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Bloomberg Audio Studios podcasts, radio,

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>> Hello and welcome to another episode of

the OddLotss podcast. I'm Jill

Weisenthal [music]

>> and I'm Tracy Aloway.

>> Tracy, it's uh January 28th. I think our

new mayor in here in New York City, I

mean, he hasn't done much, but the

snowstorm seemed to go fairly well. Not

too many big disruptions.

>> I wasn't here, but you were able to walk

around, get out of your apartment.

>> There have been several mayors whose

like entire reputation failed because

they couldn't handle a snowstorm and so

he seems to have passed the first test.

So, I

>> it feels like a low bar for New York

mayors. I got to say

>> my guess is if we looked at uh I agree

it is a low bar but on the other hand

it's like okay first big test of the new

administration seems to be doing well. I

don't think however ultimately the Zoran

Donni administration will be judged on

snow removal like this is not going to

be how history probably remembers how

well

>> no and he certainly wasn't elected on

his snow removal capabilities. Although

I did see the videos of him, you know,

getting his shovel out and

>> he's so good at like retail politics.

Like that was like such he was so good

at that. Yeah.

>> But speaking of tests, I mean there are

bigger tests coming up, right? Mostly

concentrated in the economic policies

here,

>> right? I think we know like sort of and

of course we talked to him but like the

affordability question in New York City

clearly central one of the if the most

central topic in the campaign

>> and what I would say is that the very

most not all of them but at least a

handful of the ideas that he has

proposed are the types of ideas that

like economists hate them right so

especially anything where the government

is intervening in rent the idea of like

I there might not be a more hated idea

among economists than anything that

smacks rent control or anything like

that.

>> Right? So I am not very knowledgeable

when it comes to actual economic theory

and how it's developed over time. But

one thing I do know is that you know the

sort of forerunner or ancestor of a lot

of traditional economic theory that we

see today like neocclassical economic

theory

>> Adam Smith right talking about like the

free hand of the market

>> and how if the market is functioning

like everything should be fine right

>> yeah and and I think like economists

even like you know almost all but the

most sort of true hardcore less afair

economists

would say that there are areas that you

know they call market failure, right?

There are certain situations in which

maybe we can't expect markets to do the

job. Maybe they'd say like, "Oh, it

really doesn't make sense to have like

private fire departments for example."

Although some people actually do propose

private fire departments, but yeah, you

know, even the most sort of like true

believers sort of liberal or

neocclassical economics, they're like,

"Oh yeah, well there are market

failures,

>> right? In which case the government

should

>> and then there is a role but only in

failure that it unless you that you like

define some area it's like okay there is

a reason why markets don't work for this

particular area but that after then

sandboxing a few of those things then

it's like okay as much as possible you

just want to you want to let them

>> out don't interfere

>> let the price signals do their work.

>> Yeah. So this has become I guess the

orthodoxy.

>> Yeah. And Mumani is very much in the

>> the heterodox.

>> The heterodox. Yeah. That's a word that

always comes up when people are talking

about well when economists are talking

about policies that they don't like.

>> That's right. [laughter]

That's right. It's a euphemism for

policies that they they're like, "Oh,

no. At least a handful of people wear

that badgely."

>> But like these history, how did they

become the orthodoxy, etc., right? Like

it's not like the law of gravity, right?

Or that the earth is round, which are

orthodox ideas for a good reason. There

are some people who don't believe that

the earth is round, but they're like I

think we it's pretty good. We have good

reason to believe it. And there the

people who don't believe that the earth

is round, they're not heterodox, they're

cranks,

>> right? Right. Like that's like there's

sort of a difference. Those are cranks.

And so, but where did these orthodoxies

emerge from? How did some ideas get

shunted into the category of heterodoxy

or whatever?

>> And how did they evolve?

>> I have no idea. Like I mean, I've read a

little bit about the past, but uh this

is not much I don't know much about

this.

>> We should talk about it. We should,

especially because I our new mayor may

in fact pursue some heterodox ideas

about economic management. Anyway, I'm

very excited to say we really do have

the perfect guest. We're going to be

speaking with Johnny Modude. He is a

professor of economics at Sarah Lawrence

College, also a board member of the law

and political economy collective and

he's written a lot about these topics

including sort of the intellectual

history of some of these economic ideas.

So, uh, Jamie, thank you so much for

coming on Oblad. Thank you so much and

Tracy.

>> What kind of stuff are you teaching the

kids at Sarah Lawrence these days?

>> So the interesting thing is I teach

introduction to economic theory and

policy which is a year-long lecture and

that actually deals with some of these

central questions markets money the

monetary system and so on and I actually

teach econometrics.

>> When you say actually it's because like

people don't expect the sort of

unorthodox thinker to like actually

[laughter] do the numbers the technical

stuff. So it's interesting that you

posed that way because one of the things

that I do teach in econ econometrics is

method

>> like you know like when you're it's not

just about number crunching but where do

you get the numbers from?

>> Yeah. And so like weaving in these

questions of method as we're trying to

understand social and economic reality

is it makes for

a solid training in economics and you

know so those questions of method woven

into the construction of theory. Yeah.

