Did We Just Experience a Break in the Neoliberal Consensus?

has especially in the last year, pervaded our episodes. It's really just this idea of like the forty year trend, more or less starting in the in the early vulgar years, years of declining rates, monetary policy dominant, and the question now is are we at some sort of turn in the direction of the economy, some meaningful sustaining change, you know, how we approach economic policy. Yeah, I guess the low

rates aspect of it is still up for debate. But certainly we have seen this talk of a handoff from monetary policy to fiscal policy. There seems to be a lot more room in certainly the US political landscape to actually talk about things that the government could do on this front in a way that got stamped out much much more quickly um in earlier years. I think, yeah,

I think that's exactly right. I mean, like we look back at this period and think so many of these discussions they really do come back to politics, political choices, and whether something is in the air, something in the water, or something something fundamental shifting such that we can sort of break out of the old expectations about what government can and can't do, how much it can really spend, and whether that will really produce a policy shift that

would meaningfully changing, Maybe would meaningfully result in higher rates, maybe result in higher inflation, maybe result in higher sustained wages, fuller employment, so far and so forth, all kinds of questions like that. And so we seem to be at a moment where a lot of these questions, a lot

of stuff that seemed impossible suddenly seemed possible. Yeah, there's also an aspect of this that I think often gets missed, which is, you know, people talk about the possibility of the government doing more or being more involved in economic policy and things like that, and they always frame it

like before the government wasn't involved at all. But of course, the current system, even you know, even if you categorize it as liberal or light touch or however you want to put it, was devised by the government, Like the actual economic system that we have in place was made through political choices, and so there's a possibility that political choices can change, and we can get something different. Yeah,

I think that's that's basically right. Like people have this idea, Okay, there's some sort of state of economic neutrality, or the government is hands off, another government will intervene in some way. But of course that's set up that we had then, or the setup that we have right now is also just the result of perhaps a different set of policy choices, and those political choices are of course subject to change,

and I think it's potentially happening right now. I should note it's very important we're recording this March nine round, six PM. There is a scheduled to be a vote tomorrow, and hopefully that happens only so that we don't have to re record this intro. But you know, the House is scheduled to pass this one point nine trillion dollars stimulus at the Senate passed just this weekend, which really does open up this question of are we going to do fiscal policy in a way the likes of which

we haven't seen? Yeah, I think that's fairy. So the question really is are we at a turn here? We have two great guests that I'm very excited to speak to, and they'll help us think through the current policy stance and the history and so forth. We're gonna be speaking with Sconda m n ath. He's the research director at Employee America as well as Mike Console, he's the director at the Roosevelt Institute, and he is the author of a new book, Freedom from the Market, America's fight to

liberate itself from the grip of the invisible hands. So very excited to get his perspective. And I thought about this discussion and that we should have this discussion actually back in January because it was a tweet from Skanda and he asked this question, um, which is is essentially, are we at some structural break from neoliberalism in somewhere? Are we at this trend break? And that really is the key question. Did did something just turn? So let's

just start with that. We'll try to answer that right off the bat. Are we at the structural break? So, Mike and Sconda, thank you so much for joining us. I really want to start with that term, that word neoliberalism, because I mean, it's kind of a joke. I would say, like on Twitter, people always use that word neoliberal, neoliberalism, the neoliberal consensus without any sort of idea of what

we're actually talking about what that means. So I'd love to get your perspective, and I'll start with you, Scanda, both of you come in if you're like, what are we actually talking about when we throw that term the neoliberal consensus around? So thanks for having me. I think I agree that it has been overused as a word to just describe things people don't like, particularly from those on the left. But at the same time, I do think it also has some substantive meaning and does capture

a certain arc that you're referring to earlier. So if we go back to some of the people who have defined themselves as neoliberals, from people like Milton Friedman about neoliberalism to Charles Peters he had a sort of Washington Post op ed on neo liberalism in two If you kind of try to find the common threads and where this all fits, it start rooted in a skepticism of

democratic and political power in terms of organizing society. And that's at least how I would if I really try to break this down to some sort of crude shorthand, it would be de emphasizing the democratic forms of power and trying to rely more on markets and if you're coming maybe a little bit more from the left, it's probably a reliance on technocratic governance and maybe reliance on

academia to really solve some of these problems. If you think about the FED and sort of it's arc in terms of dominating macroeconomic policy making, the Fed's independence is sort of this mix of markets and academics in the sense the FED is trusted because they are the macroeconomic experts, and at the same time they're also kind of relying on the banking system to respond in a certain way to their policies, and that is the way in which

you will get full employment and stable macroeconomic policy. So it's really delegating out functions that were maybe thought of as traditionally in the domain of Congress and the President and really trying to rely more on technocracy and markets to really organize that sort of part of society. Some will disagree with this definition for sure. So Mike, I want to ask you about something um that's Canada just said, which is this idea of you know, a sort of

market based structure or markets dictating the ultimate outcome. Is there a good historical example of that actually working well? Because I think nowadays we're so used to talking about you know, market based systems not really doing, um, what people would like them to do, or not providing certain you know, social needs in the way that some people might have expected or at least would would aim for.

Is there an example in history where a market based system worked and it was sort of, you know, the pinnacle of neoliberal economic policy. Yeah. Sure. So just to go back to what's Scanda said. One reason the terms a little weird because the term liberal is a little weird in US context because some people use it to mean the New Deal and big activist government and the great society. Other people tend to want it to mean a more traditional what we might often call libertarian idea.

