Podcasts

The Antidote to the Wall is the Bridge


Professor Glenn Hubbard, professor of Finance and Economics at Columbia Business School, talks about his just-released book, The Wall and the Bridge: Fear and Opportunity in Disruption’s Wake, and how society and policymakers can help those who are left behind in the wake of today’s competitive world.

Transcript

Rob Johnson:

Welcome to Economics and Beyond. I’m Rob Johnson, president of the Institute for New Economic Thinking. I’m here today with Dr. Glenn Hubbard from the Columbia Business School, who’s formally worked in George H. W Bush’s Administration and in the U.S. Treasury. And secondly, he was the head of the council of economic advisors under George W. Bush, H W’s son. He, from my perspective has a tremendous awareness of both the nature of markets and economics, the history of economic thought, as well as a deep comprehension of that intersection and inseparability between politics and economics. He has a new book that’s coming out that is absolutely extraordinary, Yale University Press has talked about it and John Lennon used to sing about it when he wrote his Walls and Bridges album in 1974. Glenn, I have to say, I was inspired to learn of what you were writing, but as I read it, I became more inspired. And I want to thank you for joining me today. And I know my young scholars will be very deeply nourished by our conversation.

Glenn Hubbard:

Well, thanks Rob, and thanks so much for having me.

Rob Johnson:

I’d really like to start with, you’re looking at the world, you have a lot of awareness and intellect and experience and scholarship, like all these receptors, I’ll call it. What inspired you to write this book and this message right now? And then we’ll talk about what is within the message. But what tickled your fancy, made you reach into yourself and go after this book?

Glenn Hubbard:

Well, thanks. I think it’s a great question. One of the reasons I became an economist was I actually believed what classical economists and enlighten them and thinkers like Adam Smith believed in mass flourishing in a society, and it requires no deep insight on my part to observe that we’re not seeing mass flourishing right now in society. I saw this upfront, close and personal, as an economist in George W Bush’s administration. You know, I led a battle against steel tariffs. The president made the opposite decision. He told me, perhaps just to be nice, that he wasn’t disagreeing with me on economics, but he felt I had the wrong idea. I had all of these ideas about maximizing national income, but what was I going to say to people in Wheeling, West Virginia, or in other places? That put me on the road to thinking about things in a different way.

I’ve taken MBA students over many years to parts of the Heartland that have been left behind by change. And economics really does have an answer here. It goes back to Smith and it’s not capitalism versus socialism, it’s walls and bridges. There’s the seduction of the wall. If you don’t like change, whether that change is from technology or globalization, we’ll build a wall. We’ll lock it out of your life. We’ll make it 1955 again, if you’d like. That doesn’t work. It never worked. Smith wrote the Wealth of Nations to say that idea was crazy and doesn’t work. Yet doing nothing isn’t the answer either. The modern Smith would build bridges, helping people compete, helping people to adapt. There are tangible things government can do, business can do, and individuals can do. That’s the debate we need to have. The antidote to the wall is the bridge.

Rob Johnson:

And I want to add a little more nuance or texture. What’s a wall and what’s a bridge? How do they differ?

Glenn Hubbard:

Well, I think of a wall as sand in the gears for change. So, it could be literal. Go back to Roman times, the idea of building a wall to guard against the other. It could be metaphorical, that will simply block out or hide tariffs and trade against other parties. Smith, when he wrote the Wealth of Nations was to reacting to mercantilism, which was the standard economic view of the day, trade surpluses are good, the purpose of the trading system is to bolster the gold and silver that the sovereign would have to fight wars and personal luxury. Smith stood all of that on its head. Said, “No, no, no, no. It’s consumers. It’s average people that are the center, and the wealth of a nation is their ability to consume. And that ability to consume needs efficiency. It needs openness to change, whether that’s to trade or the adaptation and adoption of new methods.”

That’s a very important method. And economists have talked about that for generations, and I’ve written a freshman textbook, so a lot of people hear my own views on this. We talk about the gains from openness and we do also at least mumble that there are people left behind as a result of that openness to winning on average doesn’t mean that everybody wins. And there’s always the expression that gainers can compensate losers. But the question is, do they? And how do they? And that’s why we’re in a thicket of populist wall discussions. And discussions of you’re trying to protect people as opposed to empower people to compete.

