Jill Weisenthal: Hello and welcome to another episode of the OddLotss podcast. I'm Jill Weisenthal

Tracy Alloway: and I'm Tracy Aloway.

Jill Weisenthal: Tracy, it's January 28th. I think our new mayor in 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.

Tracy Alloway: I wasn't here, but you were able to walk around, get out of your apartment.

Jill Weisenthal: There have been several mayors whose like entire reputation failed because they couldn't handle a snowstorm and so he seems to have passed the first test. So, I

Tracy Alloway: it feels like a low bar for New York mayors. I got to say

Jill Weisenthal: my guess is if we looked at uh I agree it is a low bar but on the other hand it's like okay first big test of the new administration seems to be doing well. I don't think however ultimately the Zoran Donni administration will be judged on snow removal like this is not going to be how history probably remembers how well

Tracy Alloway: 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 and

Jill Weisenthal: he's so good at like retail politics. Like that was like such he was so good at that. Yeah.

Tracy Alloway: But speaking of tests, I mean there are bigger tests coming up, right? Mostly concentrated in the economic policies here,

Jill Weisenthal: 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

Tracy Alloway: 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 like economists hate them right so especially anything where the government is intervening in rent the idea of like I there might not be a more hated idea among economists than anything that smacks rent control or anything like that.

Jill Weisenthal: 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

Tracy Alloway: Adam Smith right talking about like the free hand of the market

Jill Weisenthal: and how if the market is functioning like everything should be fine right

Tracy Alloway: yeah and and I think like economists even like you know almost all but the most sort of true hardcore less afair economists would say that there are areas that you know they call market failure, 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 sort of liberal or neoclassical economics, they're like, "Oh yeah, well there are market failures,

Jill Weisenthal: right? In which case the government should

Tracy Alloway: and then there is a role but only in failure that it unless you that you like define some area it's like okay there is a reason why markets don't work for this particular area but that after then sandboxing a few of those things then it's like okay as much as possible you just want to you want to let them

Jill Weisenthal: out don't interfere

Tracy Alloway: let the price signals do their work.

Jill Weisenthal: Yeah. So this has become I guess the orthodoxy.

Tracy Alloway: Yeah. And Mumani is very much in the

Jill Weisenthal: the heterodox.

Tracy Alloway: The heterodox. Yeah. That's a word that always comes up when people are talking about well when economists are talking about policies that they don't like.

Jill Weisenthal: That's right. [laughter] That's right. It's a euphemism for policies that they they're like, "Oh, no. At least a handful of people wear that badgely."

Tracy Alloway: But like these history, how did they become the orthodoxy, etc., 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 it's pretty good. We have good reason to believe it. And there the people who don't believe that the earth is round, they're not heterodox, they're cranks,

Jill Weisenthal: right? Right. Like that's like there's sort of a difference. Those are cranks. And so, but where did these orthodoxies emerge from? How did some ideas get shunted into the category of heterodoxy or whatever?

Tracy Alloway: And how did they evolve?

Jill Weisenthal: I have no idea. Like I mean, I've read a little bit about the past, but uh this is not much I don't know much about this.

Tracy Alloway: We should talk about it. We should, especially because I 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 Johnny Modude. 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, uh, Jamie, thank you so much for coming on Oblad. Thank you so much and Tracy.

Jill Weisenthal: What kind of stuff are you teaching the kids at Sarah Lawrence these days?

Jamee Moudud: 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.

Tracy Alloway: When you say actually it's because like people don't expect the sort of unorthodox thinker to like actually [laughter] do the numbers the technical stuff. So it's interesting that you posed that way because one of the things that I do teach in econ econometrics is method

Jamee Moudud: like you know like when you're it's not just about number crunching but where do you get the numbers from?

Jamee Moudud: Yeah. And so like weaving in these questions of method as we're trying to understand social and economic reality is it makes for a solid training in economics and you know so those questions of method woven into the construction of theory. Yeah. That kind of informs the way I teach

Tracy Alloway: and why that matters not just as kind of a an intellectual exercise but why that matters for practical issues like what you 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. You know, Joe and I gave a probably terrible summary of neoclassical economic thought, but in your mind, what is the orthodoxy?

Jamee Moudud: 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

Jamee Moudud: 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 800page book the wealth of nations how many times does the expression invisible hand appear there once so the point here is that there 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

Jill Weisenthal: you talk into the classical economics prior to neoclassical. Exactly. Or talk what years and what thinkers are we talking about here.

Jamee Moudud: So let you know we could just talk about Adam Smith.

Jill Weisenthal: Okay. Oh yeah. Great.

