The following is a conversation with Paul Krugman, Nobel Prize winner in economics,

Professor Cuny, and columnist at the New York Times. His academic work centers around international

economics, economic geography, liquidity traps, and currency crises. But he also is an outspoken

writer and commentator on the intersection of modern day politics and economics, which places him

in the middle of the tense, divisive, modern day political discourse. If you have clicked dislike

on this video and started writing a comment of derision before listening to the conversation,

I humbly ask that you please unsubscribe from this channel and from this podcast,

not because you're a conservative, a libertarian, a liberal, a socialist, and anarchist,

but because you're not open to new ideas, at least in this case, especially at its most difficult,

from people with whom you largely disagree. I do my best to stay away from politics of the day,

because political discourse is filled with a degree of emotion and self assured certainty

that to me is not conducive to exploring questions that nobody knows the definitive right answer to.

The role of government, the impact of automation, the regulation of tech, the medical system,

guns, war, trade, foreign policy are not easy topics and have no clear answers, despite the

certainty of the so called experts, the pundits, the trolls, the media personalities, and the

conspiracy theorists. Please listen, empathize, and allow yourself to explore ideas with curiosity

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abstracts away all the details of the underlying algorithm. And now, here's my conversation with

Paul Krugman. What does a perfect world, a utopia, from an economics perspective look like?

Wow, I don't really, I don't believe in perfection. I mean, somebody once said

that his ideal was slightly imaginary Sweden. I mean, I like an economy that has a really high

safety net for people, good environmental regulation, and something that's kind of like

some of the better run countries in the world, but with fixing all of the smaller things that

are wrong with them. What about wealth distribution? Well, obviously, you know, total equality is

neither possible nor, I think, especially desirable. But I think you want one where,

basically one where nobody is hurting and where everybody lives in the same material universe.

Everybody is basically living in the same society. So I think it's a bad thing to have people who

are so wealthy that they're really not in the same world as the rest of us. What about competition?

Do you see the value of competition and what maybe its limits? Oh, competition is great when it

can work. I mean, there's a, I remember, I'm old enough to remember when there was only one phone

company and there was really limited choice. And I think the arrival of multiple phone carriers

and all that has actually been a really good thing. And that's true across many areas. But

not every industry is, not every activity is suitable for competition. So there are some things

like healthcare where competition actually doesn't work. And so it's not one size fits all.

That's interesting. Why does competition not work in healthcare?

Oh, there's a long list. I mean, there's a famous paper by Kenneth Arrow from 1963,

which still holds up very well, where he kind of runs down the list of things you need for

competition to work well, basically both sides to every transaction being well informed,

having the ability to make intelligent decisions, understanding what's going on,

and healthcare fails on every dimension that you did.

Healthcare, so not health insurance, healthcare.

Well, both healthcare and health insurance, health insurance being part of it. But no,

health insurance is really the idea that there's effective competition between health insurers

is wrong in healthcare. I mean, the idea that you can comparison shop for major surgery is just,

to when people say things like that, do you wonder, are you living in the same world I'm

living in? You know, the piece of well informed, that was always an interesting piece for me,

just observing as an outsider, because so much beautiful, such a beautiful world as possible

when everybody's well informed. My question for you is, how hard is it to be well informed about

anything, whether it's healthcare or any kind of purchasing decisions or just life in general

in this world? Oh, information, you know, it varies hugely. I mean, there's more information

at your fingertips than ever before in history. The trouble is, first of all, that some of that

information isn't true. So it's really hard. And then some of it is just too hard to understand.

So if I'm buying a car, I can actually probably do a pretty good job of looking up, you know,

going to consumer reports, reviews, you can get a pretty good idea of what you're getting when

you get a car. If I'm going in for surgery, first of all, you know, fairly often it happens when

without you're able being able to plan it. But also, there's a re medical school takes many,

many years and going on the internet for some advice is not usually a very good substitute.

So speaking about news and not being able to trust certain sources of information,

how much disagreement is there about, I mentioned utopia perfection in the beginning, but how much

disagreement is there about what utopia looks like? Or is most of the disagreement simply about

the path to get there? Oh, I think there's two levels of disagreement. One, maybe not utopia,

but justice. You know, what is a just society? And that's, there are different views. I mean,

I teach my students that there are, you know, broadly speaking, two views of justice. One,

it focuses on outcomes. You ask, it's a just society is the one you would choose if you were

trying to, what the one that you would choose to live in, if you didn't know who you were going to

be, that's kind of John Rawls. And the other focuses on process that justice society is one in

which there is no coercion, except we're absolutely necessary. And there's no,

there's no objective way to choose between those. I'm pretty much a Rawlsian. And I think many

people are. But anyway, there's, so there's a legitimate dispute about what we mean by a

just society anyway. But then there's also a lot of disputes about what actually works.

