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

FRIDAY, SEPTEMBER 18, 2015

PAUL KRUGMAN

Greece Got Caught

In a Euro Trap
Whats the difference? The main
answer, surely, is the euro. By adopting the euro, Greece first brought on
massive capital inflows, then found
itself in a trap, unable to achieve
needed real devaluation without incredibly costly deflation.
Every time someone asserts that
Greeces problems are really on
the supply side, you should ask not
whether the country has supplyside issues it does but why they
should lead to collapse.
Greece seems to have about 60
percent of Germanys productivity,
which means that it should have real
wages only about 60 percent as high
as Germanys. It should not have 25
percent unemployment.

The economists Yannis Ioannides

and Christopher Pissarides, in a
new Brookings Paper, talk about the
ways that a lack of structural reform
has hurt productivity and competitiveness in Greece (its available
here: brook.gs/1NuU7nt).
I have no reason to doubt that
there are big things that should
change, and that Greece would be
much better off if the country could
somehow break the political barriers that are stopping it from making
these changes.
But I would argue that its very,
very wrong to point to factors that
are limiting productivity in Greece
and then claim that those factors
are the cause of the Greek crisis.
Low productivity exacts a price from
any economy; it does not normally,
or need not, create a financial crisis
and a huge deflationary depression.
Consider, for example, a comparison between Greece and Poland.
The latter, like Greece, exists on
Europes periphery, yet is closely
linked to the rest of the Continents
economy.
Poland is also a country with
relatively low productivity by northwestern European standards.
But it has not had a Greek-style
crisis, or indeed any crisis at all. Instead, Poland has powered through
the turmoil of recent years.

Multipliers: What We
Should Have Known
The International Monetary Fund
recently published a very nice interview with Olivier Blanchard, the
chief economist who is leaving the
organization.
And Mr. Blanchard says the right
thing about changing ones mind:
The issue I have been struck by is
how to indicate a change of views
without triggering headlines of
mistakes, fund incompetence
and so on. Here, I am thinking of
fiscal multipliers. The underestimation of the drag on output from fiscal

KESHAV/ THE HINDU - NEW DELHI/CARTOON ARTS INTERNATIONAL/THE NEW YORK TIMES SYNDICATE

consolidation was not a mistake in

the way people think of mistakes,
e.g., mixing up two cells on an Excel
sheet. It was based on a substantial
amount of prior evidence, but evidence which turned out to be misleading in an environment where
interest rates are close to zero and
monetary policy cannot offset the
negative effects of budget cuts. We
got a lot of flak for admitting the
underestimation, and I suspect we

shall continue to get more flak in

the future. But, at the same time, I
believe that we, the fund, substantially increased our credibility, and
used better assumptions later on.
It was painful, but it was useful.
(Read the interview here: shar.
es/1708Ry.)
Indeed.
There are a lot of people out
there whose idea of a substantive
argument is you used to say X, but

now you say Y never mind the

reasons you changed your view, or
whether it was right for you to do so.
Its important not to fall into the trap
of being afraid to let new evidence or
analysis speak.
However, on this particular issue,
the I.M.F. should have known better.
Mr. Blanchard says that the evidence turned out to be misleading
in an environment where interest
rates are close to zero and monetary

READER COMMENTS FROM NYTIMES.COM

BACKSTORY

The Currency Union Is Not the Problem

Mr. Krugman, if you are going to
make this argument about Greece,
please explain why Slovakia a
country that is very similar to Poland
and also uses the euro has not
faced an economic crisis.
The simple fact is that Greek officials
cannot deal with the countrys massive,
out-of-control public sector.
TOMASZ, POLAND

It is worth remembering that Polands Constitution actually requires

balanced budgets.
DAVID, IRELAND

and lost job opportunities. Is an unemployment rate of 25 percent really

not enough for Greeces job market to
function adequately? How many more
people have to lose their jobs before economic growth finally arrives?
PAOUVOUS, GREECE

Examining the Roots of a Crisis

many has been crucial for growth, but

so has the legacy of Polish emigration.
Millions of Poles have been working
abroad since the 1970s, and they maintain a vast network of business connections around the world.
S., POLAND

Mr. Krugman, it seems that youre

just compiling more evidence for your
long-running argument that Greece
is hamstrung by the euro. The country
is certainly hamstrung now, but it didnt
get into this mess because it opted to
use a big-boy currency.

