Paul Krugman: Economics of Innovation, Automation, Safety Nets & Universal Basic Income

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. This conversation is part of the Artificial Intelligence podcast. If you would like to get more information about this podcast go to https://lexfridman.com/ai or connect with @lexfridman on Twitter https://twitter.com/lexfridman, LinkedIn https://www.linkedin.com/in/lexfridman/, Facebook https://www.facebook.com/lexfridman, Medium https://medium.com/@lexfridman, or YouTube https://www.youtube.com/lexfridman where you can watch the video versions of these conversations. If you enjoy the podcast, please rate it 5 stars on Apple Podcasts https://podcasts.apple.com/us/podcast/artificial-intelligence/id1434243584, follow on Spotify https://open.spotify.com/show/2MAi0BvDc6GTFvKFPXnkCL, or support it on Patreon https://www.patreon.com/lexfridman. This episode is presented by Cash App. Download it (App Store https://apps.apple.com/us/app/cash-app/id711923939, Google Play https://play.google.com/store/apps/details?id=com.squareup.cash&hl=en_US), use code “LexPodcast”. Here’s the outline of the episode. On some podcast players you should be able to click the timestamp to jump to that time. 00:00 – Introduction 03:44 – Utopia from an economics perspective 04:51 – Competition 06:33 – Well-informed citizen 07:52 – Disagreements in economics 09:57 – 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

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Lex Fridman?

  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,

• 0:44Lex Fridman?

  a socialist, and 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

• 1:25Lex Fridman?

  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 the lessons it reveals. In this, I appreciate your patience and support.

• 1:59Lex Fridman?

  This is the Artificial Intelligence Podcast. If you enjoy it, subscribe on YouTube, give it five stars on Apple Podcasts, follow on Spotify, support it on Patreon, or simply connect with me on Twitter at LexFriedman, spelled F-R-I-D-M-A-N. I recently started doing ads at the end of the introduction. I'll do one or two minutes after introducing the episode and never any ads in the middle that can break the flow of the conversation. I hope that works for you and doesn't hurt the listening experience. This show is presented by Cash App, the number one finance app in the App Store. Cash App lets you send money to friends, buy Bitcoin, and invest in the stock market with

• 2:40Lex Fridman?

  fractional share trading, allowing you to buy $1 worth of a stock, no matter what the stock price is. Brokerage services are provided by Cash App Investing, a subsidiary of Square and member SIPC. Get Cash App from the App Store and Google Play and use the code LexPodcast. You'll get $10 and Cash App will also donate $10 to FIRST, one of my favorite organizations that is helping to advance robotics and STEM education for young people around the world. Since Cash App does fractional share trading, let me say that to me, it's a fascinating concept. The order execution algorithm that works behind the scenes to create the abstraction of fractional orders for the investor is an algorithmic marvel.

• 3:25Lex Fridman?

  So, big props to the Cash App engineers for that. I like it when tech teams solve complicated problems to provide, in the end, a simple effortless interface that abstracts away all the details of the underlying algorithm. And now, here's my conversation with Paul Krugman.

• 4:01Lex Fridman?

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

• 4:07Speaker 02

  Wow, I don't really, I don't believe in perfection. I mean, somebody once, once said that his ideal was slightly imaginary Sweden.

• 4:19Speaker 02

  I mean, I like an economy that has a really high safety net for people, a good environmental regulation and, you know, not something that's not, 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 with them.

• 4:40Lex Fridman?

  What about wealth distribution?

• 4:41Speaker 02

  Well, obviously, you know, total equality is, is neither possible nor, I think, especially desirable, but I think you want one where, basically one 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.

• 5:08Lex Fridman?

  What about competition? Do you see the value of competition and what may be its limits?

• 5:14Speaker 02

  Oh, competition is great when it can work. I mean, there's a, I remember, I'm old enough to remember when there was only one phone company and there was really limited choice and I think the arrival of multiple, multiple phone carriers and all that has actually, you know, it's been a, been a really good thing and that's, that's true across many areas, but not every industry is, not every activity is suitable for competition. So there are some things like healthcare where competition actually doesn't work and so it's, it's, it's not one size fits all.

• 5:53Lex Fridman?

  That's interesting. Why does competition not work? In healthcare.

• 5:58Speaker 02

  Oh, there's a long list. I mean, it's a famous paper by Kenneth Arrow from 1963, which still holds up very well, where it 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.

• 6:23Lex Fridman?

  Healthcare, so not health insurance, healthcare.

• 6:25Speaker 02

  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?

• 6:50Lex Fridman?

  You know, the 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 and 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?

