# Live with Jared Bernstein

An episode of [Paul Krugman Podcast](https://invisiblenetwork.ai/podcast/1877144831), 20 May 2025, 33 min.

Audio: https://api.substack.com/feed/podcast/164019143/b2b10ea52b449cc8d5f0ccab133876d9.mp3

Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

## Transcript

[0:00] SPEAKER_00: We are live.
[0:01] SPEAKER_00: We are live.
[0:01] SPEAKER_00: We are live.
[0:02] SPEAKER_00: And we are live with Paul Krugnan.
[0:03] SPEAKER_00: Welcome to Let's Do Lunch.
[0:05] SPEAKER_00: This is a weekly feature where from noon to 1230 Eastern Time,
[0:10] SPEAKER_00: myself and a guest tackle all of your economic questions as best we can.
[0:14] And I am not going to squander valuable minutes introducing my
[0:18] guest today,
[0:19] SPEAKER_00: in part because he's known to all of you.
[0:21] SPEAKER_00: But beyond telling you that Paul is a
[0:25] SPEAKER_00: a Nobel laureate economist.
[0:27] I think what you really need to know about him is he's here
[0:29] hanging out with us today.
[0:31] SPEAKER_00: Why?
[0:32] SPEAKER_00: Because he recognizes how important it is to speak truth to power,
[0:37] SPEAKER_00: and he does so better than anybody I know.
[0:41] He writes my favorite economic substack,
[0:43] and I say that as someone who has an economic substack.
[0:47] SPEAKER_00: Consider that.
[0:48] SPEAKER_00: Okay, enough of that.
[0:50] SPEAKER_00: Paul, let's jump right in.
[0:51] And typically,
[0:52] I read the question and decide which one of us should take the
[0:57] first shot.
[0:58] SPEAKER_00: I'm going to dispose with the first question myself very quickly,
[1:01] SPEAKER_00: and then we're going to get to a meaty question for you.
[1:04] Lonnie F.
[1:06] says,
[1:06] should folks in retirement sell our stocks and get into cash?
[1:11] SPEAKER_00: The reason I'm going to dispose of this is because,
[1:13] SPEAKER_00: at least speaking for myself,
[1:14] SPEAKER_00: and I'll bet you speaking for Paul,
[1:16] SPEAKER_00: we don't give retail advice.
[1:20] SPEAKER_00: You don't want that from us, and we don't want to give it to you.
[1:23] SPEAKER_00: I will say the following.
[1:25] SPEAKER_00: You can't time the market.
[1:27] SPEAKER_00: Most investment advisors will tell you that as you age into retirement,
[1:32] SPEAKER_00: you generally want to shift out of equities into fixed income.
[1:35] SPEAKER_00: What I will say,
[1:36] SPEAKER_00: and this has more relevance to current events,
[1:38] SPEAKER_00: and Paul,
[1:38] SPEAKER_00: you might want to comment on this as well,
[1:40] SPEAKER_00: is that markets have been highly responsive to the trade war.
[1:45] SPEAKER_00: When investors,
[1:46] SPEAKER_00: when market folks sniff that tariffs are going up,
[1:50] SPEAKER_00: the market goes down,
[1:51] SPEAKER_00: and vice versa.
[1:54] 17 out of the last S&P sessions,
[1:55] Standard & Poor's equity index sessions,
[1:58] have been up.
[1:59] SPEAKER_00: Why?
[2:00] SPEAKER_00: Because the administration has been looking for,
[2:03] SPEAKER_00: to some degree,
[2:04] SPEAKER_00: finding off-ramps to their trade war.
[2:07] But the one kind of economic substance piece I would say about
[2:09] this question is
[2:10] SPEAKER_00: that trade war,
[2:12] SPEAKER_00: bad for markets.
[2:13] SPEAKER_00: Markets sniff that out and move accordingly.
[2:16] SPEAKER_00: Paul, do you want anything to that?
[2:17] SPEAKER_01: I will just say that
[2:21] You know,
[2:21] average tariffs are still wildly higher than they were when
[2:26] Trump took office.
[2:28] You know,
[2:28] there's been a little scale back,
[2:30] but markets are back to where they were.
[2:34] And so either they were,
[2:38] either they're wrong now or they were wrong then,
[2:40] right?
[2:40] SPEAKER_01: So there is some,
[2:42] SPEAKER_01: day by day,
[2:43] SPEAKER_01: clearly the tariffs are driving the market,
[2:46] SPEAKER_01: but I don't quite know how to make sense.
[2:48] SPEAKER_01: But you know what?
[2:50] SPEAKER_01: Not my job, not your job.
[2:52] I'll talk to some stock market people actually later today,
[2:57] but definitely not my thing.
[3:00] SPEAKER_00: Mark G.
[3:01] SPEAKER_00: asks,
[3:02] SPEAKER_00: will the dollar be replaced by another currency as the primary means for
[3:06] SPEAKER_00: international exchange?
[3:08] SPEAKER_00: Paul, no one better than you to tackle that one.
[3:11] SPEAKER_01: Okay.
[3:12] I can think we can safely say that that is not going to happen
[3:16] anytime soon.
[3:17] SPEAKER_01: that the other, you know, the contenders are not ready for prime time.
[3:23] SPEAKER_01: Um, the Euro is too fragmented.
[3:25] SPEAKER_01: There was no Euro bond market.
[3:26] SPEAKER_01: There's a German bomber.
[3:27] SPEAKER_01: You know,
[3:28] SPEAKER_01: there's just,
[3:28] SPEAKER_01: there's just,
[3:30] SPEAKER_01: uh,
[3:30] SPEAKER_01: before the Euro crisis,
[3:32] SPEAKER_01: maybe,
[3:32] SPEAKER_01: but not now China is still has capital controls.
[3:37] SPEAKER_01: China, the renminbi is just not ready for that.
