Please, please, please ... I really want to hear about why financial markets are not reacting to things that should be worrying. I've been asking myself this question for weeks and weeks now.
Perhaps they calculate that the project of transferring assets from the middle class to financial elites still has a way to go and will allow increased corporate profits even if the economy tanks? For example, the tax bill may increase returns to mostly wealthy shareholders. Or AI may eliminate wages. Or bond market risks are increasingly socialized. Or pollution and workplace regulatory cost will decline and tax audits will no longer trouble conservatives… Chaos is a ladder for some.
Middle class is already pretty well wrung out. Have you noticed advertising for home equity loans are on the rise again? Homeowners once again cashing in equity to subsidize unsustainable lifestyles.
Also read some interesting articles looking at rising real estate prices and bubble potential.
The end of this story seems to be the snake eating it's own tail, corporations and devaluing the economic base that sustains their flow of profits ... when the largest consumer economy can no longer consume where are we?
AI cannot fill all our seats, if it was so damn good we'd be using it for fraud detection and prevention. 90% of my day is devoted to being Front Line of Defense, detecting nuances in human action that AI cannot currently identify.
Thanks, she is actually a beagle lab who has the perpetual look of a six mo lab puppy. She's known as the 'fun-size' lab at her vet and kennel .. now 13.
Because the effects are without precedent and unpredictable, and markets cannot price what they do not understand.
If markets were clairvoyant we wouldn't have crashes.
And in some sectors, you absolutely can see the effects of climate change on prices. Take a look at what's going on in insurance and in industries that depend on it.
Most of the crashes I've experienced were related to un or under regulated causing distortion and bubbles ... program trading, tech, hedge funds, credit swaps, derivatives ... coming soon crypto
There are also oil & gas interests colluding wagging the markets while hedge funds distort variances.
Mutual funds, pensions, endowments have to keep assets invested per investment policy statements fueling continued demand for stocks and bonds and an ever expanding collection of asset classes.
That does not predict exactly how things will change, nor when. Investment finance is a game of timing. Right now, a majority thinks staying in the market is better than the alternatives.
That will change. It always does. If you can tell me when, I'm all ears!
You may have misunderstood me. I was referring to the stock prices of insurers. The insurance business itself is now riskier. Insurers are in the process of shedding that risk, but that process is far from complete.
That is literally and clearly totally wrong—because physics—but I was waiting for it.
The answer to my question is simple: there are mostly only two types of people, especially in finance: 1. Those who know we are being omnicidal, don’t care, but spew this shit out to cover up their sociopathy, and, 2. Those who actively deny we are being omnicidal so they can live with themselves when they look at their kids. Set 1 couldn’t care less. Overlapping sets, of course, psychologically speaking.
Finance generally cares about two minutes from now. Period. By design and practice.
I imagine there will be a lot of bullshit spewed now. None will address physical reality.
That’s why we are finished. Waaaaaaay beyond MAGA.
It's so interesting to observe the first arrival of Doom in virgin territory, so to speak. Doom reached the New York Times comment section a year ago. Here in Krugmantown, not so much, but there seem to be sleeper agents here, just starting to rouse. Krugman himself may be showing early signs.
You and those like you are why I expect we are finished. That’s the funny part. We could avoid going off the cliff were it not for you lot denying there’s a cliff.
Keep that in mind when it finally sinks in: you did all you could to help. It’ll come up every time you look at your children’s faces. 😘
None of the models show a run away Venus style warming. Many of the people who discovered global warming got their start working on the atmosphere of Venus, so they understand how that works.
And I doubt you understand the physics as well as you think you do. Surprisingly, at the 1 bar pressure level, Venus isn't much warmer than Earth. The high surface temperature has a lot more to do with the 90 bar surface pressure than with any greenhouse effect.
Your comments re Venus surface temp are way off. Avg temp there exceeds 800F due to that planet’s closer proximity to the sun.
Life as we know it cannot exist on Venus. Avg temps here have grad increased so far and humans and other life have been able, so far, to adapt to changes. That may change if avg temps spike when Environment Protections are relaxed or eliminated. BTW, surface temps on Mars vary greatly too from -80F to about 70F…closer to conditions here on Earth. But there is no vegetation on Mars and little water at best. The temp variations create very high winds that are unbroken by trees, etc. So wind storms there are severe and will be a major problem when/if efforts to construct facilities for sustaining human life there are attempted.
You on another topic: “Politicians hate having to balance taxes and spending, and taking on debt provides a way to avoid this.
