 This is Rob Johnson, versing the Institute for New Organic Thinking. I'm here today with Martin Wolf, well-known and extraordinary columnist with the Financial Times of London. To explore his most recent and, I must say, very powerful book, The Crisis of Democratic Capitalism. It's to be released in the United States, I know, around the 7th of February, Penguin Press and I've had the good fortune to be able to review some of the chapters and I'm very excited today to be able to be with Martin and impart his wisdom and insights to all of you. Martin, thank you for joining me and thank you for writing this book. It's a great pleasure. So let's start with, you've written numerous books about India, about finance, Asian crisis, all kinds of different vantage points. This book feels very powerful to me and so I want to start with what inspired the themes that we will explore today and that our audience will be able to read within a couple of weeks. I suppose one can think about it in two ways. The broad context and the historical moment. The broad context of the way I think about the world of who I am is basically a product of my life history, which I discuss in the preface. I was brought up in a family of refugees, two people who met in London during the Second World War as refugees from Europe, from Hitler's Europe. They would never have met without Adolf Hitler, so I exist as a product of the Second World War and in both cases, they're wider families, not their immediate families, but they're wider families which contained, I think, about 40 or 50 aunts, uncles and cousins were all killed. They were all killed in the Holocaust. And I was aware of this in the sense, not explicitly, but in the sense that I knew my family was a bit peculiar. I knew we had no other relatives in the country. My parents were clearly foreigners, though they managed well in this country and so I was interested in our background and the background. And over time, I came to the conclusion and it was one of the reasons I later went on to study economics, that economics and particularly economic disasters, but more broadly economics, had an enormous amount to do with the stability of our society, with the politics of our society and the values of it. So I've had a long standing interest in how economic policy affects the world. Over time, I've changed my views in many ways, but that's what brought me to this topic. That's the very broad context in which I think about this. And it very much influenced my writing on the global financial crisis, which appeared in my previous book, The Shifts and the Shocks, which was published, I think, in 2014. Then the historical moment. Well, the historical moment, which mattered most, was the appearance of Donald Trump as the likely candidate and then the candidate for the presidency of the United States and his victory. Brexit was also important. It was also a shock. And of course, I was aware of rising ties of populism across the world, of autocracy across the world, and including in European countries. But there's no doubt that Trump was the huge shock because I suppose one of the assumptions that I had and that my parents very much had is that the United States was the bulwark of freedom and of democracy in the world. It had been the country that essentially saved these values during the Second World War. I've always been clear about that. And after that, in the Cold War, in light of the apparent, and I think real Soviet threat. So suddenly I was seeing the emergence of a man who seemed to me pretty clearly a would-be autocrat, the classic temperament, mind, ambitions of an autocrat, admittedly without a policy program of any coherence. And certainly I'm making no comparison with Hitler, none. But nonetheless, this was to me a stupendous shock. And that led me to think, well, why had this happened and what might it mean? I wrote columns about this at the time, but I came to think that I needed to do something more substantial to work out, at least to my own satisfaction, what was going on, why had our system ended up in this way, and what might it portend, and what, if anything, can we do about it? So that's the big answer and the immediate answer to the question of why I wrote this book. Well, I find it fascinating. You are also a PhD economist. So as we explore, I want to explore when you see something daunting, like in this case, the election of Trump, how do you see the, which you might call, the ideas of economics contributed to the misunderstandings that led us to where we are? I should, by the way, correct you to be precise. I am what we in Oxford would call an M-Phil economist. I did a graduate degree. I didn't do a thesis. And therefore, I'm not quite a PhD economist for what it's worth. But I managed to get a very, very good job as an economist at the World Bank without it. I never wanted to be an academic, so I was reasonably content. And at the time I did it, by the way, this is a strange thing. It was still very common in Oxford for the brightest people, I'm not saying I was one of them, to pursue their academic careers without a doctorate because they were given lectureships without it. The most famous example in Oxford at my time was Sir John Hicks, a Nobel Laureate when he distinguished economists of all time who never did a doctorate, nor, for that matter, did Keynes. So that's the general perspective. Now, on the question of economics and politics, my views in this have changed quite a bit over time in what I think of as a sort of circle. And it's influenced by what I felt with the biggest problems of the time. So I started economics in the 60s when I was very confident in the wisdom of Keynes in economics. And in the course of the 70s, as many other people did, I got very troubled with what had happened and I thought the sort of Keynes in economics I was taught were inadequate. I never became a monetrist, but I was very influenced by the idea that we needed more markets, not less, that we needed more competition, not less, that the problems of the British economy in particular, which I was focusing on, but also many developing countries I was working on, came from extraordinarily excessive Keynes in economics of a fairly naive kind, along with extraordinary interventionism, distortions of markets. My work on India influenced me in this respect very, very profoundly. Here was a very poor country that was not growing and it hadn't really been growing for decades in any real way. And it seemed to me pretty clear that was because they had adopted extraordinary distortions in their trade policies, excessive intervention of all kinds and I felt much the same about the Soviet system. So in the late 70s and 80s I became very interested in freeing markets, becoming more interested in deregulation, but my focus was always on the real side, not on the financial or monetary side. I didn't think much about finance at this time. It wasn't a big issue. I hadn't done much financial economics. So this was about deregulating the real side of the economy and I became very involved particularly in the arguments for liberalizing trade, particularly in developing countries, exploiting trade opportunities, which I'd seen places like Taiwan and Korea and Hong Kong and Singapore do while I was in the World Bank and I wanted to see this done elsewhere. And by the way, I don't regret this at all. That I think was broadly correct. But in the course of my work at the Financial Times and particularly in the 90s I began to became concerned that I'd already got some of this with the debt crisis, Latin American debt crisis, but that seemed to me very suey generals. But in the 90s and particularly with the Asian financial crisis I became aware that finance could go very, very seriously wrong and I began to be aware also in the late 90s and early 2000s that we were getting pretty