Paul Krugman Podcast

Paul Krugman
  • 5.0 (15)
  • Politics

Notes on economics and more paulkrugman.substack.com

  1. Power and Geopolitics After Trump

    8h ago

    Power and Geopolitics After Trump

    Transcript Hi everyone. Instead of a regular post today, I’m going to put up a video. There are a number of reasons why I feel like doing that instead of the usual. One of them is that this is a dry run for a talk that I will be giving virtually later today. There’s a conference on the economics of digital transformation taking place in Croatia, although I’ll be doing it remotely. And they have asked me to talk about global power, geoeconomics, and Europe. Those are all themes that I’ve been thinking about quite a lot. And today’s miniature talk is an opportunity to try talking through those themes. And the way I want to structure it is as what has changed, at least in the way that we all now understand the world, since, well, basically since Donald Trump returned to power. That’s an American-centric point of view, if you like, but it’s kind of a natural bracket. And of course, everything really has changed, mostly not for the better, under Trump. And it has, as it turns out, big implications for Europe as well. So let me just try to get into that. Start by talking about the world as it seemed to be at the beginning of 2025. There were, and still are, three great economic superpowers in the world: China, the United States, and the European Union, in that order. If we measure GDP in 2024 at purchasing power parity, which is basically just adjusting for differences in national price levels, you had China with a GDP of something like $37 trillion, the United States with something like 29 trillion and the EU with something like 28 trillion. That last bit may be a bit of a surprise — maybe all of it is a surprise to some people — but yes, in terms of the actual amount of stuff it produces the Chinese economy is now substantially bigger than the US economy. And the European economy is almost the same size as the US economy. If you think that Europe is backward and poor and helplessly dependent, it’s not. It is an economic superpower. And in fact, by this measure, Europe has basically maintained this position of being about comparable to the United States for a long time. This is a whole other topic that I’ve been writing about and will continue to write about in the future. In that world, basically, two things were really kind of striking. One is that the United States seemed to perceive itself as being a dominant power, even though China was bigger and even though Europe was about the same size, and Europe acted as if it seemed to perceive itself as not being in the same league, as being not a superpower at all. All of that may be changing, and events are part of the reason, so let’s talk about the events. Now, the most obvious: the United States just lost a war. Just lost it bigly, as Trump used to say. It’s an astonishing story. We went up against Iran, which was definitely not a major military power or a major economic power, a sort of middle-ranked power, if that, and utterly failed to achieve our war goals. In the process, we inflicted a lot of damage on the world economy and depleted our stocks of high-tech weapons that will take years to replace. Altogether, immense damage was inflicted on Iran, but Iran has clearly emerged stronger. The United States has emerged humiliated. The attempts by Trump and minions to pretend that it was a victory don’t help. They only make the United States look not just humiliated but delusional. So that’s a big deal. It has large implications for US power and influence going forward as well. To explain those implications, it’s helpful to talk about one of the other things that really dramatically changed with Trump coming back into office, which was trade policy. The United States began really seriously trying to throw its weight around. Liberation Day, the tariffs on everybody, basically trying to pressure all of the world into giving us various kinds of concessions. Give us what we want or we won’t let you sell in our market and everybody needs to sell in our market. Okay, what we learned from now well over a year of trade war is that U.S. power in that dimension is substantially less than certainly than Trump appeared to believe it was. And just in general, trade, leverage and trade negotiations, leverage in trade disputes has less to do with market access than a lot of people assumed and more to do with supply chains, with getting stuff that you use in your economy, means of production, not in the sense of capital, but intermediate inputs or just inputs in general. The nation that has more ability to strangle its rivals by cutting off supply chains is the one that has the upper hand. So it turns out, and we had already learned this from the trade stuff, that China with its dominant position in rare earths and some other crucial industrial materials actually had a stronger hand than the United States. Yes, we have a big market, but loss of a market can be offset to some extent by domestic stimulus, domestic support programs. Not having crucial industrial materials is not so easy to make up for. So we learned that the power in international trade disputes in a fundamental sense reflects power over supply, not power over demand, which is something economists have always tried to say. The point of trade is not to sell. The point of trade is to get stuff. You sell as a way to pay for things that you get from other countries. But now we have it demonstrated very obviously in real life. So that in itself meant that we’ve had a blow to the perception of US power. It turns out the US market is not almighty; access to the US market is not anything like as powerful a tool as we thought and Chinese strangleholds over key inputs are much more important. And then of course we’ve seen that even more graphically demonstrated by war with Iran and it turns out that Iran’s ability to disrupt traffic through the Strait of Hormuz was a really huge empowering point, and it was the kind of thing that the United States really didn’t think about, and certainly the Trump administration didn’t think about. And it shows the true rules of global economic power, because largely Iran was able to win this war through economic power rather than strictly military action, the rules of economic power are not what a lot of people thought they were. Who benefits from that? Well, obviously China. What we’ve seen now is that in terms of a global power competition, China has demonstrated that they have substantial power over supply chains. They’ve also demonstrated that they can weather a cutoff of oil pretty well. And global power is a zero-sum game. So the United States, by weakening itself, by showing that we don’t have the ability to impose our will militarily, we don’t even have the ability to keep international shipping routes open, has emerged as just a much less formidable player, which means that China by comparison looks better. Add to that the fact that the United States has been erratic and unreliable. Our current leadership just doesn’t understand that a reputation for doing what you promised, honoring your agreements, is itself a source of power, and we have done an enormous amount to undermine that. Not news to anybody. Trump looks much weaker. America looks much weaker. To a certain extent, China is the beneficiary of all that, at least in terms of power. Now, of course, life is not all about power. And in the end, you don’t run a country to maximize global power. Maybe the Chinese do. I’m not sure about that. But in any case, it’s not a zero-sum game in terms of living. But in terms of power, it is a zero-sum game. And the United States share of that power, however you measure it, is clearly down as a result of the war. Europe is a little bit interesting here. Europe played essentially no role in any of this. Europe wasn’t involved, obviously, in the war. Europe didn’t do very much at all except to suffer. Still, one thing that is kind of important is that Europe — at least to some degree, not really through emergency responses but just through the general way that the Hormuz shock played out — Europe demonstrated or some European countries demonstrated that they can be much more independent of global hydrocarbon resources than they have been. Europe is not a major oil producing area. It has some, but not a lot. It’s not a major gas producing area anymore. It’s essentially a very resource poor economy relative to the size of its GDP, relative to its population. But it is an economy that increasingly relies on renewable energy. And those countries that have gone especially far in relying on renewables weathered this really well. That’s the lesson of Spain’s ability to ride through this with very little rise in electricity costs compared with some other countries. Italy, which has very little in the way of renewables and is very heavily reliant on natural gas for electricity generation, Italy did much worse. But Spain has given an illustration of how the renewable energy revolution — solar plus batteries is what really runs Spain now — has made Europe more independent and can make it more independent still in a world economy where control of natural resources used to be really critical and it’s becoming increasingly less critical. So that’s actually a point in Europe’s favor. That’s one piece Another piece of this is that Europe has always, in my lifetime, literally, and from a bit before my lifetime, Europe has always been far less of a global power player than you would expect given its sheer economic weight. Now that’s partly because Europe doesn’t exist as a political entity. though it’s more of one than it used to be; the common market has gradually turned into something more than that and Europe is able in some important ways to operate as one and is finding ad hoc ways of cooperating more. But it was always in a secondary position very much — or tertiary position given the rise of

