The picture above shows bodies of U.S. troops lying on the beach after the terrible first day of the Battle of Tarawa in 1943. This and other horrifying photos were released to the American public soon after the fighting. As the New York Times explained in 2023, these images

were barely censored before being shown to American audiences, and prompted outrage at home. Instead of scenes of victory, the American public was confronted by haunting images in which, as [one of the war photographers] described it, “riddled corpses formed a ghastly fringe along the narrow white beaches, where men of the Second Marine Division died for every foot of sand.”

Just a few months after the landings, a full-length documentary containing gruesome footage, “With the Marines at Tarawa,” was released in theaters.

In other words, in the middle of a desperate, existential war, the U.S. government believed that citizens had a right to know what was happening — up to and including seeing graphic images of ugly setbacks.

But that was another America.

Today Donald Trump, who now says that talks with Iran are “very boring,” insists that anyone questioning how his war is going is unpatriotic:

We used to be a serious country. Not anymore.

I’m bored with my job busy with personal errands today, so no full post.

There was a time when anti-immigration activists claimed not to hate immigrants as people. Their concern, they insisted, was only about illegal immigrants, the purported crime wave they caused, or the loss of jobs for the native born.

If you believed any of that, you were naive. The Trump administration is trying to drive out all immigrants, legal as well as undocumented, with almost no pretense that its pogroms serve any wider social or economic purpose. And I use the word “pogroms” deliberately. The MAGA anti-immigrant campaign relies on cruelty toward immigrants, the vast majority of whom are law-abiding and a key source of American prosperity. And it’s becoming increasingly apparent that the cruelty isn’t just instrumental. Rather it’s the purpose of the whole endeavor.

To understand what’s happening, a good starting point is the more or less official acknowledgement that virtually all immigrants — I’ll talk about the few exceptions shortly — are viewed as undesirables to be pushed out in any way possible. The New York Times recently published an article with the headline “Trump squeezes immigrants by cutting them off from jobs, health care and housing.”

As the article explains,

For more than a year, administration officials have sought to pull every bureaucratic lever possible to cut off immigrants — both documented and undocumented — from jobs, medical care, financial services, tax credits and even from enrolling their children in day care. The goal has been to compel immigrants to leave the country, and, in the long run, to eliminate incentives that draw many people to the United States in the first place.

According to the Times, Stephen Miller, Trump’s immigration czar,

has asked White House officials to work with federal agencies to make sure they are using regulations against immigrants throughout the areas of American life they oversee

So Federal policy at all levels, including policy tools that were never intended to be used for immigration enforcement, are being weaponized against anyone born outside the US — and some people born here, including American-born children. These days I am rarely shocked by Trump administration actions, but this is truly shocking:

Federal officials are planning regulatory changes to prevent American-born children from receiving federal day care subsidies if one or more of their parents are not citizens.

So we’re going to deny care to children born in the United States — that is, birthright citizens — if they have foreign-born parents, presumably even parents who came to America legally. What’s next? Will these children be required to wear labels on their clothing to reveal that they had a foreign-born parent? A latter-day Star of David badge?

Beyond trying to make daily life for immigrants impossible, the Trump administration is trying to terrorize immigrants into leaving.

We have only fragmentary information about conditions inside ICE detention centers, largely because ICE has repeatedly blocked independent investigation of what’s happening in these facilities — it has, in particularly, repeatedly broken the law by denying access to members of Congress. A few days ago federal agents pepper-sprayed Sen. Andy Kim outside the Delaney facility in Newark, New Jersey. ICE is also playing hide and seek with detainees, repeatedly transferring themamong facilities to make it hard for families and lawyers to track them down. And there have an alarming number of detainee suicides.

Efforts to suppress information about detainee conditions are implicitly an admission that these conditions are terrible, that reports of severe overcrowding, lack of medical care, and insufficient and tainted food are true.

According to one detainee, a guard told him that

It’s part of my job. I have to make your life miserable so that you request your own deportation.

Everything we know suggests that this quote is an accurate description of what’s happening.

And the campaign of harassment and terror against immigrants is working. ICE doesn’t have to be able to find and arrest every immigrant to make life in the United States impossible to endure, just as Iran doesn’t have to be able to target every oil tanker to make passage of the Strait of Hormuz too dangerous to try. Net immigration into the United States has probably turned negative — that is, more people are leaving the country than entering.

The Trump administration is pleased. In March it issued a press release hailing Census estimates that show plunging net immigration across U.S. metro areas.

There were two notable features of the release’s triumphalism. First, it hailed falling immigration in general — nothing about distinguishing between legal and illegal entry to the United States. Second, it said nothing — nothing at all — about why falling immigration should be considered a good thing.

The truth is that none of the claims made by anti-immigration hardliners about the benefits of driving the foreign-born away has survived contact with reality.

The virtual end of net immigration hasn’t led to a boom in jobs for the native-born. Growth in the working-age population has stalled, but so has job creation, and the employment rate for native-born adults is lower, not higher, than it was before the pogroms began:

And the idea that immigrants are, as a group, especially crime-prone, has been extensively debunked. Notably, cities like New York that have huge immigrant populations also have very low crime rates by historical standards.

It’s important to realize that the pogroms, aside from objectively failing to help native-born Americans, aren’t popular. Donald Trump’s approval rating on immigration, which was positive when he took office, is now deep in negative territory.

And the American people are, in general, much more benign in their views about immigrants than the likes of Stephen Miller. On one side, we have the Trump administration trying to deny child care to children of all immigrants. On the other, according to Gallup, 78 percent of adults believe that people who immigrated illegally should nonetheless have a chance to become U.S. citizens — and 85 percent support offering that chance to children brought in illegally by their parents.

So what is all of this about? A lot of it is racism. The Trump administration has essentially ended refugee admissions to the United States, with only one exception, for whom refugees quotas have been hugely expanded and backed by federal aid to immigrants: white South Africans. Need we say more?

And one final observation: The atrocities being perpetrated by ICE — atrocities that are almost surely far bigger and worse than we know about — are in part instrumental, a way to frighten immigrants into self-deporting. But is there any real doubt that mistreating and terrorizing people, especially people of color, is for some MAGA types a goal in itself — something they always wanted license to do?

As The Atlantic’s Adam Serwer wrote in a justly famous essay, The Cruelty Is the Point. And what does it say about us as a nation if we accept this?

Too angry for a musical coda today

The President of the United States is mentally ill, but everybody knows that. So while we should continue to focus on this degeneration taking place in front of our eyes, we should also, beyond that, ask what we can do about the powers, the interests, the system that put this horrifying person in a position of power.

Hi I’m Paul Krugman. First video update in a while.

It’s May 31st. If you have been following some of the news you may know that Trump’s mental deterioration, which has been obvious for quite a while, got even more extreme in the past few days. Tellingly, the things that are really driving him into more obvious dysfunction are things that are blows to his ego. I was especially struck — I was rattled actually — by his reaction to the wave of artists canceling out on the self-glorifying concert series he’s holding on the mall.

So, if you haven’t seen it, here’s what he said on Truth Social: That artists are “getting the yips” and

I am thinking about bringing the number one attraction anywhere in the world the man who gets much larger audiences than Elvis in his prime, and he does so without a guitar, the man who loves our country more than anyone else, and the man who some say is the greatest president in history, Donald J. Trump.

Oh my god. I would not want to trust this guy alone in a room, let alone running the world’s formerly greatest power, although he’s doing a lot to run that into the ground.

Okay, but we knew that, right? It’s not really a surprise to find out that he has lost his mind, what was left of it. And yet, he is in power. People who did a lot to put him in power did so, knowing this — the billionaires who contributed vast sums of money to his campaign, the Supreme Court which gave him immunity back in 2024 — they all knew who they were doing this for. They understood what they were doing. Now, maybe, even they are getting a bit of cold feet as as he goes over the edge and as we’re starting to see in Iran and elsewhere what happens when you have a lunatic running the United States, a lunatic who has far more power than a previous president because all of the normal institutional safeguards have been short-circuited or dismantled.

Still, they are continuing to support him, and they are continuing to do so not just in concrete ways, but verbally, which matters. They continue to cover for him.

Just the other day, Jeff Bezos — who is not an idiot; he has to know what he’s looking at — but he said, oh, Trump is much more mature than he was in his first term, which is obviously a complete lie. That is not what Jeff Bezos thinks. And it’s telling you that he is still providing cover.

The Supreme Court, although it’s been knocking back a few things, is for the most part continuing to give Trump treatment that it would never have accorded, not just to any Democratic president, but to any previous Republican president.

Okay, this is not coming out of thin air. These people — I’m not talking about Trump but people who are empowering him — are not stupid. Some of them are weak but they are also acting because they think there’s something in it for them.

All of this at some level is about money and power for people beyond Trump. And it’s made possible by the fact that there is so much money in the hands of a few people, many of whom turn out, not too surprisingly, to be terrible, insensitive, anti-democratic people themselves.

Obviously, we need to defang Trump as much as possible and make sure that neither he nor anybody who follows in his footsteps has power after the next two elections. But beyond that, we really need to do a thorough purging of the United States. We need a deMAGAfication. And I’m not going over the top by using a word that’s very similar to the denazification that we pursued successfully after World War II in Germany.

And it’s not just the MAGA ideology, but the whole structure of hugely unequal power, hugely unequal wealth that made this horrific moment possible.

It’s not going to be easy, and maybe it’s not going to be doable, but we have to try because this is a nightmare. This is a nightmare beyond, I think, even the worst fantasies of progressives, beyond the worst fantasies of conservatives who still have a conscience. (There still are plenty of those, but they’re no longer MAGA.)

This has to be turned around and we should not, above all, whitewash or forget this moment. This is where a lot of forces in America have been leading and if we don’t do something beyond just getting rid of Trump, it’s going to happen again.

Have a good rest of your weekend.

“To understand why people are so miserable about the economy,” Greg Ip recently wrote in the Wall Street Journal, “look no further than Thursday’s report on gross domestic product. Not how much GDP grew, but how it was divvied up.” Ip went on to document the growing divergence between wages, which are a declining share of national income, and corporate profits, which are taking an ever-larger share.

It’s not clear how much trends in the division of the economic pie between capital and labor — what economists call the factor distribution of income — are driving current economic discontent and anger. But there’s a growing public sense that the system is unfair and rigged against ordinary people. This sense partly reflects the reality that a rising share of economic rewards is going to shareholders as profits rather than to workers as earned income. It also reflects the fact that, even as a growing share of income accrues to wealth, within the growing upwards distribution of income within, there is growing concentration of wealth at the very top. In other words, a rising share of unearned total income is going to a very small number of people.

As a result, it is now widely recognized that the U.S. economy is far more unequal than it was a few decades ago. However much of the discourse about inequality is still stuck in the past — shaped by the perception that rising inequality is largely a consequence of greater inequality in paid income. According to the prevailing yet misguided story, rising inequality is due to higher earnings of those with more education.

That story was never entirely true even in the past. But to the extent it was ever true, it mainly explains rising inequality between around 1980 and 2000. Since then, and especially in recent years, the main story is one of rising oligarchy: more and more of the economy’s rewards are going to a small group that overwhelmingly derives its income from the assets it owns.

And the reality of rising oligarchy is important, not just for explaining current malaise, but for thinking about the possible implications for the future, especially the impact of AI.

Beyond the paywall I will discuss the following:

1. The old, earnings-based inequality: The big rise between 1980 and 2000, and its limited relevance since then

2. The economics of rising profits and stagnant wages

3. The growing concentration of wealth

4. Will AI produce an inequality apocalypse?

5. The political economy of oligarchy

Read more

A note for most readers: This is inside economics baseball football, a discussion mostly among professionals — and covers issues that even economists seem to be perplexed by. You have been warned.

Phillipe Aghion, Antonin Bergeaud and Luis Garicano have written a response to my discussions of the Europe/US productivity gap. I respect their standing as serious analysts, who have produced a body of valuable work.

Yet I found their article baffling, because their arguments appear to rest on the same confusion about the implications of different national productivity trends that I am trying to clarify. In fact, their apparent confusion about the point that I am making – that people often misunderstand what productivity trends mean for cross-country comparisons -- is reflected in the very title of their article, The Mismeasurement of Europe’s Productivity.

Let me be clear: I am not arguing that European productivity is mismeasured, and never said that. I am, instead, arguing that standard measures of productivity do not have the implications for cross-country comparisons of living standards and economic welfare that many people – including many economists – think they have. To put it a slightly different way: people are using data that is unsuited for the kinds of comparisons that they are trying to make. Thus, the conclusions that they are drawing from the data are misguided. But this is not to say that the data are wrong.

The apparent misunderstanding by Aghion et al of what I am trying to say is also reflected in their discussion. Their presentation mostly centers on arguing that European productivity growth is in fact lower than US productivity growth. This is puzzling, because I am not arguing that European productivity growth matches or exceeds US productivity growth. Like Aghion et al, I am fully aware that European productivity growth is lower than in the U.S. But this is not the actual issue that I am trying to address. My question is whether the standard comparison of European and US productivity growth rates is a good indicator of what is actually going on in the two economies over time.

From my viewpoint, the starting point for the debate on the relative performance of the EU and the US should be the acknowledgment that a comparison of US-Europe productivity trends looks very different if you use two different metrics.

One method is to compare the growth in inflation-adjusted GDP per hour within countries. This is a standard way to make cross-country comparisons, but one that answers the wrong question. The other method is to compare the year-by-year value of output per worker-hour, adjusted for differences in national price levels to control for exchange rate instability, but not for changing price levels over time. This measure is, I would argue, much more meaningful for comparing trends in economic welfare across countries.

You might think, and I suspect that many observers have assumed, that these two approaches tell similar stories. But they don’t.

I’ve been in the Netherlands recently, looking at Dutch data. As a high-productivity nation with much lower measured productivity growth at constant prices than the US, the Netherlands, it turns out, offer a kind of reductio ad absurdum for many US-EU comparisons. So I’ll initially focus on Dutch data to make my point, although the basic story applies to much of the EU.

Let’s look at OECD estimates of GDP per worker-hour in the US and NL, adjusting the data two ways. The first (the blue line) looks at the ratio of NL to US productivity year by year at current prices, adjusted only for purchasing power parity. By this measure, Dutch productivity is slightly higher than US productivity now, probably because of the presence of highly capital-intensive industries associated with the port of Rotterdam. NL productivity was also slightly higher in 2000, with no significant trend:

Suppose, however, that we measure GDP and hence productivity growth adjusting for national inflation rates (the black line). The OECD uses 2020 as a base year, so the two measures of relative productivity are equal in that year. But as we move back in time, they diverge. By this measure, Dutch productivity was 25 percent higher than US productivity in 2000.

Was the Netherlands drastically richer and more productive than America a generation ago? I doubt that many people would agree with that proposition. It’s certainly not what people believed at the time.

But if you find this proposition implausible, you must also concede that the conventional understanding of the implications of differing productivity growth in Europe and the US is highly problematic. If we want to compare relative economic welfare in two countries over time, surely we want to compare the value of the goods each worker can produce in any given year, tracked over time.

Think about it. Do you really want to claim that Dutch workers were much more productive than U.S. workers in the year 2000 because the goods they produced per hour, although roughly equal in value to the goods produced per hour by US workers at that time, would eventually be worth much more than US production at prices that didn’t prevail at the time — but would prevail two decades later, in 2020? Huh? Yet, when using constant-price productivity comparisons, that is exactly the claim that people are making.

Now, I have tried to explain the apparent paradox that Europe has lower productivity growth than the US but has not seen a decline in relative output per hour at current prices by pointing to the fact that the US and European economies produce different mixes of goods, with the US mix tilted toward high-tech goods with rapid productivity growth but falling relative prices. I’m open to alternative explanations of the US-EU paradox. But the paradox is there and needs explanation.

