On October 24, 2016, in the final days of the presidential election, Paul Krugman, the Nobel Prize-winning economist and New York Times columnist, tweeted:
When this election is finally over, I'm planning to celebrate with an orgy of ... serious policy discussion. Won't it be great?— Paul Krugman (@paulkrugman) October 24, 2016
Then, of course, Donald Trump won the election, and serious policy discussion took a back seat to alternative facts, at least for a while. But now it’s time!
In this conversation, Krugman and I cover a lot of policy ground. We talk taxes, net neutrality, universal basic incomes, job guarantees, antitrust, automation, productivity growth, health care, climate change, college costs, and more. Krugman explains why more information doesn’t make people better thinkers, the “kitchen test” for assessing how much technological progress a society is really making, and what the role of policy analysis is when the policymakers don’t care about evidence.
This transcript is edited for length and clarity. You can listen to the full conversation, which covers more ground and dives a lot deeper into tax policy, on my podcast, The Ezra Klein Show.
Why taxes are overrated as economic policy
Let’s begin with taxes. I was talking to Glenn Hubbard, the Columbia economist who was George W. Bush’s chief economist, and he made a point about taxes and tax bills that I thought was interesting. He said the way to assess a tax bill is to ask: If this is the answer, what was the question? So if the tax bill that passed the Senate is the answer, what was the question?
In practice, this looks a whole lot like, “Goddammit, we've got to pass something, otherwise we've been in control of the government for a year and we haven't accomplished anything whatsoever.” It’s like the old Yes, Minister joke, “We must do something. This is something. Therefore, we must do this.”
How would you design a maximally pro-growth tax reform bill?
My general principle is that taxes, as an issue, are just way, way overrated in economic policy. There’s very little evidence from economic history that they matter much at all, at least in the ranges we are talking about.
Believe it or not, Paul Ryan’s original proposal was a sensible proposal, which had backing from Democratic-leaning economists as well. If it were actually on the table, I probably would be saying, “Yeah, I'm in favor of this as long as it's deficit-neutral,” but the actual proposal looks nothing like that.
Republicans are adding a trillion or more onto the debt over the next decade, and probably more after that, to pass this bill. This is after Republicans spent all of the Obama years saying that debt is the biggest problem facing the country.
Democrats are calling them hypocrites for that. But Matt Yglesias had an interesting piece the other day arguing that Republicans are right: Debt and deficits don’t matter that much, the bond markets are not freaking out over this tax bill, and Democrats should rethink their position here. So do debt and deficits matter, and if so, when?
The United States is in a range where we really should not be worrying about debt. Britain spent most of the 20th century with debt levels well above what we have now, and never seemed to have any problem with that. Japan has debt of 200 percent of GDP, and people keep betting against Japanese government bonds, saying that there's bound to be a crisis; people call that the widowmaker trade, because so many people have lost so much money betting that the markets are going to reject Japanese debt.
It turns out that advanced countries, politically stable countries, have a tremendous amount of leeway on debt. We are nowhere close to anything that looks like a red line. If there's something we ought to be doing, we shouldn’t let the deficit impact deter us from doing it.
Given that there are a lot of smart people who are a lot more worried about US debt than that, where do you think their theory goes wrong?
I don’t think there's a theory. We have an economy that’s growing. We have a little bit of inflation. The interest rates on our long-term debt are pretty low. If you actually do the simple models, and I'm a big believer in simple models, they say that the kinds of debt levels we now have are really nothing at all to be paying much attention to.
[The debt hawks] don’t have a theory; they have a feeling. It's a sense that somehow we must pay a price for these debts. I think a lot of the deficit and debt stuff just comes because it sounds serious.
My sense on the Democratic side of the debate is some of it is playing off a story about the Clinton years that goes like this: Interest rates were high, government borrowing was crowding out the private market, that made it hard for private players to invest and grow the economy; [then] Bill Clinton brought down the debt, that brought down interest rates, or allowed the Federal Reserve bring down interest rates, and that got us an economic boom.
Interest rates are low now, but my understanding is the theory is at some point the markets turn and they spike.
