Steven Teles: Class, Conflict, and the Collapse of Trust

Welcome to The Puck, Venture Capital and Beyond, a show that examines the changing landscape of our world. Before we dive in, a quick word about who I am and why we're here. I'm Jim Bier, corporate lawyer and restructuring professional. I've spent the last two decades helping companies navigate their toughest transitions. And about eight years ago, I found myself having fascinating conversations with clients and friends about everything from venture capital to the broader shifts happening in our economy and society.

Those discussions were simply too good, so the puck was born. Now while we started on venture capital, hence the podcast name, the Puck Venture Capital and Beyond, we've naturally evolved to focus more on the beyond portion of the title. Today, we explore how business intersects with the bigger forces shaping our world. I still run my restructuring practice by day, but now I get to host these conversations by night. It has become one of the most rewarding parts of my life.

Today's guest continues that tradition. My parents were both civil servants. You know, NASA, when I was a kid, my I I remember my dad would have to leave at night because he was going to a launch. I have pictures of my dad literally at the Apollo thirteen launch with a bunch of guys with pocket protectors. My dad was, you know, a young mathematician coming out of university.

Right? Those people really wanted to work for the federal government. They were like, that's the place where you get to do the exciting real stuff. You don't wanna be a contractor. You wanna be right there at NASA.

And I do worry that we've had a long period of the decline of internal capacity inside of government and our ability to get the best people like my dad. Right? And that some of what's being done now can't be undone. On today's episode of the puck, I'm joined by Steven Telles, political scientist and professor at Johns Hopkins University. He's written extensively on government and the economy, including the captured economy, How the Powerful and Rich Themselves, Slow Down Growth, and Increase Inequality.

We dive into America's deepening polarization, the class dynamics driving it, and the collapse of trust in institutions. We also tackle growing social and economic inequality. There's a lot to cover, so let's get to it. Without further ado, Steve Telles, welcome to the park. Thank you for having me on.

We're excited. So before we get jump in, could you take a moment and give our listeners a little bit about your background? Yeah. So I am a professor of political science at Johns Hopkins University where I direct the Center for Economy and Society, which is part of the Etz and F. Gore Institute.

And I'm also a senior fellow at the Niskanen Center where I've been involved for a long a long time. The author of multiple books. I think we might be talking about one, the one I wrote with Brink Lindsey called The Captured Economy. I also wrote most recently a book with Rob Seldin called Never Trump, which got into some of the what I describe as sort of the increasingly factional politics of American politics. But I write both for the left and the right.

I'm one of the few people who's written for both The Nation and National Review, so that gives you a little bit of how much ideological space I try and I try and cover. But which we love because we are trying to be a safe place where people can really have honest dialogue and debate and feel safe going through that. And and again, in this world where there's so much polarization and lack of trust, we're trying to really bring people together. In that regard, by the way, after the election, you were on Ezra Klein's show, and you pitched a really interesting idea about class and polarization. Can you explain what that working theory is?

So I'm trying to even remember what the theory was, but I mean, one thing we know is that the last basically twenty years have seen an enormous change in the class composition of the two parties. So we both are increasingly gray haired so we were voting in the nineteen ninety six election and in, in that election, if you were a Bob Dole voter, you were likely to be a more socially conservative and more affluent. Right? So that that was that that was sort of the quadrant the Republican party was in and where its core voters were and Democrats were more likely to be more socially liberal and less affluent. And just really in the last twenty eight years, I'm hopefully, I'm doing my math right.

Since then, there's been an enormous change in the class composition of the two parties. Basically, the class position in that two by two table I just described to you has almost entirely flipped where the Democrats are now on average the more affluent party and the Republicans are the less affluent party and a lot of that shift is a shift among professionals. Right? So you think about not necessarily the asset managers, right, or people who own a chain of Denny's, but people who are like doctors. Doctors used to be one of the most conservative groups in American society.

They've moved dramatically. Doctors, lawyers, all kinds of those sort of professionals, people who run universities, all of that, right? That we might think of as the professional elite class, has moved quite dramatically over to the Democrats whereas the Republicans have moved, significantly downscale in their voters. And in the process, one of the interesting things is, again, is is class is a more important determinator, but in the opposite way as it was in 1996. Some of what we think of is sort of the racial composition of the parties is getting shaken up a little bit as Republicans are starting to get in at least with, African American men, even more Hispanic, men are being attracted to the Republican party, especially those who are more working class.

