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These days it seems like the only things to write about are politics and AI. I wrote about AI last time, so today I’ll write about politics.

Here is my basic theory of American politics in the 2020s: The United States is a nation of moderates ruled by a fringe of extremists. The extremists rule because they are more engaged than the moderates — they spend more time thinking about politics and doing political activism. In Martin Gurri’s terms, the extremists are the “public” and the moderates are the “populace”.

There are several reasons why American politics is dominated by extremists. The well-known one is the closed-primary party system. Republicans win primaries not by aligning with the median voter, but by aligning with the median Republican voter — usually in an area that’s already right-leaning to begin with. The same is true of Democrats.

But that has been true for a while. The fundamental reason why American politics is more extremist-dominated than in the past is technological. Modern social media bypasses traditional hierarchies and institutions and gathers together communities of like-minded extremists who then create challenges to traditional institutions; it also provides these extremists a platform in which their emotionally charged messages are more likely to go viral than messages of positivity and reason.

The moderate majority increasingly avoids the politically charged, extremist-dominated online spaces. That gives lots of Americans more peace of mind, but it also means that online spaces become more and more extremist as moderates leave.1 This is the conclusion of Törnberg (2025):

Using nationally representative data from the 2020 and 2024 American National Election Studies (ANES), this paper traces how the U.S. social media landscape has shifted…Overall platform use has declined, with the youngest and oldest Americans increasingly abstaining from social media altogether. Facebook, YouTube, and Twitter/X have lost ground, while TikTok and Reddit have grown modestly, reflecting a more fragmented digital public sphere….Across platforms, political posting remains tightly linked to affective polarization, as the most partisan users are also the most active. As casual users disengage and polarized partisans remain vocal, the online public sphere grows smaller, sharper, and more ideologically extreme. [emphasis mine]

In case you like charts, here’s one from the paper showing that extremists post more than moderates:

If extremists remained online, shouting at each other or shouting into the void, this would be a good and healthy process for a nation weary of culture wars. But the people who dominate real-world politics are increasingly drawn from this pool of online extremists. I am talking not about elected politicians themselves, but about the activists who create and promulgate political ideologies, the think tankers who translate those ideologies into policy ideas, the lobbyists who promote those policy ideas to politicians, and the staffers politicians hire to decide which ideas to embrace, and how.

Let’s talk about those staffers for a moment. Staffers write legislation, advise elected officials on policy, and handle lots of public communications. While politicians are out fundraising, pressing the flesh, or giving speeches to increasingly outdated TV news networks, their staffers are busy with the business of running the country. These staffers are much younger than the politicians they ostensibly serve — the typical Congressional staffer is in their late 20s, while the typical Congressperson is in their late 50s.

This means staffers are more online, and thus spend their days lost in the extremist maelstrom of social media, mainlining rightist conspiracy theories on X and leftist tropes on TikTok. Staffers are also unelected, which means they don’t have to cater to regular voters; they are free to pursue radical ideologies, support radical movements, and put out extremist messaging unless their bosses explicitly act to rein them in.2 There are plenty of anecdotes about how staffers in both the Democratic Party and the Republican Party are more extremist than the politicians they serve — to say nothing of the country as a whole.

For a concrete example of this, take the recent contretemps over one of Donald Trump’s racist social media posts. Trump’s Truth Social account posted a video depicting Barack and Michelle Obama as apes:

After a general outcry, the racist video was taken down. A White House official stated — and Trump later confirmed — that the video was posted not by Trump himself, but by a staffer. Trump refused to apologize for the video, demonstrating how extremist staffers can essentially force the politicians who employ them to take more radical positions.

These 28-year-old extremely online radicals — along with the larger network of think tankers, lobbyists, and activists with whom they are deeply enmeshed — are a key part of America’s ruling class, invisible and unaccountable and unelected and more powerful than almost anyone realizes.

Anyway, regular Americans sense this and are distinctly unhappy with it. Majorities say both parties are too extreme:

And voters are voting with their feet, leaving both parties and registering as Independents in record numbers:

But although this is a very natural way to express disapproval with the two parties, it ends up exacerbating extremism, just like when moderates abandon social media. Independents can’t vote in closed primaries, so the people who remain registered as Democrats and Republicans are going to end up nominating even more extremist candidates, forcing regular Americans to choose between two even more polarized extremes — and simply increasing their frustration and disaffection.

This is all very bad for America, and I don’t have a way to fix it, other than A) transitioning to open primaries and B) bringing back the Fairness Doctrine and applying it to social media — two things that nobody is going to do. But watching the behavior of America’s two extremist movements, I don’t think either of them is going to be durable and successful.

I think this is true for many reasons. American voters are unlikely to keep either party in power for long at the national level, and instead will more likely ping-pong back and forth between them as they grow disgusted with the performance of each. Social media activism and memes will push both parties toward unworkably extreme policies — stupid tariffs, unchecked government borrowing, and so on. Online spaces will make it ever harder for real leaders to emerge on either side, as reasonable moderates are quickly “cancelled” by mobs hunting for the smallest peccadillo.

But on top of that, I see some core tendencies that are particular to the American right and left — the MAGA movement and the progressive movement — that strike me as maladaptive and seem to portend long-term weakness.

On the right, a big problem is that the MAGA movement is relentlessly focused on shrinking its coalition. Winning coalitions in politics are built by gathering together various groups and aligning them toward shared goals. Trump did a good job of that in 2024, assembling a startlingly diverse, broad-based electoral majority. But MAGA insists on attacking every group it could bring into its tent.

