MMITM Ep 38 - The Economy Explained (Finally!) with MIT Economist Daron Acemoglu

00:00:00
Voice-over : From CurtCo Media. ( singing).

 

00:00:07
Bill Curtis: Welcome to Politics, Meet Me in the Middle. I'm Bill Curtis. Do politicians really affect the economy, your economy, not some number you see on the news or the Dow Jones industrial average, but as we move through this pandemic, what are the real economic trends and their likely effects on all of us? And as we approach this election, can we expect the results to affect our economy longterm versus whatever the media touts or the politicians promise? Today we've brought in one of the most lauded economic minds in the world, Daron Acemoglu. He is said to be headed for a Nobel Prize for his work researching the relationship between social and political factors and their economic impacts. He will help us make some sense of all this. So let's introduce our panel. Firstly, our cohost Pulitzer Prize winning historian, bestselling author, worldwide lecturer and the widely quoted human historical and political encyclopedia, professor Ed Larson. Nice to see you Zoomed in, Ed.

 

00:01:11
Bill Curtis: Thank  you  so  much  and  welcome  to  the  show.

 

00:01:14
Daron Acemoglu: Thank  you,  Ed.

 

00:01:15
Bill Curtis: Also  Zooming  in  Jane  Albrecht.  She's  an  international  trade  attorney  who  fought  for  US  economic  and  business  interests  to  high  level  government  officials  all  over  the  world.  Hi  Jane.  Nice  to  remotely  see  you  too.

 

00:01:29
Jane Albrecht: Always  good  to  be  here  and  it's  an  honor  to  be  here  with  you.

 

00:01:32
Daron Acemoglu: Thanks  Jane.  I'm  looking  forward  to  the  show.

 

00:01:35
Bill Curtis: And Daron  Acemoglu,  he's  a  Turkish  born  Armenian  American  economist,  who  has  taught  at  MIT  since  1993.  Although  his  awards  are  just  too  many  to  list  here,  he  did  receive  the  John  Bates  Clark  Medal,  which  is  awarded  to  young  economists  judged  to  have  made  the  most  significant  contribution  to  economic  thought  and  knowledge.  Daron  is  best  known  for  his  work  on  political  economies  and  he  has  authored  hundreds  of  papers  and  books  like  Why  Nations  Fail  and  The  Narrow  Corridor.

 

 Last  Year  Bloomberg  stated  that Daron  is  one  of  a  tiny  handful  of  economists  whose  work  is  destined  for  a  Nobel  Prize.  Daron,  we  are  honored  to  have  you  join  us  today.

 

00:02:19
Daron Acemoglu: Thanks  Bill.  My  pleasure.

 

00:02:21
Bill Curtis: So  let's  just  dive  right  in.  Define  for  us  what  specifically  is  meant  by  the  economy and what  does  it  entail?

 

00:02:28
Daron Acemoglu: Well,  the  economy  is  about  all  of  the  interactions  between  human  beings  that  involve  production,  consumption,  trade  and  all  of  the  social  and  economic  corrolaries  of  these  activities.  So  when  you  are  going  to  work  or  when  you  are  engaged  in  investments  for  your  business  or  when  you  are  acquiring  education  and  skills  for  later  use  in  the  labor  market,  those  are  all  economic  activities.
 So  the  narrow  conception  of  economy,  when  people  talk  about  whether  the  economy  is  in  a  good  state  or  not,  is  often  summarized  by  these  measures,  but  actually  it's  undergirded  by  a  much  richer  tapestry  of  interactions  between  humans,  between  firms  and  within  the  entire  US  society.

 

00:03:22
Bill Curtis: So  taking  kind  of  a  macro  economic  side,  how  does  the  economy and  the  health  of  the  economy  affect  each  one  of  us  individually?

 

00:03:32
Daron Acemoglu: That's actually  a  pretty  deep  question  because  one  of  the  shortcomings  of  the  indices  that  many  journalists  focus  on  is  that  they  tell  you  something  about  the  average.  For  instance,  they  will  tell  you  what's  going  on  to  the  overall  gross  domestic  product  of  the  American  economy  over  the  last  four  or  five  years.  It's  been  growing  very  rapidly.  But  that's  really  not  indicative  of  the  experiences  of  most  people.  Wages,  for  example,  in  the  US  economy  have  stagnated  for  most  workers.  So  there  is  a  complex  relationship  between  the  aggregate  of  the  economy  and  what's  going  on  two  different  groups  of  people.  And  it  turns  on  the  critical  issue  of  whether  a  rising  tide  lifts  all  boats  or  not.  That's  one  of  the  issues  that  policy  determines  and  we've  had  very  different  experiences  over  the  last  two  decades  or  three  decades  versus  before,  for  example,  in  the  US  economy.

