Latest / Book Club with Jeffrey Sachs / Season 2, Episode 4: Peter H. Lindert, Making Social Spending Work

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Season 2, Episode 4: Peter H. Lindert, Making Social Spending Work · Book Club with Jeffrey Sachs

0:00
SPEAKER_00: Hello, I'm Jeffrey Sachs.
0:01
SPEAKER_00: Welcome to Book Club, a monthly conversation with world-leading authors who have written scintillating, inspiring, and remarkably important books about history, social justices, and the challenges of building a decent world.
0:17
SPEAKER_00: Today I am thrilled to be speaking with a world-leading scholar, a great economist, and a wonderful friend for many, many years, Peter Lindert, the distinguished professor emeritus at University of California, Davis.
0:32
SPEAKER_00: And Peter, of course, we're here to talk about your new spectacular book.
0:38
SPEAKER_00: Really an amazing book, as we're going to explore Making Social Spending Work.
0:44
SPEAKER_00: Peter, thank you for joining.
0:45
SPEAKER_00: This has been a theme of your work for decades.
0:49
SPEAKER_00: We have been indebted to you in understanding the topic that we're going to be discussing, and that is spending for social purposes.
0:58
SPEAKER_00: I looked back on your CV to discover your papers in 1995, The Rise of Social Spending, 1880 to 1930.
1:08
SPEAKER_00: You're an economic historian, you're a public finance specialist, you've been taking a very broad view of this issue for nearly 30 years, maybe even more than I know.
1:18
SPEAKER_00: And of course, in 2004, you wrote a phenomenal, crucial two-volume study, Growing Public Social Spending and Economic Growth since the 18th century.
1:30
SPEAKER_00: So now you have a new book.
1:32
SPEAKER_00: It's really magisterial, I can say it is so clear and it is a compendium of knowledge.
1:38
SPEAKER_00: And it's not just to the 18th century.
1:40
SPEAKER_00: You have many references that go back a thousand years.
1:43
SPEAKER_00: So you give us an even broader panorama.
1:47
SPEAKER_00: What is the purpose of the new book, given that you've been studying this topic for so long and with such depth?
1:54
SPEAKER_01: Well, the new book covers a ton of new evidence over these last 20 years.
1:59
SPEAKER_01: It covers other parts of the world, it gets away from ye old North Atlantic community that we've been studying so much in the past.
2:07
SPEAKER_01: And the new book really hits on a major theme that the old book and other writings of mine didn't tease out so much.
2:16
SPEAKER_01: You could find them there hidden, but really, here's the new theme.
2:20
SPEAKER_01: We can now simply say that even today, but especially for the last three centuries or so, there is one obvious main historical failure in social policy.
2:33
SPEAKER_01: Societies underinvest in their young.
2:36
SPEAKER_01: And that's a new emphasis with this one.
2:38
SPEAKER_01: It dovetails, it's true both today and in deep history.
2:42
SPEAKER_01: So today, you know, many of you will be familiar with the fact that we are having debates over why we don't have more preschool education support and parental support and things like that for those kids younger than primary school.
2:57
SPEAKER_01: So that's a current topic.
2:59
SPEAKER_01: Well, by golly, uh, historically, that's a small version of the same big failure of societies to invest in the young.
3:09
SPEAKER_01: And right up front, we need to recognize that societies have to invest in their young with government spending.
3:18
SPEAKER_01: Government is financing for education.
3:21
SPEAKER_01: No country has ever succeeded otherwise.
3:24
SPEAKER_00: So, Peter, we're gonna come to this in detail.
3:27
SPEAKER_00: It's a great theme, and by the way, I make remarks every day, I would say, as part of these sustainable development goals, that though there are 17 of them, the fourth one on universal education is the most important because you can't make it as a society without an educated population, and it is a tragedy to have any child not have access to schooling.
3:51
SPEAKER_00: And there are hundreds of millions around the world that don't even have a place in a classroom right now.
3:56
SPEAKER_00: So we'll come to that.
3:58
SPEAKER_00: To do so, I want to take us back also for uh an audience uh coming from very diverse uh backgrounds and certainly uh few economists sprinkled in there, but many others.
4:09
SPEAKER_00: What is social spending?
4:10
SPEAKER_00: Okay, how do you measure it, and uh how can you track it possibly over centuries?
4:16
SPEAKER_00: You do it beautifully, but I want people to understand what is it we're talking about in the book?
4:21
SPEAKER_01: Social spending here is any government tax-based spending on public education, public health, public pensions, and public support for families and the poor.
4:34
SPEAKER_01: And how can you measure it?
4:36
SPEAKER_01: Well, we're in luck because since I'm focusing on government spending, which is the elephant uh in terms of anybody's support for these things, they are in publish government budgets.
4:49
SPEAKER_01: And that helps.
4:50
SPEAKER_01: And historically, if you go back and if you just dig enough, if you've got the patience, uh you can find this as far back as there really was social spending.
5:01
SPEAKER_01: There's an interesting correlation in that the long, dark early history over which we don't have these measures, don't worry, it didn't happen anyway, so there was nothing to measure.
5:11
SPEAKER_01: So that's how you measure it.
5:13
SPEAKER_01: Think government spending on public education, public health, public pensions, welfare, families.
5:20
SPEAKER_00: And then you put that as a proportion of the national economy, measured as typically gross domestic product.
5:26
SPEAKER_00: Right.
5:27
SPEAKER_00: And so this fraction of the national income that is devoted to these social areas is uh your focus, and then the allocation of that spending within these categories, which are quite different, of course, so we'll we'll come to that also, and a lot of politics around them.
5:44
SPEAKER_00: So, what's the basic picture, first of all, today?
5:47
SPEAKER_00: How much, for example, does the United States spend on these categories?
