Latest / Masters in Business / Binyamin Appelbaum Discusses Monetary Policy

Transcript

Binyamin Appelbaum Discusses Monetary Policy · Masters in Business

• 0:02
  Speaker 1: This is Masters in Business with Barry Ridholts on Boomberg Radio.
• 0:07
  Speaker 1: This week on the podcast, I have an extra special guest.
• 0:10
  Speaker 1: His name is Binya apple Bound, and he is quite
• 0:15
  Speaker 1: the expert on central banks and their policy and the
• 0:19
  Speaker 1: history of economists UH in America. UH. Both his book
• 0:25
  Speaker 1: and our conversation is quite fascinating. It traces the pivot
• 0:30
  Speaker 1: in American history from where economists are really part of
• 0:35
  Speaker 1: a softer social science and not really thought of as
• 0:39
  Speaker 1: a heart science and don't have a whole lot of
• 0:42
  Speaker 1: influence at most levels of government or the monetary apparatus,
• 0:48
  Speaker 1: to the point in let's call it the nineteen eighties
• 0:52
  Speaker 1: where all of that changes, UM, maybe even in the
• 0:56
  Speaker 1: nineteen seventies, where where there was some influence on presidents
• 1:00
  Speaker 1: and some major policies, and the past fifty years can
• 1:04
  Speaker 1: really be thought of as the economist hour. How the
• 1:08
  Speaker 1: economic class has economist class has very much influenced public policy, politics,
• 1:17
  Speaker 1: fiscal policy, UM. Just pretty much the entire of American
• 1:21
  Speaker 1: society can trace a lot of what's taken place UH
• 1:25
  Speaker 1: to the economists and their influence, which appears to be
• 1:29
  Speaker 1: coming full circle and starting to wane. So I found
• 1:32
  Speaker 1: this conversation to be absolutely fascinating as I did the book,
• 1:36
  Speaker 1: and I think you will as well. So, with no
• 1:39
  Speaker 1: further ado, my conversation with Binya Applemum, this is Masters
• 1:46
  Speaker 1: in Business with Barry Ridholts on Bloomberg Radio. My special
• 1:50
  Speaker 1: guest today is Binya Applebaum. He is the lead writer
• 1:54
  Speaker 1: on business and economics for the editorial board of The
• 1:58
  Speaker 1: New York Times, where he has worked since He is
• 2:01
  Speaker 1: the author of a new book, The Economists, Our False Profits,
• 2:06
  Speaker 1: Free Markets, and the Fracture of Society. Benya Applebaum, Welcome
• 2:11
  Speaker 1: to Bloomberg. Thanks, it's great to be here. Let's start
• 2:14
  Speaker 1: with your career. Where where did you begin as a
• 2:17
  Speaker 1: writer out of college? My first job was at the
• 2:20
  Speaker 1: Florida Times Union in Jacksonville, Florida. I covered the news
• 2:24
  Speaker 1: beat in a county outside of Jacksonville. The news beat
• 2:27
  Speaker 1: meant anything that happened was my problem ad to write
• 2:29
  Speaker 1: about it. So that includes crimes and crime, government, forest fires,
• 2:33
  Speaker 1: county fairs, school board meetings, you name it. It was
• 2:37
  Speaker 1: my problem. When did you first start focusing on economics
• 2:42
  Speaker 1: and business? After Jacksonville, I moved to the Charlotte Observer
• 2:46
  Speaker 1: and the managing editor called me in one day and
• 2:49
  Speaker 1: asked me if I wanted to cover banking, and I
• 2:51
  Speaker 1: was a little skeptical, but he told me, Hey, you're
• 2:54
  Speaker 1: the new banking reporter. So that's that's how it began.
• 2:56
  Speaker 1: Did you have any academic background or any training in
• 2:59
  Speaker 1: this or did they just throw you in? No? I
• 3:01
  Speaker 1: didn't really. I got thrown in blind. I didn't know
• 3:03
  Speaker 1: much about the subject at all. It was really one
• 3:05
  Speaker 1: of the things I love about journalism is the opportunity
• 3:07
  Speaker 1: to learn and to study as you work, and so
• 3:10
  Speaker 1: it really was an immersion experience. I learned as I
• 3:13
  Speaker 1: as I worked. So what was the process like becoming
• 3:17
  Speaker 1: I'm looking for the right word. Maybe it's a depth
• 3:19
  Speaker 1: at covering banks because they're kind of a squishy, yeah
• 3:23
  Speaker 1: group to pin down. It's not the easiest topic to cover.
• 3:26
  Speaker 1: First story ever wrote I didn't get the millions and
• 3:28
  Speaker 1: the billions straight, so there was there was a learning curve,
• 3:30
  Speaker 1: for sure. It was fascinating, you know, Charlotte. In those years,
• 3:34
  Speaker 1: Bank of America and Lacovia were both there and and
• 3:36
  Speaker 1: warring with each other, and I was sort of the
• 3:39
  Speaker 1: center of this rapidly growing industry. And it was completely
• 3:42
  Speaker 1: fascinating to be there and to be writing about it.
• 3:44
  Speaker 1: And now that's become sort of the southern headquarters of
• 3:48
  Speaker 1: the banking industry, hasn't it. Yeah, it really is. It's
• 3:50
  Speaker 1: a remarkable story how Charlotte came to be a financial center,
• 3:55
  Speaker 1: really interesting story. But but to be there in that
• 3:58
  Speaker 1: financial center with all of these bankers sort of trying
• 4:00
  Speaker 1: to figure out the path of the industry and innovating
• 4:03
  Speaker 1: and competing, it was. It was an exciting place to be.
• 4:05
  Speaker 1: So from covering banks in Charlotte, that's not a giant
• 4:09
  Speaker 1: leap to covering the biggest bank of all the Federal Reserve?
• 4:12
  Speaker 1: How did that transition happened? So it basically evolved through
• 4:16
  Speaker 1: the financial crisis. I spent a lot of my time
• 4:18
  Speaker 1: in Charlotte writing about mortgages and the financial crisis, went
• 4:22
  Speaker 1: to the Boston Globe, where I continued to do that.
• 4:25
  Speaker 1: Then came to the Washington Post the week that Fannie
• 4:28
  Speaker 1: and Freddie were taken over by the government as the
• 4:31
  Speaker 1: paper's national banking reporter, and I covered the financial crisis
• 4:35
  Speaker 1: for the next eighteen months. About two months after I
• 4:37
  Speaker 1: got to the Washington Post, the paper sent my wife
• 4:40
  Speaker 1: a box of chocolates with a note saying, you know,
• 4:42
  Speaker 1: we're sorry you haven't seen been your recently. Maybe again someday.
• 4:47
  Speaker 1: So that was an intense period. Uh. And then I
• 4:49
  Speaker 1: came to the Times in initially to cover financial regulation,
• 4:53
  Speaker 1: but then was asked to move over to the Federal
• 4:57
  Speaker 1: Reserve as as Dodd Frank came into law and and
• 5:00
  Speaker 1: those issues started to settle down a little bit. So
• 5:02
  Speaker 1: inven I basically began covering the Fed and monetary policy.
• 5:06
  Speaker 1: And what was that like, all of a sudden, now
• 5:09
  Speaker 1: you're the New York Times reporter for the Federal Reserve.
• 5:12
  Speaker 1: That must have been quite heady, A ton of access
• 5:15
  Speaker 1: I assume to seeing your FED people, governors and chairman
• 5:20
  Speaker 1: and others. What what was that like? Yeah, you feel
• 5:23
  Speaker 1: a real responsibility. I don't know if I felt so
• 5:24
  Speaker 1: much heady as as sort of a little scared at first,
• 5:26
  Speaker 1: because a lot of people are counting on you to
• 5:29
  Speaker 1: accurately represent what the FED intends to do, what it's communicating,
• 5:33
  Speaker 1: and you do have a lot of access that the
• 5:34
  Speaker 1: FED takes very seriously its efforts to communicate and and
• 5:39
  Speaker 1: to convey its messages. And one of the ways it
• 5:42
  Speaker 1: does that. One of the primary ways it does that
• 5:44
  Speaker 1: is through big media outlets like the Times or the
• 5:46
  Speaker 1: Journal or Bloomberg. And it works very hard to explain
• 5:51
  Speaker 1: itself to people like me, people in my job. And
• 5:53
  Speaker 1: so yeah, you do get to spend a lot of
• 5:55
  Speaker 1: time with the leading figures and monetary policy talking to them,
• 5:58
  Speaker 1: picking their brains, trying to understand what a thinking. It's
• 6:01
  Speaker 1: frankly fascinating. Uh And and it was really an interesting experience, particularly,
• 6:05
  Speaker 1: you know, when the FED was in the middle of
• 6:07
  Speaker 1: this sort of tumult and trying to figure out how
• 6:10
  Speaker 1: to deal with a new set of economic circumstances. So
• 6:13
  Speaker 1: this new transparency, as some have called it, is very
• 6:16
  Speaker 1: much a sea change from what the world was like
• 6:18
  Speaker 1: forty years ago. There were no press releases. There certainly
• 6:22
  Speaker 1: wasn't a press conference. The fed open market activity can
• 6:27
  Speaker 1: effectively be seen in how prices on the short end
• 6:31
  Speaker 1: of the bond market would move. That was pretty much
• 6:34
  Speaker 1: the only way anyone had an idea that the FED
• 6:36
  Speaker 1: was doing anything. How different is it today then, when
• 6:41
  Speaker 1: they seem to be cloaked in in mystery and secrecy.
• 6:44
  Speaker 1: So I wasn't around back then, but I think that
• 6:47
  Speaker 1: A big part of the change is how much the
• 6:48
  Speaker 1: FED is communicating directly with the public. If you go
• 6:51
  Speaker 1: back four years ago, the person who had my job
• 6:54
  Speaker 1: was still spending a significant amount of time with Paul Volker,
• 6:57
  Speaker 1: had access to him, was hearing his thoughts, uh had
• 7:00
  Speaker 1: the opportunity to question him directly. But that wasn't happening
• 7:03
  Speaker 1: in a televised news conference. Volker wasn't going out there
• 7:06
  Speaker 1: and talking directly to the public on sixty minutes, or
• 7:08
  Speaker 1: you know, holding town hall forums or you know, all
• 7:11
  Speaker 1: of these innovations and FED policy that we've seen in
• 7:13
  Speaker 1: recent decades. So part of what happened at the FED
• 7:15
  Speaker 1: as that so many other institutions, is they realized, you know,
• 7:18
  Speaker 1: they could step out from behind the curtain and control
• 7:21
  Speaker 1: their own communications, speak directly to their audience. And obviously
• 7:24
  Speaker 1: they're doing that much more aggressively than ever before. I
• 7:27
  Speaker 1: don't recall Vulcan tweeting a whole lot. That wasn't He
• 7:30
  Speaker 1: wasn't big on that. But Jay Powell doesn't tweet either,
• 7:33
  Speaker 1: So maybe that's that the next FED chair will move
• 7:35
  Speaker 1: on to Twitter. Maybe, But there are a bunch of
• 7:38
  Speaker 1: Federal Reserve researchers and if you look, if you go
• 7:42
  Speaker 1: through any of the regional FEDS or the main FED,
• 7:45
  Speaker 1: there's a ton of stuff. It's a ton of content
• 7:48
  Speaker 1: they generate um that works. It's well into Twitter and
• 7:51
  Speaker 1: the blogosphere and eventually in the mainstream media. So it's
• 7:55
  Speaker 1: not like the FED is remotely quiet. They are very
• 7:58
  Speaker 1: active in to communicate their messages. And to be clear,
• 8:01
  Speaker 1: there was an intellectual revolution the FED at you know,
• 8:04
  Speaker 1: forty years ago again really believed that there was some
• 8:07
  Speaker 1: value and mystery that you didn't want to be too clear,
• 8:09
  Speaker 1: that you didn't want to tell the public exactly what
• 8:12
  Speaker 1: was about to happen. And there's just been this sea change,
• 8:14
  Speaker 1: you know. Ben Bernankie famously said that of monetary policy
• 8:18
  Speaker 1: is communications is managing expectations. That idea that the fed's
• 8:22
  Speaker 1: primary job is to communicate and to communicate clearly is
• 8:25
  Speaker 1: a new thing in the world, and they're doing it
• 8:27
  Speaker 1: in every way they can. So as you said, they're
• 8:29
  Speaker 1: on Twitter, h FED presidents wander around giving public speeches
• 8:32
  Speaker 1: all the time. There's a sense that some of this
• 8:34
  Speaker 1: is a bit of a cacophony, and and sometimes the
• 8:36
  Speaker 1: message gets lost in the noise. But they're trying that
• 8:39
  Speaker 1: this is now clearly the goal in a way that
• 8:41
  Speaker 1: it wasn't in an earlier era. So your colleague at
• 8:44
  Speaker 1: the Times wrote a fascinating piece in the headline was
• 8:49
  Speaker 1: a President at war with his FED chief, five decades
• 8:53
  Speaker 1: before Trump. The takeaway to me was, Hey, presidents have
• 8:58
  Speaker 1: been pressuring and arguing with FED chairs for a long time.
