How Paul Krugman Would Fix The Economy: Solutions with Henry Blodget

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Hi, everyone.

This is Pivot from New York Magazine and the Vox Media Podcast Network.

I'm Kara Swisher.

We're off for the holiday today, but we have an episode of a new show for you, Solutions with Henry Blodgett.

Every Monday, journalist, analyst, and entrepreneur Henry Blodgett interviews leading thinkers across business, tech, politics, and beyond about their big ideas for how to build a better future.

In this episode, Henry asked Nobel Prize-winning economist Paul Krugman about the most pressing problems facing the U.S.

economy and how he would fix them.

I also recently sat down with Henry for an upcoming episode.

We talked about how to be excellent and successful in life and work.

Obviously, I have a lot of ideas and a pretty good track record.

In fact, I think it's excellent.

We also talked about politics, and I told Henry how I think Steve Jobs would have navigated Donald Trump's presidency and terrorist policy.

It was a fun conversation.

It'll be on YouTube in full full to follow Solutions with Henry Blodgett to make sure you don't miss it.

Enjoy, and we'll be back in your feeds on Friday.

Our economy is beset with at least concerns, and we are being hammered with narratives from two teams about smart policies, stupid policies, and evil and good.

In the midst of this and these concerns, we need to talk to somebody who can sort everything out out for us and speak in plain language, who really knows what they're talking about.

And there is nobody better to do that than Nobel Prize winner Paul Krugman.

Hello, everyone, and welcome to the first episode of Solutions with Henry Blodgett.

This show is not going to focus on the doom and gloom that is the very many problems we have in the world.

It is going to focus on solving those problems, or at least ideas to do that.

For our first episode, huge privilege to have a Nobel Prize winner, currently a professor at City University of New York, a columnist for 25 years at the New York Times and now an extraordinarily successful sub-stacker.

Paul Krugman does not hide the fact that he often supports the left-leaning team.

However, I think what you will find in this interview in particular that he's actually incredibly credible and he is driven by data and he says many things that in fact undermine the narrative that the Democrats are trying to tell.

And to me, that very much enhances his credibility.

Without further ado, here's my conversation with Paul Krugman.

Paul, let's jump right in.

First of all, privileged to have you.

Thank you very much.

President Trump did not like.

some job number revisions and within minutes fired the head of the BLS.

And so let's just start.

So, fair to say that the numbers were not rigged, which I think was the justification for the firing?

Yeah, I mean, if you take a look, you know, there's two ways to do this.

One is to ask, you know, how does the BLS actually do what it does?

And, you know, it's a process.

It's quite complicated.

If they were rigging the numbers, there would be whistleblowers all over the place.

There would be all kinds of, you know, we would know.

And there was no hint.

And, you know, what had actually, we've been talking a lot,

me and my sort of econ buddies.

There was a little bit of distance between the soft data surveys, which did suggest that the economy was kind of losing steam, not from recession, but losing steam.

And the hard data, which was still looking strong.

And guess what?

With the revisions, now those things are in line.

So this is not like, wow, everything was looking great and all of a sudden these Marxists at the BLS say it's terrible.

This was actually,

we were a little bit puzzled at why the surveys weren't quite, you know, the official surveys weren't quite matching the other evidence, which happens.

And now the picture all makes sense.

And it's nothing new to have political parties fighting over these statistics and claiming that they're biased one way or the other.

But

stepping back from that, why does the BLS matter to normal Americans?

Why do we care that there is a supposedly objective agency looking at these numbers?

Aaron Powell, Jr.: Okay, first of all, there's a lot of business decisions that actually do hinge on

what do we think is happening to the economy.

And the BLS is just the scale of what it does is beyond that of any individual.

You have

purchasing manager indexes.

Those give you some clue to what's happening.

We have ADP, which processes a lot of payrolls.

They produce numbers on, but they don't have anything like the scope of coverage

that the BLS has.

So

if you want to know where the economy is going, the first stop is BLS data.

And if you're a business, you want to make plans.

But the other thing is that

ultimately you want good policy.

And policy has to be based at least to some extent on real data.

So if you start to politicize this, if you start to have Bureau of Labor Statistics telling the president what he wants to hear,

we've seen that movie.

That's how you get something, I think, probably the closest parallels out there would be Argentina and Turkey.

In Argentina, for years, they faked the inflation statistics, which allowed the government to get away with irresponsible policies until finally they themselves admitted, you know, we've been faking these numbers.

That's a problem.

Turkey, you had the leader Erdogan, kind of in a lot of ways, a Trump-like figure

who

probably fiddled with the statistics and certainly politicized the central bank the way Trump wants to, and didn't finally start to back off until inflation hit 80%.

So you don't, this is

the, if, does this really damage business next month?

No.

Does it damage your prospects?

Does it make you think worse of what's likely to happen over the next next five years for sure?

Aaron Powell, Jr.: And so how does that play out?

You mentioned Argentina.

Another example that's brought up sort of in a comical way is Italy and Mussolini, who is apparently obsessed with the trains running on time.

And so force the trains to change the schedule and add an hour or what have you to every trip and suddenly all the trains are on time.

So how does this play out?

Assuming your fears and others' fears are that, in fact, now the numbers are going to be corrupted, they're going to be faked, and we will now have a narrative behind it.

How does that actually, how is it likely to play out?

Aaron Powell, well,

there are a couple of scenarios, and it could be both at once.

But the one I'd been worrying about mostly was that we,

the tariffs,

actually tariffs and deportations, which is a really big thing, really start to push up inflation.

Mostly, U.S.

companies have been

eating the tariffs so far.

But at a certain point, they say, okay,

looks like the tariffs are here to stay.

We can't afford to do this.

And that so consumer prices start to rise.

But what if the BLS, which produces inflation numbers as well as jobs numbers, what if the BLS is told there is no inflation and you are going to report no inflation?

Then

nothing is done.

Then

Trump keeps on pressuring the Fed to cut interest rates, even though inflation is accelerating.

And it doesn't take this is this is the turkey example, where

you do the opposite of what you should be doing, partly because you have decided to buy into

crackpot economic theories, but partly because you're suppressing the data.

And you wake up one day and you realize that you've got double-digit inflation.

And so that's one story.

The other is, what would have happened if we'd had a politicized BLS in 2008?

And we were plunging into the Great Recession.

And we had a BLS that had been ordered to not to report bad job numbers, and a president who insisted that the economy was hot and things were great,

we would have been kind of motionless.

We probably wouldn't have bailed out the financial system.

We wouldn't have had the Obama stimulus, which was inadequate but certainly helped.

We would have just been sitting there pretending that everything was fine until things were much worse than they actually got.

Aaron Powell, and so this is a podcast about solutions.

