Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the All Bots podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 2: Joe, you did international relations at university, didn't you.
Speaker 4: Yeah. I did.
Speaker 3: I don't remember any of it actually, technically at University
Speaker 3: of Texas, the major was called government, which was sort
Speaker 3: of polysci international relations. I don't remember any of it
Speaker 3: at a good time. But yeah, anyway, yes, it is.
Speaker 2: All a blur for me as well.
Speaker 3: Just to be clear, it's not because I was like
Speaker 3: partying like crazy. I didn't have much fun in college,
Speaker 3: you know. It's just one of those sort of liberal
Speaker 3: arts degrees that you remember a few ideas from and.
Speaker 1: Then you move on.
Speaker 3: Okay, Well, I don't want to make it seem like
Speaker 3: I was like, oh, it's all a blue to me,
Speaker 3: because it's such a no. It's just I wasn't a
Speaker 3: great student, Okay.
Speaker 2: Well, to be fair, I feel like one of the
Speaker 2: things about international relations is that I don't know about you,
Speaker 2: but I feel like I didn't learn very much. I
Speaker 2: basically learned how to write essays and arguments, and I
Speaker 2: don't feel like I actually internalized a lot of what's
Speaker 2: going on in the world. That said, I remember in
Speaker 2: my first year there was one book that was on
Speaker 2: our reading list, and it kind of blew my mind.
Speaker 2: At the time.
Speaker 5: I was like, whoa.
Speaker 2: So it was Globalization and It's Discontents by Joseph Stiglitz.
Speaker 2: Do you remember that one.
Speaker 3: I did not read it at the time. I probably
Speaker 3: should have. I think that came out in early two thousand,
Speaker 3: two thousand and two. It looks like according to Wikipedia,
Speaker 3: and it feels very ahead of its time because now
Speaker 3: this is just such a pervasive theme.
Speaker 2: It does. And the thing that kind of blew my
Speaker 2: mind about it was, you know, I had done a
Speaker 2: little bit of international relations at my high school in Tokyo.
Speaker 2: They have, of course, but most of it felt very history.
Speaker 2: It was like, you know, World War One happened, and
Speaker 2: then World War two happen, and then all these international
Speaker 2: institutions got set up, and here are all their various
Speaker 2: names and acronyms. But Globalization and Its Discontents was the
Speaker 2: first time I had read an actual, like critical study
Speaker 2: of some of these institutions, and I thought it was
Speaker 2: so good. I was like, oh, hey, like these weren't
Speaker 2: inevitable by any means, and we can have a discussion
Speaker 2: over what it is they do and how they should function.
Speaker 3: Yeah, the lack of inevitability when it comes to policy choices,
Speaker 3: I think really important people make decisions and things don't
Speaker 3: necessarily unfold on some path that must have always been
Speaker 3: the case. Very easy to forget that. And also, you know,
Speaker 3: all of this stuff is very new and it has
Speaker 3: none of these things are ancient by any stritch. You
Speaker 3: could argue none. Nothing has really proven the test of
Speaker 3: time as of yet. And so the possibility that things
Speaker 3: could disintegrate, that globalization could go in reverse, that institutions
Speaker 3: lose credibility, feels like these are we're all open questions
Speaker 3: to me.
Speaker 2: Absolutely, So I am very happy to say that today
Speaker 2: we do, in fact have the perfect guest on all thoughts.
Speaker 2: We are going to be speaking with Professor Joseph Stickletz.
Speaker 2: He is, of course a Nobel Prize winning economist, the
Speaker 2: author of Globalization and It's Discontents, and he has a
Speaker 2: new book out now as well. It is called The
Speaker 2: Road to Freedom, Economics and the Good Society. So Professor Stickltz,
Speaker 2: thank you so much for coming on all thoughts go
Speaker 2: ahad to be here. So I have to say your
Speaker 2: book actually featured in one of my most annoying and
Speaker 2: overconfident international relations essays of all time, where I wrote
Speaker 2: that Stiglitz made a fair criticism of international institutions, but
Speaker 2: he should have gone even further. Maybe in the outro,
Speaker 2: I'll spare you this professor, but maybe in the outro
Speaker 2: I'll read some of it to the other Joe here.
Speaker 3: To my co host, looking forward to that.
Speaker 2: Yeah, But one of the reasons we wanted to have
Speaker 2: you on the show was not necessarily because of the
Speaker 2: new book, although it looks really interesting, but you also
Speaker 2: just published a working paper over at the Federal Reserve,
Speaker 2: and it's called our Supply Networks Efficiently Resilient. How did
Speaker 2: that get on your radar?
Speaker 4: All went through the pandemic and the post pandemic inflation,
Speaker 4: and a lot of the problems in the pandemic and
Speaker 4: after the pandemic were about supply chains. Car companies couldn't
Speaker 4: get chips, a lot of people couldn't get one thing
Speaker 4: or another. There was a shortage of women, feminine products, divers,
Speaker 4: all kinds of things, the baby formula, and in many
Speaker 4: of the cases people said, well, I couldn't produce it
Speaker 4: because somebody else couldn't supply me with what I needed.
Speaker 4: And they said, well I couldn't do it because what
Speaker 4: I was supposed to get was from somebody else. And
Speaker 4: that brought me back to work I had done earlier
Speaker 4: on the question of how interdependent we are in our economy,
Speaker 4: and we saw it in the financial system. I did
Speaker 4: a lot of work on financial interdependence. Went do you
Speaker 4: remember when Layman Brothers went down? It looked like that.
Speaker 4: That looked like that whole banking system was going to
Speaker 4: go down. We were all very interdependent. And the question
Speaker 4: then was was this a one off or was there
Speaker 4: something systematically wrong, systemically wrong with the way our economy
Speaker 4: was organized that led firms to make decisions that led
Speaker 4: the economy to be insufficiently resilient. And going back to
Speaker 4: the book Galization Discontexts, one of my discontents with that
Speaker 4: book was I didn't give the view my views about
Speaker 4: what could be done. And I wrote a sequel called
Speaker 4: Making Glorization Work, and in that sequel I discussed some
Speaker 4: aspects of this issue. I pointed out that Germany had
Speaker 4: become excessively dependent on Russian gas and you know it.
