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Hello and welcome to another episode of the Odd Lots podcast.
I'm Joe Wisenthal and I'm Tracy Alloway.
Tracy, it's January twenty eighth. I think our new mayor here in New York City. Maybe he hasn't done much, but the snowstorm seemed to go fairly well, not too many big disruptions.
I wasn't here, but you were able to walk around, get out of your apartment.
There have been several mayors who's like entire reputation failed because they couldn't handle a snowstorm, and so he seems to have passed the first test.
So it feels like a low bar for New York mayors.
I gotta say, my guess is, if we looked at I agree it is a low bar. But on the other hand, it's like, Okay, first big test of the new administration seems to be doing well. I don't think however, ultimately the Zarnmumdan the administration will be judged on snow removal, like this is not going to be how history probably remembers how well.
No, and he certainly wasn't elected on his snow removal.
No, no, this is capabilities.
Although I did see the videos of him, you know, getting his shovel out, and.
He's so good at like retail politics like that was like, say, he's so good at that.
Yeah.
But speaking of tests, I mean there are bigger tests coming up, right, mostly concentrated in the economic policies heah.
Right, I think we know, like sort of and of course we talked to him, but like the affordability question in New York City clearly central one of the if
the most central topic in the campaign. And what I would say is that the very most, not all of them, but at least a handful of the ideas that he's proposed are the types of ideas that like, economists hate them, right, So, especially anything where the government is intervening in rent, the idea of Like I there might not be a more hated idea among economists than anything that smacks rent control or anything like that.
Right.
So, I am not very knowledgeable when it comes to actual economic theory and how it's developed over time. But one thing I do know is that you know, the sort of forerunner or ancestor of a lot of traditional economic theory that we see today, like neoclassical economic theory Adam Smith, right, talking about like the freehand of the market and how if the market is functioning, like everything should be fine, right, Yeah, And.
I think like economists, even like you know, almost all but the most sort of true hardcore lais a fair economists would say that there are areas that you know, they call it market failure, right right, there are certain situations in which maybe we can't expect markets to do the job. Maybe they'd say, like, oh, it really doesn't make sense. They have like private fire departments for example,
although some people actually do propose private fire departments. But yeah, you know, even the most sort of like true believers, a sort of liberal or neoclassical economics, they're like, oh, yeah, well there are market.
Failure, is right, in which case the government should see then.
There's a role, but only in failure that unless you like define some areas like okay, there's a reason why markets don't work for this particular area, but that after then sandboxing a few of those things, then it's like, okay, as much as possible, you just want.
To you all about don't interfere.
Let the price signals do their work.
Yeah, so this has become I guess the orthodoxy, and Mamdani is very much in the the heterodox. The heterodox. Yeah, that's a word that always comes up when people are talking about well, when economists start talking about policies that they don't like.
That's that's right. It's a euphemism for policies that they they're like, ohtho, at least a handful of people wear that bad shortly. But like these history, how do they become the orthodoxy, et cetera. Right, like, it's not the law of gravity or that the Earth is round, and which are orthodox ideas for a good reason. There are some people who don't believe that the Earth is round, but they're like, I think we is pretty good. We have good reason to believe it.
And they are the.
People who don't believe that the round. They're not heterodox. They're cranks, right, right, Like that's like they're sort of a difference. Those are cranks. And so, but where do these orthodoxies emerge from? How did some ideas get shunted into the category of heterodoxy or whatever.
And how did they evolve?
I have no idea, Like, I mean, I've read a little bit about the past, but this is not much. I don't know much about this.
We should talk about it.
We should, especially because our new mayor may in fact pursue some heterodox ideas about economic management. Anyway, I'm very excited to say, we really do have the perfect guest. We're going to be speaking with, Jommy Modude. He is a professor of economics at Sarah Lawrence College, also a board member of the Law and Political Economy Collective, and he's written a lot about these topics, including sort of
the intellectual history of some of these economic ideas. So, Jommy, thank you so much for coming on.
Ou thank you so much. Joe and Tracy, what kind of stuff.
You're teaching the kids at Sarah Lawrence these days?
So the interesting thing is I teach Introduction to Economic Theory and Policy, which is a year long lecture and that actually deals with some of these central questions markets, money, the monetary system, and so on. And I actually teach econometrics.
When you say actually, it's because like people don't expect this sort of unorthodox thinker to like actually do the numbers, the technical stuff.
So it's interesting that you posted it that way because one of the things that I do teach in econometrics is method, like you know, like when you're it's not just about number crunching, but where do you get the numbers from? Yeah, and so like weaving in these questions of method as we're trying to understand social and economic reality is it makes for a solid training in economics. And you know, so those questions of method woven into the construction of theory, Yeah, that kind of informs the
way I teach. And why that matters, not just as kind of a an inn ellectual exercise, but why that matters for practical issues like what you guys were talking about.
