Paul Krugman - Nobel Prize winning Economist HARDtalk

other plants. Only Distin for HARDtalk. We are in a depression.

So says Nobel Prize winning economist Paul Krugman, with

unemployment at levels last seen during the 1930s, an economic

crisis in the Eurozone and the prospect of worse to come. But he

reckons that none of this needs to be happening. He believes that

America and Europe should be richer than they were five years ago, that

even now it would not take much to solve the problem. What debt-ridden

governments should be doing, he says, is borrowing more to spend

their way out of trouble. Welcome to HARDtalk. Hide it. Can you

really solve the problem of excessive debt with more debt?

you can. The thing to understand is that the problem is not so much the

overall level of debt as the fact that right now everyone is trying

to pay down the debt at the same time. The trouble with that is my

spending is your income. You're spending is my income. If you and I

both decide we have too much debt and slash spending the result is a

depression which leads us both was off. What we need to do while the

private sector is working on its debt levels his temporary the

public sector needs to step in and do the spending the public sector

will not. We are very much in a counter intuitive world, but one

which economists are supposed to understand. Maynard Keynes, in the

early part of the 20th century, said that the Boer, not the slump,

is the time for austerity. One of his contemporaries also said the

same thing in different phrases. You can take things that Keynes

wrote and they read like there are about events today. His recipe for

recovery is every bit as relevant now as then. And what you say in

your book, in this depression now, is that the way to do it need not

be painful or involves sacrifices. Yet here we are in something we

have not seen in decades and it is very big and very painful. That's

right. And there is a wonderful phrase that Keynes used in 1930. He

talked about magneto trouble. That is an old fashioned term for

trouble with the electrical system in your car. The assumption is that

the car is fundamentally flawed and fixing it is painful and protracted.

He says no, it is a small thing it just requires a replacement battery.

I say, if your car is not running because of a dead battery but your

husband refuses to admit that that is the problem and insists that you

take buses instead, you have a problem. It may be difficult and

insoluble, but you probably is not with a car. It is an intellectual

problem, not an economic one. The UK has made much of its austerity

programme and you have been very critical of what the British

government has done since 2010. in one sense, they have not been

doing that badly. The forecast for GP p the year after next is 2%. It

would not be in this situation if it were not for the crisis of

Europe, its main trading partner. That is exaggerated. It is the

truth that British austerity so far has been not that much more than be

de facto austerity. Not much relative to other places. What is

special about Britain - we are all making a hash of policy, the

eurozone, the US - but in both of those cases you can argue the

Wright fundamental structural or political reasons. Eurozone has a

currency that does not work. The US has political parties. The UK

government does not have to be doing is. Out of a misunderstanding

of the situation, it is choosing a destructive economic policy.

look back at the situation in 2010 when this government came into

power and at that stage UK public and private debt was higher than

any country in the world apart from Japan. The Chancellor George

Osborne based his moves on getting the market confidence initially.

was never that Britain was facing a crisis in its ability to borrow.

The public, private debt being probably reflects the fact that

London is a financial centre. It makes the numbers look like. But no

country with its own car Rinsey have that in the difficulty

borrowing. The US, UK, Sweden, Germany - look at the borrowing

costs. At have all moved in tandem. Japan, with enormous levels of debt.

None of these countries have faced immediate borrowing concerns.

problem is that you look at the heavy weight figures who have

looked at the British DEC, not least Christine Lagarde of the IMF.

She said, I shiver when I tried to imagine what the situation would be

today it's no fiscal consolidation had been attempted. It is

interesting if you read that I am a statement. Its dark spine endorsing

the Cameron government's policies and then point-by-point says,

actually, this is wrong. If you read the analysis as opposed to the

headline, there are saying that this was a terrible mistake.

analysis says that it it is not working by November,....

November? She did describes it as courageous. That is diplomacy. It

is very difficult for Christine Lagarde to say, we screwed up at

League Two. In practice, IMF's staff believe this was a terrible

error. How do you know that? I can infer it. From the public comments?

Yes, I do not have an inside pipeline. But they do know what the

models look like and they are not very different to mine. They think

it is a terrible mistake. A -- but they always say a lot of other

things. The IMF has no special monopoly on wisdom. One thing that

has not made it into the public debate here is that back when

Maynard Keynes was writing about the need for debt suspended and

stimulus UK debt to spending ratios were higher than the are now. This

is not a uniquely different situation. Britain has all a long

been a country with no immediate need to slash the deficit. We all

have ageing populations, a lot of things to worry about. We all need

to find a way to balance a Thank you budget, but not in the middle

of the Depression. Greece is in deep trouble. How would your

argument applied there? You can't seriously suggest that Greece Boris

more. Greece was seriously irresponsible even in the good

years. You can say there was some a bat in the UK and the US, but not

at the same extent. Most will, Greece does not have its own

currency - it cannot print euros. That creates an enormous

vulnerability. All of the countries we think of has fiscal crisis

countries are actually euro crisis countries. What do they do? If you

are the prime minister are based more you -- of a small European

country you have very few options. You can go a long or you can leave

the euro. But that is similar to the Governor of a small US states.

