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by Paul Krugman
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- 1 weeks ago56 min
Azeem Azhar on the Explosion of Hacking and Other AI Issues
. . .TRANSCRIPT: Paul Krugman in Conversation with Azeem Azhar(recorded 10/29/26)Paul Krugman: Hi everyone. I am talking today with Azeem Azhar, writer, researcher, investor with Exponential View, who is one of the people I turn to when I don’t understand what’s happening with AI, which is basically all the time. There was a really striking piece that Azeem wrote the other day about the PHP hack with the title, “The Wuhan Moment.”Why don’t you explain to me what you mean by that, and let’s try to understand what’s going on here.Azhar: Yeah. Well, that PHP hack was just one particular instance of a range of things that are now happening because AI models have become good enough. And the reason I called it the Wuhan moment is that there are infectious diseases all the time, but then came along one with slightly different characteristics, and it had a much bigger impact than all the other ones that were circulating.So, when I say AI models have gotten more capable—we’ve had this experience as we use ChatGPT, it gets smarter and smarter—and AI models became good enough to be used in code, to be directed to find vulnerabilities and weaknesses and bugs in software. And because AI systems are tireless and indefatigable, and you can just spin more of them up and they don’t get exhausted, they’re not like human security researchers or human hackers. They can find all of these vulnerabilities, many vulnerabilities, quickly. They can research them in novel, non-human ways and chain them all together. And that’s a new regime that we find ourselves in. And it feels different to where we were a year or two ago when these weaknesses and vulnerabilities were discovered methodically by the occasional hacker, but generally by security teams. So that’s the moment.Krugman: So my understanding is that basically the way the world works now is that there’s software everywhere. Everything is being run on software which is complicated and maybe not that carefully put together. Tell me if I’m wrong on this, but I think it’s sort of on stilts where you have newer software laid on top of older software, and God knows where the vulnerabilities are.Azhar: Well, software and technology is this really big industry that somehow managed for 50 or 60 years to escape any part of safety testing.Krugman: Right.Azhar: And so, you know, that’s why you have beta releases and bug fixes, because the culture of software development for the longest period of time has been started from a tinkering mindset. And there’s no real security model required around software. It’s not an AI problem, it’s not a social media or an internet problem.It was a problem in the ‘70s and the ‘80s. It’s just that we started to move from centralized mainframes to having personal computers and many, many more opportunities for that software to be developed in a decentralized way. And so here we are decades later, and it’s a miracle the internet works, given how many bugs and issues there are. But that has also been its benefit, because what it has by not being a fixed cathedral is agility. One software developer likened it to a crowded, buzzing bazaar. It has the ability to respond, adapt, and stay pretty resilient, which the internet has by and large done, except for a few major cyber attacks over the last 25 years. So what was a feature, and a flaw recognized by software engineers, that there’s no agreed security model for making software—has also been the reason why we’ve had a flourishing of software, and we are able to continue on our way even when bugs are found and there are problems that get discovered.Krugman: Right. And a lot of it is based on PHP. You should probably tell people what it is. I mean, I actually had never heard of it until last week, but of course...Azhar: Well, you’ve certainly used it. In reality, 70% of websites are running on PHP. It’s a programming language that happens to be very easy for people to use, and so it was cheap. If in the late ‘90s you wanted to write a piece of software, you used PHP. It’s simplistic; it doesn’t have the learning curve of C++ or something else. And it got extended and extended. Facebook used it a lot, and so it became part of the internet’s architecture. And like many other systems we use, like Python, which is another language, or BIND, which is a piece of software that turns friendly internet addresses like Substack.com to the numbers that the routers need. These are pie
- 2 weeks ago10 min
The Starlink-Ukraine Scandal, Phase 2
