Yesterday Donald Trump declared that the Iran war is going “better than anybody expected could be done.” He’s delusional, of course. And his delusions are the reason the price of oil is back at around $100 a barrel, and — as I’ll explain shortly — the effective price is much higher than that.

Trump’s gratuitous war on Iran has turned into a remarkable quagmire — remarkable because the only thing keeping the war going is Trump’s vanity. He effectively lost the war in the first few days, when it became apparent that Iran’s hardline regime had survived the initial decapitation strike and that the U.S. military couldn’t keep the Strait of Hormuz open. But Trump is psychologically incapable of admitting failure. So the war goes on, weakening America by the day, as he searches for some way to spin his abject defeat as a victory.

And declarations that the economic fallout from the war had been contained now look dangerously premature.

It’s true that during the first closure of the Strait oil prices didn’t rise as high as many analysts — myself to some extent included — expected. Some Persian Gulf oil made its way to markets bypassing the Strait of Hormuz, notably via the Saudi pipeline to the Red Sea. China sharply reduced its oil imports. And the world offset a substantial part of the shortfall in supply by drawing down inventories.

The second Hormuz closure could be worse, for several reasons. Iran’s Houthi allies are now attacking shipping in the Red Sea, threatening that safety valve. Also, inventories are now much lower than they were when the conflict began, and can’t serve as a cushion going forward.

Perhaps the most important thing to realize about the current situation, however, is that oil is more expensive than it looks.

Nobody burns crude oil. Oil must be refined into usable fuels, mainly gasoline and diesel. And there’s a global shortage of refining capacity. This partly reflects the war in Iran, but it also reflects Ukraine’s stunningly effective campaign against Vladimir Putin’s energy infrastructure.

This shortage of refining capacity has helped keep crude prices down — why buy crude when you can’t refine it? More important, however, it means that prices of petroleum products to end users are much higher than one would have expected given the price of crude. The chart at the top of this post shows the wholesale price of diesel, which even during the failed cease-fire was far above its prewar level, and is now close to its previous peak.

The overall “crack spread” — the difference in price between a barrel of crude oil and the price of the products into which that barrel is refined — has exploded, from around $25 a barrel before the war to more than $65 now:

RBN Energy

From the point of view of end users, this is the same as if crude prices had risen an extra $40 per barrel. In effect, the world is coping with the equivalent of $140 oil even though the headline price is “only” around $100.

Does this portend economic catastrophe? No, not yet. But it’s not good.

Last month’s easing in the inflation rate now looks temporary. With energy prices surging again — not to mention the inflationary impact of Trump’s new round of tariffs, imposed using the ludicrous excuse that nations aren’t doing enough to stop forced labor — interest rates will almost surely rise, intensifying the squeeze on families and businesses. Long-term rates, reflecting expected future Fed hikes, are already way up:

10 year bond, from CNBC

Still, things could be worse. And they may be about to get worse. The Wall Street Journal reports that Trump is in “revenge mode,” and the U.S. military is surging forces into the Middle East.

And if Trump doubles down on failure, drastically escalating his disastrous war, the economic, not to mention human, impacts will get much uglier.

Republicans have settled on their midterm argument: Democrats are all Communists. As an election strategy, this is as lame as it is ludicrous. But there is a small kernel of political reality underlying the new right-wing red-baiting: The emergence of a widespread public backlash against the extreme concentration of wealth in the hands of billionaires.

This backlash shows up in multiple surveys. According to the Harris Billionaires Survey, 73 percent of Americans believe that wealth inequality is a serious national issue, up from 66 percent in 2022. A UMass Amherst poll found 58 percent of Americans saying that billionaires are a threat to democracy, with 45 percent saying that America is an oligarchy, “a government in which a small group exercises control especially for corrupt and selfish purposes.” Only 28 percent disagreed.

And as I noted last week, citing research from political scientist Andrew Hall, Democratic fundraising has recently begun to lean heavily into denunciations of the undue influence of billionaires:

So if you define anyone who raises concerns about the wealth and political power of billionaires as a Communist, well, in that sense you are defining a majority of Americans as communists.

Why is the public backlash against billionaires going viral now? This is an interesting question, since both the concentration of wealth at the top and political spending by billionaires have been increasing for decades. For example, the Koch Brothers have been donating to the Federalist Society, the clique of right-wing legal lobbyists who created the Roberts Supreme Court, since the early 1980s. Fossil fuel interests have been spreading climate disinformation since global warming began showing up in the data. Political spending by billionaires has been immense for more than a decade, although it reached new heights to help Trump win the presidency and to win Republican congressional seats in the 2024 election. Why, then, has it taken so long for the popular billionaire backlash to reach critical mass?

One answer is that Trump has brought American oligarchy out of the shadows and into the spotlight. As I noted last week, the spectacle of “the cavalcade of fawning tech bros at the Trump inauguration” was a clear wake-up call. Yet the display of billionaire fealty to Trump, I would argue, is part of a larger dynamic in which the new generation of American oligarchs have chosen to make themselves public figures and hence public targets.

The fact is that billionaires have had immense political power for decades, but they chose to exercise that power from the shadows, veiling their actions through patriotic sounding right-wing PACs and think tanks. Only political junkies understood what was going on underneath the surface.

Today, however, the new generation of the hyper-wealthy are out there and in your face, flaunting their influence rather than concealing it. And the poster child for this change is, of course, Elon Musk.

To understand the significance of this change in the behavior of the hyper-wealthy, it’s useful to compare the lists of top individual donors compiled by OpenSecrets in different recent elections, specifically 2016 and 2024.

In 2016, the top 100 donors split their spending almost equally between Republicans and Democrats, with 9 of the top 20 strongly pro-Democratic. This was unusual and surely reflected the fact that a significant number of Republican donors were appalled by Donald Trump. But by 2024, when Trump was again the GOP standard-bearer, most of these qualms and scruples had disappeared: the top 100 donors spent more than 3 times as much on Republicans as they did on Democrats, and only 5 of the top 20 supported Democrats. This, after Trump’s authoritarianism and corruption had become plainly evident.

More to the point, consider who the top Republican donors were in 2016. People who follow politics closely have long been aware of the key roles in right-wing politics played by Sheldon and Miriam Adelson (gambling money), Paul Singer (vulture capitalist), Robert Mercer (computer scientist turned hedge funder), and Richard Uilein (shipping). But none of them sought the celebrity limelight, and it was always an uphill struggle to raise public awareness of their malign policy and political influence.

The 2024 list still includes many of the traditionally quiet oligarchs. But, unlike before, it also includes a number of right-wing billionaires who love to put themselves in the public eye and offer their views on everything from fiscal policy to culture. These include Ken Griffin (hedge fund), Marc Andreesen (tech/venture capital), and Stephen Schwarzman (private equity.)

And topping the list is, of course, Musk. He spent much of last year de facto running large parts of the U.S. government, slashing spending in ways that failed to save taxpayer money but did lead to serious degradation of government functioning and have already led to hundreds of thousands of deaths. Moreover, Musk’s narcissism – much like Donald Trump – has compelled him to make himself the center of attention in press conferences held in the Oval Office. And, like Trump, he doesn’t learn from his mistakes. He is now noisily weighting in not just on politics, the evils of wokeness and nonwhite immigration, and so on, but on The Odyssey. (He hated it and predicted, wrongly, that it would be a box-office disaster.)

The larger point here is that there has been an important transition in America from the days when oligarchic power was mostly exercised in the shadows to the current era of flamboyant and extremist displays of billionaire influence.

What caused the change? At least part of the cause is a shift in the origins of great wealth, from fossil fuels (e.g. the Koch brothers) and other traditional industries to the tech broligarchy. As Henry Farrell argues, many tech billionaires are caught up in the cult of “founders,” believing themselves to be superior beings entitled to special privilege and universal acclaim — which means putting themselves out in public. I would add that the tech industry has suffered a precipitous decline in public perceptions since its peak around 2015 — and the fawning tech bros at the Trump inauguration were, to a large extent, former culture heroes who want their glory days back.

So surely part of the reason a majority of Americans now say that democracy is being undermined, that billionaires are running everything, is that the billionaires themselves are out there boasting about their influence.

And their brazenness is actually doing the rest of us a favor. Mobilizing against the oligarchic threat to democracy was hard when the oligarchs were operating from the shadows. It’s easier now that some of them are out in the open.

Elon Musk makes an unlikely hero of populism. But his odious and unbridled narcissism may very well help save the American republic.

MUSICAL CODA

Transcript

Good news. The second richest man in America might be prevented from taking over CNN. That's the good news. The bad news is, aside from thefact that he probably will manage to pull it off anyway, the bad news is that that would be only a small piece of the ongoing takeover of U.S. media by oligarchs. And in turn, the media takeover is just part of the extraordinary exercise of power by the extraordinarily wealthy small number of men who have been wreaking so much havoc with America as we know it.

Hi, I'm Paul Krugman. Doing a video today, because I didn't feel like doing a usual chart-heavy, analytics-heavy post, but very much on a topic I have been writing about and will continue to write about, which is the rise of oligarchy in America.

Now, I know some people balk at that. But we're not talking about some kind of hidden conspiracy. We're not talking about the Protocols of the Elders of PayPal. We are talking instead about stuff that's largely out in the open, though not fully understood, which is the way that an incredibly wealthy small group of men, mostly men, is able to commandeer a lot of the political life of a country that is still nominally a democracy. And that's a fundamental story for our time, maybe the fundamental story.

How does that takeover work? Well, there is what I think of as the middle level, which is the place where it's most easily quantified, tends to get most of the attention, which is campaign finance. American campaigns are very money intensive and have become more money intensive because we've opened the floodgates with Citizens United. And a lot of that money comes from a very small number of incredibly wealthy people. According to the New York Times analysis, about 20% of all campaign contributions in 2024 came from 300 billionaires and their families.

That's a pretty big impact. A country of more than 300 million people, and 300 billionaires are a fifth of campaign finance, and surely more strategic, more targeted than the average donor. So that's really a very, very large role just in that direct sense of who pays for campaigns.

But that's not the only level. There is a lower level, lower in the sense of morally lower, I guess, which is just plain buying politicians, buying policies, paying for the policies you want with cash or crypto on the barrel.

There has always been some of that in our system, but it was normally discreet, indirect, deniable, the revolving door. It was the case even more than 20 years ago that when the Bush administration pushed through a Medicare bill that was very favorable to pharmaceutical interests, that the then chairman of the House Ways and Means Committee, who basically engineered and steered the bill through Congress, then promptly retired and became the chief lobbyist for the pharma lobby. So this kind of thing has been going on for a very long time.

But now it's just blatant, out in the open, and the sums are massive. We just have literally billions of dollars thrown at the president and his family. No doubt large sums to other government officials, large sums to at least some members of Congress. So just plain buying the policies you want — and it’s not just that a large share of wealth is held by a small number of people, but that those are the people who are best positioned to really deploy their wealth to corrupt the system.

There's also something, I guess you can call it a higher level, which is what military strategists call shaping the information space, which occurs at a couple of levels. One of them is the promotion of ideas and ideology that serve the interests of the very wealthy.

You see that on many issues. You certainly see it very much on economic policy. If you ask, why do people still go out there saying that tax cuts pay for themselves and that tax cuts on the rich are an enormously powerful tool for stimulating economic growth? That's been tested to destruction, and it just ain't so. But it's a zombie idea. It keeps shambling along, eating people's brains, even though it should be dead. And the reason is, well, there's a lot of money in it.

If you Google something I've written on, more often than not, when I do that, the top sponsored post at the top of the search page is an attack on me sponsored by some right-wing organization. And if you ask who supports those right-wing organizations, well, guess who.

And it’s equally or worse the case in climate science. Scientific journals have been pretty good at not publishing climate disinformation. But when they do publish things that are somehow skeptical, or usually not outright denial, but attempting to sow discord about climate change, what percentage of those studies have received financial backing from fossil fuel interests? The answer is 100. It's all about the money. So this is, again, this is not new. Upton Sinclair: “It's difficult to get a man to understand something when his salary depends on his not understanding it.” So that has always been the case.

But now we have something which is really, really important and is another level of this, which is the takeover of the media. So, okay. Ellison, or the Ellison family —because nominally this is Ellison's son in charge of Paramount — has already acquired CBS and has hired Bari Weiss to basically corrupt and destroy that network. If the deal for takeover of Warner proceeds, then CNN will get the same treatment. I'm finding CNN a very good news source, just braver at taking on what's really happening than my old employer, the New York Times, which is a great news organization and may be more necessary than ever, but tends to be cautious — and CNN is a little bit less cautious.

But anyway, if he gets away with it, then CNN as we know it will almost disappear. It will almost turn into Fox News. Now, that won't be a profitable venture. There's already a Fox News, and so creating another one is not going to actually produce a lot of profits, if any, but that's not the objective. This is buying influence.

Elon Musk, of course, took over the app formerly known as Twitter. Which was already becoming a more difficult place even before its takeover. I used to have, I guess, I think I had 4 million followers there. But it was impossible. I had to shut off comments because of the cesspool that Twitter had become. But now it is really by design. It is heavily tilted. That can be quantified. The algorithm really tilts it towards right-wing stuff, promotes really rabid racist views.

And unfortunately, the network effects, the centrality that Twitter used to have, still keeps a lot of people on X, where they are influenced: people's views change.

And also something that I don't know how to quantify, but it's very obvious if you follow and pay attention to people's positions, is that people who spend a lot of time on Twitter, elites who spend a lot of time on Twitter, start to think that the views they hear there are representative of where the country is — which they are not. But it does, in fact, tilt policy, tilt understanding to the right.

The third richest man in America is Mark Zuckerberg, who made his billions from Facebook. Facebook is old-fashioned: I don't know anybody who uses Facebook. But I know that lots of people do. And it's still a very important information source and has, again, been tilted.

On most of these media things, it's not as blatant as what Musk is doing at X. But it still has a big influence in changing the tone of the discussion and biasing the discussion towards positions that favor the interests of billionaires as well as favoring their prejudices if they happen to be, like Musk, authoritarian white supremacists.

Okay. And the fourth richest man in America is Jeff Bezos, who purchased the WashingtonPost. I think he purchased the Post initially out of a belief that he was going to enhance his prestige. It certainly looked in his initial tenure as if this was actually more of a vanity purchase than a political purchase. But a billionaire is going to billionaire. And so he eventually shifted the Washington Post's editorial policy hard right, eviscerated the news division. There are still some brave, plucky reporters doing good reporting there, but it's a shadow of what it used to be. And of course, it's not at all the institution of Katherine Graham and Ben Bradlee, not anymore. So that's another challenge.

What do you do about this? Obviously, one does what one can to try to limit this takeover of the information environment. And so we have the suit brought against the attempted purchase of Warner, hence CNN, by Paramount, hence Ellison. And that might succeed. You might think, well, if it's delayed, then what are the chances of actually ruling it out? Except that apparently there's a bit of a financial clock ticking for Ellison, who really has extended himself pretty far. So that's possibly going to block it, and that's good. It would have been great if someone had found a way to keep Musk from destroying Twitter. So you can look for solutions to immediate threats.

But you're not going to hit all of these balls. And so the constant pressure towards a takeover of the news media, constant pressure towards a takeover of the general information environment by a handful of billionaires, is not going to go away. The constant threat or reality of corruption of the government by billionaires is not going to go away. Maybe once Trump is gone, it'll become less blatant, but it won't go away just because someone more discreet takes office.

Even if we have an honest president, which in the current environment, I'm sorry, does mean a Democrat, but even if we have an honorable president, the corruption of the system will still be a continual threat because of all the money flowing around.

So in the end, the only way out of this, the only reasonably durable solution is to not have so much wealth at the top. If you don't like what's happening to our institutions, if you don't like what's happening to the media, if you don't like the corruption of government, if you don't like the overwhelming of campaigns by big money with nefarious ends, the only lasting solution is to reduce the amount of wealth at the top.

Woodrow Wilson: “If there are men big enough to own the government, they're going to own the government.” If we're going to have that much money in the hands of a few hundred people, and in the case of the real top of it, just 15 or 20 people, then you're not going to be able to maintain a truly democratic system of government.