Of course this is unsustainable in the long run. However, many economists work in finance, and they are reluctant to bite the hand which feeds them. The field of economics has a long history of close links to international banking interests, especially the Rothschilds.“
International banking…Rothschilds… Yeah, you’re to be trusted on climate science.
I think we are done here. You are most likely in category 2, but could be in 1. Either way, you are doing all you can to kill your children’s future. To serve your errant neurotransmitters, if I want to be kind about it.
Catastrophic climate change is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever, until the planet reaches an equilibrium temperature.
There's always room for denial, or at least avoidance, in individuals or in human tribes as a whole.
Just remember that academics, politicians, corporate executives, "smart money" and billionaires are for the most part as stupid and ignorant as the rest of us, and as much driven by their limbic systems as any human. We *expect* them to know more than they do.
Presumably, equities are valued by some discounted expected cash flow model. Small incremental changes over very long time (by finance time scales) just don't effect the present value to a great extent. On the other hand, an anticipated drop in interest rates of 0.5% or 1% within a calendar year can have huge effects to demand and investment, and thus equity price.
Some industries have, but markets tend to be based on quarterly profits. Even so, I'm not sure about the idea of pricing in the cost of carbon to the planet when life is dependent on it. Applying the same rules of cost of, saying, buying a raffle ticket or a stock to destroying the planet doesn't sound reasonable. When life is in question we err on the side of caution, not cost.
It is truly baffling. The economy is tied to the tracks. You can see the train coming. The Cavalry was sacked by Musk's DOGE bro's. So help isn't on the way. But so far so good?
My best guess is that the behavior of stockholders is now more akin to the behavior of those who like to buy things like bitcoin, where it is not about earnings but about anticipating what other stockholders might do that impacts the value and their decision making. If things are simply stable enough for now and "others" are not fleeing they are all in.
People need a place to put money (especially with all the tax cuts) and what once seemed far more secure, like bank accounts and bonds, may also now be seen as having a little added risk (recent bank crisis) and even if low, it is not like bank accounts etc have a lot of interest to be earned attached to them, etc. to make them super attractive. These investors may also be expecting even more money to flow in to stocks due to more tax cuts.
This is just my guess.
If I am correct, this tax cut money, as is typical, will not be going to boost the economy, GDP or jobs, it will simply balloon asset prices and explode deficits and debt as the CBO always correctly predicts.
No GOP president since Reagan has been able to replicate the growth after tax cuts only replicate exploding deficits and debt. In fact we had much higher growth under Clinton. This is because growth under Reagan was due to Federal Reserve easing after a long period of high interest rates.
This is also likely why Trump is desperate for the Fed to cut, so he can pretend it was his tax policy. Even pre-pandemic Trump saw below average growth after his tax cuts at only 2.8 average and yet he nearly doubled the deficit even before the pandemic hit our shores from 559 billion when Obama left in Jan 2017 to 1.015 trillion in Jan 2020 (based on the CBO reports).
We seem to have to interdependent balloons.
As debt and deficits rise, mostly due to tax cuts, this money from the tax cuts (mostly aimed that the top) flows into stocks and other assets inflating that balloon as well as our debt balloon.
However, if our efforts were actually aimed at the bottom of the income scale, those people spend and GDP would increase as a result.
The GOP policy is completely backwards which means debt to GDP will explode even further.
“However, if our efforts were actually aimed at the bottom of the income scale, those people spend and GDP would increase as a result.”
Even Henry Ford realized he could not sell more cars if his employees could not afford to buy them. The 1% has forgotten this principle, and have gutted benefits and role of employees as stakeholders and consumers.
Reagan got away with his cuts because ERISA opened the door to a new source of funds to drive the market, the 401k, before corporate raiders had time to dismantle and scrape gains from private pension plans.
Here's the kicker ..the taxcuts will not add anything new to the scenario, they are already built in … this BBB is an extension of the cuts initiated in the first term. To make them permanent, Congress has to drop the other shoe, cut the budget to offset reduction on revenue…the proverbial kick in the nuts to GDP. Net result, contraction to the economy. Enter the slippery slope.
I think there are multiple reasons. 1) Weak output data predicts interest rate cuts. 2) The effects of tariffs have yet to show up in any economic hard data 3) Most current traders have never lived though stagflation, it was just some topic covered by their economics prof 10 years ago, thought to be an economic curiosity, and not even a serious consideration. 4) Greed
Berkshire Hathaway is sitting on an astonishing amout of cash, other companies have piled into gold, and digital Ponzi equivalent crypto. So some people are anticipating the coming economic chaos.
It happened in 1999 with the dot com boom. There was no relationship between stock prices and the present value of future earnings. In fact, it was widely believed that the rules influencing stock prices were obsolete and did not apply to the future internet economy. They were partially right, but only for a very few companies such as Amazon.
