Hi everyone, Paul Krugman again. It's been a week of a lot of confrontation between the US and Europe. The, you know, Davos and all of that. And this seemed like a good time to talk about that, but a bunch of other things with Gabriel Zucman, who is one of, you know, the leading figures in economic discourse in general, inequality, tax evasion, and but also very much the European perspective. Gabriel, hi.
Hi, Paul. Thanks a lot for having me. Yeah, I'm new to Substack and I just launched my newsletter a few weeks ago, and a big part of the reason why I jumped in, I've been really inspired by how you use it with charts and figures. So, thanks a lot for the writings and thanks for the invitation.
Well, this is great. I actually have not subscribed yet. I didn't know you were on, which is terrible. But I'll fix that now. And just in advance, I'll recommend to everybody: subscribe. Gabriel is one of the really go-to people on multiple issues, and a voice that's actually affecting policy debate in Europe, which is something. But yeah, I have to say, Substack is, you know, it's great. What I particularly like is that without working for a proper publication, you don't have to work really hard to make the charts pretty. As long as they convey the information, that's good enough. So, anyway. So, hi. Wow. We just had an extraordinary performance by my president, God help me, and his officials in Davos, which seemed to... It looks... Well, why don't you tell me what you think just happened? Because I take... Let me get your take on it and then we can talk about the bigger...
I mean, to me, it's a little bit the continuation of what has started last year, you know, in the spring of 2025. The US administration negotiated with the EU on trade and tariffs, and the US imposed a 15% across-the-board tariff on the EU. And the EU said, 'We're not going to do anything, you know, no countermeasure, no retaliation,' in the hope that it would be the end of it, right? It would bring stability. And we were many at the time to say that it's quite unlikely to happen because this type of extortion with Trump never ends. And so now we are with the threats in Greenland and the threats of additional tariffs, and Trump has walked back his threat to actually use military force to invade Greenland or to use tariffs. I don't think that's the end of it. You know, the fundamental problem is how does Europe stand up good to Trump so that this type of blackmail ends once and for all.
Okay. I should point out, people, you can't probably see it unless I hoist myself, but I'm wearing the t-shirt that my wife got me that says 'trade war survivor.' So, yeah, I mean, this was... Trump did walk it back, but as we're actually recording this on Thursday morning, and the headlines say that Europe is still reconsidering its trade relations with the United States. So, as well it should. So, pretty... Now, I thought... Just quick... Europe came much closer to actually being ready to retaliate this time, right? There's the... what people are calling the bazooka. But the... You probably have a... Yeah, I mean, and France was actually ready to unleash it, Germany. But anyway, so maybe let's get your perspective on that and then let's talk about the other issues. So, what is... What's the bazooka?
It's the now famous anti-coercion instrument of the EU that essentially allows the EU to retaliate across all dimensions: restricting market access, you know, intellectual property, targeted measures on people close to the foreign government that's attacking the EU. And it's brand new. It was adopted in 2023. It's never been used. And it's a powerful tool, but also there is a concern about whether the EU would actually use it because it requires the so-called qualified majority of member states to be activated. So, what it means is that you need at least 15 member states out of 27 to agree to use the bazooka. And you know, there are many member states, you know, especially smaller countries, that don't really want to anger Trump too much. And so, even if France said, 'Okay, we might consider using it,' it is actually not clear if there is a majority at the moment in the European Union if this goes on to use that powerful bazooka.
Okay. Then I was... I've been excessively optimistic because I thought that... Yeah, this is a situation where Hungary and Czechia can veto. So, it's not unanimity, but you're saying that there may not actually be enough members even so.
Yeah, we need 15 member states out of 27. And yeah, you know, we don't really know what it can do in practice, you know, what it would mean. It's... Again, it's never been used. I've been trying to argue that what the EU should consider is doing very targeted measures on oligarchs, you know, kind of tariffs for oligarchs. If you look at who's supporting, you know, invasion or annexation of Greenland in the US, it's essentially almost nobody. You know, there is virtually no support for these type of things, except perhaps some people in business, in the business community that think that there is a commercial, perhaps in the tourism opportunity. Actually, in Project 2025, Project 2025 refers to Greenland not as a national security issue at all, but as a commercial and tourism opportunity. And there was a very good article by Casey Michel in The New Republic a few days ago about the big money interests behind some intervention in Greenland, and that includes some extractive industries, some people in tech, some people in Wall Street, you know, close to Trump. And so, the idea of having kind of very targeted measures on those oligarchs seems appealing because also it would open up a kind of two-front struggle against Trump, you know, both from the EU against Trump and internally, you know, the Trump administration facing tremendous opposition to this type of intervention.
