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- [00:00]
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You know what's great about your investment account? With the big guys, it's actually a time machine. Log in and zoom. Welcome back to 1999. It's time for an upgrade. At public.com you can invest in almost everything. Stocks, bonds, options and more. You can even put your cash to work at an industry leading 4.1% APY. Leave your clunky, outdated platform behind. @Public.com Go to Public.com podcast and fund your account in five minutes or less. Paid for by Public Investing Inc. Member FINRA and SIPC. Full disclosures@public.com disclosures there are presentations and then there are Canva presentations. With Canva, you can use AI to take your presentation to the next level. You can generate dynamic slides and text with a simple prompt. You can drag and drop graphics and charts from canva's media library and add interactive elements to plus up your deck. And with collaboration tools built in, the whole team can work together better. You'll love the presentations you can easily design with Canva. Your clients and co workers will too. Love your work with canva presentations@canva.com.
- [01:05]
Chris Hughes
Bloomberg.
- [01:06]
Audio Studios
Audio Studios podcasts Radio News.
- [01:21]
Joe Wiesenthal
Hello and welcome to another episode of the Odd Lots Podcast. I'm Jo Wiesenthal.
- [01:26]
Tracy Alloway
And I'm Tracy Alloway.
- [01:27]
Joe Wiesenthal
Tracy, we recently did another special live episode at the New York Public Library.
- [01:32]
Tracy Alloway
Yeah, a really great venue, a really special evening, and fittingly given that we were recording at a library. The library in New York. It was all about a new book.
- [01:43]
Joe Wiesenthal
That's right. It was a pretty fitting location. So you are going to listen to our live episode that we recorded with Chris Hughes. He's actually one of the original founders of Facebook, but he left Facebook fairly early into the company's journey. He's currently getting his PhD at Penn in Economics, and he's the author of the book market the 100 year struggle to Shape the American Economy.
- [02:05]
Tracy Alloway
Yep. Take a listen.
- [02:07]
Joe Wiesenthal
Thrilled to be chatting. Why market craft? You know, we talk. People use the term industrial policy a lot these days. It got very hot over the last several years. What does market craft mean? Why title it that?
- [02:19]
Chris Hughes
Well, hello. Hello. I'm happy to be here. And before I answer exactly what market craft is and we spend the next hour talking about it, I just have to say that it is such a huge honor to be both here at the library and institution that I care immensely about and to be a guest on this live taping of Odd Lots. Odd Lots is my number one favorite podcast. And so we love when they say.
- [02:42]
Joe Wiesenthal
That on the recording, but that is a good reminder. It is a live taping. So, you know, silent cell phones, you can, you can cheer and clap a little bit.
- [02:50]
Chris Hughes
So market craft, what is it? The basic idea is that policymakers are often harnessing and shaping, harnessing private markets and pointing them towards public goals like making Americans richer, safer and more economically secure. And that there's actually a very long history of doing that in the United States. It's done by Republicans, it's done by Democrats, it's done to ensure energy stability, financial stability, or make semiconductors here at home. There are a ton of successes in the past, plenty of failures. And the whole point of writing the book was to try to tease out what are the lessons for our contemporary policy environment today. Because we're going to have to rebuild on the other side of the chaos that exists in the world right now.
- [03:42]
Tracy Alloway
So just on this point, I mean, a large part of the book is pointing out that the US does in fact have this history of market craft, as you put it, and certainly other countries, this is kind of the norm. Norway has sovereign wealth funds. Parts of the Middle east have sovereign wealth funds. Even in economies that aren't necessarily centrally controlled, there's a bigger role for governments to play in the economy. And yet in the US up until fairly recently, I think it's fair to say industrial policy was almost like a dirty word. And there's this knee jerk reaction to this idea. Why is that?
- [04:18]
Chris Hughes
Yeah, I mean, I think, listen, we all exist with this idea in our heads that markets exist and are almost forces of nature. Then on the other side of the balance sheet, there's government. I'm the first to say that the language that I've used for years has been around verbs like to intervene as if markets come first and then government is just like the emergency room that happens when things go awry and you've got to bail out a bank. And the whole point of my book is to say actually something bigger is happening. Like if you look at the American economy between health care, pharmaceuticals, aviation, semiconductor and high tech, clean energy, and add up the size of these industries, you are well over half of American GDP. In industries where the state not just has a heavy hand, but is actually crafting it from the beginning. And so it is about industrial policy. There's a lot in there about industrial policy, but it's actually about something bigger. Market craft is something that encompasses what the Fed Fed does in financial markets, what the Strategic Petroleum Reserve does in energy markets. There's a whole set of strategies that I think we have to be wrestling with.
- [05:37]
Joe Wiesenthal
All right, I had a question that I was going to save to near the end after we had gotten more relaxed, et cetera. But I've decided, I've just decided that I'm just going to jump in with this question, which is you're one of the co founders of Facebook. Many people in Silicon Valley and tech have enjoyed extraordinary fortunes under a sort of existence market, economic regime. And in recent years, we've seen a number of them become seemingly very hostile towards the public sector. This sort of emergent anti state politics. And people have different theories. Some people are like, oh, they got their feelings hurt from the New York Times or something like that. What is your theory for the emergence of this?