• 7:14Speaker 02

  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, you know, 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

• 7:52Speaker 02

  of all, fairly often it happens without you're able, being able to plan it, but also, there's a, you know, medical school takes many, many years, and going on the internet for some advice is not usually a very good substitute.

• 8:09Lex Fridman?

  So, 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?

• 8:29Speaker 02

  Oh, I think there's two levels of disagreement. One, maybe not utopia, but justice. What is a just society? And that's, there are different views. I mean, I teach my students that there are, broadly speaking, two views of justice. One focuses on outcomes.

• 8:52Speaker 02

  You ask, a just society is the one you would choose if you were trying to, the one that you would choose to live in if you didn't know who you were going to be. That's kind of John Rawls. And the other focuses on process. That a just society is one in which there is no coercion, except we're absolutely necessary. And there's no, there's no objective way to choose between those. I'm pretty much a Rawlsian, and I think many people are. But anyway, there's, so there's a legitimate dispute about what, what we mean by a just society, anyway. But then there's also a lot of dispute about what actually works. There, there's a range of legitimate dispute.

• 9:37Speaker 02

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

• 10:13Lex Fridman?

  So you've mentioned outcomes. What are 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?

• 10:29Speaker 02

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

• 10:34Lex Fridman?

  What is the Gini coefficient?

• 10:35Speaker 02

  Yeah, the Gini coefficient is a, 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. If you ask me, what, you know, what, 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 it's, that's a really, it, it, there's no sort of easy way to do that mapping. I mean, I, I look at things like what is, first of all, things like what is the income

• 11:20Speaker 02

  of the, the, 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 you want to look at, at questions like, uh, how healthy are people? How, uh, how is life expectancy doing? And how satisfied are people with their lives? Cause there is, you know, it's that, 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.

• 11:58Speaker 02

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

• 12:16Lex Fridman?

  And of course Sweden wins every time.

• 12:19Speaker 02

  No, actually Denmark wins these days. Denmark and Norway tend to win these days. Sweden doesn't do badly, but, uh, they're, they're, they're, it's, none of these are, are perfect, but look, I, I think by and large, I 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.

• 12:40Lex Fridman?

  Right. Where's America stand on that?

• 12:43Speaker 02

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

• 13:17Lex Fridman?

  What do you think is lacking in the safety net that the United States provides? You said there's a harshness to it. And what, what are the benefits and maybe limits of a safety net in a country like ours?

• 13:31Speaker 02

  Well, every other advanced country has some universal guarantee of adequate healthcare. The United States is the only place where citizens can actually fail to get basic healthcare because they can't afford it. That's, that's, that's, it'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, that's a big deal. We have remarkably weak support for, for children. We, most countries have substantial safety. You know, parents of young children get much more support elsewhere. They get often nothing in the US.

• 14:14Speaker 02

  We have limited care for people. Long-term care for, 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. And those are, those are things that a country, a rich country should be doing.

• 14:43Lex Fridman?

  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?

• 14:59Lex Fridman?

  To care the people who are the unfortunate members of society.

• 15:03Speaker 02

  By and large, it looks like the 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, you know, 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 even in European countries 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

• 15:48Speaker 02

  children who grow up without adequate health care, 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, we're, we're harsh, we're cruel, and we actually make ourselves poorer by, as a society, not just the individuals, by, by being so harsh and cruel.

• 16:11Lex Fridman?

  Okay, so invisible hand, Smith. Where does that fit in? The power of just people acting selfishly and somehow everything taking care of itself to where, you know, the economy grows, nobody, there's no cruelty, no injustice, that the markets themselves regulate themselves. What is, is there power to that idea and where, what are its limits?

• 16:37Speaker 02

  There's a lot of power to that. I mean, there, 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, the markets are a pretty effective way of getting.

• 17:00Speaker 02

  Incentives aligned of inducing people to do stuff that works and the invisible hand is saying that, you know, 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, 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, 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 healthcare. It doesn't work well

• 17:42Speaker 02

  for education. So there are, having a society which is kind of three quarters invisible hand and one quarter visible hand seems to be something, something on that order seems to be the balance that works best. It's just, don't want to, you don't want to romanticize

• 18:04Speaker 02

  make something mystical out of it. It's just, this is, is one way to organize stuff that happens to have broad, but not universal application.

• 18:13Lex Fridman?

  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 five, 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.

• 18:38Speaker 02

  Oh, sure.

• 18:38Lex Fridman?

  It's pretty magical.

• 18:39Speaker 02

  The fact that there's, you know, that right now, there's a wide assortment of fresh fruit and vegetables in, you know, in, at the, in the local markets up and down the street, you know, who's, who's planning that? And the answer is nobody. That's the, that's the invisible hand at work. And that's great. And, and that's a lesson that's that Adam Smith figured out more than 200 years ago. And it's

• 19:11Speaker 02

  It continues to apply and the but you know even Adam Smith has a section in his book about why it's important to regulate banks. So the invisible hand has its limits.

