Paul Krugman Podcast

. . .TRANSCRIPT: Paul Krugman in Conversation with Azeem Azhar(recorded 10/29/26)Paul Krugman: Hi everyone. I am talking today with Azeem Azhar, writer, researcher, investor with Exponential View, who is one of the people I turn to when I don’t understand what’s happening with AI, which is basically all the time. There was a really striking piece that Azeem wrote the other day about the PHP hack with the title, “The Wuhan Moment.”Why don’t you explain to me what you mean by that, and let’s try to understand what’s going on here.Azhar: Yeah. Well, that PHP hack was just one particular instance of a range of things that are now happening because AI models have become good enough. And the reason I called it the Wuhan moment is that there are infectious diseases all the time, but then came along one with slightly different characteristics, and it had a much bigger impact than all the other ones that were circulating.So, when I say AI models have gotten more capable—we’ve had this experience as we use ChatGPT, it gets smarter and smarter—and AI models became good enough to be used in code, to be directed to find vulnerabilities and weaknesses and bugs in software. And because AI systems are tireless and indefatigable, and you can just spin more of them up and they don’t get exhausted, they’re not like human security researchers or human hackers. They can find all of these vulnerabilities, many vulnerabilities, quickly. They can research them in novel, non-human ways and chain them all together. And that’s a new regime that we find ourselves in. And it feels different to where we were a year or two ago when these weaknesses and vulnerabilities were discovered methodically by the occasional hacker, but generally by security teams. So that’s the moment.Krugman: So my understanding is that basically the way the world works now is that there’s software everywhere. Everything is being run on software which is complicated and maybe not that carefully put together. Tell me if I’m wrong on this, but I think it’s sort of on stilts where you have newer software laid on top of older software, and God knows where the vulnerabilities are.Azhar: Well, software and technology is this really big industry that somehow managed for 50 or 60 years to escape any part of safety testing.Krugman: Right.Azhar: And so, you know, that’s why you have beta releases and bug fixes, because the culture of software development for the longest period of time has been started from a tinkering mindset. And there’s no real security model required around software. It’s not an AI problem, it’s not a social media or an internet problem.It was a problem in the ‘70s and the ‘80s. It’s just that we started to move from centralized mainframes to having personal computers and many, many more opportunities for that software to be developed in a decentralized way. And so here we are decades later, and it’s a miracle the internet works, given how many bugs and issues there are. But that has also been its benefit, because what it has by not being a fixed cathedral is agility. One software developer likened it to a crowded, buzzing bazaar. It has the ability to respond, adapt, and stay pretty resilient, which the internet has by and large done, except for a few major cyber attacks over the last 25 years. So what was a feature, and a flaw recognized by software engineers, that there’s no agreed security model for making software—has also been the reason why we’ve had a flourishing of software, and we are able to continue on our way even when bugs are found and there are problems that get discovered.Krugman: Right. And a lot of it is based on PHP. You should probably tell people what it is. I mean, I actually had never heard of it until last week, but of course...Azhar: Well, you’ve certainly used it. In reality, 70% of websites are running on PHP. It’s a programming language that happens to be very easy for people to use, and so it was cheap. If in the late ‘90s you wanted to write a piece of software, you used PHP. It’s simplistic; it doesn’t have the learning curve of C++ or something else. And it got extended and extended. Facebook used it a lot, and so it became part of the internet’s architecture. And like many other systems we use, like Python, which is another language, or BIND, which is a piece of software that turns friendly internet addresses like Substack.com to the numbers that the routers need. These are pieces of software that are actually open source as well, you know, they’re written by collaborations of volunteers who have their own governance systems, who share that code in repositories. And again, if you don’t think about it, you’ll be surprised. And it feels like it’s a miracle that it works, but we have evidence and proof that it does.Krugman: Okay, and how relevant is it that it’s old? That PHP is a ‘90s thing. It’s all jerry-built, which was good enough until now we have these AI models that are tireless, right? And basically an army of gimlet-eyed experts in deception can go and find the holes, right?Azhar: Right, yeah. I mean, the whole setup was maybe not quite on stilts because it all worked. It also has to be recognized that it’s really hard to write extremely precise, foolproof software in an enterprise—be it a corporate, consumer, customer environment—because standards change. If you want to understand why, think about the experience when you’re flying on an old plane, as you will across the Atlantic, and you pull up the in-flight entertainment, and the software is so slow compared to your modern smartphone because it had to be designed and locked down 18 years ago, or 10 years before the airline bought it, and it’s still in place. So all of these things were really part of the trade-off that we as customers and consumers made to have something that would adapt and be responsive to our lives. None of us really want to use the type of software that runs a nuclear power station, right? Because it’s stuck in the ‘70s or ‘80s. And that means that there are just lots of different ways of getting these pieces of code to crash, and once they crash, maybe to get access to the machine and figure out where to go next. And that’s what great hackers do.AI models crossed a threshold at the start of this year when Anthropic had a model called Claude Mythos. It’s the best cybersecurity model in the world. It was not made widely available. In fact, only a small number of organizations get access to it. And they’ve been running around trying to patch or fix these bugs and close loopholes. The first part is finding them. But one of the things that happens with AI, is that the capabilities cascade down to cheaper models very, very quickly.And so at some point this summer, the open-weight models, also known as open-source models, started to get towards the capabilities that Mythos had. And so they, too, crossed that uncanny valley into a point where they can be chained together and directed by either hackers or bad actors to find vulnerabilities before the good guys find them and then try to exploit them. And we’ve seen an uptick, a rapid increase in the number of those vulnerabilities that are being discovered. And this PHP one was one example of it.And I guess what I was writing in my essay was to say, Look, what we know about these technologies is that they get cheaper, and as they get cheaper, they get used far, far more, right? We all take many more digital photos than we do film photos now from 40 years ago. The same thing would likely happen here. And that means if there are vulnerabilities or exploits, however obscure, it’s quite possible that they would be found and exploited. And I’ll just mention one data point that I’ve seen. There was one particular piece of software that had been tested for vulnerabilities trillions of times by humans running test suites. And yet a recent AI model was able, despite that, to find severe vulnerabilities that c… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Billionaires should not be making decisions critical to national security. That’s straightforward. And the case of Elon Musk and his attempt to undermine Ukraine makes that clearer than ever. Recent events, that is in the past 24 hours, really don’t change that point. If anything, they reinforce it. Hi, Paul Krugman.Yesterday, I wrote that Starlink’s control must be taken away from Elon Musk. The occasion was that Musk abruptly and without warning downgraded the effectiveness of Starshield, which is a sort of high velocity, high frequency version of Starlink that has been playing an essential role in Ukraine’s defense.Suddenly, the speeds of communication were capped, which is devastating for Ukraine. Exactly how that happened? The Wall Street Journal reported that Musk made the decision or gave the order. Musk said that, oh, that’s under the White House’s control. The White House said, no, it was just him.In fact, none of the parties to all of this are credible. None of them are reliable narrators. And it doesn’t really matter. The point is that this is a gray zone situation. That should not exist, that it should be very clear that if national security is at stake, which it is — this is a war in which US technology is playing a critical role — that unambiguously, this should be under the control of publicly elected officials, the president and Congress, not some guy who happens to have a lot of money. But it is not. We have private property, but we are a democracy. And critical decisions for the national interest should be made by democratically elected leaders. OK. So the development since then is that,according to both the Journal and the Times, Trump called Musk and asked him to lift the restriction on transmission speeds. It’s completely unclear right now whether that has actually happened