Paul Krugman debate with Irwin Stelzer

Interesting debate on last night’s Newsnight on BBC2. You can watch it here, until the link changes at 23.30pm today

Here Kirsty Wark presents a discussion between New York Times columnist Paul Krugman and Rupert Murdochs associate, and member of the Hudson Institute, Dr. Irwin Stelzer.

I typed out a transcript it was that interesting…

Kirsty Wark: Well I’m joined now by the aforementioned Paul Krugman who has just a written a book, the Great Unravelling, a selection of his columns on the Bush administration, and by Irwin Stelzer from the Hudson Institute who writes columns for the Sunday Times.

First of all, Paul Krugman, let’s just pick up on one of the last speakers there, that you have delivered a concerted onslaught, em, against Bush’s economics and essentially that he is dishonest and lying to the American people and you’ve been accused of a deep psychological problem in returning to this time and again.

Paul Krugman: Yeah except the trouble is he does lie a lot. Now some of it is actually, y’know, he said repeatedly, that ‘most of my tax-cuts is going to middle class and working class Americans’, that’s simply untrue. But some of it is things that are literally true but are designed to mislead. So when he said in the State of the Union and repeatedly afterwards, that from his latest tax-cuts 92 million Americans will receive an average tax cut of $1000 a year. That was intended to convey and did convey the impression that typical family was going to get $1000. The fact is, it was going to base that on people not understanding what average means – if Bill Gates walks into a bar the average wealth of the patrons is several billion dollars. But in fact, em, the majority of families got no more than a couple of hundred dollars a year. So it was deeply designed to mislead and they do that all the time.

Kirsty Wark: Bush designed to mislead – Stephanie Flander’s figures show that the richest people get the biggest tax cuts, the rich people are best off by the tax-cuts.

Dr Irwin Stelzer: Well the richest people pay most of the taxes so they would get most of the tax-cuts. I think, I think what you have to keep in mind is that, em, the, ah, someone in American earning $40,000 a year with two children now, under Bush, given the child tax credits, pays no taxes, now that figure was about $25,000 under the previous administration.

Paul Krugman: This is what I talk about, pays no taxes. You mean pays no income taxes.

Dr. Irwin Stelzer: Income tax, that’s what I said.

Paul Krugman: No you didn’t, you said taxes, and this is what I’m talking about. That’s a wonderful line, but in fact 80% of American families pay more payroll taxes than income taxes. So then what you just said was, ‘pays no taxes’. This is the kind of thing, this campaign to mislead, I’m sorry I’m being very (inaudible). But this is how it works.

Dr. Irwin Stelzer: Well you see, you have to, I mean I read Paul’s book and it’s, it’s, I agree with a lot of things he says about fiscal policy and so on, the problem is that if you read the introduction, it’s a background, the background is that these are liars, you can’t believe anything they say. There are legitimate policy disputes, there are legitimate policy disputes about how you distribute…

Kirsty Wark: revolutionaries …they are not legitimate…

Dr. Irwin Stelzer: Well there’s a sense in which they are radicalists, they do not like the system they have inherited, either in international relations or in economic affairs. There’s nothing wrong with being radical. The problem I think Paul has is that they are radical right.

Paul Krugman: Well no the problem I have is that the radicalism is not sold honestly. Now I have a problem with the radical stuff, but. I’m sorry, I’m being just eh…

Kirsty Wark: No, no. Let’s just eh, let’s go with, so. (Inaudible)….goes for a big campaign in tax cuts. It grows the economy but it doesn’t actually grow many jobs.

Dr Irwin Stelzer: Well but, well we know two things about jobs. One is that they are a lagging response to a growing economy, I think everybody concedes that. The second, the second issue is we know that a lot the data are very difficult to handle, is that there has been a net loss in jobs under the Bush administration. Look I don’t speak for the Bush administration, the only thing I speak for is to have policy disputes based on policy issues, not based on assumptions that we’re dealing with liars.

Kirsty Wark: What would you do about, eh, the jobless recovery?