    22 min
  2. Lunch Money with Paul Krugman and Heather Cox Richardson

    10h ago

    Lunch Money with Paul Krugman and Heather Cox Richardson

    Thank you Michael Scarmack, Scotland Explained, Oakbridges.ca, Kim G, Cathy Stein, and many others for tuning into my live video with Heather Cox Richardson! Join me for my next live video in the app. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

    40 min
  3. Talking With Azeem Azhar

    5d ago

    Talking With Azeem Azhar

    I last spoke with Azeem, the proprietor of Exponential View, 18 months ago — ancient history on this subject. So we revisited the state of AI. . TRANSCRIPT: Paul Krugman in Conversation with Azeem Azhar (recorded 6/12/26) Paul Krugman: Hi everyone. Paul Krugman back on my usual schedule of recording interviews. And today I’m talking with Azeem Azhar, who I spoke to in January 2025, basically centuries ago in AI time. And with AI on everybody’s mind, I thought it would be good to revisit. I should say Azeem is an independent researcher and founder of Exponential View, which is one of the top tech Substacks out there. So hi, welcome to another conversation. Azeem Azhar: Yeah, thank you, Paul. And it has been eighteen months, also known as one and a half centuries in AI time since we spoke. Krugman: Yeah. Let me ask sort of the dumbest question: what is this thing called AI? How does it do what it does? I mean, even skeptics have to admit that it’s really impressive how it’s sort of leapt over all of the previous barriers. How is this happening? Azhar: You know, I think we’re still figuring it out. I think of AI ultimately as a machine that does certain things, and it’s been built by passing first millions, then billions, then tens of billions, hundreds of billions of trillions of words of human output through a neural network to give it some sense of how humans have thought about the world. And because it operates at dimensions well beyond the form of space and time, it seems to be able to find relationships between quite complex concepts. And I think we’ve all had that experience, whether we’ve been using Chat GPT or Claude over the last two or three years, that it seems to be able to recognize things that are quite deeply related that don’t immediately spring to mind. And in the last year and a half or so, the labs have started to train the AI models not just on words in books, but actually on tasks, like, “what is the set of things that you do to write a piece of code that does something?” “What is a set of things you do to use a piece of software in an enterprise?” And they’ve tried to train those models on those particular tasks. Essentially it’s aping what we do, and they use various mathematical tools like reinforcement learning where the model notionally gets a reward. Of course it’s not a reward the way you and I think of it because it’s a machine. Paul Krugman: Right. Azhar: And so that’s what it is. It’s sort of reflecting back, but also I think discovering some really deep relationships in the world that we might not spot, you know, prima facie as humans. Paul Krugman: Brad Delong calls it “a vast stew of linear algebra,” which makes some sense to me because I think that Pagerank with Google was the last thing I actually understood. And that’s the eigenvector with the largest eigenvalue. Not that anybody needs to know that, but this is like a million times bigger, right? Azhar: That’s basically it. Yeah. Krugman: But it’s sort of not what artificial intelligence was supposed to be, right? Azhar: No, not at all. I mean, I sometimes go back and look at the TV series of the seventies that I grew up with as a child, and they’ll always have an AI in the spaceship. Space 1999 had an AI you could talk to. And it was very precise, it was very clipped, and it did things and got things right. And there was a sense that you could trust it. But you’d never think to say, as I sometimes do now, you know, “Find me five analogies to help make this point.” I use it as a brainstorming partner, or I give it tracts of my book, the book that I’m writing, and say, you know, “How would Paul Krugman criticize this argument?” And I get suggestions that I then work through by hand? I don’t think we really imagined it would look like that. Krugman: Yeah. In sci-fi it would talk in a monotone and would be relentlessly logical. And in fact these models are unpredictable, they’re sometimes temperamental, they’re not reliable. That’s probably one of the big problems. It’s not at all what we imagined. Azhar: It’s not at all and this point about reliability is so complex. A couple of months back, one of the versions of Anthropic’s Claude came out and I found it so sycophantic that it became unhelpful because I like these things to help me on hard problems and to challenge me. So I switched back to Chat GPT, which has always been a little bit less friendly. And what’s going on there, Paul, is that because we don’t really have a good theory about how to build these. They are developed almost like in a petri dish and nudged in particular directions so they take the shape that we expect them to take. And to use an economist term, they improve non-monotonically with every release. So you’ll see the latest release of an Anthropic model, and there are maybe twenty or thirty public benchmarks that they’re measured against, like how well they summarize text and how well they write software code. And the next version of the model won’t necessarily be better at everything than the previous version, because you lose something in order to get it. And that’s the complexity that the labs are wrestling with. Krugman: Wow. Okay. Second naive question. I don’t think I’m a Luddite. I’ve always been happy to adopt technologies, but maybe I’m incurious on some of these things. I tend to pick up things like mathematical techniques, as needed, because I see something that could be useful. Now, I’m using NotebookLM to extract tables from PDFs, that sort of thing. But what should I be doing? I have friends who are using Claude a lot, but I can’t quite figure out what particularly agentic AI should be doing for me. Azhar: You know, I’m really sympathetic to that because I have the same issue. These tools have been developed by software developers in a really particular part of the world, which is Silicon Valley, where