• 9:02
  Speaker 1: Only they kind of did it quietly and behind closed doors.
• 9:06
  Speaker 1: What what's your read of the battle between Trump and Powell,
• 9:11
  Speaker 1: the President and the FED chair And how different is
• 9:14
  Speaker 1: this than previous relationships. So that story is about President
• 9:18
  Speaker 1: Lyndon Johnson summoning William mc chesney Martin, the chairman of
• 9:22
  Speaker 1: the FED in the late nineteen sixties, to his Texas
• 9:25
  Speaker 1: ranch and literally shoving him against a wall and yelling
• 9:28
  Speaker 1: at him for daring to raise interest rates. So love,
• 9:33
  Speaker 1: our boys are dying in Vietnam because of you. Yeah,
• 9:36
  Speaker 1: well not really, but it certainly is. The President says
• 9:40
  Speaker 1: that to you, it should get your attention, and it did,
• 9:42
  Speaker 1: and it did so clearly. You know, if you go
• 9:45
  Speaker 1: back historically, the FED was essentially an arm of the
• 9:48
  Speaker 1: Treasury Department during World War Two, and uh, you know,
• 9:51
  Speaker 1: presidents in that era clearly thought of the FED as
• 9:53
  Speaker 1: taking instructions from them, and they were not afraid to
• 9:55
  Speaker 1: issue those instructions. And through Johnson and through Nixon and
• 9:59
  Speaker 1: even into Reagan arrow we have examples of presidents, as
• 10:02
  Speaker 1: you say, behind the scenes, but quite explicitly, directly and confrontationally,
• 10:06
  Speaker 1: putting pressure on the FED. I do think that there
• 10:09
  Speaker 1: was a change beginning in the eighties, but really taking
• 10:12
  Speaker 1: hold in the nine nineties where presidents concluded that that
• 10:16
  Speaker 1: things worked out better if you left the FED alone.
• 10:19
  Speaker 1: Not not that they changed their mind about wanting the
• 10:21
  Speaker 1: FED to deliver the best outcomes, but that they were
• 10:23
  Speaker 1: convinced that if you gave it a little bit of space,
• 10:25
  Speaker 1: a little bit of independence, that would be better for
• 10:28
  Speaker 1: the economy, both in the medium term and in the
• 10:30
  Speaker 1: long term. And so there was less of that kind
• 10:34
  Speaker 1: of communication. And I do think that we're now seeing
• 10:37
  Speaker 1: a reversion to an earlier pattern in which the Trump
• 10:39
  Speaker 1: administration is, you know, emulating much earlier presidential administrations in
• 10:44
  Speaker 1: in sort of explicitly telling the FED what it wants
• 10:46
  Speaker 1: and pressuring the FED to do it. And that's something
• 10:49
  Speaker 1: we have not seen in a long time. So so
• 10:51
  Speaker 1: I find this whole thing ironic for a couple of reasons. First, Um,
• 10:56
  Speaker 1: when he was a citizen citizen, Trump was complaining that
• 11:01
  Speaker 1: Yellen was keeping rates too low. She he I believe
• 11:05
  Speaker 1: the interview was she should be ashamed of herself, which
• 11:10
  Speaker 1: is kind of ironic because when her term came up
• 11:12
  Speaker 1: for renewal, he decided not to reappoint her, probably the
• 11:18
  Speaker 1: most devish member of all the people on the FED
• 11:21
  Speaker 1: that he could have put as as chair and he
• 11:25
  Speaker 1: put Um Clarida and Jerome Powell as as vice chairman
• 11:29
  Speaker 1: and chairman. I've argued they are certainly more hawkish than Yelling.
• 11:35
  Speaker 1: Is this now the Trump's Fed? Or is this still
• 11:38
  Speaker 1: an independent Fed? I think it is an independent institution
• 11:42
  Speaker 1: in part because Trump, as you say, was not hugely
• 11:46
  Speaker 1: intelligent about who he picked to run it. If he
• 11:48
  Speaker 1: had clear goals, if he wanted easy policy, he should
• 11:51
  Speaker 1: have picked policymakers who agreed with him. And to be fair,
• 11:55
  Speaker 1: To be fair, Yelling is short, and he said she
• 11:59
  Speaker 1: was too short. People think I make that up when
• 12:02
  Speaker 1: I say that, but he said that, and he said
• 12:05
  Speaker 1: it wasn't even behind closed doors. He said it publicly,
• 12:07
  Speaker 1: which is kind of kind of shocking, so he replaced
• 12:11
  Speaker 1: a dove with People have pushed back on me calling
• 12:14
  Speaker 1: Powell hawk. He certainly was more hawkish than Yelling. Is
• 12:18
  Speaker 1: that a fair I think that is fair. I would
• 12:20
  Speaker 1: not call him a hawk. I think, you know, you
• 12:21
  Speaker 1: don't want to overstate. And and we've seen the Fed
• 12:24
  Speaker 1: just cut rates. We've seen him, you know, talking about
• 12:26
  Speaker 1: his commitment to drive down unemployment and to create jobs.
• 12:30
  Speaker 1: I don't think he's anybody's idea of a hawk. But
• 12:33
  Speaker 1: it's certainly the case that the easiest way to have
• 12:35
  Speaker 1: continued to pursue easy policy under Trump would have been
• 12:39
  Speaker 1: to keep Janet Yelling in place. It's not, you know,
• 12:42
  Speaker 1: and and and in the way that Trump made his
• 12:45
  Speaker 1: early appointments, he certainly didn't pick people who were particularly
• 12:48
  Speaker 1: minded to cut rates. There are clearly voices on the
• 12:51
  Speaker 1: FED who want lower rates than j Powell. And and
• 12:55
  Speaker 1: Trump you know, has both you know, bloviated publicly about
• 12:58
  Speaker 1: how much he wants that, but then when he's had
• 13:00
  Speaker 1: the opportunity to do something about it, he has consistently
• 13:03
  Speaker 1: not taken advantage of those opportunities. To be fair. You
• 13:07
  Speaker 1: see Jerome Pale, he looks good in the suit, he's
• 13:09
  Speaker 1: got a full head of hair. He looks very chairman like,
• 13:13
  Speaker 1: and I suspect that those elements way heavily in a
• 13:19
  Speaker 1: president who tends to be focused more on the optics
• 13:22
  Speaker 1: and the television announcement moment and may not pay as
• 13:26
  Speaker 1: much attention as you should to the specifics of the policies. Again, otherwise,
• 13:30
  Speaker 1: he would have kept the diminutive statured yelling in place
• 13:34
  Speaker 1: his chairperson. It is clear that the president views himself
• 13:36
  Speaker 1: as a casting director. Yes, that's a good way to
• 13:40
  Speaker 1: discuss it. So you mentioned the independence of the FED.
• 13:43
  Speaker 1: Are they truly independent? Especially, say what you will about Trump,
• 13:48
  Speaker 1: he is very effective as a communicator. He is a
• 13:51
  Speaker 1: very strong tactician. Maybe not the world's greatest strategist, but
• 13:56
  Speaker 1: in terms of getting what he wants now, he seems
• 13:59
  Speaker 1: to be pretty good at that. Not to act philosophical,
• 14:02
  Speaker 1: but nobody is truly independent, and the FED certainly is not.
• 14:05
  Speaker 1: I think what we can say about the FED is
• 14:07
  Speaker 1: that it has been provided with a degree of insulation
• 14:11
  Speaker 1: to allow it to make short term decisions on the
• 14:15
  Speaker 1: basis of technical considerations. But its goals are set by Congress,
• 14:19
  Speaker 1: its officials are selected by the President, it is subject
• 14:22
  Speaker 1: to political pressure in a wide variety of ways. It
• 14:25
  Speaker 1: clearly thinks about politics as part of the considerations that
• 14:29
  Speaker 1: inform the direction of monetary policy. It is very easy
• 14:32
  Speaker 1: to overstate what independence means. We were discussing earlier some
• 14:38
  Speaker 1: of the pressures on the FED UM from the President
• 14:43
  Speaker 1: and and the impact that has our markets. Let's talk
• 14:45
  Speaker 1: a little bit about the pressure of the markets on
• 14:49
  Speaker 1: the FED. By all measures, the US has the highest
• 14:52
  Speaker 1: interest rates UM as a central bank and as a
• 14:57
  Speaker 1: bond issuer in the developed world, be in the entire
• 15:01
  Speaker 1: UH investment grade world. How does that impact what the
• 15:06
  Speaker 1: FED does, both both market forces and what other central
• 15:10
  Speaker 1: banks do. I think there's two sort of dimensions to this.
• 15:13
  Speaker 1: The first is that since the financial crisis, we've seen
• 15:17
  Speaker 1: the FED embracing a responsibility for being the world's central bank.
• 15:23
  Speaker 1: That was certainly true in the immediate aftermath of the
• 15:25
  Speaker 1: financial crisis, where UH you know, a lot of the
• 15:28
  Speaker 1: crisis era programs that the FED put in place to
• 15:31
  Speaker 1: provide funding, we're really about funding the global financial system
• 15:34
  Speaker 1: more than about funding American financial institutions. Meaning the concern was,
• 15:39
  Speaker 1: all right, we're starting to thaw here, but the freeze
• 15:42
  Speaker 1: elsewhere can certainly reach back and send this back down
• 15:45
  Speaker 1: the rabbit hole again. Absolutely, And so you know, this
• 15:47
  Speaker 1: idea that the FED has a responsibility for keeping money pumping,
• 15:50
  Speaker 1: not just domestically but internationally is clearly a part of
• 15:55
  Speaker 1: the sort of the modern era FED, and it's thinking.
• 15:57
  Speaker 1: The other issue is that if you get too big
• 15:59
  Speaker 1: a gap between the United States and Europe, just as
• 16:01
  Speaker 1: you just suggested, or between the United States and the
• 16:03
  Speaker 1: rest of the world, it starts to put pressure on
• 16:05
  Speaker 1: both the FED and the American economy. It is difficult
• 16:08
  Speaker 1: to be raising rates when everybody else is cutting rates
• 16:10
  Speaker 1: and standing still and buying bonds. You just you can't
• 16:14
  Speaker 1: pull away that much from the pack. Uh. And and
• 16:16
  Speaker 1: we've seen that tension play out in recent years where
• 16:19
  Speaker 1: the FED has said, basically, listen, we think the American
• 16:20
  Speaker 1: economy is ready to you know, detach and and to
• 16:23
  Speaker 1: start growing again. And the mere fact that the rest
• 16:26
  Speaker 1: of the world was standing still ended up limiting the
• 16:29
  Speaker 1: Fed's ability to move rates. So what we saw happen
• 16:32
  Speaker 1: was all this given the yield differential between investment grade
• 16:36
  Speaker 1: treasuries and other sovereign investment grade papers, all this capital
• 16:42
  Speaker 1: comes flying into the United States to buy treasuries. It
• 16:45
  Speaker 1: makes the dollar much much stronger, which hurts US exports.
• 16:49
  Speaker 1: And and it's great if you go overseas and travel,
• 16:53
  Speaker 1: but if you're making products and you want to export them, Um,
• 16:56
  Speaker 1: it's an issue. Does that force the FED to say, hey,
• 17:00
  Speaker 1: we're out of line with the rest of the world
• 17:02
  Speaker 1: central banks. I don't think it's by itself a sufficient
• 17:06
  Speaker 1: factor to you know, move policy, but it's it's clearly
• 17:09
  Speaker 1: a consideration for some members of the FED more than others.