So truly the perfect guests. Maybe just to begin with, we could perhaps define our terms a little bit. You know, Joe and I gave a properly terrible summary of neoclassical economic thought. But in your mind, what is the orthodoxy?
So the orthodoxy is neoclassical economics. It comes from an intellectual tradition, which so if I may differ a little bit with what you say, Smith, Adam Smith is not the forerunner of neoclassical economics. The expression invisible hand in but I have my students do this experiment every time because it's an eight hundred page book The Wealth of Nations. How many times does the expression invisible hand appear there? Once?
So the point here is that there was an older idea of what markets and of capitalism are and that gets revived again in the nineteen twenties and thirties, and I'll talk about that later. But that older idea, which is called classical political economy, did not make any assumptions about human behavior, that human beings are inherently rational, that markets behave in this optimal manner full employment. That would be neoclassical economics, right, that knowledge is more or less perfect.
There was none of that you're.
Talking about in the classical economics prior to neoclassical exactly talk what years and what thinkers are we talking about?
So we could just talk about Adam Smith, Okay, yeah, great, to some extent, David Ricardo or Karl Marx, the physiocrats.
I mean, so you had a range of authors in a wide range, ideologically not necessarily on the same page, but they had a vision of capitalism, which so the original name of economics was political economy, and that meant that you cannot really talk about economic questions without thinking simultaneously about and many of these folks were actually trained in law, So the question of law's role in structuring the economy this kind of lurks in that intellectual tradition,
and one of the implications was that the economy is not some natural transhistorical institution or thing, but it is profoundly a product of history. And I think that's where the big split arises, because if you teach or if you study neoclassical economics, it is taught in a way by which the economy is treated as something eternal, as something almost in naturalistic terms, and therefore, like gravity, the
economy is always there exactly. But also like the rational individual general equilibrium theory, all of these things are supposedly just happen. And in that sense, this idea of lesser affair that the economy is fundamentally pre political, that it arises before politics, rather like the kernel of a walnut, in which the walnut, which is the shell is if you think is constitutional law or politics or law that emanates from politics, that would encase this thing called the economy.
And only under extreme search of this new classical economics, if there is quote unquote market failure, then the state can step in a little bit to do this that or the other, but fundamentally leave the market B. And you're familiar with this argument. This idea is not really
there in Smith. And one of the things that people sometimes get surprised about, and I always tell this to my students is read his chapter on wages in the Wealth of Nations, and he says very clearly that there is a difference in power between those who own property and workers who don't own property. So this idea that the market is sort of this place where equals me to create contracts that was not in Smith. It was not in Ricardo. And of course you know that was
not there. But people if you evoke marks, then people often say, well, you talk about socialism, Well Smith was not a socialist.
What is his idea? Like, what was his contribution? Or I admit, like I'm like guilty too. It's like, oh, Adam Smith, the visible hand, right, the butcher. But I have been told and I have heard that the sort of caricature that we all have of Smith is wrong. What was his project?
So I think the way to think about it is, you know, just to sort of get out something which I think is kind of important which is institutions. Okay, Now, there have been many different readings of Adam Smith, and so I'll come to them in a little bit, but just to get it out there. When when you talk about institutions, you're talking about the system of implicit and
explicit social constraints within which we exist. Right. So we are having the spontaneous conversation, but in the context of a building which is subject to certain zoning laws and so on, we may and you know, in current zoning laws we cannot smoke, but.
We were certain expectations involved.
But those expectations are codified in a kind of a legal framework. Right. So institutions, the formal institution is law, and informal institutions are cultural norms, and notions are right and wrong and justice and all this. So Adam Smith, according to I think is a convincing strain of thought,
was an institutionalist. He understood that, yes, the sphere of private behavior, private interactions, lesser affair, actually sits on a foundation which is of human creation, the system of property rights and the system, you know, the system of power relations and all of that. So politics was already there. It's not that the economy was pre political. Now those ideas. If you read Adam Smith his Glasgow University Lectures seventeen, you know that was before the Wealth of Nations. It's
very clear that he's writing that. But what happened, says, the rise of neoclassical economics in the late nineteenth century eviscerates that history and it changes the story. The political goes out of a political economy and it becomes economics, so the principles of economics and so then this generation of economists are trained to think of the economy as completely separate from politics, and that in the post war period, so that leads to what is called the Walrasian general
equilibrium theory. And I'll be happy to explain that, Arla.
Can I just ask? I have so many questions already, but what was the environment that actually gave rise to the neoclassical So.
