Paul Krugman is a Nobel Prize winner in economics, professor at CUNY, and columnist at the New York Times. His academic work centers around international economics, economic geography, liquidity traps, and currency crises.

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OUTLINE:
0:00 - Introduction
3:44 - Utopia from an economics perspective
4:51 - Competition
6:33 - Well-informed citizen
7:52 - Disagreements in economics
9:57 - Metrics of outcomes
13:00 - Safety nets
15:54 - Invisible hand of the market
21:43 - Regulation of tech sector
22:48 - Automation
25:51 - Metric of productivity
30:35 - Interaction of the economy and politics
33:48 - Universal basic income
36:40 - Divisiveness of political discourse
42:53 - Economic theories
52:25 - Starting a system on Mars from scratch
55:11 - International trade
59:08 - Writing in a time of radicalization and Twitter mobs

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The following is a conversation with Paul Krugman, Nobel Prize winner in economics, professor at CUNY and columnist at the New York Times.

His academic work centers around international economics, economic geography, liquidity traps, and currency crises.

But he also is an outspoken writer and commentator on the intersection of modern day politics and economics, which places him in the middle of the tense, divisive modern day political discourse.

If you have clicked dislike on this video and started writing a comment of derision before listening to the conversation, I humbly ask that you please unsubscribe from this channel and from this podcast, not because you're conservative, a libertarian, a liberal, a socialist, an anarchist, but because you're not open to new ideas, at least in this case, especially at its most difficult, from people with whom you largely disagree.

I do my best to stay away from politics of the day because political discourse is filled with a degree of emotion and self-assured certainty that to me is not conducive to exploring questions that nobody knows the definitive right answer to.

The role of government, the impact of automation, the regulation of tech, the medical system, guns, war, trade, foreign policy are not easy topics and have no clear answers despite the certainty of the so-called experts, the pundits, the trolls, the media personalities and the conspiracy theorists.

Please listen, empathize, and allow yourself to explore ideas with curiosity and without judgment and without derision.

I will speak with many more economists and political thinkers trying to stay away from the political battles of the day and instead look at the long arc of history and Lessons it reveals in this I appreciate your patience and support This is the artificial intelligence podcast if you enjoy it subscribe by YouTube give it 5 stars an Apple podcast Follow on Spotify support on patreon or simply connect with me on Twitter at Lex Friedman, spelled F-R-I-D-M-A-N.

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And now here's my conversation with Paul Krugman.

What does a perfect world, a utopia from an economics perspective look like?

Wow, I don't really, I don't believe in perfection.

I mean, somebody once said that his ideal was slightly imaginary Sweden.

I mean, I like an economy that has a really high safety net for people, good environmental regulation, and something that's kind of like Some of the better run countries in the world, but with fixing all of the smaller things that are wrong

Well obviously, you know, total equality is neither possible nor I think especially desirable, but I think you want 1 where, basically 1 where nobody is, nobody is hurting and where everybody lives in the same material universe.

Everybody is basically living in the same society.

So I think it's a bad thing to have people who are so wealthy that they're really not in the same world as the rest of us.

Oh, competition is great when it can work.

I remember, I'm old enough to remember when there was only 1 phone company and there was really limited choice and I think the arrival of multiple phone carriers and all that has actually, you know, it's been a really good thing and that's true across many areas, But not every industry is, not every activity is suitable for competition.

So there's some things like healthcare where competition actually doesn't work.

That's interesting, why does competition not work in healthcare?

I mean, there's a famous paper by Kenneth Arrow from 1963 which still holds up very well where he kind of runs down the list of things you need for competition to work well.

Basically, both sides to every transaction being well-informed, having the ability to make intelligent decisions, understanding what's going on, and healthcare fails on every dimension.

Healthcare, so not health insurance, healthcare.

Well, both healthcare and health insurance, health insurance being part of it, but no, health insurance is really, the idea that there's effective competition between health insurers is wrong in healthcare.

I mean, the idea that you can comparison shop for major surgery is just, you know, when people say things like that, you wonder are you living in the same world I'm living in?

You know, that piece of well-informed, that was always an interesting piece for me, just observing as an outsider, because so much beautiful, such a beautiful world is possible when everybody's well-informed.

My question for you is how hard is it to be well-informed about anything, whether it's healthcare or any kind of purchasing decisions or just life in general in this world?

Oh, information, you know, it varies hugely.

I mean, there's more information at your fingertips than ever before in history.

The trouble is, first of all, that some of that information isn't true, so it's really hard, and then some of it is just too hard to understand.

