Dennis Kelleher of Better Markets

Dennis Kelleher of Better Markets

For all my interviews and more, subscribe on YouTube [https://www.youtube.com/@PKrugman]. With everything else going on, the ongoing demolition of financial regulation and supervision, which is raising the risks of financial crisis, isn’t getting much attention. So I spoke with Dennis Kelliher, president of Better Markets [https://bettermarkets.org/], an independent think tank that is trying to sound the alarm. Full disclosure: my nephew works at Better Markets. But I would have wanted to talk to Kelleher regardless. . . . TRANSCRIPT: Paul Krugman in Conversation with Dennis Kelleher (recorded 7/10/26) Paul Krugman: Hi everyone. It seems hard to believe now, but the great financial crisis of 2008 and its aftermath are now in the distant past. I think, in fact, in November there will be some voters who weren’t born yet. But for some of us, it was a huge, defining event, and financial markets as a source of economic problems and instability hasn’t gone away. And I thought I would talk with Dennis Kelleher [https://bettermarkets.org/team/dennis-m-kelleher/], who is the head of Better Markets [https://bettermarkets.org/who-we-are/], an independent think tank devoted to trying to make financial markets work better for the rest of us. And in the note, I’ll mention I do have a personal connection to Better Markets, but that’s not why I’m interviewing Mr. Kelleher. Dennis is a former Senate aide, and as you know, congressional staffers are one of the great sources of expertise in America. And we want to talk about financial markets, so hi. Dennis Kelleher: Hi. Thanks for having me, Paul. Good to see you. Krugman: Good to see you, too. I have a bunch of questions, but we can go wherever this goes. The first thing is, whenever I try to talk about financial market functioning, what comes up is that most financial assets are owned by a relatively small part of the population, even if you take 401(k)s into account. So why isn’t this just a fight among the investor class? Why should everyone care about this? Kelleher: Well, it’s a great question because there’s such a lack of information about financial markets, the financial system, and frankly, as you well know, the economy. You know, one of the great services that you and many of your colleagues have provided is basically translating what’s happening in the economy and financial markets to the average Main Street American, reader of the New York Times, and consumers of news. And the truth is that the financial markets and obviously the economy impact everybody, and you’re right. This November during the election, some of the people voting will not have actually had any awareness of the 2008 financial crash, which was the biggest crash in the United States since 1929, which caused the Great Depression. And even though they may not have been born at that time, the people who are voting in November are still living through the repercussions of the 2008 crash. We basically lost an entire generation of Americans, economically speaking, from that crash. It took ten years for the U-6, the broad unemployment rate, to return to pre-crash levels. It was 2017 before that happened. And indeed, the Fed did an interesting study, which people can quibble with the baseline, but they did a study in 2018 that showed at the end of 2016, 90% of Americans were poorer than they were in 2007 by 17 to 35 percent. So if you think about that, at the end of 2016, the best-off American in that ninety percent bucket was 17% poorer. Now you could say the baseline of 2007 was inflated, but by and large, 90% of Americans have been doing pretty poorly since the crash for a lot of reasons. And so in November, when those people go to vote, they might not know it but they are actually living through the continuing economic consequences, financial consequences, and actually political consequences. Because the rise of Trump and the dissatisfaction of voters, Americans, and actually voters in the UK and elsewhere—Martin Wolf from the Financial Times wrote a terrific book called The Crisis of Democratic Capitalism [https://www.economist.com/culture/2023/02/02/martin-wolfs-new-book-analyses-the-wests-malaise]. It shows how if countries don’t deliver for the broad population, then democracy erodes and people look for easy answers, authoritarians, and strongmen. And we end up with Brexit, we end up with Trump. And so you’re right. People don’t remember the crash, but the crash is incredibly important to everybody in America. And the circumstances that we find ourselves in today are unfortunately echoing many of the drivers of that crash. Now, I didn’t answer your question about the investor class, but when you look at investors, something like 87% of the value of the stock market is owned by the top 10%. On the other hand, there are today $27 trillion worth of assets in 401(k)s and IRAs, retirement accounts. It’s overwhelmingly skewed to the top, but not only. And importantly, one of the great projects that America really needs to undertake is to democratize finance so that financial assets and the ability to grow wealth is more broadly spread out. One of the big crippling problems we have today is that the bottom 50% of Americans, about 165 million Americans, only have 2.5% of the wealth of the country. It’s astonishing, right? And so a big part of what Better Markets does in economic and financial policy making is to try and rebalance what we see as a rigged economy that’s driven by a rigged and broken financial system. So our economy is producing very well for the top ten percent, and our financial system is structured to deliver those results. Now, part of that is wealth extraction, but a lot of it is just structural drivers put in place by policy makers in Washington that cater to the top ten percent. And that, unfortunately, Paul, as you know, is on a bipartisan basis. Krugman: We’re gonna get into that in a bit, but let me just ask a question. I’m gonna actually kind of veer off course, although this is something I wanted to get to. Top ten percent. So basically, ownership of stock is, roughly speaking, a top ten percent activity. When you talk about skewed, I mean, I have a sense that it is actually increasingly skewed towards a fraction of a fraction. Do you have anything I should take away about how the system is rigged or skewed within the stock-owning population? Kelleher: Well, I think the problem is that the higher up you go on the wealth scale, the greater your ability to accumulate even more wealth in a tax-free fashion, right? And then to pass it along to both use it today as if it was cash and income, not be taxed on it, use it, and then hand it off through inheritance without being taxed to heirs for multi-generational wealth concentration at the top. It’s bad for the economy and bad for democracy. I mean, you’ve talked to Ro Khanna and there’s all sorts of people with different ideas about what to do. We’ve got a wealth tax on the ballot in California. But in terms of the structural drivers, one of the problems we see at Better Markets is that Democrats don’t pay enough attention to the financial structural drivers of the economy. So here’s just a simple example that people are often surprised by. Community banks in the United States—there’s about a little over four thousand of them. You see them on every corner across America, particularly in “real America,” as opposed to where you and I live, Paul, which is by no means real America. But those banks lend out seventy-five cents on average of every dollar of deposit. The big Wall Street banks, they lend out somewhere less than fifty cents of every dollar of deposit. And that’s because it’s so much more profitable for them catering to the rich, mostly engaging in financial activities, trading, and capital markets activities. And so ask yourself, why is that? Well, that’s because the rules enacted by the banking regulators and Congress and other regulators allow the profit margins on the financialized trading side to be so much greater than on the lending side. I mean, truthfully, the rules that are created in Washington actually discriminate against lending to the real economy. And so you have community banks which don’t have capital markets activities. They’re bread-and-butter banks for the most part. It depends on how you define community banks; some people define them all the way up to Wall Street, but those are people in the propaganda industry. But these are banks that are actually driving the real economy. So for example, the community banks have somewhere in the neighborhood of 10% of the total assets of the banking system, but they actually provide somewhere in the neighborhood of 40% of all loans to small businesses. Krugman: Right. Kelleher: Well, why are we not having rules that skew towards benefiting the real productive economy and away from the trading financialized activities which serve the very top one or two percent and not the rest? And actually, it not only doesn’t serve the rest of the country, it’s at the expense of the rest of the country. Better Markets put out a report [https://bettermarkets.org/newsroom/banking-agencies-capital-proposals-will-boost-big-bank-profits-hurt-main-street-lending-community-banks-and-financial-stability/] showing that last year the growth in major Wall Street bank lending to what are called “non-banks” grew by 50%. Do you know what their lending to the real economy grew by? Zero. Zero. And so a lot of these activities are being pushed out into what are called non-banks because it’s more profitable. It’s more profitable because the rules make it more profitable. The rules are created in Washington by policymakers, regulators, and legislators who, unfortunately, too often are beholden to the wrong people. And so you end up with this cycle where the rules keep reinforcing the current structure that’s channeling activity and money to the top and away from Main Street. Krugman: So as I understood it, reading some of Better Markets’ reports, if you’re a big financial institution, lending to non-banks probably ends up being a roundabout route by which the money reaches lenders, but not through the original bank. They actually have kind of a regulatory advantage because it’s lower capital requirements. If I got that right? Kelleher: Well, it’s lower capital requirements, it’s lower requirements across the board. Capital is one of the core drivers, but it’s not the only one. Krugman: So if you put your money with Citigroup or another one of the big financial institutions, it’s not going to be lent out, or much of it will not be lent out to small business or households. It’ll be lent to others; it’ll kind of divert around and it’ll in effect be channeled into what you consider a worse way through which the money reaches the rest of the economy. Is that a fair summary? Kelleher: That’s a fair summary of part of it. Keep in mind a lot of this money is funding hedge funds doing big basis trades, basically swinging for the fences. I’m not saying there’s no value at any hedge fund to the real economy, but when you look at their activities, that’s not exactly what I would call beneficial lending to the real, productive economy. Private equity is basically a strip-and-rip business model. It gets their money from the banks. Almost everything goes back to the banks, and that’s because deposit money is the safest, soundest, and cheapest source of funding for economic activities. And so the banks have got the money, and what they decide is: where