Transcription
We are now live. Uh Paul Kugman, Nobel Prizewinning economist and uh longtime commentator in uh the New York Times and now on Substack. Uh thanks for joining me.
>> Well, thanks for having me on.
>> Let me first congratulate you on the one year uh into your Substack life which has been tremendously successful. Uh are are you enjoying it?
Yeah. I mean, I wasn't really planning to work as hard as as I've ended up as my wife and I have ended up working. I mean, this was supposed to be, you know, keeping my hand in a little bit and it's turning into a very full-time job, but that's because the response has been so great. And um so, yeah, it's uh and God knows there's no shortage of material.
>> So, would you have done it if uh uh Trump had not been elected?
Yeah, I probably would have done it. Um but it might have been much lower key. I mean >> uh you know I I did I I I did a lot of blogging um uh back you know during the aftermath of the global financial crisis and all of that. So there there's stuff and I I have um >> um you know but it's it probably wouldn't be so intense. Um, and I I would actually love for this era of history to be over so I could talk more about, you know, interesting things as opposed to, you know, imminent threats of autocracy, >> right?
Um, I have to start with a confession. When you started writing your column for the New York Times, I I uh have always thought of myself as kind of a moderate person, centrist person, and I used to think >> uh that you were pretty far out there. But as the years have gone on, it has seemed to me more and more evident that on most things, you've been more right than most other people. Um, and you know, I wonder uh sometimes I think about the kind of intellectual collapse of the Republican party as a a reason for why people on the left look more normal and reasonable than um than what some people once might have thought. But uh have you had many people have that reaction to you?
Yeah, I mean important to I think for people to understand that I am not um what we would once have called a leftist, right? I mean I'm I I like markets. Uh I don't have a you know moral oblig objection to capitalism. Um it was I'm willing to compromise. You know I would go um I would prefer a singlepayer healthcare system, but if Obamacare is what we can get, then then I'm I'll go for it. Um, so a lot of it really what we what people really mean by this is how upset how worried were you about the direction that the Republican party was taking and it was obvious to me even even in 2000 that we were seeing a a movement into a very dark place and um and that has turned out to be right and so we've we a lot of people who are now you know look I mean um a lot of people uh the neocons people who were very instrumental in the war in Iraq where I really stuck out my neck and in opposing that but they've also turned out to be for you know it um they at least they believed in this stuff and they've become very very serious anti-Trumpers so it's really more a question not a of what your ideal society looks like now we can talk about that later first let's save democracy >> right
Um, well let let me uh start with um your assessment of the economy It's it seems to me clearly somewhat worse than it was a year ago. But how much worse?
>> Yeah. And it is, you know, to use the technical term, it's kind of weird. I mean, this is uh um history, you wish that history would just do one thing at a time. And instead, what we've gotten is on the one hand a total radical change in US um trade policy. You know, tariffs to levels we haven't seen in 90 years. um which would be one thing and is definitely a problem. On the other hand, we have this monstrous boom in artificial intelligence and in spending on on data centers which is kind of you know so pulling in and one thing pulling the economy up, one thing pulling it down. Um and the combination of those things has led to an economy which if you look at the topline numbers doesn't look that bad. Inflation is a little bit elevated. unemployment is a little bit elevated, but nothing that would have you saying, "Oh, crisis." Um, but then if you start to look underneath it, um, it feels pretty bad. It's it's a it's these frozen labor markets, you know, not no mass layoffs, at least not in the data yet, uh, but very little hiring. And so, if you got your job, you're probably okay. But if you don't, for whatever reason, you're young or you got laid off for some reason, um it's really really hard to find a new job. So that's probably the the thing that is worst. And then prices are, you know, inflation was on a steady sort of downward trend and now it's picked up again. And um and that's that's all tariffs. Uh so this is and there's a lot of feeling, you know, that we're waiting for for another shoe to drop. I mean, if you're uh um you know, those of us who remember the the '90s, um you know, I've got a really bad feeling about about this whole um AI thing.
>> The um uh a couple of months ago, Mark Xandandy, uh the Moody's economist told me that we were uh standing on the edge of recession. Uh was that true a couple of months ago? Is it true now?