classic macroeconomic problems. Becoming increasingly difficult to sustain demand. We were getting some of these huge global imbalances that Keynes had worried about, balance of payments imbalances and we were beginning to manage our economies pretty obviously through unsustainable credit expansions and asset price bubbles and that was very clear. So I was changing my mind and then of course the financial crisis came and that was sort of the coup de grace and forced me to rethink a lot about the financial side of capitalism. But that also forced me to go back and start asking myself well, what about the wider political economy of our society which made this sort of macroeconomic system apparently necessary? Why did we need these credit bubbles? And it seems to me a significant part of that of the reason for that was rising inequality the shift of income away from people who spend the inability to offset that effectively and the interaction of that with the financial system seemed to me a very important part of why we got into this tremendous crisis which was immensely significant for me. I didn't think such a thing would happen again it seems so close to the Great Depression though fortunately policy makers understood better what to do partly because of the lessons learned and we dealt with it. And then of course along came Trump and that made me really think that in addition to all those issues which were obvious that we had somehow lost the loyalty and trust of a very large proportion of our populations in the working of our system and that was incredibly dangerous and it was very clear at the same time that this great thrust towards democracy worldwide which had begun in the 80s and continued after the fall of the Soviet Union was reversing all over the place. So then you've got a really, really big issue which is not just macro stability important though that is and the worries about that because it reminded me of the early 30s and what it did particularly in Europe but there here was this concern that actually the foundations of political stability were being broken as well and that led me back in a very different way much later in my life to the sorts of concerns and views I would have had half a century ago and I'm not trying to exculpate myself because one obviously makes mistakes in life or at least I have but that's the sort of circle fairly tight circle I've never been really extreme in either direction that I have got that I've journeyed along over the last 55, 60 years. Well I know it's nowhere near as daunting but I often attribute some of my perspective to having grown up in the years in Detroit when Detroit was in decline and what many people felt was a federal government that neglected a region in part I believe the inference was because after the Civil Rights and Voting Rights Act Democratic senators in the South or House members were not going to vote for adjustment assistance to a black majority city and but I watched what I'll call increasing despair and I remember I once met a psychologist named John Polsky who said when things go right is when fear disappears when fear rises it feeds back and exacerbates and he wrote a famous book called Love is Letting Go of Fear but I feel like even in my lifetime that we've been through ebbs and flows of optimism and despair I know at the outset I've what I'll call globalization about the time I was in college books like Global Reach and others were emerging Richard Caves at Harvard was exploring multinational enterprise and its implication so the question of the we might call the integrity of the Treaty of Westphalia and the nation state was how do you put on the table in the architectural change people in Detroit were afraid of globalization people in Cleveland were afraid of globalization on the other hand others were saying you know kind of moral framework God wasn't born in Pittsburgh or Detroit and the as Bronco Milanovic and others have talked about the rise of the global south the rise in the per capita income in places like China is something one could cheer for provided transformation assistance was provided in the global north and I'm curious how you believe we went from the advent of globalization the adjustments and then back to which you might call the polarity and the rise of essentially potential dictators like Trump, Xi Jinping, Bolsonaro and Boris Johnson and others what do you think took us off what you might call the win-win game and fomented despair I mean first of all the I take the view that as a word the will to power and the will to absolute power is a fundamental attribute of and quite a number of people mostly men and that in most political systems we know people like that have been pretty good remarkably good at obtaining and holding power so the fact that in politically and socially fragile emerging and developing countries which are undergoing extraordinary upheavals in the transformation that is associated with development and often its failures that they end up with a discredited political system and a dictator at the top doesn't seem to me fantastically surprising and of course it is part of the story of what happened with fascism in Europe in the 20s and 30s particularly the story of Mussolini fits I think pretty well into what we're seeing with an Edouan or a Bolsonaro or even dare I say it a Modi namely a combination of nationalism with a promise that having the strong man in charge will deliver fast growth prosperity all the other things that are promised as long as you put your trust in such a person this is a recurrent theme of human history and as I point out in my book nearly all the regimes we know of since agrarian civilization developed to the point of having large estates with large populations that pretty well all of them were absolute monarchies or some other such structure and we are basically repeating that there's nothing surprising the truth is liberal democracy is surprising and liberal democracy in very large countries is unparalleled I mean it's a development of the last 100 years if you're very optimistic maybe a little bit longer depending on how you define it so I don't find this surprising that we're seeing this again across much of the world isn't surprising and that the Chinese system which is obviously has really internal checks on the absolute control over power if the person at the top wants it should end where it is now also doesn't surprise me what did surprise me is that I thought in our western democracies we had by now a long experience of the democratic process that was often rooted notably in the US and UK in a predemocratic world which at least had some sort of rule of law for all its manifest imperfections and inequalities and some sort of republican idea about freedom of speech freedom of action again with all its obvious imperfections so that it seemed to me these were the experts say consolidated democracies they'd fought wars and they fought wars in the context of a democratic order and I'm putting to one side the obvious grotesque racial inequalities and racism and of course sex or gender inequalities which have continued but nonetheless these were countries that seemed to have cracked this they were also in all successful economies and their people were on average and overall despite all the difficulties unprecedentedly prosperous compared with the people of a century or two ago so I assumed these we had broken out of this age old danger falling back into the belief in some heroic despot some new Julius Caesar or Octavian Caesar Octavian Caesar who would solve all our problems by taking all our freedoms as it were I assumed we'd grown out of that but it turned out I was wrong and it became pretty obvious already before this happened but as I said with Trump it became completely obvious that and it has become obvious that the differences