Paul Krugman: The Conscience of a Liberal

It's my pleasure to introduce our distinguished guest Dr. Paul Krugman. If you are interested in economic issues or the news of the day, you probably read Paul Krugman's columns in the New York Times. He has been with the New York Times since 1999 and been a regular columnist on the Op-Ed page, whether he is writing about the Federal Budget or writing about America's middle class or American economic leadership, there is probably no other columnist who is better informed and more more qualified or more provocative. Professor Krugman is one of the world's most prominent international economist and economic theorist, he is particularly known for his work on international trade. He was co-founder of something called New Trade Theory and in recognition of that The Economist magazine nominated him or named him one of the top international economists. Also in 1991, the American Economic Association awarded him the John Bates Clark Medal which is a prize given every couple of years to an economist under age 40 who has made an extraordinary contribution to the field. Paul Krugman is the author of 200 scholarly papers and journal articles and over 20 books, including "The Great Unraveling" oops that's hard to say, The Great Unraveling, oh I can't do that, can you help me "The Great Unraveling: Losing Our Way in the New Century", moral dilemmas of a free trader, "Pop Internationalism", "The Return of Depression Economics" and my favorite, "Fuzzy Math." In his new book, "The Conscience of a Liberal" this author looks at American social policy over the past 80 years. So I ask you to join me in welcoming Paul Krugman. I am going to pick on you because I am I am somebody who actually does read you every Monday. And so I am going to start right out with start out the beginning with yesterday's Op-Ed in which you focused on tax policy and you and you referred to President Bush's cuts certain of his tax cuts; cuts on dividends, tax on capital gains, has been particularly elitist, say more. Okay. I mean it's not just that some of them all cuts have been elitist, but this one was really extreme. All right you know, just the who actually benefits from a cut in tax rate on capital gains and dividends. You know, most most people have very little in the way of capital gains or dividends income, particularly most people to the extent that they have any interest in their 401(k)s which was already tax sheltered. So this is really going to the handful of people who have enough stock and outside of the 401(k) that they really are going to benefit and it turns out, when you do the the math, not the fuzzy math but the real math, as opposed to Karl Rove's the math I guess but anyway when you do the actual math it turns out that, in this case more than half the tax cut went to people with incomes of more than a million a year. That's about a 10th of percent of the population. And the amazing thing was of course they tried to they tried to sell it as something for regular middle class people. Well, how was it sold? I mean what was the argument? Well, there were a whole bunch. I mean they are very good at this, you know, they find well, my favorite was that they had a chart showing that this tax cut would disproportionately benefit the elderly, an unusually high proportion of the people benefiting were above the age of 65, because a lot of really rich people are old, it turns out. So no but yeah it was a it was a pretty it was amazing because they they managed you know, they got the the typical way the newspaper stories are written, which was they did point out that this wasn't true, but they never actually said that. They said some Democrats say that this cut favored the wealthy. So anyway. Right, well what kind of let's ask the question, get away from the politics of it for a minute and talk about the economics of it, if someone who has an income of over a million a year, this will come as a great surprise to you but I am not one of those, so I don't know the answer to this question; when that person has a tax saving, what does he or she do with it? Is it good for the economy? You know, I don't want to be imagine that we were under a socialist regime like let's say that of the Eisenhower Presidency, when the top tax rate was actually 91 percent. It was plausible I think to say that if you had a 91 percent top tax rate, that cutting down a little bit would would actually make some people more willing to take risks. Some you know, some people ambition would drive some people to do some things that they wouldn't otherwise do that would be good for the economy. But right now you know we are cutting the capital gains tax rate from 20 percent to 15 percent, I think you are going to say that it's very unlikely there is going to be a big increase in investment and risk taking, what's basically going to happen is that some very wealthy people are going to get to keep more of their income. Okay, now I am still reflecting on that 91 percent back on the Eisenhower years. What do we I mean compared to other rich states, other you know OECD states where do we stand when it comes to taxes? We are at the bottom. I mean the The lowest. Yeah, I am about to to prattle on too much because they there are some there are some things about Japan that but you know, leaving and looking at Western Europe, looking at Canada, the US has far and away the lowest taxes. And it's you know, we are we are under taxed by those I am not a politician we are under taxed by advanced country standards. It's it's and particularly, if you are a high income person, somebody not a million dollar a year class, but let's say oh you know, New York Times columnist income class, would pay substantially more in taxes in France or Britain or anyplace else in the western world except the United States. But you would have substantially