Professor Brad DeLong of the University of California, Berkeley

Welcome to the Puck Venture Capital and Beyond, a show that examines the changing landscape of our world. We'll have candid conversations with VCs, entrepreneurs, and thought leaders grappling with our current challenges and providing solutions to key problems we face as a nation. I'm Jim Beer, president of CMG Advisors. This podcast brings change makers to the table to discover the inner workings behind their decision making strategies and ultimately to how they got to where they are today. The increasing wealth inequality was not it isn't an unintended consequence of quantitative easing.

It was in fact intended, but, you know, it was an intended side effect. In light of our recent In light of our recent financial upheaval, we at the Buck felt that a certain amount of historical perspective would benefit our listeners. Professor DeLonge served as deputy assistant secretary of the US Department of Treasury under Larry Summers in the Clinton administration, and he's recently published a fascinating book entitled Slouching Towards Utopia. We are excited to share this conversation, so let's get to it. Brad, welcome to the puck.

Take a minute and tell us a little bit about your background. Well, to say I'm Brad DeLong. I'm 62 years old. I was born in Massachusetts, moved to California when I was three, and went to Caltech Nursery School. Parents moved to Washington DC, and I moved along with them when I was five.

Grew up in Washington DC, then went off to Harvard, graduated from college in 1982 when the unemployment rate was 11%, looked around and decided I did not want to be in that job market, I wanted to stay in the university, and I have stayed in the university ever since except for three years as a deputy assistant secretary of the treasury for economic policy. I'm now a professor of economics at UC Berkeley. I've been two online since 1995, and I have just written a big 600 page book, Slouching Towards Utopia, An Economic History of the Twentieth Century, which is now closing in, I think, on 20,000 all format sales, and I'm anxious to push those sales numbers higher. Wonderful. So tell us a little bit about Slouching Towards Utopia.

What can you tell us about the title? You steal from the best. Yeah. The best is William Butler Yeats and his poem, The Second Coming, written just after World War one, about how all these things that are absolutely marvelous are supposed to be happening. How a second coming is expected, but somehow things are going horribly wrong.

And instead of a messiah who will lead us into the new Jerusalem being born in Bethlehem, instead, there is some slouching rough beast that is approaching and that is going to somehow afflict us in the future. Joan Didion stole that last line from the poem, The Second Coming, for the title of her book about, you know, the California hippies slouching towards Bethlehem. I put it in as a placeholder when I started the project thinking I would, of course, replace it with a much better one later on, and I never could think of a better title. That's funny. So what motivated you to start writing the book in the first place?

I really suppose it was 1994 when I read that is the excellent, excellent late British Marxist historian Eric Hobsbawm wrote really not a trilogy, quadrology? What do you call it? About world history or maybe the history of the North Atlantic from 1776 to 1991, of which the fourth volume was a history of the short twentieth century, 1914 to 1991, in which the protagonist really was world communism. And I read it and I thought that's really not the big story. You know, the big story of the twentieth century isn't communism.

Someone should write a book about what the big story really is. Nobody else did. I finally have. In my view, the big story is that starting in 1870, humanity figured out how to bake a sufficiently large economic pie so that for the first time in human history, everyone could potentially have enough. And that people back before 1870 had thought that, you know, the problems of material scarcity of baking a big enough economic pie were the big problems keeping us from having a truly human utopian world.

But it turns out that the problems of slicing and tasting the pie, of equitably distributing what is our enormous wealth by the context of all previous civilizations, and then of utilizing it properly, of living wisely and well so that people feel safe and secure and are healthy and happy, those problems continue to absolutely completely flummox us. Enormous progress in becoming rich, very little progress in making a human world over the hundred and forty years from 1870 to 2010, And that's the big story that needs to be told. Our successes and then our failures at utilizing our enormous technologically driven productive powers for good. That makes sense. And let's spend a little time later in terms of since we've accomplished the material wealth, then let's get into later how we distribute it.

But Mhmm. Why the 2010 cutoff? Well, I had to end it somehow. Larry Summers thinks the 2010 cutoff is a mistake that I should have just had end of the story continues as the last line. Because in his view, you know, the story does continue.

Only it's more fraught now than it was twenty five years ago. And that, you know, global warming has finally become a first order thing. You know, the monsoon was 300 miles out of place this year, I am told. And global warming is only get worse getting worse. We have nuclear proliferation reaching critical mass.

We have revived neo fascism or whatever you wanna call it. And these are three huge civilizational challenges that are bigger than any we have faced since 1945. But Larry's view is very much the story continues. My view is the story really does cut off around twenty ten as, you know, the major narrative thread that we're becoming fabulously richer, and our big problems are those those of distribution and utilization, and those continue to flummox us. That that kind of passes to the side, you know, as big new problems as big new problems emerge, of which I think the biggest in the long run is global warming.

Although, do not underestimate nuclear proliferation. And the fact that we do have leaders who are bad guys and, you know, eager to send killer robots around above the skies of various countries. And someday, someone will make a mistake with nuclear weapons, and then the world will have to figure out what to do next. I really do think there's a single the single focus on increasing wealth and problems of distribution and utilization dominates eighteen seventy to twenty ten in a way that it doesn't dominate what started happening since 2010. Let me push back on that a little.

That's fascinating. You talk about the kind of lack of proper distribution of wealth. But if you look at what has happened since we started quantitative easing, which accelerated in my judgment after 2010. It was arguably necessary in 2008 when Ben Bernanke said, Hey, we've got to solve this challenge. But then in 2010 when the Fed voted again to continue it, I would argue that it's accelerated the income and wealth inequality and that now we really are in a position where we can start having an intelligent discussion about how do we deal with it because it has gotten so much more out of balance.

Indeed, it has. And indeed, it wasn't the increasing wealth inequality was not it isn't an unintended consequence of quantitative easing. It was in fact intended, but, you know, it was an intended side effect. Yeah. That the Federal Reserve in 2010, 2012 sees an economy in which there's not enough spending to put everyone back to work says what can we do to boost spending?

And the idea is if you elevate asset prices and if you push down interest rates, then if you elevate asset prices, people will think, wow, you know, it is really profitable to create other assets like those that are currently out there. Yeah. That if we manage to launch a start up and put people to work and, you know, build an enterprise, we can then sell it on the stock market for an absolute fortune. We should do that. And with interest rates falling, people will sing, well, gee, if I wanna get any return on my money at all, I have to take on more risk.

And so the hope for the Federal Reserve is you'd incentivize people to take more risk and thus engage in more acts of enterprise, and you'd also focus a lot of people's minds on the idea that they ought to be building businesses because building a business that you could persuade someone else would someday be profitable, that that was a very good source to way to immediate wealth. And then if you goosed the economy by pushing those two things into the system, you'd finally get enough spending into the system that we could get back to full employment. And, you know, I don't know whether it worked, but just took a long time because we really didn't get back to full employment until 2017, or whether it didn't work, that it was mostly spinning wheels, that the things started and the risks undertaken may have helped, but, you know, did not help very much. You know, that if you think of it, quantitative easing, right, that, you know, the Federal Reserve buys a trillion dollars of ten year treasury bonds and in return, it gives people, you know, cash or issues more short term treasuries, things that are very liquid, you know, and you can spend.

And the term premium, you know, the real term premium on the ten year treasury is about 1% per year on average. So if you buy up a trillion treasuries, then you take 1% of that. If you buy up a trillion dollars in treasuries, then you take risk that is priced at $10,000,000,000 a year off of private financial balance sheets. And so then you have $10,000,000,000 a year of risk bearing capacity, you know, which is out there searching for something risky to invest in. You know, in an $80,000,000,000,000 world economy, is an extra $10,000,000,000 of risk bearing capacity $10,000,000,000 a year of risk bearing capacity actually enough to materially move the needle?

And the answer is yes if risk bearing capacity is in really short supply and if that's the one thing that's needful in order to get a lot of money committed to enterprises. But was that actually the key thing preventing people from starting businesses and expanding businesses? I think look back we look back and we have to say it was probably not. That what quantitative easing probably did was spin a lot of wheels in the mud, get a little more activity going, put a few more people to work, and significantly derange the asset pricing system by pushing asset values way, way up and inducing a bunch of people to take risks they did not understand. Fred, as we're looking at the world today where people are hoping we get back to this kind of low interest rate environment where inflation is behind us and we're all marching forward to a healthy GDP and growth.

