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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 i s the author or editor

of 21 books and more than 200

papers in prof essional jour nals and

edited volumes. His latest book is

End This Depression Now!

It has been an interesting fewmonths on the progressive side ofthe political debate, and I meanthat in the worst way. A significantnumber of progressives are very,very excited about the unexpectedsupport for Democratic presidentialcandidate Bernie Sanders, and areshocked to find that many I thinkmost liberal policy wonks arerather skeptical.

For me, this is somewhat familiarterritory: I was skeptical aboutBarack Obamas promises of tran-scendence back in 2008, too. Andthen, as now, a fair number of enthu-siasts took no time at all to declarethat I was a corrupt villain, desper-ate for a job with Hillary Cli nton.

O.K., this too shall pass . But Ithought it might be worth saying abit more about where people like mefind ourselves today.

First of all, to say what should bebut sometimes apparently isnt obvi-ous: What you would ideally wantand what you think can be achievedarent the same thing. What I andmost of my wonk friends would liketo see is what the economist RobertHeilbroner used to call SlightlyImaginary Sweden that is, acountry with a strong social safetynet that protects everyone againstavoidable misery, provides workerswith substantial bargaining powerand with a strong environmentalpolicy. Someplace where basic de-cency is a fundamental principle.

But nothing like that is going tohappen in America anytime soon. Ifwere going to have any kind of radi-

cal change in the next few years, andprobably the next couple of decades,it will come from the right, not the left.

As Matt OBrien at The Washing-ton Post pointed out recently, eventhe incremental changes that Mrs.Clinton is proposing are very unlike-ly to get through Congress; the radi-cal changes Mr. Sanders is propos-ing wouldnt happen even if Demo-crats retook the House. Mr. OBriensays that the Democratic primaryis like arguing whats more real:a magical unicorn or a regular uni-corn. In either case, youre still run-ning on a unicorn platform. This is,alas, probably true: The platformsof the candidates are better seen asaspirational than as programs at alllikely to happen.

But in that case, why not go forthe magical unicorn? A couple ofreasons.

One is that there are degrees ofrealism: A program that could beimplemented in part if Democratsretake the House might turn out tobe a useful guide relatively soon,while a program that requires a po-litical revolution wont.

Another is that, perhaps inevitably,the Sanders insistence on the need formagical unicorns has led to i nvoca-tions of economic as well as politicalmagic. I warned a while back thateven Mr. Sanders wasnt willing tolevel with voters about what his ide-als would require that, in particu-lar, he was assuming unrea listic sav-ings in order to gloss over the realitythat quite a few middle-class Ameri-cans would be net losers in a transi-

tion to single-payer health care.And this could matter a lot in a

general election. For sure, the Repub-lican nominee, whoever he is, will beoffering plans that are obvious non-sense. But if his Democratic opponentis also offering a plan t hat doesntadd up, you know that the media willportray the situation as symmetric,even if it isnt. (And it wouldnt be:Whatever is problematic about theSanders platform, G.O.P. fantasiesare in a whole other league.) This iswhy its important to bring up thecriticisms of Mr. Sanders now, notwait until later and its also why the

campaigns knee-jerk response of at-tacking the messengers is such a badone. It might work in the primary, butit definitely wont work later on.

Im not happy with magical uni-corns as a campaign strategy. ButI understand the problem, which isalso the problem Mrs. Cl inton faces:Among young people in particular,being a wet blanket is no way to behugely popular. Saying No, we cant at best, maybe a little isnt all thatinspiring to people who want uplift.Realistical ly, the slogan should actu-ally be They shall not pass, whichactually could be inspiring.

All this poses an interestingproblem for Mrs. Clinton whowill, if nominated, be pretty good atportraying herself as the defender ofPresident Obamas achievements.Until then, can she try to match Mr.Sanders in uplift? Probably not, be-cause it would be insincere and comeoff that way. Shes a veteran of ma nyyears of partisan warfare, of per-sonal vilification, of seeing how hardpositive change is (and yes, some ofthat applies to me too, although notto remotely the same deg ree). Shesnot going to be able to promise magicwithout being obviously false. Mr.

Sanders, on the other hand, probablybelieves what hes saying; the rudeawakening still lies ahead.

Mrs. Clinton will probably get thenomination in part because Afri-can-American voters, much morethan young whites, know all too wellhow hard it is to achieve change.So far, at least, p olls dont show Mr.Sanders making major inroads inthe minority vote. And, as I said,Mrs. Clinton is actually pretty wellpositioned for the general election.

But you see the problem. Its arough time for progressives whodont believe in magic.

