Transcript: Ezra Klein Interviews Paul Krugman - The New York Times | Ezra Klein
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EZRA KLEIN: I’m Ezra Klein. This is “The Ezra Klein Show.”
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Go back eight months, six months, and the inflation news was really grim. Prices were going up and up and up. The Fed was raising interest rates at a really rapid clip. A lot of economists were warning about the possibility of stagflation, suggesting we need to have a deeply painful recession to get out of this.
But in recent months, there’s been a bit of a phase change. In January, annual inflation slowed for the seventh-straight month. Unemployment is at 3.4 percent. That’s the lowest level since 1969. We are not in a recession.
That doesn’t mean we’re out of the woods. Inflation is still uncomfortably high, and there’s debate over what it will take to get it to an acceptable level. But a lot of the doomsday scenarios that were being thrown around six months ago or a year ago — they look increasingly unlikely.
A so-called soft landing feels more attainable today than before. So I want to have my colleague and Nobel Prize-winning economist Paul Krugman on to trace how the story has changed, and what we’ve learned, and what he’s seeing in the data.
There’s another reason I want to bring him on, which is that inflation has blocked out, basically, every other economic policy debate you can imagine for the past year. But there’s a lot else going on, with Republicans and a possible debt ceiling crisis, with the Biden administration’s return to industrial policy, with the decoupling with China, the crackup of globalization — there’s a lot. And so I wanted to hear Paul on all of it. As always, my email: ezrakleinshow@nytimes.com.
Paul Krugman, always a pleasure.
PAUL KRUGMAN: Always good to be on with you.
EZRA KLEIN: So we’re talking here. It’s Feb. 14, which people all over the country celebrate for the release of the January Consumer Price Index data. They give each other cards and chocolates. It’s a beautiful day. What did that data say? How did you interpret it?
PAUL KRUGMAN: It was telling us not much that we didn’t already know — pretty much, consistent with the story. Lots of problems with data these days. Difficult cases make bad law. Crazy economies make bad statistics. So it’s really hard to judge exactly what’s going on. But== the basic thing seems to be that inflation is down a lot, but not down to the Fed’s target, and nothing in the Valentine’s Day data release changed that picture.==
EZRA KLEIN: Tell me a bit about how the inflation story has changed. Give me, sort of, the change over the three months, maybe before today’s data came out, and then there’s a little bit again of a narrative correction, with inflation hawks saying, see? This proves that we’re not out of the woods yet. So tell me where things had moved recently, and then if you think this changes it at all.
PAUL KRUGMAN: OK so the big news is not actually this release, but a few days ago, the Bureau of Labor Statistics updated its seasonal adjustments.
EZRA KLEIN: Ooh, this is exciting. [CHUCKLES]
PAUL KRUGMAN: Yeah. Yeah, it sounds like boring as hell, but it turns out, unfortunately, to be crucial. Because normally, in calmer times, you can look at change over the previous year, in which case it’s not a problem. You’re comparing month to month.
But we’ve been in a situation where we think that the underlying state of the economy is changing really rapidly, so you need to be looking at shorter periods. Everybody understands that one month is not enough to draw conclusions, but a lot of people, me included, have sort of looked at three-month or six-month rates of change.
But those things depend a lot on — some prices go up and down, depending on the weather, depending on the season, is it Christmas or not. And the data that you see normally are not raw price numbers. They’re numbers adjusted for the usual annual pattern of prices.
But that pattern changes over time as well, and has changed, probably, quite a lot in the Covid era. So the Bureau of Labor Statistics updates it. And data update meant that what had been a really dramatic story of falling inflation over the course of the second half of 2022 has now become only a pretty persuasive story.
It’s still there. But numbers that look like, hey, we’re home free, inflation is over, now look like, well, about ⅔ of the inflation surge seems to have gone away, but we’re still pretty far above where we want to be.
EZRA KLEIN: There are a lot of different numbers being thrown around right now. You hear about the Consumer Price Index. There’s what gets called core inflation. There’s supercore, and super-duper-core, There’s wages.
What are the numbers, what are the indicators, that you find most useful right now for tracking the inflation picture? And the reverse of that — what are the ones you don’t find that useful, that you think can be misleading at the moment?
PAUL KRUGMAN: Usually, at this point, looking at supercore, which is inflation, taking out food, energy, shelter, and used cars — but it turns out that used-car prices have been crazy enough to actually skew the data — and I look at wages. But trying to look at — even that’s got problems.
Those are the numbers that I think are the least likely to be giving you really false signals. We have a really big problem. A third of the Consumer Price Index is shelter. And core inflation, which people have long used — I’ve long used, too — assess some kind of underlying inflation, which takes out food and energy. That’s 40 percent shelter.
But shelter prices are, basically, rents. Many people actually do rent the place they live in. And even those who don’t — the B.L.S. imputes a rental number, based upon what people who do rent are paying. People typically rent for a year.
And so a measure of average rents is telling you a lot about where the economy was a year ago, not where it is now, and that’s created a crazy situation. On the one hand, we know, from a bunch of data, including some studies that the government is doing, but also studies that — information from private sources — we know that rents are flat or falling on new rentals.
And meanwhile, you have the official inflation numbers that came out today, saying that the cost of shelter is rising at almost 10 percent a year. And that’s not wrong. That’s actually — if we look at what people are actually paying for apartments, that’s probably — on average, that’s probably about right, because they’re still getting their leases renewed at much higher rates.
But if we’re asking whether the economy is running too hot, that it’s inflationary, that’s crazy. That’s not, in fact, happening. Our great old standby — core inflation has turned out to be a really, really misleading number at this point.
EZRA KLEIN: One measure here that economists, as far as they can all seem to agree on the importance of, is wages.
PAUL KRUGMAN: Yeah.
EZRA KLEIN: So why are wages so important as an indicator of inflation and where it’s going? And what does the wage data say to you over the past couple of months?
PAUL KRUGMAN: So wages are important, really, for two reasons. One is that, look, they are an important part of costs, and other things equal — favorite economist phrase — an increase in wages will tend to get passed on into prices — not always, and there are reasons to think that might not fully happen right now, but it is important.
But also, labor is a very widely traded commodity. I know it’s people, but it’s also got a market price. And so the level of wages is a pretty good indicator of overall movements in the level of prices, generally.
And it’s not wildly volatile like the price of oil or eggs, so wages is kind of a pretty good indicator, except that if the mix of workers changes, as it did during the pandemic, when a lot of low-wage service workers were laid off, and then rehired, wages become a problem as well.
But various wage data — wages are rising faster than they were, prepandemic, but a lot slower than they were last winter. And depending upon your various magic-eight-ball calculations, wages are rising between one and two percentage points faster than would be consistent with the Fed’s inflation target — which kind of matches some of the other data, so that’s probably your best guess. But it’s a guess about where we are.
