Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisn't All and I'm Tracy Allaway. Tracy, you know,
Speaker 1: one of the big things, big themes I think that
Speaker 1: has especially in the last year, pervaded our episodes. It's
Speaker 1: really just this idea of like the forty year trend,
Speaker 1: more or less starting in the in the early vulgar years,
Speaker 1: years of declining rates, monetary policy dominant, and the question
Speaker 1: now is are we at some sort of turn in
Speaker 1: the direction of the economy, some meaningful sustaining change, you know,
Speaker 1: how we approach economic policy. Yeah, I guess the low
Speaker 1: rates aspect of it is still up for debate. But
Speaker 1: certainly we have seen this talk of a handoff from
Speaker 1: monetary policy to fiscal policy. There seems to be a
Speaker 1: lot more room in certainly the US political landscape to
Speaker 1: actually talk about things that the government could do on
Speaker 1: this front in a way that got stamped out much
Speaker 1: much more quickly um in earlier years. I think, yeah,
Speaker 1: I think that's exactly right. I mean, like we look
Speaker 1: back at this period and think so many of these
Speaker 1: discussions they really do come back to politics, political choices,
Speaker 1: and whether something is in the air, something in the water,
Speaker 1: or something something fundamental shifting such that we can sort
Speaker 1: of break out of the old expectations about what government
Speaker 1: can and can't do, how much it can really spend,
Speaker 1: and whether that will really produce a policy shift that
Speaker 1: would meaningfully changing, Maybe would meaningfully result in higher rates,
Speaker 1: maybe result in higher inflation, maybe result in higher sustained wages,
Speaker 1: fuller employment, so far and so forth, all kinds of
Speaker 1: questions like that. And so we seem to be at
Speaker 1: a moment where a lot of these questions, a lot
Speaker 1: of stuff that seemed impossible suddenly seemed possible. Yeah, there's
Speaker 1: also an aspect of this that I think often gets missed,
Speaker 1: which is, you know, people talk about the possibility of
Speaker 1: the government doing more or being more involved in economic
Speaker 1: policy and things like that, and they always frame it
Speaker 1: like before the government wasn't involved at all. But of course,
Speaker 1: the current system, even you know, even if you categorize
Speaker 1: it as liberal or light touch or however you want
Speaker 1: to put it, was devised by the government, Like the
Speaker 1: actual economic system that we have in place was made
Speaker 1: through political choices, and so there's a possibility that political
Speaker 1: choices can change, and we can get something different. Yeah,
Speaker 1: I think that's that's basically right. Like people have this idea, Okay,
Speaker 1: there's some sort of state of economic neutrality, or the
Speaker 1: government is hands off, another government will intervene in some way.
Speaker 1: But of course that's set up that we had then,
Speaker 1: or the setup that we have right now is also
Speaker 1: just the result of perhaps a different set of policy choices,
Speaker 1: and those political choices are of course subject to change,
Speaker 1: and I think it's potentially happening right now. I should
Speaker 1: note it's very important we're recording this March nine round,
Speaker 1: six PM. There is a scheduled to be a vote tomorrow,
Speaker 1: and hopefully that happens only so that we don't have
Speaker 1: to re record this intro. But you know, the House
Speaker 1: is scheduled to pass this one point nine trillion dollars
Speaker 1: stimulus at the Senate passed just this weekend, which really
Speaker 1: does open up this question of are we going to
Speaker 1: do fiscal policy in a way the likes of which
Speaker 1: we haven't seen? Yeah, I think that's fairy. So the
Speaker 1: question really is are we at a turn here? We
Speaker 1: have two great guests that I'm very excited to speak to,
Speaker 1: and they'll help us think through the current policy stance
Speaker 1: and the history and so forth. We're gonna be speaking
Speaker 1: with Sconda m n ath. He's the research director at
Speaker 1: Employee America as well as Mike Console, he's the director
Speaker 1: at the Roosevelt Institute, and he is the author of
Speaker 1: a new book, Freedom from the Market, America's fight to
Speaker 1: liberate itself from the grip of the invisible hands. So
Speaker 1: very excited to get his perspective. And I thought about
Speaker 1: this discussion and that we should have this discussion actually
Speaker 1: back in January because it was a tweet from Skanda
Speaker 1: and he asked this question, um, which is is essentially,
Speaker 1: are we at some structural break from neoliberalism in somewhere?
Speaker 1: Are we at this trend break? And that really is
Speaker 1: the key question. Did did something just turn? So let's
Speaker 1: just start with that. We'll try to answer that right
Speaker 1: off the bat. Are we at the structural break? So,
Speaker 1: Mike and Sconda, thank you so much for joining us.
Speaker 1: I really want to start with that term, that word neoliberalism,
Speaker 1: because I mean, it's kind of a joke. I would say,
Speaker 1: like on Twitter, people always use that word neoliberal, neoliberalism,
Speaker 1: the neoliberal consensus without any sort of idea of what
Speaker 1: we're actually talking about what that means. So I'd love
Speaker 1: to get your perspective, and I'll start with you, Scanda,
Speaker 1: both of you come in if you're like, what are
Speaker 1: we actually talking about when we throw that term the
Speaker 1: neoliberal consensus around? So thanks for having me. I think
Speaker 1: I agree that it has been overused as a word
Speaker 1: to just describe things people don't like, particularly from those
Speaker 1: on the left. But at the same time, I do
Speaker 1: think it also has some substantive meaning and does capture
Speaker 1: a certain arc that you're referring to earlier. So if
Speaker 1: we go back to some of the people who have
Speaker 1: defined themselves as neoliberals, from people like Milton Friedman about
Speaker 1: neoliberalism to Charles Peters he had a sort of Washington
Speaker 1: Post op ed on neo liberalism in two If you
Speaker 1: kind of try to find the common threads and where
Speaker 1: this all fits, it start rooted in a skepticism of
Speaker 1: democratic and political power in terms of organizing society. And
Speaker 1: that's at least how I would if I really try
Speaker 1: to break this down to some sort of crude shorthand,
Speaker 1: it would be de emphasizing the democratic forms of power
Speaker 1: and trying to rely more on markets and if you're
Speaker 1: coming maybe a little bit more from the left, it's
Speaker 1: probably a reliance on technocratic governance and maybe reliance on
Speaker 1: academia to really solve some of these problems. If you
Speaker 1: think about the FED and sort of it's arc in
Speaker 1: terms of dominating macroeconomic policy making, the Fed's independence is
Speaker 1: sort of this mix of markets and academics in the
Speaker 1: sense the FED is trusted because they are the macroeconomic experts,
Speaker 1: and at the same time they're also kind of relying
Speaker 1: on the banking system to respond in a certain way
Speaker 1: to their policies, and that is the way in which
Speaker 1: you will get full employment and stable macroeconomic policy. So
Speaker 1: it's really delegating out functions that were maybe thought of
Speaker 1: as traditionally in the domain of Congress and the President
Speaker 1: and really trying to rely more on technocracy and markets
Speaker 1: to really organize that sort of part of society. Some
Speaker 1: will disagree with this definition for sure. So Mike, I
Speaker 1: want to ask you about something um that's Canada just said,
Speaker 1: which is this idea of you know, a sort of
Speaker 1: market based structure or markets dictating the ultimate outcome. Is
Speaker 1: there a good historical example of that actually working well?
Speaker 1: Because I think nowadays we're so used to talking about
Speaker 1: you know, market based systems not really doing, um, what
Speaker 1: people would like them to do, or not providing certain
Speaker 1: you know, social needs in the way that some people
Speaker 1: might have expected or at least would would aim for.
Speaker 1: Is there an example in history where a market based
Speaker 1: system worked and it was sort of, you know, the
Speaker 1: pinnacle of neoliberal economic policy. Yeah. Sure. So just to
Speaker 1: go back to what's Scanda said. One reason the terms
Speaker 1: a little weird because the term liberal is a little
Speaker 1: weird in US context because some people use it to
Speaker 1: mean the New Deal and big activist government and the
Speaker 1: great society. Other people tend to want it to mean
Speaker 1: a more traditional what we might often call libertarian idea.