How do you see the level of our federal debt right now and the Fed's balance sheet affecting that? Do you think that this is gonna be a short dip and that we're gonna get back to happier times again, or is this gonna take some time to dig out of? Well, the the level of the federal debt is extremely anxiety inducing. On the other hand, there are lots and lots of people who really, really like to hold federal debt, who really, really like to hold federal debt now. Let's say if you have a dollar a year and if those are the earnings of companies that have about the riskiness of the S and P composite index, That you can sell that dollar a year on the stock market for maybe $25 now given current earning yields at four.

But, you know, if you have a dollar a year of real wealth and if you sell it in the form of treasuries, well, the real interest rate on treasuries is, you know, 1% so that you can sell it for, say, a $100 worth of treasury inflation indexed securities and for a $100 of actual treasury securities if you're willing to roll over the inflation component of the interest and if people are willing to accept the inflation risk. So that people are willing to pay four times as much for a cash flow labeled as treasuries and backed by the full faith and credit of the US government as they are willing to pay for a share of the profits coming out of the world economy. You know? And that would suggest that the US government right now, you know, it's really in the position of the medieval Medici bank. You know, that the medieval Medici bank, it did not pay you interest for your deposits.

You paid it storage fees for keeping your money safe. Right? That in case the pope decided you were a heretic or the emperor decided you were a menace and you had to suddenly flee the kingdom and show up someplace else, you could still grab your money because the Medici would have a correspondent bank there. And that, you know, providing safety and political risk insurance for, you know, rich people who are scared, was how the Medici made their money and became great patrons of art and in the end, dukes of Tuscany. If the US government can do the same thing and can borrow money incredibly cheaply, there's a sense that we should do that and use it to fund public investments and push taxing off into the future.

The problem is that the US government debt is of such is a very short duration. And if all of a sudden people's expectations of it were to change, then we would really have to scramble to adjust policy by a lot very, very quickly. So when you look at the impact that quantitative easing has had in terms of, as you said, pushing us into risky assets and also inflating assets and creating this wealthier group of Americans. There's been a movement that's come out of this that said, Well, if a lot of this went to the wealthy, it's our turn to kind of help the middle class, which as we've seen has led to things like modern economic theory, has led to things like forgiving student loan debt and saying, It's my turn. And arguably some people would say some of the movement towards populists and nationalistic tendencies, which again is, Hey, we want for ourselves now.

My question is, you talk a lot about inflation and that hopefully it's under control or it's coming down. But if we don't deal with this income and wealth inequality and we don't address the concerns that the middle class has, won't there be pressure on wages coming from the middle class saying it's our turn? And does that in turn make it harder to get inflation under control? I mean, there really used to be. Right?

You know, Mitt Romney, very smart guy, very rich guy. You know, don't know whether he's a billionaire or not, but, you know, he might be. Even though it's been a long time since he was seriously in the entrepreneurship business where he was incredibly successful, you know, at Bain Capital at figuring out both businesses that could be expanded and businesses that could be restructured and made profitable again. Mitt has, I was, I think, had seven houses at least during the February season. And his father, George Romney, republican stalwart of the middle of the twentieth century, very smart guy, you know, executive manager of American Motors, the only car company still standing other than the big three, and he made a very good run at it.

But George Romney has kinda one house, and it's not that much bigger a house than your standard upper class, upper middle class suburban Detroit house. And, you know, maybe he has a cabin in the Upper Peninsula Of Michigan and something at Park City and so forth. But, you know, George Romney is not paid a fortune because the board of directors of American Motors says, look. If we pay you a fortune, the United Auto Workers Union will really be able to mobilize around that, and it will cost us an absolute fortune as well as they get a membership much more willing to strike. Because the if the CEO was being paid so much, the corporation can certainly afford to pay us more as well.

That vanished, you know, that vanished during the neoliberal era that started in 1980. You knew that you cannot organize the workers of Disney's Magic Kingdom around the idea that I have no idea how much Iger and Chapek have been trading back and forth with their respective severance packages. As first, Iger retires and Chapek takes over, and now Chapek retires and Iger unretires. And with each spin of the wheel, large chunks of money that I assume are in the 8 figures go out. And that's extremely puzzling to me that there was this feeling in the mid twentieth century that finance and that high corporate executive pay needed to be kept under control precisely because the long term consequences for your ability to bargain with the working class and a middle class were greatly impeded if you gave out two big prizes at the top.

