Paul Krugman: Economics of Innovation, Automation, Safety Nets & UBI | Lex Fridman Podcast #67
the following is a conversation with Paul Krugman Nobel Prize winner in economics professor CUNY and columnist at the New York Times his academic work centers around International Economics economic geography liquidity traps and currency crises but he also is an outspoken writer and commentator on the intersection of modern-day politics and economics which places him in the middle of the tense divisive modern-day political discourse if you have clicked dislike on this video and started writing a comment of derision before listening to the conversation I humbly ask that you please unsubscribe from this channel and from this podcast not because you're conservative a libertarian the liberal or socialist and anarchist but because you're not open to new ideas at least in this case especially and it's most difficult from people with whom you'll largely disagree I do my best to stay away from politics of the day because political discourse is filled with a degree of emotion and self assured certainty that to me is not conducive to exploring questions that nobody knows the definitive right answer to the role of government the impact of automation the regulation of tech the medical system guns war trade foreign policy are not easy topics I have no clear answers despite the certainty of the so-called experts the pundits the trolls the media personalities and the conspiracy theorists please listen empathize and allow yourself to explore ideas with curiosity and without judgment and without derision I will speak with many more economists and political thinkers trying to stay away from the political battles of the day and instead look at the long arc of history and lessons it reveals in this I appreciate your patience and support this is the artificial intelligence podcast if you enjoy it subscribe bye YouTube give it five stars an apple podcast follow on Spotify supported on patreon or simply connect with me on Twitter and Lex Friedman spelled Fri D ma M I recently started 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that works behind the scenes to create the abstraction of fractional orders for the investor is an algorithmic marvel so big props to the cash app engineers for that I like it when tech teams solve complicated problems to provide in the end a simple effortless interface that abstract away all the details of the underlying algorithm and now here's my conversation with Paul Krugman what does a perfect world a utopia from an economics perspective look like Wow I don't really I don't believe in perfection I mean somebody once once said that his ideal was slightly imaginary Sweden it I mean I like an economy that has a a really high safety net for people a good environmental regulation and you know not something that's not that's kind of like some of the better run countries in the world but with fixing all of the the smaller things that are wrong with them what about wealth distribution well obviously you know total equality is is neither possible nor I think especially desirable but I think you want one where basically one where nobody is nobody's hurting and where everybody lives in the same material universe everybody is basically living in the same society so no I think it's a bad thing to have people who are so wealthy that they're really not in the same world as the rest of us what about competition you see the value of competition when what may be its limits Oh competition is great when it can work I mean that there's a UH uh you know I remember I'm old enough to remember when there was only one phone company and there was really limited choice and I think the arrival of multiple multiple phone carriers and all that has actually he has been up been a really good thing and that's that's true across many areas but not every industry is not every activity is suitable for competition so there are some things like health care where competition actually doesn't work and so it's it's it there's it's not one size fits all it's interesting what is competition now work in in health care oh there's a long list I mean there's a famous paper by Kenneth arrow for 1963 which still holds up very well where he kind of runs down the list of things you need for competition to work well basically both sides to every transaction being well-informed having a you know the ability to make intelligent decisions understanding what's going on and healthcare fails on every dimension you know you did health care so not health insurance health care well both health care and health insurance health insurance being part of it but no health insurance is is it is really the idea that there's effective competition between health insurers is wrong in health care I mean the idea that you can comparison shop for for major surgery is is just you know it it - when people say things like that you you wonder are you living in the same world I'm living in you know that the piece of well-informed that was always an interesting piece for me just observing as an outsider because so much beautiful such a beautiful world as possible and everybody's well informed a question for you is how hard is it to be well-informed about anything whether it's health care or any kind of purchasing decisions or just life in general in this world oh information you know in theory is hugely I mean there's more information at your fingertips than ever before in history the trouble is first of all that some of that information isn't true so it's really hard and and then some of it's just too hard to understand so if I'm if I'm buying a car I can actually probably do a pretty good job of looking up you know going to consumer reports reviews you can get a pretty good idea of what you're getting when you get a car if I'm going in for surgery first of all it's you know you think fairly often that happens when without your be able being able to plan it but also there's a reit you know medical school takes many many years and going on the internet for some advice is not usually a very good substitute so speaking about news and not being able to trust certain sources of information how much disagreement is there about I mention utopia perfection in the beginning but how much disagreement is there about what utopia looks like or as most of the disagreements