The Truth Behind Donald Trump’s Tariff Talk
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Hello and welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Hammond of Axios. I'm here with Emily Peck of Axios. Hello, hello. And to end 2024, we have...

the most special of all of the special guests that we've had on Slate Money this year. You need very little introduction, but Paul Krugman, welcome. Hi there. Good to be on. Introduce yourself. Who are you and where are you publishing these days? Okay, so I'm an academic economist. I was just that for a large part of my adult life. I started writing for Slate, by the way. That was my introduction to journalism.

The Paul Kogman columns at Slate were really good, I have to say. They're always good. I got invited to write for the New York Times, which I did for 25 years. Retired from the Times just shortly before this recording. And have begun self-publishing with my... I had a dormant Substack account, which has now gone live. And all of a sudden I can be both wonkier and...

less respectful, ruder than I could ever be at the New York Times. And so I'm posting almost every day and let's see how this goes.

The New York Times is, it seems to be moving away from quantity these days. It seems to be pushing people to write less, which is weird. So if you want more Paul Krugman in this, development is nothing but good news. And we are going to talk about trade policy, of course, because that is your area of expertise. We're going to talk about the Trump administration, what it's going to do in terms not only of trade policy, but also fiscal policy.

We are going to talk about, Emily, what are we going to talk about? We have so many things to talk about. Biden's economic legacy, Paul Krugman's cat are among the topics. And in the plus, we will have some book recommendations and streaming TV recommendations also from Paul Krugman that you do not want to miss. You should sign up for Slate Plus right now to get it. It's all coming up on Slate Money.

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So, Paul, you are world-renowned as an expert on trade. And so I feel like this is the obvious place to start. We have a president-elect who is obsessed with trade in weird ways and wants to

throw tariffs hither and yon all over the planet, which he threatened to do last time and kind of sort of did. What is your sort of big picture view of where we're at and where we're going and, yeah, what to expect at this point? Okay. I mean, at one level, we're trying to model Donald Trump's mind, and that's not a happy enterprise. He's been all over the place on lots of policy issues. And what his true views are on

abortion, social security, whatever, it's hard. Maybe he doesn't even have true views, but he has always been, as he would say, a tariff man.

He's always had the worldview that if we sell more to another country than they sell to us, we win. If it's the other way around, we lose. There's no indication that that view has changed at all. He seems to have been completely unmoved by all of the warnings, not just from pointy-headed intellectuals like me, but from Wall Street, that his tariff ideas are a really bad thing. So I think we have to, and given the structure of

peculiar structure of US law, he pretty much can do whatever he wants. So I think the best bet has to be that he's going to go through with quite a lot of this. The thing that struck me is that one of the great trade achievements of his first term, if you can call it that, was USMCA. He single-handedly renegotiated NAFTA, created this new thing called USMCA, the

And now he seems to have decided that his own USMCA is a terrible idea and that we should impose 25% tariffs on both Mexico and Canada. Is that a threat? Is that actually remotely possible? Well, that's one of the things we're trying to figure out. I mean, USMCA was mostly NAFTA with a few twiddles, and then he got to stick his name on it. So he essentially kept NAFTA intact.

The thing is, if you have his view of the world, where if Canada runs a trade surplus with the United States, that means we're subsidizing Canada, then he has to view USMCA as a failure because we are, in fact, running bilateral deficits with both Canada and Mexico. Now, you do have to think that if he actually went ahead with those tariffs, the downside would

of Trumpist trade policy would become very obvious very fast at a couple of levels. One is that there is no U.S. manufacturing sector.

There's a North American manufacturing sector, which is very, very closely integrated with Canada and Mexico. And we don't produce whole cars in America. We produce some of the pieces of car and other pieces are in Canada and some of them are in Mexico. A lot of them are in Mexico. And the components of a car can cross the border seven or eight times.

Before it finally emerges as a vehicle. So putting tariffs on that is catastrophically disruptive, but not clear that he knows that. And the other thing is, I think he has no real sense that tariffs are not the only policy tool.

