Rana Foroohar and Mark Blyth: How Deep Will the Depression Get?
Yves here. There’s a lot to like about this interview with Rana Foroohar and Mark Blyth, yet there are some odd sour notes. For instance, Blyth repeats what is essentially a Democratic party stereotype about Trump voters, that they are Rust Belt victims of manufacturing loss. As we have repeatedly stressed, the average household income of Trump voters was substantially higher than that of Clinton voters: $72,000 versus $61,000. We’ve linked repeatedly to the Washington Post article, It’s time to bust the myth: Most Trump voters were not working class.
By Paul Jay. Originally published at TheAnalysis.net
Hi, I’m Paul Jay, and welcome to theAnalysis.news podcast. Don’t forget; we need you to click the donate button if you haven’t already because, without your support, we can’t do this.
So, after the shit show debate and the ongoing warnings of a second or even third wave of the pandemic, I’m left with some questions.
First of all, does the shit show debate reflect an even more profound problem with the U. S. economy and political structures? Two, the financial and tech elites, how are they responding to the campaign, the debate? Have they bailed on the maniac or just doubling down on the Senate? How deep and how long will the recession, depression go? It looks like there could be more lockdowns. Four, if there is another full lockdown, which many scientists are saying will be necessary to contain the second, third wave. What, if any, are the limits of how much money the Fed can pump into the economy? What are the economic limits? What are the political limits? Six, how serious is the split over the new Fed money? Does Wall Street want a big new stimulus package? Are there really serious concerns about the U.S. dollar? And finally, seven, if we have time to get to it, is Wall Street getting the danger of the climate crisis? Will they do anything about it? Will they accept the government intervening in a serious way with regulations and massive investments in green infrastructure, including phasing out fossil fuel, not just relying on carbon capture, which is mostly what the Biden plan is about.
Now, joining me to break this down, our two guests that are not only brilliant analysts of all this, but they also have unique access to the minds of the lords of Wall Street.
First of all, Rana Foroohar who is a business columnist and an associate editor at the Financial Times. She’s also CNN’s global economic analyst. And her books include ‘Makers and Takers: The Rise of Finance in the Fall of American Business’ and ‘Don’t Be Evil: How Big Tech Betrayed Its Founding Principles,’ and returning Mark Blyth is a political economist at Brown University. He researches the causes of stability and change in the economy. And as he told me, why people continue to believe stupid economic ideas despite buckets of evidence to the contrary.
So, first of all, Rana, let me ask you. So, first of all, your reaction to the debate and the bigger question, what does this tell us about the disarray in American politics, and why is there? Is there something going on in the U.S. economy and basic political structures that kind of give rise to this craziness?
Well, thank you, Paul, for having me, and first, let me tune my earpiece so I can hear the Lords of Finance speaking to me. I was stunned by the debate. I mean, on one level, at the most surface level, the debate was just kind of this toxic mud-slinging wrestling match. You’ve likened it to Trump’s debating style in general to pro wrestling. I think that’s true. But I guess I would take a step back and say, all right, how did we get to a place where, frankly, anybody watching would be embarrassed as I was to be an American, although thankfully I have dual passports, but he’s a symptom.
I mean, we cannot forget that. He’s certainly done a lot of horrible things that I’m sure will dive into. But he’s a symptom of what I consider to be a problem in the political economy in the U.S. that’s been going on in its current form, you know, for 40 years. And I would peg that as the neoliberal shift, the Reagan Thatcher revolution, the sort of movement to the privatization of everything, but more particularly to the embracing of a kind of globalization and economic paradigm that holds the capital, labor and goods can all move freely and equally across the world. Well, capital can do that. Money can do that. Big companies can do that. People and goods can’t do that so easily. And that’s one of the reasons why we got many of the things that helped to bring Donald Trump to office, the hollowing out of the Rust Belt, the embrace of a set of neoliberal economic principles by both sides of the aisle. There was not a lot of air, as I wrote in my first book, between certain policies around trade and financial regulation within the Clinton administration, as there was during the Reagan period.
So there’s a kind of a sense that both sides of the aisle had sold out the American working class. That’s leading up to 2016. You have this con man in the form of Trump coming in, and he really does it, to my mind, he’s the perfect Melville con man character because he takes this sort of felt experience that people do have of hypocrisy on both sides of the political aisle. And then it just wraps it in this sort of welter of lies and somehow presents himself as an outsider.
Well, four years on, we see just how much of an entitled insider he is, and I think that the gig is up. I think The New York Times tax revelations put him under a lot of pressure. I think what you saw in that debate was a man cracking, and I’ll stop there and let Mark take over. But there’s a lot more to say.
Go ahead, Mark.
I’m not sure I have anything to add to that. I pretty much agree with all of that. What would I add to this? So, first of all, let me fess up. I never watch the debates.
