We live in a time in which the news can feel very sci-fi. We have computers that can talk like human beings, and maybe even can think in some way. We have people claiming that evidence exists of alien life or UFOs. And at least for awhile there, the entire internet was staring at floating rocks, and trying to figure out whether scientists had discovered the holy grail of room temperature superconductors.
So how should we think about all of these phenomenon? And what would it mean for the economy if these things were to ever bear out? To answer these questions, we turned to Paul Krugman, who has long cited his childhood love of science fiction with getting him interested in economics.
The New York Times columnist, City University of New York professor, and Nobel Prize winner specifically credits Isaac Asimov’s Foundation novels, for sparking his interest, since those stories depicted a society saved by “mathematical social scientists.” Not only was Krugman inspired by science fiction, in the late 1970s he even wrote a paper A Theory of Interstellar Trade, examining the challenge of charging interest on goods shipped across the galaxy, given that the passengers on any spacecraft traveling near or at the speed of light would be experiencing time in a different way than those stuck on their home planet.
On the newest episode of the Odd Lots podcast, he said he believes it’s “extremely unlikely” that there isn't life somewhere else out there in the universe. That being said, given any realistic time scales for aliens to travel to the Earth, it's unlikely that any of these alternate lifeforms have ever made their way here.
Of course if they do make their way here, it would likely be an inflationary event, particularly if there were conflict between the aliens and the Earthlings. “I think that we can say it pretty almost surely would be inflationary. Wars almost always are. And uncontested alien invasion, I guess it kind of depends on how they run the occupation. But actual wars are always inflationary. I can't think of one that wasn’t,” says Krugman.
As for more prosaic developments, he sees the potential for AI technologies to be very disruptive to highly-educated, high-status labor, but probably not in such a way that necessitates major government intervention. And unlike say the China shock, the impacts would be relatively diffuse across the economy, as opposed to devastating specific communities.
In this conversation, we also discussed how he evaluates claims about advanced technology, such as room temperature superconductors, and how new breakthroughs feed through to productivity gains and real growth.
The below transcript has been lightly edited for clarity.
Joe Weisenthal: (00:10)
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
Tracy Alloway: (00:14)
And I'm Tracy Alloway.
Joe: (00:16)
Tracy, it feels like there are many things in the news these days that are like on the edge of reality and frankly, science fiction.
Tracy: (00:24)
More evidence that we're living in the simulation. Yes, you are absolutely right. So first of all, we had this influx of AI technology. Everyone got very into ChatGPT. And now everyone's talking about future AI applications. And then we have the excitement over the possibility of a room temperature superconductor, and then even weirder, we have a lot of talk about aliens. We had the congressional hearings about UFOs recently.
I actually saw someone tie all of these things together recently. They thought that the LK-99 coming out like the week after the congressional hearings or the week of, was evidence that there are in fact, aliens and the technology has come from them. So take that with a grain of salt.
Joe: (01:14)
Like the aliens left this little trail for us? Oh, that's interesting.
Tracy: (01:17)
Well, I think one of the conspiracy theories is the reason it feels like all of this is popping up now and sort of going into hyper drive is because the powers that be are laying the groundwork for us to actually find out there are aliens. So they're sort of dripping it out. And now the pace is picking up. And so it's coming, Joe!
Joe: (01:40)
Here's the thing. I'm a deep UFO skeptic to the point where I've almost like tuned out all the news. If we do have a room temperature superconductor, I don't even know what that means. Like, I see all these people like, ‘Oh my God, we are so back. This is going to change the world.’ I still don't really understand the significance. I think it's pretty cool, but I don't know what it's going to do. And yet, in terms of the economy, so when you're faced with all these sci-fi things, Tracy, who comes to mind as someone who would talk about this?
Tracy: (02:11)
Who's the first person I call?
Joe: (02:12)
Yeah.
Tracy: (02:13)
Well, I guess we have the perfect guest.
Joe: (02:16)
We have the perfect guest. We are going to be speaking with Paul Krugman, opinion writer for the New York Times, professor at City University of New York a Nobel Prize winner in economics. And I read on the internet that he was inspired to be an economist because of science fiction, at least according to a website I'm reading.
And so I think to understand the economics, the implications, the thoughts around aliens, AI superconductors, what they mean for the world and the economy. Obviously the first name we call was Paul's. I think this is your first time on our podcast. So Paul, thank you so much for coming on Odd Lots.
Paul Krugman: (02:50)
Oh, thanks. I think it is my first time.
Tracy: (02:52)
I'm so proud that the first time you're coming on Odd Lots is to talk about aliens. I'm so happy
Paul: (02:58)
I know of all the various things we could be talking about. But hey, I'm pretty bored with inflation.