It's very hard to try and tell a coherent story about how this alleged debt crisis can even happen. I've been through this. I've given presentations at the IMF, where I say, “Look, I believe for a country that looks like the United States, a debt crisis is fundamentally not possible,” and people will say, “Well, I can't quite fault your logic here, but I don’t believe it.” It really is more about a gut feeling than it is about any kind of theory.
The Trump administration has announced its intention to roll back the Obama administration’s net neutrality rules. Do you have a strong view on net neutrality?
Just the general sense that for a democratic society, and also just for a society that is open to new ideas, level playing fields are really important. One of the great unifying things that we did very early on in our country’s history was to establish a postal service, where the cost of sending a letter was the same no matter who was sending it, no matter how far you were sending it.
You can imagine if there had existed right-wing think tanks at the time, they would have given you all kinds of reasons why this was bad and distortionary and we should let the market work, but it turned out to be a really, really good thing for fostering national unity, communication, and ultimately, I would guess, innovation.
We've done very, very well with providers not allowed to discriminate among different users. This is something that’s very much not broken. Why try to fix it?
I think the answer some people give is regulation has costs that we can't predict; the government doesn’t know what's coming down the road. There was a piece by Ben Thompson more or less making this case, which is essentially that we should worry about abuses on a case-by-case basis going forward and only implement heavy regulation if a problem proves severe and present, not do so preemptively.
That would be great if we had a Platonic philosopher king setting policy. Who is actually going to have access in making these case-by-case decisions? Who is going to be able to get in the door, whose phone calls will get taken? The answer is going to be not you and me.
It's not transparent. It's not going to be open to the public, not really, whatever they say in principle. This is exactly where rigid, inflexible rules may be worse than what an idealized regulator would pursue but maybe a whole lot better than what a regulator who is actually responding to big campaign contributors is likely to do.
A universal basic income for children
What's your opinion on universal basic incomes?
The main concern I have is a little bit of “from each according to his ability, to each according to his needs.” A family’s needs for assistance vary greatly. If you're not going to be actually significantly cutting back on what the neediest households are receiving, then the whole thing is going to cost quite a lot of money.
On the other hand, there's a lot to be said for programs that are as automatic and as universal as possible, just on the political economy, so that people don’t have to make decisions, don’t have to set rules; it's just there.
It seems to me that a UBI, to be successful, would require really changing how Americans think about work, and about the deserving and undeserving poor.
Britain, pre-[Margaret] Thatcher, had an unemployment benefit system that effectively allowed you to decide to live on the dole. There was even a song, “I'm going down to Liverpool to do nothing, with UB40 in my hand.” That ended up being a very unpopular system, even in Britain, where the politics are much less racially polarized than they are here. It's going to take a long, long time to persuade a significant block of American voters that a system in which you can simply choose not to work is okay.
What do you think of a universal child allowance, which sidesteps the question of work and who is deserving and who is undeserving?
If there's one thing we would imagine that Americans can agree on, it is that children should not be impoverished, should not be deprived of essentials, of medical care, of nutrition, just because their parents happen to be poor or unemployed.
Back before the election, when we imagined we were going to have a rather different regime, I was pushing for child-centered policies as being the next frontier after health care, because that’s one where even conservatives give lip service to the notion that children should not be punished for their parents’ failings.
After the Trump administration’s sabotage of Obamacare, and the GOP Congress’s removal of the individual mandate, I think the health care wars will be with us awhile yet. Is the lesson of the past couple of years that Democrats should stop coming up with these technocratic, public-private hybrid programs and focus on expanding public programs like Medicaid and Medicare?
The political environment, the next time a Democrat becomes president, could be very, very different. The fact of the matter was that in 2009, single-payer was not going to happen, even a Medicare buy-in for people at 55 turned out to not have a sufficient support. The only way you were going to get anything was with this kind of public-private hybrid, this Rube Goldberg device.