Rob Johnson:

Yeah. So, in one sense, the wall is just trying to stop the transition. The bridge might be to use public resources to facilitate the transformation and bring them along with a higher level of prosperity.

Glenn Hubbard:

Exactly. Because if we stop the dynamism, to use my colleague, Ned Phelps’ Nobel [crosstalk 00:06:46] economics term-

Rob Johnson:

Yeah, yeah. He’s a friend.

Glenn Hubbard:

To use Ned’s term about dynamism, if we stop that, we are literally killing the golden goose of our future prosperity. And one shouldn’t believe populous demagogues who say, “Well, we can just shave a little bit off the margin, a little bit off that dynamism.” We don’t want to do that. At the same time, we do have to be prepared to help people to compete. Now, you mentioned government. Again, I don’t think of this as capitalism and socialism or welfare versus no welfare. It’s what do you want government to do? So, two big examples I use in the book were the genius of the land-grant colleges in the Morrill Act. Lincoln, in the middle of a Civil War, believed that we needed to jumpstart opportunity.

The nation was making a transition from agrarian to manufacturing and commercial. It needed help across regions to do that. It needed to be able to prepare people. Franklin Roosevelt had a similar insight with a GI bill, with all of these soldiers returning from force to the United States, how would they be prepared to compete in the new economy? So, government doesn’t have to provide extra welfare. It doesn’t have to own things in a socialist model, but it does have to be a battering ram for opportunity. Smith himself saw that in the Wealth of Nations, when he talked about the importance of infrastructure and public goods and education, his economy of course was much simpler than ours. The Smith today would be more focused on a bolder use of government, but in the way Lincoln or Roosevelt might have done.

Rob Johnson:

So, in the spirit of transformation, the disruptions that have been this, our globalization and technology, I’m going to ask you kind of two questions, because the one on the horizon is climate change. What should we have done? Let me back up for a second. I’ve made a lot of podcasts with people about what’s going on in West Virginia, Bob Pollin and others. And they say in West Virginia, if you’re watching social media, people will say, perhaps sponsored by the fossil fuel industry, look at what they did to Cleveland and Detroit. They went through that change, globalization, automation, what have you, and you got nothing. That’s what they’re getting ready to do to you, because they’re trying to mobilize what you might call more support against the transformation. And my intuition as I was listening to these arguments is, you’re right that we didn’t succeed in Cleveland, Detroit, or what you might called the automotive transformation.

But what do we do now, credibly, for the people of West Virginia? So, that’s the forward looking. The slightly … or I wouldn’t even call it backward looking, the contemporaneous look is, how, with globalization, and how I grew up in Detroit, I watched people talk about, you can’t raise taxes. You got to reschedule in the Detroit bankruptcy. What’s happening to women who’ve worked 45 years in municipal government, we’re going to cut their healthcare, we’re cut their pension from 19,000 to 12,000. Bankruptcy in the private sector when you don’t have revenue, bankruptcy in this context, which was authorized by the courts, is when people are afraid to ask people to pay because they think they’re going to leave the region. What do we do right now? Looking at what happened with globalization at technology, what do we do? Vis a vis climate change is the one making everybody most anxious now. What does the bridge look like that we should have done? What does the bridge look like we should do next?

Glenn Hubbard:

It’s a great question, Rob. If you go back, what we should have done is remember the admonition that Nicholas Kaldor, a great economist had said, that when you’re making a change, if it makes us on average better off … and by the way, globalization and technological change do that, they make us better off. We should not ever forget that … you need to compensate people left behind. And what Kaldor meant was not write people a check or pension them off, he meant in Smith’s sense giving them that ability to compete. So, we had programs going back in the day from the late 60’s on, called Trade Adjustment Assistance. They’re pennies on the dollar. They were nothing. In fact, politicians rarely even spoke of them unless they wanted to expand trade agreements. We could have had bolder initiatives. In my book, I mention the idea of applied research centers, to borrow from the land-grant Morrill Act colleges, a block grant for community colleges, which nationally are the foot soldiers of training people for a different economy.