- [06:19]
Chris Hughes
Well, I mean, it's hard not to have that image of Bezos and Zuckerberg and the whole crew behind Trump at the inauguration and just see that and say, what are those guys hoping for? You know, certainly it's to make more money somewhat, but I think it's about something bigger. I think they want to have more power, they want to have more respect. And they feel like in the Biden years there was too much focus on things like competition and fair markets. But if you fast forward, I mean, it's not even been 100 days, you know, the trial against Facebook is ongoing. Mark Zuckerberg was on the stand for much of last week. If you're not following it closely, the FTC filed suit against Uber two days ago and Google just last week lost its second antitrust case prosecuted by the Justice Department, making clear that it's a monopoly. So we're only a few months in and you squint and you look and you're like, what are these guys getting out of this? It doesn't seem like very much since.
- [07:24]
Tracy Alloway
You brought up the ftc. I mean, this is something, I don't think a lot of people were expecting this to happen. But like anti Monopoly seems to be a through line between Biden and Trump to some extent. Right. And certainly pursuing some actions against big tech. Why do you think that is? Like, why is this an area of consensus? And then just going back to Joe's question, you think any of those guys who are standing at Trump's inauguration, are they happy with the current situation?
- [07:54]
Chris Hughes
No, I don't think so, no. But, you know, anti Monopoly is a bit how I got into market craft in the first place. So about six years ago, I wrote an article in the New York Times saying that I thought Facebook should undergo structural separation or breakup, that its Corporate power had become too concentrated and had become a monopoly. And that started me on a journey of really wrestling with the history of anti monopoly in the United States. And you can't think about that set of topics without seeing public actors saying, hey, we want markets to work a certain way. We don't think that they should be concentrated with a lot of power. We think they should be competitive. We think it should be easy for new entrants to come in and innovate. We think markets should keep prices low, wages up and innovation going. And so we are going to use the tools of public policy to craft those markets to ensure that that's the case. Whether it's the free market going to lead to it or not, it really doesn't matter because we have this goal as a common good. Once I began to see that in the anti monopoly world, you quickly saw it at the Fed as an institution that most free market bible thumping folks would say that they appreciate. But the Fed sets the price of short term credit and is actively in markets buffering that price through open market operations. And then if things really go awry, you bet it's going to be there to step in to stabilize. That market is crafted and managed every single day for stability. And so I began to see all these kind of cross pollinations and similar trends and that a couple of years later, here's the fruit of that.
- [10:01]
Joe Wiesenthal
All right, I have a one. I want to go back to resentful billionaires again. Let's do it. And I have a different.
- [10:07]
Chris Hughes
You're not the only one.
- [10:08]
Joe Wiesenthal
But tell me if it's total nonsense. You know I tweet all day because I want people to hear all my thoughts. And you wrote a book, you left Facebook and you're an economist and you published a book that's influential and intellectual. How much is it about resent that they're extremely wealthy and successful, but they also want to be regarded as smart.
- [10:29]
Public Ad
You know what's great about your investment account with the big guys? It's actually a time machine. Log in and zoom. Welcome back to 1999. It's time for an upgrade. At public.com, you can invest in almost everything. Stocks, bonds, options and more. You can even put your cash to work at an industry leading 4.1% APY. But the real game changer Public was designed this century. The experience is clean, intuitive and just makes sense. Look, if you're still on one of those legacy platforms, we get it. Change is hard. But so is building your wealth on outdated tech. Discover why NerdWallet gave public 5 stars for its ease of use and investment selection. And leave your clunky, outdated platform behind. Go to public.com podcast and fund your account in five minutes or less. They'll even give you up to $10,000 when you transfer your investments. Only at public.com paid for by Public Investing Inc. Member FINRA and SIPC. Full disclosures at public.com disclosures Hiscock Small.
- [11:30]
Audio Studios
Business Insurance Knows there is no business like your business across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online'@hiscox.com that's his c o x.com there's no business like small business. Hiscox Small Business Insurance this, in my.
- [12:01]
Tracy Alloway
Opinion, is why Twitter exists. Like this is it.
- [12:04]
Joe Wiesenthal
This is my impression that there is that they also want to be market crafters. They don't just want to be market competitors, they want to. My sense is that we all want to be market crafters. And how much is it about? They felt like, yeah, incredibly successful, but they didn't get to help craft it.
- [12:20]
Chris Hughes
Yeah, I think that's directionally right, I should say. I try very hard to avoid social media. So I'm not on the Blue app. I'm not on Instagram, I lurk on Twitter. I recently opened a Blue sky account. It doesn't have a lot of followers. It'd be great if I had a couple more, but. So I'm not actively using social media, so it's harder for me to to weigh in on that. But I do think that there is this lurking desire to partner with government in some cases in craft markets. There's a very crisp example. It's not from one of the current billionaires, but there's this guy, Robert Noyce, which some of you may have heard of. He was one of the co founders of intel, grew up as son of a Congregationalist minister in a family in Iowa, ends up going to MIT and then invents the integrated circuit, which is a fundamental part of the semiconductor, makes gobs of money. And after years of that, guess what happens in the mid-1980s? Japan. Japan as an industry starts really out competing the American semiconductor manufacturing market. They are moving faster. They have their own industrial policy that's pushing it. And so all of a sudden Noyce, who had for his entire life been a libertarian who didn't want anything to do with government, thought it Was not a great idea, would have liked to downsize it, as we're seeing other billionaires be interested in today. All of a sudden he shows up in Washington and he says, wait a second. We need an industrial policy for semiconductors and for chips. And the Defense Department agrees because they're concerned for national security reasons. And Noyce and the government effectively partner because they. Their interests at that moment are overlapping. We get something called Sematech, which is created, which is about a billion dollars that's invested to enable the semiconductor companies to begin coordinating, making their supply chains vertically more integrated and more efficient. A few years later, America recaptures its market share globally of semiconductors. We are back on the top. I think that the lesson from that is complicated because on the one hand, you do see a private sector actor with a lot to gain from private wealth maximization, but working with the public sector, where the public sector also has a lot to gain from semiconductors being made in the United States. In that case, it worked for both. It doesn't always work out like that, but I think that's clear historical evidence of the fact that there is this lurking desire for market craft on the part of a lot of these folks.