There's a range of legitimate dispute. I mean, any card carrying economist will say that incentives

matter. But how much do they matter? How much does a higher tax rate actually deter people from

working? How much does a stronger safety net actually lead people to get lazy? I have a

pretty strong view that the evidence points to conclusions that are considerably to the left

of where most of our politicians are. But there is legitimate room for disagreement on those things.

So you've mentioned outcomes. What are some metrics you think about that you keep in mind,

like the genie coefficient, but really anything that measures how good we're doing,

whatever we're trying to do, what are the metrics you keep an eye on?

Well, I'm actually, I'm not a fan of the genie coefficient, not because it's anything.

What is the genie coefficient? Yeah, the genie coefficient is a measure of inequality.

And it is commonly used because it's a single number. It usually tracks with other measures,

but the trouble is there's no sort of natural interpretation of it. You ask me what,

what does a society with a genie of 0.45 look like as opposed to a society with a genie of 0.25?

And I can kind of tell you, you know, 0.25 is Denmark and 0.45 is Brazil, but it's,

that's a really, there's no sort of easy way to do that mapping. I mean, I look at things like,

what is, first of all, things like what is the income of the median family?

What is the income of the top 1%? How many people are in poverty by various measures of poverty?

And then I think you want to look at questions like,

how healthy are people? How was life expectancy doing? And how satisfied are people with their

lives? Because there is, that sounds like a squishy number, not so much happiness,

it turns out that life satisfaction is a better measure than happiness.

But life satisfaction, that varies quite a lot. And I think it's meaningful if not

too rigorous to say, look, according to that kind of, according to polling, people in Denmark are

pretty satisfied with their lives and people in the United States, not so much so.

And of course, Sweden wins every time. No, actually, Denmark wins these days.

Denmark and Norway tend to win these days. Sweden doesn't do badly, but

none of these are perfect. But look, I think by and large,

there's a bit of a pornography test. How do you know a decent society? Well,

you kind of know it when you see it. Right. Where does America stand on that?

Our society, there are a lot of virtues to America, but there's a level of harshness,

brutality, an ability for somebody who just has bad luck to fall off the edge that is really,

shouldn't be happening in a country as rich as ours. So we have somehow managed to produce a

crueler society than almost any other wealthy country for no good reason.

What do you think is lacking in the safety net that the United States provides? You said

there's a harshness to it. And what are the benefits and maybe limits of a safety net in a

country like ours? Well, every other advanced country has some universal guarantee of adequate

health care. The United States is the only place where citizens can actually fail to get basic

health care because they can't afford it. It's not hard to do. Everybody else does it,

but we don't. We've gotten a little bit better at it than we were, but still, that's a big deal.

We have remarkably weak support for children. Most countries have substantial safety.

Parents of young children get much more support elsewhere. They get often nothing in the U.S.

U.S. We have limited care for people, long term care for the elderly is a very hit and

miss thing. But I think that the really big issues are that we don't take care of children

who make the mistake of having the wrong parents and we don't take care of people who make the

mistake of getting sick. And those are things that a rich country should be doing. Sorry for

sort of a difficult question, but you just said kind of feels like the right thing to do in terms

of a just society. But is it also good for the economic health of a society to take care of

the people who are the unfortunate members of society?

By and large, it looks like the doing the right thing in terms of justice is also the

right thing in terms of economics. If we're talking about a society that has extremely high

tax rates that deter, you know, remove all incentives to provide a safety net that is so

generous that why bother working or striving, that could be a problem. But I don't actually

know any society that looks like that even even in European countries with very generous safety

nets people work and then innovate and do all of these things. And there's a lot of evidence now

that lacking those basics is actually destructive that children who grow up without adequate health

care without adequate nutrition are developmentally challenged. They don't live up to their potential

as adults. So the United States actually probably pays a price. We're harsh, we're cruel, and we

actually make ourselves poorer as a society, not just the individuals by being so harsh and cruel.

Okay, so invisible hand, Smith, where does that fit in? The power of just people acting selfishly

and somehow everything taking care of itself to where, you know, the economy grows, nobody,

there's no cruelty, no injustice that the markets regulate themselves. What is their

power to that idea and what are its limits? There's a lot of power to that. I mean, there's a

reason why I don't think sensible people want the government running steel mills or they want the

government to own the farms, right? The markets are a pretty effective way of getting incentives

aligned of inducing people to do stuff that works and the invisible hand is saying that, you know,

people, farmers aren't growing crops because they want to feed people, they're growing crops because

they can make money by it, but it actually turns out to be a pretty good way of getting

agricultural products grown. So the invisible hand is an important part, but there's nothing