Maybe that's coming back, and, indeed, maybe a lot of the viciousness of our politics right now is because people are scared it's coming back and are anxious to try to distract people from something other than rapidly rising income and wealth inequality. I mean, we have what was it? Yesterday, the day before, it was former secretary of defense, Mike Pompeo, who said that the person who was the greatest threat to America was not Vladimir Putin or Yo Xi Jinping, but instead, Randy Weingarten, the president of the American Federation of Teachers, is a bigger internal enemy than the leaders of other potent very potentially hostile great powers in the case of Vladimir Putin and potentially hostile or at least fraught relationship superpower in the case of Xi Jinping, that those are lesser things to worry about than, you know, the president of the American Federation of Teachers. You know, that's really weird. Weingarten's response was that Pompeo is trying to create a lane for himself to run-in as the crazy nut in the Republican primary of twenty twenty four, which I thought was rather funny.

But still, it's not something I would like to see, you know, that when you find internally people who are representing and advocating for large chunks of the American population and you declare them to be public enemy number one, your politics is beyond weird and beyond unhealthy. And, Brett, I think I agree with that. Although those are issues that we need to talk about, there was that old statement that people vote their pocketbook. Yeah. And I think that at the end of the day, economics and what is perceived as fair and balanced is an issue.

And I don't think either party is really addressing that in terms of the conversation that we're having and moving the puck in that direction. How do we start to address this income inequality, and and is there room for a more compassionate capitalism? This is an interesting question, and I do know that Thomas Piketty right now is seems to be close to despair, at least in his recent book, that he talks about an older politics in which the right says, you know, income inequality is necessary, but we will make it functional for rapid economic growth, and a left that says that narrowing income disparities and, you know, having a fair distribution and large redistributive programs are essential things to do, and that those kind of govern politics at least among the rich countries of the North Atlantic. But now we've moved to a right that wants to focus not on boosting economic growth with income inequality as, you know, a tool to incentivize people to be more productive, but instead wants to focus on culture war issues against people who are, you know, suspiciously deviant and a left that Piketty describes as Brahmin, as one that's interested not in reducing income differentials and distributing wealth, but rather in having people assume the morally correct cultural attitudes toward the issues of the day.

And that that jumping the tracks, you know, has pushed us into a kind of bad position because instead of, agreeing that we live in a very comfortable home, common home, and arguing about whether as the right says we need to fix the leaks in the roof or as the left says we need to put on an addition, Instead, where everyone's saying that the house is poisonous and corrupt, and we need to burn it down and make sure that our enemies don't get any say in rebuilding it at all. And, you know, the first kind of politics is likely to turn out well. I can't see the second as likely to turn in terribly well either. Well, I think and I could be wrong, but in terms of where the puck is going, I think this conversation is timely because one of two things is gonna happen. We're either in the next twelve to eighteen months gonna essentially get our ducks in a rope in this economy where people are feeling that it's fair and it's working and we're all going in the right direction, or it's going to remain broken and people are going to start asking the tough questions.

And if I had to guess, I would say they're gonna start asking the tough questions because I don't think there's an easy answer to the imbalance that we're facing right now. So that's why I think this is important because people are gonna look to you and other economists like Larry and say, Okay, we got ourselves in this mess. We tried something in 2008 and 2010 to fix it, but it was not done from the perspective of tax and spend in a balanced way. It was done in this way of lower interest rates. My question to you as an economic expert is, what would you suggest to chart to make long term changes to the way our economy functions such that we don't have these imbalances going forward?

Well, it would be really, really nice to have inflation go back down from the 6% that it's currently at back down to the three to 4% that Paul Volcker was comfortable with back when he was fed chair, even if not all the way back down to to 2% or the one and a half percent, you know, of Bernanke. It would really, really be nice to get, you know, gas prices back under control and inflation low enough that people don't think that the system is cheating them at the end of every month because, you know, they had decided what to buy and they thought they could afford it. And lo and behold, no, they can't. So backing up Jay Powell as he does what he thinks is necessary and, you know, praying that he doesn't either overdo it or have to overdo it and land us back in a big recession with high unemployment in which no one dares quit or ask for a raise. That's the big hope.

And, you know, that's a narrow, uncertain, fraught, largely technocratic problem that Jay Powell and company are on the front lines of right now. They have the baton on that. You know? And, usually, I think it would be fun to be on the Federal Reserve and on the Federal Open Market Committee. Not right now.

You know? Not right now. They are not happy campers. They do not have an easy task. So, Brad, we talk about, you know, 2% inflation.

We talk about 4% inflation. And we also have seen housing prices, college tuition, and health care go up a lot faster than that. Right. So I know for COLA and for Social Security, there are reasons to say, hey, we have 3% inflation. Yep.

When you're looking at the average American who is seeing college prices double in ten years and these other areas double, is it really fair to say that if we go back to the traditional measure of inflation that we have now got this under control? Because again, as long as we are using quantitative easing and buying our own debt, isn't that gonna still lead to asset inflation in that we still have the old model of how you measure inflation? Too much money chasing too few goods. Maybe there isn't inflation for things like gasoline and food anymore because we have adequate supplies for that. But won't we continue to have inflation on those areas like colleges and healthcare and houses where we don't have enough supply if we continue these easing money policies?

Yes. And this is why we need to boost supply there. And where we can't boost supply, we need to get pay people out of the way of the bottlenecks. And which is why my ideal dream is we add a surtax on people like me who are relatively rich and use it, you know, to get back to where we were in 1970, you know, to say that the public colleges and universities are essentially free for everyone as much education as you want. You know, as long as you're passing your courses and learning stuff, the government will be willing to pay for you to go to whatever university kind of you can handle in order to build your knowledge and your human capital, you know.

And we used to do this. We used to do this back in the nineteen sixties, and we're a much richer society now than we were, so we can afford it. And, you know, our health care system is now a complete financing zoo. You know, we've tried to be clever about creating incentives and distributing costs for fifty years now, you know, and it just doesn't seem to work well. Therefore, we need to do what practically every other country has done and say, you know, universal health care, you know, Medicare for all.

Start with Medicare for all because we can do that via the reconciliation process, and it only needs 50 votes in the senate. And then maybe bargain in a different system if people have a better idea than that. But kinda get the college will be unaffordable. And if I take out huge amounts of student loans, then if the economy turns down, I am, you know, utterly up the creek without a paddle. Getting that worry off of Americans' minds, getting the worry that the husband will have a heart attack, and then the co pays will eat the house and the kids' college funds as well, which is a thing that happens.

Right? That we have a wonderful world now in which men my age no longer drop dead on large numbers of heart attacks as our predecessors a generation or so did. We survived the heart attack. But, you know, then you have a cardiac patient. Then a long term cardiac patient, the co pays eat the house and the college fund.

And then there's the housing problem, right, that, you know, all of my nimbiest neighbors in Berkeley who want Berkeley now to look like it looked when they moved here thirty or forty years ago, even though thirty or forty years ago, it was kind of a hippie backwater. And now Berkeley is very close to the center of the most incredible capitalist high-tech wealth machine you ever created. And there are seven and a half million people living in Greater San Francisco, and, you know, it really ought by now to be 15,000,000 given how much work there is to be done here and given how many companies would like to locate here in order to be close to, you know, the center of the high-tech information communications industrial revolution. So some way to build more houses and build more houses rapidly where people want to live where they think they can get high wages and also figure out how to get all of the places in The United States in which housing is still very affordable, how to get it so that people can kind of work there and not feel like they're missing out because they're earning only a half or a third or not getting the kinds of jobs they could get if they move to the growth pole metropolises.

Annie Lowery had a very nice piece in The Atlantic about this, about how we need much more housing where we haven't been building it. But I would also add to that, we need to figure out how to make it much more possible for people to earn good livings in places where houses are still relatively affordable. What I hear you saying is we absolutely have to address the supply issues when it comes to housing and when it comes to education. And those things, presumably, we can build more colleges, we can build more housing. And again, even in the medical side, we can always bring in more doctors and expand the pie there.