Interesting ..but was disconnect because of tech, or something else?
I'd like to suggest the critical mass of 401k dollars in the markets in search of investment, fueling explosion of mutual funds and asset classes, demand driving cost of underlying assets up regardless of real earnings growth.
Amazon was immensely assisted by the US government. To help the "fledgling" internet this company did not have to charge sales taxes. That gave an advantage - also psychologically - over neighborhood shops. And now go to eBay, Etsy, etc. - every auction/BIN where private people clear their cupboards, attics, garages, has sales taxes added, also over the postage!
Stocks really haven’t done much this year. YTD TR is 5.2%; much of that is arguably driven by a bubble in AI stocks. The equal-weighted S&P trails the cap-weighted index by roughy 2%, suggesting that the “typical” stock has performed at about T-Bill rates. The bond market has been in a tailspin since DT took office; no good news there. Stock valuations are stretched, suggesting they are vulnerable to bad news - witness the sharp post-liberation-day sell-off. The next catalyst could be Fox knucklehead appointed to Fed chair. Like you, I fear that a reckoning awaits. You may recall that the market fell 22% in a single day in 1987 on virtually no news.
Like I said in another part of this thread ... the consistent inflow of 401k and 403b supports the market with net cash to invest ... all asset classes except bonds and small cap are carrying small YOY gains.
I was on ground floor for Oct 1987, that was program trading. Something broke an algorithm and it went viral .. the stops weren't put in till 1989 or 1990 for the burts of the M&A bubble. I made money off of Trump when he announced he was gonna buy Delta. Bought puts and made my mortgage payment.
Even thought I work close to the markets I do not normally speculate. Modern portfolio theory for me all the way every day. Ignore the squirrels and shiny things.
But I think this administration is so chaotic, on again off again tariffs, etc that no one knows how to calculate insanity. Or have the willingness to see truth in any of his pronouncements.
Agreed. Much as I love Dr. Krugman's interviews, I do not have time to watch a video or even listen to podcasts. I would never get anything done if I watched all the interviews and listened to all the podcasts that interest me! I appreciate the transcripts he has posted in the past and I hope we will see more transcripts. In fact, in a recent interview, Dr. Krugman admits he doesn't listen to podcasts and reads transcripts. 😂 https://embedded.substack.com/p/my-internet-paul-krugman
Thank you for saying this. With edited-for-brevity Substacks Dr. Krugman would reach more people - IMHO. One has to be retired to keep up with all the podcasts, YouTubes, etc.
My grad school-during-pandemic trick is to play back video recordings at 1.5x speed. Sometimes faster, depending on the speaker. Admittedly I prefer to do this for staff meeting videos and other, similarly gripping materials, but increasing the speed gets you thru pretty quickly without comprehension loss (bonus: you can speed-rum the videos while doing dishes or folding laundry).
Good for you! But what you describe, is not possible for all of us (anymore). Also, some are better at acquiring information by reading than by listening.
I have never been good at doing two things at the same time. I once thought, having to commute in mostly jammed up slow-moving traffic, that I could refresh my knowledge of the French language by listening to tapes in the car. In the first five minutes I almost had two fender-benders. That was the end of that brilliant idea. LOL.
That is very funny! And slightly terrifying. I almost killed a saucepan twice this week by starting water to steam eggs and then promptly getting interested in something else--first a movie, then guests. The steamer basket handle got so hot, it melted. Now my household has had a good dose of aerosolized black
On YT, use the 'Show More' below the video, hit the button 'Show Transcript' which is on the top right, then use the three dots to expunge the timestamps.
It's computer generated, so not formatted, but it is a transcript.
OMG!! Paul, I love Quarterflash! And I could listen the their lead singer and her throaty vocals backed by that seductive sax she plays all day. They did the title song to one of my favorite Michael Keaton movies -- Night Shift. Great song!
Do not get me started on all the Keaton gems in that movie!! Priceless. His manic energy played against Henry Winkler's 'ant-Fonz' character makes for timeless viewing.
Timely and enormously helpful discussion. Thank you, Dr Krugman. Will be following this closely. Am reading Wolf’s book The Crisis of Democratic Capitalism. Very timely.
WHAT A GIFT!! Krugman, you are great at throwing "curve balls!" THANK YOU! Wolf loves opera, and you are a fan of pop music. Adam Smith, the philosopher, would love watching this one! Economics without the subjective is a baseball batter without a bat. Economics was invented to address the subjective. Your idea of a CODA was the work of a muse:) I look forward to this journey.