[3:40] SPEAKER_01: Um, but there, uh,
[3:46] SPEAKER_01: The real risk,
[3:46] SPEAKER_01: and I don't think we're quite there,
[3:48] SPEAKER_01: but I can imagine it,
[3:49] SPEAKER_01: is not that something else will replace the dollar,
[3:52] SPEAKER_01: but that nothing will replace the dollar.
[3:58] We have a global financial system that basically rests on the
[4:06] dollar is the universal currency.
[4:09] SPEAKER_01: U.S.
[4:09] Treasury bills are the universal safe asset,
[4:12] the collateral for everything.
[4:14] SPEAKER_01: Everybody operates on that basis.
[4:19] SPEAKER_01: If that comes into question, it's kind of nasty.
[4:22] Actually,
[4:23] I'm going to give a longer answer than I probably should given
[4:25] our time,
[4:25] but
[4:26] There's a great,
[4:27] great old essay by my old teacher,
[4:29] Charlie Kindlerberger.
[4:31] where he compared the role of the dollar as an international
[4:35] currency to the role
[4:36] SPEAKER_01: of English as the international language.
[4:38] SPEAKER_01: There's a lot of similarities.
[4:40] And people conducting business that doesn't involve the United
[4:46] States at all use
[4:47] SPEAKER_01: dollars and speak English because that's what everybody else does.
[4:51] SPEAKER_01: The trouble is that in some sense,
[4:53] SPEAKER_01: English is not really the property of the United States,
[4:56] SPEAKER_01: but the dollar is.
[4:57] SPEAKER_01: And if we are crazy enough and irresponsible enough
[5:01] And if we have a president who alternates between crazy trade
[5:05] policies and saying
[5:06] SPEAKER_01: that Taylor Swift isn't hot anymore,
[5:08] SPEAKER_01: that could actually make the dollar kind of unusable.
[5:13] SPEAKER_01: But then what?
[5:14] And try to imagine what would happen to the world economy if
[5:17] there was this
[5:17] SPEAKER_01: mysterious virus that made people unable to speak English.
[5:21] SPEAKER_01: They can still speak everything else, but not English.
[5:24] SPEAKER_01: It would be totally destructive.
[5:25] SPEAKER_01: And so I think that the risk that we just degrade, not
[5:30] SPEAKER_01: Not that the Chinese take over,
[5:31] SPEAKER_01: the Europeans take over,
[5:32] but that we just kind of make international business just a lot
[5:36] harder because
[5:37] SPEAKER_01: we've ruined the currency everyone uses,
[5:39] SPEAKER_01: Israel.
[5:41] SPEAKER_00: Yeah, thank you.
[5:42] SPEAKER_00: One of the questioners asked,
[5:44] SPEAKER_00: I'm seeing some questions in real time,
[5:45] SPEAKER_00: which I like to try to speak to.
[5:48] SPEAKER_00: One of the questioners asked,
[5:49] SPEAKER_00: well,
[5:50] perhaps would we see countries diversify into a broader
[5:53] portfolio of currencies
[5:55] SPEAKER_00: that they hold?
[5:55] SPEAKER_00: And what implications would that have?
[5:57] SPEAKER_00: Also, again, briefly, because we'll get a
[6:00] SPEAKER_00: On to a lot of other things quickly.
[6:02] SPEAKER_00: The sell America trade.
[6:04] So this is something that you've heard out of,
[6:06] again,
[6:06] going back to markets and investors.
[6:09] When things look really incompetent from the perspective of our
[6:13] administration,
[6:14] SPEAKER_00: which is a daily occurrence,
[6:17] you sometimes see the value of the dollar in international
[6:20] markets go down.
[6:22] SPEAKER_00: I think this is consistent with your answer.
[6:24] It doesn't mean another currency takes over,
[6:27] but it is a fraying at the edges.
[6:31] What do you think about both the sell America trade and the
[6:33] diversify question?
[6:35] SPEAKER_01: So diversification, sure.
[6:37] SPEAKER_01: And in fact, that's been happening gradually.
[6:40] SPEAKER_01: If you're thinking about how,
[6:41] SPEAKER_01: of course,
[6:41] SPEAKER_01: international currency has multiple roles,
[6:43] SPEAKER_01: and one of them is that countries hold reserves.
[6:46] And they have been gradually diversifying over the decades to
[6:50] not just dollars,
[6:51] SPEAKER_01: but to holding up a portfolio of different stuff.
[6:54] SPEAKER_01: And that makes sense.
[6:56] SPEAKER_01: A lot harder to replace the transactional role of the dollar.
[7:01] SPEAKER_01: Just a lot of, you know, if a...
[7:05] If a business in Peru wants to do a transaction with a business
[7:13] in Malaysia,
[7:15] SPEAKER_01: it's really going to be hard for either of them.
[7:18] SPEAKER_01: You're not going to try to exchange Peruvian souls for Malaysian ringgit.
[7:22] SPEAKER_01: You're going to do it through the dollar.
[7:25] SPEAKER_00: In fact, in many cases, those trades take place in dollars themselves.
[7:30] SPEAKER_01: That's right.
[7:32] The dollar is the almost has an almost total monopoly in the
[7:37] sort of foreign exchange markets.
[7:38] SPEAKER_00: I think I think we have to be I know I'm speaking your language.
[7:42] SPEAKER_00: I mean, I'm talking to your book here, but.
[7:46] SPEAKER_00: When we have this kind of a conversation in this climate,
[7:49] SPEAKER_00: I'm always in my head,
[7:50] SPEAKER_00: I'm like,
[7:51] SPEAKER_00: don't think that income city doesn't matter.
[7:54] SPEAKER_00: Incompetency doesn't matter.
[7:56] SPEAKER_00: Incompetency matters a lot.
[7:57] SPEAKER_00: And Paul's first answer hit very hard on that.
[8:00] SPEAKER_00: So this is a tricky one because you've got this embedded system,
[8:04] SPEAKER_00: the dollar as the international reserve currency,
[8:08] SPEAKER_00: but you also have its erosion.
[8:11] SPEAKER_01: That's right.
