Jamee Moudud on the Intellectual Roots of Zohranomics

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Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television, listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast. That's Bloomberg this weekend, Saturdays and Sundays, starting at 7 a.m. Eastern on February 28th. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts. Bloomberg Audio Studios. Podcasts. Radio. News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, it's January 28th. I think our new mayor here in New York City, I mean, he hasn't done much, but the snowstorm seemed to go fairly well. Not too many big disruptions. I wasn't here, but you were able to walk around, get out of your apartment. There have been several mayors whose entire reputation failed because they couldn't handle a snowstorm. And so he seems to have passed the first test. It feels like a low bar for New York mayors, I got to say. My guess is if we looked at, I agree, it is a low bar. But on the other hand, it's like, OK, first big test of the new administration seems to be doing well. I don't think, however, ultimately, the Zoran Mdani administration will be judged on snow removal. Like this is not going to be how history probably remembers how well. No, and he certainly wasn't elected on his snow removal capabilities. Although I did see the videos of him, you know, getting his shovel out. He's so good at like retail politics. politics like that was like so he's so good at that yeah but speaking of tests i mean there are bigger tests coming up right mostly concentrated in the economic policy yeah right i think we know like sort of and of course we talked to him but like the affordability question in new york city clearly central one of the if the most central topic in the campaign and what i would say is that the very most, not all of them, but at least a handful of the ideas that he has proposed are the types of ideas that economists hate them, right? So especially anything where the government is intervening in rent, the idea like, there might not be a more hated idea among economists than anything that smacks rent control or anything like that. Right. So I am not very knowledgeable when it comes to actual economic theory and how it's developed over time. But one thing I do know is that, you know, the sort of forerunner or ancestor of a lot of traditional economic theory that we see today, like neoclassical economic theory, Adam Smith, right? Talking about like the free hand of the market and how if the market is functioning, like everything should be fine, right? Yeah. And I think like economists, even Like, you know, almost all but the most sort of true hardcore laissez-faire economists would say that there are areas that, you know, they call market failure, right? Right. There are certain situations in which maybe we can't expect markets to do the job. Maybe they'd say like, oh, it really doesn't make sense to have like private fire departments, for example. Although some people actually do propose private fire departments. But yeah, you know, even the most sort of like true believers of sort of liberal or neoclassical economics, they're like, oh, yeah, well, there are market failures. Right. In which case the government should. And then there is a role, but only in failure that unless you like define some areas like, OK, there is a reason why markets don't work for this particular area. But then after then sandboxing a few of those things, then it's like, OK, as much as possible. You just want to stay out. Don't interfere. Let the price signals do their work. Yeah. So this has become, I guess, the orthodoxy. Yeah. And Mamdani is very much in the... The heterodox. The heterodox. Yeah. Yeah, that's a word that always comes up when people are talking about, when economists are talking about policies that they don't like. That's right. That's right. It's a euphemism for policies that they, they're like, oh, no, at least a handful of people wear that badge proudly. But like these history, how did they become the orthodoxy, et cetera, right? Like it's not like the law of gravity. Right. Or that the earth is round, which are orthodox ideas for a good reason. There are some people who don't believe that the earth is round, but they're like, I think we is pretty good. We have good reason to believe it. And the people who don't believe that the earth is round, they're not heterodox. They're cranks. Right. Right. Like that's like there's sort of a difference. Those are cranks. And so but where do these orthodoxies emerge from? How did some ideas get shunted into the category of heterodoxy or whatever? And how did they evolve? I have no idea. I mean, I've read a little bit about the past, but this is not much – I don't know much about this. We should talk about it. We should, especially because our new mayor may, in fact, pursue some heterodox ideas about economic management. Anyway, I'm very excited to say we really do have the perfect guest. We're going to be speaking with Jami Modood. He is a professor of economics at Sarah Lawrence College, also a board member of the Law and Political Economy Collective. And he's written a lot about these topics, including sort of the intellectual history of some of these economic ideas. So, Jami, thank you so much for coming on AdLots. Thank you so much, Owen Tracy. What kind of stuff are you teaching the kids at Sarah Lawrence these days? So the interesting thing is I teach Introduction to Economic Theory and Policy, which is a year-long lecture. And that actually deals with some of these central questions, markets, money, the monetary system, and so on. And I actually teach econometrics. When you say actually, it's because people don't expect this sort of unorthodox thinker to actually do the numbers, the technical stuff. So it's interesting that you pose it that way because one of the things that I do teach in econometrics is method. It's not just about number crunching, but where do you get the numbers from? Yeah. And so like weaving in these questions of method as we're trying to understand social and economic reality, it makes for a solid training in economics. And so those questions of method woven into the construction of theory, yeah, that kind of informs the way I teach and why that matters, not just as kind of an intellectual exercise, but why that matters for practical issues like what you guys were talking about. So