or to what extent it’s happened. Some reports say that speeds are up. Others say that nothing has changed. Obviously, this matters critically for how many Ukrainians will die this winter. But think about this at a fundamental level. The president asked a private business to stop killing Ukrainians. This is not the kind of thing where you ask. Especially Donald Trump, who is very fond of giving orders in places where he has no authority. In this case, the idea that he’s saying, pretty please, Elon, don’t let quite so many Ukrainians die — this is not how things should be working.This guy, meaning Elon Musk, should not be in this position. Beyond that, what we’ve actually seen is the fact that Trump asked, has certainly made a point of having people leak the fact that he had asked, although he himself has been a little bit blurry on exactly what happened,This is actually telling you that having national security interests explicitly under control of elected politicians is a good thing even if the politicians have bad intentions. There’s no real question that whatever the details of how it happened that Starlink denied high-speed access to Ukraine, obviously it’s what Musk wanted, but also that at the very least Donald Trump was okay with it and it may have been what he wanted as well. But Trump and Trump’s officials were hiding behind Elon Musk, were saying, well, this was Musk’s decision and, well, it’s a business and we don’t know what happened. Again, nobody involved in this should be believed, should be trusted. And for the exact truth, I’ll wait for years of investigative digging to find out what happened, plus subpoenas. Because if Democrats do take Congress, especially if they take the Senate, they will be investigating with support from at least some Republican senators. Patriotism is not completely dead on the GOP side. The important point here is that the public outcry, the outrage, the many articles written similar in some respect to mine, — though I think I was more explicit than most in saying essentially that we need to nationalize or at least take control of Starlink — but the public outrage mattered.Even though Donald Trump clearly wants Vladimir Putin to win, he doesn’t feel that he can act too openly He can’t take a pro-Russian stance. He can’t be seen to be openly and explicitly undercutting Ukraine’s ability to defend itself, which is, and was trying to avoid that. Whether he gave the order or Musk gave the order doesn’t really matter. The fact was that the private ownership, private control of Starlink allowed Trump to hide behind, or he thought it would allow him to hide behind, the fact that this was a private enterprise. For the U.S. government to have ordered a U.S. government agency —say if Starlink was run by the Defense Department —for the U.S. government to order the Defense Department to cut Ukraine off at the knees was too much even for Trump. And once it became clear that the attempt to pretend that this was not in accord with Trump administration intentions, whoever actually pulled the switch, was too much. And so now Trump is very visibly asking, pretty please, asking Elon Musk to let Ukraine defend itself.That’s telling you that even with a bad president, explicit public control of national security does help. It means that public outrage gets reflected in policies that are somewhat less treasonous than would otherwise be taking place. But this, of course, is just the beginning. Hopefully, in a little over two years, we will have a president who actually does support US interests and doesn’t work for Vladimir Putin. Before that, we will have a lot more, almost surely, a lot more congressional oversight. So this is a situation in which public policy will be infinitely better if it’s explicitly public policy than hiding behind the skirts of a multi-billionaire who owns these critical national assets. Again, we don’t know what’s really happening. We don’t know whether the intention is to kind of muddy the waters and then to allow Musk to continue to undermine Ukraine. There’s just so much we don’t know. But we do know that the situation is unacceptable. It’s unconscionable.National security is a matter for national policy. We know that whether Musk really acted independently — or whether the pretense that he was acting independently allowed Trump to do what he’s doing — policy is really bad when you leave critical national security interests in the hands of individual plutocrats.So we did learn that public outcry appears to matter. It’s not that these guys are going to do whatever they’re going to do regardless. So by all means,keep up the pressure now, but the solution in the end has to be this cannot be an independent private enterprise. Maybe it can be run by somebody under contract, but the decisions about how Starlink is used — or many other technologies — the decision about how these are used to represent U.S. interests has to be a public decision. No more foreign policy, national security policy by billionaires. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

. . .TRANSCRIPT: Paul Krugman in Conversation with David Nir and G. Elliott Morris(recorded 10/1/26)Paul Krugman: Like almost everybody I know, I spend about 17 hours a day thinking about the midterms, and I’ve got G. Elliott Morris and David Nir from Strength in Numbers and The Downballot here to talk to me about: What do we know? What’s going to happen? What are the indicators? And then maybe some broader issues about what the heck we think is going on in U.S. politics. So, hi, guys. Welcome.Elliott Morris: Hey, thanks, Paul.David Nir: Paul, it’s a pleasure.Krugman: So, yeah, as we record this, I guess it’s one month and two days before the midterms, and if I believe you guys, the polling and other indicators, which David will talk about, seem to be almost kind of shocking right now. Elliott, I just looked at your Fifty Plus One post, and I believe you now have 99% odds of Democrats controlling the House.Morris: Yeah, well, it’s October, Paul. So we’re in what I consider spooky probability territory. 99% is when you start to go, “I hope these models are parameterized correctly.” Look, the way to unpack this: Our model at 50 Plus One shows a 99% chance that the Democrats will win 218 seats or more. 99% seems very large. As the forecaster, I don’t want to be wrong on the 99, but it makes sense when you look at the numbers on paper.So, let’s take 2018 as a comparison case. That’s when Democrats won 235 seats in the House. That year, the generic ballot—which is a question that asks people how they will vote in their local congressional district, for which party they will vote—that has Democrats up somewhere between 8 and 9 points. Democrats won in 2018, leading the polls by about 8 or 9 points. They actually won the House popular vote by seven and a half points or so, if you account for some weirdness with, like, uncontested seats. So we are in a more favorable environment, if the polls are right, than 2018. And we also have a lot of other district-level indicators pointing the same way.Krugman: But, I mean, the gerrymandering was fairly extreme before this, and if we go back to the beginning of this year, it was looking a little iffy, if I recall.Morris: Yeah. So gerrymandering seems to have shifted maybe a handful of seats at most to the Republicans, accounting for some pretty rosy polling, for example, in South Texas and in Florida for the Democrats, where there’s been a larger shift than the national shift, which is about 10 or 11 percentage points. So if we are around eight points, our model says Democrats need to win the House popular vote by about three and a half points. So there’s room for the polls to be wrong by about five.The average expected error for the polls at this point, 30 days before the election, is about three and a half percentage points. So we’re looking at a larger-than-average error in the polls. And then if you account for other indicators, district-level surveys, the race raters like we do, that’s how we get up to that 99. But yeah, I acknowledge this is a very, very large probability.Nir: And Paul, just to address your point about the gerrymandering, which did heavily favor the GOP, it’s important to remember that Republicans were not doing that from a position of strength. They were doing it from a position of weakness, precisely because they knew that they were facing a very difficult midterm election. And they definitely—I can say this with certainty—definitely will not pick up, they will not flip, all of the seats that they targeted in Texas and Florida and elsewhere. And that has a lot to do with the quality of candidate recruitment on both sides.And also, in particular in Texas and Florida as well, has a lot to do with Latino voters moving back against Trump after moving heavily for him in 2024. So, 2024 in a lot of ways was a high watermark. And so when you’re looking at how Trump performed in these districts two years ago, in a lot of cases, expect really a lot of fallback for the GOP.Krugman: Tell me if I’m being underinformed here, but my understanding is that the gerrymandering was based, at least partially, on the assumption that the Hispanic shift towards Trump that took place in ‘24 was an enduring feature of the landscape, and that it all kind of goes wrong if, as now appears to be the case, it’s not enduring. Right?Nir: That’s definitely what it appears to be. Because if you look at these redrawn districts, and instead of looking at how they went in 2024, if you go back a few years earlier and look at how they performed in 2020, when Joe Biden did much better with Latino voters than Kamala Harris did in many parts of the country, they show a much more competitive picture. And so you have Republicans talking about, you know, “Oh, these