tv After Words CSPAN August 25, 2024 1:01pm-2:03pm EDT
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being here today to discuss your new book what went wrong with capitalism. why don't we just start off by answering the basic question what did go wrong with capitalism? yeah, i think that what's happened is that capitalism has been distorted much beyond what its founders had in mind, that what they had in mind for capitalism was a system which promotes competition, promotes creative destruction, promotes churn. instead, we have a very distorted form of capitalism today, where the average person in america and, in fact, across the western world, feels that the system is almost rigged against them. one of the basic thesis of capitalism is that it should at least give the sense that there's going to be an equality of opportunity. i think the average american today feels that that is not even equality of opportunity for them, let alone the fact that, of course, capitalist ism naturally gravitates itself to inequality of outcomes.
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but that's supposed to be based on meritocracy. so in short, i think what's gone wrong with capitalism today is that it's been really distorted, as i argue in the book, that the seeds of government actions have led to a capitalist form. today that is very much different from what its founders have in mind, and it includes the suite of government habit. it's not just government spending and deficits and debt that have been rising over time. it's the tendency to regulate the tendency, bail out companies at the slightest hint of trouble. the tendency to manage or micromanage the business cycle. and of course, in all this is also the role of the us federal reserve when it seems so acutely sensitive to even small fluctuations in the stock market, you know that it's become this sort of asymmetry that on the upside people are allowed to gain. on the downside, no one is really allowed to fail.
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so we have had a socialization of risk that's happened across the system. so you borrow this phrase from bernie sanders in your book and you use it quite well where you say, we have what is right now socialism for the rich and competition or capital ism for the poor. you into a bunch of details about why that's true to an extent. but then you of course, finish it off with a massive amount of all, with a large amount of the welfare state that exists, which is mostly for middle class people, middle class people, the poor and elsewhere, and other types of people who aren't the rich. the take away the question i have from this is who isn't covered by bailouts in the united states and how true is bernie's statement really? yes, i think that the statement of bernie signed sanders is the half truth, which is that it's true that we have had socialism for the rich. but what i argue in the book is that we seem to have social risk
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for everyone. so even the welfare state, of course, has grown exponentially over time. the middle class, you know, like in terms of i've got, you know, feel entitled that they need to get like all the benefits are giveaways as well so it's really become social risk for everyone. now, of course, the most galling part of that is that the rich are are also getting their risk, be socialized by the government, which is that if any company or large corporate even is on the verge of failure, the government's stands ready to bail company out and that's something which is very new to american culture because back in the grand old days of american capitalism, you did not have this format where companies would get bailed out by the american government. the first big bail out of an american financial institution really happened in 1984, but that of continental illinois
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before that in the fifties, sixties, and even the seventies, when the idea was suggested that american government should bail out any company or even financial institution in trouble, it would be made with huge resistance in washington that that's not the way america is. but now we have had this very changed situation where every sort of company feels that they're entitled to a bail out. and obviously, when that happens, the person, the middle or even the poor families feel that if those companies are getting such bailouts about me and even their getting a lot of government aid and support, but the most galling aspect is obviously when it's applied to the rich, which has become a sort of modern day form of trickle down economics, which is that when you bail out these big large corporations, the justification given is that if you don't do that, it will lead to complete economic collapse and it will lead to a lot of
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people being laid off. but the problem there is that it's a very self-fulfilling argument when you bail out these very rich companies or even, you know, like last year you had the s we be bail out, which took place of a rich silicon valley bank. then it's really problematic because it sort of makes everyone then feel entitled to the fact that they deserve government support and they deserve to be bailed out. i mean, it really is quite a change as bail out culture. when franklin roosevelt was governor of new york, the legislature proposed a system of deposit insurance for depositors and fdr when he was governor opposed that. and in his sort of folksy way. he talked about moral hazard, about how having this guarantee for depositors would make them a little lazy in choosing banks that were sound. and as a result, there were choose banks that charged higher or gave them higher interest rates because if they lost money, the government would bail them out.