EZRA KLEIN: There’s something — and I recognize this is not very economist of me — but there’s something very weird about watching so many Democratic economists — people who spend most of their time that I’ve known them thinking about how to get wages higher, worrying every couple of months that the wage data is going to come in too high and we’re going to have overly high wages. I’m just curious, as somebody who worries a lot about labor markets, how the strange inversion of inflationary periods feels — like this moment, where high wages become threatening, as opposed to something to root for.
PAUL KRUGMAN: Yeah, well, one of my, I think, verbal tics is to say economics is not a morality play — that things that you regard as good, in general, aren’t necessarily good for the economic situation, and vice versa. And I think it’s great if we can have a period during which wages are rising faster than prices. That doesn’t stop me from saying, well, if I look at the rate of wage increase out there, it does kind of point to an economy that is probably still running too hot.
I think it’s perfectly reasonable to argue that we don’t have to get wage growth back down to the levels it was during the period of rapidly rising inequality. We can have faster wage growth than that, but not, probably, as fast as what we’re seeing right now.
EZRA KLEIN: So one thing that I saw in today’s data — and predicting the reaction to today’s data — was that even after that seasonal adjustment had happened, the new numbers seem to make people feel even less confident that we were out of the woods. So Jason Furman, the former chair of the Council of Economic Advisers, who’s been very, very on the inflation beat — he said, “The inflation picture that had started to look better a month ago — it turns out that a lot of that was probably a false dawn. The whole perspective we have on inflation is much worse.” So that’s a more radical downward revision in sentiment for Jason than I’m hearing for you. How do you think about that?
PAUL KRUGMAN: Yeah. I mean, maybe because I never fully bought into the “it’s all over” position — because like Jason, I mean, I look at pretty much the same numbers. And often, we’ve disagreed about some stuff, but basically, that seasonal adjustment change was a bit of a shocker. And there had been numbers out there before that could be read to say, it’s all over, but never the wage numbers. The wage numbers never, ever gave you that answer.
And so now, that prop behind a complete victory celebration position has been knocked away from us. But I actually did not see anything in today’s numbers that really changed that. I think it was the seasonal adjustment thing that said, let’s hold off a bit on the party.
EZRA KLEIN: One thing that has seemed true over the past couple of months is we’re seeing more disinflation with less economic cost than a lot of people had begun predicting — and fearing, right? There’s a lot of talk of recession, a lot of talk of the amount of unemployment the Fed would need to create to get inflation down. Larry Summers has been saying that we would need five years of unemployment above 5 percent to contain inflation.
But it has been coming down quite a bit, even if not maybe as much as people hoped. Unemployment is at 3.4 percent, which is quite low. We added a lot of jobs in January.
The employment-inflation trade-off has seemed to bite, at least so far, a little bit less than a lot of people feared. Why do you think that is, and do you think that continues?
PAUL KRUGMAN: Yeah. I would say, it’s not a little bit less. It’s a lot less. I mean, the fact that we’ve seen whatever your preferred measure of inflation is — that it’s come down a lot over the past year, with no rise in unemployment whatsoever — that’s a pretty big deal.
And there are actually two possible explanations, which are not mutually contradictory. One of them is that a lot of the Team Transitory Arguments that said all of this is pandemic-related disruptions, and that as supply chains get kinked and things normalize, that we’ll be seeing inflation come down spontaneously — a lot of that was true. A lot of the inflation we were seeing was, in fact, one-time events, which were just much broader in scope than anyone had imagined.
I certainly didn’t see a surge in rents, probably as a consequence of the explosion of work-from-home, which, in turn, was driven by the pandemic. I didn’t see that coming, and yet, that had a huge impact on the inflation numbers. The other is that we haven’t had an economy that’s been running this hot on a sustained basis for a long time.
And most of what we thought we knew about unemployment-inflation trade-offs comes from periods when the economy probably had a fair bit of slack in it, when it was operating below its capacity. And so a fair number of people even predicted in advance that the trade-offs would get much steeper, so that when the economy overheated, inflation went up much faster than people expected, but then as the economy, probably — at least spending cooled off a bit, inflation came down much faster as well.
So it’s kind of — the combination of the craziness of the period, plus, we’ve been experimenting with running the economy close to and maybe beyond full employment, which we haven’t done for a very long time.
EZRA KLEIN: I remember talking to Biden administration economists early in the administration. And they were saying to me then that the great experiment of this administration, compared to recent eras, was they were going to try to run the economy hot. They were going to try to push a lot of demand into it. They were going to try to get unemployment much lower. They were going to try to get wages much higher.
And they did. I mean, they really got it to run hot. And then, there was a period where the sense was, this will be seen as the big mistake of the Biden administration. They ran it too hot. They put too much stimulus in there. The Fed was too slow to act, which isn’t necessarily their fault, but nevertheless. And now, we have this terrible inflation problem. It’s eating back the wage gains. It’s going to force the Fed to throw the economy into recession.
Do you think maybe that sort of corrective judgment is now looking a bit wrong, too, and they deserve some real credit for taking the risk to run this hot? I mean, if we’re able to get this down — and I don’t want to unroll a mission-accomplished banner here, but it’s not an insignificant thing that unemployment is 3.4 percent — not an insignificant thing that there’s a tight labor market. It does help people who have been left out for a very long time. I guess, to wrap this into a question, how do you see the Biden administration’s macroeconomic policy record at this juncture?
PAUL KRUGMAN: Well, at this point, it’s looking pretty good. It was not a happy thing that inflation shot up to levels that people hadn’t seen since the 1980s. That rattled people quite a lot, but there’s pretty much overwhelming evidence that did not get entrenched — to use one of those phrases — that people did not start building the expectation of inflation forever into their decisions.
So it was, in fact, a passing phase and— find whatever other synonyms you can look for, for transitory — it does, in fact, look transitory, although the transit took longer and was bigger than people expected. And meanwhile, we have had a full recovery of the labor market far, far faster than the last one. Instead of eight years of elevated unemployment, we’ve had two years of elevated unemployment — not even. And it actually looks pretty good.
A lot of the forecasts that reasonable people are making suggest that inflation may well be a number with a two-handle — that is, something under 3 — by the end of this year. And unemployment will be something with a three-handle, probably under 4 percent.
That’s a win. We were hit with a massive, massive economic shock, and we got back to full employment. Then we had a brief period — in the rearview mirror — a brief period of high inflation. That’s pretty darn good.
EZRA KLEIN: So the Fed is still having to manage this very actively. What they are going to do is still somewhat uncertain. You had a wonderful analogy for them, or metaphor for them, where you said you often think of the Federal Reserve as operating heavy machinery in a very dark room while wearing mittens.
PAUL KRUGMAN: Yeah.
EZRA KLEIN: I took the point of that as, they don’t have the delicacy — they sort of have to turn the dials pretty hard, oftentimes, in one direction or another, and they don’t have all the information they would like to have. So I want to ask you about the Fed this way.
