WEBVTT - Nick Lemann on Shooting Sacred Cows (in Economics) 0:00:01.280 --> 0:00:06.400 I'm Bethany McLean. This is making a killing in this show. 0:00:06.480 --> 0:00:09.160 I cut through the hype and handwringing to reframe the 0:00:09.200 --> 0:00:12.480 stories you thought you understood and uncover the ones you 0:00:12.560 --> 0:00:16.600 didn't know were important. I started work on Wall Street 0:00:16.600 --> 0:00:19.720 in nineteen ninety two, in the mergers and acquisitions department 0:00:19.760 --> 0:00:22.520 at Goldman Sex. In nineteen ninety five I went to 0:00:22.560 --> 0:00:25.680 Fortune Magazine. By this time we were firmly in the 0:00:25.720 --> 0:00:29.000 age of shareholder primacy, by which I mean the purpose 0:00:29.040 --> 0:00:31.680 of a company was to make money for shareholders. If 0:00:31.680 --> 0:00:34.559 they didn't make enough, it was a bad company. And 0:00:34.680 --> 0:00:38.880 then a god of finance aka biotfirm, a private equity firm, 0:00:39.120 --> 0:00:41.760 would come along and fix things. This was the natural 0:00:41.840 --> 0:00:45.479 order of things, or so it seemed my guest today. 0:00:45.680 --> 0:00:49.200 Long time journalist Nick Lehman describes this period of acceptance 0:00:49.200 --> 0:00:52.400 of the status quo and his brilliant new book Transaction Man, 0:00:52.720 --> 0:00:54.720 The Rise of the Deal in the Decline of the 0:00:54.760 --> 0:00:58.520 American Dream. He writes, there moments in history when everything 0:00:58.560 --> 0:01:02.400 seems calm, when there isn't some obvious bitter contention about 0:01:02.440 --> 0:01:06.360 big problems. That, of course, was the late nineteen nineties, 0:01:06.760 --> 0:01:09.320 even the subsequent dot com crash, and then, of course 0:01:09.360 --> 0:01:12.399 the implosion of Enron didn't seem to me at the 0:01:12.480 --> 0:01:15.680 time so much an example of a deep systemic problem 0:01:16.160 --> 0:01:18.319 as it was a story of good ideas taken to 0:01:18.360 --> 0:01:21.479 bad extremes at a market peak. The men, and they 0:01:21.520 --> 0:01:24.800 are mostly men, who order our economic world, must be 0:01:24.920 --> 0:01:27.680 right in their thinking, because well, because they order our 0:01:27.720 --> 0:01:30.800 economic world. It's a perfect example of the fallacy of 0:01:30.800 --> 0:01:34.440 the consequent high Aristotle. I think the financial crisis in 0:01:34.480 --> 0:01:36.800 two thousand and eight made us question all of that. 0:01:37.280 --> 0:01:39.600 What Nick does in his book is outline the beliefs 0:01:39.600 --> 0:01:42.319 that have shaped our economic world and show them not 0:01:42.440 --> 0:01:46.759 as inviolable truth, but as temporary and fairly fragile constructs. 0:01:47.600 --> 0:01:50.920 Here's one take the mid century idea that big corporations, 0:01:50.960 --> 0:01:54.280 their power kept in check by smart government regulation, would 0:01:54.320 --> 0:01:57.880 always dominate. It was the polar opposite of today's startup 0:01:57.920 --> 0:02:01.639 loving culture. As Nick writes, it's worth recalling how little 0:02:01.960 --> 0:02:04.480 the founding of new companies was part of the prevailing 0:02:04.560 --> 0:02:07.880 narrative of how business worked. How obviously wrong did that 0:02:07.920 --> 0:02:10.760 turn up to be. Then it became an article of 0:02:10.800 --> 0:02:14.600 faith from the eighties until oh about now that financiers, 0:02:14.600 --> 0:02:17.200 We're going to make companies stronger and more efficient, and 0:02:17.280 --> 0:02:20.639 somehow never mind exactly how that was going to work 0:02:20.639 --> 0:02:23.320 for the rest of us too. Now that idea is 0:02:23.400 --> 0:02:26.840 under fire as well. In late August, the Business Round Table, 0:02:27.080 --> 0:02:30.760 which as it sounds, essentially represents big business, said it 0:02:30.760 --> 0:02:33.519 it's changing its statement of the purpose of a corporation. 0:02:34.040 --> 0:02:36.760 No longer should decisions be based solely on the Milton 0:02:36.800 --> 0:02:40.080 friedmanesque view that the only purpose is to produce higher 0:02:40.120 --> 0:02:43.960 profits for shareholders. Rather, corporate leaders should take into account 0:02:44.000 --> 0:02:48.720 all stakeholders, that is, employees, customers, and society writ large. 