• 19:22Lex Fridman?

  Yeah, and that example is actually a powerful one in terms of the supermarket of fruit. That was 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. It beyond words and the fact that, like you said, I don't know what made that happen.

• 19:49Speaker 02

  Well, that there is some magic to the market, but the as showing my age, but you know, the old movie quote, sometimes the magic works and sometimes it doesn't and you have to have some idea of when it doesn't. So how do you get regulation right? How do what can government at its best do? 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, we government does health insurance pretty well. So much so, I mean, given our anti-government bias, it really

• 20:34Speaker 02

  is true that there are people out there saying, don't let the government get its hands on Medicare. So government, people actually love the government health insurance program far more than they love private health insurance. Basic education. 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 a by and large a nightmare of rip offs and grift and people not getting what they thought they were paying for. It's a judgment case. And it's funny,

• 21:18Speaker 02

  there are things, I mean, everybody talks, there's a talks about the DMV as being, how 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 it. You'd have to, to some extent, you can do these things on a priori grounds. You can talk about the logic of why healthcare 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. That didn't go well.

• 21:54Speaker 02

  But we've tried privatizing education and that didn't go well. So you find out what works.

• 22:00Lex Fridman?

  What about this new world of tech? How do you see, what do you think works for tech? Is it more regulation or less regulation?

• 22:09Speaker 02

  There are some things that need more regulation. I mean, we're finding out that the world of social media is, is one 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.

• 22:44Speaker 02

  We've, ever since the beginning of the industrial revolution, we've had a series of ethical shifts in the nature of work and in, in the kinds of jobs that are available. And it's not at all clear that what we're, what's happening now is any bigger or faster or harder to cope with than past shocks.

• 23:06Lex Fridman?

  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. That there is something, 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, 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 one sector to a point where there's a huge loss of jobs?

• 23:48Speaker 02

  There may be some things. I mean, actually translators, there's really reduced demand for translators because we've, machine translation ain't perfect, but it ain't bad. There are some kinds of things that are changed, but.

• 24:06Speaker 02

  It's not, overall productivity growth has actually been slow in recent years. Now, 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. They're almost all gone now.

• 24:46Speaker 02

  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, you know, 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. There are now very few farmers left. And the reason is not that we've stopped eating, it's that farming has become so efficient

• 25:30Speaker 02

  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.

• 25:40Lex Fridman?

  So, yeah, your intuition is there is going to be a loss of jobs, but it's just a thing that just continues. You know, there's nothing qualitatively different about this moment.

• 25:50Speaker 02

  Some jobs will be lost, others will be created, as has always been the case so far. Maybe there's a singularity, maybe there's a moment when the machines get smarter than we are and sky tech kills us all or something, right? But that's not visible in anything we're seeing now.

• 26:08Lex Fridman?

  You mentioned the metric of productivity. Could you explain that a little bit? Because it's a really interesting one. I've heard you mention that before in connection with automation. So what is that metric? And if there is something qualitatively different, what should we see in that metric?

• 26:23Speaker 02

  Well, okay, productivity, first of all, production. We do have a measure of the economy's total production, 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.

• 26:51Lex Fridman?

  Is it goods and services?

• 26:53Speaker 02

  Services, it's everything.

• 26:54Lex Fridman?

  Okay.

• 26:55Speaker 02

  Productivity is divide that total output by the number of hours worked. So we're basically asking how much, 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 it dropped down for a while. Then there was a kind of a decade of fairly rapid growth from the mid 90s to the mid 2000s. And then it dropped off again and it's not, it's not impressive right now.

• 27:39Speaker 02

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

• 27:45Lex Fridman?

  So let 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 one 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."

• 28:16Speaker 02

  Yeah.

• 28:17Lex Fridman?

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

• 28:28Speaker 02

  Yeah.

• 28:28Lex Fridman?

  Why this is happening? Why this assumption is just infiltrated public discourse?

• 28:35Speaker 02

  There's a couple of things. One is that the particular technologies that are advancing now are ones that are a lot more visible to the chattering class. The, you know, when you had a, when, when containerization did away with the jobs of longshoremen, well, not a whole lot of college professors are close friends with longshoremen, right? And so, so we see this one. 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. It's finally come down.

• 29:12Speaker 02

  The, there's really no question that that high unemployment was about macroeconomics. It was about a failure of demand. But macroeconomics is really not intuitive. I mean, 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. It must be technological change. 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, the assumption that it has to be something, some deep cause, not something as trivial

• 29:57Speaker 02

  as a failure of investor confidence and inadequate monetary and fiscal response.

