When democratic guardrails crumble and constitutional violations become background noise, only one force has historically penetrated public indifference: economic pain. Not the abstraction of legal precedent, but the concrete reality of whether families can pay bills, find work, or build futures.

Dean Baker — the economist who spotted the housing bubble in 2006 while Wall Street cheered — now sees structural cracks forming that most analysts are missing. 

He explains how 22 states may already be in a downturn. Job growth has collapsed, yet we’re missing employment data because the Trump administration suppressed the latest jobs report after seeing numbers they clearly didn’t want released. 

Workers aren’t changing jobs anymore — not because they suddenly love their bosses, but because they see no other options.

Meanwhile, inflation is accelerating, not falling. Tariffs are finally hitting American consumers, despite daily White House claims otherwise. The Fed faces an impossible choice between a weakening labor market and rising price pressures.

Then there’s the artificial intelligence bubble. Nearly half of recent economic growth stems directly from data center construction and AI infrastructure spending built on stock valuations that can’t possibly be justified. 

Baker explains why and how any future crash might differ from the last financial crisis.

As Baker details, Trump’s crypto ventures, gutted financial regulation, and the administration’s open hostility to oversight create conditions for catastrophic failures that nobody’s monitoring. 

The economy and democracy aren’t separate concerns — they’re intertwined. Economic security breeds political tolerance. Economic collapse forces a reckoning.

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Full Text Transcript:

(As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to a constraint of resources, we are not always able to proofread them as closely as we would like and hope that you will excuse any errors that slipped through.)

[00:00:09] Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m your host, Jeff Schechtman. The autocratic moves pile up, the National Guard deployed in ways we’ve never seen, democratic norms shattered daily, constitutional guardrails tested and broken, and yet somehow none of it seems to register. The public watches, shrugs, and moves on. As Trump himself once said, he could shoot someone on Fifth Avenue and his support wouldn’t budge. But there’s one thing that historically has always broken through the noise, one force that ended presidencies and shifted political landscapes when nothing else could, the economy. Not the abstraction of constitutional law or the arcane nature of executive power, but people’s lived reality, the grocery bills, the job security, whether they can afford a home, send their kids to college, retire with dignity. Right now we’re in a peculiar moment. Trump inherited an economy that was actually working, lower unemployment, inflation coming down, steady growth, but the policies now being pursued, the erratic tariffs, the assault on institutions like the Bureau of Labor Statistics, the billions pouring into an AI bubble that may never pay off, these are creating fragilities that most people don’t yet see. Data centers driving electricity costs through the roof, investment flows based on hype rather than fundamentals, warning signs flashing in job markets and consumer sentiment that contradict the market’s euphoria. Dean Baker has made a career out of seeing what others miss. He called the housing bubble in 2006 when most economists were celebrating the boom. Now as co-founder of the Center for Economic and Policy Research and author of the daily Beat the Press commentary, he’s raising uncomfortable questions about what happens when trillions in AI investment meet reality, when market valuations built on sand start to crack, and when the economic damage becomes too obvious to ignore. The economy may be the last thing that can still move public opinion. The question is whether we’ll see the warning signs in time. It is my pleasure to welcome Dean Baker back here to the WhoWhatWhy podcast. Dean, thanks so much for joining us.

[00:02:17] Dean Baker: Thanks for having me on.

[00:02:18] Jeff Schechtman: Great to have you here. I wind up spending probably an hour to an hour and a half every morning with CNBC on, and yet every day there’s a sense that what I’m watching is disconnected from the real world. Talk about that.

[00:02:33] Dean Baker: CNN, CNBC, they tend to focus way more on the stock market than I think is warranted in the sense that in the stock market, most of the people have a lot of money invested in the stock market, which, far worse, is not most of us. Obviously, a lot of people do have a lot of money, but that’s still maybe half have any noteworthy amount of money in the stock market. They’re not focused on how many people have jobs, get a new job, what’s going on with wages, what’s going on with the prices people pay at the grocery store, electric bills. These are things that I’m not going to say get no attention, but they’re certainly secondary. And that’s that’s where people live. I mean, people are not living in the stock market. So that that’s a big problem with much finance like economic reporting. It’s not focused on people’s lives.