We already have the Canadians talking about having export taxes on oil and uranium, basically retaliating with us not by blocking our exports, but by restricting our ability to import stuff we need. That's actually a very possible route down which trade wars can go, and he seems oblivious to that. So,

The question is, you know, who's going to tell them? I mean, I was really struck, you know, Robert Lighthizer, longtime protectionist advocate, was widely expected to have a position in this administration. And the thing about Lighthizer is that people I know who dealt with him, you know, regard him as...

evil or, you know, not really in the sense that with some of these characters that Trump is hiring are evil, but regarded him as being on the wrong side of the issues, but also as being extremely smart. And he didn't get a job. It looks to me as if this is going to be administration where anybody who is

actually knows what they're talking about and actually has any kind of independent power base is going to be out in the cold. So maybe there'll be nobody around to tell Trump that this is not going to work the way he thinks it will. What can you tell us about the effects of the Trump tariffs from Trump 1.0? What actually were they? Yeah, so the Trump 1.0 was basically a 20% tariff on China.

which is itself just a fraction of U.S. imports. It's a big player, but it's still just a fraction of U.S. imports. During the campaign, he floated 20% tariffs on everybody and 60% on China. And now he's talking about 25% on Canada and Mexico, which are really big trading partners. So he's actually now talking about something that is, roughly speaking, 10 times

as big as his first administration tariffs. Now, we don't know if it's going to really happen, but if he does, people say, oh, you can't really see the Trump tariffs in his first term in the inflation numbers. But that's because we're talking about something that's one-tenth the size of what he is certainly threatening right now. So this is, the quantitative difference is big enough that it's a qualitative difference. This is a genuine trade war that he's threatening, not a limited tit-for-tat exchange. I know.

I know that you're not a free trade purist. I was wondering and thinking about this because we're not a free trade country anymore. I mean, Trump started it, but Biden certainly continued down his path. Is there any universe where Trump, the tariff man, is free?

doing a solid for the economy or moving in the direction that everyone, maybe even you, want to go? No, I don't think so. And the reason is, again, I'm not a free trade purist. I had arguments with a lot of economists because there was quite a lot of economic nationalism in the Biden program. He did maintain the Trump tariffs on China, which I don't think was actually good economics because those were actually very poorly designed tariffs. But I think that was a political calculation being seen

or being accused of being soft on China was not something anybody wanted to do. But the industrial policy, the Inflation Reduction Act, the CHIPS Act, were very much nationalist policies.

and very much out of violation of the spirit of the world trading system, though, and in a few cases, actually the letter. But they were there, they did that for a reason, partly that you had stuff that was more important than trade. Climate change is more important than trade. And if a bit of America first policy is what it takes to sell significant climate legislation, then we don't want to be sitting there 20 years from now saying, well, we're

we destroy civilization, but we adhere to the rules of the world trade organization. So, um, that was okay. And then there's a very serious, I mean, the, um,

There is a clause in both in U.S. trade law and in the General Agreement on Tariffs and Trade, which governs what we're allowed to do internationally, that basically says if national security is at stake, forget everything else that this thing says. And that's become real. So sanctions on export of advanced technology to China, you know, I'd like to say that that's not the kind of world we want to live in, but it is kind of the world we live in. And the Biden administration was very tough on China.

much more so in a sense that matters than Trump ever was. But the point is that Trump is completely, it's unfocused. He thinks that it's all about who sells more to whom, that it's all about bilateral trade deficits. And there's no universe in which that makes sense.

So, if anything, I suspect that we're going to become a less effective competitor for China, that we're going to take our eye off the ball of what really matters in pursuit of completely nonsense measures of trade. You can explain this to me maybe better than anyone else, and I still don't understand this one thing about tariffs. Forgive me, Felix, for not just asking you some other time.

I understand how raising tariffs, you explain it so wonderfully in one of your columns, it's like a sales tax basically, and consumers pay. I don't understand how increasing tariffs strengthens the dollar exactly and what that means and why it might blunt the impact of tariffs. I still don't quite grasp that. I wonder if our listeners maybe feel the same. Yeah. So the basic rule is that the balance of payments always balances.

And if you like, you can say that, look, foreigners come to the United States with their currencies trying to buy dollars so they can buy stuff from us, which includes assets as well as goods. And Americans come to the foreign exchange market with dollars trying to convert it to foreign currencies to buy stuff from foreigners and supply and demand. They always match. And what makes them match is the exchange rate, the value of the dollar.