simply about the path to get there oh I think there's two levels of disagreement one maybe not utopia but justice you know what is a just society and that's there are different views I mean I teach my students that there are you know too broadly speaking two views of justice one focuses on on outcomes you ask your it's a just society is the one you would choose if you were trying to what the one that you would choose to live in if you didn't know who you were going to be that's kind of John Rawls and the other focuses on process that just society is one in which there is no no coercion except we're absolutely necessary and there's no there's no objective way to choose between those I'm pretty much a Rawls in and I think many people are okay with it there's so there's a legitimate dispute about what what we mean by a just society anyway but then there's also a lot of disputes about what actually works there there's a range of legitimate dispute I mean any card-carrying economist will say that incentives matter but how much do they matter how much does a higher tax rate actually deter people from working how much does a a stronger safety net actually lead people to to to get lazy I I have a pretty strong view that the evidence is points to a conclusions that are considerably to the left of where most of our politicians are but but that there is legitimate room for disagreement on those things so you've mentioned outcomes what are some metrics you think about the keep in mind like the Gini coefficient but really anything that measures how good we're doing whatever we're trying to do well what are the metrics to keep an eye on well I'm actually I'm not a fan of the Gini coefficient not because what is the Gini coefficient okay the Gini coefficient is a measure of inequality and it is commonly used because it's a single number it usually tracks with other measures but the trouble is there's no sort of natural interpretation of it you ask me what you know what what does a society with the genie of 0.45 look like as opposed to society with a genie of 0.25 and well I can kind of tell you you know when the 0.25 is Denmark and 0.45 is Brazil but it's that's a really there's no sort of easy way to do that mapping I mean I I look at things like what is first of all things like what is the income of the the the median family what is the income of the top 1% how many people are in poverty by various measures of poverty and then I think we want to look at questions like how healthy are people how how is life expectancy doing and how satisfied are people with their lives because there is it's that they has sounds like a squishy number not so much happiness it turns out that life satisfaction is a better measure than the happiness but life satisfaction that varies quite a lot and I think it I think it's meaningful if not too rigorous to say look according to that kind of according to polling people in Denmark are pretty satisfied with their lives and people in the United States not so much so and of course Sweden wins every time no actually Denmark wins these ends Denmark and Norway tend to win these days Sweden doesn't do badly but they're there they're it's none of these are perfect but look I think by and large I there's a bit of a pornography test if you how do you know a decent Society well you kind of know it when you see it right where is America Stan and that we are have a remark our society I mean it's there are a lot of virtues to America but there's a level of harshness brutality an ability for somebody who just has bad luck to fall off the edge that is really shouldn't be happening in a country as rich as ours so we we we have somehow managed to produce a crueler society than almost any other wealthy country for no good reason what do you think is lacking in the safety net that the United States provides you said it's there's a harshness to it and what what are the benefits and maybe limits of a safety net in a country like ours well every other advanced country has some universal guarantee of adequate health care the only in the United States it's the only place where citizens can actually fail to get basic health care because they can't afford it that's that's that's we it's not hard to do everybody else does but we don't we've gotten a little bit better at it than we were but still that's that's a big deal we have remarkably weak support for for children we most countries have substantial safety you know parents of young children get much more support elsewhere they get often nothing in the US we have limited care for people long-term care for for the elderly is a very hiddenness thing but I think that the really big issues are that we don't take care of children who make the mistake of having the wrong parents and we don't take care of people who make the mistake of getting sick and those are those are things that a country a rich country should be doing sorry for a sort of a difficult question but what you just said kind of feels like the right thing to do in terms of just society but is it also good for the economic health of society to take care of to care the people who would the unfortunate members of society by and large it looks like the doing the right thing in terms of justice is also the right thing in terms of economics if we're talking about a society that has extremely high tax rates that deter you know remove all incentives to provide a safety net that is so generous that why bother working or striving that could be a problem but that's that I don't actually know any society that looks like that even even in European country with very generous safety nets people work and and can innovate and do all of these things and there's a lot of evidence now that lacking those basics is actually destructive that children who grow up without adequate health care without adequate nutrition are developmentally challenged they don't live up to their potential as adults so that the United States actually probably pays a price you know we're we're we're harsh we're cruel and we actually make ourselves poor everybody as a society not just the individuals by being so harsh and cruel okay so invisible hand Smith where does that fit in the power of just people acting selfishly and somehow everything taking care of itself to where you know the economy grows nobody there's no cruelty