So do you have any theories or what would your theory be as to why this change is taking place? So that's a complicated question and it gets a little bit into like what sociologists call class formation. So one thing is if you think about the professional elite class, they are, you know, more dependent for their, their income not as much on the market but on various other kinds of flows of income. Doctors increasingly are dependent on flows of income from Medicare, Medicaid, other forms of sort of third party payment that are highly regulated, you know, lawyers too. The other part of this is the increasing centrality of higher education to class formation.

So if you think about class is not just a thing that happens on a, you know, a zero to a 100 scale where we sort of randomly determine that people are in a class based on where they are in their income. But class is actually something that gets formed at a part of the life cycle. Right? Higher education is an increasingly important moment in that process by which people develop identity. They develop senses of manners and who they're with and who they're not.

And so I think there's something to be said about the increasing way that higher education structures the process by which people determine both their class and who they're supposed to be affiliated with. And so that also explains partially, you know, there's been lots of the Trump administration making all these various attacks on the university. JD Vance famously gave a speech a few years ago saying the university is the enemy and we might all think that's tacky or threatening, but it's in some ways a natural response to the fact that people who are socialized through higher education, especially elite higher education, are now overwhelmingly in the Democratic party, and people who are not or have a, you know, are in the lower status parts of a higher education are in the Republican party. So this class formation is also feeding into what the parties are actually doing and what they think is important and how they actually govern. When we look at the definition of the Democratic or what Liberal is or what the Democratic party stood for.

For a long time, economically liberal policies, whether or not they were wealth distribution or higher taxes or otherwise, were were perceived as things that were considered liberal and part of the Democratic party. How has the changes in the concern about whether or not the American dream still applies and the stagnation that the middle class has experienced experienced, how do you think that ties into this challenge that the Democratic Party seems to be having now with the middle class? Yeah. So again, if you if we think about this, you know, class really seriously as a variable in politics. So we've been talking about one end of the class side, the upper end of the class side, and how that part of the experience of being socialized into a class has changed over time.

The other way is to look at the the other end. Right? So if you think about fifty years ago or sixty years ago, how did people get socialized into the working class? Like the actual working class. Again, not just a random point on a zero to a 100 scale, but an actual thing that people experience in their everyday lives.

If you were in a unionized especially a private occupation, right? If you were you were in the private sector, you were working for a steel company, you worked for a, you were in a union, that union, you know, is a thing you actually participated in. You would go from the shop floor to bars. And if every you everybody remembers, you know, the the deer hunter. Right?

That kind of, you know, that which is a great movie about class. People will remember it's a movie about war, but it was really a movie about class. People were socialized by working in the factory, going out and drinking with the people from the factory. The union was the thing that was theirs. Right?

That was their thing that they owned and they controlled. You know, they hunted together. Right? That that's the whole point of the deer hunter. Right?

But they actually had enough leisure time to be hunters and have places to live and all that kind of stuff. Right? That's what socialized people. And the Democratic Party was the party of those people. Right?

It had incorporated that union working class into the party. And as that part of that experience of class has gotten decomposed. Right? Is that, you know, those private occupations are not, unionized to the same degree, that experience of way the various different ways that people get, socialized into class and that sort of multiple reinforcing social experiences, not the the to go back to the deer hunter. Right?

But the church also, right, is a central part of that thing. So there are all these, you know, reproducing things where people are interacting with the same people and then they're connected into this democratic party structure. That's broken down. And so people experience themselves as being in a class in a different way, in a way that now has much more to do, less with you know, much more to do with culture and less to do with sort of hard material occupational relationships in the way that it did in the heyday of the Democratic party. So I think that's part of again, you think about why the parties are resorting in the way they are.

It's about changing class dynamics at both the top and the bottom. So as we're changing these allocations, so to speak, when you look at professional elites, how does that figure into this whole lack of trust in institutions? Yeah. So part of this is again, if you think about just the Democrat party and the way we're talking about it, there was a significant degree of trust in the democratic party because of the way that the democratic party, at least before, built up from actual institutions that were controlled by working people. Right?

So you had unions. They you know, even your your you had a local. Right? That was your local. Right?

You knew the guy who was a shop steward. Right? Who you know, all the way up. And, you know, unions were are what, you know, Theda Scottsville called federated organizations. So the power flowed up from the bottom.

