Talking with Maurice Obstfeld

About Argentina, the dollar, and whether bankers still wear ties

Maury Obstfeld is one of the world’s leading experts on international macroeconomics, a former chief economist at the IMF, and someone with whom I co-authored an international economics textbook. And he’s been doing a lot of work on some of the current craziness. So I thought we’d talk about Argentina, the dollar, tariffs and more. Transcript follows.

. . .

TRANSCRIPT:
Paul Krugman in Conversation with Maurice Obstfeld

(recorded 10/16/25)

Paul Krugman: Hi everyone, Paul Krugman again. This week I’m talking to Maurice Obstfeld, who I’ve known forever. We overlapped in grad school, we wrote a textbook together, which is still out there with other authors now doing most of the work, in international economics. We have been through a lot of macroeconomic turmoil, Maury was for a while chief economist at the IMF. He’s written first of all about Argentina, which is in the news, but also about a bunch of other things. So hi Maury, welcome to this podcast.

Maurice Obstfeld: Hey Paul, so great to see you.

Krugman: You’re in DC for the World Bank IMF meetings. It must be a strange atmosphere.

Obstfeld: Indeed, it’s strange for everyone.

Krugman: Well, I want to start by talking to you about Argentina. By the time this goes up I will have had my own latest thoughts on Argentina, but you’ve written some stuff. First of all, we have a $20 billion US swap line for Argentina and supposedly a lot of money that at least they’re trying to push.

You had some pretty skeptical thoughts. Do you want to talk about what you think is happening in Argentina?

Obstfeld: Argentina until around a hundred years ago, maybe a little more than a hundred years ago, was one of the ten richest countries in the world in terms of per capita income. And as you well know, it’s gone through a succession of crises, recessions, debt defaults, and high inflation episodes.

So it’s–I don’t want to say unique in Latin America–it’s almost unique in terms of the length of its troubles and the durability of its troubles. The latest chapter came with the election of Javier Milei in December 2023, in a month when inflation reached 25.5% per month. While he had run on a platform abolishing the central bank, dollarizing, etcetera, he has not either abolished the central bank or dollarized, but he has gotten rid of a lot of regulations and has brought inflation down considerably. To his credit, he has managed to balance the Argentine budget.

But nonetheless, in the last few months, Argentina has been facing a currency crisis, which induced the Trump administration in the person of Secretary Bessent to intervene with the announcement a couple weeks ago of a $20 billion swap line framework and a promise of other support for Argentine government that promised that he would organize some sort of international investment for Argentina, and that was basically channeling language we both know from Mario Draghi during the euro crisis, he said he would do “whatever it takes” to support the currency.

Krugman: For listeners, a “swap line” is not exactly lending Argentina money, although it sort of is, it’s basically saying that we will supply dollars in return for pesos. So basically, since Argentina can create pesos, it will effectively give them a line of credit, but also it means that the US government ends up owning a bunch of pesos.

Obstfeld: Yeah. Critically, the return leg of the swap—it’s a swap because they reverse the exchange on a future date—occurs at the initial exchange rate. So that has allowed the secretary to say this isn’t a bailout.

Krugman: Okay, I see. I was actually going to get that wrong. So it really is effectively a loan. Even if the peso depreciates, at least in principle, as long as they don’t default.

Obstfeld: Well, in the case of Argentina: it’s a big “if”. The question is, where are they going to get the dollars to pay back the U.S once they have spent on intervening in the foreign exchange market? Which is probably where they go in the short term, or paying back other creditors, and they owe a lot of money to other creditors.

Krugman: You don’t think it’s going to work, right? Basically this is just buying time. But you said something about a rickety bridge to the legislative elections, which are in a few days.

Obstfeld: Yes, the 26th [of October]. Well Paul, as you know well as I, there’s a long history of exchange rate based stabilization programs in Argentina. I remember one of your first papers as an assistant professor at Yale was on the Argentine stabilization package of what, 1976, 1977? Really dating ourselves here (laughs)... these programs have never worked.

