Chart 1

Regardless of its other problems, the U.S. economy has always been a powerful engine of job creation. The 1970s, for example, were a time of stagflation and deep pessimism. Nonetheless, the nation gained almost 20 million jobs over the course of that decade.

Since Donald Trump returned to the White House, however, job growth has slowed to a crawl. Granted, it’s nothing like the plunge in employment that took place in 2020, as Covid shut much of the economy down. And a couple of strong job reports earlier this year encouraged some observers to believe that the worst of the Trump II job drought might be over.

But the most recent Employment Situation report from the Bureau of Labor Statistics estimated that employment actually fell in July, while simultaneously revising the estimates for earlier months down. Thus July’s report confirmed the now widespread view among economists that the Trump-era job slowdown isn’t a blip. It’s now clear that America has entered a new, possibly permanent era of stagnant employment.

Why is this happening? And why does it matter? As I’ll explain in this primer, long-run job creation is driven by growth in the supply of labor. U.S. labor supply growth has been slowing for some time, because Baby Boomers have been aging out of the work force. However, the rate of job growth has suddenly fallen further due to Trump’s harsh crackdown on immigrants. So it’s fair to call the onset of America’s current employment stagnation the “Trump Stall”.

Is this slowdown in employment growth necessarily a bad thing? There are fewer U.S. jobs than past trends would have predicted, but there are also fewer workers seeking jobs. So why is this a problem?

Well, it is indeed a problem. One reason is that America’s responsibilities — to ensure national security, to take care of retirees, maintain public infrastructure and provide healthcare — remain the same, but there will now be fewer workers, paying less taxes, than previously expected to meet those responsibilities. Moreover, foreign-born workers bring distinct skills and are willing to do jobs native-born workers shun, such as emptying bedpans and picking fruit. Removing them from the U.S. economy will leave the rest of us poorer and with a lower quality of life.

So for both the short run and the long run welfare of Americans, it’s important to understand the origins and consequences of the stalling of the American job machine. Beyond the paywall I will address the following:

1. Measuring the Trump Stall

2. The long-run drivers of job growth

3. Understanding the Trump Stall

4. Why the Trump Stall is harmful

5. The Trump Stall in context

Read more

. . .

TRANSCRIPT:
Paul Krugman in Conversation with Vanessa Williamson

(recorded 8/12/26)

Paul Krugman: This week, I’m talking to Vanessa Williamson, senior fellow at the Brookings Institution and author of a fantastic short history of taxation called The Price of Democracy, which is, I’m pretty sure, an allusion to Oliver Wendell Holmes’ “the price of civilization,” but a very different take. And because I’m so interested these days in tax policy, I thought I could talk to Vanessa to get a sense of a lot of these issues where I am very much an amateur and she’s done the homework. So, hi!

Vanessa Williamson: Hi. Thank you so much for having me.

Krugman: So, yeah, let’s talk about the title of the book first, because obviously the famous Oliver Wendell Holmes quote, which I’ve seen in slightly different versions, was basically saying, you know, if you want police and roads and public order, then you need to have taxes to pay for it. But you’re making a much broader point there. Why don’t you explain why you say it’s the price of democracy?

Williamson: Yeah. So I love the Oliver Wendell Holmes quote, that it’s the price of civilization. But as I was writing this book, which was just going to be a history of taxation in America, it struck me that taxation is really more than the price of civilization—it’s the price of democracy. And that’s because democracy isn’t just being able to vote; it’s people having the power to actually make change to their government. And if the government doesn’t have enough money to act, then, even if you can vote, it’s inconsequential.

Historically, this is a very deep story. Taxation and representation really do develop together. This goes back all the way to 1215 with the Magna Carta, when King John had been taxing at a higher level, and the barons demanded that if there were going to be extraordinary taxation, the king had to get the general consent of the realm.

Krugman: Right.

Williamson: And that was a very early iteration—an attempt to create what eventually became Parliament. So the very origins of representation in our historical tradition are really about taxation, because what you find is that when rulers want to tax, they become dependent on the taxpayers. And it builds a connection between the ruler and the ruled, and it gives the taxpayers power.

I think commonly the story you hear in this anti-tax mythology that’s around is you’d imagine the taxpayers use that power to avoid taxation. The opposite is true: when representation develops, taxes go up because, of course, the taxpayers can now have a say in what the government is doing. So taxation and representation developed together historically, and they developed together cross-nationally. The freest countries today are high-tax countries.

Krugman: That would be, above all, the sort of Nordic countries that are very high-tax?

Williamson: Sure, but it’s true across the board. Even highly developed economies that are authoritarian have lower taxes than you would expect given their level of development. And that’s because authoritarians are simply not very good at raising taxes. They much prefer other forms of revenue, whether that’s a gold mine, the spoils of war, or fees and fines that they can apply to their political opponents. There are just other mechanisms that do not make them dependent on the rank-and-file people of their country.

Krugman: Okay. And I want to come back to the high-tax countries in a minute. But one point that you make at several points in the course of the book is that the idea that taxes are okay is very much a challenge to wealthy people saying, “Well, my wealth is mine, and nobody has the right to take some of it.” And there’s a statement of principle that says, “Well, okay, but you too are subject to the laws of the republic and must pay.” Right? That seems to be a pretty big part of the story.

Williamson: Yeah. There’s this long-standing tension, and it’s not all wealthy people or all the elites at any time in our history, but there are often some who are very, very wealthy. Fundamentally, they don’t like to see themselves as citizens, right? They like to see themselves as masters. The first group of people who felt this way, of course, were the slave owners who were desperately opposed to taxation. The anti-tax components of our Constitution were all put there as part of a compromise with slavery, right?

Krugman: That’s a good point.

Williamson: Yeah, the slaveholder class was afraid of mass democracy, even if only of propertied white men. So we get the Three-Fifths Clause. And they were specifically afraid that if every propertied white man could vote, what you would end up with is abolition by taxation—that we would tax slavery out of existence. And so that’s why you see these anti-tax measures in the Constitution.

It happens again in the Gilded Age. You see Rockefeller claiming that high graduated taxation is the most fundamental threat posed by democracy. You see efforts to roll back suffrage rights during that period, even in Northern cities. So it’s a very long-standing fight between the mass public and the kind of things democratic governments usually want to do—roads, schools, and things of that sort—and a fraction of the elite who are willing to accept democracy as long as that democracy is too poor to threaten their power.

Krugman: Wow. Okay. I’ll come back to the history shortly. One thing that I probably don’t talk about enough when writing about these things, but it’s something I certainly always taught when teaching a class on the economics of the welfare state, is that the high-tax, generous welfare state countries don’t have highly progressive tax systems. The state of the US debate always seems to be about, “Shall we raise taxes on the wealthy?”, which is an important concern. But places like Denmark or Sweden or, just in general, European welfare states, have high taxes sort of on everybody.

Williamson: Yeah. That’s exactly right. I mean, that’s also how we pay for Social Security and Medicare. Big social safety net programs are typically funded by broad-based taxes.

Krugman: Right.

Williamson: I think it’s really important to remember all the things that taxes do. We really focus on the redistribution part. And it’s so important, absolutely, especially now with the incredible consolidation of wealth in this country. We focus on the straightforward redistribution part of the top rates, that kind of thing, or whether we should have a wealth tax. That’s important, you’re exactly right. But at the same time, we just need a lot of revenue. Traditionally, and in terms of long-term sustainability, that’s something that we fund by taxing everybody. But that’s part of citizenship.

One of the things that is part of that anti-tax mythos that you hear all the time—people are under the impression that Americans hate paying taxes. It’s just not true. People are quite proud to pay taxes, and they’re very willing to pay taxes for things they think are valuable—things like Social Security and Medicare. So I think the fact that we’ve shied away from asking people to support their government by paying taxes at a federal level has really weakened the civic rhetoric of this country. I think it’s left us in a terrible position. If we can’t convince people that their government is worth paying for, how can we convince them that democracy is valuable?

Krugman: Yeah, indeed. There are several episodes that I actually was ill-informed about. I kind of knew the numbers, but not at all the political history. There was this period, basically under the New Deal and through World War II, when the idea of broad-based taxes—that lots of people pay into social insurance programs, but also a broad-based income tax—really became established. That came as kind of a surprise, that people were willing to accept it, right?

Williamson: Yeah. Before World War II, the income tax was what was called a class tax. It was paid only by the very wealthy. And the country relied far more heavily on tariffs. By the way, the tariffs chapter of my book is not what I expected as I was writing it to be—as relevant as it ended up being. But anyway, most people contributed to the federal government through the higher prices that resulted from tariffs, and the income tax was a tax on the very wealthy.

Well, World War II comes along. We’ve got to pay for that. We need a ton of money, and they decide to go with an income tax. Now, we’re talking about a time when people didn’t have pocket calculators. A lot of people hadn’t been to high school. And suddenly they’re going to have to fill out a paper form and pay their taxes. And it’s not going to be withheld in the first years.

So, there was a lot of fear in the Treasury Department: Could Americans do it? There were these incredible campaigns to let people know about the income tax and to help them pay. There was a song by Irving Berlin called “I Paid My Income Tax Today.” There were Donald Duck cartoons that played before movies. Donald Duck figures out how to fill out his taxes in the cartoon.

So it was this huge effort, and in the end, it worked, right? Americans paid their taxes. We paid a much larger fraction of the bill for World War II than we otherwise could have. What’s especially amazing is how positively people felt about those taxes. They were voluntary contributions to the Treasury, made out to Uncle Sam. Polls suggested that 90% of Americans thought it was fair, because they saw it as a worthwhile thing to support the United States.

Krugman: I guess the big increases in taxation have always come around wars, right? World War I is really where the income tax comes in, even for the wealthy, and then World War II comes in. But that’s a complete change in attitude. I don’t know if you remember after 9/11, when Tom DeLay, the House Majority Whip, said that “nothing is more important in a time of war than cutting taxes.”

Williamson: Yeah. Extraordinary. It was the first time we fought a major war in this country without raising taxes. I think it speaks to the decline of accountability, that we stopped having that connection between the decisions of our policymakers and the costs.

Krugman: We used to say that America was kind of special, at least compared with a number of other advanced countries, in the fact that we were so successful in getting people to pay income tax, that there was a lot less cheating. I don’t know if you touched on it in the book—I don’t remember—but is that something that you think is explained by the history or by contingency, or is that something about the American character, at least what we used to be like as a country?

Williamson: That’s certainly an open question. But yes, American “tax morale” has always been high. That’s the jargon-y term for willingness to pay taxes. And that’s partly, I think, part of our civic culture. People see taxpaying as patriotic. If you ask Americans, “Is it every American’s civic duty to pay their fair share of taxes?”, you get over 90% of Americans agreeing, sometimes as high as 95%. I actually looked for poll data that showed equivalent levels of consensus. You have to ask things like, “Is Elvis alive?” or “Did we really land on the moon?”—just really out-there stuff. This is a shared belief.

The first time President Trump, in his campaign against Hillary Clinton, talked about not paying taxes being “smart,” this was a huge change of rhetoric. If you recall Mitt Romney saying he’d always paid 13% or 14% in income taxes, this was a huge change in rhetoric, and it didn’t shift American attitudes. Americans did not suddenly come to see cheating on your taxes as acceptable. They see it as wrong.

Krugman: One of the points you make along the way is that the public’s attitudes about taxes really haven’t changed that much over the years. I think the line used was that since the 1980s, the policy and the politics of taxes have changed, but Americans’ own attitudes have really not. Do you want to enlarge on that a bit—what you mean by that?

Williamson: Yeah. Clearly, we live in a startlingly anti-tax time. One of the two major parties sort of sees taxation as fundamentally bad and sees taxes as something that should always go down, at least for the wealthy. That is a historical oddity. In the mid-20th century, neither political party saw taxation as a particularly major issue. It was important, but it was technical. It wasn’t a major part of either party’s platform. That changes in the period after the civil rights movement, where again you see the rise of the kind of anti-tax rhetoric that is fundamentally a kind of anti-democratic rhetoric, and that grew more and more extreme over the following decades. That’s sort of where we are today.

The strange thing about that is, as our politics have become more extreme in so many ways, the politics of taxation have become more extreme, while the underlying views of Americans have been markedly stable. I think that speaks to the decline of the quality of our democracy, right? Because what happened was the politics became untethered from public views. Most Americans say that you have a responsibility to pay your fair share of taxes. Most Americans say that paying taxes is patriotic. If you ask people what their top concerns are about the tax system, their top two concerns for literally decades have been that corporations and the wealthy are not paying their share. The third is the complexity of the tax code. Somewhere below that falls the amount they personally pay.

On this issue and on many others, frankly—you see it on things like gun control or the minimum wage, for example—the attitudes of most people are simply not a good predictor of our politics. I think that speaks to a real erosion of our democracy.

Krugman: So when you say after the civil rights movement, there are two interpretations. I think there’s some of both in your book, The Price of Democracy. One is people feeling, “My money is going to support the bums on welfare,” because there was a huge expansion in AFDC (”Aid to Families with Dependent Children”), which is the classic rap on welfare, although it’s never really all that much money. But it’s a big expansion in the visible support for nonwhite people. Is it “my tax dollars are going to pay for that,” or how much of it is just the empowerment of conservative politics, to put it mildly, because of the backlash?

Williamson: Yeah, I think both are happening at once. At the same time, you see welfare programs that had previously been available almost exclusively to white Americans suddenly become more available to Black Americans. You see, obviously, growing Black political power after the Voting Rights Act. So there’s a racial resentment and a backlash to that, and the origins of the “welfare queen” rhetoric. We’ve all heard the story. So that’s happening.

At the same time, you start to see the divide between the very wealthy and the rest of us. The compression of incomes and the economic spectrum that had typified the mid-20th century starts to break down, and you see the decline of union power and the rise of business power. All of these things are pushing in the same direction towards an increasingly radical anti-tax politics on the right.

Krugman: There’s a moment—an episode that really looms quite large in The Price of Democracy that I was really kind of unaware of—which is the 1978 change in taxes. This is pre-Reagan, although obviously some of the things that gave rise to Reaganism are very much in the air, but this is under Carter. Why don’t you tell us about what happened in ‘78? I thought that was a really remarkable story.

Williamson: Yeah. You have to make a choice about where you are going to say the turning point was. You can claim it was the Reagan era, or you can say all these other things. I settled on 1978 because three things happened that year that I think were really significant, and again showed what the conservative alliance against taxation would look like. A bunch of different forces were brought together.

First of all, you see a bill pass that is an enormous rollback on taxes for the wealthy, something that The New York Times at the time described as sort of incomprehensible in terms of our politics. Before that, it had been assumed that Americans liked raising taxes on the rich, and it would be very hard to do a tax cut that just helped the rich. But the new corporate interests found a way to do that, so you see this big rollback in taxes for corporations and the wealthy.

At the same time, there’s an attack on the IRS that is the first of what would become a recurring problem for the agency. That is to say, some issue in tax enforcement gets blown up in the conservative media and makes the IRS into a whipping boy for anti-tax interests. In this case, what had happened was the IRS was obligated by law to figure out how to remove the tax-exempt status for segregation academies—the whites-only schools that opened in the South as white families fled integrated schooling. Those schools were segregated; they discriminated on the basis of race and therefore did not qualify for a tax exemption. The court so determined. So now the IRS has to figure out what is a segregation academy and how to go about removing their tax exemption.

This was really hard to do because lots of schools opened in that period, and lots of schools were segregated. There was also a move to church schooling and evangelicalism in the same period, so the IRS was trying to sort through this. After several efforts to remove the tax exemption from the most obvious segregation academies, they issued a new set of rules. It became a trigger on the far right about how the IRS is coming for our tax exemptions, leading to congressional hearings and all sorts of fodder.

This is widely agreed to have been a key precursor to the development of the Moral Majority, because conservatives had been trying to get evangelicals on board with the conservative movement for ages, but evangelicals didn’t want to participate in politics. This issue brought them into politics in a new way. There’s an amazing quote suggesting that even abortion couldn’t get evangelicals into politics, but coming for their school’s tax exemption did. So that happens at the same time.