between a Brazil and the United States are much smaller than I'd ever imagined and now that's frightening because if the US goes I think it's very plausible that large scale democracies will disappear a few smaller countries might manage to sustain this but it will be difficult and that's not a world I want to live in in fact to me having the basic idea of democracy which is we are all citizens we all have the right to participate in public life freely to speak freely to act in accordance with the law to trust one another even if there are opponents share in decision making and have personal freedoms of many kinds including economic ones which I think are valuable and I want that to last I don't want this to disappear and I think we'll come to this later I'm still not convinced that we have a stable democratic order in our societies go through the various countries in Italy they have now got a woman in power I know nothing about her but she is head of a party which claims lineage directly back to Mussolini in the last election again not claiming she's anything like the fascists of the 30s and 40s but a woman who is the descendant without any doubt a French far right fascistic thinking got well over 40% of the vote and the only reason she lost and they didn't even better in the parliamentary election is that Macron is actually quite a charismatic figure let's suppose the next not part of any of these completely discredited old parties which have now disappeared well what will happen in the next presidential election particularly if seems likely we're going to have a deep recession unemployment will get worse we have the consequences of this horrifying war and I'm not even talking about the obvious fact that Britain which used to be a relatively stable reasonably well governed country I don't think it's going there but it isn't it not self-governing in a sustainable sensible way that's the sort of thing that explains why all the polls show that many people in our countries particularly young people have become profoundly disenchanted with our political system if people don't believe in democracy and they see its abuse in this way why should they fight for it trust it and this gets back to the core of what I'm arguing in my book for a whole set of reasons in my view and a lot of it is looking back at it exposed people have lost trust in the elites of our society and the elites are many and complex because large and complicated societies and they need elites we cannot imagine a complex society without them they all have them different kinds but if the elites are discredited what we see is not the people who abandon the notion of elites it's just they will transfer the legitimacy from traditional established elites to who claim to be able to change everything but as we know from history and we've seen it with the recent past are in fact clueless except in one crucial respect they understand how to use rage and fear to gain support and seize power and that's a very old story terrifies the wits out of me it does appear I'm working in New York and young people who work at my foundation will tell me things like this isn't stable you can't pay rent healthcare and own an automobile or lease an automobile on the income for a college educated person in their 20s any longer so they don't see themselves which might call on an up ramp a prosperity and these are people who are relatively advantaged and so I don't know how there is a tremendous amount in the United States right now of anxiety or distility manifest from anxiety towards two or three people who are the richest young technical technology billionaires and which I'm just watching that fulment and the question I guess I would ask is what they accomplished in the transformation of information system can be quite beautiful but how they dominate what you might call the social architecture of public policy in a money politic system in part leads people to believe that the expert you refer to are just marketing men for power now not what you might call visionaries for the common good well I think this is correct so in the course of writing the book inevitably in confronting all these fears and worries and echoes from the past and I was also influenced because I had to be by my own prior education which I haven't mentioned so I spent five years of my life between 15 six years actually 15 and 21 which are seminal years basically doing nothing but read Latin and Greek which you would probably think is rather a strange thing to do but it actually changed me and I think in many ways for the better but one of the things this brought me back to was the way Aristotle and Plato thought about these things and both were very relevant to my book but the particular point which you raise made me realize that while there are always plutocratic elements in a liberal democracy with a capitalist economy there always have been and that was true in Britain throughout and of course in America pretty obviously just think of all those slave owners but the but and that's just the same issue that the Athenians faced and all the other democracies similarly the Romans this isn't new it's just the different guys but there has to be a balance between the capability of the system to allow ordinary people or people of ordinary background and without extraordinary means to exert influence and power on the one hand with the inevitable influence that wealthy people will have at least to some degree and it seems to me clear that we cross the line and the more I looked at America the more I came to the view which didn't even occur to me 15 years ago that we were seeing in the US as a whole a not accidental but on the contrary deliberate recreation of what I had thought of as the old Southern system to the country at large namely you have the plutocrats or in that case the plantocracy you have if I may say so the poor whites who are told that they're superior because they are at least white and they are told and encouraged to identify with the elite the commercial elite the plutocrats and to the degree that in the Civil War they fought and died in extraordinary numbers for this cause which I discuss in the book now I thought that was historical curiosity that was over but coming back to your point well it isn't over that's what I think to my immense distress the current Republican party is about I think the Democrat party also has big problems but they're not these ones and the and it is quite clearly a party that in the Democratic in the context of an electoral system there are still elections I don't know how long that lasts but there are still elections that is using the fear and anger despair of people the middle fearing to fall into the bottom fearing to become like those despised people at the bottom what you referred to in Detroit identify with this elite identify with the policies proposed by the elite and that produces a minimal state which is bound to make these anger and fear worse and a plutocratic regime now this has happened in different ways frequently now one of the things I don't discuss at length but it's in the book is a plutocratic regime stable the problem with a plutocratic regime is there are a lot of plutocrats and the risk for the plutocrats is once they destabilize the basic democratic norms is that what will come along is an elected leader who is the autocrat who will use the powers of the state which in the united states for the presidency are very large if ruthlessly used and supported by the supreme court essentially to transform the fading divisive and in many ways despise plutocracy you talked about with an autocracy which is essentially what happened at the end of the roman republic and its transformation into the empire I'm not saying of course very clear that this is an exact analogy I've put an idiot but there are parallels here so I think