Transcript from an interview with Paul Krugman, 2008 Laureate in Economic Sciences, on 6 December 2008. The interviewer is Adam Smith, Editor-in-Chief of Nobelprize.org.
So Paul Krugman, welcome to Stockholm ...
Paul Krugman: Thank you.
... and congratulations on the award of the Bank of Sweden Prize in Economic Sciences.
Paul Krugman: It's a wonderful thing.
It's in a way a funny time to be awarded, in the midst of the economic crisis. Must make it difficult.
Paul Krugman: Yes, well I mean my wife after a brief moment of exultation said, you know we don't have time for this because I've been very involved writing, speaking, a little bit of consulting.
Indeed the morning you got the telephone call from the Committee, you were actually on your way to a crisis meeting in Washington.
Paul Krugman: Exactly, I was about to step into the shower before rushing off to this meeting where people were going to be talking about the crisis, which is what everyone talks about now.
Yes and how big a crisis do you feel it's going to be?
Paul Krugman: Oh, it's awesome, I mean without an active policy response, it would be another great depression, it really is a financial crisis rivalling in scale, the bank runs that were really at the core of what made the Great Depression so great and so. No, this is like nothing that has happened in my lifetime.
Do you find yourself being talked to more because of the award of the Nobel Prize in October, has it increased the focus on you, do you think?
Paul Krugman: Some, but I was pretty busy anyway. I'm probably getting, you might say, a higher quality of TV show, but this was one of the lines of work I have had is in fact financial crises. I write for the New York Times so I'm something of a public figure anyway and this crisis is very much up, you know we can say it's up my alley, my kind of thing. The kind of thing that I used to have to fly off to Jakarta or Buenos Aires to see but now it's in New York, so I'm in the middle of it anyway.
Does it make it more difficult to report on it because you have this journalistic side to you as well as at the same time trying to suggest solutions to it?
Paul Krugman: I mean, it's a special role. Actually I'm an opinion journalist so I'm expected to do stuff and in fact, I'm basically trying to work on multiple ..., I write the 800 words layman's pieces for the New York Times, I write longer pieces, some are posted on my blogs, various sorts of things that are more addressed to the commons and then there's an enormous amount of off the record discussion of various types going on, this crisis isn't going to ... if we fail to deal with it, it's not going to be because of lack of intelligent and very animated discussion.
We'll come back to the op-ed piece and the journalism later and of course you're known to many as an economics and political commentator, especially through the New York Times pieces, but this prize is actually for your development of economic models, to explain international trade and economic geography.
Paul Krugman: That's right, until the age of 40 I was very much a pure academic and if anyone remembers 50 years from now, what they'll remember is the work on trade and geography about some big questions, enduring questions of economics, but you know academics in their mid 50's in economics quite often are doing other things, you know, some of my my cohorts in graduate school included people like Jeff Sachs and Larry Summers who seem to have done a few things beyond their economic modelling so it's not that unusual to be doing something. But yes I tell people the prize is not about the columns, the prize is about papers that you can't read.
Yes, you refer to them as Greek letter papers.
Paul Krugman: That's right, you know I've spent a good part of my life using you know ... of substitution, utility functions and iceberg transportation costs and true price into season, all the various tools that one uses to simplify these issues on trade and geography down to something where you can actually think about them clearly and I'm not going to put that in the daily newspaper but that's where you start.
What turned you on to be an economist in the first place?
Paul Krugman: Oh, it's an embarrassing story but I've told it publicly a couple of times. I was an avid Science Fiction reader when I was a teenager and there is the classic set of novels by Isaac Asimov, the Foundation novels, which are about how a group of social scientists save galactic civilisation through their understanding of the laws that determine the behaviour of societies and I wanted to be one of those guys and the closest you can get at this point I'm afraid is being an economist.
Do you still believe that economists have that role?