Those people would choose, you know, leaders further up until you got to the, you know, AFL CIO sort of director. Just so people could look up to the top of these things that were part of the the very elite part of the Democratic Party and say, that thing is connected all the way down to my thing here in Central Pennsylvania. And so it was easier, right, to see those sort of social institutions as being part of you and connected to you. Increasingly, I think lots of those expert institutions now seem like things that people ordinary people have no hand hold into. Right?

That are they're governed by. And this is one thing I've thought a lot about. And this was in some ways the big mistake of picking Tim Waltz as vice president. Right? So if you were gonna pick somebody because you wanted to pick a working class person.

Right? The weirdest way to do that would be to pick a teacher. Right? Because again, people who are part of the, you know, which I am, part of the university kind of class are in that class because they liked and did well in school. So they thought of themselves as the people who were the, you know, the controllers of those institutions and the people who do it right.

But lots of people don't like school. Right? They don't like it. They're not well suited for it. We know that, that boys generally do less well, at least in what's the way schools are organized now, and they experience a lot to these expert institutions as instruments of control, not as, engines or ladders of opportunity, but as people who actually they get governed by.

Right? They get governed by police and teachers and doctors who are telling them what to do. And I think that has sort of fit into the changing way that the Republican party appeals. Right? There's a weird kind of social libertarianism that is not, you know, about, you know, what we often think of social libertarianism about, but like you experts who are constantly telling me what to do, what to learn, where to sit, what to smoke.

Right? You know, that that you we we will call barstool conservatism. Right? Flows out of that sense that all those elite institutions that are setting the rules are controlled by somebody else. And that and they're all the democratic parties.

That's part of the way that all of those sort of professional elites have all sorted themselves into the democratic party, and the people who think of themselves as the subject of those professional elites are now in the Republican party. So is it is some of this, though, like a a lot of this sounds like Reagan conservatism in the eighties. I mean, has something really fundamentally changed? I do think well, again, I I think the just hard material class composition has changed. Right?

So if you go back to the Republican party and this is, I think, is really important for understanding certain parts of where Trump was a very big disjuncture from the previous Republican party. So you think about just a couple years before, you know, what was Republican economics? Again, going back just to 2012, it was we're gonna cut entitlements. We're gonna get the deficit down, you know, across the board. Right?

Social Security, Medicare. Right? But think about what the Republican party's voters now are and how different they are from 1996. Right? They're now poor, sicker, you know, in lots of ways.

I was thinking just, you know, since, you know, you're in in finance. Right? Think of it. Think of The United States as a big risk pool. Right?

The Republicans are a way worse risk pool than they were in 1996. And, you know, if you're, if you're a bad risk, right, by, you know, in general, you wanna socialize the risk. Right? If you're a good risk, then you wanna privatize it. So the Republican party just in really simple, almost sort of you know brute force material terms.

In 1996 was mostly a party coalition of people who are good risks and therefore didn't want all of the various risks in society to be piled onto the government books. Right? Increasingly now again, the Republican party, poor, sicker, older. And that's why I think Donald Trump, right, with this sort of, you know, you know, almost of 6¢ he has, for who their voters actually were, is there there are voters who did want protection. They wanted to be protected from risk in a way that was the opposite of what the previous, Koch brothers e economics would have, would have suggested.

And so that's the way one way in which I think the parties have really changed pretty fundamentally from the Reagan era is they're now no longer the Republicans are no longer the coalition of people who are trying to, to get out of the risk pool. When you think about liberal in the protest in the sixties and then when I think about conservatives, you know, in the eighties, I think like moral majority. I mean, have the parties fully switched? So I mean, it is the case that the, you know, pro lifers are still entirely in the Republican party. Although the interesting thing is that it's less clear that they have control of the brand than they would have want.

Right? So Donald Trump in part because the Republican party has also become more of a personalistic party. Right? That's part of the Trump governing style. If you think about these earlier things, you could have thought about the Republican party as what political scientists call a coalition of policy high demanders.

Right? There are people who've got, you know, a really big thing they really care about, and there's a small number of them. They all sit around the table, and they make what the policy is, and the politicians have to kinda just respond to that. They have to deal with whatever that coalition has already determined. Trump is a much more fundamentally entrepreneurial politician.

He's less tied to those coalitional kind of deals, and that allows him to go where the political logic would suggest. Right? So that's why, again, you know, some people say he sold out pro lifers. Now he gave them a big thing in the elimination of Roe v Wade, but now because he's much more personalistic and less connected to that coalition, it's easier for him to follow where the electoral logic would go. And there is a larger group of these working class voters who aren't don't particularly care about abortion.

