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Tiger Gao’s podcast: Policy Punchline
His personal blog/email list: tigergao.substack.com
Transcript
Rob Johnson:
‘m back again here with Tiger Gao from Princeton University. He’s a brilliant young man, very sensitive to all the issues that he wishes people were learning about while they’re in college, as well as the nature of a podcast. And today in the second part, Tiger will interview me and lead the questions as though I were his guest. Tiger, it’s lovely to see you again. Thanks.
Tiger Gao:
I guess the first topic I would love to ask you about is how INET is changing or trying to challenge some of the orthodoxy of economics academia, economics policymaking, financial markets. What do you see as some of the main problems and challenges in these fields, and how do you think INET is trying to push through to change it?
Rob Johnson:
Okay. well, I guess there’s different categories embedded within your question. One is, where are the places that affect society, where economics may be misleading and doing the most damage? In other words, where are the fights worth having? Secondly, is if you were engaged in persuasion or reform, how do you approach that and how has that changed in recent years? And so, I guess where we started with INET, with the great financial crisis and I had worked with the Senate Banking Committee, and I had worked with Soros Fund Management, Moore Capital, both in the hedge fund world, was the sense that the deregulated finance, where government got in the way and the markets could take care of themselves until they didn’t blew themselves up, created a crisis. A crisis of legitimacy, of governance, of expertise, of academic finance and as you know George Soros had written a book going back 1987 called the Alchemy of Finance. He was a student of Karl Popper. He believed in radical uncertainty that Frank [crosstalk 00:03:01] Knight or John Maven P talked about.
Tiger Gao:
Yes.
Rob Johnson:
And myself, I had become an economist under the tutelage of a man named Charles Kindleberger, who wrote a book in the years when I was his student and his research assistant, called Manias, Panics, and Crashes. So I guess I was well seated to someday meet George Soros because there was a sympathetic, psychological vision of the financial market process. But I think that great financial crisis, many people thought it was going to be just a like, “Okay, you guys are going to go put that back together, and then we’ll be back on the tracks and everything will be fine.”
Rob Johnson:
But as we saw after the bailouts and the rise of the Occupy movement on the left, the Tea Party on the right, that loss of faith in government, loss in faith or notion of corruption, as Joe Stiglitz said, the polluters got paid, the people who made the mess or the people who got bailed out. You could start to see pressure. Even when people wise former Princeton graduate, Paul Volcker would say to me, in private conversations. We are not in a place where central bank independence is going to continue to be tolerated because Wall Street created a crisis. We bailed them out, probably the right thing to do, as opposed to going over the cliff into a depression, for sure.
But we’re not buying state and municipal bonds so that schools and infrastructure and hospitals and localities can function when they’re in a depression that was caused by a Wall Street recklessness. And people are going to start, like Ron Paul and others, protesting Fed’s independence is that allows them to be taking care of the financial sector and not society as a whole. So you could see all of this evolving. Around that time, the work that Tony Atkinson, Tom Pickety did upon top income and wealth database as part of which INET helped to fund. Joe Stiglitz’s book, The Price of Inequality.
The questions on social sustainability as Tommaso Padoa-Schioppa predicted started to raise their … And then the very, very long-term concerns about political economy related to climate change. The fossil fuel industry, why we were evolving in an environmental direction when the science was so strong. Scholars like Naomi Oreskes wrote about the Merchants of Doubt. The people who tried to sow the seeds of the notion using the same playbook that the PR men for the makers of cigarettes did about health or not from tobacco. They use that vis-a-vis climate to try to pretend climate was a hoax. It was a left-wing conspiracy or whatever.
And you could see all of these things just rushing up onto the stage together. And my own view was that the election of Donald Trump in 2016 was a symptom of the despair, the symptom of the awareness that things were starting to rage out of control on a lot of different frontiers. What’s happened with INET in that context is that in the beginning, we spent a lot of time at Harvard, Princeton, Berkeley, Oxford, Cambridge. And I’ll say this, my father had an old saying. He said, “If you let people think you’re a dragon, then you’re a dragon. But if they think you’re a dragon, go meet them and they’ll realize you’re a human.” My dad was a physician, but he was involved in medical politics. And he used to use that adage all the time.