As an example, just look at that video Trump’s staffer just posted — and which Trump defended, even though some Republicans condemned it. One way that Trump enlarged his coalition in 2024 was to persuade some Black voters to switch sides:

In 2024, Trump won 15 percent of Black voters — according to Pew Research’s widely cited validated voter survey — an increase from the 8 percent he won four years earlier. A pre-election Pew poll found that the economy and health care were the most important issues for the voting bloc[.]

15 percent doesn’t sound like much, but an 8 percentage point shift is big, and every vote counts. Does Trump think posting videos showing prominent Black people as apes will help him solidify that small Black conservative contingent as part of an enduring GOP coalition? It doesn’t seem like he cares.

Nor is this an isolated incident. James Fishback, a Republican primary candidate for governor of Florida, recently referenced “goy slop” — an antisemitic conspiracy theory that says that Jews are forcing gentiles to consume low-quality goods. This is just one example of a rising tide of antisemitism in the GOP, which party leaders like Ted Cruz have acknowledged. That will probably prevent a major exodus of Jewish voters from an increasingly anti-Israel Democratic Party.

Meanwhile, ICE’s racial profiling and raids on Hispanic-owned businesses are starting to drive away Hispanics who were a crucial part of Trump’s winning coalition in 2024. MAGA has not explicitly demonized Hispanics as a group, and many who voted for Trump believed that he would distinguish between citizens, legal residents, and illegal immigrants. But like every other big U.S. deportation effort since 1930, Trump’s current crackdown involves a significant degree of enforcers simply grabbing people who look Mexican and holding them on suspicion of being illegal.

And MAGA is attacking Indian immigration as well. A wave of anti-Indian sentiment among online Trump supporters has spilled over into the real world. Texas’ Governor Greg Abbott has stopped public universities and the state government from hiring H-1B workers (most of whom are Indian). This will hurt the state economy, which depends on Indian doctors and other professionals for essential services. Whether it will hurt the GOP with Indian-American voters remains to be seen, but I doubt it will help.

There are also signs that MAGA is starting to turn against East Asians. A couple of years ago, affirmative action in college admissions was struck down by SCOTUS after a MAGA-aligned group sued Harvard for discriminating against Asians. That raised the possibility that MAGA’s ostensible defense of meritocracy might win over some Asian voters to the GOP. But then right-wing commentator Helen Andrews went on a multi-day tirade against Asian immigrant culture, alleging that Asians threaten the American way of life by working too hard in school and succeeding too much, while also claiming (rather farcically) that Asians benefit from workplace DEI programs:

The idea that Asians are going to destroy American culture by working too hard is ridiculous — an obviously ad-hoc fabricated excuse to attack a minority group that succeeds financially, comes in legally, and tends to commit very little crime. It also happens to be wrong (Asian “grind culture” is simply another case of immigrant striver culture, which tends to fade by later generations). And if the rest of MAGA takes up this line, it seems likely to alienate the Asian voters who shifted toward the GOP in 2024, many of whom were alarmed at Democrats’ attacks on educational meritocracy.

It’s hard to think of a group of Americans — other than White Protestants — that the MAGA movement has not turned its outrage machine on. Indeed, the whole movement has come to resemble a roving Eye of Sauron that constantly looks around for a new racial enemy to attack, switching targets every year or so.

This is not a way to build an electoral coalition. There are far too few White Protestants to form an electoral majority in America, no matter how many people ICE deports or how many visa-seekers and refugees Trump turns away. Instead, Trump’s movement will simply drive away one ally or potential ally after another, shrinking the tent as they go.

My sense is that this is structural. MAGA leaders — politicians, pundits, and so on — energize their base by stirring up fear of racial “others”, but then back off when they receive sufficient pushback and accusations of racism. So they have to keep cycling through targets, so they can keep stirring up their core voters’ anxieties without having any one particular minority become the focus for liberals’ defensive efforts.

As a result, they just end up alienating everyone, one by one. At its core, MAGA is a xenophobic movement that gains a lot of its power from the fear of racial enemies; this is a poor long-term strategy in a diverse democracy.

As for progressive extremism, I think this will also fail, but for a very different reason.

Progressivism lost at the polls in 2024, but still dominates in many big cities and some states, and has had a chance to prove itself as a governing ideology over the last 10 to 15 years. It has failed. I highly recommend this article about the decay and decline of Portland, revered as a progressive mecca in the previous decade. Some key excerpts:

Last fall, after the city acquired a reputation for crime, homelessness, and dysfunction, Oregon politicians rushed to media outlets to assure the nation that the city was not literally on fire…[But] Portland is constantly on fire. In the year following July 2024, Portland had 6,268 fire-related incidents – and 40% of the fires in the city are a direct result of Portland’s out-of-control vagrancy…
[Jeff] Eager says one key reason why the city’s massive crime problem goes unaddressed is that it’s largely self-inflicted and driven by ideology. “Hard core progressivism has destroyed what old school Oregon liberals built – farmers markets, parks, walkable communities, transit, and all the good kind of Portlandia-era liberal lifestyle stuff,” said Eager. “This brand of progressivism is just so against the rule of law, it’s ruined all those institutions that made Portland a cool, trendy, quirky place. It's not really quirky anymore. It's dangerous.”
Portland now has the second-highest crime rate of any city in America, behind Memphis. About one out of every 16 people in the city is the victim of a crime every year…The lack of law enforcement became obvious to everyone during the summer of 2020…As part of the Defund the Police movement that year, Portland’s leftist city council cut $15 million from the city’s law enforcement budget, eliminating 84 jobs in the police department – with predictable results. By November 2021, [the mayor] acknowledged “many Portlanders no longer feel safe,” and the city council began the process of restoring some funding to the department – though the police are at loggerheads with local politicians and the department remains chronically understaffed. [emphasis mine]

Portland’s plight is especially notable because it contrasts with a pretty epic nationwide decline in crime. It’s obvious that progressive extremist ideas about tolerant approaches toward crime have prevented Portland from fully participating in that happy trend — murders fell in 2025, but property crime remained sky-high.