They're not enthusiastic about things like trans rights. Right? They care a lot about crime. So they're more of a social order, social conservatives than a religious moral set of conservative. And I think that the entrance of those into the party has sort of reconstructed what social conservatism means.

Less like moral majority and more like what you might have thought is the old hard hat union kind of, social conservatism that was more about, like, not liking hippies and liking cops kind of stuff. So that makes sense. But when we're talking about institutions, one of the things I think you talk about is that they've they've been damaged or the need to save them, and we talked about what happened during the first Trump administration. When did you start getting concerned about this? And, you know, are we hearkening back to a golden age that never existed?

So I've always been a little concerned about this sort of discourse of saving institutions because, again, institutions work when they're a container in which, you know, combatants of various sorts can agree that, you know, that's simply the thing they're engaging in their conflict inside of. Right? But they they don't contest around the institution. They contest within the institution. And increasingly, lots of those institutions have become associated with one party or the other.

You know, law, universities, medicine, public health, you think about what all the stuff that went on in COVID, people really thought of the the people who were doing all the governance in COVID as not just doctors who were some way or public health people who were some ways above politics, but they were combatants in that political contest. And so, again, that goes the more and more that the, the professional elite class, which is again, another way of saying that people who run institutions, the more that they have gotten all defined into one party. And that's really defined what we mean by polarization. So when people talk about polarization, one thing it's important to do is to talk about what you're polarized about. What is it you're divided about?

And I think increasingly, we are divided about, one party that is the party of professional elite governance and the idea that it's good to be governed in that way. And a group of people who think about themselves in various ways as the subjects of that. And then that cuts across in some interesting ways some of these class dynamics. So the Republican party obviously still has a lot of wealthy people in it, but they're the people who on the sort of business side see themselves more as the subjects of the state. So they're people who are in extractive industries and think of themselves as not like people who are in a constructive, you know, relationship with the state, but they're people who are like, these people are always telling me what can come out of my smoke stack.

Right? And, you know, there's a kind of rhyme with other people who feel governed and regulated by these various forms of professional elite. So that's where, again, I think one of the problems we have in The United States is how do we reconstruct some faith in institutions that create, again, the outer boundaries of our conflict when the institutions themselves are the things we're polarized around. And I've thought about this a lot with universities. So I'm in a university.

I wrote a piece in national affairs last summer on the challenges of making universities places that are, genuinely ideologically heterogeneous, I think that's the challenge we need to have if we're if people are not simply gonna be, you know, fighting where when Democrats are in, they shove lots of in of resources and power into the the institutions. And when Republicans are in, they try and defund them and strip them of authority. That really is what our politics is now, and it's what makes sense of what's going on with the Trump administration now. Right? Why are they cutting you know, why was one of the first things they did reducing NIH indirect cost, right, which seems like a pretty wonky technical thing?

Right? Well, the people sort of knew that's right where the money plug from the federal government into elite higher education goes. And so that's a predictable feature of the fact that the parties are so divided over sort of control of the central institution. So when you look at the first few weeks of the Trump administration and you look at also the goal you were just talking about, which is this notion of having, I am assuming you're talking about, a broader diversity in in terms of political parties within the professors at these institutions, I mean, how do you think things are going? Not great.

I don't see again, to be honest, right, there are a number of university leaders who I think now recognize they have a problem and that universities have a problem. You know, I'm not just sucking up. I'm also sucking up, but I'm partially sucking up by saying Ryan Daniels, my president at Johns Hopkins, has definitely been engaged on these issues. But one of the problems is just if you if you think about this, if you think about the sort of the pipeline that produces a professor. So imagine I'm a university president.

I sit there. I read Steve Telles' article. I'm like, wow. You know, there's a real problem with our the ideological distribution of the people who are in our professoriate, and it's creating legitimacy issues for higher ed, and maybe it's just bad for the pursuit of knowledge. Right?

There's no lever in their office that they can just pull, and, like, a changed university professoriate will come out. Right? There's just there's nothing. Right? There's nothing they can grab onto.

And they could even even if they even if, like, the department chairs, if they said, hey, you in sociology, we would like you to have at least one conservative on your faculty in sociology. Alright? And assuming the department chair in sociology even wanted to pick up the phone when he got called, which usually given the way the universe that university organized, the department chair is likely to say, you know, that's really none of your business. Your job is to go out and raise money and create buildings and be in charge of the HVAC and the pension plan, and that's your job. Your job isn't to get involved with that.

