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Some quick thoughts about yesterday’s hearing. Transcript Kevin Warsh, the next chairman of the Federal Reserve, is Donald Trump’s sock puppet. But we knew that. The question during yesterday’s confirmation hearing was whether he was sufficiently brave, sufficiently good at acting to pretend that he was more than that. And the answer is no. Hi, Paul Krugman here with a Wednesday update. I didn’t watch or write about the Warsh hearing because it seemed there wasn’t really that much at stake. He’s going to be confirmed pretty much regardless and there’s a whole lot else going on in the world. But I thought I should weigh in a bit on what we actually learned from the hearing. Now about Warsh, he is smart. He is very good at saying things that sound thoughtful and impressive, but he is also, and it’s really very clear, a partisan hack. He’s for tight money when a Democrat is in the White House and for easy money when there’s a Republican. He has managed to claim that he was part of the great economic rescue that took place after the global financial crisis. But at the time, although he was on the Federal Reserve Board, he basically trashed his colleagues for trying to do their job. And he has made a lot of criticisms over the years, but they’re always very selective. Often when he makes a statement, you wonder, what exactly did he say? Because there tends to be lots of complex verbiage that sounds sophisticated, but when you try and distill it down to what it was all about, it’s very hard to figure out, except that, again, it’s always tight money if there’s a Democrat in the White House, easy money if there’s a Republican. Recently, Employ America, which is a group that I follow, wrote about Warsh. They aren’t very partisan. They do mostly inflation analyses and inflation nowcasting, trying to predict what the next number will be. But they had a scathing survey of his positions over the years, which says that he is a partisan who has chosen to align conveniently with the current president, that he is someone who abandons his principles “for whatever might suit his personal and partisan interests.” That’s not very nice, but it seems to be quite accurate. So there was a hearing, and everybody knows pretty much who he is.There are people, sort of centrist Democrats, who claim to find some virtues in him. But I think that’s all positioning. I think everybody understands what we’re getting with Warsh. The question in the hearing was, could he put on an act? Because he is usually a pretty slick customer. He’s not someone who simply rants and raves and spouts MAGA propaganda. And he was asked a a question which isn’t about monetary policy, but is very much exactly a kind of litmus test for, not really for who he is, but what he’s willing to say, at least in the interest of appearing to be not a complete sock puppet. He was asked who won the 2020 election. which is not a question that is remotely in doubt. This is not something about which reasonable people can disagree. There is nothing to the claims of a rigged election except the fact that Donald Trump can’t admit that he lost that election. And Warsh evaded. He said, well, this body certified that election, which is not the question. The question is basically, are you willing to challenge Trump on a completely obvious grotesque lie? And it would have been in Warsh’s interest, you would think, to say, well, no, I believe that Joe Biden won that election. But to do that would be to show some independence, even not in action, but some independence, at least rhetorically, from Donald Trump. And he wouldn’t do that. He was also asked about the spurious prosecution of Lisa Cook, asked about the spurious charges being brought about Jay Powell and refused to take a stand in support of people who will be his colleagues once he gets to the Fed. So what we got was not a test of how he will behave, not a test really of his policy views. I mean, there were no interesting policy arguments going on here. There are some discussions we could have about shrinking the Fed’s balance sheet and all of these things, where I do think that Warsh’s expressed views are quite wrong. But that’s kind of not what was on trial here. What was on trial was, can he at least pretend to be not a total hack? And the answer is no. He’s afraid to even show a little bit of verbal independence without substance when it comes to Donald Trump, which is bad. It should be utterly disqualifying for the position because being the Fed chair is important. It requires a lot of independent judgment and requires a lot of credibility because the Fed is mostly needed in moments of crisis. And in those moments of crisis, people need to believe, markets need to believe, but the general public needs to believe that we’re talking about people who are serious experts and seriously have the interests of the nation at stake rather than their partisan political views. He failed that test with flying colors. And he will be confirmed anyway. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Transcript When you’re losing a war, but it’s not an existential defeat, your country, your government can continue pretty much as before. Aside from the humiliation, there’s a well-established technique, which is to declare victory and pull out. But it appears that Trump can’t even pull that off. Hi, Paul Krugman with a Saturday update on the situation in the Strait of Hormuz and all of that. It’s been clear for a while that the United States has basically lost this war. The goal was to achieve regime change, possibly to take Iran’s uranium. Neither of those is going to happen. The Iranian regime is harder line than it was before. Iran has ended up strengthened because it’s demonstrated its ability to shut off traffic through the Strait of Hormuz. No way the United States, even under current management, is going to commit ground troops to attempt to really do in Iran’s nuclear program on a sustained basis. So the indicated strategy was to essentially give up, but claim that something wonderful was accomplished, and that’s certainly something that Trump is good at doing. But he hasn’t been able to pull that off, I think because he himself is incapable of facing reality. So the Iranians said that they are willing to allow free passage of shipping through the strait, by which it turns out they mean basically passage that stays close to the Iranian coast and pays a toll along the way. Well, what’s our alternative to that? What is it that we want to get? The United States has started imposing a blockade on Iran, which hurts the Iranians. It does give them a reason to seek a deal, but only if they get something out of it. So if allowing ships to start carrying oil and LNG and fertilizer and helium out of the Gulf allows them to sell their own oil again and to import food, which apparently is an important issue for Iran, then that’s a deal that can be done. It will, in practice, be a strategic defeat for the United States, but something that the Trump administration could try to spin as a victory. But in order to get that, you have to actually deliver on that deal. You can claim that you’re winning and that they’re surrendering, not us, but you have to actually deliver on the deal. What Trump tried to do was to say, great, they’re opening up the strait, but meanwhile, we’re going to continue our blockade. And also, they have promised that we can have the uranium, which they had not. That doesn’t work. It’s just basic logic. Why would the Iranians agree to a deal if they don’t get a lifting of the US embargo, don’t get their ability to sell oil and their ability to import food back? If that’s what’s going to happen, then you might as well keep the strait blocked. So what was this supposed to be? What was the idea? What was the thinking? Well, as best I can tell, and this is all speculation now, I don’t think that Trump has taken on board, maybe he’s emotionally incapable of taking on board the reality that he screwed up, that he took us to war and lost, that he, in his mind, still thinks that America has the upper hand and that the Iranians are cowering in fear over the might of the U.S. military, and that he doesn’t need to make any concessions, Does he really believe that? Do we even know? Is really believing a thing that makes sense in his case? Probably not. But to some extent, he is at least incapable of accepting as a basic proposition, never mind in public, but at least in terms of actual policymaking, accepting as a proposition that, well, the U.S. just found the limits to its power, and they turn out to be closer to our goal than they are to the Iranians’ goal. So we basically have to cut our losses by making a deal that leaves the Iranians with some stuff that they didn’t have before. He can’t seem to do that. But if he doesn’t do that, then the Strait of Hormuz will remain closed. In fact, it’s more closed than before because the Iranians are not managing to export oil, which is new. They were exporting oil before, and now that little bit of supply to the world market has been cut off. It’s about 2% of world oil supply. Not huge, but in a very tight oil market, it is significant. And I have no idea where it goes from here. Once again, we’re in a situation of total uncertainty. Now, I might be willing to say, maybe I’m misunderstanding, maybe the United States does have, in some sense, more leverage. But, you know, we do have markets. The futures markets are closed for the weekend. So let’s see what happens when they reopen Sunday night. But the prediction markets are open, and for all the problems with the prediction markets, they show very clearly that the perceived probability that the strait would reopen by June 1st spiked last week and is now back basically to where it started. All of a sudden, we’re down to a 30% or so probability of getting the strait open anytime soon, which looks about right. Maybe that’s even a bit high. But, my God, like I said, we are led by people who not only can’t plan a war right, they can’t even successfully execute a surrender. And that’s a really bad omen, not just for the Iran conflict, but for everything else. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