mystical about it. It's a mechanism, it's a way to organize economic activity, which works well,

given a bunch of preconditions, which means that it actually works well for agriculture,

it works well for manufacturing, it works well for many services, it doesn't work well for healthcare,

it doesn't work well for education. So there are, you know, we, having a society which is kind of

three quarters invisible hand and one quarter visible hand seems to be something, something on

that order seems to be the balance that works best. It's just don't want to, you don't want to

romanticize or make something mystical out of it. It's just, this is one way to organize stuff that

happens to have broad but not universal application. So then forgive me for romanticizing it, but it

does seem pretty magical that, you know, I kind of have an intuitive understanding of what happens

when you have like five, 10, maybe even a hundred people together, the dynamics of that. But the

fact that these large society of people for the most part acting in a self interested way, and

maybe electing representatives for themselves, that it all kind of seems to work, it's pretty

magical. The fact that there's, you know, that right now there's a wide assortment of fresh

fruit and vegetables in the local markets up and down the street. You know, who's planning that?

And the answer is nobody. That's the invisible hand at work and that's great. And that's a lesson

that Adam Smith figured out more than 200 years ago. And it continues to apply. But, you know,

even Adam Smith has a section in his book about why it's important to regulate banks. So the

invisible hand has its limits. Yeah. And that example is actually a powerful one in terms of

the supermarket of fruit. That was my experience coming from Russia, from the Soviet Union is when

I first entered the supermarket and just seeing the assortment of fruit, bananas. So I don't think

I've seen bananas before, first of all, but just the selection of fresh fruit was just mind blowing

and it's beyond words. And the fact that, like you said, I don't know what made that happen.

Well, there is some magic to the market. But as showing my age, but you know, the old movie

quote, sometimes the magic works and sometimes it doesn't. And you have to have some idea of when

it doesn't. So how do you get regulation, right? What can government at its best do? Government

strangely enough, in this country today, seems to get a bad rap. Like everyone seems to,

everybody's against the government. Yeah. Well, a lot of money has been spent on making people hate

the government. But the reality is government does some things pretty well. I mean, we,

government does health insurance pretty well. So much so. I mean, given our anti government bias,

it really is true that there are people out there saying, don't let the government get its hands

on Medicare. So government, people actually love the government health insurance program far more

than they love private health insurance. Basic education. It turns out that your local public

high school is the right place to have students trained and private for certainly for profit

education is a by and large a nightmare of ripoffs and grift and people not getting what they

thought they were paying for. It's a judgment case. And it's funny, there are things, I mean,

everybody talks, talks about the DMV as being, you know, do you want the economy? Actually,

my experience is that the DMV have always been positive. Maybe I'm just going to the right DMVs.

But in fact, a lot of government works pretty well. So it, you'd have to, to some extent,

you can do these things on a priori grounds. You can talk about the logic of why healthcare is not

going to be handled well by the market. But partly it's just experience. We tried, or at least some

countries have tried nationalizing their steel industries. That didn't go well. But we've tried

privatizing education and that didn't go well. So you find out what works.

What about this new world of tech? How do you see, what do you think works for tech? Is it more

regulation or less regulation? There are some things that need more regulation. I mean, we're

finding out that the world of social media is one in which competitive forces aren't working very

well and trusting the companies to regulate themselves isn't working very well. But I'm

on the whole, a tech skeptic, not in the sense that I think the tech doesn't work and it doesn't

do stuff. But the idea that we're living through greater technological change than ever before

is really an illusion. Ever since the beginning of the Industrial Revolution, we've had a series

of ethical shifts in the nature of work and in the kinds of jobs that are available. And it's

not at all clear that what's happening now is any bigger or faster or harder to cope with than

past shocks. It is a popular notion in today's sort of public discourse that automation is going to

have a huge impact on the job market now. Yeah, there is something, something transformational

happening now. Can you talk about that? Maybe elaborate a little bit more. Do you not see

the software revolutions happening now with machine learning, availability of data, that

kind of automation being able to sort of process, clean, find patterns in data. And you don't see

that disrupting any one sector to a point where there's a huge loss of jobs. There may be some

things. I mean, actually, translators, there's really reduced demand for translators because

we've, machine translation ain't perfect, but it ain't bad. There are some kinds of things that

are changed. But it's not, overall productivity growth has actually been slow in recent years.

It's been much slower than in some past periods. So the idea that automation is taking away all

the jobs, the counterpart would be that we would be able to produce stuff with many fewer

workers than before. And that's not happening. There are a few isolated sectors. There are some

kinds of jobs that are going away, but that keeps on happening. I mean, New York City used to have

thousands and thousands of longshoremen taking stuff off ships and putting them on ships.