That kind of informs the way I teach

>> and why that matters not just as kind of

a an intellectual exercise but why that

matters for practical issues like what

you what you guys were talking about. So

truly the perfect guest. Maybe just to

begin with, we could perhaps define our

terms a little bit. You know, Joe and I

gave a probably terrible summary of

neocclassical economic thought, but in

your mind, what is the orthodoxy?

>> So the orthodoxy is neocclassical

economics. It comes from an intellectual

tradition which

so if I may differ a little bit with

what you said about Adam Smith

>> Adam Smith is not the forerunner of

neocclassical economics the expression

invisible hand in fact I have my

students do this experiment every time

because it's an 800page book the wealth

of nations how many times does the

expression invisible hand appear there

once so the point here is that there

there was an older idea of what markets

and of capitalism

are and that gets revived again in the

1920s and 30s and I'll talk about that

later but that older idea which is

called classical political economy did

not make any assumptions about human

behavior that human beings are

inherently rational that markets behave

in this optimal manner at full

employment that would be neocclassical

economics right that knowledge is more

or less perfect there was none of that

>> you talk into the classical economics

prior to neocclassical. Exactly. Or talk

what years and what thinkers are we

talking about here.

>> So let you know we could just talk about

Adam Smith.

>> Okay. Oh yeah. Great.

>> To some extent David Ricardo, Karl Marx,

the physiocrats. I mean so you had a

range of authors in a wide range you

know who ideologically not necessarily

on the same page but they had a vision

of capitalism which so the original name

of economics was political econ economy

and that meant that you you cannot

really talk about economic questions

without thinking simultaneously about

politics and many of these folks were

actually trained in law so the question

of law's role in structuring the

economy. This kind of lurks in that

intellectual tradition. And one of the

implications was that the economy is not

some natural transhistorical

institution or thing but is profoundly a

product of history. And I think that's

where the big split arises because if

you teach or if you study neocclassical

economics, it is taught in a way by

which the economy is treated as

something eternal as something almost in

naturalistic terms and therefore

>> like gravity.

>> Like gravity,

>> the economy is always there.

>> Exactly. But but but also like the

rational individual general equilibrium

theory all of these things are

supposedly just happen. And in that

sense this idea of less affair that the

economy is fundamentally prepolitical

that it arises before politics rather

like the kernel of a walnut in which the

walnut which is the shell is if you

think is you know constitutional law or

politics or law that e emanates from

politics that would enase this thing

called the economy and only under

extreme sense of this neocclassical

economics if there is quote unquote

market failure then the state can step

in a little bit to do this that or the

other but fundamentally leave the market

be and you're familiar with this

argument this idea

>> is not really there in Smith

>> and one of the things that people

sometimes get surprised about and I

always tell this to my students is read

his chapter on wages in the wealth of

nations and he says very clearly that

there is a difference in power between

those who own property and workers who

don't own property so this idea that The

market is sort of this place where

equals meet to create contracts. That

was not in Smith. It was not in Ricardo.

And of course, you know, that was not

there in Marx. But people, if you evoke

Marx, then people often say, well, you

talk about socialism. Well, but Smith

was not a socialist.

>> What was his idea? Like what what what

was his contribution? Or I admit like

I'm like guilty to like, oh, Adam Smith,

Invisible Hand, the Butcher, they all

work together, blah blah blah. But I

have been told and I have heard that the

sort of caricature that we all have of

Smith is wrong. What was his project?

>> So I think the way to think about it is

you know just to sort of get out

something which I think is kind of

important which is institutions.

>> Okay. Now there have been many different

readings of Adam Smith and so I'll come

to that in a little bit. But just to get

it out there, when when you talk about

institutions, you're talking about the

system of implicit and explicit social

constraints within which we exist,

right? So we are having the spontaneous

conversation but in the context of a

building

>> uh which is subject to certain zoning

laws and so on. We may and you know in

in current zoning laws we cannot smoke

but we were

>> there are certain expectations involved

in

>> but those expectations are codified in a

kind of a legal framework right so

institutions the formal institution is

law and informal institutions are

cultural norms and notions of right and

wrong and justice and all this so Adam

Smith according to I think is a

convincing strain of thought was an

institutionalist he understood that Yes,

the sphere of private behavior, private

interactions, lesser affair actually

sits on a foundation

which is of human creation. The system

of property rights and the system, you

know, the system of you power relations

and all of that. So politics was already

there. It's not that the economy was

pre-political and those ideas if you

read Adam Smith his Glasgow University

lectures 17 you know that was before the

wealth of nations it's very clear that

he he's writing that but what happens is

the rise of neocclassical economics in

the late 19th century eviscerates that

history and it changes the story the

political goes out of a political

economy and it becomes economics so the

principles of economics and so then this

generation of economists trained to

think of the economy as completely

separate from politics

>> right

>> and that in the post-war period uh so

that leads to what is called the

Walrasian general equilibrium theory and

I'll be happy to explain that yeah

>> can I just ask I I have so many

questions already but what was the

environment that actually gave rise to

the neocclassical

>> so this is really interesting because

we're talking about the late 19th

century

And this is a time of enormous social

turmoil,

>> right?