More than a year ago I interviewed my old friend and colleague Kim Lane Scheppele, a constitutional scholar who speaks Hungarian and knows Hungary, about the march of autocracy. Now, suddenly, a much happier occasion. I found her account of how this happened startling — a lot I didn’t know, even though I’ve been following the news obsessively. And some of it is wild. Here’s a transcript: . . . TRANSCRIPT: Paul Krugman in Conversation with Kim Lane Scheppele (recorded 4/16/26) Paul Krugman: Going back after a number of months to Kim Lane Scheppele, my former office neighbor at Princeton and I think we can safely say America’s leading constitutional scholar who also knows Hungary and speaks Magyar, although you’re probably the only one. Kim Lane Scheppele: Sorry to interrupt you, but the language is Magyar nyelv, and Magyar, the name of the person we’re going to be talking about, who’s also the new prime minister, means Hungarian. That’s your Hungarian lesson for the day. Ha! Krugman: Oh, wow. Thanks. I would have gotten that all wrong. All right. Well, anyway, as you say, it’s been quite a week. You were on this case on my blog starting in 2010, but I think we want to just talk about first reactions to this extraordinary election on Sunday. Scheppele: Well, yeah. It’s been hard to even comprehend the magnitude of this. I mean, not only did Péter Magyar win this election, but he won the election overwhelmingly in a rigged system. And so that’s the miracle magic of it. It turns out that Viktor Orbán had rigged the election rules so that only he could win. And the shortcut of what he did was that essentially a vote in the countryside counted three times as much as a vote in the cities. And what he counted on was that usually, if you get a challenger to a right-wing autocrat, they’re all going to be liberals, right? They’re all going to get their votes from the cities, from the educated populations. And Orban had a lock on the countryside. And then he put all the weight of the system on counting his people more than others. So Peter Magyar spent the last two years going out to villages, just meeting all of these people in person and getting around the fact that Orban also controlled all the media. So the media was rigged, the election system was rigged. And when the vote came in on Sunday, he was at 15 to 20 points ahead in the polls. Krugman: Right. Scheppele: But that did not guarantee he was going to win. And it did not guarantee that he was going to win by the majority. And so when the numbers started piling up, like I was watching the early returns and the early returns were coming in from villages that should have been the Orban vote. And it was a Tisza vote, it was a Peter Magyar vote. And so you knew just from the first 2 or 3% of the vote that it was going to be overwhelming. And sure enough, the whole evening the results came in and Peter Magyar won. It might shift a little bit, 1 or 2 numbers now, but about 138 seats out of the 199 seats in the parliament, and Orban had to concede. There was just no way that he could even claim fraud or try to do anything to change it, because he just didn’t have votes come in from anywhere. Krugman: Okay, it’s funny but that’s the first clear explanation I’ve gotten of how the rigging worked. Because the reporting has been pretty vague. And, you know, there’s still a fair number of people saying, “oh, it can’t really have been rigged, because after all, he lost.” Scheppele: Yeah. No, it was so rigged. I mean, literally, Orban rewrote all the rules in 2015. And, Paul, I need to give you a shout out here because, you know, Americans didn’t know anything about this. And I live in my head in Hungary. And I would come in every day to campus and see you in my office next door and go on whining and complaining about how Orban had been building a dictatorship starting in 2010. And you said, “Well, how come The New York Times isn’t covering it?” And I said, “Well, no one’s covering it because no one can see it.” It was all legal. It was all technical. It was really hard to see how Orban was nailing things down. And then you called me up on a Sunday and said, “Okay, I’m going to do tomorrow’s column on Hungary.” And so, remember, we scrambled around, I was translating documents. The fact checkers were calling me up, and you wrote that blog post on a Monday, and then you said to me, “Look, you know, it’s more complicated than I could say. You can put something up on my blog.” And then we did that for like 3 or 4 years. You were putting all my commentaries up on your blog, and I was the only one covering it in English at that time. So, you know, if it wasn’t for your venue, it would have been impossible to get this on the radar screen of Americans. So, Paul, it’s your victory, too. Krugman: I hope it is. I mean, I feel like I was facilitating your victory, it’s obviously the Hungarian people’s victory. But actually one of the things that strikes me here is that, we talk a lot about how Orban muzzled and controlled the media in Hungary, but, effectively, there was an international muzzling coming out of a couple of things. Scheppele: Yeah. Krugman: I remember you saying that basically even big international news organizations sort of had one stringer in Budapest who often turned out to be somebody affiliated with Fidesz. So. Scheppele: Right. Well, there were a whole bunch of ways that he muzzled the international press. So one was just that, if you were a domestic journalist reporting for the international press, you were under surveillance, you were under threat. The international news organizations, including, by the way, the New York Times, had to start providing physical security for the reporters because they were really being threatened with death threats and the whole nine yards. And, you know, I got death threats, too, sometimes through the comments section on your blog. Right? So, everybody commenting on it was really under threat in some sense. But the other thing that happened was once the international press pulled out because they couldn’t pay for the security anymore, they’d hire Hungarian stringers and then the Hungarian stringers would have other things happen to them, like they’d get doxxed and there’d be mobs outside their apartment and they’d have to move out of their houses. And really, it was a huge campaign. And then the final thing, and maybe not the final thing, but at every single Hungarian embassy in the world, the ambassador was told, “Your job is to keep negative news about Hungary from appearing in the press.” So every time there was a story criticizing Orban, the embassy would call the editors and say, “You’ve got to give us equal time,” or “you can’t trust those journalists,” or “you should never use those sources again.” Going back, this was during your days at the Times, there was a Hungarian-American reporter who was writing for the Times, and the Hungarian government called the Times and said, “we don’t trust this guy.” And they stopped putting his byline on stories until they did a full check on him. Krugman: Okay. Scheppele: So that was happening to the international press. So it’s not just the domestic press that was muzzled, but the international press as well. And so it took a very long time. I mean, Orban had the whole system locked down in just three years, and it took until five, 6 or 7 years later before the rest of the world caught up to the fact that a dictatorship had been constructed in plain sight. Krugman: What’s also extraordinary is that even now — I mean, this is the first time I’ve heard anyone, and I’ve been reading the news reporting obsessively, but the first time I’ve had as clear an explanation of how the rigging worked and how Magyar broke it. And, you know, the eyes of the world have been on Hungary a lot, if only because Hungary has been the star of CPAC for years now. And you would think that by now reporting would have gotten it right. Scheppele: Yeah. Well, I’ll tell you, part of the problem is that Orban and his circle are lawyers, and they pioneered this sort of 21st-century version of dictatorship where you don’t shut down the media. You just regulate them or you threaten them or whatever. Everything was done technically by law. And I think most Hungarians didn’t understand how the law was rigged. I wrote a quite detailed article about this in the Journal of Democracy after the last election, going in detail step by step through all the stages of exactly how Orban rigged things. So, it was gerrymandering. It was things like, the districts expected to vote for Orban had 30,000 voters, and the district expected to vote for the opposition had 90,000 voters. Krugman: Right, right. Scheppele: And then there were all kinds of other election tricks that Orban borrowed. For the 2014 election, I wrote about this on your blog in five parts. Remember? You put up five parts. “Election in Question, part one,” “Election in Question, part two.” There was just every single which way [they could change the rules]. So just another example. Orban said, “we have all these minority groups in Hungary. They should be represented in the parliament.” Everybody’s cheering, like minority representation—what a good thing. So there was this possibility of the Roma having a separate representative in parliament and the Germans and other ethnic groups. And it turns out if you registered to vote on that party list, you only needed 20,000 votes to get a seat. So all those seats got colonized by Orban’s people. The Roma guy was a Fidesz person. That’s Orban’s party. The German guy was a Fidesz person. So all these little things gave Orban one seat here, four seats there and so on. And if you look at Orban’s popularity in Hungarian opinion polls going back to 2010, he