>> Um you know, that's a really hard Uh maybe I mean it's um we would be in recession. I think we can fairly confidently say that we would be in recession if it wasn't for the AI boom. If they we weren't building all these data centers, the US economy would be in recession right now. Um wouldn't necessarily be a severe recession, but it would be a recession. So we're kind of on the edge. Um the but this enormous I mean we really are talking about it appears that this this boom uh this tech the current tech boom is bigger than the dotcom telecom boom of the late 90s bigger as a share of the economy. Uh so that keeps us you know head above the water for the time being but all it takes is in a way a wy coyote we talked you know a wy coyote moment where laws of cartoon physics when you look down and realize there's nothing supporting you that's when you fall and a wy coyote moment on the tech sector where it is really really hard to come up with any way that these companies can make the money make back the money they're spending. uh that that will push us into a recession.
>> Given the fact that some of the tariffs have come down, there doesn't seem to be as much day to day or week to week or monthtomonth uh fluctuation in them and that there have been huge loopholes in the tariffs that take the effective tariff rate lower than it is nominally. Does that tell you that the the threat uh of what tariffs could do to the economy has now been kind of settled down and contained a little bit?
I mean, we had um uh first of all, there there was a lot of hyping. I think I'm on record of saying that people were overhyping what tariffs would do. It was more the uncertainty than anything else. um they you know economists believe in free trade and so we tend to hype the the dangers of of protectionism which are real but not at that big. Um and look the we're trying to really peer through the fog here but given the actual effective uh tariffs that you given that there have been a lot of ways that people have are able to avoid paying these tariffs. So instead of a 15 point rise in tariff rates, we probably have something more like a 10point rise or less um which you would expect to raise prices uh in the end by maybe 1%. Uh and the best estimates I've seen say that what we've actually seen is around 2/3 of that so far. So most of the impact on price probably [clears throat] already through and uh so the tariff and if tariffs stabilize uh at current levels then you know we will be a little bit poorer as a result and life will be a little bit worse but won't be catastrophic. Um, you know we had high tariffs in in the 1920s and also a booming economy. So that um you don't want to overstate what that does.
Um I want to ask you about a different um uh threat from the Trump administration and how you quantify it if you can. I remember uh a few years ago Alan Greenspan said free market economies depend on the rule of law.
>> Yeah.
>> Trump has been taking a sledgehammer to the rule of law. Um is that something that has an immediate impact, a long-term impact? How do you assess it?
>> Oh, it's it's uh Oh, definitely. It's it's it's termites, not not a hurricane, right? It's um it slowly undermines our economic prospects. Um people are not um you know um we're still getting a fair bit of of investment in the United States, quite a lot, but there's going to be some caution. I mean, if you're if you don't know whether ISIS is suddenly going to descend on your Korean factory and arrest the visiting executives, you know, um and um people we you America, we built our world leadership a lot on having the best and brightest from all around the world come to America. Now, we're in a world where not only is that a dubious proposition, but I I know European uh uh actually people go back and forth between Europe and the United States quite a lot and they travel with burner phones. They don't want them they don't want the mobile phone that has the you know the text they send to their friends back in in uh in Belgium um where ICE can sees where CBP can sees it. So, you know, that that has got to erode America's uh global position. I I would think it would also be corrosive the uh loss of loss of trust in a couple of ways. One by other countries in their relations in their economic relations with us. The other is by domestic and international businesses um losing trust in American government assessments in American government data. We saw the BLS uh head fired after a bad jobs report.
How do you how do you assess that uh impact?
>> that's going to what's happening right now is mostly that we're just losing data. We're getting less and less data now to actually fake the numbers um is harder I think probably harder than than Trump people realize to actually you know cook the books at the BLS would it be a really big effort involve hundreds of people and we would know about it. It would
>> so so when we get new BLS numbers you will be confident in them.
I will for the time being, you know, first hint that they're that they really are cooking. Um, uh, we we will you I will I will talk about it as will lots of other people. Um, but so far uh it's more that stuff has disappeared. So you know, if we want to think about uh uh nutritional uh food adequacy in America, well, we're no longer producing those reports. you know, if if we um if we have another pandemic, I will not at all trust the numbers coming out from the CDC about about uh the effect. So, it's it's um so far so you know, it's it takes a while. It takes much more especially just because the US statistical agencies are so good. They have such a a really terrific um uh track record, has such a good system that mucking it with it um is hard and will be dead obvious if they try to do it.