more in-services, what with those services, what are the distinctions there? Well, first of all, guaranteed health care. And that's a you know, in a way it's an illusion, that that we save on taxes because because companies typically pay, they do provide health insurance to their workers at seven percent or more of payroll. That's not necessary in other countries because it's being provided by the government and it's it is a tax. But it is a tax that substitutes for a premium. There is a much stronger social safety net. What ever other advanced countries get is they get you know, we always come back to France which is which is an example of a pretty well functioning, very extensive welfare state. So there is there is aid for young mothers in in taking care of their children. There is pretty good support if you are unemployed. There is just a whole range of things that that protect you from the invest that you can quite easily fall into in this country. Now what stage where do you have to be in in the kind of economic ladder in which those tax cuts that were received actually ended up being increases, because you ended up having to pay more for the services that were suddenly denied. Well, yeah there actually have been some pretty detailed there are some assumptions involved, as there always are, but if you look at this, anybody with an income under 75,000 a year is clearly just worse off as a result of the Bush tax cuts. Anybody with an income over 200,000 a year is a clear winner. In between it's its some uncertainty. But if you are really going to say, you know most people in this country have incomes under 75,000 a year. Median family income is median household income is under 50. So it's it really is a case where the the top five percent of the population only were clear winners, the bottom 60 percent were clear losers or more than that, and you know, there is and . And there is when are saying losers you are not saying just in terms of the tax, you are saying losers when you are balanced off, loss of services. Yeah and but that's that's the way it you know, taxes do pay for something, much as we would as as some people would like us to forget that. And we we tend to think of services but what about infrastructure. This is on people's mind after the bridge in Minneapolis, but it's it should be on people's mind, regardless of ? Yeah we do look like we are I have to say I do I do like numbers, and I haven't able to get hard numbers on this. But but it does look like our infrastructure is really being neglected because they really are letting it fray in ways that that other advanced countries are not. Right what are the political benefits really I mean if you have got a four year term I mean let's think of the incentives and disincentives for the politician, you got a two year term or a four year term and and you know your job is either to cut taxes for this audience say, or to make an investment in something that will matter for the next 30 years. This has been something actually I have we used to manage to do it some how. We use to actually politicians used to like to have either have their name on something or at least have the have the sense that they have made lasting contributions. I am not quite sure how they did it because now it really does seem as if each each politician is just sort of passing the buck on to the next person, doing that you know the minimal amount of Scotch tape and chewing gum, to hold stuff together, until the and so that the disaster falls on the next guys watch. Not just not just on infrastructure but foreign policy too at this point, but but any way the and this is a scary thing. I mean its, I don't know, we lost some thing. We used to if you get back to before some how or other a Nelson Rockefeller came up and you know people used to say that he did too much building when he was Governor of New York, that he had his as people said an edifice complex. But but better that than you know I I don't I haven't followed California that closely but back in my in my State of New Jersey, there has been we've had a series of governments where basically raided the pension funds, they raided every thing so as to be able to say, "I cut taxes" and eventually you know that its going to it eventually basically falls on John Corzine's shoulders. And what is going to happen to the taxes that I mean most of the Bush tax cuts are are sunset, I mean there is a point in which we can just -. Yeah that's that's his great gift to future fiscal responsibility. If because the convention is the tax cuts are scored for a decade, so you always talk about what were the what would the revenue loss be over the next 10 years? In order to hold down the decade cost for tax cuts that were passed in 2001, almost every thing and then they did it again for the 2003 cuts, almost every thing expires on the last day of 2010. So its sunsets, which is wonderful because it means that to undo a lot of these tax cuts, you don't need to actually pass new legislation, you just have to fail to pass legislation extending them. You know I couldn't we saw it at the time. I wrote back when the tax cuts were originally passed, I there is various of them. But the one I like best is the estate tax. You know estate tax disappears completely in 2010 and then springs back to the 2000 schedule, which has a 55 percent tax rate on larger states, on the first of 2011. So back in 2001 I wrote, I described it as the "Throw Momma From the Train Act" that but it does it does actually mean, it's actually a that the path is much clearer towards some fiscal responsibility under whoever you think is going to be the next President. Well, as you look at at the Presidential candidates, do you do you see folks who you would describe as fiscal conservatives or put it differently, they are perhaps a brand that's so useful, but do you