0:02:49.280 --> 0:02:51.600 Today I get to discuss all of this and more 0:02:51.680 --> 0:02:54.000 with my friend Nick Lehman, who, in addition to his 0:02:54.120 --> 0:02:57.239 many other roles New Yorker writer din Emeritus of the 0:02:57.240 --> 0:03:00.600 Columbia Journalism School, is also the editor in chief of 0:03:00.639 --> 0:03:03.959 Columbia Global Reports, which published my last too mini books. 0:03:04.240 --> 0:03:06.280 So I'm thrilled that now I get to talk to 0:03:06.360 --> 0:03:09.480 Nick about his new book. So Nick, tell me what 0:03:09.560 --> 0:03:11.960 was the genesis of this book. First of all, you 0:03:12.000 --> 0:03:15.359 mentioned that I was dean of Columbia Journalism School, and 0:03:15.480 --> 0:03:18.400 in that role, fundraising was a big part of my life. 0:03:18.840 --> 0:03:21.080 So that was the first time I had encountered the 0:03:21.160 --> 0:03:25.760 current generation of very rich people, and I was fascinated 0:03:26.200 --> 0:03:30.280 to learn kind of how they thought, which was if 0:03:30.320 --> 0:03:33.600 I said, will you give money to Columbia Journalism School, 0:03:33.720 --> 0:03:38.000 they'd always say no. If I said, we're going to 0:03:38.080 --> 0:03:43.320 disrupt journalism and create an entirely new institution that will 0:03:43.360 --> 0:03:46.280 be very loosely related to the Journalism School, but it'll 0:03:46.320 --> 0:03:50.720 be sort of entrepreneurial and dismantling everything that existed before, 0:03:50.760 --> 0:03:53.200 they'd say, great, I love it. So there was this 0:03:53.280 --> 0:03:57.080 kind of prejudice that you'd encounter over and over again 0:03:57.680 --> 0:04:02.320 toward taking a part institutions that existed, even once I 0:04:02.400 --> 0:04:06.400 believed in, and then creating new ones that would supposedly 0:04:06.440 --> 0:04:10.560 be better, or just not having institutions. And there's also 0:04:10.640 --> 0:04:14.000 a part about journalism. And I won't name the person, 0:04:14.120 --> 0:04:17.120 but one of my fundraising meetings when I was dean 0:04:17.480 --> 0:04:21.240 was with a former journalist who had become very wealthy 0:04:21.400 --> 0:04:24.279 venture capital investor. So I thought, great, you know somebody 0:04:24.279 --> 0:04:27.520 who loves journalism. And I went to see him with 0:04:27.560 --> 0:04:30.960 my colleague who was the fundraiser, and he just I 0:04:30.960 --> 0:04:32.640 don't know why he took the meeting, but he spent 0:04:32.720 --> 0:04:35.880 an hour just giving us a big lecture on how 0:04:36.240 --> 0:04:40.000 everything in journalism was going down and he was proud 0:04:40.040 --> 0:04:42.640 to be part of that, and how he was going 0:04:42.680 --> 0:04:45.480 to fund all these startups that were going to replace 0:04:45.520 --> 0:04:49.000 all the familiar journalism institutions and do a better job. 0:04:49.640 --> 0:04:52.280 And my development officer and I went back to a 0:04:52.400 --> 0:04:55.760 hotel and met for breakfast. I said to him, did 0:04:55.800 --> 0:04:58.640 you look at all the sites he's funding? And he said, yeah, 0:04:58.680 --> 0:05:00.880 did you? I said, did you do you want to 0:05:00.960 --> 0:05:04.400 kill yourself? Or is it just me? Because they were 0:05:04.480 --> 0:05:08.960 just you know, pop culture basically, So it just it 0:05:09.080 --> 0:05:15.440 just was striking to me to encounter this mindset delivered 0:05:15.440 --> 0:05:19.520 with total sureness and a kind of religious fervor, and 0:05:19.600 --> 0:05:22.240 to try to sort of pinpoint and identify that as 0:05:22.800 --> 0:05:25.720 William White did many years ago in his great book 0:05:25.800 --> 0:05:29.120 The Organization Man, which was kind of about the opposite 0:05:29.120 --> 0:05:33.040 phenomenon back in the nineteen fifties. Right, So asking these questions, 0:05:33.120 --> 0:05:35.440 is it fair to say that by looking at an 0:05:35.440 --> 0:05:38.839 institution or a business that you knew well, mainly journalism, 0:05:39.080 --> 0:05:43.120 and thinking about how the mindsets regarding journalism were changing, 0:05:43.320 --> 0:05:45.800 made you start thinking