>> Uh let me ask you about some of the people running economic policy for Donald Trump. Uh you wrote today about Kevin Hasset.
>> um >> who has made a series of just crazy claims about prices coming down about uh uh Joe Biden being responsible for every uh ailment uh in the economy. Um he he said early this year, "We're not doing a trade war. We're doing a war on fentanyl, and that's why we're putting tariffs on Canada." Things like that. I know.
>> Um when we had stress in the regional banking system uh a couple of months ago, uh he said, "Yeah, that's cuz Joe Biden was asleep on banking regulation."
Um how do you assess what he's doing and why he's doing it? Is he I mean, he's in some sense a peer of yours. Is he a competent economist who is pretending or something else?
>> Well, he was never a very competent economist. And I hate that that sounds snoody, right? But you know, nobody would ever have said even before, you know, recent years that that that he was a uh a top flight talent in the field or a influential researcher. Um but um he and I think he basically sold his soul for politics a long long time ago. You go back to uh um you know, this is goes way all the way back to uh to the Bush administration um that he's uh been pretty bad and and certainly Trump Trump term one. Um so look um I mean I did say in today's substack that he's a he's a a DEI hire, an ideological DEI hireer. He's somebody, you know, he's not the worst. I have to say among the people whose names have been floated for Fed here, in some ways he he's uh he's not the worst of that of that uh batch. um and not as nearly as bad as some of the other people that Trump has surrounded himself with, but he would not there was no way that he would be in this position if he weren't just reliably a reliable sickant basically. And uh yeah uh by the way tragedy the um economics as a profession has a fair number of reasonably conservative competent people. they're fair, you know, by the nature of it, there are there are a number of people who are basically favor smaller government, worry about the incentive effects of taxes and so on, who are also actually good economists. Um, and many of them I think and you know even a few years ago imagine themselves having some role in setting economic policy in a Republican administration, but they're not wanted. Their competence itself is disqualifying because it might they might take a stand on principle. We can't have that.
>> If Kevin indeed becomes Fed chair, as most people now expect, uh it's been reported that Scott Besson, in addition to being Treasury Secretary, will take his job at the same time uh as head of the National Economic Council. Uh, Besson is also somebody who though he was when he was hired, people thought he was going to be a a tempering force, an adult in the room, you know, has been saying all sorts of stuff about the Fed. He he blamed cattle prices on immigrants bringing diseased cows into the United States. Yeah.
>> Um, what do you think he's all about?
>> Well, you know, I I have to wonder why. I mean, he doesn't need this. I mean, he he's he's uh he's rich beyond our wildest dreams. He has So, I don't know. But, um Trump does have this way of sucking people into his um alternative reality. And I don't know what but it it is a I I do I had good, you know, liberal Wall Street types and they do exist. Um and uh um who were very happy with Besson's appointment because they said they knew him the good guy. sensible he would be um uh he would he restrained and you know what what exactly went on I don't know but it is kind of shocking
>> um let me ask you one technical thing related to Besson you know there have been a lot of talk about um what the United States government did for the president of Argentina when he was inical difficulty and uh a news anchor recently questioned Bessant and asked about the bailout and Bessant's response was why do you say bailout? Do you even know what a currency swap is? Uh and then he said he he talked about how we've made money uh on this deal. Uh how do you assess what they actually did and whether it's the kind of thing that might have posed risk but in fact did not uh or do we not even know yet?
>> Oh, we don't know yet. the United States has ended up, you know, basically swapping uh dollars for pesos and the peso hasn't collapsed yet. So, so far it hasn't, you know, on uh so far we haven't lost money, but we certainly put a lot of taxpayers money at risk and um I would say a lot of risk. I mean um the kind Malay strategy in Argentina uh which is I mean exchange rate based inflation stabilization is a a strategy that has failed often disastrously again and again in the many countries and it's failed in Argentina itself multiple times. So, I can't think that putting US taxpayers money on the line in defense of that strategy is going is is a good bet, even if it has bought the M the I wrote a piece today about a repeated pattern of Republicans offering doomsaying predictions about everything from Social Security when it was being proposed, Medicare, the Affordable Care Act, DoddFrank, it was going to disastrous in many ways, job killing, all that sort of stuff. While at the same time, every time they cut taxes, they say, "Well, this is going to help everybody uh and this is not going to increase the deficit because we're going to supercharge economic growth."