We lay out problems and then we talk about what we can actually do about them.

One of the things you've written recently is that you yourself will be relying more on private surveys.

Yeah.

Certainly if you're running a business, you're on Wall Street, you want to have as accurate data as you can about what's happening.

It's like the instruments being accurate when you're flying a plane.

What should everybody do?

If you start to not believe the BLS numbers, are there other numbers out there that we can trust?

And what will Wall Street and companies do?

Yeah.

So on inflation, there is something called the billion prices index that was originally Argentine economists devised, basically scraping the internet to produce an independent estimate of inflation.

We have one for the United States, which I relied on a lot during the Obama years.

Unfortunately, State Street Bank has acquired it.

It is now sitting there proprietary behind a paywall.

So we don't have, maybe they can be persuaded to make that index available, but there are others.

The Atlanta Fed Business Survey

asks businesses how much their costs have gone up in the past year, and I'm going to be watching that.

We have purchasing manager indexes, which ask companies,

have your prices gone up in the past month?

And that's a...

It doesn't ask the rate, but the percentage of companies saying, yes, they're up actually is correlated really strongly with actual inflation.

And there may be other ways, and maybe we can get to some of the people who put together the original billion prices index to start, you know, create a new independent one.

But we're going to probably need independent data sources if only to check on the official numbers.

Trevor Burrus, Jr.: Terrific.

And then, last question on the BLS and other agencies and numbers like this.

Assuming there is another election and we have another president who has a different view of numbers like this, are these reparable?

If these agencies get warped, can we go back and fix them later?

Yeah, Argentina eventually admitted that the numbers have been cooked and went back and produced revised series.

You know, their plays is Argentine numbers are okay now.

Argentina has gotten its issues, but Argentine, we don't now think of Argentina as a country that produces unreliable data.

So

this is not a permanent blow, but

wow, it's going to take a lot of, and hopefully, I mean, I think it'll be, I should be really important for an open admission that, hey, we were, you know, this was politicized for a while and

we're sorry and we will, we won't do it again.

That is encouraging to know that it can be fixed.

All right, let's talk about tariffs, which is obviously another huge item in the news.

So initially, when President Trump came out with his big board,

Most people assumed that this was just a negotiating ploy.

He'd get everybody to the table.

He'd get some concessions, real or headline or what have you, and then things would sort of go back to normal.

And you've pointed out recently that, no, fact, it seems like President Trump does love his tariffs and that we are now in a regime that you have called smootholly two.

What does that mean?

And what is it going to do?

Okay, so it looks as if.

I mean, there have been, effectively, there have been no deals.

There have been a few things that people call deals, but they're really empty.

And basically the United States has put on tariffs ranging from, for the most part, from 15 to 25% on just about everybody with no sign that

they're coming down again.

And

average tariff rate is something like 18%,

which happens to be just about what the average tariff rate was after Smoot Hawley back in 1930.

So we're we really are back in a,

you know, in a world of high tariffs as far as the eye can see.

And now, one thing I did write, again, Substack over the weekend,

economists are to some extent guilty of overhyping the damage protectionism does.

If the damage is real, the insight that free trade generally is good for

not everybody, but most people is right.

But if you actually try to plug the numbers into the very models that we use to say free free trade is good, they say that the cost of permanent tariffs on this level

are a fraction of a percent of GDP.

I say 0.4, you can fiddle with it to make it 0.5 or 0.6, but it's not, this is not a depression-level event.

The whole, you know, Smooth Holy caused the Great Depression.

That's a that's a legend.

Uh, it's not, it's not what really happened.

So, this will hurt.

It's not as

it's It's not as catastrophic economically.

If you ask me, actually, I think that the biggest issue is that everything we're doing on tariffs is illegal.

It's illegal under international law because we made agreements.

We have a free trade, signed free trade agreements with Canada, Mexico, and South Korea.

We have negotiated tariff rates, binding.

tariff rates with most of the rest of the world, all of which

Trump doesn't even mention why he's violating these.

And these were agreements that have to be passed by Congress.

These are not just

informal handshakes.

This is law.

It's basically U.S.

law as well as international law.

And then the president has the right to impose temporary tariffs under certain conditions, none of which are met by the current situation.

So everything that's happening is illegal.

And the fact that

the world's second largest or second largest economy, depending on how you count,

has just basically said, oh, you know, those agreements that we've made, never mind.

Those laws we passed, never mind.

Basically, we're now, we used to joke about China, that in China, a contract was a suggestion.

Well, America is now a place where a contract on the part of the U.S.

government is a suggestion, which the U.S.

government feels free to ignore.

And that's got to have, in the long run, a real chilling effect on international business.

Aaron Powell, Jr.: So let's talk a little bit about free trade, because I think what President Trump would say is: the reason we have not had tariffs in the past is that all other presidents have been stupid and weak.

And free trade means that the United States and Americans are being taken advantage of.

Our jobs are being taken away.

We're a big market.

We should be paid to allow people to sell here.

Why

is free trade good?

Why have we been moving toward free trade until this administration for 70 years or almost 100 years now?

And why ultimately is the argument that, no, we should protect Americans first not as sort of real as it seems?

Because it does feel to people when they hear it, you know, other countries taking my job away.

There's a very visceral feel to that.

And it's no mystery to me, at least, why a lot of Americans say, yeah, I finally want somebody who's looking out for us.

Aaron Powell, you know, this is why,

you know, this is part of the reason that economists make such a big deal about free trade, probably bigger than

its importance.

It is important, but we tend to blow it up partly because there's such a natural tendency to think that it must be a bad thing.

If I buy stuff from foreigners, then that's jobs we don't get at home.

So the basic, really important point is that actually two

basic points.

Whenever I start to do these, it turns into a Monty Python routine.

Nobody expects the Spanish accusation.

But anyway,

but

two things.

First is, you know, Trump says it should be reciprocal.

Well, actually, that's how we got to low tariffs.

It all starts with the Reciprocal Trade Agreements Act of 1934, where all of the tariff cuts that we have done have been, none of them were unilateral.

They were all, let's make a deal.

You cut your tariffs, we'll cut our tariffs.

And so we got down to a world of generally low tariffs everywhere.

You know, European Union tariffs on U.S.

manufactured goods were about 1%,

right?

Basically nothing.

And

the reason now the U.S.

runs a trade deficit, but the U.S.

also, you know,

when Trump took office, we were at

basically full employment.

We were at roughly a 4% unemployment rate, which is historically very low.

It's not like there was a large pool of Americans out of work because the imports had taken away their jobs.

We were doing different things.

And when you import something,

that's because it's worth something to you.

In fact, a lot of the imports that have been hit by Trump's tariffs are actually industrial inputs.