>> So to think that an idealized view of

markets would arise when you know you've

got the Great Depression of the 1890s

>> and then it goes through World War I and

World War II.

>> Yeah. Yeah. But here's the funny thing

that happens in this tradition. So what

is interesting about American economics

is that the American economic

association is founded by

institutionalists but institutionalists

not of the neocclassical kind. They were

explicit. So they were trained these

these authors like um Richard T. Eli and

others they were trained in the German

historical school of economics and the

method of the German historical school

of economics was that theory has to be

constructed in dialogue with social

reality.

Web Duboce

trains in at Berlin

>> but as a sociologist and he brings that

method to the study of racial

inequalities in this country in which

he's constructing a theory of race and

class by looking at actually the the

living standards of black people in this

country. Right? So it's a particular

method that was not deductive but it was

inductive. It was engaging with social

reality. So what happens is that when

the AEA is constructed of American

economic association, these are

institutionalists of that kind and they

come to dominate American economics

right through the 1930s

informing many of these uh economists

and lawyers who who were part of

Roosevelt's brains trust. I mean many of

those folks were lawyers but you had

these folks who were trained in a way by

which they were absolutely opposed to

this idea that the economy is

prepolitical

>> right what happens in the 1940s

is the you know the war and then you had

the role and so Philip Morowski

discusses this in his book he's a

historian of economic thought uh machine

dreams in which he argues that economics

eventually becomes dominated ated by

mathematicians

and engineers who who kind of eviscerate

society and politics and history and

construct the economy as a machine

populated by cyborgs right

pre-programmed

>> perfectly rational

all knowing allseeing etc etc and that

way of conceptualizing economics

eclipses this older tradition and in so

doing becomes dominant in in the 1950s

and60s and in this way it was very much

a state project in the sense that these

folks were employed at institutions that

got a lot of money from the department

of defense. M

>> so there was a very sort of like an

intellectual framework is being

constructed about the economy

>> in which many of these authors were very

explicitly trying to model weapon

systems

>> input output that kind of thing and that

how do you optimize this input output

system that the flying plane how to

shoot it down etc. So the economy

becomes this engine and becomes

increasingly more and more

mathematically sophisticated but in so

doing divorced from social reality. In

198586

the National Science Foundation convened

a symposium on the state of economics

teaching in the top graduate schools and

they were extremely concerned about what

was being taught. that led to uh the

commission on graduate education in

economics. It was a survey of the top

graduate programs in economics and the

article in question was published in the

journal of economic literature and what

and it was pretty dismal because it was

saying that these these students are

learning math econ but they cannot apply

this to social reality and the

conclusion was quite interesting. They

said the concern is that the profession

is training idiots savons. That was an

exact term in the JAL article.

>> It's not the worst thing that's ever

been said about economists.

>> Yeah, that's true. That's true.

>> So this issue of the way by which the

discipline itself has sort of captured

the narrative in which math becomes

rigor as opposed to history and society.

And so then government intervention and

non-intervention become the sort of

flash points of the fight. But it's a

false debate, I would argue.

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Can we talk a little bit more about the

post-war environment coming out of the

1940s?

My impulse I feel like if I were there

it's like oh you know governments can be

absolute monsters right and

>> talking about the McCarthy

>> no I'm talking about the rise of dict

militaristic dictators like all around

the world like true like true the sort

of like monstrous creations and of

course the first half of the 20th

century was like characterized by the

rise of like

>> with strong industrial policy my impulse

like I think if I had been around in the

1940 I was like, "Oh, we need to like

come up with an economics that

constrains the state as much as possible

because we've just witnessed how the

state can be absolutely monstrous and

destructive." And of course, right

before that was the Great Depression,

etc. Like

>> I don't know. I I I would have I just in

my mind

>> I would have a lot of sympathy for that

view at the time.

>> Sure. Here's the thing though. So this I

discussed this in one of the chapters in

my book and I had a lot of fun writing

about this

>> is that if you look at post second world

war European reconstruction

>> it involved

it's not less affair not at all it

involved industrial and social policies

right the mobilization of central banks

and actually the US Congress had two

studies done on European central banks

role in mobilizing finance and credit to

promote industrial and social policies

you know the reconstruction building of

hospitals etc etc and the export

economies and France and Germany and so

on so you did have pretty strong state

>> but these were dem social social

democratic states and this is an

important point I mean the you know so

so for example the bank of France is

nationalized in 1945 or 444 and the

national credit council which is at the

core of the bof has in it different

constituents of French society, unions,

employers, farmers and so on who are

sort of involved in planning the

allocation of credit to different

sectors of society. Across the border in

Germany, you have the KFW which is a

public bank again with different

stakeholders including unions and they

are involved in sort of the economic and

social reconstruction through credit

allocation. But these were democratic

states you know sort of I hear you that

in the sense that for sure you can have

industrial policy of a type which is

consistent with authoritarianism.

>> Yeah.

>> And all of us would be opposed to

authoritarianism but there was

industrial policy of a social democratic

kind also and we have plenty of examples

of those just from post-war Europe.