truly the perfect guest. Maybe just to begin with, we could perhaps define our terms a little bit. Joe and I gave a probably terrible summary of neoclassical economic thought. But in your mind, what is the orthodoxy? So the orthodoxy is neoclassical economics. It comes from an intellectual tradition, which. So if I may differ a little bit with what you said about Adam Smith, Adam Smith is not the forerunner of neoclassical economics, the expression invisible hand. In fact, I have my students do this experiment every time because it's an 800-page book, The Wealth of Nations. How many times does the expression invisible hand appear there once? So the point here is that there was an older idea of what markets and of capitalism are. And that gets revived again in the 1920s and 30s, and I'll talk about that later. But that older idea, which is called classical political economy, did not make any assumptions about human behavior, that human beings are inherently rational, that markets behave in this optimal manner at full employment. That would be neoclassical economics, right? That knowledge is more or less perfect. There was none of that. You're talking about in the classical economics prior to neoclassical. Exactly. What years and what thinkers are we talking about? We could just talk about Adam Smith. Okay. Oh, yeah, great. To some extent, David Ricardo, Karl Marx, the physiocrats. I mean, so you had a range of authors in a wide range, you know, who ideologically, not necessarily on the same page, but they had a vision of capitalism, which, so the original name of economics was political economy. And that meant that you cannot really talk about economic questions without thinking simultaneously about politics. And many of these folks were actually trained in law. So the question of law's role in structuring the economy, this kind of lurks in that intellectual tradition. And one of the implications was that the economy is not some natural trans-historical institution or thing, but it's profoundly a product of history. And I think that's where the big split arises, because if you teach or if you study neoclassical economics, it is taught in a way by which the economy is treated as something eternal, as something almost in naturalistic terms. And therefore- Like gravity. Like gravity. The economy is always there. Exactly. But also like the rational individual, general equilibrium theory, all of these things are supposedly just happen. And in that sense, this idea of lesser fare, that the economy is fundamentally pre-political, that it arises before politics, rather like the kernel of a walnut, in which the walnut, which is the shell, is if you think is constitutional law or politics or law that emanates from politics, that would encase this thing called the economy. And only under extreme sense of this, neoclassical economics, if there is quote-unquote market failure, then the state can step in a little bit to do this, that, or the other. But fundamentally, leave the market be. And you're familiar with this argument. This idea is not really there in Smith. And one of the things that people sometimes get surprised about, and I always tell this to my students, is read his chapter on wages in The Wealth of Nations. And he says very clearly that there is a difference in power between those who own property and workers who don't own property. So this idea that the market is sort of this place where equals me to create contracts, that was not in Smith. It was not in Ricardo. And of course, you know that was not there in Marx. But people, if you evoke Marx, then people often say, well, you talk about socialism. Well, Smith was not a socialist. What was his idea? Like, what was his contribution? Or I admit, like, I'm guilty, too. It's like, oh, Adam Smith, Invisible Hand, the butcher, they all worked together, blah, blah, blah. But I have been told and I have heard that this sort of caricature that we all have of Smith is wrong. What was his project? So I think the way to think about it is just to sort of get out something which I think is kind of important, which is institutions. Okay. Now, there have been many different readings of Adam Smith, and so I'll come to that in a little bit. But just to get it out there, when you talk about institutions, you're talking about the system of implicit and explicit social constraints within which we exist, right? So we are having this spontaneous conversation, but in the context of a building which is subject to certain zoning laws and so on. And in current zoning laws, we cannot smoke. There are certain expectations involved in this discussion. But those expectations are codified in a kind of a legal framework, right? So institutions, the formal institution is law. And informal institutions are cultural norms and notions of right and wrong and justice and all this. So Adam Smith, according to, I think is a convincing strain of thought, was an institutionalist. He understood that, yes, the sphere of private behavior, private interactions, laissez-faire, actually sits on a foundation which is of human creation, the system of property rights and the system of power relations and all of that. So politics was already there. It's not that the economy was pre-political. And those ideas, if you read Adam Smith, his Glasgow University lecture, that was before the Wealth of Nations, it's very clear that he's writing that. But what happens is the rise of neoclassical economics in the late 19th century eviscerates that history. And it changes the story. The political goes out of a political economy and it becomes economics. So the principles of economics. And so then this generation of economists are trained to think of the economy as completely separate from politics. And that in the post-war period, so that leads to what is called the Walrasian general equilibrium theory. And I'll be happy to explain that. Can I just ask, I have so many questions already, But what was the environment that actually gave rise to the neoclassical movement? So this is really interesting because we're talking about the late 19th century. And this is a time of enormous social turmoil. Right. So to think that an idealized view of markets would arise when, you know, you've got the Great Depression of the 1890s. And then it goes through World War I and World War II. Yeah, yeah. But here's the funny thing that happens in this tradition. So what is interesting about