No time for a regular post today, so here’s a video. Transcript When Donald Trump took us to war with Iran, he dismissed warnings from the experts, from the military, from the intelligence community, saying that this was a highly risky proposition. Now he wants to bring that same level of clarity and judgment to monetary policy, and we should all be very afraid. Hi, Paul Krugman here. Today, I’m going to do a video rather than a proper post because I just have too much stuff going on. I’ve been too busy to actually do the charts and quantitative analysis that would be involved in actually writing a post about this stuff. I’m recording this on Wednesday afternoon. The news to which I’m reacting is that in the midst of everything else that’s going on, Trump is doubling down on his attempt to turn the Federal Reserve into a personalized institution that will do what he wants, and never mind the fact that it’s set up to have substantial independence, never mind the fact that there’s a long tradition of respecting the Fed’s independence. Trump thinks that he should be, as George Bush would say, the decider on monetary policy. This would be a bad thing even if Trump was somebody who generally had good judgment. Monetary policy, what the Fed does — control of short-term interest rates, control of the money supply— monetary policy is technical. Doing it right does require that you know quite a lot about what’s going on. It’s something that you really do want, technocrats at least having a strong role in the decision-making process. And in fact we generally leave it up to technocrats. Part of the reason for doing that is it’s too easy. It doesn’t require legislation to change interest rates. It just requires a phone call to the open market desk in New York City. So it’s really easy for a president who wants to rev up the economy, wants to juice things up before an election or just plain has crackpot economic ideas, it’s just too easy for a president to do a lot of damage. So we put layers of insulation. Members of the Federal Reserve Board are appointed for long terms. The whole setup is one that is designed to at least take some time. It doesn’t allow a madman in the Oval Office to muck with monetary policy. It’s especially bad if the guy in the Oval Office is somebody like Trump, who is impulsive, very much short-term reward-centered, and, of course, doesn’t read, doesn’t study, doesn’t listen to experts. And we know that Trump has a bee in his bonnet, that interest rates should be drastically lower than they are now, which is simply not supported by any of the facts about what’s happening to the economy. Inflation is running hotter than it should be. The Fed has a target of 2 percent inflation on the PCE price index. It’s actually running at around 3. That’s not good conditions for a rate cut. The economy doesn’t need a rate cut, at least it doesn’t appear to right now. We’re not in a recession. So technocrats at the Federal Reserve will not actually deliver the rate cuts Trump wants unless he’s able to exert personal control. Now, the way he’s been trying to do that is itself outrageous. His minions at the Justice Department have tried to force Lisa Cook off the Federal Reserve Board based on totally spurious charges about her mortgage applications long before she was at the Fed. And they’re trying to force Powell out over allegations of cost overruns in Federal Reserve construction projects. This is crazy stuff, and nobody takes it seriously. Nobody thinks those are genuine charges. This is all about trying to use the mechanisms of the Justice Department to intimidate monetary policy makers and turn them into instruments of the presidential will. The presidential will here, aside from being utterly self-centered, is also deeply uninformed. If you read what Trump has had to say about monetary policy, it’s clear that he doesn’t think of interest rates as a tool to manage the economy, as a tool to control inflation, and so on. He thinks of low interest rates as a gold star that you get if we have a great economy. So he keeps on saying that it’s a wonderful golden age, the economy is terrific, none of which is actually true. It’s not a golden age. Inflation is running high. None of that is true, but in any case, that’s not how it works. Monetary policy is not a reward for good behavior. It’s not a reward for achievement. It’s something that is a tool for keeping the economy on an even keel. If he does get his way, this will be bad. The Federal Reserve has credibility, the fact that people making decisions, particularly decisions about pricing, believe that the Fed will keep the economy on an even keel, that it will not allow inflation to remain stubbornly too high. It did allow some inflation for 21-22, which was arguably the right thing to do to allow some, but it quickly took the steps needed to bring it back down again. And that credibility, the fact that people believed that the Fed would do the right thing actually helped it to do the right thing, allowed us to have “immaculate disinflation,” a big fall in the inflation rate without a big rise in the unemployment rate. If Trump gets his way, that will all be gone. The credibility of the Federal Reserve will be shot. Now, I don’t think he’ll get his way there. I don’t think he will get his way on monetary policy. But he might. And more than that, what the fight over the Fed is telling us is that Trump has learned nothing. You would think that the debacle in Iran would lead to some loss of self-confidence, some dent in the arrogant ignorance, the belief that just because the intelligence agencies and the generals and the admirals say that this is very risky and what about the Strait of Hormuz, never mind, I know this will be a quick, easy war. And apparently the fact that it hasn’t turned out that way hasn’t led to any questioning of his own impeccable, perfect judgment. So the attack on the Fed is a bad thing in itself, and it’s also a symptom of “this is not a guy who should be in the White House.” And the fact that he still commands so much deference from his own party and so much timidity on the part of people who should be standing up to him really makes me worried about the future of America and the world. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Thank you Quentin Hardy, Beth Arnold, Jane Trombley, Resistance Media, Victoria Priya, and many others for tuning into my live video with Heather Cox Richardson! Join me for my next live video in the app. Transcript HCR: Hey, everybody here from Bonita Springs, Florida and Elgin, Illinois and Portland, Oregon and Seattle, Washington, Fairbanks, Alaska. Boy, it must be getting beautiful up there right now. Newfoundland, Canada, Oak Park, Illinois. Still, we do not have a duplicate Plano, Texas. Then we got I think we got Oak Park, Illinois. That’s two Illinois. We got Cuyahoga Falls, Ohio, Vienna, Austria. Where is our Facebook? from Albuquerque, New Mexico, Dublin, Ohio. And Kristen is here from Facebook. So welcome, everybody. And here, Dr. Krugman and I go again with Lunch Money. Hey, Paul, how are you? PK: Hi, I’m good. How are you? HCR: I’m good. We have spring here, finally, which is unbelievable. PK: We’re hitting 86 this afternoon in New York. HCR: Oh, I can be there in about three hours. We’re not going to be 60. PK: So yeah, here from beautiful New York City, actually more or less across the street from the Empire State Building. This is my academic office. HCR: Oh, that’s nice. That’s nice. I’m just across from trees. Listen, so the world is changing so quickly that it’s kind of hard to get your mind around it. And one of the things that jumped out to me this week was the degree to which we’re focusing on the loss of soft power. We’re looking at the loss of you know, the idea of American military dominance. That’s another question. But I’m really interested in what it means for the U.S. economy to have taken such a dramatic turn away from dominance around the world. And what got me thinking was I did an interview the other day with Vanessa Williamson of the Brookings Institution about taxes, right? And she really offhandedly said, well, you know, we have this thing in economics called the resource curse, where if you have a country that has a reliance on an easily accessible resource like gold or oil or whatever, it means that they don’t really the leaders don’t really have to pay any attention to the people, because they can just dig it out of the ground. And she said, I’ve always kind of thought that maybe America’s resource curse was the fact that we were the world’s reserve currency. So we could borrow as much money as we wanted at really low prices. But that’s changing. And she just kind of threw it out there. And I thought, oh, my heavens, I have never thought about this at all that way. And I thought to come to you and say, I don’t know if she was right. I don’t know if this makes any sense at all, but what are we looking at in terms of the economy with the extraordinary instability of the United States on the world stage right now? PK: Okay, so let me first of all just say that, one resource curse that we have in the U.S. is an actual resource curse. We would not be rejecting renewable energy, we would not be rejecting electrotech, probably, if we didn’t have all of this oil and gas. That in some sense, our politics are kind of polluted by the power of our own fossil fuel industry. And that’s actually probably ending up being an economic disadvantage. So just to say that we’re not that different from countries that actually have mineral resources that end up to be negatives, not positive for them. On the dollar: I do need to say that that’s one of those things where the people who have studied it most tend to think that the special role of the dollar is least important. And it’s people who haven’t who tend to think that it must be tremendously important. So, okay, the dollar is the overwhelmingly dominant currency of international business. If somebody in Brazil wants to do business with somebody in Malaysia, the stuff’s going to be invoiced in dollars. The debts are going to be in dollars. And those private uses of the dollar are more important than the official reserves, although that’s part of it as well. HCR: Can I stop you for a second there? And for them to do that exchange, it has to go through the SWIFT bank, right? Probably, yes. Can you explain all this stuff? Yeah. So there’s an interbank market. So if you’re going to exchange reais in Brazil for Malaysian ringgit banks that are going to do the deal. And the interbank markets are all against dollars. There is no market where you can exchange Brazilian currency for Malaysian currency directly. The banks will sell one for dollars and then use dollars to buy the other. The interbank market is conducted primarily through this thing called SWIFT, which I forgot what the acronym stands for, but anyway, it’s the electronic settlement system based in Belgium, rather oddly, but effectively answering to the United States. There are ways around it, but it’s by far the most convenient way to, to do these transactions. And the role of the dollar gives the U S government a lot of power. Everything that goes through SWIFT is revealed to the National Security Agency. The United States can effectively veto transactions. Because everybody needs to have an account at a U.S. bank in order to do basically any business anywhere in the world, the U.S. government can blockade transactions. And so this is an extremely powerful lever of power. Actually, I’ll recommend a book by friends of mine, Henry Farrell and Abe Newman, called Underground Empire, which is all about these invisible channels of power, and the currency stuff is a big part of it. There are ways around it. The United States has tried to embargo Iranian transactions for many years, and the Iranians have costly, kludgy workarounds, but they do have workarounds. The Chinese yuan has done nothing as international currency, but people do