[00:03:26] Jeff Schechtman: There was a report this week, I think from Zandi, the 22 states plus the District of Columbia were essentially in an economic downturn at the moment.

[00:03:36] Dean Baker: Yeah. Well, I respect Zandi’s a very good economist. I’m not going to knock that calculation. I’m just going to say there’s not a well-defined notion of downturn. We see a very weak labor market, and that’s indisputable. Now, that’s nationwide. Now, again, I haven’t seen exactly what Zandi did. It could well be the case that you’ve actually seen job declines in 22 states. And again, I’ve not seen exactly his calculations, but we’ve seen extremely weak job growth the last four or five months. We don’t have September data. That was a decision by the Trump administration. We had a shutdown, but they actually had here the jobs report. It was supposed to have come out Friday of the week that we had the shutdown. They already had it prepared, so they could have released it. My guess is Trump has seen it or at least people’s administration have seen it. They’ve decided not to release it, presumably because it’s bad. I mean, we know these people. Anyhow, not to make this long digression, we’ve seen weak job growth nationally. So Zandi may very well be right that in 22 states, we’ve actually seen a decline. My reason for not making that big a deal of it is that there’s not a big difference if you’re creating a very small number of jobs and you’re losing a very small number of jobs. So the point I would make more generally is we see a weakening of the labor market. If that actually means that we’re seeing a falling number of jobs in many states, that’s very likely true. So again, I haven’t seen exactly what Zandi did to get that calculation. It’s very plausible to me. But again, just taking it a step further, if you saw a small number of job growth in, let’s say, a major state, Texas or New York or California, 3,000 a month, that doesn’t mean things are going well.

[00:05:17] Jeff Schechtman: Talk about what that does mean, if in fact those numbers are close or at least trending in that direction. What a weakening labor market means, particularly if we’re seeing this trending month after month for the past several months?

[00:05:33] Dean Baker: Well, people have to—again, there’s often confusion on what the labor market is, what it looks like. I remember back in the Biden years, there was a common thing to say by people who thought they were being smart, where they would say, well, only the unemployment rate’s 4%, say, which is roughly what we had, actually. It’s below 4% for most of his time in office. Great. But they go, okay, so 4% means 6 million people are unemployed. If we’re 5%, that would mean another 1.5 million. So you’re talking about 6% versus 7.5 million, whereas everyone sees inflation. So people thought that was a really smart thing to say. And I would point out, no, that’s actually not a very smart thing to say because somewhere around 6 million people lose or leave their job every month. That’s just the normal month. This isn’t a recession with the bottom falling out. This is just the normal month, 5 to 6 million people lose their job every month. So you do a little arithmetic, let’s make it 6 million. That gets you 72 million over the course of a year. Now, some of those people change jobs two or three times, so it’s not literally 72 million. But the point is, people are in touch with the labor market. They’re seeing, they’re quitting their job, they’re thinking of quitting their job, they might get fired from their job. So that’s a really, really big deal. So getting back to your question, when you see a weakening of the labor market, what that means is a lot of people are very fearful. They’re going, oh my God, if I lose my job, I don’t know how long it’s going to be until I get another job or the job I get won’t be as good. Or take it the other way, they may really hate their job. Their boss might be a jerk. Maybe they just got extra work and they can’t handle the load. Maybe they’re in bad health. They can’t leave their job because they don’t see other jobs opening. And that we know for sure. That’s not something, you know, again, not enough Fizandi, I respect him a lot, but we have absolutely solid data on this. We know that job changing has gone through the floor and it could be people are suddenly really happy with their jobs. But I really doubt that. I think the more plausible story is people look at the labor market and they go, this is not good.

[00:07:34] Jeff Schechtman: And at the same time, we see that weakening in the labor market. This notion that inflation is somehow under control and that the prices at the grocery store have stopped going up is just not the reality for a lot of people out there.

