At Odds Over Bush's Approach to Katrina Costs

DATE October 6, 2005 ACCOUNT NUMBER N/A
TIME 12:00 Noon-1:00 PM AUDIENCE N/A
NETWORK NPR
PROGRAM Fresh Air

Interview: Paul Krugman and Stuart Butler discuss the US economy
and whether taxes should be raised or programs should be cut to
reduce debt
TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross.

As we face the costs of rebuilding the Gulf Coast and while the wars in Iraq
and Afghanistan mount up unprecedented debt, is President Bush's economic
plan, including his tax cuts, wise? My guests are two economists who approach
this question from different points of view. Paul Krugman is a liberal
columnist for The New York Times. He's also a professor of economics and
international affairs at Princeton University. Stuart Butler is vice
president of domestic and economic policy studies at the conservative think
tank The Heritage Foundation.

Stuart Butler, Paul Krugman, welcome to FRESH AIR. Before we get into
details, President Bush has said that... (technical difficulties)

We're having some technical problems with our interview that I recorded with
Paul Krugman and Stuart Butler, so we'll get to that interview momentarily. I
apologize for these problems, but we will hear it in a second, and we'll be
talking about President Bush's economic plan. Here we are ready to go.

Stuart Butler, Paul Krugman, welcome to FRESH AIR. Before we get into
details, President Bush has said that rebuilding the Gulf Coast will cost
whatever it costs, but he won't raise taxes to pay for it. And he also does
not plan on raising taxes to pay for the war in Iraq. Paul Krugman, do you
agree with his strategy of not raising taxes?

Professor PAUL KRUGMAN (Princeton University; The New York Times): To a
certain extent, actually--this is going to surprise you--actually I do in the
sense that, look, this is a--we hope, a one-time expense. It's not a reason
to raise taxes at least more than a little bit to pay for it currently. It's
the kind of thing that you ought to borrow for. The trouble is we start deep
in deficit. We start with the government spending much, much more than it's
taking in in revenue, and so this is just adding extra debt. So, you know, if
we had started--if we had the budget right now that we had in 2000 with a
substantial surplus, I'd say it was clear that you should not raise taxes to
pay for Gulf Coast reconstruction. But starting from where we are now, it's
starting to look like, you know, this would be a good occasion to have the tax
increases that we need to do anyway.

GROSS: Stuart Butler, what do you think?

Mr. STUART BUTLER (The Heritage Foundation): Well, I actually agree with
Paul in the sense that we have to differentiate between, as he called it, a
short-term issue, the rebuilding, and our--what is appropriate policy over the
long haul with regard to taxes and spending and deficits. And I am concerned,
as he is, about the long term, and I think there really does have to be a
debate about the course of spending and taxes. And I think the president does
have to get more engaged in that than simply just saying whatever it costs to
rebuild.

GROSS: Now my guess is that, Paul Krugman, you're going to say finally
this--to make the country function we're going to need to raise taxes and my
guess is, Stuart Butler, you'll say we'll need to cut programs.

Prof. KRUGMAN: I think you're right about that. It's a--I mean, now, look,
is there waste? Are there things we shouldn't be spending money on? Of
course, and this most recent highway bill, which I think everybody except the
majority of Congress thinks it's a terrible idea, is an example of a lot of
wasteful spending. But the fact of the matter is that we--we're not going to
be able to supply the government services that the public expects without more
revenue than we're now taking in. And that's the--a--you cannot resolve that
without savage cuts that are not going to happen. You're going to have to
have more tax revenue than we now have.

Mr. BUTLER: Well, I agree that certainly we have a situation of massive
imbalance right now. We were as opposed to the highway bill for probably the
same reasons that Paul was, both the pork aspect of it and looking at our
priorities and saying, `Is this the time we need to spend this kind of money
on the highways when we have all sorts of other problems and concerns?' When
you look at the tax side, I think the debate really is--it's a debate that
should take place and the debate is between those of us who are concerned that
raising taxes to the level that would be necessary to honor all the promises
that we currently have, particularly the large entitlement programs, the
massive expansion of Medicare that just took place a couple years ago, would
mean federal and state taxes in this country after the next about 20 years or
so being of the same level as we see in Europe right now. And our concern is
that if you see taxes at the level that we see in Europe and spending that we
may get economic performance similar to that. And that's what worries us.
And so I think it's very important to reopen a discussion over the big
entitlement commitments we've made to the middle class, which includes
upper-income people as well, in these areas like Medicare and Social Security
and other areas, before we simply just raise taxes thinking that it's a sort
of a bookkeeping change and ignoring that that could have very significant
economic consequences to us.

GROSS: Stuart Butler, the president says that the funding for Katrina should
come from cutting other programs. And what are some of the programs you think
should be cut now?

Mr. BUTLER: Well, let me say first of all that I agree with the notion that
when the priorities of the country change, then the spending patterns of the
country change. I think that whether or not one is in favor of what's going
on in Iraq, that was a change in priorities and federal spending should be
adjusted.

