Transcription
Yeah, obviously you're not going to have a lot of capital flows to Mars because it's not possible to transfer any goods there. But also, I just think if you were a European banker, wouldn't you be at least a little worried about, uh, the possibility that your phone might contain some texts critical of Donald Trump?
I agree. In the medium to long term, there's no doubt the effect will be very, very bad. You know, if the links all break down, the system doesn't work. This is the canonical description of what happened at the end of the Roman Empire.
Okay, that's the good news. Shall we start? Let us roll. This is the second in our series, the Wolf Krugman Exchange. I'm Martin Wolf, chief economic commentator at the Financial Times. Uh, and I'm Paul Krugman, professor at the City University of New York and independent newsletter writer on Substack. Um, and for the record, we're recording this conversation on Monday, June 9th at 2 PM London time, which is 9 in the morning for me here in New York. And before we get to the theme of this episode, which is how did we get here? I want to ask you, Paul, what just happened between two important gentlemen in Washington?
Let me start with, actually, a kind of a life lesson. I mean, you know, the philosophers always tell us that, um, that wealth and power don't bring you happiness. And, um, boy, are we seeing that illustrated in, in real life. You have the richest man on earth and the most powerful man on earth. And both are, they reveal a lot more of their thoughts because of social media than they would have in the past. And both appear to be extremely miserable human beings, uh, with an amazing ability to feel, uh, mistreated and undervalued. And it's really hard to come up with what the substance of the dispute is here, except that, um, it seems like Elon Musk kind of feels as if he ought to be the real president and Donald Trump, uh, does not. Uh, that always makes me say that Trump is right, but Trump is also terrible in his own way. And, but wow, there are no deep issues of principle here. This is just, uh, runaway egos, uh, from two, turns out, extremely strange people.
I wonder whether there isn't one issue which might be relevant. That Musk actually thought that he was going to Washington to close down the government. And he's found to his surprise, shock, horror, that actually Trump doesn't really want to close down the government, except for, from his point of view, rather unimportant bits that help very poor people have medical insurance.
Well, it's a little question here. I'm not sure I mean that, uh, Musk went in with the belief that there was a vast amount of, of waste and fraud and, you know, fat that could be, um, picked away from, from the US government without causing anybody any harm, except for useless bureaucrats. Um, not clear that Trump had much view on that at all. But of course, it turns out to be utterly untrue, which anybody could have told us. In fact, some of us did tell him. Um, and the whole effort has been a really spectacular failure. And I think part of what's going on here is that Musk went in and told Trump, "I can save you trillions of dollars." And then failed to deliver. And Trump, uh, said, "What's going on here?" We do know that some Trump officials, uh, have actually called Musk a fraud, and he can't handle that. So, that whole notion that there is a bloated federal bureaucracy and lots of money to be saved just by stopping things that don't need doing has turned out to be wrong. In fact, there are reportedly some frantic efforts now by parts of the US government to rehire some of the really essential workers that Musk got rid of.
It does remain a mystery to me that Musk, whatever else, seems to be able to create functioning companies with some government assistance, uh, which does involve being able to read an, uh, income statement. I would assume couldn't have looked at two or three pages, no more, summarizing the federal government spending without realizing, as in your well-known phrase, that it's, uh, it's an insurance system with an army. And this egregious waste is just ridiculous. And of course, as a result of this, they've done incredible damage to the world and to poor people, as you've noted, with the closure of USAID.
Yeah, people of great wealth can certainly afford to be extremely well-informed. Uh, I did a sort of back-of-the-envelope calculation and realized that Musk could personally, uh, afford to maintain an intelligence agency about the size of Britain's MI5. Right? If he wanted to be the best-informed person on the planet, he could do it quite easily. Uh, instead, he reads random posts on Twitter and gets his information there. And this is really just saying that he does not want to know. It's not lack of sources of information. It is fundamentally being that you've decided that you know how the world works or how you want it to work, and that's all you want to want to hear about. And that seems to be the case. And Mr. Trump certainly isn't interested in finding out the way the world works. He seems to be just driven by his passion of the moment. There doesn't seem to be any consistency in his understanding of the world.