This is really interesting because we're talking about the late nineteenth century and this is a time of enormous social turmoil. So to think that an idealized view of markets would arise when you know, you've got the great Depression of the eighteen ninety.
And then it goes through World War One and World War two.
Yeah, yeah, But here's the funny thing that happens in this tradition. So what is interesting about American economics is that the American Economic Association is founded by institutionalists. But institutionalists not of the neoclassical kind. They were explicit. So they were trained, these authors like Richard T. Eli and others. They were trained in the German historical school of economics.
And the method of the German Historical school of economics was that theory has to be constructed in dialogue with social reality. W. E. B. Du Bois trains at Berlin but as a sociologist, and he brings that method to the study of racial inequalities in this country, in which he's constructing a theory of race and class by looking at actually the living standards of black people in this country.
Right.
So it's a particular method that was not deductive, but it was inductive. It was engaging with social reality. So what happens is that when the AEA is constructed of American Economic Association, these are institutionalists of that kind, and they come to dominate American economics right through the nineteen thirties, informing many of these economists lawyers who are part of
Roosevelt's brains trust. I mean, many of those folks were lawyers, but you had these folks who were trained in a way by which they were absolutely opposed to this idea that the economy is pre political. What happens in the nineteen forties is the war, and then you had the role.
And so Philip Morowski discusses this in his book Is a Historian of Economic Thought, Machine Dreams, in which he argues that economics eventually becomes dominated by mathematicians and engineers who kind of eviscerates society and politics and history and construct the economy as a machine populated by cybords right, pre program perfectly rational, exactly all knowing, all seeing, et cetera, et cetera, And that way of conceptualizing economics eclipses this
older tradition and in so doing becomes dominant in the nineteen fifties and sixties. And in this way, I mean very much a state project, in the sense that these folks were employed at institutions that got a lot of
money from the Department of Defense. So there was a very sort of like an intellectual framework is being constructed about the economy in which many of these authors were very explicitly trying to model weapons systems, input output, that kind of thing, and that how do you optimize this input output system that the flying plane, how to shoot it down, et cetera. So the economy becomes this engine and becomes increasingly more and more mathematically sophisticated, but in
so doing divorce from social reality. In nineteen eighty five eighty six, the National Science Foundation convened a symposium on the state of economics teaching in the top graduate schools, and they were extremely concerned about what was being taught. That led to the Commission on Graduate Education in Economics.
It was a survey of the top graduate programs in economics and the article in question was published in the Journal of Economic Literature, and it was pretty dismal because it was saying that these students are learning math, econ, but they cannot apply this to social reality. And the conclusion was quite interesting. They said, the concern is that the profession is trained idiot savants. That was an exact term in the JEL article.
It's not the worst thing that's ever been said about economists.
Yeah, that's true. That's true.
So this issue of the way by which the discipline itself has sort of captured the narrative in which math becomes rigor as opposed to history and society, and so then government intervention and non intervention become the sort of flashpoints of the fight. But it's a false debate, I would.
Argue, can we talk a little bit more about the post war environment coming out of the nineteen forties? My impulse, I feel like if I were there, it's like, you know, governments can be absolute monsters, right, and or.
You're talking about McCarthy.
No, I'm talking about the rise of militaristic dictators all around the world. True, like true, the sort of like monstrous creations. Of course, the first half of the twentieth century was like characterized by the rise of like.
With strong dustrial policy.
My impulse, like, I think if I had been around in the nineteen foury, I was like, oh, we need to like come up with an economics that constrains the state as much as possible, because we've just witnessed how the state can be absolutely monstrous and destructive. And of course right before that was the Great Depression, et cetera. Like, I don't know I would have I just in my mind, I would have a lot of sympathy for that view at the time.
Here's the thing, though, so this I discussed is in one of the chapters in my book, and I had a lot of fun writing about this, is that if you look at post Second World War European reconstruction, it involved it was not less affair at all. It involved industrial and social policies, right, the mobilization of central banks.
And actually the US Congress had two studies done on European central Bank's role in mobilizing finance and credit to promote industrial and social policies, you know, the reconstruction, building of hospitals, et cetera, et cetera, and the export economies and France and Germany and so so you did have a pretty strong state. But these were demo social democratic states.
And this is an important point. I mean, you know, so, for example, the Bank of France is nationalized in nineteen forty five forty four, and the National Credit Council, which is at the core of the BF, has in it different constituents of French society unions, employers, farmers, and so on, who were sort of involved in planning the allocation of
credit to different sectors of society. Across the border in Germany you have the KfW, which is a public bank, again with different stakeholders including unions, and they are involved in sort of the economic and social reconstruction through credit allocation. But these were democratic states, you know, So I hear that in the sense that, for sure, you can have industrial policy of a type which is consistent with authoritarianism. Yeah,
and all of us would be a post authoritarianism. But there was an industrial policy of a social democratic kind also, and we have plenty of examples of those just from postwar Europe.