 

00:04:28
Bill Curtis: After  saving  lives,  how  can  we  best  proceed  to  save  our  economy?  And  of  course  the  people  who  would  be  most  effected  by  it  longterm?

 

00:04:37
Daron Acemoglu: There  are  both  short  term  and  longterm  aspects,  but  in  the  short  term,  I  think  you  put  your  finger  right  on  it.  Saving  lives,  protecting  the  public  health  is  a  first  priority,  but  we  want  to  do  that  while  minimizing  the  adverse  economic  effects.  And I think  that  has  two  dimensions.  How do  we  minimize  the  GDP  losses,  the  entire  output  of  the  economy  going  down  the  drain  is  not  something  that  anybody  wants  to  see.  But  then  also  how  do  we  protect  people  who  are  most  vulnerable,  the  low  wage  workers  who've  lost  their  jobs,  et  cetera.

 

 So  if  you  look  at  the  scorecard  of  the  US  policy,  I  think  overall  there's  broad  agreement  that  we've  done  pretty  badly  when  it  comes  to  health  measures,  testing,  containing  the  virus,  et  cetera.  But  on  the  whole,  on  the  protection  of  the  workers,  we  did  reasonably  well  after  March  with  unemployment  benefits  and  other  programs  that  provided  much  needed  support  to  people  losing  their  jobs  and  poverty,  for  example,  in  the  US  didn't  actually  decline,  despite  the  fact  that  we  had  probably  the  largest  drop  in  output  in  any  given  year  in  the  US  recent  history.

 

 So  I  think  in  terms  of  protecting  the  most  vulnerable  people,  we  have  to  continue  what  we  started  in  March,  2020.  Make  sure  that  people  who  are  forced  out  of  their  jobs  don't  suffer  unduly.  US  government  has  the  fiscal  capacity  to  do  that,  but  we  also  have  to  make  sure  that  the  economy  gets  going  again.  I  think  better  testing,  ways  of  contact  tracing,  which  some  companies  themselves  are  doing,  but  still  federal  government  support  for  this  is  very  limited,  but  there  are  also  more  complex  issues.  For  example,  whether  we  should  allow  a  younger  individuals  who  are  less  susceptible  to  the  virus  to  go  back  to  work  at  higher  rates  than  people  who  are  more  vulnerable.

 

 I  think  there  are  some  specific  policy  issues  that  we  have  to  bring  expertise,  data,  and  the  best  state  of  the  art  knowledge.  But  suffices  to  say,  I  think  there  are  a  lot  of  policy  issues  on  which  we  need  better  study,  better  policymaking.

 

00:06:56
Bill Curtis: Ed  Larson.  Let  me  ask  you  a  question  about  our  history,  a  little  in  this  country.  Have  there  been  other  times  where  we  seem  to  have  to  create  a  balancing  act  between  public  health  and  the  health  of  the  economy  and  jobs?

 

00:07:10
Ed Larson: Probably  the  most  famous  one  of  the  last  century  was  the  Spanish  Flu,  which  was  much  more  dramatic  than  anything  we  have  now.  We  had  a  third  of  the  population  back  then,  and  we  had  four  times  as  many  deaths  as  we've  had  so  far,  and  it  hit  all  ages.  It  wasn't  concentrated  among  older  people.  It  hit  people  in  the  prime  of  their  life.  And  how  to  balance  that  with  an  ongoing  war  effort  and  an  election  that  went  on  in  the  middle  of  it.  And  the  economic  effects  of  the  Spanish  flu,  which  our  guests  probably  knows  far  better  than  I,  we're  absolutely  dramatic.  Not  only  in  the  United  States,  but  worldwide  because  it  was  even  a  bigger  killer  in  Europe  or  where  his  family  was  originally  from,  Turkey  and  Armenia.  It  was  devastating  in  those  areas  and  it  completely  flipped  the  economy and  whole  new  businesses  rose  up  and a  whole  other  businesses  went  down.  And  the  federal  government  is  doing  more  now  than  it  did  back  in  1918.  We're  going  to  be  a  different  economy  coming  out  of  this  over  time.

 

00:08:15
Bill Curtis: Daron,  if  you  could  just  lay  out  for  us  the  circumstances  where  in  the  past  politicians  had  to  make  a  decision  between  the  idea  of  saving  American  lives  and  allowing  the  economy  to  not  crash  or  allowing  the  economy  to  flourish  in  some  fashion.

