The End of 'The Everything Bubble'

This week, the S&P 500 entered what analysts refer to as a bear market. The index has plunged around 22 percent from its most recent peak in January. Many growth stocks and crypto assets have crashed double or triple that amount. New home sales declined 17 percent in April, causing some analysts to argue that the housing market has peaked. And, in response to rising inflation, the Federal Reserve just approved its largest interest rate increase since 1994, meaning asset prices could dip even lower. To understand what’s happening in the stock market right now, you have to understand the era that preceded it. Rana Foroohar is a columnist at The Financial Times, and the author of several books on the economy including “Makers and Takers” and “Don’t Be Evil.” Her view is that a decade-plus of loose monetary policy has been the economic equivalent of a “sugar high,” which kept the prices of stocks, housing and other assets going up and up and up, even as the fundamentals of the economy have been eroding. This “everything bubble,” as she calls it, was bound to burst — and that’s exactly what she thinks is happening right now. So I wanted to have her on the show to discuss the economic choices — and lack thereof — that led to this point. We also discuss why the increasing power of the financial sector hasn’t resulted a stronger economy, whether the housing market has indeed hit its peak, the massive missed opportunity for public investment while interest rates were low, why policymakers treat asset price inflation so differently from other types of inflation, the true costs of the meat we eat and clothes we wear, why crypto represents the apotheosis of hyper-financialized capitalism, why I’m skeptical of the argument that we’re moving rapidly toward a less globalized world and more. Book recommendations: All That She Carried by Tiya Miles Beautiful Country by Qian Julie Wang The Rise and Fall of the Neoliberal Order by Gary Gerstle We're hiring a researcher! You can apply here or by visiting nytimes.wd5.myworkdayjobs.com/News Thoughts? Guest suggestions? Email us at [email protected]. You can find transcripts (posted midday) and more episodes of “The Ezra Klein Show” at nytimes.com/ezra-klein-podcast, and you can find Ezra on Twitter @ezraklein. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs. “The Ezra Klein Show” is produced by Annie Galvin, Jeff Geld and Rogé Karma; fact-checking by Michelle Harris and Andrea López Cruzado; original music by Isaac Jones; mixing by Jeff Geld; audience strategy by Shannon Busta. Our executive producer is Irene Noguchi. Special thanks to Kristin Lin and Kristina Samulewski.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:06Ezra Klein?

  I'm Ezra Klein. This is the Ezra Klein Show.

• 0:19Ezra Klein?

  Before we begin today, we are looking for a researcher on the EK Show, somebody who is going to be diving deep into our preps with us, helping us get ready for the episodes, figure out the episodes, write questions for them. It's a great job for somebody who is unbelievably obsessive about going down information rabbit holes, unbelievably capable at inhaling a lot of reading and a lot of data all at once, and then synthesizing it into something comprehensible. If that sounds like you, we're going to put the job description in the description for this podcast. You can also find it at nyco.com if you go to the careers tab. But we're only going to keep this open for probably about two more weeks, so the time to apply is now. But on to today's

• 1:02Ezra Klein?

  episode. We did it, everybody. We're officially in a bear market. The S and P 500 is down about 22% roughly from its January peak. Inflation is really, really high. Recession is very possible. Mortgage rates are rising pretty sharply. A lot of analysts think the housing market has already peaked. Crypto, crypto has just been hammered. Crypto markets lost 200 billion just over the last weekend. So we're seeing valuations collapsing across asset categories, stocks, houses, crypto. It's not obvious that these should all be correlated. For instance, wasn't Bitcoin supposed to be a hedge against inflation, the thing you bought so you didn't

• 1:45Ezra Klein?

  lose money when inflation began rising? But nope, turned out to be highly, highly correlated with stocks. Just one more speculative asset. So what is behind all the correlations here? And that answer, I think, is pretty easy. The lines all begin going down when the Federal Reserve began tapping the brakes, signaling an end to the era in which they flooded markets with easy money. For a decade or more, it is seen stocks only go up, home prices only go up, investments only go up. The big problem that investors had was what to do with all this money? The big problem that a lot of companies had was what to do with all this money to begin stockpiling these huge hordes of cash.

• 2:24Ezra Klein?

  And a lot of companies and investors and startup CEOs came out looking like geniuses for a while, but it is easy to look like a genius when you can borrow money for nothing, when investors are trying to give you money for nothing. My guest today, years ago, called this era the everything bubble, and now she thinks it is popping. Rana Furuher is a columnist at the Financial Times. She's the author of multiple books, including 2016's Makers and Takers, which is a look at the financialization of the US economy. And her argument is that loose monetary policy has been the economic equivalent of a sugar high that has kept markets and portfolios looking good, even as the fundamentals of the economy have been eroding.

• 3:07Ezra Klein?

  So we talked about that and about whether or not there's more we could have or should have done with all this money. Could we have made more out of that opportunity, even as the fundamentals of the economy have been eroding? As always, my email is [email protected]. Rana Furuher, welcome to the show.

• 3:29Speaker 01

  Thanks so much for having me.

• 3:30Ezra Klein?

  So I want to start by looking at the last decade or so in the economy a little differently. Tell me about what you've called the everything bubble.

• 3:40Speaker 01

  So the everything bubble is the fact that when you look at basically all the prices of everything you can buy in asset markets right now, so that's stocks, bonds, I would call housing an asset, all this stuff is going up. Crypto is going up. I mean, until quite recently, we'll get into that in a minute, but for the last decade, actually decade plus, the price of pretty much everything you could buy as an investor has been rising. And I believe that large swaths of that are a bubble, and you can call it the everything bubble.

• 4:13Ezra Klein?

  Was it rising in an unusual way? If we look historically, have the valuation increases we've seen in stock prices and home prices, and I guess you can't say historically, and prices of ether and Dogecoin, but nevertheless, was the money you made in the last 10, 15 years by being just a banal investor normal in the sweep of American history?

• 4:36Speaker 01

  Well, so your question is really interesting. I'm going to come to the main question, but I want to just give you a little caveat. No, you can't look at crypto historically, right? Because it's only been around for a few years. But if you look at how gold prices were rising in the Weimar Republic and compare it to crypto, until quite recently, very similar, boom bust. And we can get into why that might be. But to answer your core question, yeah, they're absolutely rising to historical records. In some cases, records that we've never seen before for these types of assets. And that's really down to the fact that Washington has, and in particular, the Fed, has been manipulating the price of assets. Certainly for the last 15 years or so, following the financial crisis.

• 5:19Speaker 01

  We saw even more of that in COVID because it was a way of uplifting the price of assets and making people feel a little richer in the midst of a global downturn that could have been catastrophic, you know, was in many ways, in a human sense. But even before that, if you go back decades, we have been manipulating the economy in a way that is fundamentally disconnecting Wall Street from Main Street.

• 5:43Ezra Klein?

  Manipulating is a very sinister sounding word.

• 5:46Speaker 01

  Yeah.

• 5:47Ezra Klein?

  And I know people at the Fed, I know people who work on these issues, and they would tell you they've just been trying to keep the economy afloat, to keep bad things from happening. So when you say manipulating, both what do you mean mechanically? What were they doing? And what do you mean motivationally? Why were they doing it? Or why do you think they were doing it?

• 6:04Speaker 01

  Okay, so I love that you're breaking out the question that way. And first of all, let me say, I 100% agree with you. It's hard for me to think of anybody at the Fed that I know that I don't think of as a pretty good person, a pretty moral person. I'd put Janet Yellen right up at the top of that list when she was at the Fed, now at Treasury. It's not that they are trying to do something nefarious, but the Fed has limited tools in its toolbox. So for the last, I would argue, really since the end of the Bretton Woods system in 1971.