They're almost all gone now. Now you have these giant cranes taking containers on and off ships

in Elizabeth, New Jersey. That's not robots. It doesn't sound high tech, but it actually

pretty much destroyed an occupation. Well, you know, it wasn't fun for the longshoremen to say

the least. But it's not, we coped, we moved on, and that sort of thing happens all the time.

You mean farmers? We used to be a nation which was mostly farmers. There are now very few farmers

left. The end reason is not that we've stopped eating. It's that farming has become so efficient

that we don't need a lot of farmers and we coped with that too. So the idea that there's something

qualitatively different about what's happening now so far isn't true.

So yeah, your intuition is there is going to be a loss of jobs, but it's just the thing that

just continues. There's nothing qualitatively different about this moment. Some jobs will

be lost, others will be created, as has always been the case so far. Maybe there's a singularity.

Maybe there's a moment when the machines get smarter than we are and SkyTech kills us all

or something. But that's not visible in anything we're seeing now.

You mentioned the metric of productivity. Could you explain that a little bit? Because

it's a really interesting one. I've heard you mentioned that before, the new connection with

automation. So what is that metric? And if there is something qualitatively different,

what should we see in that metric? Well, okay, productivity, first of all, production. We do

have a measure of the economy's total production, real GDP, which is itself, it's a little bit

of a construct because it's, quite literally, it's adding apples and oranges. So we have to add

together various things, which we basically do by using market prices, but we try to adjust for

inflation. But it's kind of, it's a reasonable measure of how much the economy is producing.

Is it goods and, sorry to interrupt, is it goods and services?

Goods and services, it's everything. Okay. Productivity is divide that total output by the

number of hours worked. So we're basically asking how much, how much stuff does the average worker

produce an hour of work? And if you're seeing really rapid technological progress, then you'd

expect to see productivity rising at a rapid clip, which we did for the generation after World War

II, productivity rose 2% a year on a sustained basis. Then it dropped down for a while. Then

there was a kind of a decade of fairly rapid growth from the mid 90s to the mid 2000s.

And then it dropped off again. And it's not, it's not impressive right now. So

you're just not seeing an ethical shift in the economy. So let me then ask you about the psychology

of blaming automation. A few months ago, you wrote in the New York Times, quote, the other day, I

found myself as I often do at a conference discussing lagging wages and soaring inequality.

There was a lot of interesting discussion, but one thing that struck me was how many of the

participants just assumed that robots are a big part of the problem, that machines are taking away

the good jobs, or even jobs in general. For the most part, this wasn't even presented as a hypothesis,

just as part of what everyone knows. Yeah. So why is, maybe can you psychoanalyze our

the public intellectuals or economists or us actually in the general public, why this is

happening? Why this assumption is just infiltrated public discourse? There's a couple of things.

One is that the particular technologies that are advancing now are ones that are a lot more

visible to the chattering class. When containerization did away with the jobs of Longshoremen, well,

not a whole lot of college professors are close friends with Longshoremen, right? So we see this

one. Then there's a second thing, which is we just went through a severe financial crisis in a

period of very high unemployment. It's finally come down. There's really no question that that

high unemployment was about macroeconomics. It was about a failure of demand. But macroeconomics

is really not intuitive. I mean, people just have a hard time wrapping their minds around it. And

among other things, people have a hard time believing that something as trivial as, well,

people who just aren't spending enough can lead to the kind of mass misery that we saw in the 1930s

or not quite so severe, but still serious misery that we saw after 2008. And there's always a

tendency to say it must be something big. It must be technological change. That means we

don't need workers anymore. There was a lot of that in the 30s. And that same thing happened

after 2008, the assumption that it has to be something, some deep cause, not something as

trivial as a failure of investor confidence and inadequate monetary and fiscal response.

And the last thing on wages, a lot of what's happened on wages is at some level political.

It's the collapse of the union movement. It's the policies that have squeezed workers bargaining

power. And for kind of obvious reasons, there are a lot of influential people who don't want to hear

that story. They want it to be an inevitable force of nature. Technology has made it impossible to

have people earn middle class wages. And they don't like the story that says actually, no,

it's kind of the political decisions that we made that have caused this income stagnation.

And so there are a receptive audience for technological determinism.

So what comes first, in your view, the economy or politics in terms of what

has an impact on the other? Oh, look, everything interacts. Actually, that's

one of the rules that was taught in economics. Everything affects everything else in at least

two ways. But I mean, clearly, the economy drives a lot of political stuff. But also,

clearly, politics has a huge impact on the economy. We look at the decline of unions

in America and say, well, the world has changed and unions don't have a role.

But two thirds of workers in Denmark are unionized. And Denmark has the same technology and faces the

same global economy that we do is just a difference in political choices that leads to that difference.