[00:07:48] Dean Baker: Well, it’s not the reality of any world I know. I mean, it’s again, one of those things that sort of has me pulling what’s left of my hair out. We heard the media was trashing Biden because he talked about wages were growing rapidly for people at the bottom end, which was absolutely true. They were outpacing inflation. And we heard people say, oh, he’s tone deaf. Whereas Trump gets out there and goes, prices are falling. There’s no inflation. And you go, okay. Biden said things that were a hundred percent true. And he was being called tone deaf for it because obviously people were suffering. That’s kind of always true in the United States, but whatever. He was supposed to more acknowledge that than point out the good things of the economy. Trump just makes something up. He just had total wrong. Prices are not falling. He’s been saying gas is close to $2 a gallon. No, no state in the country is gas close to $2 a gallon. These are just lies. So Biden would get called on the carpet for saying things that were a hundred percent true, but supposedly tone deaf. Meanwhile, we have Trump saying things that are totally just inventions of his mind. Again, I mean, people go to the store, they see prices aren’t falling, inflation. I’m not going to say it’s gone through the roof, but it’s actually sped up. So when Biden left office, inflation was falling down towards the 2% target that the Fed has. That’s not my assessment. That was the Fed’s assessment. It’s turned around. It’s up now around 3%. We’ll get a number from the Bureau of Labor Statistics next week, but most people, myself included, are guessing it’s going to come to around 3% year over year. That’s a crazy high inflation rate, but it’s obviously higher than 2% and probably more importantly, the direction changes up, not down.

[00:09:31] Jeff Schechtman: And it doesn’t necessarily reflect the full impact from the tariffs yet either. No.

[00:09:37] Dean Baker: So what we’ve been seeing, well, two points I’ll make on that. One, we could say for certain other countries are not paying the tariff. So Trump keeps talking about it. And again, I’m not going to try and guess what’s actually in his head, but he keeps talking about it that, oh, China’s sending us a check and Vietnam and Europe, that they’re all sending us checks. It’s just literally not true. I mean, we know we have data on import prices. Import prices have been rising, not falling. So if we put a 30% tariff, I guess where we are now in China, it might be 130% in a couple of weeks, but whatever, 30%. If China was paying the tariff, the price of their exports to the US would fall by 30%. They haven’t. They’re roughly the same, roughly unchanged. Same with all the other countries. So it’s not just a China story. So we know they’re not paying the tariffs. We’re paying the tariffs. Now, what we could say is that they have not been fully passed on yet. So you’ve had a lot of importers that for the time being, at least have eaten much of the tariff. That’s not likely to continue. So you see, this is most visible with the auto companies have been very hard hit by the tariffs because they import so many parts and they’re now paying 20, well, God knows what they’re paying on some of this steel, 50% tariff. So I haven’t seen a good analysis of what the average tariff on car parts is, but needless to say, it’s substantially raised the price of cars, the cost of cars. But the auto companies have said that they’ve chosen to eat those for now because they don’t know the tariffs will stick. They might be convinced now that the tariffs are sticking and they’ll probably start raising their price. But again, now this is secret. If you look at the profit reports from GM and Ford, they both had big losses in the second quarter because they said they didn’t raise their prices in accordance with the tariffs, but they’re not in business to lose money. So to say that they are going to be looking to pass on those tariffs at higher prices. So whether that’s already happened, I don’t follow the industry closely enough, but I’m very confident it will happen and in the not distant future.

[00:11:40] Jeff Schechtman: Talk about the impact as you see it, because there’s various repercussions from all this, but this continual effort, if the Fed continues to engage in lowering interest rates, and if we’re in a situation either by the end of the year or early next year, where the Fed has dropped the interest rates 50 basis points or more, what is the consequence of that as you see it?

