Capitalisn’t: What Happened to the American Dream?

David Leonhardt: People on the left should stop saying, “Why do those people vote against their economic interest?” What they should do more often is listen to working-class Americans—working-class Americans of all races, who tend to be much less left wing on social issues than Democratic elites are.

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Luigi: As regular listeners know, here on Capitalisn’t, we’re interested in exploring what’s working in capitalism and what isn’t. Since it’s easier to criticize than to provide alternatives, all too often, we focus on the “isn’t” part. Today, we want to talk about when capitalism works, or at least, when it did work.

Bethany: For this episode of Capitalism Was, we invited David Leonhardt, who is not only a New York Times columnist, but also the author of Ours Was—note the past tense—the Shining Future, a recent book about why the United States was the land of opportunities and why it is not anymore.

Luigi: In the book, David declares himself a strong supporter of the capitalist system. “Capitalism,” he writes, “remains the best system for delivering rising standards to the greatest number of people, but only a certain type of capitalism.”

Bethany: He distinguishes between what he calls rough-and-tumble capitalism, which we would more simply call laissez faire, and a more democratic form of capitalism. “Democratic governance,” he writes, “prevents the excesses of free-market capitalism, while the material gains produced by capitalism foster the faith in society on which democracy depends. As a result, democracy strengthens capitalism, and capitalism strengthens democracy.”

Luigi: David claims that a combination of strong public investment and the prounion policies of the New Deal cemented the great economic success of the post-World War II years. While he recognizes that the post-World War II era was rife with gender and racial discrimination, he claims that it was the ideal form of democratic capitalism, where strong unions ensured that productivity gains were spread to everybody.

Bethany: The book also contains . . . I think Luigi might argue it’s a soft criticism of today’s left. I’d argue it’s not so soft. In David’s view, starting with Mills, Betty Friedan, and Ralph Nader, the left started to become a lot more interested in civil and consumer rights than in workers’ rights. And the left left workers behind. It is actually easier today for a social conservative to become an economic populist than it is for a leftist to create a similar coalition.

Luigi: I think that with this wonderful introduction, it’s time to bring David in.

I want to start from the beginning, and at the beginning, you make a very clear distinction between progressive and populist. We’re talking now about the early part of the 20th century. And unlike most people I know, you actually seem to root for the populists.

David Leonhardt: The progressive movement of the early 20th century really did have some big accomplishments. Child-labor laws, minimum-wage laws, these are huge accomplishments, but it tended to be a pretty elite, top-down movement. It was led by people who hang out at the University of Chicago and other such universities.

The movement that came along with the New Deal and that Roosevelt’s legislation helped make possible in the 1930s and ’40s was much more of a bottom-up movement. It wasn’t simply these benevolent elites bestowing restrictions on working hours or minimum wages on the vulnerable workers. It was workers organizing together and bargaining for higher wages for themselves, and voting for politicians who they thought would represent their interests.

I think it was a very important turn for the American left to go from this more top-down, elite progressive movement, that quite frankly was often skeptical of workers, skeptical of immigrants, skeptical of labor unions, to a movement that was more both bottom up and top down.

Part of the reason it’s relevant—and it’s probably why you’re bringing it up, Luigi—is I think the left today has adopted many, and for its own sake too many, of the habits of the old progressives, what I call the “Brahmin Left” way. It’s a phrase from Thomas Piketty, the economist, and the idea is that the left, not only in the US but across Europe as well, has become increasingly Brahmin, increasingly affluent and elite and highly educated.

Luigi: The turning point, if I understand correctly, of the New Left is the ’70s, and in particular, when the so-called Watergate babies arrive in the House and start to change the order of things in the Democratic Party. What happened that caused this disruption?

David Leonhardt: I agree that the ’70s were an important part of the story, but I actually date the start earlier. I put it much more in the 1960s. A figure whose story I tell in the book is C. Wright Mills. Many people have heard of the sociologist C. Wright Mills. He was quite a character. He was a motorcycle-riding Texan who was a professor at Columbia and loved starting vicious academic fights.

He wrote this letter to the New Left in the early 1960s, and he basically argued that the left was wrong to view the working class as the agents of change, that in fact, the working class could be reactionary. Look at the Soviet Union and Stalin. He basically pointed around the world, and he said, “Look at all these great student movements, the antinuclear movement.”

He pointed to Europe and Japan, and he said: “Look, we don’t need workers. The left can forge a movement using students.” This was a very influential document that Mills wrote, but it was also indicative of a feeling of the intellectuals, the students, the professors, that they are the vanguard, not workers.