And something Nassim Taleb taught me years and years and years ago was if anything truly important happens, don’t watch the T.V. or read the newspapers. Three people will tell you all about it in excruciating detail the minute you wake up. And that’s exactly what happened. So once I learned this, I’m not watching this right.
But nonetheless, let me put a little gloss on what Rana has said there. There was a Rand report. Now Rand isn’t exactly bleeding heart liberals, as we know. And they did a report about ten days ago that said, if you kept all the taxes, the birthplace of 1980 and all the regulations and all those bad things we’ve gotten done away with, there wouldn’t have been a huge siphoning to the top. Now we know this, but they put a dollar figure on it. The dollar figure was 50 trillion dollars of wealth that is being generated and handed effectively to the maybe top 3 percent of the country. That is the biggest transfer of wealth in history. That’s what has gone on.
Now behind there’s something else alive, and this is something that Rana gets into in her book on tech, is that if you look across industries, profits are becoming more concentrated, particularly in certain sectors. And the rest of the economy, in a sense, lives off the crumbs of the contracts of these giant firms, which is why in part, we have so few good jobs being developed, so many people working multiple jobs, the explosion of part-time contract platform labor, et cetera, et cetera.
Now, why do I mention all of this is as a gloss? Because ultimately, the real puzzle of the debates is why he still has 40 percent. And he has 40 percent because, unfortunately, the future is not going to be kind to the left behind. He identified that constituency in 2015 and said, I am your voice. He then seamlessly went down to the border towns, called everyone a rapist and a murderer, and assembled another coalition and bolted that together. But for the people, who we have ourselves said, you definitely got sold out by neoliberalism. Yes, you definitely got screwed by your corporate elites, etc. It’s not as if it’s going to get any better, whether it’s through the green transition if it ever happens, whether it’s through the fact that manufacturing jobs are disappearing everywhere. They’re not coming back. So in a sense, what he’s doing is he’s doubling down on the only base he’s got, and they’re doubling down on him. And that is all about mobilization and anger and generating the anger and keeping it going. And if necessary, and this is the important part, shocking the system over a bridge in order to safeguard that result.
Rana, go ahead.
Well, it’s interesting. I agree with much of what Mark said. I guess I feel just almost for the sake of argument; I’m going to be a little more optimistic and say that I have been actually impressed with the way in which Biden, not that he was able to get any of this across in the debate, but I know talking to policymakers, the way he’s been able to bring a pretty wide variety of people under the tent in such a way that I do feel economically that folks within the Democratic Party on very different sides of issues are starting to talk to each other in ways that they weren’t before.
So you still have that kind of, you know, Summers Rubin center of the party in these conversations. But you also have Jared Bernstein; you have Heather Bouchet. You have a lot of people that are certainly farther to the left and have different ideas. I’ve also been impressed with how Biden has started, and this is very nascent, but I think it’s important, started to kind of connect some of the parts of the party that’s more concerned traditionally with identity and some that is more concerned about class and labor. And this has been a big dividing point for Democrats, that you’ve had a new and exciting generation of say, millennial socialist politicians like the AOCs of the World, that, you know, they’re kind of interested in the economy. They know something bad’s going down, but really, identity is their thing. And they’re communicating with their own social media followings along those lines. There’s a lot about race and gender. To me, that’s always been a sideshow and a distraction for the Democratic Party. Not that there aren’t issues of race to be talked about, but the real action is in class. But of course, that’s harder, traditionally, for the Democratic Party to get at because they have the same big corporate donors, not always the same, but many of the same big corporate donors as the Right, and you have the legacy of the Clintonian wing of the party that really didn’t want to go there.
Now you see Biden taking something like the idea of a green new deal, which came out of AOCs part of the camp. But instead of just going off and doing it alone as she did or with the environmental wing of the party, he’s bringing labor under the tent. He’s talking to the AFL-CIO and saying, all right, how could we potentially get coal miners involved in retrofitting solar panels? Now, I know this stuff all sounds very spiffy and snazzy, and it’s hard to do. I don’t want to underplay that, but I think just the way in which I start to see these aspects of the party coming together is a little bit of a cause for optimism for me.
Well, just to throw in a little less cause for optimism and in some ways, maybe in other ways, it is. But it seems to me this is more a tactical alliance to defeat Trump and that there are really far greater and more profound differences in the different sections of the party, that everyone is just deciding to be more or less quiet about for now.
Like even to take Biden’s climate plan. I actually went through it with Robert Pollin, the Economist. And it’s really something when you really dig into what he’s proposing, it’s all based on carbon capture, not reducing the use of fossil fuel except very modestly with in terms of auto carbon emissions, it’s not nothing, but it’s not going to get us where we need to get to. But the reliance on a very unproven science of carbon capture and very little to almost no talk of phasing out fossil fuel. There’s talk of phasing out fossil fuel subsidies, but not phasing out fossil fuel.
So it seems to me that, yeah, there’s certainly a possibility for a real debate, assuming Biden wins with these different sections of the party. But I think the differences are pretty profound when it comes down to what the actual policy is going to be. Mark, what do you make?