5:52
SPEAKER_00: Public spending on health, education, welfare, pensions.
5:56
SPEAKER_00: How does that compare with other countries?
5:58
SPEAKER_00: What about the poorer countries in the world?
6:01
SPEAKER_00: What's the basic picture right now?
6:03
SPEAKER_01: So the United States is in a middling position.
6:06
SPEAKER_01: We are less generous on all these fronts than the other rich countries.
6:13
SPEAKER_01: But we're much more generous than, you know, Mexico, any other poor country.
6:18
SPEAKER_01: So we are kind of in the middle.
6:20
SPEAKER_01: Given how rich we are, we are surprisingly low on our public spending.
6:24
SPEAKER_01: Which is uh roughly what as a percent of GDP?
6:27
SPEAKER_01: 20% for us is GDP.
6:30
SPEAKER_01: Now it was a tad under 20%, and then came COVID, and then we just went to the bank and uh ramped up an extra 10% of GDP temporarily in 2020 and 2021.
6:42
SPEAKER_00: Aaron Powell In fact, literally went to the central bank in this case, which uh printed a lot of money to do that and a lot of borrowing as well.
6:50
SPEAKER_00: But the main historical point that you make, and and this is uh what I'd really like you to explain at the outset, is that this uh role of government, which we're used to, it does vary, of course, in poor countries.
7:03
SPEAKER_00: It could be a very small amount of a very small economy, so indeed extraordinarily limited, but we're used to government playing some role in health and education, in welfare for the poor or for families, in pensions for the retired or people who are disabled.
7:23
SPEAKER_00: But this is a relatively new phenomenon historically.
7:27
SPEAKER_01: Yes.
7:28
SPEAKER_01: If you look at the long sweep of history as I like to do, we didn't have much of this before World War II, and we had essentially none of it 200 years ago.
7:38
SPEAKER_00: It's incredible to look at the tables because the role of government, we think of governments, the kings, the princes, as being there uh as long as we've had history, but the share of government in the economy, the spending on these categories, for example, is tiny.
7:56
SPEAKER_00: 1%, less than 1%.
7:59
SPEAKER_00: For most of history, it's not there.
8:01
SPEAKER_00: And then the question, which you've been studying, is why wasn't it there?
8:06
SPEAKER_00: What made it arrive in our current circumstances and really increasingly since the beginning of the 20th century, as a recognized role of normal governance, at least in much of the world?
8:21
SPEAKER_01: What made it rise?
8:23
SPEAKER_01: First of all, only in recent centuries were governments able to afford, you know, large budgets for things.
8:30
SPEAKER_01: But in particular, the political will, that is item number one.
8:35
SPEAKER_01: Do you really want to spend on these things?
8:38
SPEAKER_01: And it's the failure to have that political will that just dominates history and still haunts us today.
8:45
SPEAKER_01: In the United States, you can find some well-publicized extreme problems like spending on children before primary school or spending on parental leave and things like this.
8:55
SPEAKER_01: The Americans don't have the political will to do it.
8:58
SPEAKER_01: They have every ability to do it.
9:00
SPEAKER_01: The political system has not delivered.
9:02
SPEAKER_00: You're very revealing about what political will means.
9:06
SPEAKER_00: It's not necessarily the views of the public, it is the output of the political system.
9:13
SPEAKER_00: Yes.
9:13
SPEAKER_00: So you describe, uh, for example, in in the book the uh twists and turns of social spending in Britain.
9:23
SPEAKER_00: For example, in the 19th century, even as Britain is getting richer, it becomes harsher in its treatment of the poor.
9:32
SPEAKER_00: Uh, in fact, rather brutally harsh.
9:35
SPEAKER_00: And it's only late in the 19th century that this first industrialized economy, the one that made it, the one that had the Industrial Revolution, starts actually helping the poor rather than pounding on them.
9:49
SPEAKER_00: So that's a political outcome.
9:52
SPEAKER_00: You could say it's political will, but you describe it as not the will of the public, but as a very subtle dynamics of change of how the political system works.
10:03
SPEAKER_00: So it would be great if you could describe that because it's very vivid and very relevant for us in the United States, I think.
10:10
SPEAKER_01: The people who had the power did not want to spend it on elevating others, educating others' children, helping the poor.
10:20
SPEAKER_01: They didn't want to spend on that.
10:22
SPEAKER_01: There are so many times when you find them saying what today are just the harshest things about why they shouldn't be taxed and why the spending shouldn't happen.
10:32
SPEAKER_01: But in the era you're talking about, which is basically Oliver Twist, back in that era, there was, for example, my favorite case.
10:40
SPEAKER_01: There was a bill, we're going to educate the poor, which, by the way, Adam Smith said we should do.
10:46
SPEAKER_01: Thomas Jefferson said we should do it for poor whites, and so forth.
10:50
SPEAKER_00: Adam Smith, the founder of free market economics.
10:53
SPEAKER_01: Free market economics.
10:54
SPEAKER_01: And later, by the way, speaking of free market economics, Milton Friedman believes you have to have the government do the financing for all of this.
11:01
SPEAKER_01: He's very clear about the schools.
11:03
SPEAKER_01: So back then in the early 19th century, there's this one arrogant, extremely well-connected member of parliament who gets up and says, it's horrible for the moral development of this country to raise taxes to spend them on educating the poor.
11:18
SPEAKER_01: Three things are wrong with it, he says.
11:20
SPEAKER_01: He says, first, it's going to make the poor dissatisfied with their lot in life when they should just go on being low-paid farmhands.
11:28
SPEAKER_01: Second, it's going to make them read seditious materials about how they might have rights.
11:35
SPEAKER_01: And third, it will be a shocking enormous expense to those of us who are productive.