Speaker 1: And what people often emphasizes knew about this classical liberalism
Speaker 1: is the affirmative role of the state. Um that they,
Speaker 1: the neo liberals, understood themselves, and you if you actually
Speaker 1: read Higak and Freedmen, you'll see this pretty clearly. They
Speaker 1: understand is an affirmative state building project, and the project
Speaker 1: the goal of that project is to subordinate democracy to
Speaker 1: the market and put in what the historian Quinn Slovenian
Speaker 1: describes as encasement around the market to prevent it from
Speaker 1: democratic challenges. So that's why sometimes the question about like
Speaker 1: what's an example of like a neoliberal solution that work
Speaker 1: is often a little weird because it's often in the
Speaker 1: context of devolving, privatizing, voucherizing, or otherwise removing the publicness
Speaker 1: of public institutions and public programs. Um. You know, there's
Speaker 1: a lot of things that involved markets at work all
Speaker 1: the time. Single payer healthcare involves a lot of markets
Speaker 1: on the side of hiring doctors and buying bandages. What
Speaker 1: is unique about is that it is removed from market dependency.
Speaker 1: It's the big thing I try to go into my book,
Speaker 1: um the market is how individuals intersect with healthcare under
Speaker 1: single pair though obviously you know, even under even in
Speaker 1: the UK, doctors are employed, they're employed by the state.
Speaker 1: In that case, there's still markets and price mechanisms and
Speaker 1: feedback and incentives. It's but your ability to access isn't
Speaker 1: dependent on the logic of ability to pay and profit
Speaker 1: seeking activity. So that's why, you know, there's a lot
Speaker 1: of solutions that involve markets, and some things in which
Speaker 1: markets which have existed before capitalism it will exist after
Speaker 1: can play very important part of solutions. But it's the supremacy.
Speaker 1: It's that it's the dominance of the market dependency in
Speaker 1: the market logic. I think that catches people off guard.
Speaker 1: Ins Earrah, did something happen? You know in the intro,
Speaker 1: I was like, okay, forty years, forty years vulgar nineteen eighty.
Speaker 1: Is that actually a meaningful turning point in your in
Speaker 1: your book, Mike, or in the you know, when you
Speaker 1: look at the history of economic thought and economic policy,
Speaker 1: is that a real moment or is that kind of
Speaker 1: an arbitrary thing that we identify Because the thirty year
Speaker 1: yield peaked and then it started going down after his tenure. UH,
Speaker 1: you know, there's a real emphasis to run the clock
Speaker 1: back earlier. UM. A lot of deregulatory moves done under
Speaker 1: President Carter, A lot of choices made about the nature
Speaker 1: of corporate structure in the sixties and early seventies. I
Speaker 1: think the shock of Vulcar was enough of a massive
Speaker 1: change under which on the flip side of which UH,
Speaker 1: and it ran concurrently with loring the top end marginal
Speaker 1: tax rates. UH, A very increase in the decrease of unionization. UH,
Speaker 1: the doubling of the rise of the shaff finance in
Speaker 1: the economy. Um So, I think that it does mark
Speaker 1: a break though, as is in the nature of scholarship.
Speaker 1: You know, the more you look, the more you see things,
Speaker 1: and you see connections running earlier. But I do think
Speaker 1: in particularly in what we're talking about here in monetary policy,
Speaker 1: in macro economics, there's definitely a shift where the FED
Speaker 1: is viewed in a much different way, and the role
Speaker 1: of economic theory and macroeconomics also changes pretty profoundly. Sorry,
Speaker 1: can you elaborate on that point a little bit more?
Speaker 1: What do you mean when you say the FED is
Speaker 1: viewed very differently now? It is? Um? Sure? So? You
Speaker 1: know you can kick it to standard too if you
Speaker 1: want to jump, And I don't want to dominate the conversation,
Speaker 1: you sure so. I think the FED itself if you
Speaker 1: think about the fifties, sixties, seventies, eighties, where what really
Speaker 1: changed about the institutional centers of power on macro economic policy?
Speaker 1: And if he's in sixties, the Council of Economic Advisors
Speaker 1: is one of the key institutions we're thinking about like
Speaker 1: what to do with macro economic policy. That's who kind
Speaker 1: of Kennedy is leaning on for sort of passing tax cuts.
Speaker 1: Um you see like little things that sort of sound
Speaker 1: like like okay, tax cuts and sort of the Kennedy
Speaker 1: years sort of you start to see some similar measures
Speaker 1: sort of past the future kids. But really it's fiscal
Speaker 1: policy that's sort of at the center of it. Monterary
Speaker 1: policy is still doing some things around recessions and maybe
Speaker 1: in some cases pretty critical, but like Bulker sort of
Speaker 1: sort of crystallizes the sort of role of the FED
Speaker 1: in this process that the FED is going to be
Speaker 1: willing to hike rates to the point of putting people
Speaker 1: out of work and causing a recession. I think there
Speaker 1: are different different parts of different parts of the policy apparatus,
Speaker 1: So if you step away from macro from a sect,
Speaker 1: those breaks can happen at different times. I do think
Speaker 1: in the case of when Reagan was elected and when
Speaker 1: Carter was elected, they had certain ideas that were different
Speaker 1: from their predecessors. So Carter more so than Linden, Lindon B. Johnson, UM,
Speaker 1: Reagan more so than Nixon. So there were some shifts
Speaker 1: in terms of the philosophy around how much do we
Speaker 1: trust democratic forms of governance to really work? And look
Speaker 1: For a lot of people who are already skeptical of
Speaker 1: the state during the New Deal, is sort of natural
Speaker 1: to sort of go along these lines. For a lot
Speaker 1: of people who may have been more optimistic about what
Speaker 1: democratic governance can achieve, you can look at, well, the
Speaker 1: Vietnam War was going on. There's a lot of stuff
Speaker 1: that the government's doing that sort of breeds mistrust for
Speaker 1: rational reasons, for justifiable reasons, and that also helps to
Speaker 1: sort of catalyze well, maybe government really shouldn't be doing this,
Speaker 1: or if we're going to be doing this, we should
Speaker 1: be doing it in a way that's really deferring to
Speaker 1: the market and leaning on the market to find a solution.
Speaker 1: And again it starts to really warp the set of
Speaker 1: default rules around how we really structure all of these things.
Speaker 1: The default rule is, let's first try to do this
Speaker 1: through the market. Let's try to cut rates and hope
Speaker 1: that banks and financial intermediaries lend more money, and then
Speaker 1: if they lend more money, that will also help to
Speaker 1: sort of get the economy on right footing Mill Freedman
Speaker 1: was the one who said, I want to make the
Speaker 1: FED into a computer. I want to turn all this
Speaker 1: stuff into something automatic that we really can't lean on
Speaker 1: sort of a lot of these self dealing politicians to
Speaker 1: solve and so that I think is we're kind at
Speaker 1: a sort of wits end on some of this stuff now,
Speaker 1: because if you're leaning on interest rate policy to do
Speaker 1: the work of macroeconomics tabilization, it's necessary, but it's not sufficient.
Speaker 1: I guess that's the way I put it. Yeah, I'd
Speaker 1: also just throw in that, you know, it's easy to
Speaker 1: characaturize economists views about in this time period. I don't,
Speaker 1: I don't want to do this, but I think there's
Speaker 1: a genuine belief that the Federal Reserve had solved the
Speaker 1: problem of the business cycle by solely intervening in short
Speaker 1: term interest rates and communicating their path through inflation targeting
Speaker 1: or some sort of medium term target you know, the
Speaker 1: era of the Great Moderation I think gave intellectual bolsternus
Speaker 1: to the or like help bolster that as a concept,
Speaker 1: but evaporated in that is the notion of what the
Speaker 1: FET is doing this to be the financial sector and
Speaker 1: the way the FETE is really controlling the long term yields, uh,
Speaker 1: you know, the long term interest rate, the end rate
Speaker 1: at which individuals use interest rates and in access credit,
Speaker 1: and the way the fiscal situation evolved, the interconnectedness of
Speaker 1: Monterrey policy with all other fasts. The economy, which was
Speaker 1: a very strong part of how World War Two was executed.