We remain abused by this lawless administration and their goonish Brownshirts. Led by a psychopathic neo-fascist, they are in chaos. This weekend we face the Big Beautiful Bill in Congress. Right now, we must let each of our representatives and senators know we stand strongly opposed to a vote for this bill (in any of its forms with the 2017 tax cut). Call them now. Let them know that you will not ever get over it if they vote for the bill. Why? Because Mitch McConnell said “They will get over it.” The audacity. https://hotbuttons.substack.com/p/big-beautiful-bull?r=3m1bs
Thank you for posting on YouTube. I would still love to see these posted to an audio format so they can be easily downloaded and listened to - on the go - without eating up Gigs of data for those of us constrained by costs. Thank you, Professor!
Krugman: “We’re fundamentally talking about hostility to independent thought”
I like to think of it as a war against the Enlightenment. We can argue forever about the Revolutionary Generations religious beliefs. Before anything else, they were children of the Enlightenment. Celebration of reason, “rational humanity” and all that. The Declaration of Independence is an Enlightenment manifesto. Funny how many of the things they’re killing right now are tied to pursuit of truth and using government policy to help people.
Maybe it’s not just about the Constitution or global economics. Maybe it’s something much more intangible. :-)
You have written extensively about buying the best value but never addressed the security issues. For example, protective wear was not available at the beginning of the pandemic because protective wear was not made in the USA. Please let us know what you would propose to make the USA self-reliant.
I remember my first election, when I was barely old enough to vote. I was very interested in the issues, and asked an older man who said he was voting for the centre-left party that I favoured, already in power, why he was going to vote that way. He said "well everybody is voting that way", totally surprised by my question. (The party ended up getting 50% of the vote in a 3-way election.)
That made me realise that many if not most voters don't understand the issues in depth, even if they have a general idea of their orientation.
Those actively following the issues and their implications are a relatively small minority.
Trumps false declarations of a terrible economy, "invasion" by violent immigrants, and a very high level of inflation, all that he would fix could sound plausible to those who only listen to media like fox news.
That combined with christian right voters, others who would vote republican no matter what, and the high level of abstention is what gave Trump his marginal victory.
Living in Ontario, close to the US border, in the 60's and 70's, it looked like manufacturers were moving their factories to wherever labour was lowest. I expect some people lost their jobs because of new technology but it certainly wasn't obvious.
I understand that economy is your primary field of interest. That's no shame, but being an economist every problem might look like an economic issue. Just like that for a hammer every thing looks like a nail.
The real danger of Trump for America is the effect of his actions that they hollow out democracy.
A president that rules outside the control of Congress is really an absolute monarch that rules just to his whims.
Please, please, please ... I really want to hear about why financial markets are not reacting to things that should be worrying. I've been asking myself this question for weeks and weeks now.
Perhaps they calculate that the project of transferring assets from the middle class to financial elites still has a way to go and will allow increased corporate profits even if the economy tanks? For example, the tax bill may increase returns to mostly wealthy shareholders. Or AI may eliminate wages. Or bond market risks are increasingly socialized. Or pollution and workplace regulatory cost will decline and tax audits will no longer trouble conservatives… Chaos is a ladder for some.
Middle class is already pretty well wrung out. Have you noticed advertising for home equity loans are on the rise again? Homeowners once again cashing in equity to subsidize unsustainable lifestyles.
Also read some interesting articles looking at rising real estate prices and bubble potential.
The end of this story seems to be the snake eating it's own tail, corporations and devaluing the economic base that sustains their flow of profits ... when the largest consumer economy can no longer consume where are we?
AI cannot fill all our seats, if it was so damn good we'd be using it for fraud detection and prevention. 90% of my day is devoted to being Front Line of Defense, detecting nuances in human action that AI cannot currently identify.
In this day and age, fraud detection is simply a matter of looking at whatever comes out of this misadministration. It's all fraudulent.
Sidenote: That Lab pup in your avatar is insanely cute.
Thanks, she is actually a beagle lab who has the perpetual look of a six mo lab puppy. She's known as the 'fun-size' lab at her vet and kennel .. now 13.
Interesting combo. Wow, 13? She looks like 13 weeks!
That picture is the day she picked me at Last Chance Dog Rescue, she was about 12 weeks.
Why don’t markets (yet or sufficiently) price in the physics-guaranteed increasing destruction of carbon?
Because the effects are without precedent and unpredictable, and markets cannot price what they do not understand.
If markets were clairvoyant we wouldn't have crashes.
And in some sectors, you absolutely can see the effects of climate change on prices. Take a look at what's going on in insurance and in industries that depend on it.
