Prof G Markets: "The Economic Risks Keeping Paul Krugman Up at Night"

Date: December 5, 2025
Host: Ed Elson (& Claire Miller, co-host)
Guest: Paul Krugman, Nobel Prize-Winning Economist

Episode Overview

In this insightful episode, Ed Elson and co-host Claire Miller sit down with Paul Krugman—Pulitzer-winning columnist, economics professor, and renowned public intellectual—to dissect the biggest economic risks keeping him up at night. With 2025 being a whirlwind year marked by abrupt policy shifts, AI booms, persistent affordability crises, and ballooning deficits, Krugman offers a candid, sometimes sobering analysis of America’s economic health, the fragility of markets, evolving corruption in politics, and his hopes (and fears) for the future.

Key Discussion Points & Insights

2025: A "Weird" Economic Year

[09:49] Paul Krugman:

• Describes 2025 as “a weird year” due to the “extreme” simultaneity of major economic forces:
  • End of 90 years of US trade policy and new high tariffs.
  • Explosive growth in AI creating a new kind of economic boom—unlike any in recent history.
• "It's a very, very bizarre economy right now."

The Affordability Crisis & Measuring Poverty

[10:34–16:44]

• Affordability is complex: Nominal real incomes are up since the pandemic, but the reality is nuanced:
  • Housing (especially first homes) is far less affordable.
  • Interest costs have risen sharply.
  • New entrants face a “frozen job market”—difficult for job changers and young people.
  • Key middle-class markers (like home-buying) are slipping out of reach.
• Poverty Measurement:
  • Krugman dismisses an article suggesting a $140K poverty line as “kind of a stupid point” but agrees the metric is outdated.
  • “If you really want to think about poverty, there’s one question: Can people afford the essentials of living?... Poverty as a measure of social exclusion is really what you want, mostly.” [13:53]
  • Many federal programs rely on the poverty line for budgeting — arbitrary but necessary for policy.

Deficits, Debt, and Secular Stagnation

[18:06–22:58]

• America is spending $7T while taking in $5T, with no war or recession—“feels unsustainable”.
• Krugman reflects on:
  • The “secular stagnation” era—persistent weak demand that only deficit spending is countering.
  • The US’s ability to borrow due to “rule of law” status—but recent political shifts threaten this.
• “The character of American governance has changed so much in this past year that you have to wonder whether any assumptions based on the kind of country we used to be still apply.” [22:03]
• Herb Stein’s Law: “If something cannot go on forever, it will stop.” [21:40]

Market Fragility: Tech Concentration & the AI Bubble

[26:09–33:57]

• “40% of the S&P is represented by 10 companies”—a huge vulnerability.
• Heavy AI/data center capex is keeping GDP afloat. If one titan like Nvidia falters, “we're in what feels like a global recession, if not something worse.” [27:03]
• Krugman on the tech boom:
  • “This bubble, if it is a bubble, is an amazingly joyless bubble compared with the 90s.”
  • The fate of the market is in the hands of “like 10 guys.” If their moods shift, “they can take down the whole world economy.” [27:51]
• Speculation on a government-backed AI bailout:
  • Krugman doubts political feasibility—“People hate AI. They hate the companies, they hate the people. This is the most unpopular boom.” [30:54]

Artificial Propping and What Happens When the Music Stops

[31:17–33:57]

• Deficit spending and AI investment are “artificially inflating everything.”
• Krugman notes:
  • AI capex is 1–2% GDP—not enough for a 2008-scale crash, more like 2001’s tech bust.
  • Fallout may be ugly if sentiment turns, but “it's not the end of the world.”
  • “This does look crazy, but... we probably don’t want to go overboard in terms of the scale of what’s at stake.” [33:57]

Political Capture: Crony Capitalism, Corruption, and Influence

[34:26–43:29]

• The White House lacks coherent AI or economic policy; crony capitalism dominates.
  • “These dinners... are all basically big corporate types... trying to butter up the White House... This isn't really policy, it's crony capitalism.” [35:46]
• Notable Wall Street execs (like Jamie Dimon) are wary and less engaged; tech billionaires lead the courtship.
  • Krugman: “It is being led in large part by billionaires whose best days are behind them... they're looking for something big to bring back the glory days.” [38:38]
• On corruption:
  • “It really is on a different scale... Even the Gilded Age looks relatively clean by comparison.” [41:47]
  • The 2008 bailouts had “very little outright bribery”, but now it’s bags of cash, meme coins, “billions in personal rewards for the First Family—that’s something new in American history.” [43:29]