Both of those ideas, like the Morrill Act, build on the need to make decisions at the local level. There isn’t a one-size-fits-all problem and solution. Detroit is not the same as Youngstown, which isn’t the same as Wheeling, West Virginia. We need to let local business people do it. Now, we know it can happen. So, Pittsburgh is an example of a city and area that did in fact, reinvent itself. The steel industry’s demise was met with a big investment in education and healthcare. In the case of Pittsburgh, that was led by local business people who were trying to make that pivot. I don’t think we can count on that everywhere. I do think government has to provide regions that means, so economists used to be very suspicious of what you might call place based aid. We used to say, well, we should just move people to wherever the jobs are going to be. Well, for variety of reasons, people aren’t moving.

And we do need to think about communities that are distressed in giving them the chance to adapt to new industries. So, that takes me to West Virginia. So, you could be forgiven in West Virginia for not worrying, why am I not going to meet the fate of Detroit or Youngstown? And I think the idea is not to promise people that we’re going to continue to use a lot of coal forever. Because, frankly, we’re not. It doesn’t matter whether you’re coming at it from solutions from the left or the right, and I’ll come to those in a moment, that’s not going to happen. But what you can say is, what are ways we can prepare you for a different economy? And I think there are abundant ways to do that. Again, it goes back to the kinds of training programs and place-based aid and luring businesses.

Climate change is a great example. What government should do and could do is use a price on carbon as a way get business to innovate. Business is more efficient at deciding how we are going to decarbonize than government, but businesses aren’t necessarily going to come to that on their own without the incentive of a price on carbon. So, you need both. And it would be entirely appropriate to use some of the revenue from a carbon tax to find transitions, so that individuals and areas are there. And I use the word transition guardedly because one of the things I learned in researching the book, to my chagrin, talking with a lot of people affected by change is they’re just alarmed when economists refer to things like transition costs. Would you like to be called a transition cost? I don’t think I would. I think I’d rather believe that I’m a human being with hopes and aspirations and maybe I’m not going to be a great entrepreneur, but maybe I have my own aspirations. And I think that that kind of dignity goes very much back to Smith. The Smith of the Theory of Moral Sentiments and economists lose it at their peril. So, I think we have answers going back and we have answers going forward. And walls I know will fail, bridges I believe can succeed.

Rob Johnson:

Well, I think there was a key word you said at the outset, when you said: technology and globalization can make us better off. I agree with that as long as us is defined correctly. Who is us? Because a lot of people experience being outside of us, like you said, called a transition cost. And we’ve got to establish in the private sector, and we’re watching a lot of evolution towards multi-stakeholder awareness, ESG kind of work, and so forth, we got to understand that the dynamisms, what you might call vitality and possibility, is at risk at this juncture of social rebellion.

Glenn Hubbard:

That is exactly the case, Rob. I think too often business leaders and frankly economists as well assume that social support for [inaudible 00:16:16] system or capitalism is given, and then we’d use policies to tweak it around the edges. I think that’s up for grabs. I mean, even teaching in a business school, I have many students in political economy who would question whether capitalism is really working for the economy. And they would raise it in the same way you did of, “Who’s us?” So, if your definition of us is all of us on average, it’s definitely working. But of course, none of us is exactly average. Some of them, hopefully including all my students, will be decidedly above average, same is true of you and of me. But it’s not true for everybody who’s influenced by change. Yet we all are part of the same community.

You know, another thinker that I mention in the book, is Karl Polanyi, who talked a lot about markets as needing to realize that there’s a tissue, if that it’s the right word, of connection from communities and values. And you can’t operate in the neoliberal way that the market system totally away from those communities. So, I think that the debate is much more subtle than this capitalism, socialism debate in Washington, and much more about what kind of bridges can we devise to beat the wall flavor of the month. And the left has its walls, the right has its walls, but they’re all harmful.