The third thing that happens in that same year is Proposition 13, the property tax cap in California. Property tax caps have a long and sordid history in America. They were invented in the Redeemer era that followed radical Reconstruction, as white supremacists came back to power. One of the ways they disenfranchised poor whites and Black Americans was by putting in place constitutional tax caps so that even if they managed to lose an election—if more poor Black or white people managed to vote—they still wouldn’t have the power to raise taxes on the rich. Now suddenly that same idea, which had been prevalent across the South a hundred years earlier, becomes a force in California. It’s very much part of the civil rights era backlash. They put in place a stringent property tax cap that applies largely to this day, which undermined public education funding in the state for decades to come.

Krugman: Yeah. I lived in California in the mid-’90s and was always struck by Prop 13. We had newly purchased a house there, and we were probably paying five times the taxes of some people a little ways down the road. It was a remarkable thing for people who stayed in their houses—basically older white people who already owned their houses got a tremendous tax advantage from that. It was really something.

So how did those 1978 tax cuts come about?

Williamson: There’s a really fascinating movement on the right that leads into this moment, and it’s a series of corporate breaks. What leads into it, fascinatingly, is that in the Kennedy era, they were also trying to cut taxes. The economy was booming, and people’s taxes went up automatically—not rates, but brackets.

Krugman: Right, bracket creep.

Williamson: Bracket creep. So they had more money than they needed. When Kennedy wanted to assemble business interests to cut taxes for businesses, he couldn’t find any groups to act as the grassroots mobilizers of this. Over the coming decades—and exactly at the time that union power was in decline—they started to actually develop these business interests.

There were moves to make what now sounds like completely standard rhetoric, but at the time was very strange: this new rhetoric about the possibility that these taxes were stifling innovation and entrepreneurship. That’s where they came in with these corporate tax breaks, to basically put in massively upward redistributive tax breaks. What they did was build grassroots organizations for business that today seem run-of-the-mill, but at the time were completely novel.

For example, lobbyists in Washington would bring in local business leaders from all the districts for “fly-ins” so representatives would hear from their own constituents on these business issues. That was a real development in terms of lobbying prowess, and it paid off tremendously.

Krugman: And so, in ‘78—and actually until Newt Gingrich comes along—you still had Democrats controlling the House of Representatives. This was not a Trump-era Congress, and it was a Democratic president. The public didn’t support tax breaks for the rich. I think public opinion would have been pretty populist in that sense. So what moved the votes? Why was Congress doing this? How did that influence work?

Williamson: At the end of the day, the fact is that mass public opinion isn’t what causes politics to happen. Politics is not a public opinion poll; it’s the mobilization of organized interests through a party system. So you shouldn’t expect things that most people believe to automatically become law. That’s just not how it’s done; you have to have organized interests. It’s a collective action problem, fundamentally.

That’s the underlying thing. But as the economy divides and as you have this concentration of wealth at the top, it’s self-reinforcing. As the rich get richer, they have more power, because money is power, and they start to invest very heavily in having greater political power. There was a lot of concern about the Nader era and all the regulatory things that were happening in the early ‘70s, which really helped to bring business power to bear—

Krugman: The Nader era meaning when business really started to say it needs to stand up and throw its weight around?

Williamson: Yeah, exactly. You saw what I would deem a great deal of progress on things like environmental protection and the regulation of consumer goods. These were some of the successes of that era, including clean air and clean water in the early 1970s. For a lot of more conservative-leaning business leaders, these were seen as encroachments on their capacity to be profitable, and so that helped convince them to devote themselves to politics. As they succeeded, of course, they became wealthier.

This is exactly the same thing that happens with the tax code. As the top rates are rolled back, you see more and more loopholes for corporations to avoid paying taxes. As the IRS becomes underfunded so that they aren’t in a place to actually enforce the tax code for wealthy people, all of those things are reinforcing, because a substantial portion of the inequality that we’ve seen over recent decades can be attributed to the decline of top rates. So it’s a really negative, reinforcing cycle.

Krugman: When I started, loosely speaking, doing the math, I was actually shocked—particularly if we’re talking about the very, very top—how much the change is actually driven by cuts in tax rates. As economists, we like to talk about technology, competition, and all of that, but actually taxes are a very large part of the story.

Williamson: It’s really the ‘70s where this starts to happen. It is all, in a sense, mechanical. The money that you didn’t have to pay in taxes, now you have, and it will accumulate more over time. It also has pre-distribution effects. When, for example, a CEO had $0.90 out of every additional dollar they were going to get paid going to the government—which was true in the mid-20th century—the board of directors didn’t have a great incentive to raise their pay unless they really had done something to deserve it.

There’s research on this, as you well know, but as tax rates go down, it becomes easier—cheaper, basically—to overpay executives. So it feeds in both ways: afterwards, you have these ballooning paychecks and they get to keep more of that money, but it also gives an incentive to balloon paychecks in the first place when those very high salaries are undertaxed.

Krugman: Yeah. This is a long-standing thing. The committees that decide on the CEO’s pay have always been basically appointed by the CEO. But why did that translate into 30 times the average worker’s salary in the ‘60s and 300 times now? Part of the answer, you’re saying, is that it wasn’t worth pissing off people that much—sorry to use the technical term—when the CEO didn’t really get to keep the money anyway. Now that he can, they do it.

Williamson: Exactly.

Krugman: You get this first wave of big, top-end tax cuts under Reagan, but fairly quickly, we get people agitating about the budget deficit. This is also when the budget deficit becomes significant for the first time since World War II, and there’s a feeling we need to cut back—the beginnings of austerity. Why isn’t there more of a backlash against these tax cuts? Why didn’t that happen?

Williamson: I think there are two things going on. First, there’s just the very effective lobbying techniques that business uses. They’re very powerful. There’s all kinds of political science research to suggest that legislators are more responsive to donors than to constituents, and more responsive to organized interests. They misperceive their own constituents again and again. It’s more true on the right, but it’s true on the Democratic side as well. Legislators misperceive their constituents as more conservative than they are. Some of that’s about who they talk to, and some of it’s about the media environment they live in.

There’s this persistent problem in the background. Thinking back to that capital gains cut in 1978, there’s just this new playbook that becomes part of our politics. It’s hard for us to even imagine now that this was ever new, but I think that it really does speak to the moment we live in.

Now, you’re asking about why it is that there hasn’t been a backlash. One important aspect of that is that for many, many years—and we are now testing the limits of this—these tax cuts were not “paid for.”

Krugman: Right, right.

Williamson: We paid for enormous wars with debt, and we paid for enormous tax cuts at the top with debt, so there was not a tradeoff that the American people would see right away. If you look at the George W. Bush era, this was a very conscious strategy. In principle, you could have taken the surpluses of that era and used them to shore up Social Security or do any of a number of other things. If you look at memos within the Bush administration, it was very clearly stated that in going to the voters to cut taxes in this very regressive way, they had to say there were no tradeoffs at all. Fiscally, barring the costs of debt and interest, there were no immediate consequences.

So there’s a real decline in the signals that would have informed Americans more about the choices that were being made in their names. Right now, the most recent Trump tax cut is an exception to that rule. Where the big tax cuts going back to Reagan were off the books, this time they’ve done quite a lot of retrenchment of major social safety net programs. They delayed that, but it is coming now as we speak, and I think it’s a question of whether that will be more evident to people.

One reason they were willing to take that step in the most recent Trump tax cuts—to also make it the most regressive budget legislation in history by simultaneously cutting taxes at the top and cutting benefits for poor people—is another indication that popularity is no longer a concern. Frankly, you want popularity to be a concern for politicians in a democracy. The budget legislation is a good indication that doing things that are popular in order to get re-elected by a majority of the voters is not the primary political strategy of the Republican Party anymore.

Krugman: Just for listeners—the tradeoffs we’re talking about now are that the “One Big Beautiful Bill” includes big tax cuts very much for people at the top, offset only partially by really savage cuts to means-tested, poverty-oriented programs like food stamps and Medicaid. I guess the question is: Is this a kind of cynical calculation that most Americans won’t care about that, or just a calculation that it doesn’t matter what Americans think?

Williamson: There are the immediate effects that will happen for the people who are affected, but this will have a huge impact on the economy. Medicaid supports health access for poor people and supports hospitals in rural areas. The ramifications are likely to be enormous and widely felt beyond the technical beneficiaries, for sure.

Krugman: Same with food stamps, of course. The extent to which the places that voted most strongly for our current government are exactly the places where you are going to lose a critical mass of purchasing power and a critical mass of patients who can afford to pay their bills at hospitals. People are not going to lose hospitals anywhere close to where they live in New York City, but they very much could in West Virginia.

Williamson: Yeah.

Krugman: To just come back a bit: We’ve been in this tax-cutting mode since the late 1970s, but there was one range of substantial tax increases during the ‘80s, which was the increase in FICA, the increase in payroll payments. This kind of gets at your thesis. You have an extended section in the book about how we came to pay for Social Security and then later Medicare with payroll taxes. That’s a story I think people should know, because it comes up now a lot as we talk about what we can do between Social Security funding and general healthcare reform. How did that happen? Because this is a regressive tax. It’s $170,000 or thereabouts, just the maximum. It’s a flat tax up to that level and nothing above.

Williamson: And it’s a tax on wages, not wealth, so it’s not taxing the income from wealth. The Social Security tax is a regressive tax that hits most people pretty hard. In fact, it’s the biggest federal tax for most households.

Krugman: So why did FDR make this choice?

Williamson: Well, he’s coming into office in the throes of the Great Depression, and they’re doing a whole bunch of emergency rescue measures to try and stabilize the economy. What he does not want is his pension plan to be seen as a temporary measure; he wants it to last forever. He wants this to be something that cannot be retrenched, and he wants to distinguish it from these other emergency measures.

There was a lot of debate within the administration about this. Plenty of people within the FDR administration said, “No, this is not the way to fund this. We need to fund it differently.” FDR was not always a policy wonk, frankly. But on this point he was extremely adamant, both because he wanted to distinguish Social Security from emergency anti-poverty measures and because he was always thinking about the politics of how you tell a story about policy. He knew that he could tell people they were making a contribution, here was what they were going to get someday, and here was how it was going to work. He knew that he could tell the American people to contribute to a fund like this, and he was right.

He famously said that the payroll tax contributions were not economics, but politics—to make sure that no politician can ever eliminate his Social Security program. To a substantial degree, that political logic was proven correct. The program not only survived, but grew after the Depression.

It’s funny—business interests at the time tried to mobilize against it. They were really trying to mobilize against his “attack the rich” rhetoric. In the following elections, they tried to go after him on Social Security because it was a $1 tax coming out of people’s paychecks. Business interests put propaganda on people’s pay stub envelopes saying, “If you re-elect Roosevelt, you are condemned to this tax increase, and who knows whether you’ll ever get benefits?” A union organizer famously said, “Why didn’t they put propaganda in your pay stubs last time? There were no pay stubs!” It was FDR who was getting us out of the Depression.

That was how FDR saw the fight. He was a political maneuverer, unparalleled perhaps in our history, and that was 100% the playbook they used for Medicare. They knew full well what to do to make a program that would survive.

Krugman: Now, it’s interesting. I don’t know if people realize this, but it’s only Medicare Part A, the hospital insurance part, that is payroll, and the rest comes out of general revenue. But in some ways, the aura of this separately funded program extends to the whole thing, even though a lot of it is not paid for by that bit on your pay stub.

Williamson: The downside, in terms of the price of democracy, is that people don’t necessarily think of these as government programs. People know about their Social Security taxes, and they don’t think it’s going into a bank account for themselves. Sometimes there’s worry about that, but people know that it’s going into a general fund and paying out today. They have that much of a sense about it, even if they don’t always have a full sense of the totals.

The flip side of putting this aura around these particular programs is: Does it implicitly denigrate other programs? I think there’s a case to be made for that. Over here are Social Security and Medicare—the contributor-funded, worthy programs—and over there are other welfare programs that are somehow seen as not as deserving or worthwhile. That’s a real risk of the approach.

Krugman: Yeah, okay. I’m always a little surprised looking at the record of the Obama years to see how much, particularly at high income levels, he did manage to raise taxes. CBO numbers say that the effective tax rate on the top 1% under Obama rose to pretty close to where it was pre-Reagan. But it was not going to be enough if we really want to have the kind of society that a reasonable, center-left person wants. So what are the prospects? Are we still living in this era of tax phobia? I think I’m dreading your answer here.

Williamson: Well, I think one thing that’s happened is that the mask really came off on this. For many decades, being anti-tax was a kind of polite fiction, a rhetoric you could use to attack the idea that a democratically elected government could do good for people. Rather than directly attacking democracy, conservatives attacked taxation. This is a replication of precisely the rhetoric that followed the Reconstruction period. The Redeemers, the white supremacists, came back to power through violence and intimidation, and organized themselves as taxpayers using rhetoric that looks very familiar to anyone who knows about Reagan’s “welfare queen”—that Reconstruction governments were full of corrupt, untrustworthy chiselers, and the poor, burdened, implicitly white taxpayers were rising up against that. It’s very similar to the rhetoric you see in the aftermath of the second Reconstruction, the civil rights movement in our own time.

To some degree, the dog-whistle aspect of anti-tax rhetoric has fallen by the wayside as the Republican Party has moved to an explicitly anti-democratic stance, like failing to accept election results. So the tax rhetoric is falling by the wayside, and the stakes are a lot clearer now.

The problem, to my mind, is what we have not seen. You’ve seen some real movement on the center-to-left side on all kinds of things—rhetorical progress—but what remains missing is a willingness on the part of center-to-left politicians at a national level to tell people that their government is worth paying for. At a state level they have to do this, but nationally, the unanswered disparagement of government—which has been a consistent part of our politics for my entire lifetime—paved the way for things like DOGE and the massive destruction we’ve seen in the last two years.

To some degree, I think that destruction has made the value of government more evident. It has brought things like the role of the CDC, or the fact that we had people watching our nuclear silos, to the forefront of our minds. But what I have not seen is politicians on the center-to-left talk seriously about the idea that the United States government is worth being paid for by all of us.

And you see that with the plans by Senator Booker or Van Hollen. Once you’re proposing very large tax cuts for middle-class and upper-middle-class people to the tune of hundreds of billions of dollars, we will not have those measures in place to do the rebuilding that is so absolutely essential.

Krugman: Even someone like Mayor Mamdani in New York City saying we’re going to tax the lavish pied-à-terres held by non-residents who have $100 million apartments—which is fine—shows he’s still kind of afraid to do a Willie Sutton and go where the money is.

Williamson: Yeah. To me, it’s hard because people want you to say it has to be one or the other. They want you to say either you want progressive rates at the very top—and I think there’s no way around that as an approach to reducing wealth inequality in this country.

I’ll tell you a story: Tom Paine, the guy who wrote Common Sense and famously said that the United States did not need a king, wrote The Rights of Man a few years later in defense of the French Revolution. In it, he includes a tax plan because he was worried about extreme wealth corrupting elections. It was a tax plan applied to income from wealth, and the top rate proposed by Thomas Paine in 1791 was 100%.

He imagined that there should be a limit to wealth—explicitly saying “any level that you would possibly need to support a family, any amount that you could conceivably earn through your own effort.” But he thought a level of consolidation like the wealth of the lords and earls in rural England endangered a republic. So there’s a very long tradition in American politics of very progressive tax plans, and that’s an important part of thinking about the future. At the same time, we need to think about revenue that will be available in perpetuity, and come back to that old idea that this is our government and that’s why we pay for it.

Krugman: Okay. So how long till we get a value-added tax in America?

Williamson: I’m right there with you, yeah. I think it’s about seven economists behind the banner.

Krugman: Okay. Well, this was great. The historical perspective is more and more important; you can’t understand where we are without looking back, and then looking forward with a little bit of trepidation, but maybe a bit of hope.

Thanks for speaking with me today.

