The Wolf-Krugman Exchange: Power, plutocracy and political economy

0:01Generative AI is here to stay and the transformation of the global information ecosystem is happening now. ProRata's suite of innovative AI solutions is igniting that change with a revolutionary model that gives content the respect it deserves while promoting a sustainable and trustworthy information ecosystem. Because when AI uses content, its creators deserve credit. Discover the future of fair and transparent content use in AI search at ProRata.ai. Paul, hello. How are you? I'm fine. It's snowing heavily in New York, but I am not in New York, so I am doing fine. So today we're recording an episode that's a little different to the others in this series.

0:45We've talked about Trump's America, we've talked about male employment in the U.S., and we've talked about China and Europe. But now we put the onus on you, the listener, to tell us what to talk about. That's right. We're going to answer listeners' questions, some of which expand on subjects we've discussed, others that come a little more out of left field, and if I read correctly, a few out of right field as well. Well, as you said before, Paul, the Q &A is often the best part. So let's get going. Hello, I'm Martin Wolf, Chief Economics Commentator at the Financial Times. And I'm Paul Krugman, Professor at the City University of New York, and now an independent newsletter writer on Substack.

1:29And welcome to the fourth and final episode of this series of the Wolf Krugman Exchange, here on the Economics Show from the Financial Times. So our first question is also a comment. It came via the video version of our podcast on YouTube and asked whether what we're seeing happening in the U.S. today is the inevitable backlash against globalization. Let me read it to you. All problems of today can be traced back to the policies of the 1980s. Decisions like free trade agreements with countries that don't value labor laws, allowing China entry into the World Trade Organization, allowing stock buybacks and promoting shareholder value instead of upskilling workers.

2:15These policies have destroyed the middle and lower middle class. It has caused rapid deindustrialization, and now Democrats think, Why is Michigan not a blue-wall state? Why is Ohio turning red? And that comment is basically another way of phrasing a question that a commenter on the FT website put to us. Is it still right to say that the world needs more globalization, not less? I think that might be a quotation of me. Anyway, Paul, would you like to start addressing the question, and particularly this first lengthy question about everything that's wrong with globalization. Okay. So there really is a turning point circa 1980.

3:01No question that most trends in inequality, a lot of things just, there's an abrupt break with the post-war generation that starts circa 1980, starts roughly with the election of Ronald Reagan in the United States. But it's not all about globalization. And that, I think, is a trap. Many of the problems that we talk about for the U.S. are happening elsewhere. I did a long discussion with Adam Tudes, the historian, about Germany a few days ago. And what's remarkable is that Germany, which has run massive trade surpluses over the years, has still a substantially larger manufacturing sector relative to the economy than the U.S.

3:46they have many of the same issues. They also have people complaining about deindustrialization, loss of traditional jobs. They have their own right-wing populist backlash. So it's not the case that it's all about globalization. And you can do the math. Suppose we eliminated the trade deficits. Suppose we shut off all of this increase in trade. How much would we go back to the world we used to have? And the answer is not very much. It's really not a big factor. I think things like the death of unions is a much bigger issue in the United States. And that's not really mostly even about globalization.

4:22It's mostly about hostile policies. So I buy the fact that there have been real stresses to claim that everything is fine is clearly wrong. But it's not all about trade. It's not all about globalization. I would sort of underline the core message, which seems to me very clear. I'd probably be even stronger. It's very clear that the institutions of our economies, the way corporations are run, the whole idea of shareholder value maximization and stream version of shareholder control that developed, the thinking developed in the 70s and went into force in the 80s, clearly changed very radically how companies behaved.

5:09and it's a big theme of my book on the crisis of democratic capitalism. And that's not just about globalization by any means, though it clearly facilitated some of the ways they adapted to it. The second point I'd make is, yes, the rise of China above all has been very uncomfortable. But the situation we had, what's now, 40 years ago, in which essentially almost all manufacturing in the world was done by a relatively small number of advanced economies with, what, maybe 12 % of the world's population. The idea that that would continue forever, that the rest of the world would not learn how to do this and become competitive.