 

00:08:36
Daron Acemoglu: Well,  I  think  the  example  that  Ed  zeroed  in on is  the  best  one.  Although  the  lessons  are  not  completely  parallel.  During  the  Spanish  Flu  epidemic,  the  places  that  clamped  down  early  and  produce  some  sort  of  curfews  to  limit  the  spread  of  the  flu,  introduced  masks,  did  very  well  economically  relative  to  other  places  because  they  contain  the  flu.  Now,  in  the  case  of  the  COVID- 19,  it's  a  little  bit  more  complex  because  the  mortality  is  lower,  as  Ed  said.  You  can  take  actions  that  prioritize  the  economy  at  the  expense  of  sacrificing  some  more  lives.  Some  people  interpreted  what  Sweden  did,  for  example,  early  on  in  that  light.  But  it  looks  like  the  Swedish  experiment  was  not  a  complete  success.  It's  not  a  big  failure  either.  I  think  it's  a  mixed  thing.

 

00:09:28
Bill Curtis: Describe  for  us  what  their  strategy-

 

00:09:30
Daron Acemoglu: Their  strategy  was  is  that  they  didn't  have  a  complete  lockdown.  They  started  with  small  measures  that  encouraged  people  to  do  limited  social  distancing.  Later  on  they  encourage  mask  wearing,  but  any  public  health  policy  can  be  thought  of  as  falling  into  one  of  two  buckets.  You  either  go  for  herd  immunity  or  you  wait  for  the  vaccine.  By  waiting  for  the  vaccine,  what  I  mean  is  that  you  actually  keep  the  infections  to  a  low  level  with  continued  measures  that  include  social  distancing  and  lockdowns  and  other  limitations  on  economic  and  social  activity.  And  you  only  lift  them  once  an  effective  vaccine  comes.
 Or  going  for  herd  immunity  is  that  you  let  the  virus  spread  in  the  population  so  that  it's  sufficiently  high  fraction  of  the  population  gets  immunity.  Something  like  70%.  Even  the  numbers  for  COVID- 19  may  be  enough  for  the  virus  to  sort  of  rapidly  disappear  thereafter.  So  the  Swedish  case  was  essentially  going  for  herd  immunity  that  they're  not  going  to  restrict  the  economic  activity.  And  there's  some  other  developing  countries  where  without  being  extremely  explicit  about  it,  I  think  they're  going  for  herd  immunity,  given  that  they  don't have  the  fiscal  capacity  or  the  ability  to  withstand  long,  long,  long  lockdowns.  But  pretty  much  every  other  rich  country  is  waiting  for  the  vaccine.

 

00:10:59
Bill Curtis: So  if  you  were  establishing  US  policy  for  the  next  year  or  two,  what  policies  would  you  implement  to  minimize  the  impact  of  this  pandemic  and  facilitate  our  quickest  recovery?

 

00:11:10
Daron Acemoglu: After  he  got  the  Nobel  Prize  the  famous  economists  Bob  Lucas  was  asked, " What  would  you do if you  were  in  charge  of  the  fed?"  And  he  said " Resign."  So  if  that's  an  option,  I'll  consider  that.

 

00:11:23
Bill Curtis: Let's  take  a  look  at  what  a  picture  of  our  recovery  post  pandemic  might  look  like.  But  not  really  longterm.  Let's  take  a  look  at  the  next  couple  of  years  after  the  pandemic  is  dealt  with.

 

00:11:35
Daron Acemoglu: The  economy  will  naturally  recover.  And  any  politician  who's  in  charge of  that  will  take  a  lot  of  the credit. So I'd love to be  in  charge  at  that  point.

 

00:11:43
Bill Curtis: Just not this point.

 

00:11:43
Daron Acemoglu: Just not this point.  Although  I  think  if  you  look  at  it  from  a  socially  responsible  point  of  view,  it  is  this  point  where  a  lot  of  policies  really  do  matter.

 

00:11:55
Jane Albrecht: Daron,  before  you  go  further,  you  said that  the  economy  will  just  sort  of  bounce  back,  but  isn't it  going  to  be  very  uneven?  I  mean,  aren't  there  going  to  be  a  lot  of  jobs  that  are  permanently  lost?  As  we  pretty  universally  recognized  the  commercial  real  estate  sector  is  going  to  be  hit  hard.  So  is  it  going  to  bounce  back  that  quickly  and  that  clearly?

 

00:12:15
Daron Acemoglu: How  quickly,  that's  really hard to  know.  But  you're  a  100%  right  on  unevenness.  And  that's  what  I  see  as  part  of  the  longer  term.  Why  did  the  US  do  so  badly  in  terms  of  number  of  cases  and  number  of  deaths  and  also  economic  fallout  from  it?  I  think  it's  not  unrelated  to  our  economic  model.  We  have  a  very  unequal  society.  In  the  US  it's  like  the  number  of  estimates  will  vary  a  little  bit,  but  the  median  estimate  is  that  40%  of  the  US  population  is  obese.  That  creates  a  huge  risk,  as  some  high  fraction  of  the  US  population  suffers  from  respiratory  problems.  Those  are  not  unrelated  to  the  inequality.  So  in  our  current  age,  such  chronic  conditions  are  conditions  of  the  poor.  Many  of  the  jobs  that  the  poorer  Americans  used  to  have  are  going  to  be  the  slower  ones  to  come  back.