Rob Johnson:

Yeah. I’m sure you’ll understand what I’m saying. Years ago, when Occupy Wall Street was unfolding, a friend of mine, the late James Cone, at Union Theological Seminary, challenged me to come teach a thing I called … the title of course was Economics and Theology, to the graduate students. And my code phrase was means and ends. And what I was trying to show them was why people at that distressful time were so adhering to the market logic. But they’d almost made an error in deifying the market, as opposed to seeing it as a tool to reach moral and philosophical ends, of which it is a very valuable tool. And it was very interesting to watch them unfold and also see the promises. I remember teaching them a book by a famous author, Christopher Lasch, called The True And Only Heaven.

And it was about how, when you tell people to delay gratification, meaning wage demands, it creates capital for nation and productivity for the future. But Lasch, who wrote the book in the late 80’s, came with a very interesting perspective, which was, that was working until there was globalization, because now in that 70’s, 80’s period, which you refer to in early in the book about when you began awareness and education, people started asking you to delay gratification for foreign direct investment that came back to compete with you. And which you might call that salvation, in the future, that secular salvation was postponed or eradicated. And there’s also a lot of discussion in that course about Martin Luther King, A. Philip Randolph and others, who didn’t go out and create a Civil Rights Budget. They created something called the Freedom Budget For All Americans. In the last three years of his life, King spoke of racism, materialism and militarism.

And in particular, they were advocating rightly or wrongly, that militarism was eating a big hole out of things that all Americans would consider essential to their well billing. And so, I watched the kind of mindset, and I invoked chapters from the Theory of Moral Sentiments, to go to the place where you are right now, which is at the Union Theological Seminary, the market wasn’t a deity that you had to get out of the way of, it was a vital, an important part of a process toward achieving social ends, which the early Adam Smith articulated of which you’re bringing back to the surface.

Glenn Hubbard:

Well, I very much agree with that, Rob. I also think it’s something perhaps more subtle that economists and sometimes policy makers treat this market worship as a very technocratic that of problems. So, you mentioned Occupy Wall Street. So, the view of the bank bailouts at the time, they were very important for the plumbing of finance and the economy. And I share that view. I shared it and shared it today. At the same time, our failure to do other things, colleague of mine, Chris Mayer and I wrote a proposal in 2008 for a mass refinancing of home mortgages once all the credit risk had been taken on the government’s balance sheet, when Secretary Paulson did so for Fannie Mae and Freddie Mac, we didn’t do that. And so, you could forgive a lot of average people from saying, “Huh, how come wall street got bailed out but I got stuck paying mortgage payments that were very high?”

And it really undermines this trust in the system. You know, I thought the most thoughtful comment during the financial crisis actually came from the Queen of England when she said, “Why did nobody see it coming?” She said it to a group of faculty at the London School of Economics. I expect with a little bit of regal condescension that you guys are so smart, how come you didn’t see it coming? I’m glad she didn’t come to Columbia, because I would’ve been just as embarrassed probably as the LSC colleagues. And I think part of the answer is, we don’t get out much. Smith did he talked about a pen factory for God’s sakes, not abstract intuition. We need to get out and see the concerns of average people and of average business people rather than retreating to worship of the equations of the market.

Rob Johnson:

Yeah. Well I know, because of my proximity here in New York to Columbia University, that you and people like Ned Phelps, who you mentioned, and Joe Stiglitz and others, nourish one another. There’s a dynamism to the debate there, I just went to Ned’s conference recently [crosstalk 00:23:24].

Glenn Hubbard:

Yes, it was a great conference, yeah.

Rob Johnson:

And it was a very open-minded conference about the challenges and it wasn’t a defensive circle my wagons conference, these people … really high caliber. Eric Maskin, everybody was going for it. But I remember when Joe and I were working on a UN council on commission on global economics and finance, 2009, 2010, 20 10, and Joe said, “We’re going to have a real problem.” It became a famous quote, “Because the polluters are getting paid.” He was drawing an analogy to climate change, which was, we bailed out the people, but we didn’t do the transformational things. And by the way, that part, I know you worked with Paulson, you worked in the Bush administration that part was largely the responsibility of the Obama administration.

Glenn Hubbard:

Right, of course.