You know, we've now got 50% tariffs on

aluminum and steel.

You know,

we don't import aluminum and steel because it's a pointless luxury good.

We import aluminum and steel to make stuff.

And if you are

saying,

well, you know, we could produce the aluminum and steel at home,

but the fact that we're, if you're buying aluminum and steel from abroad at the 50% tariff, that says that

to produce it at home costs 50% more than to buy it abroad.

So you're paying a real price in terms of higher costs.

when you reduce trade.

And if you say, well, but we're going to,

you know, we're going to get jobs.

Well, we were at full employment.

If we do manage to create some jobs in manufacturing, which is very dubious, but they're going to be pulling people away from other stuff that was also productive.

The fact that you needed a tariff to do that is telling you that the stuff that people would have been doing otherwise was more productive.

than what they'll be doing after the tariff.

So this is not,

it's one thing.

I mean,

the the phrase, you know, bigger thy neighbor tariffs and all of that stuff comes from people during the Great Depression arguing that the usual arguments for free trade get a little bit dubious if you have mass unemployment.

And if we had mass unemployment, I mean, I was calling for back in 2010, I wanted a temporary

tariff against what against China for its undervalued currency because we had high unemployment and it was a a real problem.

But that's not where we are now.

I mean, you know, maybe

give Trump a year or two and we might have mass unemployment.

But at the moment, you're really saying, let's take people off jobs that America,

stop people from doing things that America is really good at and put them to work doing things that America is not that good at.

Lutnick, the commerce secretary, screwing tiny screws into iPhones.

This is not a productive use of American workers.

Aaron Powell, Jr.: Well, so let's talk about that.

I would say that in the business community, a lot of the frustration about the tariff policy is that it seemed very haphazard and emotional, and you can't plan because it changes all the time.

Maybe he's negotiating, maybe he's not.

You don't know what it's going to be.

Apple and the iPhone is a great example.

Apple has a world-class supply chain that they've taken three decades to build.

You can't just put that on a ship and send it to Texas.

Americans don't know how to make those things,

you know, do all that work and so forth.

And so we've had this century of comparative advantage.

Each country does what they're best at.

But

the argument for a lot of folks who do support President Trump is, yes, we had full employment, but we had full employment at jobs that suck.

And they pay little and they don't have benefits.

And they're so much worse than the manufacturing jobs that we used to have.

And nobody is looking out for us.

And finally, President Trump cares about us.

He wants to bring manufacturing back.

The way to do that is to put up walls and Americans can make their own stuff.

We don't need anybody else.

Is there anything to that?

Not really.

It is true that if you go back to like 1970, manufacturing jobs on average, not all, but there were a lot of good jobs in manufacturing.

What happened, but they weren't good jobs because manufacturing inherently has good jobs.

They were good jobs because manufacturing had unions that negotiated for good pay and good benefits.

And right now, with unions far weaker than they were, if you actually try to ask,

does manufacturing actually pay more than other parts of the economy?

And there's enough wiggle room in the data that you can say, well, maybe a bit more, maybe not.

But it's not dramatic.

If you actually ask, you know,

do manufacturing jobs generate middle-class incomes?

In general, they do not anymore.

If you ask what happened to American workers, it wasn't that we lost manufacturing jobs, it's that we lost worker power.

And there are a lot of places, anyway, we can go on about that some, but

if you were to ask where are the

where are there, where does our economy actually generate middle-class jobs, a lot of actually would be healthcare, right?

And

not manufacturing.

So the idea that by restoring, even if you could, which you can't, but let's get there, but even if you could restore manufacturing back to something like its historical share of employment, given everything else in the U.S.

economy, those would not be good jobs.

They would probably be, if anything, worse than the jobs that Americans have.

Aaron Powell, Jr.: And so let's talk about that on manufacturing, because I do think there is a general consensus that the decline of manufacturing in the United States is bad, and we should do something to rebuild manufacturing.

Sometimes it's a security argument.

We should be making chips and all these things that are so strategically important, shouldn't rely on China for that, our enemy, and so forth.

Other times it is the jobs argument.

Is there something inherent about manufacturing that does suggest that we should rebuild it as a country?

And then ultimately, yeah, well, I'll start later.

Yeah, well, let's start with.

I mean, the national security argument, properly applied, does make sense.

I mean, we do need to think.

One of the things I think that, you know, my views on

Section 232, the clause in U.S.

trade law that allows the president to impose tariffs for national security,

and I think it's Article 22.

Anyway, they're relevant, both domestic and international law.

10 years ago, we tended to think of those as being, you know,

who cared?

The world is flat and we don't need to worry about that sort of thing.

Now we've learned that the world is a more dangerous place than we thought.

And the importance of having domestic capacity in strategic sectors, that is a valid argument.

It's actually more of an argument for industrial policy than for tariffs, but it is an argument.

But that's a pretty small part of what we're talking about here.

And there's no way that

a tariff on Canadian aluminum is defending American national security.

Everything else, I think the most important thing to say is that the decline in manufacturing is not mostly about imports.

It is true.

Yes, we run a trade deficit in manufacturing.

And our manufacturing sector would be bigger if we didn't run that trade deficit.

But you can do the math on that and

lose all of our listeners if I try to go through it.

But my back of the envelope is that if we could,

right now, about 10% of the U.S.

workforce is in manufacturing.

Once upon a time, it was 25%.

If we could completely eliminate the trade deficit,

then manufacturing might go up to 12.5%.

So it would be a little bit bigger, but not anything like what it used to be.

And we can look, actually, Germany.

has a huge trade surplus.

Their trade surplus relative to GDP is about twice as big as

our trade deficit.

And their manufacturing sector is like 17% of GDP.

It's still substantially smaller than U.S.

manufacturing used to be in the good old days,

which is telling you that

there's a global decline in manufacturing.

Even China, the share of manufacturing and GDP has been declining.

And that's basically because we're so good at it.

You know, it's like, you know,

the United States is an incredible agricultural producer and there are almost no farmers.

And the reason that we have almost no farmers is that we're so good at growing crops that we don't don't need very many farmers.

And manufacturing to a large extent has

gone the same way.

There is a role for trade.

It's not zero.

But

nothing.

There is no conceivable way to get manufacturing back to being what it used to be, nor should we want to.

We're doing other stuff instead.

Aaron Powell, Jr.: And even in China, which is exceptional at manufacturing now, there are dark factories where there are no human workers anymore because they're getting so good at it.

Yeah.

In terms of what

robotics,

AI maybe, I'm not sure we're using that that much on the factory floor yet, but we probably will,

that can replace

a lot of workers.

When we do open new manufacturing plants in the United States, they tend to be kind of ghost towns.

And

there are

a few people watching to make sure that the machines don't go crazy.