• 30:05Speaker 02

  And the last thing on wages.

• 30:10Speaker 02

  A lot of what's happened on wages is at some level political. It's the collapse of the union movement. It's the, it's policies that have squeezed workers bargaining power.

• 30:21Speaker 02

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

• 30:51Lex Fridman?

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

• 30:59Speaker 02

  Oh, they, look, it, everything interacts. Actually, that's one of the rules of, that I was taught in economics. Everything affects everything else in at least two ways. But the, um, the, um, I mean, clearly, the economy drives a lot of political stuff. But also, clearly, politics has a huge impact on, on, on the economy. There, uh, you know, we, we look at the decline of unions in America and say, well, you know, the world has changed and unions don't have a role. But, uh, you know, two thirds of workers in Denmark are unionized. And Denmark face has the same technology and faces the same global economy that we do. It's just a difference in political choices that leads to that difference.

• 31:44Speaker 02

  So, uh, I actually teach a course here at, at Kuni on, called Economics of the Welfare State, which is about things like healthcare and retirement, and to some extent, wage policy, and so on. And, uh, the message I keep on trying to drive home is that, look, all advanced countries have got roughly equal competence. We all have the same technology, uh, but we make very different choices. Not that America always makes the wrong choices. We do some things pretty well. Our retirement system is, is one of the better ones. But, uh, but the point is that the, there's a huge amount of political choice involved in the, in the shape of the economy.

• 32:22Lex Fridman?

  So what is, what is a welfare state?

• 32:25Speaker 02

  Well, welfare state is the old term, uh, that, but it basically refers to all the programs that are there to mitigate, if you like, the, uh, the, uh, risks and injustices of the market economy. So in the US, the welfare state is social security, Medicare, Medicaid, minimum wages, uh, food stamps.

• 32:46Lex Fridman?

  When you say welfare state, my first sort of feeling is a negative one.

• 32:51Speaker 02

  Well, that's-

• 32:52Lex Fridman?

  Even though I like all- I probably generally, at least theoretically, like all the welfare programs.

• 32:58Speaker 02

  Well, that's it's been demonized and to some extent I'm being a little doing a little bit of thumbing my nose at all of that by just using the term welfare state.

• 33:09Speaker 02

  Although it's not.

• 33:10Lex Fridman?

  I see. Yeah, there I got you.

• 33:12Speaker 02

  But everybody, every advanced country actually has a lot of of a welfare state, even the US. I mean, we, that's fundamental part of the fabric of our society. Social Security, Medicare, Medicaid are just things we take for granted as part of the scene. And so if you, you know, there, there's a lot of, there's people on the right wing who are saying, oh, it's, it's, it's all socialism and well, you know, words, I guess, mean what you want them to mean. And we, just, just today, I, I told my class about the, the

• 33:53Speaker 02

  record that Ronald Reagan made in 1961, warning that Medicare would destroy American freedom. And but it sort of didn't happen.

• 34:04Lex Fridman?

  On the topic of welfare state, what are your thoughts on universal basic income? And that's sort of a, a gen, not a generic, but a universal safety net of this kind.

• 34:16Speaker 02

  There's always a trade off. When we talk about social safety net programs, there's always a trade off between universality, which is clean, but means that you're giving a lot of money to people who don't necessarily need it. And some kind of targeting, which makes it easier to get, to, to deal with the crucial problems with limited resources, but, but both has incentive problems and, and kind of political, and I would say even psychological issues. So the great thing about social security and Medicare is no questions asked. You don't, you don't have to prove that you need them.

• 35:02Speaker 02

  It just comes. You know, I didn't. I'm on Medicare allegedly. I mean, it's run through my New York Times health insurance. But I didn't have to file an application with the Medicare office to prove that I needed it. It just happened when I turned 65. That's good for dignity, and it's also good for the political support because everybody gets Medicare. On the other hand, and we can do that with healthcare, to give everybody a guarantee of an income that's enough to live on comfortably, that's a lot of money.

• 35:45Lex Fridman?

  What about enough income to carry you over through difficult periods, like if you lose a job, that kind of?

• 35:54Speaker 02

  Well, we have unemployment insurance, and I think our unemployment insurance is too short-lived and too stingy. It would be better to have a more comprehensive unemployment insurance benefit. But the trouble with something like universal basic income is that either the bar is set too low, so it's really not something you can live on, or it's an enormously expensive program. And so at this point, I think that we can do far better by building on the kinds of safety net programs we have. I mean, food stamps, earned income tax credit, we should have a lot more family support policies. Those things can deal with, can do a lot more to really diminish the amount of misery in

• 36:39Speaker 02

  this country. UBI is something that is being, I mean, it goes kind of hand in hand with this belief that the robots are going to take all of our jobs. And if that was really happening, then I might reconsider my views on UPI, but I don't see that happening.

