Krugman Interview: What about Outsourcing?

by Mary

[Part IV of my interview with Paul Krugman. Previous posts: part I, part II, and part III.
BTW: you can get a copy of the new paperback edition here.]

My next question is in the whole area of outsourcing. I work for a large multinational company and we have people working all over the world, and are growing in India and China. But it seems that unless we find a way to have good jobs here in the United States, then that system is clearly unsustainable as well. Do you have any recommendations or ideas of what can be done to not stop outsourcing, but to make it a fairer system for Americans as well?
Well, that is one of the really agonizing issues. If you basically believe in the benefits of international trade, which I do, and you also believe that social cohesion is really important, which I also do, then you find yourself in a tough bind there. What I actually believe, given what I've seen so far, is the outsourcing is less than a threat than is widely perceived.

The reason it seems so bad right now is we have a generally weak economy and generally poor employment. If that were improved, then we'd have a very different perspective on it and it would require pretty modest steps. What I think would be speed bumps to outsourcing rather than barriers would be enough to make a big difference.

The parallel we always make is to the early nineties to the competition we felt from Japan. Which wasn't that unreasonable considering the weak economy, but as it turned out we had the great job boom in the nineties and then it all became a much less important issue. Now I could be wrong about that. One thing I have learned is to be a lot less dogmatic about these things than I would have been when younger.

My advice in this circumstance would be to go very slowly on the issue and push hard on a domestic economic recovery program and then take a look around to see where we are after that. The trouble is if you have a global view, the benefit derived for Bangalore is a good thing. We want to see development spreading around the world and all of the real economic success stories have involved export led growth. So we don't want to close that off.

We don't want to condemn the third world to permanent third world status. On the other hand, we do have to protect the existence of a middle class society in our country. What I'm partly betting on and partly hoping is that there really isn't as much conflict as people now think. I think politically it's one of the issues where we are agreeing to take modest steps, look for compromises and then seeing whether it is a big wedge issue in three or four years.

Is our tax structure set up to give incentives to companies to move jobs offshore?
That's a little more complicated. Probably yes. I'll have to sit down with a corporate tax group to see how this works. That is an area where I haven't done my homework. Some areas of economics are relatively straightforward. But tax incentives are a nightmare. One of the things that I have learned and I hope people have learned was from 2000. The Naderites said that the problem was globalization. But what it really was about was right wing takeover of America. I'm looking forward to the time when the center and the left can have big arguments over globalization again. But right now that doesn't seem to be the biggest priority.

What are some of the biggest risks that we have right now? Are we facing a housing bubble? Do we have bigger problems with risks with inflation?
Well, the economy I think the right word now is 'eh'? It's not terrible, but the growth is pretty lackluster. We had one good quarter of growth and two okay quarters and one quarter that wasn't particularly good at all. It's very hard to know I don't see anything pushing it towards more growth or towards a recession, but something will come along. Housing bubble, there is some evidence that looks like a bubble, particularly in a few major metropolitan areas, which is not a small thing, but it is not as clear cut of a bubble as NASDAQ 5000, it's not that wide. But it does look as we could having a bubble and if it is a bubble and it bursts, then that makes the whole deflation debate from last year come back. I don't have a strong prediction where the economy is going right now. I guess we'll see where things go.

I worry about this because living in California, it seems that housing prices are getting too high.
Also, here at the outer edges of metropolitan New York, it's true also. I won't be surprised if by the spring 2005 we start having the same discussion we had in 2003 about a sluggish economy and deflation.

The other thing that seems to be on the horizon, that I read about yesterday, was about the pension problem. Could we be facing another corporate bailout like we had with the savings and loan?
It's quite possibly, but I haven't had time to run the numbers on it. I have more homework to do.

One the things I'd been thinking about was how in the world do you have time to keep up with things you write about? It's obvious that it's very well researched.
Actually a lot of it is relying on colleagues and friends to feed me stuff. I'll sometimes use the Center on Budget Policies and Priorities. I'll call them up and ask them to run some numbers for me. As for the pensions, I read the same stories that you did and I haven't done any additional work.

My last question concerns the "Krugman's shrill" charge. It seems that your columns are getting more aggressive. Certainly your Manchurian Candidate column must have really gotten some strong reactions.
It got quite a lot, but it's funny. I'm getting less completely hysterical mail than I was, I think it's because I'm not the only target. The first year after 9/11 when nobody in the press was saying anything like I was saying, then I was public enemy number 1 for the right. Since then, a lot of the things I said that were considered crazy or over the top or shrill are considered conventional wisdom now. The first time I suggested a terror alert was politically timed, everyone piled on me. "How dare you say such a thing?" Now it's conventional wisdom that many of them are. The Manchurian Candidate got a fair amount of flack, but it's funny, the most recent column that got the most hysterical reaction was the one, Bye-Bye Bush Boom, which was fairly cut and dried. All it said was that the numbers really weren't that good and growth seems to be slowing. But people had put an almost religious faith that something wonderful was happening with the economy. I got thousands of emails from people saying, "How dare you say such a thing. You're crazy and must be out of your mind. Everything I'm seeing on cable says something different."

I think it's amazing how many cheerleaders there are for Bush and the Bush economy.
Oh yeah, on everything that's happened. If he takes a walk down the street: "Oh,what an incredibly presidential walk that was". There's a wonderful, a very nice piece at the Center for American Progress that says Bush has two good months on the job. March and April were both over 300,000, which is very good. But the Center of American Progress has a simple comparison that says if you look at it simply as the rates of growth, then each of those 2 best months don't fall in the top third of monthly growth rates over the past fifty years. Yet if all you had was TV and you didn't know how to look at the Bureau of Labor Statistics web site, you would think that this was the best job growth in the history of man.

I think it says a lot to see how some want to see him as an emperor.
Well, somebody has been calling him C+ Augustus. And if you know your Roman history, this is pretty perfect.

Thank you very much. And I have to say that your courage in saying what you have been saying has kept a lot of us going as well.

Comment: you can listen to an interview with Paul Krugman on KQED's Forum here (date: August 20)