American economics is that the American Economic Association is founded by institutionalists, but institutionalists not of the neoclassical kind. They were trained these authors like Richard T Eli and others they were trained in the German Historical School of Economics And the method of the German Historical School of Economics was that theory has to be constructed in dialogue with social reality W Du Bois trains at Berlin, but as a sociologist, and he brings that method to the study of racial inequalities in this country, in which he's constructing a theory of race and class by looking at actually the living standards of black people in this country, right? So it's a particular method that was not deductive, but it was inductive. It was engaging with social reality. So what happens is that when the AEA is constructed, American Economic Association, these are institutionalists of that kind, and they come to dominate American economics right through the 1930s, informing many of these economists and lawyers who are part of Roosevelt's Brainstrust. I mean, many of those folks were lawyers, but you had these folks who were trained in a way by which they were absolutely opposed to this idea that the economy is pre-political, right? What happens in the 1940s is the war, and then you had the role, And so Philip Mirowski discusses this in his book, he's a historian of economic thought, Machine Dreams, in which he argues that economics eventually becomes dominated by mathematicians and engineers who kind of eviscerate society and politics and history and construct the economy as a machine populated by cyborgs. Right. Pre-programmed. Perfectly rational. Exactly. Always do the right thing. All-knowing, all-seeing, et cetera, et cetera. And that way of conceptualizing economics eclipses this older tradition and in so doing becomes dominant in the 1950s and 60s. And in this way, it was very much a state project in the sense that these folks were employed at institutions that got a lot of money from the Department of Defense. So there was a very sort of an intellectual framework is being constructed about the economy in which many of these authors were very explicitly trying to model weapon systems, input, output, that kind of thing. and that how do you optimize this input-output system, the flying plane, how to shoot it down, et cetera. So the economy becomes this engine and becomes increasingly more and more mathematically sophisticated, but in so doing, divorced from social reality. In 1985, 86, the National Science Foundation convened a symposium on the state of economics teaching in the top graduate schools. and they were extremely concerned about what was being taught. That led to the Commission on Graduate Education in Economics. It was a survey of the top graduate programs in economics, and the article in question was published in the Journal of Economic Literature. And it was pretty dismal because it was saying that these students are learning math econ, but they cannot apply this to social reality. And the conclusion was quite interesting. They said, the concern is that the profession is training idiots savants. That was an exact term in the JEL article. It's not the worst thing that's ever been said about economists. Yeah, that's true. So this issue of the way by which the discipline itself has sort of captured the narrative in which math becomes rigor as opposed to history and society, And so then government intervention and non-intervention become the sort of flashpoints of the fight. But it's a false debate, I would argue. because when work works, everything works. Learn more at ukg.com slash work. Policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. on Apple, Spotify, YouTube, or wherever you get your podcasts. Can we talk a little bit more about the post-war environment? Coming out of the 1940s, my impulse, I feel like if I were there, it's like, you know, governments can be absolute monsters, right? Or you're talking about the McCarthy? No, I'm talking about the rise of militaristic dictators all around the world. True, like true, these sort of like monstrous creations. Of course, the first half of the 20th century was like characterized by the rise of like. With strong industrial policies. My impulse, like I think if I had been around in the 1940s, I was like, oh, we need to like come up with an economics that constrains the state as much as possible because we've just witnessed how the state can be absolutely monstrous and destructive. of, of course, right before that is the Great Depression, et cetera. Like, I don't know. I would have, I just, in my mind, I would have a lot of sympathy for that view at the time. Sure. Here's the thing though. So this I discussed this in one of the chapters in my book, and I had a lot of fun writing about this, is that if you look at post-Second World War European reconstruction, it involved, it's not less a fair, not at all. It involved industrial and social policies, right? The mobilization of central banks. And actually the US Congress had two studies done on European central banks' role in mobilizing finance and credit to promote industrial and social policies, you know, the reconstruction, building of hospitals, et cetera, et cetera, and the export economies in France and Germany and so on. So you did have a pretty strong state, but these were social democratic states. And this is an important point. So for example, the Bank of France is nationalized in 1945 or 44. And the National Credit Council, which is at the core of the BOF, has in it different constituents of French society, unions, employers, farmers, and so on, who are sort of involved in planning the allocation of credit to different sectors of society. Across the border in Germany, you have the KFW, which is a public bank, again, with different stakeholders, including unions. And they are involved in sort of the economic and social reconstruction through credit allocation. But these were democratic states. You know, sort of, I mean, I hear you. That in the sense that for sure, you can have industrial policy of a type which is consistent with authoritarianism. Yeah. And all of us would be opposed to authoritarianism. But there was industrial policy of a social democratic kind also. And we have plenty of examples of those just from post-war Europe. So just to better understand, maybe we could apply some of the theory to current economic policies. When