• 36:57Lex Fridman?

  So are you happy with discourse that's going on now in terms of politics? So you mentioned a few political candidates. Is the kind of thing going on, both on Twitter and debates, in the media, through the written word, through the spoken word? How do you assess the public discourse now in terms of politics?

• 37:20Speaker 02

  We're in a fragmented world.

• 37:22Lex Fridman?

  More so than before.

• 37:24Speaker 02

  More so than ever before. So at this point, the public discourse that you see if...

• 37:35Speaker 02

  If you're, if Fox News is your principal news source is, is very different from the one you get if you read the New York Times. On the whole, my sense is that mainstream political reporting, policy reporting is A, not too great, but B, better than it's ever been. Because when I first got into the, you know, the pundit business, it was just awful. Lots of things just never got covered. And if things did get covered, it was always both sides. I mean, it's the line that comes back from me writing during the 2000 campaign was that if one of the candidates said that the earth was flat, the headline would devous differ on shape of planet.

• 38:19Speaker 02

  I mean, it's a, and, and it's, that's less true. There's still a fair bit of that out there, but it's less true than there used to be. And there are more people reporting, writing on, on policy issues who actually understand them than ever before. So though, that's good. But I still, I have, how much the typical voter is actually informed, unclear. I mean, the, the Democratic debates, I think we, I'm hoping that we finally get down to having a, not having 27 people on the stage or whatever it is they have.

• 39:03Speaker 02

  But, but, you know, they're reasonably substantive, certainly better than before. And while there's a lot of still, you know, theater criticism instead of actual analysis and the reporting, it's, it's not as totally dominant as in the past.

• 39:18Lex Fridman?

  Can I ask a, maybe a dumb question, but from an open-minded perspective, when, you know, people on the left and people on the right, I think view the other, the others as sometimes complete idiots.

• 39:39Speaker 02

  Yeah.

• 39:41Lex Fridman?

  What do we do with that? You know, is it possible that the people on the right are correct about their, what they currently believe? Is that kind of open mindedness helpful? Or is this division long term productive for us to sort of have this food fight?

• 40:05Speaker 02

  Well, the trouble you have to confront is that there's a lot of stuff that just is false out there and but commands extensive political allegiance. So the idea, well, both sides need to listen to each other respectfully. I'm happy to do that when there's a view that is worthy of respect, but a lot of stuff is not. And so take economics is something where I think I know something and I'm not sure that I'm always right. In fact, I know I'm, I've been wrong plenty of times. But I think that there is a difference between economic views that are within the realm

• 40:48Speaker 02

  of we can, we can actually have an interesting discussion and those that are just crank doctrines or things that are purely being disseminated because people are being paid to disseminate them. So there are, there are plenty of good, serious center right economists that I'm happy to, to talk to. None of those center right economists has any role in the Trump administration. The Trump administration and by and large Republicans in Congress only want to listen to people who are cranks. And so I, I think it's being dishonest with my readers to, to pretend otherwise.

• 41:28Speaker 02

  There's no way I can reach out to people who think that, that reading Ayn Rand novels is, is how you learn about monetary economics.

• 41:38Lex Fridman?

  Let me linger on that point. So if you look at Ayn Rand, okay, so you said center right. What about extreme people who have like radical views? You think they're not grounded?

• 41:49Lex Fridman?

  In any kind of data, in any kind of reality, I'm just sort of curious about how open we should be to ideas that seem radical.

• 42:01Speaker 02

  Oh, radical ideas is fine, but then you have to ask, is there some basis for the radicalism? And if it's, if it's a, if it's something that is not grounded in anything, then, and particularly, by the way, if it's something that's been refuted by evidence again and again, and the people just keep saying it, if it's a zombie idea, and there's a lot of those out there, then there comes a point when it's not worth trying to fake respect for it.

• 42:33Lex Fridman?

  I see. So there's a, through the scientific process, you've shown that this idea does not hold water, but I like the idea, zombie ideas, but they live on through, it's like the idea that the earth is flat, for example, has been, for the most part, disproven.

• 42:49Speaker 02

  Yeah.

• 42:51Lex Fridman?

  But it lives on, actually, and growing in popularity currently.

• 42:55Speaker 02

  Yeah, and there's a lot of that out there, and there, you can't, you can't wish it away, and it's, you're not being fair to either yourself, or if you're somebody who writes for the public, you're not being fair to your readers to pretend otherwise.

• 43:09Lex Fridman?

