This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Adam Posen, President of the Peterson Institute for International Economics. This is really a whole lot of monetary policy, fiscal discussion and just wonky good fun.
He has worked all over the world as an expert in both inflation, deflation, monetary policy, fiscal policy. There aren’t that many people who have his breadth of experience whether it’s at a think tank, at the New York Fed, at the Bank of England. This really is quite fascinating discussion and the timing is perfect.
We’re recording this not knowing what the outcome of the election is and we’re recording it on election day. So, it will be interesting to see how our discussion plays out in light of what probably is old news by now but the discussions of policy and the discussions of what central bankers got right and wrong over history is timeless.
And I think if you’re at all interested in what’s going on in banking, monetary policy, government management of emergencies and recessions, you’re going to find this to be absolutely fascinating.
So, with no further ado, my conversation with Adam Posen.
VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My special guest today is Adam Posen. He is the President of the Peterson Institute for international economics where he has served since 2013. He comes to us with a PhD in political economy from Harvard. He has been an economist at the Federal Reserve Bank of New York as well as a voting member of the Monetary Policy Committee of the Bank of England.
In 1998, he co-authored a book on “Inflation Targeting” with some guy named Ben Bernanke. Adam Posen, welcome to Bloomberg.
ADAM POSEN, PRESIDENT, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: Thank you, Barry. Really excited to talk with you.
RITHOLTZ: So, let’s have a conversation. I expect this to be good wonky fun and let’s start with the Peterson Institute. Globally recognized think tank focusing on international relations and economics. Tell us a bit about the institution, how does it get its funding, what are its goals and purposes.
POSEN: Thanks, Barry. It’s obviously a pleasure for me to talk about it. Peterson Institute for International Economics was cofounded 40 years ago about by Fred Bergsten and Pete Peterson who had been together in government in the ’70s, in the early ’70s, and they both saw the U.S. as being part of a global economy that it wasn’t yet realizing its part of.
And the strong point of the Peterson Institute since that time has been bringing together people with academic research grant who want to work on real world problems, which is, in some ways, may sound like, well, that’s what a think tank does. But doing it with quality and some of amount intellectual honesty and not being terribly partisan about it is the trick.
I got to take over as the second leader of it as the president starting in January 2013. Michael Peterson, head of the Peterson Foundation, succeeded Pete as the Chair of our board, and together, I think we’ve built on the values and the core that Fred and Pete had and taking it in a better direction further that it’s not just about the global economy, it’s about how the global economy affects the domestic well-being of people that it’s not just about how the U.S. interacts with global economy but our target audience are the leaders in the major economies basically think the G-20.
RITHOLTZ: Very interesting.
POSEN: And that we’re doing more education and outreach and accessible publication rather than academic work.
RITHOLTZ: So, you raised an interesting question that I have to address. Throughout most of my career, I followed a number of think tanks for pretty much what you described nonpartisan research and analysis. But at the same time, I’ve noticed a number of pretty well-known think tanks have kind of gone just full partisan politics. What is that about? Aren’t these think tanks supposed to maintain some sort of objectivity when they pursue policy or have they all just become an arm of various political parties?
POSEN: Well, some have become an arm and some haven’t, I mean, just speaking very bluntly, Barry, and you had said about funding and they don’t mean to about issues.
We’re much smaller than most of think tanks. And so, we’ve been fortunate to be able to choose supporters starting with the Peterson Foundation covering our core but then we have a market test to raise 75 percent of our money every year.
And so, we have a balance and we only take money that’s from private sector or individuals that’s basically non-restricted. They’re only about very broad things like trader or macro. The incentives to get partisan have always been there but they’ve gotten worse just as it’s been true for everybody in Washington and everybody around the world recently because when the government ceases to value expertise and ceases to value open debate, you only weigh in sometimes is to be partisan.
I mean, we work with people in both Bush administrations, for Clinton administration, the Obama administration. We have completely shut out of any real meaningful interaction with the Trump administration appointees.
We don’t have access by right and we have to earn it. But in this case, we’re shut out because we speak not what they want to hear. So, you just got to make your choice and we chose to be on the outs rather than be prodigiously partisan.
RITHOLTZ: So, that raises another question, how does research normally anyway, how does it have an impact on public policy? What do think tanks do under let’s just call it a more traditional administration than the current one?
POSEN: Well, think tanks at best, in our view, are served kind of like — well, they serve three purposes. First is they try to shoot down bad ideas. We’re sort of like independent counsel economic advisers. We try to explain what are the costs or what are things that are already known, what ar e unforeseen effects. And with the Trump administration, there’s been an awful lot of that but that’s sort of the first thing.
The second thing you try to do is be a source of good ideas for one of the problems and say the six months to three-year time horizon. You’re not trying to Monday morning quarterback everything day to day but you’ve got a bit more leisure and a bit less political pressure.
And ideally, your people are good and have insights from experience and research so they can say, here’s a way of addressing this problem or here’s the problem you overlooked.
And then the third thing you try to do is contribute to the public discussion and on both those lines and not to talk about what’s good and what’s bad. And in the normal times, again, I mean, it sounds various (ph) establishments, one doesn’t have this by right, one has to earn it. But in the normal times, people want to hear what your think tank says because they feel like it offers useful information.
And so, officials want to discuss with you informally or occasionally make their case formally so that they — you can be a sounding board and try to make policy better. one other thing I would say is that the ability to affect policy, in our view and the record of Peterson Institute, is about sort of like a baseball player. You’re doing really well if you’re averaging 300 that you don’t always kill everything you seek to kill and you even less frequently get proposals accepted directly as soon as you proposed them.
But over time, you hope to change the debate and there are number of places I can cite where we have done that, including most recently on fiscal policy with Olivier Blanchard’s leadership on trade relations with China and with TPP and other things.
RITHOLTZ: So, that was actually a question I was thinking about and you pointed me right to it, in the U.S., are you targeting the White House, are you targeting Congress in fiscal policy or are you really aiming it at having influence on the Federal Reserve and monetary policy or some combination of all of them?
POSEN: It’s some combination of all of them somewhat opportunistically. I mean, our commitment, and I’d like to think a number of other think tanks but not all, our commitment is to be very open about what it is we’re pursuing to say why we’ve got to the agenda we have and these are the issues and includes disclosure of our funders and disclosure of the background of our fellows and just say, put it out there.
We believe that integration of the global economy on that is much better for the U.S. in terms of economic well-being, stability, peace, domestic politics and just dealing with the big economic problems then the alternative. And so, we’re just opportunistic.
So, if sometimes it’s about writing op-eds and putting explainers on our website trying to reach the public that way, sometimes appearing with influencers like you or a friend Tom Keene and Francine Lacqua or David Westin on Bloomberg. Sometimes, it’s giving briefings directly to cabinet officials. We’re just …
RITHOLTZ: So, let me push back on a sec here.