And I want to get to oligarchs and extreme wealth inequality, which is really your specialty or among them, in a little bit. But that's... yeah, it... I wonder whether the guys have actually, you know, thought it through. I mean, it's... as far as I can make out, really, Greenland is... the commercial potential there is de minimis in reality, but who knows. And yeah, I mean, I think there's a lot of people, both even on the left, who were sure that there's some fundamental, you know, corporate drive behind Greenland. And I actually think that it's mostly that Greenland looks really big in a Mercator projection. But anyway, I'm sure... And sure, it's a big part of it, yes. Yeah. All right, let's talk. So, there's been a lively debate. I've been part of it, too, but you've been particularly visible on the European side of this about European economics. Right? There's a lot of... I mean, the whole Trump team went and basically trash-talked the European economy while in Davos. So, why don't you talk about what you've been writing, and then we can go back and forth on that a bit.
Yeah, I think that's really interesting. So, there is this prevailing view that the US is pulling ahead economically, and even more so that Europe is stagnant, burdened by regulations and taxes and what have you. And you hear it all the time, especially coming from the Trump administration. So, it features prominently in the national security strategy. It was all around in Davos this week. But it's also something that many leaders in Europe believe in. They think, 'Wow, Europe is really lagging behind.' And there's a process of deregulation taking place to try to address this supposed lack of competitiveness. The European Parliament is voting on a big so-called omnibus bill that's just a bunch of, you know, cutting regulations and stuff. And so it's important to look at the numbers to get this right. And I'm not a macroeconomist. I'm mostly interested in inequality. But the work on inequality that I do, the statistics that I produce and update very regularly, they're all anchored onto the macroeconomic totals of the US, for instance. You know, it's this project of creating distributional national accounts. And so I look at the national accounts statistics very regularly. And it turns out that if you look at the numbers, this idea that the US is pulling ahead, Europe is lagging, is essentially a myth. So I've run the numbers and I think there are a bunch of things that are interesting to note. So number one, the growth, the economic growth of the US over the last 15 years has been poor. There is this view that with the rise of tech since 2010, there's been some kind of growth in productivity. Tech is making people more productive. You just don't see that in the data. So GDP has increased 2.3% adjusted for inflation per year since 2010. But that's in large part because the population is growing. So GDP per adult is just plus 1.6%. And it's the adult population that's growing essentially. It's not newborns. It's more adults. So GDP per adult has been growing 1.3%. And national income per adult, so that's the actual income that Americans get, is just plus 1.1% per year since 2010. 1.1%, which is much less than before. 1980 to 2010 it was 1.4%, already a pretty bad growth number. And 1950 to 1980 it was 2% a year. Because that's interesting. There is this growth slowdown, and so I'm sure you remember all the debates that happened when Robert Gordon, for instance, released his book on American growth. I think it was in 2016, predicting the slowdown of American growth. And so far he seems to be correct. Productivity growth, again, since 2010 has been sluggish. Plus 1.1% if you look at GDP per hour worked, the standard measure of productivity. So that's for the US. But now what is really striking is you can compute the same numbers for Europe. And I've done the math actually this morning, and here's what I found. GDP growth for Europe per year since 2010 has been 1.4%. So that's less than the US. 2.3 versus 1.4. And so I think that the idea that there is this, you know, disconnect, this Europe lagging behind, comes from that. But now if you look at GDP per adult in Europe, it's plus 1.1% as opposed to 1.3% in the US. So demography essentially explains almost all of the difference between Europe and the US. And then if you look at national income per adult, which I think is the most meaningful metric actually, it's exactly the same number. It's 1.1% per year in Europe just like in the US from 2010 to 2025. So income is growing at just exactly the same pace in Europe and in the US. And so it's just so different from anything you hear coming from either the Trump administration or, you know, conservative leaders in Europe that I think it's quite astonishing, really.