If you’re an adviser in Jerome Powell’s ear, making the case for him to err on the side of doing too much, and you’re an adviser making the case for him to err on the side of doing a bit less, how do you make those cases? What is your hawk case, what is your dove case to him?
PAUL KRUGMAN: Well, the hawk case is that this economy still looks really hot. And probably, that 500,000 job gain that we just saw was not exactly real. I mean, not that there was anything fake, but that it was probably not representative of how hot the economy is running. But the economy is still looking like an economy that is running sort of beyond full employment.
EZRA KLEIN: What does that mean, quickly, for people who aren’t used to hot and full employment? What does it mean for an economy to be hot?
PAUL KRUGMAN: Good question. The jargon does tend to take over your brain, no matter what you do. We know that the overall level of spending in the economy determines, basically, what’s going to happen. And if you have an increase in overall spending — consumer spending, government spending, all kinds of spending — that that’s going to lead both to more jobs, more production, but also to higher prices.
And the trade-off — what fraction of it leads to higher prices, as opposed to more jobs, is one of those big questions that keep on revising our answers to. But there’s clearly some kind of trade-off there. And running the economy too hot just, basically, means that spending is so high, that we’ve gone beyond the point where we’re willing to accept the faster increase in prices, in return for having a lot of jobs out there.
What makes it unacceptable is not so much even the fact that nobody likes inflation, as the fact that you do fear — that if inflation stays high for a long time, that it will get entrenched in the economy. And so you don’t want that to happen. And so if I were trying to convince Powell to keep hiking those rates, I’d say, look, we know that inflation expectations have stayed anchored all through.
But how much do you want to count on that happening? And look, the economy is still going gangbusters. So since you’re trying to slow it down, you haven’t done enough.
The reverse case is, well, yeah, but you know, inflation expectations are staying anchored, and we’re not sure that the economy will stay this strong. We may still be seeing some delayed effects of federal aid from two years ago. It’s not clear that there are some oddities about construction, where housing starts are down, but employment isn’t.
And there is a real risk that at some point, all of a sudden, the effects of those rate hikes really kick in, and the economy starts to go into a serious downturn, a nosedive — although that’s probably exaggerating it. And yet, if you ask, which of those guys am I, the answer is, I’m probably both and neither. It’s a very, very hard call to make, because the situation is very confusing.
EZRA KLEIN: You’ve critiqued the inflation indicators the Fed and Powell prefer to look at. Tell me which ones they seem to like, and why you’re not convinced those are the ones to follow.
PAUL KRUGMAN: Well, they’ve chosen — I mean, there is this — so we now have this range. We used to just have inflation and core inflation and —
EZRA KLEIN: In my day — [CHUCKLES] inflation indicators were simple.
PAUL KRUGMAN: That’s right. Now, the Fed has settled on core services, ex-housing, which they are claiming is a measure of underlying labor cost pressure.
EZRA KLEIN: And is that indices focused on service sector?
PAUL KRUGMAN: Yes, it’s all services. Obviously, there’s goods. There’s stuff that you can put your hand on, and there’s services, which is somebody doing something for you. And our economy is mostly services rather than goods.
We had — normally, they tend to move in tandem. Normally, goods tend to get cheaper over time, relative to services, but at a consistent pace. But the pandemic did crazy stuff. All of a sudden, people couldn’t eat out, so they bought kitchen equipment. They couldn’t go to the gym, so they bought Pelotons.
And so we had this crunch on the supply of goods. Goods prices went soaring. Now, goods prices are coming back down to Earth, and so if you’re looking at goods prices, it looks like we’re into rapid disinflation, maybe even actually falling prices. But services are still rising.
But then, part of that is, one of the services is the services provided by housing, which we now know is lagging far behind what’s really going on in the rental market. And so you end up with this services excluding shelter and then trying to exclude some of the stuff that involves energy as well. And it’s a pretty narrow category.
And the more you restrict the set, the more what’s left is starting to be stuff that is possibly measured with error. One of the — unimportant, but one of the costs of this whole episode, for people like me, has been I’m learning much more than I ever wanted to about how price indices are constructed. And there’s a lot more necessary, basically, educated guesswork than you’d like. And the narrower you make your index, the more guesswork there is. So that’s one problem with it.
The other is, it is kind of funny that the Fed is looking at, pretty much, the only indicator that isn’t showing a lot of disinflation. And you have to wonder, shouldn’t we at least be looking at an array of things? And if 9 out of 10 showed that inflation is coming down, should we be relying too much on the 10th, which doesn’t agree with all of the others? Kind of a minority report approach to inflation.
And there’s one more thing, which is that the White House the Council of Economic Advisers said, if this is supposed to be an indicator of wage pressure, let’s go and directly measure what’s happening to wages in this sector that the Fed is focusing on — which they’ve done. And it is showing disinflation. It’s still showing wages rising faster than they were before the pandemic. But it’s not showing the kind of — it is showing progress. So they’re saying the Fed has chosen an indirect measure, but we can measure it directly, and the direct measure looks a kind of OK.
EZRA KLEIN: I understand that one of the reasons they like that measure is a fear that the nature of inflation is shifting — that a year ago, it was goods and used cars and things like that, and as those prices have come down, and supply chains have unkinked, now, it’s moving over to the service sector. And the secondary fear is that that’s a lot harder to bring down without inflicting a lot of economic pain, because of how much of the service sector’s cost is really wages and labor and people.
PAUL KRUGMAN: Yeah.
EZRA KLEIN: Do you think that’s true? I mean, do they have, first, a point, because that’s where it is now, and second, if that is where it is now — does that make the job harder?
PAUL KRUGMAN: Well, I think that is — inflation is now a service sector issue, not a goods sector issue. And there’s good reason to believe that wages are stickier. The cost of a worker is much less volatile than the cost of a shipping container.
But as for saying that — if that’s your concern, why not just look at wages? So I am a little bit puzzled that the Fed has chosen to go this route. I understand their concern. But it does seem like they’re trying a really kind of a Rube Goldberg device approach to something that you could just try to measure directly.
So I’m a little bit puzzled. I’m not quite sure. I have an enormous regard for the Fed, and the staff at the Fed in particular are terrific. But you do have this feeling that — look, people like me, who are excessively optimistic, but even at other times, when we were actually right, have always been accused of searching through inflation measures and finding the ones that throw out the inflation.
Now, there’s this slight feel that the Fed is searching through inflation measures and finding the one that throws out the disinflation. It does seem a little odd that they’ve managed to hit the one measure, out of this large array of possible measures, that is not showing any reason for optimism.
EZRA KLEIN: So we’ve talked a bit here about the idea of inflation being above the Fed’s target. The target is 2 percent. There’s a view — I think you hold this view, too — that getting inflation down from 9 to 6 — that’s easier than getting it down from 6 to 3.