see folks who you think are likely to try to reign in spending and try to do something about the overall the deficit. Well there is an interesting there has been a change on the liberal or the progressive side in attitudes on this. And I am part of it. You know if if the Democrat had won in 2004, I think there would have been a lot of pressure, there would have been a strong sort of fiscal conservative wing of the party that would have said, you know really what we need to do is get the deficit down, do what Clinton did mostly in 1993, raise taxes and use the money to pay down the debt. But as the realization of what has happened has sunk in, what people now say, what I say is you know if it was abstract, if you could guarantee that the next the next two or three Presidents would be fiscally responsible, that would be the right thing to do. But what actually happened was that Clinton with great effort turned the deficit into a surplus, paid down the debt and then had George W. Bush squander it on tax cuts and and a pointless war. And wouldn't we all be better off, if Bill Clinton instead of being quite so scupulous about the deficit, had use the money to expand healthcare, to build institutions that would be hard to take away, and that actually is now that the dominant view, and I think in the party, that if you look John Edwards has been most explicit about this, but other democratic candidates are de facto taking the same position. It is we need to let some of the Bush tax cuts expire and use the money to pay for universal healthcare and we are really not going to make a big deal about the deficit at least not initially because the in turns out that progress against deficit is to easily squandered by the next guy. Well I am going to go back to this sort of starve-the-beast theory of yours later, but let me hang on to John Edwards for a moment and healthcare, is that perhaps motivated by a sense that we are in a healthcare crisis? Oh well. I mean that that's a real -. Well, in a sense I mean it's real all right. Now look getting my little healthcare survey, I mean the US -. You can get your big healthcare survey if you like. Okay. No look we have the US has got this patch work healthcare system which is we sort of stumbled in, we have never actually really developed a well thought out system for insuring the people at healthcare. But we had a system that between employer based coverage which has is partially subsidized by the tax code, Medicaid for the poor, Medicare for the elderly was getting you know, 87-88 percent of the population which is not enough, but was enough to to head off really strong pressure for change. That system is becoming a part of the seams quite rapidly. I mean its and the whole employers are not are not offering healthcare to their employees any more, not because they are evil, some of them are, but not in general, not because they are evil but because it cost too much, and so the you have seen you know we would have this as part of the theme at Monday's column, we had a reasonably good job growth, period, for last four years which appears to be over now. But it wasn't unlike the last job boom which happened during the Clinton years, it's not bringing health benefits with it. The new jobs don't carry health benefits. We are heading towards a situation where the normal state of middle class Americans will be to be without health insurance. That's a crisis. Last night you told me sort of what income bracket, you must have insurance; you have to share this with -. Oh, yeah no all right, the thing about healthcare is when it rains it pours. In any given year half the population has got essentially no healthcare expenses. 20 percent of the population is responsible for 80 percent of the healthcare, five percent of the population is responsible for almost half the healthcare, so that likely there is we got to find these people and stop them. But of course the point is, you don't know, it can be you. It's when something happens, you have horrific healthcare expenses which will easily be hundreds of thousands a year. I do know a couple of people who say I don't need the health insurance and I write about it, they all have net worth of more than $50 million, because since if you have even if you are a millionaire and the old sense of having your million dollars in assets a bad two bad years of health problem can blow through all of that. So health insurance you cannot do modern healthcare without health insurance, because the what healthcare does is it provides an amazing, miraculous care for the few people who need it, but it's an expense beyond anybody's ability to pay out the pocket. And and right now and you are saying 40 percent don't have a -? 15 percent have no insurance whatsoever, another 25 percent have got inadequate insurance, that basically lets them down when an extremist and of course a lot of people who think they have adequate insurance find that it doesn't work quite so well when they the insurance company tries to contest a lot of the claims. But in any case 40 percent of the population in the United States is either uninsured or seriously underinsured. And what about children? Well children, it's complicated, we had actually been doing better you know the one area we if you are looking at if you look at young working adults, things are deteriorating quite fast. The one area where we are actually in better shape than we were ten years ago; is children. And its not because of the magic of the market place, it's because of the SCHIP, the State Children's Health Insurance Program, which is a federal program which has not covered all the children it should but has covered more. Of course Congress wants to expand that and and President Bush says, he will veto the expansion. But and and by the way, children is easy the children don't by and large need open heart