So I thought, “I don’t have any animus towards economists prestigious institutions but if we go there and we foment critical discourse and try to help open the debate with them, with their participation, maybe being slightly more inclusive of people like Paul Scansi and others, we can start to evolve to a less rigid consensus than the world of rational expectations and free market ideology that seemed to be in the way of thinking about things like climate change and social sustainability. But I think what happened is the pace of disintegration and fear went much faster than many people expected or hoped would be the case.
And so the influence of elite brand name institutions was demonized by the people like Marilla Penn, the AFD in Germany, the pro-Brexit crowd, and Donald Trump and his cohort. And so you sense that … And then I guess in parallel with that, was going from traditional media where the influencers, the op-ed pages, the network television, the leading cable television were the conduits to people and out into the world of social media. I remember once the famous New York Times reporter Tom Friedman and I had been in a working group, and he said, “The only way I can keep my sanity is to not look at all the comments on Twitter about my column. I have to go inward and not be bombarded by hate mail and shaken to my roots.” And I thought that was a beautiful and a humble way of expressing it.
But the idea that Walter Cronkite, the New York Times and three Ivy League professors at Harvard, Yale and Princeton decide what America is going to do, just wasn’t the model anymore. And so I guess what I would say now is at INET, we want to foment critical discourse. Not saying, “We have a policy.” But saying, “Let’s debate the full spectrum of the policy so that people learn. They enlarge their imagination.” One of the mentors of my undergraduate career was a international economist Rudi Dornbusch. He’s no longer alive, but Rudi once said to me when he was consulting for the hedge fund industry, he said, “You were my student. Why do you guys get paid so much when we don’t get paid?” And I said, “Rudi your job, and you do it beautifully, is to expand the imagination, then our job is to pick the right model.”
And I don’t know why they pay one more than the other, because both were valuable, but he got a good laugh out of that. So did I. But the expansion of the imagination, multi-disciplinary activity and so forth, I think is … People like the MacArthur Foundation. When I was starting INET put together multidisciplinary research groups and everybody, economists sociologists, anthropologists, political scientists, historians, all felt they learned more because of the respect of the people that weren’t in their tribe that they developed because they’re quality minds in all of these disciplines. But as the outside game of social media, as you might call the signal to noise ratio, deterioration took place as the loss of trust in elite institutions.
I think that INET has moved in directions, which have to respect that change in the channels of influence, but it’s also moved to the direction of thinking what is important is not just influencing research leaders or the peer review journals, which we’ve done a lot of work in analyzing how they constrict issue space or have crony cabals, et cetera. But people like James Heckman and Angus Deaton and George Akerlof had done really serious work about these challenges of the peer review journals.
Tiger Gao:
Yes.
Rob Johnson:
And they influence tenure. They influence research assessment exercises in many countries. They’ll pick a guy who’s widely published, before they’ll pick a guy who this proposal is interesting because some people are like in a tenure decision. If you say no to tenure, and you’re a dean, you might get sued. How do you defend yourself? If you’re a research allocator for the government and you fund a controversial project, how do you defend yourself? And they were using the scorecard of peer review journal as a might call indicator or litmus test of who was deserving the research funding.
So it was a very powerful mechanism, but I think to come back to it at this juncture, moving upstream towards the realm where we started this conversation, what’s in the curriculum, what’s the education, what’s the difference between tests and credentials in your major and the broad array of things? How can INET create what I will call a repository of alternative thinking that’s not just taken a bite out of an Ivy League agenda? It’s fomenting a broader critical discourse and making it free, that a student like yourself, put it in a metaphor. Your head is not in a cage. You don’t have to pay for it. There are things to explore that you may disagree with, but they tweak your imagination.
And I think moving towards that realm also is doing something which is not playing an inside game with experts, but recognizing the outside game of the broad political participation of citizens at elite schools and other schools who can become more sensitive, more sophisticated, more curious, and more vital as citizens in contributing to a democracy in which market capitalism is embedded, and at times may need to be constrained. So there are a lot of facets to it. It’s a very fluid thing and I think it requires a lot of humility in the sense that it’s not … I think you could get depressed about not being persuasive in many instances. I think it’s a glacial process rather than an aha kind of thing, but there are many fronts associated with the challenge and there’s a changing structure of society and what’s viewed as legitimacy and they all influence strategy on the fly.