Yeah. But one of the things I believe will help because we have a democracy now where the average person does vote, is for them to understand the economic consequences of inflation. And I do still feel like the government comes out with these inflation numbers, which are very self serving because there's political issues that relate to getting elected and social security cost of living increases, they seem to ignore the large ticket items that are squeezing the middle class, the people that don't own as much property as the upper class. And it seems to me at least that until we educate the general population about the true insidious nature of asset inflation and overall inflation, we're not gonna be able to address this notion of, hey, let's just keep buying our own T bills. Yeah.

I mean, John Maynard Keynes, back in the nineteen thirties, you know, this current situation was one that he actually envisioned as a possibility. He thought that the asset inflation would in the end be relatively benign because, yes, it would push the prices of the assets the rich had up enormously, but you'd also wind up in a world in which the interest rate on them was very, very low, and so you'd have lots of plutocrats around. But they would then would be unable to spend huge amounts of money without eating into their capital which they would not want to do. And so you'd have a situation in which they would have enormous social power if they wanted to spend their capital down, but since nobody ever does, their money would simply be passive investment funds that, you know, other people and businesses could draw on and could draw on very cheaply because interest rates would be extremely low. That what they do is they'd be very much a passive bank, and the rest of the economy would go on extremely well, especially if you could have full employment so that wages were high and rising.

That what he called the euthanasia of the rentier as a powerful social class. And yet that's not the way it has worked. Right? That's not the way it has worked. That plutocrats have who have benefited enormously from the asset inflation feel that they have lots of social power, and in fact feel that they ought to be able to boss the society and to boss the society around in a relatively blatant way that makes other people say, hey, wait a minute.

That isn't fair. Shouldn't people who aren't billionaires have some voice as well? Well, yeah. And the challenge is, again, if you own assets, you can borrow against those assets at low interest rates. You can essentially take advantage of the equity you have in your assets to borrow money, but it begs the question for the 70% or more of Americans who don't have that luxury, who don't have the collateral for a loan, they get locked out of the system.

To me, my takeaway from Keynes' point was, look, it is absolutely healthy when you have a downturn for government to come in and spend money to take us back to full employment. But I believe the flip side of that was that in relatively good times, you have to start paying your debt down and start to live within your mean, kind of like what Joseph did to Pharaoh two thousand years ago. In the good times, you save wheat, and in the bad times, you spend wheat. To me, the brilliance of that story two thousand years later is what Stephen Covey said, the law of the farm. There is no shortcut.

Right? We've somehow, in a democracy, moved away from the idea of paying as you go and this notion that shortcuts work. And from my perspective, we need to get back into this, hey, we've got this unbelievable wealth that you refer to, but it's gotta be enough. Like, it's gotta be enough. We can't have unlimited wealth, but we have all this wealth.

And now how do we all start to make those tough decisions? Yeah. I mean, to quote Keynes again, the boom is the time for austerity. And the boom is the time for serious austerity, to seriously pay down the debt so that the government can be in a position to put people to work when the private sector is scared and unwilling to spend on it. And here is the problem.

You know what my old teacher Larry friend Larry calls secular stagnation. That what if it's the case that without the government opening up its purse, that people want to save too much while the private sector is scared of bearing risk and wants to invest, you know, too little. And in some ways, this is a problem that's been around for a hundred and thirty years. And cynical people back before eight the eighteen nineties said, well, the answer is obviously to have imperialism because you can spend as much money trying to conquer Africa as you want and that will get the economy back into balance by sending hundreds of thousands of soldiers to South Africa to try to suppress, you know, the Boer Republics and make them part of the British Empire and conquer the surrounding indigenous Africans as well. And that as long as you have great power competition and are willing to build lots of battleships, you know, you can find some way to balance it.

Other less cynical people said that the real problem is not that people are unwilling to spend, you know, but that the people who are willing to spend don't have the money. And that what you need to do is you need to have a profound redistribution of income to narrow income and wealth disparities in order to get yourself in a situation in which the economy can balance itself at close to full employment, you know, most of the time. Other people say, well, gee, the speculative economy we have in which periodically people go absolutely crazy and pour absolute fortunes into things that are very unprofitable. Well, you know, that's the only way to work it, to have a big speculative bubble. And if you're lucky, when the bubble is over, you have something of real value for society.