make deals that involve using China’s banking system to get around the U.S. blockade. But it’s still a big influence of the United States. So, okay, this is really important. Now, some think that the dollar is about to collapse, that people are going to stop using dollars. Yeah, if we are crazy enough, we can do that, but it’s really hard. I think I’m getting a little nonlinear here, but anyway, the best essay I’ve ever seen on this — the best paper I’ve ever read, but it’s just in the form of an essay, no math, no diagrams, was on the dollar. It was an old article by, my late teacher, Charlie Kindleberger, called The Politics of International Money and International Language, in which he said that the role of the dollar in the world economy is like the role of English. Everybody in the world who needs to communicate does it in English, because everybody else does it. Everybody uses dollars because everybody else does it. And that’s actually extremely hard to dislodge. Even if United States policy is crazy, it’ll take a lot to change that. Think about what it would take for us to start doing international business in Mandarin. That’s not going to happen overnight. Sorry, I’m going on too long. I haven’t let you get a word. HCR: No, no, no. This is great. Does all of this translate into the United States can borrow without limit? PK: Well, first of all, we are not the only country that can borrow a lot. It turns out that if you are looking at the ability to run large trade deficits year after year, the United States has done that, but so has Australia. So has Britain. So it’s not actually the case that the United States has a unique ability to borrow. We are impressive in the ability to borrow in dollar denominated debt. Not that we get free borrowing, but that U.S. borrowers — the government, but also corporations —issue debt that’s payable in dollars, which does give the United States some autonomy. If the dollar plunges on world markets, so do our debts. So we’re insulated from that particular concern. But it’s not unique. We aren’t uniquely able to run big deficits. Whether we get cheaper borrowing or more borrowing, whatever the effect is, it’s not strong enough to be clear. for the signal to overwhelm the noise. You try and look for, is America able to borrow more cheaply than Britain or Japan? Maybe, but you can’t really see it in the data. It’s not overwhelming. So at a basic level, I don’t think that the resource curse story vis-a-vis the dollar is especially compelling. I would say that the role of financial services qualifies, although that’s much bigger for Britain than for the United States. I mean, Britain really suffers, everything in Britain except for London suffers from the city of London’s role in international finance, but the United States a little bit. But I think it’s more a psychological thing, a sense of impunity that the United States tends to have because of the role of the dollar. We don’t think about, nobody ever thinks about a U.S. financial crisis and the IMF having to come in. And maybe we should. HCR: So that was just sort of a starting point because what that did, whether or not that was something that I should be staying up at night about, was it really made me think about, you know, I look at the politics of where we are and I look at soft power and I look at the cultural norms and so on And certainly I look at individual pieces of the fact, for example, that oil is getting very expensive and therefore we’re going to see inflation, more inflation than we’re already seeing and so on. But on a cosmic level, you know, on a really big level, what does it mean for the what is the instability that we are seeing coming out of the Trump administration? And you can define that however you wish. What does that mean for the American people? I mean, like literally, I don’t even know where to start with that. Does it mean nothing? I can’t imagine that. Does it just mean inflation? You suggested it doesn’t mean that we have to worry about not any longer being able to borrow. What does it mean?

Transcript What is Hungary to us or we to Hungary? Hi, Paul Krugman here. A Saturday morning update ahead of the big election in Hungary taking place tomorrow. The eyes of the world are upon Budapest. It’s a little odd that Hungary is so much the focus of a lot of people, myself included. It has about the same population as New Jersey, about a quarter of New Jersey’s GDP. It’s not a big place, but it’s symbolic. It is a role model for right-wing authoritarians everywhere. It still formally has the institutions of democracy, but has for the past 16 years been a one party state — ruled by a right-wing authoritarian ethno-nationalist regime that enforces its will partly by rigging elections, partly through an extensive system of crony capitalism that rewards its friends and punishes its enemies. In other words, it’s a MAGA kind of place. It’s what they would like to do to the United States, although with less sophistication and more brutality. Donald Trump has been frantically trying to keep Viktor Orban in power, largely in ways that demonstrate that he really doesn’t understand how the world views him. Sending JD Vance to campaign for Orban is not helpful to Orban. It’s a boost to the opposition. Spewing frantically on Truth Social about how important it is that Orban win is, again, a gift to the Hungarian opposition. The system is still very rigged in Hungary, but there’s pretty good reason to hope that the popular wave against Orban and Fidesz is so large that it will sweep away all of the rigging that they’ve imposed to try and keep themselves in power. We’ll all be watching the polls eagerly tomorrow. What struck me, however, as something new is that lately, at the very end, Trump is now saying, oh, elect Orban and I will help you out economically. And just yesterday, he put up a post saying that if Orban is re-elected, that the Economic Might of the United States will come in to aid Hungary and its well-deserved prosperity and all of that. Which is interesting because it’s an illustration of the megalomania, the delusions of grandeur that really afflict the current U.S. administration, a complete inability to have a sense of the limits of American power. What Hungary is to us or what Hungary is to MAGA is clear, but what are we to Hungary? Look at Hungarian trade. It is a relatively open economy, which depends a lot on its role as a relatively low-cost manufacturing platform, which it has been able to maintain despite the crony capitalism and all of that. Where does Hungary export to? Well, about 80% of its exports go to either the European Union, or Britain has a little bit on top. So essentially the democracies of Western Europe are where 80% of Hungarian exports go. How much does it export to the United States? 3.5%. Basically, Hungary, for practical purposes, does no business with the United States. This is mostly about gravity: The “gravity equation” in international trade says among other things that trade depends very much inversely on the distance between countries. Hungary is in the middle of Europe. It’s going to inevitably do a lot of trade with Europe. And that’s even larger because the special role that Hungary has taken is that of being a a manufacturing platform for relatively low-wage pieces of the European manufacturing sector. In a way, kind of like Mexico is for North American manufacturing. By the way, the fact that German companies in particular have invested a lot in Hungarian production is a large part of the reason that the European Union has been so derelict in trying to rein in Orbán and his destruction of democracy. But in any case, the point is that there’s just no way that the United States is going to be an important economic partner for a small country in the middle of Europe. It’s a complete misunderstanding of how big, how important, how powerful the United States is. It is in a way kind of the economic counterpart of imagining that the United States can easily effect regime change and bludgeon Iran into submission. This is not who we are. It’s not our role. We are not big enough. We are not the sole global superpower. And in any case, being a superpower isn’t what it used to be. So all of this will be ignored by the Hungarians. The one thing that may happen is that the clear message that Trump favors Orban may be the straw that breaks the camel’s back, maybe the final, tipping point that removes Orban from power. I’m not counting any paprika chickens before they’re hatched. There is a kind of a nightmare here about what happens if there’s a clear attempt to simply overrule, defraud the Hungarian electorate, not just the rigging that has worked so far, but something even more extreme. And then will the Europeans ever live up to their own values, their own ideals? I hope we don’t come to that point. But anyway, whatever is happening, one thing that’s clear is that U.S. economic partnership or lack thereof with Hungary doesn’t make a damn bit of difference. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Lisa Graves is a legal activist and the author of a remarkable and terrifying book, Without Precedent, that documents the assault on democracy via the story of John Roberts. I spoke with her about how America has come to its current state, and what the future may hold: . . . TRANSCRIPT: Paul Krugman in Conversation with Lisa Graves (recorded 4/9/26) Paul Krugman: I’m speaking today with Lisa Graves, author of an incredibly revelatory and deeply disturbing book called Without Precedent, about the Roberts Court and what it has done to America. And...hi, Lisa. Welcome on. Lisa Graves: Paul, thank you so much for having me on. It’s an honor to be here with you. And thank you for your kind words about my book. Krugman: I guess I was first sort of seriously alerted to what was happening at the Supreme Court in 2000, with the stolen election and all that. But I have to say, I don’t think I fully appreciated what Citizens United would do. And so why don’t you give us a little background on what has happened, the court and its role and what’s been happening to America? Graves: Well, I really appreciate your starting with Bush v. Gore, because that in some ways is the beginning of this period. It’s a precursor in a way to what we’ve been experiencing. And that was when the US Supreme Court, in a sharply partisan decision — although not all the Republicans voted to stop the recount — five Republicans voted to stop the recount in 2000, in Florida. And the effect of that was to give George W. Bush the presidency and with it, not just the power to, in essence, make war with the consent of Congress, but