The one that probably worked the longest was the Argentine Convertibility Plan that was put in place in the early 1990s, which basically had legislation that tied the peso to the dollar with the Argentine central bank holding enough reserves to back that all, supposedly, and even that fell apart at the end of the decade or by the beginning of the millennium.

Krugman: The exchange rate stabilization is a way of saying that, loosely speaking, you stopped the peso from falling against the dollar and that that’s supposed to drag down the domestic rate of inflation, which it does, but not right away.

Obstfeld: Right. But, we should back up because what we haven’t described to the audience is that the Argentines since April have been operating an exchange rate band. So it’s not literally a pegged exchange rate to bring down inflation. It is a band such that the top of the band and the bottom of the band expand the top prices—the bottom falls—at a rate of 1% per month. That was designed to ensure flexibility by giving this range of variation. But the problem is that if the markets lose faith in the currency they can drive it to the edge of the band where it’s threatening to become even weaker against the dollar then the band calls for. And that’s exactly what happened a couple of weeks ago, the Treasury was selling reserves and shortly after that the U.S. made its announcement. Whenever we sort of draw a line in the sand for an exchange rate, it’s very hard to maintain that long term unless you have an incredibly strong policy framework. So Hong Kong is one of the big counterexamples who has succeeded in doing that. Even they have been attacked on occasion.

Krugman: There has to be a lot of political consensus behind it. It’s not just the external lender doing whatever it takes, but you have to be willing to domestically do whatever it takes.

Obstfeld: Argentina has anything but political consensus. They’ve alternated in recent years between more centrist, market oriented governments, the Macri government which also came to grief, and Peronist governments which are populist, left wing and not really interested in budget constraints and accurate data reporting. Things that could never happen in the U.S. (sarcasm).

Krugman: (laughs) I know it’s...

Obstfeld: Let’s not go there. Let’s not go there yet. (laughs)

Krugman: So let me ask you this, this may be too esoteric but, you did some very influential work, some of it in the 80s but especially in the 90s after there were a bunch of speculative attacks on currencies like what’s happening in Argentina now, on the possibility of self-fulfilling crises. We had one of our very first disagreements. I wrote a paper saying, “I think this is all wrong. I don’t think it could happen.” Then about a year later I said, “you know what, Maury’s right and I’m wrong.”

If you believe that sometimes these speculators can push a country into an unnecessary depreciation of its currency, that’s a situation in which something like this loan plan for Argentina could work. Why do you think it doesn’t work here?

Obstfeld: I think you’ll like this answer. I’ve actually been thinking about exactly what you said and about both of our works on crises, because you wrote the first most influential analytical piece on how crises occur. So it’s interesting, secretary Bessent who is himself a former currency speculator, attacked those on Twitter who were speculating against the peso for political reasons. Echoing a long list of finance ministers who’ve blamed Gnomes of Zurich, or whatever. What was great about your paper was that it showed that even if a speculative attack was very sudden and appeared to come out of nowhere, it could be explained by total rational speculators.

There’s no idea that there’s any political or nefarious motivation or any self-fulfilling elements because intuitively you would think that if everyone gangs up on a currency, they can bring it down; what my work showed was: not always, and they’re actually three sorts of situations you can think of. One is in which the currency is so weak that it’s bound to fail, and this is sort of your model: that there’s an inevitable failure and the question is not “if”, but “when”. There are cases where the fundamentals are so strong that even if speculators go into currency, they just won’t succeed. The attack will fail. Then there’s this broad intermediate range where the speculation itself is so damaging because there are weaknesses in the economy that the government just says, “it’s not worth fighting these guys, we’re just going to throw in the towel and devalue.” Bessent’s view is clearly that that’s where Argentina is, and if the U.S. just gives him some money that will change expectations. That was also the Mario Draghi view in 2012, which probably was validated by the way that process ended. He said, “we’ll do whatever it takes.” As far as a crisis, I’m sure Bessent hoped that would happen. I’ve been thinking a lot about this, and I think that the problem in Argentina is that the crisis has elements of both of our models. So it’s certainly true that interest rates have been driven up by the speculation. That’s very painful, the economy’s hurting, and that puts pressure on the government. But there’s this fundamental issue, that Argentina doesn’t have enough reserves to meet its obligations, and at the point where it can’t meet its obligations it’s in default. It’s certainly not going to be able to maintain the exchange rate peg. So both of these models apply to some degree here, which is why the situation is so difficult.