You found you've built all the railroads you need for the next generation in one five year boom, and then you have all the railroads and railroad freight rates are very low, or that you've built all the telecommunications fiber you need. And so throughout the decade of the February, there was all this dark fiber that was slowly being brought online, and data communication costs were extremely, extremely low. But the difference about, you know, the recent bubble is that it's unclear what it's actually creating that is going to be useful, right, in the future. That a social network servers and crypto assets, you know, they they don't seem to be useful in the way that fiber optic cables you can send information over or that railroads you can send goods over were useful in the aftermath of past bubbles. Yeah.

And where I think you play an a unique role as an economist and is obviously a professor and someone writing and teaching about this is when you look at the two political systems, the democracies, for instance, and then more of the totalitarian regimes like in China and Russia today, it would appear to me, Lisa, maybe you feel otherwise, that a lot of the challenges the whole world is facing today, like in 2008, is we have a debt crisis that is shared worldwide, including in China, and yet they have a different political system. So do you agree with that? I mean, what do you see going on in China today? And do they have a debt crisis when you look at their real estate industry in the way they did the Belt and Road situation? And if so, could this be less of a political issue in terms of the system itself, but rather a failure of imagination to understand how debt really works?

I don't think we have a debt crisis here yet. We have a bursting crypto bubble. But because the people who have been investing in crypto have overwhelmingly been doing so on their own dime rather than mortgaging their houses, right, and using it to invest in crypto, I think we are likely to escape a debt crisis this time, you know, which we would not if everyone had leveraged their houses up to 80 or 90% and put it all in, you know, Bitcoin or Ethereum or something in FTX, you know, FTT or whatever else. That it's the linkage between the asset whose price falls and the rest of the economy that is the source of the debt crisis. And I think China is having one right now, you know, precisely because they have been running for fifteen years on this.

We are going to build houses and apartment buildings and are going to borrow to finance it, and, in fact, they're going to pay off the local governments to allow us to do it and not to look too closely at what they're doing. And so now we have an awful lot of people in China who think they have real wealth in the form of bank accounts or apartments that are going to be completed in the next year, but that those pieces of real wealth are actually not there. In which case, you have many more claims to what society is producing and has than there are act that there and then society has actually produced and that society has. In which case the natural remedy for it is a combination of bankruptcy and inflation. You know, that that's the only way to work it out, you know, to totally write off some people's credits saying, sorry, your counterparty is bankrupt, and then to reduce the value of much of the rest, you know, through inflation so that the financial structure is back into accord with the underlying productivity of the rest of the economy.

And, you know, managing such operations is extremely delicate and extremely politically fraught. I mean, if I were Xi Jinping, I would stop my attempts to get the Chinese people to be more moral and to spend less time on social networks. And I would very much stop the kind of flexing my muscles with talking about no limits partnerships with Vladimir Putin and such because what China really needs in order to get through this well is to at least partly rebalance its economy away from domestic construction back toward exports and to high-tech investment. And yet, you know, a Biden administration that sees China as a potential military competitor is much less friendly toward China's development of semiconductor manufacturing than a Biden administration that saw China as a nice, very nice, very cheap, very attractive source of second and third generation semiconductors so The United States could concentrate on the highest first generation semiconductors. So pivoting to Russia, I know you talk a little bit about what's happened economically with Russia.

How do you see the Soviet or the Russian economic problems today? I mean, look, it's no longer the Soviet Union, and it's not even really, yo, the Russia of the eighteen hundreds or so. You know, where Russian armies are now in the South, they're where Catherine the Great's, yo, Grigory Potemkin, and so forth was skirmishing with Turks in the seventeen hundreds. And thank God there's not an Estonian front to the current war. But if there were, it would be where even the terrible soldiers were skirmishing with the Livonians back in the fifteen hundreds.

It's really back to being Muscovy. Right? But, you know, a Muscovy with lots of nuclear weapons and also with a lot of oil and gas and with a Western Europe that is substantially dependent on that oil and gas flow and large chunks elsewhere in the world that are substantially dependent on the enormous productivity of Ukrainian and southern Russian agricultural land, which, you know, very much rivals The United States Midwest as one of the great assets of humanity in terms of making our food. But it does have pressure points it can try to use to exert on the rest of the world in terms of grain and energy and nuclear weapons, and it does have a leader who seems at best very, very confused. That is if you want to argue that Ukrainians and Belarusians and others are simply, you know, regional ethnicities within the great Russian people rather than separate, separate nations.