also the power to remake the courts, the Supreme Court in particular. And by the way, as part of my research for the book, I looked into what was happening at that time, and it turned out that Clarence Thomas’s wife Ginni Thomas was working for the Heritage Foundation on the predecessor to Project 2025 — basically Project 2000. And she was screening people for positions in the potential George W. Bush administration. And Clarence Thomas didn’t recuse himself from that case. By the way, that five-four decision — it would have been four-four. The count would have been allowed to proceed. And the count that actually occurred with news organizations after the fact, after Bush was sworn in, showed that Gore would have won Florida and would have become the president of the United States. By the way, after Thomas voted to effectively make George W. Bush the president, Ginni Thomas was given a promotion as the liaison from the Heritage Foundation to the White House, and she became the highest paid non-board member of the Heritage Foundation. And so she was rewarded very well for her work and, basically, for the consequence of her husband’s decision to vote to stop that recount. So that was really a moment where I think a lot of people didn’t understand what was happening. And because that decision happened so quickly, there were no motions for Thomas to recuse himself. It just was a very rapid, very political, partisan decision by the court. And it is really a precursor to what’s happened next, which is that George W. Bush was reelected as an incumbent, or elected anew in 2004. And there were two vacancies that came up immediately. It was for O’Connor’s seat and Rehnquist’s seat. And John Roberts got the role of chief justice, and Sam Alito got the role of associate justice. And then to fast forward to your question about Citizens United, again, this is a 5-to-4 decision issued by the Roberts Court, where Clarence Thomas sat on that case — the fifth vote, in essence, on that case — even though a billionaire named Harlan Crowe had staked his wife Ginni Thomas with $500,000 to launch a group to take advantage of the decision to come in Citizens United, to allow these so-called C4 groups under the IRS code to spend unlimited money to influence elections. And Clarence Thomas did not recuse himself from that case, and even had the audacity to write a concurring opinion saying that disclosure of money being spent by these groups — who the sources are — would chill speech, meaning money, like the money to his wife, which he did not disclose. And so that decision unleashed a tsunami of cash into our elections, where candidates are routinely outspent by the outside groups. And this has given a disproportionate, and extraordinarily disproportionate, power to billionaires in our society, in America, to secretly influence elections in order to get people into positions of power to advance their interests, like the huge tax breaks that Donald Trump signed into law at the behest of Charles Koch and his groups in the first term of President Trump. And again, similarly, in this second term of Donald Trump, the extension of those deeply unfair and destructive tax cuts for the richest few. Krugman: You kind of described what Citizens United is, but let’s talk more about that. Citizens United is the birth of super PACs, right? Graves: Yes. Krugman: And it’s basically saying that outside players — but it ends up being largely billionaires — can put lots of money with some basically tissue-thin restrictions on what they can do, but can basically put in unlimited amounts of money to influence political campaigns. Graves: That’s right. And so Citizens United was a decision that basically asserted that under the First Amendment, money is speech, and that outside groups that were not coordinating with the candidate — so-called independent expenditures — they could spend unlimited money, and they were not subject to the rules that the Bipartisan Campaign Reform Act, BiCRA, otherwise known as McCain-Feingold, sought to put in place to deal with this sort of what they were calling soft money — money that was outside the campaigns that was not required to be disclosed. So Citizens United and its progeny — a case called Speech Now vs. FEC — that’s what spawned these super PACs, where you have enormous money going into PACs, political action committees. That money can be million-dollar, even $10 million checks. For the super PACs that are operating in a particular way, they have to disclose their donors. But for the C-4 groups, which are these other nonprofits, they don’t have to disclose their donors. And so what it’s created is a situation in which, on the one hand, a billionaire can now give millions to a super PAC in a way that they could not give directly to the candidate. They couldn’t just write a check to the presidential candidate or congressional candidate. They can do it now in an unlimited amount through the super PACs. And then separately, they can give tens of millions of dollars — unlimited money — secretly to a C-4 group that runs so-called issue ads. Those are the ads that say vote for or against this person, or call them because you oppose their policy. But it’s really obviously about influencing the election, and that’s the dark money that’s being spent in our elections. Krugman: The Times found that 300 billionaires represented 19% of all campaign financing in the 2024 cycle. But I’m not sure how they know. Are the C-4s even in there? It may be more than that, right? Graves: It’s certainly more than that. And only under certain circumstances can you actually see some of the funding of a C-4, based on how it’s related — who’s funding it, if who’s funding it is known. So for example, if a foundation gives to a C-4, if it has the capacity through a trust or a foundation to give to a C-4, that sort of giving is required to be disclosed. But if an individual, a billionaire like Charles Koch, writes a check to the C-4, that is not disclosed. It’s only if it comes through a nonprofit entity that you can see just a glimpse of the sources of that funding. So whenever I talk to reporters who are doing those calculations about how much money is being spent by billionaires, I always tell them that their counts are going to be extraordinarily under the actual reality, because we know that these outside groups, these C-4 groups, are spending hundreds of millions of dollars cumulatively in the election cycle, and the only people who know who’s giving to them are the groups themselves. And probably some of the candidates know who’s giving to those C-4s. Krugman: Wow. So if we look at someone like Peter Thiel, who basically bought a Senate seat for JD Vance. I don’t actually know the number, but the numbers we see may actually be only the tip of the iceberg. Graves: That’s correct. There are a couple of rules in states and also at the federal level for certain types of independent expenditures, or if you have what’s known as a 527 group under the IRS code, that is allowed to spend directly in elections. But even then, what you see is a shell game. So for example, the Republican State Leadership Committee, RSLC, has created a subgroup to target state Supreme Court races. And it’s the sole funder of the subgroup. So when the subgroup discloses who funds it, it’s disclosing its parent organization. So it doesn’t disclose how much of that money is from Leonard Leo, or how much of that money is from Charles Koch or Koch Industries or the oil companies that goes into the bigger pool of funds. And so there are all these ways in which I believe that most of the money that’s being spent in our elections in America is not disclosed. It’s not disclosed under the campaign finance reports of the candidates, of the party, or the super PACs, because it’s the C-4 money that is most potent, because it’s the vehicle that allows them to hide the true funders — the biggest funders of these operations. Krugman: If we look at issues like energy and climate policy, there’s obviously huge amounts of fossil fuel money flowing into elections, but there’s also huge amounts of money going into supporting pseudo

Transcript All around the world, big, strong men with tears in their eyes are coming up to Donald Trump and saying, “Sir, you’re a loser.” Hi, I’m Paul Krugman. A brief update on something that has palpably changed in the world in the last few days. As regular watchers of Donald Trump and regular readers of mine know, Trump has a thing about insisting that people treat him with immense respect — the big strong men with tears in their eyes thing, “Sir” stories. And in particular about believing that the world despised America under Joe Biden and respects it now under his leadership, which was never true either in the first part or the second. But it is true that until quite recently, many people in the world at least felt obliged to pretend to respect Trump, felt obliged to flatter him, to stifle the negative feelings that they were having about the course of the United States under current management. And maybe Trump actually took these kind of coerced professions of respect as reality. But in the last few days, suddenly the masks are off. Volodymyr Zelensky just yesterday tweeted out a part of an interview that he gave in which he said, among other things, “In my view, Russia played the Americans again.” So it was just saying, basically, that Trump is working with the Russians, which obviously he’s known and has surely thought for a long, long time. But to say it that openly is something new. Zelensky — not a big strong man — but Zelensky is a tough guy. Keir Starmer, Prime Minister of Britain is, alas, not. But also Starmer just in a statement said that we’re tired of a world in which, I’ll quote, “bills go up or down on energy because of the actions of Putin or Trump.” Equivalence, Trump and Putin in the same sentence, in the same breath, that’s pretty stiff stuff. And Starmer has been notable in trying to preserve the special relationship, avoid offending Trump, trying to make him get a few points off the tariff rate, whatever. But now Starmer is pretty much openly saying, you know, you are the problem and we don’t trust you. What’s this about? Well, obviously, the United States went to war with a fourth rate power, Iran, and lost. Exactly how that plays out, we don’t know. But it was truly impressive how poorly the United States military and US strategic thinking has played out here. The United States has also proved both temperamental and weak, lashing out at our erstwhile allies and veering between threats of war crimes and then what looks a whole lot like abject surrender. So the