Billionaires should not be making decisions critical to national security. That’s straightforward. And the case of Elon Musk and his attempt to undermine Ukraine makes that clearer than ever. Recent events, that is in the past 24 hours, really don’t change that point. If anything, they reinforce it. Hi, Paul Krugman.Yesterday, I wrote that Starlink’s control must be taken away from Elon Musk. The occasion was that Musk abruptly and without warning downgraded the effectiveness of Starshield, which is a sort of high velocity, high frequency version of Starlink that has been playing an essential role in Ukraine’s defense.Suddenly, the speeds of communication were capped, which is devastating for Ukraine. Exactly how that happened? The Wall Street Journal reported that Musk made the decision or gave the order. Musk said that, oh, that’s under the White House’s control. The White House said, no, it was just him.In fact, none of the parties to all of this are credible. None of them are reliable narrators. And it doesn’t really matter. The point is that this is a gray zone situation. That should not exist, that it should be very clear that if national security is at stake, which it is — this is a war in which US technology is playing a critical role — that unambiguously, this should be under the control of publicly elected officials, the president and Congress, not some guy who happens to have a lot of money. But it is not. We have private property, but we are a democracy. And critical decisions for the national interest should be made by democratically elected leaders. OK. So the development since then is that,according to both the Journal and the Times, Trump called Musk and asked him to lift the restriction on transmission speeds. It’s completely unclear right now whether that has actually happened or to what extent it’s happened. Some reports say that speeds are up. Others say that nothing has changed. Obviously, this matters critically for how many Ukrainians will die this winter. But think about this at a fundamental level. The president asked a private business to stop killing Ukrainians. This is not the kind of thing where you ask. Especially Donald Trump, who is very fond of giving orders in places where he has no authority. In this case, the idea that he’s saying, pretty please, Elon, don’t let quite so many Ukrainians die — this is not how things should be working.This guy, meaning Elon Musk, should not be in this position. Beyond that, what we’ve actually seen is the fact that Trump asked, has certainly made a point of having people leak the fact that he had asked, although he himself has been a little bit blurry on exactly what happened,This is actually telling you that having national security interests explicitly under control of elected politicians is a good thing even if the politicians have bad intentions. There’s no real question that whatever the details of how it happened that Starlink denied high-speed access to Ukraine, obviously it’s what Musk wanted, but also that at the very least Donald Trump was okay with it and it may have been what he wanted as well. But Trump and Trump’s officials were hiding behind Elon Musk, were saying, well, this was Musk’s decision and, well, it’s a business and we don’t know what happened. Again, nobody involved in this should be believed, should be trusted. And for the exact truth, I’ll wait for years of investigative digging to find out what happened, plus subpoenas. Because if Democrats do take Congress, especially if they take the Senate, they will be investigating with support from at least some Republican senators. Patriotism is not completely dead on the GOP side. The important point here is that the public outcry, the outrage, the many articles written similar in some respect to mine, — though I think I was more explicit than most in saying essentially that we need to nationalize or at least take control of Starlink — but the public outrage mattered.Even though Donald Trump clearly wants Vladimir Putin to win, he doesn’t feel that he can act too openly He can’t take a pro-Russian stance. He can’t be seen to be openly and explicitly undercutting Ukraine’s ability to defend itself, which is, and was trying to avoid that. Whether he gave the order or Musk gave the order doesn’t really matter. The fact was that the private ownership, private control of Starlink allowed Trump to hide behind, or he thought it would allow him to hide behind, the fact that this was a private enterprise. For the U.S. government to have ordered a U.S. government agency —say if Starlink was run by the Defense Department —for the U.S. government to order the Defense Department to cut Ukraine off at the knees was too much even for Trump. And once it became clear that the attempt to pretend that this was not in accord with Trump administration intentions, whoev
- Oct 3, 202648 min
The Midterms!
