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Federal Reserve's Rate Cut Won't Do Harm, But Its Next Chair May Be Ruinous

Federal Reserve's Rate Cut Won't Do Harm, But Its Next Chair May Be Ruinous

Yesterday the Federal Reserve cut the federal funds rate — the interest rate on overnight loans between banks, which the Fed effectively controls — by a quarter point. There are four things you should know about that cut:

· Although Donald Trump has been screaming at the Fed, demanding big rate cuts, there isn’t actually a compelling case for cuts right now

· On the other hand, this cut is unlikely to do any harm

· In fact, Fed policy over the next few months barely matters

· The important questions now are political: Will Trump destroy the Fed’s independence, and do to monetary policy what he has done to health policy — put it in the hands of charlatans and cranks?

Why do I say that there isn’t a compelling case for a rate cut? The Fed has a “dual mandate”: It’s supposed to seek both price stability and full employment. To fulfil this mandate as best it can, the Fed normally cuts interest rates when the job market is weak, raises rates when inflation is running hot.

Right now, however, the job market and the inflation rate are giving conflicting signals. Unemployment is somewhat elevated — 4.4 percent compared with an average of four percent last year — and other indicators, like the time it takes workers to find jobs, are showing weakness. On the other hand, inflation is running at around three percent, above the Fed’s target of two percent. So you can make the case either for or against yesterday’s cut.

Indeed, the Fed’s official statement about the interest rate decision highlighted the ambiguity, noting the risks on both sides and justifying its move with a guarded reference to rising “downside risks to employment.”

For the wonkishly inclined: We can get more specific about the dual mandate by invoking the Taylor Rule, devised by the economist John Taylor in the 1990s, which offers a formula for setting the fed funds rate based on unemployment and inflation. Or actually I should say Taylor Rules, plural, since there are a number of variants. The Atlanta Fed offers a “Taylor rule utility,” which lets you pick among the variants or roll your own. But most versions say that the current level of rates is more or less right. Here’s what one comparison looks like:

Source: Version FOMCTaylor93UR

On the other hand, nobody thinks these estimates are precise, and as the Fed statement suggested, there are hints in the data that the labor market is weakening. So a 25 basis point cut is defensible too.

And none of this matters very much. Short-term interest rates, like the fed funds rate, have very little impact on the real economy.

And long-term rates, which matter a lot more than short-term rates, especially for housing, mostly reflect market expectations of Fed policy over the next few years, not the next few months. As a result, long-term rates and short-term rates can diverge. They can even move in opposite directions. The Fed began its current cycle of rate-cutting in September 2024. Since then the fed funds rate has come down significantly but the benchmark 10-year interest rate has gone up from a low of 3.6 percent to the current level of just under 4.2 percent:

Sources: Board of Governors of the Federal Reserve System, New York Federal Reserve, St. Louis Federal Reserve

What’s that about? Because the Fed tries to fulfil its dual mandate, it normally tries to set interest rates neither too high, which can lead to unnecessary unemployment, nor too low, which can lead to excessive inflation. If you ask me, the Fed should call its target the “Goldilocks rate.” Sadly, however, it’s usually referred to, unpoetically, as r* or r-star.

R-star can’t be observed directly, only estimated. And what has happened since last year is that many estimates of r-star have been marked up, for at least two reasons. First, the tax cuts in the One Big Beautiful Bill will lead to larger budget deficits — no, tariff revenues won’t make up the difference, even if the Supreme Court lets Trump’s clearly illegal tariffs stand. And these deficits will put upward pressure on long-term rates. Second, the AI boom has led to huge spending by tech companies, especially on data centers, which also puts upward pressure on long rates.

So if the Fed continues to operate normally – that is, without political interference -- movements in r-star will be the main driver of future interest rates. In particular, long rates will come down if AI is a bubble and that bubble bursts.

But will the Fed continue to operate normally? Or will monetary policy, like so much else in America these days, end up being ruled by Donald Trump’s whims?

I wrote last week about Kevin Hassett, Trump’s likely pick as the next Federal Reserve chairman, whom I described as an “ideological DEI hire” who is intellectually and morally unqualified for the job. It turns out that I’m not alone in that assessment, although I may be using unusually blunt language. CNBC regularly surveys financial experts for their views on Fed-related matters. According to their latest survey, featured in the chart below, almost all their experts believe that Hassett will get the job, but almost none of them think he should.

And even if Hassett doesn’t get the job, whoever does is almost certain to be totally subservient to Trump. And this will be a negative for the economy. First, if Trump succeeds in controlling monetary policy, he can exact a policy according to his whims, which are both incoherent and dangerous. He is demanding massive interest rate cuts even as he insists that the economy is A+++++ — in which case why does it need these cuts? Nor can we expect him to show proper concern about the inflationary consequences of big rate cuts given that he keeps claiming that overall prices are falling, which is simply false.

And second, even if Trump isn’t able to capture full control over monetary policy through his pick for Fed chair, the effects will still be negative. Because as I pointed out in my critique of Hassett, in times of crisis the Fed chair has to be capable of showing leadership and gravitas, as well as garnering trust. Given that the Fed’s future task has been made especially difficult by Trump’s chaotic policies, higher-than-desired inflation, a weakening job market, very high future deficits, and a falling dollar, installing a Trump sycophant as Fed chair would mean facing any future crisis without any of the reserves of credibility that got us through the global financial crisis in 2008 and the COVID crisis in 2020.

So however this turns out, politics is now what matters for the future of the Fed — not whether we have one or two rate cuts in 2026.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

Is Donald Trump Pro-Crypto Or Pro-Crime? (Is There Really A Difference?)

Is Donald Trump Pro-Crypto Or Pro-Crime? (Is There Really A Difference?)

On one side, the Trump administration is sinking small boats that it claims, without evidence, are smuggling drugs — and according to the Washington Post, Pete Hegseth, the self-styled Secretary of War, has personally ordered at least one follow-up strike to kill the survivors. A working group of former JAGs, that is, members of the military’s legal branch, issued a statement declaring that it

unanimously considers both the giving and the execution of these orders, if true, to constitute war crimes, murder, or both.

On the other side, Donald Trump has declared his intention to grant “a Full and Complete Pardon” to Juan Orlando Hernández, a former president of Honduras who has been convicted of conspiring to import cocaine into the United States. In fact, Hernandez was part of a cartel, including his brother, that smuggled hundreds of tons of cocaine into this country.

At first glance, the juxtaposition seems bizarre – Trump is either murdering or committing war crimes against people who are at worst small-time drug smugglers, and may be innocent fishermen, while pardoning a drug lord who was responsible for thousands of American deaths while savaging his own country, Honduras. But there is a pattern to this murderous madness, once one connects the dots between Trump’s mob-boss persona and the billionaire crypto/tech broligarchy.

First, understand that Trump’s vendetta against purported penny-ante drug smugglers is all about dominance display, an exhibition of his ability to order violence. The real object may be to set the stage for invadingVenezuela.

Second, while Trump is clearly willing to inflict gratuitous suffering on the little people, he positively revels in his association with big-time criminals, whether it’s Putin; or Saudi Crown Prince Mohammed bin Salman, who had a critical journalist dismembered with a bone saw; or Ross Ulbricht, creator of Silk Road, an underground e-marketplace known for drug trafficking, whom Trump pardoned immediately after assuming office; or Larry Hoover, a Chicago crime boss, who was sentenced to several lifetimes in prison for leading the Gangster Disciples, also pardoned by Trump. Yes, Trump really and truly cares about crime in Chicago.

Still, why would Trump, whose poll numbers are cratering, generate even more negative headlines by pardoning Hernández, who was duly convicted of conspiring to send more than 400 tons (!) of cocaine to America?

The answer is the influence of the crypto/tech broligarchy. In fact, many of Trump’s pardons of the most egregious criminals are closely linked to their influence.

A case in point is Ulbricht, whose Silk Road was an early example of what is still the main non-speculative use of Bitcoin: facilitating criminal activity. Ross Ulbricht was a darling of the tech-libertarian crowd, which includes Peter Thiel, arguably the godfather of Silicon Valley and whose financial backing was critical to JD Vance’s senate win. Trump first promised to pardon Ulbricht in 2024, as part of a pitch to win the votes of libertarians:

Whatever libertarians were in the past, they are now an extremist party, opposed to laws against drug smuggling, money laundering, any type of prudential government regulation, and – in the case of Thiel – opposed to democracy itself. It should not go unnoticed that Trump saluted a party that proclaims “Become Ungovernable” as its guiding principle, written with the anarchy a-symbol.

Next, Trump’s pardon of Changpeng Zhao, aka CZ, the former CEO of the cryptocurrency exchange Binance, fits the same pattern. CZ pled guilty to charges of violating U.S. laws against money-laundering and was fined $50 million, in addition to a fine of $4.3 billion against Binance. Under CZ, Binance was a major channel of worldwide money laundering. As one report put it, prosecutors charged that Binance

intentionally and purposefully ignored the transfer of money from countries and areas that are subject to sanctions -- including Syria, Iran, Cuba, Russia-occupied Crimea and the Donbas region in Ukraine. There was also trading that involved the criminal dark-web market Hydra.

And the story continues. Last week,

The families of 300 U.S. citizens hurt or killed in the Oct. 7 attack on Israel sued Binance, claiming the cryptocurrency exchange aided Hamas and other terrorist groups by transferring more than $1 billion among accounts they controlled.

However, in the world of radical libertarians, of the crypto/tech broligarchy, CZ’s crimes weren’t real crimes because crypto is designed to “free” us from the pernicious oversight of government. Yes, Trump really cares about stopping terrorism.

Finally, why pardon Hernández? What’s the connection to the crypto/tech broligarchy? It’s called Próspera.