surgery, they by and large don't need chemo, you know children are in expensive. So actually the cost of the providing of getting almost all of the children in the United States covered for the next five years would be about what we will spend in Iraq in next six months. So that's really it's really quite cheap. Yet it will be vetoed because of the -. It will be vetoed. It might conceivably be overridden by, probably not, so yeah, it will be vetoed. Its a matter of philosophies of the President. And when it comes to preventive care, which is what we probably should care about as a as a society do any of the presidential candidates have plans that would provide for preventive care? Yeah there's a lot all of them are talking about it. They are summing all of these things. I will say okay I am I am tentatively furious Hillary Clinton, because she has not come out with a plan for universal healthcare. She says she will, but she have been promising it for about six months and we still haven't got it, which makes me very nervous that she is going to try and sort of -. But she has actually come out with a plan for preventive care that's quite good. I mean I have thought about that quite a lot. Yeah, I am trying to think about her polling, because she has described as polarizing, I am trying to think where you put the tentatively furious? No I am just if she comes out with a good plan, now the latest rumor is sometimes this month, then I will withdraw all of the annoyance because then you know there is still time. It's just that this long delay had made me very nervous, that she may be trying to avoid actually committing to explicitly promising universal healthcare. And as you look at it as a okay so you have covered now, two candidates. One with whom you are tentatively furious, the other you think has got a good healthcare plan. And Obama's plan. So of the three frontrunners or the two and a half frontrunners you know, realistically given the poll both Edwards and Obama have had good plans. In Edward's case its genuinely universal, in Obama's case close to universal, and now certainly this is serious, I mean this is the state of the conversation on the healthcare is vastly better than you could have imagined three or four years ago. But you have only mentioned one political party. Uh-huh Rudy Giuliani, actually all of them I know Fred Thompson hasn't said anything on healthcare yet but but Rudy Giuliani has essentially endorsed his plan appears to be identical to the plan that Bush came out within in February and its really its tax cuts tax cuts and the magic of the market place are going to solve the problem. And its and Romney's plan is a little less but pretty close to that as well. So its you know, nobody on the Republican side is treating this as a crisis. All right. Now speaking of crisis, if you read the newspapers read magazines, you come away with a sense right now that we are we are facing a recession. Is that true? Okay, I can say with great confidence I don't know. And and neither does anyone else. Let me tell you the people have been having some fun right now going back to consensus economic judgments early in 2001, and most economists did not believe that we would have a recession, several months after we now know we were already in one. So it's not that easy to tell. Look there is a problem. Clearly employment growth has stalled, whether we are actually going to start seeing job losses in the months ahead I don't know. But it's clearly you know clearly the economic situation has deteriorated quiet a lot. We saw losses in the last month. That's right, last months its I am sorry, but too much you know the job change was minus 4000, I think plus or minus 50000 realistically, given the uncertainty of the data. The economic statistics you've heard this before, but economic statistics are a peculiarly boring form of science fiction, you don't want to take it too seriously, certainly not on a one month basis. But the now clearly economy is slowing, clearly it's a problem. I mean the the question nobody knows the answer to is whether we really are talking about a financial crisis stemming out of the sub prime mortgages, the whole housing bust, that it is severe enough to really cause problems in dealing with it. And I'd say the 40 percent odds that we really are going to to have something that is going to be bad enough to turn into a natural recession. All right, well we do have a sense of impact on jobs, in so far as the housing industry is a great employer. I mean it really employs such a vast array of different different sectors. Yeah its people the construction workers themselves, there are the suppliers of the home building materials, all of that the housing industry, but also home appliances, you know the a lot of the sales, you know home depot obviously, but just much a broader part of the economy, really those are sales that takes place when a new house is built and people move into it. So the estimates are about a third of the jobs that we have created since 2003, are pretty much directly related to housing. And then a substantial part of the rest is because the economy was doing not too badly, because the housing boom was pulling it along. So that's not it's been -. So this is consequential either way. Tell me what the Fed is going to do? You got an in with these Princeton guys, right? Oh, right, yeah. That's right. Now in case you don't know the you know Ben Bernanke was the Department Head at the Princeton Economics Department before he decided to take a step down and and run the world. And terrific Department Head by the way. I have never seen anybody who was that good at at managing all those egos. But his look the first thing is they cut interest rates, in effect you know they will cut the Fed funds rate, the betting now is 50 basis points at the next meeting. That's an end