Lunch With the FT: 52 Classic Interviews (38 page)

Havel denies that
Leaving
, the first play he has written since the end of communism, has anything to do with Klaus, even though many Czechs think it has. The work concerns a leader who has lost power but is reluctant to admit it and refuses to surrender his official residence to a successor named Vlastik Klein. Havel insists he conceived the idea in 1988, before the Velvet Revolution.

I ask Havel about his controversial second wife, the actress Dagmar Veškrnová. Many Czechs were upset when Havel married Ms Veškrnová, his long-standing girlfriend, in 1997 in what they saw as indecent haste within months of the death of his first wife, the widely admired Olga
Havlová. I suggest that having become a moral authority far beyond his country’s borders, he might have behaved with greater care. He shoots back, ‘Yes, but even a moral authority has the right to marry a second wife when his first wife dies, no? It was about something else … these campaigns [against Dagmar] had a strange element of jealousy, as though the public felt abandoned or betrayed when I remarried, as if society were an abandoned lover. It’s an interesting phenomenon.’

We turn to Europe. Havel, a passionate pro-European, is keen that the European Union’s constitutional treaty should be kept alive despite its rejection in the recent Irish referendum. He is convinced the EU will muddle through, and, ignoring President Klaus’s misgivings, says the Czech Republic should press on with ratification. Only then, he believes, should the EU consider a simpler treaty: ‘It would be best now to quietly select some three or four people who could create a beautiful, simple constitution that children could learn about at school.’

His book has more to say about the US than Europe, and I ask Havel about his admiration for America. He says, ‘The US, and especially New York, is a sort of a bazaar of the entire world. Everything is there, mixed together. It’s a view upon the entire world, isn’t it? I find that atmosphere appealing. It’s a truly free country.’

I ask him whether his fascination with the US is compatible with his concerns about consumerism and globalization, in which American companies are prominent. He insists there is no contradiction: ‘Global corporations are by definition global, so it is not just a US invention or a US job, even though obviously the US plays a bigger role in this than the Czech Republic, for instance,’ he says. ‘It is a phenomenon of our civilization. I don’t think it’s good to associate it solely with America or even with America as a country that invented this.’

A last question. Has he, I ask, since he is photographed on the cover of his book with a cigarette in hand, stuck to his promise to stop smoking? ‘I haven’t smoked in 12 years,’ he says, ‘but about 40 times a day I feel like having a cigarette.’

26 MAY 2012

The Nobel Prize-winning professor of economics and controversial newspaper columnist writes fast but eats slowly. Over salade niçoise he discusses what Japan got right, what the Federal Reserve got wrong and how the eurozone can be saved

By Martin Wolf

I enter the Landmarc restaurant, at the Time Warner Center on Columbus Circle, New York, where I have agreed to meet for lunch with Paul Krugman, the 2008 Nobel laureate in economics, Princeton professor of economics and international affairs, and liberal columnist of the
New York Times
. I know nothing about this bistro-style restaurant, which my guest has chosen for its convenience to a television interview he has just completed. The restaurant is impersonal and – it’s a late lunch, at two o’clock – beginning to empty.

Krugman, 59, most hated and most admired columnist in the US, rumpled and professorial, is sitting at a small table in the middle of the restaurant, working on his laptop. It is Thursday and he is writing his column. What, I ask, is it on? ‘It’s going to be Europe,’ he replies. ‘Partly because it is coming to a head, partly because I am a little overstretched and that’s what I’m ready for. So I’m going to do that one.’ I understand the feeling of being overstretched: Krugman is writing two columns a week, posting regularly on his blog, writing popular books and teaching.

So, I ask, will the argument of the column be that ‘it’s all over’ for the eurozone?

‘No. I don’t think they can save Greece but they can still save the rest if they’re willing to offer open-ended financing and macroeconomic expansion.’ But this would mean persuading the Germans to change their philosophy of economic life. ‘Well, the prospect of hanging concentrates the mind; the prospect of a collapse of the euro might concentrate their minds.’

I change the subject to ask how he has coped with the shift from being predominantly an academic economist to being the leading spokesman for the liberal cause. How did this happen? ‘Well, it was funny,’ he responds. ‘I was doing a column for
Slate
and then a bit for
Fortune
, towards the end, and then the [
New York
]
Times
came along with this offer. It was 1999. We thought I’d be writing about the follies of dotcoms and stuff like that and then it turns out that it’s a much more awesome and ominous responsibility. It was nothing I ever planned.

‘Really, the rough period was the first [George W.] Bush term when it seemed like the whole world was mad, save me, or vice versa, and it’s gotten easier.

‘I have to say, though, that the economic crisis has played into the things that I was worrying about 15 years ago. It’s been almost alarmingly easy to figure out what to say. But it’s a very strange thing: it’s not at all what I was imagining I was going to be doing with my life.’

We have already gone straight into the issues. The conversation turns to the Japanese crisis of the 1990s. In retrospect, I suggest, the Japanese seem to have managed the aftermath of their crisis quite well.

He agrees. ‘What we thought was that Japan was a cautionary tale. It has turned into Japan as almost a role model. They never had as big a slump as we have had. They managed to have growing per capita income through most of what we call their “lost decade”. My running joke is that the group of us who were worried about Japan a dozen years ago ought to go to Tokyo and apologize to the emperor. We’ve done worse than they ever did. When people ask, “Might we become Japan?” I say, “I wish we could become Japan.” ’

At this point we order: salade niçoise for Krugman; foie gras terrine for me; and a bottle of sparkling water. This is definitely not going to be up to the gourmet standards of some lunches with the
FT
.