Próspera is a for-profit city being built off Honduras’s coast. Its charter largely exempts the island from Honduran law. Instead, the city is run by a governing structure that for the most part gives control to a corporation, Honduras Próspera Inc., which is in turn funded by a familiar list of Silicon Valley billionaires including Thiel, Sam Altman and Marc Andreesen.

So while the city is being marketed as a libertarian paradise, it’s best seen as an autonomous oligarchy, government of, by and for billionaires. And you won’t be surprised to learn that within Próspera, Bitcoin is legal tender.

The 2013 Honduran law that made the creation of Próspera possible was initially ruled unconstitutional by the Honduran Supreme Court. But that ruling was reversed after Juan Orlando Hernández’s predecessor, Porfirio Lobo Sosa, managed to dismiss four of the court’s justices. Like Hernández, Sosa was a right-winger, who became president after a populist president, Manuel Zelaya, was overthrown by a military coup. Under both Hernández and Sosa, chaos reigned – corruption, criminal gangs, and drugs overran the country. The current president, Zelaya’s wife, has tried to claw back some sovereignty over Próspera, which has struck back with a mammoth lawsuit that could bankrupt the country.

Yesterday Honduras held an election in which Trump backed Nasry Asfura, a member of the same right-wing party as Hernández. Early results show the governing left-wing party well behind, but Asfura in a virtual tie with another right-wing candidate.

In any case, the point is that while Trump threatens and fulminates against Maduro in Venezuela, he is openly backing the Honduran political party that has allowed massive drug smuggling into the U.S. Why? The only logical answer is because of the influence of the crypto/tech broligarchy and their interests in Próspera.

So the announced pardon of Hernández for drug smuggling isn’t really a departure from the pardons of Binance’s Changpeng Zhao for money laundering or Silk Road’s Ross Ulbricht for facilitating illicit drug sales. In each case what’s being upheld is the principle that lawlessness in the pursuit of tech billionaires’ interests is no vice. In fact, it’s to be encouraged.

And Trump, whose only principles appear to be self-enrichment and vindictiveness, is happy to go along.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.


Warning: Here's Why The Fed Can't Rescue Markets From AI Bubble

Warning: Here's Why The Fed Can't Rescue Markets From AI Bubble

While everything feels political now – a kind of fin de siècle chaos politics – I want to take a brief break from the political today. Instead I want to talk about asset markets and the Fed.

We could say that the US economy in 2025 was schizoid. On the one hand Donald Trump abruptly reversed 90 years of U.S. trade policy, breaking all our international agreements, and pushed tariffs to levels not seen since the 1930s. Worse, the tariffs keep changing unpredictably. This uncertainty is clearly bad for business and is depressing the economy. On the other hand, there has simultaneously been a huge boom in AI-related investment, which is boosting the economy.

As many people have already noted, the AI boom bears an unmistakable resemblance to the tech boom of the late 1990s — a boom that turned out to be a huge bubble. The Nasdaq didn’t regain its 2000 peak until 2014.There’s intense debate about whether AI investment is similarly a bubble, which I would summarize as a shoving match: “Is not!” “Is too!” “Is not!” “Is too!”

While my personal guess is that AI is indeed in the midst of a bubble, I won’t devote today’s post to that debate. Instead, I want to talk about one recent aspect of market behavior that is very striking and carries strong echoes of the tech bubble a generation ago. Namely, AI-related stocks, like tech stocks back then, are reacting very strongly to perceptions about the Fed’s short-term interest rate policy.

Now as then, these strong reactions don’t make sense.

To see what I’m talking about, consider recent moves in stock prices closely related to AI. This chart shows movement over the last month of Bloomberg’s “Magnificent 7” stock index:

bloomberg magnificent 7 Source: Bloomberg News

During most of that month, these stocks were falling, as concerns that AI is a bubble increased. But on Monday the Mag7 index surged, erasing a large fraction of the losses. Why? Analyst chatter about supposed causes of stock market swings should always be taken with many grains of salt. But it’s clear that this surge was catalyzed by remarks by Fed officials which the market interpreted as making a cut in the Fed Funds rate next month more likely.

Some of us have seen this movie before. For those who haven’t, there is a pervasive view that the deflation of the 90s tech bubble was something that happened all at once — a Wile E. Coyote moment in which investors looked down, realized that there was nothing supporting those high valuations, and the market plunged. In reality, however, it was a long, drawn-out process, punctuated with some significant dead cat bounces along the way. Here’s the Nasdaq 100 over the relevant period (the gray bar represents the 2001 recession):

FRED NASDAQ 100 index Source: NASDAQ via FRED/St.Louis Federal Reserve (stlouisfed.org)

Measured against the awesome scale of the ultimate tech-stock decline, the temporary rallies along the way don’t look that big. But they were actually huge compared with normal stock movements. Let’s look at a closeup:


FRED NASDAQ 100 Index tech bubble Source: NASDAQ via FRED/St.Louis Federal Reserve

What drove these temporary bouts of optimism? At the time the conventional wisdom was that they were the result of Fed interest rate reductions and the prospect of further cuts. In fact, many observers used to argue that the stock market was underpinned by the “Greenspan put”: Don’t worry about a crash, Uncle Alan will ride to the rescue.

And after Monday’s stock price spurt, it’s clear that belief in a “Fed put” has made a modest comeback.

Indeed, the graph below shows the numerous rate cuts as the tech bubble burst:

But while these rate cuts did create brief bouts of, well, irrational exuberance, they did nothing to prevent the tech bubble from eventually deflating.

Why couldn’t Greenspan rescue tech stocks? To answer that question, think about why interest rates matter for asset prices: Lower interest rates reduce the rate at which investors discount expected future returns. A dollar delivered to you X years from now has a higher “present value” (that is, a higher current value) if interest rates are one percent than if they’re six percent. How much higher depends on X, the number of years until you receive it.

For example, a house can last for generations, and it delivers value to its owner in the form of a place to live over the years. That stream of housing consumption over the years is worth more – has a higher present value -- when the interest rate is one percent than when it is six percent. Or to put it another way, if you can make six percent on your money in a bank deposit, you may be better off renting rather than buying. That’s why the demand for houses is strongly affected by mortgage rates.

Interest rates matter much more for the value of assets that will still be yielding returns 10 or 20 years from now than they do for assets that will only yield returns for a few years.

That is, the value of assets that have a short economic life is much less affected by interest rates. Not surprisingly, economists have consistently had a hard time finding evidence for any effect of interest rates on business investment.

Moreover, investments in digital technology tend to have an especially short half-life, precisely because rapid technological progress quickly makes equipment and software obsolete. How valuable will data centers currently under construction be 5 years from now? Will they be worth anything 10 years from now? A realistic answer to these questions surely implies that the Fed’s interest policy should have little to no impact on Mag 7 valuations, or the sustainability of the tech boom.

As we saw on Monday, however, Fed policy and rumors about future Fed policy can sometimes affect AI-stock prices in the short run. But by the straight economics, these movements are more the result of market psychology than of any objective assessment of future returns.

So as doubts about AI creep in, I’m hearing growing chatter to the effect that the Fed can and should save the industry. But the lesson from the last big tech bubble is that it can’t. In fact, I have doubts about whether the Fed can head off a broader recession if the tech boom collapses — but that’s a topic for a future post.

For now, my point is that if you’re worried about an AI bubble, don’t expect Jerome Powell or his Trump-appointed successor — rumors are not encouraging — to come to the rescue. They can’t.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

Going Nowhere, Or Learning To Ignore The Plutocrats Who Cried 'Commie!'

Going Nowhere, Or Learning To Ignore The Plutocrats Who Cried 'Commie!'


The reaction of plutocrats to the Zohran Mamdani campaign — histrionic freakout before the mayoral election, with promises to flee New York City if he won, followed by a big “never mind” when he did — can teach us a couple of things.


First, ignore billionaires when they threaten to take their marbles and go home. The big money always responds to threats of tax hikes, or even mere verbal criticism, by threatening to go all Ayn Rand and move to Galt’s Gulch. In reality, they won’t even move to Florida.

You may recall that a couple of years ago there was a lot of talk about how the financial industry was going to flee blue-state taxes and wokeness and move to Miami. And to be fair, some companies did move. Notably, Ken Griffin, a hedge-fund billionaire and a big Trump backer, made a splash when he did indeed move the global headquarters of Citadel and Citadel Securities from Chicago to Miami.

But the second headline above comes from a CNBC report on remarks from top commercial real estate executives, who see Mamdani having little impact on booming demand for offices in New York. This includes plans by Griffin to rent substantial space in a new building at 350 Park Avenue. “Ken is committed and will have more employees at 350 Park than in Miami,” said one executive.

Why won’t plutocrats flee New York? For one thing, they’re not stupid (although they were hoping that voters were.) Mamdani might — might — be able to raise their taxes a bit. But they don’t really believe that free buses and city-run grocery stores will turn one of America’s safest cities into a post-apocalyptic landscape. And New York will retain formidable advantages thanks to agglomeration economies — the advantages of locating a business where many other related businesses are concentrated.

As Bloomberg put it,

For workers in finance and a range of other industries, no technology has so far replaced New York’s longstanding specialty, the face-to-face chat. In-person meetings remain essential for sniffing out who you can trust, what deals might be brewing and which rumors to believe. And from Wall Street to the United Nations, nowhere pulls together more gossip and more elite decision-makers.

This isn’t just a New York strength. There was a West Coast analog to the hype about Miami becoming the new Wall Street: For a while there was a lot of chatter about Silicon Valley fleeing California’s taxes and regulations by decamping to Austin. But the Austin boom has fizzled as companies that moved there found that not being located in a giant tech hub put them at a disadvantage compared with their competitors.

