Paul Krugman: Economics of Innovation, Automation, Safety Nets & UBI | Lex Fridman Podcast #67 | Summary and Q&A

TL;DR

Paul Krugman emphasizes the importance of open-mindedness and exploring new ideas, while discussing the challenges of political discourse and the role of government in various economic topics.

Key Insights

• 🐦‍⬛ Political discourse is often emotionally charged and lacks the ability to explore complex economic questions, hindering progress.
• 👶 The provision of a strong safety net, including healthcare, support for children, and long-term care for the elderly, is crucial for a just society.
• ❓ Competition is beneficial in many industries, but not all activities are suitable for competition, such as healthcare.
• 🛟 Metrics such as income distribution, poverty rates, life expectancy, and life satisfaction can provide insights into societal well-being.
• 🫢 Automation and technological advancements are not qualitatively different from past economic shocks, and may not have as significant an impact on job markets as often believed.
• ™️ The complexity of international trade arises from the large number of players, but the underlying reasons for trade are similar to individual trade.
• ↩️ The current trade war between the US and China is driven by a misunderstanding of the benefits and nature of trade, rather than addressing real issues such as intellectual property rights.
• 📬 When exploring new ideas and engaging in public discourse, it is important to remain open-minded and not be deterred by criticism or hate mail.

Transcript

the following is a conversation with Paul Krugman Nobel Prize winner in economics professor CUNY and columnist at the New York Times his academic work centers around International Economics economic geography liquidity traps and currency crises but he also is an outspoken writer and commentator on the intersection of modern-day politics and economi... Read More

Questions & Answers

Q: Is the current political discourse conducive to exploring complex economic questions?

No, political discourse is often filled with emotion and certainty, making it difficult to discuss topics with nuance and open-mindedness.

Q: Why do some industries benefit from competition while others do not?

Competition is beneficial when it can align incentives and create choice, but it may not work well in industries where information is asymmetrical or where certain goods/services require specialized knowledge.

Q: What metrics indicate the well-being of a society?

Metrics such as income distribution, poverty rates, life expectancy, and life satisfaction can provide insights regarding the well-being of a society.

Q: Are automation and technological advancements a significant threat to job markets?

The impact of automation on job markets is often exaggerated, as historical evidence shows that while some jobs may be lost, new jobs are created. Rapid technological change is not qualitatively different from previous economic shocks.

Q: Is the current political discourse conducive to exploring complex economic questions?

No, political discourse is often filled with emotion and certainty, making it difficult to discuss topics with nuance and open-mindedness.

More Insights

• Political discourse is often emotionally charged and lacks the ability to explore complex economic questions, hindering progress.

• The provision of a strong safety net, including healthcare, support for children, and long-term care for the elderly, is crucial for a just society.

• Competition is beneficial in many industries, but not all activities are suitable for competition, such as healthcare.

• Metrics such as income distribution, poverty rates, life expectancy, and life satisfaction can provide insights into societal well-being.

• Automation and technological advancements are not qualitatively different from past economic shocks, and may not have as significant an impact on job markets as often believed.

• The complexity of international trade arises from the large number of players, but the underlying reasons for trade are similar to individual trade.

• The current trade war between the US and China is driven by a misunderstanding of the benefits and nature of trade, rather than addressing real issues such as intellectual property rights.

• When exploring new ideas and engaging in public discourse, it is important to remain open-minded and not be deterred by criticism or hate mail.

Overall, Paul Krugman advocates for open-mindedness, exploration of new ideas, and the need for a strong safety net in society, while addressing the challenges of political discourse and the role of government in various economic aspects.

Summary

In this conversation, Paul Krugman discusses various topics related to economics, politics, and the role of government. He talks about the importance of exploring new ideas and the challenges of political discourse. Krugman also shares his views on a perfect world, wealth distribution, competition, information overload, and the current state of public discourse. He discusses the role of government in regulating industries, the impact of technology on the job market, the welfare state, and universal basic income. Krugman emphasizes the need for evidence-based policies and the importance of considering different viewpoints while critically assessing radical ideas.

Questions & Answers

Q: What would the perfect world look like from an economics perspective?

According to Krugman, a perfect world does not exist as he does not believe in perfection. However, he mentions an ideal economy with a high safety net, good environmental regulation, and the absence of major issues found in countries with well-run economies.

Q: What are Paul Krugman's thoughts on wealth distribution?

Krugman believes that total equality is not realistic or desirable. However, he argues for a society where nobody is financially struggling, and everyone lives in the same socio-economic universe. In his opinion, extreme wealth gaps are detrimental to society.

Q: What is Krugman's perspective on competition, and does he see any limitations to its value?

Krugman acknowledges that competition is important in certain contexts and has been beneficial in areas like the telecommunications industry. However, he points out that not every industry or activity is suitable for competition. For instance, healthcare is an example where competition does not work well.

Q: Why doesn't competition work well in healthcare, according to Krugman?

Krugman refers to a paper by Kenneth Arrow from 1963 that explains the conditions necessary for competition to function effectively. He argues that healthcare fails on various dimensions required for competition to work, such as both parties being well-informed and able to make intelligent decisions. Krugman emphasizes that healthcare is not a one-size-fits-all industry and believes that competition does not lead to optimal outcomes.