But when we look — pretty likely to be able to get down to 4, 3 — getting it down that last mile to 2 might be a really big deal — or might cause a lot of suffering, is more what I’m saying there, not to be euphemistic. Why 2 percent? Why should 2 percent, rather than 3 percent, even be the goal?
PAUL KRUGMAN: Yeah. You know, I’ve spent a lot of time on this issue from way back. And it’s one of the few things out there where you really can say that it’s New Zealand’s fault. Because New Zealand was the first central bank to explicitly introduce an inflation target, and they set it at 0 percent to 2 percent, so 2 percent was the New Zealand contribution to the debate.
But more to the point — 2 percent, long ago — 2 percent seemed like a perfect compromise between opposing factions. There were people who wanted true price stability, because they thought prices should be stable. Money should have — you have stable purchasing power. And there were people who were worried that in the face of a severe recession, interest rates might drop to zero, and that wouldn’t be low enough, and that we would need — it would be less likely that we would hit that zero lower bound if inflation was positive.
And circa 1999, which is more or less when all of this jelled, it appeared both that you could make the case the inflation was really zero, if you included technological progress and quality change — what value did you place on being able to watch TikToks? And 2 percent kind of satisfied the stable-price people.
And on the other side, it looked, given the modeling at the time, as if 2 percent was high enough, that being unable to reduce interest rates below zero would ever be a serious problem. But of course, that’s a long time ago, and that second proposition turned out to be totally wrong. We spent most of the time between the 2008 financial crisis and the pandemic with interest rates at zero.
So in a way, what we’ve had is this orthodoxy congealed around 2 percent that was based upon reasonable analysis 25 years ago, but not based on what we now know to be — what we now believe to be the truth.
So I’ve raised this. I’ve been in meetings, including closed-door meetings full of people in suits, and you say — you make the intellectual case for three — actually, making more sense, given the data, than — given what we’ve experienced, than two — and people get absolutely bonkers at the notion.
I think part of it is the fear, somehow, that if you loosen up a bit, if you change the target, then suddenly, the 1970s will come back — that then, people will start to believe, well, if it can go from 2 to 3, then why not 3 to 5, and 5 to 10? And I don’t think it’s reasonable, but that’s a fear that really weighs on people’s minds.
EZRA KLEIN: How much of that, do you think, is economics, and how much of that goes to what you describe as your verbal tic, which is a tendency of many to treat economics in general, but I think, particularly inflation, as a morality play?
PAUL KRUGMAN: I think that’s a really important thing. I think it’s a funny thing. If you talk to central bankers — I don’t actually talk to Jerome Powell, but if you talk to people who are in this position, many of them, in their sort of Walter Mitty fantasies — they see themselves as the next Paul Volcker, the strong, tough man who cured inflation. And very few, I think, see themselves as the next Ben Bernanke, the guy whose willingness to break with orthodoxy and pour money into the system saved the world from a second Great Depression.
And it’s a funny thing. Why — actually, if you want to ask me, who was the greatest central banker in history, I would actually probably say, Mario Draghi, who saved the euro. And he saved the euro by being willing to do more, by being willing to be less tough.
But if you asked central bankers, I’m sure that most of them would answer Paul Volcker. So there is this sense that you’re put in this position to be willing to impose pain, not by being willing to go easy on people.
EZRA KLEIN: And so to go back to that question of, what’s wrong with 3, in a recent interview, Jason Furman, who I trust and have respect for and has been on the show a number of times — he said, quote, “the most likely outcome is what I’d call continued overheating. The unemployment rate never rises above 4.5 percent. The inflation rate, on a sustained basis, never falls below 3 percent. And so we’re still grappling with this problem at the end of the year.” If those were the numbers at the end of 2023, would you agree that we are grappling with a problem, or that we’ve reached a good steady state?
==PAUL KRUGMAN: ==I actually very much doubt that we’re going to have unemployment of 4.5. But take the generic — take the qualitative thing, where unemployment is low, the economy is still running pretty hot, but inflation is running at 3 percent? I would think that there would be a pretty good case for calling that a win.
Jason’s a lot younger than I am. I remember the late 1980s. I remember Ronald Reagan after he declared morning in America. We had 4 percent inflation at that point, and nobody walked around saying, oh my god, it’s terrible, we have inflation. People sort of thought that was kind of OK.
So I don’t actually think it’s a really bad thing, unless we see really good reason to believe that we’re going to start to develop that stagflation cycle that, so far, has been completely absent. I don’t think it’s a terrible thing.
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EZRA KLEIN: So I want to take a step back now from inflation, which I think has had this quality of blotting out the entire sun of other economic policy questions for about a year.
PAUL KRUGMAN: Sure.
EZRA KLEIN: We seem to be barreling towards the debt ceiling crisis again — for those of us around in 2011. It’s funny, because I used to talk to this guy, Jay Powell, at the Bipartisan Policy Center, about the debt ceiling all the time back in 2010 and 2011. He was just an economic policy wonk. He knew all about how to prioritize payments.
And now, he’s Federal Reserve Chair. It’s weird how things work.
But so there can be this feeling of rerunning it. It’s like the same players, in some ways, and Republicans just took the House.
But you’ve argued that this is actually quite different, because the Republican Party itself has changed so much over the last decade, and so what they’re trying to do, if anything at all, has changed quite dramatically.
So tell me how you contrast the debt ceiling fight of 2011 from the debt ceiling fight we seem to be headed towards now.
PAUL KRUGMAN: Yeah, there are actually several ways in which this is quite different — which doesn’t mean that I know how it’s going to turn out. But the first thing is, yeah, the Republican Party — in 2011, it was, more or less, in terms of economic policy — it was Paul Ryan’s party.
And so what the Republican Party wanted was, or the demands they were trying to place, were basically, cut Medicare and Social Security, which now, they’re screaming that that’s not what they want. So it’s going to be a little bit hard for them to try and make that a negotiating demand, although in effect, it is what they want, but it’s not top of their list.
They’re much more into culture war than any of this stuff now.
And they’re also fragmented. If I negotiate with the Republican Party, it’s a bit like the old question, if I want to talk to Europe, who do I call? I mean, yes, there is a Speaker of the House, but nobody actually thinks that he has the ability to tell his members what to do. So it’s not even clear who you’re negotiating with, if you try.
So the Republicans are very different. They’re really, now, very much more a culture war party than they are a small-government economic-ideology party. The Democrats are different. Democrats are a lot tougher about this. There are very many fewer Democrats with illusions that if we can just get through this one thing, we can go back to bipartisan governing. There must be somebody in the Senate who still believes that, but I don’t think there’s any senior people in the Biden administration who believed that.
And there’s a broader environment.
There’s kind of — I used to talk about the very serious people, all in caps. There was — in 2011, everybody in Washington was all obsessed with deficits, as you yourself wrote. There seemed to be a rule that, on all other issues, reporters had to at least pretend to be neutral, but to be anti-deficit, that was considered to be something you could say in what was supposedly objective reporting. Now, it’s not nearly that much out there. That whole complex of deficit hawks or deficit scolds still kind of exists, but it’s a shadow of its former self. So we’re in a situation now where there is no consensus that Social Security and Medicare should be cut.