5:53They might not take our own markets, but they would certainly be able to take our export markets as they have continued to do. And trade isn't just about the import penetration. It's about the loss of export markets, as indeed the Germans are now discovering. And you can't control the markets of the rest of the world. So that's the second really big point. The third point I would add, I think Paul disagrees a little with this, but I do think technology did play quite a big part. Corporate governance played a big part. But we had the growth of a huge sector, the technology sector, highly oligopolistic, as we know.

6:33Manufacturing was bound to become a smaller share of our employment because productivity rises in manufacturing so strongly. So most of the decline in the long run is about productivity, more so than trade. Changes in the trade balances don't explain as much as productivity. and that was bound to happen. And we have to get used to the idea we're not going to be able to dominate the world economically as we did half a century ago. And there's no way of bringing back that world. Well, we have a related big picture question, which is how can markets be fixed so they function again the way they are supposed to?

7:12How can the decline of capitalism into corruption, oligarchy, scams, and tax evasion be stopped? I think that's a really fundamental question about, the way I've seen it in my writing, the political side of wealth and power, the way in which Marx was right. Enormous wealth concentrated in a relatively small class of wealth owners, and particularly in control over very large corporations, gives huge political power. And that's particularly true in the US, where basically they have been allowed to take control of the Supreme Court via the enormous amounts being given to politics. And that basically makes it very difficult to create a coalition that will resist contemporary oligarchic capitalism.

8:07Isn't that really what's going on? Yeah, I would not disagree, but actually, in a way, I think we talk too much about corporations and not enough about plutocrats. reading diagnoses of the future of capitalism from the 60s, from John Kenneth Galbraith, we kind of assumed that we'd be this world of corporations staffed by faceless men in gray flannel suits and that it wouldn't be a world of individual, you know, lurid personalities with tens of billions of dollars in personal wealth running the system. But that's the world we actually have. So it's not really, if you want to think about what's happening now, it's not really, yeah, I mean, Amazon is a giant corporation, but it's kind of Jeff Bezos that's the problem.

8:52The extent to which we really are back in a world of, well, of guys who make the robber barons look like petty thieves, that is the core. And a lot of the way to deal with that, although it'd be fought bitterly, is this thing called progressive taxation, which the United States invented. We could and have in the past done a lot to reduce the concentration of wealth in the hands of not just corporations, but a relative handful of individuals. This is clearly a big part of the story. I think the giant corporations still matter, not least because they create a lot of the wealth for these people. They're the ones often that they own.

9:31And of course, it brings us back to Karl Marx's original analysis of capitalism. He was concerned about capitalism, but the people who exerted power in the system, because they owned the means of production, were the capitalists. Now, in the creation of democracy, there was a hope, stroke, attempt to separate, to some degree, wealth from political power. And one of the ways of doing that was by managing and constraining the contributions you could make to political parties. And that's clearly very important because they're more amok in the US than anywhere else. The sort of wealth you describe allows people to exert direct political power in a way that is more difficult in Europe, though it's becoming more common here too, I think.

10:21So that's how political power is exerted. But of course, one of the things that also emerged is the role of vast capital in controlling the media, influencing the media, influencing the way the media works and therefore public opinion. And here we created public service broadcasters everywhere, including the US, of course, but they are very, very much on the back foot too. And that again increases the power of people who write the algorithms, who own what used to be Twitter and so forth. So they are dominant in public opinion too. And my view in my book is that if that isn't changed, we are really in terrible trouble in terms of sustaining democracy.

11:06And if you can't sustain democracy, you're not going to have any control whatsoever on what we are discussing. And the question then is, how does one start, given where we are? Well, that is the biggest challenge, I think, for our politics now. Yeah, I think there needs to be a vast public revulsion. It's not enough just for reformists to win one election. We really need to change this. And let's not ignore that campaign contributions are a big part of the story, but raw corruption has now emerged as a major factor, just plain enriching and more subtle forms that are still more about personal corruption than about campaign finance.

11:46The role of the revolving door in the civil service, people in Congress think a lot about what will butter their bread when they leave office. That also plays a big role. So there is this general corrupting effect. And the biggest thing you can do, aside from trying to ban some of the ways in which money is misused, is to actually try to reduce the extreme inequality. Yes, the way I think of this is that in order for a liberal, a democratic capitalist society to operate, you have to separate, draw lines between wealth and power. So the early little discussion, we were talking about wealth, how wealth influences and controls power.

