Inflation Does More Than Raise Prices. It Destroys Governments.

“One can usually pretend that there is a logic to the distribution of wealth — that behind a person’s prosperity lies some rational basis, whether it is that person’s hard work, skill and farsightedness or some ancestor’s,” writes J. Bradford DeLong. “Inflation — even moderate inflation — strips the mask.” DeLong is an economic historian at the University of California, Berkeley, a former deputy assistant secretary of the Treasury and the author of “Slouching Towards Utopia” — a new book about the wave of economic growth that transformed the world in the 20th century. In it, he argues, among other things, that inflation isn’t just economically damaging; it’s one of the most destabilizing, destructive forces in all of politics. Left unchecked, it has the power to swing elections, erode the foundations of core social institutions and usher in wholesale changes in political and economic regimes. [You can listen to this episode of “The Ezra Klein Show” on Apple, Spotify, Amazon Music, Google or wherever you get your podcasts.] That’s exactly what happened the last time inflation was this high. In DeLong’s telling, the inflation crisis of the 1970s was weaponized to discredit the reigning New Deal economic order and helped give rise to the small government, pro-market political turn of the 1980s — the consequences of which we are living with today. So I wanted to have DeLong on the show to walk me through that story and some of the questions it raises: Why is inflation is so uniquely politically destructive? What are the right — and wrong — lessons to take from the experience of the 1970s? What kinds of political transformations could today’s inflation could bring about? We also discuss why inflation spiraled out of control in the 1970s (and whether it could have been stopped sooner), the efficacy of price controls as a way of taming inflation, why DeLong believes it’s a mistake to take the 1970s comparisons too literally, how unchecked inflation can decimate social trust, how economic thinking became obsessed with “moochers” and “slackers” in the 1980s and ’90s, whether the 2007-08 financial crisis brought an end to the neoliberal era, what DeLong would say to his younger self serving in the early Clinton administration and more. Book Recommendations: The Rise and Fall of the Neoliberal Order by Gary Gestle Free Market by Jacob Soll Adam Smith’s America by Glory M. Liu Thoughts? Email us at [email protected]. (And if you're reaching out to recommend a guest, please write “Guest Suggestion" in the subject line.) 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 Emefa Agawu, Annie Galvin, Jeff Geld and Rogé Karma. Fact-checking by Michelle Harris, Rollin Hu, Mary Marge Locker and Kate Sinclair. Original music by Isaac Jones. Mixing by Jeff Geld and Sonia Hererro. Audience strategy by Shannon Busta. 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.

• 0:23Ezra Klein?

  The US has been seeing the highest inflation in 40 years, and the midterm elections, they're just next week. So there's a pretty straightforward way of looking at this. The Democrats, they're hosed. Really, any party in power right now is probably hosed. The out party or opposition coalition, they just won in Brazil, they just won in Israel, they just won in Italy. In the UK, the Tories have been the governing party, they are falling apart. So nothing too unusual here. Governing during a time of high inflation, it is bad for the governing party. But inflation does more than that. It does worse than that. The political economy inflation goes beyond swinging single elections. Unchecked, it erodes the foundations of systems. It leads to wholesale changes in political and economic regimes,

• 1:07Ezra Klein?

  and it does this not just through its direct economic effects on prices and material living conditions, it does it by destroying the fundamental stories that connect people to their governments and that make them believe in the economy and political system they're part of. Brad DeLong is an economic historian and an economist at the University of California at Berkeley. He is the author of a big, important new book called Slashing Towards Utopia. And this book is about the wave of economic growth that transformed the world from 1870 to 2010. I have a lot to say about this book. It is ambitious, and it is strange, and it will leave you with lots of interesting thoughts and stories you didn't know you want to know, and it covers way more than any one podcast conversation could hope to tap. But I wanted

• 1:51Ezra Klein?

  to focus on a part of his epic that I haven't heard much discussed, but that feels like the part of the story that we can least afford to ignore right now. The inflation of the 1960s and 1970s, and how it ended, or helped to end, the era of social democracy. How it created, or helped create, a turn in political and economic culture that lasted for decades, and why it did all that. Because policymakers today are looking to that period as their model for fighting inflation right now. So whether they take the right or wrong lessons, whether we even know the right and wrong lessons, is critical. As always, my email, [email protected]. We love your guest suggestions, your feedback, your recommendations of things to read, or hear, or listen to,

• 2:35Ezra Klein?

  or watch. Again, [email protected]. One more thing before the episode. First Person, another Times Opinion podcast, is back with new episodes every Thursday. First Person explores the way people's lives and experiences shape their beliefs. And the first two episodes of the new season are about one of the thorniest topics you can imagine, whether teachers should be armed in schools. The show talks to a Utah sheriff about why he's training teachers to carry concealed weapons in the classroom. It follows a teacher through that training, and then through the process of deciding whether or not to actually bring the gun into the classroom. You can find those episodes on the Times Opinion page, or by searching First Person in your favorite podcast app. All right, here's Brad DeLong.

• 3:21Ezra Klein?

  Brad DeLong, welcome to the show.

• 3:22Speaker 01

  Thank you very much for having me.

• 3:25Ezra Klein?

  So I want to talk about the inflation of the 1970s. But I want to set us up by starting with the era that came before it. How would you describe the economic model of post-World War II America?

• 3:36Speaker 01

  Okay, call it social democracy. Gary Gersell, in his excellent book, The Rise and Fall of the New Deal Order, or the neoliberal order, prefers to call it the New Deal Order, the kind of thing that has its birth in 1933 with Roosevelt's New Deal. The idea that there was a market economy, but it needed to be kept very firmly in its place. And it needed to be kept very firmly in its place by strong progressive taxes on the rich, by a government that was very interested in maintaining full employment, and also directing the pattern of investment in the country as a whole, and a large, we now call it,

• 4:21Speaker 01

  social insurance state. The idea that people deserve a substantial number of benefits of all kinds from the state, simply by virtue of their status as citizens. And you know, that kind of thing, that thing that I describe as Friedrich von Hayek's old love of the market, married to Carl Polanyi's vision that a market society is one in which the only rights that matter are property rights and people don't stand for that, a social insurance state, a New Deal order that vindicates all other kinds of rights at all, the shotgun marriage of von Hayek and Polanyi with the shotgun held or maybe blessed by John Maynard Keynes's commitment to full employment.

• 5:02Ezra Klein?

  I'm gonna have GPT-3 make this into like an oil painting, what you're describing here, that marriage. Let me pull out one piece of that, because I think it's important, both for that period, for the inflation that comes, and also for eventually in this conversation, thinking about where we might be going. I think when people hear about social democracy, they're very familiar with the social insurance side of it. It has healthcare and maybe pre-K and education and so on. But you mentioned the way the government is involved in decision-making. And there's often, in this period, the sort of tripartite bargaining structure by which decisions are made with the government and labor and business. Tell me a bit about that, both what that was, and then how maybe it sets a stage for some of the inflation of the 70s.