I think exactly--is the case with the effects of--dealing with the effects of
Katrina. So I think it is very important to look at how to reduce spending
and to change priorities. One I would do--and I think Paul would probably
applaud me on this--is to say let us give back large chunks of the highway
bill. If we're going to build bridges in this country, which we're committed
to, maybe we should be building them in the Gulf area, not in Alaska right
now. Maybe we ought to be looking at the huge new entitlement program, the
Medicare drug bill, and say it's already being--it's already clear that it's
going to cost far more than was imagined. Let us at least put it off for a
year until we can figure out how to pay for this, whether it be raising taxes
or something else. If you start to do that, you get serious money very
quickly to reflect what I think is an appropriate change of priorities given
what's happened.

GROSS: Wait a minute. Did I hear you say raise taxes or something else?

Mr. BUTLER: I said we should debate it.

GROSS: Oh, OK.

Prof. KRUGMAN: Interesting.

Mr. BUTLER: It should be debated. It should abs--and I'm very much in favor
of that. We've been here at Heritage and The Brookings Institution and other
organizations--have been discussing this publicly and saying there really are
very few options under the current situation. Paul is right. Cutting
massively entitlements would in principle would be one option. Raising taxes
massively would be one option.

GROSS: Which do you think would be preferable, or would you like to see some
combination of the two, raising taxes or cutting programs?

Mr. BUTLER: Well, I'm very concerned about raising taxes because I think that
certainly to raise taxes substantially, of the scale necessary to make a di--I
mean, you can raise taxes a small amount, but I can assure you that will not
raise the money that you need to deal with the long-term issue with
entitlements, particularly Medicare. But if you're going to raise them
substantially, I think it ought to--we ought to be discussing that in the
context of what might be the economic consequences of that. We shouldn't just
discuss it as a bookkeeping change to make the books balance. It's an
economic decision to say that we are going to raise taxes to--well above
historical levels in this country in order to balance the books and then
pretend that we've got no economic consequences.

Prof. KRUGMAN: Let me just weigh in here and say that, you know, first, it's
important to have some perspective on what is big enough. The highway bill is
an abomination, but even if you cancel the whole thing it doesn't come close
to providing enough money. It's a--it's relatively speaking small change in
all of this. It's just a symbol of what's wrong with our system but it's not,
in fact, all that much money.

The big bucks, actually in all of this, is in medical care. You ask why do
long-term projections of the US budget--you know, of US spending look very
high. It's medical care. Social Security is relatively minor. If you ask
why are--you know, what has President Bush done that is really, really
irresponsible? It's that drug bill, which I would say the problem is not the
idea of providing drug coverage, but the idea of providing drug coverage
through a bill that is an enormous gift to the pharmaceutical industry. So
it's really--it really is a problem of controlling medical costs, and I don't
think it's really a question of providing less services but of doing it
better. But in any case, that's where the problem is.

We can talk about Katrina. We can talk about the Iraq War. Those are big
things, big--one necessary expense, in my view, one extremely wasteful
expense, in my view. But ultimately the way to reconcile, the way to have tax
increases that I think are sustainable together with the level of services
that I think the public demands, is to do something about medical costs.

Mr. BUTLER: Well, I actually agree again very much with that. I think the
interesting thing about this conversation is--that's important to
emphasize--is that people like Paul Krugman and I who disagree on what the
solutions are and our view of that, there is actually, I think, among
responsible people an agreement of what the underlying problem is and the
underlying dynamics that are at play in the budget. That--you know, we can
argue at the margin about that, but it's not really a part of the
disagreement. It really is a question of people saying--we actually agree
that there are some fundamental options that are needed here and the public
needs to know that, too. The public needs to know that.

Prof. KRUGMAN: It's the sad state of America that actually the place where
the debate bogs down is on trying to say, look, you know, the arithmetic
actually does apply, which you and I agree about, but, in fact, is deeply
controversial in today's Washington. And if we could get past that, then you
and I would have a quite bitter argument about our priorities, but, in fact,
we aren't anywhere close to getting there.

Mr. BUTLER: Exactly.

GROSS: Well, before we begin the bitter argument about the priorities, can we
just talk a little bit--like, do you agree on why--OK, you both agree that
there's a problem that has to be addressed. There's some kind of serious
national debate and you both agree that the people in politics now aren't
seriously addressing that really fundamental, underlying problem. Why do you
think that problem isn't being addressed?

Mr. BUTLER: I think there are several reasons for it. There is a--you know,
and I think the press has some role in this in terms of, I think, not
presenting the stark choices that really are--that the public faces. I think
the press needs to do a better job in doing that. But I think there's some
other things at play, too.

If you look at the way in which our budget process operates in this country,
the decisions that actually congressmen are presented with, we basically hide
the really long-term impact of spending--or taxes, for that matter--from
politicians making decisions. The budget system allows them to basically
ignore beyond five or 10 years, certainly. And therefore you get things like
the drug bill. You get proposals that say, well, we'll put forward this
legislation and pass it; everybody will be happy. And really the tab doesn't
apply for 10, 20 years from now. We've got to change the budget process so
that in the budget system we have the equivalent of getting your credit card
in the mail and being told what your outstanding balance is and being told
what you've got to pay off. That's got to be in the system. Unless
that--those sorts of changes occur, I--we aren't going to get a proper debate
over what the choices really are.

