Ezra Klein Show Highlights

2022-11-04 Fr; recorded at Berkeley earlier in the week

Ezra Klein Show Page

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Ezra Klein: I have a lot to say about this book [Slouching Towards Utopia <bit.ly/3pP3Krk>]. It is ambitious, and it is strange, and it will leave you with lots of interesting thoughts and stories you didn’t know you wanted to know. And it covers way more than any one podcast conversation could hope to tap…

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Brad DeLong: [The post-WWII economy] was a mass-production economy, rather than today’s global value-chain economy. An awful lot of people were on assembly lines and elsewhere doing routine and similar jobs which made them extremely easy to organize—believing they needed one common voice…. They were very much aware of their numerical strength in the country…. That extremely strong labor-side voice is something… absent…. The New York Times used to have several dedicated labor reporters. Then they had only one, I think Steven Greenhouse. [Now zero]…

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Brad DeLong: Inflation is when people show up wanting to buy things, expecting to buy things, and find that the economy has tricked them—you are unable to buy what you wanted to buy at the prices you expected to buy them at…. John Maynard Keynes… observ[ed]… back in 1919 that inflation is a betrayal of social trust at an extraordinary level. When you have a depression, maybe one in 20 people loses their job…. They have a really lousy time. Maybe other people are [so] scared that they don’t dare quit. But… a depression affects only a few…. Inflation… everyone feels: wait a minute, this is not how the system is supposed to work, I had my budget, I had my expectations… everyone is cheating me… charging for things more than they are worth…

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Brad DeLong: The willingness of people to raise their prices or to demand higher wages very much depends on what they expect other people to be doing at the same time…. If there is a general expectation that inflation is going to be 7 percent next year, lots of people are… thinking, my wages should go up… I should… raise my prices by about 7 percent… and that fact will do an awful lot to determine… the rate of inflation…. This is one of these economic equilibria, in which there is a little bit of the fundamentals but there’s a lot of… things are what people expect things to be…

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Brad DeLong: An inflation… people who have substantial amounts of immediate market power… able to extract huge amounts of wealth from everybody else…makes it very clear that the race is not to the swift, that… luck, time, and chance rule everything around us… that the distribution of income and wealth… is … random… how lucky you are and how unscrupulous you are…. Not the… thing on which you can build a society with enough trust to actually run a productive, modern economy…

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Brad DeLong: Right now we have two kinds of inflation.… One is an underlying… jump up of inflation from 2 percent to 5 percent, as a result of reopening the economy after the plague…. The other is the Vladimir Putin oil-and-grain Europe is likely to freeze this winter and Nigeria and Egypt may starve.

The first…. We need to get people back to work… in a very different configuration than we had back in 2019…. If you want to get people back… into the right jobs for the future, you… have to offer… [expanding] sectors higher wages…. Plus the bottlenecks…. Friedrich von Hayek would say and did say… a market system… crowdsource[s] solutions to… bottlenecks and supply-chain difficulties…offer[ing] people money if they figure [it] out…. Friedrich von Hayek would say that…coming out of a plague, if you want to… not repeat the lost decade of the 2010s, you’re going to have some inflation…

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Brad DeLong: To some degree, [Arthur] Burns acted badly in 1972. To some degree, Burns went as far as he could in terms of pressuring the Nixon administration to do something in order to fight inflation. Paul Volcker reports conversations… [in which] Burns would rant about how more had to be done. To some degree, Burns thought he would not be allowed to [fight inflation], that if he were to raise interest rates… Congress would come and would take the Fed’s powers away, that he could only preserve [the Fed’s] independence by not [exercising] it…

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Brad DeLong: [Sources of the Neoliberal Turn: As of 1979] the social-democratic governments are clearly, clearly incompetent…. They’ve delivered… stagflation…. Second behind that [is] the idea that inflation is the result of a society that is permissive, that social democracy… hand[s] out more tickets… than there are… seats on the roller coaster…. It simply cannot say no… to [its] organized interest groups, big labor, those parts of big business… in bed with it, welfare-rights organizations, minorities and so forth—[those] that think they have a claim…. And so in order to have stable prices,… [and] a functioning society, we need to get back to the unpermissive view that you get only what you pay for and that you pay for only what you can earn…. Paul Krugman is, I think, pretty certain that it was the inflation that actually pushed the system off the cliff, that it would have hung on without it, and you would not have had the neoliberal turn. I’m less sure…

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Brad DeLong: The [neoliberal] idea is that taxes [need to] be lower on the rich so that the job creators will be incentivized to do their proper entrepreneurial thing and create jobs, rather than spend money on lawyers in order to figure out how to evade taxes. [The idea is] that the social-democratic New Deal order had created a world in which the returns to working hard were too low…. Conversely, [the idea] is that the non-rich have it much too easy, that you can find a union job and then featherbed your way through, the union will represent you if they try to fire you, the boss has virtually no control over anything, and if you do get fired, well, then unemployment insurance is there for a while. And there’s all this social welfare stuff that supports you.