Yeah, there are some number questions. I mean, I think the data sources... I mean, not that any one of them is right, but if you use different sources, you get... I mean, the Draghi report, which actually listeners may not know, but Mario Draghi, the greatest central banker in history, somebody I greatly respect, but he put the big report out which is very influential in European circles about the European productivity lag. And he does get about a 10% faster productivity growth in the United States since 2000. Not total product, which is... it's not a huge amount per year, by the way. But he does get something there. I think it... but this is very much dependent on the data source. I think most... I know that there's been some criticism of your stuff saying, well, you were not using the same data source as everyone else is using, but you know, if it hinges on that, it's probably not something you should take too seriously.
Yeah. And also I don't dispute the idea that GDP per adult or GDP per worker has been growing a bit faster in the US than in Europe over the last 15, 20, 25 years. I think that it's there in the data. But first of all, the difference is really quite small. And second, you know, why should we care so much about that? I think what we should care about is the income that people get. And incomes in the US, you have to remember that there is something quite spectacular. So how do you move from GDP to income? For... I'm sure, of course, you did that perfectly well, but for listeners, just a refresher on the national accounts kind of statistics: GDP is the value of the stuff that's produced in a given year in the country. If you subtract capital depreciation, then you get net domestic product. That's the true value of what you produce on net. And then if you add income received from abroad, net foreign income, interest and dividends received from abroad minus whatever the US pays to foreign countries, you get US national income. And net foreign income for the US, it used to be quite positive for a long time. And now it's slightly negative. And that's due to many reasons, but one of the main reasons is the huge increase in the net debt of the US. Now the net foreign asset position of the US, meaning what the US owns in the rest of the world minus what the rest of the world owns in assets in the US, that has really collapsed to almost minus 100% of US GDP today. It's a dramatic evolution since 2010. You know, the US used to have a positive net foreign asset position and now has a pretty gigantic net debt vis-à-vis the rest of the world. And one implication that this has is that the US now is paying on net more income to other countries than what the rest of the world pays to the US. So that when you look at the income that Americans actually get, national income, it's actually exactly the same growth rate for Europe and the US since 2010. And that was not in the Draghi report, which focuses on productivity, you know, the stuff that people produce. But I think that's quite relevant certainly to think about the evolution of living standards in Europe versus the US. You know, what matters at the end of the day is what people earn and what they can consume and save.
An interesting point here, which is something I really learned from you, but there was a... the US continued to have a net positive net income balance long after it had become a net debtor internationally because, and basically because foreigners earned a surprisingly low rate of return on investments in the United States. And there were all kinds of attempts to explain it. And finally I think it's basically your work that said, well, what's actually happening is it's tax avoidance. It's US corporations just taking, or generally corporations making earnings in the United States artificially low and making them pop up in Ireland and other tax haven countries. And that makes it look like we're paying very low rates of return on foreign investments in the United States and earning high rates of return abroad, but it's actually just Apple and the pharma companies making their profits appear someplace else.
Oh yes, it's really big. And a lot of it shows up in the very high rate of return that the US gets on its foreign investments. Super high rates of return in Ireland, in offshore financial centers like that. And that's really a reflection of profit shifting by multinational companies. They book a lot of income in those places to avoid the corporate income tax. And so it looks like they make super high returns. And so for a long time this was really big. It's much less big after the TCJA, which has reduced incentives to shift profits to tax havens. The TCJA is the...
Yeah, the Tax Cuts and Jobs Act. It's the first Trump tax reform that cut the corporate tax rate from 35% to 21% in 2018. And that introduced a number of incentives for multinational companies to book more profits in the US, intellectual property in particular in the US. But what's more important than that is because the net foreign asset position of the US has been deteriorating so fast since 2010, now this net debt of the US is so large that finally the net income balance has turned negative. And so, yeah, when you take everything into account, the macroeconomic picture, contrary to what you might hear from the Trump administration of the US, is just not good. It's really not significantly better in any measurable sense than in Europe. By the way, it's also bad in Europe, you know, basically it's equally bad. I'm not saying that Europe is doing great. I think on some dimensions, on health care, on life expectancy, on carbon emissions, on leisure time, paid holidays, all of that Europe is doing much better, but there is also major problems of, most importantly in my view, underinvestment in education, in higher education, in research, in technology, in innovation. I think these are real problems that Draghi rightly pointed out in his report, but the solution to those problems is not just to deregulate everything. It's just to invest in education and knowledge creation and infrastructure and so on.
