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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soundoff (336 Responses)
  1. Tom Martin

    Krugman is an idiot.
    Productivity that is demanded and satisfied expands the economy – government spending simply expands debt.
    IF government spending solved problems then no government no nation would ever have gone bankrupt
    I will bet my $50,000,000,000,000 zambi against any takers ounce of gold that I am right.

    August 28, 2011 at 10:31 am | Reply
  2. Alex

    All those who criticize Krugman with nothing more than their biases against an economist who knows his stuff, the critics are simply ignormauses!

    August 29, 2011 at 4:55 pm | Reply
  3. Alex

    errata: the wrong spelling for "ignoramuses" is regretted. It was a typo.

    August 29, 2011 at 4:56 pm | Reply
  4. Anup Desai (Vallejo, CA)

    Currency devaluation proved effective in ending the Great Depression. Why not now? Why keep propping up the dollar?

    September 18, 2011 at 4:12 pm | Reply
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  10. superseeder7

    I seen that episode of the twilight zone about the fake alien invasion and they FAILED Horribly at their plan as will be the case with this new real life attempt...Mark My Words...

    June 25, 2012 at 11:34 am | Reply
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    June 6, 2013 at 2:16 am | Reply
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