Joe: (03:04)
Yeah. We've got inflation, the Fed, soft landing, fiscal policy, the $600 checks this recovery versus the other one. It's so boring. It's so tired. Paul, do you think there could be life elsewhere in the galaxy?
Paul: (03:18)
I would think that it's extremely unlikely that there isn't. I mean, there is an argument that says that you know, that complex life may require some very, very special circumstances. Then we might actually be alone out here. But I guess that sounds unlikely. It doesn't seem like it should be that hard for there to be someplace else where complex life has arisen.
But here's an argument that you don't see very often, which is that if there is other intelligent life out there, just given the timescale of things, it must have evolved hundreds of millions of years before we did. So if there are aliens out there, they are have either wiped themselves out one way or another, or are on a level so far beyond us that meaningful interaction is impossible.
So in terms of there being actual aliens, landing and kidnapping people and all of that, that doesn't seem to me to be a very plausible story.
Tracy: (04:25)
So, can I ask a step back question? Which is, you know, Joe mentioned that he read on the internet — always a reliable source — that you got into economics because of your interest in science fiction. I remember you wrote a paper, I think, it's a very long time ago. A Theory of Interstellar Trade. But why does this area interest you? How did you get into science fiction?
Joe: (04:45)
Why did you say ‘yes’ to come out to our podcast?
Tracy: (04:46)
Pretty much!
Paul: (04:47)
Oh, yeah. No. So this is actually very specific, I read as a teenager, Isaac Asimov's Foundation novels. And if anybody's ever read the novels, they're about how galactic civilization is collapsing, but is saved by mathematical social scientists. And I wanted to be one of those guys. So that's how I got into economics, or at least that's the story I like to tell, which is also, by the way, why I cannot bear to watch the Apple TV Foundation series, which completely ditches the whole premise. It may or may not be good TV, but it has nothing to do with what Isaac Asimov wrote. So, it was quite specific
Tracy: (05:29)
In science fiction, economists save the world?
Paul: (05:32)
In one particular classic science fiction series. And then they're not economists exactly. They're mathematical social scientists. But, you know, that's as close as I could get, is doing economics.
Joe: (05:44)
You did write a paper, as Tracy mentioned, on interstellar trade. What what is that all about? What would make say interstellar trade any different between trade between US and China?
Paul: (05:58)
It's a paper I wrote when I was very, very young. I was a frustrated assistant professor, and it finally got published decades later. And so it was mostly a blow-off steam paper. I was having some fun with the fact that, well, look, shipping times for interstellar commerce would be very, very long. You know, not the time it takes to get from Shanghai to Los Angeles, but the time it takes to cross 20 light years.
And at that point, the interest costs on shipping, you know, stuff in transit are going to be a pretty significant part of the expense. But how much time is spent on transit? Because of the theory of relativity, we know that the amount of time perceived on the spaceship is going to be different from the amount of time perceived on a planet that remains stationary. And it's always all kind of silly. But, you know, as I said, I think in the introduction that the results of this paper will be true but useless, which is the opposite of what is typical in economics.
Joe: (06:57)
Wait, I thought that was typical? True, but useless! I thought that was what's typical in economics?
Paul: (07:02)
All right.
Joe: (07:03)
Sorry. Not to malign the whole profession. Sorry.
Paul: (07:06)
I had some fun. And it helped keep me more or less sane during those, you know, pre-tenure year years that every academic has to go through.
Tracy: (07:15)
Was it peer reviewed? I can't imagine but...
Paul: (07:19)
No, well, actually, I sent it off. The Journal of Political Economy used to have a joke paper section at the end, miscellaneous. And I sent it, and the then-editor didn't get any of the references. There were in fact references to Isaac Asimov. And so he said to me, ‘Why is the planet named Trantor?’ And, ‘we need revisions.’ And I said, I'm not going to do that. So I just let it sit. But it had circulated kind of in sums dot for a long time. And eventually the, the Journal of Economic Inquiry contacted me and we said, ‘Hey, we heard about this paper you once wrote, can we publish it?’
Joe: (07:58)
Not to keep diving into this one paper, but you know, if it takes an incredibly long time to ship something from here to the other planet, but the people on the ship don't perceive it as long as those of us on earth, right? Because time is slower time.
Paul: (08:18)
Yes, that's the point. Because if you're traveling at close to the speed of light, okay, unless you can do that, then none of this makes any sense. Then the subjective time is going to be much shorter. And I actually then went on a fancy economic theorem proving to say that that doesn't matter because the relevant opportunity cost is is the time it takes on the planet.