And what people often emphasizes knew about this classical liberalism is the affirmative role of the state. Um that they, the neo liberals, understood themselves, and you if you actually read Higak and Freedmen, you'll see this pretty clearly. They understand is an affirmative state building project, and the project the goal of that project is to subordinate democracy to the market and put in what the historian Quinn Slovenian describes as encasement around the market to prevent it from

democratic challenges. So that's why sometimes the question about like what's an example of like a neoliberal solution that work is often a little weird because it's often in the context of devolving, privatizing, voucherizing, or otherwise removing the publicness of public institutions and public programs. Um. You know, there's a lot of things that involved markets at work all the time. Single payer healthcare involves a lot of markets

on the side of hiring doctors and buying bandages. What is unique about is that it is removed from market dependency. It's the big thing I try to go into my book, um the market is how individuals intersect with healthcare under single pair though obviously you know, even under even in the UK, doctors are employed, they're employed by the state. In that case, there's still markets and price mechanisms and

feedback and incentives. It's but your ability to access isn't dependent on the logic of ability to pay and profit seeking activity. So that's why, you know, there's a lot of solutions that involve markets, and some things in which markets which have existed before capitalism it will exist after can play very important part of solutions. But it's the supremacy. It's that it's the dominance of the market dependency in the market logic. I think that catches people off guard.

Ins Earrah, did something happen? You know in the intro, I was like, okay, forty years, forty years vulgar nineteen eighty. Is that actually a meaningful turning point in your in your book, Mike, or in the you know, when you look at the history of economic thought and economic policy, is that a real moment or is that kind of an arbitrary thing that we identify Because the thirty year

yield peaked and then it started going down after his tenure. UH, you know, there's a real emphasis to run the clock back earlier. UM. A lot of deregulatory moves done under President Carter, A lot of choices made about the nature of corporate structure in the sixties and early seventies. I think the shock of Vulcar was enough of a massive change under which on the flip side of which UH, and it ran concurrently with loring the top end marginal

tax rates. UH, A very increase in the decrease of unionization. UH, the doubling of the rise of the shaff finance in the economy. Um So, I think that it does mark a break though, as is in the nature of scholarship. You know, the more you look, the more you see things,

and you see connections running earlier. But I do think in particularly in what we're talking about here in monetary policy, in macro economics, there's definitely a shift where the FED is viewed in a much different way, and the role of economic theory and macroeconomics also changes pretty profoundly. Sorry, can you elaborate on that point a little bit more? What do you mean when you say the FED is

viewed very differently now? It is? Um? Sure? So? You know you can kick it to standard too if you want to jump, And I don't want to dominate the conversation, you sure so. I think the FED itself if you think about the fifties, sixties, seventies, eighties, where what really changed about the institutional centers of power on macro economic policy? And if he's in sixties, the Council of Economic Advisors is one of the key institutions we're thinking about like

what to do with macro economic policy. That's who kind of Kennedy is leaning on for sort of passing tax cuts. Um you see like little things that sort of sound like like okay, tax cuts and sort of the Kennedy years sort of you start to see some similar measures sort of past the future kids. But really it's fiscal

policy that's sort of at the center of it. Monterary policy is still doing some things around recessions and maybe in some cases pretty critical, but like Bulker sort of sort of crystallizes the sort of role of the FED in this process that the FED is going to be willing to hike rates to the point of putting people out of work and causing a recession. I think there are different different parts of different parts of the policy apparatus, So if you step away from macro from a sect,

those breaks can happen at different times. I do think in the case of when Reagan was elected and when Carter was elected, they had certain ideas that were different from their predecessors. So Carter more so than Linden, Lindon B. Johnson, UM, Reagan more so than Nixon. So there were some shifts in terms of the philosophy around how much do we

trust democratic forms of governance to really work? And look For a lot of people who are already skeptical of the state during the New Deal, is sort of natural to sort of go along these lines. For a lot of people who may have been more optimistic about what democratic governance can achieve, you can look at, well, the

Vietnam War was going on. There's a lot of stuff that the government's doing that sort of breeds mistrust for rational reasons, for justifiable reasons, and that also helps to sort of catalyze well, maybe government really shouldn't be doing this, or if we're going to be doing this, we should be doing it in a way that's really deferring to the market and leaning on the market to find a solution.

And again it starts to really warp the set of default rules around how we really structure all of these things. The default rule is, let's first try to do this through the market. Let's try to cut rates and hope that banks and financial intermediaries lend more money, and then if they lend more money, that will also help to sort of get the economy on right footing Mill Freedman was the one who said, I want to make the

FED into a computer. I want to turn all this stuff into something automatic that we really can't lean on sort of a lot of these self dealing politicians to solve and so that I think is we're kind at a sort of wits end on some of this stuff now, because if you're leaning on interest rate policy to do the work of macroeconomics tabilization, it's necessary, but it's not sufficient. I guess that's the way I put it. Yeah, I'd also just throw in that, you know, it's easy to

characaturize economists views about in this time period. I don't, I don't want to do this, but I think there's a genuine belief that the Federal Reserve had solved the problem of the business cycle by solely intervening in short term interest rates and communicating their path through inflation targeting or some sort of medium term target you know, the era of the Great Moderation I think gave intellectual bolsternus to the or like help bolster that as a concept,

but evaporated in that is the notion of what the FET is doing this to be the financial sector and the way the FETE is really controlling the long term yields, uh, you know, the long term interest rate, the end rate at which individuals use interest rates and in access credit, and the way the fiscal situation evolved, the interconnectedness of Monterrey policy with all other fasts. The economy, which was a very strong part of how World War Two was executed.