>> So just to better understand maybe we

could apply some of the theory to

current economic policies. when you look

at Madani's agenda, you know, things

like [snorts] a freeze on rent or um I

think right now the hot topic is attacks

on billionaires,

>> right?

>> How does that fit into the intellectual

history of economics? And I guess how

heterodox is it versus the orthodoxy

that we've been talking about?

>> Well, I mean, it's a it's it's a it's a

big question in the sense that I can

answer it in two two ways. One is the

narrative that this is going to tank the

economy. So let's just talk about the

tax part. Let's just get that out of the

way. That this this small increase in

the billionaire tax is going to tank the

economy. And my responses, well, gez,

then capitalism would have been dead a

long time ago because the 16th amendment

would have killed American capitalism.

So that was

>> wait what's the uh oh is that the one

that gave the government the federal

government the ability to

>> well that was the 16th amendment really

legalized prog income taxes right and so

if you look at across the western world

you know like in the US tax rates were

actually much more progressive in as you

know in the 50s and 60s

>> other countries had this growth of more

progressive taxes Britain and France and

so on none of that led to the collapse

of capitalism and the

>> many people say those were the golden

ages of capitalism Okay. So the question

really is not the tax per se but what is

it being used for and right and so

that's that's a separate conversation

but is that necessarily is that contrary

to orthod orthodoxy and yes in a way it

is because it comes back to this idea

that analytically I mean every textbook

will tell you well you've got this

self-contained black box called the

economy which equilibrates at general

equilibrium the production possibility

frontier par optim mality all these sort

of aspects of orthodoxy. So any act of

state intervention into it will

automatically generate some negative

outcomes. Right? So from that standpoint

I I I would say that it is profoundly

opposed to the orthodoxy this way of

thinking about it. But if we think of

the orthodoxy as a touchstone or as a

gold standard then of course you would

say well these are outlandish ideas. But

if you don't fall into that then you

would say well yeah but this has been

done. So what is so weird about it?

>> Can we go back? I want to talk more

about the present tense, but we can't

just like jump over the war completely

without a you have you've

>> talked about reconstruction.

>> No, no, no. But uh sorry, I want to go

back to the war and not reconstruction.

Uh you're reading or you did read Wages

of Destruction,

>> right? Which is why I mentioned I mean

German industrial policy.

>> But it occurs to me there's something I

think is very interesting that I think

about it a lot and I'd love your take on

this. Like if we hear like someone is an

economist these days,

>> right?

>> You know, they come up with a bunch of

like big ideas, they have theories and

they run tests and write papers and try

to influence. But when you think of

like, okay, the economists in the

department of war in whatever country

was fighting at the time, etc. It seemed

like a more humble profession in the

sense like a lot of the jobs seem to

just be counting. Not even like advanced

mathematics per se, but the job seemed

to be a sort of like very like

>> the people who keep track of the

resources within the economy and those

were the economists which sounds to me

very different than the picture that we

would often get in our head today if you

hear that someone is an economist. Is

that fair?

>> Is that a fair understanding of history?

>> I'm not sure that I agree.

>> Okay, that's fine. Because I think that

I mean in some sense there's truth to

what you're saying because a lot of

these economists who were involved in

war planning

>> that's exactly what they were doing. I

mean you know yeah they were actually

but they were actually doing math

modeling. I mean the whole

mathematization

>> of post of post-war you know math econ I

mean all of that really came from like

sophisticated mathematical models. So it

did come from that. But I think maybe

what you might be getting at over here,

but you know, just tell me if this is

what you're trying to say. At least what

I'm hearing

>> is that this

>> notion that the economy is an engine and

the economist is like this technician

who's just like tinkering around with

things, right? And I think this idea

and and so that's how the economist is

kind of constructing this engine as

opposed to an economist who is actually

attempting to fix the engine but also

trying to see what the component parts

are built on. In other words, society

history.

>> I'm going to take what you said and make

it what I meant to say because I I do

I'm going to cheating.

>> Yeah, that's what I meant this. Oh,

that's exactly how I meant to put it.

Thank you for validating my perspective

on this.

>> Okay. And I think those reflect two very

rival methodologies. Okay.

>> So the I think that one of the things

that so often gets missed out in the in

the teaching of economics and then the

learning of economics is that the

students don't learn method. You know

they could say that I mean a textbook

should say okay this is neocclassical

economics. Here is a method that is used

and here is this alternative. Call it

whatever you like to. I generally don't

use hetrodox economics. I say critical

political economy or you know that kind

of thing. It employs a different method

>> and here's why it matters. Now if you

just do like spend a few chapters on

that that already sets the stage for an

intelligent conversation. But if you

don't do that and it's just that this is

economics then what happens is it it

kind of leaves out any possibility of

even understanding the world. Right? So

Chinese, the Chinese economic miracle,

the Japanese economic miracle, those are

seen as somehow

>> I don't know that they were cheating.

>> Right.

>> Right. This this notion that these

countries were cheating

>> as opposed to saying well they use no

they use industrial policy of a certain

kind. So did Sweden of a different kind

uh in the post-war period. And can we

learn something from that theoretically?