Speaker 1: In its aftermath, it was kind of living memory in
Speaker 1: that mid century period had evaporate into this much more ethereal,
Speaker 1: like computerized mathematical sense of that you know, with this
Speaker 1: small intervention, like the smallest intervention, the smallest cut you
Speaker 1: could make, you could dictate the macro economy. And that's
Speaker 1: what failed in the Great Recession. Though we spent a
Speaker 1: decade trying to figure out what to make of that,
Speaker 1: so that that seems like a good sort of turning
Speaker 1: point to the sort of like the question or the
Speaker 1: Asconda's tweet about is this the trend break now? And
Speaker 1: it feels like that's sort of like great moderation triumphalism
Speaker 1: we figured out really came to a crashing halt with
Speaker 1: the financial crisis and two thousand eight, two thousand nine,
Speaker 1: and then we had this like decade of still mostly
Speaker 1: leaning on the FED in the Central Bank, even though
Speaker 1: it guess by that point on some level, the idea
Speaker 1: that we could control the economy through overnight short term
Speaker 1: interest rates kind of discredited. Now we come to the
Speaker 1: sort of the post virus period, and this question of
Speaker 1: like is this is are we on the new thing? Is?
Speaker 1: Are we finally ready to have a macro policy that
Speaker 1: is truly like sort of like post fed in some sense.
Speaker 1: So Scanda like start off, like you you posed that
Speaker 1: thought on Twitter? Is this the trend, brake? What are
Speaker 1: the sort of what's the affirmative argument for yes, this
Speaker 1: is the meaningful the turn is here. So I think
Speaker 1: just to go back to when I posted this tweet,
Speaker 1: it's about a week after both the Georgia runoffs, and
Speaker 1: I guess the the d C yes, um, sort of
Speaker 1: the capital riots and so or what everyone could call it. Yes,
Speaker 1: it's it's the insurrection. I think a lot of people
Speaker 1: would focus obviously on January six person obvious reasons. I yeah,
Speaker 1: just generally thinking more about the Georgia runoffs in the
Speaker 1: sense that you actually had the stars aligned. And I
Speaker 1: think I am generally someone who doesn't like to make
Speaker 1: big calls because they're like, that's hard, and it's it's
Speaker 1: it's something that I'm generally skeptical of when people do
Speaker 1: you start to just like always say, this is the
Speaker 1: big moment. But there's a lot of things that are
Speaker 1: going for this moment that are not have not been
Speaker 1: true for a long time. One is the political consensus
Speaker 1: is in a very different place in the sense of
Speaker 1: whether fiscal policy is warranted. In markets discussions, we've talked
Speaker 1: about is this the moment where monetary policy hands off
Speaker 1: to fiscal policy for quite some time now, It's been
Speaker 1: about almost I would say it's almost a decade of
Speaker 1: that kind of speak, where kind of saw that there
Speaker 1: was a lot of focus on cutting the deficit ine
Speaker 1: and it kind of just it was running on fumes.
Speaker 1: There was a lot of hype about is this infrastructure week?
Speaker 1: Is this the week when Trump is going to take
Speaker 1: fiscal policy really seriously? That was the whole thrust of
Speaker 1: the Trump trade in markets in November. I think you
Speaker 1: in general people will say that largely underwhelming. You did
Speaker 1: get tax cuts out of that, tax cuts that didn't
Speaker 1: really move the needle on either inflation or growth in
Speaker 1: a meaningful way, I would say. And so now we're
Speaker 1: at this point where you have the political consensus there,
Speaker 1: but you also have the legislative like capacity, where there
Speaker 1: are fifty senators who can pass a reconciliation bill. And
Speaker 1: while there is a lot of room between Bernie Sanders
Speaker 1: and Joe Mansion, they're all pretty much on board with
Speaker 1: the using fiscal policy pretty aggressively. They may have different
Speaker 1: philosophies about how to fund certain policy measures, but they
Speaker 1: are at least open to it. And that is different
Speaker 1: from what you saw in previous instances when there was
Speaker 1: one party in control of both the House, Senate and
Speaker 1: the White House, where you had this sort of alignment
Speaker 1: in terms of discull two thousand nine, but the people
Speaker 1: didn't really believe that fiscal policy was the thing to do. Um.
Speaker 1: I think people really undersell just how much of faith
Speaker 1: there was that fiscal policy really isn't the right. Fiscal
Speaker 1: policy isn't needed. Monetary policy will take care of it.
Speaker 1: Let's focus on cutting the deficit. Let's try to cut
Speaker 1: government spending where it's wasteful. Even among the Democratic Party,
Speaker 1: which we think of is sort of more on the left.
Speaker 1: So those stars have aligned on the legislative side, which
Speaker 1: I don't think would have been true if Georgia Ronous
Speaker 1: didn't go the way they did. So you need to
Speaker 1: have that you kind of and now the question is
Speaker 1: can you get responsiveness where people see that the AARP passes,
Speaker 1: and then people see the benefits of it and think
Speaker 1: this works. And then even people who are maybe a
Speaker 1: little more skeptical of these measures start to think that
Speaker 1: there is some sort of political incentive, some social incentive
Speaker 1: to actually pursue these policies in the future. So if
Speaker 1: people see this as a success, then I think it's
Speaker 1: more replicable. Right now is sort of the testing ground
Speaker 1: phase where this has past. We're gonna have to see
Speaker 1: how people digest it. Do people blame the rescue package
Speaker 1: as a sort of to create all these other problems,
Speaker 1: or people are gonna say, actually, all these standards of
Speaker 1: people standard of living have really improved in a material way.
Speaker 1: And now I'm more inclined to vote for Joe Biden
Speaker 1: and for Democrats because they passed this and it really
Speaker 1: made my life better. We're gonna have to see you,
Speaker 1: but I think the odds are better now than they
Speaker 1: were even two months ago or a three months ago.
Speaker 1: I should say, the sense that like, we actually have
Speaker 1: a package on the table that's historic in nature and
Speaker 1: the kind that even Paul Krugman is like, this is efficient,
Speaker 1: this is sufficient to actually get us out of the
Speaker 1: current run. So, um, I think that's meaningful. So I
Speaker 1: just want to dwell on this point a little bit,
Speaker 1: because you know, like Joe and I were disgusting in
Speaker 1: the intro, these are all ultimately political choices, and so
Speaker 1: I think it's worth spending time on how the political
Speaker 1: consensus actually shifts. But what are the conditions in place
Speaker 1: in that allowed this potential shift, or at least this
Speaker 1: testing of a new type of policy to actually be
Speaker 1: put in motion. And how were they different to previous
Speaker 1: economic crises like two thousand eight, where we did see
Speaker 1: a lot of popular outrage about things that had happened,
Speaker 1: and we did see some cries for help to offset
Speaker 1: mortgages and things like that, but they didn't really lead
Speaker 1: to a big break in the consensus. Um, Mike, maybe
Speaker 1: this one's for you. Yeah. Absolutely. Um. So two things
Speaker 1: jump out that are different right now than we're different
Speaker 1: in the last decade. Let's let's stick with inside kind
Speaker 1: of like the center left technocracy and especially within the
Speaker 1: Democratic Party, because I think it's very easy to say
Speaker 1: it's the tea Party, it's austerity it's the hypocrisy and
Speaker 1: the dead on the right. But the reason a lot
Speaker 1: of the stuff failed to take ignition in two thousand
Speaker 1: nine was because it was coming from inside that administration
Speaker 1: of President Obama's early years. And one is that you
Speaker 1: had in two thousand nine, you had a White House
Speaker 1: in a center left technocracy that walked in thinking that
Speaker 1: the deficit was a fund like an existential threat to
Speaker 1: the economy. UM That the trade deficit, that we were
Speaker 1: borrowing too much from China, we're on borrow of time,
Speaker 1: that there is a bond market bubble, that fundamentally the
Speaker 1: long term debt was a serious impediment to dealing with
Speaker 1: short and medium term processes. And I want to emphasize
Speaker 1: this was not like a set of trade offs where
Speaker 1: it's like, well, you know, maybe we might spend too
Speaker 1: much on net interest payment or something like that. Um
Speaker 1: That they really was concerned that the government might not
Speaker 1: be able to issue bonds, or that there would be
Speaker 1: some sort of catastrophe or something that fundamentally lowered the
Speaker 1: long term growth potential United States. The famous rand heard
Speaker 1: Rogoff Cliff, there's all kinds of inner inner workings around
Speaker 1: this kind of stuff. And if you weren't there, actually
Speaker 1: had to go back and remember, because I was like,
Speaker 1: I was there, but it was really hysterical. If you
Speaker 1: go back and read some of that stuff and that's gone,
Speaker 1: that's not there. Now. There's a lot of different flowers
Speaker 1: that have gotten us there. Um. But the idea that
Speaker 1: the deficit could be an investment, that the deficit is
Speaker 1: fundamentally under our control and poses whatever problems we wanted
Speaker 1: to or that inflict. In the MMT version, that inflation
Speaker 1: is the real check we need to watch for um.
