A review of The Wolf-Krugman Exchange: how the old economic order fell out of favour | FT podcasts, June-July 2025.
For the purposes of this review, I am assuming that there is still a political elite that is somewhere between uncomfortable with and positively hostile to Trump and the rise of right-wing populism, and that seeks guidance from an intellectual elite. The size and strength of such a political elite is difficult to gauge but given the quality of the analysis and advice on offer one can only be sceptical about its prospects.
How better to assess that quality than with the contributions of Martin Wolf and Paul Krugman. The former has been the economics editor of the Financial Times for many years, formerly a champion of globalisation, after the 2009 he adopted a more critical stance to the whole period before the financial crisis. Paul Krugman is a Nobel prize economist and a prolific author. It is difficult to situate him politically, but his economics is founded on a moderate critique of the monetarist orthodoxy of the 1980s. Their six-part FT podcast offers a chance to assess the the cogency and quality of the analysis and advice on offer. Here I focus the first three podcasts that discuss, in turn, how the politics of the US and the world economy have changed after Trump, the causes that led to Trump’s return to power and the rise of the far Right elsewhere, and the consequences for the world economy in an era of tariffs and generalised uncertainty.
Both Krugman and Wolf are seriously worried about the turn of events. In the first podcast they offer a panoramic overview of the serious implications of reversing the trend of postwar trade policy, the arbitrariness and corruption that comes along with the Trump administration, the likelihood or not of a possible default of the dollar, the security implications of Trump’s threats to Greenland, Canada and others, and finally the likely outcomes of Trump’s attack on science, the universities and foreign students and academics working in the US.
They make some telling points about the attack on the rule of law, not just with respect to the events in California, and Trump’s employment of the military, or the arbitrary arrests of immigrants and foreign students who are legally in the US, but also the fact that Trump’s continual announcements on tariffs broadens the power of the executive. All this leads to heightened levels of political and economic uncertainty which can only lead to a worsening economic performance. For Paul Krugman, of the three economic superpowers – the US, China and Europe – only Europe can now be counted as a liberal democracy. But, Krugman adds, not is all is lost, and things may turn round as Trump is a “one-man chaos machine”.
This statement, as well as the belief that the US trade system before Trump was a “beautiful system”, does not suggest that the analysis of the causes of Trump’s rise, the subject of the second podcast discussion, will go very deep. Moreover, the first podcast ends with a tribute to the economist Stanley Fischer. One would expect a positive appraisal of a famous economist who had just died. But the discussion also sets the limits of the following discussion. Fischer was an ultra orthodox neoclassical economist who tried to reach a compromise with the rising tide of monetarism, by, as both discussants understand it, keeping the formal mathematical rigour of the models but making them more relevant to the real world. In this respect Wolf comes out as the more radical, saying that he never took the rational expectations model, strongly associated with monetarism and the questioning of whether there was a business cycle that macroeconomic policy needed to respond to, seriously. And should we be left in any doubt, in the second podcast Krugman proudly announces that he is not, on most things, as unorthodox an economist as most people assume.
The conclusion to be drawn early on then is that whatever the causes of the rise of Trump and the fall of the old economic order, it can not be the type of economics that is taught in economic departments throughout the world. Nor can it be the fact that economic students in most departments must go out of their way if they are to be taught a course in the history of economic thought, or economic history. The fact that all economic policy in the industrialised world before 2009 was informed by orthodox economists, some a bit to the right of Krugman, some a bit on the left, is never part of the discussion. An odd omission, to say the least.
Not so odd for Krugman, it seems. In the second episode Krugman makes these astonishing remarks “if you didn’t know that Donal Trump won in November 2024, you’d look at US economic policy since Covid as a triumph”. According to Krugman “it worked out great” for everything except who won the election, since there was a return to target inflation, real wages increased and there was no experience of high unemployment. So why did Trump win?
Once again Wolf comes across as the more radical. He places much emphasis on the effect of the decline of unions not only in the rise of inequality but in the insensitivity of centre-left parties to their base. He argues that in the old days the Labour Party was represented by figures like Ernest Bevin, a trade union leader before he became a minister, whereas now centre-left parties have few leading figures who come from the ranks of their supposed base – as Wolf observes the leaders of the Democratic Party are likely to be people like “like us”. Krugman seems to agree with this observation, and adds that unionism’ decline is not a necessary result of changes in the economy and that a strong union presence is possible in the new economy in such large employers as Amazon or UPS.