Another likely example of this is the epidemic of copper theft in Los Angeles, that is literally turning lights off across the city.3 The main impetus for the theft wave, of course, is the rising price of copper, which makes it more valuable to steal. But California has a pandemic-era law saying that theft of under $950 worth of goods is a misdemeanor, not a felony. That law has now been watered down, and some exceptions added, but it still makes it hard to prosecute petty thieves.

When a swarm of petty thieves is crawling all over your city stripping out the wires, prosecuting and penalizing petty crime is exactly what you need to do. But a progressive criminal-justice “reform” back in 2014 made that harder.

The frequent failure of progressive cities to crack down on crime — and the progressive movement to make America more tolerant of criminals in general — undermine the entire left. This can be added to a litany of other progressive local and state government failures — not building enough housing, bankrupting cities through excessive spending, outsourcing government functions to NGOs, spending way too much on transit projects, and so on.

In all of these cases, what progressivism is doing is parasitizing the liberal institutions that allowed progressivism to exist in the first place. Liberals built the public libraries; progressives are destroying them by turning them into ad-hoc homeless shelters. Liberals built trains, but now people don’t want to ride the train because of crime and disorder, requiring big bailouts from the state of California. Progressive tolerance of bad behavior by the few — open drug use and sales, theft, street harassment — has turned parks, streets, and other types of urban commons into no-go zones for the bulk of the citizenry.

The pattern repeats itself: Liberals build, progressives come in and demand more and more from the system liberals built, until the system collapses. As yet, liberalism seems to have evolved no defense against this; for at least a decade, nobody seems to be able to say no to progressive demands.

This is why I believe that both the American right and the American left will fail — and indeed, are already failing wherever they gain power. Extremist ideas are generally bad at actually governing, but good at winning hearts and minds in online chat groups. Of course, this provides cold comfort for those of us who will suffer from America’s two flavors of bad governance. A country with two broken ideological programs is a deeply dysfunctional country.

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Eliezer Yudkowsky calls this “evaporative cooling of group beliefs”. I quite like the analogy.

I did find one paper claiming that staffers are more moderate than politicians in general, but I don’t trust this measure of moderation.

It should be noted that L.A.’s problems with homeless people starting fires are even bigger than Portland’s by some measures.

I didn’t interview anyone this week. So I thought I’d repost an interview I did a few months ago with Hasan Minhaj, which happens to include an airing of my Bitcoin skepticism, just after the 20 minute mark. Transcript follows.

Transcript

Miami isn’t for everyone

HM You like Miami?

PK No, I don’t like Miami.

HM Same. I don’t know what the is going on there.

PK: It’s not my favorite place. But, you know, there was a quote, there was an article about Wall Street types trying to move to Florida. One of them said that the problem with moving to Florida is that you have to live in Florida.

HM: Nobel Prize winning economist Paul Krugman wrote for the New York Times for 25 years. But those stuffed shirts at the Times just couldn’t handle the heat from those Krugman takes, the fire he was spitting. So he left last year for Substack where he can let his freak flag fly. So I asked Professor Krugman to come on the show to help me make sense of the economic chaos President Trump is unleashing on the country and the world. I also asked him his thoughts on crypto. I think crypto is basically a scam. Whether the Nobel Prize for economics is basically just a kid’s choice award for intellectuals. You get a surfboard. And if he’s getting in touch with his inner Chapo trap house on Substack. Paul, you team Luigi or what?

You were at a huge institution for two and a half decades and now we get to see Kugman unleashed. This goes pretty hard in the paint. Uh the title of this on your Substack is “health insurance is a racket.”

PK: Um I think I would have been able to say that for 24 years at the Times. Not sure in the last year I would have gotten away with it.

HM I mean would they have let you run that photo? Well Christ I mean that is crazy.

PK I mean, I don’t approve of murder, but one of the rules of blogging and now substacking is picking an eye grabbing picture is part of the service.

HM Let’s zoom out literally. So, this is planet Earth. We live here allegedly. And the economy happens here.

What is the economy?

PK Alfred Marshall, great Victorian economist said that it’s the ordinary business of life. It’s if you like, it’s the least interesting part of what human beings do. It’s getting and spending, producing stuff, selling it, buying stuff. It’s the relatively materialistic side of life. There’s no hard and fast line between economics and other stuff, but generally speaking, if it involves producing or buying or selling, uh, then it’s economics.

HM Every time I listen to a president over the course of history, they always talk about economic growth. The fastest pace of economic growth in this country in nearly four decades. We’ve seen the fastest economic growth in over a decade. the fastest economic growth in more than 30 years.4% economic growth. Americans can be confident about our economic growth. But apparently the economy is supposed to just grow forever. But this same this stays the same size.

