The Wolf-Krugman Exchange: your questions answered

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You still up in northern New England?

Indeed. I would have said western New England, but yeah. I'm actually on the deck of our house, as you can see. So I decided to go full on summery here. How are you?

I'm fine. And I'm about to write a column on how Trump is changing the world. I will steal freely, no, I will refer to your columns, among others. This is the sixth and final episode in our series, the Wolf-Krugman Exchange. I'm Martin Wolf, chief economics commentator at The Financial Times.

And I'm Paul Krugman, professor at the City University of New York, author of an independent Substack newsletter. Today's episode is being recorded on Monday, July 7 at 9 in the morning in Massachusetts, where I've taken advantage of a lovely morning to record out on the porch, and 2pm in London.

So today we're going to be answering some of the questions you've been kind enough to send us over the last six weeks. We've had several dozen, so we can't get to them all. But we'll try to address some of the themes which seem to crop up most in our inbox.

So I'm going to start with the first question, which is from Vijay, from India. And he writes: given the breakdown of the WTO-led multilateral trading system and increasing use of trade and technology controls by rich and powerful nations to further their security and foreign policy objectives, it is clear that there will have to be a reconfiguration of trading arrangements between nations that also addresses their security and technology needs.

New bonds of trust have to be forged before institutional mechanisms can be agreed on. What might such an arrangement look like in the future? Do middle and low income countries have any leverage to shape the outcomes in this emerging scenario?

I think this is a really superb question. Unfortunately, we really should devote the entire episode to it. Perhaps we should start off... I will just start off by making a few quick points on this.

The first, it should be said that, at least as we are speaking, we don't know what the next stage in Trump's trade war might be. And there's some discussion that with all the countries with which the US has failed to reach an agreement, which, as I understand it, is everyone but three countries, all the tariffs could jump back to the 'liberation day' tariffs, which are, of course, fairly high. In other words, we can't even step back at all from the immediate crisis. And that's very, very important.

On the question raised, I don't see how new bonds of trust with the US, which has been obviously a central player, arguably the central player, can be restored under the current administration or any administration in any way like it, or even a different one, given that trade negotiations require long-term commitments. And if we have a normal Democratic process in the US, a big question in my view, that would mean that it would be four years or so. And then you'd be back with the question, well, who follows this reasonable person who might be president four years from now or eight years from now? So I think with the US, it's going to be very, very difficult.

And for the rest of the world, well, the simple truth is there isn't much trust between Europe and China. Of course, nothing like the US-China relationship. But still, there's lots and lots of suspicion. And there's also lots of suspicion, in fact, between India, the most important emerging developing country after China, and China too. And of course, most of the rest of the developing world, though there's exceptions for organisations like Asean, the Association of Southeast Asian Nations. They really don't have much weight. So there's a real difficulty in creating trust.

And let me just turn to the final question. What would we want to do if we were to rethink the system? Well, I think myself now that the attempt to move from the General Agreement on Tariffs and Trade to the World Trade Organization, which was a much more legally demanding institution than the GATT, that didn't really work. It demanded more than people were actually going to stick by.

So we'd have to think about how we can give countries some more freedom of manoeuvre, particularly on things like industrial policy and security, give developing countries the room to do some of the things they think they need to be able to do, and at the same time, police, to some degree, the point at which a developing country becomes a developed country.

So one of the real difficulties, I think, is the system... it didn't really have a way of dealing with many other problems. The fact that China had become, from a trade point of view, a fully armed, developed competitor. And China kept on insisting, well, we're a developing country, so we should have freedom that developing countries have. So there are quite a number of big conceptual issues you would have to deal with if you wanted to create a new trading order. But first of all, we need the conditions for one, and that's going to be pretty difficult. What do you think, Paul?

Yeah, I would just add that if we're talking about economic powers that seem inclined to use their trade and technology leverage for national security, basically weaponisation of economic policy, we really are talking about the United States and China. And the United States is what it is. And China, although one achievement, you might say, of the Trump administration is to make China look like a relatively reliable negotiating partner. But fundamentally, it is not.