The deep, deep problem with that was arithmetic. You can’t build a majority party just with intellectuals. By turning off workers by, for example, denying that crime was rising in the ’60s, which it clearly was, by having Vietnam War protests that were pretty chaotic and turned off a lot of Americans, the New Left really struggled to keep its old base.

Luigi: I grant you that Mills had a lot of influence from an intellectual point of view, but the turning point was probably the Clinton years. In particular, I would like to focus on a moment which is very important, 1999. There is the meeting of the WTO in Seattle. Clinton has to decide whether to sign the deal that basically will open up the United States to competition from all over the world.

There are two sides of the Democratic Party. There is the old left, represented by the unions, saying: “No, no, no, no, we need to have some guarantee that developing countries will put in some protection for labor because otherwise, this is a race to the bottom. Otherwise, it will be a disaster." And then there is the globalist side. Robert Rubin was clearly the leader of that side. They said, “No, no, we should sign it and become global.” Blah, blah, blah.

Eventually, Clinton sides with Rubin and accepts the WTO with no restrictions. I’m cynical, but I wonder to what extent the appeal of what was coming after . . . In 1999, Clinton was about to retire. If he had pissed off the globalist group, he would have been just another friend of the unions that had no future. By embracing the globalists, he could fundraise for the Clinton Global Initiative to become a global player, to give speeches all over the world. To what extent did money associated with the business side play a role in turning some of the Democrats into New Democrats?

David Leonhardt: To some extent, that’s unknowable. I’ve spent a lot of time talking to some of the figures you’re talking about, and I genuinely find them to be genuine. They seem to really be grappling with what’s best for the country.

At the same time, as you’re pointing out, money influences people. What I think is clear is that the neoliberal part of the Democratic Party made a set of predictions and promises. They said: “Look, we’re going to open up, and it’s going to be good for us. It’s going to create more high-paying jobs here. And for people who are left behind, we’re going to retrain them, and we’re going to compensate them, and they’ll be OK. Not only will more trade make us rich, but it will make the rest of the world, and China in particular, free.” That was really the promise.

There’s this amazing clip of Bill Clinton kind of laughing about the idea that China was going to try to control the internet and censor the internet. He said: “It’s like stapling jello to the wall. Good luck.”

Well, 25 years later, apparently the Chinese Communist Party has found a stapler that works for jello. The United States has paid a terrible economic penalty—or at least many communities have—from the series of decisions you talked about. I think corporate America knew it could make huge profits in China. Part of what its executives did was they sold themselves and the country a story about how this was good for America. I’m not even sure whether they actually spent much time thinking about whether it was good for America.

I think it’s an example of how we have a corporate leadership class today that is relatively unpatriotic, relatively uninterested in the effects on their community. They claim otherwise, but their actions suggest they’re not that interested in the condition of the United States or communities within the United States. They’re pretty focused on their own self-interest.

Bethany: How much do you think today the left is the New Left? And if the answer is close to 100 percent, why can today’s left not figure out that this isn’t working and change strategy? Or maybe a different way to ask the question is, do you see signs that anybody is figuring it out?

David Leonhardt: First of all, I think it’s important to start with the story that the left tells itself and tells publicly about why it’s lost workers. That’s a story that overwhelmingly revolves around sort of denigrating workers. The workers don’t vote for the left because workers aren’t smart enough to understand their own interests.

We hear this line all the time, “Why do those people vote against their economic interests?” It’s really such a condescending question. Let’s recognize the fact that a lot of affluent people vote against their economic interests as well. Take a look at the voting patterns in Scarsdale, New York, or Martha’s Vineyard, Massachusetts, or Aspen, Colorado, or the highest-income suburbs north of Chicago. They vote overwhelmingly Democratic, even though, often, Democrats are going to raise their taxes and spend a whole lot of money putting money into Medicaid and you name it.

Or the left will say workers are bigoted. They’re fooled into voting for right-wing parties because they’re just xenophobes or racists. But it is nowhere near the full story. If you were unsure about that a few years ago, the last few years have really made that clear because we’ve seen growing numbers of Asian American, Latino American, and although it’s just a few percentage points, even Black Americans move away from the Democratic Party.

I think what’s ended up happening is the Democratic Party, and particularly the left part of it, which is overrepresented in academia and in media and in the staffs of many Democratic politicians, really is fairly dismissive of the views of working-class people. It’s dismissive of religion. It treats any opposition to high levels of immigration as xenophobic. In fact, nearly all over the world, people are uncomfortable with really high levels of immigration.