districts are Trump plus five, Trump plus ten, Trump plus 15.” But that’s 2024. You dial back to 2020, and suddenly we’re talking about districts that Joe Biden won, that Democrats have a real chance of holding on to in 2026.Krugman: Okay. And I want to talk about other indicators, and polling in general. But just a question about the Senate: So now, we’re up into the 70s again for the Senate, right? And that’s a lot less. I mean, the Senate is sort of inherently gerrymandered. States that have about the population of some neighborhoods in the Bronx have as many seats as California. So, yeah. But that’s also looking pretty strong, right?Morris: Well, speaking of state gerrymandering, don’t get me started about the drawing of the state border of Nevada. I mean, that was a gerrymander, right? So, look, the Democrats have 47 seats right now. They need 51 to have a majority and to overcome JD Vance’s tiebreaker as president of the Senate. So they need four pickups. They look likely, according to our model, to get a pickup in North Carolina, where the former governor, Roy Cooper, is running against the current chair of the Republican National Committee. So that’s what’s on my mind.They look then likely as well to somewhere between a sort of toss-up and a lean Democratic seat in Texas and Ohio, where Democrats have got some good recruits in James Talarico and Sherrod Brown, a former incumbent senator of Ohio. And I should say Democrats are also very likely to hold on to their seat in Georgia, just for what it’s worth. And then we get into the seats that are, like, a lot, a lot tighter. That’s Iowa, currently Republican-held, but where the Democrat, Josh Turek, is leading the polls; Maine, where the polls were somewhat, you know, incredibly wrong in 2020, showing Susan Collins losing to—Nir: Sarah Gideon.Morris: See, this is why we do it together, Paul, right?Krugman: Yeah, I know, it’s okay.Morris: And then there’s Michigan, which seems like it should be a Democratic win in an environment where Democrats are ahead by eight points on the generic ballot. But the race is surprisingly close between Abdul El-Sayed and Mike Rogers. And there’s like a bunch of other reach seats that might be competitive. We can talk about Kansas, where Democrats currently have a polling deficit of under half a point in Kansas. Like, what’s the matter with Kansas?Krugman: Yeah. I mean, objectively, Trump policies, especially a war that’s driven up diesel prices and fertilizer prices and all of that, has been really pretty bad for farm country. But I don’t know to what extent we’re seeing that, to what extent we’re just seeing really just bad Republican recruitment or just general Trump fatigue.Morris: I’ll say one thing about the numbers and then hand it over to David. But the other Plains states—Nebraska, Iowa, and Kansas are the ones I’m thinking of—are all much more competitive than you would expect, given the fact that Donald Trump won these places by, you know, between 10 and 28 percentage points. I think in the case of Nebraska, if I’m remembering correctly. These are all within a point or so in the polls today, and back in 2025, w… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

TranscriptOn September 28th Jamie Dimon, CEO of JPMorgan Chase, one of the most prominent, most successful financial figures in the United States, published an article in the Wall Street Journal titled, “The Hell with Trump, Let’s Go Back to Globalism.” Okay, that’s a lie. That wasn’t what the article was titled, but it was, in effect, what it said.And it was a very interesting message to be coming at this moment in time. I think Dimon’s op-ed can be viewed as a harbinger of a big shift in the business community’s political positions and its attitudes that may be coming in the very near future — in effect a bet that Trump and MAGA in general are going to be in the rearview mirror, not too far from now. Now, a word about Dimon. He’s an extraordinarily successful financial leader. He navigated the 2008 financial crisis and aftermath better than almost anyone else in Wall Street. He had the good sense to limit JP Morgan’s exposure to the practices that helped to create that financial crisis. He is also a very, very smart political operator. He has had a talent for not making enemies, for staying at least on decent relationships with administrations from both parties, which is no mean feat in 21st century America. He certainly did not join the cavalcade of business leaders rushing to prostrate themselves at Trump’s feet after the 2024 election, and yet he was subtle enough about his restraint to not get put on Trump’s enemies list. So,you know, his political judgment should be trusted. His economic judgment, all right, being a great businessman is not at all the same thing as being a great economist. And there’s no particular reason to think that he is always right about economic affairs. But that is, in a way, mostly beside the point. So what did Dimon call for? Well, he basically said, we need to repair theWestern alliance. We need to bring the Western world, the advanced democracies, above all the United States and Europe, back together in part as a way to stand up against the threat of a rising China. And his proposal for how to do that was to negotiate a free trade agreement between the United States and the European Union. That’s quite something. That’s a very un-MAGA position to take. You want to bear in mind that, first of all, we’re currently under a government of people who do not at all believe in the virtues of free trade. In fact, are extremely hostile to globalism. Certainly don’t believe in binding international agreements. Maybe they want agreements that bind other countries, but not them. And they are also not of the mind that we have a lot of shared values with the democratic governments of Europe. The MAGA position, if anything, is that they like the anti-democratic forces in Europe. J.D. Vance essentially campaigned for Viktor Orban in Hungary. Trump officials have been quite clear that they have sympathy for the AfD in Germany. So if we have common values with some Europeans, the Europeans with whom they have common values are neo-Nazis. And Trump’s de facto support for Putin in his invasion of Ukraine has been alarmingly clear over the past two years. What we’re seeing here is Jamie Dimon basically saying that I don’t care about any of that. I don’t believe that you people are going to be in charge. And I think that we can go back to trying to rebuild bridges to Western Europe. Now, it’s kind of interesting the way he phrases it. He puts a lot of it in terms that I suspect are intended to appeal to economic conservatives in the United States who are not MAGA types. He sells his proposal in part as an incentive for Europe to conduct pro-business, pro-economic reforms. He cites the Draghi report on European Competitiveness, which has been very influential in Europe. And points to him for even knowing about it! There are probably not a lot of people in the United States who have read the Draghi Report, absorbed its lessons. I myself have read it. I have had some criticisms of some of the analysis in the Draghi Report, but the reforms that Draghi proposes, which have a lot to do with completing the European internal market, making the capital markets in Europe more flexible and responsive and so on, are very much in the right direction. So this is a good thing. And I’m glad to see someone in the United States, someone prominent, actually taking European affairs seriously and wanting the Europeans to do things that will improve their own position. Dimon is almost surely overstating how important a free trade agreement with the United States could be. The reality is that the obstacles to European reform are internal — as are the obstacles to all the reforms we should be making here. Politics is real on both sides of the Atlantic. And we are not as important to Europe — or they to us — as a lot of people imagine. The fact of the matter is that Europe only exports around 3% of what it produces to the US. And we were pretty close to free trade with Europe until Trump II came along. We had our average tariffs of only something on the order of 2% on European products. So it’s not as if he’s actually offering a tremendous benefit to Europe, something that would radically dislocate their internal politics and move them in a positive direction.But, all right, it’s a good proposal. And I think that, as I understand it, Dimon believes that the process of negotiating towards a free trade agreement would in itself help to improve politics. That it would be a signal that the ultra-nationalist, anti-democratic, often anti-European policies of theTrump era are behind us.So he’s looking forward to the day when we can start to try to repair some of the immense damage that has been done to our international relations during the Trump years. Dimon is a smart political operator. I’m reasonably sure he would not have written this op-ed if the polls weren’t pointing towards a Democratic blowout. And of course, he could be wrong in believing that that’s going to happen, as we all could. But I’m sure that he is looking at the situation and envisaging a Democratic Congress — almost surely the House and quite likely the Senate — after the November election. And a reasonable president, not necessarily a Democrat, but most likely, but in any case a reasonable president after Trump has gone from the scene.And a president and Congress that would be interested in trying to rebuild the Western alliance. Because ultimately, although Dimon’s proposal is economic in the narrow sense, it’s really political. It’s about rebuilding an alliance. That won’t be easy. The fact of the matter is that the United States did just casually rip up solemnly signed trade agreements. Almost everything that Trump has done on tariffs is a violation of agreements made over several generations. Also, it’s not just Trump. The American people elected Trump twice, and the rest of the world is not going to forget that. But free trade agreements can be a way of not just of enhancing trade, which is important, but maybe not as important as economists would like to think. But they can also be a way of binding countries closer together. They can be a gesture of alliance. And Diamond obviously thinks that this is possible, or at least thinks that it might be possible — close enough to being something that would really be on the table, that it’s worth making a case for it, and that it’s worth positioning himself and his institution for a post-MAGA era. And as Isaid, Diamond is a smart guy with a very, very good political judgment.So that op-ed was one of the most encouraging things I’ve seen in months.On that happy note, take care. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

