A liberal’s reason

Princeton University economist and columnist for The New York Times, Paul Krugman is best known as a harsh critic of the Bush administration. His new book, The Conscience of a Liberal, is an indictment of “movement conservatives” who’ve ushered in a second Gilded Age of economic inequality in America. We spoke recently about his new book, the economy and presidential politics.

In your book, you criticize as “Broderism” the view expressed by writers like the Washington Post’s David Broder that both political parties are too extreme and don’t reflect the centrist positions of most Americans. Why?

Well, the question is, where is the center? There’s a Beltway pundit’s notion that the center has to be somewhere between the two parties—as I sometimes put it, somewhere between Joe Lieberman and John McCain. But if you actually look at public opinion, it’s very progressive. On the issues, the public is, if anything, to the left of where the Democratic party’s leadership has been. So what does moving to the center mean? The public wants a guarantee of health insurance for everybody. The public thinks that rich people pay too little in taxes. The public wants the hell out of Iraq. So, ah, where is the centrism we’re supposed to appeal to?

You do project 2008 as a Democratic year. So why don’t the three leading Democratic candidates for president have big leads over Rudy Giuliani in the polls?

People who get their news from TV still have very little sense of Rudy Giuliani except from 9/11. They haven’t seen any of the things that everybody in New York knows. Now, that is a problem. But I do believe that Charlie Rangel’s wish that Giuliani would run with Bernie Kerik as his running mate is coming true, so—I think Giuliani will melt under the hot light of publicity. And all of the other Republicans do very badly.

You don’t think Mitt Romney would do better, for example?

A generic Democrat beats a generic Republican [in the polls], and Mitt Romney meets the definition of a generic Republican. There’s nobody there except what he thinks the [party] base wants him to be.

Did I understand you correctly that a good economy next year won’t be good for getting health-care reform enacted in’09?

Actually, the argument I make in The Conscience of a Liberal is that Bill Clinton’s problem in getting health care through [in his first term] was that a good part of the push on health care then was the product of a bad economy. So that as the economy improved in ’93-’94, the urgency of the demand for reform went away. Since this time we’ve seen the health insurance picture deteriorate under what by Bush standards passes for a really good economy, that’s not going to be [a problem] this time.

But I do think it’s almost a lock that it’s going to be a worse economy next year than this year. Whether it’s going to be a recession is not for sure, but I don’t think that’s going to get in the way of reform. But if the question is, am I worried about the economy, yes.

When I put the weak dollar and the potential for higher interest rates next to rising oil prices, it’s like I’ve seen this picture before. How shaky is the economy right now? It’s starting to look like stagflation again, like the ’70s.

Well, some of that. Actually, the oil prices—watch heating oil this winter. Even more than the gas prices, that’s really going to hurt. And the falling dollar does some of that. I’ve just marked up my probabilities of recession a little bit. The news this morning is that consumer confidence is starting to pull back, so it’s getting a little closer.

If the economy is weaker next year, is health care the issue to run on, as you propose in your book, as opposed to a stimulus plan?

Not as a stimulus. But more people will be losing insurance if the economy’s weak. Health care is a long-term issue, though. You could also run on, what has this economy done for you? Foreclosures may become a big issue. I’m trying to figure out in my own head what an appropriate package for dealing with them would be. That’s looming [as] a middle-class issue too.

There’s not much in your book about trade policy, or what Ross Perot used to call “that sucking sound” of jobs leaving the country. Do you not think that trade is at the center of America’s economic problems?

No, I don’t think it’s at the center, and there’s a couple of reasons for my thinking that. One is a little bit of fancy number-crunching [by economists] which says that it’s a factor, but not a central factor. The other is, you can just see that other advanced countries have been facing the same globalization issues that we have without rising inequality. Even Canada has seen much less rise in inequality than the United States and, you know, they’re part of NAFTA too. [It] tells you that the uniquely American political climate is more important than globalization.

You know, there was a fight in the ’90s between people you would consider liberal or progressive Democrats over trade policy. Those issues are still there in the background, but I think everybody who was involved in those debates [now] says look, this is not as important an issue in either direction. We will have those debates, but they’re not central to the fundamental politics.

