Factually! with Adam Conover - Why Our Economy and Democracy Have Gone Haywire with Mark Blyth

Episode Date: December 18, 2019

If you feel like you live in a world that’s more chaotic and unequal, than the one your parents did: You’re right. Political scientist Mark Blyth joins Adam to explain the how we got here and why, the true mistakes of the 2008 financial crisis, and the effects that climate change will have on the global economic and political system going forward. This episode is brought to you by National Highway Traffic Safety Administration, Atlas Coffee Club (www.atlascoffeclub.com/factually), Acuity (www.acuityscheduling.com/factually). Learn more about your ad choices. Visit megaphone.fm/adchoices See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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And, you know, for those of us who came of age this century, we all have a sense that we kind of inherited a fallen world, right? Like the world sucks compared to the one our parents grew up in? It wasn't like this for them, right? They went to college for like a buck fifty a semester, they came out with a diploma and zero debt, the dean gave them a handshake with eye contact when they graduated. And then they fell in love, got married, they bought a house. Affordable mortgages were apparently being handed out like band flyers in those days. And then they afforded to have kids like us. Hell, they even had health insurance and a pension. For our parents, a middle-class life was achievable.

Not everybody achieved it, of course, but the option seemed to be in reach for the majority. But today, we know that things are different, right? It feels much, much harder to get a good job now. It seems like all of our friends are driving Uber for peanuts when they're not sending out resumes. College is now so expensive that getting an education to give yourself a leg up means saddling yourself with crippling debt. And if you want to live in one of the few areas where all the good jobs are located, housing costs are absurd. And that doesn't even take into account that much of our world is either flooded or on fire at any given moment, or that authoritarian movements are on the rise and massive social upheaval is stretching

from Hong Kong to Santiago to, hey, right here in the United States, you'd be forgiven for thinking, you know, the world's gotten shittier since my parents' day. Well, you're not wrong. The statistics bear that feeling out. The benefits of our world are less equally distributed than they used to be, and living a standard middle-class life is harder. In the 40 years after 1973, productivity went up almost 75%, but hourly compensation only increased 9%. That means that while workers produced more than ever before over the last few decades, they only got a fraction of the increase in what they produced. For most workers, wages have in fact stagnated, meaning that they're about the same as they were decades ago. stagnated, meaning that they're about the same as they were decades ago. And this is especially screwed up because everything from healthcare to college to childcare is way more expensive than

it used to be. So if the benefits of productivity didn't go to the workers, where did they go? Guess what? Rich people got it. The top 1% of Americans now hold almost one third of America's wealth. A third. While the rest of us are struggling to afford a roof over our heads on gig economy wages, the wealthy are loading up on super yachts, sales of which are currently skyrocketing or ocean rocketing. And of course, this out-of-control inequality has led to explosive political instability worldwide. So you might be asking yourself the question, what changed? Why is the world our parents came of age in so different from the one that we inhabit? Well, the truth is it wasn't random. This change was the product of policies and ideas enacted through

our political and economic system over decades. People came up with these changes and implemented them, and they crafted the world that we live in today. And to explain how our global economic system got to where it is now, who did it and why, and where it might be going in today's moment of crisis, our guest today is Mark Blythe. He's a professor and political economist at Brown University, and let me tell you, he is a delight. I think you're going to love this one and it is going to change the way you see the economic world you live in. Please welcome Mark Blythe. All right. Well, Mark, thank you so much for being on the show. It's lovely to be on your show. What a lilting greeting that was. That was wonderful. Well, look, let's jump right into it.

I talked to the intro about, you know, the enormous amounts of economic inequality we have right now, the way that the, you know, dream of a middle class life feels like it's slipping away for so many Americans my age and younger compared to our parents and the sort of image of a golden age we have back then. How did that happen? What are the economic policies and ideas that caused that change to occur? So you want to start with the small stuff? I like to know. Give me the real shit right away is what I want. All right. Okay. So here's the straight dope as best as I understand it. I'm going to give you an analogy. Here's the analogy I like to work with. So capitalism is

basically a computer. Imagine it's just like the Mac laptop you got there, or imagine it's some other kind of Huawei piece of whatever. And they're all basically the same. They've got a hardware, they've got a motherboard, they've got different bits. They're just configured in different ways. So imagine an economy is kind of like that. So it's a bunch of institutions that are configured in different ways. I just came back from Denmark. like that. So it's a bunch of institutions that are configured in different ways. I just came back from Denmark. Denmark has a labor market. It's way different from the American labor market.

I came back from Germany. Germany, half of German firms never go near a stock market, unlike the United States, where the whole point is to get an IPO and then marry a supermodel. MARK BLYTH, JR.: Wow. Yeah. MARK BLYTH, JR.: So these things are put together in different ways.

Now, the different sort of software that you run on these computers is what we call economic ideas. And you can get severe incompatibility issues if you don't know what you're doing, right? Try imagine running American libertarian software on Swedish hardware, right? It's not going to work too well. So after World War II, the whole world kind of configured a computer. And that computer said, look, what's the big problem we got to face? And the big problem was unemployment. Coming out of the Great Depression in World War II, there was a feeling, particularly with the rise of the Soviet Union, that if you didn't get this one right, if you didn't get sustained full employment and wage growth for the majority of people, the commies would win. That was literally the fear. So we basically built-

And let me ask, why was that? Was that because of, I mean, I know there's like a history of labor unrest in the 50, you know, to 100 years before that you had the rise of labor movements, you had the, you know, the communist revolution in Russia, was it like, literally, oh, wow, if we don't like give people work and fair wages, they're gonna revolt? Yeah, they're going to burn your house down. I mean, my current analogy for this one is the Hamptons is not a defensible position. And it was true then, and it's true now. So go back to that post-war period. Think about it. I mean, imagine if you were German and you grew up at the turn of the century. You were probably old enough to be gassed and shot during World War I.

In your 20s, you then went into mass unemployment and civil strife and revolution. Into the 30s, you got Hitler if you were doing well. And by 1945, you had the Russians up your backside. So this is a time of tremendous turmoil. Now, to safeguard itself, what the West does is basically configure the following computer. Investors have to invest at home. There's no global capital flows. There's no allowing finance to run out

to find its highest return. That means that you can force investment at home, which is good for jobs. Those jobs pay high wages. Those high wages pay high taxes, which then pay high benefits. What happens is the top of the income distribution comes down. The bottom of the income distribution goes up. And the whole thing jumps up together.