are they going to send it? Are they going to send it over here to lend to Main Street businesses where their profit margin is modest, or go over here to hedge funds, private equity, or other financialized activities—business development corporations, crypto, all sorts of things where the profit margin is large? They’re making rational economic decisions in their self-interest to profit maximize. The question is: why are the people in Washington structuring it that way so that their profit margins are like that? The current capital rules that we’re fighting about, Paul, are supposed to change that. And in fact, what they’re supposed to do is have, for example, the trading activities accurately reflect the risk associated with them. And if they accurately did that, the capital requirements for those activities would be much higher. Not only are the banking agencies with the Federal Reserve in the lead not doing that, but when they’re done with the proposed capital rules, capital at the biggest, most dangerous banks in the United States is going to be back to the levels roughly before what they were before the 2008 crash. I mean, think about that. It’s crazy, right? Here’s something that’s even crazier: a bunch of those big banks are going to have capital rules and capital levels that are roughly similar to community banks. Krugman: Which are low, because they’re in a very safe business, right? Kelleher: Yes. Well, right. The systemic risk to the economy of community banks, first of all as an absolute matter, is pretty low. But relative to the giants on Wall Street, they’re infinitesimal; they’re not even comparable. And we’ve got a Federal Reserve, particularly the Vice Chairman of Supervision and Regulation over there, that acts as if she’s the primary lobbyist for Goldman Sachs or JP Morgan Chase. She even hired three of Wall Street’s top lobbyist lawyers to be her senior advisors. I’m not making this up. One was a vice president at Goldman Sachs. One was one of Wall Street’s top lawyers at one of the top Wall Street law firms for 35 years. And the other one was a top executive at Wall Street’s biggest trade group in Washington. Those are her three top advisors. Krugman: Are you talking about Fed employees or outside consultants? Kelleher: No, they’re Fed employees. They’re on staff. We put out a press release [https://bettermarkets.org/newsroom/federal-reserve-putting-lifelong-wall-street-lawyer-lobbyist-in-charge-of-regulating-his-former-bank-clients-endangers-all-americans/] about her hiring the three of them. I mean, this is not just the fox guarding the hen house; this is the fox in charge of all operations of the hen house. So the lawyer who was on Wall Street for 35 years, serving his clients for 35 years—all of the banks—is now the Director of Regulation and Supervision at the Federal Reserve of his former clients, and the right-hand top staffer for the Vice Chairman of Supervision and Regulation on the Board of Governors of the Federal Reserve. And so anybody who is surprised that the Fed is now enacting or proposing rules incredibly favorable to the biggest banks on Wall Street... And it’s not just capital, Paul. I mean, one of the tradeoffs here is that banks get to have a somewhat unique role in the United States, right? They get to accumulate all these activities and take people’s deposits. Main Street American deposits are how these banks fund themselves, largely. And then we insure that money through the FDIC so people have confidence that they’ll get their money back. But the exchange is: we regulate them so that they don’t actually threaten the economy and financial system of the United States because they’re so big. So that means they’re supervised. People don’t know this, but every day, people who work for the Federal Reserve and are paid by the American people, go to work at the biggest banks, supervising them. They literally have an office there. They go in, look at the books and records, and talk to people all day long at Goldman Sachs, JP Morgan Chase, and Citigroup. That’s called supervision. It’s basically invisible but incredibly important. But the Fed is not only cutting back on capital and regulation like stress tests and other important safety features; they’re also gutting supervision. And so they’re basically unleashing the biggest banks in the United States from modest, sensible regulation and supervision that’s supposed to protect Main Street jobs, homes, and savings from high-risk, reckless, and inappropriate conduct by these gigantic banks. We saw in 2008 what happens when you don’t regulate them or supervise them. And we actually just saw it again in 2023. Krugman: Right. This is 2023 with the Silicon Valley Bank and all of that, right? Kelleher: 2023 there were four big bank failures. Three of the four biggest bank failures in the history of the United States happened in 2023. People don’t realize it. Krugman: Even I didn’t realize that, and I’m supposed to be on top of these things. And this is happening incredibly fast, right? Normally we think you forget the lessons of the last financial crisis basically once people age out of the business and nobody is around who really remembers it. But we were dealing with the aftermath of 2008 just fifteen or sixteen years ago. And you’re saying that basically we’re fully back to that kind of Wild West, no-supervision world, or maybe worse. Kelleher: Well, we’re getting there, and the direction is there. We’re not quite there yet, but the thrust of what’s happening now is broader, deeper, and more reckless than it was in the years leading up to the 2008 crash. I mean, if you think about it, it’s quite amazing. The so-called shadow banking system—non-bank financial institutions—today is bigger than it was in ‘08 and less regulated. Krugman: That’s what I was going to say. Yeah. Kelleher: And it was identified as one of the primary drivers of the ‘08 crash. Krugman: That’s right. I mean, I remember very vividly in the fall of 2008, the conventional wisdom, even in textbooks—including my own—said, “Well, we can”t have a 1931-style banking crisis because the banks are insured and regulated,” and then the week of Lehman’s failure was, “Sixty percent of the banking system is shadow banks.” And you’re saying that we’re back to that and more now. Kelleher: Yeah, I don’t remember the exact percentage, but yes. And what’s worse is they’re less regulated today than they were then in many material respects. And now a lot of people think, “Well, it’s hard to worry about big catastrophic events when there’s a lot going on every day.” But this is happening fast, and because there’s so much happening in the Trump chaos machine—where there’s not a scandal a day, it’s like almost an hour. You know, J.D. Vance, who I almost never agree with on anything, said in a speech recently at the Nixon Library that if the Nixon crimes happened today, it wouldn’t even last a full news cycle. And he’s probably right. And so a lot of this is not only happening fast, it’s happening invisibly because just a very small slice of what’s happening is getting into the media. Meanwhile, the industry termites are working day and night in the policy-making process in Washington, eating away at the foundations of the financial stability of the United States. Krugman: You’ve been talking a lot about the Federal Reserve, which is critical because it traditionally has been the more competent, less politicized piece. And you’re basically saying that now that piece of the Fed has effectively been captured. Is that a fair description? Kelleher: The Fed has unfortunately been largely captured. It’s being run by people who have an agenda that is not consistent with the best interest of the American people, frankly. I’m not talking about the monetary policy side—that’s a whole different discussion—but on the supervision and regulation side, they are not acting consistently with the best interest of Main Street Americans. Wall Street is winning day in and day out in the policy fights. Krugman: Right. Kelleher: There’s going to be news coming out, I think, over the next several weeks, maybe months, that will illustrate that pretty starkly. It’s really quite astonishing what has happened at the Fed. And don’t get me wrong—there are a lot of good, hardworking, dedicated public servants at the Fed who nobody will ever see or acknowledge, who have been fighting the good fight for many years. But the leadership at the Federal Reserve at this point—the Trump leadership—is doing to the Federal Reserve what’s being done everywhere. Now, we know we had two big Supreme Court cases recently which supposedly cabined off the Federal Reserve from direct political control by the President, unlike the other agencies, and that’s true, but it’s all relative, right? I mean, he now has direct political control of the SEC, CFTC, and everything from the NLRB to the FTC to the FCC—all the critically important regulatory agencies that have been in place since the New Deal, basically creating and enabling an economy to be profit-maximizing but still have adequate protections for the public. I mean, that’s the balance that we need to get. And actually, a former colleague of yours, David Leonhardt, wrote a great book—and I always have it on my desk because I recommend it to people. It’s called Ours Was the Shining Future [https://bookshop.org/p/books/ours-was-the-shining-future-the-story-of-the-american-dream-david-leonhardt/dccf8bf82ea6ac72?utm_source=google&utm_medium=cpc&utm_campaign=dsa_nonbrand&utm_content=%7Badgroupname%7D&utm_term=aud-1885352274144:dsa-19959388920&gad_source=1&gad_campaignid=12440232635&gbraid=0AAAAACfld40ZTHRb4F6KxCmUX1uWQ2kbh&gclid=Cj0KCQjwsMLSBhD9ARIsAIpUTDpwgbHYJTQZ4-grbNk1pXOlbTsRsj3sOszYXxelXiiCO-vXHvePKREaAroDEALw_wcB]. It’s a great history of how the United States, post-Great Depression, built the largest middle class in the history of the world, really compressed gross income inequality, and created wealth in places people didn’t think it would happen. And he talks about how things changed when Reagan came in and kind of where we are now. But that was because we had a regulatory state. Now, people can argue about what’s reasonable—how much is too much, how much is too little—but we struck a balance that enabled the SEC, the CFTC, the Federal Reserve, and other regulatory agencies, from labor to health to product safety. That balance took some of the craziness off the blind profit maximization built within the engine of the economy. Now, the Supreme Court basically said last week that doesn’t exist anymore. What exists going forward is that the President gets to control all those agencies, and all those agencies are now subject to both the political agenda and the whim of whoever the President is. Krugman: So, for listeners who may not know: SEC is the Securities and Exchange Commission, which is supposed to regulate stocks and corporate accounting and all of that. CFTC is the Commodities... Kelleher: Futures Trading Commission, regulating derivatives and commodities. It’s the least known but a very important agency. For example, commodities: the bread in your lunch pail, the cereal in your breakfast bowl, the gas in your car, the heat in your home—all those markets are regulated by the Commodity Futures Trading Commission. Krugman: Yeah. And so Humphrey’s Executor, the case where the Supreme Court essentially said that Congress cannot establish a mandate and then expect an agency to fulfill it if the President doesn’t want to. That really affects all of these agencies, right? Kelleher: Right. Actually, the case last week was Slaughter v. FTC, and that case overruled Humphrey’s Executor, which was a Supreme Court case from ninety years ago. I don’t remember exactly; it could be eighty. Contrary to what my kids often think, I haven’t been around that long. Krugman: It’s ninety years ago because it was actually a ruling against FDR. FDR was trying to change something, and the Supreme Court said, “Well, that’s not what Congress said and you, Franklin Delano Roosevelt, cannot change it.” But now it’s been waived for Donald Trump. Kelleher: Yeah, well, look. We have a right-wing Supreme Court—a supermajority—that is essentially creating, for the first time in American history, an all-powerful executive branch. As you know, it’s been referred to by legal scholars as the “unitary executive theory,” where essentially the President, whoever they are, gets to control the entire executive branch. And of course, over the last ninety years or so since the New Deal, we’ve had an administrative state that has, in key respects, put some brakes on the worst excesses of unrestrained profit-seeking. They’re just basic public protections. I think of it as being like cars, right? Cars today are very safe; they have airbags, bumpers that are shock absorbers, glass that shatters and doesn’t kill you, and reinforced doors. What the Supreme Court is doing with Slaughter v. FTC and these other cases that are empowering the President is literally taking the airbags and bumpers off your car. Except the car, in this case, is the country. It’s our democracy, our economy, and our financial system. The safety aspects of that system that protect our democracy, economy, and financial system protect people’s jobs and savings. And frankly, their safety—even things like the Consumer Product Safety Commission or the FDA. These acronyms can get confusing, but what they really are are safety mechanisms and protections for Main Street Americans from things that happen in a gigantic economy like the United States that would otherwise have really bad impacts on Main Street Americans, whether it’s their job, their health, their safety, or their savings—frankly, their families and their dreams. And that’s what these agencies do; some do it better than others, and I’m not saying they always get it right. They don’t; they get it wrong. We criticize them all the time. We criticize them when Democrats are in charge and we criticize them when Republicans are in charge. We also praise them when they do well. But we need them; we need these shock absorbers on an otherwise unrestrained economy that’s just profit-driven, and that’s what we’re seeing now. Krugman: We’ve ended up talking a lot about the Fed, which has a critical supervisory role, but Better Markets has been writing a lot about the SEC lately [https://bettermarkets.org/newsroom/secs-2026-agenda-shows-the-agency-no-longer-cares-about-investors/], and there’s stuff happening there that’s barely being noticed. I’m barely seeing anything about it in the newspapers, and yet that’s just as important, right? There’s a lot going on at the Securities and Exchange Commission. Kelleher: So, the Securities and Exchange Commission was created in 1933. There were two laws: 1933 and 1934. And by the way, I should say if anybody’s really interested in this—I hate to sound like a book reviewer—but there’s some great stuff. Diana Henriques wrote a terrific book last year called Taming the Street [https://www.penguinrandomhouse.com/books/611070/taming-the-street-by-diana-b-henriques/], which is a history of the SEC, how it came about, why it’s so important, and what happened during the Great Depression. It’s also a history of the American economy, a bit like David Leonhardt’s book. And it’s an easy read. But the SEC regulates investor protection in our markets. And you asked this earlier, Paul: why should anybody really care given that so many of these assets are owned by the top ten percent? Well, as you know, we basically have an economy funding pipeline—a capital pipeline, if you will—in our economy. People all over the country come up with ideas, some of which fail and some of which succeed. Those that succeed need capital to grow so that they can take it from their garage to a local store, to a factory, and to global markets. Krugman: Right. Kelleher: When they start, they end up using angel capital or friends and family. Ultimately they get a good idea and a venture capitalist. And then the big success used to be your company would go public on the stock exchange. That’s how companies generated enormous amounts of capital—which is just a fancy word for money. They got enough money to grow their business, build things, and hire a lot more people. It’s how we built the middle class. And that’s what the SEC regulates: the public part of that capital pipeline—the big public markets like the New York Stock Exchange and the NASDAQ. They regulate both the disclosure obligations and they police those markets. They do that because what happened in the 1920s contributed mightily to the 1929 crash and the Great Depression. It was basically people who were lying, cheating, and stealing with almost no regulation at all. The big banks were often multi-headed financial conglomerates doing self-dealing and conflicts of interest. Not only didn’t they disclose things, but when they did, they often lied and defrauded people. A lot of that ended up being basically what we would think of today as Ponzi schemes—nothing really there except the people running the firms enriching themselves. The SEC was created to make sure we had well-regulated and well-policed markets so investors wouldn’t get fleeced, providing capital for businesses to grow. And until very recently, the SEC was the global gold standard for investor protection. Well, that’s gone. The SEC under Trump has now moved from investor protection to management protection. It is as captured as, unfortunately, the Fed in many respects. It is cutting back on disclosures and investor rights. For example, they’re even interfering with proxy advisors. It’s very difficult if you’re an investor to keep track of the proxies at all the public companies. The big investors have to vote on director appointments or major policy questions, so they hire proxy advisors, just like you would hire an advisor for anything else. Well, the SEC is now interfering with people hiring advisors to give them advice on proxies. How can you say I can’t contract with somebody to give me independent advice? They’re interfering with that because it makes investors more dependent upon management. Krugman: Just explain to me how that works. How is the SEC blocking that? I’m just curious because that sounds important. Kelleher: It is important, and the details are on our website. But at a very high level, there are two big proxy advisor firms that have a large amount of the market. And what you would do is hire them to provide tailored advice. For example, if you were interested in companies that were socially active and cared about the climate, you could tell your proxy advisor you want advice related to that. If you were on the other side and you loved fossil fuels, you could tell them that and the proxy advisor will tailor it to you. You then pay them, right? What the SEC said in one of its proposed rules—I’m not kidding—is that the proxy advisor had to submit any comment about a company to the company’s management, and management had the right to comment on it. Well, it’s the exact opposite of independent advice. How that’s even constitutional is beyond me. The proxy advisory firms have been engaged in litigation I believe in Trump I and in Trump two, about the restrictions that they’re trying to put on independent proxy advice. It’s just one example. I actually put out a report called The SEC is Demolishing Investor Protection, Threatening Capital Formation and the US Economy [https://bettermarkets.org/analysis/the-sec-is-demolishing-investor-protection-threatening-capital-formation-the-u-s-economy/], which detailed many of the actions they’re taking. But the problem we have is that this isn’t just an issue for rich investors; it impacts the entire economy. One of the reasons people all over the world send their money to the United States capital markets is because they are well-regulated and well-policed. They’re not going to do that if those protections are gone. There’s already been reporting about people thinking about putting their money elsewhere. Now, because the US stock market is doing so well, you could argue it’s still a safe bet. By and large, there’s no other place that can compete robustly with the United States at the moment. Leave aside whether it’s a bubble or not. As an investment vehicle, it’s one of the top global places to put your money. Well, that’s because—and this is what they don’t get, Paul—they are well-regulated and well-policed. You take that away, and you’re going to end up with crooked, rigged markets where you don’t know what happens to your money. And if that happens, that doesn’t just hurt the rich people who own most of the financial assets. That’s going to have impacts all the way down the capital formation pipeline to the real economy and people’s jobs. Krugman: Okay. I was completely unaware that the SEC was doing all of that. But I just want to move on a bit. Better Markets has been writing quite a lot about crypto. Crypto has suddenly faded from public attention because there’s so much else going on, like AI. But crypto is still a two trillion dollar asset class. Talk to me about crypto and where it fits into all of this. Kelleher: Well, to start with, we have been the tip of the spear fighting crypto since 2020. We were the leading opponents of FTX and Sam Bankman-Fried back in ‘21 and ‘22 when he was trying to buy all of Washington and get his predatory model approved by the CFTC. In fact, we were so much of a thorn in their side that Sam called and came into the office for ninety minutes to try to convince me to support him. Unfortunately, there are so few people active at the CFTC, which is where he was trying to get his predatory model adopted. Krugman: This is Sam Bankman-Fried who came in to talk to you. Okay. Kelleher: Yeah, him and his bipartisan phalanx of advisors, because he bought everybody. For ninety minutes he tried to convince us. We didn’t know about his crimes obviously—but he clearly had an entire business model that was financially predatory. It was basically: “If we get rid of all these customer and investor protections, I can make a lot of money.” And I was like, “Well, anybody can make a lot of money.” You could make a lot of money building buildings if you don’t put in fire escapes or fire doors. It doesn’t mean it’s a good idea. That was essentially what Sam Bankman-Fried was trying to do in the derivatives markets, and we opposed him. He also thought he could bribe us; he offered us a million dollars or more. Frankly, I could have asked for twenty-five million bucks and I’m sure he would have delivered it in a paper bag. We said no. To my knowledge—and I don’t say this arrogantly, but in sadness—I think we were the only ones in Washington who didn’t take his money. He ended up in the right place. But Better Markets has been out front on this because there is no legitimate use case for crypto. They’ve had 18 years to come up with one. They keep throwing things up like “an inflation hedge” or “source of stability.” Every one of them has turned out to be baseless. The only real use for crypto is tax evasion, money