Even if that sociology chair said, you know, okay. I'm willing to enter into a conversation with you about that. He would say, look. We don't hire our own graduates. We hire graduates from Harvard and Yale and Princeton and Berkeley, And we're dependent on them, and they're not producing conservative professors.

So even if we really wanted to do it, those those other places aren't producing them. And even if they were producing them, if we wanted to create a new university professor now, there's a six year lag. Right? That do you think of just the production process that takes six years to go from somebody entering into a grad program then to be available to be hired. And there is a big pipeline problem in higher ed that lots of conservatives partially because they just look at the the character of the existing professoriate, and they say, I don't see any conservatives there.

So maybe they don't want me. Right? That's not an unreasonable conclusion to have. Or I think increasingly just, you know, normie moderates. Right?

Look at the university professor and say, just like, you know, it wouldn't have been that long ago that people would have looked at the profession of nursing and said, you know, no man would have gone to nursing because they would have been like, well, that's not an occupation that's for people like me because it's women. Right? And I think increasingly in a way, higher ed also the being a professor has some of that sort of ideological coloring in the way that nursing once, not as let much anymore, but once had a very much of a gender kind of coloration about about, you know, who who was supposed to go into it. So with this as a challenge, when you're looking at the landscape right now, what most concerns you? The landscape.

Give me give me a little broad, narrow sense of the vice president of the landscape. Well, I mean, in terms of the lack of trust in institutions, the lack of diversity in terms of the professors, and the fact that there is this seemingly attack, so to speak, from the new administration against how higher ed is approaching things. Is there a practical solution here or are we headed for some kind of real real, you know, conflict? Yeah. I mean, I I can tell you, like, everybody I know in higher education is freaked out because, you know, it is the case that between NIH, NSF, right, the indirect cost, that's a huge, huge part of the the entire business model of universities.

Right? And again, you know, I I I've I've at some points tried to understand university accounting, and then I got tired and sleepy and had to take a nap. It was it it's unbelievably hard to figure out. There are people who actually understand it. I think there's, like, two people.

We keep them in a lead lined underground bunker who actually really understand the accounting. Right? But, you know, the difference of 14% and, you know, north of 50% in indirect cost that's put on to every grant. Right? And again, there's a power log distribution in who gets federal grants.

So it's really you know, Johns Hopkins, Princeton, Yale, Berkeley, you you know, a few institutions like that get a huge percentage of all the federal grants for NIH and NSF, and it's all built into their business model. I don't think anybody has quite thought of, and especially if we also then have an endowment tax. At the other thing their administration's been talking about, that they really can't do unilaterally in the way it's not clear they can do the change in indirect cost in in, unilaterally either. But if they did all of that, that's a huge big hit. And I'm not making a substantive statement now about whether it's good public policy or not, but it is a predictable feature of the class composition of the two parties.

It is what you would predict. Right? If you think that parties generally help their friends and hurt their enemies, and and very much that's now sorted by higher ed, the parties are sorted by higher ed, That's what they're gonna do in governance. And, you know, Democrats help higher ed when they're in, in, in governance. In some sense, they did.

They tried to do a big bailout of at least students, and the students cost in the under the Biden administration. And now this is in a way the parallel. So one question is, is there a way to declare a kind of truce in the culture in the in the material culture war. Right? I mean, that's the big difference between now and, like, the nineties.

Right? So, again, we're both old enough to remember the PC wars of the '90 of the early nineties. And a lot of that was just, like, symbolic, and it was about people on TV yelling about, you know, politically correct professors. Right? We're now really having a a very material conversation about how we resource these fundamental institutions.

And I am worried that it it will simply just become a recurrent feature of every time we have a switch in in governance. Unless we can find some way to more durably incorporate people of a variety of ideological perspectives, it'll just be too tempting to say, I can attack higher ed and there'll be no collateral damage to my, to my side. Right? And I think you could just see that that what we'll have is a lot of, you know, the when we're when Democrats come in, they'll push indirect costs back up. When Republicans are in, they'll push it down.

They'll move up and down with the endowment, you know, all these things. And that is not a very good way to create a a sort of, stable basis for universities to do the kind of things we need them to do for, you know, mass affluence and productivity and innovation because they're gonna have to start being a lot more temperamentally conservative about how they do their business and less risk taking, I think, if they're constantly worried that their whole material base is gonna go through these huge cyclical changes. Well, you know, from an EQ perspective, if I'm thinking about taxes, and how my money gets spent, it's one thing to have Democrats and Republicans spending money on defense, or it's one thing to have Democrats and Republicans spending money on Social Security or Medicaid. But if you're going to have billions of dollars going into a particular area, it would seem to me if more than half the country is not going to college, you've got to create a system or or a sense of trust that you get the buy in from more of the country. And are the leaders of these institutions aware that they are getting a lot of money from tax dollars that are coming from 50% of the country that doesn't feel represented?

