Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 2: I'm Joe Wisenthal.
Speaker 3: And I'm Tracy Alloway.
Speaker 2: Tracy, spending cuts in the air these days.
Speaker 3: You could say that it's a vibe shift. It's a
Speaker 3: vibe Yeah.
Speaker 4: Sure.
Speaker 3: So under the Trump administration, obviously there is a stated
Speaker 3: ambition to reduce spending and make the government more efficient overall.
Speaker 2: Yeah, Scott Besten, I think he has something the three
Speaker 2: three three plan part of it. I think he wants
Speaker 2: three percent growth, three percent more oil production, and then
Speaker 2: three percent deficit. And I think deficits are around six
Speaker 2: percent currently, which is really high by historic standards, especially
Speaker 2: because we're at what four point one percent unemployment. Usually,
Speaker 2: when the economy is running this hot or this tight,
Speaker 2: you don't expect to see deficits this large at in
Speaker 2: rates as high as they are. There does seem to
Speaker 2: be this impulse for better or worse, and other people
Speaker 2: can be the judge of that to cut spending. But
Speaker 2: on the other hand, it's very difficult.
Speaker 3: Wait, why do you say that, Because early in my
Speaker 3: career there was the Eurozone cross and I think there
Speaker 3: was some austerity imposed in places like Greece ultimately, so
Speaker 3: why do you say it's difficult?
Speaker 2: So, actually, there's two things here, and I think there's
Speaker 2: really apt and I think this is a fascinating question
Speaker 2: in its own right, which is, why is it that
Speaker 2: in two thousand and nine twenty ten, in the aftermath
Speaker 2: of the Great Financial Crisis, when we had widespread unemployment,
Speaker 2: why was the appetite for austerity so high then at
Speaker 2: a time when there was so little aggregate demand, And
Speaker 2: now at a time when you know, obviously inflation has
Speaker 2: been running hot and so forth, why does it seem
Speaker 2: more difficult? That in itself is a fascinating question. But
Speaker 2: I guess what I would say to answer your question specifically,
Speaker 2: is that anytime people talk about cuts, there is not
Speaker 2: a ton of discretionary spending in the US government budget.
Speaker 2: There's the entitlement, social Security, Medicare, Medicaid, and then there's defense,
Speaker 2: which there's usually not much political appetite to cut, and
Speaker 2: then when you have left over, it's hard to move
Speaker 2: the dial. And so the theory is that if you
Speaker 2: actually want to move the dial on spending and deficits,
Speaker 2: you have to like cut into some areas you have
Speaker 2: to break promises perhaps that you've made to various constituencies
Speaker 2: like senior right.
Speaker 3: Ultimately you're inflicting pain on someone, and at least in
Speaker 3: democratic governments, because it's all about a numbers game. It's
Speaker 3: all about getting votes. That would be a bad thing.
Speaker 2: Well, we have to then talk about how do the
Speaker 2: stars align if you actually want to meaningfully cut spending,
Speaker 2: how does that actually happen. How do democratically elected government
Speaker 2: sort of build the political capacity to inflict pain perhaps
Speaker 2: on groups that obviously have some stature. We really do
Speaker 2: have the perfect guest. We are going to be speaking
Speaker 2: with Fritz Bartel. He is an assistant professor of International
Speaker 2: Affairs at the Bush School at Texas A and M.
Speaker 2: And he is the author of the book came out
Speaker 2: in twenty twenty two, The Triumph of Broken Promises, the
Speaker 2: End of the Cold War and the Rise of Neoliberalism,
Speaker 2: And it's kind of about exactly this topic, how governments
Speaker 2: break promises. So, Professor Bartel, thank you so much for
Speaker 2: coming on odd LATS.
Speaker 4: Thanks so much for having me.
Speaker 2: Your book is really interesting because you talk about this
Speaker 2: sort of resource constraints and spending constraints in the US,
Speaker 2: the UK, and the Soviet Union. All of it was
Speaker 2: sort of building up to a head in the late
Speaker 2: nineteen seventies early eighties. Before reading your book, that hadn't
Speaker 2: clicked to me that all the different economies were sort
Speaker 2: of facing the same stresses at the same time. What
Speaker 2: was going on that suddenly around the world governments felt
Speaker 2: this impulse like we have to cut we have to
Speaker 2: constrain ourselves.
Speaker 4: Yeah, So, I guess the short answer is that the
Speaker 4: kind of post World War two economic boom had run
Speaker 4: aground in the nineteen seventies. Obviously, there was the kind
Speaker 4: of birth of stagflation. There was a decline in productivity
Speaker 4: growth across Western economies, the Soviet economy, and the Eastern
Speaker 4: Bloc more generally, the Communist Block had run into the
Speaker 4: end of their growth model. Kind of this hyper industrialization
Speaker 4: growth model had started to produce fewer and fewer results.