you look at Mamdani's agenda, you know, things like a freeze on rent or I think right now the hot topic is a tax on billionaires. Right. How does that fit into the intellectual history of economics? And I guess how heterodox is it versus the orthodoxy that we've been talking about? Well, I mean, it's a big question in the sense that I can answer it in two ways. One is the narrative that this is going to tank the economy. So let's just talk about the tax part. Let's just get that out of the way. That this small increase in the billionaire stock is going to tank the economy. And my response is, well, geez, then capitalism would have been dead a long time ago because the 16th Amendment would have killed American capitalism. But that was. Wait, remind me. What's the. Is that the one that gave the government, the federal government the ability to. Well, that was the 16th Amendment legalized income taxes. Right. And so if you look at across the Western world, you know, like in the U.S., tax rates were actually much more progressive. And as you know, in the 50s and 60s. Other countries had this growth of more progressive taxes, Britain and France and so on. None of that led to the collapse of capitalism. Many people say those were the golden ages of capitalism. Okay. So the question really is not the tax per se, but what is it being used for? And so that's a separate conversation. But is that contrary to orthodoxy? And yes, in a way it is, because it comes back to this idea that analytically, I mean, every textbook will tell you, well, you've got this self-contained black box called the economy, which equilibrates a general equilibrium, the production possibility frontier, pareto optimality, all these sort of aspects of orthodoxy. So any act of state intervention into it will automatically generate some negative outcomes, right? So from that standpoint, I would say that it is profoundly opposed to the orthodoxy, this way of thinking about it. But if we think of the orthodoxy as a touchstone or as a gold standard, then, of course, you would say, well, these are outlandish ideas. But if you don't fall into that, then you would say, well, yeah, but this has been done. So what is so weird about it? Can we go back? I want to talk more about the present tense, but we can't just like jump over the war completely without a you have you talked about. No, no, no, no. But sorry, I want to go back to the war, not reconstruction. You're reading or you did read Wages of Destruction. Right. Which is why I mentioned German industrial policy. But it occurs to me that something I think is very interesting. I think about it a lot. And I'd love your take on this. Like if we hear like someone is an economist these days, they come up with a bunch of like big ideas. They have theories and they run tests and write papers and try to influence. But when you think of like, OK, the economists in the Department of War in whatever country was fighting at the time, et cetera, it seemed like a more humble profession in the sense like a lot of the jobs seem to just be counting. Not even like advanced mathematics per se, but the job seemed to be a sort of like very like the people who keep track of the resources within the economy. And those were the economists, which sounds to me very different than the picture that we would often get in our head today if you hear that someone is an economist. Is that fair? Is that a fair understanding of history? I'm not sure that I agree. Okay, that's fine. Because I think that, I mean, in some sense, there is truth to what you're saying, because a lot of these economists who are involved in war planning, that's exactly what they were doing. I mean, yeah, but they were actually doing math modeling. I mean, the whole mathematization of post-war math econ, I mean, all of that really came from sophisticated mathematical models. So it did come from that. But I think maybe what you might be getting at over here, but just tell me what I'm hearing, is that this notion that the economy is an engine and the economist is like this technician who is just like tinkering around with things, right? And I think this idea, and so that's how the economist is kind of constructing this engine, as opposed to an economist who is actually attempting to fix the engine, but also trying to see what the component parts are built in, in other words, society, history. I'm going to take what you said and make it what I meant to say. Okay. Because I do. That's cheating, Jeff. Wow, that's exactly how I meant to put it. Thank you. Thank you for validating my perspective on this. Okay. And I think those reflect two very rival methodologies. So I think that one of the things that so often gets missed out in the teaching of economics and in the learning of economics is that the students don't learn method. They could say that, I mean, a textbook should say, okay, this is neoclassical economics. Here is a method that is used. And here is this alternative, call it whatever you like to. I generally don't use heterodox economics. I say critical political economy or that kind of thing. It employs a different method. And here's why it matters. Now, if you just do like spend a few chapters on that, that already sets the stage for an intelligent conversation. But if you don't do that, and it's just that this is economics, then what happens is it kind of leaves out any possibility of even understanding the world, right? So the Chinese economic miracle, the Japanese economic miracle, those are seen as somehow, I don't know, that they were cheating, right? This notion that these countries were cheating as opposed to saying, well, they use, no, they use industrial policy of a certain kind. So did Sweden of a different kind in the post-war period. And can we learn something from that theoretically? And what does that say about the relationship between politics and economics, which is exactly where we started out with? And I think that's the way the conversation should go. Can you just remind me very quickly but how does neoclassical economics actually explain the fact that we do have market failures right Because in theory if the market is perfectly functioning and always generating an optimal outcome, always at equilibrium between supply and demand or whatever, they shouldn't be happening, right? And yet throughout history, we have market failures all the time. So that's the way where I would say that market