Tiger Gao:
Mr. Johnson, I guess to very quickly recap. I mean, it was very dense, your answer and you first brought up some of the large macro financial trends that we witnessed. And I have to bring up my own thesis advisor, Professor Atif Mian who is also the director of the-
Rob Johnson:
Yeah, I know him. He’s a brilliant guy.
Tiger Gao:
… Julis-Rabinowitz Center.
Rob Johnson:
House of Debt. That he and Professor-
Tiger Gao:
House of Debt, exactly.
Rob Johnson:
… Sufi in Chicago. That’s a wonderful book.
Tiger Gao:
He’s one of the foremost financial economists of our age and he was obviously explaining to us, he was trying to link inequality credit, the fall of interest rates, asset prices, productivity growth, all of those things together and analyzing those cycles or trends. So that was one part. The macro financial issues and how a lot of the experts and market participants before 2008 were unable to imagine the unknowns, as you were saying. So that was … The second part-
Rob Johnson:
Well, for instance, the bailouts, instead of mortgage reductions and recapitalization of the banks, and right down to their bond holders had huge distributional and fiscal implications. But the world didn’t have that all on deck and in the consciousness of these are on the menu. Exposed …
Tiger Gao:
Yes.
Rob Johnson:
… he-
Tiger Gao:
Exposed.
Rob Johnson:
… and Sufi explored and articulated beautifully what might’ve happened, but wasn’t necessarily in the middle of a crisis where anybody had the confidence to do those things.
Tiger Gao:
Right. And the second part that you were bringing up, I guess, is what I would say is the fragility of the expert class in today’s age, somehow, because there are many explanations of this. Some people say it’s because the experts weren’t so good and there are people who would say it’s because the media landscape has shortened everybody’s attention span, and the experts feel obligated to adjust to today’s media landscape, which inherently reduces the quality of their arguments, right? You have to reduce … My current professor, Christopher Sims, who was a Nobel Laureate many years ago and when I take his class, I mean his way of thinking as a Bayesian, how he thinks about probability, how he updates his beliefs under uncertainty in today’s age, how he thinks about hypothesis testing for COVID and why vaccines should work, and I mean, it’s brilliant, but the common people do not hear this.
If you look at Twitter, you look at all the shouting matches between academics and if you go on CNN, you feel the economists do not know what they’re talking about. And so I guess the fertility of the expert clause, because of all those societal forces, another thing that you mentioned, and the third thing is something very, quite close to my heart, which is the tyranny of the big journals. I have personally not gone through the publishing process myself. I’m just an undergrad. But around me, so many graduate students tell me horror stories. And we see Twitter threads very recently, there was a very famous Twitter thread, just a couple of days ago accusing some MIT Nobel Laureates for abusing their power and for threatening people.
And it seems that everybody outside of the top schools have some horror story to tell about the bath culture in top schools and how people in top schools abused them. And yeah, which let’s you think about your reality of academia and how academics might be even more political than the corporate sector, and they might be incentivized to really fight for rewards, reputations and prestige in a different way, in a different battle.
Rob Johnson:
But one has to be what you might call an institutional economist to study this context, because at one level, the idealized or romantic notion of the intellectual professor is someone who is independent, curious, has a brilliant sensitivity and skills to render whether writing or mathematics or what have you. And so they are producing for the public good. There is another sense which was beautifully articulated in a 1922 article by the McGregor and gadfly, HL Mencken. The name of the article is The Dismal Science, where he says, the only people I trust less than theologians are economists because they understand the structural power.
They understand what promotion, they understand what angers the trustees or the development department. They understand what would stop them from getting a government position of prestige like a member of the Federal Reserve Board, or Federal Trade Commission or something like that. They understand what the media won’t publish because their advertisers would be furious if they carried … So that in essence, and this is a beautiful comment I got from one of my board members, Gillian Tett who works … She’s a cultural anthropologist. She works at the FT. I asked her over a lunch at the onset of INET. I said, “Gillian, give me some advice.” She said, “Robert, study the silences, because what not said will tell you where the power is in society.”
And I thought that was a fascinating notion was … So in some level, like I said, the romantic open discourse where everything is these free fair-minded brilliant people exploring is overlaid with all the incentives and the forces, which I may call call the sociology and anthropology of the profession, and that surrounds the profession. The context in which it’s embedded. And that makes for a very different interpretation and the cynic on the outside says, “The expert is a tool.” What John Ralston Saul, the famous Canadian philosopher in his book Voltaire’s Bastards, calls the rational court. They’re in the king’s court. They’re serving power. They’re not describing truth or the spectrum of possibilities.
And so I think there are lots of people who might be, trying not to say too paranoid or too suspicious, but when the social system isn’t working right, it fuels through the emotion of fear those suspicions and expertise goes on trial.
Tiger Gao:
Mr. Johnson, I guess, just to quickly follow up and perhaps this is something I’d love to hear your thoughts on, which is that people outside of academia are sometimes very skeptical of what people in academia are studying. They think, a lot of the times, academia is ultimately not impact-driven, they’re ultimately incentivized by their own intellectual gratification. You need your research to convince three people around you or the referees at journals in order to publish and you make whether marginal or non-marginal improvements of certain literatures, but you’re turned on by the theoretical challenges rather than seeing whether your research impacts people. And a lot of practitioners, whether in financial markets, certainly in financial markets, they’re very skeptical of financial economists, but even in policy-making because I recently spoke with a former Indian high level policymaker who was on our show and he was advising Modi.
And he was saying how a lot of the research done by Esther Duflo and Abhijit Banerjee, the very recent Nobel laureates from 2020, randomized control trials, J-PAL, poverty reduction. He said it almost had no impact on economic policy. I mean, because you’re doing highly controlled, idealistic experiments, right? You just need a couple of million dollars. You find two villages and you run randomized controlled trials, but what happens many years after the intervention, you don’t really know, is the impact sustainable? You don’t really know. And even if you can prove that there is some improvement, it seems that so much of academia is about identification, finding some causality publishing papers.
And whether this really relates to the political economy of the country, whether it suits the political purposes or agenda or whether it is realistic to adopt that policy, it is not of the economist concerns. They’re there to make theoretical improvement. So I’d love to hear your thoughts on that, but I guess the other side would be saying, “What do you mean? I mean, that’s what economists are supposed to do. They’re supposed to push for theoretical arguments and think about these things and not have to worry about normative questions and whether their policies can be adopted by this current regime and so on.” So I wanted to hear your thoughts on this debate.
Rob Johnson:
Yeah. I’ve got a number of thoughts. One of which reminds me when I was a graduate student at Princeton, the Institute for Advanced Studies at Princeton was run by an economist named Albert Hirschman. And I would encourage people to read his biography by the Princeton historian Jeremy Adelman, because Hirschman was the kind of guy that when he talked to me, I was a young guy wondering if I wanted to stay and do all this formalism. And he said, “Well, you’ve got a lot of training in math. You ought to stick it out past your generals and you can take history courses and stuff.” But he said, “I’ve always felt that an economist, every five years should go out into the world to reconfigure what is important.”
In other words, what should be studied, what matters you don’t get from the inward rituals and the fashion shows and the preferences of the peer review journals. You get that from talking to business people, policy makers, understanding where suffering is and trying to understand with your toolkit, how to address those real challenges. So I think that Edelman’s book gives you that sense of Hirschmann, what I’ll call the inductive inspiration as to what your research agenda should be that makes a meaningful contribution to society. And that staying inside, metaphorically, the monastery, dealing with your peers, being completely obsessed with the technique, the elegance, the beauty of a mathematical representation.
And there’s nothing wrong with being a great mathematician. It’s like mastering a language, but if it’s done at the expense of using the tools for some purpose, it invites that skepticism. Early on, well, before the pandemic, I travelled around the world a lot. INET is not an American institution in many ways. We’ve got outposts in India, relationships in China, all over Europe and what have you. And I remember being in China one time at Tsinghua University for a lunch during a conference. And some of the scholars said to me, “You know the most frustrating thing about our profession? And I said, “What’s that?” They said, “When we go to the top five peer review journals, which everybody tells us we have to do to get tenure here in China, we put out a paper, that’s an empirical paper based on what’s happening in China, because we think the world is interested in China.
And I said, “Well, it is.” They said, “Yes, but they say that the referees are all in roughly North America or London and the referees don’t have confidence that they understand Chinese data. So they want us to take the paper with the same concept and apply it to American data, and then they’ll publish it.” And these guys, they were tearing their hair out. They were like, “Wait a minute. No people are interested in China. China is like this big, new mystery coming on stage in the world economy. That should be published.” And so there were lots of interesting stories as I explored what you might call the basis for INET and then the how does INET help or make an impact early on?”
And I don’t know how you match elegance, rigor and relevance to satisfy everybody. All three, have a dimension of luster. But if you leave out relevance, then as you’d say, the practitioners, the policy makers and the citizens are going to wonder what you’re doing in giving this profession, any kind of prestige or license over the governance or the system structure of society.
Tiger Gao:
I guess one of the things I would quickly add on to that, speaking of the economics profession, perhaps you are a little bit more distant from this, but at my age, when students think about getting a PhD, everybody is talking about this new trend called pre-doctoral fellowships, pre-doctoral research assistants, pre-doc. You do two years of RA research for a professor, and then they’ll write you a recommendation letter so that you can get into a PhD program, which means nowadays you would do two years of that plus six years of PhD, which is eight years. It’s a very, very long commitment. And-
Rob Johnson:
Oh, you bet. You didn’t mean doing it like I did ride the shotgun. I worked for Morris Edelman and Kindleberger while I was taking classes. You’re talking about as a full-time-
Tiger Gao:
No, as a full-time.
Rob Johnson:
Wow, okay.
Tiger Gao:
I don’t know if you know that. I mean it started with Raj Chetty. I mean, he’s the guy who made this record because it was really funny. I was talking to my friends, they were saying Raj Chetty is showing up at the conferences with three, five publications every year and everybody is like, “What is he doing?” I mean, obviously Raj Chetty is the best applied micro economist of our time. Yeah, but also he has 12 pre docs.
Rob Johnson:
Yeah. He’s built a machine. Wow, yeah.
Tiger Gao:
Yeah. And people say these labs are almost like investment banks. I mean, not literally, but in some sense, it’s that you go in there for two years, they train you into doing data work and you crunch data every day for two years. And eventually you’ll come out getting into a much better PhD program than you otherwise would because you have a recommendation letter from a famous professor. And these days it has almost become somewhat of a prerequisite. And there are European students who would do their masters in Europe and then come to the US to do another pre-doc before applying to PhD programs. So you see all those 25-year olds, 26-year olds, starting their PhD because they did like two master’s and two pre-docs.
Rob Johnson:
Yeah. When I-
Tiger Gao:
And the, yeah-
Rob Johnson:
… was a graduate student, what a lot of folks did was they went to London, they went to places like LSE and UCL, and they did a masters. And then they came in and it was almost like for the first year or so, they were on cruise control because they’d already taken the equivalent of general exams and they would make money as teaching and research assistants and then be ready to go in year three. Some of them finished in the third year with their dissertation because they were on the, how do I say? Skill development ahead of the curve where they could do that. But I hadn’t heard about the pre-doc
Tiger Gao:
This is the new big boss that everybody, every school, every professor is hiring this thing. And I was talking to a Professor Bill Janeway, who is a co-founder of … And I had forgotten to mention that he was one of the first people I interviewed for my own podcast two years ago. So I’m very-
Rob Johnson:
He’s on the INET board. He’s a donor at INET-
Tiger Gao:
Yes. I’ve been watching his videos on venture capitalism and public partnership. But yeah, so he was telling me, I said, “You had a PhD and then you went to investment banking and private equity to do finance. How is that?” And he said, “I got my PhD in three years.” And I said, “If I were to get a PhD this year, I would need eight years basically of my life. And now I think that basically delays the profession. I mean, this is a huge debate within the economics professions these days, whether it is fair to treat these undergrads and whether doing this pre-doc thing is good for them, because the pro-side is saying, you gained two years of skills. You think about research questions, and you get to work with a professor very closely for two years.
The downside side is especially the theorists who don’t use a lot of those pre-docs. They really hate this because they say you push her back for two years, and you’re grinding those data. If you get your PhD in eight years, is that really worth it? So I guess my question to you would be, what do you see as the necessity of an economics PhD, because you got the economics PhD, but you did not end up going to academia. So did you …
Rob Johnson:
No.
Tiger Gao:
I feel like these days, it’s not worth it to do this?
Rob Johnson:
Well, I think different people are wired different ways. And I just got to the place where I had a lovely experience. Alan blinder, Bill Branson, Joe Stiglitz, Avinash Dixon, all kinds of very interesting people. Lester Chandler, William Baumol but I just didn’t sense, and I had a lot of confidence in mathematics having gone to MIT and studied a lot of aspects related to sailing and Naval architecture and whatever prior to that. But I didn’t feel my sense of purpose was going to be fulfilled in academia. I just didn’t push in that direction. And I guess maybe I was a little bit influenced by my father. He had been an All-American swimmer at University of Michigan. Kind of a superstar. Went to their medical school, was a professor publishing everywhere and he followed in the footsteps of his father and he left academia.
He became what’s called a clinical professor of urology in Detroit and Wayne State University, not at Michigan, which was in the hall of fame of medical schools and built a private practice. And I asked him, “Why did you leave academia dad?” “When I was in the middle of my PhD program … ” He said, ” … the smaller the stakes, the bigger the fight.” It’s just not a sociology you want to live in. And you can laugh. That’s a funny thing, but his sensibility was that there’s all kinds of competition and petty in-fighting. What are you enduring emotionally and what are you trying to do? And I think culmination of that, and there was a professor at Princeton in those days who’s no longer with us, Peter Kennan. He and I used to talk at great length about the issues and international fights.
He and I and Paul Volcker went fishing together and Volcker inspired me to come to the Fed and do my dissertation fellowship there and then help me get a job on Capitol Hill where I had to do things like learn how to write speeches, different techniques. And I just was captivated by the learning process of understanding the institutions of politics and markets and what have you. And so maybe to use the Albert Hirschman analogy, the inductive inspiration and curiosity captured my attention. And I didn’t probably think I had the imaginative gifts of someone like Joe Stiglitz who very few people do, but at the time he was my teacher. I knew him and Sanford Grossman and the handful of people that were just putting out theoretical papers over and over and over that were always at the cutting edge and the frontier. And I admire them greatly, but I didn’t think that was my calling if you will. It’s more an intuitive thing.
Tiger Gao:
Mr. Johnson, you were saying how the incentive, I mean, sorry, the pie was so small such that the fight was really big. And I wanted to ask you, if you think academia would really need to reform dramatically in order to change the culture or retain more talents because in some way you could say finance is not really a zero-sum game because it’s … Sure some people get burned in the trades, but overall, if you’re good, you can make money. You generating alpha does not really prevent another fund manager from generating alpha, but in academia, there’s only a certain limited amount of job posts, journal entries and every top school hires three people a year. So we seem that the pie … You cannot actually grow the pie almost in some way. It’s like Bitcoin or gold. Limited in supply.
Rob Johnson:
Well you’re right. The demand for scholars is limited where you can grow the pies and the quality of what you do. And if you think you can make a market difference and be rewarded for it and be satisfied by it and that has to do with the tastes of the profession, what they would ask you to do what they would honor, is truly creative. When I was in graduate school, that man is a professor at Princeton, Dilip Abreu was a brilliant game theorist. He and David Pierce were both graduate students my year or the year ahead of me and their gifts in expressing game theoretic puzzles or problems and the different ways of resulting was extraordinary. And they were quickly picked up by elite institutions. Princeton had a reputation in the realm of game theory and high theory, and they were in their element.