no injustice that the markets themselves what is is their power to that idea where what are its limits there's a lot of power to that I mean there there's a reason why I don't think sensible people want the government running steel mills or they want the government to own the farms right the the markets are a pretty effective way of getting incentives aligned of inducing people to do stuff that works and the invisible hand is saying that you know people farmers aren't growing crops because they want to feed people they're growing crops because they can make money but it actually turns out they're a pretty good way of getting of getting and agricultural products grown so the invisible hand is important part but it's not there's nothing mystical about it it's a it's a mechanism it's a way to organize economic activity which works well given a bunch of preconditions which means that it actually works well for agriculture it works well for manufacturing works well for many services it doesn't work well for healthcare it doesn't work well for education so there are yeah we having a society which is kind of 3/4 invisible hand and one-quarter visible hand seems to be something something on that order seems to be the balance that works best it's just don't want to you don't want to romanticize or missed it you know make it something mystical out of it it's just this is is one way to organize stuff that happens to have what broad but not universal application so then forgive me for romanticizing it but it does seem pretty magical that you you know that I kind of have an intuitive understanding of what happens when you have like 5 10 maybe even 100 people together the dynamics of that but the fact that these large society of people for the most part acting in a self-interested way and maybe electing representatives for themselves that it all kind of seems to work he's pretty magical the fact that there's uh you know that right now there's a wide assortment of fresh fruit and vegetables in the you know in in at the in the local markets up and down the street you know who's who's planning that and the answer is nobody that's the ol that's the invisible hand at work and that's great and and that's a lesson that's that Adam Smith figured out more than two hundred years ago and it's it continues to apply and the the but you know even Adam Smith has a section his book about why it's important to regulate banks so the invisible hand has its limits yeah and that example is actually a powerful one in terms of the supermarket and fruit that was my experience coming from Russia from the Soviet Union is when I first entered a supermarket and just seeing the assortment of fruit bananas yeah I don't think I've seen bananas before first of all but just the selection of fresh fruit was just mind-blowing and it it beyond words and the fact that like like you said I don't know what made that happen well then there is some magic to the market but the there's as showing my age but you know the old movie quote sometimes the magic works and sometimes it doesn't and you have to have some idea of when it doesn't so how do you get regulation right how do what can government at its best to government strangely enough in this country today seems to get a bad rap like everyone seems to everybody's against the government yeah well a lot of money has been spent on making people hate the government but the reality is government does some things pretty well I mean we government does health insurance pretty well so much so I mean given our anti-government bias there it really is true that there are people out there saying don't let the government get its hands on Medicare so the government that got people actually love the government health insurance program far more than they love private health insurance basic education it turns out that your local public high school is the right place to have students trained and private for certainly for-profit education is is a by and large a nightmare of ripoffs and and and grift and and people not getting what they they thought they were paying for its judgment case and it's funny there are things I mean everybody talks if there's the talks about the the DMV as being how do you want the economy and actually my experience is that the DMV have always been positive maybe I'm just going to the right DMVs but in fact a lot of government works pretty well so it you'd have to to some extent you can do these things on a priori grounds you can talk about the logic of why healthcare is not gonna be handled well by the market but partly is just experience we tried where these some countries have tried nationalizing their steel industries that didn't go well but we've tried privatizing education and that didn't go well so you'd find out what works what about this new world of tech how do you see what do you think works for tech is a more regulation or less regulation there are some things that need more regulation and we're finding out that you know the world of social media is is one in which competitive forces aren't working very well and trusting the companies to regulate themselves isn't working very well but I'm on the whole a tech skeptic not in the sense that I think the tech doesn't work and it doesn't do stuff but the idea that we're living through greater technological change than ever before is really an illusion we've ever since the beginning of the Industrial Revolution we've had a series of ethical shifts in the nature of work and in the kinds of jobs that are available and it's not at all clear that what we're at what's happening now is any bigger or faster or harder to cope with than past shocks it is a popular notion in today's sort of public discourse that automation is going to have a huge impact on job market now yeah there is something something transformational happening now he talked about that maybe elaborate a little bit more do you not see the software revolutions happening now with with machine learning availability of data that kind of automation being able to sort of process clean fine patterns and data and you know you don't see that disrupting any one sector to a point where there's a huge loss of jobs there may be some things I mean actually translators there's really reduced demand for translators because we've translation ain't perfect but it ain't bad there are