RITHOLTZ: I’m going to channel my inner Donald Trump and say, hey, we’ve had the entire post-war period to see how U.S. economic integration with the rest of the world has worked and for many Americans, it hasn’t worked. Globalization and the rise of technology, we’ve exported a lot of good paying jobs overseas. There is a huge swath of people in America who’d been left behind. How do you respond to that criticism?
POSEN: The first point is that the main reason a huge swath of people in the U.S. have been left behind is because our politics written by race, written by regionalism long before Trump, has made us have the weakest welfare state and the weakest worker protections in the world for a rich country. And so, go across the border of Canada, go across the Atlantic to any Western European country, go the other direction to Australia or Singapore or Japan and workers have not been left behind as much.
So, that actually not on globalization, that’s on us. And the second thing is that you — at some point, there were people overselling globalization. I personally — I think I can claim I largely haven’t. But it’s about making the best of the reality you got.
You’re not going to prevent people in China or Brazil or India or Poland for making a living. They are entitled to, they should. And so, the question is given that they exist, how do we integrate a system that lets them make a living and it goes to our benefit.
And so, the fundamental contention to Trump that we’ve all been played for suckers, which, of course, his mental worldview at all times because that’s his whole game plan, that we’ve all been played for suckers is just doesn’t hold up with the facts. I mean, when we talk about the loss of these jobs in — it happens in a country where you have 150 million jobs at any given time and 15 plus million, 20 million, 30 million people turnover their jobs every year.
The idea that over a 20-year period manufacturing jobs shrunk by a couple million, that’s reality. And so, the failures are not about globalization. What we’ve seen over the last four years is the exact experiment. You rollback globalization and it gets worse not better.
RITHOLTZ: Right. Global labor arbitrage is a real thing and it’s up to us to figure out a way to respond to it proactively as opposed to sitting back and doing nothing.
POSEN: Beautifully said.
RITHOLTZ: So, let’s talk a little bit about exploding debt and deficits. I have been hearing about the evils of deficits my entire life. I’ve heard warnings about the collapse of the currency and hyperinflation and all these other things. And yet, when you look around the world, the Japan or the U.S., none of the warnings have come to fruition.
So, that raises the question, a country with its own currency and own central bank, why should we really care about annual deficits?
POSEN: Well, we shouldn’t freak out about them the way people kept trying to make us freak out about and that’s for sure. Again, my colleague, Olivier Blanchard at Peterson, a noted economist, has been doing a lot of the intellectual groundwork for the last couple of years to explain why this is the case.
But a bunch of us, including Olivier and I and others, we’re already saying back in 2008, 2009, hey, don’t destroy the economy for the sake of the shibboleth list, false fear that somebody (ph) — you’re going to turn it Greece. It goes to exactly the point you raised, Barry. If you’re a country that can issue debt in your own currency and importantly, if you’re a country where it’s credible that in future you can raise taxes if you have to, then you don’t need to worry so much about that.
But not worrying so much is not the same as not worrying at all. And so, it’s just that it’s less of a knife edge particularly when we’re in a bad situation like we are now and by bad situation, I don’t mean just the human horror of the pandemic. I mean, bad situation, the kind of sector stagnation that Larry Summers and others have spoken about, which is that we’re in a period of fundamentally deficient private sector demand for productive investment.
The real interest that they are sparsely underlying real interest rate of the economy is very low in ecom’s peak (ph). And so, at that point, everybody just starts chasing safety and has to stick their money somewhere and then all goes into treasuries and then supposedly save assets. And then when interest rates are that low, you’re better off using fiscal policy than not.
But as our cousins at the Peterson Foundation rightly point out, and this I’ve been saying for several years now, what — the debate should be about what you spend it on, not how much you’re spending. That is where — that is more difficult debate in politics and it’s more difficult to establish than having simple rules of thumb.
Ninety percent debt to GDP ratio is bad. It turns out not true. But debating what’s public investment, what’s useful for the next generation, what’s going to have a bigger or lesser payoff, what forms of taxation are better or worse, that’s the discussion you should be having. Even if you can borrow against the equity in your home, it matters whether you blow it all on Domino’s Pizza or whether you renovate your kitchen or whether you take that money and put your kids through school.
RITHOLTZ: Quite interesting. Let me throw the question back at you, not so much as to the what we spend the money on but the when we spend the money, there wasn’t a whole lot of fiscal stimulus post-great financial crisis. There wasn’t the usual Keynesian countercyclical spending and yet, the 2017 tax cuts were an enormous procyclical spend.
RITHOLTZ: How important is the when of spending versus the what of spending?
POSEN: They’re both important. The when of spending is kind of asymmetric. It’s far more important that you don’t blow it when you need the spending as we did by reversing fiscal course in 2010 as the UK did, as Germany, as member of other countries along with the U.S. mistakenly did versus really stepping up and doing the fiscal as we did — well, I say we, as the U.S. did and the other major economies did last spring.
That’s really important. Wasting your money on, as you put it, procyclical, feeding a boom when they didn’t need the help. Tax cuts we had in 2017 is bad but it’s less dangerous than failing to spend when you need it. And this is one of the funny things, I mean, it’s like monetary policy.
Monetary policy is asymmetric, too. It’s very good at staving off the financial panics. It’s not so good at creating a boom or creating a recovery. So, you have to sort of take that into account when you’re assessing these things.
RITHOLTZ: So, let me go right from the deficit conversation to the increasing popularity of a modern monetary theory. It seems to be gaining more and more acceptance in recent years. What are your thoughts on MMT and if we do see some sort of unified government in the United States, do you think that’s a possibility and what might that mean for the deficit?
POSEN: Let me take it in reverse order. I think what – if we get unified government, a clear presence with the mandate, let’s assume — say Democrats controlling both Houses of Congress, then I would expect to see a significant shift in ongoing fiscal policy even as the economy recovers. I would expect to see reallocation of taxes. I would expect to see and pray for a carbon tax but redistribution of some of those revenues back to the people hit by it and I would expect to see a larger investment in infrastructure, healthcare and green energy.
Now, whether that’s MMT or not isn’t going to show up in the plans for the first few years because interest rates are nil. The economy is far from full employment. We’ve way underinvested in green and in healthcare and in infrastructure.
So, it makes no difference whether you call it MMT or not. But some people will call it MMT and use that as their justification. So, then the question is what does the MMT tell us is different and where I would come down and a number of my colleagues would come down is saying there’s a difference between saying the budget constraints are not as tight as people used to think especially in these current circumstances versus the budget constraint is a myth, Stephanie Kelton I guess her name is and she talked about …
POSEN: … deficit myth. Those are very different. It’s like saying to a diabetic, right, if you’re taking your meds and you’re responsible, you can occasionally cheat. It’s different from saying to the diabetic, you don’t have to take your meds and Ben & Jerrys all the time, right?