PK Yeah, that is less of a paradox than you think because we define economic growth by the value of stuff which is not the same as the volume of stuff. Britain emits less carbon dioxide per capita than it did in the 50s — the 1850s. A modern economy can run with very low emissions. We have the technology to do that and it produces all this valuable stuff. So there’s no one to one link between economic growth and consumption of resources or damage to the environment. In some ways economic growth makes it easier to have a clean economy because we can afford to do things to to clean it up. So when people say, finite planet how can we have infinite economic growth it’s missing the point that economic growth can be qualitative instead of quantitative. You know, we say economic growth, but we what we really mean is a rising standard of living, better quality of life. And there’s no reason we can’t keep on improving the quality of life on a finite planet.

Now, the problem is that that takes policies. You need to do it right. But it can be done.

HM Sometimes when I watch the news I’ll hear newscasters also say economists say economists say economists say many economists say economists say no economist say economist say economist say economist say so many economists say economists all say every economist in the country says when people hear economists say should they see it as fact or as opinion

PK Well that’s a favorite beef of mine and in general it really really depends. Unfortunately you need some guidance as to who to believe and who to trust. if it’s a economist who works for a highly politicized think tank, no. If it’s an economist who works for Wall Street, well, there are some to trust and some who are basically selling stock. So, there are certainly a bunch of really good economists in America, in the world. and the trouble I guess for everybody else is to know who they are.

HM Have you always felt a hesitance to make predictions as an economist? Because as you know, one of the famous Krugman memes uh was your meme about the internet in 1998.

PK What people don’t know is that that was partially a joke. If you read the actual article, I was assigned to write as if I was looking back from a hundred years in the future.

HM So, you were trolling

PK I was trolling a little bit. I was trying to get people’s attention.

HM No, no, no. Because Paul, I’ve had egg certainly splattered on my face. I don’t know if you’ve seen this meme with me. It says Sega Saturn is the greatest video game system ever. Nothing will ever beat it. Trust me, bro. With the zero.

PK Yeah. You know, I I was skeptical a bit about the potential of the internet. I was wrong on some of it. Although if you actually look at the rise in living standards since broadband became universal, it actually is kind of disappointing. The truth is that if you’re actually looking for the payoff to all of this high-tech, it’s a little elusive.

HM Meaning the actual payout for technology and the internet if you actually look

PK Yeah. If you actually look at how much can an average worker afford to buy, that hasn’t gone up all that much with all of this technology. Now, there are some things that were not available before. You know, I I spend a lot of my evenings watching live musical performances on NPR Tiny Desk, and then then I follow up the bands I like. Every weekday my Substack post ends with a musical clip. So there are some things that that the internet has made possible but you know a lot of people were expecting a real boom in manufacturing productivity or a real uh a real reduction in the cost of living relative to wages out of the internet and so far that hasn’t happened.

HM Let’s take a look in a snapshot of where we’re at right now. The President Donald Trump promised that he was going to make America more affordable again. How’s that going?

PK Yeah, that’s going badly. I mean inflation has picked up some. It will pick up more because all of all these tariffs are raising the cost of imported goods. Some of the other stuff we’re starting to see food prices tick up and it’s going to get worse because of the deportations because who do you think picks crops in America? He had no plan to do that. It was I’m going to magically make prices go down and in fact most of the things he’s doing are going to make them go up.

HM Can I ask a question? Do prices ever go down? So not to brag um I am a road comedian. I do both A, B, and C markets. No matter where I go in this great country, I’ll hear three things. The rent is too damn high. Have you seen the price of gas? And back in my day, a piece of candy used to be a nickel. Isn’t inflation always going to be a part of the equation? Meaning candy’s never going to be a nickel, you boomer. Yeah, it’s we haven’t seen prices go down ever, right? For well, you have to go back to the 19th century. We actually had deflation.

PK Well, we had deflation in the 1930s, which was not fun. And we had deflation in the late 19th century, which was not fun. Uh, in general, it’s kind of a consensus among economists that a little bit of inflation is actually good.

HM 2%, right?

PK Yeah. 2% is the official target. And a little bit of magic went into coming up with that number but that the economy runs a little bit better with 2% inflation than it would with zero inflation and falling prices is a really bad thing. Japan had falling prices for a couple of decades.

HM And that’s deflation

PK Correct, yeah ,so overall prices basically rise because in the end the Federal Reserve chooses to do its best to make sure that they rise a little bit.

HM So, when a politician repeatedly says, “I’m going to bring prices down.” Is it just safe to say, “Don’t believe it.”

PK Yes

HM The only minus gas for some reason, gas I’ve seen can skyrocket and then go back down and then skyrocket again. But pretty much everything else, look, a Snickers is going to be really expensive as time goes on. That’s what I’ve learned.

PK Yeah, I mean the price of soybeans or the price of wheat fluctuate and the price of eggs has been a real roller coaster up and down. So, they were up and then they were down and they’re going up again and that’s because that’s the kind of market they are. But it’s just not like the market for streaming services or something. Basically bird flu comes and goes and that’s what’s driving the price of eggs.

HM So, but the overall cost of living, uh, your best guess is that that’s going to rise 2% a year for the foreseeable future because the Federal Reserve wants it to rise 2% a year for the foreseeable future.

PK The only way that can change is if we get somebody like Donald Trump who gets his hands on monetary policy and decides that he wants to roll the printing presses. Any politician who promises to bring prices way down is either ignorant or lying or both.

HM I’m so glad that you mentioned the Fed and the president. Two-part question. What is the Fed and why is it important that the Fed is independent from the president?

PK Okay, so basically the Fed controls the amount of money in circulation.

HM Got it.