Speaker 4: So in both the Eastern Bloc, the Communist world, and
Speaker 4: the West, the growth model, one largely based on kind
Speaker 4: of industrialization, certainly based on cheap energy resources, had started
Speaker 4: to run aground roughly at similar kind of moments in
Speaker 4: the early nineteen seventies, and then these crises that kind
Speaker 4: of came to define the nineteen seventies, the energy shock
Speaker 4: of nineteen seventy three again in nineteen seventy nine. The
Speaker 4: monetary confusion and shocks of the nineteen seventies also spurred
Speaker 4: a great deal of inflation and crisis across the world.
Speaker 4: And so in both East and West, the societies had
Speaker 4: largely concluded that they did not have the resources to
Speaker 4: meet the commitments that they previously had made to their constituencies,
Speaker 4: or at least that's how it became framed and understood.
Speaker 3: So you mentioned commitments, What exactly were the commitments or
Speaker 3: the promises that different governments had made to their citizens,
Speaker 3: Because you know, I think about America and obviously in
Speaker 3: the nineteen fifties nineteen sixties there was the American dream
Speaker 3: of a nice house in the suburbs and a car
Speaker 3: and two point four children or whatever it was. And
Speaker 3: then in the East, I think there was a promise
Speaker 3: of economic growth. Maybe the emphasis was more on equality
Speaker 3: of economic growth versus just pure economic growth.
Speaker 4: Yeah. So I think, as I defined in the book,
Speaker 4: this kind of politics of making promises took different shapes
Speaker 4: in the West and the East. The West had more
Speaker 4: abundance from the start, and certainly creating abundance was at
Speaker 4: the core of what democratic capitalism was all about, but
Speaker 4: it wasn't particularly because the West was in this Cold War.
Speaker 4: You couldn't just be about creating abundance. There had to
Speaker 4: be some sense of limiting inequality at the very least,
Speaker 4: and so Western states, not universally and not necessarily with
Speaker 4: all of their conviction, but they supported labor unions to
Speaker 4: a much greater degree than they would subsequently, they created
Speaker 4: broad welfare states that invested in cradle to grave type
Speaker 4: of state intervention. They largely secured for at least large
Speaker 4: segments of their population income security, security, full employee. Even
Speaker 4: the commitment to full employment was a kind of post
Speaker 4: war novelty that governments could actually make credible. And in
Speaker 4: the East it took something, you know, it was a
Speaker 4: slightly different shape, but there were similar kinds of promises
Speaker 4: made that your workday would get shorter, your even intergenerational
Speaker 4: upward mobility would increase, you had access to housing. All
Speaker 4: of these always very incompletely fulfilled, but they were kind
Speaker 4: of making progress incredibly in the eyes of their populations,
Speaker 4: making more progress towards a future of both material abundance
Speaker 4: and some form of equality, not full on equality, certainly
Speaker 4: much more in communists or state social societies, equality was
Speaker 4: held in higher regard, but also very much in the West.
Speaker 4: You kind of couldn't come out just as fully comfortable
Speaker 4: with the levels of inequality that we've reached by today's standards.
Speaker 4: So this search for both abundance and some measure of
Speaker 4: equality was there in both the West and the East.
Speaker 2: You know, it's funny, Like, obviously I think today we
Speaker 2: think of the Soviet Union's economic model as sort of
Speaker 2: having been a basket case and a disaster, But for
Speaker 2: many years they were actually they were growing, their industrializing,
Speaker 2: They had rapid growth, something that I hadn't realized until
Speaker 2: I read your book. And maybe we're skipping ahead a
Speaker 2: little bit here in the story, but even like in
Speaker 2: Western financial markets, there was sort of an obsession with
Speaker 2: like Eastern Bloc debt, Like it was an exciting trade
Speaker 2: to lend to some of the communist countries in the East,
Speaker 2: and like financial analysts were like really excited about these investments.
Speaker 4: Yeah, and I don't know that we can really pin
Speaker 4: that necessarily on their growth processure per se, But Western
Speaker 4: bankers definitely believed that the communist world had a nice
Speaker 4: recipe for making secure loans. So if things were to
Speaker 4: come to a crisis, it was believed that authoritarianism was
Speaker 4: going to be very good imposing these kinds of cuts
Speaker 4: at imposing discipline and breaking promises. And in the background
Speaker 4: the Soviet economy itself, in the background of a country
Speaker 4: like Poland or Hungary or East Germany, the Soviet economy
Speaker 4: was sitting there, as they literally called it, an umbrella,
Speaker 4: an economic and financial umbrella over the rest of the
Speaker 4: Eastern Bloc, where if any of these countries ran into
Speaker 4: financial difficulties, it was assumed that the Soviet Union would
Speaker 4: kind of come to their financial rescue, would bail them
Speaker 4: out and in the end pay off their debts. And
Speaker 4: it turned out that that wasn't the case by the
Speaker 4: nineteen eighties, but in the nineteen seventies in particular, that
Speaker 4: was a very popular view in the Western financial press.