some kinds of things that are changed but it's not overall productivity growth has actually been slowed in recent years now it's been much slower than in some past periods so the idea that automation is taking away all the jobs the counterpart would be that we would be able to you know produce stuff with many fewer workers than before and that's not happening there are a few isolated you know sectors there are some kinds of jobs that that are going with but that keeps on happening I mean they New York City used to have thousands and thousands of longshoremen taking stuff off off ships and tow putting them on ships they're almost all gone now now you have these the giant cranes taking containers on and off ships in Elizabeth New Jersey that's not robots it's doesn't doesn't sound high-tech but it actually pretty much destroyed that occupation well you know that was it wasn't fun for the longshoremen to say the least and but it it's not we coped we moved on and that that sort of thing happens all the time you mean farmers we we used to be a nation which was mostly farmers there are now very few farmers left the end the reason is not that we've stopped eating it's that farming has become so efficient that we don't need a lot of farmers and cope with that too so the the idea that there's something qualitatively different about what's happening now so far isn't true you see yeah your intuition is there is going to be a loss of jobs but it's just the thing that just continues though you know there's nothing qualitatively different about this moment some jobs will be lost others will be created as has always been the case so far maybe there's a singularity maybe there's a moment when when the machines get smarter than we are and sky tech kills us all or something right but the but that's not visible in anything we're seeing now you mentioned the metric of productivity could you explain that a little bit because it's a really interesting one I've heard you mentioned that before the in connection with with automation so what what is that metric and if there is something qualitatively different what should we see in that metric well okay productivity first of all production we do have a measure of the total the economy's total production real GDP which is it's not that it's a little bit of a construct because it's quite literally it's adding apples and oranges so we have to add together various things which we basically do by using market prices but we try to adjust for inflation but it's kind of it's a reasonable measure of how much the economy is producing and goods in sorry to interrupt is a goods and services and services it's everything okay productivity is you divide that total output by the number of hours worked so we're basically asking how much how much stuff does the average worker produce an hour of work and if you're seeing really rapid technological progress then you would expect to see productivity rising at a rapid clip which we did for in the generation after World War 2 productivity rose a 2% a year on a sustained basis then it dropped down for a while then there was a kind of a decade of fairly rapid growth from the mid 90s to the mid 2000s and then it's it dropped off again and it's not it's not impressive right now so you're just not seeing an ethical shift in in in the economy so let me then ask you about the psychology of blaming automation a few months ago you wrote in The New York Times quote the other day I found myself as I often do at a conference discussing lagging wages and soaring inequality there was a lot of interesting discussion but one thing that struck me was how many of the participants just assumed that robots are a big part of the problem that machines are taken away the good jobs or even jobs in general for the most part this wasn't even a presented as a hypothesis just as part of what everyone knows yeah so why is maybe can you psychoanalyze is our the puppet the public intellectuals or economists or us actually the general public yeah why this is happening why this assumption is just infiltrated public discourse there's a couple of things one is that the particular technologies that are advancing now are ones that are a lot more visible to the chattering class the you know if when you had a point when containerization did away with the jobs of longshoreman well not a whole lot of college professors are close friends with longshoremen right and so so we see this one then there is a second thing which is you know we just went through its severe financial crisis and a period of very high unemployment has finally come down the there's really no question that that high unemployment was about macroeconomics it was about a failure of demand but macroeconomics is really not intuitive I mean people just have a hard time wrapping their minds run it and among other things people have a hard time believing that something as trivial as well people just aren't spending enough can lead to the kind of mass misery that we saw in the 1930s or that not quite so severe but still serious misery that we saw after 2008 and there's always a tendency to say it must be something big it must be technological change that means we don't need workers anymore that was a lot of that in the 30s and that same thing happened after 2008 the assumption that it has to be something some deep cause not something as trivial as a failure of investor confidence and inadequate monetary and fiscal response and the last thing that wages did a lot of what's happened on wages is at some level political if the collapse of the union movement it's the it's policies that have squeezed workers bargaining power and for kind of obvious reasons there are a lot of influential people who don't want to hear that story they wanted to be an inevitable force of nature technology is made it impossible to have people earn middle-class wage and they so that they don't they don't like they they don't like the story that says actually no it's kind of the political decisions that we made that have caused this this income stagnation and so there are a receptive audience for technological determinism so what comes first in your view the economy or politics in terms of what has impact on the other oh they looked at it everything interacts she has some one of the rules of that I was taught in economics everything everything