the plutocracy you describe is the path to that and now looking back in American history and you're of course vastly more expert than I am I think that was sort of the danger that was emerging in the early 20th century but it was corrected partly by luck and partly by happenstance in part by Teddy Roosevelt who is seems to be a rather an important politician in that he was a conservative who seems to me to have recognized this danger at least that's the way I read it you can tell me better and of course even more startlingly by FDR who was an aristocrat sion of the plutocracy in some sense who made it his life's work to make the United States a more genuine republic a republic a far more inclusive view of who mattered and I think now that saved both the United States and then went on to save the world well that's what is needed again and that's sort of where my book ends with lots of ideas so I have no idea who will produce it but this is a very lengthy answer to your deep question I think what you see in the US for example with Elon Musk's takeover of Twitter a very important media and the way he has used it and the way it's taken for granted that he's entitled to use it in this way whatever the context for the public good which has obviously vast consequences these are all signs of a pretty near complete a very substantial shift into a plutocratic order with the autocratic order very clearly in the wings I think the immense good fortune of the United States was that Trump for all his very real abilities as a demagogue remarkable abilities as a demagogue I have no idea how to go about consolidating autocratic power I'm not sure that the people who will follow him and I will not name names will be equally incompetent at concentrating power and the power is there if they get hold of the Department of Justice of the FBI of the CIA and equivalent agencies of the armed forces possibly by putting in their people in the higher commands they already have the Supreme Court what will happen well we know what will happen because this has happened in many many countries in history and I think it's now pretty obvious it could happen in the US and I don't think what's just happened in the midterms now this is perhaps jumping the gum is enough to encourage one to believe that this worry is all over it seems to be probably not given the elections and in Britain we have similar questions exactly the same questions because we don't have outright water cracks now but another 10 years of the sort of economic failure we've experienced in the last 15 stagnant real incomes falling real incomes for many and will our system survive it seems to me that our system depends exactly as you say on giving widely shared prosperity and a belief in the future and if we don't do that and we haven't been doing it consistently and widely enough then we will end up with conflict, rage despair and a loss of legitimacy and that's exactly it all kinds of things come to my mind as I'm listening to you but the parable from a nautical family a rising tide raises all boats it's not raising all boats then we've got a real problem and I'm very concerned as I look at the process of where we know in the United States we've had various court decisions which have allowed what they call super PACs unrestricted amounts of donation and undisclosed and so the idea that a politician can operate what you might call from the spirit of Franklin Roosevelt and survive in the money politics where media time is not handed as part of state responsibility you're paying for advertising like you were selling soap and so there are a lot of structural which you might call deformations of a democratic system I've said in my book is that if you go too far in this direction capitalism consumes democracy and that's what's happening in the United States in reaction there is the possibility since the political system still exists that a successful demagogue a product of democracy will consume capitalism that's also a possibility both ways destabilize and destroy democracy and that I think is the point at which we have now arrived I have no idea which side will win whether you can create a stable however miserable plutocracy I don't think so it's very difficult or whether in fact one of the would-be autocrats and there are plenty of them around will actually succeed and consolidate power including of course plutocracy that's not difficult for them to do if they control the arms of a well resourced and powerful state which the US certainly has which of them will win I don't know but I'm perfectly clear who will not win that is ordinary people and the democratic order and that's why as I said I've written this book these things we're increasingly aligned the difficulty is knowing what to do about it and of course even greater difficulty if you know what to do about it and some of things are obvious your campaign financing laws are crotesque just crotesque it's pretty obvious your media laws and rules are pretty mad too but the the question is is there any more as our comedies would say is there a point from which you can apply a lever which will move all this and the answer that is I don't know one of the things that's haunted me in recent years including panels at the World Economic Forum and books recently written like Douglas Rushkoff's book which your colleague and our board member Jillian Tett recently wrote about the book is called Survival of the Richest and what I'm getting at is that many good-hearted wealthy people are now feeling powerless to create the kind of change that leads to a sustainable healing of our social system and put it on a dynamic trajectory so in Rushkoff's book people are considering how to build their own private bomb shelters and get away others are talking at the World Economic Forum privately at the dinners about building airstrips and how to evacuate their countries so I see despair how would I say it relates to your rise of authoritarianism to consume capitalism I think some of the prosperous people can see the non-sustainability of the system while they don't want to be co-architects of that they don't know how to thwart the resistance and so they're building or contemplating escape and I think that's very haunting and what I would call feeds the despair we talked about fulfilling the void versus deepening the void we all have to do diagnosis but we need remedies we need north stars to aspire to and when I see some of the most insightful and prosperous people showing symptoms of despair I think the alarms that you're setting off in your book how would I say are very not a paranoid fantasy it's very much on the agenda I think in a strange way the possibility of escape is quite dangerous because it makes people think that they really have a credible escape obviously to some degree they might but in the sort of world we are imagining nobody really is going to be secure wealth won't be secure ultimately what protects wealth everywhere and at all times is power and if power is held in predatory hands wealth is not safe now what has tended to happen in the past where republican regimes with a plutocratic tinge to them and the roman republic is obviously one of the most famous examples have become dictatorships is that this leaves the wealthy with a choice one is to sort of retreat to their estates as it were withdraw completely from public life enjoy the pleasure of having wealth the dictator might well leave you alone because can't do everything and essentially choose the quietest option the alternative is of course to become a crony and a sycophant and that can often be extremely lucrative but it's also extremely dangerous because dictators aren't trustworthy and have a long history of turning on those people who have relied upon them and that's particularly true as it's not infrequently the case in dictatorial regimes