11:40
SPEAKER_01: And in the book I show the shocking, enormous expense is chump change.
11:45
SPEAKER_01: Wasn't willing to spend a thing.
11:48
SPEAKER_01: And by the way, the bill was defeated.
11:52
SPEAKER_00: I was shocked and dismayed.
11:54
SPEAKER_00: Maybe I shouldn't have been shocked, but to read John Locke, the philosopher that we revere for the theory of representative government, writing about the poor laws in England at the end of the 17th century in the 1690s, saying that vagrant children should be locked up in school houses, basically, where they should live and work to pay their way over the age of three.
12:22
SPEAKER_00: So this harshness can be astounding.
12:25
SPEAKER_00: He, of course, worked for the gentry.
12:29
SPEAKER_00: You cite this remarkable rhetoric and legislation.
12:33
SPEAKER_00: Of course, in our field in economics, we had this dismal side of Malthusianism, which argued that you couldn't really help the poor.
12:42
SPEAKER_00: Population growth would always undo anything you did.
12:44
SPEAKER_00: But I believe you point out that Malthus actually favored public education.
12:48
SPEAKER_00: Am I right about that, or maybe not?
12:50
SPEAKER_00: I did.
12:51
SPEAKER_01: He wrote to the guy whose bill was defeated in the case I just quoted, saying, I'm all with you on this.
12:57
SPEAKER_01: We absolutely have to spend tax money on public education.
13:01
SPEAKER_01: So Malthus, Adam Smith, the free economics, uh, Milton Friedman, Thomas Jefferson, they all said this.
13:08
SPEAKER_01: But don't underestimate the self-interest of those with power.
13:13
SPEAKER_00: It really is a remarkable story.
13:15
SPEAKER_00: Britain's getting rich, but the poor laws are reformed in 1834 to be tough as nails.
13:22
SPEAKER_00: And it's only towards the end of the 19th century that this really swings the other way.
13:28
SPEAKER_00: But this is during a period of enrichment and democratization that it becomes so harsh.
13:35
SPEAKER_00: But you make some really astute points about the subtle politics of democratization.
13:42
SPEAKER_01: The democratization slowly creeps down as you get more and more people lower in the economic ranks, given the right to vote.
13:51
SPEAKER_01: At first, you don't get the generosity toward the poor and toward raising other people's children.
13:57
SPEAKER_01: You don't get it at first because of a couple things that happened historically.
14:02
SPEAKER_01: First of all, the French Revolution was over, and they realized they didn't have to worry about helping out the poor to keep them from revolting.
14:09
SPEAKER_01: So they could take the remote.
14:13
SPEAKER_01: The rich didn't have to.
14:14
SPEAKER_01: The rich didn't have to, yeah.
14:15
SPEAKER_01: They they saw the immediate threat to them was gone.
14:18
SPEAKER_01: The second thing happened was that at first, when you start expanding the vote, you expand it only to other rich people, like rich industrialists.
14:27
SPEAKER_01: Well, they were all keen, too, on uh not having the poor be helped out.
14:32
SPEAKER_01: They'd rather have them be forced to come to the mills and work for as little as possible.
14:36
SPEAKER_01: So all of that happened.
14:38
SPEAKER_01: It was only when the democratization got really full, so that ordinary workers had the right to vote, et cetera, that you get the rise of the Liberal Party, the Labor Party, et cetera, a hundred years later, like you say.
14:52
SPEAKER_00: It's uh notable, and I think very important, it's not only the resistance to the taxation, we don't want to share our wealth, but it's also the recognition, like you quoted, that if the poor are educated, they're gonna understand a lot more, they're gonna have more opportunities, they won't just be farmhands or factory labor that can be exploited mercilessly.
15:16
SPEAKER_00: So it's it's also recognized by the opponents of these investments.
15:22
SPEAKER_00: It's dangerous to help the uh lower classes uh in this way, not just because it's uh sharing wealth, but it's because it's sharing knowledge, skills, capability.
15:33
SPEAKER_00: Uh, in fact, it it shares the political system and the economy much more broadly than the direct costs.
15:39
SPEAKER_00: It changes the social order.
15:41
SPEAKER_00: Aaron Ross Powell, Jr.
15:41
SPEAKER_00: Exactly.
15:43
SPEAKER_00: It strikes me, uh I didn't see it in the book.
15:46
SPEAKER_00: I don't know, uh maybe I missed it.
15:48
SPEAKER_00: One of the things that has always struck me about the imperialism of Britain and not only Britain, of course, of Europe, is that the imperial powers took this to the maximum extent of absolutely knowing, do not educate the natives.
16:07
SPEAKER_00: Yes.
16:08
SPEAKER_00: If we want our empire to be intact, maybe a few that can be the uh civil servants under our direction, but certainly not the masses.
16:19
SPEAKER_00: And what I have seen hands-on in my work over decades in African countries is that when independence came, there were almost no educated people because the imperial powers deliberately, not just out of stinginess, but out of control and power, did not provide basic education.
16:42
SPEAKER_01: Did not.
16:43
SPEAKER_01: Not even the British.
16:44
SPEAKER_01: And even when they finally made up for lost time in getting their own poor educated.
16:52
SPEAKER_01: For India, it was shocking.
16:54
SPEAKER_01: Uh they just did nothing.
16:55
SPEAKER_01: Late in the, let's call it 120 years ago.
16:58
SPEAKER_01: Lord Curzon, who's basically in charge, says, Oh, well, Indians should educate their children.
17:06
SPEAKER_01: We pass a decree saying villages should go ahead and educate their children.
17:10
SPEAKER_01: Yes.
17:11
SPEAKER_01: Today we call that an unfunded mandate.
17:14
SPEAKER_01: Okay.