[00:12:02] Dean Baker: Well, I’m not 100% sure the Fed will carry through with that. Jerome Powell and the rest of the people in the Fed have been, I think, determined to not lock themselves into that because they’re looking at a situation where they have a softening labor market, which again, we’re talking about that a moment ago. That’s absolutely right. But they’re also looking at a situation where you’re seeing rising inflationary pressures, first and foremost from the tariffs, but also through things like the mass deportations. These are people that work in agriculture, in restaurants, in home health care. That’s driving up prices in many cases. Our harvests are going to be weaker because people will pick the stuff. They’re not there. So that’s inflationary. Also, Trump canceled any number of clean energy projects because he doesn’t like clean energy. Well, that’s electricity. And his friends in the AI industry want a lot of electricity. So we’re going to be seeing higher electric prices. So from the standpoint of the Fed, what they’re doing is they’re looking at the weakening labor market. And thankfully, they see that. And Powell takes that seriously. And that’s good, and you should. But he’s also looking at a situation where prices are rising, or I should say inflation’s rising. The Fed has a 2% inflation target. That wasn’t my idea. I don’t think it’s a particularly good idea. But if you have a 2% inflation target and your inflation rate’s 3% and going higher and out lower, you do have to ask the question, do you lower rates knowing that that’s going to mean somewhat higher inflation? Again, it won’t go through the roof, but you’re not going to lower inflation by lowering the interest rates. So I don’t take for granted that they will lower them if they do, which I wouldn’t say it’s necessarily the wrong call. I would say it’s a tough call. And I’m always more inclined to worry about unemployment than inflation. But if they do lower them, we’ll probably see somewhat further rise in inflation. We probably see that anyhow. But maybe a little bit more rapid. And again, I don’t want to be carried away here. We’re not going to see, at least not in anything I could see on the horizon, we’re not going to see double digit inflation. But could we see inflation moving up to beyond 3%, to 3.5%, maybe even 4%. Again, not a prediction, but just saying there’s a possibility. I would say that’s very possibly the case. And if the Fed lowers rates, that makes it more likely.

[00:14:16] Jeff Schechtman: There’s also the concern that if the Fed lowers rates, it will have an impact on the housing market, both positive and negative, that there are people that are going to have been really pent up demand for refi, pent up demand for buying, and that that’s going to let a lot of cash loose in the system.

[00:14:34] Dean Baker: It will let some. The issue here, important to keep in mind, that housing is driven by long-term rates, by the 10-year and even the 30-year. And it’s not clear that a further reduction in interest rates of, say, half a percentage point will have a big impact on those longer-term rates, because the longer-term rates are driven by financial markets, and they’re concerned about inflation. I think most actors in financial markets would probably agree with what I was just telling you, that we’re likely to see some rise in inflation. I don’t know if we’ll see a big drop in the 10-year or 30-year rates. So when it comes to mortgage interest rate, we’re right now, having checked the latest, a little over 6%, I wouldn’t bet on it getting much lower than that. Not to say it won’t fall a little bit, but maybe it’ll crack 6%. We’re not going to see 4% mortgages again, at least not anytime soon. So how much the mortgage rate hitting 6% or maybe falling to 5.9%, how much that’ll boost the market, it’ll be some. But it’s not going to be explosion in home buying and refinancing.

[00:15:37] Jeff Schechtman: There was a time when 6% was considered close to normal. Hard to remember that time.

[00:15:43] Dean Baker: 6%, the first time I got a home, I paid 10% on an adjustable rate mortgage and thought I got a good deal.

[00:15:49] Jeff Schechtman: The one thing we haven’t talked about in all of this is what gets referred to almost every day now is the potential AI bubble and what that really means, not just for the market, but also for the labor market, for inflation, and for the health of the overall economy.