And so I guess for me, coming out of that Kindleberger realm, he was a man who had worked at the New York Fed, worked with the Marshall Plan, the intelligence community, had an institutionally inspired sense of economics and what was important, engaged in economic history. And I think economic history is fascinating because what it really is, is multi-disciplinary open season around particular episodes, hopefully with things like data and economic tools, you can shed light on things, but it’s much less constrained than working in the theoretical framework and modern people who’ve got a historical background. People like Adam Tooze at Columbia and others are able to express a great deal, That germane to now by using historical analogies.
And you’re right, when we’ve talked in the past about being wary of how people use history to justify what they want you to believe now that how good a fit is the historical precedent for the challenge before us is always an open question, but in my own sensibility, which has got a lot more humanities and music and what I’ll call right-brain element, I didn’t think I was in my element by trying to be a stellar economic theorist. And I didn’t think I had the gifts that Dilip or David Pierce or others head in that realm, which was what you might call at the core of the fashion of the time.
Tiger Gao:
I guess, how do you see as some of the either urgent challenges of academia, but also what they’re generating these days? Because we know that setting aside economics and social sciences, just in general in society, a lot of people, especially if you’re a wondering what students like to talk about these days, students really like to use the word postmodernism. Everybody’s using this word these days, which is saying in a post-modern society truth don’t matter as much, values are not seen as important, rules and norms used to be more set in stone and now everything is expotentialism. Everybody has to create their own narratives and blah, blah, blah. And-
Rob Johnson:
It’s all relative, yeah.
Tiger Gao:
Exactly. And one of the thoughts I wanted to bring up and also ask your thoughts on is that whether you think academia today, I guess not just limited to economics, but also other humanities and philosophy and so on. With academia is more destructive than generative today, because there are intellectual historians who were saying that pre-modernism was about creating all those blocks on top of each other, whereas postmodern is more melting away all the blocks. And that’s why many feel that the second order consequences of all kinds of movements these days are not very well understood. And they’re very destructive because it makes people feel victim hood and so on.
Tiger Gao:
And even people like Thomas Sowell in economics have made these arguments and people aren’t satisfied with the research that we’re seeing. So rather than imagining new ways of economic policy where we’re whatever it seemed to be a lot of questioning of the previous, maybe not in economics per se, but it seems that in other disciplines, a lot of people are saying that. So I wanted to hear your thoughts on whether you see us being in a cultural/social/academic recession in some way, where people wake up in the morning and they’re more interested in owning the libs or something rather than creating than something. They’re creating consuming culture, but we’re not really doing that. We’re not creating.
Rob Johnson:
Yeah. Well, I do think that all of the breakdowns associated with postmodernism at one level has been constructive in that false confidence gets replaced by a certain humility when the arbitrariness, what I will call the presuppositions are exposed as being that and not science. You can create a nice array of things with normative implications and call it science, unless the presuppositions, which are building blocks, arbitrary, sometimes making it “mathematically tractable” have a huge influence on your result. In which case you’re not proving anything, you’re asserting something. So I think some of the post-modern challenges restored some humility. On the other side, and we’ve talked about a little bit about the commodification of social design. When what people assert is truth is essentially marketing for power and the power system is creating a tremendous amount of suffering.
And in the case of climate change, a tremendous amount of danger, then the people who were engaged in these rituals, these intellectual jousts are fiddling while Rome burns. And that there is an enormous need for courageous people who understand what’s going wrong. And there’s an even deeper need for understanding the psychology of healing. The book I most often cite in podcasts now, was written by a man named John W. Gardner who was a Republican secretary of health education and welfare in the 1960s in the Lyndon Johnson, which was a democratic administration, who presided during the time of the riots in Watts and Detroit and Newark and other places. He presided at the time when Martin Luther King was murdered. He presided and observed as a former cabinet official as the Black Panthers Rose up, as the ‘68 conventions, particularly in Chicago, exhibited violence and as people were terrified of a disintegration.
And I would encourage everyone to read his book called the Recovery of Confidence, because it’s about needing a dissent and needing purpose at the same time. And when you talk about the questions of post-modern rivalries and debates and so forth, it feels the dissent is present, but the purpose hasn’t been defined. Technique, knowledge and wisdom are different parts of the human spirit. And I think that many of the people screaming at these academic food fights, metaphorically, are saying, “You’re not focused on the important questions and you’re not exercising wisdom and you’re not healing society and perhaps you’re not free to do so.”
