Maybe there you tell me this, actually, if there was not an Iran war with gas prices on the rise, if there were not already the effects of the tariffs that Donald Trump previously imposed, if we were not dealing with inflation, would these tariffs by Canada be as big of a deal?

It's still a surprisingly big deal.

You think, well, Canada is a small economy.

How much can it matter to an economy as big as the United States? But once you start to go into the details, you discover that there's a lot of industries in which Canada is a really, really important supplier.

Something like half of the aluminum that we use in the United States comes from Canada.

Canada is only a fraction of the softwood lumber market, but it turns out the Canadian trees are different.

And they are better for certain purposes.

OK, I

Paul, can you just walk us through the basics of how those developments are tied to the Strait of Hormuz remaining closed?

Yeah.

So before this war, about 15% of the world's oil flowed through that strait.

And it's...

Other stuff too, natural gas, helium, fertilizer, but right now let's focus on the oil.

So 15% of the world's oil goes through that narrow passageway, which is extremely easy for Iran to block.

That 15%, there's really not much of an exit.

Can you explain that? Why is that?

Paul, can you just walk us through the basics of how those developments are tied to the Strait of Hormuz remaining closed?

Yeah.

So, uh, before this war, about 15% of the world, world's oil flowed through that strait, uh, and it's, um, uh, other stuff too, uh, natural gas, helium, uh, fertilizer, but, you know, right now let's focus on the oil.

So 15% of the world's oil goes through that narrow passageway, which is extremely easy for Iran to block.

Um, that 15%, [lip smacks] there's really not much of an exit-- There, there's no real way around the, the block- the Iranian blockade.

It's a little bit of stuff can go by pipeline, but not much, and, um, [lip smacks] that's a lot of oil being denied to the world market.

Um, and of course, the price of oil has gone way up, but if this continues, you ain't seen nothing yet.

Can, can you explain that? Why is that?

Looking forward to your presentation.

Okay, thanks.

So, um, everybody, I... and Marcus, my apologies, I ended up unintentionally pulling a kinda bait and switch.

I thought I was gonna do second China shock, and that's certainly part of the story.

But as I was getting my act together for this talk, I ended up, uh, veering off in a related but different direction, um, which is partly it's a request.

Uh, people, um, have been asking me to, uh, uh, particularly Arvind Subramanian, uh, at, uh, Peterson, has been asking me for a response to some of the new views that we've been hearing about trade imbalances.

And of course, that very much relates to the China shock, and China is at the heart of a lot of this stuff.

It doesn't work in the long run.

Paul, can you explain what Trump thinks he's saying here?

Uh, the short answer is no.

I have no idea what he thinks he's saying.

Uh, eh, this is really weird.

I mean, there, you know, the first question is, "Where's the beef?" Or actually, where's the beef coming from? This is an amazing thing where, you know, he says we're gonna bring in 300,000 metric tons of beef, but won't say from where.

And, you know, that's, uh, among other things with our, with all of these food safety scares, uh, you know, I think people would like to know, uh, who's, who's supplying this beef.

And, uh, anyway, so that, that's kind of weird in itself.

Can you talk about that? Because I think it's something that a lot of people don't know.

Paul, can you explain what Trump thinks he's saying here?

Uh, the short answer is no.

I have no idea what he thinks he's saying.

Uh, eh, this is really weird.

I mean, there, y- you know, the first question is, where's the beef? Or actually, where's the beef coming from? This is an amazing thing where, you know, he says we're gonna bring in 300,000 metric tons of beef but won't say from where.

And, you know, that's, uh, among other things with our, with all of these food safety scares, uh, you know, I think people would like to know, uh, who's, who's supplying this beef.

And, uh, anyway, so that, that's kind of weird in itself.

Can you talk about that? Because I think it's something that a lot of people don't know.

Uh, what do you see there?

Okay.

The...

I mean, interest rates are up.

Probably there's a little bit, though probably not mostly, Peve, that the markets are starting to get concerned about the debt.

But the deficit, you know, which is the deficit is the amount that you add to debt each year.

The deficit is really, really high.

Um, I give you the floor on, on all of that.

So is Wall Street rallying precisely because the news for your average American worker isn't so good?

Well, not exactly, although, I mean, there's a conflict there.

I mean, Wall Street, to the extent it's anything, it's a claim on profits.

So if you have an economy in which profits are rising at the expense of wages, which is what we have to an important extent, yeah, stocks would be going up, but that's, you know, uh, uh...

Stocks are mostly owned by a relatively small part of the population, and the rest of the population lives on wage in- income, so that's actually bad.

So, you know, in many cases, what's good for stocks is actually bad for workers.

Uh, and besides, you know, stocks, it's, it's speculation.

W- what do you see in the future here? Do you expect them to rise at some point again, even further from this current point, given the fact that Trump's plan is to, I guess, just keep low-keying it for the time being?

Donald Trump does not have a plan for ending this war.

Yeah.