And what does that say about the

relationship between politics and

economics which is exactly where we

started out with and I think that's the

way the conversation should go.

>> Got it. Can you just remind me very

quickly but how does neocclassical

economics actually explain the fact that

we do have market failures right because

in theory if the market is perfectly

functioning and always generating um an

optimal outcome always at equilibrium

between supply and demand or whatever

they shouldn't be happening right and

yet throughout history we have market

failures all the time

>> so that's the way where I would say that

market failures don't actually exist

Because I mean think about one instance

of what is often characterized as market

failure. Pollution

>> right

>> now pollution is ubiquitous right I mean

any act of production involves inputs of

raw materials which are extracted from

somewhere then you've got a

physicochemical process out comes an

output and it could be an intangible

output. could be you know the output

from the your computer right and then

there's waste there's pollution so now

if pollution and waste are ubiquitous

and if market failures are ubiquitous

then they're not market failures

logically they are the legal design of

the property rights that enabled the

owner of the factory to actually dump

chemical waste or for Google to take

your and my private data Right. It's a

it's a that brings you straight back to

the fact that the social cost that

industry, you know, can inflict depends

on the legal design of industry. So

before the National Environmental Policy

Act of 69, industry had far greater

leeway to dump more chemical waste than

after that. So I would just say that

yeah I think we need to move away from

the this notion of market failure uh and

then you know so that's a usual debate

that well okay so you got market failure

then do we want state intervention or

not and I argue in the book that that's

a bit of like a family debate between

liberals and conservatives because both

sides agree that there's market failure

and then one side say well we should

probably not have state intervention and

the other side says the opposite. My

point is there are always social costs

and politics through the law is going to

be structuring the composition and level

of those costs and so I think that's

where the conversation I think should go

to. So it's a political decision about

which costs to minimize or avoid versus

an economic

>> I mean it's always been that and that's

where I think in that sense if you come

back to issues of affordability and such

I I would say that if you let housing

prices be whatever they are so that

people lose their homes that's as much a

political structure ring of real estate

as otherwise you see what I'm saying it

yeah so it's not any which way politics

is there the question is who's

benefiting and who's losing. This is I

think for me this is the question.

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Okay. So there are some things where

markets work very well, right? You know,

if we want to have really good bagels,

then there's a good chance that like a

good way to get there is you have a lot

of bakery entrepreneurs. Absolutely. And

they're competing on price and quality

and so forth,

>> etc.

>> Sure.

>> But then they're going to emit waste. So

let's just go back to the pollution

example in the process and we say like

okay the market worked really well in

the creation of the bagel but we have

this problem which is that they're

creating they're creating waste that has

to be solved and even that's benign you

know it's like of course anyone is but

there's going to be some waste involved

even it's not the most polluting thing

so we need some sort of like okay so

then the neocclassical economics yeah

there's market failure this is why we

have we have to have a public the the

sanitation worker ers, right? Because

otherwise they'd all just be dumping it

out on the street. And so, okay, so we

have public sanitation workers. You

reframe this and you're like, no, market

failure isn't the right way to think

about it. It's endemic to production.

It's part of how market works. It's not

failure. What do we then do with this

information so that we know we no longer

conceive of these sort of like edge

cases of mostly markets work or

frequently markets can work, but then

you get market failures. You flip this

entire thing on the head and you're like

market failures are not a useful thing.

>> Okay, we accept that premise. Then what

do we do with that new we have this new

lens and then what do we see?

>> Some of those social costs would need to

be internalized. In other words, they

would as they always have been, right?

Throughout the history of capitalism,

again, so this is not just an arbitrary

statement. But if you look at throughout

the history of capitalism, this

Janisface nature of capitalist activity,

wealth creation on the one hand and

social costs on the other hand, and then

at some in various moments in time, some

of the social costs were extremely high

in terms of the rates charged on

something on the other. Manvy, Illinois,

1877, landmark Supreme Court case came

out of the Interstate Commerce Act

Commission which put caps on railroads

and on grain elevators because what was

happening was that the uh the farmers

were storing they were charging

extremely they were being charged

extremely high rates by grain storage

elevators and and train and railroads

and what was happening was the price for

food was rising. So the Illinois state

legislature put a cap on that went up to

the Supreme Court and so there was this

whole idea and the Supreme Court ruled

in favor of price caps on these rates

charge because they said well this is

this is of social importance. Food

should be affordable. There's a very

long history of this in American uh

constitutional history. That is

basically exemplifying the basic point

that at some points and in various

points some of these social costs were

deemed too high and then in some way

they would need they they had to either

be internalized or or you know maybe

smaller businesses could not internalize

some of these costs. Okay, give them

some kind of a tax credit.

>> Right?

>> You see what I'm saying? There's there's

intelligent ways of thinking about

public policy. So Mandani's policies

whatever they may be they may affect um

I don't know smaller businesses

differently from a larger ones. So the

ones that have less cash flow they can

get a tax credit as a write off right I

mean you can think about all of these

kinds of policies in then at least

that's the way I think about it in

practical terms.