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so it's just all all upside. and i've heard moral hazard throughout my education, throughout my career, up through the 2008 bailouts after the financial crisis. but i haven't really heard it said in the last decade or so what what happened to this term? what happened to this idea that bailouts and shielding people from their own mistakes would lead them to make more risky choices that would result in more mistakes? well, what happened to this idea? exactly. i think that's a great point i think they too. what's happened is that there is this feeling that if the american economy is doing fine, then why should we worry about moral hazard if all these bailouts have not led to any apparent crisis, why should we be worry about it? and that's one of the big issues that i address in the book, which is that there is a real price to these bailout outs and what you call, you know, like the moral problem, which is that if you look at the productivity in the american economy and as you know, the key to economic
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growth is productivity. productivity. american economy has been declining for the last few decades. and i linked that decline in to this bailout culture that we have in america, which keeps alive a lot of deadwood and also keeps alive or sort of promotes a lot of the big companies from getting bigger. so i think that the reason why there's still moral hazard may have faded is that it became a bit like diet and steel because a lot of people felt it is the policymakers that, like all these people, keep telling us about moral hazard, but it's not led to any problem or any apparent problem in the american economy. and that's the link i make that no, it has led to a problem. it's just that it's much more insidious. most policymakers tend to view problems as an apparent crisis in your face crisis. so if the was facing some sort of a fiscal crisis or it running out of money to bail out
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companies or that was not working, then it would be, yeah, okay. this is a problem but i see that the problem is much more insidious because it's led to a decline in the number of new start ups in america that's been declining for the last few decades, right up until the pandemic it's matched by a decline in productivity in the american economy. so the moral hazard is a real problem just that it's been playing itself out in a modern, insidious way. and because it's not happening in your face in terms of a big crisis, people, wages, policy makers have stopped talking about that. but the average american has, i've argued in the book, is very unhappy at the state of the american economy today. so for the average person, even though they don't think in these terms of moral hazard and stuff, something is not working for them in the way that the american economy is delivering. you spend some time, joseph schumpeter, to the late austrian
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economy as to among his many achievements, he coined the term creative destruction, the idea that market competition and an evolution in the market would weed out a lot of unproductive firms, firms that don't innovate, firms that aren't very dynamic and free up, those resources that are sort of constraining and and trapped to go to firms and to entrepreneurs who are more productive and can utilize those resources more effectively, efficiently. they are basically younger and have new ideas. right. and that this process is destroys all companies and causes economic problems and dislocate asian unemployment. but the ultimate result is more creativity, more expansion and more growth. what you write about, which i think quite eloquently, is describe how you replace, how policymakers have replaced this system of creative destruction and replace it with this system of zombie firms, at firms that are supported by the government,
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that don't innovate. and we see this, i think most you know, most importantly in places like japan and europe, and now it's spread to the us. what do you think about zombie is like? what's the role of zombies and how does crushing creative destruction cause them? yeah, so i think that first let's define what is a zombie company, right? which is that a zombie company? these are definitions used by institutions institutions such as the bank of international settlements and others. these are defined as companies that have not earned enough profits to even make their interest payments for three years in a row. so are forced to keep going back to the market, to borrow and to keep a, you know, themselves alive. so that's defined as a zombie company. now, this term became popular in japan in the 1990s that when the japanese economy was slowing down appreciably in the 1990s and the bubble was bursting, there was a big rise in the number of zombie companies or
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they were classified as zombie companies in japan. the american media that we, including publications such as the new york times, would almost walk this phenomenon in japan, saying that these zombie companies are being kept alive because of artificially low interest rates, easy money and america is very different. america does not do this at that point in time, the number of zombie companies in america was roughly about 2% of the total number of listed companies in america. today, the number of listed companies which can be classified zombie companies in america is by some measures, close to 20% of the total. so just a massive explosion in zombie companies in america and across the western world. i would say so terms of that's what's happened that these very easy money policies, very low interest rates for a long period of time has kept alive. these zombie companies in america. now, when that happens
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essentially means that keeping alive the deadwood and there is a price for that, because if you keep alive so much deadwood, then you are keeping out new for coming in your keeping out new startups from, prospering and. we have seen the mirror image of that is that the number of startups in america has been declining over that period of time. so there's a real price to be paid when these policies are pursued that you're keeping alive the existing companies. and yeah, that feels optically good that okay, you by keeping alive these existing companies even though they are not profitable and they are inefficient by every metric but keeping alive those companies, you are helping maybe in the short term avoid some job losses or so. but what happening then is that you are choking new competition, you're choking new companies from being formed, and that shows up in the declining number of startup companies in america. so i think that that's what i'm trying to do in this book to illustrate that there's a real price for these things and the