OK, as I read Aghion et al they offer four criticisms of my analysis, as follows:

First, international comparisons of GDP using purchasing power parity are problematic and unreliable: This is, of course, true. But estimates of real GDP, which are supposed to let us compare GDP within a single country in different years, are also, and I would argue equally, problematic. In a sense both comparisons of different national economies at a single point in time and comparisons of a single national economy at different points in time are imperfect metaphors resting on imperfect numbers. But I’m not aware of any reason to believe that these imperfections bias the comparisons I’ve been making in any systematic way.

Second, productivity at constant national prices has risen much faster in the US than in Europe. Why, yes. That’s not a refutation of my analysis, it’s precisely where I started — I wanted to understand how to reconcile these different rates of productivity growth with the fact that relative European productivity and purchasing power at current prices have not declined. The same data that underly the chart above show this for US and NL productivity at 2020 prices:

These numbers show US productivity rising 1.6 percent per year, while NL productivity rises only 0.6 percent per year. But that comparison is already incorporated in my discussion. So citing such numbers as a supposed refutation of my analysis simply misses the point. In particular, I have no idea why Aghion et al believe that a table showing multiple estimates of higher productivity growth in the US contributes to the discussion.

Third, “Current PPPs and national deflators are giving sharply different answers to what at first sight looks like the same price question, but as we saw, is not.” Indeed. That’s exactly the point I’ve been trying to make. The important point is to ask which is the right question — and if we’re asking whether Europe is falling behind in purchasing power and living standards, PPPs, which say that it isn’t, are the right measure.

A related point: Aghion et al assert as a problem with current-price comparisons that “If the US produces more of the goods whose prices fall rapidly, then valuing both economies at today’s prices can make part of the earlier volume gain look smaller.” Color me confused. That’s not a problem with these comparisons — it is precisely the mechanism I invoke to explain the apparent US-EU growth paradox. See the formal model I laid out!

Finally, Aghion et al assert that the U.S. lead in technology “has led to higher US wages and profits, and the gap is widening each year.” OK, that’s the crux of the discussion. But this assertion — which they don’t back with any data — is simply untrue. And I began this whole discussion with the observation that it isn’t true. The sum of profits and wages is factor income, which is by definition equal to GDP. Let me switch from the Netherlands to the euro area as a whole, which has somewhat lower GDP per capita than the US adjusted for differences in the price level. But this gap has not widened over time:

Or, if you want an independent data source, look at mean household income as estimated by LIS, the cross-national data center in Luxembourg. Between 2000 and 2021, these data show nominal income rising 3.1 percent annually in the Netherlands, 3.3 percent in the U.S. Given slightly lower inflation in Europe, this does not show a widening gap. My guess is that people simply assume that the gap must have widened because they know about the standard productivity growth comparisons. But my whole point is that these comparisons don’t mean what people think they mean.

The bottom line here is that while I could of course be wrong about the US-EU comparison, the Aghion et al critique doesn’t make the case that I’m wrong. The data that they claim refute my argument are basically the same data I used to make that argument and are completely consistent with what I’ve been saying. They are, in fact, exactly what my attempts to model the paradox predict we’d see.

Again, I’m quite willing to be proved wrong. But if we’re going to have a serious discussion, the critiques have to go beyond simply restating productivity data that show Europe lagging. They need to acknowledge the reality that despite these data, comparisons between the US and Europe at each point in time don’t show the gap between Europe and the United States widening, and at least try to explain why.

I spoke with them last week about their book and the world in general. Fun stuff in a slightly grim way, and I hope we kept the acronym level tolerable. Transcript provided by the Financial Times, lightly edited to remove the ums and ahs. u

TRANSCRIPT

​

Paul K: Hi everybody. I’m Paul Krugman, professor at the City University of New York, and an independent newsletter writer on Substack. You might have noticed that I’m not Soumaya Keynes, host of The Economics Show podcast. I’m here with Soumaya, as well as her longtime collaborator, Chad Bown, who is a senior fellow at the Peterson Institute for International Economics, formerly chief economist at the US State Department. Together, these two have just written a book called ‘How to Win a Trade War’, and today we’re going to be asking just that. How do you win a trade war? Soumaya, Chad, hi.

Chad Bown: Hi, Paul!

Soumaya: Hi!

Paul K: So maybe I can start by asking a slightly funny question, which is, who are you? I know you’re Chad and Soumaya, but when we talk about how to win a trade war, who is this? You know, who’s the audience? Presumably not actually Donald Trump. It’s probably not Xi Jinping. I mean, everybody should read it, but who do you think might, in some sense, read it or at least be briefed on people who’ve read it?

Soumaya: Well look, if Donald Trump wants to read the book, then we are very willing to sign a copy. We’ll hand deliver it however he wants. The conceit of the book is that you, the reader, are really interested in fighting a trade war, right? And we are the two nerdy kind of reluctant guides saying, “Uh, if you really want to do it, then, you know, we’ll give you the evidence that you need. We’ll tell you everything there is to know,” You know, it’s not easy to fight and win a trade war. Um, and so, you know, at least arm yourself with the evidence of what’s happened in the past, what works, what doesn’t work. We kind of acknowledge that most readers may come to this not actually wanting to fight a trade war, right?

Um, so the point is it’s for... You know, it’s to help people understand, how to navigate this world of economic conflict as I feel like, you know, many people have become unwilling participants in these massive, massive geopolitical conflicts. It can be a bit bewildering. So the book is really supposed to be for everyone, right? To understand how we got here and where we go next.

Paul K: Okay. Because yeah, I found myself thinking that it was easier somehow to follow the line of argument is to think of myself yeah, still a little bit of delusions of grandeur, but imagine myself to be Mark Carney, Prime Minister of Canada, or to imagine myself as Ursula von der Leyen, uh, uh, making policy for the EU.

But basically, you’ve got these two powers. We’ve got the United States, which is basically Donald Trump, and we’ve got China, which is a little bit more of an institutional thing. But they are certainly waging something that they consider trade wars.

Let’s talk a little bit about, how did we get here? How did we get to this point? I think, if we were holding this conversation around ten years ago, it mostly would have been, “Well, we’re economists. We understand free trade is great.” Uh, maybe fifteen years ago, even more so.

And, so you know, the answer is just, “Don’t do this, free trade.” So I think all three of us probably have had some visions on the road to Damascus about why that isn’t an adequate approach. Anybody want to start off on that?

Chad Bown: Maybe I’ll take a stab first. Um, so I guess to answer the question, we have to talk about what trade war we could or should be fighting because there are, I think, arguably multiple trade wars happening right now. You’ve got President Trump doing a lot of things. Um, but beneath, behind that, there’s another really big trade war that’s happening, and that’s the one having to do with China.

So let me start there. Um, I would say, and it’s not as if I noticed this at the time, but say in 2015, when China rolled out its Made in China 2025 strategy, industrial policy that said, you know, we’re gonna have these market share targets to dominate certain important sectors of the future, that was kind of a sign that China was thinking about things differently than I think other, other, traditional, the United States and others had been.

And then you fast-forward a couple of years with, Xi Jinping and his “dual circulation” strategy more clearly articulating the idea that China did not want to be interdependent with the rest of the world. It wanted the rest of the world to be dependent on China for their supply chain, so the United States to be dependent on China for sourcing stuff, but China to not have dependencies on the rest of the world.

When you start to think about a functioning trading system, as we’ve lived in for the post-war period since the, the late 1940s, it requires rules, all those things, but it also fundamentally requires a willingness to be interdependent, right? And to trust that I’m gonna export to you, you’re gonna import to me, and, and yeah, there’ll be sometimes some frictions, but by and large, that will be okay.

And China was saying, “No, we wanna have an asymmetric relationship, we wanna do what we wanna do, but we’re not all that interested in what you wanna do.” So for me, it was kind of seeing those things that really made me think that, ah, the world has changed. We’re in some sort of trade war, and really China is the part that’s driving this.

Soumaya: So my journey, I think, um, you know, there was an important moment for me in the first Trump administration, right? And so, you know, Trump, ran onto the scene, during his first term and started throwing tariffs at China predominantly. And you know, Chad and I had this podcast about trade, and we were the loudest voices saying, you know, “What are you doing? You gotta play by the rules, why not try to use the rule book to solve these underlying structural problems that we have with China?” Um, and you know, I was covering trade full-time at that time, and, you know, something that was happening behind the scenes, um, was that there were efforts to try and get some kind of coordinated plan to save the rules-based system, to try and solve some of the structural problems between China and the US by writing new rules.

So you had these trilateral discussions between the US, Japan, and the EU, and the idea was, okay, well why don’t we just write out the way in which we want China to behave, limits on subsidies, um, you know, new, new ways of protecting ourself against China’s subsidies. And the idea was, you know, they would agree on that common plan, then they might go to China and say, “Hey, look, we’ve got some new rules. You sign up to these, and look, President Trump will drop his tariffs.” That was the hope of some involved in that process. It certainly wasn’t Donald Trump’s plan. And I think, you know, a very fundamental way in which I have moved on from that is I just don’t believe that the solution to these problems lies in a new set of common rules that everyone is going to sign up to, right?

In fact, the Trump administration did go to the Chinese government with a list of requirements or requests in terms of, you know, China’s subsidy behavior, and the Chinese, you know, shredded it, right? They weren’t gonna change their system. and that’s really the backdrop to where we are today, which is, you know, the Trump administration, I think, pretty much most everyone else, has given up on the idea that the rules are gonna save us.

And that is kind of scary. It’s a bit, you know... It means that we can’t rely on the rule book to predict what’s going to happen next. It’s a much more chaotic power-based world, and we’re kind of feeling our way through.

Paul K: Yeah. Yeah, for what it’s worth, I, I’ve had sort of two moments of revelation about trade. One of them, which seemed terribly relevant but maybe a little less so now, was the work early 2010s on the China shock, where we started to realize that, hey, you know, the problems of adjustment and dislocation that come from rapid globalization are a lot bigger than… you know, economists have always understood that there were distributional issues, but they’re a lot bigger. And that, that was, that was revelatory and a bit of a shock. Um, but I think it’s actually not the core of the story now. And, and for me, the, the revelation was, um... It’s a little odd, but I’m gonna give you this, uh, really offbeat point at which I realized that we’re not getting this back, which was actually when Russia invaded Ukraine, when we realized, hey, this rules-based order, not just about trade, but everything.

We, sort of had taken it for granted that, all of the old stuff, all of the old demons had been banished. That we weren’t gonna have outright war in Europe. We weren’t gonna have countries just plain exploiting their power over trade for geopolitical gain. And, we now realize, I think I realized that, hey, all of that, all the things that we thought were fundamentals about the twenty-first century economy were actually basically dependent upon a benevolent hegemon. Not totally benevolent, not totally hegemonic, but still a lot of it depended upon basically the United States, which enforced the rules and obeyed its own rules for the most part. And, well, we’re not in that world anymore, not in Kansas anymore, among other places.

So it’s-- now it’s a much tougher world out there

Soumaya: Can I just add that I think economists have been on a sort of journey as well, right? Um, you know, and, and, and, you know, starting point, the starting point being, you know, your, your theory, right? We thought that one of the benefits of trade was, you know, agglomeration, right?

You know, huge efficiencies, huge economies of scale, that, you know, created these gains from trade and what we’ve seen now, I think, is that those agglomeration benefits are real, but in a world where we’re not friends with everyone and we don’t trust everything, they come with risk.

Where do you feel like economics has, has, has gone?

Paul K: Well yeah. I mean, it’s interesting. In some ways, the models were already there, and we understood that there are big advantages to agglomeration, although I think they’ve turned out to be bigger than we realized. And they, they really do... You know, I’ve been on my own little journey here about Europe versus the United States, and an astonishing amount is driven by, loosely speaking, the fact that Silicon Valley is on the US side of the Atlantic, right?

It’s just that there are some agglomerations that color all of the numbers. But in a world of open markets, agglomeration rules. Texas doesn’t obsess about the fact that California controls a lot of the IT sector. Why should Europe obsess about the fact that the United States controls a lot of it? But that was not the world that we’re living in now, where these things become very real. So the whole, Everything changes once you stop assuming that it doesn’t fundamtelly matter where stuff is produced. We’re talking a lot about high tech, but, if we talk about Chinese manufacturing ... It’s not just that China is good at a lot of stuff. China has a whole industrial ecosystem that gives them tremendous amounts of leverage in the world. I mean, China isn’t the only place that has rare earth deposits, but it’s the only place that has the industrial ecosystem that can process them at this point. And so that altogether, that creates a world where Section 232 and I think Article XXI of the GATT on national security -- I’m always testing my acronyms and numbers, uh, knowledge. But anyway, I thought if you’d asked me fifteen years ago, I would have said, “Well, all this national security stuff, that’s just an excuse. National security is the last refuge of the scoundrel.” But actually not now.

Soumaya: Yep

Paul K: So okay. Any other sort of revelations beyond the fact that, that it, it’s a scary world with nasty people in it?

Soumaya: So I have one which is, you know, you mentioned the, the China shock literature, right?

Paul K: Yeah

Soumaya: So this is this collection of papers showing the effects of, of, of imports from China.

Paul K: Right

Soumaya: And one paper that I thought was super interesting that came up as we were researching this book was, um, was about what happened in Canada, right?

When, when there was liberalization as part of, um,

Paul K: Oh Yeah,

Soumaya: Was it NAFTA or was it

Chad Bown: CUSFTA.

Soumaya: CUSFTA?

Soumaya: Yeah, so the predecessor, to, to NAFTA. Um, and actually, you know, this, this research found that, that the effects when, were really quite dissimilar from those China shock effects. People were able to adjust. There were export opportunities created by that trade deal.

People moved into those, those other industries. There’s also research looking at, um, you know, uh, liberalization and populism in, in Europe, right? And there seems to be this relationship between places that have stronger social safety nets, um, and the switch to right-wing parties. Um, and so, you know, I think one, one point that, that I would want to make is, you know, it’s important not to go to over-interpret what’s going on now and to kind of see it as this idea that, you know, all trade liberalization, you know, has losers and, and there’s just nothing we can do to, to address those, right?

There are cases where actually import liberalization, you know, we, we could cope okay with it, and economies adjusted and social safety nets worked. So I think it’s, you know, it’s important not to kind of over-correct after some of those instances where there was, you know, real pain in the past.

Paul K: I’m trying to remember how much in the book you really talk about the political economy of these-- the protectionist backlash. ‘Cause that is actually-- not as, you know, there was a simple story, “Oh, trade produces lots of losers, and now the public won’t have it.” And that’s not actually the story as far as I can make out. what did you say? I’m trying to remember the actual way you put it.

Soumaya: Chad do you remember, or shall I?

Chad Bown: No. Yeah. I mean, I-- Well, I mean, the, the story is that it’s complicated,right?

Paul K: Yeah

Chad Bown: And voters don’t, you know, kind of respond as cleanly as, you know, one might expect to what the economic implications are for them, right? And so one of the more recent China shock papers, in fact, has looked at the longer run impacts of the China shock and the reapplication of the tariffs in the first Trump administration, and has found that they didn’t really do the job of, you know, helping workers in those regions, right?

Didn’t improve employment or anything like that. But it did help President Trump’s party, in subsequent elections, right?

So there is maybe something to the idea that, well, okay, he may not be helping me, uh, you know, get a better job or, or my employment process, at least he’s fighting on my behalf, right?

And so what that means is it’s really messy to draw these links between all of this stuff in the political economy context.

Paul K: Okay, I didn’t know that. I somehow missed that. I know you did mention it, but it’s not so much if you look at kind of the vector of, of real wage changes or whatever, of employment changes, that that’s not, not really the story. It’s more about attitudes, sense of whether you’re led by somebody who’s standing up to foreigners.