world no longer either fears or trusts us. It turns out that our military might is not what it was cracked up to be, and our reliability is essentially zero at this point. We can’t count on the United States to do anything that it has promised. It’s a world in which the hegemon has basically gone AWOL. So that’s a big thing. There’s another story which I think is important, which has kind of has been overshadowed by the debacle in Iran: The bigger ongoing war, which is Ukraine-Russia, is not going well for Russia. It is, if anything, tilting increasingly in Ukraine’s favor. Now, what’s interesting about that, why is that relevant? Trump is basically on the side of Putin. He’s been unwilling and probably unable to just openly support Russia but has effectively pulled all aid from Ukraine, There’s essentially no money no military aid, no economic aid flowing from the US to Ukraine anymore — it’s all on the Europeans. The Europeans have still been buying some U.S. weapons and transferring them on to Ukraine, but that’s been largely choked off. And I think the assumption was that Ukraine would be in grave danger, would perhaps collapse without American support. Not happening. What’s actually happening is that Ukraine appears to be gaining the upper hand in the drone war, which is what this war is mostly about. And Ukraine’s success in adapting to modern warfare has been so great that now it looks like there are a significant number of Ukrainian drones and to some extent maybe personnel already deployed in the Middle East, and that Middle Eastern nations other than Iran are quickly moving to strike deals with Ukraine, to buy Ukrainian equipment. It’s kind of like, well, if you need help and Iran is still a menace, which it is, don’t count on the Americans, but maybe Ukraine knows how to do these things. Obviously, that helps empower Zelensky to be open in saying what he really thinks about the United States. Does this matter? Well, we’re not about to see the whole world turn on us. The United States may have threatened to seize Greenland, but I don’t think that Denmark is going to threaten to seize Alaska or anything like that. But it’s a big comedown, and it will hurt. It’s a slow erosion, but having countries that trust you, that support you, is a very big asset in geopolitics. Losing all of that is therefore a big liability. And this is my country. I’m not celebrating all of this, because I’d like to see America, particularly I’d like to see the next president, assuming that we actually have a legitimately elected president, inherit a brand that is not completely damaged and corrupted. But that’s not where we’re going. It’s really looking pretty bad. And what can you say? We had the worst and the dumbest in charge. We still do. And that’s taking a toll on all of us. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Transcript This is America’s darkest hour. Hi, Paul Krugman with an update Tuesday morning. Earlier today, Donald Trump posted on Truth Social, A whole civilization will die tonight, never to be brought back again. Not going to be a problem if we ever do get the war crimes trial that all of this deserves. A statement of motive, intent is completely clear. I don’t need to say how vile it is. It is shocking, although at some level, if you didn’t see this as a real possibility, then you weren’t paying attention. Not much to say here except to talk about how those of us who are not Donald Trump should behave. First of all, any military commander given orders to start destroying civilian infrastructure in Iran should disobey that order, should say it, should not even quietly resign. This is a time to stand up and make it clear that this is totally unacceptable. This is a violation of everything that the military stands for. It’s a violation of everything that America stands for. Second, any member of the Trump administration: to continue in your position doing your job as Trump takes America on the course of becoming a criminal nation, a criminal terrorist nation, you cannot continue in good conscience. Particularly, if you play any role in making this happen, then you are a war criminal too. Then you ought to be brought up someday before an international tribunal. But even if you’re in a peripheral role, even just putting your head down and saying, well, I’m an assistant secretary at the agriculture department or something like that, that’s not good enough. This is not a regime that you can serve in good conscience. Republican politicians, any Republican, I mean, there are people already saying, “oh, you know, I don’t approve of destroying civilizations, but” — that “but” makes you an accessory to the crime, if you are failing to stand up against it. And I really don’t like this notion that only Democrats have agency. This is a very common thing. All of this is made possible by the lockstep slavish obedience of Republicans. Nonetheless, Democrats have a role here, too. And this is not a time to attack Trump’s war because it costs too much money or to attack it because it’s bad for energy markets or raises the price of groceries. I mean, it does do all of that. All of that is true. But we’re way past that point now. We’re at the point where you need to unambiguously condemn the immorality and criminality of what’s going on. No mincing of words. Damned if I know what’s going to happen. I mean, at some level, I think that the civilization that may be destroyed tonight is our own. I mean, are we civilized if we do this kind of thing? If America as a nation doesn’t stand up against this, what are we? So, God help us. Normal life will continue. It’s going to be a really weird thing to be out there, you know, grocery shopping and taking the subway and all of those things. But this is, in a way, the defining moment. The fate of the whole American idea is on the line. I have no idea how this ends. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

America as we knew it may end Tuesday. Hi, I’m Paul Krugman. Sunday morning update. Yesterday, I talked about how awful Trump’s message about glory to God and all of that was, but it’s looking much, much worse today. I’ll quote Trump in a second. But let me do a Heather Cox Richardson here and talk about history for a second. Think about what Abraham Lincoln, a president who was actually winning his war, said in his second inaugural. You’ve all probably heard the magnificent conclusion, which begins, with malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in. Determination, humility, decency, Now, let me read you Donald Trump’s Truth Social post from this morning: Tuesday will be power plant day and bridge day, all wrapped up in one in Iran. There will be nothing like it. Open the f****n strait, you crazy b******s, or you’ll be living in hell. Just watch. Praise be to Allah. What happened to us? This is not the country we were supposed to be. If Trump is actually going to give the order for massive war crimes, for destruction of civilian infrastructure, power plants, bridges, which will, among other things, lead to a lot of deaths in Iran, will the military obey it? A year ago, I would have said no. But what we do know now is that, first of all, there turns out to be at least a significant MAGA component inside the officer corps. And we know that Pete Hexeth has been systematically corrupting, dismantling the military over the past 14 months. Generals who raise ethical concerns have been fired. Officers who even just want to be intelligent about warfare. and not believe that it’s all about warrior ethos and lethality have been fired, so it’s quite possible that there’s a quorum of officers who will follow instructions to commit war crimes. You can get even more pessimistic. Tim Snyder has been arguing that we’re basically in preparation for a coup, that somehow or other the war will be a pretense and arguing that this insane expansion of military spending in the latest Trump budget is a bribe to the military. I hope he’s wrong. But in any case, my God, if Trump gets his way, and if he doesn’t chicken out —and I think TACO is greatly overrated, I think all too often Trump actually does follow through on his insane stuff. It’s entirely possible that basically by this time Tuesday, America will have established itself as one of the world’s great villains. I don’t want to be here, but, you know, be warned. This is happening. This is real. It’s the most astonishing, awful thing that I’ve ever seen, and we’ve all seen a lot of awful things. Take care, I guess. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Donald Trump isn’t sounding like himself, and that’s terrifying. Hi, Paul Krugman here with a brief update on Saturday afternoon. Not my usual thing. No economics, no analytics, just I felt I needed to say something. On Wednesday, Trump gave a speech, which was... pretty depressing. He was low energy, listless, and seemed to be disconnected from reality, insisting that everything is going great in this war and everything is going great across the board. And in terms of the closure of the Strait of Hormuz, well, it’s somebody else’s problem. And the Strait may naturally open by itself, which didn’t sound like leadership. In some ways it sounded like Trump, always living in a fantasy world in which things are going his way. But if you thought about the outcome for the world, it seemed to be pointing towards the U.S. never admitting it openly, but implicitly basically giving up and leaving a stronger Iran, but with the Strait of Hormuz opening up — maybe with tolls collected by the regime in Iran, and just a diminished, weakened U.S., but better than some of the alternatives. Today Trump put up a Truth Social post, which said that if Iran doesn’t open up the Strait of Hormuz within 48 hours, “all hell will reign down on them.” That was how he put it. All hell will rain down. Misspelled rain, but OK. And then finished it up with glory be to God. GOD in caps. Wow. So first of all, this is a completely different picture suddenly. Aside from the Strait of Hormuz not being our problem to we will commit massive war crimes, presumably. That’s the only thing that makes sense here, unless they open it up, which is pretty bad. And also... I don’t think Trump has ever said “glory be to God.” That doesn’t sound like him. That sounds almost as if Pete Hegseth wrote this post, which maybe in some sense he did. The misspellings and all do look like Trump in his own hand, but it feels like this is the influence of our religious fanatic Secretary of War, or as people in the Pentagon apparently call him the Secretary of War Crimes. This is really bad. It’s hard to see what happens in 48 hours. It’s clear that