In its aftermath, it was kind of living memory in that mid century period had evaporate into this much more ethereal, like computerized mathematical sense of that you know, with this small intervention, like the smallest intervention, the smallest cut you could make, you could dictate the macro economy. And that's

what failed in the Great Recession. Though we spent a decade trying to figure out what to make of that, so that that seems like a good sort of turning point to the sort of like the question or the

Asconda's tweet about is this the trend break now? And it feels like that's sort of like great moderation triumphalism we figured out really came to a crashing halt with the financial crisis and two thousand eight, two thousand nine, and then we had this like decade of still mostly leaning on the FED in the Central Bank, even though it guess by that point on some level, the idea that we could control the economy through overnight short term

interest rates kind of discredited. Now we come to the sort of the post virus period, and this question of like is this is are we on the new thing? Is? Are we finally ready to have a macro policy that is truly like sort of like post fed in some sense. So Scanda like start off, like you you posed that thought on Twitter? Is this the trend, brake? What are the sort of what's the affirmative argument for yes, this

is the meaningful the turn is here. So I think just to go back to when I posted this tweet, it's about a week after both the Georgia runoffs, and I guess the the d C yes, um, sort of the capital riots and so or what everyone could call it. Yes, it's it's the insurrection. I think a lot of people would focus obviously on January six person obvious reasons. I yeah, just generally thinking more about the Georgia runoffs in the

sense that you actually had the stars aligned. And I think I am generally someone who doesn't like to make big calls because they're like, that's hard, and it's it's it's something that I'm generally skeptical of when people do you start to just like always say, this is the big moment. But there's a lot of things that are going for this moment that are not have not been true for a long time. One is the political consensus is in a very different place in the sense of

whether fiscal policy is warranted. In markets discussions, we've talked about is this the moment where monetary policy hands off to fiscal policy for quite some time now, It's been about almost I would say it's almost a decade of that kind of speak, where kind of saw that there was a lot of focus on cutting the deficit ine and it kind of just it was running on fumes. There was a lot of hype about is this infrastructure week? Is this the week when Trump is going to take

fiscal policy really seriously? That was the whole thrust of the Trump trade in markets in November. I think you in general people will say that largely underwhelming. You did get tax cuts out of that, tax cuts that didn't really move the needle on either inflation or growth in a meaningful way, I would say. And so now we're at this point where you have the political consensus there, but you also have the legislative like capacity, where there

are fifty senators who can pass a reconciliation bill. And while there is a lot of room between Bernie Sanders and Joe Mansion, they're all pretty much on board with the using fiscal policy pretty aggressively. They may have different philosophies about how to fund certain policy measures, but they

are at least open to it. And that is different from what you saw in previous instances when there was one party in control of both the House, Senate and the White House, where you had this sort of alignment in terms of discull two thousand nine, but the people didn't really believe that fiscal policy was the thing to do. Um. I think people really undersell just how much of faith there was that fiscal policy really isn't the right. Fiscal policy isn't needed. Monetary policy will take care of it.

Let's focus on cutting the deficit. Let's try to cut government spending where it's wasteful. Even among the Democratic Party, which we think of is sort of more on the left. So those stars have aligned on the legislative side, which I don't think would have been true if Georgia Ronous didn't go the way they did. So you need to have that you kind of and now the question is can you get responsiveness where people see that the AARP passes, and then people see the benefits of it and think

this works. And then even people who are maybe a little more skeptical of these measures start to think that there is some sort of political incentive, some social incentive to actually pursue these policies in the future. So if people see this as a success, then I think it's more replicable. Right now is sort of the testing ground phase where this has past. We're gonna have to see

how people digest it. Do people blame the rescue package as a sort of to create all these other problems, or people are gonna say, actually, all these standards of people standard of living have really improved in a material way. And now I'm more inclined to vote for Joe Biden and for Democrats because they passed this and it really made my life better. We're gonna have to see you, but I think the odds are better now than they were even two months ago or a three months ago.

I should say, the sense that like, we actually have a package on the table that's historic in nature and the kind that even Paul Krugman is like, this is efficient, this is sufficient to actually get us out of the current run. So, um, I think that's meaningful. So I just want to dwell on this point a little bit, because you know, like Joe and I were disgusting in the intro, these are all ultimately political choices, and so I think it's worth spending time on how the political

consensus actually shifts. But what are the conditions in place in that allowed this potential shift, or at least this testing of a new type of policy to actually be put in motion. And how were they different to previous economic crises like two thousand eight, where we did see a lot of popular outrage about things that had happened, and we did see some cries for help to offset mortgages and things like that, but they didn't really lead to a big break in the consensus. Um, Mike, maybe

this one's for you. Yeah. Absolutely. Um. So two things jump out that are different right now than we're different in the last decade. Let's let's stick with inside kind of like the center left technocracy and especially within the Democratic Party, because I think it's very easy to say it's the tea Party, it's austerity it's the hypocrisy and

the dead on the right. But the reason a lot of the stuff failed to take ignition in two thousand nine was because it was coming from inside that administration of President Obama's early years. And one is that you had in two thousand nine, you had a White House in a center left technocracy that walked in thinking that the deficit was a fund like an existential threat to

the economy. UM That the trade deficit, that we were borrowing too much from China, we're on borrow of time, that there is a bond market bubble, that fundamentally the long term debt was a serious impediment to dealing with short and medium term processes. And I want to emphasize this was not like a set of trade offs where it's like, well, you know, maybe we might spend too

much on net interest payment or something like that. Um That they really was concerned that the government might not be able to issue bonds, or that there would be some sort of catastrophe or something that fundamentally lowered the long term growth potential United States. The famous rand heard Rogoff Cliff, there's all kinds of inner inner workings around this kind of stuff. And if you weren't there, actually had to go back and remember, because I was like,

