DEBATING POLITICS, ECONOMICS AND OTHER TIMELY TOPICS WITH PAUL KRUGMAN OF THE NEW YORK TIMES

FRIDAY, NOVEMBER 13, 2015

PAUL KRUGMAN

Decades Later, Same Euro, Same Problems

Wolfgang Mnchau declared
recently in his Financial Times
column that the euro was a
mistake, and pinpointed a key
illusion. Advocates knew that,
to withstand the rigors of a fixedexchange system that resembles
nothing so much as the gold standard, countries would have to adjust to economic shocks through
shifts in wages and prices a
course, they believed, that the euros members would be forced to
take. (Read Mr. Mnchaus column here: on.ft.com/1MAoXgF.)
That is, the euros advocates
believed that reforms could create enough flexibility to mainly
neutralize Milton Friedmans
warning that in the face of negative shocks, countries with fixed
exchange rates would suffer large
costs: If the external changes
are deep-seated and persistent,
the unemployment produces
steady downward pressure on
prices and wages, and the adjustment will not have been completed until the deflation has run
its sorry course, Mr. Friedman
wrote in The Case for Flexible
Exchange Rates.
But I never believed that this
would work, and I based this
skepticism on real evidence.
During the run-up to the Maastricht Treaty, which set the whole
euro project in motion in 1992, a
number of studies focused on the
United States a currency union
that functions reasonably well.
Was that because America, with
its weak unions and competitive
labor markets, had more wage
and price flexibility than other
nations?
Not according to the econo-

mists Olivier Blanchard and Lawrence Katz, who discovered back

then that wages hardly played
any role in regional adjustments
to shocks; it was all about labor
mobility. So the idea that Europe
would be able to achieve a kind of
flexibility found nowhere in the
world not even in the brutal,
markets-rule American economy
was just implausible.
What none of us thought about
at the time was the additional
problem of the interaction of
deflation and debt the way attempts to adjust through falling
wages can worsen debt problems.
But even given what we knew a
quarter-century ago, the problems with the euro were obvious.
Currency Wars
Ricardo Caballero, Emmanuel
Farhi and Pierre-Olivier Gourinchas recently published a
new theoretical paper (here: bit.
ly/1MmMMmE) on how to think
about a worldwide liquidity trap.
Im still working through the analytics, but its clearly consistent
with what Ive been saying for
years.
In particular, when the economists write about how liquidity
traps in some countries tend to
get exported everywhere else,
thats very much what Ive been
worrying about.
And they point out that owning a reserve currency, so that
people want to buy your assets, is
actually a bad thing in a liquiditytrapped world an argument
Ive been making for many years,
with lamentably little impact on
the what-if-China-stops-buyingour-bonds panic.

SAMUEL ARANDA/THE NEW YORK TIMES

Angel Puyalon, a former interior designer, and his wife, Maria Jesus Judez, at their home in Zaragoza, Spain. The couple can no longer afford to
pay their mortgage. While Spain has been heralded as an economic success amid Europes troubles, many Spaniards are still struggling.

READER COMMENTS FROM NYTIMES.COM

The Currency Union Grew Too Quickly

that were explained to him more
than 10 years ago. Why does it
often take pundits so long to accept
what laymen understand very early
on?

I believe that countries that

were not ready to use the euro
were allowed into the currency
union too early.
As a result, the European Union
grew too quickly.
With all the problems facing the
Continent these days, I wonder how
the euro manages to keep up with
the dollar at all.