Speaker 1: All of that bolstered by the fact that interest rates
Speaker 1: did in fact decline while inflation was under trend um
Speaker 1: utterly discredited that regime that was like really powerful at
Speaker 1: the time. Um. So when people think of the dead
Speaker 1: deff set Um, they're thinking one of like the fact
Speaker 1: that there's stuff that we need to do and there's
Speaker 1: an opportunity to do it, and the problems that could
Speaker 1: arise from large scale death sits further down the road
Speaker 1: are more manageable and more of a gradual and long
Speaker 1: term problem as opposed to some sort of catastrophe. That's
Speaker 1: one The second and I remember this quite well as
Speaker 1: in a lot of center left technocrats thought that unemployment
Speaker 1: could fundamentally not get a little five percent for anas
Speaker 1: the same period of time, maybe four and a half percent.
Speaker 1: This blew up in a lot of different ways. In
Speaker 1: the context of the primary. There's an economist named Gerald
Speaker 1: Freedman who said that unemployment could get dramatically lower for
Speaker 1: a long period of times associated with the Bernie Sanders campaign.
Speaker 1: There's a lot of fighting about it, but a lot
Speaker 1: of people put in the center left world put their
Speaker 1: cards on the table and said, we were near full
Speaker 1: employment in where it was about four point nine percent
Speaker 1: or something like that. We got unemployment below four percent
Speaker 1: for two years, at three and a half percent for
Speaker 1: six months basically before COVID had and there is every
Speaker 1: indication that it was going to continue to improve on
Speaker 1: the participation side. That I think blindside a lot of
Speaker 1: people because if you're thinking there's one and a half
Speaker 1: percent to the labor force that could have been employed
Speaker 1: at any moment with no downside. Um, you know, Donald
Speaker 1: Trump was winning on polling for the economy going into
Speaker 1: the election. That's like probably in large part because you
Speaker 1: had sustained low wage growth for the which you had
Speaker 1: not seen in generation. You know, labor markets expanding which
Speaker 1: way in ways that is not seen except for a
Speaker 1: brief period in the late nineties, and here was much
Speaker 1: more sustained. So the idea that you could aim big
Speaker 1: and the economists who want to say that there's some
Speaker 1: sort of upper limit and if unemployment gets too low,
Speaker 1: everything's going to go sideways. That's been discredit in a
Speaker 1: pretty profound way. And those are both things electives listened
Speaker 1: to because they pay consequences for unemployment being too high.
Speaker 1: They pay consequences when they didn't increase the deficit and
Speaker 1: the early tens and only saw like the fact that
Speaker 1: you know, they didn't get any upside and there was
Speaker 1: a lot of downside, both politically and economically. So both
Speaker 1: those things, I think we're important changes that are hopefully
Speaker 1: going to play out and sustain themselves in the years ahead.
Speaker 1: It's you want to come in on that looks like
Speaker 1: you're going to say something. Yeah, So I just to
Speaker 1: tack onto what Mike said, as I agree wholeheartedly on
Speaker 1: both points. A lot of those instincts of the twenty
Speaker 1: tens were also rooted in trying to replicate the nineteen nineties.
Speaker 1: If we think about what people saw as the sort
Speaker 1: of brief success of high wage growth, economy, low unemployment
Speaker 1: in the final two years of the nine two thousand expansion.
Speaker 1: That was a period in which there was a lot
Speaker 1: of um focus on deficit reduction and the sort of
Speaker 1: private sector will sort of solve for itself and if
Speaker 1: we just do the same things, if we cut the
Speaker 1: focus on cutting the deficit, the federal keep rates low,
Speaker 1: and then things were solved for themselves. Twenty tens is
Speaker 1: a big rejection of that, because yes, actually the deficit
Speaker 1: did go down over the course of the tents, despite
Speaker 1: that you did not have a robust recovery. And when
Speaker 1: a lot of especially technocratic Democrats are technocratic liberals to talk,
Speaker 1: Larry Summers, Paul Krugman were people who were initially very
Speaker 1: supportive of ambitious fiscal policy and then in especially after
Speaker 1: Trump was elected, talked about how now is the time
Speaker 1: for deficit reduction. They were critical of the tax cuts
Speaker 1: from the standpoint that they would overheat the economy and
Speaker 1: so it would actually create inflation, and that was pretty
Speaker 1: clearly disproven. Right, like, yes, the tax cuts, we can
Speaker 1: probably agree that that didn't really change the regime of
Speaker 1: growth in a meaningful way, and yet it also didn't
Speaker 1: also change the regime of inflation itself. So something about
Speaker 1: deficits causing inflation, deficits being unsustainable, some of this just
Speaker 1: doesn't add up. So I think there's a lot of
Speaker 1: learning that happened, especially on the back half of the
Speaker 1: decade for people who really bought into these frameworks, and
Speaker 1: then you kind of look back and you say, that
Speaker 1: was a really slow recovery. Do we really have to
Speaker 1: do all of this stuff? And a lot of that
Speaker 1: was also the byproduct of sort of there's a lot
Speaker 1: of obstructionism, and how do you avoid that obstruction is
Speaker 1: um maybe with a more ambitious stimulus than do thousand
Speaker 1: nine and ten. So the lessons kind of have come
Speaker 1: from sort of first realizing that the ninety nineties there's
Speaker 1: a lot about that which was not going to be
Speaker 1: replicable very easily, especially when you have this sort of
Speaker 1: balance sheet recession of the two thousand nine two intent scenario,
Speaker 1: and now you see there's just if you're going to
Speaker 1: take Vienna, take Vienna, this sort of the attitude the
Speaker 1: Biden administrations taking now we're like, we want to make
Speaker 1: sure that the we use this opportunity to actually legislate
Speaker 1: as much as needed, um and not just try to
Speaker 1: toggle at the edges the way I think people like
Speaker 1: Marry Summers Olivia Blanchard are really worried, well, what if
Speaker 1: this is too much? I think that's something they do
Speaker 1: not want to ask that question if you just read
Speaker 1: from the tea leaves of what the Biden administration and
Speaker 1: senior Democrats are saying now. So, first of all, I
Speaker 1: want to say I find some of these your answers,
Speaker 1: both of your answer to be kind of heartening, because
Speaker 1: like this idea that maybe evidence changes people's minds, I've
Speaker 1: always been sort of skeptical of that premise, but maybe
Speaker 1: it actually does. You know, Uh, Scotty, you mentioned um Olivier,
Speaker 1: Blanchard and some of these sort of like um grand
Speaker 1: names and economics. But I'm also thinking, like one of
Speaker 1: the figures that we saw in the last ten years
Speaker 1: was this incredible like opening up of the playing field
Speaker 1: of who like got to talk about economics and uh, Mike,
Speaker 1: you know, like I've been following your writing and tweets
Speaker 1: for like probably literally like twelve years now, Like you're
Speaker 1: blogging back in two thousand and eight, scanda. You've been
Speaker 1: talking for a while like pseudonymously now more prominently, but
Speaker 1: like anyone can talk now there's a lot on Twitter,
Speaker 1: and um we it's been noted that actually the Biden
Speaker 1: administration has recruited like a bunch of like prominent like
Speaker 1: sort of like Twitter voices to like do policy. And
Speaker 1: I'm curious, like in a real sense, like how much
Speaker 1: has this opening up of like who got to a pint?
