Translation from the original Italian done thanks to Alex Castaldo.

SYNOPSIS: Calls on less inequality instead of more growth, and is skeptical about the Euro.

[This interview appeared in the Italian news magazine Panorama, published by Arnoldo Mondadori Editore.]
"Parla Paul Krugman: Presidente ora prendi le forbici" by LUIGI MAYER, November 8, 1996
Paul Krugman tells the President to cut deficit.

Paul Krugman is a life long Democrat and he did vote Democratic on Tuesday November 5, but without great conviction. "Like many people" he says "I am more against New Gingrich than for Bill Clinton. I was scared of what might happen with a Republican President".

Forty three years old and a Professor at Massachusetts Institute of Technology in Boston [sic], Krugman is both the most admired economist in America ("He'll win the Nobel prize" many of his colleagues venture) and the most hated as well. He is a great theorist as well as a forceful polemicist who can take on any adversary.

In his hard hitting essays he has excoriated everyone: right wing supply siders who endlessly argue for tax cuts, other economists and opinion makers who are obsessed with international competitiveness (his favorite target: MIT's other star, Lester Thurow), and Clinton ideologues like labor secretary Robert Reich.

Krugman talked to Panorama about Clinton's econonmic policy accomplishments and the challenges that face the President in his second term

[Interview] Q. Clinton was re-elected largely because the economy is in much better shape than in 1992. Does he deserve the credit for that?

A. On a scale from 0 to 10, the Clinton administration deserves between 6 and 7. Not that they have done anything special, but they have avoided big mistakes. No unwise tax cut. No insane trade war. They got GATT and Nafta approved and made a contribution to reducing the federal deficit. That is quite different from saying that Clinton deserves credit for the economic recovery. But looking at his predecessors, you can say that not making a mess is already a big step forward.

Q. In 1992 Clinton talked about big reforms, like health care reform, and had big plans. This year he only talked about small programs and targeted incentives. What do you think he should aim for in his second term?

A. I would like to see serious changes in transfer payments and health care, where the administration clearly has failed so far. Both parties are always making a lot of noise about the latest budget plans, but the real problem for the American economy is the long term deficit picture, not this year's. Today the federal deficit is about 2% of GNP, the lowest among industrialized countries. The tax burden is also lower that in the rest of the G7, so in theory there is room for taxes to rise. But the real worry is the growth trend of health care spending and social security spending, against the background of an aging population. Without preventive steps, these trends will inevitably lead to a big crisis down the road. We need to attack these problem right away, for example by raising the retirement age and taking specific measures to contain health care costs.

Q. Any other areas that need attention?

A. I am still disgusted by the Republican welfare reform that Clinton signed for electoral reasons. It is an awful law that hits immigrants and children and should be changed. But I am skeptical that will happen. Congress will have a fragile majority and won't change it. Probably nothing will happen until we see thousands of abandoned children on the streets.

Q. So Clinton's program is not ambitious enough?

A. Not for me, anyway. For example we need a big initiative (say 2% of GNP) to help low income workers. The income distribution continues to widen and is one of the big unsolved problems. We need to strenghten programs to close the gap, but here also I am skeptical that will happen.

Q. You seem very pessimistic.

I see two things: The Clinton administration is very cynical and opportunistic. They are not heroes, ready to take risks to do what's right. If these people invested one tenth of what they are doing to increase US exports to Japan, into an effort to keep one million children from poverty, we would all be better off. On the other side is a Republican party that is getting more extremist and partisan, that polarizes American society more and more.

Q. But the economy is in good shape. Unemployment is down to 5.2%, inflation below 3%, consumer confidence is up.

It is true, the general picture is pretty good. Although, with unemployment at this level, I don't see how to speed up growth without danger of inflation. Certainly the US is in better shape that Europe and Japan, where things are tough. If those two areas pick up, that will be good for America also.

Q. Haven't US-made products become winners again in international trade?

My ideas on trade are opposite to the current popular view. I don't think international trade is a zero sum game where one county wins and another loses or vice versa. It is true though that America is again a leader in advanced technology. The impression, so common a few years ago, that the US had fallen behind technologically, is gone now.

Q. Almost all European countries are going to make big efforts to cut budget deficits and hit the Maastricht criteria. What do you see happening in Europe in the next few years?

I think European Monetary Union will happen: no one can figure out how to wriggle out of the Maastricht commitments at this point, there is no way out. In the end, deciding what countries will take part will be a political judgenment, so I am not qualified to make that decision. For the first few years after 1999, the European Central Bank will be more Bundesbank than the Bundesbank and will adopt a strict no-inflation policy. As for the role of the Euro in the international monetary system, I see no threat to the dollar. A united Europe does not scare the US.