I was there, but it was really hysterical. If you go back and read some of that stuff and that's gone, that's not there. Now. There's a lot of different flowers that have gotten us there. Um. But the idea that the deficit could be an investment, that the deficit is fundamentally under our control and poses whatever problems we wanted to or that inflict. In the MMT version, that inflation is the real check we need to watch for um.

All of that bolstered by the fact that interest rates did in fact decline while inflation was under trend um utterly discredited that regime that was like really powerful at the time. Um. So when people think of the dead deff set Um, they're thinking one of like the fact that there's stuff that we need to do and there's an opportunity to do it, and the problems that could arise from large scale death sits further down the road are more manageable and more of a gradual and long

term problem as opposed to some sort of catastrophe. That's one The second and I remember this quite well as in a lot of center left technocrats thought that unemployment could fundamentally not get a little five percent for anas the same period of time, maybe four and a half percent. This blew up in a lot of different ways. In

the context of the primary. There's an economist named Gerald Freedman who said that unemployment could get dramatically lower for a long period of times associated with the Bernie Sanders campaign. There's a lot of fighting about it, but a lot of people put in the center left world put their cards on the table and said, we were near full employment in where it was about four point nine percent

or something like that. We got unemployment below four percent for two years, at three and a half percent for six months basically before COVID had and there is every indication that it was going to continue to improve on the participation side. That I think blindside a lot of people because if you're thinking there's one and a half percent to the labor force that could have been employed at any moment with no downside. Um, you know, Donald Trump was winning on polling for the economy going into

the election. That's like probably in large part because you had sustained low wage growth for the which you had not seen in generation. You know, labor markets expanding which way in ways that is not seen except for a brief period in the late nineties, and here was much more sustained. So the idea that you could aim big and the economists who want to say that there's some sort of upper limit and if unemployment gets too low, everything's going to go sideways. That's been discredit in a

pretty profound way. And those are both things electives listened to because they pay consequences for unemployment being too high. They pay consequences when they didn't increase the deficit and the early tens and only saw like the fact that you know, they didn't get any upside and there was a lot of downside, both politically and economically. So both those things, I think we're important changes that are hopefully going to play out and sustain themselves in the years ahead.

It's you want to come in on that looks like you're going to say something. Yeah, So I just to tack onto what Mike said, as I agree wholeheartedly on both points. A lot of those instincts of the twenty tens were also rooted in trying to replicate the nineteen nineties. If we think about what people saw as the sort of brief success of high wage growth, economy, low unemployment in the final two years of the nine two thousand expansion.

That was a period in which there was a lot of um focus on deficit reduction and the sort of private sector will sort of solve for itself and if we just do the same things, if we cut the focus on cutting the deficit, the federal keep rates low, and then things were solved for themselves. Twenty tens is a big rejection of that, because yes, actually the deficit did go down over the course of the tents, despite

that you did not have a robust recovery. And when a lot of especially technocratic Democrats are technocratic liberals to talk, Larry Summers, Paul Krugman were people who were initially very supportive of ambitious fiscal policy and then in especially after Trump was elected, talked about how now is the time for deficit reduction. They were critical of the tax cuts from the standpoint that they would overheat the economy and so it would actually create inflation, and that was pretty

clearly disproven. Right, like, yes, the tax cuts, we can probably agree that that didn't really change the regime of growth in a meaningful way, and yet it also didn't also change the regime of inflation itself. So something about deficits causing inflation, deficits being unsustainable, some of this just

doesn't add up. So I think there's a lot of learning that happened, especially on the back half of the decade for people who really bought into these frameworks, and then you kind of look back and you say, that was a really slow recovery. Do we really have to do all of this stuff? And a lot of that was also the byproduct of sort of there's a lot of obstructionism, and how do you avoid that obstruction is um maybe with a more ambitious stimulus than do thousand

nine and ten. So the lessons kind of have come from sort of first realizing that the ninety nineties there's a lot about that which was not going to be replicable very easily, especially when you have this sort of balance sheet recession of the two thousand nine two intent scenario, and now you see there's just if you're going to take Vienna, take Vienna, this sort of the attitude the Biden administrations taking now we're like, we want to make

sure that the we use this opportunity to actually legislate as much as needed, um and not just try to toggle at the edges the way I think people like Marry Summers Olivia Blanchard are really worried, well, what if this is too much? I think that's something they do not want to ask that question if you just read from the tea leaves of what the Biden administration and

senior Democrats are saying now. So, first of all, I want to say I find some of these your answers, both of your answer to be kind of heartening, because like this idea that maybe evidence changes people's minds, I've always been sort of skeptical of that premise, but maybe it actually does. You know, Uh, Scotty, you mentioned um Olivier, Blanchard and some of these sort of like um grand

names and economics. But I'm also thinking, like one of the figures that we saw in the last ten years was this incredible like opening up of the playing field of who like got to talk about economics and uh, Mike, you know, like I've been following your writing and tweets for like probably literally like twelve years now, Like you're

blogging back in two thousand and eight, scanda. You've been talking for a while like pseudonymously now more prominently, but like anyone can talk now there's a lot on Twitter, and um we it's been noted that actually the Biden administration has recruited like a bunch of like prominent like sort of like Twitter voices to like do policy. And I'm curious, like in a real sense, like how much has this opening up of like who got to a pint?