12:28Now we're talking about the other side of it, which is how power generates wealth and gives opportunities to the ruler or rulers and their friends, coterie cronies to extract wealth. And this way you create an entrenched oligarchy. And of course, they oppose any efforts to introduce the greater equality that Paul is talking about. And I think we're going to come to it in the next question. This related issue, which came up repeatedly in questions and comments, was affordability in America with comments about inequality, which you've just discussed, the costs of cars in the US and of healthcare.

13:08And here's a question from Brett Bastin in Toronto. So if Trump's ascendance is in part due to growing wealth and income disparities in the US, as you have indicated, Paul, can economics help explain why there has been limited discussion during Trump's administrations and campaigns of rectifying one of the most important root causes of these disparities, education? I think you should broaden that out, perhaps, a little to discuss the way the, though I I think the education question is quite intriguing, and I have some thoughts on it. The way in which the sort of media environment that has grown out of the phenomena we've been talking about, growing wealth and income inequalities, actually prevents any serious discussion of policies that will change it.

14:00So let me say that I am a skeptic about the centrality of education to this whole debate. From about 1980 to about 2000, as inequality was beginning to rise, it was still possible to defend the argument that this was largely about returns to education and that the college educated were doing better than those without, which is still true. But most of the increased inequality, actually even then, especially since then, is not closely tied to education. I like to say that high school teachers and CEOs have similar levels of formal education. if not exactly has similar income trajectories. So this is really, the forces are much, much stronger than that.

14:44Much more political, if you like. It's about institutions and the role of unions and the role of government in empowering malefactors of great wealth. I'd also say that if you want to ask, you know, why doesn't Trump talk about improving education? Well, hey, it's not his constituency. I mean, he said, I love the less educated. And the truth of the matter is that the biggest in the United States, the biggest divide in voting is not income levels. It used to be that people with higher incomes voted Republican because that meant lower taxes. But now it's really, it's very much an educational divide.

15:18It's hard to avoid sounding partisan, but basically people who are relatively well-educated don't like fantasy depictions of reality tend to vote Democratic and people with less education vote Republican. I suppose that's also to some degree their skillful exploitation of values questions, which seem pretty clearly to matter a lot to what Trump calls the less educated. Yeah, although this last election in the United States, which has landed us now in this crisis of democracy, was about people's dismay over high prices, but also, I think in general, people with a college degree were less likely to believe Trump's promises that he could bring down grocery prices starting on day one.

16:01So all of these things come together. So just to get one little question, which perhaps fits into this, it seems very clear from what I read that health costs are going to jump very soon by a very large amount. And that will hurt very, very badly a very large number of people who voted for Trump. Will they notice? Will they blame the Democrats for it? How is that going to play out? It's interesting. The very poorest are going to be affected very adversely by Trump policies, but not right away. This immediate thing and the complexity of the U.S. healthcare system means that there are all kinds of odd ways.

16:42But basically, a lot of older people, not quite at Medicare age, with medium-high incomes in Florida, are about to see gigantic increases in their health premiums. And that's, I think it will hurt. I mean, if we actually look at by issue on Trump is net negative on almost everything, but health care is possibly his worst issue. Even with everything that goes on, even with all of the propaganda and the distractions, people have figured out that Trump is not their friend when it comes to affordable health care. Let's just move on to a couple of questions which relate to U.S. fiscal position. We can perhaps put them together.

17:26So first, Tim Redmond has emailed a question for you, Paul. How much does the U.S. federal deficit spending contribute to inflation in the United States? Is it a minor or major contributing factor? Okay. There was a brief period, sort of 2021, 2022, when you could argue that the expansion of federal spending under, actually initially under Trump, but then continuing under Biden, was driving the surge in inflation. There's still probably some role there, but the fact that basically the whole world experienced roughly the same spike in inflation strongly suggests that it wasn't the deficit, that it was actually supply chain issues and related to COVID and the recovery from COVID that drove it.