So if I'm buying a car, I can actually probably do a pretty good job of looking up, going to consumer reports, reviews.

You can get a pretty good idea of what you're getting when you get a car.

If I'm going in for surgery, first of all, fairly often it happens without you being able to plan it, but also, medical school takes many, many years, and going on the internet for some advice is not usually a very good substitute.

speaking about news and not being able to trust certain sources of information, how much disagreement is there about, I mentioned utopia, perfection in the beginning, but how much disagreement is there about what utopia looks like, or is most of the disagreement simply about the path to get there?

Oh, I think there's 2 levels of disagreement.

I mean, I teach my students that there are, broadly speaking, 2 views of justice.

You know, it's A just society is the 1 you would choose if you were trying to, the 1 that you would choose to live in if you didn't know who you were gonna be, that's kind of John Rawls.

And the other focuses on process, that a just society is 1 in which there is no coercion except where absolutely necessary.

And there's no objective way to choose between those.

I'm pretty much a Rawlsian, and I think many people are.

But anyway, so there's a legitimate dispute about what we mean by a just society anyway.

But then there's also a lot of dispute about what actually works.

I mean any card-carrying economist will say that incentives matter, but how much do they matter?

How much does a higher tax rate actually deter people from working?

How much does a stronger safety net actually lead people to get lazy?

I have a pretty strong view that the evidence points to conclusions that are considerably to the left of where most of our politicians are, but there is legitimate room for disagreement on those things.

some metrics you think about that you keep in mind, like the Gini coefficient, but really anything that measures how good we're doing, whatever we're trying to do, what are the metrics you keep an eye on?

Well, I'm actually, I'm not a fan of the Gini coefficient, not because it's anything.

Okay, yeah, the Gini coefficient is a measure of inequality.

And it is commonly used because it's a single number.

It usually tracks with other measures, but the trouble is there's no sort of natural interpretation of it.

She asked me, what does a society with a Gini of 0.45 look like as opposed to a society with a Gini of 0.25?

And Well, I can kind of tell you, you know, when the 0.25 is Denmark and 0.45 is Brazil, but that's a really, there's no sort of easy way to do that mapping.

I mean, I look at things like what is, first of all, things like what is the income of the median family, what is the income of the top 1%, how many people are in poverty by various measures of poverty.

And then I think we want to look at questions like how healthy are people?

And how satisfied are people with their lives?

Because there is, That sounds like a squishy number, not so much happiness.

It turns out that life satisfaction is a better measure than happiness.

But life satisfaction, that varies quite a lot.

And I think it's meaningful, if not too rigorous, to say, look, according to that kind of, according to polling, people in Denmark are pretty satisfied with their lives, and people in the United States not so much so.

Denmark and Norway tend to win these days.

Sweden doesn't do badly, but none of these are perfect.

But look, I think by and large, There's a bit of a pornography test.

If you, how do you know a decent society?

Well, you kind of know it when you see it.

We are, have a remark, our society, I mean, it's, There are a lot of virtues to America, but there's a level of harshness, brutality, an ability for somebody who just has bad luck to fall off the edge that is really, shouldn't be happening in a country as rich as ours.

So we have somehow managed to produce a crueler society than almost any other wealthy country for no good reason.

think is lacking in the safety net that the United States provides?

And what are the benefits and maybe limits of a safety net in a country like ours?

Well, every other advanced country has some universal guarantee of adequate health care.

The United States is the only place where citizens can actually fail to get basic health care because they can't afford it.

That's not hard to do, everybody else does it, but we don't.

We've gotten a little bit better at it than we were, but still, that's a big deal.

We have remarkably weak support for children.

Most countries have substantial safety, you know, parents of young children get much more support elsewhere.

We have limited care for people, long-term care for the elderly is a very hit and miss thing.

But I think that the really big issues are that we don't take care of children who make the mistake of having the wrong parents, and we don't take care of people who make the mistake of getting sick.

a country, a rich country should be doing.

Sorry for sort of a difficult question, but what you just said kind of feels like the right thing to do in terms of a just society, but is it also good for the economic health of a society to take care of the people who are the unfortunate members of society?

By and large, it looks like doing the right thing in terms of justice is also the right thing in terms of economics.

If we're talking about a society that has extremely high tax rates that deter, remove all incentives to provide a safety net that is so generous that why bother working or striving?

That could be a problem, but that's, I don't actually know any society that looks like that.

Even in European country with very generous safety nets, people work and innovate and do all of these things.

And there's a lot of evidence now that lacking those basics is actually destructive, that children who grow up without adequate healthcare, without adequate nutrition, are developmentally challenged.