Oligarchy is not the only thing wrong with America. It's not the root of all evil. But it's the root of a lot of evil. And until we bring that concentration of wealth at the top down, we're going to be fighting a constant rearguard action trying to save some of what America is supposed to be about.

Have a nice day.

The Trade Act of 1930, generally known as the Smoot-Hawley tariff, lost its standing as the worst trade policy action in US history when Donald Trump imposed his “Liberation Day” tariffs in April 2025. But Smoot-Hawley was widely recognized as a terrible mistake soon after its passage, as it provoked widespread retaliation and contributed to the downward spiral of world trade that accompanied and reinforced the Great Depression.

Recognition of Smoot-Hawley’s stupidity led to the 1934 Reciprocal Trade Agreements Act, under which the US began negotiating trade deals — we’ll reduce our tariffs if you reduce yours — that helped pave the way for the great recovery of world trade and the global economy as a whole in the decades that followed World War II.

Yesterday the Trump administration invoked an obscure and never-before-used provision of Smoot-Hawley — Section 338 — to impose 50 percent tariffs on a wide range of Canadian goods.

Why? Why now? The White House fact sheet claims that the new tariffs are a response to Canadian policies that discriminate against U.S. products, notably the moves by most Canadian provinces (not the federal Canadian government) to stop importation of US alcoholic beverages. But these policies were themselves a response to the tariffs on Canadian goods Trump had previously imposed, without justification. Canadians were also reacting to Trump’s repeated demands that Canada surrender its independence and become the 51^st state.

Were these complaints about Canadian policies the real reason for the new tariffs? On Friday Trump lashed out with the Truth Social post at the top of this article, threatening to impose tariffs on Canadian goods because of … wildfire smoke.

For the record, wildfires have been raging in Canada’s boreal forest, which covers 2 million square miles — the majority of Canada’s land area — and is mostly unmanaged because it’s completely inaccessible. Blaming Canada for not controlling fires that are, in reality, largely a consequence of global warming is unutterably idiotic.

Now, Trump officials claim that these tariffs aren’t about wildfire smoke, although the timing of these latest tariffs is curious. Notably, they haven’t ruled out the possibility of wildfire tariffs in the future. “The president has asked for options on that, and options are being shared with him,” one official told the Financial Times.

Also, one has to wonder whether Trump is feeling upset at the way he was massively booed at the World Cup final — while Mark Carney, the Canadian Prime Minister and his co-host, was not.

Whatever the real motivation for these new tariffs, they are almost surely illegal. They are definitely a violation of the U.S.-Mexico-Canada trade agreement, a revision of NAFTA negotiated and signed by Trump himself during his first term. Indeed, the White House fact sheet explicitly states that the new tariffs will be imposed “regardless of whether a good originates under the U.S.-Mexico-Canada Agreement (USMCA).”

So these latest actions confirm what most people around the world, from the European Commission to Iran’s Islamic Revolutionary Guard, have already figured out: a deal with Donald Trump lasts only until he feels like breaking it.

The immediate economic impact of these tariffs will be limited. As far as I can tell, the highly integrated North American auto industry, which sprawls across both our northern and southern borders, won’t be directly affected. But the auto industry, like business in general, has been put on notice that the huge flows of goods and services that cross those borders every day may be cut off whenever Trump has a temper tantrum.

And this really is a temper tantrum, in the sense that there’s no strategy here. The new tariffs will hurt American consumers, and nobody expects them to extract any concessions from Canadians who are only getting more outraged at the United States.

Canada should be, and used to be, America’s greatest friend in the world. We share essential political and moral values with our northern neighbor. For the most part we even share a common language, eh? And Canadians viewed us very favorably until Trump began his tariffs and threats. Now we’re viewed less favorably than China:

The White House fact sheet on this latest move to further alienate everyone on the planet came with the usual pop-up:

Well, I don’t see a golden age. I see an America that has become an ineffectual bully, sicker, poorer, and riven by political extremism, with no friends anywhere in the world.

MUSICAL CODA

Brazil introduced Pix, a digital payment system, almost 6 years ago. The system — which allows people to make payments on their phones, not very differently from Apple Pay or Google Pay, except that Pix payments are official currency rather than transfers from private companies — has been highly successful. The vast majority of Brazilians use it regularly, and by all accounts Pix — which is free for individuals, and cheap for businesses — is hugely popular.

On Wednesday — as it happens, on the first anniversary of an article I posted praising Pix and suggesting that it may represent the future of money — the Trump administration will try to punish Brazil for this success. It will do so by imposing tariffs on Brazilian exports under Section 301 of the 1974 Trade Act, which permits such tariffs to counter “unfair trade practices.”

Why is it unfair for a nation to offer its own citizens a better way to make purchases and pay bills? To some extent the Trump administration is still trying to punish Brazil for being a real democracy. Unlike the United States, Brazil put its former president, Jair Bolsonaro, on trial for trying to foment an insurrection when he lost the last election

Trump’s hostility towards Brazil’s Pix system is also an illustration of the same phenomenon we see in his energy policy: this administration is hostile to progress whenever that progress works against the interests and ideology of the oligarchs who have poured money into Trump’s campaigns and his pockets.

Pix is essentially a digital version of the real, Brazil’s currency. As a Federal Reserve report from 2022 said, a central bank digital currency — which is what Pix is — “is analogous to a digital form of paper money.” Brazilian banks are required to offer Pix, which the Trumpists claim gives it an unfair advantage over debit cards and other payment methods. But this requirement is similar, at a fundamental level, to the requirement that all U.S. banks accept dollar notes as deposits and disburse dollar notes on demand, which few people would consider unfair.

Who is hurt by the advent of Pix? Brazilians’ ability to cheaply make instantaneous payments from their phones certainly hurts the business of Visa and Mastercard, which are both U.S. companies. But since when is it unfair business practice when companies lose business to a competitor that offers a better, cheaper product? For example, should we shut down the U.S. postal service because it offers better and cheaper mail delivery than UPS or FedEx? Should we shut down PayPal and Venmo because they compete with Mastercard and Visa?

Beyond concerns about Visa and Mastercard profits, Trump officials are reportedly concerned that Pix and similar payment systems elsewhere might challenge the international dominance of the dollar. In reality, Brazil is too small a player to make much of a dent in the world payments system. The dollar may, however, face a real challenge if the European Central Bank is able, as it hopes, to introduce a digital euro in 2029. If that happens, it’s not hard to imagine that a significant number of transactions that would otherwise have been made in dollars will be made in digital euros instead.

But let’s be clear: the reason people might switch to digital euros will be because the US won’t be offering an equally good means of payment. Why won’t there be a digital dollar? Not because it’s a bad idea — as Brazil has shown, it would be a very good idea. But there are powerful special interests that oppose any such move.

Last year Republicans in the House passed a bill that didn’t just forbid the creation of a U.S. central bank digital currency; it prohibited any study of the issue by the Federal Reserve. “Don’t even think about parking here creating a digital dollar.”

Proponents of this ban claimed to have concerns about how a central bank digital currency would work. But it’s obvious that their real concern is that it would work too well. Crypto interests, in particular, are very worried that consumers who had access to digital dollars would lose interest in stablecoins and other cryptocurrency products, because these products, being risky and awkward to use, would not be competitive with a system that simply lets people make electronic payments in dollars.

Brazil’s success is especially galling to crypto promoters because it’s in such stark contrast to the results of another Latin American monetary experiment: El Salvador’s attempt to make Bitcoin a major means of payment. The government of President Nayib Bukele made Bitcoin legal tender and spent large sums trying to promote its use. Yet the effort failed: cryptocurrency never caught on as a means of payment, and the plunge in Bitcoin’s price since last fall has inflicted large losses on El Salvador’s government.

Beyond special-interest opposition, Brazil’s digital currency clearly raises the ire of right-wingers who hate the idea of a government providing a service that could have been offered by the private sector, even — or rather especially — if the government can do it better. If we can have a digital dollar, why not a public option for health insurance?

Finally, the furious opposition to central bank digital currencies reminds me of the Trump administration’s all-out efforts to block development of wind and solar power. In both cases we see political players beholden to special interests — crypto when it comes to money, fossil fuels when it comes to energy — who claim to favor technological progress, but scream “not like that” when a superior technology doesn’t take the economy where they want it to go.

Now, using tariffs to punish Brazil for its monetary achievements won’t succeed. Politically, the move will only strengthen Brazil’s President Lula. Economically, the reach of the tariffs will be limited by Trump administration fears about driving the prices of coffee, orange juice, beef and other goods even higher. And as Monica de Bolle at the Peterson Institute for International Economics argues, Trump’s tariffs have on balance strengthened Brazil’s position: “Trade diversion around the globe as a reaction to US tariffs has turned Brazil into an export powerhouse,” with Brazil, for example, capturing much of the Chinese soybean market.

But the obvious folly of these new tariffs won’t stop them from happening. The Trump administration has declared war on the future — and one thing we know about Trump is that he never admits it when his wars of choice fail.

MUSICAL CODA

I know, they’re Catalan, but I really like this

Forbes

America is becoming increasingly oligarchic.

Today’s post is the first in a series on the economics of oligarchy in the United States, where wealth and power are increasingly concentrated in the hands of a small group at the top, and government policies have reinforced that concentration of wealth and power.

Saying that America is experiencing the creation and entrenchment of a tiny oligarchy of hyper-wealthy individuals is no longer controversial. The truth is that this process has been proceeding for several decades, largely via a concerted effort by extremely wealthy right-wing families such as the Koch Brothers. Until recently, however, the undermining of America’s republican vision largely flew under the radar of observers other than those tracking the changing landscape of campaign finance and the Supreme Court nomination process.

However, under the second presidency of Donald Trump, the rise of the tech billionaire broligarchs, who openly and lavishly supported Trump while enriching his family members, has put the dynamics of American oligarchy in the spotlight.

Moreover, today’s billionaire class is far more tightly linked in its interests and interactions than the earlier generation of hyper-wealthy – such as the Koch Brothers (fossil fuel), the Adelsons (Las Vegas casinos) and the Walton family (Walmart). As Henry Farrell notes, right-wing tech billionaires like Peter Thiel themselves

depict the tech industry as a place where everyone who counts knows everyone else. Venture capitalists are closely interconnected. Founders and CEO’s look at each other with a mixture of respect and jealousy.

Thiel describes how you want to build your company around a ‘mafia,’ and Silicon Valley is organized in ways that are not entirely unlike its Sicilian predecessor in its golden era. There is no central organization, but there are central cliques. You need to be connected to get things done.

A few hundred billionaires, around 0.0002% of the adult population, have a combined wealth equivalent to approximately 20 percent of GDP. This tiny set of hyper-wealthy individuals also accounts for approximately 20 percent of total campaign contributions and thereby exerts huge influence over public policy – a state of affairs that is a direct result of the Koch-created Roberts Supreme Court’s Citizens United ruling. The hyper-wealthy use their influence to push policies that are in their class’s interest, such as corporate tax cuts.

And because these policies are almost always highly unpopular, they also use their influence to undermine accountability and democracy in America. If that doesn’t make America significantly oligarchic, I don’t know what would qualify. Moreover, the self-reinforcing nature of oligarchic influence creates what I have called a “downward spiral of oligarchy” — extreme wealth leads to extreme political influence, which leads to greater benefits for the hyper-wealthy, and thus even more extreme wealth.

Some may ask: wasn’t it always thus? No, it wasn’t.

Granted, market economies always generate significant income and wealth inequality, and economic inequality always leads to some inequality in effective political power. But even a quarter century ago the wealth and power of the economic elite were far more limited than they had been during the Gilded Age — and far more limited than they are today.

A few days ago I argued, based on economic research, that the soaring concentration of wealth at the top since the 1970s largely reflects a decline in the progressivity of the tax system — the end of high taxes on the elite, which when in effect both limited the ability of the very wealthy to accumulate ever larger fortunes and limited their political influence. Today’s primer will do a deeper dive into the rise and fall of progressive taxation in America since the early 20^th century.

This post will not engage in the debate over direct taxes on wealth. Such an important policy debate deserves a post of its own, which I will write soon. In addition, I will discuss in future posts other ways to limit oligarchy, such as anti-trust policy, consumer protection policies, and measures to limit political corruption

In this first post of the series, I will address the following beyond the paywall:

1. The history of progressive taxation in the US

2. Who really pays high-end taxes?

3. How high should high-end taxes be?

4. How should the hyper-wealthy be taxed?

Read more

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TRANSCRIPT:
Paul Krugman in Conversation with Lina Khan

(recorded 7/14/26)

Paul Krugman: This week, I managed to get to talk to Lina Khan, who was the incredibly influential and smart head of the FTC in the previous administration—with the current administration doing everything it can to undo her work. She played an important role in the Mamdani transition team and has had a lot of smart thoughts about technology and policy right now. And I thought we could talk for a bit about this, well, it’s always a bizarre moment these days, but this is the bizarre moment we’re in. And so, hi.

Lina Khan: Hi, great to be here.

Krugman: I want to get into technology and AI, but I wanted to just start with something that just happened. One of your special causes, which is “Click to Cancel,” which you tried to get as a national policy, just went through in New York City. Can you talk a little bit about what was achieved here and why?

Khan: I’d be happy to. So, last week, the Mamdani administration announced that they are moving forward with two consumer protection initiatives. One was the finalization of a “Click to Cancel” rule, which basically says that businesses have to make it as easy to cancel a subscription as it is to sign up for one.

This rule is responding to the fact that we’ve seen a pretty significant pivot to service-based revenue, and more and more companies are relying on subscriptions as a regular business revenue line. And that has created an opportunity for firms to create a lot of friction when people are trying to unsubscribe. A lot of people can relate to situations where it’s very easy to sign up, or sometimes you’re enrolled without even your full knowledge or consent. But then once you try to cancel, companies can make you jump through all sorts of hoops. Maybe you signed up with one click online, but to cancel you have to phone somebody, except the hours are really restricted or there’s nobody there to pick up the phone. In some instances, you may actually have to go in person.

When we were at the FTC, we got thousands upon thousands of complaints, and people shared how, even during the pandemic when they were looking to cancel their gym membership, some gyms required that they go in person even after they had left the state. So this has been a growing problem, and people lose real money from it. I mean, there are estimates that, in New York City alone, people could be collectively losing over $160 million a year. So this rule, which is going to go into effect in October, is an incredibly important step forward.

The administration also announced that they’re going to be proposing a rule to tackle junk fees. These are the fees that oftentimes show up at the very end of a transaction, even though they were not reflected in the original advertised price. Sometimes they’re called convenience fees, service fees, or amenity fees. And these are non-discretionary; people have no choice but to see them included. Companies will, again, often not advertise them on the front end, which is both deceptive for consumers but also gives them an unfair competitive advantage, because honest businesses that are marketing the all-in price then lose business to those firms that instead do pricing where they market a lower price and then add all the additional fees at the end.

So, I’m really thrilled that the Mamdani administration is moving forward on these two initiatives, especially because we have seen some very serious backsliding at the federal level, where consumer protection initiatives have either been abandoned entirely or powerful companies that have connections to the White House can basically pay their way out of legal accountability. And so it’s incredibly important to see cities and states fill in that gap.

Krugman: I couldn’t actually quite figure this out, but there’s this other initiative from Mamdani: public interest technology. Are you involved with that?

Khan: It is something we considered during the transition and wanted to set up the administration with the option. But, yeah, this is basically... they will be creating a team that is going to be laser-focused on improving service delivery—technological service delivery, digital service delivery—to New Yorkers. And so there are all sorts of online portals that people have to interact with that are not really optimized; really important city websites that are still optimized for desktop, and when people try to use them on their phones, they break down. And so there’s going to be a lean team of technologists designed to go in and make sure that across city services, people are having a good experience and that these things are easy to use and functional for people.

I would say the effort has some analogs to what was done at the federal level with the U.S. Digital Service, which was a team in the White House of technologists back in the Obama era. When I was at the Federal Trade Commission, we similarly brought in a team of technologists, and we’ve seen that, especially as more and more commerce goes online, and more and more government services go online, it’s incredibly important to have technologists on board designed to make sure that these things are easy to use and well-functioning.

