00:00:00
I would ask, what on earth do you think
you're doing?
00:00:03
You know, it's this
we're looking at a U.S.
00:00:06
economy that, you know, this morning's
jobs report was really good.
00:00:10
Everything is kind of coming up roses.
It's soft landing everywhere.
00:00:15
And yet he's preparing or claims he's
preparing to go on this
00:00:20
trade war against everybody.
And the question really is why?
00:00:25
What is it?
Why why do you want to do something so
00:00:29
disruptive when you're inheriting an
economy that is really looking pretty
00:00:33
good?
I'm looking Paul Krugman, it's something
00:00:36
you taught with a piece of chalk at
Princeton and at City College.
00:00:41
The basic idea here is a tariff chart,
which is the microeconomics and
00:00:46
dynamics.
We talked to Richard Claire to the other
00:00:48
day about the dead weight loss of
tariffs.
00:00:51
For our listeners, the magnitude of
tariffs, does it matter or is this just
00:00:57
simply a dead weight loss to each
American citizen?
00:01:01
Oh, no.
The magnitude I mean, one of the things
00:01:04
that you learn
from
00:01:09
studying the economics of tariffs is
that tariffs at low rates do very, very
00:01:14
little harm.
You know, we had an average tariff of
00:01:18
something like 2 to 3%.
We do at the moment coming into this.
00:01:23
Right, that if you ask, you know, how
much difference would it make if we got
00:01:27
that down to zero, the answer is
basically invisible.
00:01:30
But if you go from 5% to 25%, which is
what Trump's talking about for everybody
00:01:38
and 60% for for China, then it's, you
know, roughly speaking, we think that
00:01:45
the losses are are go up roughly as the
square of the tariff rate.
00:01:50
So with Trump talking not about a modest
increase in tariffs, not about tariffs
00:01:56
on a few products, but across the board
trade war,
00:02:00
Smoot-Hawley tariff levels, that starts
to become a really, really big deal.
00:02:05
Paul I've been in focus.
The textbook on this is Krugman
00:02:08
OBSTFELD.
It's all there.
00:02:09
You throw Ken Rogoff in as well.
But Krugman also, there's some adult
00:02:13
textbooks out there of what Krugman
invented for international economics.
00:02:18
Paul I've always defended you by saying
the Venn diagram of Krugman economics
00:02:22
and John Taylor economics at Stanford is
pretty, pretty tight.
00:02:27
Can Kevin Hassett advise this president
towards some form of tariff moderation
00:02:34
or sanity?
Kevin Hassett has a history of basically
00:02:41
saying whatever.
I mean, it is he's he's been a loyalist.
00:02:46
And of course, here I would be really
shocked if he goes to you know, Congress
00:02:52
appears to be a real Trump obsession.
And
00:02:56
I'd be shocked if Hassett
or actually anybody
00:03:02
stood up to Trump has said, Mr.
President, you're thinking about this
00:03:05
all wrong.
Uh, you I, I've been running.
00:03:08
I think I for for listeners, I'm retired
from the Times, but not from life.
00:03:14
And I'm I'm writing almost every day on
my substack.
00:03:17
How do we go?
Oh, your Substack He needs to make a
00:03:20
buck on this.
That's what it is, Paul.
00:03:22
Well, it's true at the moment.
How do they still see your writing as
00:03:26
you've exited the times?
Paul Krugman That substack that dot.com.
00:03:30
There you go.
I'll just Google Krugman substack and
00:03:32
you'll find it.
And look, you know, I'm free to it.
00:03:35
It's a newsletter slash blog.
I know.
00:03:38
And I'm in.
And what I wrote the other day was we're
00:03:41
seeing a continual dynamic where people
who claim to be close to Trump but
00:03:46
remain anonymous tell news.
You know, source these paper writers,
00:03:51
hey, he's not really as crazy as he
sounds.
00:03:54
And then Trump immediately reacts with a
truth social post saying, Yes, I am.
00:03:59
So it does look like we're really
talking about
00:04:03
it.
Tariffs on a scale that we really have
00:04:05
not seen.
We're talking about a reversal of really
00:04:09
90 years of U.S.
policy, of trying to where I want it to
00:04:13
go.
Professor, I mean, you know, I grew up
00:04:15
on Global Wall Street where and many of
our listeners and viewers as well of
00:04:20
internationalism being a fundamental
business tenant.
00:04:24
Now, that's taken a backseat here over
the last ten years.
00:04:27
Is internationalism dead?
Well, probably in the form it was, yeah.