Speaker 3: Explain how we got from the nineteen seventies where Russia,
Speaker 3: you know, is kind of impressive at least to Western
Speaker 3: investors and analysts, to the nineteen eighties where it's unable
Speaker 3: to do what it had promised to some of its allies.
Speaker 4: Yeah, so you know, it's largely a story of oil
Speaker 4: and natural gas kind of coming into the nineteen seventies,
Speaker 4: the Soviet Union has found significant oil reserves in and
Speaker 4: western Siberia. It's started to develop those reserves over the
Speaker 4: course of the nineteen sixties, and by the nineteen seventies
Speaker 4: it's coming online, so to speak, as an energy superpower.
Speaker 4: At the same time that world markets are creating multiple
Speaker 4: crises that send the price of oil and natural gas
Speaker 4: through the roof, and so throughout the nineteen seventies it
Speaker 4: looks like the Soviet Union, and in fact it does
Speaker 4: have all of this energy wealth at its disposal. And
Speaker 4: then the nineteen eighties come and the kind of fortunes reversed. So,
Speaker 4: you know, when prices go up, people start to look
Speaker 4: for more supply. They find energy in places like the
Speaker 4: North Sea. They start to develop much more energy supply.
Speaker 4: Western countries have done not a great job, but they've
Speaker 4: done something to create more energy of fission economies, and
Speaker 4: so the forces of supply and demands start to send
Speaker 4: the price of oil in the nineteen eighties on a
Speaker 4: downward trend, pinpointed by a couple of particular moments like
Speaker 4: nineteen eighty five, where it really significantly collapses, and the
Speaker 4: Soviet Union itself finds that it's much more difficult to
Speaker 4: produce the growth in its energy sector that it had
Speaker 4: produced in the nineteen sixties in the nineteen seventies, and
Speaker 4: so these two forces, a kind of plateau in production
Speaker 4: and the collapse in price, all of a sudden leave
Speaker 4: the Soviet Bloc as a whole looking much less economically
Speaker 4: powerful by the even the middle of the nineteen eighties
Speaker 4: than it was, let's say, in the late nineteen seventies.
Speaker 2: When we were talking about the intro and you sort
Speaker 2: of alluded to it when you were talking about the
Speaker 2: Umbrella and this belief in the West that well, you know,
Speaker 2: the Soviet Union is authoritarian, essentially planned economy. They don't
Speaker 2: have to pander to voters, and therefore one might think
Speaker 2: that that's a more politically conducive environment for cutting spending
Speaker 2: or making difficult decisions. I'm curious the answer why that
Speaker 2: didn't turn out to be the case. Yes, as part
Speaker 2: of the story is that, well, maybe the promises to
Speaker 2: their own citizens could be taken for granted, that these
Speaker 2: other satellite countries East Germany, Poland, et cetera. They have
Speaker 2: no obligation to stick with the Eastern Bloc if they're
Speaker 2: not getting that support anymore from the Soviet Union. But
Speaker 2: why don't you sort of explain why that authoritarian ease
Speaker 2: didn't end up working out.
Speaker 4: Yeah, so it kind of corresponding to this belief in
Speaker 4: the West that authoritarians would be good at breaking promises,
Speaker 4: those same people and many others believe that democracies would
Speaker 4: be very bad at breaking promises, because, as you mentioned,
Speaker 4: the intro would seem to make sense that if you're
Speaker 4: trying to get elected, it's just not in your interest
Speaker 4: to try to break promises to your own citizens. The
Speaker 4: turn of the nineteen eighties, both events in the United
Speaker 4: States and Great Britain and events in the Eastern Bloc
Speaker 4: suggest that this might not be true, and in fact,
Speaker 4: democratic elections and the kind of legitimacy that it bestows
Speaker 4: on governments, at least that it did bestow in the past,
Speaker 4: we can talk about whether or not that's still true.