failures don't actually exist. because, I mean, think about one instance of what is often characterized as market failure, pollution. Now, pollution is ubiquitous, right? I mean, any act of production involves inputs of raw materials which are extracted from somewhere. Then you've got a physico-chemical process, outcomes and output, and it could be an intangible output. It could be, you know, the output from your computer, right? And then there's waste, there's pollution. So now, if pollution and waste are ubiquitous, and if market failures are ubiquitous, then they're not market failures. Logically, they are the legal design of the property rights that enabled the owner of the factory to actually dump chemical waste or for Google to take your and my private data. Right? That brings you straight back to the fact that the social cost that industry can inflict depends on the legal design of industry. So before the National Environmental Policy Act of 69, industry had far greater leeway to dump more chemical waste than after that. So I would just say that, yeah, I think we need to move away from this notion of market failure and then, you know, so that's the usual debate. Well, okay, so you've got market failure, then do we want state intervention or not? And I argue in the book that that's a bit of a, like a family debate between liberals and conservatives because both sides agree that there's market failure and then one side said, well, we should probably not have state intervention and the other side says the opposite. My point is there are always social costs and politics through the law is going to be structuring the composition and level of those costs. And so I think that's where the conversation, I think, should go to. So it's a political decision about which costs to minimize or avoid versus an economic one. I mean, it's always been that. And that's where I think in that sense, if you come back to issues of affordability and such, I would say that if you let housing prices be whatever they are so that people lose their homes, that's as much a political structure ring of real estate as otherwise. You see what I'm saying? Sure, yeah. So it's not any which way politics is there. The question is who's benefiting and who's losing. This is, I think, for me, this is the question. If there was a big red button that would just demolish the internet, I would smash that button with my forehead. From the BBC, this is The Interface, the show that explores how tech is rewiring your week and your world. This isn't about quarterly earnings or about tech reviews. It's about what technology is actually doing to your work, your politics, your everyday life, and all the bizarre ways people are using the Internet. Listen on BBC.com or wherever you get your podcasts. OK, so there are some things where markets work very well, right? You know, if we want to have really good bagels, then there's a good chance that like a good way to get there is you have a lot of bakery entrepreneurs. Absolutely. And they're competing on price and quality and so forth, et cetera. For sure. But then they're going to emit waste. So let's just go back to the pollution example in the process. And we say like, OK, the market worked really well in the creation of the bagel. But we have this problem, which is that they're creating waste. That has to be solved. And even if that's benign, you know, it's like, of course, anyone is going to, but there's going to be some waste involved, and it's not the most polluting thing. So we need some sort of like, okay, so then the new classical economics, yeah, there's market failure. This is why we have to have a public, the sanitation workers, right? Because otherwise, they'd all just be dumping it out on the street. And so, okay, so we have public sanitation workers. You reframe this, and you're like, no, market failure isn't the right way to think about it. It's endemic to production. It's part of how market works. It's not failure. What do we then do with this information so that we no longer conceive of these sort of like edge cases of mostly markets work or frequently markets can work, but then you get market failures. You flip this entire thing on the head and like market failures are not a useful thing. Okay. We accept that premise. Then what do we do with that? Do we have this new lens? And then what do we see? Some of those social costs would need to be internalized. As they always have been throughout the history of capitalism. Again, so this is not just an arbitrary statement, but if you look at throughout the history of capitalism, this Janus-faced nature of capitalist activity, wealth creation on the one hand and social costs on the other hand. And then in various moments in time, some of the social costs were extremely high in terms of the rates charged on something on the other. Munn v. Illinois, 1877, landmark Supreme Court case. came out of the Interstate Commerce Act Commission, which put caps on railroads and on grain elevators because what was happening was that the farmers were storing, they were being charged extremely high rates by grain storage elevators and railroads. And what was happening was the price for food was rising. So the Illinois state legislature put a cap on that, went up to the Supreme Court. And so there was this whole idea, and the Supreme Court ruled in favor of price caps on these rates charged because they said, well, this is of social importance. Food should be affordable. There's a very long history of this in American constitutional history. That is basically exemplifying the basic point that at some points, and in various points, some of these social costs were deemed too high. And then in some way, they had to either be internalized or maybe smaller businesses could not internalize some of these costs. Okay, give them some kind of a tax credit. You see what I'm saying? There's intelligent ways of thinking about public policy. So Mamdani's policies, whatever they may be, they may affect, I don't know, smaller businesses differently from a larger one. So the ones that have less cash flow, they can get a tax credit as a write-off, right? I mean, you can think about all of these kinds of policies, and at least that's the way I think about it in practical terms. I'm trying to think how to frame this question, and I probably won't get it right, but here goes. We've been doing a lot of episodes on Venezuela recently. And