Paul Krugman is one of the economists I follow because economics is such a complex topic, and I like to learn from various schools of thought, not to mention, I value different perspectives. Despite some of my criticisms and disagreements with some of Krugman’s views, also recognizing his biases and blindspots on certain topics he discussed in the past, like the 2008 financial crisis (minor disagreement), there is common ground social scientists can agree upon that are indesputable facts.
Krugman gained my respect when a few years ago I found a rare low-view-count video of him debating George Soros (Hosted by The Council on Foreign Relations) on the topic of international trade, globalism, if I’m not mistaken. The debate was like two decades old! Then, I found other videos of him going toe-to-toe in other debates using sound logic, applying knowledge and facts from economics, and overall being reasonable and calm (not a shouting match). Krugman is more widely known because he received a Nobel for his new theory of international trade and recently retired from the NYTimes as a columnist and shifted to Substack.
Only recently, in an interview, I learned that he admitted to being wrong on a particular area he did not anticipate when it came to the issue of his main area of expertise (international trade), mainly, the impact on US labor and manufacturing. He admitted that mainstream economists, himself included, missed how globalization would evolve into “hyperglobalization,” and how that would devastate the American industrial middle class. Particularly, he says economists underestimated the scale of economic harm caused by Chinese competition. That’s a big deal, considering economists often pride themselves on being on the “right side of history” when it comes to trade and market efficiency.
Paul Krugman’s recent article.
One odd feature of U.S. politics is that businesspeople, especially small business owners, always seems to believe that they will do better under Republicans, even though history shows that business does better under Democrats. Small business owners supported Trump in the last election, despite ample evidence that he would be very bad for business.
And now they’re getting a rude awakening.
Let’s talk for a second about price controls.
A few weeks ago Viktor Orban, Hungary’s de facto dictator and a darling of the MAGA set, announced that he was imposing profit-margin caps — basically price controls — on groceries. I intended to write something about that as a warning that something similar might happen in the United States, that businesspeople were fools if they assumed that Donald Trump was on their side.
Unfortunately, I never got around to writing that post. So I missed my chance to be prophetic, because it has already happened: Trump reportedly told auto executives sometime in March not to raise prices in response to tariffs. He denies that he said it, but the reporting looks solid. His headline-making assertion that he “couldn’t care less” about rising car prices seems to have been about imported autos, not domestic production.
My thoughts:
History has shown that price controls—whether on commodities, wages, or housing—consistently lead to unintended consequences. A well-known example is the 1970s oil crisis: Government-imposed price ceilings led to widespread shortages and long lines at gas stations, ultimately making oil more expensive and less available.
This pattern suggests that similar controls—such as rent ceilings or minimum wage mandates—can backfire. These policies distort market signals, reduce supply, and often hurt the very people they intend to help.
In theory, it’s possible to design a society where rents don’t spiral out of control, but this requires nuanced planning, deep economic literacy, and public discipline. Unfortunately, widespread belief in simplistic solutions—like tying wages permanently to the cost of living—can be counterproductive and lead to policies that worsen affordability for everyone.
For this reason, I find it hard to align with politicians like Bernie Sanders or Alexandria Ocasio-Cortez, whose platforms often rely on broad-based wage hikes and rent controls as solutions. These ideas might sound appealing but often ignore the complex interplay between productivity, inflation, labor markets, and capital mobility.
Raising the minimum wage is widely seen as a benefit to workers. However, it also acts as a form of wage standardization that can create a ceiling for individual growth while shifting the burden of rising costs onto consumers and small businesses. Paradoxically, minimum wage laws can reinforce systemic problems rather than solve them.
Although worker productivity has increased over the past few decades, real wage growth has remained largely flat. Many blame this on corporate greed or policy failure, but part of the issue may be structural—a result of artificial wage floors that reduce incentives for merit-based pay and limit flexibility in wage-setting.
As for Donald Trump’s presidency, I think it’s still too early to fully assess the long-term economic outcomes. However, I’m skeptical of protectionist policies like tariffs and trade barriers. They tend to provoke retaliation, inflate prices, and reduce efficiency. While I could be wrong, history has not been kind to economic nationalism.
The Worship of Capital and the Middleman Extraction Theory.
It’s deeply ironic that the United States, one of the wealthiest nations in history, has had more than enough resources to ensure everyone has a home—yet chose a different path.
Instead of redirecting that wealth toward universal housing or public infrastructure, much of it has been funneled into financial markets, driven by the need to generate returns for pensions, endowments, and investment funds.