• 5:47Speaker 01

  Well, consider that the federal government in the 1960s was spending something like 7% of national income on its own account in investment. And a lot of that was military, a lot of that was outer space, a bunch was civilian, things that are not providing direct services to people and things that are not buying goods that then provide direct, immediate services to people, things that are very much aimed at building capacity for the future. And that 7% not counting government expenditures on education. Well, now, maybe it's a quarter of that as a share of national income. That the idea the government was looking toward the future and was spending an awful

• 6:31Speaker 01

  lot of money trying to build. Infrastructure, science, technology, capabilities to produce things. We saw the apex of this during World War II, when the government built a huge number of factories that it then kind of gave away to the private sector afterwards on the grounds that the government didn't think it was terribly competent to run them. That was a major commitment the government made during the social democratic era that it has not made in the neoliberal era, where the view has been that the private sector is much better positioned to figure out what we should be investing in. And in the United States, other countries did significantly more.

• 7:13Speaker 01

  France and Japan most especially in terms of combining business with government and focusing where the investments of the society would be going and boosting their magnitude.

• 7:26Ezra Klein?

  So tell me a bit about labor in that period, because I think people even in this period are familiar with the idea that government and business might collaborate quite closely, but labor is much weaker today. But what was it then?

• 7:38Speaker 01

  It was a mass production. It was a mass production economy rather than today our global value chain economy, which means an awful lot of people on assembly lines and elsewhere doing fairly routine and very similar jobs, which made it extremely easy to organize them and for them to believe they have one common voice, which means they're highly likely to vote for a union to represent them because they're confident the union leaders will think like they do. And they're very much aware of their numerical strength in the country. So much so that, say periodically, GM and Ford executives would call to the president of the United Auto Workers,

• 8:20Speaker 01

  Walter Reuther, and saying, why don't you come on over here and run the company? Since you know as much about the auto business and more about the workforce than we do. And that extremely strong labor side voice is something that is almost entirely absent, at least from our elite discussions. The New York Times used to have several dedicated labor reporters. Then they had only one, I think, Stephen Greenhouse. The idea that it's simply not there as an interest group, as an estate in society, to hark back to earlier forms of political organization. And in large part, it's not there. Laws did a great deal

• 9:01Speaker 01

  of it. Greater business confidence did a great deal of it, both aspects of the neoliberal turn. But it also reflects the changing underlying technologies. The fact that if I were Friedrich Engels, I would say, hey, wow, this global value chain economy really is a different mode of production than the mass production, assembly line economy of that we saw in the 1960s.

• 9:27Ezra Klein?

  Before we get too deep into the way inflation rose in the 60s and 70s, I just want to talk about what it is. What is inflation? What do you tell your students?

• 9:36Speaker 01

  The standard view is inflation is too much money chasing too few goods. I don't think that's really right. It's too much spending chasing too few goods. It's that people have expectations about what prices are going to be. And they assume that on average, prices are going to be pretty stable in normal times. And so people have their incomes, people have their wealth, people decide how much to save, how much to spend. And you have this flow of spending that enters the economy and it meets the flow of production. And when the flow of spending is less than the flow of production, you get huge amounts of inventory accumulation, followed by businesses press pressing the big red button and firing

• 10:18Speaker 01

  people. You know, you get a depression. When there's higher demand than there is that can be produced, you get empty shelves. You get long lines. You get TSMC and global foundries saying you're going to have to wait an extra six months to get this particular chip. And then you also get substantial price rises. As people say, well, this thing's in really short supply. Why don't I cut the line and offer to pay more for it? Or people say, I don't have very many of these. If I keep my prices the same, I'll sell out of them by noon. I'm going to raise my prices today. So inflation is when people show up wanting to buy things, expecting to buy things,

• 11:00Speaker 01

  and find that the economy has tricked them, that it disappoints their expectations because you're unable to buy what you wanted to buy at the prices you expected to buy. And so at the end of the week, you find that $50 that you were planning to have just isn't there because you spent it on gas because the gas price reached $6 a gallon.

• 11:19Ezra Klein?

  When I ask an economist what inflation is, I tend to get that more or less mechanical sounding answer, too much money, too few goods, too much spending, too few goods. And then I scratch and I start to get very hazy ideas about psychology and beliefs and expectations about the future. So if it's just too much money and too few goods, or too much spending and too few goods, where does the idea of people's ideas come in? How does inflation become an almost cognitive dimension of the economy?

• 11:48Speaker 01

  Well, there are two ways, right? The first is John Maynard Keynes's observation back in 1919, that inflation is a betrayal of social trust at an extraordinary level. You know, when you have a depression, maybe 1 in 20 people loses their job and they have a really lousy time. Maybe other people are scared that they don't dare quit, but for the people who those people are working for, the fact that someone isn't quitting and is more eager to please you is a plus. And a depression affects only a few people. Inflation, pretty much everyone feels, wait a minute, this is not how the system is supposed to work. You know, I had my budget, I had my expectations.

• 12:32Speaker 01

  All of a sudden, everyone is cheating me. Everyone is charging for things more than they are worth. I don't know about you, but I have given up going to countries with overvalued exchange rates because I get there and everything is incredibly expensive and I really feel cheated.

• 12:51Speaker 01

  By contrast, when my now wife and I went to Britain, I think it was the summer of 1984, the previous time when the pound sterling was at its lowest value, was in fact, close to kissing a dollar to a pound. It seemed like everything in Britain was one-third off, that everyone was offering me extraordinary bargains. And the effect on my psychology was immense. You know, it was such a happy time, in large part because I did not have this underlying feeling that people were kind of cheating me. So that's what inflation means on a psychological level. There also is the question about what determines the rate of inflation.

• 13:31Speaker 01

  And there, the willingness of people to raise their prices or to demand higher wages very much depends on what they expect other people to be doing at the same time. And so that means that if there is a general expectation that inflation is gonna be 7% next year, lots of people are going to go into things thinking, my wages should go up by, or I should be able to raise my prices by about 7% per year. And that that fact will do an awful lot to determine what the rate of inflation is, because this is one of these economic equilibrium, in which there's a little bit of the fundamentals, but there's a lot of just things are what people expect things to be.

• 14:15Ezra Klein?

  I want to hold on that first insight, John Maynard Keynes insight, that inflation is a destroyer of social trust. I want to read you another John Maynard Keynes quote about inflation. He says, "There is no subtler, no sure means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Tell me about that last piece, that there's something uniquely destructive about an economic affliction that seems to have very little logic and very little diagnosability.

• 14:56Speaker 01

  On the one hand, this is Keynes as establishment, upper-class twit, with an underlying belief that society holds together only if people think it is just and fair and rational, even though that it isn't. And you know, to all of a sudden have an inflation, to all of a sudden have people who have substantial amounts of immediate market power, because what they're selling is in short supply, able to extract huge amounts of wealth from everybody else. That makes it very clear that, you know, the race is not to the swift, that instead luck, time and chance, you know, rule everything. And that the distribution of income and wealth, the order of society, is just kind of some

• 15:41Speaker 01

  random arrangement based on how lucky you are and how unscrupulous you are. And that that is not the kind of thing on which you can build a society with enough trust to actually run a productive, modern economy.