And it really comes down to when you have autocratic systems that aren't bound by rule of law, everything in the end depends upon the whims of the people in charge. And so right now it makes a lot of sense for Europe to try and make deals with China, because the United States has lost its mind. But China is never going to be able, unless there's a colour revolution in China or something, China is never going to be the kind of global hegemonic stability power that the United States used to be.

So clearly, there's going to be a lot of bilateral, mini-lateral deals. I think we're already seeing that Canada is trying to align itself more closely with Europe. I suspect Japan will be doing the same thing. But we are not getting back that global system that we used to have.

I think that's obviously true, alas. So the question is how we manage the chaos, alas.

So this is a question from Joshua, an economics student from Australia: In light of Donald Trump's sporadic industrial policy-making, to what extent has this accelerated the process of currencies, such as the euro and Chinese yuan becoming larger players in financial markets? And how would the reduction in demand for the US dollar affect America's ability to continue running large budget deficits?

So there's really two parts there. One is about the role of the dollar. And clearly an erratic, unreliable United States with constantly changing policies, and if you ask what our US trade or even US financial policy is going to be six months from now, the answer has to be a massive shrug of the shoulders. That has got to damage the role of the dollar.

Is anybody prepared? Is any other currency in a position to step into its place? I would say still the renminbi, the Chinese yuan, is not ready for that role, if only because China has capital controls. And it doesn't offer the kind of assured access to your money that the dollar has.

The euro, there was a period before the euro crisis when the euro seemed to be playing a growing role in the system and was hyped, I think, but still in some ways possibly emerging as a dollar alternative. All the debt crisis stuff, the fragmentation of eurobond markets, set that way back. But now, well, you've got a bunch of advanced countries sharing a currency still governed by rule of law, still honouring their agreements. So some increased use of the euro, I think, is a pretty good bet.

In terms of the budget deficit, look, advanced countries have enormous ability normally to run both budget deficits and current account deficits, essentially, trade deficits, whether or not they happen to own a reserve currency. The UK has run large current account deficits most years for several decades, all of it after the virtual disappearance of the international role of the pound. So that's not what's really important. And I don't think that we should think about the dollar's international role as a key thing.

What worries me is that the reason advanced countries can get away with this is that they look like reasonable, serious countries. They're run by politicians who aren't ideal, but are not crazy, that are willing, in the end, to do what needs to be done to stabilise their fiscal situation. And of course, they have enormous capacity, their competence, their administrative capacity.

Does any of that describe the United States anymore? And I think you can make a really good case that none of it does. Not just that we have irresponsible deficit increase, but that we have a massive deficit exploding, insanely cruel budget bill that was passed entirely based upon lies. And it's with absolutely crazy assertions about how it'll pay for itself and so on. And we are watching in real time the diminishing ability of a starved and Elon Musk-ed US government to carry out basic tasks like issuing extreme weather warnings.

So at some point, I think investors will look and say, well. America looks more like an emerging market. It's actually the reverse of what you said, Martin. In many ways, China, although it still wants to be considered a developing country for certain purposes, looks like an advanced first world power. In some ways, the United States, although still rich, looks like a developing country with big governance problems.

The only thing I would add to that, and I was strengthened in this belief by a column I wrote last week, and is it looks fragile, market fragile. And if credibility's broken in any way, trust is broken, what seems to me very likely is we don't have a replacement for the dollar. What we cannot assume will last is the integrated global financial markets. They might simply fragment.

The extreme integration of financial markets seems to me to a significant degree dependent on the role of the US as a financial power and as a superpower in all ways. So if what Paul is saying is going to happen, then we've got a pretty big problem.

Someone is... it's not mowing their lawn. I don't know what they're doing. What worries me is it may be somebody sawing a log across the lake. Yeah. Sorry. I was figuring correctly that there wouldn't be many boats out on the lake, but I wasn't counting on that. Now, that's not going to stop. All right, I'm going to have to move back inside. All right, give me a minute here.

Hi, everybody. I've just been forced to abandon my idyllic lakeside recording location because somewhere, out of sight across the lake, somebody appears to have decided to make extensive use of a power saw. So back into a more mundane indoor setting.

