Capitalism in America: Alan Greenspan and Adrian Wooldridge in Conversation with Gillian Tett

it’s useful to understand how the system
works and the key turning point is a
very remarkable period it’s William
Jennings Bryan William Jennings Bryan in
1896 was a fairly young 36 year old
Nebraskan who got up in the middle of
that particular I guess you could say
Association of then the Democratic Party
and it was the one of those
extraordinary events which turns
politics around the Democratic Party was
a highly conservative party prior to
them and essentially it’s characterized
by presidents who thought that the least
government the best it was essentially
lazy fair he got up Bryan got up and
made this extraordinary speech which is
now historical and then cross of gold
speech about the American worker and the
American farmer of being crucified on a
cross of gold called being the gold
standard and that propelled him
strangely enough into the head of the
party he got nominated he never became
president because he kept losing
you think he went three times and failed
each time but left a very major
indelible stamp which led to Woodrow
Wilson and all the way through to
Franklin Roosevelt and I you know I
looked at Bryan as the root of Franklin
Roosevelt’s New Deal
that’s fascinating cause I think most
people that part of it’s often being
obscured in history it’s again one of
the reasons why this book is so
interesting is it throws up these
creating the existing tax pattern [M]y
view is that that’s the right thing to
do provided you funded the result of
that is a bit of variance is going to be
a very large federal budget deficit and
federal budget deficits invariably down
the road out qualification in gender
inflation at the moment we have the
tightest labor market I have ever seen
that is the number of job openings is
significantly greater than the number of
people looking for work and that must
inevitably begin to push on wages it
always has and always will but it’s
always delayed
and my told you that is something has
got to give and that’s I don’t know
where it all comes out well your blyat
comes out with inflation well the
problem basically is if we do nothing
we’re going to end up with probably
stagflation which is an inflation rate I
should say it’s partly stagnation which
as mentioned was very significantly
slowed output per our output per hour
now which used to be 3/4 percent per
year
back in the early post-world war ii
period it’s now well under 1% which
brings me very nicely on to the next
question from the audience which is
someone has asked for you to share your
thoughts about president Trump’s recent
criticism of Jay Powell and the Fed I
like him to answer that with all the
answers I think it’s very short-sighted
the issue of the Federal Reserve is
required by the Congress to maintain a
stable currency which means no inflation
no deflation and the policy they’re
embarked upon at the moment seems very
sense it will be caused as I mentioned
before the wage rates are beginning to
show signs of moving and you cannot have
real wages rising without it ultimately
think if they continue on the road would
that we will
going Pretlow I should say that the
president wants to go we’re gonna end up
with a very significant budget deficit
and very significant inflation
ultimately not not in the short term
that it takes a while
political system doesn’t care about
deficits what they do care about is
inflation when the inflation rate was 4%
in the 1970s
President Nixon imposed wage and price
controls were nowhere near there yet but
it’s wrong our way
if we are though heading towards a
potential rise in inflation rise in debt
at a time of growing populism do you
think there’s a chance that the Federal
Reserve will lose independence I’m
trying to follow you which I mean well
cheating is a chance at Congress or the
president will try to control the
Federal Reserve or take away some of its
independence I really don’t know one of
those forecasting aspects which is
difficult another question from the
audience as the Federal Reserve’s reach
grows do you think that leged of
oversight will become necessary again
that’s above my pay grade
or do you think that Congress should
exert more control or oversight of the
Fed I think the Federal Reserve is by
statute
remember the Federal Reserve Act of 1913
which essentially did something very
unusual we had a long period we
discussed this in the book in which
financial crises kept surging up and
then collapsing which is a typical cycle
with
which went on to a decade upon decade
and the populism that evolved as a
consequence of this looked at
ever-increasing lead to find a way to
solve the problem of why the crises
occur and the general solution was if
the economy is accelerating and it’s
running out of gold species and you’re
going to get into a situation in which
they are always going to be crises so
what the Federal Reserve Act actually
did was very very interesting it
substituted the sovereign credit of the
United States for gold and then if no we
stayed on the gold standard technically
that was a major change in American
financial history and debate the basic
consequence of that is that Federal
Reserve determines what in effect is a
sensible level of money supply expansion
and one of the reasons the Federal
Reserve Act was actually passed was to
prevent the political system when
becoming so very dominant in determining
monetary policy which is exactly what
you don’t want to happen and I mean I
was you know eighteen and a half years
as you mentioned getting letters from
everybody who won very little
congressmen or otherwise who wants it’s
a the issue of and don’t worry about the
issue of inflation
and nobody was well when I would be
getting people who say we want lower
interest rates I got tons of that mail I
never got a single letter saying please
raise them and it tells you that there
are some views which go against reality
and reality always wins but if you look
at that the history of populism some of
the worst populism you got was in the
1970s some of the work that the anger
that was generated by inflation in the
nineteen seventies were roiled right the
way through the political system
eventually leads to the rise of of
Ronald Reagan because and who comes in
and then you know crushes crushes
inflation so inflation is is not a
solution to populism it drivers it makes
people very angry do you think the
current populism is going to get worse
chairman Greenspan well let’s remember
where populism comes from it’s I don’t
know whether this is a general
proposition but I find it’s difficult to
get around the answer that when the
inflation rate or that must the
inflation ratings as much as the levels
of income slow down when you get
productivity for example which is that
the major determinant of income and you
get productivity slowing down you get a
much lower increase in JD GDP and gross
domestic income and wages and salaries
alike and there’s a great deal of unease
in the population which is saying things
are not good somebody come help us and
somebody necessarily on the white horse
because comes up and says I’ve got a way
to handle this and if you look at Latin
America the history of
goodly part of Latin America is a
remarkable amount of people like Peron
coming in and all the subsequent post
World War two governments in Latin
America and it’s really quite
unfortunate and surprising it’s not that
they try it and it fails which it does
always it always fails but it doesn’t
eliminate the desire to do it in other
words of Peru Brazil and like they’ve
all undergone very significant periods
of huge inflation and collapsing and
nobody wears a lesson
yeah well we’re almost out of time but
there’s one other question from the
audience which I think cuts to the heart
of a lot of what we’re talking about
right now which is this does the success
of capitalism come at the cost of
enormous wealth disparity is it possible
to have this vision of creative
destruction of capitalism of dynamism
without having massive income inequality
I doubt it and I doubt it for the reason
I said earlier namely that we’ve got the
problem that human beings don’t change
but technology as it advances and it’s
embodied in the growth of an economy is
always growing and when you have
something that’s growing and the other
thing that’s flat you get obviously
inequality and the political
consequences of that can I qualify that
just a little bit I mean there – there
are different sorts of inequality
there’s a there’s the inequality that
you get from suddenly like Bill Gates or
Steve Jobs producing a fantastic new
innovation and idea which means that
they reap a lot of reward
for that but which means that society as
a whole gets richer and better off and
there’s the inequality that comes from
crony capitalism from people using
political influence blocking innovation
and and sucking out and do rewards for
themselves so I think we need to be
absolutely very very sensitive to the
wrong source of inequality while