affects everything else in at least two ways but the the I mean clearly the economy drives a lot of political stuff but also clearly politics has a huge impact on on on the economy there we we look at the decline of unions in America and said well you know it's the world has changed and unions don't have a role but you know two-thirds of workers in Denmark are unionized and Denmark face has the same technology and faces the same global economy that we do is just a difference in political choices that leads to that difference so I actually teach a course here at CUNY on called economics of the welfare state which is about things like health care and retirement and to some extent wage policy and so on and the message I keep on trying to drive home is that look in all advanced countries they've got roughly equal competence we all have the same technology but we make very different choices not that America always makes the wrong choices we do some things pretty well our retirement system is is one of the better ones but but the point is that the there's a huge amount of political choice involved in the in the shape of the economy what is what is a welfare state well in welfare state is the old term that but it basically first all the programs that are there to mitigate if you like the the risks and in justices of the market economies so in the US welfare state is Social Security Medicare Medicaid minimum wages food stamps when you say welfare state my first sir feeling is a negative one well I know I like all I probably generally at least theoretically like all the welfare programs well that's it's been demonized and to some extent I'm being a little doing a little bit of thumbing my nose at all of that by just using the term welfare state although it's not I see ya there I got you but everybody every advanced country actually has a lot of of a welfare state than the US I mean we that's fundamental part of the fabric of our society the Social Security Medicare Medicaid are just things we take for granted as part of the scene and so if you you know that there there's a lot of there's people on the right wing who are say oh it's it's it's all socialism and well I guess mean what you want them to mean and we just just today I I told my class about the the record that Ronald Reagan made in 1961 warning that Medicare would destroy American freedom and but sort of didn't happen on the topic of welfare state what are your thoughts on universal basic income and a sort of a a gin not a generic but a universal safety net of this kind there's always a trade-off when we talk about social safety net programs there's always a trade-off between universality which is clean but means that you're giving a lot of money to people who don't necessarily need it and some kind of targeting which makes it easier to get to deal with the crucial problems with limited resources but but both has incentive problems and kind of political and I would say even psychological issues so the great thing about Social Security and Medicare is no questions asked you know no you don't have to prove that you need them i it's comes you know I didn't I'm on medic here I allegedly I mean it's it's run through my my my New York Times health insurance but you know I didn't have to file an application with the Medicare office to prove that I needed it just happened when I turned 65 there's that's good for dignity and it's also good for the political support because everybody gets Medicare on the other hand if you and and we can do that with health care to give everybody a guarantee of an income that's enough to live on comfortably but that's a lot of money what about enough income to carry you over to difficult periods like if you lose a job that kind of well we have unemployment insurance and I think our unemployment insurance is too short lived and too stingy it would be better to have a more comprehensive unemployment insurance benefit but the trouble with with something like universal basic income is that either the bar is set too low so it's really not something you can live on or it's an enormous ly expensive program and so at this point I think that we can do far better by building on the kinds of safety net programs we have I mean food stamps Earned Income Tax Credit we should have a lot more family support policies those things can deal with can do a lot more to really diminish the amount of misery in this country ubi is something that is being I mean it it goes kind of hand-in-hand with with this belief that the robots are going to take all of our jobs and if that was really happening then I might reconsider my views on UPI but I don't see that happening so are you happy with this course as going on now in terms of politics so you mentioned a few political candidates is is the kind of thing going on and on both on Twitter and debates in the media through the written words is a spoken word how do you assess the public discourse now in terms of politics we're in a fragmented world so more so more so than ever before so at this point the public discourse that you see if if you're if Fox News is your principal news source is is very different from the one you get if you read the New York Times on the whole my sense is that mainstream political reporting policy reporting is a not too great but be better than it's ever been because of what when I first got into the you know the pundit business it was just awful lots of things just never got covered and if things did get covered it was always both sides I mean it's the line that comes back from me writing during the 2000 campaign was that it if one of the candidates said that the earth was flat the the headline would de use differ on shape of planet I mean it's a and and it's that's less true there's still a fair bit of that out there but it's less true than there used to be and there are more people reporting writing on on policy issues who actually understand them than ever before so though that's good but I still I have how much the typical voter is actually informed unclear I mean they the the Democratic debates I think we I'm hoping that we finally get down to having a not having 27 people on the stage or whatever it is they have but but yeah they're reasonably substantive certainly better than before and while there's a lot of still you know theater criticism instead of