Krugman: I’ve seen a couple of areas where essentially governmental functions are initially done by trying to buy off-the-shelf technologies or bring in Microsoft or whatever. And I know of at least a couple of examples where it was a huge improvement just getting their own people because they kind of knew what people actually needed. So, I don’t know if you’re thinking along those lines or where it goes.

Khan: I think you’re right that it does get to this deeper issue of what does it mean for the government to have capabilities and to actually build those capabilities in-house. I think we’ve seen various eras where the government will largely rely on outsourcing, relying on various consulting firms. And there’s a first-order question as to whether the government is really getting a good return on investment there. I think we’ve all seen the news stories about New York City having paid millions of dollars to McKinsey to produce a report saying, effectively, “Put your garbage in garbage cans.”

But beyond that, I think over-reliance on outside consulting firms can also deprive the state of building in-house state capacity, which can be incredibly important for the long term. And so, again, I think the administration, through bringing some of these functions in-house, is also going to be investing in those long-term capabilities within government.

Krugman: Yeah. I’ll give you, just quickly, my own example. There are bigger ones, but everybody doing sort of macroeconomics now is utterly reliant on this thing called FRED, the Federal Reserve Economic Data, from the St. Louis Fed, of all places. And the thing is, they did not outsource. They just asked some of their own people, who actually knew what working economists needed, to produce a website that is really optimized for people like me, and that’s just incredibly helpful. I assume that there are many, many examples where that could be done.

Khan: Yeah. I mean, the other risk that you create if you are entirely dependent on some external actor is that a single business decision can render some of those products useless or severely degrade the capability overnight, or it turns out that there’s a new subscription and so there are all these additional costs. And so, either diversifying those inputs or creating more in-house capability is important insurance around some of that private power.

Krugman: Okay. And New York City would certainly be among the world’s 20 largest economies so this is not a small issue.

But these days, everyone is talking about AI all the time, in terms of the economics and a lot of political stuff. You were doing a lot of work on AI at the FTC, and you have written quite a lot since. I wanted to pick your brain a bit, but why don’t you tell me where we were going before the change in administrations on AI policy, and we can move forward from there.

Khan: At the Federal Trade Commission, we were really focused on both the competition implications of artificial intelligence technologies, as well as some of the protection implications. On the competition front, we were really focused on, first of all, understanding: what is the stack? What is each layer of the AI supply chain of sorts? And how do we make sure we understand what each of the economic properties are across the board?

And so you have the chips, you have these hyperscalers, you have cloud infrastructure, you have these models, and then you have various apps and services built on top of those models. And what we’ve seen in other markets, including Web 2.0 and in digital markets, is that it can be very easy for one of these layers to become monopolized because of certain network effects, and because of economic properties that lend those markets to tip quickly. If you allow monopolization without additional rules—such as common carriage or requiring equal access on equal terms—it can really result in other layers and other markets similarly becoming monopolized or otherwise becoming distorted, rather than principles of open and free and fair competition being really what’s allowing more of this economy to thrive and develop.

And so we were really looking at the AI stuff through that lens, trying to understand: are we already seeing certain layers where there are bottlenecks or gatekeepers emerging, and could that undermine fair and free competition in other layers in ways that could deprive the public of the full promise and innovation of some of these technologies? And so we had various investigations underway based on what we were hearing from market participants. But at the end of the day, we wanted to, again, make sure that inasmuch as this is a technological inflection point, there could be a lot of opportunity. How do we make sure that the best ideas have the opportunity to win, rather than existing gatekeepers using their power to basically pick and choose winners and losers in a way that results in more self-interested outcomes for them at the expense of the public and for the market as a whole?

At that point, we were hearing various concerns about Nvidia and various ways that they had become a core gatekeeper. We’ve heard concerns about the hyperscalers and ways in which firms that run cloud computing could be getting privileged access across the AI supply chain. And so those were some of the types of concerns that we were hearing at that time.

Beyond that, we were looking at potential consumer protection abuses of these technologies, ranging from abuse of people’s personal data. For example, with more and more AI firms looking to train their models, they’ve become even more hungry for data, including people’s personal data. And so we were starting to see things like Google [Workspace] or other types of service providers sometimes changing the terms of service, saying that they could now use the content of, say, people’s inboxes or their Google Docs to now start training their models without attendant protections for people’s data. And people had not been setting up their inbox or writing emails in a way where they were anticipating that suddenly a company like Google could be using all of that for training data. And so we made it very clear that these types of after-the-fact changes in terms of service could, in some instances, be illegal.

We were also focused on ferreting out how some of these AI tools could be turbocharging fraud and scams. And so we were already seeing at that time: an uptick in complaints around things like voice cloning fraud, the way that some of these AI tools can be used to mimic somebody’s voice. You call somebody’s grandparent, pretend their grandkid is in distress and needs thousands of dollars wired over immediately. We were seeing this as a growing vector of fraud that people were starting to lose a lot of money to. And so we wanted to make sure, at the very least, that these companies knew that the existing laws on the books, both from an antitrust and competition perspective as well as from a data privacy and consumer protection perspective, still applied.

Sometimes in Washington, there can be a pattern where firms try to use new technological moments to argue that existing laws are invalid or out of date and don’t apply. And we wanted to make sure there was no misunderstanding about that—that the existing legal tools in place absolutely applied.

The other thing we heard on the competition side was this issue of “interlocking directorates.” We were seeing a lot of AI partnerships and a lot of investments, famously Microsoft and OpenAI, and a whole bunch of other ones between Google and Amazon. And there was a lot of murkiness around what were the actual terms of these partnerships and investments, and could some of these investments, in turn, give outsized control to some of the existing monopolists over competitively strategic decisions? And so that was another area where we were looking under the hood to try to understand what’s really going on here in terms of these financial relationships.

Krugman: Going back into history, the trusts that originated “antitrust” as a term... that was kind of overlapping, interlocking control. It was basically when you had the same people overseeing many companies. I’m perhaps doing violence to the history here, but am I right?

Khan: Yeah, that’s right. The trust referred to basically a form of corporate control where this trust vehicle would basically roll up various entities and have financial control over various enterprises.

Krugman: Yeah. And the Standard Oil trust was the most famous, but by no means the only one. And did you have specifics about the kinds of laws that they wanted to put by the wayside? I mean, I’m sure, but just give it a little concreteness for us.

Khan: Yeah. I mean, I think one of the legal issues that is still percolating is this question around copyright. A lot of these models have been trained on existing information that is online, but much of that information has copyright associated with it. And so we would also hear from a lot of authors, artists, graphic designers, and people who produce content for a living who said they woke up one day to find out that this model had been trained on their life’s work and was now suddenly spitting out content in some instances that was competing with them. And yet, it was trained on them. And then because some of these firms controlled how search results are listed, they were now losing business to the AI version of their work.

And so there are some really serious, meaty legal issues embedded there around unfair competition and copyright. This is an instance where, in existing litigation, some of the AI companies are arguing for “fair use”—that they were basically able to scan and train on all of this information because it was effectively in the public commons. And so some of these issues are still being litigated.

But it’s really important to think about what the long-term incentives will be for newsrooms, for example, to still invest in news production and investigations if they’re not able to actually recoup their investments because it’s then just being swallowed up by some AI model. And so there are some serious long-term questions here around whether we are structuring our markets and structuring compensation structures in ways that are still going to incentivize the production of news or information content that we, as a society, decide is valuable.

Krugman: Yeah. One thing I’m hearing from people in the news business is that the rise of AI in search is sort of suppressing links. Instead of getting a link to the deep investigative report by The New York Times or Bloomberg or whatever, you get an AI summary of what was in it, and people never go to the links. That’s the kind of thing, I guess, we’re worried about in many domains.

Khan: That’s exactly right. And this is something that we had been seeing with Google even before 2022 or 2023, where they were giving privileged search results to some of their own vertical products in reviews, maps, or other types of search and travel verticals. But this problem is now being turbocharged, precisely for the reason that you said, and some of the statistics that are coming from publishers around just what a dramatic drop-off there has been in terms of search traffic to some of these publishers’ websites is just staggering.

And so we see: before, Google used to be a turnstile to the rest of the web, where Google was the starting point so you could get to other destinations. And now, especially with more of these AI tools summarizing what’s on other websites and keeping people just within Google’s ecosystem, it’s depriving all of these other publishers of the traffic and oxygen that they would need to continue being financially viable, even as those other publishers and producers are the ones that are creating the information and the content in the first place. And so I think these are going to be some serious challenges.

Krugman: Yeah, this is something where people that I know fairly well are actually quite seriously scared that their financial models are being undermined at lightning speed. One thing you can say about AI is that whatever is happening, it happens really fast.

Okay. The particular thing that got me wanting to do this interview was an Op-Ed that you published in The Times, I guess soon after leaving the FTC. That was February 2025. Although when I looked and saw that that was the date on it, I was shocked because, in my memory, it was so prescient that it had to have been written like late last year. But it was actually written at the beginning of last year. It was under the headline, “Stop Worshiping the American Tech Giants.” Can you summarize what you were saying there? Because it does seem incredibly relevant to where we are right now.

Khan: So, this was a piece that I wrote looking at the history of innovation in Silicon Valley and noting that, historically, the most paradigm-breaking innovations have come from markets that have allowed for real competition and allowed for new ideas to come in, get funded, and then to be able to really break into the market and compete on the merits of whether businesses or consumers like their products and services, as opposed to markets where you have gatekeepers basically deciding who gets to enter and who doesn’t get to enter.

And so I was noting in the piece that at this moment of growing investment in AI, we would do well to want to double down on that commitment to competition, rather than allowing the monopolies and incumbents of Web 2.0 to be the ones that get to decide who gets to come into this market and who gets to compete or not.

One of the catalysts for my writing this piece was the emergence of DeepSeek. This was an AI firm that originated in China. And it really shocked Silicon Valley and Wall Street when its model was rolled out, because it mirrored or rivalled the sophistication of American models but was able to do that with much more efficiency. And it really, I think, was a wake-up call from where I sat as to what it would mean to allow the American giants to just control these markets and innovate on the trajectories that they were determining, rather than allow for real competition.

And I think with the American AI giants, there’s this additional question around conflict of interest. Again, some of these very firms—the Microsofts, the Amazons, the Googles—have their own cloud computing businesses. And inasmuch as these AI models are heavily relying on cloud computing, I think there’s a question to be asked as to whether these firms are going to have the right incentives when it comes to wanting AI models to be efficient, if they are simultaneously making a lot of money from models that are not efficient. And so I think the DeepSeek revelation was something that brought that conflict of interest to bear.

Krugman: I sometimes hate that everything gets formulated in terms of competition with China, but at least part of the issue now is the idea of “national champions”—and we get to that in a minute or two—but that they are arguably, at least, putting us behind in competition with China. And then again, a lot of that has come to a head recently. People started to say, “Oh my God, we’re spending too much on tokens,” and a fair bit of turning to Chinese models. And that’s a huge move. And that was why, when I look back and read your piece, the date just popped out at me. I can’t believe you wrote that 18 months ago.

Khan: Yeah. I mean, I think you’re absolutely right. And there are some real historical parallels here when it comes to certain technological companies insisting that these markets are inevitably going to be monopolistic, and therefore the government should treat them as “national champions” and support their monopolization.

The piece also mentions Boeing as a cautionary tale here. There was a merger in the late 1990s that the U.S. government approved, where we allowed Boeing to buy up their last U.S. rival, McDonnell Douglas. And that merger, and what followed, basically has led us down a path where you then had Boeing’s planes falling apart, and people have died. And I think it’s unfortunate to have to admit that the lack of competition there probably played a role in Boeing not having to invest as much. There were other factors in terms of the culture internally—moving away from one that focused as much on engineering to instead one focused more on a McKinsey-type culture based on consulting—but I think we’ve seen how a lack of competition in some cases has really major consequences.

Krugman: Yeah. This is one of the things which I love about your analytical work: the interplay between the cutting edge and history. Because everything is new, but on the other hand, we’ve been here before. And I thought that the Boeing example, as how things would go wrong, was a little bit revelatory.

I know that you have a bunch of other things on your plate, but to the extent you’re following AI—and you may be following it more closely than I would imagine—where are we in that process now? Has the U.S. AI sector managed to get sloppy with monopoly already? I mean, everything now seems to happen at ten times the historical pace.

Khan: I think there are going to be some new openings for potentially having more competition. I think, even with some of the more open models, you’re seeing that they can themselves be an input into more competition. And historically, we’ve seen that with open source—there are a lot of committed people around it because they believe the philosophy, but open source as a business model can also be enormously lucrative because it can just really catalyze innovation. And so I think making sure that we still have a vector and markets that are going to be built around that openness is going to be incredibly important.

I think this issue of conflicts of interest is one that we need to take seriously and think through. Does it make sense to have the vertical integration that we do? Vertical integration can have, no doubt, various types of benefits, and there are sectors where having markets vertically integrated in that way can make a lot of sense. In markets where you are going to have one layer or multiple layers—the bottleneck layers, new layers where you have a lot of consolidation—allowing market participants in those gatekeeper-monopolized layers to also have a presence in layers that actually should be competitive. There’s nothing about economic properties that require those layers to be monopolized. But that’s when I think you can see a real problem. Because then you allow the monopolies to export their control and their consolidated power up and down the supply chain, distorting competition and distorting the trajectory of innovation.

And so I think that’s the kind of prism through which we really need to look at the AI stack, along with these questions of efficiency. And what are the underlying incentives here? Do we have the right incentives when it comes to wanting to promote more efficiency with these models?

Krugman: Right. And getting back to your example, at least as I understand it, if you have big players, either directly or with substantial ownership stakes, who are also in the business of selling compute, essentially they have no incentive to help the models use less compute—even though that would mean less environmental damage—and also have an incentive to favor profits there that are inefficient. And possibly, given that we do have a global economy, losing ground to rivals. Am I garbling this, or is that kind of how it is?

Khan: I think that’s right. I mean, the other thing is these AI technologies and advances are coming against the backdrop of markets that had already been monopolized, right? There are major litigations against Google, which has been found to be a monopolist three times over, and against Amazon and Apple. And these are companies, especially when it comes to Google and Apple, that already have very significant control over key portals and over key distribution points.

So, the way that most people interact with some of these AI models is through technologies owned by some of the existing gatekeepers—be it Microsoft, Apple, or Google. And so with those firms in particular, and especially Google and Microsoft which have invested more in AI, that’s where we also see potential conflicts of interest. We’ve already seen Google’s share of some of these markets go up because they’ve made such an aggressive push to use their existing monopolies in areas like Chrome and Google Search to make sure that it’s their AI services that get a leg up.

Krugman: Yeah. Just a quick sociological observation—this is striking. I remember in a way that hopefully you don’t, but the dot-com era: that was all the scrappy young guys in their garages, and this is all giant corporations—the already giant corporations, and guys who made their decabillions 10 or 15 years ago. In some ways, I almost sometimes feel like the AI investments are kind of a plutocrat midlife crisis playing out.

Sorry, but last point on this: One concern I have about the view of national champions is that we end up with—and I think you expressed this as well—having national policy directed to protect these incumbents, these players, even when they don’t have the right stuff. And now with talk of the Trump administration taking a stake in things, how big is that in your view?

Khan: Specifically the concern around state control?

Krugman: Well, not so much state control as that maybe if the Chinese have a better model, we start saying, “Oh, no. National security. It can’t be used here.” Or if there’s a smaller player that has a better model, that somehow or other there will be federal contracts, federal rules written to favor the big players who help pay for ballrooms and stuff like that.

Khan: It’s a huge concern. I mean, it’s no secret that the CEOs of some of these technology companies have made it a top business priority to curry favor with this White House. They were all sitting there on the stage at the inauguration. They all make regular pilgrimages to the White House, to various state dinners. And so I think there’s a very serious risk of capture—a very serious risk of regulatory decisions being made in ways that are not serving the public interest at large or serving competition at large, but instead are serving the narrow private interests of a very small number. And so I think those are very serious risks.