 

 Why?  Because  they're  in  the  hospitality  sector,  they're  related  to  fast  food,  restaurants,  hotels,  and  things  like  that.  And they're  going  to  come  back.  They're  not  going  to  disappear.  But  they  may  not  come  back  fully.  So  there'll  be  somewhat  less  travel.  There'll  be  more  work  from  home,  a  density  in  some  places  that  supported  large  service  economies  is  going  to  decline.

 

 But  more  fundamentally,  I  think  the  direction  of  technological  change  is  fundamentally  affected  by  COVID- 19.  It's  no  surprise  that  the  tech  sector  has  actually  boomed  during  this  period.  During  the  pandemic  our  dependence  on  digital  technologies  has  increased.  The  prestige  of  the  tech  companies  has  increased  because  we've  seen  the  government  not  able  to  do  certain  things  and  the  tech  companies  have  done  a  better  job.  I  think  leaving  things  to  business  as  usual  will  actually  have  various  inequality  and  perhaps  long  run  growth  consequences.  So  I  certainly  did  not  mean  to  minimize  those  when  I  said  the  economy  will  bounce  back.  But  the  economy  will  bounce  back  in  the  sense  of  GDP.

 

00:14:13
Bill Curtis: Okay,  we're  going  to  take  a  very  quick  break.  And  when  we  come  back,  I'd  like  to  talk  to  you  about  some  of  the  other  aspects  of  this  pandemic,  such  as  the  multi  trillion  dollar  stimulus  checks  we're  writing  and  the  national  debt.  We'll  be  right  back.

 

00:14:28
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00:14:59
Bill Curtis: We're  back, and Daron,  I  wanted  to  talk  to  you  about  some  of the  stimulus  packages  that  we've  seen.  The  concept  of  stimulus,  isn't  that  a  highly  short  term  view  of  what  to  do  about  a  pandemic?

 

00:15:11
Daron Acemoglu: Well,  it  is  a  short  term  view.  Absolutely.  I  think  properly  interpreted  a  stimulus  is  something  you  insert  into  the  economy  to  deal  with  a  short  term  problem.

 

00:15:22
Bill Curtis: But the problem  isn't  really  as  short  term  as  the  stimulus  was?

 

00:15:25
Daron Acemoglu: I  think  the  lack  of it,  the  stimulus,  could  make  the  problem  even  more  longterm.  The  great  depression,  for  instance,  which  turned  out  to  be  hopefully  much  more  severe  than  what  we  are  experiencing  with  COVID- 19,  was  partly  caused  by  the  fact  that  both  monetary  and  fiscal  authorities  did  not  deal  with  the  initial  impetus.  So  the  stimulus  is  there  in  order  to  lessen  the  impact,  both  on  the  people and  on  the  economy  at  the  macro  level.

 

00:15:55
Bill Curtis: But  the  stimulus  ends.

 

00:15:57
Daron Acemoglu: The  stimulus  ends.  And  it  may  end  too  soon.  If  you  ask  me,  this  would  be  absolutely  the  wrong  time  to  remove  the  stimulus.  US  is in a  very  fortunate  position  when  you  compare  it  to  developing  nations,  we  have  the  fiscal  capacity  and  the  ability  to  borrow  and  keep  up  the  support  that  we  give  both  to  the  most  vulnerable  people  and  to  some  of  the  businesses.  Now,  of  course  the  stimulus  will  have  to  end,  but  that  hopefully  happens  after  the  economy  starts  recovering.  And  then  we  can  think  about  what  is  the  best  way  of  dealing  with  the  additional  responsibilities  on  the  shoulder  of  the  federal  government.
 During  periods  like  world  war  one  and  world  war  II  when  the  government  shouldered  in  greater  responsibilities,  some  of  them  did  persist.  The  government  did  not  go  back  to  what  it  used  to  do  after  those  transformational  events.  But  it  is  now  getting  to  the  other  longterm  issue,  which  is  critical.  What  sort  of  trust  in  government,  what  sort  of  democratic  participation  we  are  looking  forward  to  after  the  pandemic  is  gone.  I  think  those  are  critical  questions  that  we're  not  really  thinking  enough  about.