laundering, and crime. It’s the preferred mechanism of choice for global terrorists, sex traffickers, and rogue nations like North Korea and Iran. You have to ask yourself why crypto has basically hijacked the political agenda of Washington. It’s because they followed the Sam Bankman-Fried model of buying bipartisan support by spending hundreds of millions of dollars in campaigns. And this is the astonishing thing, Paul, that people don’t know. Krugman: Okay. Kelleher: It’s the biggest bait-and-switch in history. In the hundreds of millions of dollars they spend on campaigns, they don’t mention crypto. That’s because they know crypto is toxic. Poll after poll shows crypto is toxic with the American people. Politico and the Wall Street Journal independently looked at the massive amounts of ads bought by the crypto industry supporting candidates in the United States, and not one mentioned crypto. Then they get their friends elected who come to Washington and say, “Crypto voters sent us here,” except not one voter voted based on crypto. They were mostly negative attack ads on extraneous issues. So crypto has now basically hijacked the agenda. The amount of attention politicians give it is crazy. The Senator from Maryland was recently quoted as saying, “I’m spending virtually all my time on crypto.” If his constituents knew that, they wouldn’t be happy. So here we have a financial product of no social use and massive negative uses that is being integrated with our core banking and financial system. Now, I’m sure it’s a coincidence, Paul, that the President is getting filthy rich on crypto. The problem is that the downside of crypto is not going to fall only on the people getting rich on it. Once they connect it up to the banking and financial system, which they’re doing across the board, we are going to see problems. In many ways, I think what’s happening now is worse than what happened before the ‘08 crash. Before the ‘08 crash, we had subprime. Well, we not only have financial craziness going on, we have this entirely new multi-trillion dollar financial product that has no value, is incredibly volatile, and is rife with conflicts of interest. It is going to be a core part of our banking system within the next twelve to thirty-six months. Krugman: Okay. This is a broader question of what happened to the political system. Massive campaign spending, but also a lot of effective bribery. You’ve been going after that. And it is kind of shockingly bipartisan. I mean, obviously, nobody has ever been “bribed.” The bribery of Donald Trump is, as he would say, “like nothing anybody’s ever seen before.” But it does extend across the political spectrum. You’ve been writing about that [https://bettermarkets.org/?s=crypto], right? Kelleher: Well, unfortunately, it has. Any ordinary person looking at what’s happening would think it was bribery. Unfortunately, it’s not technically bribery because the Supreme Court has made that almost impossible to prove in a political context. So we have politicians taking massive amounts of money from the crypto industry and then prioritizing their special interests over the American people. Poll after poll—and we have this on our website [https://bettermarkets.org/?s=crypto]—shows that very few people in America use or own crypto. These are not our polls; these are from Pew and other non-industry sources. Even the FDIC and the Federal Reserve’s own surveys show this. If you look at the polls looking at what voters think, including one right before the 2024 election that looked at swing voters in six states, 68% of them had a negative view of crypto. That’s why crypto doesn’t mention crypto in its ads. But you have all this money coming into the political system, and now Democrats want that money too. Their view is: “Elections cost a lot of money. We need to neutralize this money cannon from crypto.” Therefore, they deliver for them so the industry doesn’t fire that money cannon against them—or better yet, gives them some of it. They do that directly through campaigns, independent expenditures, and Super PACs. They also do it through the revolving door where the industry hires former public officials, including Congressmen and Senators. They purchase them like you go to a vending machine. They give them a ton of money, and next thing you know, they’re mouthpieces for the crypto industry. They also hire lobbyists who are family members of very important people. There was a story that Senator Gillibrand’s twenty-two-year-old son has founded a company. That company is being funded by billionaires and other financial types because apparently he has a brilliant idea and they randomly found him in a phone book, Paul. Everybody is pretending it has nothing to do with the fact that his mother is a powerful Senator from New York who is the leading cheerleader for crypto special interests. She also happens to be the chair of the DSCC—the Democratic Senatorial Campaign Committee—which raises the money to elect Senate Democrats. You can just read the media reports. You have to ask yourself: how are all these billionaires putting money into this startup? The spokesperson said these people are “longtime friends” of the son. When you’re twenty-two years old, how do “longtime friends” really work? Where do you run into billionaires? I know if you’re a Princeton professor they’re all over the place, but where I come from, running into a billionaire just isn’t common. Getting them to give you money for a startup at twenty-two might be the American Dream, but it ain’t working the way it’s supposed to. Krugman: I’m not a Princeton professor anymore, and there are very few billionaires at the City University of New York. But okay, there’s so much here. Any quick thoughts about AI? It’s monopolizing attention, but where is the financial side of that? Kelleher: I think in some ways it is monopolizing attention too much, and in other ways it’s not getting enough attention in the right places. We think that we’ve got a huge problem here. AI is inevitable; the real issue is what the safety features will be. Cars were a great innovation, but they killed a lot of people until we got airbags and protective glass. There is a fight now between people who think AI should proceed unregulated and those who think it should have regulation. We think you need a balance. The American people are on to this. They know it’s going to impact them. For one, these gigantic data centers are sucking up electricity and driving up bills, straining the electrical grid to the point where the entire country could be subject to blackouts. But also, AI is going to have a very big impact on whether you get a loan or at what rate. It’s not just your energy bill; it’s your local bank. When everything becomes automated, how does a community bank keep up? Community banks provide loans to the auto dealer or the local grocery store. They are going to come under enormous pressure because they can’t keep up with the infrastructure spending they’ll need. We have some ideas on how to strengthen them because they are so vital to our economy—providing 40% of small business lending. You lose community banks, you lose small business. And then there’s the gigantic banks’ use of AI with infrastructure and spending. Community Banks are gonna need to make major investments if they’re gonna keep up. I mean, as I said earlier, forty percent of the lending to small business in the United States comes from community banks. You lose community banks, you lose small business, you lose community. So that’s just one way, but it’s all the way up the chain. Another issue is that the people writing the algorithms are importing their own bias. Who’s guarding against that? There’s the “fat finger” problem where traders make mistakes, but who is testing AI machines pre-deployment? Representative Ro Khanna from California has made this point before, as have others. Truthfully, whether you like him or not, or you agree or don’t agree, you should listen to him because he’s got lots of thought provoking ideas on topical issues people really need to think about, and this is one of them. It’s like thinking: “Let’s open a nuclear plant in our neighborhood.” Everybody would say you wouldn’t do that without checking a million things first. AI is the same, if not worse, because it’s less visible. Better Markets is putting out a “people-centered agenda” on how we should find the right balance so we can get the best of AI while avoiding the bad parts—many of which are unknown. We shouldn’t be putting AI on autopilot. And you know, just like we’re not letting cars on the road running on autopilot without thoroughly testing them and making sure they’re not going to kill everybody. We sure as heck shouldn’t be putting out AI on autopilot. Krugman: Okay. This altogether makes me justifiably much more nervous. Kelleher: Then, let me end on an up note. I thought your piece this morning on jury duty [https://paulkrugman.substack.com/p/an-encouraging-encounter-with-real] service was interesting. I’m optimistic because the vast majority of the American people are reasonable and community-minded. The problem we have is that there’s so much money flooding into the system, and that money represents the extremes. The extremes are buying the political system. We need to figure out how to get more Americans involved so the reasonable people can have civil conversations. I do think most Americans agree on striking a balance within a reasonable range. Our problem is a Supreme Court empowering billionaires, and we have a president that doesn’t care about laws, norms, customs, or rules. What we’re trying to do at Better Markets—we just did this with our SEC campaign—is engage people. We engaged retail investors, and to our shock, two hundred thousand of them commented on an SEC rule. That is a historic high. So there are people out there, and we need to identify them and get them engaged. If we do, then I believe the core of the American Dream can be reflected in our political system. Krugman: I think that’s an upbeat note on which to end. Thanks so much. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe [https://paulkrugman.substack.com/subscribe?utm_medium=podcast&utm_campaign=CTA_4]

An Encouraging Encounter With Real Americans