So let me put up sort of a middle course between these two points. My question to Rana would be this. I agree with what you just said, but the key thing to me is, are they talking outside of the party, and are people listening?
So I’ll give you a piece of annex data. I got a couple of friends who are tradesmen, and I would identify them by telling you which trade. But I say to them, how many of your buddies knew you would’ve vote Democrat? And he looked at me, and we both start laughing. And I said, why? Why is that? He says you know what Democrats mean to me? This is a direct quote, Black lives, Trans rights, and the environment.
They don’t give a shit about people like me. That is how this is perceived, right. Now, you know this goes to the heart of this sort of decarbonization very, very narrow road that Biden is trying to negotiate. The Democrats, in general, are trying to negotiate.
We have to take a fundamental reality here that there are at least 13 states in the union, starting with Alaska going south down through New Mexico and up in Louisiana, going up to West Virginia, where the transportation, refinement, and otherwise processing of carbon and the river is what they do. And in order to actually execute any type of decarbonization strategy, you’re going to have to bribe the living hell out of every one of those states.
Which is what they should do.
Funny way of doing it. Right. So, instead of which we do, it’s internal politics, and the party determined that we talk about the just transition, and we mustn’t reward these carbon polluters. Well, you have to deal with the fact that if you don’t actually get some of them on board, you’re never going to win another election.
I’m so glad that you made that point, Mark because I hear that, too. And I had an interesting trip about a year and a half ago around the Carolinas looking at supply chains and textiles there. And I met a number of small and midsize sort of private business owners, a number of workers, a lot of white workers in the agricultural industry there. You know, honorable people couldn’t stand Trump as a person, particularly those that identify with military or veterans at all but voted for him. Why? Because they understand the hypocrisy of what the Democratic sell has been since the 90s, which is basically OK, China, if you let us give you banking services, we will send you all of our manufacturing jobs and outsource our innovation ecosystem to you. It’s amazing how clear, crystal clear, someone working in a cotton gin is on that point.
And I do think that Democrats still have a long way to go at getting ‘woke’ to those issues as ‘woke’ as they are too some other issues. But I also think that there are two things that are going to work, again, not immediately, but over the long haul in making that transition; one is that COVID-19 has basically just put on steroids all of the problems of neoliberalism because we talked about this myth that capital goods and people can all travel equally across borders. Well, we know capital can jump. Well, in the digital economy, data is the new oil. It’s the resource that everything is driven by. It can go across borders even more easily than capital. We are in the middle of time warping a transition into the digital economy that we kind of knew was going to take about 15, 20 years. We’re now going to wake up in 2 to 5 years, all that disruption that we’ve all been talking about in previous podcasts and saying, well, in about ten years, X, Y, and Z will happen. That’s going to happen. And here’s what it’s going to look like.
Sure, there’s a bunch of new businesses that are going to be formed out of this. They’re going to need less people, and they’re going to invest less. That means we’re going to get a jobless recovery. And I put recovery in quotation marks of a sort that is going to be entirely new. The math, the basic math is the U.S. is a 70 percent consumer spending economy. We have had a problem with middle-class income stagnation for 20 years. We’ve had a problem with working-class income stagnation for over 40 years. That’s going to be put on steroids. And I think that that is going to create the kind of alliances that, interestingly, you already see forming in the Black Lives Matter movement.
One of the reasons I’ll tell you that my white upper-middle-class daughter is out there marching in those protests is not just because she’s concerned about racial justice, which she is, but she’s concerned about her own economic future. And this is a privileged child. But she’s looking out and saying, oh, my God, what kind of college debt am I going to have? Whats the labor market going to look like? What are humans going to be able to do as opposed to robots? And I think that all that just got sped up in a way that is going to push some of these transitions.
I agree, and I’ll push it even farther. The digital transition is absolutely underway, and we see this in the geopolitics of the moment. We spoke about it a couple of years ago at tech conferences. We called it the splinter web. You either have a payments platform, or you don’t. You either have a way of protecting your data, or you don’t. And what we see now is particularly the E.U.s response. They finally woke up to the fact that they don’t have any digital platforms at the scale they’re massively behind. They’re selling 20th-century products like diesel engines. The world would no longer want them. And what are they doing? They’re doing data protection. It’s a protectionist move. We are basically about to sue our big corporates. Why? Because we’re disciplining them. China has already created the Great Firewall in the East and has corralled their companies. So the world splits up into these smaller areas, and it’s much easier for the right rather than the left to weaponize this as a kind of nationalist and geopolitical struggle of which this is a part. There’s a very 19th-century rendition of this whereby the container of hopes for civil protection always lies with the nation-state. And the weakness that neoliberalism has always had is assumed a subject and a set of interests that moves beyond the nation-state and has never really happened and is now, in a way, happening in such a way that it is creating both those alliances that you’re talking about. But it’s also creating a kind of very dangerous nationalist revisionism at the same time.