. . .TRANSCRIPT: Paul Krugman in Conversation with David Nir and G. Elliott Morris(recorded 10/1/26)Paul Krugman: Like almost everybody I know, I spend about 17 hours a day thinking about the midterms, and I’ve got G. Elliott Morris and David Nir from Strength in Numbers and The Downballot here to talk to me about: What do we know? What’s going to happen? What are the indicators? And then maybe some broader issues about what the heck we think is going on in U.S. politics. So, hi, guys. Welcome.Elliott Morris: Hey, thanks, Paul.David Nir: Paul, it’s a pleasure.Krugman: So, yeah, as we record this, I guess it’s one month and two days before the midterms, and if I believe you guys, the polling and other indicators, which David will talk about, seem to be almost kind of shocking right now. Elliott, I just looked at your Fifty Plus One post, and I believe you now have 99% odds of Democrats controlling the House.Morris: Yeah, well, it’s October, Paul. So we’re in what I consider spooky probability territory. 99% is when you start to go, “I hope these models are parameterized correctly.” Look, the way to unpack this: Our model at 50 Plus One shows a 99% chance that the Democrats will win 218 seats or more. 99% seems very large. As the forecaster, I don’t want to be wrong on the 99, but it makes sense when you look at the numbers on paper.So, let’s take 2018 as a comparison case. That’s when Democrats won 235 seats in the House. That year, the generic ballot—which is a question that asks people how they will vote in their local congressional district, for which party they will vote—that has Democrats up somewhere between 8 and 9 points. Democrats won in 2018, leading the polls by about 8 or 9 points. They actually won the House popular vote by seven and a half points or so, if you account for some weirdness with, like, uncontested seats. So we are in a more favorable environment, if the polls are right, than 2018. And we also have a lot of other district-level indicators pointing the same way.Krugman: But, I mean, the gerrymandering was fairly extreme before this, and if we go back to the beginning of this year, it was looking a little iffy, if I recall.Morris: Yeah. So gerrymandering seems to have shifted maybe a handful of seats at most to the Republicans, accounting for some pretty rosy polling, for example, in South Texas and in Florida for the Democrats, where there’s been a larger shift than the national shift, which is about 10 or 11 percentage points. So if we are around eight points, our model says Democrats need to win the House popular vote by about three and a half points. So there’s room for the polls to be wrong by about five.The average expected error for the polls at this point, 30 days before the election, is about three and a half percentage points. So we’re looking at a larger-than-average error in the polls. And then if you account for other indicators, district-level surveys, the race raters like we do, that’s how we get up to that 99. But yeah, I acknowledge this is a very, very large probability.Nir: And Paul, just to address your point about the gerrymandering, which did heavily favor the GOP, it’s important to remember that Republicans were not doing that from a position of strength. They were doing it from a position of weakness, precisely because they knew that they were facing a very difficult midterm election. And they definitely—I can say this with certainty—definitely will not pick up, they will not flip, all of the seats that they targeted in Texas and Florida and elsewhere. And that has a lot to do with the quality of candidate recruitment on both sides.And also, in particular in Texas and Florida as well, has a lot to do with Latino voters moving back against Trump after moving heavily for him in 2024. So, 2024 in a lot of ways was a high watermark. And so when you’re looking at how Trump performed in these districts two years ago, in a lot of cases, expect really a lot of fallback for the GOP.Krugman: Tell me if I’m being underinformed here, but my understanding is that the gerrymandering was based, at least partially, on the assumption that the Hispanic shift towards Trump that took place in ‘24 was an enduring feature of the landscape, and that it all kind of goes wrong if, as now appears to be the case, it’s not enduring. Right?Nir: That’s definitely what it appears to be. Because if you look at thes
- Oct 1, 202610 min
A Globalist Comeback?
TranscriptOn September 28th Jamie Dimon, CEO of JPMorgan Chase, one of the most prominent, most successful financial figures in the United States, published an article in the Wall Street Journal titled, “The Hell with Trump, Let’s Go Back to Globalism.” Okay, that’s a lie. That wasn’t what the article was titled, but it was, in effect, what it said.And it was a very interesting message to be coming at this moment in time. I think Dimon’s op-ed can be viewed as a harbinger of a big shift in the business community’s political positions and its attitudes that may be coming in the very near future — in effect a bet that Trump and MAGA in general are going to be in the rearview mirror, not too far from now. Now, a word about Dimon. He’s an extraordinarily successful financial leader. He navigated the 2008 financial crisis and aftermath better than almost anyone else in Wall Street. He had the good sense to limit JP Morgan’s exposure to the practices that helped to create that financial crisis. He is also a very, very smart political operator. He has had a talent for not making enemies, for staying at least on decent relationships with administrations from both parties, which is no mean feat in 21st century America. He certainly did not join the cavalcade of business leaders rushing to prostrate themselves at Trump’s feet after the 2024 election, and yet he was subtle enough about his restraint to not get put on Trump’s enemies list. So,you know, his political judgment should be trusted. His economic judgment, all right, being a great businessman is not at all the same thing as being a great economist. And there’s no particular reason to think that he is always right about economic affairs. But that is, in a way, mostly beside the point. So what did Dimon call for? Well, he basically