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Are Capitalism and Democracy Fundamentally Incompatible? A Conversation with Mordecai Kurz
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Welcome to the New Books Network.
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I'm Caleb Zakrin, CEO and publisher of the New Books Network. Today I'm speaking with Mordecai Kurtz, Joan Kenney, professor of Economics Emeritus at Stanford University. We're discussing his latest book, Private Power and Democracy's how to Make Capitalism Support Democracy. After the high water mark several decades ago, democracy's status continues to slide globally. Capitalism and democracy, which once seemed to complement each other, now appear at odds. Free market policies and monopolistic technologies have enriched many while driving inequalities that harm workers. Many have opined on how to fix the political and economic problems of our day. From an embrace of radical libertarian policy to socialist ownership of the means of production, Mordecai Kurtz's extensive study of capitalism and democracy charts a path for balancing economic and political freedom. Since the days of Adam Smith, technology has changed rapidly, necessitating new formulations that take into account the private power centers that exercise control, much like monarchies did in the Age of Enlightenment. Despite the imbalance, capitalism still remains a driver of technological progress and innovation. How can we make both capitalism and democracy work for the good of everyone? I'm happy today get the chance to speak with such an illustrious scholar to learn a bit more about how to understand this defining puzzle of our age. Mordecai, thanks for joining me today on the New Books Network.
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I'm very happy to be with you.
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It's such a pleasure to get the chance to speak with you. This type of book is really what I just love to read, which is a wide ranging book that takes on many different topics. It's clear that there are, is a lifetime of learning embedded in this book. And you've obviously had a very interesting career too as an economist. You've seen a lot and had a lot of different experience thinking about these issues. And we're talking at a very interesting moment in time where capitalism, democracy really do seem in tension with each other in many ways. And it's unclear what's going to happen as different people who are, you know, essentially waving the banner of each, of each issue are confronting each other. And I think as you sort of demonstrate in your book, you know, there, there is, there's good to be had in both that there, there are positive aspects of capitalism. There are very, you know, democracy of course being very important as well. And how do we consider these two together rather than see them as necessarily at odds with each other. But before jumping into the topic of the book, I was wondering if you just introduce yourself a little bit if you could just tell us a little bit about your career as an economist.
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Well, I have a PhD from Yale. After my PhD at Yale, I came to Stanford and I have been at Stanford ever since. So I've been a Stanford man all along with some interruptions here and there. Most of my work at the very beginning concentrated on growth theory, general equilibrium analysis, mostly theoretical. I was considered somewhat of a mathematical economist. And Sometimes around the 2000 or so, the economics profession went through an important change of attitude of views or perception, I should say. Of what? The distribution of income. What is the forces that cause the distribution of income? Up until 2000 or so 2003, people believed that relatively speaking, the relative share of labor in the relative share of capital are pretty much constant. Keynes declared that to be the miracle of economic statistics. And it was a fundamental principle of neoclassical theory altogether in the 20th century. And that theory simply was proved to be wrong. The data began to show that in fact there is a declining share of labor. And that caused a substantial rethinking in the profession. And I found this a very challenging question. And then ever since then I began studying this question. And this is the two books that came out as the consequences of this development.
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Yeah, you being at Stanford, Stanford is such a power center of the new technologies that are coming out. It seems to be going to Stanford and dropping out seems to be on the bucket list of many technology founders today. And one of the major leading lights of the Stanford ideology is Peter Thiel, who would go and tell his acolytes that they should seek out to create a monopoly, because there's nothing like owning a monopoly. That's the best way to extract value. And I was wondering if you talk a little bit about monopoly and why monopoly features so critically into your study of capitalism and democracy. Just to explain a little bit about the thinking around it. For those who don't really know about how monopolies operate or what the definition of a monopoly is in economics.