So I actually teach a course here at CUNY called Economics of the Welfare State, which is about

things like health care and retirement and, to some extent, wage policy and so on. And

the message I keep on trying to drive home is that, look, all advanced countries have got

roughly equal competence. We all have the same technology. But we make very different choices.

Not that America always makes the wrong choices. We do some things pretty well. Our retirement

system is one of the better ones. But the point is that there's a huge amount of

political choice involved in the shape of the economy.

CB – So what is a welfare state?

RL – Welfare state is the old term. But it basically refers to all the programs that are there

to mitigate, if you like, the risks and injustices of the market economy.

So in the U.S., welfare state is social security, Medicare, Medicaid, minimum wages,

food stamps. When you say welfare state, my first feeling is a negative one.

I probably generally, at least theoretically, like all the welfare programs.

CB – Well, it's been demonized. And to some extent, I'm doing a little bit of

thumbing my nose at all of that by just using the term welfare state. But everybody,

every advanced country actually has a lot of welfare state, even the U.S.

That's fundamental part of the fabric of our society. Social security, Medicare, Medicaid

are just things we take for granted as part of the scene. And so there's a lot of people on

the right wing who are saying, oh, it's all socialism. And, well, words mean what you want

them to mean. And just today, I told my class about the record that Ronald Reagan made in

1961, warning that Medicare would destroy American freedom. But it sort of didn't happen.

On the topic of welfare state, what are your thoughts on universal basic income? And that's

not a generic, but a universal safety net of this kind.

CB – There's always a tradeoff. When we talk about social safety net programs,

there's always a tradeoff between universality, which is clean, but means that you're giving a

lot of money to people who don't necessarily need it, and some kind of targeting, which makes it

easier to deal with the crucial problems with limited resources, but both has incentive problems and

kind of political, and I would say even psychological issues. So the great thing about

social security in Medicare is no questions asked. You don't have to prove that you need them.

It just comes. I'm on Medicare allegedly. I mean, it's run through my New York Times health

insurance, but I didn't have to file an application with the Medicare office to prove that I needed

it. It just happened when I turned 65. That's good for dignity, and it's also good for the

political support because everybody gets Medicare. On the other hand, and we can do that with healthcare,

to give everybody a guarantee of an income that's enough to live on comfortably, that's a lot of

money. CB – What about enough income to carry you over through difficult periods like if you lose

a job or that kind of? CB – Well, we have unemployment insurance, and I think our unemployment

insurance is too short lived and too stingy. It would be better to have a more comprehensive

unemployment insurance benefit. But the trouble with something like universal basic income is that

either the bar is set too low, so it's really not something you can live on, or it's an enormously

expensive program. And so at this point, I think that we can do far better by building on the kinds

of safety and net programs we have. I mean, food stamps, earned income tax credit, we should have

a lot more family support policies. Those things can do a lot more to really diminish the amount

of misery in this country. UBI is something that goes hand in hand with this belief that

the robots are going to take all of our jobs. And if that was really happening, then I might

reconsider my views on UPI, but I don't see that happening. CB – So are you happy with discourse

that's going on now in terms of politics? So you mentioned a few political candidates. Is the

kind of thing going on both on Twitter and debates and the media through the written

words is a spoken word. How do you assess the public discourse now in terms of politics?

UBI – We're in a fragmented world. So more so than ever before. So at this point, the public

discourse that you see if Fox News is your principal news source is very different from

the one you get if you read the New York Times. On the whole, my sense is that mainstream political

reporting, policy reporting is A, not too great, but B, better than it's ever been. Because when I

first got into the pundit business, it was just awful. Lots of things just never got covered.

And if things did get covered, it was always both sides. It's the line that comes back from me

writing during the 2000 campaign was that if one of the candidates said that the earth was flat, the

headline would be views differ on shape of planet. And that's less true. There's still a fair bit

of that out there, but it's less true than there used to be. And there are more people

reporting, writing on policy issues who actually understand them than ever before.

So, though, that's good. But I still, I have how much the typical voter is actually informed

unclear. I mean, the democratic debates, I think we I'm hoping that we finally get down to having a

not having 27 people on the stage or whatever it is they have. But yeah, they're reasonably

substantive, certainly better than before. And while there's a lot of still, you know,

theater criticism instead of actual analysis and the reporting, it's not as totally dominant as in

the past. Can ask maybe a dumb question. But from an open minded perspective, when you know,

people on the left and people on the right, I think view the other the others as sometimes

complete idiots. Yeah. What do we do with that? You know, is it possible that the people on the

right are correct about their what they currently believe? Is that kind of open mindedness helpful?

Or is this division long term productive for us to sort of have this food fight?