Most of the crashes I've experienced were related to un or under regulated causing distortion and bubbles ... program trading, tech, hedge funds, credit swaps, derivatives ... coming soon crypto
There are also oil & gas interests colluding wagging the markets while hedge funds distort variances.
Mutual funds, pensions, endowments have to keep assets invested per investment policy statements fueling continued demand for stocks and bonds and an ever expanding collection of asset classes.
They’re physics-predictable.
That does not predict exactly how things will change, nor when. Investment finance is a game of timing. Right now, a majority thinks staying in the market is better than the alternatives.
That will change. It always does. If you can tell me when, I'm all ears!
And predicted: We're toast, literally.
You may have misunderstood me. I was referring to the stock prices of insurers. The insurance business itself is now riskier. Insurers are in the process of shedding that risk, but that process is far from complete.
Longer time lines to impact I think. Current chaos brings consequences in near term ... that we are already beginning to see in lagging indicators.
Recent drop in consumer confidence now showing up in May spending numbers.
They do. Modest effects, over the very long term, and we can adapt to them.
That is literally and clearly totally wrong—because physics—but I was waiting for it.
The answer to my question is simple: there are mostly only two types of people, especially in finance: 1. Those who know we are being omnicidal, don’t care, but spew this shit out to cover up their sociopathy, and, 2. Those who actively deny we are being omnicidal so they can live with themselves when they look at their kids. Set 1 couldn’t care less. Overlapping sets, of course, psychologically speaking.
Finance generally cares about two minutes from now. Period. By design and practice.
I imagine there will be a lot of bullshit spewed now. None will address physical reality.
That’s why we are finished. Waaaaaaay beyond MAGA.
It's so interesting to observe the first arrival of Doom in virgin territory, so to speak. Doom reached the New York Times comment section a year ago. Here in Krugmantown, not so much, but there seem to be sleeper agents here, just starting to rouse. Krugman himself may be showing early signs.
You and those like you are why I expect we are finished. That’s the funny part. We could avoid going off the cliff were it not for you lot denying there’s a cliff.
Keep that in mind when it finally sinks in: you did all you could to help. It’ll come up every time you look at your children’s faces. 😘
???
What a bizarre exchange of friendly fire this was.
Green on green, so to speak.
None of the models show a run away Venus style warming. Many of the people who discovered global warming got their start working on the atmosphere of Venus, so they understand how that works.
And I doubt you understand the physics as well as you think you do. Surprisingly, at the 1 bar pressure level, Venus isn't much warmer than Earth. The high surface temperature has a lot more to do with the 90 bar surface pressure than with any greenhouse effect.
Your comments re Venus surface temp are way off. Avg temp there exceeds 800F due to that planet’s closer proximity to the sun.
Life as we know it cannot exist on Venus. Avg temps here have grad increased so far and humans and other life have been able, so far, to adapt to changes. That may change if avg temps spike when Environment Protections are relaxed or eliminated. BTW, surface temps on Mars vary greatly too from -80F to about 70F…closer to conditions here on Earth. But there is no vegetation on Mars and little water at best. The temp variations create very high winds that are unbroken by trees, etc. So wind storms there are severe and will be a major problem when/if efforts to construct facilities for sustaining human life there are attempted.
You on another topic: “Politicians hate having to balance taxes and spending, and taking on debt provides a way to avoid this.
Of course this is unsustainable in the long run. However, many economists work in finance, and they are reluctant to bite the hand which feeds them. The field of economics has a long history of close links to international banking interests, especially the Rothschilds.“
https://substack.com/@schrodingercat/note/c-105030450
International banking…Rothschilds… Yeah, you’re to be trusted on climate science.
I think we are done here. You are most likely in category 2, but could be in 1. Either way, you are doing all you can to kill your children’s future. To serve your errant neurotransmitters, if I want to be kind about it.
Listen, and understand.
Catastrophic climate change is out there. It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever, until the planet reaches an equilibrium temperature.
I saw what you did there ;-)
"Why don’t markets...price in...?"
There's always room for denial, or at least avoidance, in individuals or in human tribes as a whole.
Just remember that academics, politicians, corporate executives, "smart money" and billionaires are for the most part as stupid and ignorant as the rest of us, and as much driven by their limbic systems as any human. We *expect* them to know more than they do.
Presumably, equities are valued by some discounted expected cash flow model. Small incremental changes over very long time (by finance time scales) just don't effect the present value to a great extent. On the other hand, an anticipated drop in interest rates of 0.5% or 1% within a calendar year can have huge effects to demand and investment, and thus equity price.