New York also happens to be a great place to live if you can afford housing — which the wealthy can. The central city has much higher effective population density than any other city in America, which in turn supports a range of amenities — restaurants, shops, museums, shows and concerts, and more — that you can’t find anywhere else. This doesn’t matter to the ultrawealthy who use their wealth to wall themselves off in a private universe. But for the merely very, very rich, there’s no place like it. Bloomberg again:

For all the angst about New York City these days, it’s remarkable how well things are going. Broadway houses are fuller than ever. The subways are getting busier and safer. The population is rising again, and the city’s economy seems to have held up well this year as Wall Street pay soars and tax revenue comes in strong.

Now, New York isn’t such a great place to live if you aren’t very affluent. Why? The problem isn’t crime, which is historically low. Nor is it the large number of immigrants, who clearly make the city better in many ways. No, it’s all about affordability, especially the cost of housing.

Mamdani won his remarkable victory largely by promising to address affordability. Whether he can do much to improve it remains to be seen: A New York mayor has very limited power, and the obstacles to doing what needs to be done, above all building a lot more housing, are formidable.

But one problem Mamdani won’t face is a mass exodus of the people who yelled “Commie!” before the election. When will we learn not to take plutocratic whining seriously?

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

Blocking SNAP, Republicans Let Kids Go Hungry To Protect Pedophiles

Blocking SNAP, Republicans Let Kids Go Hungry To Protect Pedophiles

There’s a bodega around the corner from my apartment where I often make small purchases, especially fruit, vegetables and bread. No, I’m not afraid to cross the street to buy bread.

While in in the check-out line, I often see some patrons, typically elderly and/or disabled, paying with EBT cards. EBT cards are the way the government delivers food aid under the Supplemental Nutritional Assistance Program, formerly known as food stamps. SNAP has become a crucial part of America’s social safety net, with more than 40 million Americans relying on those EBT cards to put food on the table.

And unless the government shutdown ends this week, which seems basically impossible, federal support for SNAP will be cut off this Saturday.

Here are four things you should know about the imminent hunger games.

This is a political decision — specifically, a Republican decision

Despite the government shutdown, the SNAP program isn’t out of money. In fact, it has $5 billion in contingency funds, intended as a reserve to be tapped in emergencies. And if the imminent cutoff of crucial food aid for 40 million people isn’t an emergency, what is? The Department of Agriculture, which runs the program, also has the ability to maintain funding for a while by shifting other funds around. But Donald Trump has — quite possibly illegally — told the department not to tap those funds.

Furthermore, the Republican majority in the Senate could maintain aid by waiving the filibuster on this issue. They have done this on other issues — for example, to roll back California’s electric vehicle standard. But for today’s Republican Party, blocking green energy is more important than keeping 40 million Americans from going hungry.

Furthermore, passing legislation to keep food aid flowing would require that Mike Johnson, the speaker, call the House back into session – something which he refuses to do. While we don’t know for sure the reason behind Johnson’s refusal, there is widespread speculation that it’s to avoid swearing in the newly elected Arizona congresswoman Adelina Grijalva, who would supply the crucial vote needed to force an overall vote on releasing the Epstein files. It sounds crazy to say that Republicans are making children go hungry to protect pedophiles, but it’s actually a reasonable interpretation of the situation.

The pain from lost food aid will, if anything, hurt Republican voters worse than Democrats

Republican strategy on the shutdown has rested on the premise that Democrats will eventually cave, based on several assumptions. First, G.O.P. strategists expected the public to blame Democrats for the impasse. Second, they thought that Democrats, who favor big government, would be anxious to resume federal spending. Lastly, I suspect that many Republicans simply assumed that SNAP beneficiaries are disproportionately Democrats.

So far, however, the shutdown impasse has developed not necessarily to the G.O.P.’s advantage. A plurality of Americans place more blame on Republicans than on Democrats. Moreover, given that Democrats have been more unified in their stance than the Republicans, it’s not at all obvious that Democrats will capitulate over the issue of reduced government spending.

What about the partisan affiliation of SNAP recipients? I’d be curious to see a survey of Republican legislators and activists on who they think the typical food aid recipient is. My bet is that they’re still under the influence of Ronald Reagan’s 1970s stereotypes, in which a “strapping young buck” buys T-bone steaks with food stamps. That is, MAGA probably views food stamps as a welfare program for urban nonwhites, including illegal immigrants.

Yet the evidence suggests that the program is most important to overwhelmingly white rural counties that strongly supported Trump. This is shown by the map below, in which darker colors correspond to greater SNAP use.

SNAP participation raes by county Source: FRAC analysis of 5-year American Community Survey (ACS) data, 2017-2021.

Consider, for example, Owsley County in Kentucky. The county is 96 percent white, and last year it cast 88 percent of its votes for Trump. Also, 37 percent of residents are on SNAP.

So by refusing to maintain food aid, Republicans are hurting many of their own supporters.

The fact that Trump-supporting communities rely heavily on federal food aid raises another, even larger question: Why does the GOP want to cut food assistance generally? Apart from refusing to fund SNAP during the government shutdown, Republicans want to drastically cut back on food stamps over the long term. Indeed, savage cuts to SNAP are a key feature of the One Big Beautiful Bill passed earlier this year – cuts that were scheduled to happen after the midterm elections, not a few days from now.

Despite what Republicans believe, SNAP recipients aren’t malingerers

Why are Republicans hostile to a program that benefits tens of millions of Americans? Pay attention to right-wing rhetoric about food stamps and you’ll hear again and again assertions that SNAP beneficiaries are lazy malingerers — the “bums on welfare” who should be forced to go out and get jobs.

But that myth is punctured by a quick look at who gets SNAP. The fact is, the great majority of SNAP recipients can’t work: 40 percent are children; 18 percent are elderly; 11 percent are disabled. Furthermore, a majority of recipients who are capable of working do work. They are the working poor: their jobs just don’t pay enough, or offer sufficiently stable employment, to make ends meet without aid.

So efforts to force food stamp recipients to get jobs via work requirements or simply by cutting funding are doomed to failure. While it may be possible to push a handful of food stamp recipients into the labor force, any positive economic effects from such a push will be swamped by the negative effects of denying adequate nutrition and financial resources to children during a crucial part of their lives.

Food stamps are an investment in the future

Young children need adequate nutrition and in general need to grow up in households with adequate resources if they are to grow into healthy, productive adults.

In saying this I’m not making a vague assertion in line with liberal pieties. We have overwhelming empirical, statistical evidence that SNAP, by improving the lives of young children, is an extraordinarily effective way of investing in the future.

Where does this evidence come from? A pilot version of the modern food stamp program began in 1961, when an unemployed coal miner and his wife used food stamps to buy a can of pork and beans. The program was rolled out in earnest in 1964, as part of Lyndon Johnson’s War on Poverty. But the program didn’t immediately go into effect nationwide. Instead, it was gradually rolled out geographically over the course of a decade.

This gradual rollout provided a series of “natural experiments.” Economists can and have compared the life trajectories of Americans who, as children, benefited from food stamps with those of children with similar class and demographic characteristics whose families didn’t receive food aid.

The results are stunning. Children whose families received SNAP benefits grew up to become healthier, more productive adults than children whose families didn’t receive benefits. Spending money to help families with children is an extremely high-return investment in the nation’s future.

In fact, the evidence for large economic benefits from food stamps is far stronger than the evidence for payoffs from investment in physical infrastructure like roads, bridges and the power grid, although I favor those investments too. And the evidence that helping families with children is good for economic growth is infinitely better than the evidence for the efficacy of tax cuts for the rich, a central plank of conservative dogma — because there is no evidence that tax cuts boost growth.

Which brings us back to the impending cutoff of SNAP. It’s gratuitous: Republicans could easily avoid this cutoff if they wanted to. It’s cruel: Millions of Americans will suffer severely from the loss of food aid. And it’s destructive: Depriving children, in particular, of aid will cast a shadow on America’s economy and society for decades to come.

So of course the cutoff is going to happen. At this late date it’s hard to see how it can be avoided.

Waking Up? Argentina Bailout Bares Trump's Contempt For Rural America

Waking Up? Argentina Bailout Bares Trump's Contempt For Rural America

Is rural America starting to fall out of love with Donald Trump?

Policy wonks like me have spent decades pointing out that if rural Americans voted based on their informed self-interest, they would be supporting Democrats, not Republicans. Republicans are constantly trying to eviscerate Democrat-supported programs that benefited rural states like Medicaid spending, SNAP (the supplementary nutrition program formerly known as food stamps), and school lunches. Trump is also cutting subsidies for green energy programs like solar farms and wind turbines – subsidies that disproportionately went to red states. Iowa gets 63 percent of its electricity from wind!

Moreover, these programs in effect subsidize rural areas with dollars earned in urban areas: because rural areas have lower incomes than urban areas, rural Americans pay relatively little of the taxes that finance these programs. So Democratic “big government” is highly beneficial to the heartland.

Yet economic self-interest has been swamped by “rural consciousness.” This consciousness rests on a belief that highly educated urban elites don’t understand or value rural culture and rural lives. And I will admit that this belief contains a grain of truth. Urban elites are unlikely to fully understand the attachment of rural Americans to a particular place and its time-worn rhythms of life. Ensconced in salaried jobs, urban dwellers are unfamiliar with the constant anxiety of being a farmer or a small business owner in the heartland.

Decades of being battered by the economic changes -- deindustrialization, farm consolidation and corporatization, depopulation, loss of community ties, along with the loss of jobs, particularly “male-coded” jobs – have left rural Americans feeling adrift, marginalized and resentful.

And this created an opening to be exploited by the right wing. Much like how Trump peddled fantasies of a manufacturing resurgence or the return of coal-mining jobs, MAGA leveraged the deep discontent within rural America to inculcate the belief that only Republicans, and Trump in particular, respect rural voters. But this is false: MAGA actually holds its most loyal voters in contempt.