Speaker 4: Maybe the President Bush looked in the eyes of Bouten
Speaker 4: and said he's somebody I can trust. A lot of
Speaker 4: other people looked at his eyes and came to other conclusions.
Speaker 4: And whether you did or not trust Bouten, it was
Speaker 4: a risk, and putting all your eggs in that basket
Speaker 4: was just a mistake. So the question was that I
Speaker 4: wanted to pose bark generally, was our markets efficiently resilient?
Speaker 3: So when it comes to I mean, the pandemic hit,
Speaker 3: everyone sort of woke up to the fragility of our
Speaker 3: supply chains and experienced shortages of various things for probably
Speaker 3: for many people, least in rich Western cones for the
Speaker 3: first time in their lives. And so then we say, okay,
Speaker 3: we want to have more buffers and more inventories, more
Speaker 3: resilient supply chain. That being said, this type of shock
Speaker 3: seems to I don't know, you could say once in
Speaker 3: a century type of thing. And there is an argument
Speaker 3: to be made perhaps that companies should not be designing
Speaker 3: systems or you know, you're over optimizing or you're going
Speaker 3: to be overly inefficient if you're thinking about once in
Speaker 3: a century type of shocks. But In your paper you
Speaker 3: talk about how some of the lessons from the pandemic
Speaker 3: are generalizable to non crisis times as well. So can
Speaker 3: you explain a little bit this sort of theoretical argument
Speaker 3: that you make that it's not just about these megashocks,
Speaker 3: but that a persistent feature across the economy is this
Speaker 3: under investment in supply chain resilience.
Speaker 4: That's right. I mean, it's basically that firms don't think
Speaker 4: about the consequences of underinvesting in capacity for others. They
Speaker 4: may take the price distributions as given, but their independent
Speaker 4: actions actually change the price distributions, and they change them
Speaker 4: in ways that basically they're free writing on others. But
Speaker 4: when they all are free riding on others on the
Speaker 4: fact that somebody will have built that capacity, there's a
Speaker 4: problem of under capacity. So that would, in a nutshell,
Speaker 4: is the argument that if each firm says, well, if
Speaker 4: I need it, I can always get it from somebody else,
Speaker 4: and they all go around doing that, in the end
Speaker 4: there won't be enough capacity. Capacity is like a public
Speaker 4: good that we all benefit from, and there's a general
Speaker 4: proposition in economics that there will be under investments with goods.
Speaker 2: Here is something I always wanted to ask a Nobel
Speaker 2: Prize winning economist, but when you're modeling something like firm
Speaker 2: behavior and the tendency to over or underinvest, how do
Speaker 2: you actually go about doing that?
Speaker 4: That's a very good question. The way we do that
Speaker 4: is complex.
Speaker 2: We like complexity on this show in detail Feel Free.
Speaker 4: So the basic idea is you apothesized a world in
Speaker 4: which you have somebody sitting up there coordinating various activities,
Speaker 4: looking at saying, Okay, I know there's going to be shocks.
Speaker 4: I want to make sure I don't want to overinvest,
Speaker 4: as you say, you don't want to build capacity for
Speaker 4: once in a thousand year, but I'm willing to pay
Speaker 4: something because some big shocks are really going to have
Speaker 4: very very negative consequence. And so I can solve for
Speaker 4: the level of capacity that is desirable for the shocks,
Speaker 4: given a reasonable assumptions about how big different shocks are
Speaker 4: going to occur, with what probabilities, And then I ask
Speaker 4: will decentralize markets? Each firm maximizing its own profits lead
Speaker 4: to the same solution that somebody trying to coordinate it all.
Speaker 4: The basis of a modern market economy is decentralization. Each
Speaker 4: firm goes ahead and does a thing. And Adam Smith
Speaker 4: had this idea that individuals in the pursuit of their
Speaker 4: own self interest lead, as if by an invisible hand,
Speaker 4: to the well being of society. That concept is really
Speaker 4: fundamental to economic reasoning, and Adam Smith didn't actually test
Speaker 4: whether it was true. He just asserted it. And what
Speaker 4: we can do with modern, more complicated models is to say, well,
Speaker 4: in these more complicated situations where you have these shocks,
Speaker 4: you are responding to the shocks. The lack of coordination
Speaker 4: lead to a problem, And the answer is yes. And
Speaker 4: that's where the free riding comes in. And that's why
Speaker 4: the way we model it, we compare what a decentralized
Speaker 4: outcome would look like worth one where say somebody is
Speaker 4: aware of the need for greater resilience than each individual would.
Speaker 4: Let me give you one example where this has played
Speaker 4: out in an important way. We have a lot of
Speaker 4: capacity and oil and gas, but we have to draw
Speaker 4: on the oil reserve that the government has created to
Speaker 4: help stabilize it. Even more so, we as a country
Speaker 4: have realized that the markets are not the solution by themselves,
Speaker 4: and have put a lot of oil into these strategic
Speaker 4: reserves which we would take out when there's a shock
Speaker 4: where we need it, and we then when times are normal,
Speaker 4: we will refill it. So that illustrates the other extreme
Speaker 4: that our economy went to, where you can see where
Speaker 4: it was not resilient enough, is we had just in
Speaker 4: time inventories. I don't know if you remember that idea,
Speaker 4: and it was the idea that it was more efficient
Speaker 4: to wait till you need it apart or you needed
Speaker 4: then you call it up and so I'd send it over. Well,
Speaker 4: it saved on inventory costs, but it assumed that everything
Speaker 4: in the logistic network was working. Parts were working, ships
Speaker 4: were working. And of course we've had a number of
Speaker 4: events that show well that's not true. We've had wars
Speaker 4: like in the Middle East, and we had the pandemic
Speaker 4: where there were logistical nightmares and just in time. Those
Speaker 4: companies that relied on just in time inventories were in
Speaker 4: big trouble, showing that our and with big consequences for
Speaker 4: our economy. Our economy wasn't resilient and we experienced inflation
Speaker 4: as a consequence of that. That was a social cost
Speaker 4: that individual firms didn't take into account when they were
Speaker 4: making those calculations, but.