about these larger mindsets that have 0:05:45.920 --> 0:05:49.560 ordered our economic world, and how they've changed over really 0:05:49.600 --> 0:05:52.159 the course of American history. Yeah, exactly, I was. I 0:05:52.240 --> 0:05:55.960 was using as nonfiction writers often do you know in 0:05:56.040 --> 0:05:58.920 fiction class which I've never taken, supposedly they tell you 0:05:59.000 --> 0:06:02.440 right about what you know and you know in nonfiction, 0:06:02.600 --> 0:06:05.279 I think what you do is, or at least for 0:06:05.360 --> 0:06:10.720 book writers, you take something that, probably for a personal reason, 0:06:11.440 --> 0:06:15.000 you're intensely interested in and curious about, but you don't know, 0:06:15.400 --> 0:06:18.400 and try to find out about it. So with all 0:06:18.520 --> 0:06:22.120 my books, there's been this dynamic of how did this happen? 0:06:22.560 --> 0:06:26.480 You know, something that I had experienced in a deep 0:06:26.520 --> 0:06:28.960 way but hadn't understood, And then I would go try 0:06:29.000 --> 0:06:32.880 to unravel the mystery. Now that the Business Roundtable has 0:06:32.920 --> 0:06:36.800 come out with a statement about corporations having a broader responsibility, 0:06:37.080 --> 0:06:39.680 do you think people recognize that this is, essentially, as 0:06:39.680 --> 0:06:41.840 you lay out in your book, a return to an 0:06:41.839 --> 0:06:46.040 old way of thinking rather than something that's completely fresh. 0:06:46.080 --> 0:06:49.039 I mean, it strikes us all as revolutionary now to 0:06:49.040 --> 0:06:50.960 say that the purpose of a company should be something 0:06:50.960 --> 0:06:54.479 other than generating shareholder value, and yet that's actually how 0:06:54.520 --> 0:06:57.600 most people thought about corporations up until oh, the nineteen 0:06:57.600 --> 0:07:00.279 eighties or so. Right, Yeah, But I mean before I 0:07:00.320 --> 0:07:04.120 get there, there's a tension between the financial world and 0:07:04.160 --> 0:07:07.320 the corporate world, and that's just built into the fabric 0:07:07.360 --> 0:07:11.000 of everything. I live on the fabled Upper West Side 0:07:11.000 --> 0:07:14.679 of New York, home of liberals. If I say that 0:07:15.080 --> 0:07:21.080 to people, the initial reaction is what huh, Because I 0:07:21.120 --> 0:07:23.000 think we think of them as the same thing. Business 0:07:23.320 --> 0:07:26.720 and finance are both part of the same big evil scheme. 0:07:26.880 --> 0:07:31.520 So it takes a little work to introduce the uninitiated 0:07:31.720 --> 0:07:35.160 to the fact that this tension exists. But once you 0:07:35.280 --> 0:07:38.480 get there, Yes, the story I tell in the book 0:07:38.600 --> 0:07:42.560 is one where when we start in the early twentieth century, 0:07:43.400 --> 0:07:47.120 there is no notion of corporate social responsibility, and then 0:07:47.200 --> 0:07:51.480 it's created with government playing a very large role in 0:07:51.520 --> 0:07:53.560 its creation. We can get more into the pause there 0:07:53.560 --> 0:07:55.760 and tell us about the character about Off Burley, who 0:07:55.800 --> 0:07:59.240 you tell this story through. Burley was a crucial advisor 0:07:59.320 --> 0:08:02.360 to Franklin Roosevelt in the early days of the New Deal. 0:08:03.040 --> 0:08:05.320 Burley and a co author wrote a book that was 0:08:05.360 --> 0:08:09.040 published in nineteen thirty two called The Modern Corporation and 0:08:09.120 --> 0:08:13.480 Private Property. In that book, They said Burley had a 0:08:13.480 --> 0:08:16.720 flair for the dramatic. For the first time in human history, 0:08:17.320 --> 0:08:22.520 ownership and control have been separated. Because the modern publicly 0:08:22.560 --> 0:08:26.640 held corporation, then quite a new institution that people found 0:08:26.720 --> 0:08:32.839 strange and unfamiliar, has shareholders who are so widely dispersed 0:08:33.240 --> 0:08:36.000 that they can't have any influence over the management of 0:08:36.000 --> 0:08:40.760 the company. So the management is completely unaccountable, and there 0:08:40.800 --> 0:08:43.400 needs to be some way to call them to account. 