Speaker 4: In the nineteen eighties, it turned out that democracy and
Speaker 4: competitive elections provided a sense of legitimacy that made the
Speaker 4: let's say, the sales pitch of breaking promises more credible
Speaker 4: in the eyes of Western populations than it turned out
Speaker 4: to be in communist societies. So the specific case that
Speaker 4: I think is probably most illustrative is Poland in the
Speaker 4: early nineteen eighties. People will probably know, or if they're
Speaker 4: old enough, remember the Polish labor union Solidarity, it's famous leader,
Speaker 4: Left Bowensa. It's born in the summer of nineteen eighty
Speaker 4: precisely because the Polish government tries to increase consumer prices
Speaker 4: basically which in communist societies was one of the foundational
Speaker 4: promises that had been made to the population, we will
Speaker 4: keep your basic basket of goods the price of those
Speaker 4: goods very stable. They try to increase the in order
Speaker 4: to repay their debts, partially in order to solve some
Speaker 4: of their financial problems, and people openly revolt because they
Speaker 4: don't trust that their government, that the state's socialist state,
Speaker 4: is essentially telling them the truth that you need to
Speaker 4: go to the people to break these promises to get
Speaker 4: some sacrifice from them in order to repay debts. That's
Speaker 4: not a credible and legitimate claiming in the eyes of
Speaker 4: Polish society. In contrast, when someone like Paul Volker in
Speaker 4: the United States says essentially that the United States needs
Speaker 4: to go through a very painful recession in order to
Speaker 4: fix the problem of inflation that had come to define
Speaker 4: the United States over the course of the nineteen seventies.
Speaker 4: Lots of people are unhappy about that. He gets death threats,
Speaker 4: there's protests, he's on the cover of Time magazine. He's
Speaker 4: kind of public enemy number one in a sense. But
Speaker 4: it does not result in a kind of full blown
Speaker 4: revolt against the system as it did in the Eastern Bloc.
Speaker 3: And so the.
Speaker 4: Legitimacy that democracy itself bestowed on Western States turns out
Speaker 4: to be the mechanism, I think, by which they were
Speaker 4: able to break promises to their people, whereas in the
Speaker 4: Eastern Bloc authoritarianism proved to be very weak at this
Speaker 4: task because the only thing people had come to expect
Speaker 4: from their government, they didn't have any political role in it.
Speaker 4: The only thing they'd come to expect was some kind
Speaker 4: of material improvement year over year, meager though it was,
Speaker 4: and that was lacking in the Eastern Bloc.
Speaker 3: Can you say more about this, maybe in the context
Speaker 3: of Ronald Reagan, because I think that would be a
Speaker 3: good example of I guess the role of free elections
Speaker 3: and competition between political candidates in basically letting the population,
Speaker 3: like let some of their frustration out right. It's kind
Speaker 3: of like, Okay, the current politicians have failed to keep
Speaker 3: their promise, and so we are willing to try anything,
Speaker 3: even if it means short term pain in order to
Speaker 3: get what we want again.
Speaker 4: Yeah, So Reagan is a kind of quintessential figure for
Speaker 4: this turn. He's not a political outsider necessarily, certainly on
Speaker 4: the level of Trump in the nineteen seventies, but he
Speaker 4: does come to DC wins the nineteen eighty election with
Speaker 4: a distinctly different message. Right. He famously says in his
Speaker 4: inaugural a dress in nineteen eighty one, government is not
Speaker 4: the solution to the problem. It is the problem. And
Speaker 4: that kind of message, which is already one that is
Speaker 4: then conducive to breaking promises because it's redefined the state
Speaker 4: as the problem itself. The popular mandate that he has
Speaker 4: by winning the nineteen eighty election, in turn, gives him,
Speaker 4: I guess the term would be more political capital and
Speaker 4: certainly more receptivity even from his enemies or from his
Speaker 4: political enemies to accept the policies that he then enacts.
Speaker 4: So I think that's one of the key factors is, yes,
Speaker 4: he has certain people who agree with many people who
Speaker 4: agree with him, but even those who disagree with him
Speaker 4: work within the bounds of the system where they accept. Again,
Speaker 4: this is where it gets a little different in the
Speaker 4: recent years. They accept the outcome of the election right,
Speaker 4: and they view the process itself by which this was
Speaker 4: decided as legitimate. And so he's not particularly successful, and
Speaker 4: he and his team are not particularly successful in cutting spending,
Speaker 4: in particular in breaking promises. Much more of that in
Speaker 4: the US case comes from the federal Reserve. But he
Speaker 4: dramatically alters the rhetorical landscape of the United States, and
Speaker 4: does so by bringing this movement from outside Washington, DC
Speaker 4: and redefining what the kind of terms of the debate
Speaker 4: will be. In the nineteen eighties.
Speaker 2: You make a compelling argument that at least, you know
Speaker 2: forty something years ago that something about the democratic system
Speaker 2: was more conducive to cutting spending. But a you know,
Speaker 2: a lot of the sort of austerity that was imposed
Speaker 2: in the US came more from the FED rather than
Speaker 2: actual spending cuts. And of course we know that deficits
Speaker 2: actually widened quite a bit, so it sort of relied
Speaker 2: on the fact that we sort of have this sort
Speaker 2: of outside of government undemocratic enforcer in the form of
Speaker 2: the Federal Reserve. But then also the UK example, which,
Speaker 2: as your book lays out, you know, there was fights
Speaker 2: with the coal miners and maybe you can explain that,
Speaker 2: but it like, ultimately what allowed Margaret Thatcher to have
Speaker 2: the political capital to cut was the Falkland Islands War
Speaker 2: in nineteen eighty two, which gave her a burst and popularity, which, okay,
Speaker 2: maybe that allowed for some breaking promises, but sort of
Speaker 2: a I don't know, dirus x mockin like does not
Speaker 2: sound like a great triumph of like, oh, this is
Speaker 2: the democratic process working smoothly with the mandate.