• 16:16Ezra Klein?

  So then I want to talk about how the inflation of the 60s and 70s actually happens. In the story you tell, what we think of as the inflation of the 70s really begins in the late 60s with President Lyndon Johnson. Tell me a bit of that narrative. What are the economic forces here that are at play?

• 16:33Speaker 01

  All right. The Democratic administrations of the 1960s are very interested in running a high-pressure economy and hope that they can get full employment. And maybe the price will be that inflation on average will be 3% rather than 1% or 2%. There may be 4% at most. But that it's worth doing because, you know, you get more people at work, businesses are willing to invest a lot more in training people. The African-American unemployment rate goes down by 2 percentage points. For every 1 percentage point, the overall unemployment rate goes down and so forth. And so there's some liking by the administration for a high-pressure economy collides with Lyndon Johnson's

• 17:17Speaker 01

  Belief that he must wage the Vietnam War or be subject to political attacks by soft on communism from the Republicans, but also that he does not dare raise taxes in order to cool off the economy as the Vietnam War rolls forward. And so when Richard Nixon enters office in 1969, he has an inflation problem. Inflation is around four or five percent or so. His economic advisors tell him that, well, what you really need to do is you need to let the Federal Reserve raise interest rates a lot and to significantly cut back on the federal deficit. And so let unemployment

• 17:57Speaker 01

  go up by one, two, three percent. Nixon says, okay, but as time passes and as he looks forward to 1972 and his reelection, and he remembers 1960 when he and his friend Arthur Burns had gone to Dwight Eisenhower and said, hey, it looks like there might be a recession at the end of 1960. It's very important that the economy be strong on Election Day. And here I am, your Vice President. I've carried your water for eight years. I've done loyal service. You owe this to me to help me out and to push policy. And Eisenhower blows him off. Nixon

• 18:35Speaker 01

  loses extremely narrowly. Nixon remembers. And by 1972, Arthur Burns is not only Nixon's friend, but is also installed as the Chairman of the Federal Reserve Board. And so Nixon's ideas about how you need to cool off the economy a bit go out the window as the important thing is to have a strong economy in November 1972. And in fact, to reduce inflation as you try to get a strong economy to impose wage and price controls. With the idea that these will be temporary and that they won't distort the market economy too much and you can take them off once the thing has passed.

• 19:18Speaker 01

  Which does not work all that well.

• 19:19Ezra Klein?

  Let me hold you on that because why? I think wage and price controls seem very intuitive to people when you hear about inflation. Look, if the problem is that we are rising prices too fast and in turn we're rising wages too fast and we're getting into a feedback loop between the two, just tell everybody to stop. But economists really don't like these. Why?

• 19:38Speaker 01

  Well, you set yourself a huge administrative problem if you try to say we are going to construct a bureaucracy to tell you not to raise wages and prices. And if you actually want to, you have to go to some board and make an argument for it. And you have to say that we can't get this particular product. We can't find anyone to work unless we raise their wages. You start degrading the ability of the market economy to actually do its job. You know, like right now. Right now, we have two kinds of inflation going on. One is an underlying 5% inflation, jump up of inflation from 2% to 5%

• 20:19Speaker 01

  as a result of reopening the economy after the plague. And the other is the Vladimir Putin, oil and grain, Europe is likely to freeze this winter and Nigeria and Egypt may starve. The first of these, the first of these, we're coming out of a plague. We need to get people back to work. And we also need to get people back to work in a very different configuration than we had back in 2019. You know, lots of technological learning about things you can do remotely and things you can't. Since then, we're reopening with an economy with much more goods production,

• 20:58Speaker 01

  with many fewer in-person sales and with more deliverators and more website designers and data center operators. And if you want to get people back, not just into jobs, but into the right jobs for the future, you really have to offer the people moving into those sectors higher wages so they find it advantageous to go. And you know, you really can't cut anyone's wages. If you if you tell someone we're going to pay you less than we paid you last year, it's such a major psychological insult that they're unlikely to work hard for you, or indeed to work at all if you do that. Wages in expanding sectors have to rise, wages in contracting sectors stay the same. You

• 21:41Speaker 01

  gotta get some inflation in order to make this reopening happen rapidly and smoothly. You know, plus the bottlenecks. You have a bottleneck. You have something in short supply. As Friedrich von Hayek would say and did say, you know, the whole point of a market system is that it means that decisions are not made by some clueless central planner, or by someone mindlessly following a bureaucratic rulebook that only covers a third of the cases. But instead, decisions are made by people on the spot who have the information. We need to crowdsource solutions to all the bottlenecks and supply chain difficulties that have emerged as we've reopened. And the way to do that is to offer people money.

• 22:23Speaker 01

  If they figure out how to way to provide more of, say, this particular type of lumber right now, and to provide people with incentives to economize, if we don't really need this but can use something else. So Friedrich von Hayek would say that, yes, coming out of a plague, if you want to come out of it rapidly, get back to full employment rapidly, not repeat the lost decade of the 2010s, you're going to have some inflation.

• 22:50Ezra Klein?

  So back to the 70s.

• 22:51Speaker 01

  Yes.

• 22:51Ezra Klein?

  So Nixon has relatively high inflation.

• 22:54Speaker 01

  Yep.

• 22:55Ezra Klein?

  He is a Fed chair. We understand Fed chairs to be relatively independent.

• 22:59Speaker 01

  Not then.

• 23:00Ezra Klein?

  Why does Arthur Burns not just do what we what we think should be done now and hike interest rates up until inflation goes away?

• 23:08Speaker 01

  Well, you know, Arthur Burns is a Republican, and Arthur Burns is one of Nixon's best friends. And, you know, Republican Fed chairs, there's a tradition of, um...

• 23:22Speaker 01

  Them hewing a little closer to the Republican Party line that in fact they should. Do you remember the days when Alan Greenspan was saying, no, no, if you look carefully, I did not actually endorse.

• 23:34Ezra Klein?

  I do remember those days.

• 23:35Speaker 01

  Bush's 2001 and 2003 tax cuts. I did not endorse them all.

• 23:39Ezra Klein?

  You had to look very carefully.

• 23:40Speaker 01

  I simply fuzzed my testimony before Congress so that every Republican could claim I had endorsed them. And then I stayed silent.

• 23:50Speaker 01

  And, you know, Alan thought he'd kind of preserved his technocratic purity by doing so.

• 23:57Speaker 01

  Those of us on the other side beg to differ and think he acted relatively badly. To some degree, Burns acted badly in 1972. To some degree, Burns went as far as he could in terms of pressuring the Nixon administration to do something in order to fight inflation. Paul Volcker reports conversations with Burns on flying flights to Europe and so forth in meetings. And Burns would rant about how more to be done. To some degree, Burns thought he would not be allowed to. That if he were to raise interest rates, then Congress would come and would take the Fed's powers away. That he could only preserve his independence by not using it.