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Okay. A monopoly power. And I use the term market power more broadly because I'm not talking. The book is not about monopoly power itself. It is the ability of a company to charge prices, to change the price to influence its own prices. That occurs when you all in one supplier. That will be a pure monopolist, but that will the same. The same thing would occur if there will be say two. Two large firms, in which case we call it to duopoly or three large or four enrich becomes an oligopoly. And if there are many of them, but they still have some power left. Then we call it monopolistic competition. I combine them all together into one terminology of market power. Now, what does it mean? It means a company has some ability to control prices in the classical sense. In the classical theory, going back to Adam Smith, all companies are small, all consumers are small. Nobody has any power. The market is a smooth operating system where the prices are determined in the market by the invisible hand. But nobody can control those prices. Nobody has any effect on the prices. If you try to affect the price, you'll go bankrupt. In the old system, monopoly power arises if you have the ability to control it. Because in my case, the case that I'm interested in, and that's why Stanford and Silicon Valley became very, very important for my understanding of the process, is to discover the fact that although innovations are essential for economic growth, innovations are the essence of the process of income creation. It is also a source of monopoly power. Why? Because if you innovate something new, so you have new product, or you have a new cheap way of producing existing product, then you have something uniquely different than anybody else. Then you have some advantage over other companies. So market power represents some advantage that one has over competitors. And that advantage becomes a powerful force that creates what we call monopoly profits, which means excess profits above normal. And again, it could be because there is one firm or two firms or three firms that dominate the industry, in which case, in the, in the case that I'm dealing with, that arises because the company is able to use the technology that innovates to consolidate this power. So think about this way. You innovate first the product. Then you have an initial product, initial advantage. It gives you some profits, it gives you uniqueness. It gives you the power to control the market for a while. Legally, you get a patent, it's legal. It's a legal power. So the country, the state, gives you the power to control the prices as a compensation for your innovations. But then the whole point is, the discovery that I make is that firms are able to capitul to capitalize on that and use many, many different strategies to perpetuate that power. For example, they can issue 2nd, 3rd, 4th and 15th version of the same product in slightly improved versions and get more patents on top of the original patent. That creates a pyramid of patents that competitors cannot compete with. Or if you, if some new competitor shows up, you buy them out, or you buy out the technology. You, you create situations in which you take advantage of the information you have with your customers because they're not available for the competitors. You have information about your customers that your competitors do not have. Again, an advantage. So there are many, many strategies firms can use in a technology in terms of consolidating the control over the technology to a point that such market power becomes a permanent fixture of capitalism. That is the mechanism that drives everything. In my theory, the ability of these firms to create that monopoly power to control their prices, to have advantage over their competitors, which the market competition does not resolve. Market competition doesn't resolve that.
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The Marxist critique of capitalism is that capital exploits labor. And you say that this is not true, at least not true anymore because capital is also being exploited. Can you explain this a little bit?
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Yeah, because you have to think about capital as an input is something that is like labor. Labor is an input into the production process. So it's capital. So in Marxian way of thinking, the capitalists and the owners of capital are the masters of the start of the story. But in my story, the technology is the master of the story. The technology is the foundation that drives everything. So you can think about the technologists, the innovators. They go out and hire labor to work for them and they go and borrow capital from their bond market if there's available. If not, they go to venture capitalists. They borrow or they use some other means to finance. So capital is just an input into that process. When you have a monopoly power, you have two things happen to you. Number one, you produce less. And that means you use less labor and you use less capital. By using less labor and use less capital, you are depressing their income. Therefore, in a sense, it is the technology that sings the important song. And capital and labor being hired and being exploited by the technologists. And that vision is very, very noticeable in the writings of Silicon Valley. Entrepreneurs were talking about the technologies being the, the dominating elements in the. In the future of, of humanity. You look at the, their, their writings, you'll find they talk about themselves as the, as the masters of the universe. And it's true. They are the masters of the universe. And me the labor and the capital. The think about the capital owner. You don't have to about in much world can a capitalist is this, you know, is, is this exploiter. Capitalists are the people who are the savers. People who save their money or rent. People who live on rent on, on, on. On money that they've saved their. That money is being lent to corporations and that money is being exploited in the same way that labor is exploited. So both labor and capital are being exploited in my system is very distinct from the capitalist from the Marxist way of thinking.
