By James Pethokoukis and R. Glenn Hubbard

Populism is in vogue on the right
today, with Republican politicians arguing for restrictions on immigration,
trade, and automation, and conservative intellectuals questioning the
value of economic growth that leaves disruption in its wake. In today’s episode
of “Political Economy,” I’m joined by Glenn Hubbard to discuss how we
can create bridges of opportunity to support Americans through economic
turbulence.

Glenn is a nonresident senior fellow at the American Enterprise Institute. From 2001 until 2003, he was chairman of the US Council of Economic Advisers. He is also Dean Emeritus of Columbia Business School and author of “The Wall and the Bridge: Fear and Opportunity in Disruption’s Wake,” released in January.

What follows is a lightly edited transcript of our conversation. You can download the episode here, and don’t forget to subscribe to my podcast on iTunes or Stitcher. Tell your friends, leave a review.

Pethokoukis: The title of the book is “The Wall and the Bridge.”
What does it mean to have a bridge-based approach to economics?

Hubbard: Great question. The
things we love about our economy — growth, innovism, dynamism — are like the
head side of a coin. The tail of that is disruption. You can’t have one without
the other. And disruption brings a demand for helping people adapt. And there’s
two ways to do it. One is walls: literal or, more likely in today’s world, figurative
ideas from politicians. “Let’s protect you from this,” or “Let’s restore you to
the past.” Another is bridges to what is and can be. Policy falls into those
two camps. And the book is really exactly about that.

So the US economy, since World War II, has it been a
bridge economy? A wall economy? Has it maybe oscillated between those things?

It has oscillated. So let’s start at the end of the war: Franklin Roosevelt’s GI Bill is a classic example of a bridge. There are two examples of a bridge taking you to something or bringing you back, of course. And the bringing you back is the GI Bill. You have all these service people returning to a changed economy. How do you help them adapt? That’s the high-water mark. The low-water mark are ideas like trade adjustment assistance that might have helped a handful of people, but are small beer in actually helping Americans and communities adapt. So we’ve gone through both. The problem is my profession, in economics, and many business leaders are too fond of a let ‘er rip economy without thinking about guardrails that bring everybody along. What my colleague Ned Phelps calls “mass flourishing.”

So where are we right now? If there have been times where
we’ve maybe been a bit more wall based, maybe sometimes a bit more bridge based,
where are we right now do you think?

We’re
all about the wall. And so if you think about right and left political
campaigns for example . . .

There are wall erectors on left and right?

Oh,
totally. So let’s start with the right. Walls could be physical, like at the
Texas-Mexican border. They could be anti-immigrant. They could be anti-trade. They
could be slowing down technology’s effect on disruption. All of those really
slow down all the possibilities for our economy and the very people they claim
to protect.

The
left is no better. So the left has walls of protection saying, “You know what,
I’m just going to pension you off. You don’t need to be connected to the
economy from work.” The book I write is a love letter to Adam Smith across the
centuries. And Smith and other Enlightenment thinkers had a view that being
connected to the economy, participating in the economy, is an important part of
dignity. The left misses that and the right forgets it, too.

Are economists sort of inherently all about bridges rather
than about walls? Because when I think of an economy, I think an economy is
people doing stuff together, people connecting. I’ve heard that an economy is
kind of a supercomputer or network of networks and those networks have hubs and
spokes and the hubs and the nodes are people and companies. All of us working
together. That, to me, sounds like a bridge concept, a concept of connection.
So folks like yourself, are you sort of biased toward bridges?

Well, of course. The way you described it sounds like it’s the graphics in my freshman economics textbook: “We’re all in this together.” I think economics is getting this right. I’m a little more skeptical of economists. So I’m going to explain that. So economics is all about bridges. So chances are the same econ 101 professor who told you (correctly) that technological change and globalization make us better off on average, he or she also probably told you that the gainers could compensate the losers, which is what brings us along. And we haven’t really done that.

