# The Economic Risks Keeping Paul Krugman Up at Night | Prof G Markets

Markdown copy of https://realalpha.app/v/DQFkezP6qSg/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

Paul Krugman says the AI boom, weak underlying demand and political uncertainty leave the economy exposed, while climate action remains urgent.

- Show: Prof G Markets
- Hosts: [Scott Galloway](https://realalpha.app/people/scott-galloway/) & [Ed Elson](https://realalpha.app/people/ed-elson/)
- Guest: [Paul Krugman](https://realalpha.app/people/paul-krugman/) is a Nobel Prize-winning economist and distinguished professor of economics at CUNY.
- Published: Dec 5, 2025
- Length: 51 min

## The best minutes

- [39:38](https://realalpha.app/v/DQFkezP6qSg/?t=2378) [Climate damage accumulates, while clean energy offers a path forward](https://realalpha.app/s/climate-damage-accumulates-while-clean-energy-offers-a-path/) (6 min)

## Also worth watching

- [11:14](https://realalpha.app/v/DQFkezP6qSg/?t=674) [Relative poverty better captures exclusion than a single income cutoff](https://realalpha.app/s/relative-poverty-better-captures-exclusion-than-a-single/) (5 min)
- [29:51](https://realalpha.app/v/DQFkezP6qSg/?t=1791) [Wall Street sees political risk in Washington more clearly than tech](https://realalpha.app/s/wall-street-sees-political-risk-in-washington-more-clearly/) (5 min)

Skip the eight-minute opener of sponsor reads and host banter, the long mid-episode sponsor break, and the closing discussion of media models.

## Full analysis: Paul Krugman puts data center spending near one to two percent of GDP

- Krugman puts data center investment at something like one to two percent of GDP.
- That scale matters, but he says it cannot alone produce a crash on 2008’s scale.
- Teams should test whether AI demand and financing can stand without a public rescue.

Its 6 sections, what it means for you and what to watch are on [the page](https://realalpha.app/v/DQFkezP6qSg/#analysis), free with an account:

- [7:40](https://realalpha.app/v/DQFkezP6qSg/?t=460) 2025 put tariff upheaval and AI investment in collision
- [8:37](https://realalpha.app/v/DQFkezP6qSg/?t=517) Real income rose while access to housing and work tightened
- [28:56](https://realalpha.app/v/DQFkezP6qSg/?t=1736) AI spending props up demand, but limits direct crash scale
- [18:22](https://realalpha.app/v/DQFkezP6qSg/?t=1102) Debt markets depend on confidence, not a fixed ratio
- [27:02](https://realalpha.app/v/DQFkezP6qSg/?t=1622) A public AI rescue would face a political test
- [43:14](https://realalpha.app/v/DQFkezP6qSg/?t=2594) Climate damage accumulates, while clean energy offers upside

## Summary

Paul Krugman is a Nobel Prize-winning economist and distinguished professor of economics at the Graduate Center of CUNY. He was a New York Times columnist from 2000 to 2024, previously taught at MIT and Princeton, and now writes on Substack.

Krugman describes 2025 as an unusually volatile year in which high tariffs replaced decades of U.S. trade policy while the AI boom collided with them. He says real income has edged above pre-pandemic levels, but housing and borrowing costs and a frozen job market sustain affordability pressures that headline measures miss. He warns that deficits and concentrated AI investment expose markets, though data-center spending is only about 1–2% of GDP and a downturn would likely be smaller than 2008; he also doubts a government bailout would be politically easy. He sees the administration’s ties to tech companies as crony capitalism, calls climate change and democratic stability urgent risks, and argues that new media still depends on legacy outlets’ reporting.

### Minute by minute

- [6:48](https://realalpha.app/v/DQFkezP6qSg/?t=408) **Tariffs collide with an AI boom.** Krugman calls 2025 a highly unusual year: 90 years of U.S. trade policy gave way to very high tariffs as an AI boom gathered force. He says the two developments are interacting, making the economy unusually difficult to read.
- [7:58](https://realalpha.app/v/DQFkezP6qSg/?t=478) **Affordability persists despite rising real income.** Krugman says the typical person’s real income is slightly higher than before the pandemic, so a simple account of prices making everyone poorer is wrong. But higher interest costs, the cost of buying a first home and a frozen job market leave people struggling to get by or find a new job.
- [10:18](https://realalpha.app/v/DQFkezP6qSg/?t=618) **Poverty needs more than one measure.** Krugman says the official poverty measure began as a quick calculation based on food costs and has since been adjusted only for the consumer price index. He favors looking at both whether people can afford essentials and whether they are excluded from the economic mainstream; measuring poverty as less than half of median income shows it has risen with inequality.
- [15:35](https://realalpha.app/v/DQFkezP6qSg/?t=935) **Debt risk turns on confidence.** Krugman says weak demand may have persisted without large budget deficits, and that the U.S. can borrow heavily as long as markets trust its institutions and its willingness to control debt. He says the risk is not an arbitrary debt ratio but whether the U.S. is seen as a serious country, while political deadlock leaves popular programs such as Medicare and Social Security without enough tax revenue.
- [28:04](https://realalpha.app/v/DQFkezP6qSg/?t=1684) **Data-center spending limits crash scale.** Krugman says economists have a poor record of predicting recessions and cautions against assuming an AI downturn would match 2008. He estimates data-center investment at about 1–2% of GDP, saying a pullback would be unpleasant but more comparable to 2001 than 2008.
- [29:51](https://realalpha.app/v/DQFkezP6qSg/?t=1791) **Krugman calls tech ties crony capitalism.** Krugman says there is no clear AI or broader economic policy in the administration, and describes tech executives seeking favor as crony capitalism. He says Wall Street has been less visible, while Silicon Valley has less experience dealing with government; he also argues that some tech billionaires want to restore the sector’s former public standing.
- [39:38](https://realalpha.app/v/DQFkezP6qSg/?t=2378) **Climate risks persist as green technology advances.** Krugman names environmental damage as a major risk, saying cheaper green technologies could limit climate change while the U.S. turns away and China takes the lead in green energy. He says the more immediate worry is whether the U.S. remains a democracy, while cumulative emissions threaten lasting climate and property damage; as an upside, he says AI could raise productivity growth by 150 basis points.
- [45:11](https://realalpha.app/v/DQFkezP6qSg/?t=2711) **Independent media still needs legacy reporting.** Krugman says Substack gives him more freedom and lets him publish charts quickly, but independent media cannot replace the reporting he relies on from outlets such as The New York Times and Bloomberg. He calls the Times’ paywall model a success but says it works for relatively few organizations, leaving local reporting vulnerable.