Bessent can come in with $20 billion or $40 billion, and that might delay the day of reckoning, but if you look at what Argentina owes, they owe about $8 billion just until January. They owe the IMF almost $50 billion. They have other foreign obligations. They need to earn foreign exchange reserves and just to do that, they have to convince private markets to lend their money, which is going to be very hard. So at some level, it’s sort of a slow drip to insolvency and maybe the US can delay it, but to really put them on a firm footing, I think the US really has to be willing to do whatever it takes for an extended period and just pay their bills. I don’t think the political process in the US can tolerate that. We can talk about what the politics are in the U.S, but even if you look at the statement President Trump made standing with Milei in the Oval Office the other day, he said, “well, we’ll support you as long as you’re doing well,” and Bessent tried to walk that back very quickly. But that’s not the kind of thing that will convince markets that the US is “in it till they win it.”

Krugman: The Gnomes of Zurich, I think it was a British Chancellor of the Exchequer who blamed problems of the pound on the Gnomes of Zurich.

Obstfeld: I believe so.

Krugman: Which everybody knew was silly because the relevant gnomes were actually in Basel, not in Zurich.

Obstfeld: Right, they were. But then there was the blaming George Soros for the Asian crisis and on and on and on. Soros played a role and Scott Bessent was working for Soros.

Krugman: Oh I know, I actually remember how there was a deliberate squeeze by some hedge funds on Hong Kong back in the late 90s. It was really a conspiracy, it wasn’t political. They were just trying to make money. But Hong Kong basically had enough financial firepower to beat the hedge funds. But, this isn’t remotely on the scale that it would take, even if you could buy a lot more time, it’s not clear to me what exactly is supposed to go right for Argentina that will make the situation better six months from now than it currently is.

Obstfeld: Scott Bessent has claimed that the Argentinian currency is undervalued. Most people in markets and elsewhere think it’s overvalued. What you would have to do would be for policies to be viewed as so credible that inflation slows even more markedly and you get a real depreciation, which Argentina needs to create the current account surplus, which it needs to earn enough for an exchange.

Krugman: That’s pretty close to where I would have put it, although unemployment’s also rising now in Argentina, probably because of that overvalued exchange rate.

Obstfeld: Which is what is behind the electoral difficulties, the low poll numbers. I mean, for a while people were willing to say, “look, Argentina is a mess. This guy’s going to fix it. There’s going to be pain, we can live with that.” But, particularly when people start seeing evidence of corruption at the top, it becomes much harder to ask for those sacrifices, and so these things reinforce each other.

Krugman: Yeah. You and I have seen this movie way too many times.

I like to say, “I invented currency crises” in that first paper back in 1979, and business has been good ever since (sarcasm). So, anyway, you just gave one of those big, prestigious IMF lectures, the Andrew Crockett lecture. Which is basically about the future of the international system, especially the role of the dollar and so on. We both have spent ages on this, but what’s your take? There’s all this fulmination now about the changing role of the dollar. This has been a constant through both of our working lives. But what do you want to say now? We certainly have some big policy departures on other fronts. So, where do you see all of that?

Obstfeld: Well, this was actually at the BIS, not at the IMF, but it’s also one of the big lesser known agencies because of their more esoteric work, but also a lot of very critical work with the central banking community.

I called this lecture “The International Monetary and Financial System: A Fork in the Road”-- not accidentally. My thesis is that we really are at a kind of inflection point in how international, financial, as well as trade relationships are organized and we’re very possibly at the definite end, the undisputable end of a period of high economic integration in which financial markets, not just trade, expanded even more than trade on some measures. Central to that was the dollar basically serving as the world’s currency.