Jamee Moudud: 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 econ economy and that meant that you 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 transhistorical institution or thing but is 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

Jill Weisenthal: like gravity.

Jamee Moudud: Like gravity,

Jill Weisenthal: the economy is always there.

Jamee Moudud: Exactly. But but but also like the rational individual general equilibrium theory all of these things are supposedly just happen. And in that sense this idea of less affair that the economy is fundamentally prepolitical 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 you know constitutional law or politics or law that e emanates from politics that would enase 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

Jill Weisenthal: is not really there in Smith

Jamee Moudud: 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 meet 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, but Smith was not a socialist.

Tracy Alloway: What was his idea? Like what what what was his contribution? Or I admit like I'm like guilty to like, oh, Adam Smith, Invisible Hand, the Butcher, they all work together, blah blah blah. But I have been told and I have heard that the sort of caricature that we all have of Smith is wrong. What was his project?

Jamee Moudud: So I think the way to think about it is you know just to sort of get out something which I think is kind of important which is institutions.

Jamee Moudud: 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 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 the spontaneous conversation but in the context of a building

Jamee Moudud: uh which is subject to certain zoning laws and so on. We may and you know in in current zoning laws we cannot smoke but we were

Jill Weisenthal: there are certain expectations involved in

Jamee Moudud: 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, lesser affair actually sits on a foundation which is of human creation. The system of property rights and the system, you know, the system of you 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 lectures 17 you know that was before the wealth of nations it's very clear that he 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 trained to think of the economy as completely separate from politics

Jill Weisenthal: right

Jamee Moudud: and that in the post-war period uh so that leads to what is called the Walrasian general equilibrium theory and I'll be happy to explain that yeah

Tracy Alloway: can I just ask I I have so many questions already but what was the environment that actually gave rise to the neocclassical

Jamee Moudud: so this is really interesting because we're talking about the late 19th century And this is a time of enormous social turmoil,

Jill Weisenthal: right?

Jamee Moudud: So to think that an idealized view of markets would arise when you know you've got the Great Depression of the 1890s

Jill Weisenthal: and then it goes through World War I and World War II.

Jamee Moudud: 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 explicit. So they were trained these these authors like um 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. Web Duboce trains in 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 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 of American economic association, these are institutionalists of that kind and they come to dominate American economics right through the 1930s informing many of these uh economists and lawyers who who were part of Roosevelt's brains trust. 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 prepolitical

Jill Weisenthal: right what happens in the 1940s is the you know the war and then you had the role and so Philip Morowski discusses this in his book he's a historian of economic thought uh machine dreams in which he argues that economics eventually becomes dominated ated by mathematicians and engineers who who kind of eviscerate society and politics and history and construct the economy as a machine populated by cyborgs right

Tracy Alloway: pre-programmed

Jill Weisenthal: perfectly rational all knowing allseeing etc etc and that way of conceptualizing economics eclipses this older tradition and in so doing becomes dominant in in the 1950s and60s 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. M

Tracy Alloway: so there was a very sort of like an intellectual framework is being constructed about the economy

Jill Weisenthal: in which many of these authors were very explicitly trying to model weapon systems

Jill Weisenthal: input output that kind of thing and that how do you optimize this input output system that the flying plane how to shoot it down etc. So the economy becomes this engine and becomes increasingly more and more mathematically sophisticated but in so doing divorced from social reality. In 198586 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 uh 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 what and it was pretty dismal because it was saying that these 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 savons. That was an exact term in the JAL article.

Tracy Alloway: It's not the worst thing that's ever been said about economists.

Jill Weisenthal: Yeah, that's true. That's true.

Jamee Moudud: 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 flash points of the fight. But it's a false debate, I would argue.

Tracy Alloway: 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 oh you know governments can be absolute monsters right and

Jill Weisenthal: talking about the McCarthy

Tracy Alloway: no I'm talking about the rise of dict militaristic dictators like all around the world like true like true the sort of like monstrous creations and of course the first half of the 20th century was like characterized by the rise of like

Jill Weisenthal: with strong industrial policy my impulse like I think if I had been around in the 1940 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." And of course, right before that was the Great Depression, etc. Like

Tracy Alloway: I don't know. I I I would have I just in my mind

Jill Weisenthal: I would have a lot of sympathy for that view at the time.

Jamee Moudud: 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

Jamee Moudud: is that if you look at post second world war European reconstruction it involved it's not less affair 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 etc etc and the export economies and France and Germany and so on so you did have pretty strong state

Jamee Moudud: but these were dem social social democratic states and this is an important point I mean the you know so so for example the bank of France is nationalized in 1945 or 444 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 hear you that in the sense that for sure you can have industrial policy of a type which is consistent with authoritarianism.