TranscriptWill crypto crash the blue wave? Probably not a question you’ve been asking, but you should. Paul Krugman here with a video update for September 22nd. I want to talk about something that was a very big deal in the way we talked about the 2024 election, which was the role of the cryptocurrency industry.We’re talking about it a lot less this time, I think largely because AI has stolen the limelight. But crypto is still out there. And while it has not succeeded in creating a viable business in the normal sense, it has been extraordinarily successful at buying political influence. And they’re set to do it again.Now, the background here is, as I record this, the midterm elections look, based upon polling, based upon just impressions, looks like a big blue wave. Elliot Morris gives the Democrats a 97% chance of taking the House and two-to-one odds of taking the Senate.But there’s still a few weeks to go and it looks like there’s a big wave of right-wing money that’s going to come crashing in. We don’t know how effective that will be. The role of money in politics, particularly of last-minute advertising blitzes, is somewhat unclear.But it is coming and crypto is going to be a pretty big part of it. Based on Open Secrets, which tracks campaign financing, it appears that the crypto industry, which spent big in 2024, is going to spend even bigger in 2026, which is unusual because midterms are usually lower stakes than presidential years: They don’t usually involve as much spending.But this industry is going to go all in. The crypto political strategy has been to knock out candidates that it considers hostile. And that is a strategy that was very effective in the last election cycle. They spent money in primaries knocking out Democrats, because Democrats were by no means united in their skepticism about crypto, but in some cases in favor. They knocked out Democrats in favor of other Democrats in primaries. And then in the general election, they spent quite a lot, not entirely on Republicans, but there were some big cases. And then Ohio spending was a particular success story.And in general, crypto became seen in Washington as a force to be afraid of. Not a force that has actually managed to get anywhere in the economy. It’s nothing like AI, which is everywhere. Crypto is still barely used for legitimate transactions. According to the Federal Reserve, only 2% of Americans have actually used crypto to buy something other than assets. So basically non-speculative crypto use remains trivial. And that’s after many years of trying to market this stuff. But the political effectiveness has been huge, and it has intimidated a lot of politicians. Back in February, Chuck Schumer warned his colleagues not to do too much to offend Fairshake, the big crypto lobbying group. Crypto has also, in addition to campaign contributions, done a lot of what in the old days, we would call bribery. There’s a lot of money that flows from the crypto industry to politicians and their relatives, and not just Trump. I don’t really want to ask too much about why there’s a lot of money going into a firm founded by Senator Gillibrand’s son. So there’s a big financial issue. Now, the Clarity Act posed as “we’re going to establish a sound regulatory framework, especially for stablecoins” — cryptocurrencies that supposedly have a guaranteed value in dollars. Why exactly did Democrats turn on it? I mean, on the merits, they were right to be against this because whatever one may say, the purpose of the Clarity Act was to kind of legitimize cryptocurrency in the economy and particularly to legitimize stablecoins, which are, once you cut through the jargon and all of that, essentially poorly regulated banks. It would essentially be posing new threats to the stability of the financial system and undermining banking regulation, which is something, of course, that the Trump administration and its allies are trying to do anyway, but this would have been another step in that direction. Presumably many of the Democrats who voted against this, and there were some Republicans as well, but presumably many of the senators who voted against this thing were genuinely concerned.But I also think that there’s some spillover. For analytical purposes, cryptocurrency and AI are quite different things, and they are actually playing a very different role in the economy. Companies are really investing in AI, rightly or wrongly, but they are really trying to put it to use. And cryptocurrency is being used only for, pretty much only for, criminal activities, including, by the way, Iranian efforts to bypass U.S. sanctions. But in the public mind, it’s all tech. It’s all fancy jargon. It’s all doing stuff we don’t quite understand. Sounds fancy. AI turned out to have an interesting political trajectory. It really is impressive. I mean, it really is impressive what it can do. Who would have thought that matrix algebra with a little bit of non-linearity could produce what feels like a conversation with a chatbot? Who would have believed that you could do vibecoding the way you do. Now whether all of that is economically productive is another question. And whether it kills us all is yet another question. Still, crypto has not done any of that. But it feels, I think, to a lot of people similar. And the bad reputation that AI has quickly developed, I think, is spilling over to anything techie and therefore has meant that the support for crypto is weaker than it was.It’s also true, by the way, that there was a big boom in Bitcoin prices after Trump was elected because everybody thought he was going to be the crypto president, was going to do great things for the industry, which then kind of evaporated. There’s been some recovery in crypto in the last few weeks, which I actually suspect, I mean, no one quite knows, but I actually suspect has something to do with the fact that, well, the Iranians have found a use for crypto. That basically illegitimate uses of cryptocurrency are turning out to be significant. So there is that. But in any case, the industry is still out there. There are still trillions of dollars in assets. And it’s an industry that had developed a really effective political strategy. They couldn’t actually produce stuff. But if we count the 1.4 billion or so that Trump personally has made from crypto as part of its campaign contributions, then crypto may be the biggest single political financial force out there. Will it work this time? The answer is, of course, I don’t know. It’s going to be a lot of money. It does look as if basically, as best I can make out from the Open Secrets data, crypto may end up spending, well, something like an Elon Musk-sized amount on these elections. It’ll be much more partisan. The primaries are over, and in the general election, there are not going to be a lot of Republicans out there that they’re going to try to defeat. And also, they have a clear sense of where the balance lies.I mean, Susan Collins did vote against the Clarity Act. Nobody, seriously, is going to give her credit. She’s pulled this too many times. Nobody’s going to think that the crypto industry should try to defeat Susan Collins. But they will try to defeat Sherrod Brown, even though Brown himself has softened his anti-crypto rhetoric. He has talked about it very little.But if he wins, he might well be the deciding vote or one of the two deciding votes in a Democratic majority in the Senate. And we now know that the Democratic Party is not clean as the driven snow. It is not immune to financial influence.It’s not even immune to de facto bribery from crypto.But it’s a completely different universe from the Trumpian Republican Party. And so the crypto industry knows that if Democrats really do sweep, if this is a blue wave which brings them not just the House but the Senate, it will be a less favorable environment. So their scam will be greatly endangered. And so here comes crypto.Now, it’s only part of t… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