Japan and South Korea have some of the most restrictive immigration policies there are. Luigi, as you know very well and have written about, Europe has been roiled by high levels of immigration. It’s reasonable for working-class people to say, “Whoa, I’m not sure I’m comfortable with this.”

On issue after issue—patriotism, religion, COVID, you name it—the Democratic Party has basically said to working-class people frequently: “You don’t even know what’s good for you. Just listen to us.” It’s hard to be too surprised that working-class people have said, “I’m not sure that’s a party for me.”

I don’t think the left today is 100 percent the New Left. There are figures in the Democratic Party . . . Joe Biden is actually one of them. Barack Obama was one of them. In fact, it’s really hard to get elected president as a Democrat unless you sand off the rough edges of the eliteness of the Democratic Party. Obama, when you look at the numbers, was better at winning working-class voters—working-class white voters, too. He was better at it than either the nominee who came before him, John Kerry, or the nominee who came after him, Hillary Clinton.

Joe Biden has revisited the Democratic Party’s position on trade. He’s become more hawkish toward China. He’s passed bills that not only invest in the country but say we’re going to give priority to American workers. This isn’t the kind of neoliberal Democratic Party of 30 years ago. There really are people in the Democratic Party, not just Biden, but also John Fetterman, Amy Klobuchar, Raphael Warnock . . . I mean, there really are politicians who campaign in a less-elite way, and they tend to do better, particularly when they have to win tough elections.

People now view it as some sort of badge of shame that Barack Obama was against gay marriage. Well, the majority of Americans were against gay marriage when Barack Obama either was against it or pretended to be against it. He basically decided, I am not willing to risk losing the presidency, and all I could do with it to help people, on this one issue of gay marriage. He was basically respectful of where majority opinion is, and it didn’t prevent gay marriage and marriage equality from happening.

I think it’s many of Joe Biden’s instincts. I actually think one of the costs of Joe Biden’s age is not that he’s senile. He’s not. I actually think he has less energy to push back against his own relatively progressive staff because, I think, on many of these issues like immigration, Biden’s instincts are much more working class.

Luigi: Let’s talk about immigration. You start by paying due homage to the economic literature: immigration is great, but we have some social problems. I want to challenge you a bit on the first part. It seems that you almost have to do it because otherwise, if you speak against immigration, you are sort of banned from the right social circles.

Even Leah Boustan, who you cite, was on our podcast, and when I pushed her on immigration, she was very honest. She said, “Look, we don’t have a real test of whether this decreases wages.” Even David Autor, when I pushed on this podcast about the fact that, surprise, surprise, low wages rose during COVID when immigration stopped, he said, “Oh, it might be a factor.”

We know from revealed preferences why doctors don’t want more doctors who are immigrants, because they decrease prices. So, why can’t we say that maybe it is a fact that immigration decreases wages at the low end of the distribution? The correlation you show in the book is stunning. I’m an immigrant myself, and I benefit from this country, so I have to be careful. But can we be a bit more open on this?

David Leonhardt: Yes, thank you, Luigi. Most of the interviews I’ve done about the book have been people saying, “Wait a second, how can you claim there are costs of immigration?” This is one of the few where you’ve criticized me for not being strong enough about talking about those costs, so I really appreciate it.

Yes, first of all, as you noted, we don’t completely know because we can’t run natural experiments in which we admit or don’t admit immigrants and see how things are different. Basically, you can think of a few broad periods of American history over the last 150 years. From the late 19th century until the 1920s, we had high immigration and high and rising inequality. From the 1930s through the 1970s, we had very low immigration, and we had falling inequality. And since the 1970s, we’ve had high immigration and rising inequality. Now, maybe that’s all just one big coincidence, but I agree with you that there’s a whole bunch of research that suggests it’s not a big coincidence.

You mentioned the idea that, of course, doctors understand that a larger supply of doctors would tend to reduce their wages, so they make it really hard for immigrants to come here and practice medicine. It doesn’t matter if you’re a 45-year-old, incredibly accomplished doctor from another country, you have to come here and do a residency. You have to do training in this country. It’s bonkers. It’s just protectionism, because doctors understand it’s in their interest.

But that’s not the only evidence. There really are studies. I’m sure you know them, Luigi. There’s the study of the Mariel boatlift. There’s the study of the 1994 Mexican peso crisis, which found that wages fared worse in regions of the US that received more migrants. There’s a study that looked at nursing and found that regions with more foreign-born nurses had lower wages for the nurses who were already there.