said, we need to repair theWestern alliance. We need to bring the Western world, the advanced democracies, above all the United States and Europe, back together in part as a way to stand up against the threat of a rising China. And his proposal for how to do that was to negotiate a free trade agreement between the United States and the European Union. That’s quite something. That’s a very un-MAGA position to take. You want to bear in mind that, first of all, we’re currently under a government of people who do not at all believe in the virtues of free trade. In fact, are extremely hostile to globalism. Certainly don’t believe in binding international agreements. Maybe they want agreements that bind other countries, but not them. And they are also not of the mind that we have a lot of shared values with the democratic governments of Europe. The MAGA position, if anything, is that they like the anti-democratic forces in Europe. J.D. Vance essentially campaigned for Viktor Orban in Hungary. Trump officials have been quite clear that they have sympathy for the AfD in Germany. So if we have common values with some Europeans, the Europeans with whom they have common values are neo-Nazis. And Trump’s de facto support for Putin in his invasion of Ukraine has been alarmingly clear over the past two years. What we’re seeing here is Jamie Dimon basically saying that I don’t care about any of that. I don’t believe that you people are going to be in charge. And I think that we can go back to trying to rebuild bridges to Western Europe. Now, it’s kind of interesting the way he phrases it. He puts a lot of it in terms that I suspect are intended to appeal to economic conservatives in the United States who are not MAGA types. He sells his proposal in part as an incentive for Europe to conduct pro-business, pro-economic reforms. He cites the Draghi report on European Competitiveness, which has been very influential in Europe. And points to him for even knowing about it! There are probably not a lot of people in the United States who have read the Draghi Report, absorbed its lessons. I myself have read it. I have had some criticisms of some of the analysis in the Draghi Report, but the reforms that Draghi proposes, which have a lot to do with completing the European internal market, making the capital markets in Europe more flexible and responsive and so on, are very much in the right direction. So this is a good thing. And I’m glad to see someone in the United States, someone prominent, actually taking European affairs seriously and wanting the Europeans to do things that will improve their own position. Dimon is almost surely overstating how important a free trade agreement with the United States could be. The reality is that the obstacles to European reform are internal — as are the obstacles to all the reforms we should be making here. Politics is real on both sides of the Atlantic. And we are not as important to Europe — or they to us — as a lot of people imagine. The fact of the matter is that Europe only exports around 3
- Sep 22, 202612 min
Will Crypto Crash the Blue Wave?
TranscriptWill crypto crash the blue wave? Probably not a question you’ve been asking, but you should. Paul Krugman here with a video update for September 22nd. I want to talk about something that was a very big deal in the way we talked about the 2024 election, which was the role of the cryptocurrency industry.We’re talking about it a lot less this time, I think largely because AI has stolen the limelight. But crypto is still out there. And while it has not succeeded in creating a viable business in the normal sense, it has been extraordinarily successful at buying political influence. And they’re set to do it again.Now, the background here is, as I record this, the midterm elections look, based upon polling, based upon just impressions, looks like a big blue wave. Elliot Morris gives the Democrats a 97% chance of taking the House and two-to-one odds of taking the Senate.But there’s still a few weeks to go and it looks like there’s a big wave of right-wing money that’s going to come crashing in. We don’t know how effective that will be. The role of money in politics, particularly of last-minute advertising blitzes, is somewhat unclear.But it is coming and crypto is going to be a pretty big part of it. Based on Open Secrets, which tracks campaign financing, it appears that the crypto industry, which spent big in 2024, is going to spend even bigger in 2026, which is unusual because midterms are usually lower stakes than presidential years: They don’t usually involve as much spending.But this industry is going to go all in. The crypto political strategy has been to knock out candidates that it considers hostile. And that is a strategy that was very effective in the last election cycle. They spent money in primaries knocking out Democrats, because Democrats were by no means united in their skepticism about crypto, but in some cases in favor. They knocked out Democrats in favor of other Democrats in primaries. And then in the general election, they spent quite a lot, not entirely on Republicans, but there were some big cases. And then Ohio spending was a particular success story.And in general, crypto became seen in Washington as a force to be afraid of. Not a force that has actually managed to get anywhere in the economy. It’s nothing like AI, which is everywhere. Crypto is still barely used for legitimate transactions. According to the Federal Reserve, only 2% of Americans have actually used crypto to buy something other than assets. So basically non-speculative crypto use remains trivial. And that’s after many years of trying to market this stuff. But the political effectiveness has been huge, and it has intimidated a lot of politicians. Back in February, Chuck Schumer warned his colleagues not to do too much to offend Fairshake, the big crypto lobbying group. Crypto has also, in addition to campaign contributions, done a lot of what in the old days, we would call bribery. There’s a lot of money that flows from the crypto industry to politicians and their relatives, and not just Trump. I don’t really want to ask too much about why there’s a lot of money going into a firm founded by