00:00With a big focus on the government shutdown and the economy, who better to talk to than Paul Krugman?
00:04Nobel laureate joins us right now here on The Close.
00:08And, Professor Krugman, I do want to start off first with the shutdown.
00:12I mean, I was told heading into the shutdown, the shutdowns don't necessarily matter.
00:16They don't matter for the economy. They don't necessarily matter for the stock market.
00:19As somebody who spent, you know, quite an onerous time trying to get back home over this weekend on an airplane,
00:28I can assure you it does matter.
00:31Is there any way to sort of quantify what the potential impact is of a 41-day and counting government shutdown?
00:38It's really hard to pin down.
00:40We can talk about the impact on spending.
00:42We can talk about laid-off federal employees and the money they don't spend.
00:48But nobody has ever really tried to quantify, as far as I know, the effects of air traffic control delays.
00:55I mean, what we're learning is that actually we kind of need a functioning government to have a functioning economy.
01:00This wasn't long enough to really do a lot of damage, but it was enough to show us, you know, a six-month shutdown would have been really, really bad.
01:10So it's significant.
01:12It's bigger than the standard macroeconomic analyses would suggest.
01:16I am curious, though, about just kind of the state of the economy heading into this shutdown, the idea that even if we do strike a deal over the next couple of days,
01:24it could take a couple of weeks to get back to anything resembling normalcy.
01:29When you look at the state of the economy prior to the shutdown, how fragile, if at all, did you see it to be?
01:36Well, there's two things I would say.
01:38First, you know, the shutdown, at least the chosen issue, involved health insurance, involved the enhanced benefits, which are turning into a, you know,
01:48which are going away on the Affordable Care Act, and Democrats caved on that.
01:54So 22 million Americans who have subsidized Obamacare insurance are about to see or are in the process of seeing gigantic increases in their health insurance premiums,
02:05an average of 114 percent, according to Kaiser Family Foundation.
02:09And that is happening.
02:10That's happening despite the fact that the shutdown is over.
02:14So that's a pretty big factor.
02:16That's a pretty big hit, certainly, to the finances of a lot of families and probably some knock-on effects on the economy as a whole.
02:24The other thing you see is that people are really, really down on the economy.
02:28I mean, we were, we talked about a vibe session under Biden, but the vibe session now, I mean, the economy ain't as great as Trump claims.
02:39Grocery prices are not, in fact, way down.
02:42But people are really, really negative.
02:45We have the, basically, we have the worst consumer sentiment about current economic conditions, basically ever.
02:51But worse than, not just worse than, you know, 2000, then 2022 when we had 9 percent inflation, but worse than the aftermath of the financial crisis, worse than the stagflation of 1980.
03:04People are really, really down on this economy.
03:06And I have to say, I don't think that the way this drama has been playing out is going to change that.
03:12If anything, we're likely to see, you know, I was just hearing the tail end of your, what you're saying, ordinary people, people who are not, you know, in on the stock market, are hurting and feeling extremely stressed.
03:27Well, Paul, it's interesting that, you know, coming out of this shutdown, one of the consequences is that we're going to get economic data figures to actually put some numbers to this economy's performance.
03:37But you think about some of the reports that have been delayed, at least two employment reports, CPI, PCE, as well.
03:44It's unlikely that the BLS has been able to collect and actually process the data for some of these reports.
03:51And with that in mind, I wonder, you know, what kind of quality we can expect in terms of trying to put some context around these vibes.
03:58Yeah, we're going to have a ghost month.
04:01It appears on labor market data that will simply be a month that we know, you know, anything could have happened in there.
04:07The BLS will never be able to catch up on that lost data.
04:10And we do worry a lot.
04:13I mean, there's been a problem with declining response rates and understaffed BLS even before.
04:19So the data quality is going to be a real issue.
04:24And, you know, we're all looking at the soft data, the private surveys, all of which, none of which says that the economy is falling off a cliff, but a lot of which is at least a little bit alarming.
04:37And I'm particularly struck.
04:39I've been looking at the conference board on, are jobs plentiful or are they hard to get?
04:46And that number has fallen off a cliff.
04:49People feel really, really bad about job prospects right now in ways that the BLS numbers weren't showing before, but does suggest a kind of frozen labor market in which people, you know, if you're new to the, if you're young, just getting in or if you've been laid off, it's a really tough world out there.
05:07So this is going to be, I mean, you know, it doesn't look like, you know, it doesn't look like September 2008 with everything falling off a cliff, but it does kind of feel like this is starting to feel like a tough economy.
05:23And as I said, people, ordinary people are extremely pessimistic about the state of affairs.
05:28Well, Paul, we only have about a minute left with you, but to that point, we saw a social media post from the president this morning saying that all money left over from the $2,000 payments made to low and middle income USA citizens from the massive tariff income pouring into the country will be substantial.
05:45The point being that we are discussing these one-time payments, $2,000, these dividend checks, if you will.
05:53Do you think that that's a good idea?
05:56No, it's a terrible idea.
05:56I mean, we have an enormous budget deficit.
05:59The tariff revenue, which is, by the way, coming in substantially below what Trump administration officials said it was going to be.
06:05It's substantial, but it's not what they said.
06:07It just makes a small dent in the enormous deficit.
06:10The fundamental fact is that the U.S. is, U.S. government is spending in ways that, you know, I've been a long-term dove in terms of concerns about federal debt, and I don't think we're facing a crisis anytime soon, but we are certainly running a, you know,
06:25given the absence of a national emergency, given the absence of a pandemic or a war, to be running deficits this large is just irresponsible.
06:32And the idea that, hey, we're going to take one source of revenue and use it to hand out money when we're, meanwhile, going ever deeper into federal debt, that's deeply irresponsible.
06:43All right, Paul, got to leave it there.
06:45Really great to get some time with you.
06:46That is Nobel Prize winning economist Paul Krugman, distinguished professor of economics at the City University of New York, also the author of the Substack.
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