One of the things that I found really interesting is this 2017 National Academy of Sciences 600-plus-page report. It very honestly walks through all of this evidence. It has charts. When you look at the wage effects, almost all the numbers are negative.

But then, in their discussion of it, they use these little words that try to shave it off. They say things like, the wage effects are modest and are focused on lower-income workers. I actually think that’s accurate, but that’s not saying that the wage effects are anywhere near zero for lower-income workers. The average effects are modest.

In fact, there was this interesting little controversy in which George Borjas, the Harvard economist who tends to be more skeptical of immigration, was a member of this National Academy of Sciences committee, and he felt like the committee’s own description of the evidence was a little off. So, he wrote his own PS afterwards that was like: “Hey, here’s the evidence. I don’t think we’re describing it.”

I think, in the end, huge numbers of people both on the laissez-faire right and on the progressive left believe deeply in the idea of immigration for its own sake. They then try to shade how they talk about the evidence to make it sound different.

Luigi: I think it’s also in their interest. They want cheaper waiters and cheaper nannies. Immigration delivers exactly that to them. It’s self-serving. It’s not just a big ideal. It’s very self-serving.

David Leonhardt: You’re too nice to use this word, but I feel like several of your questions, Luigi, have been, “Aren’t you being naive?” Maybe I am.

Look, it is the case that affluent professionals benefit with less-expensive yard work, with less-expensive childcare. I do think that plays a role, but I also think there are lots of people, particularly on the left, who just like the idea America should be able to welcome huge numbers of people, and they deeply want to imagine that that’s a free lunch, that it has no trade-offs. I think there are trade-offs, particularly for lower-income American workers, particularly for recent immigrants, particularly for workers of color.

Bethany: If there isn’t a free lunch, is there a way to make immigration work for everybody? How’s that for a naive question?

David Leonhardt: Look, I am pro-immigration. I think, particularly when you look at the aging of our society, and you look at how many children people who already live in the United States are having—the short answer is not that many—we clearly need immigration.

I also think it’s really important that we remain a beacon for the world, that we let in significant numbers of Ukrainians, that we let in Uyghurs who are being oppressed in China. To me, a better-functioning immigration system would do the following: one, it really would clamp down on illegal immigration. That makes people feel like we are a society without rules. It makes people feel like it’s unfair. Imagine you’re an immigrant who’s been waiting for years for a work permit, and a migrant comes across the border now and gets one within weeks, which is happening. It would make you so angry.

Then, it’s about creating an immigration system that works for our country. I think some of that should be, obviously, letting in people who are fleeing political repression. But being honest about the fact that the number of people who enter the country today and claim political repression, many of them want to move here because we are a richer country than where they come from. They are not actually at risk of political repression at home, and we need to be honest about that.

I also think we should think about admitting more people on the upper end of the income spectrum because that will provide more labor competition for people like us and less labor competition for people who’ve been the victims of inequality.

Luigi: I agree with you, but the litmus test is on the enforcement side. The enforcement side is very simple. You just penalize employers. You’re penalizing us for having nannies that are illegal, not the illegal immigrants. This is not happening, and it’s not happening at a corporate level, but it’s not even happening at the family level. The penalty can be much bigger. If we hire an illegal gardener, then we get penalized a lot, and we don’t see that.

I think my fear is that much of the New Left has retained some of the ideas, the ones that are compatible with the wallet, of the old left, but everything that conflicts with the wallet is actually completely abandoned.

David Leonhardt: Yeah. You know that sign that many progressives hang in their yard. It was popular during COVID. “In this house, we believe . . .” Rick Kahlenberg has pointed out that that sign has absolutely nothing about poverty or inequality. It is in some ways a distillation of what the New Left is. And you’re absolutely right.

Look, Bernie Sanders was part of a very long tradition of progressives who worried about high levels of immigration. The civil-rights leaders of the 20th century worried about this. A. Philip Randolph, one of the heroes of my book for his union organizing, was very tough on the idea of high levels of immigration. Unions were often very tough on it. Barbara Jordan, the congresswoman from Texas, said, “Look, we need borders, and we need to enforce our laws.”

Bernie Sanders was one of those people until he wanted to become the Democratic nominee for president. He basically realized that in today’s Brahmin Left Democratic Party, you can’t have that position on immigration. But relatively recently, I think 2015, Bernie Sanders made a version of the point that you’re making, Luigi. He said, “Why is it that all of these CEOs are in favor of comprehensive immigration reform?” Imagine Bernie saying that in his accent. By which he means high levels of immigration.