>> I'm trying to think how to frame this

question and I probably won't get it

right but here goes. We've been doing a

lot of episodes on Venezuela recently

and so if I think about, you know, some

famous heterodox economic policy that

perhaps went kind of wrong, that would

be a good example

>> when you're thinking of designing actual

economic policy. If you're doing it

prioritizing

politics or on a political basis

>> and you don't have that sort of

scientific rational framework that is so

endemic in neocclassical thought

>> does that help you design policy? Is

that a useful framework for you?

>> I guess the question is what defines

science. M

>> so the way for example the institutional

economist that I was talking about the

way they designed policy was on the

basis of theory that was evidence-based

social reality historical reality court

cases you know this kind of thing um

neocclassical economics doesn't do

policy that way though or theory it's

deductive it assumes so it's

constructing this model on the basis of

no evidence so neocclassical economics

>> on the basis of a reality that does not

in fact exist.

>> Exactly. Thank you for putting it that

way because that already exemplifies the

problem which is that how on earth are

you designing a policy based on a theory

for which you have which has not been

subjected to any kind of theoretical you

know any kind of intellectual engagement

with reality in the wake of the

financial crisis of 2007208

when prominent neocclassical economists

were asked wait a second are you now

going to rethink your models because

this should not have happened per the

neocclassical framework. They said no

and I think that's the problem here

that policy is being designed in this

particular way on the basis of theory of

this nature. But

if you bring in a more engaged way of

thinking about policy

and politics then the nature of the

politics matters. I mean who who you

know is it an authoritarian state is it

a democratic state? So I don't like

authoritarianism.

>> Sure.

>> So I think

policy should reflect theory on the

basis of democratic principles in some

in a broad sense.

>> You know going back to the contemporary

debates about housing in New York City

right now and there are others who might

buy exactly what you're saying at the

conceptual lens

>> and they would say you know what is

completely correct about everything. The

problem is that existing politics have

made it too hard to build. The problem

is that existing politics have made it

so that we're paying too much for labor,

etc. The problem is that existing

landlords control have too much

influence and are constraining the

building of new uh that they like it

strikes me as there are many versions of

your framework that to take it to

specific policies that don't necessarily

lead to and therefore rent control is

okay. that you could say, look, there's

our current system is riven with

politics and that the way to engage

democratically and the way to think

about this is we need to liberalize the

the solution to affordability is getting

rid of some of these zoning laws, etc.

>> It seems to me like that you could agree

with sort of the your conceptualization

of some of these challenges and yet and

still arrive at very different outcomes

in terms of a policy response. So

>> in fact in fact I Zoron himself may even

agree with that because we know that he

is more liberal than say many on the

left when it comes to the role of

private capital for developing new

housing.

>> Okay. So my response is that if we this

is true first of all to concede I think

in any kind of a discussion you concede

what the other person is saying and this

is true uh about the sort of impediments

of current politics and power structures

this that and the other but that's

always been the case. It's always been

the case. And so like if if if we

thought of that as the supreme

impediment to actually making things

better, then we would have abandoned

society would have abandoned any

attempts to let's say have safer cars.

>> Sure.

>> Because the automobile industry fought

tooth and nail against seat belts for

decades making them safer. You know, the

whole design of cars. Uh so the point

here is it's not as though that

proposing a policy implies that you wave

a magic wand and it just happens. There

are going to be insuperable problems and

there's going to be impediments. Um but

that's always been the case. That

doesn't mean that you know you you

cannot lose track of the fact that lack

of affordability

>> Yeah. in this country and elsewhere in

the world has seriously eroded

democracy.

>> Yeah.

>> As we know and had has has fueled

authoritarian politics. There's a clear

relationship here between economic

insecurity and and authoritarianism

>> undeniably. Just to press further on

this, however, so one of the things that

the housing people love to say is that,

you know, there were rule there was a

rule change several years ago.

Ironically, it was under the Cuomo

administration. There was a rule change

that made it harder for landlords to

raise the rent of a rent stabilized

building after the tenant left. And then

so then the new tenant comes in, they

like can't move it up by much.

Meanwhile, we have inflation. And so we

have this effect, at least according to

many housing people, where a lot of

supply has been taken off the market

because they can't raise the rent. The

law prevents them from raising the rent

and their maintenance costs have gone up

and so like these are no longer

economical to run

>> now. Again, like my point is not they're

right, they're wrong, whatever. My point

is that all of this could be true and

all of this framework can be very

helpful, but it doesn't necessarily

lead to the conclusion that Zoron is

right to to take a stronger line on what

you can just do by fiat in terms of

price constraints.

>> Well, I you know, yeah, it does. I mean,

>> I think I would disagree.

>> Okay, great. Because I think that if by

that logic then we shouldn't have ever

done anything anyways right so we could

have you know so so for example

opposition I mean so like sort of moving

this sort of the discussion a little bit

away from housing but let's say to

taxation right we were talking about

taxation earlier on there was massive

opposition during the guilded age

>> that if you have progressive taxation if

you even have the 16th amendment this is

going to destroy the whole society and

so the struggles in that guilded age

period period which ultimately led to

the 16th amendment exemplifies the point

that yeah I mean there are going to be

there is going to be opposition.