actual analysis and the reporting it's it's not as totally dominant as in the past it can ask maybe a dumb question but from an open-minded perspective when you know people on the left and people on the right I think view the other the others as sometimes Complete Idiot's yeah it what do we do with that you know is it possible that the people on the right are correct about their what they currently believe is that kind of open-mindedness helpful or is this division long term productive for us to sort of have this food fight well the trouble you have to confront is that there's a lot of stuff that just is false out there and but commands extensive political allegiance so the idea well both sides need to listen to each other respectfully I'm happy to do that when there's a view that is worthy of respect but a lot of stuff is not and so take economics is something where I think I know something and I'm not sure that I'm always right in fact I know I've been wrong plenty of times but I think there is a difference between economic views that are within the realm of we can we can actually have an interesting discussion and those that are just crank doctrines or things that that are purely being disseminated because people are being paid to disseminate them so there are there are plenty of good serious center-right economists that are happy to to talk to none of those center-right economists has any role in the Trump administration the Trump administration and by a large Republicans in Congress only want to listen to people who are cranks and so I think it's being dishonest with my readers too to pretend otherwise there's no way I can reach out to people who think that that reading ain't ran novels is is is how you learned about monetary economics let me linger on that point so if you look at Iran okay so you said center-right what about extreme people who have like radical views you think they're not grounded in any kind of data in the kind of reality I'm just sort of curious about how open we should be to ideas that seem radical Oh radical ideas is fine but then you have to asked I have to ask is there some basis for the radicalism and if it's if it's a if it's something that is not grounded in anything then and particularly by the way if it's something that's been refuted by evidence again and again and people just keep saying if it's a zombie idea and there's a lot of those out there then there comes a point when it's not worth trying to fake respect for it I see so there's a through the scientific process you've shown that this idea does not hold water but I like the idea zombie ideas but they live on through it's like the idea that the earth is flat for example has been for the most part that's proven yeah but it lives on actually is growing in popularity currently yeah and there's a lot of that out there and there you can't you can't wish it away and it's you're not being fair to either yourself or if you're somebody who writes for the public you're not being fair to your readers to pretend otherwise so quantum mechanics is a strange theory but it's testable and so while being strangest widely accepted among physicists how robust and testable our economics theories if we compare them to quantum mechanics and physics and so on okay economics look it's a complex system and it's also one in which by and large you don't get to do experiments and so economics is never going to be like quantum mechanics that said you get natural experiments you get tests of rival doctrines you know in the immediate aftermath of the financial crisis there was one style one one basic theory of macroeconomics which ultimately goes back to John Maynard Keynes that made a few predictions it said under these circumstances printing money will not be inflationary running big budget deficits will not react cause a rise in interest rates slashing government spending austerity policies will lead to two depressions if tried other people who had you know exactly the opposite predictions and we got a fairly robust test and you know one one theory one interest rates stayed low inflation stayed low austerity countries that implanted harsh austerity policies suffered severe economic downturns you don't get much you know that's that's pretty clear and that's not going to be true on everything but there's a lot of empirical I mean the younger economists these days are very heavy heavily data base syndrome and it's and that's great and I'm I think that's that's the way to go what theories of economics there is there currently a lot of disagreement about would you say Oh first of all there's just a lot less disagreement really among serious researchers in economics than people imagine when we actually we contract that the Chicago Booth School has a panel an ideologically diverse panel and they  oppose the regularly posed questions and on most thing there there's a huge that there's remarkable consensus there's a lot of of things where there you people imagine that there's dispute but that the the illusion of dispute is something that's basically being fed by political forces and and there isn't really I mean there are I think we questions about what are effective ways to regulate technology industries we really don't know the answer is there there's a or what I don't follow every part minimum wages I think there's there's pretty overwhelming evidence that that a modest increase in the minimum wage from current levels would be would not have any noticeable adverse effect on jobs but if you asked how high could it go $12 seems pretty safe given what we know 15 is 15 okay there's some legitimate disagreement there I think probably but but I can people have a point 20 where where is the line at which it starts to become a problem and the answer is truly we don't know it's fascinating to try to such a cool economics is cool in that sense a you because you're trying to predict something that hasn't been done before the impact the effects of something that hasn't been done before yeah you're trying you're going out-of-sample and and we have good reason to believe that that there are no that it's nonlinear that there comes a point at which it doesn't work the way it has in the past so as an economist how do you see science and technological innovation when I took various economics courses in college technological innovations seem like