This is an audio transcript of The Wolf-Krugman Exchange — how the old economic order fell out of favour’
Martin Wolf
Shall we start?
Paul Krugman
OK, let us roll.
Martin Wolf
This is the second in our series, The Wolf-Krugman Exchange. I’m Martin Wolf, chief economics commentator at the Financial Times.
Paul Krugman
And I’m Paul Krugman, professor at the City University of New York and independent newsletter writer on Substack. And for the record, we’re recording this conversation on Monday, June 9th at 2pm london time, which is nine in the morning for me here in New York.
Martin Wolf
And before we get to the theme of this episode, which is how did we get here, I want to ask you Paul, what just happened between two important gentlemen in Washington?
Paul Krugman
Wow. So, let me start with actually a kind of a life lesson. I mean, the philosophers always tell us that wealth and power don’t bring you happiness. And boy, are we seeing that illustrated in real life. You have the richest man on earth and the most powerful man on Earth and both are . . . they reveal a lot more of their thoughts because of social media than they would have in the past. And both appear to be extremely miserable human beings with an amazing ability to feel mistreated and undervalued.
And it’s really hard to come up with what the substance of the dispute is here, except that it seems like Elon Musk kind of feels as if he ought to be the real president and Donald Trump does not. That always makes me say that Trump is right, but Trump is also terrible in his own way. But wow, there are no deep issues of principle here. This is just runaway egos from two, it turns out, extremely strange people.
Martin Wolf
I wonder whether there isn’t one issue which might be relevant that Musk actually thought that he was going to Washington to close down the government. And he’s found — to his surprise, shock, horror — that actually Trump doesn’t really want to close the government except for, from his point of view, rather unimportant bits that help very poor people have medical insurance.
Paul Krugman
Well, it’s a little question here. I’m not sure, I mean, that Musk went in there with the belief that there was vast amounts of waste and fraud and fat that could be picked away from the US government without causing anybody any harm, except for useless bureaucrats. Um, not clear that Trump had much view on that at all, but of course it turned out to be utterly untrue, which anybody could have told us in fact, some of us did tell them. And the whole effort has been a really spectacular failure. And I think part of what’s going on here is that Musk went in and told Trump, I can save you trillions of dollars and then failed to deliver. And Trump said, what’s going on here. We do know that some Trump officials have actually called Musk a fraud and he can’t handle that.
So the whole notion that there is a bloated federal bureaucracy and lots of money to be saved just by stopping things that don’t need doing has turned out to be wrong. In fact, there’s reportedly some frantic efforts now by parts of the US government to rehire some of the really essential workers that Musk got rid of.
Martin Wolf
That remains a mystery to me that Musk, whatever else, seems to be able to create functioning companies with some government assistance, which does involve being able to read an income statement, I would assume, couldn’t have looked at two or three pages no more summarising the federal government spending without realising, as in your well-known phrase that it’s, uh . . . it’s an insurance system with an army. And that this egregious waste is just ridiculous. And of course, as a result of this, they’ve done incredible damage to the world and to poor people, as you’ve noted with the closure of USAID.
Paul Krugman
Yeah. People of great wealth can certainly afford to be extremely well-informed. I did a sort of back-of-the-envelope calculation and realised that Musk could personally afford to maintain an intelligence agency about the size of Britain’s MI5. If he wanted to be the best-informed person on the planet, he could do it quite easily.
Instead, he reads random posts on Twitter and gets his information there. And this is really just saying that he does not want to know. It’s not lack of sources of information. It is fundamentally that you’ve decided that you know how the world works or how you want it to work and that’s all you want to hear about.
Martin Wolf
And that seems to be the case. And Mr Trump certainly isn’t interested in finding out the way the world works. He seems to just be driven by his ion of the moment. There doesn’t seem to be any consistency in his understanding of the world.
Paul Krugman
That’s right. Well, there’s a general devaluation of expertise. Anybody who actually produces facts and figures, anybody who’s actually studied a subject is inherently suspect with the current regime in the US. So it’s almost disqualifying to know what you’re talking about. And it’s a heck of a way to run the world’s most powerful nation, although at the rate we’re going, we may lose that status pretty fast.
Martin Wolf
Let’s actually just touch on that for a moment before going to the big theme of this conversation. You’ve just written about this, this staggering hostility to science, technology, basic applied science in central areas, which was the basis of American prosperity. Are they sort of consciously aware? You know, changing . . . so actually our objective is to destroy America, isn’t that a good thing, and I suppose what people who think he’s really on the opposite side might believe. But that’s not what they think. And then the question is what do they think about the role of science in Americans’ prosperity.
Paul Krugman
It is a very interesting question. I mean, yes, the US, you know, leads the world in science, certainly in of raw numbers of scientists, in of raw numbers of Nobel Prizes, everything else. It does so largely thanks to government-funded programmes, but which are intimately linked to the great research universities. And all of it depends upon, first of all, a lot of government money. Scientific research is almost the definition of a public good that you cannot expect the private sector to provide. And also for the past 80 years, the US has depended very, very heavily upon foreign people coming to the US, on the world’s smartest people coming to America to study, coming to America to research organisations of various kinds.
And what they’re doing is that short-term budgeting pretty much slashes federal for scientific research in half immediately, basically for the next fiscal year. And we have all of these now attempts to ban or restrict foreigners from coming to the US to study, restrict them from coming to work. You know, there was that Harvard researcher, a Russian émigré, who was in prison for months because she failed to declare some frog embryos in her luggage. And I think that there’s a . . . first of all, yes, they are definitely trying to destroy science and to the extent that science threatens, you know, science may tell you things you don’t want to hear.
But also there’s a kind of a lump of labour thing on the right, which is the belief that there’s a certain number of good jobs, like high-tech jobs in Silicon Valley, and there’s a certain number of good positions like being a student at Harvard, and that if you can shut foreigners out from those jobs and those positions, then they can go to Americans. And it’s just as good that it doesn’t matter who gets hired to be an engineer at a high-tech firm. It doesn’t it matter who gets to be a graduate student at Harvard, which is kind of weird. It’s, you know, people who are so into that high incomes are a reward to the talents of the entrepreneurs also seem to think that basically any old person can be a star graduate student at Harvard.
Martin Wolf
These are also the people who rail against affirmative action because it puts in into all the best positions people who are entirely unsuited for holding these positions’ don’t have my right qualifications. It doesn’t seem to worry them very much here, does it?
Paul Krugman
No, affirmative action for native-born white Americans, what can we say?
Martin Wolf
And I was thinking when you were talking about this closure and the effect on foreigners going to America, possibly Americans going abroad, it’s pretty well what happened in Europe in the ’30s and ’40s famously with all the refugees who came to America and played a pretty big role in establishing that American pre-eminence. So maybe this is now the great opportunity for Europe. We will see.
[MUSIC PLAYING]
Now let’s move to the question, which we want to talk about, which is why did this happen, as it were? We’re talking about an istration who seems to be very absolutely hostile to everything that makes, has made America what it is. The richest, most successful country in the world, the dominant power, the shaper of the world. So why has this happened and why in particular do so many people, working class people, people you think pretty dependent on the functioning of this system, think that Trump is the answer?
Now, one of the theses which I discuss a lengthy my recent book on this, The Crisis of Democratic Capitalism, and it’s one you’ve been discussing recently is rising inequality along with economic failures — the huge financial crisis, the apparent corruption of the way it was dealt with, the apparent incompetence of the people in charge when that happened, fuelled a sense of deep unfairness, and I think there’s something in that. What is puzzling is why do they then go to this sort of right-wing populist government? And we see that elsewhere too.
Now, you’ve looked a lot of the economics. Do you have a wider sense of what has happened to the working class, using that as a sort of shorthand, why so many have left the Democratic party or the Labour party, similar here, or the Social Democrats in ? And why are they so tempted by the sort of empty populist politics and policies we’re seeing now?
Paul Krugman
Well, yeah. I have a somewhat, probably pretty seriously heterodox take on all of this. Most of the time, I’m mostly actually a surprisingly orthodox guy on economics, so often what I have to say is much more sort of mainstream economics than people think. But on this fact, yes, we’ve had this huge increase in inequality, which has left many people behind. The working class as a whole has not shared very much in economic growth, not zero, but hasn’t shared very in economic growth for decades now. Particular, we have the issue of left-behind regions, which is quite serious. So if you look at the aggregate of the working class in the US, and I know other countries less well, but this is true I think across the western world. You find . . .
Martin Wolf
Very much so. Britain has this in spades.
Paul Krugman
Yeah, exactly. Great Britain, former east , so you have these left-behind regions where people really do feel stranded, that the world ed them by, particularly a lot of working-age men without jobs, which is definitely not a good thing sociologically. So you have to, on the one hand, say that this is real, that there are real grievances, There are real reasons to say this has not been fair to me and people like me.
On the other hand, you have these right-wing parties even in places that have been much more successful than the Anglo-Saxon countries, mine in particular, in limiting the rise in inequality, that have much stronger social safety nets. There are nativist right-wing, powerful movements in Denmark, in the Netherlands. So it’s not just that. And as you say, the people, the parties they are, they may try to sound populist, but the policies are anything but.
So my take is two parts. One is that there’s always a substantial number of very dissatisfied people, very unhappy with society as it is, that even in the best of times, 25 or 30 per cent of the electorate really is very angry. And this can be because of genuine social forces. It can just be because life is not a ball of cherries, whatever, I mean, we’ve just seen it. The world’s richest man, the world’s most powerful man are obviously deeply unhappy. And this happens to a lot of people. But how does that get translated into politics?
Well, one thing to say is that most people are far less informed about politics, about what parties stand for, about what the policies are than people like you and me can easily imagine. And this is particularly true in an era of sort of stove-piped media, where people get fed particular narratives. People have been doing counts on Fox News and the United States and saying, you know, on a typical morning, we have this bill that’s probably going to go through that’s going to cause about 15mn people in America to lose health insurance, largely through slashing Medicaid. So on a typical morning, Fox News will have one or two mentions of Medicaid and 45 to 50 mentions of the fact that Joe Biden is old. So there’s a lot of, you know, people don’t have a good sense of what’s there.
But who shapes this? How did the media narratives get pushed? And by the way, this 30 per cent, let’s say, of the electorate that is ready to be hopping mad, that’s ready to be very hot, burn it all down, but they get signals. Who sends the signals to them? And in a lot of ways, I think that the most important political aspect of inequality has not been the lack for the working class, although that’s real. It has been the extreme concentration of wealth at the very top, which has created a kind of oligarchic elite that, among other things, gets to determine a lot of the narrative, and that that, more than lacking wages for the working-class, that the concentration of wealth at the very top has really driven the polarisation and radicalisation of our politics.
Martin Wolf
I think that’s very interesting. Let me just put forward a couple of other propositions here about the links between economic change and some of the cultural changes that make people upset. And one of them is actually something you mentioned, which I think is generally underestimated, which is the link between economic changes and political power, political institutions.
So when I look back to my youth in Britain, and I think the thing you were saying was basically true in America, you had powerful trade unions as political actors and as actors in the economy. And they mobilised working people and created a political community and they directly ed parties in which they had huge influence because they combined the votes and the resources of lots of working people. And that’s gone. And I tend to the view that at least in part, significant part, that’s gone because of the changes in our economy itself, that when we had very large factories and millions of people in mines and so forth, all these men were working together, really working together and if they went on strike they close down whole industries and everybody can feel it. They had real economic power. When you are the vast number of people distributing goods for Amazon, it’s a bit different. They don’t have that sort of power, that they are much more easily interchangeable.
There was also an ideology and attitude that these people should be represented and the creation and the link with parties like the Labour party or the Democrats used to be made people feel they were part of the political process and the people in those political entities were seen as representing them, not representing people completely different from them.
I look at the Labour part now, the Democratic party now, the people who are the top, you know, to be blunt, rather like you and me, and I perfectly well understand that when you’re a working person who’s never had anything to do with the sorts of institutions we were lucky enough to go to or do the sort of things we do, they feel these people aren’t anything to with me. When we had Ernie Bevin as a powerful politician in Britain in the ‘40s, he was them. He’d been the man who ran the Transport and General Workers’ Union, one of the most powerful political entities. And I think economists have tended to underestimate these synergies between the economy we had and the social and political organs that represented these people. And I think they’re lost, they are atomised, and that’s an opening for people like Trump.
Paul Krugman
Yeah, the decline of the union movement is epical in many ways, directly impacts on inequality. There was a lot of levelling of wages and constraints, by the way, on sort of massive executive compensation packages and so on. They came from the fact that we used to have in the US a 30 per cent unionised workforce. And the unions mobilised people. They, you know, people got a sense, you know, who tells people to a certain extent where people were getting their political news from the union meetings rather than from sitting at home watching Fox News. That mattered. And they could mobilise resources of a kind that in a way you can’t really buy. It used to be the case that union would go knocking door to door to get the vote out. And these would be people you knew. And so that mattered a great deal. And the decline of unions really eviscerated an important part of the political system.
How much that is a necessary consequence of economic change is something I would be prepared to dispute. We used to say, well, OK, only manufacturing had really big employers when we were (inaudible), but that’s not at all true now. So right now the three biggest private sector employees in the States right now are Walmart, Amazon and United . . . UPS, United Parcel Service, 1.6mn at Walmart, 1.1mn at Amazon. Amazon feels disembodied. You click on a link and it appears, but in fact there’s thousands and thousands of workers in those distribution centres.
Are those jobs atomised and inherently impossible to unionise? I don’t think we know that. There’s certainly the case that there are large enterprises that could be organised. In a lot of countries they are. And one of the things I discovered just recently doing some research on this is that that number three private sector employer, UPS, mostly is unionised. Now 70 per cent of UPS workers are of the Teamsters Union.
So the fact of the matter is that you can have large service sector companies that are unionised, and if we ask why they aren’t, that has a lot to do with politics rather than the other way around, that the big shift away from manufacturing towards the service sector in the US took place in the 1980s and the 1990s at a time when conservative economic ideology was dominant. The Reagan istration was clearly anti-union and, in fact, was highly permissive towards union-busting tactics, many of them illegal, but nobody was enforcing the labour law. So I think it’s not as simple as to say, well, we used to have an economy that empowered workers and now we don’t. A lot of it is that as the economy changed, it changed in an environment where workers could be disempowered.
Martin Wolf
Do you think a significant part of the change in politics you’ve described is the change in media, the decline of the networks, the successful assault on the mainstream media and its credibility and of course this colossal growth, as you pointed out, of new media, very many different kinds from Fox News on to all the social media? So actually you can’t create a coherent community because there isn’t one.
Paul Krugman
I have mixed feelings or basically I’m confused on this. Yes, it’s true that the decline of traditional media. It used to be, and this is a very American reference, I’m sorry, but it used to be that every evening Walter Cronkite would say, and that’s the way it is, and people believed him. And so there really was a kind of national consensus about what was happening. And that’s not at all true now.
What is striking though is that if you ask who is providing these disparate visions of reality or who is a big issue in the US now is we talk that in the media is sane-washing, you know, I don’t know who came up with the phrase. But say, you know, really crazy stuff where they really they don’t tell it like it is, where you read or watch on CNN the description of what Trump said today and then you go back and look at the actual tape and it’s completely crazy compared to . . . it was totally sanitised for the public. And these are big media organisations. So we’re not talking about, oh, you know, everybody’s getting their news from Facebook or TikTok, although that is also a factor. It’s a lot of it is that the mainstream media, the big media companies themselves have contributed to, directly promoted or have simply backed away from the process of creating a shared vision of reality that bears some resemblance to what’s actually happening. So I’m not sure that it simply would be nice to blame it all, you know, on Mark Zuckerberg or something, you know that it’s all because we went and started getting our stuff from social media. But I think there’s a lot more going on there and in many ways the media breakdown is a symptom as much as a cause of the political polarisation.
[MUSIC PLAYING]
Martin Wolf
Let’s go back to something you said earlier, which I think is very important and where I’m somewhat heterodox among my friends, which is talking about immigration and what’s happening in Europe. If you look at right-wing populist parties across the west as a whole, pretty well universal among them is that they mobilise their ers around the theme: the country’s been swamped by foreigners. Look at the Brexit campaign, you look at the AfD, look at Geert Wilders, you look at what’s happening in Sweden, of course it’s obvious with Trump. Just look what’s going on right now somewhere to your west.
So it does seem pretty clear. And then of course you can go to the most malevolent version of this — what happened in during the interwar period — that foreigners are both something people get very anxious about and it’s a wonderful way of mobilising anxious and angry people against somebody different who can be perceived as invading your country. That’s a pretty central element, isn’t it? It must be a pretty essential element in the rise of the new populist right across the west, of which obviously your country is very significantly a leader.
Paul Krugman
Yeah, you know, I’m not a political scientist. I don’t even play one on TV, but I do read them. I talk to them. And if you try to look for things that explain our ups and downs and political polarisation in the US, income inequality is one major driver. But immigrant share of the population is another. There’s no question that rising immigration which in the US really, in the 1960s, we began to, the rules were changed and it became a lot easier for people who were not western Europeans who mostly didn’t want to come anyway, but it became much easier for people from other places to come. And that that created a sense of, this is not my country or these people are coming. And it took a long time, but eventually that did solidify. Now, there are some quirks in that. Within the United States, there’s a very clear pattern, which is that extreme hostility to immigration is strongest in places that have very few immigrants.
So if you ask, is immigration good or bad for America, you get, overwhelmingly, if this is a really bad thing for America in West Virginia, which has basically 97 per cent native-born whites, and you get a pretty positive picture from New York or Los Angeles where 40 per cent of the population is foreign-born. So there’s a real sense in which people are angry about immigrants and immigration in the abstract. They hate the idea. If they actually get to interact with a lot of immigrants, they start to seem strangely like people and the hostility goes down. But it’s clear that immigration has been the single most effective mobilising tool for scary populists.
Martin Wolf
Yes, and we’ve seen this phenomenon, it’s been much observed on here, the vote for Brexit, which was very clearly, much of it, at least, was about immigration and immigrants was highest in the parts of the country, which had the fewest of them. Similarly, the anti-immigrant sense, which is obviously very powerful in East , the former East . It’s where the, it is the real bastion of the AfD. There are other regions. But that’s not where most of the immigrants have gone. And there are some countries in eastern Europe who don’t have any, where it’s very ionate. So clearly the idea of it is very bad. There are also some places that’s part of the problem in Sweden where they clearly have really had problems in absorbing and coping with mass immigration and they have a very serious crime-related problem. So we shouldn’t, I think, underplay this.
But it’s clear that we haven’t managed the politics of this in some sense at all well and it’s creating now very profound problems for democracy and it’s something one can’t really ignore. And my own argument in my book was governments need to give the impression that they are in control of it. I don’t think there is a popular demand to stop immigration but I think there isn’t strong popular demand at the very least in the majority of these people. And I’m not talking about the most extreme racist fringes. There is a demand that they should feel that there is a policy which is being enforced. Otherwise it’s lawlessness, and that’s difficult to accept.
Paul Krugman
Yeah. I think that that’s right. There’s a quite compelling abstract, humanitarian, cosmopolitan case for open borders. Forget it. It’s just not sustainable politics.
Martin Wolf
Now that gets to a really big question, what went wrong with the Biden istration? The Biden istration on paper had a pretty good record, certainly in of economic activity and in of employment and real wages. And nonetheless it lost, of course, with all the problems over Biden himself and his replacement, that’s an important issue. But people generally tend to say there were two things that went wrong. One, they lost control over the borders in the first couple of years or so, and then inflation, or I tend to say not inflation, the price level, three years of inflation, it was the problem, not one year. But anyway, if you look back on that, which is obviously how we got here, what do you think they did wrong? Or was it actually doomed that Trump would come back?
Paul Krugman
Well, one thing they did wrong was to not actually pursue legal action against the people who tried to overthrow the US government in 2021. So a lot might look different as people kept on saying Merrick Garland was Biden’s attorney-general and all through this people kept on saying none of this would be happening if Merrick Garland were still alive, which he was, but of course he was just not doing anything. So that’s one issue.
The surge in prices clearly rattled people very badly and did so everywhere. Now, the funny thing was, it was very much a global phenomenon. If you look at cumulative increase in consumer prices on any kind of comparable measure, it’s almost the same in the European Union, the United States, Britain. And 2024, your own paper’s John Burn-Murdoch said, it was a . . . 2024 was a graveyard for incumbents. Whoever was in power during that rise in prices got blamed for it, even though, you know, people like you and me can go blue in the face and try to say, you now, this was, there were policy errors, there always are, but mostly this was supply chain issues as we recovered from Covid.
In fact, Canada, the Liberal party in Canada was on the edge of extinction basically because voters were furious over the rise in prices in Canada, which was of course identical to the rise in prices than the United States. And Canadians of all people should know that their economy is very strongly influenced by this neighbouring economy 10 times their size just south of the border. And yet they were prepared to deliver a devastating defeat and the Liberals were saved by Donald Trump. If their election had been held two months earlier, we would be talking about a populist government in Canada as well.
So I think mostly this was just Covid was an enormously disruptive thing. And it turns out that coming out of Covid was . . . economies are a lot less flexible than I think most economists, myself included, tended to imagine. And dealing with the dislocations that continued even long after people had pretty much gone back to work was a big source of inflation and everybody was furious. People didn’t say, oh, you know, this is a global phenomenon and actually my wages have risen by three percentage points more than the consumer price indices have gone up. People just said, this stuff used to cost me $2, now it cost me $3 and I’m angry.
Martin Wolf
I have to say that — we should have some disagreements — I agree with most of that, but I disagree a little in that perhaps it’s significant. It does seem to me when I looked at the late data that it was a global phenomenon, but it wasn’t just a supply shock. There was a very large surge in demand, in nominal demand across the western world, which was actually the perfectly understandable consequence of the monetary and fiscal policy decisions made during and immediately after Covid.
So we did actually pursue extremely aggressive demand policies. And it’s not very surprising then that that generated inflation. Now, you can certainly argue, I think, that if the alternative was a long recession, that would have been worse. So this was probably erring on the right side. But it doesn’t seem to me that it was just, as it were, a set of unexpected supply shocks.
Paul Krugman
Yeah, it’s a little bit more com--, I mean, what I would have said is, first of all, we basically maintained people’s purchasing power one way or another through extensive government aid programmes at a time when the economy’s productive capacity was reduced by the virus. So of course, that’s inflationary. And then also, even as we began to recover, people didn’t spend their money the same way. So you had people who were still afraid to go out to eat, and so they bought lots of expensive kitchen equipment instead. And it turned out that we did not have the port capacity, the shipping capacity to deliver all of those consumer goods. And so the United States, which was more aggressive on the fiscal policy than the rest of the western world, our inflation bout started sooner, although it ended sooner as well.
So yeah, it’s more complicated than just saying there was a supply shock, but I think you should think of all of this as being, look, the world was hit with this incredible disruption, this pandemic that shut down normal life for an extended period of time. We responded very aggressively to protect people from the economic consequences, which on economic was very much the right thing to do. And in of every measure except who won the election, it worked out great. We’re back to more or less target inflation. We never experienced high unemployment. Real wages are up. If you didn’t know that Donald Trump won in November 2024, you’d look at US economic policy since the start of Covid as a triumph.
Martin Wolf
We’ve missed out, and let’s focus on this in the last 10 minutes or so, what most people think of as the cliché elephant in the room: trade, and above all, China and deindustrialisation and all these unfair practices which destroyed western manufacturing and caused colossal mass unemployment of industrial workers and regional depressions. And I want to explore where you agree with that and where you violently disagree with that.
Let’s start with the deindustrialisation, quote unquote, and particularly the loss of industrial jobs because I think we both agree that the dominant thing that’s been going on for a long time is productivity growth in manufacturing is faster than in any other major sector. That means we can produce more with fewer workers. And if you look at the statistics, that’s the dominant reason why the proportion of workers in manufacturing across the western world has been steadily declining for decades. There was a bit of a surge in the early part of this century, but that was over quite quickly, sometimes called the China shock. But in the end, this idea that China has destroyed manufacturing and manufacturing jobs is sort of a ludicrous exaggeration.
Paul Krugman
Well, it’s one of those cases that it’s not unadulterated nonsense, it is adulterated nonsense. There’s some truth to it. If the United States did not have a trade deficit in manufacturing goods, then manufacturing might be 12.5 per cent of employment rather than 10, but of course not the 25 per cent it was in 1970. So we’re a little bit less industrial than we would otherwise be. So it is a factor in deindustrialisation.
But I think the much more important story, the thing that I kick myself for missing when the big surge of imports from China and a few other places began was how geographically uneven it would be. So you take, well, I happen to have a favourite example, which just happens to be easy to do, which is furniture. The US furniture was a largely non-traded good until China really got into the export market. Then we had this huge inrush of Chinese-made furniture, which probably eliminated around half a million furniture manufacturing jobs in the US. America’s a very big place. We have a million and a half people are fired from their jobs every month. Half a million jobs is actually a tiny number. And overall US unemployment didn’t rise at all.
But it turns out that furniture manufacturing — and I, of all people, having worked on economic geography, I should have thought of this — furniture manufacturing, like a lot of other industries, is very geographically concentrated within the United States. In the case of furniture, it’s mostly in the North Carolina Piedmont. And so what looks like a trivial shock to the US labour market as a whole was devastating to the economy of Hickory, North Carolina, right? And so you had a lot of regional disruptions that came from this surge in trade.
Cumulatively add them up, it’s not all that much, but it does contribute to the feeling of things going wrong. And by the way, the technological change also tended to have very disparate regional impacts. Coal mining has essentially disappeared as an occupation in the US, which is, by the way, in human , a good thing. It was a horrible job. But it was a large part of the regional identity of places like West Virginia. That’s not trade. We don’t import coal. It’s not even environmentalism. We really didn’t start scaling back coal consumption until quite recently. What happened was technology. Instead of guys with picks and shovels, first we had giant earthmoving equipment, then later we started just using high explosives to blow the tops off mountains. And so, all right, technology is always changing. There are always some jobs being destroyed. But in this case, what happened was that a particular region of the country found that the industry that in many ways defined its identity, and to a lot of ways still does define its identity even though there’s basically nobody doing it anymore, was eliminated. And those kinds of shocks, I have to say is . . . where economists do fall down is that we don’t think enough about community. We don’t think about what it does. You know, never mind what the aggregate unemployment numbers look like, what happens if your town no longer has a reason to exist.
Martin Wolf
Well, we used to have in America, we had regional policy, you had adjustment assistance. And for quite a long time these two were basically abandoned as far as I can see. Now, they probably weren’t as effective as they should be or could be and it’s difficult to do this but at least it gave the impression that there was some concern about what was happening and some efforts to help.
But it is true that in the era of what is called neoliberalism, communities were sort of expected to solve their own problems out and one of the things we’ve learned and I think you’ve learned, that’s really hard if you lose the basis of your economy and the part of your region, your location, which exports to the rest of the world.
Paul Krugman
Yeah. I mean, and that’s how local economies work, is that they have an export base, which means selling to not just the world as a whole, but just other parts of even your own country. And everything else hinges off that. So again, New York basically lives off Wall Street, but most people don’t work on Wall Street. They do all the other things that we do around here. And if you eliminate that export base, sometimes, lucky cases, community finds something else to do, but in many cases it doesn’t, and it just kind of withers away. And we do not have good answers for that. Regional policies we can try.
I spent my very early years in Utica, New York, upstate New York which was a manufacturing centre, you know, and all that. The manufacturing went away. Those towns up there, well some of them have found, actually it turns out Utica has done better than some of its neighbours because they make yoghurt. But it’s really hard to get stuff to go there because it was an industrial centre, because of the Erie Canal, which nobody cares about. And let’s face it, the weather is terrible, extremely cold winters with metres and metres of lake-effect snow. So why is anybody going to locate an industry there? And so this is a problem everywhere. It’s always been with us, but it interacts with this poisonous political environment.
[MUSIC PLAYING]
Martin Wolf
Well, we’ve got quite a few subjects I wanted to talk about, but we’re going to leave for later on. One of them is global imbalances, those deficits, whether they’re a real problem, what to do about them. Another is the future impact of AI. But we sort of run out of discussion of the challenges now. And I think we’ve shed a lot of useful light on how serious they are and what was behind them.
Paul Krugman
Yeah, so Martin, we’ve been picking up an idea, I think it was my Substack newsletter, of having a sort of a cultural coda, which normally I do in the form of a song. But I actually have a poem for once, which is not my normal thing. But Martin, what’s your song for the day?
Martin Wolf
Well and I didn’t know what to do because I’ve never done this before so and I don’t seem to have your access to wonderful new music. It so happened that I was reading a site you very faithfully Tim Snyder’s Substack. Yale historian, now moved to Canada, writes a wonderful Substack about tyranny. He wrote a magnificent book, On Tyranny, which has turned out to be very relevant. And he actually posted a link to a song written by and performed by his brother-in-law who turns out to be a well-known composer, Dan Shore, and it’s basically the tariff song. And I thought it was wonderful and the link will be with the podcast.
Paul Krugman
That’s great. And yeah, normally I do do music. And by the way, the trick is that after a day of dealing with this horrible news environment, I actually tend to spend an hour or two every evening decompressing, watching live musical performances on my iPad. So that’s where all of this comes from. But in this case, it’s a famous Langston Hughes poem, “Let America be America Again”. And he’s writing about it as, you know, as a Black man saying America was never America for me, but also saying that America is an idea and we are supposed to live up to that idea, which seems to me to be a terribly important thing to be emphasising right now. I mean, in a way, the fundamentals of what’s going on in this country is between people like me who have a vision of what America is about. What are, what are we really, what is our essence. And people, unfortunately who are in power, who don’t share that view at all.
[MUSIC PLAYING]
Martin Wolf
So, on that note, thank you very much for ing us for part two of The Wolf-Krugman Exchange. We’ll be back with you again next week, and in the meantime, may I ask all of you to send questions? We have a plan to devote the last of these episodes, the sixth, to them, and we hope we will give you good answers. Thank you very much for listening.
Comments