You did some really important work on this back in the 80s on how a currency could become a global currency through network effects and that work indicates that it’s hard to dislodge a global currency because it’s really baked into the system in so many ways. The [US] dollar is an invoice currency, a vehicle currency, a funding currency. People focus on the reserve currency aspect, I think at some level that’s the least important and indicative role. But I feel that the current U.S. administration is undermining pretty much every pillar of the dollar’s dominance. There’s still no currency that comes close, and it’s not like there’s a currency waiting in the wings to become the world’s currency. But, I think around the edges and over time, people will shift to other arrangements: more use of the euro for countries that trade with Europe, more use of the RMB for countries that have enhanced relationships with China, which many will have an incentive to pursue because of U.S. trade policy.

Krugman: China’s currency is the RMB (renminbi), but it’s also the yuan. As I kind of understand it’s a little bit like pound versus sterling. But anyway, everybody in practice uses them interchangeably.

Obstfeld: Right. The yuan is the unit and renminbi is the currency, whatever, that’s for nerds. It goes beyond just tariffs. I think the curious, mercurial way in which tariffs have been imposed, the way they’ve been used to coerce other countries, all of those things will induce countries to try to insulate themselves from the US on the trade front. They can’t be immune to their dependence on the dollar and the extent to which that can create other vulnerabilities. So I think we’re bound to see financial fragmentation as well. Other things that have helped the U.S. dollar to its prime position is the rule of law in the U.S., recourse to the court system to impartial judgments that often favor creditors. The system has worked in a way that people view as fair and impartial for the most part. The attack on the independence of the Fed is a huge structural change. If you go back to the period when there was the most push back on the dollar’s global role, it was probably the Carter administration. With the high inflation then and very incompetent monetary policy, the burgeoning federal deficit I think is another issue. Without the dollar the US Treasury bill has served as a key medium of exchange, medium of intertemporal trade collateral. It serves all kinds of roles in the global economy. That’s why when we worry about the US government breaching the debt limit and possibly defaulting, everyone freaks out about how global markets will react. But more gradually, I think the US was getting into less sustainable fiscal territory and it’s going to be hard to continue to get people to keep buying treasuries, except for depreciated interest rates and higher yields. We saw this confluence of higher yields and currency depreciation after the Liberation Day tariffs, but that could become more of a feature of the system and undermine the Treasury’s attractiveness in the system

Krugman: I’m stealing this from somebody and I don’t know who, somebody said that the real danger is not that something will replace the dollar, but that nothing will. That we end up with a fragmented world with basically no safe asset out there. No reliable currency.

Obstfeld: I think that’s right. The Europeans talk a lot about what they have to do to make the euro a more global currency, and some of that may be attainable. I think the euro will benefit somewhat from the [US] dollar’s travails, as will the RMB. But I think the most likely outcome is something more multipolar and much more fragmented. I think to some extent it’ll be congruent with some trade fragmentation as well, to the extent that countries move more into blocks of mutually easier trade relations they’ll want to use their currencies more. So we may have other currencies, the Japanese yen for example, becoming more important as a regional currency for countries that are worried about too much exposure to China. The problem with that is that just as in a domestic setting, having a currency allows for efficient division of labor, you don’t have to barter. It’s immensely important to a lesser degree, but still to some degree, having a single international numeraire. It’s not only a vehicle currency, an invoicing currency for trade, but just for lending transactions between people and countries that don’t even use the dollar, it’s widely used. It sort of greases the wheels of the international economy in a way that would be gone if the dollar’s present position were undermined. Now what worries me more is that given the very strong network effects that support the dollar, if you think of the kinds of shocks that would have to occur to move the world’s economy to this multi-polar position, those are all very bad shocks. Above and beyond the costs of having a multi-polar currency system, we would have to lose a lot else before we got there. That’s what’s really worrisome.