Paul Krugman: Look, we’ve spent, this, the, the three elements of this administration have been tax-cuts for the wealthy, tax-cuts for the wealthy and tax-cuts for the wealthy. There are certain things that you always do during a sustained job slump, that they haven’t done. Ah, one of them is aid to State and local governments. Now it turns out that we have…State and local governments are required to have annual balanced budgets, they’ve been laying off school teachers, firemen, policemen. Ordinarily you would expect the Federal government to be providing some aid, they haven’t done that. That’s a major downdraft on jobs. Another thing is, there’s a certain amount of public works spending on tap. A lot of Homeland Security…

Kirsty Wark: A New Deal?

Paul Krugman: Yes except in this case it’s a relatively easy New Deal. That they are not doing inexplicably like rebuilding New York, like defending ports against terrorists attacks. And the last part is temporary tax-cuts directed towards those people who are most likely to spend the money, who are cash-constrained middle and lower-income families.

Kirsty Wark: …rethink?

Dr. Irwin Stelzer: Right, some of it makes sense. I mean I’m not here to defend the Bush administration. But what I am saying is…

Kirsty Wark: But why, tell me, you are not defending it, tell me, why aren’t they doing it?

Dr. Irwin Stelzer: Well first of all, it is true that the history of public works does not show that those are very good jobs, very productive jobs, they add much to national wealth. Second as far as spending the tax cuts, the best data we have, the data aren’t very good, show that about 75% of the tax-cuts were spent. I don’t think anyone denies that this recession would have been much worse and in fact short term tax-cuts would have been helpful in this part of the business cycle. Whether or not they have a plan to eliminate these as the economy recovers, that’s an interesting issue. There I think they do have a problem, they haven’t, they haven’t solved that. They certainly made the recession, as Larry Lindsay said, a lot less severe than it would have been had they not cut taxes.

Kirsty Wark: What about the mismatch between, eh, the deficit and the fact that people don’t care?

Dr. Irwin Stelzer: Well I don’t know people don’t care, its very hard to say. The latest polls show that about 50% of the people feel that things are fine, very good or good. And about 42% feel that they are not so good and so on. I don’t know if people don’t care, I think people have some…what they care about is whether the President cares. That was senior Bush’s big mistake, he didn’t seem to care about the economy. I think at least that this President has shown that he does care, and he cares about jobs. Whether or not people are going to buy into his program, and that will also be affected by Iraq, we’ll see in the elections that, again, that I think Paul has gone a little too far saying that Bush sort of doesn’t really want to have elections any more.

Paul Krugman: I didn’t say that.

Dr. Irwin Stelzer: Yes you said, and possibly eliminate elections.

Kirsty Wark: Lets take it up on the deficit, if people don’t care, that people are unconcerned at the moment about the deficit, then that’s not going to play very well in terms of a democratic, economic platform.

Paul Krugman: I don’t, I don’t want to really, who knows in politics. It’s all packaging. In California the voters were outraged at a deficit that turns out to have been about 10% of State spending and in national politics we are told that they are indifferent to a deficit that’s equal to about 25% of Federal spending. So it’s all how it’s portrayed. Now if it’s treated as a non-issue by the media then maybe it will be a non-issue in the election, but y’know the election doesn’t end history. We’re on a course towards a very serious fiscal crisis, eventually, but not probably next year.

Dr. Irwin Stelzer: I think there is two things wrong with that, with respect. One is the notion that the media are not properly portraying this, from someone who writes for the New York Times which you said lands on a million doorsteps, your column twice a week, is a little far-fetched. I mean the fact is that the media are talking about this. The second thing is the question of whether the long run, in the long run we will solve this deficit as a long run matter, having properly built one up in the short-run, I think just remains to be seen. I mean there’s no, these predictions of what the deficit is going to be ten years from now are unworkable, and neither were the predictions of the surplus.

Paul Krugman: I think it was Margaret Thatcher who said ‘why do people always expect surprises to be positive’. I think the situation may well turn out to be much worse than we imagine.

Kirsty Wark: Thank you both very much indeed.