Signing Medicare into law

Abdul El-Sayed won the Democratic nomination for Michigan Senate on a platform advocating Medicare for All, aka single-payer health insurance. As I argued Tuesday, this makes a lot of sense in policy terms. Many healthcare experts would choose single-payer if designing a healthcare system from scratch. That’s not a hypothetical: my friend the late Uwe Reinhardt, who taught me much of what I know about healthcare economics, played an important advisory role in creating Taiwan’s highly regarded healthcare system — where he really could start from scratch — and argued successfully for single-payer.

Furthermore, as I pointed out Tuesday, the United States is already most of the way to single-payer in terms of dollars spent: the government de facto pays for about two-thirds of health insurance and extensively regulates the rest. Except as providers of supplemental care, there is really no net positive added by private insurers. In fact, for basic health insurance coverge, private insurers are a net negative because they impose excessive administrative costs and often engage in fraudulent overbilling.

Yet to adapt an old joke, if you wanted to get to a single-payer system, you wouldn’t start from here.

The political obstacles to replacing private health insurance with a Medicare-like system are formidable, although arguably less formidable now than they were when Obamacare was created. As I’ll argue shortly, there’s a strong case for a soft transition in which people can choose to be covered by Medicare via a public option. But before I get there, let’s talk about why, in the realm of healthcare, there’s tension between good policy and political realism.

Why won’t making the legitimate case that Medicare for All is the best system be enough to win the political argument? The pervasive corruption of our political environment by corporate and right-leaning money is part of the answer. Health insurers may be parasites, but parasites make campaign contributions. Other players will also spend big to fight single-payer. Drug companies, in particular, don’t want to see the U.S., like healthcare systems almost everywhere else in the world, bargain down their prices and reduce their monopoly power. And MAGA is against anything that would improve the health and well-being of average Americans.

But it’s not just about money-driven corruption. Ordinary voters are inherently conservative, not in the left-right sense, but because they are understandably wary of change. El-Sayed does a very good job of making the case that most of the 183 million Americans now covered by private insurance would get better coverage under Medicare for All, and would pay less in additional taxes than they now pay in insurance premiums. But expecting most Americans to trust that promise is overoptimistic.

It’s true that the healthcare industry is among the most disliked sectors in America:

But look at which sector gets even worse ratings: the federal government. That’s deeply unfair to the many dedicated men and women who try to make government work for the people. Yet unjustified as it is, it’s a fact of life.

Although Americans are extremely negative about what they think the federal government does, however, they are much more positive about what the federal government actually does. And no major government program is as popular as Medicare, which has an 82 percent favorable rating. So it may be possible to defuse attacks on a single-payer healthcare system by portraying the plan as more Medicare, not bigger government.

However, Americans suffer a disconnect between the general and the specific on the topic of private healthcare insurance. Americans have strongly negative views, verging on hatred, about the insurance industry. Luigi Mangione, who is expected to plead guilty to the murder of UnitedHealthcare’s CEO, has become a folk hero in some quarters. Yet 77 percent of Americans with private health insurance report being satisfied with their coverage. So any mandate that moves Americans away from private coverage to a government system they haven’t yet experienced is likely to face stiff resistance.

What, then, should Democrats of good will — that is, people who want their fellow citizens to have affordable access to quality healthcare like citizens of every other advanced country — support? Should they call for an all-out effort to implement the best policy – Medicare for All -- that is likely to face significant pushback and political roadblocks, albeit unjustified? Or should they settle for a strategy that is likely to involve a more drawn-out process to achieve universal coverage, but is also more likely to turn into reality?

Let me do something I rarely do and call on both sides of this debate to tone down the rhetoric. If you spend any time in these discussions, you know that there is a faction on the left that turns Medicare for All into a purity test, denouncing anyone who calls for a more cautious approach as a neoliberal sellout.

That’s unfair. The truth is that there’s a lot to be said for the Mick Jagger principle: You can’t always get what you want, but if you try sometimes you just might find you get what you need. Obamacare was and is a Rube Goldberg device, a messy, highly imperfect way to expand health coverage. But it has been a saving grace for millions of Americans.

On the other hand, there are centrists who slide from political caution over the feasibility of Medicare for All into denunciations of those who advocate universal single-payer as socialists. Folks, this is equally unhelpful. This is a debate about tactics, not values, and it’s possible to back either side in good faith.

For what it’s worth, I don’t believe that Medicare for All is as unrealistic politically as it was even a decade ago. Americans really do deeply distrust the health insurance industry, and a massive advertising and lobbying campaign by that industry, like the one that helped kill the Clinton health reform in 1993, might well backfire. And the right-wing propaganda apparatus has surely been damaged by its fealty to Trump, which would hamper any attempt to demonize healthcare reform the way the right demonized Obamacare in its early years.

That said, a rapid transition to Medicare for All looks unlikely. Bear in mind that such a transition would require higher taxes, so that it would be necessary to persuade people that these taxes would be more than offset by lower premiums. And this would be a hard sell.

But there is an alternative: A public option, better described as Medicare Buy-In. Allow individuals, and possibly more important, employers, to sign up for Medicare benefits, paying actuarially fair premiums to Medicare reflecting the health status of their workers. There’s no obvious reason a public option would be any harder to implement than payments to the Medicare Advantage plans offered by private insurers, which are also supposed to be actuarially fair.

And if a Medicare Buy-In option were available, many people and many employers would surely take it. It would be a safe choice, with lower administrative and marketing costs than private insurance.

A healthcare system in which many Americans under 65 buy into Medicare would not immediately deliver all the advantages of full Medicare for All. Some people and employers, despite the disadvantages, might retain private insurance. And some people, who currently either choose to be uninsured or fall through the cracks, might remain uninsured. It would lack the clarity of a system in which every citizen knows that they are entitled to care.

But it would be far better than what we currently have. Moreover, a system in which private health insurance is a rump industry, covering a dwindling fraction of the population, would be a better starting point for a full transition to universal coverage.

So that’s my idea of how we should proceed. But I’m not going to denounce people who want to be more ambitious, to push more quickly for full Medicare for All. For now, the crucial thing is to elect people who really are committed to providing Americans with the healthcare they deserve.

MUSICAL CODA

Obviously:

Donald Trump is not a well man. He is, unfortunately, also President, which means that we all pay a price for his inability to accept reality. Notably, while he insists that he has “total control over the Strait of Hormuz,” shipments of oil through the Strait will remain minimal unless Trump can find a way to smuggle oil out in catering carts — or until he makes a deal with Iran. And we won’t have such a deal until he faces up to the reality that he lost his war of choice.

The Hormuz closure means, in turn, that oil prices — which briefly fell most of the way back to prewar levels on hopes that a deal was really coming — will remain high for the foreseeable future. Here’s the price of Brent crude:

But here’s the puzzle: Why aren’t oil prices even higher? They were over $100 a barrel before markets began betting on an end to the war, so why aren’t they back above $100 again? Also, why are they “only” about $25 a barrel above prewar levels, when many analysts — myself included — suggested that they might go much higher?

A large part of the answer is that oil prices actually are higher — if you look at the right numbers.

Today’s post will be short and wonkish, because I’ve been overwhelmed with real-life responsibilities. I have had enough time, however, to put together a few charts.

So, what do I mean by looking at the right numbers? Nobody burns crude oil directly. Instead, they burn products refined from crude, mainly gasoline and diesel. And these prices, after falling for a while on fake news of peace, are back most of the way to their recent peaks. Here, for example, are wholesale diesel prices:

Source: Haver Analytics

The difference between the price of a barrel of crude and the price of the products refined from that barrel — the “crack spread” — has exploded, rising about $35/barrel since the eve of the war:

Source: RBN Energy

So while the price of a barrel of crude is up around $25, the price of the products refined from that barrel is up about 25+35=60 dollars per barrel, putting it in the range of middle of the road predictions of what would happen as a result of a long-term Hormuz closure.

Why has the crack spread widened so much? The main answer is that a lot of the world’s refining capacity is either trapped inside the Strait or offline as a result of Ukraine’s drone campaign against Vladimir Putin. So it’s not all about Iran. Indeed, one indicator of how much the other war matters is that JD Vance reportedly had to plead with Volodymyr Zelenskyy to halt attacks on oil tankers using the Russian port of Novorossiysk.

The shortage of refining capacity has, in turn, held crude prices down: Buyers aren’t willing to pay extremely high prices for crude oil they can’t refine. Or to put it a different but equivalent way, the cutoff of oil shipments through the Strait of Hormuz in effect required a large rise in global oil prices to ration demand, but much of that rationing has taken place through a rise in the crack spread rather than a rise in crude oil prices.

What does all this mean for the United States? Most immediately, inflation — which was held down for the last two months by falling fuel prices — is set to rise again in next month’s data. And everyone can see that gasoline is back above $4 and diesel back above $5.

So those obsessed with the midterm elections — which means everyone who is paying attention to the crisis of American democracy — should realize that the blue line at the bottom of this chart this is unlikely to turn around significantly before November:

MUSICAL CODA

In honor of Operation Catering Truck:

On Monday Donald Trump issued an executive order that, if implemented, would substantially reduce the number of vaccines American children receive and, in practice, how many of them are vaccinated at all. While it’s not clear whether Trump’s order has any legal force, it will reinforce public skepticism of and hostility to vaccines, which has led to declining vaccination rates. This decline has in turn led to a surge in infectious diseases that had previously been virtually eradicated, notably measles. As the chart below shows, cumulative cases in the first 30 weeks of this year already exceeded the total for last year, which itself was the worst measles year since 1991:

Trump justified his anti-vax decree by pointing to an alleged link between vaccines and autism. Yet dozens of careful scientific studies have failed to find any such link.

However, you know what does have a strong, well-documented correlation with autism? Air pollution. Childhood exposure to air pollution is clearly associated with higher rates of autism. Moreover, scientists have found a found a strong association between autism and pre-natal maternal exposure to particulate matter from fossil fuel pollution.

So Trump’s campaign against vaccines won’t reduce autism, but it will cause many children to suffer devastating, possibly deadly, infections diseases. Meanwhile, autism rates will rise as a result of his crusade against clean energy and in favor of dirty energy.

The question is, why is Trump doing this? To understand what is happening, we need to put Monday’s executive order in the context of the general right-wing turn against vaccines, and against science in general.

Why do I call it a “right-wing turn”? Because declining support for childhood vaccines is entirely a Republican phenomenon. Gallup has some striking charts on this. One tracks belief that it’s extremely important for parents to get their children vaccinated — a belief that has plunged over the past decade, but only among Republicans:

Another tracks belief that vaccines are more dangerous than the diseases they prevent, a false belief that has soared in popularity — but, again, only among Republicans:

It’s worth noting, however, that even among Republicans the view that vaccines are unsafe is a minority position. Here’s the latest YouGov poll:

So Trump is very much taking an extremist position on vaccines. But it’s clearly a position that he believes will resonate with his base.

Why is this happening? Anti-vaccine sentiment is a lot like climate change denial. In both cases, to understand the politics one must do two things. First, follow the money: look at which interest groups benefit financially from misinformation, and why those groups have power. Second, follow the culture war: ask why this particular misinformation resonates with the prejudices and grievances of a segment of the population.

At first sight, the monetary interests behind anti-vax politics are less obvious than the fossil-fuel interests backing climate denial. After all, nobody benefits directly when children get measles.

Peddling quack medicine is, however, a highly profitable business. And it’s a business deeply enmeshed with the right-wing media ecosystem: Ads for dietary supplements with no proven medical benefits and other forms of snake oil have for decades been a key revenue source for right-wing talk radio, conspiracy-theory websites, and more. So there is a longstanding connection between hucksters touting fake cures and hard-right politics. Some observers were startled to see Dr. Mehmet Oz — who has touted, among other things, the health wonders of bovine colostrum — named by Trump as administrator for Medicare and Medicaid, a job for which he has no relevant qualifications. But given the underlying monetary and political incentives, Oz’s appointment is no surprise.

Why are right-wing audiences receptive to the lies of the snake oil industry along with agitprop against vaccines? To understand such gullibility, we have to address the culture war part of this debacle.

The modern right is a deeply anti-intellectual, anti-science, anti-expertise movement that is highly receptive to conspiracy theories. And like RFK Jr during his recent interview with CNN’s Dana Bash, when confronted with scientific facts it flies into a sputtering rage. So the snake oil industry targets its marketing to the kind of person who listens to the rants of right-wing influencers, gets their news from Newsmax, and finds common cause with the neo-Nazi posters on X. By framing their false claims as “The Medical Miracles that the Elites Don’t Want You to Know About”, the snake oil hucksters create a receptive audience for conspiracy theories that malign actual medical miracles like vaccines.

Unfortunately, Covid greatly boosted anti-vaccine forces. The witch hunt against Anthony Fauci shows how strong a hold anti-medical-science conspiracy theories now have on the Republican Party. This was not, to be clear, because medical science failed. In fact, the clear negative correlation across the United States between rates of Covid vaccination and Covid deaths was an object lesson in how effective vaccines can be. But those Americans already inclined to believe that the elites are out to get them, already hostile to any notion of collective action for the common good, reacted to vaccine mandates with rage. And their rage quickly generalized beyond preventive measures against Covid to preventive measures against all diseases — including measles.

Trump’s executive order has little legal force, and assuming that the next president is sane, anti-vax conspiracy theories won’t remain the basis of official U.S. policy. But the political forces that led to this new attack on vaccination will remain even after Trump is gone.

Thanks to Trump and the triumph of snake oil, many American children will get sick from preventable diseases, some of them dying. And autism rates will continue to go up.

MUSICAL CODA

Now that Abdul El-Sayed is the Democratic nominee for Michigan’s open Senate seat, the outcome of this crucial race will depend mainly on two things: Whether Republicans succeed in demonizing El-Sayed because he’s brown and a Muslim, and whether they succeed in demonizing him as a left-wing radical.

I will defer for the now the question of whether bigotry will be effective this year, although I will address it another day. What I want to address instead is El-Sayed’s signature issue — healthcare. Yes, El-Sayed advocates Medicare for All, a position the usual suspects denounce as “socialism.” I will get to the politics of his stance soon. Today, however, I want to talk about the substance.

We should be clear that El-Sayed doesn’t even call himself a socialist. On the contrary, he explicitly disavows the label, saying “I’m a capitalist who just knows about capitalism”. In fact, as I explained in a previous post, the policies that El-Sayed advocates qualify him as a social democrat, not a socialist.

Still, El-Sayed advocates a system under which the government would pay almost all medical expenses. Isn’t that socialism?

Well, if that is the criterion then much of U.S. healthcare is already socialist. In fact, the government’s role is so large that U.S. healthcare is better described as partially privatized socialism than as anything resembling a free market.

Let’s start with the raw numbers on health insurance, which pays the bulk of Americans’ medical expenses. Americans receive health insurance either from private companies or from public programs, overwhelmingly Medicare and Medicaid. Here’s what the breakdown of coverage and spending between private and public looked like in 2024:

While a majority of Americans with health insurance get it from private companies, well over 100 million of us are covered by government programs instead. And these government programs pay more total dollars for medical bills than the private insurers do.

Why do government programs that cover a minority of the population account for a majority of health insurers’ outlays? Mainly because Medicare covers seniors, and we’re expensive. Also, while Medicaid covers many younger Americans, disabled and elderly beneficiaries account for most of its spending.

Even by the raw numbers, then, U.S. health insurance looks as much public as private. But that understates the government’s role: Private health insurance in the U.S. is both highly regulated and heavily subsidized.

This is obviously true for the insurance coverage purchased by tens of millions of Americans through the exchanges established by the Affordable Care Act. But employment-based health insurance, which covers 161 million Americans, is far more of a government creation than most people realize. For employment-based insurance exists largely because of huge implicit government subsidies that come with major strings attached.

Here’s how that works. If your employer pays you $10,000, that’s taxable income. But if your employer pays $10,000 toward a company health insurance plan that meets certain criteria, it isn’t taxable. That’s a huge effective subsidy, running at more than $300 billion a year. Take that subsidy into account, along with the more than $100 billion per year spent subsidizing policies purchased under the ACA, as well as the outlays on Medicare and Medicaid, and net effect is that the government pays for more than two-thirds of Americans’ health insurance.