Jill Weisenthal: Yeah.

Jamee Moudud: 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.

Tracy Alloway: So just to better understand maybe we could apply some of the theory to current economic policies. when you look at Madani's agenda, you know, things like [snorts] a freeze on rent or um I think right now the hot topic is attacks on billionaires,

Jill Weisenthal: right?

Tracy Alloway: 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?

Jamee Moudud: Well, I mean, it's a it's it's a it's a big question in the sense that I can answer it in two 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 this small increase in the billionaire tax is going to tank the economy. And my responses, well, gez, then capitalism would have been dead a long time ago because the 16th amendment would have killed American capitalism. So that was

Jill Weisenthal: wait what's the uh oh is that the one that gave the government the federal government the ability to

Jamee Moudud: well that was the 16th amendment really legalized prog income taxes right and so if you look at across the western world you know like in the US tax rates were actually much more progressive in as you know in the 50s and 60s

Jamee Moudud: other countries had this growth of more progressive taxes Britain and France and so on none of that led to the collapse of capitalism and the

Jill Weisenthal: 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 right and so that's that's a separate conversation but is that necessarily is that contrary to orthod 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 at general equilibrium the production possibility frontier par optim mality 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 I 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?

Tracy Alloway: 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've talked about reconstruction.

Jill Weisenthal: No, no, no. But uh sorry, I want to go back to the war and not reconstruction. Uh you're reading or you did read Wages of Destruction,

Jamee Moudud: right? Which is why I mentioned I mean German industrial policy.

Jill Weisenthal: But it occurs to me there's something I think is very interesting that 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, right? You know, 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, okay, the economists in the department of war in whatever country was fighting at the time, etc. 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

Jill Weisenthal: 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?

Tracy Alloway: Is that a fair understanding of history?

Jamee Moudud: I'm not sure that I agree.

Jill Weisenthal: Okay, that's fine. Because I think that I mean in some sense there's truth to what you're saying because a lot of these economists who were involved in war planning that's exactly what they were doing. I mean you know yeah they were actually but they were actually doing math modeling. I mean the whole mathematization of post of post-war you know math econ I mean all of that really came from like sophisticated mathematical models. So it did come from that. But I think maybe what you might be getting at over here, but you know, just tell me if this is what you're trying to say. At least what I'm hearing

Jill Weisenthal: is that this

Jamee Moudud: 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 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 on. In other words, society history.

Jill Weisenthal: I'm going to take what you said and make it what I meant to say because I I do I'm going to cheating.

Jill Weisenthal: Yeah, that's what I meant this. Oh, that's exactly how I meant to put it. Thank you for validating my perspective on this.

Jamee Moudud: Okay. And I think those reflect two very rival methodologies. Okay.

Jamee Moudud: So the I think that one of the things that so often gets missed out in the in the teaching of economics and then the learning of economics is that the students don't learn method. You know 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 hetrodox economics. I say critical political economy or you know that kind of thing. It employs a different method

Jamee Moudud: 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 it kind of leaves out any possibility of even understanding the world. Right? So Chinese, the Chinese economic miracle, the Japanese economic miracle, those are seen as somehow

Jill Weisenthal: I don't know that they were cheating.

Jamee Moudud: Right.

Jill Weisenthal: Right. This this notion that these countries were cheating

Jamee Moudud: as opposed to saying well they use no they use industrial policy of a certain kind. So did Sweden of a different kind uh 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.

Tracy Alloway: Got it. Can you just remind me very quickly but how does neocclassical economics actually explain the fact that we do have market failures right because in theory if the market is perfectly functioning and always generating um 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

Jamee Moudud: 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

Jill Weisenthal: right

Jamee Moudud: 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 physicochemical process out comes an output and it could be an intangible output. could be you know the output from the 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. It's a it's a that brings you straight back to the fact that the social cost that industry, you know, 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 the this notion of market failure uh and then you know so that's a usual debate that well okay so you got market failure then do we want state intervention or not and 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 say 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

Jamee Moudud: 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 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 it 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.

Jill Weisenthal: Okay. 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,

Jamee Moudud: etc.

Jill Weisenthal: Sure.

Jill Weisenthal: 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 okay the market worked really well in the creation of the bagel but we have this problem which is that they're creating they're creating waste that has to be solved and even that's benign you know it's like of course anyone is but there's going to be some waste involved even it's not the most polluting thing so we need some sort of like okay so then the neocclassical economics yeah there's market failure this is why we have we have to have a public the the sanitation worker ers, 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 know 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.