Well, the trouble you have to confront is that there's a lot of stuff that just is false out

there and but commands extensive political allegiance. So the idea, well, both sides need

to listen to each other respectfully. I'm happy to do that. When there's a view that is worthy of

respect, but a lot of stuff is not. And so take economics is something where I think I know

something. And I'm not sure that I'm always right. In fact, I know I'm I've been wrong

plenty of times. But I think there is a difference between economic views that are within the realm

of we can we can actually have an interesting discussion. And those that are just crank doctrines

or things that that are purely being disseminated because people are being paid to disseminate

them. So there are there are plenty of good serious center right economists that are happy to to talk

to. None of those center right economists has any role in the Trump administration. Trump

administration and by and large Republicans in Congress only want to listen to people who are

cranks. And so I think it's being dishonest with my readers to to pretend otherwise. There's no way

I can reach out to people who think that that reading Ayn Rand novels is is is how you learn

about monetary economics. Let me linger on that point. So if you look at Ayn Rand, okay,

so you said center right, what about extreme people who have like radical views? You think

they're not grounded in in any kind of data in the kind of reality. I'm just the sort of

curious about how open we should be to ideas that seem radical. Oh, radical ideas is fine. But

then you have to have to have to ask is there some basis for the radicalism. And if it's if it's a

if it's something that is not grounded in anything, then and particularly by the way,

if it's something that's been refuted by evidence again and again, and the people just keep saying

it if it's a zombie idea, and there's a lot of those out there, then there comes a point when

it's not worth trying to fake respect for it. I see. So there's a through the scientific process

you've shown that this idea does not hold water. But I like the idea zombie ideas, but they live on

through. It's like the idea that the earth is flat, for example, has been for the most part

disproven. Yeah. But it lives on actually growing in popularity currently. Yeah. And there's a lot

of that out there. And there you can't you can't wish it away. And it's you're not being fair to

either yourself or if you're somebody who writes for the public, you're not being fair to your

readers to pretend otherwise. So quantum mechanics is a strange theory, but it's testable. And so

while being strange, it's why they accept it amongst physicists. How robust and testable are

economics theories? If we compare them to quantum mechanics and physics and so on?

Okay, economics, look, it's a complex system. And it's also one in which by and large, you don't get

to do experiments. And so economics is never going to be like quantum mechanics. That said,

you get natural experiments, you get tests of rival doctrines, you know, in the immediate

aftermath of the financial crisis, there was one style, one, one basic theory of macroeconomics,

which ultimately goes back to John Maynard Keynes that made a few predictions, it said,

under these circumstances, printing money will not be inflationary, running big budget deficits

will not cause a rise in interest rates, slashing government spending, austerity policies will

lead to depressions if tried. Other people had, you know, exactly the opposite predictions. And

we got a fairly robust test and, you know, one theory one, interest rates stayed low, inflation

stayed low, austerity, countries that implemented harsh austerity policies suffered severe economic

downturns. You don't get much, you know, that's pretty clear. And that's not going to be true

on everything. But there's a lot of empirical, I mean, the younger economists these days are very

heavy, heavily data based. And it's, and that's great. And I think that's the way to go.

What theories of economics are, is there currently a lot of disagreement about what you said?

Oh, first of all, there's just a lot less disagreement, really, among serious researchers

and economics than people imagine. When we actually, we can track that the Chicago Booth

School has a panel, an ideologically diverse panel, and they pose regularly posed questions. And on

most things, there's a huge, there's remarkable consensus. There's a lot of things where there,

you people imagine that there's dispute, but the the illusion of dispute is something that's

basically being fed by political forces. And there isn't really, I mean, there are,

I think we questions about what are effective ways to regulate technology industries, we really don't

know the answers there. There's a, or look, I don't follow every part, minimum wages. I think

there's there's pretty overwhelming evidence that that a modest increase in the minimum wage from

current levels would be would not have any noticeable adverse effect on on jobs. But if you

ask, how high could it go? $12 seems pretty safe, given what we know. 15 is 15. Okay,

there's some legitimate disagreement there, I think probably, but, but I can, people have a point.

20, where is the line at which it starts to become a problem? And the answer is, truly, we don't know.

It's fascinating to try to, such a cool economics is cool in that sense. Because you're trying to

predict something that hasn't been done before the impact the effects of something that hasn't

been done before. Yeah, you're trying, you're going out of sample. And we have good reason to

believe that, that there are, you know, that it's nonlinear, that there comes a point at which it

doesn't work the way it has in the past. So as an economist, how do you see science and

technological innovation? When I took various economics courses in college, technological

innovation seemed like a no brainer way of growing an economy. And we should invest in it

aggressively. I may be biased, but it seemed like the various ways to grow an economy seems like

the easiest way, especially long term. Is that correct? And if so, why aren't we doing it more?