I think in the end, the protectionism in the U.S. and I think in Europe is not really a, a mass public groundswell. There are parties who exploit it, but it’s not really this sort of simple deterministic, you know, losers fight back, and this is why we have a problem.

A lot of it more has to do with, again, the, the complexities of the political process.

Soumaya: Yeah, and so you can see this in, in, you know, both what’s going on in the US and, and also the EU. So if you think about what Trump did, right, he, he had to do this by using and arguably abusing, um, you know, arcane bits of US law, uh, because he didn’t have the support of Congress to, to apply these tariffs, right?

And so he kind of ran roughshod over the, the democratic process there. Um, uh, you know, in obviously in the case of IEEPA, that turned out to be overturned by the Supreme Court. and, you know, during the first Trump administration, companies were complaining quite a lot. I think during the second, those complaints were a little quieter. That’s probably some combination of, you know, worrying about retribution, but also maybe in some cases they adapted, right? And so I think one lesson of that episode could be that you may not have the constituents for protection at the beginning, um, but you could, you could develop those constituents if that protection is there for long enough. And then the contrast is with, is with what’s going on in Europe right now, right? There’s a huge discussion about whether the EU should essentially do more of what the US is doing and protect itself. And it’s just extraordinarily difficult, even though you’ve got these really acute problems, right?

German exporters being, you know, crushed in, in, in third markets. You know, the car industry really struggling to cope with that Chinese competition. and even then, right, even in the face of these really extreme Chinese export trends, even then it’s really, really difficult to get a consensus, right?

And so, it’s a question of, you know, can Europe ever act as decisively as the Trump administration? Maybe there’s a middle ground between kind of hopeless inaction and kind of maybe overaction? But yeah, that just speaks to that issue.

Paul K: Okay, we could go on. I actually just say quickly, the importance of institutional details, including the details of legislation that people wrote ago, uh, that were not intended for the purposes to which it’s being applied. It’s, it’s amazing. I mean, the fact that, that, uh, that Section 121 is written the way it, it is, and that IEEPA is written the way it is, suddenly turned out to be you know, the fate of the world is hinging on more or less accidental wording of decades-old legislation. It’s kind of amazing.

Soumaya: I was outraged when I, an economist, was the economics correspondent of The Economist magazine, started covering trade. I thought this was gonna be all about, you know, big intellectual battles of which model worked best, and actually, I essentially became a lawyer, um, working out, you know, what, what does the Section 301 statute mean?

What’s 232? How is this compatible with the World Trade Organization rules? You know, it’s, it, you, you get stuck in the legalese quite quickly, but as you say, these, these details really, really matter. Apologies for all of the lawyers. I’m not actually a lawyer.

Paul K: I knew somebody who taught a trade policy course long ago, but she would return term papers with, uh, just right at the top, a Y-H-T-M-A-A-I-Y-P, which was, “You have too many acronyms and abbreviations in your paper.” anyway, So, you know, so if we’re talking about Europe responding, taking the extreme constraints on European action, you know, how would you go to the Berlaymont in Brussels, and, and you’re gonna tell the European Commission, “Here’s, here’s what you should do in response to,” I think you said that America is a pirate and China is a warship, but anyway, they have these two quite different but also, but very seriously threatening, aggressive trade policy partners.

Two of the world’s three economic superpowers are not behaving the way they used to, and the most obvious case is, okay, you’re the, you’re sort of running the third power. What, what should you be doing?

Chad Bown: Well, um, engaging, right? And I think, uh, you know, as Soumaya indicated, Europe has been a little bit slow, uh, to engage in the, you know, are we willing to, “can we fight a trade war?” question. But they do seem to be there now. One of the really interesting lines for Europe at the moment is this issue of electric vehicles and the automotive sector.

Um, and what’s fascinating is, is, is the following: they’re essentially trying to see if they can learn from the Chinese model to encourage Chinese firms to build cars in Europe, right? So what was the Chinese model? The Chinese model was forced technology transfer. What made them successful at the time, or partly what made them successful was, you know, back in the early 2000s, there were a lot of Western automakers the United States, Japan, Korea, Europe, that all wanted access to China’s 1.4 billion potential drivers, right?

And China had high tariffs at the time, so exporting into China was really hard. China said, “We want you to build those cars here, and not only do we want you to build those cars here, but we want you to form joint ventures with local Chinese firms, and then teach them effectively, uh, how to make cars themselves,” right?

And partly, and they were successful. And part of the reason why they were successful, you know, we think, is there were lots and lots of these Western automakers competing against each other, all seeking to get access to that Chinese market. So you fast-forward today, and you say, well, okay, can Europe do the same thing, um, with respect to the Chinese technological leaders today in, in battery electric vehicles?

And while there may be, you know, at the moment, lots and lots and lots of EV manufacturers in China, um, BYD is the dominant one. Um, and behind that is the battery makers, which are BYD and CATL, right? And to, to sort of thwart that possibility, right, the idea that, well, maybe Europe could exploit, you know, divisions amongst Chinese firms and negotiate to get them to come into Europe, partner with German automakers, teach them how to make battery electric vehicles better, locate production here, create lots of jobs, the Chinese government has already set up a system of licensing for its technology and saying, “No, BYD, CATL, you know, these companies, you’re not allowed to just go out and negotiate with the Europeans.

We’re gonna be the one. The Chinese government is gonna be the one controlling access to that technology from foreigners, right?” So on one hand, you have the Europeans maybe seeking to learn from the Chinese model, and the other hand, you know, the, the Chinese already going a step beyond and saying, “Yeah, we’re not gonna let you learn from our model and, and get those jobs there in, in Europe.

Here’s how we’re gonna thwart those kinds of things.”

Paul K: Wow. And that’s really instructive because, you know, all of us spent years learning about why government intervention in trade is almost always a bad thing and how, um, uh, letting people buy wherever they want and not, not, certainly not blocking possible profitable opportunities is, is clearly going to hurt your country.

And now we’re sort of saying, “Oh, you know, this dirigiste, overall control.” And in this case, it’s not just geopolitical. It’s, well, you know, China can preserve effectively its technology advantage, even though it’s not fancy technology. And because, because they can close off the technology transfer.

So but you’re, you’re saying that basically, as I understand, that at least the EU, presumably Mark Carney’s middle powers need to be at least a little bit more like the Chinese.

Chad Bown: I think that’s right. I mean, I think, you know, one of the lessons that we took away from the book is we all need to learn a lot from each other, from the other players. But especially, you know, I think in the Western system we need to learn from China. That does not mean we need to adopt the Chinese model, right?

And so please don’t get me wrong But there are elements of what China does when it does industrial policy, when it does, in that earlier example, the transfer of technology, that if you wanna have those similar kind of outcomes be successful, you really do need to see what it was about the Chinese system that allowed them to be successful in those instances.

You may not be able to replicate it, right? So you need to, you need to learn those kinds of lessons as well. But yes, learn important lessons from China.

Paul K: So, I mean, EVs in Europe, I mean, the United States has decided that we’re going to have coal-burning cars or something. But, um, EVs in Europe, there is a question, should they even be trying? Shouldn’t they, say “Okay, if the Chinese are gonna sell you cheap vehicles, why not just drive cheap electric vehicles and, uh, work on your European, uh, comparative advantage, whatever that may be?”

Soumaya: I mean, this is actually a, a debate in the US, right? You’ve got some saying, you know, “Why won’t you let me buy a cheap EV? These, these things are…

Paul K: Right

Soumaya: …karaoke bars on wheels. I want a, I want a piece of that equipment.” Um, and you know, the arguments against are in-- you know, include one, this is actually an area where Chad and I had quite heated debate as we were writing the book, as Chad was much more in favor of banning things than, than I was. Um, and you know, that relates to some of the security risks around, you know, having Chinese software run some of these vehicles, the risks of surveillance, even being able to turn off the car remotely. Um, Chad was more gung ho about banning vehicles because of that concern than, than I was.

I wanted, you know… Surely it’s possible to come up with some kind of technical test, um, because, if we start banning cars on that basis, then, you know, what about smartphones, right? Last time I checked, there was quite a lot of electronic equipment that was made in China that could, in theory, carry the same risks.

So are we, are we really gonna be inconsistent? So there’s the security piece of that. There’s also just the political economy piece of that, right? Which is that, you know, the, the car industry is massively important in Europe. The political consequences of letting all of those smaller companies just shut down would be potentially devastating. And then third, there’s a kind of bigger argument about industrial capacity. When we don’t trust each other, is it really wise to be cutting manufacturing, or accepting the loss of manufacturing? Could there be some connection to innovation? The evidence on this isn’t as concrete as we’d like. But you know, is there something? Do the folks who worry about manufacturing having some kind of national security advantage, do they have a point, right? In some kind of heated conflict, do you actually need the capacity to scale up quickly? So actually having that industrial might is important.

Now, that doesn’t mean manufacturing jobs, but you know, I’m talking about overall manufacturing.

Paul K: You wrote the book obviously before the Iran war, and, but you do talk about supply chains and the threat of cutoffs, and that now seems immensely more real. I mean, how much does that change the way we think about, about trade wars?

Chad Bown: So I think, Iran and, and Strait of Hormuz, right? Obviously, from Iran’s perspective, the war, the physical war, the military aspects of it have to be absolutely devastating. But at the same time, they have been able to weaponize through their export restrictions, you know, imposed on not allowing things through the Strait of Hormuz, in a way that is, you know, orders of magnitude bigger than the size of their economy would otherwise suggest, right?

And so that’s part of the new world in which we live. Sometimes you have those kinds of supply chain disruptions, um, that can come up, um, by, you know, not recognizing just how serious those choke points are. I think there were a lot of folks that probably did recognize how serious those potential choke points were.

But as we have seen, through what’s happened since February, the world is now, you know, facing the consequences of, of those actions.

Soumaya: So just building on that, I think what we’ve seen so far with the Strait of Hormuz is that some of those disruptions haven’t hit yet, and that’s because companies have been doing, you know, one of the policies we, we discuss in the book, which is stockpiling, right? So we’ve had inventories, and they’ve been running them down. When the crisis first started, uh, you know, folks were asking how bad could this get? And the response was, “Well, as long as it doesn’t last for very long, it’ll be okay,” right? Because there are those buffers. And so, you know, the crisis, I think, highlights the importance of having those buffers, but also I think that, you know, there is a point about substitution. So, so, um, if you think about the drop in oil flowing out of the, the Strait of Hormuz, a third of that has been made up with oil flowing out through other ports, right? And so one of, one of the lessons here is that, you know, when thinking about your vulnerabilities, actually there’s always some slack in the system.

There are always some, some opportunities for substitution. They may not be, you know, fast, it may not be easy, but actually one of the lessons from history in extreme situations is that we tend to be a bit more adaptable than we sometimes fear. That said, obviously if this disruption goes on, there’s pain being felt, right?

We shouldn’t then swing too far in the other direction and say, “Oh, well, there’s no point in applying export controls because we can always adapt away.” That’s not true. As we are seeing now in, in, you know, some of the, the poorer countries who are on the front end of this, and as we will be seeing later these weapons are pretty, are pretty impactful and pretty dangerous.

Paul K: What struck me though, I mean, the Strait of Hormuz is a, it’s a, it’s a physical choke point, which is helpful for illustrating the concept, but it turns out there are all of these de facto choke points like rare earths, like, well, semiconductors. I mean, it’s not that so much stuff passes through the Strait of Taiwan, it’s the fact that basically everything runs on chips made in this island. So yeah. And you do talk about this. I mean, right there, there is definitely a case for policies that even at some cost make sure that critical stuff is made in some quantity in places that are, are less subject to this kind of disruption.

Gosh, for many years I was co-author of the bestselling international economics textbook. I don’t think we mentioned supply chains, export controls, any of that. I probably haven’t yet. I’d probably have to get that in the next edition. But anyway,

Soumaya: No don’t worry, you don’t have to. You can just assign our book as the top-up, and then it’ll be fine.

Paul K: That’s right No, definitely. Y-H-S-T-M-A-A-I-Y-P. No, you’re actually very good. I’m not doing the acronyms and, and, and the numbers, but it is something. Actually, I’ll give a quick quiz. Uh, do you know the answer? You probably do, but the, um, you know, all these numbered trade things, what act are they numbers from?

Soumaya: 74? 1974?

Paul K: Well, the answer is they’re from several different acts.

Soumaya: Ok well that was a trick question!

Paul K: So it’s really horrible that we, we’ve got a 122 and a 232 and, and they’re not from the same law, so it’s totally obscure. But anyway.

Soumaya: Should we wrap up here?

Paul K: Let me just ask last question, then I’ll let you go. Do you have a view-- how does this pan out? You’ve given some, some good advice to people who are not Donald Trump, effectively. I mean, maybe Trump would benefit from, but he’s not going to read it. And probably not Xi Jinping, but how do you think this shakes out? It’s, you know, it’s possible that, that Mark Carney and his middle powers or Ursula von der Leyen and the EU leadership will in fact think about these issues and, and quite possibly read your book, as they should. Um, what does the world look like in five years?

Soumaya: Okay. well look, I’m gonna be real. Um, I don’t think there’s gonna be some grand bargain, um, in the next five years, right? Which goes back to my point earlier about the rules aren’t gonna save us. And that underpinned the stability that we had for so long, right? That’s really the only outcome that would reduce the chaos, right?

And so without that, we’re kind of in this messy world where everyone is gonna be following this rule book that we’ve laid out. Everyone’s gonna be trying to stockpile, to subsidize, to, to look to see what everyone else is doing, to see what lessons they can learn. that’s gonna be, you know, pretty chaotic, I think, the chances are that there’s gonna be misinterpretation of, of what’s happening.

So just, you know, take an example, stockpiling is one of the main tools that, that countries are now deploying to try to protect themselves against, you know, weaponized shortages. but you know, there was a hearing too long ago where, where one of the US committee was quizzing experts on, on whether stockpiling was a sign that a country was about to attack, right?

You’ve got China building up massive stockpiles. What if that breeds suspicion, um, that there’s some kind of military preparation? And what if Western stockpiling breeds that suspicion on the other side, right? So you have this real risk of these awful self-fulfilling dynamics. so, you know, do all the nice things, right?

Communicate, try to coordinate with your friends, engage, be as transparent as you can, um, put in the effort, spend the money, subsidize, stockpile, do all of the things that are hard. but you know, you’re gonna have to put in, put in the effort and be consistent about it, because the dynamics are such that in a trade war, your adversary is gonna be taking advantage of any moment of weakness to, to try to strengthen their position.

Chad Bown: And I would say for me,, the only things I would add to that is, you know, to build upon the, please work with your partners and allies, right? It doesn’t make a whole lot of sense to be fighting with them distracting them away from the really hard task at hand of fighting the real trade war that needs to be fought, which is dealing with these challenges with China.

And, every ounce of time that Europe or Canada or Japan or Korea has to deal with American tariffs, demands for, you know, invest here in my energy sector or something like that, instead of focusing on how do we most quickly, at lowest cost possible to deal with the affordability concerns, diversify some of these supply chains away from China while China is actively trying to prevent us from diversifying those supply chains away from us.

We need to do that kind of thing together. So focus on the trade wars that need to be fought, and let’s put the other trade wars to the side.

Paul K: Okay. That’s actually interesting because we’re basically saying that the, if not full on conflict, that trade war with China is basically gonna happen, at least a cold trade war. And that if only the United States would stop doing what it’s doing, that we could actually form an effective or might be able to form an effective precautionary bloc against it, which is optimistic. I guess that means, particularly if we get some better management back on the home front, we might actually be able to resolve this not too badly. That’s, that’s what passes for wild optimism in the year 2026. We’re all optimists now. This is, this great, sunny, uplands await

Paul K: All right. Well, Soumaya, Chad, thanks so much, thanks for the book, which is tremendously enlightening, and thanks for the not totally dire analysis at the end. Let’s, let’s, uh, hope for the best, and the best way to make it work is for everybody to read the book

Chad Bown: Thanks, Paul

Soumaya: Great advice.