17:14
SPEAKER_01: You go ahead and spend your money, I'm not going to spend a penny on this.
17:17
SPEAKER_01: Uh, I, the imperial power.
17:20
SPEAKER_00: Tell the poor, you take care of it, it's not our business.
17:23
SPEAKER_00: Yep.
17:24
SPEAKER_00: Whereas what you are showing is that no society achieved mass education without the public sector, without the budget, without general taxation providing general public education.
17:40
SPEAKER_01: Definitely.
17:41
SPEAKER_00: There are just no real successful exceptions to that.
17:44
SPEAKER_00: And there were attempts or there were claims that there could be.
17:48
SPEAKER_01: Yes.
17:49
SPEAKER_01: That was how Britain got in trouble across the middle of the 19th century.
17:52
SPEAKER_01: They were still not willing to put up that money.
17:55
SPEAKER_01: And partly this relates to the ever-complex uh relationships of schools to the churches.
18:01
SPEAKER_01: But Britain thought they could maybe get by without the universal tax-based schooling.
18:07
SPEAKER_01: They fell behind France, Prussia, United States, Canada, and others.
18:12
SPEAKER_00: Now, Peter, in our field of economics, uh, in I would say the mainstream inherited views, Adam Smith and Malthus, as you pointed out, made an allowance for some basic education, not very generously, I must say, of Adam Smith.
18:28
SPEAKER_00: He wanted just a little bit for the workers, not too much.
18:33
SPEAKER_00: Right.
18:34
SPEAKER_00: But in general, of course, the received notion is let the market do it.
18:39
SPEAKER_00: And if government becomes too large, it creates massive problems.
18:44
SPEAKER_00: It creates problems of incentives, it rewards the lazy, the shirkers, it creates big distortions in the economy.
18:52
SPEAKER_00: And along came Friedrich Hayek, the free market guru for the middle of the 20th century, who said not only that, but a large state would create a terrible crisis, a slide, in fact, to authoritarianism.
19:10
SPEAKER_00: His most famous book, written in 1945, was called The Road to Serfdom, I hope many listeners know, in which he said at that point, mainly state ownership was not a good idea, but by the 1960s he was saying state spending of almost any kind was going to be part of a slide to authoritarianism, to the loss of freedom.
19:34
SPEAKER_00: So we have that tradition, and you have a finding which you call the free lunch puzzle, that wait a minute, if I array the actual cases, it doesn't look like this.
19:49
SPEAKER_00: So what is it that you have found in the free lunch puzzle?
19:53
SPEAKER_00: What is the lesson?
19:54
SPEAKER_00: What is the test of this hypothesis about the road to serfdom, for example?
20:00
SPEAKER_01: What I found is that people who assert that, oh, that any kind of large government spending is going to ruin the economy, they are bluffing.
20:09
SPEAKER_01: Just flat bluffing.
20:11
SPEAKER_01: And in fact, when you look at the actual experiences, it's quite the opposite.
20:16
SPEAKER_01: Take the countries that have the most social insurance and most social assistance for the poor, say Northern European countries.
20:23
SPEAKER_01: Northern European, like Sweden or Norway or Denmark, the so-called social democracies.
20:30
SPEAKER_01: Social democracies.
20:31
SPEAKER_01: Think of all the things they have going along with that social government budget.
20:35
SPEAKER_01: First of all, to stick with the basic point that you were referring to, the free lunch puzzle, it didn't cost them anything in terms of GDP.
20:42
SPEAKER_01: There's no way you can tease out of the historical record any big loss, any clear loss at all, in terms of GDP for having these social insurance states.
20:53
SPEAKER_00: And in fact, if I may just say, Peter, for people listening, we talked about the U.S.
20:59
SPEAKER_00: social spending on the order of about 20% of GDP.
21:02
SPEAKER_00: In some of these countries, it's 30% of GDP, even higher.
21:06
SPEAKER_00: And overall taxation in the social democracies is somewhere around half of the economy.
21:14
SPEAKER_00: And so if I were in my grad school class many decades ago, listening to what all of that huge taxation would mean, I would have expected to arrive in Copenhagen or Oslo or Stockholm and to see ruin.
21:29
SPEAKER_00: But of course, you see completely thriving rich societies.
21:35
SPEAKER_00: So the first point you're making is: hmm, here you have a huge government sector.
21:41
SPEAKER_00: It is spending on health, education, family support, pensions, active labor market policies.
21:50
SPEAKER_00: And we don't see a collapse of the economy.
21:53
SPEAKER_00: We see a lot of prosperity, in fact.
21:56
SPEAKER_01: And look at all the things they get with that free lunch.
21:59
SPEAKER_01: Look at all What's what's in the lunch, you began to mention some of them.
22:03
SPEAKER_01: In addition, these are the cleanest governments in the world, the ones that the public trusts a lot.
22:09
SPEAKER_01: An opponent might say, oh, with all that money to play in the government, they could have all sorts of opportunities for corruption.
22:15
SPEAKER_01: They are the least corrupt in the world.
22:18
SPEAKER_01: Second, they have more equality.
22:20
SPEAKER_01: People have more equality, and people trust each other, people feel equal.
22:25
SPEAKER_01: They even have longer lives than the Americans.
22:28
SPEAKER_01: All those things.
22:29
SPEAKER_01: And by the way, they do not have giant government budget deficits either.
22:33
SPEAKER_01: So it's a bluff.
22:35
SPEAKER_01: The game is over.
22:36
SPEAKER_01: It is not true that you are paying something economically for these kinds of insurance.
22:43
SPEAKER_00: Peter, one of my early experiences was happening to be in Stockholm during an election campaign, and my Swedish friend was translating for me as a politician, was standing on a street corner, and the Swedish politician said, My opponent will cut your taxes, and I promise I will not cut your taxes.