And the reality of this contempt is starting to show through — not, at least so far, via the One Big Beautiful Bill’s savage cuts to health care, which will be especially devastating to rural areas, but via the Trump administration’s bizarre fixation on aiding President Javier Milei of Argentina.

The truth is that rural America is even more dependent than urban America on the programs now on the chopping block. The nonpartisan Economic Innovation Group has mapped out where in America people depend for a large share of their income on government transfers: the counties where a lot of income comes from government programs, indicated in yellow, are overwhelmingly in rural areas, while the places where such aid plays a relatively small role (light blue) mainly correspond to major metropolitan areas:

Why has rural America become increasingly dependent on government aid? The main answer is declining economic opportunity, which has led to an exodus of young people, leaving behind an older population that relies on Social Security and Medicare. Even younger rural residents have low incomes that make them eligible for mean-tested programs, above all Medicaid and food stamps.

There shouldn’t be any shame about the fact that rural America is subsidized by more affluent parts of the nation. That is, after all, what a national social safety net is supposed to do. But it should make rural voters oppose politicians who support Project 2025-type plans to rip up that safety net, which will deeply impoverish already poor regions and degrade life even for those not personally receiving aid — for example, by leading to the closure of many rural hospitals, making health care inaccessible even to those who still have health insurance.

Yet rural voters went overwhelmingly for Trump last year. Why?

Many clearly felt that educated urban elites don’t understand their lives and values — which is true. Most people in New York or Los Angeles don’t have a good sense of what life is like in rural America. But the reverse is also true: Many, perhaps most rural Americans imagine that the surprisingly safe and livable city where I’m writing this is a crime-ridden hellscape, that Chicago and Portland are “war zones,” and so on.

Rural voters may also have imagined that they would be protected from the harsh treatment being meted out to blue cities. After all, our political system gives rural voters disproportionate influence. Wyoming and the two Dakotas combined have roughly the same population as Brooklyn, yet they have six senators while Brooklyn has to share two senators with 16 million other New Yorkers.

For both reasons, rural voters either tuned out or refused to believe warnings that a Trump victory in 2024 would be catastrophic for the heartland, that crucial programs would be eviscerated and the agricultural economy would be devastated by Trump’s trade wars.

I thought that rural voters might finally start to realize that they have been taken for a ride when the cuts began kicking in. This will begin to happen next month, when the 22 million Americans, many of them in rural areas, who receive subsidies to help buy health insurance under the Affordable Care Act will see their premiums soar, on average by more than 100 percent. It will happen even more dramatically late next year (after the midterms), when the big cuts to Medicaid and food stamps kick in.

An aside: When I went to the relevant government page to look up food stamp data, I was confronted by this banner:

This is not how government for the people is supposed to work, and we shouldn’t lose our sense of outrage.

But back to a possible rural awakening: It may be starting ahead of schedule, thanks to, of all things, the Trump administration’s efforts to bail out Argentina’s Javier Milei.

The attempt by Trump and Scott Bessent, the Treasury secretary, to rush $20 billion to Argentina isn’t a big deal compared with the planned savage cuts to crucial programs. But it’s a graphic demonstration of the administration’s hypocrisy. After all the America First rhetoric, all the insistence that spending must be slashed, suddenly we’re sending lots of money to a foreign nation in which we have no real interest except for the fact that its president is a MAGA favorite. I don’t know how many voters are aware that these moves are in large part an attempt to bail out Bessent’s hedge-fund buddies, but I think the sense of something wrong and corrupt is leaking through.

Furthermore, from farmers’ point of view, Argentina is a rival — a big soybean exporter at a time when Trump’s trade war has locked our own farmers out of China’s market.

And as emphasized in a recent conversation between Greg Sargent and a rural Democratic activist, farmers have been shocked and outraged by Trump’s casual suggestion that he might start buying Argentine beef to sell in the U.S. market. That conveys the impression that Trump doesn’t care at all about his most loyal followers — an impression that is completely correct.

We shouldn’t expect rural America to suddenly do a 180 and abandon Trump. Sargent sends us to a lament from one rancher who calls the idea of buying Argentine beef an “absolute betrayal” — but begins by saying to Trump, “We love you and support you.” The sheer extent to which rural Americans have been hoodwinked will make it hard for them to admit their error.

But there are at least hints of a rural awakening. And for the sake of the nation urban and rural Americans share, it can’t come fast enough.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

How Criminals' Most Favored Currency Became A 'Trump Trade'

How Criminals' Most Favored Currency Became A 'Trump Trade'

By now it’s obvious that Donald Trump suffers from CBS — Cowardly Bully Syndrome.

On Friday, Trump blasted China’s new export controls on rare earths, declaring them a “moral disgrace” which were “obviously a plan devised by them years ago.” And he threatened to impose 100 percent tariffs on China, on top of the already high existing tariffs.

Less than a day later he was groveling:

A screenshot of a social media post AI-generated content may be incorrect.

So it only took a few hours to go from “a plan devised by them years ago” to they “just had a bad moment,” from “moral disgrace” to “highly respected President Xi.” The Chinese must be having a good laugh: They took Trump’s measure and he came out looking very, very small.

But what caused this quick, abject retreat? I’d like to believe that economic experts within the administration took a sober look at the situation and concluded that China would have the upper hand in a trade war. But there are no economic experts in this administration, and anyway, who would dare to tell Trump anything he doesn’t want to hear?

No, Trump was almost certainly reacting to the markets. Stocks fell sharply Friday, but the really striking action came in crypto, where Bitcoin fell 20 percent and smaller, less liquid tokens fell even more. Here, to take an arbitrary example, is what happened to the value of the official Trump coin:

A graph of a stock market AI-generated content may be incorrect.


Also, it just so happens that Trump himself holds an estimated $870 million worth of Bitcoin, so he suffered large personal financial losses from the crypto crash.

This was the largest one-day crash crypto has experienced so far. My question, however, is why the prospect of an intensified trade war caused a crypto crash.

Oddly, I’ve seen almost no reporting about this issue. There has been a lot about the way the crypto crash was magnified by forced sales: Many crypto investors are highly leveraged, and there were many forced liquidations — with widespread speculation that one or more “whales,” that is, major players, may have imploded. But why did a threatened trade war cause crypto to fall in the first place?

The answer, I believe, has little to do with economics and everything to do with politics. These days crypto derives its value largely from the support of politicians and government officials — in particular, officials who can be bribed. As a result, at this point crypto is largely a Trump trade. And crypto fell because the backlash against the potential trade war threatened to weaken Trump politically.

A brief history of crypto: When Bitcoin, the original crypto asset, was introduced, enthusiasts predicted that it would displace conventional fiat money, that is, currency issued by governments. The blockchain, they claimed, would make transactions using cryptocurrency easier and cheaper than transactions using dollars. And cryptocurrencies would be safe from the ravages of the printing press: governments couldn’t debase your money through inflation.

That was more than 15 years ago, and crypto has completely failed to deliver on those promises. Almost nobody uses cryptocurrency as a means of payment. A recent research paper from the Federal Reserve Bank of Kansas City notes that

The share of U.S. consumers who report using cryptocurrency for payments—purchases, money transfers, or both—has been very small and has declined slightly in recent years.

Here’s the chart. The blue line at the top shows the percentage of consumers using crypto for any kind of payment:

A graph of a graph of the rate of payment AI-generated content may be incorrect.


Yet the public holds roughly $4 trillion in crypto assets. Why? Largely as a pure speculative investment. In addition, however, crypto has found real-world use as a convenient tool for criminal activity and money-laundering. In fact, that Kansas City Fed paper noted that the most important reason people gave for paying in crypto was “person or business receiving the money preferred cryptocurrency.” It’s not a stretch to imagine that the reason for that preference was often the desire to hide the payment from the authorities.

As for the vision of a private currency insulated from government, at this point the biggest factor supporting the prices of Bitcoin and other cryptocurrencies has become the belief that Donald Trump — whose family has made billions from crypto sales, and whose party received hundreds of millions in crypto campaign contributions — will promote the industry. No pesky regulations that might limit the financial risks from stablecoins. No serious efforts to limit the use of crypto to facilitate criminal activity.

And Trump has declared his intention to create a “strategic crypto reserve.” True, this reserve will supposedly come out of crypto seized from criminals. But it would still support crypto by keeping those tokens off the market.

The prospect of high-level political support is why the prices of Bitcoin and other tokens surged when Trump won in November. As I said, at this point Bitcoin is basically a Trump trade, since it’s hard to imagine Democrats being remotely as favorable to the industry.

In the past I’ve described the case for Bitcoin as being a combination of technobabble and libertarian derp. My view about the technobabble hasn’t changed. But I will amend the case against crypto by adding that the crypto industry is one of the prime beneficiaries from a new regime of crony capitalism, in which an industry’s success depends on its ability and willingness to bribe the right people.

So why did Trump’s threat of all-out trade war with China cause crypto prices to plunge? Not because the economic damage from such a war would reduce the use of crypto, because crypto basically doesn’t have any legitimate uses. But an intensified trade war, especially a trade war America would almost surely lose, would drive Trump’s public support into an even deeper hole. And this would reduce the ability of history’s most corrupt administration to keep showering favors on the industry that made Trump rich.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

Ken Griffin Says Soaring Gold Is A Key Signal -- And He May Even Be Right

Ken Griffin Says Soaring Gold Is A Key Signal -- And He May Even Be Right

Here are two sentences I never expected to write:

1. Ken Griffin may be right.

2. The price of gold may be telling us something important.

Ken Griffin, for those who don’t know, is a hedge fund billionaire who was a big supporter of Donald Trump in the last election. That is, he was one of those ultra-rich Trump backers for whom being an insurrectionist-criminal convict-Epstein pal-scammer-serial bankrupt with clear autocratic tendencies didn’t matter. What mattered was “TAX CUTS!”, “DEREGULATION!”. But you often find that kind of self-serving myopia in wealthy and powerful men, who inhabit a gilded bubble that leaves them unable to see what is right in front of their faces.