And maybe you didn't need to be at a university anymore, maybe you don't need to be like you know some like uh, you know, big person at the IMF or something like that. How much has this opening up of who gets the right to talk in a pine sort of benefactor that changed the debate in this sort of like decade between the Great Financial Crisis and the COVID crisis.

I'll jump at first and to say, um, we saw this with the financial crisis, where a lot of people turned to the blogosphere of amateur financial experts who are often uh writing under pseudonyms, as I was at the time, and many other people um to kind of understand it in real time because the experts were caught not understanding what was happening, and I think that same kind of

instinct of because it's not. If you experience the economic sphere online and Twitter, on sub stack on other places, you'll notice that it's a it's an evolving argument with a lot of evidence and a lot of careful policing of how people are not policing them like like don't say that kind of way, but like and like building better arguments and really putting the evidence to the to the front in a way that the research process doesn't really do this very well. Um, a lot of the

stuff we write and talk about who is unemployed? What is the sense in which inflation is a worry? That's not the kind of stuff academics can get tenure on, though it's essential for the policymaking space, so it fills it fills the marketing that's poorly served. And it's also like the best arguments really do evolve pretty pretty quickly

up the chain. And there's still on cost of meritocracy because like that's a lie, but like there's a way in which people can really step up to the moment and it really does get arguments out there that are not seen very well or don't transfer themselves very well through the way the Academy produces research. If I were to just tack on a little bit on the sort of how people revise their priors and how do we

actually learn and make course corrections. A lot of what you're talking about on the Twitter, on the sort of Twitter discourse and how people sort of can everyone can speak is sort of what the intuition behind sort of

democratic governance is supposed to capture. That this is a way to solve problems in a way that's actually responsive to a lot of people's interests that end can't easily be solved by the market or by experts um In some ways, actually, I'm very stunned by how a lot of the same actors who were policing the use of fiscal poll see in the early are still the same actor experts who are trying to police fiscal policy now. They're just not as effective, right, And so the same

same characters are there, They're just not as effective. So that in some ways other people are being elevated, and why are they being elevated is a good question. In some ways it's as more of a small d democratic governance question. It's also something that I think you can see even in markets. One of like sort of the strengths I would say, of certain types of market structures and market governance is the ability to recognize when things

are not going according to your hypothesis. Right. You can actually see how things change and say this doesn't fit the theory or my hypothesis. I have to revise it. And market participants, I would say, if lar it has been a little bit ahead of the sort of highbrow academics in terms of just understanding, Okay, we're at low interest rates right now, and now what's next. Because really monetary policy has some certain limit functional limits on what it can do. We're going to have to have some

kind of fiscal moment. This has been sort of consensus for some time. I would say it Markets themselves don't solve that problem, though, right. You actually do need to have certain types of political structures in place to actually

try to solve them, and you need hope. Democratic democracy kind of has its share of burdens, but it also has its to share of strengths in terms of being able to respond to the moment and not take the deferential trust the experts or trust the market approach and actually say there's something going on here that we need to rapidly revise. I kind of think least there's something

about the like discourse on social media. It's a very flat culture that it can actually um allow for a lot of different people from a lot of different backgrounds to really check each other on what they're what are the claims being made, doesn't actually fit the facts, make sure you're not making obvious descriptive errors. Uh, and that

kind of discourse. There's a lot of toxicity on Twitter too, but at least if you can avoid the to toxicity, there is some room for that kind of deliberative, open minded discourse. You have to deloc hunted out where you can find it. Can I ask you both of question as hosts you are are are well known finance professionals. Do you know J Powell's burner account? You don't have

to tell us who it is. I forget. At some point I knew, and it doesn't follow me, So I've forgotten who If it followed me, I'm sure I remember now I really don't want to know, because if it didn't follow me, iast Okay, Okay, so this is a really interesting conversation, but I want to try to put some of it into I guess more concrete practice. So we agreed that there's this potential break. The moment is now, UM,

we're testing a bunch of new policies. What are some of the like actual um examples of this new thinking that are being put into place and that you are watching as a test case? And I'm curious also, how do you evaluate the success of those programs, Like what would count as a accessible sort of instance of this new thinking. I think the Rescue package is probably going to determine whether this thing can actually be replicable, right in terms of are we going to see that people

think this works? I think CARES in some ways also showed that ultimately people like the stimmy money, right, they like the checks. They a lot of people really appreciated the six dollars that came with you. I there were aspects of p P P was quite popular for small businesses. So there are policy solutions that came out of Congress

that had some individual success. Whether people think other parts of CARES are good or bad, the implementation being sub standard, there was at least the prospect that this can work. If you start to see that the rescue package one you can actually say that it helped and people really digested as working. Like the Recovery Act of two thousand nine was pretty big for its time, and at the same time it was not nearly enough, and it was very easy to say it really just led to a

bunch of cylindra boondoggles. It's a bunch of waste to see the economy is still struggling to recovery. That's how you know that fiscal stimulus doesn't work. The counter factual would have been worse. But people don't think in terms of counter factuals, at least in terms of their intuitions.