- [15:11]
Tracy Alloway
Now I'm torn whether I should ask another question about angry billionaires who tweet a lot or about the book. So I'm going to try to thread the needle. Elon Musk at doge. It's a very active organization, some would say. Would that count as market craft under your framework?
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Chris Hughes
No, no, no. But I mean, seriously, that's just tearing apart the federal government and the administrative policies.
- [15:37]
Tracy Alloway
Yeah, because your book actually emphasizes the importance of institutions.
- [15:40]
Chris Hughes
It's the exact inv. My book makes the case that when marketcraft is successful, you have administrative agencies like the CHIPS Office, like the fed, like the spr, that have a clear mission. Onshore semiconductors, keep financial markets stable, et cetera, and then they have the discretion to pursue that mission and the ability to get it done. It is critical to understand that institutions in America need that power in order to make markets work more effectively. That doesn't mean that they're always perfect, but we get much worse outcomes when we create these balkanized sort of hybrid setups. And that's what you see in something like healthcare markets today. So the importance of institutions is at the center of this book. And my belief in Musk and Crew are just trying to demolish all of them.
- [16:35]
Tracy Alloway
So on the institution's point, I mean, I think part. Part of the institution's problem in US Politics is that you, you get a lot of people who think that these are unelected officials with a lot of power, you know, those sort of like ivory tower bureaucrats who are deciding everything. How do you, I guess, how do you overcome that, like sort of instinctual, I guess, negativity towards building more institutions in the U.S. government?
- [17:02]
Chris Hughes
I think you show people where it works and you have to be clear about where institutions actually deliver for people. I'll give you an example that's a little bit further back in history. The book starts with the story of the National Investment bank that we create in the depression. In 1932, Herbert Hoover, actually a Republican, creates an institution called the Reconstruction Finance Corporation with a clear mandate first to reinforce capitalism that was disintegrating at the time. And then a few years later, the mandate expands to actually spur development. At the head of this thing is this larger than life figure named Jesse Jones. This guy was born in Tennessee, but he moves to Texas at a young age. He invests in all kinds of local businesses, and by the time he's 30, he's a millionaire. And a few years later he's got so much money that he's building buildings in New York City and all across the eastern seaboard. Then 1929 happens and he has less to do. So he is a Democratic Party activist. He's been a fundraiser for a long time, even shares an office with Roosevelt in 1924. He convinces the Democrats to have their convention in Houston in 1928, where oh so conveniently balloons fall from the ceiling that say, Jesse Jones for President. He's like a larger than life figure, but he's at the head of this bank, this institution, the National Investment Bank. And when he comes into power at the beginning, he says, our first mission is going to be to reinforce all of the private commercial banks, recapitalize them, make sure that they're ready for deposit insurance. But then in the second phase, on the advice of John Maynard Keynes and some other economists, Jones, in consultation with Roosevelt, says, we got to really deploy public capital into the American economy, particularly in industries that are going to encourage a lot of employment and make things cheaper for consumers. They prioritize housing. They build a kind of institution that's named Fannie Mae, which endures obviously today. And they invent the 30 year mortgage, which at the time mortgages had been 10 years. By expanding it to 30 years, the cost of housing comes down significantly. And all of a sudden you see a boom in housing. And then there's a third phase in the War years where they bird the aviation industry and synthetic rubber and all kinds of other things. My point is, you see, a man comes in skeptical of the far left in the New Deal period, certainly wouldn't have identified with those folks, but who ends up believing in and building an institution of American capitalism that crafts markets toward a common good. And so that example is really inspiring. It's further back in history, but we've got all kinds of things that are closer.
- [19:59]
Joe Wiesenthal
One of the criticisms of a lot of legacy politics, institutions, whether it's universities or various parts of the public sector, et cetera, that comes from the right, is that they've lost their. Their own sense of mission. We have to tear them down because they have lost their own sense of mission. They're consumed with niche obsessions, consumed with identity, things like that that are unrelated to their mission of whatever it is they're building, whether it's homes, whether it's semiconductors, whether it's education. When you look at the history, do you see any evidence of. Of sort of mission deviation or institutions that have lost their North Star?
- [20:38]
Chris Hughes
It's not a pattern that I saw in the research of the book. And if that happens, that's what Congress is for. I mean, the Congress holds institutions accountable and monitors their activity. I mean, take the Chips Act. It was passed in 2022, but Chips was actually an idea from the first Trump era that Tom Cotton was really into it.
- [21:02]
Joe Wiesenthal
Yeah, yeah.
- [21:02]
Chris Hughes
Well, ye and the Undersecretary of State for Economic affairs and a whole set of folks were very invested in it. It gained steam and has passed in 2022. And then quite quickly, money begins to move. Congress actually, a year later says, you know what? We're going to exempt semiconductor construction from NEPA requirements, making the environmental requirements that in some cases could have made it harder to build. So Congress stepped in to make sure that something that they did actually happen more effectively or similarly with the Fed. I mean, Congress is constantly tweaking the Fed who gets to decide who's going to be a Reserve bank president, even in some cases, the methodologies for monetary policy implementation. So I think accountability is very important, but accountability rests in the legislative branch, not with an impulsive billionaire just running through town with a hammer.
- [22:00]
Tracy Alloway
Speaking of the Fed, I think you mentioned that you initially set out to write a book just about.
- [22:05]
Chris Hughes
Yeah, that's where it started.
- [22:06]
Tracy Alloway
Right. What was the cause of the switch? And then I guess, how did that inform your research process?
- [22:12]
Chris Hughes
So I have a special place in my heart for Fed history. I've been working on a dissertation at Wharton for a few years, which is more properly narrow and focused on that topic. And I thought that's what this book was going to be initially. But then when the conversation around industrial policy exploded and the ira, the climate bill happened, the CHIPS bill happened, the infrastructure bill happened, a new conversation around tariffs in the Biden administration was happening, it felt like there was a bigger story to tell. The thing I wanted to do was to explain how did we get from the era that I grew up in, the Clinton and George W. Bush era, where most people thought markets self regulate and work on their own, to a moment where both parties, both Democrats and Republicans, put the state at the center of the economic story. I wanted to track that history in the past 15 years and see it through the Great Recession and then the challenge of climate and then the rise of China and the pandemic and understand how you got these bizarre agreements. Like almost a dozen Republicans voting for Lina Khan in the Senate to run the ftc, how did that happen? Where did that come from? And how enduring might that be? And that set of questions then took me way back into history and then back into the present day.
- [23:43]
Joe Wiesenthal
Well, how did we get 12 Senate Republicans to vote for Lina Khan?
- [23:48]
Chris Hughes
I think the confluence of those four events made Americans, let alone policymakers, realize that markets don't just take care of themselves and that that whole idea, that whole story wasn't working, that capitalism needs to be cultivated and that markets need to be cared for. In the introduction of the book, I talk about this metaphor of a vegetable garden, which might seem a little hokey, but at least for me, it's personal. Because when I grew up, I grew up in North Carolina in a small town, and my dad tilled up a third of the backyard to make a vegetable garden and constantly forced me in the summers to go weed and pick green beans and steak tomatoes and do all these things that I did not want to do.
- [24:36]
Joe Wiesenthal
Tracy likes doing these things.
- [24:37]
Chris Hughes
Yeah, a lot of people enjoy this, it turns out, not me. But nonetheless, I spend an inordinate amount of time in that garden. And so when I started to think about what are markets like if they're not these self regulating systems? The best metaphor that I, that I landed upon is a garden because it recognizes there are organic forces that can sometimes be unruly, that won't necessarily cooperate and just do exactly what you want to do. But it also recognizes that you need care and cultivation to steer those plants. You need to plant some things in the sun and some things in the Shade, you need fertilizer for some things, you need to get the weeds out for others, you need to shape these markets. You need to point them in a direction to ensure they're actually working, that they're producing a harvest that you want to eat and that is going to be nutritious. And so I kept coming back to that metaphor and I think it is the right one to think about how markets actually work.
- [25:37]
Tracy Alloway
I want to say one thing about gardening, which is everyone has this image in their minds that it's like this really peaceful pastoral activity and it's not. It is like this violent struggle, struggle to stop everything from killing each other, basically.
- [25:52]
Chris Hughes
That sounds about right. Yeah.
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Tracy Alloway
So I like the metaphor. Okay. Speaking of bad stuff happening, almost every example in your book of, you know, instances of market craft actually developing stems from a crisis of one sort or another. There's the Great Depression, there's obviously the COVID pandemic, you know, high inflation, high oil prices, things like that. Do you have to have a market cris before people can start building consensus that there is actually a role for the government to come in and try to achieve some policy aims through market craft?
- [26:31]
Chris Hughes
No, but it helps. And it always matters how you define the crisis. There are several examples of market crafters who are very successful in the book who are not responding to crisis. So I have an extended passage on Alan Greenspan, who is normally not thought of as a market crafting kind of guy. He's supposed to be the deregulator in chief and he did do plenty of that when he was the chair of the Fed, but he also had a vision. I'm going to use him as an example to make it clear that market craft is neither good nor bad in and of itself. It matters, it's a tool and it's pointed towards a certain end. And it can be a good one or it can be a bad one. For Queenspan, it was financial innovation. He so intensely believed that the more efficient markets would be, the more prosperity and stability would come out of that. I mean, the guy is writing papers when he's a young analyst in the 50s. Along these lines, he eventually knits them together in his PhD dissertation. And then when he becomes chair of the Fed. Yeah, he does deregulate and take a lot of rules out of the way, but he. He also makes really important policy actions to encourage the development of financially innovative tools, things that we now know of as credit default swaps and special purpose vehicles and the kinds of things that did indeed significantly increase leverage in the financial sector did in some cases mean markets moved faster and more efficiently and he believed would ultimately create that kind of market discipline that would keep the whole system, system stable. So he had a goal. It was market, it was financial innovation, and he was using the power of his institution to deliver on it. It's just, it had disastrous consequences and he was wrong.
- [28:31]
Joe Wiesenthal
Let's talk more about the Fed. By the way, I think it's really cool that you went and after, you know, after the Facebook and did all this stuff, then you got your PhD.