I return to our discussion. I ask whether he is not being unfair to Ben Bernanke, chairman of the Federal Reserve and a former colleague at Princeton. After all, Bernanke has avoided deflation in the US. Krugman responds swiftly: ‘We don’t care about deflation because having a small minus, instead of a small plus, makes a huge difference to the world. We worry about deflation because we think it is a reason why one has a persistently depressed economy. While we may not have deflation, we have a persistently depressed economy. So what difference does it make?’

But surely, I argue, the Fed did deliver negative real interest rates by cutting rates quickly and avoiding deflation. This prods Krugman into rare praise: ‘I have actually very few complaints about monetary policy here through some point in 2009. I thought that Ben [Bernanke] responded aggressively and forcefully, which was the right thing to do. He stepped in with the original QE [quantitative easing] and stabilized the economy.

‘The question is, what did he do as we started to look more and more like Japan? At that point the logic says you have to find a way to get some traction. Fiscal policy might be great. But if you’re not getting it you should be doing something on the Fed side and I think that logic becomes stronger and stronger as the years go by. And it’s sad to see that the Fed has largely washed its hands of responsibility for getting us out of the slump.

‘I hope that some day Ben Bernanke and Janet Yellen [vice-chair of the Fed] will think that I’ve done them a favour. There’s all this sniping from the hard money guys and somebody needs to say, “Actually, no, if we actually think about this realistically, you’re doing too little and not too much.” ’

So what, I wonder, would he do if he were put in charge? He says he would add maybe another $2tn to the Fed’s balance sheet, by purchasing a wider range of assets, including more private sector liabilities. ‘But mostly,’ he continues, ‘you work on the expectations side. I think mostly what you really need to do is to signal that you’re going to keep your foot on the gas pedal.’

It does not even matter, he believes, if people are not sure the Fed will carry through. They just have to believe it might happen. ‘So if Ben Bernanke made a statement, or the board made a statement, saying that we are reconsidering our views about the inflation target, even if we don’t
have a credible commitment that they’re going to deliver 3.7 per cent annual inflation over five years, that’s still a help.’

In his new book,
End This Depression Now!,
Krugman dismisses contemporary macroeconomic theory. He is also critical of the idea that policy credibility matters. On this he says, ‘Credibility sounds great, but the evidence that anti-inflationary credibility is actually an important thing in the real world is basically nil.’

We return, inevitably, to the topic of the day. Would he conclude that the European currency union was a mistake? ‘Yes, I think we’ve been asking, whose fault is this crisis? And I think it was basically fated, from the day the Maastricht Treaty was signed. Now, I think it might be rescuable with a higher inflation target, which is a poor second best to having a fiscal union. But no, the setup is fundamentally not workable.

‘What’s interesting is that the euro itself created the asymmetric shocks that are now destroying it [via the capital flows it engendered]. Not only have they created something incapable of dealing with shocks but the creation engendered the shocks that are destroying it.’

By this stage, I have long since finished my terrine. I always eat quickly. But Krugman is eating his salad very slowly, as he talks. He has to wave away waiters several times. The restaurant is now quite empty. When the meal is finally cleared, I order a double espresso, while he orders a regular filter coffee.

We discuss briefly the future of macroeconomics: his hopes rest on younger economists doing empirical work. ‘There are young people doing some really excellent research. Most of it, there are a few exceptions, but what’s really driving the cutting edge is empirical work.’ Krugman points out that the prestigious Bates Clark medal, awarded to economists under 40 (he won it in 1991), ‘has been going overwhelmingly to people doing very empirical stuff. And I think that’s the salvation of economics in the long run, if there is a long run, because things are going so badly.’

We turn to his view of US politics. How does he explain what is going on?

He responds that ‘a couple of things do seem to operate here. One is money. There are think-tanks which don’t actually do a whole lot of thinking but which are lavishly financed … You can have a lot of fun if you go back and look at what they were saying, and it’s hilarious, about Iceland as a role model, or the wonders of the Irish system.

‘And then there is something about the appeal of this hard-money, gold-standard thing and it’s always had an appeal, but it seems even stronger now. I would have thought that the fact that people like me have been so much closer to [being] right on inflation and interest rates would move a substantial number of people into thinking that maybe their preconceptions were not right.’ But no.

I ask whether he is disheartened by the failure of people on his side of the political argument to stand up for what they believe in. After all, I note, you must be disappointed by the willingness to accept the need to slash entitlement spending – rather than to raise taxes – when the federal tax ratio is exceptionally low and there have been extraordinary shifts in the distribution of income. Does Krugman think that’s all about money?

‘These things are always complicated but some of it is about money. Look, with even a few mild words of reproof, Obama has lost a huge funding source from Wall Street. And you have got to give the right credit: they play a long game. They’ve spent 40 and more years working on “government is bad” or “taxes are bad”.’

But, he continues, ‘there is an organized progressive infrastructure now in the way that there was not. It’s tiny and ill-funded, compared with the other side, but it’s actually also smarter than the other side. I certainly feel personally that, although I’m not getting the policies I wanted, I am getting listened to in a way that was not true even two years ago.’

So how does Krugman cope with the hatred he attracts? ‘2002 to 2004 were by far the worst, and that was mostly not about economics, that was about the fact that I was pretty much alone in saying we’d been lied into [going to] war. But you do need to develop a thick skin. I’ve partly developed the attitude that if I don’t get a whole lot of hysterical pushback then I probably have wasted the space in the column.