>> Sorry just well then what is the

limiting principle or maybe you said

okay there are different methods to to

doing economics and you say the new

classical one method and other people

have other methods. How do we know like

okay let's say we want to impose more

stringent caps on how much you can raise

rent like we don't know like it could go

well and it could go bad right I assume

you would agree that there are ways to

do this very badly

>> yeah of course

>> so what are the methods that we could

employ that the neocclassicals are blind

to such that we can get this policy

right

>> we could for example provide so for for

the for the smaller landlords the ones

or the less m or the you the ones who

are they don't have enough cash to fix

the leaks you know upkeep the building

that they could be given tax credits.

>> Yeah.

>> Right. So that compensation for the rent

control would be that okay if you're a

large real estate corporation and you've

got lots of cash flows then clearly you

do have the cash flow to to deal with

the problems. But you if you're a

smaller landlord then you could be given

some kind of a tax credit. You could be

given some kind of public subsidy that

could deal with that kind of an issue

which you brings you straight back to

the question of the public financing of

all of this. Right? So that's the way at

least I would tentatively think about

the issue.

>> Since we've been talking about politics

for basically this entire discussion, I

want to talk about political realities

for right now. What are the constraints

that have prevented this kind of

heterodox policy from becoming the norm

in a place like America?

>> Well, that's a great question and I

think I think the issue is that these

kinds of ideas are not in the public

domain.

And so whenever you use the word

economics, let's say it comes up, let's

say who are the experts who come say

let's say to CNN, they're already coming

implicitly even if they don't say it

from this idea that markets are sort of

prime and then everything else follows

afterwards. So I mean in order to push

back against that you need to have more

conversations about the discip.

>> Thank you for that. Thank you. I think

that these kinds of conversations are

helpful because at least it opens up the

space for thinking about that well I

mean okay so when you're talking about

foundational questions like the market

economy what exactly do you mean by that

and you know so those are the kinds of

questions I think so come backing coming

back to your question that's an

impediment because if you're going to

say that well I want to make some aspect

of social services u I don't know

affordable or something then you'll

always come up to this impediment that

well are you a state interventionist

whereas this is the free market and

that's the lingua frana

and that's the hard part of it that to

say that well okay to push the

conversation farther as opposed to

saying well okay you know if you think

of markets in different ways then it may

be hard to make the change but at least

the market is not pre-political so for

me that's the problem

>> what's the basic gist of why Europe and

the US from the historian perspective

sort of went different directions and

obviously the democratic socialist the

democratic socialist tradition obviously

much more robust in Europe. I mean it's

never really

>> you know it doesn't have as nearly as

much history in the US etc. Union's much

more robust throughout Europe. How did

that what like generally speaking except

for maybe like a couple decades partly

it just there's never any sort of like

socialist tradition ever really took

root in the US. I'm curious.

>> So first of all we do have a long

history of municipal socialism called su

socialism in this country. I mean so

there's you know of so you know in other

words I you know there a lot has been

written actually that what Mandani is

doing here. It's actually pretty there's

a long his history behind that. Gale

Radford has written about this a

historian. I think the the issue is and

so so that's the first point. The second

point is that uh if you look at and this

comes back I think uh Tracy to your

question which is that in the public

discourse

we don't know there's a kind of an idea

that the New Deal was an outlier.

>> Yeah. And therefore we need to basically

go back to some pre-new deal

romanticized small government. You know

Steve Bannon makes this kind that's why

the attack against the administrative

state is premised on this. The problem

is the many legal historians and legal

economic historians have pointed out

this is not true that the US developed a

very robust

developmental state in the

reconstruction period. So there's a

really a lot of history there that is

not part of the public domain and the

and the discourse on economics because

the teaching of economics does not

require students to actually

require not as an elective but require

them to actually read economic history

in most places in their training. So

they don't know the history and so this

new notion of the market prevails and

then they don't they don't know their

own history. I don't think that's any

different in Europe and we can talk

about that but there are interesting

issues here. So for example the American

historically the American taxation

system was much more progressive than in

Europe.

>> Yeah.

>> Right. So there is that. But I think

what happens in the post war period,

postcond world war period is that

that kind of sent a jolt for a lot of

people and I think that kind of revived

the left in some sense because fascism

and there was a clear understanding that

massive inequality

was you know is one of the one of the

ingredients of the rise of fascist

movements in the 1920s and 30s. And so

reducing inequality, embedding social

and economic rights and constitutions,

I'm thinking here with the German

constitution, super important as a kind

of insulation at least to some extent

against a repetition of those horrors.

So this created a kind of a different

social model based on these progressive

constitutions. We haven't had that. Our

constitution

>> is a first generation constitution and

in that way there are no explicit

commitments to economic and social

rights. Human dignity the expression I

don't think appears in the US

constitution. It does appear in a lot of

these European constitutions and that

matters. You have the rights of

personhood

right the 14th amendment but you know

that you know very well that how that's

been weaponized for corporate personhood

and so on. That's I think part of the

story as to why the welfare state has

been somewhat more robust. Though it's

also seen fractures in Europe than here

where that has not been the case. We

we're still stuck with this a

constitution which at least in my view

is not a very good constitution.