## Transcript

Prof G Markets, hosted by Scott Galloway and Ed Elson, with Paul Krugman.

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there. Where the podcast’s audio and the video part ways, some times are a minute or so off.

[0:12](https://realalpha.app/v/DQFkezP6qSg/?t=12) on average people spend shopping online at work. I hate those little reminders that people who bought this also bought. Okay, those people are also emotionally fucked up in the head. Stop Stop profiling me. Cash is trash. Stocks look pretty attractive. Something's going to break. Forget about it. Ed, I made that up myself. Yeah, I could tell. You could tell I made it up myself? I had a great joke on, what was it? Oh, there's the Prof G Show. I don't know if you know this. I do other podcasts, Ed. That's right. And it was that I watched Jaws last night, but instead I watched it backwards, and it's actually the heartwarming story of a shark that helps disabled people recover their lives.

[0:49](https://realalpha.app/v/DQFkezP6qSg/?t=49) i think that's genius really dialing it back and this was the the question last week should we dial it back i thought the answer was no i guess the answer is yes we've got a dad joke about jaws and about shopping would you trust the judgment of someone who takes the time to comment on a youtube video i mean we love our fans we love our fans love them but i'm not listening to any of you. No shock. I always try to be positive in comments. I'm not getting into fights anymore with people online because I'm usually fighting against a bot. And then I find my erectile dysfunction gets even more dysfunctional. And so I'm telling you how it's coming.

[1:30](https://realalpha.app/v/DQFkezP6qSg/?t=90) You laugh now. You laugh now. Just wait, my friend. Just wait. Teladnophil, which by the it's a generic name for Cialis. Just get used to it. And it's less embarrassing to say to your nurse who's got, or your nurse, your doctor who always has like an attractive nurse in the room and you have to say, I'm kind of interested in those drugs that, um, what is it? How you say, make dick hard. I don't know who I'm imitating there. I just know that's all kinds of wrong. You know what? Actually, our producer's fucked up. You know what today's number should have been? what 30 why's that ah okay that's right there we go ed elson 30 under 30 according to forbes which by the way i did not know forbes still existed but it is still very prestigious very prestigious and katherine uh we're on another podcast rage moderates she came on this is such exciting news ed just got 30 under 30 on forbes and i literally reflexively shout it out that bit shows me everything it's true i do everything tell us how does it feel to be the 30 over 30 or 30 under 30 yeah it's nice you know the secret of the 30 under 30 is it's actually 600 under 30 Keep on increasing the number of us every year.

[2:53](https://realalpha.app/v/DQFkezP6qSg/?t=173) So, I mean, that's the sort of little footnote that we should consider, but still very exciting. Well, you joined past alumni, including Mark Zuckerberg, LeBron James, Miley Cyrus. LeBron James. He and I have a similar career trajectory, I think. I think you're much more similar to Miley Cyrus, for that just mean the guy who started Spotify. That's pretty good company. Also, Elizabeth Holmes and also Sam Bagman-Fried. I mean, if anything's going to happen to me, I'm going to end up in prison in the next two years, if we're being realistic here. Let's bring this back to me. I peaked pretty early.

[3:29](https://realalpha.app/v/DQFkezP6qSg/?t=209) I came out of the Gates Strong out of business school. I started a strategy firm. Someone got me invited to Davos. I was literally 29 at Davos, and I thought it would just keep going uphill, just up and to the right. And by the time I was 33, I was divorced, broke, and basically living like a caveman in New York, like occasionally leaving to try and go to the ready teller and get food and pursue sex unsuccessfully and then going back, retreating back to the cave. So that's what's coming next to you, Ed. That's what's coming. That's next up. Next up. I can't wait. You just got it. You can't let it get to your head.

[4:06](https://realalpha.app/v/DQFkezP6qSg/?t=246) Oh, that's too late for that. You're one of those quiet, conceited guys. You're always like, oh, well, I don't think about me, me, me all the time. I have to make you think that I don't think about me all the time. That fake British accent is about says it all. That says it all. Claire and I know you're from fucking Alabama. Anyways, what do we got going on today? We got a conversation with Paul Krugman, which is going to be great. And I would also add that we are recording our annual Ask Me Anything episode next week. So please send in your questions to markets at proftymedia.com or drop them in the comments.