RITHOLTZ: That’s a pretty good way to describe it. So, that raises the issue of fiscal versus monetary policy. What do you say to folks like Ray Dalio and others who have been arguing the mostly monetary response and the limited fiscal response after the financial crisis has led to a substantial increase in wealth and equality and ongoing income inequality?
POSEN: Again, the question is compared to what and there’s no question we would’ve been better off for a variety of reasons if we hadn’t cut back on fiscal abruptly in 2010 and we had had to sustain public investment campaign and then monetary policy would have been different.
So, again, in conclusion, and I heard your interview with Dalio, the sort of implication, I’m not that different. But, again, just like with globalization, you can’t pretend the rest of the world doesn’t exist. You can’t pretend inequality is only filed to the Fed.
I mean, the reason the Fed does some of these things is because not just the bleeding hearts for inequality but because fundamentally, if you have mass unemployment, that is so much worse for those people than the fact that some rich people get ahead because stock prices go up. That has permanent scarring effects on communities, on individuals, on families, on education of the next generation.
And so, this is one of things I used to argue when I was a policymaker at the Bank of England back in the financial crisis. You can talk about all these other things that are supposedly bad about a financial – (ph) monetary policy but failure to act has incredibly bad real tangible effects not just paper profits for a few people.
And I’m against inequality but I’m mostly against inequality because what it does to people on the bottom. I’m happy to tax the heck out of the people on the top but the fact that the people on the top get ahead isn’t going to prevent me from helping the people on the bottom.
RITHOLTZ: Quite interesting. So, let’s talk a little bit about what’s going on with Brexit and the Bank of England and all the craziness in the U.K. I really like your quote, “There are no economic benefits for Brexit. The only issue is how large the costs are.” Explain that to us.
POSEN: Well, you can make a political argument for Brexit, Barry, if you’re a nationalist (ph). You’re worried about immigration. You’re worried about so-called sovereignty. Culturally, you’re worried about Europe blowing up.
There are a lot of reasons you can — as a free citizen in Britain, you could have voted for Brexit. But you can’t make it an economic argument. I mean, essentially, on the negative side, you’re throwing up a supply shock with your largest trading partner, which is Europe which is 60 percent of your trade and which is a much larger share of the economy trade, it’s a much larger share of the British economy than like for U.S. or China which are huge.
And so, you’re effectively putting tariffs on yourself and not just tariffs, you’re not part of the single market. So, that means all of the high-end stuff that Britain was exporting in terms of education, business services, financial services, you’re no longer going to be necessarily usually recognized standards and access on those.
So, you’re throwing up this huge spanner in the works as the Brits would say and what are you getting for it. Well, you can come over the laundry list of things you think are wrong with the European Union economically, including if you feel this way, overregulation, excessive welfare state, tight labor laws, demographic decline, weaknesses in the euro.
And as I pointed out and started pointing out back in 2016, none of those apply to Britain. Essentially, Britain has the weakest labor laws, lease welfare state of any of the rich countries in Western Europe and less than many of the countries in Eastern Europe., and it’s not part of Europe.
So, essentially, all you’re getting is a slight diminution in certain industries of regulatory conformity and you’re giving up huge amount of trade access. And so, it gets even worse because there are many places, including American companies, including Japanese companies and others, who use Britain as their platform for investment that if they wanted to produce stuff inside the EU or they wanted to have services or headquarters inside the EU of a subsidiary, they did in Britain because they like Britain, they like English, they like the rule of law, they like the place.
And now, that doesn’t work and we’re seeing that, all these auto manufacturers, for example, Ford, Nissan, Toyota, Land Rover, they’re cutting back on their investment in Britain. So, there is no economic upside.
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RITHOLTZ: So, I would argue and others have argued that both the U.K. and Germany were the big winners of the creation of the European Union. What is that say to us about the rise of popularism and lots of folks after the Brexit vote said, hey, you in America better pay attention because the same factors driving us towards Brexit is going to drive you towards the Trump presidency. That turned out to be a pretty accurate prediction.
POSEN: Yes. I agree. I mean, I was part of that crowd. I had said that there were huge echoes between Brexit and Trump when Trump was running. But I think it’s really important, Barry, that we emphasize that not everything is about economics.
People choose to do things that matter to them that may be a bad idea economically. You just don’t want to lie to them about it. And I think that’s where we are with both Trump and Brexit is that there are people who are motivated for good reasons, there are people who are motivated for single issue voters whether it’s abortion in the United States or local government control in the U.K.
And there are people frankly who are motivated by evil things like racism and nativism and a lot of which contributes to populism. And so, yes, the same force was there in the U.K. and then the U.S. and I think it has a lot to do with less well-educated white males’ status going down and they get really pissed.
And that’s not some inevitable result of economics. That’s just the reality when you have both technology advancing and justice advancing that their privileged positions start to break down and they get angry. And in our democratic system, they’re allowed to express that anger.
I just don’t want us saying, there’s something underlying wrong with international economic integration. There’s a bunch of political science work out there and polling work, including by my colleague Marcus Noland and former colleague Carolyn Freund, where you can just document that people are voting for these things, these parties, the Trump forage (ph) and the U.K. Brexit because of their dislike of foreigners, because of their dislike of change.
And so, the anti-globalization isn’t because it’s doing them harm necessarily, it’s because they perceive it as foreign and bad and you can see this in the U.K. because the single biggest predictor of whether you voted for Brexit in the polling data was whether you voted you would like to see the death penalty back and death penalty is just never coming back in the U.K. but it was — it’s a symbolic issue like burning the flag in the U.S.
And so, again, as economists have to be humbled but also straightforward and say, people make decisions that have nothing to do with economics. All we can do is tell you the things or lies (ph) about how good the economics are won’t work.
RITHOLTZ: So, let me ask you, how does an American ends up on the Monetary Policy Committee of the Bank of England and how did you take that see.
POSEN: Well, this is a funny — not ha-ha but interesting thing about globalization having once been very open and different in Britain. Tony Blair, was Prime Minister well before I got there, talked about having a government of all the talents. And so, the central bank jobs at the — for the members of Monetary Policy Committee were publicly advertised and people could apply and you didn’t have to be a U.K. or even a U.S. citizen.
Now, I mean, to be fair, I had done work with the Bank of England as part of my previous research in policy work. I had been a visitor at the bank as a researcher for six months in 2016 and probably more importantly, I did some consulting work for then Prime Minister Gordon Brown and Chancellor Alistair Darling at the start of the financial crisis.
Plus, my research background had a lot to do with both monetary policy and what they gone wrong in Japan. So, I was seen as relevant. Anyway, long story short, after I was appointed but before I went over, I attended a party bizarrely with members of the Federal Open Market Committee, including Yellen and Bernanke, in summer of 2009.