That is the growth of the American middle classes. This happens everywhere. The Italians called this, you ready, il boom. The French called it. Of course, the French would say it nicer. They said, le 30 glorieux, the 30 glorious years, right? Yeah. But everywhere, it was the same story.

So this is the sustained wage growth. This is when one guy working a union job can send two kids to Fordham, and his wife isn't even in the labor market. Now, what happens? There's a bug in the software. Here's the bug in the software. If you run sustained full employment, right,

super tight labor markets, in a closed economy where basically you can't move your capital out, what's going to happen? The dumbest assholes in your firm eventually will be able to walk out the door at 12 o'clock and get a better paid job at 4. Because the labor market's just favoring labor systematically. Now, if you're a business and you have to deal with that, what do you do?

You've got to put up prices to pay those wages, particularly for skilled labor who aren't the assholes in your firm. So what's happening is the returns to labor are going much faster than the returns to capital. The only way they can pay for this is by pushing up prices. Guess what happens when prices and wages chase each other up? It's called inflation.

So you get the big inflation of the 1970s. Now, this is why inflation is a problem. If I'm an investor and I want to get 7% rate of return on my investment and inflation is 2%, I get what's called 5% real, right? So 7 minus 2 is 5. Now, if inflation goes up to 10% and I've got a 7% expectation, I'm on minus 3.

I might as well take the money around the back of the house and burn it. Yeah, you're losing money. You're losing money. So in the 1970s, basically, the investor class of the United States and elsewhere said, wait a minute. We thought this was a great deal. You guys are getting high wages. We are getting high profits. But now all that's happening is you're getting high wages, and our profits are getting screwed. So to hell with us. So they essentially busted up the bargain. They broke the computer. This was Reagan. This is Thatcher, et cetera.

Now, they got rid of the inflation. The big hardware modification of the time was the whole move towards what we call independent central banks. So essentially, you take the monetary tools away from politicians. Then you convince them that if they ever run a deficit, everyone will die of cancer and that debt is the worst thing

in the world, right? Yeah. So you run that model for a while. And what happens is you get huge returns to capital. But guess what? Labor's on the receiving end of that one. Wages stagnate. Capital's mobile.

Labor is local. You start to sign trade agreements where China joins the global economy. Half a trillion workers show up. What do you think is going to happen to local wages? So whereas the first set of computer code and hardware benefited labor to the expense of business, this one, business is made out like a bandit. Now, this system also crashed. We had a huge crash in 2008.

Right. But rather than resetting it like we did in 1970 and 1980, in 2008, what did we do? We turned to the money doctors. We turned to the central banks and said, for sake, please bail us out. Save us. So they did. They just flooded the economy with money and re-stabilized it and kept it going.

But the problem is none of the bugs, right? Stagnant wages, rising inequality, right? A lack of social mobility. None of those things are being fixed. So when you do that, when you basically kind of put a Band-Aid on a problem and tell the patient it's fine and the patient knows that it isn't, the patient gets pissed. And that's the world that we're in now. Hence why I've got a book coming out next year called Angrenomics.

There's the book plug. I mean, you know, normally this podcast goes for an hour, but I think you just did the whole thing in like seven minutes. I'm out of here. We're done. We're done. That I'm out of here. We're done. We're done. That's it. Thank you. We're good. No, that's an incredible vision. That's an incredible way to understand. I mean, I feel like you've given me a really clear understanding of a way to look at economic history for the past 70 years or so that I didn't have before. I have so

many questions about it, though. So first of all, you think that we are still in a crisis point akin to the post-World War II or the inflation of the 70s right now? Yeah, I do. And I think that what's happened is we've kind of covered it up with infinite amounts of credit. Now, we can get into this because it's probably worth doing it. But I don't worry about public debt. I worry about private debt. And the whole point of private debt is eventually we die. Public debt belongs to countries. Countries don't die.

Citizens within countries die, right? And that's a hugely important thing. Because what that means is a country can issue debt across generations. It can raise taxes on people who aren't born yet. When you take out a credit card, it's on you. When you take out a mortgage, it's on you. Now, there's no problem at all with having a financial sector

that gives you money. It's a good thing, so long as your wages are rising. But what hasn't been happening for the majority of Americans for the past 20, if not 30 years? Wages have been stagnant. At the same time, the cost of going to college goes up. Health care costs go up. The cost of doing anything goes up.

So what have we been doing? We've been borrowing. We've been borrowing. And we've been borrowing. And at the end of the day, unless your wages are rising, how the hell are you going to pay that back? Gee, I don't know. See, $1.5 trillion in student loans.

So that's the problem of not having a reset on that system. We papered over the cracks. And what you've got now is kind of the populist politics at the moment. I think of them almost as shitty code writers. They're like the rogue code writers for the system. They recognize the system's bust. They're trying to write code. Some of it's interesting.

Most of it's crap. But that's what's bubbling up around the surface. Yeah, they're just trying to paper over the cracks by writing a couple of kludges to keep it running and keep the system up and running where really, really we need a more fundamental reorganization. Yeah, think about it this way. I get this at talks all the time. People are like, well, governments never live within their means. And we need to save and blah, blah, blah. And there's no money for all these things people want. I'm like, really? How come when a giant bank gets into trouble, we can find a trillion dollars stuck

behind the sofa? Right. There's plenty of money going around. It doesn't seem like there isn't enough money societally to pay for the things that we as a society want. It's just the distribution's all fucked. Yeah, and not just that. It's the question of who gets to set the distribution. We've spent $3 trillion, right, trillion with a T, on Afghanistan. Oh, that was a payoff. We've spent more than $3 trillion,

close to $3.5 trillion on Iraq, right? Right. So add that together, $6.5 trillion. You could cancel student loans, give everybody healthcare, and shower money from the fucking sky and still have change left over. Right.

If we didn't blow it all. I mean, it's almost like that movie Brewster's Millions, where he has to spend all the money without receiving anything of value in return. That's what those wars were. I mean, nothing was accomplished at all. That's it.

Brewster's Middle East brought to you by the United States. What an incredible yes and to that. Incredible job. Well, so why do you feel, going in reverse order here chronologically, that 2008 crash, I mean, that was, for me, I was in my 20s at the time. I was starting to become a better newsreader. It was the 2008 election as well, so I was really paying attention to the news. And that was like my first time really paying attention to economic news at all and trying to wrap my head around it.