So the next question follows on from our previous discussion, and is from a listener named John, who didn't say where he was from, and asks: what is the optimum mix of tax rates and debt interest costs for an economy? US has been, of course, cutting taxes on the well-off and borrowing a lot. When will government debt become more problematic than tax rates? Is there an algorithm to calculate the optimal balance?

OK, this is actually kind of fun. It's not so much an algorithm. We have a theory of when you should run deficits, when you should run up debt, and when you should try and pay it down, which goes all the way back to David Ricardo, which is that high tax rates do have negatives to them. They are a disincentive. There can be administrative problems.

But on the other hand, you don't want to deal with emergencies purely by... but you want to deal with emergencies partly by borrowing, not by raising tax rates all the way. So you run up debt during wars, other emergencies. You should try to bring it back down, at least as a share of GDP, in other periods.

The United States is not doing that. We're running large deficits in the face of an economy that... there's no war. There's no pandemic. Unemployment is low. We don't need fiscal stimulus at the moment. And it's just irresponsible policy.

And it's not a question of optimality. Clearly, you wouldn't be doing anything like this. No reasonable recommendation about fiscal policy would say that the United States should be running large deficits and steadily increasing the ratio of debt to GDP under current conditions.

Of course, to fix that, something has to give. So you could cut spending. But the big budget bill already has savage cuts in social programmes for the poor. So you'd have to really go after the middle class, which is politically difficult, or you'd have to raise taxes. But one party actually always wants to cut taxes on rich people. And the other, although willing to raise taxes on the rich, is not willing to raise taxes on the middle class. So it's a political conundrum. It's not a question of hard economics. The economics is actually pretty simple. It's the politics seems to be insoluble until a crisis comes.

The only point I would add here, which is obviously important, is that the position of the US in terms of debt ratios now and forecast under these budgets, though probably not critical, would put it in uncharted territory within an appreciable period. The US federal debt ratio and general government debt ratio to GDP will be higher than it had been after the Second World War. And that would be rather a striking place to be in what seems to be a prosperous era of peace.

Now, let me go on to the next question, which is from Raphael in Britain. And it's really an interesting one. In this series, you've talked about the corrosion of postwar consensus, institutions, democratic norms. I share your anxieties, but I worry also that framing the challenge in terms of defence and restoration risks casting liberals in the role of an ancien regime clinging to outmoded analogue systems that many people think have failed. This way we enact the very caricature that populists would have us play. Should we perhaps be thinking more about what an entirely new 21st century set of institutions moulded to the digital era would look like?

I think that's a fascinating challenge, and probably a challenge for political theorists and political scientists, more than economists. I suppose my response, first of all, is that unfortunately - I don't know whether we can turn this around - is a very big part of the problem of those ancient institutions was created by the technologies of the digital era.

And I particularly think here of social media, the way the algorithms of social media work, the ease with which we can fragment the whole set of communications and understanding of reality of our societies, exploited so effectively by populist politicians. The ability using these technologies to spread lies throughout the population and exploit people's, what one might think of as rational ignorance. The fact that it's very, very hard work to find out what's really going on. So I see, unfortunately, digital technology is part of the enemy here.

And I also think that those institutions, and probably perhaps this is partly age, but not just age, I think it's experience, work pretty well. And if we're going to really discard them for something else, then we really need to be pretty confident they are going to work better. And when I look at what's going on with populist politicians across the western world, and obviously Trump is the leading example, it really doesn't look very good, does it?

But I do think that there are some absolutely fundamental political questions to be answered. How should we strengthen our system against the sorts of challenges it's now confronting? And part of that is about what non-populist politicians should be doing when they're in office to make people feel safer, to make people feel that their concerns, including, for example, we discussed this earlier about immigration, are addressed. I was more optimistic than it turned out I should have been about what the Biden administration was doing. But it seemed quite a bit of what they were doing was at least in the right direction.

But I do think, finally, that we should be thinking about some new institutions. I'm very interested in the greater use of citizens' assemblies. And I know the arguments against it, but the Swiss really do a very impressive job in sustaining their democracy, and it's a very diverse nation, using referenda. Maybe there's a way we could use digital technology to make direct citizen feedback on policy more effective and more relevant, and maybe that's also a way we can bring people together across the world.