• 17:12
  Speaker 1: There are something Governor Lele Brainerd has been particularly vocal
• 17:15
  Speaker 1: about her you know, her interest in international factors and
• 17:18
  Speaker 1: her belief that they should influence the course of monetary policy.
• 17:21
  Speaker 1: It remains her of an active debate inside the FED
• 17:24
  Speaker 1: how much attention you pay to these considerations, But there's
• 17:26
  Speaker 1: no doubt that it matters, and that it is influencing
• 17:29
  Speaker 1: the course of monetary policy, and that the United States
• 17:32
  Speaker 1: is part of you know, the financial system is even
• 17:35
  Speaker 1: more integrated than the global economy, uh and the FED
• 17:39
  Speaker 1: operates in the financial system, and to the extent that
• 17:42
  Speaker 1: there is a divergence as we've seen between rates domestically
• 17:45
  Speaker 1: and rates and the rest of the world. It clearly
• 17:48
  Speaker 1: constrains the FEDS ability to act. So so let's talk
• 17:51
  Speaker 1: about that integration. That that's an interesting observation. The financial
• 17:54
  Speaker 1: world much more integrated than the economy. When we look
• 17:59
  Speaker 1: around international Japan has negative interest rates, Europe has some
• 18:04
  Speaker 1: very major countries with with negative interest rates. I've heard
• 18:08
  Speaker 1: some people make the argument that the US financial system
• 18:12
  Speaker 1: is built on positive interest rates, whether it's fractional lending
• 18:16
  Speaker 1: or mortgages or money market funds, we can't sustain negative rates.
• 18:22
  Speaker 1: Is that a concern at the Federal Reserve? What would
• 18:25
  Speaker 1: they do if negative rates came to America? It clearly
• 18:30
  Speaker 1: is a concern. I think people would have said the
• 18:31
  Speaker 1: same thing about Europe or Japan before they experienced, you know,
• 18:35
  Speaker 1: negative rates. That our understanding of modern finances predicated on
• 18:39
  Speaker 1: the assumption that you get a return, and the idea
• 18:41
  Speaker 1: that those returns are negative requires a lot of adjustments
• 18:44
  Speaker 1: in the mechanics of the system, in the way that
• 18:46
  Speaker 1: we think about the system, in the way that it functions.
• 18:49
  Speaker 1: I think, you know, no one knows is the answer.
• 18:51
  Speaker 1: It's a possibility that has to be unnerving because we've
• 18:54
  Speaker 1: never been there before, and I think we just cannot
• 18:57
  Speaker 1: anticipate all the consequences. So so Ben Bernanke very famously
• 19:02
  Speaker 1: apologized for some of the mistakes the FED UH made
• 19:06
  Speaker 1: way back when I believe he was talking to Milton
• 19:09
  Speaker 1: Friedman at the time. Is that right? Um? How often
• 19:13
  Speaker 1: does a central bank step forward and say, hey, we
• 19:17
  Speaker 1: were wrong about this, and here's how it's going to
• 19:20
  Speaker 1: change us going forward. That has been happening more lately,
• 19:23
  Speaker 1: I mean, as part of this new era of transparency
• 19:25
  Speaker 1: and clarity and communication, we have heard central bankers, particularly
• 19:29
  Speaker 1: here in the United States, critiquing their own performance more
• 19:33
  Speaker 1: publicly than was true in the past. UH. And that's
• 19:35
  Speaker 1: an interesting change and I think it's helpful. We heard
• 19:38
  Speaker 1: j Powell last year explaining, you know, what he thought
• 19:41
  Speaker 1: about the FEDS actions over the previous year, offering sort
• 19:43
  Speaker 1: of in December a post mortem on the year that
• 19:45
  Speaker 1: had been. That's something that it was unimaginable that Alan
• 19:49
  Speaker 1: Greenspan would have delivered a performance like that. So it's
• 19:52
  Speaker 1: a new thing to hear central banks talking this way
• 19:54
  Speaker 1: about their own performance, and frankly, I think it's beneficial.
• 19:57
  Speaker 1: I do recall Greenspan admitted that he discovered a flaw
• 20:02
  Speaker 1: in his philosophy, and some of the political cartoonists sort
• 20:06
  Speaker 1: of showed him on the steps of the roman Um
• 20:09
  Speaker 1: Senate with everything in in um uh just rumble, destructive,
• 20:16
  Speaker 1: crumbled pillars and it was just a mess. Um How
• 20:22
  Speaker 1: significant was green span ad minting error? And did that
• 20:27
  Speaker 1: have an impact on future FED chiefs? So if you
• 20:30
  Speaker 1: sort of stepped back for a moment, the FED, uh,
• 20:33
  Speaker 1: you know, in the nineteen sixties was still run by
• 20:36
  Speaker 1: financial market types. The economists played a very limited role
• 20:39
  Speaker 1: in the institution. The FED was essentially a part of
• 20:45
  Speaker 1: of the financial system and and and there were not
• 20:47
  Speaker 1: people like Alan Greenspan in charge. And what you get
• 20:50
  Speaker 1: over the succeeding decades is people like Paul Volker and
• 20:53
  Speaker 1: Alan Greenspan are elevated into positions of authority and they
• 20:57
  Speaker 1: see the mission of the Central Bank much more narrowly
• 21:00
  Speaker 1: that the FED was created to prevent financial crises. That's
• 21:03
  Speaker 1: why we decided to have a central bank post nineteen
• 21:07
  Speaker 1: o six. UM there was a big crisis, in large
• 21:10
  Speaker 1: part caused by um capital flows from big insurers in
• 21:15
  Speaker 1: the UK to the US and bank and we were
• 21:18
  Speaker 1: sort of operating UM with one arm behind our back
• 21:21
  Speaker 1: if other countries have central banks. So we know that's
• 21:23
  Speaker 1: exactly right, and so we decided to create this system
• 21:26
  Speaker 1: to serve as a backstop for our banks. Over time,
• 21:30
  Speaker 1: that mission gets minimized, and so in the VOLCA and
• 21:32
  Speaker 1: green Span eras the Fed's mission is transformed into inflation control,
• 21:37
  Speaker 1: the one thing it has to do is just keep
• 21:39
  Speaker 1: inflation slow and steady, and that will guarantee financial stability,
• 21:43
  Speaker 1: It will guarantee broad prosperity. It was like a magic pill.
• 21:46
  Speaker 1: The idea is, if you could just control inflation, and
• 21:48
  Speaker 1: this comes from Milton Friedman, if you could just control inflation,
• 21:52
  Speaker 1: everything else would fall into place. And so Alan Greenspan,
• 21:56
  Speaker 1: and he's been quite open about this, basically ignored financial regulation.
• 22:00
  Speaker 1: It wasn't that he thought markets were perfect that often
• 22:02
  Speaker 1: that's a bit of a caricature. What he thought is
• 22:05
  Speaker 1: that markets were better than regulation, that that markets would
• 22:09
  Speaker 1: do a better job, notwithstanding their flaws, than any human
• 22:12
  Speaker 1: effort to regulate markets. Uh. And the result of that
• 22:17
  Speaker 1: was a massive financial crisis. The FED was so grossly
• 22:20
  Speaker 1: indifferent to the misbehavior of the major financial institutions that
• 22:23
  Speaker 1: we all ended up paying a significant price for that.
• 22:27
  Speaker 1: And so I think it was important for green Spend
• 22:29
  Speaker 1: to come before Congress and under pressure say basically, yes,
• 22:32
  Speaker 1: I now acknowledge that when I said that financial institutions
• 22:36
  Speaker 1: would be sufficiently self interested not to crash themselves, not
• 22:39
  Speaker 1: to put themselves out of business, that I was wrong
• 22:42
  Speaker 1: in the sense that institutions, like all of us, make
• 22:45
  Speaker 1: bad choices and do things that are not ultimately in
• 22:49
  Speaker 1: our long term self interest, and that a number of
• 22:51
  Speaker 1: financial institutions behave so stupidly that they did put themselves
• 22:54
  Speaker 1: out of business. And he was saying, you know, as
• 22:57
  Speaker 1: far as that goes, right, I I blew it. Uh.
• 23:00
  Speaker 1: And I think the FED as a whole has taken
• 23:02
  Speaker 1: that lesson and said, you know what, actually we do
• 23:04
  Speaker 1: need financial regulation, and actually our mission does need to
• 23:07
  Speaker 1: be broader than just trying to control inflation. And so
• 23:10
  Speaker 1: this era in which economists sat at the FED and
• 23:13
  Speaker 1: focused on one number has come to an end. At J.
• 23:16
  Speaker 1: Pale is the first non economist to chair the FED
• 23:19
  Speaker 1: in in half a century. And uh. He is part
• 23:22
  Speaker 1: of this new era in which the FED has said, Okay,
• 23:25
  Speaker 1: yes we are responsible for financial stability, Yes we are
• 23:28
  Speaker 1: responsible for unemployment, and we're also responsible for inflation. But
• 23:32
  Speaker 1: it's not enough to just provide low inflation. So what
• 23:36
  Speaker 1: about the fact that there seems to be a focus
• 23:39
  Speaker 1: on risk assets as well? Is that really the proper
• 23:43
  Speaker 1: role of a central bank, I mean the FED. The
• 23:46
  Speaker 1: Fed's argument is basically that the FED cannot perform its
• 23:49
  Speaker 1: role without focusing on risk assets. That that essentially, if
• 23:52
  Speaker 1: one of the things you're trying to do is to
• 23:54
  Speaker 1: maintain financial stability, you know, the risks to stability are
• 23:58
  Speaker 1: going to come out of risk assets, and and you've
• 24:00
  Speaker 1: got to pay attention to them. And if you're not
• 24:01
  Speaker 1: paying attention to them, you're not doing your job. And
• 24:04
  Speaker 1: and you know, I mean, there are clearly people who
• 24:07
  Speaker 1: think the FED should still be more narrowly focused. But
• 24:10
  Speaker 1: you come out of two thousand and eight, you look around.
• 24:12
  Speaker 1: You know also, you know the two thousand one recession,
• 24:14
  Speaker 1: The last two times we've been down this mountain, it's
• 24:16
  Speaker 1: because of financial stability issues. I think there's a pretty
• 24:20
  Speaker 1: good case that the FED does need to have, you know,
• 24:22
  Speaker 1: a focus on on risk assets. Let's start with Milton Friedman.
• 24:28
  Speaker 1: You said he had a greater influence on American life
• 24:32
  Speaker 1: than any other economist explain. So again, backing up a
• 24:36
  Speaker 1: little bit, if you go back to the mid century,
• 24:38
  Speaker 1: economists were not and it's almost hard to convince people
• 24:41
  Speaker 1: that this is true, but they were not in the
• 24:44
  Speaker 1: halls of power. Presidents did not take their advice. President
• 24:48
  Speaker 1: Roosevelt referred to John Maynard Keyes as an impractical mathematician.
• 24:52
  Speaker 1: President Eisenhower warned against allowing technocrats to run the government.
• 24:56
  Speaker 1: The Supreme Court ruled that economic evidence was irrelevant. Uh.
• 25:00
  Speaker 1: Congress took testimony from economists, but it didn't take it
• 25:03
  Speaker 1: particularly seriously. There was this, uh, this sense that economists were, uh,
• 25:09
  Speaker 1: you know, not particularly interesting or helpful. Uh. And and
• 25:14
  Speaker 1: you know, places like the Federal Reserve didn't have economists
• 25:18
  Speaker 1: in positions of power. Uh. You know, places that are
• 25:20
  Speaker 1: now essentially economic institutions. Decisions that are now made by
• 25:24
  Speaker 1: economists did not involve economists until surprisingly recently. And it
• 25:29
  Speaker 1: was only really in the nineteen sixties and the nineteen
• 25:31
  Speaker 1: seventies that economists begin to play a larger role in
• 25:34
  Speaker 1: public policy. And one of the foremost figures in the
• 25:37
  Speaker 1: rise of the economists is Milton Friedman. And what he's
• 25:40
  Speaker 1: really associated with is the idea that you've got this
• 25:43
  Speaker 1: period of growth after World War Two. It's breaking down
• 25:46
  Speaker 1: by the late sixties, and Freedman comes forward and says,
• 25:48
  Speaker 1: the problem is that the government is overly involved in
• 25:51
  Speaker 1: the economy. We're not trusting markets enough. We're not allowing
• 25:54
  Speaker 1: markets uh a sufficient scope to sort of, you know,
• 25:57
  Speaker 1: allocate resources and produce growth. What we need to do
• 26:01
  Speaker 1: is get out of the way. We need to stop,
• 26:03
  Speaker 1: you know, reduce government spending. We need to cut taxes,
• 26:06
  Speaker 1: we need to roll back regulation, we need to you know,
• 26:09
  Speaker 1: have the FED. He wanted the Federal reserved to be
• 26:10
  Speaker 1: run by a computer program that would just you know,
• 26:12
  Speaker 1: increase the money supply at a slow and steady rate.
