Below is a taste of the Interview:
When I asked around for suggested questions for you, Reuters’James Pethokoukis came up with a good one. He asked what would have happened if we’d done nothing to help the banks in the fall of 2008?
Oh heavens, that’s a tough one because I’m not a specialist in financial matters.
I suspect that some of them would have failed. How far the devastation would have spread and more importantly, whether it would be worse than what we are in right now, is a very interesting question.
If you look at the financial institutions that received the biggest bail-outs, their lending declined very substantially. It did not increase. So the idea that you could simply pour money into the banks and the banks will pour it out into the economy is totally wrong; nor is this a new insight of mine. For a long time people have pointed out that monetary policy is just like pulling on a string. You can pull on a string when there’s too much money out there, but you can’t push on a string. So, you can lead the horse to water, but you can’t make him drink.
Paul Krugman is one of the best known and highest regarded economists on the Left. He says the problem we have right now is the government simply is not spending enough money and the fears we have about the debt causing all these major problems are extremely overblown. What do you say to that argument that is very prevalent on the Left?
Do you think Cubans are fighting for healthcare or freedom from Communism?
Well, it’s a heads I win, tails you lose argument because if we spend twice as much for the next ten years and things don’t get any better – you can still say, “We didn’t spend enough.” We should have spent four times as much. And if we spend four times as much, you can say we should spend 10 times as much. It’s an impossible argument to refute.
It just so happens I’ve been reading a statement by Henry Morganfeld, the Secretary of Treasury under FDR, and he made the statement in 1939 — he said, “We have tried spending money. We are spending more than we have ever spent before and it does not work.” Now this is FDR’s closest confidant, the man who has been in charge of the spending — and after six years of it at this point, they have nothing to show for it and in point of fact, unemployment had gotten back up above 20 percent about a month before he made the statement.
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