NAME WITHHELD, GERMANY

First, backtracking from the

euro is impossible. Europes political leadership created an inherently
unstable common currency area,
and now everyone has to live with
the consequences.
Second, a common currency area

MARIE, LUXEMBOURG

Wolfgang Mnchau is only now

coming to understand arguments

that lacks fiscal and political integration as the eurozone does

will always be subject to instability.
U., SOUTH CAROLINA

Labor mobility in Europe mostly

consists of Europeans trying to
get to Britain, where jobs are
available.
Yes, they are low-paying jobs, but
theyre better than no jobs at all. And
many Europeans speak English,
which is an added benefit.
CHRIS PARKINSON, BRITAIN

Mr. Krugman, you are, of course,

correct in arguing that when it
comes to common currency zones,
the main difference between the
United States and Europe is labor
mobility.
But its worth considering why this
is true. In Europe, the variation in
languages from country to country
is a major obstacle. A worker from
Poland, for example, cannot get a job
as a cashier in a French supermarket because he doesnt understand
the language. And how would his
Polish children fare in the French
school system? Couple the language
issue with other cultural differences,
and labor mobility is certainly impeded.

For the eurozone to operate effectively, Europeans would have to give

up what makes Europe worth visiting: cultural diversity.
So on one level, at least, you are
correct: The euro was partially
doomed from the start. And officials
can continue to try and work around
the Continents problems, but they
havent been very successful.
BLAISE ADAMS, CALIFORNIA

The European Union is the enemy of Europe and its people. Its
an enormous, shabbily constructed
building that could collapse at any
minute, and must be dismantled
carefully.
NAME WITHHELD, BRITAIN

How long will economists keep

moaning and groaning about the
eurozone being a mistake before
they come up with solutions for its
current woes?
P., GERMANY

As long as the E.U. is controlled

by appointed technocrats, it will
never work effectively. People will
always feel that they are being treated like cattle instead of citizens.
LARRY L., TEXAS

ONLINE: COMMENTS
Comments have been edited for clarity and
length. For Paul Krugmans latest thoughts
and to join the debate online, visit his blog at
krugman.blogs.nytimes.com.

PAUL KRUGMAN

BACKSTORY

A Society Gripped by Despair

An Increase in Mortality Rates

A new paper written by the

Princeton economists Anne
Case and Angus Deaton on
mortality among middle-aged
white Americans has been getting a lot of attention lately, and
rightly so (read it here:
bit.ly/1P7xvf4).
As a number of people have
pointed out, the closest parallel
to Americas rising death rates
driven by poisonings, suicide
and chronic liver disease is
the collapse in Russian life
expectancy after the fall of
Communism (no, were not doing as badly as that, but still).
What the data illustrates is a
society gripped by despair, with
a surge in unhealthy behaviors
and an epidemic of drugs, very
much including alcohol.
This picture goes along with
declining labor force participation and other indicators of
social unraveling. Something
terrible is happening to white
American society, and its a
uniquely American phenome-

other time. For now, the thing

to understand, to say it again, is
that something terrible is happening to our country and it
doesnt have to do with Those
People.
It has to do with the white
majority.

BEN SOLOMON/THE NEW YORK TIMES

Angus Deaton, left, with his wife, Anne Case, at a news

conference earlier this year in Princeton, N.J.
non. You dont see anything like
this in Europe, which means
that its not about a demoralizing welfare state or any of
the other popular myths in our

political discourse.
Theres a lot to be said, or at
any rate suggested, about the
politics of this disaster. But
Ill come back to that some

Pyramid Schemes
Just another reminder that
its even worse than it looks,
even if you already know that
its even worse than it looks.
Ben Carson, the current
front-runner for the Republican
presidential nomination, says
he believes that the pyramids
in Egypt which are mostly
solid were built by Joseph
to store grain. Meanwhile,
the company run by Jonathan
Johnson, the Republican candidate for governor of Utah, has
been hoarding gold and silver in
anticipation of the coming economic crisis (read the article
from The Salt Lake Tribune:
shar.es/15knj4).