Yeah, and I'll say physical infrastructure. I mean, I think education and all of that is probably ultimately much more important, but physical infrastructure in surprising places. I mean, it's a real shock how bad things are in Germany. You know, it's worse than in Britain, which is really hard to do.
Yes, because there's been in Germany very significant underinvestment by the government for many years. It's perhaps getting better finally because they changed their fiscal rules and now can have more deficits. So, France is really education and in particular higher education. Look, one really crazy number that is very worrying for a country like France is if you look at public spending on higher education and research per student adjusted for inflation, it has declined by 25% from 2012 to today. So, France is massively underinvesting in its own future and in its own education.
Wow. That's... Okay. I mean, if you view this as a zero-sum game between Europe and the United States, we may be taking care of that gap from our end by destroying our educational and scientific base, but anyway, yeah. Interesting question. Just, you cited Robert Gordon. Can you tell me a bit about the Gordon hypothesis and how it contrasts with sort of conventional wisdom out there?
Yeah, the main hypothesis was that the big innovation waves belong to the past. You had electrification and mass sanitation, and it was a kind of one-off, and it's not going to happen again in the future. And obviously, you know, who knows? Maybe AI will turn out to be as important a revolution as those, but certainly what we know is that whatever has happened since 2010, and tech has boomed, and when you look at market capitalization of tech companies, it's really gigantic, and it seems that something really big is happening there, but it's not possible to see that in the productivity numbers of the US as a whole. You can see that in the productivity numbers of California, which is doing very well, but if you look at the country as a whole, you know, productivity growth is lower since 2010 than over 1980 to 2010, which was itself lower than 30 years before.
Yeah. The classic quote, best quote, I'm sorry to say, comes from Peter Thiel, who's generally a loathsome character, but they all... I mean, we were promised flying cars and instead we got 140 characters. I mean, it really does have that... the numbers look like that. That it's, you know, all of this very sexy stuff doesn't really seem to move the bottom line on economic growth.
Yeah. From the, you know, in the economics profession, if you say Gabriel Zucman, people will mostly think about inequality, especially wealth inequality, but income inequality. It's, you're kind of the heir to the Piketty project, I guess we could say, of inequality stuff. And I sit at the Stone Center for the Study of Socioeconomic Inequality at City University of New York. So, you have some really striking numbers that I've seen from you recently about concentration of wealth at the very top. Can you tell me what's happening? And then talk about why it's bad and...
Yeah. One area where there is tremendous growth, to be sure, is the wealth of the top billionaires in America. So, there are lots of ways to become that, but one way that I find particularly interesting these days is to focus on the really narrow, very, very, very top of the distribution. The top 0.00001%.
Okay. Why? Why? You might say, well, it's really a tiny number of individuals.
That's about 19... That's 19 households today. 19 households in 1913. But this is where a lot of the action is taking place today. And also, if you look at this very narrow slice of the population, you can go back in time to the 1850s, essentially, because you've had a number of rankings of the super, super rich back to the Gilded Age and even before. And so, you can take a very long-run perspective on like the economic weight of the oligarchs. And so, the numbers are really quite crazy, and the statistic that I find most striking and relevant is you take the wealth of this group, the top 0.00001% wealthiest people in the US, and you divide that by US national income, the total income of the US population. And I'm going to explain the second way I think this is relevant, but first, here's what you see when you do that. You see that today, so let's say first of all, in 1980, the early 1980s, this ratio was about 0.3%. So the super rich owned wealth the equivalent of 0.3% of the total income of all Americans. Okay? Today, it's 10%... it's 12%. 12%. Okay? So, it has increased by a factor of almost 40.
So, what it means essentially, 12% national income or 10% of GDP, it means that if the 19 wealthiest people in the US spent all their wealth, they could buy the equivalent of 10% of the value of all the goods and services that are produced in a given year in the US. And of course, they don't do that. Why they're not spending down their wealth like that, but it's just an illustration of the overwhelming economic power that they have and the power that they have to buy elections, to buy media, to buy influence, to buy competitors. And so, that's really quite striking. And then, what you can do is with this type of time series is you can compare today's situation to the Gilded Age.
