 This is Rob Johnson, president of the Institute for New Economic Thinking. I'm here today with an old friend and mentor, colleague on congressional staff, Jamie Galbraith, who has been a professor for many years at the LBJ school at the University of Texas in Austin, done a tremendous amount of work on inequality, on the role of the state, modern monetary theory, you name it, he's got a perspective on it and usually a very fresh and innovative one. And as you know, the Institute for New Economic Thinking is meant to foment critical discourse and he's a key ingredient always has been since our inception. So in Texas, you've just been through what you might call a vivid breakdown in the infrastructure, the social system and how would I put it? I'll bet you guys had a big run to the sporting goods sort of by hockey skates and things like that. What happened in Texas? What really broke the electrical system and the hospitals and everything? What broke the system was the structure of the electricity market as established by free market economists, including one in particular who took credit for the design, the guy by the name of professor William Hogan of the Kennedy School at Harvard, who was quoted in the New York Times reportedly saying that the system was working as designed and I think he was right. It was working exactly as it was designed. It was designed to the benefit of the generating companies to the benefit of the fossil fuel companies and to the benefit of the politicians that they funded. And we had a mythology of free market competition and what Texans learned was what does that mean in practice? What it means in practice is that without regulatory standards, the generating companies try to do everything on the cheap and so they don't weather rise because after all, Texas is warm most of the time and a hard freeze like this maybe happens once a decade. So you know the nine years and 51 weeks out of the decade they get away with it but then that one week happens when they don't and when they don't, two things happen. One is you get an increase in demand because demand is extremely inelastic. It doesn't respond to price but it does respond to weather and secondly you get a collapse of supply because the equipment freeze up and that was mostly natural gas, some renewables as well but mostly natural gas, all of which could and should have been weatherized because obviously most of the country knows how to weatherize electrical equipment. Chicago doesn't freeze up in a bad storm so it's not like it's rocket science. It just wasn't done because the companies didn't want to do it and they weren't made to and the result of the since electrical demand and supply have to balance. It's not a question of the prices making the balance, they have to balance. When the supply falls off they had to cut everybody out and then there's another problem. Then you go over to what is essentially necessarily a kind of socialist allocation of the supplies. That tells you you have critical infrastructure, critical hospitals in particular and they tend to be concentrated. I happen to live right amongst a bunch of hospitals and so my electric lines stayed live. I didn't lose power because I share lines with hospitals but the fact that I had that good fortune meant that many people in the city didn't get power back at all for days, days and days, 60 hours from four days sometimes. If you don't do that in the temperature between 10 and 20 degrees or below 10 degrees Fahrenheit, your pipes freeze and so enormous costs, destruction of people's homes and just damage, water damage as well as the psychological damage and in some cases the physical damage is simply being dark and cold and hungry was inflicted on people as a result of this system. It was an absolutely textbook case on how free markets break down if there's not adequate regulation. And the context of the lockdown and the pandemic, which you might call the anxiety, is already at the top of the charts. That makes it very, very disorienting. The pandemic certainly complicated things to a degree. I'm sure that's true. But I have to say I was impressed by the extent to which people were prepared to step out and take risks. The responsive ordinary people was really, really remarkable but you know you are just talking about a lot of people who have no place to go and huddle in the dark. Now we talked a little bit earlier just about the themes related to inequality and their cause but the inequality in the access or the quality of health care is another theme that we hear a lot about these days. Is that just he who has money can buy or what's the nature of the challenge especially when, how would I say, you being infected harms me. There's a there's a profound externality in this system. What do we need to do to put things on a better platform both from a humanistic point of view and a recognition of our interdependence? Well one way to look at this is to ask about which countries handled this pandemic effectively in which did not. What you find of course is that the countries that did and some of them are socialists and some of them are capitalist. What they had in common was that they had maintained a public health capacity. So they were ready on the first day which was like the third of January when the first reports came in. They were ready to close their airports. They were ready to mobilize cabinet committees and to set up protocols for acting on this. That was true in Korea, it was true in Taiwan, it was true in Singapore, Hong Kong was true within a few days and then in mainland China itself. It's true in Vietnam and those countries actually suppressed the virus. New Zealand did too and then you have the countries which are wealthier by and large like ourselves, the British and some of the Europeans where the health care system is highly structured to the kinds of ailments that rich people, rich populations have, chronic diseases, diabetes, heart diseases and so forth. The public health element was very, very rundown. Public health was a very minor piece of medical education. The funding for it was cut. The preparatory committee and the White House had been dissolved and so they had nothing to offer except turn it over to a very decentralized system of governors and mayors to try and manage and call on private corporations to do what they could and the thing fell apart and so we got clobbered and the