Political economy and the struggle for a better world
Paul Krugman and Mauro F. Guillén
The Rafael del Pino Foundation organised the dialogue "Political Economy and the Struggle for a Better World" with Paul Krugman and Mauro F. Guillén on 18 February 2020 at 19:00.
Professor Krugman is one of the world's most widely read economists and one of the most widely heard voices in the field of economics in general and finance and international trade in particular. He is a controversial economist who enjoys debate and whose ideas are the subject of both support and controversy. The Economist has called him "the most celebrated economist of his generation".
Paul Krugman received his BA in Economics from Yale University and his PhD in Economics from MIT. He has taught at renowned educational institutions such as Yale, MIT, Stanford and Princeton Universities and is Centenary Professor at the LSE. He is currently Distinguished Professor of Economics at the Graduate Center of the City University of New York. Throughout his career, Professor Krugman has received top-level awards, an expression of the relevance of his contributions to economic analysis. These include the Prince of Asturias Award for Social Sciences and the Nobel Prize in Economic Sciences. In addition, he has received other important awards. For example, the American Economic Association awarded him the John Bates Clark Medal, Columbia University Business School the George Eccles Prize for Excellence in Economic Writing and the National Association for Business Economics the Adam Smith Award. In his academic and professional career, he has demonstrated an extraordinary theoretical background, he is a convinced Keynesian, a Eurosceptic, a good writer, scathing and independent, who never shies away from debate. His latest work "Against the Zombies: Economics, Politics and the Struggle for a Better Future" brings together more than ninety articles in which Professor Krugman tries to provide his readers with the keys to "unlock the hidden concepts behind the major economic policy problems of our time".
Mauro F. Guillén is former Director of the Joseph H. Lauder Institute at the University of Pennsylvania, a research and teaching programme combining business administration and international relations, and Professor of International Management at the Wharton School, where he holds the Dr. Felix Zandman Chair. Trained as a sociologist and political economist, he has studied multinational companies and the globalisation process for twenty years. Among the many awards he has received, the IV Banco Herrero Foundation Prize for the best Spanish researcher in the social sciences under the age of 40 stands out.
Summary:
On 18 February 2020, the Rafael del Pino Foundation hosted a dialogue between Paul Krugman, winner of the 2008 Nobel Prize in Economics, and Mauro F. Guillén, Dr. Felix Zandman Professor of International Management at the Wharton School of Management, on "Economics, Politics and the Struggle for a Better Future", on the occasion of the presentation of Krugman's book of the same title. According to Krugman, in the United States the zombies are always on the right of the political spectrum because what keeps them going is money. For example, the country has a president who has lowered taxes on the rich a lot, claiming that this is a great thing. As a result, the public debt has experienced explosive growth. The Republican Party, for example, also denies the existence of climate change. And it believes that it is impossible to guarantee health care for citizens and that reforms made in the past have not worked. In spite of them, the economy is doing well. The exit from the international financial crisis was slower than it could have been because of austerity, as the Republicans insisted on cutting taxes and not spending on infrastructure. Then, when they won the election and got into the White House, they forgot all about it. Trump criticised the public deficit when the Republicans were in opposition, but when he became president he forgot about it and increased it even more. So you have generated economic growth by giving money to businesses. That, however, is a Keynesian stimulus to the economy. It is as big a stimulus as the one that was applied in the Obama era, but then unemployment was 9% and now it is 4%. The Republicans therefore sabotaged the economy before the election to fix it afterwards. Spending money, therefore, is good, even if it is for nonsense. Now, the programme of erecting a wall against our neighbour Mexico at public expense is going to do more harm than good. If Trump wanted to spend public money on repairing roads and railways he would have the support of almost every Democrat in Congress. Unfortunately, he doesn't want to do that sort of thing. What we are witnessing today is the culmination of a process that has been going on for a long time. The Republican Party is an arm of a larger movement, conservatism, which also includes Fox and a number of organisations operating in unison. The party has been moving towards authoritarian tendencies. The Republican Party, in fact, is an authoritarian party and has been for a long time. All of this was