18:16And right now, no, I mean, the federal deficit, it's alarming. You do worry. And certainly the deficit is keeping interest rates higher than they would otherwise be. But I don't think you can say that it's a major contributing factor to current inflation. My own view on this is slightly different, but it comes to the same conclusion. I think we had a very understandable strengthening of global demand during COVID that was induced by policies which were fairly widely shared. I don't think the Biden tax cuts were particularly important, both monetary and fiscal. That generated very strong increase in demand at a time when supply was still constrained.

18:57There were additional disruptions, notably the invasion of Ukraine, which led to supply chain effects, which led to large one-off rise in the price level. So we basically accepted the one-time price level jump. This was very disruptive to people, but it's over. Inflation is basically back to normal levels everywhere. but the price level is about 15 % or so higher than it would have been if those things hadn't happened. And we can have a long debate about whether those policies were wise or not. I think they were largely defensible. Okay. Well, next question, which is also on fiscal issues, is China the only sovereign that is in a position to buy U.S.

19:43Treasury bills? what happens if China sits this one out? Or what's the impact on the U.S. if the rest of the world simply stops buying U.S. treasury bills? First of all, China is not alone. There are other big surplus countries out there. In fact, China's surpluses are big, but it's not clear that China is the critical buyer of treasury bills. The fact of the matter is that the world still, people want a safe asset. And the world still thinks of U.S. debt as being a safe asset. I don't think it's a safe asset given who's in charge. But for the time being, that's the issue. It's not really about China.

20:26It's really about just general loss of confidence. That kind of lender strike vision for the United States, Not only is it not something that is clearly about to happen, it's really, really hard. I've spent a lot of time on this over the years. Trying to find examples of countries that, like the United States, borrow in their own currency. Find examples of where they've had a crisis because people aren't willing to keep buying their debt. You end up talking about France in 1926 or something. It's a surprisingly rare problem. I've made two further comments. the additional comments. The first is the data on Chinese holdings of short-term treasury bills are, to put it, mildly obscure.

21:13And I don't know who holds that specific subclass of US government debt. But if you look at China's reserves, the overall foreign currency reserves have not risen really for a decade. They've been remarkably stuck. And the Chinese report that their dollar holdings have been declining in the total, but quite a significant degree. So the Chinese, as it were, quote unquote, official reserves clearly aren't a significant source of buying of US Treasury bonds. Now, there are lots of other players in China who must be buying foreign assets because China is clearly running a very large surplus. And no doubt, directly or indirectly, that will include a fair amount of US liabilities.

22:10But it's not very easy to identify which they are. But it is reasonable to argue that if China diminished its surplus, as I believe for macroeconomic reasons for the world it should, that will, of course, mean that the US Treasury will lose a buyer of its bonds. Now, the second question is, will the world simply stop buying US Treasury bills? And I agree with Paul's comment, but I have one caveat. It's absolutely clear that if you're able to borrow freely in your own currency, because ultimately you're trustworthy to your own citizens and to the citizens, people in the rest of the world, you're in pretty good, safe hands.

22:57That, however, is not a situation which will necessarily last. It will depend on how you behave. Now, giving up buying US dollars is really hard. But if you're a marginal developed country, say the UK, and you run a large current account deficit, foreigners have to buy your liabilities in very large quantity. I wouldn't be completely confident that there's no limit to the amount of foreigners will be willing to hold of sterling. And if that's the case, you might be forced to borrow in foreign currency, and then you have real trouble. But I don't think that's very applicable to the US. Now, we had other questions about China too.

23:37Michael Lee emailed with the following question. In discussing Chinese economic prospects in glowing terms, did you ignore the harmful effects of the current export-based economic model, the crisis in the construction sector, including its impact on middle-class indebted homeowners, China's income inequality, and drastic underconsumption due to the channeling of savings into high-tech economic sectors that do not benefit the population. Couldn't this lead to an upheaval that will upend your rather optimistic view of China's medium-term prospects? Well, that fits very well with the previous question about where China's surpluses go.

