DEBATING POLITICS, ECONOMICS AND OTHER TIMELY TOPICS WITH PAUL KRUGMAN OF THE NEW YORK TIMES

FRIDAY, OCTOBER 30, 2015

PAUL KRUGMAN

BACKSTORY

Is the Global Economy Really in Trouble?

Countries
In Crisis

For countries, getting trendy on

Wall Street or worse yet becoming part of a catchy acronym is
like finding yourself on the cover
of Businessweek or Fortune magazine: Its a sure sign of big trouble
ahead.
So we should have known that
the BRICs (the collective label for
Brazil, Russia, India and China)
were heading for a nasty fall; and
sure enough, emerging markets
have gone from heroes to dogs in
practically no time.
But what are the implications for
the world economy? Emerging markets are out, but advanced countries
are in again so isnt this a wash?
Unfortunately no, because there is
an important asymmetry here.
Its true that all commodity exporters are being hit. But they are
responding differently. Take, for
example, monetary policy in Brazil
versus that in Canada. The latter
nation has kept interest rates low;
in fact, Canada might even do some
fiscal stimulus if the economy continues to weaken.
But Brazilian policy is reinforcing
the countrys slump, with interest
rates going up and fiscal tightening
in prospect. This is not because the
Brazilians are stupid. Its partly
because they came into this situation with a relatively high inflation
rate, so they arent as relaxed about
currency depreciation as the Canadians can afford to be. But its also
because emerging markets still
suffer to some extent from original
sin underdeveloped capital
markets, and a tendency to borrow
in a foreign currency. This sin isnt
nearly as strong as it was 15 years
ago, when the economists Barry
Eichengreen and Ricardo Haussman coined the term, but corporate
dollar-denominated borrowing after 2008 brought it partially back.
The result is that as markets lose
faith in emerging economies, these
economies are pushed into contractionary policies. At the same
time, the advanced economies that
are receiving the capital inflows
arent responding with expansionary policies. So the overall effect of
the emerging markets collective
disillusion is a global turn toward
contraction. And while I still think
its not enough to produce a world-

PARESH / THE KHALEEJ TIMES/ CARTOON ARTS INTERNATIONS/THE NEW YORK TIMES SYNDICATE

wide recession, I am less sure than

I was a few months ago.
Oh, and an interest rate hike in
the United States which would
not just hurt the American economy but also, via a stronger dollar,
emerging markets would do a lot
to make things worse.
Climate Villains
Here are two stories you should

read in tandem.
First, its now very clear that
Exxon has been spending millions
of dollars to prevent public action
against a slow-motion catastrophe
that the company was well aware
was on its way. According to Scientific American, Exxons own
research pointed to global warming as a serious problem almost 40
years ago but it has gone all out

to confuse the issue, trying to get

itself another few decades of profits at humanitys expense (read the
article here: bit.ly/1LxZ0ux). The
cynicism is remarkable.
Meanwhile, David Roberts
at Vox wrote a piece (here: bit.
ly/1Mn1DD1) pointing out the McCarthyite tactics that the House
Science Committee has been using
to persecute and intimidate scien-

READER COMMENTS FROM NYTIMES.COM

Making Flawed Comparisons

Mr. Krugman, you have slipped
into your usual mode of making
comparisons between countries
that are fundamentally unalike.
Brazil is not Canada.

that are exceptional today will be

less so tomorrow, that doesnt necessarily mean that being exceptional
will lead to a complete downfall.
CHEMA, GUATEMALA

JOHN, CONNECTICUT

So youre saying that being

trendy today is a sure sign that
there is trouble ahead?
While its true that most situations

Mr. Krugman, you have conveniently neglected to mention that

Brazils inflation rate stands at
about 10 percent.
So theres nothing original about

its sin: Some nations just cant

collect taxes, so they print money
regardless of a recession or whether
their economy is prospering. This is
what leads to highly unpredictable
currencies.
LUKE, TAIWAN