0:08:44.280 --> 0:08:48.720 Early in his career, Burley was read as an advocate 0:08:48.760 --> 0:08:52.840 of what we'd now call shareholder activism. In other words, 0:08:52.880 --> 0:08:55.760 he was noting this, and people thought he was noting 0:08:55.800 --> 0:08:58.040 it to say, well, let's put the shareholders in charge. 0:08:58.480 --> 0:09:02.040 That's not what he thought. What he thought was, let's 0:09:02.280 --> 0:09:05.640 bulk up government so it can be as powerful as 0:09:05.720 --> 0:09:08.679 the corporations, and there can be a sort of fair fight, 0:09:08.760 --> 0:09:10.840 like what I call in the book a clash of 0:09:10.880 --> 0:09:15.080 the titans between them, and only then, in his view, 0:09:15.160 --> 0:09:19.920 would you get the socially responsible corporation. Many years later, 0:09:20.400 --> 0:09:24.280 he was quite typical of sort of Eastern liberal establishment 0:09:24.320 --> 0:09:29.160 types in saying things like, we have these big industrial corporations, 0:09:29.720 --> 0:09:32.040 no one will ever be able to compete with them. 0:09:32.040 --> 0:09:34.720 They will last forever. They will only get bigger and 0:09:34.800 --> 0:09:39.080 bigger and more dominant. There are no entrepreneurs in America anymore. 0:09:39.600 --> 0:09:44.199 Only large corporations can innovate. Wall Street has become irrelevant 0:09:44.240 --> 0:09:48.080 in the American economy and will disappear eventually. Because he 0:09:48.160 --> 0:09:51.160 thought these corporations would be so rich they would just 0:09:51.440 --> 0:09:54.880 invent their own financial products to fund production and things 0:09:54.960 --> 0:09:57.760 like that. And you know, in a certain way, I 0:09:57.800 --> 0:10:00.160 hate to say he died just in time, because is 0:10:00.200 --> 0:10:03.240 this world that he went to his deathbed thinking was 0:10:03.320 --> 0:10:08.200 forever and many people like him did exploded not long after. 0:10:08.600 --> 0:10:10.600 The three things that really stood out to me that 0:10:10.640 --> 0:10:13.760 you noted about Burley were that you wrote he believed 0:10:13.760 --> 0:10:16.720 the corporation had become the conscience carrier of twentieth century 0:10:16.760 --> 0:10:19.640 American society. And that's a quote from him. Either way, 0:10:19.679 --> 0:10:22.960 that's not no, it's but it's fascinating because it shows 0:10:23.000 --> 0:10:25.760 how this idea was so ingrained for a while, that 0:10:25.800 --> 0:10:29.800 corporations had this larger responsibility. And then I also thought 0:10:29.920 --> 0:10:33.160 his idea that a near clash of the Titans analogy 0:10:33.240 --> 0:10:36.000 government was the one thing that could restrain big business. 0:10:36.080 --> 0:10:38.080 And then the way in which he believed, back to 0:10:38.120 --> 0:10:41.559 the point you were making about corporations and finance being 0:10:41.559 --> 0:10:44.360 two different things, the way he believed that capital had 0:10:44.360 --> 0:10:47.120 come out of capitalism, that this really was just about 0:10:47.200 --> 0:10:50.679 big corporations and Wall Street was quiescent. Really, yeah, he did, 0:10:50.800 --> 0:10:52.640 he said one of his He loved to make these 0:10:52.720 --> 0:10:55.680 dramatic pronouncements, and one of them was, we now have, 0:10:55.880 --> 0:10:59.480 for the first time in the world capitalism without capitalists. 0:11:00.960 --> 0:11:03.760 Was that right? A fantastic lyde tell us. Before we 0:11:03.800 --> 0:11:05.920 move on to how the world changed and how this 0:11:05.960 --> 0:11:08.840 world because construct Burley had created seemed to be wrong, 0:11:09.240 --> 0:11:11.600 because it's so relevant today, talk a little bit about 0:11:11.679 --> 0:11:15.720 the difference in views between Burley and Brandeis. Lewis Brandeis 0:11:15.880 --> 0:11:21.160 was Supreme Court justice and before that a crusading liberal lawyer. 0:11:21.679 --> 0:11:24.480 He was appointed to the Supreme Court by Woodrow Wilson, 0:11:24.960 --> 0:11:30.199 and he's kind of the father intellectually of aggressive anti trust. 