So if you if it actually helps to shape people's intuitions to wanting to into the to the point where you actually want to do this again, maybe not in the exact one point nine trillion unpaid for spending, but rather we can find other solutions that work for fiscal policy, that meet the moment and meet what's needed. I think that starts to change people's perceptions about what's possible. Um

there's a certain feedback loop. That's especially if Republicans, maybe on the next go around, start to see that actually this worked, we probably should have either been part of the solution or be willing to offer a more compelling counter offer. Those are the kinds of things where I'd say something's changing, where people want to actually govern and not just sort of delegate or hope and try us that the market or some experts will come up with

the right answers later down the line. Yeah, some things I'm watching for last year in this year. One is um that we reduced poverty in the middle of the crisis, and quarter two of last year unemployment was probably twenty percent. We were probably technically in a depression, UM, but the fiscal policy was able to reduce poverty, and we're going to cut child poverty in half this year and then hopefully in the program that evolves and becomes much more

clear and straightforward. You know, the fact that even in very difficult economic times, the level of poverty as a policy choice, I think was shown last year is reflected in the bill this year. UM. Last year, the Final Reserve intervening directly into credit uh and interest rate policy on the long end of the curve for municipalities, for corporations,

for the secondary bond market. A lot of controversy, a lot of fighting about it, but it showed that the FED is already thinking and will continue to evolve to think way beyond just short term interest rates and some guidance on the long end that will have important consequences for climate change, as the Federal almost certainly have to be directly or indirectly involved with the funneling of credit towards green energy products and our green energy investment in infrastructure.

The overhaul that happened in the FED last year, we're still learning it, we're still figuring it out. Um. But that's going to be with us for some time as well. This year. I think if you actually get the economy back to trend at the end of next year, UM, you've basically disproven the theory of history sists and the idea that we need to understand that every recessions would have a built in downward curve. And then you can put pressure on the idea of potential output in the

way it's deployed classically. UM. The idea that you know, overheating economy has positive spillovers that can increase productive capacity, which makes sense intuitively, but doesn't fit well into the you know, the nuts and bolts and models of neoclassical economics. So I think, um, it's already like it's it's going to take some time to like see all the things

that are different. But even the fact that you a lot of politicians that talked about we need to do more, the risk of doing too much is less than doing too little. We need to overshoot. I thought that was like a metaphor when they were saying that they are actually going to try to do it. They're going to try to shoot for potential output and they'll probably hit it. Or the way it is defined on the books at

the CBO, which is already kind of a mess. If successful, that just will throw in a completely different way about the idea that we should be responding much more quickly and rapidly to recessions rather than something that largely world work itself out with sometimes. So those are all encouraging developments. Um. The you know, some people have really been emphasizing the balance sheet nature of repairing balance sheets that's embedded in

the American recovery plan. Um, you know, fixing the balance sheets of transit, higher add pensions, state and municipalities, things that tend to get scaled down and never recover in a air quote recovery a lot of those political problems are going to disappear in a few weeks, um, provided to passes the House. So um, that's going to open up a lot of space. So I think there's a lot of new frontiers and we don't even there's so much going on, we don't even know them all yet.

But I think they're all encouraging for a better So in a second, I want to pivot real quickly at the end of the conversation and turn this into an episode about semiconductors for our semi Conductor series and talk about industrial policy. But before we do that real quickly, you know, we we've we've told a lot about fiscal policy,

and that's basically been our discussion. There has been also a pivot at the FED itself, and there was there was this framework review over the last several years, announced in August that they are committing to not preemptively fight inflation actually sort of like let things run hot in

a way they had been. German Powell talks a lot about not just using some sort of headline unemployment rate to judge when we're at full employment, but also like really look at like are the gains of employment being spread to minority groups, previous groups which previously didn't enjoy the fruits of recovery at the same way. I don't know, one of you want to like talk a little bit about like there has been an intellectual evolution even at

the Central Bank aside from the politics of expansionary fiscal policy. Yeah, I think that the FEDS Framework Review and it's subsequent forward guidance policy in September of really indicative of that major shift in the sense that they won started to say, actually, we don't need to target a specific unemployment rate or

target a specific level of employment. We actually should be always aiming at least for employment improvement, and we should never be saying, actually, there's too much employment in the economy. The problem if inflations of problem. Inflation is a problem,

but that's not the same thing. That's a really big shift from the world we lived in the seventies, eighties, and nineties and even beyond that, where everyone in sort of the world of sort of economics said, well, okay, but once you get below a certain level of unemployment,

all you're gonna get as much of inflation. So let's just try to like get it right on a pin that's changed to where there is like an openness to we don't really know where these things are, and we really don't want to do any harm, and we actually want to let sort of the economy show what it's capable of. In some ways what J. Powell's own statements subsequent of the Framework Review, we're really focused on, Hey, Congress, you have the spending authority, we have the lending authority.