Rob Johnson:

And they didn’t realize that, what you might call fairness or distributional vision. And I know I don’t know the man, but I’ve heard Steve Bannon give speeches where he said, “What brought you Donald Trump was the failure of the structure of the bailouts of the 2008-09 financial crisis,” that fed the despair.

Glenn Hubbard:

That’s got to be at least partly true because again, what president Trump brought and frankly, he’s not alone, he has competitors on the left doing it too, were walls. Very seductive stories that, “I can make the change go away.” That of course isn’t true. And it isn’t going to serve people’s interests. But if the alternative is an economist who simply says, “Trust me, the market will work.” Well, that’s not making the sale either.

Rob Johnson:

Yeah. Well in Detroit right after, and my guess on this podcast, I’ve heard this before, but right after the nomination of Donald Trump, I believe it was in Cleveland, in a convention, he went to the Detroit Economic Club and he wailed on the Big Three management for losing jobs in Michigan. And he said, “This system is rigged.” Now, the state of Michigan has obviously been through a lot, but all of my friends with graduate degrees, JDs, MBAs, CPAs, MDs, the whole thing, all voted for Trump, because somebody’s finally calling out this. They were disappointed in me because I didn’t. I was at a dinner with him on election night in Detroit, as it turned out. And they said, “Rob, you brought up your family in New York and stuff. You don’t understand how stagnant this is,” et cetera.

And they were critical obviously of Obama’s restructuring of the auto industry, albeit allowing plants to be built in China and Mexico with the money, protecting the white flight, as they called it, upper, what you might call management service class, but not the manufacturing class. And there was a lot of discord. And they felt like Trump was a solution. I told them, “Well, at this dinner, I lost seven to one in terms of who I voted for, but I don’t think you’re going to be happy with the outcome.” Because like you said, [crosstalk 00:26:48] he’ll build walls and he’ll seduce and abandon, but he’s not going to do the dynamism that is in [crosstalk 00:26:56].

Glenn Hubbard:

We know, of course, it’s an old story. I mean, this was the very story that got Smith angry enough to write the Wealth of Nations. The canard of mercantilism that we just need to block out the other in trade and it’ll help the domestic economy. Of course nothing could be further from the truth. But if the only counterpart to that argument is let it rip, which would be the neoliberal version of the story, I think that’s a problem. We need to put the liberal back in neoliberal, i.e. Smith and the classical thinkers who did care a lot about mass flourishing and the dignity of every person, not just the most successful.

Rob Johnson:

Yeah, no. He had what I’m call a holistic view and as you described. And I really enjoyed that part of your book, because when I’m asking myself what are walls, your … what you might call passage through mercantilism and how Smith saw beyond it, was very important. It was very illuminating, as to what you meant and what we shouldn’t be doing.

Glenn Hubbard:

Well, and ironically, it was falling walls that got us into a lot of the modern mess. It was the collapse of the Berlin Wall, the so-called death of distance, the lower costs of transportation, communication. All these are good things, but suddenly they made the economy hyper competitive at a time when we really had not prepared people for that competition. And so, our only solution was either tiny little programs like trade adjustment assistance, or ultimately just saying, “Well, we’ll pension you off or put you on disability.” None of that plays to the dignity, nobody wants that. They want to be part of a society. And listen until we do that, we’re not going to have broad social support for the system. And we shouldn’t be surprised if we don’t.

Rob Johnson:

I’ve spent a lot of time, I went into the private sector in 1989, and was involved in the hedge fund industry. And for a number of years, I ran the non Japan Asia portfolio for George Soros. In that process, just after Tiananmen Square, I got very involved in visiting and dialogue that’s always gone on. And what’s really interesting to me is when Donald Trump came into power, a number of the Chinese leaders, and I’m talking … I haven’t met Deng Xiaoping, but all the next layer, would say to me confidentially, “I’m watching this guy demonize Mexico and China.” But they said, they were very coherent about this. We had one 40th of the per capita income of Americans at the starting gate. Say 1979, 1980, Deng Xiaoping comes in, we’re transforming. We’re four times the size of the American population.