And literally, four different FOMC members, I counted, came up to me and said, you’re going to Bank of England. If they appointed a foreigner at the FOMC, Congress would burn the Fed down. So, it was seemed strange but I spent three years there, I did my best and people — I never seemed to get attacked at all for being a foreigner.
RITHOLTZ: That’s quite interesting. I read a really interesting piece in a local British newspaper or national British newspaper. Actually, I was steered to it by one of your colleagues, Danny Blanchflower. The quote about you is you would sit in the room where the Monetary Policy Committee met and hanging on the wall is a picture of one of the governors from the 1930s, Montagu Norman, who I can of remember from “Lords of Finance” am I getting that right?
POSEN: Yes. Exactly.
RITHOLTZ: Anyway, you would sit there when you didn’t know what to do, you would think, what would Governor Norman do, and then you would do the exact opposite. So, you have to explain that.
POSEN: Yes. I mean, I was trying to be a little bit cute but I think it …
POSEN: … is pretty apt. I mean, so, imagine that you’re sitting — the way to translate in U.S. terms is imagine you’re making decisions about government policy in the face of recession and there’s a huge picture of who Hubert Hoover on the wall in the room and you would probably do well saying, OK, I look at Herbert Hoover, I think what would he do, what did he do in 1929, ’30, ’31 and I’m going to do the opposite.
And it’s not about personalities. It’s about Montagu Norman represented a very old school small fee conservative but most importantly recessionist or creative destruction point of view that was proven dreadfully wrong by the Great Depression.
RITHOLTZ: Was that the liquidate capital, liquidate labor, liquidate that school of thought?
POSEN: The view that — the view that monetary policy could only do harm by trying to be helpful and you wanted things to liquidate, liquidate, liquidate as Andrew Mellon who was the Treasury Secretary of U.S. under Hoover said and that great book by “Lords of Finance” is beautiful portrayal of these ideologies.
And, Barry Eichengreen, the economic historian, has also written about this and many others, Mark Blyth has a book on austerity. But these ideas just keep coming back, they just keep coming back. And so, in 2009, the Bank of England made a terrible mistake letting there be a run-on on major regional bank, Northern Rock, because they thought, we have to fight the moral hazard and not tell people — and not tell people that they’re going to be bailed out.
And then that provoked justice as it did in the ’30s although thankfully on a smaller scale a series of bank problems. And similarly, there were people who were very reluctant to expand the central bank balance sheet to do QE when the economy was vastly unemployed. My colleague Danny Blanchflower, who’s your colleague now at Bloomberg who you mentioned, he was way ahead of the curve. He was on before me in 2008, 2009 saying, hey, wake up, people, we got to do something.
RITHOLTZ: You’re making me think about the U.K. as a little bit of a special case. How much of this derives from the sort of puritanical belief that you have to suffer through pain before there’s any sort of redemption, you have to not smooth out the sharp edges of the cycle and trying to reduce that it ultimately makes things worse. Am I over analyzing this or is that …
POSEN: No. I don’t think you are. I think, Barry, you put it very well. This is a recurring moralistic theme. My old dissertation adviser, Ben Friedman in Harvard, has a book coming out in the spring that talks about how some of these moral ideas from the late 18th century extend to our American economic policy debates today and that’s why people vote against what seems to be their self-interest action (ph).
There’s this old tired game’s quote which is still applicable, people of affairs don’t realize how much of the slaves of the ideas of some different economies, and this goes back to the discussion you are having with Dalio compared to me about the role of the central banks and using monetary policy. If you look around the world right now or you look around the world in 2009, 2010, you thought your biggest problem was people don’t deserve credit or getting credit as the stocks that shouldn’t be up are up.
You’re totally missing the point. And if you think that the causes of these problems are because of lax credit, you’re ignoring the evidence. What you can do you if you care about lax credit is you can worry about your accounting system. You can worry about your bank supervision system. You can engage in tighter regulation.
And that’s where the effort should be if you’re worried about misallocation and that should be something that goes on all the time not waiting for some purgatory apocalyptic period to wipe out the stables. That is no way to act because you wipe out a lot of human beings doing that.
RITHOLTZ: Quite fascinating. Let’s talk a little bit about your work at the New York Fed. What did you do there as a research economist?
POSEN: Well, I got the job at the New York Fed right out of grad school and they hire every year. Several staff have to do all the Federal Reserve banks and the Federal Reserve Board. I didn’t get the job at the board but I was very fortunate to get the job I did at the New York Fed.
Rick Mishkin, a professor at Columbia who I think you know at that time had taken leave of Columbia and was the Executive Vice President and Chief Economist at New York Fed and he was building a real network and exciting program and he was very open and good to me to let me be part of it as a junior person.
And the main point was that we were reacting to threats to the Federal Reserve at that time. There were several people in Congress who, including a couple notable senators, who wanted to change the mandate of the Fed to a gold standard or a very tight definitely of price stability.
And he and some of the outside academic consultants, including a person named Ben Bernanke and I myself all thought this was very dangerous. And as the saying goes, you can’t beat something with nothing. So, we looked around and looked — happened upon the fact that a bunch of other central banks, including the Bank of England, the Reserve Bank of New Zealand, the Bank of Canada, Reserve Bank of Australia, had moved to this thing called inflation targeting.
And so, I did a bunch of other stuff while I was there and Rick Mishkin certainly did a bunch of other stuff while he was there. But our main output in this regard was creating this book with Bernanke, Mishkin, late Thomas Laubach and myself looking at the international experience of inflation targeting and it was essentially meant to adjust not just the Fed they said but adjust to a couple of realities of the time that central banks hadn’t been transparent enough and under Greenspan that was an issue.
Central banks had been a little too discretionary and this is how you ended up with “Weekend at Bernie’s” problem that if Greenspan died, they want to probe (ph) them up because there was too much faith in an individual.
And three, that central banks had to avoid being too mechanically rule space because then you would get into trouble by tightening policy or loosening policy too mechanically. And so, that was our contribution was to come up with this alternative framework that rather adapts the alternative framework others had been experimenting with for the Fed and talk about what we learned.
RITHOLTZ: So, I want to talk a little bit about the Fed’s independence and challenges to that. But before we get there, you raised the issue of the gold standard, which seems so anachronistic. I just have to ask, what would happen if the U.S. ever went back on a gold standard?
POSEN: Within very short time, you would have two things. You would have money flying out of the U.S. because people would want to cash out the currency. It’s like an exchange rate peg. You have people betting against the ability to maintain it. So, think of 1992 and George Soros’ famous bet against the British pound.
And you would start having greater fluctuations in the real economy because you would be determining monetary policy by arbitrarily the amount of gold showing up in the world essentially and they would not be flexible in reaction to the realities.