Senator Gillibrand’s son. So there’s a big financial issue. Now, the Clarity Act posed as “we’re going to establish a sound regulatory framework, especially for stablecoins” — cryptocurrencies that supposedly have a guaranteed value in dollars. Why exactly did Democrats turn on it? I mean, on the merits, they were right to be against this because whatever one may say, the purpose of the Clarity Act was to kind of legitimize cryptocurrency in the economy and particularly to legitimize stablecoins, which are, once you cut through the jargon and all of that, essentially poorly regulated banks. It would essentially be posing new threats to the stability of the financial system and undermining banking regulation, which is something, of course, that the Trump administration and its allies are trying to do anyway, but this would have been another step in that direction. Presumably many of the Democrats who voted against this, and there were some Republicans as well, but presumably many of the senators who voted against this thing were genuinely concerned.But I also think that there’s some spillover. For analytical purposes, cryptocurrency and AI are quite different things, and they are actually playing a very different role in the economy. Companies are really investing in AI, rightly or wrongly, but they are really trying to put it to use. And cryptocurrency is being used only for, pretty much only for, criminal activities, including, by the way, Iranian efforts to bypass U.S. sanctions. But in the public mind, it’s all tech. It’s all fancy jargon. It’s all doing stuff we don’t quite understand. Sounds fancy. AI turned out to have an interesting political trajectory. It really is impressive. I mean, it really is
- Sep 12, 202647 min
Henry Farrell and Abe Newman on Weaponized Interdependence
. . .TRANSCRIPT: Paul Krugman in Conversation with Henry Farrell and Abraham Newman(recorded 9/10/26)Paul Krugman: So, it’s a world full of choke points. Weaponized interdependence is a term I think coined by Henry Farrell and Abe Newman. Certainly I learned it from them. And there’s a big conference—not including them for some reason—taking place at the European Central Bank a few days after we record this. And so I thought I would talk again with my two favorite international relations people (although now I’m thinking of some friends who will be upset by my saying that.) But anyway, hi guys.Both: It’s great to be here.Paul Krugman: There was a seminal 2019 paper by the two of you, and then a book called Underground Empire. Anybody want to tell me what you meant by that? And let’s talk about the history, and then this weirdly more weaponized moment than anyone expected that we’re living in.Henry Farrell: Maybe I’ll take a first stab at it.So really, where this came from was that we had finished a long book looking at fights between the United States and European Union over privacy. And as part of that, one of the things we had looked at was the SWIFT system, which is a system which you use when you’re making bank transfers. It’s a messaging system that makes sure that the money gets to the right place, and that everything gets reconciled properly at the end of the day.And so Abe pointed out after we had finished this, he said, “Well, nobody’s written anything about SWIFT, and there’s something interesting and important with geopolitics going on.” And I was working with a statistical physicist who does a lot of work on networks and network dynamics, and so he thought that we could come up with something on this.And so we began to write. And we began to figure out that there was something really going on, which I think had been going on in plain sight for a number of years, but which nobody had really been able to put their finger on in such a way that they could actually sort of crystallize what the phenomenon was. And this was what we called “weaponized interdependence.” And the idea behind it was very straightforward. You know, we’ve been living for decades in a highly interdependent global economy, and the ways in which both political economy people in international relations and, I think, most economists had thought about it was in terms of the enormous efficiency advantages that flow from this. Because, if you think about interdependence in terms of trade theory, even in terms of the simple benefits of specialization that Adam Smith talked about a couple of centuries ago, the more interdependence you’re able to use, the better you’re able to achieve various outcomes collectively.But we began to think about the ways in which this relied upon all of these really boring-seeming networks, such as SWIFT, and the ways in which these networks had increasingly and quietly become a target of international coercion, especially at that stage coming from the United States.So we argued that if you had two conditions—one, a network which had some degree of centralization, so that there were some kinds of choke points in the network; and secondly, you had some great power which had a means of putting pressure on the actors that were in charge of those choke points—that you would begin to get the conditions where a weaponized interdependence could begin to happen. That is, that that great power could begin to weaponize that choke point against others.And then our argument was that this could also set a longer dynamic in train, because our fundamental sense was that this was not an equilibrium. This was not something that was sticky and was static unless the weaponizing power was extremely careful, and that the more that a power like the United States sought to weaponize choke points against its adversaries—and here the U.S. used a dollar clearing system as a means of cutting Iran and other countries out of the global banking system; it began increasingly to use other forms of technology and also semiconductor supply chains after our work began—the more that we saw a power doing that, the more that other powers were likely either to look to defend themselves or to retaliate against us. And this, we think, is a world that has come into being.Krugman: So if you were looking at SWIFT, that’s an interesting case, among other thing
- Sep 8, 202611 min
Where’s the Beef (Coming From)?
