Martin Wolf on the US midterms: What will the Democrats do next?

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0:32We wrecked our diplomatic credibility. In the end, this is my country. I don't want my country to be a pitiful, helpless former giant. And yet, we've gone a long way down that road in just two years. I'm Martin Wolf, chief economics commentator at the Financial Times. American voters have delivered a resounding defeat to Donald Trump's Republicans. The Democrats now control both the House of Representatives and the Senate. But Trump still has two years in the White House. How much can the Democrats constrain him? And has this election changed the course of American democracy?

1:17American voters have spoken, and they've delivered a resounding thumbs down on the first two years of Donald Trump's second presidency. But does the Democrats' sweeping victory in the U.S. midterms signal a turning point in American politics? What exactly should we read into it? It's a question I want to unpack with my guest today, the Nobel Prize-winning economist Paul Krugman, a longtime critic of Trump. Paul, welcome to the show. Hi, good to be on. After the U.S. midterms this week, Paul, You argued in your substack that the old political maxim, it's the economy, stupid, no longer adequately explains American politics.

2:03You see the scale of the Democrats' victory as evidence that Americans have rejected something much more fundamental about Trumpism. But how can we distinguish between voters rejecting a president's values and voters simply rejecting a president who's made their lives more expensive? Well, it's almost certainly both. The economy certainly played a role, but we kind of know what an election driven by voter discontent with the economy looks like. And that was the 2024 election in the United States, where Donald Trump won the popular vote by about 1.5 percentage points. This one, it looks like the popular vote for the House will be about 13-point margin for Democrats.

2:51It's nearly an order of magnitude bigger than what happened in 2024, which surely was an economy-driven election. And then we have demographics. We can look at which groups swung. A huge swing among Hispanic voters, large surge among Black voters. Those are groups that have a lot going on besides just the economy. A lot of Hispanics voted for Trump in 2024 because they believed his promises to cut grocery prices. And now it's quite obvious, this is really an unprecedented surge, that something special is motivating them now, which is that their friends and relatives are being grabbed on the street by masked men.

3:39Oh, and I should add a third thing, which is that if you ask voters what they care about, the economy is number one. But corruption is a quite strong second in the polling. Those are the really two big issues that people mention, which does suggest that, hey, this is something that is beyond simply, yeah, the consumer price index has risen above the Fed's target this past year. Makes sense to me. But isn't there a danger of reading too much into this? In 2008, after the 2006 midterms, which, of course, George W. Bush did very badly, then Barack Obama was elected. And we all we I certainly thought that this was a fundamentally different America.

4:27And two terms later, Donald Trump became president. So can we confidently believe that the sort of politics we've been seeing is now gone? Or might it not come back in some guise, possibly even worse at some point? Not soon, but it's still around, isn't it? Oh, yeah. I mean, as best we can tell, something like 25 to 30 percent of the U.S. electorate is fundamentally comfortable with authoritarianism and fundamentally uncomfortable with democracy. And that's a large enough number that under the right circumstances, the bad guys can win. It's funny, actually, it's also true, as far as we can tell, that a similar proportion of the electorate has the same attitude in pretty much every Western nation.

5:20So the U.S. is more exceptional in just how it played out than in the underlying support. And also, I think there are some structural reasons why authoritarians govern badly when they're in power. But the kind of lurid incompetence and lurid corruption that Trump has displayed is not something you can count on. You can't always count on the bad guys to be that bad at doing their job. I think that's a very important point. Now, when you look at it, I know this is difficult to distinguish, but I was thinking about your list of reasons. They sounded to me more like reasons for voting against Trump and the Republicans than an enthusiastic embrace of what the Democrats are about.