Prof. KRUGMAN: It's also important to realize that at the moment the US
government is not having any difficulty selling its bonds. As long as
financial markets--in this case, a very large part, foreign central banks are
willing to buy up US government debt--then there is--you know, there's no
action-forcing event. The--as long as--you know, in Washington they can
pretend that they have a plan to bring things under control eventually and,
meanwhile, take no hard decisions, and then as long as somebody is willing to
lend the money to cover the gap in the interim, everything's OK. Now this has
happened in other countries in other times before, and there's always, at some
point, a very ugly moment when the bond market, in effect, says, `Hey, wait a
second. This is--this doesn't make sense.' But at that--you know, right now
it's very hard to convince people that that moment will ever come.

GROSS: Meanwhile, is--China is buying a lot of our bonds, right?

Prof. KRUGMAN: That's right. China is--and that's a long story in itself.
But the Chinese government is buying huge quantities of US debt. And that
plus, you know, oil--oil-rich countries are getting a big windfall and they're
piling a lot of that, at least temporarily, into US debt, all of which is
helping us go along for a while. It reminds me of--you know, I have
friends--classmates who've been finance ministers in Latin American countries,
and they always talk about how hard it is to do anything responsible when the
money keeps on rolling in. And then when the money stops rolling in, you
realize just what bad mistakes you made. But up until that point it's very
hard.

Mr. BUTLER: And then you get cases like Argentina when that happens...

Prof. KRUGMAN: Yeah.

Mr. BUTLER: ...and, indeed, I mean, to place all our eggs, if you like, in
the China basket and hoping that the Chinese and others will continue to prop
up our spending habits for decades to come, I think, is, to put it mildly,
naive and is tempting providence with a vengeance.

GROSS: Yeah, well, I'm wondering what you think of the politics of us being
in debt to China right now.

Prof. KRUGMAN: Oh, it's very weird. I mean, it really is a kind of mutual
assured destruction pact at the moment. The United States desperately needs
that money to keep coming in from China 'cause all hell would break loose if
it stops. But the Chinese, of course, if they--of course, if they try to pull
their money out, then the dollar plunges and they lose a lot of the value of
what they already have. And, in fact, even if they stop buying dollars, the
value plunges. So we're kind of trapped together except that you project
forward what's happening a few years and you've got the Chinese holding simply
absurd amounts of essentially sterile dollars. So it does not go on forever.

Mr. BUTLER: But it also--we have to recognize, of course, there's a political
dimension to this, that we don't know exactly how in the future our policy
towards China militarily and politically will be affected by the huge amount
of debt that they own. We know that certainly--I think it would be naive to
presume other than our policy in the Middle East is at least affected by our
dependency on oil.

Prof. KRUGMAN: And not to suggest moral equivalents here, but probably
somewhere in China there's a debate on public radio saying `Is it really safe
to have all our money with the Americans? Who knows what their politics...'

GROSS: (Laughs)

Mr. BUTLER: Yes, indeed. Well, we've got to keep that quiet from them.

GROSS: My guests are Paul Krugman, a columnist from The New York Times, and
Stuart Butler of The Heritage Foundation. More after a break. This is FRESH
AIR.

(Soundbite of music)

GROSS: If you're just joining us, my guests are Paul Krugman and Stuart
Butler. Paul Krugman is a columnist for The New York Times and a professor of
economics and international affairs at Princeton University. Stuart Butler is
vice president of domestic and economic policy studies at The Heritage
Foundation.

Now Paul Krugman is usually described as a liberal. Stuart Butler is
described as--well, The Heritage Foundation is described as conservative. You
agree that the president's headed in the wrong direction because he's
increasing spending between Iraq, Katrina, the new Medicare prescription
benefit and at the same time cutting taxes. You disagree, I think, about how
that should be repaired.

Paul Krugman, do you think the president should either be raising taxes or at
least not further cutting back taxes?

Prof. KRUGMAN: Yes. I mean, I can't conceive of any possible way to bring
the US budget into balance without at least recapturing the revenue that was
lost from Bush's tax cuts so far. There is nothing in there to suggest that
we can actually--that there's a public willingness to accept a reduction in
what the government does that would be necessary just to cut spending to make
room for the tax cuts that have already happened. You know, they were sold in
2001 and then again in 2003 as something that was consistent with a reasonable
fiscal policy with sound management. They aren't unless--you know, unless
he's prepared to make the case for real cutbacks in entitlements programs,
which he has never done. And so we're going to need that revenue back and
certainly no more tax cuts.

GROSS: Stuart Butler, what do you think about new tax cuts or at least halt
the tax cuts?

Mr. BUTLER: Well, let's be clear what we mean by tax cuts and sort of where
we are with taxes. I think it's important to recognize that when you look at
American taxes, what tax levels have been in this country really for decades,
they've really hovered around--Paul can correct me--but sort of 16 to 20
percent of Gross Domestic Product. They've been around that. They dropped
somewhat to around 16 percent after--immediately after the Bush tax cuts. So
what we've done up to now is basically kept taxes at more or less the level
they've been historically.