Democrats have no desire to — or believe in -- making a compromise with Republicans, and Republicans really don’t know what they want. So although the mechanics look the same, the surrounding context is completely different.
EZRA KLEIN: Do you have an answer to the question, what is the Republican Party’s economic agenda, at this point?
PAUL KRUGMAN: No, because I don’t think they have one. I mean, as I think of it, the leading voices, the people with real political clout now, for the most part, certainly in the House, are culture warriors, ideologues, a lot of white nationalism. But anyway, whatever it is that they care about, they don’t really much care about economics at all.
A lot of the, kind of, staff — a lot of the people — if they say, write me a bill, the people who are assigned to do that — a lot of them, basically, grew up inside the hothouse environment of right-wing think tanks, where they’ve absorbed all of this magic of tax cuts, evil government spending ideology. But that’s almost more of an instinctive reflex than it is a party ideology at this point.
So God knows, I mean, if you were to ask, what does Marjorie Taylor Greene believe constitutes good economic policy, does she even know that? I just find it very hard to figure out what the point is.
EZRA KLEIN: I thought it was very striking that the big moment of controversy out of the State of the Union was that Biden said Republicans want to cut, sunset, eliminate Social Security, et cetera, and Republicans booed at that and felt very offended. Kevin McCarthy, in the utter opposite of the kind of thing Paul Ryan did, has said that cuts to Social Security and Medicare are off the table.
Mitch McConnell was clearly very unhappy with Senator Rick Scott’s big budget proposal that was full of entitlement cuts and full of things that are scary to median voters, that at the same time, they don’t have much of an economic policy, they’ve quite run away from a lot of what seemed to be the core of what they all said they wanted in 2011.
PAUL KRUGMAN: Yeah, this is representing — well, a lot of time has gone by. It’s a very, very different cast of characters — except for Mitch McConnell is still there. But it’s just, people who make a point of becoming Republican candidates, people who are running, are not doing it because they want to implement laissez-faire economic policies.
They have a variety of motivations, and I’m sure you’re talking to other people about all of that. But this just isn’t top of the agenda, and they don’t really have a philosophy anymore.
EZRA KLEIN: You wrote an interesting piece about this. I think it was called something like, we’re going to miss the era of greed and insincerity. I might have it wrong from memory. But you make a very interesting point in it that I think is true, which is that for quite a long time, the theory that many people have of the Republican Party was that the culture-war side of it was a little bit fake.
They might believe, but they don’t really care about it, and they were just using it to cut taxes for rich people and deregulate and so on. And that now, if anything, it often seems to be the reverse. If you think about the Trumpist Republican Party, a lot of the figures who seem to be rising in the Republican Party — they’ll say almost anything on economics.
What they really care about is whether or not critical race theory is taught in schools, and which books are in the library, and whether or not drag queens get to do story hour. And the culture war increasingly seems to be the beating heart, and there’s more opportunism on economics in the hopes that you can get into power to vanquish wokeness.
PAUL KRUGMAN: Yeah. I mean, I think that the theory of the Republican Party as, basically, the plutocrats using culture war, and then putting them back in the closet after the election — that was a pretty valid picture of the party 20 years ago. I mean, that was the 2004 election, and Bush wins the election, as I like to say, by running as the defender of America against gay married terrorists, and then says, and now, I’m going to privatize Social Security. But what happened is that the people who thought they were using the culture warriors found out that in the end, at this point, they’re the ones being used. They’re not in charge anymore. And now, one thing that is a little surprising, we’ll say, is that we haven’t seen more of the culture warriors being willing to go the whole way and start advocating genuine economic populism.
I mean, one of the things that one might have expected or, depending on your politics, I guess, feared, would be that they would do something like — a little bit like the former National Front in France — forgetting what they call themselves now, but Marine Le Pen — that they would be, actually, advocating a strong welfare state, but only for the right kind of people. [INAUDIBLE] welfare state, people sometimes say, why don’t they just give up on this whole, let’s cut Social Security and Medicare thing and ditch these extremely unpopular right-wing economic policies?
There are reasons for that. Among other things, they still want the money from the billionaires. But it is remarkable how little the things that we used to think the Republican Party was all about seem to be hardly even on their scopes these days.
EZRA KLEIN: I think this gets to the reverse of something you were saying a minute ago, which is that — what economic policy does Marjorie Taylor Greene have? Not much of one. And the reason we bring her up is that she controls a lot of attention in the party.
There is clearly a lot of energy from this Trumpist social media-oriented side. But if you go look at who runs committees in the Republican House, who’s running energy and commerce in ways and means, and finance, and so on — it’s not all the newest, most Trumpy figures.
So some of them might — J.D. Vances and so on — some of them might have — I don’t exactly want to call it “populist,” but they might be willing or interested in doing different things on economic policy. But whatever they control in terms of attention, they don’t still control the governing levers of the party. I mean, it’s still — I think something that is really still quite underrated about the Republican Party is, whatever the allegiance it has to Donald Trump, it remains very much in its congressional wing, this party in transition.
I mean, Trump comes in. It’s still Paul Ryan’s party in the House, so they end up trying to repeal Obamacare. They end up passing these very unpopular tax cuts. Sort of, Trump ends up yoked, to some degree, to the Ryan agenda.
And now, it’s moved much more towards him. But first, he’s very incoherent himself. But second, it hasn’t lost that whole side of the party. It just — there isn’t unity in the party. It doesn’t — it can’t want anything, because it isn’t — even less so than normal parties, I think, at this point, it isn’t one thing.
I almost blanch calling it a party at all. I don’t think it acts like a party. I don’t think it has the internal coherence to make decisions. And so there’s this weird thing where the sort of attention-getters really matter, but they can’t pass anything.
The people who run the parts that pass things — they’re not connected to the core of the base anymore. It’s just a very weird structure that I think is going to create a whole lot of governing problems, because as you were saying, there’s nobody to call, who can actually control it.
PAUL KRUGMAN: Yeah. And one of the things is that — this is partly what happened to Trump as well — is that actually turning your ideology or preferences or prejudices or whatever into policy is not a trivial matter, because a lot of just plain detail grunt work that’s involved.
I mean, if you actually — if you read Robert Caro’s great biography of Robert Moses, Moses first established his reputation as being the best drafter of legislation in Albany.
He knew how to write a bill that would make something happen in ways that people didn’t understand, but he did.
And if you ask who among this current crop of — among the Fox News class of Republicans — who among them has any idea how to write a bill, the answer, I would assume — basically, none of them.
And the people who do, to the extent that anybody in the Republican Party knows how to do that now — they are probably people who, basically, came up the Paul Ryan route. They came up through the right-wing think tanks and all of that. But it does mean that there’s no real coherent message. There’s no coherent policy goal. It’s just a lot of free-floating hostility.