The globalization, the integration [inaudible 00:30:12] is going to be changing relative prices, sectors and so on, profoundly. But it wasn’t within our power, meaning the Chinese, to create that transitional sectoral movement assistance, support education, and the anger that is now directed at us is something we understand where it is, but it was the responsibility of American elite governance to handle that transformation.

Glenn Hubbard:

Well, I think that’s actually very insightful and true and that ball was dropped and it’s not a partisan comment, it was dropped by Democrats, it was dropped by-

Rob Johnson:

Oh yeah, oh yeah.

Glenn Hubbard:

… republicans. People think of Republicans as being the champions here, but no one was more neoliberal than Bill Clinton who talked about globalization as being like the rain. You can’t stop that. I think Tony Blair said something to the effect of it’s like autumn following summer, it’s just, it is what it is, which is a hands off, we’re not going to help you, every person for himself or herself. And that doesn’t work. China and its transition was heavily influenced by [inaudible 00:31:29] in trying to gently wean away the state sector. So, when Deng Xiaoping opened up the economy, there was a more gradual incremental change rather than what today we might call shock therapy, to use the Russian or Eastern European example. And I think it benefited China. And in the US, you could have imagined a system that used maybe very large wage credits for a period of time, or things that would give firms a transition as people moved from one industry or type of work to another. But of course we didn’t do any of that.

Rob Johnson:

Yeah. Well, I’m really inspired by what you just said because there are people like [inaudible 00:32:13] who wrote the book about [inaudible 00:32:16] and the transformation and people from Milton Friedman to James Tobin and everybody were involved, and then people like … she was born in Germany, the scholar [inaudible 00:32:30], they are talking about a transformation process in China that’s neither state alone or markets alone, but it did have a social awareness. And the reason I’m underscoring that right now is I have a lot of fear of some of the things that Chinese leadership thinks are legitimate to do. But in that realm of economic adjustment, there are lessons to learn in how they transform themselves in a way where … I mean, it wasn’t, like you said, shock treatment, [inaudible 00:33:08] don’t just let it go and let everything collapse and then rebuild the wreckage. They created a transformation, a transition, that’s not unlike the challenge we probably have to make right now related to fossil fuels and [crosstalk 00:33:26].

Glenn Hubbard:

That’s the thing, it’s fine to go back and say, well, we had the issues with the steel industry or manufacturing generally, but there are at least two major challenges confronting us. One is a on artificial intelligence, which is probably the latest general purpose technology, perhaps along with another robotics that could completely change the nature of work for many more Americans, including some Americans who would consider themselves very skilled, maybe even somewhat professional people, the other is climate change, which is probably one of the big social problems of our age. Both of those call for innovation, both of them call for perhaps at least looking at where the boundary is between the market and the state, and both would benefit from the Lincolns and Roosevelts of the world saying, what’s that I could use what I have in power as a battering ram to open up opportunity for people in this transition, and then let the private sector work out that transition as efficiently as it can?

Rob Johnson:

Let’s talk a little bit … I think I’ve mentioned to you at times that, in our preparation for this, that a lot of times people treat the market and the state, like they’re separable domains. There’s a lot of concern now about the role of money in politics, which I’ve used this phrase in previous … the commodification of social design and enforcement. And I’m very nervous that at times there is no sense of what you might call the incentives of governance, that allow it to re represent the we rather than the donors. So, while I see exactly the pathway that you’re … how we say, putting into the mix with the markets, how do we allow that governance to shape things in a way that is for the moral purpose of the collective?

Glenn Hubbard:

Well, this is one of those where … And I could be very naive, not being a politician … where the right thing looks like a politic go winner. If you do think more collectively about everybody in the same boat, then it becomes easier to think about a policy of a different kind of approach to community colleges or to federal aid that helps communities, all of that should be possible. So, I think this is actually a winner, not a loser in the political process, particularly up against the neoliberal vision of let it rip, but also against the vision of let’s build walls around the country. I just don’t think it works.

Rob Johnson:

So, Glenn, when we’re talking about how to build bridges, and there’s been such little trust in government, there’s concern about capture and so forth, what historical, what you might call experiences, would you point to, to give people a guiding light as to how to do it again? I know you’ve talked about Lincoln and you’ve talked about Franklin Roosevelt, how did they jumpstart confidence in them? And what can we learn from that now?