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price that are offered can be insidious not something apparently in your face, but if you look at beneath the hood, there's a serious price to all these policies. yeah, i mean, you write about this in a lot of detail, right? the price is lower growth and the long term lesson evasion, less income growth, less economic mobility. as a result of a lot of these these policies. the fed the federal reserve plays a large role in this and your book and other central banks do as well. how does the fed through its policy or other policies is create this system of of low growth and malinvestment and investment in zombie firms and keep them going? right. i think that if you just trace back the fed and this is where i say that a lot of people think that we entered this know, incredible free market era in the 1980s. and yet if we look at the role of the fed, there was a seminal shift in it back in 1987. yeah, the stock market had a big crash in october 1987 at that
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point in time. alan greenspan, the fed chair for the first time, became the head of a major central bank. to say that we are going to intervene in a way to help prop up stock prices, which are that he cut the interest rates to rescue the stock market at that point in time that had not been done so explicitly in america's financial history. now, once he did that, the signal he sent and that came to be known financial markets circles as a greenspan put, which is the fact that on the upside people were allowed to benefit and to make money on the downside. this view came about that federal reserve had your back you that the market failed to match. the fed would intervene to prop up the stock market and after that we saw that play itself out repeatedly where the fed became very conscious of the stock market and led to this
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asymmetrical risk. as far as the stock was concerned, that on the upside people were free to speculate or do what they wanted. on the downside the fed would be there to protect that capital. so i think that that is what has led to this feeling now that you can make as much money you want on the upside. and another downside, the fed will be there now when you have the idea, it obviously leads to people making their decisions accordingly when they are going to sort of feel that their losses are going to be socialized. but the profits are all for them to capitalize. so you are a fund manager, you work in finance. that's been that's been career. you've seen this play out from the inside is and you sort of have embraced this sort of austrian business cycle theory of like booms and busts caused by monetary policy dislocations
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in the long term caused by this. what in your career? when did you have this aha moment. where you realized what was going on. because i just assume that giving you a front row seat to all of this, you had some moment or some time when this when you became convinced this thesis. yes, exactly i think that, you know, like it's happened over time. i mean, it started out in my childhood. i trace it back to the 1980s. i grew up in india, which was then a very socialist country. and i saw that for me, capital in america was all about giving people more economic freedom, right? so it started off with a love for capitalism, but it came from a sense of economic freedom. but the government playing a role. so i'm not a true austrian in a way that i think there is a role for the government to be played. the government needs to provide a basic welfare. the government needs to intervene in crises. but then i saw in america over time that how the government's kept on increasing and the
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government now started to do things with socialist india once used to do. that's really what sort of got to me that that is what the american brand of capitalism was all about. now you speak about the aha moment. see that a couple of things which really disturb me. one was that in the 2000 and tens, even once economic recovery got going, the federal reserve then was still seemed determined to engage in policies such as quantitative easing because it felt that as long as inflation was dead, it could put as much money in the system was required to try and prop up the economy. so that was a very new policy. why should the fed be doing that, which is to throw all sorts of money at the economy, all because it feels that consumer price inflation defined in a very narrow way is contained. but what about asset price inflation? what about the fact that property prices are surging, which puts homes outside the
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reach of the average american? so that was the first moment in the 20 tens when i felt something was wrong. and then the idea of this book really took hold in the pandemic that at the time of the pandemic the american government decided to shut businesses down fine. i mean, it was a serious crisis but and then to compensate for that to just throughout amount of stimulus the kind of stimulus governments in the west particularly like in america which they inject monetary fiscal credit got into this was huge and i was saying who's benefiting from this stimulus? a lot of the stimulus checks ended up in people in people's pockets who were earning more than $100,000 a year. the fed, to try and intervene in the market to say that they're propping up and unfreezing was buying commercial paper off tripoli credit quality such as berkshire hathaway and all these really well-to-do corporations
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so and then you had this incredible explosion wealth which took place with people shattered at home that the stock market just surged and the surge in billionaire wealth, which took place in the year 2020, was that people are sitting at home. you've shut the economy down, the economy is contracting, but the stock market is surging and. all these billionaires who are there are making tons of wealth sitting at home because amount of money which has been injected into system is unprecedented. so it's then really which you know, like i got me thinking that what's happened to capitalism, this is an economy and this is a country, america, that i was so optimistic on. i came to this. i wrote such optimistic about this country. but then when i saw that the week was being distorted and connected it with the fact in 2020 that the average american is not feeling satisfied. and today here we are in 2024
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and the top ten, 20% of americans feel that they're doing well. but anyone in the bottom 50, 60% are stressed out in terms did you know their incomes are getting squeezed? they've got squeezed by, you know, the high inflation we have had. they've got squeezed by this feeling that, you know, that the rich are benefiting and they don't have the equality of opportunity. and they're also feeling squeezed by the fact that all this liquidity has led to an incredible increase in property prices, but it's put a home for the average american of reach. so i think that that's when i really made the connection in the last few years in the post-pandemic. and this book in many ways is a pandemic baby. so there are three different main draw causes of a lot of these problems. you identify in your book. and we've talked about the first two, you know, these huge bailouts and governments concentrated on preserving,