so if I think about some famous heterodox economic policy that perhaps went kind of wrong, that would be a good example. Yes. When you're thinking of designing actual economic policy, if you're doing it prioritizing politics or on a political basis and you don't have that sort of scientific, rational framework that is so endemic in neoclassical thought, does that help you design policy? Is that a useful framework for you? I guess the question is what defines science? So the way, for example, the institutional economists that I was talking about, the way they designed policy was on the basis of theory that was evidence-based. Social reality, historical reality, court cases, you know, this kind of thing. Neoclassical economics doesn't do policy that way, though, or theory. It's deductive. It assumes. So it's constructing this model on the basis of no evidence. So neoclassical economics- On the basis of a reality that does not, in fact, exist. Exactly. Thank you for putting it that way. Because that already exemplifies the problem, which is that how on earth are you designing a policy based on a theory for which you have, which has not been subjected to any kind of theoretical, you know, any kind of intellectual engagement with reality in the wake of the financial crisis of 2007, 2008, when prominent neoclassical economists were asked, wait a second, are you now going to rethink your models? Because this should not have happened per the neoclassical framework. They said, no. And I think that's the problem here, that policy is being designed in this particular way on the basis of theory of this nature. But if you bring in a more engaged way of thinking about policy and politics, then the nature of the politics matters. I mean, is it an authoritarian state? Is it a democratic state? So I don't like authoritarianism. So I think policy should reflect theory on the basis of democratic principles in a broad sense. You know, going back to the contemporary debates about housing in New York City right now, and there are others who might buy exactly what you're saying at the conceptual lens. And they would say, you know what, Jami is completely correct about everything. The problem is that existing politics have made it too hard to build. The problem is that existing politics have made it so that we're paying too much for labor, etc. The problem is that existing landlords control – have too much influence and are constraining the building of new – But it strikes me as there are many versions of your framework that – to take it to specific policies that don't necessarily lead to and therefore rent control is OK. That you can say, look, there's – our current system is riven with politics and that the way to engage democratically and the way to think about this is we need to liberalize the solution to affordability is getting rid of some of these zoning laws, et cetera. It seems to me like that you could agree with sort of your conceptualization of some of these challenges and yet still arrive at very different outcomes in terms of a policy response. In fact, Zoran himself may even agree with that because we know that he is more liberal than, say, many on the left when it comes to the role of private capital for developing new housing. Okay. So my response is that if we, this is true. First of all, to concede, I think in any kind of a discussion, you concede what the other person is saying. And this is true about the sort of impediments of current politics and power structures, this and the other. But that's always been the case. It's always been the case. And so if we thought of that as the supreme impediment to actually making things better, then we would have abandoned, society would have abandoned any attempts to, let's say, have safer cars. Sure. Because the automobile industry fought tooth and nail against seatbelts for decades, making them safer, the whole design of cars. So the point here is, it's not as though that proposing a policy implies that you wave a magic wand and it just happens. There are going to be insuperable problems and there's going to be impediments. But that's always been the case. That doesn't mean that you cannot lose track of the fact that lack of affordability in this country and elsewhere in the world has seriously eroded democracy, as we know, and has fueled authoritarian politics. There's a clear relationship here between economic insecurity and authoritarianism. Undeniably. Just to press further on this, however, so one of the things that the housing people love to say is that, you know, there was a rule change several years ago. Ironically, it was under the Cuomo administration. There was a rule change that made it harder for landlords to raise the rent of a rent-stabilized building after the tenant left. And then so then the new tenant comes in and they, like, can't move it up by much. Right. Meanwhile, we have inflation. And so we have this effect, at least according to many housing people, where a lot of supply has been taken off the market because they can't raise the rent. The law prevents them from raising the rent and their maintenance costs have gone up. And so like these are no longer economical to run. Now, again, my point is not they're right, they're wrong, whatever. My point is that all of this could be true and all of this framework can be very helpful, but it doesn't necessarily lead to the conclusion that Zoran is right to take a stronger line on what you can just do by fiat in terms of price constraints. Well, yeah, it does. I mean, I think I would disagree. Okay, great. Because I think that if by that logic, then we shouldn't have ever done anything anyways. Right? So we could have, you know, so for example, opposition, I mean, so like sort of moving this sort of the discussion a little bit away from housing, but let's say to taxation, right? We were talking about taxation earlier on. There was massive opposition during the Gilded Age that if you have progressive taxation, If you even have the 16th Amendment, this is going to destroy the whole society. And so the struggles in that Gilded Age period, which ultimately led to the 16th Amendment, exemplifies the point that, yeah, I mean, there are going to be, there is going to be opposition. Sorry just well then what is the limiting principle or maybe you said OK there are different methods to doing economics and you say the new classicals of one method and other people of