Um in one of your pieces recently, you noted a comment by uh Jared Bernstein where he said, "The Republican party seems to have lost the ability to think about policy." Uh, how did that happen?
Oh, look, it's a long-standing thing, by the way. This is not this goes all the way back. I mean, in some ways, uh, uh, a lot of this was happening even, you know, decades ago. But what's happened is that you have, um, all the compare think tanks. So, uh, you know, Jared used to be at, uh, uh, economic policy institute, which is, you know, it's it's clearly left-leaning. That's that's that's where they are. But they they do scrupulously honest research and uh um the um and versus Heritage Foundation which is at this point entirely corrupted. It was never very good. But um it's it's what's demanded. I mean the um uh again there there are all of these um
>> who's doing the demanding?
>> Well, it's the donors are demanding it and now increasingly it's the Trump administration that's demanding it. But the the uh the kind of bureaucratic money uh that finances these this whole enterprise um is you they don't want pol they don't want actual answers they want propaganda and they so there you know there a lot of there Washington has this kind of think tank universe which provides a a reserve army of experts for when your party comes into office and the Democratic think tank universe is a lot of good reasonable people. They obviously have political uh uh gains and and that and that presumably has some effect in coloring analysis no matter how hard you try but they are people who actually know their stuff. Such people on the right they exist but they're not wanted. They're uh uh so you end up with I mean Hassid is is actually way better than you know Larry Cuddlo uh or
>> well Kevin came out of the American Enterprise Institute. Do you still have confidence in the work that's done there?
>> AEI is very mixed. There are still decent people at AEI. It's not like Heritage. It's not completely corrupt, but it's not entirely good either. And um uh and yeah um I mean uh you you you see that the people who were not bad um who were at some of these conservative think tanks have actually been bailing out. They've been leaving. Um so and so the result is there is no there's no appar sounding like a functionary but you know policy running America is complicated. picks into a lot of intense detail. Try to talk about any substantive issue and you quickly find yourself in an alphabet soup of agency names and laws and so on. And of course, you know, it's not this is technical stuff. Um, and people who actually know their way through this and how things work and what the what the evidence shows have been pretty much drumed out of the entire Republican party. So, I mean, I I've been thinking a lot right now. You we're having the imminent health health insurance catastrophe, you know. So, how did the Republicans stumble into this where millions of people are about to see their health care costs just skyrocket? And my main thought is I don't think anyone was telling them. I don't think there was anyone in the Trump administration. And I don't think there was anyone on the congressional staff alerting Republican leaders that, hey, we you've got uh 24 million people who are about to find that they can't afford health insurance. Um it they they just, you know, sort of woke up about 6 weeks before catastrophe and now they can't get their act together.
Um, speaking of people who have some degree of competence and are on the conservative side, uh, when Ben Bernanki wrote a a memoir uh, after his service as Fed chair, he said, um, that he had left the Republican party because it had been taken over by no nothingism.
>> Yeah.
>> Um, uh, do you see it getting taken back by no somethingism?
I see no hint of that. I mean, it's just there's just nothing. Um, you know, who's certainly not Trump, certainly not the people around Trump and even on the congressional leadership. You know, I uh I mean, it's hard to say to think that uh well, you know, you feel I almost feel nostalgic for uh the days when Mitch McConnell was running the congressional Republican wing because McConnell is not stupid uh and and not ignorant. I kind of evil, but not, you know, but um now or or the George W. Bush administration. Well, that a lot of competent people in there.
Well, that gets to a question which is um at the moment uh Donald Trump's polls are way down.
>> Yeah.
>> And I think the level of um panic you've seen in many quarters about the Trump administration, it's not gone, but it's diminished. People feel like the air is coming out of the balloon a little bit. Um so I guess a question would be to the extent that we can look beyond uh this administration. Um how much can be repaired uh of what Trump has done and of the leadership of agencies by people who are in fact sick offense and not competent actor.
Well, I mean, uh, you know, let let's say we get through to January 2029. We've actually had reasonably fair elections. We have a a Democratic president and a Democratic Congress.
>> And you've had a resilient economy. You have to say we still have a resilient economy.