For much of the modern era, mortality

rates have consistently declined in countries across the developed world. But a recent study in the Proceedings of the National Academy of Sciences found that
starting in 1999, middle-aged white Americans have actually seen their mortality
rate steadily increase.
According to the research, white adults
between the ages of 45 and 54 are experiencing significantly more illnesses and dying more frequently than prior generations.
Alarmingly, much of the increase is due to
a spike in suicides, drug and alcohol overdoses, and liver diseases associated with
alcoholism.
In response to the findings, The Atlantic announced in a Nov. 4 headline: Middle-Aged White Americans Are Dying of
Despair.
The study, compiled by Anne Case and
Angus Deaton, the winner of this years
Nobel in economic science, found that the
surge was uniquely limited to whites in the
United States. The mortality rates among
middle-aged black and Hispanic residents
have continued to decline in line with his-

READER COMMENTS FROM NYTIMES.COM

torical precedent. Additionally, the trend is

unique on an international scale, as no other advanced nation has experienced a similar rise among the same age group.
While the increase was registered across
the entire 45-54 demographic, the rise is
especially concentrated among people who
only hold a high school degree or less, and
who have faced severe financial hardship
since much of the American manufacturing
sector was relocated abroad.
Those are the people who have really
been hammered by the long-term economic malaise, Mr. Deaton said recently in an
interview with NPR. Their wages in real
terms have been going down. So they get
into middle age having their expectations
just not met at all.
The authors also note that while citizens
of other countries have also experienced financial hardship, particularly during recent economic crises, none have registered
a corresponding mortality increase. Mr.
Deaton and Ms. Case attribute this disparity to Europes vastly more generous welfare states, which include guaranteed retirement benefits.

The people with money and power

in America only care about buying
the cheapest labor for the cheapest
price with the fewest complaints.

Americas Alarming Tendency to Self-Destruct

SIOBHAN, NEW YORK

It would be interesting to see

these data broken down according
to congressional districts.
One has the sneaking suspicion
that this scenario is more common in
conservative, rural districts, where
representatives are committed to
ensuring that their constituents gun
rights are preserved, while cutting
mental health and drug treatment
services.
NAME WITHHELD, FLORIDA

be a rising mortality rate among

whites. I find this development less
terrible than the skyrocketing
rates of incarceration among African-Americans and other minorities
over the last 40 years.
What is truly terrible about what
is happening to whites is that in their
apparent despair, they are driving
the rest of the country down a perilous road that might eventually lead
to some kind of fascism.
BRIAN KAMMER, GEORGIA

I struggle with the notion that

something terrible is happening just because there seems to

This data is incredibly disturbing but doesnt it simply imply

that middle-aged white men are

approaching the condition of
middle-aged black men?
DAN KERVICK, NEW HAMPSHIRE

We shouldnt be surprised when

certain groups of people selfdestruct in a society that values
self-reliance above every other
attribute.
Nevertheless, I am sure that we
will soon see some enlightened article from New York Times columnists
David Brooks or Ross Douthat arguing that if white Americans were
more religious or if liberal culture

hadnt somehow severed the bonds

of family and community, it wouldnt
matter that our economic policies
had purposely hollowed out the entire center of the country.
DAN M., WASHINGTON STATE

The group of Americans with

money and power has basically
written off everyone else. They
dont care what happens to other
people. They dont care if they have
jobs or homes, or if their kids go to
college. They dont care if other people die of treatable diseases, or drink
or drug themselves into stupors.

Perhaps we should start connecting the decline of white families to the effect of the entertainment industry on white culture.
Whether its due to the influence of
country music, evangelical religious
movements or Foxs entertainment shows on TV, the fact is that
a large portion of white America
has decided to either ignore or deny
science, including the medical communitys recommendations on diet,
alcohol consumption and mental
health.
JOE, NEW YORK

Paul Krugman
joined The New
York Times in 1999
as a columnist on
the Op-Ed page
and continues
as a professor of
economics and
international
affairs at Princeton
University. He was awarded the
Nobel in economic science in 2008.
Mr. Krugman is the author or editor
of 21 books and more than 200
papers in professional journals and
edited volumes. His latest book is
End This Depression Now!