. . .TRANSCRIPT: Paul Krugman in Conversation with Henry Farrell and Abraham Newman(recorded 9/10/26)Paul Krugman: So, it’s a world full of choke points. Weaponized interdependence is a term I think coined by Henry Farrell and Abe Newman. Certainly I learned it from them. And there’s a big conference—not including them for some reason—taking place at the European Central Bank a few days after we record this. And so I thought I would talk again with my two favorite international relations people (although now I’m thinking of some friends who will be upset by my saying that.) But anyway, hi guys.Both: It’s great to be here.Paul Krugman: There was a seminal 2019 paper by the two of you, and then a book called Underground Empire. Anybody want to tell me what you meant by that? And let’s talk about the history, and then this weirdly more weaponized moment than anyone expected that we’re living in.Henry Farrell: Maybe I’ll take a first stab at it.So really, where this came from was that we had finished a long book looking at fights between the United States and European Union over privacy. And as part of that, one of the things we had looked at was the SWIFT system, which is a system which you use when you’re making bank transfers. It’s a messaging system that makes sure that the money gets to the right place, and that everything gets reconciled properly at the end of the day.And so Abe pointed out after we had finished this, he said, “Well, nobody’s written anything about SWIFT, and there’s something interesting and important with geopolitics going on.” And I was working with a statistical physicist who does a lot of work on networks and network dynamics, and so he thought that we could come up with something on this.And so we began to write. And we began to figure out that there was something really going on, which I think had been going on in plain sight for a number of years, but which nobody had really been able to put their finger on in such a way that they could actually sort of crystallize what the phenomenon was. And this was what we called “weaponized interdependence.” And the idea behind it was very straightforward. You know, we’ve been living for decades in a highly interdependent global economy, and the ways in which both political economy people in international relations and, I think, most economists had thought about it was in terms of the enormous efficiency advantages that flow from this. Because, if you think about interdependence in terms of trade theory, even in terms of the simple benefits of specialization that Adam Smith talked about a couple of centuries ago, the more interdependence you’re able to use, the better you’re able to achieve various outcomes collectively.But we began to think about the ways in which this relied upon all of these really boring-seeming networks, such as SWIFT, and the ways in which these networks had increasingly and quietly become a target of international coercion, especially at that stage coming from the United States.So we argued that if you had two conditions—one, a network which had some degree of centralization, so that there were some kinds of choke points in the network; and secondly, you had some great power which had a means of putting pressure on the actors that were in charge of those choke points—that you would begin to get the conditions where a weaponized interdependence could begin to happen. That is, that that great power could begin to weaponize that choke point against others.And then our argument was that this could also set a longer dynamic in train, because our fundamental sense was that this was not an equilibrium. This was not something that was sticky and was static unless the weaponizing power was extremely careful, and that the more that a power like the United States sought to weaponize choke points against its adversaries—and here the U.S. used a dollar clearing system as a means of cutting Iran and other countries out of the global banking system; it began increasingly to use other forms of technology and also semiconductor supply chains after our work began—the more that we saw a power doing that, the more that other powers were likely either to look to defend themselves or to retaliate against us. And this, we think, is a world that has come into being.Krugman: So if you were looking at SWIFT, that’s an interesting case, among other things, because the bureaucracy is formally based in Belgium. But that doesn’t really matter, right?Abraham Newman: No. I mean, with many of these things, there are Americans that sit on the corporate board, and often that’s the way that the U.S. or anybody that’s weaponizing—they look for, like, a legal channel in order to influence the operations of a company. And so first, it was just like the personnel. But at the time that they were doing this, SWIFT also—they had a data center in the United States where they mirrored all of their data, in Virginia. And so that was also just easy pickings for the Bush administration at the time, as they were trying to kind of deal with the response to 9/11.Krugman: What you were focused on very much was the U.S. trying to weaponize its control of financial and, I guess, information networks, largely against Iran, but also to some extent against China. And so this starts out as a U.S. initiative, right? So in some sense, you know, who started the fire? We did.Newman: I think it’s important, as Henry was talking about, that the source of this power is often about that: the key platforms, infrastructures of the global economy are centralized. They’re not flat. You know, we were told this vision was like “the world is flat,” but actually, you know, look at even my iPhone: it’s not flat. Those products and platforms were often American companies. And so in many domains, what the U.S. kind of realized—and in our book, Underground Empire, we kind of chart how after 9/11, different U.S. bureaucracies start to see these places in the international system where they can either exclude actors, like with SWIFT—say you can’t have access—or they use it to monitor, to surveil. We call it the Panopticon. And that’s what you see in the Snowden revelations. And so it’s both the development of markets, that markets are centralizing around U.S. companies and products, and then also that the U.S. government has this legal jurisdiction over them.Farrell: And the final thing to add to that is just that there’s also an institutional change that happens as well. And this is really connected with September 11th, 2001, because before that, you know, SWIFT manages to push back relatively successfully against U.S. efforts to try and get into its data. Mueller and other people—of course, Mueller is famous for his efforts to try and figure out what Donald Trump did, but at the time, he was in the FBI. And so he tries to get SWIFT to provide information, sort of via subpoena, and SWIFT’s response, crudely speaking, was, “We don’t do subpoenas.” And they are able to call on their friends in the U.S. Treasury, and Treasury sees part of its job at the time as being protecting the global financial system against the depredations of the United States national security state.And then suddenly, after September 11th, that is completely reversed. Treasury radically revises its understanding of its self-interest as being—instead of trying to protect the global financial system—it begins to start looking at the global financial system, thinking, “What are the ways in which we can enhance U.S. power to defend against these actors, these terrorists?” And over time, as happens in every bureaucracy, this begins to creep. It begins to expand until the U.S. is willing to go after lots and lots of different actors, including, most recently under Trump, officials in the International Criminal Court.Krugman: Okay, I want to come back to all of that. But when I read Underground Empire, the focus was, first of all, lar… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Transcript“Mary had a little lamb, but when she saw it sicken, she sent it off to Packingtown, and now it’s labeled chicken.” Hi, Paul Krugman here. That’s a little ditty that was circulating, I can’t find any original source, around 1905, when Upton Sinclair published “The Jungle” — about the meatpacking industry, one of the sort of founding documents of the progressive movement. The topic today is Donald Trump and beef, because here we are back in Upton Sinclair territory. So you may have seen that last month Trump announced, given that we have high beef prices, that he was going to allow the tariff-free import of 300,000 tons of ground beef.Rather oddly, he didn’t say from where and wouldn’t say from where for a while. And then eventually said, well, from Argentina, Brazil, and other places.There has been a substantial uproar over these imports of ground beef because of concerns about safety. You know, if he won’t even say where it’s coming from or whether the countries involved are going to be practicing food safety, that is kind of an issue. And it turns out it’s not just, you know, not just woke liberal types but ranchers, lawmakers and food safety experts who were very concerned about the plan and were not reassured when Trump said the meat is “very clean and very good.”Okay, little by little details are coming out about how all of this happened. It turns out that the initial plan to allow the beef imports was announced the day after a closed door meeting between Trump and a Brazilian meat packing billionaire who is a major donor to Trump.And they went right ahead and announced the plan, although again without details. There doesn’t seem to have been much discussion of how this would work, of the concerns. After some initial blowback — even ranchers are concerned that people might become worried about the safety of U.S. beef — Trump announced that he was going to also allow farmers and ranchers to process their own beef rather than having to go through the regular meatpacking companies. But it turned out that the ranchers hate that too, because what they want is for people to believe that beef is safe. They want to be assured that there are quality standards being upheld.And now that we have at least some information about the origins of the beef, we are even less reassured. In fact, just the other day, the European Union banned beef imports from Brazil because Brazil was not adhering to EU standards on the use of antibiotics. So there are, in fact, real concerns here about safety.Okay, this is quite a story, and beef is not that trivial a product, but