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- [00:00]
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- [00:25]
Paul Krugman
Bloomberg Audio Studios Podcasts radio.
- [00:29]
Podcast Host
News With a big focus on the government shutdown and the economy, who better to talk to than Paul Krugman, Nobel Laureate, joins us right now here on the Close. And Professor Krugman, I do want to start off first with the shutdown. I mean, I was told heading into this shutdown, the shutdowns don't necessarily matter. They don't matter for the economy, they don't necessarily matter for the stock market. As somebody who spent, you know, quite a onerous time trying to get back home over this weekend on an airplane, I can assure you it does matter. Is there any way to sort of quantify what the potential impact is of a 41 day and counting government shutdown?
- [01:09]
Paul Krugman
It's really hard to pin down. We can talk about the impact on spending, we can talk about laid off federal employees and, and the, you know, the money they don't spend. But nobody has ever really tried to quantify, as far as I know, the effects of air traffic control delays. I mean, what we're learning is that actually we kind of need a functioning government to have a functioning economy. This wasn't long enough to really do a lot of damage, but it was enough to show us, you know, a six month shutdown would have been really, really bad. So it's significant is bigger than the standard macroeconomic analysis would suggest.
- [01:47]
Podcast Host
I am curious though about just kind of the state of the economy heading into this shutdown. The idea that even if we do strike a deal over the next couple of days, it could take a couple of weeks to get back to anything resembling normalcy. When you look at the state of the economy prior to the shutdown, how fragile, if at all, did you see it to be?
- [02:07]
Paul Krugman
Well, there's two things I would say. First, you know, the shutdown, at least the chosen issue involved health insurance, involved the enhanced benefits, which are turning into a, you know, which are going away on the Affordable Care act. And Democrats caved that. So 22 million Americans who have subsidized Obamacare insurance are about to see or in the process of seeing gigantic increases in their health insurance premiums, an average of 114% according to Kaiser Family Foundation. And that is happening. That's, that's happening despite the fact that the shutdown is over. So that's a pretty big factor. That's a pretty big hit certainly to the finances of a lot of families and probably some knock on effects on the economy as a whole. The other thing you see is that people are really, really down on the economy. I mean we were, we talked about a vibe session under Biden but the vibe session now I mean the economy ain't as great as Trump claims. Grocery prices are not in fact way down but people are really, really negative. We have the basically we have the worst consumer sentiment about current economic conditions basically ever. Worse than, not just worse than you know, 2010, 2022 when we had 9% inflation, but worse than the aftermath of the financial crisis, worse than the stagflation of 1980. People are really, really down on this economy. And I have to say I don't think that the way this drama has been playing out is going to change that. If anything, the we're likely to see. You know, I was just hearing the tail end of your what you're saying ordinary people, people who are not in on the stock market are, are hurting and feeling extremely stressed.
- [03:58]
Co-host/Interviewer
Well Paul, it's interesting that you know, coming out of this shutdown one of the consequences is that we're going to get economic data figures to actually put some numbers to this economy's performance. But you think about some of the reports that have been delayed, at least two employment reports, cpi, PC as well. It's unlikely that the BLS has been able to collect and actually process the data for some of these reports. And with that in mind, I wonder, you know, what kind of quality we can expect in terms of trying to put some context around these vibes.
- [04:30]
Paul Krugman
Yeah, we're going to have a ghost month, it appears on labor market data. There will simply be a month that we know, you know, anything could have happened in there. The BLS will never be able to catch up on that lost data. And we do worry a lot. I mean there's been a problem with declining response rates and understaffed BLS even before. So the data quality is going to be a real issue. And you know, we're all looking at the, the soft data, the private surveys, all of which, none of which says that the economy is falling off a cliff, but a lot of which is at least a little bit alarming. And I'm particularly struck, I've been looking at conference board on our jobs plentiful or are they hard to get? And that number has fallen off a cliff People feel really, really bad about job prospects right now in ways that the BLS numbers weren't showing before, but does suggest a kind of frozen labor market in which people, you know, if you're new to the light, if you're young, just getting in, or if you've been laid off, it's a really tough world out there. So this is going to be, I mean, you know, don't. It doesn't look, you know, it doesn't look like, like September 2008 with everything falling off a cliff, but it does kind of feel like this is starting to feel like a tough economy. And as I said, people, ordinary people, are extremely pessimistic about the state of affairs.
- [05:58]
Co-host/Interviewer
Well, Paul, we only have about a minute left with you, but to that point, we saw a social media post from the President this morning saying that all money left over from the $2,000 payments made to low and middle income USA citizens, from the massive tariff income pouring into the country will be substantial. The point being that we are discussing these one time payments, $2,000, these dividend checks, if you will. Do you think that that's a good idea?
- [06:26]
Paul Krugman
No, it's a terrible idea. I mean, we have an enormous budget deficit. The tariff revenue, which is, by the way, coming in substantially below what Trump administration officials said it was going to be. It's substantial, but it's not what they said would be. It just makes a small dent in the enormous deficit. The fundamental fact is that the US Is US Government is spending in ways that, you know, I'm a, I've been a long term dove in terms of concerns about federal debt. And I don't think we're facing a crisis anytime soon. But we are certainly running a, you know, given the absence of a national emergency, given the absence of a pandemic or a war, to be running deficits this large is just irresponsible. And the idea that, hey, we're going to take one source of revenue and used it to hand out money when we're meanwhile going ever deeper into federal debt, that's, that's deeply irresponsible.
- [07:14]
Co-host/Interviewer
All right, Paul, got to leave it there. Really great to get some time with you. That is Nobel Prize winning economist Paul Krugman, Distinguished professor of Economics at the University of New York, also the author of the Substack Krugman Wonks Out.
- [07:29]
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