24:21Funny thing about China's economic problems. I mean, they have some ones that are really hard to fix, like the declining working age population. But they have one problem that should be easy to fix, which is that they don't consume enough. And so they end up trying to fill that gap between high savings and limited investment opportunities by running massive trade surpluses. Now, that's easy. I mean, just live it up. Have the government provide more generous benefits. Have it distribute more income. Start to enjoy some of the fruits of your economic growth. But this has been an ongoing issue for a long time now.

25:00It's been an issue for well over a decade for China. and they seem unable or unwilling to change the model. And I have to admit that I don't fully understand it. I think there are various interest groups within China. There's Xi himself who is, when he talks about encouraging consumption and having a stronger social safety net, he sounds like a right-wing American Republican. They talk about, you know, we don't want to encourage people to be lazy. So there's this question, Does China go to the point of major social and political unrest because it just cannot bring itself to accept the notion that you can't always run massive trade surpluses?

25:44In some ways, China looks like Japan in the 90s, which similarly faced a problem of the world wasn't willing to take its surpluses and the demand for investment was slowing down and the demography was turning unfavorable. favorable. The Japanese coped in the end. The Japanese did what needed to be done. Now it's all clear that the Chinese are able and willing to do it. The big point is China indeed saves more than it can profitably invest at home. That's a basic reality. So they invest in a lot of unproductive investment and quite a bit of that was real estate development. And that's very similar to Japan in the 80s.

26:23And this blew up. And now they're trying all sorts of other ways of using the excess savings in high-tech manufacturing and so forth, and it isn't enough. The optimistic view is that in the end, since it is, as Paul said, quite easy to solve the problem, you get more money to people to spend, or the government spends on public consumption, and everybody has a better time. So it's cleanly fixable, and then the problem will disappear and growth will, provided they let the private sector grow and develop, will keep going and China will have a much more balanced economy. And the politics of this is so clear that one would think they're bound to choose that.

27:12My theory has been that if this regime now in power really goes on stubbornly refusing to fix it, they're going to find somebody else who will because they're not going to put up with it. Now, the question of whether that change will be peaceful or more violent with more protests, we don't know. Let's take a quick break. And when we come back, Paul, let's tackle some questions we received about Europe, the UK and the rest of the world.

27:49Generative AI is here to stay and the transformation of the global information ecosystem is happening now. Pro Rata's suite of innovative AI solutions is igniting that change with a revolutionary model that gives content the respect it deserves while promoting a sustainable and trustworthy information ecosystem. Because when AI uses content, its creators deserve credit. Discover the future of fair and transparent content use in AI search at ProRata.ai. So we're back. The next question is about Europe having to go it alone in the wake of the new White House national security strategy, which, as we discussed in a previous episode, cast Europe as a continent on the road to civilization erasure, with the US pledging to correct Europe's course by supporting patriotic, in other words, far-right parties.

28:42A questioner on the FT's YouTube channel asks, While Europe has the economic might to go it alone without the US, one has to ask, what is the cost? Universal health care? Four weeks' worth of vacation time? Higher taxes? Will Europe, in the name of security, simply succumb to the military-industrial complex and forego its social safety net? What would be the unintended consequences of this military spending? I'll come to you, Paul, but I would make a very simple point. We're talking about raising defense spending from below 2 % to maybe 4 % of GDP, something like that. That would give you vastly more resources than Russia has at its disposal, given the size of the economy and the populations.

29:31Now, that's two percentage points of GDP. Universal health care would not be threatened, nor the whole welfare state, nor vacation times, modestly higher taxes, very modest reductions in spending, maybe a percentage point each, and you're there. I think the idea that the means we need to raise our defense spending to these slightly higher levels, it's impossible, unfinanceable, unaffordable. That's just clearly wrong. And remember, Europe as a whole is a surplus region. It runs a surplus with the rest the world, and the Germans have the most of that, and the Germans have already started doing more spending, and that's clearly the most important country in this regard.

30:16So I'm pretty optimistic that in this context, we can have guns and butter. What's your view, Paul? I mean, I would have said even less than 2%, because the U.S. doesn't spend 4 % of GDP on defense. So to raise to U.S. standards would be more like 1.5%. This is one of those things, you know, most of the slightly bizarre comments I get tend to be kind of right-leaning, but this is one place where a lot of people on the left seem to be, in their minds, it's always 1968. And there's this enormous military-industrial complex that is consuming a large share of U.S. spending and is preventing us from affording all kinds of good things.