best we could do was to keep it from going to the whole population all at once. We could only slow the spread and lost a half a million people so far waiting for the vaccines to come and put an end to it. A terrible example. So what we need to do is to realize that we're not immune from public health crises and we need to have a public health service. Now the other issue that you were talking about is paying for people's health care. That's of course another separate issue and obviously we need to have the whole business of private health insurance is not up to dealing with the kinds of problems that we have. So I'm all in favor of a single payer system but a single payer system is not itself adequate to deal with a public health crisis. You need to have the capacity to mobilize the population to handle all of the kinds of behavioral changes and protective measures that are necessary. Some countries did it. We can see that some countries did it and what they got for it what they got was you know fatality rates that were in the hundreds are the low thousands not 500,000. And in the event that you were what we call a fiscal hawk they locked down and their economies came back sooner. Correct. And so the need for fiscal stimulus was of less depth and shorter duration. That's absolutely correct. I mean they realized that if you dealt with a public health problem you can get the economy back. We got the worst we we stalled and it's an exponential process. You know the thing multiplies it so a few days a few weeks and you are in very deep trouble because it moves very fast on you. So you have to move quickly. You have to move in an uncompromising way. And then you've got the benefit that you grow out of it much sooner. I think that's a clear lesson that even an economist can absorb. What has surprised you? What have you been pleasantly surprised by? What have you been haunted by? What do you wish you were seeing in light of all the challenges that sit before us now? Well an economist is not normally pleasantly surprised by anything because the discipline focuses on the tension on the real problems. And this is a very interesting time to be an economist if you have your eyes open and if your brain is still functioning which is unfortunately the minority situation in the field. But if you go back a dozen years the period that we're living through that we started living through really with the onset of the of the great financial crisis in 2007 is one which ought to be revolutionizing finally the entire field. Because it is a series of developments for which the approaches that have been dominant for a generation or more are completely inadequate. They were inadequate to either anticipate or to deal with the financial meltdown as they didn't incorporate the critical perspectives that go back to Keynes and Minsky on those questions. They did not and have not been effective or useful in confronting climate change because they do not incorporate the basic physics and biophysics of resources and the capacity of the environment to absorb emissions which are fundamental which are raised in the early 1970s by Nicholas Georgesco Regan and that simply never never penetrated into mainstream economic discourse. And they have I think utterly misrepresented the role of markets as against organizations and regulations in the society. So this is an area where where my father's work over many years is relevant. And again we have an economics profession which has basically laid aside the work of almost all of the truly important people of the previous period and finds itself incapable of dealing with with the crucial questions that we're that we actually face. Yeah yeah so vis-a-vis how would I say the Trump administration and then the follow-on the Biden administration here in the United States. Do you see Trump as a coincidence an aberration or did he somehow organically arise from the pressures and the despair that were going on in the economy? Well I think it's clear that that Trump himself was a symptom of developments that had been a long time in the works. One way to look at this is that at the start of our careers when we were both on on Capitol Hill mid-70s to the mid-80s in my case this was a crucial moment when the United States made a decision through the implementation of monetary policy that through what Paul Volcker and Ronald Reagan did to sacrifice its industrial heartland to its financial sector. And what grew up out of that was an economy which is prosperous on on the east coast as a result of the basically the power the global power of the financial sector, prosperous on the west coast as a result of the the development of advanced technology and a number of other things aerospace and information aerospace entertainment on the west coast. And in between in grave difficulty and particularly the midwest the upper midwest the heartland has simply not effectively recovered from the from from that transition in the early 1980s. And the result of that is of course people who are now who were once working in in that part of the country and are now probably mostly fairly elderly and many others are very very disenchanted and they were open they were open to Donald Trump's appeal which had an enormous amount of myth associated with it. But the reason Trump was elected was that he was able to bring over a fair number of people who said to themselves well he's at least he's saying things that we understand that the Democratic Party is not saying and he is rejecting things that the Democratic Party has perpetrated including of course trading agreements and then everything else from this. It's not entirely fair to the Democrats because it really goes back to Reagan, but it was a real phenomenon Trump was the outcome of it not the not not the progenitor. Yeah and he I remember saying the system is rigged it was like his mantra the system is rigged and everybody said oh I haven't heard that in a long time people forget he beat 15 Republicans before. I haven't I haven't forgotten that. And I'll never forget a gentleman who has the Dilbert cartoon Scott Adams wrote a blog post and gave a speech one time about how I took all these classes on hypnosis and learning and communications and he and Steve Jobs were friends and watch out for this guy Trump and about a month after finding that quizzical kind of you know wow Donald Trump or this guy really thinks he's serious