Chicago Booth Review Podcast How Can We Restore Trust in Democracy?

Hal Weitzman: The Great Recession of 2007-2009 prompted a lot of soul-searching about the future of capitalism, and surveys suggest that many people remain disillusioned with our economic system. Polls in the US show that most people feel that the free market does more harm than good. At the same time, we’ve seen a surge in skepticism about democracy, and a rise in populism around the world. Why did this happen, and what can we do to restore faith in democratic government?

Welcome to this special episode of the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I’m Hal Weitzman. Today, we present one of the world’s leading economic commentators in conversation with one of the most eminent academic economists and policymakers. Chicago Booth’s Raghuram Rajan is the former governor of India’s central bank, while Martin Wolf is the chief economics commentator at the Financial Times. The two met at Booth’s London campus, where they discussed Martin Wolf’s new book, The Crisis of Democratic Capitalism.

Wolf contends that populism appeals to a middle class that felt abandoned and alienated, and his proposed fix is to recreate democracy with a focus on inclusion and common identity.

Their conversation was an hour, a little longer than our normal episodes, but it’s full of insights from beginning to end. The first voice you’ll hear will be Raghuram Rajan’s. The quality of the audio isn’t quite what you are used to but we hope the conversation will keep you engaged.

Raghuram G. Rajan: When I thought about somebody I would like to talk to in front of this audience, I was thinking through all the people I knew who would match—overmatch—the intellectual caliber of the audience that comes to Chicago events. And I could think of nobody better than Martin. And I asked him and he said, “Sure.” So glad that you could make it. And let’s get to the heart of the book very quickly. Why did you write this book?

Martin Wolf: So first, before I answer that question, to say it’s a great pleasure to be here with you, and I feel very particularly honored since I have nothing to do with the University of Chicago. I went entirely to Oxford. A much older, possibly less distinguished university.

But, so there’s a personal reason and a professional reason. And I start the book with the personal reason, which is important, though I wrote the preface after I wrote the rest. So I suspect maybe in different ways true of many people here, I’m the child of refugees. My parents came either . . . in my father’s case immediately before the Second World War from Vienna. He left in 1937, seeing what was going to happen. And my mother escaped really with the skin of her teeth in May 1940 from the Netherlands with her father, mother, and immediate siblings. And they were fleeing Hitler because they were Jews. And they both had large families—very large extended families—every single member of whom was killed.

So I’ve always been aware of this as a background to my life and I took away from it one very simple lesson, that civilized life, orderly life, a stable life—even what had hoped to be in the 1920s in Germany, democratic life—could collapse completely in catastrophe. And I don’t make any further parallels with our time except that fundamental sense, which I think many people in this country and many people in America particularly don’t share, of how insecure stability is. So that’s the emotional reason.

The immediate cause is that it became obvious to me in 2016 that something very big was going on. In different ways, but there were common themes, I felt. In Britain with the Brexit vote, which was clearly a rejection of our establishment by a populous movement, an important populous movement. And of course, with the emergence as the standard-bearer for the Republicans—which I’d always seen as a party of the free market and stable constitutionalism—the emergence of Donald Trump, who didn’t seem to me to represent either, and with a huge number of supporters.

So I wanted to understand why this was happening and what it might mean. And that then led me to what turned out to be—I didn’t know this—a vast literature, in which particularly Larry Diamond of Stanford was a major figure, on the Democratic recession, which he dated to 2005 roughly. And you could see very clearly traced out in the political histories of many countries, mostly newly emerging or developing countries, where there was very clear backsliding toward autocracy on multiple dimensions. And the list of these countries now is, of course, very, very long. And you could also see in world values, very clear signs in many countries, notably including advanced democracies—what political scientists refer to as consolidated democracies—of pretty strong skepticism about democracy as a system, about the way it was working for them, some desire, quite clearly expressed even in Britain and America, for a strong leader who would sort out all the nonsense that they saw around them out.

So I began to feel something very big is going on and I should try and analyze what’s going on. And that forced me to go back and asking myself, “Well, what is the relationship between the market economy and democracy? When do they support each other? When does it create crisis? How relevant is that to where we are now?” And that then led me on to the question of, “What is populism? When is it a good thing? When is it a bad thing?” That led me, over many years—it was quite a struggle—to this book, which tried to put together my views, as they emerged, on what was going on and what it might mean. But I came away from it at the end—and I think events during this period, if anything, more alarmed than when I started. And the most noticeable reason for that, and I make something of that in the beginning, is, of course, what is to my mind unambiguously a coup attempt by the American president against the American electoral process, which simply cannot be exaggerated in terms of its significance politically, historically, and globally.

Raghuram G. Rajan: It’s interesting. I mean, basically we don’t think about how fragile the institutions we live under are, right? That if you look at history, they go backward and forward, that it’s not a permanent thing, and they have to be renewed all the time, and you have to fight for it.

Martin Wolf: Every generation has to renew the institutions in their own way, otherwise they become moribund.

Raghuram G. Rajan: Absolutely. So what leads to Donald Trump? What are the forces that produce Donald Trump? I mean, you talk about demagogic authoritarian capitalism. I presume that’s one example?

Martin Wolf: Yes, he’s a demagogue. I don’t think anybody can . . . He’s a classic demagogue in the history of Western thinking about demagoguery. I went back to all this because a long time before I became a sort of economist, and this is obviously debatable what sort of an economist I am, but long before that I was a classicist. So I spent years and years reading Latin and Greek, which is the best part of my education. All the rest is quite trivial. I mean that with absolute seriousness. I’m not joking. It might be seen as a joke. So I went back to Thucydides and Cleon, the discussion of his role in the Peloponnesian War. Before that to Plato, who discusses in great detail how demagogues manipulate democracy. And also to Aristotle, who discusses how a democracy can work.

And what I took from that, and particularly from the Aristotle analysis in politics, which I think is an old wisdom, is that if you want a stable democratic polity, you need a very strong middle class. That was basically what he said. That is to say, independent people who know they’re not strong enough to survive on their own, who know they’re not strong enough to manipulate the state for their advantage—which, it doesn’t matter really who rules it—and they know they’re not so weak that they can only survive by virtue of a clientelist relation with patrons.They have an independent role, an independent life, and they need institutions—and trustworthy institutions—to sustain their existence. And one of the important facts about Athens, which had in numerous reports—it’s obviously not in our sense—a democracy, with slaves and no role for women and so forth. Nonetheless, it was quite an advanced commercial state and it ended up with a pretty large middle class, until they killed themselves in the Peloponnesian war. I won’t go into that further.

But the main point is that I came to the view that the big story is a progressive hollowing out of the middle class. And that was partly, I think, to do with very powerful underlying economic forces, and partly because of policy choices, which in all truth, I didn’t really understand fully myself. So I’ve changed my mind on some important things. And what happens when the middle class starts getting hollowed out is people start looking for saviors. They desperately fear falling through into the bottom, among the despised poor. They feel that they probably can’t cling onto the status they had before. And my argument is that was quite particularly true in both . . . in most Western countries—France, Britain, America, Italy—because of what’s happened to the industrial working class, which is a central part of our postwar middle class.

And then they didn’t like the leftist alternative because one, nobody really believed in socialism anymore. And two, they really didn’t like the dominant force in the left, which I refer to, as you know, as the Brahmins, following Piketty, the only sense in which I do follow Piketty. So they wanted a demagogue who would appeal to them culturally, but they also definitely didn’t want traditional right-wing free market conservatism because they saw them as a lot of stuffed shirts who were utterly uninterested in them. So they went for a populist demagogue, as they have done many, many times before in many different ways, in the ’20s and ’30s, all over the world now. I don’t need to list all the countries. And Trump was a particularly remarkably brilliant one, and he remains a simply brilliant one.

The upside of Trump as an individual is he doesn’t have a real program. Much better than his having a real program. Some of the people around him do. That worries me a lot, really worries me a lot about another term. The downside is he represents in all the other respects the worst forms of demagoguery in terms of self-seeking corruption, corruption of institutions, and so forth, and therefore is a very powerful destabilizing force. But I understand fully why the people who support him support him, because he’s the sort of leader they want to bash their enemies. I just had a clip in my . . . which I didn’t know, but it’s a wonderful clip in my podcast series on this in which Trump talks to a huge audience. This is quite recent. And he says at the end with enormous applause, “I am your retribution.” And that is absolutely classic of this form of politics.

Raghuram G. Rajan: So you said in the demise of the middle class: “Mistakes were made.” Things that you’ve changed your mind on. What are you talking about there?

Martin Wolf: Well, so I basically think . . . we liberalized our economies in the West quite radically. Of course, the welfare state largely survived, though it was hollowed out in some important ways. And it’s pretty clear to me . . . I’ll leave aside complex questions about the nature of inequality and so forth, but what’s pretty clear to me, is there were a lot of very big winners from this process, but there were also some pretty big losers, and people who were interested as I was and very pro-free trade, knew that technically, theoretically. But the truth is we didn’t think it was very important to do anything about it.We thought the market would just sort it out. Good Chicago principle, I would’ve thought.

But what we ended up doing in a lot of important places is we created places that imploded. It wasn’t just factories that imploded. So if you look at Britain, take the British case, the deindustrialization of Britain in the 18s, in 1988 was very dramatic—the most severe, as far as I can see in any large country. And our industrial society, what disappeared, was profoundly regionally concentrated. There were towns, big towns. Sheffield had the steel industry. There were pottery towns. Before that, there had been textile towns. They all collapsed and creating a tremendous trauma, the collapse of the coal-mining industry was equally significant in the British case.

And I think a lot of that was probably inevitable. But the question is, did we make any effort to do anything about this? And the answer quite clearly, and I believe, though I don’t know the American story as well, but in states like Pennsylvania, Ohio, and so forth, similar things happened. And for people just to . . . Remember, these are people without university degrees. They didn’t have the sorts of skills that the new economy, which I talked about a lot, was demanding. There were lots of new jobs for graduates, people who could . . . And we created a whole new class of technically skilled people who went into these jobs. These people weren’t going to be turned into that. Basically, they were left to work maybe in warehouses of Amazon and things like, things which were quite demeaning. They felt that they were discarded. And it is, I’m afraid, which you can’t ignore it, very important that so many of them were men.

Raghuram G. Rajan: Right.

Martin Wolf: And they were, I’ve referred to them in my book as the “dry tinder” for somebody to come along and light the spark. And we should have expected then, I argue, and I’ll just add this a bit, I feel that crucially, especially in 2016, a crucial moment was what happened in the financial crisis. Because there were two things about a huge financial crisis, which are completely obvious. First, it shows that the people in charge haven’t got a clue. You really can’t look at a financial crisis of the scale we went through and not conclude that all these immensely brilliant technocrats, central bankers, regulators, bankers, and on didn’t have a clue. And secondly, when it came to them, there was no limit how much resources would be poured into them. While of course we all know what happened to many people losing their houses and so forth. That quite understandably made people very, very angry since, for the reasons I suggest, they had long since lost confidence in the left. That left . . . what they needed is a really brilliant right-wing populist.

Now the funny thing, which is where domestic society . . . I’m completely convinced each country has its own story. So our populist was Boris Johnson, and America’s populist was Donald Trump. I prefer Boris Johnson. But they were both playing the same tune. It’s just the personality that worked was different. In France, it’ll be Marine Le Pen. It is widely believed by the French people I know, a lot of people, that she’s likely to be the next president. I have no idea what that will mean, but we know what the roots of her party are and what she came from. In Italy, they actually do have an erstwhile fascist supposedly as prime minister. She seems to be behaving very well so far. We’ll see how that goes.

But yes, people want an outsider. And a final point I would make, and this again I didn’t really understand. It’s so obvious, however, looking back. When people are really frightened and angry, they don’t feel secure. They go tribal, and nationalism is the core tribal project. It is inevitably therefore inevitable that a nationalist leader will come forward. That’s what happened in the interwar years. Again, I’m not making any direct comparison. And it’s what you can see in Turkey and you saw recently until just now in Brazil. And if I may say so, you even see it in India.

Raghuram G. Rajan: What do the elites still not get about Donald Trump or Boris Johnson? Or have they realized what these politicians are appealing to and do they have an alternative?

Martin Wolf: Well, in Britain at the moment, I believe it’s temporary, but I will be interested to see, what you might call orthodox conservatism has taken over, and the elites in charge have essentially decided—I’m being crude about it—to go on as if nothing happened. I mean, obviously something has happened, and hope for the best. I think that’s a project that will fail, and it will come back. I don’t know how it will come back, but I suspect if we continue on our present path, some point in the next 10 years, we will get a much more serious nationalist politician than we’ve had so far because it’s not working.

America’s a very different story because the economy in aggregate is working. I think, to me, what the elites in America don’t understand, and that’s part of my book, it’s where my book ends, is they’re playing with fire. That by buying into and supporting, directly or indirectly, a party that will be headed, I think, by this man, they are not creating a regime which will make in the long run the lives of themselves and people like themselves safer. And I discussed that in my book. But I think they have formed an implicit bargain, which I call, and I used this phrase first and I think I’m the first person, but I’ve not, because I’ve not found anyone who used it, in 2006 pluto-populism, or plutocratic populism. And sometimes I try to explain it by as the real meaning of the Southern strategy, how the South worked. But basically they decided: if we can get enough angry people to buy into a nationalist and culturally reactionary project to vote us into power, we’ll get the two things we really, really want: almost no taxes and almost no regulation. That’s the deal. And I think that’s a very, very dangerous deal.

By the way, it is why the German bourgeoisie and aristocracy chose Hitler when he got to . . . and they thought they could manage him. Again, I’m not making direct comparisons. So I think that’s the deal. And I think it’s a very dangerous deal because they’re playing with a system of power that history strongly suggests they can’t ultimately contain. Once you get somebody like this who really knows what he’s doing, and the best example I believe in the world right now in sort of major significant countries is Erdoǧ‎an. He will destroy the plutocracy or make them his slaves. And I don’t think the Americans understand that. Maybe they’re right not to understand it, but that’s the deal. And I wish they would stop it.

Raghuram G. Rajan: Yeah. I mean you keep saying, “I don’t want to make a direct comparison.”

Martin Wolf: Yeah, but . . .

Raghuram G. Rajan: But you’re implicitly, I mean you’re saying, “Yes, that might be stretched right now, but it may be reality sooner than we think.” And that’s—

Martin Wolf: I think the form of, I discuss this, the form of fascism we saw in the interwar period came out of very special circumstances with very special forms of social organization. And in particular, and this is something I’ve been struggling with and I still don’t fully understand, the move from a party-based, militaristic party-based structure of political organization, which was very much the structure of that time, to the more anarchic social-media driven political structures of today is, I suspect, very profound. And therefore, what happened with European fascism, particularly Italy and Germany, was the construction of a private army, which was both a political army and an army army, the brown shirts. And there is nothing like that yet. However, of course, if you wanted to organize something like that in the most heavily armed country on Earth, you know where you’d start.

Raghuram G. Rajan: Yeah. Well, we have some examples already of small military.

Martin Wolf: Yeah, relatively small. If after Trump drops dead, his successor is somebody who wants to create a private army, and then, I would suspect, that in America, if he controlled the main machinery of the state, they have a pretty good chance of doing it.

Raghuram G. Rajan: Right. So before I move to another issue, talk about, let me just, you mentioned a few leaders, a few countries in the emerging markets which have this kind of . . . what’s going on there? Is it a similar kind of populism? Who’s the angered lot there who—

Martin Wolf: I think there is actually . . . So all unhappy countries are unhappy in their own way. So I’ve spent enough time wandering around the world talking to people, reading, to realize that every country has its own story. And so all generalizations are dangerous. But I think there are some common elements. Usually, there is an important class of people, very big, who feel they have not been listened to, they feel they’ve been ignored, and they feel they are looked down upon by the social and intellectual elites of their country. I think that’s very obvious. It was very obvious in Poland. It’s very obvious in Turkey. I would suggest it’s quite obvious in India. It certainly was obvious in Brazil. And they want someone because they don’t expect anything of government. The second thing is, they don’t really believe government works. So why get invested in all the . . . and they often have reason for that because it hasn’t. And I could go through many of these countries, not all, Poland is a more because Poland did. But they feel it hasn’t worked for them.

And I think there are enough people in all these societies who can—even when they’ve done in aggregate quite well—who would feel that: What has this meant for us? Look at the unemployment rates in India, for example. The job opportunities available to many: not very satisfactory. In Turkey, it was very much the secular elite versus the Anatolian peasantry, who were much more traditional, more conservative. Social change reinforces that. So I think there’s usually a large number of people who feel unhappy, don’t trust government, think that their traditional values are being trampled on, partly because of social and economic change. And they feel nobody speaks to them. And their cause is often, again quite understandably, some sort of mixture of religious and national anxieties and anger. And they want a leader who will articulate that for them.

And I feel that if you go through the people who had [inaudible] or I mentioned a number of others, you can go to many others, they are good at that. And it is a way of mobilizing people. And it’s what Thucydides describes in his discussion of the Peloponnesian war. It’s really not that new. We know, we’ve known for two-and-half thousand years that that’s how democracies fail. Because if you don’t convince the majority that the system works for them, they’ll break the system.

Raghuram G. Rajan: Absolutely. So let’s move to the other big threat you talk about. So this was the demagogic authoritarian capitalism, the internal threat.

Martin Wolf: Yeah.

Raghuram G. Rajan: The external threat you talk about is bureaucratic authoritarian capitalism. I presume you mean China.

Martin Wolf: Basically I mean China, yes.

Raghuram G. Rajan: OK.

Martin Wolf: I do say China. I think one could say, but I don’t want to get into that too much. Vietnam falls into the same, very small category, just happens to contain the biggest . . . well, not yet, not anymore, the biggest country in the world by population, but never mind. Big enough.

Raghuram G. Rajan: So tell us more about that. Why is it an external threat and what should the West do?

Martin Wolf: Well, let’s leave aside the external threat for the moment. I think we have to recognize that China has created something new in important ways and extraordinary, a sort of communist capitalism. I think it’s a very delicate and fragile compromise too. And I have now written many columns going back almost 10 years in which I argue that the Xi Jinping project has a very good chance of failing, in its own terms. Because what he’s trying to do, he’s reimposed order because he felt—and feels rightly, I think—that in the context of China, the immense economic success of the market experiment brought with it absolutely, inevitably a rampant and colossal corruption of the bureaucratic structure, because you are trying to operate capitalism without law. And that Daron Acemoǧlu has got some very good stuff on that. That’s pretty difficult to do, and it’s corrosive.

So what he’s tried to do in response is not to change that, because he can’t have the law overriding the Communist Party. What he’s tried to do is create a greater discipline in the Communist Party and in the hierarchy by punishing a lot of people and frightening them. And of course that’s paralyzed the system. So he’s got a really big problem.

Nonetheless, there’s China, with this strongly reinforced bureaucratic system, which is quite defensive about that, doesn’t want to get any nasty ideas floating around in China, at the same time as China is, of course, deeply involved in the rest of the world. That’s a pretty fragile structure. And one of the things China will want to do is insulate itself as far as possible and insulate its people as far as possible from unwelcome ideas from outside. And naturally and automatically, that means they find themselves interfering in what we do. Not much yet, but in countries that are weaker, in particular countries close to them, the interference becomes quite obvious.

Now, how far this is a threat? I don’t share the American view now. America’s a very Manichean culture. And basically you’re either a friend or you are an immortal enemy. But I think we have to recognize that China is an important great power, which I believe we can work with and have to work with. But there are some really quite important points on which we clash, as a matter of values and as a matter of interest. There are things we want in terms of the independence of its neighbors, in terms of our own independence, which China will be trying to constrain. So I think we need to be watchful about this.

But my own view, by the way, I know this would be seen as . . . If I look at the threats to my civilization right now, if I compare it with the erosion of democracy from within to the threat to democracy from without, I’m more concerned about the former than the latter. I don’t ultimately . . . I believe that it is possible, maybe I’m naive, to work out a modus operandi with China. And I don’t believe that its ideology, as opposed to its wealth and power, is an enormous attraction to most people around the world. It’s rather different even from the Soviet Union in that respect. I remember in my childhood there were lots and lots and lots of communists. There are lots and lots of Chinese communists around. So I’m reasonably relaxed about China, and I’ve made this clear in lots of my columns. And most people I know in Washington think I’m a lunatic. So we will part company. I will part company with them on this, but I believe I’m correct.

Raghuram G. Rajan: Well, you have an agenda on how to bring the two countries together in your book, the deepened integration, focus on common tasks, and carrots and sticks, which I think people should read if they get the chance. But let me turn to solutions that you’re talking about. I mean you talk about, I think, four words, which I think are very important: security, opportunity, prosperity, and dignity. And you think those will be key to creating better conditions in the industrial world. Care to talk quickly about those? Why those four?

Martin Wolf: First of all, I think, I mean the best criticism of my book is I think . . . My own best criticism of my book is that I’m much better on the analysis of the problems than the solutions, which worries the hell out of me. But I haven’t read lots of other people . . . I don’t think they’re in better shape either, and at least I don’t pretend. So the answer is, I make it very clear that in general, with a few exceptions, I don’t believe there are transformative solutions because what we are seeing is partly—and it may get much worse with this A.I. revolution, which I don’t really discuss—that the economy is not helping.

But to put it bluntly, a lot of what we are seeing is the reversal of the mass industrialization, which did so much, I argue in my book, to create mass suffrage democracy. And that is reversing for very, very powerful reasons. And it is, in the process, also tending to generate a new plutocracy of extraordinary wealth and power, who own the great transformative companies of our time, which have some very peculiar characteristics. And one of the most important is they generate essentially no employment.

So Larry Summers, I repeat this in my book, has this . . . I got it from him originally. But he basically encouraged me to look at the employment generated by General Motors with the employment generated by the most valuable company in the in the US: Apple. And the difference is approximately, relative to population, 20 to 1.

Raghuram G. Rajan: Yeah. Though Amazon is a little better, right?

Martin Wolf: Amazon is better, but a lot of the jobs are not—

Raghuram G. Rajan: Not great jobs.

Martin Wolf: They’re not great jobs. GM created an incredibly—and all the rest of them—powerful middle class. Apple can’t do that. So that’s big. So we are working upstream. I think that the models I think we have to start looking at, which will be already regarded as absolutely intolerable, but I think the Danish idea of flex security is a very powerful one, if you can persuade people to pay the taxes. I think they should pay the taxes. I think everybody in this room should pay more tax than you do, includes me. I’m sure you disagree, but that happens to be my view. That’s an important part. That’s part of the politics. But it has to be spent well, which means you have to have an effective, credible government system. And that is, of course, something I discuss at length, how you might go about that.

I think we do have . . . I mean don’t agree with the full gamut at all of what Biden’s, you know, the new form of industrial policy is. But I think we have to look again, and Acemoǧlu and [Simon] Johnson’s new book is very important in looking at what you can do sensibly to shift and exploit new technologies in a way that benefit more people directly. I think there’s some pretty obvious big questions like: Who owns data? Who owns the data? Who pays for that? Why does Zuckerberg get to own . . . I don’t use his damn program, but anyway.

So there are questions about taxation, which you might well be coming to. I emphasize competition policy, which I think is a very big issue, because we’ve created some pretty powerful monopolies. And I think they’re about to get worse. And that is a concentration of political and economic power in private hands I don’t find acceptable. And we are going to have to invest a lot in regional regeneration. And so that means infrastructure and all the rest of it, even if it’s not immediately profitable. Because we can’t just abandon huge chunks of our population, and they can’t all move to London because they can’t afford a house. And the same, I think, applies even in the US. So I could go through these things.

Now is this a completely convincing package which will solve this problem? No, but I think these are the sorts of areas that governments in societies should be looking at, if they start believing that they can do some . . . They have to do something else than just exploit all this anger and rage or pretend it doesn’t exist, which is where I think we’ve been.

Raghuram G. Rajan: Yeah. I mean one support for these place-based policies is technology. Now that you can work at a distance, you can have more people earning incomes there.

Martin Wolf: I think it fits very well with the theme of your last book. And I mentioned that. And I think it’s something that many of us . . . I assumed 30 years ago that mobility will be easier to manage than it has been. And I think now it’s obvious that we’ve created massive obstacles to it of many different kinds. And in any case, getting enormous numbers of people to move . . . I have a friend who—I won’t mention his name—who happened to work in the Treasury for a while. His basic theory is, you can never save any of these places. Everybody needs to move to London. Well, I can promise you that’s not a governing program in Britain. And I don’t think everybody can move to New York either.

Raghuram G. Rajan: Of course.

Martin Wolf: Or Florida. God, help us.

Raghuram G. Rajan: Now, I . . . Well, one word, just dignity. What do you mean by dignity?

Martin Wolf: Yes, that’s important. Well, I think that has two dimensions, and on some dimension, this is very difficult. So one is dignity and work: that there is security, some basic security. That you can earn an income, either through, perhaps, partly through wage subsidies or minimum wages, which will work much better than I thought, which can have a reasonable chance of supporting a family. That’s part of dignity. Gene Sperling’s book, I think, is very, very good on this. And I respect him and I respect it.

But the other side of it is cultural. It is obvious and right that we are going through massive cultural upheavals, and have been for . . . But many of these cultural upheavals are necessary and desirable. It is not necessary and desirable—in fact, I think it’s profoundly counterproductive—to pour vast scorn on people who by virtue of their own cultural background, life experience, and simply by virtue of their age, just aren’t with this program. Because if you do, if you pour scorn and treat the non-university educated, older working-class people, as, to quote a famous politician, “Deplorables,” they’re going to behave deplorably. Quote, unquote. And you know what they did.

So part of dignity is accepting—and this is a very important part of my book, and I don’t think I get . . . — that citizens are all part of one thing. And they deserve respect in the political process. And if you don’t give them that, they will take their revenge. And so what I say in my book is, if once you get into a—and I don’t want to go into all the details—into a certain very aggressive minority identity politics, you will end up for sure with majority identity politics. And we know what that looks like. So we have to be careful about this.