• 26:15
  Speaker 1: He wanted to minimize policymaking. That's what he thought was necessary.
• 26:19
  Speaker 1: And this was enormously influential. Much of the shift in
• 26:23
  Speaker 1: public policy over the second half of the twentieth century
• 26:25
  Speaker 1: can be traced directly to Milton Friedman's thinking in ways
• 26:29
  Speaker 1: great and small. So he's the father of the earned
• 26:32
  Speaker 1: income tax credit. He's the guy who convinced Richard Nixon
• 26:35
  Speaker 1: to end military conscription. People don't know this, which is
• 26:37
  Speaker 1: a fascinating part of the book. It's really quite fascinating,
• 26:40
  Speaker 1: and I was going through it, I think I understand
• 26:43
  Speaker 1: who Milton Friedman is. And I'm reading this and saying
• 26:45
  Speaker 1: to myself, wait, Milton Friedman convinced Richard Nixon to go
• 26:49
  Speaker 1: to an all voluntary army and raise the pay for soldiers.
• 26:54
  Speaker 1: That's an amazing story. It's an amazing story, and it's
• 26:57
  Speaker 1: the first chapter in the book because I think it's
• 26:58
  Speaker 1: such an amazing and little known story, and because it
• 27:01
  Speaker 1: sets a pattern. It was really the first instance of
• 27:04
  Speaker 1: these economists influencing policymaking in a in an area you
• 27:07
  Speaker 1: wouldn't have predicted. But they then come from that into
• 27:10
  Speaker 1: into much broader power, and and you know, they succeed
• 27:14
  Speaker 1: in deconstructing the post war global financial system, the Breton
• 27:17
  Speaker 1: Wood system, and replacing it with with market set exchange rates.
• 27:21
  Speaker 1: So across this whole waterfront of policy issues, if you
• 27:24
  Speaker 1: look at what changed in the second half of the
• 27:26
  Speaker 1: twentieth century and you say, where did that idea come from,
• 27:30
  Speaker 1: a surprising amount of the time the answer is that
• 27:32
  Speaker 1: idea came from Milton Freeman. So interestingly enough, a lot
• 27:37
  Speaker 1: of the ideas that he put forward seems to have
• 27:40
  Speaker 1: come full circle and seems to be falling a bit
• 27:43
  Speaker 1: out of favor. We're recording this the week the Business
• 27:47
  Speaker 1: round Table announced uh that they're replacing his concept of
• 27:52
  Speaker 1: shareholder value, that the sole purpose of a corporation is
• 27:56
  Speaker 1: to maximize profits on behalf of shareholders, with a concept
• 28:00
  Speaker 1: that's much broader stakeholder interests um The idea that Breton
• 28:06
  Speaker 1: woods and a global system where there's cooperation between different
• 28:11
  Speaker 1: countries seems to be getting replaced with a form of
• 28:14
  Speaker 1: economic populism. Not just here in the United States with
• 28:17
  Speaker 1: the election of Donald Trump. You have Boris Johnson in
• 28:20
  Speaker 1: the UK. There are all sorts of different people running
• 28:23
  Speaker 1: in Italy and Spain and Germany. There are a lot
• 28:25
  Speaker 1: of issues as to that post war era that Milton
• 28:29
  Speaker 1: Freeman influenced so much. Has his ideology run its course
• 28:36
  Speaker 1: or is this just a little mean reversion. You know,
• 28:38
  Speaker 1: economists said, listen, if you focus on efficiency, it will
• 28:42
  Speaker 1: increase growth. They said, don't worry about inequality. It's not
• 28:45
  Speaker 1: that bad. They said, you know, the more that we
• 28:48
  Speaker 1: rely on markets, the stronger democracy will become. They were
• 28:52
  Speaker 1: wrong about all of these things. Growth has slowed down
• 28:54
  Speaker 1: in the developed world. Inequality has turned out to be
• 28:56
  Speaker 1: a really big problem where we're just learning how bad
• 28:59
  Speaker 1: it is as the data piles up. Uh, and democracy
• 29:03
  Speaker 1: is being strained precisely by our reliance on markets. So
• 29:06
  Speaker 1: I think there's a recognition that, you know, this revolution
• 29:09
  Speaker 1: went way too far, and that the ideas espoused by
• 29:12
  Speaker 1: Milton Friedman, while they were necessary correctives to problems at
• 29:16
  Speaker 1: the time, uh, in some instances, UH, we're carried too far,
• 29:20
  Speaker 1: as is often the case, and that the pendulum needs
• 29:23
  Speaker 1: to swing back away from markets towards a recognition that
• 29:27
  Speaker 1: government has a valuable and viable role to play in
• 29:30
  Speaker 1: economic management, towards the recognition that inequalities a problem public
• 29:34
  Speaker 1: policy needs to address. I do think we're at the
• 29:36
  Speaker 1: end of what I call the economists our and the
• 29:39
  Speaker 1: question now is what takes its place. And hopefully the
• 29:41
  Speaker 1: answer is not the kind of unfettered populism that we've
• 29:45
  Speaker 1: seen in some countries. But if it's not going to
• 29:47
  Speaker 1: be that, it has to be something better than the
• 29:51
  Speaker 1: old nostrums about you know, trust the markets, everything will
• 29:53
  Speaker 1: be okay, because in fact, everything is not okay. So
• 29:57
  Speaker 1: I don't agree with everything Milton Friedman said, although I'm
• 30:00
  Speaker 1: fascinated by a lot of his work. The whole idea
• 30:04
  Speaker 1: we don't need an f D A. Sure a few
• 30:06
  Speaker 1: babies will die if the food or drug supply is poisoned,
• 30:09
  Speaker 1: but companies will quickly protect the reputation clearly absurd. However,
• 30:15
  Speaker 1: the defense of Freedman could be it's not that the
• 30:20
  Speaker 1: market forces have gone too far. It's that we've allowed
• 30:23
  Speaker 1: a chrony capitalism and a rentier system to come in
• 30:28
  Speaker 1: where the markets are being replaced by people related or
• 30:34
  Speaker 1: having a professional relationship with presidents and governors and mayors. Uh.
• 30:40
  Speaker 1: You look at what took place with the Amazon headquarters,
• 30:42
  Speaker 1: with New York, one of the biggest companies in the world.
• 30:45
  Speaker 1: Why do you need tax credits when you're not even
• 30:48
  Speaker 1: paying taxes in the first place. And if we had
• 30:51
  Speaker 1: a true market uh forces in place, uh, that this
• 30:56
  Speaker 1: inequality wouldn't have gone as far. My my favorite example
• 31:00
  Speaker 1: is if you own a football team, you don't need
• 31:02
  Speaker 1: me as a taxpayer to subsidize your for profit stadium.
• 31:06
  Speaker 1: Stop being a socialist, Go build your own stadium. But
• 31:10
  Speaker 1: you you give some money to a governor's race or
• 31:13
  Speaker 1: a mayor's campaign, and suddenly you get a billion dollar
• 31:16
  Speaker 1: tax credit. To build a stadium. How much of the
• 31:19
  Speaker 1: pushback to the ideas of Milton Friedman is this sort
• 31:23
  Speaker 1: of um bastardized form of capitalism, this chrony capitalism. So
• 31:27
  Speaker 1: I think it's kind of a false dichotomy. I think
• 31:29
  Speaker 1: you know, what's important to understand about markets is that
• 31:31
  Speaker 1: they are constructed by humans. And this would have been
• 31:34
  Speaker 1: obvious to our ancestors, who encountered markets as physically constrained
• 31:38
  Speaker 1: spaces in the middle of town that operated it to
• 31:41
  Speaker 1: find hours of bell rang to start at, a bell
• 31:43
  Speaker 1: rang to end it literally literally and and so markets.
• 31:46
  Speaker 1: They understood that a market was something they had made,
• 31:49
  Speaker 1: that had rules that were laid out by the town fathers,
• 31:51
  Speaker 1: and that it couldn't exist without those rules. Uh, markets
• 31:55
  Speaker 1: are now so pervasive. We live in a marketplace twenty
• 31:58
  Speaker 1: four seven, three sixty, and you've lost that understanding that
• 32:02
  Speaker 1: a market is inherently a regulated space. You're absolutely right.
• 32:07
  Speaker 1: We need markets, and indeed, much of what is wrong
• 32:09
  Speaker 1: with our economy is that markets are being impeded, distorted, uh,
• 32:13
  Speaker 1: constraint perverted. But that is not The corrective is not
• 32:19
  Speaker 1: to free the markets and return them to some kind
• 32:21
  Speaker 1: of natural state. The corrective is to regulate markets effectively.
• 32:24
  Speaker 1: The concentration of corporate power is a product of the
• 32:27
  Speaker 1: fact that we have abandoned antitrust enforcement. Uh. You know, uh,
• 32:31
  Speaker 1: the the issues that we have, you know, with labor
• 32:33
  Speaker 1: markets are are a function of the fact that we
• 32:35
  Speaker 1: allow corporations to prohibit workers from seeking jobs at other companies,
• 32:40
  Speaker 1: that we allow licensing boards to make sure that nobody
• 32:42
  Speaker 1: can become a cosmetologist. You know, these are failures of
• 32:46
  Speaker 1: the regulations. But the answer is not to do away
• 32:49
  Speaker 1: with regulation. The answer is to regulate wisely. And so
• 32:52
  Speaker 1: the problem with Milton Friedman is that he made the
• 32:55
  Speaker 1: argument that that you could just trust natural law basically
• 32:58
  Speaker 1: to take care of these problems, and we actually need
• 33:00
  Speaker 1: human laws. We actually need effective We need to make
• 33:04
  Speaker 1: decisions as a society about what we market, what we
• 33:06
  Speaker 1: want markets to do, and then we can structure markets
• 33:09
  Speaker 1: to achieve those goals. So so let me go to
• 33:11
  Speaker 1: a quote from the book where you you cite John
• 33:15
  Speaker 1: Kenneth Galbraith, and and I've always been fond of this quote.
• 33:19
  Speaker 1: What is called sound economics is very often what mirrors
• 33:22
  Speaker 1: the needs of the respectably affluent. Explain that it's a
• 33:27
  Speaker 1: fascinating into wonderful quote. I think Gobra's point, and it's
• 33:30
  Speaker 1: an important point, is that we often find that economics
• 33:35
  Speaker 1: and other academic disciplines uh serve the interests of the
• 33:39
  Speaker 1: wealthy and powerful. They end up explaining the things that
• 33:42
  Speaker 1: rich people want. So, you know, the rise, for example,
• 33:45
  Speaker 1: of the idea that corporations should be focused on maximizing
• 33:48
  Speaker 1: profits for shareholders was obviously very dear to shareholders who
• 33:54
  Speaker 1: had a lot of money to fund economists. You know,
• 33:56
  Speaker 1: there's this wonderful paper from the nineteen seventies that is
• 33:59
  Speaker 1: still regarded as you know, one of the most important
• 34:01
  Speaker 1: economic papers of all time, and what it basically says
• 34:03
  Speaker 1: is corporations are the apotheosis of capitalism. It's the best
• 34:07
  Speaker 1: way to allocate resources between workers and capitalists. It's great,
• 34:11
  Speaker 1: what a wonderful system. Was written by two very prominent economists,
• 34:15
  Speaker 1: and at the bottom it says, you know, this research
• 34:17
  Speaker 1: was funded by the Eli Lily corporation. Well, yeah, I
• 34:20
  Speaker 1: knew that Eli Lily thought that, but you know, and
• 34:23
  Speaker 1: and maybe those economists legitimately thought that too. But the
• 34:26
  Speaker 1: confluence of those two things is what you get A
• 34:28
  Speaker 1: lot of the time you get economists justifying the things
• 34:31
  Speaker 1: that are best for the wealthy. Um, I think you know,
• 34:34
  Speaker 1: God breath goes too far, both in terms of, you know,
• 34:37
  Speaker 1: saying that this is always the case, uh, and in
• 34:40
  Speaker 1: terms of suggesting that economists are always doing it for
• 34:43
  Speaker 1: the wrong reasons. They're clearly are times when uh, it's
• 34:46
  Speaker 1: a it's a good thing for society as a whole.