but at some point a psychopath gets into power a real one the roman empire famously started with Augustus who was not a psychopath he was just a very ruthless man but just a couple of generations later and then Nero I don't wish to make these parallels too close but it seems to me that if the wealthy say well the best we can do is have a bolt hole in New Zealand and hope we will be left alone that makes me despair pretty much the I don't know whether it's too late I have no idea whether it's too late to do anything and it certainly will be very very difficult it has puzzled me that in a free society where these dangers don't exist now why so many people who are after all educated and immensely wealthy they don't want for anything should not put their resources behind policies and politics which have a reasonable chance of stabilizing the social order it's not that difficult to see what that involves it's been done before and though and yet as far as I can see many of people I know quite well who are not naturally authoritarian in this respect somehow seem to feel it will all be safe it's all fine it will be business as usual it's not going to make any difference and I really don't want to pay taxes certainly not to support these idle idle people who aren't working hard enough or are criminals or whatever else it might be that makes them so upset even vindictive well given those attitudes then it's very difficult to see how this stops now a core thesis of my book which is I think the one I've come to more slowly than I should have done but anyway it's where I come back is that if you want a capitalist order and if you want democracy which means you don't want an aristocracy and you don't want a narrow plutocracy either an aristocracy again then you must accept that the free market will have to be contained within and tempered by an active state which provides fundamental security to all its citizens because it's something they're all going to demand it's just what's happened in every democratic state that's a demand that some or other has to be met and that where fundamental problems arise of all kinds environmental problems with bringing up children social problems of severity the state exists as an insurance mechanism as an agent to ensure these are dealt with and the idea that all this can be done with no state purely through the benevolence of rich people or through the market is completely inconsistent with history and with our knowledge of humanity and I don't understand fully why so many of the wealthiest don't understand this that they are seduced by what seem to me sort of infantile regimes are fantasies of essentially capitalist anarchy and the idea that somehow people will live with this they won't they will insist on order and if the democratic system doesn't give them order then they will find a dictator who does I've heard a lot of concerns in recent months where people have said we experienced Trump but let's just go back to what we might call the Clinton and Obama neoliberalism and then the people on the other side will say but it's the Clinton and Obama neoliberalism particularly the great financial crisis bailouts that demoralized the public, led to occupy Wall Street, the Tea Party Republican House, Republican Senate and Donald Trump and even Steve Bannon the propagandist for Trump often talked about without the bailouts being what Joe Stiglis called the polluters getting paid we never would have had Donald Trump if it had been a more just adjustment to a mistake it would have invigorated a confidence and what I'm hearing now is people are saying say in the UK if we go back just to the David Cameron regime or we go back to the Clinton regime here that's relief compared to Trump and some of the other things but if you go back there you may create the despair that sent you back in the other direction quickly in essence the visionary wealthy people need to go further than where we were when we moved towards the authoritarians the first time I think I would agree with that now I was much more sympathetic to them in the situation they faced in 2008 the in some sense it was already too late the I did discuss this at the time I remember writing an article in early 2009 in which I argued pretty sure I wrote this in February that the bank should just be nationalized the and the and I also argue in my book a theme of this book because it was part of the last one that obviously there was an immense amount of malfeasance in that in that crisis and it would have really been a very good idea of a few more people that gone to prison which is the sort of thing people used to do in America we never did but you did the but I actually think there's a sort of there are two things that went wrong and the first thing that went wrong and this is a much bigger one is we allowed the development of a financial sector which was prone to crisis like this and that was a colossal mistake and the scale of the mistake I have to admit I didn't realize before it happened so it was incredibly important to learn from that and not repeat it but of course ideally it would have been a very very good idea if everybody had listened to say to Hyman Minsky back in the 80s and 90s and said we should never go there what is interesting is how remarkably few professional economists and I'm one of them so to say I'm partly guilty realized that we could go back there so easily so there were and in addition there were lots of other mistakes it's clear to my mind I still believe in market mechanisms and market forces but it's pretty clear that the way lots of things evolved in our societies over the 35 40 years before the crisis were extremely undesirable so we became far too reliant on debt we allowed corporate governance to become completely a la Milton Friedman which created I think psychopathic companies that's not very desirable and a pretty big issue we allowed our financial sector to run a muck with just ridiculous quantities of leverage and an inordinate control of the way companies operated we allowed huge and shattering economic change to occur without helping people adjust we ignored what was happening to the distribution of income and its consequences we ignored the provision of fundamental public goods like health and education and the US you allowed the creation of an incarceration state which is just I think the mistakes were made lots and they were part of the temper of the time then when the crisis blew up the various reasons part of which I think were accidental which was the election was in 2008 and not in 2010 so Obama got into about while the crisis was happening and couldn't pick up the pieces after the Republicans had failed to deal with it as FDR did and those wondered since then what would have happened if FDR had been elected in 1930 and not in 1932 it might have made a big difference to the story it had a much smaller majority and he probably had been blamed for a lot went wrong there was a lot of luck but I do think and I argued at this at the time that you couldn't allow the banking system simply to collapse that was an impossible thing which only the extreme fundamentalists were arguing for though it's implicit what the Tea Party was on but the rescue should have been done in such a way that those who clearly were associated with the crisis didn't benefit from the public's funding and the and the politics of that were mishandled I think I understand completely why they were mishandled and I'm probably much more sympathetic to Obama at least and his Treasury Secretary than you are because it was really really hard to do all that and probably impossible politically but the combination of that a lot and this is the core of my book the long history of economic developments which included slowing growth slowing productivity growth rising inequality technological upheavals rising