That's right. Well, there's a general devaluation of expertise. Anybody who actually produces facts and figures, anybody who's actually studied a subject is inherently suspect with the current regime in the United States. So, it's almost disqualifying to know what you're talking about. And, um, it's a heck of a way to run, uh, the world's most powerful nation. Although, uh, at the rate we're going, we may lose that status pretty fast.
Let's actually just touch on that for a moment before going to the, the big theme of this conversation. You've just written about this, this staggering hostility to science, technology, basic applied science in central areas on which was the basis of American prosperity. And are they sort of consciously aware, you saying to themselves, "Actually, our objective is to destroy America"? Isn't that a good thing? And which is, I suppose, what people who think he's really, uh, on the opposite side might believe. But presumably that's not what they think. And then the question is, what do they think about the role of science in American prosperity?
It is a very interesting question. I mean, yes, uh, the US, you know, leads the world in science, certainly in, in terms of raw numbers of scientists, in terms of raw numbers of Nobel prizes, everything else. Um, it does so largely thanks to government-funded programs, but which are intimately linked to the great research universities. And all of it depends upon, first of all, a lot of government money. Um, scientific research is also has depended for the past, uh, uh, 80 years in the United States, has depended very, very heavily upon, um, foreign, upon people coming to the United States, on the world's smartest people coming to America to study, coming to America to join research organizations of various kinds. And what they're doing is the, the short-term budgeting pretty much slashes federal support for scientific research, surge in half, um, immediately, basically for the next fiscal year. Um, and we have all of these now attempts to ban or restrict foreigners from coming to the United States to study, restrict them from coming to work. You know, there was that Harvard researcher, a Russian immigrant who was imprisoned for months because she failed to declare some frog embryos in her luggage. I think that there's a first of all, yes, they are definitely trying to destroy science. And because to the extent that science threatens, you know, science may tell you things you don't want to hear. Uh, but also there's a kind of a, it's kind of a lump of labor thing on the, on the right, which is the belief that, uh, there's a certain number of good, uh, jobs, like high-tech jobs in Silicon Valley. And there are certain number of good positions, like being a student at Harvard. And that, um, though if you can shut foreigners out from those jobs and those positions, then they can go to Americans. And it's just as good. That it doesn't matter who, uh, gets hired to be an engineer at a high-tech firm. That it doesn't matter who gets to be a graduate student at Harvard, which is kind of weird. It's, you know, people who were so into that high incomes are a reward to the talents of the entrepreneurs also seem to think that basically any old person, uh, can be a star graduate student at Harvard.
Amazing. Well, these are also the people who, who rail against affirmative action because it, because it puts into all the best positions, people who are entirely unsuited for holding these positions, don't have the right qualifications. Doesn't seem to worry them very much here, does it?
No. Affirmative action for, um, native-born white Americans. What can we say? Um, and I was thinking when you were talking about, uh, the, this, uh, closure and the effect on foreigners going to America, possibly Americans going abroad, it's pretty well what happened in Europe in the '30s and '40s, famously with all the refugees who came to America and played a pretty big role in establishing those, uh, uh, that American preeminence. So maybe this is now the great opportunity for Europe. We will see.
Now, let's move to the question which we'd want to talk about, which is why did this happen? As it were, we're talking about an administration who seems to be very absolutely hostile to everything that makes has made America what it is, uh, the richest, most successful, uh, country in the world, the dominant power, the shaper of the world. So why, I'm going to ask, and we're going to discuss, has this happened? And why, in particular, do so many people, uh, working-class people with, um, you would think pretty dependent on the functioning of this system, think that Trump is the answer?
Now, one of the theses which I discuss at length in my recent book on this, "The Crisis of Democratic Capitalism," is, and it's one you've been discussing recently, is rising inequality along with economic failures. The huge financial crisis, the apparent corruption of the way it was dealt with, the apparent incompetence of the people in charge when that happened, fueled a sense of deep unfairness. And that meant they were up for grabs. And I think there's something in that. But what is puzzling is why do they then go to this sort of right-wing populist government? Um, and we see that elsewhere too. Now, you've looked a lot at the economics. Do you have a wider sense of what has happened to the working class, using that as a sort of shorthand? Why so many have left the Democratic Party or the Labour Party, similar here, uh, or the Social De, Social Democrats in Germany? And why are they so tempted by the sort of empty populist politics and policies we're seeing now?
Well, yeah. Um, I have a somewhat, probably pretty seriously heterodox take on all of this. Most of the time, I, I'm mostly actually a surprisingly orthodox guy on economics. On so it's, it'd be often what I happen to say is is much more sort of mainstream economics than people think. Um, but on this, so fact, yes, we've had this huge increase in inequality which has left many people behind. Uh, the, the working class as a whole has not shared very much in economic growth. Not zero, but hasn't shared very much in economic growth for, for decades now. Um, particularly, we have the issue of, of left-behind regions, which is quite serious. So if you look at the aggregate of the working class in the United States, and to, to, I know other countries less well, but this is true, I think, across the, the Western world.
What? Yeah. Northland, Britain. Britain has this in spades. Yeah, exactly. Uh, Great Britain, uh, the former East Germany. So, you have these left-behind regions where people really do feel stranded, that the world passed them by. And, uh, particularly a lot of, a lot of working-age men without jobs, which is definitely not a good thing sociologically. Um, so you have to, on the one hand, say that this is real, that the, there are real grievances. There are real reasons to say this has not been fair to me and people like me. Um, on the other hand, you have these right-wing parties, even in places that have been much more successful than the Anglo-Saxon countries, mine in particular, in limiting the rise in inequality, that have much stronger social safety nets. There are, um, nativist right-wing powerful movements in Denmark, in the Netherlands. So, it's not just that. Um, and, and as you say, the, the people, the parties they support are, they may try to sound populist, but the policies are anything but. Um, so, my take is two parts. One is that there's always a substantial number of very dissatisfied, um, people, are very unhappy with society as it is. That even in the best of times, 25 or 30% of the electorate, um, really is, is very angry. And there can be, this can be because of genuine social forces, it can just be because, you know, life, life is not a bowl of cherries, whatever. I mean, we've just seen it, the world's richest man, the world's most powerful man are obviously deeply unhappy. And this happens to a lot of people. Um, but, um, how does that get translated into politics? Well, um, one thing to say is that most people have, are far less informed about politics, about what parties stand for, about what the policies are, than, you know, people like you and me can easily imagine. Um, and this is particularly true in an, uh, in an era of sort of stovepiped media where people get fed particular narratives. So, people have been doing counts on Fox News in the United States and saying, you know, in a typical morning, uh, you have this bill that's probably going to go through that's going to cause about 15 million people in America to lose health insurance, largely through slashing Medicaid. So, um, uh, on a typical morning, Fox News will have one or two mentions of Medicaid and 45 to 50 mentions of the fact that Joe Biden is old. So, there's a lot of, you know, people don't have a good sense of what's there. And then, but who shapes this? How did the media narratives, um, get pushed? And by the way, the, there's a, there's 30%, let's say, of the electorate that is ready to be hopping mad, is ready to be very, uh, uh, burn it all down, but they get signals. It's who, who sends the signals to them. And in a lot of ways, I think that the most important political aspect of inequality has not been the lag for the working class, although, although that's real, it has been the extreme concentration of wealth at the very top, which has created a kind of oligarchic elite that, among other things, gets to determine a lot of the narrative. And that, more than than lagging wages for the working class, that the concentration of wealth at the very top has really driven the polarization and radicalization of our politics.
I think that's very interesting. Let me just put forward a couple of other propositions there, here, about the links between economic change and some of the cultural changes that make people upset. And one of them is actually something you mentioned, which I think is generally underestimated, which is the link between economic change and political power, political institutions. So when I look back to my youth in Britain, and I think the thing was same was basically true in America. You had powerful trade unions as political actors and as actors in the economy, and they mobilized working people and, and created, as it were, a political community. Uh, and they directly supported parties in which they had huge influence because they combined the votes and the resources of lots of working people. And that, that's gone. And I tend to the view that, at least in part, significant part, that's gone because of the changes in our economy itself. That, um, when we had very large factories and millions of people in mines and so forth, all these men were working together, really working together. And if they went on strike, they closed down whole industries, and everybody could feel it. They had real economic power. And when you're a vast number of people distributing goods for Amazon, it's a bit different. They don't have that sort of power. They're much more easily interchangeable. There was also an, an ideology, an attitude that these people should be represented. And the creation of, of and the link with parties like the Labour Party or the Democrats, as it used to be, made people feel they were part of the political process. And the people in those political entities were seen as representing them, not representing people completely different from them. I look at the Labour Party now, the Democratic Party now. The people who are at the top, to be blunt, rather like you and me. And I perfectly well understand that when you're a working person who's never had anything to do with the sorts of institutions we were lucky enough to go to or do the sort of things we do, they feel these people aren't anything to do with me. When we had Ernie Bevin as a powerful politician in Britain in the '40s, he was them. He'd been the man who ran the transport and general workers' union, one of the most powerful political entities. And I think economists have tended to underestimate these synergies between the economy we had and the social and political organs that represented these people. And I think they're lost. They are atomized. And that's an opening for people like Trump.
Yeah. The decline of, of the union movement is epical in many ways for, for directly impacts on inequality. There was a lot of leveling of wages, um, and constraints, by the way, on sort of massive executive compensation packages and so on, that came from the fact that we used to have in the United States a 30% unionized workforce. Um, and the unions mobilized people. They, you know, people, uh, got a sense, you know, who, who tells people, when to, to a certain extent, where people were getting their political news from, the union meetings rather than from sitting at home watching Fox News, that mattered. Um, and they could mobilize resources of a kind that, in a way, you can't really buy. The, it used to be the case that union members would go knocking door-to-door to get the vote out. Absolutely. People you knew. So that mattered a great deal. And the decline of unions really, uh, eviscerated, uh, an important part of the political system. How much that is a necessary consequence of economic change, um, is something I would be prepared to dispute. You know, we used to say, well, okay, only manufacturing had really big employers whom you could unionize, but that's not at all true now. You know, right now, the, so the three biggest private sector employees in, in the United States right now are Walmart, Amazon, and United Parcel, UPS, United Parcel Service. The 1.6 million at Walmart, 1.1 million at Amazon. You know, Amazon feels disembodied. You, you click on a link and it appears, but it's in fact, there's thousands and thousands of workers in those distribution centers. Um, are those jobs atomized and inherently impossible to unionize? That I don't think we know. It's certainly the case that there are large enterprises that could be organized. In fact, you know, in a lot of countries, they are. And one of the things I discovered just recently doing some research on this is that that number three private sector employer, UPS, mostly is unionized. About 70% of UPS workers are members of the Teamsters union. So, the, the fact of the matter is that you can have large service sector companies that are unionized. And if we ask why they aren't, that has a lot to do with politics rather than the other way around. That the, the big shift away from manufacturing towards the service sector in the United States took place, um, um, in the 1980s and the 1990s, at a time when conservative economic ideology was dominant. The Reagan administration was clearly anti-union and in fact was highly permissive towards union-busting tactics, many of them illegal, but nobody was enforcing, uh, the labor law. So I think it's, it's not as simple as to say, well, we used to have an economy that empowered workers and now we don't. A lot of it is that, um, as the economy changed, we failed to, uh, we, it changed in an environment where workers could be disempowered.
Do you think a significant part of the change in politics you've described is the change in media? The, the decline of the networks, the, the successful assault on the mainstream media and its credibility, and of course, this colossal growth, as you pointed out, of new media of very many different kinds, from Fox News onto, uh, all the social media? So actually, you can't create a coherent community because there isn't one.