PK And that can have a tremendously powerful influence, right? It depends on the circumstances, but there have been times when the economy was terrible shape, 10% unemployment, and the Fed said, “Okay, it’s time to roll the printing presses.” And the economy went zooming up,.Or when the Fed decides that we should suffer, which it sometimes does because they want to bring inflation down, we suffer. So, the Fed is enormously powerful. The reason that we want to keep it quasi-independent, is that it’s too easy to use. The problem with monetary policy is it’s almost frictionless. Other stuff, if you want to spend money or raise taxes or whatever, you have to pass legislation through Congress. It has to be debated. There’s time to think about it. The way that the Fed loosens monetary policy, the way the Fed reduces interest rates is a group of people get together, have a meeting in Washington for two days.

HM How many people is it? So, it’s Jerome Powell and how many people?

PK Oh gosh, I should know the size of the open market committee and I don’t. Anyway, they call up the open market desk in New York.And the open market desk, uh actually at this point I think they just make a few clicks on their computers to buy or sell treasury bills from banks.

So, it’s absolutely the easiest thing in the world. There’s no friction.There’s no slowdown.

HM This sounds like this really does sound like some secret society stuff though because it’s it’s a small clandestine meeting and it can shape monetary policy and economics for the country if not the world.

PK Yeah. But it turned out that having a bunch of technocrats with a really strong professional ethos um managing this thing was a way to preserve a fair bit of stability while also preserving a fair bit of flexibility. Nothing is perfect, but that’s a solution that has served us pretty well for generations now. And we know what happens if you don’t do it. You get Turkey where you have a president who has people telling him what he wants to hear and Argentina as well.

The Turkish one is the most recent example. And by the time he finally said maybe these economists telling me I’m doing the wrong thing might know something, they had 80% inflation. Donald Trump is obsessed with the Fed and with interest rates. If it was up to him, he would basically have a thermostat on his desk in the Oval Office where he could just control interest rates. Why is it important that these two bodies be separate? Well, if you like, our system is designed to protect us against uh people like Donald Trump. Deciding what the interest rate should be is something that at least requires you to have read some history, paid some attention to how the whole thing works. You don’t want somebody who just believes what he wants to believe and is surrounded by people who tell him what he wants to hear to be free to set this very powerful policy tool wherever he feels like.

HM If Trump policies are so bad, I keep reading how awful his economic policies are. And clearly kind of in the vibes of our conversation right now, you’re not a fan of his economic policies. Why hasn’t the stock market crashed?

PK Stock market, first of all, does what it’s going to do. Paul Samuelson, one of my old mentors, famously said that the stock market had predicted nine of the last five recessions, right? You know, the stock market is psychological. And one thing that Trump is doing is he’s definitely cutting taxes on rich people, which is good for the stock market. And a lot of people believe that in the end he won’t follow through on some of the worst stuff. And that you can definitely look and say that markets don’t believe that he’s going to manage to take control of the Federal Reserve. Uh I think the markets are probably wrong on that, but that’s what the markets believe right now.

HM What does that mean “the markets believe”?

PK Well, we can look at interest rates. If you really thought that we were going to turn into Turkey or Argentina, then 10-year interest rates should be going through the roof, and they’re not. The main thing I think to say about the economy, you always need to remember that we’ve got something like 160 million workers. GDP is $30 trillion. It takes really major stupidity to really wreck an economy that size and we’re working on it.

HM So, if Donald Trump could control interest rates, what would that do to the stock market?

PK I think that the markets would uh panic pretty soon. I mean, I think the markets are insufficiently worried, but okay, more than you want to know, but right now

HM No, please tell me more more.

PK It’s looks like Trump is failing to fire Lisa Cook. He’s going to appoint somebody probably really not too bright as Federal Reserve chairman to replace Jay Powell, but the chairman is not a dictator. There is this committee that votes and whoever he appoints is very likely to be outvoted whenever he tries to do irresponsible stuff. So people are kind of betting that despite all of the craziness that they won’t actually go wild.

HM So is the Fed kind of like the Supreme Court, but he actually has less say on the Fed than he does on the Supreme Court.

PK Yeah. I I always used to say that the Fed is kind of like the Supreme Court that it’s designed to be, you know, ultimately accountable to the voters, but very ultimately and with a lot of insulation. And yeah, at this point the Fed is acting a lot more like what it’s supposed to be than the Supreme Court is, right? Because obviously presidents can famously get Supreme Court justices appointed, but the president can’t do that with the Fed. Correct. I mean, it’s a little complicated, but if you had a president who stayed in office for 20 years, he would eventually have a Federal Reserve board and open market committee, which is not quite the same thing, but eventually the whole Fed system would be at his beck and call, but it takes a long time.

HM I feel like there’s two conversations happening in regards to the economy. And I think it’s between the asset class, basically people who have enough money to own stocks, whether that’s fang or the S&P 500 or just basic index funds, and then the non-asset class, people that are literally putting together money for rent, a car note, and groceries. Is there a disconnect between the two people talking?

PK Look, the economy is not the same for everybody. In fact, one of the hallmarks of America since the 70s has been rising inequality where the top, you know, what we call the 1%, but when people say the 1% their mental picture is really like more the 0.01%, the very wealthy have had incredible gains. And then there’s the sort of typical worker who probably has over the last 40 years seen uh his or her wages grow faster than inflation, but not by that much. You know, during the Biden years when everybody was so angry, there was actually really big wage gains for workers near the bottom. Actually, the bottom half of US workers were doing really well. Now, that’s gone into reverse lately, but you know, there are periods when it’s not always the case that the rich get richer and the poor get poorer. Sometimes, uh, it goes the other way.

HM So you’re saying there are times where the poor do get richer.