I watched him in Florida panel of 16 guys sitting next to Jeb Bush and Jeb Bush said something we criticized Trump and everybody cheered and Trump said something back and everybody booed and Trump looked at the TV camera and he said ladies and gentlemen you may think Jeb Bush was a popular governor here and he was and that's for some of the cheering but what you got to understand is those people cheering and booing at this debate they are the donors those are the people who are rigging the game here those are the Republicans who are getting paid for their support in politics those are the people you and I have to defeat and I just sat back and I said wow this guy wants the nomination for president and he just took on the RNC about the donors I said this is a different cut of fish he is breaking away from what okay well there was no question they did I think I mean we're now in 2021 and I think Donald Trump is my view was a spent political force yes that the general collapse that occurred over the last year has you know drained the aura that surrounded him and the extraordinary upheaval in in January has got to have caused you know reflection even amongst some of those most dedicated backers but the underlying issues there are we're real and of course he took a certain amount of political talent which was authentic to exploit them we're now in a new phase climate change was coming on stream as he was deregulating and defying the Paris Accord and secondly his tax cuts and deregulation were really which might call a seducing abandon a bait and switch vis-à-vis the people he inspired to vote for him oh yeah I'm not so sure I think what happened if you look at the at the broad aggregates was that there was a slow steady highly inertial expansion that began after the after the financial crisis on 2009 and it continued at about that same pace if it was losing steam early in the Trump term it was probably sustained to a degree by the by the tax cuts and that carried on until the early part of 2020 when the pandemic crushed it yes and so you know the the the important thing though is is is not there it's that a the the formula that Trump offered no longer carries any conviction nobody believes that they were going to have a successful development of the economy from that foundation and nobody believes that we're going to have a successful development from what came before all right nobody this everybody understands that the reason we got Trump was that the in the Obama administration there was a kind of half-hearted insufficient approach to a serious problem there was not a structural approach and and of course if there had been it would have been there wasn't the political capacity to get it enacted so the fact that the you know the the Obama people pulled their punches has created a situation which surprises me in which President Biden has a margin of maneuver and a conviction about what needs to be done that shows that he really did live through this period and remembers it now which to me is very much to his credit because we're now seeing even from some of the same people a very different approach they're they're saying in effect we have to put forward a program which is adequate to the challenges that we face and we'll do it in two phases we will get people through the pandemic with a very substantial program of income support and support for state and local governments and this kind of thing and then we'll move and we'll try and deal with with the larger structural questions which are going to which we're going to face this to me is it's a major breakthrough in thinking at least for democrats one of the things one remembers again it's good to be on the on this with a with a fellow geyser because we're old enough to remember that in 1981 when Ronald Reagan and his crew came in they demanded the moon they they they put put forward a tax cut which is their major agenda that was one-third of the income tax roughly no that was that was that was froth Murray Wiedenbaum who was Reagan's economic chief economic advisor said you know to friends it's a liberal friends he said like we're really clever we've got our Keynesian stimulus in place before the re-election uh you know they knew what they were doing but the point was they got a very big program through the congress plus a very big increase in the military budget so it's a Keynesianism on both sides and when it proved to be more than they needed well they they were able to make some concessions and you've got tax increases in 82 and 84 that were actually very large by the grammar hollings and well I've never in tefra yeah yeah these these two tax bills um and then ultimately the tax reform of 86 but the things that they did and before he was reelected were substantial um and you know they could give that back so they look they they one coming and going uh that's a political lesson which Joe Biden is old enough and has been around long enough to have recognized and it really transformed things to have the democrats playing this game saying we're going to go and and do it we're going to put the kitchen sink into this we're going to put everything we have on the table uh and uh you know when we get it if it turns out I don't think there will be a problem frankly uh because the whole notion that there we're in some kind of you know inflation inflation prone situation is absurd to my mind but uh if there were such a problem you can deal with it when the problem comes up deal with the problem that's in front of you and don't anticipate ones that might or might not emerge in three or four years right I mean there's a sense especially when the pendulum of distribution meaning profits share relative to labor share the pendulum is rocked so far in one direction that if you compressed profit with wages coming up it wouldn't necessarily lead to inflation for quite some time well I mean inflation is when prices are now set and as they were not in the 1970s on a worldwide basis energy prices prices for consumer goods come in from imported from the rest of the world food prices are this is a world market so the ability of the united states to generate inflation is just much less and then back back in the day we had a you know what was the dynamic of wages and prices as a result of union wage settlements and the price of things like automobiles that were affected by union wage settlements and those those things