EZRA KLEIN: Let’s talk about that question of writing a bill that does what it says on the tin. So if you look back over the past couple of years of the Biden administration, they’ve passed a series of big bills that, among other things, a lot of people, I think correctly, have heralded as a return of what gets called industrial policy — the government getting interested in supporting fostering, nurturing particular domestic industries. And one of the specific things these bills try to do is, using both carrots and sticks, locate and build very advanced manufacturing chains in the U.S. We’re trying to onshore semiconductor manufacturing, onshore a lot of the electric vehicle production process, onshore a lot of the battery production process. We’re investing a lot of money in that. We have these various Buy American provisions, which could slow down some of the adoption of things we really care about. But the hope on the Biden administration side is, that will actually lead to us building these industries.
How do you think about that? Do you we’re going to be able to do this?
PAUL KRUGMAN: Well, I think we will be able to make it happen. Whether it will actually be efficient, whether the industrial policy aspects are going to make G.D.P. grow faster, is very much up in the air. We really don’t know that. But in a way, that’s a hope, but it’s not the point.
Above all, the Inflation Reduction Act is another one of those — the name has absolutely nothing to do with what it’s really about. It’s primarily a climate change bill, but it tries to fight climate change through industrial policy — not because the drafters necessarily believed that industrial policy was the best way to do it, but because they thought that was the politically feasible way to do it.
Because — by using carrots rather than sticks, by saying, here’s a tax credit for buying energy-efficient stuff made in America, rather than saying, we’re going to tax your carbon emissions, that they had, basically, the only way that you could get major legislation passed. And I’m not terribly afraid.
I mean, there are some people who look at industrial policy and say, oh my god, inefficiency, it’ll hurt the economy. Yeah, maybe, maybe not — unlikely to be, actually, even within the measurement error, in terms of the G.D.P. growth rate. What it does do is it makes it politically possible to do things that we really do need to do, like fight climate change.
EZRA KLEIN: Well, for the sake of argument here, let me take the other side of this, which — and not the other side from the conservative perspective, but from the liberal perspective. If you listen to environmental scientists and climate scientists, and I do, they say, we’ve got to do this really quick.
The decarbonization timeline, to take decarbonization as the example, is unbelievably short. We need to be inventing, manufacturing, deploying, distributing, and using the stuff at a speed and a scale unlike anything since the construction of the highway system.
And I don’t particularly care about ⅒ of a point on G.D.P. from these measures. But I think the concern that people legitimately have is that they will slow down adoption, that we are not going to be able to do this that fast, that we — losing five years on this stuff, or slowing things down when we need them to come out really quickly, really does matter.
And China is very, very good at creating solar panels and wind turbines and so on, at this point. And China’s got its problems, but climate change is also a very big problem.
So take it off of the question of G.D.P.. I think there’s a concern. There’s, like, one hand of the Democratic policy body that is all about moving faster.
And then, another — the other hand is layering on all these standards and ideas about politics, which maybe are good, but are going to slow things down. And when we keep being told speed is of the essence, and then keep being told, well, it’s worth it to make this trade-off for speed, there’s at least some tension there.
PAUL KRUGMAN: Yeah, although I don’t think speed is really going to be the issue. I don’t believe that we’re going to lose a lot of time by having, particularly, Buy American provisions, will delay things — maybe. I’m not even sure it’ll significantly delay, say, the electrification of transportation.
And the shift to renewables — I’m not sure it’ll delay it at all. It’ll make it more expensive — probably get less bang for the buck, in terms of decarbonization. It’s a miracle that we got this at all. Just a few months before the midterm elections, it looked like the whole agenda had collapsed.
There was going to be nothing — no major action on climate change. And then, miraculously, we get something that, at least the environmental modelers I talk to — they’re kind of over the moon. They think that effectively, Biden got 80 percent of what he was aiming for, in terms of climate change policy.
And if he did so at the cost of some inefficiency, well, OK, that’s unfortunate, but it looks to me as if political reality is reality. And given the political reality, we actually did remarkably well on all of this.
EZRA KLEIN: Well, I agree, given the political reality. And I don’t want to take the other side of this, because I think the I.R.A. is an unbelievable achievement, and I was so deeply relieved when it passed. But there’s a question of political reality and this question of climate reality, I think.
And the thing that has been on my mind a lot, talking to — I think, presumably, the same modelers you talk to, like people like Jesse Jenkins and others who have been very involved in the climate fight — is — they’re all terrified, as best I can tell, about deployment.
And I’ve been trying to dig in more, in my own reporting, on what it takes to get a next-generation energy project built — or for that matter, in California, just what it takes to get a house built.
And it’s tough. You really do see things get slowed down for, I mean, a year or years. I’ve reported a bit on congestion pricing in New York, and I mean, that’s been held up, and now, it’s moving forward, I think. But it really spent a lot of time in environmental review for what’s very much a pro-environment policy.
And so I mean, one of my big themes has been this idea of the supply side and how that interacts with liberal values. Because I think that oftentimes Democrats and liberals underestimate how much constraints on supply actually end up foiling or slowing down or reversing things that are intended to achieve both progressive, but more to the point, good and just ends.
PAUL KRUGMAN: Yeah. But that’s really not an industrial policy or a Buy American policy question. It’s a question of how much we’re going to allow regulatory snarls, NIMBYism in the broad sense, to hold things up. And this is a place where we’ll see what happens, but there will probably be some cases where it’s going to be really important to yell at people who think that they’re progressives, but in the name of saving some notion of a place’s character — I’m sounding like I sneer at that, but that’s real.[1]
But there are things that are more important, and saving the planet from a catastrophe is more important than that. And we do kind of need a bit of a wartime mentality, where you have to be willing to take some risks of some things that you don’t want to see happening, in order to get this stuff rolled out.
And so sure. In a way, that’s almost a case for industrial policy. It’s saying that if we just provide price incentives, well, then you’re going to get people coming up with all kinds of reasons why you can’t do things. And if you say we have a federal-backed project that is going to build a green energy facility here, and we are going to bring the full political weight of the President of the United States on you to make sure that you don’t stop it from happening, that may be more likely to get things done.
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EZRA KLEIN: One of the things I’ve been kind of tracking in this area is sort of the difficulties of building things in the real world. And I wrote this piece on slowing construction productivity that you had, I thought, an interesting response to. Do you want to talk a bit about how you understand the construction, productivity puzzle or state of play, and some of the arguments you’re making there?[2]
PAUL KRUGMAN: OK. Now, construction really is strikingly inefficient in the United States. So even leaving aside the question of whether it’s really true that we’ve had no productivity increase for half a century, which I don’t think is fully plausible, even though that’s what the numbers say, we do know that from place of things that we can measure — we know that it’s immensely slower and more expensive to, say, construct a mile of mass transit in the United States.