[00:16:06] Dean Baker: The NSA has really been driving the economy in two ways. One has been very directly just the spending on data centers, on electricity generation to supply the data centers, other infrastructure to support AI. This has been massive. And I’ve looked at this casually, I know some people have done calculations, somewhere near half the growth in the first half of this year was directly attributable to AI, to spending on AI products, AI-related products, which is remarkable. I mean, we have a slow-growing economy, it’d be a lot slower growing had it not been for AI. The other part, probably more important, the bubble that’s been driving the stock market. So you’ve seen enormous run-ups in AI-related stocks. We hear the talk about the Magnificent Seven, NVIDIA, Google, or I guess Alphabet now, Amazon, Tesla. Not all those are directly AI, but AI is a component in just about all these companies. And they’ve been driving the stock market for really certainly the last half year, last year, just about all the gains have been in this Magnificent Seven. If you were to see… First off, I’ll say it’s very hard to think of a story that justifies those prices. I mean, I’ve just played with it a little bit and you go, okay, let’s say that these companies give you a normal return on your stock, 7% real. That’s something economists look back and say that’s normal. They have to have like an incredibly disproportionate share of the country’s profits a few years out. Not to say it’s impossible, but we’ve never seen anything like that. So you’d actually have to see everyone other than the Magnificent Seven see their profits fall over the next five years. That again, doesn’t seem plausible to me. It’s not one of these things that’s impossible, something that can’t happen in the world, but it just seems pretty unlikely that the rest of corporate America are going to see their profits fall over the next five years. So that’s driving the stock market and that drives consumption because a lot of people are saying they’ve just made a ton of money in the stock market. They go out and buy a new car, maybe they get a bigger house, they build an addition on their house. That’s what we’re seeing. And again, you referred to Mark Zandi earlier, I thought you referred to this because he did a little analysis and he found that almost all the consumption growth in the first half of 225 was due to the top quintile of the income distribution. So for everyone else, it was basically flat, but for the top quintile, they’re doing pretty well. They’re spending a lot more money. And if we were to see that reverse, if we were to see those magnificent seven and presumably a lot of other stocks plunge, I don’t mean they’ll go to zero or anything, but they could lose 10, 15, 20% of their value. That’s a very plausible story. Then we will see consumption take a really big hit and that’s likely to put us in a recession.

[00:18:58] Jeff Schechtman: We’re also seeing a lot of private credit going into AI financing, financing these data centers, et cetera, with sort of echoes of the subprime crisis of 2008.

[00:19:09] Dean Baker: I don’t think we have the same basis for concern because subprime was very integrated in the financial system. You will see hits to a lot of people who are making loans and probably very foolish loans, but it’s not as integrated in the financial system as subprime. Well, two points on the subprime story. One was that just about every bank had some, you had the mortgage-backed security systems, the banks, financial institution, had some number of mortgage-backed securities, which included subprime. But the other point, perhaps the more important point was it went way beyond subprime and that was something people didn’t appreciate at the time and even to this day, I think it’s underappreciated. So you saw a collapse of house prices generally. So it wasn’t the lower end of the market saw the biggest increases in the bubble. So if you look at the years 2002 to 2007, the sharpest rises were at the lower end of the market, no doubt about that, but there were also sharp rises in the middle and top. And when that bubble burst, 2007 to 2009 or 10, prices across the board fell. So most of the losses on mortgages actually were not in subprime. Those were on prime mortgages because the basic story was people bought a home for 400,000, it was suddenly worth 200,000. Well, you don’t have that much interest in paying off a loan for 400,000 for a house that’s only worth 200,000. The easiest thing to do is just call up your bank and say, hey, it’s your house now. And a lot of people did that. So that was a much bigger economic phenomena than anything with the AI bubble that I can see. So I’ll just say if the AI bubble burst, my bet is we get a recession. Will it be like the great recession we saw 2008 to 2010? I would be very surprised if it’s anywhere near that bad.

[00:21:00] Jeff Schechtman: I guess the question is how much debt it takes along with it. I mean, it certainly will affect stock prices, it will affect consumption, as you say, but there’s also a lot of debt out there tied to AI.

[00:21:11] Dean Baker: Yeah, there will be debt taken with it. But again, I’ve always objected to the characterization of the recession in 2008, 2009 as a financial crisis. There was one, but to my view, the main story was the collapse of the housing bubble. And it’s kind of simple arithmetic. At the peak of the bubble in 2005, we were spending 6.7% of GDP on residential construction. That fell to 2% of GDP by 2010. So that’s almost five full percentage points of GDP in lost demand. To put that in the context in today’s economy, that’d be one and a half trillion in lost demand. We don’t have an easy way to make that up. I mean, the government could give everyone huge tax breaks, have massive public works, we could make it up that way. But there’s not clearly be political support for that. And there certainly wasn’t back in 2009, 2010. So that was the real basis for the hit. I always thought the financial crisis is very much secondary. And the point I’ve generally made about that is once you got to 2010, the financial crisis was largely over. I mean, you look at interest rates, they had normalized, people who had decent credit could borrow to buy a home or refinance or borrow for a car. That had largely normalized by 2010. But yet we remained, I’ll just say, if not mired in a recession, a very weak recovery. So I think, as I say, I think the financial crisis was secondary. The main story was we lost a massive amount of demand with no easy way to replace it.