Speaker 2: On just in time, you can argue that the economy
Speaker 2: or society as a whole suffered because of those decisions
Speaker 2: that tendency to be as efficient as possible. But a
Speaker 2: lot of the individual companies were rewarded by shareholders or
Speaker 2: profits for being as efficient and just in time as
Speaker 2: they could possibly be. And I guess there's that tension
Speaker 2: between individual rewards for being extremely streamlined versus negative externalities
Speaker 2: for the whole of the economy and society. How do
Speaker 2: you square those two things. You talk about it in
Speaker 2: the paper.
Speaker 4: You're precisely on point there that this is the tension
Speaker 4: that what is rational for the individual maximizing or firm
Speaker 4: maximizing its profits, is not efficient for society. There's another
Speaker 4: aspect of that that I should emphasize that markets are
Speaker 4: often excessively short term. So you say they're maximized seeing
Speaker 4: their profits, they're not really maximizing long term profits. A
Speaker 4: lot of that just in time was maximizing short term profits,
Speaker 4: and then when you can't produce, you lose a lot
Speaker 4: of profits, and they didn't take that fully into account.
Speaker 4: Part of the reason for this is we don't really
Speaker 4: have good prices for risk. You know, there's a lot
Speaker 4: of discussion today about one of the reasons why we
Speaker 4: have too much pollution, too much carbon climate changes, that
Speaker 4: we don't charge for carbon emissions or other forms of pollution,
Speaker 4: so there isn't a price associated with certain negative externalities
Speaker 4: or the pollution is one, and there's not a price
Speaker 4: associated with or a reward with risk. So the firms
Speaker 4: that don't really just in time aren't rewarded for their
Speaker 4: avoidings of the risk, and particularly if the stock market
Speaker 4: is too short term, figuring out what to do about
Speaker 4: that is really difficult. One of the things is to
Speaker 4: try to encourage firms to take more long term decisions
Speaker 4: and rewarding more long term behavior. Taxes affect that. The
Speaker 4: fact that you can get if you get more favorable
Speaker 4: treatment on capital gains, if exceled long term, can encourage
Speaker 4: people to hold on to investments long term, and that
Speaker 4: will encourage more long term thinking as most of the
Speaker 4: short term thinking that's being so dominant and so much
Speaker 4: of the market economy.
Speaker 3: You know, one of the criticisms obviously of a sort
Speaker 3: of taking a view of what the ideal distribution of
Speaker 3: outcomes or the ideal supply chain from the perspective of
Speaker 3: a planner is planners don't know everything, and planners get
Speaker 3: things wrong. And you mentioned, you know, the strategic Petroleum Reserve,
Speaker 3: and of course oil is an input into almost every
Speaker 3: aspect of the economy, and so yeah, it kind of
Speaker 3: makes sense for the government to have this buffer stock
Speaker 3: of oil. How do you systematize the identification of these areas,
Speaker 3: because presumably the government is not going to have an
Speaker 3: spr equivalent of literally every product that exists, But how
Speaker 3: would you go about thinking identifying the key areas in which,
Speaker 3: through some policy measure, we want to encourage the build
Speaker 3: up of greater inventories, less reliance on just in time
Speaker 3: and so forth.
Speaker 4: We first point out, you're absolutely right that this is
Speaker 4: a systemic problem, and that's why it began by emphasizing
Speaker 4: encouraging long term thinking, for instance, by using the tax
Speaker 4: system to encourage long term holding on shares, so that
Speaker 4: the people who hold their shares aren't just trying to
Speaker 4: think about how I make a buck today, but what's
Speaker 4: going to be good for the company over the next ten,
Speaker 4: ten years, fifteen, twenty years. So that's part of getting
Speaker 4: better risk taking systemically built it into the system balancing
Speaker 4: the costs and the benefits. There's another way that is
Speaker 4: important is changing corporate governance. One of my colleagues at
Speaker 4: Columbia pushing an idea called loyalty shares, where if you
Speaker 4: hold your shares longer, you get proportionally more votes, so
Speaker 4: that it says in the governance of corporations, those who
Speaker 4: have are long term investors should have more saying what
Speaker 4: the firm does, rather than the guy who comes in
Speaker 4: the day trader or even the short term trader is
Speaker 4: trying to make an arbitrage profit. Now, on the specific
Speaker 4: question of how do you identify particularly strategic sectors, one
Speaker 4: way you do that is, again this is a little
Speaker 4: bit complex, but you have a matrix that shows how
Speaker 4: various inputs go into each output of the economy. It's
Speaker 4: called an input output matrix. And in an input output matrix,
Speaker 4: you can identify where a perturbation, where a shock might
Speaker 4: ripple more through the system. Example would be some final
Speaker 4: products that are used by consumers are not an input
Speaker 4: anywhere else in the system, and the problem in those
Speaker 4: industries is of no consequence for the system. Oil is
Speaker 4: obviously very consequential. Basic primary goods tend to be consequential.
Speaker 4: Steel aluminum logistics we were talking about. You have to
Speaker 4: think of not only about goods, but services. If you
Speaker 4: can't move from one place another. Trucking airlines are very
Speaker 4: They go into absolutely every industry because every industry has
Speaker 4: goods moving from one place to another. So if you
Speaker 4: have an interruption in those industries, you have real consequences.
Speaker 4: Now there are further questions you then need to ask.
Speaker 4: Some of these you don't have to worry about. They're
Speaker 4: pretty steady, but some of them are more vulnerable. So
Speaker 4: you would not only look at what I've first talked
Speaker 4: about is sort of a centrality, how important are the
Speaker 4: functioning of the economic system, but also you have to
Speaker 4: also then look to some notion of vulnerability, the nature
Speaker 4: of the shocks they face, the reliability of those particular places,
Speaker 4: and your choice then is to either get a reliable
Speaker 4: supplier or to create strategic reserves.
Speaker 2: One of the reasons we wanted to talk to you
Speaker 2: about this is because a lot of your work focuses
Speaker 2: on the social benefits of different economic systems and analyzing
Speaker 2: the relationship between the two. But how do you build
Speaker 2: political consensus for something like this. You know you're talking
Speaker 2: about maybe additional subsidies for incorporating additional capacity, or some
Speaker 2: sort of tax benefit, things like that. How do you
Speaker 2: get people on board for these types of ideas well.