Granted, there are strings attached. Roughly speaking, employment-based health plans can’t discriminate based on medical history — that is, they can’t deny coverage to employees with pre-existing conditions — and they also can’t offer the plans only to highly compensated employees — a health plan that is only for the C-suite is considered taxable income.

So given the restrictions of the federal tax code, employer-based health insurance is a lot like Obamacare, which also prohibits discrimination based on medical history and provides subsidies to make insurance affordable to lower-paid workers. The fact is that virtually all of private healthcare insurance is already well under some form of government control through regulation and tax subsidies.

How should we think about this system? First of all, is Medicare socialist? Don’t tell anyone, but the way Medicare operates — it covers every senior’s medical expenses, whatever they turn out to be, while being funded by taxes that depend on one’s income — could be summarized by the old Marxist slogan “From each according to his ability, to each according to his need.” And back in 1961, when Ronald Reagan was the face of a last-ditch effort by the American Medical Association to block the creation of Medicare, he denounced Medicare as “socialized medicine” and warned that it would destroy our freedom.

In reality, American freedom survived until Jan. 20, 2025, while Medicare is immensely popular, with an 82 percent favorable rating in the most recent KFF survey. Medicaid, government health insurance for lower-income Americans, comes in at 73 percent. This is in sharp contrast to public views about private insurers, who are widely disliked if not hated and accused of denying essential care.

Furthermore, if Medicare is socialism, then the whole U.S. health insurance system, with the government paying most of the bills and placing conditions on private insurers, is almost equally socialist. If you insist on calling any program the government pays for and regulates socialist, then U.S. healthcare would best be described as a partially privatized form of socialism.

And one must ask, what is the point of the part that is privatized? Do private insurers add anything positive? Or are they simply parasites, skimming off money that could have been paying for care?

The case for viewing insurers as parasites is strong. Many Medicare benefits are now delivered via Medicare Advantage, that is, plans paid for by the government but run through insurance companies. MedPAC, an independent advisory commission, estimates that last year Medicare Advantage plans were overpaid by $84 billion, thanks to practices such as “upcoding,” in which patients’ health problems are overstated to get larger sums from Medicare.

Assessing the waste from employer-based insurance is harder, but most evidence suggests that private insurers have substantially higher administrative costs than Medicare does. Furthermore, the complexity of private insurance, with multiple payers all trying to deny care when they can, is a huge burden both on providers — doctors, nurses, and hospitals — and on patients.

What do private insurers offer to compensate for these costs? One must go through intellectual contortions to avoid the conclusion that they are, in fact, parasites.

Which brings me back to El-Sayed. In supporting Medicare for All, he’s basically calling for an end to the partial, parasitic privatization of a healthcare system that is already hugely dependent on public funding. When one looks at it that way, it’s not at all a radical proposal.

Admittedly, the political lift requires overcoming the opposition to higher taxes to pay for Medicare for All. Political realism rather than economics was the reason I and many other progressives supported Obamacare, with all its complexities, rather than demanding an immediate move to Medicare for All.

But the political calculus may very well have shifted since the 2000s, as Americans are fed up with a system of unaffordable premiums, rampant claim denials, and byzantine claim administration. Moreover, funding healthcare insurance through taxation would allow for a much more progressive distribution of the cost. That is, compared to the present system, middle-income households would pay less as high-income households would pay more. And the U.S. would stop wasting large sums on pointless administrative costs.

So let’s be clear: El-Sayed’s healthcare platform is perfectly reasonable on the merits of cost, fairness and health efficacy. And with private insurers never more hated, while millions of Americans are losing their health insurance, 2026 may be its time.

MUSICAL CODA

Transcript

If you want to understand how we went so far down the road towards oligarchy, Malta is a good place to look.

Hi, Paul Krugman, doing a video today.

Yesterday, my weekly primer was another episode in the series about the rise of oligarchy and the policies that have led it to where it is. And this time, I focused on the role of a huge shift in taxation that has taken place over the past several decades, away from taxing capital and towards taxing labor. Half of that is a very large decline in the effective rate at which profits are taxed.

Now that decline has taken place partly via a reduction in headline tax rates, but to a large extent, from expanding loopholes — of which one of the most important is the ability of corporations to use accounting tricks to shift their reported profits into low tax jurisdictions, which is where Malta comes in.

On paper, according to the official numbers, Malta plays a remarkable role in the world economy.

It’s a huge investment destination: There are only a bit over 500,000 people on the island. But it has attracted more than $500 billion in foreign direct investment. At the same time, Maltese companies have invested about the same amount overseas. That’s about a million dollars per man, woman, and child in each direction.

Of course, it’s all fake. What we’re actually seeing is a proliferation of shell companies that are used by companies elsewhere as ways to launder, transfer their profits so that they pop up in Malta, which has a basically zero tax rate on corporate profits.

This is a combination of tax avoidance and tax evasion. Avoidance is when it’slegal, although it probably shouldn’t be. Evasion is when it isn’t. There’s some of both going on in Malta. There’s quitea lot of actual money laundering and sheer criminal activity. Famously, an investigative journalist from the island who looked into it was blown up by a car bomb. But mostly it is probably, at least marginally, within the, or arguably within the outer limits of the law.

So Crocs has a two-person office in Malta. And according to its books, basically all of its global profits come from that two-person operation in Malta. The New York Times had a very good report about all of this, which somehow I had not seen before writing the primer.

What is going on here? Well, the mechanics are quite simple. The real question is why this is allowed to persist. Tax avoidance or evasion, but profit shifting to avoid taxation, is a big issue. Estimates for the United States are that we lose probably north of $100 billion a year to companies finding ways to make their profits appear someplace else. If you want a sense of perspective, that’s roughly the entire budget of the food stamp program. It’s roughly the entire amount that Medicaid spends on health care for children.

These are programs that the administration falsely insists are full of fraud, but international profit shifting is fundamentally tax fraud, although it may be legal.

Now, Malta is a sovereign nation, but there really wouldn’t be any problem if the major democratic nations said this must stop. Malta is in fact part of the European Union. The European Union could clearly stop it. It has not.

Now, Europe is not totally hopeless. They actually have to some extent reined in the tax shelter status of Ireland, although it’s still there, but it’s weaker than it was. They have made moves toward a general international agreement that says that corporate tax rates must not be below 15% anywhere. It’s not really in effect, but they’ve moved in that direction. But Europe is characteristically weak in implementation. And let’s face it, there’s a fair bit of corruption there as well.

The United States, well, the United States was part of the project to limit at least extreme tax havens. To impose that minimum 15% corporate tax rate. But Donald Trump has withdrawn from the agreement.

It’s very clear that the United States government, as currently constituted, is not interested in cracking down on tax avoidance and tax evasion. In fact, the President of the United States and his lackeys are very much clearly on the side of tax cheats.

Now, I don’t want to say that Malta is the whole story. It’s obviously just a piece, although it is pretty extraordinary. We’re taking about basically a million dollars of corporate profits being laundered for each inhabitant of this tiny island. But it’s an indication.

It’s also an indication of what I’ve been calling the downward spiral of oligarchy. If we ask why is this outrage, this fundamental tax cheating permitted to continue, the answer is very clearly, it is the power of people with money who want to be able to avoid taxes. And their ability to avoid taxes leads them having even more money,which reinforces that power.

So it’s going to take a really big effort to, you know, we really need to reverse this. And we need to do it, you know, not slowly because this is a cumulativeprocess. We are on a downward spiral here. Malta is slightly exotic, it’s a funny story, but it’s actually very much indicative of what’s going wrong for the United States. And a reminder that although we are definitely the bad guys here, theEuropeans aren’t such great guys either.

But maybe they can be shamed. And maybe if we have a regime change here in the United States, we can finally be part of the effort.

Have a great day.

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Old-fashioned class theory is making a comeback.

What I mean by class theory here is a focus on how income is divided between capital and labor. In 21^st-century U.S. political debate, even suggesting that this is an important topic will get one attacked as a Marxist. But even before the advent of Karl Marx, classical economists like Adam Smith were extremely interested in how a nation’s income was distributed among workers, capitalists, and landowners.

Yet when inequality began rising around 1980, many economists (myself included), initially downplayed concerns about the factor distribution of income — that is, how national income is distributed among different factors of production. In the modern economy, the main distinction is how much income accrues to capital (i.e., shareholders) and how much accrues to labor (workers). Instead, most economists emphasized the personal distribution of income — that is, relative individual incomes, whatever their source. At the time, this focus made sense because growing disparities in paychecks, not a shift of income from labor and to capital, were the main cause of soaring inequality. Between 1979 and 2000, the share of total income going to labor as opposed to capital was basically unchanged. But while the typical worker’s income, adjusted for inflation, barely increased over that period, the average real labor income of the highest earning 1 percent, such as top executives, nearly tripled.

Since 2000, however, an entirely different dynamic has emerged: the share of labor compensation in total income has declined sharply. In other words, the share of national income going to workers, including highly paid workers, has plunged while the share going to the owners of capital has soared. Furthermore, the rise of AI, which appears to reduce the need for workers while requiring huge capital investments both in software and in physical assets such as datacenters, power supplies, and advanced chips, may cause a further large shift in income from labor to capital.

The major motivation for this latest series of primers is the rise of America’s new oligarchy. Billionaires now exert vast and growing influence over our politics as a result of the income and wealth they accrue from their ownership of vast amounts of capital. It’s crucial to understand that policy — both regulatory policy and tax policy — can play a key role in either reversing or exacerbating this historic shift against labor.

Today’s primer will be devoted to a discussion of the role tax policy plays in the factor distribution of income. In particular I will discuss how a huge shift in the American tax code, mostly occurring since the 1970s, in favor of capital and against workers has increased inequality. Moreover, I will cover how the tilt of the tax code in favor of capital will worsen the consequences of AI for American workers. Finally, I will discuss why it will be necessary for policymakers and elected officials to reverse this tilt of the tax code in order to break the tightening grip of oligarchy.

Beyond the paywall I will address the following:

1. Why a higher capital share of national income increases inequality

2. The great shift in the American code against labor and in favor of capital

3. How that tax shift affected income and wealth inequality

4. How the pro-capital tilt in tax policy is likely to worsen the impact of AI on American workers

5. Why we need to reverse the tax bias against labor

Read more

. . .

TRANSCRIPT:
Paul Krugman in Conversation with G. Elliott Morris

(recorded 8/6/26)

Paul Krugman: I am returning for another of multiple conversations with G. Elliott Morris, whom I find the most informative polling and political data analyst out there. And for a couple of reasons: We just had the primary in Michigan, we have a lot of numbers, and the Strength in Numbers midterm model is up. So we have our first reads on best estimates of what’s going to happen. So there’s a lot I’d like to talk about.

G. Elliott Morris: Hey, Paul. Yeah, let’s get real wonky on the forecasting. Good to be back.

Krugman: Yeah, let’s start with the model. You have a first forecast, which is pretty encouraging for Democrats. But why don’t we talk about what the forecast says and then what might be issues to raise around it?

Morris: Sure. The forecast, which people can find at fiftyplusone.news—which is sort of a sister publication to Strength in Numbers that I run with a couple of friends—is just a team effort, so we kind of have a different play sport than just a solo podcast. That forecast, as of recording (Thursday afternoon), says the Democrats have an 87 out of 100 chance to win control of the House. They need 218 seats; they have 215 right now, so it’s a pretty easy get. I can explain why. And that the Democrats have a 54 out of 100 chance to win control of the Senate. So pure toss-up territory there for the Senate. There, they need to win 51 seats; they currently have 47.

Krugman: Now this is, of course, a map on the House that includes the extreme gerrymandering, all of the attempts to tilt it. And so you’re saying that despite that, the Democrats don’t have a lock, obviously. But I assume that without the gerrymandering, it would be even higher gains on the House.

Morris: Yeah. I mean, without the gerrymandering, I would take close to 95 or 96% odds for them to take it. Our best guess is that the gerrymandering cost Democrats 5 or 6 seats in the House. So that combines a pretty good amount of gerrymandering in Texas—that cost them probably three seats there—and then 3 to 4 seats across the other Southern states. Tennessee is one; Louisiana, 1 or 2; Alabama, probably one there. Florida as well—a pretty big hit in Florida. And then, of course, it takes into account some gerrymandering back in the Democrats’ favor in California, and one lucky seat that they got a lucky break with in Utah with some court-mandated redistricting there. Democrats will take a seat from Utah for sure. So, yeah, I think that they’ll get 231 seats on average today, but that number should be close to 237 without the mid-decade cheating.

Krugman: You’d said that they needed something like a four percentage point advantage in the popular vote.

Morris: Yeah, we’ll be writing more about that. I think the number in the forecast now is close to three and a half. It’s a little more optimistic taking into account stuff like how candidate recruitment was really good for Democrats in some places. Their polling numbers and fundraising are looking really good in those competitive districts. So, you know, if the historical patterns are correct, Democrats gain some ground in the generic ballot, and the predictors are as reliable as they typically are in midterms, then it should be a pretty easy victory for them. We would predict a pretty easy, big House majority for them with 230 seats.

Krugman: But just to talk about the Senate—so that’s a much heavier lift, right? I think I know why, but why don’t you give me your version of what it’s about?

Morris: Yeah, well, in the Senate, Democrats currently control 47 seats. They need 51, so they have to find four seats to flip somewhere. The Democrats are very favored to win the seat in North Carolina. Former Governor Roy Cooper is running—a Democrat. He’s running against current Republican National Committee chair Michael Wheatley. And Roy Cooper is just kind of one of those politicians who has a good connection with his state and kind of can outperform those fundamental indicators in the state. So the typical voting pattern of the state is what I really mean there. So they will very likely win that seat—maybe an 85% chance we gave them.

So they need three more. And Democrats are also defending a seat in Michigan, just for whatever that’s worth. So the other three seats the Democrats could get are Maine, Texas, Alaska, and Ohio. All four of those seats are toss-ups, leaning Democrat in Maine, although we lack a lot of data in Maine with the new nominee, the new Democrat nominee. So that’s really the territory. You could argue maybe Iowa looks potentially competitive based on early data, but it’s kind of thin. Georgia Democrats are looking to upset the incumbent Democrat, Jon Ossoff, but I don’t think they really stand a chance there.

Krugman: Yeah. And the thing about the Senate, there’s two things about it structurally, right? First of all, only a third of the seats are up this year, so Democrats have to win a large percentage of the seats that are actually on the table—where they’re actually holding elections this year.

Morris: Right.

Krugman: And then the Senate gives Wyoming—whose population is basically the equivalent of a neighborhood in Brooklyn—and California the same number of senators. And that kind of works in Republicans’ favor, right?

Morris: I mean, if you count them up, there are 6 or 7 competitive seats from the Republican side that Republicans currently hold. And as I mentioned, Democrats need to win four of those. So you’re looking at two-thirds or so of the competitive seats Democrats have to get to pick up the majority if they defend that seat in Michigan—which is not a certainty. I do think the polls are perhaps undercounting, underestimating the Democrats there, but I wouldn’t put money on that. That’s just kind of a hunch based on the polls and other seats.

Krugman: Okay. But let’s talk about Michigan. So we had this extremely contentious primary. And, you know, Charlie Cook shows up in my feed saying Democratic chances of taking the Senate have just evaporated. And then I read you saying that it really doesn’t make a difference or not much of a difference that El-Sayed won. So let’s talk about this. There are interesting methodological differences.

Morris: I guess the great Charlie Cook would have said that, yeah.