Transcript“Mary had a little lamb, but when she saw it sicken, she sent it off to Packingtown, and now it’s labeled chicken.” Hi, Paul Krugman here. That’s a little ditty that was circulating, I can’t find any original source, around 1905, when Upton Sinclair published “The Jungle” — about the meatpacking industry, one of the sort of founding documents of the progressive movement. The topic today is Donald Trump and beef, because here we are back in Upton Sinclair territory. So you may have seen that last month Trump announced, given that we have high beef prices, that he was going to allow the tariff-free import of 300,000 tons of ground beef.Rather oddly, he didn’t say from where and wouldn’t say from where for a while. And then eventually said, well, from Argentina, Brazil, and other places.There has been a substantial uproar over these imports of ground beef because of concerns about safety. You know, if he won’t even say where it’s coming from or whether the countries involved are going to be practicing food safety, that is kind of an issue. And it turns out it’s not just, you know, not just woke liberal types but ranchers, lawmakers and food safety experts who were very concerned about the plan and were not reassured when Trump said the meat is “very clean and very good.”Okay, little by little details are coming out about how all of this happened. It turns out that the initial plan to allow the beef imports was announced the day after a closed door meeting between Trump and a Brazilian meat packing billionaire who is a major donor to Trump.And they went right ahead and announced the plan, although again without details. There doesn’t seem to have been much discussion of how this would work, of the concerns. After some initial blowback — even ranchers are concerned that people might become worried about the safety of U.S. beef — Trump announced that he was going to also allow farmers and ranchers to process their own beef rather than having to go through the regular meatpacking companies. But it turned out that the ranchers hate that too, because what they want is for people to believe that beef is safe. They want to be assured that there are quality standards being upheld.And now that we have at least some information about the origins of the beef, we are even less reassured. In fact, just the other day, the European Union banned beef imports from Brazil because Brazil was not adhering to EU standards on the use of antibiotics. So there are, in fact, real concerns here about safety.Okay, this is quite a story, and beef is not that trivial a product, but there’s a lot of secondary implications here. The first is that this is a very Trumpian story. It’s got this sort of characteristic combination of raw corruption and raw incompetence. Raw might not have been the best word to use here, but anyway. The corruption: Obviously, this was a decision made because somebody who has given Trump’s campaign and possibly Trump himself money had a meeting with him and got an immediate policy change. So this certainly looks like undue influence. We don’t know exactly how it happened because it was a closed-door meeting.Also, shouldn’t somebody have been in the room to or at least passed on this before it was announced to say, you know, is this a good idea? Shouldn’t there have been somebody from the Agriculture Department, somebody from the U.S. Trade Representative’s Office, but certainly someone from food safety to pass judgment or give some warning?In a normal administration, any kind of decision like this involves a process in which multiple agencies get a chance to weigh in and in which somebody who knows something gets to say, look, there are real problems with this idea. But obviously that didn’t happen here. And basically it doesn’t happen in this administration.This is an administration that does not like experts. Does not listen to expertise. That’s not just a result of particular personnel decisions that Trump made. That is just a defining characteristic. At a fundamental level, they’re just hostile to the idea of expertise in any domain, in pretty much every agency where there’s something to know, where there’s technical stuff that you need to know to make good decisions.The people who actually know things, or the people who are willing to speak up about what they know, have been silenced, purged. That’s across the board. Basically, it’s Hegseths all the way down in this administration.And so in this case, nobody was there apparently to say, this is really not a very good idea. And I think it’s really striking that even Trump thought, well, okay, I can fix this. At least I can mend fences with the ranchers by giving them more leeway to be unregulated themselves. But it turns out that the ranchers want regulation. They want customers to know that the beef that t
- Aug 31, 202613 min
From Kakistocracy to Cheatistocracy