The Riskiest Risks & What Could Go Right

[43:54–46:57]

• Environmental issues top Krugman’s "sleep lost" list—not just deficits or AI:
  • “We've reached a moment when the technology actually makes it... easy and cheap to limit climate change, and the United States is just totally turning its back on this miraculous technology.” [44:20]
  • Warns China is capitalizing on green energy as the US lags.
• Positivity/Possibility:
  • AI could still produce a genuine productivity boost—just as the fiber optic revolution did, even if its companies went bankrupt.
  • “A persistent 150 basis point rise in rate of productivity growth... would make a lot of our economic problems just melt away.” [45:20]
• Biggest political risk: Authoritarian takeover of the US.
  • “If you’re not worried about that, you’re not paying attention.” [46:33]

Why Environmental Risks Are (and Should Be) Top of Mind

[45:44–49:11]

• Greenhouse gas emissions are cumulative; future damage is baked in.
• Krugman doesn't own Florida real estate: “We are very likely to see a whole lot of property damage and economic damage.”

Reflections on Media: Old vs. New

[49:35–53:23]

• Krugman appreciates the flexibility and speed of new platforms like Substack, but traditional outlets (NYT, Bloomberg) provide crucial “pound the pavement” reporting.
  • “There’s a lot more… freedom to say what you want to say... [and] do stuff I couldn’t do—charts, stats, getting wonky.” [50:13]
• Crisis for media: only a handful of organizations can make reader revenue/paywall models work; local news is collapsing.

Memorable Quotes & Timestamps

• On 2025’s Economic Oddity:
  “It’s a weird year... 90 years of US trade policy abruptly thrown into the waste bin and replaced with... high tariffs. And... this AI boom... It’s a very, very bizarre economy right now.”
  – Paul Krugman [09:49]

• On Affordability:
  “If you lose [your job] or you’re new to the labor market, it’s very hard to get a first job or a new job.”
  – Paul Krugman [10:59]

• On Poverty Metrics:
  “If you really want to think about poverty... are people really part of the broader society? Poverty as a measure of social exclusion is really what you want, mostly.”
  – Paul Krugman [13:53]

• On the Artificial Magic of Markets:
  “But for all of that spending on data centers we would probably be in a recession right now... If a handful of people have a mood swing they can take down the whole world economy.”
  – Paul Krugman [27:51]

• On Corruption:
  “It really is on a different scale... billions of dollars in personal rewards for the First Family, that’s something new in American history.”
  – Paul Krugman [41:47; 43:29]

• On the Biggest Risks:
  “We’ve reached a moment when the technology actually makes it surprisingly easy and cheap to do a lot to limit climate change. And the United States is just totally turning its back on this miraculous technology.”
  – Paul Krugman [44:20]

• On Authoritarian Threats:
  “My immediate concern... is: will America still be a democracy next year? ... If you’re not worried about that, you’re not paying attention.”
  – Paul Krugman [45:59; 46:33]

Segment Timestamps

• Krugman Interview Begins – [08:41]
• State of 2025 & Affordability – [09:49–12:38]
• Poverty Metrics Debate – [13:44–16:44]
• Deficit/Debt Discussion – [18:06–22:58]
• Market Fragility & AI Bubble – [26:09–33:57]
• Crony Capitalism & Corruption – [34:26–43:29]
• Greatest Risks (Environment, Authoritarianism) – [43:54–49:11]
• Media Reflections – [49:35–53:23]

Notable Moments

• Krugman humorously notes the “joyless” nature of today’s tech bubble vs. the exuberant 90s.
• Points to a disturbing “personal rewards for the First Family” trend as evidence of unprecedented corruption.
• On environmental issues: Krugman is more worried about the US turning away from climate solutions and the cumulative damage that’s already baked in.
• On media: Celebrates the new freedoms of Substack but warns of the existential threat to local news coverage and the sustainability of media as a whole.

Conclusion

Paul Krugman paints a picture of an American economy at a crossroads—where AI-driven booms prop up markets built on fragile ground, political capture reaches new heights, and mounting environmental risk is overshadowed by fears of democratic backsliding. This episode is essential listening (and reading) for anyone seeking a frank, unvarnished snapshot of America’s capital markets and its turbulent future.