And

there are some janitors.

And look, that's

like,

again, farms.

We have a lot of farmland.

And

some crops are being harvested still by

lines of men, mostly non-American born.

But a lot of stuff is just done with farm machinery.

And so,

which is fine, because there are plenty of other things that we need people for.

And we have never had a problem of

finding new things for employment.

But the idea that we're going to go back to having millions and millions of people in factories doing the old kind of factory jobs,

we'd have to lose all of our modern technology to do that.

Aaron Powell, Jr.: And so given that, we still have this problem, which you've written a lot about.

And I want to talk, start talking about inequality a minute, but let me just finish one on China.

But we do have this problem that, yes, we have full employment, but there's been a huge decline in the middle class, and that's contributed to a lot of the anger that we've seen in politics.

And I would say to the division we have now, and the sort of declines of old ways of living and so forth.

But one consensus these days seems to be that China is our enemy.

Is China our enemy?

And is it better

for the world if we want to have a secure, predictable world where we have prosperity and health and predictability?

Is it better if our economies are linked?

Or is it better if we build walls and separate completely?

Oh, no.

You see, I don't think.

I think that the Chinese economy and Chinese manufacturing prowess and that whole Chinese industrial ecosystem,

by and large, makes the world richer, makes the United States richer.

The fact that we trade with China actually improves our lives on a whole.

Now, that's not true for everybody.

There are some industries, and particularly when there was the big rush of China

imports,

sort of between the late 90s and the late...

2000s,

that was disruptive.

It came on so fast that it really undermined a significant number of communities.

So, you know, suddenly, suddenly, the furniture industry of North Carolina disappeared, and that was that was hard to cope with.

That's the China shock.

But that's all in the rearview mirror now.

And if we ask, would we be more prosperous if we didn't trade with China?

I think that's a very, very hard case to make.

I think almost certainly the opposite is true.

What is true is that China is a great power

militarily,

diplomatically,

and is not our friend, does not share our values.

So, this is having the world's greatest manufacturing power, which China definitely is, be also an autocracy that does not share,

well, I was going to say, does not share American values or does not share what we used to think were American values anyway.

Maybe we're headed for a world where there are two big autocracies.

But anyway,

but

the question of what if China tries to seize Taiwan,

which would be utterly stupid for them to do, but historically that has never been a barrier.

And is the United States well positioned for that kind of conflict or some other kind of conflict?

And arguably we have let some strategic parts of our industrial base that we should have held on to atrophy.

So that's the but it's a much narrower case.

But the argument that China makes us poor really does not.

It's very, very hard to make that work.

And so two questions to finish that.

One, with the strategic industrial base, if it's not tariffs that fix that, how do we rebuild a strategic industrial base?

Okay.

You know, a tariff is a very crude instrument.

A tariff

raises the possible profitability of companies, but it also raises the cost to consumers.

And we have,

you know,

you can subsidize, you can do industrial policy.

And it's gotten forgotten here, but

under the Biden administration, we had really two policies, the

Inflation Reduction Act, which had nothing to do with reducing inflation, but was mostly about green energy, and we had the CHIPS Act, which was about technology, both of which were subsidizing manufacturing production in certain areas that we,

either for environmental or for strategic reasons, we thought were important.

And

they did a lot.

Manufacturing construction doubled under Biden.

It's now been falling off under Trump because tariffs are a very crude, kind of ineffectual way to promote industry.

And

literally just subsidizing manufacturing, production, and investment is a much more effective tool.

We can do it.

We demonstrated we could do it during the last administration.

Other countries have done it.

The Chinese have.

The Chinese don't have a whole lot of tariffs.

They do have some, but mostly they have industrial policy.

Japan, and it's, you know, hey, they did

industrial policy.

So we can do this.

And tariffs are not the answer.

And especially,

you know, putting a

there's nothing about rebuild.

Even if you're concerned about America's underlying economic strength and our ability to handle stuff.

Putting a tariff on bananas does not help.

So

this is really...

Trump loves tariffs, likes the idea.

But if you actually try to do any kind of economic analysis, what it really says is to the extent that we have issues, and we do,

subsidies and industrial policy are the way to go.

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And on China, so much more comprehensive industrial policy.

Certainly, China has subsidized and plays companies off against each other and the government invests in companies.

There's been a lot of discussion discussion recently of how it is that China has vaulted past the United States and a lot of technologies and where do we miss it.

But just one philosophical question when I listen to the arguments about China, there seems to be this conceit that if we can only get our China policy together, we can somehow keep America number one,

keep China down.

When I look at the world from a very clueless position or lay position, I would say is there was a moment 100 years ago when a lot of countries in Europe were number one, the British and so forth.

The United States blew past a lot of the countries in Europe.

So we're number one now.

But you visit Europe, you know what?

People still have pretty nice lives and they have jobs and they have prosperity and peace and it looks pretty good.

And yet Americans seem incredibly concerned with this idea that we have to be number one forever.

That means keeping China down, keeping everybody else down.

Is that realistic?

is it really going to matter if ultimately everybody in the world agrees that China is way more powerful economically than the United States?

Okay, from this point of view of prosperity, not at all.

I mean,

I wish more Americans would sort of, you know, we talk about old Europe and declining Europe.

Well, that's overstated.

But it's true that they've lacked some.

But, you know, try walking around.

Try walking around Copenhagen or Amsterdam and ask yourself, does this look like a terrible place?

Yeah, hell, yeah.

And

the,

you know, actually, particularly what's, what's funny is Denmark,

I like, Denmark in some ways does it better than anybody else.

In Denmark, they do have lower GDP per capita than we do.

And the reason is, unlike Americans, the Danes take vacations.

It's all about, it's all about how lazy you're out.

So,

so, so no from the that point of view that and and look we are not going to be able to keep china a second-rate power or a significantly inferior power to the united states um the uh for the simple reason that there's a lot of chinese and they don't have to be as good as we are to have a bigger economy they all only they only they probably do have a bigger economy now

if you adjust for purchasing power uh with probably about a quarter of our productivity, but they've got four times as many people.

So the only reason to be concerned is to be

is that there's possible geopolitical conflict.

And you do want at least not to be

to at least maintain some kind of parity in terms of overall power, if only because

I hope

given rational leadership in China,

any kind of military conflict would be really stupid.

But again,

history tells us that's no necessary bar.

Look, a parallel.

The rise of Germany before World War I.

The German economy grew substantially more than the British economy.

Did that hurt

Britain economically?

Almost certainly not.

It almost certainly made Britain richer.

But it did mean that Britain's ability to maintain the balance of power in Europe and avoid war kind of went away because Germany got too powerful.

And so we do worry a little bit that a really powerful China might be a threat to world

peace.