0:11:30.720 --> 0:11:35.920 His favorite phrase was the curse of bigness, and he 0:11:35.960 --> 0:11:40.520 was a crucial advisor to Woodrow Wilson in his first 0:11:40.600 --> 0:11:45.400 successful presidential campaign in nineteen twelve. We now forget that. 0:11:45.640 --> 0:11:48.640 Number one. The big issue in that campaign was anti 0:11:48.640 --> 0:11:52.760 trust policy, believe it or not. And number two Theodore Roosevelt, 0:11:52.880 --> 0:11:56.400 one of the three candidates who's seen today as a trustbuster, 0:11:57.160 --> 0:12:01.360 was the anti anti trust candidate. Woodrow Wilson was the 0:12:01.400 --> 0:12:05.600 one for breaking up big companies, not Roosevelt, because Roosevelt 0:12:05.640 --> 0:12:09.000 had embraced Burley's view that big corporations could be restrained 0:12:09.040 --> 0:12:13.800 by Yeah, I have this idea in the book Clash 0:12:13.840 --> 0:12:16.679 of the Titans. Liberals who tend to be people from 0:12:16.720 --> 0:12:21.720 New York, and they believe, you know, supersize government, supersized business, 0:12:21.720 --> 0:12:23.360 and then you can have a kind of fair fight 0:12:23.480 --> 0:12:29.160 between them. Brandeis believed in dispersing power and not coincidentally, 0:12:29.200 --> 0:12:36.000 maybe came from the provinces Louisville, Kentucky. So really interesting relationship. 0:12:36.640 --> 0:12:40.319 Burley's very first job he was a lawyer after law school, 0:12:40.360 --> 0:12:43.959 was working for Brandeis and Brandeis's law firm and they 0:12:44.000 --> 0:12:50.400 had a long tortured relationship. Burley claimed that he kept 0:12:50.480 --> 0:12:55.040 a picture of Brandise on his office wall until his death, 0:12:55.480 --> 0:12:59.960 but he thought Brandeis was completely wrong on anti trus 0:13:01.120 --> 0:13:06.080 Burley was fiercely opposed to anti trust his whole life. 0:13:06.400 --> 0:13:09.760 Every time he got a chance to testify in Congress 0:13:09.800 --> 0:13:12.880 against breaking up a company. He would do it, and 0:13:12.960 --> 0:13:15.920 he just thought this was a kind of backward looking, 0:13:16.080 --> 0:13:21.280 nostalgic attempt to revive nineteenth century America. So he would 0:13:21.360 --> 0:13:23.480 one of the many things he'd be shocked by if 0:13:23.480 --> 0:13:27.000 he were alive today. What is the revival of anti 0:13:27.040 --> 0:13:30.280 trust that we're now seeing out on the campaign trail 0:13:30.360 --> 0:13:33.280 and in Europe the revival, right at least, the revival 0:13:33.320 --> 0:13:35.760 of the idea. I was thinking when you mentioned Brandeis 0:13:35.840 --> 0:13:38.600 and the curse of bigness, how much that resonates today, 0:13:39.040 --> 0:13:41.280 not only when you think about technology, but the big 0:13:41.320 --> 0:13:44.440 banks after the financial crisis. Right, Yeah, And as I said, 0:13:44.440 --> 0:13:46.480 Burley had a flair for the dramatic. One of his 0:13:46.600 --> 0:13:51.760 many dramatic pronouncements after World War Two, and after Brandeis 0:13:51.800 --> 0:13:54.880 was dead, he said, this is such a settled matter 0:13:55.320 --> 0:13:58.720 that these big corporations are a good idea for America, 0:13:58.880 --> 0:14:02.760 that I believe that justice Brandis, my friend, if he 0:14:02.840 --> 0:14:07.760 were alive, would have supported my view. So he sort 0:14:07.800 --> 0:14:12.520 of converted Brandis to his position post mortem. So before 0:14:12.520 --> 0:14:15.200 we get to how a settled matter became incredibly unsettled, 0:14:15.240 --> 0:14:17.200 I want to pause for a minute on Roosevelt, just 0:14:17.280 --> 0:14:20.720 because he also is an interesting character in light of 0:14:20.800 --> 0:14:24.880 what's happening today, and a complicated one. In other words, 0:14:24.880 --> 0:14:27.640 he strikes me as a bit Clintonian, perhaps in his 0:14:27.840 --> 0:14:30.560 embrace of multiple ideas that would seem to be in 0:14:30.560 --> 0:14:34.080 conflict with each other. Franklin Roosevelt is a fascinating character, 0:14:34.280 --> 0:14:37.720 and you know, very attractive in many ways, but he's 0:14:38.000 --> 0:14:45.240 beyond Clintonian in his sort of affable elusiveness. One advantage 0:14:45.240 --> 0:14:47.960 we have is in those days, everybody wrote everything down, 0:14:48.440 --> 0:14:53.680 so there's wonderful archives on all of the endless internal battles. 