Jamee Moudud on the Intellectual Roots of Zohranomics

27:06So 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's 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.

27:47That's cheating, Jim. That's what I meant. Oh, 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.

28:26It 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. This notion that these countries were cheating, as opposed to saying, well, no, they use industrial policy of a certain kind. So did Sweden of a different kind in the post-war period.

29:14And 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. Got it. 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.

29:49So 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. I mean, any act of production involves inputs of raw materials which are extracted from somewhere. Then you've got a physical chemical process, outcomes and output. And it could be an intangible output. It could be the output from your computer. 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.

30:33logically. 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. 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, so that's the usual debate. Well, okay, so you've got market failure, then do we want state intervention or not?

31:22And I argue in the book that that's a bit of 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 a void versus an economic one. Yeah, I mean, it's always been that.

31:55And 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. 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.

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33:32On Apple, Spotify, YouTube or wherever you get your podcasts. Okay, so there are some things where markets work very well, right? You 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.

34:14That 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.

34:46It'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 you're like market failures are not a useful thing. Okay, we accept that premise. Then what do we do with that? We have this new lens. And then what do we see? Some of those social costs would need to be internalized. In other words, 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.

35:27And then in various moments in time, some of the social costs were extremely high in terms of the rates charged on something or 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.

36:20Food 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.

36:59So 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, 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. 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?

37:51Is 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.

38:30Because 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.

39:12But 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.

40:00The 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 – Like 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.

40:45It 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.

41:28But 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.

42:13That 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.

43:03And then so then the new tenant comes in and they, like, can't move it up by much. 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.

43:51Well, 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.

44:38Sorry, 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, OK, let's 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 neoclassicals are blind to such that we can get this policy? We could, for example, provide for the smaller landlords, the ones who don't have enough cash to fix the leaks, upkeep the building, that they could be given tax credits.

45:22Yeah. Right? So that compensation for the rent control would be that, OK, 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.

45:58What 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.

46:39That'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 the comebacking 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 you know 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.

47:44And 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. Union's much more robust throughout Europe. How did that, like generally speaking, except for maybe like a couple decades partly, Just there's 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 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.

48:23It'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. Yeah. And therefore, we need to basically go back to some pre-New Deal romanticized small government. 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.

49:08developed a very robust developmental state in the Reconstruction period. So there's 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.

49:52So for example, historically, the American taxation system was much more progressive than in Europe. Yeah. Right. So there is that. 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.

50:42So 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 US 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 that, 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.

51:30We'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.

52:11It 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. 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.

52:54And so we have to then think about, OK, 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, OK, 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.

53:35And 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. Okay.

53:58Tracy, 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.

54:47And I thought your question was really good, which is like many people, economists, can say like, look, you're better off too 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. But 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.

55:20Right. So intuitively, a lot of people seem unhappy with their current situation. 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.

56:00It'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 like hope of like operationalizing these ideas. And this is why I've said this before.

56:38Like, I feel like there are certain societal problems that truly like 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.

57:21We 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 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 Thoughts 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 CarmenArmand, Dashiell Bennett at Dashbot, and Kill Brooks at Kill Brooks.

57:57And 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.

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