[00:22:49] Jeff Schechtman: Talk a little bit about deregulation, because there’s a sense that we’re not done, or this administration is not done with deregulation yet, as it relates to so many areas of the market.

[00:23:00] Dean Baker: You know, different issues come up in different contexts. So some of, you know, what’s referred to as deregulation, I really don’t want to call it that, is, you know, an externality, pollution. I always call it, you know, they call us regulation and say, can I dump my sewage on my neighbor’s lawn? Is that regulation if I’m not allowed to do that? I mean, call it that. But, you know, it’s basically saying I could just inflict damage on my neighbor without them being able to have any recourse. And that’s when we’re talking about pollution. Again, we can call it regulation, but that’s dumping your sewage on your neighbor’s lawn. And obviously, the Trump administration has little interest in that. So they’re radically reduced the Environmental Protection Agency’s resources, its ability to monitor pollution, and basically given up on a lot of lawsuits that tried to limit pollution. A second category, antitrust. Again, we’ve had mixed sentiments, because you hear sometimes things from people like Vance, who has pretenses of being a populist, who says, oh, yeah, we want good antitrust. But I don’t trust them to pursue that vigorously, and I don’t know anyone who does. So there may be an occasional pace. But my guess is, insofar as they’re pursuing antitrust actions, it’s as much to get a political handout as to actually restrict concentration. Then the third category, and this is where there really is no alternative to regulation. When you get to the financial system, the logic of a bank or a bank-like institution is to basically be dangerous, you know, from the standpoint of maximizing profit. So if I’m a bank and I want to make as much money as possible, what I want to do is lend out as much as I can in the highest yielding assets I can get. And I don’t care if it’s risky, because at the end of the day, I go bankrupt and I just tell my depositors, oh, you’re out of luck. This is why we created deposit insurance, because that happened again and again and again and again in the United States, every country in the world, because that’s the logic of running a bank. You’re going to take big risks. That’s the way to make money. And if you lose on your risk, then it’s your depositors who are out of luck. So regulation is inherent to the system. And the issue with the Trump administration is they’ve been gutting the regulatory structure. This certainly comes up with crypto coins, because Trump himself, his family, they created a stablecoin. And the whole point of a stablecoin is it’s tied to the dollar. Well, how do we know it’s tied to the dollar? Well, you have reserves. So who’s monitoring the reserves? Well, Trump is, you know, or his appointees. To most of you, it’s just an invitation to a disaster, because I feel very unconfident in saying that they’re not monitoring that the cryptocurrencies are holding the reserves that they’re supposed to hold, that they’re in safe assets. And somewhere you will get a problem. Is that going to be, well, the Pacific next year? Is it going to be five years from now? I don’t have the answer to that. But it’s almost inconceivable that you’re not going to have a serious, I guess it’s not a bank, but a cryptocurrency collapse is probably the best way to put it.

[00:26:11] Jeff Schechtman: Given all the many trends that we have talked about here, most of them not good, what are the ones that concern, the one that concerns you most at this point?

[00:26:21] Dean Baker: Well, I’m concerned about democracy. That’s not an economic trend per se. I will say the asset bubble, the bigger that gets, the more concerning it is. So, you know, I’ve written about this in the past that we would have been much better off, the housing bubble collapsed, say, in 04, 05, rather than 07, 08. So that’s going to be more destructive. I guess I should say global warming, that Trump is actively trying to promote global warming because he doesn’t like wind and solar for whatever reasons. I won’t try to get in his head, but he’s made it clear he doesn’t like wind and solar. That’s going to increase our contribution to greenhouse gas emissions, which again, we should be doing everything we can to try to reduce them. The one plus offsetting is that China has just been remarkable in moving ahead with promoting both domestically and in export solar power, wind power, battery development, electric vehicles, more than half the cars sold in China in September were electric vehicles, at least 54%. So that’s a great story on the other side. But the fact that the United States is basically doing everything it can under Trump to increase greenhouse gas emissions, that’s worrying to me. I mean, because there’s no doubt about it, we’ve done substantial damage to the climate. We’re going to do more. The question is, how can you minimize it? And the United States, for its part, is going completely the wrong way.