Glenn Hubbard:

Well, it’s a great question. And I think it begins, if this doesn’t sound too naive to say it, in doing the right thing. So, did people have trust in Franklin Roosevelt because he was Franklin Roosevelt or did they have trust because he did policies that put people back on the boat? So, the GI bill, political scientists and sociologists have studied saying it wasn’t just a bill that provided educational benefits to Americans returning from war, it actually built social cohesion. The same is true in many studies of land-grant colleges. We could benefit today from big educational investments, community investments along those lines, perhaps even from thinking about compulsory national service of some sort. We need some mechanism funded to put people in the same boat.

Rob Johnson:

So, at this juncture, let’s look on the horizon at climate change. I know the technology issues, but how do you see coming down the path … just say president Biden or his successor brought you back into the White House. What are the pieces? I know from reading your book, there’s private sector engagement understanding, there’s government sending incentives, there’s transformational support for the population so they go along with the plan, but give us the vision of how you would be if you were the czar of achieving climate change and perhaps add little international collaboration in because this isn’t just an American problem, it’s a global problem.

Glenn Hubbard:

Well, it’s a great question. Climate change like artificial intelligence will be one of the forces that shapes and transitions our workforce, our economy, our public policy and our wellbeing, frankly, for decades to come. I think what government can do is, first, in the case of climate change, put a price on carbon. If we want business to do what it does best, which is innovate different solutions, it needs a price on carbon to do that. But government can’t simply do that and then assume that everything else will take care of itself. That would be repeating the same mistakes of globalization and technological change and forgetting people in transition. So, there’s still a large role in place based aid and individual assistance to help people get ready for that new economy. We’re certainly up to that. We’ve done it at other transitions and turning points in our economy. And we could certainly do it again. Climate change in a sense offers a tailor made example because it involves a tax, putting a price on carbon, it also offers some of the funds that might be needed for exactly that purpose.

Rob Johnson:

Yeah, and I know people like the economist, James Boyce, have talked about a carbon dividend where the angst of the body politic can be offset a little bit by using some of the proceeds to assure them that they won’t be devastated or left behind. But I would also say we really need that engineering expertise related to the new technologies that are necessary. And then the final piece that lots of people are knocking on my door about, that I’m curious of your perspective is, they’re saying … let’s just use Africa as an example … Africa is an equatorial region, can benefit a great deal from solar power. But the risk premium people pay for private investment on that continent is very high. Should we be creating governmental guarantees to put those … in other words, any default risk premiums or fear of the integrity of their capital margins, should we all bear that together because we’re all going to receive benefits if they do realize that climate change technology?

Glenn Hubbard:

That’s actually a difficult question. I would think before doing that, one wants to make sure you have the kind of governance of projects and economies that make sure that you’re getting the right investment. But yes, one of the things that’s got to be true, not just of climate change, but frankly, the pandemic, rich countries have to realize that we are all in this together. Were you talking about the pandemic or climate change? There’s no America-only pandemic or America-only problem with climate change. So, some kind of transfers have to happen. I like to think of them as mainly being in the technology area, or in the case of the pandemic, vaccines, that this is an area where we have a responsibility. And frankly it helps us to do that. So, that’s the way I would put it.

Rob Johnson:

And in the realm of automation, where do you think we are in that process? I know people, for instance, back to Africa, for a minute, who are terrified, which you might call their comparative advantage in labor intensive manufacturing, is going to be destroyed by machine learning and global automation. I don’t know what to say there because I think their concerns may not see the positive.

Glenn Hubbard:

Well, I think that’s right. I mean, the one way to get at that is back to walls and bridges to say, well, we won’t allow the technology. Queen Elizabeth the first wanted to smash machines. We had Luddites. We’ve had lot of revolutions through time of trying to get at that. A better thing might be to say, how do we have help people prepare? Whether they’re citizens of Africa or citizens of the United States, how do we help people prepare for that world? The issue for artificial intelligence machine learning is not just what it’s going to do to low skill work, but what it will do to mid-skill and even some upper skill work. For some people it’s highly complimentary. In fact people who are at the very top of something, a business or profession, are probably still winners, but there are many people who aren’t. And thinking again of how are we going to address this, I think is just a first order problem. It won’t happen overnight, but it will happen more quickly than our political process seems to think.