Donald Trump’s chief economist said something interesting the other day. Yes, the remarks by Kevin Hassett, director of the National Economic Council, were stupid, but that goes without saying. The point is that they were stupid in an interesting way.

On Fox News, Hassett was, as usual, boasting about how great the economy is, when he was asked why Americans aren’t feeling it — why the long-running Michigan index of consumer sentiment has hit its lowest level ever. He responded by claiming that the index “is being driven by Democrats who have Trump derangement syndrome.”

Well, yes indeed … someone is deranged here.

The Michigan survey tracks respondents by party, and politics clearly does affect economic perceptions. Democrats were much more positive about the economy under Biden than Republicans; they became much less positive, while Republicans became much more positive, when the White House changed hands:

At this point, however, independents’ views of the economy are similar to those of Democrats. Republican optimism, not Democratic pessimism, is out of line with the views of most Americans.

But wait, there’s more. YouGov’s surveys subdivide Republicans into those who do and those who don’t support MAGA — and the economic views of these two groups are very different. A remarkable 65 percent of non-MAGA Republicans say that the economy is getting worse, while only 11 percent say that it is getting better:

Let me present these data slightly differently:

Aside from MAGA Republicans, Americans are bunched at the upper left, with few people seeing the economy getting better and the vast majority seeing it as getting worse. Non-MAGA Republicans are much more similar in their views to independents, and even to Democrats, than they are to MAGA.

So how big is the group that believes that we have a good economy? Only 19 percent of Americans.

Given these numbers, Trump officials should conclude that they have failed in some way. The great majority of Americans — essentially everyone who isn’t a total Trump loyalist — believes that the economy is getting worse. And there are good reasons for that negativity. Inflation is way up as a result of Trump’s tariffs and his Iran war. Because of this surge in prices, real personal income has declined sharply:

And even if Trumpists believe that these numbers are somehow misleading and that the economy is really in great shape, they should acknowledge that they are failing to make their case to the American public.

Trump and his minions, however, never admit to failure. We’ve all seen that in the case of the Iran war: Trump keeps claiming that it’s a glorious victory and that reporters pointing out that it isn’t are “treasonous.”

They bring the same mindset to economic sentiment. If the public hates Trump’s economy, the problem must be with the politically deranged public, not with Trump.

Still, let’s look at it rationally. (I know, rationality has a well-known liberal bias.) The 19 percent of Americans who support MAGA, many of whom literally believe that Trump was sent by God, say that the economy is good. The other 81 percent of Americans say that it’s very bad. Which group is more likely to have economic perceptions that are warped by politics?

Seriously, who’s deranged here?

MUSICAL CODA

On March 23, 2010 President Barack Obama signed the Patient Protection and Affordable Care Act — usually referred to either as the Affordable Care Act or as Obamacare — into law. Joe Biden, then the vice president, could be overheard whispering “This is a big fucking deal.” And it was.

The ACA, which went into full effect in 2014, created a system of subsidies and regulations designed to make health insurance available to many Americans who had previously been left out. It worked: In 2010 there were 47 million uninsured people in America, but by 2016 this number had dropped to 27 million. This still fell short of the universal health insurance that every other advanced nation has, but it was real progress.

In 2017, during his first term, Donald Trump tried to destroy the ACA, replacing it with the American Health Care Act — legislation that would have eliminated most of the provisions that expanded health insurance under Obama.

At the time the Congressional Budget Office projected that the G.O.P.’s replacement bill would nearly double the number of Americans without health insurance, increasing the total uninsured population by 23 million and undoing all of the progress achieved under the ACA.

However, the attack on Obamacare failed by one vote in the Senate, and the ensuing public backlash against the G.O.P. delivered a large victory in the 2018 midterms to the Democrats. After these developments many observers assumed that the ACA had become a more or less permanent feature of American life.

Such assessments, however, failed to take into account the deep hostility of the U.S. right toward policies that expand access to healthcare. As we’ll see, this hostility goes back generations. And the second Trump administration has taken actions that the CBO projects will add 16 million people to the rolls of the uninsured by 2034.

How did we get here? And now what? Today’s primer will analyze the political economy of U.S. healthcare since the 1940s and the combination of danger and opportunity created by the current crisis.

Below I will discuss the following:

1. US health care on the eve of Trump II

2. 80 years of US health politics

3. The Obamacare story

4. The new assault on healthcare

U.S. health care on the eve of Trump II

In my previous primer I explained that access to modern healthcare depends crucially on having health insurance. I also explained that there are three ways nations can guarantee more or less universal health insurance: insurance that covers major healthcare costs for every citizen.

1. The government can provide care directly, as it does most famously in the UK.

2. It can act as the universal insurer, as it does in Canada.

3. It can use regulations and subsidies to corral private insurers into covering everyone, as it does in the Netherlands.

All of these methods can work and do work in some nations.

By contrast, the U.S. healthcare system is a patchwork of different programs that falls short of universal coverage yet achieves a relatively high level of coverage using versions of all three approaches. In the U.S. the private sector plays a larger role in healthcare than in any other advanced country. However, we are far from having a free-market healthcare system.

To illustrate the patchwork nature of the U.S. healthcare system, here is a breakdown of how the U.S. population was covered in 2024:

A majority of Americans are covered by private insurers through employer-provided insurance and, to a limited extent, through individual plans that people have purchased themselves. However, more than a third of the U.S. population is covered through government programs: Medicare and Medicaid, which are government insurance programs, or military programs including the VA system of hospitals and clinics.

Furthermore, the US system looks less private and more public if we look at the dollars spent rather than enrollment. Seniors, whose healthcare costs are much higher than those of younger Americans, are covered by Medicare. As a result, the government pays a substantially higher percentage of total healthcare costs than private insurers pay:

Source

Moreover, private health insurance is regulated and subsidized by the federal government to a greater extent than is generally realized. Notably, the tax code provides an effective subsidy for employment-based insurance: health insurancebenefits provided by your employer aren’t considered taxable income, giving employers an incentive to offer health insurance benefits rather than paying higher salaries and letting employees buy their own insurance. This tax break, however, is only available, roughly speaking, to companies that offer the same plan to all of their workers, regardless of their medical history or rank in the corporate hierarchy. That is, companies that offer healthcare as a non-taxable benefit can’t deny coverage to employees with preexisting conditions or limit the plan to their top executives.

The great majority of individual policies are purchased via the “exchanges” which were set up by the Affordable Care Act. Companies selling individual policies are also prohibited from discriminating on the basis of medical history. And around 80 percent of those covered by individual private insurance receive government subsidies to help pay for their premiums.

So U.S. healthcare is, as I said, a patchwork — but one in which the government plays a crucial role in promoting health insurance coverage, even in the seemingly privatized parts of the system.

About 92 percent of the U.S. population, and a somewhat higher percentage of legal residents, has health insurance, but the gaps in the system and its complexity still leave millions without coverage. And the persistence of widespread uninsurance has large costs, even to those with insurance. For example, U.S. hospitals spend tens of billions a year on uncompensated care, costs that must be passed on to other patients. And lack of health insurance leads many Americans to forego preventive care, which ultimately both raises costs and causes long-term health problems that are a drag on productivity and the economy as a whole.

Why, then, doesn’t the U.S. government eliminate the patchwork and achieve universal healthcare by paying healthcare bills directly, Canada-style, or by implementing a comprehensive system regulating and subsidizing private insurers so that everyone is covered, Netherlands-style?

The answer to those questions lies in the special history of U.S. health policy, which has been strongly shaped by two forms of American exceptionalism: The power of big money and racial antagonism.

80 years of U.S. health politics

Efforts to move the United States to universal health coverage go all the way back to the New Deal: FDR considered including health insurance as part of Social Security, introduced in 1935, but backed off because he considered it too heavy a political lift.

Harry Truman made a serious push for national health insurance in 1947. However, this push ran aground in the face of fierce opposition from the American Medical Association, which denounced his plan as “socialized medicine.” The AMA feared that a national health system would hurt doctors’ incomes. Crucially, southern Democrats, a key part of Truman’s coalition, turned against his proposals because they feared that national health insurance would force the desegregation of southern hospitals.

Over time, private health insurance grew in order to fill the void. However, private insurers avoided covering senior citizens because of their higher costs. Yet when the idea of Medicare – single-payer universal health insurance limited to senior citizens – was floated, fierce opposition persisted. Notably, in 1961 the AMA launched Operation Coffee Cup, in which doctors’ wives were urged to host gatherings of their friends in which they could listen to an LP of Ronald Reagan warning that socialized medicine would destroy American freedom:

Nonetheless, Lyndon Johnson managed to push Medicare through, along with Medicaid — also single-payer health insurance, but only for the poor. Notably, segregationist concerns about national health insurance weren’t wrong. When Medicare was introduced in 1965, administrators made great efforts to ensure that hospitals benefiting from federal funds were desegregated.

The next major push for health reform came in 1993, under Bill Clinton. Unlike earlier efforts, Clinton’s push was as much about cost control as about universal coverage. Health spending grew much faster than GDP between 1960 and 1990, largely because medical innovation greatly expanded the range of conditions that could be treated:

While making more conditions treatable is a good thing in itself, the rising cost of healthcare threatened both to become a growing economic burden and to undermine the private health insurance that covered large numbers of Americans. In an effort to contain these costs, Clinton’s health proposal involved corralling Americans into what were basically HMOs, still a novelty at the time. Unfortunately, the perception that this would limit individual choice left the plan vulnerable to attack from special interests, especially the insurance industry, which ran many attack ads:

Like Truman’s effort in 1947, Clinton’s health reform ran aground. This failure weighed strongly on Democrats. By the time they were willing to try again, after Barack Obama’s 2008 election victory, they had settled on an incremental, less ambitious strategy that for the most part supplemented the existing healthcare system rather than changing what was already in place.

The Obamacare story

After their big victory in the 2008 elections, Democrats were ready to try again. The Affordable Care Act was enacted in 2010, although most of its provisions didn’t take effect until 2014. Compared with the Clinton effort, it was notable for what it didn’t do. Specifically, it made no significant changes to employment-based health insurance, which covers almost half the population. Nor did it change Medicare, which, contra Ronald Reagan, didn’t end freedom but had become immensely popular.

Instead, the ACA sought to expand health insurance coverage in two ways.

First, it made the individual market, in which individuals without employer-provided coverage buy their own health insurance, viable. It did so through a combination of regulation — prohibiting insurers from discriminating against people with preexisting conditions — and subsidies — the government subsidizes much of the cost of premiums on a sliding scale that depends on one’s income. There was a third component, a penalty for Americans who didn’t have health insurance – essentially forcing healthy people to buy health insurance in order to lower premium costs for everyone. But this leg of the “three-legged stool” was sawed off during the first Trump administration. The result was that some healthy people dropped out, which led in turn to higher premiums. However, subsides kept enough healthy Americans in the insurance market that the nation avoided a “death spiral” of rising premiums and falling enrollment.

In its initial years, the ACA subsides for individual health insurance, while literally lifesaving for many Americans, were generally considered inadequate. As I’ll show in a moment, enrollment faltered for a few years after 2016, largely due to Trump administration policies. However, in 2021 the Biden administration enhanced the subsidies, especially for middle-income individuals, and enrollment recovered.

Why did Democrats pursue this fairly complex approach to expanding healthcare access, rather than simply going for asingle-payer system, commonly known as “Medicare for All”? By leaving employer-based insurance plans untouched, this approach reassured those satisfied with their employer-based coverage that nothing would change. Moreover, this approach headed off opposition from the insurance industry by effectively buying that industry off: private insurers were able to keep their existing business while gaining new business through the expanded market for individual policies. As a result, Obamacare didn’t face the kind of attacks that doomed the Clinton plan.

While the expansion of the individual market got much of the public’s and media’s attention, the ACA also greatly expanded Medicaid coverage.

As originally devised, Medicaid was only partly financed by the federal government; the rest of the money came from the states, which also ran the program. And while state Medicaid programs must meet basic standards to qualify for federal funds, they have substantial discretion in determining eligibility. Before the ACA blue states had relatively generous Medicaid programs, while red states typically covered only the very poor.

The ACA tried to address this disparity across states by establishing a nationwide floor on Medicaid eligibility. With this floor, anyone with income less than 133 percent of the poverty line was covered, with the federal government bearing almost all of the costs for this eligibility expansion. However, in 2013 the Supreme Court ruled that states had the right to opt out of Medicaid expansion.

At the state level, opting out of the ACA Medicaid expansion made no sense financially. By expanding Medicaidcoverage, a state could insure substantial numbers of its residents at little cost, since the federal government would cover the costs. This coverage expansion would also bring money into a state’s economy and help keep its hospitals open. Why reject these benefits?

Yet 25 states initially rejected Medicaid expansion, and 10 states, including Texas and Florida — America’s 2^nd and 3^rdmost populous states — still haven’t been willing to accept free money:

As the map above makes clear, refusal to expand Medicaid has mainly been an issue in southern states; the initial map of Medicaid expansion versus non-expansion almost precisely matched the battle lines at the start of the U.S. Civil War in 1861. To be blunt, expanding Medicaid would disproportionately help black people, and in a large part of the U.S. politicians were willing to pay a substantial fiscal and economic price to deny some of their constituents that aid.

Despite this resistance to anything that helps nonwhites, the Affordable Care Act led to a substantial expansion of health insurance coverage for Americans. Here are the changes in Medicaid enrollment and the number of people with individualinsurance policies after the ACA was fully implemented in 2014:

As beneficial as it was for Americans, the expansion of coverage under the ACA still fell short of universal healthcare. In 2024, approximately 8 percent of the U.S. population remained uninsured. The ACA did, however, move the United States much closer to universal healthcare than it had been before.

Nor was the cost excessive. Although Obamacare was mostly aimed at expanding coverage rather than reducing costs, it did include a number of provisions, such as financial incentives for integrated care, that were intended to “bend the curve” — that is, reduce the rate at which healthcare spending was rising. And in fact, as David Cutler and Lev Klarnet have documented, total U.S. healthcare spending is well below projections made before the ACA was enacted:

But many of the achievements of Obamacare will soon be destroyed unless legislation enacted under the second Trump administration is reversed.

The new assault on healthcare

Public approval of the Affordable Care Act was low before it was enacted and remained fairly low during its first few years. After Trump tried to destroy it in 2017, however, it became very popular. And conventional political logic says that this should have made Obamacare unassailable.

But the U.S. right truly hates government programs that provide widespread healthcare — and Donald Trump is especially hostile to anything that can be regarded as part of Barack Obama’s legacy. The second Trump administration and its allies in Congress have taken two actions that will, over time, almost completely undo the expansion of health insurance since the ACA was enacted.

First, they refused to renew the expanded healthcare subsidies introduced during the Biden years. This has already drastically increased insurance premiums for millions of Americans, leading many to drop coverage. Early estimatessuggest that 5 million or more people may drop out of the individual insurance market this year alone, with millions more downgrading to policies that provide inadequate coverage.

Second, the One Big Beautiful Bill Act — the combination of tax and spending cuts Republicans enacted last year — will drastically cut funding for Medicaid. CBO estimates that these cuts will cause around 10 million Americans to be kicked off Medicaid by 2034.

The combined effect of these actions, if they aren’t reversed, will be the health insurance catastrophe shown in the chart at the top of this post.

How can and should Democrats respond? And what should be the agenda for future healthcare reform?

To be continued …

So Texas Republicans have, by a huge margin, rejected Sen. John Cornyn, a hardline conservative whose great failing, from Donald Trump’s point of view, was that he occasionally took stands on principle. To replace him they chose the scandal-ridden, deeply corrupt Texas attorney general Ken Paxton, who received Trump’s endorsement precisely because of his vices. Paxton’s rottenness makes him a Trump kindred spirit and also guarantees that he will be dependent on Trump’s goodwill and hence slavishly loyal.