Speaker 4: Part of the answer to that is specific events have
Speaker 4: a way of bringing certain things home. You know, when
Speaker 4: I began my research in certain areas is often motivated
Speaker 4: by a particular event that happening someplace in the world.
Speaker 4: But for instance, I saw a lot of supply chain
Speaker 4: problems when I was Chief Economist of the World Bank
Speaker 4: working on the East Asia crisis, and we think of
Speaker 4: it often as a financial crisis, but it was also
Speaker 4: an early version of a supply chain crisis, and that's
Speaker 4: what really started me thinking about that, it'd say almost
Speaker 4: thirty years now, thinking about how to model that, how
Speaker 4: to ascertain how do you think about those kinds of interdependencies,
Speaker 4: and also at the financial interdependencies, and I wrote a
Speaker 4: lot about those financial interdependencies, the fragilities of the Danish
Speaker 4: very little on the financial side. People didn't pay much
Speaker 4: attention to it until two thousand and eight and Layman
Speaker 4: Brothers went on and an event like that brings it
Speaker 4: to the public attention. And now Congress passed a law
Speaker 4: trying to create agencies that look at systemic financial interdependence. Well,
Speaker 4: the pandemic has had the same thing on the real side,
Speaker 4: on supply chain resilience and economic resilience more generally. So
Speaker 4: the answer to your question is, as long as it's remote,
Speaker 4: as long as it's happening somewhere else, long way away,
Speaker 4: it's very hard to get attention. But the work that
Speaker 4: we do gives it means that we're better prepared when
Speaker 4: those events happen, like the pandemic, like the inflation that
Speaker 4: followed the pandemic, and the war, the Ukrainian War. People
Speaker 4: then politicians wake up and say, you know, we got
Speaker 4: to do something about this, and then we get the
Speaker 4: Science and Chips Act. If we get legislation moving us
Speaker 4: along this way and analytic whork gets more attention.
Speaker 3: You sort of anticipated my next question. But when you
Speaker 3: look at the Chips Act, which subsidizes domestic production domestic
Speaker 3: research of various sorts, or when you look at the
Speaker 3: Inflation Reduction Act, which tries to do a lot of
Speaker 3: that except on the energy side, how closely do these
Speaker 3: pieces of legislation dovetail or align with your vision of
Speaker 3: what resilience planning would look like. And you know, one
Speaker 3: of the criticisms is, you know, it's all carrot and
Speaker 3: no sticks, that there's a lot of subsidies, et cetera,
Speaker 3: but there's no sort of disciplining of capital, so to speak.
Speaker 3: Like when you think about your latest paper and what
Speaker 3: the optimal policy solutions, how close are we and what
Speaker 3: are some of Are there any drawbacks to how we
Speaker 3: went about those two big pieces of legislation.
Speaker 4: They were important pieces of legislation because they put this
Speaker 4: topic on the agenda. They began moving the country in
Speaker 4: the right direction. You know, there's an old joke about
Speaker 4: you don't want to see how sausage is made and
Speaker 4: what goes into it. What we get out of our
Speaker 4: political machines sometimes is not ideal. It's not what I
Speaker 4: would have written. But if you ask me, is it
Speaker 4: better than nothing? I say, it's way better than nothing.
Speaker 4: These were major achievements in a context of a politically
Speaker 4: fraught world where it's hard to get anything done. So
Speaker 4: let me begin by saying that they were really important
Speaker 4: pieces of legislation. They moved us a lot in the
Speaker 4: right direction of greater resilients. It would be tragic if
Speaker 4: we hadn't done that. No, I don't think they are
Speaker 4: the ideal mix of carot and stick. You know, I
Speaker 4: talked before about more fundamental changes in our structure of
Speaker 4: our economy to encourage more long term thinking, like changings
Speaker 4: in corporate governance and changes in our tax legislation. I
Speaker 4: think that would you know, those are more fundamental things
Speaker 4: that we need to do, but I would have put
Speaker 4: more weight on science. I you know, it disturbs me
Speaker 4: that we are subsidizing a company like Intel after it
Speaker 4: paid out tens of billions to shareholders. It could have
Speaker 4: taken that money and invested it. You know, it didn't
Speaker 4: need public money if it hadn't sent all that money
Speaker 4: back to their shareholders. So it disturbs me that when
Speaker 4: they make profits they are privatized. We're taxing them at
Speaker 4: very low rates, and one of the presidential candidates wants
Speaker 4: to lower the rates still further. All those things disturb me.
Speaker 4: But do I want the country to be exposed to
Speaker 4: a short ease of chips in the future. If Eving's
Speaker 4: unfold in a way that we can all imagine but
Speaker 4: hope won't happen, I think it would be criminal not
Speaker 4: to put the country in a position where it's better
Speaker 4: prepared to handle that kind of a crisis.
Speaker 2: Just on this note, there's another tension that seems to
Speaker 2: arise from I guess, more active industrial policy of recent
Speaker 2: years and also the green transition. I guess there's an
Speaker 2: issue where maybe one country is trying to do the
Speaker 2: right thing for its economy and its population by, for example,
Speaker 2: encouraging more electric vehicles, but then that ends up having
Speaker 2: negative consequences for other countries. For instance, you know the
Speaker 2: people in Chile who maybe have to mine the copper
Speaker 2: that goes into the batteries for evs. How do you
Speaker 2: solve that particular tension?
Speaker 4: Again, a very interesting tension to me, and this go back.
Speaker 4: Let me relate this to the previous question. When we
Speaker 4: think about the environment and the green transition there, I
Speaker 4: think we should be using more of the stick with
Speaker 4: the carrot. That is to say, we should have a
Speaker 4: carbon price. When you pollute, you impose costs in others.
Speaker 4: It's just like any other cost you impose on others.