Yeah. I mean, I do think it it look, I do think if you go back in my, I got a friend Mitchell Stevens who's at Stanford who's a education sociologist who's talked about the idea that higher education over time has had these various different kind of sort of social contracts with the rest of society. So you think about back to the fifties and the sixties. There was a real social contract where the where the, The United States had entered into this cold war and, that involved, you know, one, universities providing people with language skills. Right?

You know, I mean, you know, you go to University of Indiana. Right? They have these huge international affairs. Almost all of that was created during the cold war with the idea that we needed to have intelligence, language skills, all kinds of stuff. Right?

And we needed to have a defense department that would have this massive innovative thing where it would enter into contracts with Stanford and physics and all kind in Johns Hopkins. We have a huge applied physics lab that does all these things for the defense department. That was part of this basic social contract. And with the end of the cold war, that part of the social contract started to come unwound. We kind of got a little bit of an alternative one with the idea that, like, we should be sending as many people into higher education as possible, that it would be an instrument of mass social mobility.

That was less that was a less obviously cross partisan social contract. And I don't think we, and again, this is one thing that Mitchell says, we've never really created a new one where even if the professors were in one party or another, and professors have mostly been liberal through most of this period, that the enterprise, the project of the university was a project that was accepted across partisan lines, and we really haven't developed one. Now you can imagine a number of ways where we might come to that, but I don't think that university leaders mostly seem to be in conversations with people. And again, it's gonna be very hard to do in this period when, you know, their their basic lifeblood, you know, everyone's, like, pulling the IVs out of universities. That is not exactly the mood that's gonna create make them think about how to create a new social contract with what this Republican party has become.

That makes sense. And it is gonna be a challenge. And as we're working these issues through, let's switch a little and talk a little bit about the economy. I think you and Frank Lindsey wrote The Captured Economy, how the powerful enrich themselves, slow down growth and increase inequality. I think it was back in 2018.

So I'd first like to recommend to our listeners that they check it out. I think it's essential reading. But can you take a second, and can you give our listeners an overview of your thesis? Yeah. So I wrote it a while ago, so I have to remember.

You probably know what I wrote better than than I did. So the basic idea of that book and it had an interesting genesis. So I at the time that Brink and I wrote this, I considered my I thought of myself as more always a little bit of a heterodox liberal, but I thought I had a more of an identity as a as a liberal. And Brink then was the Cato Institute and really thought of himself as a libertarian. But we had been running these, regular dinner series in DC for a long time.

They were called the libertarian dinners that brought together people from left and right to talk about a number of policy air you discussed in the way that you've a little bit the spirit that you've said you wanna do on this podcast of having conversation across ideological lines and talking to people and not just talking about them. And we, I think, increasingly found ourselves agreeing on way more than we disagreed on. And this was also, you remember the period when Thomas Piketty's book Capital in the twenty first Century was coming out through the big conversation about inequality. And the thing that really struck both of us is people were having a conversation about where inequality was coming from that more or less seemed to ignore the role of the state. So the state only really played a role in that in this deregulatory guise.

Right? So the idea was that, we used to have all these things that sort of kept capitalism from being being sort of red in tooth and claw, but then we, we stopped regulating. We, you know, we globalized. We took you know, we let it rip, and then inequality happened. And the thing we discovered, right, is that when you look at domain after domain, lots of those areas where we've seen a massive increase in, especially the incomes of those at the very, very top of the in of the, of the wealth and and affluent scale are pervasively regulated domains.

These are not areas with tons of deregulation. So when we in the book, we talk about four of them. Right? One, we talk about occupational licensing. So that's doctors, lawyers.

There's lots of other stuff, but the real hardcore there is doctors. Right? Doctors are an incredibly protected domain. You know, they're protected from international competition because it's hard to actually move being a, you know, a doctor in India, and then you come over here and the licensing requirements are so high. There's all kind of barriers to entry in that.