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Yeah, I think that's useful because in this book you do a bit of an overview of how economic thinking has evolved. You start by even looking at
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the
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ethical and political theory that feeds into the basis of capitalism and this idea of, of capitalism relying on or looking at the insight that people tend to behave in a selfish way, not necessarily morally selfish, but they tend to behave in a way where they are going to benefit themselves. And if this works together in a proper way, then my need is going to benefit you through the way that the system is kind of interlinked with itself. And I was wondering if, without asking you to give like a full sweep of the development of liberal theory over time, if you could just talk a little bit about, you know, the kind of Smithian approach to economic thinking and how that evolved into the more neoclassical period about how people started to think a little bit differently about capitalism.
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Well, as I said, as I've already hinted in the, in the, in the, in the Age of Enlightenment, they were construct. They were very concerned with the question of how to explain how society would function after the demise of the aristocracy of the Middle Ages. And they recognized this free society will operate with. When people will become selfish, they will seek something that they would want to do for themselves. The issue was try to understand. And there, there's a lot of literature on trying to understand how mutually related desires can, can come together. And Alvin Smith's discovery was the realization that this selfishness, which he was not very sympathetic to, he wasn't very sympathetic to the capitalist view, but he saw it as a best solution that leads to a outcome which is desirable by everybody. If no one has any power to dominate and act selfishly. But that is conditioned, it turns out, upon many, many terms. The issue what makes it work occupied economic thinking for 200 years to understand how this Smithian magical hand works. Something that economists studied literally until 1953. Only by 1953 it was resolved and we understand the conditions under which this would be true. And it turns out that they have no monopoly, they have no market power to be very small and not be influential. That will be that you do not have senses of economic power and economic and political power in the systems. All of these when necessary for the Smithian system of mutual selfishness ending up being good for society. It turns out the technology, as I described earlier, enabled people to obtain some advantages and these advantages could be consolidated into permanent advantages so that monopolies became endemic. They were basically essentially essential for free market capitalism. Free market capitalism automatically will become full of political and economic centers, violating the Smithian spirit. And therefore the only way democracy, and I claim this is the main argument of the book, is that that process ultimately destroys democracy too. And therefore, in order to have democracy and capitalism live together, democracy has to regulate Capitalism put boundary on it. Capitalism is the most creative system that humanity ever created, the most innovative system that humanity ever created for the generation of new ideas. But it also is, it has a ruthless element, it has cruel element, it has those who suffer from that because it has a great, it can cause a great deal of suffering as well. And that we don't have to have, we don't have to have all the negative aspects of capitalism because we can put guardrails around it and place it in a way that make it consistent with more humanistic principles. So I'm looking for capitalism that is more humane. It is more attuned to the need of everybody that doesn't leave anybody behind.
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Yeah. And looking at the consequences of this, I mean, you point to so much of the, of the anger and frustration that has come out of especially blue collar and working class communities in America is due to the anger and the frustration of jobs disappearing because of either technological efficiencies or because of offshoring. And I'm curious if you could speak a little bit to populism and just the sense of democracy being in decline and what your perspective is on democracy. Because obviously I think you're pointing to benefits on benefits of capitalism, but also drawbacks of capitalism. And I was wondering if you could just explain a little bit how you think about democracy, what the importance and value of democracy is in a society. And know similarly, like if there are constraints that you think should be put on, like obviously there, you know, people have like Montesquieu, separation of powers, other approaches that people have taken to thinking about how to use, how to kind of adapt democracy in, in the best case scenarios.
