Talking Feds — "The Costs of Chaos" (October 27, 2025)

Host: Harry Litman
Guests: Paul Krugman, Stephanie Ruhle, Justin Wolfers

Overview

This episode delves into the multifaceted costs of political and economic chaos under President Trump, particularly focusing on the impact of lawless attacks on U.S. institutions, the ongoing government shutdown, volatility driven by tariffs and trade policy, the boom (and worries) surrounding artificial intelligence, and the risks to long-term U.S. prosperity. Economic luminaries Paul Krugman, Stephanie Ruhle, and Justin Wolfers join Harry Litman for a comprehensive discussion on how the erosion of rule of law and institutional norms is already warping both the economy and the prospects for America's future.

Key Discussion Points & Insights

1. The Consequences of the Prolonged Government Shutdown

• Direct Economic Impact

  • Wolfers frames the macroeconomic impact as "probably pretty small," but immediately calls the shutdown "pointlessly destructive" ([04:18]).
  • Ruhle points out the real-world pain for federal workers and small businesses, especially in D.C., emphasizing "the harm disproportionately falls on some rather than others" ([05:52]).
  • Krugman on health care fallout: Without subsidies, ACA premiums are set to "double 114%" for many, especially in red states ([06:22]). He calls it "an enormous financial hit to a lot of people" and says Republican inaction is "cruel and...stupid."

• Political Theater & Nonchalance

  • The group agrees both parties are now openly fighting over ACA subsidies, but Republicans offer "a grand total of nothing" as a replacement ([08:12] Ruhle).
  • Krugman observes that Republicans’ indifference stems from ignorance, stating, "Name me 10 Republican members of Congress who actually understand how the Affordable Care Act works. I bet there aren't" ([09:07]).

• Notable Quote

  • Ruhle: "Even if the impact big picture is negligible, it's negligent. Show me any company...where leadership takes their notebooks and goes home for four weeks. That doesn’t happen." ([04:52])

2. Inflation & Data Amid Institutional Strain

• Static and Uncertain Signals
  • Inflation data is up, but Krugman calls interpreting monthly economic data "a real black art," highlighting that visible price hikes, not statistics, drive public anxiety ([10:44]).
  • Wolfers shifts focus to the import price index, revealing Americans "are paying" the tariffs—it's just a matter of how costs are absorbed ([11:50]).
  • Ruhle: "You cannot lie to [the public] about what their healthcare and grocery bills cost. It will burn you. People vote on what affects them, not what offends them." ([13:28])

3. The AI Boom and Persistent Pessimism

• Uneven Prosperity

  • Krugman compares the current AI-fueled stock bubble to the exuberant 1990s but notes today's economy is "a kind of frozen economy...not a good economy," with stagnant hiring and surging long-term unemployment ([15:28]).
  • Ruhle: "You do have those...mega tech companies that are not harmed by mass deportations and tariffs. They are doing extraordinarily well...However...they have direct access to this White House" ([16:49]).
  • The lack of AI regulation raises deep concerns: "The fact that AI is basically facing no regulation in this country should scare us to our core. But for most people that's too abstract...We're thinking about rent, gas prices and London broils." ([17:42] Ruhle)

• Favor Economy in the White House

  • Ruhle: Corporate leaders’ calculation is "I have to play the hand that I've been dealt...I’ve got access inside this White House" ([17:42]).
  • The panel agrees: Corporate contributions to Trump projects, especially the infamous ballroom, always come with strings attached ([18:56]).
  • Krugman: "They feel that they need to be embarrassingly slavish in their praise because you can be ruined." ([19:45])

4. Institutional Decay and Economic Foundations

• Rule of Law as Economic Bedrock

  • Litman and Ruhle recall how investment giants like Blackstone avoided Russia for lack of rule of law, "which is exactly where we're headed right now" ([24:44]).
  • Wolfers: "What is it that makes Argentina Argentina and America America?...Nothing else matters as much as the quality of American political and economic institutions." ([25:22])
    "You don’t see [institutional breakdown] in a quarterly number...What happens is my kids are going to be in an economy with 20% less opportunity...the cost of a populist leader." ([25:22])

• Short-termism vs. Long-term Prosperity

  • Ruhle: "We live...in the ultimate of short termism. Wisdom lies in long termism, and it's just not where we are, unfortunately." ([34:07])

• Immigration and Innovation

  • Wolfers: Immigrants are a cornerstone of U.S. economic dynamism, and restricting them is "a cataclysm" ([35:08]).
  • Litman notes almost half of U.S. Nobel laureates are foreign-born; Silicon Valley’s population is nearly majority foreign-born ([35:08]).