the culture really revolves around the art of the programmer. And so if you have a programmer’s day and you think in coding terms and you have programming workflows, it becomes really obvious what you do with a really advanced AI tool. I do a lot of research, some of it qualitative, some of it quantitative, and in such a world, those workflows don’t match the way that I think through problems. And so the way that I get around this is that I do look at things on Twitter or X as it’s called because people are sharing tips. And I often just ask the models, you know, “What could I do with you given that I’m trying to do this thing? I’m trying to solve this problem.” And it will come back and give me a suggestion. And I have had some success with agents. So I have an agent called R. Mini Arnold. So R is a play Isaac Asimov’s robots. They’re all called R. Arnold is after the good Terminator in Terminator 2, played by Arnold Schwarzenegger, who protects humanity. And R. Mini Arnold is available on my WhatsApp and it’s available on email. Krugman: Okay. Azhar: And it has access to a whole set of resources. It can browse the web, it can access LinkedIn, it can access Twitter, it can look at my library of PDFs of research that I’ve downloaded. And I can throw tasks to it a little bit like I would say a pretty decent but slightly temperamental graduate student. So sometimes it just disappears for six or seven hours at a time. And one of the differences between using an agent like that and using Claude is that R. Mini Arnold has a lot of my life’s context. It knows the music I like, it knows the book I’m working on, it knows the investments I’m making, it knows the essays I’m doing, it’s got the calendar of speeches that I’m about to give. And so when it goes off and does a task, it tries to figure out what in my world is this going to be relevant to and where can I draw threads from? And when it works, it is really sublime and it does feel a little bit like science fiction. But I would say it’s incredibly brittle. I mean there’s breaks every four or five days. A specific example was, I was thinking about the Paul David’s research about why electrification took the time it took. And I wanted to understand what were the determinations of determinants of that thirty-five year lag from Pearl Street generation to, you know, productivity growth. What could the levers be? And so I threw that into R. Mini Arnold and it set up a team of sub agents which had personalities of key economists and was able to go off and do research the way the AIs do, but also research on all the academic papers that I have downloaded in the past. I have access to JSTOR, I’m allowed to download a hundred PDFs a month. It can look at all of those and start to compile an answer in a way that perhaps a Chat GPT can’t. And it knows the context of my book and it knows the context of the essay I wrote. So what then comes back is something a little bit more structured that I can then play with. It’s a marginal improvement on doing this on Chat GPT. I’m sure you could probably figure out how to do it. But it’s quick. I use it on my iPhone. I often do this when I’m walking through the airport and I want to solve this and have this result when I’m sitting on the plane. I’ll fire that query out and it goes back and goes out and sorts that out for me. Krugman: Okay, I guess I’m getting it. But obviously you and I are not typical. The people who are using AI the most are going to be middle managers, business people, etc. And I find myself thinking about what I think of as the homemade pasta problem. Azhar: Mm. Krugman: You’re probably too young for this, but there was a time when I when young and we were using stone axes for computing, and there was a big fad of making your own pasta. Little pasta machines were everywhere. And then at a certain point there was

    47 min
  4. A Gesture of Contempt

    Jun 8

    A Gesture of Contempt

    A quick video, thankfully not from Midtown Manhattan Hi there. Paul Krugman with a very quick update. I haven’t done a regular post today because I’m jet-lagged out of my mind, but I just wanted to weigh in on something that will be happening a few minutes after I record this. Which is that a significant piece of Midtown Manhattan — the area surrounding Madison Square Garden — is about to be closed to all pedestrians. This is because of the Knicks game which is in Madison Square Garden. And Donald Trump is attending the Knicks game. Which means that the game entry itself is going to require enormously strict security. People are forbidden from bringing any kind of bag in there. It means that what should be an exciting joyous occasion is going to become quite hellish with long lines and who knows what else. But what really may not be obvious to many people — you might not know if you’re not a New Yorker — is that Madison Square Garden sits on top of Penn Station. That’s a story in itself, but there it is. And Penn Station is the busiest transit hub in America. It is where 600,000 or so people pass through on their way to and from New York by way of the Long Island Railroad and New Jersey Transit. I’ve spent a lot of my life waiting for trains at Penn Station. And it’s completely insane to ruin people’s day like that. You could say, well, what else are you going to do if you’re going to have to provide security for the President of the United States? And the answer is, Why does he have to go to this thing? The simple way to make several hundred thousand people’s lives noticeably better, at least for today, would be to just not go to the damn game. He can watch it on TV. He can go have a cage match in the ripped up White House lawn, if he likes. It’s not such a small thing. It shows a kind of contempt for ordinary people and a kind of self-aggrandizement — I want this so I’m going to make other people’s lives miserable just to indulge my whim — that is part and parcel of everything else that’s going on. It’s a small thing but my god I would actually have had a problem if I went into my office today because my office is not that far from Penn Station. It’s not in the banned zone but it’s going to be nightmares all around. All right, just another message that the people in charge do not care about people like you. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