A few weeks ago, however, Ken Griffin pronounced that he was shocked, shocked to discover that Trump isn’t a champion of free enterprise after all, and that he’s actually building a system of crony capitalism in which business success depends on your political connections. Well, I could have told Griffin that this was coming. In fact, I did.

Still, better late than never. Griffin deserves some credit for being willing to speak publicly about his current misgivings over Trump, rather than joining the nauseating chorus of praise for Dear Leader. So I found it interesting that he sees the soaring price of gold as an economic warning sign, an indication that Trump is causing the world to lose faith in America.

Here’s the price of gold over the past year. The price of gold is currently $4,037 per troy ounce, a record-setting price as it has skyrocketed in the past two months. It has risen over 54 percent since mid-November 2024:

Source: Macrotends Gold Price Last Ten Years

Normally I pay little attention to gold prices, but in this case I think Griffin has a point.

On gold: In general I’m with John Maynard Keynes, who called the fixation on gold a “barbarous relic.” You can’t use gold to make payments (other than the occasional bribe): Try buying a house with ingots. Some people seem to believe that gold will offer a refuge if society descends into chaos, but let’s be real: Do you really think gold bars would help you navigate a Fallout-type post-apocalyptic landscape?

Still, people continue to hold a lot of gold — around $27 trillion dollars’ worth. That’s more than 6 times the value of all crypto, despite the recent runup in Bitcoin etc. So in the words of Fallout’s Lucy MacLean, “okey dokey.”

So what drives gold’s price, and what do movements in that price tell us?

Some people believe that the price of gold reflects expectations of future inflation. There were many assertions to that effect in the early Obama years. Conservatives who insisted that Obama’s policies were inflationary pointed to the rising price of gold for support. Indeed, the real price of gold — the gold price divided by the overall level of consumer prices — rose significantly during Obama’s first few years in office:

Source: Macrotrends Gold Pirce 100 Year Historical Chart

These claims prompted me to write a wonky blog post — basically a short paper, but I hope fairly readable — arguing, in essence, that holding gold isn’t an alternative to holding currency. It is, instead, an alternative to holding bonds, which pay interest. And the driver of rising gold prices after the financial crisis was, I argued, a sharp fall in the real rate of interest — the interest rate minus expected inflation – due to the bursting of the housing bubble and the economy’s deep recession.

We can observe the real rate of interest directly, because the U.S. government issues TIPS, “Treasury inflation protected securities” — bonds whose future payouts are linked to the Consumer Price Index. The interest rate on TIPS basically is the real rate, while the spread between rates on TIPS and ordinary bonds measures market expectations of future inflation. And TIPS rates plunged after the global financial crisis, explaining the rise in gold prices even though inflation was low, not high:

A side issue that has been worrying me: TIPS are linked to the official Consumer Price Index. But the Bureau of Labor Statistics won’t be issuing new reports during the government shutdown, which means that it’s highly likely that the next CPI report, due Oct. 15, won’t come out on time if at all, and it’s anyone’s guess when we’ll get fresh data. How will Treasury handle that?

More broadly, if the Trump administration succeeds in politicizing the BLS, TIPS won’t be protected against inflation. They’ll only be protected against inflation the administration is willing to admit is happening. Have investors thought through the implications?

Back to my main theme. As Griffin says, gold prices have soared recently. Yet as you can see from my second chart, real interest rates are up, not down. What’s driving interest rates? Probably a combination of big budget deficits, made bigger by the One Big Beautiful Bill, and the AI boom, as well as the fear that Trump will politicize the Fed and stoke persistent inflation. But these higher real interest rates should drive gold prices down, not up.

So what’s happening? The most likely story, which seems consistent with what Griffin is saying, is that a growing number of investors — including, in particular, foreign central banks — are moving into gold because they no longer consider U.S. debt a safe asset.

Now it’s hard to pin down exactly what investors fear, perhaps because they aren’t sure themselves. But many previously inconceivable possibilities are now quite conceivable given the Trump administration’s radicalism. Runaway inflation hidden by rigged official statistics? Expropriation of the reserves of governments Trump doesn’t like? Forced conversion of foreign assets into 100-year bonds? Given the administration’s record so far, how confident are you that none of these things could possibly happen?

As I said at the top of this piece, I normally pay don’t pay much attention to gold, which doesn’t play an important role in the modern economy. But I believe that the recent runup in gold prices is telling us something — namely, that the world is losing faith in America.

And perhaps Ken Griffin’s warnings are also telling us that even ultra-rich hedge fund titans are starting to worry about the monster they helped create.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

What's Behind Trump's Doomed Effort To Revive The Coal Industry?

What's Behind Trump's Doomed Effort To Revive The Coal Industry?

I’ve just gotten back from the Netherlands, which is famous for its picturesque windmills. But wind power in Holland is more than a historical curiosity. There are also modern wind turbines almost everywhere you look, both onshore and off. And the ground is covered with dead birds and whales.

OK, not really. Wind power is, in fact, far cleaner and safer than burning fossil fuels. And I personally like the sight of wind turbines. After all, I value the comforts of modern civilization and find it reassuring to see the power needed to provide those comforts generated without harmful emissions.

But Donald Trump, as everyone knows, hates wind power and loves coal. Both passions are deeply irrational. Yet they are shaping policy.

Trump is doing his best to kill wind power, going so far as to order work halted on a mostly completed wind farm off the coast of Rhode Island. (Orsted, the Danish company behind the project, has sued and gotten the stop-work order lifted.)

And the administration is trying to revive coal, opening federal land for mining, removing pollution limits and providing hundreds of millions of dollars in subsidies. But why?Administration officials would have you believe that coal mining is an economically viable industry that has been sabotaged by liberals. On Monday Chris Wright, the energy secretary, declared — in a weirdly dated culture war cliché — that coal is “out of fashion with the chardonnay set in San Francisco, Boulder, Colorado, and New York City.”

The truth, however, is that coal is a dying industry for very good reasons, and anti-wokeism is unlikely to revive it.

Coal stopped being a significant source of jobs decades ago:

At this point there are only around 40,000 coal miners left. In case you’re wondering, vineyards and wineries employ around 130,000 people, three times as many as the coal industry.

Where did all the coal jobs go? The answers may surprise you.

As you can see in the chart above, there was an epic decline in coal employment between 1950 and the 2000s, from half a million miners to around 80,000. But this employment decline didn’t reflect an economy turning away from coal. In fact, use of coal to generate electricity rose steadily over the whole period, peaking in 2008:

So what happened to all the coal jobs? Basically, workers were displaced first by giant power shovels (strip mining), then by explosives used to blow the tops off mountains, exposing the coal beneath. By using these techniques, in 2008 coal companies were able to produce twice as much coal as they did in 1950, while employing 80 percent fewer workers.

Coal consumption finally did start declining after 2008. But if you look at the chart above, you can see that until recently coal was mainly replaced, not by renewable energy, but by natural gas — which became cheap and abundant thanks to the rise of fracking.

Solar and wind power have finally become important sources of energy in recent years. But the reason they have grown rapidly while coal has declined isn’t that the chardonnay set considers coal unfashionable. It’s the simple fact that coal is no longer cost-competitive, while wind and solar are.

Needless to say, Trump and company aren’t going to acknowledge these facts. They may not even be aware of them. In his speech at the U.N. General Assembly, Trump declared that the Chinese sell a lot of wind turbines to the rest of the world, “but they barely use them.” Ahem:

For the rest of us, however, the important thing to understand is that none of the ostensible justifications for promoting coal make sense. It’s not about saving jobs: Coal mining as a way of life vanished decades ago, not because chardonnay-sipping liberals sneered at it, but because corporations replaced miners with machines and explosives. It’s not about reducing energy prices: Trying to keep coal alive will make energy more expensive, not less.

What it’s really about is culture war. Trying to bring back coal is all about owning the libs. And if it damages the environment, well, from MAGA’s point of view that’s a plus.

Reprinted with permission from Substack.

Kimmel's Triumph: A Sign That The Tide Is Turning Against Autocracy?

Kimmel's Triumph: A Sign That The Tide Is Turning Against Autocracy?

It’s irrefutable now: Trump is nakedly following the playbook of autocrats like Vladimir Putin and Viktor Orban. As his poll numbers fall, he is rushing to lock in permanent power by punishing his opponents and intimidating everyone else into submission. Craven congressional Republicans and a complicit Supreme Court have abetted Trump’s destruction of our democratic safeguards and norms.

Yet Trump has a significant problem that neither Putin nor Orban faced. When Putin and Orban were consolidating their autocratics, they were genuinely popular. They were perceived by the public as effective and competent leaders. Just nine months into his presidency, Trump, by contrast, is deeply unpopular. He is increasingly seen as chaotic and inept. As David Frum says, this means that he is in a race against time. Can he consolidate power before he loses his aura of inevitability? Will those who run major institutions – particularly corporate CEOs – understand that we are at a crucial juncture, and that by accommodating Trump they have more to lose than by standing up to him?

To put it bluntly, is the Jimmy Kimmel affair the harbinger of a failed Trumpian putsch?

Before I address that question, I want to offer some historical comparisons that illustrate how poorly Trump is doing compared with his role models, Putin and Orban. I wrote about this a couple of weeks ago, but I think the point deserves further elaboration.

First, Russia. Putin appears to have been extremely popular in the early 2000s, as he was consolidating power. His net approval — approval minus disapproval — was consistently above 50 percent.