0:14:54.160 --> 0:14:59.720 Remember that FDR changed vice presidents three times, and he 0:14:59.800 --> 0:15:05.520 was just always moving and shifting his position instinctively. Well, 0:15:05.680 --> 0:15:09.760 or I would say he never really sat down and 0:15:09.960 --> 0:15:14.680 stated what his views were. In fact, what people often 0:15:14.760 --> 0:15:18.160 cite as the best statement of his views was written 0:15:18.200 --> 0:15:21.560 by Burley during the nineteen thirty two campaign. What was that. 0:15:21.760 --> 0:15:24.880 It was called the Commonwealth Club speech, and it's often 0:15:25.240 --> 0:15:29.080 taught in history classes and so on. And the timing 0:15:29.080 --> 0:15:31.680 of presidential campaigns was a lot more slow than it 0:15:31.760 --> 0:15:36.200 is now. So around August nineteen thirty two, Burley wrote 0:15:36.280 --> 0:15:39.000 Roosevelt a letter he was by then a key advisor, 0:15:39.400 --> 0:15:42.080 and he said, look, you know, you might win or 0:15:42.120 --> 0:15:46.080 you might lose the election. We don't know. But even 0:15:46.120 --> 0:15:48.840 if you lose, you don't want to be remembered as 0:15:48.880 --> 0:15:51.520 somebody who had no vision. And right now no one 0:15:51.600 --> 0:15:54.320 knows what you stand for, so you need to make 0:15:54.360 --> 0:15:57.480 a speech showing what your vision is. So Roosevelt wrote 0:15:57.480 --> 0:16:01.520 back and said, okay, write me a speech that contains 0:16:01.560 --> 0:16:04.520 my vision and I will deliver it. So Burley and 0:16:04.720 --> 0:16:07.880 his wife, who was an amazing and very accomplished medical 0:16:07.960 --> 0:16:11.240 doctor named Beatrice Burley, sat down in their kitchen table 0:16:11.320 --> 0:16:15.760 in the Berkshires and wrote this speech that they telegraphed 0:16:15.800 --> 0:16:18.960 to FDR who was riding on a train across the country. 0:16:19.440 --> 0:16:22.520 Supposedly he saw it only minutes before he delivered it, 0:16:22.560 --> 0:16:26.200 but he delivered it. And it was this grand, sweeping 0:16:26.880 --> 0:16:31.160 vision of very Burly esque, of how America was being 0:16:31.240 --> 0:16:34.960 strangled by these giant corporations and government had to push 0:16:35.000 --> 0:16:39.680 back against them. And it actually cited Burly's book. Of course, 0:16:39.880 --> 0:16:42.240 you can't write a speech without signing your own book. Ye. 0:16:42.440 --> 0:16:47.040 So anyway, everybody was always fighting in the Roosevelt administration, 0:16:47.520 --> 0:16:51.160 and no one could quite figure out where Roosevelt stood 0:16:51.600 --> 0:16:56.400 as he zigged and zag between various warring liberal camps. 0:16:56.920 --> 0:17:02.520 And one dimension of this was government regulation. And you 0:17:02.560 --> 0:17:05.000 know how much did he believe in markets or not? 0:17:05.240 --> 0:17:07.679 Was he trying to save the market or was he 0:17:07.720 --> 0:17:11.359 trying to get the United States onto another system? And 0:17:11.400 --> 0:17:14.840 then another was did he believe in Brandeis or did 0:17:14.840 --> 0:17:17.840 he believe in Burley? And he kind of believed in both, right, yeah, 0:17:18.119 --> 0:17:21.600 or no? One could tell that there's a fascinating moment 0:17:21.720 --> 0:17:26.920 where Brandeis. In those days, people in Washington, maybe like today, 0:17:27.000 --> 0:17:30.720 maybe even more so, didn't color inside the lines as 0:17:30.760 --> 0:17:35.200 they say. So Brandeis calls Burley and says, I don't 0:17:35.320 --> 0:17:41.600 like FDR's new economic policies and essentially implies if he 0:17:41.680 --> 0:17:45.720 doesn't change, I'm going to strike down one of his 0:17:46.000 --> 0:17:51.480 key new government agencies, the National Recovery Administration, which is 0:17:51.480 --> 0:17:56.159 being challenged in the Supreme Court. So Burley tells Roosevelt this, 0:17:56.320 --> 0:18:00.000 Roosevelt writes back in his usual sort of affable, mysterios 0:18:00.240 --> 0:18:03.040 way and says, I'll just have to call in the 0:18:03.200 --> 0:18:06.760 Justice and have a little talk with him. And whatever 0:18:06.840 --> 0:18:10.200 happened in the talk, the Supreme Court did strike down 0:18:10.560 --> 0:18:14.399 the National Industrial Recovery Act, with Brandis voting in a 