For all my interviews and more, subscribe on YouTube [https://www.youtube.com/@PKrugman]. Transcript Today i want to give you some encouraging news about the state of the heartland. Well, actually New Jersey, but you got a problem with that? But I did something kind of different yesterday — which has prevented me from producing a usual analytical Substack post — and it was actually a very uplifting experience. So hi, I’m Paul Krugman. What i did yesterday was participate in jury selection in Mercer County, New Jersey, where i am still a legal resident. That is something I’ve done before: back in 2020 I spent 16 weeks on a grand jury. It was done remotely, because it was the depths of Covid. It was a New Jersey grand jury, which is not high profile cases. It’s actually very ordinary cases in which the police want to bring someone to trial but 23 citizens must agree that they have provided sufficient evidence to bring the case to trial. You don’t have to judge guilt or innocence but you have to judge that there is sufficient evidence to warrant bringing charges. It was enlightening. I got to see a lot of the negative side of life, obviously, but it was just it was a pretty good experience on the whole. So I was summoned again this year. I wouldn’t have been able to do it, but I had to participate in the selection in order to explain to the judge, if necessary, why I could not be available during the period of this grand jury — a bunch of already agreed to conferences and talks in Europe. So it wasn’t going to be something I could do, but I did the right thing and went through the whole procedure of listening to the explanation, being pronounced present, and waiting to see the judge and explain the issue. Now, as it turned out, I didn’t even have to do that. By the time they had reached the people who had said they could not do it, including me and 77 other people, they already had filled the jury. So it ended up that it was time-consuming, okay, not a terrible thing, but it was a procedure that had to be done. And I did my citizenly duty and was released well into the afternoon. But what was interesting about it was that those of us who had said we couldn’t do it — 78 people in a Zoom room — had a long wait while the judge did whatever she needed to do with the rest. And after a little while some people unmuted themselves and we started having a conversation. This was by definition kind of a random sample of people — of course people who have felony convictions are not part of this, people are not us citizens are not part of it, and to be fair it’s Mercer County which includes Princeton although it also includes Trenton. Still, it’s on average an affluent, highly educated county so this was not exactly typical America but it wasn’t exactly the elite either: This wasn’t a virtual room full of Princeton professors. So conversation started. Obviously people are not fools so it wasn’t about politics, it wasn’t about current events, it started with people saying “anybody want to recommend some books that I should read?” and then turned to TV shows and movies and then somehow or other we got involved in a discussion of AI and applications and learning. Because there were several school teachers. Not everyone spoke up — most people didn’t — but everyone was listening, it seemed fairly attentively. And it was a great conversation! People were reasonable, they were either well informed or were happy to say “I don’t know about this.” There was actually some discussion about “how should I where should I go for news now that everything is so polarized” — nobody talked politics but they did talk about the fact that news is kind of hard to parse these days. The book recommendations, the TV and movie recommendations to the extent that I know them were pretty good. And the whole tone was, wow, it was civilized. I felt a little bit as if I was in the middle of a Norman Rockwell painting. By the way, yes, people did recognize me and a couple said you know I read your Substack and I talked a little bit but I made a deliberate effort to step back and not play the celebrity there. And that was good, because I got to listen to other people who were really level-headed, interesting, pretty well informed about a bunch of stuff. Oh, and just to say that this was New Jersey, so it was a very diverse group of people — a random selection of people from New Jersey, which meant that it was multi-racial and multi-ethnic. The clerk had some trouble with pronouncing everybody’s name, which was okay — I mean everybody was very forgiving of that. So it was very much America as I see it — a country of lots of people who look very different, who sound different (except a fair number of people did have New Jersey accents.) And it was just a far more hopeful scene — at least I found it much more hopeful —about the state of the country. It turns out that ordinary Americans — this is, again ordinary Americans from Mercer County, New Jersey, but still — ordinary Americans are a lot nicer, more thoughtful, more willing to hold interesting discussions than you might think. And it does seem to me, given all the political news, there’s a lot of people out there, I would say primarily on the right, but not only on the right, who fundamentally hold ordinary Americans in contempt, who believe that you have to go with cheap slogans and that you can appeal to the baser instincts of everybody’s nature and that’s the way that you win. And obviously they do sometimes win. But it’s worth going out there a little bit. I mean I’m never going to be the kind of person who travels around and has conversations with the person in the street and reports back on what I’ve learned about the real America. But I actually did have, by accident, a pretty good selection of real Americans — because we’re all real Americans — and came out of it feeling just much lighter in mood. You know, this country is actually okay if we can just get past some of the people who are trying to take us down a dark path. We’re not bad people — we’re mostly good people. And there’s a lot there’s a lot of uplift out here if you’re willing to see it. For once if I say I’m ending on a happy note, I really am. Take care. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe [https://paulkrugman.substack.com/subscribe?utm_medium=podcast&utm_campaign=CTA_4]

The Pain in Spain is Mainly in Trump's Brain

For all my interviews and more, subscribe on YouTube [https://www.youtube.com/@PKrugman]. Transcript Yesterday, Donald Trump ordered Scott Bessent, the Secretary of theTreasury, to cut off all trade with Spain. Bessent said “Yes, sir.” Trump also said that this is because the Spaniards had stolen his strawberries. Okay, I made up that second part, but he did in fact order Bessent to cut off all trade. This is not going to happen. Presidents have a lot of discretionary authority on tariffs and trade, more than they should, but you do not have the right as president to impose tariffs on a country just because you don’t like their defense spending or you think that they haven’t been nice enough to you. So this would not fly even in the Trump administration. Even with a supine congress and a permissive Supreme Court this is not going to happen. Also Spain is part of the European Union. So this is like Europe declaring “we’re cutting off all trade with Florida”: they can’t do that. And also, there’s a lot of U.S. business with Spain. In fact, Spain is one of those countries with which we run a trade surplus. So U.S. business would be howling. So this is all a non-event, this is is not something that is real. Except that the President of the United States did say this. It was completely crazy, and that’s the story that we should be taking from this. It’s not really at this point about economics. It doesn’t even make sense to talk about Trump Administration policies, let alone ideology. What we have is President Sundowner. I mean, this this is completely insane stuff. In any kind of normally functioning political system, in any kind of normally functioning party environment we would have a massive bipartisan call across the aisle, across almost everybody except for a handful of members of congress who are themselves crazy, to say okay this guy is non compos mentis. We cannot leave the fate of the United States or the world in the hands of somebody who is completely irrational, who is making demands and believing himself to have powers that he does not. And of course, instead, not only does everybody pretend that he’s still a rational human being, but the Republican Party, the Trump administration, is full-on engaged in trying to build a personality cult. What this says to me is that the problem is a lot bigger than Trump. Something is fundamentally wrong with America, and at this point you don’t have to go through complicated justifications. You can just say something is wrong with a country and a system that lets this guy remain in a position of power. Have a good day. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe [https://paulkrugman.substack.com/subscribe?utm_medium=podcast&utm_campaign=CTA_4]

Pump and Dump and Trump

For all my interviews and more, subscribe on YouTube [https://www.youtube.com/@PKrugman]. Transcript Donald Trump has distinguished himself in many ways. One of them is that he is our first pump and dump president. Hi, Paul Krugman here. A podcast today rather than a full-on piece: I’m a little exhausted from number-crunching over the weekend. So I thought I’d talk briefly about the really extraordinary financial picture that we’re seeing under the current administration. Obviously no president has enriched himself from office the way that Trump has. That’s common knowledge. One of the things that is really amazing about it, however, is the way in which he enriched himself — a lot of which has to do with crypto. So the New York Times had a report just the other day on Trumpcoin, the memecoin issued on Trump’s behalf which got a lot of buyers, a lot of money came flowing into it. It should have been obvious from the beginning that the coin was inherently worthless, and at this point it essentially is worthless. It has lost 97 percent of its value. But a lot of people did buy in at the high prices. What was special about the New York Times story was two things. First, they put a number on how much money naive investors have lost on the coin, which is 3.8 billion dollars. And even more surprising is the number of people who were in effect suckers here — almost a million. That’s really amazing. I mean, I was completely cynical but I didn’t think there were that many suckers out there. But it turns out there were really a lot. A few people made money off the coin — basically insiders who got to buy it early and then were able to cash in before the broader retail market realized that this was a worthless token. There’s another token, the World Liberty Financial coin — which has also crashed, although the Times had difficulty in tracking down how many people have lost how much money. There’s the Melania coin. Okay, all of this is amazing. As Trump would say, it’s like nothing anybody’s ever seen before. I think we should say, however, that this is a bigger story than just the Trump coin, and it’s a bigger story than just Trump himself. What we’re witnessing is or has been a really enormous pump and dump scheme, I would argue, involving more or less all of crypto. So if you don’t know the background, Trump used to be highly critical of cryptocurrency, saying it was worthless and a scam, which was true. But then when it became clear that there was money in it for him, he reversed course. And during the 2024 election, crypto interests contributed a lot of money to Trump. They then after the election poured a lot of money into his own enrichment, into his own projects. And the administration came in with a very pro crypto stance: deregulation encouraging uses of crypto, at least talk about a national bitcoin reserve, all of that. And the price of bitcoin doubled after the election; the valuation, the market cap of cryptocurrency in general went from a little over two trillion to more than four trillion. And then starting last fall it all came crashing down. Not all the way to zero — the price of Bitcoin right now as I record this is about what it was on the eve of the 2024 election; it’s about half what it was at its peak. That’s also true, roughly speaking for the market cap. So we’ve seen about two trillion dollars of market valuation wiped out. Why is this a pump and dump story? Well what is cryptocurrency good for? As you know, I’ve been on this for a long time. Bitcoin was introduced in 2009 — this is a seventeen year old idea which has yet to find any legitimate use cases. Illegitimate use cases, yes. There was also a report in the Wall Street Journal about the extent to