Paul Krugman on Today's 'Depression'

The Nobel laureate talks with Peter Coy about his new book, End This Depression Now!, and why he thinks the 2010s are a lot like the 1930s

Your book’s title seems extreme. How can you call what we have now a depression?
We’re using the word “depression” as a layman’s term for “liquidity trap,” a situation where interest rates are up against the zero lower bound, so that the normal medicine you take for inadequate demand, just cutting the Fed funds rate, doesn’t work. Things aren’t as bad as they were in the ’30s, but we’re basically in the same kind of world.
Is high unemployment due to a mismatch between the skills that Americans have and the ones that employers need?
There’s no hint, there’s no sign that it’s any worse than it’s been for a long time. And for what it’s worth, people told exactly the same stories in the 1930s, saying the notion that we could restore full employment just by increasing demand is foolish.
Couldn’t workers’ skills eventually erode?
You know, given time, do nothing and let long-term unemployment fester, and we can do it. Yes, we can. We can get structural unemployment way up. But it hasn’t happened yet.
Why are you criticizing Federal Reserve Chairman Ben Bernanke, saying he’s been assimilated by the Borg?
I’m doing him a favor. Because he gets all the pressures from the right saying “do less,” and to have someone yelling at him from the left saying “do more,” I hope actually expands his freedom of action to do a little bit different.

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