James Goldsmith: A Prescient View of Free Trade

A discussion on the General Agreement on Trade with Sir James Goldsmith and Laura D’Andrea Tyson.

Tuesday 11/15/1994

Joseph Stiglitz: the Right’s China Policy was Designed to Raise Profits by Weakening Wages (Labor)

Joseph Eugene Stiglitz (/ˈstɪɡlɪts/; born February 9, 1943) is an American economist, public policy analyst, and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979).[2][3] He is a former senior vice president and chief economist of the World Bank and is a former member and chairman of the (US president’s) Council of Economic Advisers.[4][5]
some ways I one has to recognize that
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China may have been lucky they began the
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development strategy just at the moment
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when the West was very open to importing
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manufacturing goods it was a moment
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where because there were a large profit
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opportunities in the West that sustained
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the opening with wrong without regard to
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the effects and workers over the over
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the effects and the overall economy so
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in a way China’s success is testimony to
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the failures of democratic politics in
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the United States in Western Europe
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because the rules the game were designed
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worked to advantage American
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corporations Western European
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corporations with no attention paid to
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the consequences to the workers as the
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United States d industrialized now some
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countries in Europe did pay attention
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and they did have active labor market
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policies that shifted workers from the
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old sectors that were dying into the new
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sectors and Scandinavia has been very
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good in these active labor market
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policies which I think are really
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important in the United States we didn’t
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do that even though economic theory said
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opening up of trade between an
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banks country like the United States and
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China West events would result in lower
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real incomes for unskilled workers
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there’s a missing Stover theorem and it
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was unambiguously clear even though we
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were getting cheaper goods real incomes
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of unskilled workers would go down and
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it’s only if you had a mystical belief
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in trickle-down economics would you
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think otherwise but our politicians did
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have a mystical belief in trickle-down
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economics and they asserted this over
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and over again and so even when you know
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in the Democratic Party we tried to get
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Trade Adjustment Assistance we try to
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have some active labor market policies
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when we couldn’t because of concerns
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about austerity and not enough budget
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concerns they wouldn’t work we went
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ahead anyway there is a growing sense
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the United States though that actually
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the agenda on the right was to increase
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unemployment and suffering you say why
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would they anybody you know why do
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people want suffering well it was part
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of a concerted agenda if you look at to
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weaken the bargaining power of workers
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and drive down the wages which increases
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profits so if you look at this from a
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conservative point of view the reforms
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and our labor laws and reforms in the
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way antitrust policy was enforced that
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reform is a not the right word but
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changes in those laws changes in
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corporate governance and implicit
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understandings the legal frameworks and
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in the investment agreements in the
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trade agreements the investment
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agreements they gave more secure
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property rights if American firms
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invested abroad than if they vested at
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home which meant that they were
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encouraged to invest abroad which also
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meant that if the firm if workers came
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to affirming
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we want higher wages and the firms know
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if you we give you if you continue to
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demand higher wages we’re going to leave
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that was more credible so I think it was
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a deliberate strategy to drive down the
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wages of workers and it worked in terms
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of the economics that I described before
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it did drive down the wages but it has
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now led to these this political backlash
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with which we are dealing so there is a
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relationship between China’s success and
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some of the problems that we’re facing
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it wasn’t inevitable we could have
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managed it better we should have managed
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it better but we didn’t but just as a
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footnote the point I’m making is that
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that was a particularly
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Africa won’t be able to follow the
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manufacturing export-led growth model
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that led to the success of East Asian
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countries including China in fact now
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globally manufacturing employment is in
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decline in any country that believes
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that manufacturing should be at the
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center of their economic policy is
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misguided it can be part of it it can’t
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be at the center well let me just
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conclude by SEP some let me just
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conclude by a set of remarks about that
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in a way that pertain to all countries
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but we’re we’re china realized this in a
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way more forcefully than many others
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have and that is that reform is a
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never-ending process that societies are
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always changing technology’s changing
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and therefore the policies that are
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going to make a society successful have
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to change in a corresponding way
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for China China’s entering a new stage
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of development it’s facing critical
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problems of inequality health
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environment livable cities markets won’t
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solve those problems in fact many of
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those problems have been created by the
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fact that they had markets that were too
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unfettered to under-regulated
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they’re going to have to regulate them
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better there are further questions posed
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by changing globalization the
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recognition of the risks of excessive
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financialization the West
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I believe hasn’t succeeded in adequately
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taming financial markets as you know
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this is this week is the 10th
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anniversary Lehman Brothers and and a
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lot of people are talking about have we
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done enough I think it’s absolutely
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clear no and what’s particularly
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disturbing is the Trump administration
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is trying to undo the inadequate things
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that we’ve already done again I was at a
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dinner right before the inauguration of
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Trump where one of his chief economic
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advisors was there
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I don’t normally associate with his
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people might make it clearer but it was
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an embassy dinner so I and I didn’t know
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he was going to be there anyway
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and he was talking about how he was
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going to deregulate the financial sector
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within weeks after taking office and the
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first thing that struck me is he clearly
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had no idea of our democratic processes
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yeah he really thought you know Trump is
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the dictator he gets to write rewrite
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all the rules no no none of these
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processes that we put in place as
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democratic checks against authoritarian
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leaders no knowledge of that was just so
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clear but the second point I was going
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to ask what somebody who asked it before
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I did quizzically
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didn’t we have a crisis in 2008 and the
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implicit answer was that was ancient
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history and we have to move on but it’s
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not ancient history and I think the
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risks are very much with us one of the
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concerns that I increasingly seeing in
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China is that as China grows the
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influence of vested interest will grow
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and you can feel it already
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another just a little anecdote every
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year when I go to China I often talked
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to the finance minister and I’ve been
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pushing them to move away from their
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debt finance growth model to more tax
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financed in particular I’m telling them
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they need a carbon tax and it would
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raise a lot of revenue it would help
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clean up their air pollution exceed me
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an obvious idea and the finance minister
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every year says great idea and he says
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we have some political problems which he
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means the auto industry the coal
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industry this you know steel industry
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and so forth we’re gonna work on it next
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year we go through the same conversation
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as China has grown and it has taken on
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many of the features of a modern vested
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interest economy we’re getting change is
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becoming more difficult and that of
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course is is very worrisome but the
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principles that guided China in the
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first 40 years are likely to continue to
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be relevant and that by that I mean the
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pragmatism crossing the river by feeling
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this still stone they’re going to be new
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problems not fully foreseen would that
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appear it will have to address these
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problems
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using insights from theory and past
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experience and the second critical point
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is openness there is much to be learned
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from experiences of others and from the
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ink sykes of non-ideological economic
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analysis and again we’re in a particular
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moment where I hate to keep coming back
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to the United States but we’re a little
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bit obsessed with with our problems one
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can’t help but reflect on the closed
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mindedness of our current administration
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of not looking around you know if you
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think you’re number one and you think
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that you’re the there’s nothing to learn
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from anybody else that is part of the
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beginning of the end so we hope that
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this is just a temporary interlude but
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as we reflect on what makes I know
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successful in the ways it is I think
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there are a lot of lessons for all of us
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to think about how we can make our own
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economy successful for all of us thank
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you
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