Chris Hughes on How to Craft a Thriving Market

27:50And he believed would ultimately create that kind of market discipline that would keep the whole system stable. So, he had a goal. It was market, it was financial innovation, and he was using the power of his institution to deliver on it. It's just, it had disastrous consequences and he was wrong. Let's talk more about the Fed. By the way, I think it's really cool that you went after the Facebook and did all this stuff. Then you got your PhD. Well, we're still working on it. I got to finish the dissertation. Working on your PhD. I read Kevin Rudd, the former prime minister of Australia, after he was PM, went and got his PhD at Oxford and wrote an amazing book about Xi Jinping.

28:31So maybe there's hope. Maybe Tracy and I will get PhDs one day. But I hear different things about the history of what people call Fed independence. People are like, oh, in the old days, presidents were always hectoring the Fed chief to do this or that. And this isn't really that unusual. And other people are like, oh, no, this is a cherished thing that we ever – intervention by the White House. In your research on the Fed, how unusual or usual is it for this sort of pressure that we see? Did presidents used to tweet to lower rights? or whatever the equivalent was back in the day. Well, obviously, it's a very timely topic, given that last week Powell was about to be fired.

29:11This week, apparently, it was never even really considered.

29:18So, there is a very long history of presidents trying to bully Fed chairs to get what they want with monetary policy. It is virtually since the beginning of the institution, this has been a trend. And Kennedy's administration does it with Bill Martin in 1960. Lyndon Johnson summons the Fed chair down to his ranch in Texas and takes him on this legendary jaunt. Richard Nixon is pressuring Arthur Burns. Reagan doesn't really like Volcker, so he replaces him. We could go through all of the examples. And this is different. because this time the president isn't just pressuring the fed chair to do what he wants he is threatening to take illegal action to fire him which it's very clear in the federal reserve act is not legal the president can only remove the chair for cause and similarly with the other members of the board of of governors and so um and it's not just a threat obviously like trump has done this.

30:25He has fired two of the five FTC over at the FTC, two of the five commissioners who are Democrats, also illegal. In the FTC Act, it is illegal to fire them unless it's for cause. He's done at the NLRB, at the credit unions, et cetera. So I think this is a real threat. I tend not to use the word independence because I think the Fed is actually quite sensitive to political and economic trends, what they're hearing in a lot of different domains. It is an insulated institution, which I think makes it stronger, but it is not a purely independent one. And these threats, I think, are really unprecedented and we should all be frightened by them.

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32:46Point is, your presentation will look great. You'll look great. Everybody will look great. And isn't that what you're after? There's a reason 95 % of Fortune 500 companies use Canva. Canva lets you bring your ideas to life as fast as you can think of them. Put imagination to work at Canva.com. All right. So speaking of things that might be different this time, we do have a president who seems very, very determined to divorce the US in some ways from the rest of the global economy, the global financial system. The subtitle of your book is The Hundred Year Struggle to Shape the American Economy.

33:20You could easily have titled it The Hundred Year Struggle for the US to Shape the Global Economy, right? The US went on a very explicit mission to shape our current financial system, and you do have a very chunky chapter in there about Bretton Woods. Talk to us about why we should all, I guess, familiarize ourselves with things like Bretton Woods, euro dollars, capital controls in our current climate. Let me tell a little bit of the story of the breakdown of Bretton Woods and why it matters for today. Because when I wrote that chapter, I had no idea that the dollar would actually be threatened as the global reserve currency.

33:59And this is real. So Bretton Woods was this agreement that came out of World War II where the United States committed to sell gold at$35 an ounce, and it would peg the dollar to all other foreign currencies. So this way, the dollar effectively became the bedrock of the global financial system, and underneath it, there was gold. So it was an effective gold standard, but the United States was making the commitment to be able to redeem dollars for gold should a foreign country or anyone else in the market want to make that exchange. Now, the whole system was premised on the fact that as the rest of the economy grew, the United States had to increase the amount of dollars in circulation over time.

34:50Because as economies grow, they need more currency. If the dollar is the base currency, is the global standard, you need more of it. One problem. The more dollars you print, the less they're worth. And so, by its very nature, you are not going to be able to deliver on the promise to redeem gold at$35 an ounce. So, it's like a vice that tightens between the post-war years and 1971 when it gets just so impossible for the United States to continue this commitment. There's a run. And I tell the story of the book where Nixon summons every single person who runs any of the economic institutions in the country to Camp David, and they come up with a plan, and they end the Bretton Woods system.

35:43They end the gold commitment, and they move into a regime of, eventually it becomes a regime of floating exchange rates. Now, we make it through, partially because price and wage controls hold down inflation for a period, etc., but it is touch and go for a lot of that period. And so, then you fast forward to today, and I think the easiest way to think about it is instead of gold being that thing underneath the dollar that guarantees its value, it's the institutions of American capitalism. So the dollar continues to be the global reserve currency today. And the reason that is, is because we have had an independent central bank.