In the 1930s, in the midst of deep depression and the sort of unraveling of capitalism as it was in 1920, 1930, and all the things that went into the crash, there were kind of two possible ways that elites would respond. And much of the European elite and much of the American elite wanted some form of authoritarianism, fascism, suppress the resistance and rebellion amongst the workers and other parts of the population that were dispossessed by the crisis.
Or you had an alternative, which was mostly in the U.S., FDR, New Deal, and such.
Biden claims he wants to be the most progressive administration since FDR. I don’t see that in what he’s really proposing as a policy. But that said, where are the American elites on this? The financial the tech elites?
These are really smart people. Frankly, they’re a lot smarter, I think than their counterparts in the 1930s’. They’re very informed. The leading ones got there because they were the best, at more or less what they do, even if what they do is not so good. But they’re smart.
Do they get that this is not the same kind? This isn’t just about a business cycle; this is about several existential problems. Climate, from the tech side, like a jobless recovery. This is big-time when we’re talking out 10, 20, 30 years where A.I. and robots may go, this pandemic is far from over, and it’s probably one of many more to come.
There needs to be a real shift in how power is exercised, the role government plays. And I was reading BlackRock. I follow BlackRock a lot.
We got Larry Fink talking about climate change, and he’s very aware of the threat of climate. But the obvious conclusion from everything Larry and BlackRock says about climate is you need serious government intervention. But that’s the one thing they don’t want.
Well, you’re getting it something really important which and this drives me crazy, frankly. I wrote a column about how in the context of education, which seems tangential but is actually connected to what you’re saying about climate change. Corporations are always kvetching that, oh, we need the government to train up a better 21st-century workforce, and then we could create jobs. Oh, we need the government to do something about climate, and then we’ll have certainty, and we can invest.
Guess what? You’ve been cutting the tax share of the government, of the public sector by offshoring and optimizing, as they say, taxes in a global race to the bottom as the private sector has gained power and wealth relative to the public sector for four decades now. So you have tied the hands of the politicians. You decimated the middle class, which would elect better politicians. So here we are. So I absolutely hate that hypocrisy. And I just think it’s egregious when business leaders complain in that way. I always try and turn the point around if I’m on T.V. and ask them about taxes and how much they pay.
But to go back to your first point about do the elites get it? Yeah, they absolutely get it. And let me give you a couple of examples. They get it, and they think they’re going to be able to weather the storm.
You know, Eric Schmidt, former chairman of Google, wrote a book with the head of his think tank a few years back. And the book, basically reading between the lines, said, you know what, they try to put a sunny slogan on it. But the message was technology, this tech revolution we’re going through, which is as Niall Ferguson has written, it’s kind of like the advent of the printing press. It makes things better ultimately, but you get 150 years of religious wars before that. That’s what Schmidt said in his book with Jared Cohen. He said, look, tech’s going to make things better in the long run, but in the short run, things are going to be really crazy. There’s going to be huge nationalism, conflict. They didn’t come out and quite say it this way, but this was the upshot. But the idea was in their minds that the biggest companies, the Googles, the Facebook’s, the Buydo’s, the Alibaba’s had become so big that they were like the East India Company now. They are sort of sovereign international states that float above the nation-state, as Mark was pointing out, and that they actually kind of formed their own consensus. You know, you’ve got the Washington consensus, maybe the Beijing consensus. We don’t quite know what that is yet. And then you got the Facebook consensus and the elites essentially, I think, believed that these corporations now have so much control and big tech does have way more control even than big finance did because it can actually influence our behavioral patterns because of surveillance, capitalism, and algorithmic behavioral manipulation.
They have so much control that they believe that they can move the levers now and simply weather the storm and come out to the other side of it. So that’s where they are.
There’s really no wall anymore or distance between big finance and big tech, is there?
I mean, big tech is very financial lies, and more so if you look at who owns big tech, it’s essentially the big financial institutions are the biggest shareholders other than some individuals that helped start the things.
Well, I think it’s a little deeper even than cross-shareholding because, you know, the biggest three shareholders in Google are still the top Googlers, Larry Page, Sergey Brin, and Eric Schmidt.
But what I think is so interesting is I think about it in terms of information asymmetry. So you go way back to Adam Smith, the father of modern capitalism, and he would have said that in order for any market system to function properly and fairly, you need to have an understanding on both sides from buyers and sellers of what the transaction actually is.
Well, as we well know from the great financial crisis and any number of debacles before that, you know, most of the time when you’re dealing with a big financial institution, they’ve got more information than you. That’s why they’re always winning, like the casino, the house always wins. Well, put that again on steroids in the era of big tech, because the major tech companies, as of yet, except in small ways, in places like France or Australia that are insisting on algorithmic auditing, they have total control of the black box in which the transactions in our increasingly digital world live. We don’t even know what we’re buying and selling. I mean, I’m giving data, and I have no idea what I’m getting back for it. I think I’m getting something free in quotation marks, a surge, the ability to do some silly social platform media thing. But what am I giving up? A whole hell of a lot. And it’s more when it gets combined with other people’s data.