And at least in the first phase of the Obamacare debate, it turned out that there was significant durability. Now what we may be left with, by the time all of this stuff is behind us, is an Obamacare that has turned into mainly a Medicaid expansion. That’s not the worst thing in the world, and it may mean that that’s where you go when we try to undo the damage. Instead of saying, “Okay, let's go back and restore the individual mandate and make the exchanges better and increase the subsidies,” maybe we’ll be looking for just a big expansion of direct public provision of insurance; I don’t know.
The three solutions to America’s health care crisis
What country in the world do you think does health care the best?
That’s complicated. I would say there are three solutions to universal coverage. You can do government direct provision, the NHS model. You can do single-payer, the Canadian model. You can do regulation and cross subsidies, the Swiss or German models. They all work. A country that wants to provide universal health coverage can do it through any one of those. The government provision, the direct socialized medicine, seems to be the cheapest and with no measurable degradation in the quality of health care, but people get annoyed at waiting lists.
The mixed systems are the most expensive, though not nearly as expensive as our system. The country that seems to be able to deliver a system that has minimal waits, minimal inconvenience, and is still remarkably cheap, is France, but we don’t quite know how they do that. It's all so Gallic that we can't quite figure out how they're managing to pull it off.
I would say that they're all okay. German health care is okay. French health care is superb. British health care, despite all of the complaints, is actually okay. I would take any of those for the United States.
To keep going with this theme of ways in which the Democratic policy consensus, or ambitions, might be changing, during the election Bernie Sanders showed that the idea of free college has a lot of resonance. I'm curious what you think of that proposal.
The details of his proposal weren’t that great. But the idea that college education should be free, or at least very cheap, is definitely something we ought to be doing. It's a kind of a direct assault on America’s idea of itself, on the American dream, to have college education be financially out of reach for bright kids who chose the wrong parents.
I have a little bit of tribal loyalty to that idea, because I now sit at the City University of New York, which is not free but is a lot cheaper than private schools and is just off the charts in terms of promoting upward social mobility. A poor kid who gets into Harvard or Princeton is going to do quite well, but not very many of them do. It's CUNY and some of the California universities that do remarkable things in providing opportunity. We should be making access to higher education as uncontingent on family economic status as possible.
To argue about the underlying principle rather than the details, the debate I heard about the free college proposals has a lot to do with whether you should prioritize universality or progressivity in your proposals. Hillary Clinton would say, “Look, it might sound nice, but then we’re using our resources as a country to help Donald Trump’s kids potentially go to college for free, and they don’t need it. We should focus our resources on the kids who need it most.”
Bernie Sanders would say, both as a matter of societal values but also as a matter of political stability, making something universal makes it stronger, makes it easier to protect, gives everybody a stake in its continuation in the way Medicare has versus, say, Medicaid.
How do you think about that universality versus progressivity debate?
I was more sympathetic to the Sanders-type position a few months ago than I am now. This is an old line that poverty programs are poor programs, that if you make something dependent on family resources, that diminishes the support. One of the things that’s been startling about the health policy debate has been that it turns out that Medicaid is a very popular program. We used to just assume that Medicare was untouchable because everybody gets it, but Medicaid, which is for the poor, would have a lot less popular support. Polling suggests that Medicaid actually has a lot of popular support and that threatening to take it away was a big liability for Republicans during that health care debate.
But the “do we want to be giving free college to Donald Trump Jr.?” arguments almost always, when you actually do the math, turn out to be pretty trivial. It's like, “Well, why should we be providing Medicare to wealthy people,” and the answer is that any kind of attempt to means-test Medicare ends up saving you very, very little money. There are just not many people up there.
I think the political case for universality looks a lot weaker to me now than it did a year ago. The financial case for non-universality I think is also pretty weak.
We’re “80 percent sure” monopolies are a huge economic problem
Liberals are also beginning to cohere around the idea that a major economic problem is that industries have become too concentrated and too many players have become monopolists in their own sectors. Do you think that is correct?
I think it is. From the standard of, are we absolutely sure that this is a central issue, no, but we are 80 percent sure. There's a bunch of different pieces of evidence that point in that direction.