Why is it that these CEOs are so in favor of immigration? Bernie said: “I don’t think it’s because of their deep human concern for undocumented workers. It’s because they want to keep wages down.” That is very much a big part of this debate.

Bethany: You’ve described in your book this new version of capitalism, or this different version, as rough-and-tumble capitalism. But when you think about, in light of what you just said about the rise of corporate power and, really, corporatism, is it really so much rough-and-tumble capitalism, or sort of a bastardized form of capitalism in which corporate interests can set the agenda and then make it happen the way they would like?

David Leonhardt: I guess I’m not sure that there’s a pure version of capitalism. I agree with you that corporate America is able to set a whole bunch of rules to help themselves benefit from it. Subsidies . . .

I also think, though, on a basic level, who benefits when you have a laissez-faire version of capitalism or a rough-and-tumble version of capitalism? It tends to be the wealthy. And so, I do think that while we’ve ended up with a version of capitalism in which government works on behalf of the wealthy, yes, we’ve also had deregulation. We’ve also made it harder to say to companies: “You’re too large. We’re going to break you up, or we’re going to forbid this merger.” We’ve basically allowed companies to have a free hand in preventing unions from forming.

I think, yes, there are specific policies that benefit corporate America, but it’s also the case that in the absence of government activism, because the wealthy and because corporations tend to have more power than individual workers, more laissez-faire capitalism also inherently tends to lead to higher inequality.

Bethany: I wanted to go back to this incredibly compelling part in your book where you talk about the old culture of business, and you talk about leaders like Paul Hoffmann who deliberately took a lot less money than they could, and they did so in order to keep capitalism strong. You wrote that these CEOs were acting in accordance with the culture by not maximizing their own personal gains.

You also write that in the new culture today, executives have come to believe that there’s no difference between their own personal interests and the national interest. I wonder, can we go back to the old way of being, or has something fundamentally changed? Do we need shame and that broader sense of responsibility to come back into play? Is it cultural rather than policy? And is there a way to get there?

David Leonhardt: I do think culture is really important. What’s hard about it is the question of how we get there. I think there’s a connection between culture and policy here. It wasn’t completely natural for them to take a larger view of the American economy and society. Many of them, including Paul Hoffmann, the CEO of Studebaker, whom you mentioned, were really anti-FDR and anti-New Deal. But they looked around in the 1940s, during the war and then after, and they saw fascism on the march in Europe, and communism on the march, and they were really worried that Americans were going to turn against this capitalist system that we had that had worked so well for these executives. And certainly, it’s the case that the Cold War and the nuclear-arms race focused their minds in the years after World War II. So, there was a great degree of fear here that drove them.

I really do think the culture was different. It was more patriotic. It was more communitarian. To your question, Bethany, about how we get back there, I don’t know. My instinct is it requires, in part, policies that give workers more political power in this country, and then, that basically forces executives to deal with them a little bit more.

Unionization is really connected to the regulation part of the story. If you think about a basic company . . . Bethany, imagine you’re the CEO, and Luigi and I are workers. You have so much more information at your disposal about how much money you should pay us than we do. You have the records of how much you’re paying every single worker at the firm. You might even have some data on how productive we each are. You know what your rivals are doing.

As individual workers, that knowledge largely isn’t available to us. We don’t really know what our market wage is. And also, if you underpay us a little bit, and a few of us quit, well, you’ll probably be OK. But if I think I’m being underpaid and I quit, but I actually wasn’t being underpaid, I’ve got really big problems. I might miss my mortgage payment. I might have problems with my kids.

Without unions, when you just have a corporation and individual workers, wages tend to settle at the low end of what someone might reasonably be paid. It really takes workers coming together to collectively bargain, which is the definition of a union, in order for workers to make a better wage.

Yes, unions can overreach. Yes, unions need to be different from the unions of the past. But on a basic, theoretical level, I believe unions are one of the most important things for raising wages, particularly of lower-income workers in the private sector. But it probably also needs to involve some version of shame, to use your word, and fear about what will happen to our country if we continue on this extremely high-inequality, very angry path that we’re now on.

Luigi: Culture is part of what is produced by the leading elites and our influence. In this culture, you feel ashamed if you are saying something negative about transgender people like JK Rowling, but you don’t feel ashamed if you mismanage Boeing, and more than 300 people die. It seems to me the left is more concerned about the first than the second. This elite feels very happy that the values are the values of the extreme left, and not the values of the majority of people. They don’t see the need for representation, which I may say, is even antidemocrat-ic.