Mark, where do you think the financial preponderance of financial and big tech elites are on this election campaign? And how much control do they have about in the outcome?
Well, again, I’m not going to differ very much from what Rana just said at all. I’m not going to quote Smith. I’ll quote, Cains. Didn’t Eric Schmit ever read Cains, in the long run, we’re all dead. The long-run is a succession of short runs, which, if they are shitty enough, ends up, it sums to a not long run. So that’s an incredibly dangerous way to think about it.
To me. Although I’ll tell you a little story, I used to do when I did finance conferences with big finance. And so you know you have 25 of them in the room, all of a sudden the big money in the room and I would say the following, talking about politicians and the quality of political capital, it’s gone down over time, and that’s a big problem level. And it’s all right.
So how many of you folks would let the people that you run countries by funding them run money and your firm, and they would all burst out laughing? And then when the laughter died down, I would say, and now you can tell me what’s funny about that because ultimately your firms are dependent on the governments of those countries, the policies that they provide. And it was almost a moment of shame where they went. Oh, and this points to something that are Marxists colleagues have known for the longest time that while it’s irrational for any individual capitalist to maximize their short-run interests, it’s collectively suicidal. If the older there is no ideal collective looking at the long run, no matter how big you are, you’re most rational strategy is to grab what you can because you don’t control enough to make sure that you can dictate the final outcome. So that leads to this general suboptimally of choices which manifests itself in everything from taxes to green to decarbonisation across a whole series of areas.
Are they aware of this? Yes, they are. They all understand perfectly well. Do they have a solution? Yes, they do. Basically, the government should step up, and that’s never going to be allowed to happen.
Indeed. And, you know, it’s fascinating. I think that’s why just to turn it to the markets for a minute, and I think that’s why there’s this weird bizarro world where essentially 50 percent of the biggest players in the global markets are in gold, and the other 50 percent are in stocks. Well, what is that about? Gold is, we basically think the world’s falling apart, and it is going to be the 1930s, again. Stocks are you know; we think that central bankers can keep this party going a little bit longer, and we’re going to stay here until the music is almost stopped playing.
And it’s just fascinating that there’s nothing in between right now.
Yeah, that’s a really great observation. That’s exactly right.
If there is a bigger necessary lockdown, if the pandemic, not isn’t, well, first of all, it’s already the depression is already pretty deep and not recovering that quickly. But the scientists I’m reading, epidemiologists and such think that we’re really at the beginning of another big wave that might even be worse than the previous one. Even Foushee has said that. Some are saying the only way, and this might if Biden’s president be what’s put to him, the only way of really dealing with this is maybe another two-month national shutdown and mask regulation, and such.
How much financial support can the Fed do? Right now, the politics is kind of paralyzed, but how big can it go? Are there limits, economic limits to how much money the Fed can pump into the economy? What are the political limits might we see now? They might change, I guess, depending on the outcome of the election. Mark, you go first.
It’s not that I’m a science skeptic on this, but I think that what we tend to do is take whatever the public health authorities say at a given moment and project it forward. As the fox, forgetting that basically everyone revises that opinion on what’s going on every two weeks. So I don’t think that that’s a good thing. The most interesting thing for me just now is the fact that Andy Haldane, who’s the chief economist of the Bank of England and all run very smart person, is actually very bullish on the recovery for a host of reasons, in contrast to most of the people around them.
And another really interesting one is, again, the data from Sweden. Sweden has picked up in the U.S. press either to show that we all need to wear masks or, alternatively, to show that you don’t need to wear masks. If you actually look at what they’re doing and what’s happening is very interesting. Their death rates are down to the single digits and are not moving. There’s no big spike in death, but there are an infection. And this makes perfect sense. If you think that the goal of a virus is to replicate, it can’t be too deadly. They tend to attenuate that effects over time, which is why they could become sort of endogenous to the population and survive in a less deadly form. So I’m very hesitant to say this is what’s going to happen, and that’s what’s going to happen because if we took honestly snapshots of what was the consensus every month since March, the plot charts coming out, that would be massively different all over the place.
So with that in mind, is there any limit to what the Fed can do? Well, also, almost 60 percent of invoicing and 50 percent of global reserves are in dollars, so long as the German and other export-led trade models depend upon the recycling of dollar amounts to the bond markets of the United States. So long as interest rates are at a seven hundred year low, which seems to be a not an aberration, but the real sort of mean revolution in the system, so long as we can’t generate inflation to save our lives because we’ve basically created hyper flexibility in labour markets and product markets on a global scale, then sure, yeah you can just continue.