23:04
SPEAKER_00: And it was exactly the opposite of the American politics, because what he was saying is, we, in this case, it was a social democratic politician, we will deliver a social democratic state in which all of these social spending commitments are honored, whereas my opponent, the conservatives, are going to cut the taxes and cut the spending.
23:28
SPEAKER_00: And the Social Democrats won election after election after election, on exactly the opposite of what we hear in the United States.
23:37
SPEAKER_00: So let me ask you in that regard, there are the northern European countries, there are the poorer developing countries that don't have the fiscal capacity or don't have the political will because of unrepresentative politics, for example.
23:53
SPEAKER_00: But the United States is an odd man out also in a number of ways in what is and is not in the package.
24:01
SPEAKER_00: Why is it, and in what way does the United States stand alone in regard to its social policies?
24:09
SPEAKER_01: The United States, for a long time, has had, first of all, with all that vast amount of land, they had basically they attracted a lot of people who thought, hey, I can just live on my own, go away, rest of the world.
24:23
SPEAKER_01: More importantly, though, the United States has some obvious social divisions.
24:28
SPEAKER_01: Race will come up sooner or later when you get to the American case.
24:33
SPEAKER_01: And it is still true, even though for all the progress we've made, we have great racial progress relative to what we as historians rem remember from a hundred years back.
24:44
SPEAKER_01: But it is still true, the unwillingness to spend money to universally support anybody with a safety net or with education is an American unwillingness, an American defect related to, in large part, racial and ethnic history.
25:03
SPEAKER_01: And strangely, even anti-immigrant feelings.
25:07
SPEAKER_01: Kind of strange for a country where we're all immigrants.
25:10
SPEAKER_01: Yep.
25:13
SPEAKER_00: One of the striking bits of data that you present in the book is actually the misguided attitudes towards immigrants, the exaggerated and systematic misperceptions on a number of points.
25:27
SPEAKER_00: I wonder if you could recount some of those because people might not know the proportions of the economy or the social data on immigrants, but the errors that are made are not random errors, they're systematic errors.
25:42
SPEAKER_00: Rather incredible systematic errors.
25:44
SPEAKER_01: A terrific research project was recently done by a Harvard-based group, and they came up with a clever design, which is they asked people questions about do you think too much, too little?
25:57
SPEAKER_01: They said, How much do you think immigrants are like this?
26:00
SPEAKER_01: And they'd have them do a little quantitative dial.
26:04
SPEAKER_01: What share of our population do you think is foreign born?
26:08
SPEAKER_01: And then they people, oh, move the dial this way.
26:12
SPEAKER_01: They way overestimate how many immigrants they are.
26:14
SPEAKER_01: What share of those immigrants are Muslim?
26:18
SPEAKER_01: Way overestimate what share they are.
26:21
SPEAKER_01: No, they're not Muslim.
26:22
SPEAKER_01: What share of those who have low education?
26:25
SPEAKER_01: They way overestimate that.
26:27
SPEAKER_01: Because in fact, we're getting a large share of our top skilled workers from other countries.
26:32
SPEAKER_01: They don't see that.
26:33
SPEAKER_01: To what extent do the immigrants end up taking away from government budgets and the like?
26:39
SPEAKER_01: They way overestimate that.
26:41
SPEAKER_01: They get it consistently wrong.
26:43
SPEAKER_01: So basically, somebody in the media out there is playing to their worst fears.
26:48
SPEAKER_01: And it affects their sense of the numbers of things.
26:51
SPEAKER_01: And so people are way off.
26:53
SPEAKER_01: Hats off to these researchers for thinking of a way to show how people got those numbers wrong.
26:58
SPEAKER_00: And then it translates into their views about what to do.
27:02
SPEAKER_01: Yes.
27:02
SPEAKER_01: So this gets into immigration issues, it gets into social spending issues too.
27:08
SPEAKER_00: One of the points that you emphasize is that the exposure to immigrants dials down the readiness for social spending in general, or the perceptions of the immigrant population dials down the support for social spending.
27:25
SPEAKER_00: What's that about?
27:26
SPEAKER_01: Well, there's some of that.
27:28
SPEAKER_01: If you ask people, first of all, what do you think about immigrants and things like that?
27:32
SPEAKER_01: And then you ask them, what about what do you think about social spending helping out people who are in trouble?
27:37
SPEAKER_01: If you ask that second question after having gotten immigrants in their minds, people who run surveys know that there's a trap here.
27:45
SPEAKER_01: You'll have them think that the question about social spending is actually a question about giving taxpayers' money to the immigrants, which it is not.
27:54
SPEAKER_01: So there were these studies that you cite and that I cited there too.
27:58
SPEAKER_01: It is also the case that the immigrants don't have any such strong effect.
28:04
SPEAKER_00: So you uh discuss the fact that there is this free lunch, there is political resistance to it, especially vested interests, and you suggest that there are two big threats to the social spending in the future, despite its very high productivity and success in promoting the economy, in promoting better government, in promoting more fairness, and one of them is immigration.
28:35
SPEAKER_00: You talk about the myths, and then you talk about uh what the political response is.
28:41
SPEAKER_00: The other, which I want to come to, is the aging of the population and the pensions, because you set up uh absolutely fascinating struggle, in a way, between social spending for the young and the social spending that goes to the old.
28:56
SPEAKER_00: But let's uh focus for a moment uh still on the immigration issue.
29:01
SPEAKER_00: You say that it is a threat because of these attitudes, then you point out the facts.
29:06
SPEAKER_00: And can you just take us through how this may play out?
29:10
SPEAKER_00: The fact that in many societies there's a rising politics around immigration following a rising share of foreign-born in populations in the United States and in Europe.