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bailing out a lot of individuals and firms as you have federal monetary policy through the federal reserve and. then the other one you discuss at length in your book is regulation. and it seems like the thread that ties all these together is where the government is trying to protect people from the consequences of their own behavior, from the consequences of their own decision. how does regulation fit into this model of yours? yeah, so i think that when the government sees any problem, impulse is to regulate. as i say in the book, that the road to hell is paved with good intentions, which is that every time that you see problem, then you think that all we need to, we regulate this or that. and as a say in the book that those regulation in fact end up hurting the average person and benefiting the entrenched, particularly the big businesses. how does that happen? so first, let's look at the numbers that we hear. an explosion in new regulation
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over the last couple of decades. the american government in. 3000 new regulations a year and that's been going on for the last couple of decades. this massive piece of increase in new regulations. how many regulations has the american withdrawn over this time period? over the last 20 years, they've 20 regulations in total, right so just look at this asymmetry. that's happened. so now these regulations are happening everywhere. if you want to open a new registrar, you want to start your own fund, you have to deal with a phalanx of new regulation is now the you support my experience in the fund management industry. i know for a fact that the cost of setting up a new fund management operation today for a fact is ten times larger than it was 20 years ago because you have to comply with new regulations and other things. now, who benefits from all of
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this? obviously, if you're a big business, it's the costs of meeting these new regulations is still relatively small. but if you're new, start up with a small or medium sized business, the costs are incredible too. to meet those new regulation is. secondly, those same big companies are able to lobby in washington given their power and given the money to write regulations in such a way that benefits. so the biggest lobbyists in washington today tend to be the big corporations, particularly the big tech companies. and for the average person, this all feels onerous in many. one, as i said, is just the cost has up a lot. so therefore you have the decline in new companies being formed in america. but secondly even for the average employee, this means a lot. who's already working at firm? one statistic that i put out in the book is that today, according to some studies, the average person spends 16% of
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their time at work dealing with legal compliance scores. is other, you know, like red tape is ism to meet the requirements can you imagine 16% of the time is being spent on those factors and that's costing the american economy millions, if not billions in dollars of lost output. when the average employee is spending 16% of time doing these things. so that's what i try and show that the regulatory state is really hurting the average person and benefiting the big entrenched businesses with their money, power and their influence in washington. yeah, i mean, it's is about 16%, but it certainly feels like lot more because it's some of the most boring work you're ever going to do on your job. you sort of hit on something right there, which is the influence of large, firm arms and sort of guiding the creation, these new regulations to punish implicitly or
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explicitly to punish their competitors. economists call this regulatory capture. it seems like and this is my you know, my libertarian angle coming here, it seems like if you have a government that is going to be involved regulating portions of the economy and through creating regulations or running a welfare state. i sort of large enterprises they're going to be moving around trillions or hundreds of billions of dollars and have regulated patterns that impact firms and individual lives. and on every level, it seems almost politically impossible all to avoid a situation where this happens, where you're not going to get a large amount of regulatory cap. sure. so what kind of hope do we have for trying to put this back in the bottle or at least build build a wall around it? well, first thing is, you know, just to put this out in the public, to raise awareness and
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consciousness of that, as i say in the book the first step to a cure is to diagnose the problem. so in terms of that, let's make people aware that this is what's going on. because today the solution that many people offer whenever there's a problem is even bigger government. you that of this is a problem. the government needs to intervene and do this. the government needs to, you know, put in more regulate. and as i show that at the most charitable thing that you can see about the government, that it's playing whac-a-mole, which is to put something down in here and something else pops somewhere else. so the first thing we have to do is to make people aware. and i think that that's what i've tried to do in this book, which is that you have had, you know, some of these arguments out there in the public sphere about the fed's role, about regulation and stuff, but how do you tie it all together to show in a systematic way that the last century how the role of government has crept and gotten bigger and bigger over time, and what are the negative
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consequence of that already the i think the broader problem is that many people have been focused on the expanding role of government in a bit of a superficial way. they speak about just government spending and then there is this constant threat which is raised, oh, we need to increase, you know, the government's you know that the government's increasing debt and deficit will lead to a crisis. some day. well, that's not happening. and so, unfortunately, that argument really appears still a bit discredited. the average person thinks that, okay, all these people keep fearmongering about these rising debt and deficit. some people are still worried about it, but it doesn't feel material in any way. and you have a lot of people, economists on the left, dismissive these arguments, saying that all these people have been telling us about how increased government spending and debt and deficits will lead to a crisis. nothing has happened. and, you know, like america is beyond this, it's the world's biggest financial superpower. the people will keep piling in here. dollars will keep coming in. we have taken other strength in
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our economy. but what i'm trying to do in the book is show that these government habits over time extend to just beyond government spending. it's about regulation. it's about bail out. it's about micromanaging the business cycle. it's about socialized risk across the curve from the most galling leave for the rich and that what are the negative consequences that have already happened in terms of declining startups, declining social mobility in america, declining mobility in america, where the average person feels that they cannot move up the ladder. only 35% of americans today feel that they're going to be better off than their. where does that number a generation or two ago used to be close to 70, 80% of the average american felt that they could be better off than their parents. that's a very depressing feeling, but it's make the connection that why are people feeling so depressed even though at the you know, at the superficial level, things appear fine and that's the connection i'm trying to make in this book