So, it would look more like the late 19th century when the U.S. was subject to capital flight and the U.S. was subject to sharp fluctuations in real activity driven by monetary policy.
RITHOLTZ: Right Regular recessions, regular depressions until the Fed — at least arguably until the Fed came around in the 20th century.
POSEN: Right. And, again, the Fed wasn’t a miracle worker. It was more, again, asymmetric. It was about getting the Fed — getting the money supply out of being the cause of problems. It wasn’t about solely fixing everything and making everything wonderful. But that — those two aspects of the 19th century would be back and that would be a definite step backwards for the U.S.
RITHOLTZ: So, let’s talk a little bit about Fed independence. This particular president has been very aggressive in jawboning the Fed chair publicly. I know that went on behind closed doors in the past, but how independent is the Federal Reserve and how much has it changed during this administration?
POSEN: So, my doctoral dissertation which is now 27-28, 26-27 years ago was on this very topic. And what I argued was independence of the Fed or any central bank depends on having a political constituency that supports it and that sort of like the Supreme Court.
If you can’t go vastly away from public opinion because in the end they’ll change the institution. So, independence is something that has to be managed and measured. And I think that Jay Powell, Chair — current Chair of the Federal Reserve has done a terrific job of navigating the public threats from President Trump and others and you can see this in the way that Congress has supported the measures they’ve taken, that they did something which I think proved to be absolutely right, the provision of liquidity and cross national swap lines at the start of the pandemic economic effects in March-April and they didn’t get attacked by Congress.
And they had to account for themselves, the Congress, as they should. But there were people including Ben Bernanke, let alone, me, who were very worried that we would need those swap lines in the next crisis and who would Congress had attacked but Jay Powell had made enough — invested enough credibility and communication to do that safely.
And similarly on the monetary policy measures now and the changes that Chair Claire (ph) to Chair Powell, Vice Chair Clarida, Governor Brainard and others push in the mandate of the Fed or rather the — I shouldn’t say the mandate, the strategic framework of the Fed to be less preemptive on inflation, more concerned with unemployment.
So, I think the independence of the Fed has been quite fine in recent years, but it’s taken a lot of work and not just PR work but genuine engagement with the public and with Congress and I give them a lot of credit.
I always said to people who are wondering about things that the Fed isn’t really scared of the president, the Fed is scared of Congress because Congress can change the Federal Reserve Act at any time.
RITHOLTZ: What do you make of a book like “End the Fed” by Ron Paul. When something like that comes out, what’s the response within the institution to what is clearly a congressional threat?
POSEN: Well, this is in the same spirit that Mishkin, Bernanke, Laubach (ph) and I were writing about inflation targeting 20 plus years ago that you try to be responsive but in a way that is substantive and honest and not overpromising and not denying but also not pretending that people should believe the lies told about your institution.
And so, it’s interesting. I mean, a year ago, August, I was at the Fed’s annual Jackson Hole Conference and that was when right after Chair Powell’s speech, President Trump tweeted that, basically, the chair of the Fed was as much of an enemy as a Chinese general which was looney tunes and was horrible and you could see Chair Powell and the other Fed officials being quite shaken by this.
But then overtime, he had done just throughout so many tweets about so many things including the Fed, it just became noise and they were right to just sort of, I don’t want to say rise above it, you can’t rise above it, but to withstand it and not overreact.
RITHOLTZ: Yes. If only the president was able to put his own Fed chairman into place, maybe, wait, wasn’t Jerome Powell a Trump appointee? I don’t understand. He seems to constantly be appointing people who he is against. I’m a little perplexed by that.
POSEN: Sigh. Yes (ph). The ironies are great.
RITHOLTZ: So, let’s talk a little bit about how the Fed acted during the great financial crisis. It seemed that Congress was a little bit AWOL. What sort of rating would you give the Fed for what they did? Let’s call, ’08-’09 and 2010.
POSEN: I think the Fed under Bernanke with everyone involved did a very good job in 2009 into 2010. I think there’s a lot of room for criticism of the Fed from 2005 through 2008. And it goes back …
RITHOLTZ: What about the decade befor that? Let me — have you roll further back, we see Greenspan, kind of, ironically ran less government involvement acolyte, he seemed to have his hands on the tiller pretty regularly trying to guide the economy, what rating would you give the Fed in the 1990s? And …
POSEN: Again, I …
RITHOLTZ: Forgive my bias.
POSEN: No, no, it’s fine. And I think this is a discussion that has to be had. I just want to emphasize 2009-’10, the Fed safved the world in many ways. The question is how much of the world …
POSEN: … need being saving was due to past actions of the Fed.
And as I was saying in the earlier part of the conversation, Barry, I think you have to make a distinction between monetary policy and regulation supervision and financial system. And Greenspan actually was quite good at monetary policy and his activism was smart, I mean, and — but he was a — he was totally in random regulation as Mike — as my late colleague Mike Musa (ph), a former UChicago professor once said, you don’t want a conscientious objector as the commandant of the Marine Corps. You don’t want Alan Greenspan as the — as the lead regulator or supervisor in the U.S. financial system.
And I thought that was brilliant. And so, you go back and there were just so many lapses and intentional decisions on regulations supervision that were poor that got us to the fragility and the situation we were in. I don’t think the monetary policy was perfect but I think it was damn good. But it was totally undercut by the laissez-faire approach to regulation and supervision.
RITHOLTZ: So, you’re talking my book now. I’m right there with you. Although, arguably, I could make a case that Greenspan’s rate cuts in the ’01 recession and then what he did following the 9/11 attacks, it filled the room with gas for the ’08-’09 spark because just looking what happened with inflation and any asset priced in either dollars or affected by low rates.
POSEN: I guess so. But to me, the — I mean, there’s something to that. I think it’s more oxygen than fuel. If you — there no one-to-one with how much the monetary policy loosened (ph) versus how much asset price inflation you got. That’s just not there in the data.
But there is a fact which I was pointing out at the time that if you — if you run a lose regulatory policy, then there is, at least, the possibility of this kind of explosion conflagration. And so, to me it was about the low standards in mortgage lending. It was about the low standards of leverage. It was about the low standards of supervision of nonbanks. It was about the encouragement of banks to get into all kinds of businesses they shouldn’t have been in.
I don’t mean Glass-Steagall. I mean, various types of very speculatory — speculative thing (ph). So, I mean, we can debate that. I don’t put a huge thing on the — a huge weight on the monetary policy ease in the early 2000, but I’m not going to debate it as long as you are on the same book, Barry, that they blew it on supervision and reg.
RITHOLTZ: I could live with that. So, I have a slide in one of the presentations I give where it’s just a series of media headlines every single year for like 12 years. The Fed is out of ammo, and clearly, they have not been out of ammo.
RITHOLTZ: But here we are in 2020, is that closer to reality today than it was back in 2009 or ’11 or ’15, will the Fed ever run out of ammo?