Look, I think there’s a real lack of epistemic humility when it comes to Abdul El-Sayed’s chance of winning Michigan. There is a lot of conventional wisdom out there that, you know, let’s just say it: like a Muslim candidate cannot win the US Senate in Michigan, that Medicare for All and other progressive positions are going to drag him down. And frankly, a lot of this punditry comes from those center-left Democrats who should be in favor of those candidates winning. And so there is a sort of shooting-yourself-in-the-foot dynamic there as well. But if you actually look at the polling—and I wrote about this on Strength in Numbers—if you look at those polls pitting Abdul El-Sayed, the current nominee, against Mike Rogers, the Republican nominee, and then you compare them to how Haley Stevens would have done in those same horse-race matchup polls, the difference between the two Democratic candidates, or potential Democratic candidates, is statistically indistinguishable from zero. It is, on average, zero. Maybe it’s as big as three in either candidate’s direction. But if you’re Charlie Cook saying Democrats’ chances just evaporated, you are leaning heavily on some other priors or other punditry in saying that and not really the data.

Krugman: So, there’s two aspects to this, one of which I take pretty strong statistical evidence from you and one of which is a kind of “don’t know,” but... One of them is saying El-Sayed is too far to the left, and you basically have said that that’s a dimension that exists in the minds of pundits, but not in the real world or not among voters.

Morris: Yeah, there’s a strategist fallacy here as well. There’s an over-indexing on the perception of Abdul El-Sayed as some radical-left DSA candidate. For the record, he’s not even a member of the Democratic Socialists of America who have been winning so many seats. And there’s a default backlash to the idea that, you know, a more left-than-moderate Democrat could win in Michigan. There’s no similar skepticism, however, about the probability of a far-right Republican winning Michigan—Donald Trump in this case, who just won it. So clearly, this over-indexing on ideology from the pundit class, the strategist class, has, I think, pretty little bearing on the actual electoral outcomes.

Krugman: Yeah. What I take a lot from you is that the idea of, “Well, Medicare for All, that’s kind of a left-wing policy, and people will be against it”—it’s not clear that the public even thinks about it as being a left-wing policy, or even that the public has a left-wing versus right-wing conception except sort of as a caricature vision. So...

Morris: Yeah. A public option for healthcare, if you want to say it that way, polls very well. The 60–65% universal healthcare idea and expanding Medicaid polls at 75–80%. People want more of a government role in health insurance. I just saw a lot of the interviews with younger people in Michigan as well. And, you know, anecdotes are anecdotes, but still, most of the accounts from these young people about why they supported Abdul El-Sayed were healthcare-related—that they wanted some guarantee of health insurance.

So I just think we all carry around a lot of biases in our heads about what’s possible politically. And that has changed a lot over the past decade with rising partisanship and a demand for change from Washington. Just one more statistic, and I’ll wrap up here: In our polling, 60% of people say that the political system needs major structural changes; to be torn down and rebuilt. That is similar to the DSA sentiment about how the economy’s not working, right? So you can imagine why the appeal would be there for the sort of anti-system candidates like Abdul El-Sayed.

Krugman: I’ve always been shocked by polling by the likes of KFF that shows very, very strong public support for Medicaid, very comparable to Medicare. And I’ve always wondered how much of that is because people may not know the difference.

Morris: I couldn’t tell you, but I think your instinct there is the right one. There is a lot of public support for government providing health insurance to people who need it. And then there’s a lot of definition about who needs it from the right, especially in campaigning against these benefits. I know you’ve written a lot about that.

Krugman: Yeah, but it’s interesting. I’d like to say “the public loves Medicaid,” but I’m not entirely sure that people don’t think it’s the same thing as Medicare or, you know, don’t know that one of them is means-tested. But the only thing that gives me pause is I just worry about the idea, “I would have no qualms at all if someone had El-Sayed’s exact same positions, but was named John Smith.”

Morris: Yeah.

Krugman: And no one seems to want to talk about how...

Morris: Yeah, they don’t want to talk about the Muhammad factor of it all. And that seems really relevant to our priors in American politics today. I mean, how many exact same articles were written about how Barack Obama was too far left to become president of the United States? And Barack Obama was not a far-left senator. It should be laughable in hindsight. If he wins and he wins by 5 or 6 points, I think maybe we’ll say a lot of this was all for naught. On the other hand, if he loses, people will point to his ethnicity and name as a reason, and as something Democrats should avoid in the future. I’m sure of that.

Krugman: Yeah. You know, Obama was, in fact, very centrist, very restrained. I sometimes worried that because of his name, he felt that he had to be and that he was too cautious on some of the policy stuff.

Morris: Well, I don’t know the guy.

Krugman: Well, I did, though not a lot. But there were some meetings with economists wanting him to take a harder line on Wall Street, and bankers telling him he mustn’t. And the bankers won all the arguments.

Morris: What else is new?

Krugman: But yeah. And so you actually said, basically, that Stevens vs. El-Sayed makes no difference at all to your probability of the Senate.

Morris: No. And that’s the other thing: If you are really splitting hairs about the probability of winning Michigan, then there is an on-average effect of Abdul El-Sayed winning. It’s on the order of 4 or 5 percentage points. So to spell that out, our current forecast, including Abdul El-Sayed, is for Democrats having a 64 or 65% chance of winning the seat in Michigan. Whereas if you replace the quantitative indicators for El-Sayed, such as the polls and some other factors, with those that you would have in a hypothetical election with Stevens, Stevens has a 69% chance of winning. So there is a five-point difference there.

If, however, what you care about is the chance of controlling the Senate, this is negligible; it is less than one percentage point. Democrats in our forecast have a 55% chance of winning the chamber today. They had a 55% chance of winning the chamber on Monday [before the primary]. And, frankly, according to the quantitative data that we have right now, it just doesn’t matter who that nominee is. But maybe that’ll change, right? Democrats have gotten in some trouble recently nominating candidates who have not been vetted before, not run for office. We don’t know what will happen in the future. But as of right now, it doesn’t seem to matter who that nominee is in Michigan.

Krugman: Okay. So the backdrop to all of this is the unpopularity of Trump and his policies. That’s what makes this a reality. I think that there’s been a noticeable further downleg in Trump’s approval. Is that right?

Morris: Yeah.

Krugman: Is that basically post-Iran, or is there more going on than that?

Morris: Well, the war in Iran definitely eroded support for Trump at the beginning, which I guess was March 1st of this year, where in our average, we had him at a 37% approval rating. Then over the next month, his approval rating fell to the low 36’s. And on the other side, his disapproval rating increased from 55–56% up to 60%. So there was some consolidation, especially in opposition to Trump among those sort of, you know, maybe Trump-skeptical or unsure voters. There has been further degradation since then. I mean, Donald Trump’s approval rating was almost in the 35s a couple of days ago, and his disapproval rating was approaching 62%. It’s since bounced around a little; there’s some noise in the polling data, so the average bounces around a little. But his approval rating is at an all-time low—net of something like -25 or -24.

But what we do is we compare Trump’s approval rating on the issues to whatever Donald Trump’s overall approval rating is on the day the issue surveys are released. And then as Trump’s overall approval rating changes, we predict what an issue approval rating would be given, you know, whatever his approval rating is on that day in the average. So what we’re actually doing is looking at the difference between his issue approval rating on something like prices and his overall rating, and then predicting that, until there’s new issue approval rating data. I mean, at this point, there is issue approval rating data like every couple of days; pollsters have started asking for it. Maybe it seems to get them a lot of attention to publish a really bad number on inflation, for example. So there’s plenty of data, at least on the big issues.

Krugman: Okay, but there’s a kind of ranking of issues which are really bad for Trump and issues which are—at this point, I guess there are none that are really good, but there are degrees of badness. I think anybody can look at your site or at fiftyplusone.news, but tell me what’s kind of worst and best, and what do we know about those.

Morris: Yeah, the “degrees of badness” is a fun way of putting it. You know, I was interviewed by WNYC a couple of hours ago so the numbers are fresh in my head. Trump’s approval rating is somewhere between what Richard Nixon’s was literally the week that he resigned the presidency in disgrace (around 32%) and George W. Bush’s in 2006, the middle of the Iraq War—I think just after the Abu Ghraib scandal—where he was around 38%. So Donald Trump’s ratings today, even with the amount of political polarization we have and the amount of partisan sorting that we’ve had over the past 20 years, has, you know, the approval rating of some of the darkest periods of American history in terms of the evaluations of the president. So it is very bad. I mean, despite what he wants to say on social media about having the best polls ever, he has an almost worst-ever approval rating for any point in a presidency.

Krugman: By the way, the political polarization thing is something not everybody will understand. I mean, what you’re saying is basically that when Richard Nixon was president, people could actually be persuaded—Republicans could actually be persuaded that a Republican president might be bad. And, well, we were thinking that we weren’t in that kind of world anymore. But you’re saying that despite that, we’re kind of getting into there?

Morris: Yeah. The approval rating and Gallup’s tracking for the out-party of the president—so the other party than the president’s party, in this case for Nixon, the Democrats—used to be able to get up as high as 50, 60%. The American voter was just more ideologically flexible and more willing to give credit to presidents of the other party, especially at the beginning of their term when there’s a so-called honeymoon effect for that president right when they start out. Comparatively today, you never see a poll with the out-party of the president approving more than 15%, even at the beginning. And now it’s closer to five. About 5% of Democrats say they approve of how Donald Trump is handling the presidency. I imagine a lot of that, by the way, is like measurement error in identifying who a Democrat is. So...

But the point is, that makes it really hard for a president to have high approval. The president has a higher floor and a much lower ceiling. So it’s really hard to persuade members of the other party to approve of them. Equally, their party members tend to approve of them pretty much regardless of what they do. So the fact that Trump’s approval rating is as low as it was for some of these really dark times in American history—for the presidency, at least—really says something about numbers that low.

Krugman: He started out pretty positive, despite all of this, with immigration, deportations, all of that. And that’s gone negative. Is that just part of the general decline, or is there something special going on with the deportations?

Morris: You know, it is impossible for me to say with the data that we have now whether or not someone would say they disapprove of Trump on immigration now purely because of immigration policy. So I don’t want to overstate the case here, but the fact of the matter is that Donald Trump and the Republican Party had, I think, a 15 percentage point lead on trust to handle immigration and deportations in the 2024 election. And now they’re even or underwater. So, you know, you might want to adjust in your head for the fact that this number is affecting the Republican Party as well; it’s not just Trump overall. It’s probably not just a factor, I would say, of Trump’s approval rating going down overall, because there’s been this other observed trend downward in trust for Republicans. I mean, you’ve been writing a lot about...

Krugman: Trump’s net negative, -25 or so on approval. And the generic ballot is a much narrower spread in favor of Democrats. And that’s from what?

Morris: It’s mostly Republicans who say they disapprove of Trump’s handling of the presidency—you know, his approval rating overall. But these people are still Republicans, right? Most of them call themselves Republicans and conservatives. The vast majority of those people who say that they will vote for Republicans on the generic ballot, but disapprove of Trump, voted for Trump in 2024. In a couple of columns I’ve called them “closet Republicans.” The fact of the matter is they’re really just Republicans; they may not even be closeted. They say they’ll vote for Republicans again. So we can’t expect every person who disapproves of the president to change how they would vote in a congressional election.

Krugman: It was true for Biden and Democrats, too, in 2022.

Morris: That’s right.

Krugman: Actually, the Democrats did kind of okay in the 2022 midterms.

Morris: Right.

Krugman: Or better than you might have expected, given how unpopular Biden was.

Morris: Yes, yeah.

Krugman: Someone—and I think it’s YouGov—actually breaks Republicans into MAGA and non-MAGA. It’s pretty striking. Basically, the non-MAGA Republicans, which might be something like the group you’re talking about, are in many ways a lot closer in views to independents and Democrats.

Morris: Well, since you’ve mentioned this: In their most recent poll release, either this week or last week, actually, they’ve broken down Trump’s approval rating among Republicans who call themselves MAGA—if you ask them, “Do you identify with the MAGA movement?” I think that’s the wording of the question—and those who don’t. And Trump’s approval rating among non-MAGA Republicans has really degraded. I mean, that is probably responsible for much of, if not most of his degradation in his overall approval rating. But if you look at Trump’s approval rating among non-MAGA Republicans at the beginning of his term, it is almost identical to his approval rating among Republicans who call themselves MAGA. Now today it’s underwater by, I think, 5 or 10 percentage points. So he’s just really lost a lot of ground among that group who doesn’t identify with his movement.

Krugman: You had a map that really caught my eye, and I’m planning to do a little statistics on it myself, where again, this kind of synthetic approach where you try to produce an estimate of what net approval is on deportations—I think it was specifically deportations by state. How is that done? How do you do that?

Morris: In brief, these maps of opinion—so statewide approval rating for this case of deportations—is generated with a statistical model that is called multilevel regression and post-stratification. What we do is we take our national polling data—in this case, ours is Strength in Numbers and my polling partner’s site. And this national polling data is 20,000 people or so. And we look at their demographic characteristics and who they voted for in the last election. And then we predict how every person in a given state—so let’s just say, like Texas—would answer our survey if we had interviewed them instead. And we know the demographic characteristics of Texas from the Census, and we know the political characteristics of Texas by past voting behavior from the last election. So we know that these estimates are rooted in demography and politics. We just balance by congressional district as well, not just at the state level. We actually get a little fancier than that; like, we have local-level knowledge about where these people live and what the political characteristics are in their state. But [talking about] that would be getting pretty weedsy.

Krugman: But if you look at the map, the places where there is still positive approval on deportations is what I think of as—I’m patenting this—”the ICE belt,” which is sort of from Louisiana through West Virginia. If you know anything about the geography of immigration in the United States, these all happen to be places where there are very few immigrants.

But I guess the way you construct it, you aren’t actually directly asking people their views on deportation, so I’m not sure this actually provides an independent check on the hypothesis that people are really hostile to immigration if they’ve never seen an immigrant.

Morris: I will provide you some studies. I was at Pew Research Center in 2017, and someone there was publishing an analysis of whether or not, controlling for all their demographic and political factors, you were more pro-immigrant if you had been around immigrants more. And in this case, they were actually looking at support for building the border wall. And they found that proximity to the border wall actually decreased your support of the border wall. The most pro-border-wall states were Montana, Idaho, North Dakota, South Dakota—the states furthest away from the US–Mexico border. So that might provide some suggestive evidence for you, Paul.

Krugman: Yeah, because I realized I actually can’t use your data for this, but okay, that would be helpful. I mean, I have my two favorite kinds of email that I do get. One of them is from people, typically actually in the Southwest, not too far from the border, who are very anti-immigration. And I get letters saying, “How would you feel if New York City was full of immigrants?”

Morris: Have they been to New York City?

Krugman: I guess a surprising number of people have not. But the other one is—and this is a little more esoteric, but—”How would you feel if lots of professorship jobs were going to immigrants?” And if you ever looked at the listing of a well-known economics department...

Morris: ...and definitely don’t look at the computer science department of your local public university.

Krugman: Yeah. So it is kind of a funny thing. But I’d like to believe that the familiarity makes you see immigrants as people, but that may be a little too romantic.

Morris: Yeah, might be a little too optimistic, Paul.

Krugman: Okay. What everybody is wondering about is: If the midterms were held today, we can be reasonably sure that Democrats would take the House. Then the Senate is a much harder climb and also more quirky. How much can things change, or how much do the things that we know might change affect it? Historically, how locked in are midterms by this point? I actually don’t know the answer to that.

Morris: I’ll have to do a blog post on that one, because I don’t know the answer to the question in terms of, like, how often does the party that’s ahead end up losing in terms of binary? But the reason that we do these forecasts, at least at Fifty Plus One, is to really contextualize the polls and, along with that, the other information we have about the election. So those fundamental indicators—by which I mean, like, the way a state typically votes and whether or not an incumbent is running—contextualize the expert race ratings from the race raters, people like Cook Political Report and Sabato’s Crystal Ball. And the forecast probability on our website takes into account the usual amount of change in the election, or rather, the upper bounds of historical change in the election. That is what our confidence interval, our uncertainty, is for. I mean, the whole reason we really do it is to measure uncertainty in the polls and the other indicators today to see what could happen if they change or are wrong by the amount that the polls have typically changed or been wrong by.

Krugman: Right. So when you say 87%, that’s not 87% Democratic control of the House if the election were held today, right?