00:04:32
I mean, a lot of this was
us in Germany, and we thought that a
00:04:37
more prosperous, peaceful world was in
our interest.
00:04:43
You know, what was good for the world,
was good for America.
00:04:45
And we thought that freer trade was good
for America.
00:04:48
And we led the way.
We built a world trading system kind of
00:04:54
in us, in our own image.
It's very rules bound, legalistic.
00:05:01
It's, you know it.
And it worked.
00:05:04
Well, we've managed to get everybody's
tariffs down.
00:05:06
We've got to a world of pretty close to
free trade.
00:05:10
We've been in the last couple of decades
the European Union, which is not very
00:05:16
united on many things, but is unified on
trade policy.
00:05:19
Sort of co-manage the system with us.
Now we've gotten much more nationalistic
00:05:24
and even Biden was pursuing for, I
think, pretty good reasons, some pretty
00:05:30
seriously nationalistic policies,
specifically on technology and China.
00:05:36
But so the age of full on more globalism
is good.
00:05:42
That's behind us.
That was that that really died about a
00:05:45
decade ago.
But there's a big difference between
00:05:48
saying, okay,
we're going to be much more selective
00:05:51
about this and maybe even be
protectionist here and there and saying,
00:05:57
you know, Smoot-Hawley had the right
idea, which is basically what Trump is
00:06:00
saying.
Right.
00:06:01
So, Professor, you know, we had today's
a big jobs day here on a global Wall
00:06:05
Street, showing, again, the strength of
the U.S.
00:06:07
labor market that calls into question
another one of the president elect's
00:06:11
policies, which is about immigration and
what to do with the migrants that are
00:06:15
already here.
From an economic perspective, what would
00:06:19
your how would you advise the president
on thinking about immigration policy?
00:06:24
I mean, immigration has been one of the
great strengths of the US economy.
00:06:28
Whatever else you may think about it.
And I mean, I you know, it's not
00:06:34
actually a source of crime or any of the
things that he says, but the immigration
00:06:39
has been a tremendous safety valve.
It's helped to contain inflation.
00:06:44
And the, you know, immigrants,
particularly, if I might say,
00:06:50
undocumented immigrants, they're not
evenly spread across the US economy.
00:06:54
They're a really critical part of the
labor force in some particular sectors.
00:07:01
If you want if you're worried about
agriculture or meatpacking or
00:07:05
construction, those are all sectors
where, you know, we have an aging.
00:07:10
The native born population is aging.
The working age, native born population
00:07:15
is shrinking because we've had low
fertility for a really long time.
00:07:19
So that, you know, without immigration,
we would be basically we would be Japan.
00:07:23
And so from an economic point of view,
this is a hugely this is a tremendous
00:07:29
cell phone.
Paul Krugman, we're this we are thrilled
00:07:32
that he's with us here.
See you in my kidney stone center and
00:07:36
socio economic inequality, among others,
and and affiliated also with the LLC, I
00:07:42
should say.
And of course, years at Princeton as
00:07:45
well.
I talked to him about his first paper
00:07:48
once at Yale, which was on Star Trek.
This is a few years ago.
00:07:51
That right?
Yeah, just after Ricardo.
00:07:53
But the answer is a laureate.
Paul Krugman with this.
00:07:56
Thank you for the huge response to
Professor Krugman with us this morning.
00:08:00
Paul, I've said this before, but I guess
there can be a tour of duty when you win
00:08:05
a second Nobel Prize.
You deserve a second Nobel Prize for
00:08:10
your persistent discussion of wages and
monopsony in America, folks.
00:08:16
Monopsony, The model is a rubber
plantation in Malaysia, where the rubber
00:08:22
plantation sets the price because they
have power over all the farmers and the
00:08:28
rubber trees in the manufacturing
process.
00:08:31
Professor Krugman, how is monopsony in
America affecting our listeners and our
00:08:38
viewers on YouTube?
Oh, gosh.
00:08:41
I mean,
in a way, what it's telling me that the
00:08:45
main monopsony issue on wages is,
is that it's okay to raise the minimum
00:08:54
wage.
I mean, this is the this is where we
00:08:57
really started to take it seriously.
When you first had to work by Card and
00:09:00
Krueger now replicated by many people,
which says that local minimum wage
00:09:05
increases don't actually reduce
employment.
00:09:09
You they it's
econ one on one unless you.
00:09:13
Well, I have to say that even even in my
own textbook, we we do talk through how
00:09:18
a minimum wage can reduce employment,
but it doesn't actually seem to happen
00:09:23
in the United States.