Trump, for all his pretense of, “I’m always winning,” is aware of how completely he screwed things up, that he’s aware that he has basically led America into an epic strategic defeat. I don’t think he cares about that from the point of view of America, but he is realizing what this has done to him — that he will probably quite rapidly lose his grip on U.S., politics, and certainly to the extent that he cares about his legacy, it’s not going to be his wonderful ballroom. It’s going to be that he’s the man who single-handedly led America to one of its greatest defeats ever. But now what? It would be one thing if he just kind of slunk away into the night, which is what we would have hoped would happen, but instead it sounds like he’s unable to accept it and that he is going to try and do something truly awful in an attempt to somehow redeem himself and the situation. If we had a functioning democracy, this would be 25th Amendment time. This guy should not have any authority at all. Finger on the button, although I don’t think we’re talking about nukes, but he shouldn’t have any authority on matters of state violence when this is the kind of mood he’s in. Just in general, although religiosity is often expected of American leaders, saying glory be to God before you unleash violence, that is not what used to be the American way. Anyway, I’m scared. I wonder very much what the next few days will bring because this is looking like basically a president who is losing it and unfortunately losing it in a way that can really make the world a much worse place very fast. I guess enjoy the rest of your weekend. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

A short video rather than my usual morning post Donald Trump doesn’t even have the courage to run away. Hi, I’m Paul Krugman. I’m not going to do a regular post today — it’s Thursday morning — because I wanted to wait and see what was in the big speech from Donald Trump last night. And I thought I could just do a short video about it. It turns out that the speech was sort of an anticlimax, although not in a good way. Many people expected Trump to pull the mother of all TACOs, to declare victory and surrender. He did not do that. He declared victory, of course, but he did not actually announce an end to hostilities. On the contrary, he said we’re going to bomb Iran into the Stone Age. So add massive war crimes to your schedule. There is clearly no strategy here. There’s no endgame. There’s nothing. It’s hard to tell, as always, whether Trump is delusional or just completely unable to admit something that he actually knows. One of the moments that really struck me in the speech was him declaring that the whole world was extremely impressed by what happened. He said, the whole world is watching and they can’t believe the power, strength and brilliance. They just can’t believe what they’re seeing. The world can’t believe what it’s seeing. What it’s seeing is that the world’s greatest military power took on a fourth-rate power. Again, as I said the other day, Iran’s military budget is a rounding error in our military budget. And we lost. For all practical purposes, we’ve left ourselves in a much weaker position and Iran in a stronger position than it was before. But Trump has to believe or has to claim that he believes that the whole world is extremely impressed. You might say, why do we care? Well, he cares, obviously. His whole thing is about dominance and believing that we’ve got the world awed by our strength. If you want the real verdict on the speech, well, Brent oil futures were under $100 when Trump started speaking. They are over $108 as I record this. The oil market, I think is a more clear gauge, although the stock market has also reacted. Basically, everybody said, oh my God, we thought that this was going to be at least the beginning of the end, and instead it looks like an endless quagmire. I still think that people are not fully taking into account the implications for global oil prices and everything else of the Strait of Hormuz remaining closed for the indefinite future. So this is going to be really bad. But anyway, it was radically disappointing even to people who are, you know, the markets and a lot of people in the world were actually hoping that the United States would give up. I mean, it’ll be terrible. We really don’t want a medievalist theocracy empowered. But since this is heading nowhere except for, again, massive war crimes, better to end it. But we’re not getting that. What really strikes me, and there’s obviously deeper stuff in here, but it is a question of character. It’s funny, I don’t think there’s a sort of, if you like, native English term for the Yiddish — but it’s effectively English now — word mensch. A mensch is literally a person, but it means somebody who takes responsibility for their actions, who accepts defeats as being defeats and tries to move on, who tries to improve, basically just being a mensch. It’s hard to imagine somebody who’s less of a mensch than Donald Trump, except maybe for some of the members of his cabinet. It’s incredible that they’re so lacking in the basics of character. The thing about what this means for America’s role in the world is not only that Trump and company are doing great damage, but the whole world is watching. They saw that this guy, and it wasn’t hard to see what kind of a person Trump was, that America elected this guy twice. It appears that the American public has completely lost sight of what it means to be a responsible, serious person. I might say, since this masculinity posturing is such a part of it, they’ve forgotten what it is to be a man. Obviously, that applies to all genders. A country that will elect somebody like that twice is not a country anyone can rely on. And that is the ultimate lesson here. We have Trump lecturing the world and saying, why are you cowards? Why don’t you come in and help us in this ill-conceived, disastrous war that we started without checking with you? But the reality is that the world is looking and saying, my God, what is wrong with America? They may still have a lot of bombs — although not as many as we started with — but it’s not a country anybody can trust for anything. And that, even more than the price of oil, is going to be the legacy of this war. I guess have a great day. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

Transcript So the world’s greatest military power went to war against a fourth rate nation whose military budget would be rounding error in our defense spending. And it appears that we lost. Hi, Paul Krugman with a late night, well, evening update, which I don’t usually do, but I wanted to get this in before who knows what happens in the news tomorrow. It’s Tuesday. It’s the day that the stock market rallied enormously, that the futures price of oil dropped precipitously, all on the happy news that the United States, at least based on Trump’s Truth Social, appears to be surrendering. Trump put up a Truth Social post saying that, you know, we don’t need to open the Strait of Hormuz. If the Europeans think they need it, they should go ahead and do it. And it’s up to them. And this is pretty amazing. Of course, the idea that it only matters to the Europeans, that it doesn’t matter to us, is all wrong. And that will be a subject of a Substack post shortly. But it is pretty much a confession. Although it’s framed as we won, now let somebody else do the cleanup, the reality is it’s effectively a confession that, well, we lost. We can’t do this. How the hell did we manage to do this? I mean, the objective reality is that this was never going to be... Maybe it wasn’t even going to be doable. There were reasons why we didn’t go to war with Iran, particularly why we didn’t go to war in a way that basically became an existential threat for the regime so that they have no compunction about creating lots of damage because the alternative result is annihilation for them personally. But everybody who thought about it even for a couple of minutes, anyone who knew anything, particularly anyone who’d been paying attention to four years of war in Ukraine … we know something about what modern war looks like and about the inability of countries that have conventional superior forces to avoid major damage from drones and missiles. So this was completely, unbelievably stupid. How did we get there? Well, there was a very good article by Tobin Harshaw in Bloomberg, and mostly I’m just riffing off what he wrote, but I think that it deserves wider circulation. He resurrected a book I had forgotten about, a 1976 book by Norman Dixon called The Psychology of Military Incompetence. It was very British oriented, but the lessons apply; Dixon looked at the great military disasters of British history. You might think there were many reasons why really bad decisions were made, but he actually said there was a kind of consistent pattern. That what happened was that you had military leaders, or people making military decisions, who for the most part shared two things. First, they believed, they had this atavistic, anachronistic belief that warfare is all about muscles and not about minds. which hasn’t been true for a very long time. And second, he argued that they are just generally anti-intellectual, anti-education. So in some sense, it’s all about muscles and don’t give me all of these smarty-pants intellectuals who are telling me about why I’m doing it wrong. It’s an uncannily accurate portrait of Pete Hegseth, down to even seemingly minor details. Muscular Christianity is among the defining symptoms of the bad British military leaders that Dixon analyzed. So this is what happened. This is not about specific bad judgments. It’s not, in a way, about the specifics of the case. It is that we were led into war by people who exemplified in the classic way how really bad military decisions are made. And it all comes down to believing in brute force and toughness and muscles — muscles in the age of drone warfare! — and hate intellectuals, hate learning. What really gets me is that in a war where the deciding factor is having some intellectual understanding of what you’re doing, that a theocratic regime in Iran, which basically wants to bring back the Middle Ages, mostly got it right. And the world’s leading haven of scientific thought, or we were at least until the current administration, got it completely wrong. It’s humiliating. It’s awful. And, you know, we will all be paying the price for this incredible defeat for probably for the rest of our lives. Enjoy the evening. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