So I didn't really have a reference point for what should have been happening. Why do you feel that we didn't hit that reset button or didn't make those fundamental changes? What occurred at that point in time? All right, I'll give you a good example of this, right? Think about this one. So if I say to you, what's an asset? You might think something like, well, my house. Right. OK, that's a reasonable answer. Most people would say that.

To a bank, that's called a liability. So what a bank calls an asset is the mortgage that's written on your house, which you call a liability. So for everyone who's not a bank, liabilities are assets, and assets are liabilities, and it all sums to zero. So when the bank said, well, we have a $250 million, billion, gajillion dollars in assets, what they mean is, we have lent out an ungodly amount of money,

and we hope the hell that we get it back. Now, when that whole system starts to crack up in 2008 because of a phenomena called leverage. What's leverage? So imagine that you buy a house in, you're out in LA, right? Yep. Right. So let's say Huntington Beach 30 years ago.

That's not a place you want to spend a lot of time. But Huntington Beach 10 years ago, the properties are moving fast. So imagine that you 30 years ago spent way more than you should on a big place in Huntington because you're putting leverage into your balance sheet and the expectation that 30 years from now, it's going to be worth even more, right? So what banks do is essentially lend out way more money than they have in reserves. We'd built a colossally levered system. Some German banks before the

crisis, for every euro they had basically on deposit, they had 60 out in the world. We would call them liabilities. They call them assets. So collectively, Europe and the US built a financial system that was many, many times bigger than the underlying economies. So when it started to crack up, those bankers could turn around and say, hey, bozos, you're going to bail us out. We're going to call it moral hazard, if you like. But another way to do it is to think about it as too big to fail. Yeah. Now, you might think that's an extortion racket,

because essentially, if I fail, I destroy everything. And you might want to regulate us after the fact to make sure we don't do that again. Spoiler alert, we didn't. The problem's still there, right? Yeah. But essentially, that's what they did. So they basically played an extortion game with us,

and we went, holy shit. The other thing was, what got bailed out, those assets, right, were basically the real assets, things like shares and financial products, et cetera, that the banks sell to very rich people. And those very rich people didn't want their assets, and also middle class people, their pensions, right, to go to zero.

So politicians had every incentive to find the trillion dollars behind the sofa and bail out the system. But when you do that and then turn around to people and say, oh, now we need to tighten our belts. Look at all that spending. It's terrible. We can't have schools. You can't have hospitals.

Right. Oh, now we're going to have to cut the budget for education because we spent all this money bailing out the assets and incomes of the top 1%. Yeah, that was the distraction. Yeah. And that's what's led to, I mean, that's when it starts moving from the realm of economics into politics because people don't accept that. Like that, that exactly, as you said, that message of austerity, oh, wow, we, uh, plenty of States in the United States that are, you know, cut the hell out of their, uh, school systems. Obviously, uh, I know a lot of countries in, United States that are, you know, cut the hell out of their school systems. Obviously, I know a lot of countries in Europe were compelled to do the same.

And people don't like that. Because they're like, I'm not spending the money. You know, I wrote a book about it. It doesn't work. Yeah. I mean, you know, there'd be one thing to do if you did it and then you were better off afterwards. But it basically just hollows out and destroys your economy. So what you're doing is you're writing an insurance policy

for the assets of the rich on the incomes of the poor. Right. Oh, that'll work. That's totally, everyone's going to think that's a great idea. So then to disguise that, you have to come up with all this horseshit about how basically the state's budget's just like a family budget, right?

So let's just get that one out of the way, right? So it's absolutely true that the Blythe family household has a budget constraint. I can't really spend more than I've got. Well, that's a big fat lie for a start, because I've got a house. So I can get a HELOC and treat my house as an ATM. So there's obviously that's not true, right? You can get a loan against it, right. You can get a loan, exactly, right.

Now, but there are limits to this, right? So even though as a tenured professor at a good school, I'm a pretty low credit risk, right, I will eventually die. So there's a real budget constraint. Now, let's think about what a government does, right? A government maintains a state that lasts hundreds of years. It can issue its own currency. I can issue Mark Blythe dollars.

I don't think anybody's going to take them as payment, right? I can import people into my family through marriage. If I do it any other way, it's called kidnapping. We do it through immigration, right? We can bring people in. We can tax the unborn for the next 30 years, right? The budget constraints of a state are completely different. And if you're the United States, right, think about this one.

We have the dollar. The dollar's the global reserve asset. What does that mean? It means 60% of all reserves, 70% of all transactions on this planet are carried out in dollars. When the Chinese sell shit to Walmart, they get paid in dollars they can't use. So what do they have to do? They

have to turn that back into an interest-bearing asset. So they buy a treasury bill, which allows us to go spend more money with them. We've been swapping bits of paper bearing 2% for real stuff from China for the past 30 years. It's been the best deal ever. And somehow Trump thinks it was a bad idea. Go figure. Right. We have such a poor awareness of what that debt means and how it works. Like, you know, when people talk about, oh, the United States owes so much debt to China, it's as though they think suddenly, you know, the Chinese government is going to come calling and we're all going to be, you know, wearing barrels. When really, this is a transaction.

They need a place to invest their money. We've been offering them the safest place to do it. And they're not going to, that means we are linked to each other. Absolutely. Think about it this way. When you go to New York and you see that thing called the national debt clock

and it's going up and up. I remember seeing that as a child and being frightened by it. When my family would take a trip into New York City and I'd see that clock and I'd say, wow, that debt thing sure seems bad. There's a lot of it. Exactly. You know, but the thing is, let's relabel that. Imagine if we called it the international savings assets clock. Because every single one of those bonds is a savings asset that somebody voluntarily bought because they'd rather hold that than the alternative in their own economy. So that's- Yeah, that makes it look a bit different. Yeah. So it's almost a measure of national economic strength in a way. I'm trying to

understand it. Yeah, bizarrely so. I mean, essentially, look at it this way. Vancouver, Yeah, bizarrely so. I mean, essentially, look at it this way. Vancouver, right, in Canada, Chinese investors were so eager to buy properties there, it became one of the most expensive cities in the world. Right. They basically flipped, I think it's like 70% of the city to million plus properties. How many Americans do you know are buying condos in Shanghai for the day the Fed goes bust?