So much the better for the Democrats, who now may — may — have a chance at winning Cornyn’s Senate seat. However, despite Paxton’s utter unfitness for any public office – let alone Senator -- knowledgeable observers of Texas politics consider the race between Paxton and the Democratic nominee, James Talarico, no better than a tossup.

What will be at stake in the general election, beyond the question of just how much personal awfulness Texans will overlook? To an important extent it will be a referendum on healthcare.

Texas’s healthcare policy stands out, even among red states, for its cruelty.

Texas has refused to expand Medicaid under the Affordable Care Act. That is, it has turned down federal money that would have provided essential healthcare to hundreds of thousands of its residents, at almost no cost to Texas taxpayers, and injected large amounts of money into the Texas economy. Texan politicians have tried to justify their adamant opposition to expanded healthcare as a matter of principle, a way to prevent dependence on government programs. But in reality there’s no way to make sense of this choice except as a reflection of the drive to keep low-income people desperate and subservient.

This is the same drive that has led to Texas’s remarkably regressive tax system. Texas conservatives like to say that they rule a low-tax state, but taxes there are only low for the affluent. They’re quite high for the middle and working classes, and very high for the poor and near-poor:

Even among states that rejected the ACA Medicaid expansion, Texas’s Medicaid program is exceptionally harsh. As one summary explains,

In Texas, adults without children are not eligible for Medicaid coverage regardless of their income, and parents are eligible only if they earn less than 13 percent of the FPL [federal poverty line] (an annual income of less than $3,900 for a family of four).

The result is that Texas has worse health insurance coverage than any other state. Moreover, as the chart at the top of this post shows, the big improvement in coverage as a result of the ACA mostly bypassed Texas. Notably, 13.7% of Texan children are uninsured, compared with a 5.9% rate nationwide and 2.5% in New York.

High rates of uninsurance combined with a weak social safety net and, in recent years, growing rejection of vaccines largely explain one striking aspect of Texas’s evolution since 1980: its lagging life expectancy. In 1979-81 life expectancy in Texas and New York were almost identical. But since then a wide gap has emerged, with New York state residents outliving Texans by an average of nearly 3 years:

Part of this gap in life expectancy reflects death by violence. Texas is a big law-and-order state, in which politicians love to talk tough about crime. But big Texan cities have much higher crime than big blue cities, New York in particular:

Texas, then, is a state whose healthcare policy has been marked by cruelty and especially by determination to deny care to those who need it.

How does this relate to the Senate race? In a way this is a quintessential match between MAGA and the new Democratic party. Ken Paxton, scandals and corruption aside, has taken a leading role in trying to deny healthcare to needy Americans, both in Texas and in the nation as a whole, repeatedly bringing lawsuits to block implementation of the Affordable Care Act.

Talarico, by contrast, says that “health care is a human right.” In particular, he has called for allowing all Americans to buy into Medicare.

So the Texas Senate race will be about corruption and personal morality. But it will also be about healthcare, and whether Texan voters really want to endorse the state’s continuing, systematic cruelty.

MUSICAL CODA

Busy day, so brief post

On Memorial Day the New York Times published an article with the headline “Trump is the only person who can save America, according to his cabinet.” The article offered a quantitative analysis of senior-official sycophancy. As the article notes, Donald Trump likes to hold long, televised cabinet meetings. In these meetings, according to the Times,

On average, at least one of every six sentences either flattered Mr. Trump, gave him credit or criticized his political opponents.

This “Dear Leader” treatment is unprecedented in American history. Regardless of how successful, no previous president has been showered with this kind of obsequiousness and deification.

Outside the MAGA bubble, Americans are increasingly seeing Trump as the loser he is. He has failed on every front. Manufacturing employment is down, inflation is outpacing wages, consumer sentiment is at a record low, mortgage rates are up. Trump’s war of choice has led to utter humiliation. According to current polls, Americans are giving Trump extremely low approval ratings, both overall and on every major issue — even border security:

Inside the MAGA fantasy bubble, however, Trump’s reign is hailed, almost literally, as the Second Coming.

Some of this reflects Trump’s own personality. His inner self is obviously a bottomless pit of insecurity. He self-medicates by demanding Pyongyang-level flattery, destroying national monuments and replacing them with garish, vulgar trash, persecuting critics and comedians, and starting stupid wars.

But Trump isn’t the first public figure to seek self-aggrandizement in an attempt to fill his inner emptiness. The important question is why the American right — not just his pathetic cabinet, but the whole movement, including the 6 extremistsRepublicans on the Supreme Court — has been so willing to empower him. And that’s a question much bigger than Trump himself.

The truth is that the right wing attempt to build a cult of personality around a deeply unpresidential figure, while it has reached new levels of absurdity under Trump, isn’t new. Republicans tried to do the same thing for George W. Bush. Remember this?

And readers of a certain age may recall that the right’s canonization of Ronald Reagan began while he was still in office.

It’s tempting to dismiss personality-cult theater as trivial, but it isn’t. When prominent people in a republic act as if they were living in a monarchy, the republic increasingly becomes a monarchy in reality.

Beyond that, influential Republicans have substantively granted Trump more personal power, more ability to act as a monarch, than any of his predecessors. Republicans in Congress have abandoned their role as an independent branch of government. In a recent post on X, Mike Johnson, the speaker of the House, sounded just like Trump’s cabinet members:

And the Roberts Supreme Court has gone most of the way toward giving Trump dictatorial powers.

Right-wing legal thinkers have increasingly embraced “unitary executive theory,” under which the entire executive branch — including agencies Congress has designated as independent — answers personally to the president, who can hire and fire officials at will. The Roberts Court hasn’t explicitly endorsed this theory. But the Court has given presidents absolute immunity from criminal prosecution for official acts — effectively placing Trump above the law. And Roberts has declared that the president is “the only person who alone composes a branch of government,” which, combined with the subservience of both Congress and the Court itself, does in effect make Trump a dictator.

Why has the modern American right abandoned the idea of a constitutional republic and embraced rule by strongman? Good question — and one I’ll try to answer another day.

For now, let me just point out that while it may seem ironic that so much praise and power has been lavished on Trump, America’s most incompetent modern president, the combination of flattery and failure isn’t an accident. It is, in fact, a self-reinforcing doom loop.

Trump needs and demands sycophantic praise and unfettered power in part to compensate for the fact that he’s such an objective failure. And while his manifest unfitness is part of the explanation for his failure, his policy disasters also have a lot to do with the bubble that surrounds him. Nobody dares to tell him when he’s wrong. Nobody can stop him from indulging his whims, not matter how disastrous their consequences.

The point is that the dire state we’re in — the leader of the free world has turned against freedom, the greatest power the world has ever known is self-immolating before our eyes — isn’t just a matter of Donald Trump’s personal failings. It’s the culmination of decades of right-wing sabotage of everything that made American great.

MUSICAL CODA

“Many questions, few details in latest Iran peace proposal,” read the headline on a New York Times report Sunday. As the subhead explained, “It is too early to tell what exactly Trump and Iran have agreed to, or if they have agreed to much at all.” The article, by the way, was written by David Sanger, who Trump called “treasonous” over his clearly accurate reporting on how badly the war was going.

But, in fact, Trump’s Iran war may be over, or virtually over. America lost.

Iran may or may not agree to exercise restraint in its control over the Strait of Hormuz and its nuclear program. But as Donald Trump of all people should know, agreements can be broken. At a fundamental level Trump, who began by demanding UNCONDITIONAL SURRENDER and trying to impose a subservient new regime, is now slinking away, leaving Iran’s hard-liners empowered — and America’s reputation shattered.

How did that happen? America is a superpower, Iran a middle-sized regional power at best. Spending isn’t the only determinant of armed might, but even so a comparison of the two government’s military budgets is ludicrously one-sided:

Yet the Iranian regime is not only still standing, it is stronger than before. Meanwhile, Trump is running away.

Trump’s disastrous leadership isn’t the sole factor behind this debacle, although it’s a large part of the story. In my view there are four main reasons Trump’s Iran “excursion” is ending in humiliation.

First, this was a fundamentally unwinnable war.

Once the initial decapitation strike against Iran’s leadership left the regime’s hold on power intact, Operation Epic Fury became an attempt to end Iran’s threat to world oil supplies by suppressing its missiles and drones with air power. Unfortunately, as the Substack History Does You has documented, such campaigns have never worked. Allied air forces tried to stop Nazi Germany from launching V1s and V2s in World War II; they failed. During the first Gulf War, Coalition air forces devoted huge resources to an attempt to stop Iraq from launching Scud missiles; they also failed. Chasing down mobile launchers, especially in an era of cheap, abundant drones and in a huge, mountainous country like Iran, is an impossible game of whack-a-mole.

Of course, leaders who aren’t terminally arrogant and ignorant don’t start unwinnable wars in the first place.

Second, painful as this is to recognize, the U.S. military, after decades of unchallenged dominance, appears to have lost much of its edge. As Phillips O’Brien recently wrote,

The lack of thought-through US response to the technological changes we are seeing [especially in the Russia-Ukraine war] before it embarked on the Iran bombing shows how smug militaries can be—and the bigger and more powerful they think they are the more smug they tend to be.

…

There is far too much self-congratulation in the US about its military, a belief that US armed forces are highly professional, show initiative, are thoughtful, etc. This is a romantic vision that Americans are using now to throw all blame for the Iran failure on the Trump Administration.

That said, the Trump administration has made the degradation of the military much worse.

Pete Hegseth, the self-proclaimed Secretary of War, has carried out an unprecedented purge of military officers with impeccable reputations, with the majority of those fired Black or female. He has replaced them with political loyalists like Admiral Brad Cooper, the head of Central Command, who has in effect been running Trump’s war.

The officers who survived the purge got the message. Under Hegseth, official accounts of the war’s progress have been a stream of bombastic claims of victory and ludicrously rosy depictions of the situation on the battlefield. Less than two weeks ago Cooper was still peddling fantasies of easy victory to Congress, asserting among other things that the U.S. could easily open the Strait of Hormuz by force.

Do you believe that these delusions are only for public consumption, that Hegseth has been getting and acting on accurate information? I don’t. It’s far more likely that Hegseth and Trump have also been receiving false, optimistic reports, because nobody in the military dares to tell them the uncomfortable truth.

The sycophancy and flattery Cooper exhibited in that testimony surely reflected groupthink that has led to many bad decisions. For example, reporting by CNN, the Washington Post and the Times finds that U.S. bases and facilities have suffered a remarkable amount of damage from Iranian drone and missile strikes, with casualties and much expensive equipment and aircraft destroyed. Why wasn’t the U.S. military prepared for this possibility?

The lack of preparation clearly reflected a predetermined view that Iran would be so devastated by U.S. attacks that it would be unable to strike back. And it’s reasonable to infer that any officers who tried to warn of the dangers were treated as defeatists and silenced.

Finally, success in modern war depends crucially on out-thinking one’s enemies. But MAGA is all about deprecating hard thinking and valorizing belligerent ignorance.

On Saturday Hegseth addressed the graduating class at West Point. In war, he declared, “you can’t throw your pronouns at the enemy.” He congratulated the cadets on being “fit, not fat.” Despite humiliating failure, Hegseth still has his job — and is still asserting that eliminating DEI wins wars and that bulging biceps can beat drones.

Can America still snatch victory from the jaws of defeat, or should it accept a deal that leaves us clearly worse off than we were before the war? The answer is that running away — if that is what Trump is doing — is now the right move. It’s better to accept a bad deal, one that leaves America much weaker than it was a few months ago, than to double down on a failed war. Time is not on our side: looming shortages of critical weapons, the imminent exhaustion of world oil inventories, and the lost support of our allies and the American public mean that this war needs to end soon.

The United States, uniquely among advanced nations, fails to guarantee healthcare to all its citizens. Partly as a result, it has worse health outcomes than comparable countries, including substantially lower life expectancy. Perversely, the U.S. delivers these poor results while spending much more per person on healthcare than anyone else.

U.S. healthcare performance improved in terms of both coverage and cost after the Affordable Care Act, aka Obamacare, was enacted in 2010 and went into full effect in 2014. But much of what was achieved during the Obama and Biden administrations is now being unraveled by Trump II.

Today’s primer is the third and final in a series. Part I laid out the basics of healthcare policy, why universal healthcare is a desirable objective, and why some type of government intervention is essential to achieve it. Part II described how and why the U.S. adopted Obamacare and the ongoing Republican assault on its successes. In today’s primer I will discuss a possible path forward. That is, basically, what Democrats can and should try to achieve if they have unified control of the government after the 2028 election.

Beyond the paywall I will address the following:

1. U.S. healthcare in international perspective

2. What kind of system is workable in America?

3. The changing political economy of American healthcare reform

4. The path forward

Read more

. . .

TRANSCRIPT:
Paul Krugman in Conversation with Heather Cox Richardson

(recorded 5/20/26)

Heather Cox Richardson: How are you doing, Professor Krugman? I know you’re on vacation.

Paul Krugman: Yeah. As I wrote the other day, I’m in Europe, which means I don’t have to think about Trump 100% of the time, only about 90%. So that’s a little bit of release psychologically.

HCR: It’s really astonishing, isn’t it? But hopefully we don’t talk entirely about him today. I’m actually interested and would love to hear what you have to say about artificial intelligence, not itself as an entity, but as a factor in the economy. Because boy, it sure looks to me like we are way overinvested in AI. I think the growth on the stock market is basically AI companies. We know now that there’s more construction in AI data centers than there is in commercial real estate. And I’m wondering, can we just talk about that and you walk us through what this looks like? Because everybody keeps saying, “Oh, it’s a bubble like the housing bubble or like the dot-com bubble.” And I’m looking at it and saying…

PK: Obviously, history is mostly what we have to go on. There have been many bubbles like this. There’s some broad similarities to dot-com, which was also a telecommunication thing. It also looks like the canal bubble in England, which was earlier. Most of the bubbles were pretty clearly bubbles at the time and that was certainly true for dot-com which I sort of still remember in real time. But with AI, I’m finding that the contrasts with the late 90s bubble are really illuminating. Obviously it’s again technology with lots of investment. There’s an enormous enthusiasm of a kind, but in other ways, it’s quite different.

HCR: Well, let’s start with this. What exactly is a bubble?

PK: Yeah, it’s always a question, but a bubble more or less means that people are investing in something that has no realistic chance of paying off—not socially but just commercially, to an extent that justifies the amount of money being thrown at it. Crucially, a bubble is something that people do because everyone else is doing it. So, Robert Shiller, the great bubble theorist of modern economics, said that a bubble is a natural Ponzi scheme. It’s something where you get in and you make money because other people get in, and people keep on coming in because everybody before them made money. But in the end, it’s a game where the money isn’t really there. It all depends on fresh crops of suckers coming in. And at some point you run out of suckers. So that is a Ponzi scheme, especially when someone like a Bernie Madoff does it deliberately in a bubble. It also happens naturally. Nobody is orchestrating it but nonetheless the logic of it is the same as a Ponzi scheme. So basically, it’s a lot like pornography where you know it when you see it.

But it’s not just the fact that people are wrong but that people are wrong in a way that should have been predictable and where it’s really something that is sustained by the momentum, by the fact that other people keep on coming in until they don’t.

HCR: Okay, so when historians talk about this, they example they often use is tulips. It’s something that you can explain to people as a reference because it’s kind of a cool story. When you take it out of the economic system that we understand now, it’s easier to see.

PK: Yeah, I mean, I’m not really fond of the tulips analogy but sort of the first thing that people think of as being something like a modern bubble was the tulip mania in the Netherlands. 17th century Netherlands was not quite the first modern economy because they weren’t quite modern, but they were on the way. They were commercialized. They were banking. And people were speculating in tulip bulbs, which were in fact valuable investments, but it got crazy. The prices went up because people were buying and buying and then prices went up further.