[8:13] SPEAKER_01: It takes a long, long time and a lot of craziness to dislodge.
[8:18] SPEAKER_01: But if you work at it hard enough, you can do it.
[8:22] SPEAKER_01: And we're kind of doing that.
[8:23] SPEAKER_00: Let me shamelessly,
[8:24] SPEAKER_00: hold on,
[8:25] SPEAKER_00: let me shamelessly read from my own Substack today,
[8:29] SPEAKER_00: which I apologize for,
[8:30] SPEAKER_00: but I'm going to ask you about your Substack today later.
[8:34] I talk about how I'm talking about some of these issues around
[8:37] unsustainability,
[8:39] SPEAKER_00: but I say this is a very strong,
[8:43] SPEAKER_00: resilient country where in centuries of democracy,
[8:47] SPEAKER_00: awfully highly imperfect to be sure,
[8:49] SPEAKER_00: has led to institution norms,
[8:51] SPEAKER_00: rules of law,
[8:52] SPEAKER_00: and in this case,
[8:53] SPEAKER_00: markets that support safe lending to the government.
[8:56] SPEAKER_00: But as we've seen so often in recent months,
[8:59] SPEAKER_00: what takes years to build up can take weeks to tear down.
[9:03] SPEAKER_01: I think that's true.
[9:04] SPEAKER_01: Exactly.
[9:05] SPEAKER_01: And this goes to the sell America thing.
[9:10] SPEAKER_01: America has been a recipient.
[9:12] SPEAKER_01: I mean, the flip side of our trade deficit is a capital account surplus.
[9:16] SPEAKER_01: People invest in America.
[9:18] And they do so,
[9:19] the role of the dollar is probably a very secondary concern.
[9:22] SPEAKER_01: Mostly it's, you know, it's America.
[9:26] SPEAKER_01: We're technologically dynamic.
[9:29] We have more favorable demography than other advanced
[9:33] countries,
[9:35] and we have rule of law.
[9:40] SPEAKER_01: It's a good place to put your money, or it was until a few months ago.
[9:45] SPEAKER_01: Now, okay, we have administration officials.
[9:50] SPEAKER_01: They probably don't have any real influence,
[9:52] but still have floated the idea of forcibly converting people's
[9:56] holdings of
[9:57] SPEAKER_01: three-month treasury bills into long-term debt,
[10:00] SPEAKER_01: which is basically a default.
[10:01] SPEAKER_00: We have...
[10:05] SPEAKER_01: You know,
[10:06] right now the president of the United States is yelling at
[10:08] Walmart to keep its
[10:10] SPEAKER_01: prices down.
[10:11] SPEAKER_01: Who's to say he won't yell at a foreign, at a U.S.
[10:15] SPEAKER_01: subsidiary of a foreign firm to do something different?
[10:23] If you're a German business person and you want to go to the
[10:27] United States to take
[10:29] SPEAKER_01: a look at your investments,
[10:32] won't you worry at least a little bit that there might be some
[10:36] anti-Trump texts on
[10:37] SPEAKER_01: your phone and you'll end up being arrested by a CBP?
[10:40] SPEAKER_01: I mean, these things are happening.
[10:42] SPEAKER_01: Yeah.
[10:44] And it's a terrible thing to say,
[10:47] but it would be one thing if it was only Venezuelans.
[10:51] But we've been seeing CPP arrest two blonde German teenagers
[10:58] coming and backpacking in Hawaii.
[11:00] SPEAKER_01: So we are not the country.
[11:05] SPEAKER_01: We do not at the moment look like the country everybody thought we were.
[11:09] SPEAKER_01: And that has got to take a toll.
[11:11] There's a strain of questions here that says,
[11:13] can you explain Republicans?
[11:15] SPEAKER_00: I'm not going to go there.
[11:18] I will say that one explanation is a lot of what they're doing
[11:22] in the budgetary
[11:22] SPEAKER_00: space,
[11:23] SPEAKER_00: which is about where we're about to go,
[11:25] SPEAKER_00: has a lot to do with serving their donor class.
[11:31] SPEAKER_00: So Mike M.
[11:33] SPEAKER_00: says,
[11:33] has a study been done on what tax revenue would be required to
[11:37] bring the national
[11:38] SPEAKER_00: debt down to a sustainable level as a percent of GDP?
[11:42] SPEAKER_00: This is what I wrote about today on my substack,
[11:45] SPEAKER_00: trying to get into what do we mean when we say unsustainable?
[11:48] SPEAKER_00: To answer your question, Mike, I'll start and then Paul, you'll join in.
[11:52] SPEAKER_00: That question depends on a lot of moving parts.
[11:55] The question of how much revenue do we need to get to a more
[11:59] sustainable budget path.
[12:01] Let's call sustainable for now a path wherein the debt to GDP
[12:04] ratio kind of levels
[12:05] SPEAKER_00: out and doesn't just keep going up.
[12:08] SPEAKER_00: That depends on the interest rate,
[12:09] SPEAKER_00: that depends on the growth rate,
[12:11] SPEAKER_00: that depends on the level of what's called the primary deficit,
[12:14] SPEAKER_00: which is the part of the deficit that doesn't include interest rates,
[12:17] SPEAKER_00: so just when we're borrowing more,
[12:21] when we're spending more than we're taking in on government
[12:24] goods and services.
[12:26] SPEAKER_00: So, you know, it's not a simple answer.
[12:30] Currently,
[12:31] revenues as a share of the economy,
[12:33] which is the way to look at this,
[12:35] SPEAKER_00: are coming in at around 16%, 17%.
[12:38] SPEAKER_00: That's actually a little bit below the recent average.
[12:43] SPEAKER_00: But here's the problem.
[12:45] SPEAKER_00: That's too low,
[12:46] SPEAKER_00: given the fact that the economy,
[12:47] SPEAKER_00: at least until Trump got here,
[12:49] SPEAKER_00: and still in terms of the real data,
[12:51] SPEAKER_00: in terms of the growth rate,
[12:52] SPEAKER_00: the unemployment rate,
[12:54] SPEAKER_00: well,
[12:54] SPEAKER_00: maybe not the GDP rate,
[12:55] SPEAKER_00: but the unemployment rate is still low.
