caroline: from bloomberg's world headquarters in new york and work here in london. romaine: let's take a look at where we stand. the specter of higher capital gains stocks sent stocks to their biggest slide in five weeks. caroline: i don't think you could have missed it aired bidens capital gains tax shaking investors today. mixed economic data in the

united states. jobless claims posting an unexpected decline. investors already grappling with the first major economy to make a move off of stimulus. yesterday, canada signaled its intention to reduce support. christine lagarde saying scaling back stimulus is to print -- too premature for them. we are going to start with the tangible data. joe: we don't know what the future is going to be. inflation, normalization of policy. all up in the air. in the u.s., the momentum continues. jobless claims out today continuing to fall a little over half a million, which is high by historical standards and continuing to come well off the worst levels we have seen. romaine: ongoing state benefits also down.

joe: i want to welcome the nobel laureate and distinguished professor of economics paul krugman. thank you so much for joining us. let's start here and now with the economy. widespread optimism. a little bit of concern about inflation. is there anything right now that worries you? >> i am still not entirely sure we have the pandemic under control. we think we have got it but a little bit alarming. larry summers is not being completely foolish. it is a lot of money we are throwing out the economy. it could be a problem. i think we have ways to deal with it. we are giving a really big boost to things. i am very optimistic. there is both a downside and upside risk.

if the pandemic hits us again or this thing goes too fast. we are starting to see bottlenecks. there are a lot of problems with a rapid recovery when we still have disrupted supply chain. it is not going to be totally smooth sailing. romaine: when you look at supply chains, we have been talking about inflationary pressures whether it is in the commodities or consumer staples. some of that is tied to the economies reheating. it is also tied to the disruptions we had because of covid. i'm wondering if you consider some of those disruptions to be temporary that the inflationary pressures may not be as heavy as some people think. >> i think the people at the fed know this. core inflation is not a sufficient statistic. even -- normally we think -- there will be transitory shortages. chips, lumber.

a shortage of containers. all of this is not fundamental. it does not mean we are seeing a rise in underlying inflation. it means we are hitting some bottlenecks as we come back from a highly disrupted economy and stuff that should be disregarded in terms of setting policy. don't panic on the inflation front. caroline: setting policy from a monetary policy front. there is also what the government is up to. asset prices, may be a bit of inflation prices. they were worried about capital gains taxes going red. -- going forward. what do you think about what it means for the overall economy? >> this is something that biden had said all along he was going

to try to do. he said i am going to do what i promised i was going to try to do. if a 1% fall in stock prices is all you get, that is not a big problem. biden has an ambitious agenda. we have some fiscal space. interest rates are extremely low. we have learned that fears are exaggerated. some significant tax increases are going to be part of the story. biden is trying to do those not hitting the middle class at all. as opposed to the corporate taxes and high tax and high incomes. something like this is pretty much inevitable unless everything fails. it is possible still -- they need all 50 senators plus kamala

harris. joe: you say we don't have infinite fiscal space, but at least we appear to have more than people would have guessed several years ago. big deficits and for a long time, not much inflation. does your field have a good way of measuring or estimating how much fiscal space we have? >> we don't. the best thing we have is to ask , we have some notion of what it would take to stabilize the rate of debt to gdp. it is hard to find any examples of hitting that maximum at least for a country like the united states that bars its own currency and is regarded as

fundamentally a sound country. it is not clear there is any pricing limit. the much more obvious thing is inflation. if you're going to overheat the economy, that is the function of finance. if you say how much spending is too much, then we have monetary policy to contain all that. the only thing we can say is wherever the limits to debt are, they appear to be quite some ways off. levels of debt to gdp that are 100 points higher without having a crisis. there is no visible constraint on us right now except if we are going to be running persistent deficits of 10% of gdp, that is not going to be doable because of the inflationary pressure. it is amazing how much people managed to convince themselves there is a redline we cannot cross somewhere. none of those things are borne out. romaine: if we do get to a point where we can see what that level

is, what is the reaction? how fast can reaction function to alleviate the fallout? >> we have -- it is really hard. i actually tried in the past to model what a crisis could look like. how could you even have a fast-moving crisis for a country like the united states? you try to find a historical example of a country that looks like us where there have been cases where people have lost some confidence and government's willingness to pay its bills. all that happens is the currency weakens, which is not the worst thing in the world. you can go to france and a 1926 and they had a fear they were not going to be willing to pay off their debts from world war i. nothing terrible happened.