And so, you can see the financial logic there, but I’m not really fond of this example because there wasn’t a whole lot of real investment. People weren’t building tulip infrastructure. But I guess in terms of the psychology, the market logic, it was not that different from railroad shares or dot com shares. So, yeah.

And it is telling you, the fact that this is the Holland of Rembrandt and not only wasn’t there an internet, there weren’t even telephones, and yet the psychological logic was the same. And that’s kind of telling you that in some ways there’s a kind of universality about bubbles.

HCR: So when we look at AI now, am I correct that there are two super companies in which the majority of AI money is invested?

PK: Yeah. There’s OpenAI and there’s Anthropic and who are the big players but it’s an industry. It’s not just that these are the two biggest AI models. So you’re either talking to ChatGPT or to Claude which are the two leaders but then Google has its own model which is Gemini and then Elon Musk has a really bad one, Grok. And then there’s a bunch of Chinese versions, where they’ve taken a very different strategy. So it’s a little bit more complicated than that. And then there’s this network.

So in a lot of ways, you want to think of this whole AI boom bubble as being a little bit like the California gold rush, another historical parallel. The people who are selling Anthropic and OpenAI are like miners, prospectors looking for gold. And what we know in California in the 1840s was that the people looking for gold mostly ended up bust but the people who made money were basically the Levi Strausses who didn’t make money by finding gold. They made money by selling equipment, by selling jeans and picks and shovels and also brothels and liquor to the prospectors.

The equivalents of that now are companies like Nvidia which is selling the specialized chips that go into AI and there’s a bunch of other companies making a lot of money basically renting out computational capacity. So now we’re starting to see at least a little bit of money being made by Anthropic. All of my friends are playing with Claude and I just can’t get myself to do it. The big thing seems to be vibe coding, which lets you do programming without knowing how to program. And so Anthropic is actually making some money because people are subscribing to that service. But at this point, most of the money being made is from people basically selling equipment, selling the suppliers to this thing.

And so the question from a kind financial economic point of view is whether there will ever be enough revenue, whether people actually end up paying enough for AI, this thing that we call AI, to justify all of the money being thrown at the industry. And history would suggest there’s a very good chance that the most likely outcome is no. The most likely outcome is that it will end up being a waste. But again, history doesn’t always repeat so maybe this pays off but I don’t think that explains the enthusiasm.

HCR: Well, it’s interesting because one of the things that you’re seeing lately is the changing model for paying AI. That is, most of the use of AI currently is subsidized really quite heavily for every dollar of computing power that people use. It’s subsidized between $3 and $25 at the minimum. And the idea that people are actually going to pay the extraordinary costs that certainly right now it would warrant…it doesn’t seem like it’s going to happen.

PK: Well there’s a question. Let me play devil’s advocate here for a second. When the dot-com bubble happened and people were offering all these services on the Internet where people weren’t willing to pay remotely enough to justify the money that was being thrown at it. But what eventually happened was that a few companies managed to create walled gardens. They managed to create enclaves. Essentially, Facebook is a walled garden where people pay for ads or watch ads or whatever. Google basically ended up being a kind of walled garden. The search was free, but Google was making money out of pushing targeted ads. We used to joke about Amazon. I’m old enough to remember when Amazon was famously unprofitable and was never going to be profitable. But it turns out that, well, in the end, Jeff Bezos built a moat with all of the infrastructure, the distribution centers. And so now Amazon is a huge moneymaker and evil. But that’s another story. And what’s happening with AI is, to a certain extent, they’re building walled gardens from the beginning.

So I know people who’ve been using Claude or have been playing with Claude, I think would be a better description, and the results have been terrible. And it turns out that the results are terrible unless you pay and buy a higher tier of service. Now even there it’s not remotely enough to justify the expense [of investments] but clearly Anthropic is trying to create a situation in which people get hooked on vibe coding and then end up addicted and they’re going to end up shelling out large amounts of money to have the the version of Claude that works. And with something like that you can already see the outlines, at least, of how the industry intends to make money.

Now, history suggests that usually there are only a few winners. Although one thing that’s also different from the dot-com bubble, is that in the dot-com bubble, there were hundreds of players trying to succeed, and in the end, just a few highly profitable corporations survived. This is not like that. This industry, at least on the U.S. side, is just a handful of players. So the chance that one or two or maybe three big AI models will end up becoming highly profitable monopolies, it’s not that remote.

So, as I say, things tend to be somewhat different. I mean, we don’t want to start talking about what AI is exactly, but I think there are inherent weaknesses of it. I mean, it’s a technology where you cannot predict exactly what the tools will do, and you cannot know when they’re going to betray you; when they’re going to deliver hallucinations instead of actual-actual true results. That’s weird. I don’t know if there’s anything like that and you have to wonder, just how much will our society be willing to rely on technology that every once in a while just decides to go crazy or basically turn into Frankenstein’s monster on you. So that would be my guess, but it’s not as if there’s no possible way these guys could make money.

HCR: Well, but there is something interesting in it as well, and I think you’ve identified that many of the things that we’re identifying as bubbles actually start with a product that people want. They don’t have to create their own markets. And the other piece of that is I certainly have heard people say exactly what you’re saying, that there will be a fallout where we’ll get a few good ideas out of where we are. And then you can have your walled gardens around those things. But it’s rare.

I mean, I can think of an occasion for it when we got the Union Pacific Railroad in the 1860s, because Congress recognizes that people actually would like to get to California. But if you actually wait for there to be enough of a market in the plains to get those railroads going all the way to California, you’re going to be waiting a very long time. So they put the money up to create a market for those railroads. But then very quickly you get all these branch roads that lead to nowhere and end up feeding that railroad boom in the 1870s that collapses.

So it does feel to me like this is something different. You’re not getting those walled gardens right now where people say, “Yeah, I really want to get into that and I’m willing to pay for it,” the way we were with iPhones, for example, or the way we were with the internet. I remember the first time I turned on the internet I was teaching at MIT and they made us take seminars so that we understood this new technology and I can still remember going home and saying, “Oh my god. My world just changed because I can do all this research.” This is the very early days but you look at the AI stuff and, I started using it pretty heavily just to see what it would do and I have become completely against it because so far I haven’t seen anything that isn’t crap. And I was agnostic. I’m usually pro-technology.

Now, I am willing to admit that there are places where it is probably a good thing, like checking engineering plans in construction plans, for example. We know that there are ways in which mixing cement can be much more efficient if you use AI [for calculations]. But right now, I don’t see it taking off.

PK: Well, you and I are not typical, of course. I think there’s an important distinction here but what I actually am using a little bit of AI for is actually producing transcripts of videos. You run a video through AI to produce a transcript which is often hilarious in detail but you can fix that. You wouldn’t believe what AI was making of the words, “vibecession.” But anyway, it can do certain things. I also find that with economic history, often there are a lot of papers that have tables and charts and I can feed them into a sort of low grade AI model as a PDF and get the numbers out instead of having to type the numbers from the old papers. So there are uses even for someone like me.

I mean, in a lot of ways AI is kind of awesome in how much it manages to produce intelligible if sometimes dishonest responses to plain language questions. That is awesome given where we used to be, even if it’s not totally reliable. But the main thing is that a lot of AI—and certainly what is likely to be the paying uses of AI—is not coming from individuals. It’s not coming from me or you or some middle manager deciding, “Hey, maybe I can use AI to do this better, or maybe I’m just going to have some fun with it.” (Slightly scary but I do know people who are developing relationships with Chat GPT.) But it’s mostly coming from people working at businesses and large organizations who are being told, “You must use AI.” And this is something I’ve never seen before. This is kind of coercive technology adoption where the big money is telling workers that you must use this technology.

And one thing you’ll remember from the early days of the internet, it was joyful. People loved the internet. People hate AI. We’re now having a regular pattern at college commencements of speakers who start talking about AI and all of the students start booing because everybody hates this. And the question is, how far can you go with a technology that everybody hates? So that’s one of the things that is unprecedented.

You think of the people whose jobs were displaced by power looms, the Luddites. Okay, they hated the technology because they didn’t like what it was doing to their jobs but people hate using AI and they hate the fact that other people are using it. But they are to a large extent being dragooned into doing it and I’m not sure that I can think of a historical example like that. It doesn’t seem like it’s a very sustainable path forward.

HCR: So, Henry Ford would have something to say about trying to force people to take on new technologies. I actually saw an Edsel a few years ago. I’d never seen one. I’d always just heard about how much they were rejected. And I saw it and I’m like, “That’s it? They just didn’t like the front grill?” And yeah, people just didn’t like the front grill and they wouldn’t go with it. But that brings up another question for me. You’re hearing a lot and there were stories out just today about companies cutting thousands of jobs because people were being replaced by AI. And I have a question for you about that. I actually then want to end with, what does this look like for the entire society? But it certainly looks to me that as the economy slows down, that it’s certainly possible that companies are letting workers go saying it’s AI. And what they’re really doing is they’re reducing their forces. Is it right that AI is possibly simply being a cover for people who wanted to downsize anyway?

PK: Well, there’s some of both. I mean, if you’re a company that wants to, in effect, increase the workload on a smaller number of workers, then AI is a great cover story. You can say, “Oh, we’re doing this because of the wonders of modern technology.”

And by the way, we expect you to, in effect, put in 10 hour days.

We keep getting stories of companies that lay off a lot of workers saying that AI can do it better and then it turns out it can’t. And I don’t think these are just stories. If we’re saying that AI is just doing routine stuff. Some of my friends who actually work on this, like Henry Farrell, say that AI is a social technology. It’s basically agglomerating what lots of people have said. And it’s delivering back to you what a lot of people who know something about a subject would say if asked the question you asked. And it’s not understanding. There’s no mind there. But it is delivering a kind of aggregated, standard response. And a lot of jobs are like that. If you’re talking to the help desk at a call center somewhere thousands of miles away, the person that you’re talking to, if it is an actual person, may very well be there with a three-ring binder looking for what they’re supposed to say. And AI can replace that job. AI is basically doing much the same. A lot of people are doing fairly routinized, standardized work. It’s just the common opinion of common opinion responses to things as a way of doing their jobs. So that’s real.

So it’s not just that AI is an excuse, but again, it’s an excuse. I mean, we always see this, right? To the extent that businesses care either what their workers feel or what their customers feel, stuff happening provides external excuses.

This is the story of greedflation, that companies may raise prices when there’s an energy crisis, not because their actual costs have gone up, but because with everybody raising prices, who will notice if I get greedy? So there’s something like that on AI and jobs as well. But I don’t know. I mean, again there are enough stories now of companies that have laid off all of their experienced professionals for AI, and it turns out, well, the experienced professionals could actually deal with questions that were not routine, and they didn’t hallucinate, and so they’re finding that they made a mistake.

But it’s amazing how little we know about how this works. I don’t remember there being so much uncertainty about what you could actually do with the internet. And of course, I don’t have any memory of what people thought you could do with railroads. But I think this is kind of unprecedented as this massive technology that we’re investing trillions of dollars in and still nobody quite knows how it works or what it will do.

HCR: Well, I want to end with my real question. That is, if I’m correct, and these people I’m reading are correct about it looking like a real bubble, what does it look like if that bubble bursts? This is the reason I use the comparison of the 19th century railroads, or you could do the 1920s with cars, and the investment in AI in data centers, in hiring practices, certainly in investments, certainly in NVIDIA and all these different places that are tied into that specific technology.

Now, I’ve heard from a lot of people, you included, that we’re going to get some good technologies out of it no matter what happens. And I agree with that. We always do. But with all the pressures that are on the American economy right now, I’m worried. And should I be?

PK: Yeah. Let me give you sort of good news and definitely bad news. The good news, and I say sort of for a reason, is that on the face of it, if you just look at the scale of the AI investment, it looks like that’s driving all of our economic growth. But it turns out that an awful lot of the AI spending is actually imported tech gear. It’s actually imported chips and computer equipment and so on. So if the AI bubble bursts, a large part of the burst would be falling imports. It would be a big shock to the domestic economy but not nearly as much as you might think. There’s been a back and forth about how much economic growth has been AI and how much the high import intensity of the stuff. So in some ways this is a shock to the world economy and not so much to the U.S. economy, specifically. So I guess that’s kind of good news, though not so good for other countries. But, you know, Taiwan has experienced an enormous economic growth because of all the chips they’re selling to U.S. AI companies. So a lot of the bad news will end up showing up in Taiwan rather than in the U.S.

The bad news: this would have been true of railroads, as well, but the dot-com bubble in terms of the actual really big money laid out was telecoms rather than dot-coms. It was the telecommunications companies investing especially in fiber optics, laying down tremendous amounts of fiber optic cable which stayed unused for a long time. There was lots of dark fiber after the dot-com bubble burst but it was still there. Fiber optic cable doesn’t depreciate rapidly. It was still there in the ground and eventually got used. So it was a lot of useful investments.

As I understand it, these data centers that are being built, the investment in chips, the investment in software, this stuff will depreciate physically pretty fast. It will become outmoded pretty fast. So I think there’s likely to be a much higher proportion of just wasted investment that never finds a use out of this boom than there was out of the last tech boom. So, not so great.

And by the way, the Chinese are taking a very different approach. They’re building much more limited models that just don’t use as much information but get a high fraction of the performance and use a lot less energy. If the world ends up going to that model of AI instead of the all-encompassing ones then we will have just wasted the money. We will have spent a lot of money on building super impressive stuff that nobody actually wants to use.

Obviously the railroads still had railroads. You could use the tracks later on. You could use dark fiber. I think the original boom that looks something like this was, in fact, the British Canal boom around 1800. All of those left usable legacies. And this one might not.

HCR: Wow. Fascinating. Absolutely fascinating. Thank you. It’s always a pleasure to talk to you.

PK: Good to be on. Let’s do this again.

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Transcript

Hi, Paul Krugman here. Different city, different country, still not home. Unfortunately, couldn’t manage to do this one in a cafe, but we have been sitting in cafes a fair bit.

I just want to weigh in on a really kind of alarming report on consumer confidence that came out today. This is the long-running University of Michigan survey of consumer sentiment. It is kind of time hallowed. I don’t know that it’s necessarily the gold standard — there are other surveys — but this is the one that people really do focus on most.

The numbers are terrible, people. We’re hitting a record low on consumer sentiment which fits in with the general picture. We know that people are very upset about prices; they’re very upset about economic management; they just don’t feel that there’s anyone making any sense who’s in charge of things; which is all true.

I mean we can argue that objectively things are not as bad as all that. We have consumer sentiment that’s worse than at the depths of the financial crisis. We have consumer sentiment that is worse than during the stagflation circa 1980. And it’s hard to say that that’s really justified. But OK, the customer is always right. If people are feeling this down then we need to take that seriously.

But that is actually not the big issue. The really big issue is inflation expectations.

Now why do we focus on that? Inflation for a short period of time is not good but it’s tolerable. If we have a year of elevated inflation — even if you do something stupid, if you impose tariffs and raise consumer prices, or you start a war and mishandle it and you drive up oil prices that is not good. But it only turns into a really, really serious problem if it gets “entrenched” in the economy.

That is usually the term that people at the Federal Reserve use. And what they mean is this. If you think about how wages and prices are set, think about the process of inflation. Not all prices are set at the same time. There’s a kind of a leapfrogging in which each individual company, each individual employer is setting prices based both on inflation in the past and on inflation that they expect in the future. They’re looking over their shoulders at what they think competitors are going to be charging. They’re looking over their shoulders at what they think is going to happen to their costs.

And they need to do that because for many prices, it’s impractical and costly and disruptive to change them too frequently. So you set prices for a year in advance, something like that. You set prices for a while, which means that a lot of what’s happening to prices now is determined by what people think is going to be happening to prices in the future.