[12:57] SPEAKER_00: And when you have an economy that's firing on most cylinders,
[13:02] SPEAKER_00: you want that GDP,
[13:04] SPEAKER_00: you want that revenue to GDP number to be going up.
[13:07] SPEAKER_00: You should expect,
[13:08] SPEAKER_00: because there's more economic activity,
[13:10] SPEAKER_00: there's less slack in the economy,
[13:12] SPEAKER_00: that the revenue flows to the Treasury are elevated.
[13:15] SPEAKER_00: And back in 2018,
[13:17] SPEAKER_00: 19,
[13:17] SPEAKER_00: or even back,
[13:18] SPEAKER_00: probably a better example,
[13:19] SPEAKER_00: before all the tax cuts kicked in,
[13:22] SPEAKER_00: if you go back to,
[13:23] SPEAKER_00: you know,
[13:23] SPEAKER_00: the latter 90s,
[13:24] SPEAKER_00: when the budget actually had balanced for a minute,
[13:27] SPEAKER_00: you had revenues in the 18,
[13:28] SPEAKER_00: 19,
[13:28] SPEAKER_00: even 20% of GDP range.
[13:32] SPEAKER_00: So one of the things that doesn't get us to where Mike M.
[13:35] SPEAKER_00: is asking about is the fact that all of these tax cuts,
[13:39] SPEAKER_00: and it's more tax cuts than spending,
[13:41] all of these tax cuts have broken the historical linkage
[13:45] between a full employment
[13:46] SPEAKER_00: economy,
[13:46] SPEAKER_00: an economy firing on all cylinders,
[13:48] SPEAKER_00: and revenue flows to the Treasury.
[13:51] SPEAKER_00: So with a little bit of throat clearing, we want to get back to
[13:55] SPEAKER_00: the kinds of conditions that we had before all this tax cutting,
[13:59] SPEAKER_00: where we had a good growth rate,
[14:00] SPEAKER_00: a relatively low interest rate,
[14:03] SPEAKER_00: and more revenue flows as the cycle heated up,
[14:07] SPEAKER_00: getting back to numbers like 18% of GDP on revenue,
[14:10] SPEAKER_00: 19% when you're at full employment.
[14:13] SPEAKER_00: And we're not there for structural reasons.
[14:15] SPEAKER_00: All of these tax cuts have broken that critical linkage.
[14:18] SPEAKER_00: Paul?
[14:20] SPEAKER_01: Okay.
[14:20] SPEAKER_01: I was going to be more both vaguer and I think simpler.
[14:25] SPEAKER_01: I like to think about the U.S.
[14:27] SPEAKER_01: consolidated, all levels of government.
[14:31] SPEAKER_01: And there's a...
[14:35] SPEAKER_01: We don't know what our star is.
[14:38] SPEAKER_01: At this point, we don't know what sustainable long-run growth is.
[14:43] SPEAKER_01: But when I did it in the past, and even with current numbers, the U.S.
[14:47] SPEAKER_01: as a whole probably needs – well, given these tax cuts, maybe more.
[14:51] But let us say – I think this is probably on the high side –
[14:55] five points of GDP in
[14:58] SPEAKER_01: terms of budget adjustment,
[15:01] SPEAKER_01: which –
[15:02] SPEAKER_01: If I had my druthers,
[15:03] it would come entirely from higher revenue because we have a
[15:07] pretty threadbare
[15:08] SPEAKER_01: social safety net by international standards even now,
[15:13] SPEAKER_01: which is not hard.
[15:14] SPEAKER_01: We're a low-tax country.
[15:16] We would only have to get up to and move something like – I'm
[15:20] pulling this out of
[15:21] SPEAKER_01: my posterior,
[15:21] SPEAKER_01: but we would only need to go to something like –
[15:25] a third of the typical European tax take as a share of GDP in
[15:33] order to have a
[15:33] SPEAKER_01: sustainable budget position.
[15:35] SPEAKER_01: So if you ask,
[15:36] SPEAKER_01: do we have a level of debt that is,
[15:39] SPEAKER_01: you know,
[15:39] SPEAKER_01: we cannot meet that level of debt without tax hikes
[15:43] that would crush the economy or without benefit cuts that would
[15:47] throw millions of
[15:48] SPEAKER_01: people into suffering.
[15:49] SPEAKER_01: No, all we need is modestly higher revenues.
[15:53] We can get quite a lot of that just from making rich people pay
[15:56] as much as they should.
[15:58] It's quite likely that we need a little bit extra,
[16:03] but some things have actually gone right.
[16:08] SPEAKER_01: Healthcare costs have risen much, much more slowly than it used to.
[16:12] SPEAKER_01: When we used to say that the budget position was totally unsustainable,
[16:15] SPEAKER_01: that was mostly driven by projections of ever-rising healthcare costs,
[16:22] SPEAKER_01: which is not happening now.
[16:24] SPEAKER_01: Demography, yeah, we have an aging population, but you know what?
[16:29] SPEAKER_01: us boomers are already on Social Security and Medicare.
[16:34] SPEAKER_01: So most of that has already happened.
[16:36] So it's not that hard a lift if we had a halfway rational
[16:41] political system,
[16:42] which is impossible.
[16:44] SPEAKER_00: Yeah.
[16:45] SPEAKER_00: So two things, one an anecdote and one amplifying.
[16:48] SPEAKER_00: That was a great, great summary.
[16:51] SPEAKER_00: So,
[16:51] SPEAKER_00: one of the things embedded in...
[16:53] SPEAKER_00: So,
[16:53] SPEAKER_00: Paul and I complete...
[16:55] SPEAKER_00: I guess it's kind of rare that we don't,
[16:57] SPEAKER_00: but we completely agree on this point,
[16:59] SPEAKER_00: that the way to get to where Mike's question implies is,
[17:05] SPEAKER_00: we need more revenues.