So just to better understand, maybe we could apply some of the theory to current economic policies. When you look at Mamdani's agenda, you know, things like of freeze on rent or I think right now the hot topic is a tax on billionaires. How does that fit into the intellectual history of economics? And I guess how heterodox is it versus the orthodoxy that we've been talking about.
Well, I mean it's a it's it's a it's a big question in the sense that I can answer it in two ways. One is the narrative that this is going to tank the economy. So let's just talk about the tax Park. Let's just get that out of the way, that this this small increase in the billionaires size is going to tank economy. And my responses were, geez, then capitalism would have been dead a long time ago because the sixteenth Amendment would have killed American capitalism.
That was wait, remina, what's the is that the one that gave the government, the federal government the ability to.
Well, that was the sixteen Amendment really legalized the progress income taxes, right, and so if you look at across the western world, you know, like in the US, tax rates were actually much more progressive in that as you know in the fifties and sixties, other countries had this growth of more progressive taxes Britain and Franz and so on. None of that led to the collapse of capitalism and.
The people those were the golden agers of capitalis okay.
So the question really is not the tex but what is it being used for? And right, and so's that's a separate conversation. But is that necessarily is that contrary to orthodoxy? And yes, in a way it is because it comes back to this idea that analytically, I mean, every textbook will tell you, well, you've got this self contained black box called the economy, which equilibrates at general equilibrium, the production possibility, frontier per et to optimality, all these
sort of aspects of orthodoxy. So any act of state intervention into it will automatically generate some negative outcomes. Right, So from that standpoint, I would say that it is profoundy opposed to the Orthodoxy this way of thinking about it. But if you think of the Orthodoxy as a touchstone or as a gold standard, then of course you would say, well, these are outlandish ideas. But if you don't fall into that, that and then you would say, well, yeah, but this has been done. Is so weird about it?
Can we go back? I want to talk more about the present tense, but we can't just like jump over the war completely without ay.
You have you've talked about reconsty.
No, no, no, but sorry, I want to go back to the war, not reconstruction. You're reading, or you did read Wages of Destruction.
Right, which is why I mentioned German industrial policy.
But it occurs to me there's something I think is very interesting. I think about it a lot, and i'd love your take out of this, Like if we hear like someone as an economist these days. Yeah, they come up with a bunch of like big ideas, they have theories, and they run tests and write papers and try to influence.
But when you think of like, okay, the economists in the Department of War in whatever country was fighting at the time, et cetera, it seemed like a more humble profession in this sense, like a lot of the jobs seem to just be counting, not even like advanced mathematics per se, but the job seem to be a sort of like very like the people who keep track of the resources within the economy, and those are the economists, which sounds to me very different than the picture that
we would often get in our head today. If you hear that someone is an economist, is that fair? Is that a fair understanding of history?
I'm not sure that I agree.
Okay, let's fine.
Because I think that, I mean, in some sense, there's truth to what you're saying, because a lot of these economists who were involved in war planning, that's exactly what they were doing. I mean, you know, yeah, they were actually but they were actually doing math modeling. I mean, the whole mathematization of post war you know, math economy, and all of that really came from like sophisticated mathematical models.
So it did come from that. But I think maybe what you might be getting at over here, but you know, just tell me what I'm hearing is that this notion that the economy is an engine and the economist is like this technician who is just like tinkering on with things, right, And I think this idea and so that's how the economist is kind of constructing this engine, as opposed to an economist who is actually attempting to fix the engine but also trying to see what the component parts are built.
In another words, society, this is history.
I'm going to take what you said and make it what I meant to say, Okay, because I do. Yeah, that's what I'm mean. Oh, that's exactly how I meant to put it. Okay, thank you for validating perspective.
Okay. And I think those reflect two very rival methodologies. Ok So, I think that one of the things that so often gets missed out in the teaching of economics and then the learning of economics is that the students don't learn method They could say that way. I mean, a textbook should say Okay, this is neoclassical economics. Here is a method that is used, and here is this alternative.
Call it whatever you like to. I generally don't use heterodox economics, I say critical political economy or you know that kind of thing. It employs a different method. And here's why it matters. Now, if you just do, like, spend a few chapters on that, that already sets the stage for an intelligent conversation. But if you don't do that, and it's just that this is economics, then what happens is it it kind of leaves out any possibility of
even understanding the world. Right, So Chinese, the Chinese economic miracle, or the Japanese economic miracle, those are seen as somehow I don't know that they were cheating, right, right, this notion that these countries were cheating, as opposed to saying, well, you know, they use industrial policy of a certain kind, so did Sweden of a different kind in the post war period, And can we learned something from that theoretically?