trade which without adjustment benefits and all the rest of it and then you have this massive financial crisis which is such a dramatically visible symbol of failure I mean there are very few things that ordinary people can clearly see show that the people in charge were clueless a financial crisis is one of them a dramatic demonstration of cluelessness in the top of the business community above all the financial community and in the government that they allowed this to happen and then if you rescue them without punishing the people well it's politically pretty hard and the consequences I think is a core argument of these two things together gave you trust yeah well the podcast that a friend of mine Alex Gibney and David Sarota did together called Meltdown it's about eight hours and interviews the people who worked around Elizabeth Warren and the special inspector general Gorowski and others and the Meltdown that they talk about is exactly what you're saying it's not the Meltdown of the financial system it's the Meltdown of trust in governments and expertise afterwards and understandable so we failed we failed very substantially I have to say I must be part of it because I didn't realize the extent of the likely damage and that's a pretty big and frightening and disturbing lesson well I see and I have to give some credit I worked in the Senate Banking Committee and the characteristic of I was a former chief economist was when there are problems those of us who worked in the past I worked on the 87 stock market crash and the savings and loan bailout we all volunteered and back at the time of TARP we were in Washington I was staying with my friend Robert Dugger who was also a former official there and was very daunting as the TARP legislation went through a few iterations but was crystallizing because that unfairness in the legislation was evident and I will give credit to George Soros because as we were talking with him about creating an op-ed about this situation he and Rob Dugger and I had lunch and he said I grew up in Hungary the Nazis invaded when I was a child and when I've studied the history of what tip things to that horrid place the 1931 crisis in Austria and German banking played a huge role and he at that lunch suggested that we form the Institute for New Economic Thinking to address he wasn't putting blame on anybody but to address what was coming with the injustice of the structure that they allowed I cited some research which I came across in this book because I was very interested in this theme of links between economic failure and economic injustice and politics and there was some very interesting research both for Italy and for Germany I didn't think I saw any for Austria which basically showed that you could see this quite locally namely places where local banks failed were more likely to shift in the radical direction than places where they didn't and the but it's clearly true that the banking failures and of course the stunning rise in unemployment in Germany in a country with a pretty weak welfare state though they had one unemployment at 25% with all the previous problems there had been well you saw this massive explosion in the Nazi vote but really in significant levels in 1930 to 33% I think it was 33% in 33 might get the exact numbers wrong so yes and of course that made it the largest part of the right and Hindenburg and his associates thought they could control this and make it into a decent Conservative Party and that's not exactly how it worked out so one of the things that is obvious is that if capitalism fails and it can fail in this way then you end up with not just a failed economic system but a failed political system democracy and the working of the market economy are intimately connected in this way too both on the side and the downside if it creates widely shared prosperity together you are doing going to do well and if it fails you fail together you can't separate the two I just watched a film the granddaughter of Roy Disney Abigail Disney who created a film on the American dream it's called and it's about how Disney and Disneyland blossomed and the top executives were all making $50-60 million a year and many of the people who worked at Disneyland for many years could not afford health insurance and lived in their cars and it was just a snapshot from one of the people who benefited by being a younger part of the generation that she's rising up and I see symptoms like that Alex Gibney's series called Dirty Money some of the things in your country that Adam Curtis has been raising at the BBC and what bothers me and this is where as we come down the home stretch here is I see the diagnosis that validates despair and I look at globalization where what I call the treaty of West failure is no longer how things work quite as easily in a globalized system with climate change on the horizon with deepening despair how do we move forward identifying the challenges and working across national boundaries you've talked about the polarities that relate to Modi Xi Jinping Bolsonaro Trump how are we going to get all these people at the table when life on earth may very much depend on their collaboration in these difficult times well this is where it gets really frightening so I'm profoundly committed to the idea that we mustn't despair until it's over the so my book argues that we must find our way back within our own societies to an economic and social and political order which most people feel really the great majority feel is going to give them hope for a better life and I discuss a lot of the things that one might want to do to achieve that and not only hope for a better life a sense that the order is reasonably just and that rage and fury are not enough and somehow shift us away from this frightening blame game which ends up with these wars among ethnicities among minorities what I think of as the majoritarian populist response or the majoritarian identity response to identity responses of minorities and that's part of it so so it is a necessary condition that our politics starts generating answers and we've touched on some of them but obviously they would involve things like paying more taxes offering better welfare dealing with some of the most obvious social problems in your country and mine which are very real, improving the working of our financial system and our capitalist system for more people dealing with the costs of globalization very powerfully let me just say something on globalization globalization I've always felt was perhaps an unfortunate word I just think of it as integration of economies across frontiers and a point I make again and again to many Americans is that in America and I think actually in America alone maybe at some point the Chinese will think the same way but they don't now there is this sort of idea that we could go home and become a fortress we could actually be a self-sufficient country which you were pretty close to being 100 years ago or so or even 80 years ago trade was just minuscule and you didn't really need it and you had the know-how to produce pretty well everything that anybody wanted to consume the United States is the only country in the world that can plausibly believe in this so the idea in Britain even France or Germany let alone the Netherlands or Korea anywhere else that not being actively engaged in trade is an option just has no plausibility of course we're going to integrate economically we can discuss how to do so we can discuss what sort of complementary policies we need what sort of welfare support we need and in my book on globalization I had a very strong argument which is consistent with Danny Rock's Roderick's argument that we could have a welfare state we could afford a welfare state and we needed one no you can't have an absolute free market without that I think that's clear to me but the