    3 min
  5. Comments on a Freaky Friday

    Jun 6

    Comments on a Freaky Friday

    Hi everybody. I’ve been having an extremely busy week, so no two talking heads conversation this week. Just my head talking alone for a relatively short time. Hi, I’m Paul Krugman. I’m winding down some travel, and I’ve been meeting all sorts of people face to face, so virtual interactions are down. So just to give you some kind of Saturday video, I thought I would talk a little bit about latest economic news, markets — things that I don’t normally weigh in very much because that kind of market commentary is usually something that is best done by business economists who are focusing on the day-to-day stuff talking to market participants. But I think that the latest stuff is interesting enough to warrant some discussion and maybe a way to think about where we are economically right now. So okay, if you’re paying attention to this stuff you probably know that yesterday was a job report day. The report was unusually strong, certainly stronger than almost any of the professional forecasters expected, 172,000 jobs. Predictably, Trump first boasted about this with a lot of talk about how you know we didn’t have this kind of prosperity under Joe Biden. It is kind of odd given how well things are supposedly going how much Trump and his people talk about Biden. If it was really that much better would you need to be constantly comparing yourself and making claims about how much better you’re doing? For what it’s worth you know how often during his 48 months in the White House did Biden preside over job reports that were as good as yesterday’s in terms of job creation? The answer is 37 times. Now, there are reasons why the rapid job growth of the early Biden years, which was coming out of the COVID slump, can’t be replicated. And the fact that immigration is way down means that a normal jobs report is going to be a lower number. But still this was unexpectedly high job growth but not really something that should alter your fundamental view about how the economy works, although the near-term outlook looks stronger than you might have thought. One thing I should say, since there are some people wondering, can we trust these numbers? And particularly pointing out that the unemployment rate did not fall, even though we had a unexpectedly big job creation number and wondering how does that add up, are these books being cooked? The answer is no. You’re not helping by saying that. I’m not saying that the books might not be cooked at some time in the future, but we will know. It will be obvious that this is happening. And it would basically be impossible to do it without there being lots of warning bells, without there being lots of whistleblowers. So far, the Bureau of Labor Statistics is still apolitical, professional — under-resourced, which is becoming a problem — but these are the best numbers they could do. If you’re puzzled by how we can have strong job growth and no change in the unemployment rate, the answer is that these are two different surveys. The unemployment rate is based on a survey of households. The job creation number is based on a survey of employers. Those numbers don’t have to match up. I mean, in an ideal world, they would always tell the same story, but there’s statistical noise, there’s sampling error, there’s just conceptual differences. So this kind of discrepancy is not that unusual. And what it really tells you is, well, is the economy, is the labor market really sort of flat, which is what the unemployment numbers suggest, or are we seeing at least a mini boom in employment, which is what the nonfarm payroll numbers suggest? And the answer is who knows? Time will tell. Over the course of a year there’s not usually a significant discrepancy in the stories these numbers tell; month by month, well, it’s noisy and you shouldn’t overreact. Okay trying to make sense of what is going on — why is the labor market as strong as it appears to be? One important point about the economy right now is that there are three big forces that are hitting us. It would be really great from the point of view of professional economists if just one thing would happen at a time. But unfortunately, that’s not how it works. So there are three things happening. First, we are still feeling the effects of Trump’s erratic tariff policy, which has had a depressing effect on employment — not so much the tariffs themselves as the uncertainty. It’s very hard for businesses to make plans, very risky for them to sink money into new ventures when they have no idea what the tariff regime will be a few months down the road. But that uncertainty probably did a one-time hit to employment which is mostly probably behind us because yeah we have crazy erratic trade policy, but that’s now just a piece of the landscape which affects the level of employment, maybe, but not the rate of growth. The second thing is AI. So we have this enormous boom in spending on data centers, a large surge in investment, big rise in stock prices because of hopes about what AI might return. There are not that many people who benefit from high stock prices, but these are people with a lot of money and a lot of spending power. And if they go out and spend more, that boosts the economy. So that’s a sort of force that operates in opposition to the effects of the tariffs. And possibly the AI-driven spending is coming on now while the tariff effect is sort of closing out. About oil: For what it’s worth, prediction markets are by and large evil things, but they do give you a quick way of summarizing conventional wisdom. And just about a week ago, Kalshi said that the probability that the Strait of Hormuz would be open by August 1st was 60%. It’s now 26%. So people have justifiably gotten very skeptical of White House pronouncements that this is just about over. They should have been more skeptical before. But anyway, it just does not look like it’s going to open. And there’s a still huge remaining uncertainty about what does this imply? Through all of this there’s been a dichotomy between people in financial markets — including people in the futures market for oil who are presumably more professional, less vibes driven than a lot of investors — and what people who actually study the physical market for oil have to say. And right now futures prices are way up from where they were before the war, but they’re still under $100. Yet the oil industry people are basically hair on fire, saying, we’ve been meeting the loss of supply from the closure of the strait by drawing down inventories and the inventories are very close to critical critically low levels — there’s a certain amount you need to just sort of function — and there were a lot of warnings that really bad things would happen if the strait wasn’t reopened by June 1st. Well guess what here we are, it’s June 6th, D-Day, and the strait is not open. So is there a really severe oil crunch just a few weeks down the pike, or is it kind of manageable? So are we going to be hovering around current oil prices? I still find the physical oil argument quite persuasive, but I do wonder, again, it’s not like there are a lot of meme stock investors speculating in oil futures. That’s not a market that you would expect to be highly emotional. We know that there are insider traders who seem to know what Donald Trump is going to do a few minutes before he does it, who are in the market, but they’re probably not enough to be seriously, on a sustained basis, distorting the price. So I don’t know what’s happening on the oil scene except that it is a source of worry. Other objective economic facts: that jobs report also showed wage growth slowing, which it has been doing for a while, at the same time as inflation has been accelerating. Inflation was first pushed up by the tariffs, and now has been pushed up further by oil prices and prices of other goods, fertilizer, helium, that were transiting the Strait of Hormuz. That hit to prices is not all the way through the system. There’s a lot of effects, particularly from diesel prices and also fertilizer, that will show up over time in higher prices of goods that involve using these hydrocarbon-based resources to operate. So inflation is likely to stay elevated for a while. With wage growth slowing down, we are almost surely looking at least another couple of months of falling real wages, which is not a good thing. I’m a little skeptical of all the K-shaped economy stories — up at the top and down at the bottom. A lot of that is sort of going beyond what the data really say. But it is definitely true that people who earn their income are being hit by inflation and not being compensated with higher wages, while people who own lots of stocks have been doing much, much better. So that’s a real bifurcation. Of course, people who own lots of stocks are not feeling as good as they did a week ago. We’ve had a significant fall in the stock market and then a real tumble yesterday, more than 4% on the NASDAQ, somewhat less on the other indices, but still significant decline in stocks. The President of the United States went on a rage tweeting or whatever rage truth socialing spree sand said good jobs report should send stocks should go up not down. He somehow or other managed to find ways to contrast himself with Biden and make a lot of accusations against industry people who under-forecast this jobs number as suffering from Trump derangement syndrome. Actually, a quick point there about conspiracy theorizing. I know people who have to do these NFP, non-farm payroll projections, and they are, whatever their personal views, their job depends on being as correct as possible in the forecast. Every month, they’re evaluated. They have a story. They have a number. Their prediction will be wrong. But there’s always a question, were you better or worse than other forecasters? They do not have any spa

