Mark Blyth’s State of the Union (show transcript)

The people’s economist Mark Blyth is a perpetual fan favorite for Open Source listeners. The Brown University professor, who never left behind his working-class Scottish roots, brings a vernacular wisdom and wit to his deep analysis of inequality, austerity, and popular unrest. He also often sees what the rest of us tend to miss. In 2016, he predicted both of the year’s major upset victories: the American election of Donald J. Trump as well the British vote for Brexit. You can read a transcript of our most recent conversation below:

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Mark Blyth: So what’s happened is after an incredibly long recession particularly in Europe you’ve got a cyclical turn up in the economy because things don’t stay down forever. Assets get cheap people start to buy them again. Programs like quantitative easing which are very distortionary nonetheless actually produce results in the sense that interest rates get low animal spirits are activated and job markets begin to heal together. All of this stuff is going to happen anyway. Trump came along just as he did for his coalition. He came along at the right time for the Coalition talked a big game and the markets turned at the same point in time.

Chris Lydon: Go back eight years in another way. The fashionable opinion will be telling President Obama –if you were doing it again– work on the job thing. Put health care and all the fancy stuff later. Work on jobs. Trump seems to have gotten that result, no?

MB: Well he just walked into the result. I mean let’s go back to Obama in the middle of a financial crisis what he’s been told if you don’t bail out the global banking system there will be armed riots in the streets and no food in the shops that was what was being said at the time. Hence we had to bail all the things that shouldn’t have been bailed. So faced with thought how do you do jobs? You don’t do job jobs. You triage the banking system which is what he did. And once you stop the hemorrhaging and you can put Bowles Simpson to one side you focus on health care because that’s a long term policy goal. So he wouldn’t have done any different. Trump has walked into his coalition and embraced it. Trump has walked into a good economy and taken credit for it. It’s that simple.

CL: How can the business class be feeling so crazy bullish about this deregulated economy and the rest of us feeling the kind of cosmic doom coming: robots, deficit crisis, debt crisis, over-liquidity crisis, a political substance crisis… Nobody’s talking seriously about anything anymore. I mean, how do these things coexist?

MB: Well they coexist because most of the time politics doesn’t matter. I mean if you’re in a cyclical upswing and the economy’s doing well and labor markets are fine. You can have a little more credit growth you get a tiny little bit of wage growth and inflation is low. So basically credit are getting paid back and it’s easy to service your debt because interest rates are low so you can reflate the system liquidate the system and keep it going. And that’s what’s happened for the majority of people they are actually not feeling existential crisis right. Maybe people on radio shows in very liberal states are but a huge number of people in this country aren’t, and that’s the fact of it.

Think about the guy’s numbers. The guy’s numbers still don’t drop below 30 percent. Right that means one third of the country isn’t really bothered at all, minimum, right? So existential crisis. Let’s think about AI. AI is going to take all of our jobs right? There’s a McKinsey Institute research paper that came out recently the view that was thought a 3200 senior C-level as they call them high executives that are using or are thinking of using AI stuff. 80 percent of them expect that they expect to add more labor because rather than less.

Let me give you an example from Rhode Island there’s a buddy of mine who runs a prosciutto factory here in Rhode Island. He basically persuades the family business to stop one of the most horrible jobs in the world which is moving prosciutto around as a physical task. So imagine your job was this. Every day you get up you walk up a ladder. You pick up a big pork leg right and then you have to hook it off, walk on a ladder walk along the floor move up another ladder stick on top again. How long do you think your back would last. Nobody should be doing that job right. So what did he do? He replaced everybody he was doing that job with the robots. Guess what happens now? His productivity is increased so much he went from employing 200 people to 600 people. We tell ourselves these “doom and disaster” stories. There’s something about particularly the liberal left in the United States that any type of change is a mortal threat. Now I don’t want to underplay Trump, his stupidity, his angst, the racism of politics of the moment, but really take a step back. We had the whole of last year we were all terrified. Nobody died. Right we were fine. The whole world is not in flames. Take a step back from this. Things change all the time, and because your guy isn’t on the team doesn’t mean everybody is going to die.

CL: Mark, what makes you so interesting for me as a political economist touching both of those elements is that you think about it the way we do with much more expertise, but also as a sort of social narrative. For years you told us that Europe, maybe the US too, didn’t have any economic crisis. It had a banking crisis, but that’s one of many. We have it seems an equality crisis. We have a political crisis. We may have an existential crisis as you say. People think we’ve got a social hatred and inequality crisis on our hands. Which ones are the real ones, and which ones are versions of each other?

MB: I’m on Twitter. I only tweet. I hardly ever reply. I don’t regard that as a medium for having a conversation and yet millions of people do. And if you go on Twitter and look for hashtags on certain things you’ll find there are crises everywhere there’s a crisis of every flavor you could possibly want breaking out all over. We’re looking at the symptoms not the causes. You’re looking at Twitter feeds as information. They’re not. They’re perspiration, they’re sweat, they’re angst. There’s no information there.

So everything has to be reported all the time and to. All the time because everything is really important all the time. Breaking news exactly the same thing that happened an hour ago. Everyone’s on edge all the time about everything.

Now, has politics fundamentally changed because of Trump? No. Politics fundamentally changed because the people in charge basically ignored millions of Americans and what was happening to their standard of living their communities what was happening to the life chances and opportunities and basically lived on the coasts and said to each other, “Gee isn’t everything swell?” And they got a really surprise when about 40 million of them said actually no we don’t like what you’re doing. And this is a global result that’s happened in lots and lots of countries there’s a left wing result of this and a right wing version of this. I wrote about it. It’s called “Global Trumpism.” You can go from the Philippines to Japan to Scotland to America. Guess what? They’re all self-declared nationalists.

CL: And you anticipated it…

MB: But my point is this: we’re looking at the symptoms not the causes. You’re looking at Twitter feeds as information. They’re not. They’re perspiration, they’re sweat, they’re angst. There’s no information there.

The real causes are a thirty-year shift in the way that the global economy works that essentially we went from a kind of national version of capitalism with restricted financial markets where full employment and domestic welfare were held to be the goals of the state to a world in which inflation became the mortal threat. Central banks became the governors and finance was allowed to do whatever it did.

CL: We’ve heard this story before but you tell it better than anybody. ’45 to ’75 the post-war bargain, strong unions, reasonably strong social services. Take us through it, and then what happened.

MB: So think about it you come out the trauma of World War II and the Great Depression, one of the things I always do in talks is ask how many of you got grandparents lived through the Great Depression. If you keep a hand up and say did that did they ever have or if they’re still alive to have dried goods and beans in the basement and they all say yes. Now, the U.S. trauma didn’t involve civil war Nazis and genocide but it did in Europe. So coming out of that trauma governments everywhere left and right said one thing full employment that has to be the policy goal. We can’t go back to that.

Now how do you make a full employment economy? Well it’s pretty simple. You stop capital exiting to find the highest return. You give tax sweeteners to make sure to invest at home. You get a really high rate of investment going. That creates high productivity which allows you to pay higher wages and firms innovate to pay the wages. And that continues as a virtuous circle, and it worked everywhere. It trebled French national income between 1950 and 1970 the Italians called it Il boom over the same period. And that was the general story.

Now, it had a weakness. The weakness is once you’ve got inflation in the system which has to happen when you’ve got super tight labor markets and there’s a whole story about the dollars that are national used by the domestic story’s the key. Once you’ve got super tight labour markets for 30 years the dumbest guy in your firm can leave the farm walk into another job and demand a higher wage. Eventually, you can’t keep up without the productivity. You have to pay more for less. You start to generate inflation. Once you generate inflation your profitability goes down it becomes rational to invest. You get stagflation, simultaneous existence of unemployment and yet at the same time inflation. The system gets a reset. The reset was called Thatcher Reagan. Was the reset in economic thinking around the time that expectations etc. And what this leads to is a whole new system reset with inflation as the policy target, finances are allowed to do whatever it can to find the highest rate of return and you end up in a credit induced rip that goes around the globe.

CL: Go back to the end of the golden age. I mean it came to that rather hapless figure of Gerald Ford with his winning button Whip Inflation Now. Why didn’t the powers whip inflation, or could they have? To say–

MB: Well we did whip inflation. Paul Volcker basically jacked up interest rates to 20 percent the rates on T-bills went up to 16 percent and the economy hemorrhaged and that was the Reagan recession. But one stock was down. What you did was in the 70s is a period right. Because what it meant was interest rates, real interest rates, were negative. What does that mean. The inflation rate is higher than the interest rate. So if you hold debt. Somebody else is paying the debt. Why have boomers got such big houses? Because they took a 30 year bond but the 4 percent coupon on it and inflation went at 10 percent. So over 10 years half the debt was eaten by the bank. How do you think the banking sector fell about that. Right?

So what happens is you get a system reset then you get to the 1980s you have historically high real interest rates. Why? Because inflation falls much much faster than interest rates. So you’re getting a premium for being in finance. All the money flows into finance. Welcome to the generation of inequality.

CL: It didn’t flow by itself.

MB: No actually, in large part it did.

CL: Really?

MB: I love this version of finance whereby a bunch of people who were 26 years old in 1977 somehow strategized that they would take over the world and by 2007 caused a global financial crisis where they would get bailed out. I don’t know about you, but I find it hard to strategize the weekend right? Just to get that far. You know?

CL: Yeah but, things work out. You have an academic friend it sounds a lot like me actually people who had middle class careers, paid their mortgages and now own what’s tremendously valuable real estate that their kids couldn’t begin to dream of owning. How did this happen?

MB: Well it happened in part because you had the 1980s where you had historically unprecedented high real interest rates and the people who were the hippies in the 60s accumulated assets with debt in the 70s and decided to kill the inflation to lock in the real value of those assets in the 80s. So you elect Reagan, and you got high interest rates all the way through. So you get an 8 percent real for sure but a checking account at Chemical Bank in New York and then you get a mortgage at that time and the interest rate continues to fall and inflation rates continue to fall. So you build up more and more assets over the life cycle cause growth is actually high in real terms. And by showing up and being on the right side of the baby boomer curve by the time you’re 60 you have pretty much everything.

CL: True.

MB: It’s not difficult.

CL: So, remind us of all those good protections that were built into the golden age that are gone now and then how the masses of voters without a leader without profound technical understanding of it get pissed off.

MB: I hate the term “the golden age” because it wasn’t golden for African-Americans it wasn’t golden for women it was golden for basically the white working classes who benefited from the G.I. Bill and a whole host of other projects. It was Macmillan who said you’ve never had it so good in 1963 and it’s absolutely true but valium prescriptions for women stuck at home had never been higher because they were excluded from the labor market. So let’s be careful about what we’re saying is the “golden age” here.

It was Macmillan who said you’ve never had it so good in 1963 and it’s absolutely true but valium prescriptions for women stuck at home had never been higher because they were excluded from the labor market. So let’s be careful about what we’re saying is the golden age here. Right.

The simplest way to understand it is from ’45 to ’70 the top of the income distribution went down the bottom went up massively and the whole distribution jumped up. So the whole society as a whole became richer. So even if you were losing at the very top the whole society was gaining. Well it began to happen in the 1980s was top tail just moved away. That your 1 percent. They just took it.

That’s what happened and it happened because if you were rich enough and able enough to capture financial gains in the 80s and continue to basically hold and trade those assets through the life cycle, you will make a ton of money. Why do you think Florida is filled with rich, old people? I know, I was just in Naples. I was one of the youngest people there. Loads of healthcare, healthcare and strip malls, everywhere. Wonder why? Because they’re all old.

CL: Track the populist reaction in this country and in the world. We’re still in the thick of it.

MB: Look only 25 percent of Dutch people voted for a guy who looked like a fake James Bond villain being Geert Wilders. And then the Le Pen family business didn’t make it in

part because they have two rounds of voting and because the rest of the ticket was split Macron won the election. But then when you looked at the deputies vote for like has people going into Parliament last time ever Merkel won she still can’t form a government to the Czech Republic. billionaire populists their version of Trump and then deal alternative for Deutschland they are a nasty bunch of folks. They are now 12 percent of the German parliament. So it’s definitely still there. Now why is it. Well let’s go back to that story in telegram middel over the past year things are three years in the making.

Have you ever thought eight years of wage stagnation for 80 percent of the population and they’ve been living off of credit and the creditors want their money back. They’re going to get pissed at the cost of the things that really matter in life education or a 100 percent increase since 1990. Higher education 150 percent increase in healthcare around 80 to 100 percent increase. Meanwhile all the elites are telling you. But don’t worry, core inflation’s low and your wages aren’t going to go up you’ll go to get pissed now at the end of the day somebody comes along and could take the form of Trump this could take the form of a left populist right.

This could be the guy who runs the M5, the five-star movement in Italy who’s got the biggest single potential vote share in the elections are coming up Beppe Grillo who’s on the left and what these guys do is they just call everyone else a bullshitter. Now they’re bullshitters themselves, but what they do is they basically come in and say hey look you know what healthcare is going up 80 percent in the US and your wages haven’t gone up a problem and so there’s the Bernie Sanders version. Here’s the Trump one: You know what took your job away? Chinese competition. No he’s not wrong. In the following sense: Lots of American firms moved from America went to China and then re-import here so it’s actually American firms are largely to blame for this. But there’s a huge trade effect. Go to David Auter’s wonderful sight to China shock. Look it up on google and you can google community a community on basically how much the impact of Chinese trade has been on the local economy. Huge. Right.

So there’s been real negative effects. Meanwhile our elites right whether it’s Tony Blair whether it’s the Clintons whatever has means everything’s great, the new global economy! We’re all doing fabulous! We’re only doing fabulous because you only talk to each other. You only live in half a dozen places and you all have tons of cash so if you travel internationally everybody’s like you you’re not a nationalist you don’t have a national or local identity you’re rich enough to be a global cosmopolitan and you can enjoy all of the fruits of globalization but not everybody else can. Put that all that together. And it’s self-explanatory.

CL: Imagine the future course of this beast, this populist engine.

MB: So people say to me here’s the thing about your theory that it’s all about things like health care and education becoming expensive and people get pissed off. What about in Europe? They are big welfare states and the still have populists. And here’s the thing. Right across the world again it’s aging. There’s a huge amount of social expenditure in Europe even in Britain which is a crappy welfare state. The vast majority of it goes on pensions. Why? Because there are more and more old people. Theey’re the ones that have the assets but also in Europe have quasi universal systems where they get up to 80 percent of the last wage replaced as the final pension — hugely expensive.

Now at the same time they’ve been cutting taxes so they’ve got a revenue problem they went through a financial crisis and they’ve got more debt even though interest rates on the debt are very low. Don’t forget that. So they’ve got lots and lots of people basically withdrawing cash from the state. You’ve got less and less people coming in. Because we have less kids and also because we don’t like immigrants. So you have a long term massive fiscal problem. [Right now what does that mean. It means that all the stuff that you would do to basically offset trade effects of globalization de-skilling of the workers replacement by technology. That’s the stuff that’s been getting cut. This is this stuff there’s been residualized over the past 15 years in Europe and you look at the aggregate numbers huge amount of social spending. Look at the numbers spent on the stuff that would actually make a difference. That’s what’s been getting cut because you can’t cut pensions. Why? Because everywhere in this world pensioners vote two times as much as everybody else. They all show up. They all live in a fixed income. They hate inflation and they want THEIRS.

CL: Do you want to imagine the consequences of the tax cut? This incredible bill on which there are no hearings in which the Republicans have made an unbelievably risky bet, it seems to me. What’s going to happen?

MB: I think it’s a rounding error. It doesn’t make a difference.

CL: Really?

MB: Now here’s the story. So, go back to the financial crisis the US economy at the turn of the financial crisis was I think about 15 trillion dollars right now went from 60 percent debt to GDP to 100 percent. So and then it grew to 17 trillion by the time it adds up. So you’ve got 17 trillion dollars in debt. Well it’s going down now because the economy is growing is about 90 percent of GDP and the economy is now up again to about 18 trillion.

So let’s kick it forward 10 years. You’re talking about 26 trillion dollar economy. And let’s say that miraculously growth sustains itself there’s no massive recession there will be but just presume there’s not. And then just on those dynamics alone. Back of the head calculation your debt to GDP should probably fall about 70 percent just by the dynamics of growth. Let’s assume there’s a temporary spurt of growth extra because of the tax cuts but it peeters out over time. So you’ve added one and a half trillion to the debt but it’s going down because of growth dynamics and it’s now 25 or 26 trillion. So you’ve got less debt rather than more. What’s the problem?

There isn’t any. All the stuff of that massive fiscal responsibility — I’ve been telling you this for years– if you are the United States, if you get to print the global reserve asset, if you get to print the debt paper that everybody else has to and in order to conduct foreign trade as you get to offer t bills. There’s never been a t bill sale that’s failed China that doesn’t want to hold them anymore reduced its holdings for 3 trillion to one and a half trillion. They’re back up to three point one. There’s nothing else to buy because we won’t sell them guns pharma tech and they keep selling us stuff and Wal-Mart. So they keep it in dollars. So they buy more T bills which produces low interest rates here which allows us to go to Wal-Mart and go, jesus did I just get a TV for 500 bucks? Yes you did. Welcome to globalization. That’s the mechanism that’s what makes it all work.

All of these accounts in 100 to a huge number while these are huge numbers huge economy. So yeah should they have done this tax cut. No. If we can afford to spend 100 billion dollars. We shouldn’t be giving way to rich people we should be investing it in schools and infrastructure all the stuff we know we should be doing. We’ve got the U.N. walking around the United States just now worrying about our urban and rural poverty, as a developed country we should not be in a state we are cutting back every aspect of Obamacare which is basically saying 5 million people you you’re going to die early because we don’t want to pay for anything. This is disgusting this is disgraceful. We should not be doing this tax cut.

But really if you follow the *gasp* debt the terrible debt. Right. You’re playing into the hands of people at the Peterson Foundation and who politicized the stuff the debt clock all this stuff because it’s basically a 1 percent doesn’t want to pay a wealth tax right the end of the day. That’s it. So they want everyone cut No. So the deficits and debts are reduced. So when it does become critical they are not asked to pay for anything. That’s all this is.

CL: Mark I’m fascinated that you’re putting more and more premium in your full maturity on the role of leadership, personal, charismatic, serious, persistent human leadership. Where is it and where do you look for it?

MB: You’re right. Actually really good of you to notice this, this is absolutely true. And part of this is an age thing right. So I know at the age where I run things and everybody I know runs things so you can’t just basically go somebody else is going to fix this right. You basically are aware of who’s running stuff and you begin to realize how much as badly run. I mean how many things that we take for granted are just run by Muppets. So you begin to recognize a non-muppet when you see one and go wow that’s actually amazing. So leadership is important but at the same time the story that I tell about Trump as he hasn’t blown up the world yet doesn’t mean you won’t blow it up in 2018. I have reasons for doubting that we can get into it. You’ve got strong institutions, you’ve got the Mueller investigation, you’ve got the fact that South Korea doesn’t want to die in a nuclear war. There’s lots of things going on there right. But nonetheless the quality of leadership matters.

Now here’s a little anecdote. I was at a Big Finance Conference in 2017 and it’s like serious money in a room hedge funds and University endowments all that sort of stuff. And I said to them Look let me ask you a question how many of you fund political campaigns on politicians. Every one of the university foundations don’t do this but basically they do it right. And if you think about it this is something that the top 20 percent but really the top 1 percent of America does. That’s what all the money comes from for politics right. So you’ve got all these people that do campaign financing et cetera. And I said how many of you would allow any of the people that you gave money to their campaigns to run money in your company. And the whole room collapsed and laughed. I said no no stop laughing that’s not funny because if I’d asked that question thirty years ago a lot of you would have said Yeah absolutely. Because there was a quality to what you might call the political capital of the political class. These days there are a bunch of ambulance chasers who take on public service to figure out what they can learn so they can go sell it to the private sector working as a consultant or work running a foundation or whatever is tenure of congressmen, down! expertise of congressmen, down! A bunch of partisan hacks and ideologues. No that’s why they won’t let them run their money but they’ll fund their campaigns. That seems to me an incredible disconnect and an incredibly dangerous phenomenon.

Right across the world the quality of political leadership I think has collapsed and that’s why people are listening to nationalist populists and leftist populists because at least there’s an authenticity and a clarity and a resolution to what they’re seen as opposed to oh I don’t know what do you want this week. Like Marco Rubio, Marco Rubio a man of principle he’s going to say that I’m not going to vote for the tax cuts unless the child credit goes back in. What happened to that one? Folded in a minute. Right. It’s the same story everywhere. So I truly despair at them. The let’s say the credit quality of the political classes.

CL: I wonder why. I mean I wonder how that happened. I mean people have been lamenting the Boomers as public people for a long time. The Clinton cycle seems to have finally been exhausted.

MB: No, no she’s going to run again.

CL: You think?

MB: Oh yeah oh yeah.

CL: She told you?

MB: No no, but it makes sense.

CL: Are they gonna nominate her? Is Tony Blair going to run for prime minister? I don’t think so Mark.

MB: Okay let me run a scenario past you. All right so what’s the very first thing that Senator Clinton does the day she gets she’s defeated?

CL: She writes a book.

MB: No she sets up a network of activists that is designed to get more women into office. Apparently it’s quite successful. I forget the name of it but you’ve got a separate e-mail list from the DNC and a bunch of foot soldiers the day after. What’s the next thing you do? You get Tom Perez to come back and run the DNC and you start a not-too-quiet purge of all Bernie supporters. Number three, you’ve got the Donna Brazile book comes out that basically says the DNC was run by Clinton money for the Clintons. So they run the finances of the organization that’s going to choose the nominee. Number four you write the book the book is completely self exculpatory and attacks the one guy who was the main threat to you and remains the main threat to you even though he went out and campaigned for you. Number four you began the apology tour. You go to all the places you didn’t do before you do some more public speaking and you tell people you’re listening et cetera et cetera. Six months from now you get the exploratory committee. Why do you get the exploratory committee. Because if I have all that and I’ve killed everybody else I’ve got the Evil Queen problem. No one else can rule Westeros because I’ve killed them all. So it has to be me. I’m back.

CL: This is sounding more like what I see Biden doing.

MB: Biden is 105 years old.

CL: But where there’s death there’s hope, as the man said.

MB: Oh society does evolve one funeral time. That’s true. And there are actually now more millennials than there are boomers. But the problem is as I said before the vote twice as much. And let me give you some wonderful statistics on this. Eighty percent of all financial assets in this country are owned by baby boomers. But that’s misleading because even though that’s a huge concentration because they’re are just one part of the population the top 20 percent of boomers own 80 percent of the 80 percent which means that 64 percent of everything is owned by the richest boomers in the country right. That’s your real 1 percent or concentration 1 to 5 percent. Basically everything. So they’ve got everything. Who do you think they’re going to vote? Think there’s a lot of Bernie Sanders supporting that one?

CL: They’ll vote for Hillary, you’re right about that.

But what’s wrong with the boomers Mark?

MB: Everything.

CL: Begin at the beginning.

MB: So imagine it’s 1968. You get to go to the University of California Berkeley for a couple of hundred bucks a quarter you get the greatest minds of the post World War II generation which have fled Europe and made home in California. You get to live in the summer of love before there’s aids or even herpes to live about. You get to be a hippy. And then in the 70s you have to get real. So you start to accumulate assets. There’s a lot of inflation means your nominal wage is going up your real wages going down. But if you buy debt and statements it means that the holder of the credit the credit or on the other side is eating at cause of inflation. Sainsbury must have big houses as we said before. Right. So then you get to the 1980s and then in the 1980s you’d say oh there’s just too much you’ve got to change it up so along comes

MB: Reagan was a guy who was totally wrong in the 70s and totally right by the 80s — the whole world moved to his preferences. There’s a brilliant book on this called The Invisible Bridge by Perlstein.

CL: Yeah, Rick Perlstein indeed.

MB: Fantastic book and what he just shows us how you’re going to 1969 like Reagan was this freak, this weirdo, who was concerned with stuff that nobody give a damn about….

And then the 70s was such a crazy decade that by the time that you get there basically everyone’s come to him and his preferences. So you get the reset you get Thatcher thought of the same thing. So you basically start going about full employment it’s all about inflation control you got to cut down public spending and you go to war with unions. You do all sorts of stuff. You liberalize, you globalise, you integrate, your privatize. That’s the mantra and basically you start to get this huge set of returns going to the top 20 percent particularly the 1 percent.

But that’s boomers because at that point in the 40s now the people who are voting for us because they’ve got assets they don’t want to have high inflation eating away their savings anymore they want no more and no real interest rates. So they ride this out all the way and you have the bull market from 1987 and stocks all the way to 2007 you got a 401k. Fantastic No. Trump was the other day going look at the stock market 401k everybody’s doing great. Last time I checked the numbers, only 22 percent of American firms offer 401ks, and half of all 401ks have no money in them. So once again what that means is on average Americans I think thirty six thousand dollars in their 401k? No, it means a whole bunch of people like 10 percent of 360000 and a huge amount of people have absolutely nothing and are bearing like they’ve got Social Security and that’s it. And guess what. Ryan that piece of Ryan has already as you know this is the danger of the tax cuts right. We’ll do the tax cuts then we’ll have a deficit. Oh look the deficit. We need to cut Social Security. So ridiculous.

But any way to go back continuing with the boomers by the time you get to the 1990s that in the 50s they’ve paid off their mortgages that it’s hard for us to send their kids to college because college tuition hasn’t gone through the roof yet. What’s not to like. They vote for Bill they vote for Hillary. It’s great.

Then you get a 2007 — boom, the whole world goes down. Guess who you’ve got to bail out. You got to bail out the banks. How do you get to bail out the banks? Well, here’s the thing about banks: Assets and liabilities for a bank are different from you and me my asset is my condo in Boston. That’s the bank’s liability because they don’t want to own a condo they want the income from the mortgage. So they’re asset is my liability. Vice versa, and it sums to zero. When you look at it that way when you build a bomb you’re bailing out the assets and incomes of the top 20 percent which would be particularly the top 20 percent of boomers which would be particularly those who own 64 percent of everything.

So they’re not awful in the sense that they are awful people. They’re just following the incentives mean laid out to them in a free market system to accumulate as much assets as possible and leave it to their kids which means they hate inheritance taxes they want to pay a little marginal rates and they continually vote down things like bonds for schools bonds for subways Boston et cetera et cetera. So you know they’re acting in a completely understandable way which for them is individually rational but it’s just really crap for everybody else who come in behind them who can’t accumulate assets in the same way precisely because they’ve done that.

CL: That’s the boomers, and we think their day is over.

MB: Oh no they’re around for a long time. You say you want to make a lot money over the next 15 years it’s that easy. Build a portfolio entirely around health care and Big Pharma because the boomers have the money intend to live forever and they will spend all the money they can and still leave a boatload of cash to their kids drawing down not just Social Security but huge amounts of healthcare. Which is why this country is scheduled to go to 20 percent of GDP on healthcare when everybody else in the OECD is under 10 percent.

CL: I think I’m going to go to Cuba and get it much cheaper with better music.

MB: No they’re not inventive enough to do that. Come on.

CL: Come back to the people who are called the problem these days. I figured out from reading you now that the problem underlying this populist wave is debts are too high, wages are too low and inflation is too low to be eating up their debt. So, what’s for them?

MB: So Nassim Taleb and I had a conversation a while ago and then this is the one we came up with that explains. Ben It comes from his observation. Why do we eat McDonald’s when we drive around in preference to other foods like Taco Hell or Dead Lobster because it’s very very hard to get [what?] to McDonald’s and they are cheap and are consistent and they’re great, but as Morgan Spurlock showed us if you eat them for a year really bad stuff happens, right? No.

Let’s think about this from the point of view of Trump voters. So you live in the part of the country where you don’t get private equity investment. You live in the part of the country where there are massive potholes where you’ve got Republicans cut taxes all the time and hand in back money. The top 20 percent which means that your schools are total crap. You have more and more social problems as a thing to look at called the distressed communities index. Wonderful thing that takes into account everything from unemployment to opioid addiction to healthcare access etc. and the sheer number of stressed communities across the United States is mind boggling. And guess what a lot of them are in Wisconsin and Pennsylvania became the blue states that flipped for Trump right. Now basically imagine the following–

CL: A lot of them had family members who served in Iraq and Afghanistan too.

MB: Exactly. The other one percent. Absolutely. Do liberal elite do that? Very very few do conservative elites do that are very very few.

It’s these folks that are doing it, right? No. You’ve got a situation where over the past 24 years people have come in every four years they fly in to your fly over state and they say to you vote for me jobs vote for me holp Vote for Me change and things don’t change. They actually get worse. So after a while you begin to figure out doesn’t ma Democrat Republican utile while you’re just a liar.

Now along comes the next lie. There’s no upside in voting for a liar. They are a liar. Along comes tunk trumps a bullshit artist. No there’s potentially an upside with the bullshit artist. He might actually pull this off. He’s at least talking your language he recognizes who you are. He doesn’t patronize you he doesn’t say things like as a White House economist once did during the Obama administration. But iPod’s are getting cheaper. Yeah it really makes a difference. The family hold that shit together doesn’t it. So anyway they don’t patronize in this way comes and basically talks your language with what he’s basically saying is you guys they’ve been feeding you McDonalds for the longest time. Look what happens if you eat Mcdonalds for 24 years. Have you seen the costs. They are bathing in lobster. They’re robbing foix gras on themselves and laughing at you. That’s an incredibly powerful narrative. Now regardless of the truth content of the narrative right.

Once you’re onto that you have create a constituency which is yours because what you’ve then got is a form of schadenfreude politics. See it doesn’t really matter if Trump makes things better because things for me suck as they are but if they make things worse for those guys I’m going to enjoy that. So what happened in the tax cut. Lots of blue states got more expensive because we can’t write off state and local taxes anymore. We can’t deduct up to one point two million and interest on our mortgages anymore. So all those liberals said I think people should pay more taxes as well. Guess what! Now’s your chance. No I didn’t want to be the guy who paid more taxes so I could write a very big check to my favorite rich person and hand it to them as an extra bonus to paraphrase Barbara Ehrenreich on the tax cut. And that’s what’s happened. But you can imagine there’s a certain amount of Schadenfreude and this one. You want a tax reform watch this and then give it to my guys. I’m not going to give it to the people who voted for me and find them and give them even more. But here’s the payoff for them. I get to screw you, and they hate you.

CL: At a time when people love to imagine things are all falling apart for a million reasons, identify some of the things that are not a problem. Maybe immigration, maybe identity politics, maybe racism, maybe human evil. What are not the crises we ought to worry about?

MB: Look everything you just identified is a real problem. And politics over the past two years has really brought this to the fore. The United States is a racialized polity. Its politics have always been that way from the Southern Strategy onwards. The fact that the Trump campaign wasn’t dog whistling it was walking around with a pack of dogs that were whistling. There’s no doubt that racism has increased. There’s no doubt that the All right movement and basically citizens militias wandering with guns shouting about death to Jews and socialists. Yeah, it’s pretty scary stuff right. But there is a show and tell in all this. How many of those people actually are them. How many of them want to go to Charlottesville and kill one person. Absolutely tragic that this happened. I’m not downplaying that at all, but they kill one person and a couple of hundred of them. They’re outnumbered by the news media who are following them around. We’re turning this into this sensationalized panic, this proto civil war across the country which actually most people don’t see and aren’t involved in. You’ve got elite screaming at each other about it’s all racism. It’s theirs no look at the terrible gender politics all that’s obsolete. But the vast majority of people in this country look at the surveys don’t really care about those issues. They don’t, particularly if you look at Republican voters. There was one that came out a couple of weeks ago. No Republican man according to this survey are talking to their families about Me Too or sexual harassment. None. That’s half the country.

So all those things are real and there’s a kind of politics of distraction with this being real and here’s what I mean by that. The Trump administration just managed to give the inmates a trillion and a half dollars out of the public purse because we are correctly focused on cultural social and identity issues which are real and affect the lives of hundreds of thousands of people and the price of us focusing our anger there is the in the middle of the night still one and a half trillion dollars. That’s what’s going on.

So there’s lots of stuff that’s wrong but the more we focus on this stuff that’s over here and fight amongst ourselves which is what the liberal elites are doing. The more they walk off with more and more and more and undermine more of our capacity to intervene in the economy undermine more of the capacity of the state to produce any public goods whatsoever. That’s their game. Bannon says this all the time. I love identity politics because the left just rips its own face off over it and I win every time. And he’s absolutely right.

CL: Mark Blyth, what’s the agenda for 2018, I’m talking about economics politics but also us the conversational agenda.

MB: I have no idea. The same as in 2017 we simply don’t know what was it we got distracted with. There was a tweet yesterday about Trump stops planes falling out of the sky or something unless we felt. We don’t even care anymore. So the big ones are those. Are we all going to die in a nuclear war because of North Korea. It might happen. You know it’s kind of unpriceable risk but you’ve got certain factors that would stop this number one. Japan doesn’t want to have another nuclear bomb go off in its territory. They’re kind of important. Neither does South Korea very much doubt that North Korea who are playing a very strategic game here.

Piss off the U.S. press off the U.S. then get concessions elsewhere. They are actually not going to go anywhere with us. They really want to threaten us with it. Yeah they are going to fire. Nor we turn them into a car park. Ridiculous. So there are strong structural reasons as to why I don’t think that’s really going to kick off. But you don’t know trunk could be completely mad. Well maybe I don’t know. I’m not a psychologist et cetera. I don’t know how you actually file nukes. People are worried about this. It’s a threat tail risk. It’s the. I can’t price I don’t know whatever else.

Let’s see, bitcoin! We didn’t talk about that. That’s a good one. If you got in early, fantastic, God love you. What you’ve got is a 400 million dollar asset class. Essentially Chinese gamblers smugglers and direct people who used to invest in unicorns in Silicon Valley but got bored with thought have decided to buy a prestige asset. The more of them that buy it because it’s in limited supply the more the price goes up and it goes up and up and up and it’s incredibly volatile.

So here’s my line on bitcoin is it money. Number one if you have to explain to someone that it’s money it’s not money. Number two a store of value. No it’s too volatile a unit of exchange. No because everybody’s hoarding it because they expect the value to go up. So this is a bunch of rich people buying and selling stuff. That’s all it has. But what about blockchain, the technology behind. I’ve been hearing this for 10 years and waiting to see the results and it will still be the same in 2018.

CL: We barely mentioned China, even among the people who don’t want a nuclear war in Korea.

MB: Right, so they also have a strong interest in not having a nuclear war in Korea.

Let’s imagine that it all goes pear shaped. It turns out that Trump is mental Kim Il Twinkies drunk they decide to fire a missile at San Francisco gets through the United States does full retaliation. What’s the incentive for the Chinese to law but they are 100 vessels. The U.S. even if this happens given redundance second strike capacity zero. So again they don’t want bad stuff to happen but they have a kind of like dog on the chain problem. You know the junkyard dog problem. So you get a junkyard dog you got a junkyard you put a chain down you nail it to the chain and you tie the dog up you feed the dog blood or you make it into this psychopath. Right. And then you basically at one point have to move the dog. How do you move the dog with the dog tear in your arm of gray against burglars. Totally random violent generally a machine. How do you control it. Once you’ve set up that’s the bready much the problem that the Chinese have. Now, we’ve got a bright idea now we’re going to cut off petrol to them and cut off oil. All right. Chris, when was the last time we cut off an Asian country’s supply of petrol? Do you remember?

CL: Remind me.

MB: It was Japan in 1941. So the real trigger pressure comes from the fact of us playing it dumbly rather than us playing it smart. That’s always the case.

As for China itself it’s going to continue to tick along growing at about 6 percent with a banking system we barely understand level the was to send an enormous war chest trillions and trillions of dollars in the form of t bills and other assets. It’s decided since we won’t sell them real stuff they’ll make their own. It’s called the One Belt One Road project. They’ve got forty seven billion dollars building port facilities in Pakistan some a lot of mountain Djibouti. They’re building infrastructure roads all over the peninsula down in Indonesia. So they’re basically taking the core of the global economy from Europe and the United States — all old by the way — growing slowly close to old people save too much. They’ve already bought the fridge to places with much better demography. China is not one of them. The rest of the neighborhood has and they are basically going to move the global economy over there.

The one other thing I think it’s incredibly important is if you look at India you look at China the air quality is terrible doesn’t matter if you’re rich or poor you can’t escape this one. You can do the Matt Damon film where you go live in a space station of your rich not one is not there. So these countries have an enormous incentive to clean up their environment the way that China got which was basically comparative advantage and cheap labor and environmental despoiler ation their wages are rising and they can’t spoil the environment anymore so the change in the growth model they want to be much more consumption-oriented hence one belt one road all the rest of it. What that means is we are behind the curve on where they want to be in terms of exports. They don’t want to export anymore and volume they want to import and grow their own economy. So they’re already there. What one belt one road’s about, Trumps jumping around and an unfair Chinese trade is like look at American firms and China selling shit to Wal-Mart right. This is not exactly Chinese trade. Try and figure this stuff out. Right.