>> Yes. But okay. So, you can replace the, you know, agency heads. We can we can quickly assemble a um the secretary level the cabinet level positions. We can get good people and you can get good people three or four layers down very quickly. Um you have but you know there's 2 million federal employees um which who are very on on the whole we have much better people working for the government than than we deserve given how you they're not that well paid relative to private sector and so on. um a lot of those people are leaving. Uh they will not come back. Um their institutional knowledge will be lost. So just reconstructing an effectively functioning government is actually going to be a multi-year project. And then there's the whole issue of credibility and you know at home abroad um one of the thing one of the problems getting somebody to be a career civil servant when you know how career civil servants have been treated and
>> and yeah uh um internationally uh who you know one of the things we don't talk about enough on tariffs but as part of it everything that we that Trump has done on tariffs is a violation of international agreements
>> and that's how we make we did that's how we did tariff polic policy was always um uh it's always under the Reciprocal Trade Agreements Act of 1934 and we we make deals with other countries, the White House negotiates them, then presents it to Congress for a for a vote. So every every the whole structure of of US trade policy was built around solemn agreements with other countries which not only did Trump rip up, he didn't even um try to explain why he was ripping them up. Donald Trump does not do solemn.
>> So well yeah so but the point is then um nobody you know you're worried about you what are the ways in which uh rule of law erosion can matter. One of the things I talk about sometimes people ask about what about debt uh you know what about debt and deficits and you know I've always been you know saying don't be alarmed and um and the reason I've been saying that is that um serious countries uh particularly serious countries that borrow in their own currency have a get a lot of markets cut them a lot of slack. You know Britain had debt that was 250% of GDP at the end of World War II. There was no crisis because people said Britain is a serious country um that can manage its own affairs and will do what is necessary to to um to deal with with its its debt. Um are we still a serious country? Are you going to make a bet that the United States uh is that this America with this political fragmentation is going to do what takes? So uh you know at a certain point uh you have to wonder whether people start to treat us as you know as as being Venezuela or Argentina.
>> Well speaking of uh how serious we are as a country. Um want to take some questions from uh uh viewers and Anthony Robbins asked the question what happens if let's say Kevin Hasset takes over the Federal Reserve and forces through a big cut in interest rates beyond what say um uh reasonable analysis from JPAL or others would indicate. What's the consequence of that?
>> Okay. Now the first thing to say is that interest rate decisions are made by a committee. Mhm.
>> The chairman doesn't have dictatorial power on that. And um and um one of the best reasons not to freak out about Hasset is that he probably won't be able to bring the committee with him at least for a while. Um the but look the the current role model if you like is Turkey where President Erdogan is an autocrat as something of a Trumpian mode. Who uh when they started to have inflation problems. He found adviserss who told him that actually the way to fight inflation is to cut interest rates not increase them. and he listened to them and insisted on that and and completely politicized their central bank, their approval to the Fed and didn't back off that view until until inflation hit 80%. So yeah, you can you can uh things can spiral really quite quickly.
Um, Jeffrey Gilbert has a question that touches on something that's interested me. He talks about how u corporate America has been willing to swallow uh tariff malfeasants. Um, I have long wondered why business leaders did not recognize that Democrats uh in the current era uh have tried to be more responsible about economic policy than Republicans have. Low Democratic administrations have produced lower deficits. They produced uh higher job growth uh uh than Republicans. and uh the the lure of tax cuts uh has been so powerful. Um do you see any sign that corporate America is going to wake up to that reality?
You know, there's a kind of cycle of autocracy, uh, oligarchy autocracy where oligarchs back some right-wing um would be strong man, uh, because he they think that he will cut their taxes and and reinforce their privileges, which which at least initially they do get. Um and then one day they wake up and discover that um they're working for him, not the other way around. That that you sort of transition from from greed to fear uh almost with no no internum. Um and you can that's sort of been happening at accelerated an accelerated pace right now. A lot of US business is just afraid to speak up. you know, they privately think that that policy is terrible, but they're uh they're afraid to speak up. They were not uh thinking very much about um about they were, you know, they they don't read enough history. They weren't were didn't didn't realize this was going to happen. Um, and it's and for some of them still, you know, personally, is uh is Mark Zuckerberg uh or Elon Musk personally richer right now than they would be under a Democratic president? Yeah. Uh now, one of these days, you know, again, let's let's the most extreme stuff now is actually quite reasonable. You know, one of these days some of these guys may find themselves falling out of thigh windows, but um the uh but but for now they they are still you know the interests their businesses and their personal interests are not identical and in many cases they are personally wealthier.