jumping out of globalization idea is an aspect of Fortress America and Fortress America is a unique concept of a gigantic economy and country which happens to be thousands and thousands and thousands of miles away from any other significant power so that's unique but it's not generalizable and it's a unique debate that then leaps us into the global issues which is of course particularly problematic for America because if you think you can be self-sufficient and a fortress then you think you can ignore everybody else pretty well but as you rightly pointed out most countries can't even in trade and economics obviously they can't they couldn't feed themselves for example if they did as I frequently pointed out in World War II the most important battle was the battle of the Atlantic why because without it Britain would have had to surrender pretty damn fast now the the but the problem is more broader as you pointed out intelligent people understand that we got to the point as human beings in which we are changing the world itself and that the world itself we all belong to and we all live in and therefore there is no fortress America option there is no fortress America which will protect America from the consequences of catastrophic climate or other ecological disasters you can assume which of course people who don't want to accept this do that none of it will be important but the universe or whoever is in charge may not well not arrange matters to our ideological satisfaction and I think it's pretty clear they're not doing so it is not doing so so we do need to cooperate and this is quite a part from the obvious point then this is my argument against the realists who believe in balance of power politics we know historically how the Westphalian system operated with balance of power notions which are admired by very distinguished people Henry Kissinger well it operated by periodic mass war in order to recreate the balance against some over powerful entity within the system and this happened again and again it wasn't an accident it happened all the time as it were not all the time it happened every time the balance was broken we cannot run our world now like that it's horrifying enough that we've ended up with this war with Russia indeed it's really horrifying that we have done so so if you think of peace you think of the maintenance of prosperity which I was talking about before if you think about the survival of our planet we have to go beyond the purely Westphalian national tradition now this obviously raises a question of how you govern that my view is again one has to be realistic and sensible which is very difficult to do we need a democratic order the democratic order if people are educated persuaded and you have to do this should be able to understand that we have needs and responsibilities and obligations to the world at large and they are in our interest to meet and we need to create institutional arrangements which build upon the democratic order which ultimately give people a great deal of sovereign discretion that nonetheless satisfy these global demands that are in the book that discusses this and I would agree with you that it is staggeringly difficult to do but I cannot believe that there is anything to suggest nothing in fact that we will do better at this if we are all nationalist autocracies for all their faults and my god they are large the democracies have been by and large better at cooperating with one another and recognizing these dangers than the older autocracies we have known partly because democracies are open to ideas partly because the elites for all its fault tend to be at least moderately educated in understand some of these risks and partly because relying on the rule of law they are able to understand the role and value of treaties of international agreements and we have thousands of them and most of them were initially created by democracies working amongst themselves and then extended to the rest of the world and many countries in the rest of the world were very happy to participate in these regimes because they could see the value of them. We created global treaty systems because ultimately democracies and market economies we are at least in principle rules based law based societies for all our weaknesses so that has to be sustained and extended even if there is much distrust as there now obviously is and that includes of course understanding that our relations with China must be such that we can achieve shared purposes I remain optimistic perhaps this is very infantile but I remain optimistic that the Chinese at least I'm not so sure about Russia now do recognize that they have global interests and interest in the world and I remain optimistic that the United States can and will. If you don't believe that then we're going to fail at all these things and there's a non-zero possibility and I would say very much larger than zero that we'll end up in a global war because you can see how easily it happens and we know from history how easily it can happen and that cannot be a rational way out in any way and of course you can despair because the likelihood that we will achieve these things is small but it's not zero and I think it's a great deal more than zero as long as we can get our politics back into some sort of sensible order and we need the political processes which will allow us to achieve that and it is clear to me as we go back through this conversation that that must start not just by correcting what went wrong 15 years ago correct quite a bit of what's gone wrong over the last 30 or 40 years not by giving up all that has been done obviously not but at least understanding that we actually do need and democracies can provide a benevolent state but one which operates within the constraints of a rules governed law governed liberal democracy which is a constitutional strategy it's not majoritarian tyranny something quite different and we've done it in the past and we've had the leaders to make it work in the past and we've got to do so again yes well I am always reminded I watched the speech that the foreign policy officials in the country all just after I think around 2011 and he said the G7 kind of western enlightenment has now given way to the G20 and the G20 has eastern philosophy and western philosophy at the same table people will project things on to each other that are not consistent or coherent in the margins of the people across the table and with the great financial crisis we've been awakened to the importance of politics and system design and when I heard that shortly thereafter and I believe I actually saw you at the China Development Forum I was sitting and I was listening to someone talking about how the what they called affiliation in China from the opium war through the Japanese invasion was going to come into conflict with the Americans wanting to rule the system where the Chinese at that point were being portrayed as wanting to be at the head table again but not in charge but a partner not a subordinate and a friend of mine reached over and hit me on the shoulder and he said and if we don't do that we're going to do the Bismarck model which is we can't solve our problems at home so let's gather around those guys being our enemy and if we do that nothing is ever going to work on this planet again and I remembered Orville Schell wrote something similar in his book with John DeLary called Health and Power I think as we're coming to the end here I'm interested in your final thoughts but I know you've over time along with myself and people like Mike Spence and others spent a great deal of time focusing on China visiting China and collaborating with them what what would you tell Xi Jinping and Joe Biden now they just had a relatively constructive meeting right after the midterm election in Indonesia I am told but if that's the