5. Tariffs: Unpredictable and Politicized

• Tariffs as Political Tools

  • Ruhle: "Every single day at that White House, business leaders are coming in the side door...We are quietly rolling back tariffs because the White House knows it's economically crippling" ([39:07]).
  • Yet, public rhetoric and new tariffs—some based on presidential grudges—have left industries "paralyzed" ([41:31]).

• Separation of Powers Abandoned

  • Wolfers: "Congress has the power to set tariffs. It's all over the moment Congressional Republicans remember that." ([41:49])
  • Ruhle: "Congress has the legal power...Congress doesn't have the guttural power to set tariffs because they're cowering..." ([42:05])

6. Authoritarianism and Its Economic Toll

• Institutions Eroded

  • Krugman: "We thought he would be protectionist. We didn’t think he was going to go have insane tariffs...We didn’t envision masked thugs grabbing people off the streets. Suddenly we are a very different country." ([27:59])
  • Ruhle: "The co-mingling of his private business, his family business and the government looks like it's going full throttle and not going to stop." ([43:54])

• Enduring Damage

  • Litman sees the task of restoring the rule of law as "the work of generations" ([44:56]).
  • Wolfers: "The mark of a good government is that the leader doesn't actually need to know the name of any player on the field...Trump misunderstands his role. He thinks he's the coach...It's a horrible way of running a football game or an economy." ([47:46])

Notable Quotes & Memorable Moments

• On the Negligence of Shutdowns
  Ruhle ([04:52]):
  "Show me anyone in the business world that if the two sides of a board, if management can't agree, they take their notebooks and go home for four weeks. That doesn't happen. And the fact that we elect our leaders to...work together and legislate, and they just can't do it is just disgraceful."

• On Obamacare Subsidies
  Krugman ([06:22]):
  "The best estimates are...the actual amount that people pay...will see their premiums on average double 114%. It's much more uneven than that. So...impossible financial burden...disproportionately...in red states. This is huge...It's cruel and it's also stupid."

• On the Illusion of Prosperity
  Krugman ([15:28]):
  "There's a feeling that great things were happening for everybody...We don’t have that feeling now...I'm writing about this and we are in a kind of a frozen economy. We're not having mass layoffs, but companies aren't hiring."

• On Institutional Decay
  Wolfers ([25:22]):
  "When you're talking about the value of institutions...Nothing matters more than that...the received wisdom is institutions, the critical factor...that's where all the stakes are...my kids are going to be in an economy with 20% less opportunity...the cost of a populist leader."

• On Favor Politics & Market Distortion
  Ruhle ([18:56]):
  "There's no corporation or private donor writing a check for $100 million cuz they feel like it. They're all getting something out of it."

• On the Danger of Leadership Style
  Wolfers ([47:46]):
  "The mark of a good manager, of a good coach is knowing the names of all the players. Trump misunderstands his role. He thinks he's the coach...It's a horrible way of running an economy."

Timestamps for Critical Segments

• Introduction & Overview: Economy under Trump – [00:36]
• Shutdown: Economic Effects & ACA Subsidies – [03:49] to [10:12]
• Inflation, Tariffs and Price Realities – [10:12] to [14:29]
• AI and the Frozen Economy – [15:28] to [18:56]
• Institutions, Favor Economy, and Rule of Law – [23:21] to [27:59]
• Immigration and Long-term Institutional Decay – [34:07] to [36:21]
• Tariffs as Uncertainty Engines – [38:34] to [43:54]
• Restoring Rule of Law and Prosperity – [44:56] to [47:57]

Summary

The panel paints a sobering picture of an America where once-stable institutions underpinning prosperity are under siege, with consequences that reach far beyond the daily headlines. From the "negligent" Congressional deadlock that caused the shutdown, to erratic trade policies that paralyze industries, to the elite’s short-term opportunism amidst broader economic stagnation, the conversation returns again and again to the centrality of the rule of law and open institutions in sustaining long-term national wealth and innovation.

Paul Krugman and Justin Wolfers draw on historical and international context to warn that America’s economic exceptionalism is fragile, not innate, and is already being eroded by "banana republic" policies. Stephanie Ruhle contends the business elite’s complicity—chasing access and advantage—exacerbates the damage.

Harry Litman closes by underscoring the Herculean task of restoring trust, norms, and function to U.S. institutions, with all agreeing that the true economic cost of chaos may not be immediately visible but will be felt for generations unless reversed.

Final Note:
For listeners and readers: The heart of this episode’s warning is that the foundations of prosperity—institutions, rule of law, predictability—are eroding. The bill for chaos, say the panelists, comes eventually. And the tab may be larger than anyone bargained for.