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to again, put it here in summary, which is that first i have to make people aware of what is the problem, otherwise they're going to keep doubling down and keep doing the same thing that got us into this feeling of economic pessimism. so you grew up in india and you over the course of your life, have seen indian economic policy transformed. you went from license raj to now a much open, free market. not as much, i think, as either of us would like, but certainly in the right direction. we've seen like benefits. the problem, of course, in the rest of the world is we have this sort of myth that in the beginning of late and early 1980s that the us and western countries became these radical laissez faire, free market, free trade, free immigration, free capitalism zones. where anything, when we went to
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this sort of radical laissez faire model of capitalism and you see nowadays right wingers, such as orin cass, who is embracing a lot of big government policies, including some aspects of planning and industrial policy and people on the left, bernie sanders, aoc and others who are saying, we've tried this radical laissez faire policy over the last 40 or 50 years. it hasn't led to the outcomes that we want. but you write in your book very convincingly that, no, we actually didn't have this, and i believe you use the term the neo liberal revolution was more of a revolution. and sort of terminology or an idea rather than than actual policy. yes. so i think that it's, again, important to look at the evidence because i come from a space where i'm very driven by data and as i look at the evidence, then how does firstly how does impression gain ground? we are in this neo liberal era
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where the markets are allowed to rule and conquer people's lives. and so i say that the reason why that happened was because, yes, they were few, you know, like free market followed, policies followed across the world, which included globalization, which is about more integrated free trade, it the fact a lot of the former socialist countries from india to china adopted a more free market model. yes. in countries like america, you had a decline in some union power when reagan came to power. governments growth declined bit, but it never really reversed course. so if you look at all the evidence, the fact is that the role of government in western societies like america has only increased since the 1980s on a net basis, it's not decreased. there reason why we got this
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impression that we had in neoliberal era is because of what was mostly happening outside of the western countries, where a lot of former socialist or even communist countries were giving their people more economic freedom and, moving and moving towards a more free market society. it happened because of globalization, but there was a greater embrace of free trade for for sure. and and also immigration, as you point out. so that led to the impression that we had into some neoliberal era and also because of the fact that the financial markets took off and became so big, partly because in the eighties there some financial market deregulation, but even that reversed. but at least for the eighties, it was there for a while. and so markets took off. but as i in the book that the main reason the markets have done and financial markets have done so well is partly because or for the major reason of the fact that there is this asymmetry trade and risk which is that the big you know that on the upside all these firms and
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companies are benefiting from you know like the fed's policies and like easy money but on the downside they you know, they have the governments back. but more than that, if you look at all data objectively, what's happened to governments as a share of gdp, it's only gone up since the 1980s. what's happened to the government's debt and deficits? it's only gone up significantly since the 1980s. and now we are in a situation where the government is running a deficit. the us government of 6% of gdp. so we have double down, you know, like the 3% of gdp kind of deficit that we used to run in for the last couple of decades. and even that was a radical shift that in the first 200 years of america is economic history, the government really ever ran a deficit. it did so only when there was a major crisis or a war. but in the last 50 years, the american government has run a budget deficit. in 45 of those 50 years and a surplus in only five of those years, mostly during the
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clinton's late second term, when you had a big tech boom and the revenues really took off and there was some spending restraint, which was done then, but otherwise government spending has gone up in the last hundred years from 3% of gdp to 36%. today, the government's debt has similarly exploded. the deficit today is at all time high as a share of the gdp outside of a major depression also so on every scale that we've spoken about regulation, we've spoken about the culture of bailouts on every single metric, the role of government has increased. so in my book, you know, in terms of the real problem of the last 30 to 40 years, has not been some big neoliberal era has undermined the life the average american it's been the role of government that's gone ahead. so the tagline i have in the book is that capitalism was ruined by big government. that's really what's happened is
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not functioning today in the it was supposed to function is supposed to be pro-competition, pro-choice and procreative destruction. a lot of that is not happening today. so you've mentioned in the interview in your book about folks have been worried about deficits and and the government debt for a long time. they've been saying that doom is going to happen. it hasn't happened yet. so a lot of those concerns are now just sort of wiped away. they're just gone. i hear very few people in politics or outside of politics, even talking about these issues. some of my colleagues, aside of course, who are talking about these issues and in very big way is so it hasn't happened. we haven't had a fiscal crisis, but there are obviously limits beyond, you know, just how do you think this is going to fall unfold? when are there going to actually be limits and how on what the government can spend on debt on
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borrowing, on deficits? when are we going to see those? you think and how are we going to see that manifest? how is that going to actually hit the real world? well, unfortunately, the history of our nations is that unless and until a country hits a crisis point, which means that the government literally runs out of money to spend more, that is rarely a course correction in the book, give examples of countries greece or countries like even sweden, which, you know, many liberals as their paragon of economic virtue that those countries got into big trouble because their government spending increased too much and it got out of control. sweden in 1990s was forced to reform and government spending going out of control its deficit and debt were too large and then they were forced to prune it back. so in fact sweden such an interesting case that the liberals hold up. but i think that they sort of missed this important detail in