[17:07] SPEAKER_00: And the right place to start would be at the upper end of the scale,
[17:10] SPEAKER_00: where effective tax rates have fallen over the years,
[17:13] and where you see evidence of heightened inequality and more
[17:17] wealth concentration.
[17:19] SPEAKER_00: So we agree on that.
[17:21] SPEAKER_00: Current events.
[17:23] SPEAKER_00: One of the things that matters,
[17:24] SPEAKER_00: I started out with this and Paul referenced it well,
[17:26] SPEAKER_00: is the interest rate and the growth rate.
[17:28] SPEAKER_00: If you have higher interest rates and lower growth rates,
[17:31] SPEAKER_00: it's much higher to get to budget sustainability.
[17:34] SPEAKER_00: Tariffs slow growth and irresponsible fiscal plans raise interest rates.
[17:40] SPEAKER_00: So actually, current events are pointing in the wrong way.
[17:43] SPEAKER_00: This is where Paul ended, competent government.
[17:45] SPEAKER_00: But it's quantitatively leading to two opposing factors,
[17:51] SPEAKER_00: likely higher interest rates,
[17:52] SPEAKER_00: likely lower growth rates,
[17:54] SPEAKER_00: that hurt us in this regard.
[17:56] SPEAKER_00: Now, you just mentioned boomers on Medicare.
[17:58] SPEAKER_00: I just got on Medicare Part A, I'm proud to say.
[18:02] SPEAKER_00: And it was a real struggle,
[18:04] SPEAKER_00: because I kept going on the website trying to get on Medicare Part A,
[18:08] SPEAKER_00: and they wouldn't let me.
[18:09] SPEAKER_00: And I couldn't figure out why, and they couldn't figure out why.
[18:12] SPEAKER_00: Well,
[18:12] SPEAKER_00: it turns out that when you're in the Cabinet,
[18:14] SPEAKER_00: and I was in the Cabinet in the Biden years,
[18:16] SPEAKER_00: they shut off your Social Security account,
[18:18] SPEAKER_00: so nobody can screw around with it.
[18:20] So I had to convince them that I was who I was,
[18:22] so they would turn it back on.
[18:25] SPEAKER_01: Okay.
[18:26] SPEAKER_01: So I actually run, uh, uh, I run my Medicare through the CUNY, uh,
[18:33] SPEAKER_01: healthcare plan.
[18:37] SPEAKER_01: Actually,
[18:40] SPEAKER_01: people say that choice is good,
[18:43] SPEAKER_01: but when I first moved from Princeton,
[18:45] SPEAKER_01: I had a choice actually of going on New York Times or CUNY Healthcare,
[18:50] SPEAKER_01: and I went with the Times at the time.
[18:52] SPEAKER_01: The reason was partly CUNY is a poor,
[18:56] SPEAKER_01: we're a public university operating on a shoestring budget,
[18:59] SPEAKER_01: but
[19:01] SPEAKER_01: At times,
[19:02] SPEAKER_01: I had to switch,
[19:03] but I went to CUNY because it's actually a New York State-owned
[19:08] institution.
[19:09] SPEAKER_01: They're obliged to offer you a menu.
[19:11] SPEAKER_01: They actually have 19 different plans.
[19:14] SPEAKER_01: I took a look at the 19 different plans.
[19:16] SPEAKER_01: and I could not figure out.
[19:19] And I went up to HR and asked them,
[19:21] can you explain to me the difference between these plans?
[19:24] SPEAKER_01: And they said, no.
[19:26] And I originally went with the Times precisely because they
[19:29] didn't offer me any choice.
[19:30] SPEAKER_01: And now I was forced to choose,
[19:32] SPEAKER_01: but I basically just asked the head of the Stone Center what she uses.
[19:39] Before we squander our minutes with a couple of boomers
[19:43] complaining about the health cares,
[19:45] SPEAKER_00: By the way,
[19:47] somebody wrote a question that I don't think we want to get
[19:50] into right now just for
[19:51] SPEAKER_00: time,
[19:51] SPEAKER_00: but it's a great question,
[19:52] SPEAKER_00: which is,
[19:53] SPEAKER_00: how come nobody ever talks about the defense budget in this context?
[19:56] SPEAKER_00: And I think it's a completely legitimate question.
[20:00] I think it's a good question,
[20:01] except that,
[20:02] look,
[20:04] it's not huge these days.
[20:06] SPEAKER_01: I mean, defense is like 3% of GDP.
[20:09] SPEAKER_01: This is not the Eisenhower.
[20:10] SPEAKER_00: It's an important point.
[20:11] SPEAKER_01: You're right.
[20:15] SPEAKER_00: It's a good point.
[20:15] SPEAKER_00: You're right.
[20:16] SPEAKER_00: It's not huge.
[20:17] SPEAKER_00: But even that point should probably be raised in this context.
[20:20] SPEAKER_01: Well,
[20:21] SPEAKER_01: I mean,
[20:21] SPEAKER_01: a few years ago,
[20:22] SPEAKER_01: people used to say,
[20:23] SPEAKER_01: why are we spending all this money on conventional weapons?
[20:27] SPEAKER_01: There aren't going to be any.
[20:28] you know,
[20:28] full-scale conventional wars in the 21st century,
[20:31] and then guess what?
[20:35] SPEAKER_01: Tell that to Kyiv.
[20:37] SPEAKER_01: So I think they,
[20:38] SPEAKER_01: unfortunately,
[20:39] I don't think you can make the case that there's a lot of fat
[20:41] in the defense budget
[20:42] SPEAKER_01: now.
[20:43] SPEAKER_01: There's way fraud and abuse, but it's not.
[20:46] SPEAKER_00: Let's shift over to monetary policy.
[20:51] SPEAKER_00: Grant B.
[20:52] SPEAKER_00: says,
[20:52] SPEAKER_00: with whom is Trump likely to replace Powell at Powell's end of term,
[20:55] SPEAKER_00: which comes next May,
[20:57] SPEAKER_00: I believe?