They don't live up to their potential as adults.

So the United States actually probably pays a price.

You know, We're harsh, we're cruel, and we actually make ourselves poorer as a society, not just the individuals, by being so harsh and cruel.

The power of just people acting selfishly and somehow everything taking care of itself to where the economy grows, there's no cruelty, no injustice, that the markets regulate themselves.

Is there power to that idea and what are its limits?

I mean, there's a reason why I don't think sensible people want the government running steel mills or they want the government to own the farms, right?

The markets are a pretty effective way of getting incentives aligned, of inducing people to do stuff that works.

And the invisible hand is saying that people, farmers aren't growing crops because they want to feed people.

They're growing crops because they can make money by it, but it actually turns out to be a pretty good way of getting agricultural products grown.

So the invisible hand is an important part, but it's not, there's nothing mystical about it, it's a mechanism, it's a way to organize economic activity, which works well given a bunch of preconditions, which means that it actually works well for agriculture, it works well for manufacturing, it works well for many services, it doesn't work well for health care, it doesn't work well for education.

Having a society which is kind of 3 quarters invisible hand and 1 quarter visible hand seems to be something, something on that order seems to be the balance that works best.

It's just don't wanna, you don't wanna romanticize or make something mystical out of it.

It's just, this is 1 way to organize stuff that happens to have broad but not universal application.

So then forgive me for romanticizing it, but it does seem pretty magical that, you know, I kind of have an intuitive understanding of what happens when you have like 5, 10, maybe even 100 people together, the dynamics of that.

But the fact that these large society of people, for the most part, acting in a self-interested way and maybe electing representatives for themselves, that it all kind of seems to work.

The fact that there's, you know, that right now there's a wide assortment of fresh fruit and vegetables, and you know, in the local markets up and down the street.

That's the invisible hand at work, and that's great.

And that's a lesson that Adam Smith figured out more than 200 years ago, and it continues to apply.

But even Adam Smith has a section in his book about why it's important to regulate banks.

Yeah, and that example is actually a powerful 1 in terms of the supermarket of fruit.

my experience coming from Russia, from the Soviet Union, is when I first entered a supermarket and just seeing the assortment of fruit, bananas.

I don't think I've seen bananas before, first of all, but just the selection of fresh fruit was just mind-blowing.

Beyond words, and the fact that, like you said, I don't know what made that happen.

As showing my age, but you know the old movie quote, sometimes the magic works and sometimes it doesn't.

Government, strangely enough in this country today, seems to get a bad rap.

Like everyone seems to, everybody's against the government.

Yeah, well a lot of money has been spent on making people hate the government.

But the reality is government does some things pretty well.

I mean, government does health insurance pretty well.

So much so, I mean, given our anti-government bias, it really is true that there are people out there saying, don't let the government get its hands on Medicare.

So people actually love the government health insurance program far more than they love private health insurance.

It turns out that your local public high school is the right place to have students trained.

And private for, certainly for-profit education is by and large a nightmare of ripoffs and grift and people not getting what they thought they were paying for.

There are things, I mean, everybody talks about the DMV as being, you know, do you want the economy?

Actually, my experience is that the DMV have always been positive.

Maybe I'm just going to the right DMVs, but in fact, a lot of government works pretty well.

So you'd have to, to some extent, you can do these things on a priori grounds.

You can talk about the logic of why health care is not going to be handled well by the market, but partly it's just experience.

We tried, or at least some countries have tried nationalizing their steel industries.

But we've tried privatizing education and that didn't go well.

How do you see, what do you think works for tech?

Is it more regulation or less regulation?

There are some things that need more regulation.

I mean, we're finding out that, you know, the world of social media is 1 in which competitive forces aren't working very well and trusting the companies to regulate themselves isn't working very well.

But I'm on the whole a tech skeptic, not in the sense that I think the tech doesn't work and it doesn't do stuff, but the idea that we're living through greater technological change than ever before is really an illusion.

We've, ever since the beginning of the Industrial Revolution, We've had a series of ethical shifts in the nature of work and the kinds of jobs that are available.

And it's not at all clear that what's happening now is any bigger or faster or harder to cope with than past shocks.

It is a popular notion in today's sort of public discourse that automation is going to have a huge impact on the job market now.

Yeah, there is something transformational happening now.

Can you talk about that, maybe elaborate a little bit more?

Do you not see the software revolutions happening now with machine learning, availability of data, that kind of automation, being able to sort of process, clean, find patterns in data, and you know, you don't see that disrupting any 1 sector to a point where there's a huge loss of jobs?