For
economists, part of the problem is we spend too much time on the head side of
the coin I mentioned — openness is good, competition is good; I mean, Adam
Smith himself taught us that — and not enough time on disruption. My wife has
always divided the world into two groups: economists and real people. And I
think real people hunger for protection if they’re not given bridges. So the
book is, if nothing else, an appeal to economists to get engaged again: Don’t
let right and left politicians define the world in terms of walls.

Oftentimes when I think about policy, I try to figure out
which of these policies will generate more economic growth. Well, is it more
infrastructure spending? Is it making it easier for women to be in the
workforce? Is it tax cuts? Is it lightening the regulatory burden? But I’m
constantly thinking about what is good for growth and hopefully growth that
helps everybody. And I think a lot of bridge people think the same way. But if
you’re thinking about walls, aren’t you thinking very differently? Don’t you
have a different conception of what flourishing is? So maybe that’s the debate.
What does it mean to have a flourishing life?

Well,
this is the problem. I think the wall proponents — physical or metaphorical — have
a view that protection is really the goal. From the Enlightenment thinkers to
the present, I think most people view dignity and success in an economy as
fully participating in it. I don’t know about you, but I don’t want to be
pensioned off. I wouldn’t want somebody to tell me, “You have nothing of value
to offer, so I’ll simply offer you a check to live.” That’s not very
meaningful. On the other hand, it’s not very meaningful if nobody helps invest
in me so that I can participate in the modern economy.

Wall
builders, I think, like to pretend that they’re a 98-cents-on-the-dollar
version of econ 101: “We’ll shave off a little bit of efficiency.” What they’re
really about is corporatism instead of individualism. They’re about closed
economies instead of open ones. And they’re about protecting firms and
industries instead of people and places. And so I think it’s fundamentally
wrong thinking. And the part of the problem is that the very people that wall
builders claim they’re trying to protect will be the losers of the walls, not
the openness champions. But openness champions, economists, business people,
think tank folks, too, need to step up and explain this and explain what the
value of openness is rather than just running away from it.

In the short term, I guess, the answer to this question is
yes: Does America seem more fond of walls than bridges? And we can point to the
current politics and elections, but is there any kind of a longer-term trend
that may have pushed America to being more pro-wall, whether it’s the finance
crisis, whether it’s the so-called China trade shock. Has America just become more
risk-averse over the decades?

I
think there’s a good chance of that. You certainly see it in declines in
geographic mobility, of people moving to opportunity. And the way I would
explain it is that for too long economic elites and policy elites have
forgotten about disruption. The structural changes that have brought us growth
miracles since the Second World War have also brought phenomenal destruction of
some kinds of jobs in some places. And we’re simply not paying attention to it.
That feeds the demand for walls and feeds the demand for protection. And I
think it’s time for business people and economists to realize social support
for the economic system isn’t given. When Adam Smith talked about competition,
that was 1776 and it was a simpler time. But if he were here today, I think he
would also talk about the ability to compete. We once invested in making people
able to compete. I think a lot of Americans are skeptical today that we still
care.

I think some people, whether we call them wall builders or
populists, will also make the argument that even on your own terms — people who
are more market-oriented, who like bridges — you’ve failed. You’ve absolutely
failed in that we’ve seen the economy stagnate for decades. People are no
better off than they were in the ‘70s. Incomes have stagnated; incomes for men
have stagnated. We haven’t seen a lot of productivity growth. So even if we
accept your sort of “go creative destruction, but we’re going to help people on
the other side,” the creative part has not worked. So if that’s not working, if
we’re not getting that, then what are we even doing here?

There
you go again. No. I don’t think that’s right.

It may be an argument you’ve heard.

Many
times. And, frankly, it’s not a bad one. When I was trying to make the
distinction between economics and economists, economics really does have the
answers here. Economists, I think have been too glib about embracing pure
neoliberalism — no guardrails on the economy, let ‘er rip, rising tide lifts
all boats — without stepping back and saying, “What are we doing for people in
communities?” The problem with trying the alternative is down that road lies
statism for all the reasons that economists have said for decades. So I think
the candle still needs to be lit for bridges and mass flourishing, but
economists need to step up and actually notice first.