the markets are in effect betting that that's just the first of a series, so we are going to have a whole series of interest rates cuts over the next year or two. The question is whether they have to do something more exotic. And that's the alright, the story here. Once upon a time we had a we had a terrible banking crisis in this country. Now the so we had a collapse of the banking system in in the 30s and which was a big factor in the depression. And we dealt with that with a whole series of protections, FDIC so your deposits are safe, regulation of the banks, reserve requirements, capital requirements, all of these and anything that's called a bank is quite safe now. The problem is those regulations also mean that it's kind of helpful from a profit point of view to create something that does what a bank does but isn't called the bank. And and to a large extent that's what many of the hedge funds are doing. They are essentially borrowing money short term, commercial asset that commercial paper, and then they get out long term and figuring that in any given day not that many people are going to be want to be repaid, so its very much like the way a bank works, which leaves them open to something which is effect a bankrupt. And we had two weeks ago we had what looked like the beginning of a giant non-bank bank run. It has let up a little bit, but things are still very dicey. And if that's going to happen then well then we are in uncharted territory and you have to talk about possible extreme measures. You have to talk about the Federal Reserve lending money to institutions that aren't banks. And this is you know, do you really want, are we really ready to see Ben Bernanke lending money to Henry Kravis. I am not sure about that. But in extremist, you might have to do it even though it's the last person he would want to help. Are we talking about having Fanni Mae Freddie Mac, the Federal Housing they are not exactly Federal Housing Agencies, coming out and buying sub prime mortgages, which they don't do, for it sound fiduciary reasons, but if it comes to rescuing the economy you might have to do. You know we are all hoping that that doesn't happen. I will say okay I have not much in the way inside knowledge, but I do know that that Ben Bernanke, like me, spent a lot of time in the 90s obsessing about the Japanese crisis which which bears some resemblance to we are afraid might happen here, and was pretty big on well in extreme times you need to do unorthodox things. So he might well be presumably they are thinking about all this now. What are the down sides of cutting interest rates? Dollar will fall, that's not a big deal. It sounds like the big deal, but it's not big deal. So one of the things that could very easily happen is a substantial fall in the dollar, which if we were Argentina would be a devastating thing. We are not Argentina, because this is good news you know, I have always wanted reassure people of something, we are not Argentina. The reason you really get worried if your currency falls on world markets is if you have a lot of debt foreign debt, which we do and that foreign debt is in some else's currency. Trouble with the Argentines was when the Peso fell Peso fell from $1 to $0.30, suddenly all of the Argentine debt tripled in value from the point of view of the Argentines. And that led to you know basically everyone who could go bankrupt did go bankrupt. We have a lot of foreign debt it's also in dollars. So actually if the dollar falls the financial losses are going to hit the Chinese government and various Arab Oil Sheikhdoms and Japanese pension funds. And so it's not it's not that serious a problem for us. Aside from that I think the only thing that the only thing that the Fed the only real reason to worry about cutting interest rates is if scares about the economy or roll a false alarm, the Fed Government have to cut interest rates and tries to head off a recession that isn't actually coming, then you can cause some inflation. I am not very worried about that. I think that that's a pretty small risk. You know, first of all it's probably not the case and secondly it's you know, an extra few tenths of a percentage point of inflation are not nearly a serious a thing as you know, collapsing financial sector. But but the Fed doesn't worry about these things and there are a lot of inflation hawks in the Fed. So there is a lot of there is a lot of pressure on them to be very cautious which might be exactly the wrong thing. And wow the you gave me an excuse to talk about the Chinese. The thank you but I mean, here we have a situation where another government has decided to do underwrite or deficit over a sustained period of time for reasons that are not entirely clear. It may be just that -. Yeah I have a theory about that. Give us your theory. There are a lot of theories about what the Chinese think they are doing. I don't think they think anything is my theory. I think that they have a policy of pegging pegging their currency to the dollar and even though it really doesn't make much sense anymore, there is nothing that forces them to change. And it's just a notion. So I think it's just that they just slide along and and you know there are few people in China saying you know, we have got a trillion dollars in reserves, what are ever we going to do with it. But they are finding it very hard to get any response because well things are okay, the economy is growing you know, what's what's the need to change. So I think it's it's just sort of they they have been supporting our economy out of absentmindedness. So that's my theory about the Chinese. And what are the what are the sort of the geopolitical consequences of a situation where we are so reliant on them and they are so reliant on us and something is we have got kind of a double hostage situation going. Yeah. The Chinese if