[20:59] SPEAKER_00: And then how much ability will Trump have to mess with interest rates?
[21:03] SPEAKER_00: I personally am not going to play name games.
[21:06] SPEAKER_00: Paul is welcome to if he wants.
[21:07] There's a couple of Kevins who've been mentioned,
[21:10] Kevin Warsh,
[21:11] Kevin Hassett.
[21:11] SPEAKER_00: We'll see about that.
[21:13] SPEAKER_00: What I want to get into,
[21:14] SPEAKER_00: and again,
[21:14] SPEAKER_00: Paul,
[21:14] SPEAKER_00: feel free to go wherever you want,
[21:16] SPEAKER_00: is the second part of the question.
[21:19] SPEAKER_00: How much ability will Trump have to mess with interest rates?
[21:22] SPEAKER_00: Certainly if he has a hand-picked person, perhaps there's some kind of a,
[21:27] SPEAKER_00: agreement that they'll be susceptible to more pressure than Powell is.
[21:33] The question I wanted to get into a little bit is you'll
[21:35] probably hear people like
[21:36] SPEAKER_00: myself and Paul talk about the importance of Fed independence,
[21:39] SPEAKER_00: Federal Reserve independence.
[21:41] SPEAKER_00: We often don't give you too many sentences as to why that's important.
[21:45] SPEAKER_00: So let me kick that to you, Paul.
[21:47] SPEAKER_01: Okay,
[21:48] SPEAKER_01: first,
[21:48] SPEAKER_01: I mean,
[21:49] SPEAKER_01: I'm assuming that Kevin Warsh is the main contender,
[21:53] SPEAKER_01: and I do know him,
[21:55] SPEAKER_01: and...
[21:55] SPEAKER_01: All right,
[21:55] SPEAKER_01: I'll get in trouble for this,
[21:56] SPEAKER_01: but talk to Kevin Warsh for five minutes,
[21:59] SPEAKER_01: and you'll find him extremely impressive.
[22:01] SPEAKER_01: Talk to him for ten minutes, a lot less so.
[22:04] SPEAKER_01: I'll just leave it there.
[22:05] SPEAKER_01: The, um...
[22:11] The thing about monetary policy,
[22:13] and it's an odd thing,
[22:14] is it is too easy to use.
[22:21] involves,
[22:21] you know,
[22:22] you have to draft legislation,
[22:23] get it through Congress.
[22:26] Ordinarily there are hearings,
[22:27] there's some opportunity to discuss whether it's a good thing.
[22:29] SPEAKER_01: Monetary policy is the Board of Governors meets,
[22:35] tells the open market desk in New York to lower the range for
[22:41] the Fed funds rate.
[22:42] And it's seamless,
[22:44] it's instant,
[22:45] which means that a government that wants to
[22:50] goose the economy in advance of an election or just goose the
[22:54] economy because the
[22:55] SPEAKER_01: president thinks that he knows,
[22:58] SPEAKER_01: understands economics better than the staff at the Federal Reserve,
[23:03] SPEAKER_01: can do it on a moment's notice,
[23:05] SPEAKER_01: can do it painlessly.
[23:07] SPEAKER_01: And that's, you want some
[23:11] SPEAKER_01: You want some sand in the gears there.
[23:12] You want something that slows it up,
[23:14] because the potential for abuse is too large.
[23:17] SPEAKER_01: There are plenty of real live examples,
[23:19] SPEAKER_01: but the case du jour is the last few years in Turkey,
[23:24] SPEAKER_01: where Erdogan,
[23:26] SPEAKER_01: who is a kind of Trump-like character,
[23:28] decided that he believed in a heterodox monetary doctrine where
[23:33] cutting interest
[23:34] SPEAKER_01: rates fights inflation.
[23:36] And inflation had to hit about 100 percent before he decided
[23:39] that maybe he had been ill-advised.
[23:43] SPEAKER_00: Yeah, exactly right.
[23:45] SPEAKER_00: I really have almost nothing to add to that.
[23:48] SPEAKER_00: I've written about this.
[23:49] SPEAKER_00: When I was at the CEA, we wrote a piece about
[23:52] SPEAKER_00: about Fed independence.
[23:54] And we posted a graphic showing the ability of the Federal
[23:59] Reserve to anchor
[24:00] SPEAKER_00: inflationary expectations,
[24:02] SPEAKER_00: that is to keep price setters,
[24:05] SPEAKER_00: businesses,
[24:05] SPEAKER_00: wage setters thinking about inflation,
[24:09] SPEAKER_00: staying largely where the Fed wanted it to be.
[24:11] And it seemed to be quite linked to the growth of the
[24:15] independence of the Federal
[24:16] SPEAKER_00: Reserve through the very channel Paul just described.
[24:20] SPEAKER_01: Anyway,
[24:20] SPEAKER_01: quick analogy,
[24:21] SPEAKER_01: it's a little bit like,
[24:22] SPEAKER_01: you know,
[24:22] SPEAKER_01: everybody says,
[24:23] SPEAKER_01: do not eat ultra processed food.
[24:26] SPEAKER_01: And one of the reasons is it's too easy to overindulge in it.
[24:29] And that's kind of why do not take away the independence of the
[24:32] Federal Reserve.
[24:34] SPEAKER_00: Right.
[24:34] SPEAKER_00: You know,
[24:35] SPEAKER_00: as you were talking,
[24:35] SPEAKER_00: I was thinking about,
[24:36] SPEAKER_00: like,
[24:37] one thing about Trump and his kind of king-like approach to his
[24:42] job is that
[24:43] SPEAKER_00: he—here's a point that I think people probably recognize,
[24:47] SPEAKER_00: if you think about it for a second.
[24:48] SPEAKER_00: The man hasn't legislated anything yet.
[24:51] SPEAKER_00: I think I'm right about it.
[24:51] I don't think he's legislated one bit of legislation,
[24:54] and yet he's wrecked tremendous havoc.