So we have a real problem we have somehow created in the land that’s supposed to be the land of the free market. We’ve created a situation where building stuff has many, many obstacles, and it’s amazingly easy for really quite narrow self-interest groups to block it. And addressing that is really, really important.
There’s a danger — I was just struck, because I happen to remember the productivity debates in the ’70s, when productivity growth slowed down abruptly, more or less, as we began having significant safety and environmental regulation. And there, it was important to note that, actually, we got a lot, in terms of reduced workplace injuries and improved environment out of those regulations, even if they weren’t perfect.
But just clearly, a lot of — you don’t have to be a complete “regulation is bad” guy to think that we have problems of regulations. On the other hand, you don’t have to be a complete “regulation is always a mistake” person — to take the opposite position.
Clearly, we have a construction problem in America, in a way I very much doubt that it is really the case that we’ve made no productivity gains at all in construction. It just kind of defies perceptions. And if you — to some extent, if the data are telling you something that really conflicts with what you think you see with your naked eye, you might really want to ask about the data, but clearly, we do have a problem. and that should be the issue.
EZRA KLEIN: One of the really interesting conversations I had in that piece was with this guy, Ed Zarenski, who has been in — was in construction for almost 40 years. Now, he’s a sort of consultant and analyst. Here’s an estimate. He’s worked on a lot of job sites.
And he was saying, sort of to the point you’re making, that when he started in the ’70s, the safety regulations on the job site were almost unnoticeable. And now, they’re quite profound. And that’s a place where, I think, if it slows things down, it’s probably very much for the good.
On the other hand, it’s pushed me back — and I’d be curious how you think about him, because he’s such an important figure in your field — it puts me back to thinking about this book by Mancur Olson on “The Rise and Decline of Nations,” which I don’t think is a book that’s correct in every respect, and I think that it spends way too much time assuming everybody’s selfishly trying to get their piece of the pie and get money for themselves.
But a lot of our growth as a country in recent decades has been in places where you don’t have to ask them any permissions before doing something. I mean, sometimes worryingly so — finance, the internet. And when you get into areas where you are dealing with a lot of different stakeholders in any one project — construction is, I think, a really good example of that. I mean, to build something, you’ve got neighbors, you’ve got emergency access vehicles, you’ve got safety regulators, you’ve got people who don’t like the noise, you’ve got a million players.
And sort of, I think, the Mancur Olson take on a lot of things, for us, but also in maybe other advanced nations, is that as countries get really stable and really rich, they develop all these different groups who, for reasons that are sometimes really good and sometimes bad, are able to have their say and just everything slows down. And I think his view is almost as irreversible without some kind of crisis, which I don’t think is my view, but I’m curious how you take his work.
Because he’s in your field. It’s just somebody I’ve been enjoying reading.
PAUL KRUGMAN: Olson’s book — they’re actually — the biggest single insight from [Mancur Olson's] book is that political action in general, it’s a public good. That there — where people can free-ride on other people. So you can have bad outcomes, because even though some policy choices are very much against the interest of the general public, no one person has much of an incentive to organize against it.
And on the other hand, there may be some quite small interest group that dominates back in the days, when it used to be the kind of thing I worried about. We used to talk about — the U.S. had sugar import quotas that raised the cost of food for everybody. Sugar was two or three times as expensive in the United States, as it was on the world market.
But nobody knew that. Because sugar is an all-pervasive ingredient, and you never see it. On the other hand, there were really a handful of sugar cane growers in the United States, and they were the ones who had the lobbying power. So that was a powerful insight, and the idea that it can be a restraint on growth — I think — also may have been just too cosmic. He kind of — it was kind of generic and lacking in specifics.
But as it happens, the whole housing construction area is one where you can really see that happening. If we ask, where in America do workers seem to be most productive, where do we seem to — do people seem to produce the most, where workers are most needed?
And they tend to be in the Bay Area. They tend to be in New York. They tend not always, but by and large, the most productive places are places where you have a big concentration of technology and knowledge, which also, for the most part are places that make it almost impossible to build housing, so that people who should be productively employed in those places end up moving someplace else, being less productive, because they can’t afford a house.
And when you try to put numbers, to what that costs people have done that, and they’re quite large with the U.S. is probably I mean I’ve seen numbers as high as — poorer than it would be if we didn’t have this basically NIMBYism, if we didn’t prevent housing construction in places where there’s actually really strong demand for workers.
EZRA KLEIN: A lot of the work that you won the Nobel for is in trade economics. And we’ve had, I think, a pretty big shift in the politics around trade, and not just where Republicans are on it, but where Democrats are. There is on-and-off talk of decoupling with China.
Certainly, I think, a sense that China policy over the last few decades was too liberal and too optimistic — how would you say attitudes towards trade in economics and in politics have changed? And are you comfortable with the changes?
PAUL KRUGMAN: I’m never comfortable with anything. [LAUGHS]
But look, we have an economic theory, which says, free trade, is by and large, good. And it’s a good theory, and it’s very insightful. We tend to make too much of it. Economists tend to celebrate free trade more than their own models say they should.
Because it’s an insight that economists have, that the general public does not. And so we make a big deal out of it, more so, that the inefficiencies caused by protectionism get far more attention than the inefficiencies caused by dysfunctional health care policy, and yet, health care policy is a much, much bigger source of inefficiency in the economy than protectionism is. So in some sense we’re kind of coming off the high of being all hyped on the virtues of trade.
We also had a political theory, which was that commerce, bread, peace — that particular, as with the breakup of the communist world, there was a lot of hope that integrating former communist countries into the world economy would push them towards becoming democratic good citizens of the world — [GERMAN] as the Germans would say.
And what’s happened now is that we have had some rude awakenings. We’ve learned that countries can become deeply integrated in the world economy and get a lot richer and still remain authoritarian and not bring in Western values along with Western technology. And especially between China’s backsliding, China is becoming more authoritarian over time.
And now, it turns out that the era of aggressive wars of conquest isn’t over either. I think a lot of people are willing to say, look, there’s still a lot to be said for global commerce, but defending the openness of world markets has moved down several rungs on our list of priorities.
EZRA KLEIN: We seem to be in an era of pretty intense weaponization of economic policy. You think about — the sanctions regime that we’ve encircled Russia with. You think of, not just the train stuff that Trump is doing with China, which Joe Biden is mostly kept, but Biden’s escalation into trying to lock them out of some advanced semiconductor, trade and materials and manufacturing and a sort of clear view that we should try to slow the technological progress on certain frontiers.
How has that read to you? Do you think — do you think these are good moves, and they make sense, given the geopolitical context? Do you think that they are, sort of, Washington falling into a new Cold War mentality, that isn’t for the best. How has that all set with you?
Paul Krugman: So the stuff that Biden is doing is very serious. We are explicitly trying to hobble the technological development of a rival power. That is very, very serious stuff. That is something I don't think we've seen -- it is the Cold War -- is going back to trying to prevent technology transfer to the Soviet bloc.