We don’t have great measures of what’s in the minds of people who are setting prices, but we have pretty good, or at least consistent over time, measures of what consumers expect. And, you know, we’re all living in the same society. So that’s telling you something about where we are in terms of expected inflation.

If you have a spike in inflation, if inflation comes and goes, but it doesn’t get built into expectations of higher inflation for a long time, then okay, you ride through it. Maybe people vote the bums out, but you ride through it.

If it gets built into expectations, then it’s a much a much more difficult situation. Then you have to somehow wring those expectations of high inflation out of the economy because if you don’t, inflation will just feed on itself. Prices will rise because everybody expects prices to rise and those expectations will be confirmed and it just goes on.

So if you want to return to an acceptably low rate of inflation and if people are expecting a high rate of inflation, then while there may be other ways, normally what we do is we put the economy through a wringer. which is what happened at the beginning of the 1980s.

After the inflation of the 1970s, inflation was eventually brought under control, but that would happen through years of extremely high punishing unemployment. Some people looking at inflation four years ago, looking at the inflation of 2021-2022 predicted that we’d have to do the same thing, that having seen a burst of inflation after decades of low inflation, that we were going to have to go through something like the end of the 70s stagflation, that we’d have to go through a severe recession with high unemployment for years to get inflation back down.

Something I called right — we all get things wrong, but something I called right — was that I said no, that that’s not going to happen, that it’s a false analogy. And the reason I said it was a false analogy was because medium-term expected inflation had not gone up very much.

Now, we go for medium term because we know that for short-term inflation, well, people’s expectations about that bounce around a lot, often driven by fluctuations in gasoline prices. But medium-term expectations are normally more stable, so if they rise that’s an indicator that you are starting to get entrenched inflation and things will be really bad.

In 2022 — sorry, let’s go back to 1980 — medium-term inflation expectations as measured by the Michigan survey were about nine percent — expected inflation over the next five to ten years was 9%. That was really bad. That said that people had basically internalized the inflation of the 70s and expected it to continue indefinitely.

This meant that actually getting inflation back down to tolerable levels was very costly and very painful.

In 2022, well, expected inflation over the next five years had crept up by a fraction of a percentage point, but it was still quite low. People were not at all building in anything like the expected inflation that prevailed before the great painful disinflation of the 1980s.

And so I was quite confident that the dire predictions about what it would take to bring that inflation back down were wrong.

Well, guess what? Especially in the last two months, expected inflation over the next five years has gone up a lot. It’s 3.9 percent in the latest Michigan release. That is, it’s not 1980 but it’s really bad. It’s the worst we’ve seen on that number since the early 1980s. It is saying that the person on the street is starting to believe after the tariff shock and now the Iran shock that we’re in a higher inflation environment. And we have to suspect that people making decisions about prices are thinking the same way.

They’re going to start building those expectations into pricing. So we’re starting to get the thing that everyone in the economics biz fears, which is entrenched inflation.

And if that’s happening, then the costs of the policy failures, the policy foolishness of the past year and a half are going to be a lot bigger than anyone is now reckoning. This is going to be an extremely painful situation that we have.

It looks, at least according to these preliminary indications, as if Donald Trump has managed to create the kind of environment that we had at the end of the 1970s stagflation, which means that this is going to be really, really ugly and that we are going to be paying the price for these misadventures for years to come.

Happy thought. Have a nice day.

Jeff Bezos went on CNBC earlier this week to opine about taxes and economic inequality. What he had to say wasn’t a shock: America’s 4^th richest man praised billionaires and declared that he opposes taxes on the wealthy.

More surprising, perhaps, was how unprepared he was. Most of us, if we planned to spend almost an hour on national TV making pronouncements about taxes, would make at least some effort to get our facts right. Bezos didn’t.

But Bezos obviously suffers from billionaire brain, which I defined last year as

that special blend of ignorance and arrogance that occurs all too frequently in men who believe that their success in accumulating personal wealth means that they understand everything, no need to do any homework.

What was more interesting than the content of Bezos’s remarks was the fact that he chose to give the interview at all. Andrew Ross Sorkin, the interviewer, opened the discussion by saying

In these days, it feels almost impossible to pick up a newspaper without reading a headline about wealth in America, about the billionaire class, about wealth inequality and policy and everything else. And it’s taken a uniquely critical turn, I think.

Indeed. The critical turn has been especially severe for tech oligarchs like Bezos. And Bezos is obviously feeling the heat, sufficiently so that he’s trying — incompetently — to improve his image by “informing” the rest of us about how taxes and all that really work.

I’ll get to Bezos’s likely motivations shortly. First, however, let’s talk about the substance of his remarks.

Public discourse about taxes and inequality is, even more than discussion of other economic topics, infested with zombies — ideas that should be dead, having been proved wrong again and again, but that keep shambling along, eating people’s brains. What sustains the zombies is, of course, billionaire money, which keeps false claims in circulation as long as they seem to justify low taxes on the superrich.

Sure enough, it took Bezos only a couple of minutes to peddle a classic zombie lie about who pays taxes:

We already have the most progressive tax system in the world. The top 1 percent of taxpayers pay 40 percent of all the tax revenue. The bottom half pay only 3 percent.

These numbers aren’t remotely right unless Bezos is referring solely to federal income taxes — which are only part of the overall tax system. About 80 percent of Americans pay more in payroll taxes — FICA on your paycheck — than in income taxes:

Furthermore, state and local taxes generally fall more heavily on the working and middle classes than on the elite. As a result, the Institute for Taxation and Economic Policy has showed that the overall burden of taxes is only slightly higher for the affluent than it is for the working and middle classes:

Source

These numbers are for 2019. Since then, the tax system has become even less progressive as a result of Donald Trump’s tariffs, which fall most heavily on lower incomes, and his tax cuts for the rich.

So Bezos doesn’t understand the most basic facts about taxes, nor did he make any effort to inform himself. He went instead with some numbers he thinks he heard somewhere — numbers that tell a story he wants to hear. As I said, billionaire brain.

Bezos also made some assertions about his own taxes:

These people sometimes say that, that, you know, I don’t pay taxes. That’s not true. I pay billions of dollars in taxes.

Seriously, does he want to go there? Yes, Bezos pays taxes. But ProPublica found that between 2014 and 2018 these taxes were less than 1 percent of his true income.

Bezos also decried corporate welfare. Again, does he want to go there? Amazon, like the oligarch who runs it, pays remarkably little in taxes as a share of its income:

Source

I could go on: there was a lot of arrogant ignorance in that interview. But in a way the most interesting question is why Bezos gave it at all.

The answer, almost surely, is that Bezos is feeling the heat. There is a broad political backlash brewing against the excessive power of billionaires and the corrupting effect of their money on our democracy. This backlash is especially severe for tech oligarchs. A decade ago, Bezos and other tech billionaires were popular, almost folk heroes. No longer:

That slight uptick in 2025 is probably just a statistical blip — and there’s now a huge backlash brewing against AI. Here’s Eric Schmidt, the former CEO of Google, trying to hype AI in a college commencement address:

Last year Bezos and other tech billionaires evidently believed that they could insulate themselves from criticism — and secure their wealth against both taxation and regulation — by allying themselves tightly with Donald Trump. Notably, Amazon, along with Apple, Google, Meta, and Microsoft is one of the companies paying for Trump’s grotesque ballroom.

But Trump is now exploring new frontiers in presidential unpopularity, and Republicans are facing a wave of public revulsion so strong that it will probably overwhelm even their strenuous efforts to rig the midterm elections.

So paying court to the mad king isn’t looking like the smart political move Bezos and his ilk thought it was. How, then, can they defend themselves against the threat of taxes and regulations that might make them slightly less rich?

Well, Bezos evidently thought that the threat to his billions was sufficiently important to justify going on CNBC to lecture the rest of us about the evils of taxation — but not sufficiently important for him to learn a few facts first.

Somehow, I don’t think this new political strategy will work.

MUSICAL CODA

A number of people have asked me to put some of my recent writing on European economic performance outside the paywall. Here is the central argument, revised to include data I think is slightly more informative.

I’m still in Europe, where one of the luxuries I’m experiencing is not having to think about Donald Trump and the nightmarish state of U.S. politics 100% of the time — more like 90%, but still. And by way of luxuriating in the slight emotional distance, I’ll postpone my next primer on healthcare for another week and talk more this week about European economic performance.

Last week I wrote about the question of whether Europe is really falling behind the United States economically. I argued that the conventional narrative of clear relative decline is wrong. And I followed up with a small formal model of the underlying logic of the situation as I see it.

I’m gratified to have started a wider discussion, with smart observers like Noah Smith and Luis Garicano weighing in. Judging from the conversation so far, however, I need to do more to explain my central point — which is that widely used comparisons of productivity growth can’t be used to judge European versus U.S. economic success.

In today’s post, then, I’ll try to offer more explanation, backed by some additional data and what I hope are useful analogies.

Below I will address the following:

1. Comparing Europe with America

2. The US-Europe paradox: Slow European growth, but without a growing gap

3. Explaining the paradox

4. What Europe should and shouldn’t worry about

Comparing Europe with America

When we compare the European, or at least northern European, economy with that of the United States some points should be indisputable. Both are wealthy economies that make extensive use of modern technology, with no obvious winner in terms of sophistication — the days when Jacques Chirac lamented that the internet was an “Anglo-Saxon network” are long past. Americans, however, have more stuff, that is, material goods: Our houses and cars, in particular, are much bigger. Europeans, on the other hand, have more time, working shorter hours and taking more vacations, and have the security and longer lifespans that come with more extensive social programs such as guaranteed healthcare, and sane gun regulations.

Which side of the Atlantic lives better? Your kilometerage may vary. As an American progressive who favors strong social safety nets — basically what Europeans would call a social democrat — I find a lot to admire in the European way. And even the Draghi report, with its call to arms over what it portrays as a loss of European competitiveness, starts by praising Europe’s economic and social achievements.

However, while the question of which continent offers a better life is obviously important politically, it’s somewhat separate from the question of which way the US-Europe comparison is trending. Mario Draghi, like many observers, concedes that Europe is a good place to live now, but warns that it is falling behind, above all suffering from low productivity growth compared with the United States. Noah concludes his response by saying that

you have to reckon with the uncomfortable fact that America’s output per hour has soared while West Europe’s has grown only slowly.

But is that a fact? Or at any rate is it the relevant fact? The main point of what I’ve been trying to say is that I do not think that output per hour, i.e., productivity, means what many people think it means.

So let me try to further explain that point using somewhat different data and a different presentation approach than I did last week.

The apparent US-Europe paradox

Gross domestic product (GDP) is the total value of goods and services produced by an economy over a given period, usually a year. On its own, GDP in a given year isn’t that informative a number (although people would have a better perspective on many issues if more of them knew just how big U.S. GDP is — currently running at an annual rate of more than $30 trillion.) Normally, we want to compare GDP over time and space — GDP in two different years or two different countries.

Such comparisons require making some adjustments. To compare GDP over time, economists normally look not at raw GDP but at “real GDP” — GDP at constant prices, that is, measured in the prices of a base year, currently 2017 in most U.S. data but 2021 in the World Bank data I use below.

To compare GDP between countries, economists could and sometimes do just use dollar values. But such comparisons jump around when currencies fluctuate, so economists often use “purchasing power parity” (PPP) -- GDP in different countries adjusted for difference in countries’ overall price levels.

How, then, can we compare nations’ economic performance over time? Analyses that raise the alarm about European competitiveness generally look at the growth of real GDP, either per capita or per working hour, that is, productivity, in each country. But we can also simply compare GDP per capita or per hour at each point in time using PPP.

One might think that these approaches — one based on GDP at constant prices and one based on GDP at PPP — would tell the same story. But they don’t. And that is what I’m calling the apparent US-Europe paradox. I use the qualifier “apparent” because, as I will explain shortly, once one takes into account how productivity affects prices, the paradox is resolved.

Let’s start by looking at GDP per capita in Europe (actually the euro area) as a percentage of GDP per capita in the US. If we do this using constant prices — the World Bank uses 2021 prices — we get the line in Chart 1 labeled “2021 prices.” This line shows Europe falling behind over the past 25 years.

Chart 1

If, however, we simply use prices in each given year, we get the line labeled “PPP,” which shows Europe gaining on the US.

We get a similar picture if we look at GDP per worker-hour. The Paris-based Organization for Economic Cooperation and Development calculates productivity; the data are available on the OECD Data Explorer. Here’s productivity in the euro area relative to productivity in the US, at constant and current prices:

Chart 2

The blue line labeled “Euro relative constant prices” supports the Draghi-Smith story of badly lagging European productivity, with Europe starting well above the US level but falling far behind. But the black line labeled “Europe relative current prices” shows Europe holding its own.

Which of these lines is “right”? If we want to compare economies, surely we want to focus on value at each point in time. That is, we want to look at the black line, which calculates the value of output using the current PPP prices, and not the blue line, which calculates the value of output using a static price level. Looking at Chart 2, the PPP line shows that in 2000 the value of goods and services produced per hour by an average European worker was about 86 percent as much as the value per hour produced by an American worker. In 2024 that percentage was about 87 percent. Thus, if you want to claim that between 2000 and 2024 European productivity fell far behind U.S. productivity, then, as I said earlier, I do not think that word “productivity” means what you think it means.

Yet productivity growth as conventionally measured has in fact been much faster in the US than in Europe. How can this be consistent with the fact that there has been virtually no change in the relative value of goods produced per hour? That’s the apparent US-Europe paradox. What explains it is the fact that the US and European economies produce different mixes of goods – a qualifier that is not picked up in the conventional measures of productivity. And that difference in mixes of goods affects the prices at which productivity measures should be calculated in order to make a meaningfulcomparison across countries.

Explaining the paradox

One key fact about economic growth in all advanced economies in the 21^st century is that progress has been highly concentrated in a relatively small sector — the “tech” or information technology (IT) sector.

The Chicago Fed has a recent letter titled “Concentrated growth: The role of the IT sector.” The authors analyze “total factor productivity,” which is related to but somewhat different from labor productivity, but the moral is clear. Starting in the late 1980s, productivity in IT has risen much faster than in the rest of the economy:

Chart 3 Source

As the authors define it, IT accounts for only 8 percent of US value added — that is, it accounts for only 8% of the net total value generated by production in the U.S., and hence 8 percent of GDP. Yet IT is responsible for almost half of US productivity growth.

This does not mean that half of the benefits of US productivity growth for the last nearly 40 years have accrued to the workers and companies in the IT industry, although that is where the growth was generated. The reason is that the benefits of the vast increase in productivity in the IT sector are passed through to the rest of the economy.

Why haven’t the benefits of IT stayed with IT producers? Because there is effective, if not perfect, competition among American IT firms. As a result, most of the benefits of technological progress in IT are passed on to consumers in the form of lower prices. Correspondingly, workers in the IT sector have seen a huge rise in productivity compared with workers in other sectors, but they haven’t seen a huge rise in their incomes compared with other workers.

A specific example: According to the Bureau of Labor Statistics, output per worker hour in computer manufacturing has risen by a factor of more than 14 since 1988, or about 10 percent per year. As best the BLS can measure it, output per hour in hospitals barely changed over the same period. But we didn’t see a correspondingly huge rise in the wages of computer workers relative to those of doctors and nurses. What happened instead was that computers became much cheaper compared with healthcare, with the value produced by each worker in the two sectors remaining similar.

Why is this relevant to the US-Europe comparison? Because the United States has a dominant position in IT, largely as a result of self-reinforcing network effects (in economics jargon, local external economies.) IT firms have strong incentives to locate in Silicon Valley and a few other tech hubs precisely because so many other IT firms are located there. This is largely for historical reasons: Although this is no longer true, the United States used to be much more technologically sophisticated than other advanced nations. Consequently, most of the world’s big tech hubs are in the US. (Some are now emerging in China, but that’s another story.)