[00:27:57] Jeff Schechtman: And of course, the other part of that is that the more concern there is, even on the part of the average person, the more concern there is focused on negative impacts of the economy, the less gets focused on things like climate change, simply in terms of a hierarchy of needs.

[00:28:14] Dean Baker: Well, yes and no, in the sense that, you know, people need to, you know, pay their mortgage, they need to pay for the health care, all these things that’s 100% true. But we could talk about a trade-off where, okay, do I want cheaper electricity, a cheaper car, or do I care about the environment? That trade-off really doesn’t exist anymore. Wind and solar are cheaper than generation from coal or oil or natural gas. Electric cars are cheaper than to buy. Of course, much cheaper to operate, but electric cars are cheaper than conventional gas-burning cars. So we actually don’t have that trade-off. And I think there’s too little appreciation of that, that prices have plummeted. And again, China deserves the credit for it. The reality is it made enormous headway in bringing down the cost of clean energy, battery power and electric vehicles. So we actually don’t have that trade-off. We’re paying more to pollute the planet.

[00:29:16] Jeff Schechtman: It’s interesting that we’re at competition with China for those things that the administration wants to take advantage of that competition and ignoring China’s progress in so many other areas.

[00:29:28] Dean Baker: Yeah. Trump is obviously not much of a strategic thinker. I do not know how exactly he envisions his competition with China, but the realities of it, China actually has a bigger economy than the U.S., actually a considerably bigger one. If the idea is somehow is we’re going to send them into the ground, we’re going to make them cater to us and do whatever, that’s absurd. That’s not going to happen. So China’s there. It’s a huge world power right now, whether we like it or not. And to my view, the only thing that makes sense is figure out areas where we can cooperate and benefit from working with them. Obviously, there’s some areas we can’t. We’re going to, well, maybe Trump won’t, but I would like to think the U.S. is a nation we support democracy, China doesn’t. But there’s a lot of things we can work with them on. We should share an interest in reducing greenhouse gas emissions. We should share an interest in promoting global health. So there are areas where we could gain, mutually gain from cooperation. And that, to my view, makes the most sense. Trump, again, envisions some sort of competition that he thinks he’ll win. I have no idea how he thinks that works, but that’s what he seems to be doing.

[00:30:48] Jeff Schechtman: Coming back to AI for a moment, beyond the economic aspects of it and the bubble, we’re seeing in China the actual use and impact of AI and the labor force a little bit with their advancements in robotics, which are far ahead of what we’ve done so far, and certainly could have an impact on the labor markets here down the road.

[00:31:07] Dean Baker: Absolutely. They installed 300,000 robots last year. That’s as many as the rest of the world combined. So they’re hugely ahead of us. And there too, a scenario, it will have impacts on the labor market. I mean, how quickly, how much, hard to say. I think people have tended to exaggerate the impact of AI on robots in the sense that we’re not going to have a situation two, three, four years down the road where none of us are going to have any work because the robots will do it all. But I think there are plausible stories where we do see robots and AI replacing a lot of human labor, which on the whole, I think is a good thing. We want to make sure that the gains from that are evenly shared, that we see price reductions, that we see workers who are displaced get unemployment benefits, retraining opportunities. We see the industry stimulated, which again, we could do, but there’s no guarantees of that. So, you know, again, how AI and robots will hit the economy, very much up to grabs. But I’m not in general scared of gains in productivity because that’s the reason why we could feed ourselves with 1% of our workforce in agriculture and we export a lot. So we don’t just feed ourselves, we feed much of the rest of the world as compared to if we go back a hundred years when half our workforce is in agriculture. So, I mean, I think that’s a good thing, but we do want to make sure that we have structures in place that ensure that benefits from productivity growth are broadly shared, not just going to a small group of people who we say own the technology.

[00:32:48] Jeff Schechtman: And coming back to another point you made earlier, that all of this, in order to compete with China to do the things that we need to do, are going to take enormous amounts of power, enormous amounts of electricity. And China is way ahead in that area as well, as you indicated, and in nuclear as well. I think there’s what, I read 29 nuclear reactors being built in China right now, zero here.