The spending authority is actually much more powerful for shaping a lot of these outcomes. That is itself an inversion of what you saw in the ES when green Span was hiking rates and at the same time talking about how there are bond market vigilantes so Clinton should not be so ambitious about fiscal policy. So that contrast is very vivid. The Framework Review itself and i'd say J. Palis statements are both revealing of that sort of shift towards actually, we do need Congress. We're not going to

solve this thing on our own. We're going to have to have some flexibility and not just try to target a specific level of unemployment or a target a specific level of inflation. So there's just a little more flexibility on that side, and that that shows there like some level of institutional learning and that's good, um. And from there it's about are we going to learn more? Are we actually going to try? And it's it's gonna be

hard right in some sense. It's because there is still all sorts of conflicts intensions, and it may not be the case that people learn all the right lessons at the right times. Um. But there's at least now I said that there's a chance to really test some of this stuff out in terms of we are seeing ambitious fiscal policy, cooperative monetary policy, no like limiting constraints that way. Can I ask one quick question before um? We continue

are never ending semiconductor series. But the recent backup in bond yields, I've seen a few people characterize that as the beginning of you know, pushback from the bond vigilantes, which I don't exactly agree with. But I'm curious if you have opinions on why we're getting that backup in yields at a time when you know, central banks more or law or less are promising to keep benchmark rates pretty low. Is that all um? The work of I guess the market adapting to this idea of more fiscal stimulus,

I'll jump in first year. I think that the sort of bond market backup you've seen right now has also coincided with especially since the Georgia runoff's a marginally stronger dollar and sort of in general equity rally has largely continued. And so in light of that's that's all consistent with a repricing of US growth to my mind, and there's think about the guidance is rooted in outcomes. The rooted and outcomes about maximum employment and sort of achieving at

least two percent inflation for a twelve month period. So those two things are really we don't know what time it's going to take to achieve that, on what dimensions is maximum employment really been achieved, and how that can change itself over time. So there are a lot of

open questions that are not strictly about timeline. We are also giving every ourselves every opportunity both through the sort of vaccine distribution and through the fiscal ambition we're seeing right now of actually achieving robust growth, getting back to at least the pre pandemic labor market on a sort of reasonable time horizon, and that those are also very

encouraging about what the growth trajectory looks like. Not just so with all of that in place, I think that the bond markets in general curves deepens whenever you see sort of low interest rates and you're kind of coming

out of a um. You've already cut interest rates. Now the question is what's the time horizon by which you actually get the recovery where interest rate policy might be more in question, and especially since defends not going to cut rates negative anytime, seeing it looks like there is sort of an asymmetry that the market is repricing quite understandably,

maybe even a little belatedly. Yeah, on the belatedly point, I had a right up for the day after the election about if there was a jump in bond yields on trifecta in early November, what would you know how to understand that as essentially a pricing an investment package in the same way the Trump administration. When Trump was elected, and that was a pretty surprise event, I think for the market, you saw a run up though his term

before COVID. His term before COVID, yields were at the same rate, if not lower, depending on when you went in, how you measure it UM because of the fact that the Democrats in control the Senate, because of the contested nature of the presidential election. You know, it wasn't until mid January even had a sense that the Democrats could pass something, and up until a few weeks ago, the idea that it would be too trillion and be this really major fiscal push. I don't think it was quite

as processor apprentiated. So some of that's just readjusting for what is about to happen, which I think is appropriating good and still on a long term timeline, it's still rates are incredibly low UM and the capacity is far

beyond what we can imagine right before we go. I do want to continue de facto our semiconductor series, and the reason it's relevant is because there is this big discussion about the role of industrial policy and whether the US can, through policy UM actually sort of restore domestic semiconductor manufacturing. We're experiencing the shortages, odd lots listeners, no well and Scanda. You wrote about that, and so I want to get you know, you're sort of like brief

thoughts on what it would take. And then Mike, I would like to get your lots like from the historical perspective, from your research industrial policy, not leaving it up to the invisible hand all the time. What a sort of history tell us about when the political will manifest to create a you know, do industrial policy created domestic industry? Yeah?

So I I along with my colleague Alex Williams, wrote a piece about what we've seen more recently reveals how demand helps unlock some of the supply um and capacity that otherwise wouldn't exist. So we had really low investment in a lot of high tech equipment for about two decades following the tech bust, or sort of after two thousand and a lot of people were saying, Oh, that's weak peractivity. Oh that's weak investment. It's something structural, it's globalization,

it's inequality, it's all of these things. And I mean, there's no The problem with a lot of these arguments is really hard to pin down how much of it is globalization, how much of it is business model shifts um. And yet what we found was when we actually did do aggressive fiscal policy in the US was not the only one to do aggressive policy, at least in the outset of the coronavirus response, because you actually saw that demand for high tech equipment was sort of historically strong.

We broke out of this and has semi conductor manufacturing is called off side off sides, UM call it globally, and the US like what you've seen is there's been this underutilization of capacity for since the two thousand and that just didn't recover on its own, and now Washington sort of like is in a position where we've got

to do something. We've got to figure out how to actually have the capacity that we want to have, and that itself is a conscious choice, right, and ultimately if you just leave it up to the market, it's hard for that the certainty to exist for manufacturing capacity to actually be in place. I think there's something on a previous episode of yours Um that Willy she said that really wrung true to me, which was, you actually do

need some stability on the demand side. You need some stability and scalability, and that requires making sure there's enough purchasing power in the economy to make sure that there are mechanisms for coordination. Because there's just a certain amount of certainty that you can get from the government that's

really hard to replicate just in the private sector. Alone. UM. I don't have a lot that to that, because I, you know, I only know the semi connected from what I hear from you guys and and read from Scanda.