POSEN: Depends what you’re trying to shoot. And this is why I don’t like the ammo thing beyond the sort of machismo of old white academic guys like me talking about this is — this is kind of absurd.
It’s really about the tool for the job. So, if the job is fighting a deflationary shock, if the job is a lock-up in financial markets, if the job is a panic-producing widening spreads, if the job is a sudden withdrawal liquidity by the — by the banking system and the household sector, the Fed has infinite ammo. It can do what it needs to do to stave that off.
This is what I meant by asymmetry. If the Fed’s job is to try to reinflate the economy, create ongoing growth and recover, it’s not screwing up as necessary but it’s not it’s sufficient. It’s, as Keynes (ph), would say, pushing on a string.
And again, there’s so many analogies. It’s just think of the Fed as a defensive specialist, not a shooting guard, right? So, if it’s got to wrong kind of shock, it can handle it. But you don’t want them making the three-point shot because they’re not going to make it.
RITHOLTZ: So, let’s address that. The bigger threat over the past decade, arguably, has not been inflation but deflation.
RITHOLTZ: What are the possibilities that we might see negative rates continue to expand around the world, might we see them here in the U.S. and what tools does the Fed have to combat them?
POSEN: I view the decline in long-term rates as something beyond the Fed’s control largely and is driven by real factors. Gita Gopinath, the Chief Economist of the IMF just recently had an op-ed in the “Financial Times” talking about how unprecedentedly global negative rates, negative — least nominal rates are on government debt.
And Larry Summers, again, to give him credit for envisioning the secular stagnation, wherein — when I’ve been writing my peers and congressmen (ph), writing about these for several years now, but you’re in a fundamentally different environment that the real rate of return and capital’s low, the risk appetite is low, the inflationary pressures are low.
On top of that, is the fact that ultimately, and this is my point of view, and it used to call me a throwback for thinking this, but now people are coming around, is that you can’t have sustained inflation in a rich democracy unless you have sustained wage growth. It just doesn’t happen.
And this is kind of where Chair Powell and others on the Federal Open Market Committee have been talking for the last year or two.
And we were just starting to maybe get to the point there is going to be some wage inflation before the pandemic. And you mentioned Danny Blanchflower. Danny and I were out there in 2014 with a few other people, screaming that the Fed had vastly underestimated the amount of labor market slack that they were worried about inflation way too soon.
But the other piece of this is I’ve done a lot of work on Japan. Everybody should be looking at what happened in Japan over the last 25 years as relevant for what’s happening in the rest of the world now. Because wages don’t tend to fall, you get unemployment instead and because normal prices are sticky and you can’t speak, people don’t tend to cut prices that much although they do more now in the internet age than they used to, deflation is less of a threat than we thought it was.
If you go back to stuff I was writing 20 years ago, Krugman, Bernanke, others, we were very, very worried that deflation would be a downward negative spiral and would accelerate and would make matters much worse. And what japan has showed us is no, deflation is kind of a sticky mess. You get into it, it’s hard to get out, it’s an ongoing drag on you, but it doesn’t tend to spiral out of control.
So, upshot, I don’t think we need to worry too much about deflation because it’s not as bad as we once thought it was and it’s not that likely, but I do think we need to worry about the underlying problems with the global economy that we’re in a low interest rate, low-yield, low-risk appetite world that there isn’t the next technological advance, the next big thing in Michael Lewis (spoke of).
RITHOLTZ: So, look at — look at the causes, not the effects?
POSEN: Well said.
RITHOLTZ: So, I have to ask you an obvious question, if the incoming president were to nominate you to a seat on the Federal Reserve Board is that — is that something you would accept? What would you do in that role?
POSEN: I think it’s very unlikely they would because although I am fully qualified, they — the Democratic majority in Congress and the Biden campaign have both said, with good reason, that the Fed needs to rebalance the number of women and people of color in important positions. There’s plenty of good women and people of color can be appointed before I would be.
But if I was offered the opportunity to serve in an economic policy in a senior role, I am very much sentimentally and believe I can make a contribution as a central banker. I love my current job running the Peterson Institute. It’s a great thing for me and I hope we do some good in the world.
But if it turned out that there was reason for me to answer (ph) public to service, I would do it.
RITHOLTZ: So, I have to ask you a question that lately I’ve been sneaking in to a lot of people, what are your thoughts on blockchain and crypto? I’m a little bit of a skeptic. It’s sort of seems like a solution in search of a problem.
But what does blockchain mean to the international monetary system? Might this ever become mainstreamed as part of our economic global currency?
POSEN: I think, there’s a saying, talk about central banking, there’s a — there’s a reference in central banking to what’s called the plumbing, which is the — the payment system things that have to work which was sort of clunky, big, not very glamorous underlying things.
And though blockchain, in particular bitcoin and some of the other cybercurrency aspects have been promoted as sexy, hot fintech, they’re really plumbing. They’re really — they’re really just a better — a better gauge of pipe that doesn’t tend to get clogged up very much.
So, I think, we are going to, over the next two years, see much more use of it and I think it’s frankly not going to matter very much.
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RITHOLTZ: All right. I know I only have you for a you a limited amount of time. So, let’s jump to our favorite questions. We ask these of all our guests and let’s start out with streaming. Give us some of your favorite Netflix or Amazon videos that you might be entertaining yourself with during this pandemic, work-from-home era?
POSEN: Yes. The pandemic work-from-home era just how horrible the world is, my wife and I find we — we can’t watch anything serious. So, we’re very stereotypical. We’ve watched a bunch of called the seasons of “Great British Bake-Off.” A great British baking show as it’s called in the U.S.
We started watching “The Crown” and as a former resident of the United Kingdom, that’s also has extra fun. We decided bizarrely to start re-watching “Columbo” which is …
RITHOLTZ: How has that been? Does it hold up?
POSEN: It’s not art but it’s kind of comforting and it’s better for us than the Hallmark Christmas movies, let’s put it that way.
RITHOLTZ: So, I don’t really have anything that fabulous to recommend to people. In terms of podcast, I listen to a lot of food and wine podcasts. We listen to “99% Invisible.” We listen — I listen to yours.
There’s a podcast called “The History of English,” meaning the history of the English language, not the English people which is totally geeky and quite fun. Anyway, nothing — nothing terribly I would try to suggest to your audience that they haven’t heard of.
RITHOLTZ: So, usually when people give me a run off things they’re watching I can come up with something they might enjoy. I just started streaming earlier last month a show I completely missed the first time around that I’m trying to figure if you would like it, “Mad Men.” Have you seen any of that?
POSEN: OK. Yes. So, we skipped it the first time around and it’s — I mean, I see a few episodes so visually gorgeous, so I’m tempted. But it’s also just so uncomfortable, some of the set …
POSEN: … in it. I mean, it’s portraying the reality which is useful, but again, do I really want to see that? I don’t know.
