Paul Krugman is Wrong

Why don't liberal pundits understand what's happening?

Paul Krugman

The first thing I did this morning, upon waking up while still lying in bed, was to read, blearily and with rapidly increasing irritation and alarm, Paul Krugman's Substack offering, "Stop Looking for Methods in the Madness: There's no plan, secret or otherwise, behind Trump's tariffs."

Krugman—a left-leaning liberal and establishment progressive "nice guy" type whose personal net worth is around $5 million (a detail relevant to my critique, as we will see)—was the New York Times' main economic pundit for many years until he departed at the start of Trumpocalypse2: The Sequel (or perhaps The Trumpinator is more accurate?). Today, Krugman writes:

“I'm not saying that the Trump team's thinking is unsound. I don't see any thinking at all. I don't know how many people realize that the administration's case for tariffs is completely incoherent, that it has not one but two major internal contradictions.

...

There can't be any secret agenda behind the Trump tariffs, because there's nobody around Trump with the knowledge or independence to devise such an agenda. This is all about Trump's gut feelings. A White House official told Politico that he likes the "shock and awe," and that ‘Each country needs to panic and call. … Trump wants to hear you grovel and say you'll cut a deal.’

Since most of our trading partners aren't in a groveling mood, trade war seems inevitable.”

I find this analysis exasperating because, from what I can see, Krugman is wrong. His perspective still reaches a large swathe of the liberal Middle Class in America. We need influencers like him to quickly undergo another stage in their political awakening. Well-resourced, well-connected establishment people need to recognize how severe the threat is—mortal and existential—and then move rapidly from theory or critique into organizing against it, not just handwringing while completely missing the essential nature of what is happening.

In response to Krugman's piece, I offered this counter-perspective in a comment:

Hi Paul, what about the theory that there is somehow a systemic plan to collapse the U.S. economy—to force a Depression—so that Trump's billionaires and venture capitalists can buy discounted assets such as companies and real estate including public lands and parks that become privatized because the U.S. is forced to sell them off due to debt?

For instance, Peter Thiel will get $4 billion tax free from his Roth IRA in two years, and if the U.S. has crashed, he will be able to buy anything he wants. Naomi Klein has articulated the concept of "disaster capitalism," where the transnational oligarchic elite use or create disasters so they can centralize wealth and control.

After the fall of the USSR, America pressured Russia and other former Soviet republics to quickly privatize their public assets, allowing wealthy individuals from America and Europe to dramatically increase their fortunes. It seems evident that similar conspiratorial forces are now seeking to do the same to the United States, Shock Doctrine-style. To understand this, we must consider who will benefit — fantastically — from the collapse of American economic stability.

Trump’s tariffs aligns with a plan to transform the U.S. fully into a serf society ruled by tech and AI interests. To create a pliant population, you must first destroy the middle class. Unlike Krugman, I believe there is a methodical plan at work. He doesn’t want to see it yet, probably because it would be too destabilizing for him, psychologically, to reckon with it.

In another comment on Krugman's piece, I emphasized:

The problem is that you can't fight an enemy you don't understand, and if Krugman thinks there is no method or ideology behind this and that's what he is telling his mainstream followers, then people are totally under-prepared. When you see the method, it should spur you into the mode of organizing and activism. If you think it is just chaos, you may feel passive and assume it will end at some point. It won't end without a mass movement to stop it. We've already waited far too long to oppose it.

As a college dropout, autodidact, and anarchist/social ecologist, I have never understood the bloviating over-importance ascribed to liberal economic theory. A staggering amount of money flows into this academic field. Prestigious awards are bestowed—such as the Nobel Prize that Krugman received for his contributions to "New trade theory," a concept I don't have the patience to fully comprehend at this moment. Academic economic theory—reflected in lavishly funded think tanks like the Institute for New Economic Thinking that produce little of tangible value—functions as a kind of institutional insulation or cotton wool. This insulation stuffs up the minds of wealthy liberal academics, preventing them from confronting our immediate mortal and existential crisis with the urgency it demands.

I understand why Krugman wants to view Donald Trump’s trade policy—especially his erratic, often self-defeating tariffs—as the bumbling chaos of a vicious bumbling orangutang motivated by ignorance, populist posturing for FOX, and petty vendettas. But these apparently stupid and erratic policies are, in fact, logical instruments, when seen from a different perspective. They are designed to destroy the American middle class so our country eventually becomes a serf society similar to Russia or, eventually, North Korea, with no free thinking allowed. This will give maximum freedom for billionaires but no freedom for those trapped under economic and legal obligations as the country goes down in flames.

One of the main architects of this descent into chaos is Peter Thiel. Thiel, along with his network of billionaire fellow travelers deeply embedded in the tech and crypto world, are among the key beneficiaries of Trump-era chaos. While Trump himself seems to act impulsively and without clear vision, he is actually the perfect instrument: A battering ram opening the gates for a new elite order and the fleecing of the U.S. populace who will no longer have functional institutions to protect them from fraud or corruption. The unpredictability of Trump’s tariffs make them even more effective weapons for weakening the foundations of liberal capitalism—especially the class that has historically sustained it: the upper-middle and aspirational wealthy Americans: Those, like Krugman, with a net worth in the range of $500,000 to $50 million (give or take). These are the doctors, small business owners, mid-size entrepreneurs, investors, and professionals who, for much of the 20th century, formed the economic and political backbone of democratic capitalism.