A month into the war, and now they’re talking about pointless ground action and/or war crimes. TRANSCRIPT Pete Hegseth believes in the lethality fairy, and that’s a very bad thing. Hi, Paul Krugman here. Most people watching this probably don’t get the reference. In the aftermath of the 2008 financial crisis, a number of governments did what economic textbooks say is exactly the wrong thing. They slashed government spending in the face of mass unemployment. And they justified this in part by arguing that although, yeah, sure, if we slash spending and eliminate a bunch of jobs, that should be bad, could make things worse. never mind because it will improve confidence and that will lead to economic expansion. I, in an essay in 2010, called this believing in the “confidence fairy,” one of the coinages that seemed to stick. And of course, the confidence fairy never arrived. Countries that created worse unemployment by engaging in austerity policies suffered worse unemployment. There was no rescue from improved confidence. In this case, our Secretary of Defense, which is his legal title, although he calls himself the Secretary of War, continually argues that if only we get even more violent, if only we do even more damage, that this will somehow translate into success in Iran. He clearly relishes the thought of violence himself. He’s now holding prayer breakfasts, and in his prayer breakfast, he called upon the Lord to support us in “overwhelming violence of action against those who deserve no mercy.” I think this is deeply un-American, but anyway, aside from the evilness — I don’t think there’s any other way to put it — of the world view, how is this supposed to work? If you look at the plans or ideas that are being bruited for using ground forces now, and that’s clearly very much sort the next step here, for using ground forces against Iran, well, yeah, you can seize Kharg Island, although hanging onto it could be very expensive, but then what? You’ve cut off Iranian oil exports, we could do that anytime anyway, then what? You can, well, try to occupy some of Iran, but the relevant coastline is well over a thousand kilometers long. Missiles and drones can be fired from deep inside Iran. 10,000 soldiers, maybe, is not remotely enough to secure the Persian Gulf, let alone allow shipping to transit, let alone allow tankers to transit through the Strait of Hormuz. So this doesn’t make any sense, unless you somehow think that the sheer act of violence will shock and awe Iran into submission, which, if it was going to happen, would have happened already. Clearly not on the cards. Hegseth is all, we are going to kill lots of people. Trump is vacillating. In his Truth Social post this morning, he started out by saying we are on the verge of successful negotiations, and we’ll get the Strait open soon because we’re having extremely good talks with the Iranians. Other presidents have been accused of negotiating with themselves. Trump is negotiating with his imaginary friends. There’s no reason at all to believe that these talks are actually happening. But he then pivots midway through the post, to saying, and if we don’t get this, then we’re going to start bombing civilian power plants and water supplies. So give us what we want or we’ll commit a massive, massive war crime, which I hope is not going to happen. But even if it did, why would you think this would open up the Strait of Hormuz? So it’s this lust for violence with no actual coherent story about how that violence is going to produce results. It’s horrifying. I really don’t know how this ends, except that it does feel as if this is a quagmire largely in the minds of top Trump officials, Trump himself and Hegseth, who having this utterly unshakable belief that hurting people will produce great results, respond to each failure of violence to produce results by getting even more destructive with no end game in sight. Have a great day. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe

For more like this, check out my YouTube channel Transcript Has the US military already been Kudlowized? Hi, I’m Paul Krugman. I’ll explain what I meant by that in a couple of minutes. It’s Friday morning. The war is continuing. A lot of what’s happened in the Iran war has sadly not come as a surprise. The fact that there was no planning, that there was no plan B in case a decapitation strike didn’t do the job, that Trump’s people didn’t seem to have gamed out at all what would happen if their fondest wishes did not come true — unfortunately, that’s par for the course. There was a famous book in the Vietnam years about how all that went wrong, about how all of the sort of brains trust around LBJ led us into that disaster, and it was called “The Best and the Brightest.” In this case, it’s obvious: Everybody knows that we’ve got the worst and the dumbest. So we knew that the thinking about strategy was going to be nil, that it was going to be all very ill-conceived. The surprise, and it’s an unfavorable surprise, is that the U.S. military has not been doing too well either. I mean, obviously, you know, they can blow up anything they want. There’s no question that the U.S. has unchallenged superiority in all of the conventional aspects of warfare. There’s no Iranian Air Force for, you know, there’s no Iranian Navy in any conventional sense. Unfortunately, it’s not that kind of war. The failure to have a prepared response to the modern world of drones and inferior powers which nonetheless have the ability to do a lot of damage, has been a bit of a shock. Now, admittedly, that is something that I, like I think a lot of people who are amateur followers of military affairs, was worried about watching developments in Ukraine. You couldn’t help but wonder whether the U.S. military, with its emphasis on overwhelming force, with its historic superiority in technology, was actually ready for this new world of kind of democratized ability to inflict damage. And there were some straws in the wind suggesting that we were not, that maybe just the historical record of overwhelming dominance had made the US military complacent. But it still comes as a shock to find that U.S. bases in the region appear to be sort of completely unprotected, unhardened, that the U.S. went into this thing sending, you know, multimillion-dollar interceptors to shoot down multithousand-dollar drones. It’s been really kind of shockingly overwhelmingly, I’m not sure incompetent, but unprepared. It’s just shocking how unready the world’s greatest military seems to have been for a war that was in many ways prefigured by what’s been happening in Ukraine for several years now. So how did that happen? I was motivated to do this video by a report in The New York Times about what Pete Hegseth has been doing to the military, about the passing over of promotions for officers who happen to be black or female. It’s just been this shocking sort of anti, reverse DEI, otherwise known as racism and misogyny. But in general, I think it’s pretty clear, not just that Hegseth doesn’t like women, doesn’t like non-whites, but also he doesn’t like smart people. He doesn’t like people who are competent at their jobs. He wants people who are into lethality and dumb shows of force, which is not a good thing in a 21st century military. But I had thought that this would take longer. And I’m wondering whether this is just Hegseth or whether this is a process that has been underway. And of course, it’s now accelerated drastically under current management. And so let me explain about Kudlowization. In places where I do know something, do know what I’m talking about, which is economic policy making, economic discussion, there has been a long-standing dumbing down on the right wing, a dumbing down of economic thinking, dumbing down of economic discourse. Which is a little odd because for an academic field, economics has a lot of conservative people, not extreme right-wingers, but kind of small government, low tax, deregulation. That kind of comes with the territory. It’s not that it’s necessarily right, but the simplified models that we use in economics do tend to point you that way. We like simplified models in which the market is always right, and in some ways the line of least resistance is to say that the models are right, the market is always right. So there are plenty of people who, at least by conventional, by historical standards, would be considered conservatives. And some of them have spent, over the course of my professional lifetime, have spent a lot of time trying to be part of the Republican policy apparatus, have sought appointments in Republican administrations. But more and more, and totally in recent decades, have been frozen out. It turns out that the modern Republican Party doesn’t want, say, Greg Mankiw. They don’t want moderately conservative, technically competent economists. They want people who have no idea what they’re doing. They want ideologues, not even ideologues, but loyalists, people who will say whatever it is they want, the party wants them to say. They want Larry Kudlow, Stephen Moore. They want the often wildly incompetent but reliable people who are reliable in part because they’re incompetent. Somebody who has a professional reputation, a professional skill set might be tempted to actually someday take a stand on principle, and that’s unacceptable. So we have this kind of real extreme, not just political extremism, but complete lack of ability to do the job, which is almost, in a sense, incompetence is a job requirement. And I’m starting to wonder if that hasn’t started to infect the military as well. Certainly the people that someone like Hegseth wants are people who believe in warrior ethos, who believe in lethality, who believe in muscles in an age when war is largely waged by guys staring at video screens. And it’s a technological war in which all of those things matter not at all. But anybody who is likely to think that is not this regime’s, this movement’s kind of guy. Now, what worries me, I mean, how much damage could they have done in just 14 months? Well, maybe quite a lot, but when I talked with Phillips O’Brien a while back, he said that this rot has been underway for a while, that there’s actually a kind of a MAGA-esque faction even within the professional officer corps. And we certainly seem to be seeing that. So it looks as if the worst and the dumbest are not just at the top of the political leadership. They’re not just on the diplomacy and strategic policymaking end, but even in the cutting edge of the military. And it’s terrifying. America as we knew it may just not exist, even in our military forces. On that happy thought, have a great day. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe