Capitalisn’t: Is Common Good Capitalism the Answer?

Oren Cass: We also somehow came up in our minds with this idea that what capitalism means is just people pursuing profit will inevitably generate the best outcome for everybody. That’s nowhere in the economic theory, that’s nowhere in the classical thinking, certainly. And it doesn’t make sense.

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.

Bethany: So, the title of this podcast is Capitalisn’t. And one of the ideas Luigi and I try to explore, the core idea we try to explore, is where capitalism is working and where it isn’t. So, we’re always interested in thinkers whose ideas challenge the way in which capitalism is being implemented in our modern economy.

One of those thinkers is Oren Cass, who was an economic advisor to the Romney campaign and now runs an institute called American Compass, which says that its mission is to restore an economic orthodoxy that emphasizes the importance of family, community, and industry to the nation’s liberty and prosperity.

Luigi: Oren, I was very intrigued reading your book because you make fun of a lot of economists, which is good. I think it is interesting. In particular, you have this notion of productive pluralism and this criticism of an excessive focus on the pie, the economic pie. So, why don’t you describe to the listeners a bit of what your ideas are? And then I have some real questions afterward.

Oren Cass: Sure. Well, thank you for having me. The economic pie, I think, is a great place to focus and think about what the intuitions are that guide so many economists and then, ultimately, policymakers today.

We all think we want to grow the economic pie, and then we’ll divide the economic pie up somehow so that everybody gets lots of pie, right? And who doesn’t like pie? What could go wrong? Fundamentally, what is wrong with the economic pie concept is that it is taken entirely in aggregate. To stretch the metaphor too far, it doesn’t worry about who bakes the pie. And, of course, what economists are actually talking about here is consumption. The point of economic activity is to maximize consumption, and on the flip side, work is actually a bad thing, right? All things equal, we assume people want to consume as much as possible while working as little as possible. My basic critique of that is that’s just not correct. That doesn’t reflect human reality, the things that people find meaning in, and also the elements of life that then build to strong families, healthy communities, and so forth.

If you think at the extreme of one extremely productive person who could produce all of the economy’s GDP, and then we could mail out hundred-thousand-dollar checks to everybody, under the economic models, we would say that’s ideal. And yet I think instinctively we know that is not ideal, that would be a disaster.

The idea of productive pluralism is to define more precisely what it is we actually want to achieve. What we would say is success when it comes to the performance of our economy. And my argument is that at the heart of what we want the economy to do, certainly we want it to generate lots of stuff. We want to be able to consume. I don’t want everybody living out in the woods in a cabin, but that what we’re really looking for is an economy that actually creates an opportunity for everybody to be a productive contributor. To earn their own way, to support their family, to feel like they are serving others, not just being served, and to recognize that’s going to mean a lot of different things for a lot of different people.

So, even if everybody could hypothetically be an app developer in San Francisco, the reality is that most people don’t want to be app developers in San Francisco. And then, of course, we have to layer on top of that, many people’s aptitudes would not allow them to be app developers in San Francisco. So, the two parts of productive pluralism, productive and pluralism, speak both to the idea that the economy needs to be generating opportunities for people to be productive, not just to consume, and that pluralism is very important. It needs to be producing a wide range of opportunities for people of different aptitudes and interests in the different places. That’s how we ultimately need to measure how we’re doing. And unfortunately, on those terms, I’d say our economy has performed quite poorly in recent decades.

Luigi: So, there is a part of what you’re saying that resonates a lot. We economists, in particular, have this responsibility of thinking that the world should conform to our models rather than the models to the world and that the people should serve economics rather than economics the people. So, all economists, to some degree, are liable for this. That’s the part where I follow you.

The part I find more difficult is the following. So, let’s take an example. Imagine that Bethany and I are a country, and there are two possible situations. There is one in which Bethany makes $1,000 and transfers $500 to me. And so, we both can consume $500, and I don’t work. And then there is another one in which we both work, let’s say we both make $400. And then you are saying that the second economy is preferable to the first, if I understand correctly. And that you’re even willing to do something—and I want to know what that something is—something to prevent Bethany from being so productive and leaving me out of work so that we can both be equally miserable at doing our job. Is that right?

Oren Cass: I think the $400/$400 is almost certainly better. I could make the case that it’s better just at a point in time. I think, because of the declining marginal value of just about everything, taking you up from $400 to $1,000 is not delivering nearly as much value as taking Bethany down from $400 to zero. And you could say, “Well, we’re not. We’re taking her up from $400 to $500,” but I don’t think that’s an accurate description of the life she would experience if you’re telling her she’s now unemployed and relying on transfers.

Luigi: Actually, I was the one unemployed.

Oren Cass: Ah, sorry.

Luigi: She’s the high-income earner.

Oren Cass: Fair enough. That’s right. Well, and then I’ll have to change my opinion. You seem like you’d be very happy on the couch. So, if we’re actually trying to convert dollars into utility, I think we actually have reduced utility in your $1,000/zero world. But even if we hadn’t, I think it’s very important to think about this in dynamic terms over time and not just as a point in time.

I think something that particularly frustrates me about more free-market and right-of-center economists is they have this important insight when it comes to tax cuts, that you can’t just analyze the effect of the tax cut on day one. You have to actually remember that this is intended to have an effect over time. And yet they invariably refuse to apply that same thinking to almost anything else.

And so, I’m not just curious about today, the $400/$400 versus the zero/$1,000. I’m curious about what that’s going to mean over the course of the next 20 or 30 years. And some of that is in purely economic terms. I’m curious, what’s that going to mean for the family you are or aren’t going to form and raise and the productivity of your children, which I’m now very concerned about? I’m also concerned about it when it comes to the health of the presumably democratic republic you’re hoping to be living in and the extent to which that is going to be viable and vibrant for the long run in the system you’re describing. And so, while the congressional budget scoring model will show that the $1,000/zero is preferable, I don’t think that’s actually fair as a model of what will actually produce the most prosperity, even if you did just want to measure it in GDP over the long run.

Luigi: But so, I understand that there is a value to work. I think it’s very important. And, as you said, the importance of the pride of making your money and the learning involved and the value of the example to your children. I think that all this is quite important.

Now, from a practical point of view, I find it a bit complicated how you go about implementing it. So, in this particular case, imagine that there is a new technology that makes Bethany much more productive when she applies it, but as a result, it leaves me unemployed. You’re saying that we want to stop the action of this technology because this is destroying some jobs. Is that where you’re going?

Oren Cass: No, definitely not. First of all, just empirically, that is not how technology functions and how it is introduced and the effect that it has had historically. Technological change happens very gradually. At the end of the day, you actually still need workers to use the equipment. I mean, I think it’s very funny to hear all of the employers lamenting skills gaps now, which as far as I can tell, is a fancy way of saying, “We have new technology we would like to use, but we can’t, because we don’t actually have the workers to use it.” And so, this model of technology just falling from the sky and replacing people has not occurred in that fashion, generally speaking.

It’s also really important to note that in recent decades that is not what has been happening. One of the things we measure quite well, thanks to our obsession with GDP, is productivity growth. And what we can see is that productivity growth is not accelerating. If anything, it has been slowing and stalling. And so, to the extent that we have seen the economy on a different trajectory in recent decades and a departure from productive pluralism, it’s just empirically not a function of this sudden technological introduction that we have to somehow halt. So, that’s one thing to say about it.

The second thing is that in the hypothetical model where the technology gets introduced and, all of a sudden, you’re unemployed and Bethany is twice as productive, in theory—and this goes all the way back to Adam Smith’s invisible hand—you are now productive labor available for work, and we should expect to see capital investment flow toward finding a productive use of you. That is, in fact, the entire premise of capitalism, in a sense. What has gone wrong in recent decades, in my view anyway, is that we have simply released the constraint that says the way to generate a profit with your capital is to use workers productively. And without that constraint, capitalism doesn’t work.

And, by the way, no one ever thought capitalism would work without that constraint. I mean, you go back to Adam Smith and, literally, in the paragraph where he uses the invisible hand, he only uses the phrase “invisible hand” once. In that same paragraph, he uses the phrase “domestic industry” twice. It was his assumption that capitalists, in attempting to generate the best return on their capital, would attempt to maximize production in the domestic economy. Ricardo actually says the exact same thing. In his explanation of how comparative advantage works, he specifically says, “Now, of course, if the Scotsman could take his capital to Portugal, this all breaks down. But that’s not going to happen, and I wouldn’t want it to happen.”

So, again, as with the way we’ve just built this tower on GDP and never thought about the assumptions, we also somehow came up in our minds with this idea that what capitalism means is just people pursuing profit will inevitably generate the best outcome for everybody. That’s nowhere in the economic theory, that’s nowhere in the classical thinking, certainly, and it doesn’t make sense. And so, whether you’re talking about the ability to use foreign workers instead of domestic workers, whether you’re talking increasingly about the financialization of the economy and the generation of profit with no relation to the productive economy at all, those things aren’t part of capitalism. Those things are, I get the catchphrase, those things are capitalisn’t. And so, that’s exactly, I think, what has gone wrong in the area where it would be nice if economists would say something about it, and whether or not they will, policymakers are going to have to do something about it.

Bethany: On a practical level, what would you do? So, we have this now, what everybody talks about is, the advent of AI that is going to take away whatever remaining jobs we have. What would you do in order to stop that? Would you prevent the introduction of AI in factories in order to retain those jobs that do exist? Or would you mandate some sort of retraining for workers? And in very practical terms, looking at an issue we’re facing today, how do you address that?

Oren Cass: Well, I hate to be the guy rejecting the premise of the question, but I completely reject the premise of the question. There’s no evidence that AI is currently having that effect. And just look at the productivity stats. I mean, many manufacturing productivity fell for six straight years in the last decade. That is stunning and completely inconsistent with the idea that automation is what’s going on. More generally, you certainly hear a lot about AI, and then you look around and try to find who it’s replacing and how. And, yeah, absolutely, over time, there will be jobs that it replaces.

But when you look at the studies saying, “Fifty percent of jobs will be rendered irrelevant by whenever . . .” I mean, my favorite is there’s an Oxford study that’s constantly cited to this effect. And you just go in and you start looking at the jobs that they’re going to say are going to be rendered irrelevant by technology and you find things like school bus driver. Now, this is my favorite one, right? If you were a sufficiently ivory-towered economist, you would say, “Well, I guess a school bus driver just drives a bus on a route, so you don’t really need a person in the bus.” OK, well, now go try telling 40 parents that their kids are all going to be locked in a steel box for 30 minutes with no adult. Oh, no, actually, that’s not going to happen. Right? Fashion model is another one that they rate as well. Sure, why do you need a person to model the clothes? The point is that the people doing the work on this stuff, I think in many cases, simply are not thinking through in practical terms what it would mean to replace people with AI.

Now, over time, yes, absolutely, maybe a large share of the jobs we have today that will be replaced with AI. But you know what else was a really impressive development? Electricity. Wow, that sure rendered a lot of jobs unnecessary and boosted productivity. But you know how long it took to roll out electricity? Fifty or sixty years. I mean, so, if you have a technology that you’re saying is going to eliminate half of jobs over the course of four or five decades, that’s really just the table-stakes productivity gains we need to be generating the kind of prosperity a free-market economy should deliver. There’s no reason to believe that a domestic economy, particularly one in which capital was focused on generating a profit through the productive use of people, would not find new uses for people at least as quickly as AI was reducing them. But the question is, are we going to have a capitalism that looks for new productive opportunities for people?

Luigi: But so, the implication, if I understand correctly, is that what you want is to prevent capital from moving abroad and to force people to invest productively in the United States, so you would put a limit on the movement of capital.

Oren Cass: Yeah, in some cases you could directly limit the movement of capital. I mean, I think particularly when you’re talking about, say, moving the capital to China, these days I think it’s really hard to defend that as something that is good for America. And you see Ray Dalio on CNBC, basically asking someone to hold him back. I mean, he basically shows a complete lack of moral thinking and says, “Well, look, if I’m allowed to invest in China, that’s what I’m going to do, because that’s where I get the highest return on my dollar.” So, someone’s going to have to tell him, “Well, here’s why you shouldn’t do that. And if you can’t figure that out on your own, we’re going to figure it out for you.”

I think more broadly, the question is, how are domestic consumers served? So, if you ask, “Well, why is the capital investing abroad? Why is foreign labor serving the domestic market?” One problem is, well, capital can just get a higher return and produce things more cheaply elsewhere. And it’s important to emphasize, by the way, that producing something more cheaply elsewhere, or rather, labor being cheaper elsewhere, isn’t inherently a reason to move it offshore, right?

Let’s say you had somebody who can make $10 of widgets an hour here in the US, and in China, they can only make $1 of widgets per hour. You’re paying the US person $10 an hour and the Chinese person $1 an hour, you’re not any better off in China if you’re actually paying them for their productivity. The only reason you’re better off in China is because you have a regulatory environment and many other things that allow you to pay people much less relative to what they produce. It’s not clear to me that that’s actually a meaningful form of comparative advantage.

So, making sure that if we’re going to have comparative advantage, if we’re going to have trade, it’s actually trade. Other people make things that come here, but we equally make things that go elsewhere, then that would be fine. The problem is we have other people making things for here and we don’t make anything to go elsewhere. I mean, it’s a very funny hypothetical question to pose to economists who say, “Oh, wow, comparative advantage, that sounds awesome. Globalization, that’s terrific. So, which industries are other people offshoring to America?” And then you just stop and wait, and everyone’s confused because, of course, nobody offshores anything to America, because comparative advantage doesn’t work and international trade isn’t happening on that basis, so that’s one category of problem.

The second category of problem is you see that we don’t have market access to other countries. And, here again, using China as the quintessential example, Tesla now produces the majority of its cars in China. I mean, the speed at which that happened is truly insane. And the reason that happened is not because China had this massive comparative advantage in building electric vehicles. It happened because China still has a 25 percent tariff on imports, and if Elon Musk wanted to sell Teslas in China, he knew he was going to have to set up shop in China and hand over his technology to China in the process. So, all of these things are things that American policymakers have a say in how they happen and that America simply should not be tolerating, because it’s not good for the actual health of the domestic economy in the long run.

Luigi: I’m a little bit puzzled by what exactly you are proposing, because, basically, the natural outcome of what you’re saying is, number one, we should limit export of capital, so no capital mobility. And not just to China but to any other place. And we should get involved in massive industrial policy to pick the industries of the future to learn and et cetera. This seems very much the plan that Mélenchon from the extreme left in France proposed in the last presidential election. And then probably Jeremy Corbyn would be pretty close to it, and it would make Bernie Sanders happy. How do you relate? And what is the difference between your solution and the solution that comes from the left?

Oren Cass: Well, I think, to take those two examples of financial flows and then industrial policy. On the financial flows front, I think, vis-à-vis China, we should absolutely be preventing financial flow as much as we did with the Soviet Union for essentially its entire existence.

Luigi: Sorry, you insist on China. Let’s postpone for a second about China, because your story applies to Mexico and Canada as much as it applies to China. I understand, China, we might have strategic military reasons to stop that, but let’s keep the strategic military reasons aside. Your economic view of the world, if I understand correctly, says that Mexico and Canada are equally bad from that point of view as China.

Oren Cass: Well, first of all, Mexico and Canada aren’t equally bad. We don’t run nearly the same trade deficits with them. They import significantly more American goods. They don’t limit market access. They don’t steal intellectual property. They don’t, themselves, have aggressive industrial policies that are specifically designed to hollow out our industries. So, I would more go the other way, and let’s stipulate that China is not a military adversary. Let’s pretend that they’re perfectly satisfied to just sit within their borders and never threaten anybody militarily. The reason China is the focus here is that China is both the 800-pound gorilla on the global stage, and it is the uniquely bad actor whose policies are so obviously frustrating everything that the economists have promised us we would see from trade.

Now, that being said, even if you want to talk about Mexico and Canada, with respect to Mexico and Canada, when you look at something like financial flows, I would agree, I don’t think there’s nearly as much concern about people investing in Mexico or in Canada. But what I would say, and this moves more toward the industrial-policy discussion, is that, for instance, we should have very strong local content requirements. So, for instance, when you’re talking about, particularly in critical industries, if you’re thinking about aerospace or semiconductors or whatever, we should simply say that those things have to be made in America. If you did that, you don’t have to prohibit capital from going elsewhere, but you would create an extraordinary amount of latent demand that capital investment would seek to fill domestically and much more on making it relatively more attractive to do the things that we do want them to do.

If we’re talking about what good industrial policy should look like and how it differs from what some on the left have, in many cases, talked about, I think there is an essentially free-market version of industrial policy that returns back to what economics actually says about how capitalism should work, which is that we absolutely want a free market. We actually want competition in the private sector as the driver of innovation. But that needs to happen within a set of constraints and within a rules-based system that channels that activity toward the outcomes we actually care about. And, no, high profits and share prices are not the outcome we ultimately care about.

If you say, for instance, “OK, these supply chains have to be domestic. Now, go.” That’s it. We’re not going to have someone in the Commerce Department making the venture-capital investments in this company versus that one. We’re not going to be trying to pick who should build what where. We don’t have to do that, because the competitive processes of the market are now going to be serving the ends that we actually want, that are the reason we run the game in the first place.

I think another example of a really important model of policy, typically the term for it is something like precompetitive consortia, which is the idea that upstream of competition, you need a lot more investment in innovation and research and development in an industry. And this is something the US historically used to do. We did it in semiconductors with Sematech for a long time. It was quite successful. We did it with aircraft engines back in the ’70s. You basically tell an industry, “Look, if you guys want to get together and put together a consortium that’s going to do research, the result of which is going to be available to everybody in the industry, we, the government, will put up half the money for it.” You still have the pull from the private sector. It has to be a private-sector industry that wants to put up money itself and sees value in this. But it really creates value in the industrial commons in a way that markets themselves won’t.

And the only other thing I would just say about it is that I think it’s very funny when people say, “Oh, how will government figure out the industries of the future?” Actually, first of all, there’s no reason to believe investors are going to be especially good at that, right? There’s no reason to believe that whatever’s going to generate the highest return on your investment over the next five or 10 years has anything to do with the industries of the future. But equally, I would say that, actually, over the last hundred years, the US government was quite good at it. I mean, if I were to identify the three areas that I would say the US government placed big bets in and really invested in heavily, it would be medical science and healthcare, it would be microelectronics, and it would be aerospace. And, surprise, those turned out to be really good things to make a lot of public investments in in the 20th century.

Bethany: There was a quote on Twitter the other day that was, “Neoliberalism is dead, baby.” And I’d love to get your reaction to that. Is neoliberalism dead? And how does neoliberalism intersect with capitalism? I think they’ve come in many people’s minds to be the same thing, but they’re not at all.

Oren Cass: Well, that’s certainly true. I mean, I think neoliberalism is famously difficult to define. People just use it as a generic slur for anything they don’t like, in some sense.

In my mind, neoliberalism speaks ultimately to the idea that markets are the best way to do everything. Not just the economy, the extent to which the global system can be mediated through markets rather than nation-states. That is the future and the path to prosperity. That version of neoliberalism is dead as a practical matter. I mean, I think it will live on in zombie form and at Davos for many, many years. There are many, many people with a lot of money who can keep saying and thinking that long after it has ceased to mean anything.

But in practical terms, I think it’s quite dead, because I think it has simply been proven a failure. It makes, among other things, a set of political assumptions about how the people of the world are going to conduct themselves that does not match reality. Just thinking about local communities and family formation, one thing that we’re seeing is that market forces inevitably reward more people spending more time in the workforce. But that is not necessarily the best thing for people, their families, or communities. That’s a huge part of wellbeing.

We’ve talked about productive pluralism in terms of the labor market, but another element of productive pluralism is a lot of the important, productive things that people might be doing aren’t wage labor. And a robust sense of productive pluralism also recognizes that parents at home raising families, being engaged in their communities, stitching together the social fabric, are equally an important part of our wellbeing, and our economists assign that a total value of zero. Oops. So, elements of neoliberalism and what it means for good governance and healthy markets are important, but the absolutist or fundamentalist version that I think has taken hold and gets casually tossed off as insightful is well past its expiration date.

Luigi: So, let me ask you a tough question, because I’m a cynical economist, and so I invert this and say, cui prodest, the Latin sentence, “Who benefits from it?” I look at your policy in your book, you basically want to gut the EPA. You want to gut the unions. You want to introduce wage subsidies, but in reality, these are basically subsidies to industry to develop in America, but they go, at the end of the day, to benefit the industrialists. You want practical training that is making sure that we have in the United States a cheap, not particularly sophisticated workforce. So, if I am the head of the industrialists in Italy, for example, this would be my ideal program. And I warned that this was a tough question. I don’t see your willingness to turn predictions that are really consequential to your starting point, that you care deeply about the value of people, into consequences that might hurt the natural constituency, which is basically the Business Roundtable, more or less.

Oren Cass: Well, I think, for one thing, that was a very selective description of the things I recommend. So, for instance, you completely left out the longest chapter, which is the one that deals with both trade and immigration.

Luigi: Yeah, but mostly, my impression is that it is mostly against China because Germany has an industrial policy that is pretty similar to China’s. It has a huge surplus with the United States as well, but you don’t seem to be so aggressive against Germany and German people as you are against the Chinese.

Oren Cass: Well, we already ran through all the ways that China is a bad actor in the economic system the way that Canada or Mexico or, I would say, Germany as well is not. The immigration side, I think, likewise, the flow of cheap labor into America is something that I think is very concerning. I’ll connect that to another point, which is you raise the point about unions. I do think big labor as it operates today is quite counterproductive to most workers’ interests. It is also approaching irrelevance, right? I mean, it only covers about 6 percent of private-sector workers at this point. I’ve proposed a wide range of other labor reforms designed specifically to give workers more power vis-à-vis employers. That’s everything from worker representatives on boards to sectoral bargaining.

And then, on top of that, the left prefers to think of worker power solely in terms of unions, but, of course, restricting this supply of labor in the context of immigration is a huge element of worker power. And then, I think on the education and training point, it’s really important to emphasize that, yes, of course there are employers that would benefit from better training of workers for the kinds of jobs that most workers can do, especially on noncollege pathways. But first of all, that certainly isn’t disqualifying. That certainly doesn’t mean it’s bad for workers. And, secondly, that is, for the most part, not where corporate investment is today. So, it’s wonderful that you have a hypothetical Italian industrialist in mind, but the reality is that if you run through the major American corporations, certainly, and start running through the Fortune 10 and Fortune 50, you’re not going to find a whole lot of companies that are looking for more workers in the skilled trades.

Now, that problem runs both ways. Part of the reason for that is that America doesn’t have any program to prepare them, right? We say, “Hey, if you want to employ college graduates, we are going to pump them out, and we’ll spend $200 billion a year subsidizing that. If you’d like to employ people on some other pathway, we are going to do absolutely nothing and then just complain that you’re not paying them enough.” And so, to say, actually, gosh, putting ever more money into this college pathway that most people won’t complete, that those who do are already going into the higher-paying jobs, while saying everybody else gets absolutely nothing, that serves one class of Americans quite well and another class of Americans quite poorly. And I think it is quite strange to suggest that shifting that balance is in the interest of those who have power in society today.

And I guess the last point I would make is just that insofar on virtually every one of these dimensions it represents a U-turn from what we’ve been doing, it’s very funny to think that those with the most wealth and influence and power have just been going along supporting something that has been not at all in their interests in recent decades.

Luigi: Thank you very much for your good spirit in answering my questions. You’ve been a great sport, and it was a pleasure to talk to you.

Oren Cass: Oh, absolutely. This was awesome.

Bethany: So, what interested me most about having Oren on, I first encountered him when my friend Alison McLean, no relationship, sent me a copy of his book, which was published in 2018, The Once and Future Worker. And she was struck, as was I, by the fact that he’s Republican. I think it’s very interesting how his views really could be coming from somebody on the other side of the political spectrum in many ways. And I guess perhaps I’m falsely optimistic, but I like to believe there might be some unification across political parties that’s important or achievable if people actually, even on far ends of the spectrum, actually start to agree about what some of the problems are.

Luigi: Yeah, but I think that the question is how you define left and right, because these days left and right is more defined on cultural values than on economic values. If you want, a left-leaning economic perspective but a very much right-leaning value perspective. And that’s what differentiated him. Yeah.

Bethany: That’s probably fair, and it’s not just these days. For a long time, left versus right have been defined on cultural issues. I mean, if you think about neoliberalism, what was that then meeting of the left and the right about the right way to order the economic world. Right? Maybe I’m wrong about that, but what I think back to the Bush administration versus the Obama administration on economic policy, I don’t see many differences.

Luigi: Yeah, I think that certainly with the Clinton administration, there were not a lot of differences, but even with Obama, I think they are limited. And in some dimensions, not all of them, in some dimensions, the Trump administration was more different.

Bethany: We have to remember it was the Clinton administration that finally overturned Glass-Steagall, even though bits and pieces of it had been effectively overturned over the years. But there was certainly a big deregulatory movement then.

Luigi: But I think that what I find intriguing in his position is the fact that he revindicates the importance of values over value, the importance of values over market value. At the end of the day, the goal should be to provide people a happy life and not necessarily make them rich in terms of consumption, and that this happy life, for example, being able to raise their kids at home. And I think in his book he has these examples in which everything is designed to promote a family with two income earners, which is not necessarily the right thing to do. And this idea that, I take blame for the profession here, but we economists tend to kind of force people into our framework rather than adapt our framework to what people want. And I think that, to me, is the ultimate sin. He’s very good at pushing back and saying we should incorporate in some of the valuation or some of the technical analysis that we economists do, for example, like cost-benefit analysis, some of these benefits that are ignored and are quite important.

The part that, in my view, we have forgotten is that to have a stable democracy, we need to have a stable economy that provides an opportunity for everybody to make a living, regardless of, for example, his political views, regardless of who he or she wants to elect president or endorse. And one of that is the sense of pride that people have in earning their own living and instructing their kids and all this stuff. And the other is the sense of independence that makes them be citizens and not also be subject to political extremism. It’s not a coincidence that the decadence of the Roman republic was when there were a lot of people out of work that depended for their livelihood on, basically, gifts from the emperor. And so, the emperor could sway people one way or another, depending on who he was giving money to. We’re losing that, and we’re going toward a world in which a lot of people might depend on some universal basic income, and, of course, they’re going to vote only for the person who increases their UBI. Then we’re back to a very unstable democracy.

Bethany: Yeah. I was thinking as you were talking that his work is in many ways a rebuke of the idea of UBI. I guess I’m biased in this. I understand some of the arguments in favor of UBI, but I think, as you did, when you grew up in a household where you’re told that work is tantamount to godliness, and that being able to support yourself is the only real religion, I guess his ideas on this front resonate with me.

I also think it’s interesting that he and Vivek Ramaswamy have this in common, which is this acceptance of the limitations of capitalism, the areas where capitalism and the profit motive shouldn’t dominate or shouldn’t interfere. And maybe it’s a little bit different in Vivek’s case. It’s that there are places or there are spheres of life that should be separate from the capitalist motive. And I think Oren’s view is more that the profit motive should only be one of many motives, so I think they actually fundamentally disagree, but there’s an interesting alignment there. One is about keeping capitalism out of everything but going for broke, or going for the maximum, when you are applying capitalism. And the other thinks almost in a stakeholder capitalism sort of movement that there should be other things at stake, even though the things that Oren has at stake are perhaps different than the things that capitalism says are at stake.

Luigi: I’m not a political philosopher, but I think that this is the essential distinction between being a conservative and being a neoliberal, whatever neoliberal means. Because a conservative might be procapitalist but puts value above the economic system. While, for a neoliberal, the capitalist economic system is the ultimate goal and the ultimate justification of everything.

Bethany: Every time I hear the word neoliberal I have to stop because, just as Oren said on our podcast, he’s not sure what it means, I’m not sure what it means, either. And so, every time I hear it, I think, what does that actually mean? So, with that caveat, I remember thinking actually back in the days of Enron with the California energy crisis, that part of what had gone wrong was that their view was that if it makes money, then it’s good. It had almost become a god, a new religion, a way of ordering the world. A way of finding simplicity in a very complex world, which is that if something makes money, then you don’t have to think about a value judgment about whether it’s good or bad, or whether other things should be taken into account, because the fact that it makes money means that it’s good. And there are a lot of dangers in that way of thinking.

Luigi: I don’t want to harp on the same topic, but this is where I see the limitation of what he’s saying, because I follow him on this, on the fact that we should put some values above capitalism. And I think there is a value to work. Honestly, I’m prepared to sacrifice some in terms of economic efficiency in order to give everybody work, pride, a sense of citizenship, a sense of belonging, all that stuff.

Now, how do we go about making that trade-off? I think that’s a part that is missing, and how far do we want to go? So, I think that he’s certainly not against blocking every progress in favor of that. It’s easy to say we want to block China, because China is bad and all these things. What about if it’s not just China? The fact that in the past, progress went relatively slow and allowed more people to adapt is certainly true, but there is no guarantee that it will in the future.

I don’t think that the world would change overnight because of artificial intelligence, but it is true, until very recently, most applications were not able to replicate human ability. In the last few years, they’ve gone above, partly because there have been some phenomenal discoveries in deep learning, but part of it is just learning by doing. And once you pass that threshold, then do we know how fast these things will spread? We don’t know. I would have felt more confident if he said, “Look, we need to guarantee an economic system that allows transition, that allows the 45-year-old who is completely out of his league and does not have the ability to readapt to have a decent wage, and we are willing to pay for that.” Where do we get the money for that? I think that would be my grand theory that I was looking for.

Bethany: It sounds like a lovely idea to provide government subsidies so that people whose life has changed dramatically and the job that they did for 20 years no longer exists, and you can retrain them to do a different job. The data on whether or not that works is really, really mixed.

Luigi: Sorry, I think that he was saying something different and, if you want, more revolutionary, which is that we should not close the plant in Michigan in order to allow these people to continue their life for a little longer until they retire. Now, how to do that without blocking economic progress, that is the hundred-trillion-dollar question, whatever it is.

Honestly, I didn’t get enough to engage him to come to a confrontation. The thing that really irritates me is that everything is about China. Don’t get me wrong, I think that China’s a huge issue. I’m the last one who wants to minimize China, and some of the things he said about China are true. However, whenever I was trying to draw the logical conclusion of his theories, he always applied it to China. But then when asked to say, “OK, do you also apply this to Germany? To Latin America?” No.

Bethany: I agree with those critiques, but I actually saw it through a slightly different lens, which I think is that he is practical, he’s not theoretical. He keeps invoking China because that’s practically where he can see the dangers emanating. I don’t think his solution is necessarily one-size-fits-all. I think he starts from the practical, not the theoretical. And I think that makes him very different than an economist. He’s almost a little bit more journalistic in the sense that he—I’m going to use the word devolves, as a critique of journalists as well—but toward anecdote rather than toward grand unifying theory. And I think part of what upset you was the lack of a grand unifying theory, and I don’t think he has one, but I’m not necessarily sure that’s a terrible thing, except that maybe he is wrapping some of his work under the banner of grand unifying theory.

Luigi: I thought we were trying to find a unifying theory. I think that people criticizing here and there, there are plenty. I think that we are struggling, and I think one of the goals is to find, is there an alternative vis-à-vis the traditional, for lack of a better word, neoliberal consensus?

In a future episode, we’re going to bring Glen Hubbard here as a representative of the neoliberal consensus, who was highly criticized by Oren Cass, in spite of being his former colleague in the campaign. We invited Oren as a presenter of an alternative view that I think has some validity. And I wanted to see to what extent it was an alternative view rather than a grumbling here and there.

Bethany: But I think it’s a little bit unfair in the sense that to say that the alternative that Oren is providing lacks a grand unifying theory is to assume that we had a grand unifying theory in the past. And while we pretended to have one, we certainly did not. I mean, we banned oil exports from the time of the Nixon administration until fracking took off in 2015. We’ve always had policies around steel and tariffs here and around food here. We’ve always had government investment in various industries, whether it’s pharmaceuticals through government support for universities and research funding, or whether it was the government support for shale, which is part of how the shale boom came to be. We just don’t like to acknowledge it as such. So, there’s never been really a grand unifying theory in the past, so I think it’s an unfair standard to expect there to be one in the future. It would be nice. I like grand unifying theories. They make me very happy and comfortable, but . . .

Luigi: No, I think that here you are unfair. The fact that the theory was not applied in a uniform way is a different story, but the people representing the unifying theory recognized that there were exceptions that they didn’t like about that theory.

Bethany: Part of me likes the idea of not having a grand unifying theory, because I think they’re usually wrong in key aspects. And if you don’t pretend to have one, then you’re more likely to recognize the cases of divergence, of necessary divergence.

Luigi: Let me come your way, because I think you said something very important at the beginning. And this is that who we call journalists, or people who don’t like grand unifying theories, sometimes they get much closer to reality precisely because reality is kind of messy, it is not linear. And if you are too ideological, you might miss completely what is going on versus if you are sensitive to the mood of the moment, you might make mistakes. That’s definitely true, and he belongs to this category. I think that he represents something interesting that we need to pay attention to.

Bethany: It’s honestly something I wrestle with, because I’ve never had a grand unifying worldview. And sometimes I wonder, are you better off having a grand unifying worldview? Because then you always know where you stand on any particular issue. Or are you better off not having that and evaluating each idea and each happening in the world through what it is? And I’ve wrestled with that on so many fronts.

Luigi: Yes. I actually have a view. I don’t know whether it’s an answer, but it’s a view. The benefit of having a grand unifying theory is that it forces you to resist the pressure of the moment. We all are swayed in one way or another by events, by social pressure, by this and by that. Having a theory forces you to abstract from those and see in a more consistent way. There is a value to having a grand unifying theory, which is particularly important in politics, because you are subject to an enormous amount of pressure from all over the place.

And for today’s capital-is, capitalisn’t, we’re going to have the obvious subject on everybody’s mind: Elon Musk’s purchase of Twitter.

Speaker 9: Breaking news right now, Elon Musk is buying Twitter for an estimated $44 billion.

Bethany: Elon Musk is purchasing Twitter, which means it’s no longer going to be a publicly traded company. It’s going to be a private company that is controlled by Elon Musk.

Speaker 9: The deal reportedly is the largest to take a public company private in at least two decades.

Luigi: You know that the offer he made was for $54.20. Apparently, when he made the offer for Tesla, the fake offer for Tesla, it was $420. And it is because $420, I’m told, is a symbol for marijuana or for whatever. Imagine that $54 was the right price, but he wanted to be cute, and he offered $54.20. So, I calculated, guess how much extra money he is paying out of his pocket to make the joke?

Bethany: Oh, I’m going to guess about $200 million.

Luigi: Wow. You’re very good. $160 million.

Bethany: Wow.

Luigi: He’s spending $160 million to make a joke. This is the most expensive joke in history.

Bethany: That is insane. I think there are a bunch of different aspects of this that we can discuss. There was actually an interesting piece in The New York Times yesterday by Jim Stewart pointing out that this, in some ways, proves the lie of stakeholder capitalism, because nowhere should the concept of stakeholder capitalism be more important, one would think, than in the takeover of Twitter, but the only thing it appears the board looked at was the price and whether or not it was a satisfactory financial return to Twitter’s stockholders, not whether or not Twitter and society would be better off if it were in the hands of Elon Musk.

Luigi: I’m not so sure, as a director, you can reject an offer by saying that this is not good for the stakeholders but is great for the shareholders, because you have a fiduciary duty, and the fiduciary duty is to maximize shareholder value or the value of the corporation, depending on the point of view. But certainly, it’s not to please the community at large.

Bethany: But then doesn’t that prove the lie to stakeholder capitalism if directors aren’t even allowed to consider other factors?

Luigi: Yeah. And that’s the reason why the public-benefit corporation was introduced, where you can, or must, depending on interpretation, look at other factors. This example is not a takeover contest, but there is this very famous case of eBay suing Craig Newmark, the founder of Craigslist, because eBay invested in Craigslist. Craig Newmark said he wanted to run Craigslist to benefit society, not to maximize value. And eBay said, “Wait a minute, I invested here. I want a return on the money.”