I think that in the ’70s, the biggest victories of the Democratic Party were not obtained at a ballot box. You had the victory against the war in Vietnam, thanks to the Pentagon Papers, you had abortion done at the Supreme Court, and you had the defeat of Nixon that was thanks to the Washington Post. The elite were able to win the battles without any vote.

My impression is that after that, there was a bit of euphoria, with elites saying: “We don’t need the vote of the people. As long as we control the commanding heights, we can do whatever we want.” Then, social media came about, and you have a candidate who bypasses the commanding heights, reaches out to the people, and they don’t know how to react.

David Leonhardt: I think what you said about how, in some ways, it’s antidemocratic is really important. It’s antidemocratic to take Abraham Lincoln’s name off schools because he doesn’t somehow fit the 21st-century version of what it’s like to be a progressive. Abraham Lincoln, right?

You mentioned trans issues. Those are really hard issues, but if you look at the polling, not just a narrow majority, but a very large majority of Americans supports the idea of some restrictions on when children can get medical procedures. I’m not talking about the kinds of bans Republican states have put in, necessarily, but some restrictions. A very large majority of Americans says that in high school, people shouldn’t be able to just decide whether they’re going to play on the girls’ team or the boys’ team.

Now, you can disagree with that, but to basically say that those views are beyond the pale, first of all, I think it’s just really problematic on the facts. Second of all, it’s fundamentally antidemocratic. It’s one of two things. It’s either dooming you to be part of a relatively narrow minority party that represents 20 percent, 25 percent of Americans, or it’s telling Americans that they just have to come along with a party that really doesn’t reflect their views on things, and that just doesn’t work. It’s a recipe for defeat.

I’ve several times mentioned this idea that people on the left should stop saying, “Why do those people vote against their economic interest?” What they should do more often is listen to working-class Americans—working-class Americans of all races, who tend to be much less left wing on social issues than Democratic elites are, and respectfully engage with those issues.

Maybe there are some of them on which the Democratic Party on the left is going to say: “Sorry. This, to us, is a basic issue of decency. Even if public opinion is different, we’re going to call people by the pronouns they want,” which I actually think would be a reasonable thing to do. Hey, that’s basic respect.

But on so many of these issues—immigration, patriotism, COVID precautions a few years ago, transgender issues—I think having a little more humility and a little more small-d democratic spirit and willingness to listen to Americans would be the right thing to do, and it would be a strategically wise thing for the Democratic Party to do.

Bethany: Luigi, what did you think? I thought the book answered a question that I’ve had for a long time. How was it that the left turned away from workers? I thought the history that David offers of how this happened, and why it happened, and what the cost has been, is extraordinary.

I might have said this on this podcast before, but I grew up in an area of northern Minnesota called the Mesabi Iron Range, which is mining country, very heavy on labor unions, very almost socialist. The idea that this part of the country would ever vote for somebody Republican, it never would have happened. But in 2016, it went for Trump.

I remember sitting in New York and having people say: “Well, it’s only racist people who would vote for Trump. The economics, it’s just a cover.” And I thought: “Oh, no, no, no, no, no. That’s just not true.”

Luigi: I agree with you. However, there is a lack of an international perspective. I don’t think that you see it in Japan—I’m no expert on Japan—but you see it in every other Westernized country. I think it deserves a bit broader of an explanation than just what happened in the United States.

Of course, race is very important in the United States. Of course, Watergate was very important in the United States. Of course, Mills was very important in the United States. But you got the same phenomenon in Italy; you got the same phenomenon in France; you got the same phenomenon in England.

One of the essential elements is the weakening of the unions, which takes place throughout the world. It not only weakens one part of the left, but it also eliminates an alternative source of social mobility and an alternative source of power.

I was thinking about my youth in Italy, when you had three major sources of power. One was the church, the Catholic Church. The second was the unions/Communist Party. And the third, there was some sort of economic power, but actually not that important. You would have this Catholic leader who made it through the various hierarchies of the Church and the Christian Democratic Party, who would be kind of condescending toward rich people because they were looking, literally, from the top down. And I think you had a lot of labor leaders that were sort of considered equals of the major industrialists.

I don’t see that anywhere in the world today. Tell me a labor leader who feels at ease in speaking at the same level with Elon Musk, Bill Gates, or Peter Thiel.