[24:56] SPEAKER_00: Why?
[24:56] SPEAKER_00: Through all these executive orders.
[24:59] SPEAKER_00: And so one way, clearly he doesn't like to screw around with Congress.
[25:04] I mean,
[25:04] he's about to get himself involved in this tax bill and
[25:09] squabbling with Congress.
[25:10] SPEAKER_00: Let me tell you, I've done too much of that myself.
[25:14] SPEAKER_00: It's not easy.
[25:16] When you have the Federal Reserve at your beck and call,
[25:20] more king-like powers.
[25:22] SPEAKER_00: And, yes, bad things will transpire.
[25:25] SPEAKER_00: Great.
[25:26] SPEAKER_00: We're just burning through questions here.
[25:28] SPEAKER_00: Let me see.
[25:28] SPEAKER_00: With four minutes, I think I'll go to our last question, Paul.
[25:31] SPEAKER_00: If you have more time after this,
[25:32] SPEAKER_00: I'll dial back,
[25:33] SPEAKER_00: because this is directly about a piece that you wrote today.
[25:38] SPEAKER_00: Paul, in your late—well, they called you Mr. Krugman.
[25:40] SPEAKER_00: I'm not going to call you Paul.
[25:42] SPEAKER_00: In your latest piece,
[25:42] SPEAKER_00: you talked about the three Ds of Trump's economic policy—denial,
[25:47] SPEAKER_00: deregism,
[25:49] SPEAKER_00: and deception.
[25:50] SPEAKER_00: Could you please explain the connection between the three?
[25:54] Well,
[25:54] the first is they all begin with the letter D,
[25:57] which is kind of why I went that way.
[25:59] SPEAKER_01: But the denial,
[26:00] SPEAKER_01: look,
[26:01] SPEAKER_01: I was actually,
[26:02] SPEAKER_01: I mean,
[26:02] SPEAKER_01: we know that Trump has been claiming there is no inflation,
[26:05] SPEAKER_01: but okay,
[26:05] SPEAKER_01: that's Trump.
[26:06] SPEAKER_01: But Scott Bethan,
[26:08] SPEAKER_01: who was supposed to be the adult in the room,
[26:10] SPEAKER_01: just went on TV on Sunday and said,
[26:14] SPEAKER_01: oh,
[26:14] SPEAKER_01: everything's fine because gasoline prices have collapsed.
[26:19] which is absolutely not true,
[26:21] and you don't even have to believe the deep state.
[26:26] I went to gasbuddy.com,
[26:27] which is completely independent,
[26:30] and it just ain't so.
[26:32] So now we have the Treasury Secretary who is either lying
[26:36] through his teeth or
[26:37] SPEAKER_01: living in a fantasy world or both.
[26:39] SPEAKER_01: That's not a good sign,
[26:40] and that's not a good sign for how we're going to manage the
[26:43] inflationary hit that
[26:44] SPEAKER_01: we're about to get from tariffs.
[26:49] I don't think there is actually a good English word for it,
[26:54] or that is the English word now.
[26:56] The French used to at least claim that their technocrats were
[27:01] giving a lot of
[27:01] SPEAKER_01: direction to private business.
[27:04] SPEAKER_01: And it kind of worked or maybe did.
[27:07] But it's a hell of a difference between having a graduate from
[27:11] the elite technical
[27:12] schools in France conversing with corporations and trying to
[27:16] give them guidance and
[27:17] SPEAKER_01: having,
[27:17] SPEAKER_01: you know,
[27:18] SPEAKER_01: again,
[27:19] had Donald Trump in between posts attacking Taylor Swift and
[27:22] Bruce Springsteen
[27:23] SPEAKER_01: trying to tell Walmart what to do.
[27:25] SPEAKER_00: So it's a good quick definition of Derrige's.
[27:28] SPEAKER_00: How do you say it, by the way?
[27:31] SPEAKER_01: I think it's Deer Giesman.
[27:33] SPEAKER_01: I'm monolingual, so don't ask me.
[27:37] Is a good definition of that word essentially the government
[27:40] getting into private
[27:42] SPEAKER_00: sector economic decisions?
[27:44] SPEAKER_01: Yeah, it's kind of guidance.
[27:46] SPEAKER_01: It's not central planning.
[27:47] SPEAKER_01: They're not issuing orders exactly, but if you're a Renault and you're
[27:55] and the minister of whatever says that we really think you
[27:59] should not be charging
[28:01] SPEAKER_01: so much for your latest de chevaux or whatever,
[28:06] SPEAKER_01: then you probably take it seriously.
[28:10] SPEAKER_01: During the great post-war boom,
[28:12] SPEAKER_01: which the French had as well as we did,
[28:14] SPEAKER_01: there was a lot of that,
[28:15] SPEAKER_01: at least in principle.
[28:16] I suspect most of it was just pretending that they were in
[28:19] charge,
[28:20] but still,
[28:21] SPEAKER_01: You know, it wasn't completely crazy.
[28:24] SPEAKER_00: So how would you connect the three, denial, dergisme, and deception?
[28:30] SPEAKER_01: Well,
[28:31] SPEAKER_01: and the worst is suppose that they,
[28:32] SPEAKER_01: you know,
[28:33] SPEAKER_01: in the end,
[28:34] SPEAKER_01: they can't actually force Walmart to not pass through the tariffs,
[28:37] SPEAKER_01: or if they try to,
[28:38] SPEAKER_01: it leads to empty shelves.
[28:41] SPEAKER_01: They can't, you know, they...
[28:46] the insistence of Trump and the people around him that prices
[28:49] aren't rising is
[28:50] SPEAKER_01: contradicted by the numbers,
[28:52] SPEAKER_01: by the CPI,
[28:53] SPEAKER_01: which is coming out of the Bureau of Labor Statistics.
[28:56] So they fire the head of the BLS and tell the new head to
[29:01] report better numbers.
[29:03] And that sounded,
[29:04] you know,
[29:05] I've had many people say,
[29:06] oh,
[29:07] they can't do that.