• 24:42Ezra Klein?

  This is interesting to me, and you spent some time on this in the book, because I think we look back and see Arthur Burns as primarily simply a politicized actor.

• 24:48Speaker 01

  Yes.

• 24:49Ezra Klein?

  But the Fed chair comes after him, whose name I and everybody else forget, also does not hike interest rates very high. And for the same reason, there's a view that the people will not stand for, the politicians will not stand for.

• 24:59Speaker 01

  Yes.

• 25:00Ezra Klein?

  Some random person running the Fed crashing the economy because that's how they think inflation should come down.

• 25:05Speaker 01

  Yes.

• 25:06Ezra Klein?

  And in a way, that seems actually quite logical, that there's been quite a shift post-Volcker in what we think it is, what we will morally accept the Fed chair doing.

• 25:16Speaker 01

  Especially because the Fed's interest rate weapon is one with its extremely narrowly targeted, right? It's targeted at home builders.

• 25:26Speaker 01

  It's targeted at exporters.

• 25:28Ezra Klein?

  Your friend Larry Summers gets so mad at me when I say the interest rate weapon is weird. He really does not like it when I criticize the interest rate weapon.

• 25:35Speaker 01

  It is weird. It may be the only weapon we have and is powerful, but it hits exporters, it hits import competing businesses, and it hits construction with overwhelming force. It also hits anyone who's bankrupted or who relies on someone who goes bankrupt because they were over leveraged when the interest rates go up. But it's not a broad based tool to cool off the economy in general. It's a tool to put a bullseye on a few sectors, whomp them with a brick, and then hope that that whomping then spreads more or less smoothly and rapidly to the rest of the economy. It's something you really would rather get out of some other way if you could figure out how to.

• 26:16Ezra Klein?

  So inflation in this period is not that high, though. Under Johnson, under Nixon.

• 26:21Speaker 01

  Five percent.

• 26:22Ezra Klein?

  It's five, six percent, somewhere in that range.

• 26:25Speaker 01

  Five or so, yes.

• 26:26Ezra Klein?

  So what happens that shifts from five percent to the really big spikes we begin to see to the stagflation era?

• 26:34Speaker 01

  The 1973 Yom Kippur War. U.S. provides a lot of emergency resupply to Israel during this war, and the Saudis get pissed and say, "We are going to impose an oil embargo on the United States and the Netherlands." And oil prices immediately spike, and spike by a lot. And so the organization of Arab petroleum exporting countries, you know, I got this wrong in the book, and I've been whopped by energy economists on it. I said OPEC, it's actually OAPAC is the organization, says, "Hey, wait a minute. We now have a lot of pricing power over the global oil market.

• 27:16Speaker 01

  We don't have to accept $3 a barrel as the oil price, which was what it had been set at before. We're going to raise it to $10, and we're going to keep it there." And so you have the entry of the House of al Saud on the geopolitical scale as a mighty and fearsome thing that has to be dealt with. And then you have US and European economies that immediately must start to cope with the fact that all of a sudden, this one key industrial input into the civilization is all of a sudden three times expensive as it used to be, which means a huge amount of energy-intensive manufacturers and other things are no longer profitable.

• 27:59Speaker 01

  And a lot of businesses have to turn and immediately change their plans to figure out how can we reconfigure ourselves to be more energy efficient. And also, everyone faces gasoline prices that have suddenly gone up by a lot. This works its way through the system as inflation, as all of a sudden, the price of one key input is $10 rather than $3. And it also brings on, you know, a recession, because a whole bunch of money that was flowing through the spending system is now being diverted overseas and is being put into the Saudi coffers. And they're not immediately you spending it on US exports in order to rebalance the economy immediately.

• 28:41Speaker 01

  So 1973 to 1975 sees both the deepest recession since World War II and an explosion of inflation to 10%, followed by a reduction of inflation down to maybe 5% or 6% come 1976. At which point Jimmy Carter gets into office by saying Gerald Ford has mismanaged the economy, look at the sum of the inflation and the unemployment rate, look at this, quote, misery index, as his economic advisor, Art Oken, had constructed.

• 29:16Speaker 01

  The Carter administration then says, well, you know, unemployment is high, we're just coming out of a recession, you know, we're going to not step on the gas, but we're going to let the economy grow, because even though inflation's 6%, unemployment is problem one. And then there came the year when, as Carter's chief economist Charlie Schultz once told me, our forecasts of the total nominal GDP, nominal national income were accurate, but inflation came in 2% high and real growth came in 2% low because productivity growth had fallen off the cliff because people were no longer concentrating on making their businesses more efficient with respect to labor, but instead with more efficient with

• 29:59Speaker 01

  respect to energy. And then comes the Iranian revolution and the cutoff of Iran's oil supplies and the Saudis take advantage again. And all of a sudden, the price of oil is $30 a gallon. Inflation is more than 10%. Paul Volcker replaces G. William Miller as Fed Chair and Paul Volcker says, you know, we've gotten ourselves into a situation in which people don't just expect inflation next year to be what it was last year. People expect inflation next year to be what it was last year, plus a bit more. I got to fix this and I got to fix this by hitting the economy on the head with a brick and keep hitting until people

• 30:37Speaker 01

  understand that, no, if they insist on raising their prices, they'll have no demand for their products. And, you know, it works. Worst recession of the post-World War II era with its peak in 1982, when the unemployment rate hit 11% and I graduated from college, looked around at the job market and decided, I'm not going to leave the university and hence did not. And then in the middle 1980s, inflation settles back to something like 4%, which would have been viewed as a horrible thing back in the late 1960s as evidence that things were going badly. But by then, everyone says, yay, we've had a victory over

• 31:21Speaker 01

  inflation. We're not going to talk about it anymore.

• 31:24Ezra Klein?

  Paul Volcker is such a crucial figure here.

• 31:26Speaker 01

  Yes.

• 31:27Ezra Klein?

  But you describe him in the book as something of an accidental Fed chairman. So how do you get this guy who is willing to go much further than the recent Fed chairs are? Thinks the political system will support that?

• 31:39Speaker 01

  Well, he's not a financier, right? He's a financial civil servant. He rises up through the bureaucracy. He is under secretary of the Treasury for Monetary Affairs during the Nixon administration. And so he goes from under secretary of Monetary Affairs to then being chosen as president of the Federal Reserve Bank of New York, which is this strange kind of semi-medieval position in the Federal Reserve system and that it's just one of 12 regional banks. But then it isn't, then it has a special role on the open market desk and so forth.