Speaker 4: You should be the price. And that's why I'm a
Speaker 4: strong advocate of a carbon price. It's not the only
Speaker 4: instrument I think we need regulations. I think we need
Speaker 4: public investment, but a carbon price is important. Well, the
Speaker 4: same thing is true in our countries that are mining
Speaker 4: the lithium. They need to have environmental taxes and environmental
Speaker 4: regulations to make sure that the fallout, that negative consequences
Speaker 4: are very limited, and that they're fully compensated for those
Speaker 4: negative consequences, and that all should be built into the
Speaker 4: price of our electric vehicles, our evs. We shouldn't be
Speaker 4: imposing costs and others. We should take that total costs
Speaker 4: on board. It's part of the cost of travel, part
Speaker 4: of the cost of having a car. So, to me,
Speaker 4: the right way to do it, and I think the
Speaker 4: honest and the moral way to do it is to
Speaker 4: make sure that there are environmental taxes and regulations all
Speaker 4: the way along.
Speaker 3: I haven't read yours. Well, I didn't read the first
Speaker 3: one either, apologize, but I will. But I haven't read
Speaker 3: the second one Making globalization work, So I don't know
Speaker 3: the full contours of the argument. But you know, one
Speaker 3: of these sort of concerns among some of the US
Speaker 3: reindustrialization initiatives right now is that they have this deglobalizing effect.
Speaker 3: Part of it is, of course, by design, the US
Speaker 3: wants to be less dependent perhaps on Taiwan or China
Speaker 3: for certain things in high tech. But it also creates tensions,
Speaker 3: you know, with European friends and allies about things like
Speaker 3: subsidizing autos, and there have been complaints from there.
Speaker 4: You know.
Speaker 3: Is there a tension between sort of good globalization, harmonious globalization,
Speaker 3: and attempts at resilience which almost by definition would I
Speaker 3: think have this sort of inward facing effect and withdrawing
Speaker 3: from the rest of the world a little bit.
Speaker 4: There's a technition. Part of the problem is that the
Speaker 4: International Economic Architecture, the WTO was created in a time
Speaker 4: in which a certain set of economic ideas, sometimes called neoliberalism, predominated,
Speaker 4: and it didn't take into account so many things. It
Speaker 4: was actually a very flaw theory. One of the things
Speaker 4: that didn't take into account is risk. It didn't take
Speaker 4: into account what I call we call endogenous technology, that
Speaker 4: we can actually change, invest in and create new techno technologies.
Speaker 4: So it circumscribed industrial policy, and that meant that developing
Speaker 4: countries had a harder time catching up with the developed countries.
Speaker 4: Many of the developing countries view the architecture the WTO
Speaker 4: is a way of keeping them down. There's an influential
Speaker 4: book called Kicking Away the Ladder. You know, the US
Speaker 4: and had grown by taking ideas from Europe, and now
Speaker 4: that we are where we are, we want to take
Speaker 4: away the ability of others to catch up, including through
Speaker 4: industrial policies. Well, we're in a new world now where
Speaker 4: the US is after forty years of telling everybody not
Speaker 4: to engage industrial policy, is now saying yeah, we're going
Speaker 4: to do it too. But the developing countries can't do
Speaker 4: it on scale. And so what I've been advocating is
Speaker 4: that we still have to keep the principles that we're
Speaker 4: there in the forming of the trade rules, which is
Speaker 4: trying to keep a level playing field. And the question
Speaker 4: is how how do you keep a level playing field?
Speaker 4: It's very hard, But one of the ways you do
Speaker 4: that is sharing technology, particularly for protecting the environment. So
Speaker 4: if US developed a new tech, green technology through industrial
Speaker 4: policy and gave it a competitive advantage over other countries,
Speaker 4: I should share some of that knowledge, at least with
Speaker 4: the developing countries to keep a more level playing fielder.
Speaker 4: Otherwise we're back in the law of the jungle.
Speaker 2: One of the other things I wanted to ask you, again,
Speaker 2: as someone whose work often dwells on the social benefits
Speaker 2: of particular economic systems, how should we measure the success
Speaker 2: of a particular economy, Because one of the things you
Speaker 2: often hear is like, Okay, well, USGDP has been doing
Speaker 2: phenomenally well in recent years, at least relative to other countries.
Speaker 2: But on the other hand, we're dealing with a decreasing
Speaker 2: life expectancy and things like that. And one of the
Speaker 2: reasons I asked this question is because I got off
Speaker 2: the phone with my mom yesterday and she's embarking on
Speaker 2: her annual six week holiday as someone who's employed in
Speaker 2: continental Europe, and that sounds nice. That's not something that
Speaker 2: US workers have. So how should we be measuring what
Speaker 2: an economy should be doing for people?
Speaker 4: I try you asked that because that's a question. I've
Speaker 4: done a lot of research. I did a book called
Speaker 4: Mismeasuring Our Lives. Why GDP doesn't add up? Where I
Speaker 4: tried with a group of I was a chair of
Speaker 4: a co chair of an international commission on the Measurement
Speaker 4: of Economic Performance in Social Progress, and our commission concluded
Speaker 4: very strongly the GDP was not a good measure well being.
Speaker 4: It was a measure market output, but that's not the
Speaker 4: same as well being. We delineated ways in which there
Speaker 4: were major deficiencies. We advocated that there's not a single
Speaker 4: measure that could cap sure anything as complex as ourselves
Speaker 4: are what makes us well off or our society. But
Speaker 4: we should have a dashboard, and you've named several of
Speaker 4: the things. Obviously we want material consumption as part of it,
Speaker 4: what we call GDP, but health is another. In terms
Speaker 4: of health, the US has a lower life expectancy than
Speaker 4: in almost any other advanced country, and one that's lower
Speaker 4: today than it was a number of years ago, in
Speaker 4: spite of the fact that we're doing the best research
Speaker 4: in this area. We value our leisure, as you say,
Speaker 4: European really value their leisure. We value security. That's why
Speaker 4: we have social security. One of the things that we
Speaker 4: clearly have gotten wrong in many cases is we say, oh,
Speaker 4: be more efficient for the economy, get our GDP if
Speaker 4: we kept back on social security. Well, if you kept
Speaker 4: back on social security, you make people more anxious, more uncertain.