I think this is the area lot of people should be thinking about. But I would stress that throwing away institutions that have worked so successfully in the last 60, 70 years have been, in many ways, the most successful in human history, and throw them away because a number of people are disappointed with their outcome and because skillful politicians, demagogues, have exploited it. That seems to me very unwise.

Let me just add that I think there's a tendency to overstate the role of technological determinism and particularly of digital in all of this. If we think of the postwar institutions as being, well, social democracy, a market economy with a strong social safety net and limitations, the whole thing that I think both Martin and I support, the turn against that, the hard-right turn part of the political process and the rise in political polarisation in both of our countries really comes around 1980 with Ronald Reagan and Margaret Thatcher.

And in the United States, at least, where I'm more in touch with the ins and outs, the transformation of the Republican party into a hard-right institution that is kind of contemptuous of Democratic norms, that really got started 30 years ago with Newt Gingrich and the radicalisation of Republicans in Congress. So all of this really predates the digital stuff.

I mean, I'm sure that Facebook and TikTok make things worse based on just the general principle. I actually never use either of them. But I think we really need to understand that whatever it was that went wrong, it started going wrong a long time before social media became the monster that they are.

So let me just say you may occasionally hear my wife in the background, because it's the modern world. We're both on streaming calls, and it's just given the internal geometry here, we're about as far apart as we can be.

OK. Yeah. Next question was addressed to me, but it's something we're both interested in. To what extent do you think crypto assets are already integrated into the traditional banking and financial system? Are we underestimating the potential systemic risks they pose?

Furthermore, with Trump promoting pro-crypto policies, how do you assess his administration's impact on the legitimisation and integration of cryptocurrencies into the traditional system? Or is it more likely to fuel speculation, rather than increased institutional adoption?

OK, I've spent a lot of time on crypto over the years. I sometimes do go to crypto conferences where I'm the designated enemy and they're polite and they do actually pay me a speaker's fee in actual money. But here's the thing about crypto. It's become a huge asset class. We're talking more than $3tn of assets.

But there's essentially no use of crypto in legitimate non-crypto economic activity. Nobody really takes crypto as a means of payment. Nobody uses crypto for collateral or anything like that except in purchases of other crypto assets. This has been true even in places like El Salvador, which have tried really hard to promote the use of crypto. And it turns out that that still goes nowhere.

Crypto doesn't solve any real problem. There is nothing that crypto does that perfectly legitimate non-blockchain based forms of digital payment don't do more cheaply and better, except for money laundering and extortion. So basically, crypto is good for illegal activity, but not for anything else. And that hasn't changed.

That said, if you've got trillions of dollars in crypto assets, which increasingly take the form of stablecoins, which are backed by, supposedly anyway, backed by things like Treasury Bills, you do create something that looks, from a financial risk point of view, a lot like banks before banks were regulated, before deposit insurance.

In fact, they look a lot like banks in the United States when the federal government didn't issue paper currency and currency was notes issued by banks that sometimes went under. And there's quite a lot of systemic financial risk, which is quite a trick for something that is actually not being used for normal business. Nonetheless, it's become a major source of risk.

This seems to me to be clearly right. And there's also the interaction between the regular financial system and the cryptocurrency world worries me a little. There's obviously a lot of deregulation going on. Major banks are engaged in this. I don't what's going on there. I'm not saying there's a risk, but I wonder whether and how far the regulators in the US who are not always fully on top of things because the system is so fragmented, are really aware of the possible risks here.

And the stablecoin role seems to me particularly significant, because they are supposed to play some sort of role in the intermediation of cross-border finance, which is always particularly difficult to regulate. And they are supposed to be stable. And there are so many ways to operate these which would undermine that stability. And it's not at all obvious, well, to put it mildly, that you could make a profit issuing these if they are really stable.

I mean, that's part of the problem. So I think there is a lot of concern here, and I have a lot of concern about the money that is behind the lobbying, which is leading the US administration, in particular, to liberalise so radically the regulation in this sector.

Let me just add that many regulators are very aware of the risks. But for the most part... or many former regulators, because by and large, they've been fired. So we're talking about a situation where warning that we may not be safe in going down this route is disqualifying for a position in the current US government.