there’s a lot of secondary implications here. The first is that this is a very Trumpian story. It’s got this sort of characteristic combination of raw corruption and raw incompetence. Raw might not have been the best word to use here, but anyway. The corruption: Obviously, this was a decision made because somebody who has given Trump’s campaign and possibly Trump himself money had a meeting with him and got an immediate policy change. So this certainly looks like undue influence. We don’t know exactly how it happened because it was a closed-door meeting.Also, shouldn’t somebody have been in the room to or at least passed on this before it was announced to say, you know, is this a good idea? Shouldn’t there have been somebody from the Agriculture Department, somebody from the U.S. Trade Representative’s Office, but certainly someone from food safety to pass judgment or give some warning?In a normal administration, any kind of decision like this involves a process in which multiple agencies get a chance to weigh in and in which somebody who knows something gets to say, look, there are real problems with this idea. But obviously that didn’t happen here. And basically it doesn’t happen in this administration.This is an administration that does not like experts. Does not listen to expertise. That’s not just a result of particular personnel decisions that Trump made. That is just a defining characteristic. At a fundamental level, they’re just hostile to the idea of expertise in any domain, in pretty much every agency where there’s something to know, where there’s technical stuff that you need to know to make good decisions.The people who actually know things, or the people who are willing to speak up about what they know, have been silenced, purged. That’s across the board. Basically, it’s Hegseths all the way down in this administration.And so in this case, nobody was there apparently to say, this is really not a very good idea. And I think it’s really striking that even Trump thought, well, okay, I can fix this. At least I can mend fences with the ranchers by giving them more leeway to be unregulated themselves. But it turns out that the ranchers want regulation. They want customers to know that the beef that they buy is safe. So just raw incompetence on top of the raw corruption. There’s an even larger issue here. Normally, when we think about, or as we used to think about, left versus right, there is a question about the role of government. How big a role should government play? And ultimately, it’s a values question, normally. It is a question, should it be the government’s business to ensure that citizens are not in dire poverty? Should it be the government’s business to ensure that everyone has access to essential healthcare?And the question of how far in that direction you want to go is the traditional left-right distinction. Obviously, I’m on one side of that, and I think that morally I’m right. I think even in practical terms I’m right, but that is a debatable point. But there are certain roles that government must play. The government needs to provide public goods. The government needs to provide things that the private sector cannot do for itself, which is obviously things like national defense, things like public safety, and it turns out also things like ensuring the safety of the food supply, just like ensuring the safety of the water supply.It turns out that regulation of what goes on in meatpacking plants, regulation of what goes into your food is something that you really want the government to do. Even people in the industries want that unless they are particularly unethical types. The people who are trying to do the business right want those public goods provided because if you don’t have those provided, then people will not trust their products. And this is not something that you can leave up to the private sector. It’s not something where you can do your own research. It’s a very complicated world out there. And the informational burden of trying to figure out whether the people responsible for your package of hamburger are actually following safe procedures, that’s beyond everybody. It’s actually quite similar in a way to public health measures, including, by the way, of course, vaccination. Like I said, it’s all the same story here: This retreat from even the most essential roles of government.So this is not an administration that’s trying to turn the clock back to 1930. It’s not trying to undo the New Deal. It’s an administration that’s trying to turn us back to the 19th century or before. It’s really just trying to undo even the most essential functions of government.They’re not doing this, I think, out of a philosophical concern. I don’t think they have a theory that says that we really don’t need these things. They just don’t think about it at all. They don’t do expertise. They don’t do thinking, really. And a lot of policy is just based upon who last spoke to Donald Trump and who has given him money. It turns out that this is a case in which Brazil — and it appears it’s probably Brazil, there may be some Argentine stuff here, but it’s probably Brazil — Brazil is notorious for not practicing internationally accepted standards on the safety of its meat.And so the last thing you want to do is allow Brazilian ground beef to be admixed. And by the way, none of this would be u… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

TranscriptAt this point, it’s almost a commonplace to say that under DonaldTrump, America has become a kakistocracy, ruled by the worst. But I don’tthink it’s fully appreciated the extent to which we’ve also become a cheatistocracy, ruled by the most corrupt. Today’s commentary is a follow-upon yesterday’s primer, which was about the role of tax evasion both in leading to or contributing to our downward spiral into oligarchy and also as a surprisingly large factor in the budget deficit and therefore in America’s debt problem. Before I get to tax evasion, let me say something about where I’ve been going in my kind of intellectual journey into understanding oligarchy. As an economist, normally my instinct is to think about the invisible hand, to think about market forces, about technology as driving what happens to society. And even now there’s at least some extent to which the rise of kind of garden variety inequality, the rise of the top quintile at the expense of the middle, may be partially explained by the bias of technology towards higher formal skills, although that may be ending now with AI and all of that. But as I began to focus on oligarchy, on the very small number of people who have enormous wealth, enormous income, but the wealth is an even bigger factor — there are a really handful of people who have come to play such a large role.In our society, in our economy, and above all, of course, in our politics— I was forced more or less by the numbers to say this is not about the invisible hand. This is not about market forces. It isn’t even mostly about technology.Yeah, some technologies create winner-take-all markets that make people int he right place extremely wealthy. But the really big factor that’s driven us from the relatively equal society that we were 50 years ago — not obviously anywhere close to truly equal, but nothing like the dominance of a tiny elite that we have now — the really important factor is policy and above all tax policy. We basically stopped imposing progressive taxes that limited the growth of enormous fortunes. And sure enough, as the tax barriers to accumulation of excessive wealth went away, excessive wealth began to concentrate. This is, in many ways, the fundamental story. We got rid of, we ended the Gilded Age with its dominance by, as FDR said, the power of organized money, largely by taxing a lot of that organized money away. And we got back to something which in many ways is worse than the Gilded Age by taking away those taxes and allowing vast fortunes to snowball and buy themselves enormous political power, which allows them to snowball even further. One factor in all of that is the rise of simply not paying taxes that you’re supposed to pay. A lot of it is reductionist statutory tax rates. We tax corporate profits at a far lower rate than we did In the 1950s, we tax top incomes at a much, much lower rate than we did in the 1950s. But what’s also true is that we simply allow people to get away with not paying taxes to an enormous extent, to almost surely a much greater extent than used to be the case.The numbers are big, and in the primer I go through the tax gap. The money owed but not in fact collected is certainly north of $600 billion a year. It is something like 40% or more of the U.S. federal budget deficit. It is a major contributing factor to the accumulation of vast fortunes.What is striking is that far from really making an effort to rein in that tax gap, for the most part politically our system has moved to let it rip, has basically tried to make America safe for tax cheats. This is something that overwhelmingly benefits people with high incomes and large wealth because people with really big incomes, people who are extremely wealthy, for one thing, they just have much more complicated income. It’s much, much harder to track down and audit someone who has multiple businesses, some of which are dummy businesses, some of which may be real, but nonetheless are conduits through which money can move. And only the very wealthy can maintain offshore accounts that enable them to hide income and so on. So tax evasion is something that overwhelmingly benefits people with very high wealth and income. Not all! Not every billionaire is a tax cheat. There are levels and levels. There are some people who just feel that’s not something I want to do.People who feel that it would be