First of all, measures of concentration — the conventional measures of industry concentration have gone up.
Second, we have seen, since about 2000, a substantial shift of income away from labor toward capital. Before then, inequality was about growing inequality of wages, but over the past 15 years or so it is increasingly about capital. If we try to understand that rise in capital share, certainly increased monopolization is one important possible source.
The third piece of evidence is corporations can borrow for only slightly more than the federal government needs to pay, yet private investment is, if anything, a bit low by historic standards. What could explain that? How can companies have free capital and not really want to invest it? Well, that what's a monopolist does. A monopolist doesn’t want to increase capacity, because the only way you use capacity is to cut prices, and the monopolist doesn’t want to do that.
Between those three things, the direct evidence of growing concentration, increase in capital share of income, and this mysterious wedge between what appears to be the private sector’s assessment of investment opportunities and the cost of capital, it makes sense to think that monopolization is a big and growing issue.
Should the next administration, or even this one, consider a jobs guarantee?
Well, that’s an interesting question, one I haven't really thought through as thoroughly as I'd like. There's a lot to be said for it. Safety net programs make sure that you have food and medicine. What they can't do is they can't give you dignity. Dignity is really important; it matters a lot. People want jobs, not just support.
The counterargument is that we may not be able or willing to provide jobs that are sufficiently well paid and meaningful that they will supply that dignity. I get all nostalgic about the WPA and the CCC, but even construction jobs use a lot fewer shovels and a lot more technology than they used to.
Again, a lot depends on what actually happens: Where is the robotics thing really going, are we actually heading for the elimination of large numbers of jobs to robots, or are we basically kidding ourselves?
I'm so glad you mentioned that, because I was about to bring us back to robots and the elimination of large numbers of jobs. I'm going to do it this way: People have this intuition that we’re seeing massive technological change, that we’re losing all these jobs to automation. And yet productivity growth has been lower in recent decades than it had been in the 20th century. What is your explanation for why productivity growth is lower than our impression of technological change would suggest?
I actually have several explanations, and I don’t know which one is right. We've been here before; maybe that’s the starting point. If you were sitting around 1990, everyone was talking computers and IT already, and yet productivity growth was lousy.
The economic historian Paul David had a famous paper where he looked at electrification in the late 19th and early 20th century, where basically factories shifted from using steam engines in the basement to using electric motors. You would think there would be a big productivity advantage, but it took about 30 years before that really began to pay off, because it turned out you had to rethink how a factory was organized. You had to say, “Hey, wait, we don’t need a six-story building to minimize the drain on the pulleys and crank shafts. We can have a big open-space flat building.”
There's a period of adjustment to new technology. That was the story that people were retelling around 1990. Around 1995, it seemed to be, “Hey, this is right,” because we did have a big takeoff in productivity as people figured out what to do with information technology. The trouble was that productivity then kind of fizzled out about 10 years later, so it would look like a one-time thing.
At this point, we have two stories. One is that we have a whole new set of developments — machine learning, artificial intelligence — but we haven't really figured out what to do with it yet, so give us time and you'll see this transformation. That’s one story.
The other story is that all this stuff is really not that big a deal because it doesn’t affect what most people actually do for work, which increasingly is health care. It's very visible to those of us in the chattering classes — I haven't listened to a voicemail in years because now speech recognition is good enough that the text version of my voicemails is actually comprehensible — but how much does that affect what nurses do? Basically, the nurse is the prototypical worker of the 21st century.
I don’t know the answer.
How kitchens measure technological change
There are a bunch of people in the technology industry, Bill Gates and others, who say, “Listen, this is just mismeasurement, actually we’re seeing rapidly advancing living standards and rapidly advancing productivity, but productivity statistics are broken in ways that make them particularly unable to see what's happening.” Do you buy that?
No. True economic growth is higher than measured, but that has always been true. It has been true for the past century at least, or more. If you think about things like health, the improvements in what can be treated are not fully captured, but a lot of those big improvements came a long time ago.
We look at Third World countries now, and many of them appear on standard measures to be no richer than they were in the 18th century, except that life expectancy is 20 or 30 years longer, so there's clearly something that has changed that we are not capturing.