6:09Would that be a reasonable view of what's actually happened? They're not embracing some completely new and exciting vision that you can identify. Oh, yeah, for sure. Now, it's true that the Democrats have thrown up some pretty charismatic, inspiring younger politicians this time around, much more so than since Obama. John Ossoff is like Obama with more edge. There are people who are inspiring. The party's agenda is a little more solidly center-left than it was before, but it's not well defined. So this was very much a vote against, but they don't have a thrilling agenda, or at least not so far.

6:54One of the wonderful things is that we're not seeing a great battle about whether the Democrats really won because it was so decisive. Yeah. But now you have to tell the Democrats have to decide what to do with this situation. They still don't control the presidency, of course, and the institutions of government are still very much in the hands of Trump and his minions. So what do you think the right approach for the Democrats is in their use of the legislative power they're now going to have? The first thing that matters, that has changed hands, is the investigative power, the gavels. We are now going to have congressional investigations and with subpoena power and with sanctions against witnesses who refuse to testify on scandals, that matters a lot.

7:51A lot of things where the power of office, the power of control of Congress was being used to keep a lid on wrongdoing. Now they can't do that anymore. And the Democrats can go after it. And much more than in the past, they seem ready to do that. In previous periods of democratic control, there was always this, well, we should move forward, not back, and not this time. Now, the prospective head of the House Oversight Committee just tweeted out, lawyer up. Among other things, it's going to affect the ability of Trump to continue to exert his will, because this is not just the normal executive power that we've been seeing.

8:33We've been seeing a government in which officials throughout the executive branch of government are simply ignoring the rules and the law. If Trump says do it, they do it, even if it's very clearly illegal. Now they are going to look around and say, will this land be in jail? A lot of business groups, other institutions as well, but particularly, especially businesses that have been very willing to be accommodative to serve Trump's agenda are now going to be looking around and saying, gosh, this isn't just going to maybe hurt the corporation, but what about me personally? So that's going to mean a lot.

9:16The other thing is the Democrats will now be able to pass legislation. They won't be able to get it past a presidential veto most of the time. But they can force Trump to use the veto pen on popular, extremely popular proposals. And they can force Republicans in upholding Trump's veto to put themselves on record as being opposed to things that the public wants. There are a few areas where I do think it's quite possible that some Republicans will defect. I'm thinking particularly about policy towards Ukraine, where a significant number of Republicans, enough Republicans might defect that they can actually override a presidential veto.

9:54So we're not going to get Obamacare 2.0. We're not going to get Medicare for all. We're not going to get a nationwide wealth tax on billionaires, not in the next two years. But that doesn't mean that the Democrats will be completely ineffectual. And what about impeachments? There's a long list of people who, starting with the president, of course, that some of the Democrats would love to impeach. I think the Secretary of War would be a pretty obvious candidate. So can we see that happening? Presume they'd all be vetoed, or perhaps not, from what you said. Maybe there'll be one or two the Republicans would quite like to see the back of.

10:30My big concern about Hegseth, who is, by the way, legally still the Secretary of Defense, whatever he wants to call himself. So my worry is that they won't be able to impeach him because Trump will fire him first. But sure, I mean, there are several figures, starting with Hegseth, but a couple of others, who are much, much hated within their own party. Possibly even people that Trump himself will scapegoat for his problems and will get rid of. So impeachment may be short-circuited by summary dismissal. And again, where they are loathed enough that just the process of forcing Republicans to vote against impeachment is itself a political win.

11:16So sure, I mean, I think of that as being kind of the same process. One area of legislation which sort of seems obvious is now going to be very fiercely contested is finance, budgets. An administration needs a budget, doesn't it, which is to continue operating. America needs a budget. It would seem to me very plausible. They're not going to agree one. He's not going to have the sort of legislature he had when he passed the one big beautiful bill act. What could that lead to? A shutdown of the government? Another one of those cliff edges over the ability to serve as debt? And could we expect, and this is something a lot of people outside America were thinking about, some really big fiscal shenanigans in a situation in which, it should be said, there's already some worry about the American fiscal position.