If you want to compare Poland to a

similar country that uses the euro,
look to Slovakia, whose economy
has been growing at least as fast as
Polands since the Berlin Wall came
down.
NORO, SLOVAKIA

B., FRANCE

I think you should be more critical

of this Brookings report, which advocates shrinking the economic sectors
most affected by Greeces crisis even
more as if there hasnt already
been enough tightening of wages

Perhaps we Poles have just been

lucky. However, weve also taken
advantage of many economic opportunities.
For example, our proximity to Ger-

policy cannot offset the negative effects of budget cuts.

But didnt we know that? I certainly did.
And let me also beat one of my
favorite drums: Experience has
overwhelmingly confirmed the prediction that multipliers will be much
larger in a liquidity trap.
So this was yet another victory for
Keynesian analysis the success
story nobody will believe.

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.

In a Brookings Institution report released earlier this month,

the economists Yannis Ioannides
and Christopher Pissarides argue that many of Greeces economic woes can be attributed not only to the nations large
debt burden, but also to underlying economic issues that successive governments have been unable to address.
According to a summary of
the report: While the Greek
debt is too high to allow the government flexibility in its budgetary policies, Greece also suffers
from serious structural problems such as low productivity and lack of competitiveness.
Since joining the eurozone, the

Greek government collected less

in taxes than it spent, the country consumed more than it produced and had to import well
above its exports.
In their paper, Mr. Ioannides
and Mr. Pissarides contend that
even if Greeces large debt burden was relieved, the nations
economy would not be able to
grow at a rate comparable to
those of its neighbors without
the implementation of extensive
reforms to boost competitiveness in various business sectors.
The countrys economy has
once again slipped into a recession after a prolonged standoff
with its creditors. Continued uncertainty over Greeces future

has caused a massive amount of

capital to flee the country, and a
new bailout agreement signed in
July will subject Greece to even
more austerity measures. Many
analysts expect the economy
to contract by at least 2 percent
this year.
Greek voters will head to the
polls later this month for the
third time in less than a year
to elect a new government.
In August, the countrys prime
minister, Alexis Tsipras, resigned after left-wing members
of his Syriza Party refused to
support Greeces new bailout
agreement, leaving Mr. Tsipras
without an effective governing
majority.

PAUL KRUGMAN

Conspicuous Displays of Indie Cred

HILARY SWIFT/THE NEW YORK TIMES

Priyan Rajdev, who works at an office in New York City, wears his
hair in a topknot.

I went to a Celebrate Brooklyn

concert in New Yorks Prospect
Park recently and had a very good
time although the usual close-up
seating where you can really see
the performers was given over to a
throng of dancers, and while I may
be a wannabe hipster, Im not going
that far.
Music aside, one thing I enjoy
about these events is the crowdwatching, which can vary a lot by
performer.
The crowd who came to see the
band Lucius, for example, was a real
all ages, all subcultures crowd, and
included everyone from enthusiastic
teenagers to fairly sedate, but equally enthusiastic older adults. On the
other hand, the people who came out
for Sylvan Esso were total hipsters,
which is fine.
I did, however, find myself wondering a bit about economics. Im
perfectly O.K. with topknots and tattoos, but obviously a lot of employers
arent. So where do all these people
work? They cant all be baristas.