- [28:39]
Chris Hughes
Well, we're still working on it. I gotta finish the dissertation.
- [28:43]
Joe Wiesenthal
Working on your PhD, I read Kevin Rudd, the former Prime Minister of Australia, after he was PM, went and got his PhD at Oxford and wrote an amazing book about Xi Jinping. So maybe there's hope, maybe Tracy and I will get PhDs one day. But I hear different things about the history of what people call Fed independence. People are like, oh, in the old days, presidents were always hectoring the Fed chief to do this or that, and this isn't really that unusual. And other people like, oh, no, this is a cherished thing. And we've that we ever, you know, intervention by the White House in your research on the Fed, how unusual or usual is it for this sort of pressure that we see? Did presidents used to tweet to lower rates, whatever the equivalent was back in the day? Yeah.
- [29:28]
Chris Hughes
Well, obviously it's a very timely topic given that, you know, last week Powell was about to be fired. This week, apparently it was never, never even really considered. So there is, there's a very long history of presidents trying to bully Fed chairs to get what they want with monetary policy. It is virtually since the beginning of the institution, this has been a trend. Kennedy's administration does it with Bill Martin in 1960. Lyndon Johnson summons the Fed chair down to his ranch in Texas and takes him on this legendary jaunt. Richard Nixon is pressuring Arthur Burns. Reagan doesn't really like Volcker, so he replaces him. We could go through all of the examples, and this is different because this time the President isn't just pressuring the Fed chair to do what he wants. He is threatening to take illegal action to fire him, which it's very clear in the Federal Reserve act is not legal. The President can only remove the chair for cause and similarly with the other members of the Board of Governors. And it's not just a threat, obviously, like Trump has done this. He has fired two of the five FTC over at the ftc. Two of the five commissioners who are Democrats also illegal in the FTC Act. It is illegal to fire them unless it's for cause. He's done at the nlrb, at the credit unions, et cetera. So I think this is a real threat. I tend not to use the word independence because I think the Fed is actually quite sensitive to political and economic trends. What they're hearing in a lot of different domains. It is an insulated institution, which I think makes it stronger, but it is not a purely independent one. And these threats I think are really unprecedented and we should all be frightened by them.
- [31:45]
Public Ad
And here we have a specimen from the early 2000s, a legacy investing platform. Please don't touch the exhibit folks. It could crash. Ready to step out of the Financial history museum? At public.com you can invest in almost everything. Stocks, bonds, options and more. You can even put your cash to work at an industry leading 4.1% AP wide. But the real game changer, Public, was designed this century. The experience is clean, intuitive, and just makes sense. Look, if you're still on one of those legacy platforms, we get it. Change is hard, but so is building your wealth on outdated tech. Discover why NerdWallet gave public 5 stars for its ease of use and investment selection and leave your clunky, outdated platform behind. Go to public.com podcast and fund your account in five minutes or less. They'll even give you up to $10,000 when you transfer your investments. Only at public.com paid for by Public Investing, Inc. Member FINRA and SIPC. Full disclosures at public.com disclosures Hiscock Small.
- [32:46]
Audio Studios
Business Insurance Knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online'@hiscox.com that's his c o x.com there's no business like small business. Hiscox Small Business Insurance.
- [33:16]
Tracy Alloway
All right, so speaking of things that might be different this time, we do have a president who seems very, very determined to, you know, divorce the US in some ways from the rest of the global economy. The global financial system. The subtitle of your book, the Hundred Year Struggle to Shape the American Economy. You could easily have titled it the Hundred Year Struggle for the US to Shape the Global Economy. Right. Like the US Went on a very explicit mission to shape our current financial system. And you do have a very chunky chapter in there about Bretton Woods. Talk to us about why we should all I guess familiarize ourselves with things like Bretton Woods, Euro dollars, capital controls in our current climate.
- [33:57]
Chris Hughes
It let me tell a little bit of the story of the breakdown of Bretton woods and why it matters for today. Because when I wrote that chapter, I had no idea that the dollar would actually be threatened as the global reserve currency. And this is real. Bretton woods was this agreement that came out of World War II, where the United States committed to sell gold at $35 an ounce, and it would peg the dollar to all other foreign currencies. This way, the dollar effectively became the bedrock of the global financial system. And underneath it, there was gold. So it was an effective gold standard. But the United States was making the commitment to be able to redeem dollars for gold should a foreign country or anyone else in the market want to make that exchange. Now, the whole system was premised on the fact that as the economy grew, the United States had to increase the amount of dollars in circulation over time because as economies grow, they need more currency. If the dollar is the global standard, you need more of it. One problem, the more dollars you print, the less they're worth. And so by its very nature, you are not going to be able to deliver on the promise to Redeem Gold at $35 an ounce. So it's like a vise that tightens between 1940, between the post war years and 1971, when it gets just so impossible for the United States to continue this commitment. There's a run, and I tell the story of the book, where Nixon summons every single person who runs any of the economic institutions in the country to Camp David and they come up with a plan and that they end the Bretton woods system, they end the gold commitment, and they move into a regime of, eventually it becomes a regime of floating exchange rates. Now, we make it through partially because price and wage controls hold down inflation for a period, et cetera, but it is touch and go for a lot of that period. Then you fast forward to today. I think the easiest way to think about it is instead of gold, gold being that thing underneath the dollar that guarantees its value. It's the institutions of American capitalism. The dollar continues to be the global reserve currency today. And the reason that is is because we have had an independent central bank, we have had a Treasury that reliably and always pays the coupon on its debt in a way that investors can believe in and expect. And so thus, people want dollars, people want U.S. treasuries, financial assets. And now two things are throwing that into question. The first obviously, is Trump's impulsive economic policy, which disregards the importance of institutions in the first place. But the second is we're flooding the market yet again with dollars and dollar denominated assets. Like the deficit last year was 7% of GDP. It's not supposed to be that high in a healthy economy. And right now, the plan is another $6 trillion of tax cuts, cuts which, just to give it for perspective, is as much as the tax cuts of Trump 1.0 and the pandemic aid combined. And we're already at 7% of G. So we have another moment where we've flooded the world with dollars, where they're losing value, and the underlying guarantee of that value, the security of American capitalist institutions, is under threat. And so you're seeing an unprecedented period and a potential run.