• 6:39Speaker 01

  Policymakers from both sides of the aisle, Democrats and Republicans, have been able to shift the tough process of, you know, what we might call guns and butter decisions, you know, using the Vietnam War terminology. You've got a lot of stakeholders in the economy. You've got the Defense Department. You've got folks that want to see more spending on social programs, education, whatever it is. All these people are competing for money. When you have a fixed pie of money, you really have to make those choices. But when we actually de-linked from gold, and that enabled central bankers to have a lot more control over how interest rates could go up and down, how much money could go into the economy, that sort of unleashed that. It unlocked that peg of decision-making.

• 7:22Speaker 01

  And so politicians were able to say, you know what, Fed? You deal with the guns and butter decisions. You keep interest rates low. You stretch out the business cycle. And so the Fed, understandably, with its mandate of keeping prices stable, keeping unemployment rates looking good, you know, basically keeping the economy afloat, they're saying, okay, this is our official mandate. So what do we do? Well, we better keep the party going. We could keep rates lower a little longer, put a little more money into the economy. And that's basically what we've been doing, more or less since the early 1980s in particular. And you can actually see that in the statistics. So business cycles, and by that what I mean is boom busts.

• 8:07Speaker 01

  So recoveries in which the economy is growing, and then recessions in which there's a correction and some weaker parts of the economy, companies, et cetera, being weeded out. Those cycles used to happen, you know, every five years or so. We are officially in the longest business cycle expansion since records were actually tallied in 1854 right now. So we've been in an expansionary cycle for over 10 years, actually. You know, we've seen some hiccups because of COVID, but we're stretching out the time that the economy is growing, growing, growing, because nobody wants the music to stop, right? But the problem is, if you keep rates low, if you put a lot of money into the economy, and that happened especially after the subprime crisis,

• 8:52Speaker 01

  and then again after COVID. What you're doing is creating this kind of saccharin high where asset prices are growing because that's really all the Fed can do. It can lower interest rates, it can make credit flow more easily. Rich people have most of the money in the economy. They tend to use it to buy more stocks and more houses and the price of those things go up. But the Fed can't do what policymakers can do. It can't change the story on Main Street. It can't build a new factory. It can't reskill all of us to do better jobs that are higher up the food chain. It can't change that story. So what you do is you almost get the sugar high where, you know, there's these headline numbers, stock prices are up, housing is up, you know, things are booming, but nothing

• 9:37Speaker 01

  at the ground level is really changing. And so when I say manipulate, that's what I mean. It's not nefarious. It's more, there's limited things that a central banker can do and they're pretty much at the limit of that.

• 9:49Ezra Klein?

  Well, let's play with the metaphors here for a minute because one metaphor here is the sugar and high, the saccharin high, which is a sense of superficiality, that we have energy, but we don't really have it.

• 10:00Speaker 01

  Yeah.

• 10:01Ezra Klein?

  And so the economy looks good, but it really isn't. Another metaphor I sometimes think about, which is a different way of thinking about the problem is blockage. And I think of Ben Bernanke, Fed Chair Ben Bernanke, going to Congress month after month after month after the Great Recession and basically begging them to spend the easy money he was creating, basically saying, listen, we can create money. We can do quantitative easing. We cannot build a road.

• 10:29Speaker 01

  A hundred percent.

• 10:30Ezra Klein?

  We cannot build a bridge. We cannot invest in decarbonization technology. Use this money for something.

• 10:36Speaker 01

  Yeah, right.

• 10:37Ezra Klein?

  And then for the most part, they did it. And so one hypothesis I've sometimes had about the economy is basically that between the paralysis of our political system on a lot of issues and some of the difficulties we simply have deploying money because of how hard it's become to build things and the regulatory state and for other reasons, that what happened is the Fed created a bunch of money and the political system didn't take the handoff. And so all that money simply pooled in assets, right? Things where you could increase the amount of money without having to increase any kind of real materials or anything real in the economy. How does that strike you as a theory?

• 11:16Speaker 01

  I think that makes a ton of sense and it's very much in line with what I'm talking about. I totally agree with you. That's exactly what happened. I mean, if you, if we go back, I mean, I'm sure many of us can remember in the wake of the financial crisis. So, you know, we get the initial hit. Bernanke comes in with the helicopter money. We fix the banks. We don't really fix homeowners. Everybody's talking about, you know, this is a great time to build, rebuild America's infrastructure, to fix our highways, to invest in education. And we've heard that basically for over a decade since. And you're right, no president, no administration has been able to push through those sorts of investments. Meanwhile, as you say, companies are able to leverage the low rate environment and the

• 12:00Speaker 01

  printing of money that the Fed was doing, the distributing of all that money into the economy to their own ends. So if you look at stock prices since 2009, I mean, they're just, except for the last few months, on a completely upward trajectory. At the same time, corporate spending on things like research and development, again, until very recently, because of some, some shifts that we can get into, has been going down. And that's been the same really since the 1980s. You could look at share prices going up, real investments going down. And every time a company, not just the government, but a company tries to do something like, you know, invest in a technology that maybe isn't going to pay off for seven years or 10 years, and maybe it'll, it'll be a little pricey and it'll

• 12:44Speaker 01

  mean that you get a little hit to your quarterly profits, their stock prices tank. And so you have an entire financial system, not just a political system, that is locked into a very dysfunctional way of doing things.

• 12:56Ezra Klein?

  Well, this gets to this story you tell in your book, Makers and Takers. And something I've been thinking about since reading it, and it's a book that came out some years ago, but is, I think, very prescient about where we are. You really show the way a lot of companies that we think of as Main Street companies, as companies that make real things in the real world, also became hedge funds, also became investment firms. And this is, of course, true also with a lot of universities that have big endowments, right? There's, at this point, it's cliche to say that Harvard is a hedge fund with a small university attached to the side of it.

• 13:32Speaker 01

  Yeah, that's right.

• 13:33Ezra Klein?

  And this is, I think, on some level, a very unintuitive and on some level, an intuitive thing, that when an institution or a person has much more money than they know how to spend, then the next step is for them to become an investor. And what you show is that began to happen in increasingly baroque ways with corporations. So can you draw the connection there, the way potentially a lot of easy money flowing through the system actually changed what a lot of people in the system spent their time doing with that money?

• 14:04Speaker 01

  Yeah, for sure. A couple of examples come to mind. You know, I led that book, which actually came out in 2016. And you're very kind to say, Prashyam, it was a little too early as an author. You know, you want to kind of be right where people are. It was a little, you know, it was a few years too early because the trends just kept building. My intro chapter was actually about Apple, which is not a financial company, except it kind of is. And what do I mean by that? Well, all right, biggest, most profitable company in history by many measures, Carl Icahn, you know, the famous robber baron, activist investor, depending on which lingo you like to use, was tweeting regularly that Apple, which he held a big chunk of at the time, should do more share buybacks and pay

• 14:48Speaker 01

  out bigger dividends and essentially reward investors. And just to unpack this for listeners, share buybacks are when a company goes into the market and buys its own stock, which has the effect of kind of artificially elevating prices because it cuts the number of shares, prices go up. That's really good for the top 12% of people that own over 80% of stock. But it really doesn't, again, doesn't change anything, doesn't build a new factory, doesn't create a new iPhone. So investors like Icahn are tweeting to Tim Cook, you got to do this, you got to do this. And then he does it. He'll go out and use those low rates. To borrow tons of money in very cheap corporate bond offerings and then use the proceeds

• 15:30Speaker 01

  to give it back directly to the, I'll say, the top 12%, really, if you look at the bulk of it, it's the top 1%, the top 0.1%, which, again, it's literally just making the rich richer. And this is a company that is using the financial markets to do this rather than to actually raise money for daily business. So that's a really weird perversion, I think, of our financial system, and it has the effect of increasing inequality. That's one example. The other example I would use, and this has been publicized recently in the book about Jack Welch, a company like GE, great American innovator, under Jack Welch, who is sort of

• 16:10Speaker 01

  the epitome of the downsize and workers and distribute profits to investors sort of model, basically turned the company from a company that made things into a company that issued loans so that people could buy things. He cut workers, he cut investment, he turned the company really into a financial firm. And this is a model that's actually been repeated widely in the rest of the economy. There's some great stats, actually, by a University of Michigan scholar that's looked at the way in which companies today get about five times as much of their business from doing financial things, lending to allow people to buy their products, but really kind of using debt to paper over weak consumer

• 16:54Speaker 01

  markets and low income. That's become the way that companies of all stripes do business as opposed to going back to the early 80s or the 70s. Okay, you do business, you make your widget, you make your iPhone, but you don't become a bank.