I’ve heard this argument that if you’re thinking about the
economic good of a nation, you can’t measure it in consumption — how much stuff
we can buy, how many services we can consume — but rather you should measure it
in something called “good jobs.” What you’re talking about is consumption.
That’s how you’re viewing us: as consumers. But we’re a lot more than that. And
a key (again, talking about the dignity of work) is a job. And a good job is
more important, and that should be the focus of policy. Again, is that an
argument you’ve heard? And maybe you could tell me a little bit more about what
a good job is and what it provides and what it doesn’t.

Many
times. We have to remember that Smith wrote “The Wealth of Nations” in response
to mercantilism, which is a warmed-over version of that kind of argument that
we need to protect certain kinds of jobs and industries and certain kinds of
trade patterns. Smith believed (and virtually any serious economist since has
believed) that the consumption of average people is the standard by which an
economy gets measured, not the mercantilist reverence for guilds or for the
sovereign. Now, it could be this now fashionable argument means that every
economist since Smith is wrong . . . Or it could mean that it’s fatuous.

And
it’s fatuous. And the reason is this: We want an economy that’s dynamic. Many
jobs that are great today didn’t even exist 30 or 40 years ago. So if we’d had
a goal 30 or 40 years ago to protect current jobs against new jobs, we wouldn’t
even have them. And it raises the classic question. (I always bungle my
high-school Latin, so I’ll say it in English) Who watches the watchers? Who gets to decide which job is a good
job, or which wage is a good wage, or which condition is a good condition? So I
think it’s wrongheaded. A better alternative to that well-meaning goal is to
give people and communities the skills they need — à la what we used to do in
the land-grant colleges or the GI bill, or I have more contemporary examples in
the book — to succeed today. That is better than protecting jobs.

Is it possible to make this argument about building a wall, about protecting jobs, if you’re not also making an argument about economic history? Don’t you have to say that we’ve been failing for 50 years? Because if we have, well, then maybe it makes sense. Maybe we should protect these jobs, because all your entrepreneurship and skills, well, we’ve been doing that and it hasn’t produced a great economy.

So that’s why I find very interesting that people who maybe in their youth loved Ronald Reagan (maybe they still do) are also the same people who are saying that we need to protect current jobs. We need to keep immigrants out. We need to put up trade barriers. Aren’t you also saying then that Reagan failed too? All that great openness must not have worked.

No,
I don’t think that’s fair. I think if Smith were here, he would say what you
want in the modern economy is “all in” in two senses: that I’m all in — I,
Glenn Hubbard am able to be attached to and participate in the economy — and
also that we’re all in (that is, there’s mass flourishing, there’s a chance for
everybody to connect). Wall building doesn’t succeed there. I would push back
on the idea that the economy of the last several decades has not succeeded. It
has wildly in macro terms.

That’s an argument you’ve heard. I used to only hear the
argument from folks on the left. Now I hear from the populists on the right.

What
you hear from populists on the right is: It may have succeeded on average, but
it didn’t succeed for everyone. I would agree. And I think the answer is not to
go back to neoliberalism nor is the answer to build walls. The answer is to put
the liberal back in neoliberalism, in the classical liberal, Smith liberal
sense of the term. And that really is about bridge building. So I think that
even though we have legitimate distributional concerns in the economy, the answer
cannot be protection. Down that road lies failure for the same reason Smith
said in 1776.

In the book, you talk about visiting Youngstown, Ohio. How
do you make this argument to folks there?

