August 12th, 2011
02:09 PM ET

Watch GPS: Krugman calls for space aliens to fix U.S. economy?

On GPS this week, we explore the most important topic (the economy) with the most important economic voices. Fareed Zakaria talks to Nobel Prize winner Paul Krugman and Former IMF Chief Economist Ken Rogoff.

The show also turns a myth on its head. China’s not doing the U.S. a favor by buying its Treasury Bonds - the pleasure is very much China’s. We’ll explain.

All that, plus a fascinating look at America’s fractured relationship with Pakistan with the journalist Ahmed Rashid, and a smart, macro look at the London riots with two top British thinkers.

But first, why does Paul Krugman say space aliens could fix the U.S. economy? Here's an edited excerpt of what he and Ken Rogoff had to say:

Ken Rogoff: Infrastructure spending, if it were well-spent, that's great. I'm all for that.  I'd borrow for that, assuming we're not paying Boston Big Dig kind of prices for the infrastructure.

Fareed Zakaria:  But even if you were, wouldn't John Maynard Keynes say that if you could employ people to dig a ditch and then fill it up again, that's fine, they're being productively employed, they'll pay taxes, so maybe Boston's Big Dig was just fine after all.

Paul Krugman:  Think about World War II, right? That was actually negative social product spending, and yet it brought us out.

I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation."  Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what basic logic says.

It's very hard to get inflation in a depressed economy.  But if you had a program of government spending plus an expansionary policy by the Fed, you could get that.  So, if you think about using all of these things together, you could accomplish a great deal.

If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better -

Ken Rogoff:  And we need Orson Welles, is what you're saying.

Paul Krugman:  No, there was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace.  Well, this time...we need it in order to get some fiscal stimulus.

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Topics: Economy • Global • GPS Episodes • GPS Show • Jobs

soundoff (336 Responses)
  1. Gloria

    Paul Krugman is right!! About time you got someone like him on your show. I just wish our leaders would listen to him.

    Ken Rogoff really helped me better understand why so many Harvard graduates are "glass half emptyy" thinkers and why they also tend to be so conservative. They must be scared silly by the time they graduate. Before today, I've never heard so many reasons that good ideas "might not" work as I've heard from Ken Rogoff on this show. How will our leaders ever get anything done to help us recover if they listen to the Rogoff's in our country?

    August 14, 2011 at 4:34 pm | Reply
  2. Marilyn B.

    Thank you for writing this! Obama was president of the Harvard Law Review. He's no dummy. He knows the problems America is facing and he also has some real limitations in doing what he wants to do in the way that the presidency itself defines what he can and cannot do. I wish people would quit thinking of him as not doing his job due to some 'personal failures' and see him as he is, the leader of our country doing the best he can in the situation he is in. It doesn't help when you have his own party and political pundits and media blaming him for the country's mess. The blame game is just that, a game.

    August 14, 2011 at 7:28 pm | Reply
    • 14TRILLIONindebt

      Marilyn, I am just wondering what "personal failures" are you alluding to.

      August 15, 2011 at 1:22 pm | Reply
      • Terran

        Smoking?

        August 18, 2011 at 1:00 am |
  3. John Gelles

    Brian and Gloria are certainly CORRECT.

    Rogoff, Fareed and the President are certainly HALF-wrong.

    But the picture of Orson Wells and Space Invaders is NOT the best Thought Experiment.

    The Thought Experiment should be CHI-MERICA as an IMAGINED SUPER WAL-MART.

    In this experimant we do not say KEYNES wanted infinite MONEY. That would spell
    hyperinflation.

    KEYNES - updated to after the revolutions in Technology in Info, Bio and Nano Tech -
    demands near infinite capacity to produce necessities of the highest market-ready quality

    Now when we say we will use QE 3, 4, 5, etc., to provide jobs based on liquidity and
    rapiid recovery from "overhanging" debt, and will finance such recovery with debt-free
    money - we mean finance that recovery with the "things that money can buy".