And what does that say about the relationship in politics and economics, which is exactly where we started out with. And I think that's the way the conversation should go.
Can you just remind me very quickly, but how does neoclassical economics actually explain the fact that we do have market failures? Right? Because in theory, if the market is perfectly functioning and always generating an optimal outcome, always at equilibrium between supply and demand or whatever, they shouldn't be happening, right, And yet throughout history we have market failures all the time.
So that's the way where I would say that market failures don't actually exist, because I mean, think about one instance of what is often characterized as market failure. Pollution. Now, pollution is ubiquitous. I mean any act of production involves inputs of raw materials which are extracted from somewhere. Then you've got a physico chemical process, outcomes and output, and it could be an intangible output, it could be you know, the output from your computer, right, And then there's waste,
there's pollution. So now if pollution and waste are ubiquitous, and if market failures are ubiquitous, then they're not market failures logically, they are the legal design of the property rights that enabled the owner of the factory to actually dump chemical waste or for Google to take your in my private data, right it's a that brings you straight back to the fact that the social cost that industry, you know, can inflict, depends on the legal design of industry.
So before the National Environmental Policy Actor sixty nine, industry had far greater leeway to dump more chemical waste than after that. So I would just say that, yeah, I think we need to move away from this notion of market failure. And then, you know, so that's a usual debate that well, okay, so you got market failure, then
do we one state intervention or not? And I argue in the book that that's a bit of a lack of family debate between liberals and conservatives because both sides agree that there's market failure, and then one side said, well, we should probably not have state intervention, and the other
side says the opposite. My point is they are always social costs, and politics, through the law, is going to be structuring the composition and level of those costs, and so I think that's where the conversation, I think should go to.
So it's a political decision about which costs to minimize or avoid versus an economy.
I mean, it's always been that, and that's where I think in that sense. If you come back to issues of affordability and such, I would say that if you let housing prices be whatever they are so that people lose their homes, that's as much a political structure ring of real estate as otherwise. You see what I'm saying. Yeah, So it's not any which way politics is there. The question is who's benefiting and who's losing. This is I think for me, this is the question.
Okay, So there are some things where markets work very well. Right, you know, if we want to have really good bagels, then there's a good chance that like a good way to get there is you have a lot of bakery entrepreneurs and they're competing on price and quality and so forth,
et cetera. But then they're gonna emmit waste. So let's just go back to the pollution example in the process, and we say, like, okay, the market worked really well in the creation of the bagel, but we have this problem, which is that they're creating they're creating waste that has to be solved. And even if that's benign, you know, it's like, of course anyone is good, but there's gonna be some waste involvary and it's not the most polluting thing, so we need some sort of like Okay, so then
and the new classical economics, Yeah, there's market failure. This is why we have we have to have a public the sanitation workers, right because otherwise they'd always be dumping it out on the street. And so okay, so we have public sanitation workers. You reframe this and you're like, no, market failure isn't the right way to think about it. It's endemic to production. It's part of how market works.
It's not failure. What do we then do with this information so that we no longer conceive of these sort of like edge cases of mostly markets work or frequently markets can work. But then you get market failures. You flipped this entire thing on the head and like, market failures are not a useful thing. Okay, we accept that premise. Then what do we do with that? Do we have this new lens, and then what do we.
See Some of those social costs would need to be internalized. In other words, they would as they always have been said throughout the history of capitalism. Again, so this is not just an obbortuary statement, but if you look at throughout the history of capitalism, this janus faced nature of capitalist activity, wealth creation on the one hand, and social
costs on the other hand. And then at some in various moments in time, some of those social costs were extremely high in terms of the rates charged on something on the other Monvill, Illinois eighteen seventy seven landmark Supreme Court case came out of the Interstate Commerce Act Commission, which put caps on railroads and on grain elevators because what was happening was that the farmers were storing, they were charging extremely they were being charged extremely high rates
by grain storage elevators and railroads, and what was happening was the price for food was rising. So the Illinois state legislature put a cap on that went up to the Supreme Court. And so there was this whole idea, and the Supreme Court ruled in favor of price caps on these rates charge because they said, well, this is this is of social importance. Food should be affordable. There's a very long history of this in American constitutional history.
That is basically exemplifying the basic point that at some points and in various points, some of these social costs were deemed too high, and then in some way they would need they had to either be internalized or you know, maybe smaller businesses could not internalize some of these costs. Okay, give them some kind of a tax credit. You see what I'm saying. There's intelligent ways of thinking about public policy.
So Mamdani's policies, whatever they may be, they may affect I don't know, smaller businesses differently from a larger ones. So the ones that have less cash flow, they can get a tax credit as a write off, right, I mean, you can think about all of these kinds of policies, and at least that's whay I think about it. In practical terms.