Right. Right. Literally, one guy, two, there's two guys, one who ran a hedge fund who subsequently blew up, and a guy who was one of the founders of Facebook who went to Singapore just to avoid taxes. But other than that, most of us are not playing that game. Why? Because you're going to go long United States before you go long any other country. You're going to hold those assets over the long term. So why is it, though, just going back again to 2008, why didn't we make those reforms and regulate those too big to fail banks? Is there, I mean, I understand we can point our fingers at the people in power and say they should have done it and let's be angry at them. But structurally,

what was it that the political system wasn't able to deal with at the time? They weren't able to deal with the financial sector as one of their main funders. So there's a straightforward one right there. I mean, think about what's going on in the Democratic Party just now. It's a very polite bun fight. It's kind of like a family that hates each other. And they're building up for Thanksgiving, right? So you've got Bernie and Elizabeth are coming home. And they have to deal with the parents who have actually

got the money. And that's the mainstream of the party. And the mainstream of the party are basically Wall Street, right? Wall Street and tech. And they talk a good game. Oh, we want a more equal world. OK, do you want to pay any taxes for it? No, fuck you. Absolutely not, right? Wall Street and tech. And they talk a good game. Oh, we want a more equal world. OK, do you want to pay any taxes for it? No, fuck you. Absolutely not, right? So basically,

that's where they are structurally. Now, go back 10 years. You've got Obama comes walking in. Him and his team don't have a clue what's going on. All the assembled forces of the democratic elite that's been running the shop since Rubin's time in the 90s assemble and say, this is what we need to do. They go, OK, fine. And then the next thing, everybody in the news is talking about mortgage-backed securities and collateralized debt obligations. And everybody in the real world's like,

what the hell's going on? So the combination of the fact is they owned them, plus the fact that the one trick that finance plays on everyone is to make things that are actually quite clear, unnecessarily complex, because that's how they make their fees. Right. Put those two things together, you pretty much got it. Yeah.

So it's a matter of those, the establishment of the party was so deep into that worldview. And then just it was that view of like, oh, the smartest guys in the room say that this is what we should do like oh the the big adults in their fancy suits who have spent uh you know a couple decades studying this at harvard or down on wall street they're they're saying you got it yeah uh i mean i remember at the time feeling that way i mean who am i to disagree with larry summers i don't fucking know anything about this like you know because because i had never thought about it before in my life no and you know but the fact that like larry and people like that actually made all of that possible while telling us that a collapse like that could never happen you think that might

have dented their credibility but apparently not you know it's almost as if you can sort of like go to a wedding shit in the middle of the floor dance dance with the bride, punch the broom, and then act as a wedding consultant. Yeah, we'll be like, what is this guy doing? He just, we're not going to, give me a break. I'm trying to tag your joke, but you're too good of a comic. Stay in your lane, man. Well, let's talk about, let's go back to the 70s, where, so according to the picture that you laid out for me, we had a system that worked very, very well for the majority of people in America or in the world or in many countries in the world, according to the version that you've laid out.

had the bug of inflation, but I would have to say that something that is benefiting, you know, the middle class working folks is better than a system that only benefits the rich and, and, you know, the people who hold stakes in mega corporations. So, but given that, you know, there was this structural issue of inflation, was there some other approach that, that should have been taken at the time? I mean, it sounds like what you're describing is that was a pretty good regime. That was a pretty good computer with hardware and software. And the one that came afterwards was the post-70s one led us to this much worse crisis. And so it was like a worse system. Should we have done something else at the time or what? So two things are important to acknowledge. And that's actually a really good question, right?

So here's the first one. That first regime was really good for basically working in middle class white people, particularly men. It was not great for minorities, right? In the sense that growth benefits everyone, it's incredibly asymmetric when it comes to minorities. This is also a period in which women are largely excluded from the labor market, from many educational institutions,

from programs. You know, the idea that women become airline pilots or whatever, come on, that was the staple of jokes of the period rather than actuality. So it's not as if that was a paradise, right? But go forward, right? It's really kind of what I like to call the Anglosphere, right? Essentially, the United States, United Kingdom, Ireland, Canada, et cetera, these countries are the ones that really embrace this deflationary, jack up interest rates, get the returns going

back to capital move. I just came back from Denmark last week. OK, it's a small place. They're culturally homogenous. I get all that, right? But the fact of the matter is, if you take Scandinavia as a whole, or even countries like Germany, you start to add up these numbers. France, right? You're getting to like 200 million people in total for large chunks of Europe.

The EU as a whole is 440 million people. They're as technologically advanced as we are. They've got all the same shitty apps on their phone that they don't use either, right? But at the end of the day, it's not skill-biased technical change that's caused them to have crappy wages. The Southern European thing comes out

of the crisis of 10 years ago. But if you go to Northern Europe, you've got governments that have made different choices. They've said, yeah, we'll financialize, but we're going to tax the hell out of capital. We're going to make sure that we create an investment environment where capital wants to stay at home. We're going to do an awful lot create an investment environment where capital wants to stay at home. We're going to do an awful lot on retraining,

what they call active labor market policies, to make sure that when people are made redundant by changes and shocks to the economy, they are retrained into things that actually matter, as opposed to what we did with the Midwest, which was, oh, well, we shut everything down. Good luck. Hope you enjoy it.

And then sod off. Right. So policy makes a difference. You can choose to do very different things. There's nothing preordained in this. So the summary on that one is, yes, on average, it was a much better regime for labor, with the caveat that not everybody benefited.

Yes. And we've got to acknowledge that. And then going forward, not everything's shitty now. There are positive examples out there that we can certainly learn from. I mean, the idea, think about student loans for a minute, right? Every country that's tried to do big student loans

ends up nationalizing the loan book because they don't get paid back. Really? Yeah. The Brits just sold 20% of their loan book to a bunch of head funds at something like a 60% discount on the paper value. Because at the end of the day, if your wages aren't growing

and you took on a lot of debt and you get a job that pays you less than you would expect, how the hell are you going to pay it back, right? Now, let's do an intergenerational story here, right? If you were one of the baby boomers, then you could go to Berkeley for like a couple of hundred bucks a quarter back in the day.

And then your lifetime's income is just unbelievable in terms of growth, in terms of what happens when you buy in the 70s. You buy a house in the day. And then your lifetime's income is just unbelievable in terms of growth, in terms of what happens when you buy in the 70s. You buy a house in the 70s. You've got high inflation, which means that if you've got a mortgage at that time, the bank's basically paying you. You then get into the 1980s, massive disinflation.