  So quantum mechanics is a strange theory, but it's testable. And so while being strange, it's widely accepted amongst physicists. How robust and testable are economics theories? If we compare them to quantum mechanics and physics and so on?

• 43:28Speaker 02

  Okay, economics, look, it's a complex system. And it's also one in which, by and large, you don't get to do experiments. And so economics is never going to be like quantum mechanics. That said, you get natural experiments, you get tests of rival doctrines. You know, in the immediate aftermath of the financial crisis, there was one style, one, one.

• 43:56Speaker 02

  Basic theory of macroeconomics, which ultimately goes back to John Maynard Keynes, that made a few predictions. It said, under these circumstances, printing money will not be inflationary, running big budget deficits will not cause a rise in interest rates, slashing government spending austerity policies will lead to depressions if tried. Other people had exactly the opposite predictions, and we got a fairly robust test. And one theory won. Interest rates stayed low, inflation stayed low, austerity, countries that implemented

• 44:35Speaker 02

  harsh austerity policies suffered severe economic downturns. You don't get much, that's pretty clear. And that's not going to be true on everything. But there's a lot of empirical, I mean, the younger economists these days are very heavily data based. And that's great. And I think that's the way to go.

• 45:00Lex Fridman?

  What theories of economics are, is there currently a lot of disagreement about what you said?

• 45:05Speaker 02

  Oh, first of all, there's just a lot less disagreement, really, among serious researchers in economics than people imagine. We actually, we can track that. The Chicago Booth School has a panel, an ideologically diverse panel, and they regularly pose questions. And on most thing, there's a huge, there's remarkable consensus. There are a lot of things where people imagine that there's dispute, but the illusion of dispute is something that's basically being fed by political forces, and there isn't really. I mean, there are,

• 45:45Speaker 02

  I think, questions about what are effective ways to regulate technology industries. We really don't know the answers there. There's a, or, look.

• 46:04Speaker 02

  I don't follow every part. Minimum wages. I think there's, there's a pretty overwhelming evidence that, that a modest increase in the minimum wage from current levels would be, would not have any noticeable adverse effect on, on jobs. But if you ask, how high could it go? $12 seems pretty safe, given what we know. 15, is 15 okay? There's some legitimate disagreement there. I think probably, but, but I can, people have a point. 20, where, where is the line at which it starts to become a problem? And the answer is truly, we don't know.

• 46:45Lex Fridman?

  It's fascinating to try to, such a cool, economics is cool in that sense, because you're trying to predict something that hasn't been done before, the impact, the effects of something that hasn't been done before.

• 46:56Speaker 02

  Yeah, you're trying, you're going out of sample. And, and we have good reason to believe that, that there are, you know, that it's nonlinear, that there comes a point at which it doesn't work the way it has in the past.

• 47:08Lex Fridman?

  So as an economist, how do you see science and technological innovation? When I took various economics courses in college, technological innovation seemed like a no-brainer way of growing an economy. And, and we should invest in it aggressively. I may be biased, but it seemed like the various ways to grow an economy seems like the easiest way, especially long-term. Is that correct? And if so, why aren't we doing it more?

• 47:37Speaker 02

  Well, that's, okay. The first question is, yeah, I mean, all, it's pretty much overwhelming. We think we can more or less measure this, although there are some assumptions involved. Something like 70 to 80% of the growth in per capita income is, is basically the advance of knowledge. It's not just, it's not just the crude accumulation of capital. It is, it is the fact that we get, get smarter. A lot of that, by the way, is more prosaic kinds of technology. So, you know, we. I like to talk about things like containerization or, you know, in an earlier

• 48:14Speaker 02

  period, the invention of the flat pack cardboard box that had to be invented and now all of your deliveries from Amazon are made possible by the existence of that technology. The web stuff is important too, but what would we do without cardboard boxes? So, but all of that stuff is really important in driving economic progress. Well, why don't we invest more, why don't we invest more in, again, more prosaic stuff? Why aren't, why haven't we built another goddamn rail tunnel under the Hudson River?

• 48:57Speaker 02

  Which is, for which the need is so totally overwhelmingly obvious.

• 49:02Lex Fridman?

  How do you think about, first of all, I don't even know what the word prosaic means, but I inferred it. But how do you think about prosaic? Is it the really most basic dumb technology innovation? Or is it just like the lowest hanging fruit of where benefit can be gained?

• 49:20Speaker 02

  When I say prosaic, I mean stuff that is not sexy and fancy and high tech. It's building bridges and tunnels, having, inventing the cardboard box or the, I don't know, where do we put EZ Pass in there? That's a, it is, it is actually using some, you know, modern technology and all that, but it's, you're not gonna have, I don't think you're gonna make a movie about the, about the, whoever it was that invented EZ Pass, but, but it's actually a pretty significant productivity booster.