• 32:20Speaker 01

  Paul Volcker is sitting there and Jimmy Carter has a snit and decides he has to fire his Treasury Secretary, Mike Blumenthal. Carter's political advisers say, well, you can't just fire the Treasury Secretary and say, we'll choose another one next week. That would show an administration that is bureaucratically inept and in chaos. You have to have a person to fill in. So Carter says, well, how about G. William Miller? I like him a lot. He's my Fed chair. Let's bring G. William Miller over as Treasury Secretary. And they say, yes. And so the press release is prepared and then they come and they say, well, wait a minute, you can't just move the Fed chair over and say, we're going to name a replacement next week.

• 33:01Speaker 01

  That would indicate an administration that was bureaucratically inept and in chaos. You have to have a replacement for the Fed chair. And well, who's the obvious person? Well, you know, the, either the number two or number three at the Fed, depending on how it is, is this guy, Paul Volcker, who is definitely nonpartisan and in fact somewhat of a Democrat. Okay, we'll name Volcker. Charlie Schultz again asked Carter's domestic policy advisor, Stu Eisenstadt, if anyone had done any research into what Paul Volcker's views about monetary policy should be. And as I understand it, did not get an answer. And so Paul Volcker winds up as Carter's choice for Federal Reserve Chair.

• 33:43Speaker 01

  At which he says, you know, that Arthur Burns was worried that I had to curb, we had to curb our actions in order to keep our independence.

• 33:52Speaker 01

  You know, if there was ever a time when independence needed to be used, it was now. And so I am going to be independent.

• 34:00Ezra Klein?

  It's easy to see Paul Volcker as this guy history turned on, but something you point out in the book is that you have a bunch of other countries dealing with fairly high levels of inflation at the time. Germany, France, Japan, the UK.

• 34:13Ezra Klein?

  But they keep it more under control than we do, or they disinflate with earlier than we do, without the sort of drastic shock therapy that Volcker paused in the US. Why is that? Why did we need to do more?

• 34:23Speaker 01

  It was easier to do earlier when the problem was smaller. And when Japan and Germany get off the train, they got off the train significantly earlier when the problem is smaller. I think that people who ask, people who criticize Volcker have a problem in saying what else could have been done, given the situation at that moment. And the most they will say is that he hung on to the high interest rate policy too long. Right? I mean, he bankrupted Mexico, among other things. But then there's the question of what happens if you relax the high interest rate policy too early? As in fact, you know, G. William Miller had. And then you find not just that the problem is back,

• 35:08Speaker 01

  but that all of the unemployment that you've inflicted on the construction and export industries has been to no good at all. That criticizing Volcker for holding on to the policy too long is, I think unfair. And criticizing Volcker for undertaking the policy at all requires that you have an alternative.

• 35:31Speaker 01

  And we lefty social democrats say, well, this is actually the time to have used wage and price controls, or this was the time to have imposed surtaxes on businesses that raised their prices, or this was the time to have actually gone to the unions and struck a bargain. That is, you unions agree to freeze your wages for the next three years in order to say that you can cooperate with the general macroeconomic requirements of the country. And in return, we push for, and we in fact get through pension reform, expanded welfare state, this and that, a lot of things that are good for union members in general. Whether that grand bargain could have been made or not, you know, it was not tried, whether

• 36:16Speaker 01

  the unions would have bought for it, you know, we do not know. And, you know, Volcker could not have made that. Only Carter and the unified Democratic Congressional Caucuses could have made that in the late 1970s. Democratic Congressional Caucuses did not like Carter very much, and he did not like them. And, you know, he being a Georgia guy did not like unions at all.

• 36:38Ezra Klein?

  So, tell me about the political consequences of the inflation crisis and the aftermath. How exactly does it get weaponized against social democracy and government in general?

• 36:52Speaker 01

  Well, first, that the social democratic governments are clearly, clearly incompetent. You know, they do not understand the situation and they cannot deliver. And what they've delivered is stagflation, the worst of high inflation and high unemployment. That, you know, the misery index was bad when Gerald Ford was running for reelection. Look at this thing now. Second, and behind that, the idea that inflation is the result of a society that is permissive. You know, that social democracy will inevitably hand out more tickets to things than there are actually seats on the roller coaster.

• 37:30Speaker 01

  And this is kind of endemic in it because it simply cannot say no, especially not to the organized interest groups, you know, big labor, those parts of big business that have gotten in bed with it, welfare rights organizations, minorities and so forth, that think they have a claim on it. And so in order to have stable prices, in order to have a functioning society, we need to get back to the unpermissive view that you get only what you pay for and that you pay for only what you can earn. So that social democracy, that the New Deal order was in the end going to pretend that it that more could be produced than could be.

• 38:15Speaker 01

  As in fact, right wing economist Jacob Viner had written of the emerging New Deal order and John Maynard Keynes, you know, it's gonna work only as long as the printing press can stay ahead of the wage of the business agents of the labor unions in terms of their wage demands, and it will work for a while, but then it will fall apart. Add to that all the other things that reasons that people did not like social democracy very much. And Paul Krugman is, I think, pretty certain that it was the inflation that actually pushed the system off the cliff and it would have hung on without it. And you would not have had the neoliberal turn, I'm less sure.

• 38:52Ezra Klein?

  I want to now read a quote of yours to you from the book. Because I think this puts a nice point on what begins to happen in the 1970s. You write that people do not just seek to have good things materially. They like to pretend that there's a logic to the distribution of the good things, and especially its distribution to them in particular, that their prosperity has some rational and deserved basis. Inflation, even the moderate inflation of the 1970s stripped the mask away. Tell me how inflation changed the moral narrative of the economy as we turn from the social democracy era to the neoliberal era. When you say it stripped the mask away, what did it strip away exactly?

• 39:34Speaker 01

  What it stripped away was precisely the idea that the social democratic, the New Deal order had gotten it broadly right. That people were working hard and they were getting their incomes and that people who had been unlucky in the sense of not being in places where huge amounts of wealth was made honestly and honorably were getting substantial amounts of support and everyone had their right to their social security, to their Medicare, to their unemployment benefits if they were unlucky, to all the things that were theirs as citizens. But that by and large, you know, um, the system made considerable sense in that,

• 40:14Speaker 01

  yes, there were some cases in which inheritance played a big role, but that by and large, it was a meritocracy in which those who exerted themselves could rise and in which there was a fair amount of luck involved and chance and fortune and who your friends are, but that that was secondary to the idea that people were by and large getting what they deserved. And with inflation coming, um, with, you know, you having to wait four hours in line for gasoline as Jimmy Carter and company bollocks up the adjustment to the price, to the oil price increase, with unions that are strong, able to use their power to get substantial cost of living increases written into their contracts and

• 40:59Speaker 01

  to get, um, a catch up from past inflation increases when it came by surprise, it becomes clearer or appears clearer that if you do not have big labor or big business or big government looking after you personally, you are a person of relatively little account and the system is working against you.

• 41:19Ezra Klein?