The supply of dollars and demand for dollars comes out of both transactions and goods, us selling goods.

I was about to say Boeing aircraft, though that's kind of become problematic. Us selling stuff that America does well, maybe Caterpillar earth-moving equipment, but also us selling assets to foreigners. And the demand from foreigners or their supply comes from them selling us consumer goods and also the U.S. trying to sell investments for Americans abroad. So they put all this together. It all adds up. If tariffs discourage Americans from buying foreign goods,

then that's less demand by Americans for foreign currencies. So that otherwise equal reduces the price of foreign currencies in terms of the dollar. And in turn, if that happens, so the price of foreign currencies decreases,

in terms of dollars, falls. And since foreign exports over time reflect foreign production costs, which are in euros or renminbi or whatever, that's going to, other things equal, make the stuff that we buy from them cheaper. So if tariffs succeed in reducing the trade deficit and nothing else changes, foreigners are still investing in America at the same rate, then the dollar gets stronger, imports get a little bit cheaper in terms of dollars.

So if imports get cheaper, does that sort of counterbalance that they're getting more expensive because we put tariffs on them? So maybe it's fine? Yes, it does. And so if you try to do estimates of the Trump tariffs, the effect on the cost of living is less irreversible.

if there is no retaliation. That's a wild card. But the likelihood is that we tend to, certainly Trump has delusions of grandeur when it comes to American economic power. And it doesn't understand that we are, among other things, there are three economic superpowers in the world. And in terms of trade, they're roughly equal, which is China, the European Union, and the United States.

The Europeans don't act as a unified force on many things, but one thing they do act as a unified force on is trade because there's a customs union and tariffs are set in Brussels.

So other countries will retaliate with higher tariffs. So yeah, we'll buy less from them, but they'll buy less from us as well. And then the real shocker, I think, is that we're starting to realize that they may also act directly to drive up the price of our imports. So you have the Canadians threatening to put taxes on exports of oil and uranium to the United States. And I got to say that if you've managed to thoroughly piss off the Canadians, that takes talent. Right.

You know, one of the funny things I have looking at past trade disputes and everything we've seen, I'm not sure that we've ever really had a trade war, a full-on trade war in history.

If you look at the Depression, there was a lot of tariffs, but they were mostly imposed for domestic reasons. There really wasn't a lot of tit-for-tat retaliation. But the limited trade conflicts we've had, there's a kind of a pattern. The U.S. does stuff for domestic reasons. We do stuff because an industry is demanding protection from foreign competition or because the president, in this case, has a thing about tariffs.

Other countries respond, in the past, they've responded strategically. They start targeting exports from swing states. I remember that. In this case, I think given that Trump is going to be very upset that he can't actually bring prices down, they're going to be targeting the U.S. cost of living. And so this is going to be...

ugly. And I think the perception that the U S has all the, all the leverage is going to be one of the things that it's going to die hard, but it's going to die ugly. Can we talk about the cat? Whose cat is that? I'm sorry about the cat. No, it's okay. I feel like we should address it. It's not our cat. Exactly. Jack, our cat is in New York and

And this is nobody's cat exactly, except that the caretaker for this property feeds him, except when we're here, in which case he decides that he's our cat. Does this one have a name? The person who maintains the property is actually English, just named him Puss, which I think is a little boring. I can tell you that the Brits have very little in the way of imagination.

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One of the through lines that we've been talking about so far is this idea of politicians in general and Trump in particular is Trump is going to Trump and all of the advice and the technocrats around him, if there are any technocrats around him rather than just mega loyalists, are not going to be able to move him very much.

More broadly, like if you think back to, say, the question of the Biden administration decision to keep the China tariffs, when they were imposed, we had Janet Yellen and a bunch of other people saying these were a very bad idea, you shouldn't do them. And then Biden comes into power and they don't.

repeal them and clearly what's happening there is that there's a sort of technocratic piece of advice to the president to like this is what makes sense economically probably you want to repeal these tariffs and then there's a political piece of advice or political sort of calculus that says no that's a really bad idea we shouldn't do that so what in your mind is the sort of

optimal balance between politics and economics? And to what degree should politicians generally take the advice of economists? Okay. I mean, you want to listen to economists. First of all, if they say something is going to produce really bad results, you should definitely take that seriously. They might be wrong, but your gut is probably not a good substitute for models that people have worked on and people who've studied two centuries of economic history and all of that.