Now the question in the future is: Should we raise that level of taxation in
this country, not from 16, 17 percent but maybe to 25, 26 percent?--because
that's what you need to do to avoid very significant changes in the
entitlement programs. And that's what I think the issue is about. And so
it's--I'm not necessarily in favor of more tax cuts in the sense of bringing
it down any further, but I'm certainly very nervous about raising the total
level of taxation in this country to what would be historic levels and levels
that would be closer to that in Europe. And then my concern would be that
we'd see the economic performance follow like we see in Germany and France and
elsewhere.

Prof. KRUGMAN: The slightly misleading thing--what Stuart said is entirely
true, but we've seen a huge increase in the amount of inequality in the United
States, a huge increase in the concentration of income at the top end, so that
if the tax rates had remained at the same level at any given level of income,
we would have actually seen a substantial increase in tax revenue even though
no really sort of--no individual's tax rate would have gone up. And what has
happened under Bush is a big cut in the tax rates for the people with the
highest incomes. And that's the sense in which we've had a tax cut. In fact,
if you look at it, there is a kind of funny tax shift, which is that the taxes
that bear most heavily on lower- and middle-income people, which the payroll
tax is, at historic highs, whereas the taxes that bear most heavily on
high-income people--income taxes, capital gains taxes, estate taxes--are
historically low and, in the case of the estate tax, scheduled to go away
entirely.

Let's put it this way. I can't see any way that we can get anywhere close to
a budget balance without rescinding those tax cuts that have taken place,
which does mean that the share of taxes in GDP would be at the high end of its
historic range, but, in fact, the tax rates on rich people would still be at
the low end of their historic range.

GROSS: Stuart Butler, let me ask you. Would you agree with Paul Krugman's
premise that it's currently the middle class and the working class who are
paying comparatively more in taxes and being squeezed by it, whereas, the most
wealthy in the country are getting a comparatively--not free ride, but are
paying relatively less...

Mr. BUTLER: Well, it...

GROSS: ...that that's where the tax burden has been eased, in the very
upper...

Mr. BUTLER: It's unfortunately a complicated question, a complicated answer,
because you've got to look at what are the elements of the taxation. You've
got to look at the difference between rates of taxation and total volume of
taxation paid. It's a complicated equation. We certainly have seen
lower-income people paying high payroll taxes. That's a great concern. On
the other hand, we've seen more and more people taken out of the tax rolls
completely at the bottom except for those payroll taxes. Many millions of
Americans don't pay any income tax at all now, and that has been going up in
recent years. You've got to then link also the incentives, indeed, the
marginal rates and their impact on the economy. So if you've got--if you're
trying to look at where the taxes are paid and who pays them and how much,
it's a very complicated picture. And I don't think you can just say that the
effect of the tax changes has been to somehow shift the burden substantially
from one group to another. I don't think it's as simple as that.

Prof. KRUGMAN: I think it is pretty much that simple, that, in fact, it's a
lot more fun to be rich now than it was during the days of that socialist
Dwight Eisenhower when top rates were very, very high or even, of course,
during the '60s. And it's--the tax rates that pay--people near the middle and
certainly below the middle pay are substantially higher. We have, to our
great credit, done a fair bit to help people at the bottom. So the tax system
has actually gotten a little more favorable to the people at the very bottom.
But it's--if you look at the center of gravity, it's shifted down.

GROSS: Paul Krugman and Stuart Butler will be back in the second half of the
show. I'm Terry Gross, and this is FRESH AIR.

(Announcements)

(Soundbite of music)

GROSS: Coming up, the role of government in disaster relief and
reconstruction. We continue our discussion with Paul Krugman, a columnist
from The New York Times, and Stuart Butler of The Heritage Foundation.

(Soundbite of music)

GROSS: This is FRESH AIR. I'm Terry Gross. We're talking with two
economists about President Bush's economic plan, including his plans for the
rebuilding of the Gulf Coast. My guests are Paul Krugman, a liberal columnist
for The New York Times and a professor of economics and international affairs
at Princeton University, and Stuart Butler, vice president of Domestic and
Economic Policy Studies at the conservative think tank The Heritage
Foundation.

The president says he wants to create a Gulf Opportunity Zone. He's
proposed school vouchers and waiving certain environmental laws, the prevailing
wage law and the estate tax during the clean-up. This leads some people,
including Paul Krugman, to suggest that the president is using the Gulf Coast
as an opportunity to launch controversial policies he wants to enact
nationally.

Prof. KRUGMAN: School vouchers is certainly one of the hot-button issues here
because this is something that has repeatedly been, you know, turned back in
conventional politics. And if they now attempt to institute a school voucher
scheme under the cover, if you like, of the hurricane and particularly if it
turns out that there's going to be federal money, in effect, going to
religious schools, that's a--I don't know if you want to call it abuse, but
it's certainly a power grab, making use of the hurricane.

Mr. BUTLER: No, I disagree with that completely because we're dealing with a
situation here which we, in our lifetime, have never seen before. Some of the
things have occurred in San Francisco and elsewhere, but in our lifetime we've
never seen this. And there's a very basic question about: How do you help
people in that situation? There's certainly many people, including myself,
who say that the most effective way to help people to get an education right
now is to provide them with the means to go to school and reimburse those
schools for the cost of their education. You can go--it's a voucher program.
What else can you call it? I don't think that's trying to take advantage of
something. That's something that we think is absolutely essential right now.