• 17:08Ezra Klein?

  So if you had a more traditional economist here on the other side of the microphone.

• 17:12Speaker 01

  Like Larry Summers, perhaps?

• 17:14Ezra Klein?

  I'm not naming any names. I'm just, I'm channeling an industry here, a way of being. The Tao of Neoclassical Economics.

• 17:22Speaker 01

  Yeah.

• 17:22Ezra Klein?

  They might say, well, look, it's true that a lot of money came out of the Fed. And then a lot of money went into the hands of people who owned assets because what the Fed was able to do was pump up asset prices, right? What quantitative easing is, is they pump that money into asset markets. And then that did lead to investors and companies, for various reasons, having a lot of money. But if they can't spend that money, and so they put it into some kind of investment arm or buybacks or whatever it is, that money is still flowing into the economy. That money is being used by people who are trying to find the highest rate of return. And the highest rate of return is going to be ultimately something that matters in the real economy.

• 18:04Ezra Klein?

  So at the end of this very long chain of money passing around from company to company, person to person, there should be something that creates economic value, right? I mean, at some point, valuation is supposed to equal value, and value is what we all experience. What holes do you think there are in that story, if you do think there are any holes in that story?

• 18:29Speaker 01

  There was a very succinct way of thinking about you. I think you said neoclassical. I would also call it neoliberal economic thinking. Let me break that down and look at it through the lens of an individual and then through the lens of a company. So if I look at an individual and I think, I go back to that number that, you know, when you pump up asset prices, you're essentially rewarding the top 12% of the population that owns 82% of the stock and probably more housing wealth than that. Well, you know, even for the super wealthy, there's only so many houses, only so many diamond rings, only so many pair of jeans that they can buy. And, you know, as somebody that's been covering business for over 30 years now for my sins,

• 19:10Speaker 01

  it's been interesting to me that retail CEOs have for a decade or more been coming to me and saying, we're really worried about this because they can see that if you don't have a middle class that is big enough to support an economy, if you've only got 12% of the people that have all the wealth, that does not a healthy economy make. So that's how I think about it at the individual level. At the corporate level, it's interesting and a little more complex. Corporations, and this is part of the whole neoclassical fallacy, and I would say neoliberal fallacy. Corporations have really, certainly since the 1980s, been able to fly 35,000 feet above

• 19:52Speaker 01

  any of those issues of distribution in the nation-state because companies are global. So if you look at where wealth has landed in the last half-century, it's basically been in multinational companies headquartered mostly in the US and in China. There was a trade-off of cheap capital flowing to places where labor was a lot cheaper. There was also the effect of companies buying and investing in a lot of technology to displace workers. Very cheap to employ a Chinese worker as opposed to an American one, even cheaper to employ a robot, which are now disintermediating Chinese workers. So companies are able to put that money to use that enriches the top of the C-suite,

• 20:36Speaker 01

  but doesn't actually create a broader shared prosperity. And it's very interesting because if you look at a chart, for example, that would have, say, the numbers of GDP growth of America and how companies are doing and how your average household is doing. In the 1970s, those lines would be pretty similar. If you look at those lines now, you might see them all over the map. You might see a country going one direction, certain kinds of consumers going either down or very up, depending on where they are socioeconomically, and companies kind of floating over the whole thing, which is what I believe the core fallacy of both neoclassical and neoliberal economists are, which is that the market was going to always know best.

• 21:21Speaker 01

  The market was going to distribute absolutely properly and we would get this trickle-down effect. We are not getting a trickle-down effect. None of the statistics show that.

• 21:31Ezra Klein?

  But I want to hold on the question of why, because Stephen, just go back to the story you just told, which I think is in large respects a true one. So they begin outsourcing a lot of labor to China, which has a very bad effect on many, on many, many, many American workers, but does lead to what they say it will lead to, which is much lower prices for many consumer goods. Beyond that, you can invest in both worker displacing, but also productivity enhancing technology.

• 21:57Speaker 01

  True enough. If education keeps pace. That's an important caveat.

• 22:00Ezra Klein?

  Right. We don't think it's a bad thing that we've automated most of farm labor, right? So if you get robots doing more retail work. So in theory, again, right, this is the theory, that this is supposed to lead to these investments that boost productivity, boost overall living standards, and the money is supposed to flow to its highest use. And at some point, that highest use is supposed to be something that drives a lot of value. And I think you brought in something really important there at the end, which is then if you look at GDP in this period, if you look at median wages in this period, if you look at a lot of the places you might look to for that value to show up, you're not really seeing it. It's like the money somehow stayed in this financialized space in the economy.

• 22:44Ezra Klein?

  Actually, quite a lot of money went into crypto. I mean, trillions of dollars is not an insignificant amount of cash. Lot of money went into wild. I mean, if you look at the rise in Tesla prices, I mean, now they've gone back down, but, but that was really big. That's the thing I'm trying to get at, that it actually breaks the theory a little bit, for so much money to be able to remain in financialized uses without eventually creating something in the real world worth having on average. But it seems that for some time, that's actually been happening.

• 23:14Speaker 01

  True enough. I love this question. I'm going to try and take it sort of in three parts. First off,

• 23:21Speaker 01

  I would note that this classical theory that says if consumer prices are falling, and it's amazing to me that there are still many neoliberal economists, you know, those we don't have to name, that are saying as long as consumer prices are falling, everything's fine. The problem is that a cheaper TV, even if it's $100 cheaper, $800 cheaper, it doesn't make up for the fact that all the things that make us middle class, education, healthcare, housing, have been rising at multiple times core inflation rates for decades now. Way before COVID, way before the financial crisis, the price of housing, education, healthcare, these things were all rising faster than anybody's

• 24:04Speaker 01

  wages. So that's one reason why a lot of us haven't been feeling wealthier despite all this money sloshing in the economy. The other thing is, why is it all going to Tesla stock? Why is it going to crypto? Well, over, in particular, the post-financial crisis era, but again, I would go back farther, decades of low rates. What that does, the Fed sort of manipulates the economy, keeps rates low, keeps borrowing costs low, that enables a lot of creation of debt. It enables riskier assets, which may not even be profitable in many cases, or could be totally speculative, like in the case of crypto. It allows them

• 24:45Speaker 01

  to sort of get inflated in price because investors of all kinds are looking for returns. So when the Fed pumps a lot of money into the economy, it means you can't get a great return in something like a bond, or even sort of a plain vanilla stock. So you're just like, oh my God, how am I going to make money? All right, let me try and go into a riskier thing. Let me try and go into tech stocks. My poor mother, a schoolteacher, I mean, thank God she's got a pension still, she went into tech stocks pre-1999, lost a third of her retirement savings. And you know, the fact that we allow individuals or force them to make these decisions is a whole nother podcast. Don't get me started. So you get these really risky assets soaring in prices, and eventually the little guy, and it's always the little guy at the end, comes in and says, I've got to get a piece

• 25:29Speaker 01

  of this. I've got to get a piece of this. So crypto makes me crazy, and I'm so worried about it because... The real profits, as the New York Times did recently in that brilliant piece, kind of unpacking who the real investors of Bitcoin are, a lot of the people really making money are, you know, a concentrated type of the usual suspects. But a lot of retail investors got into this stuff, too, and they got into it late because they're not insiders and they're just thinking, God, I'm losing out, you know? And so the people that bought crypto, many of them were younger than average, many of them were poorer than average, many of them were people of color. And they're sort of saying, wait a minute, we're still waiting for trickle down. Let's try and get into some of that trickle down. This is how boom-bust cycles look.