• 34:48
  Speaker 1: But you want to be looking at the whole pyramid.
• 34:51
  Speaker 1: It's not enough to just be uh, you know, writing
• 34:54
  Speaker 1: policies that help the people at the top. You want
• 34:56
  Speaker 1: to know that to be able at the middle and
• 34:57
  Speaker 1: at the bottom also are benefiting. And it's hard because
• 35:01
  Speaker 1: the people at the top undoubtedly have the loudest voices,
• 35:04
  Speaker 1: the most direct connection to the powerful people, the greatest
• 35:06
  Speaker 1: ability to influence the course of policy. And they'll stand
• 35:09
  Speaker 1: there and scream all day that if you just keep
• 35:11
  Speaker 1: cutting their taxes, growth will ensue. At some point, you know,
• 35:15
  Speaker 1: you want to start asking questions about why economists are
• 35:18
  Speaker 1: still willing to believe something that has been repeatedly disproved
• 35:21
  Speaker 1: for forty years now. So so when we make fun
• 35:23
  Speaker 1: of the economists at the FED who have been wrong,
• 35:26
  Speaker 1: really we should be making pointing out that the entire
• 35:30
  Speaker 1: economics class, the entire all the economists, most of them
• 35:34
  Speaker 1: didn't see the financial crisis coming. Uh, most of them
• 35:37
  Speaker 1: failed to see in real time the widely broadening economic
• 35:42
  Speaker 1: and inequality you mentioned. Why should we be paying much
• 35:46
  Speaker 1: attention to economists if if they're so bad at forecasting
• 35:49
  Speaker 1: the future and so first off, they are so bad
• 35:51
  Speaker 1: at forecasting the future. I mean, one of the things
• 35:53
  Speaker 1: I started in the book just because it amuses me,
• 35:55
  Speaker 1: is every decade, every generation of economists, you get some
• 35:59
  Speaker 1: very prominent into economists, often more than one, announcing that
• 36:02
  Speaker 1: the problem of recessions has been solved. It's just plateau.
• 36:07
  Speaker 1: That's just how is it that an economist can continue
• 36:10
  Speaker 1: to make this claim with any knowledge of the history
• 36:12
  Speaker 1: of the claims that have preceded their own. It's just
• 36:15
  Speaker 1: as mind blowing the arrogance of these claims. But you know, yeah,
• 36:18
  Speaker 1: so economists have problems. It's important to say that economists
• 36:20
  Speaker 1: are also really good at some things. Economics is a
• 36:23
  Speaker 1: wonderful system for disciplining choice making. It really helps you
• 36:27
  Speaker 1: to think carefully about costs and benefits. It forces you
• 36:31
  Speaker 1: to to put into a system and to model the
• 36:34
  Speaker 1: factors that you're considering, the pluses and the minuses. Uh.
• 36:38
  Speaker 1: It allows you to think systematically about choices. That's great.
• 36:43
  Speaker 1: Where I think we go wrong is in privileging the
• 36:45
  Speaker 1: views of economists about what the goals of policy should be.
• 36:49
  Speaker 1: There's no special reason to think that economists deserve a
• 36:53
  Speaker 1: greater hearing on that subject than anyone else. We as
• 36:55
  Speaker 1: a society can decide what goals we want to pursue,
• 36:58
  Speaker 1: and then economists have have the genuine ability to help
• 37:02
  Speaker 1: us get there. But this faith that they can predict
• 37:05
  Speaker 1: the future is badly misplaced. Uh. And and the credence
• 37:09
  Speaker 1: given to their priorities I think is badly misplaced as well.
• 37:13
  Speaker 1: My favorite quote from Joan Robinson is the purpose of
• 37:17
  Speaker 1: studying economics is not to acquire a ready made set
• 37:22
  Speaker 1: of answers to economic questions, but rather to learn how
• 37:26
  Speaker 1: to avoid being deceived by economists. And it's it's quite insightful.
• 37:31
  Speaker 1: Can you stick around a little bit? I have a
• 37:32
  Speaker 1: ton more questions. Absolutely. We have been speaking with Benya
• 37:35
  Speaker 1: apple Maam. He is a New York Times reporter on
• 37:38
  Speaker 1: the Federal Reserve and the author of a new book,
• 37:41
  Speaker 1: The Economists Our false profits, free markets, and the fracture
• 37:45
  Speaker 1: of society. If you enjoy this conversation, we'll be sure
• 37:48
  Speaker 1: and check out the podcast extras, where we keep the
• 37:51
  Speaker 1: tape rolling and continue discussing all things Central bank related.
• 37:55
  Speaker 1: You can find that at iTunes, Spotify, Google Podcast, Overcast, Stitcher,
• 38:00
  Speaker 1: wherever your final podcasts are sold. We love your comments,
• 38:04
  Speaker 1: feedback and suggestions right to us at m IB podcast
• 38:08
  Speaker 1: at Bloomberg dot net. Check out my weekly column on
• 38:11
  Speaker 1: Bloomberg dot com. Follow me on Twitter at Ridholt's sign
• 38:15
  Speaker 1: up for my daily reads at Ridholts dot com. I'm
• 38:18
  Speaker 1: Barry Riholts. You're listening to Masters in Business on Bloomberg Radio.
• 38:24
  Speaker 1: Welcome to the podcast, Benya, Thank you so much for
• 38:26
  Speaker 1: doing this. This is a subject that I find quite fascinating.
• 38:30
  Speaker 1: I think when we look at the list of people
• 38:34
  Speaker 1: and institutions that were to blame for the O eight
• 38:37
  Speaker 1: oh nine crisis, I can't help but think of Alan
• 38:41
  Speaker 1: greenspan as near the top of that list. It wasn't
• 38:44
  Speaker 1: just him. A lot of people did a lot of
• 38:47
  Speaker 1: really silly things which all came home to Rooster around
• 38:51
  Speaker 1: the same time. Um, but when you look at the
• 38:54
  Speaker 1: federal reserve. Who stands out as heroes of the institution,
• 38:59
  Speaker 1: and and who do you think are underrepresented in that
• 39:03
  Speaker 1: that pantheon. I want to start with the villain, because
• 39:06
  Speaker 1: you're right, Alan Greenspand took an oath to be what
• 39:10
  Speaker 1: was essentially the nation's chief financial regulator. And he says
• 39:13
  Speaker 1: that as he took that oath, he had in mind
• 39:16
  Speaker 1: that he did not mean it. And the fact that
• 39:19
  Speaker 1: he was willing to become the nation's top financial cop
• 39:22
  Speaker 1: with the intent of not doing the job, and and
• 39:25
  Speaker 1: worse than that, with the intent of preventing everyone else
• 39:28
  Speaker 1: from doing the job. I just think that even to
• 39:32
  Speaker 1: the extent that people have held him culpable for what
• 39:36
  Speaker 1: happened in two thousands and date, there is still not
• 39:39
  Speaker 1: a sufficient understanding of how bad and how devastating his
• 39:43
  Speaker 1: conduct as FED chair was for the American economy. So
• 39:46
  Speaker 1: that's number one as far as heroes go. I'm not
• 39:50
  Speaker 1: sure there's a lot of heroes at the FED. That
• 39:53
  Speaker 1: the group think around financial regulation was so pervasive in
• 39:58
  Speaker 1: those years that it was almost impossible to be a
• 40:02
  Speaker 1: voice in opposition to the prevailing consensus. Everybody knows the
• 40:06
  Speaker 1: famous story about Brooksley Borne, who has headed head of
• 40:10
  Speaker 1: the CFTC, sought to regulate derivatives and was slapped down
• 40:14
  Speaker 1: by who's who of Washington dignitaries, all very much against
• 40:19
  Speaker 1: regulation absolutely uh and and you know she is. It's
• 40:23
  Speaker 1: such a remarkable story because she tried, because she had
• 40:26
  Speaker 1: the wisdom to know that regulation was necessary and the
• 40:31
  Speaker 1: courage to try to implement it. But both of those
• 40:34
  Speaker 1: things were in very short supply in Washington in those years.
• 40:37
  Speaker 1: It was mostly people outside of Washington, outside of sort
• 40:41
  Speaker 1: of the conventional consensus, outside of the economics community, who
• 40:45
  Speaker 1: are willing to raise their hands and say, listen, there
• 40:47
  Speaker 1: are problems here. H. And you know, we're all familiar
• 40:50
  Speaker 1: with our people who followed this probably know some of
• 40:52
  Speaker 1: these names. But Raguajan is an economist too. Sure. Famously,
• 40:55
  Speaker 1: at the FEDS conference in Jackson Hole stood up and
• 40:59
  Speaker 1: said that, you know, maybe financial innovation was dangerous. Um.
• 41:02
  Speaker 1: You know, there were people at the FED at Grahamlet
• 41:04
  Speaker 1: who you know, raised concerns about the Fed's unwillingness to
• 41:07
  Speaker 1: regulate mortgage lending. Um. There are instances of people who
• 41:12
  Speaker 1: were willing to to raise these questions. But you know,
• 41:15
  Speaker 1: it's just when we're gonna look back on it. We're
• 41:17
  Speaker 1: gonna say, how did all of these people come to
• 41:19
  Speaker 1: believe this insane thing? Uh? So wholeheartedly, so completely? How
• 41:26
  Speaker 1: is it possible that they were all blind? Well, that's easy.
• 41:29
  Speaker 1: The history of humanity is the history of a series
• 41:32
  Speaker 1: of beliefs and false things that some last longer than others,
• 41:36
  Speaker 1: but ultimately are revealed as we become more knowledgeable and
• 41:40
  Speaker 1: more experienced and dare I say more enlightened. The question
• 41:44
  Speaker 1: is how long does it take for us to forget
• 41:46
  Speaker 1: and backslide? Because that seems to happen, um every generation.
• 41:51
  Speaker 1: So let me talk to you about a few other
• 41:54
  Speaker 1: people at the FED that I think are quite fascinating. Um,
• 41:57
  Speaker 1: you mentioned the Johnson ex Arians. I think it was
• 42:01
  Speaker 1: Paul Volker in his so he has a new book out,
• 42:05
  Speaker 1: but there was a bio he wrote autobiography in the
• 42:08
  Speaker 1: nineties and he I hope I'm not getting this wrong,
• 42:12
  Speaker 1: but he essentially describes getting called to the White House
• 42:18
  Speaker 1: to the map room. And the map room is notable
• 42:21
  Speaker 1: because there are no recording devices like there are in
• 42:24
  Speaker 1: the Oval Office. And I believe it was Baker and
• 42:28
  Speaker 1: President Reagan, and with Reagan sitting there, Baker says to
• 42:32
  Speaker 1: Paul Vocer, the President orders you to cut interest rates,
• 42:36
  Speaker 1: and Vulcar smiles and nods and says, how low do
• 42:40
  Speaker 1: you want them? Or what do you want and then
• 42:41
  Speaker 1: proceeds to go back to the office and explains to
• 42:43
  Speaker 1: everybody why rates are not only gonna go higher, they're
• 42:46
  Speaker 1: going much higher. Otherwise, these idiots left in their own
• 42:49
  Speaker 1: devices are gonna cause hyper inflation. It will be terrible.
• 42:53
  Speaker 1: So that was a fascinating conversation. U admission, um, what
• 42:58
  Speaker 1: are your thoughts on on Paul Oker and his role
• 43:01
  Speaker 1: within the Federal Reserve is a seminal figure in the
• 43:04
  Speaker 1: history of the Federal Reserve because he is the guy
• 43:06
  Speaker 1: who implements this shift in the FEDS approach to its job.
• 43:11
  Speaker 1: Prefall Vulcar, the FED, like most central banks around the world,
• 43:14
  Speaker 1: has a very broad conception of its economic responsibilities. It's
• 43:18
  Speaker 1: trying to minimize unemployment. It's trying to, you know, play
• 43:22
  Speaker 1: a role in currency markets. It sees a financial stability mandate.