Some industries have, but markets tend to be based on quarterly profits. Even so, I'm not sure about the idea of pricing in the cost of carbon to the planet when life is dependent on it. Applying the same rules of cost of, saying, buying a raffle ticket or a stock to destroying the planet doesn't sound reasonable. When life is in question we err on the side of caution, not cost.
It is truly baffling. The economy is tied to the tracks. You can see the train coming. The Cavalry was sacked by Musk's DOGE bro's. So help isn't on the way. But so far so good?
Uncertainty breeds inaction.
My best guess is that the behavior of stockholders is now more akin to the behavior of those who like to buy things like bitcoin, where it is not about earnings but about anticipating what other stockholders might do that impacts the value and their decision making. If things are simply stable enough for now and "others" are not fleeing they are all in.
People need a place to put money (especially with all the tax cuts) and what once seemed far more secure, like bank accounts and bonds, may also now be seen as having a little added risk (recent bank crisis) and even if low, it is not like bank accounts etc have a lot of interest to be earned attached to them, etc. to make them super attractive. These investors may also be expecting even more money to flow in to stocks due to more tax cuts.
This is just my guess.
If I am correct, this tax cut money, as is typical, will not be going to boost the economy, GDP or jobs, it will simply balloon asset prices and explode deficits and debt as the CBO always correctly predicts.
No GOP president since Reagan has been able to replicate the growth after tax cuts only replicate exploding deficits and debt. In fact we had much higher growth under Clinton. This is because growth under Reagan was due to Federal Reserve easing after a long period of high interest rates.
This is also likely why Trump is desperate for the Fed to cut, so he can pretend it was his tax policy. Even pre-pandemic Trump saw below average growth after his tax cuts at only 2.8 average and yet he nearly doubled the deficit even before the pandemic hit our shores from 559 billion when Obama left in Jan 2017 to 1.015 trillion in Jan 2020 (based on the CBO reports).
We seem to have to interdependent balloons.
As debt and deficits rise, mostly due to tax cuts, this money from the tax cuts (mostly aimed that the top) flows into stocks and other assets inflating that balloon as well as our debt balloon.
However, if our efforts were actually aimed at the bottom of the income scale, those people spend and GDP would increase as a result.
The GOP policy is completely backwards which means debt to GDP will explode even further.
“However, if our efforts were actually aimed at the bottom of the income scale, those people spend and GDP would increase as a result.”
Even Henry Ford realized he could not sell more cars if his employees could not afford to buy them. The 1% has forgotten this principle, and have gutted benefits and role of employees as stakeholders and consumers.
Reagan got away with his cuts because ERISA opened the door to a new source of funds to drive the market, the 401k, before corporate raiders had time to dismantle and scrape gains from private pension plans.
Here's the kicker ..the taxcuts will not add anything new to the scenario, they are already built in … this BBB is an extension of the cuts initiated in the first term. To make them permanent, Congress has to drop the other shoe, cut the budget to offset reduction on revenue…the proverbial kick in the nuts to GDP. Net result, contraction to the economy. Enter the slippery slope.
I think there are multiple reasons. 1) Weak output data predicts interest rate cuts. 2) The effects of tariffs have yet to show up in any economic hard data 3) Most current traders have never lived though stagflation, it was just some topic covered by their economics prof 10 years ago, thought to be an economic curiosity, and not even a serious consideration. 4) Greed
Berkshire Hathaway is sitting on an astonishing amout of cash, other companies have piled into gold, and digital Ponzi equivalent crypto. So some people are anticipating the coming economic chaos.
I agree, not everyone is wearing rose colored glasses, but enough are to drive up equity prices.
One take: Fin Mkts have become unmoored from an underlying economy. They’ve become more like crypto.
Interesting thought, why would that be?
It happened in 1999 with the dot com boom. There was no relationship between stock prices and the present value of future earnings. In fact, it was widely believed that the rules influencing stock prices were obsolete and did not apply to the future internet economy. They were partially right, but only for a very few companies such as Amazon.
Interesting ..but was disconnect because of tech, or something else?
I'd like to suggest the critical mass of 401k dollars in the markets in search of investment, fueling explosion of mutual funds and asset classes, demand driving cost of underlying assets up regardless of real earnings growth.
Amazon was immensely assisted by the US government. To help the "fledgling" internet this company did not have to charge sales taxes. That gave an advantage - also psychologically - over neighborhood shops. And now go to eBay, Etsy, etc. - every auction/BIN where private people clear their cupboards, attics, garages, has sales taxes added, also over the postage!
