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    Global Economy
     May 19, 2005
THE ROVING EYE
'We are a banana republic'
By Pepe Escobar

BANGKOK - With a playful smile, Paul Krugman says China will inevitably become the world's No 1 economy, depending on the criteria one applies, "by 2020 to 2040". You can't be too careful when it's early evening, but the internal clock says it's early morning US East Coast time, you crave for breakfast, but soon have to address a US$250-a-plate dinner. Krugman adds - to the despair of many a neo-con - that a multipolar world is also inevitable, the poles being the US, the European Union, China and India (not Russia). But China has to watch out for environmental constraints and address its pressing water problem ("they say that the Yellow River never reaches the sea".)

Professor Paul Krugman, currently enjoying the status of being the Mick Jagger of political/economic punditry, is in Bangkok to address a seminar on how Thailand should position itself in the global economy - although he's also careful to point out he's no Thailand specialist; he does not even know exactly what "Thaksonomics" means - a reference to Thai Prime Minister Thaksin Shinawatra's policies. He says Thailand has not experienced a "searing recovery like Malaysia or even Argentina" and "has not returned to the growth rate of 1996, before the Asian crisis". But "it could be a lot worse". Thaksin would take that as an endorsement.

Krugman, a laid-back, affable personality, forgets about his jet lag when he starts talking to Asia Times Online about the US and the global economy. The facts are known to all: half-a-trillion-dollar deficits, the endless quagmire in Iraq, the weak dollar, loss of industrial competitiveness. If he were Obi wan-Kenobi in this particular galaxy, what would he do to extricate the US from this mess? "No more budget deficits," he says. "We should be running surpluses." Tax increases: "We should be getting 28% of GDP [gross domestic product] in revenue. We are only collecting 17%." And most of all, clean up the foreign-policy mess. Not much of a chance though. "We are a banana republic. For the moment, all of these things are politically impossible."

Krugman sees three reasons forcing the US to leave Iraq: domestic pressure; military problems, caused by Pentagon chief Donald Rumsfeld's insistence on invading Iraq with a small army; and the fact that the Shi'ites (not the Sunnis) may become more of a problem. "We do not control Iraq, by all means. It's under the control of militias." He notes that many in America, like the financial elite in Wall Street, for instance, don't even want to talk about it anymore, pretending the quagmire will vanish by itself.

Unlike scores of independent analysts, Krugman does not think much of a possible switch from petrodollars to petroeuros - already contemplated by Russia and some Organization of Petroleum Exporting Countries members: "It's an overrated issue." He says the US gets only $20 billion out of all those $100 bills floating around the world. "The US is already losing position anyway. The Russian mafia is now using euros. This is not a big deal." He sees a shift toward diversifying reserves as inevitable both in Japan and emerging Asia. And for him, the dollar is not weak enough: "It should go down more, for instance, against the yen." He does not realistically expect a major devaluation of the Chinese yuan - maximum 5%. Krugman admits it's hard to predict what happens next: "It needs a trigger. But I'm convinced it's the collapse of the housing market in the US that will trigger the dollar's decline."

Krugman has never personally met Pascal Lamy - the new director general of the World Trade Organization (WTO) - but says he has only heard good things about the former European trade commissioner, whose job until recently was to vigorously defend European farm subsidies, to the chagrin of the developing world. "I don't blame him for doing his job. I think he'll be serious at the helm of the WTO. The big players - the US, the EU - respect him. The decisions to be made are politically difficult. But whenever the US applies pressure, something happens." He does not think that the Doha round has failed. "At the end, they will come up with something."

Krugman may be a relatively reluctant warrior in his position as one of the most influential pundits on the planet - courtesy of his widely reprinted New York Times columns. "My life would be much calmer now." But he wouldn't have been able to live with himself if he hadn't taken the job. He's still amazed by the level of vitriol in current American political discourse - "and I'm not talking only about the left, you should see what comes from the right and the extreme right".

Krugman recently relocated to Princeton, New Jersey. He's a lover of Thai food - something that prompts him to say, "people usually think that globalization means Americanization. But look at Thai food, sushi, Hong Kong movies". Unlike Boston - where he used to live - and New York, "it's not easy to find a Thai restaurant in the middle of New Jersey". In the interests of globalization, some gentle souls in the "banana republic" might as well supply the professor with a proper Thai meal once in a while.

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