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history, which is that sweden, too, has been cutting back its government spending as a share of gdp and being and become much more fiscally responsible after it got into crisis in the 1990s. and in fact, it entered the 2008 financial crisis with a pretty significant government surplus. so that's a big change that happened. but the unfortunate example from history is that unless and until you get to a right point or a crisis point, governments do not course. correct. so as far as america is concerned, because it is the world's biggest superpower and the dollar is still the world's reserve currency, it has a very long rope and a way to itself that it can keep on running these debt and deficits for much longer. other audrey nations can. having said that, i think that we are getting a point where this is, you getting quite scary because as i said that today, america's deficit as a share of gdp is 6%. it's much higher than any developed country is running. so similarly, america, a debt as
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a share of its gdp today has gone up by 100% and is lagging. that of only japan and italy. and we will cross even the italian levels of the share of the economy by the end of this decade. given the current path we are on. so i think that we are getting to a point now where these very large debt and deficits could become a real problem because even know, like america with all its resources, we run out of people who are willing to fund and maybe demand higher and higher interest rates to pay for it. and then that becomes a negative feedback loop because if an increasing share of the government's revenue go to just being interest on its debt, then it begins to compromise the government's ability to spend on anything else, including on welfare. so that's the fear i have that so far we have, you know, not had any crisis and we have said that, you know, like all these
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people have been fear mongering and they've all been wrong for a long period of time. and now, though, we have taken this argument to a different where we are saying it doesn't matter how much debt and deficits we ran could be 6% if we have a downturn the loss in revenues will mean our deficit gets to nine or 10%. it doesn't matter. it's america. and because everyone's been wrong about these fears before, this can continue. but that's exactly what the anc is. you know what sowed the seeds for the next crisis. so that's what worries me about the future. but as i say in the book that my focus is to first point out that what already happened, what's the damage that has already been caused because at least let's raise awareness of what's happened rather than waiting for the crisis to come and then starting the course correction. yeah, we're set right now to get even higher levels of debt and gdp and spending is sort of on automatic on autopilot historically, right at the end of world war two, the debt to gdp ratio was about the same as
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it is now, a little bit higher. but the spending ended because the war ended and so the government could run some surpluses, so it could reduce spending, it could cut taxes a little bit and still maintain the ability to pay off the debt incurred during world war two. now we're at this phase where the baby boomers are retiring in very large numbers. they starting to draw down significantly on social security and medicare to the extent where the congressional budget office projects that the social security trust fund, which is really a phantom fund anyway, but that on paper it'll be exhausted in the early 2030s and medicare trust fund is going to be exhausted even earlier. and i don't think serious person looking at this that congress is going to sit around do nothing when these points happen. they're going to fund benefits out of general revenues and they're going to borrow a lot of
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money going forward. and we're going to get and more close to this example where all of a sudden it's to be prohibitively expensive to borrow or people just won't lend money to the federal government because they don't think they're going to get their act together at that point. knowing what, you know, political incentives in the united states about what voter thinking, what you delved into in this book and what voters think and what politicians think and what others think, do you think americans going to choose higher and less growth to shore up these benefits, or are they going to choose to cut these benefits and get a little bit of dynamism back? well, i still have some optimism about america. the end, you know, what was that famous churchill? that america does the right thing after having tried every other option? so i think that once we get to that point, i'm optimistic that the role of government will begin to get dialed back and that america will course correct. so i think that i feel that you that's when the spending cuts
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will happen, when it becomes apparent to people about what's happened with this runaway growth in spending. and that's what even happened in other economies from sweden to greece as well as i cite in the book. so i think that eventually i feel america will do this right. but unfortunately, i don't see that point now. so for me, the immediate focus is to point out, as i have in the book, that the what's the history of capitalism? what's happened? and let's, you know, like that definition of insanity is that, you that if you keep sort of doing the same thing and expecting different, you know, that's just not, you know, the definition of insanity. so at least let's get to a point where we define, okay, what's the problem today? why, like is this, an issue that we need to be looking at. and also, it's an ode to capitalism, is that, yes, capitalism can still work if you keep giving people economic freedom. and i think that's what that's the part that america has been stripping away, which is that, you know, if you look at these indices of economic freedom,
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america rank in the top five for decades now, it's slipped all the way to number 25. and, you know, we need to be aware that what's getting us there and how that's hurting the average american. so is political party. you think more to blame the other is or is this just like a bipartisan effort to get us away from freedom? no, i think this has been a bipartisan project, you know, because even someone like trump came to power in 2016 talking, you know, the language of deregulation, talking the language of, you know, like doing something the average american. but if you looked his track record in terms of even on things like deregulation, he didn't move the needle much. he spoke about. but by the end of his term, he had put in so many new regulations that, you know, like the regulatory picture, america did not change that much. similarly, when it comes to debt and deficits, he ran the largest deficit by cutting taxes during a during a peacetime effort.