    26 min
  6. Learning from a Mentally Ill President

    May 31

    Learning from a Mentally Ill President

    Transcript The President of the United States is mentally ill, but everybody knows that. So while we should continue to focus on this degeneration taking place in front of our eyes, we should also, beyond that, ask what we can do about the powers, the interests, the system that put this horrifying person in a position of power. Hi I’m Paul Krugman. First video update in a while. It’s May 31st. If you have been following some of the news you may know that Trump’s mental deterioration, which has been obvious for quite a while, got even more extreme in the past few days. Tellingly, the things that are really driving him into more obvious dysfunction are things that are blows to his ego. I was especially struck — I was rattled actually — by his reaction to the wave of artists canceling out on the self-glorifying concert series he’s holding on the mall. So, if you haven’t seen it, here’s what he said on Truth Social: That artists are “getting the yips” and I am thinking about bringing the number one attraction anywhere in the world the man who gets much larger audiences than Elvis in his prime, and he does so without a guitar, the man who loves our country more than anyone else, and the man who some say is the greatest president in history, Donald J. Trump. Oh my god. I would not want to trust this guy alone in a room, let alone running the world’s formerly greatest power, although he’s doing a lot to run that into the ground. Okay, but we knew that, right? It’s not really a surprise to find out that he has lost his mind, what was left of it. And yet, he is in power. People who did a lot to put him in power did so, knowing this — the billionaires who contributed vast sums of money to his campaign, the Supreme Court which gave him immunity back in 2024 — they all knew who they were doing this for. They understood what they were doing. Now, maybe, even they are getting a bit of cold feet as as he goes over the edge and as we’re starting to see in Iran and elsewhere what happens when you have a lunatic running the United States, a lunatic who has far more power than a previous president because all of the normal institutional safeguards have been short-circuited or dismantled. Still, they are continuing to support him, and they are continuing to do so not just in concrete ways, but verbally, which matters. They continue to cover for him. Just the other day, Jeff Bezos — who is not an idiot; he has to know what he’s looking at — but he said, oh, Trump is much more mature than he was in his first term, which is obviously a complete lie. That is not what Jeff Bezos thinks. And it’s telling you that he is still providing cover. The Supreme Court, although it’s been knocking back a few things, is for the most part continuing to give Trump treatment that it would never have accorded, not just to any Democratic president, but to any previous Republican president. Okay, this is not coming out of thin air. These people — I’m not talking about Trump but people who are empowering him — are not stupid. Some of them are weak but they are also acting because they think there’s something in it for them. All of this at some level is about money and power for people beyond Trump. And it’s made possible by the fact that there is so much money in the hands of a few people, many of whom turn out, not too surprisingly, to be terrible, insensitive, anti-democratic people themselves. Obviously, we need to defang Trump as much as possible and make sure that neither he nor anybody who follows in his footsteps has power after the next two elections. But beyond that, we really need to do a thorough purging of the United States. We need a deMAGAfication. And I’m not going over the top by using a word that’s very similar to the denazification that we pursued successfully after World War II in Germany. And it’s not just the MAGA ideology, but the whole structure of hugely unequal power, hugely unequal wealth that made this horrific moment possible. It’s not going to be easy, and maybe it’s not going to be doable, but we have to try because this is a nightmare. This is a nightmare beyond, I think, even the worst fantasies of progressives, beyond the worst fantasies of conservatives who still have a conscience. (There still are plenty of those, but they’re no longer MAGA.) This has to be turned around and we should not, above all, whitewash or forget this moment. This is where a lot of forces in America have been leading and if we don’t do something beyond just getting rid of Trump, it’s going to happen again. Have a good rest of your weekend. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