 

00:17:01
Bill Curtis: As  well  as  what  does  the  debt  mean  to  us  longterm?  So  if  you  don't  mind  me  just  going  to  Ed  for  just  a  minute.  Ed  give  us a little bit  of  a  history  lesson,  the  genesis  and  use  of  national  debt  for  the  United  States.

 

00:17:14
Ed Larson: Well,  America  was  founded  on  the  idea  of  Hamilton  creating  a  national  debt.  The  debt  was  used  to  construct  things  and  develop  various  things  such  as  the  frontier  policy,  building  a  Navy,  national  roads,  harbors.  That  is  how  the  original  debt  was  used.  The  debt  grew  enormously  during  the  depression  and  then  skyrocketed  during  World  War  II.  And  the  fact  that  that  was  not  let  up  after  World  War  II,  because  we  adopted  programs  like  the  GI  Bill  and  enormous  spending  after  the  war,  that  kept  the  economy  going,  even  though  we  built  a  huge  debt.

 

00:17:51
Bill Curtis: Daron,  I  wonder  if  you  could  help  our  listeners  understand.  I've  got  some  friends  who  just  think  that  the  added  national  debt  is  just  funny  money.  It's  just  the  government  writing  checks  and  printing  cash,  and  they  don't  realize  where  the  money  comes  from.  So  maybe  you  could  describe  that  a  little  bit.  And  also  how  does  the  debt  actually  affect  the  quality  of  our  individual  lives?

 

00:18:15
Daron Acemoglu: Well  look,  Bill,  all  money  is  funny  money.

 

00:18:18
Bill Curtis: That's  not  the  answer  I  expected.

 

00:18:20
Daron Acemoglu: We  trust  in  the  US  dollar  because  you  believe  that  other  people  are  going  to  honor  it.  And  why  do  you  do  that?  Well, part of  the  reason,  a  large  part  of  the  reason,  is  because  it's  backed  by  the  US  government  and  in  particular  with  the  taxation  power  of  the  US  government.  National  debt  is  backed  by  the  taxation  power  of  the  US  government  too.  We  are  not  at  a  level  of  debt  that  the  US  cannot  pay it  back  quite  easily.  So  there  are  reasons  to  worry  about  high  levels  of  debt.  This  is  what  economists  called  crowd  out.  If  the  government  borrows  a  lot,  it  pushes  up  interest  rates,  it  discourages  private  investment.  It  may  reduce  people's  trust  in  the  government's  ability  to  pay  back  when  you  get  to  levels  such  as  the  ones  in  Italy,  for  example.  But  the  US  is  nowhere  near  that.  So  I  think  your  friends  may  want  to  bring  down  the  debt  ultimately,  but  they  have  nothing  to  worry  about  in  terms  of  the  US  having  a  run  on  its  debt  or  the  US  currency  being  funny  money  any  more  than  it  was  any  time  in  the  last  200  years.

 

 But  debt  is  always a  political  issue.  And  it's  always  been  interwoven  with  our  institutions.  And  I  think  that's  really  a  critical  point  that  we  need  to  bring.  What  sort  of  democracy,  what  sort  of  government,  what  sort  of  responsibilities  we  are  expecting  from  the  US  government  in  a  post  COVID  world.  If  it's  a  government  that's  going  to  look  after  corporations  and  not  do  enough  for  the  healthcare  of  the  average  Americans  or  the  incomes  of  the  average  American,  you  would  have  probably  more  to  worry  about  that  debt.  Or  if  it's  a  government  that  we  cannot  control,  if  it  behaves  like  Venezuela  or  even  Mexico  or  Argentina,  you  would  have  a  lot  to  worry  about.  But  if  it's  a  government  that's  going  to  behave  and  we're  going  to  make  it  as  citizens  behave  like  the  Scandinavian  countries  or  Germany,  then  it's  our  debt.

 

 We  control  through  our  voting  decisions,  what  politicians  do  with  the  debt  and  the  money  that  they  have.  And  then  it  might  actually  be  a  little  bit  more  tolerable.  So  I  think  it's  very  much  interwoven  with  the  politics  of  it,  which  I  think  is  really  the  big  elephant  in  the  room  that  we're  not  talking  enough  about.  We  have  seen  US  institutions  really  at  their  worst  during  this  crisis,  and  before.  And  we've  got  to  do  something  about  that  as  well.

 

00:20:48
Bill Curtis: Well,  what do  you  mean  by  we've  seen  them  at  their  worst?

 

00:20:51
Ed Larson: The  point  I  think  he's  stressing,  and  I  would  agree  completely,  is,  is  that  taking  on  a  debt,  is  it  making  us  stronger?  Or  is  it  making  us  weaker?  During  World  War II  we  could  take  on  an  enormous  amount  of  debt  because  we  knew  it  was  making  America  stronger.  You  had  more  faith  in  the  ability  to  repay.  During  the  Cold  War  that  was  true  too.  If  we're  using  it  for  infrastructure  such  as  the  highway  system.  So  the  question  is,  is  we're  taking  on  this  debt.  Are  we  doing  it  in  a  way  that  in  the  long  run  is  making  our  country  stronger?  And  that's  the  question  for  the  way  we  spend  money  for  the  pandemic.