I
picked Youngstown in consultation with some political friends in Ohio on where
I could take MBA students to a place that still has a lot of dynamic spirit,
but had been through hard times. Youngstown is very interesting. On September
19, 1977, all the big integrated steel mills closed without warning in one day.
Now that’s a long time ago. The shock was principally about technological
change, the advantage of mini-mills, and so on, but it was also about
globalization. Since that time, people have struggled in Youngstown. It’s not
that things have rebounded. The population is a fraction of what it was. My
students who are from New York City were marveling at house prices that are so
low compared to a rat-infested walk-up in New York. And that is a problem. And
I think what it teaches us is that places and people need help.

Now,
people in Youngstown, it turns out, get that they are all about trying to
figure out new skills, new ways to help their place come back. There’s a lot of
success in recent Youngstown, which I talk about in the book, and around our
country, some cities and places have revived. Others have not. And that means
that any assistance needs to take into account local differences. We shouldn’t
have Washington say, “Here’s a one-size-fits-all way of fixing the country.”
That’s wrong. That’s not the way our successful interventions in the past
worked. And that’s not what we should do here.

That’s interesting. Even if it’s broad and you have to
tailor it, is there a revival formula? Or has it just been happenstance when
places have revived? Things you couldn’t have imagined came together and no
politician could have even put it in a plan. Are those places just kind of lucky
or is there a formula, even in broad terms, that you could apply to different
places?

Formula
makes it sound precise, but there is an approach. And I think (this is probably
the only time I’ll refer to Hillary Clinton in our conversation) that it takes
a village, and the kind of village that I mean here is business people taking
lead roles, along with educational institutions and local politicians. Let me
give you two tangible examples.

Pittsburgh,
after World War II, already saw the handwriting on the wall for the future of
the steel industry. Local business leaders, partnering with educational leaders,
said, “We are going to turn this ship. It’s going to take decades, but we’re
going to do it.” And Pittsburgh did.

Massachusetts
throughout much of the 20th century did not try bring mills back. That wasn’t
the goal. The goal was to reinvent Massachusetts for the modern economy. That,
too, was led by business people, although with some help from educational
leaders and local politicians. I argue in the book that some forms of
place-based aid from the federal government can help, but only if they’re in
concert with what local business people and local political leaders are trying
to do. So there’s no formula in the sense of “do this and you will succeed.”
But this kind of approach of leaders coming together is necessary, if not
sufficient.

Some of the listeners probably have heard about “The China Shock” by David Otter, David Dorn, and Gordon Hanson. I’ve talked about it on this podcast, and I’m sure you’ve talked about it too. Was opening to China a mistake? We’ll put the geopolitics aside, but just from an economic point of view: Should we not have added all those workers to the global labor market? Should it have been a slower process? Could it have not been a shock, I guess, is what I’m saying?

Well,
it’s definitely a shock. And that’s why your question is so important because it
was very long-lasting. It happened faster than people thought, and its impacts
are very geographically concentrated. So it’s really a recipe for people
feeling it and for the political process reflecting it. I think in retrospect
what was missing was not doing the basic economic thinking that your question
just did, like, “What would happen in the world economy if we suddenly dumped a
lot of skilled and semi-skilled labor into the global labor market that hadn’t
been there before?” And what if we completely changed international capital
markets at the same time? Remember more than a decade after the China shock
came India’s integration as well into the modern economy. So these are very big
deals. And I think the issue is not, “Should we shut out China?” I’ll come back
to that in a moment. But more, “Should we have thought about it more for
Americans and helped people be ready to compete, supported work more and, got
people better prepared?”

Another
problem with China is that I think economists, myself included, were too glib
at the time about China’s integration into the economy and behaving by World
Trade Organization rules. They have not. To me, there’s a real question today:
whether China belongs in the World Trade Organization. That’s a separate
question, but I think the real issue for policymakers is that we didn’t think
through the effects and prepare people for them. And it reminds me of the story
I tell in the book in the context of the financial crisis when the Queen of
England asked all these famous economists, “Why did nobody notice?” She was
asking about the financial crisis. If the queen had asked about China, she
could say, “You guys all got PhDs and you missed this?” I think that’s a
legitimate question.