Joe: (08:39)
I'm looking at it now. I found it on online. There's some great...
Tracy: (08:42)
It's really funny. Like in a very dry way, there's a line that like ‘interplanetary trade while of considerable empirical interest raises no major theoretical problems. Among the authors who have not pointed this out are Ohlin and Samuelson...’ I love that.
Paul: (08:57)
Yeah. Actually, Jeff Frankel, you may know, of Harvard, wrote a sort of companion paper around the same time called, "Is there trade with other planets?" in which he pointed out that if you sum up total world exports and total world imports, you know countries report the amount they export, the amounts don't actually match. Oh, yeah. And that the world as a whole appears to export more than it imports.
Joe: (09:22)
Every statistical agency around the world wants to flatter their numbers of exports and shave a little bit off the imports, I guess.
Paul: (09:29)
Yeah. Maybe. Also, if you smuggle stuff in past customs, it shows up as an export, but not as an import.
Joe: (09:42)
Do you pay attention to things like the UFO hearings? Like right now? How engaged are you? Like when you see these headlines about someone claiming...
Paul: (09:52)
I think we've got enough weird stuff in the world. Although, I will say that the theory that says that the aliens are selectively releasing technologies, that's a subplot in the movie Men in Black. I don't know if people remember this, but the agency that employs Will Smith, they finance themselves by selectively releasing alien technologies. I think that Velcro was supposed to be one of them.
Tracy: (10:21)
They joke about that.
Paul: (10:22)
Yeah. So that's, so you really should be, it should be even more conspiratorial than people are making it. It's not just that the aliens are doing this because they're about to be found out. It's that the government agents in black suits are selectively releasing these alien technologies.
Tracy: (10:38)
Well, let me ask, I guess, the big question, which is, how would you, as a economist, you know, a rigorous, well-grounded researcher in this field, how would you go about thinking or incorporating something like aliens slash alien technology into the way you think about the economy?
Paul: (10:59)
Yeah. The aliens, I have absolutely no idea. I mean, again, if there are aliens out there, if they exist, they almost have to be immensely more advanced, basically on a different plane. And it's not clear that they would have any interest in dealing with us. But the technologies, if there are for whatever reason, whether it's they're leaking out of area 51 or there are really big ecological things happening. Of course, technological progress is ultimately the main driver of economic growth. So these are important things if they pan out.
Joe: (11:56)
Let's talk about technological progress as a driver of economic growth, because it seems like that. So it's like, okay, there is this thing that people are talking about, which is the possibility of superconductors that can exist at room temperature instead of really cold temperatures, which supposedly might have all kinds of implications for battery tech or power transmission or electricity consumption.
I don't really totally get it. I'm not a scientist, but it seems good. But on the other hand, technologies exist and they are exciting, but they don't necessarily show up in the economic aggregates. They don't suddenly make GDP growth go from 3% to 10% just because there's some new breakthrough. Why don't they? Why don’t we get technological inventions that suddenly because GDP growth to grow at a much faster pace?
Paul: (12:42)
Oh, well, we certainly do get inventions that make a difference. That show up a lot. I mean, so if you think about, you know, we have a pretty good idea there was an acceleration in US productivity growth for about 10 years from the mid nineties to the mid naughties. That was something like 1% a year faster growth than before or since, which we think was because business finally figured out what to do with IT.
And some of it's the internet, some of it's just finally figuring out how to use barcodes to do effective inventory management and, you know, more prosaic things. But basically there was a clear bump in productivity that was associated with the rise of IT and networks and all of that. And you could say, well, that's it? All, all we got was 10 years of 1% faster growth, but that's a 10% bigger economy.
And there's almost no conceivable economic policy that would raise US growth that much, right? So even what was relative to a lot of what people had hoped for or predicted, even though the results of IT have been somewhat disappointing. They’re still huge relative to anything that any presidential candidate could plausibly promise to accomplish.
Tracy: (14:03)
How good are we at actually measuring technology's impact on productivity? Because I remember this was a talking point a few years ago, the idea that technology is in fact improving, but the way that it's improving and sort of feeding into the economy is not well captured by statistical methods.
Paul: (14:23)
Yeah. There's actually two levels of that. First of all, the way that we actually sort of measure technology is Godawful, except it’s not clear how else you do it. I mean, we think that we have ways of measuring the contributions of tangible stuff like an increased stock of capital to economic growth. And what economists do is they add up all of those things, that's growth accounting. And then whatever's left, they say, that's technology.