So the big theme of my book, in this respect, is to try and think about policy and approaches that so far as possible are inclusive rather than exclusive, that don’t emphasize differences but reduce them. And I actually genuinely think on the whole with all the mistakes and problems, Biden gets that, which is one of the reasons I rather like him.

Raghuram G. Rajan: I do want to talk about your tax proposals. We don’t have as much time. You just wrote about the land tax in one of your columns.

Martin Wolf: Yes, yes. I’m very keen on land taxes.

Raghuram G. Rajan: So let’s—

Martin Wolf: I’m a Henry Georgist.

Raghuram G. Rajan: Henry George’s view on—

Martin Wolf: Of course you should tax land.

Raghuram G. Rajan: —the rents associated with land, which you think are fair game. But let me talk about two ideas you put out: the House of Merit and the House of the People. Can you talk a little bit more about that?

Martin Wolf: OK. Well, the former is really just in the British context. When you start [inaudible] political reforms, which is something I probably shouldn’t have done, but it was fun, you end up inevitably talking about specific national context. So we have a House of Lords, and there are two things we can do. I argue there is an argument for having such an institution, provided it can’t veto the proposals of the House of Commons. But if it has a very distinguished independent group of people who can revise legislation, address problems in legislation—which, in all truth, our members of parliament are not competent to do—that has merit. Actually, I think that in the British case, and I followed this fairly closely—I should admit I’m rather biased because my wife is crossbench peer, poor thing. But the point is, as an advisory chamber, the Canadians have a senate, which basically performs a similar function. And interestingly, the American Senate was originally designed in part to be that. I won’t go into that in greater detail, but that this is a quite valuable part of the institutional architecture. But it cannot work in the British case without a comprehensive reform of how it’s selected, which is, at the moment, a joke and a catastrophe.

But I think Mr. Starmer is likely to want to abolish it and replace it with something else, another elected chamber, and I think that will probably make it worse. My more radical suggestion, which I followed up in the column I wrote a week ago, is—and I’ve discovered, to my surprise, there are a lot of people interested in this—to introduce into politics what was essentially a core part of the Athenian Congress, and not replacing representative democracy. But, and I’m . . . This links with our . . . I don’t discuss this fully, the possibility of going to the Swiss approach on referendums. If you’re going to do referendums, you have to do it the way the Swiss do, certainly not the way we’ve done it, but I’ll leave that aside.

I came to the view that there’s a lot of evidence that assemblies, either ad hoc or possibly permanent, but let’s focus on ad hoc, of people selected by law, ordinary people who are asked to review and analyze important policy issues—and one of the most famous cases in Europe was abortion in Ireland, which I discuss—are able or have been able in some important cases to reach consensus. Close, not perfect, but a formed consensus which forms the basis of educating the wider public, if there should be a referendum or even in the political process. And I feel there are sufficient problems, deep problems— which I discuss in those columns and a little in this, with the representative democratic system as now manipulated with social media and all the rest of it—that considering the possibility of introducing the lot, the principle of selection of ordinary people by lot, directly into the political process, is something we should now consider, because the current political systems we have, with extraordinarily deep manipulation of public opinion by pollsters and so forth, is really to my mind, quite problematic.

Those were the ideas I float. And I would like to just start a discussion of whether, if we’re going to have democracies, what role might there be with fully independent voices of different kinds alongside the purely representative election, which, as we can see, can be subverted.

Raghuram G. Rajan: I want to give some time to the audience to ask questions. You see, we could keep going on. We haven’t even touched on ChatGPT Plus, which came after your book was written. But maybe some of you would raise the questions you want to. Gentlemen back there, in the green shirt?

Audience member: Thank you both for a great discussion. I guess on the same point you just mentioned. You talked about the industrialization of massive towns like Sheffield and other places which saw modernization. What do you think is the impact of A.I. on other towns now? Are we living in the same age? Will it be much faster? And how does government actually get this in control?

Raghuram G. Rajan: And your name, please?

Audience member: Ashwin, and thank you.

Martin Wolf: I’ve written one column on this. Look, I would imagine everyone in this audience probably has better informed views on the implications of A.I. than I have. I claim no expertise whatsoever in this. And so, that’s absolutely crucial. I sort of feel, though, that I’m not hopeless in this regard because when I read what the experts say in their letters—Musk got a produced letter—they sound pretty gormless to me too. Not that they don’t understand the technology; they may or may not. But the truth is it’s very, very hard to work out the full implications of a new technology on society. I can safely say that in the discussion in the ’90s, which I followed very carefully, on the emergence of the internet, there were very few—there were one or two—but very few people who got to realize how it was really going to work.