We’ve seen some debates in the White House and some policies that are veering in this way or that way. It seems like initially the White House had a very hands-off approach when it came to AI, and then they’ve started to take more interest in some of these specific models and where and when they’re being released. But I think, from a competition perspective, there is a very real risk that we’re going to see the biggest, most powerful incumbents, through their access to the White House and politically powerful individuals, be able to get rules and regulations that are personally favoring them and personally advancing them at the expense of the broader market, in the sense of startups and newer firms that in some instances may have better ideas.

I mean, this is an age-old debate: what are the underlying market conditions that best pay for innovation? Is it monopoly or is it competition? The famous Schumpeter-Arrow debate. And at the end of the day, it comes down to this question of what type of innovation you are trying to promote. The empirical evidence shows that monopolies can be good at innovating, but they are primarily good at innovating in ways that deliver incremental improvements on existing technologies. Historically, the breakthrough innovations and the paradigm-shifting innovations have come from outsiders and have come from a competitive market.

And so I think that’s why it’s especially important, as we look down the inflection point of some of these AI technologies, that we’re not allowing extreme centralization of those systems, when it’s in fact openness and competition that have been such a key driver of American innovation and market growth.

Krugman: Yeah, in your op-ed, you point out that, I guess, the fundamental, sort of conceptual breakthrough that made what we call AI possible all came from Google, which just did nothing with it. It wasn’t until people left that they brought it to other places, and it started to become what we now see all around us.

Khan: That’s right. And sometimes if you talk to employees at some of these companies, they will note just the enormous amount of bureaucracy, an enormous amount of bloat and red tape that can start to hobble the ability of these bulking institutions to really deliver fast-moving innovations. And so that’s why you see that sometimes ideas that even came from within Google actually have to go outside to get the attention and space to really be able to deliver.

Krugman: Yeah. One of the great myths of our time is that the private sector is being efficient and innovative and only government is bureaucratic and slow. But if you’ve ever worked for or know anybody who works at a large corporation, it just ain’t so.

Okay, just an open-ended question: what competition issue are we not paying enough attention to right now? Just trying to think about all of that stuff going on. It’s so much AI-focused, but what else? What’s kind of nagging at you as you track what’s happening?

Khan: Well, I think one question is the way that AI and continuing technological advances and sophistication will intersect with other markets that are already very consolidated. And so as we see more and more integration of some of these AI tools in areas like healthcare, for example, or in areas like retail, I think there is an opportunity for these technologies to move. On the one hand, they could make these markets more open; but on the other hand, they could actually result in even deeper consolidation.

We’ve already seen a whole set of lawsuits noting how in areas like housing and agriculture, there is use of algorithms to facilitate price fixing and collusion. Because where you already have a lot of concentration, these tools can basically make it easier to collude, or make it easier to collude with more precision and sophistication. And so I think the intersection of AI and technology with the rest of the economy is going to be an area to keep watching.

Krugman: All right. Brave new world and really kind of alarming. I wish you were still in the federal government. But you’re by no means out of public policy. So thanks for talking.

Khan: Thanks for having me.

Source: Pew

Donald Trump surprised me last night. I expected to hear lurid lies about the 2020 election. What he offered instead was mostly dreary innuendo that convinced nobody.

Which is not to say that his speech was free of lies. Indeed, more or less every word he spoke was a lie, including “a,” “and,” and “the.” But the most spectacular lies weren’t about U.S. elections. They were at the beginning, when Trump boasted about America’s place in the world.

Here’s the part that caught my eye:

We had transgender for everybody, men in women’s sports, crime ravaging our cities, and the whole world was laughing at us as a nation, but not anymore. Two years ago, our country was dead. Now, we are the hottest country anywhere in the world. America is respected like we have never been respected before.

In reality, one of the most spectacular consequences of Trump’s return to power and the mess he has made since has been a collapse of global respect for America. The chart at the top of this post is from Pew’s Global Attitudes Survey, but you don’t need a formal survey to know that the world increasingly despises the U.S. Just travel overseas and talk to people.

And it’s not just public opinion. Governments around the world, very much including nations that used to be our most loyal allies, are scrambling to reduce their dependence, economic and military, on an America that can’t be trusted and has also proved itself far weaker than anyone imagined.

Why do global attitudes toward the U.S. matter? For one thing, they obviously matter enormously to Trump. Claims that America was a laughingstock under Biden but that everyone now admires him are near the top of many of his speeches. Trump is not, to say the least, a man with great inner strength. He lives for external validation, or the appearance of external validation. Clearly, the delusion that the world is in awe of his prowess is key to his fragile sense of self-worth.

More important, Trump’s boasts about America’s international reputation are part of the case he is building for disrupting and/or rejecting the results of the midterm elections. Trump isn’t just insisting that everything is rigged against him. He’s also insisting that since he’s doing such an incredible job — presidenting like nobody has ever presidented before — nobody should get in his way or place any limits on his power.

It’s safe to say that at this point nobody who wasn’t already completely in the Trump tank is being persuaded by all this strutting, or indeed by anything Trump said in last night’s low-energy, boring rant. But remember: At this point, none of what Trump says is really about persuasion. It’s all about laying the groundwork for his attempt to destroy democracy.

MUSICAL CODA

Suddenly it’s OK to sound the alarm about the political power of billionaires. And I do mean suddenly. The chart above, from political scientist Andrew Hall, examines fundraising emails to track the extent to which politicians say negative things about the hyper-wealthy. Not surprisingly, almost all mentions are negative. Until 2025 there were remarkably few such mentions – that is, until the cavalcade of fawning tech bros at the Trump inauguration abruptly made criticism of billionaires and their influence mainstream.

Hall calls this “billionaire bashing.” Tyler Cowen calls it “billionaire derangement syndrome,” as if it were unreasonable to worry about the political power of a handful of incredibly wealthy men who are bestowing tens of millions in favors to the Trump administration and the Trump family, as well as spending vast sums to influence elections and Supreme Court nominations. The real puzzle is why it didn’t happen sooner.

You don’t need statistics to realize that there has been an explosion of wealth at the very top of the scale. From their titanic yachts to their life extension treatments, the hyper-wealthy are flaunting their billions almost everywhere one looks. For example, a few days ago the Wall Street Journal published a report on a new trend: “landmaxxing,” as in, the hyper-wealthy are increasingly buying giant estates:

And the statistics bear out the impressionistic evidence: there has been an explosion of wealth at the very top. In last Sunday’s primer I noted that in 1982, the first year Forbes compiled its list of the 400 richest Americans, the combined wealth of the 400 was only $92 billion. In 2025 it was $6.6 trillion. Even adjusting for inflation, the growth of wealth at the top has dwarfed gains in income and wealth for the average American:

So why should the rest of us care about how the other 0.0002% live? One important reason is that wealth at the top is, to a significant extent, coming at the expense of American workers. As a recent report from the New York Fed documents, the share of national income going to workers is at an 80-year low:

Source: Liberty Street Economics

A second, even more important reason is the fact that the hyper-wealthy aren’t just landmaxxing -- they’re powermaxxing.They are seriously undermining American democracy as well as lowering the living standards of ordinary Americans.

The Journal article about mega-estates name-checked Larry Ellison, who is America’s 2^nd richest man, and Ken Griffin, who is only the 21^st richest, with a mere $50 billion in net worth. In addition to buying huge compounds, both men are very much buying political influence. Ellison’s family has taken control of CBS, which it is rapidly corrupting into a right-wing mouthpiece, and is trying to take over CNN too. And the day after the report on landmaxxing, the Journal published this:

Again, statistical data bear out the impressionistic evidence. As recently as the 2000s, the hyper-wealthy played little direct role in campaign finance, although influence campaigns by the likes of the Koch brothers and Richard Mellon Scaife were already having a major effect on the politics of taxation, climate and more. Since then the combination of soaring billionaire wealth and the Citizens United decision by the Roberts Supreme Court — a court whose Trump-enabling, anti-democratic slant was itself largely engineered by the Kochs — have opened the floodgates. Billionaires accounted for almost 20 percent of campaign spending in 2024, and that surely understates their influence:

Massive political spending has given billionaires massive political power. True, some of what the Trump administration does reflects Trump’s personal whims, obsessions and vanity — which is why the Iran debacle happened and is turning into a quagmire. But a large part of federal policy now is government of the billionaires, by the billionaires, for the billionaires.

What do billionaires want and get? Money isn’t their only object. Some of them genuinely believe in causes beyond their own further enrichment. Unfortunately, these causes are on average loathsome. Elon Musk, to take the most prominent example, appears to be personally committed to white supremacy and right-wing extremism. Peter Thiel, who bought JD Vance his Ohio Senate seat, appears to be genuinely crazy: he’s called for a return to monarchy and is now ranting about the antichrist. As Henry Farrell argues, we shouldn’t be talking about billionaire derangement syndrome, we should be talking about deranged billionaire syndrome.

Obligatory disclaimer: not all billionaires are deranged, and some are public-spirited figures who try to use their wealth and power to help others. However, the Citizens United decision, along with the Trump administration’s raw corruption, opened the door for the all too numerous predatory billionaires to acquire more political power in order to further rig a system that is already greatly tilted in their favor. Want to pollute air and water? Want your anti-competitive merger approved? Want a big tax cut that benefits the billionaire class while stripping ordering people of their healthcare? Want to eliminate financial regulation so that you can play games with and siphon off other people’s money? No problem on all those counts.

Above all, the billionaires want low taxes for themselves. A recent paper by Balkir et al estimates that because we tax income from wealth at much lower rates than income from wages, the wealthiest 400 people in American pay an average tax rate of 24%, compared with 30% for the population at large and 45% for high-income Americans who derive their income from earnings rather than ownership of assets.

As I noted Sunday, low taxes on the hyper-wealthy feed a downward spiral of oligarchy in which low taxes make it easier for huge fortunes to grow even larger, and in which the power of vast wealth keeps increasing, leading to even more favorable policies for the few.

This downward spiral has been taking place for decades. As I said, the real question about the backlash against billionaires is why it didn’t happen sooner.

And rather than belittling anti-billionaire sentiment and suggesting that it’s excessive, we should be asking whether it’s remotely enough. Democracy is on the cliff-edge. Can we pull out of the oligarchic spiral soon enough to save it?

MUSICAL CODA

Transcript

The war with Iran has just reached a very scary phase, and I’m not talking about the bombs and the drones. Hi, Paul Krugman here, doing a brief podcast instead of a full post, because I actually spent the day with friends and doing other things, and this is a quicker alternative.

If you’re following the news, you know that the sort-of ceasefire with Iran has been called off. Trump has reinstated the blockade. The Iranians are back to hitting things with their drones and missiles.

The U.S. position has been wildly erratic. First, Trump said he was going to impose a 20% toll on all shipping, basically turning the Strait of Hormuz into a U.S. toll booth, which would have been wildly illegal and irresponsible, aside from being impossible. Now he says, no, he’s going to demand that countries invest in the United States, which is also actually wildly illegal. But in any case, it’s never going to happen.

And yet, this is extremely scary. The reason to be afraid is not that I think the war is going to come to America. It’s not even that I think the United States is going to seriously try to occupy Iran. We don’t have the troops. We don’t have the missiles. Trump depleted a large share of our weaponry in the course of his failed war so far. So this is likely going to be punitive strikes, maybe some war crimes along the way, but that’s all.

But what is really frightening here is that it does appear as if Trump has given up on trying to extract something that looks like victory. If we go back just a few days ago, it appeared that what was going to happen was that Trump was going to de facto pull out, give upon the project, take advantage of falling oil prices because the strait was sort of kind of open — and try to spin the story about this was truly, this was actually an American victory and the economy is great and look at the stock market.

And, you know, just it was a little bit — more than a little bit —stupid and doomed. It was also kind of amazing because a serious attempt to end the conflict would have required facing up to reality, saying, OK, this war didn’t go well, but America remains great. Sorry about that.

But that was apparently not something Trump emotionally could bring himself to do. He just cannot admit that this venture failed. He can never admit that anything failed. We’re going to be searching for the saboteurs of the reflecting pool for the remainder of his presidency.

This is a change in strategy that is ominous because what is Trump’s plan for the midterm elections? Here the idea presumably was that there would be enough economic success and people would have sufficiently short memories that they would possibly give Trump credit for opening the Strait of Hormuz, but in any case have put the gas price shock and the whole disruption surrounding the war behind them. And be ready to start admitting that this is the golden age that Trump and company keep on claiming it is.

Now that’s all off. Now it’s just we’re going to bomb Iran. No clear strategy there, but we’re not going to even pretend that things are okay. We’re going to blockade them, which actually has a little bit more leverage, but no hint that anything might be resolved in a way that would help Republican chances in the midterms. So what is going to happen?

I don’t think it’s a coincidence that just as Trump essentially gives up, not gives up in the sense of abandoning his war, but gives up on trying to achieve anything he can even spin as a positive outcome, that we now have an announcement that this Thursday he’s going to have a primetime speech, which reports say is going to be about election fraud in 2020. Some reports hinting that he might try to declare the two Democratic senators from Georgia somehow illegitimate.

Okay, that’s not going to actually work. And nobody’s going to be convinced by the claim that he actually won the 2020 election. But what is happening is that effectively he’s setting up the pretext, the groundwork for massive interference in the vote this November. That we’re basically seeing the stage set for some kind of attempt to block fair elections, maybe block elections entirely.

I don’t know how this is going to play out. But we are really now at the point where it’s pretty clear that Trump and the people around him have given up on actually winning the election. They’ve decided instead that somecombination of propaganda, misinformation, disinformation, and possibly massive illegality is their way forward.

And don’t say they wouldn’t do that. That has been famous last words every step of the way. The proposition that there were some things that even Trump and company would not do has been the best way to be wrong about everything, every step of the Trump administration.

So in a peculiar way, the fact that Trump is back to bombing Iran is really bad news, not because of the bombs. Yes, it’s terrible and all that, But not because I have any real fear that America is going to be at risk from a foreign power, but because I think it signals an enormous risk to us from our own president, our own government.

Be afraid, be very afraid.

And take care.

Is Russia burning?

Are we back at war with Iran? Did the war ever stop? The US is, once again, bombing Iran while Iranian drones strike shipping. Iran, giddy with its success in defying America, is demanding sovereignty over the Strait of Hormuz, while Donald Trump is saying no, he owns the Strait and will collect 20 percent tolls.

Folks, this is bad. U.S. national security policy is now entirely in the service of one man’s vanity. We got into this mess because Trump thought he could win an easy victory that would let him strut around feeling powerful. Now we can’t get out because he won’t admit that his war has been a humiliating failure.

The good news is that Trump’s temper tantrum will probably do less economic damage than one might have expected — because the cease-fire that is apparently over wasn’t doing as much good as one might have expected. The fact is that there is now a disconnect between events in the Strait of Hormuz and the energy prices that matter. This disconnect is coming from a surprising place, another war that was supposed to yield a quick, easy victory but didn’t: Vladimir Putin’s attempt to conquer Ukraine.

To see what I’m talking about, start with a question: Why was oil so cheap just before this latest confrontation?

Oil prices rose a lot — about $45 per barrel — after it became clear that Trump’s vision of a splendid little war wasn’t going to be fulfilled and that Iran retained the ability to choke off shipping through the Strait. Here’s the price of West Texas Intermediate, the US benchmark:

Chart 1 Source: Trading Economics

Oil prices did not, however, rise as much as many observers thought they would have to given the huge fraction of global oil supply — around 20 percent — that formerly passed through the Strait. And shipments through the Strait have never come close to fully resuming. So why was the price almost back down to prewar levels before this latest blowup?

Part of the answer is that the world found ways to reduce the impact of the Hormuz closure. Millions of barrels of oil a day literally bypassed the Strait via pipelines. Suppliers outside the Persian Gulf, including Venezuela, increased production. China sharply reduced its oil imports. And a significant part of world oil demand was met by drawing down inventories.