You know, it's a really pretty poor technique. It's basically technology is the measure of what you can't explain otherwise. That's not great. But on top of that, then there's the unmeasured, as you say, we don't have a very good handle on, you know, what is the value of streamed entertainment one way or another?
You know I'm really into live musical performances and can't get into, you know, can't make time in my life to go to as many as I would like to. But I can watch a lot of live musical performances on YouTube. That's pretty big. I would probably be willing to pay thousands of dollars a year for that. As it happens, I don't have to pay that. But that's not captured by the GDP statistics. And there's probably a bunch of things like that.
To take something that's less sexy, but healthcare. The fact that doctors can treat lots of things that were untreatable before is a really big thing. But, you know, it has always been true, but not always. But it's been true for a very, very long time. You know, if you start from the late 19th century when you started to finally get big improvements in public health because people stopped getting their drinking water from a well next to the outhouse. Those are huge gains that are really not at all captured by our official statistics. So probably it's the case that there's much more economic growth than the numbers show, or much more improvement than the quality of life anyway, than the numbers show.
Joe: (16:21)
I'm glad you brought up the live music. I was talking to Tracy earlier, and I have this memory of us running into each other. It might've been like 2011 or 2012 at some conference in New York City, and everyone else was mingling. And you were smartly in the corner watching, I think, a live video of the Arcade Fire in 2011 or 2012. Who do you like these days? Any any band recs?
Paul: (16:43)
Oh, wow.
Joe: (16:44)
It's fine if not.
Paul: (16:46)
Okay. I worry when I say this that I'm going to insult bands I love by forgetting to mention them. But the last concert I went to, which was just at the beginning of the summer, was Larkin Poe. Sisters from Atlanta, who do mostly the blues and are just incredible. I'm away for the summer. Actually, I went to a little, undisclosed location.
I went to just a bunch of local musicians doing, they're calling themselves the Grateful Dread. Reggae-inspired Grateful Dead covers, which was great fun. But the next thing I'm going to is something called, a band that has been around for a while called Warpaint. And does sort of vaguely psychedelic stuff. I'm a huge fan of Boygenius.
They've been getting quite a lot of play. But actually the trouble is that I like the more intimate concerts. And the next Boygenius performance is at Madison Square Garden. Sorry, I love the band, but I wouldn't love that experience. So, you know, there's a bunch. I mean, that's the thing. I subscribe to, I think around 40 channels on YouTube, which are almost all indie musicians of one form or another.
Joe: (17:57)
All right. I'm going to have to check out Larkin Poe. I'm looking them up now. It looks really good. Looks like the kind of thing that I would like. I want to go back, we're talking about technological impacts on macro and someone is going to get really mad. I've defended the sort of famous infamous internet fax machine comment on the sort that you made, because it doesn't seem like 1% growth even over 10 years really changes the economy that much, or as much as you would think given the sort of like huge upheaval that we've seen that the internet caused. Is there any way to sort of know early on or in real time what a technology is going to do to the economy? Or is it the only kind of thing where you can say afterwards, this seems to be what happened here?
Paul: (18:46)
Okay. What people don't know, by the way, is that comment about the internet and the fax machine was in the context of a piece that was meant to be funny.
Joe: (18:57)
Oh. I defended it seriously, I've taken a lot of flack on Twitter now.
Tracy: (19:01)
You were trolled by Paul Krugman!
Joe: (19:03)
And now I'm discovering that I was defending a...
Paul: (19:06)
No, I think it is actually defensible, and I'll agree with you on that. But what was actually happening was that was a piece where before I worked for the Times, I was asked to write a piece looking back from a hundred years in the future at what had happened. And so I wrote a bunch of things. And many of them were deliberately counterintuitive, some of which have turned out to be true and some are not. But the piece ends by by saying that my day job is working as a veterinarian, but I'm hoping that this piece will get me on the lecture circuit, so.
But no. The point was, if you're looking for the transformative economic effects of the internet, they are pretty elusive in the data. To take a even more extreme example, smartphones, the iPhone was introduced I think in 2006. And if you look at the official productivity numbers, the period since 2006 has been lousy for productivity. It has been a long productivity drought. The boom in productivity was between about ‘95 and 2005. Which is much more the fax machine era than the internet era.
Tracy: (20:21)
I have a really basic question, which is, if you get a brand new world-changing technology like the internet or a room temperature superconductor, would that count as like an exogenous shock or an endogenous shock?
Paul: (20:38)
I mean, at some level everything's endogenous. As you go deeper, at some level, it's all quantum mechanics. But in terms of being something that, look, the long sweep of technological progress that begins, you know, about two centuries ago or a bit more, that's clearly endogenous given that we had the change in mindset, the change in the way that people behave, that caused the industrial revolution and everything that followed. Then of course there were going to be a lot of explorations of new possibilities, lots of new technologies, any individual technology is, there's a strong element of ‘we stumbled on something.’