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and in terms of the fact that with no matching spending cuts. so this has really been a bipartisan but yes the biden in the last three years has taken this to a totally different level and magnitude. it's double down on everything. so this has been a progression where even the icons of so-called free market capitalism, such as reagan and thatcher did not do much to reverse the role of government. if you look at metrics such as government spending or regulation that was done under the, you know, their era, but here under trump and now under biden in particular we've taken this to a totally new level. and that's the kind of awareness i'm trying to raise through this book and yeah and you really raise it consistently, thoughtfully throughout the entire book. i'm glad you brought up these statements by trump about the deregulation and how the
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statements have really fed into this perception that trump was this radical free market president expanding capitalism and where the opposite was true. i mean, spending as a percent of gdp went up. trade barriers, enormous numbers of new regulations, immigration restrictions on the flow of labor across borders, just an enormous amount of increase in that. and then you have on the other side and then trump also, by the way, says about, you know, american carnage and how bad american have it and how terrible it is. and then democrats will say the same thing, how awful it is in the united states, how american have it terribly in this country. and you explain how this perception feeds in to this idea. these statements feed into the perception that capitalism is, you know, crushing people's economic opportunity when really it's the government doing this in most areas. but i'm i am kind of concerned or i guess interest in in the
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book because you have that is half of it this perception and how the perception is that capitalism is ruining people when it's the government. and then on the other hand, you also gave a little you give a little bit of credence to some of the ideas on the side. right. the idea that inequality is increasing and that this this this is a bad thing are you and i know you struggle with this in the book about whether giving too much credit to the people who are skeptical of capitalism on these areas like economic equality and equality or can undermine capitalism a little bit can undermine and push for a lot of these policies? you how how do you reconcile this about about equality and inequality and what the government's doing these perceptions. yeah no, you know like as i say in the book that i don't expect capitalism to produce income equality necessarily because as i said, that capitalism is about
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equal off opportunity. it's not about an equality of outcomes because any capitalist society, society should reward meritocracy more. but what i see in the book is the fact that it's that the kind of policies the government has followed has fueled inequality and fueled the sense that there is an inequality of opportunity as well because of declining economic and social mobility and. even the billionaires are getting the feeling that, you know, that they can survive much longer because, yes, there will be billionaires produced under any capitalist society, but there should be a feeling of churn. the top billionaires keep changing over time. now the average billionaire stays on that list of billionaires for much longer than in the past. the entrenched billionaire has become much more of a common feature now, so i think that's the way that i try and reconcile this, which is that, yes,
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capitalism will lead to wealth and income inequality. there's no denying on that. but it should lead to it in reasonable way and it come from a space that there is equality of opportunity. instead we have today these incredibly easy money policies, first by the fed and then all these government intervention grants from regulation to that have kept the billionaires more entrenched. and as i've said so earlier, that during of very easy money, it's led to an explosion in billionaire wealth without them having to do much. so i think that it's that feeling which needs to be corrected for the average american. otherwise, i think the average american, in fact, some we still celebrate wealth creation in a way and see many like of these billionaires as people that they can aspire to or look up to but when the feeling is that those billionaires creating their wealth just because of
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government help or too much easy money. i think that that's what fuels the resentment. so your concern, the source of the inequality rather than the inequality yourself? let me just ask you a hypothetical then. let's say, you know, we have the types of free market that you support. we don't have these bailouts. we don't have this crushing of creative destruction. and but we get a situation where economic inequality is the same as it is now. do you see economic inequality as a problem then, or is it just still the source that matters. yes, i think the source is more important, but i'm also willing to bet that if the government was not following those policies, we would not such high levels of wealth inequality, because i think the source is the problem is in fact like this is a very interesting thing that you know like i created this index like over a a decade ago called the billionaires index and what that did was that it used three metrics to measure the wealth of a nation and
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inequality across the those three metrics were what is the share of billionaire wealth of the economy from where has that wealth been created? is it in industry is which are innovative and don't require much government help or has the billionaire wealth been created because of industries such as real estate or even commodities which required a lot of government help and? the third that how much of this wealth that the billionaires have created is inherited and how much of it is something which is self-made. so i created that formula to say that whenever that the countries around the world where the there's too much billionaires that the share of the economy and too much of it is being created by the so-called rent industries. and a lot of it is inherited wealth. those are countries much more susceptible to populist revolts compared to countries where the wealth is much more created due to innovation and is not so much
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in your face? so i think that since you raised this topic, this billionaire index is something that i pay a lot of attention to and that looks at the source as much as the size. but yes, i'm willing to make argument that the government was not playing this role to distort capitalism this much. we would not only have a better source problem, but even the would not be as large and disproportionate of the economy it is today. so one of the things i'm a little worried about in your prescription here and along with me and tell me why you think i'm wrong about this is, that if we give a lot of credence to the idea that inequality is getting worse and that this is a bad thing, sort of in principle, then we open ourselves up more of these policies that increase moral hazard to more redistribution, to more bailouts, targeted more people on lower end of the socioeconomic spectrum. and then we get more of these problems that we talk about.
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one of the things come to think over the years is that a lot of the support for redistribution and higher taxes on the wealthy and and and trying to take their resources and give the people less fortunate. some of it, i think, comes from the good places that that you're talking about. people are aghast at the inequalities. there, aghast at what they think is a lack of opportunity. but in most cases, or at least half of cases about it's more of a case of like malicious envy, right? where they just a lot of people just really don't like successful people and want to take their money and hurt them, even it hurts themselves in the process. do you think i'm off base with that? no, i mean, but i make it very clear in the book, which is the that i am in favor of equality of opportunity. but i totally understand that we need to appreciate that capital is does lead to an equality of wealth and inequality of income.