[4:40](https://realalpha.app/v/DQFkezP6qSg/?t=280) Very excited about that episode. I think that's all I got before we got this conversation with a Nobel Prize winning economist. More importantly, along the same lines, did you see me on Oprah? I didn't see you on Oprah, but I saw the photo of you and Oprah. Is it out yet? No, she and I just rolled together. What do you think? Yeah, I was on her show. No, I had to send you on the show. I just haven't seen the interview yet. We've decided to come public with our relationship. We were talking in the side channels. It strangely looked AI generated, that photo of you and Oprah Winfrey. Yeah, it did look fake, didn't it?

[5:13](https://realalpha.app/v/DQFkezP6qSg/?t=313) Everyone looked so happy. It didn't look like repute. I had no idea what to expect. I know you want to know more about this. I do, actually. walk into a room, and they have filled the room with like 100 young people, 80 of them are men. Wow. And they all proceed to ask me questions about mental health and what should I do? I'm having trouble connecting to relationships. And I'm like, dude, I don't know. When I was here, I was just getting fucked up and approaching people in Irish bars. I don't know. It was, I was literally sweating. And I had to basically start every sentence with, I am not a licensed therapist.

[5:49](https://realalpha.app/v/DQFkezP6qSg/?t=349) I'll just give you my experience and if it's helpful great but and at one point I said to this woman I'm like I don't know I have no idea it sounds like you're really you know it sounds like you're struggling I have no idea it was so uncomfortable I think someone told them I was Dr. Drew or something or Esther Perel you got to assume that position if you're going on Oprah you're not going to be doing hard-hitting economics you're going to be talking about feelings, right? My friend Gail King got me on the show. Gail King's my new best friend. She's super cool and nice and funny. Anyways, I was on Oprah. That's very cool.

[6:24](https://realalpha.app/v/DQFkezP6qSg/?t=384) That's it. And now Paul Krugman. Let's get into it. Here is our conversation with Paul Krugman, Nobel Prize winning economist and distinguished professor of economics at the Graduate Center of the City University of New York. Paul, thank you very much for joining us for the very first time on ProfG Markets. Oh, hi there. Good to be on. Scott Clillian has an issue with the intro. We talk about Paul so much. I assumed he'd been on seven or eight times. It probably feels as if we know you. We're parroting your data so much. Well, we're slightly short on time, so I want to get straight into the questions. I have so many questions for you, Paul. And the first is, you know, we're coming to the end of the year here and a lot has happened. We've had a new administration. We've had Liberation Day. We've had tariffs. AI has exploded. You have been writing about economics for years. You're a foremost leader in economics. Just at a very broad level, what has stood out to you in 2025 and how do you think 2025 is going to be remembered in economic history i mean it's a weird year and that's all i can say i mean um history doesn't usually give you you know clean experiments it's usually more than one thing going

[7:36](https://realalpha.app/v/DQFkezP6qSg/?t=456) on um but this year is really extreme you know the one And you have 90 years of U.S. trade policy abruptly thrown into the waste bin and replaced with very high tariffs. And on the other side, you have this AI boom, which is the biggest sort of, well, it's the biggest thing since the housing bubble. But the housing bubble was kind of on its own. And here we have the AI boom sort of colliding with and interacting with the tariffs. And it's a very, very bizarre economy right now. One of the things you've been talking about lately is affordability. And that's something that's been very prevalent in politics, most notably probably with the mayoral election.

[8:25](https://realalpha.app/v/DQFkezP6qSg/?t=505) Where do we stand in terms of affordability in this economy right now? Clearly, we're seeing some growth in the overall economy because of AI. But the affordability crisis seems to be a kind of a different thing. The problem that we have in talking about affordability is that there is a simple thing, which is just your real income, typical person's wage divided by the consumer price index, which is actually up a little bit since pre-pandemic. So we're actually not seeing the simple version, oh, prices are way up and everybody is impoverished, is not true. Way too much reporting talks as if that was the story.

[9:02](https://realalpha.app/v/DQFkezP6qSg/?t=542) But that doesn't mean that everything is okay. So once you start to look under the surface, you see, first of all, there are some real cost of living issues or just generally getting by issues. There's interest costs are way up, certain really critical things. Above all, I would say that the cost of buying your first house are way up. So people are not imagining that there's an affordability crisis. And then if we just sort of take affordability as kind of a proxy for how are things, well, the economy is in some important ways worse than it looks. We don't have high unemployment, at least not yet.

[9:43](https://realalpha.app/v/DQFkezP6qSg/?t=583) We don't have high inflation by historical standards. But we do have this frozen job market where, you know, if you got your job, OK, but if you lose it or you're new to the labor market, it's very hard to get a first job or a new job. And again, I do think that, and I will be writing myself some more, I think that the way that some things that are key markers or have been key markers of middle class. status are receding out of reach matters in a way that the normal numbers don't quite capture. We read a really interesting Substack article recently, which has kind of gone viral by this guy, Michael Green, this asset manager, where he brought up, and I don't know if you've seen this, but he brought up this poverty line question where, you know, the current poverty line in America that we all use is around $30,000, a little over $30,000. And he made the point that this is an old metric, an old measurement that we used that worked in the 60s, but no longer works anymore. And he came up with kind of an adjusted calculation, and he landed on $140,000 as the poverty line. It's been very controversial. Some people said that that number is all wrong.