I mean, you really can. I mean, Sebastian Mallaby has a piece of this in Foreign Affairs. Löw that to two years ago called Magic Money, and I think that he’s right. I actually have a piece coming out saying why he’s right, but he’s not entirely right, because a lot of this has to do with the Fed essentially giving markets of free option every 7 to 10 years and making the problem worse. But nonetheless, can we continue to do this? Absolutely, we totally can do this, so long as there’s no inflation in the system, and you’re not going to get a very high spike in interest rates. And I can’t imagine why you would see either of those. Then you’re going to continue to do this, which is part of the reason why half the market is in gold because that’s a perfectly rational response to a low inflation, low rate world that you think is fragile.
Yeah, 100 percent. It’s so interesting. Two things to say in response to Mark. First of all, if Andy Haldane believes that I’m inclined to believe it, too. I think he’s the smartest policymaker around. I can already see the signs of a second wave in New York. I don’t know how it’s going to play out. And so I’m going to hold off on making a judgment call about that. But let me say a little bit about central banks and what they can and can’t do.
I think that if we had a Biden administration, for example, and you had him immediately reaching across the aisle, reaching across the ocean, kind of repairing some of our relationships with allies, basically rolling back some of the really stupid stuff that Trump has done, the end, and also rolling out some kind of reasonable fiscal plan to get us over the next 1 to 2-year hump of COVID, whatever, whatever it is in the U.S., then I think that central banks can probably do a lot. Because you have to realize that it’s somewhat about trust in the faith of the, you know, the good faith of the U.S. government and the dollar. And when you have Trump that goes way down, when you have a trade war with China in which we don’t have Germany and other European allies that have the same concerns on board, then that goes way down. I think that if we have a volatile environment, then you’ve got maybe five years for the dollar to be able to act like you have all the privileges of being the global currency. I think if you had smarter governance, you might have another 15 years of being able to have those privileges.
But make no mistake, and this is where I think Americans in particular sometimes get a little arrogant. We always have these conversations like it’s just about what we want to do. China has its own plan. It’s got its own grand plan, industrial policy. It’s rolling out digital RNB. It’s got its own sort of trade route that it’s trying to develop. It’s got its own relationships that it’s developing with Middle Eastern oil producers, weakening the dollar oil peg. Europe may come together. The euro may become some kind of more attractive alternative. All these things are now in flux. So you have this, these vectors that have nothing to do with what’s happening in the White House. And I think ultimately that will weaken the dollar relative to other currencies. And ultimately, I don’t think that’s a bad thing, because one of the reasons that we have the dysfunction that we do is that the dollar has this exorbitant privilege and allows us to behave incredibly badly in terms of debt. Wouldn’t be a bad thing to crack that. I kind of hope it doesn’t happen in 2 to 5 years in some disorderly way.
There’s one truth. I think if one accepts the science, and I think most rational people do, there’s nothing more threatening to human society right now than the climate crisis. And with very few years left, apparently to deal with, we’re no doubt hitting 1.5, and we’re beyond not hitting it. We’re maybe beyond not hitting 2 degrees warming above pre-industrial averages. And scientists are saying that if things keep going the way, they are by the end of the century, we could not only be hitting 4, but there’s recent predictions of even 7 degrees. I mean, that’s an unlivable earth. Even as you approach 2 and 3 degrees, much of the people living in the south have to head north, whether the people of the north want to build walls or not.
The extent of the crisis is critical, and which most people who follow anything know, I don’t see any solution to this without US-China collaboration. It’s not going to happen through contention if there isn’t some serious global agreements on climate and not done in the context and atmosphere of the kind of rhetoric and threats that are going on now. I don’t see China isn’t going to respond because of threats. And as much as Trump’s anti-China hysteria, even Steve Bannon, who I believe is probably still in Trump’s ear, is actually called for military confrontation in the South China Sea.
Richard Haas from Foreign Affairs had an article recently where he says that the United States should give up its ambiguity on Taiwan and outright say that if China were ever to use military action towards Taiwan, that the United States will respond militarily. I mean, most people I’ve talked to that know people like Larry Wilkerson and others don’t believe it’s true that the United States actually would provoke because every war game they’ve ever played, Wilkerson says, ends a nuclear war. They’ve never played a war game that starts conventional and doesn’t end nuclear.
But all that being said, there’s no way to deal with climate without collaboration. And one thing that concerns me about Biden, again, reading his climate plan, his plan for reducing fossil fuel subsidies by governments, which he says he’ll do in the United States, but is to give the belt and road initiative countries an alternative form of financing, and in other words, to fight China over these alliances that China is building. And whether that’s a good idea for those countries or not, I don’t know. That’s a separate issue, but it’s all couched in this virulent anti-China rhetoric.
So what is the underpinnings of this rivalry? Why is that some people argue this is because it justifies massive military expenditure, which I think there’s truth to. But is there more going on? Why why is there this such underlying rivalry, which seems like it’s going to make it impossible to collaborate on climate?
I can jump in on that. I think that there was a belief in foreign policy circles and in economic circles that once China opened up and once they were brought into the WTO and the traditional structures, Bretton Woods structures, et cetera, that they would become more prosperous and move towards liberal democracy.