a no-brainer way of growing an economy and we should invest in it aggressively yeah I may be biased but it seemed like the various ways to grow an economy it seems like the easiest way especially long term is that correct and if so why aren't we doing it more well that's okay the first question is yeah I mean all it's pretty much overwhelming we think we can more or less measure this although there are some assumptions involved but it's something like 70 to 80 percent of the growth in per capita income is is basically the advance of knowledge it's not just it's not just a crude accumulation of capital it is it is the fact that we can get smarter a lot of that by the way is more prosaic kinds of technology so you know we I like to talk about things like containerization or you know an earlier period the you know the invention of the flat a cardboard box I have to be invented and and now all of your deliveries from Amazon are made possible by the existence of that technology that the web stuff is important to but but what would we do without cardboard boxes so but all of that stuff is really important in driving economic progress why don't we invest more why don't we invest more in you again more prosaic stuff why aren't why haven't we built another goddamn real tunnel under the Hudson River which is for which the need is is so totally overwhelmingly obvious how do you think about first of all I don't even know what the word prosaic means but I inferred it but how do you think about prosaic is it the really most basic dumb technology innovation or is it just like the lowest hanging fruit of war benefiting me gained when I say prosaic I mean stuff that is not sexy and and fancy and high-tech it's building bridges and tunnels having inventing the cardboard box were the I don't know where do we put EZ Pass in there that's a it is it is actually using some the modern technology and all that but it it's you're not gonna have I don't think you're gonna make a movie about about the fact that the guy who ever wasn't that easy pass but but it's actually a pretty significant productivity booster to me it always seem like it's something that everybody should be able to agree on and just invest so like in the same way there's the investment in the military and the DoD is huge so everyone kind of not everyone but there's a there's a there's an agreement amongst people that somehow that a large defense is important it always seemed to me like that should be shifted towards if you want to grow prosperity of the nation you should be investing in knowledge yes prosaic stuff infrastructure investing infrastructure and so on I mean sorry to linger on it but do you have any intuition do you have a hope that that changes the idea of intuition why it's not changing it's uncommon in tradition I have a theory I'm reasonably certain that I understand why why we don't do it and it's it's because because we have a real values dispute about the welfare state about how much the government should do to help the unfortunate and politicians believe probably rightly that there's a kind of halo effect that surrounds any kind of government intervention that even though providing people with enhanced Social Security benefits is really very different from building a tunnel under the Hudson River politicians of both parties seem to believe that it's the government is seen to be successful at doing one kind of thing it will make people think more favorably on doing other kinds of things and so we have conservatives tend to be opposed to any kind of increase in government spending except military no matter how obviously a good idea it is because they fear that it's the thin end of the wedge for bigger government in general and to some extent liberals tend to favor spending on these things partly because they see it as a way of proving that government can do things well and therefore it can turn to broader social goals it's clearly can there's a if you like the what you might have thought would be a technocratic discussion about government investment both in research and in infrastructure is contaminated by the fact that government is government and people link it to other government actions perhaps silly question but as a species we're currently working on venturing out into space one day colonizing Mars so when we start a society on Mars from scratch what political and economic system should operate under oh I'm a big believer in first of all I don't think we're actually gonna do that but does let's uh let's imagine hypothesize that we colonize Mars or something look representative democracy is vs. pure democracy well yeah but pure democracy where people vote directly on everything his is really problematic because people don't have time to to to try and master every issue I mean we could see what government by referendum looks like there's a lot of that in in California and it's uh it doesn't work so good because it's hard to explain to people that the various things they vote for may conflict so representative democracy is it's got lots of problems and I kind of Winston Churchill thing right it's the worst system well you know except for all the others but so yes thinking with a representative and basically the American system of regulation and markets and the economy we have going on is a pretty pretty good one for Mars if you start from scratch if you didn't start from scratch you wouldn't you wouldn't want to send it where sixteen percent of the population has half the seats you probably would want one which is more actually more representative than what we have and the details it's unclear I mean the we when times are good all of the various representative democracy systems whether it's parliamentary democracies or a us-style system whether you have a prime minister or the head of state as an elected president they all kind of work well then they all when times are good and they all have different modes of breakdowns I'm not sure I know what the answer is but but something like that is given what we've seen through history it's the least bad system out there I mean I don't know I'm a big fan of the TV series the expanse and it's kind of gratifying that out there they the it's the Martian congressional republic okay in a brief sense so amongst many things you're also an expert in international trade what do you make