Well, that's okay. The first question is, yeah, I mean, all, it's pretty much overwhelming.

But we think we can more or less measure this, although there are some assumptions involved,

but it's something like 70 to 80% of the growth and per capita income is,

is basically the advance of knowledge. It's not just, it's not just the crude accumulation of

capital. It is, it is the fact that we get, get smarter. A lot of that, by the way, is more prosaic

kinds of technology. So, you know, we, I like to talk about things like containerization or, you

know, in an earlier period, the invention of the flat pack cardboard box that have to be invented.

And, and now all of your deliveries from Amazon are made possible by the existence of that

technology that the web stuff is, is, is important too. But, but what would we do without cardboard

boxes? So, but all of that stuff is really important in driving economic progress.

Well, why don't we invest more? Why don't we invest more in, again, more prosaic stuff?

Why aren't, why haven't we built another goddamn rail tunnel under the Hudson River?

Which is, for which the need is, is so totally overwhelmingly obvious.

How do you think about, first of all, I don't even know what the word prosaic means,

but I inferred it. But how do you think about prosaic? Is it the really most basic dumb technology

innovation? Or is it just like the lowest hanging fruit of where benefit can be gained?

When I say prosaic, I mean stuff that is not sexy and fancy and high tech.

It's building bridges and tunnels, having, inventing the cardboard box or

the, I don't know, where do we put an easy pass in there? That's a, it is, it is actually using

some modern technology and all that, but it's, you're not going to have, I don't think you're

going to make a movie about, about the fact that the guy, whoever it was that invented easy pass,

but, but it's actually a pretty significant productivity booster.

To me, it always seemed like it's something that everybody should be able to agree on.

And just invest. So like in the same way, there's the investment in the military and the DOD is

huge. So everyone kind of, not everyone, but there's a, there's an agreement amongst people

that somehow that a large defense is important. It always seemed to me like,

you should, that should be shifted towards, if you want to grow prosperity of the nation,

you should be investing in knowledge. Yes, prosaic stuff, infrastructure, investing infrastructure

and so on. I mean, sorry to linger on it, but do you have any intuition? Do you have hope that

that changes? Do you have intuition why it's not changing? It's unclear which intuition,

I have a theory. I'm reasonably certain that I understand why, why we don't do it. And it's,

it's because, because we have a real values dispute about the welfare state, about how much

the government should do to help the unfortunate and politicians believe

probably rightly, that there's a kind of halo effect that surrounds any kind of government

intervention. That even though providing people with enhanced social security benefits is really

very different from building a tunnel under the Hudson River, politicians of both parties seem

to believe that it's the government to seem to be successful at doing one kind of thing.

I mean, it will make people think more favorably on it doing other kinds of things. And so we have

conservatives tend to be opposed to any kind of increase in government spending, except military,

no matter how obviously a good idea it is, because they fear that it's the thin end of the wedge

for bigger government in general. And to some extent, liberals tend to favor spending on these

things, partly because they see it as a way of proving that government can do things well,

and therefore it can turn to broader social goals. It's clearly, there's a, if you like,

you might have thought would be a technocratic discussion about government investment, both

in research and in infrastructure is contaminated by the fact that government is government and

people link it to other government actions. Perhaps a silly question, but as a species,

we're currently working on venturing out into space, one day colonizing Mars. So

when we start a society on Mars from scratch, what political and economic system should it

operate under? Oh, I'm a big believer in, first of all, I don't think we're actually gonna do that,

but let's, let's imagine, hypothesize that we colonize Mars or something. Look, representative

democracy is versus pure democracy. Well, yeah, pure democracy where people vote directly on

everything is really problematic because people don't have time to, to, to try and master every

issue. I mean, we, we can see what government by referendum looks like. There's a lot of that in,

in California. And it's, it doesn't work so good because it's hard to explain to people

the various things they vote for may conflict. So representative democracy is,

it's got lots of problems. And I kind of the Winston Churchill thing, right? It's the worst

system we know, except for all the others. But so yeah, sticking with the representative

and basically the American system of regulation and markets and the economy we have going on is,

is a pretty good one for Mars. If you start from scratch, if you're gonna start from scratch,

you wouldn't, you wouldn't want a Senate where 16% of the population has half the seats.

You probably would want one which is, you know, more, actually more representative than what we have.

And the, the details, it's unclear. I mean, the, we, when times are good, all of the various

representatives democracy systems, whether it's parliamentary democracies or a US style system,

whether you have a prime minister or the head of state as an elected president,

they all kind of work well and they all, when times are good, and they all have different

modes of breakdown. So I'm not sure I know what the answer is, but, but something like that is

given what we've seen through history, it, it, it's the least bad system out there. I mean, I don't

know if you, I'm a big fan of, of the TV series, The Expanse and, and it's kind of gratifying that

out there, the, the, it's the Martian Congressional Republic. Okay. In a brief sense, so amongst many

things, you're also an expert at international trade. What do you make of the, the complexity?