0:18:14.520 --> 0:18:18.800 unanimous majority. Can you imagine today if it became public 0:18:18.880 --> 0:18:22.679 that a Supreme Court justice was effectively blackmailing the president 0:18:22.760 --> 0:18:25.880 at the United States. I mean, that's a pretty extraordinary story, right, 0:18:25.920 --> 0:18:28.200 And also it later emerged. I mean, I'm a big 0:18:28.240 --> 0:18:30.200 admirer of Brandis, I think he was a great man. 0:18:30.280 --> 0:18:32.680 But it later emerged, not from my work, but from 0:18:32.720 --> 0:18:38.320 another historian's work that Brandeis was paying a stipend to 0:18:38.359 --> 0:18:42.320 his later colleague on the Supreme Court, Felix Frankfurter, who 0:18:42.480 --> 0:18:47.159 was an arch enemy of Burley, to sort of promote 0:18:47.640 --> 0:18:52.119 ideas that were friendly to Brandis, but that Brandeis couldn't 0:18:52.160 --> 0:18:56.560 promote personally because he was a Supreme Court justice. So 0:18:56.600 --> 0:18:59.400 how did this world that appeared to be so settled 0:18:59.480 --> 0:19:02.320 began to unravel? And at the risk of asking to 0:19:02.520 --> 0:19:04.840 why didn't people see it at the time that what 0:19:05.240 --> 0:19:08.680 seemed to be so permanent was actually just a fragile, 0:19:08.680 --> 0:19:11.640 impermanent construct. You've got this great phrase in the book, 0:19:11.720 --> 0:19:17.360 masterless money, and yet that supposedly masterless money suddenly became 0:19:17.720 --> 0:19:20.080 a master, a master at the universe. As a matter 0:19:20.119 --> 0:19:23.000 of fact, masterless money, I think is another of Burley's 0:19:23.160 --> 0:19:27.280 great phrase it's not mine, but just to set the 0:19:27.320 --> 0:19:31.879 table for this, any time you were born into a 0:19:32.000 --> 0:19:37.400 social system and a group of arrangements, you always kind 0:19:37.400 --> 0:19:39.960 of automatically think, well, this is the way the world is, 0:19:40.000 --> 0:19:41.959 so this is the way the world will always be. 0:19:42.520 --> 0:19:46.760 So I would say what happened is number one, inflation, 0:19:47.400 --> 0:19:50.439 which had been quiescent for a number of years, really 0:19:50.480 --> 0:19:55.080 took off in the nineteen seventies, and that destabilized the 0:19:55.160 --> 0:19:59.760 system a lot, particularly because banks could no longer at 0:20:00.040 --> 0:20:03.480 act depositors because they didn't want to have their money 0:20:03.680 --> 0:20:06.080 lose its value while it was sitting in a bank 0:20:06.440 --> 0:20:08.960 at a regulated interest rate. So it led to all 0:20:09.000 --> 0:20:11.040 this listening of the rules at the behest of the 0:20:11.040 --> 0:20:14.120 banking line, right. So the banking industry, which had never 0:20:14.280 --> 0:20:18.320 really wanted to be regulated in the first place, started pushing, pushing, 0:20:18.359 --> 0:20:24.480 pushing to be able to invest more daringly, have fewer 0:20:24.840 --> 0:20:28.840 safety and soundness restrictions, etc. So that was That's totally 0:20:28.840 --> 0:20:31.159 fascinating and worth pausing on that point for a moment, 0:20:31.200 --> 0:20:34.280 because for all the discussion about what led to the 0:20:34.320 --> 0:20:38.119 collapse of Glassdagle. Obviously Roosevelt's law. I'd never thought of 0:20:38.119 --> 0:20:40.840 inflation as being as being a part of that story, 0:20:40.880 --> 0:20:42.800 but it is. Yeah. I think it is a really 0:20:42.800 --> 0:20:46.840 important the story. Another part of the story is just 0:20:47.720 --> 0:20:51.760 general mood of the times. When I was starting out 0:20:51.840 --> 0:20:54.440 in journalism, I was working in Washington in the mid 0:20:54.480 --> 0:20:58.920 to late nineteen seventies, and at that point you could 0:20:58.960 --> 0:21:04.679 actually see New Deal figures walking down the street elderly men, 0:21:04.720 --> 0:21:07.120 and it was just an article of faith with us. 0:21:07.200 --> 0:21:09.919 I mean, looking back, you think, well, you know, the 0:21:10.000 --> 0:21:13.919 New Deal economic regime, and the whole regime worked pretty 0:21:14.000 --> 0:21:17.720 damn well, getting us from a horrible financial crisis in 0:21:17.760 --> 0:21:21.360 the late twenties and early thirties to no real financial 0:21:21.400 --> 0:21:26.040 crisis for many years. But by we, I mean liberal 0:21:26.119 --> 0:21:30.399 journalist types believed that anything with New Deal attached to 0:21:30.440 --> 0:21:33.159 it was outmoded and didn't work anymore. So there was 0:21:33.160 --> 0:21:36.159 a kind of excitement not just on the right but 0:21:36.320 --> 0:21:40.119 also on the left about dismantling things and innovating and 0:21:40.160 --> 0:21:43.720 deregulating and starting over. That strikes me as really important. 