Why was Putin so popular? Kitchen table issues. The Russian economy performed very badly for years after the fall of Communism, culminating in a devastating financial crisis in 1998. But Putin got to preside over a rapid economic recovery: Real GDP per capita doubled between 1998 and 2008:


Viktor Orban has never been as popular as Putin at his peak. Nonetheless, for most of the 2010s, as he consolidated power, his net approval was strongly positive, often by 10 points or more. Again, the main explanation was probably his perceived economic success. Orban took power at a time when Hungary’s economy was deeply depressed by austerity policies, and was able to preside over a large decline in unemployment:

Trump’s net approval, by contrast, turned negative within weeks after taking office and has just continued to fall:

As G. Elliott Morris points out, his position looks even worse when you consider intensity. Almost half the public disapproves “strongly,” twice the share with strong approval.

Some of the public’s disdain for Trump reflects alarm over his assault on democracy, the spectacle of abductions by masked secret police, his attacks on education and public health, his destruction of key agencies like the FBI, and more. Yet, as always, economics plays a key role in Trump’s cratering popularity.

People have not forgotten that Trump made big promises during the campaign: He would end inflation on day one, reduce the price of groceries, and cut electricity prices in half. None of that is remotely happening. Moreover, more economic pain is coming as the full inflationary impact of tariffs and deportations will soon be felt. Not surprisingly, consumer sentiment has plunged. It’s almost as low as it was in the summer of 2022, when Covid-induced supply-chain inflation was at its peak:


It’s clear that if Trump were subject to normal political constraints, obliged to follow the rule of law and accept election results, he would already be a political lame duck. His future influence and those of his minions would be greatly reduced by his unpopularity. But at this juncture he is a quasi-autocrat. He is the leader of a party that accommodates his every whim, backed by a corrupt Supreme Court prepared to validate whatever he does, no matter how clearly it violates the law.

As a result, Trump has been able to use the vast power of the federal government to deliver punishments and rewards in a completely unprecedented way. He has arbitrarily cut off funding to universities, refused to spend Congressionally-mandated funds, threatened to take away broadcast licenses, fired officials who are supposed to have job security, pardoned J6 insurrectionists, defied the lower courts, retaliated against those who have tried to hold him accountable, and enriched his family. This has created a climate of intimidation, with many institutions preemptively capitulating to Trump’s demands as if he already had total power.

But the fact is that Trump has not yet locked in his autocracy. Timid institutions are failing to understand not only how unpopular Trump is, but also how severe a backlash they are likely to face for surrendering without a fight.

They should understand, because some major corporations have already seen the costs of surrendering to Trump. Notably, Target’s decision to appease Trump by ending its commitment to DEI led to a large decline in sales and a falling stock price amid a rising market, and eventually cost the CEO his job. Law firms who have capitulated to Trump have lost clients and partners to law firms that stood up to him. And need we talk about the popularity of Tesla cars and Cybertrucks?

Yet Disney was evidently completely unprepared for the backlash caused by its decision to take Jimmy Kimmel off the air, a backlash so costly that the company reversed course after just five days — too late to avoid probably irreparable damage to its brand. And this time I hope and believe that other institutions will take notice.

It’s important to understand that Trump’s push to destroy democracy depends largely on creating a self-fulfilling prophecy. Behind closed doors, business leaders bemoan the destruction that Trump is wreaking on the economy. But they capitulate to his demands because they expect him to consolidate autocratic power — which, given his unpopularity, he can only do if businesses and other institutions continue to capitulate.

If this smoke-and-mirrors juggernaut starts to falter, the perception of inevitability will collapse and Trump’s autocracy putsch may very well fall apart.

So how can we make a Trump implosion more likely? The public can help by doing what Target’s customers and Disney’s audience did — make it clear that they will stop paying money to institutions that lend aid and comfort to the authoritarian project.

Like a schoolyard bully, Trump understands that effective intimidation relies upon picking off his opponents one-by-one. So institutions (such as law firms) can help by cooperating to resist Trump’s demands rather than simply looking out for their own interests. They should understand that there is no reward for appeasing MAGA with performative displays of cowardice.

And last but not least, Democrats should begin making it loud and clear that if and when MAGA is dethroned, those who broke the law, those who corrupted our democracy out of deference to Trump will be held accountable. For example, corporate mergers that hurt consumers but enriched Trump’s toadies can and will be re-examined by future Democratic administrations.

It’s ironic, but thanks in part to a late-night comedian, it’s becoming clear that America is not yet lost.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

Treasury Chief Bessent's Sleazy Smear Of Federal Reserve

Treasury Chief Bessent's Sleazy Smear Of Federal Reserve

Donald Trump did learn something during his 1st term. He learned never to hire anyone who shows the least shred of integrity. You won’t find anyone like Gary Cohn or General Milley in Trump’s second administration. Now he knows to only hire people who are corrupt, bigoted, dishonest, or all three.

And Scott Bessent, the Treasury secretary, clearly satisfies Trump II’s requirements. His recent attacks on the Federal Reserve, part of Trump’s campaign to destroy the Fed’s independence, are vile, underhanded and sleazy. In a better world they would lead to his immediate removal as Treasury secretary.

But before I do a full dissection on Bessent, I want to talk for a minute about someone else: E.J. Antoni, the Heritage Foundation economist Trump plans to install as head of the Bureau of Labor Statistics.

You may recall that Trump fired Erika McEntarfer, the highly respected former BLS head, because he didn’t like the July jobs numbers, which he baselessly claimed were rigged. Since then the numbers have only gotten worse. When Trump chose Antoni as her successor, there were widespread and entirely valid complaints that Antoni was manifestly unqualified for the job.

Yet what we didn’t know was that Antoni has an interesting history on social media. Last week, building on reporting by Wired, CNN reported that

President Donald Trump’s nominee to lead the Bureau of Labor Statistics operated a since-deleted Twitter account that featured sexually degrading attacks on Kamala Harris, derogatory remarks about gay people, conspiracy theories, and crude insults aimed at critics of President Donald Trump.

What’s truly remarkable is that despite this report, betting markets give Antoni a roughly even chance of being confirmed.

Bessent, by contrast, was greeted with accolades when Trump announced his nomination as Treasury Secretary. Having been a somewhat successful money manager, and at one point having managed funds for George Soros, he was treated as the “adult in the room” who would be a safe steward of the financial markets and insulate them from Trump’s axe-swinging tactics. It helped that Bessent looked and performed with suave confidence in front of the cameras.

But now the mask has fallen as we can clearly see Bessent for what he is. Bessent’s recent smear campaign against the Fed shows that he is truly vile, like the rest of the Trump crew, despite the Wall Street polish.

Specifically, last week Bessent published an article titled “The Fed’s ‘Gain of Function’ Monetary Policy” in the Wall Street Journal. Here is how it begins:

As we saw during the Covid pandemic, lab-created experiments can wreak havoc when they escape their confines. Once released, they can’t easily be put back. The “extraordinary” monetary-policy tools unleashed after the 2008 financial crisis have similarly transformed the Federal Reserve’s policy regime, with unpredictable consequences.

The vileness is right there in the headline and the first sentence. It’s immaterial whether you believe that Covid was caused by a lab leak or by natural viral infection from animals. The point is that Bessent began his article by pandering to the conspiracy-theory right by taking a contentious proposition popular in those parts, presenting it as if it were established fact, and then — in a complete non sequitur — associating that theory with his criticism of the Federal Reserve.

Yes, the Fed took extraordinary measures after the financial crisis. It was, after all, responding to the worst economic slump since the Great Depression — a slump that persisted even after emergency policies had ended the initial period of financial free fall. In an attempt to boost the economy the Fed engaged in “quantitative easing” — buying large quantities of long-term U.S. government debt and debt backed by the U.S. government. This was a departure from its usual practice, in which it only buys short-term Treasuries. But it was clearly in pursuit of the Fed’s mission, which is to promote both price stability and full employment.

Bessent, however, would have you believe that the Fed’s attempt to do its job was a dangerous experiment inflicted on the country by power-mad officials, and which had dire consequences. And while some critics did predict dire consequences at the time, they were soon proved to be completely and embarrassingly wrong.

Why did the Fed engage in quantitative easing following the financial crisis?

The bursting of the housing bubble and the financial crisis in 2008 sent the U.S. economy into a deep slump followed by a sluggish recovery. Here’s one measure, the employed share of prime-working-age adults. The shaded area shows the official period of recession, but employment remained severely depressed even after the recession was formally over.

When the economy is depressed, the Fed normally cuts the Fed funds rate, the short-term rate that it controls, by buying short-term Treasuries and injecting liquidity into the banking system. And that’s what it did when America went into recession

But during this episode this strategy ran into limits, because there’s a “zero lower bound” on interest rates. That is, there is a limit to how far the Fed can reduce short-term rates because rates can’t go below zero: investors won’t buy Treasuries with negative yields and will instead just hold cash. The recession caused by the financial crisis was so deep that the Fed hit the zero lower bound in late 2008 and stayed there for years. The graph above shows that, from 2009 to 2016, the Fed funds rate was stuck at virtually zero.

Unfortunately, zero wasn’t low enough to restore anything close to full employment. So what were policymakers supposed to do, as the economy languished?

One answer would have been fiscal stimulus. But due to a combination of timidity and Republican opposition (along with cries about the size of the federal deficit!) the 2009 Obama stimulus was grossly inadequate — which I warned about at the time. Passage by Congress of another round of stimulus was clearly impossible. Given this reality, I guess the Fed could have thrown up its hands and simply accepted the prospect of years of mass unemployment.

Instead, however, it tried to do its job by expanding its toolbox, buying assets whose interest rates weren’t zero. Critics, overwhelmingly from the political right, harshly criticized the Fed. A widely circulated open letter to Ben Bernanke, the Fed chair, warned that asset purchases “risk currency debasement and inflation.” Among those signing the letter was Kevin Hassett, now Trump’s chief economist and possibly the next Fed chair.

But the inflation never came. Here’s the Fed’s preferred measure of underlying inflation since 2010

Inflation ran consistently below the Fed’s target rate of 2 percent until the post-Covid inflation spike, almost a dozen years after quantitative easing began.