But if they appear to be saying this has to be 100% textbook purity,

then that's probably not very helpful either. And trade policy has been interesting here. And the Biden team has been people who understand the case for free trade really well, also are fairly sophisticated, I think, about the politics of it. And so we're not purists. But the ultimate case in point is actually Obamacare. I think if you ask serious health reformers, what system would you choose if you could start from a blank slate?

They would go for single payer, if not actual socialized medicine, because there is both. It's not clear what good do insurance companies really do in this mix. And there's lots of evidence that the more privatized the system is, the higher the costs without better results. But Obamacare was actually put together in advance, largely by academics.

who understood all of that but were also political realists and who said going to all of the millions of Americans who have employer-sponsored health care and think it's okay and saying we're going to replace it with something completely different, trust us, it'll be better, they knew that wasn't going to fly. So we had this extremely cleverly designed kind of Rube Goldberg device that allowed most people to keep the same concept

coverage they had, but greatly expanded coverage. And so to be an actual policy expert doesn't mean that you have to be a policy purist. You can be responsive to political reality, but also say, let's try to be political realist, but let's do it smart, which is in fact what we did. I wonder if now that calculus changes, just thinking about the UnitedHealthcare CEO and what's happened there and all the

grievances against health insurance firms that that's surfaced. If you had to do Obamacare now, if there would be more appetite for single payer. It's a real possibility. I now have a newsletter and I did put up survey results, which said that most Americans with private health insurance are satisfied with it. But those surveys are a couple of years old. What would it say now? And that's a real possibility. It's possible that Bernie Sanders is

was just premature. Next time we ever, if we ever have another real election, and the next time we do have one, that it may well be that the appetite for saying, throw the bums out and let's have Medicare for all will be substantially higher than it was in the past. Paul, this is a question which I have asked Emily and various other people many, many times in the past. And I would love to know what you think.

Do you have a favorite country when it comes to health care? Do you think there's a country out there that does health care right? That's an interesting question. Ten years ago, I would have had a lot of good stuff to say about the UK. It's not just that they have screwed up, but they've also, I think, showed that the problem with a genuinely socialized medicine, actually having the system run by the government and run by professionals, is that it becomes a...

piggy bank for politicians. They figure, okay, we can squeeze another hundred million pounds out of it and another hundred million pounds and it's still working and let's squeeze another. And then one day, all of a sudden you realize you've really devastated it. And the difference about a single payer system like Canada is that it's an entitlement.

It doesn't specify a budget. It specifies what they'll pay for, and you can't do that. So I don't know. I mean, right now, if you look at what systems really seem to work best, it would probably be the Nordics. Always them. Who do, in fact, have kind of NHS-style systems, but haven't slashed them to the bone the way the Brits have. And then there's the French system, which delivers astonishingly good results at relatively low cost, and we have no idea how. Right.

Every time I try to get an explanation for it, it's just so gallic that it goes right past me. But look, the fact of the matter is, the Brits are having, I suspect they'll eventually, by popular demand, get it together. There are three different ways you can get universal coverage. You can get a

a kind of private provision with subsidies and regulations that sort of nudge it into position. You can have single payer where the providers are not government owned, but the money is government, which is by the way, the U S is a lot closer to that, that people realize, or you can have actual direct government provision and they all work.

The lesson, I spent a lot of time on this, and the answer is that given a reasonable political situation, which is these days not to be counted on, but all of these work, and the socialized choices are cheapest, the more privatized it is, the more expensive it is, but they're all doable. When you say the U.S. is close to this, you mean Medicare is our single pay? Well, Medicare plus Medicaid plus...

The tax expenditure that supports employer insurance, you know, the premiums are not taxable income. And then late addition, the Obamacare subsidies. So if we look at insured as opposed to out-of-pocket expenses, we're about an 80% public funding. Huh.