Krugman: You did some work with Ken Rogoff basically saying that, frictions in trade stuff and goods actually end up reducing the amount of financial integration as well. So going to a world of high tariffs and limited world trade, that’s also going to limit the functionality of world capital markets, loosely speaking, it throws sand in the gears of even stuff that doesn’t actually require that you ship stuff or pay tariffs, but nonetheless it’s all related.

Obstfeld: There’s a few papers on this, actually an increasing number of papers that are coming out pushing this idea that trade costs can lead to their own financial fragmentation. It’s not the sort of political economy channel that I was talking about before where the US is mean to everyone else so they want to insulate themselves, that wasn’t in our paper.

But basically you have greater opportunities for real interest rate divergences between countries. You have more friction in risk sharing between countries. At some level, if you think about risk sharing, the idea is that, suppose you know two countries and they both have harvests and they have different weather conditions at different times. When they can insure each other and the one that has a bumper crop can sign a financial contract: “If I have a bumper crop, I’m going to send you some grain. If you have a bumper crop, you send me some grain,” then if you suddenly make it costly to ship that grain, then the risk sharing is impaired. In the limit, if it’s infinitely costly to ship grain then there’s no risk sharing. The things do interact in a fundamental way.

Krugman: It’s so much of what we thought were irreversible trends towards more and more integration, more and more world trade, more and more integration of financial markets. Now all of that is suddenly...I wouldn’t even say in doubt, we know that we’re going to be taking a major step back.

Obstfeld: You and I kind of grew up in a period where things were generally moving in a positive direction as part of this great postwar opening that was a process that culminated with the end of the Cold War and a period of basically hyper globalization and that period when suddenly the U.S. was in its unipolar moment, we seemed to of attained world peace.

That’s a really favorable environment for globalization because people don’t have security concerns. You can invest anywhere. It goes back to, as I’m sure you’ve read and quoted, the John Maynard Keynes description of the late 19th century world and the economic consequences of the peace: everyone can invest everywhere, free movement of money, of goods, and of investment. World War One brought that to an end and started this long period that ended with the end of World War Two, at which point there was a conscious effort to rebuild the world’s economy. Maybe not in 19th century terms, but in terms that would promote trade and importantly, peace and democracy. We can ask: are the dynamics of such a system inherently unstable? It’s inevitable that such a system leads us to where we are? I mean the 19th century system didn’t last.

Krugman: By the way, we do need to acknowledge that globalization—there’s a lot of good things about it, but it isn’t always good for everybody. In Keynes’ description, he describes the wonders of what a gentleman, having his breakfast brought to him in bed, could order over the telephone, and it sort of presumes that there’s a servant class.

Obstfeld: Exactly, exactly. As much as we admire Keynes, if you read his works some things like that stand out. But let’s not cancel him yet. (laughs)

Krugman: Trump is boasting a lot about the revenue from tariffs and this is actually aside from the impact on world trade, this is a really stark shift in how we pay for government in the United States, if we pay for it, which is the other question, if you want to talk to me about it.

Obstfeld: Harking back to the 19th century, the U.S. government funded itself by tariffs and Trump seems to really admire this period, the McKinley era. In fact, at one point before McKinley was president (Doug Irwin, our colleague at Dartmouth, has a paper on the great tariff debate), the US had so much tariff revenue that they needed to give some of it back to the public in some way. This is an early precursor of the Laffer curve argument.

The Democrats said, “if we want to have less tariff revenue, we should lower tariffs.” Strangely, the Republicans argued, “oh no, if we want to have less tariff revenue, we should raise tariffs because imports will drop so sharply that revenue will fall.”

Krugman: What struck me is that we actually have a pretty poor idea of how much these tariffs are going to reduce trade because they’re so far out of the range. The functional form of your demand system ends up having this huge impact.

