23:31. > :23:35.be taken? We are having an election and it is important for people to
:23:35. > :23:41.understand what is at stake. The time of the Obama administration
:23:41. > :23:48.has changed. They have become more activist in their rhetoric, if not
:23:48. > :23:52.their policies, but that is the kind of change we are hoping full.
:23:52. > :23:58.We cannot accept that this depression is the new normal, that
:23:58. > :24:05.nothing can be done except but wait for the market to heal itself, that