It's Beginning to Smell a Lot Like Stagflation | Hacker News Reader

It's Beginning to Smell a Lot Like Stagflation

paulkrugman.substack.com

63 pointsrbanffy35 comments

The post mentions the AI boom boosting the numbers. From Fortune[1]: "Analyst estimates from Renaissance Macro Research indicate that so far in 2025, the dollar value contributed to GDP growth by AI data center expenditure surpassed the total impact from all U.S. consumer spending"

That is worrying as that spending is constrained to a small sector that concentrates and solidifies a lot of wealth with diluted "trickle down" effects. If/when the AI industry corrects there will be a significant impact on the US economy & stock market, which I think will have a bigger negative effect on the "person in the street" than any possible positive effect from the current high spending on AI technology.

[1] https://fortune.com/2025/08/06/data-center-artificial-intell...

> Or as Rusty Foster, author of the widely read media blog Today in Tabs, puts it: “Our economy might just be three AI data centers in a trench coat.”

lol

I saw someone comment that US GDP is shrinking if you exclude AI cap ex.

As a compounding area of concern, as AI thus becomes a single point of failure for the whole economy. Most analysts beleive that AI is in a hype bubble, with even Gartner projecting half of AI firms to shutter in the next 18 months. That basically means the circus tent is about to collapse.

I don't know why people keep referring to AI as a hype bubble. A bubble usually implies that the majority of the population doesn't see the hype and bubble for what it is (see the run up to the 2008 housing crisis, where everyone and their brother was flipping houses). In the case of AI, pretty much everyone outside of the tech and AI spaces has smelled the BS from get go.

Bubbles do damage when they pop and surprise everyone, but I don't think too many people outside of SV will be surprised when this train eventually goes off the tracks.

The problem here is not that there's an AI bubble, it's that the AI and tech folks are so disconnected from regular people.

Was the same in the 1990s I'd contend. I distinctly remember talking to my dad about how the internet was going to revolutionize everything. As a teenager I was all into everything going on. His words were "This won't last they don't have enough customers and costs are too high" I'd like to give him credit for predicting this but I don't think he was alone in that realization.

This is were AI maybe today cost too high, not enough customers. Some firms will survive (Amazon/Google of the AI era) others will fold.

I think there plenty of success stories out there but there a lot of snakeoil propped up by VCs.

Who will be the pet.com of the 2020s?

Also everyone and their cab drivers have money in Nvidia right now. I think we all get hurt here.

dot com bubble was a way to make retirement funds pay for global telecom infrastructure. after the companies are gone, infrastructure is still there. google is buying dark fiber to this day...

the last gpu-fuelled bubbles (gaming, web3, ai) are an attempt to starve enemies of chips without kinect involvement. you will have datacenters filled with garbage tech when it's over.

so, no, there won't be a pets.com in this space because as soon as it bursts, it crushes their business defensibility (access to chips and power) will be gone as the price plummet. there's no consumer products.

i guess the analogy to dotcom, is if people were buying pets.com stock just because it had more Herman Miller chairs!

The inflation part is guaranteed. Not sure about the "stag" part, but it could be coming - a friend works at a company whose product is used in many other industries (it's a critical part of their production lines), and their orders are down. This might be because of the death of manufacturing in the US, but might also be because their orders are also down.

For those who haven't heard the term before:

https://en.wikipedia.org/wiki/Stagflation

This was taught at my high-school, non-AP econ class c. 1995. Granted, the public school teachers were above average by US- and California-standards.

Are there places and times that do/did or didn't/don't teach econ?

> The war on immigrants is also inflationary

On illegal immigrants. The US has the most immigrants[0] and is bringing in about a million a year more through legal routes.

[0] https://worldostats.com/country-stats/immigration-and-emigra...

> On illegal immigrants

The current U.S. administration, though, has made very tangible, if unconstitutional, efforts to denaturalize foreign-born and even U.S.-born citizens. Both of these acts would also be destabilizing, to say the least, if they are allowed to take place.

We should allow anyone who wants to come to the US, to come here, to use our welfare system (housing and food are a HUMAN RIGHT). Learning a new language is also pretty damn hard and the US citizens are pretty well educated, so we ought to all learn Spanish to be hospitable neighbors to our new residents. If they don't want to work, that's fine, I myself sometimes don't feel like working and that's a human right too. If someone feels that way about work, they still ought to be able to eat, live, sleep, safely, and receive medical care.

"The data presented in this article is sourced from the United Nations International Migration Stock for the year 2020."

I don't think that's so clear anymore. A lot of the people being deported came in on various refugee visas. While people who were brought here as children may technically be illegal, in practice that blurs the line. Similar with illegal immigrants who are spouses of legal immigrants. Then there's situations like students who came here legally but are having their visa's revoked for political reasons.

It's not clear because a large number of media outlets have constantly conflated them on purpose. "Trump wants to cut illegal immigration" "Well, being against immigration, legal or... undocumented... is racist".

The relevant question in this context is how the number is changing. It's entirely irrelevant that the US has the most immigrants, or even that it is bringing in a lot, if the rate is changing to such a level that, per the article, "the number of foreign-born workers in the United States is already shrinking after years of rapid growth".

It doesn't matter if you think this change is good or bad, it will necessarily have economic knock-on effects and you need to decide if those are good or bad, and if bad if they are worth it.

I'm saying it's a different number. Saying "people here illegally will work for below minimum wage and don't need Obamacare contributions so your goods can be cheaper" is an economic statement, sure, but it would also have applied to slavery.

And that would've been a reasonable point, if people here had made that argument, but the person you first responded to only pointed out that the war on immigrants is inflationary, and that was also what I supported.