other methods How do we know Like okay let say we want to impose more stringent caps on how much you can raise rent. Like we don't know, like it could go well and it could go bad, right? I assume you would agree that there are ways to do this very badly. Yeah, of course. So what are the methods that we could employ that the new classicals are blind to such that we can get this policy? We could, for example, provide, so for the smaller landlords, what's the ones who don't have enough cash to fix the leaks, upkeep the building, that they could be given tax credits. So that compensation for the rent control would be that, okay, if you're a large real estate corporation and you've got lots of cash flow, then clearly you do have the cash flow to deal with the problems. But if you're a smaller landlord, then you could be given some kind of a tax credit. You could be given some kind of public subsidy that could deal with that kind of an issue, which brings you straight back to the question of the public financing after all of this, right? So that's the way at least I would tentatively think about the issue. Since we've been talking about politics for basically this entire discussion, I want to talk about political realities for right now. What are the constraints that have prevented this kind of heterodox policy from becoming the norm in a place like America? Well, that's a great question. And I think the issue is that these kinds of ideas are not in the public domain. And so whenever you use the word economics, let's say it comes up, let's say who are the experts who come, say, let's say to CNN? They're already coming implicitly, even if they don't say it, from this idea that markets are sort of prime and then everything else follows afterwards. So, I mean, in order to push back against that, you need to have more conversations about the disability. That's why I invited you on. Thank you for that. Thank you. I think that these kinds of conversations are helpful because at least it opens up the space for thinking about that. Well, I mean, OK, so when you're talking about foundational questions like the market economy, what exactly do you mean by that? And, you know, so those are the kinds of questions. I think so coming back to your question, that's an impediment. because if you're going to say that, well, I want to make some aspect of social services, I don't know, affordable or something, then you'll always come up to this impediment that, well, are you a state interventionist, whereas this is the free market? And that's the lingua franca. And that's the hard part of it, that to say that, well, okay, to push the conversation farther, as opposed to saying, well, okay, if you think of markets in different ways, then it may be hard to make the change, but at least the market is not pre-political. So for me, that's the problem. What's the basic gist of why Europe and the U.S., from the historian perspective, sort of went different directions? And obviously the democratic socialist tradition, obviously much more robust in Europe. I mean, it's never really, you know, it doesn't have nearly as much history in the U.S., etc. There are unions much more robust throughout Europe. How did that, like generally speaking, except for maybe like a couple decades partly, it just, there's not any sort of like socialist tradition ever really took root in the U.S. So first of all, we do have a long history of municipal socialism. It's called sewer socialism in this country. I mean, so there's, you know, in other words, a lot has been written actually that what Mamdani is doing here, it's actually pretty, there's a long history behind that. Gail Radford has written about this, a historian. I think the issue is, and so that's the first point. The second point is that if you look at, and this comes back, I think, Tracy, to your question, which is that in the public discourse, we don't know, there's a kind of an idea that the New Deal was an outlier. And therefore we need to basically go back to some pre-New Deal, romanticized small government, And, you know, Steve Bannon makes this kind of, that's why the attack against the administrative state is premised on this. The problem is that many legal historians and legal economic historians are pointed out that this is not true, that the U.S. developed a very robust developmental state in the reconstruction period. So there's a really a lot of history there that is not part of the public domain and the discourse on economics, because the teaching of economics does not require students to actually require, not as an elective, but require them to actually read economic history in most places in their training. So they don't know the history. And so this notion of the market prevails, and then they don't know their own history. I don't think that's any different in Europe, and we can talk about that. But there are interesting issues here. So for example, historically, the American taxation system was much more progressive than in Europe. But I think what happens in the post-war period, post-Second World War period, is that that kind of sent a jolt for a lot of people. And I think that kind of revived the left in some sense because fascism, and there was a clear understanding that massive inequality was one of the ingredients of the rise of fascist movements in the 1920s and 30s. And so reducing inequality, embedding social and economic rights and constitutions, I'm thinking here with the German constitution, super important as a kind of insulation, at least to some extent, against a repetition of those horrors. So this created a kind of a different social model based on these progressive constitutions. We haven't had that. Our constitution is a first-generation constitution. And in that way, there are no explicit commitments to economic and social rights. Human dignity, the expression I don't think appears in the U.S. constitution. It does appear in a lot of these European constitutions. And that matters. You have the rights of personhood, right? The 14th Amendment. But you know very well that how that's been weaponized for corporate personhood and so on. That's, I think, part of the story as to why the welfare state has been somewhat more robust, though it's also seen fractures in Europe than here, where that has not been the case. We're still stuck with this constitution, which at least in my view, is not a very good constitution. I wasn't expecting