    6 min
  7. How to Win a Trade War

    May 30

    How to Win a Trade War

    Chad Bown and Soumaya Keynes have a terrific new book with that title — a breezy survey of our chaotic new world of international economics, couched as advice for nations trying to get the upper hand. The book is here. I spoke with them last week about their book and the world in general. Fun stuff in a slightly grim way, and I hope we kept the acronym level tolerable. Transcript provided by the Financial Times, lightly edited to remove the ums and ahs. u TRANSCRIPT ​ Paul K: Hi everybody. I’m Paul Krugman, professor at the City University of New York, and an independent newsletter writer on Substack. You might have noticed that I’m not Soumaya Keynes, host of The Economics Show podcast. I’m here with Soumaya, as well as her longtime collaborator, Chad Bown, who is a senior fellow at the Peterson Institute for International Economics, formerly chief economist at the US State Department. Together, these two have just written a book called ‘How to Win a Trade War’, and today we’re going to be asking just that. How do you win a trade war? Soumaya, Chad, hi. Chad Bown: Hi, Paul! Soumaya: Hi! Paul K: So maybe I can start by asking a slightly funny question, which is, who are you? I know you’re Chad and Soumaya, but when we talk about how to win a trade war, who is this? You know, who’s the audience? Presumably not actually Donald Trump. It’s probably not Xi Jinping. I mean, everybody should read it, but who do you think might, in some sense, read it or at least be briefed on people who’ve read it? Soumaya: Well look, if Donald Trump wants to read the book, then we are very willing to sign a copy. We’ll hand deliver it however he wants. The conceit of the book is that you, the reader, are really interested in fighting a trade war, right? And we are the two nerdy kind of reluctant guides saying, “Uh, if you really want to do it, then, you know, we’ll give you the evidence that you need. We’ll tell you everything there is to know,” You know, it’s not easy to fight and win a trade war. Um, and so, you know, at least arm yourself with the evidence of what’s happened in the past, what works, what doesn’t work. We kind of acknowledge that most readers may come to this not actually wanting to fight a trade war, right? Um, so the point is it’s for... You know, it’s to help people understand, how to navigate this world of economic conflict as I feel like, you know, many people have become unwilling participants in these massive, massive geopolitical conflicts. It can be a bit bewildering. So the book is really supposed to be for everyone, right? To understand how we got here and where we go next. Paul K: Okay. Because yeah, I found myself thinking that it was easier somehow to follow the line of argument is to think of myself yeah, still a little bit of delusions of grandeur, but imagine myself to be Mark Carney, Prime Minister of Canada, or to imagine myself as Ursula von der Leyen, uh, uh, making policy for the EU. But basically, you’ve got these two powers. We’ve got the United States, which is basically Donald Trump, and we’ve got China, which is a little bit more of an institutional thing. But they are certainly waging something that they consider trade wars. Let’s talk a little bit about, how did we get here? How did we get to this point? I think, if we were holding this conversation around ten years ago, it mostly would have been, “Well, we’re economists. We understand free trade is great.” Uh, maybe fifteen years ago, even more so. And, so you know, the answer is just, “Don’t do this, free trade.” So I think all three of us probably have had some visions on the road to Damascus about why that isn’t an adequate approach. Anybody want to start off on that? Chad Bown: Maybe I’ll take a stab first. Um, so I guess to answer the question, we have to talk about what trade war we could or should be fighting because there are, I think, arguably multiple trade wars happening right now. You’ve got President Trump doing a lot of things. Um, but beneath, behind that, there’s another really big trade war that’s happening, and that’s the one having to do with China. So let me start there. Um, I would say, and it’s not as if I noticed this at the time, but say in 2015, when China rolled out its Made in China 2025 strategy, industrial policy that said, you know, we’re gonna have these market share targets to dominate certain important sectors of the future, that was kind of a sign that China was thinking about things differently than I think other, other, traditional, the United States and others had been. And then you fast-forward a couple of years with, Xi Jinping and his “dual circulation” strategy more clearly articulating the idea that China did not want to be interdependent with the rest of the world. It wanted the rest of the world to be dependent on China for their supply chain, so the United States