Speaker 1: And maybe you didn't need to be at a university anymore,
Speaker 1: maybe you don't need to be like you know some
Speaker 1: like uh, you know, big person at the IMF or
Speaker 1: something like that. How much has this opening up of
Speaker 1: who gets the right to talk in a pine sort
Speaker 1: of benefactor that changed the debate in this sort of
Speaker 1: like decade between the Great Financial Crisis and the COVID crisis.
Speaker 1: I'll jump at first and to say, um, we saw
Speaker 1: this with the financial crisis, where a lot of people
Speaker 1: turned to the blogosphere of amateur financial experts who are
Speaker 1: often uh writing under pseudonyms, as I was at the time,
Speaker 1: and many other people um to kind of understand it
Speaker 1: in real time because the experts were caught not understanding
Speaker 1: what was happening, and I think that same kind of
Speaker 1: instinct of because it's not. If you experience the economic
Speaker 1: sphere online and Twitter, on sub stack on other places,
Speaker 1: you'll notice that it's a it's an evolving argument with
Speaker 1: a lot of evidence and a lot of careful policing
Speaker 1: of how people are not policing them like like don't
Speaker 1: say that kind of way, but like and like building
Speaker 1: better arguments and really putting the evidence to the to
Speaker 1: the front in a way that the research process doesn't
Speaker 1: really do this very well. Um, a lot of the
Speaker 1: stuff we write and talk about who is unemployed? What
Speaker 1: is the sense in which inflation is a worry? That's
Speaker 1: not the kind of stuff academics can get tenure on,
Speaker 1: though it's essential for the policymaking space, so it fills
Speaker 1: it fills the marketing that's poorly served. And it's also
Speaker 1: like the best arguments really do evolve pretty pretty quickly
Speaker 1: up the chain. And there's still on cost of meritocracy
Speaker 1: because like that's a lie, but like there's a way
Speaker 1: in which people can really step up to the moment
Speaker 1: and it really does get arguments out there that are
Speaker 1: not seen very well or don't transfer themselves very well
Speaker 1: through the way the Academy produces research. If I were
Speaker 1: to just tack on a little bit on the sort
Speaker 1: of how people revise their priors and how do we
Speaker 1: actually learn and make course corrections. A lot of what
Speaker 1: you're talking about on the Twitter, on the sort of
Speaker 1: Twitter discourse and how people sort of can everyone can
Speaker 1: speak is sort of what the intuition behind sort of
Speaker 1: democratic governance is supposed to capture. That this is a
Speaker 1: way to solve problems in a way that's actually responsive
Speaker 1: to a lot of people's interests that end can't easily
Speaker 1: be solved by the market or by experts um In
Speaker 1: some ways, actually, I'm very stunned by how a lot
Speaker 1: of the same actors who were policing the use of
Speaker 1: fiscal poll see in the early are still the same
Speaker 1: actor experts who are trying to police fiscal policy now.
Speaker 1: They're just not as effective, right, And so the same
Speaker 1: same characters are there, They're just not as effective. So
Speaker 1: that in some ways other people are being elevated, and
Speaker 1: why are they being elevated is a good question. In
Speaker 1: some ways it's as more of a small d democratic
Speaker 1: governance question. It's also something that I think you can
Speaker 1: see even in markets. One of like sort of the
Speaker 1: strengths I would say, of certain types of market structures
Speaker 1: and market governance is the ability to recognize when things
Speaker 1: are not going according to your hypothesis. Right. You can
Speaker 1: actually see how things change and say this doesn't fit
Speaker 1: the theory or my hypothesis. I have to revise it.
Speaker 1: And market participants, I would say, if lar it has
Speaker 1: been a little bit ahead of the sort of highbrow
Speaker 1: academics in terms of just understanding, Okay, we're at low
Speaker 1: interest rates right now, and now what's next. Because really
Speaker 1: monetary policy has some certain limit functional limits on what
Speaker 1: it can do. We're going to have to have some
Speaker 1: kind of fiscal moment. This has been sort of consensus
Speaker 1: for some time. I would say it Markets themselves don't
Speaker 1: solve that problem, though, right. You actually do need to
Speaker 1: have certain types of political structures in place to actually
Speaker 1: try to solve them, and you need hope. Democratic democracy
Speaker 1: kind of has its share of burdens, but it also
Speaker 1: has its to share of strengths in terms of being
Speaker 1: able to respond to the moment and not take the
Speaker 1: deferential trust the experts or trust the market approach and
Speaker 1: actually say there's something going on here that we need
Speaker 1: to rapidly revise. I kind of think least there's something
Speaker 1: about the like discourse on social media. It's a very
Speaker 1: flat culture that it can actually um allow for a
Speaker 1: lot of different people from a lot of different backgrounds
Speaker 1: to really check each other on what they're what are
Speaker 1: the claims being made, doesn't actually fit the facts, make
Speaker 1: sure you're not making obvious descriptive errors. Uh, and that
Speaker 1: kind of discourse. There's a lot of toxicity on Twitter too,
Speaker 1: but at least if you can avoid the to toxicity,
Speaker 1: there is some room for that kind of deliberative, open
Speaker 1: minded discourse. You have to deloc hunted out where you
Speaker 1: can find it. Can I ask you both of question
Speaker 1: as hosts you are are are well known finance professionals.
Speaker 1: Do you know J Powell's burner account? You don't have
Speaker 1: to tell us who it is. I forget. At some
Speaker 1: point I knew, and it doesn't follow me, So I've
Speaker 1: forgotten who If it followed me, I'm sure I remember
Speaker 1: now I really don't want to know, because if it
Speaker 1: didn't follow me, iast Okay, Okay, so this is a
Speaker 1: really interesting conversation, but I want to try to put
Speaker 1: some of it into I guess more concrete practice. So
Speaker 1: we agreed that there's this potential break. The moment is now, UM,
Speaker 1: we're testing a bunch of new policies. What are some
Speaker 1: of the like actual um examples of this new thinking
Speaker 1: that are being put into place and that you are
Speaker 1: watching as a test case? And I'm curious also, how
Speaker 1: do you evaluate the success of those programs, Like what
Speaker 1: would count as a accessible sort of instance of this
Speaker 1: new thinking. I think the Rescue package is probably going
Speaker 1: to determine whether this thing can actually be replicable, right
Speaker 1: in terms of are we going to see that people
Speaker 1: think this works? I think CARES in some ways also
Speaker 1: showed that ultimately people like the stimmy money, right, they
Speaker 1: like the checks. They a lot of people really appreciated
Speaker 1: the six dollars that came with you. I there were
Speaker 1: aspects of p P P was quite popular for small businesses.
Speaker 1: So there are policy solutions that came out of Congress
Speaker 1: that had some individual success. Whether people think other parts
Speaker 1: of CARES are good or bad, the implementation being sub standard,
Speaker 1: there was at least the prospect that this can work.
Speaker 1: If you start to see that the rescue package one
Speaker 1: you can actually say that it helped and people really
Speaker 1: digested as working. Like the Recovery Act of two thousand
Speaker 1: nine was pretty big for its time, and at the
Speaker 1: same time it was not nearly enough, and it was
Speaker 1: very easy to say it really just led to a
Speaker 1: bunch of cylindra boondoggles. It's a bunch of waste to
Speaker 1: see the economy is still struggling to recovery. That's how
Speaker 1: you know that fiscal stimulus doesn't work. The counter factual
Speaker 1: would have been worse. But people don't think in terms
Speaker 1: of counter factuals, at least in terms of their intuitions.