29:23
SPEAKER_01: Good question.
29:24
SPEAKER_01: Let's think of two things.
29:25
SPEAKER_01: How it will play out in terms of immigration policy, and then how it'll play out in terms of social spending.
29:31
SPEAKER_01: In terms of immigration policy, it seems very clear what countries are doing is pulling up the ladder and shutting down on the immigration, especially on the immigration of the low-skilled and of the really desperate refugees.
29:47
SPEAKER_01: That's what's being shut out.
29:49
SPEAKER_01: I think more and more countries will gravitate toward what Canada and Australia and others had already done for a long time, which is to let in the skilled.
29:57
SPEAKER_01: We can certainly use more computer tech supports, etc.
30:01
SPEAKER_01: So I think more and more countries are doing that.
30:04
SPEAKER_01: The United States will drift a little bit toward that too, even though we haven't been leaders.
30:09
SPEAKER_01: So, what's going to happen in terms of immigration policy?
30:12
SPEAKER_01: We're going to cherry pick.
30:13
SPEAKER_01: We're going to shut out those with low skill and those with true human needs.
30:18
SPEAKER_01: It's sad because basically we are giving up on human equality and humanitarian causes at the global level, just paying attention to what's going on within our country.
30:30
SPEAKER_01: Let's keep out those cheap foreign workers, etc.
30:33
SPEAKER_01: That's sad, but frankly, that is where immigration policy is going.
30:38
SPEAKER_01: Now, what's this going to do to social spending?
30:41
SPEAKER_01: Well, despite those concerns and those surveys that we uh have noted, the truth is that at least up to now, even the populist right-wing parties are not bailing out on social spending for their own folk, for us, the natives.
30:57
SPEAKER_01: They're keeping that up.
30:58
SPEAKER_01: The Swedish Democrats, that's a confusing name because they're one of the right-wing parties, the nationalist party.
31:04
SPEAKER_01: No.
31:05
SPEAKER_01: Not the social democrats.
31:06
SPEAKER_01: They've made it very clear.
31:07
SPEAKER_01: No, we want our welfare state.
31:09
SPEAKER_01: We definitely want it.
31:11
SPEAKER_01: And others have said the same thing.
31:13
SPEAKER_01: Basically, we want to keep good social spending for our kind of folk, but at the same time, they are shutting out the immigrants.
31:22
SPEAKER_01: It's sad, but it's true.
31:24
SPEAKER_00: And you mentioned uh four different possibilities: the open, the closed, the differentiated, where we get our spending, but you, the immigrant, does not, and as you say, the cherry-picking uh will take you if you've been well educated and have high skills, you come to us, uh leaving behind a society that urgently needs your skills, by the way.
31:47
SPEAKER_00: You think that that fourth outcome is the one where we're heading, actually?
31:51
SPEAKER_01: I think that's where we're going.
31:52
SPEAKER_01: It's not what we would want, but it's what the backlash is creating.
31:57
SPEAKER_01: So we are heading in that direction, I'm afraid.
32:00
SPEAKER_01: Among the other outcomes that you were referring to, I don't know if readers can pick up on one of the things you said about discriminating, it's what's called welfare chauvinism by some of the press.
32:10
SPEAKER_01: Basically, you only let the social spending be spent on people who are long-term native citizens and things like that.
32:20
SPEAKER_01: I wouldn't like that, but there's not a great danger that that's going to happen.
32:24
SPEAKER_01: Because it's very hard to work out.
32:26
SPEAKER_01: It's very hard to get a society to say, oh, this kid has to leave the classroom because they were from an immigrant family.
32:33
SPEAKER_01: Countries can't actually do that, I'm happy to say.
32:36
SPEAKER_01: So of the different evils that may come about, fortunately that one won't.
32:40
SPEAKER_00: In other words, that one would be just marching into mass inequality that would be intolerable in the end or unstable.
32:47
SPEAKER_01: Yeah.
32:48
SPEAKER_01: There is one country, by the way, that does something like that, but it's internal.
32:52
SPEAKER_01: So China still has that hukou system, where to move from the poor hinterland into the, you know, Beijing, Shanghai, Shenzhen, etc., you have to have this passport that allows you there, and you are denied a lot of education and health services in those countries.
33:10
SPEAKER_01: So actually, within the country of China, there is still such a discriminatory policy.
33:15
SPEAKER_01: But in general, it's not sustainable.
33:17
SPEAKER_01: Uh, it won't happen forever.
33:19
SPEAKER_00: I'm glad you uh brought up China because it's an absolutely fascinating question of whether what we have seen in the North Atlantic in Europe and the United States and Canada, and then gradually and with a lot of differentiation in developing countries, will play out the same way in a in the very different cultures of East Asia, not only China, but Japan, Korea, Singapore.
33:45
SPEAKER_00: The patterns look quite different, actually, in a fascinating way.
33:49
SPEAKER_00: And what is it that we learn about the difference in style of social welfare in those societies?
33:56
SPEAKER_00: And is there going to be a convergence or is it really a very different approach?
34:00
SPEAKER_01: You can talk about things like pensions, you can talk about things like education, and then social spending in general.
34:05
SPEAKER_01: Real quickly, pensions separate Japan from the rest.
34:09
SPEAKER_01: Because Japan is stuck with all these elderly and they don't give them a hugely generous pension, but there are so many of them that Japan is locked into spending its social budget largely on the elderly.
34:21
SPEAKER_01: The other East Asians are not.
34:23
SPEAKER_01: Then when it comes to really good primary-secondary education, Japan, Korea, and the island of Taiwan, they do a good job on that.
34:33
SPEAKER_01: They've done a terrific job on that for a long time.
34:36
SPEAKER_01: The rest of East Asia not.