- [37:53]
Joe Wiesenthal
Yesterday night, there was a news story. President Trump said he wouldn't want to raise taxes on millionaires because it would be, quote, disruptive to the economy. And then he said that the millionaires would leave the country, which I would hope most of them would be, you know, stick around. But that's his view of them. But what does it say, you know, about even the prospect for market crash, if people in government don't feel that they have the capacity, the political power, et cetera, to at times bring pockets of wealth to a heel, so to speak, and to wield that power? Or is there any prospect for positive market craft in a world where politicians feel that, like, they're subservient to huge pockets of wealth?
- [38:41]
Chris Hughes
I very much think so. So I'm skeptical in this administration that that's going to happen. But I think there's all kinds of opportunities for positive market crafts. So the things that I focus on these days are the cost of living crisis in the United States. I mean, that is what voters are very clearly still frustrated about. Prices are up 20% from the beginning of the pandemic till now. And it's particularly concentrated in things like housing. Americans spend a third of their income on housing. And then if you go to groceries and then you go to care, health care or child care, you're above 50% for most families. And so we can craft housing markets to make housing cheaper. We can certainly do some of the zoning and streamlining that the abundance folks like Ezra Klein and others are for. I think that's a good idea.
- [39:33]
Tracy Alloway
I kind of wondered how long it would take us before we mentioned abundance.
- [39:37]
Chris Hughes
We got like 35 minutes. I think that those are good ideas. But I also don't think that you can just make it easier to build and then sit back and hope people show up. At least that's not been the experience in California. It's been years since they have been on this process of trying to change their laws. And building starts are not showing the same kind of growth that you would like. You have to craft markets more aggressively. There's a lot of other tools, particularly public investment. So we need a housing construction fund for multifamily developers to make it cheaper to build. You guys have had some folks on your podcast who make this case. The estimates are that for an investment of about $50 billion at a federal level, you could get somewhere between 1 and 2 million homes built. That's about half the housing shortfall in the United States. That's quite a lot of progress. You could have an industrial policy for modular. Modular is the kind of housing where you build the components off site and then you bring them in. And there's this amazing time lapse video which I saw about six weeks ago of, of an apartment building in Denver where they bring in the pieces and it goes so quickly. It looks like my son plays with Magna tiles. These like, my kids love them too. They're amazing. But you just see it and you just watch this apartment building with 77 units go up in the course of seven days and it's mind blowing. And you know, half of the building that happens in the Nordic countries is through modular. And so. So that's a kind of industry that I think if we had an industrial policy to encourage not just public investment, but also standard setting, making sure it's possible for people to get mortgages for them, you could see significantly more development. So I think we need a market craft for housing. On food, I think we could do reserve stock buffering on eggs and coffee like I talk about in the book on care. There's a whole set of interventions as well. There's an aspirational agenda is what I'm trying to say, that could help us. The cost of living crisis. And this administration is going to hike prices through the tariff policy, not bring them down. And so Democrats are going to have to have another message and also the specific policy expertise to get it done.
- [42:00]
Tracy Alloway
Yeah. There's a long running joke on odd lots that what America really needs is a strategic pork reserve.
- [42:05]
Joe Wiesenthal
Yeah. Like they have in China.
- [42:06]
Tracy Alloway
We all agree on this. Okay. Speaking of agreeing, one of the chapters in your book that I really enjoyed was the sort of behind the scenes look at bidenomics.
- [42:18]
Joe Wiesenthal
Yeah.
- [42:18]
Tracy Alloway
And you do get a really good sense of Some of the discussions that take place, the areas of disagreement, the sort of protagonist and antagonist, I guess in this discussion in your book is Larry Summers versus Brian Deese.
- [42:34]
Chris Hughes
Exactly.
- [42:35]
Tracy Alloway
And you were also involved in the Obama administration. Talk to us what you learned about the actual sausage making process of market craft and what sort of like how do people actually reach consensus on a lot of these things when they have very different opinions about how the world works.
- [42:54]
Chris Hughes
So I had this experience where in writing for most of the book, I was largely in archives and secondary literature in the past. And then the last third of the book is contemporary. And so the methodology just shifted to talking to a lot of people. So I ended up talking to most of the folks who had been involved in Biden nomics inside the administration and people like Larry Summers and Jason Furman and a lot of people on the outside.
- [43:22]
Tracy Alloway
Larry does like to talk.
- [43:23]
Chris Hughes
It turns out I talked to a lot of people. And the person that I zeroed in on was this man named Brian Deese, who some of you may know, he.
- [43:34]
Joe Wiesenthal
Was odd lodge guest.