    Now Rogoff cannot introduce historical examples of soft money. We are talking about
    hard real wealth that we imagine we will produce.

    That is what WW II style fast recovery was all about. Real wealth in that time was
    planes, ships, tanks and competent forces. Today it is water, food, houses, schools,
    colleges, world-class production facilities and world class output of everything.

    Krugman and all true Keynesians know this in their bones. Debt can be reorganized.
    Broken human beings who have not "fed" teir families are not the legacy we want
    even if we went to Harvard.

    Wake up Fareed. Obama is a failure if he does not see the difference between
    money and the "things it can buy". We have the potential to produce all we need.
    Therefore, if we are up to the job of Preisdent, we know that will allow us to
    create greenbacks in sufficient amount to revcover jobs overnight as long as we
    will be able to match the money spent with quality output soon and with inflation-
    protected savings until shelves are full.

    August 14, 2011 at 7:34 pm | Reply
  4. John Gelles

    Marilyn and Fareed - you are making lame excuses for a hand-cuffed president
    who has chosen Univ. of Chicago negativism ove Univ. of Missouri Kansas City
    positivism.

    He deserves to be removed from office if he cannot lead this country to take
    full advantage of our pre-eminence in innovation and production to finance
    fast and full recovery overnight - as though we had the potential, with all
    the supply chains now in tact, to grow the global economy to fully meet
    its capacity to produce - BECAUSE THAT IS EXACTLY WHAT WE HAVE !

    Chicago and Harvard economics is past history. Today's economics is
    free of all gold constraints. It is only an accounting system that must
    lean more oin cost accounting than profit and loss accoujnting. Cost
    accounting came to prominence in WW I. It won WW II. It can win the
    current struggle between austerity thought and output based money
    thought.

    Marilyn and Fareed - your excuses for a lamentable Presidential performance
    are all based on Fareed nonsense about th ratio of deficit or debt to production.
    Do you not see that such ratio depends on the denominator if you care to take
    your foot off the neck of the workers and middle class children who cannot
    afford to wait for profit and loss mechanisms never meant to meet this emergency.

    August 14, 2011 at 7:49 pm | Reply
  5. John Gelles

    We have hear enough from Nial Ferguson, Ken Rogoff and Fareed Zakaria.
    They pretend to understand free enterprise and the money it takes to make
    it work on behalf of the numan race. They do not. Debtors prisons are
    passe. Debt's power to defrat civilization is gone. Debt can be reorganized
    to be fair to lenders and borrowers. The laws on reorganization of debt or
    bankruptcy are sophisticated enough to be on the side of civilized pundits
    and professors.

    Artificial Intelligence will soon team with logistical sicience to produce our
    way out of false crises like this Rogoff super contraction. Meanwhile, enough
    of this anachronistic fear of debt. Debt, like stocks and shares of business, is
    a convenience not a death sentence. Wake up Fareed. You are too smart for
    your current excuse-making. Jon Huntsman ought to be tapped today to
    come back to the administration as a roving ambassador - as Wilkie was for
    Roosevelt in 1944. Then, a team of Keynesian QE 3,4,5,etc., experts ought to
    be assembled to end this mess tomorrow.

    August 14, 2011 at 8:10 pm | Reply
  6. John Gelles

    Forgive typos in messages above. I'm a care giver at home with little time to
    correct YOUR policy mistakes.

    August 14, 2011 at 8:12 pm | Reply
  7. Jon

    maybe the aliens can abduct krugman and save the US economy from these wacked out lefty academics.

    August 14, 2011 at 11:10 pm | Reply
    • John Gelles

      What is poor thinking is the Hoover idea that we cannot mobilize an economy and produce what we need. If we did in peace what we do in war, work would produce the things we need. The the money we spent would be backed by production not debt. Debt could be repaid over a longer period of time at interest that made payment possible. Calling people names is wrong. Thinking by "thought expefiment" can be very effective.