wrong. Morality does exist. There are people who feel that their personal losses, should they be caught out cheating heavily on their taxes, would be large. So they care about their reputation.And then there are those who don’t.What’s astonishing is that we have, especially since 2010, especially since the hard right Republicans took control of the House of Representatives, we have moved to largely eviscerate any attempt to control that type of tax evasion. The numbers are really startling, and the IRS has actually put out very useful information. If you are someone with a very high income, the IRS stops counting pretty much at a million or more a year, but presumably it’s even more true further up the scale. In 2011, before the right-wing Congress was able to do its work, more than 7% of tax returns in that range were audited, which is not unreasonable because there’s obviously a lot of possibility for malfeasance there. It’s not saying that 7% of people with incomes of morethan a million were sent to jail. Obviously nothing like that, but we had widespread auditing, which among other things, encouraged people not to cheat on their taxes.By 2019, just eight years later, that number had gone from 7.2% to 0.7%. So almost nobody with high incomes was being audited for possible tax fraud.Now, why was that happening? There had been savage cuts in the funding to the IRS. Very large, at least 25 to 30% adjusting for inflation, something like a 40% reduction in the staff available for enforcement. And as it turns out, auditing the taxes of a very high income person is a lot more expensive than auditing a regular person. An ordinary blue collar worker, middle income, white collar worker who might be failing to declare some income, in many cases, it’s really very hard for them to evade taxes at all. And if they do, it tends to be relatively straightforward to pick apart what’s going on. And so audits of ordinary people are cheap. Audits of millionaires and billionaires, sounding like Bernie Sanders, are very expensive. And so the IRS, with limited resources and wanting to show that it was in fact auditing people, largely gave up on auditing the extremely wealthy. And this is a big number. The amount that we lose to tax evasion is something like the entire budget of Medicaid. It’s something like six times what we spend on food stamps. It’s something like 15 times the amount of money that Elon Musk saved by destroying USAID and killing millions of people in Africa. And yet it has been allowed to flourish.Notice, by the way, that this is all pre-Trump. Now, under Biden, there was a push to rectify the situation, a push to restore enforcement, increase the resources of the IRS, and increase enforcement actions in an attempt to tilt the agency’s priorities back towards where it should be, which is going after the big money. And that was just getting started. It takes a while to ramp those things up.And you know what happened. Of course, Trump’s one big beautiful bill did savage cuts in IRS resources for enforcement.Savage cuts in personnel. We’re now back to a situation where things are worse than they were before Biden started to try to fix it. So this is going to continue.What I find remarkable and interesting — I mean, I wouldn’t say that I’m baffled, but I think it is something that takes some analysis is why exactly.I mean, it’s one thing to favor the interests of the uber wealthy. Okay, we know that’s what the modern Republican Party is, whatever it may claim to be.But it’s another thing to systematically favor the least honest. What this… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

For all my interviews and more, subscribe on YouTube.I’m spending a lot of time thinking about high interest rates, both for obvious reasons and because I’m reconsidering some of my own long-held views. So I thought I’d have a long talk with someone who has really studied these issues and now, I believe, may have been more right than I was. This may be even wonkier than usual, but trust me, it’s important.. . .TRANSCRIPT: Paul Krugman in Conversation with Ricardo Caballero(recorded 8/25/26)Paul Krugman: I’m talking today with a very, very serious economist, Ricardo Caballero, who is one of the most important macroeconomic thinkers of modern times. I was going to say of my generation, but actually, I’m an older generation—but of the currently, still vital creative generation. We’ve had discussions about a lot of events over the past 25 years that have involved some disputes that I hope we can get into in a way that people understand. And recent events, including the rise in long-term interest rates, have really brought all of those issues to the fore. So I thought I’d talk with Ricardo, who is the Ford International Professor of Economics at MIT, a position I once held. But anyway, hi.Ricardo Caballero: Hi, Paul. So wonderful to see you again. We still miss you at MIT.Krugman: Well, I miss the days when actually getting at the truth was what mattered, as opposed to dealing with all of the obvious lies. But anyway, I guess there are different stages in one’s life. But so, I will want to get into recent events. But one thing that really struck me is that there’s this long-running discussion basically around interest rates and international movements of capital where there are kind of, as I see it, two rival ways of thinking about it. It could be some of both—but one was about returns to capital and investment opportunities, and one was about people looking for safety and security in assets. And for the most part, I was on one side of that and you were on the other. And I’m starting to think that you were probably right. So, first off, how would you portray this discussion? And maybe we can go back and forth.Caballero: I don’t know whether they’re really different views because, you know, my view at least was always, when I say “a shortage of a store-of-value,” if you will, investment opportunities create those store-of-value opportunities and so on. So I never saw it as very contradictory. I thought there was an imbalance: lots of needs for savings, in particular in a very specific kind of saving—safe saving. And the productive structure wasn’t able to generate enough assets, especially safe assets. And that’s, I think, what led to the sort of “shortage of safe assets” type of literature, and that naturally depresses safe interest rates. If you look at the return on capital, actually, it was fairly stable. It was all absorbed by the opportunity risk premium, if you will. And so you can see returns both on safe and risky capital sort of declining in tandem since 2000, or earlier than that. And then somewhere around 2000, you can see that the safe interest rate keeps coming down, while the return to capital is sort of paralyzed. And what starts widening is the equity risk premium.Krugman: So let me just break in here. A kind of crude, simplistic view—probably my view at a certain point—was that there’s capital and then there are returns on capital. And when we start to see interest rates get really low circa 2000, that’s telling you that returns to capital are going down. And if we see a lot of money coming to the United States, it’s because, well, America had faster population growth than other rich countries, and we were leading the technology revolution. But you’re saying there’s a really big difference between buying stock—corporate investment—and buying U.S. government debt, which is safe. And that the United States was sort of better than the rest of the world at supplying these safe assets.Caballero: Absolutely.Krugman: And just going way back—the financial crisis, which seems to me like yesterday, but was in fact almost 20 years ago—involved all of these exotic financial instruments, the asset-backed mortgage-backed securities, which you interpreted as a response, to a large extent; not just fraudulent, but a response to a real demand. Right?Caballero: Absolutely. I thought there was a shortage of ultra-safe assets. So financial engineering got to work and they created sort of “synthetic safe assets.” Now, they were safe assets from the point of view of idiosyncratic shocks, but they weren’t from the point of view of systemic shocks. And to me, that was quite important in generating the financial crisis.Krugman: Yeah. And so idiosyncratic shocks are like, well, okay: a particular housing development turns out to be a bust, but a collapse of the entire housing bubble is... And so fancy math was used to create assets that were supposedly safe because you were pooling all this stuff. And so, in your view, it wasn’t just that you had evil, fraudulent financial types—though that too—but that they were responding. There basically just weren’t enough Treasury bills and stuff like that out there.Caballero: I mean, they realized there was a spread to be earned by creating these assets, and then there were regulatory failures that allowed them to hold them on their own balance sheets. And I think that’s when the really toxic mixture was developed, because you had these very low-capital-charge assets which weren’t really safe. But you’re right, it was this spread that sort of created the opportunity and then the regulatory arbitrage, if you will, that brought them into the balance sheets.Krugman: Okay. I’m going to be self-indulgent and tell you a quick story. Robin and I bought our New York apartment in early 2009, which turns out to have been perfect timing, although that was purely an accident. We had come into a slug of money courtesy of the Swedes. But as we were looking at places and I was looking at the bookshelves of people who were selling their apartments, and a whole lot of them had books on the Gaussian copula and stuff like that, which, as you know, was a technique that was used to justify