  It also seems to me, and I want to try this as an idea on you, that there's something about inflation that also erodes confidence in those and really any institutions. I wouldn't, I think, be able to prove this to you, but, but I have a theory that recessions and depressions are crises and people often turn to experts and to authorities when there is a crisis. But inflation is a kind of disorder. It's a derangement of the system and people tend to turn on experts and authorities when the system becomes deranged, when it isn't working the way the experts and the authorities told them it would.

• 41:55Speaker 01

  I would say it's that both, that there are similar reactions to both. Yeah, that when a crisis comes, you turn to somebody who has an answer or an explanation. But you also are extremely likely to vote the bastards out who mismanaged the system into this way. And so there are then desperate attempts by everyone to say someone else mismanaged the system. Which I think reached its apex in what we saw in 2007 to 2010. You know, the American Enterprise Institute and Heritage Foundation and other guys who said, well, we have this great recession because the government forced banks to lend for mortgages to poor black people.

• 42:39Speaker 01

  Something with absolutely no empirical content whatsoever, but that serves as a distraction that hits a mental fault line in a great deal of the potential audience for that. It goes both ways, but it's definitely is the case that all you had to say in the late 1970s was that if the government was competent and understood the economy, we would not be having this inflation.

• 43:30Ezra Klein?

  I want to go back to the too many tickets for the roller coaster. You get part of that in terms of the critique, the government gives too much to too many undeserving people, right? Deservingness is a big part of this politics. There's also the issue, though, of, I mean, to be blunt, worker power. In that period, it's the unions putting wage increases into contracts. You get wage price spirals. And there's some truth to that, arguably, in terms of how inflation works. But the other thing that you hear today. Is something similar. Now, we don't have as strong unions. You don't have the same kinds of contracts. But what you do have is, I think, this fake trend of quiet quitting,

• 44:11Ezra Klein?

  which is really a, which is really a TikTok idea, but with like no real evidence behind it.

• 44:17Speaker 01

  Yes.

• 44:17Ezra Klein?

  But you see a lot of managers writing op-eds about it. There's this feeling that, you know, everybody got lazy during the pandemic. They wouldn't work. They wouldn't work for reasonable wages. And that one part of the neoliberal turn is actually a turn against worker power. Worker power is instantiated in unions. Worker power is instantiated in the sort of moral willingness of workers to work, their work ethic. And you see that today, too.

• 44:40Speaker 01

  Yes.

• 44:41Ezra Klein?

  Could you talk a bit about that side of it?

• 44:42Speaker 01

  Well, I mean, the idea is that taxes will be lower on the rich so that the job creators will be incentivized to do their proper entrepreneurial thing and create jobs, rather than spend money on lawyers in order to figure out how to evade taxes. That, you know, that the social democratic new deal order had created a world in which the returns to working hard were too low. And so as a result, the productivity trend that had been extremely nice up until 1973 had then fallen off a cliff after 1973. And this was that we have finally done too much to punish hard work and enterprise. And so

• 45:25Speaker 01

  we need to get back to, as Deng Xiaoping said, to get rich is glorious. And we need to massively lower taxes on the rich in order to make that so. Conversely, it's that the non-rich have it much too easy, you know, that you can find a union job and then feather bed your way through and the union will represent you if they try to fire you and the boss has virtually no control over anything. And that if you do get fired, well, you know, then unemployment insurance is there for a while. And there's all this social welfare stuff that supports you. In its most kind of racist versions, it's this is why all these black people are having kids out of wedlock. It's because that then they get the

• 46:09Speaker 01

  AFDC payments, which allow them to live and party, never mind that they have a one-year-old.

• 46:17Ezra Klein?

  Tough on the partying, I can tell you.

• 46:19Speaker 01

  Yes, lots and lots of partying with a one-year-old, yeah. And so that a much greater degree of income inequality than we had in the largely middle-class, at least for white guys, social democratic and New Deal societies of the 60s and 1970s, was in fact strongly desirable. And maybe the desirableness of it was regrettable in that people really needed to be incentivized to work hard properly, which required the rich be richer and the poorer be poorer. And this is, alas, just the way things are in this fallen sublunary sphere, where we cannot say from each according to his ability, to each according to his need, and still have a functioning society.

• 47:01Speaker 01

  You know, and on the other side, you get into, well, the income inequality is actually a feature rather than a bug. That it's very important that society recognize industry effort and achievement. And if everyone's income is more or less equal, the fact that you are then giving out some people prizes for being industrious and organized and achieving, that really isn't sufficient. That's a kind of fake reward, when actually the productive and successful deserve very real rewards. And your money in the form of the social power over other people that money brings is a very important part of that.

• 47:41Ezra Klein?

  I think there's a tendency to look at the effect economics has on politics as somewhat mechanical. That if you deliver good macroeconomic outcomes, you get rewarded. If you deliver bad macroeconomic outcomes, you get punished. But there's also a dimension where I think economics is understood and economic outcomes are understood. And they end up influencing politics morally. Like, there has to, there has to be a story people tell about the economy that they believe. And so whether inflation is the reason for the neoliberal era, whether it's a reason for the neoliberal era, one thing that happens here is that it is a, from what I hear in your story, and it seems persuasive to me, is that it's a major cause of a desire for

• 48:25Ezra Klein?

  a news story. It makes the old story look bad, that we were wrong about what would come of that kind of moral suasion. And it creates this, this context for a new one that Reagan tells, that Thatcher tells, that others tell. And how would you describe the moral story of the neoliberal era? You were describing what they thought didn't work about the last one. What is the moral story of the neoliberal era?

• 48:48Speaker 01

  Well, you know, but at least the plan for the neoliberal era was that you do indeed make income inequality significantly greater. And you thus reincentivize both the rich job creators and also reincentivize the great mass of the workers. And you also properly punish, you know, the slackers and the moochers as well. In addition to widening income inequality, you take aim at the social insurance state, which has been vastly and completely corrupted by rent seeking. You know, interest groups that have figured out how to make

• 49:27Speaker 01

  their way to Capitol Hill and then get a large amount of benefits channeled to them via all the things that government does that they have no rightful claim to. And that, you know, the war on rent seeking is a very important thing that neoliberals can do, but that nobody else is willing to do, especially not social democrats. You know, which did not work out, I think, the way that neoliberals hoped. There also is that the social democratic world had become vastly over bureaucratized. You know, you trust bureaucrats to write

• 50:07Speaker 01

  rules and regulations, but then you turn everyone into a software bot, essentially, that is following a rulebook that has only one third of the cases properly covered. That what you really need is entrepreneurship and enterprise. You need to push power out to the people, informationally and also power to act.