The case was brought, I think, to the Court of Chancery of Delaware, and the Court of Chancery of Delaware said eBay was right. If there is one thing that Inc. means after a name, it means that you have to maximize value. I think this was decided in 2010. And immediately after, a bunch of states, including Delaware, introduced this public-benefit corporation where you can write down in your state of incorporation, or in bylaws, what your other constituencies are that you look at. And so, you are allowed to look at other constituencies, so that’s the only form of stakeholder capitalism that is believable. Everything else is PR.

Bethany: Okay. Well, there you go. Twitter is the lens through thinking about this, that when push comes to shove, as in a takeover, where push does come to shove, it actually, really, is a total illusion, which I thought was interesting.

Luigi: I think that is an excellent point, a very important one.

Bethany: The other thing that struck me—and I know you have points we want to get to—but what struck me, too, is just what a financial bet Elon Musk is making in this acquisition. Everybody is focused on his ideas around free speech as if he is buying Twitter as some sort of intellectual toy, in the way in which Jeff Bezos bought The Washington Post, as an intellectual toy of sorts. But I think what’s missed in that discussion, or in that point of view, is the incredible amount of financial risk that Musk is taking with this purchase of Twitter.

He is paying, what? Forty-four billion dollars for a company that produced $5 billion of revenue last year and almost no profits, even when accounting for one-time losses, and he is doing so by using an immense amount of debt, some of which is going to be secured via margin loans against his Tesla stock, which, by the way, lost $125 billion of value yesterday at the prospect that Musk may have to sell and that he’s margining his Tesla holdings in order to do this acquisition. So, he can’t afford for Twitter just to be a toy. This thing has to work as a business.

Luigi: Oh, absolutely. First of all, speaking of margin loans, this is quite a margin loan. And margin loans are called in when the price goes down. So, he is really, in a sense, also putting Tesla, or certainly his control of Tesla, at risk in a major way.

Actually, I was talking with a friend yesterday and she had what I consider a brilliant idea, which is that maybe what he wants to do is actually use Twitter in a completely different way than people have used it before. So, now, Twitter has an open API that basically everybody can analyze and do whatever they want.

Imagine that he stops people being able to do that, and he uses the data to analyze the psychology of people, the characteristics of people, in order to maybe sell better stuff, et cetera. It is really a wealth of data that has not been used as massively as it could. He could use it and make a fortune out of it, because the reason why Tesla is worth so much is because it’s learning how to drive people around. We know that there is this flywheel effect, and once you start, then you create an edge and then nobody can catch you. And maybe that’s what he’s going to do.

Bethany: That’s a really interesting idea, and I would put no ideas past Musk. And clearly, there’s a lot of opportunity to do different things with Twitter’s business. I mean, one of the frustrations of Twitter shareholders, Twitter investors, for a long time, has been how little Twitter was able to capitalize on its . . . They weren’t able to grow their user base, they weren’t able to appeal to a range of users outside of their core base. There was always this sense that Twitter was this thing that could and should make a lot more money than it did. And so, maybe Musk has a whole host of ideas for doing that, along the lines that your friend mentioned.

The only element of skepticism I have about that is that all of those ideas have proven more convincing in theory than in reality. And what I mean by that is that the only company who’s really been able to capitalize on the idea of advertising that our online presences were going to show us what we wanted, is Google, for the very simple reason that when you type something into the search bar, “I want to buy shoes,” chances are you’re looking for a pair of shoes, right?

And in everybody else’s case, from Amazon to Netflix, the idea that people are going to show you their tendencies or their beliefs, and that’s going to help you make better decisions about what they want, has proven to be false. And you saw that a little bit in Netflix’s big miss the other day. It’s not the only reason for it, but part of Netflix’s promise to Wall Street that never materialized was that by collecting data on what you wanted to watch, they were going to be able to make shows that were going to be more successful, because they’d know what people wanted to see by collecting all this data. And it’s proven not to be true. We’re a lot more unpredictable than that.

I think Amazon, too, has had trouble capitalizing on this idea that we’re going to be giving this wealth of data that is going to render us predictable. It had trouble capitalizing on it, too. And I love this, because I think once we can be analyzed in that way, the robots have won. But so, that’s my only caveat about Musk being able to use Twitter as a way to glean information about people that can then be sold to advertisers, is that it’s been the holy grail of a lot of companies, and it hasn’t worked as well as you’d think it should.

Luigi: Yeah, but I think it’s one of those things that has not worked so well until it works.

Can we move to the other gigantic elephant in the room, which is so-called freedom of speech, or at least the fact that Twitter is a public square? Whether we like it or not, maybe it’s not the only public square, it is by far the most important public square. And people who have tried alternatives, they’ve not succeeded so far, not even close.

And so, basically, if you control the conversation on Twitter, you control the political system in a way that I think is unacceptable in a democracy. I don’t know if you heard me make this analogy, because now I repeat it all the time, but I ask people to think for a second, if at the beginning of the war, or the invasion of Ukraine by Russia, the main search engine were to be Yandex and not Google. Yandex, for those who don’t know, is a search engine that is actually quite successful in Russia. And the main social media was VK, which is the Russian version of Facebook. So, you try to search for “war,” and you only find “special operation.” You try to search for what Zelenskyy said, and you can’t find it. The entire war would have been dramatically different as a result of the dominance that the United States has over this platform, but it could have gone the other way.

And also, within this country, I know that I’m saying something very unpopular, but everybody talks about Facebook and the impact on the 2016 election. I would like to talk about Twitter and Facebook and their impact on the 2020 election. They sort of prevented the circulation of an important fact that turned out to be true, which was that the Hunter Biden laptop was real. From that laptop emerges that he had some shaky dealings and possibly that even Joe Biden was involved. By restricting access to that information, I think that Twitter and Facebook determined the election, because the election was determined by, what? A hundred thousand votes in the right place, right? This is really, really important. And regardless of whether or not you like the outcome of the election, that’s not the point, because unfortunately, if you like the outcome, you cheer, and if you don’t like the outcome, you complain.

But here, I really like what Francis Fukuyama said on an early podcast with us. He said, “It’s a loaded gun and it’s on the table, and don’t be reassured that you have control of the gun, because it can flip.” And once there is a loaded gun on the table, somebody’s going to shoot. We need to find a way to unload the gun, because whether this guy is Elon Musk, Jeff Bezos, Bill Gates, I don’t care the way they feel, but I don’t want my freedom to depend on the whimsical notion of the leader.