Speaker 1: So if you if it actually helps to shape people's
Speaker 1: intuitions to wanting to into the to the point where
Speaker 1: you actually want to do this again, maybe not in
Speaker 1: the exact one point nine trillion unpaid for spending, but
Speaker 1: rather we can find other solutions that work for fiscal policy,
Speaker 1: that meet the moment and meet what's needed. I think
Speaker 1: that starts to change people's perceptions about what's possible. Um
Speaker 1: there's a certain feedback loop. That's especially if Republicans, maybe
Speaker 1: on the next go around, start to see that actually
Speaker 1: this worked, we probably should have either been part of
Speaker 1: the solution or be willing to offer a more compelling
Speaker 1: counter offer. Those are the kinds of things where I'd
Speaker 1: say something's changing, where people want to actually govern and
Speaker 1: not just sort of delegate or hope and try us
Speaker 1: that the market or some experts will come up with
Speaker 1: the right answers later down the line. Yeah, some things
Speaker 1: I'm watching for last year in this year. One is
Speaker 1: um that we reduced poverty in the middle of the crisis,
Speaker 1: and quarter two of last year unemployment was probably twenty percent.
Speaker 1: We were probably technically in a depression, UM, but the
Speaker 1: fiscal policy was able to reduce poverty, and we're going
Speaker 1: to cut child poverty in half this year and then
Speaker 1: hopefully in the program that evolves and becomes much more
Speaker 1: clear and straightforward. You know, the fact that even in
Speaker 1: very difficult economic times, the level of poverty as a
Speaker 1: policy choice, I think was shown last year is reflected
Speaker 1: in the bill this year. UM. Last year, the Final
Speaker 1: Reserve intervening directly into credit uh and interest rate policy
Speaker 1: on the long end of the curve for municipalities, for corporations,
Speaker 1: for the secondary bond market. A lot of controversy, a
Speaker 1: lot of fighting about it, but it showed that the
Speaker 1: FED is already thinking and will continue to evolve to
Speaker 1: think way beyond just short term interest rates and some
Speaker 1: guidance on the long end that will have important consequences
Speaker 1: for climate change, as the Federal almost certainly have to
Speaker 1: be directly or indirectly involved with the funneling of credit
Speaker 1: towards green energy products and our green energy investment in infrastructure.
Speaker 1: The overhaul that happened in the FED last year, we're
Speaker 1: still learning it, we're still figuring it out. Um. But
Speaker 1: that's going to be with us for some time as well.
Speaker 1: This year. I think if you actually get the economy
Speaker 1: back to trend at the end of next year, UM,
Speaker 1: you've basically disproven the theory of history sists and the
Speaker 1: idea that we need to understand that every recessions would
Speaker 1: have a built in downward curve. And then you can
Speaker 1: put pressure on the idea of potential output in the
Speaker 1: way it's deployed classically. UM. The idea that you know,
Speaker 1: overheating economy has positive spillovers that can increase productive capacity,
Speaker 1: which makes sense intuitively, but doesn't fit well into the
Speaker 1: you know, the nuts and bolts and models of neoclassical economics.
Speaker 1: So I think, um, it's already like it's it's going
Speaker 1: to take some time to like see all the things
Speaker 1: that are different. But even the fact that you a
Speaker 1: lot of politicians that talked about we need to do more,
Speaker 1: the risk of doing too much is less than doing
Speaker 1: too little. We need to overshoot. I thought that was
Speaker 1: like a metaphor when they were saying that they are
Speaker 1: actually going to try to do it. They're going to
Speaker 1: try to shoot for potential output and they'll probably hit it.
Speaker 1: Or the way it is defined on the books at
Speaker 1: the CBO, which is already kind of a mess. If successful,
Speaker 1: that just will throw in a completely different way about
Speaker 1: the idea that we should be responding much more quickly
Speaker 1: and rapidly to recessions rather than something that largely world
Speaker 1: work itself out with sometimes. So those are all encouraging developments. Um.
Speaker 1: The you know, some people have really been emphasizing the
Speaker 1: balance sheet nature of repairing balance sheets that's embedded in
Speaker 1: the American recovery plan. Um, you know, fixing the balance
Speaker 1: sheets of transit, higher add pensions, state and municipalities, things
Speaker 1: that tend to get scaled down and never recover in
Speaker 1: a air quote recovery a lot of those political problems
Speaker 1: are going to disappear in a few weeks, um, provided
Speaker 1: to passes the House. So um, that's going to open
Speaker 1: up a lot of space. So I think there's a
Speaker 1: lot of new frontiers and we don't even there's so
Speaker 1: much going on, we don't even know them all yet.
Speaker 1: But I think they're all encouraging for a better So
Speaker 1: in a second, I want to pivot real quickly at
Speaker 1: the end of the conversation and turn this into an
Speaker 1: episode about semiconductors for our semi Conductor series and talk
Speaker 1: about industrial policy. But before we do that real quickly,
Speaker 1: you know, we we've we've told a lot about fiscal policy,
Speaker 1: and that's basically been our discussion. There has been also
Speaker 1: a pivot at the FED itself, and there was there
Speaker 1: was this framework review over the last several years, announced
Speaker 1: in August that they are committing to not preemptively fight
Speaker 1: inflation actually sort of like let things run hot in
Speaker 1: a way they had been. German Powell talks a lot
Speaker 1: about not just using some sort of headline unemployment rate
Speaker 1: to judge when we're at full employment, but also like
Speaker 1: really look at like are the gains of employment being
Speaker 1: spread to minority groups, previous groups which previously didn't enjoy
Speaker 1: the fruits of recovery at the same way. I don't know,
Speaker 1: one of you want to like talk a little bit
Speaker 1: about like there has been an intellectual evolution even at
Speaker 1: the Central Bank aside from the politics of expansionary fiscal policy. Yeah,
Speaker 1: I think that the FEDS Framework Review and it's subsequent
Speaker 1: forward guidance policy in September of really indicative of that
Speaker 1: major shift in the sense that they won started to say, actually,
Speaker 1: we don't need to target a specific unemployment rate or
Speaker 1: target a specific level of employment. We actually should be
Speaker 1: always aiming at least for employment improvement, and we should
Speaker 1: never be saying, actually, there's too much employment in the economy.
Speaker 1: The problem if inflations of problem. Inflation is a problem,
Speaker 1: but that's not the same thing. That's a really big
Speaker 1: shift from the world we lived in the seventies, eighties,
Speaker 1: and nineties and even beyond that, where everyone in sort
Speaker 1: of the world of sort of economics said, well, okay,
Speaker 1: but once you get below a certain level of unemployment,
Speaker 1: all you're gonna get as much of inflation. So let's
Speaker 1: just try to like get it right on a pin
Speaker 1: that's changed to where there is like an openness to
Speaker 1: we don't really know where these things are, and we
Speaker 1: really don't want to do any harm, and we actually
Speaker 1: want to let sort of the economy show what it's
Speaker 1: capable of. In some ways what J. Powell's own statements
Speaker 1: subsequent of the Framework Review, we're really focused on, Hey, Congress,
Speaker 1: you have the spending authority, we have the lending authority.
Speaker 1: The spending authority is actually much more powerful for shaping
Speaker 1: a lot of these outcomes. That is itself an inversion
Speaker 1: of what you saw in the ES when green Span
Speaker 1: was hiking rates and at the same time talking about
Speaker 1: how there are bond market vigilantes so Clinton should not
Speaker 1: be so ambitious about fiscal policy. So that contrast is
Speaker 1: very vivid. The Framework Review itself and i'd say J.