      August 14, 2011 at 11:35 pm | Reply
  8. Michael

    I miss when GPS was about global politics/events.

    August 15, 2011 at 12:26 am | Reply
  9. James Reznor

    Well, the government then needs to tell people that we are going to be attacked by Aliens so that the economy gets a quick fix. Sounds more like a Hollywood movie.

    August 15, 2011 at 12:51 am | Reply
  10. sputnik-fest

    i wonder if they have ever been to sputnik fest? it landed in the middle of the street in some town in wisconsin and they have a sputnik fest...it has a cake decorating contest. fun.

    August 15, 2011 at 12:51 am | Reply
  11. ?

    is fareed zakaria from some other country? seems like we are getting more foreign people that don't really reflect the us very well. sometimes its comical, but they are so serious...so we can't laugh or anything.

    August 15, 2011 at 12:54 am | Reply
    • Terence MacAuliffe

      is fareed zakaria from some other country? seems like we are getting more foreign people that don't really reflect the us very well. sometimes its comical, but they are so serious...so we can't laugh or anything.
      I cannot believe this comment! It reflects the ignorance of some individuals and their lack of sophistication.
      Solrry Fareed,, I feel ashamed with these comments. I believe you are one of the few comentators that is not biased and certaiknly know this country and the history that I am sure that individual ignores

      August 15, 2011 at 7:21 pm | Reply
  12. John Gelles

    Rogoff"s whole argument rests on the history of MONETIZED DEMAND. It is true that, that history suggests he and Fareed have a point when they consider debt, and what a free economyc can accomplish when ruled by profit and loss accounting for sustainable profits and capital.

    But when we look at mass produced MASS PRODUCED SUPPLY, the history of demand must be ignored. We have not yeat accommodated excess production to modern economic problems. Never before in pertinent history has Asia been capable of becoming the workshop of the world for almost every necessary THING.

    This means that Asia, Europe and the Americas are capable NOW of outproducign scarcity almost over night. On the way to that goal, there is no excuse of failure to monetize monetize sufficient demand to achieve full employment everyhwhere on earth.

    This in turn means the end of poverty is in sight. But we must ignore th hisotry of super-contractions of demand. In such past exsperience, it may have been that grandiose spending of debt-based or gold-based spending was doomed to fail - as debt exceeded by far the ability of nations to mass produce supply to back naked fiat money.

    Now, however, we have the means to make good as much greenback spending as may be called for, for both full green employment and ending poverty, pollution and resort to trade and real war.

    Rogoff and Zakaria make a case of concern over debt ratios to future expected sales. But that was before future sales, based on future potential porduction, were relativelyh far below need. Need, we must remember (or realize) is now a minimum useful income ( based on technology and automation) is far more than the current median income. Such income is useful to individuals for a decent life style. It is even more useful to nations, to ensure prosperity and defense of the the four freedoms.

    We must reject all conservative desire to crawl in a hole and die because the poor are bound to be rich. They will be riich for reasons beyond out control. Machines that thnink and work endless hours will outproduce need. The lazy will be rich. If not, the lazy will all be dead and so will all the ambitious. Failure to finance full employment will leave terror in charge of the disunited nations.

    Krugman is arguing along these lines. Rogoff is mired in the past. There is no excusing Obama because he has inherited this opportunity to be the Hamilton of his day. Bernanke is in his corner. So is all but the brain washed set of Univ of Chicago fear of democratic success. We are talking of the Secoind Bill of Rights and how to pay for economic democracy. You pay for it in products - goods and sevices. You use debt as a convenience and adjust it to meet the power of equity to overcome events - not succomb to the first fire, flood or temporary over-production.

    Money is the greatest invention of all time. It was invented to keep us all rich. Let us not ask it to keep us all sick, injured and dead. Money must never be short when productive potential demands otherwise.