[00:33:10] Dean Baker: Yeah. I’ll say I have mixed feelings about nuclear, but that’s neither here nor there. China has a massive surplus of energy right now. It doesn’t mean everywhere always, but we’re struggling to meet our demand. China has pretty much a glut of energy. They pay less than half as much on average per kilowatt hours we do here. And also I should point out when it comes to AI, obviously they’re putting a lot of resources into AI and they’re comparable, whether they’re ahead or behind, I’m not in a position to judge, I’ll just say they’re comparable in terms of where their industry sits. Their leading companies, their electricity use at their leading companies is a fraction of what ours is. So DeepSip uses about a tenth of the energy as its counterparts in the US. So electricity is a real constraint on our development of AI in the United States. That doesn’t seem to be the case in China.

[00:34:02] Jeff Schechtman: And finally, talk about what you might be optimistic about as we look forward in all of this, if anything, if anything.

[00:34:10] Dean Baker: I’m very optimistic about China’s progress on reducing greenhouse gas emissions, promoting clean energy, because that helps not just China, but they’re selling it all over the world. So you have countries like Pakistan that’s not known for being big in producing, pushing for clean energy, but they’re adopting because it’s cheaper. So that makes me optimistic. But in the United States, I just see the democratic challenges as being front and center that if you have Trump as an on-chart dictator, basically, it’s hard to see a lot of good coming of that. You have Republicans, people like Marjorie Taylor Greene, I’m not usually a fan, but she’s been extremely critical of the Republican shutdown strategy. Congressman in California, Kylie, Republican congressman, he also has been critical. And one of the things I was very impressed with, the governor of Oklahoma, Kevin Stitt, is very critical of the use of National Guard in Illinois and California and Oregon, saying that he would be outraged if the reverse, if you had, you know, Illinois National Guard show up in Oklahoma. So that took a lot, you know, to see a Republican break with it. As far as I know, he’s a conservative Republican. This is not someone from up in New Hampshire or something. This is a Republican saying what really is just the Constitution. So I shouldn’t be asking too much. But anyhow, my immediate concerns are for democracy in the U.S. And as long as that’s threatened to the point it is right now, it’s hard to think of how the economy’s going to improve.

[00:35:47] Jeff Schechtman: Only to the extent, sort of to bring it back to where we started, that that’s what people pay the most attention to. And if the economy starts to go sour, suddenly attitudes towards Trump change dramatically.

[00:36:00] Dean Baker: Yeah. You know, going back to his first administration, you know, you and I could probably point to all sorts of things he did by way of trying to use the Justice Department to go after his enemies. Many, many, many other things we could point to. But you have a lot of people say, and I’m not putting words in my mouth, this is, you know, pollsters, people who are trying to take the pulse of, you know, the electorate. A lot of people say, but the economy is good under Trump, which was kind of true until the coronavirus hit. And somehow he got out of being president in 2020. I don’t know quite how he did that, but they don’t… I’m just making that point because I think he handled the pandemic horribly, but that’s not held against him for whatever reason. But in any case, people point back to the years prior to the pandemic and they say it’s pretty good and that’s true. So they say, well, why shouldn’t I vote for him? If the economy were not good, I suspect a lot of people were going, well, yeah, he might be a blowhard and he might be sending the National Guard where he shouldn’t. But, you know, things look good. Those people will be disenchanted. Those people will be angry at Trump because they’ll say, what is this guy doing? And people might kind of not like him sending the National Guard to grab a garden or someone out of a food truck. They might not kind of like that, but it won’t get them that upset. But if the economy is going to hell and they go, what’s Trump doing? Oh, he’s sending the National Guard after a gardener and a food truck operator. They might say, well, that’s not someone who really should have as president.

[00:37:26] Jeff Schechtman: Dean Baker, I thank you so much for spending time with us.

[00:37:29] Dean Baker: Sure. Thanks a lot for having me on.

[00:37:31] Jeff Schechtman: Thank you. And thank you for listening and joining us here on the WhoWhatWhy podcast. I hope you join us next week for another WhoWhatWhy podcast. I’m Jeff Sheckman. If you like this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to whowhatwhy.org/donate.