Let me ask you to summarize your case for why health-care reform is so central to addressing the inequality problem in the United States.

Well, first of all it is the most conspicuous difference between the United States and every other advanced country. No other advanced country allows its citizens to go without necessary health care because they can’t afford it, or be financially ruined because of health care expenses. It’s almost the quintessential example of what the social safety net should take care of. And it turns out also that universal health care is cheaper than our system.

We have the worst of both worlds—enormous personal insecurity combined with a system that’s far more expensive to run than anyone else’s, basically because we have the insurance industry that is seeking not to cover people at great expense. So it’s something that, just in itself, is worth doing. Also, it’s a demonstration—I quote William Kristol in the book during the failed Clinton attempt in the early ’90s that we have to kill this plan, because if Clinton gets any kind of health-care reform it will reinvigorate the case for the welfare state. And he was right. Health care is a two-for-one: It’s something you should be doing in any case, and it helps build the case for a broader progressive agenda.

If there’s a fear about health-care reform, it’s that the Democrats will give you the benefits side without clamping down on the cost side, so that it will be like auto insurance in New Jersey, that everybody has to have it and it costs a fortune.

It already costs a fortune. The cost-containment issues are a big deal, but they’re easier to deal with once you make this a responsibility that everyone has to have insurance, we’re subsidizing people so they can afford it, and then it becomes a case of trying to make it more efficient. The track record is that countries with universal health care do a better job of controlling costs than we do, although they have problems too.

Right, but they don’t have the political system that we have, dominated by corporate interests, or the culture of buying off politicians with campaign contributions that we have. I have this fear that we’ll have mandated health insurance, and the insurance companies will make even more money than they do now.

This is certainly what happened with Medicare, to be honest. But not the insurance companies. The doctors ended up making more money. That’s why I wouldn’t have gone for the Democratic plans if they didn’t include a public plan that competes with the private sector. That’s absolutely crucial; that’s a non-negotiable piece of the legislation. But, do we want to hold out for the perfect plan? I think not. We want to get the principle of universal coverage established. Even within the context of what we have now, Medicare clearly needs to start encouraging people to at least stop paying large sums for treatments that do no good at all. The head of the Congressional Budget Office has been talking about that quite lucidly lately. But, one step at a time.

It seems like Americans are living way over our heads. It’s health care, but it’s also Social Security, the military-industrial complex, energy, sprawl. Anyway, I was surprised at your reaction over the weekend to Barack Obama’s discussion of Social Security, when you don’t think it’s a problem. But in your book, you do talk about a European-style retirement tax that applies to all income [not just, as with the FICA tax, the first $97,000 of earnings]. Isn’t extending FICA to all earnings an obvious progressive reform?

But not for Social Security. Social Security doesn’t need remotely that much money, first of all. It is very close to being fully funded. It may be fully funded if you make slightly more optimistic assumptions about the economy [in future years].

But if you want to attack inequality, isn’t the current flat FICA tax an enormously regressive tax on Americans?

Yes, but it is dedicated to a program which is a strongly progressive program. And I mean that not in a political sense, though a little of that too, but in terms of the way the benefits are allocated. There’s a real problem if, as you said, we’re going to extend the tax to everybody, but we’re not going to change the benefit schedule at all, then what you’re saying, actually, to upper middle-income Americans, is hey, you’re paying more for a program but you don’t get anything more out of it. And that may be undermining support for the program. So there’s a political economy issue that you really want to be very, very careful about.

I’d also say about Obama that there are certain things that become code words, and in the current environment, one is “Social Security crisis.” Social Security is not in crisis. Social Security possibly has a distant future moderate underfunding issue. He’s basically buying into the rhetorical frame of the privatizers. And you don’t want to do that. I’m actually quite shocked that he would do that.

Run down the candidates, starting perhaps with our hometown candidate John Edwards?

Well, Edwards has been forcing the pace on the progressive agenda. The basic picture is that [the leading candidates] have very similar policy proposals, all of which are substantially more progressive than anyone would have imagined that the Democratic candidates would have if you’d asked two years ago. They’re all proposing very nearly identical universal health care plans. They’re all proposing very substantial changes on poverty aid. They’re all proposing pretty good energy plans.