 

00:21:31
Bill Curtis: Daron,  today  interest  rates  are  practically  zero.  Our  government  has  the ability  to  print  money  and  cause  inflation.  So  over  the  course  of  time,  what  does  that  debt  really  mean  anyway?  I  mean,  don't  we  basically  legislate  our  way  out  of  it?

 

00:21:46
Daron Acemoglu: Well  again  you  could,  as  a  sovereign  country,  you  could  even  cancel  the  debt.

 

00:21:52
Bill Curtis: I  don't  mean  destroying  our  credit.  I  just  mean  with  interest  rates  so  low,  the  debt  doesn't  cost  us  very  much.

 

00:21:58
Daron Acemoglu: Right.  I  was  going  to  say  that  part  of  the  reason  why  those  sort  of  the  crowd  out  type  of  issues  are  not  so  important  and  the  markets  are  so  tolerant  of  that  is  because  A,  they  believe  that  US  government  can  repay  it.  And  we  are  in  a  general  low  growth  period  where  interest  rates  are  low.  People  are  not  rushing  to  make  new  investments,  which  is  what  low  interest  rates  are  signaling.
 So  this  is  actually  a  particularly  good  period  for  the  government  to  use  its  future  fiscal  power  to  borrow  and  use  that  money.  Both  for  infrastructure,  as  Ed  said,  and  for  dealing  with  the  fallout  of  COVID- 19.  Inflation  is  not  a  problem  right  now,  precisely  because  when  you  look  at  prices  they  are  not  increasing.  But  will  it  be  a  problem  10  years  from  now?  Again,  that's  a  policy  question.  That's  an  institutional  question.  But  right  now  there  is  no  danger  that  there's  going  to  be  high  inflation,  let  alone  hyperinflation  in  the  United  States.

 

00:22:57
Bill Curtis: The  restaurateur  who  gets  a  check  that  helps  them  keep  their  employees  for  an  extra  two  or  three  months,  comparing  that  effect,  which  is  profound  and  current.  And  they  can  feel  it.  Comparing  that  effect  to,  well,  the  fact  that  we  hear  on  the  news  that  our  federal  debt  has  risen  to  almost  the  same  as  our  GDP.  does  that  really  mattered  to  us,  or  what  really  matters  is  helping  our  small  businesses  and  our  citizens  have  jobs  a  little  while  longer?

 

00:23:30
Daron Acemoglu: First  of  all,  income  is  what  really  matters.  There's  a  finer  discussion  to  be  had  about  what's  the  best  way  of  providing  that.  If  you  look  at  some  European  countries,  they  went  for  pure  unemployment  benefits.  Whereas  US  as  well  as  some  other  European  countries  went  for  propping  up  existing  firms.  There's  a  calculus  to  be  had  there.  Certainly  it  is  true  that  some  part  of  the  hospitality  sector  is  not  going  to  come  back.

 

00:23:56
Bill Curtis: What's  the  economic  impact  of  these  decisions  one  way  or  the  other?

 

00:24:01
Daron Acemoglu: Well, I mean  I  think  if  we  are  unable  to  pass  an  extension  of  the  stimulus,  the  economic  impact  would  be  pretty  bad.  First  of  all,  there  will  be  an  increase  in  poverty.  Some  people  will  suffer  much  more  at  this  stage  of  the  pandemic,  even  though  the  pandemic  is  less  severe  than  they  did  early  on.  But  it  would  probably  delay  the  recovery  as  well  because  more  businesses  would  go  under.  There  will  be  more  hardships.  Some  people  might  actually  be  forced  to  go  back  to  work,  even  when  more  controlled  increase  in  employment  might  have  been  a  good  idea  in  many  states  because  of  the  potentially  exponential  growth  of  the  pandemic.  I  think  the  cost  of  a  stimulus  in  terms  of  greater  debt  is  not  huge  given  the  zero  interest  rates  and  the  ability  of  the  US  government  to  actually  be  able  to  pay  that  back.

 

00:24:50
Bill Curtis: I'd  love  to  talk  to  you  about  the  stock  market  versus  the  economy.  The  relationship  between  the  Dow  Jones  or  S &  P  stock average,  we've  all  heard  it  every  day  on  the  news,  and  the  actual  health  of  our  economy.  Can  you  draw  a  correlation  there?  Or  is  there  one?