which Iran and North Korea have been making use of cryptocurrency to evade U.S. sanctions, so there is that. But it’s still not enough to justify a multi-trillion dollar asset. Anyway, it was trendy, it was exciting, it was fashionable and particularly after November 2024 it was pushed with the encouragement of the Trump Administration. It was just a heavy marketing campaign that had the advantage of also having the authority or whatever, the credibility — such as it was but among some people real —of Donald Trump behind it. They all evaporated. I think we can say that to some extent what happened was that Trump kind of moved on to other things. There also is some distracted boyfriend meme: the guy looking over his shoulder. A lot of the excitable, fear of missing out, latest thing money has probably moved from crypto to AI. So that might have happened even without Trump. But the basic story is that Trump guided, pushed people into a whole asset class, crypto, of which a large part is Bitcoin, but other stuff as well. We don’t know how much, or I don’t know, how much crypto was bought during this period, but it has to be substantial. And then it crashed. And at this point, essentially anybody who bought crypto during this era, since the 2024 election, has lost money. It’s a lot of money; we know that on paper — it’s not really paper, but anyway — in principle two trillion dollars has been lost in crypto. Now a lot of that is probably money just given back, imaginary gains that took place during the run-up. But a substantial amount of additional money was from people who did buy in during this whole episode. So this has to be many times the size of the losses on the Trump coin. And it is, I would say, at a functional level another pump and dump scheme. In this case the beneficiaries were people who were already in crypto. Clearly some of the crypto interests that bought themselves a president probably stayed fully invested. But others must have cashed out, and a lot of innocents — well a lot of a lot of suckers, let’s not mince words here — a lot of suckers clearly lost a lot of money. It’s an extraordinary thing. There have been pump and dump schemes forever, probably going back to the Phoenicians or something. But this is on a scale we’ve never seen, and with the president of the United States in the center of it. Which I guess given everything else comes as no surprise. Happy 250th birthday, America. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe [https://paulkrugman.substack.com/subscribe?utm_medium=podcast&utm_campaign=CTA_4]

Lisa Graves on the Supreme Court

For all my interviews and more, subscribe on YouTube [https://www.youtube.com/@PKrugman]. Lisa Graves is the author of Without Precedent [https://www.hachettebookgroup.com/titles/lisa-graves/without-precedent/9781645030676/], a history and analysis of the Roberts Court and the expert on how the Federalist Society has been working to undermine democracy. Yesterday this happened: So I managed to arrange a conversation with Lisa about what is happening: . . . TRANSCRIPT: Paul Krugman in Conversation with Lisa Graves (recorded 6/29/26) Paul Krugman: Hi everyone. This is a bit of an emergency recording and podcast because today, which is Monday as we’re recording this, the Supreme Court has just handed down several decisions, of which one was really alarming. And I had talked earlier with Lisa Graves [https://substack.com/@thelisagraves], head of True North Research [https://truenorthresearch.org/lisa-graves/], and Court Accountability who had been warning about all this stuff when I talked with her previously and on other occasions. And I wanted to get somebody who’s actually following this to weigh in. So, hi Lisa. Lisa Graves: Paul, thank you so much for inviting me back on. I really appreciate it. Krugman: Yeah. So, there were obviously several decisions that came down, but Humphrey’s Executor… This is absolutely mind-boggling. So why don’t you talk about Humphrey’s Executor and then we’ll talk about the background and what this says about the Roberts Court? Graves: Yes. Today’s [https://www.scotusblog.com/2026/06/court-allows-trump-to-fire-ftc-commissioner-and-overturns-major-restraint-on-presidential-power/]Slaughter [https://www.scotusblog.com/2026/06/court-allows-trump-to-fire-ftc-commissioner-and-overturns-major-restraint-on-presidential-power/] case [https://www.scotusblog.com/2026/06/court-allows-trump-to-fire-ftc-commissioner-and-overturns-major-restraint-on-presidential-power/] involving the FTC, is a case where the Roberts Court has overruled nearly a century of legal precedent which prohibited presidents from firing commissioners, specifically on the Federal Trade Commission, the case that you mentioned, Paul. Humphrey’s Executor was specifically about the FTC. It was about this provision that barred FDR, Franklin Delano Roosevelt, from firing someone whom Hoover appointed to that commission. When Congress created the FTC, it set a standard that required that you would have to have cause to fire someone outside of their term. The way the FTC is set up is that it has five commissioners by statute. Three of those commissioners are appointed by the president, two from the president’s party, and two are not from the president’s party. What’s happened over the past year is since Donald Trump became president again, he fired the Democratic commissioners on that commission. And so for the last 15 months, that commission has had only two commissioners, two Republican appointees, which has meant there hasn’t been a Democrat even in the room to consider these cases that are brought to the FTC, which relate to the power of huge corporations to merge with one another or not. And so, in essence, the FTC investigates proposed mergers and other things that might be considered a restraint on trade or affect the ability of consumers to get a fair price on things, for example. And what Trump has done is that he’s basically dominated that board in defiance of the plain language of the statute. So any legal action by Donald Trump that has been countenanced by this Supreme Court, which allowed that firing to stand, in essence, did not allow the lower courts to reinstall Rebecca Slaughter to that post while the case was pending, and then just today ruled that, in fact, under their new approach to the Constitution, Donald Trump has the power to fire anyone at any independent agency—other than the Fed, it seems—no matter what Congress has said. And this is the result of an invention of a theory from the Reagan revolutionaries back in the day to try to aggrandize presidential power through what they describe as “the unitary executive theory.” So the bottom line is that this ruling by the Roberts Court will allow more of the corruption that we’ve seen going on by this administration in terms of people who may be donors to Trump seemingly getting out of investigations or having their mergers go through, and we will not have a commission at the FTC that has any independence—just loyalists for Donald Trump for the foreseeable future. Krugman: And it applies obviously not just to the FTC but to any agency except not the Federal Reserve. But the FDA—if there’s an FDA official who is viewed as being too hostile to RFK Jr’s vaccine doctrine or something, then Trump can fire him. And the Supreme Court has said, “Well, yes, the president has that power. Congress cannot set any ground rules that can’t be overruled by presidential edict.” Is that a correct interpretation? Graves: Well, that’s the broad strokes of it, but just to add a little bit of gloss to that, which is that Roberts has been pursuing this agenda for years now. And he accomplished part of it through a case called the Seila Law LLC case, where he allowed Trump to remove the head of the Consumer Financial Protection Bureau. And the CFPB also had restrictions on whether that person could be fired without cause, and Roberts already moved the ball forward on that. And that has had a cascading effect along with the terrible, unprecedented immunity decision, where the Roberts Court gave Donald Trump immunity from criminal prosecution for any of his so-called official acts, which included directing agencies like the Justice Department to do his bidding. And so, up until now, what was left was this notion that if Congress created a board that specifically had limits on how a person could be removed from that board because of its regulatory function to implement congressional will to act in a legislative way, boards like the Federal Trade Commission or the National Labor Relations Board could not be swept of their members. But before this decision, through the machinations of John Roberts, in essence, Donald J. Trump was already exerting a power to fire anyone within the executive branch, whether they were on an independent board or not. Krugman: The Consumer Financial Protection Bureau felt like it was a little bit different. It was basically Elizabeth Warren’s creation. It was a relatively new agency. But this now generalizes it to everything, and it goes back to the FTC, which is a very, very old institution and is where this whole Humphrey’s Executor comes from. So now that’s everything. Graves: Yes, except for the Fed. That is correct. And I think, as you were describing it at the outset, Paul, this has enormous implications for the American people and American consumers, because, in essence, consolidating power in this way in a president is not required by the Constitution. Although Roberts is somehow claiming it is, it’s not. This is part of this invention of this so-called “structural Constitution” under this very rigid notion of separation of powers, which basically guts some of the core powers of Congress and vests those powers, in the views of this court, in the hands of the president and the president alone. And this ignores the reality of what’s happening, which is that you have a president who’s not actually executing the laws passed by Congress; who’s thwarting those laws. When you look at Article One and Article Two of the Constitution, what you see is that the president’s primary job is “to faithfully execute the laws of the United States.” And what’s happening here is that the president is circumventing those laws, thwarting those laws, and doing so in ways that raise serious questions of corruption or potential corruption or undue influence. And the area of trade and mergers is one of the most, you know, potentially profitable areas for people trying to curry favor with Donald Trump. And what we’ve seen over the past fifteen months is that the FTC under the control of two Trump loyalists has dismissed more than thirty-three investigations into mergers that were begun before Donald Trump took over. Krugman: This is basically a Federalist Society thing, and when they began pushing this, they probably had in mind that we would be pursuing an ideological agenda, that this would be something that would allow a right wing president to essentially just overrule Congress when it was doing things that weren’t sufficiently right-wing, or weren’t sufficiently “Reaganesque,” since this goes way back to the 1980s. But now it’s very much personalist. We’re talking about this as what one guy gets to do, which might not even be ideological. As you say, it might just be corruption. Graves: Yeah. I think it’s both, right? So there is this throughline from the Federalist Society that helped get these judges on the court. These six members were all either active members or noted to be members of the Federalist