I always like the kitchen test. Think about walking into a kitchen. If you walked into a kitchen from 60 years ago, a 1957 kitchen, you would be annoyed: “Where's my microwave, where's my toaster oven?” But you would basically know what to do and feel able to function in that kitchen.
But if someone from 1957 walked into a kitchen from 1897, they'd be horrified. “How do people live like this?” If I take that particular metric, technological progress over the past 60 years has been substantially slower than it was over the previous 60 years.
I don’t think, in terms of what most people do with their lives most of their day, that we actually have seen a dramatic increase in living standards that is not being captured by the numbers.
There's an idea that we have invented a lot of things that have made us both more distracted and more distractible. It might feel like you turn on your browser and there's all this amazing stuff — there's Facebook and there's Twitter and there's email and a million things that are profoundly different — but that if you really watch what you do in a day; you look at your phone 70 times and you get distracted by Twitter, and the overall net impact is, yes, a lot more information is at your fingertips, but your ability to focus and to think and to work is actually being harmed by all this.
As the argument goes, companies are good at addicting us to things and then we turn around and say thank you, but it's actually not net positive for human beings creating big new things; it's a net negative. It’s almost like if we invented a bunch of new drugs and everybody got addicted to these drugs — the fact that people like something doesn’t necessarily mean it's good for them.
It's possible. Within economics, we are finally, finally taking behavioral economics seriously, which says that people don’t actually necessarily make good decisions, and then at the same time we are saying, “Well, look, this technology hugely expands people’s choices, and so that must be a good thing.” But we've just been in the process of learning that expanding people’s choices doesn’t necessarily make for good things, and it’s certainly possible that some bad things happen!
Having a hundred times as much information doesn’t mean that you do a hundred times better; it probably doesn’t even make you do 10 percent better in making decisions.
Why don’t you think that having a hundred times, a million times as much information at our fingertips doesn’t lead to bigger advances in how well we do at our jobs, or even to some degree in our lives?
Because we are not able to process all of that. If you have a vast amount of information, you quickly get to the point where you can't tell which parts of it you should pay attention to, what are the things that matter. Often, you just want to know what your choice is; you want to know what to do.
Here’s a funny story. I have two employers, the New York Times and City University. I could have gotten health insurance through either one. New York Times offers our health insurance plan, and CUNY offers you a choice of 13 different plans. So I sat down, and I thought, “I can figure this out.” I could not make out which plan was better, which one made more sense, so I went to human resources and said, “Can you help me understand the differences between these plans,” and they said, “No.”
I did not feel advantaged by having this vast increase in choice; it was actually just a source of anxiety.
If a policy analysis falls in the forest and there’s no one there to read it, does it make a sound?
You and I both spend a lot of our time doing policy analysis and policy journalism of different kinds. I've been thinking a lot lately about the role of that and the mechanisms through which that works.
To use the Obama years as an example, one thing that was true then was that the people making policy cared about policy, they read policy journalism and analysis, and when people said, “Hey, the experts in this field don’t think this policy is going to work,” they felt bad about that, they felt concerned about that, they wanted to change it. And it wasn’t just that they cared about left-leaning analysis. They wanted to win over David Brooks, Ross Douthat, Tyler Cowen. They had a sensitivity to policy analysis that was meaningful and created an avenue through which that kind of work could have an impact.
The Trump administration obviously doesn’t. But it's not just them; the Republicans in Congress don’t. Paul Ryan doesn’t. Mitch McConnell doesn’t. They really don’t care, it turns out. They don’t even care that much about policy criticism from the right. If they did, the pass-through provision wouldn't be in their tax bill; their health bills would have looked totally different.
What is the role of policy journalism and policy analysis, be it from us, from think tanks, from wherever, in an era when the decision-makers do not actually seem to care if the weight of the evidence is that they’re getting policy wrong?
I ask myself the same question. We still, for the time being at least, have a two-party system, and the Democratic side still does care. At the moment, they don’t have very much power, but maybe that changes.