Real interest rates are really high. You were getting 9% for showing up to chemical bank and sticking it in a savings account. Right. So those guys have done brilliant. Now, what do we do to the current generation? Hey, Davey, before you have any assets in your life, have a shit ton of debt. Right.

Good luck paying it off. The only place you'll get a chance to pay it off is if you move to one of the big coastal cities. But there, it's so expensive. You're going to be having roommates until you're 31. Good luck getting married and having kids, because you're not going to have a chance to. You see where I'm going with this? We're basically giving them debt rather than assets.

And what we did with the prior generation is we gave them assets, and then they took on debt. And we've completely switched that around. Yeah, I mean, on top of which, just like even the savings rate that you described, 8%, now it's what, under 2% if you find a real... Yeah, now it's the square root of nothing. And yeah, the housing is far more expensive. They're like, it's bad in every degree.

And yeah, the cost of an education can be easily hundreds of thousands of dollars. Yeah, it's ludicrous, absolutely ludicrous. I mean, you think about it. When you take out finance paychecks in London, I'll give you an example here, right? When you take out people who work at the top end of the financial sector, Brits earn on average about 30,000 quid top. And 30,000 take out taxes on that. You're talking about maybe $30,000 in take-home pay to live in London.

You know, they're not living at large, right? You're really not living at large. Those costs really matter to people. Yeah. Well, this is fascinating. You have so many more ideas I want to talk about, especially your ideas about climate change. But first, we have to take a quick break.

We'll be right back with more Mark Blythe. Well, Mark, let's jump back into it. So we've been talking about these various inflection points, these crises where we changed our economic system, either for the better or for the worse, and how that really created the lives that we have today and really changed the circumstances under which people live. You've also written about how climate change is potentially a similar crisis, if I'm understanding correctly. Can you tell me about that? Yeah. So, you know, when we think about the news cycle, what do we care about? So we're talking just now and the impeachment hearings are going on and everybody's wondering about the impeachment hearings, what's going to happen, right? The impeachment hearings is signal. It's not noise.

It doesn't really matter. It doesn't really matter. It doesn't really matter if Trump actually defeats impeachment. It doesn't really matter if he even gets another term. Because ultimately, what matters is this thing called climate change. We've been told squarely and fairly and unequivocally. And there is no giant conspiracy theory. We can get into why that is if you want. But basically, we were told two years ago, we had 12 years to get

this shit sorted out. And we have done precisely nothing. So I'll look at it this way. I'll look at it this way. Whether you like the president or not, Trump is cyclical. Climate change is structural. It's coming at you like a truck. It's not slowing down. And you're going to have to adapt to it one way or another. Yeah. And the changes that it's going to bring are, I mean, people talk about, people are concerned about immigration now, the waves of mass migration that are going to happen once, once no one can live in Phoenix anymore, right? Like just speaking of that, the number of old folks who are going to be climbing over the hills to get to the Pacific Northwest is going to be unbelievable. And that's just my joke version. Like when you're actually talking about millions of people moving around, places like the coastal assets suddenly becoming not worth anything because no one can live there anymore. It's going to be massive.

The coastal one is flooding. So close to 40% of the value of American real estate is on the coast. Jesus. close to 40% of the value of American real estate is on the coast. Jesus. So we know that the tides are rising. I mean, I worked with a student a couple of years ago who told me that the models that everybody works with, basically within 20 years, at least half of Miami Beach is fully underwater. Yeah.

And you're still building multi-million dollar condos on top of it. You're not even building on sand at this point. You are literally building on water, right? I mean, my parents just moved from Long Island, left their home they had lived in for over a decade. And it's right on a little coastal inlet creek on the Long Island Sound, where the tide comes in and out, right?

My dad liked it because he had a little fishing boat and he could launch right from his backyard. When they sold the place, it actually had dropped in value a little bit. Not a ton, they were fine, you know, but like you'd expect if you own a place on Long Island, you know, hot real estate market, expensive place to live, you're there for 12 years, you know,

you think the house is going to appreciate a little bit and it basically stayed even and even lost a little bit. And when they asked why, it was like people, no one's going to buy a home that is, you know, 10 feet from the waterline because everyone knows what's going to happen. Like climate change affected them economically now. And another way it affects them, if you do want to buy that house, you're going to pay a fortune in insurance. Right. Because we've finally woken up to the fact that you actually really need to insure this and not just pretend that every time it happens, it's a disaster and it's unexpected and you need to get bailed out. So if you pay the real cost of insurance on these properties. Yeah.

What kind of insurance company is going to insure a place that is like subject to an inevitability, right? That's exactly it. That's exactly. If you know it's an inevitability you can't insure against it right so you basically got to adapt to it and that's the challenge and you know we're so obsessed with basically you know everything from the impeachment hearings to like you know who the hell's on american idol or whatever i mean it's just so easy not to think about it but we better so yeah i mean climate change is going to have a huge impact on us economically and politically. What is that? How do you think about that vis-a-vis all of these other regime changes that you've been talking about? Is this an opportunity for another one or?

Well, I think that it's an inevitability, right? So, you know, the line I use is climate change doesn't really care what you think about it. It's just going to happen. Your opinion is literally irrelevant. So here's how I see this working out in terms of the politics. I think that Trump is a symptom, not a cause in and of himself. He's exactly the type of person that people turn to when they basically think that their governing elites have been lying to them and have been self-centered and basically regard them

with disdain, if not downright disgust, calling them the deplorables, et cetera. The notion that we are all in it together as fellow citizens has been exposed as a bit of a sham. And this has been ruthlessly exploited by media to turn us all into partisan tribes. So when you've got that type of world, what's the kind of response that you get?