36:23We have had a treasury that reliably and always pays the coupon on its debt in a way that investors can believe in and expect. And so, thus, people want dollars. People want US treasuries. People want these financial assets. And now, two things are throwing that into question. The first, obviously, is Trump's impulsive economic policy, which disregards the importance of institutions in the first place. But the second is we're flooding the market yet again with dollars and dollar-denominated assets. Like the deficit last year was 7 % of GDP. It's not supposed to be that high in a healthy economy.

37:03And right now, the plan is another$6 trillion of tax cuts, which is, just to give it for perspective, is as much as the tax cuts of Trump 1.0 and the pandemic aid combined. and we're already at 7 % of G. So we have another moment where we've flooded the world with dollars, where they're losing value and the underlying guarantee of that value, the security of American capitalist institutions is under threat. And so you're seeing an unprecedented period and a potential run. Do it yesterday night. There was a news story. President Trump said he wouldn't want to raise taxes on millionaires because it would be, quote, disruptive to the economy.

37:50And then he said that the millionaires would leave the country, which I'd hope most of them would be, you know, stick around, but that's his view of them. But what does it say, you know, about even the prospect for market craft? If people in government don't feel that they have the capacity, the political power, et cetera, to at times bring pockets of wealth to a heel, so to speak, and to wield that power or were they like, is there any prospect for positive market craft in a world where politicians feel that like they're subservient to huge pockets of wealth? I very much think so. So I'm skeptical in this administration that that's going to happen, but I think there's all kinds of opportunities for positive market craft.

38:38So the things that I focus on these days are the cost of living crisis in the United States. I mean, And that is what voters are very clearly still frustrated about. Prices are up 20 % from the beginning of the pandemic till now. And it's particularly concentrated in things like housing. Americans spend a third of their income on housing. And then if you go to groceries and then you go to care, healthcare or childcare, you're above 50 % for most families. And so we can craft housing markets to make housing cheaper. We can certainly do some of the zoning and streamlining that the abundance folks like Ezra Klein and others are for.

39:18I think that's a good idea. I kind of wondered how long it would take us before we mentioned abundance. We got like 30, 35 minutes. That's pretty good. I think that those are good ideas, but I also don't think that you can just make it easier to build and then sit back and hope people show up. At least that's not been the experience in California. Like it's been years since they have been on this process of trying to change their laws and building starts are not showing the same kind of growth that you would like. You have to craft markets more aggressively. There's a lot of other tools, particularly public investment.

39:51So we need a housing construction fund for multifamily developers to make it cheaper to build. You guys have had some folks on your podcast who make this case. The estimates are that for an investment of about$50 billion at a federal level, you could get somewhere between one and two million homes built. And that's about half the housing shortfall in the United States. That's quite a lot of progress. You could have an industrial policy for modular. So modular is the kind of housing where you build the components off-site and then you bring them in. And there's this amazing time-lapse video, which I saw about six weeks ago of an apartment building in Denver, where they bring in the pieces and it goes so quickly.

40:36It looks like my son plays with magnet tiles, these like building blocks. My kids love them too. They're amazing. But you just see it and you just watch this apartment building with 77 units go up in the course of seven days. And it's mind-blowing. And, you know, half of the building that happens in the Nordic countries is through modular. And so that's a kind of industry that I think if we had an industrial policy to encourage, not just public investment, but also standard setting, making sure it's possible for people to get mortgages for them, you could see significantly more development. So I think we need a market craft for housing, on food, I think we could do reserve stock buffering, on eggs and coffee, like I talk about in the book.

41:22On care, there's a whole set of interventions as well. There's an aspirational agenda, is what I'm trying to say, that could help us attack the cost of living crisis. And this administration is going to hike prices through the tariff policy, not bring them down. And so Democrats are going to have to have another message and also the specific policy expertise to get it done. Yeah, there's a long running joke on all thoughts that what America really needs is a strategic pork reserve. I think we can all agree on this. Okay. Speaking of agreeing, one of the chapters in your book that I really enjoyed was the sort of behind the scenes look at Bidenomics.

42:04And you do get a really good sense of some of the discussions that take place, the areas of disagreement, the sort of protagonist and antagonist, I guess, in this discussion in your book is Larry Summers versus Brian Deese. Exactly. And you were also involved in the Obama administration. Talk to us what you learned about the actual sausage making process of market craft and what sort of, how do people actually reach consensus on a lot of these things when they have very different opinions about how the world works? So, I had this experience where in writing, for most of the book, I was largely in archives and secondary literature in the past.

