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Brian Lehrer: Brian Lehrer on WNYC. Now we'll do a little remote learning with Dr. Paul Krugman Economics' Professor and New York times columnist and author of the book, Arguing with Zombies: Economics, Politics, and the Fight for a Better Future. Today's lesson is derived from professor Krugman's May 13th, New York Times column academically entitled Krugman Wonks Out: Return of the Monetary Cockroaches. Dr. Krugman, it's always a pleasure. Welcome back to WNYC.

Paul Krugman: Hi there. Good to be on.

Brian Lehrer: Your lesson begins with a distinction that you make between zombie ideas and politics and economics and cockroach ideas. Would you make that distinction for us here?

Paul Krugman: Yes, zombie is a term I stole from other people. Cockroaches I learned long ago from a government official, who said that bad ideas in government and policy are like cockroaches. You can flush it down the toilet. You can get rid of them for a little while, but they always come back and so a zombie idea is something like cutting taxes on the rich does wonderful things. That's perennial. It's always out there. It's always out there eating people's brains.

Zombie ideas I think it's like the Fed is printing money. That means hyperinflation is around the corner, which we managed to get rid of for a few years and then it just keeps on coming back, which is what I was writing about in that piece.

Brian Lehrer: You're noticing a recent infestation of money cockroaches in particular about how the federal reserve boards want an abuse of its power to create money will soon lead to runaway inflation but professor Krugman, I have my hand up. Oh, Professor Krugman, can I ask a question? If I didn't live through the '70s would you explain, what is runaway inflation?

Paul Krugman: Oh, wow. Gosh yes, some of us did live through the '70s. In fact, we never really had in the United States, the kind of inflation that other places have had. We've never had triple-digit inflation, but there are places. Venezuela is probably our best current example where the government is paying its bills, paying its soldiers, just by running the printing presses and handing out boulevards, that's something that can happen. It has happened, many times in history, although not very often lately, but it's not at all what happens here.

Right now, what we have in the United States is some measures of the money supply have grown quite a lot in the last really, especially during the pandemic and some people are looking at that and saying, "Oh, we're about to turn into Venezuela," but we aren't, that's not what's actually happening.

Brian Lehrer: Oh, oh, oh, Professor Krugman, I have my hand up again. What's the federal reserve board and why do they have the power to create money as you call it?

Paul Krugman: Okay. We discovered a long time ago. Money is, well, once upon a time, gold coins or whatever pieces of paper or bank deposits that can be used to pay bills, whatever. We discovered more than a century ago that, it's possible for private banks to promise to pay gold coins and return for bills and all that. It's not safe because sometimes the economy needs more money out there. There's some kind of a run-on cash or whatever and then you can't trust the banking system to be there when you need it.

We got rescued from financial crisis once upon a time by JPMorgan, you can't always count on JPMorgan to be there. We have an official body, which is quasi-independent, it's a government agency, but not exactly a government agency, it has a lot of independence, which manages money in the United States, which is prepared to rush cash to banks if necessary, is prepared to supply more money when the economy needs it, but to pull money back from the economy, when it does look like inflation might be a problem.

We have this system, it's an interesting thing. It's a technocratic institution that has enormous power, but steers pretty consistently clear of politics and by and large does a good job. Right now, the federal reserve has allowed some measures of the amount of money in circulation to go up quite a lot because there were some special needs during the crisis.

Brian Lehrer: You blamed some of this money printing panic on what you call the crypto crowd. Professor Krugman, I have my hand up again, what's the crypto crowd?

Paul Krugman: We have Bitcoin and then there are some competitors which are, it's actually hard to explain what they are. They use clever cryptographic techniques, stuff that's derived from the codes and code breaking to establish your ownership of tokens, which are tokens that allow you to, well, actually to say that you own this token. They don't actually entitle you to anything else, but many people treat them as if they have value.

To a certain extent if people think something has value, it has value and they're being sold as an alternative to money, that, "Never mind these green pieces of paper with pictures of dead presidents on them. I've got a Bitcoin which is privately created free from the tyranny of government bureaucrats and that's the real money and it's going to take over the system." It hasn't happened, you can't go and buy a car with Bitcoin but the Bitcoin people are always forecasting the imminent demise of the monetary system.

Right now, they're looking at the fact that M2, one of the measures of the money supply has gone up a lot in the past year and saying, "Ah, here now comes to collapse. Now it's all about to become worthless and everybody will have to use Bitcoin."

Brian Lehrer: You write that you've been in a number of extended and determinately civil discussions with boosters of Bitcoin, et cetera, asking the question, what problem is cryptocurrency trying to solve exactly? When you say you've been in extended and determinately civil conversations with members of the crypto crowd, what's the context for that? Do these tend to get heated?