I'm trying to think how to frame this question, and I probably won't get it right, but here goes. We've been doing a lot of episodes on Venezuela recently, and so if I think about, you know, some famous heterodox economic policy that perhaps weren't kind of wrong, that would be a good examples when you're thinking of designing actual
economic policy. If you're doing it prioritizing or politics, or on a political basis, and you don't have that sort of scientific rational framework that is so endemic in neoclassical thought, does that help you design policy? Is that a useful framework for you?
I guess the question is what defines science. So the way, for example, the institutional economist that I was talking about, the way they designed policy was on the basis of theory that was evidence based, social reality, historical reality, court cases, you know, this kind of thing. Neoclassical economist doesn't do policy that way though, or theory. It's deductive, it assumed. So it's constructing this model on the basis of no evidence, neoclassical on.
The basis of a reality that does not in fact exist exactly.
Thank you for putting it that way, because that already exemplifies the problem, which is that how on earth are you designing a policy based on a theory for which you have which has not been subjected to any kind of theoretical you know, any kind of intellectual engagement with reality.
In the wake of the financial crisis of two thousand and seven two thousand and eight, when prominent neoclassical economists were asked, wait a second, are you now going to rethink your models because this should not have happened per the neoclassical framework, they said, nope, And I think that's the problem here. That policy is being designed in this particular way on the basis of theory of this nature.
But if you bring in a more engaged way of thinking about policy and politics, then the nature of the politics matters. I mean, who you know, is it a raitarian state? Is in a democratic state? So I don't like authoritarianism, sure, so I think policy should reflect theory on the basis of democratic principles in some in a broad sense.
You know, going back to the contemporary debates about housing in New York City right now, and there are others who might buy exactly what you're saying at the conceptual lens, and they would say, you know what, Johnny is completely correct about everything. The problem is that existing politics have made it too hard to build. The problem is that existing politics have made it so that we're paying too
much for labor, et cetera. The problem is that existing landlords control have too much influence and are constraining the building of new that they like. It strikes me as there are many versions of your framework that to take it to specific policies that don't necessarily lead to and therefore rent control is okay that you can say, look, there's our current system is riven with politics, and that the way to engage democratically, and the way to think
about this is we need to liberalize. The solution to affordability is getting rid of some of these zoning laws, etc. It seems to me like that you could agree with sort of your conceptualization of some of these challenges and yet and still arrive at very different outcomes in terms
of a policy response. And in fact, in fact, Zoran himself may even agree with that, because we know that he is more liberal than say, many on the left when it comes to the role of private capital for developing new houses.
Okay, so my response is that this is true. First of all, to concede. I think in any kind of a discussion, you concede what the other person is saying. And this is true about the sort of impedibles of current politics and power structures, this and the other. But that's always been the case. It's always been the case, and so like if we thought of that as the supreme impediment to actually making things better, then we would have abandoned society, would have abandoned any attempts to, let's say,
have safer cars. Sure, because the automobile industry for tooth and nail against seatbelts for decades, making them safer, you know, the whole design of cars. So the point here is it's not as though that proposing a policy implies that you wave a magic wand and it just happens. They're going to be insuperable problems and there's going to be impediments.
But that's always been the case. That doesn't mean that, you know, you cannot lose track of the fact that lack of affordability in this country and elsewhere in the world has recently eroded democracy, yeah, as we know, and has has fuel authoritarian politics. There's a clear relationship here between economic and security and authoritarianism undeniably.
Just to press further on this, however, so one of the things that the housing people love to say is that, you know, there was a rule change several years ago. Ironically it was under the Cuomo administration. There was a rule change that made it harder for landlords to raise the rent of a rent stabilized building after the tenant left. And then so then the new tenant comes in and
they like, can't move it up by much. Meanwhile, we have inflation, and so we have this effect, at least according to many housing people where a lot of supply has been taken off the market because they can't raise the rent the law prevents them from raising the rent, and their maintenance costs have gone up, and so like these are no longer economical to run.
Now.
Again, Like, my point is not they're right, they're wrong, whatever. My point is that all of this could be true, and all of this framework can be very helpful, but it doesn't necessarily lead to the conclusion the Zoron is right to take a stronger line on what you can just do by FIAT in terms of price constraints.
Well, you know, yeah it does. I mean I think I would disagree. Okay, great, because I think that if by that logic, then we shouldn't have ever done anything anyways, right, so we could have you know, so so for example, opposition, I mean, so like sort of moving this sort of the discussion a little bit away from housing. But let's say to taxation, right, we were talking about taxation earlier on.