Morris: Right. But it does also include that sort of normal further movement against the party holding the White House, but also the uncertainty of events. Our forecast, which is different from some other forecasts out there that you might see, projects the amount of change that there typically is in the generic ballot. So the advantage that the Democrats in this case would get over the course of the election—usually the party out of power gains about a point to two points in the polls between now and November. And that makes a big difference in your estimated probability that in this case the Democrats would win the House and the position that they would have in the Senate by the time November comes around. But that’s just the right way to do it.

There is a chart on our methodology page that shows the trend of the generic ballot over the course of the election year for every midterm going back to 2006. And it is quite stark: at about the 60-day-out mark—so Labor Day—there has always been a 1 to 2 percentage point increase in the polls. Again, patterns break down over time, but that is a pretty safe bet that as people tune into the election, they come to the conclusion that the party that is in charge of the White House does not deserve to be in control of the House. And that’s just typically what has happened.

Krugman: Okay. And my specific concern—you know, people have no idea which party I want to see win! But anyway, my specific concern here is, okay, it’s possible that essentially the US has surrendered and that the Strait of Hormuz will reopen on Iran’s terms and that gasoline prices will come down and all of that. And the question is whether that can really make a big difference in the time remaining before the midterms.

Morris: Well, it would take some amount of time for oil to be shipped back to America if there were refining capacity left.

Krugman: That’s my alley, so I’ve definitely done that one. But, you know, imagine that somehow gas prices were to tumble by $0.50 over the next two months, something like that—which is certainly in the realm of possibility, though might not be the most likely forecast. How much difference could that make to the election?

Morris: Yeah, I wrote about this last Friday. If you game out a return to $3-a-gallon national gas, it looks like that’s worth about ten points in Trump’s net approval on prices, and about a point, maybe two points if you’re really stretching it, in his overall approval rating. And that forecast is based on the change in gas prices that we witnessed through much of June and the change in approval rating that Trump saw in June. He did get a bit of a bounce back in June as the price of gas receded. He did not go all the way back to where he was when gas was whatever price it was at the end of June—I’m just not remembering the exact price of gas at the end of June. Forgive me, forgive me.

Krugman: No, that’s all right. Now I’ll ask you what a gallon of milk costs and we’ll rule the U.S. forever on $1.99, I think.

Morris: Okay, there we go.

Krugman: No, but we’ve had a back and forth—both face-to-face and in sort of interacting blog posts—about public views on the economy generally and what it takes. And I look a little bit at the Biden years, obviously. We had $5 gas for a little while there in 2022, and then the price of gas came way down. Inflation came way down by late 2023. You could have said, “Well, this looks like an okay situation on inflation and gas prices.” But Biden’s approval on the economy never really recovered. And that’s what suggests really long lags here, right?

Morris: Yeah, I think that was the second chart of my blog post from last Friday as well. If you look at how Joe Biden’s approval rating went up by ten points from -20 to -10 from peak inflation, which was I think July 2022, through the next spring in 2023. And then it of course went back down and he had—yeah, he effectively resigned the presidency, right?

Krugman: Yeah, I mean, I think that in some sense the narrative is probably baked in already. People think of Trump as somebody who drove up their cost of living.

Morris: Yeah. You wouldn’t bet that a president would get credit for inflation easing, whether or not it would be CPI or gas prices. Even if I’m oversimplifying our interlocking blog post chains… But what people seem to be reacting to is the pain. And then they remember the pain, even if prices stopped going up by as much as they were going up or indeed go back down. That creates a negative impression in the public’s mind of the person in charge of preventing the bad stuff from happening in the first place.

Krugman: I think you haven’t exactly said this will be a wave election, but you said it sure looks like a wave election. What do you mean by that?

Morris: You can make the title of this podcast, “G. Elliott Morris Says It’s a Wave Election,” and I will back that up statistically.

Krugman: Okay.

You know, we rerun our forecast historically in a backtesting where our forecast predicts, in this case 2018, using only the data that was available to it through the previous election cycle—so 2016—to gauge how our model would have reacted historically on out-of-sample data, the way that it’s reacting or the way it should be reacting this year. When we do that, we predict at this point in the election that Democrats would have had around a 70-75% chance to take the House and no chance to take the Senate in 2018. The map was too far tilted against them back then. Democrats ended up losing, I believe, two seats in the Senate in 2018. Comparatively, we think Democrats have about an 85 to 87% chance of taking the House, and they could very well win back the Senate. So I think that qualifies as a big blue wave, really.

Krugman: Okay, but there’s a world of difference between taking and not taking the Senate.

Morris: Well, and you know, one thing we don’t take into account, to be fair, is Pennsylvania Senator Fetterman changing his party identity—something like that. A sort of real black swan moment without any historical precedents. We just kind of have to caveat that one away; we can’t assign a statistical probability to that. Although, hey, that’s a good blog post idea! Let me see what the forecast would be if you assign a 50% chance to Fetterman changing his party ID if Democrats win. We can run that math.

Krugman: Yeah, again, although that’s something where the difference between 51 and 52 Democratic senators is, you know—sorry, but my own nerdishness says that’s an endogenous variable there.

Morris: Yeah, right. And there’s some weird game theory whether or not he would change his party ID if it meant deciding control of the Senate, right? Perhaps he would be much less likely to do that. He does still mostly vote on Democratic bills, even though he doesn’t necessarily vote against Republican nominees. For example, sometimes he blocks very important cloture motions. But for the most part, he does vote against Donald Trump, I think 90, 95% of the time.

Krugman: Okay, that’s something I didn’t know. That’s interesting, yeah.

Morris: They don’t want to lose a Democratic senator, even if he goes on Fox News every day and creates bad headlines.

Krugman: Okay. There’s a bunch more that I could ask. But actually, just one last thing—I thought that was the last question, but just coming back to Michigan: There was an awful lot of money... the campaign financing was very heavily weighted against El-Sayed, which seems to have made no real difference, right? Is that telling us something about this year? I mean, should we not be worried at all about Elon Musk and Ken Griffin?

Morris: I hate to be the bearer of bad news to you on this front. Money does really seem to matter. At least in primary elections, it really seems to matter, because in primary elections, we as voters don’t have as many partisan or ideological heuristics to fall back on. All right, Haley Stevens and Abdul El-Sayed are both liberal Democrats. Maybe one is more moderate than the other, but you don’t have a conservative running in that race for you to use your ideological identity as a proxy. So money and exposure to advertisements—and especially negative advertisements against the other candidate—can really have an impact.

And I would hazard the guess that the—whatever it was—$55 million spent on Haley Stevens’ campaign, especially in the last week or last two weeks of the campaign, may have even been a reason that the polls so dramatically underestimated her, because they were old by the time the election came around. It costs a couple hundred dollars to change a vote in a Senate election, essentially. So Elon Musk is spending $150 million out there—you can do the math on that. If he’s changing a couple hundred thousand votes in the right places that could really matter if there’s no countervailing spending. Now, in a general election, people have their partisan identities to fall back on, and money is less important. But unfortunately, billionaires spending hundreds of millions of dollars on campaigns does seem to matter, and that’s a problem that the Supreme Court has declined to deal with.

Krugman: All right. So I guess our bottom line is Democrats heavily favored to take the House, Senate in play, and we should still be afraid of billionaires.

Morris: Yeah. Democrats favored to take the House. Elon Musk might be kingmaker via his ad spending.

Krugman: Oh dear. Well, could be worse, but all right. Good to know. And thanks for keeping us up to date.

Not so hot

This morning’s employment report was a downside surprise, so I thought I would post a quick note about what the data are telling us.

The surprise fall in employment — 23,000 jobs lost, when the consensus forecast was for around 80,000 gained — made headlines. As always, it’s important to realize that monthly jobs numbers are noisy, so you shouldn’t overreact to one report. However, this report also revised data for several earlier months down, so the broader picture of job growth in Trump’s “golden age” is significantly worse than it seemed.

Now, very low job growth — around 26,000 a month over the past year — doesn’t mean the same thing it would have a few years ago. Why? Because anti-immigrant policies have drastically slowed the growth of the pool of potential workers. We used to need more than 100,000 jobs a month to keep up with the growing work force and keep unemployment level. At this point we can have low job creation without a major rise in unemployment.

On the other hand, the fact that job growth has slowed so sharply puts the lie to claims that anti-immigration policies would free up jobs for the native-born. To a first approximation, U.S. losses of immigrant workers have been matched 1 for 1 by a fall in total employment relative to trend, with no improvement at all in native-born opportunities.

And several indicators suggest that the labor market has in fact weakened, although not as drastically as the employment number might suggest. Wage growth keeps falling, suggesting weak worker bargaining power:

And there’s a private-sector measure I find informative, the Conference Board’s “labor market differential” — the difference between the percentage of workers saying that jobs are “plentiful” and those saying that they are “hard to get.” This number is normally positive — we are a nation of optimists — but has fallen a lot, indicating that people actually out there in the labor market feel that it’s weak:

Source: Haver Analytics

Trump keeps insisting that the U.S. economy is “the hottest it has ever been.” But American workers aren’t feeling it — and neither are the hard data.

There is no longer a presumption of regularity

Lately Donald Trump has been raging against several of his own appointees. He has publicly raged against the attorney for DC Jeannine Pirro, for admitting that the failure of the Reflecting Pool was due to shoddy work by Trump’s chosen contractors, and for dropping charges against David Hearn and supposed saboteurs. He has raged at RFK Jr. for not making a stronger case for the false link between vaccines and autism. And according to the Washington Post, Trump has privately raged at Pete Hegseth, the defense secretary, for misleading him about the state of U.S. munitions, which have been critically depleted by his failed war on Iran.

These may sound like unrelated stories, linked only by the fact they all involve presidential tantrums. In a larger sense, however, they are part of the same story — what happens when a government operates entirely in bad faith, never telling the truth about what it is doing or why. Inevitably, officials in such a government don’t merely lie to the public: they lie to each other too. As a result, they can’t govern effectively, even in the pursuit of evil.

Legal scholars have a term of art, the “presumption of regularity,” which means that one assumes that the government is generally honest when undertaking legal proceedings.

Thus, if the Department of Justice brings charges against an individual, the historical presumption has been that there must be a good basis for those charges. In other words, that they aren’t simply a vindictive prosecution of one of Trump’s perceived enemies. When DOJ succeeds in securing an indictment from a grand jury, the historical presumption has been that government lawyers secured that indictment honestly, presenting the grand jury with complete and accurate information.

Under Trump II, this presumption is no longer reasonable — and the courts have begun to acknowledge this reality. In a number of recent cases judges have demanded information about what the government told a grand jury or dismissed charges because the government was clearly engaged in vindictive prosecution. At this point the Trump administration’s word is worth nothing, or less than nothing.

The same is true on broader policy issues. After most of its initial tariffs were ruled illegal, the administration reimposed them by claiming that more than 60 nations are engaged in “unfair trade practices” because they aren’t doing enough to block “the importation of goods produced with forced labor.” It’s safe to say that literally nobody believes this rationale, or for that matter believes that the Trump administration has any objection to slave labor. It’s all being done in sneeringly bad faith.

Domestically, the administration is denying food stamps to millions of poor Americans, many of them children. The alleged rationale is that this is a crackdown on fraud. Yet the real rationale is that this administration doesn’t want to help anyone afford to put food on the table, whether or not they’re legally entitled to aid. Similarly, the administration has denied FEMA aid to blue states, not because the claims are fraudulent, but to punish blue states for being blue.

So this is an administration of lying liars. But we knew that. The new information is how much this administration lies to itself, and the disasters this creates.

Trump’s war on Iran has been an epic disaster on many fronts. One of the most damning is the fact that the U.S. military has squandered a huge share of its precision munitions, drastically undermining national security in a matter of months. One obvious question is why Trump didn’t move much sooner to conserve interceptor missiles etc., either by calling off the whole war or at least by calling off actions that used up already depleted stockpiles of weapons like ATACMs.

Most attempts to answer that question focus on deranged Trump syndrome — his pathological inability to admit failure, which has led him to double down even as he runs out of ammunition. But it now appears that a contributing factor may be that he didn’t know how bad things were, because Hegseth lied to him, telling him that the munitions problem had been “fixed.” Hegseth, you won’t be surprised to learn, blames his own deputy, Stephen Feinberg. And to be fair, it’s quite possible that Hegseth’s staff were misleading him even as he misled Trump. Last week, in a post about the Putinization of the U.S. military, I cited a Telegraph article about a “culture of silence” at the Pentagon, in which nobody wants to tell Hegseth things he doesn’t want to hear.

It’s liars all the way down. The fact is that it isn’t possible for an administration to be completely dishonest with the courts and the general public while being honest with itself. Do you believe that when Trump boasts about $18 trillion in foreign investment, Kevin Hassett, the administration’s top economist, quietly tells him, “Just between you and me, Mr. President, that number comes out of nowhere, and even the investment promises we have received are vaporware”?

Of course not. This is an administration in which to serve is to abase yourself constantly, rendering fealty to Dear Leader, lying to your colleagues and lying to the American people. And if this administration doesn’t like the official government reports that are detailing the many disasters it has caused, it just quashes them .

So the Iran War is just the most visible of many ongoing, self-inflicted disasters perpetrated by this administration. Furthermore, Americans should be prepared for more chaos and mendacity, because we are governed by people who, just like Trump, are unwilling to acknowledge the truth. Unfortunately, things can get worse – and they probably will.

MUSICAL CODA

Monday was a day ending in the letter “y,” so Donald Trump spent much of the day boasting about how great he is and whining about not getting credit. At this point most observers tune his rants out. However, the screed at the top of this post has received some attention, possibly because it was marked by a kind of purity: every one of Trump’s bombastic claims was completely, verifiably false.

I was struck, however, by the fact that Trump didn’t mention one important thing that has been going right: crime has been plunging. Jeff Asher reports that the number of murders, which rose in the aftermath of Covid but has been declining ever since, is now approaching lows not seen since the 1960s in a number of big cities, with New York probably the safest it has ever been (the numbers in parentheses are the most recent year murders were this low):

One might have expected that Trump, whose inaugural address in 2017 was devoted to “American carnage,” the wave of violence supposedly sweeping U.S. cities, would be celebrating low crime and taking credit. Indeed, every once in a while the Trumpified Justice department puts out a press release attributing falling homicides to Dear Leader’s guidance. But nothing from Trump himself.

Just to be clear, Trump does not in fact deserve credit for falling crime. The bump in murders 6 years ago took place mostly on Trump’s watch, and the big decline began on Joe Biden’s:

Murders, rolling 12-month total. Source

Indeed, while there is no consensus about what caused the big decline in crime, many observers give partial credit to social support programs made possible by Biden’s American Rescue Plan Act. If they’re right, by the way, the drastic spending cuts in the One Big Beautiful Bill, the attack on any kind of social spending — having failed to gut funding for Head Start, the administration is trying to sabotage the program, seemingly out of sheer spite — could well show up as an uptick in crime a few years from now.

Yet while Trump isn’t responsible for falling murder rates, claiming credit for anything good that happens on his watch (while blaming others for everything bad) is his normal behavior. Why, then, is he silent about the good news on crime?

The answer is threefold. First, Trump (along with much of his party) hates American cities, and isn’t open to hearing anything good about them. Second, he (again along with much of his party) has an image of what life is like in our cities that is 40 years out of date. Finally — and again in accord with his party — he wants to punish people, and acknowledging good behavior would get in the way.

About city-hatred: During a Monday White House event Trump went off on a tangent about “blue cities” in which he declared

What do they have in common? They’re all dirty. They’re filthy, dirty. Their streets are dirty. Their streets smell. Their storefronts are broken. Their trees are all gross. Everything about the place is dirty.

This wasn’t really a comment about “blue cities,” it was an attack on American cities in general, since almost all major cities — 9 of the top 10, with 95 percent of their combined population — have Democratic mayors. And as usual, try to imagine any public figure saying something similar about rural America.