• 50:28Speaker 01

  You see, I think, the apex of this in the 1984 Apple Computer Macintosh launch commercial, which is very much about how a Macintosh will enable you to move into the neoliberal era with control over your information, rather than you being simply a mindless cog working for a large bureaucratic organization who has to bow to its every dictate. Instead, you can use your Macintosh computer to be a knowledge worker, be an independent knowledge worker. And add to those, there also was a very strong sense that if people had to buckle down and work, if the social insurance state was not there

• 51:10Speaker 01

  and was not so lavish, you know, well, you wouldn't have people in Australia claiming unemployment insurance and then going on month-long surfing vacations. You wouldn't kind of get all this permissiveness. You wouldn't get the decline of the nuclear family. Mothers wouldn't think that they had an option to leave husbands and accept various forms of AFDC and other benefits and would actually return to their proper place in the patriarchal household. You know, a very, very, very large tangle of Gordian knot of all kinds of ideas about how the right ordering of the world was to accept that the market economy

• 51:52Speaker 01

  was a very powerful thing and that the market economy did what it did for reasons and that the right attitude toward it was that the market giveth, the market taketh away, blessed be the name of the market.

• 52:04Ezra Klein?

  I think you, like many, including me, think that the neoliberal era ends in the aftermath of the financial crisis.

• 52:12Speaker 01

  Well, ought to have ended in the aftermath, yes.

• 52:14Ezra Klein?

  Maybe it's not clear what comes after it, but it is, it is not certainly unquestioned. And I think people are trying to understand what will come next. But why? Within the context of these moral logics, what does the financial crisis do that breaks that story?

• 52:35Speaker 01

  2006, you could say, well, you know Reagan had a rough decade. But economic growth is rapid. Income is more unequal. So if you see that as a feature rather than a bug, you're kind of happy. And then come 2007, it becomes very plain that the neoliberal policymakers had forgotten everything the New Deal knew about financial regulation. And then it becomes clear in 2010, the neoliberal order has forgotten everything the New Deal knew about how in a depression, you then want to get everyone back to work and not think

• 53:17Speaker 01

  that the problem has been solved when the banks have been saved and recapitalized if unemployment is still at 10%. And, you know, that was a big shock to the view that the neoliberal politicians and technocrats actually knew what they were doing.

• 53:36Ezra Klein?

  So we've had then in the past decade and change.

• 53:40Speaker 01

  Yeah.

• 53:41Ezra Klein?

  Two truly major economic financial shocks. So we have the financial crisis and all that follows from it. Then we have the pandemic moving into the inflation.

• 53:53Speaker 01

  Right.

• 53:53Ezra Klein?

  That we're in now.

• 53:54Speaker 01

  Right. And we may also have China hitting the middle income trap and the return of major conventional war with its consequent oil shock and killer robots stalking the skies of Ukraine. Yes.

• 54:07Ezra Klein?

  Well, there's a lot going on.

• 54:08Speaker 01

  Yes.

• 54:09Ezra Klein?

  A bunch of it bad.

• 54:10Speaker 01

  Okay.

• 54:11Ezra Klein?

  But, but I want to hold on those two economic shocks because I do think to what you're saying, the financial crisis discredits this idea and in particular discredits the idea that the rich know what they're doing.

• 54:19Speaker 01

  Yeah.

• 54:20Ezra Klein?

  The rich caused the financial crisis to a very high degree. The bankers, the financiers, they are, they're the villains of that particular morality story. And then inflation comes. Inflation comes in the context when it feels like a turn is moving, is going back to the sort of social democratic policymaking, a much more active government, industrial policy, being very, very worried about repeating the 2009, 2010 mistake of understimulating in a crisis.

• 54:46Speaker 01

  Right.

• 54:47Ezra Klein?

  But here comes inflation to pound, in America at least, the Democrats.

• 54:51Speaker 01

  Yes.

• 54:52Ezra Klein?

  Uh, how, you know, somebody who has spent a lot of time thinking about the joints of economic history, these times when old regimes die and new ones are born.

• 55:01Speaker 01

  Mm hmm.

• 55:02Ezra Klein?

  What are your intuitions about the stories that could survive or emerge from this moment? Or at least what stories do you see people trying to tell?

• 55:10Speaker 01

  Yeah. Um, so I think that this is a moment of danger and because of who has happened to be in power in the United States right now, it's a moment of danger for any attempt on to see Biden as a kind of social democratic, you know, revival. Conversely, in Britain, it looks to be the death knell of the Conservative Party as we know it, because it's been in charge during this and has had not only these problems, but all of its other self-inflicted problems as well, which are mighty, that it's throw the bastards out as a reaction to the inflation that we're currently having.

• 55:50Speaker 01

  And I confess, you know, that if you want to say that we're conceptualizing ourselves as having a choice between neoliberalism on the one hand and the return to social democracy on the other, and various third, fourth, fifth, and sixth ways, um, you know, this is a bad thing for social democracy. Um, the third, fourth, and fifth, and sixth ways that appear to have political valence right now appear to be very unpleasant things for the most part, things much, much worse than neoliberalism, things even worse than right neoliberalism, I would say, in my left neoliberal hat, and that that's quite disturbing. But I would also say that, um,

• 56:34Speaker 01

  You know, that, look, you couldn't run a gunpowder empire in 1650 like you ran a feudal regime in 1000, and you couldn't run a steam power society in 1870 like you ran a gunpowder empire in 1650. Similarly, the mass production economy that supported the New Deal order was a very different animal than the kind of semi-globalized economy or the global value chain economy of the neoliberal order. And, you know, we are now moving into what I'm thinking of as an info biotech economy right now. And so, the forces of production

• 57:13Speaker 01

  foundations are very different, and any kind of political or political social bargain built on top of them, if you try to recreate one that was built in the past on an earlier set of forces of production foundations, it's highly unlikely to work. It's highly unlikely to work at all.

• 57:30Ezra Klein?

  Well, now, let me ask you a course of that question, because the reason I wanted to have this conversation this way is that the 1970s are operating as the principal historical analog for the time we're in.

• 57:43Speaker 01

  Yes.

• 57:44Ezra Klein?

  Chairman Jay Powell talks often about Paul Volcker, everybody debating monetary policy, talks about the 1970s. What are the wrong lessons to take from the inflation and the monetary policy of the 70s and 80s for today, and what are the right ones, in your view?

• 58:01Speaker 01

  Um, well, you know, the wrong lesson to take is that obviously we're in the position Paul Volcker found himself in 1979, with inflation expectations extremely strongly entrenched in the economy, both in terms of what people were expecting to happen, and also in terms of things that had been built into the multi-year contracting structure of businesses and union workers. You know, that Paul Volcker had to raise unemployment rates high enough that unions would go to companies and say, I know we have a 6% wage increase for next year built into our contract, but can we give that back to you in return

• 58:45Speaker 01

  for you doing fewer layoffs here in this recession?

• 58:50Speaker 01

  We are not in that position at all. You look at the long run bond market inflation expectation gauges that I prefer to look at, and they are all blinking that the bond market expects inflation to be lower than the Fed's target in five years rather than above. You know, and bond market traders' expectations, you know, they aren't kind of what people are counting on happening and what people, what real people are counting on happening is much more attuned to what's happening to the gasoline prices that they see at the pump. That being the principal thing that people see that impacts them, that fluctuates widely and that people do indeed take as gauges of inflation.