• 26:11Speaker 01

  You know, if you look just at the period from COVID onward, there's been a fourfold increase in the number of retail investors. That means little guy investors in the markets relative to the institutions. Professionals have been getting out since really 2018 or so, but little guys are getting in because it's the tail end of the cycle. And the Fed, in its best efforts, with a good intention, has been trying to smooth things out. But really, what it's been doing is making things that have no value look like they have a lot of value until they don't.

• 26:41Ezra Klein?

  Let me come back to crypto because I do want to talk with you about that, both as an economic and as a cultural or almost metaphorical phenomenon. But I want to get at something that I think is implicit in this argument and see if I'm understanding it correctly. So during this period of easy money, there are consistent warnings it is going to unleash wild amounts of inflation. You go back particularly to what Republicans are saying in 2010 and 2011, and you hear a lot of that. And it doesn't. If you track, you know, what the Fed understands, what the economics profession understands to be inflation, core inflation, look at the other measures, too, until very recently, the pandemic period, it's very stable. And so the people saying easy money is going to create all of this inflation are somewhat

• 27:26Ezra Klein?

  discredited. They look like cranks. I understand what you're saying, and I've come to believe in this view more, that there was a lot of inflation. It was just asset inflation. And we understand asset inflation not as an economic problem. When asset inflation begins to go nuts, we don't report it like we do core inflation, where we say, there's a huge problem happening in the economy. We say, hey, look, the line's going up. Everybody's getting richer.

• 27:51Speaker 01

  Right, right.

• 27:52Ezra Klein?

  And so is that the argument here, that it actually did unleash the promised inflation? That inflation was just somehow weirdly confined to assets? And so we didn't, we experienced it as a boon and not a problem?

• 28:06Speaker 01

  Yes, in answer, yes, that is one prong of the argument. I would say that there's another prong too, which is, I think, just now starting to get talked about in the post-COVID, post-Ukraine war era, which is, there were a lot of false deflationary headwinds. And by that, I mean, all right, what's the real cost of a product? What's the cost of a product, say, a T-shirt in Walmart, if you're not using cotton harvested with concentration camp labor in Xinjiang? What's the cost of something if you actually have a real price on carbon? And then you have to tally in how much it costs to tote it over tens of thousands of miles from the South China Seas?

• 28:49Speaker 01

  What's the cost if you have proper environmental and labor standards? This is the conversation happening right now. And once you start pricing all those costs in, and you, and you start really thinking of the economy in a different way, then, yeah, it certainly is inflationary. And this is something that I think, unfortunately, no politician, particularly the Democrats right now in advance of a midterm or a presidential, want to land on, which is, some of the transitions to a kinder, gentler, I believe, more stable and ultimately more resilient economy are going to be inflationary in the short to medium term.

• 29:24Ezra Klein?

  Ooh, there's a lot there. I'll do one minute on this just because I love this topic. The the false low prices we have. I'm a vegan and an animal rights person. And one of my arguments to people is always that meat should be expensive.

• 29:38Speaker 01

  Yes.

• 29:39Ezra Klein?

  Because you are not paying the price of the suffering of animals in factory farms. You have made them pay that price. And so the meat looks cheap, but it's not. It's just the suffering is being paid by the animals as opposed to the cost of animals raised well being paid by you.

• 29:56Speaker 01

  I agree with that, but it's also you don't even have to be a vegan. It's also being paid by the labor. It's also being paid by the land. You know, the the big food, I mean, this was one of those wonderful telling stories that COVID was like a scrim that got pulled up on it, you know. COVID hits, suddenly, nobody's in restaurants, but yet everybody's lined up at grocery stores. There are food shortages, producers are dumping milk and meat. Wait a minute, what what's happening here? Well, we have two highly concentrated supply chains, one for restaurants, one for grocery stores. They don't talk to one another. Big food, a handful of companies have gotten monopoly power and, you know, use highly toxic and very hard on the land industrial farming techniques because that's how you get cheaper prices, you know.

• 30:39Ezra Klein?

  Right.

• 30:39Speaker 01

  But what was the cost for that? It was the devastation of many communities in the Midwest. I grew up in the rural Midwest. I saw this play out in Indiana. It was toxins in our water. It was healthcare. I mean, don't even get me started on the cost of obesity and all the kind of disease and health problems that come from that model, that neoliberal, neoclassical model of cheap is everything. When you see the real cost of things, cheap is not cheap.

• 31:04Ezra Klein?

  Right. And and I'll say too, I my view on this is never that everybody should become vegan. It's simply that meat should cost what it costs to be raised environmentally, sustainably and and humanely. And then you would get into a much better equilibrium for everyone involved.

• 31:40Ezra Klein?

  I want to pull us now into this era because this has been a critique burbling around the edges. And I think it has only been in the last, let's call it, four or five months, that some of it has moved into something almost proven. And so what happens now is that you have the pandemic and the Fed goes into unbelievably easy money mode. I mean, they do things, as you can read about in Adam Tu's work, that they've never done before, right?

• 32:07Speaker 01

  Yes.

• 32:07Ezra Klein?

  The amount of money they're printing, the way they're buying things. I mean, this is truly uncharted territory. And in a way that is different than what happens in 2010, Congress really steps up because Donald Trump, as leader of Republicans, can get them to spend money and the Democrats want to spend money. And they spend a ton of money in cares. They spend a ton of money then later with Joe Biden as president in the American Rescue Plan, to bring up Larry Summers, who says, I think, in the end, correctly, that was a little bit too big. But the moment that money begins getting moved directly into the pockets of most people, then you begin to see inflation happen. And the moment inflation begins to happen, then you begin to see the Fed tap on the brakes. And the moment the Fed taps on the brakes, then you see the asset of

• 32:51Ezra Klein?

  community pop and pop much quicker than people were expecting, suggesting that that its underpinnings are more fragile than they had admitted. So can you talk a bit about how you understand that part of the story? Like, what has been revealed by the kind of policy experiments taken place in this period?

• 33:11Speaker 01

  Yeah, you're making an important point. And this is where, yeah, Summers got the timing right about, wait a minute, fiscal right now, at this moment, going to be tricky. Now, I would say, Larry is not acknowledging the fact that some of his own policies during the Clinton administration actually led us into a highly financialized economy, which is why we are where we are. And that's the thing that I would want to connect is whenever you have a crisis, there's always a trigger. There's always something that seems small that happens and then it just explodes and the shrapnel of everything that was wrong starts to go everywhere. And so our trigger this time was COVID. And what did COVID do?

• 33:55Speaker 01

  Well, for starters, it illuminated these highly financialized, highly globalized, highly fragile, efficient, and I put efficient in quotation marks, supply chains that actually turned out to be not all that resilient, you know? Pandemic hits, you can't buy masks. Why? Because China's hoarding them. Well, China's hoarding them because it makes them, because that was the bargain, cheap capital for cheap labor, and it wants to put masks on its own people. Well, that's kind of understandable if you're sitting in Beijing, but if you're sitting in North Carolina, it's a problem. So COVID hits, we start to see supply chains breaking down. That paradigm of efficient but cheap suddenly disappears. And so you get blockages.