Look at that. More people are privately insured, but that's because the expensive cases, which is the old and the seriously ill, tend to be covered by Medicare and Medicaid. So it's really kind of astonishing when you look at how small a fraction of U.S. health care spending is actually paid for by private insurance premiums. That's so interesting. And they should just finish the job. Yeah.

Well, yes, that's the problem, though, that you've got still, you know, whatever it is, 100 million people who have private insurance and think it's pretty good until they get sick. And I just wrote about this on my newsletter. People are really shocked when you show the numbers. It was always the case that Medicare and Medicaid were paying a higher share of expenses than you might have imagined. But now it's really they just dwarf private insurance as a source of funds.

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Should we talk about the economic legacy of President Biden? Are we up for that discussion? When I brought it up in other contexts, I was laughed at. People are like, he lost. Doesn't matter. His economic legacy is high inflation that everyone hates. And that's the end. But I bet that you have a different take. Yeah, I think he's going to be the Harry Truman of economic policy.

A generation down, people are going to look and say, hey, he was a really good president. The fact of the matter is that the U.S. had two years, basically two years of high inflation. So did everyone else. Ours started a little sooner and ended a little sooner, but the cumulative rise in consumer prices is basically the same across all advanced countries. And the reason for that is that it was mostly in the end about

supply chain disruption in the aftermath of COVID. And there was really no way to avoid that except to keep the economy depressed so that demand for durable goods stayed low. So we didn't overstress the supply chains, but that would have meant millions fewer jobs in the service sector. So there was really no way, there was no good answer there, except, I mean, in fact, relative in terms of if your goal was to

have a quick recovery from COVID without a sustained rise of inflation, we did it. We actually pulled off a near miracle in terms of immaculate disinflation. And the trouble is that politically that rise in prices is

even though it was not Biden's fault, even though it was basically nobody's fault except the COVID-19 virus, was politically toxic because people, when prices and wages both rise, people think that they earned the wage increase and they think that the price increase was done to them. And if you want to claim that Biden should have done something really different and then he would have won the election, or then Kamala would have won the election, exactly which

Western leaders have prospered politically in recent years, right? I mean, we are doing better than Germany or France. That's right. Even politically. We're probably doing better than Canada. We're doing a hell of a lot better than Brazil.

Well, Brazil is a whole other story. Brazil has – it's the old Brazilian joke. Brazil is the country of the future and always will be. But no, yeah. If we compare the political fortunes of Trudeau in Canada or the conservatives in Britain or Schultz in Germany or Macron in France, every government that was in power during this run-up in prices –

has been pretty much, and there may be some exceptions somewhere, but basically was tossed out by the voters, which is totally unfair. Every one of these governments could have said, Hey, look at the rest of the G7. This has happened everywhere, but that's not, not very many voters do that. And so I, I don't know that there was a way to avoid this. And the, the fact of the matter is that in the end, the U S well, not in the end, as of the end of the Biden administration, uh,

Maybe underlying inflation is 2.5 instead of 2. But we're getting pretty close to getting back to target inflation. And we did so with an extremely rapid jobs recovery, rapid economic growth. It's all great, except that it was politically toxic. And now comes the next guy who has bids fair to do really serious damage to all of that.

So let me ask you about fiscal policy in particular. Let's stipulate that the Biden stimulus did not cause inflation, that the inflation was everywhere, whether there were stimulus or not. The Trump stimulus was broadly...

welcomed by everyone and a very good idea in the face of the sharpest and deepest recession that any of us can ever remember. And then there's this V-shaped recovery. And then Biden comes along and says, we need to do another stimulus, which is just as big. With hindsight, even if it doesn't prove inflationary at all, is it really necessary?