42:50And then the last third of the book is contemporary. And so the methodology just shifted to talking to a lot of people. So I ended up talking to most of the folks who had been involved in Bidenomics inside the administration and people like Larry Summers and Jason Furman and a lot of people on the outside. Larry does like to talk. It turns out. I talked to a lot of people, and the person that I zeroed in on was this man named Brian Deese, who some of you may know. Past odd launch guest. Indeed. He was the chair of the National Economic Council. The reason he's so interesting is because he was one of Larry's protégés.

43:32in 2008 and 2009 he is on the obama campaign and he effectively runs the bailout of the auto companies and in that experience begins to see wait a second we can't just be bailing we can't have the emergency room view of the economy where we come afterward we have to be thinking proactively ahead of time about how to shape and build industries that work better that takes him to work on climate change. And then all of a sudden, the Biden administration, he becomes the director of the National Economic Council. And then he articulates this big vision. It has two pillars. The first is build. So that's public investment in climate, infrastructure, and chips.

44:17And the second is balance. So that's competition in particular, but also supporting labor and other similar kinds of initiatives to ensure that the economy is competitive. And boy, Larry doesn't like it. He is throwing rocks from the outside pretty much the entire time and often talking to Brian and others on the inside. And the reason I think that story is so powerful is because it shows the emergence of not just a new generation of policymakers, but a new way of thinking about the economy, which starts from the premise of market craft and doesn't fall back into kind of neoclassical economic framework of market failures and externalities and how are we going to fix things after the fact.

45:07I guess I have more of a politics question or, you know, we had this sort of nascent industrial policy market crafting and then it looks like the plug is being pulled after four years. And I would guess that there must be a lot of frustration among Democrats to hear someone run on, we're going to build things in America again, we're going to build manufacturing right after a period of two or three years in which more plants were opened and more factories were broken ground on than any time in my life. And so what I'm curious from your perspective, I guess from a political sustainability standpoint is people seem to like, in theory, the idea of manufacturing, the aesthetics of it, but do people actually like it in practice or is like, cause it didn't seem like it got any results politically.

45:57I don't know if manufacturing per se is the thing that people like, and I'm, I'm a little skeptical that you're going to really reinvigorate the American economy by rebuilding the manufacturing sector. But, um, I'm, I'm not quite sure I agree with the premise of the question. Trump is certainly not pursuing a market craft. That's clear. However, a lot of the people around him have spent years developing their own visions of a market craft that puts the state at the center. You're talking about Oren Kass in your book, for example. Well, Oren Kass, but I'm talking about Marco Rubio and J.D. Vance and Josh Hawley.

46:33A lot of these guys who I think are the future of the Republican Party who believe that we need state institutions to direct markets towards certain goals. Now, their goals are not really my goals, I should say that. I mean, they are very concerned about drones and critical minerals and national security, whereas I'm more interested in climate change and other things. But nonetheless, right before Vance became the vice presidential nominee, he was about to introduce a bill for a national investment bank. The same idea that I was just talking about from the New Deal era that he believed as an institution would have the power to direct markets.

47:16Now, he was doing that with Chris Coons and Mark Warner and folks on the left. But what I'm trying to say is it may be dormant in this period, but I don't think that ideology is gone. We're going to hear about a sovereign wealth fund in the next few weeks from this administration. And there's a deadline that the treasury secretary will have to bring a report on it. I wouldn't be surprised if we see some trace remnants there, even though I am skeptical that anything meaningfully will be done. I don't think that means that Trump's chaos can define the Republican Party for forever and ever. We do have some questions from the audience that we should probably bring in.

47:56I'll start with one, obviously very topical at the moment, but how is market craft playing into the race for dominance in artificial intelligence? Yeah, I mean, so far, the federal government has decided to let the private sector, you know, develop AI on its own in the United States. It's certainly different than in China and elsewhere. And there hasn't been a market craft. There's been talk of it in the Senate in particular, There's interest in public investment. There's been talk of what we call a public option for the cloud. So a way of making it easier for smaller companies to access computing powder to build advanced AI models.

48:40But none of that has yet come to fruition. And so I think it's important to say that market craft isn't everywhere all the time. Lots of policies affect markets. but to craft a market you have to have you know policymakers with a clear intent shaping it and guiding it and so far in the ai markets it's been more of a hands-off kind of approach but if we had like a loan office for ai startups something like that would count as explicit market craft for sure if congress said hey we want more small businesses doing ai so we're going to appropriate money and we're going to create an office over here in the commerce department to do that they have an agenda.

49:20They're crafting that market. Just putting it back on your tech founder hat for a second, it's kind of separate from market craft, but I guess it sort of intersects with this. When DeepSea came out, people started really, and it was before that too, but people have really started talking about AI specifically as this existential area of competition, kind of like achieving the nuclear bomb. Like who is going to get to AGI first, us or China? Do you think of AI or AGI specifically in such stakes? It's a huge deal. I'm not sure I want to go to the nuclear bomb. That seems like a very high bar, but it's a huge deal.