Also, what would Trump know about what American cities are like? When was the last time he walked around a major city? For what it’s worth, here’s a picture I recently took of New York’s gross trees:

About living in the past: When Trump gave his “American carnage” speech, it was obvious that he was still stuck in a vision of urban life as it was in 1989, when he demanded the death penalty for the Central Park Five, wrongly convicted of an assault on a jogger. (Trump refuses to this day to acknowledge that he was wrong.) The epic decline in crime that took place in the years that followed clearly escaped his attention. To put his anachronistic vision in context, here’s an enlarged and annotated panel from Jeff Asher’s post about plunging crime:

Murders through June of each year

Obviously urban crime hasn’t disappeared. But obsessing about it at this point is wildly out of date. Next thing you know Trump is going to start ranting about the Communist menace. Oh, wait.

Fundamentally, however, the reason Trump can’t claim credit for, or even acknowledge, falling crime isn’t ignorance. It is, instead, as Adam Serwer memorably put it, that the cruelty is the point. Punishment isn’t a means to an end, a way to fight crime; it’s an end in itself, with crime only a rationale.

And if one wants to inflict pain — deporting, imprisoning, and, yes, shooting people — it’s necessary to claim that those people are doing terrible things. They’re dirty, they’re disgusting, they’re criminals. Acknowledging that crime is plunging, even while falsely claiming credit, would undermine the case for cruelty.

So Trump can’t talk about the fact that crime is down, not even falsely to claim credit, even though falling crime is one of the few ways in which America really is doing much better than it was a few years ago. Instead he must claim that “Radical Left” pollsters — like, for example, Fox News — are hiding his immense popularity, and that his Iran debacle was a great victory.

MUSICAL CODA

Transcript

Contrary to what Trump administration officials say, we are not experiencing explosive economic growth. We are, however, experiencing an explosion in misery — and Donald Trump deserves full credit.

Hi, Paul Krugman here, slightly different location. I want to talk about food stamps and health insurance, two areas where things have gotten dramatically worse just in the past year and are continuing to get worse. There's going to be a lot more hungry people in America, especially hungry children, by the end of this year, and a lot more people without health insurance or with inadequate health insurance. And it all can be tied directly to legislative action or inaction on the part the Trump administration and its allies.

Here's what has happened. So we have what everybody still calls food stamps, though it's officially Supplemental Nutrition Assistance Program. But we have a situation now where the One Big Beautiful Bill didn't exactly cut the rate of benefits, but what it did was to impose work requirements.

You might say, well,shouldn't people who can work work? Yeah, but that's not really what's happening. What's happening is that people who can work and do work —because among those who can work who are receiving food stamps, the vast majority do in fact work — must show proof of work. And that is, for many such people, a basically impossible burden.

I mean, think of who is likely to be on food stamps. They may well be irregularly employed. They certainly may not have a job where they can call up the HR department and get the necessary forms. They are also presented with a complicated paperwork requirement. We're talking about people who are, to some extent, lacking in formal education. But above all — I've never been poor, thank God — but as everyone who's studied or been poor can tell you, the biggest issue of poverty in some sense is the cognitive burden, the constant struggle to just make ends meet, which is a huge burden on everything else.

So you're imposing a bureaucratic hurdle, really a bureaucratic barricade in front of exactly the people least able to get across it. So of course, we're seeing a lot of people losing nutritional assistance with millions of those people children.

Health insurance is a rather different story. The Affordable Care Act made a huge positive difference to many people's lives — in this case some people I do know quite well, small business people and so on. But the way it was set up, there are subsidies to help you purchase insurance through the exchanges. The subsidies are means tested. I could not get a subsidy for health insurance, nor should I. So they fade out with income. But as originally set up, they faded out too quickly with rising income, and there was a cliff at 400% of the poverty line, no more subsidies, which was clearly bad policy. And they knew that at the time. It was just that trying to scrape together enough votes to get that thing enacted was hard.

So during the Biden years, the subsidy program was improved. It became somewhat more generous, but more important, it no longer had a cliff. It just gradually faded out.

Unfortunately, that was not a permanent change. It wasn't enacted into legislation for forever. There was a cutoff date. Why? Well, two words, Joe Manchin. But in any case, obviously, Trump and Republicans in Congress refuse to even contemplate extending those enhanced benefits. And so a lot of people are now faced with vastly higher costs if they want to retain their health insurance.

Interestingly, these are not the poorest. The poorest are going to be on Medicaid and even people a little bit above that are still going to have the full subsidy. But it's people in the middle class whose income is a little above 400% of the poverty line and suddenly have no subsidy available. That is a hardship for, again, millions of people.

So far we know that enrollment on the exchanges that were set up to buy health insurance has dropped by about three million so far. Probably a lot more to come. And probably that understates the loss because people trying to save money because things are more expensive are in many cases stepping down to less comprehensive plans. So there's an increase in the number of underinsured too. Which means that a large number of Americans who had adequate health insurance no longer do.

How should we think about all of this? The Trump administration has put out a report on the decline in Affordable Care Act enrollment, which is really a blood-boiling document because it portrays the big rise in enrollment that took place during the Biden years as a problem because it was an increase in fraud.

Now, is there fraud? Yes, there's fraud in the Affordable Care Act. Is there fraud in the food stamp program? Yes — there's fraud in every program, public and private sector as well. There's fraud in the endless pasta deal at Olive Garden. There's fraud in frequent flyer schemes. There is no reason to believe that there is significant fraud in the sense that it's a significant, important part of any of these programs.

And one thing that you always want to bear in mind when we're talking about these means-tested programs is how cheap they are. The average food stamp recipient receives $187 a month in nutritional assistance — $187 a month, a little over $2,000 a year. Maybe one way to put that in context is to say that Donald Trump's East Wing Ballroom Project, the one that is so far still just a hole in the ground and hopefully will never be finished, is costing $600 million. So that project alone, that scam, because we know that there's a lot of corruption involved, that is the equivalent of food stamps for 300,000 people for a year.

So the things that we're talking about here are, it's not really about the money. It is one of those “the cruelty is the point” stories. And we could go on about that, but clearly the fact that a lot of people are going to suffer is not an unintended byproduct of these policies. It is kind of, in some ways, the goal.

It's also enormously destructive, not just for people's lives now, but for the future.

One of the best established facts about the benefits of government spending is that nutritional and health assistance to children pays off for society as a whole. That children who received food stamps or Medicaid in their early years grow up to be healthier, more productive adults who pay more in taxes and are less likely to need government assistance. The rates of return on both the food stamp program and Medicaid, the original aid for health care for the poor, are enormous. They're far bigger, far better substantiated than almost anything else you can do.

If you ask, you know, what do we know about the payoff to infrastructure investment? Well, we think it's pretty big, but... that's not based on solid evidence. The evidence on these programs is enormous.

So by cutting back on these programs, by creating this explosion of misery, they're not only making millions of Americans much, much poorer than they were, they're also making the country as a whole substantially poorer in the long run. It's an anti-growth policy. But of course, the cruelty is the point.

And here we are. Many things happen to the economy, many things happen to society that are outside the control of the guy in the White House. Many bad things aren't really the fault of the party in power. This is absolutely, totally Donald Trump's fault.

Inauguration Day 2025 looked and felt like a coronation, as Donald Trump was installed in a position of immense, unprecedented power. Since he had returned to office despite the Jan. 6 insurrection, it was obvious that time-honored checks and balances on presidential authority wouldn’t apply to him. And the megabillionaires who had spent vast sums to assure Trump’s victory had no qualms about appearing as the new MAGA oligarchy. Through their political and monetary fealty to Trump, they had positioned themselves to dictate policy, free from petty democratic constraints and concern for public welfare. They evidently expected that they would spend years effectively ruling the nation in their interests, along with the president they had bought.

Now, a year and a half later, the oligarchs’ victory celebrations look premature. Newly elected presidents usually experience a few months of positive net approval, but Trump’s “honeymoon” barely lasted a month. He is now plumbing new depths of public disapproval:

Furthermore, Trump’s plunge is like a vortex pulling the entire Republican Party down with him. G. Elliott Morris’s model gives Democrats an 85 percent chance of taking the House despite extreme GOP gerrymandering. He also gives the Democrats a 55 percent chance of taking the Senate, despite its overrepresentation of small, rural states that strongly tilts its composition towards the Republicans.

And you know what has an even worse approval rating than Donald Trump? AI data centers:

There are substantive reasons to oppose these centers, but beyond concerns over rising electricity bills, pollution, water depletion and noise, the controversy over data centers has become a proxy for public backlash against the power of the broligarchs and their disregard for the welfare of ordinary Americans.

According to historical experience, this kind of massive shift in public sentiment should have induced hedging on the part of the big money. That is, based on past patterns we would have expected billionaires to give more money to Democrats during the midterm elections compared to the 2024 election as a way to maintain influence if the balance of power in Washington shifts.

But that’s not what is happening this time: instead, oligarchs are doubling down on MAGA. An analysis by the Washington Post finds that megadonors have already spent more than $1.6 billion on the November midterms. Here’s how that spending breaks down:

What’s the rationale here? Why are the billionaires doubling down in support of a hugely unpopular president and his hugely unpopular agenda?

This partly reflects a change in the nature of billionaires’ relationship with the extreme right. Twenty years ago American conservatism was dominated by a “What’s the Matter With Kansas?” strategy in which corporations and the wealthy used racism and bigotry to advance their goals — tax cuts and deregulation — without necessarily being racists and bigots themselves. Today Elon Musk isn’t putting on a show of being a neo-Nazi, because that’s who he really is.

Beyond that, Trump’s second presidency is so pervasively corrupt, abusive and destructive that it will be virtually impossible for anyone who supported him to move on and rehabilitate themselves. Outside of MAGA, who will ever be willing to trust Larry Ellison, Mark Zuckerberg or Jeff Bezos again? Frankly, what political hopeful would be stupid or venal enough to associate with them?

Indeed, I believe and hope that if Democrats regain power, they won’t repeat past mistakes by trying to “move on” from the corruption and scandals of the previous regime. It’s now clear that Biden’s Attorney General, Merrick Garland, enabled Trump’s return to power by slow-walking the investigation of January 6^th. Earlier, Barack Obama let Republicans off the hook by not pursuing the lies that led to the Iraq war. Let’s hope that this time the Democrats, once in control of one or both houses of Congress, will quickly initiate investigations, hearings and, where warranted, prosecutions. And it’s unlikely that Trump’s billionaire money men will escape unscathed.

So rather than trying to mollify the Democrats and defuse the coming political reckoning, the billionaire class is opening the money taps, going all out to prevent Democrats from being elected. And why not? For Musk, the Koch Brothers, Ken Griffin, Alex Karp and others hundreds of millions is pocket change, while billion-dollar business interests and, in some cases, possible criminal charges are at stake.

Rather than being daunted by the flood of billionaire money, Democrats should treat this as a campaign theme. Robert Reich had a good post yesterday titled “The Stink of Musk,” arguing that “Musk’s money shouldn’t be viewed as a problem. It’s an opportunity.” If Musk supports a candidate, that in itself can be used as an argument that said candidate is not on the side of ordinary Americans.

Reich is not only right, but the strategy of highlighting oligarch support as a reason not to vote for politicians can and should extend beyond Musk money. A case in point: when Forbes magazine finds it noteworthy that the likes of Ken Griffin, Stephen Schwarzman and Paul Singer are pouring large sums into Susan Collins’s campaign in Maine, there is an obvious case to be made that Collins is working for the billionaire class and not the working class, the middle class, or even the bottom 99 percent.

Just as the billionaires have come to the obvious realization that there is no turning back on MAGAdom, Democrats must also realize that there is no turning back on opposition to the billionaire agenda. Any failure to address corporate tax giveaways, shrinking paychecks, loss of healthcare, epidemics, loss of SNAP benefits and, yes, predatory data centers, will be perceived by ordinary Americans for the betrayal that it is. We, as a country, are at an unavoidable fork in the road. Perhaps we should extend some thanks to the billionaire class for clarifying that.

MUSICAL CODA

Nothing to do with the topic

Pew

Make America Great Again? Hah. Donald Trump has weakened us with astonishing speed. Under his “leadership” America’s influence, reputation and credibility have peeled away like the liner in the Reflecting Pool.

The disintegration of U.S. power was well underway before Trump started his war on Iran, but the pace of decline has accelerated sharply since the magnitude of our defeat started becoming apparent.

And when future historians write about this tale of self-immolation, they may well do so in Mandarin.

China hasn’t been a direct combatant in the third Gulf war, and its support for Iran has, until recently, been discreet. (China is now reportedly preparing to send Iran advanced munitions — Phillips O’Brien suggests that it is “going in for the kill.”) But China has clearly relished our humiliation. And both the way the war has played out and China’s role have drastically shifted the global balance of power in China’s favor.

China has been a serious geopolitical rival to the United States for some time. China’s manufacturing sector overtook the US in 2010, and the gap has continued to grow (I’ll explain the line labeled “US+EU” shortly):

And China’s role as the workshop of the world inevitably gives it a great deal of geopolitical influence.

However, there were a number of factors that, two years ago, arguably still gave an America a power advantage despite China’s economic weight and manufacturing prowess. These factors included:

· America still led the world in science and cutting-edge technology

· The U.S. military appeared to have vastly better weapons and leadership than any other nation’s

· The dollar’s dominant role in international transactions gave the United States enormous financial clout, including the ability to cut other nations out of the global payments system

· Above all, the U.S. wasn’t alone. We were the leader of history’s most successful alliance system, nations bound together not just by mutual interests but by shared democratic values

Yet Trump and his lackeys have quickly squandered all of these advantages.

A great deal has been written about the Trump administration’s attack on science, which is a topic largely separate from the Iran war. As one recent discussion put it, Trump officials

have orchestrated a series of attacks on scientists and their laboratories, implemented through funding cuts, grant interruptions, and immigration restrictions. Scientists are gravitating to Canada, Europe, and China, and we are rapidly losing the depth of our innovative and essential scientific community.

The undermining of other U.S. sources of strength was also underway before the Iran war, but the war has accelerated the downward spiral.

Even before the bombing of Iran began, some observers worried about the state of the U.S. military. Had U.S. military leaders adapted to the new world — revealed by the war in Ukraine — of cheap, ubiquitous drones? How much damage had the pro-testosterone, anti-intellectual leadership of Pete Hegseth already done? Now we know the answers to these questions, and America’s military reputation has nose-dived.

Oh, and as a December 2025 report from the Center for Strategic and International Studies points out, a Chinese supply chain underpins “the architecture of modern drone warfare.”

America’s dollar-linked financial power has also sharply declined. True, as I wrote a month ago, “The dollar’s role as the dominant currency for ordinary business is not under threat.” However, the war has demonstrated that, thanks in large part to China’s underlying economic power, America’s ability to weaponize the dollar has been greatly reduced:

Iran was able to continue selling oil (until the U.S. temporarily imposed a military blockade) and buying essential imports, despite U.S. financial sanctions, by taking payment in yuan and using those yuan to buy Chinese goods. Ships that paid Iran for safe passage through the Strait of Hormuz also paid in yuan (or in cryptocurrency, whose only real use case remains criminal activity.) The details are complicated, but using yuan essentially allows those designated by the U.S. government as rogue actors to fly under our financial radar.

Finally, the war has really put the nail in the coffin of the U.S.-centered alliance system.

America’s alliances have been a fundamental source of global strength since World War II. The line labeled “US+EU” in the chart on manufacturing value added is an indication of how much these alliances used to strengthen us: It shows that even now the US and the democracies of the European Union combined produce more manufactured goods than China, a lead that would be larger if I included the UK, Japan, Canada, etc.

But Trump began torpedoing our alliances on day one. Discussions of the Trump tariffs, even critical ones, don’t emphasize enough the fact that every one of these tariffs broke international agreements made by the United States in the past. So Trumpian tariff policy, by itself, was an announcement to the world that agreements with the U.S. government are worthless. Add to this the demands that Canada become the 51^st state, that Denmark hand over Greenland, and so on, and America had thoroughly lost the trust of its former friends even before the Iran war.