It's reasonably to argue that the way illegal migrants are used as cheap labour is a problem, but that doesn't alter the economic reality of the effect reducing it has.

You then need to choose whether you're willing to take that cost and/or whether you instead want to remove the ability of employers to exploit these workers this way.

Well, not quite. You said:

> It doesn't matter if you think this change is good or bad, it will necessarily have economic knock-on effects and you need to decide if those are good or bad, and if bad if they are worth it.

Which sounds like morality is irrelevant, and only economic utility matters.

The graph presented in the article, and I assume the conclusions from it, is all foreign born workforce, regardless of legality, visa or citizenship status.

That’s the message and the framing. The reality is that it is on non-white immigrants. Legality is very much optional for this administration.

There is now a lot more uncertainty and delay for legal immigrants when crossing into the USA.

This administration is the best thing that happened to the European Union nations when it comes to the economy. During the second half of the Biden years, the crazy bounce back the US economy did with regards to economic indicators (not the same as actual sentiment on the ground) made it look like we were going to be left behind, and we would be essentially buying any high-value western products from the US and US only. Even nations like mine who survived the pandemic in terms of health effects faced terrible regrowth.

The "protectionist" policies and soft power self-immolation that happened next means that we might be able to make strides in not just catching up to the US, but also becoming a more trusted trade partner for all other nations just for the sake of doing the same thing we always did.

Even the king of the Atlantic co-operation, the military industrial complex, turned upside down in a month. Everything US administrations since the 1950s had been building and had locked in is up for negotiations now. I can't even imagine how much ground China is able to gain since even they are looking like a more stable trader compared to the US. And yes, I'm saying the US as in the entire nation, since videos of Tim Cook bribing your president made me realize that the ownership of business in the US is nearing completion, and that footage looks a lot like how Putin liked to bully business owners in front of TV cameras back in the day [0].

Thanks for helping my country survive for a few more years. The brain drain to the US has pretty much dried up.

[0] https://www.youtube.com/watch?v=3GsDLrUieJg

The Economist magazine cover for Oct 19th 2024 called the US economy "the envy of the world" and depicted a roll of USD taking off like a rocketship.

Turned out it was a Starship

Ironic actually because I think they used a starship photo for the artwork judging by all the engines.

It honestly truly looked like that from over here. Every penny the wealthy middle class earned would go to American stocks. No one was savung money by investing in the local stock market. Business news became more about American Big Tech and less about local up and comers. It felt like everything was being made for the US or by the US. Re-starting the German war industry is something no EU politician could have achieved. We have a golden opportunity to leverage China as well as enter LatAm and African markets in the absence of US soft power.

I knew he would find a way to f up my retirement next.

Maybe it'll be different this time.

I'm surprised nobody is talking a bout the change of source countries for immigration since the 1950's. How most immigrants who come to the US now are from what historically have been non egalitarian societies.

Virtually all US immigrants came from non-egalitarian societies. When European immigration to the US was common, Europe was non-egalitarian.

? In what distribution and in what timeframe?

> Is there any scenario under which tariffs wouldn’t raise consumer prices?

Yes, but price levels aren't inflation; inflation is defined as the rate of change. That is a component of why it is a bad measure - the long term inflation impact is effectively nothing because it is one off shock then the inflation from tariffs will disappear. The problem is the amount of stuff people can afford will drop and probably stay down which isn't well captured by inflation.

In some hypothetical world, the Trump admin could adopt a 0-inflation policy, stop printing money and still cause inflation to disappear completely over their term. It'd be a massive shock to the system, but inflation in the modern era is always a policy choice and will be unrelated to tariffs. The natural state of a market is deflation.

It seems like it'd be quite difficult for the Trump tariffs to be inflationary under the generally accepted standards of the last few decades. "Inflationary" in politics generally means that the rate of change changes over a long period of time. Krugman does this himself at the end of the article where he focuses on the inflation rates through half the Biden presidency - he's not considering how the price levels changed but the 3rd derivative of prices over half a term! If you do that to Trump then the effect of the tariffs will probably disappear too.

Trump's policies are clearly intended to push manufacturing back to the US and I think pretty much everyone would have to agree that is going to cost US citizens a lot of money. The reason they outsourced all their industrial might to China in the first place was because it was cheaper. It is a fair point, but it is annoying to see an economist trip over their own definitions like that. It is already a definition that isn't really suitable for politics. The focus here needs to be on real income.

Most money is created when making a loan, and is destroyed when the loan is reimbursed. Loan defaults add more money in the system that the Fed print almost every year (except during COVID, but letting companies dies and default would have had a similar inflationary effect anyway). I guarantee that if the US stop printing money, it will change nothing, because it will borrow instead. The only way for the US government to stop adding to inflation is to balance its budget, by cutting spending or increasing taxes, or likely both.

(Inflation is not only money creation, it's actually a small part, it also depends on production and consumption btw. Decreasing consumption by raising taxes and lowering social spending would also be inherently deflationary)

>Trump's policies are clearly intended to push manufacturing back to the US

Trump's tariffs are clearly designed to move manufacturing out of the US. If you wanted to increase US manufacturing you would decrease tariffs on raw materials and increase tariffs on finished products.

Trump has increased tariffs on raw materials like steel, aluminum, copper & lumber by much higher numbers than it has on finished products.

If you want to encourage US manufacturing you would try to lower energy prices. Instead, Trump's war on renewable energy is going to allow other countries to get a sizable energy cost advantage on the US.

I was starting to get worried about the potential for stagflation until I saw this post. Paul Krugman is the Jim Kramer of economic forecasting; take what he says and wait for the opposite to occur. There's a perverse skill to being consistently wrong more often than would occur simply by guessing.

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