to be dependent on China for sourcing stuff, but China to not have dependencies on the rest of the world. When you start to think about a functioning trading system, as we’ve lived in for the post-war period since the, the late 1940s, it requires rules, all those things, but it also fundamentally requires a willingness to be interdependent, right? And to trust that I’m gonna export to you, you’re gonna import to me, and, and yeah, there’ll be sometimes some frictions, but by and large, that will be okay. And China was saying, “No, we wanna have an asymmetric relationship, we wanna do what we wanna do, but we’re not all that interested in what you wanna do.” So for me, it was kind of seeing those things that really made me think that, ah, the world has changed. We’re in some sort of trade war, and really China is the part that’s driving this. Soumaya: So my journey, I think, um, you know, there was an important moment for me in the first Trump administration, right? And so, you know, Trump, ran onto the scene, during his first term and started throwing tariffs at China predominantly. And you know, Chad and I had this podcast about trade, and we were the loudest voices saying, you know, “What are you doing? You gotta play by the rules, why not try to use the rule book to solve these underlying structural problems that we have with China?” Um, and you know, I was covering trade full-time at that time, and, you know, something that was happening behind the scenes, um, was that there were efforts to try and get some kind of coordinated plan to save the rules-based system, to try and solve some of the structural problems between China and the US by writing new rules. So you had these trilateral discussions between the US, Japan, and the EU, and the idea was, okay, well why don’t we just write out the way in which we want China to behave, limits on subsidies, um, you know, new, new ways of protecting ourself against China’s subsidies. And the idea was, you know, they would agree on that common plan, then they might go to China and say, “Hey, look, we’ve got some new rules. You sign up to these, and look, President Trump will drop his tariffs.” That was the hope of some involved in that process. It certainly wasn’t Donald Trump’s plan. And I think, you know, a very fundamental way in which I have moved on from that is I just don’t believe that the solution to these problems lies in a new set of common rules that everyone is going to sign up to, right? In fact, the Trump administration did go to the Chinese government with a list of requirements or requests in terms of, you know, China’s subsidy behavior, and the Chinese, you know, shredded it, right? They weren’t gonna change their system. and that’s really the backdrop to where we are today, which is, you know, the Trump administration, I think, pretty much most everyone else, has given up on the idea that the rules are gonna save us. And that is kind of scary. It’s a bit, you know... It means that we can’t rely on the rule book to predict what’s going to happen next. It’s a much more chaotic power-based world, and we’re kind of feeling our way through. Paul K: Yeah. Yeah, for what it’s worth, I, I’ve had sort of two moments of revelation about trade. One of them, which seemed terribly relevant but maybe a little less so now, was the work early 2010s on the China shock, where we started to realize that, hey, you know, the problems of adjustment and dislocation that come from rapid globalization are a lot bigger than… you know, economists have always understood that there were distributional issues, but they’re a lot bigger. And that, that was, that was revelatory and a bit of a shock. Um, but I think it’s actually not the core of the story now. And, and for me, the, the revelation was, um... It’s a little odd, but I’m gonna give you this, uh, really offbeat point at which I realized that we’re not getting this back, which was actually when Russia invaded Ukraine, when we realized, hey, this rules-based order, not just about trade, but everything. We, sort of had taken it for granted that, all of the old stuff, all of the old demons had been banished. That we weren’t gonna have outright war in Europe. We weren’t gonna have countries just plain exploiting their power over trade for geopolitical gain. And, we now realize, I think I realized that, hey, all of that, all the things that we thought were fundamentals about the twenty-first century economy were actually basically dependent upon a benevolent hegemon. Not totally benevolent, not totally hegemonic, but still a lot of it depended upon basically the United States, which enforced the rules and obeyed its own rules for the most part. And, well, we’re not in that world anymore, not in Kansas anymore, among other places. So it’s-- now it’s a much tougher world out there Soumaya: Can I just add that I think economists have been on a sort of journey as well, right? Um,