the Chinese were to cut off the try to you know, pull all those dollars out of the United States; that could cause some serious problems. It's one thing to say, its okay, the dollar falls. But a real actually with the the highly technical terminology we use for it is the sudden stop, that's what the international finance a sudden stop where the Chinese just said, no more no more money, in fact we want the money back, that could be very serious for the US economy. On the other hand it would also destroy the value of the assets that the Chinese themselves have accumulated. It's hard to envision a situation in which any of that happens, because the Chinese would be being self destructive. There is a converse thing. The United States got really mad at China, we could say, okay we are expropriating your claims on the United States very, very hard, just imagine that happens. So all of these things are you know worst case scenarios. If the if Taiwan declares itself a you know, goes over the line and the Chinese decide to to invade, I suppose you can have these things happening. Short of that it's hard to see. So I think that nothing the only thing we really need to to worry about, under normal circumstances is that the Chinese just sort of start saying you know, even if it's going to lose us some money we really have to start diversifying into Euros. And I am amazed that they haven't done that yet, but you know one of these days. Now we have got disagreements with China, not only potentially over Taiwan, I mean potentially leading to conflict over Taiwan, but we have also got disagreements when it comes to Sudan, when it comes to Myanmar, the former Burma. Do you see as this having gained or lost leverage or is there no effect? I think in the range of these things, there is not affect. I mean on balance if you has who has the stronger hand from the financial intertwining is actually the United States, it's the out line I can't never get the numbers right, but John Maynard Keynes said something along the lines that if you owe the bank 1000 pounds you have a problem, if you owe the bank a million pounds the bank has a problem. And in fact the matter is that you know, if we if we you know its debtor countries generally actually have the upper hand to negotiate look at the Argentines, defaulted on their debt, pay 30 cents and a dollar and they were appear to have been no adverse consequences, and if Argentina can get away with it so can we. I mean I it's actually one of my favorite economic headlines ever, is from Reuters it was that "Argentina to creditor, so sue us." I mean so whether the Chinese are going to sue us, you know, so anyway. And you are reminding me of of one of Howard Dean's lines when he was running for President, and he described the Bush administrations policy as Argentinean policy and that is borrow and spent? Yeah, oh its its if you actually look at the numbers, its not really quite comparable, we have been substantially more irresponsible when they ever were, but I can't let this go, you should know that that out there in the the International financial world people with this now a joke that out there in the saying that actually turns up the economic relationships with China, are fair and balanced after all. They send us poison toys we sent them fraudulent securities its all sort of evens out. Now I have got a several questions on on climate change and as a as a problem and and one of the questioners asks whether we should be moving for for taxes on carbon emissions and having that as being a major source of revenue in fact and I am so going to achieving two objectives at once? Yeah, and the first thing - That actually this question wants to replace banks payroll taxes with carbon taxes? Yeah, and as as I first of all let me say carbon taxes are clearly what we have to do, its 300 dollars of tons something like that is is in a rational world we do it right the way, which of course since it's the obvious right thing to do, its politically completely off off the table. And in terms of the - I wish I I have the vague memory of the table I have seen, its not nearly enough for revenue actually to replace payroll tax. Its with the significant thing that there was there is there is some you know, a whole economic literature or whether there is a what they call double dividend from from carbon taxes whether by allowing to do so other taxes. Its pays up probably not, turns out that it probably doesn't actually yield you much in the way of extra benefits, but sure I mean its favorite my favorite of the probably the pieces I have ever written was back actually more than ten years ago, but there was a on the 100th anniversary of the New York Times there was a people were asked to write articles for the magazine that were written from the point of view a hundred years in the future from the year 2096 looking back. And and part of the things I wrote about most people actually couldn't bring themselves to do, I think we are afraid to looking silly, but that can bother me. And the and was was that I imagine to more than which in which environmental taxes have replaced all taxation. But the truth is the numbers on a state report level carbon taxes are not enough to remotely remove the replace the payroll tax, but it would be the right thing to do and you know, may be six years from now, seven years from now we have enough sanity in the political process that we can really talk about getting it done. So what has been the effect I mean if if I mentioned to Paul that I am that I am I and everyone I know worries about about climate change, but that I don't see many people clambering to call their congress person and ask them to raise taxes to to have impact on that problem, but I take you to sort of a different aspect of it because there are a few who are arguing for raising taxes on gasoline and and