There was, however, another factor: The effective price of oil to consumers — which is the price that matters for demand — rose a lot more than the crude oil prices one usually hears about. Even before the latest crisis that effective price remained far above prewar levels. And these continuing high prices to consumers kept oil demand low and hence depressed the demand for crude.

What do I mean by the “effective price” of oil? Consumers don’t burn crude oil. They burn products like gasoline and diesel that are refined from crude oil. As Javier Blas points out in a very useful Bloomberg article, a rough rule of thumb is that every three barrels of crude are refined into two barrels of gasoline and one barrel of heavier distillates like diesel fuel.

Since there are 42 gallons in a barrel, this suggests that the effective price of a barrel of oil to consumers is 28 times the pump price of a gallon of gasoline plus 14 times the price of a gallon of diesel. Here’s what that price has looked like since the beginning of this year:

Chart 2

As you can see, the price of oil to consumers rose substantially more than the actual price of crude — around $75 a barrel versus $45. This presumably led to a much larger fall in demand than one would have predicted from the price of crude alone. And effective prices to consumers were still far above pre-war levels even before the latest round of shouting-and-shooting between Trump and the IRGC began. The higher effective prices to consumers were holding global demand down even though crude prices were almost back to pre-war levels.

Why are prices of gasoline and diesel so high compared with crude oil prices? As Blas explains, because there is a global shortage of refining capacity.

Some of this shortage reflects the loss of refined products that were formerly exported from the Persian Gulf. But a big factor now is the ongoing war between Russia and Ukraine.

Before that war began, Russia was a major exporter of refined petroleum products. But Ukraine’s astonishing mastery of drone warfare has enabled this valiant democracy to carry out an ever-more-effective strategic campaign against Russian energy infrastructure, above all its refineries. Russia not only can’t keep exporting gasoline and diesel fuel, it’s now facing major shortages (and huge gas lines) at home, and may soon be forced to import refined products.

The result is, as I said, a global shortage of refining capacity. Blas suggests that around 10% of world refining capacity is now out of operation.

And this shortage of refining capacity makes the collapse of the jerry-rigged deal to reopen the Strait of Hormuz less relevant than one might have thought. To oversimplify, a true reopening of the Strait would have made more crude oil available to the global economy, but that wouldn’t have done the global economy much good in the short run, because in the world doesn’t have the capacity to turn that crude into usable products.

Perhaps that’s too glib. Gasoline prices have ticked up with the renewed Hormuz confrontation, which wouldn’t be happening if refining capacity were the only constraint that matters:

Chart 4 Source: Trading Economics

Nonetheless, it’s safe to say that the end of the Hormuz deal, such as it was, doesn’t change the underlying dynamics. In other words, expect the pain at the pump to continue and inflation to remain sticky.

And of course the overarching moral of this story is the immense folly and criminality of a war that has left America and the world in a much worse place than they would have been if Trump and his enablers had just left things alone — or, better yet, had preserved the pretty good deal Iran and Barack Obama had agreed to in 2015.

MUSICAL CODA

Institute for Taxation and Economic Policy

I’ve written on a number of occasions about what I called, in yesterday’s primer, the downward spiral of oligarchy in America: The political power of the hyper-wealthy tilts policy in their favor, and this policy tilt reinforces the wealth and power of that tiny minority. In today’s post I’ll follow up by focusing on one especially clear example: The drastic fall over time in taxes on corporate profits, despite overwhelming popular opinion that corporate taxes are too low, not too high.

As I pointed out in yesterday’s primer, the best available explanations for the huge rise in wealth concentration at the topof the distribution emphasize the large decline in tax progressivity since the 1970s, which greatly reduced tax rates on high-income individuals. In particular, lower taxes on income from capital made it possible for the already wealthy to accumulate ever more wealth.

A crucial change was a drastic fall in taxes on corporate profits, most of which indirectly fall on stockholders. Here is a chart from the most recent primer, which shows the change in corporate taxes as a share of profits over time:

This massive decline in corporate taxation – from 35% in the 1960s to around 12% today -- benefits the people who own corporations. Not surprisingly, equity ownership is highly concentrated among the wealthy. The Distributional National Accounts produced by Gabriel Zucman and colleagues include an estimate of the effective federal tax rate on the top 0.01% of the income distribution, broken down by the kind of tax. They find a drastic decline in taxes at the top, mainly driven by the decline in corporate taxes:

I should acknowledge that there is dispute both about just how much taxes for those at the top of the income distributionhave declined and about the sources of that decline, which largely rests on the question of the extent to which corporate tax cuts trickle down to workers and consumers. Zucman and colleagues assume very little trickle down. As I’ll explain in a moment, recent experience supports their view. But I should acknowledge that there is a dispute.

My main point, however, is that the big reductions in corporate taxes have taken place without broad public support — in fact, in the teeth of very broad public opposition.

Gallup has been surveying Americans about their views on taxes on a regular basis for more than 20 years. Public opinion on corporate taxes has barely changed over time. A huge majority consistently says that corporations pay too little, while hardly anyone says they pay too much:

Americans, then, overwhelmingly believe that corporate taxes should go up — yet they keep going down. Why?

Part of the answer is campaign finance, which was increasingly dominated by the interests of capital even before Citizens United unleashed a tsunami of billionaire money:

Another part of the answer is corruption. Before Trump 2.0 political corruption was generally disguised and implicit: Politicians and political staffers favored corporate interests because of incentives like the revolving door, in which they could expect to move on to well-paid employment as lobbyists. These days, thanks to Trump, political graft is open and direct: much of it is simply cash, crypto and sweetheart contracts that enrich politicians and their families.

In addition, big money has gained the ability to shape the information environment. Right-wing think tanks, subsidized “research” and captured media relentlessly push the interests of billionaires. This shifts the Overton Window, the range of policies conventional wisdom considers acceptable: even centrists often end up viewing billionaire-friendly policies as sensible and reasonable, while other policies — even policies that were considered perfectly normal in the past, like high taxes on profits — are viewed as radical and irresponsible.

A key part of the argument that corporate taxes must be kept low is the claim that the United States is competing with other nations for a limited pool of global capital, and that if we have higher corporate taxes than other nations, the capital will go elsewhere. Correspondingly, advocates of further cuts in corporate taxes claim that such cuts will generate huge inflows of capital from abroad, leading to higher economic growth and wages for workers.

So it’s worth pointing out that Trump did, in fact, slash corporate taxes in 2017. What happened as a result? Basically, nothing, except that corporations paid even less in taxes.

True, some corporations revised their accounting fictions, reassigning some profits they had booked with subsidiaries in Ireland and other low-tax nations back to the parent company. But there was no huge surge in US investment.

This experience convinced me that there is very little trickle-down from corporate tax cuts. Thus the huge decline in corporate tax rates since 1970 was, in fact, a huge indirect tax cut for wealthy individuals who own lots of stock. And this, as I noted earlier, fueled America’s spiral into oligarchy, in which growing concentration of wealth at the top generates the resources to further tilt economic and political policies in their favor.

Is the system rigged? Yes, it is. Can we unrig it? Yes, we can. If you look back at the chart showing the downward trend in tax rate on the top 0.01%, you will see that there were significant although temporary reversals in that trend under both Bill Clinton and Barack Obama (reflecting, in Obama’s case, tax hikes to pay for expanded healthcare.) Right-wingers predicted disaster from these tax hikes, which never materialized.

What we need going forward is for voters to elect candidates who are committed to reversing the downward spiral of oligarchy. Realistically this means electing Democrats who are committed to raising taxes on the wealthy. Beyond that, it means rejecting Democrats — like, alas, Sen. Gillibrand of New York — who accept tainted corporate campaign funds and sweetheart perks bestowed on themselves and family members. Furthermore, once in power, Democrats must pass laws that stop lawmakers and their family members from engaging in corrupt enrichment.

Perhaps in a perverse way we can thank Trump: things are so nightmarishly bad that we may have the best chance in decades of finally breaking out of the oligarchy trap.

MUSICAL CODA

For no particular reason

Today’s post is another installment in a series of posts about AI. AI is clearly a major technological shock, and it may take years before we fully understand its economic and social impacts. What we do know, however, is that this technological shock is occurring in the context of a pre-existing environment of extreme wealth and political inequality. And this pre-existing condition will magnify the downsides of the AI shock.

Imagine for a moment what might have happened if AI had arrived in the America of the 1950s or 1960s, when income and wealth inequality were very low by historical standards. In those days, the tax code was strongly progressive and industry regulation, including antitrust policy, was robust. Under those conditions it’s very likely that the destructive effects of AI would have been limited and contained.

Instead, however, AI is emerging in an American economy and society that are already strongly oligarchic, with enormous wealth and political influence in the hands of a handful of billionaires. The current concentration of wealth at the top is not only immensely greater than in the 50s or 60s, but is in fact far greater than during the Gilded Age. This state of affairs is both a cause and an effect of policies that benefit a tiny elite, such as low effective taxes on capital and high incomes, weak or nonexistent enforcement of worker protections and anti-trust, drastic reductions in programs that benefit ordinary Americans, and so on.

And in the context of a political and economic environment that is heavily tilted towards the hyper-wealthy, the negative impacts of AI will probably be larger than if they had appeared in a country with a more level playing field. That is,unless the very impact of AI leads to a much-needed pushback against American oligarchy.

So although AI is addressed in today’s primer, the content will mostly be about oligarchy rather than AI: documenting how America has changed since our politics turned right in the 1980s, and why wealth and power have become so concentrated. At the end of the post, however, I’ll speculate about how pre-exiting oligarchy will channel the potential of AI in destructive directions — and what we could do to change that.

Beyond the paywall I will address the following:

1. Economic oligarchy: The rise of the .0002%

2. The economics of oligarchy

3. The politics of extreme wealth

4. How oligarchy will shape AI’s impact

5. Paths for policy

Read more

With everything else going on, the ongoing demolition of financial regulation and supervision, which is raising the risks of financial crisis, isn’t getting much attention. So I spoke with Dennis Kelliher, president of Better Markets, an independent think tank that is trying to sound the alarm.

Full disclosure: my nephew works at Better Markets. But I would have wanted to talk to Kelleher regardless.

. . .

TRANSCRIPT:
Paul Krugman in Conversation with Dennis Kelleher

(recorded 7/10/26)

Paul Krugman: Hi everyone. It seems hard to believe now, but the great financial crisis of 2008 and its aftermath are now in the distant past. I think, in fact, in November there will be some voters who weren’t born yet. But for some of us, it was a huge, defining event, and financial markets as a source of economic problems and instability hasn’t gone away. And I thought I would talk with Dennis Kelleher, who is the head of Better Markets, an independent think tank devoted to trying to make financial markets work better for the rest of us. And in the note, I’ll mention I do have a personal connection to Better Markets, but that’s not why I’m interviewing Mr. Kelleher. Dennis is a former Senate aide, and as you know, congressional staffers are one of the great sources of expertise in America. And we want to talk about financial markets, so hi.

Dennis Kelleher: Hi. Thanks for having me, Paul. Good to see you.

Krugman: Good to see you, too. I have a bunch of questions, but we can go wherever this goes. The first thing is, whenever I try to talk about financial market functioning, what comes up is that most financial assets are owned by a relatively small part of the population, even if you take 401(k)s into account. So why isn’t this just a fight among the investor class? Why should everyone care about this?

Kelleher: Well, it’s a great question because there’s such a lack of information about financial markets, the financial system, and frankly, as you well know, the economy. You know, one of the great services that you and many of your colleagues have provided is basically translating what’s happening in the economy and financial markets to the average Main Street American, reader of the New York Times, and consumers of news. And the truth is that the financial markets and obviously the economy impact everybody, and you’re right.

This November during the election, some of the people voting will not have actually had any awareness of the 2008 financial crash, which was the biggest crash in the United States since 1929, which caused the Great Depression. And even though they may not have been born at that time, the people who are voting in November are still living through the repercussions of the 2008 crash. We basically lost an entire generation of Americans, economically speaking, from that crash.

It took ten years for the U-6, the broad unemployment rate, to return to pre-crash levels. It was 2017 before that happened. And indeed, the Fed did an interesting study, which people can quibble with the baseline, but they did a study in 2018 that showed at the end of 2016, 90% of Americans were poorer than they were in 2007 by 17 to 35 percent. So if you think about that, at the end of 2016, the best-off American in that ninety percent bucket was 17% poorer. Now you could say the baseline of 2007 was inflated, but by and large, 90% of Americans have been doing pretty poorly since the crash for a lot of reasons.

And so in November, when those people go to vote, they might not know it but they are actually living through the continuing economic consequences, financial consequences, and actually political consequences. Because the rise of Trump and the dissatisfaction of voters, Americans, and actually voters in the UK and elsewhere—Martin Wolf from the Financial Times wrote a terrific book called The Crisis of Democratic Capitalism. It shows how if countries don’t deliver for the broad population, then democracy erodes and people look for easy answers, authoritarians, and strongmen. And we end up with Brexit, we end up with Trump.

And so you’re right. People don’t remember the crash, but the crash is incredibly important to everybody in America. And the circumstances that we find ourselves in today are unfortunately echoing many of the drivers of that crash.

Now, I didn’t answer your question about the investor class, but when you look at investors, something like 87% of the value of the stock market is owned by the top 10%. On the other hand, there are today $27 trillion worth of assets in 401(k)s and IRAs, retirement accounts. It’s overwhelmingly skewed to the top, but not only. And importantly, one of the great projects that America really needs to undertake is to democratize finance so that financial assets and the ability to grow wealth is more broadly spread out. One of the big crippling problems we have today is that the bottom 50% of Americans, about 165 million Americans, only have 2.5% of the wealth of the country. It’s astonishing, right?

And so a big part of what Better Markets does in economic and financial policy making is to try and rebalance what we see as a rigged economy that’s driven by a rigged and broken financial system. So our economy is producing very well for the top ten percent, and our financial system is structured to deliver those results. Now, part of that is wealth extraction, but a lot of it is just structural drivers put in place by policy makers in Washington that cater to the top ten percent. And that, unfortunately, Paul, as you know, is on a bipartisan basis.

Krugman: We’re gonna get into that in a bit, but let me just ask a question. I’m gonna actually kind of veer off course, although this is something I wanted to get to. Top ten percent. So basically, ownership of stock is, roughly speaking, a top ten percent activity. When you talk about skewed, I mean, I have a sense that it is actually increasingly skewed towards a fraction of a fraction. Do you have anything I should take away about how the system is rigged or skewed within the stock-owning population?

Kelleher: Well, I think the problem is that the higher up you go on the wealth scale, the greater your ability to accumulate even more wealth in a tax-free fashion, right? And then to pass it along to both use it today as if it was cash and income, not be taxed on it, use it, and then hand it off through inheritance without being taxed to heirs for multi-generational wealth concentration at the top. It’s bad for the economy and bad for democracy.

I mean, you’ve talked to Ro Khanna and there’s all sorts of people with different ideas about what to do. We’ve got a wealth tax on the ballot in California. But in terms of the structural drivers, one of the problems we see at Better Markets is that Democrats don’t pay enough attention to the financial structural drivers of the economy. So here’s just a simple example that people are often surprised by.

Community banks in the United States—there’s about a little over four thousand of them. You see them on every corner across America, particularly in “real America,” as opposed to where you and I live, Paul, which is by no means real America. But those banks lend out seventy-five cents on average of every dollar of deposit. The big Wall Street banks, they lend out somewhere less than fifty cents of every dollar of deposit. And that’s because it’s so much more profitable for them catering to the rich, mostly engaging in financial activities, trading, and capital markets activities.

And so ask yourself, why is that? Well, that’s because the rules enacted by the banking regulators and Congress and other regulators allow the profit margins on the financialized trading side to be so much greater than on the lending side. I mean, truthfully, the rules that are created in Washington actually discriminate against lending to the real economy.

And so you have community banks which don’t have capital markets activities. They’re bread-and-butter banks for the most part. It depends on how you define community banks; some people define them all the way up to Wall Street, but those are people in the propaganda industry. But these are banks that are actually driving the real economy. So for example, the community banks have somewhere in the neighborhood of 10% of the total assets of the banking system, but they actually provide somewhere in the neighborhood of 40% of all loans to small businesses.