• 43:26
  Speaker 1: And Vulcar is the beginning of this period in which
• 43:28
  Speaker 1: the Fed says, no, we have one job. Our job
• 43:31
  Speaker 1: is to control inflation, to stomp it out. We're gonna
• 43:34
  Speaker 1: do that as hard as we can. That's what the
• 43:36
  Speaker 1: FED does, and and he does that single mindedly and
• 43:40
  Speaker 1: successfully over the course of the nineteen eighties. Reagan's role
• 43:43
  Speaker 1: in it is really interesting and a complicated story. Uh.
• 43:46
  Speaker 1: There's a lot of moments that which Reagan is very
• 43:49
  Speaker 1: supportive of Vulcar. There are clearly times when when he
• 43:52
  Speaker 1: can't take it anymore, or at least his aids can't.
• 43:57
  Speaker 1: But but that relationship aside, it's very clear that Paul Woker,
• 44:01
  Speaker 1: you know, inaugurated a new era at the FED, a
• 44:03
  Speaker 1: period in which economists were making the decisions uh and
• 44:07
  Speaker 1: and their primary focus was on minimizing inflation. So is
• 44:11
  Speaker 1: it safe to say that the economic boom of the
• 44:14
  Speaker 1: nineteen eighties and nineties traces in large part back to
• 44:18
  Speaker 1: Paul Volker? As well as what are we coming up
• 44:20
  Speaker 1: on a forty year uh? Bullmarket in bonds? How much
• 44:24
  Speaker 1: of that is can we give credit to Vulcan? For
• 44:26
  Speaker 1: I think the bullmarket in bonds by all means make
• 44:29
  Speaker 1: Paul Volker the patron saint. As far as America's prosperity
• 44:32
  Speaker 1: in the eighties and nineties, I think there's a couple
• 44:33
  Speaker 1: of things that often get lost in that discussion. The
• 44:36
  Speaker 1: first is that, adjusting for population growth, economic growth in
• 44:40
  Speaker 1: the United States has declined in every decade since the
• 44:42
  Speaker 1: nineteen sixties. The eighties is remembered as this period of
• 44:46
  Speaker 1: rapid growth, but only because we had this sharp recession
• 44:49
  Speaker 1: and then rebounded from it. The seventies were not a
• 44:53
  Speaker 1: period of expansion or growth. It was stagflation. But the
• 44:56
  Speaker 1: economy grew faster in the nineteen seventies than it grew
• 44:59
  Speaker 1: in the nineteen eighties. Really, yes, the average annual average
• 45:02
  Speaker 1: growth in nineteen seventies was higher than in the nineteen eighties.
• 45:06
  Speaker 1: People look at the good years in the eighties and
• 45:08
  Speaker 1: they forget that Volker caused a bunch of bad years
• 45:11
  Speaker 1: at the outset, and maybe that was necessary to clear
• 45:15
  Speaker 1: the way for renewed prosperity. But the renewed prosperity was
• 45:18
  Speaker 1: not as good as what had come before. So I
• 45:19
  Speaker 1: think there is reason to wonder about our memories of
• 45:23
  Speaker 1: that period. The other thing that's really important, and this
• 45:26
  Speaker 1: particularly becomes true in the nineteen nineties, is that the
• 45:28
  Speaker 1: nineteen nineties really reaped the fruit of earlier periods. The
• 45:32
  Speaker 1: nineteen nineties happened because the federal government had invested massively
• 45:35
  Speaker 1: in technology UH and had built a new industry, a
• 45:39
  Speaker 1: new sector of the economy with public funding that it
• 45:43
  Speaker 1: then turned over to the private sector to exploit and
• 45:45
  Speaker 1: to realize. And that was great, and productivity rose, and
• 45:48
  Speaker 1: we had a genuine economic miracle. But the basis of
• 45:51
  Speaker 1: that miracle was the investment in earlier eras. And instead
• 45:54
  Speaker 1: of paying it forward, what the federal government did in
• 45:56
  Speaker 1: the nineteen nineties was to sharply reduce funding for the
• 45:58
  Speaker 1: things that had worked previous slee so that we weren't
• 46:01
  Speaker 1: funding new technology, we weren't funding infrastructure. And one of
• 46:04
  Speaker 1: the really important ones that people miss is when you
• 46:06
  Speaker 1: go into the nineteen nineties, the American adults who are
• 46:09
  Speaker 1: coming into the workforce in those years, the rate at
• 46:11
  Speaker 1: which they have college degrees is much higher than any
• 46:14
  Speaker 1: other developed nation. We had a huge educational advantage during
• 46:18
  Speaker 1: the nineteen nineties. At present, we've fallen off a cliff
• 46:22
  Speaker 1: were now below like thirteen other developed nations in the
• 46:25
  Speaker 1: share of our workforce that has college degrees. We've lost
• 46:28
  Speaker 1: that educational advantage. How do we gain it by massive
• 46:32
  Speaker 1: public investment in public education during the mid century. How
• 46:35
  Speaker 1: have we lost it by massive disinvestment in public education
• 46:39
  Speaker 1: during the nineteen nineties and since then. So I have
• 46:41
  Speaker 1: a little bit of an unusual view of the Clinton era.
• 46:43
  Speaker 1: I think it was a disaster for the American economy.
• 46:45
  Speaker 1: I think they basically harvested all of the trees that
• 46:48
  Speaker 1: had been planted in earlier eras and forgot to plant
• 46:51
  Speaker 1: any new ones. Quite quite interesting, you know, when I
• 46:55
  Speaker 1: look at that era of eighties and nineties, everybody immediately
• 46:59
  Speaker 1: thinks of the inter net. But if you want to
• 47:01
  Speaker 1: see some other government sponsored programs, or the outgrowth of
• 47:06
  Speaker 1: NASA and the Space race, semi conductors trace the White
• 47:11
  Speaker 1: Way back to to that. Everything on the computer side,
• 47:14
  Speaker 1: everything mobile, the GPS and satellites, and any sort of
• 47:18
  Speaker 1: communication that came out of that, all of that comes
• 47:21
  Speaker 1: from original government research. Absolutely. And another thing about semi
• 47:24
  Speaker 1: conductors that people don't know, which is very relevant to
• 47:27
  Speaker 1: this conversation, when when when A T and T invented
• 47:31
  Speaker 1: the semi conductor, the government forced it to share the technology.
• 47:35
  Speaker 1: A T and T literally held seminars where it invited
• 47:38
  Speaker 1: its competitors rival firms to come to New York for
• 47:41
  Speaker 1: training in how to make semi conductors because the government,
• 47:45
  Speaker 1: as part of its antitrust program at the time, was
• 47:48
  Speaker 1: committed to ensuring that large corporations couldn't monopolize important technologies.
• 47:53
  Speaker 1: So it forced the sharing of semi conductors. And you
• 47:56
  Speaker 1: know what you get from that is personal computers, Intel
• 47:59
  Speaker 1: and a thing where there's a chip involved. And I
• 48:01
  Speaker 1: think computer cars are now the second largest consumer of chips.
• 48:05
  Speaker 1: It's incredible. It forced IBM to share, uh, the ability
• 48:09
  Speaker 1: to write software, and one of the first companies to
• 48:11
  Speaker 1: take advantage of a company called Microsoft, forced Microsoft to
• 48:15
  Speaker 1: like Google onto its machines. Nobody is forcing Google to
• 48:18
  Speaker 1: make way for the next competitor. Um. So you know,
• 48:21
  Speaker 1: once again, you've got a role the government played for
• 48:23
  Speaker 1: a long time in enforcing antitrust rules in making space
• 48:28
  Speaker 1: for new companies that it's no longer playing. It's another
• 48:31
  Speaker 1: example of this phenomenon that is quite horrifying, because nothing
• 48:36
  Speaker 1: worse than eating your own uh, your own seed corn
• 48:40
  Speaker 1: when it comes to that. Um. So, so you start
• 48:43
  Speaker 1: the book, I have to come back to this because
• 48:45
  Speaker 1: I find it fastening, and you start the book during
• 48:48
  Speaker 1: Nixon's presidency, is that because of the shift that Milton
• 48:53
  Speaker 1: Friedman represented or was it really where the post war
• 48:57
  Speaker 1: period pivots towards the modern ear. It's both things, right.
• 49:01
  Speaker 1: So you see that this era, what the French called
• 49:04
  Speaker 1: the thirty glorious years after World War Two, is coming
• 49:07
  Speaker 1: to an end. Growth is faltering. Policymakers are casting about
• 49:11
  Speaker 1: for alternatives for answers and the answer that they find.
• 49:14
  Speaker 1: Milton Freeman famously says that, you know, the way that
• 49:16
  Speaker 1: you convince policymakers is by stocking the fridge with options,
• 49:19
  Speaker 1: so that you know when they need something when they
• 49:21
  Speaker 1: go there, they opened the door. There it is, and
• 49:23
  Speaker 1: and his ideas were there. And so you know, beginning
• 49:26
  Speaker 1: in the late sixties and the early seventies, really beginning
• 49:29
  Speaker 1: in the Nixon administration, these ideas become influential and we
• 49:32
  Speaker 1: enter a new period in policy, a new period in
• 49:35
  Speaker 1: economic history. And that's really the focus of this book
• 49:38
  Speaker 1: is the revolution that began in those years, that that
• 49:41
  Speaker 1: began with economists taking over the asylum, no longer technocrats
• 49:46
  Speaker 1: or or non economic actors. And I have to tell you,
• 49:50
  Speaker 1: I found the book to be, uh, each chapter is
• 49:52
  Speaker 1: really very distinct, and I found the book to be
• 49:54
  Speaker 1: a very um enjoyable read. So one of the things
• 49:58
  Speaker 1: that that only tangentially gets discussed is the issue of
• 50:04
  Speaker 1: fiscal policy and how it affects monetary policy. There's an
• 50:08
  Speaker 1: argument to be made that following the O eight o
• 50:11
  Speaker 1: nine crisis, UH, there was a political response from the
• 50:16
  Speaker 1: Mitch McConnell's of the world, which was, we don't care
• 50:20
  Speaker 1: so much about you know, the country. We want to
• 50:23
  Speaker 1: just make sure this president is a one term president.
• 50:25
  Speaker 1: He literally uh mentioned our our job one is to
• 50:29
  Speaker 1: make sure this president doesn't get reelected. And so the
• 50:32
  Speaker 1: fiscal stimulus was really narrow temporary tax cuts, temporary extension
• 50:38
  Speaker 1: of unemployment benefits, and a couple of hundred billion dollars
• 50:43
  Speaker 1: UH in shovel ready infrastructure. The argument has been made,
• 50:47
  Speaker 1: following a crisis that size, this should have been a
• 50:49
  Speaker 1: two three four trillion dollar stimulus plan. So, so the
• 50:54
  Speaker 1: first question is how much did the lack of fiscal
• 50:57
  Speaker 1: response force a monetary response, and and is that the
• 51:02
  Speaker 1: role of the FED is that the proper role the
• 51:05
  Speaker 1: central bank should play. Yeah, so, I mean, as you said,
• 51:07
  Speaker 1: I think it's well documented that this was the Republican strategy.
• 51:10
  Speaker 1: Politically speaking, it also reflected an economic philosophy. Again that
• 51:14
  Speaker 1: goes back to Milton Friedman that said monetary policy is
• 51:17
  Speaker 1: the only effective lever for for for improving economic conditions.
• 51:23
  Speaker 1: That part of his central goal in the mid century
• 51:26
  Speaker 1: was to convince policymakers to stop using fiscal policy to
• 51:31
  Speaker 1: respond to recessions, to abandon the idea that government spending
• 51:35
  Speaker 1: or tax cuts could help. He argued that that was
• 51:38
  Speaker 1: always going to be damaging to the economy in the
• 51:41
  Speaker 1: long run and therefore should not be attempted. In the
• 51:44
  Speaker 1: short run. Monetary policy was primary. And you can trace
• 51:47
  Speaker 1: the rise of this idea through the famous you know,
• 51:51
  Speaker 1: the Paul Samuelson, the great mid century economists who dominated
• 51:55
  Speaker 1: the market for economics textbooks, uh, you know, released a
• 51:59
  Speaker 1: new addition every few years, and you can actually watch
• 52:01
  Speaker 1: economic ideas evolve. The consensus, the mainstream wisdom is sort
• 52:05
  Speaker 1: of charted in those books, and you can follow, you know,
• 52:08
  Speaker 1: from the sixties when Samuelson is saying fiscal policy is
• 52:11
  Speaker 1: really important, through the seventies when he says monterary policy
• 52:14
  Speaker 1: is also important, into the eighties when he says, actually
• 52:17
  Speaker 1: physical policy isn't important at all. Only monetary policy is important.