celebrating the right sort of inequality
and also had that Joseph Schumpeter that

great man once said that the the nature
of capitalist progress doesn’t consist
of Queens having a million or two
million pairs of silk stockings it
consists of what used to be the
prerogative of a queen being spread
throughout the whole of society silk
stockings you know that become something
that go from being very rare and only
worn by Queens to being worn by all
sorts of people all over the place so
it’s the nature of capitalism is to
create new innovations which are at

first rare but spread throughout the
whole of society and everybody uses so
if you think think of the the iPhone or
something like that some that was
something that was incredibly rare and a
few people had those sort of
communications vais now everybody
carries them around all the time and the
great capitalists the Bill Gates the

Steve Jobs don’t get rich by selling one
really really good iPhone to one purpose
and they get into selling their products
to all sorts of people so there’s a
sense in which there is no real
trade-off between very rich people
getting very rich and the rest of
society getting getting better off you
know they only get rich because they
create things which everybody most
people want to have and buy you know
it’s it’s it’s it’s the Silk Stocking
question really I you know I accept that
qualifications let me just say one thing

you going back to his mentioning here
Walter Isaacson’s book on innovation he
wrote that book and I remember reading
it and my final conclusion was and I
asked him why is it that most innovation
is in the United States
it’s American and he said you know I’ve
never thought of that I don’t think he
was aware of the fact that he here and
all these innovation
to developers and they all turned out to
be American which leads me to conclude
that there’s something fundamental in
the psyche of American history in the
American public which creates it it’s
not an accident which is why I won in it
who too often so which is what you of
course you sought to explain the book so
if you had a chance to take this book
into the Oval Office today or into the