12:12Yeah. I've been a deficit dove over the years, but even I am not happy with the idea that we're running 6 % of GDP deficits at full employment with that 100 % of GDP. By the numbers, the US and France look identical. And it's only the fact that we borrow in our own currency, which happens to be the world's dominant currency that is keeping us from seeing a France-style rise and spreads. So that's going to be an interesting strategic and difficult strategic question for the Democrats. Indeed. We will be hitting decilions. We're just passing a budget. I don't know. Historically, that kind of brinksmanship has...

12:59The examples we have are ones in which that sort of thing backfired on the party that brought the government to a halt. But on the other hand, when Republicans did that to Obama, Obama was still a relatively popular president. And it's something quite different when you have a president with a, whatever, 35 % approval rating, almost zero strong approval. And this is really very tough strategic calculation. We'll see. I I mean, it is true that even Trump, even with his loyalists and even with his veto power, he wants half a trillion dollars for defense. He just wants to keep the thing running. Not sure the power of the purse remains.

13:44For the Democrats, they really do have to think very carefully about how they play that. Because obviously, there's the wind in their sails. but they won't really want, particularly given who has voted for them and why, to trigger something that can plausibly be presented as a forced fiscal crisis, which they cause. So this is an area where they're really going to have to be very careful, aren't they? You know, in most things, I think determination is what they need. But this is an area that does take finesse, which is why I don't trust my own instincts on this. I'm not quite sure how they should play it.

14:22And it may depend partly on how outrageous Trump's demands, how outrageous his behavior is. I mean, they will certainly try to defund specific things. They'll try to defund the ballroom. They'll try to defund ICE probably. But whether to provoke a full-on fiscal crisis, that's going to be a tough call. But you do believe, obviously, that if Congress uses its investigative power, that could turn out to be a very effective weapon for revealing the extent of malfeasance and corruption in the administration. And that could, as it were, continue to remind people of what's been going on, indeed make it clearer to them.

15:08And that would be, in your view, a very effective tactic. Yeah. I mean, corruption played a big role, as far as we can tell, in the vote. A substantial number of voters said corruption by both parties, which is not to say that there isn't corruption on both parties, but we're talking about completely qualitatively different levels. I would actually love to have a survey that asked how many people know how much money Donald Trump has made out of office and how that compares with previous presidents. My guess is that a large number of voters have a sense that something is wrong, but don't really realize that it's been billions of dollars, don't know about the crypto transactions and the obviously purchased pardons for criminal offenses.

15:59They have probably a sense that Elon Musk has done bad things, but probably don't know exactly. And there'll be many, many more things like that. One of the things we've noticed a lot is how much major media organizations just don't report on, and certainly don't report symmetrically, or they report symmetrically when things aren't at all symmetric. But one way to make something news is to have congressional hearings and to have the video of Trump-related defendants stammering on the witness stand. Yes, I should say that one of the more amusing little vignettes of this post-election period is Donald Trump blaming Fox News for his defeat.

16:41A rather beautiful moment of falling out among those involved in this, in my view. Now, let's step back for a moment. Can we conclude that American democracy is now out of the woods? What we are seeing now is not just really a repudiation now of who was in power, but a sort of relatively permanent reestablishment, not just of the democracy, but also of orderly government. And here I'm thinking immense damage has been done to core institutions of government. The Department of Justice, the Defense Department, the intelligence organizations, a whole list of institutions have had innumerable people sacked, replaced by stooges, and they're still going to be there.

17:32And that will affect the way the government operates. And of course, there's in addition to that, the damage done in international relations from the side of the American president, for example, threatening essentially war against Canada in various different ways, that sort of thing. So we can't say it's sort of all over. There's a very remarkable check here, which is very encouraging, but really quite a battle ahead of us, isn't there? Yeah. It's worth noting, by the way, that although, you know, the fact that Democrats won this huge victory might make you think that democracy was still and it was safe.