But the long point is this when you’ve got a huge incentive to clean up your environment and you have these semi authoritarian regimes, they will. China installed in 2016 more solar 2015 and 2016 more solar than the United States has. One of the consequences is the United States turning away from climate change is actually progressive climate change. Here’s why in 120 countries getting it once again one of the one of the consequences of the United States turning away from climate change in the form of the of the court is actually more hope on climate change. Here’s why. Everybody sits around waiting for the Americans to do stuff. So we come and we sign on. Everyone goes great we’ve done stuff you haven’t done crap then you’ve got to get the states to do it and you’ve got to get the Senate to ratify it. And there’s always going to be opposition. Given the power of coal and oil and other industries.

So what happens is you’ve got countries like China which are actually growing incredibly polluted. And they’ll look around and they say we have to do something about this. So then you look at the Germans and the Germans have been doing over the past 10 years called the Energy and the energy shift the Shandong nuclear. Some of the states and some of the cities in Germany can generate Southpoint 30 percent of their power needs just from renewables. They’ve got countries like Zemans BASF all the big conglomerates that are engineering the best engineering in the world and they’re basically making the green tech the wind mills the steel or the next generation solar products the renewable tech they are licensing it to the Chinese. The Chinese are not up to scale Putin out there and then they’ll get a back. So they are doing the technical fix that is the would be the only real thing that makes a difference because we can have as many Copenhagen and champagne tours as we want but unless you start doing something about climate change nothing happens. Now having the Americans onboard is great but we talk a good game but we don’t do very much and the ones that do like California are going to continue to do that anyway. So Trump telling the rest of the world we are not playing actually produces the rest of the world. And you know what we need to do ourselves.

And one of the reasons I think that I really understand a lot of what’s going on with populism is I come from the same background of the people who are pissed. I don’t fit in. I’m an interloper and someone butcher boy from Scotland.

And what that means is like I Garah I get tribalism I get local identities and I get football identities I grew up with some of the worst ones in the world. So I get localism I get sort of you know don’t try and step out of your zone while the rest of these are not little things that people do to protect themselves and the very limited access that they have. And if you’re constantly talked down to by sort of the upper middle class elites who know everything are so good and they understand everything and basically you know you get Afghanistan you get you get you know you get Iraq oh don’t worry oh for itself you get the global financial crisis right. You got liberal humanitarian interventionism that gives us the Arab Spring and like a whole new civil war in Syria and a new branch of dictators all of these guys have been shown up basically on any clever than anybody else. That’s why we don’t have faith in them anymore and I understand why ordinary people kind of get the notion that they’re all poisoned by Fox News. It’s truly insulting. Look at your own record. Figure out how smart you really are. And then tell everyone you should believe in you. Maybe that explains why it is that people don’t. And why it is that we don’t have that many politicians coming forward in the mainstream saying I’ve got it figured out. This is what you need to do. Because deep down inside they know they’re bullshitting too.

We’re waiting. We’re waiting for somebody who are a movement and we are a generation and we we’re in fact a generation that’s exactly the right word.

You know just as Hillary might run again he might run again we’ll have a rerun. It’s the same old people who own everything. Just like refusing to let go. Now here’s the thing that was said before there are more Millennials now than there are boomers. But you must have all the assets and vote twice as much and will vote for asset preservation which screws everybody else down the line. Millennials need. And also even beyond millennials whatever generation is they now have a number. These boomers they need to show up. They need to take control of the Democratic Party. They need to take control and you see this to actually begin to see this in Britain with the Labour Party. They need to get control of the Labour Party. They are the ones that need to set the agenda in terms of their priorities. They need to show up politicize argue get organized and stop just then oh thought pointless or reading online media which is completely distorted because it triggers your dopamine rush to have your preferences satiated. So think for yourself. Get forward organize start voting on mass become the generation that we need. Because there’s so much that’s positive thinking about technology. We started with this one right. Oh technology’s going to destroy all these jobs. Bullshit I gave you the example of pressure factory like just one piece of anec-data right 80 percent of CEOs expect to employ more rather than less people because of AI. When you have economies that are dominated by old people they save too much they don’t spend enough. The growth rate lags. They all care about inflation. They don’t care about growth they don’t care about future investment so your productivity plunges. This is happening and all the countries.

The only way to get productivity up because you need to be richer over time is if you basically introduce tech. It’s just a question of how you do it. Just as nobody in this day and age should be woken up a lot and move and prosciutto around for ten years because they’ll be on worker’s comp for the rest of their lives. There are loads of jobs that we don’t need to do that could be done way more efficiently and the productivity gains from that can be enormous. The only question is the distorted politics of who gets the returns to robots. What exactly happens with monopoly and concentration. And that’s exactly right. As it used to be thinking about fighting about there are the issues for the millennials to fight on. I don’t even understand the issues.

What about the discovery. You know that these digital tools Google Facebook Amazon all of them unbelievable monopoly say just insanely profitable monopolies for very few people about 60 60 percent margins on them because the marginal cost of producing and other digital services zero.

That’s a dead easy stuff to become a monopoly player. All they care about is being monopoly. Peter Thiel said this in his recent book. Basically the whole point of capitalism isn’t to make money is to become the monopolist and you get to print money. That’s exactly what they do. So Amazon is on its way to becoming the first trillion dollar company. And then it will get split up. That’s what we do think of.

We did it with the phone company. We did it with IBM. These companies have more data on you than the NSA possibly cannot possibly be justified. All right. Don’t do evil isn’t good enough.

Particularly you make it 60 percent margins and it’s going to hardly any people. And you agree. And what you’ve basically got now given the start to the Internet and the way people interact through is these are public goods. Therefore there should be utilities.

Therefore they should be regulated as utilities and stop using Facebook as just rotting your brain.