Finance is deeply, regulated, subsidized, protected. Housing. There's all kind of ways that people who are wealthy are able to protect their housing wealth through zoning and and, constriction of a housing market. So when you go through all of that kind of stuff, it turns out that this era that people often talk about is this neoliberal era of deregulation, where people at the top are concerned. If anything, they've got more regulatory protection than they had in that earlier era.

So we have, in this way, it goes back to the changing class composition of the two parties. Ordinary working people have less protection from risk than they once did. Again, just think about trade. Right? Ordinary working people have less trade protection than they once did, and I'm generally a free trader, so I'm willing to make that trade off.

Right? But if you think about doctors again, they've got at least as much protection as they had fifty or sixty years ago, if not more, and housing lots of these other ones. So the basic idea is that we've created an economy that simultaneously is hoovering wealth up to the top. It's increasing the incomes of those at the very at the very top, but it's also slowing down growth because it's preventing market entry. And market entry really is the magic that is the magic stuff of capitalism.

Alright? It's people coming into a domain, having a new mousetrap, having a new way of organizing. So the this the last example I would I would give you is dentistry. Right? So dentistry is a very highly regulated occupation.

One of the things I didn't know before I did this book is in most states, if you wanna be a dental hygienist, right, who's the one who cleans your teeth so again, if you you, you know, if you remember the last time you went to the dentist, you probably spent the entire time with a dental hygienist. At the very end, the dentist came over and sort of performed the sign of the cross over your mouth and walked away. Right? That was but they're required by law to operate in a dental in a dentist office. Right?

Now you can imagine a circumstance when where dental hygienists would have their own offices. They would have their own practices. They would have all of the profit, and then they would make referrals to dentists if there was a need for dent for a dentist service. Right? But that's not the way we organize.

And so the effect of that is, one, to reduce the possibility of new business models that might work better, would be more accessible, would be lower cost. And it ends up, you know, in this case, literally, sorry for the pun, extracting profits out of both patients and dental hygienists up to dentists. Right? So that's one way just to imagine what this process of upward redistribution and slower growth. And so we were used to the last thing I'll say is we're we're used to you know, when I first read Arthur Okun's famous book, Equality and Efficiency, The Big Trade Off, we were used to thinking about equality and efficiency as something where if you want to get a little more equality, it always had to come at the expense of efficiency.

In the book, we were saying, actually, we have all these areas where there's not a trade off. Right? Where these barriers to entry are both increasing inequality, and they're preventing all kinds of forms of economic innovation. When you look at where we are today from a political standpoint and just the economic issues we're talking about, What things give you hope and optimism? That's a hard, it's hard to be optim I would say I have a very deeply optimistic nature, and it is hard so I'll just say, you know, my parents were both civil servants and, what you might think of was the elite civil service, the, you know, NASA when I was a kid.

My I I remember, you know, my dad would have to leave at night because he was going to a launch. I have pictures of my dad literally at the Apollo thirteen launch with a bunch of guys with pocket protectors. And I do worry that it was already the case that we've had a long period of the decline of internal capacity inside of government and our ability to get, you know, the best people like my dad. Right? My dad was, you know, a young mathematician coming out of university.

Right? Those people really wanted to work for the federal government. They were like, that's the place where you get to do the exciting, real stuff. You don't wanna be a contractor. You wanna be right there in, in NASA.

And I do worry that some of what's being done now can't be undone. Right? That it'll affect and, again, I'm somebody who thinks that there's enormous changes that we need into how we hire, fire, regulate, you know, everything about the civil service. So I've been and we at the Niskanen Center, we have a big project in state capacity that's partially led by Jen Palka, who's great and you should talk to as well, who's been working on these things. And part of I worry I worry on the one hand that, a lot of this damage won't be undone.

Right? People just won't wanna work for the federal government. They won't wanna make the commitments to, what are called sort of asset specific skills. Right? Skills that are only really appropriate to jobs in the federal government if they think that, you know, at any moment, the the whole apple cart could get turned over.

But on the other hand, I worry that if a lot of these things that are being done get stopped and the Democrats come back in, then the entire cause of trying to reform the federal government in really serious, durable, long term ways will be set back. So I'm pretty generally pessimistic about that. On the other hand, you know, mostly, you know, history is cyclical, And we don't always know. So I'm not I I've lost the capacity for specific optimism. I've lost the capacity to say, I know how the wheel's gonna turn.

Right? But the wheel generally does turn, and, you know, you know, political parties generally tend to overdo it. We have this thermostatic factor in elections that causes them to, you know, and, you know, to overstate what their mandate is. Then voters go and slap them back. But, again, my my worry is that even as we have that electoral recycling, that a lot of the damage is being done to the government without actually really durably changing it in useful ways will be hard to undo.