- [43:36]
Chris Hughes
Indeed. He was the chair of the National Economic Council. The reason he's so interesting is because he was one of Larry's proteges in 2008 and 2009. He is on the Obama campaign and he effectively runs the bailout of the auto companies. And in that experience begins to see, wait a second, we can't just be bailing. We can't have the emergency room view of the economy where we come afterward. We have to be thinking proactively ahead of time about how to shape and build industries that work better. That takes him to work on climate change and then all of a sudden the Biden administration, he becomes the director of the National Economic Council. Then he articulates this big vision. It has two pillars. The first is build, so that's public investment in climate, infrastructure and chips. And the second is balance, that's competition in particular, but also supporting labor and other similar kinds of initiat to ensure that the economy is competitive. And boy, Larry doesn't like it. He is throwing rocks from the outside pretty much the entire time and often talking to Brian and others on the inside. And the reason I think that story is so powerful is because it shows the emergence of not just a new generation of policymakers, but a new way of thinking about the economy which starts from the premise of market craft, fall back into kind of neoclassical economic framework of market failures and externalities. And how are we going to fix things after the fact?
- [45:20]
Joe Wiesenthal
I guess I have more of a politics question. Or we had this sort of nascent industrial policy, market crafting, and then it looks like the plug is being pulled after four years. And I would guess that there must be a lot of frustration among Democrats to hear someone run on, we're going to build things in America again. We're going to build manufacturing. Manufacturing, right after a period of two or three years in which more plants were opened and more factories were broken ground on than any time in my life. And so what I'm curious from your perspective, I guess, from a political sustainability standpoint, is people seem to like, in theory, the idea of manufacturing, the aesthetics of it, but do people actually like it in practice? Or. Or is like, because it didn't seem like it got any results politically?
- [46:10]
Chris Hughes
I don't know if manufacturing per se is the thing that people like. And I'm a little skeptical that you're going to really reinvigorate the American economy by rebuilding the manufacturing sector. But I'm not quite sure I agree with the premise of the question. Trump is certainly not pursuing a market craft. That's clear. However, a lot of the people around him, him have spent years developing their own visions of a market craft that puts the state at the center.
- [46:40]
Joe Wiesenthal
You're talking about Oren Cass in your book, for example.
- [46:42]
Chris Hughes
Well, Oren Cass, but I'm talking about Marco Rubio and J.D. vance and Josh Hawley, a lot of these guys who I think are the future of the Republican Party, who believe that we need state institutions to direct markets towards certain goals. Now, their goals are not really my goals, I should say that. I mean, they are very concerned about drones and critical minerals and national security, whereas I'm more interested in climate change and other things. But nonetheless, right before Vance became the vice presidential nominee, he was about to introduce a bill for a national investment bank, the same idea that I was just talking about from the New Deal era that he believed as an institution would have the power to direct markets. Now, he was doing that with Chris Coons and Mark Warren and folks on the left. But what I'm trying to say is it may be dormant in this period, but I don't think that ideology is gone. We're going to hear about a sovereign wealth fund in the next few weeks from this administration, and there's a deadline that the treasury secretary will have to bring a report on it. I wouldn't be surprised if we see some trace remnants there. Even though I am skeptical that anything meaningfully will be done, I don't think that means that Trump's chaos can Define the Republican Party for forever and ever.
- [48:05]
Tracy Alloway
We do have some questions from the audience that we should probably bring in. I'll start with one obviously very topical at the moment, but how is market craft playing into the race for dominance in artificial intelligence?
- [48:21]
Chris Hughes
Yeah, I mean, so far the federal government has decided to let the private sector develop AI on its own in the United States. It's certainly different than in China and in elsewhere. And there hasn't been a market craft. There's been talk of it in the Senate in particular. There's interest in public investment. There's been talk of what we call a public option for the cloud. So a way of making it easier for smaller companies to access computing powder to build advanced AI models. But none of that has yet come to fruition. And so I think it's important to say that market craft, everywhere, all the time. You know, lots of policies affect markets, but to craft a market, you have to have, you know, policymakers with a clear intent shaping it and guiding it. And so far in the AI markets, it's been more of a hands off kind of.
- [49:16]
Tracy Alloway
But if we had like a loan office for AI startups, something like that would count as explicit market craft.
- [49:22]
Chris Hughes
Well, for sure. If Congress said, hey, we want more small businesses doing AI, so we're going to appropriate money and we're going to create an office over here in the Commerce Department to do that. They have an agenda, they're crafting that market.
- [49:35]
Joe Wiesenthal
Just putting on. Back on your tech founder hat for a second. It's kind of separate from market craft, but I guess it sort of intersects with this. When deepsea came out, people started really. And it was before that too, but people have really started talking about AI specifically as this existential area of competition. Kind of like, kind of like achieving the nuclear bomb. Like, who is going to get to AGI first, US or China? Do you, I mean, do you think of AI or AGI specifically in such stakes?
- [50:08]
Chris Hughes
It's a huge deal. I'm not sure I want to go to the nuclear bomb. That seems like a very high bar, but it's a huge deal. I think that the advances in AI is certainly the most profound changes in technology in my. I think I want to say in my life. It feels more transformative to me than the mobile phone, which I think would be my bar. I mean, it's, I'm. I'm using the models. My husband's in the front row. I'm. He watches me use the models all day, every day for everything from like recipe substitutions to you know, doing deep research on a particular topic. Of course you have to check the the facts and this and that, but I mean, they are interested. Incredibly powerful. Tracy.