In its most racist versions, it’s this is why all these Black people are having kids out of wedlock. It’s because that then they get the A.F.D.C. payments which allow them to live and party, never mind that they have a one-year-old…. Maybe [this]… was regrettable, [but] people really needed to be incentivized to work hard, which required the rich be richer and the poor be poorer… alas, just the way things are in this fallen, sublunary sphere, where we cannot say “from each according to his ability, to each according to his need” and still have a functioning society….

[Or maybe] income inequality is actually a feature rather than a bug…. It’s very important… society recognize… effort and achievement…. The productive and successful deserve very real rewards. And money… and the social power over other people that money brings is a very important part of that…

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Brad DeLong: The plan for the neoliberal era was [this]:… Make income inequality… greater… [to] incentivize both the… job creators and… the workers… [to] properly punish the slackers and the moochers…. You take aim at the social-insurance state which has been vastly and completely corrupted by rent-seeking interest groups…. The war on rent-seeking is a very important thing that neoliberals can do but that nobody else is willing to do, especially not Social Democrats. That did not work out, I think, the way that neoliberals hoped.

[in the neoliberal view in the late 1970s] social democracy had become vastly over-bureaucratized…. Bureaucrats… write rules and regulations… [that] turn everyone into a software ‘bot… following a rule book that has only one third of the cases properly covered…. You really need… entrepreneurship and enterprise…. to push power out to the people… The apex of this is the 1984 Apple Computer Macintosh launch commercial… how a Macintosh will enable you to move into the neoliberal era…. Rather than being simply a mindless cog working for a large, bureaucratic organization… use your Macintosh computer to be… an independent knowledge worker….

There also was a very strong sense [among neoliberals in the late 1970s] that… people had to buckle down and work…. You shouldn’t have people in Australia claiming unemployment insurance and then going on month-long surfing vacations. You wouldn’t… get… “permissiveness”. You wouldn’t get the decline of the nuclear family. Mothers wouldn’t think that they had the option to leave husbands…. [They] would… return to their proper place in the patriarchal household.

[Neoliberals in the late 1970s thought] a very, very, very large tangle of Gordian knot… [could be cut if you] accept[ed] that the market economy was a very powerful thing, and that the market economy did what it did for reasons…. The right attitude toward it: the market giveth, the market taketh away, blessed be the name of the market.

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Brad DeLong: Come 2007, it becomes very plain that the neoliberal policymakers had forgotten everything the New Deal knew about financial regulation. And then it becomes clear in 2010 that the neoliberal order had forgotten everything the New Deal new about how, in a depression, you… want to get everyone back to work…. That was a big shock to the view that the neoliberal politicians and technocrats actually knew what they were doing…

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Brad DeLong: Look, you couldn’t run a gunpowder empire in 1650 like you ran a feudal régime in 1000. And you couldn’t run a steam-power society in 1870 like you ran a gunpowder empire in 1650. Similarly, the mass-production economy that supported the New Deal Order was a very different animal than the semi-globalized economy or the global value-chain economy of the Neoliberal Order.

And we are now moving into… an info-biotech economy…. The forces-of-production foundations are very different. So any kind of political or political-social bargain built on top of them… [that] recreate[s] one… built… on an earlier set of forces-of-production foundations… is highly unlikely to work at all.

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Brad DeLong: You look at the long-run bond-market inflation expectation gauges that I prefer to look at, and they are all blinking that the bond market expects inflation to be lower than the Fed’s target in five years rather than above…. What real people are counting on happening is much more attuned to what’s happening to the gasoline prices that they see at the pump…. But [still] the analogies… [to] the late 1970s are still, I think, weaker than analogies with…1947… [or] 1951, when we… had an inflation wave…. I’d say the odds are still 60 percent that we’re repeating those and only 40 percent that it’s something somewhat or more analogous to the 1970s. Of course, Vladimir Putin and company and the House of Saud could change that. We still have an economy that, in large part because we failed to get Democratic Senator [number] fifty on board for Al Gore’s B.T.U. Tax in 1993, has… wasted a generation with respect to the transition away from carbon energy. And the consequences are not just global warming, but… also this large, political-economy vulnerability to a bunch of people who are pretty bad actors and yet who have control over the critical energy resources.