Bethany: I agree with you, theoretically, wholeheartedly. How could I not? And there was something on Twitter yesterday, I think. Someone refreshed a tweet they’d sent when . . . Twitter was more aggressive than Facebook about not allowing people to share The New York Post story about what had been found on Hunter Biden’s laptop. And someone tweeted at the time, “This is going to cost Twitter executives their control of the company.” There is no question that Twitter’s content-moderation platform has been geared against misinformation rather than fake news. And I’m making a little bit of a joke here, because I saw something else that if you’re on the left, then you consider anything you don’t like as misinformation. And if you’re on the right, anything you don’t like is fake news. So, whether it’s misinformation or fake news sort of betrays your political party.

I agree with you wholeheartedly that this is a gun that can be turned both ways. And anyone who thinks that because social media has generally been one way or the other, means it’s always going to be that way, is completely missing the other side of the equation, per your point. The fact that the gun can flip.

I just think it’s way harder to fix this than just putting Elon Musk in charge of Twitter or saying that it needs to be fixed. I guess saying that it needs to be fixed is a start. And I think it’s interesting, a slight tangent, but that both The New York Times and Bloomberg have come out in recent months reiterating—The New York Times in a big piece by its editorial board, Bloomberg in a big piece by Mike Bloomberg—the importance of free speech.

This is clearly a burgeoning conversation, but how do you do that? The difference between hate speech, between inciting violence, and free speech, where you draw the line, and where you draw the line in a private business are all really thorny questions. And I actually don’t know the answer to any of that, because what’s free speech to one person is hate speech to another person. And I think it’s going to be very hard to decide where those lines should be.

Luigi: I completely agree, but the solution is you don’t decide, you let people choose by creating conditions so that you have competition. We’re not going to agree, even the two of us, about what is acceptable, what is not acceptable. I think that in the old days, with the printing press, there were a lot of niches of stuff that was printed and guaranteed the right to speak, but not the right to a loudspeaker. And today, everything has basically the right to have a loudspeaker, and the platforms amplify that the more radical you are. The secret in my view, is to force a system of competition among editorial filters, so that you can be on Twitter, and you choose The New York Times filter. And so, you’re not going to get the anti-Biden story, because you want to protect your integrity, you think that Biden is perfect. And then, you’re going to have your kind of right-wing filter that says that Trump is smart. I think that you could have . . . But people like me or you can be on Twitter and see both if they want to.

Bethany: Maybe that’s the right idea. Maybe it’s like the Instagram filters, when you can make yourself look prettier than you actually are by choosing all these different filters. Maybe they’re the Twitter filters where you can make your world prettier than it is or uglier than it is, if you want, by choosing the different filters, the content you see. Maybe that’s the right answer. There’s something in me that opposes it, because I think that’s not the right answer for society, because I guess I think we should all see content that makes us think, although not necessarily content that makes us uncomfortable because it contains hatred. And so, then that’s where, once again, I start straying into subjective territory, because I want people to be exposed to ideas that make them uncomfortable and make them think, but I don’t want people to have to be exposed to ideas that they find hateful. Where’s the line? That’s, again, subjective.

I’ll just come back to where I was before, which is that there’s no easy answer. I think I like your filter idea as much as I could possibly like anything, but I think there are no easy answers. And I think one of the challenges for Musk in this is going to be navigating this very real conundrum that he’s going to be in, which is making Twitter what he wants it to be in a free-speech sort of way and making its bottom line grow, because its bottom line is going to have to grow if he’s going to pay the debt.

And so, I worry that as grand and as human-friendly as his ideas may sound, they’re going to have to bump up against the hard reality that Twitter needs to produce a lot of profits quickly. And he is going to be even more merciless and relentless about finding ways to maximize profits than any of the other social-media companies have been.

And I’m not sure that these two things can go together to be a really effective, fair town square and be thinking about being that town square through the lens of doing what’s right for the human race and right for society, and the lens of, I need to make this bottom line as fat as I possibly can. I just don’t know if those two things go together.

Luigi: Actually, I’m reassured that he needs to make money, because I think that will let him indulge less in crazy ideological battles. If you need to make money, then you need to provide a service to a lot of people. So, I’m actually more optimistic on that front, but the most important point is that this move makes very clear that we need to have some form of intervention to prevent billionaires from controlling the public conversation.

One of the big differences that I noticed when I moved from Italy to here is that in Italy, all the newspapers are owned by industrialists who pursue their agenda through the newspapers. And when I came here, I said, “No, no. There are the pure publishers that have no conflicts of interest, et cetera, blah, blah.” And slowly but surely, The Washington Post was bought by Bezos. The Atlantic was bought by the widow of Steve Jobs. Now Twitter by Musk. I’m sorry to say, we are drifting pretty quickly toward an Italian equilibrium.

Bethany: But thus it was before. Thus it ever was in America. That era of media companies being publicly traded corporations that could afford to have a church and state, meaning that their advertising could be separate from their editorial content, and that they were supposed to be unbiased and fair, that was a modern and relatively short-lived phenomenon. Back in the day, Time Inc. was founded by Henry Luce. The Los Angeles Times was founded by an industrialist. All of the major papers, all of the major media organizations, were, just as they were in Italy, owned by industrialists or owned by people with a very strong political point of view.

So, it was that way in America. We’re going back to the way it was, which is not to say that that’s good, but I think you have to think of this window—maybe window is a good term for it, because it let the light in—but this window of time where media companies were supposed to be unbiased and were owned by shareholders, and where they really could, because they were the only vehicle for advertising, afford to keep the church and state separate. It’s a brief little blip in human history.

Luigi: Absolutely. Absolutely.

Bethany: So, capital-is or capitalisn’t? I think, based on our conversation, I’m going to say capital-is, because if capitalism is making money, then Elon Musk is going to have to make Twitter make money. So, in very simple terms, I guess it’s a capital-is. What do you think?

Luigi: I think it is a capital-is and a democracy-isn’t.

Bethany: Yeah, that’s a pretty good summary.