Paul Krugman is perhaps best known for his blistering broadsides against supply-side economics and inequality in the editorial pages of the New York Times during the Bush and Obama years.
Since Donald Trump became U.S. president, however, Mr. Krugman has become more concerned about constitutional law than economic policy.
“At some level economics is the least of it,” Mr. Krugman, an avowed liberal, told Handelsblatt. “We could be seeing the death of American democracy.”
There is literally no economics team in this White House. Paul Krugman
For Mr. Krugman, such a bold statement is not hyperbole. He is deeply worried that Mr. Trump will simply ignore court orders against his policy agenda and undermine America’s checks and balances in the process.
The president has already attacked the judiciary as “political” and accused them of jeopardizing U.S. security in the wake of a stay on his travel ban against nationals from seven Muslim majority countries.
“Many of us are worried that America under Trump will end up looking like Hungary under [Prime Minister Viktor] Orbán, that it will be on paper a democracy but in practice it will have become an authoritarian regime,” Mr. Krugman said.
When he’s not worrying about a constitutional showdown, Mr. Krugman is concerned that Mr. Trump will deliver on his protectionist rhetoric and create a “rupture of the world trading system.”
“If they really are prepared to start unilaterally imposing tariffs then you could see a lot of unraveling of globalization,” he said.
He warned that the stock market, which has rallied on Mr. Trump’s promises of tax cuts and infrastructure spending, has not taken into account the risk posed by another financial crisis and how the U.S. administration would respond.
Mr. Krugman said the administration does not have an economics team in place to deal with the fallout from a crisis in the euro zone or in China.
“There is literally no economics team in this White House,” he said. “Some of the people the president talks to are pretty much crazy,” he added.
If you ask who can be possibly seen as the major leader standing up for Western values, Ms. Merkel is a close as you get. Paul Krugman
The euro zone has shown troubling signs in recent days as the cost of borrowing rises in France due to concerns that right-wing populist Marine Le Pen could win the presidential elections in the spring.
Mr. Krugman said the euro’s problem remains a structural one. During the good years when the single currency was thought to be risk-free, money flowed into southern Europe creating inflation and ultimately an imbalance that still hasn’t been corrected.
Due to the single currency, southern European countries aren’t able to use monetary policy to correct the problem. To address the imbalance, Germany needs to stimulate domestic demand and push inflation close to 4 percent, Mr. Krugman said.
“Germany should be doing a lot of infrastructure spending,” Mr. Krugman said. “It should be willing to run some budget deficits. Germany needs to have inflation above the euro area targets.”
The Trump administration has gone so far as to accuse Germany of manipulating the euro to boost exports and run a large trade surplus. Though Mr. Krugman disagrees with this characterization, he did say German surpluses are not justified by the fundamentals.
“If you look at who are the countries with very large surpluses that are not justified by fundamentals, Germany now stands out much more than China,” Mr. Krugman said.
The renowned U.S. economist has been a fierce critic of Chancellor Angela Merkel for not doing enough to boost German demand and imposing austerity policies in southern Europe. But with Mr. Trump now in the White House, he sees Ms. Merkel as one of the few leaders left in the West that's standing up for democratic values.
“If you ask who can be possibly seen as the major leader standing up for Western values, Ms. Merkel is a close as you get,” Mr. Krugman said.
Astrid Dörner is an editor for Handelsblatt. Jens Münchrath is based in Düsseldorf and heads Handelsblatt's coverage of economics and monetary policy. To contact the authors: [email protected] and [email protected]