Is it ‘economic Halloween’ in the US? with political economist Mark Blyth

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1:17The old systems run its course. When you basically start saying we're not producing any climate data anymore and we're going to make up the jobs numbers, that's deeply troubling. because you can't price things. The whole purpose of markets is pricing. No information, no prices, bad. So this makes as much sense as a fish in a private hedge, but that's what it is. You make it sound fun, but it's hard, you know? Yeah, I can make a house of horror sound fun. And in many ways, it is. That's why we love Halloween. So maybe we're living through the economic Halloween.

1:59That's political economist Mark Blythe, a professor at Brown University and author of the new book, Inflation, A Guide for Users and Losers. I wanted to talk to Mark to better understand whether a new economic order is forming amid continuous tariff turmoil and Trump's beefing with the Fed and the Bureau of Labor Statistics. Beyond the noise of today, Mark offers a bigger picture outlook on the outdated economic models that still underpin our understanding of the economy, why MAGA is taking us back to the 50s and 60s, and what we still misunderstand and underestimate about China. We also discussed the Democrats' struggle to craft an engaging story about the economy, why it's so hard to predict a recession, and what Brown's recent settlement with the Trump administration tells us about higher education's need to pivot from its reliance on federal funding.

2:53Now, economics can sometimes seem dry or daunting, but Mark manages to explain even the most complex theories in a clear, concise, and cheeky manner. So let's get to it. I'm Bob Safian, and this is Rapid Response.

3:15I'm Bob Safian. I'm here with political economist Mark Blythe, professor at Brown University and author of the new book, Inflation, A Guide for Users and Losers. Mark, thanks for being here. Oh, it's a pleasure to be with you. This has been a zany year for the U.S. economy, for U.S. policy, tariff wars, There's president putting pressure on the Federal Reserve chairman, Jerome Powell, and so on. But now it feels like we've sort of reached an inflection point. The stock market's near an all-time high. You got Tim Cook at Apple just announced another$100 billion investment in U.S. chip manufacturing.

3:51We've seen some trade deals. CEO sentiment is turning up. Is there like a new economic order that's actually emerging? Does all this sort of chaotic Trump activity add up to something cohesive? Do you have a big picture for us on all this? Oh, do I have a big picture for you? Absolutely. So imagine the following, right? Imagine you're probably not old enough to remember this, Bob, but there was a year called 1977. And in 1977, I think the U.S. was still telling people if their license plate ended in an even number, they could gas up on a Monday, Wednesday, Friday. It was just a few years before that they actually had price controls in peacetime on beef, lamb, and pork.

4:35Wages were in a freeze across the economy, and there was no war going on. If you look at the commentary of the time, people thought we had a terrible amount of federal debt. The government couldn't stand up to anyone. We were adrift. We were ungovernable, and it was all going to go to hell in a handbasket. And what happened was, by 1985, there'd been a complete shift in how we do everything. We deregulated, we integrated financial markets, we got rid of New Deal regulations on banking and finance, we cracked down on labor, we outsourced, we began globalization as a process. And by 1985, Reagan could declare his morning in America and everyone would believe him and it was an entirely different world from the one that we lived in.

5:16So where are we today? We've run the set, the experiment that we began with Reagan in 1985 of integrate, privatize, deregulate, et cetera. we've run that to exhaustion. There's been some good results, particularly for people who sit in the top 20%, 10%, 1 % of the income distribution. But for large parts of American society, it was a process of hollowing out. It was a process of stagnant wages for 30 years. MAGA has a huge amount to do with this, the hollowing out of industrial base in the Southeast and the Midwest. So what are we doing now? Well, both parties, people forget this, gave up on free trade around 2015 with the collapse of the trans-Pacific and transatlantic trade talks.

5:58And when we got Trump, Trump put up tariffs. There was a feeling of the people around him that essentially, by basically being the savings asset for the global economy, you've got an export surplus coming from Asia and Europe and everywhere. It's great. We get free everything and we pay them back with treasury bills and they have an unlimited desire for treasury bills. But at the end of it, the biggest employers in the United States today are Amazon logistics and Walmart. We realized that we didn't make anything. And Biden kept up all of the tariffs that Trump put in place and extended them and tried to do green re-industrialization in new sectors.