Now,

I would have said, as opposed to the United States, which has been kind of a benevolent hegemon, but I'm not sure we're that country either.

But some kind of balance.

That's all that we would look for now.

Nobody,

if you think that we can push China back into second-rate status, that's delusions of grandeur.

We We don't have that ability.

Aaron Powell, yes.

And one of the things that was unnerving to me after a lot of the initial tariff announcements is the way the rest of the world immediately started rerouting around the United States.

And suddenly we get left out.

And it turns out, you know, China can do business with everybody else directly.

They don't need us in the middle.

And so one of the questions that I have is: what are we doing to our own place in the global supply chains and economies?

Yeah, I mean, this is the whole thing.

We are no longer the essential country.

We are a big player.

We have a big market.

But the idea that we can dictate stuff to the world is no longer there.

And, you know, the late Joe and I

talked about soft power.

A large part of America's ability to still

have a disproportionate influence on the world came from the fact that in a variety of ways,

everything from

technology, but also stuff like culture and just a reputation of the United States as being a place that

rule of law, a place, you know, you could go to America to do business and not

be worried that the secret police might arrest you.

And what we're busy doing is we're throwing away our soft power.

We are much weaker

relative to China than we were six months ago.

And not because, and you don't find that in the industrial production numbers.

You find it in the fact that, I mean, I have European academic friends who still come on visits to the United States, but

they leave their mobiles

behind and take burner phones because they're afraid.

It's not very likely, but that they might get pulled over and somebody will find that they sent some texts critical of Donald Trump.

And, you know, this is not the America we were supposed to be.

Let's talk about inequality.

You're writing an amazing series on your Substack and publishing elsewhere on inequality.

It's really advancing a lot of the work that I've seen on this.

In your series, basically, what you start with is this observation that in the 1920s, we had the robber baron era and we had enormous inequality.

We went through the Great Depression and we actually had a period in the middle of the century of relatively reduced inequality.

And now we have come out and we're this big U shape over the century where we've gotten right back to the levels of the 1920s.

So, so what is going on there?

Well, okay.

So, there's some things that are kind of

normal, invisible hand stuff, the markets.

No question that technological

change increased to some extent

the premium on high education, although that's mostly an 80s and 90s thing.

Globalization contributed at least a little bit.

There were some labor-intensive jobs that were eliminated, and that reduced the demand for labor.

But the more you study it, the more you realize that

politics and institutions are really the big drivers of changes.

I mean, so I grew up

in that middle-class era.

My father was a middle manager and our

street had a mixture of

sort of like middle management and elite blue color workers, plumbers and things, all on the same street, all with

similar incomes.

That was the world we lived in.

Well, that society did not, that middle class society did not evolve gradually.

That's one of the great discoveries.

I mean,

Claudia Golden, the one I Nobel recently for labor economics, is one of her great works was showing that

the sort of middle classification of America happened not

over the course of decades, but basically in about six years.

during World War II and the New Deal.

Suddenly, the Great Compression.

And what happened there was partly that under wartime controls, new norms of equality were established.

And also, unions became vastly more powerful, and unions ended up being a big force for inequality.

Just expectations.

How much would you pay CEOs?

And that lasted.

You might have thought, well, once the war and the wartime controls were over, that would go away.

But in fact, it lasted for 30 years and then gradually unraveled and then really accelerated

post-Reagan, which is you have the busting of the unions and actually even more important, aggressive tactics that stopped unionization of

the new big firms.

So we went from a world in which General Motors, unionized, was the big employer to a world in which Walmart and Amazon, not unionized, are the big employers.

There's no inherent economic reason why Amazon and Walmart couldn't be unionized.

And in fact, in Europe, big box stores and so on are unionized.

So all of that means that the forces that kind of held inequality in check were demolished pretty much politically.

And

there's a lot more to it.

The rise of finance,

which is both a source of high incomes and something that pressures companies into harsher policies towards their workers is also part of the story.

But I think you want to

say that there's a lot more wiggle room.

The invisible hand of the marketplace does not

tell you

how unequal your society is going to be.

It puts some limits.

You can't have 100% top marginal tax rates.

But

there's a lot of room for differences and levels of inequality.

And again, if you look at

Scandinavian countries now,

they're

competing in the same global economy we are.

They're using the same technology we are.

They have vastly,

their levels of inequality look more like the United States I grew up in than like the United States we have now.

And you've done a lot of great work showing that it's

part of what's happening is that it's not the 1% and the 99%, but in fact, it's really within that 1%,

it's the 0.01%

who are running away with just an extraordinary percentage of the assets of the country.

Extraordinary, 10%, I think, but it's also U-shaped.

And so we're back in that area.

It's a very small sliver.

But let me, before we really get into

how we can address this, why is that bad?

Because when I talk to people who are in the 0.01%, who often are very good people and care about other people and are not rapacious robber barons and so forth.

They will say, you know, I'm not,

why is it bad if I am particularly rich?

You know, when the society gets richer and I create jobs and companies and everything else.

Why is this extreme inequality bad?

Aaron Powell, well, first of all, there is, you know,

you might say, well, if the country gets richer, well,

we have not grown.

The U.S.

economy has grown

actually a little bit slower since the big rise in inequality began,

circa 1980, than it did before.

So it's not like we're growing faster, and a significant amount of the growth has been siphoned off to a handful of people at the top.

So just in mechanical, arithmetic terms, yeah, well, in some sense, your wealth is coming at the expense of

the other 99.9%.

But it also distorts

it distorts our politics.

I mean,

I think I started that series by quoting Woodrow Wilson, of all people, who said, if there are men big enough to own the U.S.

government, they are going to own the U.S.

government, and we need to stop it.

And,

you know, we've kind of seen that.

Well, you know, Musk has had a falling out, but the idea that somebody who

has really no claim to

political influence certainly hasn't won an election, has no claim to it except being extremely, extremely rich, gets to lay off thousands of workers and close down government agencies.

That's not a healthy situation.

Then you need to get subtler.

I mean, this is just subjective, but I think people do feel it.

High levels of inequality mean that

an amazing fraction of Americans feel like they're losers, feel that they are left behind.

It does take some toll.

I mean, and it's, you can say, oh, people shouldn't be envious or whatever, but look, we're human beings.

And if you see that

it does appear that a few people have made it

and not me, that that does

hurt.

Yeah, I sometimes say that American society now, it's like those old

Army Marine movies where the guy says, look at the man to your left, look at the man to your right.

Only one of you three is going to make it.

It's kind of, yeah, but on a much expanded scale.

The scale,

let me tell you a weird thing.

I actually find living in New York City

is oddly relaxing in financial terms because no matter how much money you make, there's somebody a mile away who makes so much money that whatever you make is ridiculous.