There was massive opposition during the Gilded Age that if you have progressive taxation, if you even have the sixteen Amendment, this is going to destroy the whole society. And so the struggles in that Gilded Age period which ultimately lead to the sixteenth Amendment, exemplifies the point that yeah, I mean there are going to be there is going to be opposition.
So just well, then what is the limiting principle? Or maybe okay, there are different methods to doing economics, and you say, the new classicals of one method and other people of other methods, how do we know, Like, okay, let's say we want to impose more stringent caps on how much you can raise rent, Like we don't know, like it could go well and it could go bad. Right, I assume you would agree that there are ways to do this very badly.
Yeah, of course.
So what are the methods that we could employ that the new classicals are blind to such that we can get this policy.
We could, for example, provide so for for the for the smaller landlords, the ones or the less or the ones who are they don't have enough cash to fix the leaks, you know, upkeep the building, that they could be given tax credits.
Yeah.
Right, So that companies for the rent control would be that Okay, if you're a large real estate cooperation and you've got lots of cash flow, then clearly you do have the cash flow to deal with the problems. But if you're a smaller landlord, then you could be given some kind of a tax credit, you could be given some kind of public subsidy that could deal with that kind of an issue, which brings you straight back to
the question of the public financing after all of this. Right, So that's the way at least I would tentatively think about the issue.
Since we've been talking about politics for basically this entire discussion, I want to talk about political realities for right now, what are the constraints that have prevented this kind of heterodox policy from becoming the norm in a place like America.
Well, that's a great question, And I think the issue is that these kinds of ideas are not in the public domain. And so whenever you use the word economics, let's say it comes up, let's say, who are the experts who come say, let's say to CNN, They're already coming implicitly, even if they don't say it, from this idea that markets are sort of prime and then everything else follows afterwards. So I mean, in order to push back against that, you need to have more conversations about the.
Discipline thank you for that.
Thank you. I think that these kinds of conversations are helpful because at least it opens up the space for thinking about that well, I mean, okay, so when you're talking about foundational questions like the market economy, what exactly do you mean by that? And you know, so those
are the kinds of questions I think. So the come back and coming back to your question that's an impediment because if you're going to say that, well, I want to make some aspect of social services I don't know, affordable or something, then you'll always come up to this impediment that will are you a state interventionist? Whereas this
is the free market and that's the lingua franca. And that's the hard part of it, that to say that, well okay, to push the conversation further, as opposed to saying well, okay, you know, if you think of markets in different ways, then it may be hard to make the change. But at least the market is not pretty political. So for me, that's the problem.
What's the basic gist of why Europe in the US from the historian perspective sort of went different directions, and obviously the democratic socialist, the democratic socialist tradition obviously much more robust in Europe. I mean, it's never really you know, it doesn't have as nearly as much history in the US,
et cetera. Union is much more robust throughout Europe. How did that like generally speaking, except for maybe like a couple decades, partly just there's any sort of like socialis tradition every I took root in the US.
First of all, we do have a long history of municipal socialism, but sewer socialism in this country. I mean, so there's you know of so you know, in other words, you know, there's a lot has been written actually that what Mamdani is doing here, it's actually pretty there's a long history behind that. Gail Radford has written about this a historian. I think the issue is and so that's
the first point. The second point is that if you look at and this comes back, I think tracy to your question, which is that in the public discourse, we don't know, there's a kind of an idea that the New Deal was an outlier and therefore we need to basically go back to some pre New Deal romanticized small government. You know, Steve Bannon makes his that's why the attack
against the administrative state is premised from this. The problem is the many legal historians and legal economic historians appointed and this is not true that the US developed a
very robust developmental state in the reconstruction period. So there's a really a lot of history there that is not part of the public domain and the discourse on economics, because the teaching of economics does not require students to actually require not as an elective, but required them to actually read economic history in most places in their training. So they don't know the history, and so this new notion of the market prevails, and then they don't know
their own history. I don't think that's any different in Europe, and we can talk about that, but there are interesting issues here. So for example, the American historically, the American taxation system was much more progressive than in Europe. Yeah, right,
so there is that. But I think what happens in the post war period, post Second World War period is that that kind of sent a jolt for a lot of people, and I think that kind of revived the left in some sense because fascism and there was a clear understanding that massive inequality was you know, one of the one of the ingredients of the rise fascist movements in the nineteen twenties and thirties, and so reducing inequality, embedding social and economic rights and constitutions I'm thinking here
with the German constitution super important as a kind of insulation at least to some extent, against a repetition of those horrors. So this created a kind of a different social model based on these progressive constitutions. We haven't had that. Our constitution is a first generation constitution, and in that way, there are no explicit commitments to economic and social rights, human dignity, the expression I don't think appears in the US Constitution. It does appear in a lot of these
European constitutions, and that matters. You have the rights of personhood right the fourteen Amendment, but you know that, you know very well that how that's been weaponized for corporate personhood and so on. That's I think part of the story as to why the welfare state has been somewhat more robust, though it's all so seen fractures in Europe than here, where that has not been the case. So we're still stuck with this constitution, which at least in my view, is not a very good constitution.