34:38
SPEAKER_01: So for the moment, even mainland China is pouring money into higher education.
34:45
SPEAKER_01: These universities are springing up everywhere.
34:48
SPEAKER_01: They're basically, you know, East Coast oriented.
34:51
SPEAKER_01: And when we see these uh really bright Chinese students coming to our graduate programs, etc., I ask them, oh, where'd you grow up?
34:58
SPEAKER_01: Well, guess where they grew up.
35:00
SPEAKER_01: So China has a fair-sized educational budget overall.
35:04
SPEAKER_01: The trouble is it's going into higher education and the masses are still not being pulled up.
35:09
SPEAKER_00: Oh.
35:09
SPEAKER_00: But in general, the East Asian countries score quite well on these comparative standards.
35:15
SPEAKER_00: And you're a fan of that kind of comparative and competitive rankings.
35:20
SPEAKER_01: Rankings.
35:20
SPEAKER_01: I think you're talking about like school test scores?
35:23
SPEAKER_01: Yeah, exactly.
35:24
SPEAKER_01: Yes, now uh so Japan and Korea in particular, like Finland and Canada to some extent, they keep scoring well.
35:32
SPEAKER_01: Their school quality is actually clearly pretty good, better than ours.
35:37
SPEAKER_01: Is China the same way?
35:38
SPEAKER_01: Uh well.
35:40
SPEAKER_01: You know, the Chinese uh numbers say so, but look again, the Chinese numbers are for students in not randomly selected places in Hong Kong, Shanghai, Beijing, and Tianjin.
35:52
SPEAKER_00: Right, the East Coast.
35:54
SPEAKER_01: Yeah, East Coast privilege, so they get good test scores.
35:57
SPEAKER_01: I'm suspending judgment about what is the actual quality and the actual learning achieved by a 15 or 16-year-old for the nation of China as a whole.
36:08
SPEAKER_00: But your advice absolutely is invest, and we're gonna come to that in a moment.
36:14
SPEAKER_00: But before we come back to the young and your overarching message, the one you started with and the one you close the book with, you devote a considerable amount of time to aging and pensions.
36:26
SPEAKER_00: And take us through what is going on.
36:29
SPEAKER_00: Are the pension systems going broke?
36:32
SPEAKER_00: What's your advice?
36:33
SPEAKER_01: The pension systems are not going broke.
36:36
SPEAKER_01: Get rid of that kind of thing.
36:38
SPEAKER_01: That is very rare at the national level, because national governments they've got the ability to meet their pension obligations.
36:45
SPEAKER_01: Here's the slant that the book takes on pension spending in particular.
36:50
SPEAKER_01: It has gone up quite a bit.
36:52
SPEAKER_01: At first you might say, oh, well, that's natural.
36:54
SPEAKER_01: What would you expect?
36:56
SPEAKER_01: People are getting older and we don't have as many kids anymore, so wouldn't you expect social spending to follow that and beyond the elderly?
37:03
SPEAKER_01: Well, but the thing is that we have historically, since World War II, ramped up the generosity of pensions as much as we've ramped up the generosity of schools.
37:14
SPEAKER_01: Pension generosity per person per year.
37:18
SPEAKER_01: Watch out for that a little bit.
37:20
SPEAKER_01: Because what will happen as the population gets older and older is that you will be under pressure to spend a rising share of GDP on, say, pensions.
37:30
SPEAKER_01: That means you're taking that money away from the younger, either younger taxpayers, or in particular, social spending on the young.
37:39
SPEAKER_01: So there's an alert there.
37:42
SPEAKER_01: We can be in danger of overdoing it.
37:45
SPEAKER_01: I'm not saying the wolf is here at the moment, but we are in danger of overdoing it.
37:50
SPEAKER_01: And in the book, I find out which countries are doing pretty good jobs, which are not.
37:55
SPEAKER_01: A lot of countries are asking for trouble because they're just throwing away money that they could have spent on schools or even have left with the taxpayers, but they're spending it said on public pensions, and in the sort of the global south, think Brazil, think Turkey, examples that I seize on quite a bit.
38:16
SPEAKER_01: They are spending it on the elderly who were rich all their lives.
38:21
SPEAKER_00: Fascinating cases, by the way, important, prominent regional powers, big countries, democracies, semi-democracies, but politics is grabbed by the elites, by the powerful groups, and uh money is steered towards them as well, towards the professional classes, toward the well-off, towards tertiary education.
38:45
SPEAKER_00: We like that as professors, but as you say, it can mean the neglect of primary education and more of the population.
38:53
SPEAKER_00: So those are fascinating cases, really, of political economy, aren't they?
38:57
SPEAKER_00: The fact that social spending can go up, but it really can get misdirected or simply not doing the job of that great free lunch that you point out because it's so much commandeered by powerful groups.
39:13
SPEAKER_01: And invoking the title of my book, they are not making social spending work.
39:18
SPEAKER_01: And there are good illustrations of that for Latin America, Middle East, South Asia.
39:25
SPEAKER_01: They are basically buying off politically important people and classes that might have been in opposition to the current regime.
39:33
SPEAKER_01: They're buying them off.
39:35
SPEAKER_01: They're not helping out the entire population.
39:38
SPEAKER_00: It's really great, and uh, I'm just thinking how helpful.
39:41
SPEAKER_00: I spend a lot of time advocating more social spending.
39:44
SPEAKER_00: I spend a lot of time explaining why higher taxes are not the road to serfdom, but actually necessary for investment.
39:51
SPEAKER_00: But you're giving us tools, quite straightforward tools, of measuring whether this is really directed in the proper way.
40:00
SPEAKER_00: The allocations within categories like tertiary versus primary education, or the proportion that goes to pensions, or the readiness to face an aging population structurally, which you can also analyze so you can look ahead.