Bethany: Well, they might feel at ease. It’s just that they’re not invited to the events, which I think gets at a deeper issue. I have a two-part question for you, in that case. What is that deeper issue? I think it’s too simplistic to say that the labor leader wouldn’t be comfortable. They’d show up in a heartbeat if they were invited, but they’re not invited. They’re not on the stage anymore, and why not?

Then, why is it not different in Europe, given, for instance, in Germany, don’t workers have a position on the boards of companies? Why, given that more egalitarian arrangement, have you still seen the European left become dismissive of workers?

Luigi: There is no doubt that the movement of a lot of manufacturing toward the developing countries has weakened a base of the power of unions, because when you have a lot of people concentrated in one location, it’s much easier to organize them and to become a force. Particularly manufacturing of heavy industry with a lot of economies of scale brought with it a very strong structure of unions, which also had the power of alternative in it.

The second, to me, is that the globalization has really made the returns to be associated on the side of the rich, intellectual elite, extremely profitable. Think about Tony Blair. Tony Blair has, I think, an net worth of $100 million, or something like this. It was really inconceivable that a prime minister stepping down could make that kind of money in the past.

Today you go from Schröder, the former chancellor of Germany, who is actually in bed with Gazprom and Russia, to Aznar, the former premier of Spain—I think he’s on the board of News Corp., owned by Murdoch. Then, of course, you have the former Italian prime minister Renzi, who is actually an advisor to none other than MBS.

Once you have fame, you sell out to the highest bidder, and it would be irrational not to prepare for that moment by being a little bit friendlier when you are in government with people who have money.

Bethany: Yeah, that’s a very cynical but very compelling analysis. I’ve also wondered if there’s also an embedded disrespect for the process of actually making something. I’ve been thinking about this for a lot of years because I remember a source saying to me way back when about Jeff Skilling, the former CEO of Enron, that he was a designer of ditches, not a digger of ditches. He liked other people who are designers of ditches, and they don’t have a lot of respect for the people who actually dig the ditch, the people who make the thing.

That could be part of the worldview that we find ourselves in today, too. Overwhelming appreciation for the idea, perhaps too much appreciation for the idea, and a corresponding disrespect for how the idea actually gets executed.

Luigi: Michael Sandel is actually right. Remember, when he came to our interview, he was saying that one of the costs of having a meritocracy is that the winner feels entitled to have some contempt toward the losers.

We have introduced more of a meritocracy throughout the West. People who were more in the upper echelon, especially of the economic system, especially in Europe, used to come more from normal families, come from old money, and now, things have changed.

Everybody wants to be at the top of this hierarchy, and so, there is less of an interest in economic issues and much more of an interest in civil-rights issues, because you can pretend to be leftist because you care about LGBTQ rights and still be paid a fortune. I think that that’s kind of, you have your cake and eat it, too.

But going to today, on the one hand, he is very, to some extent, courageous in taking these positions. For example, on immigration, he has a very nuanced position. I think his analysis is right, but it makes me very depressed because I don’t see an easy solution, precisely because of what we were saying earlier that it’s much easier for a right-winger to put on a little bit of populism and appeal to the masses rather than for somebody on the left to actually change and reach out to the needs of the workers who might be orthogonal to the social needs, because workers might not be as progressive on the social front.

Bethany: Can we pause on the immigration question for a minute? Can I ask you a slightly tangential question that nonetheless is really key?

I’ve read somewhere that economists increasingly believe that the post-pandemic surge in immigration is a key reason the economy has been able to grow steadily without pushing inflation higher, as the new arrivals have helped employers fill roles at levels of pay that have kept a lid on overall price growth.

If that’s the conventional view, that immigration has helped hold wage growth down, how can people possibly say at the same time that immigration doesn’t affect wages at the lower end? Doesn’t that first sentence just admit that the whole thing is not true?

Luigi: I remember I asked that question to Leah Boustan and to David Autor. And you remember how reluctant they were to go down that path. It’s a bit like, if you cross that line, you are immediately labeled as a conservative, and so, you don’t want to cross that line. I think that it’s pretty scary. We are afraid as economists to tell it the way we see it because of this political pressure.

Bethany: I get that, and I know I’ve heard you ask that question before, but now, as I keep reading everywhere that this is what people believe, that this is the reason that inflation is lower, because immigration has held wages in check, I just think, wait, what am I missing? How can you have it both ways?

Luigi: Bernie Sanders says this very clearly. He says: “Why do the heads of industry want to have more immigration? To keep the wages lower.” Do you think they’re so stupid that they don’t understand what’s going on?