And you see this in Europe. You see it throughout the developed world. We're basically turning to right-wing populism, nationalist populism. Now, why nationalism? Because nationalism gives you a sense of boundary. It gives you a sense of community. Who's in, who's out, who's a problem,

who's not the problem? And that's why you get the type of policy solutions that you see from Salvini in Italy to Orban in Hungary to Trump in the United States. The problem with the right-wing populism, irrespective of what you think about the migration politics or anything, is they're all climate change deniers. They're not going to do anything about it. And the longer that you wait to do, the more expensive and more difficult this challenge is. So I think what happens is we're going to go through a whole period of essentially right-wing

nationalist populism, decoupling of the global economy, more focus on national economies, more focus on nativism and native populations, et cetera. And climate change is just going to continue. And now what happens is people are going to figure out, hey, all that stuff that we've been voting for for the past decade, it doesn't really address any of this stuff,

like the fact that I had a house in, let's say, Naples, Florida. And it flooded once, and it was an accident. It flooded twice, and it was climate change. And now nobody can sell their properties. How does worrying about the border help with that, right? You should have been putting in all this into alternatives. Countries like, again, like Denmark, but also bigger countries like China,

massively ahead in the technology for alternative energy. In 2015, China installed more fourth generation solar than the United States has in total solar capacity. Wow. Denmark regularly produces at peak times all of its electricity from renewables. We already know this can be done, but these guys aren't going to do that.

They're basically going to be, it's all a lie. It's all a conspiracy. Can't figure out why, because trust me, the grant money that these people get in comparison to the skills that they have, forget about it. The people who do climate modeling, they've got math skills that make me look like the dumbest boxer ox you could imagine.

I've had them on the show. They could go to- They're brilliant. They could go to Wall Street, right, and earn 50 times what they do. But they actually give a shit about other people's future, which is why they do what they do. Poor, foolish people, right?

So the bottom line is, we're going to have this 10-year period of right-wing populism. Everybody's going to figure out, they're like, oh, unfortunately, that doesn't deal with any of the stuff that actually matters. And then what's going to happen is it's going to be the AOC roadshow. Yeah.

That's the point where you're going to get the left-wing populism coming in. And it's going to be big Green New Deal, massive investment, blah, blah, blah, the whole lot. Because we'll be in panic mode. And the way that I'm so sure about this, it was the wise words of Winston Churchill that made me think this is the way this one plays out, amongst other things. But you know Churchill's line about the United States?

I'll do it for you. Please. I want to do it in the voice. Ah, the Americans. They will always do the right thing once they have exhausted every other conceivable alternative. God damn it. Sounds so true. I mean, I've been here 30 years. I'm a citizen.

I get it. That's totally us, right? Basically, we're like smokers who have lost one leg. And we say, well, that was just chance. It had nothing to do with the smoking. Then we'll lose the other leg. And we'll say, well, this is a great opportunity to buy a scooter. It's only when you've got that far, we'll be like, maybe we should stop the cigarette.

Yeah, but the problem is with climate change is that it's a lag, right? The output lags the input by quite a bit. So by the time you're feeling the effects, you're feeling the effects of what we did to the system 30, 40 years ago or even further back. Absolutely. And so even when we start – I mean if your timeline is correct, and I hope that we can – I would like to be more of an optimist than you, but let's just follow along with that timeline. Suddenly, okay, let's say that 10 years from now, someone finally is running on climate change and Florida is voting for them because everyone has seen the effects so much more directly. And so are all these other states. And they start putting in those policies.

We start clamping down on emissions in the real way that we have to. Well, things are still going to keep getting worse climate-wise for another 40 years after that. And that's the real problem for democracy, because people want results. If you're asking people to make smaller sacrifices now, they're willing to wait to see the benefits. If you ask them to make huge sacrifices and there's no immediate benefits, it's a really tough sell. So here's the way I think about this one. If you want climate change in the United States to work, you have to deal with what I call America's wicked carbon smile. And the carbon smile is, imagine the map of the United States with all the states on it, right?

Start up in Alaska, and then come down through North Dakota, go to Oklahoma, go to New Mexico, go to Texas, career round through Texas to Louisiana and the Gulf states, and then go north and end up in West Virginia. That's all the states whose business model is basically oil, gas, or coal. Now, if you want them to get on board,

you're going to have to bribe the hell out of them to get on board. And that's exactly what we should be doing, right? Should take every resource we've got to basically retrain those workers, retrofit their buildings. Basically, they should be leading the green transition. But we've got polarized politics that means they're in denial, but ultimately doesn't

really matter because eventually carbon assets will become kind of stranded. You can't use them. That's it. So they lose if they do nothing. But if they embrace change, they're the ones that suffer most of the cost, which means that the rest of the country, all those blue states and the money really have to be willing to pour their money into Oklahoma.

Right. That's a tough ask as well. And that's a tough, but that's what it is. And that's not what our politics is set up for. This is the no bullshit calculus. Yeah, that's not what our politics is set up for. Like the blue states are not inclined to go help out West Virginia or go help out Alaska.

We've been pointing and laughing at each other for so long that we don't have, we don't see, oh yeah, folks there need a place, you know, they need jobs, right? Like in Alaska, you know, the dividend that they receive, that everyone receives from the oil revenue, right, is like keeping people alive. So, yeah, absolutely. Let me ask, though, regarding right wing populism. I mean, we've got left wing populist candidates in the United States right now. And, you know, there's a couple of others that exist elsewhere. If you want to put like Jeremy Corbyn into that bucket and et cetera. Do you see those as having a chance or do you feel like we need to move through the right wing version of it first? I mean, like you, I wish I was more of an optimist,

but here's why I think that that's problematic. Your average voter across the developed world is about 40 to 44 years old. And when you get to the older part of the distribution, 60 plus, they vote twice as much as millennials. So what is it the older people want? They've accumulated a few assets. If they're old and they're rich, they've got all the assets. And they don't like change. And they don't like young people screaming at them,

telling them that everything that they've ever done has now led to the worst disaster in the history of mankind. MARK BLYTH Yeah. MARK BLYTH So they tune it out. MARK BLYTH Yeah. MARK BLYTH And they actively tune it out and actively vote against it.

So I think it's a very, very tough sell. Now, you know, not that I want to go with the Niels Bohr line on science, but, you know, society does evolve one funeral at a time. So, you know, that will change eventually. But that's the uphill barrier you've got just now. Bernie's an interesting character and counterpoint in this one or example of this issue. It's a not counterpoint because he himself is like as old as Methuselah.