Rob Johnson:

So, let’s let’s talk about, let’s see walls and bridges at the core of your book is a vision. And we’ve talked about how to build the bridges a little bit and what bridges need to be built. How do we stop walls from prevailing? What is the, what you might call nudge that we need as a society to take us in a positive direction?

Glenn Hubbard:

I think the first thing, Rob, is to know that the bridge is the right answer. The answer can’t be the instead of a wall, why don’t you just let markets work by themselves? That cannot be the answer. That’s not a politically appealing answer. Nor is it actually the right answer. We do need a bridge to help many people compete. So, first it’s just realizing it. And the second is to try to design bridges in a way that they use government’s role for what government’s good at. General resources, working with not against local areas, then they can succeed. That’s why I used examples like the GI bill or the moral act, because both of those had decentralized as well as centralized elements to them. The same could be true of modern place based aid or a modern approach to climate change.

Rob Johnson:

Do you see in the American … and I’m talking about party leadership now, but in the vision, in the American leadership, whether it’s business, private sector, entities, party leaders, are you seeing the combination of these challenges in the pandemic scaring us enough to shift our mental and intellectual habit structure?

Glenn Hubbard:

I think it’s quite possible. Not so much because people think of bridges per se, but they know what isn’t working. So, walls don’t work. Smith knew that, we’ve seen it again. And nor is it the case that the economist sunny optimism that it’ll all work out. That’s not making the grade either. And so, I think bridges are that third way, if I may, that actually can capture the imagination. I think it’s an easy thing to say. It’s fairly even straightforward to design, while some of these bridges expensive compared to resources that I could ever imagine, compared to money we’ve been spending in the pandemic or Build Back Better, they’re actually pretty modest in costs. So, I view it as an investment in the social support for our system.

Rob Johnson:

Let’s say you have a brilliant student, where would you deploy that brilliant student, given your knowledge and experience of both intellectual realm, history of thought and public policy, where would you deploy them in our society to make the biggest difference?

Glenn Hubbard:

Great question. Two things come to mind. One would be at a very practical level in state and local government. I already mentioned that there have been some experiments that have been very successful. We’re not going to have big one size fits all solutions. So, experimenting in local areas makes a lot of sense. The other might be think tanks that study a lot of these experiments and report on their results to the Congress. So, I think there is a Mandarin view of let’s just devise this one great thing from a university or from a congressional committee, but I think a lot of this is going to happen on the ground.

Rob Johnson:

When Rinchan and others shared with me what you were going after, I really was inspired. I’m very inspired because so much energy amidst fear, is hunkering down, distancing from what’s happening, trying to inoculate yourself from ethnicity and what have you, the wisdom of experience, but you embrace the challenge. And I think, that to me, is something I want to encourage my young to pay attention to. How to see what we learned, what you might call from inductive experience. Maybe the models in the molds don’t always quite fit the next challenge. In your book, fear and opportunity in disruptions’ wake, is itself a great learning device. And I want to thank you … me today. If you have any final thoughts, please share.

Glenn Hubbard:

No, thanks so much for the conversation.

Rob Johnson:

You’re on a great path and I hope … how would I say? I can’t remember. Was it Reggie Jackson, the baseball player? I want to be the straw that stirs the drink. And I think you’re stirring the drink right. And tonight I’m going to go listen to John Lennon play Walls and Bridges and-

Glenn Hubbard:

God bless you. I will do that too.

Rob Johnson:

Thanks again.

Glenn Hubbard:

Thank you.

Rob Johnson:

I hope we’ll have another chapter in the not too distant future. And I know your book’s coming out in early January.

Glenn Hubbard:

Well, thanks very much, Rob. And thanks again for having me on the podcast.

Rob Johnson:

Bye-bye and check out more from the Institute for New Economic Thinking at ineteconomics.org.


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