• 34:37Speaker 01

  And then the fact that each individual country, because suddenly we're not, the world is not flat, you know? The world is not flat. It's not one big happy global economy. It's every nation for themselves and every nation deciding differently how to deal with COVID, how much to lock down, when to let people back out on the streets. And because the virus is moving in different ways in different places, there's asymmetry between recoveries and when people have to go back down into another lockdown. Then you get the war in Ukraine, which just adds, no pun intended, but fuel to that fire by knocking out a good chunk of the world's excess gas and oil reserves and also creating

• 35:20Speaker 01

  a food shortage because Ukraine is the red basket of that particular region. And so that creates more inflationary pressures. Now, all this was happening In very complicated and asynchronous ways, at the same time that you have a president who, let us remember, is one of the most labor-friendly presidents probably that we've ever had, comes in and is like, you know what I'm not going to do? I'm not going to do what my predecessors did and bail out banks while letting homeowners go it on their own. I'm going to make sure I'm doing the right thing by individuals, by labor, even if that means going a little overboard. So I think that's what happened, and that's that complicated confluence of events. But basically, what it did was just light the fire that then kind of exploded the whole system, and the pressures had been building for decades.

• 36:06Ezra Klein?

  I have had trouble figuring out how to make this point correctly, but it revolves around what you're talking about here. I think it's really powerful what problems we understand how to see in an economy and what prioritization we give to them. And I was mentioning earlier that, you know, assets go up, we look at that, we think, great, right? Our first response is terrific. You look at corn inflation going up, even if some of the reason is wages, and it is immediately treated as a problem. And I'm not saying that inflation getting out of hand isn't a problem, because it really, really, really is. But nevertheless, it is coded. Inflation, almost always and everywhere, is coded as a problem. And one of the dynamics of this period in the economy that I think deserves more scrutiny

• 36:51Ezra Klein?

  than it's gotten is the way that we can give a lot of money to rich people without the distortions coding as an economic problem.

• 37:01Speaker 01

  Hmm.

• 37:02Ezra Klein?

  And then the moment you begin giving a lot of money to folks who aren't as rich, the distortions do code as a problem. And you might say that that's because, in the short term, we put a bunch of demand into a supply-constrained economy, and that really did create an inflation problem. I truly don't want to be seen to be diminishing what I think is a genuine economic challenge. And at the same time, putting all that money into the economy really did create a housing boom, and a housing prices rise. It is going to be a problem, and is a problem for anybody who wants to buy a home.

• 37:34Speaker 01

  Yeah.

• 37:35Ezra Klein?

  It's nice for homeowners, but it's a difficulty for anybody who wants to buy a home, or, you know, you can say similar things about dimensions in the stock market. So I wanted to talk about this piece of it, the differential ways that we are able to see problems among a lot of money sloshing around the working class versus a lot of money sloshing around the very, very wealthy classes.

• 37:57Speaker 01

  Yeah, it's such a great question. Um, let me try and nail this because it's a hugely important thing for people to understand. I had a conversation once with a union representative who was actually on an advisory board that the Fed created. The Fed, following the financial crisis, decided to actually put some real people on its advisory boards to ask them some questions about, hey, you know, what are you seeing from Main Street? Because we're way up here in the ivory tower. And I was, I was raising this issue because I'm a card-carrying Democrat, but unlike most liberals, I actually do think debt matters. And I think that financialization, even though some wealth, like a little bit, will eventually trickle down to people that make $15 an hour, it's

• 38:39Speaker 01

  just so disproportionate to the amount that's gone to the rich and to the risks that have been brewed up in the system as a result of that strategy, that it actually ricochets and creates the very problems that you're talking about, which is now a housing market that is so out of control, that even a lot of middle or even upper-middle-class people that I know are saying, my God, we can't get on the housing ladder, period, you know? And he said, you know, it's true, that there are these risks, but one reason that a lot of labor leaders supported all that quantitative easing and that kind of post-2009 monetary, you know, saccharine high that we've, we've spoken about, was that they keep waiting and waiting for everything to trickle down. And

• 39:23Speaker 01

  just when it's about to trickle down them is when the moneyed classes, the investors and the policymaking classes decide, ah, there's a little too much risk now for us, let's pull the plug, you know, we'll stop the music, you can stop dancing now. And they're like, wait, we just want a drink, you know, like mice looking for that little dropper, you know? And I have got so much sympathy for that. I mean, it actually almost makes me a little tearful because I have so much sympathy and time for that argument.

• 39:51Speaker 01

  And I understand that the labor left that has supported some of the easy money policies has been doing the best they can for working people within the context of a totally effed up system. I don't know if I'm allowed to say that on podcasts.

• 40:05Ezra Klein?

  You are.

• 40:06Speaker 01

  What we have got to do now, because I frankly think we're at the end of this whole neoliberal, neoclassical economy making any sense for anybody, what we now have to do is tell a true story, which is trying to get like 50 cents for the working person at the end of creating a bubble that makes it impossible for you to ever become a homeowner. That doesn't work. What we need, and other countries make these decisions, I mean, you know, you can look at Germany, Germany's not perfect in many ways, but it's made some decisions as a society to have an income led economy rather than an asset bubble led economy. And, you know, that's something Biden, I think, messaged quite well, work not wealth,

• 40:49Speaker 01

  right? Unfortunately, going back to your, one of your first points, we have a gridlocked political system in which you can't get through those very basic, very smart investments in education and the caring economy and highways and all the things that we did at certain times in our economy as a society that created broad-based, shared prosperity. And that's where we've got to get to. I believe we will get there. It may take a lot more pain, but we're going to get there because there's just really no other alternative.

• 41:20Ezra Klein?

  Is that the tragedy of this period? Because I think one thing people could hear when we talk about saccharin highs, or when we talk about easy money or bubbles, is there can be a sense of inevitability in it, right? If it was always an illusion, if it was always a hologram, then eventually somebody was going to touch it. But I used to run Wonk Blog at the Washington Post, and I remember that one of our main stage charts for just years is we would go to the government website that tracks real interest rates, real rates at which the government can borrow, treasury rates. And they would be at the five and 10 year frame negative. And we would like sit there pounding the table that the market is basically paying us.

• 42:00Speaker 01

  Yeah.

• 42:00Ezra Klein?

  In inflation adjusted terms. To issue treasuries so that the government can spend money. And the government did spend money on a bunch of things. Like, if you look at government spending in this period, it's not that it was low. But when we look at this period, as the great tragedy was, we could have functionally been paid to decarbonize the country. We could have functionally been paid to upgrade every school into a palace. We could have functionally been paid to build a lot of things that would have generated returns for a really long time. And for a bunch of reasons, instead of doing that, we sloshed money around and subsidized Uber rides for a whole generation of people and Postmate deliveries and crypto bubbles.

• 42:45Ezra Klein?

  And I won't say nothing came out of it. I mean, I think some things did come out of it. You know, there are companies that invested the money well and whatever his other problems. I admire what Elon Musk did with Tesla and SpaceX. And I mean, there were things here that happened that got built.

• 42:58Speaker 01

  Right.

• 42:59Ezra Klein?

  But we could have built nationally a lot because we had this period of investment opportunity. And I worry that when we look back, we won't just look at this as a bubble. We'll look at it as a miss. That there was a period of easy choices when we could have made great investments. And now we're going into a period of hard economic choices where it's going to be a lot harder to make investments that are still needed.

• 43:23Speaker 01

  Yeah, you know, I'm just so sad as I hear you talk about it because I, yeah, I 100% agree with that analysis. I was thinking historically, if you look back on what are the decisions taken by the public sector and the private sector that actually lead to broad-based shared prosperity? And they tend to be in periods like this where you have a potentially, you know, world game-changing transformative technology coming down the pike, which is in our era, clean energy. That you typically have the government come in and kind of put a floor under that with some kind of investment. You could look back to the period, say, of the building of the railroads. You know, the government incentivizes the push to the west, land grants, even something

• 44:08Speaker 01

  like creating standards for the kind of gauges that would go on a railroad. And then the private sector is like, okay, we've got a floor. We're going to come in now and we're going to privatize this. And that's when you get real growth. That's kind of how the internet was created, right? You know, you post World War II, you have this investment into telecoms and tech, and you get the internet, and then it gets privatized, and people make money, and, you know, and real, some, you know, real productive things get created. We had, I don't know whether to say had or have, and it like, honestly, it like, tears at my heart, because I feel that we have this window, and it used to be really, really, really big. It was like, not even a window. It was a huge door. It was like a bridge that was being lifted up, and,

• 44:48Speaker 01

  hell, you know, come in, make this happen. And it is closing very quickly. And it is going to make a huge difference to our lives. Not today, but in, absolutely in 10 years, 100% in 20 years or 50 years. It's, it may look a lot more like an emerging market country in America, because we didn't make these decisions.