But all of his fans are young. Yes. Right. Yes. Well, let me ask this because you hinted at something earlier that I'm curious about, because you talked about how in the you know the sort of good old days right the the the post-war era that um capital had to stay national right that that we were investing locally um and you alluded to that this right-wing populist wave uh one of the things that they are running on globally is economic nationalism. I mean, that's what Trump calls it. Or I believe that was Steve Bannon's term was economic nationalism. Now, there's a debate when people are talking about Trump,

whether or not the economic part of the platform is actually efficacious if it's actually doing any work or whether it's just racism. And let's acknowledge that racism is part of what he ran on and part of what a lot of these folks are running on and part of what some people are voting for, certainly a large number of people are voting for. But in your view, because of the way that you're looking at these structural changes economically, do you see that there is an economic point here that is founded in something? Or how do you view that? Oh, absolutely. I mean, I'd go further than that. It's all economics. Look,

here's the problem with a cultural argument. You're explaining a rise in the amount of racism by a rise in the number of racists. So what you're basically saying is, oh, look, there's more racists. Why? Because there's more racism. But why is there more racism? Because there's more racists. All right, why is that happening? There has to be something underpinning that. I would say the fact that we just went through a gigantic financial crisis, have had 30 years of wage stagnation, and have eye-watering levels of inequality. And it's all come to a head when your political classes and your intellectual elites and your economic classes

are largely delegitimated in the eyes of millions of your fellow citizens. Yeah, that might be a moment when lots of bad shit happens. And a lot of that may be expressed through racism. Because guess what? There's a lot of it in our societies. But the notion that basically in 1995, most Americans weren't racist. And then basically in 2016, suddenly they went, oh, my God, I hate minorities.

Right. What's all about? Well, I've always had the theory. This is something I've talked about on the show before, that, the destruction of media gatekeepers had something to do with that, that, that racism essentially wasn't allowed to have any purchase in the public sphere because, you know, we only allowed clan members to go on TV at 3 PM on, you know, daytime talk shows where everyone would throw tomatoes at them. And other than that, you know, it wasn't a, there, there was no media right for racists. And that was one of the effects of the Internet was to, hey, you know, anybody can meet anybody.

You can meet a bicycling group. You can meet a Japanese anime fan or you can, you know, those people can get together and so can racists and they can spread their message and spread their, you know, et cetera. So I've always felt that that's part of it. and spread their, you know, et cetera. So I've always felt that that's part of it. But, I mean, fair point that it's not like, you know, it's not like these numbers are going to suddenly shoot up for no reason and that there must be some kind of economic valence as well. But do the counter-argument in this, right?

So, like, a lot of the culture stuff says, well, look, unemployment was going down during the Obama administration. So that means the economy was doing well, which means that it can't be economic. So you've got to be kidding me. And basically, if you were in Detroit during the Obama administration, it doesn't matter if the national unemployment rate is 4%. If you were in Baltimore in 2012 or 13 when the riots were kicking off, I don't think like everyone's saying, hey, look, financial indicators are going down. That means the economy is doing well. It's going to mean a whole lot to the people on the streets that are rioting. So, you know, I think that this stuff needs to be taken with an extreme bag of salt.

So do you feel that when people are making that dichotomy where they're saying, well, is the economic for Trump, is the, sorry, is the rationale for Trump economic or is it just racism, right? That's a debate that you hear often. Why choose? Why choose? That was going to be my question. He seamlessly, he is able to, think about this on the incentive of a politician who only cares about getting elected. Why choose? I can go to the Rust Belt and acknowledge the real fact that a generation of mainly Democratic politicians didn't give a shit about their core constituents, sold them a line, sold them down the river, and banked it all in coastal real estate and finance. That's what happened to them. And I can acknowledge that. I can simultaneously go to a border state

and talk about all those murderous Mexicans and rapists coming over the border and talk to them. And I win both camps. Meanwhile, I can be a liberal sitting in the middle denying both. Yeah, true. It's opportunism. I mean, we have this weird thing. Why does it have to be one thing? Why do we have this kind of bizarre monocausal determinism where it's opportunism. I mean, we have this weird thing. Why does it have to be one thing?

Why do we have this kind of bizarre monocausal determinism where it's like, well, obviously something massively complex had been building for 30 years across 30 countries that involve 300 million people can be explained by one thing. I get better logic from my eight-year-old. Well, look, damn,

I love the way that you pull all these strains together. Um, if you were, uh, let, let's sort of end on, on trying to find some positive notes here, or, or at least imagining what some positive notes would be if you were, you know, one of the people designing the new economic system, right? Um you had either been able to hit the reset button in 2008, or if you were in control of the reset button that you think is going to come as a result of climate change, what are the policies that you would enact, right? What is the hardware and software that you would, what's the Blythe brand computer here? would, what's the Blythe brand computer here? All right. So the Blythe brand computer,

you know, what I automatically want to do when I get asked this question is, don't ask me, I'm only a professor. But I realize that's a cop out, right? Yeah, because you've been telling us how bad a job everyone else has been doing for an hour. So, you know, put your pants on and tell us. Come on, exactly. Put your pants on and do it, right? So here's how I would do this. I would not try and abolish capitalism. I don't think that's the best way of doing this. I don't think that basically saying, after 30 years of running down the government,

running down its capital, running down its personnel, running down its skills, that we just say, oh, the government can do it. I don't think that's the right idea. So here's how I think about climate change. This is the greatest investment opportunity in the history of the human species. And I'm perfectly serious.

And here's why. If you invest, if you don't invest, if you just go into denial and you're a firm, whatever, and all this bad stuff starts to happen, and it'll happen faster than we think, then you and your kids, like everybody else, you all die. So everyone gets what finance calls a symmetrical payoff. We all die, right?

There's no upside. There's no downside. You all die. Now, imagine that you take a chance and say, you know what? I'm going to do something about this. I'm going to invest in this. I'm going to invest in emerging technologies. I'm going to do carbon capture and storage,

even though people tell me it's not going to work. Who knows? We haven't really tried it yet. I'm going to do carbon capture and storage, even though people tell me it's not going to work. Who knows? We haven't really tried it yet. I'm going to invest in sixth generation solar. I'm going to try and invest in stuff that finds an alternative to cobalt use in batteries. I'm going to go for that. Now, imagine that you're a big investment firm, big pension fund. You've got 20-year horizons. Imagine you just get 10% of that right. The whole world's going to buy from you. So you've got a covered downside, we all die, and you have an infinite upside. Now, if everybody plays that game, if thousands, if not hundreds of thousands of different pools of investment try and crack different bits of this puzzle,

and different countries, and this is the big one, actually produce the type of debt instruments that would allow you over 20 or 30 years to invest in this stuff. So for example, just now, pretty much all developed economies' government bonds are trading negative, right? What that means in simple terms is that investors are so paranoid about the future and want security so much, they're willing to basically not just forego the interest rate to own the bond, they're paying the government to borrow the money. Now, if you're a pension fund, bonds are a big part of your portfolio.