Society. They were part of the pipeline to power that the Federalist Society was created to accomplish. Roberts and Alito and the three Trump appointees, they were all appointed in the aftermath of the “No More Souter” campaign by Federalist Society activists who said they didn’t want judges who were going to follow the precedent. They wanted people who were going to basically be ringers and change the law to reverse the progress of the 20th century. And this attack on what they call the administrative state is really an attack on expertise. It’s an attack on the ability of agencies to do the job Congress has entrusted them to do, which is to faithfully implement those laws in defense and in pursuit of the public interests of the American people. So you now have this convergence between a president who is so determined to take cash, in many ways, out of other people’s pockets, including the pockets of the taxpayers, in order to advance himself, to aggrandize himself. And this has come to a head at a time when the court has the majority. So this captured court has the majority it needs to accomplish its long-term ideological agenda. And what a lot of people don’t realize is that when you look at the Supreme Court, this nine-member court, and the six members in the Republican-appointed majority, five of those six members were executive branch attorneys. They were people who cut their teeth for years in advancing presidential power, in trying to expand presidential power. And they’ve acted, I think, with a real arrogance toward congressional power, hostility toward congressional power, and with a bias toward their own long-standing agenda as lawyers, as Republican lawyers in this cause. And they’re moving forward even at a time when we have a president at the helm who is abusing his power almost on a daily basis in terms of asserting extraordinary king-like powers to do almost anything he wants. Krugman: I would actually disagree with that. I don’t think it’s almost on a daily basis. I think it’s at least several times a day. Graves: It’s an hourly basis, right? Yes. I’ll take that correction. Krugman: But yeah. You say that these cases were not brought to try and stop corporations from doing stuff, but the ability to exercise the function of the FTC as a guardian of the public interest. But it’s also a negative power. You can imagine that a merger that the FTC would normally have blocked is allowed, but also one that it would normally have approved could be blocked if, you know, the corporation in question has not cut Jared Kushner in on the deal, basically. Graves: Well, right. You know, I looked into those instances where you can see the list of the various mergers that the FTC has stepped away from investigating. And one of the things I saw was that before Trump’s appointees took office, there was a Joe Biden appointee—her name is Lina Khan. She’d been a vocal critic of Google and Amazon’s market powers. And what happened in one of these cases was that the FTC terminated the examination of one of Google’s acquisitions. You had Google’s CEO at the inauguration last year, you had Google Alphabet giving like a million dollars to the inauguration committee. You have a tie-in on underwriting the Trump ballroom, and then you have an FTC that is not pursuing a further examination of that acquisition. Maybe it would have been approved with the full commission, maybe it wouldn’t have—we don’t know. But what we do know is that there are other ongoing investigations, perhaps around Facebook, for example. Maybe in their view or in someone’s view, Facebook hasn’t ponied up enough cash to get that dismissed. It creates this real environment of coercion and shakedowns, the perception that if you’re not playing ball with Trump, you’re going to be treated unfavorably. And in fact, he’s routinely threatened companies that he thinks aren’t sufficiently loyal to him. Krugman: Yeah, I mean, it’s so raw and out in the open now. And by the way, Lina Khan is impressive as hell. I had a dialogue with her at the Graduate Center a few months ago, and she’s now advising Mamdani in New York. It’s just worth saying that a lot of the players in this have been around for a while and keep on showing up in different venues. But the power to do favors is also the power to withhold favors. So this is, as you say, an enormous source of potential corruption. You also have to wonder, if you’re a business, do you even know what the ground rules are? That’s what I’m wondering about a lot now. Graves: Well, you know, I think that that is a really good question. And it reminds me of this historical episode from that robber baron era when Teddy Roosevelt was president and the big companies—Standard Oil, for example, the mega-millionaires who would be billionaires today—were exerting such power over Congress that the smaller companies, the median-sized and smaller companies, were being shut out of the ability to really influence legislation. And that resulted in the Tillman Act, which is still on the books, that bars direct corporate contributions to a candidate. They get around that through PAC donations that are allowed, or through giving now to these C4 nonprofit groups. But you know, since about 110 or 115 years ago, it has been banned for there to be direct corporate contributions because, at that time, other businesses who weren’t the super-bigs were feeling like they were getting the raw end of the deal. And so I think that’s probably repeating now, where there are smaller companies that can’t afford to make million-dollar donations to the inaugural committee or make tens of millions of dollars of secret donations to this ballroom boondoggle, who are going to be disadvantaged because they can’t potentially buy their way in to favorable treatment. Krugman: Yeah. I mean, even big corporations who happen, for whatever reason, to be not sort of buddies. You know, it definitely looks like this administration has it in for Anthropic. I’m sure that they’re not angels, but this is still pretty amazing that this is one of the best AI out there, but they are not friends with the president and so they’re… Graves: Right. And look what happened at TikTok. For quite a while there we were hearing all of these attacks on TikTok, concerns about security or security access through that app. And with the visit of one billionaire, Jeff Yass of Pennsylvania, who’s one of the fifteen richest billionaires in the world—who made part of his fortune on super-rapid trading, but another part of his fortune on an early investment in ByteDance, the owner of TikTok—with one visit to Mar-a-Lago by Jeff Yass, suddenly Donald Trump was singing a different tune about TikTok, and then ultimately intervened in a way that ended up giving some of his allies ownership in TikTok. And so you have this real... I would say the most generous thing I could say would be it’s unseemly. I mean, it’s outrageous, actually, to have a president engaging in sort of corporate manipulation in this way to reward his friends and punish his enemies, as we’ve seen with Trump going after law firms, Trump going after universities, Trump assailing different corporations whom he dislikes or whom he considers not to have donated to him or advanced him. This is extraordinary in American history. I think it’s unprecedented, actually. Even with the corruption that was unfolding during that robber baron era, I think we’ve never seen anything like this kind of grift and graft. And this corruption is inherently destabilizing to American society, to American business, to investments in the United States. If the U.S. becomes, as it is becoming, a society in which basically you have to engage in these sorts of legalized bribes—although I’m not sure how legal some of them may ultimately be—that changes the U.S. as a stable economic superpower. Regardless of what a particular policy preference may or may not be at a given time, this is an extraordinary devolution of Americans’ role in both the U.S. economy and our role in the world—to have a situation where companies and countries have to pay up to a president or cut a deal with the president’s son-in-law or Howard Lutnick on minerals or what have you, or where someone can make a call to the Pentagon to get a special contract approved for Donald Trump’s sons. As you said, this is not just corruption on a daily basis. Whether it’s legally actionable—some of them may be, some of them may not be—but on a moral level, it’s corrupt on an hourly basis. Krugman: Yeah, on average every hour now. So, you mentioned devaluing expertise. The role of experts in a lot of this stuff—I think part of the issue is whether there are sort of procedures for consulting experts on things that will now be by the chopping block. Is that right? Graves: Yeah, I mean, that is part of a broader trend. It transcends the Slaughter case. But what we’ve seen is a real war on expertise. Certainly part of that was through the DOGE efforts of Musk, but those efforts, those firings of so many people, so many experts across the board in all these agencies, that has really decimated, not just the baseline of our skilled workforce in the federal government, but also demoralized the people who remain. And that’s across the board. That’s in areas of vaccines, it’s in public health, it’s in climate science, it’s in earth science, it’s in trade. It’s in all areas where we’ve probably cumulatively lost I don’t know how many thousands of years of expertise that the people actually invested in through paying these civil servants who were hired on a non-political basis, who were hired for their expertise to serve the American public. Whether it’s through the National Institutes of Health, or the FDA, or the U.S. Department of Agriculture, we’ve lost an enormous amount of expertise. And we’ve also seen the ways in which this Roberts Court has not intervened to protect against those firings. You’ve had people who should never have been fired, and months and months later, some of them are reinstated. Meanwhile, they may have moved on to other jobs, they may not want to come back into the government. This loss of expertise is a disadvantage for we, the people of the United States, in terms of having people who are looking out for our interests based on years of work, as well as scientists who’ve been reliant at the universities on these grants and more. This also is a real disadvantage for our national security, because it’s not just in U.S. civil society that we’ve seen these firings. We’ve seen people fired from the Pentagon who were, leading lights, people who had records of impeccable service to our country. We’ve seen that happening in the national security arena, in the intelligence community, where people who have deep expertise have been fired. We’ve seen that at the Justice Department where people who had expertise in anti-corruption, in enforcing DOJ’s rules to make sure that prosecutions weren’t politicized. We’ve seen the FBI firing people for just the act of doing their job to protect and investigate those who committed violent acts against our Capital Police officers. So this war on expertise, this war on civil servants, is deep and wide, and it is going to take a lot to repair. Krugman: Yeah, my experience in dealing with higher-level civil servants has always been that we had far better people in those positions, in a sense, than we deserved. You had all of these people at Treasury or at agencies that I would deal with, who could have made two or three times as much money in the private sector, but they did what