Treasury and give it to the President
and say this is a history of America
here are the key lessons what is a top
bit of advice that you would give to the
administration today to keep capitalism

growing in America well you know we do
have we haven’t mentioned that there’s
an underlying financial problem which we
haven’t addressed in the best way to
discuss it as when I first became aware
of it
I would haven’t been looking at data and
accidentally created a chart which
showed the relationship between
entitlements spending which is social
benefits in the rest of the world and
gross domestic savings and I’m from 1965

to the current period the ratio of
entitlements to the sum of those two is
flat as a percent of gross domestic
product which means or at least implies
that one is crowding out the other and
when you look at the individuals they
are actually looking different and
enable one goes up the other goes down
and so forth and I think that’s
suggestively the fact that there is
something in the sense of when we say
that entitlements by which a rising and
the baby boom generation is essentially
crowding out gross domestic savings
which in turn coupled with
the borrowing from abroad is how we
finance our gross domestic investment
which is the key factor in productivity
right so entitlement reform well I look
forward to a tweet about entitlement
reform I look forward to this very
important book being part of the
discussion about how to keep America
America’s economy great and growing but
in the meantime thank you both very much
indeed for sharing your thoughts it is
indeed a fascinating book and quite an

achievement and best of luck in getting
this very important message out so thank
you both very much indeed
[Applause]

Liberaltarians

The conservative movement—and, with it, the GOP—is in disarray. Specifically, the movement’s “fusionist” alliance between traditionalists and libertarians appears, at long last, to be falling apart.

.. Libertarian disaffection should come as no surprise. Despite the GOP’s rhetorical commitment to limited government, the actual record of unified Republican rule in Washington has been an unmitigated disaster from a libertarian perspective: runaway federal spending at a clip unmatched since Lyndon Johnson; the creation of a massive new prescription-drug entitlement with hardly any thought as to how to pay for it; expansion of federal control over education through the No Child Left Behind Act; a big run-up in farm subsidies; extremist assertions of executive power under cover of fighting terrorism; and, to top it all off, an atrociously bungled war in Iraq.

This woeful record cannot simply be blamed on politicians failing to live up to their conservative principles. Conservatism itself has changed markedly in recent years, forsaking the old fusionist synthesis in favor of a new and altogether unattractive species of populism.

.. The old formulation defined conservatism as the desire to protect traditional values from the intrusion of big government; the new one seeks to promote traditional values through the intrusion of big government.

.. Just look at the causes that have been generating the real energy in the conservative movement of late: building walls to keep out immigrants, amending the Constitution to keep gays from marrying, and imposing sectarian beliefs on medical researchers and families struggling with end-of-life decisions.

.. the conservative embrace of a right-wing Leviathan has left libertarian-minded intellectuals feeling left out in the cold.

.. New York Post columnist Ryan Sager bemoaned the rise of big-government conservatism and warned that excessive pandering to evangelicals would rupture the movement.

.. Andrew Sullivan denounced the right’s fundamentalist turn in The Conservative Soul: How We Lost It, How to Get It Back.

.. 13 percent of the population, or 28 million voting-age Americans, can be fairly classified as libertarian-leaning.

.. Back in 2000, this group voted overwhelmingly for Bush, supporting him over Al Gore by a 72-20 margin.

.. Markos Moulitsas of Daily Kos fame caused something of a stir by proposing the term “Libertarian Democrat” to describe his favored breed of progressive.

.. Governor Brian Schweitzer of Montana, fellow Montanan Tester, and Virginia Senator-elect Jim Webb—have sounded some libertarian themes by being simultaneously pro-choice and pro-gun rights.

.. if Democrats hope to continue appealing to libertarian-leaning voters, they are going to have to up their game. They need to ask themselves: Are we content with being a brief rebound fling for jilted libertarians, or do we want to form a lasting relationship? Let me make a case for the second option.