Speaker 4: So what if GDP goes up a little bit, if
Speaker 4: people are worried about what's going to happen in the
Speaker 4: last third of their lives. You know, that's depending why
Speaker 4: some poul foolish as they used to say. So to me,
Speaker 4: well being is really what we ought to be focusing on.
Speaker 4: There are a number of groups that have attempted to
Speaker 4: measure in various ways well being, and interestingly, the United States,
Speaker 4: while we are close to the top on GDP per capital,
Speaker 4: are not at the top anywhere near the top on
Speaker 4: well being in almost any of these studies.
Speaker 3: So we're recording this July first, Jesse. Yesterday there was
Speaker 3: an election in France in which the Nationalist party or
Speaker 3: the right wing party did really well. There seems to
Speaker 3: be this trend and you could say, with Brexit and
Speaker 3: Trump and you know, various things going around the world
Speaker 3: of countries voters specifically seeming to reject internationalism, free trade,
Speaker 3: whatever you want to call it, in various flavors. And
Speaker 3: I'm sure there are numerous causes, and we could debate
Speaker 3: that for our cultural whatever. Well, what do you see
Speaker 3: happening when you look at these things, is it has
Speaker 3: there been a failure of governments and rich countries to
Speaker 3: deliver the benefits of economic growth to citizens, Like when
Speaker 3: you look at this and the sort of rejections of
Speaker 3: some of the last forty to fifty years, What do
Speaker 3: you see happening very much?
Speaker 4: I think the dominant economic framework of the last forty years,
Speaker 4: which is neoliberalism. You have left neoliberalism and right neoliberalism,
Speaker 4: but it was basically neoliberalism. It failed. GDP didn't even
Speaker 4: grow faster. It grew more slowly. After nineteen eighty when
Speaker 4: it became the dominant doctrine, growth was slower. Most of
Speaker 4: the growth that did occur went to the very top.
Speaker 4: There was morning security, less well being, as we've been
Speaker 4: talking about it, and there's a mini rebellion going on. Unfortunately,
Speaker 4: it's a rebellion that is grounded in anger but not analysis.
Speaker 4: So the easy answer why things haven't done gone well
Speaker 4: is others. Americans might complain about unfair trade agreements. We
Speaker 4: hadn't signed those unfair trade agreements, if we weren't paying
Speaker 4: more than our fair share, if we didn't have those immigrants.
Speaker 4: And it plays out in different ways in different countries,
Speaker 4: but it's basically the same blame others rather than looking
Speaker 4: inward and say, you know, we didn't get our economic philosophy,
Speaker 4: our economics right. And that's really one of the central
Speaker 4: messages of my new book, The Road to Freedom. The
Speaker 4: right wing people like Hayek and Friedman said that if
Speaker 4: you only had unfettered markets, forget about negative externalities, forget
Speaker 4: about positive externalities, everything works out fine. The market is,
Speaker 4: you know, worship at the market. Everybody's going to be
Speaker 4: better off, growth will be higher, trickle down economics will
Speaker 4: make sure everybody will be the same. We were duped
Speaker 4: by a failed economic philosophy. And what makes me, you
Speaker 4: might say, almost angry about this thing is that at
Speaker 4: the time it went into ascendency, to say with Reagan
Speaker 4: in nineteen eighty, we'd already proven that those ideas were wrong.
Speaker 4: We had already shown, we talked to earlier today about
Speaker 4: how economists analyze the economy. We've shown that unfedered markets
Speaker 4: do not deliver on societal well being. And we explained why,
Speaker 4: and they ignored all that. Now we have forty years
Speaker 4: of evidence of seeing why that extra what I try
Speaker 4: to write about it in this book, The Road to Freedom.
Speaker 4: They thought this free enterprise would lead to not only
Speaker 4: more efficient markets, but also to political freedom. But the
Speaker 4: growth of authoritarianism is seen most in places where there's
Speaker 4: not too much government but too little government, and where
Speaker 4: government hasn't done enough. So my claim is it was neoliberalism.
Speaker 4: It wasn't really freeing as it claimed was going, was
Speaker 4: bringing us exact in the wrong direction.
Speaker 2: It strikes me, though, that we're kind of living in
Speaker 2: a time where analysis doesn't matter that much, and it
Speaker 2: seems like rhetoric has a much bigger impact, at least
Speaker 2: when it comes to some of the economic themes of
Speaker 2: recent years. So it feels very sort of nihilistic to
Speaker 2: ask this question. But for instance, when you write a
Speaker 2: letter with a bunch of other Nobel Prize winning economists
Speaker 2: criticizing Trump's proposed economic agenda, doesn't matter at all, Like
Speaker 2: do we think that the people who will vote for
Speaker 2: Trump are going to listen to Nobel Prize winning economists?
Speaker 2: And does the you know, accuracy or the strength of
Speaker 2: your argument here actually matter?
Speaker 4: It was with some people, and I hope with increasingly
Speaker 4: more people, but certainly with some people. The you know,
Speaker 4: the debate in that particular context, as a resion is
Speaker 4: who's going to be better for the economy? Who was
Speaker 4: better for the economy. Some of this is just facts,
Speaker 4: looking at what happened to wages. But what really people
Speaker 4: care about is what's going to happen in the next
Speaker 4: four years. And you take the kind of model of
Speaker 4: the economy and broad consensus among you know, Arnobel Price
Speaker 4: community that you know, Trump has a He doesn't have
Speaker 4: a model. I mean, that's not what he does, but
Speaker 4: it's a zero some view of the world that is
Speaker 4: somebody else gags. I lose very different from the way
Speaker 4: economists analyze the complexity of our economy, and we look
Speaker 4: at what he proposes and say it's really not good
Speaker 4: for the economy in any and so the answer is
Speaker 4: I hope it affects some people. Some of the undecided
Speaker 4: voters will say, you know, there's something to what these
Speaker 4: Nobel Prize winners have said that should make them worry
Speaker 4: about another Trump preceding.
Speaker 3: See, I just have one last quick question, but I
Speaker 3: want to follow up on something you said earlier. I
Speaker 3: had never heard that there was a supply chain element
Speaker 3: to the Asian financial crisis, and I thought that was interesting,
Speaker 3: And since you're here, what was that element?