[11:08](https://realalpha.app/v/DQFkezP6qSg/?t=668) but the point kind of stands it's like well we're all talking about affordability we're all trying to figure out what's going on for the american uh economy particularly on the lower end and this has really resonated with people i just want to get your reactions to that article and this idea that perhaps that that metric that we've used to measure poverty might be flawed i actually have been aware of the article and not bothered to read it because it's kind of this is kind of a stupid point. I mean, you know, I sit at the City University, I sit at something called the Stone Center for the Study of Socioeconomic Inequality. Let me tell you, my colleagues know all about poverty measurement. And, you know, poverty measure is one of those things where basically Lyndon Johnson needed a quick and dirty measure of poverty. And an economist at the Bureau of statistics, Molly Arshansky did a quick and dirty calculation, which somehow got stuck. And the original calculation was based on the cost of food, and since then has been just adjusted for the Consumer Price Index and nothing else. I mean, Molly Arshansky did something really useful, and it turned out to be extremely useful to have a standard measure of poverty, even if it's

[12:24](https://realalpha.app/v/DQFkezP6qSg/?t=744) somewhat arbitrary. But if you really want to think about poverty, there's one question, which is, can people afford the essentials of living? And then there's a bigger, tougher question, which is, are people really part of the broader society? Poverty as a measure of social exclusion is really what you want, mostly.

[12:48](https://realalpha.app/v/DQFkezP6qSg/?t=768) **Paul Krugman:** Most countries actually measure... poverty quite differently. They'd say that poverty is having less than half the median income.

[12:56](https://realalpha.app/v/DQFkezP6qSg/?t=776) And we can do that for the United States. And it does show that we've actually, because of increasing inequality, poverty has risen over time. And yes, the material standard of living associated with half the median income has gone up, but in some ways that doesn't help much. So this is the wrong approach. I mean, in some ways it should just say, you know, poverty, poverty? How are we doing? How many people are really effectively excluded from the economic mainstream in America? And the answer is a lot and too many. And the, you know, we, for kind of almost bureaucratic policy reasons, we're kind of stuck with this poverty measure, but trying to, you know, fiddle with it to make it better is not, that's really not very helpful.

[13:45](https://realalpha.app/v/DQFkezP6qSg/?t=825) It sounds like maybe you agree with the premise, though, which is that this idea of a poverty line is kind of an arbitrary and stupid way to measure things with this question of how is America doing? I feel like one of the larger points is like the economy is so much different today than it was 60 years ago. There are so many other things that we need to account for. You mentioned there that real income is up, but this affordability crisis is still a problem for all of the other issues that you mentioned, the job market, housing market, borrowing costs, all of these things, which seems to bring us to this question of like, how are we supposed to measure the economy then?

[14:21](https://realalpha.app/v/DQFkezP6qSg/?t=861) If we can't rely on the poverty, we can't rely on income, what should we be looking at? I mean, I would say the poverty measure is arbitrary but not stupid. There was a reason for doing it. There's a reason why a lot of federal programs are key to the official poverty threshold because they have to be keyed to something. So if you look at what are the subsidy rates under the Affordable Care Act, they're tied to your income as a percentage of the official poverty line. And changing that would be kind of a nightmare. It's just, you know, there are more important things to spend political capital on.

[14:58](https://realalpha.app/v/DQFkezP6qSg/?t=898) So, you know, let's focus on what's important. And again, we have pretty good measures of inequality. We have a pretty good sense of how many people really can't afford to be part of the mainstream of American life. They're all very troubling. So just, we don't need... The problem, the fault lies not in our numbers, but in ourselves, right? It's fundamentally a question of what kind of society do we want to have and how do we deviate from that? And clearly, if the poverty line, you know, if you have some calculation that sets the poverty line at a level that is way, way above where people actually consider themselves poor, then that's wrong.

[15:38](https://realalpha.app/v/DQFkezP6qSg/?t=938) It doesn't matter what the details of the calculation are. So let's just say, are there a lot of Americans who are below some line? Yes, there are. If someone said we're taking in $5 trillion in receipts, tax receipts, and spending $7 trillion, I would naturally assume that we were either at war or trying to jumpstart or reverse an economic decline, a malaise, get us out of a recession or a depression. And yet we're not. I mean, I don't think either of those are true. And the fact that the economy is not surging with $2 trillion in additional deficit spending, to me, says that masks an underlying sickness, that the economy is actually much weaker than people think.

[16:15](https://realalpha.app/v/DQFkezP6qSg/?t=975) Your thoughts? Before COVID, a lot of us were talking about secular stagnation, which is a totally impenetrable set of words. It gives you no clue of what we're actually talking about. What it really was that we actually had persistently inadequate demand, persistently inadequate spending in the economy, and that interest rates were always extremely low, and even that wasn't enough to really jumpstart the economy. It may well be that we would still be in that state if it weren't for these big budget deficits. And so that's a concern. It's also the case that advanced, stable, rule-of-law nations that borrow on their own currency have a lot of leeway to run up large debts. They can go a long way up that debt-to-GDP ratio without getting into a financial crisis.

[17:00](https://realalpha.app/v/DQFkezP6qSg/?t=1020) Is that still a description of America? Are we, I mean, we're large, but are we stable? Are we a rule of law society? If I were an investor, wouldn't I worry about some current or future autocratic presidents deciding that to just arbitrarily write down our obligations? You know, it's so that these numbers are troubling. And there are, but we all know where it comes from. We basically have a political deadlock where we have immensely popular programs, I think deservedly so, like Medicare and Social Security. And we also have a complete unwillingness to collect enough taxes to pay for them. To me, this feels unsustainable when we're operating at what feels like it's not a good economy, not a bad economy, just what you call, I don't know, somewhere in the middle.