Bethany: One of the places where I’ve disagreed with him before, and he’s probably tired of me saying this, but I don’t love his description of rough-and-tumble capitalism as being the way things are now. I think, per the conversations we’ve had on this podcast, it’s not so much rough-and-tumble capitalism as it is a bastardized form of capitalism, in which competition for those who can afford to pay to do so has been blunted.

In other words, if a company hires enough lobbyists so that they don’t get challenged on antitrust grounds, and they can rewrite the antitrust laws so that they can function however they please, is that rough-and-tumble capitalism, or is that some kind of a sick version of capitalism?

The piece that I worked on that brought that home to me was when I wrote about Wells Fargo’s fake-account scandal and the immense amount of pressure that was placed on these entry-level tellers in Wells Fargo branches to commit fraud in order to meet their quotas.

They were the ones who bore the brunt of everything. They lost their jobs if they couldn’t do it; they lost their jobs if they did do it and committed fraud. It was all in the name of helping the very rich people at the top of Wells Fargo make their bonuses. But the very top people bore none of the risk. They just got all the rewards, and the people at the bottom bore all the risk and got none of the rewards. The only reward they got was being able to keep their $25,000- or $30,000-a-year teller job.

That still, to me, summarizes everything that’s gone wrong with capitalism because I, too, like David, still believe it’s the best possible system when it works appropriately, but it has to work so that those who are in the position to make the most money also bear the most risk. Those who are not in a position to ever make very much money should bear very little risk.

We’ve managed to create a system that does the opposite, where those who are in a position to make the most money bear very little risk on any front, either economic or legally, since they’re often insulated legally from the effects of their decisions. Those at the bottom, meanwhile, are the ones who have very little opportunity and yet bear all the risk of the system.

The thing that made me sad about his book, and has left me sad, the feeling of legitimate sadness, is when he talks about these various executives in the 1950s and 1960s who wouldn’t take money that they were given and deliberately took less than they could have taken because that just wasn’t what was done culturally. They had a view that they needed to save capitalism from its worst excesses. I thought, is there anybody who would take less than they think they’re owed today? I can’t even imagine someone doing that.

I do worry, as we discussed with David, that that culture is so far gone that we can never get it back, and we can never get it back in a globalized world where the very wealthy care not what their community thinks about them, but what other very wealthy people think of them and whether they’re able to keep up with the community of the ultra-wealthy.

As a result, we really are screwed because that old-fashioned sense of shame and restraint, and I have enough to live in my community, I have more than enough to live in my community, is just long gone and is never coming back. Without that, I started to think about this idea that capitalism, rough and tumble, whatever it is, doesn’t work without a certain level of morality. It just doesn’t, because there can never be enough rules that can make up for a lack of morality. There has to be something, a moral sense, that coexists with capitalism that makes it function, and it can’t just be rules and regulations.

Luigi: I think you put your finger on the right term, which is community. The fundamental difference is that the CEOs of the past belonged to a local community, and so they referred to their workers, their church, this and that. They didn’t feel the need to have enormous wealth, but also, they felt bound, to some extent, by that community.

Today, the CEOs live in an international community. It’s not even a community across the United States, but it’s an international community that meets in Davos, that meets at all the major events. You are trying to keep up with the Joneses of the places you go. If you go to Davos, you’re bound to be pretty poor by comparison. And so, first of all, you don’t feel embarrassed to take too much. Actually, you feel entitled to ask for more because then, you meet some of the other guys, and they’re not that smart, and you say: “Wait a minute, I’m smarter than X, Y and Z, but I make half or a third as much as him. I should definitely ask for a raise.”

Bethany: I’ve gotten so many tips on all these little stock scams and frauds, and people taking their $5 million and their $10 million here because they think nobody’s looking, and they think that they can.

Jim Chanos talked to us on the podcast about the golden age of fraud, and I worry that we are in this. Instead of the kind of idealistic world that David imagines, where we might return to a world where people say, “No, no, no, I’ve got enough. I’m not going to take that, even though I can,” that we’re actually in a world where everybody is grasping for whatever they can possibly get their hands on because, precisely as you said, they look around, they see the person next to them who isn’t that smart and not that hardworking, and that person’s got tens of millions. So, I need to get mine because I have to be owed that.

I worry that this is spinning toward someplace that gives me a lot to write about but is not particularly healthy. Instead of moving back to the world that David envisions, those innocent times are perhaps lost for good, or more innocent times are lost for good.