So how does Bessent deal with the fact that the critics of quantitative easing were proved completely, decisively wrong? By pretending that the evils they wrongly predicted actually came to pass. Younger and less affluent households, he writes, were “hit hardest by inflation.” What inflation? Inflation didn’t spike until 2021-2022, and that was caused by Covid-induced supply bottlenecks. Bessent is clearly trying to rewrite history to smear the Fed.

There’s much, much more -- some of it positively Orwellian – in Bessent’s WSJ article. For example, Bessent claims that Fed policy “creates the perception that monetary policy is being used to accommodate fiscal needs,” which is pretty rich given that Bessent’s own boss has specifically demanded that the Fed cut rates to reduce the budget deficit.

Last but not least, Bessent claims that the Fed has jeopardized its credibility. Actually, as I’ve noted, the remarkable stability of long-run inflation expectations in the face of post-Covid turmoil shows that the Fed retains enormous credibility with the public.

Finally, this hit piece by Bessent shows why he is so valuable to Trump. In my opinion, unlike virtually all other Trump cabinet members, Bessent isn’t a fool. He’s highly intelligent and well-versed in his area of operation. He understands financial markets. Hence the fact that he willingly smears the Fed by invoking conspiracy-laden tropes and re-writing facts is a window into his character, showing that he isn’t, and never was, worthy of Americans’ trust.

Maybe we should be thankful that he is no longer in the running for Fed Chair.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Substack.

Reprinted with permission from Paul Krugman

We Are All Lisa Cook: Trump's Weaponized Government Endangers Everyone

We Are All Lisa Cook: Trump's Weaponized Government Endangers Everyone

Donald Trump is threatening to fire Lisa Cook, a member of the Federal Reserve’s Board of Governors, over allegations that she made false claims on mortgage applications before she went to the Fed.

I am not going to lead with a discussion of what Cook may or may not have done. That would be playing Trump’s game. Clearly, he’s just looking for a pretext to fire someone who isn’t a loyalist — and who happens, surprise, to be a black woman. If you write about politics and imagine that Trump cares about mortgage fraud — or for that matter believe anything Trump officials say about the affair without independent confirmation — you should find a different profession. Maybe you should go into agricultural field work, to help offset the labor shortages created by Trump’s deportations.

The real story here isn’t about Cook, or mortgages. It’s about the way the Trump administration is weaponizing government against political opponents, critics, or anyone it finds inconvenient.

You should think about the attack on Cook in the same context as mortgage fraud accusations made against California Senator Adam Schiff and New York Attorney General Letitia James. Or you should look at the attacks on Jerome Powell, the Federal Reserve chair, over the cost of renovations at the Fed’s headquarters. Or the still mysterious raid on the house of John Bolton, who at one time was Trump’s national security adviser.

The message here clearly isn’t “Don’t commit fraud,” which would be laughable coming from Donald Trump, of all people. Nor, despite what some commentators have said, is it all about revenge — although Trump is, indeed, a remarkably vindictive person. But mainly it’s about intimidation: “If you get in our way we will ruin your life.”

As with individuals, so with institutions. Universities are being threatened with loss of research grants unless they take orders from the White House. Law firms are being threatened with loss of access unless they do pro-bono work on behalf of the administration. Corporations are being threatened with punitive tariffs unless they support administration policies — and, in the case of Intel, hand over part ownership of the company.

This newsletter usually focuses on economics, and I could go on at length about the ways rule by intimidation will hurt the economy. There’s a whole economics literature devoted to the costs when an economy is dominated by “rent-seeking” — when business success depends on political connections rather than producing things people want. I’ve been writing a series of primers on stagflation. One of the way things could go very badly wrong would be politicization of the Federal Reserve, with monetary policy dictated by Trump’s whims, and it would be even worse if Fed policy is driven by officials’ fear of what will happen if they don’t follow Trump’s orders.

It's also important to realize that the Fed does more than set interest rates. It’s also an important regulator of the financial system, a job that will be deeply compromised if Fed governors can be bullied by personal threats.

But there’s much more at stake here than the economy. What we’re witnessing is the authoritarian playbook in action. Tyrannies don’t always get their way by establishing a secret police force that arrests people at will — although we’re getting that too. Much of their power comes not from overt violence but from their ability to threaten people’s careers and livelihoods, up to and including trumped-up accusations of criminal behavior.

Which brings me, finally, to the accusations against Lisa Cook. According to Bill Pulte, the ultra-MAGA director of the Federal Housing Finance Agency, Cook applied for mortgages on two properties, claiming both as her primary residence. This isn’t allowed, because banks offer more favorable mortgage terms on your primary residence than on investment properties.

Borrowers do sometimes commit deliberate fraud, claiming multiple properties as their primary residence when they always intended to rent them out. For example, Ken Paxton, Texas’s Attorney General, claimed three houses as his primary residence, renting out two of them, and has also rented out at least two properties that he listed as vacation homes. Somehow, however, Pulte hasn’t highlighted his case, let alone threatened him with a 30-year prison sentence.

The truth is that even when clear mortgage fraud has taken place, it almost always leads to an out-of-court settlement, with fees paid to the lender, rather than a criminal case. In 2024, only 38 people in America were sentenced for mortgage fraud. No, I’m not missing some zeroes.

So did Cook say something false on her mortgage applications? Pulte says so, but I’d wait for verification. Also, false statements on mortgage applications are only a crime if they’re made knowingly, which is a high bar. And nothing at all about this story is relevant to Cook’s role at the Federal Reserve. If the administration thinks it has enough evidence to bring charges, it should bring charges, not demand that she quit her job.

The important thing to understand is that we are all Lisa Cook. You may imagine that your legal and financial history is so blameless that there’s no way MAGA can come after you. If you believe that, you’re living in a fantasy world. Criticize them or get in their way, and you will become a target.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Substack.

AI Is Power-Hungry

The Limits Of AI: That Expensive And Power-Hungry Tech 'Miracle'

This is a post about AI, whose proponents are downright messianic in describing it as the technology of the future. Maybe. But much of their advocacy seems to ignore some mundane limits to AI’s growth — limits I’ll try to illustrate by talking about a technology of the past.

I was probably 9 or 10 when my father took me to a Horn & Hardart automat. For those too young to remember — who I hope are a large fraction of my readers — these were establishments in which a variety of sandwiches and other foods were displayed behind glass doors. You would serve yourself by putting coins into a slot, which would unlock the door and let you extract your egg salad sandwich or whatever.

At the time (and at my age) it seemed wonderfully futuristic: Food service without people! In reality, of course, automats weren’t automated; each required a substantial staff to operate the kitchen and keep refilling those glass-doored compartments. And because automats weren’t all they pretended to be, they were eventually driven out of business by the rise of fast food.

Many applications of information technology are, like the automats of yore, less miraculous than they seem. True, the user experience makes you feel as if you’ve transcended the material world. You click a button on Amazon’s web site and a day or two later the item you wanted magically appears on your porch. But behind that hands-free experience lie a million-strong workforce and a huge physical footprint of distribution centers and delivery vehicles.

And the disconnect between the trans-material feel of the consumer experience and the physical realities that deliver that experience is especially severe for the hot technology of the moment, AI. We’re constantly arguing about whether AI is a bubble, whether it can really live up to the hype. We don’t talk enough about AI’s massive use of physical resources, especially but not only electricity.

And we certainly don’t talk enough about (a) how U.S. electricity pricing effectively subsidizes AI and (b) the extent to which limitations on generating capacity may nonetheless severely limit the technology’s growth.

How much generating capacity are we talking about? The Department of Energy estimates that data centers already consumed 4.4 percent of U.S. electricity in 2023, and expects that to grow to as much as 12 percent by 2028:

AI isn’t the only source of rising electricity demand from data centers. There are other drivers including, alas, crypto — which still has no legitimate use case, but now has powerful political backing. But Goldman Sachs believes that AI will account for a large fraction of rising data center demand:

With Sam Altman of OpenAI promising to spend “trillions” on data centers in the near future — and sneering at economists who, he imagines, are wringing their hands — I wouldn’t be surprised to see demand come in at the high end of the Department of Energy’s projections. True, the AI bubble might burst before that happens, with potentially ugly consequences for the wider economy. But that’s a subject for another post.

So suppose that AI really does consume vast quantities of electricity over the next few years. Where are all those kilowatt-hours supposed to come from?

America is, of course, adding generating capacity as you read this, and can accelerate that expansion if it chooses to. But there are two big obstacles to any attempt to keep up with the demand from AI.

The first is that in recent years growth in U.S. generating capacity has become increasingly dependent on growth in renewable energy. According to S&P Global, almost 90 percent of the generating capacity added in the first 8 months of 2024 came from solar and wind:

Why is this a problem? Because Donald Trump and his minions have a deep, irrational hatred for renewable energy. Not only have they eliminated many of the green energy subsidies introduced by the Biden administration, they have been actively trying to block solar and wind projects.

So even as Trump promises to make America dominant in AI, he’s undermining a different cutting-edge technology — renewable energy — that is crucial to AI’s growth.

Suppose that electric utilities manage somehow to get around Trump’s anti-technology roadblocks and build the extra generating capacity. Who will pay for all that spending? The answer, given the way we regulate these utilities — and as natural monopolies, they must be regulated — is that the cost of adding capacity to power data centers is passed on to ordinary customers who have nothing to do with AI. This is already happening: Over the past 6 months retail electricity prices have risen at a 9 percent annual rate, four times as fast as overall consumer prices.

Last week the watchdog for PJM Interconnection LLC, the nation’s largest grid, declared that this must stop, that it “recommends that large data centers be required to bring their own generation.”