are no longer major factors in the u.s economy so and then there's the fact that almost all of our jobs are services jobs and until the service workers don't have any any any very much wage setting power so it's just the different it's a non-inflationary situation the one price that can go up is land but land does not counter does and they price and as he said wasn't it's not going to price land and stock values and so forth but those things are aren't are they don't they don't show up this part of the consumer price index anyway so it it's very absurd very silly to be holding on to a model of the so-called philips curve that was generated 1960 an entirely different world yeah that as a basis for thinking about how things are going to happen now well you've been doing work systematic work for a very long time now on the questions of inequality and I know it's very evidence-based very empirical what kind of things have you seen change say since the time bill clinton came into power 1992 to the present which is 28 years what what's what are the structures like you mentioned more service workers more how we say price setting in the world economy globalization probably a deterioration of unions but paint a picture for us okay what's going on let's start let's start with the united states and the turning point that you mentioned is a pretty good place to start what happened in that period was a bifurcation of the american economy and you can see it very clearly if you look at the data as we do by region or by sector that the stratospheric incomes that define american income inequality were generated in banking they were generated in in finance generally speaking and they were generated in the technology sector which was a creature of the financial sector was other than how how does that done then is done through ipos and through basically through capital asset valuations and you look at this and you think i got a small number of people with an amazing amount of income and that's what inequality is we did a calculation for the late 1990s with using uh income recorded by county that's tax data and we found that if you took out five counties uh that um uh from the data and pretended that what had happened there hadn't happened the inequality across counties would for you know from those last years of the 1990s would have fallen by half on those five counties big surprise well what were they they were where where you may be sitting new york new york yeah right and then three counties in northern california san francisco santa clara and san matel and one county in washington state king county which is microsoft it's just extremely straightforward what was happening the problem fairfield county in connecticut which was a commuter to new york yeah that's in the top 15 i'm sure but but at least five it took out 15 it was basically the whole of it how you get any increase and what was happening was it was it was enormously concentrated capital asset inflation if you like and then you can look at the pattern in later years it differs defense contractors and real estate and so forth depending on what's going on but okay so that's the united states brian by and large a tremendous bifurcation as a result of the structural change in the economy with most people working in the service sector and just not seeing uh you know the anything not seeing much change really not seeing any great increases uh maybe not seeing enormous decreases either but there are certainly the level of inequality went up dramatically okay the bigger story is the world as a whole and what we uh you know we're able to establish and this is the real i think innovation and important aspect of our work is that uh they um you look at this the pattern of evidence for the for countries around the world and we have um about 150 countries in the data set going back to the 60s and you can see that the pattern of rise of inequality is driven by global finance it's uh you can see this in um in the early 1980s inequality goes up in the countries that are hit by the by the debt crisis late 1980s early 1990s it's the countries of the formerly socialist bloc that were collapsing of course inequality went up like a rocket there and then in the 1990s onward to disney asia which was going they're going liberalization so where countries liberalized where they were exposed to international finance where they were hit by debt crisis inequality goes up uh and in the after 2000 there's at least a pause of 12 15 years because a lot of countries retreated from the neoliberal model and they had strong commodity prices so you can see this is basically a global macroeconomic phenomenon and that's that's that's the the interesting thing because if you ask what the literature says about inequality it's all about labor markets it's all about technology education trade in one specific place and some other specific place and they never tie the story together to show a pattern that's that's determined across large regions continents or the world as a whole but frankly inequality is generated at the level of the world as a whole and that then comes back to my basic view which is that you know if you if you don't start your analysis of the world from a standpoint of a essentially monetary analysis rooted in canes uh you're not going to understand very much and hymen minsky how would i say had been prescient in that canesian kind of way innovated himself it wasn't really recognized until it was it had fully blossomed then people acknowledged his brilliance much more they're what they've acknowledged it but the question the question i would ask is uh going again going back to the to the financial crisis has been 13 years how many of the people who were right about this who had the right methodological perspective and who you know warned in advance that the financial system was unstable how many of them have been given appointments at the so-called top economics departments the answer is zero they haven't done it uh you know a few people who were already there occasionally give kind of a lip service nod but frankly the people the jobs still go to people who were who were wrong before and who are you know essentially clueless about what's going on now well thank you and let's sign off and we'll come back again in a few months and take the temperature again but i appreciate your time today and try to stay warm down there in texas