Speaking to MSNBC on Friday, Nobel Prize-winning international economist Paul Krugman scorched House Speaker Kevin McCarthy (R-CA) for holding the debt ceiling hostage — and expressed his fears about the endgame of the situation.
President Joe Biden, McCarthy, and their respective staffers are wrapped in intense talks to try to craft a compromise that will avert a first-in-the-nation's-history default on the debt, which experts believe would have devastating effects on the global economy. Krugman was interviewed on the subject by MSNBC anchor Chris Hayes.
"You covered this and witnessed this in 2011, as did I," said Hayes. "One of the things that makes, that I think it's been a little lost to history how destructive that was. Not just the use of the threat of default, but the actual austerity regime that resulted from it. Every bit of evidence would show tangibly stalled in the recovery that went too slow and contributed at some level to that. Why do you think the lessons of 2011 are — do you fear the same thing happening again here?"
"I feel much worse," said Krugman. "Because each successive Republican Speaker makes the previous one looked like a sane, a reasonable guy by comparison. John Boehner and Paul Ryan were terrible, but they were not Kevin McCarthy. Kevin McCarthy is largely a puppet of extremists in his party. What we saw there, we avoided a potential meltdown. But we had this fiscal austerity in the face of mass unemployment. It took us eight years to get back to more or less full employment after the financial crisis of 2008. This time, we did it in three years. We are back to record levels of employment. We have a terrific job market and that largely, you know, you can say we overdid it, we have inflationary bumps, although that seems to be coming down, but we have a starting job recovery which, in retrospect, shows you just what a terrible mistake this was."
"The one to me, the one bright side, it's also a devil's advocate argument, which is we are in a very different situation now than we were in 2011, insofar as the fiscal policy and the expansionary injection was much larger, right?" said Hayes. "Several rounds of CARES, and then the American Rescue Plan. We actually got some very tight labor markets and inflation that cuts right now would not be as destructive as they were in 2011."
"I'm less worried about and the immediate macroeconomics, as the fact that you would be savaging a lot of crucial government services and setting a precedent," said Krugman. "The Biden people have been saying, now we are worried that they will lobby, they've been saying they will not be blackmailed. This will not be the last time that they get in. It will just keep happening. On the other hand, if we go into default, nobody knows. This is the U.S. government, it is the U.S. dollar. It's in U.S. Treasury bills, which are the collateral on which the whole world financial system rests. So it's scary stuff."
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