And so when you stumble on something that actually has big economic implications, that's even more fortuitous. It's really not predictable in advance either way, you can have something like, I think many people would've expected to see a much bigger visible impact on the economy from smartphones than we appear to have seen. But on the other hand, who would've thought that shipping containers would matter as much as they have turned out to for the global economy? So really in the sense of being really hard to have predicted either that the innovation would happen or that it would matter a lot. It's exogenous for all practical purposes.
Joe: (22:03)
You know, it's really important that we use the same gauge and size shipping containers as they do in China. I wonder how we would even coordinate that with another planet? They might have like a totally different size shipping container at their ports. That could be a very difficult.
Tracy: (22:17)
Interstellar shipping containers.
Joe: (22:19)
It could be a very different coordination problem.
Paul: (22:21)
Yeah, and the trouble is if they're 40 years light years away, the negotiations to establish a common standard might take a couple of millennia.
Joe: (22:29)
That's what I was thinking. Right. It's hard enough to come up with common standards here on Earth. I want to pivot. I want to ask you about AI actually. And I'm curious, you know, every technology has its thing. People worry about which jobs are going to get disrupted and so forth. And then with AI it feels like this deeper angst that many people have because it can think and it can write. And I've expressed my own anxiety, like, well, will I be out of a job in a few years as someone who does words on the internet for a living, because ChatGPT is pretty good at doing words. Does it feel different to you in some way in terms of, or is it, that we have tech, you know, we are always getting better at things and it's sort of part of a continuous process of technological gain?
Paul: (23:15)
Well, this looks like it may be, there are things that are kind of narrow gauge technologies that affect a very particular sector, but not that many people. This stuff, although what we're calling ‘AI’ isn't really’ arguably, but the stuff we're calling AI anyway does look like it's going to affect a lot of activities. The pessimists say, or the skeptics say, look, it's not really thinking, it's not creative or original. It's just sort of processing what other people say. And it's just basically super-enhanced autocorrect, which is all kind of true.
But then how many people out there in the real world are in fact being creative? How much of the work that we pay people, a lot of money to do is in fact a lot like super-expanded autocorrect? And I think the answer is quite a lot. So this is potentially a really big thing, and it could displace a lot of jobs. And interestingly, it's the jobs that it might displace are going to be ones that are kind of high prestige, high education. You know, we're a very, very long way as far as I can tell, from being able to have robot plumbers. But we may be quite close, maybe already there, to having robot journalists. So yeah, this is serious.
Tracy: (24:43)
So you obviously talk and write about economic policy quite a lot. From that perspective, what would be the best way to handle AI? If you're worried about society, if you're worried about things like inequality, what would be the best economic policies to put in place?
Paul: (25:01)
I don't think this one calls for a lot of remedial policies other than simply having a strong social safety net. It's too pervasive and too diffuse, I think. When you have something like — it's not a technology, but in some ways similar — if you have something like the the China shock. That period of about 10 years where we had a real surge of imports from China.
The thing about that was., actually the number of jobs displaced was probably not, was between 1 and 2 million, but they were very concentrated. There were just communities that were effectively wiped out. And that's where the idea that you probably should have had some kind of remedial policy that tried to sustain, or at least help these communities adjust or help them downsize or something so that the social impact would be less, that kind of made sense.
But now, if you have something that is going to be wiping out certain kinds of white collar jobs, but more or less evenly across the country. It's not going to be doing a whole lot more or less in any particular region. It's not going to be affecting any particular social group, except in the sense that it may be devaluing certain kinds of higher education.
I don't think there's much you can do about that aside from just trying to ban the technology altogether, which isn't going to work. So I’m actually not sure that aside from the fact that we should have a society where you don't starve or go without medical care if technology does have to take your job, I'm not sure there's much more you can do than that.
Joe: (26:58)
I'm going to break the pattern and actually kind of ask a question that might be relevant to the current economic data. But I was thinking about going back to the nineties and the sort of productivity boom that we saw in sort of the mid nineties and beyond. And the other thing about that time, beyond just the sort of advent of the internet and a lot of information technologies, is it was a strong economy. It was robust, there was robust growth, it was robust employment growth.
And one theory that sometimes gets aired is that productivity is downstream of robust growth and tight labor markets. And that when there's tight labor markets that firms have to find ways to implement new technologies because they can't just hire someone cheaply that forces the sort of like genuine productivity gains, technology to actually be incorporated.
And of course, we have very tight labor markets right now in the US. How much credence do you [give] that? I remember Janet Yellen giving a speech in, I want to say like 2014, like the reverse hysteresis. This idea that if we run the economy hot for a while, that it can really pay off in terms of these productivity gains. And we might be getting a test of that now. How compelling do you find that?
Paul: (28:10)
It's one of those things where I take it seriously and have absolutely no idea whether it's true. There is some case to be made that running the economy depressed, leads to losses that you basically never make up. So a weak economy for a sustained period of time leads to lower productivity growth for many, many years thereafter. And you can read some of the evidence from the 2008 financial crisis and aftermath to say that.
On the other hand, that isn't always true. The Great Depression in the United States appears to have had zero impact on all of that. If you look at the economy in the late forties, it was just about where extrapolating trends from 1929 would've led you to think it would be. Now it's true that we did run a very, very high pressure economy for four years in the 1940s.
Joe: (29:12)
The original frying pan chart.
Paul: (29:15)
Yeah. I'm not sure if readers will know about that, but yeah. The frying pan charts that I've been promoting too. But productivity did pretty well even during the thirties, even with a very depressed economy. It's possible. Right now, it'd be nice to believe that by running a genuinely full employment economy, arguably for the first time since the late Clinton years, that we are setting the stage for an era of good productivity growth.
But I don't know that, and I think I can make a firm prediction is that we will never know that. Even though, you know, looking back 10 years from now, if productivity growth was high, we won't know whether that was because finally we got sufficiently expansionary macro policy or because we just happen to lock into getting usable AI for the first time.
Joe: (30:05)
Yeah. Tracy, if there's one thing I feel like I've learned from, you know, sort of covering economics over the last 15 years or whatever, it’s that debates never actually get resolved. It's like you can have all the data and then two people tell a different story.
Tracy: (30:18)
Yeah, no, that is very true.
Paul: (30:20)
It's the same two people telling the same two different stories decade after decade. That's what really drives me crazy. It's always the same people on the same side. Now, whatever the data are, it doesn't actually speak too well for my profession.
Tracy: (30:33)
Wait, since Joe asked a question that brought us back to more modern times and more relevant themes, I want to ask one too, which is: Would an alien invasion be deflationary or inflationary? A very serious question.
Paul: (30:48)
Oh! I think that we can say almost surely would de inflationary. Wars almost always are. An uncontested alien invasion, I guess it kind of depends on how they run the occupation. But actual wars are always inflationary, I can't think of one that wasn't. They always involve big government spending. Actually they always involve a collision between large spending and at least temporarily reduced productive capacity. So yeah. You may recall that back when I was, you know, desperately pleading for more fiscal stimulus...
Tracy: (31:24)
Oh, that's right, yes!
Paul: (31:26)
… I said that the government should lie and claim that we were facing an imminent alien invasion. And that in order to fight that imminent alien invasion, what we needed was better infrastructure. So we should have a big public infrastructure platform because things that people would never agree to simply in order to make people's lives better, they will agree to in order to fight invasion.
Joe: (31:48)
It is interesting, and you definitely see this over the last couple years, the degree to which big public investment programs seem to go down easier politically if it can be couched in the language of geopolitical conflict. And so even, say like some of the decarbonization efforts in the US, the IRA, lot of it is almost either implicitly or explicitly, ‘Oh, because China is doing this too,’ and suddenly that that brings out the votes a bit more.
Paul: (32:15)
Well, yeah, I mean, we have two big public infrastructure programs. Well, three. We have one which is just straight infrastructure. But that was to some extent, well, you know, we're falling behind China, we need to do something. Then we have the CHIPS Act, which is explicitly about countering China. And then yeah, some of the IRA stuff has been sold as being a national security concern as well. It's crazy. But yeah. In order to provide people with just a better economy and a better life, you generally can't get that past the deficit goals unless it's in the interests of fighting evil outsiders.
Joe: (32:59)
I want to ask another AI question. I mean, I know you said like, okay, there's not some obvious like remedial policy, but it is interesting that there is this possibility that it disrupts a lot of currently high status jobs, people with a high level of education, white collar work, etc. Which I guess in people's minds feels different than like a loom on a shop floor or something like that. People think, ‘well, this is different in some way.’ Historically, are there examples that feel similar, where like, no, this really disrupted something that at the time was seen as like very high status prestige work?
Paul: (33:37)
Well, really high status prestige work, I'm not sure, but relatively high. I mean, we talk about the Luddites. The Luddites were not the poorest least skilled workers. The Luddites were skilled weavers who were actually relatively high wage. What had happened was that the factory production of yarn had created an abundance of yarn, but the weaving was still being done by highly skilled manual workers. Manual workers but high skill.
And then along came the power loom and suddenly the relatively high wage workers found their jobs disappearing and they were the ones who went out and rioted. So it's certainly not the case that technology is always going to favor the higher wage people at the expense of the lower wage people. And you know, there's probably a lot of quiet stuff in there.
This has probably been going on to some extent. I mean, one of the things that about US inequality is that there was a time when people said, ‘Oh, it's all about education differentials,’ but the college wage premium hasn't really gone up for a long time now. But it's also true that a lot of information processing that used to require a human being either doesn't or can be done by fewer human beings because machine assistance helps.
Tracy: (34:56)
On the topic of inequality, it does feel like there is this pervasive sense that the US economy is doing worse in many ways for a large chunk of the population, despite everything that we've seen in some of the hard data recently and a lot more discourse about the possibility of a soft landing.
But what do you think is driving that dissatisfaction? And then secondly, you know, how do you go about, I guess, messaging that the economy isn't that bad to the general population so that aliens don't feel the need to invade the planet to make us all feel better or worse?
Paul: (35:33)
Yeah, it's an interesting question. I mean, if you actually are asking about inequality, have recent events hurt lower income people more than higher income? That's actually not what the data says. On the contrary, what we've seen is is a surprisingly fast narrowing of wage gaps. The people at the bottom of the wage distribution have done a lot better than the average.
You know, Arin Dube has been writing about this, the unexpected compression of wage inequality that has taken place in the last couple of years. So that's not really the story of why people are feeling dissatisfied. If I had to try to say why people are dissatisfied, one of it is that, look, the return of inflation after a generation when people just didn't think about it, that was a big shock. And people going to take some time to recover from it.
Then actually, I think it's more than two things. I'm going to turn on the Monty Python routine. ‘Amongst the reasons.’ But then, yeah, there is partisanship. It's just astonishing if you look at, at the surveys how much... It's true for both parties, although it's even more extreme for Republicans. But an economy that was really great as long as Trump was in the White House, suddenly becomes terrible. Even though it's the same economy with a Democrat in the White House.
But then perceptions are shaped by narratives. There's just lots and lots of surveys now, which you ask people, how are you doing? And they say, ‘fine.’ And how's the economy doing? ‘Oh, it's terrible.’ Which is… this is relatively new in economics. But in other areas we see that all the time.
I look at crime. We had an epic decline in crime between about 1990 and the mid 2010s. Really astonishing. And we have still basically no idea why it happened, but for some reason America became a much safer place. And all through that, if you ask certain people what's happening to crime? They said it's increasing. Although if you ask them how, how do you feel about your neighborhood or your town, they were much more favorable. So we've got some kind of psychology where a lot of people now believe that really bad things are happening to somebody else. Somebody I don't know.
Joe: (38:07)
I hope the media isn't culpable for any of that. Just going back to your point about how things like AI or things that may have compressed education, labor, it's not really that new of a story. Guillermo Roditi Dominguez, who has been on the show, he always likes pointing out that the word ‘computer’ used to refer to a profession. That there used to be people whose occupation was computer.
Tracy: (38:34)
Human Excel spreadsheets.
Joe: (38:35)
A human Excel spreadsheet. Yeah.
Paul: (38:37)
Richard Feynman. Richard Feynman ran the computers at Los Alamos. You've just seen Oppenheimer. What is clearly Feynman appears there playing the bongos, but he's not a speaking character. But he ran the computer section at Los Alamos, which was a bunch of women who were actually computing.
Joe: (38:58)
Right. Can I ask, we sort of glossed over this within the context of alien technology, but are you paying attention to the superconductor stuff? You're really plugged in, you're online, you're probably as like online and on Twitter as much as me and Tracy. And you see these videos of like a magnet flapping and people are like, ‘Oh my God, this is like the holy grail.’ This is a question I've been asking everyone. How do you as a sort of intelligent plugged-in person try to like process what's going on when you see things like this happening in the world?
Paul: (39:32)
This one is really hard. I mean, I am extremely online actually. I hate when my phone tells me how much screen time I've had each day. I often feel that I can go online and get reasonably reliable assessments of stuff in areas of which I personally know nothing, because I kind of think that I do know enough to recognize people who have some idea what they're talking about.
I know what actual research sounds like. This is one of those areas where I can't make it out. It sounds like there are reasonable people on both sides. There's no obvious motivated reasoning driving this. And I'm kind of just saying I have no idea. And not only am I not entitled to an independent opinion, I don't know whose opinion to trust.