Krugman: Right.

Kelleher: Well, why are we not having rules that skew towards benefiting the real productive economy and away from the trading financialized activities which serve the very top one or two percent and not the rest? And actually, it not only doesn’t serve the rest of the country, it’s at the expense of the rest of the country. Better Markets put out a report showing that last year the growth in major Wall Street bank lending to what are called “non-banks” grew by 50%. Do you know what their lending to the real economy grew by? Zero. Zero. And so a lot of these activities are being pushed out into what are called non-banks because it’s more profitable. It’s more profitable because the rules make it more profitable. The rules are created in Washington by policymakers, regulators, and legislators who, unfortunately, too often are beholden to the wrong people. And so you end up with this cycle where the rules keep reinforcing the current structure that’s channeling activity and money to the top and away from Main Street.

Krugman: So as I understood it, reading some of Better Markets’ reports, if you’re a big financial institution, lending to non-banks probably ends up being a roundabout route by which the money reaches lenders, but not through the original bank. They actually have kind of a regulatory advantage because it’s lower capital requirements. If I got that right?

Kelleher: Well, it’s lower capital requirements, it’s lower requirements across the board. Capital is one of the core drivers, but it’s not the only one.

Krugman: So if you put your money with Citigroup or another one of the big financial institutions, it’s not going to be lent out, or much of it will not be lent out to small business or households. It’ll be lent to others; it’ll kind of divert around and it’ll in effect be channeled into what you consider a worse way through which the money reaches the rest of the economy. Is that a fair summary?

Kelleher: That’s a fair summary of part of it. Keep in mind a lot of this money is funding hedge funds doing big basis trades, basically swinging for the fences. I’m not saying there’s no value at any hedge fund to the real economy, but when you look at their activities, that’s not exactly what I would call beneficial lending to the real, productive economy. Private equity is basically a strip-and-rip business model. It gets their money from the banks. Almost everything goes back to the banks, and that’s because deposit money is the safest, soundest, and cheapest source of funding for economic activities.

And so the banks have got the money, and what they decide is: where are they going to send it? Are they going to send it over here to lend to Main Street businesses where their profit margin is modest, or go over here to hedge funds, private equity, or other financialized activities—business development corporations, crypto, all sorts of things where the profit margin is large? They’re making rational economic decisions in their self-interest to profit maximize.

The question is: why are the people in Washington structuring it that way so that their profit margins are like that? The current capital rules that we’re fighting about, Paul, are supposed to change that. And in fact, what they’re supposed to do is have, for example, the trading activities accurately reflect the risk associated with them. And if they accurately did that, the capital requirements for those activities would be much higher. Not only are the banking agencies with the Federal Reserve in the lead not doing that, but when they’re done with the proposed capital rules, capital at the biggest, most dangerous banks in the United States is going to be back to the levels roughly before what they were before the 2008 crash.

I mean, think about that. It’s crazy, right? Here’s something that’s even crazier: a bunch of those big banks are going to have capital rules and capital levels that are roughly similar to community banks.

Krugman: Which are low, because they’re in a very safe business, right?

Kelleher: Yes. Well, right. The systemic risk to the economy of community banks, first of all as an absolute matter, is pretty low. But relative to the giants on Wall Street, they’re infinitesimal; they’re not even comparable. And we’ve got a Federal Reserve, particularly the Vice Chairman of Supervision and Regulation over there, that acts as if she’s the primary lobbyist for Goldman Sachs or JP Morgan Chase.

She even hired three of Wall Street’s top lobbyist lawyers to be her senior advisors. I’m not making this up. One was a vice president at Goldman Sachs. One was one of Wall Street’s top lawyers at one of the top Wall Street law firms for 35 years. And the other one was a top executive at Wall Street’s biggest trade group in Washington. Those are her three top advisors.

Krugman: Are you talking about Fed employees or outside consultants?

Kelleher: No, they’re Fed employees. They’re on staff. We put out a press release about her hiring the three of them. I mean, this is not just the fox guarding the hen house; this is the fox in charge of all operations of the hen house. So the lawyer who was on Wall Street for 35 years, serving his clients for 35 years—all of the banks—is now the Director of Regulation and Supervision at the Federal Reserve of his former clients, and the right-hand top staffer for the Vice Chairman of Supervision and Regulation on the Board of Governors of the Federal Reserve. And so anybody who is surprised that the Fed is now enacting or proposing rules incredibly favorable to the biggest banks on Wall Street...

And it’s not just capital, Paul. I mean, one of the tradeoffs here is that banks get to have a somewhat unique role in the United States, right? They get to accumulate all these activities and take people’s deposits. Main Street American deposits are how these banks fund themselves, largely. And then we insure that money through the FDIC so people have confidence that they’ll get their money back. But the exchange is: we regulate them so that they don’t actually threaten the economy and financial system of the United States because they’re so big. So that means they’re supervised.

People don’t know this, but every day, people who work for the Federal Reserve and are paid by the American people, go to work at the biggest banks, supervising them. They literally have an office there. They go in, look at the books and records, and talk to people all day long at Goldman Sachs, JP Morgan Chase, and Citigroup. That’s called supervision. It’s basically invisible but incredibly important. But the Fed is not only cutting back on capital and regulation like stress tests and other important safety features; they’re also gutting supervision. And so they’re basically unleashing the biggest banks in the United States from modest, sensible regulation and supervision that’s supposed to protect Main Street jobs, homes, and savings from high-risk, reckless, and inappropriate conduct by these gigantic banks. We saw in 2008 what happens when you don’t regulate them or supervise them. And we actually just saw it again in 2023.

Krugman: Right. This is 2023 with the Silicon Valley Bank and all of that, right?

Kelleher: 2023 there were four big bank failures. Three of the four biggest bank failures in the history of the United States happened in 2023. People don’t realize it.

Krugman: Even I didn’t realize that, and I’m supposed to be on top of these things. And this is happening incredibly fast, right? Normally we think you forget the lessons of the last financial crisis basically once people age out of the business and nobody is around who really remembers it. But we were dealing with the aftermath of 2008 just fifteen or sixteen years ago. And you’re saying that basically we’re fully back to that kind of Wild West, no-supervision world, or maybe worse.

Kelleher: Well, we’re getting there, and the direction is there. We’re not quite there yet, but the thrust of what’s happening now is broader, deeper, and more reckless than it was in the years leading up to the 2008 crash. I mean, if you think about it, it’s quite amazing. The so-called shadow banking system—non-bank financial institutions—today is bigger than it was in ‘08 and less regulated.

Krugman: That’s what I was going to say. Yeah.

Kelleher: And it was identified as one of the primary drivers of the ‘08 crash.

Krugman: That’s right. I mean, I remember very vividly in the fall of 2008, the conventional wisdom, even in textbooks—including my own—said, “Well, we can”t have a 1931-style banking crisis because the banks are insured and regulated,” and then the week of Lehman’s failure was, “Sixty percent of the banking system is shadow banks.” And you’re saying that we’re back to that and more now.

Kelleher: Yeah, I don’t remember the exact percentage, but yes. And what’s worse is they’re less regulated today than they were then in many material respects. And now a lot of people think, “Well, it’s hard to worry about big catastrophic events when there’s a lot going on every day.” But this is happening fast, and because there’s so much happening in the Trump chaos machine—where there’s not a scandal a day, it’s like almost an hour.

You know, J.D. Vance, who I almost never agree with on anything, said in a speech recently at the Nixon Library that if the Nixon crimes happened today, it wouldn’t even last a full news cycle. And he’s probably right. And so a lot of this is not only happening fast, it’s happening invisibly because just a very small slice of what’s happening is getting into the media. Meanwhile, the industry termites are working day and night in the policy-making process in Washington, eating away at the foundations of the financial stability of the United States.

Krugman: You’ve been talking a lot about the Federal Reserve, which is critical because it traditionally has been the more competent, less politicized piece. And you’re basically saying that now that piece of the Fed has effectively been captured. Is that a fair description?

Kelleher: The Fed has unfortunately been largely captured. It’s being run by people who have an agenda that is not consistent with the best interest of the American people, frankly. I’m not talking about the monetary policy side—that’s a whole different discussion—but on the supervision and regulation side, they are not acting consistently with the best interest of Main Street Americans. Wall Street is winning day in and day out in the policy fights.

Krugman: Right.

Kelleher: There’s going to be news coming out, I think, over the next several weeks, maybe months, that will illustrate that pretty starkly. It’s really quite astonishing what has happened at the Fed. And don’t get me wrong—there are a lot of good, hardworking, dedicated public servants at the Fed who nobody will ever see or acknowledge, who have been fighting the good fight for many years. But the leadership at the Federal Reserve at this point—the Trump leadership—is doing to the Federal Reserve what’s being done everywhere.

Now, we know we had two big Supreme Court cases recently which supposedly cabined off the Federal Reserve from direct political control by the President, unlike the other agencies, and that’s true, but it’s all relative, right? I mean, he now has direct political control of the SEC, CFTC, and everything from the NLRB to the FTC to the FCC—all the critically important regulatory agencies that have been in place since the New Deal, basically creating and enabling an economy to be profit-maximizing but still have adequate protections for the public. I mean, that’s the balance that we need to get.

And actually, a former colleague of yours, David Leonhardt, wrote a great book—and I always have it on my desk because I recommend it to people. It’s called Ours Was the Shining Future. It’s a great history of how the United States, post-Great Depression, built the largest middle class in the history of the world, really compressed gross income inequality, and created wealth in places people didn’t think it would happen. And he talks about how things changed when Reagan came in and kind of where we are now. But that was because we had a regulatory state.

Now, people can argue about what’s reasonable—how much is too much, how much is too little—but we struck a balance that enabled the SEC, the CFTC, the Federal Reserve, and other regulatory agencies, from labor to health to product safety. That balance took some of the craziness off the blind profit maximization built within the engine of the economy.

Now, the Supreme Court basically said last week that doesn’t exist anymore. What exists going forward is that the President gets to control all those agencies, and all those agencies are now subject to both the political agenda and the whim of whoever the President is.

Krugman: So, for listeners who may not know: SEC is the Securities and Exchange Commission, which is supposed to regulate stocks and corporate accounting and all of that. CFTC is the Commodities...

Kelleher: Futures Trading Commission, regulating derivatives and commodities. It’s the least known but a very important agency. For example, commodities: the bread in your lunch pail, the cereal in your breakfast bowl, the gas in your car, the heat in your home—all those markets are regulated by the Commodity Futures Trading Commission.

Krugman: Yeah. And so Humphrey’s Executor, the case where the Supreme Court essentially said that Congress cannot establish a mandate and then expect an agency to fulfill it if the President doesn’t want to. That really affects all of these agencies, right?

Kelleher: Right. Actually, the case last week was Slaughter v. FTC, and that case overruled Humphrey’s Executor, which was a Supreme Court case from ninety years ago. I don’t remember exactly; it could be eighty. Contrary to what my kids often think, I haven’t been around that long.

Krugman: It’s ninety years ago because it was actually a ruling against FDR. FDR was trying to change something, and the Supreme Court said, “Well, that’s not what Congress said and you, Franklin Delano Roosevelt, cannot change it.” But now it’s been waived for Donald Trump.

Kelleher: Yeah, well, look. We have a right-wing Supreme Court—a supermajority—that is essentially creating, for the first time in American history, an all-powerful executive branch. As you know, it’s been referred to by legal scholars as the “unitary executive theory,” where essentially the President, whoever they are, gets to control the entire executive branch. And of course, over the last ninety years or so since the New Deal, we’ve had an administrative state that has, in key respects, put some brakes on the worst excesses of unrestrained profit-seeking. They’re just basic public protections.

I think of it as being like cars, right? Cars today are very safe; they have airbags, bumpers that are shock absorbers, glass that shatters and doesn’t kill you, and reinforced doors. What the Supreme Court is doing with Slaughter v. FTC and these other cases that are empowering the President is literally taking the airbags and bumpers off your car. Except the car, in this case, is the country. It’s our democracy, our economy, and our financial system. The safety aspects of that system that protect our democracy, economy, and financial system protect people’s jobs and savings.

And frankly, their safety—even things like the Consumer Product Safety Commission or the FDA. These acronyms can get confusing, but what they really are are safety mechanisms and protections for Main Street Americans from things that happen in a gigantic economy like the United States that would otherwise have really bad impacts on Main Street Americans, whether it’s their job, their health, their safety, or their savings—frankly, their families and their dreams. And that’s what these agencies do; some do it better than others, and I’m not saying they always get it right. They don’t; they get it wrong. We criticize them all the time. We criticize them when Democrats are in charge and we criticize them when Republicans are in charge. We also praise them when they do well. But we need them; we need these shock absorbers on an otherwise unrestrained economy that’s just profit-driven, and that’s what we’re seeing now.

Krugman: We’ve ended up talking a lot about the Fed, which has a critical supervisory role, but Better Markets has been writing a lot about the SEC lately, and there’s stuff happening there that’s barely being noticed. I’m barely seeing anything about it in the newspapers, and yet that’s just as important, right? There’s a lot going on at the Securities and Exchange Commission.

Kelleher: So, the Securities and Exchange Commission was created in 1933. There were two laws: 1933 and 1934. And by the way, I should say if anybody’s really interested in this—I hate to sound like a book reviewer—but there’s some great stuff. Diana Henriques wrote a terrific book last year called Taming the Street, which is a history of the SEC, how it came about, why it’s so important, and what happened during the Great Depression. It’s also a history of the American economy, a bit like David Leonhardt’s book. And it’s an easy read.

But the SEC regulates investor protection in our markets. And you asked this earlier, Paul: why should anybody really care given that so many of these assets are owned by the top ten percent? Well, as you know, we basically have an economy funding pipeline—a capital pipeline, if you will—in our economy. People all over the country come up with ideas, some of which fail and some of which succeed. Those that succeed need capital to grow so that they can take it from their garage to a local store, to a factory, and to global markets.

Krugman: Right.

Kelleher: When they start, they end up using angel capital or friends and family. Ultimately they get a good idea and a venture capitalist. And then the big success used to be your company would go public on the stock exchange. That’s how companies generated enormous amounts of capital—which is just a fancy word for money. They got enough money to grow their business, build things, and hire a lot more people. It’s how we built the middle class.

And that’s what the SEC regulates: the public part of that capital pipeline—the big public markets like the New York Stock Exchange and the NASDAQ. They regulate both the disclosure obligations and they police those markets. They do that because what happened in the 1920s contributed mightily to the 1929 crash and the Great Depression. It was basically people who were lying, cheating, and stealing with almost no regulation at all. The big banks were often multi-headed financial conglomerates doing self-dealing and conflicts of interest. Not only didn’t they disclose things, but when they did, they often lied and defrauded people. A lot of that ended up being basically what we would think of today as Ponzi schemes—nothing really there except the people running the firms enriching themselves.

The SEC was created to make sure we had well-regulated and well-policed markets so investors wouldn’t get fleeced, providing capital for businesses to grow. And until very recently, the SEC was the global gold standard for investor protection. Well, that’s gone. The SEC under Trump has now moved from investor protection to management protection. It is as captured as, unfortunately, the Fed in many respects. It is cutting back on disclosures and investor rights.

For example, they’re even interfering with proxy advisors. It’s very difficult if you’re an investor to keep track of the proxies at all the public companies. The big investors have to vote on director appointments or major policy questions, so they hire proxy advisors, just like you would hire an advisor for anything else. Well, the SEC is now interfering with people hiring advisors to give them advice on proxies. How can you say I can’t contract with somebody to give me independent advice? They’re interfering with that because it makes investors more dependent upon management.

Krugman: Just explain to me how that works. How is the SEC blocking that? I’m just curious because that sounds important.

Kelleher: It is important, and the details are on our website. But at a very high level, there are two big proxy advisor firms that have a large amount of the market. And what you would do is hire them to provide tailored advice. For example, if you were interested in companies that were socially active and cared about the climate, you could tell your proxy advisor you want advice related to that. If you were on the other side and you loved fossil fuels, you could tell them that and the proxy advisor will tailor it to you. You then pay them, right? What the SEC said in one of its proposed rules—I’m not kidding—is that the proxy advisor had to submit any comment about a company to the company’s management, and management had the right to comment on it. Well, it’s the exact opposite of independent advice. How that’s even constitutional is beyond me.