But if a policy analysis falls in the forest and no one is there to hear it, does it make a sound? I don’t have an answer to that.
You and I both get, I'm sure, a lot of emails from extremely intense liberals, and I do not find those emails to be all that different from the emails I get from extremely intense conservatives. I don’t think individual liberals and conservatives are different in what they’re willing to believe, and I think a lot of research supports that.
But liberal institutions — the Democratic Party is one, but much more broadly the think tank community, the academic community, which leans liberal, the journalistic community that is left of center — has been much more resistant to some of the bullshit that has infected the conservative community. There seems, to me, to be an asymmetry in the responsibility of the core mediating institutions.
I do not have a great answer for why the institutional path of conservatism has taken this route. Conservative media, for instance, is a much less responsible thing than liberal media is. Conservative institutions — not all of them, of course — have ended up being more open to conspiracy theorists, have been more willing to throw their support behind men like Roy Moore, have been more willing to buy into the climate change denialism, whereas the liberal institutions for the most part have not accepted or tried to hype up, say, unfounded fears about GMOs.
I think there's a really important difference in the way these institutional ecosystems has evolved. I do not quite know why it is, and I'm curious if you have a hypothesis.
I do. It's not fully fleshed out, and it's not carefully tested. What we know, from the political scientists, is that if we look at the two political parties, they are very, very different organisms. The Republican Party is pretty much a hierarchical, top-down institution. It can have insurgents, like Roy Moore or Donald Trump, but at a fundamental level, professional Republicans who are in positions of power basically have lived their entire professional lives working for that movement, working for that party and its affiliated institutions.
The Democratic Party is a coalition of interest groups, and precisely because it's a coalition of interest groups there is some space for critical thinking, to say, “Hey, wait a second, that doesn’t make sense.”
Then if you ask why are the parties so different, then I would say that has a lot to do with money, with financing. There are Democratic-leaning billionaires, but they are not the dominant source of support. The Republican Party, there are small donors, but a lot of it is driven by a small number of wealthy people, and what that does is it creates career incentives. If you are a good loyal conservative there is a job at a think tank or a commentary job on Fox News for you, all of which creates a very, very different incentive.
Think about somebody like Doug Holtz-Eakin, who by all accounts did a fine job heading the Congressional Budget Office and is now signing letters claiming the tax cuts will largely pay for themselves. You can't find anyone like that on the Democratic side.
Let me try to push back on this, because this feels, in this era, less true to me. There used to be this view that Democrats fall in love and Republicans fall in line; that the Republican Party is hierarchical, that they nominate the next person in line, whereas with Democrats, you never know what's going to happen.
Over the last, I don’t know, 10 years, that feels way less true of the Democratic Party than it does of the Republican Party. The Tea Party insurgency knocked off tons of senior, respected elected Republicans. Donald Trump destroyed the Republican field to become the Republican nominee. Mitch McConnell and Paul Ryan have some of the worst jobs I can possibly imagine — not that they cover themselves in glory by the way they do them, but they get no respect from their base, they get very little respect from their own members. Republicans in Alabama say Mitch McConnell’s opposition to Roy Moore made them more likely to vote for him.
The Republican Party right now seems to me to be extremely nonhierarchical, and one reason its key players buy into so much nonsense is they don’t seem, to me, to think they have the power to stop it. They don’t seem, to me, to believe they can move the votes to govern in a more responsible way. They don’t seem, to me, to believe that they have the credibility with their base to say, “I'm sorry, this is nonsense, stop it.”
I think part of the answer might be that in the past decade or so, the center of gravity of movement conservatism has shifted away from the party to conservative media. Think of David Frum’s line, “We used to think that Fox News works for us; now it turns out we work for Fox News.”
It's still extremely hierarchical in the sense that you don’t dare go against the party line, but the party line is actually more now the Fox News line than it is the RNC. A Democrat can deviate from the party mainstream in both directions and still not be excommunicated. There's been, as far as I can make out, no Republican who has lost in a primary challenge from somebody who says, “Let's be more moderate.”