Speaker 4: No, and I don't think it's ever a let's say,
Speaker 4: clean and easy process. And Reagan was one of those
Speaker 4: elected I guess with that most in his mandate. Thatcher
Speaker 4: another one, And even those who were elected with spending
Speaker 4: cuts as part of their mandate found it a very
Speaker 4: difficult thing to actually enact. So in Thatcher's case, yes,
Speaker 4: cutting spending is an important part of what she does.
Speaker 4: They also have a whole series of state owned industries
Speaker 4: that they're trying to either close down or privatize, and
Speaker 4: the coal miners of Great Britain are the ones who
Speaker 4: ultimately try to fight back against this, and Thatcher, I argue,
Speaker 4: I think, partially because of the kind of legitimacy that
Speaker 4: democracy bestows upon her, doesn't end up with British society
Speaker 4: in full revolt against her.
Speaker 1: Right.
Speaker 4: So I compare in the book the course of the
Speaker 4: minor strike in Great Britain versus the course of solidarity
Speaker 4: in Poland. Solidarity starts as a strike among workers and
Speaker 4: builds out into a kind of society wide revolt against
Speaker 4: the state socialist system, whereas the miners in the UK,
Speaker 4: for a series of contingent but also I think structural reasons,
Speaker 4: they are unable to form a broader coalition that would
Speaker 4: ultimately thwart Thatcher's action, and so the strike fails. Ultimately,
Speaker 4: the coal industry in the UK declines throughout the nineteen eighties,
Speaker 4: and I think it is the kind of democratic system,
Speaker 4: the legitimacy of the system itself, that allows this process
Speaker 4: to unfold. So, for instance, Thatcher in this period is
Speaker 4: a very divisive figure. Her approval ratings are something in
Speaker 4: the range of forty five percent, But the police who
Speaker 4: are kind of carrying out her actions and doing the
Speaker 4: actual work to break up the minor strike have an
Speaker 4: approval rating somewhere in the ninety two to ninety three
Speaker 4: percent rank. So the state itself is deemed to be legitimate,
Speaker 4: even if the politician who is enacting these policies is
Speaker 4: still a highly divisive figure. And that's the kind of
Speaker 4: deep legitimacy that democratic states had in this period and
Speaker 4: that state socialist countries did not have, I think is
Speaker 4: what ultimately produced the break or allowed the process of
Speaker 4: breaking promises to go ahead in the United States and
Speaker 4: the Western world more broadly.
Speaker 3: The sort of distinction between politics and the economy.
Speaker 4: I guess, well, that's a whole nother yes, I mean,
Speaker 4: that's another way by which states, particularly capitalist states, have
Speaker 4: found ways to break promises, is to shift responsibility for
Speaker 4: social and economic outcomes from the government itself to the market. Right. So,
Speaker 4: even processes of privatization, although technically a change in ownership,
Speaker 4: were also the kind of consequences of those were often
Speaker 4: downsizing unemployment, things like that. Right, So you've shifted responsibility
Speaker 4: over to the marketplace. Over to this realm called the economy,
Speaker 4: and then the negative social consequences that stem from that
Speaker 4: process of privatization appear to be the product of the market.
Speaker 4: They appear to be the product of the economy rather
Speaker 4: than a political decision itself. And so that distinction, Yeah,
Speaker 4: the politics versus economy distinction is a fundamentally important one
Speaker 4: for how and why capitalist societies work.
Speaker 3: So Gorbachev has a famous quote. I think it's something
Speaker 3: like politics always follows the economy, not vice versa. And
Speaker 3: you actually you mentioned that in your book, but I'd
Speaker 3: be curious to get your take about the relationship between
Speaker 3: politics and the economy and which one has the most
Speaker 3: influence on the other.
Speaker 4: Yeah. So I've wrestled with this for quite a long
Speaker 4: time as I was writing this book, and I don't
Speaker 4: think I have a categorical answer. I think it can
Speaker 4: be different things in different moments. Generally speaking, I do
Speaker 4: think that political economy, the economic forces of our world
Speaker 4: of the late twentieth century, did provide let's say, windows
Speaker 4: of opening windows of possibility and also closed other possibilities
Speaker 4: in the realm of politics. So if you take something
Speaker 4: like supply side economics in the United States on its
Speaker 4: face in terms of whether or not it actually could
Speaker 4: have succeeded on its own terms. The idea that you
Speaker 4: cut taxes, you'll un leash economic growth and it will
Speaker 4: essentially pay for itself. That idea has continuously been disproven,
Speaker 4: and yet it continues to exist in US political discourse,
Speaker 4: largely because the United States has been able to borrow
Speaker 4: more money than anyone from the nineteen eighties onwards thought possible.