I mean, actually, you know, translators, there's really reduced demand for translators because machine translation ain't perfect, but it ain't bad.

There are some kinds of things that are changed, but it's not, overall productivity growth has actually been slow in recent years.

It's been much slower than in some past periods.

So The idea that automation is taking away all the jobs, the counterpart would be that we would be able to produce stuff with many fewer workers than before, and that's not happening.

There are a few isolated sectors, there are some kinds of jobs that are going away, But that keeps on happening.

I mean, New York City used to have thousands and thousands of longshoremen taking stuff off ships and putting them on ships.

Now you have the giant cranes taking containers on and off ships in Elizabeth, New Jersey.

That's not robots, it doesn't sound high-tech, but it actually pretty much destroyed an occupation.

Well, it wasn't fun for the Longshoremen, to say the least, but it's not, we coped, we moved on and that sort of thing happens all the time.

You mean farmers, We used to be a nation which was mostly farmers.

The end reason is not that we've stopped eating, it's that farming has become so efficient that we don't need a lot of farmers, and we coped with that too.

So the idea that there's something qualitatively different about what's happening now, so far isn't true.

So yeah, your intuition is there is going to be a loss of jobs, but it's just a

There's nothing qualitatively different about this moment.

Some jobs will be lost, others will be created, as has always been the case so far.

I mean, maybe there's a singularity, maybe there's a moment

when the machines get smarter than we are and SkyTech kills us all or something, right?

But that's not visible in anything we're seeing now.

You mentioned the metric of productivity.

I've heard you mention that before, in connection with automation.

And if there is something qualitatively different, what should we see in that metric?

Well, okay, productivity, first of all, production.

We do have a measure of the economy's total production, you know, real GDP, which is itself, it's a little bit of a construct because it's quite literally, it's adding apples and oranges.

So we have to add together various things, which we basically do by using market prices, but we try to adjust for inflation.

But it's kind of, it's a reasonable measure of how much the economy is producing.

Is it goods and, sorry to interrupt, is it goods and services?

It's goods and services, it's everything.

Productivity is, you divide that total output by the number of hours worked.

So we're basically asking how much stuff does the average worker produce in an hour of work?

And if you're seeing really rapid technological progress, then you'd expect to see productivity rising at a rapid clip, which we did for the generation after World War II, productivity rose 2% a year on a sustained basis.

Then there was a decade of fairly rapid growth from the mid-'90s to the mid-2000s.

So you're just not seeing an ethical shift in the economy.

me then ask you about the psychology of blaming automation.

A few months ago you wrote in the New York Times, quote, the other day I found myself as I often do at a conference discussing lagging wages and soaring inequality.

There was a lot of interesting discussion, but 1 thing that struck me was how many of the participants just assumed that robots are a big part of the problem, that machines are taking away the good jobs, or even jobs in general.

For the most part, this wasn't even presented as a hypothesis, just as part of what everyone knows.

So why, maybe can you psychoanalyze our public intellectuals or economists, or us actually in the general public, why this is happening?

1 is that the particular technologies that are advancing now are ones that are a lot more visible to the chattering class.

When you had, when containerization did away with the jobs of longshoremen, well, not a whole lot of college professors are close friends with longshoremen, right?

Then there's A second thing, which is, you know, we just went through a severe financial crisis and a period of very high unemployment has finally come down.

There's really no question that that high unemployment was about macroeconomics, It was about a failure of demand.

But macroeconomics is really non-intuitive.

People just have a hard time wrapping their minds around it.

And among other things, people have a hard time believing that something as trivial as, well, people just aren't spending enough, can lead to the kind of mass misery that we saw in the 1930s, or the not quite so severe, but still serious misery that we saw after 2008.

And there's always a tendency to say, it must be something big.

That means we don't need workers anymore.

There was a lot of that in the 30s, and that same thing happened after 2008, the assumption that it has to be something, some deep cause, not something as trivial as a failure of investor confidence and inadequate monetary and fiscal response.

A lot of what's happened on wages is at some level political.

It's the collapse of the union movement, it's policies that have squeezed workers bargaining power, and for kind of obvious reasons there are a lot of influential people who don't want to hear that story.

They want it to be an inevitable force of nature.

Technology has made it impossible to have people earn middle class wages.

And so they don't like the story that says, actually, no, it's kind of the political decisions that we made that have caused this income stagnation, and so They're a receptive audience for technological determinism.

So what comes first in your view, the economy or politics in terms of what has impact on the other?

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Paul Krugman: Economics of Innovation, Automation, Safety Nets & UBI | Lex Fridman Podcast #67