And I think it makes sense, unfortunately. The dangers are real. Actually, a funny story — so I spent a year in the US government in the Reagan administration, which is hard to believe, in ’82, ’83. But now, it’s a political staff level.
The guy behind the table passing up notes to his principal. And I sat in on a debate, cabinet-level debate, about what can we do to stop the Europeans from building gas pipelines to Russia. Because that’s the U.S. view — was that would be dangerous. It would create strategic vulnerability. And basically, the answer — we couldn’t figure out a way to stop them from doing it.
But you know what? People who were worried about that were right. In the end, it turns out that becoming dependent on Russian gas was a genuine security risk to Western Europe. It took a long time for that particular bomb to go off, but it turns out to be real.
So we now know that these national security concerns are real. We know that the age of aggressive governments authoritarian regimes that pose a threat to the world order is not over. So yeah, it’s tough stuff, it makes me very nervous, but I don’t think we can go back to the kind of innocence that a lot of people had as late as the Obama years.
EZRA KLEIN: I think you go back in time a year, 18 months, there is a sense of China as being this inevitably rising power. They have a zero-Covid policy. Their economy is weathering lockdown pretty well. They have all this manufacturing prowess that, increasingly, everybody else is jealous of.
It feels like they are rising, and we’re fading. And a lot of that seems to have reversed, in a pretty compressed period of time, and you’ve written a few things about the aura of China’s inevitability shattering. Tell me about how your assessments of China’s arc have changed.
PAUL KRUGMAN: OK, I mean, the fundamental fact about China is that they are, obviously — they’re human beings, with all of the usual human capacities, and have, in fact, shown a lot of flair for entrepreneurship, for industrial development. And the rise of the Chinese economy is one of the great economic miracles of history, and there are a lot of Chinese, so they don’t have to be as good at anything as the West to become the world’s biggest power. So that was kind of the case for China.
But at this point, it turns out that authoritarian governments can move very effectively, but they can also make very big mistakes. Because nobody can tell the leader that he’s getting it wrong. It turns out that there are a fair number of indications that China is falling into what some economists call the middle-income trap — that you can develop very rapidly, up to a point, but getting beyond that point is not that easy — that the full transition to becoming a complete first-world economy is something that only a handful of countries have actually managed.
And it’s starting to look like China may not be one of them.
And of course, although there are a lot of Chinese there, the working-age population has been declining. So the inevitability of Chinese dominance — well, it doesn’t look very inevitable anymore. It’s way too early to know. But it is starting to have a feel that this is a little bit like Japan, early ’90s, when everybody knew that Japan was going to take over the world. And they didn’t.
And so China’s much bigger than Japan, but it also has never actually achieved anything like Japanese levels of productivity. So maybe not.
EZRA KLEIN: Do you at this point think of A.I. as being a potential, significant economic shock for good or for ill? Or do you think that people are missing something about how it’ll interact with the economy?
PAUL KRUGMAN: No, I think that’s quite possibly a significant economic shock. There’s a lot of white-collar employment — involves things that could plausibly be taken over by — we’re all calling it A.I. It’s not entirely clear that it really is well, we can argue definitions.
But certainly, the kinds of things that we’re now seeing — and this has been happening, by the way, for a while. It’s been lower key, but we’ve been seeing a lot of creeping mechanization of things that used to think only human beings could do. And now, it’s really accelerating.
And it’s highly visible, and it could possibly displace quite a lot of jobs. It’s funny, when I see people who are worried about this, described as Luddites, the Luddites were actually mostly skilled workers. They were weavers, who suddenly found their skills devalued by the development of the power loom. And they weren’t wrong to feel that machinery was hurting them, and it’s not hard to imagine that this could happen to a lot of people. On the other hand, if you’ve been in this economics business for a long time. There have been multiple times when people made predictions that everything is about to change. It hasn’t happened. So I think you just have to reserve judgment on this one.
EZRA KLEIN: The thing that brings up for me is, this seems like a real moment where the technology is moving very fast. And the policy conversation — if there is any at all — is very slow. And you obviously want to be careful about trying to think about policy for technologies that we still don’t really understand.
But if you were thinking about areas of policy to think about, in a world where maybe the next 10, 15 years are really, really disruptive, from this perspective, what kinds of things would you think about?
PAUL KRUGMAN: Well, I wish I was more creative on these things. When I try to think about how do we deal with rapid change, being a pretty boring, kind of a conventional Social Democrat, who says, look, change happens. You can’t preserve jobs that technology no longer considers necessary. You can’t stop progress. But you can try to cushion people from some of the worst effects. There’s Social Democratic agenda of strong insurance that makes sure that people aren’t impoverished or without health care, if a machine happens to take their job. That does a lot.
It doesn’t do everything; it doesn’t restore dignity if your identity if your sense of self is bound up with being in the past. We had people who were proud of being coal miners, and then suddenly, technology said, we don’t actually really need coal miners anymore, because we just blow the tops off mountains. You can give those people health care and give them food stamps. You can’t give them the life they had before.
Now, it may be claims adjusters who are suddenly find that what they were doing is no longer necessary, and I don’t have great ideas there. I don’t think that the — we try and try retraining. But that has never actually been hugely successful as a way of coping with economic change.
Probably just need to try a bunch of stuff, hope that some of it works, but mostly, what we can do is we can at least limit the amount of misery.
EZRA KLEIN: I guess a good place to end. So as our final question, what are the three books you’d recommend to the audience?
PAUL KRUGMAN: OK, so first off, Brad DeLong[3], my friend, an economist and historian, has this wonderful book called “Slouching Towards Utopia,”[4] which is a history of what he calls the long 20th century. And if you just want to understand how the world changed from — he says that 1870 was the pivot point of history — you’ve got to read that book.
I have recently reread “How the War Was Won”[5] by Phillips O’Brien[6], who’s a military historian. And it’s a book about World War II, but he’s become a prolific commentator on the war in Ukraine, and it’s mostly — it’s this wonderfully unromantic, anti-glory view of war. It’s all about, look, it’s really about — modern war is about production and logistics. The opening sentence is, I think, “There were no decisive battles of World War II.” And it opened my eyes to thinking about how both about that history and about how to think about what’s happening in Ukraine now.
I just read a fantasy novel by Leigh Bardugo called “Ninth House,” which is set at Yale. So I was a Yale undergraduate. And if you know Yale, there are these secret societies that people of a certain type get — you can’t apply, you just get tapped for them and then become a lifelong member of Skull and Bones or whatever.
I was never, obviously, going to be tapped for that. I was the nerd, the nerd universe at Yale. But the conceit of the book is that the secret societies are, in fact, evil places that carry out dark satanic rituals, and it was just so much fun to have my college re-represented as a place of dark and terrible secrets.
EZRA KLEIN: I love it. Paul Krugman, thank you very much.
PAUL KRUGMAN: Take care.