• 45:33Ezra Klein?

  Let me get at another piece of financialization here, which will bring us back to crypto. So, one of the things I find interesting about crypto, again, as a metaphor, as an ideology, as a concept, is that it really is, on some level, the financialization of everything. It is a whole new way of structuring the internet, built on how you would structure a currency, then how you would trade the currency, then how you would verify that the currency is being traded, and that ownership of the currency was validated. And I find something about it very poignant, actually. This whole technological structure and idea that is in many ways a critique of

• 46:14Ezra Klein?

  hyper-financialized digital capitalism that is itself, at its heart, hyper-financialized digital capitalism, such that the contradiction is baked into the center of the entire thing, right? Like, all these people who don't like how, say, the feds ran money, surfing these waves of Fed money, going into how they don't like how Web 2.0 companies took over the internet but then were perverted by capitalism, the need to make money, becoming part of this Web 3 that is at its core perverted by capitalism and the need to... Like, the whole thing is so...

• 46:51Speaker 01

  Insane.

• 46:51Ezra Klein?

  It's so unsubtle. But it's also a little... I mean it when I say I think it's poignant. I think that there's this... You're really watching people struggling with, like, the inability now to... It's like, the only way to imagine escape from capitalism is more capitalism. It's very strange. I'm curious what you make of it.

• 47:11Speaker 01

  It's a fascinating topic, and I feel like we could almost do a whole nother podcast on crypto. You know, when we talk about crypto, most people use that term to talk about private coin that is not backed by a central bank, right? But that's only one part of the digital currency story. So crypto is exactly what you say, kind of naively, optimistically, and wildly speculative on one level. But it's also telling us something very important. You know, an investor once said to me, and I thought this stuck in my mind, that he saw Bitcoin not as something that he wanted to invest in, but as a kind of a canary in the coal mine for the level of trust in the existing systems.

• 47:56Speaker 01

  And that's sort of interesting, because it gets to your point that on... Well, you know, wait a minute, you're surfing a wave of central bank-backed money, so you're kind of part of the system. You're sort of the icing on this very large financialized cake if you're in crypto. On the other hand, the notion of a privately issued currency that is, can be in some way, and this is sort of unclear whether this is really true or not too, but controlled in the way that gold was, where there's a limited supply, that appeals to a lot of both techno-utopians, but also kind of average people. And again, this gets to young people that are totally cut out of the existing system of wealth, to people of color who are disproportionately invested relative to their wealth in crypto, that they look around and they think, well,

• 48:40Speaker 01

  God, this system is not working for me. You know, I want something different. It's almost like, I mean, this just came to me. I'm thinking like, is it sort of like the people that voted for Trump and Sanders, like that weird overlap of, well, I know that Main Street politicians of either political stripe are not, are not serving me, so I'm going to go outside the paradigm. I think, I think there's some of that there.

• 49:02Ezra Klein?

  Let me draw on that Trump analogy, because I think there's something very, very viable in it. And put aside a lot of Trump's personal characteristics, because I don't want to over-polarize this metaphor.

• 49:10Speaker 01

  Yeah.

• 49:10Ezra Klein?

  But one thing that's always been interesting about Trump's 2016 run to me, I've always loved a line he had. He said, "I've been greedy my whole life. Now I want to be greedy on behalf of America." And I'm, I'm doing that from memory, but, but that's basically, that was the structure of the line. And the, the point of Trump wasn't to break the system, not really. People talk about him as a wrecking ball, but that isn't what he actually promised. The point of Trump was to have somebody who knew how to game this system, who was on your side in it. And I've also thought this is a very, very important subtlety. And, and there's a way in which I think crypto reflects at, the way people participated in both the

• 49:50Ezra Klein?

  currency and the, the ultimately than the NFT markets, was it wasn't an escape from financialized capitalism. It was a, a hyper-financialized digital capitalism that you could be in on the ground floor of.

• 50:05Ezra Klein?

  Right? It wasn't the end of it. It was your version of it.

• 50:08Speaker 01

  There's very much something to that. And you know, I'm thinking of two things. First of all, I'm thinking of an article that I wrote a while back on Robinhood because I was just, I was horrified. I didn't even know about Robinhood, but my now.

• 50:18Ezra Klein?

  You mean the company here, not the, not the old guy who lives in the woods?

• 50:23Speaker 01

  No, I mean, the company, the trading platform, right? For average Joe investors where you can go on and do kind of like super fast day trading and they do a lot. They were doing a lot of crypto, a lot of meme stocks. I learned about Robinhood. I'm embarrassed to say, because I cover the financial markets from my then 13 year old son. Who told me at one point, he's like, Mom, are you going to buy the dip? I'm like, oh my God, did you just say buy the dip? Wait a minute. What, what do you, how did you even know that term? What are you doing? And he was on Robinhood, you know, like a bunch of his friends that apparently have made money on these platforms in crypto. And I thought, oh my God, okay, yes. This is, and I wrote an article saying how frightening this was to me. And then I got a bunch of angry responses from individuals who said exactly what you just did that, well, wait a minute.

• 51:08Speaker 01

  This is our way of getting in to do, to do what the big guys are doing, to be in that, that kind of speculator, which ties directly to your point about Trump, which I a hundred percent agree with. You know, I said this actually in the intro to the paperback of Makers and Takers, because he had been elected by then. And I'm like, this guy is the president for a financialized era. You know, he, he's like a, he's like Melville's con man, you know, he takes one truth, which is the system is broken and corrupt and kind of embeds it in a welter of lies. And somehow, like the space time fabric is bending and he's able to get elected.

• 51:41Ezra Klein?

  One of the things about that, it makes me think of when I first heard of Robinhood. It's a, it's a real story for, for the era, right? Where were you when you first heard of the Robinhood trading platform? But it was by an investor in it. And he was saying, this is the big thing. This is the next really big thing because it is going to democratize trading. And one way of responding to that comment, if you're me and you cover financial crises in that period is, well, is democratizing trading such a great idea?

• 52:08Speaker 01

  Yeah.

• 52:08Ezra Klein?

  But to the point of our, our larger framework here, in an era of easy money. And in a long era, whereas Tomas Piketty has said it's, it's R over G, right? Returns over growth.

• 52:22Ezra Klein?

  If you think basically the line does always go up, then democratizing trading is really, really important. We talk about trading is risky, but for a long time it actually hasn't been. If you've been able to be part of the trade and you can wait out some risk now and again, then you've done great. And you've particularly done great in the last decade. So I think a lot of economists and economic writers and so on scoff at this idea that everybody should be piling into what look like these risky markets. But I think it's because on a generational timeline, they haven't actually felt that risky to people. And in fact, even things like the financial crisis, which we call a financial crisis, if you just stayed in the market, you did perfectly fine. It was no crisis for you. The crisis was if you weren't in the markets and lost your job.