• 52:21
  Speaker 1: That is the victory of Milton Friedman, and so there's
• 52:23
  Speaker 1: this intellectual groundwork that's laid to say, basically, you know,
• 52:27
  Speaker 1: government spending doesn't actually help, so we're not going to
• 52:30
  Speaker 1: do it. That's politically convenient for the Republicans, but they
• 52:33
  Speaker 1: also have this intellectual foundation that they can stand on
• 52:36
  Speaker 1: in making that argument, in arguing that, you know, the
• 52:38
  Speaker 1: government should not do more. This was even more pronounced
• 52:41
  Speaker 1: in Europe and even more harmful there. I think there's
• 52:44
  Speaker 1: no question that a greater fiscal policy response was necessary
• 52:46
  Speaker 1: and would have been helpful. So you mentioned Europe, Look
• 52:49
  Speaker 1: what took place in the UK where they forget fiscal stimulus,
• 52:54
  Speaker 1: they want on full austerity. The argument is not only
• 52:57
  Speaker 1: did it not help, it made the situation worse. It
• 53:00
  Speaker 1: it hurt the GDP there her job creation, and ultimately
• 53:04
  Speaker 1: led to some degree to the rise of popularism and Brexit. Absolutely.
• 53:09
  Speaker 1: I mean, I think you know we've seen this, This
• 53:12
  Speaker 1: denigration of government, this sense that government does nothing productive
• 53:16
  Speaker 1: and that the best government is the smallest government, is
• 53:19
  Speaker 1: really problematic. It is clear that there is such a
• 53:22
  Speaker 1: thing as too much government. It is clear that spending
• 53:24
  Speaker 1: can be excessive or wasteful, that it can create problematic incentives.
• 53:29
  Speaker 1: These things are all true, but it is also clear
• 53:32
  Speaker 1: that you can have too little and that you can
• 53:34
  Speaker 1: cut too much, particularly during periods of economic difficulty, and
• 53:38
  Speaker 1: and Britain is living evidence of it. I mean, they've
• 53:40
  Speaker 1: really damaged their economy, the viability of their polity, their
• 53:45
  Speaker 1: future prospects. I would not want to be the parent
• 53:48
  Speaker 1: of a young child in Britain right now. Really that
• 53:50
  Speaker 1: that's that's a serious statement. Um, So what about here
• 53:54
  Speaker 1: in the United States? We're seeing fiscal stimulus, but not
• 53:59
  Speaker 1: in terms of government spending an infrastructure, but rather in
• 54:03
  Speaker 1: terms of tax cuts and reduce government role. How does
• 54:07
  Speaker 1: that play out here relative to the EU or UK?
• 54:11
  Speaker 1: So tax cuts as an incentive, as a stimulus programmer
• 54:14
  Speaker 1: kind of second best and and politically they've been much
• 54:17
  Speaker 1: more palatable, and so we've tended to rely on them
• 54:19
  Speaker 1: in recent decades. They help, they don't help as much.
• 54:23
  Speaker 1: The Trump administration actually has increased spending, particularly on defense,
• 54:26
  Speaker 1: pretty significantly. H And that how significantly How much as
• 54:30
  Speaker 1: the defense uptick actually been I don't have the numbers
• 54:33
  Speaker 1: in front of me, but but government spending is actually
• 54:35
  Speaker 1: if you look at the stimulus during the Trump here's
• 54:39
  Speaker 1: the fiscal side boost and spending is pretty close to
• 54:42
  Speaker 1: equivalent to the boost that you get from the tax cuts.
• 54:46
  Speaker 1: There's been a big increase in federal spending. It's gone
• 54:48
  Speaker 1: a little bit under the radar screen, but it's a
• 54:50
  Speaker 1: big deal. We used to call that weaponized Keensianism. I
• 54:53
  Speaker 1: don't know if people still use that phrase, but you know,
• 54:56
  Speaker 1: under rigg and a lot of money poured into the
• 54:58
  Speaker 1: military helped bankrupt the USSR because their system wasn't as
• 55:03
  Speaker 1: efficient as ours. Yeah, I mean, it's a long standing
• 55:06
  Speaker 1: feature of our economy and and it's sort of a
• 55:08
  Speaker 1: thing we can all agree to spend money on. It
• 55:10
  Speaker 1: has some real utility, but it's not as beneficial as
• 55:14
  Speaker 1: building roads or building you know, broadband infrastructure, or investing
• 55:18
  Speaker 1: in schools. It's the second best kind of spending. A
• 55:22
  Speaker 1: lot of the money goes overseas, a lot of it
• 55:24
  Speaker 1: gets put into things like bombs that blow up and
• 55:26
  Speaker 1: don't leave anything positive behind. It's not the greatest way
• 55:29
  Speaker 1: to spend money. It's better than nothing. It's not the
• 55:31
  Speaker 1: interstate highway system in terms of generating a multiplier effect.
• 55:35
  Speaker 1: That's right, so so that that's quite interesting. So, give,
• 55:39
  Speaker 1: given the lack of of fiscal stimulus, what is the
• 55:42
  Speaker 1: role of the Federal Reserve in a post crisis era?
• 55:46
  Speaker 1: So the Fed got left in this uncomfortable position where
• 55:48
  Speaker 1: it was the only game in town. The only people
• 55:50
  Speaker 1: who were willing to do more to engage the needs
• 55:54
  Speaker 1: of the economy were Federal Reserve policymakers and so they
• 55:57
  Speaker 1: threw everything they could at the problem, not necessarily as
• 56:00
  Speaker 1: quickly as they should have, but they cut rates to zero,
• 56:02
  Speaker 1: and then they started buying bonds in large quantities. They
• 56:05
  Speaker 1: were trying, but the reality is that they were never
• 56:08
  Speaker 1: going to succeed completely. They could not buy themselves revive
• 56:12
  Speaker 1: the economy. They did what they could. What they did
• 56:15
  Speaker 1: was important. Um, but I think one takeaway from this
• 56:19
  Speaker 1: past decade should be that that, uh, you know, fiscal
• 56:23
  Speaker 1: policy turns out to be really important. So one of
• 56:26
  Speaker 1: the more interesting and intriguing aspects of modern monetary theory,
• 56:32
  Speaker 1: or m m T as it's called, is that we
• 56:35
  Speaker 1: could do an infrastructure build of a few trillion dollars
• 56:39
  Speaker 1: by having the Treasury issue infrastructure bonds to fund it,
• 56:44
  Speaker 1: put it out there, and then let the Fed Reserve
• 56:47
  Speaker 1: use those bonds purchase those bonds as their QUEI uh,
• 56:51
  Speaker 1: and everybody's happy, the budget's balanced. The FED is basically
• 56:55
  Speaker 1: now in charge of fiscal and monetary policy. What are
• 56:59
  Speaker 1: your thoughts on that? So it's not clear to me
• 57:01
  Speaker 1: that there is a theory, a clear theory in m
• 57:05
  Speaker 1: m T, or at least I haven't encountered a consensus
• 57:08
  Speaker 1: description of what that would be. But let me say this.
• 57:10
  Speaker 1: It is clear that the United States has fiscal space
• 57:14
  Speaker 1: at present to spend more money, and if that money
• 57:17
  Speaker 1: is spent wisely, it is likely that we would recoup
• 57:19
  Speaker 1: a return on that investment. That if we invest in infrastructure,
• 57:23
  Speaker 1: if we invest in education, if we invest in you know,
• 57:26
  Speaker 1: these kinds of improvements that over time our economy will
• 57:29
  Speaker 1: grow fast enough, uh, you know, to make those worthwhile
• 57:33
  Speaker 1: uses of public resources we can borrow at low rates
• 57:36
  Speaker 1: right now, we'd be well advised to do so. I
• 57:38
  Speaker 1: don't think you need to necessarily wander into some of
• 57:41
  Speaker 1: the more extreme claims of m m T to accept
• 57:43
  Speaker 1: that basic set of premises about what is possible and
• 57:46
  Speaker 1: desirable at present. Alright, So, so I'm gonna throw a
• 57:50
  Speaker 1: curve ball at you right now, because what you just
• 57:52
  Speaker 1: said jogged my thought process. One of the nominees for
• 57:58
  Speaker 1: president tags you and say and says, I really want
• 58:03
  Speaker 1: to shake things up. What should I say to the
• 58:06
  Speaker 1: American public about infrastructure spending, about US reinvesting in our future,
• 58:12
  Speaker 1: and about teeing up the rest of the twenty one century?
• 58:18
  Speaker 1: As for America as an economic leader, what advice would
• 58:21
  Speaker 1: you give that person? I'll say two things about that.
• 58:24
  Speaker 1: The first is that a lot of Americans find themselves
• 58:27
  Speaker 1: looking with envy at the success of uh, you know,
• 58:31
  Speaker 1: Asian countries that have managed rapid economic growth in recent decades.
• 58:35
  Speaker 1: A very important thing to know about that is that
• 58:37
  Speaker 1: those countries took the recipe from the United States. We
• 58:41
  Speaker 1: invented this formula. We invented this formula of investing in
• 58:44
  Speaker 1: domestic manufacturing, investing in education, growing in industrial base, cultivating
• 58:50
  Speaker 1: export industries. These were American innovations, and and they have
• 58:55
  Speaker 1: spread to the rest of the world and been used
• 58:57
  Speaker 1: successfully by other countries. UH. The lesson of recent decades
• 59:01
  Speaker 1: is that, UH, that type of investment, that type of
• 59:04
  Speaker 1: concerted effort, is productive and beneficial if it's well managed. UH.
• 59:08
  Speaker 1: And so I think, you know, we need to get
• 59:10
  Speaker 1: back to the things that have worked for America in
• 59:12
  Speaker 1: the past. Uh. You know, if you look at our
• 59:16
  Speaker 1: golden age in the mid century, Uh, it had a
• 59:19
  Speaker 1: lot to do with the way that government policy was managed.
• 59:21
  Speaker 1: And and we do well not to go back to
• 59:24
  Speaker 1: that and its entirety, because there are problems with it
• 59:26
  Speaker 1: and it broke down. Uh, And it's important to recognize
• 59:29
  Speaker 1: that it did so. But there are some valuable lessons there. Um.
• 59:32
  Speaker 1: But this is a little bit of avoiding the question.
• 59:34
  Speaker 1: But let me tell you my barometer for a presidential candidate. Uh,
• 59:38
  Speaker 1: the American that the iconic American worker is not a
• 59:42
  Speaker 1: steel worker today, it's it's a woman who's providing home
• 59:46
  Speaker 1: health care services for an AGA for an aging baby boomer.
• 59:49
  Speaker 1: That is the rapid that's the most rapidly growing sector
• 59:52
  Speaker 1: of employment. That is the identity of the American blue
• 59:56
  Speaker 1: collar worker. And the question is what are we doing
• 59:58
  Speaker 1: to improve their life because they're making something very close
• 1:00:01
  Speaker 1: to minimum wage, they work on too horrible conditions, they
• 1:00:04
  Speaker 1: don't have benefits, they don't have vacation time, they're easily
• 1:00:08
  Speaker 1: fired and replaced. Their life is not what it should be.
• 1:00:12
  Speaker 1: That they're not living the American dream, and they have
• 1:00:14
  Speaker 1: no opportunity to live the American dream. And so for me,
• 1:00:17
  Speaker 1: the standard frinding presidential candidate is, what are your policies
• 1:00:20
  Speaker 1: going to do to improve the life of a forty
• 1:00:23
  Speaker 1: five year old home health care worker? Because that person
• 1:00:27
  Speaker 1: is the person who needs our help right now. Quite fascinating.
• 1:00:31
  Speaker 1: So let's jump to our favorite questions that we ask
• 1:00:35
  Speaker 1: all of our guests, sort of our speed rounds on.