• 59:32Speaker 01

  But the analogies between the late 1970s are still, I think, weaker than analogies with the 1947 demobilization after World War II, when we had inflation as the civilian economy opened up. And then the reverse of that in 1951, when we mobilized for the Korean War and the permanent Cold War. And once again, had an inflation wave as the bottlenecks emerged in the national security sector. But I'd say the odds are still 60% that we're repeating those. And only 40% that it's something somewhat or more analogous to the 1970s.

• 1:00:11Speaker 01

  You know, of course Vladimir Putin and company and the House of Al Saud could change that. That, you know, we still have an economy that, in large part because we failed to get Democratic Senator 50 on board for Al Gore's BTU tax in 1993, has now wasted a generation with respect to the transition away from carbon energy. And the consequences are not just global warming, but the consequences are also this large political economy vulnerability to a bunch of people who are pretty bad actors and yet who have control over the critical energy resources.

• 1:00:57Ezra Klein?

  If you could go back, if Brad today could go back to the Brad of the early Clinton administration and say what you think

• 1:01:06Ezra Klein?

  You were getting wrong then. You often write and think in dialogues. So what would your dialogue with your earlier self be? What should have been seen in the early 90s it wasn't?

• 1:01:15Speaker 01

  Um, well, you do know that if you have a time machine, then you can solve NP complete problems, which means you can break every single bank cipher in the world. And so loot as much money as you want to out of everything possible, which would be a very great temptation. I would say, remember that Al Gore is going to lose the presidential election five votes to four in 2000. And that whatever fiscal space you create by reducing the deficit now will be used to fund high income tax cuts in the 2000s. Therefore, right now, you need to immediately move government accounting away from its

• 1:01:59Speaker 01

  current unified budget framework into one in which there is an explicit public investment account and public operations account. And say, we are in the business of being fiscally responsible for the public operations account. And we are going to use the public investment account to make investments in America to keep America great. And I would also tell them, and we are going to be moving into a world in which income inequality is going to be higher, how much higher, we don't know, but in which the fact that the rich of the world are richer means there will be a nearly infinite flood of savings looking for outlets over the next 25 years, which means the cost of borrowing to invest

• 1:02:44Speaker 01

  in the future will be uniquely, historically, generationally low for the next 30 years. And so the time to wheel the American economy away from consumption and to investment in technology and infrastructure is now. And that we should be doing not what vibration company want us to be doing in terms of public support for economic growth, but we should be doing two, three, four, you know, five times as much.

• 1:03:13Ezra Klein?

  And then I'll end on this question. We talked earlier about the info biotech possibilities. You talked about domination and communication.

• 1:03:23Ezra Klein?

  What do you think the moral economic narrative is that would work in this era? What do you think when people begin trying to tell a story they need to be paying attention to, recognizing that's more than an economic policy?

• 1:03:39Speaker 01

  Um.

• 1:03:43Speaker 01

  You know, I mean, in some ways, this is, I think, Paul Seabright's book, The Company of Strangers.

• 1:03:51Speaker 01

  That, you know, you kind of drop any one of us in the wilderness and we die, right? That we really have to be part of a society with a sophisticated division of labor in order to survive at all. And we have this, I suppose, I don't know whether to call it a natural or a societal propensity to kind of engage in gift exchange relationships with others in which you don't want to be a moocher, but you also don't want to always be the person doing the work. And there's this complicated dance of, you know, favors and obligations in which ideally everyone feels obligated, but not, everyone feels obligated even though everyone is getting enormous amounts from the relationship. And we invent coins and all of a sudden you can have this gift exchange relationship,

• 1:04:36Speaker 01

  not just with your neighbors, your friends and your kinns, but with, really with everyone everywhere else in the world. That all eight billion of us can be part of a unified division of labor and an anthology intelligence. And to realize how very lucky we are and how we all are cousins and how we all are involved in this reciprocal, you know, exchange of favors for each other. And to take that very seriously. Adam Smith in The Wealth of Nations has a passage where he's arguing against mercantilists who say a low wage economy is going to be a strong economy because you can spend your

• 1:05:18Speaker 01

  gold and you get lots of work on it and produce lots of stuff and project military power. And he says, wait a minute, the society is made up of people. If most of the people are starving, that'd be a good society. And then he does this judo move, this gift exchange judo move, saying it is but equity besides, that those who feed, clothe and care for the rest of society should themselves be well fed, well clothed and well cared for. And I think to take seriously that the market economy is a gift exchange network, possibly only among honest people who trust each other and who really do recognize that

• 1:06:01Speaker 01

  they are cousins and we have enormous amounts in common and we owe things to people far away. Right? There are people in Pakistan who wove the carpets that are on the floor of my living room. And every time I walk on them, I should think that, you know, I have this wonderful carpet and you're like, frantically, I'm trying to keep the dog from barfing on it. And when the dog barfs on it, we go to considerable effort to clean it off because it is a thing of beauty. And I really have an obligation to whoever the guy in Pakistan is, I do not know who tied these knots. And whatever I should do, I should take care that they're somewhere close to the front of my mind.

• 1:06:47Ezra Klein?

  I guess a nice place to end. Always our final question. What are three books that have influenced you that you would recommend to the audience?

• 1:06:53Speaker 01

  I don't know if they have influenced me, but I'd say I wish they had influenced me.

• 1:06:59Speaker 01

  That, you know, as we were moving toward the last months toward publication, Gary Gersell published his The Rise and Fall of the Neoliberal Order, which is a book I really wished that I would have had while writing the neoliberal turn chapter, because it would have made it better and stronger and would have made me smarter. And also Jacob Soll of USC, who has

• 1:07:24Speaker 01

  the only person I know whose title is professor, is a university professor of accounting and philosophy, which is a fairly unique title, has a book called Free Market, going through the idea of the free market from Cicero to Friedman and, you know, what kind of a free market is it? And, you know, and it's a truly excellent, excellent, wonderful book that I wished I had had on my side while I was writing my own as well. And he said that reading mine made him wish that he had written the book the way he did, because he didn't want to be known as that crazy leftist who likes Karl Polanyi, but felt guilty about the fact that I've used Polanyi successfully and his book could have used that, I think. And for the

• 1:08:07Speaker 01

  third, a closely related thing, and let me appeal to

• 1:08:13Speaker 01

  It's not nepotism, but it's social network academic nepotism. That I had a student in the 2000s, Glory Liu, who now is a, has one of the jobs at Social Studies in Harvard that I was looking at back in 1981, when I was thinking, who would I like to be in the future, has a book on Adam Smith's America, on the reception of Adam Smith in America, and how someone who is largely a David Humeian moral philosopher came to be weaponized as the person who believes the market is a god in America in the 1800s and 1900s, that I think is very, very much worth reading, and it's forthcoming from Princeton University Press in November.

• 1:08:58Speaker 01

  Brad DeLong, thank you very much. You're very welcome.

• 1:09:13Ezra Klein?

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