Indeed, requiring that the AI industry take responsibility for the costs it imposes makes a lot of sense. It would by no means end progress in AI. As the website Tech Policy notes, there are many AI applications in which smaller, more focused models can perform almost as well as the bloated, all-in-one models currently dominating the field, while consuming far less energy. Until now there has been no incentive to take energy consumption into account, but there’s every reason to believe that we could achieve huge efficiency gains at very low cost.

But will we do the sensible thing? It’s obvious that any attempt to make AI more energy-efficient would lead to howls from tech bros who believe that they embody humanity’s future — and these bros have bought themselves a lot of political power.

So I don’t know how this will play out. I do know that your future electricity bills depend on the answer.

Reprinted with permission from Substack.

Every Accusation Is A Confession: Trump's Paranoid Style Of Economics

Every Accusation Is A Confession: Trump's Paranoid Style Of Economics

In economist-speak, last Friday’s jobs report brought the “hard data” into line with the “soft data.” Before Friday, anecdotal evidence and independent surveys generally pointed to an economy facing major headwinds as a result of erratic policy, but official employment numbers still said that growth was solid.

On Friday, however, the Bureau of Labor Statistics reported weak job growth in July and, more important, revised down its estimates for May and June. The official numbers now show a slowing economy — not a recession, at least yet, but a marked slowdown. Here’s the three-month moving average of job growth:

Most economists found this report entirely credible. The BLS has a sterling reputation for careful, objective analysis, and as I said, Friday’s report brought the official estimates into line with other evidence. What about those revisions? As Jared Berstein explained in a Substack post yesterday, revisions are normal. Without getting too deep into the weeds, the BLS wants to be timely, so it issues preliminary reports based on incomplete data, then routinely revises them as more data come in. Revisions tend to be especially large around turning points; what we saw Friday is exactly what we’d expect if the economy is in fact experiencing a significant slowdown, which would show up more strongly in revised data than in the initial reports.

But Donald Trump screamed “conspiracy” and fired the head of the BLS, because of course he did:

I don’t want to spend much time debunking Trump’s claim that there was a conspiracy to make the job numbers look bad. Suffice it to say that rigging the job numbers would be a complicated process, requiring the cooperation of many people, and we’d almost surely have whistleblowers telling us that it was happening. In fact, we will know that it’s happening when, as seems highly likely, Trump’s people politicize the BLS.

And as I said, independent indicators also point to a job slowdown. For example, Automatic Data Processing, which does many companies’ payrolls, produces independent estimates of private employment. People I know who follow these things closely consider ADP’s numbers noisy and less reliable than BLS, but if BLS were rigging the numbers to hide the glories of the Trump economy, we’d expect to see that hidden Trump boom in the ADP estimates. We don’t:

So Trump’s claim that disappointing economic numbers are fake news disseminated by radical leftists is ugly nonsense. But it was also predictable. Claiming that economic data you don’t like is fraud perpetrated by a deep state conspiracy has been standard practice on the right for a long time, going back to the “inflation truthers” of the Obama years.

Here's the story: U.S. unemployment soared in the aftermath of the 2008 financial crisis. To mitigate the slump, the Obama administration enacted a fiscal stimulus program, while the Federal Reserve engaged in “quantitative easing” — roughly speaking, printing a lot of money.

Many on the right went wild, insisting that these moves would lead to runaway inflation, even hyperinflation. More or less Keynesian economists like me, however, dismissed these warnings. Our models said that in a depressed economy with high unemployment expansionary fiscal and monetary policy would not be inflationary — in fact, I warned that the Obama stimulus was much too small.

The Keynesians were right. Here, for example, is a comparison of the “monetary base” — bank reserves plus currency in circulation — with consumer prices in the aftermath of the financial crisis:

The big inflation Obama critics predicted just didn’t happen.

But rather than admit that they had been wrong and rethink their economic models, many on the right insisted that runaway inflation actually was happening, but that government statisticians were hiding the ugly truth. For a while many right-wingers were eagerly citing quack analysts — sort of the economics equivalent of anti-vaxxers or climate deniers — to support outlandish claims about inflation. And I’m talking about influential voices, not obscure fringe figures. For example, in 2010 the historian Niall Ferguson, whom many still consider an important public intellectual, insisted that the official numbers were wrong and “double-digit inflation is back.” As far as I know, he has never owned up to his mistake.

By the way, this isn’t a case of “everybody does it.” When inflation temporarily surged under Joe Biden, I’m not aware of any Democratic-leaning economist, inside or outside the administration, who denied the reality of the inflation numbers, let alone attributed them to a political conspiracy. The paranoid style in American economics is very much a right-wing thing.

And because on today’s right every accusation is a confession, I predicted even before Trump took office that his administration would do what he falsely accused Democrats of doing, and begin manipulating economic data.

However, even I didn’t expect Trump to react to the very first bad jobs number of his administration by summarily firing the commissioner of the Bureau of Labor Statistics. Nor did I expect Trump officials to be so blatant about their intention of politicizing the statistical agency.

But that’s what they’re doing. It took just hours for Trump’s chief economist to endorse his conspiracy theories and declare the administration’s intention to replace BLS staff with political loyalists. On CNBC Kevin Hassett, director of the National Economic Council, said that

All over the U.S. government, there have been people who have been resisting Trump everywhere they can

and declared that

To make sure that the data are as transparent and as reliable as possible, we’re going to get highly qualified people in there that have a fresh start and a fresh set of eyes on the problem

I assume that I’m not the only economist already looking for alternative data sources that we can use to figure out what’s happening behind the façade of the Potemkin economy Trump will surely try to create.

The thing is, Trump’s refusal to accept bad economic news and his likely attempt to corrupt official data probably won’t fool many people. But he is, of course, surrounded by people who will tell him what he wants to hear, so he may succeed in fooling himself. And this means that when the economy starts to have serious problems, Trump won’t even admit that bad things are happening, let alone make a serious effort to fix those problems.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscibing to his Substack, from which this post is reprinted with permission.


Fake Deal: How The European Union Made A (Fossil) Fool Of Trump

Fake Deal: How The European Union Made A (Fossil) Fool Of Trump

Like many U.S. institutions, the European Union has abysmally failed the Trump test. The EU is an economic superpower and could have retaliated effectively against Trump’s illegal tariffs — illegal under both U.S. and international law. Instead, Europe did nothing and even made some apparent concessions.

But notice my wording: apparent concessions. The optics of the Trump-EU deal were humiliating, and optics matter. If you examine the substance, however, it starts to look as if Europe played Trump for a fool. Specifically, a fossil fool.

The EU made two sort-of pledges to Trump. First, that it would invest $600 billion in the United States. Second, that it would buy $750 billion worth of U.S. energy, mainly oil and gas, over the next three years. The first promise was empty, while the second was nonsense.

About those investments: European governments aren’t like China, which can tell companies where to put their money. And the European Commission, which made the trade deal, isn’t even a government — it can negotiate tariffs but otherwise has little power. On Sunday Politico spoke with Commission officials, who effectively confirmed that the investment pledge was meaningless:

[S]peaking Monday, two senior European Commission officials clarified that money would come exclusively from private European companies, with public investment contributing nothing.
“It is not something that the EU as a public authority can guarantee. It is something which is based on the intentions of the private companies,” said one of the senior Commission officials. The Commission has not said it will introduce any incentives to ensure the private sector meets that $600 billion target, nor given a precise timeframe for the investment.

So what the EU actually promised on investment was nothing, Nichts, rien.

The pledge to increase U.S. energy exports was a lot more specific and gave a timeframe. But it’s not going to happen. In fact, it’s going to not happen on three levels.

First, the European Commission, which can’t tell the private sector where to invest, is equally unable to tell the private sector where to buy oil and gas. How would that even work?

Second, the promised level of EU imports is probably physically impossible. Shipping liquefied natural gas (LNG), in particular, requires specialized infrastructure at both ends. On the US side, LNG terminals are already operating at capacity, while Europe’s LNG facilities are “stretched to their limits.” The EU just promised to vastly increase energy imports from America over the next three years, but it’s doubtful whether Europe could build any of the infrastructure needed before the end of that period, even with a crash investment program.

And why would anyone undertake such an investment program in a continent that is rapidly shifting toward renewable energy? As one energy analyst told the Financial Times:

European gas demand is soft and energy prices are falling. In any case, it is private companies not states that contract for energy imports. Like it or not, in Europe the windmills are winning.

Emphasis added because as everyone knows, Trump has a blind, irrational hatred for wind power.

Finally, even if Europe somehow managed to overcome the legal and physical obstacles to buying a lot more fossil fuels from America, both oil and LNG are fungible commodities traded on global markets. This means that any increase in purchases from Europe would reroute U.S. exports rather than increasing them: We’d sell more to Europe but less to, say, Japan and China.

So a big increase in U.S. energy exports driven by demand from Europe is not going to happen. But how will Europe explain its failure to follow through?

It might not have to. Back during Trump’s first term, China promised to buy a lot of U.S. agricultural goods but never did. As far as I know, Trump never made an issue of it. He got to announce a big deal, then lost interest.

And if the issue does come up, if there’s one thing officials at the European Commission are really good at — maybe better than anyone else on earth — it’s bureaucratic delay and obfuscation. Maybe at some point big, strong European men with tears in their eyes will meet with Trump and say, “Sir, we have a temporary hangup over clause #14159 of the 1986 Single European Act. But we’ll get it cleared up any day now.”

Bottom line: Whatever Trump may think, Europe is not going to provide a big boost to U.S. fossil fuel production. He won’t like that, if anyone tells him. But the rest of us should be glad. As I’ve written before, renewables are clearly the energy technology of the future. Trump and his allies are Luddites, trying to stand in the way of progress and keep us burning fossil fuels. Their “burn, baby, burn” obsession is very bad for America and the world. But at least we can be reasonably sure that Europe won’t help, um, fuel that obsession.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times.

Reprinted with permission from Substack.