• 50:03Lex Fridman?

  To me, it always seemed like it's something that everybody should be able to agree on and just invest. So like, in the same way, the investment in the military and the DOD is huge. So everyone kind of.

• 50:21Lex Fridman?

  Not everyone, but there's a, there's a, there's an agreement amongst people that somehow that a large defense is important. It always seemed to me like you, that should be shifted towards, if you want to grow prosperity of the nation, you should be investing in knowledge. Yes, prosaic stuff, infrastructure, investing in infrastructure and so on. I mean, sorry to linger on it, but do you have any intuition? Do you have a hope that that changes? Do you have intuition why it's not changing? It's unclear.

• 50:55Speaker 02

  Oh, I have more than intuition, I have a theory. I'm reasonably certain that I understand why, why we don't do it. And it's, it's because, because we have a real values dispute about the welfare state, about how much the government should do to help the unfortunate. And politicians believe, probably rightly, that there's a kind of halo effect that surrounds any kind of government intervention. That even though providing people with enhanced social security benefits is really very different

• 51:35Speaker 02

  from building a tunnel under the Hudson River, politicians of both parties seem to believe that if the government is seen to be successful at doing one kind of thing, it will make people think more favorably on doing other kinds of things. And so we have conservatives tend to be opposed to any kind of increase in government spending, except military, no matter how obviously a good idea it is, because they fear that it's the thin end of the wedge for bigger government in general. And to some extent liberals tend to favor spending on these things, partly because they see it as a way of proving that government can do things well, and therefore it can

• 52:19Speaker 02

  turn to broader social goals. It's clearly, there's a, if you like, the, what you might have thought would be a technocratic discussion about government investment, both in research and in infrastructure, is contaminated by the fact that government is government and people link it to other government actions.

• 52:42Lex Fridman?

  Perhaps a silly question, but as a species, we're currently working on venturing out into space, one day colonizing Mars. So when we start a society on Mars from scratch, what political and economic system should it operate under?

• 52:58Speaker 02

  Oh, I'm a big believer in, first of all, I don't think we're actually going to do that, but let's

• 53:03Lex Fridman?

  Let's imagine.

• 53:05Speaker 02

  hypothesize that we colonize Mars or something. Look, representative democracy is

• 53:13Lex Fridman?

  versus pure democracy?

• 53:17Speaker 02

  Well, yeah, pure democracy where people vote directly on everything is really problematic because people don't have time to try and master every issue. I mean, we can see what government by referendum looks like. There's a lot of that in California and it doesn't work so good because it's hard to explain to people that the various things they vote for may conflict. So representative democracy is, it's got lots of problems. And I kind of the Winston Churchill thing, right? It's the worst system we know, except for all the others.

• 53:57Lex Fridman?

  But so, yeah, sticking with the representative and basically the American system of regulation and markets and the economy we have going on is a pretty good one for Mars, if you start from scratch.

• 54:13Speaker 02

  If you're going to start from scratch, you wouldn't, you wouldn't want a senate where 16% of the population has half the seats. You probably would want one which is more, actually more representative than what we have. And the details, it's unclear. I mean, the, we, when times are good, all of the various representative democracy systems, whether it's parliamentary democracies or a US-style system, whether you have a prime minister or the head of state as an elected president, they all kind of work well and they all, when times are good, and they all have different modes of breakdown. So I'm

• 54:56Speaker 02

  not sure I know what the answer is, but, but something like that is given.

• 55:03Speaker 02

  What we've seen through history, it's the least bad system out there. I mean, I don't know.

• 55:13Speaker 02

  I'm a big fan of the TV series The Expanse. And it's kind of gratifying that out there, it's the Martian Congressional Republic.

• 55:27Lex Fridman?

  In a brief sense, so amongst many things, you're also an expert in international trade.

• 55:35Lex Fridman?

  What do you make of the complexity? So I can understand trade between two people, say, two neighboring farmers. It seems pretty straightforward to me. But international, when you start talking about nations and nations trading, it seems to be very complicated. So from a high level, why is it so complicated? What are all the different factors that weigh the objectives that need to be considered in international trade? And maybe feeding that into a question of, do you have concerns about the two giants right now of the US and China? And the tension that's going on with the international trade there with the trade war?

• 56:19Speaker 02

  Well, first of all, international trade is not really that different from trade among individuals. It's vastly more complex and there are many more players. But in the end, the reasons why countries trade are pretty much the same as the reasons why individuals trade. Countries trade because they're different and they can derive mutual advantage from concentrating on the things they do relatively well. And also, there are economies of scale. You know, individuals have to decide whether to be a surgeon or an accountant. It's probably not a good idea to try and be both.