Since we’ve brought up China, there are some people who probably would consider themselves pro-bridge who might say, “I don’t want to build a wall around America, but I would kind of like to build one around China.” Should we hold China to a different standard? With everything we’ve been saying about bridges and connection and all the benefits, is China a big exception to the rule? Whether it’s because they don’t play by the economic rules, whether we’re worried that geopolitically maybe there would be some sort of new cold war that would have to be different because they’re a much bigger part of the global economy than the Soviet Union ever was. Does your metaphor does not apply to them?

Well,
I wouldn’t say it’s about China, but there are exceptions that are important. Obviously
to the extent that national security is a concern, policy needs to differ.
Going back to “The Wealth of Nations,” that’s been an argument from economics.
And if China is not going to play by the ground rules of the World Trade
Organization, it shouldn’t be able to participate in the benefits of the World
Trade Organization. I don’t think that’s building walls. What’s building walls
is saying that we’re going to have blanket tariffs or protection of industries —
by the way, not only against China but against Canada and the European Union. That’s
the mistake. So I think the issue is to focus on behavior, not names of
countries.

We’ve talked about both the left and right. But a lot of
this lately has been in the context of the Republican Party and conservatism
moving away from more market-oriented policies. Is this sort of a road back to
a more bridge-building ethos on the right?

I
think it’s easy and hard. Let me start with the easy part. The ideas are very
straightforward. The policies I outline in the book are very specific and
frankly have been suggested by leaders in both parties. Everybody from Paul
Ryan to Barack Obama would agree with much of what I put in the book. The hard
part is that I think politicians on both sides have gotten themselves pretty
dug in on wall arguments. And so it really is going to take the emergence of a
leader, whether it’s a Republican or a Democrat, who goes back to that “all-in”
analogy. How do we have an economy that enables me as a person to be all in,
but also enables all of us to be in? I don’t see him or her out there. I hope
they’re there somewhere, but that’s what it’s going to take.

I don’t know how much time you spend on Twitter. I spend too much time on Twitter. And the argument I hear a lot is that we are experiencing something called “late capitalism.” That means we have entered an age of rampant inequality, plutocracy, stagnant growth and something else has to come next. Maybe at best it’s Scandinavia, but maybe it’s something you would more consider socialism.

Is there an image of tomorrow that you can present to people that fits with your views that they’ll find compelling? They’re like, “Yes, all the disruption and the potential for jobs and companies, even communities to be disrupted, it’ll all be worth it because this is the kind of tomorrow that we can get.” What does that tomorrow look like?

Well,
first let me go back to the beginning of your question. Those folks ought to go
back to the late 19th century, where I might have been able to make some of the
same arguments, and we’re still here. Schumpeter worried about the demise of
capitalism for those kinds of arguments and for the fact that intellectuals
might eat our seed corn. (He may have been a little bit more right on that
point.) But I think if you ask yourself about success, one reason we still have
a successful capitalist economy in our country is it has adapted. I mentioned
the example of land-grant colleges: In the middle of the civil war, Lincoln is
able to pull off land-grant Colleges, the Homestead Acts, and the
Transcontinental Railroad. And he did that as a way of using government as a
battering ram for opportunity.

We
had a progressive movement early in the 20th century. We had social insurance
reforms. We’ve tended to be pretty good at adaptation. What I worry about today
is that the structural changes have come so fast and are so long lasting. And
by the way, they’re going to get bigger with artificial intelligence and
robotics and adaptation to climate change. But our political system may have an
even tougher time than it did in the 19th century, and maybe in the mid-20th
century. So we have done this. That’s the good news. So we have been able to
pivot, but today I think it’s hard.

Glenn. Thanks for coming on the podcast.

My pleasure.

The post Populism, neo-liberalism, and bridges to opportunity: My long-read Q&A with Glenn Hubbard appeared first on American Enterprise Institute – AEI.