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Well, it's, it's a broad question that you asked me. Let's, let's take it one at a time, one piece at a time. So let's focus on the, on the first question of why is it that the mechanism that I was talking about would cause and actually did cause the decline of democracy in the United States? And to understand that, I claim that the decline of democracy is a result of three factors, three forces. The first force is the change in economic policy in the United States. In 1980, 1980, the United States went through a major, major change of policy from a period Of a half century of regulated monopolies and regulated capitalism. By the new deal era legislation, President Ronald Reagan switched direction and declared that this is time for freedom and freedom of expression, freedom of investments, freedom of choice. And we need to dislodge all the regulatory mechanism. That same regulatory mechanism that enabled the consistency of democracy and capitalism between 1930 and 1980, all of that, it was being dismantled. Therefore, it began a long period in which the regulatory structure of the United States began to be broken up. And capitalism flourished in its natural form, which creating monopolists and monopolies created enormous degrees of inequality. The consequence of monopoly power is inequality, because if you have some that are very, very wealthy and very, very successful and others are losing their jobs, then you have a growing divide in the economy. So first of all, it was the economic policy, the free economic policy, the free that was instituted in 1980s that unleashed enormous amount of inequality. Economic inequality means political inequality. When people are not equal financially, they're not equal politically. The second force was technology itself. Technology itself is very important to understand, has also a very large effect on this mechanism, and that is this. The dominant technology of the 20th century was the moving assembly line. The moving assembly line had the advantage that it enabled. Taking a complicated process of building an automobile, for example, and allowing unskilled workers, unskilled workers without college education to do repetitive, simple tasks that add up to, to creating, completing a complicated task, which is the creation of the car. And Henry Ford was able to show how by doing that, he can produce automobiles much, much cheaper, faster. But at the same time, he created the blue collar workers of America. He created the worker who was without college education but would make. Middle class income. So the American technology, American manufacturing, was based on the fact that, that this technology was the dominant technology and the workers were flourishing. The computer changed all of that. The robot and the computer changed all of that. It simply attacked all these workers who were doing repetitive works, replace them then. In addition, the freedom of policy, the freedom policy also applied to international trade and globalization. And globalization enabled a great deal of American industry to move abroad. And again, workers without college education were the sufferers. Finally, the third component is the culture that we had adopted. The culture that said only the, the you, you're completely responsible for your life. It's the meritocracy going berserk where you can be everybody's free, but then you're also completely responsible for everything that happened to you. No matter what happened to you, you're fully responsible for it. So that we as America were Watching millions of people losing their jobs, regions of the country being eviscerated, people going into declan decline of region, decline of people. The people who were being addicted to alcohol, drugs, and ultimately suicide. Millions of Americans became the victims of this process. And because of the culture of the meritocracy, we ignore them. We said, hey, the market will take care of them. The free market will resolve everything. Well, it didn't these people continuous until 19. I mean, studies that were conducted in 2000, 2019, that shows that after, even in 2019, this was. Many of those people remained out of labor force or incapacitated. So Trumpism and the populism is the result of these three forces. When you combine those three, the free market policy, the technology and the culture, we created a catastrophe for America. And this is what Maga populism is all about.
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Yeah, thank you. Yeah. And I think that provides some very useful background on the economic factors that are feeding a lot of the anger and resentment that is still very impactful. Then Obviously, with the 2008 financial crisis, of course, kind of popping, maybe the expertise bubble, I think about the fact that, I mean, Alan Greenspan just died, who is in many ways the. He was the maestro, the epitome of it.
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Yes, absolutely.
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Many people today that criticize capitalism and criticize inequality will espouse, maybe not directly, but they'll espouse to a certain extent a sense that any economic inequality is bad, that if someone has more, if we, you know, any. That this incentive structure of capitalism is fundamentally evil and that there is, that there's, that there are better ways. And you know, you, you look at a, at an example, and I think it's an interesting example of the kibbutz. And it's interesting to me in part because, you know, some people might know that Bernie Sanders, who is in many ways like the most prominent American advocate of politics on the political stage of a more egalitarian politics, credits his time on a kibbutz when he was younger as being very influential for his brand of democratic socialism. And I was wondering if you could talk a little about this example, because I found it very interesting as thinking a little bit about, like, under what schemes? A purely egalitarian, almost like communistic, you know, society works and, and why it's not necessarily a good model for the type of economy that we, we have today.