• 53:07Speaker 01

  It's a great point. And you're also getting to something. I mean, I literally spend most of my day these days as an economic columnist, thinking about this very topic. Will the paradigm hold or will it break? Because I do think that we are really at a pendulum swing of a 70-year neoliberal paradigm. And, you know, I would go back and I'll just be super wonky and you used to run Wonk Blog, so you won't mind, to the 1930s, when we had the beginnings of really of our current monetary system, of our current system of global capitalism, which was invented in Europe in the 30s and 40s by a group of economists and policymakers

• 53:49Speaker 01

  and thinkers that were trying to figure out, okay, how do we take really super polarized societies that have been just completely torn apart by war and connect them together? And they thought the way to do that was by connecting capital and global business. And that made a lot of sense at that time. But the pendulum of capital being above everything else has just swung so far to the extreme. And I really do think that in some ways Trump was the apex of that because already you can see Biden, little by little, you know, this administration pushing back on those policies. I really do think we're at a turning point where the paradigm is going to break. And one thing I would give to support that, you ultimately do reach a point.

• 54:31Speaker 01

  This is true in hundreds, thousands of years of financial markets where Wall Street or, you know, the financial markets, let's say, Wall Street and Main Street will meet. They will meet at some point. It may take years, it may take decades, it may take half a century, but they do reconverge. And I believe that point is coming. And I think it's coming in part because if you look at where the growth is in the world, it's mostly in Asia right now. And this is definitely going to be the Asian century. We're going to get cut out of that growth. And not because of anything that a US policymaker has done, but because the Chinese policymakers have decided we're going to own our own supply chains. We're going to have, you know, they call it the dual circulation economy, but basically it's about producing local

• 55:12Speaker 01

  for local. I think we are moving to a much more localized, regionalized world. And again, this is actually the topic of my next book, Homecoming. And I think in that world, you have to change the paradigm because you cannot surf the wave of financialization and globalization anymore because the paradigm has shifted. So you have to create some more income-led growth at home.

• 55:34Ezra Klein?

  So let me offer two points of skepticism here.

• 55:36Speaker 01

  Okay.

• 55:36Ezra Klein?

  Because I've been thinking about the same thing. And I've, depending on which day you catch me, I have somewhat different views.

• 55:42Speaker 01

  Yeah, totally.

• 55:42Ezra Klein?

  But nevertheless, a month ago, six weeks ago, you know, as Russia invaded Ukraine and people began to absorb the implications of that and possibly the long-term implications for us in China, I was much more of the view that this might represent a fundamental turning in our attitude towards globalization, whose supply chains we'd be in hawk to. And now I'm not sure. And the reason I'm not sure, twofold. It isn't that we're not going to try to reshore some critical supply chains. I think there's no doubt that we are going to very likely pass a big bill this year to try to reshore, among other things, semiconductor manufacturing.

• 56:19Speaker 01

  Yeah.

• 56:19Ezra Klein?

  So there'll be a couple of critical chains that we are going to try to get back here. But in general, even Biden, they are not going out there saying, hey, you know what? We've lived in this low price era. Actually, the costs of that were much higher than we ever leveled with you about. And it is time to accept that we're going to make this transition.

• 56:37Speaker 01

  Yeah.

• 56:37Ezra Klein?

  And until I hear that, I think what everybody wants is to get back To, you know, what has passed for normal for a long time as quickly as humanly possible. And they might do that. I mean, Europe is still not even off Russian oil and gas.

• 56:51Speaker 01

  Yeah.

• 56:51Ezra Klein?

  Like, it's amazing to me, actually, how much sticking power a lot of this has really had because prices, you know, and you see this in America, too, like Democrats are going to get hammered in 2022 in part on prices. There's very little that is as devastating to a political party than price increases. Asset increases, everybody loves. Price increases, that's the end of you.

• 57:15Speaker 01

  Yeah, no, I think you're making a very powerful point. And truth be told, I wonder about this, too. But I guess what I would say, first of all, if you go back to the, I believe it was, I'm trying to think when Biden put, I think it was the summer of 2021, that he actually did make a really, really important statement, which I think was way underplayed and overlooked in the media, about shifting the economy from low prices to being one that was more about workers and about labor. And it was a very broad speech, and it went across all different industries and sectors of the economy. So there was a stake in the ground put down. And you can see those policy tweaks happening

• 57:56Speaker 01

  really throughout the administration in many, many ways that I won't go into right now. But yes, okay, so we get to COVID, we've suddenly got all this inflation. Janet Yellen is saying, oh, maybe we should take the tariffs off China. You know, sure, take the tariffs off China. Honestly, tariffs are kind of a red herring in this whole thing, because I think that the forces that are pushing, you call it de-globalization, or call it regionalization, or localization, or the moving closer of production and consumption. I think those forces are going to stay with us and be more powerful. And they would include everything from the fact that China really does want to own its own supply chains and be independent. So that's Asia, right there, and potentially a pathway through the old

• 58:39Speaker 01

  Silk Road into, you know, North Africa and parts of West Africa. There's, of course, an amazing opportunity right now for the US and Europe to come together on climate chain standards and maybe even put a price on carbon, which would just immediately knock out Chinese mercantilism, because it would actually help us to tally the cost of cheap labor, child labor, long supply chains that take up too much energy to tote cheap stuff to us to put in Walmart or sell on Amazon. All of these things are happening. And what's more, There are two other factors. We have some really interesting new technologies, not to be a techno utopian, but you know, 3D printing, additive manufacturing, things that actually allow you to build stuff like entire houses or cars

• 59:22Speaker 01

  in one place in a few hours with a machine that can essentially lay down materials and print. That's a real deal. That's growing 22% year on year and it is, it is a paradigm shift of a kind that's going to change manufacturing. We also have a new generation of consumers, of citizens, of workers that are younger and they just really care about the environment and they care about food and they care about where, they don't want fast fashion. They understand the cost of these things. And I think we also have, in a funny way, to go back to the Trump and Sanders metaphor, we've got some weird and interesting territory in which the far left and the far right can kind of overlap. Like you have security hawks on the right that say,

• 1:00:04Speaker 01

  "Yeah, we need more secure, resilient, independent supply chains, which means we need to produce some chips here and we're probably going to need to produce some rare earth minerals and secure those mines and maybe some lithium batteries too." And you've also got some green new dealers that say, "You know what? That's not a bad idea. I think, you know, we'd like to support labor in America and have jobs and we'd also like to be better for the environment and make sure that we don't have these long supply chains with heavy emissions." And so I just see so many tailwinds. And I think ultimately we're going to be in for a lot of turmoil, but I think they're going to take us to a better place because as we've talked about for the last hour plus, the old system was untenable.

• 1:00:45Ezra Klein?

  I want to end by talking about the asset class that sits most squarely in the middle of all this to me, which is housing and real estate. So there's been a tremendous multi-trillion dollar run-up in housing wealth over the past couple of years. At the same time, it's not a rarely held asset, right? The homeownership rate is about two-thirds. At the same time, there's a housing shortage. At the same time, there's been a huge investment coming in from private equity and other kinds of more financialized investment firms buying up a lot of homes. And meanwhile, we're seeing new home sales fall. They fell by about 17% in April. How do you understand the housing market here? Has it peaked?

• 1:01:28Ezra Klein?

  If it has peaked, what does that mean for this main engine of wealth? What is your, what is your take on that space?

• 1:01:34Speaker 01

  So there's a few things happening in the housing market, and I'll just do a real quick run through history, if I may. You remember the term ownership society, which was, I believe, a Bush word. You know, we were all supposed to be encouraged to become homeowners, to own homes. That was encouraged by the right, but also by the left that wanted people who hadn't had access to housing credit to get more of it. That eventually did lead to predatory lending, lower lending standards. And of course, when the subprime bubble exploded in 2008, poorer people, more vulnerable people, really suffered the most because when they have debt, it's much harder for them to pay it off. There's a wonderful book by a couple of academics, Sufi and Meehan, called House of Debt, that explores that topic.

