The Nobel Prize-winning economist talks about the state of the global economy and what central banks need to do to help.
The Nobel Prize-winning economist talks about the state of the global economy and what central banks need to do to help. - 

Kai Ryssdal: You can analyze this stuff 'til you're blue in the face, but at some point the question does kinda become: How does a whole planet-full of people facing recession get out of it?

So we got a guy on the phone who knows a little something about international economics. That's what Paul Krugman got his Nobel Prize for. Welcome to the program.

Paul Krugman: Good to be on.

Ryssdal: So this is the third year out of three where we've made tiny steps forward, and then what seems like big, giant steps backward. What's happening? What's going on?

Krugman: Well, it's really two things I think. One is that it was never as good as anybody thought. There were not a lot of really solid things driving the economy forward. There's some underlying improvement -- household balance sheets are a little bit better, people have paid down some of their debt -- but there was really no strong, positive going-on in the U.S. economy. And then there's Europe, which is coming apart at the seams very rapidly now. So, between the two of those, of course we're getting a stutter in our own economy, and the possibility of something much, much worse if Europe blows up.

Ryssdal: What are you more worried about: Europe or our own domestic weakness?

Krugman: Oh, I mean, in terms of catastrophic risk, it's Europe. Europe is very close to the edge. They've pretty much run out of ways to paper over the problems. They either have to make a fundamental change in policy or we're really talking about the whole nightmare scenario of bank runs and possible breakup of the euro as currency. So Europe is the scary stuff, and you know, relatively speaking, we're in good shape, but that's not much consolation. And of course, we get at least some of the backwash from their problems.

Ryssdal: It sounds like you're chuckling so you don't cry.

Krugman: Oh yeah. I mean, what can you say? If you don't see the black humor, or the gallows humor, in all of this, I don't know how you get through it.

Ryssdal: If this is the first real global recession -- as is being talked about -- what do we do? How do we get out of it? Is there a way?

Krugman: No, it's by no means the first. One of the things that's so infuriating for some of us is that we're following a lot of the script of the 1930s. We've seen this movie before, and the amazing thing is that all of the villains are making the same mistakes that their counterparts did 80 years ago. So it's the same old thing. So what we should be doing, those governments that can borrow very cheaply -- which includes ours -- should for the time being be spending more, not less. This is a really good time to fill in the potholes and re-hire those schoolteachers. And the central banks -- the Fed, and even more, the European Central Bank -- really need to print a lot of money. This is not the time to obsess over inflation; this is the time to worry that if you don't have enough liquidity sloshing around, the whole thing just falls apart.

Ryssdal: The counterargument, though of course Mr. Krugman, is we just don't have the money and we just have to make it up out of thin air.

Krugman: Of course we would be making it up out of thin air, but you know, if you say we don't have the money, do you mean that we can't borrow? The U.S. government can borrow at the lowest interest rates in history.

Ryssdal: But not most of the eurozone, pointedly, right?

Krugman: Well because they don't have their own money. The problem with lending money to Greece or even to Spain is you're not actually sure what your claim is. You're lending money to a country that may drop out of the euro under pressure of bad policies being imposed upon them -- not most of their own bad policies. A loan to Spain may end up being a loan that was in pesetas, not in euros -- and of course it makes it very hard for them to raise money. But we're not in that position.

Ryssdal: So what do you do if you're a 30-year-old in the United States with a brand new law degree; or my mom, a retiree, widow -- I mean, what do you do?

Krugman: Well, those are, I mean, the trouble is, I can't in any good conscience tell people, 'You should go out there and spend and eat, drink and be merry because that'll help the economy.' You have to take care of your own needs first, but we've got a situation now where everyone doing what is individually sensible collectively adds up to a big problem, which is why we have governments. They're supposed to solve problems like this.

Ryssdal: Paul Krugman, his most recent book is called "End This Depression Now." Mr. Krugman, thanks for your time.

Krugman: Thank you.

Follow Kai Ryssdal at @kairyssdal