I frankly haven’t been in and out of China for the last 20 years; never really saw that as a possibility. I just think it’s really quite arrogant. I mean, old country, five thousand, six thousand years of civilization, kind of with its own ideas about things. And so I was always curious that there weren’t more CEOs and asset managers and there were certainly military tacticians that would have sounded the alarm and have but saying, you know what, if it doesn’t go that way, what if basically at some point China decides it is independent of Western technology, it can run its own supply chains. It is a giant single market, much like the U.S. in the World War Two period that can go it alone. Then what?
Well, here we are. And I think China would have given another 5 to 10 years before it made its move. But Trump kind of threw the bomb in the middle of the big hypocrisy of the one world two systems paradigm. And so now we have decoupling that’s not just on the U.S. side, but very much on the Chinese side.
I had a fascinating conversation actually a couple of years ago with Kaifa Lee, who is a big Chinese venture capitalist. He helped start Google China. And he said, you know, we hope this doesn’t happen in the best Chinese investment community, but we are prepared for there to be decoupling. And we believe that it will be easier for China to make up what it still needs within the supply chain and innovation ecosystem, which is not much. I mean, it kind of owns a lot of that ecosystem right now. Just slap Chinese consumer brands on the top of it. Then it will be for America and the Western world to rebuild its entire supply chain because we kept the brands and all the I.P., but we didn’t keep that kind of manufacturing ecosystem. The military is obviously very worried about that. COVID has exposed the vulnerability of supply chains. So we’re going there no matter what. I do not think that the whole Council on Foreign Relations like let’s get a big super committee together and come up with a set of agreements on climate change that China and the U.S. can agree with. That’s not going to happen.
Here’s where I am somewhat optimistic. I think that it is possible for the world to become more regionalized, maybe a tripolar world, U.S., China, and Europe, with kind of different strengths and ecosystems to exist, to coexist. And in that model, I would look for optimism around climate change to come more from innovation, maybe state-driven innovation. China has done so much on wind and solar. You know, I think if we did in the U.S. and Europe is doing this to a certain extent, did a big push to incentivize research and development and five, six or seven areas of technology, including cleantech, we could probably really do a lot.
I mean, one small example, vertical farming. You probably never heard of this, but it’s about to be huge. This is basically the idea of growing food on walls that are controlled in minute ways by light and temperature. It means you don’t have to ship vegetables across the country and have them lose 50 percent of their weight, which was water anyway, and have a bunch of emissions. I’m looking for things like that. When I think about climate change, I’m not looking for some big new grand bargain.
So let’s put a couple of things on the table. The background assumption here, whether you like Biden’s climate policy or it’s going to amount to more than a hill of beans, is that he’s allowed to win. And it’s not far from clear for me this is the case because the tweeter in chief, if he loses, will continue to mobilize, delegitimate, fractionalize and polarize this country. With a set of forces that we’ve begun this shot by identifying have been 30, 40 years in the making.
So it’s not clear that you’re going to get a Biden victory or even the United States basically emerges from the next 12 months as a kind of credible and stable place to invest. Now, what the United States has done to make its money over the past 30 years was basically to invest in the protection of intellectual property rights, and by some estimates, about 80 percent of the value in global supply chains accrues directly to U.S. companies. The famous example being you make a seven hundred dollar iPhone in China, but 50 bucks of the value remains in China, and the rest basically is remitted not to California, but to a series of tax havens. But nonetheless, most of it goes back to the American side.
So that’s why you invest in American stocks because they grow faster, and they grow faster because of the IPR control. What is it that China wants to do? It wants to develop. It wants to become rich. What does that mean? That means it’s coming for Europe.
So there’s a real conflict of interest between these two, if you will, global business models.
Hang on a sec. Say it again in a little easier way to get.
For the past 30 years, American firms have been globalizing, integrating U.S. and global supply chains, moving stuff to China. But how do you really make money is through the protection of their intellectual property rights? Think about Apple suing Samsung all the time. Think about the fact that when Apple sees a competitor, Google sees a competitor and buys it. It doesn’t like the competition. This gives them huge profit margins and also means they control most of the value in these big global supply chains.
And the way you protect this is with legal protections. Now, at the end of the day, China wants to develop. China wants to be rich. China basically doesn’t really care that much about those legal protections and goes out of its way to either buy tech, acquire tech, steal tech, spy on tech, paints concerns at universities in the United States about PRC of Chinese army representatives and labs, and so on and so forth. So not all of this is hysteria.
There is a direct threat to the American business model, which is heavily dependent upon global supply chains and the protection of intellectual property rights. This spells through to American capitalism were at large because the reason you want to buy American stocks is because American stock markets grow faster than everyone else. Why? Because they have the companies that have these intellectual property rights that make the outsized profits. China is a direct threat to that. So. there is conflict built into the system.