I mean, that's, um, uh, you know, he's lost.

We-- Uh, he actually lost the war in the first few days.

I mean, that's clear.

That was clear to, if you were paying attention right then, and it's been ever clearer.

And now he, you know, now we're-- We don't even have missiles.

Mm.

How do you make sense of any of these numbers? Yeah, it's

a bit of a long story.

Now, first of all, you should believe the numbers.

Yeah.

Trump would surely try to cook the books if he could, but that would vary the size of the process involved.

Not that he won't eventually do it, but we would know.

So cooking those numbers would be obvious.

you pay in and you do – it

Donald Trump does not have a plan for ending this war.

Yeah.

I mean, that's, um, you know, he's lost.

We ac- he actually lost the war in the first few days.

I mean, that's clear.

That was clear to, if you were paying attention right then, and it's been ever clearer, and now he, you know, now we're...

We don't even have missiles.

Mm.

Economist Paul Krugman.

When we try to talk about the history of inequality, the first thing that you need to know is that the middle class society that we had, the one that I grew up in, did not gradually evolve as the country developed economically and so on.

It was created in a very short stretch of time.

As of 1939, as far as we can tell, we were still, uh, an economy almost as unequal as we were during the Gilded Age.

But by the time, by 1946, 1947, we were a pretty middle class country.

It happened just in the space of a few years.

And what happened? Well, what happened was there was a lot of pressure for equalization, for shared burdens during World War II, so was the war, and the controls that were established during the war, and also a public policy that strongly favored unions.

And

Can you explain to people what's going on?

Yeah.

So you know, nobody burns crude oil.

It's, you know, fill your, your, your engine with crud very quickly.

So it has to be refined.

And roughly speaking, every three barrels of oil gets turned into two barrels of gasoline.

Uh, and then, you know, then there's 42 gallons in a barrel, which is one of those weird things.

I'm not holding out on you because, uh, I'm trying to be coy or something." [laughs] Um.

What are the implications for emerging market economies and other aspects? So Paul, the floor is yours, I think, uh, to outline your views on, you know, how the last year went and how the outlooks look forward.

Okay.

Uh, [clears throat] great risk of running way long, but let me try to hit just a few main points.

The first thing I-- one needs to say, I, I think most of our audience here, at least the economists, remember, uh, the big debates over QE, um, at, you know, early in, in the last decade, uh, and the-- all of the economists who predicted, uh, dangerous inflation and then refused to admit that they'd been wrong.

And I don't wanna be one of those guys.

So I need to start out by saying that when we had our last discussion, I was relaxed about the inflationary outlook, and, uh, [chuckles] I was wrong.

It turns out that inflation has come in way higher than, than I expected.

Do you think this played a role, uh, besides the fiscal stimulus that the markets realized, you know, the monetary policy regime is now different, or do you think that's, uh, not the core element why we have so high inflation these days?

What is the problem with our taxes, and is it as simple as the rich aren't paying enough?

Well, basically, it's that they aren't paying enough, but a lot of the, the biggest factor...

Look, I, I have this, you know, still stunning to me, uh, look at the Forbes 400, the 400 richest people in America.

Uh, Forbes started collecting that list in 1982.

In 1982, the combined wealth of those 400 was $92 billion, which is a very small number by, you know, today's standards.

It's 6.6 trillion in the latest, uh, Forbes 400.

Uh, yeah, there's been some inflation, but that's still more than a 20-fold increase in wealth at the top.

How did the Overton window on that shift?

How bad is this self-inflicted wound, and, and what, um, what can, what can be done about it?

Well, yeah.

I mean, that's a really...

You know, on Wednesday, um, uh, the Interior Department announced it was paying another $765 million to an, uh, an energy company not to build wind farms, right? We're actually not, not only refusing to follow pro-green energy policies, but actually spending taxpayer money to block it.

The, uh, Pentagon is, is using spurious national security concerns to block development of, of wind farms.

Um, so this is a aggressively anti-renewable energy administration, and, you know, that's s- and we can talk, I, I will be talking shortly on, in, on the Substack about the motivations.

But the, um, the, you know, at, at a fundamental level, again, this is one of these things where US influence was k- kind of fated to decline.

He's turning it into a crass imperial court, basically.

[chuckles] How bad is this self-inflicted wound and, and what, and what can, what can be done about it?

Well, yeah, I mean, that's a really...

You know, on Wednesday, um, uh, the Interior Department announced it was paying another $765 million to an, uh, an energy company not to build wind farms, right? We're actually not, not only refusing to follow pro-green energy policies, but actually spending taxpayer money to block it.

The, uh, Pentagon is, is using spurious national security concerns to block development of, of wind farms.

Um, so this is a aggressively anti-renewable energy administration and, you know, that's s- and we can talk, I, I will be talking shortly on, in, on the Substack about the motivations.

But the, um, the, you know, at, at a fundamental level, again, this is one of these things where US influence was k- kind of fated to decline.