• 1:00:38
  Speaker 1: Let me jump right into this. What was the first
• 1:00:41
  Speaker 1: car you've ever owned? Your making model? I don't know
• 1:00:44
  Speaker 1: what year it was. It was an old Ford Escort,
• 1:00:46
  Speaker 1: old red Ford Escort that my father gave me when
• 1:00:48
  Speaker 1: I graduated from college. It had been his commute car,
• 1:00:51
  Speaker 1: and I inherited it and drove it until it was total. Uh,
• 1:00:55
  Speaker 1: tell us the most important thing people don't know about,
• 1:00:58
  Speaker 1: binya apple Bound. Wow, the most important thing. I don't
• 1:01:03
  Speaker 1: even know how to answer that question. Um, how about
• 1:01:06
  Speaker 1: your mentors? Tell us who your early mentors were. You know,
• 1:01:09
  Speaker 1: I was really lucky to work for some great editors
• 1:01:12
  Speaker 1: and to work with some great colleagues at the Charlotte Observer.
• 1:01:14
  Speaker 1: That's where I think I really grew up as a journalist.
• 1:01:17
  Speaker 1: And so my editor there Patrick Scott and Ted Melnick,
• 1:01:20
  Speaker 1: who was the data guy there who I collaborated with
• 1:01:22
  Speaker 1: on a series of projects. I really feel like, you know,
• 1:01:26
  Speaker 1: I learned journalism and grew up as a person in Charlotte,
• 1:01:30
  Speaker 1: and so i'm I'm indebted to the folks I worked
• 1:01:32
  Speaker 1: for and worked with at The Observer. Any particular authors
• 1:01:37
  Speaker 1: or journalists who influenced your approach to covering the Federal Reserve,
• 1:01:41
  Speaker 1: covering the FED specifically, I mean, I think Greg it
• 1:01:44
  Speaker 1: is kind of the gold standard in our r. I
• 1:01:46
  Speaker 1: think his his understanding of monetary policy and his clarity
• 1:01:51
  Speaker 1: as a journalist are just things that I admire enormously.
• 1:01:55
  Speaker 1: And um full disclosure, he took me to task for
• 1:01:58
  Speaker 1: calling um Rome pal hawk. I really should have said,
• 1:02:02
  Speaker 1: Jerome Pale is more hawk ish than yelling. She's not.
• 1:02:05
  Speaker 1: He's not a pure hawk. So Greg, here's your Mia
• 1:02:09
  Speaker 1: Kalpa live and in public. Um everybody's favorite question. Tell
• 1:02:15
  Speaker 1: us some of your favorite books. What do you read?
• 1:02:17
  Speaker 1: Be they FED or economics related or not? Fiction or nonfiction?
• 1:02:22
  Speaker 1: So I read a lot about you know, the ft
• 1:02:24
  Speaker 1: and monetary policy, but you know that's not necessarily the
• 1:02:27
  Speaker 1: most enjoyable stuff that I read. Uh I love history,
• 1:02:30
  Speaker 1: you know. I My approach to to writing deeply influenced
• 1:02:33
  Speaker 1: by historians like Daniel Borstein and fernand Brodel, who who saw,
• 1:02:38
  Speaker 1: you know, economics and history has integrated. I'm very frustrated
• 1:02:42
  Speaker 1: in general that historians pay very little attention to economics
• 1:02:45
  Speaker 1: and that economists pay very little attention to history. So
• 1:02:48
  Speaker 1: people who work at the intersection of those two things,
• 1:02:50
  Speaker 1: who see the connections, who understand how much history has
• 1:02:53
  Speaker 1: been shaped by economic forces, who understand how much economics
• 1:02:57
  Speaker 1: exists in a historical context, those, to me are are
• 1:03:00
  Speaker 1: the people that I admire and love reading. Give us
• 1:03:02
  Speaker 1: some book titles. Everybody wants a good book recommendation. Well,
• 1:03:05
  Speaker 1: you know, Fernan Brod I wrote this series of three books,
• 1:03:10
  Speaker 1: The Wheels of Commerce maybe is the first of them.
• 1:03:12
  Speaker 1: You can find them, but they're basically is history of
• 1:03:14
  Speaker 1: of Europe's rise into the modern era. Just fascinating books
• 1:03:19
  Speaker 1: that that integrate economics and history in a way that
• 1:03:22
  Speaker 1: you know, at the time was unprecedented and remains deeply influential.
• 1:03:25
  Speaker 1: Uh So, I love those books. Daniel Borstian's trilogy on
• 1:03:29
  Speaker 1: the American Experience just a wonderful history of of the
• 1:03:32
  Speaker 1: United States that again has this capacity to tell our
• 1:03:35
  Speaker 1: story much of what is so innovative and important about
• 1:03:38
  Speaker 1: America as its rise as a commercial power and a
• 1:03:40
  Speaker 1: commercial innovator. And he really captures that aspect of the
• 1:03:44
  Speaker 1: American experience in a way that I think most historians
• 1:03:47
  Speaker 1: failed to do. Uh, tell us about a time you
• 1:03:50
  Speaker 1: failed and what you learned from the experience. I already
• 1:03:54
  Speaker 1: mentioned my my inability to get millions and billions straight
• 1:03:57
  Speaker 1: in my first banking story, you know, and I know
• 1:04:00
  Speaker 1: I think you know again to go back to Charlotte.
• 1:04:02
  Speaker 1: You know, the importance of making sure that all the
• 1:04:05
  Speaker 1: facts are right in a story is something that as
• 1:04:07
  Speaker 1: a young journalist I didn't do. I didn't have a
• 1:04:09
  Speaker 1: high enough batting average. And you know, I had an
• 1:04:11
  Speaker 1: editor who told me, you know, if you get one
• 1:04:12
  Speaker 1: thing wrong, even if it's a small thing, the credibility
• 1:04:15
  Speaker 1: of your entire story is lost. And and understanding that
• 1:04:18
  Speaker 1: and internalizing that was was a very important step in
• 1:04:22
  Speaker 1: in my development. What do you do for fun to
• 1:04:24
  Speaker 1: either relax or get out of the office. What do
• 1:04:27
  Speaker 1: you do when you're not in front of a computer writing?
• 1:04:29
  Speaker 1: I love reading. I guess that's probably already clear. I
• 1:04:32
  Speaker 1: like running. I have two young kids, and I love
• 1:04:35
  Speaker 1: spending time with them. That's that's pretty much a full life.
• 1:04:39
  Speaker 1: With regards to the Federal Reserve, what are you most
• 1:04:41
  Speaker 1: optimistic about today and what are you most pessimistic about?
• 1:04:46
  Speaker 1: So I think that the FED has undergone a really
• 1:04:48
  Speaker 1: important evolution in recent years, that it has embraced a
• 1:04:52
  Speaker 1: broader set of responsibilities. That it seems to recognize that,
• 1:04:57
  Speaker 1: you know, it can't simply pursue lower inflation without regard
• 1:04:59
  Speaker 1: to the consequences for American workers. That it can't ignore
• 1:05:03
  Speaker 1: finantal regulation without regard to the consequences for all of us.
• 1:05:07
  Speaker 1: That's really important. And I'm optimistic that the VET is
• 1:05:09
  Speaker 1: going to move forward, uh, you know, with those things
• 1:05:13
  Speaker 1: in mind, and that that will give it a better
• 1:05:15
  Speaker 1: chance of of producing good results over time. On the
• 1:05:19
  Speaker 1: flip side, you've got to be a little concerned about
• 1:05:21
  Speaker 1: the feds room for maneuver rates are very low while
• 1:05:24
  Speaker 1: the economy is growing. There's not much room to cut
• 1:05:27
  Speaker 1: rates when the next downturn comes. Uh. You know, they
• 1:05:30
  Speaker 1: can do some bond buying, but a not totally clear
• 1:05:33
  Speaker 1: how much that helps and be uh, you know, there
• 1:05:35
  Speaker 1: are limits on that too. I think there's reason to
• 1:05:39
  Speaker 1: be worried about the FEDS capacity to help if things
• 1:05:41
  Speaker 1: go south, and reason to be worried about the willingness
• 1:05:44
  Speaker 1: of fiscal policy makers to step in. What sort of
• 1:05:48
  Speaker 1: advice would you give a millennial or recent college grad
• 1:05:51
  Speaker 1: who was just starting their career and interested in either
• 1:05:55
  Speaker 1: journalism or central bank and economic coverage, So if you're
• 1:06:00
  Speaker 1: specifically interested in writing about business and economics, I think
• 1:06:03
  Speaker 1: one thing that has changed in journalism in recent decades
• 1:06:07
  Speaker 1: is that it was once the case that the journalism
• 1:06:09
  Speaker 1: was much more stenographic. Your job was to sort of
• 1:06:13
  Speaker 1: transfer the things that important people said to your readers
• 1:06:16
  Speaker 1: with relatively little intermediation. There's a real priority now on expertise.
• 1:06:21
  Speaker 1: You really need to know your subject, and so if
• 1:06:24
  Speaker 1: you know what subject that is, you will serve your
• 1:06:27
  Speaker 1: cause by by studying it and trying to master it
• 1:06:31
  Speaker 1: and becoming deeply versed. The best journalists, the ones that
• 1:06:34
  Speaker 1: I follow most closely, the ones who most regularly illuminate
• 1:06:38
  Speaker 1: issues for me, tend to be really not just really smart,
• 1:06:42
  Speaker 1: but really well versed in their subject, really careful about
• 1:06:46
  Speaker 1: the details. And that's hard, and it takes time, but
• 1:06:49
  Speaker 1: but it will give you a competitive advantage. And our
• 1:06:52
  Speaker 1: final question, what is it that you know about the
• 1:06:55
  Speaker 1: world of finance and central banking today that you wish
• 1:07:00
  Speaker 1: you knew twenty five or so years ago when you
• 1:07:02
  Speaker 1: were first getting started. Yeah, I mean, I guess you know.
• 1:07:05
  Speaker 1: One thing you learn is you get inside any system
• 1:07:08
  Speaker 1: is how much of it is a little random, how
• 1:07:10
  Speaker 1: much of it is is sort of arbitrary, and and
• 1:07:13
  Speaker 1: things that you assume must have sort of a clear
• 1:07:15
  Speaker 1: and logical explanation turn out to not not actually operate
• 1:07:18
  Speaker 1: that way. So just I think to you know, have
• 1:07:22
  Speaker 1: understood that this is true of just adulthood in general.
• 1:07:25
  Speaker 1: Like you think that there's a reason for everything, and
• 1:07:28
  Speaker 1: then you know, you become an adult and it turns
• 1:07:30
  Speaker 1: out that a lot of things just happened. So just
• 1:07:33
  Speaker 1: randomness sits out there. Yeah, quite quite interesting. We have
• 1:07:36
  Speaker 1: been speaking with Benya Applebaum. He is a lead writer
• 1:07:40
  Speaker 1: on business and economics for the editorial board of The
• 1:07:43
  Speaker 1: New York Times and the author of the new book
• 1:07:46
  Speaker 1: The Economists Hours, False Profits, Free Markets, and the Fracture
• 1:07:50
  Speaker 1: of Society. If you enjoy this conversation, well, have a
• 1:07:54
  Speaker 1: look up an inch or down an inch on Apple
• 1:07:56
  Speaker 1: iTunes and you could see all of the previous two
• 1:07:59
  Speaker 1: hundred and fifth ye or so podcasts and interviews we've
• 1:08:03
  Speaker 1: done over the past five years. We love your comments,
• 1:08:07
  Speaker 1: feedback and suggestions right to us at m IB podcast
• 1:08:12
  Speaker 1: at Bloomberg dot net. Feel free to go to Apple
• 1:08:14
  Speaker 1: iTunes and give us a review if you enjoyed this conversation.
• 1:08:19
  Speaker 1: Uh I would be remiss if I did not thank
• 1:08:21
  Speaker 1: the crack staff that helps put this together each week.
• 1:08:24
  Speaker 1: Michael bat Nick is my head of research Atika V
• 1:08:27
  Speaker 1: Album Run is our project director. Michael Boyle is my producer.
• 1:08:32
  Speaker 1: I'm Barry Retults. You've been listening to Masters in Business
• 1:08:36
  Speaker 1: on Bloomberg Radio