30:59And that just hasn't been true. It hasn't been true. It wasn't even true in the Reagan years, and this really hasn't been true since the Cold War wound down. So, no, it's that this is, particularly if we're thinking specifically about Russia, the European economy is so much larger than Russia's that devoting 1 % of GDP to defense would utterly swamp anything that Putin can do. So, yeah, this is a quantitative thing. The numbers just don't add up. Paul, staying on the subject of Europe, Umberto Santini emailed with this question. In the last episode, you mentioned that some of your recent work has led to your increased skepticism on the European decline narrative.

31:41Could you elaborate? Okay. There's levels and levels there. And there was a magnificent rant the other day by Gabriel Zuckman because the U.S. ambassador to the EU, not being very diplomatic, said Europe is as poor as Mississippi and Germany has the same level of income as West Virginia. and to which the immediate answer is not, let's look at the statistics, but get out of your darn limo and walk around. Germany does not look like West Virginia. What struck me, and I'm actually doing some work on this right now, is all of the numbers that show Europe with declining relative productivity are all based on a very narrow observation, which is that the United States leads in tech, basically information technology industries, which is clearly true.

32:29But how well do we measure productivity in those industries? I think it's really problematic. Is it really important that you produce your own advanced tech? If productivity growth, including the effect of tech industries, is your barometer of how economies are doing, then California has just pulled totally away from the United States. It's just a comparison between between California and non-California, or even between California and Texas, if you do it the same way that we compare America and Europe, would say that California is paradise and the rest of us are doomed. And it sure doesn't feel that way.

33:07So I'm highly skeptical. I think we've taken an undeniable fact, which is that the big tech companies are all American, and some dubious statistical comparisons and turned it into a European decline narrative that really isn't warranted. Yeah, absolutely. And if you look at other indicators of welfare, murder rates, life expectancy, incarceration rates, and so forth, there's just no comparison. And I think these are pretty good indicators of what society is really like. Why don't you read this question that is addressed to me on the UK? I'll try and dispose of it as quickly as I can. Yeah, well, Martin, a question about the UK.

33:48Your discussion of Europe versus the US neglects the central question of the UK's future. Your country took the first steps to weaken the EU quite on its own. The UK will in the future be in the US crosshairs. Right now, it's hard to imagine that a British leader could truly stand up to the USA. I'll ask for your judgment on that. And our question would like you to take up the question of what the UK will do as it stands more or less isolated between the EU and the US. So I'd first mention that my last two UK columns addressed this fundamental question of what we know about the impact of Brexit.

34:23And I think it's pretty unambiguous that it was negative. There's been a very powerful recent study for the National Bureau for Economic Research in the US, very prestigious and respectable body, which concludes that UK GDP per head is somewhere around 6 % to 8 % below what it would have been if we hadn't left. Working out what would have happened if some big policy decision hadn't been taken, in other words, determining a counterfactual is basically very, very difficult. I think the best way to view what has happened is we are poorer than we would otherwise have been. But if you look at the aggregate performance of the UK over since 2007, it looks rather similar to other European countries, somewhat worse, partly because the decline in the growth of GDP per head vis -à-vis what was going on in the previous 30 years seems to be greater in the UK.

35:26But we do look quite European. And this is the key point that I would conclude with. It seems to me absolutely clear that the American attack on Europe very much includes the UK, because the administration is making very clear, very clear, and many of its supporters, notably Elon Musk, that the UK is one of these countries that is part of the decline. It's suppressing free speech because it doesn't allow our fascists the freedom to say and do whatever they want. There are some other issues there, but I think that's the core of their complaint. And what that says to me is the British should realize that they are in the target of the US administration.

36:13They are standing, therefore, with the Europeans. They are doing so very much on the question of Ukraine. And one way or another, Britain and Europe need to get closer together. That's the only future I think Britain can have. And I think it's also immensely important for Europe. Let me also just throw in that, you know, Canada is doing a pretty good job of standing up to the Trump administration, despite being far more economically dependent than the UK is. And so, you know, be more Canadian, but just in general. I mean, seriously, I think the UK does not have to be America's cat's paw and all this.