I have mixed feelings on, or basically I'm confused on this. Yes, it's true that the, uh, decline of traditional media. It used to be, and this is a very American reference, I'm sorry, but used to be that if every evening Walter Cronkite would say, "And that's the way it is," and people believed him. And so there really was a kind of national consensus about what was happening. And that's not at all true now. Um, and now what is striking, though, is that the, if you ask who is providing these, you know, desperate visions of reality, or who is, big issue in the United States now is, we talk in the media is sane, you know, I don't know who came up with the phrase, but say, you know, really crazy stuff where they really, they don't tell it like it is. Where you read the, or watch on, on CNN, the, uh, description of what Trump said today, and then you go back and look at the actual tape, and it's, it's completely crazy compared to it. It was totally sanitized for the public. And these are big media organizations. So we're not talking about, oh, you know, everybody's getting their news from Facebook or TikTok, although that is also a factor. It's a lot of it is that the, the mainstream media, the big media companies themselves have contributed to, directly promoted, or have simply backed away from the, the process of, of creating a shared vision of reality that that bears some resemblance to what's actually happening. So, I'm not sure it's that simple. It would be nice to blame an alt, you know, on Mark Zuckerberg or something, you know, that it's all because we, uh, started getting our stuff from social media, but I, I think there's a lot more going on there. And in many ways, the media breakdown is a symptom as much as a cause of the political polarization.
Let's go back to something you said earlier, which I think is very important, and which where I'm somewhat heterodox among my, uh, friends, uh, which is talking about immigration and what's happening in, um, uh, Europe. I mean, the, if you look at right-wing populist parties, uh, across the West as a whole, pretty well universal among them is that they mobilize their supporters around the theme that the country is being swamped by foreigners. You look at the Brexit campaign, you look at the AFD, you look at Orbán, you look at what's happening in Sweden. Of course, it's obvious with Trump. Just look what's going on right now somewhere to your west. So, it does seem pretty clear. And then, of course, you can go to the most malevolent version of this, what happened in Germany during the interwar period, that foreigners are both something people get very anxious about, and it's a wonderful way of mobilizing anxious, an anxious and angry people against somebody different who can be perceived as invading your country. That's a pretty central element, isn't it? It must be a pretty central element in the rise of the new populist right across the West, of which obviously your country is very significantly a leader.
Yeah. Um, I'm not a political scientist. Um, I don't even play one on TV, but I do read them. I do, I talk to them. And, uh, if you try to look for things that explain, uh, ups and downs and political polarization in the United States, um, income inequality is one major driver. But immigrant share of the population is another. There's no question that, um, rising immigration, uh, uh, which in the United States, really in the 1960s, we began to, the rules were changed, and it became a lot easier for people who were not Western Europeans, who mostly didn't want to come anyway, but it became much easier for, uh, for people from other places to come. And that, that created, um, a sense of, uh, "this is not my country," or "these people are coming." And it took a long time, but eventually that did solidify. Now, there are some quirks in that. Uh, within the United States, there's a very clear pattern, which is that, um, extreme hostility to immigration, uh, is strongest in places that have very few immigrants. So if you ask, is immigration good or bad for America? You get, overwhelmingly, this is a really bad thing for America in West Virginia, which is basically, you know, 97% native-born whites. Um, and you get a pretty positive picture from New York or Los Angeles, where 40% of the population is foreign-born. So, it's, there's a real sense in which, um, uh, people are angry about immigrants, immigration in the abstract. They hate the idea. If they actually get to interact with a lot of immigrants, they start to seem strangely like people, and, uh, the hostility goes down. But it's clear that the, that immigration has been the single most effective mobilizing tool for scary populism.
Yes. And, and we've seen this phenomenon. It's been much observed on here. The vote for Brexit, which was very clearly, uh, much of it at least, was about, uh, immigration and immigrants, was highest in the parts of the country which had the fewest of them. Um, similarly, the anti-immigrant sense, which is obviously very powerful in East Germany, the former East Germany. It's where the, it's the real bastion of the AFD. There are other reasons, but that's not where most of the immigrants have gone. And there are some countries in Eastern Europe, we don't have any, where it's very passionate. So clearly the idea of it is very bad. There are also some places that's part of the problem in Sweden, where, um, they clearly have really had problems in absorbing and coping with mass immigration, and they have a very serious crime-related problem. So it, we shouldn't, I think, underplay this. But it's clear that we haven't managed, uh, the politics of this in some sense at all well, and it's creating now very profound problems for democracy. And it's something one can't really ignore. And my own argument in my book was governments need to give the impression that they are in control of it. I don't think there is a popular demand to stop immigration, but I think there is a strong popular demand, at the very least in the majority of these people, I'm not talking about the most extreme racist fringes. There is a demand that they should feel that there is a policy which is being enforced, otherwise it's lawlessness, and that's difficult to accept.