constitutional analysis to come into this conversation, but I think it does illustrate your point about the intertwining of politics and the economy. Can I ask one more thing? And maybe it doesn't even make sense or fit into this conversation. But when I think about laissez-faire markets or economics, there seems to be an emphasis on absolute gains. So positive some outcomes where it does, you know, two countries start trading with each other, guns and butter or whatever, both the countries are better off. It doesn't matter how much better off they are relative to each other. When we think about heterodox economics and the importance of politics, are we basically saying that every policy decision, the emphasis is much more on relative gains versus absolute gains? I'm not aware of that, Tracy. That is not from my standpoint. point. I do think that markets and the sort of private initiatives in markets, that does generate wealth. I mean, you go back to Smith, he says that. So in that sense, it's true that market activity does generate enormous social wealth. Yes, it does. But what people tend to forget is that there's also a flip side to that, the social costs. And so we have to then think about, okay, can we somehow, how do we reduce some of those social costs in terms of affordability or pollution or climate crisis? That's, I think, saying that, okay, markets are great, but what are they sort of embedded on that infrastructure that I was talking about that is sort of leading to massive emissions of greenhouse gases? I mean, that's clearly unsustainable, and we all know that. So I feel like I don't know that I would necessarily think about it in terms of positive or negative sum gains. I would just say that market activity does generate enormous social wealth, but also enormous social costs. And so then that's where I think the conversation has to go to how to reduce our social costs. Jami Modood, thank you so much for coming on. It's a really fascinating conversation. Appreciate you taking your time. Tracy, we should do more intellectual history episodes. I really like that topic. I don't know, like... I think I'm still scarred from doing international relations at college. And whenever someone talks about intellectual histories of particular theories, I kind of, I get nervous. Let's just make the whole, I'd be down to make the whole podcast that. No, I do think this is like really interesting. Look, I think this is a very timely conversation because one thing, you know, he mentioned Bannon there at the end. One thing that I feel is that regardless of where many people are on the political spectrum these days, there seems to be a deep intuition that many people have about the corrosive effects of society on inequality or the corrosive effects of inequality on society. Right. And I thought your question was really good, which is like many people, economists can say like, look, you're better off to it in this relationship. You Uber driver, like maybe you feel that you're maybe people find it to not be great work, but the alternative is nothing or whatever. You're not a billionaire, but at least you're employed. You're employed. Right. And this is something. And a lot of people say, look, everyone is on paper or maybe even in reality better off from this set of transactions. Right. But then it aggregates up to something that I think people find to be very destabilizing. Right. So intuitively, a lot of people seem unhappy with their current situation. Right. So the transaction makes everyone happier in the micro sense. But then when everyone, when it all scales out, this sort of like deep inequality, who has the means to create, who has the ability to like actually do something, who is just sort of, who is not in that position, I think it feels very, again, destabilizing. Yeah. I do think, I mean, to Jami's point, like it does feel like so much of it just boils down to politics, right? Yeah, right. Like the economy itself, to go back to how we began this conversation, did not spring forth from the universe. It's a human construction and we put a lot of thought and effort into how it actually works. And that's a political reality. Yeah. And like, you know, we can talk all this stuff. I like the contrast with Chinese industrial policy. I think it's very helpful for two reasons. One is, OK, you can look at various things and say, well, this is actually very effective and there is a role for the public sector and so forth. But it's like we're all at each other's throats. Yeah. Right. Then you're never going to have any hope of operationalizing these ideas. And this is why I've said this before. I feel like there are certain societal problems that truly precede economics. Yeah. The toolkit does not entirely exist in economics to solve problems that on paper look economic. Right. This, I think, is important because in the neoclassical perspective, so everything springs from the economy and the focus is on the economy itself. Meanwhile, as a society, you know, you might want to prioritize different outcomes like maybe we should all be happy. You know, I would like to prioritize everyone's happiness. And to your point, like if we're all focused on relative gains, if free market capitalism is increasing inequality, then that might not necessarily do that. We should prioritize everyone, you know, off their devices and reading. And then I think we'll have a touch grass. We'll have better outcomes. Yeah. We're getting dangerously close to, like, talking about Bhutan and national happiness quotas. Yeah, but, you know, we've got to debunk. I've read some pretty good stuff. Yeah, I know. I know. That's why we should stop. Shall we leave it there? Yeah, let's leave it there. All right. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armand, Dashiell Bennett at Dashbot, and Kilbrooks at Kilbrooks. And for more OddLots content, go to Bloomberg.com slash OddLots. We have a daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you want us to do more episodes on the intellectual history of economics, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening. I'm Rob Armstrong. And I'm Katie Martin. And together we make the Unhedged podcast. Rob, since you said in September last year that you were short gold, it has doubled in price. So listeners, when we say this show is not investment advice, we mean it is not. investment. 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