So this, it just does not make sense to measure yourself that way.

And the other way, who makes so little money that you feel incredibly fortunate.

Yeah, no, so it's,

but for the most part, that's not how it is.

We are a society where we have,

it's just very clear that there are winners and losers, and

in which people with a great deal of influence don't

live in the same material universe as the rest of us.

If you've been watching, you know, they say, you know,

Howard Lutnick, our commerce secretary, who is an endless source of comic relief, but still

him saying, well, you know, people are worried about disruption of social security, but if my mother-in-law missed a social security check, she wouldn't complain.

It's like,

yeah, because

her son-in-law is a billionaire.

Most people don't have that, you know, but this complete inability to, when people who have a great deal of power have absolutely no idea how normal people live, that has got to be a corrosive for the society.

Let me just ask you, like, okay, so here we are, and it seems to me that the current administration, the policies are actually designed to increase inequality, make it even easier to make massive fortunes and so forth.

What could we do to actually

make things less inequal?

And one thing I think which we saw in 2008 is if the stock market crashes, that actually rejiggers on the wealth side a little bit.

But in a happy way, what could we do as a society?

Well, you know, the old-fashioned, rather boring tools,

progressive taxation.

and

social safety net programs

are a pretty big deal.

I mean,

a lot of people, I say a lot of people on the left start saying, oh, Obama didn't change anything.

And yeah, he didn't change the fundamental trajectory of American society, but he did give us something a lot closer to universal health care.

And he paid for it largely with capital gains taxes on the wealthy.

And if you were to go back and ask, there was this whole phenomenon of Obama rage.

People just hated him

on Wall Street.

And

some of that was because they felt that

he didn't respect them.

But a lot of it was just, hey, they were paying somewhat higher taxes.

And it was being used for a good purpose.

It was being used to provide health care.

Now,

if you ask, how did we get from,

there was a great old article in Fortune, like in 1955, about

CEOs, and it was comparing CEOs with the way they lived in 1955 with the way they had lived in 1935, and saying, you know, their lives are a lot more modest and so on.

And first of all, it basically said they're just as happy as they used to be.

But it also said that, you know, how did we get there?

And it was taxes and unions.

So you don't have to have a revolution.

You don't have to have

Soviets

and expropriation, just plain restoring

estate taxes, restoring

high tax rates on top incomes, and spending the money

to help ordinary people.

And then

unions,

where they flourish, again,

unions have almost disappeared from American life.

In Scandinavia, generally 60% of the workforce is unionized.

And it matters.

So it's nothing huge.

The only obstacle is how do you get there politically?

I think we have the tools.

And,

you know, a lot of us kind of thought that 2008 would be a turning point, would be like the second coming of the New Deal.

And it turned out to fall a long way short of that.

And we can think about reasons why that was.

And I hate to think.

It's also true that the New Deal,

a lot of the equalization actually took place during World War II.

And I'd like to see us become a more equal society, but not at the cost of a world war.

But you push on.

The important thing to understand is that this is largely a political problem.

It's not as if we don't know how to do this.

We do know how to make a substantially more equal society.

We just need to figure out a way to get it through Congress.

Aaron Trevor Bowie, and on two of those points, certainly from the perspective of somebody who has built a business and so forth, I think for a long time, there was a lot of rhetoric about unions as to

highlighting the problems.

And I think there are problems.

And I think if you go back to the 1970s, it's possible that unions contributed to our car companies and others not being as globally competitive as they could have been and as nimble and so forth.

So there was a lot of pent up frustration with that.

And we went to this, okay, let's just free everything, fewer unions, and so forth.

One thing that's been very disappointing to me is that more companies haven't voluntarily basically said, look, you know what?

We are an incredibly rich global company.

We generate tens of billions of dollars of operating income.

Nobody who works for this company full-time is going to be poor.

And yet, for some reason, we seem to have thought that that's okay in this society.

Hey, it's, you know, someday you'll work your way up and you won't be poor.

And so what?

It's disappointing to me.

that our sense of fairness and the remembrance of stakeholder capitalism or the idea wasn't it's not just about the shareholders.

It's about customers and employees.

And a great company takes care of all of them I think we went way way too far away from that but one of the points that you made about unions that I had not seen that I thought was fascinating and great is that it's not just the people in unions who are helped it's that everybody else adjusts to those wage levels and and so forth yeah when we had uh

30% of the workforce or 25% unionized, even non-unionized companies kind of said, well, you know, if

we are

utterly rapacious, we're going to get unionized.

So the

and they said a norm.

There's a lot more, again,

we think of the invisible hand and the laws of economics, but economics is about people

and

senses of what you should do.

If you ask, you know, CEOs have always basically,

you know, there's a compensation committee typically that's basically appointed by the CEO.

So for all practical purposes, CEOs have set their own pay as far back as the eye can see.

But in the 60s, that meant setting their pay at sort of 20 or 30 times what the average worker made.

And now it's 300 or 350.

And what changed?

Well, partly they used to worry about what the union would say, but mostly it was just there was a sense that it was sort of

uncouth and

looked bad to

basically hand yourself an enormous paycheck.

And we lost that.

And now things that were,

you know,

if you ever read, you know, the old barbarians at the gate,

Ronald Reagan called up the people who were involved in this, you know, enriching themselves through the buyout to

sort of express his misgivings and say, I'm worried about how this looks.

Ronald Reagan.

And you can't imagine that, you know, we're certainly not going to see Donald Trump calling somebody up and saying, isn't that pay package looking kind of excessive?

You know, so there are these changes and the norms have really changed in ways that are,

I think, make us a worse society.

Just make us, there's a brutality about America right now that we didn't used to have.

It is definitely true that the norms have changed.

And I will say, knowing a lot of CEOs and having been a CEO, I don't think that all CEOs are greedy people, want to treat everybody bad, step on everybody.

And in fact, a lot of the way they look at it in the compensation is, yeah, okay, but I didn't design the system.

And there's no reason that I should be paid in the bottom 20% of my peers when I'm good.

You know, I should be paid at least in the top half.

And then they go out and get the consultants, and the consultants say X.

And then everybody's in the top half and off we go.

And yes.

And I don't know how to stop it.

But you did mention one other thing that I thought was great on progressive taxation.

So again,

I'm not crying here, but I do know a lot of people in New York and California who are not oligarchs by any means, who are lawyers, who are bankers, who make a few hundred thousand dollars.

And in New York City, what you do find is that you're taking home, I don't know, 45 cents maybe at the end on that.

And again, not crying here.

It's incredible privilege.

These are great jobs.

All incredibly lucky to have them.

But what does smart progressive taxation look like?