Stocks really haven’t done much this year. YTD TR is 5.2%; much of that is arguably driven by a bubble in AI stocks. The equal-weighted S&P trails the cap-weighted index by roughy 2%, suggesting that the “typical” stock has performed at about T-Bill rates. The bond market has been in a tailspin since DT took office; no good news there. Stock valuations are stretched, suggesting they are vulnerable to bad news - witness the sharp post-liberation-day sell-off. The next catalyst could be Fox knucklehead appointed to Fed chair. Like you, I fear that a reckoning awaits. You may recall that the market fell 22% in a single day in 1987 on virtually no news.
Like I said in another part of this thread ... the consistent inflow of 401k and 403b supports the market with net cash to invest ... all asset classes except bonds and small cap are carrying small YOY gains.
I was on ground floor for Oct 1987, that was program trading. Something broke an algorithm and it went viral .. the stops weren't put in till 1989 or 1990 for the burts of the M&A bubble. I made money off of Trump when he announced he was gonna buy Delta. Bought puts and made my mortgage payment.
Even thought I work close to the markets I do not normally speculate. Modern portfolio theory for me all the way every day. Ignore the squirrels and shiny things.
But I think this administration is so chaotic, on again off again tariffs, etc that no one knows how to calculate insanity. Or have the willingness to see truth in any of his pronouncements.
I am totally baffled by that indifference of the markets to the reality of … everything! Would love to know some comprehensive explanation.
The T-bill market IS reacting... take a look at this post. I noticed it the other day when perusing 2-month T-bills for my account.
https://tipswatch.com/2025/06/28/the-u-s-t-bill-market-is-feeling-the-debt-pinch/
Two thoughts: 1. How did you went bankrupt? Slowly, then quickly. 2. There are opposing forces at work and (currently) balancing out.
They're sleepwalking.
It's possible markets are ignoring reality in anticipation of the trump big billionaire's bill passing. Buy the rumors, sell the facts.
Excellent idea. Suggestion: have a chat with Doug Henwood. A sane, literate, non-doctrinaire left economist. His main failing is a dislike for jazz. 😊
How can one not enjoy jazz?
Former trombone player, too, I believe! I know him a little from Facebook back in the day.
He did bend on his anti-Mozart stance a bit. Huge devotee of Beethoven, rightly.
He really is worth reading: Left Business Observer, Behind the News podcast.
Just attend a tRump rally. They'll teach you to hate everything except the king.
Kings knew their powers had limits. Prez Trump is modeled on a dragon-emperor.
Is there a Transcript?
Agreed. Much as I love Dr. Krugman's interviews, I do not have time to watch a video or even listen to podcasts. I would never get anything done if I watched all the interviews and listened to all the podcasts that interest me! I appreciate the transcripts he has posted in the past and I hope we will see more transcripts. In fact, in a recent interview, Dr. Krugman admits he doesn't listen to podcasts and reads transcripts. 😂 https://embedded.substack.com/p/my-internet-paul-krugman
Thank you for saying this. With edited-for-brevity Substacks Dr. Krugman would reach more people - IMHO. One has to be retired to keep up with all the podcasts, YouTubes, etc.
My grad school-during-pandemic trick is to play back video recordings at 1.5x speed. Sometimes faster, depending on the speaker. Admittedly I prefer to do this for staff meeting videos and other, similarly gripping materials, but increasing the speed gets you thru pretty quickly without comprehension loss (bonus: you can speed-rum the videos while doing dishes or folding laundry).
Beethoven gets my full, 1x attention, tho.
Good for you! But what you describe, is not possible for all of us (anymore). Also, some are better at acquiring information by reading than by listening.
Very true. I prefer to read transcripts, myself. The auto-generated YouTube transcripts are not great, but better than nothing.
I have never been good at doing two things at the same time. I once thought, having to commute in mostly jammed up slow-moving traffic, that I could refresh my knowledge of the French language by listening to tapes in the car. In the first five minutes I almost had two fender-benders. That was the end of that brilliant idea. LOL.
That is very funny! And slightly terrifying. I almost killed a saucepan twice this week by starting water to steam eggs and then promptly getting interested in something else--first a movie, then guests. The steamer basket handle got so hot, it melted. Now my household has had a good dose of aerosolized black
plastic...
YouTube has auto generated transcripts.
On YT, use the 'Show More' below the video, hit the button 'Show Transcript' which is on the top right, then use the three dots to expunge the timestamps.
It's computer generated, so not formatted, but it is a transcript.
True, but it would still be better IMHO to have the transcript available directly as Paul has been doing prior.
I agree that it's impossible to absorb all the information available, but I totally fall to get the trend for YouTube "podcasts".