they did because they thought they were doing something meaningful. They felt that it was a better use of their lives. And now, even if you haven’t fired them, if you’re disrespecting them, we’re going to lose that. Graves: Yeah, I mean, I have a bias on this because I was a career hire for the Justice Department and ultimately became Deputy Assistant Attorney General in the Office of Policy Development, the Office of Legal Policy. And I was there with other attorneys who could have been making three, four, five, six times as much in the private sector, but we were honored to be able to serve the American people. And I felt, every time I walked into the Justice Department back then—this was in the Clinton administration with Ms. Reno as the attorney general—there was this engraving that said, “The place of justice is a hallowed place.” And I thought about it as a place where people set aside their partisan political views or their personal religion to do the work of the American people. And almost in every instance where I had the chance to work with someone across that agency and other agencies, I was so impressed with the devotion and intellect and wisdom of the people who had chosen public service as their career. Krugman: Yeah. I mean, this was the Clinton administration, but you know, I had my year in government in the Reagan administration at sub-political level. But you know, the kind of deputy assistant secretary and office director level were astonishingly good people. Once in a while, you would get to see one of them lay down the law to the political appointee above them and say, “No, that’s not how it works.” So, this is a long-term project, as you said—the unitary executive, the stripping away. Presumably, when John Roberts and his friends began this, they didn’t imagine that “the unitary executive” to whom they would give all this power would be—to use the technical term—a f**k-up like Donald Trump. I mean, I’m a little surprised that didn’t at least give them some pause here. Graves: Yeah, it’s interesting. You’d think that they could slow things down for a moment given how reckless and destructive Donald Trump is, but they haven’t, right? This is not necessarily something they’re compelled to do. So, for example, Humphrey’s Executor has been on the books since the 1930s. They could easily have just said, “We affirm the lower court in Slaughter’s case and we affirm Humphrey’s Executor as still good law,” and just been done with the case. She would have been back on the commission months and months ago, maybe last summer. For Lisa Cook, you know, they sort of held that for a moment, held out this notion that they were going to allow her to remain, that they weren’t going to intervene on the Fed, but everything else was fair game. This court is taking cases where it could easily just either affirm the ruling below or reverse it based on a citation of long-standing legal precedents, but it’s not. And what most people don’t know is that this Roberts Court is only hearing 60 to 70 cases a year. A couple of years back, the Supreme Court was hearing up to a hundred or more cases. In the 1980s, there were changes to the court’s jurisdiction to basically leave most of its jurisdiction discretionary. The court only has to take cases basically where there’s like a fight between Arizona and Colorado over the Colorado River—when there’s a fight between two states. Otherwise, every case they take is discretionary. They are choosing this docket. They’re choosing, in Donald Trump’s term, to take up cases on the shadow docket where they ruled for him almost all the time—more than 90% of the time—and on the main docket, the docket that we’re seeing the decisions coming from now. Those are all cases where the Roberts Court has decided to have an oral argument and issue a decision, even where the long-standing precedent is against Trump’s actions. And so I wish that they had some heartburn over it. They don’t seem to, though, because they could easily, in the Slaughter case, have said, “No, she has to go back on that commission under the long-standing precedent of Humphrey’s Executor.” And they chose not to do so. And they chose not to do so even as the Musk operation, the DOGE operation and more were decimating our agencies; as they were decimating—not the FTC in that particular sense because it was hitting all the agencies,—but they did so knowing who Trump is and knowing what he’s doing. Krugman: And now they have to know him even more, right? In some sense, we are all in the reflecting pool, and yet they are giving him unbridled power. Just amazing. Suppose that we actually do manage to have a genuine election in 2028 and the next president is a Democrat. What do you think this court does then? Graves: Well, if the court were principled, and I don’t think it is, then it would, in essence, allow a Democratic Senate to confirm only Democratic appointees to those agencies and let them revise the rules and restore the statutory actions, the regulations that were stripped away by Trump. The reason I’m reluctant to believe that they will allow this to happen is how this court behaved toward Joe Biden and toward Barack Obama. During the Biden administration, there was a very modest student debt relief proposal. It was, I think, about $10,000 for people who made just about the average income in the United States, and that was based on a law that allowed emergency debt relief. It was expressly allowed for emergency debt relief; we were in an emergency under COVID. People were losing their jobs or weren’t working as the economy was cascading, and that was the basis, the statutory basis, for Biden doing so. But this Roberts Court asserted that Biden couldn’t do that, that this was a so-called “major questions doctrine,” and things like that had to go through Congress—that a president couldn’t just implement this through a regulation. And yet Donald Trump has done something far broader and deeper than that small, modest debt relief on a daily, if not weekly basis, and the court has barely breathed the words “major questions doctrine.” And that so-called doctrine, which is really a theory, was invented to gut our power to mitigate climate change through the EPA. That was in a case that Charles Koch and his billionaire-funded groups brought—or basically aided—in the West Virginia v. EPA case, where the Roberts Court invented the notion that the EPA could not regulate carbon without specific congressional approval under the so-called major questions doctrine. And so, in that instance, what you had was again what I consider to be a modest effort to mitigate climate change by way of requiring utilities to invest more in solar and wind energy to help address the climate changes underway—not a radical cutting off of fossil fuels or anything, but just a transition. Krugman: Right. Graves: And that was blocked by the Roberts Court. So when it comes to a Democratic president, they seem very eager to block actions that are ameliorating or compromises. But when it comes to a Republican president, they seem very eager to do the opposite—to allow even some of the most radical actions to take hold and proceed while litigation goes forward, or even to authorize and give a blessing to those actions. But there’s hope. Should I say there’s hope? There is hope. Can I tell you why I think that? Krugman: Well, sure. What is the hope, actually? What does “Supreme Court Project 2029” look like? What do we do? Graves: Look, this is a situation where we have not just executive branch aggrandizement, but we have judicial supremacy happening. We have a Roberts Court that is deciding that it is the decider—basically being the kingmaker for Donald Trump—but also the decider on almost any issue that they want to take up and issue a decree on. And that is disempowering to the American people, to representative government, to our democracy. And so what we need to have is a really robust Congress. In my personal view, we need to elect people to Congress who are going to clean house, who are going to deal with this corruption in the near term, who are going to investigate this corruption and engage in oversight in ways that make it crystal clear to as many people as possible how this is not a tenable way to run a democracy, and then build on that to hopefully sweep into power real reformers in 2029. Like what happened with Franklin Delano Roosevelt, where you have a real surge in demand by the American people to clean things up and create policies that actually help the American people. If we can move forward despite the threats this president is making with the aid of this court in terms of intervening in this midterm election with the map drawing, if the will of the people can prevail as you see it in the polls, then we have a real chance not just at a rebuke of this corruption, but actually of creating new ways to protect our interests and having an even more vigorous federal government that can help serve our needs. But that’s going to also require court reform to be part of it, because this court will strike down the same thing if it’s passed again unless we reform this court. Krugman: Okay, but what does reform look like? Is it court packing? Is it something like that? Graves: I think it’s all of the above. I think we have to have a real conversation about how we contain this out-of-control court. It could be expanding the court; there’s no number set in the Constitution. Nine isn’t the magic number. The Republicans were willing to have eight as long as it served them, you know, when they were blocking Barack Obama’s nominee. I think we have to look at jurisdictional reform. Article III of the Constitution specifically allows Congress to set the jurisdiction of the Supreme Court—it’s in plain language there. We certainly need ethics reform because the court has also been enveloped in a cloud of scandal over trips and kissing up to billionaires by Clarence Thomas and other members of that court. And we also need to have a real sense of our power in the 21st century, the American people’s power, to have a people’s Congress that actually represents our interests and not just the interests of the richest few. Because of this Roberts Court in the Citizens United ruling, because of the concentration of wealth as Ronald Reagan sought to take down the progressive taxation of billionaires, we now have these billionaires who have so much money they can invest millions, hundreds of millions, in elections without missing a beat. I did a calculation once, by the way, on Jeff Yass in terms of his spending in the Pennsylvania Supreme Court race. His spending, which was in the millions, was the equivalent of an ordinary Pennsylvanian buying a coffee and a bagel once a week. And that’s not just because they’re lucky and they’ve got money to invest in risk; it’s because the tax rate is so out of whack and has to be fixed as well. Krugman: Okay, well, let’s hope for the best. But my god, that’s among the reasons not to celebrate the 250th anniversary as wholeheartedly as one might have liked. Thanks for talking to me, and especially on such short notice. Graves: Gosh. Well, I will just say, you know, there still is a lot to celebrate, and we can set the course of the next 250 years if we don’t give up and we don’t give in. Krugman: Okay. On that note, let’s press on with the fight we are in, as Lincoln would have said. Get full access to Paul Krugman at paulkrugman.substack.com/subscribe [https://paulkrugman.substack.com/subscribe?utm_medium=podcast&utm_campaign=CTA_4]