And I'll just add one more thing, which is when I was a kid, I remember being persuaded that whatever the marginal tax rate was at that point on top incomes, something like 90%,

that Reagan very effectively said, I don't have any incentive to earn any more money because it's all gone.

And so that was persuasive.

So, like, what is a good progressive tax scheme look like?

So, and the answer actually is 73%.

That's actually the,

there was this thing, funny thing where AOC

said, you know, the top tax rate should be 70%.

And people thought, oh, ignorant lady.

She doesn't know.

Well, she actually, she'd been talking to Joe Stiglitz,

who referred to the

classic paper by Diamond and Sayez that estimated the optimum top tax rate at 73%.

On what level of income?

So that's very, very high levels of income.

So they, and then one of the things about that, it doesn't exactly tell you where.

So, no,

but I actually

take New York as actually telling the opposite story, which is, yeah, in New York, and I live in New York, and I've got my

textbook royalties and my sub stack.

Your sub stack is going to be pumping out real money pretty soon at the rate you're going.

It was never the plan, but it's actually, but it is.

So,

which means that I'm actually in the class, you go back to the movie Wall Street, you know,

$400,000 a year working Wall Street stiff

inflation adjusted.

I'm in that class.

And

do pay effectively a marginal tax rate of more than 50%

between the

federal, state, and city tax.

And so do, not, it's funny, the oligarchs, the

private equity guys don't pay that.

But the

highly paid

white-collar workers in finance and some other fields are in that class.

So this must mean that New York is full of lazy, slow-moving people because what's their incentive to and that's not what New York is like.

New York is actually a clear demonstration that you can have marginal tax rates in excess of 50%

and people still really work work very hard.

Now,

when it was 90%,

that could have been a really serious disincentive, except the way things were structured, nobody paid it.

There were tax shelters, but

you can get, I mean,

you look at European countries that have

a combination of value-added and income taxes and, you know, that

collect 45% of GDP in taxes.

And two things.

One is people still work.

Labor force participation in Denmark is higher than it is in the United States, although they do take vacations.

But also

people get something for it.

If you ask the Danes, they say, yeah, I pay a lot in taxes, but on the other hand, I've got good health care.

I've got good public services.

There's a level of security.

So I don't think that there's a,

I mean, if you wanted, if somebody wanted to have an Eisenhower-era tax rate in the United States and actually make it effective without all of the tax shelters that people had, even I would say that's too high.

You do need to have some incentives in the system.

But I think New York is

an excellent demonstration that we could have, as a nation, considerably higher top tax rates and things would go fine.

Aaron Powell, Jr.: And then last question on that, and then we'll go right to the debt and the deficit, which is another topic I would love to ask you about.

But just on taxation, one thing that happens in New York and California every time a politician talks about raising rates a little bit is that a lot of people who are doing really well say, that's it, I'm moving.

And from what I can tell, a lot of that actually does happen.

that in fact, a lot of people have moved out of California to Wyoming and other places that are very low tax relatively.

People have left New York for Miami and New Hampshire where they're low income taxes.

So it seems like one of the challenges for the United States is that we do have a state system where often there is a big difference and money can move and so forth.

So does that affect your thinking on that at all?

I mean, the optimal tax rate in New York City

is set unilaterally is lower than for the United States as a whole because people can move.

Although my understanding is that if you actually start to dig into it, there's a lot fewer people moving.

It's not nothing, but there's a lot fewer people moving.

And we're starting to accumulate stories.

Miami is not actually turning into Wall Street South.

Some people have moved, but some people have moved and moved back.

One of my favorite quotes was actually from a Bloomberg article where somebody said the trouble with moving to Florida is that you have to live in Florida.

Or

there's a real story about

the Austin

tech boom.

It seems to be kind of fizzling, not imploding, but it turned out that the advantages of actually being either in Silicon Valley or for some of the AI stuff being in New York outweigh the lower taxes and

all of that.

So

it is an issue

and

it's even an international issue.

I mean, Britain,

they have had this

tax breaks for non-dumb.

I still don't quite understand what that means to be living in the country but not be domestic.

But anyway, they did have tax breaks for billionaires in Britain.

They still do to some extent.

But some of those people have moved.

But it's actually

one of those things that gets overstated.

Again, because think of a,

there are,

you know,

it's kind of, you know, they would say that, wouldn't they?

And

the extent to which it actually happens is not zero.

But it's not as big a deal as people imagine.

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All right, so let's talk about debt and deficit very briefly, which is that, and first, let me start by going back to 2008, middle of the financial crisis.

There was enormous fear and very confident predictions, including from people like me who said, This incredible stimulus is going to cause runaway inflation.

We're headed for Zimbabwe or at least the 1970s.

It's terrible.

We can't be doing this.

We're bailing out Wall Street, all this stuff.

You very strongly came out and said, Respectfully, people, you have no idea what you're talking about.

Inflation is a wage phenomenon.

Until we see it start to bleed into wages, there's going to be no inflation.

You are 100% right.

You are also 100% right that the U.S.

debt capacity was a lot bigger than people like me thought at that time.

And we've done fine as our debt to GDP has more than doubled over time.

But

a lot of people, including some people who were optimistic and thought that we were taking, it was fine to take on more debt in the financial crisis, have recently begun to say, okay, whoa, it is too much now.

And we have gotten into this policy where in a good economy, we are running a wartime or emergency stimulus deficit.

And that's going to be as far as the eye can see.

And we have these entitlement programs and health care.

And we are getting into real trouble.

And we've also started to see interest rates move.

Lots of fear around that with tariffs and so forth.

So where are we on debt and deficit?

Is it sustainable?

And if it is not, how do we address it?

Okay.

So,

and I am much more worried about debt now than I was in 2008, partly because the debt is bigger, but actually in some ways for more intangible reasons.

So, advanced countries with stable governments

have enormous debt-carrying ability.

I mean, Britain came out of World War II with debt that was 250% of GDP, and there was no crisis.

The reason that they have that ability is that

investors

basically assume

that they have both the capacity and ultimately, at least,

the seriousness to bring things under control.

And

that advanced countries are able to raise taxes.

you know, if they're able to collect taxes.

They don't suffer from massive tax evasion if they choose to enforce the law.

And

that they typically have some room for more taxes and maybe some spending cuts.

And they can not pay off the debt, but grow out of it, which is what happened to post-war debt around the Western world.

And the capacity stuff is still true.

Look, if the United States were to impose a 5% VAT,

well below, you know, lots of European countries have 20% or more.

If we imposed a 5% VAT

and

were to try to control, actually, the big item on entitlement spending is healthcare.

And actually, miraculously, we've been doing pretty well on that front.

Medicare outlays have been growing much more slowly than the old projection said they would.