36:51I agree. So we've covered the Brexit and all that. And then there's, I think, one last question comes from Arun Rengasaran from In India. If the hype around AI really comes true, it would affect our IT sector very badly. The IT sector employs millions of people here. These are software engineers. AI is already very good at writing code. How should the Indian government handle the impact of AI on this sector? What do you think about that, Paul? That's a serious question. I have zero idea about India's policy response. And this is one place where I do take it seriously. AI, in many ways, it's not going to live up to the hype.

37:34But writing code is one of those things where it really does do a good job. There are technical reasons for that. The gradient is much clearer when it comes to code writing, when you're training AI, than when it comes to writing natural language. I'd say it's part of a broader issue. There's actually a tension between technology and globalization. Now, if you want to get something information-intensive done, you can have it done by software people in Bangalore, or you can have it done by bots in the United States or in Europe. And if the bots, one way or another, are winning, that is a problem.

38:14And I don't know what the answer is. And I think it's part of a broader point, I would stress, which is to the extent that robotics is a point that particularly Richard Baldwin, we both know, has been making in his writing over the last decade. To the extent that robots can replace cheap labor of various kinds, whether it's manufacturing cheap labor or in this case, a certain sort of skilled services cheap labor, that's particularly bad for emerging countries because so much of their employment has been generated in these sectors. And it might even sort of cut off one of the most triumphant ladders of opportunity of the past 80 years, the ability to shift labor-intensive activities from rich countries to developing countries.

39:05And if what is described in this question comes true, it will be very bad for India. And I don't know how they will manage it because it's such an important sector for their development. So we've covered a lot of ground. It's been very good to try and make sense of this increasingly mad and from my point of view, depressing world with you. And before we go back to our lives, what is your cultural coda this week? In the background, I find myself going through largely musical journeys, trying and listening to new kinds of things every once in a while. And for some reason, I find myself on a diversion of listening to movie music, believe it or not.

39:47Listening to, in particular, the Ennio Morricone scores for the Spaghetti Westerns. There were these amazing movies, usually with Clint Eastwood, made in Italy, but presenting this mythical picture of the American West.

40:06I was actually listening to a Danish National Symphony performance of the score for the good, the bad, and the ugly.

40:20Which is actually quite amazingly fine music. Somehow that seemed right. There's a lot of good, there's a lot of bad, there's a lot of ugly in this world right now, but maybe the good prevails. And my cultural coda is also an attempt at getting something that means something profound nowadays. And I've gone back to things that I love, and this is opera again. And I thought, what is the story which is closest to what we're experiencing right now? And pretty immediately, I thought of Madame Butterfly by Puccini, which tells the story of the marriage, at least it's presented as a marriage, between a young American officer called Lieutenant Pinkerton to a geisha girl who's supposedly only 15, think about that, in 19th century Japan, she's Madame Butterfly.

41:13They marry. At least it's presented as a marriage. And Pinkerton leaves. And she's left alone. She has a child, we discover later. And the song that she sings is called Un Bel Di Vedremo, which means one fine day, we shall see. And what she says we shall see is the boat bringing Pinkerton back to Japan. Now, after that, in fact, he does come back to Japan. But being faithless, he comes back with his new wife, an American girl called Kate. And he comes to take his son away from Madame Butterfly, his abandoned geisha, back to America. And abandoned and desolate, with no future, she commits suicide.

42:12So it's about a sadder version of what we're experiencing right now across the world, as you can imagine. And the version I've chosen is Maria Callas singing Un Bel Di Vedremo.

42:39And it's absolutely magnificent and heartbreaking, in my view. Just about as beautiful and tragic a song as you can imagine. So, Paul, stay well and speak to you soon. Yeah, speak to you soon. What a wild time this is.

43:03thanks really for listening to the wolf krogman exchange from the financial times it was an enormous pleasure to do this with paul and it really had a time even more important and pregnant than we did earlier in the year please do subscribe to the economic show and rate the show wherever you listen to podcasts

43:28Thank you.