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so i think that the idea of leveling leveling inequality is misguided on its own because that because then you then you have socialism and that's what the kind of india i came from where any wealth that was made was taxed away. and so people didn't create any wealth. so i'm all wealth creation. but as i said, it's about the idea that you have have a feeling there's equality of opportunity and america that in the as i say in the book that right up until three or four decades ago, when most americans felt that they could be better off than their parents, when most americans felt that they could afford to buy a home, there was no great, you know, sort of talk about this talk of inequality has really surged as we have seen a surge in the number of new billionaires which are being created as those billionaires become more entrenched. i think that's where we have seen this surge take place. and sometimes the government
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solution for these is, you know, like only makes things worse. i mean, the one thing that the governments are now doing much more is they think that they have to spend a lot more on the welfare state to protect, you know, people. and against this anger that's been building up. but in doing that, i think that, you know, like in terms of that, they're only sort of making things a bit worse because, you know, like who keeps spending so much? you're compromising on the fact that you're doing it in a way that will be unsustainable. and so in the future you will not be able to support even many people given the amount you're spending today. so i think that there has to be an appreciation of the fact that equality of opportunity is what the focus needs to be, not in terms of eliminating inequality, not what capitalism is about. one of the sections of your book that i thought really extraordinary is you explain burak crats and politicians and other government making decisions about regulations and how this basically uniformly
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pushes in one direction which is more regulations, more control, more more bailouts, protection for firms that have these political connections. but then i was a little surprised in another you wrote about your support for anti trust laws and more vigorous enforcement of antitrust laws and competition policy and are. can you try to reconcile these things? for me, because i do see a lot of antitrust, at least historically. and today, i think with some work by lina khan at the ftc is like a fairly arbitrary, fairly capricious, leads to a lot of uncertainty in the markets. so i'm just curious, do you sort of reconcile this, the seeming contradiction, or is it even a contradiction in my misreading? you know, i think that as i said, that i think that the first step is that the role of government has expanded a lot. but i'm not in the camp which believes that the should have zero role, which is that there
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is a role for government when there's a crisis, when there is you know, there is a role for government in some basic welfare, you know, like for a society. and the antitrust, i mean, i think that when things get too far, something needs to be done about it, which is the fact that something is wrong in america when a handful of companies are earning extra ordinary amount of profits and then they're using those profits to just keep gobbling up new entrants, which slows down the of innovation and then they using those, those incredible amount of profits to lobby in washington to get regulations done and you know, like in the way that suits and also then you know like terms of any new technology which comes requires massive spending only these companies seem to have the cash to be able to do that. so i do feel that capitalism is at its true level should naturally work in a way where not just a of companies make
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super normal profits, but the profits are more distribute. it takes a while for private sector enterprise making lots of profits, but when reach a point where just a handful of are making extraordinary profit, then you know something has gone wrong somewhere. we need to recognize that otherwise you know that's not going to end the fact that the same companies dominate the lists of the top companies like microsoft often. what do we want to call at the top of the pyramid? every decade does something, you know, which is going a bit wrong there. so, yes, i agree that you can't have arbitrary antitrust or, you know, those of policies. but i think that that's one area where i do feel we to closely examine that these big companies, the way they've come to dominate not only our lives, but entire investment landscape. and this is not just about the innovative ability. it's the fact that they have they are producing these extraordinary level of profits, which is inconsistent with any
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capitalist society because capitalism at the core needs to be pro-competition, broken and pro new companies coming up. so that's the concern i have, that there's something which we need to do antitrust, you know, which is the fact that, you know, in a in a systematic way where big companies are not, you like just going to keep gobbling up all the small and have a disproportionate influence on our lives. and it happens in many you know which is that one of the big frustrations of many americans today is the fact that many towns in america today are dominated by just one big company. and when that one big company dominates, that, they have like this incredible bill about the bargaining power. and then it also creates this feeling, you know, for the person that they're being oppressed because they, you know, like are just being to work for that one big company. they get to set all the rules. so the domination of these handful of very big companies, i think is inconsistent with a true capitalist system. and so therefore, i have some
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sympathy with the antitrust being like enforced in more systematic way. but we need to recognize that at times when that happens, something wrong has happened. of course, i argue that the origin of that is too regulation. so we need to do something about that too. we just can't do antitrust. then expect that, you know, this is going to go away because if you don't deal with the source of the problem, which is too much regulation, too easy money, then that problem is just to come back after you've arbitrarily killed off something. so it needs to work all, you know, thoughtfully, rather than on a piecemeal basis that you deal with antitrust. but you don't deal with the source cause of what's led to this big domination of these companies. right. and if you want to, just because we're about the wrap up here, but if you don't mind, 30 seconds, your book gives us a lot to worry about in the united states. some reasons for hope. why don't you tell us what's the biggest reason why you're optimistic about the future of the united states? an economic freedom here in capitalism? because i think that eventually
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america does the right thing after having tried all options, which is that i expect that america in the end will course correct. it's a country that has done so. and i and the fact that we can have this debate out here i think is great. the fact that i'm being able put this argument out here is terrific. i can't put this argument out there in china and even in places, india and all its more difficult to do. so the fact that i can put this argument there, you know, and the fact it's like it's early days but the book has just come out and i'm getting, you know, like a lot of positive feedback from both the right and the left on some of these issues, makes optimistic. the fact that, you know, that, as someone put it, that is a capitalistic critique of capitalism. and i say, yeah, because you know that someone from the inside has seen this and also from the outside has seen as an immigrant who came from a socialist country. so the fact that i can put this argument out there, c
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