• 56:59Speaker 02

  And countries benefit from specializing just because of the inherent advantages of specialization. And that's so now the fact it's a big world and we're talking about millions of products being traded. And in today's world, often. Trade involves many stages, so that made in China iPhone is actually assembled from components that are made all over the world. And but it doesn't really change the fundamentals all that much. There's a recurrent, I mean, the bake, the big, the dirty little secret of international trade conflict is that actually it's not, conflicts among countries are really not

• 57:44Speaker 02

  that important. Most trade is beneficial to both sides and to both countries, but it has big impacts on the distribution of income within countries. So the growth of US trade with China has made both US and China richer, but it's been pretty bad for people who were employed in the North Carolina furniture industry, who did find that their jobs were displaced by a wave of imports from China. And so that's where the complexity comes in. Not at all clear to me, I mean, we have some real problems with China, although it really

• 58:26Speaker 02

  involve trade so much as as things like respect for intellectual property. Not clear that those real problems that we do have with China have anything to do with the current trade war. Current trade war seems to be driven instead by a fundamentally wrong notion that when we sell goods to China, that's good, and when we buy goods from China, that's bad. And that's that's misunderstanding the whole point.

• 58:53Lex Fridman?

  Is is trade with China in both directions a good thing?

• 58:57Speaker 02

  Yeah, we would be poorer if it wasn't for it. But it but there are there are downsides, as there are for any economic change. It's like any new technology makes us richer, but often hurts some some people. Trade with China makes us richer, but hurts some people. And I wouldn't undo what has happened, but I wish we had had a better policy for supporting and compensating the losers from that growth.

• 59:26Lex Fridman?

  So we live in a time of radicalization of political ideas, Twitter mobs and so on. And yet, here you are in the midst of it, both tweeting and writing in New York Times articles with strong opinions, riding this chaotic wave of public discourse. Do you ever hesitate or feel a tinge of fear for exploring your ideas publicly and unapologetically?

• 59:52Speaker 02

  Oh, I feel fear all the time. It's not too hard to imagine scenarios in which this is, you know, I might personally find myself kind of in the crosshairs. And I mean, I'm the, I am the king of hate mail. I get them. Amazing correspondence.

• 1:00:11Lex Fridman?

  Does it affect you?

• 1:00:12Speaker 02

  It did. It did when it started. These days, I've, I've developed a very thick skin. So I know, I don't usually get, in fact, if I, if I don't get a wave of hate mail after a column, then, then I probably wasted the, that, that day.

• 1:00:28Lex Fridman?

  So what do you make of that as a, as a person who's putting ideas out there? If you look at the history of ideas, the way it works is you write about ideas, you put them out there. But now, when there is so much hate mail, so much division, what advice do you have for yourself and for others trying to have a discussion about ideas, difficult ideas?

• 1:00:51Speaker 02

  Well, I don't know about advice for others. I mean, if, you know, for most economists, you know, just do your research. That's a, we can't all be public intellectuals and we shouldn't try to be. And in fact, I, I'm glad that I didn't get into this business until I was, until I was in my late 40s. I mean, this is, it's probably best to spend the, the, your decades of greatest intellectual flexibility, addressing deep questions, not, not confronting Twitter mobs. And the

• 1:01:27Speaker 02

  And as for the rest, I think when you're writing about stuff, the sort of dances like no one's watching, write like nobody's reading, right? Write what you think is right, trying to make it, obviously trying to make it comprehensible and persuasive, but don't let yourself get intimidated by the fact that some people are going to say nasty things. It's you can't, you can't do, you can't do your job if you are worried about criticism.

• 1:02:05Lex Fridman?

  Well, I think I speak for a lot of people in saying that I hope that you keep dancing like nobody's watching on Twitter and New York Times and books. So Paul, it's been an honor. Thank you so much for talking today.

• 1:02:16Speaker 02

  Okay, great.

• 1:02:18Lex Fridman?

  Thanks for listening to this conversation with Paul Krugman. And thank you to our presenting sponsor Cash App. Download it and use code LexPodcast. You'll get $10 and $10 will go to FIRST, an organization that inspires and educates young minds to become science and technology innovators of tomorrow. If you enjoy this podcast, subscribe on YouTube, give it five stars on Apple Podcasts, follow on Spotify, support on Patreon, or simply connect with me on Twitter at LexFriedman. And now let me leave you with some words from Adam Smith in The Wealth of Nations, one of the most influential philosophers and economists in our history. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our

• 1:03:03Lex Fridman?

  dinner, but from their regard to their own interest. We address ourselves not to their humanity, but to their self-love, and never talk to them of our necessities, but of their advantages." Thank you for listening and hope to see you next time.