Okay. It really wasn't about fiscal stimulus, although it did actually act as a fiscal stimulus. But if you look at what Biden was doing, a lot of it was social policies, meaning enhanced subsidies for Obamacare, aid to state and local governments, which were financially stressed and hoping that they could get stuff, restore services. There were some things in there that

you could say really weren't all that necessary. And there was, it was a bit of a Christmas tree, but, and what you're calling the Trump stimulus, of course, is the aid during the COVID slump, which was vastly, I mean, we, we got through that with amazingly little misery and Biden threw a bunch of extra stuff in and maybe it could

I could slash a few hundred billion from it and say that these things really weren't necessary, although there was an element of log rolling, whatever, involved in getting the thing through. But they had learned a lesson. Obama went crazy.

way underpowered with his response in 2009, which, if we go back to the record, I was tearing my hair out over. Was that because he was listening to economists? No, actually, it was funny. As far as we can tell, I mean, Larry Summers was, I think, telling him what he wanted to hear, but if we

Apparently, Christy Romer's numbers looked a lot like mine, which said that this is about one third of what we really need. But he was listening to Wall Street people who were saying, oh, the bond market will punish you if you do this. Or he was just inclined to go soft and figuring, oh, we can go back to Mitch McConnell for more. It's like, yeah, right. But the Biden people were very aware that they had one shot.

So they were just front-loading. They were trying to save the planet. Yeah. They were front-loading. Now, it turns out that wasn't quite true because they did get, against all odds, they did get the Inflation Reduction Act.

which, you know, despite the name was really environmental policy, they got that through, which was a big surprise, I think, to everybody that they even managed to get it through. But fundamentally, they were very much aware that they had one shot at doing stuff. And so they front loaded, they possibly overloaded. But it's in the end, if you look at the economic numbers instead of the polls,

It looks like it was all okay. And I wonder about the industrial policy legacy, if that will be something, like you're saying, in 10 years, 20 years, we'll be like, oh, look at that, if that has legs. We have a chip sector now. We never had that before. Well, the battery sector and Alana, and actually that's kind of...

That may turn out to be successful even politically. If you view it not as how do we elect a democratic president, which obviously didn't happen, but if you look at it as how do we make these environmental and strategic policies durable? How do we make them things that even a Republican administration will find hard to undo? The jury isn't out on that yet, but it does look like we're getting substantial pushback

That a lot of those basically green energy subsidies may well survive even under Trump because there are all these Republican Congress people who are saying, hey, you know, that factory in my district will die if you take away that money. That's how you do it. It's creating facts.

So that may actually have turned out to be not an election-winning strategy, but a strategy for making sure that the things that you thought were really important on policy are a lot more durable than they might otherwise have been. It reminds me of Obamacare, sort of.

That was a hard-fought battle to keep it, but once it was out there and people started to like it, it was hard to pull it back. Yeah, that's when Nancy Pelosi said people will have to see it in action to understand what's in it. She wasn't saying we pull one over. She was saying that people don't read white papers. People go through lived experience. Once it was there and had been there for a few years, yeah, it's extremely difficult to pull back. By the way, the second round of that is the enhanced

premium subsidies under the Affordable Care Act, Republicans are going to have a really hard choice now whether they really want to undo that. They expire. But if they allow them to expire, then there will be tens of millions of people suddenly saying, why did my premium just go up 300%?

So what's your outlook for fiscal policy under Trump? We have Scott Besson, the Treasury Secretary nominee, coming in saying he wants to slash the deficit to 3% of GDP. We have...

Elon Musk saying he wants to dismantle huge parts of the federal government, and yet the executive branch is not actually in charge of fiscal policy as the legislature. What do you think the Republican-controlled Congress is actually going to do? I'm actually quite uncertain here. Surprise. But I think that Musk, or Musk-a-swami, as I've been calling the guys running Doge, I don't think that they even now fully appreciate the numbers, the arithmetic.

which is that essentially you can't do anything that will

matter, unless you go after Medicare, Social Security, and Medicaid. And that doing so on the spending side would be hugely, hugely unpopular. So I don't know what they're going to do. I mean, there's certainly a faction within the Republican Party. Project 2025 is, in fact, those guys are, in fact, despite all the denials, that is actually the people who know something about policy who are actually going to have a role in making policy are all from that group. But

it will be wildly unpopular if they try to go through with any of it. So I don't know. What the US really needs is another 2% of GDP in revenue.