Speaker 1: Palis statements are both revealing of that sort of shift
Speaker 1: towards actually, we do need Congress. We're not going to
Speaker 1: solve this thing on our own. We're going to have
Speaker 1: to have some flexibility and not just try to target
Speaker 1: a specific level of unemployment or a target a specific
Speaker 1: level of inflation. So there's just a little more flexibility
Speaker 1: on that side, and that that shows there like some
Speaker 1: level of institutional learning and that's good, um. And from
Speaker 1: there it's about are we going to learn more? Are
Speaker 1: we actually going to try? And it's it's gonna be
Speaker 1: hard right in some sense. It's because there is still
Speaker 1: all sorts of conflicts intensions, and it may not be
Speaker 1: the case that people learn all the right lessons at
Speaker 1: the right times. Um. But there's at least now I
Speaker 1: said that there's a chance to really test some of
Speaker 1: this stuff out in terms of we are seeing ambitious
Speaker 1: fiscal policy, cooperative monetary policy, no like limiting constraints that way.
Speaker 1: Can I ask one quick question before um? We continue
Speaker 1: are never ending semiconductor series. But the recent backup in
Speaker 1: bond yields, I've seen a few people characterize that as
Speaker 1: the beginning of you know, pushback from the bond vigilantes,
Speaker 1: which I don't exactly agree with. But I'm curious if
Speaker 1: you have opinions on why we're getting that backup in
Speaker 1: yields at a time when you know, central banks more
Speaker 1: or law or less are promising to keep benchmark rates
Speaker 1: pretty low. Is that all um? The work of I
Speaker 1: guess the market adapting to this idea of more fiscal stimulus,
Speaker 1: I'll jump in first year. I think that the sort
Speaker 1: of bond market backup you've seen right now has also
Speaker 1: coincided with especially since the Georgia runoff's a marginally stronger
Speaker 1: dollar and sort of in general equity rally has largely continued.
Speaker 1: And so in light of that's that's all consistent with
Speaker 1: a repricing of US growth to my mind, and there's
Speaker 1: think about the guidance is rooted in outcomes. The rooted
Speaker 1: and outcomes about maximum employment and sort of achieving at
Speaker 1: least two percent inflation for a twelve month period. So
Speaker 1: those two things are really we don't know what time
Speaker 1: it's going to take to achieve that, on what dimensions
Speaker 1: is maximum employment really been achieved, and how that can
Speaker 1: change itself over time. So there are a lot of
Speaker 1: open questions that are not strictly about timeline. We are
Speaker 1: also giving every ourselves every opportunity both through the sort
Speaker 1: of vaccine distribution and through the fiscal ambition we're seeing
Speaker 1: right now of actually achieving robust growth, getting back to
Speaker 1: at least the pre pandemic labor market on a sort
Speaker 1: of reasonable time horizon, and that those are also very
Speaker 1: encouraging about what the growth trajectory looks like. Not just
Speaker 1: so with all of that in place, I think that
Speaker 1: the bond markets in general curves deepens whenever you see
Speaker 1: sort of low interest rates and you're kind of coming
Speaker 1: out of a um. You've already cut interest rates. Now
Speaker 1: the question is what's the time horizon by which you
Speaker 1: actually get the recovery where interest rate policy might be
Speaker 1: more in question, and especially since defends not going to
Speaker 1: cut rates negative anytime, seeing it looks like there is
Speaker 1: sort of an asymmetry that the market is repricing quite understandably,
Speaker 1: maybe even a little belatedly. Yeah, on the belatedly point,
Speaker 1: I had a right up for the day after the
Speaker 1: election about if there was a jump in bond yields
Speaker 1: on trifecta in early November, what would you know how
Speaker 1: to understand that as essentially a pricing an investment package
Speaker 1: in the same way the Trump administration. When Trump was elected,
Speaker 1: and that was a pretty surprise event, I think for
Speaker 1: the market, you saw a run up though his term
Speaker 1: before COVID. His term before COVID, yields were at the
Speaker 1: same rate, if not lower, depending on when you went in,
Speaker 1: how you measure it UM because of the fact that
Speaker 1: the Democrats in control the Senate, because of the contested
Speaker 1: nature of the presidential election. You know, it wasn't until
Speaker 1: mid January even had a sense that the Democrats could
Speaker 1: pass something, and up until a few weeks ago, the
Speaker 1: idea that it would be too trillion and be this
Speaker 1: really major fiscal push. I don't think it was quite
Speaker 1: as processor apprentiated. So some of that's just readjusting for
Speaker 1: what is about to happen, which I think is appropriating
Speaker 1: good and still on a long term timeline, it's still
Speaker 1: rates are incredibly low UM and the capacity is far
Speaker 1: beyond what we can imagine right before we go. I
Speaker 1: do want to continue de facto our semiconductor series, and
Speaker 1: the reason it's relevant is because there is this big
Speaker 1: discussion about the role of industrial policy and whether the
Speaker 1: US can, through policy UM actually sort of restore domestic
Speaker 1: semiconductor manufacturing. We're experiencing the shortages, odd lots listeners, no
Speaker 1: well and Scanda. You wrote about that, and so I
Speaker 1: want to get you know, you're sort of like brief
Speaker 1: thoughts on what it would take. And then Mike, I
Speaker 1: would like to get your lots like from the historical perspective,
Speaker 1: from your research industrial policy, not leaving it up to
Speaker 1: the invisible hand all the time. What a sort of
Speaker 1: history tell us about when the political will manifest to
Speaker 1: create a you know, do industrial policy created domestic industry? Yeah?
Speaker 1: So I I along with my colleague Alex Williams, wrote
Speaker 1: a piece about what we've seen more recently reveals how
Speaker 1: demand helps unlock some of the supply um and capacity
Speaker 1: that otherwise wouldn't exist. So we had really low investment
Speaker 1: in a lot of high tech equipment for about two
Speaker 1: decades following the tech bust, or sort of after two
Speaker 1: thousand and a lot of people were saying, Oh, that's
Speaker 1: weak peractivity. Oh that's weak investment. It's something structural, it's globalization,
Speaker 1: it's inequality, it's all of these things. And I mean,
Speaker 1: there's no The problem with a lot of these arguments
Speaker 1: is really hard to pin down how much of it
Speaker 1: is globalization, how much of it is business model shifts um.
Speaker 1: And yet what we found was when we actually did
Speaker 1: do aggressive fiscal policy in the US was not the
Speaker 1: only one to do aggressive policy, at least in the
Speaker 1: outset of the coronavirus response, because you actually saw that
Speaker 1: demand for high tech equipment was sort of historically strong.
Speaker 1: We broke out of this and has semi conductor manufacturing
Speaker 1: is called off side off sides, UM call it globally,
Speaker 1: and the US like what you've seen is there's been
Speaker 1: this underutilization of capacity for since the two thousand and
Speaker 1: that just didn't recover on its own, and now Washington
Speaker 1: sort of like is in a position where we've got
Speaker 1: to do something. We've got to figure out how to
Speaker 1: actually have the capacity that we want to have, and
Speaker 1: that itself is a conscious choice, right, and ultimately if
Speaker 1: you just leave it up to the market, it's hard
Speaker 1: for that the certainty to exist for manufacturing capacity to
Speaker 1: actually be in place. I think there's something on a
Speaker 1: previous episode of yours Um that Willy she said that
Speaker 1: really wrung true to me, which was, you actually do
Speaker 1: need some stability on the demand side. You need some
Speaker 1: stability and scalability, and that requires making sure there's enough
Speaker 1: purchasing power in the economy to make sure that there
Speaker 1: are mechanisms for coordination. Because there's just a certain amount
Speaker 1: of certainty that you can get from the government that's
Speaker 1: really hard to replicate just in the private sector. Alone. UM.
Speaker 1: I don't have a lot that to that, because I,
Speaker 1: you know, I only know the semi connected from what
Speaker 1: I hear from you guys and and read from Scanda.