Yeah, I think that that's right. That the, you know, there's a quite compelling abstract humanitarian cosmopolitan case for open borders. Forget it. It's just not sustainable. It's not politics. It's not sustainable.
Now, that gets to a really big question. Um, uh, what went wrong with the Biden administration? The Biden administration, on paper, had a pretty good record, certainly in terms of economic activity and in terms of employment and real wages. And, nonetheless, it lost, of course, with all the problems over Biden himself and its replacement. There, that's an important issue, but people generally tend to say there were two things that went wrong. One, they lost control over the borders in the first couple of years or so, and then inflation. Um, or I tend to say, not inflation, the price level. Three years of inflation was the problem, not one year. But anyway, if you look back on that, which is obviously how we got here, um, what do you think they did wrong? Or was it actually doomed that Trump would come back?
Well, um, one thing they did wrong was to not actually, um, pursue, uh, legal action against the people who tried to overthrow the US government in 2020. Absolutely. It's extraordinary. Although, you know, that a lot, a lot might look different. As as people kept on saying, Merrick Garland was Biden's Attorney General, and all through this, people kept on saying, "None of this would be happening if Merrick Garland were still alive," which he was, but of course, he was just not doing anything. So, um, that's one issue. Um, the surge in prices clearly rattled people very badly, and did so everywhere. Now, the funny thing was, it was very much a global phenomenon. If you look at cumulative increase in consumer prices on any kind of comparable measure, it's almost the same in the European Union, the United States, um, Britain. Um, and, uh, 2024, your own paper's John Burn-Murdoch said it was a, 2024 was a graveyard for incumbents. Whoever was in power with during that rise in prices got blamed, blamed for it. Even though, you know, people like you and me could, could go blue in the face and and try to say, nope, you know, this was, this was there were policy errors. There always are, but mostly this was supply chain issues as we recovered from COVID. Um, in fact, um, Canada, the Liberal Party in Canada was on the edge of extinction, um, basically because voters were furious over the rise in prices in Canada, which is, of course, identical to the rise in prices in the United States. And Canadians, of all people, should know that their economy is very strongly influenced by this neighboring economy, 10 times their size, just south of the border. And yet they were prepared to, you know, deliver a devastating defeat. And the Liberals were saved by Donald Trump. If their election had been held two months earlier, uh, we would be talking about a, a populist government in Canada as well. So I, I think mostly this was just COVID was an enormously disruptive thing. And it turns out that coming out of COVID, economies are a lot less flexible than I think most economists, myself included, tended to imagine. And the, the dealing with the dislocations that continued even long after, um, people had pretty much gone back to work, was a big source of inflation. And everybody was furious. People didn't say, "Oh, you know, this is a global phenomenon, and actually my wages have risen by three percentage points more than the consumer price index has gone up." People just said, "This stuff used to cost me, uh, $2, now it costs me $3." And I'm, I'm, I'm angry.
I have to say that we should have some disagreements. I agree with most of that, but I disagree a little in that perhaps it's significant. It does seem to me when I looked at the late data that it was a global phenomenon, but it wasn't just a supply shock. There was a very large surge in demand in nominal demand across the Western world, which was actually the perfectly understandable consequence of the monetary and fiscal policy decisions made during and immediately after COVID. So we did actually pursue extremely aggressive demand policies, and it's not very surprising then that that generated inflation. Now, you can certainly argue, I think, that of the, if the alternative was a long recession that would have been worse. So this was probably erring on the right side, but it doesn't seem to me that it was just, as it were, a set of unexpected supply chain.