There is also some agreement on the consequences of rising inequality and the fact that globalisation, and what economic growth there was, left many people behind. Krugman adds that the effects of globalisation may have had only a marginal effect on overall US manufacturing employment, but rising competition could have a devastating effect on specific regions. He gives the example of furniture which used to be a mostly non-tradable good in the US. But when the Chinese entered the market the effect on the US as a whole may have been marginal, but the effect was devastating for North Carolina. Both discussants agree that the effects on particular regions, and particular communities, that lose their production or export base can be devastating. On the other hand, both are sceptical that regional policy can do much to help out in most cases.
However, while Krugman accepts there are real grievances from inequality he points out that economies such as Denmark and the Netherlands which have far lower levels of inequality are also having problems with the far-right politics. He then goes to argue that there is always a substantial number of very dissatisfied people. Even at the best of times, this could amount to 25-30% of the electorate. So, these people are vulnerable to the signals they receive since they are usually less informed about politics and “don’t have a good sense of what’s there”. This matches Krugman’s greater concern with inequality of income and wealth at the top of the distribution in the sense that elites can transform their economic power into political power and the control the media that influence the “uninformed”.
There are a number of things that can be said about this line of thinking.
The first, is that whatever the validity of the 30% percent of people who are always dissatisfied – no evidence is given for this assertion – we seem to be a long way from the old description of the two-third society in which only one third of society was marginalised. During the high point of neoliberalism, it could be argued that there was a state of hegemony in the senses that centre-left and centre-right parties agreed on most of the important issues of economic policy, and crucially, that the party in power could mediate between the interests of the elites and the concerns of substantial sections of the middle and working classes. Whether we are talking of Scholz and Starmer, or Trump and Merz, there seems little prospect of any quick return to such a hegemonic arrangement. Economic stagnation and political instability are here to stay. So, the question that Wolf and Krugman should have discussed is not just why Trump’s policies will not work for the US and create disruption and uncertainty for the rest of the world – there is more on this in episode three on the consequences of Trump’s trade policy. It is why centrist politics, that they support, seem to fail? Why did Biden lead to Trump? The fact that economic policy before 2024 was doing splendidly hardly constitutes an auspicious start for such a discussion let alone an adequate response. It seems that there exists a structural break after 2009 which provides serious obstacles to the viability of centre-left, centre-right snd far right approaches which want to appeal to significant sections of the the working and middle classes while not touching the accumulated wealth and power of elites.
Secondly, and perhaps of greater importance, is the argument that ill-informed people are susceptible to right-wing politics. One cannot think of a better example of Sandel’s argument that the Democratic Party, and other centre-left parties elsewhere, have not only ignored their traditional base but have also adopted a patronising stance towards them. The fault lies at their own door they are told. They haven’t invested in their education, they haven’t had the energy to move to where the jobs are, they haven’t had the enterprising spirit to set up their own firm. The economists behind Clinton, Obama and Biden did little to redress this attitude when they did not actually perpetuate it. Did they ever consider seriously Sandel’s argument that the Democratic Party, especially after Covid, needed to argue for the dignity of all forms of labour and, accordingly, address the issue of stagnant wages? Both Clinton and Obama made clear their preference for economists who shared the perspective of the financial “community”, who presumably considered their own labour was so well remunerated exactly because they were so talented.
Wolf and Krugman share the economics of such economists. Their world is passing away and they seem unable to engage in any form of self-criticism.
There are questions here that go beyond economics. Towards the end of the second episode, Krugman refers to Peter Gabriel’s song – games without frontiers, war without tears – as an an attack on “mindless nationalism”. He concludes by saying “things haven’t changed much except that we used to have a relatively benevolent hegemon on my side of the Atlantic”. After Bush’s and Blair’s war in Iraq, and Biden’s unconditional support for genocide in Gaza, this benevolence can only be in the eyes of people who cannot understand the loss of their world. A hegemon is one who rules with at least a pretence of moral and intellectual leadership. What we have had in the twenty first century is a superpower that seeks dominance by brute force. And this did not start with Donald Trump.
After listening to the first three episodes a few times, one is left with the conviction that there is no new thinking on the side of centrist intellectuals. If there are elites out there who want something different from what is presently on offer, they should be seriously concerned.