READER COMMENTS FROM NYTIMES.COM

Tattoos Are Mainstream Enough for the Office

The creative and information
technology sectors welcome the
individualism that your hipster
friends were displaying and one
can actually make a living in those
industries.
Even corporate America has managed to lighten up when it comes to
valuing talent over conformity, especially if you arent in a client-facing
role (and sometimes specifically if
you are). The days of trying desperately to impress your boss with your
country club bona fides are, thankfully, dead and gone.
VINAY, PENNSYLVANIA

I am a senior associate working

for a major law firm in Washington, D.C., and I see midlevel professionals with tattoos and nose
piercings all the time.
At work, they just wear more
tasteful jewelry, cover up their tattoos or work in positions where a
conservative appearance is less
important. Personally, I am more
interested in good people doing good
work.

reasons that the work was attractive was that no one cared much
about appearance. Brogrammers have taken over the start-up
scene in the last decade or so, and I
have no idea what that culture is like
now. Fully stocked liquor cabinets
seem to be the norm in those work
environments, and that strikes me
as stranger than piercings or tattoos.

years. Its that or neglect new talent,

which is competitive suicide in the
long run.

more socially acceptable as members of a younger generation make

hiring decisions.

MARC DONNER, NEW YORK

I have been an accounting manager for 15 years and have a number of tattoos.
While they might have kept me
from working at a large insurance
company, I have managed to make
a very nice living working for local
companies that base their trust in
me on the integrity of my work rather than on the pictures on my arms.

I think a lot of established organizations have learned to tolerate

various personal styles over the

BETH, VIRGINIA

Assuming that these hipsters

arent viably employed in a highskill or high-pay industry, how
exactly can they afford to live in
New York City, one of the most
expensive housing markets in
the country? Do they all have trust
funds? If so, Thorstein Veblens insights might be correct.
SHAUN PETERSON, KANSAS

ANDREA MANNING, OREGON

JOSEPH BRENNER, CALIFORNIA

SIMON ELLIOTT, WASHINGTON, D.C.

When I started working as a programmer in California, one of the

Tattoos, Incompetence
And the Heritage Foundation
The economist Henry Farrell
wrote to me about my musings on
hipster style, and referred me to a
review of Codes of the Underworld:
How Criminals Communicate, a
book published in 2009 about how

tattoos and such serve as signals of

criminal identity, which work precisely because they make it hard to
participate in noncriminal society.
But theres more: Criminals
actively cultivate a reputation for
incompetence at noncriminal business, which is designed to reassure
both their colleagues and their
victims that they wont break their
implicit contracts by going legit.
The books author, Diego Gambetta, adds a wonderful parallel: According to his account, some Italian academics, who do a lot of horse
trading with regard to professional
appointments, cultivate a reputation for incompetence at actual
research, which is again meant to
reassure those with whom they
deal.
From the book review, published
at Inside Higher Ed (here: bit.
ly/1isZecL): Being incompetent
and displaying it, [Mr. Gambetta]
writes, conveys the message I will
not run away, for I have no strong
legs to run anywhere else. In a

But that, clearly, is part of the

whole point: This is probably not
an original observation, but surely
one main goal of personal styling
is to make it clear that the person
so styled is not, in fact, part of the
workaday bourgeois world. These
people dont work 9-to-5 office jobs
during the week, then put on trendy
attire for the weekend. This has to be
the cultural version of Thorstein Veblens conspicuous consumption,
where the point is not to display your
wealth, but instead to display your
indie cred.
Again, Im fine with it and the
scene is producing a lot of music I really like. But sometimes I just cant
turn off my inner econo-nerd.

It was once taboo to have tattoos as a teacher, but many of my

colleagues have them as do I.
I believe tattoos have become

Tattoos have become so mainstream that I expect the next

generation of hipsters will reject
them entirely.
NAME WITHHELD, GEORGIA

corrupt academic market, being

good at and interested in ones own
research, by contrast, signals a potential for a career independent of
corrupt reciprocity. ... In the Italian
academic world, the kakistocrats
are those who best assure others by displaying, through lack of
competence and lack of interest in
research, that they will comply with
the pacts.
And this immediately made me
think of one of the mysteries of the
economic debate in America,
namely the preference of conservatives not only to listen to hacks, but
incompetent hacks. Heres what I
wrote in a New York Times blog post
earlier this year: I suspect that the
incompetence is actually desirable
at some level a smart hack might
turn honest, or something.
But let me hasten to add that I am
not intending to engage in slander
here. I would never, ever suggest
that Brooklyn hipsters are anything
like Heritage Foundation economists.

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!