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Yeah, well, the, the example of the kibbutz I give because the kibbutz was also viewed in Israel as a tremendous success. As you were sitting in 19, say, 1949. The kibbutz was hailed at that time as. As a great achievement of the Israeli society. Yet today the kibbutz is very much has abandoned most of its early features. But essentially I'm arguing, explaining in the book why, number one, there are human differences in incentives. Humans have incentives. Adam Smith discovered that that remains true. So to give them the incentive not to work, they won't work. And they'll give them the incentive to exploit somebody they will exploit sometime. Therefore, a purely egalitarian system simply disregards the fact that people are different, people have different qualities, different abilities. And at the end you would like to have a system in which everybody is paid reasonably well according to his ability to his contribution and in accordance with what's available as well. I can understand that. So the kibbutz tried a fully egalitarian system and it was extremely successful. Why? Because in addition to the egalitarian idea of the kibbutz, the kibbutz was essentially established in 1906 because Jewish workers were competing with Arab workers. And they didn't want to compete, they didn't want to see struggle and they didn't want to see the Arab workers disenfranchised newly arriving people who migrated into Palestine early part of the 19th century. And to do that, they created a completely egalitarian society in which even childbearing was communal. In other words, the children were being brought together and people didn't have any private property at all. The the kibbutz was successful because in addition to that, it had the aim of building up a state of Israel. It aimed to be a state aid, which is way above its own objective, so to speak. That was, there was supercharged objective, which is the objective of creating a Jewish state. And that created a special dedication of members of the kibbutz to the communal act. Once the state of Israel was created and then normal society began to form, the kibbutz found itself behind. It had to try to catch up, it tried to borrow money, it tried, tried to invest in industrialization. And the industrialization was not successful again, because you can't run industrialization on complete egalitarianism because somebody has to be a manager and somebody to be a worker. And they try to bypass this kind of issues. And by the same, by late 1980s, their debts became so large that they had to restructure, they had to rearrange the entire system. They had to give up a great deal of their autonomy, they had to give up their own private. They allowed private property, they allowed private property of their homes and many of the kibbetsim basically abandoned the old egalitarian principles they lived on. It shows you if you have an overarching aim that mobilizes people, then egalitarianism could be fine, could, could be workable. But for a normal, normal society, at the end it ends with inefficiency and waste. And at the end it doesn't work.
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So, yeah, thank you for, for giving that, that example. I think it's a very, it's interesting when it sort of shows in a way that in order to get people to function in this sort of egalitarian community, you know, other things are required that might have a short, you know, might be, might be short lived. So there's something clearly, in a way, you know, capitalism has, has found ways to, despite, you know, ups and downs, it's found a way to sustain itself. And you know, you go through a bit of an overview of the various clashes between capitalism and democratic forces. And you know, you talk about our current age as being a second Gilded Age, and you focus quite a bit on the first Gilded Age. And I was wondering if you could just compare the two a little bit about the first Gilded Age and some of the outcomes that showed a kind of a reassertion of democratic power. And then just comparing it a little bit today to how you think about how that first Gilded Age differs from today.