RITHOLTZ: So, that was the question I’ve asked some people — I’m — I have a couple years on you, but not many, but I’ve been asking people who were 10 and 20 years older than me how hyperbolic is this? How exaggerated is it for television and the consensus seems to be no, that’s a pretty accurate portrayal which is just shocking to me.
POSEN: No, and that’s what I’ve heard. And of course, then there’s the occasionally mentioned, but obviously, their racism that it’s — it’s just totally white group of people, basically. And so, it’s one of these things where I give them credit in portraying the reality accurately and correctly uncomfortable.
RITHOLTZ: So, I’m going to check out that History of English. It sounds interesting.
Tell us about some of your early mentors. Who helped to shape your career?
POSEN: Well, I’ve mentioned already as we went along two of the people who were most important to my career, Ben Friedman of Harvard and Rick Mishkin of the Federal Reserve when I dealt with them in Columbia. Both of whom sort of took me as I am, somebody who’s not as mathematically facile, technical, and much more real world than most good economics Ph.D. and gave me opportunities and encouragement to start and go my political economy, policy-oriented route.
The other two, really, key mentors for me are one, Fred Bergsten who was, as I mentioned, my predecessor and the co-founder of Peterson of Institute for International Economics, now Peterson Institute. And from the time I got to PIIE in 1997, Fred taught me about reaching policy audience, reaching the public, and also gave me the opportunity to develop, to think about running think tanks and what’s involved personnel as well.
And the through line between Ben and Rick and Fred was that they all were real world, not in the sense, we weren’t all academics as writing books and articles, but real world in the sense that the stuff we did had to have some implications in the real world and had to be checked against the real world.
And so, my final mentors, really frankly, were my parents. My mother and father, Harold and Annette Posen, were both physicists. They were both civil servants in the U.S., my father for the Air Force, my mother for Smithsonian. And as a result, I was brought up to know always how difficult it was to know something, how important it was to check things empirically, how cool it was when you did really understand something. And also perhaps, surprisingly, to have a very broad set of interest.
My parents, the other big lesson from my parents, was just about mentoring and more about my values in addition to sort of attempted scientific objectivity, although I wasn’t a physicist, is that they had very, very tough lives. They were children of immigrants and grew up in poverty, both of them, and very narrow, this is from having life and career goal, very askew.
And so, that made me very wary, even though I was brought up instantly (ph), better off than they were, that you had to be very aware of the tacit knowledge of navigating places, of navigating institutions, and navigating relationships and not that I’ve done it perfectly by any means, but I was very aware of that from a young age.
And so, right now, quite unsuccessfully, but I’m trying to pay it forward both in terms of the individuals, the younger people at the Peterson Institute who I try to help and more generally working with other think tanks, we’re trying to create something so that people of minority backgrounds, people of less privileged backgrounds can be taught some of this tacit knowledge so we can have more people of diverse background succeeding in the policy research profession.
RITHOLTZ: Quite interesting. So, we’ve both mentioned a couple of books. Let’s talk about what you’re reading. Tell us some of your favorite books and tell us what you might be reading currently.
POSEN: So, similarly to on the Netflix, Amazon TV watching, I must admit I am terrible about having an attention span to read serious stuff right now, frankly. So, I’m spending a lot of time reading “The New Yorker,” “The New York Review of Books,” courts (ph) various — “The Atlantic” and not that much in book length.
But when I think about some of my favorite books of recent years, I mean, you mentioned “Lords of Finance” which I think was superb. I think the Robert Gordon book, “The Rise and Fall of American Growth” was incredibly important. I think some of Krugman’s earlier collections of essays. But going back to one of his earliest, “The Age of Diminished Expectations” was ahead of its time. It wasn’t right for the period it was but it’s right now.
I read — try to read a lot of history. And I’ve become addicted to there’s this Oxford very short introduction series which lets current academic summarize what’s going on in the field and I’ve been using that as my crib note. And I’ll give a shout out to Adam Tooze in NYU (ph). I didn’t absolutely adore his book “Crashed” but his previous book “The Deluge” about the U.S. role and the international economy around World War I and after, I thought was terrific and very important perspective on what’s going on in the world today.
POSEN: You’re reading list, especially the magazines sounds shockingly similar to mine. I don’t preselect people who only agree with me, but by coincidence, and in fact, I try and seek out people who will — who I will disagree with, but by coincidence, your periodical reading list is very similar to mine.
And I think a lot of people do not understand that we are in a golden age of longform journalism who reportage that has been taking place has just been — the new York — I mean I know some people don’t love the tone of “The Atlantic” or “The New Yorker” but — but the reporting has just been spectacular.
POSEN: I completely agree. Again, I didn’t come to this knowing that you and I would align. I just figured I listen to you and I think you’re smart and so I’m glad we aligned.
But in terms of — I think David Remnick and his team at “The New Yorker” have been killing it forever. I think Jeffrey Goldberg and what “The Atlantic” has done particularly since Trump has been outstanding. I think “New York Review of Books,” after some turmoil, has gotten back to being incredibly good source.
But, yes, those are — those are some. But then there’s all this wonderful stuff that gets aggregated now and you wonder about the business model, how can — how can these things be sustained. I mean, there are people who also in the newspapers. I mean, my friend Peter Goodman at “The New York Times,” Neil Irwin also at “The New York Times.” There’s a laundry list of people. David Lynch and others and Heather Long at “The Washington Post” last long forum (ph) usually, it is a good age of good journalism.
There’s also a bunch of cowardly things going on by editorial. I shouldn’t say editorial writers. But the stuff that’s real individual essays in reporting, there’s a wealth of worthwhile things to read now.
RITHOLTZ: Yes. No doubt. So, what sort of advice …
POSEN: The other thing I have to plug in is the guardian “The Guardian.” “The Guardian,” I read “The Guardian” every day and don’t agree with all of it but it is fantastic, both reporting and message (ph). “The Guardian” …
RITHOLTZ: And I think a lot of people don’t realize that how unique their financial structure is, they have an endowment that essentially supports them to some degree. They haven’t been under the same pressure as a lot of other reporters or newspapers. I’m I’m curious if that sort of structure might catch on in the future.
POSEN: I agree with you. And you know, you look at Bloomberg and you look at “Washington Post” and both of those have not quite the same structure but have philanthropically-minded mega billionaire backers.
RITHOLTZ: Right. Deep pockets.
POSEN: Who want the journalism to be high-quality in all and I think that’s amazing and clearly the Sulzbergers had some degree of had that same model in mind for the Times.
But, yes, “The Guardian,” I think, is a potential model going forward and they’re not total — they don’t have a multibillion-dollar backing, but they’ve managed to sustain quality, too.
