|Krugman - Economic Crisis a Question of When, Not If
Reuters November 22, 2004
NEW YORK (Reuters) - The economic policies of President
Bush have set the country on a dangerous course that
will likely end in crisis, Princeton economics
professor Paul Krugman told Reuters in an interview.
Krugman, who may be best known for his opinion column
in The New York Times, said he was concerned that
Bush's electoral victory over Sen. John Kerry earlier
this month would only reinforce the administration's
unwillingness to listen to dissenting opinions.
That, in turn, could spell serious trouble for the U.S.
economy, which under Bush's first term was plagued by
soaring deficits, waning investor confidence and anemic
"This is a group of people who don't believe that any
of the rules really apply," said Krugman. "They are
Krugman is currently taking some time off from
journalism to write and promote the second installment
of his latest project -- economics textbooks aimed at
making the science more accessible to college students.
In the meantime, however, he worries the Bush
administration's fiscal policies are going to push the
world's largest economy into a rut.
The most immediate worry for Krugman is that Bush will
simultaneously push through more tax cuts and try to
privatize social security, ignoring a chorus of
economic thinkers who caution against such measures.
"If you go back and you look at the sources of the
blow-up of Argentine debt during the 1990s, one little-
appreciated thing is that social security privatization
was a important source of that expansion of debt," said
In 2001, Argentina finally defaulted on an estimated
$100 billion in debt, the largest such event in modern
"So if you ask the question do we look like Argentina,
the answer is a whole lot more than anyone is quite
willing to admit at this point. We've become a banana
Crisis might take many forms, he said, but one key
concern is the prospect that Asian central banks may
lose their appetite for U.S. government debt, which has
so far allowed the United States to finance its twin
A deeper plunge in the already battered U.S. dollar is
another possible route to crisis, the professor said.
The absence of any mention of currencies in a
communique from the Group of 20 rich and emerging
market countries this past weekend only reinforced
investors' perception that the United States, while
saying it promotes a strong dollar, is willing to let
its currency slide further.
"The break can come either from the Reserve Bank of
China deciding it has enough dollars, thank you, or
from private investors saying 'I'm going to take a
speculative bet on a dollar plunge,' which then ends up
being a self-fulfilling prophecy," Krugman opined.
"Both scenarios are pretty unnerving."
In the longer-term, Bush's version of social security
reform, which Krugman says would relegate pensions for
the elderly to the whims of volatile financial markets,
could have wide-ranging implications for future
The only bright spot in having Bush in power for
another four years, said Krugman, is that further
economic mismanagement might trigger some sort of
"I do believe at some point there is going to be a
popular tidal wave against what has happened,"
concluded Krugman. "In the meantime, you keep banging
on the drum, you keep telling the truth.
"And then eventually we have the great demonstrations,
which I think are important to let the government know
that many Americans are not happy with what is
happening," he said.
Copyright (c) 2004 Reuters Limited.