Interestingly, politicians from

Canadas newly elected Liberal
government ran for office on the

tists, especially but not only those

working on climate.
If we fail to grapple with climate
change in time to avoid disaster
which seems ever more likely it
wont be because we didnt have
the knowledge to fully comprehend
the problem, or the tools to fix it. It
will because of cynicism and greed
that, given the stakes, rise to the
level of evil.

explicit promise of investing in

infrastructure upgrades, which
would require comparatively modest deficits for several years.
Of course, making such promises
means that you have to treat voters
like adults, and have faith that they
can follow the logic of your strategy.
And you must not pander to the deficit hawks, who in Canada have tried
to bludgeon the Liberals with debt
fears.
LLOYD GEIDT, CANADA

Brazils current travails stem

from fiscal mismanagement more
than anything else.

Despite a moderate stabilization in recent weeks, many emerging markets are

still reeling from a downturn in global
commodity prices and the effects of the
Federal Reserve Boards decision to wind
down its quantitative easing program.
In a note in early October, the financial
firm Goldman Sachs warned that the turmoil in emerging markets could trigger
a third wave of the global financial crisis
that started in 2008, following the housing-led collapse in the United States and
the subsequent sovereign debt crisis in
Europe.
For much of the last decade, the rapidly developing emerging economies of
the BRIC nations Brazil, Russia, India
and China served as a collective counterweight to the crisis-stricken, stagnating economies of the West. With interest
rates at historic lows in developed countries, many Western investors poured
money into companies in emerging nations, which took on substantial debt denominated in foreign currency.
However, when the Fed signaled several months ago that interest rates in the
United States might rise this year, investors promptly pulled their money out of
emerging economies. As the currencies
of many of these economies weakened,
the dollar gained strength, and the local
value of these nations dollar-denominated debts quickly ballooned.
Additionally, as Chinas economy has
slowed because of overcapacity and a
lack of global demand, its need for raw
materials has decreased as well. This has
led to a worldwide decline in commodity
prices, and further turmoil in emerging
economies like Brazil and Russia, which
are heavily dependent on raw materials
exports.
In its World Economic Outlook report this fall, the International Monetary
Fund revised its global growth forecast
downward, largely based on the performance of emerging markets. With the
twin pressures of sharply increased debt
and reduced demand, many analysts believe that these economies could face
steep contractions, and some fear that
they might drag the worldwide economy
down with them.

For years, public sector expenditures have been growing at a

much faster pace than the Brazilian
economy has. Commodity prices
were high during this time, so such
largesse was easily financed.
But now that the commodity cycle
has gone into reverse, its become
obvious to people that the emperor
has no clothes. Confidence is in free
fall, tax revenues are shrinking and
the economy is in a tailspin.
While its true that austerity
policies are bound to make matters
worse in this situation, there are
not many alternatives left to choose
from. In the end, this state of affairs

has little to do with the original sin

you cite.
JORGE LARANGEIRA, CONNECTICUT

I am not really a believer in

Keynesian theory. Yes, in some
cases it might work, but not in
Brazil today.
BLAISE ADAMS, CALIFORNIA

ONLINE: COMMENTS
Comments have been edited for clarity and
length. For Paul Krugmans latest thoughts
and to join the debate online, visit his blog at
krugman.blogs.nytimes.com.

PAUL KRUGMAN

Mitt Romney Is Forced to Denounce His Own Legacy

Sometimes you almost have to feel
sorry for Mitt Romney. The former
Republican presidential candidate
has one great achievement in life:
health reform in Massachusetts,
passed in 2006 when he was governor, which acted as a template for the
Affordable Care Act.
If Mr. Romney were a member
of a sane political party, he would
be boasting about that record. But
he wanted to be president, which
meant having to accommodate
himself to his party. In Iowa, 81

Paul Krugman
joined The New
York Times in 1999
as a columnist on
the Op-Ed page
and continues
as a professor of
economics and
international
affairs at Princeton
University. He was awarded the
Nobel in economic science in 2008.
Mr. Krugman is the author or editor
of 21 books and more than 200
papers in professional journals and
edited volumes. His latest book is
End This Depression Now!