Prof. KRUGMAN: No, if it violates--there had been a lot of discussion, and
there are very strong reasons why some of us think that vouchers, certainly
vouchers that can be topped up by the parents, are a step towards the
disillusion of the public school system. Well, some of us...

Mr. BUTLER: The...

Prof. KRUGMAN: ...think that vouchers that can be used at religious schools
are a step towards the disillusion of the division between church and state.
And the point is, you know, look, if Congresses passes this and if the
president signs it, then that's the way things work. But I think that those
of us who are critical of that kind of thing have every right to say, `Hey,
wait a second. Pay attention. This does not, in any obvious way, have
anything to do with coping with the hurricane. This is an attempt to impose
an ideological agenda that would not pass if it were proposed for the country
as a whole.' So why do you think it should be applied here?

Mr. BUTLER: Because we're dealing with a catastrophe. It should be applied.

Prof. KRUGMAN: That's what I call doing it under cover of hurricane.

Mr. BUTLER: Yeah, but wait a minute. But wait a minute because the public
schools in New Orleans and parts of Mississippi have disappeared.

Prof. KRUGMAN: So have people.

Mr. BUTLER: There aren't schools.

Prof. KRUGMAN: Yes, that's correct.

Mr. BUTLER: And--so that's...

Prof. KRUGMAN: So we can move them and record--there's no reason why you
can't restore the status quo ante, not necessarily that we will. But...

Mr. BUTLER: Well...

Prof. KRUGMAN: ...that's--but this, as a decision, has nothing obvious to do
with the fact that there was a hurricane.

Mr. BUTLER: And your view and a lot of other people's view is that we should
warehouse people, put them in trailer parks, tell them to wait until we get
the schools rebuilt, and then they can go back and life will be...

Prof. KRUGMAN: No.

Mr. BUTLER: ...just as it was before. That is not the case. You really
can't do...

Prof. KRUGMAN: By the way, in--just to clarify the record, I'm violently
against the trailer parks. I think this is one...

Mr. BUTLER: Good. I'm not...

Prof. KRUGMAN: ...of those areas where you and I agree that--rental vouchers,
which is a highly successful program and worked very well after the earthquake
in Los Angeles, is the way to go. And what's interesting is, of course, that
the administration has rejected it, so that's an interesting story.

Mr. BUTLER: Well, I can agree with you on that. But I think you have to be,
I think, open to the fact that, you know, reasonable people can say that in an
emergency like this, the first priority is to enable children to go to the
schools that are available--Indeed, dare I say it?--even religious school if
they're available in their area and that we also reimburse those schools for
expanding their activities and hiring teachers to--that is a voucher program.

Prof. KRUGMAN: I don't buy the premise that this is--that in the case of
schools, it's a faster route. There's just no reason to think that private
schools can add capacity and teachers any faster than the public schools can.

Mr. BUTLER: I think it should be either, both. I mean, by that...

Prof. KRUGMAN: Well, no, that--there we go. OK.

GROSS: Now let me move this on. Stuart Butler, is there a policy that the
president is applying--is there another policy that the president is applying
in the Gulf Coast that you think is a good policy and that you'd like to see
applied nationally after it's applied to the Gulf Coast?

Mr. BUTLER: Well, there is. I mean, I have generally--I supported the idea
of what he calls opportunity zones. The--President Clinton also called them
opportunity zones. And they go way back, and I've been involved with this for
a long time--which is basically saying when you've got--when you need to have
a fresh approach, you have to have radical change in an area, whether it be a
depressed part of a city, like the South Bronx, or the situation we face in
St. Louis--in the Gulf area. Then what we must do is reduce, as far as
possible, barriers, tax barriers and regulatory barriers, to encourage people
to invest as quickly as possible, to seek the best ways of turning around
those areas. That's the heart of the president's proposal on so-called
opportunity zones. It's something I've supported for many years, and it has
had broad support for many years.

GROSS: Paul Krugman...

Mr. BUTLER: Yeah.

GROSS: ...your thoughts on that?

Prof. KRUGMAN: Well, if you look at the--we don't have a lot of detail about
what might actually be involved here. But what it looks like is that a lot of
it has nothing to do with actually providing incentives at the margin. It's
just tax breaks that are really not going to encourage people to move in. You
know, I have nothing against tax holidays, tax breaks in some cases. But the
one thing we know for sure is that it can't be the core of how you're going to
redevelop. The thing that's--there were very good reasons why New Orleans and
the Gulf Coast had a lot of important economic activity in it. Those reasons
will still be there. What's blocking people from moving back in is
destruction of infrastructure--it must be rebuilt; fear that they aren't
physically protected. And all of those are things that the government has got
to provide.

And let me also say that some of the things--one of the things that, Terry, I
think you mentioned about--or maybe Stuart, either one--about, you know, the
estate tax, one of the most cynical things I think I've seen, but it is kind
of funny as well, is the desperate search to find somebody who died from
Katrina who was actually rich enough to owe estate tax. That, I think, is the
definition of political opportunism.