The proxy advisory firms have been engaged in litigation I believe in Trump I and in Trump two, about the restrictions that they’re trying to put on independent proxy advice. It’s just one example. I actually put out a report called The SEC is Demolishing Investor Protection, Threatening Capital Formation and the US Economy, which detailed many of the actions they’re taking.

But the problem we have is that this isn’t just an issue for rich investors; it impacts the entire economy. One of the reasons people all over the world send their money to the United States capital markets is because they are well-regulated and well-policed. They’re not going to do that if those protections are gone. There’s already been reporting about people thinking about putting their money elsewhere. Now, because the US stock market is doing so well, you could argue it’s still a safe bet. By and large, there’s no other place that can compete robustly with the United States at the moment. Leave aside whether it’s a bubble or not. As an investment vehicle, it’s one of the top global places to put your money.

Well, that’s because—and this is what they don’t get, Paul—they are well-regulated and well-policed. You take that away, and you’re going to end up with crooked, rigged markets where you don’t know what happens to your money. And if that happens, that doesn’t just hurt the rich people who own most of the financial assets. That’s going to have impacts all the way down the capital formation pipeline to the real economy and people’s jobs.

Krugman: Okay. I was completely unaware that the SEC was doing all of that. But I just want to move on a bit. Better Markets has been writing quite a lot about crypto. Crypto has suddenly faded from public attention because there’s so much else going on, like AI. But crypto is still a two trillion dollar asset class. Talk to me about crypto and where it fits into all of this.

Kelleher: Well, to start with, we have been the tip of the spear fighting crypto since 2020. We were the leading opponents of FTX and Sam Bankman-Fried back in ‘21 and ‘22 when he was trying to buy all of Washington and get his predatory model approved by the CFTC. In fact, we were so much of a thorn in their side that Sam called and came into the office for ninety minutes to try to convince me to support him. Unfortunately, there are so few people active at the CFTC, which is where he was trying to get his predatory model adopted.

Krugman: This is Sam Bankman-Fried who came in to talk to you. Okay.

Kelleher: Yeah, him and his bipartisan phalanx of advisors, because he bought everybody. For ninety minutes he tried to convince us. We didn’t know about his crimes obviously—but he clearly had an entire business model that was financially predatory. It was basically: “If we get rid of all these customer and investor protections, I can make a lot of money.” And I was like, “Well, anybody can make a lot of money.” You could make a lot of money building buildings if you don’t put in fire escapes or fire doors. It doesn’t mean it’s a good idea. That was essentially what Sam Bankman-Fried was trying to do in the derivatives markets, and we opposed him.

He also thought he could bribe us; he offered us a million dollars or more. Frankly, I could have asked for twenty-five million bucks and I’m sure he would have delivered it in a paper bag. We said no. To my knowledge—and I don’t say this arrogantly, but in sadness—I think we were the only ones in Washington who didn’t take his money. He ended up in the right place.

But Better Markets has been out front on this because there is no legitimate use case for crypto. They’ve had 18 years to come up with one. They keep throwing things up like “an inflation hedge” or “source of stability.” Every one of them has turned out to be baseless. The only real use for crypto is tax evasion, money laundering, and crime. It’s the preferred mechanism of choice for global terrorists, sex traffickers, and rogue nations like North Korea and Iran.

You have to ask yourself why crypto has basically hijacked the political agenda of Washington. It’s because they followed the Sam Bankman-Fried model of buying bipartisan support by spending hundreds of millions of dollars in campaigns. And this is the astonishing thing, Paul, that people don’t know.

Krugman: Okay.

Kelleher: It’s the biggest bait-and-switch in history. In the hundreds of millions of dollars they spend on campaigns, they don’t mention crypto. That’s because they know crypto is toxic. Poll after poll shows crypto is toxic with the American people. Politico and the Wall Street Journal independently looked at the massive amounts of ads bought by the crypto industry supporting candidates in the United States, and not one mentioned crypto. Then they get their friends elected who come to Washington and say, “Crypto voters sent us here,” except not one voter voted based on crypto. They were mostly negative attack ads on extraneous issues.

So crypto has now basically hijacked the agenda. The amount of attention politicians give it is crazy. The Senator from Maryland was recently quoted as saying, “I’m spending virtually all my time on crypto.” If his constituents knew that, they wouldn’t be happy. So here we have a financial product of no social use and massive negative uses that is being integrated with our core banking and financial system. Now, I’m sure it’s a coincidence, Paul, that the President is getting filthy rich on crypto.

The problem is that the downside of crypto is not going to fall only on the people getting rich on it. Once they connect it up to the banking and financial system, which they’re doing across the board, we are going to see problems. In many ways, I think what’s happening now is worse than what happened before the ‘08 crash. Before the ‘08 crash, we had subprime. Well, we not only have financial craziness going on, we have this entirely new multi-trillion dollar financial product that has no value, is incredibly volatile, and is rife with conflicts of interest. It is going to be a core part of our banking system within the next twelve to thirty-six months.

Krugman: Okay. This is a broader question of what happened to the political system. Massive campaign spending, but also a lot of effective bribery. You’ve been going after that. And it is kind of shockingly bipartisan. I mean, obviously, nobody has ever been “bribed.” The bribery of Donald Trump is, as he would say, “like nothing anybody’s ever seen before.” But it does extend across the political spectrum. You’ve been writing about that, right?

Kelleher: Well, unfortunately, it has. Any ordinary person looking at what’s happening would think it was bribery. Unfortunately, it’s not technically bribery because the Supreme Court has made that almost impossible to prove in a political context. So we have politicians taking massive amounts of money from the crypto industry and then prioritizing their special interests over the American people. Poll after poll—and we have this on our website—shows that very few people in America use or own crypto. These are not our polls; these are from Pew and other non-industry sources. Even the FDIC and the Federal Reserve’s own surveys show this.

If you look at the polls looking at what voters think, including one right before the 2024 election that looked at swing voters in six states, 68% of them had a negative view of crypto. That’s why crypto doesn’t mention crypto in its ads. But you have all this money coming into the political system, and now Democrats want that money too. Their view is: “Elections cost a lot of money. We need to neutralize this money cannon from crypto.”

Therefore, they deliver for them so the industry doesn’t fire that money cannon against them—or better yet, gives them some of it. They do that directly through campaigns, independent expenditures, and Super PACs. They also do it through the revolving door where the industry hires former public officials, including Congressmen and Senators. They purchase them like you go to a vending machine. They give them a ton of money, and next thing you know, they’re mouthpieces for the crypto industry. They also hire lobbyists who are family members of very important people.

There was a story that Senator Gillibrand’s twenty-two-year-old son has founded a company.

That company is being funded by billionaires and other financial types because apparently he has a brilliant idea and they randomly found him in a phone book, Paul. Everybody is pretending it has nothing to do with the fact that his mother is a powerful Senator from New York who is

the leading cheerleader for crypto special interests. She also happens to be the chair of the DSCC—the Democratic Senatorial Campaign Committee—which raises the money to elect Senate Democrats.

You can just read the media reports. You have to ask yourself: how are all these billionaires putting money into this startup? The spokesperson said these people are “longtime friends” of the son. When you’re twenty-two years old, how do “longtime friends” really work? Where do you run into billionaires? I know if you’re a Princeton professor they’re all over the place, but where I come from, running into a billionaire just isn’t common. Getting them to give you money for a startup at twenty-two might be the American Dream, but it ain’t working the way it’s supposed to.

Krugman: I’m not a Princeton professor anymore, and there are very few billionaires at the City University of New York. But okay, there’s so much here. Any quick thoughts about AI? It’s monopolizing attention, but where is the financial side of that?

Kelleher: I think in some ways it is monopolizing attention too much, and in other ways it’s not getting enough attention in the right places. We think that we’ve got a huge problem here. AI is inevitable; the real issue is what the safety features will be. Cars were a great innovation, but they killed a lot of people until we got airbags and protective glass. There is a fight now between people who think AI should proceed unregulated and those who think it should have regulation. We think you need a balance.

The American people are on to this. They know it’s going to impact them. For one, these gigantic data centers are sucking up electricity and driving up bills, straining the electrical grid to the point where the entire country could be subject to blackouts. But also, AI is going to have a very big impact on whether you get a loan or at what rate. It’s not just your energy bill; it’s your local bank. When everything becomes automated, how does a community bank keep up?

Community banks provide loans to the auto dealer or the local grocery store. They are going to come under enormous pressure because they can’t keep up with the infrastructure spending they’ll need. We have some ideas on how to strengthen them because they are so vital to our economy—providing 40% of small business lending. You lose community banks, you lose small business.

And then there’s the gigantic banks’ use of AI with infrastructure and spending. Community Banks are gonna need to make major investments if they’re gonna keep up. I mean, as I said earlier, forty percent of the lending to small business in the United States comes from community banks. You lose community banks, you lose small business, you lose community. So that’s just one way, but it’s all the way up the chain.

Another issue is that the people writing the algorithms are importing their own bias. Who’s guarding against that? There’s the “fat finger” problem where traders make mistakes, but who is testing AI machines pre-deployment? Representative Ro Khanna from California has made this point before, as have others. Truthfully, whether you like him or not, or you agree or don’t agree, you should listen to him because he’s got lots of thought provoking ideas on topical issues people really need to think about, and this is one of them.

It’s like thinking: “Let’s open a nuclear plant in our neighborhood.” Everybody would say you wouldn’t do that without checking a million things first. AI is the same, if not worse, because it’s less visible. Better Markets is putting out a “people-centered agenda” on how we should find the right balance so we can get the best of AI while avoiding the bad parts—many of which are unknown. We shouldn’t be putting AI on autopilot. And you know, just like we’re not letting cars on the road running on autopilot without thoroughly testing them and making sure they’re not going to kill everybody. We sure as heck shouldn’t be putting out AI on autopilot.

Krugman: Okay. This altogether makes me justifiably much more nervous.

Kelleher: Then, let me end on an up note. I thought your piece this morning on jury duty service was interesting. I’m optimistic because the vast majority of the American people are reasonable and community-minded. The problem we have is that there’s so much money flooding into the system, and that money represents the extremes. The extremes are buying the political system. We need to figure out how to get more Americans involved so the reasonable people can have civil conversations. I do think most Americans agree on striking a balance within a reasonable range. Our problem is a Supreme Court empowering billionaires, and we have a president that doesn’t care about laws, norms, customs, or rules.

What we’re trying to do at Better Markets—we just did this with our SEC campaign—is engage people. We engaged retail investors, and to our shock, two hundred thousand of them commented on an SEC rule. That is a historic high. So there are people out there, and we need to identify them and get them engaged. If we do, then I believe the core of the American Dream can be reflected in our political system.

Krugman:

I think that’s an upbeat note on which to end. Thanks so much.

Transcript

Today i want to give you some encouraging news about the state of the heartland. Well, actually New Jersey, but you got a problem with that?

But I did something kind of different yesterday — which has prevented me from producing a usual analytical Substack post — and it was actually a very uplifting experience.

So hi, I’m Paul Krugman. What i did yesterday was participate in jury selection in Mercer County, New Jersey, where i am still a legal resident.

That is something I’ve done before: back in 2020 I spent 16 weeks on a grand jury. It was done remotely, because it was the depths of Covid.

It was a New Jersey grand jury, which is not high profile cases. It’s actually very ordinary cases in which the police want to bring someone to trial but 23 citizens must agree that they have provided sufficient evidence to bring the case to trial. You don’t have to judge guilt or innocence but you have to judge that there is sufficient evidence to warrant bringing charges.

It was enlightening. I got to see a lot of the negative side of life, obviously, but it was just it was a pretty good experience on the whole.

So I was summoned again this year. I wouldn’t have been able to do it, but I had to participate in the selection in order to explain to the judge, if necessary, why I could not be available during the period of this grand jury — a bunch of already agreed to conferences and talks in Europe.

So it wasn’t going to be something I could do, but I did the right thing and went through the whole procedure of listening to the explanation, being pronounced present, and waiting to see the judge and explain the issue.

Now, as it turned out, I didn’t even have to do that. By the time they had reached the people who had said they could not do it, including me and 77 other people, they already had filled the jury. So it ended up that it was time-consuming, okay, not a terrible thing, but it was a procedure that had to be done. And I did my citizenly duty and was released well into the afternoon.

But what was interesting about it was that those of us who had said we couldn’t do it — 78 people in a Zoom room — had a long wait while the judge did whatever she needed to do with the rest. And after a little while some people unmuted themselves and we started having a conversation. This was by definition kind of a random sample of people — of course people who have felony convictions are not part of this, people are not us citizens are not part of it, and to be fair it’s Mercer County which includes Princeton although it also includes Trenton. Still, it’s on average an affluent, highly educated county so this was not exactly typical America but it wasn’t exactly the elite either: This wasn’t a virtual room full of Princeton professors.

So conversation started. Obviously people are not fools so it wasn’t about politics, it wasn’t about current events, it started with people saying “anybody want to recommend some books that I should read?” and then turned to TV shows and movies and then somehow or other we got involved in a discussion of AI and applications and learning. Because there were several school teachers.

Not everyone spoke up — most people didn’t — but everyone was listening, it seemed fairly attentively. And it was a great conversation! People were reasonable, they were either well informed or were happy to say “I don’t know about this.” There was actually some discussion about “how should I where should I go for news now that everything is so polarized” — nobody talked politics but they did talk about the fact that news is kind of hard to parse these days.

The book recommendations, the TV and movie recommendations to the extent that I know them were pretty good. And the whole tone was, wow, it was civilized. I felt a little bit as if I was in the middle of a Norman Rockwell painting.

By the way, yes, people did recognize me and a couple said you know I read your Substack and I talked a little bit but I made a deliberate effort to step back and not play the celebrity there.

And that was good, because I got to listen to other people who were really level-headed, interesting, pretty well informed about a bunch of stuff. Oh, and just to say that this was New Jersey, so it was a very diverse group of people — a random selection of people from New Jersey, which meant that it was multi-racial and multi-ethnic. The clerk had some trouble with pronouncing everybody’s name, which was okay — I mean everybody was very forgiving of that.

So it was very much America as I see it — a country of lots of people who look very different, who sound different (except a fair number of people did have New Jersey accents.)

And it was just a far more hopeful scene — at least I found it much more hopeful —about the state of the country. It turns out that ordinary Americans — this is, again ordinary Americans from Mercer County, New Jersey, but still — ordinary Americans are a lot nicer, more thoughtful, more willing to hold interesting discussions than you might think.

And it does seem to me, given all the political news, there’s a lot of people out there, I would say primarily on the right, but not only on the right, who fundamentally hold ordinary Americans in contempt, who believe that you have to go with cheap slogans and that you can appeal to the baser instincts of everybody’s nature and that’s the way that you win.

And obviously they do sometimes win. But it’s worth going out there a little bit.

I mean I’m never going to be the kind of person who travels around and has conversations with the person in the street and reports back on what I’ve learned about the real America. But I actually did have, by accident, a pretty good selection of real Americans — because we’re all real Americans — and came out of it feeling just much lighter in mood.

You know, this country is actually okay if we can just get past some of the people who are trying to take us down a dark path. We’re not bad people — we’re mostly good people. And there’s a lot there’s a lot of uplift out here if you’re willing to see it.

For once if I say I’m ending on a happy note, I really am.

Take care.

Bloomberg

Last Friday extreme heat forced early closure of Donald Trump’s Great American State Fair. Fortunately, the fair was sparsely attended. As some wags put it, tens of people had to be evacuated from the National Mall. Even so, 44 people received health assistance and 11 were taken to hospitals due to the heat.

OK, shutting down Trump’s shabby, dreary exercise in self-aggrandizement was no great loss. Yet the disruption of Trump’s festivities is a harbinger of many disruptions to come. The brutal heat wave in the northeastern US — an event that would have been “virtually impossible” without climate change — followed an even more brutal heat wave in Europe.