percent of Republicans in a recent

Bloomberg poll say that Ben Carsons statement that Obamacare is
the worst thing since slavery makes
him more attractive as a candidate,
so Mr. Romney has to denigrate the
best thing hes done.
But sometimes, it turns out, he
cant maintain the facade. In a recent article in The Boston Globe, Mr.
Romney took credit for setting the
stage for Obamacare. Then he tried
desperately to walk it back, claiming
that Obamacare had failed which

Perhaps Mitt Romney should

attempt to identify a group of
Republicans who are not insane
(assuming that there are any) and
lead a counterinsurgency from
within the party to restore it to a
responsible governing entity.
The prospects for success look
slim, but a serious attempt at such a
venture might prove to be a better
legacy for Mr. Romney.

is literally and figuratively the party

line.
Which raises the question: If the
health care law is a failure, what
would policy success look like?
Obamacare has led to a rapid drop
in the number of uninsured Americans, especially in states that have
fully implemented its provisions.
It hasnt covered everyone, but it
wasnt expected to: It doesnt cover
immigrants living in the country illegally, and the relative complexity
of the law always meant that some

ticipated. And overall health care

spending has come in far below expectations.
None of the other terrible things
that were supposed to happen job
losses, a destruction of full-time
employment, a surge in the budget
deficit have happened either.
But to be a good Republican you
have to insist that Obamacare has
been a disaster. And Mr. Romney is,
therefore, in the position of denouncing his lifes work. Its sad. But he has
nobody but himself to blame.

READER COMMENTS FROM NYTIMES.COM

Success Can Mean Many Things

soon. It should be clear that a singlepayer system would provide significant relief from the mess created by
insurance companies.
DAVE, WISCONSIN

RED, MASSACHUSETTS

The main argument regarding

health care in the United States
should not center on success or
failure, but on how we can achieve
more progress.
The Affordable Care Act is working, but the numbers demonstrate
that much more effort is needed, and

eligible people would fall through

the cracks. Original estimates from
the Congressional Budget Office
were that eventually 92 percent of
nonelderly residents would have
coverage, and in states that are
implementing a Medicaid insurance
expansion, were getting there.
Meanwhile, the whole program
has come in well below projected
costs. While insurance premiums
will rise in 2016, after two years of
remarkably small increases, that
still leaves things cheaper than an-

Rather than denounce his legacy, Mr. Romney could have been
the Republican who pulled the
party back from the edge of the
cliff that it is about to jump over.
BOB LAUGHLIN, COLORADO

Sorry, Mr. Krugman, but your

constant assertions that the Af-

fordable Care Act has been a great

success are refuted by the fact
that more than 30 million Americans still dont have health insurance. In a rational world, that would
not be considered a success.
CHRISTOPHER, MEXICO

I cannot fathom how the G.O.P.

transformed itself from the party
of President Eisenhower into the
party it is today.
Where did all the sensible Republicans go?
BRIAN, ARKANSAS

Why is Mr. Romney walking back

his statements? Hes not running
for president anymore. So why not
take credit for Romneycare and
for providing the template for the
Affordable Care Act, and leave it at
that? Even if Mr. Romney is delusional enough to think that hell get
another chance to run for president,
its not like the anti-Obamacare
frenzy is going to continue once
President Obama leaves office.
NAME WITHHELD, INDIANA

Big business opposition to the

IAN THOMAS JANSEN-LONNQUIST FOR THE NEW YORK TIMES

Mitt Romney at a campaign

event for former Senator Scott
Brown in Hudson, N.H.

Affordable Care Act and to singlepayer health coverage for all

Americans is baffling.
Companies should actually be
happy to get out of the business of
supplying health care insurance to
their employees, since cutting that
expense would probably cause the
stock market to skyrocket. And any
tax increases related to universal
health care coverage would likely be
borne primarily by the masses, not
by the 1 percent only.
So its not just a large part of the
American middle class that has been
suckered into voting Republican
business interests that should be
supporting universal health care
have somehow been convinced to
vote against their own interests.
CASEY, CALIFORNIA