    August 15, 2011 at 12:59 am | Reply
  13. MiddleClass Voter

    Dear Mr. Zakaria,
    I am glad to hear the debate between two great economists today. However, I feel that I did not learn anything new from Mr. Krugman and Mr. Rogoff then what we typically hear on TV every day. What our country need is not general economics theorems. We need action plans. I am sure millions of Americans have many great ideas to help our country and our leaders. I am just one of the millions of middle class voters. This middle class voter will start with a few ideas and I hope others will follow.
    I divide my ideas into doable and hard to do. The doable ideas are the ideas that only require regulation changes which Present Obama can do right away. The hard to do ideas requires the participation of our dysfunctional congress. Many of the ideas have been discussed but our government is not doing it for reasons that I do not understand. I will just give some examples of the doable ideas in this post:
    1) Present Obama should announce that the US government will freeze new regulations and relax old regulations. This will help the stock market (especially banking sector) to go up by thousands of points and strengthen banks.
    2) Relax the rules for converting cars and trucks into gas/natural gas dual use cars. It cost $400USD-$1000USD to convert a car in Taiwan and China. It cost $15,000-$20,000 to convert a car. The reason is the government red tapes. Even Iran already converted their taxis to natural gas. Based on the 62million registered vehicles in US and assuming we can reduce the conversion cost to $1000 per car, this will create 1.8 million job years (assuming $33,000 per person per year). If we include the installation of $2000 in-home natural gas refueling unit, it will be at least another 1 million job years. We can train many employed work to do this. If I can use natural gas instead of gasoline, I can save ½ to 2/3 of my gas cost each month. This investment will return in less than a year. If Congress can give tax deduction, it will take off like you could not believe. However, I am not counting on our dysfunctional congress here. Instead of spending close to $500B/year to buy oil from other countries, we can use domestically produced natural gas for the next 100 years. This is like a half a trillion dollars stimulus in the US economy every year for the next 100 years. So, I do not understand why Obama is not doing that. He is like a robot who keeps on saying that we use all sources of energy. That means he does not want to use natural gas because he is afraid of losing votes.
    3) We need to increase agriculture production. The world-wide food inflation is killing people and economy. Chinese eats more meat which needs more grains. We need to increase our agriculture production and export to China. This is how we make our money back. Instead of forcing other countries to accept our standards, we need to change our rules in livestock production so that we can export to other parts of the world. No more “US does not inspect for mad cow and you have to accept it” stuff.
    4) We need to retrain our unemployed to realistic jobs. Do not make people believe that a fifty-years-old can be retrained to compete with a twenty-years-old for computer programmer jobs. We need to create retrain-able jobs. For example, we need to increase our tourism industry so that we can create the kind of job the employed fifty-years-old can be retrained to do. There are many jobs they can be retrained. For example, the natural gas conversion work and home installation work can be easily done by many other these people.
    This middle class voter just wants to give some example actionable ideas to help our country. Maybe we need less sound bite from academic types. Maybe there are other middle class voters out there who can contribute more actionable ideas.

    August 15, 2011 at 1:43 am | Reply
  14. Roelof

    Only by export an economy can grow. So what US needs to do is open the energy market more as Bachmann suggests. Lower the price of oil and US will sell more products. Next thing is reduce costs by decriminalising, like Ron Paul suggests. Save costs on war on drugs, less crime on the streets. Look at what's the best health care system in the world (best quality/lowest costs). There are so many wheels US tries to invent again. That is totally not necessary, unefficient and money spending. What's US unemployment rate? 20%. That needs to change. With Obama you American end up asking for change on the streets.

    August 15, 2011 at 12:49 pm | Reply
  15. rock

    Fareed, I think you should follow your "digging a ditch and filling it back in is productive" logic and insist on paying twice the normal retail price for everything that you purchase. You're no doubt plenty rich so I'm sure you can afford it. Plus you'll be helping our economy.

    August 15, 2011 at 3:22 pm | Reply
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