Thiel is deeply influenced by anti-democratic thinkers like Leo Straus, who believed Democracy was a sham, and Carl Schmitt, the Nazi jurist who supported Hitler.

One of Schmitt’s most infamous contributions was his 1934 article titled “Der Führer schützt das Recht” (“The Führer Protects the Law”), in which he defended Adolf Hitler's extrajudicial actions during the Night of the Long Knives. Schmitt argued that Hitler's decisions were the highest form of justice, asserting that “the Führer is the law-making force of the present.” We might compare this to the recent Supreme Court decision giving the President absolute immunity for official acts — even criminal ones — committed within their constitutional authority.

Another Schmitt acolyte is Curtis Yarvin (Mencius Moldbug) who has built the theoretical scaffolding for the current techno-feudal strategy. Schmitt argued that liberal democracy, with its obsession with legal proceduralism and democratic inclusion, was inherently self-destructive. True sovereignty, he insisted, rests with the person or entity who can decide on the exception—who can suspend the rules as needed. For Schmitt, democracy only works when it expresses a homogeneous people with a unified will; pluralism and complexity are threats. Thus, any institution that empowers dissenting voices or distributes authority widely is seen as an obstacle to order—and therefore something to destroy. This is what Thiel and Yarvin and their people are now trying to do.

Schmitt’s critique of the bourgeoisie as weak, relativistic, and morally confused dovetails perfectly with the more recent critiques offered by Yarvin and Thiel. Yarvin has written extensively about the need to dismantle something he calls "the Cathedral"—the alliance of universities, media, and the bureaucratic state that he believes props up a ruling ideology of progressivism and democratic stagnation. The professional managerial class (PMC) — a subset of the high-performing middle class — is the basis of this Cathedral. Its members are highly educated in law, ethics, social norms, history, science, and belong to legacy institutions. They work in fields such as medicine, law, tech, finance, the media, and the academy. In Thiel and Yarvin’s schema, this class must be sidelined and broken.

Tariffs, in theory, are supposed to protect domestic industries and restore balance to global trade. But Trump’s implementation has been random, turbulent, and aimed at punishing enemies (some of them, like Canada, our former closest allies) than any coherent goal. The threatened tariffs on Chinese and Canadian goods and European and Mexican imports are sending shockwaves through traditional manufacturing, agriculture, and small-to-midsize enterprises. These are precisely the economic sectors where the American middle class has historically built its generational wealth.

Trump’s tariffs create systemic uncertainty. They increase input costs, disrupt supply chains, and invite retaliation. They discourage long-term investment, freeze hiring, and destabilize forward planning. But while this may seem disastrous from the perspective of small businesses or regional manufacturing firms, it’s far less damaging—and even beneficial—for massive, vertically integrated multinational corporations and billionaire “sovereign individuals” with a global reach. Firms can absorb short-term shocks, relocate production, and pass costs onto consumers. Billionaires can buy off distressed assets and properties during a massive economic downturn or collapse. Both groups can thrive in volatile conditions by leveraging scale, lobbying influence, and capital reserves, while others suffer.

Peter Thiel’s investments, such as in Palantir, are exactly the kind of companies that benefit from such unstable environments. Palantir’s primary clients are intelligence and defense agencies—government contracts are immune to the traditional market pressures affecting the middle class. Similarly, Thiel invests in biotech, AI, and crypto. These industries are far removed from the tariff-exposed, labor-intensive sectors of the middle-class economy. In other words, Thiel’s empire is structurally insulated from the chaos Trump unleashes.

Meanwhile, the ongoing attack of Right Wing media has changed the cultural narrative around the middle class and establishment progressives. They are no longer seen as important to the U.S., but as out-of-touch, privileged, and insufficiently patriotic and religious. They are made increasingly politically homeless: still too wealthy to qualify as "working class," too independent to be controlled by elite narratives, too scattered to form effective solidarity. The lower echelon of the middle class (under $150,000 income) will see their taxes go up as the upper class benefits from a tax cut built on dismantling social services for the poor and elderly.

According to my hypothesis, Thiel, Musk, and their ideological allies do not want to fix this crisis. They are making this crisis in order to profit from it. Their vision of the future is not shared prosperity or “America first,” but “commercialized sovereignty”: a world of technocratic enclaves, private jurisdictions, and algorithmic control, where the Right alone has freedom of speech and dissenters go to prison. Thiel invests in projects like Próspera, a semi-autonomous charter city in Honduras with its own regulatory and legal framework. Despite libertarian rhetoric about freedom and innovation, these ventures are designed to remove democratic oversight and accountability. Thiel and Musk don’t want governance to be a public good, but a private service. Protection is something to be bought by those who can afford to live in the new arcologies of sovereignty.

I hope this helps you understand why Trump’s seemingly irrational policies persist even when they fail by traditional economic metrics. They are not designed to succeed within the old paradigm, but to accelerate its failure. The tariffs are not economic tools—they are weapons in a class war, disguised as nationalist policy. Pundits like Krugman who treat them as irrational or errors of ignorance or stupidity are missing the point. They need to wake up and move people from passive criticism into collective action. To do this, they may have to admit that far Leftist critiques were often correct. This will hurt their professional egos. But the alternative is seeing the U.S. quickly fall down the ladder from a functional liberal society to a Putin-esque authoritarian hellhole and, eventually, a North Korean type of system where even thought is rigorously policed and controlled. Wake up, Paul!