So I understand you're saying that things the pendulum may, you know, swing back in a way that has some real negative consequences, But you also alluded to that there should be there needs to be some fundamental change in the federal government. Can you elaborate a little bit about what you do think needs to change? Yeah. So, I mean, what I mean, there's I would say there's two problems, and they're problems on the one hand that I think people on the on the right, to some degree, one of them that I think they've gotten right, which is I do actually think there's a problem with legislative delegation. And you see this, right, in every change in administration.

There's always change in executive orders. There's changes in regulation, and that's because we delegate so much authority, especially around regulatory matters to administrative agencies rather than having congress determine it. And I think that creates a lot of our political conflict around government. Right? Because some of those fundamentally political questions rather than being answered by congress are being are being delegated to administrative agencies.

So I think that's one problem, and I do think that's something that conservatives have focused on that is a real that's a real issue. The other is just our ability to get stuff done and our ability to get stuff done. And again, Jim Palka's great book, Recoding America, is wonderful on this. Right? Just the basic ability to, like, build an effective, you know, software system, right, for the federal government.

We know about all these problems that, you know, in some sense, this is one of the things I worry about, Elon Musk, right, going in. You know, so much of our technological systems really are being held together by, paper clips and glue, and that's partially because our government's ability to really do the kind of things that have to be done to build anything. Right? We know about and, you know, you're in in California. Right?

The disaster that is the attempt to build high speed rail in California. Right? We have all these examples of where across lots of different seemingly unrelated domains, infrastructure. And that's not because government just can't do those things. Right?

It does those things all over the world. There are people who do that through things that are government that are, like, taking people's money through taxes, and they're spending it in your credit agencies. It said on that end, we too pervasively regulate government. Right? So we don't regulate enough arguably on the what, on what it is that's the scope of their authority.

But on the things that are within their authority, the things we were like, build us at a high speed rail, build us, you know, subway system in New York system. Build yourself a a system that's not built on COBOL to deal with federal payments. Right? That's where we don't give government agencies sufficient discretion and autonomy to be able to really do those things. And we also don't give them the kind of funding structure that you need to do that.

Right? One thing we know is places that can really do that stuff fast Don't just sort of trickle money out to, agencies do projects where they don't know that they're gonna be able to write. They're like, do it, do it fast, do it, you know, get it, get it done, move on to the next thing. Right? That's one of the reasons why we don't do things very well in The United States is we don't get that sort of cycle of doing it, learning, moving on to the next thing because we've we've sort of so pervasively regulated, litigated, what government does in its own internal business.

Makes sense. I would, encourage your, listeners if they're interested in the ideas we've been talking about. My friends and colleagues in the Scanning Center do great work on that, so you should go and, and read their work, send it to your friends, send them money. Right? That those are, I think, the people who are doing the the really the most interesting work that isn't hemmed in by the ordinary ideological or partisan considerations.

Fantastic. Are they dealing with any of the things like you talked about, like with high speed rail in terms of how do we get things done more productively? Yeah. So, you know, we're engaged. So we we have this relatively new state capacity project that's work that's trying to work on that set of the basic code underneath the all of these problems.

We have a great, series of papers that are gonna be coming out in what we call the law of abundance project, and some of which are directly at this question of why it is that not just The United States, it actually turns out lots of Anglo American systems are very bad at building infrastructure. So the Britain, you know, again, the similarities between the high speed you know, what would they call the HS two, this thing that was supposed to go from London up to the the North, right, has been faced with, you know, enormous cost overruns, delays, eventual cancellation. Right? It looks so much like California high speed rail that it can't be an accident. And so we're gonna be publishing some stuff on that.

And I would also suggest you look at the transit cost project that's at NYU's Marin Institute that have done incredible studies of, like, you know, the fact that it really is right? Countries, you know, have very different cost. You know, Spain, which we don't normally think of as this model of public administration, you know, builds tons and tons of transit, cheap, fast, and it's and it's good, and they keep doing it. So there's some other thing we have to sort of hack to figure out why government can't do these things. Makes sense.

Well, Steve, thank you. Yep. The POC Venture Capital and Beyond is produced by CMVG Advisors. If you enjoyed the conversation today and haven't yet subscribed to our show, you can find us on iTunes, Apple Podcasts, and SoundCloud. Feel free to leave a review while you are there and maybe even a five star rating.

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