nothing happened to the real economy. the same is true for us now. caroline: do you find it hard to model? digging in so much more with the nobel prize economist. we will dig more into his area of expertise. the trade relationship between the u.s. and china. stick with us. this is bloomberg. ♪

joe: let's bring back in the nobel laureate and professor of economics paul krugman. one thing people are talking about is you yourself.

about your intellectual evolution. people are noticing there is a difference emerging between your views on certain things and larry summers. d think it is born out of an ideological disagreement or are you operating from the same toolkit and coming to different conclusions on things like inflation, stimulus and so forth? paul: we have very much the same toolkit. we had the same teachers that looked at the world the same way. i think -- i have to admit i am a little puzzled. i understand the worry that we are doing more stimulus than we need. that we are flowing -- throwing a lot of money at the economy. i don't understand why larry things monetary policy can't be used to stabilize inflation. that seems to be a new principal

i had not heard before. economics is not an exact science. smart people, even smart people of the same general framework can come to the data and reach different conclusions. if some of the conclusions seem vehement, if you are not going to stand up for your conclusions, who will? caroline: is there a difference in prioritization patterns? a lot of central banks are primarily focused on inflation. the u.s. has this dual mandate. it becomes a labor market for everyone, not just the few. i am interested as to whether that nuance is something that certain economists are not quite aligned with. paul: i cannot psychoanalyze. it is not just larry summers. the former chief economist of the imf is also concerned we are

overdoing it. i would say that parted this question is -- part of this question is there are risks on all sides. which of them do you think our biggest? i was -- i spent months, years shouting into the wind. my sense was they missed it not just economically but they missed a political window by going to small at the beginning. half of it ended up being politically worse. there was a terrible -- we paid a price for many years. we are still paying a price for the underpowered fiscal policy. i am in the go big school. this is an administration doing

things the way i would have wanted obama to do it. i am pretty vehement on that. this is the chance. what is likely a transitory democratic razor thin control of congress. this is the chance to get a lot of stuff done. you have to take risks to do that. romaine: we have seen bite them trying to go big here. i am curious about trade policy here. something he is now starting to address. an issue that has been lingering through several administrations. is it as critical now as it might have been eight years ago or 16 years ago? paul: trade policy has always been overrated. i say that as somebody who has

spent a large part of his life working on trade policy. the closer you are to the subject, the less melodramatic you get about how much it matters. the different between -- the difference between 2% and 4% tariffs is not a big deal. the u.s. trade policy has not been an important factor for our economy as a whole for a long time. it is big for particular sectors but as a whole, it is not a big deal. that is a good thing. biden is not really rolling back everything trumpeted. i hope -- trump did. i hope we will stop imposing national security tariffs on candida. are we going to see a return to the pro-global is the agenda that took place in the past? i don't think so. it is not that important, but it is also politically comes from

created facts. giving everything else on its plate, why would the biden administration take the risk of being seen as soft on china? in a lot of ways, we have had a permanent turn away. we are got -- we are not going to have any big trade agreements for the future. we are not going to unwind that many of the trump tariffs. it is not that critical. joe: is the opening up, globalization not that big of a deal either? all that stuff, china entering the wto and we were in the globalization mood. was that all over stated on its impact of everything? paul: not really. there is a difference between tariff policy and technological developments that enable greater globalization's. -- globalization. as of 1980, world trade was

basically the same as it was in 1913. everything that happened up to that point was a recovery to where things had been before the world wars. this surge that took place after that, hyper globalization, that required quite a lot. it significantly added to global growth. a lot of that was not mostly about reducing tariffs. tariffs were already low by the 1980's. it was about learning what to do with containment. learning to manage these supply chains. it mattered for developing countries and even countries like the united states. that is not going away. we talk about globalization stalling out. the imf turn for it. we are not talking about going back to the world as it was in 1975. having trade go a little bit more slowly than gdp.