So if we can control health care costs and raise a modest amount more revenue,

we're fine.

We have no problem technically in dealing with the current level of debt.

Problem is,

what are the chances of

that kind of program actually being enacted by Congress?

What are the, you know, obviously under the current administration, even if by some miracle Congress passed significant revenue enhancing measures other than tariffs, which are not going to do the trick,

he wouldn't sign it.

And even if

imagine

an actual sensible Congress and an actual sensible president, it's still a very steep climb to persuade people to do this.

It's like inequality.

The problem, even more so, the problem with debt is political, that

we have run up enough debt and we have high enough deficits that

we don't have the luxury of putting it off for another 20 years, probably.

So we would need to act.

And then we have a political deadlock.

We have

even people on the left want to

raise taxes, but only on...

you know, $400,000 a year plus, which is not a trivial amount, but not enough.

People on the right, they're happy to slash social programs, but only social programs that help the poor.

They're not ready to take on the middle-class entitlements, which is where the money is.

And so it's the political deadlock.

So essentially, a first world advanced country with a stable, reasonable government can easily deal with the kind of debt levels that we have.

Are we still a first world country with

a competent, reasonable government?

And that's where I really have my doubts.

Aaron Powell, we will see.

And so from your perspective, best way to return to sustainability is a combination of tax increases and spending cuts?

Or are the spending levels fine?

And I'll just add some context there is

one of the justifications for Doge, and I think the hope of some in Silicon Valley and the business community, we're pointing out that spending has gone well above trend thanks to the COVID stimulus and has not actually gone back to

its range of GDP, that government spending is significantly higher.

And that's why they're saying, you know, we do need to cut spending.

But what is the Paul Krugman

answer there?

Look for savings.

I mean, if the generic, let's look for savings in government, that's right.

But Doge systematically went where the money isn't.

It was willy-sucked in reverse.

They went for

government payroll, federal payroll is actually a tiny part of the budget.

They went for discretionary spending, which is non-defense discretionary spending, is a pretty small part of the budget.

And they,

I would say, inexplicably, except we understand it perfectly well,

I can tell you right away where we can probably save 80 billion a year.

And that's by eliminating overpayments to Medicare Advantage plans.

It's a scandal.

We know that the insurance companies are upcoding and making their clients look sicker than they are so as to extract money from Medicare.

And so there's 80 billion a year that we could save.

Somehow never even made it into Dogea's sites, right?

So, and look, we've already had, we've had substantial success in containing the growth in Medicare spending, but U.S.

healthcare is vastly more expensive than other countries without delivering better results.

So clearly, real reforms in healthcare could save significant money.

I mean, I used to say, and that's still more or less true.

I used to joke that the solution to the U.S.

debt problem was sales taxes and death panels.

That, you know, something, an additional revenue source, which probably does have to include in the end some middle-class taxes.

And

it's probably not so much inefficient.

We have just some plant

rip-offs, overpayments to insurance companies, but also

we do not

spend a lot of money on medical procedures that are probably not actually doing any good.

So there's significant healthcare savings that could be achieved.

It's not that hard.

Again,

if you could shave

2% of GDP, I'm making these numbers off to some extent, but you could shave 2% of GDP

off spending, mostly with healthcare efficiencies, and raise 2% or 3% of GDP

through higher taxes, mostly but not entirely on high-income individuals, then we're fine.

Then the U.S.

budget issue.

So

it's not a really heavy lift economically, fiscally.

It's just a heavy lift politically.

Well, I am tremendously encouraged to hear that at least it's not a heavy lift fiscally.

All right.

Paul, you've been incredibly gen with your time.

Let me just ask you one more topic that I know you've spent a lot of time thinking about.

We recently had somewhat of a political earthquake in New York City

that was cheered by a lot of the city and sent a lot of other folks to be aghast and worried, which is that a mayoral candidate, Zoran Momdani,

who has been called a socialist and who certainly the moneyed class in New York wants to brand a socialist, was won the primary and is in a good position to maybe become mayor.

And this has triggered a national debate about whether this is the future for the Democrats.

Should they embrace the AOC wing of the party and go full left?

And much more socialist, Bernie and AOC are being bandied around as a presidential candidate team, perhaps just in fun.

Or should

the former adults in the party, the Clinton Obama centrists, retake control?

And they were the pro-business party and that coalition worked?

So first of all, two questions.

One,

is the potential next mayor of New York a socialist and will that hurt New York City's economy?

And then second, what should the Democrats do?

Which way should they go?

Okay, so what we call socialists in America, even the people who call themselves socialists, you know,

they look

slightly left of center by European standards.

I mean, this is, this is, you know, nobody's talking about seizing the commanding heights of the economy or anything like that.

So, so,

you know, I kind of wish he didn't call himself a socialist, but from my point of view, he isn't.

He's Mamdani is a, is a, it's kind of AOC.

She also calls herself a socialist.

And it's, and

we don't know how he would govern.

Some of his ideas look look good.

Some of them maybe not so great, but nothing that is really

outrageous.

And I think if AOC is an interesting president because she has

all this crazy leftist, but she's actually been a pretty effective member of Congress.

When you actually listen to her on policy, like I said, she gets her economic ideas from talking to the likes of Joe Stiglitz.

She's actually quite sophisticated and turns out to be a

serious political talent with a good reality sense.

She knows

when to compromise.

And if Mamdani can be like that as mayor of New York, he'll do fine.

I think this panic is telling you more about

the

stodginess of the Democratic establishment.

Yeah, I mean,

it'd be nice to have

actually the same ideas coming out of a of a heavyset white guy named Joe Smith, right?

It'd probably be easier politically.

But

I don't find it at all alarming.

And I and I do find that the hysterical reaction

is really saying more about his opponents than about him.

And do you think the Democrats will eventually just rally around that economic position?

Well, his economic position, again, it's really, you know, he's a social democrat.

And the fact of the matter is the Democratic Party as a whole is becoming,

it has moved to left a little bit.

Not nearly to the extent the Republicans moved right, but Democrats and the Democratic Party right now, and you can actually quantify this, the Democratic Party now looks like a European Social Democratic Party.

And

Mamdani would be sort of on the lefter part of that, but not that far off.

And I think the Democrats need to stand for for something.

I think that's what's really important.

Saying we're, you know, we're, we're basically like the Republicans, only less so.

And to some extent, that's been the Democratic brand.

That's not going to work.

Great.

Paul, it's a privilege and a pleasure to talk to you.

As always, thank you so much for your time and your sub stack, which is remarkable.

Thank you, Burr.

I'm having fun, although I'm working too hard.

All right.

Well, keep it up, please, because it's okay.

Thank you again.

Solutions is produced by Megan Kunane.

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