[29:08] SPEAKER_01: But, you know, it's happened in authoritarian regimes,
[29:12] SPEAKER_01: all around the world.
[29:13] SPEAKER_01: And it happened in Argentina.
[29:15] They actually issued an apology and put out revised numbers for
[29:19] the years when
[29:20] SPEAKER_01: they'd been faking it.
[29:21] SPEAKER_01: And you say, well, we're not Argentina, but are you sure of that?
[29:26] SPEAKER_01: I mean, we look more and more like that kind of country.
[29:30] SPEAKER_01: So I can easily imagine that happening.
[29:32] In fact,
[29:32] I would come close to predicting that it will happen within a
[29:35] year or two.
[29:37] SPEAKER_00: Okay,
[29:38] SPEAKER_00: so it's 12.30 and we usually would stop now,
[29:40] SPEAKER_00: but I want to end,
[29:42] SPEAKER_00: if you don't mind,
[29:42] SPEAKER_00: with another,
[29:43] SPEAKER_00: can you give me another minute or two?
[29:45] SPEAKER_01: Yeah, I only have two more of these to do later today.
[29:52] SPEAKER_00: Okay, well then I'll take 60 to 90 more seconds.
[29:56] SPEAKER_00: Let's revisit the conversation you were having before we came on,
[29:59] SPEAKER_00: because I'm not trying to end on a high note at all.
[30:03] SPEAKER_00: I agree with everything Paul said today, including his last statement.
[30:07] SPEAKER_00: The damage that this administration has done,
[30:10] and even if they're able to roll some of it back through
[30:14] off-ramps on the trade
[30:15] SPEAKER_00: war,
[30:15] SPEAKER_00: it is lasting damage.
[30:17] SPEAKER_00: It is lasting deep and profound damage.
[30:19] SPEAKER_00: The doge cuts,
[30:20] SPEAKER_00: the trade war,
[30:22] SPEAKER_00: Fed independence,
[30:22] SPEAKER_00: everything we've talked about today,
[30:24] SPEAKER_00: this budget.
[30:25] SPEAKER_00: But I want to say one thing before we leave, which is they are racking up
[30:33] SPEAKER_00: A lot of resistance.
[30:35] A contrarian is kind of a resistance home base,
[30:38] so I think this is resonant to many folks here.
[30:42] SPEAKER_00: They are losing in the courts.
[30:44] They are just doing horribly in public opinion,
[30:47] including business and consumer confidence.
[30:49] SPEAKER_00: They're getting pilloried from The Wall Street Journal to MSNBC.
[30:53] SPEAKER_00: Deeply, deeply unpopular.
[30:55] SPEAKER_00: And losing cases left and right.
[30:59] SPEAKER_00: I am not sugarcoating anything.
[31:00] SPEAKER_00: I'm not trying to end on a high note by a long shot.
[31:03] SPEAKER_00: I don't hear many high notes these days.
[31:06] SPEAKER_00: But I also want to be realistic about their unpopularity and the fact,
[31:13] SPEAKER_00: and I think it is a fact,
[31:14] SPEAKER_00: that such deep incompetency has hurt them.
[31:19] SPEAKER_00: Paul?
[31:20] Yeah,
[31:20] I mean,
[31:20] this is a...
[31:21] I wrote a sub-stat post called Did Peter Navarro Save
[31:26] Democracy?
[31:27] It has the incompetence of the trade policy,
[31:31] along with a lot of other things.
[31:33] SPEAKER_01: I mean, I think...
[31:37] At least the clear and present danger when an would-be
[31:42] autocratic ruler comes in is
[31:45] SPEAKER_01: that everybody rolls over,
[31:47] SPEAKER_01: and by the time people realize just how bad it is,
[31:50] SPEAKER_01: it's too late.
[31:53] Some people have been rolling over,
[31:54] and shame on them,
[31:56] but a lot of people have not.
[31:58] SPEAKER_01: There's been a lot of resistance.
[31:59] SPEAKER_01: The courts have been standing up in most cases.
[32:01] SPEAKER_01: A lot of institutions have been standing up.
[32:03] The universities,
[32:05] after a bad start,
[32:06] are standing up,
[32:08] which gives us time.
[32:10] SPEAKER_01: I'm a lot less scared than I was two months ago.
[32:14] SPEAKER_00: That's incredible.
[32:15] SPEAKER_01: I'm still scared.
[32:15] SPEAKER_00: Yeah, yeah.
[32:20] We are,
[32:21] in a weird way,
[32:22] we're fortunate that these people are such fuck-ups.
[32:26] SPEAKER_01: That if Trump was as smart as Viktor Orban, U.S.
[32:31] SPEAKER_01: democracy would be over.
[32:33] SPEAKER_01: And so he's not.
[32:35] SPEAKER_01: And the people around him are definitely not.
[32:37] SPEAKER_01: So, you know, there's hope.
[32:39] SPEAKER_00: You know,
[32:40] SPEAKER_00: when Paul Krugman says,
[32:41] SPEAKER_00: I am less scared than I was two months ago,
[32:43] SPEAKER_00: still scared,
[32:44] SPEAKER_00: but less scared,
[32:45] SPEAKER_00: that is movement in a good direction.
[32:50] SPEAKER_00: And it's conversations like this one,
[32:52] SPEAKER_00: people here,
[32:53] SPEAKER_00: like the folks here,
[32:55] SPEAKER_00: sites like The Contrarian work like this.
[32:58] SPEAKER_00: Resistance is not futile.
[33:00] SPEAKER_00: That's my message.
[33:02] SPEAKER_00: Thank you, Paul.
[33:04] SPEAKER_00: Thanks, Jared.
[33:05] SPEAKER_00: Take care.
[33:05] SPEAKER_00: Keep up the good work.
[33:06] SPEAKER_00: You too.

Shows are listed from Apple Podcasts' charts and directory, and Podcast Index where it is used. Every show and episode belongs to its publisher and plays from the publisher's own feed; this site hosts none of them.