>> I wasn't expecting constitutional

analysis to come into this conversation

but I think it does illustrate your

point about the intertwining of politics

and the economy. Can I ask one more

thing and maybe it doesn't even make

sense or fit into this conversation but

when I think about lassair

markets or economics there seems to be

an emphasis on absolute gains so

positive sum outcomes where it you know

two countries start trading with each

other guns and butter whatever both the

countries are better off it doesn't

matter how much better off they are

relative to each other.

>> When we think about heterodox economics

and the importance of politics, are we

basically saying that every policy

decision the emphasis is much more on

relative gains versus absolute gains?

>> I'm not aware of that, Tracy. At least

not from my standpoint. I I I I do think

that markets and the sort of private

initiatives in markets that does

generate wealth. I mean that you go back

to Smith, he says that. So in that sense

it's true that market activity does

generate enormous social wealth. Yes it

does. But what people tend to forget is

that there's also a flip side to that

the social costs. And so we have to then

think about okay can we somehow do we

reduce some of those social costs in

terms of affordability or pollution or

climate crisis. That's I think saying

that okay markets are great but what are

they sort of embedded on that that

infrastructure that I was talking about

that is sort of leading to massive

emissions of greenhouse gases. I mean

that's clearly unsustainable and we all

know that. Uh so I feel like I I don't

know that I would necessarily think

about it in terms of positive or

negative sum gains. I would just say

that market activity does generate

enormous social wealth but also enormous

social costs and so then that's where I

think the conversation has to go to how

to reduce our social costs.

>> Jami Modud thank you so much for it's

really fascinating conversation

appreciate your time.

>> Okay.

[music]

Tracy, we should do more intellectual

history episodes. I really like that

topic. I don't know. Like

>> I think I'm still scarred from doing

international relations at college and

whenever someone talks about

intellectual histories of particular

theories, I kind of I get nervous. I

think let's just make the whole I I'd be

down to make the whole podcast that. No,

I do think this is like really

interesting. Look, I think this is a

very timely conversation because one

thing, you know, he mentioned Bannon

there at the end. One thing that I feel

is that regardless of where many people

are on the political spectrum these

days, there seems to be a deep

intuition that many people have about

the corrosive effects of society on

inequal or the corrosive effects of

inequality on society. And I thought

your question was really good which is

like many people economists could say

like look you're better off too in this

relationship you Uber driver like maybe

you feel that you're uh maybe people

find it to not be great work but the

alternative is nothing or whatever

>> you're not a billionaire but at least

you're employed

>> you're employed right and this is

something and a lot of people say look

everyone is on paper or maybe even in

reality better off from this set of

transactions right but then it

aggregates up to something that I think

people find to be very destabilizing.

>> Right? So intuitively a lot of people

seem unhappy with their current

situation.

>> So the transaction makes everyone

happier in the micro sense. But then

when everyone when it all scales out

this sort of like deep inequality, who

has the means to create, who has the

ability to like actually do something,

who is just u sort of who is not in that

position? I think it feels very again

destabilizing. Yeah, I do think I mean

to Jami's point like it it does feel

like so much of it just boils down to

politics, right?

>> Yeah. Right.

>> Like the economy itself

to go back to how we began this

conversation did not spring forth from

the universe. It was it's a human

construction and we put a lot of thought

and effort into how it actually works

>> and that's a political that that's a

political reality.

>> Yeah. And like you know we could talk

all this stuff and like the contrast

with Chinese uh industrial policy I

think is very helpful for two reasons.

One is okay you could look at it at

various things and say well this is

actually very effective and there was a

role for the public sector and so forth

but if like we're all at each other's

throats right then you're never going to

have any like hope of like

operationalizing these ideas. And this

is why I've said this before like I feel

like there are certain societal problems

that truly like precede economics. The

the toolkit does not entirely exist in

economics to solve problems that on

paper look economic

>> right this I think is important because

in the neocclassical perspective so

everything springs from the economy and

the the focus is on the economy

>> itself.

Meanwhile, as a society, you know, you

might want to prioritize different

outcomes. Like maybe we should all be

happy. I, you know, I would like to

prioritize everyone's happiness. And to

your point, like if we're all focused on

relative gains, if free market

capitalism is increasing inequality,

then that might not necessarily do that.

>> We should prioritize everyone getting

off their devices and reading, and then

I think we'll have a

>> touch grass.

>> We'll have better outcomes. Yeah.

>> Uh, we're getting dangerously close to

like talking about Bhutan and national

>> we got to debunk. I' I've read some

pretty

>> Yeah, I know. I know. That's why we we

should stop. Shall we leave it there?

>> Yeah, let's leave it there.

>> All right. This has been another episode

of the Odd Thoughts podcast. I'm Tracy

Aloway. You can follow me at Tracy

Aloway.

>> And I'm Joe Weisenthal. You can follow

me at the stalwart. Follow our producers

Carmen Rodriguez at Carmen Arman Dash

Bennett at Dashbot and Kellbrooks at

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We have a daily newsletter and all of

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