center stage and that century of humiliation and American leadership but all these tensions are on the table what guidance would you give them? so first as an introduction I am very concerned that for the US and for China but in different ways hostility to the other is a very powerful way of unifying the country I've made many many times I've made the remark both in writing and in speech that the only policy that seems to me almost completely bipartisan in the US now is hostility to China and I think that's enormously dangerous the second point I would make is that she has made it remarkably easy for this to happen and I think that the regime that his predecessor created essentially Dong and was operated by his predecessors formally was a much more sensible way of reinserting Chinese power into the world order than the way she has chosen since it is quite obviously certain to maximize the fear and suspicion of other countries including notably the US and this I've made this point really sort of reminds one frighteningly of the period before the First World War which is what Graham Allison wrote about in his Thucydides Trap book and it's an obvious parallel so this is really terrifying the I think discuss this the ideal thing to do but may be absolutely impossible but the only thing to do is for the presidents of these two countries with very substantial and well informed and trusted subordinates to get together and say look neither of us is going away neither of us is going to allow the other to dominate the world neither of us will get the world we want or should want without the other we are not going to agree on the way our societies are run and that creates some problems for us in the west obviously some of what China is doing domestically is very difficult to accept and Taiwan is clearly a neurologic point and I wish they'd just forget about it in fact I would recommend it strongly but a complete breakdown in relations of the type that has happened in the past between great powers is simply impossible it will blow up us all and the so let's agree on the things we must do together let's agree on the things where we will leave each other alone because they are so fundamental and they have to be accepted and let's agree on the limits and principles on which we will deal with one another in areas where we can't avoid dealing with one another our engagement in the world economy for example economic development climate and all these other things let's try and separate these things out and the way I described it in one column I wrote I'm not saying this is the best way let's define the minimum set of agreements and processes that would allow us to have enough trust and enough cooperation to be able to live together in the long run without it's breaking down and that's something, that's a rethink that's not where we were 10 years ago or 5 years ago because then China was still pretty obviously subordinate in some obvious respects that's where we are now and wisely it seems to me the US should try to pursue this and China should also pursue it I don't know whether that's still possible I fear it isn't but that seems to me what a wise president of the United States would try to do just as I think a wise Kaiser of Germany should have tried to do this with the Prime Minister of England before the First World War simply say a European all-out war is the end of us all what can we do that will give you a confidence and what can you do that will give us confidence so we can live together without fighting probably impossible at that time for various reasons because we could win the war easily but now nobody but a madman can believe hostilities could end easily and that's what I think the President should be trying to do if he has the freedom to do so domestically and Mr. Xi certainly has the freedom to do so domestically now one little bit of encouragement so to my great surprise tonight I don't really understand why Mr. Xi abandoned his zero COVID policy because it was obviously a mistake now I don't think he did so very sensibly but he did so he's shown pretty fair flexibility and pragmatism well that's quite encouraging we can live with that the Chinese people aren't in favor of a suicide march and neither I'm quite sure the majority of the Americans so let's build on that we have a mutual interest in avoiding catastrophe in every possible dimension why can't we do that is the minimum required of rational human beings so that would be what I would say to them and you will be judged by history in doing that and example I would give actually is Kissinger's is the detente process with the Soviet Union of the 70s which was highly criticized at the time but in my view was more important than Reagan's arms build up though not perhaps more important than the collapse of the oil price in 86 but it created a framework of mutual cooperation and trust however limited which allowed the United States and the Soviets to sort of deal with on another Helsinki process and all the rest of it in a reasonable manner well we've got to do the same with China Martin I hear over the course of the last 90 minutes about Greek and Rome about the United States China World War I World War II the history and the spirit and the curiosity that you bring to the table has not only made for a marvelous book which we're talking about today but for a marvelous career and I am reminded that there is a group I'll send you the link to the website called China Heritage which created a fusion between arts and philosophy east and west and they called it the invisible Republic of the Spirit and that was named from a quote by an author named Stephens Weig who was writing about I believe it was a biography of a man named Romain Roland and he and Herman Hess were very good friends and I guess what I'm going to do I don't know these people but I'm going to suggest they give you an honorary PhD as a member of the invisible Republic of the Spirit because your ability to diagnose, your ability to reach forward and back, see patterns see analogies understand the role of fear and move us forward with constructive hopeful vision is extraordinary and I want to thank you and my four children and my three grandchildren I want to thank you for the work you've done in this wonderful book The Crisis of Democratic Capitalism which will come out on the 7th of February but more than that through all the years I've known you for all the columns and all the books you've written for the speeches you've made for every man. Well that's very encouraging I think I'm a man whose whole life consists of mistakes but I do at least try to learn from them that's probably what makes you rise above if people are afraid of their own mistakes they're not evolving and you're a true example that I think is true and it's the great lesson to me of the great people of history is they have to be pretty flexible and the politicians I most admire have a core of values but tactically and in their understanding of the situation are flexible and nimble and realize what is essential now and that is what we have to understand so to just my last point what is essential now is that not only our own system but the world is fragile and needs help if we are to bequeath both democracy and freedom and a habitable and tolerable world for our children and grandchildren and great-grandchildren and that is our overwhelming obligation Well Marvin Gaye wrote a song called Holy, Holy first with a W and we have to become Holy, Holy he said and as Aretha Franklin sang in her famous Amazing Grace concert she opened with that song in which we have to come together and we have to believe in each other's dreams you're how would I say I come from Detroit you stand right next to Marvin Gaye in my rank thank you thank you thank you for the ongoing work and I look forward to speaking to you again soon