Paul Krugman: In the novels these people are able to predict with high accuracy what's going to happen and find the precise intervention that saves civilisation. Economics doesn't work that good, but no, there's a tremendous amount of understanding that comes from economic models and sometimes that understanding can be the salvation of the economy. I believe that we're living in one of those times right now. If we had only the level of economic knowledge that the world had in 1929, I believe we would have another Great Depression. The reason to believe that that won't happen is that we think we understand this thing, at least somewhat better than our grandfathers did.
This is a perfect segway because I wanted to ask you about the development of models. It was in 1979 that you published your new trade theory and that is a model explaining why similar countries trade in similar goods. Now one can express the model in the theory in fairly sort of self-evident terms, simple language and it all sounds as if it makes sense and yet one needs an atheoretical underpinning based on proper economic science in order to really understand.
Paul Krugman: Yes, you know it's an interesting thing because the plain English came later, it's not as if there was an intuitive story that was widely understood and what I did was find a way to mathematically model it. What actually happened was that I and a number of other people started using these models to try and model something, it was a little bit unclear exactly what it was we were trying to get at and as the models became clearer, they crystallised an intuition which you could then say, of course. It's a little bit like the old joke about the Professor at the blackboard saying, obviously then ... then he stops and pauses for 20 minutes and says I'm right, it was obvious, and these simple intuitive stories that we can now tell, I can now explain in a few hundred words in plain English what drives intra-industry trade among advanced countries. But no-one was doing that before, it really took the modelling. As it happens, having been there, I remember how hard it was to try and figure out which way the strategic simplifications needed to go to make this thing coherent and then afterwards it seems, well of course it's obvious but there's very much an after the fact interpretation.
Do you think that that's perhaps a sort of peculiarity of economic sciences that in other sciences, I don't know, in biology or chemistry, even when you try and explain the theory in simple language, the language we're using is a strange language, a language that's particular to the subject whereas economics, when one explains that you use the English or whatever language, that everybody understands and so everybody feels they ought to be able to sort of get in there and massage it?
Paul Krugman: It's not even true of all economics, I mean and it's not necessarily that we're talking about the highly technical fields. I think, as it happens, the areas in which I worked, trade, economic geography, the concepts are for the most part pretty intuitive although you know there's quite a lot of stuff that pops up when you work through it that is not part of the intuition. I'm sacrificing quite a lot to explain it just in plain English but there are other things, Keynesian macroeconomics which is critical right now. Although it's quite simple in a way, also there's a subtlety about the concept that really does require, if not math, at least some very, very close logic and what reveals that fact is that so many people to this day just don't get it or actively deny it, say this can't be true and I think that, well there's some of that in a lot of economics but it's not as if all of it can be reduced to plain English.
No, but I'm probably doing it clumsily, but what I was trying to get to was the idea that, because there is some plain English about it, people feel they ought to be able to sort of get to it themselves even if they haven't got economics training, whereas they just don't touch chemistry because it's too far outside and that lays perhaps Economists open to people feeling, oh I could have understood that, I could have done that.
Paul Krugman: Yes and also of course economics ... and one of the great definitions by Alfred Marshall was that economics is about the ordinary business of life. Economics is about getting and spending and we're engaged in getting and spending so we all think we know about it and you know there's a constant belief that you go to a great businessman for wisdom about the economy and that often doesn't work, that what you need to know to run a business and what you need to understand to make good economic policy are not all the same thing, but people have a sense that they know what economics is about, people have strong prejudices and you know it's not that easy. My great ideal among the Economists is John Maynard Keynes and he had a spectacularly accurate essay at the beginning of the Great Depression, The Great Slump of 1930 and a little bit of temper shows, that something he says, “economics, don't know when we'll believe it, it's a difficult and technical subject” and yes, you know if you very carefully you can manage to write to make it seem clear, but it is actually fairly difficult and technical when all is said and done.
What makes a good modeller in economics?