18:10The truth is this was a heavily rigged election. Republicans had gerrymandered so that the Democrats probably needed four to five percent majority in the vote to take the House of Representatives. Since they actually won by like 13, that didn't matter. In fact, in some cases, the gerrymanders may have turned into dummymanders so that they actually hurt Republicans. But that's not something you count on. The parallel is Hungary. There was no question that the urbanist regime had massively rigged the system. They had set it up in such a way that they could not possibly lose unless they faced their absolute tsunami of voter revulsion, which is what happened in Hungary and is essentially what happened in the United States.

18:48This was a heavily rigged election that was overcome by a popular backlash that was too big, too big to rig. The institutional damage, in a way you can subsume all of that under credibility. Can you rebuild normal relations with other countries when everybody knows that America is a country that elected Donald Trump twice and that Trump completely ripped up all of our international agreements? Everyone will always know that any agreement with the United States is a suggestion that, for all you know, the next Trump-like figure can come along and simply ignore. And the same thing is true for government agencies.

19:27Presumably, you can have, hopefully, if there's a Democratic president after the 2028 election out of Democratic Congress, you can have a house cleaning. But are really good people going to go into government institutions now? Very good question. We used to have civil servants who were much, much better than in a way we deserved. because in something like Treasury Department or the Federal Reserve, which is partially insulated but has not been fully insulated, you typically had people who could be earning two or three times as much on Wall Street as they were in government. But they served in these government jobs because they felt that they had meaning.

20:10I know people like that. Yeah, so do I. And those people are all leaving or have left. And will they come back? Because your job might have meaning, but only for four years. There have been some surveys that say that a majority of officers in the military either have left or are strongly considering leaving because they feel themselves to have a mission. They talk a lot about honor, which is a word that the rest of us don't use, and it's a great thing. But after two years of HECSF, after two years in which competent officers were fired because they weren't political loyalists and incompetents were brought in, are you ever going to be able to reconstitute the American military as it was?

20:56So we've suffered enormous damage. I would add the lawyers at the Department of Justice, which is really important. The Foreign Service people, I know a lot of them. A lot of them were really devoted. Intelligence officers, the Internal Revenue Service. It's a long-term reconstruction that is going to be required, and that's not going to happen quickly, and not at all, if people think this could be repeated. So we have to bear this in mind. Even boring things that you would think would be really boring. The Social Security Administration has been sending out checks that are accompanied by political messages lavishing praise on Trump.

21:37So are you going to be able to get people who are even competent at the business of collecting payroll taxes and redistributing them as pensions? So, yeah, America used to have a kind of bipartisan elite that agreed on certain things. The blob, people sometimes call it, the sort of amorphous group that at this point there is none. At this point, everything was political. So without the blob, how do we ever create any continuity, any credibility for U.S. policy? They tried to aim, blow up the deep state, as they called it. Basically, they're blowing up the state. and running a modern society and economy without a functioning state is quite a challenge.

22:23Now, Trump still has, partly because of the Constitution itself and partly because of the Supreme Court, immense powers on his own, particularly in the foreign policy side, but not just that. So how much damage can he still do? Particularly, he's got sort of, might feel he's got nothing to lose now. You know, there was widespread speculation. still is some, although I think it's been a bit diminished, that he would resume bombing Iran as soon as the midterms were over, partly just as a way to assert his own masculinity or something. And there were even rumors, fairly substantial rumors, that the use of a tactical nuke was under serious consideration because the Iranian nuclear facilities are very deep underground, so deep that no conventional bomb can actually hit them.

23:16Now, the sheer scale of the democratic victory may have deterred that, that he may feel that he's too deep in the hole for even nuking Iran to get him out. We don't know that. And so much else that could still happen. There's all these sort of unfounded or founded on information that I can't check rumors about things he might do. But yeah, the foreign policy in general and military action is where he can do immense damage. Not clear how much he can do domestically at this point. A 51-seat Democratic Senate and a 225-seat Democratic House would have been a very different world from what looks like a 55-seat and a 260-seat house.