Paul Krugman: No. We try to avoid them. I've been in meetings where people are ranting, but no, I have friends, financial industry people in academics, so we try to get together. A few months ago we had an extended virtual dinner. [chuckles] It's all virtual these days, but we all got together on Zoom with our drinks of choice and spent several hours talking with smart people who could tell you all about the technology and the programming and the algorithms.

I end up just kept on asking, "But okay, what should I be using this for? What will all of this stuff do that I can't do better with Apple Pay or Venmo or credit card which are much easier to use. What problem is this stuff actually solving?" I got long explanations about the technology and never once, and this is over the course of several hours, never once got a single concrete example of something for which this was actually better than much easier to use technologies.

Brian Lehrer: I get it in theory, what I think they're going for. If they're afraid that the currency that exists officially in the United States, the dollar is going to become less valuable because inflation really does take off and it's taking off to some degree and you acknowledge there's a risk of it taking off further to some degree. If the dollar becomes less valuable, the cryptocurrencies are different currencies so they could maintain their value and so it's a hedge against inflation, wrong?

Paul Krugman: Yes, it's a pretty poor hedge. First of all, we haven't had a whole lot of inflation and usually when you have really serious inflation is because there are other problems. If you're having a civil war, the fact that you have Bitcoin is probably not going to help you very much. The thing about the cryptocurrencies is that they are wildly unstable. Just the other day Bitcoin lost 30% of its value in the course of the morning, then made it back in the course of the afternoon. That's not something you really want to be using as a hedge against anything that's pure risk.

The amazing thing is that there's a lot of history. There was a time when people thought you had to tie your currency to gold or Western civilization would come to an end. Britain they'd been at the [unintelligible 00:09:11] Britain went off the gold standard in 1931. As far as I can tell, the British pound is still a usable currency. Britain does not grass growing in the streets of London. This is Fiat currency, currency that's created just because the government says its currency now has a really long history of working okay.

Brian Lehrer: I'm going to ask you to teach us on one other fallacy that you argue and assume 100% curiosity and 0% knowledge. Like I'm a music major and I really want to know the other fallacy you argue though it doesn't have as religious name is what you call the doctrine of immaculate inflation is that people don't understand the role of money in a world of very low interest rates, and if there's one thing that people do now, it's probably that we have been in a world of very low interest rates for a very long time, so what is the role of money when there's very low interest rates?

Paul Krugman: People still use money for the stuff people have always used money for, use money. If a brain surgeon wants a refrigerator, she doesn't try to find a refrigerator salesman who has a brain tumor, you sell what you have for money, and then you use money to buy what you need. What's different in a world of very low interest rates is it doesn't cost you anything to sit on extra cash. If I want to leave a bunch of money in my bank account, in the days when interest rates were 7%, 8%, that I was paying a lot in terms of forgone interest rates by just sitting on that cash.

But in a world where interest rates are practically zero on everything, letting cash sit in my bank account is not really a problem, which means that at the margin. We ask the question, if more money shows up in people's bank accounts will they rush out to spend it because they don't want to be sitting on idle cash? The answer is well, no, they won't because the cash earns about basically earns nothing but so there's almost anything else they might put their assets into.

Changes in the money supply, changes in the cash, bank accounts and so on, used to be significant because it was burning a hole in people's pocket, people would want to go out and spend it on something. These days with interest rates so low it doesn't. The significance of whatever measure of the money supply you like, just isn't the same as it used to be, it's just not a very helpful guide to what's going to happen.

Brian Lehrer: Last thing, in last 30 seconds, and I know you got to go, how this applies to politics, because the Biden administration is spending all this money or wants to spend all this money that the critics are saying is going to lead to this inflation that you've been skeptical of. Biden can accomplish a lot of social good and not worry about inflation?

Paul Krugman: Not entirely. It's possible to spend too much, leave the money aside, leave money out of it. It's possible that Biden will be putting so much purchasing power in people's hands that it will exceed the economy's capacity and we'll get some inflation, but the one thing you really don't need to worry about is either the level of government debt, or the amount of money out there. Just worried that maybe we are increasing purchasing power too much.

I don't think we're going to have a problem even there, but the inflation concerns are much more about the real capacity of the economy to supply what we're trying to do not about some kind of abstract number on debt or money.

Brian Lehrer: Dr. Paul Krugman, Nobel laureate in economics, Professor at the CUNY Graduate Center, and New York Times columnist his recent times column, called Krugman Wonks Out: Return of the Monetary Cockroaches, his book Arguing with Zombies: Economics, Politics, and the Fight for a Better Future. Thank you so much, Professor.

Paul Krugman: Take care

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