 

00:25:08
Daron Acemoglu: During  normal  times?  Yes.  The  stock  market  is  meant  to  be  representative  of  the  corporate  sector  and  the  corporate  sector  rises  and  falls  together  with  the  economy.  But  there  are  important  reasons  why  the  stock  market  isn't  the  economy  and  those  have  become  more  relevant  for  the  current  period.  First,  the  stock  market  is  about  large  companies.  The  US  has  been  for  quite  a  while  on  a  trend  where  small  companies  are  suffering,  wages  are  not  increasing,  but  big  companies  are  being  very  profitable.  So  that  has  a  lot  to  explain  why  the  stock  market  has  boomed  while  say,  for  example,  wages  haven't  really  increased  in  the  United  States.

 

 But  during  the  recent  period  what  we  have  seen  is  that  the  stock  market  is  doing  very  well,  especially  the  tech  sector  is  doing  very  well  because  the  pandemic  is  a  reallocation  in  favor  of  the  tech  sector.  We  are  using  digital  technologies  more  than  before.  The  big  tech  companies  are  taking  over  just  like  Amazon,  just  like Uber  from  other  companies.  And  their  share  price  is  increasing.  Lots  of  mom  and  pop  stores  are  going  under,  but  they're  not  in  the  stock  market  anyway.  Lots  of  the  competitors  of  Amazon  are  even  on  a  smaller  margin  today,  they're  not  in  the  stock  market  anymore.  So  this  is  a  particular  era  where  the  stock  market  is  not  a  good  gauge  for  how  the  overall  economy  is  doing.

 

00:26:30
Bill Curtis: So  for  this  next  election,  where  politicians  want  to  point  to  the  stock  market,  you  feel  like  we  should  be  looking  at  other  indices.

 

00:26:37
Daron Acemoglu: We  should  be  looking  at  always  a  dashboard  of  indicators.

 

00:26:41
Bill Curtis: That  would  include ...

 

00:26:43
Daron Acemoglu: Median  wages.  What's  going  on  at  the  bottom  of  the  distribution.  What  are  workers  making $ 11  or $ 12  an  hour  typically,  those  who have  a  high  school  degree.  What  is  their  labor  market  doing?  It  would  include  small  companies  as  well  as  large  companies.  It  would  include  what's  going  on  with  labor  force  participation.  Unemployment,  for  example,  was  very  low  before  COVID.  That  was  great,  but  there  were  still  a  lot  of  discouraged  workers  who  had  left  the  labor  market  because  they  thought,  given  their  skills,  there  were  no  jobs  for  them.

 

00:27:17
Bill Curtis: So  when  this  administration  took  office  a  few  years  ago,  the  first  thing  that  they  did  is  basically  pulling  back  from  years  of  trying  to  balance  environment  and  business.  And  has  that  mostly  affected  the  stock  market?  Did  that  affect  the  economy?  Did  that  affect  our  individual  jobs?

 

00:27:35
Daron Acemoglu: Well,  the issue  of  regulation  is  a  complex  one.  Certainly  some  of  the  EPA  regulations  do  cost  money  to  companies  and  do  cost  some  jobs.  But  I  don't  think  that  any  of  the  economic  success  we've  experienced  over  the  last  three  years  has  anything  to  do  with  those  regulations  being  lifted.  The  stock  market  has  boomed  partly  because  some  of  those  lifted  regulations  help  large  companies.  There  were  huge  tax  cuts  for  capital,  especially,  that  immediately  multiplies  the  stock  market  value  of  large  corporations.  Right  now  in  the  US  we  essentially  don't  tax  capital.  That's  a  great  advantage  to  corporations.  So  it's  not  a  surprise  that  the  value  of  those  corporations  has  skyrocketed.  And  job  creation,  if  you  look  at  it,  has  been  on  a  pretty  even  trend  over  the  last  eight  years  after  we  hit  the  bottom,  flattened  out  around  2010,  2012.  And  then  the  employment  level  in  the  US  has  been  increasing.  So  I  don't  think  dismantling  those  regulations  has  really  fueled  the  economy  all  that  much,  but  it  has  had  fairly  large  environmental  effects.

 

00:28:54
Bill Curtis: Especially  in  the  time  of  an  election,  Daron,  I  have  to  ask  you  if  taxes  in  fact  are  not  as  direct  a  correlation  between  the  health  of  our  economy,  the  jobs,  the  overall  pay  rate,  then  what  really  is  the  economic  impact  from  the  upcoming  election?

 

00:29:12
Daron Acemoglu: Oh,  taxes  matter  greatly.  I  mean,  I  would  say  get  rid  of  a  lot  of  the  additional  tax  incentives  we  have  given  to  capital,  and  instead  use  that  revenue  to  cut  payroll  taxes,  and  that  would  be  more  expansionary  and  it  would  help  workers  and  it  will  help  wages  at  the  expense  of  corporate  profit.