24:07It does, I think, limit even Trump's ability to do horrible things, but that's not gone. One other big issue. You've written a lot about the role of the billionaire class, big business. How far do you feel that the oligarchs, as it were, to use that sort of phraseology, were responsible for his rise and how much, given the amount of money some of them, notably Elon Musk, spent on securing the opposite result and failed, is this essentially a really pivotally politically important repudiation by the American people of that sort of arbitrary financial, economic power. Okay. I have a slightly complex thesis here.

24:58When 20 donors accounted for 15 % or so of campaign spending, I think it's fair to say that we have an oligarch class, but that class played a pivotal role in getting Trump into office. They played a pivotal role in the 2024 campaign, definitely bought at least one or two Senate seats for the right wing. And they spent enormously in this election and failed almost everywhere. But these may be exceptional circumstances. Again, we can't always count on the oligarchs preferred party being led by somebody as toxic as Trump. But the place where I think it starts to get interesting is in some ways the role of big money has backfired on the Republicans.

25:49It has made them as a party too complacent in some ways and too hermetic. They take positions that are shaped by what Elon Musk wants to hear and are just out of touch with the public at large. So my counterintuitive journalism, I think that Elon Musk purchasing Twitter may have actually ended up working to the advantage of the U.S. center left. because it means that the people on the right live in this, people are calling it the Nazi bar, that they've been living in this extremely skewed information environment and mistook what they were hearing on Twitter for what actually the American people care about.

26:30If we look at the composition of ads by Republicans during this campaign, there were something like$160 million of advertising on transgender issues. And nobody cares except people whose heads are completely buried in Twitter. So that was a kind of example of how the Republicans lost touch with America, in part because they were living in an information environment shaped by these oligarchs. So if we just sort of sum up where you feel we are, obviously, the election result has been, from your point of view, wonderful. I mean, much stronger repudiation, much more decisive, non-negotiable, as it were, than one might have expected.

27:18That's wonderful. It's a tremendous opportunity for the new Congress to lay down markers, to investigate, to continue the educational process, which is immensely important. There are some really tricky decisions to be made of how far you push this. We discussed the fiscal issues and how that is to be done. It's obvious. Trump is still president, and he can still, it's pretty clear, sort of drop bombs on people, though he might feel a bit constrained. And that's very important for the rest of the world, because the whole world has been concerned about that. And the long-term future of the United States and the ability to rebuild its institutions and its credibility, as you said, is still obviously in question because though this is an exceptional outcome, we have had optimistic points in the past and Donald Trump emerged.

28:15Is that roughly a summary of where you are? That's almost all of it. Let me add one more thing that I'm not simply concerned about the fact that we may have another Trump-like figure in the future. I'm definitely concerned that this threat, internal threat, is not gone by a long shot. But also, America is enormously weakened. Compare America's position in the world now to where it was three years ago. We have wrecked our military credibility. We wrecked our diplomatic credibility. We've done enormous damage to our scientific institutions. So we are - Universities, RFK Jr. in the health department, for God's sake.

29:02Yeah, I mean, I guess, you know, if you ask who are the big winners from the first two years of Trump, probably measles would be near the top of the list. And in the end, this is my country. And I don't want my country to be a pitiful, helpless former giant. And yet we've gone a long way down that road in just two years. Well, I would say that one of the tragedies from my point of view is that two people who are better in better shape now than they were two years ago are Xi Jinping and Vladimir Putin. I hope that will reverse, but I think that's definitely part of what has happened. It's going to be a very long way back.

29:42Oh, yeah. I mean, this could have been terrible, but boy, it's still a very frightening future. The storm has lifted, but the clouds are still extremely visible. Thank you very much, Paul Krugman. That was a very, very helpful discussion, and I very much agree with this conclusion.

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