Paul Krugman on The Great Unraveling: Losing Our Way In the New Century (2003)

Good evening. You might want to turn off your cell phone. I got a phone call a while ago and I just remembered to turn mine off. My name is Dale Wright, and on behalf of the Economic Justice Action Group and the entire social justice program here at First Unitarian Church I welcome you here tonight. At First Unitarian we are committed to taking our religious principles into the world. We believe that our spiritual lives cannot be divorced from the issues of social justice. We study issues, we advocate, we act, we teach. One of the missions of the Economic Justice Action Group is to provide a forum for engaged public intellectuals to speak to our community on issues of current economic and political importance. Last February we hosted Bill Gates, Sr. and Chuck Collins, co-authors of "Wealth and Commonwealth," a book about the estate tax and its financial and symbolic importance to our democratic society. Tonight we are proud to continue this mission by providing a forum for Professor Paul Krugman.

During this short troubled new century, I have found only one voice in the mainstream media that consistently reflects my sense of outrage and concern about the direction our nation is headed. That voice is Paul Krugman's. So, in advance of introducing Paul, I would like to thank him for what he has meant to me and, perhaps, for what he has meant to many of you. [Applause] power Most of us know Paul for his twice-weekly columns in the New York Times. The man behind the columns is one of our country's leading economists. Dr. Krugman is a Professor of economics at Princeton. In 1991 he received the American Economic Association's John Bates Clark medal. He is author of the textbook "International Economics: Theory and Policy." He and his wife, Robin Wells, are co-authors of the soon-to-be-published "Economics Principles"

textbook. His previous books for the popular audience include "Fuzzy Math," "The Essential Guide to the Bush Tax Cut Plan," "Prosperity: Economic Sense amd Nonsense in the Age of Diminished Expectations," and "The Accidental Theorist: And Other Dispatches from the Dismal Science." Tonight he appears as the author of the newly-released book "The Great Unraveling: Losing our Way in the New Century." Maintaining a healthy democracy and a healthy economy is in everyone's interest. This evening, as we listen to what Paul has to say, if we find ourselves in agreement, if we find that we share his concerns about the direction our nation is headed, perhaps we could do more than go home and get a good night's sleep. Perhaps we could decide to become agents of change, each in our own way doing some small part to create a more just, compassionate, and honest America. On behalf of our entire church community, I want to express the pleasure and the honor we feel at presenting tonight's

guest. Thank you, Paul, for adding Portland to your busy schedule and generously spending this evening with us. Thank you for the vital work that you do. Ladies and gentlemen, please join me in welcoming the author of "The Great Unraveling: Losing Our Way in the New Century," Professor Paul Krugman. [Applause} [Krugman] Well, thank you. Thank you all for for coming. Thanks to the church for having me here. Um...I'm going to talk a little bit about the material that's in my new book. I guess I should talk a little bit to start with about the role that, much to my own surprise, I found myself playing. I often get questions

along the lines of "What's a nice guy like you doing to write columns like this?" How that happened and in particular, "How did an academic economist, which is what I was and still am, uh end up writing uh so much uh uh fairly ?outrageous? stuff about about domestic politics?" Just to give you a bit of background, my my home field -- what I really did before it was uh international economics, uh international trade, international finance. Um, to a certain extent I was a I was I was an ambulance chaser, uh and I spent a lot of time worrying about prognosticating on trying to analyze things going wrong in in other parts of the world -- a lot of it in the third world. Uh, I was, as I said, I invented currency crises -- not not the thing itself but the academic field uh more than twenty years ago, and uh business has been good uh. [Laughter] And I spent

a lot of time in countries in or trying to analyze countries with where things were going very wrong -- uh dysfunctional countries, countries with out of control budget deficits, uh with corrupt politicians who were uh with with where where crony capitalist systems where it wasn't what you knew but who you knew. All things that well of course don't happen here -- right? In the course of I was hired by the Times to write for them early in ?garbled? We signed, we shook hands on the deal in the summer of 1999 although I didn't start writing until January of 2000 and we all anticipated uh that I would be writing a lot about big problems abroad, about uh Argentina or Japan or or Indonesia, places where things were going wrong, and when I wrote about domestic issues a lot of it would be happy news because everything seemed to be going right for the U.S. at that particular time,

that I would be writing maybe a little bit of sardonic stuff about the follies of the new economy and I'd be writing critical pieces about domestic policy but they would all be the the domestic stuff. The stuff about about my country would be pretty calm because uh we thought the base would stay within a fairly narrow range, policy would always be more or less responsible. OK, it didn't turn out that way, um and over the course of writing the column I became as as those of you who follow know, and those of you who look through the book can can retrace, I I became increasingly radicalized -- um radicalized not in the sense of becoming a radical and I don't think my views about proper economic policy have changed much all, but my concerns about what's going on in the United States have have increased enormously. It's very it's very disturbing stuff. I think to illustrate what I mean by that, it's helpful to give you a concrete example. The kind of thing that I saw

happening that made me realize that we weren't just talking about people whose ideas I disagreed with, that we weren't just talking about the normal range of policy discussions. I could do -- what actually got me going was was back in 2000, looking at things like the Bush plan for Social Security privatization or or the the initial tax cut, but those are those are certain ancient outrages already, so it's helpful to go and look at something more recent, which is the tax cut -- the 2003 tax cut -- which was passed just just this year, I guess, in May, just a few weeks after the carrier landing, so it's uh uh the what can I say about that tax cut? Couple of couple things first. Um it was was wildly irresponsible. It was intended to be a long term permanent tax cut. It's one thing to say I want lower taxes. It's another to say I want to reduce taxes

in the face of very large budget deficits stretching as far as the eye can see and then going up which is what we all see looking forward. It's even more amazing to pass a large tax cut in the face of war, and that that has never happened before. You know war is kind of sort of you know like cost money and that so that has never happened before in U.S. history or as far as I can make out in anybody's history. I've never been able to find an example of a tax cut passed in the face of a war a particularly again when we started from very large budget deficits, and the budget situation is is really really alarming and this was amazing that they would do that. Um it was -- all right -- so it was something that would seem to be extremely unwise policy. There's more to it than that, however. It was also the case that the presentation, the whole process of selling the tax cut, was blatantly spectacularly dishonest.