which is really not hard. We're the lowest taxed of the G7 economies by a long shot. Throw a bit more money at the IRS and they can get it just from rich people who aren't paying. Just through enforcement, sure. I don't think that's going to happen. But not only. I mean, the idea that we can get all of it by only going after people with more than $400,000 a year is there's a lot of money up there that could be collected, but still. But probably some middle-class tax increases. And it's all...

technically entirely doable. Stabilizing U.S. finances is a much easier task at a fundamental level than any other

rich country because we have better demographics, or at least we do unless we do mass deportations. And we've actually had astonishingly successful cost control for Medicare, which is one of the totally unsung policy successes of the past 15 years. So it's not really hard, except that anything you actually suggest that might make a serious dent

We do have a long-term budget problem. There's a lot of room for a country like the United States, but in the end, we do have to pay our way. And anything that might actually get us there is, for one reason or another, completely off the books in terms of actual policies that might happen. And Trump is proposing. I don't know how many of his campaign promises will he follow through with. I mean, ending taxes on tipped income

It's going to be amazing how many private equity managers are going to be receiving a million dollars a year in tips, you know? I agree. Ending taxes on foreign income. That's the other one that they seem to be pushing right now as well. Oh, gosh. I might benefit. You know, our tax code gets a fair bit of royalties on overseas sales. Maybe that's it. Anyway. You can make like Apple. Just make sure they're all recognized in Ireland. Well, that's the other thing is that we have, yeah, the amount of tax avoidance.

It's only evasion if it's illegal. The amount of legal avoidance of taxes. Yeah, so it's kind of interesting, actually. I mean, that was one of the coinages. When Ireland's GDP grew 25% in one year,

Simply because Apple changed its tax strategy and saw a bunch of stuff that had not previously been reported as part of Irish GDP now was, and nothing real had happened. And I called it leprechaun economics. And lots of people picked that up. But unfortunately, after several years, the Irish appointed an ambassador who lacked a sense of humor. And so I got banned from using the term in The Times. What?

What? Because it was offensive? Yes, he thought it was offensive. I have not even encountered the Irish person without a sense of humor. I am shocked. No, that's right. The Irish on the whole are really good sports. Well, they have the Kilkenny Festival of Economics, which is a combination of economics and stand-up comedy. I know. It was very un-Irish. It was very shocking to me. And it was years after I coined the phrase. But there they were. I mean, that's the...

the thing, Felix, you were asking about and talking about before the clash between what's politically feasible and expedient and what economists want to do. I mean, right there, we could just solve everything if we raise taxes just a little smidge.

I think. But like, there's just no way that's happening. Yeah. I always wondered, you know, other countries, different times, but in my career, the only time I actually spoke directly to a person with real power, told him what he should do, and he actually did it was,

was actually Prime Minister Abe of Japan, of all things. And I told him, do not raise the value added tax right now. You still need to break out of deflation. And I'm sure there were lots of people telling him that, but they needed an external authority. But the point was that Japan was all set to actually do a tax hike, falling on the middle class. And that's completely inconceivable for the United States. Yes, except for these tariffs.

Well, the tariffs are interesting. I mean, the trouble, I mean, we'll see what happens when, you know, if they actually go into effect and they actually start to bite. But the only reason that's on the agenda is that Trump has this mystical belief that somehow foreigners will eat them. This podcast is brought to you by Progressive Insurance.

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We should have a quick numbers round. Emily, you said you were very excited about your number this week. I am excited about my number. It is 1,000. That's tons of butter. All right.

Okay. Earlier this month, the Polish government announced it would release a thousand tons of butter from its strategic butter reserve, which who knew? Who knew? We have a strategic oil reserve here in the US, but... The Canadians have a strategic maple syrup reserve. Yes. Yeah, I know that. That's right. I read about it in notes from Poland, and then I just had a little panic attack that it was misinformation, but I noticed the Financial Times has covered it, so I'm very confident now.

Apparently, 200 grams of butter in Poland is now costing more than 50 zloty, or at least it was before they released the butter. And that...