on emissions generally, but that doesn't necessarily affect we mean that doesn't essentially mean that the congress people who vote for are going the find themselves getting reelected. I mean how how is that process works for those for those of us who heaven forbid don't read the New York Times each day, how do we get the information on how to vote and - Well, even if you do it I mean boy, look its really hard, the the ability of the public to to even get a sense of of where candidates stand on issues, it is its pretty limited its it's anyway a few having a issue we really are not interested in, its not that hard now when these days of the web to to get the information, but for most people don't do that most people have have lives to live children to raise, jobs to do and they they pick up their news still primarily from television. So you know, I this is the problem if you try to have a climate change, a serious climate change proposal and make a centerpiece of a political campaign what you get through or even with the news even explain what it was of proposal, we can only be - the only thing out there be the your opponents attack ads accusing you of wanting to to raise taxes. So I don't know its - I suspect that the time will come, but unfortunately it doesn't seem to be there now. Tell me about how the the American public feels about about growing inequalities and and whether as an electorate this is a higher priority to to address? It looks I mean I guess the question is what your definition of a high priority is? If if you ask people what's what's on their minds, what they think is crucial issue right now. Iraq tops the list by a margin and then Healthcare comes in fairly distant the second, but then way ahead of any other issue. So you asked what are because these these are things that people see in their lives. You know, the Iraq obviously but but Healthcare its - you know, many of us at least know people who are having problems with with health insurance. If you ask about the general mood that people do seem to - people are aware that economic growth doesn't seem to be doing a lot for the most Americans. People are aware of raising inequality you look at the polling trends there is a definite sense that that something has gone wrong. And if you so - it does set a background, I think you know, the attempts to assess opinion on these general issues of inequality, role of the government to providing a safety net actually show a substantial movement of the left and the public perception. They really goes and started at least a dozen years ago. Largely obscured by other stuff but at this point it does look like on economic issues the public is now as liberal as has been since the early 1960s Which we suggested its pretty distant from its government? Well, certainly from the White House. The congress you know, there isn't the new majority in congress is one can say its it has trouble obviously getting stuff through not holding the White House and not all having enough votes to override a filibutster but I think their substantial lets put this with the democratic majority in congress right now is a lot more progressive than the democrat majority in congress before Newt Gingrich took control. Its no longer an uneasy coalition between southern conservatives and northern moderates and progressives, its now a pretty solidly progressive bloc. And and inequality relates pretty directly to the level of education and knowledge economists of so should know - I mean it is true if you don't have a college if you don't have a college education you are pretty much out of luck and in this economy, but if you do have a college education even the post graduate education that is by no means sufficient to the that if you look at who is being making out well in this economy? Who has gained over the past 25 years? Its not college educated workers as a group it's a subset of college educated workers who for whatever reason have made it into an elite that has just totally pulled away. So if you look - any numbers I quote for you now are partially made but they are they are they have the truthiness, so - if I remember I think the median earnings of we can - median earnings of college graduates in the United States are of something like 17 percent since 1980, which is not a whole lot, its better than than high school but not a whole lot. But you know, the incomes of corporate CEO's are up about 500 percent in real terms, and you know, the CEO's and high school teachers generally have about the same numbers of years of formal education, so as not its education is not is not the that take into success and just in general we look at Lack of education? Lack of education is killer you don't you don't even get into door with out with out a college degree and usually you know, some thing beyond that. But what really happened is that a tiny top one percent - if you look at the redistribution income is not from the bottom 80 percent to the top 20 percent from the bottom 80 percent to the top one percent and largely the top tenth of a percent. And is it is it a myth that the - you know, I always think of our country as having had a continually expanding middle class until recently but is that true? Its you know look, I think what the answer to that say the middle class society, the idea of America as a middle class society is not something that gradually we didn't gradually evolve into it, the big thing in my in my new book. We didn't gradually evolve into the society I grew up, we didn't - it wasn't that we were there was the gilded age and then things got more middle class and more middle class and finally by 1950's we were in Ozzie and Harriet land. What happened was that in 1929 we were basically as unequal society as we have been in 1899. There have been no and we were still in enormously that - actually called the long