of the the complexity so I can understand trade between two people say to neighboring farmers it seems pretty straightforward to me but international we need to start talking about nations and nations trading seems to be very complicated so from a high level why is it so complicated what are all the different factors that weigh the objectives need to be considered an international trade and maybe feeding that into a question of you have concerns about the two giants right now of the u.s. in China and an intention that's going on with the international trade there with the trade war well first of all international trade is not really that different from trade among individuals when it's it it's vastly more complex and there are there are many more players but in the end the reasons why countries trade are pretty much the same as the reasons why individuals trade you countries trade because they're different and they can derive mutual advantage from concentrating the things they do relatively well and also there are the economies of scale you know you don't not individuals have to decide whether to be a surgeon or a or an accountant it's probably not a good idea to try and be both in countries benefit from specializing just because of the inherent advantages of specialization and that's so the now the the fact it's a big world and they were talking about millions of products being traded and in today's world often trade involves many stages so that made in China iPhone is actually assembled from components that are made all over the world and but it doesn't really change the the fundamentals all that much there's a recurrence I mean that the baked the big the dirty little secret of international trade conflict is that actually it's not conflicts among countries are really not that important most trade is beneficial to both sides and to both countries but it has big impacts on the distribution of income within countries so the growth of US trade with China has made both US and China richer but it's been pretty bad for people who were employed in the North Carolina furniture industry who did find that their jobs were displaced by a wave of imports from China and so that's where the complexity comes in not at all clear to me I mean they we have some real problems with China though they really involve trade so much as as things like respect for intellectual property not clear that those real problems that we do have with China have anything to do with the current trade war trade war seems to be driven instead by a fundamentally wrong notion that when we sell goods to China that's good and when we buy goods from China that's bad and that's that's misunderstanding the whole point he's a is trade which I'm in both directions a good thing yeah we would be poorer if it wasn't for it but it but there are there are downsides as there are for any economic change it's like any new technology makes us richer but often hurts some place some people trade with China makes us richer but hurt some people and I I wouldn't undo what has happened but I wish we had had a better policy for supporting incumbents the losers from that growth so we live in a time of rec reticle ization of political ideas Twitter mobs and so on and yet here you are in the midst of it both tweeting and writing in New York Times articles strong opinions riding this chaotic wave of public discourse do you ever hesitate or feel a tinge of fear for exploring your ideas publicly and unapologetically oh I feel fear all the time it's not too hard to imagine scenarios in which this is I might personally find myself kind of in there in the crosshairs and I mean I'm the I am the king of hate mail I get them amazing correspondents uh does it affect you it did that it did when I started these days I've developed a very thick skin so I know I don't usually get in fact if I if I don't get a wave of hate mail after a column then then I've probably wasted the that that day so what do you make of that as a as a person who's putting ideas out there if you look at the history of ideas the way it works is you write about ideas you put them out there but now when there is so much hate mail so much division what advice do you have for yourself and for others trying to have a discussion about ideas difficult ideas well I don't know what about advice for others I mean if for most economists you just do your research that's a we can't all be public intellectuals and we shouldn't try to be and in fact I I I'm glad that I didn't get into this business until I was and until I was in my late 40s I mean this is it's probably best to spend the the your decades of greatest intellectual flexibility addressing deep questions not not confronting Twitter mobs and the and as for the rest point I think when you're writing about stuff the sort of dance it's like no one's watching like nobody is reading right right what your than what you think is right Jaya trying to make it obviously trying to make it it comprehensible and persuasive but don't let yourself get intimidated by the fact that some people are going to say say nasty things it's you can't you can't do you can't do your job if you are worried about criticism well I think I speak for a lot of people and saying that I hope that you keep dancing like nobody's watching on Twitter and New York Times and books so Paul is been an honor thank you so much for talking to a great thanks for listening to this conversation with Paul Krugman and thank you to our presenting sponsor cash app downloaded and use code let's podcast you'll get ten dollars and ten dollars will go to first an organization that inspires and educates young minds to become science technology innovators of tomorrow if you enjoy this podcast subscribe on YouTube get five stars on Apple podcast follow on Spotify support on patreon or simply connect with me on Twitter at lex friedman and now let me leave you some words from Adam Smith in the wealth of nations one of the most influential philosophers and economists in our history it is not from the benevolence of the butcher the brewer or the Baker that we expect our dinner but from their regard to their own interest we address ourselves not to their humanity but to their self-love and never talk to them of our necessities but of their advantages thank you for listening and hope to see you next time you