0:21:43.760 --> 0:21:47.240 How people who you would have expected to push back 0:21:47.280 --> 0:21:51.280 against the dismantling of some of these systems instead became coopted. 0:21:51.920 --> 0:21:54.200 Perhaps that's not the right word, but how does that happen? 0:21:54.480 --> 0:21:57.240 I think a lot of how it happened is I mean, 0:21:57.280 --> 0:22:00.159 I hate to say, I'm going to say we we 0:22:01.200 --> 0:22:05.520 liberal elite types. We're in on the deal our kids, 0:22:05.920 --> 0:22:08.800 and we go to schools that are the sort of 0:22:08.840 --> 0:22:15.400 bastion of liberalism in America, but where most people, most parents, 0:22:15.720 --> 0:22:18.560 and most of the students are going to go into finance, 0:22:19.000 --> 0:22:21.840 and finance sort of pays for the whole thing, so 0:22:22.520 --> 0:22:27.359 we're sort of beneficiaries of it. Finance gives copiously to 0:22:27.640 --> 0:22:32.280 liberal politicians. Barack Obama got more money from Wall Street 0:22:32.359 --> 0:22:34.920 by far when he ran in two thousand and eight 0:22:35.000 --> 0:22:40.440 than John McCain did. So. In Roosevelt's day, business and 0:22:40.520 --> 0:22:45.040 finance were one Republican and now they're very split, and 0:22:46.080 --> 0:22:49.080 that means that that world is located part of both. 0:22:49.200 --> 0:22:53.159 So tell us about Michael Jensen, because he's this fascinating character, 0:22:53.320 --> 0:22:57.880 because he embodies this drive toward the idea that markets 0:22:57.880 --> 0:23:01.760 are the answer to everything, and I think a craving 0:23:01.800 --> 0:23:04.560 for a simplistic worldview that we all have in a somewhere, 0:23:04.760 --> 0:23:06.960 but then he becomes a skeptic of this idea he 0:23:07.000 --> 0:23:10.840 did so much to implement. Jensen came from a blue 0:23:10.840 --> 0:23:17.160 collar background, from several generations of printers and newspaper line 0:23:17.160 --> 0:23:20.639 of type operators in Minneapolis. He was the first person 0:23:20.680 --> 0:23:24.480 in his family to go to college, and he wound 0:23:24.560 --> 0:23:28.040 up through a few twists and turns in the famous 0:23:28.400 --> 0:23:32.600 University of Chicago economics department in the sixties, which is 0:23:32.640 --> 0:23:36.480 when Milton Friedman was kind of the guiding spirit there, 0:23:37.000 --> 0:23:41.840 and when all these financial techniques that underlie the derivatives 0:23:41.920 --> 0:23:45.679 markets were invented by economists, So he was part of 0:23:45.720 --> 0:23:52.159 that group that was kind of quantifying the financial performance 0:23:52.200 --> 0:23:55.680 of portfolios, and that was the first phase of his work. 0:23:56.320 --> 0:24:00.600 Then in the seventies, inspired in part by Freedman. In 0:24:00.640 --> 0:24:06.040 those days, as we were noting earlier, the reigning belief 0:24:06.280 --> 0:24:12.040 was a socially responsible corporation. So Milton Friedman began questioning 0:24:12.080 --> 0:24:15.879 that and saying the only purpose of a corporation should 0:24:15.880 --> 0:24:18.880 be to make money for its shareholders. And then Jensen 0:24:18.920 --> 0:24:23.120 really took hold of that idea and wrote a famous 0:24:23.200 --> 0:24:27.000 academic article, one of the most cited academic articles of 0:24:27.040 --> 0:24:32.720 all time, detailing with formulas and specific techniques how a 0:24:32.800 --> 0:24:37.160 corporation could reorient itself toward its shareholders. So he became 0:24:37.640 --> 0:24:41.400 kind of the intellectual godfather or patron saint of all 0:24:41.440 --> 0:24:45.560 those old corporate raiders of the early eighties like Boone 0:24:45.600 --> 0:24:49.560