GROSS: My guests are Paul Krugman, a columnist for The New York Times, and
Stuart Butler of The Heritage Foundation. More after a break. This is FRESH
AIR.

(Soundbite of music)

GROSS: My guests are Paul Krugman, a liberal columnist for The New York Times
and a professor of economics and international affairs at Princeton
University, and Stuart Butler, vice president of Domestic and Economic Policy
at the conservative think tank The Heritage Foundation.

I think in some ways the government's role in the Gulf Coast recovery after
Katrina raises the question: What is the role of government? What should
government be paying for, and what are people on their own to--you know, left
on their own to take care of? And that gets to a larger question, which is:
Just what is the role of government? What should government be paying for?
And I'm wondering if Katrina has helped you either kind of clarify or rethink
the question of: What is the role of government?

Mr. BUTLER: I think it's--I think the role of government has to be seen in
several different ways or several different functions of government here. I
would agree with Paul that when you're looking at basic infrastructure of
roads and bridges, the basic facilities, we made a decision in this country
long ago that that should be--that that is best carried out by government at
some level, and I agree with that. I think that when you then start going on
saying, `We're going to rebuild this area,' and then we start to think, `Well,
what is the role of the government in designing what a rebuilt area will look
like? What is New Orleans going to look like?'--then I think it's less clear
that the government should come in and say, `We've figured out what New
Orleans should look like. We've figured out who's going to live where. We're
going to build this and put certain people in those buildings and so forth.'
I think it's a question of looking at how communitywide action takes place and
looking at the difference between reducing barriers to creative action and
trying to lead that from the government itself.

Prof. KRUGMAN: Well, I actually don't have a view on how the communities
should be rebuilt. I think actually we need a lot of study and a lot of
thinking before we commit ourselves to this. Rushing into that would be, you
know, a big mistake.

What I thought was really interesting about the whole Katrina experience was
that the way the governments failed even on the functions that I thought
everyone agreed it should be ready to do. And we--in an economics textbook
like mine, we make a distinction between two types of government role: One is
the role of the government in providing public goods, things that really the
private sector cannot, like national defense, security and, in many cases,
infrastructure, so on. And then there's the broader issue of social
insurance, things like Social Security and Medicare, where government protects
people against some of the vicissitudes of life, which is--you know, I'm
strongly in favor of but which is controversial.

But where the government failed here was in the things that only government
can do and we thought everyone agreed. So the helicopters were not there when
they were needed. The 82nd Airborne wasn't ordered into action until way too
late. The basic maintenance of the levees--you know, if you're going to tell
people that you are protected by levees, then that's a public good to maintain
them.

GROSS: Well, Paul Krugman, are you saying that you blame the government's
ineffectiveness in Katrina--that you blame that on the cuts to programs over
the years and...

Prof. KRUGMAN: Some of it was cuts. Now Stuart will probably say--and he'd
be right--that, you know, the Army Corps of Engineers wastes a great deal of
money and that there's a lot of--that you could probably get good results with
the same amount of money if it was spent better, which is always true. But,
still, there were certainly cuts. FEMA's budget was cut. But, also, it was
an attitude. There was an attitude towards government which said, `Who cares
about these functions? Let me just put the friend of my campaign manager in
charge of this agency. Let's reserve large numbers of the key spots,' as a,
you know, cynic here, `for political operatives.' And all of that led to this
incredible inability--the Third World-level response to a natural catastrophe.

GROSS: Stuart Butler, let me ask you if you were to agree with Paul Krugman's
point that the attempts of some administrations to scale back government
agencies and put the reliance on the private sector helped lead to the really
bad response, the inadequate government response to Katrina?

Mr. BUTLER: Well, I don't think that the levees were not in great shape and
that FEMA didn't work because of political changes made by this administration
any more than any other. I think there's something structurally
unable--there's an inability in the way the political system in general
operates in terms of making these decisions, the way money is--I mean, you
know, there was money passed to put a bike path on the levees in New Orleans
at the same time as money was not, you know, put to actually strengthen them
by essentially pressure from the local area.

So it's not just decisions made in the White House. It's right through the
system. And that's what just basically makes me feel that if we're going to
say, `What is the best course to turn this area around?' I don't want the
same people that are making those kinds of decision, whether they be
Republicans or Democrats or mayors or presidents. I want to see people
affected who can look at their future and give them the help directly to make
those decisions.

Prof. KRUGMAN: But let's be clear that FEMA was considered an excellent
agency during the '90s. It was--the leadership was praised. It had highly
professional people throughout the organization. I--it was only after 2000
that the--several top levels were put in the hands of political appointees
with no disaster experience. It was only after 2000 that lower-level
employees began to complain that they were--important work was being
outsourced to private contractors, and they began to leave in large numbers.