And I would just conclude by saying I wrote a column about this years ago in which I said, it's pretty obvious if you look at it carefully, that if you think about the fundamental core functions of money, cryptocurrencies don't meet any of them.

Yep.

Let's move on to the next question, which is from Lars. We're not sure where he's from. It sort of suggests somewhere in Scandinavia, but maybe I'm wrong. You suggest that the rest of the world should introduce climate tariffs on the US. What forum would be suitable for such action?

Well, I like that question. Well, I think I suggested this, but I can't remember. But the EU has invented something called the carbon border adjustment mechanism. And the basic idea, I don't want to go through the complexities, some of which I'm sure I'm not aware of, is that tariffs would be imposed on countries that do nothing to ameliorate the greenhouse gas emissions in their industrial processes, and particularly as embedded in their exports.

They would be a form of countervailing duty equivalent to the countervailing duty that the system, the trading system, already allows against subsidies. But in this case, it's against environmental dumping, which artificially lowers the market price because it doesn't internalise the social cost. And the idea of the EU was we would impose this mechanism, but it would be reduced or eliminated if the country concerned did take action to lower the emissions associated with the production of its exports.

And obviously it's going to be quite an interesting thing how it will deal with China. There are all sorts of interesting questions. But in principle, this is a mechanism that not only should but must be imposed on the United States, because the United States is going backward in this area, dramatically so, insanely so. I find it impossible to understand all the actions they're taking against energy efficient and clean energy.

And in the trade negotiations which are, we are told, coming to a climax right now between the US and EU, I hope the EU will make it clear that they're not going to give up this mechanism. And if the US goes down this road, well, these adjustment mechanisms will be imposed. And I think it's the basic way that the rest of the world should follow, the route it should follow in dealing with what is becoming, in this area, a rogue superpower.

Can I add, I actually did some, years back, but when we were still talking about... we still are a little bit. But when we're talking about carbon taxes, or cap and trade systems that would have much the same effect as a carbon tax in limiting emissions. And the question is, would you have a border-tax adjustment? And the answer to that seemed to be very clear that first of all, you should.

And second, that it would be fully legal under the rules of the World Trade Organization. Just as, because a carbon tax can be viewed as essentially a tax on your own consumers. They're saying that you have to pay more for something that is generating a lot of greenhouse gases.

And just as value added taxes, there's a border adjustment. Imports have to pay VAT because the VAT is basically a sales tax. And actually there's no discriminatory treatment in saying that imported goods pay the same taxes as domestically produced goods. The same thing would be true.

Now, if the policies are more like industrial policy, which it looks like where we're actually going, and they take the form of promoting renewable energy, then the question of what is the appropriate border adjustment becomes a lot harder. But the principle is the same. It doesn't really require a new mechanism.

The EU can simply go ahead and do this, and it can justify it by saying what we're doing is actually legal under the principles of the General Agreement on Tariffs and Trade, which I would say it almost certainly is. So just go ahead.

This is not actually necessarily punishing the United States for its irresponsible policies. That would be going a step beyond. But at least saying that in effect, look, we are spending money to reduce damage to the planet. And people buying goods produced by countries that are not doing that should be obliged to pay an extra cost.

That seems to me clearly correct. And the question really is courage, because it will just add another element to the trade war. But since we're having a trade war in Europe with the United States anyway, well, why not have it for some very good reasons? And if the US regards this as offensive. Well, there's a perfectly reasonable mechanism for them to deal with that problem. That is to say, recognise that they are imposing massive costs on everybody across the planet.

Let's go to the two linked questions. We're going to put them together, and that's because they're critical of us, which is very good and just as it should be, because we have tended to agree with one another rather in this series. So here we go.

The first one comes from Olaf in Germany. It's more a statement than a question, but goes as follows. And perhaps Paul would like to respond when I read through it, because it's very much about America. The FT and The New York Times. Well, you're not part of The New York Times anymore, but you were once. The FT and The New York Times are part of the Establishment.