This inflow of capital into equities and real estate inflates asset prices, which disproportionately benefits those who already own significant assets—namely, the ultra-wealthy. As valuations rise, the net worth of billionaires increases, creating a feedback loop where wealth begets more wealth.
Meanwhile, asset managers and financial intermediaries—often celebrated as stewards of capital—extract fees along the way. They frame their role as allocating wealth “prudently” into “safe” investments. But in practice, this system often prioritizes asset preservation and accumulation over the material needs of society, like affordable housing.
The result is a financial ecosystem that appears efficient on paper but leaves core human needs unmet. The logic of capital optimization overrides the logic of basic provision.
Asset managers, financial intermediaries, and financial institutions are better at extracting and hoarding wealth rather than serving or distributing it to the wider population. Something I like to call the Middleman Extraction Theory. Trickle-down economics would work if the middleman didn’t extract and hoard so much of the wealth. Ironically, the middleman has caused more harm to middle-class Americans, all in the name of capital investment and worshiping capital at the altar.
// ChatGPT’s feedback on my thoughts on capital markets.
ChatGPT:
Now let’s examine this with care:
1. “We could have built homes for everyone”—is this plausible?
- Yes, in terms of material wealth and GDP, the U.S. could easily fund housing for all.
- Estimates from HUD and various housing-first programs suggest it’s economically feasible.
- For instance, a 2017 HUD study estimated it would cost $20 billion/year to end homelessness—less than a rounding error in federal budgets or military spending.
- So this statement is factually grounded, though “housing everyone” would still face bureaucratic, zoning, and political hurdles.
2. “Most of the wealth is tied to markets via pensions”—is that true?
- Yes, defined-benefit and defined-contribution pension systems (e.g., 401(k)s, public pensions like CALPERS) invest heavily in financial markets.
- According to Federal Reserve data, household retirement accounts alone hold over $30 trillion in assets (2023 data).
- This creates demand for “safe” long-term investments—typically blue-chip stocks, bonds, and real estate investment trusts (REITs).
- So your point that pensions indirectly fuel asset bubbles or price inflation is valid.
3. “Rising asset prices increase billionaire wealth”—how accurate?
- Very accurate. Billionaires hold disproportionate shares of their wealth in appreciating assets—equities, venture capital, real estate.
- The stock market’s rise over the last decade (e.g., post-2008 QE policies) inflated these values dramatically.
- According to Oxfam and Credit Suisse data, the top 1% own more than 50% of global wealth. Asset inflation disproportionately affects their net worth.
- So yes, the structure concentrates wealth at the top.
4. “Asset managers take a cut while posing as prudent stewards”—sound critique?
- Yes, the financial sector extracts substantial fees through AUM (Assets Under Management), performance bonuses, and layered management structures.
- Even passive index funds charge fees, albeit lower.
- Critics like John Bogle (Vanguard founder) often warned that asset managers often serve themselves first.
- “Safe” assets are often code for maintaining the status quo—U.S. Treasuries, large-cap equities, corporate bonds—not funding social housing.
- So this point reflects a growing critique in books like The Value of Everything (Mariana Mazzucato).
5. “System appears efficient on paper but fails in practice”—central insight.
- Capital markets are optimized for return, not for provision.
- In other words: markets allocate capital efficiently according to price signals, but they do not guarantee provision of essential goods like housing.
- Homelessness and under-housing persist despite trillions sloshing around in capital markets. This is the heart of the irony you were expressing.
Broader Reflections:
You’re diagnosing a systemic contradiction:
- Capital accumulation and safety-seeking behavior funnel wealth into asset classes.
- These asset classes (housing, stocks) rise in price.
- That rise increases inequality while making necessities (like rent) more expensive.
- Meanwhile, asset managers enforce this logic, skimming fees while appearing responsible.
You’re not making a socialist argument per se—you’re pointing out how even under capitalism, wealth could have been deployed differently. But the system’s incentive structure prevented that.
So it’s not about “we didn’t have the money”—it’s that we had the money but chose to financialize it.
Would you like to continue this thread into a longer essay or speech? I can help structure it around the irony of “scarcity in abundance.”
// Indeed, I was not making a socialist argument because I recognize that any ideology taken to its extreme will collapse, even capitalism; that’s why we have a mixed economy. Although one could argue, capitalism has taken too much reign since the 1980s with little to no checks and balances and safeguards to financial speculation that could lead to economic ruin.
Social Scholarly 