[17:42](https://realalpha.app/v/DQFkezP6qSg/?t=1062) and we've decided that it's a standard operating procedure to go 40 percent you know to spend 140 percent of our tax receipts to me a i feel that's unsustainable do you agree and be when and it's hard to tell when but how does the music stop is it just when i've never bought the people won't show up for our treasury auctions they'll just demand more payment in exchange for the risk is there a limit do we go to i mean japan's much higher than us okay but at what point does the debt become an issue? Britain had debt that was 250% of GDP at the end of World War II. But it wasn't a crisis because people said Britain is a serious country run by people who are not idiots and they will, in the end, do what is necessary, as they did, to control their debt load.

[18:22](https://realalpha.app/v/DQFkezP6qSg/?t=1102) Now, the trouble is that we may not be a serious country. And more to the point that the markets may conclude that we're not a serious country. And that's when the limit hits. It's not an arbitrary number. It's kind of a, who are we? Stein's law. Herb Stein, chairman of the Council of Economic Advisors, whose son was a much less funny comedian. But Herb Stein's law was if something cannot go on forever, it will stop. And Stein's law clearly must apply at some point. But so far we haven't hit that, though. I have to wonder. I mean, the character of American governance has changed so much in this past year that you have to wonder whether any assumptions based on the kind of country we used to be still apply.

[19:02](https://realalpha.app/v/DQFkezP6qSg/?t=1142) But I put a lot of work on this. I actually was looking for at various times. I've looked for examples of countries that, like the United States, borrow in their own currency, have a high level of debt and are kind of politically paralyzed but are not hyperinflation territory. or whatever, and for crises. And it's really hard to find them in history. I mean, we can talk about the French Frank in 1926, but it is really hard to... We don't have a lot of historical examples that will help us understand how this ends. Sooner or later, it has to end one way or another, but how, I don't know. We'll be right back after the break.

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[22:50](https://realalpha.app/v/DQFkezP6qSg/?t=1370) Get free shipping on your order and 365-day returns. Now available in Canada and the UK, too. And when Quince asks where you heard about them, let them know it was Prop G Markets. It's the best way to support the show. we're back with prof g markets so one of the big themes of our show are talk tracks is that our economy has become more fragile because 40% of the S&P is represented by 10 companies. And that if NVIDIA announces, a big company announces they're not getting the return they'd hoped regarding their investment in AI, NVIDIA doesn't meet expectations. NVIDIA goes down 60 or 70%, which I will remind people, every one of the big tech companies has been down that much in a 12-month period at some point in the last 10 months or 10 years. And basically overnight, the S&P is off 10, 15, 20 percent, which represents a half of global market capitalization, and immediately we're in what feels like something like a global recession, if not something worse.

[23:45](https://realalpha.app/v/DQFkezP6qSg/?t=1425) Our sense is that that feels more likely than not in the next 24 months. Your thoughts? I think you and I, not Ed, but you and I remember the 90s. I knew it was going to be that we're old. It definitely is. And there was, there's a lot of markers that feel like the dot-com, actually more telecom in terms of economics. But the excesses of the tech bubble are, you know, details differ quite a lot. And I have to say that this bubble, if it is a bubble, is an amazingly joyless bubble compared with the 90s. But sure, I think there's a, and we are in a situation now where, you know, but for all of that spending on data centers, we would probably be in a recession right now.

[24:33](https://realalpha.app/v/DQFkezP6qSg/?t=1473) And so it's not at all hard to see this going south quite suddenly. And it's also, by the way, it does worry me that, and this was not true back then, that a lot of this is not only there's a few companies, but really the economy is being driven by the CapEx decisions of like 10 guys. If a handful of people have a mood swing, they can take down the whole world economy. To me, all roads lead to the same place. And the thesis is that the cloud cover, I think the S&P and the NASDAQ are the worst metrics invented in modern economy because they create the delusion of prosperity and don't really say how people are actually doing or feeling.

[25:07](https://realalpha.app/v/DQFkezP6qSg/?t=1507) And without the cloud cover of the S&P being up, double digits. It'd be much more difficult for the president to be sending a mass police, secret police into big cities and that he has a huge vested interest in the continued kind of Lollapalooza champagne and cocaine of the AI bet driving the markets. And to me, this all leads to one place. When I look at the expectations built into the forward earnings of these companies, I don't think it's sustainable. And all roads for me, or not all roads, I think there's a very big likelihood that in 2026, we see some form of a bailout in the form of government-backed debt such that these guys can continue this capex, which seems to be propping up the market and the economy.

[25:40](https://realalpha.app/v/DQFkezP6qSg/?t=1540) A bailout of AI in the form of some, quote-unquote, government investment or government-backed continued buying or financing a CapEx. Your thoughts? I think maybe tempted. We certainly shouldn't think of this administration as having any free market principles. And so it's quite possible that they might want to do it. I remember 2008, and it's worth remembering that in the face of the absolute meltdown of markets, the first time that TARP, which was a limited bailout of banks, the first time that TARP was put in front of Congress, it was voted down. I don't think it's that easy to engineer a bailout.

[26:19](https://realalpha.app/v/DQFkezP6qSg/?t=1579) I think that, and among other things, people worried about the budget and the deficit and all of that. And this is really big. It's one thing to bail out Silicon Valley Bank or something like that. That's a fairly small thing. But this would be really, really huge, really, really hard to justify And one thing that is really clear also is that people hate AI. They hate the companies. They hate the people. This is the most unpopular boom. As I said, this is a joyless bubble. Compared with the 90s, everyone was kind of feeling some good vibes about the companies, even the ones that failed. So, I mean, it could happen, but I think that politically it would be extremely difficult.

[27:06](https://realalpha.app/v/DQFkezP6qSg/?t=1626) It's really interesting. I feel like two big themes here, or one big theme in two stories, is that it feels as though we are artificially propping up the economy right now. And we've talked about it in relation to deficit spending, which is already kind of out of control. And now with the big, beautiful bill, it will get more out of control. And the predictions are that it's going to grow our economy, perhaps the stock market, because we're going to spend so much money. And this is coming from the administration that said, we're going to balance the budget. So that's a whole other can of worms.

[27:41](https://realalpha.app/v/DQFkezP6qSg/?t=1661) And at the same time, you've got massive AI CapEx investment, which is basically keeping our GDP growth positive. And we're not yet seeing the underlying demand in the consumer economy that would warrant the amount of investment that we're seeing in AI, which I think leads me and Scott and probably a lot of our audience, to believe that whenever the music stops, because of the amount that we are artificially inflating everything in our system right now, it's going to be an extremely aggressive and shocking downturn. I just want to get your reactions to that notion. The IMF once did a systematic study of how successful are economists at predicting recessions. What is the track record of economists at predicting recessions? And the answer is zero our success. Might as well use a magic eight bowl as ask me or anybody else on this. There's just too many damn things happening in the world to be very good at this. Now, maybe it's worth saying that all the CapEx on data centers are related, and I've been, the measures are kind of, but we're talking about something like one to two percent of GDP. So although it's a, that's not chicken feed, but that's not enough to produce a 2008-level crash. So think more like 2001

[29:12](https://realalpha.app/v/DQFkezP6qSg/?t=1752) than 2008. So it's not all that catastrophic if you try and do the math. Now, what the effects on sentiment might be, what the effects of falling stock prices might be is harder to say. But this does look crazy, but I think we probably don't want to go overboard in terms of the scale of what's at stake. It will certainly be unpleasant, and there will be demands that we bail this thing out and also furious pushback against those demands. But, you know, it's not the end of the world, which I can say because I remember the end of the world, right, which did sort of happen in 2008. So it's worrisome, but let's not get too over our skis on this.

[30:04](https://realalpha.app/v/DQFkezP6qSg/?t=1804) When you talk about the politics of AI, when you look at the way that this administration has been handling AI, I'm really thinking about, you know, these dinners where you've got Zuckerberg and Tim Cook showing up to the White House offering gifts. It's, I mean, it's, you said out there that these campaign decisions, it's not just in the hands of a few companies. It's really in the hands of a very, very small set of people. What do you make of how the White House is handling AI, handling AI policy right now? How do you think it will shake out politically? And where does this land in the economic story of America?

[30:44](https://realalpha.app/v/DQFkezP6qSg/?t=1844) Well, it's not clear to me that we really have an AI policy. It's actually, in general, it's not clear to me that we have an economic policy at all. I mean, one of the things that is really, you know, for those of us who've spent decades interacting with the policy wall community, what's really remarkable about this administration is there's nobody to talk to. There's nobody in there. You ask, you know, who in the White House is thinking hard about AI and how it's going to affect the economy? Yes, there's nobody. There just is nothing there. And what's happening, this is more, the dinners is these are all basically big corporate types, but especially, it turns out, the tech sector, although there are some others, who are trying to butter up the White House and look for, you know, so this isn't really policy, it's crony capitalism.

[31:41](https://realalpha.app/v/DQFkezP6qSg/?t=1901) And, you know, they're doing what they have to do, or they think they have to do. Although, actually, I find it interesting that Wall Street, which is another source, you know, there's another big pile of money and influential people over there, they've been actually much less visible in all of this. Not zero, but much less. And I thought it was really interesting that Jamie Dimon was asked why, you know, we have the people who are helping the. destruction of the White House and its replacement with a grotesque ballroom. Jamie Dimon was asked why JPMorgan Chase isn't part of it, and he said, well, we need to think about what future DOJs will do, which was an amazing thing actually to say, although couched in deliberately bland language, but he basically thinks that a lot of people, there's a real possibility that a lot of people involved in policymaking right now are going to end up going to jail so um it's uh it's it's a very strange situation but there there is no policy i mean if you ask you know who's who's the point man on actual hard thinking about this um well i mean maybe david sacks part-time employee yeah the policy and the personal interest are so enmeshed that it's you know it's not really policy as we knew it why do you think we've seen this divide

[32:59](https://realalpha.app/v/DQFkezP6qSg/?t=1979) between Wall Street and Silicon Valley. It's an interesting point that you make. Silicon Valley has really grown its ties to this administration in a way that, you're right, it seems Wall Street hasn't done, or at least not in the same way, or not as openly and outwardly. Why do you think that is? The Wall Street people in time in particular, but in general, they've been dealing with government for a long time.

[33:23](https://realalpha.app/v/DQFkezP6qSg/?t=2003) **Paul Krugman:** I mean, Silicon Valley used to think that it was a libertarian paradise and didn't need government,

[33:28](https://realalpha.app/v/DQFkezP6qSg/?t=2008) and now all of a sudden they're throwing cash at the first family. But they're not sophisticated in this stuff, and they probably don't have much sense of where the risks lie, whereas Wall Street does. And there's also a personal thing. I mean, one of the things I find interesting about this whole tech story right now is that it is being led in the large—I'm going to get in trouble for saying this— but it's being led in the large part by billionaires whose best days are behind them. Ten years ago, everybody loved Silicon Valley. Everybody loved tech. We thought it was a tool of liberation. We even had biopics made about Mark Zuckerberg.

[34:16](https://realalpha.app/v/DQFkezP6qSg/?t=2056) And now everybody thinks of them as greedy monopolists. The word of the year, I guess, two years ago was Cory Doctorow's shitification. So part of what's driving all this stuff is I think these are people who are sort of looking for something really big. to bring back the glory days of 2015 or so. We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com slash subscribe. Support for this show comes from Anthropic, the team behind Claude. Somewhere between the third meeting of your day and the 14th browser tab, there's not a lot of room for the work that matters most to you.

[35:25](https://realalpha.app/v/DQFkezP6qSg/?t=2125) Claude makes room. It takes on the forms, the follow-ups, and the deck that needs reformatting. You get back to the parts that actually need you. Bring Claude into your work at claude.ai. Now for a quick message from Anthropic. the team behind Claude, the AI built for businesses. Every business wants to move faster. Few can afford to be wrong. That's why nine Fortune 10 companies count on Claude for the work they want to get right. Safety and accuracy aren't just boxes to check off for the research team at Anthropic. It's kind of their whole mission. See how Claude works at claude.ai. When it's time to scale your business, it's time for Shopify get everything you need to grow the way you want like all the way stack more sales with the best converting checkout on the planet track your cha-chings from every channel right in one spot and turn real-time reporting into big-time opportunities take your business to a whole new level switch to Shopify start your free trial today We're back with Prof G Markets.

[37:20](https://realalpha.app/v/DQFkezP6qSg/?t=2240) I think some people would say, I mean, we're seeing what appears to be certainly crony capitalism. Others would just say flat-out corruption. And then on the other side, some people would say, oh, well, America has always been corrupt. If it's Silicon Valley now, it was Wall Street 10, 15, 20 years ago. You know, our policymakers are always in bed with whoever has the most money. When you look at this administration and the economic policies in 2025, Where does it rank in terms of corruption? How corrupt is this administration compared with history? It really is on a different scale. I think even the Gilded Age looks relatively clean by comparison.

[38:09](https://realalpha.app/v/DQFkezP6qSg/?t=2289) But certainly compared with—look, we went through. I was very involved intellectually and certainly talking with all the players during the post-2008 financial crisis and the bank bailouts and all of that. And there was no question that big money on Wall Street carried a lot of political clout. But it was not, there was very little outright bribery, as far as we know, as far as I know. There wasn't, people weren't handing over bags of cash. They weren't, you know, buying meme coins or whatever, which didn't exist yet. It was more, there was a subtle, not that subtle, but a relatively subtle influence.

[39:00](https://realalpha.app/v/DQFkezP6qSg/?t=2340) There was the revolving door. Government officials, you know, were always were thinking a little bit about their next job. There was just the prestige that comes with money. I mean, I did have a couple of meetings at the Obama White House where a couple of people like Joe Stiglitz and me were arguing for a harder line against the banks and the bankers were, of course, arguing against. And I came out at both meetings saying, you know, we have a fundamental disadvantage, which is that they have much better tailors. It was never the case that we were a deliberative democracy based on principle. Money always talked.

[39:41](https://realalpha.app/v/DQFkezP6qSg/?t=2381) But billions of dollars in personal rewards for the first family, that's something new in American history. Of all the things going on, all the risks, whether it's geopolitical instability, deficit spending, AI, potentially an AI bubble, what worries you the most? Do you think it's not getting enough coverage? And then outline a scenario around the question we like to ask, what could go right? environmental issues are, you know, should be top of the concern. And there's a terrible thing that's happening right now, which is that we've reached a moment when the technology actually makes It's surprisingly easy and cheap to do a lot to limit climate change.

[40:24](https://realalpha.app/v/DQFkezP6qSg/?t=2424) And the United States is just totally turning its back on this miraculous technology, which also has geopolitical stuff. China is taking the lead in green energy, and the United States is keeping defunct coal plants running. So that's what really scares me. Now, what could go right? You know, maybe AI really does generate a huge productivity burst, you know, and you can believe both that it's a bubble and that the companies, you know, the Mag-7 or the Mag-10 or whatever your group is, that they are massively overvalued and that the technology is really going to be transformative. It's like, you know, I spend time watching old ads from the 90s on YouTube.

[41:13](https://realalpha.app/v/DQFkezP6qSg/?t=2473) It's one of those great, well, technology does some great stuff. And you look at the ads from Quest about all the wonders that fiber optics was going to bring. And they all came true. Quest got bankrupt. But, you know, the technology was for real.

[41:28](https://realalpha.app/v/DQFkezP6qSg/?t=2488) **Paul Krugman:** And it could, you know, if a persistent 150 basis point rise in the rate of productivity growth in the United States would make a lot of our economic problems just melt away.

[41:40](https://realalpha.app/v/DQFkezP6qSg/?t=2500) I'm surprised to hear on the top of your list in terms of risk, you're worried about environmental issues. When we ask the question, the things that often come up are debt is often a really big one. Civil war in some capacity, largely as a result of inequality, the steepening inequality that we're seeing is often a big one. I think that's probably number one for me. I'm surprised to hear environmental issues. I'd like to hear more about that. So let me just say, I wasn't going to get into the politics, but no, I mean, my immediate concern, to ask what keeps me up at night, it's will America still be a democracy next year?

[42:22](https://realalpha.app/v/DQFkezP6qSg/?t=2542) Not even so much the civil war aspect as the, you know, we've seen this movie before. We're like quite a lot like Orbán's Hungary and at a couple of, you know, a year or two into the Fidesz takeover. So, you know, that's what keeps me up at night. I'm not sure about the Civil War. More about just— basically an authoritarian coup. Let's just be frank about it. If you're not worried about that, you're not paying attention. And that is, you know, we probably still have some running room on that. So, you know, that will get resolved first. But the environment, look, the world is still emitting a lot of greenhouse gases. The thing about greenhouse, about emissions is that they're cumulative. It's, it's, uh, even if we stopped completely, uh, emitting carbon dioxide and methane today, um, temperatures wouldn't start to come back down for generations. So this stuff, and if we continue, uh, you know, slowing the rate of growth of emissions, which is kind of, of the most that we can reasonably hope for right now is not enough to avoid a, really large set of consequences. So, you know, I don't own any real estate in Florida because I don't think, I think that the, you know, just in economic terms, we are very likely

[43:52](https://realalpha.app/v/DQFkezP6qSg/?t=2632) to see a whole lot of property damage and economic damage. So this stuff has receded from attention, but the reality continues. Why do you think it's receded from attention? I agree with you this was sort of top of top of mind for many many people i would say maybe seven eight probably a decade ago and for whatever reason we've forgotten about it or at least it's certainly way down on the priority list why do you think that's happened well if i think about myself and my friends uh it's because um the we may suffer really terrible environmental damage 10 15 years from now but uh america as we know it politically is on the line now you focus on on the the most immediate danger and that's uh yeah and it's also you know the fact that that the political you know who who are you talking to i mean is is there anybody certainly in in uh in u.s politics who is going to be moved by um by what was said or wasn't said at the cop conference in belain the day, right? You kind of work with where you are. And I will say also, more positive, the fact that it looks like there is a path towards stabilizing the climate at a still tolerable level without sacrifice because of these miraculous.

[45:21](https://realalpha.app/v/DQFkezP6qSg/?t=2721) new green energy technologies, that also does change the way that you think about it. Just before we let you go here, more of a personal question. You were a columnist for the New York Times for many, many years. You now kind of made the leap out into independent media, the new media sphere, which we kind of live in. You're on Substack. Your Substack has exploded. People are absolutely loving it. General takeaways on what it's like leaving legacy media and now being in new media, what do you make of it? I will always be grateful to The Times for offering me that platform. And the new media can do lots of things, but one thing it can't do is the kind of steady pound-the-pavement reporting that we still, I mean, I, if you look at what, you know, what do I reference in the Substack? And it's, it's a, it's a lot of stuff that's being reported by the New York Times and Bloomberg and, you know, it's, uh, uh, so we still need all of that. Um, but I will say that there is a, you know, there's a lot more, it's not just freedom to say what you want to say without, without editors and being able to, you know, not be polite sometimes, but also just format.

[46:34](https://realalpha.app/v/DQFkezP6qSg/?t=2794) The kind of stuff I do, which often involves a mixture of charts and statistics and occasionally gets a little wonky for, you know, I can do that, which I really couldn't. I was just talking with some uh actually i just talked with martin wolf about this the the great liberation of not having to have my charts look pretty and so not having to wait three days for the graphics department to produce uh a chart that looks up to time standards and being able instead to just bang a crude thing out of excel and powerpoint that that that makes the point and and i can do within an hour or two do you have any thoughts on just where media is headed i mean the new york times is actually under fire just this week because they put out this article about david sax and all of his all the ways in which he's compromised and then suddenly you had this massive outpouring of um pushback largely from david sax and his his mates on the right saying the New York Times is compromised. It's woke. It's, you know, hasn't.

[47:50](https://realalpha.app/v/DQFkezP6qSg/?t=2870) gender um what do you just make of like what is happening to media at large and what do you think where do you think it's all headed and then and we'll get you out of here you know assuming that we do manage to head off the authoritarian threat then i think the times should actually feel grateful i mean it's kind of a fdr i welcome their hatred i mean this is um the and the times almost uniquely i think uh in different ways a couple of other organizations have managed it but But they've managed to make media a financially sustainable proposition with a paywall that people are willing to actually subscribe to.

[48:37](https://realalpha.app/v/DQFkezP6qSg/?t=2917) So they're actually a success story. I mean, in some ways, the problem is that only a handful of organizations can do that. And that is the great concern and how much we can rely on. I mean, it's great that, I mean, what I value from Substack is mostly actually the people who actually do reportage of some kind, people who actually know something and can tell me about it. And that's great, but it's got its limits. And we don't know. I mean, we used to have a media, you know, that did its job based upon advertising. Now we have a media based upon paywalls, which is works, but for many fewer organizations. I mean, you know, local reporting has become is a casualty. The fact that it used to be that classified ads were the great savior of local newspapers, and now they're gone, and so are the local newspapers.

[49:53](https://realalpha.app/v/DQFkezP6qSg/?t=2993) So I don't know how all this shakes out. I mean, eventually we have to find a model. But look, everything, in the end, technology and the internet have just shaken up everything. Paul Krugman is the distinguished professor of economics at the Graduate Center of the City University of New York. He was a columnist for the New York Times from 2000 to 2024. In 2008, Krugman won the Nobel Memorial Prize in Economic Sciences for his contributions to new trade theory and new economic geography. Krugman was previously a professor of economics at MIT and later at Princeton University.