Then came the war. And in the past five months the U.S. has shown itself both erratic and ineffectual. Trump launched a war that, in addition to creating death and destruction, cut off much of the world’s oil supply without so much as consulting other nations. Once the war began, America proved both incapable of imposing its will on Iran and unable either to open the Strait of Hormuz or to protect regional allies.

So now the world neither trusts nor fears us. The chart at the top of this post, drawn from the Pew survey of global attitudes, shows views of the US and China in multiple countries. Even many of our oldest allies, the nations that helped us win World War II and the Cold War, now have a more favorable opinion of China than they do of us.

Let’s be clear: The end of U.S. leadership and China’s growing geopolitical ascendancy are bad things. China is a corrupt autocracy, with little respect for human rights and none at all for democratic values.

But people around the world have concluded that the Chinese are serious people, and that we are not. So America lost the war — and China won.

MUSICAL CODA

Economists have spent the past two centuries trying to explain that global economics is a positive-sum game. That is, my nation’s success needn’t come at your nation’s expense. In fact, a country’s economy usually (though not always) benefits from economic growth in other countries because growth abroad leads to an expansion of a country’s export markets and makes better, cheaper imports available.

However, this sunny view is based on the assumption that we care about economic prosperity, not national power. True, disregarding questions of national power made sense for about 70 years after World War 2. During those years the Pax Americana created ground rules under which wars of conquest, economic blackmail and coercion, and other direct international power plays were mostly ruled out. National ambitions were focused on raising living standards. “To get rich is glorious,” declared Deng Xiaoping.

That was then. Now there is a bloody war of attrition on Europe’s eastern flank, in which the outcome will depend in large part on which country, Russia or a Europe-aided Ukraine, can withstand the most economic punishment. Iran has weaponized its ability to close the Strait of Hormuz and threatens neighboring Gulf states. China has weaponized its dominance of rare earth production and is directly aiding Iran. And the United States, having abandoned the rules-based system it created, is using tariffs or the threat of tariffs to pressure other nations into knuckling under on multiple fronts: Donald Trump has tried to use tariffs to coerce Denmark into handing over Greenland, the EU into relaxing regulations on US tech companies, Brazil into letting Jair Bolsonaro go free, and so on.

In this newly confrontational world, interest in “geoeconomics,” the study of the ways governments can use national economic strength in pursuit of geopolitical objectives, is surging. Geoeconomics is the theme of the European Central Bank’s Annual Research Conference, being held next month, at which I’ll be giving a lecture. So I have been working on the topic, which I expect to be the subject of several primers, alternating with further work on American oligarchy.

Today’s primer will be devoted to a seemingly straightforward question: Who is the world’s leading economic power? There are three economic superpowers in today’s world: China, the United States, and the European Union. Which has the biggest economy?

Why does this matter? There isn’t a one-to-one relationship between the size of a nation’s economy and its geopolitical power. The US economy is immense compared with the Iranian economy, yet we all know how that conflict has gone.

Yet economic size is clearly an important factor in global power. Nobody imagines that Vietnam can have as much influence on world affairs as China, or Canada as much influence as the United States. The European Union, mostly acting in concert, has been able to give Ukraine enough aid to stymie Russia; Latvia, acting alone, couldn’t have done so.

Yet even answering the seemingly straightforward question of which nation has the biggest economy isn’t as simple as one might imagine. Different measures of economic size yield different results. According to some measures the U.S. is still #1. Other measures say China is far ahead. According to some measures Europe has been left far behind the U.S., but by other measures it is maintaining relative parity with America.

None of these measures is wrong in the simple sense of getting the facts incorrect. Rather, they give different answers because they measure different things. As a result, which measure one should highlight depends on one’s view of how power works in the modern world.

Today’s primer will not, however, delve into the logic of geopolitical power in today’s world. That’s for future work. Instead, today’s post is about who has the world’s biggest economy — and why different measures yield different answers.

Beyond the paywall I will address the following:

1. Comparing the three economic superpowers

2. The Europe-U.S. paradox, revisited

3. How big is the Chinese economy, really?

4. Dueling pictures of economic power

Read more

No podcast today. I’d like to say that I was struck speechless by the revelation that the no-bid contractor on the Reflecting Pool botched the job — and that the charges against David Hearn, falsely accused of sabotage, were Trumped up.

But the truth is that I couldn’t get it together because I caught some kind of stomach bug and spent a lot of the week kneeling before the porcelain throne.

Primer for tomorrow still on track.

CNBC

The Federal Open Market Committee of the Federal Reserve meets every six weeks to set interest rates — specifically the federal funds rate, the overnight rate at which banks lend each other money. The Fed funds rate has little direct economic significance, since nobody making important investments relies on overnight money. But an upward or downward change in the Fed funds rate tends to drag longer-term rates up or down with it. Even more important, FOMC decisions, along with their public statements, affect the market’s expectations about future monetary policy.

Setting such expectations is one of the major roles of the Fed. So FOMC decision days are something of a theatrical performance. The committee doesn’t just announce its interest rate decision. It releases a statement explaining that decision; then the Fed chair holds a press conference, in which he or she tries to build credibility by answering reporters’ questions. Market traders closely analyze these statements in order to predict the future direction of inflation and monetary policy. As a result, FOMC decisions and statements have critical influence over current market rates.

On Wednesday Kevin Warsh, who Donald Trump selected as Fed chair, played the starring role. His job was to explain why the Fed didn’t raise rates in the face of inflation that is persistently well above its 2 percent target.

By all accounts he bombed. In particular, the bond market, the ultimate reviewer, really didn’t like Warsh’s performance. As the chart at the top of this post shows, the 30-year Treasury rate spiked and the dollar fell slightly. In plain English, this was the equivalent of bond market traders running for the exits.

A little background is in order to understand exactly what happened here. At 3.7%, inflation has been persistently well over the Fed’s 2% target rate — largely as a consequence of Trump’s tariffs, which have raised the prices of imports, and his Iran war, which has caused energy prices to soar. The Fed normally raises interest rates to fight inflation. But it instead left rates on hold in this meeting.

The truth is that the case for an immediate rate hike was somewhat iffy. When a spike in inflation is temporary and will soon fade away from its own accord, the Fed tries to “look through” this temporary shock and not base interest rate decisions on it. Both the Trump tariffs and the energy price spikes are arguably one-time events. But whether the inflation shock is truly transitory is not certain. Thus three of the FOMC’s 12 members dissented and called for a small rate hike. And it’s important to note that three dissents is a lot. This was the first time since 1970 that a new Fed chair faced three opponents to an early interest rate decision. Yet Wednesday’s decision not to increase the federal funds rate was widely expected, and shouldn’t have rattled markets.

But the bond market was indeed rattled. Its reaction indicated that traders believe that there is a good chance that the Fed is going to keep rates too low for too long and thereby feed inflation. As a result, the Fed will eventually be forced to raise future rates to a higher level than if it acted to rein in inflation now.

So it’s clear that the bond market reaction wasn’t a judgment on the rate decision itself. It was, instead, a judgment on Warsh. In other words, Warsh’s remarks on Wednesday led the market to distrust his commitment to fighting inflation.

When Trump selected Warsh, I noted that Warsh had been completely wrong about monetary policy in the aftermath of the financial crisis. He called for rate hikes, which was the exactly wrong policy for a deeply depressed economy. He warned about inflation; when the inflation didn’t materialize, he just came up with new arguments for the same policies. I didn’t mince words about the consequences of choosing Warsh as Fed chair:

Many media reports are describing Warsh as a monetary hawk. That’s a category error. Warsh is a political animal. He calls for tight money and opposes any attempt to boost the economy when Democrats hold the White House. Like all Trumpers, he has been all for lower interest rates since November 2024.

As I pointed out at the time, other independent economists had similar things to say. So how did he end up at the top of the Fed? As I noted,

[Warsh is] an effective bullshitter. Sorry for the technical language, but I can’t find another way to say it. Listen to Warsh on economic policy, and he throws around a lot of big words that presumably sound impressive to people who don’t know anything about the subject. But there’s no coherent argument behind the verbiage.

What Warsh really needed to do in his press conference was refute the critics and show that he was more than a partisan who got the job in part because Trump thinks he looks the part. He failed.

Warsh didn’t necessarily need to advocate a rate hike. But he has harshly denounced the Fed for acting too slowly to tame inflation in the Biden years. Now he finds himself in a superficially similar situation, so at the very least he needed to explain clearly why he thinks this time is different. Instead, his performance at the press conference was stumbling, confusing, and evasive. At times he seemed to suggest that the Fed doesn’t need to do anything to control inflation, a total contradiction of his previous critiques.

Scattered reports also suggest that Warsh is failing to gain the respect of his colleagues at the Fed. Three dissents is, as I said, a lot. One Fed governor, Chris Waller, mocked Warsh’s plans to set up multiple task forces to study key issues. According to the Wall Street Journal,

What’s the point of all this, [Waller] asked. Tell me who you’re putting on these groups, he said, and I’ll tell you what they’ll say. There were no brilliant ideas out there that everyone had somehow missed.

And Lorie Logan, the president of the Dallas Fed, made a point of concluding a recent speech by reminding the audience that

Neither I nor any other single person makes monetary policy on their own in the United States. The Federal Open Market Committee is a committee.

Whatever she meant by that, the audience surely heard it as saying, “Don’t worry, Warsh isn’t really in charge.” That’s reassuring if one doesn’t trust his judgment, but it also means that he won’t be an effective leader if we face an economic crisis.

Now, Warsh isn’t Trump’s worst appointment, by a long shot. Even among the economic appointments, he’s nowhere near the depths of corrupt sycophancy plumbed by Scott Bessent, the Treasury secretary, and Howard Lutnick, the Commerce secretary.

But the markets were looking for some sign that Warsh isn’t the lightweight bullshitter he appears to be. What they got instead was evidence that Warsh is no better than he seems. And let’s hope to God we don’t have another economic crisis while he is at the helm.

MUSICAL CODA

The Covid vaccine didn’t work, and vaccines cause autism. But hydroxychloroquine worked, and so did ivermectin. Anthony Fauci killed millions of people.

Climate change is a hoax. Wind power caused a massive TV blackout during the Trump-Biden debate. Solar power is useless because the sun doesn’t shine at night, and batteries don’t exist. Smoke blanketed North America, not because of climate change, but because Canada didn’t rake its 2 million square miles of boreal forest.

We’ve destroyed Iran’s military, and the Iranian regime is begging for a deal. Also, the U.S. isn’t running out of precision weapons as a result of the Iran war, and furthermore the shortage is Joe Biden’s fault.

The economy is in a “golden age.” Prices are down. And Trump has a 59 percent approval rating.

Trump won the 2020 election.

Communism is the greatest threat facing America.

The modern American right is very good at hating. MAGA hates immigrants (unless they’re white South Africans); it hates liberals; it hates scientists.

What the ongoing show trial of Fauci — which motivated this post — has really driven home, however, is that what Trump and his supporters hate most of all is reality. They know what they want to believe. They fly into paroxysms of rage whenever someone points out that the world isn’t what they want it to be. And they always want to shoot the messenger.

Of course, motivated reasoning isn’t confined to the right. Some people on the left insist that zoning restrictions have no role in causing high housing prices, that it’s all about Wall Street greed. Many centrists insist that being in the middle on a left-right scale — which isn’t even how most voters think about politics — is the secret to electoral victory. And so on.

I’m not immune to the temptation to believe what I want to be true. I try to fight it, but don’t always succeed. Still, I try to acknowledge and admit it when I have let wishful thinking warp my judgement.

But what we’re seeing now isn’t run-of-the-mill motivated reasoning. It’s something far more extreme.

If believing something suits MAGA’s prejudices and interests, they don’t hesitate: they simply insist that it’s true. They routinely dismiss scientific and statistical evidence, but they don’t stop there. They’re perfectly willing to deny reality even if the truth is staring them in the face.

Thus, Trump urged Americans to remember that 2024 TV blackout, which nobody remembers because it didn’t happen. He insists that California has “blackouts and brownouts every weekend,” when the state’s 39 million residents can tell you it doesn’t. He says that you must show ID to buy groceries, which everyone who buys their own food knows isn’t so.

Do Trump and his followers actually believe these things? As I see it, that’s a category error, starting from the presumption that they even accept that objective facts exist. All the evidence (Hah! “Evidence!”) says that they don’t.

George Orwell, whose work seems more relevant by the day, knew all about this mindset. In his essay “Looking back on the Spanish war” he wrote about how the rise of totalitarianism had changed the rules:

In the past people deliberately lied, or they unconsciously coloured what they wrote, or they struggled after the truth, well knowing that they must make many mistakes; but in each case they believed that ‘the facts’ existed and were more or less discoverable. And in practice there was always a considerable body of fact which would have been agreed to by almost everyone.

Totalitarians, however, denied that objective facts existed. Furthermore, reality is mutable, changing with the leader’s whims:

If the Leader says of such and such an event, ‘It never happened’ – well, it never happened. If he says that two and two are five – well, two and two are five.

If you find the assertion that MAGA has a totalitarian mindset over the top, all I can ask is, have you been following the news?

What’s remarkable is the extent to which Republican politicians act as if they are living in a totalitarian state, when they aren’t — not yet, anyway. ICE would clearly like to be an American Stasi, policing any deviation from the party line, but it’s not able, so far, to arrest members of Congress who express skepticism about the president’s claims. And many Republican politicians still, I believe, know the difference between fantasy and reality.

But they behave as if they were courtiers to Kim Jong Un. Trump speeches are sometimes followed by “endless applause moments,” because none of Trump’s loyalists wants to be seen as the first person to stop clapping.

The susceptibility of the GOP to this totalitarian mindset has come as a surprise even to cynics. I have some idea of how this happened: It involves a confluence of big-money corruption, crony capitalism, religious fanaticism, and the ever-present forces of racism and sexism. But that’s a subject to be delved into another day.

What’s clear is that the war on reality is exacting a high price on America as a whole.

Remember, 1.2 million Americans died from Covid — a number that would have been much lower if MAGA misinformation hadn’t caused so many people to refuse vaccination. Now we’re seeing a frightening rise in measles and other infectious diseases, and God help us if another pandemic strikes with Trump or his successor still in charge.

Climate denial and hostility to renewable energy will mean more pollution even as it consigns the U.S. to energy and economic backwardness.

And the Iran war — which Trump started and now refuses to end because he won’t accept reality — has destroyed America’s credibility and depleted our weapon stocks with stunning speed.

But anyone pointing out the obvious is, of course, a Communist.

MUSICAL CODA

Used this before, but different performance

The technology everyone calls AI is remarkable, especially to those who remember the long, depressing history of previous attempts to get computers to do even seemingly simple things, like recognizing the same object seen from different angles, let alone recognize it as a member of a class of related objects.

Yesterday I gave Claude the image at the top of the post, and asked, “What is this a picture of?” Claude responded

A tuxedo cat (black and white) curled up asleep on a patchwork quilt, on what looks like a bed with a white metal frame. The photo’s a bit blurry/motion-blurred, but the cat’s clearly tucked into a tight, cozy sleeping curl with its face buried near its front paws.

Trust me, that’s amazing. I think it’s fair to say that even the leading AI innovators have been shocked by the power of simple arithmetic operations applied repetitively to massive amounts of data.

But even amazing technologies don’t necessarily yield big returns to investors.

The huge capital expenditures we’ve been seeing by AI and AI-related companies were only justifiable if (a) AI delivers big economic payoffs — which even pathbreaking technologies don’t always do — and (b) first-movers are able to capture a large share of those returns, rather than find them competed away by second-movers offering products that are cheaper and almost as good. In this case that especially means Chinese companies with lighter-weight models that use much less compute but do most of what ChatGPT and Claude do for a much lower price.

Here’s Korea’s KOSPI index, which — given Korea’s concentration on semiconductor production — has become a good barometer of expectations about AI capital expenditure:

Source: Bloomberg

This looks like a real crisis of faith. No, it doesn’t point to a U.S. recession, partly because so much of the AI investment boom has gone to imported equipment (hence KOSPI). But it does feel like the end of the early euphoria, of the triumph of hype over experience.

Busy day yesterday, so that’s all for today.