A few months ago, there was a debateabout the sources of pressure on the Feder-al Reserve to raise rates. Part of what drovethat debate was a clear division betweenFed insiders like Vice Chairman StanleyFischer, who seemed eager to raise rates,and outsiders like me and Lawrence Sum-mers, the former Treasury s ecretary, whowere strenuously against such a hike. Whatwas odd about the debate was that therewere few, if any, obvious differences in eco -nomic ideology between the two sides.

So what made Keynesian central bank-ers much more inclined to raise rates, a ndmuch less receptive to the argument thatrisks are asymmetr ic that waiting abit too long is no big deal, while movingtoo soon can be a disaster than thei rcolleagues, counterparts and former stu-dents outside the system?

I argued that it had a lot to do with theway that central bankers talk all the timeto private bankers and that bankersare hurt a lot by low interest rates. Otherpeople, however, questioned the premise,arguing that there was no good reason to

believe that low rates were especially badfor bank profits.

May I say that recent events seem tohave settled that argument in my favor?

As negative rates spread around the world,banks are howling and genuinely suf-fering.

As the economist Tim Duy recentlywrote on his blog: The collapse in bank-

ing stocks suggests strongly that negativeinterest rates are not compatible withour current economic institutions. Thesystem relies on the banks, and the banks

need to make money, and theystruggle to do so in a negativerate environment. Should it beany surprise that the threatof global negative rates isslamming the financial sec-tor? (Read the post here: bit.ly/1TlM5jH.)

And surely these adverseeffects dont begin only wheninterest rates are at zero; lowrates must put a squeeze onbanks as well.

So I think that we have anexplanation for rate-hikebias: Its the influence of thefinancial industr y. At thesame time, however, we alsosee that were just talkingabout influence, not completecontrol or anything close to

it. The Fed has, Id argue, be en swayed bybank interests not by crude corruption,but simply by the fact of who they talk toall the time. That inf luence hasnt stoppedthe Fed and other central banks from pur-

suing policies that the banks really hatein an effort to pursue their primary job,which is to stabilize the e conomy. At most,were talking about a tilt in policy.

PAUL KRUGMAN

Time for Realism,

Not Magic

PAUL KRUGMAN

Rate-Hike Bias Started With BankersIn late January, the Bank of Japan sent

shock waves through global markets af-ter officials announced that the bank was

adopting a negative interest rate. While the

country is not the first to try and boost its

economy with this particular st rategy, Ja-

pans surprise move signaled that the tactic

might be pursued by other central banks

with increasing regularity.

After the announcement on Jan. 28, ba nk

stock prices fell sharply on expectations

that negative rates could result in lower

profits.

The European Central Bank began ex-

perimenting with negative rates in 2014,

and several smaller central banks on the

Continent have introduced negative rates

as a way to fight deflation.

Using standard monetary policy, central

bankers can generally stimulate a nations

economy by lowering the benchmark inter-

est rate, which tends to increase borrowing

and investment. This strategy has histor-

ically been constrained by the zero low-

er bound if rates are already set at zero,they cant be cut further to provide more

stimulus.

After the financial crisis in 2008, many

countries cut their rates to zero but nev-

er experienced enough of an economic re-covery to raise them substantially. Central

banks have lately been forced to explore

more-unconventional stimulus policies,

such as quantitative easing, but these too

have proved to be ineffective in combating

deflation.

In response, some of these countries have

introduced negative rates, in which central

banks effectively charge commercial banks

a fee to hold deposits. These fees are some-

times passed on to depositors, either in the

form of new fees or directly negative inter-

est rates. According to the strategys pro-

ponents, banks stand to lose a percentage

of the money they leave idle in a negative

rate environment, so they are more likely

to lend it out and bolster the economy.

In theory, interest rates below zero

should reduce borrowing costs for compa-

nies and households, driving demand for

loans, wrote Bloombergs Jana Randow

and Simon Kennedy on Jan. 29. In prac-

tice, theres a risk that the policy might domore harm than good. If banks make more

customers pay to hold their money, cash

may go under the mattress instead.

BACKSTORY

New Policies Stir Markets

Hillary Clinton is a magical uni-

corn herself one that p ays lip

service to reforming the financial

industry, but accepts huge con-

tributions and speaking fees from

Wall Street firms. ROB P., CALIFORNIA

As a liberal, I have a number of

problems with the Republican

Party. Mainly, they seem to be morefocused on theatrics than governing.

For example, when they take aposition, conservatives are more

concerned with how that positionwill play with the partys base thanwith what effect it will have on thecountry. One of the downsides ofthis sort of political theater is that ittends to go hand in hand with her-etic hunting.

Democrats hadnt gone down thisroad the way that Republicans had that is, until Bernie Sanders start-ed running. Mr. Sanders is takingpolicy positions that are politicallyimpossible. Meanwhile, his support-ers are branding pragmatists who

point this out as heretics.Mr. Sanders is the first major

Democratic candidate in my lifetimewho is asking people to vote out ofanimosity (toward billionaires).