Obstfeld: Totally. Kim Clausing and I just wrote a new paper on tariffs as fiscal policy. And we’re basically evaluating if it’s a good idea to try to move to a tax base that is substantially funded by tariffs. Which is where we are, and I’m sorry to say, where we’re likely to stay because of the political economy of lowering tariffs when we need the revenue, given deficits. That’s going to be hard for either party to raise the requisite taxes to make up for that.

I think we have the system. I think it’s going to be persistent and it’s very problematic. Tariffs are regressive. They fall most heavily on lower income people. They distort the economy’s production because we end up producing stuff more expensively at home that we could import from abroad. Those resources come out of exports that we could be selling abroad to earn more money where we have comparative advantage. So there’s production distortion. There is consumption distortion because you force people to consume these more expensive import goods which they ordinarily wouldn’t consume. They probably have negative effects on innovation, growth, things like that.

On balance, export industries are really productive if they learn by exporting. One of the facts that is not appreciated about tariffs is that tariffs are a tax on imports, but they also tax exports. Because the stuff that you need to produce these additional imported goods, inefficiently comes out of your efficiently-produced export sector.

Krugman: Diverting resources, and also in this more modern world, export industries have a lot of imported inputs. So there’s even just a plain need for a value chain thing.

Obstfeld: Right, they get very uneven protection. The other thing we learned in graduate school was about Max Corden’s work on the effective rate of protection. So if you use imported intermediates and they are subject to tariffs, your cost structure becomes less competitive, and that actually hurts those firms. It hurts workers in those firms.

But beyond all of this, less talked about are the inefficiencies of tariff, avoidance or evasion, the costs of complying with a very complex tariff code, which is what the Trump administration has put in place, the paperwork, the documentation stuff that’s really hard for smaller firms especially to do, the lobbying costs of trying to get exemptions which we think of as rent seeking aspect. A lot of what we do when we look at the welfare costs of tariffs is we say, “okay, there’s a uniform tariff.” Kim and I did this in the paper. But it’s actually much worse than that because if you have tariffs that differ across source countries that are uneven, it creates incentives for firms to constantly be looking for cheaper sources, which is very expensive for them to do. It’s kind of the way these have been ruled out—it’s a mess.

As you know, the WTO, the GATT, were based on the “most favored nation principle”. Basically, you don’t discriminate in trade if you have a tariff except on a free trade partner. Everyone faces the same tariff. One of the good things about that is that firms don’t have this incentive to be shopping around for a lower tariff country. You might end up importing more expensive goods, more expensive intermediates, or more expensive consumption goods from a country simply because it has a lower tariff rate. So you’re diverting trade to the less efficient trade partners. That doesn’t happen so much with the most favored nation principle. So they designed a system for maximum inefficiency, maximum inconvenience.

Krugman: Almost any tax has some distorting effects on incentives. But you’re pretty sure that the tariffs are a lot worse than income taxes, payroll taxes, the things that we’ve been relying on?

Obstfeld: Absolutely. Part of the reason is also that imports are very narrow-based compared to if you had a VAT so you could raise the same revenue at a much lower tariff rate, with less distortion on other taxes. Now, they don’t do the other things that the Trump administration would like to accomplish.

Krugman: VAT, value added tax, which is roughly speaking, a national sales tax, which is how we don’t have one. But most other advanced countries do. But they’re more or less taxing everything, which means that either they can be a relatively low rate or they can, if they have rates that like they do in Europe, you can pay for a whole lot of welfare state with a VAT. You can’t pay for a whole lot of stuff even with the Trump tariffs. I have to say I was really appreciating you and Kim’s writing. We tend to not think about the practical mechanics of tax policy and yet in some ways, that’s the difference that can be everything. This thing is just a paperwork nightmare, an administrative nightmare.

Obstfeld: We’re going to find out with these IRS cuts in the US about some other aspects of that with our income tax. Especially the compliance and the content requirements, things like that, where you have to sort of document where everything comes from. You need to document how much steel is in a particular product because we have steel tariffs—it gets very crazy, very fast.