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Yeah. Okay. So the first Gilded Age is marked to be the period between the end of the Civil war and the First World War, sort of somewhere, something like between 1865 and 1914, it's marked by an extraordinary period of industrialization. But in. And so that transformation of America from an agricultural society to a manufacturing society, and from being a far small country laid back to becoming essentially a willpower, but at the same time, so that you've got this huge degree of technological innovations. Virtually every technology of the 20th century was invented in the Gilded Age. In the first Gilded Age, the three dominating technologies were, first of all, the discovery of electricity, secondly, combustion engine, and thirdly, oil. So these three components were the driving forces of the age which drove well into the 20th century and virtually everything that we do today, the refrigerator, from the refrigerator to the automobile to the radio and the television, all of these were invented during that time. But at the same time, it had the most unbelievable inequality where the, according to my calculation, the proportion of monopoly profits, monopoly profits out of corporate profits was more like something, something like 30%, which is extraordinary. And the difference between the poor residents of the slum areas in New York City and the wealthy people of The Fifth Avenue with a Glitzinger style was shocking. It was marked by wealth of individuals of the size of JP Morgan and Rockefeller, John Rockefeller. And these people believed in monopoly power. They didn't believe in competition. They. They had a. A vision that was based on some very strange translation of Darwin into society. Social Darwinism was very, very much prevalent among them. They believe in their superiority. They were superior human beings. That they were chosen to be the custodians of society. Custodian. They saw their wealth as guaranteed because they were superior human beings. And their wealth is not accidental. They were being chosen to be the custodian for society. That kind of. Obviously this is a strongly anti democratic point of view. But it had a very interesting feature that because they saw themselves as custodians, they ended up making large contributions to society after their life. So they are responsible for the Fort foundation, for the Rockefeller foundation, for the Guggenheim Museum, for the freak collection and universities that they created. In other words, they took their wealth back. They gave back their wealth. Good portion of the wealth. So they were. And by the way, I skipped the fact that they. That during the era the standard technology, the technique was to create trusts. Between 1895 and 1904, there were almost 2,000 companies were being merged into 150 trusts. These are all monopolists, groups of companies that control every aspect of American industry. The important thing is that although they were so powerful and I think that to some extent JP Morgan at some point was more powerful than the President of the United States. And I can argue why, in fact, JP Morgan sometimes had to finance the United States because running out of money. It was based on the gold standard. And the treasury sometimes ran out of gold. And it took borrowed. JP Morgan had to borrow it for the Treasury. But the way it was resolved is by the emergence of reform movement that originated in the farmland of America in the Midwest and then expanded very widely. And it took one President, Teddy Roosevelt in 1901 to change everything. One president was the one that changed everything. It began the whole process of reform and then begins a long period between 1901 and 1937 in which the most all the existing institutions that we have, like Food and Drug Administration that was created in 1905, 1906 and the income tax was created in 1913. The Federal Reserve System 1913. The Federal Trade Commission, 1917, 1934, the securities Exchange Commission to regulate stocks and banks. In 1935 was the Social Security. 1937 is when finally the Supreme Court relented to FDR and allowed the minimum wage to come. So you've got this period, extensive period of reform, where three presidents basically carried the burden. Teddy Roosevelt, then Wilson, and then finally the. The second Roswell, FDR in the Depression. So that America then reached a point in which it found the guardrails to keep inequality, to keep capitalism under check. And for half a century, we had a golden age that between 1930 and 1980, half a century of a golden age in America became the bleeding force in the world. So this story of revival by the leadership of one or three presidents who carried the reform is what makes me hopeful about America in the future. I believe that Trumpism will collapse and MAGA will implode and America will have a chance for a second process of reform to come in the future along the same line that we did it in 1901. That began in 1901.
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Yeah. Obviously today, you know, things are different, technologies are different. There's still, of course, similarities. What are some of the
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difference? Yeah, the key difference between, I think the similarity between the first Gilded Age and the second Gild Age is great. Is very great. The only major difference is the technology. The technology of the time was, as I mentioned, it was the three technologies that I mentioned, plus the assembly line. And today we are living in a digital age. The dominating technology is the computer. But otherwise, I think that there's a great deal of similarity between the two. The last one in which they differ, it is the fact that the billionaires of today do not show any sign that they feel responsible for society. I think that Plato said democracy can handle a ratio of wealth to, to the wealth. The, the most wealthy to the average person should be no more than four times to one. Well, we have it 2,000 times to one. So our, our, our, our billionaires seem to want nothing but more billions. No more than that, because more billions be. Means more power. But they don't show any signs of being custodians for society or doing anything good for society.
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What do you see as far as some of the policy suggestions that you think you know and looking at ones, because there are certain policies that are maybe more feasible than others. So how do you think about some of the policy solutions that you would advocate for to alleviate the problems that you see?
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You know, I'm an academician and I speak of what should be in Trump world, nothing is feasible. We need a different world. We need a Teddy Roosevelt to come and steer us in a different direction. But the reform that I advocate in the book really consists of three parts. Part number one Is reduction in the market power and political power of the centers of power, of private power in America. And that to accomplish this, to reduce market power, to reduce the power of those individuals and corporations which constitute today the centers of power, we need to change the patent law, make it much more difficult to get patent. And I advocate, for example, to make a distinction between the primary patent and secondary patent. As I explained to you, patents is a very important element in the strategy of building up the market power that I talked about at the very beginning. So to avoid this pyramid of patents, A secondary pattern will be defined to be a pattern whose description depends upon another patent. In other words, if you write a new patent to improve the previous patent, this becomes secondary. Therefore, I advocate that the length of time for life for that pattern should be half of the primary patent. Primary patent is something completely new. Primary patent should be given for 20 years, secondary patent only for 10 years. Secondly, we should pass strong regulations against acquisitions of technology. Concentration of technology in single hands into single empires are as dangerous as concentration of market power of. Of actual control of markets. Because control of technology ultimately leads to control of markets. So severe restrictions on acquisitions and then raise personal income tax. Top raise the income tax should be raised to 65%. And corporate income tax should be raised to 45%. The second component is reform. The redistribution achieved. Okay, so the first purpose is to reduce market power. The second one is attain a more egalitarian distribution of the benefits of technology. And the most important element in that is what I call the livelihood principle. Preserving livelihood principle. Remember, we talked about all the millions of workers who are being laid off or losing their jobs. The key to understand why this is injurious is to understand that the most important component of a worker's skill is his experience. His experience works with a specific technology. When the technology changes, that experience is. Is wasted, is gone. So that if you change it, if you innovate something new and there is a new technology, and the person had experience with technology A, doesn't have the experience of technology B. Or if you have an experience for technology that was domestic, now is moving abroad, then you can't just ship to an employment in export. You can export, import and export and do different things. So these kind of changes cause large losses of labor. And that means that we need much more extensive retraining of workers. Retraining of workers means a trainer loses his job because of policy which is supported by the government. The government becomes responsible. I advocate the responsible legal responsibility of the government to preserve the livelihood of that family, that means a counseling to find a new job, training, covering the labor costs and paying the wages of the family during the training period. It could be last for as much as a year. Moving cost, medical cost, tuition for the children, babysitting to the children so that they. And then at the end to give the person a subsidy for the worker to be placed in a new job. So this is a program which you will say is not feasible today, but I say it's very feasible because between 1980 and 2019, that's my calculation, the investors in the stock market made about $25 trillion. This is the monopoly wealth that was created. The monopoly wealth that was created between 1980 and 2017, about $25 trillion. By today, it's probably $35 trillion. So when you ask me where is the money to come, this is where it comes from. There's enough money around, except that you should be willing to tax that money. And what I'm saying is that all these people who are the losers of the process of economic growth, they are part of the process in democracy. They are not left behind. They are saying, okay, you are to happen to be in the losing side. But it's a mistake. I mean, it's complete. There's no reason why there should be anybody who should be particularly be punished because society has to go forward. There's no logic to that. In democracy, we all, we all move forward. Some of us do better than others, that's okay. But no one should be left behind. There is money to do that and we can't do that. So it's feasible. But would Trump do that? No, Trump will not do that because his beautiful bill was to take money from Social Security and from Medicare and Medicaid and give it to the wealthy.
- [51:49]
B
Right? Yeah. I mean, there are a lot of the policies that you suggest. Obviously a lot of politicians are advocating varying degrees of that rather than sort of go point by point, because obviously you take on in the book like many counterpoints. But one thing that I will hear and just in the sort of to kind of bring it to the current technologies that are so dominant are these startups in Silicon Valley, in the Bay Area and these AI companies that are so dominant in. There's an argument that some people make that if we do these sorts of things, we raise taxes, if we do any kind of restrictive policy, that it will harm innovation, that America won't have all these new startups, that they'll go elsewhere. I mean, I don't know exactly where they would go or what the environment would be that would be more amenable, even in, under, you know, an American regime where taxes are slightly higher. But, you know, obviously you're at Stanford, where I'm sure you probably come across these sorts of arguments a lot. I'm curious what you think about that in terms of just the, you know, the, the new, the startup culture there.