Speaker 4: What was the element? There was that many firms went
Speaker 4: bankrupt because they could not get credit, and the financial
Speaker 4: system collapsed, firms couldn't get credit, they collapsed, and then
Speaker 4: the firms that they were either suppliers for or buyers
Speaker 4: of collapsed, And so you add a real sign bankruptcy
Speaker 4: cascade that corresponded to the financial crisis that got all
Speaker 4: the attention. And so it was interesting about at one
Speaker 4: point almost half the firms in a couple of the
Speaker 4: countries were in the state of bankruptcy. They couldn't pay
Speaker 4: what they owed. The whole economy throws, so that was
Speaker 4: an extreme version of a supply chamber meltdown.
Speaker 2: I have one more question, and it's actually following up
Speaker 2: on a previous interview that you did with Tyler Cowen
Speaker 2: that came out recently, But he asked you about the
Speaker 2: Yimbi movement. So this idea of making it easier for
Speaker 2: people to build in certain areas, maybe deregulation, deregulating some
Speaker 2: zoning stuff like that, somewhat surprisingly to a lot of people.
Speaker 2: I think you came out and said that you weren't
Speaker 2: a fan of yimbiism, and I think some people were
Speaker 2: confused because your new book is very much about the
Speaker 2: idea that one person's freedom can create negative outcomes or
Speaker 2: externalities for other people's freedoms. So, you know, the obvious
Speaker 2: example of that is maybe something like guns in America,
Speaker 2: where one person's freedom to run around with an assault
Speaker 2: rifle creates dangers for the people around them. But going
Speaker 2: back to the building aspect, is it possible that one
Speaker 2: person's freedom to live in a low density area impinges
Speaker 2: on other people's freedom to have access to affordable housing?
Speaker 2: How do you square those two things?
Speaker 4: Very much? I mean, zoning is all about trading off freedoms, absolutely,
Speaker 4: so I'm a very big committed to zoning. And maybe
Speaker 4: I may may have misunderstood the question, but the point
Speaker 4: that I would make is that one has to very
Speaker 4: carefully balance the consequences to each of the groups that
Speaker 4: are going to be affected, and that's something has to
Speaker 4: be done at a local level. I can't tell you, you know,
Speaker 4: In general, I think there are environmental benefits of social
Speaker 4: benefits of higher density. Other people prefer lower density, but
Speaker 4: those density decisions interact. Low density means people have to
Speaker 4: transport more so. Finally, I think it's important as part
Speaker 4: of our whole community structure that we have green spaces
Speaker 4: and how you mix those various needs green spaces low density.
Speaker 4: High density is something that one has to be very
Speaker 4: conscious of how one person's freedom affects the other person's
Speaker 4: on freedom as well. So you're absolutely right, that is
Speaker 4: the framework that I want this to be talked to about.
Speaker 4: I didn't think there was any simple answer, any panacea
Speaker 4: in answering it. It really depends on this particular community.
Speaker 2: And then one more very broad question as we come
Speaker 2: to the close of this discussion, but over time, is
Speaker 2: there anything that has really surprised you about the behavior
Speaker 2: of corporations or the people operating them, like some big
Speaker 2: realization that you have now versus say, when you first
Speaker 2: embarked on studying economics many decades ago.
Speaker 4: Wow. I think what surprised me for a while was
Speaker 4: that so many American CEOs seemed to embrace for a
Speaker 4: while stakeholder capitalism that wasn't just maximizing shareholder value, but
Speaker 4: also caring about the workers, their customers, the community, the environment.
Speaker 4: That was an idea very strong in Europe. But a
Speaker 4: couple of years ago the Business round Table basically most
Speaker 4: of them endorsed this kind of idea. I've been a
Speaker 4: little disappointed that there's in spite of very publicly endorsing it.
Speaker 4: Some of the business leaders have now when they get
Speaker 4: a little criticism from some southern governors about being too woke,
Speaker 4: they've backed off of that commitment to I think a
Speaker 4: broader sense of well being. They are important units in
Speaker 4: our society, and I think they have important responsibilities. The
Speaker 4: CEOs have important responsibilities, not just to match my shareholder value,
Speaker 4: but to look at all these other stakeholders that are
Speaker 4: affected by what they do.
Speaker 2: All right, Professor Stiglitz, thank you so much for coming
Speaker 2: on all thoughts. Really appreciate your time. That was a
Speaker 2: fascinating conversation.
Speaker 5: Well, thank you very much, Joe.
Speaker 2: There was so much to pick out of that conversation.
Speaker 2: So first of all, I know, I asked the other Joe.
Speaker 2: I asked him about, like, how do you build political
Speaker 2: consensus for these types of things? And at first I
Speaker 2: wasn't really satisfied with the response of like, well, things happen,
Speaker 2: because ideally you would start doing this before things happen.
Speaker 2: But on the other hand, now that I'm thinking about
Speaker 2: it more, it is true that there are things that
Speaker 2: are taking place now or being talked about, yeah, that
Speaker 2: would have been considered absolutely radical, just a few years ago,
Speaker 2: before the pandemic, So things like more strategic reserves of
Speaker 2: certain or things like price caps on gas in Europe,
Speaker 2: like that was a totally radical idea before Russia's invasion
Speaker 2: of Ukraine.
Speaker 3: Yeah, and look like Dodd Frank did happen.
Speaker 5: That's true.
Speaker 3: The Chips Act did happen, the Inflation Reduction Act did happen.
Speaker 3: It would be nice if somehow, you know, all of
Speaker 3: these things were done pre crisis, but you know, that's
Speaker 3: much harder. And so maybe you know the process of
Speaker 3: history is something bad happens and then you try to
Speaker 3: rectify it, and you know, I guess that's just how
Speaker 3: history goes.
Speaker 2: Yeah, I guess we have to be satisfied with that
Speaker 2: part of it. I mentioned that essay that I wrote, Yeah,
Speaker 2: you want me to read it to please I don't.
