Krugman: "I don't think we're going to a crisis like the one in the seventies"

Paul Krugman (Albany, 69 years old) attends to EL PAÍS before taking out his laptop to write his column for

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He has just opened the International Congress of Cooperativism, Social Economy and Public Economy (CIRIEC), held in Valencia, where he has placed emphasis above all on social inequalities.

Question

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Inequality is one of the great legacies of the financial crisis in Spain.

Can inflation accentuate it?

Answer

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It is not clear.

In the United States we have had much better salary growth in the lower incomes than in the higher ones.

In reality, we have reduced wage inequality.

There is some problem with the great profits of the oil companies, but this is not the case in Spain.

The problem is not going to be that, but that people will see a reduction in their real income.

P.

The latest World Inequality Report points out that the measures against the pandemic even made it possible to reduce poverty in the US...

R.

_

Unfortunately, many of those programs have already expired.

Q.

But doesn't that confirm that reducing inequality or poverty is clearly a political decision?

A.

A lot.

In the midst of the pandemic we have been able to reduce poverty in the midst of massive unemployment.

And without an adverse economic impact.

That tells us that it is a political decision, that it is not necessary to have all that suffering.

Unfortunately, at least for now, the political decision has been made to allow poverty to rise again.

P.

We expected a strong rebound in the economy, but the invasion of Ukraine and inflation have ended up spoiling the party.

Are we going to a stagflation?

A.

We will probably have something that could be called stagflation, but I don't think we will go to a situation like the 1970s. There is no sign of a spiral of prices and wages.

The US economy appears to be overheated, with core inflation running at 4%, and we need to cool it down.

That means raising rates.

But I don't think there will be a serious recession and inflation will come down relatively quickly.

Q.

When?

R.

Within a year it could be at 3%.

P.

But citizens now go to the supermarket and see that olive oil has become 40% more expensive.

What can be done?

A.

The Federal Reserve is already raising rates.

I'm a bit more puzzled about Europe.

I'm not quite sure what the ECB is doing, because core inflation in Europe looks lower than in the US.

In Europe it is practically a

pure supply

It is not clear to me why interest rates should go up.

And yet, the markets think the ECB will raise them as much as they expect the Fed to raise them.

P.

_

The ECB has already announced a hike for July and another for September.

And it's just the beginning.

R.

But there is a bet on an increase of 300 basis points on both sides of the Atlantic.

I understand Lagarde's fears, but I think maybe the ECB is exaggerating.

P.

The ECB is calling to control salary increases to avoid an inflationary spiral.

What do you think?

R.

The problem is not that wages begin to reflect prices, but that people begin to base their decisions about prices and wages on the expectation that inflation will continue to be high.

P.

The rise in rates has already triggered the risk premiums in southern Europe.

Are fears of another debt crisis like the one in 2010 justified?

A.

I don't see it.

I do not believe that the real burden of debt service in Spain is high.

The markets should not distrust Spain.

Perhaps the markets are fearing another liquidity crisis.

Last time, Mario Draghi settled it with three words:

(whatever it takes).

Perhaps they are afraid that the ECB will not repeat them again.

But, in reality, these differentials reflect more a political crisis than an economic one, about Europe's will to take the necessary steps to maintain the stability of the euro.

P.

_

This year there are mid-term legislative elections in the US Do you think that inflation is going to punish the Democrats?

R.

It is possible that social issues, such as abortion, end up rescuing the Democrats.

But they probably pay a price for inflation.

And it is extremely unfair.

Arguably Biden spent too much.

But people are upset about the price of gasoline.

And over that he has no control.

Q.

But Treasury Secretary Janet Yellen did say that inflation was not going to get out of control.

R.

_

We did not know that Russia was going to invade Ukraine.

Oil and food prices have risen because of events that are completely outside the US government. But voters are going to think about how much it costs them to fill their tank, and they may blame the president.

Biden will pay a political price for the actions of Vladimir Putin.

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