Well, the way you do that is you send the Bolshoi ballet on a tour of Western Ukraine. You send orchestras to play the works of Mussorgsky and Tchaikovsky. You send poets to read the works of Pushkin aloud in the central squares of Ukrainian towns. You know, you don't send killer robots flying around, you know, zapping people and things, that convincing people that they are your friends and, in fact, that they are you, killer robots, not recommended. People don't tend to react well to that.

You know, and that's where we are. And there is a certain logic. I don't know of a certain logic, but, you know, a dictator who'd gotten out of touch because he'd been socially distancing from everyone during the plague could really think that there's this little cartel at the top of Ukraine that wants to that has been purchased by the Western Europeans and that we can send in our tanks. And as in Czechoslovakia in 1968, they'll surrender immediately and we can simply reorganize things and get it back on track. But once that fails, if you are in the business of trying to make Russia great again, you don't hunker down and say we're going to have a war that lasts for years.

Instead, you send in the poets and the musicians and the ballet dancers and say participate in our culture and our civilization. It is indeed great. You talk a lot about the politics of the Federal Reserve, for instance, and Mhmm. You talk about Arthur Burns as a Republican, as a Fed chair. When we see Jay Powell today and we ask the question, are we gonna break the back of inflation?

The fact that he's been accused of being late to the party, so to speak, do you think any of that had to do with that he was waiting to get reconfirmed as the Fed chair? And do you think he's gonna stay the course and get inflation under control? Yes. I think that late and then move fast was in fact the right thing to do. Because if you move early and if you overdo it, well, then we get ourselves back in 2010 in which unemployment is high and interest rates are zero and it's not clear what you can do except that an awful lot of people who ought to have jobs don't.

And so you want to wait to move to control inflation until you're sure that's not going to happen, and he did. And so now he's moved late, but after moving after going late, he's moved very, very fast. And it looks to me like the job is almost done. At least when I look out at what the bond market is thinking, you know, the bond market is thinking that Powell has done enough to bring inflation back down to 2% or less than 2% in five years. Now the dangers are, you know, what if the bond market's wrong and he's it's not quite enough yet, and how long does he stick the course of keeping to raise interest rates in order to make sure that inflation is linked?

And as I say, those are hard and technocratic problems, but I actually think he has done a very good job. And he's kind of very much the opposite of Arthur Burns, who on the one hand was worried that if he moved earlier, Rich's friend Richard Nixon might not win reelection. And on the other hand, worried that if he moved at all, that Congress would take a great deal of his power away from him because the Democratic majorities in the house and senate would not stand for high interest rates. And those two political calculations, I think, ultimately made Arthur Burns a failure as Fed chair, that he let those cloud his mind. Paul Powell, I think, has done what is probably the right thing at the right time.

And do you think that getting the Fed balance sheet down a substantial amount is ultimately an important thing to do, or do you think that they can continue to sit with this kind of balance sheet? They can sit. It's really weird. I would, by now, have been selling it off much faster than they have been if only to see what happens. You know, I don't really understand that if you think that with interest on reserves that the federal's cash reserves are actually really much more like short term bonds than they are like money, which is not a bad way to think about it.

If you think of that, then the debt is very large, yes, but that the debt is also of extremely short duration, And, you know, no one would say if you have a debt, it should be on such short terms. We would say we should have a much longer maturity. So if the Fed is going to have this much debt, it should be issuing many more long term bonds and making its borrowing longer term so if there's not so much hot money that it owes to other people. And if it's not gonna do that, you know, we should be unwinding quantitative easing and unwinding interest on reserves as much faster pace than it has been. But then again, there's the fact that when the Federal Reserve quantitatively eases, right, it swaps a bank deposit for a bond.

And as long as the interest rates on the bonds are very low, they look an awful lot like bank deposits, and people aren't very worried about holding one rather than the other. And so both quantitative easing, I think, did relatively little to the economy on the way up and would do relatively little on the way down. But I am surprised they haven't moved down faster. Well, look, we appreciate the feedback. Thank you very, very much for inviting me.

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