I wasn't expecting constitutional analysis to come into this conversation, but I think it does illustrate your point about the intertwining of politics and the economy. Can I ask one more thing, and maybe it doesn't even make sense or fit into this conversation, but when I think about las A, fair markets or economics, there seems to be an emphasis on absolute gains so positive some outcomes where it does. You know, two countries start trading with each other guns
and butter or whatever. Both the countries are better off, it doesn't matter how much better off they are relative to each other. When we think about heterodox economics and the importance of politics, are we basically saying that every policy decision the emphasis is much more on relative gains versus absolute gains.
I'm not aware of that tracy, That is not from my standpoint. I do think that markets and the sort of private initiatives in markets that does generate wealth. I mean that you go back to Smith. He says that, so in that sense, it's true that market activity does generate enormous social wealth. Yes it does. But what people tend to forget is that there's also a flip side.
To that the social costs, and so we have to then think about, Okay, can we somehow how do we reduce some of those social costs in terms of affordability or pollution or climate crisis. That's I think saying that, Okay, markets are great, but what are they sort of embedded on that infrastructure that I was talking about that is sort of leading to massive emissions of greenhouse gases. I mean,
that's clearly unsustainable and we all know that. So I feel like I don't know that I would necessarily to think about it in terms of positive and negative sum gains. I would just say that market activity does generate enormous social wealth, but also enormous social costs, and so then that's where I think the conversation has to go to how to reduce the social costs.
Jommy Modude, thank you so much.
Thank you so much.
It's really fascinating conversation. Appreciate you so much time. Okay, Tracy, we should do more intellectual history episodes. I really like that topic. I don't know, like I think I'm.
Still scarred from doing international relations at college, and whenever someone talks about intellectual histories of particular theories I kind of I get nervous.
Let's just make the whole I'd be down to make the whole podcast A No, I do think this is like really interesting. Look, I think this is a very timely conversation because one thing, you know, he mentioned Bannon there at the end. One thing that I feel is that regardless of where many people are on the political spectrum these days, there seems to be a deep intuition that many people have about the corrosive effects of society on any quality, or the corrosive effects of.
Inequality on society.
And I thought your question was really good, which is like many people economists could say, like, look, you're better off too it in this relationship you uber driver, Like maybe you feel that you're maybe people find it to not be great work, but the alternative is nothing or whatever.
You're not a billionaire, but at least your employee.
You're employed, right, And this is something and a lot of people say, Look, everyone is on paper or maybe even in reality, better off from this set of transactions. Right, But then it aggregates up to something that I think people find to be very destabilizing.
Right, So intuitively, a lot of people seem unhappy with their current situation.
All right, so the transaction makes everyone happier in the micro sense. But then when everyone when it all scales out, this sort of like deep inequality. Who has the means to create, who has the ability to like actually do something, who is just a sort of who is not in that position? I think it feels very again destabilizing.
Yeah, I do think. I mean, to Jommy's point, like it does feel like so much of it just boils down to politics, right, yeah, right, like the economy itself, to go back to how we began. This conversation did not spring forth from the universe. It's a human construction and we put a lot of thought and effort into how it actually works. And that's a political that Yeah, that's a political reality.
Yeah. And like you know, we could talk all this stuff and like the contrast with Chinese industrial policy I think is very helpful for juries as one is. Okay, you could look at various things and say, well, this is actually very effective, and there was a role for the public sector and so forth, but it's like we're all at each other's throats. Yeah, right, then you're never going to have any hope of like operationalizing these ideas, and this why I've said this before, Like I feel
like there are certain societal problems that truly like precede economics. Yeah, the toolkit does not entirely exist in economics to solve problems that on payper loook economic right.
This I think is important because in the neoclassical perspective, so everything springs from the economy and the focus is on the economy itself. Meanwhile, as a society, you know, you might want to prioritize different outcomes, like maybe we should all be happy. You know, I would like to prioritize everyone's happiness. And to your point, like if we're all focused on relative gains, if free market capitalism is increasing inequality, then that might not necessarily do that.
We should prioritize everyone getting off their devices and reading, and then I think we'll have a touch grass, we'll have better outcomes.
Yeah, we're getting dangerously close to like talking about Bhuton and national.
You know, we got to I've read some.
Yeah, I know, I know that's why we should stop. Shall we leave it there?
Yeah, let's leave it there?
All right.
This has been another episode of the ad Loots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
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