- [50:51]
Joe Wiesenthal
I have to say. Like, I'm an AI user enthusiast, but.
- [50:54]
Tracy Alloway
Tracy, I too watch Joe use the models all day.
- [50:57]
Chris Hughes
You don't use them.
- [50:59]
Tracy Alloway
I do. No, I do it, just not as.
- [51:01]
Chris Hughes
Much as he can.
- [51:02]
Joe Wiesenthal
I want to say I am an enthusiastic trier outer of all the AI models. Oh, I recently got access to manis, Tracy. Yeah, sweet. But I have yet to find an application that consistently enhances my work productivity.
- [51:16]
Chris Hughes
Really? That's not true. Okay, headline headlining. I haven't.
- [51:20]
Joe Wiesenthal
I'm better at headlines.
- [51:21]
Chris Hughes
Of course you are. No, no, but that's that. Of course you are. But it's helpful to have a kind of sidekick to brainstorm headlines. Okay, well, fair enough. Not all of us have. Tracy.
- [51:34]
Tracy Alloway
No, I disagree with this. Like, AI is a phenomenal tool for our day to day productivity. It just is. Why don't I ask another question from the audience? Audience, I know you care about climate change and this is one of your big projects. So we have someone asking how do we make progress with climate policy in light of its politicization, politicalization and the issue of affordability? And one thing I would just add on to that question is, you know, one of the things we've seen under binomics was, oh, we should build more green technology in the US And a lot of that makes sense. But I guess the counter argument to doing that is if we really care about the climate, and if there is actually this massive sense of urgency to doing something about it, then why not get all the really cheap solar panels in volume from a place like China?
- [52:28]
Chris Hughes
Well, I think we need even more investment, likely significantly more investment than we got out of the ira. And we need it to be better coordinated. So I think the IRA investments are, you know, still stand. Obviously business uncertainty has just gone through the roof. So no one exactly knows what's going to happen. There are signs that the Republicans will keep some of the pieces of the IRA. Maybe not for solar panels or EVs, but for things like hydrogen or carbon capture or things like that. I'm cautiously optimistic, but we need additional investment and then we do really need an institution whose mission it is to tackle climate change and that Congress can hold accountable so that instead of just saying, oh, going to give subsidies through the tax code, where the government effectively has no ability to determine what's getting the most funding, there is an ability to say, okay, these breakthrough technologies need more support these other things are doing just fine. I think that's going to be the long term solution. I'm a bit, I'm with you. I'm not sure that tariffs on solar panels are going to help us get to the, the, the tools that we need to combat climate change that we need.
- [53:44]
Joe Wiesenthal
Tracy's right, by the way. I get a couple. When it comes to AI, I sometimes will be like, okay, we're.
- [53:49]
Tracy Alloway
I know I'm right because I literally watch you do this every day.
- [53:52]
Joe Wiesenthal
Joe isn't though. I co host the Odd Lots podcast. We're interviewing Chris Hughes tonight at the New York Public Library. What would be some questions? I do ask that and I sometimes upload PDFs and it's like, just give me the summary. So, so I want to acknowledge that. Yeah, yeah, no, that is helpful. It's helpful. Someone is asking about student loans and I'm curious. You know, people perceive the market for higher education to be broken in various ways. And I'm curious whether it's on the funding side for the consumer, the student, or whether there's anything interesting that you've learned about that space.
- [54:28]
Chris Hughes
Yeah. So there are a lot of these markets that I would call gray zones. Is higher education a market at least the way that I want to think about it? Most of the time it's not. It should just be a fundamental good, an opportunity that everybody can get an education that they want. I'm not sure we even have to use a market crafting framework to say college in the United States should at least be affordable, if not free. And there's a way to use policy to make that happen. But I think that it is due for sort of wholesale reimagination. And there is something wonderfully simple and direct about Bernie's promise for free college. That is hard to do, but I think it's that kind of aspirational guarantee that people crave, people respond to and it's policymakers response to deliver on that. Of course you're going to have to raise taxes, whether it's for this or some of the other issues that we've talked about to make that happen. But I don't know. That's the. I think that's the kind of country I want to live in. I think that's the kind of country that most Americans want to live in.
- [55:40]
Joe Wiesenthal
It's a great place to leave it. Chris Hughes, thank you so much for joining us in this live episode.
- [56:03]
Tracy Alloway
That was our interview with Chris Hughes, the author of Market Crafters Live at the New York Public Library.
- [56:09]
Joe Wiesenthal
Really good evening. Really interesting topic. One very near and dear to the themes that we've been talking about on Odd Lots.
- [56:15]
Tracy Alloway
Yeah, definitely touches on a lot of them. Shall we leave it there?
- [56:18]
Joe Wiesenthal
Let's leave it there.
- [56:19]
Tracy Alloway
This has been another episode of the Odd Lots podcast. I'm Tracy Alloy. You can follow me at Tracy Alloway.
- [56:25]
Joe Wiesenthal
And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow Chris Hughes on Twitter. He's Hrishuse. Follow our producers Kerman Rodriguez at Kerman Erman, Dashiell Bennett at dashbot, and Kalebrooks Alebrooks. For more Odd Lots content, go to bloomberg.com oddlots where we have all of our episodes and a daily newsletter. You can chat about all of these topics 24. 7 in our Discord Discord GG and.
- [56:49]
Tracy Alloway
If you enjoy Odd Lots, if you like it when we do these live events, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcast and follow the instructions there. Thanks for.
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