>> Well, Francis notes uh something related to that point which is Costco suing the administration over tariffs that stands out. Uh how do you interpret that and do what do you expect more of that?
>> That's an interesting question. I mean what's interesting there is that um uh I'm not sure whether Costco is trying to influence policy or you know I hope so. Uh but uh to some extent they may just see a profit opportunity. I mean there's a um you know if two two lower courts have ruled that the AIPA the the the uh the trade law that the administration has has pretty much obviously illegally invoked to impose most of its tariffs that this was illegal. Um, and if that uh if it's ruled illegal, it's very hard to see. I don't know what that they may try, but it's very hard to see how the administration can avoid refunding tariffs already paid under an illegal application of the law. And
>> can't they find a different legal authority or purported legal authority for imposing them?
>> They can find other ways to impose a tariff, but that doesn't mean that the original tariffs were legal. Mhm.
>> So if you do a, you know, a jargon, you do you can do section 232 national security uh on almost anything you unless people call it call you on it as being ridiculous. Um so you know section 232 tariffs on bathroom vanities which Trump has imposed which kind of bizarre but that's another court case. But even if you get to reimpose the tariffs under a different authority the original tariffs were still illegal. So, uh, so I mean, Pete, we do know there are there are Wall Street firms that have been buying up the rights to any potential tariff refunds. And so, Costco maybe just be doing this, you know, on its own instead of relying on um, can't well what Caner Fitzgerald, which is Howard Lethnik's own old company, now his son's company, basically, um, is is betting big on the tariffs being ruled illegal and and and they're they've been buying off tariff refund rights. So, um I don't know whether Costco is is acting in the public interest, uh or just playing sees an opportunity to get itself a financial windfall. I'll take it either way.
>> Let me uh uh close with a question from Ariel Gonzalez, which um I noted the other day, Senator Ted Cruz said that Donald Trump had done more for children than any parent in American history. And I think he was than any president in American history. I think he was referring to the Trump accounts. Uh what do you make of those?
Well, first of all, you know, whe are they coming and um you know this it is this odd thing that that um uh Trump is taking in tariffs which are raising a lot less revenue actually than expected because people have been so good at finding ways around them um and which in any case you are raising about 10% as much as the income tax and are are closing only a small fraction of the budget deficit and then saying now we have money to go and do a lot of handouts. It's uh so this is crazy.
>> And you think the same uh uh lack of action will follow these claims of a $2,000 tariff rebate or a $2,000 health savings account check or whatever.
>> Wow. Yeah. I mean, we're going to take the same uh pot of money and uh pretend that it's several times as big as it is and then give it out many times over in different kinds of award. Yeah, this is um you know, they may do it, but it's wildly irresponsible. And if if a Democrat did it, there would be shrieks of of uh of u um fiscally irresponsible socialism.
>> Um, let me I I lied. Um, I had one other question which I wanted to uh ask which is um William Pigman uh we've talked about the importance of AI in the current economy. He asked, can we better uh control or manage AI through the tax system? Is there some way the tax policy can uh take AI in a responsible direction?
>> I'm not sure that I haven't really seen a tax related thing. I mean the the mostly a lot of this this boom would not be happening if we were or would be much more prudent if we required that these companies pay the full true cost of the electricity that they're burning. You know that that just by itself is is just a lot of it. And then yeah, I mean um uh uh there's also I can go on and on about AI and in fact you can listen to my conversation um uh on Saturday uh with Paul Kadski where we go on and on about it. But the um um the um one thing that strikes me is a lot of this AI boom is not it's not even exactly corporate. It really is a handful of individuals who decide to bet big on it and there's a feeling that there's this is partly just monstrous egos. Uh and uh you know monstrous egos have always been with us. But if those monstrous egos had a little bit less money because we had adequately progressive taxation uh maybe this wouldn't be going so crazy.
>> Amen. Uh Paul Kman thanks so much for spending time with us. You've been very generous and uh fascinating discussion.
>> Thanks for having me on this. I hope people enjoyed it.
>> All right. Bye-bye.