40:16
SPEAKER_01: Many people have pointed this out.
40:18
SPEAKER_01: Nora Lustig and her team on the commitment to equity.
40:22
SPEAKER_01: Uh, they point this out a lot among the developing countries.
40:25
SPEAKER_01: I want to slip in another plug here, too, which is that there's a World Bank team that involved my daughter, which wrote on something called redistribution toward the poor and the rich, and pointed this out about pension policy, higher education policies, subsidies for airline travel, and things like this in developing countries, especially Latin America.
40:47
SPEAKER_00: The overarching theme, Peter, is that social spending can be a free lunch.
40:53
SPEAKER_00: It can be a godsend for society, income levels, productivity, equalization of incomes, more inclusion, more democracy, better governance, but directing it towards the young is the key.
41:09
SPEAKER_00: And this is the message that I think is the pervading message.
41:13
SPEAKER_00: Yes, spend more, but spend it right.
41:16
SPEAKER_00: Why is this so important?
41:18
SPEAKER_00: And as you point out, what is it in the last 20 years of research that has really driven home this point?
41:27
SPEAKER_00: Because I think it is the bottom line.
41:30
SPEAKER_01: 20 years of research, both about the United States and about developing countries.
41:36
SPEAKER_01: On the developing country front, we've just had a lot of research which has shown exactly what I now put together for 106 countries, this tension between support for the young and public education versus other things.
41:50
SPEAKER_01: That's new kind of global research.
41:53
SPEAKER_01: Thank goodness we have all that information now.
41:56
SPEAKER_01: And when it comes to the leading countries, you know, you have uh Jim Heckman and others who have really gone to battle.
42:02
SPEAKER_01: Nobel laureate in economics and Nobel laureate in economics, and really careful, randomized experiment almost, statistical studies by Hillary Hoines and many others on showing you exactly where the money is going, how it can be spent effectively in, say, the United States.
42:18
SPEAKER_01: And these are the messages they come across, and they are all recent, as you're saying, Jeff.
42:23
SPEAKER_01: This information is new these last 20 years.
42:26
SPEAKER_01: It's really come together.
42:27
SPEAKER_01: That's a very good thing about the information explosion.
42:30
SPEAKER_00: And the bottom line is invest younger than we thought.
42:35
SPEAKER_00: Yes.
42:35
SPEAKER_00: And make sure that it is real investment that is sustained, because that is where the big boost comes.
42:42
SPEAKER_00: And that, you point out, is really the solution to the puzzle of where does this free lunch come from?
42:49
SPEAKER_00: Yes, exactly.
42:51
SPEAKER_00: Because these young people that receive pre-K good early education grow up to be productive workers, taxpayers.
43:01
SPEAKER_00: The budget deficit doesn't expand because the economy is growing and productive, and because there is equality, the access to education is also equal.
43:12
SPEAKER_01: Yes.
43:13
SPEAKER_01: And by the way, in terms of investing, using government to invest in the young, et cetera, I don't know if many uh viewers have uh picked up on this, but the notion of government investment, where do you find that magnitude in the numbers before us?
43:28
SPEAKER_01: We don't even allow governments to have an investment account.
43:32
SPEAKER_01: We don't even show that infrastructure, education, et cetera, is not government spending consumed right now in some kind of party this afternoon.
43:41
SPEAKER_01: The whole system of information is rigged against the conclusions that I'm trying to bring out.
43:47
SPEAKER_00: Wonderful point.
43:48
SPEAKER_00: If you go to look up this crucial spending on the young, it's called consumption.
43:54
SPEAKER_00: In economics, that means what you're using up, not what you're building for the future.
43:58
SPEAKER_00: And we don't even count right of whether we're building for the future or not.
44:05
SPEAKER_00: If I may say, I hope that revision of the national accounts in the right way is your next project, Peter.
44:11
SPEAKER_00: Uh you have been uh pulling the world uh forward on these themes.
44:16
SPEAKER_00: This is a really important book.
44:19
SPEAKER_00: Very, very important.
44:21
SPEAKER_00: I want to thank you for discussing it today.
44:24
SPEAKER_00: Making social spending work.
44:27
SPEAKER_00: The point is, social spending can be the great gift to society, but you have to make it work.
44:34
SPEAKER_00: You have to do it in the right way, the right timing and the right direction.
44:38
SPEAKER_00: Peter, thank you for your wonderful insights and leadership.
44:42
SPEAKER_00: This very beautifully written book.
44:45
SPEAKER_00: And I know that there are a lot more to come.
44:48
SPEAKER_00: And now we know it's also uh intergenerational.
44:52
SPEAKER_00: You're getting the next uh generations as uh leaders in these insights.
44:57
SPEAKER_00: Thank you so much for being with me today on Book Club.
45:01
SPEAKER_00: Thank you, Jeffrey.
45:01
SPEAKER_00: I appreciate it.
45:02
SPEAKER_00: Great to be with you.
45:05
SPEAKER_00: Next time I will be speaking with Dr.
45:07
SPEAKER_00: Anil Seth to discuss his remarkable new book, Being You, a New Science of Consciousness, in which he provides a deep and thought-provoking exploration of the nature of consciousness.
45:18
SPEAKER_00: His mission is to advance the science and use its insights for the benefits of society, technology, and medicine.
45:26
SPEAKER_00: Together we will discuss fundamental questions surrounding consciousness and the self and examine how our minds interpret the world, making us who we are as human beings and as individuals.
45:42
SPEAKER_00: Thank you for joining in the conversation.
45:45
SPEAKER_00: Please subscribe, rate, and write a review on whatever platform you listen for your podcast.
45:52
SPEAKER_00: I would love to hear your thoughts as we continue to develop the series.