Hes simply making unrealisticpromises. Mr. Sanders is bad news.

ALEX S., NEW YORK

Perhaps Mr. Sanders cannot

enact legislation that promises

health care or free public college

tuition for everyone. But if we donthave a political revolution in the

United States soon, well never getour democracy back. Our only choicewill be between oligarchy lite and

oligarchy heavy.After all of your columns bemoan-

ing income inequality, Mr. Krug-man, you seem to be endorsing theDemocratic candidate who is mostlikely to preserve it.

JOSH THOMAS, INDIANA

Another day, another New York

Times pitch for a passive, custo-

dial Clinton presidency.

Mr. Krugman, suppose that youare correct. Lets say that meaning-ful progress providing decent,hopeful lives and fairness for work-ing people is a pipe dream. Lets

suppose that we must learn to livewithin the political boundaries thathave been set by wealthy donors and

lobbyists, and that we should lowerour sights according ly. Now letsask: How did we reach this impasse?The answer is by following this kindof advice.

Over the years, the Democratsscrapped their New Dea l legacy,refused to play offense againstReaganism and became the partyof acquiescence. Now, a candidatehas come along who is seeking torally the people and restore somebalance.

I find it quite strange that you andyour colleagues are apparently har-boring more anger toward Mr. Sand-

ers and his supporters than towardthe inequities and injustices of thestatus quo.

ANN, MASSACHUSETTS

Sometimes real change requires

bold, abrupt moves.

If you keep contorting to accom-modate the agenda of an aggressivegroup, that group will keep demand-ing that you make more concessions.

AIDAN SMOKER, IRELAND

The problem with rate bias is

that all of our economic models

are based on the notion that an

economy should be continually

expanding based on strong con-

sumer demand forscarce globalresources.

But today the opposite is the case:Economies are experiencing inad-equate levels of demand in the face ofan oversupply of commodities.

As you have continually pointedout, Mr. Krugman, the rules of eco-

nomics fly out the window when wehit the zero lower bound. Up is down,and down is up. Virtuous saving be-

comes selfish vice.There is no traditional road map

for getting out of this situation. Theonly solution I see is Keynesianism:Gain access to all the idle cash thatis sitting on the sidelines and put itto work on research and infrastr uc-ture projects that will create jobs,increase consumer demand and getthe economy moving again.

JOHN M., MAINE

If low interest rates are terrible

for bankers and rates are alreadynegative or close to it , why arent

bankers the biggest proponents of

increased government spending?

NAME WITHHELD, NEW YORK

It has been obvious for some

time that the Federal Reserve

is out of options for lifting the

United States out of this economic

malaise.

Monetary policy has reached theend of its rope. It is time now for fis-cal policy to ta ke over, and its the jobof Congress to make that happen. Agood first step would be for lawmak-ers to pass a large infrastructurebill to repair Americas bridges andhighways, and upgrade its electricalgrid.

I am sure that we would see a sud-

den upsurge in the economy and acalming in the stock market. Themarkets are only looking for some

direction. NAME WITHHELD, TEXAS

If bankers are feeling the pain

of low interest rates, then they

should use their massive politi-

cal influence to gather bipartisan

support for a fiscal stimulus that

is big enough to return interest

rates to normal levels.

NAME WITHHELD, NEW YORK

So which is it for you and your

relationship with Hillary Clinton:Influence or complete control?

GREG, PENNSYLVANIA

If the secretary of the Treasury

comesfrom Wall Street, is he notmore likely to think like a banker

and see the world as Wall Street

sees it, despite the fact the he is

now in government?

If he comes from the New YorkFederal Reserve Bank, is this notalso the case?

GEORGE, MICHIGAN

Whats obvious here is that

people shouldnt elect a presi-

dent whotakes money from WallStreet.

So vote for Bernie Sanders. NAME WITHHELD, FRANCE

If ultralow rates harm banks

enough to potentially spark a

recession, perhaps Americans

should find some other way to

spur growth.Fiscal stimulus, anyone? LEON E., VIRGINIA

READER COMMENTS FROM NYTIMES.COM

A Political Revolution Is Long Overdue

READER COMMENTS FROM NYTIMES.COM

Under the Influence

DREW ANGERER/THE NEW YORK TIMES

Janet Yellen, the chairwoman of the FederalReserve Board, testifies at a House FinancialServices Committee hearing earlier this month.

JIM WILSON/THE NEW YORK TIMES

The Democratic presidential candidates Bernie Sanders and Hillary Clinton at a debate in Milwaukee earlier this month.

DEBATING POLITICS, ECONOMICS AND OTHER TIMELY TOPICS WITH PAUL KRUGMAN OF THE NEW YORK TIMES FRIDAY, FEBRUARY 19, 2016

ONLINE: COMMENTS

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