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Ezra Klein: If Brad today could go back to the Brad of the early Clinton administration… What would your dialogue with your earlier self be? What should have been seen in the early ‘90s that wasn’t?

Brad DeLong: I would say:… Al Gore is going to lose the presidential election five votes to four in 2000, [so] whatever fiscal space you create by reducing the deficit now will be used to fund high-income tax cuts in the 2000s…. Move government accounting away from its current… framework… [to] an explicit public-investment account and public-operations account… [be] fiscally responsible for the public operations account, and… use the public-investment account to make [the] investments in America to keep America great. I would also tell them:… we are… moving into a world in which… income inequality is going to be higher… [and there] will be a nearly infinite flood of savings looking for outlets… which means the cost of borrowing to invest in the future will be uniquely, historically, generationally, low for the next 30 years. And so the time to wheel the American economy away from consumption and to investment in technology and infrastructure is now…. We should be doing not what Bob Reich and company want us to be doing in terms of public support for economic growth, but we should be doing two, three, four, five times as much.

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Ezra Klein: We talked earlier about the info-biotech possibilities. You talked about domination and communication. What do you think the moral, economic narrative is that would work in this era? What do you think, when people begin trying to tell a story, they need to be paying attention to, recognizing that it’s more than an economic policy?

Brad DeLong: Paul Seabright’s book: The Company of Strangers. You drop any one of us in the wilderness and we die…. We … have to be part of a society with a sophisticated division of labor…. We have… a… propensity to engage in gift-exchange relationships…. You don’t want to be a moocher, but you also don’t want to always be the person doing the work…. This complicated dance of favors and obligations in which, ideally, everyone feels obligated… even though everyone is getting enormous amounts from the relationship. And we invent coins. And, all of a sudden, you can have this gift-exchange relationship not just with your neighbors, your friends, and your kin, but… with everyone everywhere….

[We need] to realize how very lucky we are and how we all are cousins and how we all are involved in this reciprocal exchange of favors for each other…. [We need] to take that very seriously.

Adam Smith, in The Wealth of Nations, has a passage where he’s arguing against mercantilists who say a low-wage economy is going to be a strong economy because… your gold… [buys] lots of work on … and project[s lots of] military power…. He says: wait a minute. The society is made up of people. If most of the people are starving, is that a good society? And then he does this gift-exchange, intellectual judo move, saying: “it is but equity, besides, that those who feed, clothe, and care for the rest of society should themselves, be well fed, well clothed, and well cared for.”…

To take seriously that the market economy is a gift-exchange network… [among] cousins…. We have enormous amounts in common [with] and we owe [many] things to people far away. There are people in Pakistan who wove the carpets that are on the floor of my living room…. Every time I walk on them, I should think:… “I have this wonderful carpet…. And when the dog barfs on it we go to considerable effort to clean it off because it is a thing of beauty…. I… have an obligation to…the guy in Pakistan… who tied these knots.”… Whatever I should do, I should take care that he is somewhere close to the front of my mind.

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Brad DeLong: I don’t know if [these three books] have influenced me, but… I wish they had influenced me… [in] the last months writing my book:]…

Gary Gerstle published his The Rise and Fall of the Neoliberal Order, which is a book I really wished that I would have had [to hand] while writing the Neoliberal Turn chapter, because it would have made it better and stronger and would have made me smarter….

Jacob Soll of U.S.C…. the only person I know whose title is university professor of accounting and philosophy… a fairly unique title, has a book called Free Market going through the idea of the free market from Cicero to Friedman… It’s a truly excellent,… wonderful book that I wish I had had at my side while I was writing my own…. He said that reading mine made him [realize]… he had written… [his] book the way he did because he didn’t want to be known as that crazy leftist who likes Karl Polanyi, but [now] felt guilty [seeing how] I’ve used Polanyi successfully….

The third [book is]… closely-related…. [This is] social-network-academic nepotism…. I had a student in the 2000s, Glory Liu, who now has one of the jobs at Social Studies in Harvard that I was looking at back in 1981 when I was thinking of who would I like to be…. She has a book on Adam Smith’s America, on the reception of Adam Smith in America and how someone who is largely a David Humean moral philosopher came to be weaponized as the person who believes the market is a god in America in the 1800s and 1900s…. I think [it] is very, very much worth reading. And it’s forthcoming from Princeton University Press in November…