- [53:10]
A
It's, it's this argument are fallacious. That's number one. There are two proofs to that. Proof number one, between 19 in 1942, the President asked Congress to establish the principle that no one in the United States should have income of more than $25,000. So income tax should be 100% for income above $25,000, which is about $450,000 of today's income. Congress didn't give him that, but the Congress did give him a 92% tax on income above $200,000. The income tax of 92, between 92 and 78% persisted between 1942 and 1980, income tax, the top marginal income tax was between 78 and 92. The corporate income tax was about 45%. America innovated like hell. America progressed extremely well. America became the power of the world. CEOs used to be very modest people going driving on bicycle to their work, not in salaries that were in high helicopters. And America did very well for half a century. So that proof number one, that indeed the argument is fallacious because we had a period of 50 years in which we had very high taxation and we did very well. But they understand why the argument is fallacious is because in order to be successful, do you have to make a billion dollars about maybe only $200 million. $200 million is a lot of money. So if you make $200 million for an invasion, you're rich. Why do you need a billion dollars? After all, my whole point of the book is that those who want the billion dollars only want power. And it's the one thing I don't want to give it to them. I don't want to give the power. I will give them the wealth because $200 million is a lot of money. You can live very, very well with $200 million. But when you get the billion dollars, you've got too much power. And I don't want you to have that power. So the issue is not do we need a billion dollars to innovate? No, 200 million is enough. That's the simple argument. And I don't need to write too much mathematics for that.
- [55:41]
B
Yeah, it certainly is a ton of money. Yeah, it's a, you know, thinking about balancing how, how to balance these forces against each other is, is very, it's an interesting puzzle because I think, as you show, in a way, at various points in time, they've seemed to be in more or less tension, depending on the formulation of capitalism or even the form of the democracy that's interacting with it. And I think we want to avoid the very worst case outcomes where we completely lose democracy entirely. That would be truly a tragic outcome. I'm wondering for you with this.
- [56:33]
A
I mentioned to you that Plato said democracy cannot sustain a ratio of wealth of more than 4 to 1 between the wealthiest person and the average person. That's Plato, not me. So you can then conclude for yourself that would be the reasonable ratio that I would accept as perfectly reasonable for inequality within democracy. I don't know. It does not, it does not need to be 2000 to 1, because 2001 becomes a point at which the wealthy lives in their own world. They live in the old gilded formats and their own style. And you can see it in the hills, in the houses around Silicon Valley, where a typical house would go for $15 million and more.
- [57:28]
B
I'm wondering for you, with this book having been written, what you're looking at now, if there's any other projects that you're working on and what your. Yeah, how you are occupying yourself.
- [57:43]
A
Well, I, right now, I just finished that book. You know, it's a bit too much, too soon to ask me. I don't know. I don't know what's next. No, I don't know. The answer is I don't know.
- [57:58]
B
That's perfectly acceptable.
- [58:01]
A
I just finished two books. In the main three years. I finished two books and it was a very intensive period of my life. I need a little bit of respite here. I mean, you saw that I have another book published in 2023 which is the foundation for that one. So both now together, a package of two books. They took a lot of effort and they cover a lot of material.
- [58:30]
B
Absolutely, yeah. There's so much material in this book. I mean, we really, I feel like just only had the opportunity to scratch the surface in this conversation. So I really do recommend, you know, for anyone who is interested in learning more about the policy ideas that, that Mordecai puts forth, I really do recommend reading the book. And then also, I think it also, especially Part one, serves as a really great primer for anyone that wants to learn a bit more about the development of, of liberal theory. And liberal economic theory from Smith to the present day. You do a really good job, I think, going, going, doing an overview of all that. So. Yeah. So, Mordecai, thank you so much for being guest on New Books Network. It was really wonderful to get the chance to speak with you.
- [59:14]
A
Oh, it's my pleasure. That's a great fun, Sam.