Krugman: NAFTA, I guess Trump changed a few words and renamed it but it’s free trade—there are all these issues: what if there’s Chinese content in something we import from Mexico? The actual agreement runs to thousands of pages because it has to specify all of this. Now we’re kind of doing this but an order of magnitude larger.

Obstfeld: One of the interesting things about the current tariffs and the USMCA is that prior to Trump, there was a fairly low tariff, right? So stuff that comes from Canada, if you go through all the paperwork and the documentation, you can make it USMCA compliant just to satisfy the requirements you just mentioned: zero tariffs. Prior to Trump the tariff rate then was more like 2.4%, if you weren’t compliant. So it didn’t pay for companies. So many Canadian exporters just didn’t bother. But now, with the very high tariffs on Canada, that for stuff that’s not USMCA compliant in just a few months, Canadian trade has moved from about 50% USMCA compliant to over 90% USMCA compliant as all the firms have done this paperwork. But that also means we’re getting less tariff revenue, from our very large trade with Canada.

Krugman: It also means that the firms in Canada or the importing firms in the US are spending a lot of resources. They’ve had to hire a lot of accountants to basically do this.

Obstfeld: Absolutely. Yeah.

Krugman: Anything out there that makes you hopeful about the international economic system? I’m sorry I shouldn’t spring that on you. (laughs)

Obstfeld: No, I mean, I am sort of pleased, being here at the IMF World Bank meetings, I have not seen a lot of administration criticism. It’s been very gentle criticism so far, at least at the IMF. The IMF periodically does these quota reviews where the member countries raise the IMF quotas and the US is apparently going along with the latest review, which involves a lot of money added to the IMF, some lendable resources.

Krugman: By the way, the quota is the IMF has this system not worth describing, but basically if the IMF needs to lend money to countries, ultimately the IMF doesn’t have resources, it’s countries that supply them, and the share that the US supplies is the quota. I think I’m getting that more or less right.

Obstfeld: Yeah. So there’s support for some elements of multilateralism. The US has the presidency of the G20 this year and the leaders’ meeting will be at one of President Trump’s resorts, of course. And you know they want the G20 to narrow its focus somewhat to more macro coordination issues, among others. But they’re not pulling out of the IMF, unlike the WHO, and pulled out of the WTO, although they’re not really participating.

Krugman: Although we’re in massive violation of everything we agreed.

Obstfeld: Of course, we’re just ignoring it. So those are some of the things that I think are hopeful. I just look at overall the U.S. engagement with the rest of the world, and coming back to Argentina, he’s massively cut U.S. aid, lifesaving aid to poor countries that cost very little.

While I really wish the Argentine people the best, they deserve the best. I think the IMF appropriately supported them back in April given president Milei’s achievements in macro stabilization. The idea that it’s okay to give this kind of money to Argentina on the pretext that it’s systematic while we’re cutting off other funds, that in terms of just saving people’s lives or supporting global health. Indeed, supporting political stability in Africa and elsewhere are systematic funds. I just don’t see the priorities being really aligned with reality.

Krugman: Well reality has a well known, leftist bias. (laughs) No sorry, it’s quite something. When we both got into international economics Americans sort of didn’t do it, we kind of didn’t believe that the world existed. It was all Canadians and Australians and I had no idea that it would be so fraught at this point in our careers.

Obstfeld: Well, globalization became a thing.

Krugman: Heck of a thing.

Obstfeld: And there’s upsides and downsides, right?

Krugman: Last and really important question at the bank fund meetings, are people wearing ties?

Obstfeld: Yes, most of them, not everyone, not everyone. But I was wearing a tie until I was sure you would not be wearing a tie. And I didn’t want to create dissonance.

You are wearing a shirt with a collar.

Krugman: Yeah. All right, great talking to you. Let’s watch this crazy world as it disintegrates. Or maybe not. But anyway, whatever’s happening…

Obstfeld: Hopefully not, but we have no choice but to keep watching.

Krugman: Okay take care then.

Obstfeld: Take care Paul.