Speaker 2: So I've had the same email account for like years
Speaker 2: and years and years, So I just typed in sticklets
Speaker 2: and I've looked at what that's amazing. And this was
Speaker 2: from my I R. Three oh one class I think
Speaker 2: it was called and undergrad Yeah, yeah, okay, So this
Speaker 2: was at the London School of Economics and basically for
Speaker 2: people who are familiar with British universities. They make you
Speaker 2: write a bunch of essays throughout the year, and then
Speaker 2: at the end of the year you take an exam
Speaker 2: in which you also write essays. But the exam is
Speaker 2: the only thing that matters. None of the stuff that
Speaker 2: you do during the year actually matters. And also the
Speaker 2: secret to getting a good score, this is a pro
Speaker 2: life tip, is just to be as overconfident as possible
Speaker 2: when you're writing these things. So that is exactly what
Speaker 2: I've done here. I've done no empirical research, but I
Speaker 2: have all the answers to theorist college.
Speaker 3: Student having done no empirical research but expressing supreme confidence
Speaker 3: that they have the world figured out. I've never I
Speaker 3: can't even imagine it.
Speaker 2: Yeah, So I'll start with the question for the essay
Speaker 2: was do global economic institutions reflect the interests of a
Speaker 2: global community? And blah blah, blah blah. Further down in
Speaker 2: my intro, this paper will seek to argue that global
Speaker 2: economic institutions do not reflect the interest of a global
Speaker 2: community for two reasons. First, the idea of a global
Speaker 2: community is one that so far exists only in the
Speaker 2: minds and papers of international relations academics and the occasional
Speaker 2: idealistic un bureaucrat. Given the continued gap between rich and
Speaker 2: poor states and the divergent interests which result from such
Speaker 2: a gap, a global community, a concept which implies some
Speaker 2: sort of shared norms and interests, seems far fetched, if
Speaker 2: not impossible. Given this problem of vocabulary. We might get
Speaker 2: to the heart of the question by altering it slightly
Speaker 2: to do global economic institutions reflect the interest of all
Speaker 2: the states in the international system, or perhaps a majority
Speaker 2: of them. This line of reasoning will largely follow the
Speaker 2: arguments made by economists such as Joseph Stickletz, though it
Speaker 2: will go further by blaming the so called embedded liberalism
Speaker 2: which underlines modern economic institutions, for the current bias within them,
Speaker 2: rather than its misapplication. So there we go.
Speaker 3: I knew more than why don't you just publish that
Speaker 3: on the odd Lat's blog. It's like, you know, no
Speaker 3: one reading that would think that we're like this is
Speaker 3: this is very insightful.
Speaker 5: You know, no one.
Speaker 3: Would notice that it's any different than any of the
Speaker 3: other pundits who write all that stuff today in twenty
Speaker 3: twenty four.
Speaker 2: You know, I have a worse one than this, which
Speaker 2: is like a Nietzschean interpretation of international relations, which I
Speaker 2: think was the first I'll say that I ever wrote
Speaker 2: when I was at college, and I think I just
Speaker 2: got really excited about the idea of being able to
Speaker 2: write whatever I want. Basically it sounds great.
Speaker 3: I don't in retrospect like I wish I had taken
Speaker 3: like I did well in college. I did fine, I
Speaker 3: got pretty good grades, but I don't really what I
Speaker 3: don't remember having done is actually thinking like, oh, I
Speaker 3: want to gain like a real deep understanding and come
Speaker 3: out of school with like some knowledge of how the
Speaker 3: world works. I remember like wanting to get good grades.
Speaker 3: But man, I kind of wish I had written some
Speaker 3: essays like that, or maybe I did, but I just
Speaker 3: like don't remember any of them. I'm sure I wrote essays.
Speaker 5: I just have no memory of any of them.
Speaker 2: You didn't keep anything.
Speaker 3: They were probably on some Yahoo I'll admiss that I've
Speaker 3: lost access to by you know, the moment I switched
Speaker 3: to Gmail.
Speaker 2: I mean, I will say, so, we did international political
Speaker 2: economy as part of international relations, and I learned a
Speaker 2: lot from that. But I do regret in hindsight again
Speaker 2: going back to the idea of hindsight being perfect. I
Speaker 2: wish I'd done more economics, but oh well, it was
Speaker 2: a pleasure, I must say, to speak to Professor Stiglitz
Speaker 2: after all these years and basically get to go back
Speaker 2: and ask all the questions that I probably would have
Speaker 2: asked him as a student.
Speaker 5: Totally.
Speaker 3: Also, I want to read a bunch of those books now, Like,
Speaker 3: maybe at some point i'll just do the full Well,
Speaker 3: he's probably written dozens of books, so I doubt I'll
Speaker 3: read all of them, but some of the ones like
Speaker 3: that he described, I really want to read that one
Speaker 3: about the failure of GDP or gdpism and like, because
Speaker 3: we know this is sort of an issue that there
Speaker 3: isn't really one good way to measure the economy, et cetera.
Speaker 3: And I understand in the vague sense, but I'd like
Speaker 3: to read a little bit more of that. Obviously I should.
Speaker 3: Globalization and Discontents sounds like a very timely book for you.
Speaker 2: You know what, I will summarize that one for you. Okay,
Speaker 2: the milk subsidy chapter still lives rent free in my head.
Speaker 2: I'll summarize that for you. You read the follow up on
Speaker 2: how to fix globalization and then you summarize that one
Speaker 2: for me.
Speaker 3: That sounds good.
Speaker 2: Okay, it's the vision of labor, all right. Shall we
Speaker 2: leave it there.
Speaker 5: Let's leave it there.
Speaker 2: This has been another episode of the Odd Loots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow Professor Stiglitz. He's at Joseph E. Stiglitz and check
Speaker 3: out his new book, The Road to Freedom, Economics and
Speaker 3: the Good Society. Follow our producers Carman Rodriguez at Carman Ermann,
Speaker 3: Dashel Bennett at Dashbot, and kel Brooks at cal Brooks.
Speaker 3: Thank you to our producer Moses on Them. For more
Speaker 3: odlots content, go to Bloomberg dot com slash od lots,
Speaker 3: where we have transcripts, a blog, and a newsletter and
Speaker 3: you can chat about all of these topics twenty four
Speaker 3: to seven in the discord discord do gg slash od lots.
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