present before. The surprise about Trump is that he is a character who does not mince words, who is vulgar, coarse and crude. Even so, in the United States, says Krugman, they are lucky because if Trump were smarter, democracy would be lost. Trump, moreover, is a character who flinches when confronted by someone who stands up to him and can strike back. This is what has happened with the trade war with China, or with the renegotiation of NAFTA, although sometimes when he backs down he does the right thing, such as not going to war against North Korea or Iran. As for austerity policies, Krugman pointed out that they never work. They help to avoid a debt crisis, but such crises are very distant problems. The 2011 panic in the financial markets, of which Spain was a part, disappeared not because budget deficits were reduced, but because Mario Draghi said that whatever it took would be done. Nor does austerity create more jobs than are lost because of it. Austerity was also supposed to prevent a debt spiral, but because interest rates are below growth rates, this prevents such a spiral. Debt is in fact diluted if there are higher growth rates. The debt spiral is therefore a myth and the premises on which austerity policy is based prove to be false. The reality is that the US economy is doing better than Europe's because the US has stimulated public spending, even if this has increased the budget deficit. Europe, on the other hand, has remained in austerity and has therefore grown less than the United States. The same is true of Japan. It used to be known what to do when there was an economic depression, so fiscal stimulus was used. But a lot of economists said that if markets and people are rational, these things don't happen. Many of the American university professors were inventing fallacies about this, passing them off as very bright ideas. So a lot of things that were learned in the Great Depression then fell into oblivion. When you have a fixed exchange rate it takes much longer to recover from a crisis and implies higher levels of unemployment. That is the recent history of Spain, and that is not a success story. Leaving the euro is not an option. If Italy decided to do so, there would be massive capital flight and many problems would be created with euro contracts, especially those signed with foreign individuals or entities. Having lived and worked in the euro for twenty years makes leaving it very costly. To support the euro there should be a fiscal union, but that is something that, at the moment, seems beyond the realm of possibility. What is no excuse is that there is no banking union, with a European deposit guarantee fund. A fiscal union would be a good thing, as it would provide a safety net in crisis situations for countries in crisis. Such a safety net did not exist when the last crisis broke out and that is why it happened as it did. But since the income differences in the EU between the richest and the poorest countries are very large, and there is no real sense of cohesion, it is difficult to convince the former to help the latter. Globalisation creates winners and losers. Imports from China, for example, displace American workers. Yet China is not the source of America's problems. The source is the ideological rigidity that has constrained US economic policy. Chinese economic growth is based on incredible capital accumulation and that is something that is going to cause China to crash at some point. But because the Chinese lack these ideological constraints, they have no problem turning Keynesian if the economy slows down and start building infrastructure. On climate change, Krugman was not very supportive of ideas such as green energy or carbon taxes. Technological developments such as solar energy are not only the result of private investment. The government also put a lot of resources into it. That, however, is something that a carbon tax alone does not do. Moreover, a policy such as climate change cannot be based on sacrifice alone. It also has to have something positive. That is why Krugman argued for a more eclectic solution, not a textbook one because that does not exist. As far as inequality is concerned, Krugman recalled that technological change always affects employment, but the fact is that, in the end, more jobs are created than it destroys, but in other activities. Changes such as the introduction of giant cranes in ports to replace dockworkers are more disruptive than Silicon Valley is now. This is why the current technological revolution is having less impact on employment than previous revolutions. Perhaps one day robots will take over people's jobs. Then we would have to talk about a universal basic income. Creating it now, on the other hand, would be very expensive and we are probably not ready for it. This is a question we should ask when the robots are already here, but right now it is a very unrealistic solution to an imaginary problem. Moreover, universal basic income would increase inequality because people who do not need it would be able to save and those who need it would not.
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The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.
