Paul Krugman Talks to Bill Moyers About How to Speed Recovery -- And Why He Doesn't Want to Run the Treasury
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BILL MOYERS: What do you mean, depression economics?
PAUL KRUGMAN: Well, two things really. One is, a recession is when the economy's going down. A depression is when the economy is down. So, you know, the U.S. economy was actually expanding through most of the 1930s, after a terrible big slump at the beginning and another slump later in the '30s. And then it was expanding in between. But we call that whole episode the Great Depression because it was all a period of high unemployment and a lot of suffering.
And, of course, we're in that now. It's not as bad as the Great Depression. You know, it's a great recommendation. Not as bad as the Great Depression. It's terrible. We have a persistently depressed economy, persistent lack of jobs. So in that sense, it's a depression. And there's also a more technical meaning. Depression economics is when the normal things you do to boost the economy, have the Federal Reserve cut interest rates a little bit, are no longer available or effective. It's a situation where the normal rules of what you-- of economic policy, have to be put on hold, and you really need to do extraordinary stuff.
BILL MOYERS: Well, the Fed has kept the interest late very low. And it has made a big difference, has it?
PAUL KRUGMAN: I think it actually has. If they hadn't kept the interest rate low, things would be much, much worse. Meaning--
BILL MOYERS: More people out to work.
PAUL KRUGMAN: That's right. We, you know, this is not as bad as the Great Depression. Again, our famous last words. But part of the reason is that the Fed did learn something from the 1930s. It's learned that raising interest rates to stabilize the price of gold is a really bad idea in times like this. But the trouble is that zero, which is as low as it can get, is not low enough. And we actually know pretty well what you need to do.
BILL MOYERS: The other side of it is that people have been told so long, "Save money. Save money. Americans were not saving.” Now if they save money, they make no money from their savings.
PAUL KRUGMAN: That's right. And, actually the truth is right now saving hurts us. It's because what, another way, yet another way to think about depression economics, depression economics is a situation where the total amount that people want to save is less than the amount that businesses are willing to invest. You can think of that as being the result, a lot of it is because of this overhang of personal household debt from the past.
We had a housing bubble that burst, leaving us with too much construction. We have a financial system that's disrupted. But all of that leads to the fact that there's, the amount that businesses are willing to invest is less than the amount that collectively we all want to save, including corporations that are trying to retain earnings.
Which means that we're awash in excess savings. And if you decide to save more, it's not actually going to help society. I mean, things add up. If there's a crucial, one crucial thing to understand about all this it is that the global economy, money moves around in a circle. And my spending is your income, and your spending is my income. And if all of us try to spend less because we want to save more, we don't succeed. All we end up doing is creating a global depression.