So I can understand trade between two people, say two neighboring farmers. It seems pretty

straightforward to me, but international, we need to start talking about nations and

nations trading seems to be very complicated. So from a high level, why is it so complicated?

What are all the different factors, that way, the objectives need to be considered an international

trade? And maybe feeding that into a question of, do you have concerns about the two giants right

now of the U.S. and China and the, and the tension that's going on with the international trade

there with the trade war? Well, first of all, international trade is not really that different

from trade among individuals. It's, it's vastly more complex and there are, there are many more

players, but in the end, the reasons why countries trade are pretty much the same as the reasons

why individuals trade, countries trade because they're different and they can

derive mutual advantage from concentrating on the things they do relatively well. And

also, there are economies of scale, you know, you don't not individuals have to decide whether to

be a surgeon or a, or an accountant, it's probably not a good idea to try and be both and countries

benefit from specializing just because of the inherent advantages of specialization. And that's,

so that now the fact it's a big world and the, we're talking about millions of products being

traded and in today's world often trade involves many stages. So that made in China, iPhone is

actually assembled from components that are made all over the world. And, but it doesn't really

change the fundamentals all that much. There's a recurrent, I mean, the big, the big, the dirty

little secret of international trade conflict is that actually it's not conflicts among countries

are really not that important. Most trade is beneficial to both sides and to both countries,

but it has big impacts on the distribution of income within countries. So the growth of U.S.

trade with China has made both U.S. and China richer, but it's been pretty bad for people who

were employed in the North Carolina furniture industry who did find that their jobs were

displaced by a wave of imports from China. And so that's where the complexity comes in.

Not at all clear to me. I mean, we have some real problems with China, although they'll

really involve trade so much as things like respect for intellectual property.

Not clear that those real problems that we do have with China have anything to do with the

current trade war. Current trade war seems to be driven instead by a fundamentally wrong notion

that when we sell goods to China, that's good. And when we buy goods from China, that's bad.

And that's misunderstanding the whole point. Is trade with China in both directions a good thing?

Yeah, we would be poorer if it wasn't for it. But there are downsides as there are for any

economic change. It's like any new technology makes us richer, but often hurts some people.

Trade with China makes us richer, but hurts some people. And I wouldn't undo what has happened,

but I wish we had had a better policy for supporting and compensating the losers from that growth.

So we live in a time of radicalization of political ideas, Twitter mobs and so on.

And yet here you are in the midst of it, both tweeting and writing in the New York Times articles

with strong opinions, writing this chaotic wave of public discourse. Do you ever

hesitate or feel a tinge of fear for exploring your ideas publicly and unapologetically?

Oh, I feel fear all the time. It's not too hard to imagine scenarios in which I might personally

find myself kind of in the crosshairs. And I am the king of hate mail. I get amazing correspondence.

Does it affect you? It did when it started these days. I've developed a very thick skin.

So I don't usually get. In fact, if I don't get a wave of hate mail after a column, then

I probably wasted that day. So what do you make of that as a person who's putting ideas out there?

If you look at the history of ideas, the way it works is you write about ideas,

you put them out there. But now when there's so much hate mail, so much division,

what advice do you have for yourself and for others trying to have a discussion about ideas,

difficult ideas? Well, I don't know about advice for others. I mean, for most economists,

just do your research. We can't all be public intellectuals and we shouldn't try to be. And

in fact, I'm glad that I didn't get into this business until I was in my late 40s. I mean,

this is probably best to spend your decades of greatest intellectual flexibility addressing

deep questions, not confronting Twitter mobs. And as for the rest, I think when you're writing

about stuff, Dan says, like no one's watching, write like nobody's reading. Write what you think

is right. Trying to make it, obviously, trying to make it comprehensible and persuasive, but

don't let yourself get intimidated by the fact that some people are going to say nasty things.

It's, you can't do your job if you are worried about criticism.

Well, I think I speak for a lot of people and saying that I hope that you keep dancing like

nobody's watching on Twitter and New York Times and books. So Paul, it's been an honor. Thank you

so much for talking to me. Okay, great. Thanks for listening to this conversation with Paul Krugman

and thank you to our presenting sponsor, Cash App. Download it and use code LEX Podcast.

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words from Adam Smith in The Wealth of Nations, one of the most influential philosophers and

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baker that we expect our dinner, but from their regard to their own interests. We address ourselves

not to their humanity, but to their self love and never talk to them of our necessities,

but of their advantages. Thank you for listening and hope to see you next time.