PK Oh, yeah. I mean, of course, there there’s this miraculous thing that happened in the 1940s. I grew up in a middle class society. I grew up in the in the 50s and 60s and in a world where plumbers uh made as much or more than middle managers and where there were very few extremely rich people.

That society didn’t evolve gradually. That society was created rather abruptly by FDR mostly during World War II and it stuck for about 30 years. So that was a tremendous equalization the Great Compression we call it. I would love to see another great compression happen but it not under the current administration anyway.

HM Donald Trump promised that he would bring manufacturing back to the United States of America. How’s that going?

PK Well, manufacturing employment is declining so far on his watch. And look it fundamentally can’t be done. The main reason we don’t have a lot of manufacturing jobs anymore is that we’re just very efficient at producing manufactured goods and it doesn’t take a lot of people in manufacturing. Uh so we’re an economy where jobs are in other things that and that’s okay. You know what happened to farming? There are you know hardly any farmers left in America really. There’s a whole lot fewer cashiers than there used to be. That’s okay because people can find other stuff. It’s only making sure not that you have particular jobs, but that there are enough jobs in total and that they pay decent wages.

HM Hypothetically, would it be bad if the US dollar was no longer the world’s reserve currency?

PK For the US, it would matter hardly at all. People think people think that it’s a tremendous privilege and it’s not really worth all that much to the US. I mean, a lot of those Benjamins, a lot of those $100 bills are being held by drug lords and whatever around the world, and that’s like a zero interest loan. But it’s not that big.

HM Paul, I told you I like tipping people out with it. I am not a drug lord.

PK Okay. But, um, it’s not really all that important. You know, the British pound used to be a global currency and that sort of went away in the late 1960s and early 1970s. And you look for evidence that that hurt Britain and you don’t find it. But what is really important is it is really important for the world to have something that everybody accepts. Another one of my old teachers, Charlie Kindleberger had this great essay comparing the use of the dollar in world commerce to the use of English as an international language. It’s kind of nice for those of us who are monolingual in English. It’s kind of nice that everybody in the world sort of speaks English. But the main thing is it’s important that there be an international language. And the dollar plays a really important role because it is the universally accepted standard. You can put up US Treasury bills as collateral for anything. And that reduces friction, makes world business work. I mean, so it’s not in the best interest of the United States as a country if Bitcoin were to become the world reserve currency. That ain’t going to happen. Uh because the whole point about the dollar is it’s really easy to use and Bitcoin is not easy to use.

HM Paul, I don’t want to get memed. The Bitcoin boys have already come after me. I don’t want to get memed, please.

PK Yeah, I’ve I’ve made some money off off crypto because I get invited to crypto conferences as a designated enemy and get paid a fee.

HM In Bitcoin. In BTC?

PK No. In in in dollars. I am not going to take BTC on the speaking gig.

No, people who are serious about this stuff, which kind of includes me because it’s one of the things I worked at for decades, say that the real risk is not that something replaces the dollar, but that nothing does.

HM What is your take on crypto and where do you see it going?

PK I think crypto is basically a scam.

HM Oh, you agree with Taleb upon Ponzi, but Talib’s now adjusted his take on that?

PK No, we can document it. I mean, there is essentially no legitimate use for crypto and nobody’s using it for anything legitimate. Fewer than 2% of Americans have ever made a payment in crypto. It’s purely a speculative asset or a vehicle for crime. It’s used for money laundering and extortion and blackmail.

HM Blackmail?

PK Well, if you want to blackmail somebody, you want to be able to, you know, have a non or a difficult to trace payment, you demand that you be paid in Bitcoin.

HM But for real, you mean like organized crime? So you’re saying like ISIS …

PK Actually North Korea has made extensive use of Bitcoin to extract, to steal money.

HM So you’re saying al-Qaeda and Venezuelan gangs are just in their crypto wallets exchanging BTC.?

PK Well, actually they’re mostly using Tether. They’re mostly using stablecoins these days. `

I know a consulting firm that had their computers ransomwared and they paid and the payment was in BTC. So, it’s the most amazing thing. I’ve been in many many meetings where we — actually me and my friends, my economist friends as sympathetically as possible asked crypto guys to explain to us what function what legitimate function does this stuff serve and have never gotten an answer.

HM Well, if it’s so bad why will the comments of this video be filled with people screaming at us calling us idiots?

PK Oh, because it’s a cult. Um and the fact of the matter is the price has gone up. So people who bought in early feel very smart. My line about about crypto is that it’s technobabble plus libertarian derp and that’s pretty much it still but people are very passionate about it.

…

Every time a left-leaning politician suggests that raising taxes would be beneficial to the general public, a lot of business owners and people that live in Greenwich start screaming and say, “They are leaving. I’m out.” I suppose at sufficiently high tax rates, people would move. But, you know, part of what I I like to say when people say they’re going to leave and mostly they don’t.

HM Oh, is this like my friends in 2016 when Trump won and they said they’re going to Canada?

PK Some of that.

HM And I’m like, Brandon, you’re not going to Canada.

PK Yeah. I mean, there are a few very rich people who have left London for Milan because the Brits changed their their tax privileges. That sort of thing does happen. A few Wall Street guys have moved to Miami, although there were a lot of predictions that the whole thing was going to move down there.

HM Miami. What? You like Miami?

PK No, I don’t like Miami.

HM Same. I don’t know what the [ __ ] is going on there. I have a show in a couple weeks. I still don’t know what the [ __ ] is going on.

PK It’s not my favorite place. There was an article about Wall Street types trying to move to Florida. One of them said that the problem with moving to Florida is that you have to live in Florida. When people say, you know, oh, you got to keep taxes low for incentives. I like to talk about, you know, I live in New York City. And I’ve done well, so I’m in the top federal tax bracket, plus there’s this New York state tax, plus there’s the city tax, and put it all together, and I’ve got a marginal tax rate, on an extra dollar I make, probably about 55 cents of it goes to government. And that’s true of anybody who’s sort of upper upper middle class, anyone in the three or four top percent in New York City, um, who has earned income. I’m not talking about private equity or hedge fund guys, but you know, like in the movie Wall Street, 400,000 a year working wall street stiff. And you’ve all noticed how slow moving and lazy people are in New York because, you know, why bother to work hard given the tax? Well, obviously not, right? It’s obvious that tax rates at the level sort of 55% tax rate on upper income, earned income for New Yorkers is not enough to really make people stop working. I remember AOC getting a lot of grief because she said that the top tax rate should be 70%. She wasn’t ignorant, in fact she was talking to my friend Joe Stiglitz who’s one of the world’s greatest economists who has this very carefully sourced research paper on what is the optimal tax rate on top incomes and the paper actually says 73%. So actually good economics says that yeah we should you don’t want to soak the rich so much that it’s really not worth at all striving but when somebody says that terrible things will happen if you raise taxes on the rich you might want to consider the source.

HM I grew up [snorts] during a time when it was all about quote free trade and quote free trade agreements. What the [ __ ] is free trade?

PK Oh, no. That’s I don’t think free trade is a particularly abstract concept. It means that you don’t pay a tax when you cross the border, uh when you bring stuff across the border. I mean, uh there there’s free trade. Look, I just spent some time in the Netherlands. Lovely place, by the way. And Rotterdam is one of the world’s great ports and a lot of stuff is unloaded at Rotterdam and then taken by train or truck on into Germany. There’s no tax levied when a train or a truck crosses. In fact, there’s nothing when you cross the Dutch-German border. It’s just open and that’s that’s free trade. So there’s free trade between the Netherlands and Germany. Um there’s mostly or there was mostly free trade between the US, Canada, and Mexico. There no tariffs on most stuff that that crossed our borders.

HM So you see it as generally positive.

PK Yes. I mean with exceptions. The people who put together the system were not stupid. I think they may have been a little too optimistic but both in US law and in the General Agreement on Tariffs and Trade which we were which were massively in violation of but anyway um article 22 basically says that if there’s a national security concern, you can do what you need to do. We should have been protecting rare earths production and we shouldn’t have allowed to China to be producing all the rare earths for the world.

HM Um I mean there was been some pretty dark examples. I remember in the late 90s South Africa was trying to import cheap generic AIDS drugs, but a major pharmaceutical company backed by the American government fought to protect their patents through the World Trade Organization. Yeah. in a free trade agreement called the quote trade related aspects of intellectual property rights and as a result millions of people died.

PK But that wasn’t really about free trade.

HM but wasn’t it?

PK No, what’s happened is a lot of free trade stuff got perverted. I I used to teach about this.

HM But you supported free trade, right?

PK I support actual free trade but not this, this is protecting monopoly patent rights which is not about free trade. I taught about something called CAFTA, the Central American Free Trade Agreement and you take a look at it it turns out it has nothing to do with free trade it’s mostly about in fact pharmaceutical companies protecting their patents so no that’s not what I’ve ever been for.

HM So you’re making a distinction between free trade in these actual free trade agreement and there’s a lot of things that are called free trade agreements that are really not about free trade. Because it feels kind of [ __ ] up but some of them are and I [clears throat] don’t know is there another way to say that I don’t know it feels kind of [ __ ] up I don’t know how to even articulate it just feels …

PK No it is a lot of it is [ __ ] up but mostly it’s wolves in sheep’s clothing you have something that is really about protecting the interests of some interest group that’s being sold under the banner of free trade. You ask, do I think that Bangladesh ought to be able to sell garments in the United States without facing high tariffs? Yes, I do because Bangladesh is a desperately poor country and this is what they live on. Do I think that multinational pharmaceutical companies should be able to charge nosebleleed prices for drugs in the third world? No. And that’s not at all the same thing.

HM I have a question. Do capitalism and authoritarianism go together? Because in the 90s there was this narrative that China was going to open itself up to American markets and American businesses. And once there was economic freedom, political freedom would be right around the corner. Free trade, right? China, bam.

PK Yeah. Um, democracy. I never bought that. And I think I’m on record as having never bought that. And there was a lot of nonsense about all this. Now the real stuff is way back going all the way back to FDR, the US has had the belief that that international trade can be good for peace. That by binding countries together through lots of trading links you make it harder for them to go to war with each other and that it can be a force for peace. The European Union was originally about harnessing economic interests to basically make it very hard for France and Germany ever to have another war and that has kind of worked.

HM You really believe that? You think KFC is the path to peace?

PK Well, not so much KFC, but uh the coal and steel community making sure that that German steel relied on French coal and vice versa actually did help prevent wars in Europe.

None of this is guaranteed, and I think a lot of people underestimated the extent to which all the old evils are still possible. I mean who imagined Ukraine war as a real possibility in the 21^st century? So all the old stuff can still happen but that doesn’t mean that it’s completely wrong either. I do think that Europe is a is a success story. Economic integration of Europe hasn’t worked for everybody, but Europe used to be always on the verge of another war and now it’s really hard to think of that in Europe. So I think I said before in this conversation you have to have some humility, but the idea that trade can be something that helps with peace is valid. The idea that free trade brings democracy sort of like mechanically and automatically of course not right.