Based on my Googling is like less than a half a pound of butter for like $12, which I don't know if you guys buy butter in the US, but it's way cheaper here. According to CPI, it's like less than $5 for a pound of butter. So it's like crazy expensive. So I don't know what else to say, except I wish we had maybe an egg reserve here, a strategic egg reserves. Maybe Biden would still be president, you guys, if we had combated

the egg flation of a few years ago. I feel like butter, if you freeze it, can keep indefinitely, whereas eggs maybe not so much. The thing that I always keep on thinking about, which famously for decades, the price of tortillas in Mexico was set by the government because they were such an important part of daily life. You can't leave that up to the market. And I feel like butter is something that the Polish government should just make sure that people aren't spending too much on that.

Well, I'll say one more thing about butter keeping indefinitely. I've also read up recently on the Irish bog butter, which in Ireland, they used to keep the butter in bogs or something. I don't know. And still today, they're digging up this really old butter. Vintage butter. Vintage butter. So it does keep. I don't know if anyone's actually eaten and I hope not. But there you go. It's peaty. Oh, yeah.

I'm going to come out with $309,000, which is the number of dollars that you need to spend minimum if you want to buy this new car by Faraday Future, which I was sharing around in the Axio Slack, which I put a photo of it in there. It looks like a $15,000 Chinese EV, and it costs $309,000, and it has something called anti-gravity seats. All right.

And I think this is just, if we need proof that money has ceased to have any meaning, the $309,000 station wagon, there will probably be a brick when Faraday inevitably goes bust in about a year and a half, has to be up there. Why would you not want gravity for your seat? If anything, I definitely want gravity for my seat. I want to stay seated, courtesy of gravity. Yeah, thanks gravity, you're useful.

That's bizarre. Okay. I do have a number for you. Please. Which is two tons. Because crypto has been something that, you know, obviously I've been interested in for a long time and have been in many meetings where sophisticated financial types, economists sort of have asked, what are the legitimate use cases for this stuff? And I recently realized that

and substacked about it, that was the wrong question because who said it has to be legitimate? And if we ask about illegitimate stuff, you know, that's big business. The vast bulk of U.S. currency in circulation is $100 bills, primarily presumably for U.S.

uh, illegal activity. And, um, there's about $6,000 bills in circulation for every man, woman, and child in the United States. So that's just showing you that the business of moving money around in ways that are hard for law enforcement to track is quite big, but, uh,

It turns out, especially given inflation, that currency denominations are not big enough. And so the two tons is-- so Assad, a little while before his fall, did actually pay-- the Russians demanded some money back for their efforts in keeping his reign of terror in power. And he transferred $250 million in cash.

to Russia in the form of $100 bills and 500 euro notes. And it weighed two tons, which is not that trivial. You can't stick two tons of stuff in the false bottom of your briefcase.

And on the other hand, by the standards of modern money laundering and crime, $250 million. I mean, I've used the Dr. Evil image too often. $1 million. But that's just not a lot of money in today's criminal world. That's like half a Leonardo painting.

Yeah. So that kind of highlights why we still have zero legitimate use cases for cryptocurrency, but illegitimate use cases, money laundering, ransom payments, you know, a string of ones and zeros don't weigh two tons. I'm reminded of long conversations I used to have with John Taylor back in the Bush administration when he was sending 747s full of

U.S. banknotes to replace the Iraqi currency. And this massive long thread I had about when Hugo Chavez was president of

Venezuela, he decided that he wanted to repatriate all of the Venezuelan gold that was sitting in the New York Fed in New York. And he was like, I'm going to bring it back to Caracas. And like, how do you move all of that gold from New York to Caracas? It's non-trivial. Yeah, that's an old story. Apparently, de Gaulle was horrified to find out that French gold reserves were actually just sitting in the basement of the New York Fed. And so we need to get it back to France. And then they started to look at the logistics. And it was just

even then when it was just impossible. Ladies and gentlemen, you heard it here first. This is the actual use case for Bitcoin. You can move things around without any weight. Crime. Paul Krugman, thank you so much for coming on this show. It's been an absolute delight having you on.

And thanks, everyone, for listening. Thanks to Jessamyn Molly and Shana Roth for producing. And thanks for emailing us on SlateMoneyAtSlate.com. We will be back in the new year with another year's worth of Slate money. Hey, Slate listener. This is Mary Harris from over at What Next, Slate's daily news podcast. I'm here to remind you that at Slate, we are here to help you make sense of what comes next.

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