Speaker 1: The one thing that really jumps out to me is
Speaker 1: that if this boom is at the level that it
Speaker 1: very well could be, UM, it might change the way
Speaker 1: we talk about economic policy making in a very profound way,
Speaker 1: because if you actually get unemployment down that rapidly, you
Speaker 1: might be able to tackle issues around decarbonization much easier
Speaker 1: because there's just gonna be such voracious demand for workers. UM,
Speaker 1: you could talk about changing the nature of supply lines,
Speaker 1: changing the nature of the way business supply change and
Speaker 1: conduct is done, and really investing in manufacturing and other
Speaker 1: forms of on showing UM in a way that I
Speaker 1: don't think you would have the political or economic will.
Speaker 1: When unemployment is quite high and the recovery is quite
Speaker 1: slow and everyone is thinking very zero sum, you might
Speaker 1: actually be able to think much more concretely about how
Speaker 1: to push the productive frontier of the economy in a
Speaker 1: way coinciding strong labor as opposed to thinking about that
Speaker 1: in periods of weak labor demand and weak labor power.
Speaker 1: So I'm really excited to see where all this goes,
Speaker 1: because I think it's gonna be a set of conversations
Speaker 1: that's going to change so many things. Well, Mike, AND's Gonda,
Speaker 1: thank you so much for coming on. There's such a
Speaker 1: such a you know, important timely discussion. Both of you,
Speaker 1: great perspective, and we'll have you on in a forty
Speaker 1: years and we'll see, uh, we'll see. If I just
Speaker 1: didn't turn out to be a real turning point, I
Speaker 1: will totally take you over. Thank you, take care, Thanks
Speaker 1: so much, Tracy. You know, I didn't say it in
Speaker 1: the beginning, and I but I realized something. You know,
Speaker 1: I mentioned that, Um, that's Gonda tweet about is this
Speaker 1: a trend break in neoliberalism. What's interesting is he was
Speaker 1: retweeting a tweet from the Chamber of Commerce where they
Speaker 1: endorsed a massive stimulus program. And I think that's kind
Speaker 1: of like what's interesting too is like it really is
Speaker 1: like Bernie Sanders on one end right now and the
Speaker 1: Chamber of Commerce, which historically, up until recently I think
Speaker 1: would have been pretty associated with like the Republican Party.
Speaker 1: I think that really sort of is like what sort
Speaker 1: of captures this idea that's like something seems to be
Speaker 1: shifting here, right, I think, so m how to put this?
Speaker 1: So one thing I've been thinking a lot about is
Speaker 1: so the recession from the coronavirus was an unusual recession
Speaker 1: in so many ways, not just because of the policy response,
Speaker 1: but because in some ways it was a government manufactured recession.
Speaker 1: And what I mean by that is, you know, the
Speaker 1: reason everything kind of stopped was because we had restrictions
Speaker 1: on where people could go and what they could do,
Speaker 1: and people were scared of leaving their houses as well,
Speaker 1: um independent of the government. But the point is it
Speaker 1: was sort of a policy led recession, and so I
Speaker 1: often wonder if that's what was needed in order to
Speaker 1: create root for you know, more policy focused economic solutions,
Speaker 1: like if this was really the perfect condition for that
Speaker 1: experiment to happen. I still think, like some people would
Speaker 1: dispute this idea that it was the lockdowns rather than
Speaker 1: the virus itself. But I will say there was this
Speaker 1: perception back in a year ago basically that this was
Speaker 1: nobody's fault, and I think that was sort of new
Speaker 1: because you know, like in the last crisis, you know,
Speaker 1: there's you could run the left, you could blame the banks,
Speaker 1: and then you had the tea party and the famous
Speaker 1: Rick Santelly rant It's like your neighbor borrowed too much
Speaker 1: for their homes. So there was like a lot of
Speaker 1: blame for it, and I think that was probably a
Speaker 1: contributor to the sort of failure to get a lot
Speaker 1: of political will to really fight the downturn. There was
Speaker 1: very quickly emerged a consensus like this is really no
Speaker 1: one's fault. No business actually like deserves to go out
Speaker 1: of business because we have a pandemic. No one really
Speaker 1: deserves to lose their job because of this. And as such,
Speaker 1: I do think that that created some some political space
Speaker 1: to do exactly what you just said. Yeah, I think
Speaker 1: that's exactly right. And the other thing um And I
Speaker 1: think it was Scanda who touched on this towards the end,
Speaker 1: or maybe it was Mike Um about this sort of
Speaker 1: demand side of the equation and the idea that this
Speaker 1: is something that people are finally recognizing is actually quite important.
Speaker 1: You have to have, if not robust demand, at least
Speaker 1: a reasonably stable level of demand in order to make
Speaker 1: a lot of these policies work. And I think that's
Speaker 1: where the stimulus checks came in last year, and that's
Speaker 1: where we're probably seeing a pretty big perception shift as well. Yeah,
Speaker 1: and I'll just say, like, this was a point I
Speaker 1: really had not thought of as much until Scanda pointed out.
Speaker 1: It's like you have the botential for actual policy, popular policy.
Speaker 1: I mean, CARES was popular. People like getting the one
Speaker 1: off checks, the the the expanded unemployment was powerful, and
Speaker 1: p PP was powerful, and I think people look at
Speaker 1: that and unlike say the two thousand nine response, which
Speaker 1: left to salar taste in people's mouth, It's like, we
Speaker 1: like this, we like the government having stepped in. Of
Speaker 1: course not everyone isn't, but this was generally like a
Speaker 1: pretty popular thing. The current stimulus is popular, and so
Speaker 1: you do have this potential for self sustaining political change
Speaker 1: if this gathers steam such that acts like the stimulus,
Speaker 1: acts like CARES actually encourage politicians to do more of
Speaker 1: the sort of responsive policy in future downturns. And that's
Speaker 1: how you get potentially the trend to break, Because one
Speaker 1: stimulus deal is not going to really like break a
Speaker 1: big trend, but it changed in the politics around fiscal
Speaker 1: expansion or around industrial policy could actually break the trend. Yeah, well,
Speaker 1: it does remind me a lot about UM. So, of course,
Speaker 1: there are a lot of studies about why people why
Speaker 1: some people in the U S didn't like social programs
Speaker 1: UM for a very long time, and one of the
Speaker 1: things that always cropped up was this idea of relativism.
Speaker 1: So you know, this person got five and I haven't
Speaker 1: got anything from the U. S. Government, and they're living
Speaker 1: off of wldchair effect checks and it's really unfair, blah
Speaker 1: blah blah. But I think just by dint of the
Speaker 1: fact that the stimulus checks went out to a lot
Speaker 1: of people, I think that could end up being the
Speaker 1: great equalizer, right, Like so many more people now have
Speaker 1: had personal experience of a social safety net in one
Speaker 1: form or another. Yeah, no, totally right. Uh. I think
Speaker 1: it's gonna be a fascinating thing. I mean, we'll see
Speaker 1: what the aftermath of this bill is. But um, again,
Speaker 1: if it leaves a positive taste in people's mouth, that
Speaker 1: changes how politicians react, and you could really that's how
Speaker 1: you get your your trend, your trend to break the
Speaker 1: end of neoliberalism. Maybe I do think. I know, um,
Speaker 1: it's always a risk to mark big turning points, but
Speaker 1: I do think this theme is one that's going to
Speaker 1: We're definitely going to be talking about it in forty
Speaker 1: years time. I feel like that's true. Alright, um, so
Speaker 1: we've booked an episode for four decades. Hence, all right,
Speaker 1: this has been another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway, and I'm Joey Isn't Though. You can follow
Speaker 1: me on Twitter at the Stalwart. Follow our guests on Twitter.
Speaker 1: It's Gondam and he's at Irving Swisher on Twitter, and
Speaker 1: Mike Console he's at Roardy Bomb on Twitter. Follow our
Speaker 1: producer Laura Carlson. She's at Laura M. Carlson. Follow the
Speaker 1: Bloomberg head of podcast, Francesca Levi at Francesca Today, and
Speaker 1: check out all of our podcasts at Bloomberg under the
Speaker 1: handle A Podcasts. Thanks for listening to