HM So are you kind of saying that hey authoritarianism and capitalism can they can run both programs in parallel?

PK Oh no. Capitalism and free markets don’t guarantee democracy . Authoritarianism and free markets don’t mix but that’s the other way around. It’s not that free markets destroy authoritarianism, authoritarianism ends up destroying free markets. Any system where there’s really no kind of rule of law, any democratic process always ends up being crony capitalism.

HM But isn’t China incredibly successful over the past half century?

PK Yeah. But it is worth saying that China is still like a third of uh of our productivity. So it it’s doubtful whether they can get so far along. But it’s also true that it partially depends on the sophistication and you can see that happening in America right now. You know, corporate types who backed Trump because they think he’s going to cut their taxes and it’s good. They’re going to find out that uh they don’t own him, he owns them. And so they’re already starting to find that out. And uh you eventually end up with oligarchs who back an autocrat and then decide hey I’m an oligarch I am going to throw my own weight around and end up falling out of windows.

HM Well you don’t think that these oligarchs are going to stand up for democracy?. I mean Kamala Harris juswent on MSNBC and she had some pretty powerful words for Rachel Maddow.

But I’ve worked closely with the private sector over many years and I always believed that if push came to shove those titans of industry would be guardrails for our democracy for the importance of sustaining democratic institutions. And one by one by one they have been silent they have been you know yes I use the word feckless.

Wow. She dropped the f- word. Did you think those titans of industry were going to stand up and be the guardrails?

PK I guess I’ve read more history than she has. Well, sorry. But we know we know what happened with Putin and the oligarchs. We know what happened in Hungary. And the one thing, you know, is that the wealthy elite never stands up. They’re the last people you can count on.

HM Do you want to do the lightning round? What? We always end with the lightning round.

PK Okay. I don’t know what that is, but that’s fine. All right.

HM Do tax cuts pay for themselves?

PK No.

HM If rich people give money to poor people, does it make society as a whole more rich or more poor?

PK Mostly richer.

HM Why do Republicans only care about deficits and debt when they’re not in power?

PK They don’t care about deficits and debt. They care about trying to prevent Democrats from spending money on helping people.

HM What’s more important for economists? Being respected by other economists or being right?

PK Oh, some of both. I’m afraid. You know, we’re human beings.

HM Nassim Taleb says, “You’re a BS vendor that will not deadlift. Will you deadlift against him?”

PK It doesn’t seem to me to be a really good way to settle intellectual arguments.

HM I mean, what’s really great about deadlifting is you can do uh one rep max. You’re going to take four to five minutes off before you get to the next set. Have it out.

Yeah. Then get back to it. What is the best measure of whether an economy is working? Justice or efficiency?

PK Oh, I would say neither. I mean, efficiency is not enough. You can have an efficient economy where all the money goes to one person. Um but justice, you can have a very just but also very poor economy. The measure of the economy is does it give people good lives?

HM Why is it that when businesses get free stuff from the government, it’s called an incentive? But when poor people get free stuff from the government, it’s called a handout.

PK Yeah. Well, who pays? Who makes political contributions? Who’s on the other end of the revolving door for people in politics, you know, maximum cynicism is totally appropriate here.

HM Does economics deserve to have a Nobel Prize or is it basically a kids choice award for intellectuals?

PK I have mixed feelings about the Nobel in economics. I mean most of the Nobelprizes leaving out present company have been for actually valuable contributions. Some of them have been a little bit funny, but you know when I look at Claudia Goldin getting a Nobel really telling us the story about uh women’s work um that certainly deserves some kind of prize.

HM So you know why not? Can I make a pitch? So I have two Peabodies. I definitely don’t deserve them. It’s for excellence in radio and television. Two things that don’t exist anymore. But I would happily take a Nickelodeon’s kid choice award. Number one, my kids would think it’s so [ __ ] cool. Number two, the possibility of getting slimed on television. And number three, you get a surfboard.

Supreme Court Judge Lewis Brandeis once said, quote, “We may have democracy or we may have wealth concentrated in the hands of a few, but we can’t have both.”

Do you think capitalism and democracy are compatible? Yes or no?

PK [clears throat] Modified limited uh capitalism.

HM Yes or no?

PK No. Capitalism, yes, but not without limits. I mean, we had for a good long stretch a combination of progressive taxation, estate taxes, strong unions.That was still capitalism, but it was also democracy. But no, I don’t think we can have people as rich as uh Elon Musk and Larry Ellison and still sustain a democratic system.

HM Are you optimistic about the future or not?

PK No, I’m actually quite terrified on multiple fronts. I’m terrified about the fate of democracy. I’m terrified about climate change. But you can’t just roll over and hide under the bed. But I’m extremely worried.

HM Paul, you got to start deadlifting and you got to start getting after it, big dog, cuz the fight continues and we need that dog in you.

PK Oh, I run. Does that do it?

HM No, I I need progressive weight training. Okay, Paul Krugman, thank you so much.

Thank you. Hurry right away. [singing and music] No delay. Make your daddy glad. You have your

[music] last

Wealth

Occupation	Repugnance score
Clergy	5.91
Childcare workers	5.86
Marriage and family therapists	5.64
Administrative law judges, adjudicators, and hearing officers	5.62
Athletes and sports competitors	5.52
Biostatisticians	2.54
Switchboard operators, including answering service	2.52
Transportation planners	2.38
Search marketing strategists	2.31
File clerks	2.17

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