Yeah, it's a little bit more complex. I mean, what I would have said is, first of all, we kind of, we basically maintained people's purchasing power one way or another through extensive government aid programs at a time when the economy's productive capacity was reduced by the, by the virus. So of course that's inflationary. And then also, even as we began to recover, people didn't spend their money the same way. So you had people were still afraid to go out to eat, and so they bought lots of expensive kitchen equipment instead. And it turned out that we did not have the, the port capacity, the shipping capacity to deliver all of those consumer goods. And so the United States, which was more aggressive on the fiscal policy than the rest of the Western world, did our inflation bout started sooner, although it ended sooner as well. So yes, it's, it's more complicated than just saying there was a supply shock. But I think you should think of all of this as being, look, the world was hit with this incredible disruption, this pandemic, that shut down normal life for an extended period of time. We responded very aggressively to protect people from the economic consequences, which on economic terms was very much the right thing to do. And in terms of every measure except who won the election, uh, it worked out great. We're back to more or less target inflation. We never experienced high unemployment. Uh, real wages are up. Um, if, if you didn't know that Donald Trump won in November 2024, you'd look at US economic policy since the start of COVID as a triumph.
Let me, we've missed out. And let's focus on this in the last 10 minutes or so. What most people think of as, what the cliché elephant in the room, trade and above all China and de-industrialization and all these unfair practices which destroyed Western manufacturing and caused colossal mass unemployment of industrial workers and regional depressions. And I want to explore where you agree with that and where you violently disagree with that. Let's start with the de-industrialization, quote unquote, and particularly the loss of industrial jobs, because I think we both agree the dominant thing that's been going on for a long time is productivity growth in manufacturing is faster than in any other major sector. That means we can produce more with fewer workers. And if you look at the statistics, that's the dominant reason why the proportion of workers in manufacturing across the Western world has been steadily declining for decades. There was a bit of a surge in the early part of this century, but that was over quite quickly, sometimes called the China shock. But in the end, this idea that China has destroyed manufacturing is just, and manufacturing jobs is sort of a ludicrous exaggeration.
Well, it's one of those cases, as I saw mine, it's not unadulterated nonsense. It's adulterated nonsense. There's some truth to it, right? If, if the United States did not have a trade deficit in manufactured goods, then, uh, manufacturing would might be 12.5% of employment, uh, rather than 10. Yeah. But of course, not the 25% it was in 1970. So, well, it's one of these cases, old nine. It's not unadulterated nonsense. It's adulterated nonsense. There's some truth to it, right? If, if the United States did not have a trade deficit in manufactured goods, then, uh, manufacturing would might be 12.5% of employment, uh, rather than 10. Yeah. But of course, not the 25% it was in 1970. So, so it, it is a factor in de-industrialization. But I think the much more important story, the thing that I kicked myself for for missing, when the big surge of imports from China and a few other places began, was how geographically uneven it would be. So you take, well, I happen to have a favorite example which just happens to be easy to do, which is furniture. Uh, the US furniture was a largely non-traded good until China really got into the export market. Then we had this huge inrush of Chinese-made furniture, which probably eliminated around half a million furniture manufacturing jobs in the United States. America is a very big place. Um, we have, uh, a million and a half people are fired from their jobs every month. It's half a million jobs is actually a tiny number. Uh, and overall US unemployment didn't rise at all. Um, but turns out that furniture manufacturing, and I, of all people, having worked on economic geography, I should have thought of this. Furniture manufacturing, like a lot of other industries, is very geographically concentrated within the United States. In the case of, of furniture, it's mostly in the North Carolina Piedmont. And so what looks like a trivial shock to the US labor market as a whole was devastating to the, uh, economy of Hickory, North Carolina, right? And so you had a lot of regional disruptions that came from this surge in trade. Cumulatively, you add them up, it's not all that much, but it does contribute to the feeling of things going wrong. And by the way, the technological change also, uh, tended to have very desperate regional impacts. Um, you know, we, coal mining has essentially disappeared as an occupation in the United States. Uh, which is, by the way, in the long, you know, in human terms, a good thing. It was a horrible job. But, it was a large part of the regional identity of places like West Virginia. That's not trade. We don't import coal. Uh, and it's not even environmentalism. We really didn't start scaling back coal consumption until quite recently. What happened was technology. Instead of guys with picks and shovels, first we had giant earthmoving equipment, and then later, um, we started just using high explosives to blow the tops off mountains. So all right, technology is always changing. There are always some jobs being destroyed. But in this case, what happened was that a particular region of the country found that the industry that in many ways defined its identity, and why it still does define its identity, even though there's basically nobody doing it anymore, was eliminated. And those kinds of shocks, I have to say, as where economists do fall down, is that we don't think enough about community. We don't think about what it does. You never mind what the aggregate unemployment numbers look like. What happens if your town no longer has a reason to exist?