And you can say, "Don't politicians always do that?" but this was exceptional. Let me give you three pieces of that dishonesty. One was the the budget outlook. I say that we were looking at deficits as far as the eye can see. The administration initially presented budget projections that didn't look quite as bad as all that. Deficits for the next five years but then they said we would be back in surplus, and even now they say well after five years the the deficit will fall in half so we were gradually getting this under control. Those budget projections are nonsense. Everybody knows they are nonsense. It is very difficult to find anybody who isn't essentially working for the administration who takes them seriously, and there it's just that that's -- I can't easily demonstrate that to you except to say that there it the reduction in the deficit in the out years is based upon things that we know were not going to happen like the tax break for businesses that was passed in 2002

that everyone knows is going to be renewed being allowed to expire or nothing being done about the alternative minimum tax. It's not only is that these are things that we know are not going to happen there are also things that the administration is actively lobbying not to happen. It wants to, it's said that wants congress to make those tax rates permanent and extend the um the AMT level ?garble? Basically so understand that the deficit might fall in half if congress doesn't give us what we want, which is kind of a strange basis for for optimism about the budget. The cost of the tax package uh the cost of the tax package now actually some some Republican senators had a brief attack of responsibility during the debate. It didn't last -- and said let's we we don't want this tax cut to have a ten year revenue loss of more than three hundred and fifty billion dollars. The administration said "Fine" but didn't change the tax plan at all. All it did was to write it so that almost all of the measures

expire at some point over the next ten years. There are sunsets built into it, all of which are not intended to happen. They're all fake sunsets. They're they're and of course the moment the tax law was passed the administration began saying "This is ridiculous. Why why should these things expire? Let's maintain them." This is a trick they've used repeatedly, and the best example actually was the 2001 tax cut, which in order to fit under another ceiling was designed to sunset in the tenth year, in so that it officially the whole thing expires at the end of 2010. Uh that the most striking piece of that is the estate tax. Under the law as it now stands, the law of the land, the estate tax phases out year by year and eventually completely disappearing in the year 2010 and this brings back to its 2000 levels in the year 2011. So, if you really take the law as written seriously, if your wealthy aunt passes away in December 2010, its you inherit the estate tax-free.

It's if she makes it to January 2011 then everything above I think six hundred thousand dollars is pays a fifty five percent rate of tax. I suggested at the time that the 2001 tax bill be called the "Throw Mama from the Train" Act of 2?001? [Laughter]. OK, this is just phony accounting. The last piece was that the pretense was maintained that the 2003 tax bill would be was for ordinary people. It was for ordinary working people. The core of the measures passed were cuts in the tax rate on dividends and the and on capital gains which should have known, just by the nature of them, since middle class people to the extent they do own stocks mostly they're in in already tax sheltered in 401Ks. This was not going to be worth very much to most people, but in any case the line that the administration used was first in the State of the Union address and repeated many times both by the President and by other officials

was ninety two million ninety two million american taxpayers will receive an average tax rate of a thousand dollars this year which was not literally a lie but was intended to mislead. What what you were supposed to believe was that meant that the typical family was going to get a thousand dollars in tax breaks and the way that that the statement was based on the belief -- correctly -- that the public and much of the media doesn't quite understand what the word average means. So the the way that that I now try to explain it is if Bill Gates walks into a bar uh the average net worth of the patrons rises by a couple billion dollars. [Laughter] That doesn't, ok you get the point, and it turns out that that's pretty much the description of what happens in the 2003 tax cut, that average thousand dollars is driven by very large tax breaks for a few people. Uh half the population will get either no tax break or less than a hundred dollars. For the

typical tax break is really a hundred, not a thousand. OK, now if it was just the 2003 tax bill you would say, "Boy, that's a pretty uh that's a pretty sleazy and an embarrassing episode, but the point is that it's like that all the way. That it's this has been true of every economic policy proposal out of this administration uh and it has been true, unfortunately, of things that are much much more widespread even than just economics. So of course I have already suggested the first tax cut -- the 2001 tax cut -- that had all the same features enormously tilted towards people at the top end of the income distribution with the pretense that it was for regular regular folks, that it was the cost was understated, the budget forecasts were were exaggerated, a constant shifting of the rationale. First it was giving back the surplus, and the surplus went away while it's what we need to create jobs. When it turned out it wasn't creating jobs it was for something else, and so this constant shift in rationale. Same thing on environmental policy and there

on environmental policy the administration has an additional twist which is the they really the language is truly Orwellian, so that we have the Healthy Forest Initiative which is which is a plan to allow increased logging by by timber companies. We have the Clear Skies Plan which begins with a uh which begins with a a major ??? the biggest weakening of the Clean Air Act since since it was started and so on down down the list. Of course in terms of talking about these things I have found myself obliged to talk about foreign policy -- not my field of expertise, not something I know a great deal about more than any concerned citizen -- but I could see that there were complete parallels in the selling, so, what whatever you thought about about the Iraq war, the things that were obvious from the beginning were

they were being irresponsible. They were Plan A was in those the army we install our favorite exiles, the army comes out, and if everything is happy after six months, and there was no Plan B. And the people who were most worried about the whole thing where the professionals in the military who said we worry thes might be a prolonged postwar occupation, and we don't have the soldiers. That's sort of the military equivalent of the budget deficit domestically. It's a very serious drain on your resources and salesmanship. It was obvious to me that the the case was being hyped, that there were just that things that you knew they didn't have evidence for they were pretending they did and just the whole thing was it was just too obviously a parallel with with the weight of the tax cuts that had been passed so as you can see I've gotten radicalized because my view is that whatever the administration proposes the unfortunately you shouldn't be given a presumption of innocence. You have to have a presumption that they're trying to pull one over on you because they have on everything where I can actually check

the facts. There's some people who tell me that this is you know I'm just overreacting, that after all or I'm just naive. After all, all governments lie. All governments to some extent allow politics as opposed to the best interests of the nation to govern their policies. All governments are to some extent the captive of special interests. But I think this is different. It's a difference in degree that's so great as to be a difference in kind, so all all governments lie, well, but, this one, I'm sorry to see this phrase now more and more in in commentary: up is downism. This administration is so given to saying the opposite of the truth that is this is this is different. If you like Bill Clinton had a tendency to have very small policies that he pretended were bigger than they were. That's not the same as saying, "We're going to save the forest by cutting them down," which is in effect the the the policy there. There is some role of politics

in determining actual policy. Well, all administrations do that, but in this case, it's very hard to find any examples where they actually try to solve a problem, as opposed to exploring the problem to push a pre-existing agenda. The most conspicuous example there is jobs. It's what people are worried about. At each stage the consistent failure of the economy to generate jobs have been a reason to push for yet another round of tax cuts for corporations and high income individuals. Uh long term permanent tax cuts that is another opportunity to ratchet it down the progressivity of the tax system and never a response that actually is seems to be well what we do about the jobs that is actually gone and what we do about this burgeoning deficit at the same time and special interests well special interests are always there but the level of just plain merger between the interest in the government now is unique so the headlines just this morning were about

a change in mining policy where mining companies will now be allowed to have basically have as much public land is they want to dump the waste from they're mining operations. Now they will have some arguments about about the well the economic reasons for it but the first thing I just have to notice is that the Secretary of the Interior made her career working for the extract of industries. The Deputy Secretary of the Interior made his career working for the extractive industries and in fact is still receiving checks. The Under Secretary under the Deputy Secretary made her career working at someone down the line. The no obviously well I just saw the David Letterman said that we really need the public must support reconstruction in Iraq and when you make up the check remember there are two l's in Halliburton um [audience applause] One way to summarize how upsetting I find all of this is to say

that I've now been finding myself thinking something I never thought I would think which is that I miss Ronald Reagan. Um [audience laughter] let me tell you what was good about Ronald Raegan. The policies bore some resemblance, obviously big tax cuts for rich people, but Reagan said I'm going to cut taxes for rich people and that's good for everyone because a rising tide raises all boats. Bush cut taxes for rich people and says no that's a tax cut for the middle class so it's just the sheer black is white, up is down, chocolate is vanilla is is just something that's distressing. The other thing is that Reagan did respond at least to some degree to what was going on when it became clear that the rosy scenario in which tax cuts would pay for themselves was not going to happen Raegan did something kind of amazing he raised taxes in the big tax cuts in 1981 significant roleback in 1982

um responding to events. Of course this administration just keeps on cutting taxes in the face of really very severe deficits. Um all right tell you something even more shocking uh which is I think I missed Richard Nixon. Um and part of that is that there's a lot of the feeling of those days again uh the John Dean of Watergate fame has said that even Nixon didn't go after the wives um those who are following that story but the the other thing to say about it is that while Nixon actually did believe in governing. He didn't believe anyone else should have a shot at it [ audience laughter] but if you talk to old hands of the Environmental Protection Agency they will talk about the Nixon years as a golden age. Once Nixon said well okay we've got this law of clean air act, we're going to try to do it right. This administration, I'm saying, it's very hard to come up with any examples of them actually trying to do the job of running the country as opposed to using whatever is going on to push

the agenda even further, which brings me to the agenda. If you do purchase the book, I am on book tour sorry, you'll see I have a long introduction added, most of the book is columns written these past few years but I have a long introduction trying to provide some framework and something struck me I was led to amazing quotes, well no let me do this a little differently let me say that it has become clear to me that you have to think of the people now running the government as not being conservative not people sort of the right of where I'd like to be but you have to think of them as being really radicals, people who really want to transform the system. And it's not just one group it's a coalition so there are different groups with different objectives but all them have quite radical objectives so there is the tax cut, smaller government movement, which is the one I can track best because it is my field. Who

now never mind what Bush says or what administration officials say in front of in front of the cameras go to the place where going to intellectual headquarters for a for the conservative movement which is the Heritage Foundation and read what they say and you'll see that they consistently used the terms new deal great society as terms of abuse that is they regard this whole enterprise of the social insurance state that we've built since Franklin Roosevelt, the Social Security Medicare, Medicaid, as illegitimate as wrong they want to scale it back eliminate as much as possible. Go to Grover Norquist a man who's very important in today's Washington a central yes uh I'm sorry [audience laughter] who has said that the the that he's very essential, I mean he's just not some guy he holds weekly meetings with the leadership of the of the House and the Senate

to vet their appointments so he's that central in the process and he said I don't want to eliminate the government I just want to shrink it down to the size where I could drown it in the bathtub and and he has and he and many others has when asked how they propose to do this since if you go to the voters and say would you like us to sharply scale back Medicare they would obviously say no. What they talk about is starving the beast that we deprive the government of the revenue it needs to provide the social insurance programs, cut taxes, create deficits, leave the government short of revenue and you can gradually shrink the thing down and that is that's basically that that explains what's going on. Um you can find that there is a radical tinge , radical movements in other directions other parts of the coalition. There's the religious right which has obviously got very strong views about the way things should be in this country and there's there's a corporate elite that wants insider dealings to be much even more freely conducted than they are

now. Um there is there's a there's a whatever you want to call it that we've ended using the term neoconservatives to refer only to the foreign policy guys but anyway definitely there's the aggressive militaristic militarized I guess I should say foreign policy group which which has been wanting to shift to a doctrine of preventive war for for some time. Um all of this adds up to a really a really radical challenge, it's funny we use the word conservative to refer to people who actually want to rip up the system we've lived under for the seven last seventy years by the roots and replace it with something different and we use the word liberal or to refer to people were actually mostly want to keep things the way they are uh with maybe a few improvements but many cases people are not conservatives in any meaningful sense they really are radicals.They want to maybe they want to bring things back to the way they were three generations ago but not anything that most of us have ever experienced in our lives.

I think if it all makes sense if you start to realize this I'm not talking about some hidden I'm not talking abut people meeting in darkened rooms and leave the illuminati or something else I'm talking about actually the expressed goals of people who are not in front of the camera but just behind the people in front of the cameras, the lobbyists, the the think tanks, the organizations that are are clearly calling the shots. Some people ask me do I think that Bush shares this radical agenda and the answer of course I have no idea what he thinks or understands uh not that he's stupid let's be clear I do not believe this that, he's not intellectual that's not the same thing at all.What I think is that the Bush and his inner circle of political advisors have made the decision that basically daddy lost because he didn't have the hard right firmly behind him and so their political strategy has no enemies on the right and they will make moderate noises to assuage people who would be alarmed

but in all substantive things they will give the hard right what it wants.I think that's the way to think about it so that it's it's the the vast right wing conspiracy if you like is he's getting its way not because Bush is exactly part of it that because he's decided that that getting what it wants is the way to to further his political position. If all of this is true,I think it's almost obvious that it's true why does he hear more about it, why why isn't why I'm not alone in mainstream media and and in writing about this now but for a while I was and it still pretty pretty hard to find and there's a couple things to say one is that it's just a steep hill to climb it's just hard stuff to believe. In the introduction to the book I ran across or rather my wife told me about, you gotta read this and so I did. An amazing quote from of

all people, Henry Kissinger, the young Henry Kissinger in his in his dissertation which was about diplomacy in the age of the French Revolution but he clearly thought that he had a more general principle I think it fits perfectly now. It said that when when members of an established system who have been accustomed to stability for a long time and confront a revolutionary power and by revolutionary power he means something some power that doesn't accept the legitimacy of the system, doesn't doesn't play by the rules, their reaction is disbelief they don't even if the revolutionary power says it wants to tear up system and change everything they say oh doesn't really mean that. Those guys they talk about revolution about getting rid of these institutions we've had for so long but that's just tactical that that that's just their way of trying to stake out a position and we could appease them with a few concessions and then they'll fall in a line and play the game just like the rest of us. And there's a sense,I should have written it down here but I didn't, but those who warn

of the danger in time are considered alarmist, those who who who preach accommodation are regarded as realists. I think there is a very strong element of that .Until quite recently even liberal friends would just said no, aren't you overstating don't you think that you are overstating what's going on. More and more of them are now starting to say well ghee maybe you're right. Um actually I'll give you one more point on that. A key example I shall give you one more point on that be becky in my thinking about this. More than a year ago I wrote a piece about about among other things about the views of representative Tom Dulay who those of you know you know he's had said that his his his purpose in government is to impose a biblical world view and that he pursued Bill Clinton. Clinton not because of specific policies but because he felt that Clinton didn't share that biblical worldview. And to get an idea of what he means by a biblical worldview and after

the Columbine school shootings, Dulay called a press conference to explain that the reason things like that happen is because we teach evolution in the high schools. Now I got mail after that and I got calls from from liberal friends saying haven't you sort of gotten off the deep end writing about stuff like this. I mean what do we care what some crazy guy in congress has to say. Ok for if there's anyone who doesn't know some crazy guy Tom Dulay is the House Majority Leader and that understates his role in the speaker, a figurehead the Senate Majority leader is is not nearly as as is not going to a standup to ?Congoley? runs Congress he's the second most powerful man in America and holds these views. I guess I've gotta say also that if if you're writing a novel about all this it would just be implausible because it's just too he can't really be a former exterminator who went into politics because he was upset about the restrictions on chemicals but he is. The other thing to say is the role of the media and of course it is always the awkwardness

of me being part of the media so what what am I complaining about but I am a rather unusual part of the media and the media are part of the media or just part of this machine obviously anything of the Washington Times and Fox News as I am sorry to lose heart here I've been insulting Fox News at every stop hoping they would sue me [audience laughter] but but the clear there's part of it. Now the mainstream media, aside from that segment it is for one thing is is desperately almost a pathologically evenhanded. They should be objective, they know they should be objective but objective is hard and objective can also be controversial.

So they usually settle for being evenhanded which is not the same thing so the summary I gave once several people thought I was assaulting them personally was that if the if Bush said the earth was flat, of course Fox News would say yes it's flat and anyone who says different hates America but the but the other media would write stories with headlines like shape of the earth views differ [audince laughter] I think I can go through through the papers for last week, major newspapers that I can probably find you about ten stories that have exactly that feel to them. The last thing about the media is that there is actually intimidation. Now if it's you have to be careful at this point nobody nobody's coming in and threatening to beat you up well I I mean I do get those but they're I don't think they are serious.

It's more for very organized campaigns of hate mail constant yelling about liberal bias aimed at the institutions of course but also at the individual journalist and so you if you if you say something negative about about the Bush administration you will receive hundreds or thousands of nearly identical letters or your email account will be flooded. And then there's also there are attempts to discredit again to discredit the institution but also to discredit you personally so that if you cross these people there will be attempts to find something anything in your past that can create a scandal. It's all pretty stiff stuff I've had brushes with it myself. There was a nice example few weeks ago which I mentioned in yesterday's column if you saw it which was that Chrisitian Amanpour gave a rather, of CNN gave a rather candid interview in which

she did say that perhaps to some extent my network was intimidated by the by the administration as foot soldiers of Fox News. Maybe she has a book coming out too. Anyway The fox response was it's better to be viewed as a foot soldier for Bush that as a spokeswoman for Alcaida that's the level at which things are happening. Ok it's pretty serious stuff let me just say it's not just that I disagree we're also really heading for crisis point and let me just put on my economist hat for a moment and say that the level of irresponsibility of the policies that are being followed is so great that it is really we really do have some kind of train wreck in our future. That it's interesting I've been going around saying remember I was I was an ambulance chaser in in in my previous existence and I can't help noticing that that if a third world country had the numbers

we now have you would regard it as a candidate for crack up that we have a budget deficit that is bigger, of course it's bigger than anything ever in the history of the human race but that the U.S. has a very big economy but is bigger as a share of gross domestic product than Argentina's before the 2001 crackup. We have a trade deficit and now we had a trade deficit with Clinton too but it was covered mainly by foreign companies investing the United States real economic stuff. Now it's been covered up by borrowing and the trade deficit is bigger as a share of GDP than Indonesia's before the 1987 crackup. So these are very big numbers and its interesting I've been saying this and people say oh no aren't you overly alarmist and it turns out that Lehman Brothers has something they called the Damocles Index as in sword of which they claim has successfully in the past tracked financial crises in the third world and they put out the Damocles Index for a bunch of the countries that had crises in recent years and the

good news is that all of them are now well below the red line. The bad news is that one country that actually is above the red line by their measure is guess who, us. I don't think that means it's going to happen just today or tomorrow I think the U.S. has a huge stock of credibility built up by good governance and over the past two centuries which is being rapidly depleted but what will keep us afloat for a while but I think we will at some point just on economic terms face a I think of as a Wiley Coyote moment for for scholars who know the road runner cartoons. Wiley Coyote in pursuit of the road runner would always run off a cliff and run off about ten steps off the edge of the cliff before looking down and realizing there was nothing under and so this is there will come a point at which lenders would just say you know the U.S. government we already have Banana Republic policies. At a certain point

the world will start treat us that way. None of this has to happen. The United States is, first of all is very rich with enormous resources, we are not heavily taxed. We, in fact, if wealthy people now the overall level of taxes is now back to what it was in the Eisenhower years low or by our own historical standards low by comparison with any other advanced country and because the system has we've had pretty big tax cuts at the top end. People earning more than a million dollars a year are probably already and will soon, if it's not now, be paying lower tax rates than people in that range have paid since Herbert Hoover was president. So the ability to raise money to deal with the economic problem is there. All if we went halfway to a Canadian level of taxation we would be in budget surplus even now. The catchup economics terms

of the present politics I think if you look at polls what you can tell actually people are not most people in the United States are not as extreme not nearly as extreme as the people running the country. There's a lot of compassion and moderation and a lot of affection for this institution that we built up these past seventy years so I think that if the public understood what was happening that wouldn't be happening so what you do, well what I try and do, is get the word out. I talk in the book about my about a great revulsion when the public understands what's being done in its name and turns on it. Now I've actually been thinking a little bit, another way to put it is the the Howard Beale moment those of you ever saw the movie Network the moment when everybody leans out their windows and yells "I'm mad as hell and I'm not going to take it anymore" and I think that that's what we need [audience applause] if that's

what we need in this country and well I'm doing my bit to get it there and um as our [audience applause] so that this is this is there's something happening, whether it's big enough or good enough or not strong enough I don't know but there is great my publisher would hate this but but there's my book also Molly Ivens, Joe Connison, David Corum great stuff has come out and they're selling which is even better indication of maybe we can turn it around I hope so because this is our country and we really need to save it. Thank you. [audience applause] Thank you. Thank you Paul. Before we get to our question and answer period

I would like to let everyone know about a special event that we will be holding here. If you are interested and reading the book that Paul Krugman wrote and then coming back here to have a discussion about it we're going to have a special event here on Thursday November six apparently we ran out of those little papers um but if you to give you the information but we have some clip boards out here in the lobby area and we would be happy to compute information on that if you would like to participate. By the way I am Kate Laure and I'm the Social Justice Director here at First Unitarian and funny you mentioned Molly cause that's who we want to get here next ,Molly Ivens. [Paul] Molly and I are doing a joint event in Austin next week. [Kate] And also before we get to the question and answer I want just to bring your attention to one person, Corey Cliff quickly please stand up, there is one person here who actually is comfortable speaking

in public and some of us aren't. To accommodate you both I'm going to encourage people who are comfortable speaking in a mike to please line up behind this one, don't stampede yet wait to I'm done. The rest of you who would feel more comfortable writing a question on an index card we have ushers who will be two downstairs and two up stairs circulating please raise your hand if you need those . Some of those ushers please come forward, Great yes so the cards and the pens and pencils are there. Just let her know, any of them know, that you'd like to write something down so you know there are a lot of us here and there's going to be a lot of questions so um to accommodate the most questions we can do in thirty minutes and I'm going to ask that you please not use this as an opportunity to tell us something and no statements please.This is going to be for questions only and only one question so please think about it before you say it so that we don't have to spend

some time trying to re interpret it. O.K. we get excited and and these things happen but if you can just have the question in your mind before you speakat the mike that will help keep things moving. Yes we have some experience of the problems of these sort of things. So go ahead if you'd line up at the mike what I am going to do is to ask you to come back here so that you can be on the floor collecting the questions. will you bring, raise your hands and I will ask questions from there and Paul will answer here. [Paul] Hey hello, [ Man] I will make my question very brief. I'm very pleased that you're addressing these questions here tonight and uh one of the questions that I see come up in the press fairly frequently now although not so much in the U.S. press but in the London Guardian and in other places is a question as to whether or not the Bush administration had fore

knowledge of the attacks on the World Trade Center on nine eleven and they allowed these attacks to take place as a pretext for a previously planned invasion of Afghanistan and Iraq. My question to you is have you come across this sort of thing, have you any thoughts on this and would you consider penning those thoughts into your column in the New York Times. [Paul] okay I'll give you let me, this is almost by way of a suggestion, it's certainly true that many things that people have dismissed as being silly have turned out to be true but it's you don't do you don't do the opposition to what's going on a favor by by stretching too far that what do we know. We do know that there's a group inside the Bush administration that has wanted a war with Iraq for for ever since 1991

and that they seized upon 911 as an excuse to do it. I think that should be enough, you don't want to go into this wonderful expression that people are using on the internet now, a tinfoil hat and you put the aluminum foil overhead to protect yourself in the mine race. You don't want to go into it's the tinfoil hat stuff although some things that seem like tinfoil hat stuff have turned out to be true but this is just not a good place to go. For what it's worth actually they were not planning an invasion of Afghanistan in fact we now know thanks to frontline that people in the administration argued let's go to Iraq first because we this Afghanistan thing isn't what we wanted to do. This is not a good place to go there's enough of documentable out reaches that you don't want to go off into the things that that will only only marginalize you. It's bad enough as is is what I think I should say. [Kate] I'm going to ask one of the questions now. Please elaborate on your article about

the end of the middle class and the redistribution of wealth in the United States. [Paul] The main thing to say but by the way there are new numbers since I wrote that article this was more than a year ago and they do confirm that the trends have continued so as of now the distribution of income in the United States is as best we can make out identical to what it was in 1929. It's concentration at the top has reached levels not seen since before the New Deal. We are we're great we're Great Gatsby society gilded age whatever you want to call it. That level of income concentration and just to say thats the forces behind that we don't fully understand but it's reasonable with that with a lot it appears to be political in the broad sense that is the restraints on fr example executive pay that were imposed during a time when they were powerful unions in a general sense

that greed was bad have gone away in a time when there are no countervailing forces and a general sense that greed is good and there's also instead of instead of leaning against this polarization of our society public policy has leaned towards it and the and the- we- we- we've-, as I say, it- it- it's awesome to think that we have moved back to Herbert Hoover levels of income inequality and at the same time reduce taxes on the wealthy to Herbert Hoover levels of taxation. That just says the policy is moving in the wrong direction. So that's it. And it's- it's scary. Cause the question is, can you- can we have an effective democracy with this level of inequality? It's about time for a new Franklin Roosevelt and if you see one, you let me know.. [Kate] Thank you for coming here tonight. I for one don't put anything past the Bush administration.

Perhaps kind of a materialistic view of history but the attacks on 911 handed them, you know, the excuse to go invade. I wonder have you read Michael ?Meecher's? article in the Guardian. [Paul] Yes I have. And what he says if I understand correctly was not so much that, you know, they did it, or even that they allowed it to happen as that they were - it's been a while since I read it. Look, I think the point to make is the following the the what what what what what we need to say right now is that they that this administration has has failed us in the fight against terrorism that if- Enough to say that rather than concentrate on fighting the people who actually attacked us, um, they decide to go and pursue their own pet project. And shouldn't that be enough? Now, you know, it is... things are... there a lot of weird things which would if the shoe were on the other foot would have been incredibly

where was James Baker on September eleventh? And the answer was he was at a meeting of the Carlyle Group together with members of the ?Demodan? family. All right? So there's enough stuff that can really make you go... But- but this is not a productive direction to go. Enough to say that they did not... they in fact shelved old Clinton administration plans to go after Al Qaeda in their first six months in office and have have in effect shelved the war against Al Qaeda again to be... to go after somebody else. [Kate] O.K. how much are unofficial boycotts of U.S. goods by those who hate us hurting our economy? For instance are there fairly precise estimates of trade loss from the Arab world because of Bush? How about the rest of the world. [Paul] We have no idea. I don't think... I don't think it's a big factor yet. I mean there's, um... I know that Clyde ?Prestowitz? has a book out about this but I haven't I don't think- um- you ca- I don't think you can see it in

the aggregate numbers. Much more to the point I think is that that that contrast between Gulf War 1 one and Gulf War2 was that in Gulf War 1 other countries were picked up a large share of the cost and this time around the the response of essentially everyone who might be helping is, you broke it, you bought it. That where it really hurts. [Woman] Thank you. Hi this evening we've talked a lot about what is going wrong in our country and I was curious, a lot of us are looking to the 2004 election at as a ray of hope. Do you have a particular favorite amongst the presidential candidates or one that you think is gonna to be able to turn this all around? [Paul] Times op ed columnists can insinuate, imply, but they can't endorse. It's an interesting kind of rule. In principle you don't know for sure which party I want to win the 2004 election. Um... [audience laughter] The um um [laugher] I can't

I can't even do that, not in so many words. The- Look, I have a view that... which is pure amateur, cause I don't know anything about, you know, I'm not a political prognosticator. The only rule I have is find out what Dick Morris is saying and guess the opposite. Anyway... [laughter] The- I think the- that- that- that the democrats if they're going to win and are going to have somebody who was willing to take on the whole spectrum of policies that someone's who runs as being, 'I'm like Bush only less so' is not going to make it and that- that sort of obviously narrows the field. So that that's all I can I can really say. The obvious things are, somebody who's fighting and I guess I can just make the generic a political comment that it probably would be of some advantage to have a candidate who's first name is General but that's not an endorsement. [audience laughter] [Woman] I've heard it said that the role of government is to provide services that may not

be inherently profitable yet anti tax advocates profess that government should only protect private property and national security.What do you think the role of government is. [Paul] I don't think it's a simple, gosh I was about to turn- morph back into college professor in front of you all. You know, I basic- I guess I basically have a [---sian] view which is I'm sorry about those- You know I mean I think that- You want a society roughly speaking that would be a society you would want to live in if you didn't know who you were going to be. Um that you want to know that that if things should go wrong including being wrong- being born to the wrong parents that that you will not suffer extreme misery. Now you have to know that incentives do matter.You can't have a hundred percent taxation that you can you can they're completely flat income distributions don't work because there's no incentive to do anything, and there has to be a- and a society where people can grow wealthy

is probably a good thing, even, even morally, but if you want to have a strong set of guarantees for-for uh, for individuals and that's the- You have Bill Gates, Senior. That's a- He has a nice parable for explaining that point of view. It says that if God comes to you before you're born and says you have a choice of being born in the United States or in Sub-Saharan Africa and which- what share of your wealth at death would you be willing to give up to the estate tax in order to make sure that you're born in United States? An uh, that's, that's, that's about the same point of view. Um. And on those grounds obviously that that does make me to the left of the US spectrum and uh, you know, I would be, I think it's, it's- it's uh, it's shameful that this rich a country doesn't have universal health insurance. [clapping] And just to say - I'm going on too much - but international comparisons. There's this common myth that well

America's so rich that even our poor are better off. Uh, and it's not true. It's just not remotely true. The poor in Europe or Canada are a lot less poor than the poor in the US. Absolute terms. And that's again something that's kind of shameful. [Woman] Our electric utility here in Portland, Portland General Electric, is owned by Enron. We're looking forward to a vote November fourth on forming a people's utility that's public ownership. So far the opposition has spent in excess of seven hundred and fifty thousand dollars. If you look at the contribution expenditure report, it reads like a who's who of top executives at Pacific Power and Portland General Electric. We've spent nineteen thousand dollars. In a democracy, how can you expect... it's nineteen thousand dollars versus seven hundred fifty thousand dollars - how can you possibly win at a grassroots level with that kind of overwhelming money against you? [Paul] That's- yeah, that's

a very tough question and, actually, it's something we need to wrestle with and I'm not sure... I have, we- There are things that other countries do to try and limit, uh there are publicly funded campaigns, there are, which we have, but it's not working, as you know you know the system isn't working, um, [sighs] but it- its very tough. You have to think about creating countervailing institutions and, and then it-it just becomes beyond what I think I can discuss, or where I know the answer but I think that at this point were just fighting defense, and we try to get past that, but yes, it's a, it's an amazing thing, and it's the power story. The one thing... There are times when I get deeply depressed, and when I think about the failure of the public to maintain sustained outreach after what happened in the energy sector in the west is just amazing. [applause] How do you explain the fact that so many people of modest incomes

vote for Republicans? [Paul] Yeah. Um, yeah, in fact it's, it's um... I mean part of it, it's kind of interesting - it's geography - so that within a state, people with modest incomes tend to vote Democratic but, in poor states they tend to vote Republican, and there's that- so there's something there... A lot is just people just don't know. I mean it... the... or they don't have a sense of, what's the magnitudes so that they will get all upset about reports that some politician perhaps, uh-uh took a five thousand dollar junket, and will be largely unaware and unmoved by a sweetheart deal for a government contractor that, that receives fifty or a hundred million dollars. And it's- there's a lot of propaganda, a lot of money involved. I don't know what to say. It's, it's uh, it is difficult to break through all of that wall of stuff. There may also,

of course the US... Um, the great thing in the US that is a tremendous source of difficulty for getting people understand is race. Just, just... amateur politics but obviously the- I think it's it is a little harder to get people to understand that that that program that the social insurance system is for them, too. [Man] Recently I heard Grover Norquist on National Public Radio talking about the tax cuts, and his justification, partially, for the tax cut is that the size of government currently is the largest it has been as a percentage of gross national product. I wanted to hear your perspective on that. Is that in fact true? That our government spending as a percentage of gross national product is at a record level? [Paul] Uh, no, actually it's not true. It's been, um, it's down a bit from, from its levels in the nineteen seventies

which would have been the peak. And if you bear in mind that um, the government programs are certainly not more extensive than they were. We have a certain... The US- The federal government - this is the - a number of people have made this put it this way. The federal government is a, is a giant insurance company with a side business in national defense,um, and the core of modern federal spending is programs especially for the elderly. Medicare, Social Security, and a fair bit of Medicaid, as well. So the fact that we have an aging population tends to make the number go up, but it doesn't mean we've actually had an expansion of the role of government. I think the way to put it is that, roughly speaking, the share of government in our economy has not grown for thirty years, uh, and compared with any other advanced country, it's substantially smaller, so this is just not the issue. Grover Norquist Of course I don't know if- how many people heard- I didn't hear it. I've read the transcript, but the- um, there was the- To give you an idea of

the level of which this discussion takes place. He talks about the estate tax and Terry Gross did ask that isn't it true that only a small number of people, a small fraction of population, actually pays the estate tax? That, that it's not a tax that most people will ever have to worry about? And his answer was, "Well, you know, Hitler only killed a small fraction of the population." Yeah, pretty amazing, and this is, this is what- and they accuse people like me of being shrill. Anyway... [Woman] Okay. There's a perception that high taxes are chasing businesses out of Oregon and out of the US. What is the relationship between tax policies and economic prosperity and economic growth? [Paul] Okay. All right. Where's the blackboard? [laughter] Uh. Sorry. I can't speak to Oregon because I haven't done the work. I just don't know the facts. For what it's worth, the states that are doing- You can have

You can be a very low tax state, like Alabama, and businesses flee, because you don't educate your population. [applause] Um, you can be a fairly high tax state like New Jersey, and, and in some respects the, the availability of public services, it's not paradise - I guess nobody, nobody's likely to think New Jersey is paradise, right? But but the- it's, it's not clear the- Within the range across US states, the tax, taxes are probably not a big issue actually in location decisions of businesses. Internationally the United States is not a high tax country for business and neither, neither by comparison with other countries nor by its own historical uh, um precedents. One of the- one of the amazing things is the the disappearance of corporate taxation in the United States over the past forty years. It's made- The formal

rates have been cut but more important, the loopholes just get bigger and bigger, so that corporate taxation is now only a small fraction of federal, uh- of the federal tax base compared with the- it was twenty five percent of federal revenue back when that Socialist Dwight Eisenhower was president, and so this is- this is- yeah- this is a dodge. Enormously high rates of taxation our problem, but that's not the story here, and with this a- the idea that that having already cut taxes on businesses... Okay, enough, I'm repeating myself. The point is, this is, this is a- If we had ninety-one percent marginal tax rates on individuals and and seventy-five percent tax rates on corporate profits then - ninety-one was the actual number when Eisenhower was president - then then I would probably be willing to say that's too high, and we need to make a room, but that's

that's where we were we're not there now and that evening when a walleye on and certainly as an economist that the students on sociology as well there were more questions this where like to see more kids into line liners who also asked that question why do so many of us believe that my question is what might be in global history of capitalism that might begin to explain why so many do we're a society based on tourism and as upton sinclair to say you know can convince people of something if this elegant and understanding what could explain why did so many people believe things that typical that aren't true i don't think that's right i don't think that americans minds are critically rotten by consumerism that question i mean yes they are but no more so than and then you know most people in most places and we do have an absence of public institutions of public involvement

bowling alone all of that and that's that's that's related i guess the main thing is most people don't have normal people dont have time most people have lives they they have for kids to get to two to school or court to after school activities they have yeah so yeah my family and so they you know they have to get stuff on the fly and if it isn't presented to them in a way that that that will you know will get the answers to them then they're not going to get it and so we don't so i and ending up at the media here they come we don't have a walter cronkite anymore to say that's the way it is we don't have a fairness doctrine anymore we have well you know i got my ear my three minutes with paws on and was yanked off to make room for twelve minute suburban nj well and so it's a and so that's

i think this is the answer is nine eleven shocking events war tends to make people want to believe in the reverse and it's that even no matter how bad the leaders or as others it's a tremendous difficulty in understanding after that the people it is taken a very long time for even a significant minority to be willing to say no they're not telling us the truth is i think as the story so nine eleven so the thing that i appreciated your article i'm the minister and foreign minister says lump of labor carrying however organs unemployment rate has a ninth highest in the nation currently a percent if you don't believe outsourcing and structural changes have affected unemployment what can be done at the local level to increase employment point

he actually one wants to then i don't know enough about our consulate as said that the truth is that at the national level there are reasons to be measuring what the local school would be like a politician answer the question i wish the task at the national level there are certain things that you always do when you're a prolonged economic downturn and one of them is you always provide large temporary aid to state and local governments to solve your happily of schoolteachers firefighters and policemen which is both a bad thing itself and also as a downdraft on the economy another thing to do to take public works spending that you want to do it anyway and you accelerate or that you should be doing and you sort of create jobs get that things in the dun dun but to them sooner so that you can create jobs when than that either and we've had some obvious things especially after nine eleven there's a lot of spending

that everyone's that all the experts say should be done for security chemical plant security and so on and what we saw if we did the things that this administration has resolutely refused to do to create jobs it instead choosing to have a complete one the policy of tax cuts for the heart our brackets then i think you could do we do do a whole lot better economically the number here is we have unified hundred billion plus deficit the coming year we have of which three hundred billion probably get tax cuts on the average worker earns about fifty thousand for a bit less for yourself we've simply put that much money and wasn't were using it directly to employ workers we would've created six million jobs from the revenue loss of the tax cuts in the deficit of all anybody who thinks that we've actually created anything like that current policies hasn't been out much so it's a the we could do a whole lot better at the national level now reached the status and that set but

surely it was a national movement to be doing a lot better here as well and probably but it was too much less acute problem that's protecting that's what he fears will be the last question and for some of the very well i have a question about the role of the federal reserve system and what your personal inflation expectations are right now suppose the fed thinks that we're in for big out of deflation org hart has really do get the the second the moralistic we'd not what you like visit the flation risk for the next couple years or or the i think there were two that there are two concerns one week we have a touch of japanese looking situation are persistent unemployment growth which were in boston ever since really get going the and that's in making that makes for gradually increasing the flation

and that's certainly what the fed is obsessed about their effect the federal reserve is desperately afraid of other japanese american hands they really really want to avoid that and but they've almost run out of room was the fed funds rate the huge fruitcake they controlled on one percent as your own with a lower limit so this is a real it's a real issue that zero down becomes a very big issue in this year one one real concern if i look further out assuming get through this package soon that through no fault of the administration we do have recovered right which is what's going to happen because at some point justice technology marches on the gizmos get better and sophia at some point companies are buying new equipment even though markets are our slack because the news the pages some of their meals to get at this is visible so say this is not your father's recession this is your grandfather recession and that's that's how recessions used and in the days before we had

before franklin roosevelt eventually some i was to come up with a bright idea like an immobile and the people you ought to be a recession and so if we look beyond guess we do to recovery then you have this appalling budget situation and lead the way to think about the budget is the gap is huge the gap between what were promised and programs and what the pharaohs taking in his is about twenty five percent or more of the federal budget even after the economy recovers so are we going to cut spending by twenty five percent which if you don't touch defense in the interest rate and so on is a florida fifty percent cut in everything else and he said well i'm gonna raise taxes by a third roll back all the bush tax cuts and then and then some subtle bass knocker and then you say well what's left well are we get some way default on our debt

usual that's not going to happen with one of those three things have to happen and the most likely way the woods two troubling effect of four hundred that would lead to inflation so that's so that's a long answer but it it is a fact that it is a near certainty that interest rates are going to go way way up once the economy recovers and a fairly high probability that that's what i mean inflation's well and i developed its mortgage fixed rate mortgage ms ba