Paul Krugman has a dire warning about the U.S. economy under Trump.
The economist warned readers that “what looks like a fairly benign economy on the surface is actually hurting workers” in a lengthy Substack post on Wednesday. He also said that Trump’s erratic behavior is exacerbating the situation.
“Many economists—actually, all the economists I know—are worried about a potential downturn,” wrote Krugman, who won the Nobel Prize in Economics in 2008.
Krugman explained that income inequality is back on the rise after a dramatic decrease under the Biden administration.
According to Krugman, the Trump’s economy is experiencing a “K-shaped expansion.”
Essentially, while the economy is growing overall, only the most affluent Americans are actually seeing their wages grow, while middle and lower-income Americans are feeling the pressure of inflation and unemployment.
While the AI sector is booming, Krugman says that Trump’s “wildly erratic policies” have created so much uncertainty that businesses in other sectors have stopped making investments, including hiring new workers.
Krugman’s post didn’t go into specifics about Trump’s “erratic” behavior. However, the economist, whom Trump once called a “deranged BUM,” previously told MSNBC that the president’s tariffs had damaged the country’s negotiating power and were “based on a false picture of U.S. relations with the world.”
“Increasingly unhinged statements from the administration feed a general sense of destructive instability,” wrote Krugman in his Friday newsletter. The hiring rate has now dropped so low that it mirrors the 2008 recession, leaving the economy “frozen.”
“Even though we haven’t had a recession yet, the frozen state of the U.S. economy has already made life much worse for many workers,” added the economist.
Unlike during the 2008 recession, Krugman says the US economy isn’t seeing mass layoffs—at least not yet.
However, the number of Americans facing long-term unemployment—six months or more without a job—is skyrocketing. The total jumped from just over 1.4 million in May to more than 1.9 million in July.
To make matters worse, federal unemployment numbers haven’t been updated since the start of the government shutdown.
Krugman also warned readers that while the stock market looks healthy on its face, that isn’t a reliable indicator of the overall economy’s health.
“Investors seem to have decided that the wonders of AI matter more than Trump’s tariff madness, so we’re seeing a stock market surge dominated by technology companies,” wrote Krugman.
“It’s important to be aware that the top 10 percent of households own 87 percent of equities, while the bottom half own almost no stock at all and gain nothing from a rising market.”
The White House did not immediately respond to request for comment.
Krugman is hardly the first prominent finance voice to warn that Trump is leading the country into a recession. Earlier this month, JPMorgan CEO Jamie Dimon told Bloomberg he anticipates a major stock market correction in the next six months and believes the U.S. could enter a recession as early as 2026.
Dimon issued a similar warning during an earnings call last week after the collapse of subprime auto lender Tricolor Motors.
“I shouldn’t say this, but when you see one cockroach, there’s probably more,” Dimon told employees. “Everyone should be forewarned on this one.”
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