Speaker 4: And so I think political ideas and political formations, political movements,
Speaker 4: their life span and their popularity and then their moments
Speaker 4: of coming to an end, do kind of have an
Speaker 4: economic underpinning that makes them possible or not?
Speaker 2: You know, I'm curious this book came out I think
Speaker 2: twenty twenty two, during the peak of the recent inflation wave.
Speaker 2: When you wrote it, I mean, I imagine you know, this
Speaker 2: is years and years of research in your career, but
Speaker 2: how much were you thinking about the present day. And
Speaker 2: I recognize you keep sort of hinting at well, maybe
Speaker 2: democratic governments in the West don't have the same perceived
Speaker 2: legitimacy to do unpopular things, or to do things at all.
Speaker 2: But I'm curious, like, as you were writing, how much
Speaker 2: you were thinking about, like this is a lesson for
Speaker 2: contemporary times.
Speaker 4: Yeah, it was part of it, certainly as the book
Speaker 4: came out. So when did the FED start hiking? That
Speaker 4: you two would probably know better was.
Speaker 2: That the first was in March twenty twenty two.
Speaker 4: Yeah, so it was about to come out. And I
Speaker 4: think had that happened much more as I was writing
Speaker 4: it and researching it, I think the book may have
Speaker 4: taken a different shape. Basically, it took on a new
Speaker 4: kind of resonance as the book was about to come out.
Speaker 4: As I was crafting it, it wasn't so much. I
Speaker 4: guess the present day analogy, the present day comparison I
Speaker 4: was making was how the United States was able to
Speaker 4: exist with a system of political economy that didn't seem
Speaker 4: to me to be sustainable in the sense of everything
Speaker 4: I had thought I learned about economics, and I was
Speaker 4: not a PhD in economics or anything, but four decades
Speaker 4: of current accounts deficits and budget deficits many times had
Speaker 4: been it had been predicted that this type of system,
Speaker 4: this type of arrangement, could not go on and would
Speaker 4: one day come to an end. And yet all of
Speaker 4: those predictions have continuously been pushed back or been to
Speaker 4: this point come to fruition. And so I was trying
Speaker 4: to find the origins in one way of at least
Speaker 4: for the part about the United States in the book,
Speaker 4: trying to find the origins of where that political economic
Speaker 4: arrangement came from. And it turned out to have its
Speaker 4: origins at least I think in the early nineteen eighties,
Speaker 4: with the combination of Vulgar and Reagan. So yeah, I
Speaker 4: didn't go in search of a kind of recipe of
Speaker 4: how do you go about breaking promises, because I ultimately
Speaker 4: don't think the contemporary world is one where more of
Speaker 4: breaking promises is a solution to anything, but more how
Speaker 4: the United States as a political economic system arrived at
Speaker 4: the arrangement that it has had for the past four decades.
Speaker 3: This reminds me, actually, I wanted to ask you about
Speaker 3: the actual research ss of writing a book like this,
Speaker 3: because I read on the back that you did a
Speaker 3: bunch of new archival research. What was that like? What
Speaker 3: did you find?
Speaker 4: Well? It was fascinating at every turn. So I started
Speaker 4: in Washington, d C. I went to spend a year
Speaker 4: in East German archives, which I think are the best
Speaker 4: kind of archives you can have because there's no more
Speaker 4: state left to defendance in secrets. And then spent a
Speaker 4: summer in Russia as well, before the war in Ukraine,
Speaker 4: or at least the twenty twenty two next step of
Speaker 4: the war in Ukraine. So at every turn right, I
Speaker 4: started with a view of the Cold War. I began
Speaker 4: this project once I learned that when the Berlin Wall
Speaker 4: came down, the East Block was ninety billion dollars in
Speaker 4: debt to the West, and that didn't make any sense
Speaker 4: to me. It didn't seem to accord with our understanding
Speaker 4: of what the Cold War was, at least from an
Speaker 4: economic point of view, where these two sides were supposed
Speaker 4: to be relatively independent of each other. And then once
Speaker 4: you get into the archives, whether it's in DC at
Speaker 4: the IMF, whether it's in Berlin at the East German Archives,
Speaker 4: or in Moscow, there was an entire story there of
Speaker 4: officials on both sides of the Aaron Curtain. I don't
Speaker 4: think the word is too strong. Literally obsessed with questions
Speaker 4: of international finance and energy, and questions of how do
Speaker 4: you go about legitimizing austerity or breaking promises to your
Speaker 4: own population, and so it was an exhilarating experience at
Speaker 4: least or a historically minded person like me to find
Speaker 4: this story in archives all over North America and Europe
Speaker 4: at least.