6:32And for reasons we can go into, Trump gets back in and really hates the green stuff. It's shutting all that down and is basically trying to do carbon-based re-industrialization. And he's putting pressure on everybody. Tim Cook sits atop one of the world's largest cash piles and one of the world's richest companies. He's not immune to the pressure. Now, whether this can actually work is a big question, but that's the direction of travel. That's the big picture. We're rolling back a lot of the bad consequences, attempting to deal with the bad consequences of the regime that we've been living in for the prior 30 years.

7:04This phrase of making America great again, I mean, obviously it's not, the goal is not to move back to, you know, 1977 when, as you describe it, things were pretty crummy. I think it's more 1965 or maybe 55. I mean, the imaginary here is actually quite amazing. It is a bunch of old white dudes. And basically, they don't like a lot of stuff that happened culturally, politically, economically in the past 10 to 15 years. You very much get this with Bannon and others, that we need an economy whereby one dude can work in manufacturing and get paid enough money that his wife doesn't have to work. She can then have more kids.

7:40That's why we don't need immigrants. We can strengthen the family. And then what we'll have is this 19th century foreign policy as spheres of influence, where we run this giant carbon-based economy that goes from Greenland to Canada, all the way down to our satraps in Argentina and Brazil. And the rest of the world can go do the hell what they want. So I think there very is a kind of regressive modernization built into this. And that's its weak point, right? Nobody's asking women in the United States, hey, how do you feel about the kitchen and more babies, right? There's nothing in place to make this work.

8:09So that's where the tensions start to come out on this. The idea that sort of globalization can be stopped or reversed or whatever. I mean, how realistic is that? I mean, it's strange with the tariff war, like the bad guys now seem to be Canada, India, and Switzerland. Yeah, no, go figure. I'm surprised it's really not the EU because Trump's always heard a thing about German cars. I just figured that he must have a thing about Swiss watches, because that's basically what they export the United States. So all those people buying Patek Philippe, et cetera, are going to have to pay a bit more. But I think they can afford it anyway, right?

8:48No, the tariff stuff is basically a re-industrialization project that he gets to ratchet up and ratchet it down for other foreign policy measures, right? So when we did Liberation Day in April 2, the top market had a heart attack, and the bond market freaked out. And then it went, oh, we're going to win. We're going to pull it back. We're going to pull it back, right? we're basically back up to where it was. What they're really good at is basically playing the Overton window. We're here. I want to go all the way out there. In order to go all the way out there, I'm going to go even further than that.

9:16And everyone's going to freak out. And then I'm going to dial it back to there. And you're going to call it a win. And what the markets have been doing is normalizing this for the past six months. Now they're just completely on the hook for it. So if you think about it, we've got 2.7 % inflation just now, which, you know, if you're in 1977, you'd bite your hand off for that, right? You've got a long bond of just below five, right? They've been going down. Back in 2006, that was about the same level. People forget we've been here before and nobody died, right? The corporate stuff, I mean, it is kind of worrying that you've got all this incredible overvaluation in very few tech companies, all based on something called AI, AI, which nobody can quite tell us what it's really for yet.

10:02And we've invested trillions on this. And it's an arms race to generalize the AI, which is probably never going to happen. The energy costs of this and environmental costs of this are catastrophic, right? So yeah, there's plenty there in the mix that we can pull apart and say, this is good, this is bad, whatever. But to me, this is a moment like 1977, right? The old systems are on its course. And we're moving in a new direction. Now, can we completely undo globalization? No, oh, we don't want to completely undo it. But there's certain things you want back. And there's certain things you want to be able to do yourself.

10:33And it's an open question, even with tariffs and all the rest of it, if you can get that stuff back. Not because you can't undo globalization. Of course you can't. States allowed globalization to happen. States can disallow globalization. The question is, when you decide that you want it back, can you do it? Because if you haven't made something for 20 years, where are you going to get the skills for the people who know how to make that thing? So Biden ran into this problem with the Inflation Reduction Act. He's getting Hyundai to build these big factories. They start building the factories. They're like, right, great.

11:02Where do we get the skilled labor? And they're like, we don't have any. And then the factory is mothballed. So, you know, this is a very interesting moment for lots of reasons. The biggest beneficiary of globalization has been the United States, right? I just came back from Moline, Illinois. Drive around there for five minutes and tell me they really benefited from the past 30 years. right american corporations made out like bandits 40 of the stuff still coming out of coming out of china as exports are actually american multinationals it's still us doing it right so c-suites have never been better compensated right share values have never been higher corporate profits have literally never been higher they're 12 and a half percent of gdp right but at the same time when we have a mild inflation by historical standards people are thrown into poverty because the income distribution in this country has gone to hell in a handbasket.