Jill Weisenthal: Okay, we accept that premise. Then what do we do with that new we have this new lens and then what do we see?

Jamee Moudud: Some of those social costs would need to be internalized. In other words, they would as they always have been, right? 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 Janisface nature of capitalist activity, wealth creation on the one hand and social costs on the other hand, and then at some in various moments in time, some of the social costs were extremely high in terms of the rates charged on something on the other. Manvy, 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 uh the farmers were storing they were charging extremely they were being charged extremely high rates by grain storage elevators and and train 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 charge because they said well this is this is of social importance. Food should be affordable. There's a very long history of this in American uh 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 would need they they had to either be internalized or or you know maybe smaller businesses could not internalize some of these costs. Okay, give them some kind of a tax credit.

Jamee Moudud: Right?

Jamee Moudud: You see what I'm saying? There's there's intelligent ways of thinking about public policy. So Mandani's policies whatever they may be they may affect um I don't know smaller businesses differently from a larger ones. 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 in then at least that's the way I think about it in practical terms.

Tracy Alloway: 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, you know, some famous heterodox economic policy that perhaps went kind of wrong, that would be a good example

Tracy Alloway: when you're thinking of designing actual economic policy. If you're doing it prioritizing politics or on a political basis

Tracy Alloway: and you don't have that sort of scientific rational framework that is so endemic in neocclassical thought

Tracy Alloway: does that help you design policy? Is that a useful framework for you?

Jamee Moudud: I guess the question is what defines science. M

Jamee Moudud: so the way for example the institutional economist 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 um 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

Jill Weisenthal: on the basis of a reality that does not in fact exist.

Jamee Moudud: 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 2007208 when prominent neocclassical 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 who who you know is it an authoritarian state is it a democratic state? So I don't like authoritarianism.

Jill Weisenthal: Sure.

Jamee Moudud: So I think policy should reflect theory on the basis of democratic principles in some in a broad sense.

Tracy Alloway: 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

Tracy Alloway: and they would say you know what 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 uh that they 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 okay. that you could 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 is we need to liberalize the the solution to affordability is getting rid of some of these zoning laws, etc.

Tracy Alloway: It seems to me like that you could agree with sort of the your conceptualization of some of these challenges and yet and still arrive at very different outcomes in terms of a policy response. So

Jamee Moudud: in fact in fact I Zoron 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.

Jamee Moudud: 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 uh about the sort of impediments of current politics and power structures this that and the other but that's always been the case. It's always been the case. And so like if if 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.

Jill Weisenthal: Sure.

Jamee Moudud: Because the automobile industry fought tooth and nail against seat belts for decades making them safer. You know, the whole design of cars. Uh 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. Um but that's always been the case. That doesn't mean that you know you you cannot lose track of the fact that lack of affordability

Jamee Moudud: Yeah. in this country and elsewhere in the world has seriously eroded democracy.

Jill Weisenthal: Yeah.

Jamee Moudud: As we know and had has has fueled authoritarian politics. There's a clear relationship here between economic insecurity and and authoritarianism

Tracy Alloway: 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 were rule 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, 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

Tracy Alloway: now. Again, like 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 Zoron is right to to take a stronger line on what you can just do by fiat in terms of price constraints.

Jamee Moudud: Well, I you know, yeah, it does. I mean,

Tracy Alloway: I think I would disagree.

Jamee Moudud: 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 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 guilded age

Jamee Moudud: 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 guilded age period 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.

Tracy Alloway: Sorry just well then what is the limiting principle or maybe you said okay there are different methods to to doing economics and you say the new classical one method and other people have other methods. How do we know like okay 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

Jamee Moudud: yeah of course

Tracy Alloway: so what are the methods that we could employ that the neocclassicals are blind to such that we can get this policy right

Jamee Moudud: we could for example provide so for for the for the smaller landlords the ones or the less m or the you the ones who are they don't have enough cash to fix the leaks you know upkeep the building that they could be given tax credits.

Jill Weisenthal: Yeah.

Jamee Moudud: Right. 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 flows then clearly you do have the cash flow to to deal with the problems. But you 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 you brings you straight back to the question of the public financing of all of this. Right? So that's the way at least I would tentatively think about the issue.

Tracy Alloway: 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?

Jamee Moudud: Well, that's a great question and I think 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 discip.