    38 min
  8. Lunch Money with Paul Krugman and Heather Cox Richardson

    May 23

    Lunch Money with Paul Krugman and Heather Cox Richardson

    I’m posting our Wednesday conversation as this week’s video. Transcript below. . . . TRANSCRIPT: Paul Krugman in Conversation with Heather Cox Richardson (recorded 5/20/26) Heather Cox Richardson: How are you doing, Professor Krugman? I know you’re on vacation. Paul Krugman: Yeah. As I wrote the other day, I’m in Europe, which means I don’t have to think about Trump 100% of the time, only about 90%. So that’s a little bit of release psychologically. HCR: It’s really astonishing, isn’t it? But hopefully we don’t talk entirely about him today. I’m actually interested and would love to hear what you have to say about artificial intelligence, not itself as an entity, but as a factor in the economy. Because boy, it sure looks to me like we are way overinvested in AI. I think the growth on the stock market is basically AI companies. We know now that there’s more construction in AI data centers than there is in commercial real estate. And I’m wondering, can we just talk about that and you walk us through what this looks like? Because everybody keeps saying, “Oh, it’s a bubble like the housing bubble or like the dot-com bubble.” And I’m looking at it and saying… PK: Obviously, history is mostly what we have to go on. There have been many bubbles like this. There’s some broad similarities to dot-com, which was also a telecommunication thing. It also looks like the canal bubble in England, which was earlier. Most of the bubbles were pretty clearly bubbles at the time and that was certainly true for dot-com which I sort of still remember in real time. But with AI, I’m finding that the contrasts with the late 90s bubble are really illuminating. Obviously it’s again technology with lots of investment. There’s an enormous enthusiasm of a kind, but in other ways, it’s quite different. HCR: Well, let’s start with this. What exactly is a bubble? PK: Yeah, it’s always a question, but a bubble more or less means that people are investing in something that has no realistic chance of paying off—not socially but just commercially, to an extent that justifies the amount of money being thrown at it. Crucially, a bubble is something that people do because everyone else is doing it. So, Robert Shiller, the great bubble theorist of modern economics, said that a bubble is a natural Ponzi scheme. It’s something where you get in and you make money because other people get in, and people keep on coming in because everybody before them made money. But in the end, it’s a game where the money isn’t really there. It all depends on fresh crops of suckers coming in. And at some point you run out of suckers. So that is a Ponzi scheme, especially when someone like a Bernie Madoff does it deliberately in a bubble. It also happens naturally. Nobody is orchestrating it but nonetheless the logic of it is the same as a Ponzi scheme. So basically, it’s a lot like pornography where you know it when you see it. But it’s not just the fact that people are wrong but that people are wrong in a way that should have been predictable and where it’s really something that is sustained by the momentum, by the fact that other people keep on coming in until they don’t. HCR: Okay, so when historians talk about this, they example they often use is tulips. It’s something that you can explain to people as a reference because it’s kind of a cool story. When you take it out of the economic system that we understand now, it’s easier to see. PK: Yeah, I mean, I’m not really fond of the tulips analogy but sort of the first thing that people think of as being something like a modern bubble was the tulip mania in the Netherlands. 17th century Netherlands was not quite the first modern economy because they weren’t quite modern, but they were on the way. They were commercialized. They were banking. And people were speculating in tulip bulbs, which were in fact valuable investments, but it got crazy. The prices went up because people were buying and buying and then prices went up further. And so, you can see the financial logic there, but I’m not really fond of this example because there wasn’t a whole lot of real investment. People weren’t building tulip infrastructure. But I guess in terms of the psychology, the market logic, it was not that different from railroad shares or dot com shares. So, yeah. And it is telling you, the fact that this is the Holland of Rembrandt and not only wasn’t there an internet, there weren’t even telephones, and yet the psychological logic was the same. And that’s kind of telling you that in some ways there’s a kind of universality about bubbles. HCR: So when we look at AI now, am I correct that there are two super companies in which the majority of AI money is invested? PK: Yeah. There’s OpenAI and there’s Anthropic and who are the big players but it’s an industry. It’s not just that these are the two biggest AI models. So you’re either talking to ChatGPT or to Claude which are the two leaders but then Google has its own model which is Gemini and then Elon Musk has a really bad one, Grok. And then there’s a bunch of Chinese versions, where they’ve taken a very different strategy. So it’s a little bit more complicated than that. And then there’s this network. So in a lot of ways, you want to think of this whole AI boom bubble as being a little bit like the California gold rush, another historical parallel. The people who are selling Anthropic and OpenAI are like miners, prospectors looking for gold. And what we know in California in the 1840s was that the people looking for gold mostly ended up bust but the people who made money were basically the Levi Strausses who didn’t make money by finding gold. They made money by selling equipment, by selling jeans and picks and shovels and also brothels and liquor to the prospectors. The equivalents of that now are companies like Nvidia which is selling the specialized chips that go into AI and there’s a bunch of other companies making a lot of money basically renting out computational capacity. So now we’re starting to see at least a little bit of money being made by Anthropic. All of my friends are playing with Claude and I just can’t get myself to do it. The big thing seems to be vibe coding, which lets you do programming without knowing how to program. And so Anthropic is actually making some money because people are subscribing to that service. But at this point, most of the money being made is from people basically selling equipment, selling the suppliers to this thing. And so the question from a kind financial economic point of view is whether there will ever be enough revenue, whether people actually end up paying enough for AI, this thing that we call AI, to justify all of the money being thrown at the industry. And history would suggest there’s a very good chance that the most likely outcome is no. The most likely outcome is that it will end up being a waste. But again, history doesn’t always repeat so maybe this pays off but I don’t think that explains the enthusiasm. HCR: Well, it’s interesting because one of the things that you’re seeing lately is the changing model for paying AI. That is, most of the use of AI currently is subsidized really quite heavily for every dollar of computing power that people use. It’s subsidized between $3 and $25 at the minimum. And the idea that people are actually going to pay the extraordinary costs that certainly right now it would warrant…it doesn’t seem like it’s going to happen. PK: Well there’s a question. Let me play devil’s advocate here for a second. When the dot-com bubble happened and people were offering all these services on the Internet where people weren’t willing to pay remotely enough to justify the money that was being thrown at it. But what eventually happened was that a few companies managed to create walled gardens. They managed to create enclaves. Essentially, Facebook is a walled garden where people pay for ads or watch ads or whatever. Google basically ended up being a kind of walled garden. The search was free, but Google was making money out of pushing targeted ads. We used to joke about Amazon. I’m old enough to remember when Amazon was famously unprofitable and was never going to be profitable. But it turns out that, well, in the end, Jeff Bezos built a moat with all of the infrastructure, the distribution centers. And so now Amazon is a huge moneymaker and evil. But that’s another story. And what’s happening with AI is, to a certain extent, they’re building walled gardens from the beginning. So I know people who’ve been using Claude or have been playing with Claude, I think would be a better description, and the results have been terrible. And it turns out that the results are terrible unless you pay and buy a higher tier of service. Now even there it’s not remotely enough to justify the expense [of investments] but clearly Anthropic is trying to create a situation in which people get hooked on vibe coding and then end up addicted and they’re going to end up shelling out large amounts of money to have the the version of Claude that works. And with something like that you can already see the outlines, at least, of how the industry intends to make money. Now, history suggests that usually there are only a few winners. Although one thing that’s also different from the dot-com bubble, is that in the dot-com bubble, there were hundreds of players trying to succeed, and in the end, just a few highly profitable corporations survived. This is not like that. This industry, at least on the U.S. side, is just a handful of players. So the chance that one or two or maybe three big AI models will end up becoming highly profitable monopolies, it’s not that remote. So, as I say, things tend to be somewhat different. I mean, we don’t want to start talking about what AI is exactly, but I think the

    32 min
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