If we except his capacity for concreteness and the fact that his small eyes seem to scrutinize everything under an alchemical formula that only he knows, Paul Krugman (Albany, 1953) resembles the classic New Yorker a la Woody Allen. He recognizes that it takes regulating the invasion of tourists that his city suffers. “Sometimes I have to get around them while they devour hot dogs on the steps of New York University,” he smiles. There, the Prince of Asturias winner of Social Sciences in 2004 and the Nobel Prize in Economics in 2008, he is a distinguished professor at the City University of New York (CUNY) after having passed through Yale, Stanford and Princeton, among other temples, and receiving an honorary doctorate from Oxford.
A declared social democrat, he attends to LA RAZÓN after speaking at Atresmedia’s “Metafuturo” forum where, after dominating the Ateneo stage despite his apparent shyness, he dispels the apocalyptic vision of the impact of Trump’s tariff war – his “public enemy” – declares China the winner of this war and encourages Europe to believe it and take up the role of champion of free trade that the United States has despised: “The European Union “It is an economic superpower. Much more than people believe. In global trade, it is bigger than the United States. The idea that Europe is a museum is a lie. It can do a lot and it should play the role of guarantor of global trade that the United States has abandoned.”
«Italy has many problems and the case of Spain is incredible. Maybe it won’t be difficult to overcome it.”
-I know you don’t really want to go down to the mundane, but a little over a decade ago we were the S of the PIGS and today we lead the growth of the big ones in the EU. What does Spain need to pass Italy, which is within striking distance?
-Italy has many problems, maybe it is not so difficult to overcome it. Its economy seems stagnant, so maybe Spain surpasses it in general terms. Some of the less wealthy countries in Europe have managed to do well. The case of Spain is incredible, but Poland is also working miracles. So why not? You never know. But I don’t have any precise recipe.
-Perhaps improving productivity, one of the burdens of the Spanish economy…
– Yes, it could be productivity, but no one knows how to do it (smiles).
Ireland has a very high GDP, but it is a fiction. “The Irish do not benefit from it.”
-Or lowering taxes. You consider a “zombie” idea the thesis that lowering taxes on the rich boosts the economy, but there is no poor tax haven. What do you attribute it to?
-The place that I know very well and that is a great tax haven is Ireland. Ireland has a very high GDP and it is a fiction. The Irish do not benefit from it. Many companies have profits in Ireland that have nothing to do with the Irish economy. I live in a place with high taxes for the rich. In New York, in addition to the federal tax, there are taxes at the state level and also those of the city. So taxes for high income earners in New York are much higher than in Texas or Florida. If you think that the people who face these tall guys don’t work, I don’t think New York is a city full of lazy people.
-However, although the macroeconomic data in Spain is positive, the middle class does not perceive it. After a sustained increase in tax pressure, would it be time to lower it?
-The problem is that we all have serious fiscal imbalances. The Western world as a whole does not have enough income to pay for the government one wants. And it’s not that I want to see higher taxes on the rich, because that wouldn’t be enough. Measures can be established to support the middle classes, so that life is more balanced, but I do not think that tax cuts are the formula.
-Do you see the Western vision that for the first time there will be a generation that lives worse than its parents as apocalyptic?
-It is not apocalyptic. It seems to be true in many ways. Salaries, especially now, for new players in the labor market, are low and I think, everywhere and certainly in the United States, we have little labor movement. Although there is no high unemployment, there are few hiring. It is very difficult for a young person to start and we have an extremely expensive housing market. So if you are 60 years old and you bought a house 30 years ago, you did well and you will be fine. But if you are 25 years old and trying to start, there are few jobs and houses are very expensive. So it is not an illusion, it is not a mirage. There is a lot of truth.
“If it turns out that AI is bad for wages, that’s why we have democratic governments.”
-He gives the example of Tokyo as a megalopolis where young people can access housing, although they have been benefiting from interest rates close to 0% that are now going to rise. At what level do you think rates have to be in both the United States and Europe?