Paul Krugman: Oh, you know there are many different ways. One of the things you learn, I think this is true of physical sciences as well, is that there are many different personality types who work in distinct ways, so there are people in my style and I'm a ruthless simplifier, I you know pair away everything, I try to make the math disappear and it never quite does but I'm a little model guy, I say here's this huge complex subject, there's got to be some little model that we get to the essence of it. Sometimes there isn't, there are also people who are generalisers, who will look for some general theorems, general ways that you can think about a large subject. There are people who are magnificently good at sifting through large amounts of data, finding ways to process that data, to extract conclusions. You know there are very many different personalities, there's a certain style kind of identified actually with MIT which is where I did my graduate work which is the little model that cuts through to the essence of a complex problem but there are many different ways you can do that. I think what it does take though is there's some requirement that you be able to step back and see things differently, say that you know the way that everyone is talking about something is not actually maybe the way we should be thinking about it.
Yes and that ability to take a sideways look at things is something that you very much used in your journalistic career.
Paul Krugman: Yes, there is certainly some continuity, being able to say hey, the conventional wisdom about, well you name it, but certainly about economics, but the ability to say that, hey, you know maybe these electricity shortages in California, there's something funny here, there seem to be a lot of idle capacity, let's think this through and then saying, you know circumstantial evidence strongly suggests that this market has been rigged and then later we actually found the tapes but that's very much the same sort of thing, saying you know trade between industrial countries is not about comparative advantage, there is an attitude of mind.
So the second model that the Prize Committee have quoted is your core periphery model which was also mentioned in 1979 and then further developed in 1991.
Paul Krugman: There is just a hint of it in 1979. Sometimes I look back at the 1979 paper and say, you know there seemed to be premonitions of lots of later stuff in there. The core periphery model, that's the love of my life in terms of academics because being able to say that increasing returns makes stuff clump together, that's not so hard, but being able to get this tension between the forces that pull things together and the forces that pull them apart and that made me very happy when it fell together because it was another one of those things where it sounds very simple but it actually took years of false starts before getting to the point where it actually suddenly cohered.
Yes because it sounds as if you were just describing the process of urbanisation which we're sort of witnessing around us.
Paul Krugman: That's right, but no in fact one of the slanders against Economists, people used to say you know this stuff is just circular, you say that things agglomerate because of the agglomeration economies which was kind of the way that people talked about it and say no, actually we can derive those agglomeration economies, they're about market size but to do it in such a way that you can say, but there are also centripetal forces that gives you some advantage to moving away from where ... and then some kind of boundary condition that determines which of those prevails. That was not the way anybody was thinking about it until this new economic geography came along.
Right and what sort of predictive capability does the core periphery model give you?
Paul Krugman: A lot of it is more sort of retro-casting. I mean the model has a story about what would happen and there are three factors that would push you across that boundary to where the centripetal outweigh the centrifugal forces which are reduces transport costs, increasing economies of scale, growing share of non-resource based industries and then you look back and you say, we can see that phase transition in the United States about 1855 when all of a sudden industry stops following the frontier west, instead sticks in the manufacturing belt, so you get that. Initially the core periphery model per se but models derived from it have I think had some successful predictions and one of the things early in the process of European integration, just after I come out with the initial model, began to say, you know the deep integration that's taking place in Europe, if we believe these sorts of models should actually lead European economies to become more different from each other, in a lot of ways increasing specialisation and low and behold that has happened. So I think there are some successful predictions out of the approach.
Right and interventions presumably also that one could think of?
Paul Krugman: That's actually less clear. I mean the very nature of the model with the tension between reasons to disperse and reasons to agglomerate also suggest that in principle this is not an invisible hand situation where the market gets it right but it can get it wrong in more ways than one and trying to figure out which way you want to push the stuff is not so easy. So actually, yes I mean there are implications about policy, it certainly means that you should be looking into it but it's not a simple, you know let's push everybody into the cities or let's put everybody into rural development programmes, it's actually turned out to be quite hard to come up with what the policy implications are.
Thank you. Let's turn from model building to journalism. During the 1990s you became active in writing for a number of different organs and then in 1999 you signed a deal with New York Times for a twice weekly paper column.