Now I'm not saying, you know, that agencies aren't badly run under many
different kinds of political, you know--under different administrations. But
this was really a case in which the agency was treated with contempt, and it's
deteriorated as a result. And I would argue more broadly that what we have
here is a situation in which, for 25 years, one side of the political spectrum
has been telling us that government is the problem, not the solution, and has
more or less acted to make sure that that's how it turns out when it turns out
you really do need the government; that it's a little bit like the classic
definition of chutzpa. You know, you've destroyed the--you killed your father
and your mother, and then you plead for mercy 'cause you're an orphan. Here,
you've destroyed the effective of government and say, `See? I was right.
Government is no good.'

Mr. BUTLER: And I'm basically arguing that, notwithstanding the effects of
administrative decisions on an agency, that we've learned the hard way over
many, many years that trying to look at turning around an area like the Gulf
now and relying on these kinds of agencies generally and on a top-down
approach by government is not likely to be as successful as giving people more
direct assistance, whether it be for tax cuts to low-income people or
subsidies to them or...

Prof. KRUGMAN: Well...

Mr. BUTLER: ...vouchers and so on and allowing them to be in the driver's
seat of what actually happens. Now that's the difference between us.

GROSS: You know, because so many people who couldn't evacuate in New Orleans
and ended up in the Superdome were poor and were African-American, I'm
wondering if Katrina has crystalized for you in any way what the government
does or should be doing to help people who are poor, whether it crystalized
what the government should or should not be doing in your mind at all. Stuart
Butler?

Mr. BUTLER: I think it does, and I think that's one of the--you know, if
there's any silver lining, I suppose, in all of this, it has been that they
are thinking much harder about that than we've done in the past. And I think
there are different answers to that, assuming that we are all
well-intentioned. I think one answer is to explore: Are large concentrations
of people in parts of our cities who are very poor and are stuck in those
areas, whether it be because they're subsidized to live there or because it's
inexpensive and so on, is that the right way to think about this? And do we
need to focus on giving resources more and more to those people? Or should we
be encouraging people to seek opportunities elsewhere to a large degree?

I think that's a debate that comes out of this because I think if you look at
the evidence on this, I think that taking an approach of encouraging people to
seek opportunities and subsidize them to do that through housing vouchers, for
example, that Paul and I, I think, both agree on. Another approach is the way
to go--we see in New Orleans, in my view, the results not only of the
immediate issue of Katrina but the fact that we had large concentrations of
people who've known nothing more than poverty and dependence all their lives.
And how we address that in general in our cities is what we should be trying
to ponder after the Katrina event.

GROSS: Paul Krugman.

Prof. KRUGMAN: Well, it wasn't--didn't crystalize anything for me because I
was already quite aware of just how severe poverty is in the United States.
And I guess I was shocked, even so, that there wasn't a better effort to
evacuate people and, you know, basically that the help didn't arrive for five
days. I'd like to believe that it would really lead to a change in national
perception, that people will say, `Oh, my God,' you know, `we really--many of
us are really barricaded off from the American Dream, and we need to do
something to ensure that there's good education, good health care for people,
no matter what their color, no matter what their income level.' Truth is I
don't believe it.

Now I found myself thinking, while I was watching the very emotional coverage
of all that--unfortunately, I found myself thinking about the Onions
headline--the satirical newsweekly's headline after 9/11, which was: `Rest of
Country Temporarily Feels Deep Sympathy for New York City.' I'm feeling that
this--I have a feeling, unfortunately, that this is all going to fade away.
You can already see some of that happening as we return to politics as usual.

Mr. BUTLER: Well, I'm fearful you're right. I hope you're not right. And I
think we do have an opportunity to crystalize these debates rather more.

GROSS: When we started this conversation, you both agreed that the government
can't really proceed in the direction that it's going now of raising spending
and cutting taxes at the same time. Your answers to how the government should
be proceeding disagree, but you do agree on that basic premise. So I'm
wondering what programs you think are likely to be cut now. The president has
said he was going to recommend program cuts in order to pay for Katrina, and
we'll probably end up doing that to pay for the war in Iraq as well. What do
you think we can be--what do you think we should be expecting to see either
disappear or be dramatically cut?

Mr. BUTLER: I think the political response in general will be to talk about
cuts and to promise them and not actually to do anything. I think that's the
default position that we face. I and others have been focusing particularly
on the highway legislation because I think if you're talking about shifting
functions, shifting bridges and moving resources in that way, that's the
number one target. And I think that there's a decent chance that we will see
a revision in the highway legislation in the near future. I think that's the
most probable one that will see any change. But there's enormous resistance
to cutting anything in either party.

GROSS: Paul Krugman, what do you think we can expect to see cut?

Prof. KRUGMAN: Very little, if anything. I think we'll see some gesturing,
some fuzzy math, make it seem as if things are being cut, and some random acts
of cruelty to powerless people. So we're talking about restricting food
stamps. But I'm afraid that nothing is really going to happen that's going to
matter for the overall picture.

GROSS: You disagree on a lot of economic solutions and a lot of economic
principles, but you agree on some basic things, too. Is it nice for you to
both find things that you agree on, in spite of your disagreements?

Mr. BUTLER: Well...

Prof. KRUGMAN: It's a relief, but we're both dangerous radicals for believing
that addition actually works.