RITHOLTZ: The Times is one of the few lucky winners in this political environment. Their subscription seems to have gone through the roof over the past four years.
POSEN: Well, I mean, this goes back to — to sound like an economist — I mean, this goes back to a very fundamental point that Paul Krugman and the different forms others raised 20 years ago which is one of the effects of the Internet of globalization, of technology, especially, is that we’re living in a world of superstars, that market is global. And so, when you top in your field, you get outsize rewards and then you also get network effects and you also start deterring and losing the local. And this is true in journalism as well as in other fields and business.
Then, what’s been very sad and there’s a lot of documentation about this is we’ve seen there’s a very good NBER working paper from within the last year, I think. Where you lose local newspapers, you see corruption go up, you see voter misinformation go up. So, I totally respect that these — these bastions of independence and quality like the Post, the “Washington Post,” “The New York Times,” “The Guardian, “The Financial Times,” “The Economist,” and basically Bloomberg are doing wonderful things,
But we also need some kind of philanthropic model or something to provide local reporting to hold governments and business accountable.
RITHOLTZ: So, I know there’s a recent book, “Winners Take All,” but previously, and I want to say Cornell, the professors who wrote the a book called “The Winner-Take-All Society” …
RITHOLTZ: … that discusses exactly what you’re referring to which is that longtail fathead very much — Robert Frank, who actually …
POSEN: Robert Frank, yes. I apologize. I should have mentioned that book. Yes. Exactly makes that argument.
RITHOLTZ: Yes. Absolutely. So, let’s talk about recent college grads. If someone came out of college and was asking you for advice on a career in economics or monetary policy or going on a think tank, what sort of a advice would you give them?
POSEN: I mean, going to a think tank is a very bizarre specialized little niche, right? It’s a lovely niche for those us who like it but it’s generally nuts. Even though I sort of went to work with that in mind, it’s really not something you should plan for. Not because it’s like you shouldn’t plan for playing in the NBA, that’s not it. There are more think tanks and more jobs now than there’s ever been but just that it’s still weird in its profession.
If your goal is to use economic analysis to make the world a better place and particularly to affect public policy, then there is a broad set of ways you can do it. And for young people, the first, and to me most important thing, is focus on learning how to think about data.
And I don’t mean necessarily Raj Chetty and the epitome of data science nowadays. I don’t necessarily mean being very technical but being empirical minded, and of course, some technical skill to go with is helpful.
And learning just how messy it is to gather and deal with the world data. And I would also encourage young people to — I mean, it’s trite but work on their written and oral communication. What the problem is with written and oral communication among young people now is very different than what it was when I first started with a position hiring people 10, 20 years ago.
Then, the problem was people being too prolix to profligate with words, too confusing, unwilling to take a stand. Now, the problem is teaching people how to make a longer form argument. But both ways, you got to do that.
And then, the final thing which is my fundamental belief in my career is be internationally minded, not necessarily that you need to work on international policy, but that the way things are in your home country including the U.S. are not necessarily the way things are done around the world and they’re not necessarily the best way and that sounds incredibly obvious, to you and the people listening to your podcast, Barry.
But the extent we’re seeing it now in the U.S. elections the U.S. politics, just the extent to which people have no concept of how the U.S. compares and acts compared to others and the ways in which it’s similar to others and ways in which it’s different, so I think that’s really important.
RITHOLTZ: Yes. Couldn’t agree more. No one country has a monopoly on good ideas and we certainly should borrow freely.
Our final question, what do you know about the world of economics, international relations, politics today that you wish you knew 25 or so years ago when your career was just ramping up?
POSEN: You were kind enough to send me a list of questions. This one was the hardest one, actually, for me to think about ahead of time. I don’t know why because it’s perfectly reasonable question.
I guess the main thing that I wish I had known 20 years or 25 years ago that I didn’t was just frankly to be more woke, that how much, despite my liberalism and fancy education and attempted objectivity, I had overlooked a lot of the fundamental injustices in the world and I had overlooked a lot of our history and I am very ashamed to this day of how late I was to waking up to some of them.
RITHOLTZ: That’s really interesting. We’re recording this on election day, so we don’t know what the outcome is. But arguably, the reaction of much of the public to not just the racial injustice and the killing of unarmed African-American males or anyone for that matter, but the police response to peaceful protest, I think a lot of people who were not, quote-unquote, “woke” were very much shocked by that behavior.
RITHOLTZ: It’s not what you think of when you think of as America, at least in privileged wealthy white society. It’s not what you think of …
POSEN: Exactly. And I’m just so ashamed of that. I remember — I mean, obviously it matters much more to save innocent people’s lives than whether I’m ashamed or not ashamed about that, but I am ashamed of it. I remember one of the first times I went abroad which was in 1990. I went to a conference for economic students in Italy, a bizarre conference but got me there.
Anyway, and I remember talking with somebody who was from Spain and this person was saying to me, you Americans think you’re so free, when I was there, the state police are walking around like the fascist we used to have in doing this and that. And I remember being horrified that he could say such a thing and how could I think — how could he think that? He must be totally wrong.
And I had always made the comfortable assumption, yes, if you’re black or even Jewish, you don’t want to be driving alone in Alabama, sure. But overtime, it’s all going away. And that was, obviously, totally oblivious to the reality of life for, particularly, black males but all kinds of people in the U.S. And the behavior of police.
And it’s just- we don’t know as you just said, if election day, we don’t know what’s going to happen but I hope, whoever wins, we have to try to be more just and not kill innocent people. It shouldn’t be that hard.
RITHOLTZ: Right. News flash, we shouldn’t kill innocent people. Let me …
POSEN: Yes. I’m sorry. It sounds factious but I’d like to — I’d like to start with that.
RITHOLTZ: Well, I will tell you, as much as have been critical of the current president, I give him points for at least accidentally revealing how much the underlying structure of the United States has been under stress in a variety of ways. I, like you, I grew up a pretty, or at least the last 20 years fairly privileged life. I assume that that had gotten much better than it was. And if anything, we’ve learned over the past few years that it’s much worse than many Americans assume. And I think people are starting to realize that.
POSEN: Yes. And that, again, I mean, this is — this is where it’s hugely important and I’m grateful for this opportunity, Barry, to talk economic policy and these things matter greatly. But there is a lot of stuff that I’m — that the economics is not the motivation, the economics is only a small part of the impact that we have to face.
And it’s not — and it’s not because, well, you had Lisa Cook on recently who I think is terrific and she actually worked with me at the New York Fed a long time ago. And you can frame it in terms of as she does sometimes in terms of the loss potential and in addition to the injustice.
But ultimately, it — it’s got to be about the injustice, not about just to economically it would be nice.
RITHOLTZ: Thanks, Adam, for being so generous with your time. We have been speaking without Adam Posen, president of the Peterson Institute for International Economics.
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