Q: Is it hard to be well-informed in the modern world, as Krugman suggests?

Krugman acknowledges the vast amount of information available and the potential for misinformation online. While information is more accessible than ever, not all information is true or easy to understand. He uses the example of buying a car, where consumers can rely on consumer reports and online reviews. However, seeking medical advice on the internet is not a good substitute for medical expertise. In summary, he believes that information availability is not the problem but rather the reliability and complexity of the information.

Q: How much disagreement is there about what utopia looks like, and what are the main areas of dispute?

Krugman explains that there are two levels of disagreement when it comes to defining a just society or utopia. The first level revolves around differing opinions on the meaning of justice itself, whether it focuses on equal outcomes or a fair process. The second level involves disagreements about what actually works in achieving a just society. Although Krugman leans towards a particular viewpoint, he acknowledges that legitimate disagreements exist across a wide spectrum of economic and political issues.

Q: What metrics does Krugman think are important to measure how well a society is doing?

Krugman suggests looking at metrics such as the income of the median family, income of the top 1%, poverty rates, health indicators like life expectancy, and overall life satisfaction. While he recognizes that these metrics are not perfect, he believes they provide meaningful insights into the well-being of a society.

Q: What does Krugman think is lacking in the safety net provided by the United States?

Krugman points out that the United States lacks a universal guarantee of adequate healthcare, unlike other advanced countries. He also mentions limited support for children and inadequate long-term care for the elderly. Krugman believes that the United States should strive to take care of those who make the mistake of having the wrong parents or getting sick because a rich country should provide these basic necessities.

Q: Is taking care of the less fortunate both the right thing to do and economically beneficial, as Krugman suggests?

Krugman argues that doing the right thing in terms of justice is often also the right thing economically. He mentions evidence indicating that providing basic healthcare and support for children leads to better developmental outcomes and overall societal well-being. Krugman emphasizes that lacking these basics can be economically destructive and makes a society poorer.

Q: Does the "invisible hand" of the free market solve everything, and what are its limits, according to Krugman?

Krugman acknowledges the importance of the invisible hand and the value of markets in aligning incentives and organizing economic activity. However, he emphasizes that the invisible hand is not a mystical force but a mechanism that works well in certain industries and activities. Krugman believes that it does not work well in healthcare and education, among other sectors. He suggests that a society with a balance of both invisible hand and visible hand (government intervention) tends to work best.

Q: Why does Krugman think the assumption of widespread automation causing job losses is prevalent in public discourse, even though evidence does not support it?

Krugman attributes the assumption of automation causing job losses to two main factors. Firstly, advancements in technology are more visible and discussed in the public sphere, leading to a misperception that technological change is qualitatively greater or faster than in the past. Secondly, following the financial crisis, there was a need to find a deep cause for high unemployment and economic misery. Krugman argues that it is often difficult for people to accept that economic downturns can result from simple factors like a failure of investor confidence. Therefore, they attribute it to larger forces, such as automation taking over jobs.

Q: How does Krugman assess the current state of public discourse in politics, particularly regarding the division and disagreements between the left and the right?

Krugman suggests that public discourse varies depending on the news sources people consume. While there is room for improvement in mainstream political reporting and policy analysis, he believes that it has become better over time. He suggests that there is more recognition of evidence-based policies and more experts with in-depth knowledge in various areas. However, he acknowledges that the general level of informed voters is uncertain. He mentions that Democratic debates have become more substantive and discussion-oriented, which is a positive trend.

Q: How should one approach radical and extreme ideas in public discourse, according to Krugman?

Krugman states that radical ideas can be open to discussion if they are grounded in some basis of evidence or theory. However, when ideas are not supported by evidence or have been disproven repeatedly, it becomes difficult to respect or engage with them. He believes that distinguishing between legitimate disagreements and ideas that lack credibility is crucial when considering various viewpoints.

Q: What are Krugman's thoughts on economic growth through technological innovation, and why does he think it is not prioritized?

Krugman agrees that technological innovation is a significant driver of economic growth, accounting for around 70-80% of per capita income growth. He highlights the non-linear nature of technological advancements and the difficulty in predicting their effects accurately. He suggests that the absence of technology-driven growth is not due to a lack of desire, but rather the inherent complexity of the subject. Krugman also mentions that economists today are heavily focused on data-based analysis, indicating an ongoing commitment to understanding the impact of innovation.

Summary & Key Takeaways

• Paul Krugman discusses the intersection of modern-day politics and economics, emphasizing the need to explore new ideas and avoid judgment and derision.

• He highlights the complexity of political discourse, which often hinders the exploration of questions that lack definitive answers.

• Krugman argues for the importance of a strong safety net in society, with a focus on healthcare, support for children, and long-term care for the elderly.

• He discusses the role of competition in different industries, recognizing its benefits but also acknowledging its limitations in areas such as healthcare.

• Krugman touches upon the concept of universal basic income and the challenges of implementing such a system in a way that is practical and effective.