TranscriptAt this point, it’s almost a commonplace to say that under DonaldTrump, America has become a kakistocracy, ruled by the worst. But I don’tthink it’s fully appreciated the extent to which we’ve also become a cheatistocracy, ruled by the most corrupt. Today’s commentary is a follow-upon yesterday’s primer, which was about the role of tax evasion both in leading to or contributing to our downward spiral into oligarchy and also as a surprisingly large factor in the budget deficit and therefore in America’s debt problem. Before I get to tax evasion, let me say something about where I’ve been going in my kind of intellectual journey into understanding oligarchy. As an economist, normally my instinct is to think about the invisible hand, to think about market forces, about technology as driving what happens to society. And even now there’s at least some extent to which the rise of kind of garden variety inequality, the rise of the top quintile at the expense of the middle, may be partially explained by the bias of technology towards higher formal skills, although that may be ending now with AI and all of that. But as I began to focus on oligarchy, on the very small number of people who have enormous wealth, enormous income, but the wealth is an even bigger factor — there are a really handful of people who have come to play such a large role.In our society, in our economy, and above all, of course, in our politics— I was forced more or less by the numbers to say this is not about the invisible hand. This is not about market forces. It isn’t even mostly about technology.Yeah, some technologies create winner-take-all markets that make people int he right place extremely wealthy. But the really big factor that’s driven us from the relatively equal society that we were 50 years ago — not obviously anywhere close to truly equal, but nothing like the dominance of a tiny elite that we have now — the really important factor is policy and above all tax policy. We basically stopped imposing progressive taxes that limited the growth of enormous fortunes. And sure enough, as the tax barriers to accumulation of excessive wealth went away, excessive wealth began to concentrate. This is, in many ways, the fundamental story. We got rid of, we ended the Gilded Age with its dominance by, as FDR said, the power of organized money, largely by taxing a lot of that organized money away. And we got back to something which in many ways is worse than the Gilded Age by taking away those taxes and allowing vast fortunes to snowball and buy themselves enormous political power, which allows them to snowball even further. One factor in all of that is the rise of simply not paying taxes that you’re supposed to pay. A lot of it is reductionist statutory tax rates. We tax corporate profits at a far lower rate than we did In the 1950s, we tax top incomes at a much, much lower rate than we did in the 1950s. But what’s also true is that we simply allow people to get away with not paying taxes to an enormous extent, to almost surely a much greater extent than used to be the case.The numbers are big, and in the primer I go through the tax gap. The money owed but not in fact collected is certainly north of $600 billion a year. It is something like 40% or more of the U.S. federal budget deficit. It is a major contributing factor to the accumulation of vast fortunes.What is striking is that far from really making an effort to rein in that tax gap, for the most part politically our system has moved to let it rip, has basically tried to make America safe for tax cheats. This is something that overwhelmingly benefits people with high incomes and large wealth because people with really big incomes, people who are extremely wealthy, for one thing, they just have much more complicated income. It’s much, much harder to track down and audit someone who has multiple businesses, some of which are dummy businesses, some of which may be real, but nonetheless are conduits through which money can move. And only the very wealthy can maintain offshore accounts that enable them to hide income and so on. So tax evasion is something that overwhelmingly benefits people with very high wealth and income. Not all! Not every billionaire is a tax cheat. There are levels and levels. There are some people who just feel that’s not something I want to do.People who feel that it would be wrong. Morality does exist. There are people who feel that their personal losses, should they be caught out cheating heavily on their taxes, would be large. So they care about their reputation.And then there are those who don’t.What’s astonishing is that we have, especially since 2010, especially since the hard right Republicans took control of the House of Representatives, we have moved to largely eviscerate any attempt to control that type of tax evasion. The number
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