Europe as a whole has the option of being more expansionist. It is a

terrible thing that it has happened. If you were advising the Greek

government now, what would you say to them? I have had conversations -

not with them, but with European politicians. With whom? I cannot

tell you. Has there been a European government who has asked for your

red eyes? No, I have just had conversations. If I were the Greek

government Know What I would be in a state of some despair because I

believe Greece must and will lead the euro. I believe there is no

alternative. But I believe that he would actually makes that decision

will have ended his political career. So there is a situation

where this thing has to happen but it has to happen with no-one

person's fingerprints on it. Windy think it will happen? It could be a

couple of weeks in this next election. It's the reader does come

in first. Or it East Europe refuse to lend them any more. Mark do you

think that would be the kindest thing for Europe to do, to find a

way to reject risk Kris Smith assuming that you have the new

track no comedy venue in relation to the hero and you still have

massive debts which are now denominated in the new drachma and

therefore even bigger than they were before. The trouble is used

they will be in euros. But they would be paid back in the new

drachma. Except they probably will not be. Argentina is a role-model

here and it is not entirely positive. Argentina had an

irreversible commitment to 1%=$1 which inevitably failed. Eight had

a lot of debts in dollars which they ended up paying about 30 in

the dollar, said they ended up defaulting. They had one terrible

year because of the disruption caused by or about followed by a

very strong economic recovery. Greece probably would follow the

same track. But the point is their current path for offers no prospect

of recovery has Farris the eye can see. 50% youth unemployment and 150

I know! It is a funny thing is about the Germans, how the 1923

hyperinflation the cod into their memory. -- is co-owned into their

memory, but not the key inflation that lend to you know what. At one

stage in 1923, prices were doubling every few days. There are

statistics for the price of bread at the time. I have been proposing

a raw that anyone who brings the Weimar Republic or Zimbabwe into

the discussion should be rejected from the debate. We are not talking

about inflation out that level. In America, we are talking about

having inflation at the same level as it was at during Ronald Reagan's

presidency. But can you keep it at that level? There are concerns

about runaway inflation. Angela Merkel says that you cannot spend

more than you taking, you cannot live your life this way.

trouble is, you also cannot collectively spend less than you

Verna. -- value alone. Everyone is trying to run a surplus and slash

spending. And the trouble is, my spending is your income, your

spending is my income. She is wrong? Absolutely. The President of

wonders though he is wrong? Yes. I have tried to lead France some

evidence in this matter. One thing is that people who took at the

situation in my way have been much more correct about what has

happened with inflation, interest rates and the effects of posterity

than those who have taking the Barber of view. -- the other view.

Those who predicted that slashing spending would lead to an economic

boom have been wrong. And yet this idea of confidence, some people say

you are talking about a fairy-tale. Eat is not, it is the story of

history. We spent our way out of the Great Depression. But look at

what do you are talking about. Killing three your book, you set

out of his picture and then you have your proposal. And what is

that? To have a stimulus of $300 billion Polje in the US. To change

the inflation target to 4%. And to allow households struggling with

high interest rates on their mortgages to remortgage at lower

rates. Yes and it is a surprisingly modest solution. Those are

relatively modest things to do. Part of the point is that we

actually have had some gradual prepare the month the US. Household

balance sheets are better than they were five years ago. We are now in

a position where recovery is not as difficult a proposition as it was.

Five exactly, and there is growth. The US is doing better than any

other in G8 country. They have not followed your medicine thus far.

But think about what is going on. The reason why I use the word

depression rather than recession - a recession is when things are

heading down and a depression is when the things I've down.

Unemployment is down but only because people have dropped out of

looking for work altogether. Think of the enormous humility of damage

this does to people's lives. -- cumulative. That is why we want to

end the depression now rather than wait over ten years to slowly

return to an economic position. Why not cut that with a fairly modest

prospect of economic recovery? angry are you about this? Your

language has been quite strong. Of Ben Bernanke, you have said it is

like he has been assimilated by the ball but, that he is reckless.

is reckless. The amount of human damage that has been done by this

he is enormous. We have 4 million people out of work for more than

one year. There has been nothing like that since the 1930s. It is

destroying people's lives. College graduates are graduating into a

market that has no use for them. And if they leave college with very

large guess that they will never be able to pay off. Allowing this to

resist is incredibly cruel. Bernanke says that your comments do

not make sense. That it does not make sense to actively seek a

higher rate of inflation in order to pursue employment. They say this

is worthless. Because it is doubtful. People have the wrong

notion of what is reckless. It is considered reckless to take any

action to try to bring down this incredibly high unemployment level

when, in fact, that long-term unemployment is inflicting damage

as we speak. It is considered responsible to let that persist and

it to not try something different. We should have Rooseveltian resolve,

we should be able to do what every it takes. Yours is an experiment as

much as theirs is an experiment. have some evidence from history.

Doing what ever it takes and trying new things, not let it slide. The

person who called for that in 2000 it was Ben Bernanke. The idea that

we have become acclimatised to this horrible situation, to this

senseless, gratuitous claim -- pain, that we should accept it - that

should make people angry. People must be angry with you for

suggesting that they are expecting it. One of your critics has said

that if your opinion is not closely related to the reality in which Ben

Bernanke is being forced to operate. That he has a responsibility to

steer the economy through treacherous waters and that you

have the luxury to sit in your office and send articles to the New

York Times. I would love to know what Ben Bernanke's private

opinions are. I suspect he is not as orthodox as he sounds in public.

The truth is that he faces political constraints. I can

understand that he is not able to just go ahead and be as aggressive

as I would like. But I think I am doing him a favour because he is

being attacked from the right saying he should it do less, but I

am saying to do more. One of the aims of your book is to brew

pressure by means of an informed public. You want the public to get

angry. Do you want them to take to the streets? A little bit, yes. The

Occupy movement in the US it was a little bit Inca hates and a little

bit scrappy, but it changed the conversation in a very positive

direction. Before this began, the issue of unemployment and

inequality was not part of the debate. This movement has pointed

attention to the real suffering that is out there and the political

establishment took notice. To what extent? You have been very rude

about the Republicans in an election year. What action should

be taken? We are having an election and it is important for people to

understand what is at stake. The time of the Obama administration

has changed. They have become more activist in their rhetoric, if not

their policies, but that is the kind of change we are hoping full.

We cannot accept that this depression is the new normal, that

nothing can be done except but wait for the market to heal itself, that