gilded age. For practical purposes, gilded age levels of inequality persisted right up until the new deal. And then the middle class society was created just wham, in a period of about 10 years. The economic historians actually called the great progression. And it was really achieved to political action under FDR and that's - and then it went away beginning in in the late 1970's. So now we are we are not a nation when I was growing up I thought that middle class societies were what - where one modern countries become when they grow up, but it turns out that it was just a phase in American life. But it was a success such a success phase, so what what was the rationale for trying to rollback what is referred to as big government? Well, there are very I mean the right to tremendous advantage of basically seven bad years, that we that we have an economic crisis in the seventies which had very little to do with the government, it was mostly about oil, but it it gave an excuse for - that we need to you know change everything. But if you look at the origins basically the a political movement from the right which was driven by hostility to the whole idea of the new deal, driven by hostility to progressive taxation, and I found a way to to start winning electoral success starting in 1970's. And and that's that led to the change its really a I have done a lot of work and this book coming you know, about the book. But the lot of it it really is politics first that the case for increasing income inequality the case for dismantling the the institutions that has sustained a relatively equal society came before the actual change in inequality, and its we need to go back and look at Barry Goldwater, you need to look at what at Ronald Regan a reason that Ronald Regan as he ran for the Governor of California in 1966, I see the evolution of this political movement, that's what drives the change in our society. The and to what extent you have argued that that race plays a big role in this political movement that the same Yeah, race is not the motivation of the movement. I can say this by - you know, actually you know, with that people both the both opponents and supporters of this call that movement conservatism, and its the collection of institutions the people people most most members of republican members of congress now are more or less self consciously part of the movement and the movement is not a about race, the movement is about reducing taxes on the rich and scaling back to the the institutions that the social safety net. But it wins elections, has won election largely through race. If you actually go through and look at where it was possible, how it was possible for for politicians who were attacking really quite popular policies to win national elections, it comes down very strongly to simply having exploiting racial issues, and if you look at a little comparison. In in the 1950s, there was a Democratic majority in the House of Representatives. Until in 2004, there was a Republican majority in the house after the 2004 election, which was the biggest they ever got. In which parts of the country had Democrats lost ground and in which parts you know, how much they lost in various regions. It turns out that the the switch of control of Congress was more than entirely accounted for by the South. The Democrats even before this last election, Democrats actually held more seats outside the South than they had held during their long period of of control of Congress. And how did the South switch? Well, it's you know, in the 2004 Election, Bush won 85 percent of white votes in Mississippi. And that's really at the core of why this thing work politically and and it was self conscious exploitation. As far as I know Ronald Reagan had no shred of racism himself, there was no sign of that. But how did he campaign? He campaigned against welfare queens and their welfare Cadillac's. He started his Presidential campaign in 1980 by going to Philadelphia and Mississippi, where the Civil Rights workers were murdered in 1964, and giving a speech on States rights. It's really it's really that cynical. Would it work today? It works in most of the countries. What sorry? Have attitudes changed? Attitudes have changed, the country has changed. Actually that's that's one of the reasons I I think I think this whole story you know, right after the 2004 election, every one were saying we are going to have a permanent conservative majority and I think that they were that was entirely wrong because that was actually a last hurrah for the movement. Two things have happened, one of them is crude and one of them is is actually uplifting. The crude thing is that America is becoming less white. Hispanic and Asian, growing share of the electorate and the truth is that the political style the exploited race, much as they might like to differentiate, they can't actually do it. So you so they the defining moment I thought for how American politics was changing was the macaca incident in Virginia. Right, there is George Allen, a Californian yuppie who reinvents himself as a as a Southern good old boy and he starts using obscure racial epithets against Americans of South Asian decent. And its two things, one it can't actually in practice you can't make the differentiation, you know the its non whites are non whites. And the other is Virginia is not going to stand for that. We are not kind of country anymore. The other just uplifting thing is that that public opinion, we really are a radically less racist country than we were I was it's actually shocking to look at polls for the 1980s, on things like do you think interracial marriages are okay? Strong majority the public said no, in 1980s. Now a huge majority says it's perfectly okay. So we really have changed. And the numbers are Oh it's it's 77 percent. Yeah I would say its okay just amazing.