Well, we used to have in America, and, um, we had regional policy. You had adjustment assistance. And for quite a long time, these two were basically abandoned, as far as I can see. Now, they probably weren't as effective as they should be or could be, and it's difficult to do this, but at least it gave the impression that there was some concern about what was happening and some effort to help. But it is true that in the era of what is called neoliberalism, communities were sort of expected to sort their own problems out. And one of the things we've learned, and I think you've learned, that's really hard if you lose the basis of your economy. And the part of your region, your location, which exports to the rest of the world.
Yeah. And so, I mean, and that's how, you know, how local economies work, is that they have an export base, which means selling to, not just to the world as a whole, but just other parts of the world, is other parts of your country. Yes. And everything else hinges off that. So, again, New York basically lives off Wall Street. Uh, but most people don't work on Wall Street. They do all the other things that we do around here. And, if you eliminate that export base, um, sometimes lucky cases, a community finds something else to do, but in many cases, it doesn't, and it just kind of withers away. And we do not have good answers for that. Regional policies, we can try, but, uh, uh, you know, I'll get a little per. I spent my very early years in, uh, in Utica, New York, upstate New York, which is, um, was a manufacturing center, you know, and all that. The manufacturing went away. Those towns up there, well, some of them have found, actually, it turns out Utica has done better than some of its neighbors because they make yogurt. But, um, it's really hard to get stuff to go there because, yes, it was an industrial center because of the Erie Canal, which nobody cares about. And let's face it, the weather is terrible. Extremely cold winters with, uh, meters and meters of lake effect snow. So why has anybody going to locate industry there? So, and this is a problem everywhere. It's always been with us. But it interacts with this poisonous political environment.
Well, we've got quite a few subjects I wanted to talk about, but we're going to leave later on. One of them is global imbalances, those deficits, whether they're a real problem, what to do about them. Another is the future impact of AI. But we've sort of run out of discussion of the challenges now, and I think have shed a lot of useful light on how serious they are and what was behind them.
Yeah. So Martin, we've been, uh, picking up an idea I think was mine, Substack newsletter, of having a, a sort of a cultural coda, which normally I do in the form of a song, but I, I actually have a poem for once, which is not my normal thing. But Martin, what's your song for for the day?
Well, um, I didn't know what to do because I've never done this before. So, and I don't seem to have your access to wonderful new music. Uh, but it so happened that I was reading, as I do very faithfully, Tim Snyder's Substack. Um, Yale historian, now moved to Canada, uh, writes a wonderful Substack about tyranny. He wrote a magnificent book called "On Tyranny," which has turned out to be very relevant. And he actually posted a link to a song, uh, written by and performed by his brother-in-law, who's turns out to be a well-known composer, Dan Shaw. And it's basically the tariff song. And I thought it was wonderful. And the link will be with the podcast.
That's great. Yeah, normally I do do music. Um, and by the way, the trick is that after a day of dealing with this horrible news environment, I actually tend to spend an hour or two every evening decompressing, uh, watching, uh, live musical performances on my iPad. So that's, that's where all this comes from. Um, and, but in this case, it's the famous Langston Hughes poem, "Let America Be America Again." And he's writing about it, as you know, as a black man, saying America was never America for me, but also saying that America is an idea, and we are supposed to live up to that idea, which seems to me to be a terribly important thing to be emphasizing right now. I mean, in a way, the, the fundamentals of, of what's going on in this country is between, um, people like me who have a vision of what America is about, what are we really? What is our essence? And people, unfortunately, who are in power, who don't share that view at all.
So on that note, thank you very much for joining us for part two of the Wolf Krugman Exchange. We'll be back with you again next week. And in the meantime, may I ask all of you to send questions? We have a plan to devote the last, uh, of these episodes, the sixth, um, to them, and we hope we will give you good answers. And thank you very much for listening.