(Soundbite of music)

Mr. BUTLER: Well, and let me just add that I think you may not realize this
in the media, but there's a lot more conversations like the one that Paul and
I have had, where people of goodwill really do agree that there are enormous
problems. And they basically agree what those are, and there are well-meaning
discussions going on, honest discussions, about the choices that face us. But
we're not seeing that in the Congress yet, and we're not seeing that normally
in the media, except for programs like this.

GROSS: I thank you both very much for talking with us.

Prof. KRUGMAN: Well, thank you.

Mr. BUTLER: My pleasure.

GROSS: Paul Krugman is a columnist for The New York Times and a professor of
economics and international affairs at Princeton University. Stuart Butler is
vice president of Domestic and Economic Policy at The Heritage Foundation.

Coming up, Jean-Luc Godard's 1966 film "Masculine Feminine" is now out on DVD,
and John Powers has a review. This is FRESH AIR.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Review: Jean-Luc Godard's "Masculine Feminine"
TERRY GROSS, host:

A new DVD gives you the chance to see one of the more influential films of the
'60s, Jean-Luc Godard's "Masculine Feminine." Our critic at large, John
Powers, has a review.

JOHN POWERS reporting:

Ever since the heyday of Elvis and James Dean, pop culture has been obsessed
with youth: showing it, flattering it and, of course, taking its money. What
it has rarely done is look intelligently at what it means to be young. The
most ...(unintelligible) exception may be "Masculine Feminine," the 1966 film
by Jean-Luc Godard, just out on a DVD on a lovely crisp print with new, more
accurate subtitles.

Godard was one of those iconic figures, like Bob Dylan, who not only reflected
the spirit of the 1960s but actively helped to create it. And in "Masculine
Feminine," which was intended, he said rather immodestly, to capture the
situation of youth in December of 1965, he found a way of looking at young
people that seems even more radical in this age of Ashton Kutcher than it did
back during the height of cinema's new wave.

The movie opens on Paul, who's played by Jean-Pierre Leaud, the cute
(unintelligible) of an actor who made his name as Francois Truffaut's
alter-ego in "The 400 Blows." Just out of the military, Paul spends most of
his time mouthing pop political slogans and looking for sex--or maybe that's
love. He finds it in the form of Madeleine, a shallow pop star played by
real-life ye-ye singer Chantal Goya, a vacantly pretty woman who never seems
more at home than when fixing her dark hair in the mirror.

Although both are mired in self-absorption, Paul and Madeleine do the things
that young people do. They flirt, dance, go to the movies, go to bed and talk
with their friends about the mysteries of the opposite sex. But beyond their
mistrust of the adult world, they don't appear to have a lot in common. Even
as Paul spraypaints political graffiti on the walls and hassles American
soldiers about Vietnam, Madeleine is pursuing her recording career, which
takes her to number six on the chart in Japan.

If Godard had merely shown us Madeleine and Paul talking, "Masculine Feminine"
would still be a remarkable document of the needy, tentative and frustrating
way that young men and women really interact. But Godard doesn't stop there.
To understand this couple means exploring the world around them. He evokes a
world filled with incessant intrusive noise--cars roaring by, telephones
ringing too loudly--a world in which random violence happens just outside the
cafe where you're sitting, a world in which the psyche is bombarded by pop
culture, be a thrilling glimpse of Brigitte Bardot or the amazing six-minute
shot in which Paul asks questions of smug, real-life beauty queen named Miss
19. The scene is entitled "Interview with a Consumer Product." You see, 40
years ago Bardot was already wise to the horrors of celebrity culture.

When Godard's work first hit, he was acclaimed for sending bulletins from the
front lines of contemporary consciousness. These days his movies sometimes
seem like dispatches from a distant epic, back when movies were actually
considered a way of thinking about the world. "Masculine Feminine" teaches us
to look at the basic truths of youth: the fascination with sex, the feeling
of not knowing one's place in the world, the Apache dance of romanticism and
disillusionment. In one of this DVD's extras, Godard's former collaborator,
Jean-Pierre Gorin, surely notes how "Masculine Feminine" captures something
other movies don't: the sheer banality of being young. All that waiting
around, all that boredom, all that submersion in the sheer ordinariness of
everyday life--in short, all the stuff that movies about youth and TV programs
like "The Real World" deliberately leave out.

And Godard doesn't forget about history. In fact, the most famous moment in
"Masculine Feminine" comes when Godard dubs Paul and Madeleine's generation
`the children of Marx and Coca-Cola,' a brilliant tag line that captures a
whole fizzy era defined by left-wing politics and the rise of American-style
consumer culture. Encountering that phrase again, I found myself wondering
how one might characterize today's 20-year-old. `The children of 9/11 and
"The Matrix"'? `The children of Trump and Tattooing'? Yeah, I know, I know,
I'm no Godard, but, heck, I'm just a critic. I keep waiting for one of our
filmmakers to get it right, to look beyond sensational cliches about teen-age
drug use and sex parties and do what Godard did: offer some ideas about
what's going on with the young. Hey, how about `The children of Reagan and
Starbucks'?

GROSS: John Powers is film critic for Vogue. He reviewed the new DVD of
"Masculine Feminine."

(Credits)

GROSS: I'm Terry Gross.
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