Paul Krugman: We Could End This Depression Right Now
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JH: Let me turn you to another topic. We’ve seen stagnant middle-class wage growth for basically a generation. There are all sorts of theories popular in conservative think tanks about why this is either a myth or a really good thing. You wrote a piece recently about how income inequality is driving what one might call “political inequality” -- one follows the other. Can you unpack that idea for us?
PK: First it starts with an observation. Inequality has had its ups and downs. We were a very unequal society before the Great Depression. We became a much more equal society during the 1930s and especially during the 1940s. We stayed middle-class for a while, then became unequal again. Political polarization, which you can actually measure using various statistical things on congressional voting, also has had its ups and downs. They track each other perfectly. Political polarization and income inequality march hand in hand. There’s every reason to believe that relationship is not an accident.
What happens is when the wealthy are very wealthy they can in effect buy political support. The way that’s worked in practice in the United States is that the Republican party moves with the interests of the super elite. Not the 1 percent, but the .01 percent. So the extraordinary explosion in incomes of the .01 percent relative to everybody else has pulled the Republican party far to the right to the point where there is no center. The center did not hold, it dissolved and turned into a chasm. That’s not because Democrats moved to the left, because they didn’t; they moved right. It’s because the Republicans moved off into the Gamma quadrant. That is at the root of our political paralysis right now.
JH: They not only spend money directly on campaigns, but they also fund these networks of what I call alternative information infrastructure. If you look at for example billionaire Pete Peterson he’s put $1 billion of his own money into a network of think tanks and media projects to help us understand that the greatest threat that we face are deficits, far-off deficits projected 30 or 40 years out.
I just want to turn quickly to trade. You won your Nobel Prize for your new trade theory. You were a vocal free trader in the 1990s. You got the New York Times column and I think you started to think more about politics. It's my long-held belief that the purely economic arguments about the benefits of trade are somewhat irrelevant in the real world, because when they go to negotiate these trade deals the US trade representative -- like its counterparts in Europe and Japan -- is heavily influenced by corporate lobbying. So while we may have a theoretical idea of the benefits of trade, when we’re talking about the actual treaties being negotiated behind closed doors under a barrage of lobbying, can they actually yield those theoretical benefits?
PK: I would say that the first 50 years of post-war trade negotiations were a good thing because they produced a world with relatively low barriers, especially to exports of manufactured goods from poor countries. That’s really important because you have success stories, countries that have moved their way up into becoming decent places to live through those exports, and countries that keep their heads above water through exports. If Bangladesh couldn’t sell their exports of cheap clothing through the world market they would be a disaster area.
A lot of trade agreements in the last couple of decades haven’t really been trade agreements. They’ve been agreements about protecting various kinds of interests. I teach a course on and off about this stuff. You look at something like the Central America Free Trade Agreement and that wasn’t really a trade agreement. That was actually an intellectual property agreement largely about making sure our pharmaceutical companies had their monopoly power. So that’s the sense in which you’re right. A lot of what passes under the banner of free trade is actually something else and is often detrimental to the interests of workers both here and abroad.