The rise of Trump can be seen as a reaction to the failures of this Establishment. Trump's flawed character invites a mistake. Deal with Trump, but ignore the underlying critique of the status quo. I think you might be making this exact mistake. Many of Trump's actions are based on real concerns, concerns that have been created by the growing blind spots of a self-satisfied Establishment, an Establishment that you two are leaders of. Just focusing on Trump does not deal with the underlying issues.

And I think we should take them separately, though they are linked. But I'll just give the other one, because it's very short. What objective economic metrics would the US economy need to hit for you to admit that the Trump administration is a success? So, Paul, would you like to answer the first one or even both right now? And then I'll respond.

I think I can do both. I don't feel like part of the Establishment, although I guess that's always a question. What does that mean? Or do we even have an Establishment now? But once in my life, an actual policy-maker actually took advice from me, and it was the prime minister of Japan. So it's not like I've actually been very much in the middle of things.

But anyway, I would question the thesis that the rise of Trumpism or of populism more generally is a response really to Establishment failures. I mean, clearly the Establishment is always failing. But I look at, and I know the United States best, I look at the 30 per cent or so of the electorate that is really seriously Maga.

And those are, as far as I can tell, there's always been 25 per cent, 30 per cent of the electorate that has quite radical dislike of society as it is, often involving a return to some kind of imagined past. And it turns out that if we ask, how much does economic anxiety, a favourite phrase a few years back, contribute? Certainly there are real reasons for complaint. But often those are not the most radical voters. And also they vote for policies that actually make them worse off. So there's a real problem.

My sense is that there's always been a discontented thing. And maybe I'm going to go a little off our usual thing. But one of the big factors right now in US politics is the rise of the 'manosphere'. People who want to celebrate masculinity, hate feminism, want to restore traditional gender roles, that sort of thing. That doesn't have anything to do with failures of the Establishment. That's something that has always been there.

What I think really happened, the real story of what happened now, is that we used to have a much broader sort of centrist elite that ruled out certain kinds of positions. My sense, I guess is, that if we'd had a Trump-like candidate in 1970, he could very well have gotten 30 per cent, 40 per cent of the vote. But the Republican party of 1970 would have said, no, we do not go there. And it's more the centre not holding than it is that people have been radicalised by Establishment failures.

And you look at countries where everything seems to be really pretty much OK in terms of materiel conditions. Look at Denmark, which has high GDP per capita, high wages, strong social safety net. And there's rightwing populism, nationalism, a fair bit of white supremacist politics even in Denmark, which tells me that this is not something that is really about policy failures.

I would make one comment on that. I agree with this. The pointing at the economic mistakes of the Establishment is, I think, very seriously overdone. And I think the point is cultural change is important.

I would say there's something else here, which I think is implicit in some of what Paul has said earlier, but it's very much a theme of my book. There have been some very, very big changes over the last three or four decades in our society, some of them truly revolutionary. And huge social changes have political consequences.

And it's not a policy failure, as it were, that there were these changes. Actually they were policy successes. I'll come to that in a moment. But you have to work out a way of dealing with them in a sensible way. And we haven't done a terrific job on the whole Establishment in this way.

So let me just list a few of them. I mean, my view is over the last 40, 50 years, the natural process, which Paul has also written a lot about, of deindustrialisation, has created some very large changes in the way we organise our economy, the way the working class operates. This is linked with political changes, the radical weakening of trades unions, and that has in turn, helped the erosion of the safety net in some countries.

Then, if you look at the rise of the 'manosphere', which he's absolutely right [to mention] well, there has been the biggest revolution in my lifetime socially. I'll leave aside globally the rise of the developing countries, which is an equally big shock in some ways, has been the transformation in the role of women. When I compare my mother with my daughter, very similar societies, they have completely different views of their role in society.

And the women have turned out, surprise, surprise, to be at least as bright, if not brighter than the men. And the men hate it because they're changing their position in society. So I could go much further. There have been lots of big changes in our society, driven by our very dynamic economies and social systems, and we haven't done a terrific job of adapting to them. Politicians are only a small part of this problem.

But unfortunately, where I part company completely with you is it seems to me that the people who are exploiting it, the so-called populists, are... all the people are trying to make these social changes go away or pretend they can be reversed with these ridiculous tariffs and turn us back into the mid-50s or even further back. And that's obviously insane.