Paul Krugman: Yes. My theory about the time commitment was The Times would be very newly and exclusive commitment that no business consulting, none of the things that middle aged academics do because those all pose conflicts of interest issues, so actually The Times would in effect give me an external backbone to say no to people who wanted me to you know fly off to Singapore and talk to a bunch of Investment Bankers and it's largely worked out that way, I'm not sure that the drain on my time has been that much more than the other stuff that I might have been doing. But it was different, I think I'm not the first Economist to write for newspapers but the first to take on that kind of regular gig, I think is new.
Absolutely, and your approach to this production is that you base it around the numbers, your reports are basically based on analysis of the numbers that other people aren't doing.
Paul Krugman: That's right, I mean obviously there's been a political component and there have been issues like the War in Iraq where I you know took a non mainstream point of view but in much of it, it's looking at the numbers, looking at the logic. It gets you a long way. Most Journalists, even in the business area, are not really that comfortable with thinking these things through, so I think at least different enough to be a useful voice on the scene.
But I mean there must be quite a lot of people who are qualified to look at the numbers but as you say, not that many people who are in the position to have a wide audience to look at what they're saying.
Paul Krugman: That's right and so to some extent I think there are probably other Economists who could have done this job as well and ... service translator. I mean on many issues there is in fact some academic literature and some academic research going on but it's not known, it's not getting reported and I can read the stuff and then translate it into English which is not that easy a job actually.
It is a huge commitment of time and also you need to produce, you need to produce quality material at such a pace. A lot of academics like to talk about how even you know the three year grant deadlines and the five year grant deadlines they work on are quite limiting to their ability to think. So having to produce every few days something must be ...
Paul Krugman: My running explanation has been that you know your twice weekly column doesn't have to be Nobel quality research and in fact the Nobel Committee didn't consider that right. No but it doesn't have to be something that would startle a trained Economist, it has to be something that is news to an intelligent but non-technical audience, so it's not that hard and you know if there was a shortage of stuff happening to write about, then I suppose it might be quite difficult to keep the flow going but in these past eight years there has never been a shortage of stuff happening.
But it needs quite a lot of background, you need to be sure of yourself. One of the things that the analysis of the numbers led you to do was to criticise the Bush Administration earlier than a lot of people were doing and so you need to be pretty sure of where you are.
Paul Krugman: Right, but you work on it for a while, I mean it took me about four months during the 2000 campaign before I was willing to come out and say these people are being dishonest, they're lying about their own numbers. So you get familiar with it and then you work forward and also of course it's journalism so if you should happen to be wrong, it's going to happen, if you're never wrong on these things then you're not taking enough changes. It's not like academic research.
Yes. In 2007 you introduced a blog to go alongside your columns. I imagine you're the first Nobel Laureate to have a regular blog?
Paul Krugman: I wonder if that's true, it might be. But you know in some ways I was a proto blogger. Back in the late 1990s I was posting many pieces about the financial crises on my personal web page so in some ways I was a blogger before there were blogs, but then I went away from that because I was writing a regular piece for The Times but in 2007 it became clear to me that there were two kinds of things I wanted to do, fast reaction pieces and things that were more technical than belonged in the newspaper proper, so the blog is a perfect answer to that, a fair number of my posts on the blog I actually just include in parentheses (Wonkish) as a warning that you know my general readers, you really don't want to read this.
Right and does the blog have a very large audience?
Paul Krugman: I think it does, I haven't checked lately but I believe I'm you know in the top 5 most read economics blogs or something like that but mostly you know people are aware of it, people in academics but also in the policy world say well you know you have this blog post and what does that mean for what we ought to be doing in this legislation?
I suppose one further step might be, now that you're writing so much about politics, to take political office. I know that during the Clinton Administration you were approached about a job in the Administration.
Paul Krugman: Not really exactly. But I was actually in the Reagan Administration which is hard to believe but I was, you know non-political level, I was on the ..., the Council of Economic Advisors where I was the Senior International Economist, the Senior Domestic Economist was Larry Summers, don't know what happened to him. Actually, partly because of that I know what the policy world is like and I don't think I belong there. I think actually I'm a terrible administrator first of all, so you don't want me in anything that requires administration and I am not a very good you know negotiator. I like to think I'm a good analyst but I don't think I'm a good bureaucrat of any kind and you know I might think differently if I wasn't at The Times but as it is, I have a mouthpiece, people are listening, I probably can have as much influence let's say on the shape of this coming economic stimulus package from where I am as I could if I were you know the third ranking member of the Obama economics team, something like that. So I think it's probably as good a position as any.