And that means that they can't actually invest in anything and make the returns. That's why you're starting to get all the stuff about people are getting reductions in their pensions and all this sort of stuff. We don't have to do this. If you're a country like Denmark, you're a triple A-rated sovereign.

That means that your credit rate is impeachable. You could issue a 20- or 30- year bond now promising a 2% return, which in comparison to everything else in a world of zero inflation, is a 3% return. You could put that on your portfolio, make yourself solvent, and all of that money could be dedicated to green transition, retrofitting buildings. You could do this with different bond structures.

You could invite people to invest simply in solar. They could invest in wind. They could do in emerging technologies. You could have public-private partnerships in this way, where you'd have the government providing the debt instruments and then a private sector directing the investment, which is what we need to do. These things are eminently doable.

And when I talk at finance conferences about this, everybody in finance is in the same boat. They're not making any money. There's nothing to buy that isn't already expensive. And they're acutely aware of the fact that climate change is coming. So we just need to basically get our shit together and demand of our politicians to stop telling fairy stories about how the household and the government are the same and there's too much debt. Even the German Employers Federation yesterday or today came around and said, we are half a trillion short on investment, and that's not even accounting for climate change. So let's start investing. We have negative rates and no inflation. The world has changed. Let's do this. We can do this.

And the point is well made that in a future where we're going to need green technologies to survive, that means that if you can start investing in those, building those now, and then you'll have something of value later. It's like one of the few sureties that these are things we're going to have to have. And if you don't do it, you die. If you do it and it doesn't work, you die. So you might as well throw everything at it because your minimum payoff is we're all dead. Right. So what have you got to lose? This is the thing that bothers me so much.

When you're talking about how the right-wing populists are all climate change deniers, the thing that they often say that really wigs me out and makes me nuts is they say, well, all these other countries are going to keep burning the fossil fuels. And so if we don't continue doing that, they're going to beat us, that they're getting all the advantages of how great it is. What are they going to beat us? Are they going to beat us to the grave? Yeah, exactly. Is it a race to see how fast you can die? I mean, the other thing about that that's utter lunacy, right, is the following. All of those countries, let's take China and India, the two big ones, right? Yeah.

You can't breathe the air in Delhi. Yeah. Let's think about that. Imagine you walked out of the house in LA. And we all know that LA's smog and all the rest of it, right? But imagine you're like, literally, you can't breathe the air. It's toxic. Yeah.

These people have every incentive to go green. I'll tell you another reason India has an incentive to go green. It doesn. It's toxic. Yeah. These people have every incentive to go green. I'll tell you another reason India's incentive to go green. It doesn't have any oil. Yeah. So it has to import all the oil. You know what it's got a shit ton of? Sunshine and wind. Right.

So they're actually installing a ton of this stuff. Right. So it's absolutely true that they're building coal-fired power plants, but they're also installing a whole ton of solar. Well, what we need to do is keep the technological advantage up so that basically they want to buy our solar. That's the way that you do it, because they're going to do it. Same with China. China just looks it off and laughs. It's like you have all the technological advantage. You've got the best researchers. You've got incredible science. You've got great basic

science, still, despite trying to kill it all the time. You've got all that wonderful stuff. And then what do you guys do? You basically go into climate change denial and start talking about how great coal is. They're laughing their ass off. They're just installing more solar and wind than you can possibly imagine because they're in it for the long game. Yeah. And they have that long view of it. And they have the, I mean, centralized planning is view of it. And they have the, I mean, you know, centralized planning is a double-edged sword, certainly, but they are, you know, they're looking at it with that view and they're saying, this is what we need to do. Yeah. And also, I mean, one of the myths about China is, you know,

it's a big centralized state run by commies. The only part of that sentence is true is that they're run by commies because they've actually got one of the highest rates of fiscal decentralization in the world, which means that for every 100 yen that, yeah, for every 100 yen or RMB they spend, 80% of it's spent at the local and provincial level. What they do is they license experiments. They license experiments. They say, look, we need to do this. Here's the money.

Go sort it out. Now, some places, they'll just steal the money. And some places, they'll try something, they'll fail. But a few of them will actually come up with things they hadn't thought of on how to solve the problem. And then they'll go and investigate it. And some places they'll try something, they'll fail. But a few of them will actually come up with things they hadn't thought of on how to solve the problem, and then they'll go and investigate it, and then they scale it up, right? We've got 50 states. We should be doing exactly the same thing, instead of which we're in denial and we're blaming each other and tearing each other's face off. Do you have any room for optimism in your

worldview? Because, I mean, you have this, you're making a wonderful plea that these are the things we should be doing. Do you think there's a chance that we will do them anytime soon? It's funny how people say this about me. I'm actually incredibly optimistic, but I'm also Scottish. So I think this is what's happening is you're confusing

Scottishness with depression, which, you know, they often go together, but not all the time. I'm actually quite optimistic, even though this is a very dark place. I'm a great believer in innovation. When you put oil to $150 a barrel, it encourages an enormous amount of innovation.

And holy shit, that's expensive. I don't want to buy oil. So unfortunately, being humans, we should listen to science and get ahead of the curve. But we don't. Go back to the analogy of the smoker losing his leg, losing both legs, thinking it's a good idea if I get a scooter.

That's unfortunately what we do. But Churchill is already right. Once we exhaust every other alternative, oh my god. The one thing about the US is when it moves, when it moves collectively nothing stops it yeah so we're going to get to that point

we will eventually get there and when we get there and say holy shit this is the only problem that's worth solving and we really need to do it I'm going to be

tremendously optimistic about what comes out of that no matter if it's much later than we should have done well amen thank you so much for being on the show

to talk to us about it, Mark. Really appreciate it. It's been a wonderful conversation. I've enjoyed it too. Well, thank you again to Mark Blythe for coming on the show. I hope you were as delighted by his accent and comic timing as I was. That is it for us this week on Factually. I want to thank our producer, Dana Wickens, our engineer, Brett Morris, our researcher, Sam Roundman, and Andrew WK for our

theme song. You can follow me on Twitter at Adam Conover. You can sign up for my mailing list if you want a more intimate form of communication at adamconover.net. Until then, we'll see you next week with another episode. Thanks for listening.