In terms of cooperation, China will cooperate with the E.U. If the United States continues to fractionalized politically. And now just basically as a kind of damage quasi autocracy that refuses to accept basic science on climate change, the world has already moved on, in many ways. There will be exactly those types of state-backed investments and very large scale projects that will take place in China on the E.U. and possibly between and across them. And they will be the ones that reap the returns on those new assets and those new inventions and those new intellectual property rights that everyone needs to deal with the already big scientific effects of global warming.
One example of how to think about this inclosing again, going back to these little finance talks, I would go from time to time. I would always say to financial audiences; I don’t understand why you folks don’t invest everything in green tech. And I would get these answers; about we don’t know, it’s incomplete, the government is exposing us to the risk, its too big, etc.. And I would say that you don’t understand, this is what bankers call a free option. And this is the one contract that you want. And here’s how it works. If you don’t invest and it doesn’t work, you still die. If you invest half of what you’ve got wisely and one thing works, and that helps, you’re going to make more money than God. If everybody collectively thinks the same way, then we might just get out of this mess. But if you only look after your own interest, you are guaranteeing your own extinction. And again, it’s that collective action problem at the base of capitalism.
What’s rational for any one firm to do or one company to do, it’s oftentimes collectively disastrous. And that’s what’s going on.
Well, that’s a pretty good place to end, unless you want to add something, Rana?
No, I think that’s perfect.
Do we have anything good to say? And can be like, can we go come on is there any light at the end of the tunnel?
Yeah, go ahead.
Yeah, actually, that’s good.
I mean, I’m huge on hydrogen. Who knew hydrogen was finally going to pay off? The E.U. put in I think 12 billion into hydrolyzers. Right. The Russians are all over this. They can use their pipelines to pipe blue hydrogen all the way to Western Europe.
We need to do this again because the thing I’m about to say, in some ways, starts a whole new conversation. But Mark instigated this. This contradiction that you’re talking about, how it makes sense for individual tech and finance companies to pursue their short term interests, but it’s giving rise to chaos otherwise, which in normal times, I guess you could say there’d be time to evolve out of it. But given the time frame of climate, there’s just no time. There needs to be something dramatic and radical. Quickly, if the U.S. descends into the worst-case scenario, I guess we’re screwed. We will be hitting two and three degrees, and I guess we’ll have to see what that looks like.
But I think what you’re describing, Mark, is a kind of consciousness, a conclusion that’s really growing and it expresses itself. The pandemic is showing the advantages to public health care system that’s run by government. And certainly, if you compare, there is the pandemic results in Canada, to the United States, the public health care system has done significantly better than the American. It’s pointing to socialistic solutions in everywhere you look.
I mean, that’s really what the New Deal was. It strengthened socialistic characteristics of the capitalist economy. And of course, the right despises this because they think any strengthening of those characteristics wakes people up to the advantages of it, which means people may say, well, we don’t just want public health care, we maybe we should have public banking, and that can go on from there. So I think we need to do another podcast about this. But Ranna, why don’t why don’t you conclude for us?
Well, you know, I would just build on what you said. I do think that that’s another podcast. In the way, I think of it is that, you know, there tend to be economic pendulum shifts every half-century or so, give or take. And we had a pendulum shift. If you look at the period leading up to the 1929 market crash in the 30s’, that period in which the ten years or so before actually from the Spanish flu too 1929, OK, you had the Spanish flu first and then the market crash. We had a market crash and then the coronavirus. But that, that ten years was similar and that you had basically underlying problems that then central bankers papered over with debt. There was a huge asset bubble. There was a lot of technological change, shifting labor markets, demographic change, urbanization, lots of moving pieces. You eventually got a debt bubble, a market crash, the 30s’. And then from the 30s to the 70s, you had kind of another pendulum shift where there was a movement away from private sector power. There were certain curbs. You got the Glass-Steagall regulations. You know, these are sweeping generalizations, but they’re basically true. And you had the public sector getting more power. You had labor getting more power. That was over, as we know, with the Reagan Thatcher revolution in the 80s. And then we go pendulum shifting, and we get Trump, perhaps as the apex of all of that.
I think we are now in another pendulum shift. And I think that many of the things that we’ve been talking about could come to pass. And even though there are some big challenges, some big dangers, I think that it’s possible that with the right tweaks and incentives, we could get a shift finally between capital and labor. We could get a shift between the private sector and the public sector. We could see a conversation moving from consumers to more talk about citizens. I think all those things are possible, and we should come back and talk about it.
And all those things are possible. If there isn’t some kind of Trump coup, assuming Biden actually wins the election, which sounds like he’s going to win the election. But whether that’s, he, I should say it sounds like he’s going to win the vote. It’s not clear he’s going to win the election. Anyway, thank you both very much, and let’s schedule another one soon. Thank you, Rana.
Thanks to you both. Mark, you’re a rock star. Thanks. Thanks for having us, Paul.
Micro celebrity, that’s the term.
And thank you for joining us on theAnalysis.News podcast.