11:58So we have to be very careful when we say nobody benefited like us. It's like, which us are we talking about? The parallel argument that goes on around, you know, the spread of wealth and equity in the U.S. is like, well, some of the stuff we have to do, because if we don't, China is going to eat our lunch. Are there things that people misunderstand about China and that relationship between China and the U.S.? I've never understood what eat your lunch actually means, right? The president's really fond of saying that we've been ripped off for years, right? And a particular part of this is the scorn for the EU.

12:36And the funny thing is, in 2008, the EU and the American economy were almost exactly the same size, about$17 trillion. dollars. Now, the United States economy, basically because of weird effects of healthcare spending on GDP and the Mag-7, is a third bigger. Now, they're the ones that are ripping us off. They're now a third poorer. How could they have been ripping us off? Now, it's the same thing of China eating our lunch. Our corporations left our workers to take their capital to China so they could make super profits by selling stuff back to us cheaper, right? Who's ripping who off? What does that statement even mean?

13:15It's American companies that did this. There are no big Chinese companies that are doing this. They're all part of the supply chain, right? But China is sort of looking at the way the US is pulling back from some of its global engagement and kind of stepping into those places, right? And, you know, there's anxiety about that. There's anxiety that like, you know, China's going to whatever, beat the US in the battle to have AI and serve the next wave of technology. Are those concerns, you know, like unimportant? I think the concerns are coming from the right place, but I think they fundamentally miss what's going on.

13:55China is engaged in the largest industrial experiment in human history. The sheer scale of what they're doing dwarfs any conception of what we've got. The United States has three urban conurbations, LA, Houston, and New York, that would qualify as a kind of mega city in China. China's 25 of those. And they're on their way to having 150 cities between one and two million. The scale is just, I mean, it's just incredible, right? In five years, they have taken over every green tech sector. They have perfected EVs. Their standard EV now has around to 400 miles. All this stuff that we fret about, oh, they're going to run out of juice, right?

14:34It's all solved. The reason we have 100 % tariff on them is because if people could get access to them, they'd never buy another gas-guzzling SUV in their life. They've completely got battery technology wrapped up, which basically is far more important than godlike AI that we don't know quite what we're going to do with if we ever get it. And as for filling in the United States over extension militarily, one of the things that's interesting about the Trump administration is they are the ones that don't want to do this. And is China filling in the gap? Well, the United States has around 200 military bases around the world permanently staffed that are real imperial military outposts.

15:10China has about six. Any little way to go? Don't think you really we care about that sort of stuff. They're far happier just sitting back and making money and intimidating the neighbors. I mean, boy, you make this sound pretty troubling, all of this. Although you've said that in the long term, you're an optimist. So can you square that for me? Well, an optimist about whom? I'm an optimist about the human race in the sense that we haven't managed to kill each other yet. So that's always a good start. Am I an optimist in terms of the United States actually making a positive contribution to the most important thing for the 21st century, which isn't AI.

15:49It's living in a warming world. No, we've decided to double down on the very cause of that. Drill, baby, drill, three million barrels and 3%, all the anti-woke stuff on green investment, shutting down NOAA, literally trying to get rid of two satellites in orbit just now that actually make carbon data, pooling out of international agreements on us. We're basically like, screw you, we've got four F-150s, we don't give a shit, right? Right. Meanwhile, the rest of the world's like, I don't think this is the right path. No, I don't think so. And I think, unfortunately, the more that we do this, the more that we will become isolated, this kind of island of carbon based profitability that over the long run is going to be in trouble if the rest of the world no longer needs your carbon outputs.

16:30It doesn't need oil. It doesn't need gas. And the rest of the world moves away from that. So in a sense, the China stuff, we're handing it to them. We're literally putting on a plate and saying, go on, Take the future. Take the sectors that matter. We're going to be basically building huge trucks and playing with something called AI. Wow. Mark really doesn't mince his words, does he? I'm not sure I'm as convinced as he is that AI is just a sideshow. But when he talks about handing China the future when it comes to the energy economy, I'm right there with him. Now, Mark is only getting started.

17:04Coming up, a lightning round about the Fed, immigration policy, the big, beautiful bill, and more. So stay with us. We'll be right back.

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18:50So if you're scaling, make it simple with Deal. Go to deel.com slash mos and get up to three months free.