Speaker 2: Going back to the Soviet Union for a second. So
Speaker 2: obviously we could do one hundred episodes of the podcast
Speaker 2: and never arrive at a definitive answer of why the
Speaker 2: Soviet Union collapsed, and everyone has their various theories. The
Speaker 2: Berlin Wall comes down in nineteen eighty nine, what promises
Speaker 2: did the Soviet Union ultimately have to break and how
Speaker 2: did those go down? What were the specific sort of
Speaker 2: decisions made out of Moscow, to the satellites, to the
Speaker 2: domestic citizenry that they actually had to bite the bullet,
Speaker 2: and how did that contribute to the ultimate collapse of
Speaker 2: the whole project.
Speaker 4: So the international promise, I think promise is one word
Speaker 4: for it, but in a sense that they're kind of
Speaker 4: dictating to their paternal allies, but certainly promising to the socialists,
Speaker 4: the state socialists in their allied countries that they will
Speaker 4: come to their defense. Right, So if there's ever a
Speaker 4: kind of domestic revolt or a movement for domestic reform,
Speaker 4: this had happened in nineteen fifty three, in nineteen fifty six,
Speaker 4: the Prague Spring in nineteen sixty eight, almost to a
Speaker 4: certain degree in Poland in nineteen eighty and eighty one,
Speaker 4: the Soviet Union was always standing there in the background,
Speaker 4: either literally intervening militarily or threatening to intervene to in
Speaker 4: their frame of reference, save state socialism, save socialism from
Speaker 4: its capitalist enemy. That kind of gets encased in the
Speaker 4: idea of the Brezhnev doctrine, named after Lenid Brezhnev, that
Speaker 4: the Soviet Union will always intervene to save its allies
Speaker 4: from domestic unrest or counter revolution. That promise gets broken
Speaker 4: in the late nineteen eighties, as Gorbachev and many many
Speaker 4: others beyond him end up viewing their imperial relationship as
Speaker 4: a bad economic deal. So they're subsidizing their satellites in
Speaker 4: all kinds of ways, but particularly with low cost energy,
Speaker 4: and they're not getting, in their view, anything in return,
Speaker 4: or certainly not getting a fair deal in that alliance relationship.
Speaker 4: And so he eventually says, essentially, you handle your own problems,
Speaker 4: will handle our problems. I placed that moment in nineteen
Speaker 4: eighty six, and within a couple of years of course
Speaker 4: they're testing the limits, and in nineteen eighty nine the
Speaker 4: Iron curtain comes down in the Berlin Wall collapses. Domestically
Speaker 4: the Soviet economy, at least, there's a kind of Soviet
Speaker 4: social contract that the state will provide, right, in exchange
Speaker 4: for your political silence, the state will provide you with
Speaker 4: low cost consumer basics, job security. Right, there's no unemployment
Speaker 4: in the society, at least no official unemployment, so you're
Speaker 4: going to get kind of a lower level but certainly
Speaker 4: socioeconomic security in exchange for your political silence. And that
Speaker 4: he too, also through Paristroika, tries to start to break
Speaker 4: those promises, introduce more market mechanisms, even eventually coming to
Speaker 4: the idea that there would need to be unemployment and
Speaker 4: more job in security in Soviet society.
Speaker 3: I know your book stops with the end of the
Speaker 3: Soviet Union, but can you maybe give us a little
Speaker 3: bit of color on how the market opening played out
Speaker 3: among people? And I'm thinking specifically about price increases. Right,
Speaker 3: So the social contract for such a long time is
Speaker 3: as you said, You'll have subsidized energy and low cost
Speaker 3: basic goods and a job. And then suddenly all of
Speaker 3: that becomes a very uncertain what happened and what was
Speaker 3: the sort of response from society.
Speaker 4: So it plays out slightly differently in each place, of course,
Speaker 4: but the place like Poland, for instance, very quickly introduces
Speaker 4: shock therapy, as it was even called by its proponents
Speaker 4: in the fall of nineteen eighty nine. Essentially, the question
Speaker 4: on everyone's mind was if we see that there's this
Speaker 4: they hoped very short period maybe six eight months, maybe
Speaker 4: a year of economic difficulty that we have to go
Speaker 4: through as we enter into the market, then we might
Speaker 4: as well get it done as quickly as we can.
Speaker 4: That was the shock therapist's message. It was also they
Speaker 4: were fully aware that this was going to be extremely unpopular.