The one thing that really jumps out to me is that if this boom is at the level that it very well could be, UM, it might change the way we talk about economic policy making in a very profound way, because if you actually get unemployment down that rapidly, you might be able to tackle issues around decarbonization much easier

because there's just gonna be such voracious demand for workers. UM, you could talk about changing the nature of supply lines, changing the nature of the way business supply change and conduct is done, and really investing in manufacturing and other forms of on showing UM in a way that I don't think you would have the political or economic will.

When unemployment is quite high and the recovery is quite slow and everyone is thinking very zero sum, you might actually be able to think much more concretely about how to push the productive frontier of the economy in a way coinciding strong labor as opposed to thinking about that in periods of weak labor demand and weak labor power. So I'm really excited to see where all this goes, because I think it's gonna be a set of conversations

that's going to change so many things. Well, Mike, AND's Gonda, thank you so much for coming on. There's such a such a you know, important timely discussion. Both of you, great perspective, and we'll have you on in a forty years and we'll see, uh, we'll see. If I just didn't turn out to be a real turning point, I will totally take you over. Thank you, take care, Thanks so much, Tracy. You know, I didn't say it in

the beginning, and I but I realized something. You know, I mentioned that, Um, that's Gonda tweet about is this a trend break in neoliberalism. What's interesting is he was retweeting a tweet from the Chamber of Commerce where they

endorsed a massive stimulus program. And I think that's kind of like what's interesting too is like it really is like Bernie Sanders on one end right now and the Chamber of Commerce, which historically, up until recently I think would have been pretty associated with like the Republican Party. I think that really sort of is like what sort of captures this idea that's like something seems to be shifting here, right, I think, so m how to put this?

So one thing I've been thinking a lot about is so the recession from the coronavirus was an unusual recession in so many ways, not just because of the policy response, but because in some ways it was a government manufactured recession. And what I mean by that is, you know, the reason everything kind of stopped was because we had restrictions on where people could go and what they could do, and people were scared of leaving their houses as well,

um independent of the government. But the point is it was sort of a policy led recession, and so I often wonder if that's what was needed in order to create root for you know, more policy focused economic solutions, like if this was really the perfect condition for that experiment to happen. I still think, like some people would dispute this idea that it was the lockdowns rather than

the virus itself. But I will say there was this perception back in a year ago basically that this was nobody's fault, and I think that was sort of new because you know, like in the last crisis, you know, there's you could run the left, you could blame the banks, and then you had the tea party and the famous Rick Santelly rant It's like your neighbor borrowed too much

for their homes. So there was like a lot of blame for it, and I think that was probably a contributor to the sort of failure to get a lot of political will to really fight the downturn. There was very quickly emerged a consensus like this is really no one's fault. No business actually like deserves to go out of business because we have a pandemic. No one really deserves to lose their job because of this. And as such, I do think that that created some some political space

to do exactly what you just said. Yeah, I think that's exactly right. And the other thing um And I think it was Scanda who touched on this towards the end, or maybe it was Mike Um about this sort of demand side of the equation and the idea that this is something that people are finally recognizing is actually quite important. You have to have, if not robust demand, at least a reasonably stable level of demand in order to make

a lot of these policies work. And I think that's where the stimulus checks came in last year, and that's where we're probably seeing a pretty big perception shift as well. Yeah, and I'll just say, like, this was a point I really had not thought of as much until Scanda pointed out. It's like you have the botential for actual policy, popular policy.

I mean, CARES was popular. People like getting the one off checks, the the the expanded unemployment was powerful, and p PP was powerful, and I think people look at that and unlike say the two thousand nine response, which left to salar taste in people's mouth, It's like, we like this, we like the government having stepped in. Of course not everyone isn't, but this was generally like a

pretty popular thing. The current stimulus is popular, and so you do have this potential for self sustaining political change if this gathers steam such that acts like the stimulus, acts like CARES actually encourage politicians to do more of the sort of responsive policy in future downturns. And that's how you get potentially the trend to break, Because one stimulus deal is not going to really like break a big trend, but it changed in the politics around fiscal

expansion or around industrial policy could actually break the trend. Yeah, well, it does remind me a lot about UM. So, of course, there are a lot of studies about why people why some people in the U S didn't like social programs UM for a very long time, and one of the things that always cropped up was this idea of relativism. So you know, this person got five and I haven't got anything from the U. S. Government, and they're living off of wldchair effect checks and it's really unfair, blah

blah blah. But I think just by dint of the fact that the stimulus checks went out to a lot of people, I think that could end up being the great equalizer, right, Like so many more people now have had personal experience of a social safety net in one form or another. Yeah, no, totally right. Uh. I think it's gonna be a fascinating thing. I mean, we'll see

what the aftermath of this bill is. But um, again, if it leaves a positive taste in people's mouth, that changes how politicians react, and you could really that's how you get your your trend, your trend to break the end of neoliberalism. Maybe I do think. I know, um, it's always a risk to mark big turning points, but I do think this theme is one that's going to We're definitely going to be talking about it in forty years time. I feel like that's true. Alright, um, so

we've booked an episode for four decades. Hence, all right, this has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway, and I'm Joey Isn't Though. You can follow me on Twitter at the Stalwart. Follow our guests on Twitter. It's Gondam and he's at Irving Swisher on Twitter, and Mike Console he's at Roardy Bomb on Twitter. Follow our

producer Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levi at Francesca Today, and check out all of our podcasts at Bloomberg under the handle A Podcasts. Thanks for listening to