Okay and so that sort of makes null and void my next question which was going to be, you intend to continue writing for The Times for the foreseeable future?
Paul Krugman: I don't know about forever but yes. I have to say it's become in recent months more of an economics column and less political than it had been, partly because we won't have George Bush to kick around anymore and partly because the economic situation is so dire and in a strange way it doesn't make the actual workload less but it makes the emotional wear and tear less, so I'm actually finding that I'm enjoying the column more than probably I have at any point in the past eight years.
Because you've sort of stood a lot of comment from outside.
Paul Krugman: Well no, certainly there was a pretty fair number of accusations of treason and so on back when I was being critical of the President but now I really feel that you know there was a long period when I felt like I was the voice crying in the wilderness and you know how can you believe these people, they're trying to sell you on a War and the evidence isn't there. Now I'm in a position of saying that we have this crisis, here are some things we ought to do and people are listening. Whether they'll do what I say I don't know but it's much less of a feeling of the sort of panic that no-one was willing to look at what was obvious. We're now having a real discussion, even if my view doesn't prevail, it's a real discussion.
There's just one other side of your writing I wanted to ask about which are your books because you produce quite a lot of books, some of them are reprints of the columns but others are written as standalone things. What part do the books play in your sort of outreach?
Paul Krugman: I've had two kinds of books, I've had what amount to professional monographs which are useful because sometimes you have a longer story to tell than you can do in articles and so Market Structure and Foreign Trade with Elhanan Helpman back was sort of putting together, integrating the new trade theory work, or geography of trade which was the economicgeography in a longer format, but then the ... is you have a longer argument. You know The Times is a wonderful place, lots of people read it but it's 800 words, you know and those 800 words have to be comprehensible, can't be too dense, has to start by telling people what you're going to tell them, then you tell them, then you tell them what you told them and with all of that there's room for only a core of an argument but no sustained development of a logic and even longer pieces don't do that, so there's nothing quite like being able to have a 250-300 page book which actually lays out some longer case.
But obviously very readable because they get to the top of the bestseller lists, people like them, yes.
Paul Krugman: Well yes. Again, I think I write these in English. That didn't come automatically, I actually started writing newspaper columns way back in 1987 I think for The Los Angeles Times and they were terrible and I've gradually learned how to do this.
For the last question I want to take you just a little further back. In 1978 you wrote a paper called “The Theory of Interstellar Trade”.
Paul Krugman: Yes, which is now finally going to be published in Economic Inquiry.
Is it? ... and to just encapsulate the argument there.
Paul Krugman: Oh yes. You know I was having those Assistant Professor woes, felling neglected, whatever, so for therapy I wrote this and the idea was that, if you're shipping goods for long periods over very long distances or certainly in the 18th Century we shipped goods, the time in transit was an important part of the cost, it's even true now to some extent. The interest costs on stuff on its way on a slow boat from China is an important part of the transport costs. So well, this will certainly be true for interstellar trade where the voyages are very long but the time in transit depends upon the velocity of the observer, so once we take relativistic effects into account, which time shall we be using for the interest costs?
So this is assuming that we achieve speeds of travel that are near the speed of light?
Paul Krugman: That's right and so you know obviously it was just fun, so I got to put a diagram in Minkowski space time which has an imaginary time axis and so the diagram is blank because if an axis is imaginary, the whole diagram must be imaginary, that sort of thing, so I was having a good time.
It's just a paper waiting its time.
Paul Krugman: That's right.
You may not be around to see its update.
Paul Krugman: Exactly.
Yes. Well splendid. Thank you very much indeed for taking the time to talk to us and we wish you a wonderful week in Stockholm.
Paul Krugman: Okay. Thank you.
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