When I do listen to them, it's to rest my eyes from reading, as well as to hear interesting conversations.
It is basically "modern" journalism, omitting the phase where the info is processed, condensed, made into a to-the-point, readable, article.
Auto generated transcripts are hard to follow and contain mistakes.
Hard to read.
OMG!! Paul, I love Quarterflash! And I could listen the their lead singer and her throaty vocals backed by that seductive sax she plays all day. They did the title song to one of my favorite Michael Keaton movies -- Night Shift. Great song!
Why don't we put mayo right in the can with the tuna? Or better yet, just feed the mayo to the tuna?
Do not get me started on all the Keaton gems in that movie!! Priceless. His manic energy played against Henry Winkler's 'ant-Fonz' character makes for timeless viewing.
Timely and enormously helpful discussion. Thank you, Dr Krugman. Will be following this closely. Am reading Wolf’s book The Crisis of Democratic Capitalism. Very timely.
WHAT A GIFT!! Krugman, you are great at throwing "curve balls!" THANK YOU! Wolf loves opera, and you are a fan of pop music. Adam Smith, the philosopher, would love watching this one! Economics without the subjective is a baseball batter without a bat. Economics was invented to address the subjective. Your idea of a CODA was the work of a muse:) I look forward to this journey.
We remain abused by this lawless administration and their goonish Brownshirts. Led by a psychopathic neo-fascist, they are in chaos. This weekend we face the Big Beautiful Bill in Congress. Right now, we must let each of our representatives and senators know we stand strongly opposed to a vote for this bill (in any of its forms with the 2017 tax cut). Call them now. Let them know that you will not ever get over it if they vote for the bill. Why? Because Mitch McConnell said “They will get over it.” The audacity. https://hotbuttons.substack.com/p/big-beautiful-bull?r=3m1bs
Thank you for posting on YouTube. I would still love to see these posted to an audio format so they can be easily downloaded and listened to - on the go - without eating up Gigs of data for those of us constrained by costs. Thank you, Professor!
You can listen to them as a podcast via the FT or on Spotify (& I assume other podcast apps)
Krugman: “We’re fundamentally talking about hostility to independent thought”
I like to think of it as a war against the Enlightenment. We can argue forever about the Revolutionary Generations religious beliefs. Before anything else, they were children of the Enlightenment. Celebration of reason, “rational humanity” and all that. The Declaration of Independence is an Enlightenment manifesto. Funny how many of the things they’re killing right now are tied to pursuit of truth and using government policy to help people.
Maybe it’s not just about the Constitution or global economics. Maybe it’s something much more intangible. :-)
You have written extensively about buying the best value but never addressed the security issues. For example, protective wear was not available at the beginning of the pandemic because protective wear was not made in the USA. Please let us know what you would propose to make the USA self-reliant.
People get the politicians they deserve, and if it screws up their lives, they voted for it
But half the population DID NOT VOTE FOR IT.
And likely most who did, had no idea what was REALLY coming.
If Americans couldn't see it coming, it's proof that they are unfit for a democracy. Ignorance and stupidity is no defense.
I remember my first election, when I was barely old enough to vote. I was very interested in the issues, and asked an older man who said he was voting for the centre-left party that I favoured, already in power, why he was going to vote that way. He said "well everybody is voting that way", totally surprised by my question. (The party ended up getting 50% of the vote in a 3-way election.)
That made me realise that many if not most voters don't understand the issues in depth, even if they have a general idea of their orientation.
Those actively following the issues and their implications are a relatively small minority.
Trumps false declarations of a terrible economy, "invasion" by violent immigrants, and a very high level of inflation, all that he would fix could sound plausible to those who only listen to media like fox news.
That combined with christian right voters, others who would vote republican no matter what, and the high level of abstention is what gave Trump his marginal victory.
Indeed, they say tRump is unfit to lead anything. I say Americans are unfit for a democracy.
Great discussion!
Can you post a conversation with this writer as well?
https://www.nytimes.com/2025/07/11/opinion/dollar-money-currency-payment.html
Living in Ontario, close to the US border, in the 60's and 70's, it looked like manufacturers were moving their factories to wherever labour was lowest. I expect some people lost their jobs because of new technology but it certainly wasn't obvious.
Paul,
I understand that economy is your primary field of interest. That's no shame, but being an economist every problem might look like an economic issue. Just like that for a hammer every thing looks like a nail.
The real danger of Trump for America is the effect of his actions that they hollow out democracy.
A president that rules outside the control of Congress is really an absolute monarch that rules just to his whims.
The king can do what he wants.
We are seeing the institutionalization of corruption.