Now that's because minimum wages are low
00:09:26
in the United States.
And, you know, if you set the minimum
00:09:29
wage at $40 an hour, even, I would
accept that that would have some
00:09:33
employment consequences.
But.
00:09:35
So that's the main place where it hurts.
Although if you are, you know, a small,
00:09:42
small supplier or something trying to
peddle your stuff on Amazon, the fact
00:09:49
that you've got a giant business size
monopsony, this certainly affects your
00:09:55
business.
I mean, it's very interesting.
00:09:57
See Paul Krugman and the conservatives
listening.
00:10:01
I'm going to frame this.
Paul is a liberality in a way is a
00:10:05
lockean individualism of conservative
theory in America.
00:10:11
Should we be more like Germany flat on
their back?
00:10:14
Should we be more like Sweden?
Should we be more like France?
00:10:19
Well, I mean, ideally we should be more
like Denmark, which is a place that does
00:10:25
strong welfare state, strong unions, and
does it well.
00:10:30
It's you know, everybody's got one of
the things I
00:10:34
I've spent many years teaching, of
course, first at Princeton, then at
00:10:39
then at uni on the economics of the
welfare state, comparing different
00:10:43
countries.
And one of the things you learn, you
00:10:46
know, first of all, the United States
has a much more we have a much bigger
00:10:49
welfare state than we like to imagine,
but it's much smaller than what European
00:10:52
countries have.
But it's there's no country that does
00:10:55
everything right.
US health care is a nightmare.
00:11:00
US retirement system is actually pretty
good.
00:11:02
France is exactly the opposite.
So it's not it's not as simple.
00:11:08
More government is good.
I think their conservatives always think
00:11:11
that less government is good.
Liberals.
00:11:14
Progressives never think that more
government is automatically good.
00:11:17
But there are certainly things where we
should be doing more.
00:11:21
And obviously that's on hold for the
next few years.
00:11:23
But but there are lots we can learn a
lot from other countries.
00:11:28
So that's one thing I would say to you
as an international economist.
00:11:33
The biggest problem with Americans is
that we don't actually seem to believe
00:11:37
the rest of the world exists, and we
don't think that we can learn lessons
00:11:40
from things that other countries do.
Right, Professor?
00:11:44
Most of the market participants that we
speak to particular over the last
00:11:47
several months, and they see a data
point like today's nonfarm payrolls and
00:11:50
they feel like the Fed has engineered a
pretty solid soft landing.
00:11:54
What concerns you, what worries you
about this U.S.
00:11:58
economy right here?
I think the US economy as of right now
00:12:03
is in very good shape.
Okay.
00:12:05
I am worried.
You know, I've been around a while and
00:12:10
the whole a
future and all of the money being thrown
00:12:16
at that technology gives me definite
1999 vibes.
00:12:23
The sense that we may be heading even
even if there's even if the technology
00:12:28
does do a lot of good stuff and there
are some indications that it will, the
00:12:32
valuations look awfully high.
And you can very easily imagine a kind
00:12:36
of like 2000, 2001 type rule.
But the biggest concerns are policy.
00:12:43
I mean, if you actually believe that
Trump is going to do what he promised in
00:12:47
the campaign with these massive tariffs,
mass deportations, and let's not forget
00:12:54
it, taking away a lot of the Federal
Reserve's independence,
00:12:58
we are it's not at all hard to see us
gratuitously.
00:13:03
I mean, we're we're in good shape right
now, but we could very easily have a
00:13:06
gratuitous outbreak of stagflation of
America.
00:13:10
And it will be entirely coming top down
from from the from the White House.
00:13:14
Very quickly here, Professor Krugman.
Paul, we got to do this or Krugman won't
00:13:18
come back to Substack this morning.
The real threat, the real threat of fake
00:13:23
numbers.
Paul Krugman, are you suggesting the
00:13:26
president and his administration will
cook the books?
00:13:30
I think that's a very high possibility.
If you believe what I'm saying about
00:13:33
inflation, inflation is actually going
to go up substantially.
00:13:37
And do you really imagine that Trump
will just sit?
00:13:40
And not say these are fake numbers, it's
fake news, and put pressure on the
00:13:46
Bureau of Labor Statistics to produce
better numbers than we've seen populist
00:13:50
regimes do that all over the world.
Why?
00:13:53
Imagine that it won't happen here.
And I know that people you know, people
00:13:57
who've had long careers at the Bureau of
Labor Statistics are really worried
00:14:00
about this.
So I was just saying you flagged this.
00:14:03
This is something to watch.