And, um, the US does have oil and gas in a way that other advanced countries do not, and so that gave us something of a special position, but with the incredible progress in renewable energy, that matters a lot less than it, it used to.

He's turning it into a crass imperial court, basically.

And what has it done for the American people? I think it was Mark Zandi who said this war thus far has cost the American household a thousand bucks.

I mean, I just want to say that the attempt to somehow, you know, the ever-changing justifications of the war is basically it's a barometer, among other things, of the fact that we lost the war.

I mean, that Trump took us to war against a third-rate military power and lost.

And by any standard, America is weaker, not just in the obvious ways.

I mean, we expended a large part of our hard-to-replace weaponry.

We failed to subdue another country.

The Iranian nuclear program is completely intact.

But if that's really true, it's going to be a while before those prices come back down all the way.

And, uh, I'm sure that Paul has his own perspective, and I'm curious to find out, we all are curious to find out what his, uh, perspective is on this Biden stimulus.

Okay.

Um, I found myself remembering some physics history as getting ready for this, uh, discussion.

Um, uh, a very young Wolfgang Pauli, after hearing a presentation by Albert Einstein, said, uh, "What Professor Einstein has to say is not entirely stupid." Uh, so what Larry had to say is not entire- no.

I mean, it's, it's, it's...

I, I think there's a, there's a very serious point, uh, which is that we should indeed be thinking about the macroeconomics of this big program.

Uh, but I have a quite different take, and I think it's, it is, uh...

So do you see any threat of the inflation anchor breaking at some point, or do you think that's, we're far away from this because it's now so ingrained in people's beliefs, uh, that inflations will stay around 2%? Do you see any-

[laughs]

That ...

No, that was, that's a, that's another level.

I mean, Trump has done a lot of, uh, threatening and, and tariffs and so on, and they've been mostly ineffectual at achieving what he wanted, but he was at least able to, you know, make good on the threats.

Um, the story now is that this is something that is not going to happen.

We can go into at l- some length the, the reasons why even with Trump, you know, bypassing a lot of the normal rules of, of, of law in the United States, this is not gonna happen.

He's not gonna be able to shut off trade with Spain.

What do you think the consequences are of that, economically or otherwise?

So take us through some of the other zombie ideas, the landscape of economic zombieism.

The most important, because it may destroy all of us, is climate denial.

Maybe 30 years ago you could argue, "Okay, I don't really, I'm not fully convinced," even though even then the evidence was, was starting to get clear.

But at this point, to deny man-made climate change is, it's basically impossible to pay any attention to the facts.

And yet, I just saw as, as of, uh, just before the midterms, uh, 73% of Republicans in the Senate denied that man-made climate change is happening and basically viewed it as some kind of giant hoax by the scientific community.

So that just keeps on going and, and the, the, you know, every time there's a, there's a cold snap, they say, "See? Global warming is a, is, is, is fake." So that's a zombie that, again, that's, that, that's an existential threat zombie that can not only eat our brains, but can eat civilization.

The idea that government debt is the most important, critical, scariest thing there is, that everything else has to take second place to, uh, to holding down the level of government debt, of course, uh, unless there's a Republican in power who wants to cut taxes.

Is that a zombie?

What do you call this?

Well, I mean, it's not just the biggest corruption scandal in American history.

It's literally orders of magnitude bigger than anything we've seen before.

I mean, we always used to say Teapot Dome under Warren Harding was the vast example of corruption.

That was, in today's dollars, about a $9 million bribe.

The numbers you just had up there have...

Trump and his family getting more than 200 times that last year and presumably a lot more this year.

Do people need cryptocurrency?

Go, go ahead.

Yeah.

Well, crypto is not, you know...

T- the question of whether crypto is actually good for anything except crime is, is still very much, uh, up in the air, or I would say even, you know, is, is very questionable.

But what is certainly true is that when you have a lot of people buying Trump coins and Melania coins, which are nothing but ways of transferring money to the, to the president's family, that is, uh, making a mockery of markets.

Uh, let me give you a bit-- a different example, um, AI.

So AI, you know, all right, AI is everywhere and we're all talking AI.

Right.

Why are you comparing five people to 15? And what did you find?

Okay, the reason for 15 versus 5 is that the U.S. population is more than three times what it was in 1918.

So we're looking for roughly the same fraction of the population.

And the reason for looking at that narrower group is partly that it's just so extreme.

And that matters, I'm sorry.

We look at a narrower group because an amazing amount of wealth is in the hands of this very small group.

And there's a weird thing, okay, a weird thing about trying to track wealth at the very top.

Why do you think that is?

[laughs]

Well, I do think that there is some...

It, it's odd.

I mean, the...

Hypocrisy used to be a much stronger force than it is now and is, uh, and was, you know, had, had, was beneficial because it's, you know, the tribute that vice pays to virtue.

Used to be that the ultra-wealthy, you know, pretended to be public-spirited because we...

That was what people did.

You know, there was a lot.