As a result, the US economy as a whole vis-à-vis Europe is effectively in the same position, albeit to a lesser degree, as IT workers versus doctors. We dominate industries in which output per hour rises rapidly over time, so US productivity measured in constant prices rises faster than it does in Europe. But the goods those industries produce get steadily cheaper relative to the goods produced both by non-IT workers in the US and by workers in Europe. So Europe’s relative productivity as measured by the value of goods produced per hour at any point in time — relative output per hour at PPP — has not declined.

And therefore Europe’s purchasing power, and hence its material standard of living, hasn’t declined relative to the US despite Europe’s slower productivity growth as conventionally measured.

I laid out a little formal model of how this works a few days ago. One way to state the key result of that model is to think of two sectors, IT and non-IT, with productivity growth in IT much higher than in non-IT. For the economy as a whole, the rate of conventionally measured productivity growth will be

Overall productivity growth rate = (Productivity growth rate in IT * share of IT in GDP) + (Productivity growth rate in non-IT * share of non-IT in GDP)

Assume that productivity growth is 10 percent a year in IT, zero in non-IT. Also assume that IT is 10 percent of the US economy, zero of the European economy. Then measured productivity growth will be 1 percent a year in the US, 0 in Europe. But because IT progress is passed on to all consumers via lower prices, the relative value of output in the two economies — and hence the relative value of goods produced per person-hour — won’t change.

In short, what we will see is exactly what I am calling the US-Europe paradox, of much faster productivity growth as usually measured in America, but no change in the ratio of value produced per hour.

Not incidentally, differences in productivity growth driven by who happens to host IT clusters isn’t uniquely a US-Europe phenomenon. We can see the same story when comparing regions within the United States. A few months ago I posted the following chart:

Chart 4 Source: BEA

The difference in measured productivity growth between California and the rest of the US is wider than the difference between the US and Europe, yet that difference isn’t the source of constant agonizing by U.S. states worried that they are falling behind. It doesn’t lead to anguished concerns about the superiority of California’s business culture, or the supposedly anti-business policies of the rest of America.

So should Europeans be as relaxed about faster measured US productivity growth as Texans are about faster California growth? What should Europeans be worried about?

What Europe should and shouldn’t be worried about

It is a fact that the US plays a much bigger role in the global IT industry than Europe does. Few of the biggest tech companies are European. The current race to dominate AI is overwhelmingly a tournament among US companies. Chinese companies taking a different, less computation-heavy approach may be serious contenders, but Europe isn’t in the game.

But does this matter? The big benefits of IT come from applying it, rather than creating it. And as I’ve tried to show, the data show Europe holding its own in the relative value of the goods it produces, indicating that European economies are doing fine when it comes to applying technological advances.

It’s true that in some cases European adoption of new technologies is handicapped by market fragmentation: The single market, as the Draghi report emphasizes, remains incomplete, and that is one reason European productivity, even measured at PPP, is lower than in the US.

But overall Europe has done well at making use of technologies developed elsewhere. And there is no obvious reason to believe that this will change — that, for example, the fact that US companies are leading the development of AI models will make the US economy as a whole better than Europe at making use of AI in the years ahead.

What should worry Europe, instead, are the geopolitical implications of US/Chinese leadership in advanced technology. We used to have a global economic system overseen by a mostly benign and in any case law-abiding hegemon. That system was, however, gradually eroding with the rise of China, and has now taken a drastic hit with America’s abandonment of the rules it largely created.

In this new world, Europe — one of the world’s three great economic superpowers — unfortunately can’t be sure that it will always have access to new technologies developed and produced in the other superpowers. The risk of being cut off from strategically important technologies, once minimal, is now very real.

And that risk, rather than misleading numbers about trends in real GDP per worker hour, is what should concern European policymakers.

Busy day, so just a note on the latest bad news.

This morning’s economic headlines are largely about spiking interest rates. “The global bound rout is accelerating,” says the Wall Street Journal. “Bond yields hit highest level since 2007 as inflation fears set in,” writes the New York Times. (Falling bond prices mean higher interest rates.)

There’s some hyperbole in these headlines. It’s true that the 30-year interest rate is at an almost 20-year high. But economists usually focus on a different long-term interest rate, the rate on 10-year bonds. And while that rate is up sharply since the Iran War began, it’s only roughly as high now as it was when Donald Trump took office, and below its recent peak in 2023.

Still, why are rates spiking, and what does their rise portend?

Interest rates are up because inflation, which was declining until Trump returned to the throne, has surged again:

Investors are responding to the fact that the current rise in inflation looks a lot like the rise in inflation during 2021-2023, which was the result of supply chain disruptions. Back then the Federal Reserve was compelled to raise short-term interest rates to curb inflation. Longer-term interest rates, which largely reflect expected future short-term rates, followed suit.

Now we’re seeing a remake of that movie, with one big plot difference. The inflation spike of 2021-22 was overwhelmingly the result of factors outside Joe Biden’s control — surging demand as the world recovered from Covid and Vladimir Putin’s invasion of Ukraine. The current inflation surge, by contrast, is all Trump, caused by his self-defeating tariffs and the gratuitous debacle in Iran. And the inflation outlook is worsening by the day as the Strait of Hormuz, through which about 20 percent of the world’s supply of oil normally passes, remains closed.

Until now, markets have been complacent about the implications of the Iran war. Investors have allowed themselves to be lulled by Trump’s repeated assurances that either victory or a negotiated settlement were just around the corner. But they are now waking up to the reality of the debacle. And their awakening has transformed expectations about future monetary policy. On the eve of the bombing, markets were virtually certain that the Fed would cut short-term rates by December. Now they’re virtually certain that rates will either rise or at best stay the same:

Source

Moreover, the market will be watching closely to see how Kevin Warsh, Trump’s new Fed chair, responds to this new reality.

Warsh’s job, as Trump sees it, is to support him politically by cutting interest rates, regardless of the economic evidence. Warsh will surely face especially intense pressure from his patron to deliver lower rates because rising interest rates will deepen Americans’ anger over Trump’ management of the economy. Surging gas and grocery prices have already caused Trump’s economic approval to crater:

Now the pain will be greatly intensified by soaring interest rates on mortgages, car loans, and more. And rising rates tilt the economy toward a slowdown, possibly even a recession. So I’m sure we’ll see many ALL CAPS posts from Trump demanding drastic interest rate cuts NOW NOW NOW.

But what the markets are telling us is that in the face of rising inflation, they strongly expect that most members of the Fed’s monetary committee will vote either to raise rates or at best to leave them unchanged. So will Warsh start his tenure by being repeatedly outvoted, rapidly losing credibility within the institution he’s supposed to run? Or will he, as Trump will surely see it, betray his master? All I can say to Kevin Warsh is, “just deserts.”

One thing is clear: The markets are finally waking up. And the economic and political fallout from Trump’s decision to emulate his idol Putin by launching what he believed would be a short, victorious war is just getting started.

Reuters

So the Trump administration is creating a $1.776 billion slush fund — 1776, get it? — to pay off victims of “lawfare and weaponization.” Just to be clear, if you’re a U.S. taxpayer, this action means that almost $1.8 billion of your money will be handed out to whomever a panel appointed by Donald Trump decides to reward. The beneficiaries are likely to include January 6 insurrectionists, as well as Trump, his family, and his allies.

Few things shock me these days, but this development — in which a Justice Department that works for Trump is paying a vast sum to “settle” a lawsuit brought by Trump himself — is a new nadir in self-dealing, further revealing Trump’s utter contempt for the American people.

Now, massive corruption on the part of Trump and his minions isn’t new. But the shamelessness of this latest episode of looting takes it to a new level. Until now, we’ve seen a combination of crony capitalism and insider trading. Plutocrats and corporations have been enriching Trump through back channels, especially crypto, in return for government contracts and policy favors, while Trump himself and people close to Trump have been making hugely profitable market bets thanks to advance knowledge of government policies.

But now Trump has eliminated the middlemen, effectively telling his officials to pay money directly to him or anyone else he favors.

Granted, we already knew that Trump was, by orders of magnitude, the most corrupt president in U.S. history. But now Trump is the most explicitly corrupt leader in today’s world. After all, Vladimir Putin has obviously stolen billions, but never this brazenly. Even Third World dictators normally try to mask their corruption.

Don’t say that this taxpayer-financed slush fund won’t have political consequences.

On the contrary, the polling and focus-group analyses I’ve seen say that voters are very angry about corruption. Trump’s theft of taxpayer money, while people are losing healthcare coverage and food aid while suffering from Trump-induced higher prices, is perfect fodder for the Democrats in the upcoming elections.

So we should ask ourselves why the Trumpists have abandoned all restraint. There have been many corrupt politicians in U.S. history – although they were pikers in comparison to Trump. Yet they at least attempted to hide their corruption, or at least keep it discreet and deniable, in order to avoid a voter backlash.

I would argue that the blatant nature of the new looting is a signpost of where America under Trumpism is heading in the months and years ahead.

It’s true that Trump has a base that will support him no matter what, in many cases literally believing that he has been chosen by God. This puts a floor under this support. But his disastrous recent polling, as Nate Cohn writes in the Times, suggest that this floor may be lower than many thought.

Now, we already know that Trump and his allies have no intention of facing free and fair elections. With the unstinting help of the Roberts Supreme Court, they have already rigged the midterms through redistricting. Trump minions are actively trying to depress Democratic-leaning voter turnout, by demanding from states the right to challenge their voting rolls. And it would be naïve to think that redistricting will be the end of the MAGA effort to undermine democracy.

Still, Trump is aware that, even with Republican gerrymandering, November may deliver a blue wave big enough to hand Democrats the House and, quite possibly the Senate. G. Elliott Morris estimates that Democrats will need a 4-point popular vote advantage to win the House, but the latest Times poll gives them an 11 point lead. Why, then, isn’t he trying to be at least slightly discreet in his corruption?

One answer is that even if MAGA loses big in November, Democrats can’t count on wave elections every cycle, and the field is now strongly tilted against them. As Morris writes.

While the situation for Democrats is not necessarily dire for 2026, the situation for democracy in 2028 and beyond certainly is.

So you can think of the $1.8 billion slush fund as a promise to MAGA-world that there is a payoff to be had if they just stick with him for the next two and a half years.

Beyond that, we are, in effect, watching what happens when a quasi-authoritarian regime’s corruption and criminality pass the point of no return.

At this point Trump and his MAGA minions have stolen so much, committed so many crimes — not just theft but taking America to war illegally, abusing ICE detainees, and much more — that if and when they lose power many of them will face personal ruin at best, years of jail time at worst. This would happen even if they stopped committing more crimes.

So there’s no incentive for them to end their criminality, or to end the attempts to bribe others to go along. Either they succeed in destroying America as we know it, or they won’t. And until that’s resolved, they may as well engage in even more corruption and criminal acts.

Think of it this way: The gravity of what the Trumpists have already done has created a sort of black hole at the center of American political life — and the Trumpists have already crossed the event horizon, the boundary beyond which there is no escape. So they will do ever more terrible things, because they have nothing more to lose.

MUSICAL CODA

The rape of Europa, by Titian

On Sunday I argued against the widespread depiction of Europe’s economy as moribund because its productivity growth has lagged America’s. The productivity numbers aren’t wrong, exactly, but they are misleading: America’s faster growth reflects its dominance of a narrow sector, IT, and has not translated into lagging European productivity measured in terms of the value of the goods an hour’s labor can produce.

In laying out this argument I relied on data from the World Bank. As some economists pointed out to me, however, estimates from the International Monetary Fund look somewhat different. This is odd, and I’ll look into the discrepancy.

I am, however, fairly sure that the picture I derived from World Bank data is right, partly because the story fits together, but also because it turns out that a third source, the Paris-based Organization for Economic Cooperation and Development — which is good for many kinds of data! — has estimates of exactly the variables I’ve been talking about. Namely, productivity per hour at constant prices, which is what the misleading numbers focus on, and PPP in current prices, which is actually the relevant variable.

The source is the OECD Data Explorer. Here’s productivity in the euro area relative to productivity in the US, at constant and current prices:

That’s the same story I told yesterday: European relative decline if you use constant prices, no trend using current prices.

Again, I am not saying that all is well with Europe. But the common diagnosis of the continent as a museum, unable to keep up with modern technology, rests on bad data analysis.

I just moved from one European city to another, so a brief note with no coda today.

When the leaders of the world’s two most powerful nations met in Beijing, Chinese Premier Xi Jinping spoke about the lessons of history:

Can China and the United States transcend the so-called ‘Thucydides Trap’ and forge a new paradigm for major-power relations?”

Donald Trump, on the other hand, spoke about fast food:

Just as many Chinese now love basketball and blue jeans, Chinese restaurants in America today outnumber the five largest fast food chains in the United States, all combined. That’s a pretty big statement.

I’m old enough to remember when we were a serious country.

Anyway, should China in fact worry about the Thucydides trap? Not while someone as pathetic as Trump is in charge.

The Thucydides trap refers to the theory, originally propounded by the Greek historian for the war between Athens and Sparta, that conflicts erupt when a declining power is confronted by a rising rival. So Xi was implicitly insulting the United States, portraying it as a nation in decline. Someone presumably explained this to Trump, who went on Truth Social to declare that Xi was talking about U.S. decline under “Sleepy Joe Biden,” not now that he has made us “the hottest Nation anywhere in the world.”

In reality, the widespread Chinese view that America is in decline has only grown stronger under Trump II. According to the New York Times,

In January, a nationalistic Beijing think tank affiliated with Renmin University published a triumphant report about Mr. Trump’s first year back in office. The report argued that his tariffs, attacks on allies, anti-immigration policies and assaults on the American political establishment had inadvertently strengthened China while weakening the United States. Its title: “Thank Trump.”

And that was before the debacle in Iran.

So, as in the Thucydides trap, will a declining America lash out at a rising China? Not under current management, or at least not in any effective way.

Trump and his officials constantly denigrate his predecessor. Denouncing Joe Biden has become their all-purpose response to questions about Trump’s policy failures and cratering polling. But the Biden administration was, in fact, serious about responding to China’s technological and industrial challenge. Notably, the CHIPS and Science Act was explicitly intended in large part as a way to respond to China’s inroads in information technology by boosting the U.S. technology sector, while the Inflation Reduction Act’s promotion of industries associated with renewable energy was an attempt to blunt the impact of growing Chinese dominance in electrotech.

Trump, however, has moved rapidly to cancel Biden’s industrial policy, a turnaround that has, among other things, led to a marked slump in manufacturing construction:

Having abandoned industrial policy, Trump has turned to trade deals. The fact sheet released by the White House after his trip to Beijing proclaimed that

President Trump negotiated a sweeping package of commitments that will drive high-paying American jobs and open new markets for U.S. goods.

The main component of this package was a Chinese commitment to buy $17 billion a year of U.S. agricultural products, on top of an earlier commitment to buy more soybeans. Actually, I should put “commitment” in scare quotes: China made similar promises during Trump I, and completely failed to deliver. But suppose that the Chinese actually come through this time. How big is this “sweeping package”? Adding the extra $17 billion to a best guess at the value of the promised soybean purchases, and comparing it with existing U.S. exports, it looks like this

:

So by abandoning Biden’s efforts and pursuing what he considers the art of the deal, Trump has in effect traded a serious effort to keep America competitive in advanced technology game for a hill of soybeans — and a small hill at that.

I could go on, but you get the point. The global scene right now isn’t dominated by a conflict between a rising and a declining superpower, because the declining power is led by a man who has no idea what makes great powers great, is easily distracted by trivia, is focused on self-enrichment and self-aggrandizement, and fantasizes about himself as Jesus. If you want classical analogies, think of America right now as the Roman Empire under Caligula, although Caligula didn’t do anything like as much damage …