• 1:02:18Speaker 01

  Anyway, right after the financial crisis, I was actually exploring for makers and takers. In fact, I was out in the inland empire in California, you know, a couple of hours east of LA, looking at this weird phenomenon where you had really still pretty high unemployment rates, devastated communities, but rental prices that were wildly increasing. And I'm like, how can they be raising rents this much? Well, it turned out that a big private equity firm had become the biggest landlord in town. And in fact, Blackstone's Invitation Housing, they have spun it off since, but it was, it became the country's biggest homeowner. So you have a remote private equity firm that is the landlord of the country, that can raise rents at will, that actually was able to buy up cheap houses on, literally

• 1:03:03Speaker 01

  on courthouse steps after the financial crisis in ways that even big banks couldn't do because they were not as highly regulated. So you get that investor class starting to actually like, be your landlord, own the little pink houses, you know, they're a part of the American dream. Fast forward to the last few years. You have that now happening in multifamily housing. You have private equity buying up trailer parks, you know, and raising the rents. I mean, it's just really, I think obscene. And I think that there should really be limits on that kind of investor-led housing. There already are limits, in fact, in many European countries. Now, COVID, of course, further distorted and potentially changed in interesting ways the housing market.

• 1:03:49Speaker 01

  And I'll just note that you saw people decamping, right? For two or three hours outside of big cities where they could get cheaper rents or buy cheaper houses. But then suddenly, those property prices shot up too. And all that financialization and all that fiscal stimulus then, of course, you know, helped put a little fuel onto that market. I think we're at a tipping point now. It's funny, I've been hoping for years to be able to buy like a small cabin somewhere in the Catskills and I couldn't. I was priced out of the market during COVID. I watched these, you know, things that literally looked like meth shacks were suddenly doubling or tripling in prices. And I'm like, oh, my God, what's going on? Now those are starting to correct. So you are seeing that bubble beginning to deflate.

• 1:04:30Speaker 01

  But to be fair, I think COVID, you know, pandemics and wars sometimes fundamentally change things. And I do think that they are changing the geography of work in this country. I think that you are going to see a more permanent move south and to the west, to the mountain regions, to places where taxes are lower or property prices are lower and there's less density. I think that's probably going to last as long as work from home lasts. And so that may, that may be the real dynamic that also sits alongside the more financialized dynamic.

• 1:05:03Ezra Klein?

  Is this a way in which the political economy, though, of easy money becomes very, very hard to dislodge? Because if you want to say that, well, we shouldn't have so much random money sloshing around, I think people will agree with that, to some degree at least. But it's when mortgage rates start going up, when they feel that their homes, which in this period have been, I mean, the engine of middle-class wealth in this country are going down, that you might think that this policy equilibrium is fairly fragile, because sure, you know, rich people have a lot of political power, but there aren't that many of them. But it's actually, in many ways, that same source of money that is powering a lot of the housing market. And that's not a fragile political constituency.

• 1:05:48Ezra Klein?

  That is like most families and a lot of voters. How do you see that as playing into the decisions that the Fed is going to have to make? The decisions that the other parts of government are going to have to make?

• 1:06:01Speaker 01

  I guess I see it in two ways. To go back to that paradigm I just sketched out, where pandemic hits, you suddenly see the rings that are two or three hours outside the main urban areas, housing prices just skyrocketing. So suddenly, the Catskills is like Aspen. You know, you can't afford to live there and work there. You have to be an investor. That's deflating because rates are rising, and that's actually a good thing. We need that kind of correction. I mean, that goes back to this problem, this kind of fundamental problem of the stretching out of unsustainable business cycles. You need there to be collapses, even though nobody likes them. You know, you need the market to correct at some point to kind of weed out things that are unsustainable and speculative.

• 1:06:43Speaker 01

  And so I'm glad that there's a correction happening in some of those markets. I am worried, however, as you say, what will be the effect on the consumption economy, which is 70% of our economy, is people, you know, consumer spending amongst Americans? What happens to that when our home values are suddenly half of what they were? And more people are actually invested in the stock market than ever before now. So when stock prices collapse, what happens to consumer spending? And I'm actually already starting to see little glimmerings of this. Consumers kind of going on buying strikes, particularly things that are Really dispensable, you know, like all those streaming services, for example, you saw Netflix had had some bad results recently. Well, I think people are looking at all those hundreds of dollars that they're spending

• 1:07:26Speaker 01

  yearly on streaming services and saying, okay, I don't need that. Maybe I don't need that new gadget. Um, you know, what do I really need? I need to heat my home, fuel my car. I need shelter of some kind. Everything else is maybe just dispensable. That, of course, is going to create a snowball effect where once Main Street starts to meet Wall Street, you're going to get that asset price correction. It's going to be painful, but it'll be.

• 1:07:48Ezra Klein?

  Do you really think that's plausible? We're going to have a major housing asset correction? Um, I I've heard a lot of people say they think the housing market has peaked.

• 1:07:55Speaker 01

  Not immediately, but eventually, yes. I think there are two trends here in how, just to speak about housing. It's overvalued, just like stocks in many places, but there is also some legitimate supply and demand issues. And, you know, you've seen the administration calling those out, zoning issues, supply chain issues that are just making it hard to get building materials. That's going to take a couple of years to work its way out of the system. And then, then at that point, we're going to see, are we in a Mississippi land bubble where everything's going to collapse? Or were we actually building the railroads to LA? And, you know, we're moving around after the pandemic and we're working from home in Iowa somewhere. And, you know, so we don't know the answer to that yet. I suspect it'll be a combination of both, but I think in the really frothy markets, you are going to see a correction.

• 1:08:40Speaker 01

  Although I'll say one thing, which is that in the markets where the super rich control most of the real estate, like Jackson Hole, Nantucket, I think they may stay in the clouds because you you do, unless you see real, God, you know, corporate lobbying, dark money limits and tax reform, you're going to have a a class of American oligarchs that are, you know, they're living in the clouds.

• 1:08:59Ezra Klein?

  I think it's a good place to to end it. So always our final question, what are three books you would recommend to the audience?

• 1:09:06Speaker 01

  So one book that I read earlier this year that I really loved was All That She Carried, which is this wonderful nonfiction exploration by a Harvard academic of an African American artifact, really. It was a sack that was passed down through a family and it was given by a mother to a daughter as she was being sold during slave times to another family was being taken away from her. And she gave her the sack and packed it with these things, with a handful of nuts, with some things, with a cloth that she could keep warm with on the journey. And it is a fascinating exploration of an academic

• 1:09:49Speaker 01

  that is desiloing all these different areas of study, you know, Black history, anthropology, the economy of America and how it's run, how you actually track and tell a narrative story about a person whose name you don't even know. And I just found that really, really powerful. I also read another book called Beautiful Country, which was a story of an immigrant family who'd come from China to live in New York and what it's like to be undocumented, what it is like to be living in the shadow economy. It was a memoir and a narrative tale, which I often give memoirs a hard time because I think there's frankly a lot of people that should not be writing memoirs that are, but this one was a real

• 1:10:33Speaker 01

  keeper. And I guess my third book would be Gary Gerstl's The Rise and Fall, The Neoliberal Order, which I reviewed recently in the FT. It's an instant classic. I mean, you can barely use that phrase for most books, but it really is. He looks at a lot of what we've just been talking about, this half century of neoliberalism, financialization, globalization, all those threads, pulling them together. What did it mean? And where is it taking us? And I think that it really asks and answers some of the big questions of the day.

• 1:11:00Ezra Klein?

  And your books are Makers and Takers, which we've talked about a lot here, and Don't Be Evil, your big look at how the tech industry got a little bit more evil. Rana Furrer, thank you very much.

• 1:11:10Speaker 01

  Thank you so much, Ezra.

• 1:11:23Ezra Klein?

  BS for Clancy Show is produced by Annie Galvin, Jeff Geld, and Roja Karma. Fact checking by Andrea Lopez Crisato. Original music by Isaac Jones, mixing and engineering by Jeff Geld, audience strategy by Shannon Busta. Our executive producers are Rina Gucci and special thanks to Kristen Lynn and Christina Samulski.