 

00:29:31
Bill Curtis: But you  don't  think  they'd  just  go  payback  national  debt?

 

00:29:33
Daron Acemoglu: I  don't  think  this  is  the  right  time  to  pay  down  the  national  debt.  That  would  be  in  three  or  four  years  time  once  the  economy  is  really  in  a  much  healthier  state.  You  don't  want  to  start  doing  that  too  soon  otherwise  you  will  choke  the  recovery.  Tax  policy  matters.  Environmental  policy  matters  greatly.  I  think  the  direction  of  technological  change  matters  greatly.  So  a  key  question of  the  justice  department  and  the  administration  will  be  how  do  we  treat  big  tech  giants?  Do  we  create  even  more  of  a  permissive  era  where  they're  going  to  be  able  to  take  over  and  grow  further,  or  are  there  going  to  be  antitrust  action  or  limits  on  their  ability  to  dominate  markets?  What  are  we  going  to  do  about  the  future  of  technology?  If  you  look  at  the  defining  technologies  of  the  20th  century,  the  internet  sensors,  antibiotics,  nanotechnology,  the  fingerprints  of  the  US  government  is  all  over  them.

 

 The  US  government  was  the  one  who  set  the  agenda.  They  purchased  them,  they  finance  the  R  and  D.  We've  completely  given  up  on  that  role.  We  spend  less  on  R  and  D,  but  more  importantly,  the  leadership  of  where  that  money  goes  has  now  shifted  to  big  tech.  They  set  the  agenda  on  what  AI  is  and  where  AI  will  go,  what  AI  spending  will  be  done.  So  again,  there  are  really  very  consequential  decisions  we'll  have  to  make.  And  then  most  importantly,  I  think,  also  the  future  health  of  our  democracy  is  something  that  we'll  have  to  decide.  Look,  the  US  has  always  had  a  very  weird  democracy.  We  have  a  democratic  government  that  is  very  proud  of  its  democratic  heritage,  and  it's  very  large,  but  on  the  other  hand,  it's  very  constrained  in  what  it  does.  Federal  government  is  very  limited  in  its  ability  to  fight  poverty.

 

 Again,  we  have  delegated  a  lot  of  power  to  state.  On  the  other  hand,  there  are  aspects  of  the  federal  government  that  are  much,  much  more  unconstrained  than  in  other  democracies.  We're  seeing  that  in  the  current  election,  we are going to  have  an  election  where  there  are  a  lot  of  debates  about  voter  fraud  or  legitimacy,  et  cetera,  but  in  pretty  much  everywhere,  it  is  partisan  politicians  who  are  overseeing  the  election  because  this  country  gives  a  lot  of  power  to  governments  to  have  political  appointees  do  a  lot  of  important  functions.  So  there  are  a  lot  of  decisions  that  are  about  the  institutional  details  that  go  to  the  heart  of  how  democracy  works  that  we  might  actually  need  to  consider  in  the  future.

 

00:32:06
Bill Curtis: We're  going  to  have  to  put  a  pin  in  it  right  there.  And  Daron  Acemoglu,  we  want  to  thank  you  for  being  part  of  this  and  beg  you  to  come  back  because  you  help  us  understand  some  of  these  complex  issues  in  a  way  that  is  really  appreciated.

 

00:32:20
Daron Acemoglu: Thank  you,  Bill.  Thanks  Jane.  Thanks  Ed.  This  was  great  pleasure.

 

00:32:23
Bill Curtis: Daron,  how  do  people  follow  you?

 

00:32:25
Daron Acemoglu: I  have  a  website.  I  write  for  Project  Syndicate  and  sometimes  for  other  foreign  affairs  and foreign  policy,  and  people  can  always  reach  out  to  me  via  email.

 

00:32:34
Bill Curtis: Daron  Acemoglu,  thank  you  for  joining  us.  Of  course,  Jane  Albrecht,  Ed  Larson,  thank  you  for  coming  today.  And  our  producers,  Mike  Thomas  and  AJ  Mosley,  thank  you  guys  too.  And  our  sound  designed  by  Michael  Kennedy.  Music  for  politics,  Meet  Me  In  The  Middle  is  composed  and  performed  by  Celleste  and  Eric  Dick.  Please  send  this  show  to  your  friends  and  then  Zoom  with  them  and  talk  about  these  issues.  This  is  important  stuff,  and  until  next  week,  be  sure  to  listen  to  the  other  side  before  making  up  your  mind.  Catch  you  next  week.
( singing).
From  CurtCo  Media,  media  for  your  mind.

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