Speaker 4: Breaking promises is never popular, so again, better to do
Speaker 4: it quickly. While everyone is kind of in this euphoric
Speaker 4: moment of having defeated communism or moved past their communist systems,
Speaker 4: we should use this time time to do as much
Speaker 4: economic transformation as we possibly can. And so in many
Speaker 4: of these countries there are periods of wrenching economic change,
Speaker 4: dramatic price increases, Unemployment goes up at a slower rate
Speaker 4: than people had been anticipating, largely because companies kind of
Speaker 4: take their employees' livelihoods. Luckily much more heart than standard
Speaker 4: market models had been predicting, so there was not as
Speaker 4: much unemployment as people anticipated, but still a great deal,
Speaker 4: a great deal of industrial restructuring, de industrialization, things like that.
Speaker 4: And the question, a much broader question that I think
Speaker 4: is something for open for historical research, is how that
Speaker 4: all of that process could have been done much more productively.
Speaker 4: Let's say that maybe some promises had to be broken
Speaker 4: in some kind of way, right, I think there is
Speaker 4: something about industrial restructuring that is going to be painful,
Speaker 4: and if you think that entering the global market is
Speaker 4: ultimately a good thing on some kind of terms, there
Speaker 4: may be some kind of broken promise within that. But
Speaker 4: how to do it in a way that is most humane,
Speaker 4: most pro growth because economic growth often didn't appear in
Speaker 4: these places for quite a long time. I think that's
Speaker 4: something that we'll need to focus on as historians for
Speaker 4: quite a long time to see where the better routes
Speaker 4: may have been passed over.
Speaker 2: Fritz Bartel, fascinating conversation, very timely. Thank you so much
Speaker 2: for coming on outlaws.
Speaker 4: Thanks so much so, Tracy.
Speaker 2: My takeaway is that cutting spending breaking promises is extremely hard,
Speaker 2: and even if you have very popular, incredibly talented politicians,
Speaker 2: you still might have a hard time. I'm doing it.
Speaker 2: But maybe sometimes if the government enjoys a high degree
Speaker 2: of public credibility across the aisle, maybe sometimes it's possible
Speaker 2: without destroying society.
Speaker 3: Public credibility and I guess ironically democracy.
Speaker 2: Yeah, at least in that specific period of time.
Speaker 3: But I do think this is sort of like it's
Speaker 3: a funny one because we're used to thinking of humans
Speaker 3: as very short termist. Yeah, and yet you know, people
Speaker 3: are voting for short term pain in order to have
Speaker 3: longer term gains. But I think there's still an element
Speaker 3: of short termism at play in the sense that, like
Speaker 3: it's a pendulum swinging, right, So like you go from
Speaker 3: one candidate or one system that failed to deliver what
Speaker 3: you wanted, and then you just swing to the other
Speaker 3: one in the hopes that they're able to do it.
Speaker 3: And again, in the US, at least there's only two systems,
Speaker 3: so you get that pendulum swinging quite a lot.
Speaker 2: I don't know listening to that conversation. Again, I don't
Speaker 2: have an opinion on what the government the optimal size
Speaker 2: of government spending or the optimal size of the deficit.
Speaker 2: It's hard for me to imagine a meaningful change in
Speaker 2: the spending or deficit trajectory under the current political environment
Speaker 2: in the US. You Know, what I thought was that
Speaker 2: maybe one of the most interesting points this idea that
Speaker 2: when Margaret Thatcher, she didn't have high approval rating, but
Speaker 2: the police that ultimately had to sort of carry out
Speaker 2: actions against the coal miners, they had very high approval rating.
Speaker 2: So this idea that like, the politician may not be popular,
Speaker 2: but the state apparatus still enjoys a lot of credibility.
Speaker 2: And this distinction between the politician and the state apparatus,
Speaker 2: a distinction that didn't exist in the Soviet Union, that
Speaker 2: that was really the key to at least making it
Speaker 2: so that once the thing has been carried out, it
Speaker 2: doesn't like destroy society.
Speaker 3: Yeah, I think this is exactly it. So in communist systems,
Speaker 3: the state is mixed with efecte yes, right, like, including
Speaker 3: the economy, so you don't get that political economic distinction,
Speaker 3: whereas in the West that exists. It's a useful thing
Speaker 3: for politicians to blame and you know, manipulate to their
Speaker 3: own ends.
Speaker 2: I guess the question. We know that the politics is
Speaker 2: very divisive in this country. I also worry that like this,
Speaker 2: you know, the state itself and the legitimacy of like
Speaker 2: government is coming under fire. So some difficult challenges if
Speaker 2: we if we're going to go down that path.
Speaker 3: Yeah, shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the Oud Thoughts podcast.
Speaker 3: I'm Tracy Halloway. You can follow me at Tracy Halloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guest Fritz Bartel, He's at Fritz Underscore Bartel
Speaker 2: and check out his book, The Triumph of Broken Promises.
Speaker 2: Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Speaker 2: Bennett and Dashbot and kill Brooks at Kilbrooks. From our
Speaker 2: odd Laws content, go to Bloomberg dot com slash odd Lots.
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