that is not a huge deal. it is not to say globalization did not matter. people like to talk about that stuff because it sounds important. sometimes it is. trade policy within the range we are seeing is not that big of a deal. romaine: always appreciate getting your insights. paul krugman, nobel laureate and distinguished professor of economics at the city university of new york. we will be back in a moment. this is bloomberg. ♪

romaine: last week, we got the u.s. housing data, a sharp rebound since 2006. tomorrow, we are to get new home sales data. contending with higher costs.

risks restraining this demand. mainly the price of lumber. we took a look at what is fueling the prices. lumber prices are skyrocketing. a 60% surge sent prices to a record. analysts are not expecting any relief until late 2021. >> if you can get your hands on it, you're going to buy it aired the numbers are getting higher and higher. futures have a daily limit. in the cash market, there is no limit. the prices are going up significantly. romaine: tightness is acute across the entire timber supply chain. trucking the lanes and -- trucking delays and worker shortages have added to the cost. the summer peak of u.s. homebuilding is expected to deepen the constraints and keep home prices hot. >> lumber is going up. installation is going up. that is getting passed onto the consumer.

romaine: according to the national association of homebuilders, wood have added -- wo -- a wave of diy projects around the house, full-scale home renovations and purchases of bigger homes. data showing housing demand so fears almost half of the u.s. homes are selling within a week of hitting the market. lumber prices are expected to say -- to stay elevated for weeks to come. joe: for more on lumber, let's bring in the bloomberg news agricultural editor. for two days, lumber went down. today it is back up. order has been restored. what is going to bring this into balance? it cannot go on forever, right? >> that is a great question. a lot of analysts point to the end of 2021 into the beginning

of 2022 as when we are going to see relief. there is going to be more sawmill capacity. half of u.s. lumber supply comes from the sales. the bottleneck has been on the sawmill side. there is a lot of trade. there is not a lot of paces -- a lot of places to process those traits. as capacity builds up, that is when people are expecting relief. caroline: time frames for relief? is there any new capacity coming online? >> the capacity is expected to start really ramping up the end of this year into next year. the next 18 months is when we can see a lot of supply capacity coming out on the sawmill side could one analyst -- sawmill side appeared one analysts expect we could see a pretty percent drop from where we are right now. romaine: i saw one estimate from

a stott -- capital economics that put it at 600. what is the general sentiment from the homebuilders and other folks? is there a sense they can wait for this to happen or they have to suck up the costs? >> there is a lot of pain on the end user side. a lot of housing is done on contracts that are done months ahead. they need to deliver the housing projects they have promised. if they have not stocked up on inventory until now, they don't have a choice but to buy the lumber at the prices they can get it. that is why you are seeing builders have been asking for congressional legislation to step in and see if there is any relief that can be brought into the market. there is a lot of pain. it will probably continue for a while. caroline: really great insight. our agricultural editor. thank you very much.

lumber back where it is hot. joe: i got my second shot today. i'm not going to be looking at anything tonight. romaine: is this the way you are telling us you're not going to be here tomorrow? joe: exactly right. caroline: stay well. that does it for what'd you miss? ♪ so you're a small business,

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emily: i'm emily chang in san francisco. welcome to a special edition of bloomberg technology. we are covering those earth day with a hard look at the challenges facing our planet and bringing you some solutions. we are speaking with the google sustainability officer, the former tesla cto who is working