Jamee Moudud: 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 okay 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 come backing 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 u 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 frana 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

Jill Weisenthal: what's the basic gist of why Europe and the US from the historian perspective sort of went different directions and obviously the democratic socialist the democratic socialist tradition obviously much more robust in Europe. I mean it's never really

Jill Weisenthal: you know it doesn't have as nearly as much history in the US etc. Union's much more robust throughout Europe. How did that what like generally speaking except for maybe like a couple decades partly it just there's never any sort of like socialist tradition ever really took root in the US. I'm curious.

Jamee Moudud: So first of all we do have a long history of municipal socialism called su socialism in this country. I mean so there's you know of so you know in other words I you know there a lot has been written actually that what Mandani is doing here. It's actually pretty there's a long his history behind that. Gale Radford has written about this a historian. I think the the issue is and so so that's the first point. The second point is that uh if you look at and this comes back I think uh 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.

Jill Weisenthal: Yeah. And therefore we need to basically go back to some pre-new deal romanticized small government. You know Steve Bannon makes this kind that's why the attack against the administrative state is premised on this. The problem is the many legal historians and legal economic historians have pointed out this is not true that the US 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 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 new notion of the market prevails and then they don't 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 the American historically the American taxation system was much more progressive than in Europe.

Tracy Alloway: Yeah.

Jamee Moudud: Right. So there is that. But I think what happens in the post war period, postcond 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 you know is one of the 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

Jamee Moudud: 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

Jamee Moudud: 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. We we're still stuck with this a constitution which at least in my view is not a very good constitution.

Tracy Alloway: 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 lassair markets or economics there seems to be an emphasis on absolute gains so positive sum outcomes where it you know two countries start trading with each other guns and butter whatever both the countries are better off it doesn't matter how much better off they are relative to each other.

Tracy Alloway: 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?

Jamee Moudud: I'm not aware of that, Tracy. At least not from my standpoint. I I I I do think that markets and the sort of private initiatives in markets that does generate wealth. I mean that 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 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 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. Uh so I feel like I 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.

Jill Weisenthal: Jami Modud thank you so much for it's really fascinating conversation appreciate your time.

Jamee Moudud: Okay.

Jill Weisenthal: Tracy, we should do more intellectual history episodes. I really like that topic. I don't know. Like

Tracy Alloway: 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. I think let's just make the whole I 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 inequal or the corrosive effects of inequality on society. And I thought your question was really good which is like many people economists could say like look you're better off too in this relationship you Uber driver like maybe you feel that you're uh maybe people find it to not be great work but the alternative is nothing or whatever

Jill Weisenthal: you're not a billionaire but at least you're employed

Tracy Alloway: 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.

Jill Weisenthal: Right? So intuitively a lot of people seem unhappy with their current situation.

Tracy Alloway: 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 u 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 it does feel like so much of it just boils down to politics, right?

Jill Weisenthal: Yeah. Right.

Tracy Alloway: Like the economy itself to go back to how we began this conversation did not spring forth from the universe. It was it's a human construction and we put a lot of thought and effort into how it actually works

Jill Weisenthal: and that's a political that that's a political reality.

Tracy Alloway: Yeah. And like you know we could talk all this stuff and like the contrast with Chinese uh industrial policy I think is very helpful for two reasons. One is okay you could look at it at various things and say well this is actually very effective and there was a role for the public sector and so forth but if like we're all at each other's throats 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 like I feel like there are certain societal problems that truly like precede economics. The the toolkit does not entirely exist in economics to solve problems that on paper look economic

Jill Weisenthal: right this I think is important because in the neocclassical perspective so everything springs from the economy and the the focus is on the economy

Jill Weisenthal: itself.

Tracy Alloway: Meanwhile, as a society, you know, you might want to prioritize different outcomes. Like maybe we should all be happy. I, 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.

Jill Weisenthal: We should prioritize everyone getting off their devices and reading, and then I think we'll have a

Tracy Alloway: touch grass.

Jill Weisenthal: We'll have better outcomes. Yeah.

Tracy Alloway: Uh, we're getting dangerously close to like talking about Bhutan and national

Jill Weisenthal: we got to debunk. I' I've read some pretty

Tracy Alloway: Yeah, I know. I know. That's why we we should stop. Shall we leave it there?

Jill Weisenthal: Yeah, let's leave it there.

Tracy Alloway: All right. This has been another episode of the Odd Thoughts podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway.

Jill Weisenthal: And I'm Joe Weisenthal. You can follow me at the stalwart. Follow our producers Carmen Rodriguez at Carmen Arman Dash Bennett at Dashbot and Kellbrooks at Kellbrooks. And for more OddLotss content, go to bloomberg.com/odlotss. We have a daily newsletter and all of our episodes. And you can chat about all of these topics 247 in our Discord, discord.gg/odlotss.

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