50:02I think that the advances in AI is certainly the most profound changes in technology, I think I want to say in my life. It feels more transformative to me than the mobile phone, which I think would be my bar. I mean, I'm using the models, my husband's in the front row. He watches me use the models all day, every day for everything from like recipe substitutions to, you know, doing deep research on a particular topic. Of course, you have to check the facts and this and that. But I mean, they are incredibly powerful. Tracy, I have to say, like, I'm an AI user enthusiast. I too watch Joe use the models all day.

50:44You don't use them? I do. No, I do. Just not as much as you do. I want to say, I am an enthusiastic trier-outer of all the AI models. Oh, I recently got access to Manus, Tracy. Oh, really? Yeah. But I have yet to find an application that consistently enhances my work productivity. Really? Yeah. That's not true. Okay, headlining. No, I'm better at headlines. Of course you are. No, no, but that's, of course you are, but it's helpful to have a kind of sidekick to brainstorm headlines. And Tracy. Okay, well, fair enough. Not all of us have Tracy. No, I disagree with this. Like AI is a phenomenal tool for our day-to-day productivity.

51:26It just is. Why don't I ask another question from the audience? I know you care about climate change, and this is one of your big projects. So we have someone asking, how do we make progress with climate policy in light of its politicization, politicalization, and the issue of affordability? And one thing I would just add on to that question is, you know, one of the things we've seen under Binomics was, oh, we should build more green technology in the U.S. And a lot of that makes sense. But I guess the counter argument to doing that is if we really care about the climate and if there is actually this massive sense of urgency to doing something about it, then why not get all the really cheap solar panels in volume from a place like China?

52:14Well, I think we need even more investment, likely significantly more investment than we got out of the IRA. And we need it to be better coordinated. So I think the IRA investments still stand. Obviously, business uncertainty has just gone through the roof. So no one exactly knows what's going to happen. And there are signs that the Republicans will keep some of the pieces of the IRA, maybe not for solar panels or EVs, but for things like hydrogen or carbon capture or things like that. I'm cautiously optimistic, but we need additional investment. And then we do really need an institution whose mission it is to tackle climate change and that Congress can hold accountable.

52:58So that instead of just saying, oh, we're going to give subsidies through the tax code where the government effectively has no ability to determine what's getting the most funding, there is an ability to say, okay, these breakthrough technologies need more support. These other things are doing just fine. I think that's going to be the long-term solution. I'm a bit, I'm with you I'm not sure that tariffs on solar panels are going to help us get to the you know, the tools that we need to combat climate change that we need Tracy's right by the way, I get a couple when it comes to AI, I sometimes will be like okay, we're interviewing I know I'm right, because I literally watch you do this every day I'm Jill Weisenthal, I co-host the Outlots podcast we're interviewing Chris Hughes tonight at the New York Public Library what would be some questions?

53:44I do ask that, and I sometimes upload PDFs and it's like, just give me the summary So I want to acknowledge that. Yeah, yeah, no, that is helpful. It's helpful.

53:55Someone was asking about student loans. And I'm curious, you know, people perceive the market for higher education to be broken in various ways. And I'm curious whether it's on the funding side for the consumer, the student, or whether there's anything interesting that you've learned about that space. Yeah. So there are a lot of these markets that I would call gray zones. Is higher education a market? At least the way that I want to think about it, most of the time, it's not. It should just be a fundamental good, an opportunity that everybody can get an education that they want. So, I'm not sure we even have to use a market crafting framework to say, you know, college in the United States should at least be affordable, if not free, and there's a way to use policy to make that happen.

54:47But I think that it is due for sort of wholesale reimagination. And there is something wonderfully simple and direct about, you know, Bernie's promise for free college that, you know, is hard to do. But I think it's that kind of aspirational guarantee that people crave, people respond to, and it's policymakers' response to deliver on that. Of course, you're going to have to raise taxes, whether it's for this or some of the other issues that we've talked about, to make that happen. But I don't know. I think that's the kind of country I want to live in. I think that's the kind of country that most Americans want to live in.

55:26It's a great place to leave it. Chris Hughes, thank you so much for joining us in this live episode of The Month. Thank you so much. Thank you all.

55:49That was our interview with Chris Hughes, the author of Market Crafters, live at the New York Public Library. Really good evening. Really interesting topic. One very near and dear to the themes that we've been talking about on OddLots. Yeah, definitely touches on a lot of them. Shall we leave it there? Let's leave it there. This has been another episode of the OddLots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow Chris Hughes on Twitter. He's at Chris Hughes. Follow our producers, Kerman Rodriguez at Kerman Armand, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks.

56:23For more OddLots content, go to Bloomberg.com slash OddLots. We have all of our episodes and a daily newsletter. You can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you like it when we do these live events, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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