The sequence has been that Edwards comes out with the plan first, he pushes the envelope on how progressive you can be. And then the base likes it, and the public doesn’t seem to be disturbed, so several months later Obama basically matches what Edwards has done, and a couple months after that Hillary Clinton more or less matches what Edwards has done. Edwards has been forcing the pace, but if you look at what they’re proposing on policy, there’s not a whole lot of daylight between them.

What’s your sense of who, among the Democrats, would run best against the Republicans? Or will it be such a Democratic sweep that it doesn’t matter?

Well, the truth is, I have no expertise here. Every pundit goes on about this endlessly, and the truth is, nobody knows anything.

That said, do you have a take?

I think most of the conventional wisdom is probably wrong. That Hillary hatred is probably not going to be as effective as people think because she comes across as reasonable, so much at odds with the caricature that there might be a backlash. I worry about Obama. I worry about his safety if he runs, because there are a certain number of people in this country who are still mad over the idea of a black man becoming president.

And Edwards, he talks well, and he’s got a Southern accent, which I think is still somewhat of an advantage in some parts of the country. But I have no real sense of who’s most electable. You watch the Democrat debates, you say, there’s a bunch of well-spoken, intelligent people who know what they’re talking about. That’s kind of a shock in this day and age.

The role of race in your book is so central to inequality, were Obama to be nominated, a lot of people think if he won, it would be a great thing for this country. But reading your book [about the negative role of race hate in American history], I was struck by the thought that there’s no way he could win.

No, what will happen is, there is a group of the American electorate who will vote against any black man, but they will also vote against anyone they think will go along with black men. I think we’re talking about the same 24 percent regardless. It is telling that now for the first time you could imagine that a black man could win the White House. Ten years ago, certainly 15 years ago, that would’ve been inconceivable. But I think we have in fact changed. It’s also true that, not that long ago, a woman would’ve been inconceivable, and there will be a certain number of people who would vote against any woman, and certainly against Hillary.

But if you look at the electorate, and there are these groups to whom we have made obeisance for several decades—rural voters, Southern voters—in modern America, there are huge numbers of unmarried women. They’re a big bloc. And unmarried men vote pretty much the same way as unmarried women, so that’s interesting. People worry a lot about the rural vote, but somebody pointed out that there are now more people playing World of Warcraft than there are farmers.

The point is, this is not—in the book, I look at public opinion polling about things that are not political but that tell you a lot about people’s attitudes. Look at the polling on interracial marriage. In 1978, a solid majority disapproved, and only 36 percent thought it was OK. Now, 77 percent approve. So the appeals to fear don’t work the way they used to.

And you had some striking figures too about gay rights in recent years.

Well into the ’80s, close to half thought that AIDS might well be God’s punishment for homosexuality. You know, we got a little bit of a taste of [how things have changed] in the Virginia elections last week. The Republicans tried to run on a hard-line fear of immigrants, and it failed rather notably. That was confirmation for me of a changed America.

The only thing left to the Republicans appears to be national security. And it’s the only reason I can think of that Giuliani is running so strongly. Isn’t there some fear that the Democrats can’t handle foreign policy, notwithstanding that Bush has messed them up pretty badly?

Well, bear in mind that if you got all your news from CNN, let alone Fox, you would know very little about Rudy Giuliani. I just saw some screen captures about Bernie Kerik saying, “9/11 Hero Indicted.” Bernie Kerik was not a 9/11 hero. But there is still this frame, and that is a concern. Is the public going to hear—is the media going to continue to treat Giuliani as somehow sanctified by that day?

Does that suggest that Hillary Clinton is right to hedge her bets on foreign policy questions? Or is John Edwards—or Kucinich—right to say we’ve got to get out of Iraq now and start to cut our military budgets?

My instincts are to be pugnacious on this, and just confront it head-on. But I’m not sure my instincts are right. I understand, although I don’t think I approve, why some of the Democrats are playing it a little waffly, because they figure they have such an overwhelming advantage on domestic issues, why risk it? On the other hand, waffling on these issues does make them look weak.