So the ultra-reactionary response is an indication of the problem. And the problem is profound social changes which societies have to adapt to in a sensible way. What frightens me about this is they will fail and they will ruin almost all that's good about our societies.

Yeah. I mean, I'm terrified by where it's going, but it's not clear, again, that - what would you have done differently, is not an easy question to answer. And what can we do now is certainly not easy. And I would just say that social change is a much bigger story. And again, we were talking earlier about digital. But I think there are other things.

One of my favourite labour economists and one of the most richly deserved Nobels in recent years, Claudia Goldin, is... she's done a lot of work on the transformation of women's role, which really got going in the 70s and is still reverberating and which has a lot to do with not digital technology, but the birth control pill. And in some ways, where we are now is, you could argue that the introduction of easy-to-use use birth control lit a very long fuse that is now exploding in political radicalism in the year 2025.

Let me just respond briefly to this last question about what objective economic metrics would the US economy need to hit for you to admit that the Trump administration is a success. Well, my short answer to that, and it's linked with the column I wrote this morning, which is you won't know for sure how bad it will fail, I'm quite sure it will fail, in full for probably a generation.

The point is that really radical changes in a society and economic system have a whole set of complex consequences, which ramify. So I was writing a bit about what is the legacy of Margaret Thatcher to Britain now. It's very different, I think, if you look at it now from what we thought it was in the mid 90s.

Some of the things we will see quite quickly, if there's high inflation, a collapse of the dollar, a run from the dollar in more general ways, a big financial crisis. These things will be relatively early. But it's quite possible he'll survive this. There is a great deal of ruin in the nation, as Adam Smith once said.

But the full consequences of what is a revolutionary transformation, in my view, we won't know. And that's where you have to use your imagination, because ultimately, our ability to project forward is a big part of how we analyse, have to analyse things. What do you think, Paul?

Yeah. I mean, if it's a quick failure, we'll know it. If we have a recession, if we have runaway inflation. But long-term consequences for technological progress, economic growth, social cohesion, that may take a generation before we can really do an evaluation.

Yes. I think that's the consequence. And that's where we can go back to history, because we sort of know with this sort of reactionary politics led by authoritarians. One of the things I've just discovered is that Trump has used in this term the justification for inaction, that it is a national emergency, more than all previous presidents in the last 40, 50 years. Now, that's an indication of a completely new style of politics. And we know what that leads to in the past. Unfortunately, there's no other word. This is a fascist way of governing.

OK. I think we're at the point where we talk about our cultural codas. I wish my cultural coda was more upbeat. I have a song by Carole King, who wrote many of the most widely played songs of my childhood, basically the 60s and 60s. But a lot of the music that I grew up hearing everywhere was written by her.

And she had a great song called, It's Too Late where the lyric is, 'something has died inside and I just can't fake it'. A beautiful song. And we have to behave as if it's not true. But I do sometimes worry that it really is too late, baby.

So my cultural coda this week will be another bit of opera, just to give the contrast with Paul. And it's Va, Pensiero from Verdi's Nabucco. And it is, once again, as quite a few of my other codas have been, about liberation and freedom. And this time national, not individual.

The theme remains as alive today as it was in the 19th century when he wrote this, more precisely in 1841. Just think about what's behind the wars in the Middle East and Ukraine today. The opera, and the opening chorus in particular, is about the desire of the exiled Jews for a return to their national homeland.

And it was set during the exile in Babylon in the sixth century before Christ. And that was ended famously, and I think with incredible irony, by Cyrus the Great, who was, of course, founder of the first of several Persian empires, what we now call Iran. Verdi wrote the music, as I said, in 1841, and he was heralding the hoped for liberation of Italy, which was to occur two decades later.

And on that note, we'd like to thank you very much for joining us for the Wolf-Krugman Exchange. We hope these discussions have been useful and informative. We've certainly enjoyed bringing them to you, and I've enormously enjoyed the conversations with Paul.

These have been extremely enlightening and fun conversations. And if there's one thing to say about the world right now is there is no lack of things to talk about.

And if you are in the northern hemisphere, I hope you have a lovely summer. And if you're in the southern hemisphere, well, summer will come.