These disasters represent the leading edge of serious damage — social, human, and economic — from a warming planet.

Projections of future climate change are often expressed in terms of averages: By 2050 average global temperatures are expected to be above pre-industrial levels by around 2.5° C — 4 ½ degrees Fahrenheit, while sea levels will be 10 incheshigher.

We should all treat these predictions as highly credible. Although fossil-fuel-financed climate denialism pervades right-wing politics and media, climate scientists who warned decades ago about future warming have been overwhelmingly vindicated. Indeed, in many cases their predictions have closely matched the actual numbers. So when climate scientists predict much more warming ahead, we should believe them.

Focusing on the average temperature increase can, however, lead people to underestimate the damage that lies ahead. If the typical day is a few degrees warmer, if the waves on a typical day are a few inches higher, what’s the big deal?

The rejoinder is that what may look like a modest change in these averages implies a large change in the risk of extreme weather events. A few degrees of average warming correspond to a huge increase in the frequency of heat emergencies like the ones we just saw on both sides of the Atlantic. A few inches added to sea levels corresponds to a huge rise in the probability of catastrophic storm surges.

And these extreme events are exacting an ever-growing human and economic toll. Europe suffered thousands of excess deaths as a result of the recent heat wave. The U.S. toll was smaller, although not zero, because our heat wave was less severe and because of the pervasiveness of air conditioning. Yet we are facing a future in which death and destruction from extreme weather events are certain to rise everywhere as the planet continues to warm.

Inevitably, the economic costs of climate change are also certain to rise. As that left-wing rag the Wall Street Journal recently explained,

Individual events are just beginning to be large enough to have a noticeable macroeconomic impact. One study estimates that European heat waves in the summer of 2025 reduced European Union GDP by 0.26 percent. That may not seem like a huge number, but it’s a very big deal if it happens every year — which it almost certainly will. The costs of this year’s heat will probably be even bigger. For example, France has lost millions of chickens. And the damage from climate change is just getting started.

In the U.S., the most notable economic impact of the heat wave that closed down Trump’s fair was a spike in power prices:

In fact, I’m very worried about the future of US electricity. Air conditioning saves lives during heat waves. But it also consumes a lot of electricity, piling additional demand on an energy grid that is already stressed by the rise of AI and its energy-hungry datacenters. And this surge in electricity demand is colliding with policies that are strangling growth inU.S. generating capacity.

Donald Trump and his officials have a fanatical hatred for renewable energy and indeed of anything that even sounds like an acknowledgement that climate change is real. So they are doing all they can to block solar and wind projects, while trying to force America to burn more coal. (They won’t succeed.)

They’re pushing their drill, baby, drill agenda even though renewables are clearly the energy sources of the future. Indeed, solar and wind power now account for almost all growth in electricity generation in the rest of the world:

The economic consequences of the MAGA attempt to keep us stuck in the energy past will be dire, for three reasons.

First, the U.S. is still an important emitter of greenhouse gases. True, we now account for less than 13 percent of global carbon emissions. But every little bit of climate dereliction hurts.

Second, we’re ceding the energy future to other countries, especially China. Electrotech — electricity powered cars and more, with solar and wind supplying the electrons — will rule the world, even if we refuse to be part of it.

Third, while the economic costs of climate change, which are now coming into focus, will be large whatever we do, they will be much bigger if America turns its back on renewable energy. True, gas turbines can supply part of the energy America needs in the near future. But they’re polluting, and at least some analysts are warning that supply shortages may lead to rising gas prices.

In addition to doing all it can to accelerate climate change, the Trump administration is actively placing Americans at risk by shuttering programs that help the nation prepare and recover from climate change catastrophes. Deep cuts to FEMA and the National Weather Service, along with cuts for programs that help build resilience, will inevitably leave Americans poorer and undermine communities. It’s like burning down the hospital because you don’t like the diagnosis.

And did you hear about last week’s Thermostat War? It wasn’t a huge incident in itself, but it was, I believe, deeply revealing about how political dysfunction will undermine our response to climate change.

Here’s what happened: During the heat emergency, New York mayor Zohran Mamdani urged the city’s residents to limit the burden on the grid by keeping their air conditioners at 78 degrees. Right-wing commentators went wild, denouncing his request as left-wing extremism — apparently only Communists believe in conserving energy during a crisis. But MS-NOW, among other media outlets, quickly noted that Mamdani’s suggestion echoed longstanding federal guidance.

And the Department of Energy immediately closed down its web pages offering that guidance.

Whether we want to acknowledge it or not, climate change is going to impose large economic costs, some of which are already baked — and I mean baked — in. But the Trump administration’s rejection of both science and basic energy economics, along with vandalism of programs meant to help Americans prepare and survive climate catastrophes, will make the damage to America much worse than it should have been.

MUSICAL CODA

Transcript

Yesterday, Donald Trump ordered Scott Bessent, the Secretary of theTreasury, to cut off all trade with Spain. Bessent said “Yes, sir.” Trump also said that this is because the Spaniards had stolen his strawberries.

Okay, I made up that second part, but he did in fact order Bessent to cut off all trade.

This is not going to happen.

Presidents have a lot of discretionary authority on tariffs and trade, more than they should, but you do not have the right as president to impose tariffs on a country just because you don’t like their defense spending or you think that they haven’t been nice enough to you.

So this would not fly even in the Trump administration. Even with a supine congress and a permissive Supreme Court this is not going to happen. Also Spain is part of the European Union. So this is like Europe declaring “we’re cutting off all trade with Florida”: they can’t do that. And also, there’s a lot of U.S. business with Spain. In fact, Spain is one of those countries with which we run a trade surplus. So U.S. business would be howling.

So this is all a non-event, this is is not something that is real. Except that the President of the United States did say this.

It was completely crazy, and that’s the story that we should be taking from this. It’s not really at this point about economics. It doesn’t even make sense to talk about Trump Administration policies, let alone ideology.

What we have is President Sundowner. I mean, this this is completely insane stuff. In any kind of normally functioning political system, in any kind of normally functioning party environment we would have a massive bipartisan call across the aisle, across almost everybody except for a handful of members of congress who are themselves crazy, to say okay this guy is non compos mentis. We cannot leave the fate of the United States or the world in the hands of somebody who is completely irrational, who is making demands and believing himself to have powers that he does not.

And of course, instead, not only does everybody pretend that he’s still a rational human being, but the Republican Party, the Trump administration, is full-on engaged in trying to build a personality cult.

What this says to me is that the problem is a lot bigger than Trump. Something is fundamentally wrong with America, and at this point you don’t have to go through complicated justifications. You can just say something is wrong with a country and a system that lets this guy remain in a position of power.

Have a good day.

A recent report in the Wall Street Journal describes a tense meeting among European leaders early this year, convened after Donald Trump threatened to use military force to seize Greenland from Denmark. According to the Journal,

heads of government were venting so emotionally about the 47th president that some of the nearly 30 leaders present would later call the session “therapy night.”

Yesterday, soon after he arrived in Ankara for the NATO Summit, Trump reiterated his demand that Denmark hand him control of Greenland. But reactions were subdued. As far as I can tell, our erstwhile allies are now treating Trump as the senile uncle who says crazy, outrageous things, but shouldn’t be taken seriously.

What has changed? According to the Journal, European leaders have largely given up on hopes that they can bring back the America they used to know, and are quietly, in effect, declaring independence:

American allies have begun pushing the gas pedal on an unprecedented experiment in de-Americanization. Authorities from France to the Netherlands are quietly removing American tech from their systems, adopting European open-source software and urging civil servants to no longer use Microsoft Teams or Office. Belatedly, they are spending hundreds of billions of dollars to try to boost Europe’s own private space firms, AI companies, and data centers, to avoid leaning on U.S. juggernauts.

Europeans are running studies on where they would store their data or process their payments should friction with the U.S. escalate, and how well their American-made weaponry would operate without Washington’s authorization. Nations whose empires once spanned the globe are now stuck trying to extricate themselves from their humbling dependency on American technology and military power, without provoking the U.S.

Their willingness to de-Americanize partly reflects recognition that reconciliation is hopeless: Trump is who he is, and a nation that elected him twice simply can’t be trusted.

However, Europe’s turn away from Trump also reflects plummeting perceptions of his power. At one time the world feared Trump although it never respected him. The silence that met his renewed demand for Greenland shows that the world no longer takes him seriously.

America remains an economic superpower with an enormous military budget. And the combination of a supine Republican Party, along with a Supreme Court that shamelessly greenlights Trump’s authoritarianism, has given this president more control over U.S. policy than any president has ever had, or ever should have. But while Trump is able to run roughshod over Americans, he can no longer bully the rest of the world. Thanks to Trump, the U.S. has seen its global influence plunge.

There are three big reasons for that precipitous decline.

First, there is the debacle in Iran. Not only did Trump’s war of choice fail in all its objectives, it revealed that U.S. military power is far more limited than almost anyone realized. The insistence by Trump and his lackeys that this humiliating defeat was a great victory shows that American foreign policy only serves to pander to Trump’s fragile ego. And when his ego meets reality, it slithers away.

In addition to showing the limits of U.S. military power, the war also showed the limits of U.S. financial power: It is increasingly easy for nations to bypass U.S. banks and the dollar using cryptocurrency — and Chinese yuan.

A second, in its way equally important, blow to U.S. prestige and influence has been Trump’s failure to deliver Ukraine to Vladimir Putin.

For make no mistake: everyone at that summit in Ankara knows that Trump, JD Vance and company both expected and hoped that their betrayal of Ukraine would lead to Russian victory. Surely, they imagined, Ukraine would be unable to hold off the onslaught from its much bigger neighbor without U.S. aid. To America’s everlasting shame, Trump told Volodymyr Zelenskyy that he didn’t “have the cards.”

Yet after Trump cut U.S. aid to Ukraine by 99 percent, Ukraine not only survived but began gaining the upper hand. Europe has stepped up financially, more or less replacing the lost American dollars. And Ukrainian military innovation has largely made up for the loss of American weapons.

The result has been to make the U.S. increasingly irrelevant. Put it this way: Iran taught foreign governments not to fear American might; China, along with the crypto industry, has taught rogue countries that they needn’t fear American financial control; and Ukraine has taught foreign governments that they don’t need American support.

Finally, Trump’s global power play rested on economics even more than on military force, above all on his belief that other nations would cower in fear at the prospect of facing U.S. tariffs. But Trump’s attempt to weaponize international trade has been a bust. Most notably, China’s economy has powered right through the Trump tariffs. Furthermore, it turns out that China has escalation dominance in the trade war: we need their rare earths more than they need access to our consumers.

And other nations — even Canada and Mexico, which have historically been highly dependent on the U.S. market — are moving to reduce their dependence. Canada’s move to build a new pipeline that will let it sell Alberta oil to Asia rather than the Midwest is just a highly visible symbol of a general world move toward bypassing America now that we have become an unstable, unreliable economic partner.

The combined effect of these humiliations for Trump and his minions has been a drastic reordering of America’s place in the world. For most of last year foreign leaders kept trying, desperately, to appease Trump. These days they’re mostly just humoring him, building a world in which his sundowning won’t matter.

It’s extremely unlikely that anything substantive will come out of this NATO meeting. And a year ago the prospect of a failed summit would have been a source of deep concern. Now it will be met with a shrug: Nobody expects anything but chaotic bluster from Trump, and what he does matters less and less.

Note: I’ll be doing a Substack Live at noon with Heather Cox Richardson

Transcript

Donald Trump has distinguished himself in many ways. One of them is that he is our first pump and dump president.

Hi, Paul Krugman here. A podcast today rather than a full-on piece: I’m a little exhausted from number-crunching over the weekend. So I thought I’d talk briefly about the really extraordinary financial picture that we’re seeing under the current administration.

Obviously no president has enriched himself from office the way that Trump has. That’s common knowledge. One of the things that is really amazing about it, however, is the way in which he enriched himself — a lot of which has to do with crypto.

So the New York Times had a report just the other day on Trumpcoin, the memecoin issued on Trump’s behalf which got a lot of buyers, a lot of money came flowing into it.

It should have been obvious from the beginning that the coin was inherently worthless, and at this point it essentially is worthless. It has lost 97 percent of its value. But a lot of people did buy in at the high prices.

What was special about the New York Times story was two things. First, they put a number on how much money naive investors have lost on the coin, which is 3.8 billion dollars. And even more surprising is the number of people who were in effect suckers here — almost a million.

That’s really amazing. I mean, I was completely cynical but I didn’t think there were that many suckers out there. But it turns out there were really a lot. A few people made money off the coin — basically insiders who got to buy it early and then were able to cash in before the broader retail market realized that this was a worthless token. There’s another token, the World Liberty Financial coin — which has also crashed, although the Times had difficulty in tracking down how many people have lost how much money. There’s the Melania coin.

Okay, all of this is amazing. As Trump would say, it’s like nothing anybody’s ever seen before. I think we should say, however, that this is a bigger story than just the Trump coin, and it’s a bigger story than just Trump himself.

What we’re witnessing is or has been a really enormous pump and dump scheme, I would argue, involving more or less all of crypto.

So if you don’t know the background, Trump used to be highly critical of cryptocurrency, saying it was worthless and a scam, which was true. But then when it became clear that there was money in it for him, he reversed course. And during the 2024 election, crypto interests contributed a lot of money to Trump. They then after the election poured a lot of money into his own enrichment, into his own projects. And the administration came in with a very pro crypto stance: deregulation encouraging uses of crypto, at least talk about a national bitcoin reserve, all of that. And the price of bitcoin doubled after the election; the valuation, the market cap of cryptocurrency in general went from a little over two trillion to more than four trillion.

And then starting last fall it all came crashing down. Not all the way to zero — the price of Bitcoin right now as I record this is about what it was on the eve of the 2024 election; it’s about half what it was at its peak. That’s also true, roughly speaking for the market cap. So we’ve seen about two trillion dollars of market valuation wiped out.

Why is this a pump and dump story? Well what is cryptocurrency good for? As you know, I’ve been on this for a long time. Bitcoin was introduced in 2009 — this is a seventeen year old idea which has yet to find any legitimate use cases. Illegitimate use cases, yes. There was also a report in the Wall Street Journal about the extent to which Iran and North Korea have been making use of cryptocurrency to evade U.S. sanctions, so there is that. But it’s still not enough to justify a multi-trillion dollar asset.

Anyway, it was trendy, it was exciting, it was fashionable and particularly after November 2024 it was pushed with the encouragement of the Trump Administration. It was just a heavy marketing campaign that had the advantage of also having the authority or whatever, the credibility — such as it was but among some people real —of Donald Trump behind it. They all evaporated.

I think we can say that to some extent what happened was that Trump kind of moved on to other things. There also is some distracted boyfriend meme: the guy looking over his shoulder. A lot of the excitable, fear of missing out, latest thing money has probably moved from crypto to AI. So that might have happened even without Trump. But the basic story is that Trump guided, pushed people into a whole asset class, crypto, of which a large part is Bitcoin, but other stuff as well.

We don’t know how much, or I don’t know, how much crypto was bought during this period, but it has to be substantial. And then it crashed. And at this point, essentially anybody who bought crypto during this era, since the 2024 election, has lost money.

It’s a lot of money; we know that on paper — it’s not really paper, but anyway — in principle two trillion dollars has been lost in crypto. Now a lot of that is probably money just given back, imaginary gains that took place during the run-up. But a substantial amount of additional money was from people who did buy in during this whole episode. So this has to be many times the size of the losses on the Trump coin. And it is, I would say, at a functional level another pump and dump scheme.

In this case the beneficiaries were people who were already in crypto. Clearly some of the crypto interests that bought themselves a president probably stayed fully invested. But others must have cashed out, and a lot of innocents — well a lot of a lot of suckers, let’s not mince words here — a lot of suckers clearly lost a lot of money.

It’s an extraordinary thing. There have been pump and dump schemes forever, probably going back to the Phoenicians or something. But this is on a scale we’ve never seen, and with the president of the United States in the center of it. Which I guess given everything else comes as no surprise.

Happy 250th birthday, America.