the claim that these synthetic assets were safe. And so we were clearly getting a preview: there were a lot of apartments on sale from Wall Street quants who’d been fired because everything was about to fall apart.And so, in some sense, the setting for the financial crisis was that people wanted safe assets, and excessively clever guys on Wall Street invented seemingly safe assets. But then everything went to hell, and we had the financial crisis. And then we had this long period of really, really low interest rates. And your story would be basically, as I understood it, that all of these fake safe assets had been revealed as fake, and now there was a sort of piling into Treasury bills, piling into actually safe assets.Caballero: Indeed, and also partly the supply of sovereign safe assets—Italian bonds and the like—those also went away. And so we had a massive shortage.Krugman: Okay. Now, there was an alternative story. And believe it or not, listeners, we are going to get to where we are now as a result. But there was an alternative story that I guess Larry Summers came out with at first, but I actually had been toying with the same thing, which was that what was actually happening was a real lack of investment opportunities. This was the “secular stagnation” view.Caballero: You know, we were both at that conference. It was IMF, I think, and you may not remember, but that’s when Larry sort of came up with this theory. And you may not remember, but I stood up and I said, “Look, I buy a part of that story. But what you’re missing is that the return on capital hasn’t declined nearly as much as the safe interest rate.” And that’s what I was describing before—the equity risk premium increased enormously. But t… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

For all my interviews and more, subscribe on YouTube.Note: After I recorded this it was reported that Trump officials are threatening to demolish the Kennedy Center if it can’t be renovated to Trump’s taste (and presumably with his name added). Matches my argument exactly.Der Untergang naht.Pardon my German pronunciation. I’m going to take a break today from wonky economic analysis and talk about, well, Donald Trump, but in a slightly different way from what I think most people are saying. Not positive, obviously. Just before recording this, I saw that Trump wants to rename Lake Ontario Lake America. Which is silly, would be funny, except that this guy is the President of the United States. And it’s really kind of troublesome that someone in that position is that out of it, that petty, disconnected from reality. And look, it’s not news to anybody that Trump is ego-driven, disconnected from reality, and at the same time, somehow commands a level of deference and obedience from the entire machinery of the federal government that no president has ever had before. So this is really quite serious. What I don’t think people are fully aware of is just how bad it can get, given that Trump is so obviously dissociating, decompensating, that he’s not all there. Obviously, he was already a very problematic personality, which was doing a great deal of damage to the United States. I don’t think even now people fully appreciate the amount of damage that has been done. Even before the Iran War, Trump’s provocations, insults, his trade wars, really destroyed the world’s trust in America.America became a country that could not be trusted to honor agreements. It was a country that constantly tried to bully other countries. Our word was worth nothing. Our sanity was not to be taken for granted. And then, of course, along comes Iran, where in addition to showing that we’re not to be trusted, that we’re not going to be relied upon., we also showed that we were far weaker than people imagined. If there’s one thing people thought it was, well, America has a powerful military. It turns out, well, not as powerful and not nearly as competent as people thought. How much of that is the result of Trump and Hegseth degrading it and how much of it was there to begin with is an interesting question. But anyway, at this point, we are not loved, we are not respected, and we aren’t even feared. And we’re not getting that back. Even if Trump is succeeded by someone decent —God help us if he isn’t— but even if we have a more or less rational, well-intentioned government that follows, the world now knows that we are capable of putting someone like Trump in a position of unprecedented, almost absolute power and that it can happen again. And the world also knows that we’re just not as fearsome as we seem to be. That we can be defied much more successfully even by smallish countries than anyone really imagined. And we’re not getting that back. I anxiously wait for the days when we’re no longer a Trump-ruled country, but this is my country, and what will be left of us, what will be left of our role in the world, even once he’s gone? Okay, the title I gave, the way that I opened this talk was Der Untergang, which is the German title of the movie Downfall, about the last days of Adolf Hitler. I hope that nobody is going to complain about my using the German, right? We’re long past the point where it’s considered unthinkable and incredibly rude to make Nazi parallels. There’s a lot of people in this administration or close to this administration who are effectively Nazis, in some cases explicitly Nazis. America is not yet Germany under Hitler. But the reason we don’t have a functioning Gestapo in this country is not for lack of desire to have one. It’s because these people, at least so far, don’t have the juice. So all of the stuff, all of the parallels seem appropriate.And the parallels are there. I mean, the parallels are there even in seemingly small things. Hitler was obsessed with building a gigantic gaudy ballroom. So there’s just a lot of parallels in there. Now the main message of the movie Der Untergang is that it’s about Hitler in his final days who knew that he was losing. He knew that defeat was looming. He knew that his power was collapsing. And his reaction was, among other things, to take it out on his own country. Hitler never accepted that he had failed Germany. He felt that Germany had failed him. And so he had a plan, often called the Nero Decree, which was to destroy as much as possible of Germany’s infrastructure. Supposedly to deny it to the victorious allies, but in large part to punish Germany. Well, Trump knows. He may deny it, he may have his moments when he actually believes that the polls are all fake and all of that, but in many ways he is behaving like somebody who knows that his days of supreme power are about to end. He, of course, is not going to accept that it’s his fault. It’s the fault, obviously, of the Democrats, who are all communists. It’s the fault of the Republicans, who didn’t live up to his leadership. The fault of everybody but him. What does he do in the position of losing? Probably not committing suicide in the Fuhrerbunker, but still in the position of losing all of his power. Well, what you do in that position, if you are somebody like Trump, who is an empty vessel: there’s nothing in there, the only pleasure he appears to take in life comes from dominating other people. Well, one thing you do is you try to stick your name everywhere, or leave your imprint everywhere. So Trump, according to reporting by Swan and Haberman, spends most of his time thinking about his construction projects and trying to leave his mark on everything in Washington. What I don’t think we’re fully appreciating even about those projects is that there isn’t a whole lot of actual construction. There’s a lot of starting of stuff, but so far it’s been mostly destruction, mostly tearing stuff down. We don’t have a triumphal arch, but we have a hole where the ballroom is supposed to be. We have just a lot of damage having been done to our nation’s capital and to the iconic structures that were supposed to define, symbolize who we are as a country. The scale of the destruction is really quite amazing. So I’m not going to try fancy video editing here. I’m just going to show you a picture of what the environs of the White House look like right now. There you go. That bare area is the South Lawn, ripped up because of Trump’s cage match. You can see in the corner there the hole in the ground, which is where the east wing of the White House used to be. Basically, Trump has left, so far, wreckage in his wake. Even the things which have not involved tearing stuff down, the gilding of statues, the horrific redecoration of the White House, is surpassingly ugly. That’s partly because Trump has terrible taste, but it’s also, I think, a clear sign of aggression. He’s saying, oh yeah, you’re going to give me a 33% approval rating? Well, I’m going to make the nation’s capital as ugly as I can in this little time as I possibly can. Now, this is all superficial. This is stuff that can and will be repaired. It’ll cost a lot of money, but OK. So we’ll rebuild the White House. We’ll reseed the South Lawn. We’ll strip the gilding off the statues. We’ll make the White House a dignified place again. But how much more will be coming? When we talk about Hitler’s last days, as I said, one of his last attempted acts was what’s called the Nero Decree, which was an attempt to destroy as much of Germany’s infrastructure as possible, supposedly to deny it to the victorious allies. But clearly, and even there’s some evidence that he actually he clearly thought this as a way of punishing the German people for failing him.Now, historiography is a little more complicated than that, as it usually is, but that’s clearly the gist of it. That Hitler’s final acts were to basically try to bring everyone else down wi… Get full access to Paul Krugman at paulkrugman.substack.com/subscribe