.. the prevailing ideological categories are intellectually exhausted. Conservatism has risen to power only to become squalid and corrupt, a Nixonian mélange of pandering to populist prejudices and distributing patronage to well-off cronies and Red Team constituencies.

.. Liberalism, meanwhile, has never recovered from its fall from grace in the mid-’60s.

.. Conservative fusionism, the defining ideology of the American right for a half-century, was premised on the idea that libertarian policies and traditional values are complementary goods.

.. But an honest survey of the past half-century shows a much better match between libertarian means and progressive ends.

.. many of the great libertarian breakthroughs of the era—the fall of Jim Crow, the end of censorship, the legalization of abortion, the liberalization of divorce laws, the increased protection of the rights of the accused, the reopening of immigration—were championed by the political left.

.. capitalism’s relentless dynamism and wealth-creation—the institutional safeguarding of which lies at the heart of libertarian concerns—have been pushing U.S. society in a decidedly progressive direction.

.. The civil rights movement was made possible by the mechanization of agriculture, which pushed blacks off the farm and out of the South

.. Likewise, feminism was encouraged by the mechanization of housework.

Greater sexual openness, as well as heightened interest in the natural environment, are among the luxury goods that mass affluence has purchased.

.. secularization and the general decline in reverence for authority, as rising education levels (prompted by the economy’s growing demand for knowledge workers) have promoted increasing independence of mind.

.. Yet progressives remain stubbornly resistant to embracing capitalism, their great natural ally.

.. Knee-jerk antipathy to markets and the creative destruction they bring continues to be widespread, and bitter denunciations of the unfairness of the system, mixed with nostalgia for the good old days of the Big Government/Big Labor/Big Business triumvirate, too often substitute for clear thinking about realistic policy options.

.. the rival ideologies of left and right are both pining for the ’50s. The only difference is that

  • liberals want to work there, while
  • conservatives want to go home there.

.. Both generally support a more open immigration policy. Both reject the religious right’s homophobia and blastocystophilia. Both are open to rethinking the country’s draconian drug policies. Both seek to protect the United States from terrorism without gratuitous encroachments on civil liberties or extensions of executive power. And underlying all these policy positions is a shared philosophical commitment to individual autonomy as a core political value.

.. their conceptions differ as to the chief threats to that autonomy.

  • Libertarians worry primarily about constraints imposed by government, while
  • liberals worry most about constraints imposed by birth and the play of economic forces.

.. At the same time, some of the resulting wealth-creation would be used to improve safety-net policies that help those at the bottom and ameliorate the hardships inflicted by economic change.

.. Progressive organizations like Oxfam and the Environmental Working Group have already joined with free-market groups in pushing for ag-policy reform.

.. the current subsidy programs act as a regressive tax on low-income families here at home while depressing prices for exporters in poor countries abroad—and, to top it off, the lion’s share of the loot goes to big agribusiness, not family farmers.

.. the president of Cato and the executive director of the Sierra Club have come out together in favor of a zero-subsidy energy policy.

.. cut taxes on savings and investment, cut payroll taxes on labor, and make up the shortfall with increased taxation of consumption. Go ahead, tax the rich, but don’t do it when they’re being productive. Tax them instead when they’re splurging—by capping the deductibility of home-mortgage interest and tax incentives for purchasing health insurance. And tax everybody’s energy consumption.

.. Gore has proposed a straight-up swap of payroll taxes for carbon taxes

.. Greg Mankiw has been pushing for an increase in the gasoline tax.

.. libertarians’ core commitments to personal responsibility and economy in government run headlong into progressives’ core commitments to social insurance and an adequate safety net.

.. Spending on Medicare, Medicaid, and Social Security is now projected to increase from about 9 percent of GDP today to approximately 15 percent by 2030.

.. We can fund the Earned Income Tax Credit and other programs for the poor; we can fund unemployment insurance and other programs for people dislocated by capitalism’s creative destruction; we can fund public pensions for the indigent elderly; we can fund public health care for the poor and those faced with catastrophic expenses. What we cannot do is continue to fund universal entitlement programs that slosh money from one section of the middle class (people of working age) to another (the elderly)—not when most Americans are fully capable of saving for their own retirement needs.

.. Instead, we need to move from the current pay-as-you-go approach to a system in which private savings would provide primary funding for the costs of old age.