I’m sure that’s true here, but something that there seemed to me at least two aspects of it, which are central, must be central. The first is the power of the technology to create essentially limitless and perfect fakery. That’s pretty worrying. Fake videos, fake photos, fake stories. I mean, that could even be the coup de grâce for everything, because if you are . . . Any advanced society depends on trust. Without it . . . You can’t check everybody, everything. And so, this is really pretty scary to me. The second thing, of course, is that it may, and this is less clear—they talk about productivity—lead to a massive dislocation of jobs, predominantly for white-collar people. And there are lots of others. We add to the blue-collar mayhem a white-collar mayhem. And meanwhile, the people who own the firms that do this will convert from being worth $100 billion or $200 billion to $1 trillions.

And that’s just completely explosive. Those are two worries I have right now. Then the question will be: What do you think should be done about it? And my answer to this in my column was: I don’t know what should be down about it. My own view is it should all be closed down. All, every last bit of it. But of course we’re not going to do anything about it. Let’s be clear: we are not going to do anything about it. It’s just going to happen to us, as happened with its forebears, the social media, which are as remain. The Chinese government will do something about it, that I can sure, and we probably won’t like the results, but they are not going to let this run amok. We will. And so, we just have to pray it works out.

Audience member: Hello, I’m Sophia Matveeva, and I did political science at the University of Chicago and then I came back for my MBA at Chicago Booth, and I’m a big fan of yours, Martin. And you’re talking so passionately about democracy, but is it a universally good thing? Are there perhaps some examples of where democracy is not the best system? Is there, maybe, for example, an education limit or an income limit? Essentially, what are your views on: Is democracy universally—?

Martin Wolf: I have a chapter which has a very extended discussion of what is called epistocracy. As I’m sure you know, this, of course, is Greek. And the greatest, the most important epistocrat in the Western tradition was of course Plato. It’s very old. And he thought, and this is my better . . . I could go on forever because there are so many points to make about this. But he thought the obvious solution, and it fitted very well with what I understand to be the Chinese philosophical tradition, which is the solution to the problem would be to have a card of guardians. And the characters of the guardians in his view would be they couldn’t have families because that’s corrupting. You must never favor your children. They must be educated completely independently from the rest of society, and they must be completely disinterested. And he tried to pursue this program. Of course, the Chinese have over time, and mostly it hasn’t worked very well because pretty soon, if you give unaccountable power, where there’s nobody to account to accept the monarch, who’s generally rather sleepy, to a bunch of people who are informed that they’re all wise and all rational, they pretty soon become corrupt monsters.

Now, that isn’t always true, but the institution we created was closest to that was the Roman Catholic Church. And I would suggest a close history of the higher echelons of the Catholic Church in the late Middle Ages would be beneficial to people who think that solves this problem. My view is that . . . And the final point I would make, and this is very important. I don’t think self-interestedness, which is the main complaint, you know: “people don’t understand.” I think the problem with the elites that you would favor is that they are more rationally and ruthlessly self-interested than ordinary people. And I don’t want to be ruled by all-powerful epistocrats who are rationally and ruthlessly self-interested. We have enough of that already. So I trust ordinary people. But I discuss this at length in my book. There’s some very interesting American writers in that tradition.

Perhaps one final point. And I know it’s going too long. But the really big problem, which we did found in the 19th century—I mean, I’ve just thought the theoretical point—we constantly, in many countries, decided to change the threshold for the vote over time to include . . . as education developed, educational levels and property levels. And of course, every new line was palpably arbitrary. It couldn’t but be. A is just on one side, and B is just on the other side. Once you’re opening it up in this way, what happened everywhere is the people who were just on the other side said, “What about me? Why is this person favored over me?” There was no good answer. Actually, once you start the process of giving anybody outside the narrow circle of the aristocracy in our society a political voice, it starts logrolling very, very quickly to pretty well everybody. And the last group of people in our society to get the vote, by the way, were women.

Raghuram G. Rajan: On that note—

Martin Wolf: Rightly, by the way.

Raghuram G. Rajan: —I think what Martin has given us is many important reasons to read the book.

Hal Weitzman: That’s it for this episode of the Chicago Booth Review Podcast. It was produced by Josh Stunkel, and I’m Hal Weitzman. If you enjoyed this episode, please subscribe and please do leave us a 5-star review. And for more insights from Chicago Booth faculty, visit us online at chicagobooth.edu/review. Thanks for listening—until next time.