-First of all, we must keep in mind that many people rent houses, not buy them. So the effect of the rates does not directly impact the rental price, but rather affects the cost of buying a home and limits construction. The problem with types is that it is not a choice. In the short term, the level of rates is dictated by concerns about inflation or not overheating the economy. So when you decide to lower rates for a long period of time, at some point it creates an inflation problem. The point is to facilitate the construction of new housing. And there Tokyo, surprisingly, shows that it is quite easy to get permits, while in other places, such as London and New York, building houses is practically impossible. There are many vetoes that prevent you from building housing.
-So it is not an economic issue but a bureaucratic one…
-There is always someone who raises an objection and there are so many ways in which one can object that houses are built with great difficulty.
-Regarding interest rates, do you think it is appropriate that the price of money be around 2.5%?
-Taylor’s law dictates that inflation and unemployment determine the rate that should be applied. In the United States, the current rates are practically what the Taylor norm says, and in Europe I think this premise is a little less established, but there is no clear imbalance in the European situation. I would say that, right now, rates are doing well on both sides of the Atlantic.
-This situation also has to do with the fact that salaries do not advance as much as they should. Do you think that artificial intelligence is going to aggravate this problem or is it going to make us more productive and, therefore, we will rise more?
-I have spoken with experts about AI and some think that they will lead to lower salaries and others believe they will be the highest. And it seems like everyone knows what they’re talking about, but it’s clear that someone is wrong (smiles). People keep talking about the role of machinery in industry, about the effects on wages. It is a debate that is 200 years old, but the answer is that we do not know. But if it turns out to be bad for wages, that’s why we have democratic governments that are supposed to do something to help people in some way.
-Before the emergence of AI, he was not in favor of establishing a universal income. Have you changed your mind?
-Not until now, I haven’t changed my mind. But if AI drastically reduces labor demand, it is going to generate return on capital and therefore this becomes possible. I am not against universal income on principle, the thing is that it would cost a lot of money. It can only be obtained with higher taxes. If we had a world where taxes could be established on technology companies to pay for this… but we are not there.
«A debt in the US above 100% would not be alarming, but with Trump one begins to do so»
-You are an enemy of countries’ austerity, but what is the debt limit that a country can assume as a percentage of GDP?
-It depends a lot, it is not a fixed number. It all depends on whether countries are responsible or have the capacity to deal with it. You can borrow 200% of GDP without a crisis. Spain does not have its own currency and that makes things a little more difficult. But I would say that for the United States it is a little over 100%. And under normal circumstances it wouldn’t be alarming, but considering the insanity of American politics, one begins to worry. But no, there is no magic number.
-If China has won the tariff war with the United States, how do we compete with them?
-Obviously there is an economic part and geopolitical reasons to try to limit China’s domination. And it is done strategically, you have to choose what things to keep. The previous United States Administration made a very important effort with advanced technology and green energy, which are two areas that China is beginning to dominate and over which we need to ensure that they do not have total dominance. You choose your goals. Now we have an Administration that is applying tariffs to kitchen cabinets and that does not seem like a priority to me. So Europe needs a technology policy and so does the United States. If the United States comes to its senses, perhaps we can establish a joint policy. We cannot prevent China from being a superpower, but we can prevent its monopoly in crucial industries.
-A fine for Meta in Spain of 479 million euros has just been announced, does this seem like a good sign to you?
-I do not consider Meta a technological person, although she uses technology. Meta is a social media company and it is destructive in many ways. Nvidia is doing something real, whether we like where AI is going or not. But Meta is basically “hacking” human brains to make a profit. So the more fines, the better.
-We are experiencing stock market rallies all over the world. Do they predict a future crisis for you?
– I remember when the internet bubble was about to burst at the beginning of the century. One day the markets sank and the next day they rose without any apparent information. We’re in kind of a frenetic market, which is not a good sign.