19:24a house of horror and fun. Let's jump back in. There's so many topics I want to ask you. I want to give you a rapid fire round. All right. Trump pressuring Fed share Jerome Powell. That's what you do when you basically want to have structurally low interest rates, which will enable you to basically dictate the structure of the treasury market. I wouldn't be surprised if what they also try and do is force big American banks to hold many more government bonds. That will relieve the pressure on that. That will push down rates. That will help them do the rest of the stuff that they want to do, which with tariffs is inherently inflationary.

20:02Just if I follow up on that, and have US banks own more treasuries so that we're less reliant on foreign governments and other folks owning them or just having more buyers? Just forcing more buyers. And then also basically kind of like dictating what the long end of the curve looks like through purchases. I mean, that's essentially how it would work. It's called Financial repression, right? That's what it's called in the literature, financial repression. Next topic, Trump firing the head of the Bureau of Labor Statistics when the numbers weren't what he wanted them to be. Well, this is very similar to essentially pressuring the Federal Reserve, right?

20:36You don't really want the Fed to be independent. You want to be dependent and to do what you want through the Treasury, right? That's what you want. It's a very different relationship. I'm not applauding this. I'm just explaining it, right? The similar one with this one is a bit more sort of like Trumpy in the sense that you can't produce stats I don't like out, right? Both of them are worrying for different reasons. But this one is a kind of form of kind of petulance that really troubles people in markets, right? If you're pressuring Powell, if they know that he's going to be out 18 months from now, if they understand that what they're going to get is not some gold bug, but somebody who's more aligned with the president's goals, but at the same time will respect certain things.

21:15The market can adjust all its expectations. When you basically start saying we're not producing any climate data anymore and we're going to make up the jobs numbers, that's deeply troubling, right? Because you can't price things. The whole purpose of markets is pricing. No information, no prices, bad. If you don't trust the data and the numbers that you're getting, then how do you assess where we are? Well, you don't. You just have to take the word for it, which is exactly what they want. The people putting together these stats are dedicated career people. They're mathematicians and statisticians.

21:50They're not political actors. And that's why the markets trust it, even if it's imperfect. Right. We know it's imperfect. But when it becomes you don't like the number, make it up and fill in anything you like. That's qualitatively different. Let's try this one. U.S. immigration policy. To me, it doesn't make any sense because ultimately the fundamental problem, if you think that the problem to be solved are the wages of basically white working class American men, right? Let's call it what it is. Then, yeah, you can tighten labor markets by mass deportations, but you're going to have a bit of a problem because those white working class men are kind of maxed out in the job market.

22:25And basically, an economy is nothing more than the number of people, the number of hours they work, and the quality of quantity of capital they work with. If you remove 12 million people, either everybody else has to work a lot more hours or you increase the capital component, which is called AI, which will read to unemployment of the people you're trying to employ. So this makes as much sense as a fish in a private hedge. But that's what it is. Your book about inflation, are we going to see inflation again? It turns out that most inflations are actually caused by supply shocks, right? So even the 1970s, the oil shocks, the commodity shocks, et cetera, all those things were in there.

23:02And it wasn't just the government spent too much money. So are we in line for more supply shocks? Yeah, because we're de-globalizing. Yeah, because of tariffs. Yes, because of climate change. Yes, are the inflation numbers what people personally perceive as their inflation rate? No, because basically, if you're at the bottom end of the income distribution, you spend 80 % of your income on consumption goods, then you're much more sensitive to it than if you're at the top 20%, where that's reversed as 20 rather than 80, right? So there's reasons why people perceive their personal inflation rate to be higher.

23:33And in fact, it is. All right. The big, beautiful bill. It wasn't that big. And it's not my definition of beauty. I mean, essentially, it's another round of tax cuts from Republicans. Who saw that coming? They've never done that before. Tax cuts skewed to the top, say it ain't so. And interesting that they're willing to actually sacrifice their own base because the only place they could find any money was in Medicaid. And as Steve Bannon said at the time, there's a lot of maggot on Medicaid. And come January next year, they're going to find out exactly how painful that is. The pillar of Republican policy has long been like smaller government versus bigger government.

24:12Is that happening? So if you look at the size of the federal government in the 1970s and then control for population growth, it's actually smaller than it was in the 1970s. So I guess that's mission accomplished. So when you go in and you do doge, you basically randomly fire people. You end up having to hire half of them back. It causes a great deal of disruption. It makes the skilled people that you have in those organizations go, stuff this. I'm out. I'm not putting up with this shit. So your skill level drops down. You're still unable and unwilling to invest in technology in the government itself.