Tracy: (40:24)
I just have one more sort of theoretical question. Getting back to the beginning of this conversation and science fiction, but what's your favorite economic system in science fiction if you had to choose?
Joe: (40:36)
This is a good one.
Paul: (40:37)
Oh, well that's interesting. Most science fiction either doesn't specify or kind of assumes that it's not very different from what we have now. So there are very few sort of serious alternatives. If you look at the Star Trek universe, that appears to be sort of idealized Marxist socialism.
Joe: (41:06)
That's the one that you always hear. I've heard that before.
Tracy: (41:10)
Literally, live long and prosper.
Paul: (41:11)
That's actually the opposite of the Americas. America is the country where we prosper and die early.
Joe: (41:24)
Live short and prosper!
Paul: (41:26)
Yeah. But, you know, the replicator. You just say "Tea, Earl, hot" and there it is. And supposedly it's an economy of total abundance. Although, I'm occasionally attempted to yell at the screen, "But services are most of the economy and replicators can't do that!" Although I guess androids can.
But other than that it's really hard to see very much. People are not very original in trying to think about economic systems. There is a real paucity of ideas for something different. There's very little central planning fantasies out there in economics. There are some people who try to invent a warehouse, some kind of system of points or so on, but what they don't seem to realize is that what they're actually doing is reinventing capitalism.
Other than that, I haven't seen a whole lot of interesting speculation. It's possible that we've already explored all the possibilities there are. But I don't know. The one thing I do see is that there is a fair bit of fairly thoughtful science fiction that just kind of assumes that future societies have a kind Scandinavian welfare state. That whatever else there is, there's always basic income to fall back on.
Actually, sorry, too much information, but The Expanse. If you watch that science fiction series, which was one of those things where the TV I think was better than the novels. But anyway, the Earth's economy in The Expanse appears to be a kind of a UBI society. Except that it sounds like everybody receives if they're not employed, and apparently they have mass numbers of people who just have no jobs, but what they get is they get the basics to survive in kind rather than in cash. But it's not a utopia. It's kind of portrayed as being kind of grim. But if you look for real seriously alternative economic systems, I can't think of one in any of the science fiction I've read.
Joe: (43:39)
Paul Krugman, it’s so great to finally have you on Odd Lots and it was so great to talk about things that are not just the sort of day-to-day ‘what's the Fed going to do next week?’ So really appreciate you coming on. That was a really fun conversation.
Tracy: (43:52)
So much fun.
Paul: (43:53)
Okay. Take care. And yeah, great stuff.
Joe: (44:09)
That was fun, Tracy.
Tracy: (44:12)
I absolutely love it that Paul Krugman's first appearance on this podcast is to talk about aliens. You can't beat that.
Joe: (44:20)
I hadn't thought about the challenge that would pose.
Tracy: (44:24)
To productivity statistics?
Joe: (44:26)
And the challenge that that would pose of like, the rate of interest for people in normal time versus like the payment that people will demand who are on the ship itself moving at different time. Very interesting theoretical questions, to his point. But I think that probably much of economics does not have much practical application.
Tracy: (44:45)
You know, what would blow your mind if you start thinking what interstellar finance would actually look? Like currency exchange markets and things like that where you have spot and forward markets and things. Anyway.
Joe: (44:55)
Can I just say something. Foundation for Economic Education, which I think is like this sort of libertarian, like pro-capitalist think tank. They have an article saying ‘Star Trek is not socialist.’ Because that was one of the first things that came up. Is Star Trek really socialist? So some people push back on that.
Tracy: (45:20)
I do think there clearly there's a gap in the market for like a really well thought out piece of science fiction that's like predicated on a very specific and creative economic system.
Joe: (45:31)
It's funny to think about these sci-fi writers who are like, "Oh, it's going to be like points, bro." Bro, you invented money, You reinvented the dollar. Well done.
Tracy: (45:39)
Well, you know, Paul made the point that a lot of science fiction seems to default to this idea of Keynesian abundance, right? Like post-scarcity. But if anything, in 2023, yes, there have been a lot of technological advances, but there are serious concerns over basic resources and their availability and how they're distributed and things like that.
Joe: (46:06)
And services. Because we have so much good AI, but we don't have good robots. And so it's like when we talk about childcare, eldercare, etc. It's like we really need these robots to come along if we're going to get that true abundance.
Tracy: (46:17)
Hopefully the aliens bring the robots.
Joe: (46:20)
Yes. Please bring robots.
Tracy: (46:22)
Shall we leave it there?
Joe: (46:23)
Let's leave it there.
You can follow Paul Krugman at
@paulkrugman
.