I know people who study universities, Jerry Herron at Wayne State in Detroit wrote a book in the 1980s called The University and The Myth of Cultural Decline, which was the power reaction against what I’ll call left-wing humanitarian or humanist liberal arts educators. There was a famous document called the poll memo by a man named Louis Paul. He wrote it as a memo for the Chamber of Commerce, and he later became a Supreme Court justice saying, “Why are we letting the antiwar movement and people like Ralph Nader and the hippies and these left wing intellectuals have so much influence over the design and structure of our society in this chaotic period? We need to exercise the strength and the power of corporations in the sense of purpose and the, not demonization, but the actual affirmation of the importance of business.”
And he created a rallying cry for a profound change in the incentives around the university. And I don’t know if perhaps now 40 years after that time, maybe a little bit long, 50 years after I think it’s 49, 50 years since the Paul memo was written. Whether the pendulum has gone too far in the other direction, there are a whole lot of people that joust to demonstrate their intellectual acumen and they only pick fights that would offend powerful people because they don’t want to get caught in the crossfire. So I don’t know how we deal with important questions that do affect concentrations of power and exercise wisdom and a recovery of confidence unless courage is part of it. But clearly the kind of wrestling mattress that you’re talking about are not sufficient for intellectual to play a wholesome and important role.
Tiger Gao:
Yeah, Mr. Johnson, it really fascinates me that you didn’t use the word truth in what you were saying. You were talking about return to this kind of dialogue or whatever. And a lot of thought leaders these days and public intellectuals they often cite misinformation as a big threat to our society and they cite the deviation from facts and truth as a huge reason why we’re in the shape we’re today. Because I mean, going back to your very first question about Rome being on fire, and I wanted to hear her thoughts on truth, because it seemed to me that truth … I’m not sure if truth matters as much as we make them to be, in the sense that humans are not naturally truth seeking. We’re more driven by our narratives and narratives is a word that you used in our previous discussion, and it’s not just the stock markets and Bitcoins that are being driven by narratives right now, rather than fundamentals, but rather, Noah Harari wrote this in Sapiens.
And his whole theory is that humans are fundamentally organized by narratives. So I wanted to ask your thoughts on this statement, because it seems that there’s no point to try to get back to the truth because truths don’t really exist per se, but it should be that we need to get back to better narratives. Meaning back in the post World War Two period, it used to be patriotism that that was the main narrative. And today it was nationalism, today is tribalism that’s the main narrative that’s driving the division. So it seems that we just need to create a better set of narratives. Right?
Rob Johnson:
Well, I think the yearning for that notion called truth is a reflection of what my friend Vincent Kendrick in Denmark wrote about in his book Info Wars. And it’s about the inability of people to experience credible guidance, trust in the people who are making the arguments, et cetera.
And that yearning is understandable. On the other hand, I can take from the turbulence between two world wars of the author, E.H. Carr, who wrote a wonderful book called The Twenty Years’ Crisis. But the book I’m quoting from is called What is History? And he said, “Facts are like sex. If you don’t put something in them, they don’t stand up.” And the idea that truth is something that is there as opposed to something that is there in conjunction with the interpretation is I think a false innocence. I think that the facts you collect, there’s a poet that I quote frequently named by IN-Q is his stage name. IN-Q for in question. And he’s got a poem called Evidence. And in the poem, he says, “People will find evidence to support what they want to believe.”
So is that truth? Is that the whole truth? Is that a subset of the truth? Even if the subset of that evidence is accurate, if it’s not associated with the evidence you didn’t cultivate, it may be misleading. So trying to understand what truth means is a very subtle and difficult thing. And I understand the yearning for the ideal, given the chaos that’s before us, but like I said, I don’t think it’s achievable without the role of interpretation. And that brings you back to narrative and everything else as the partner with truth.
At some level, what we want are high integrity, trustworthy scholars, who marshall evidence and paint pictures for us of what the challenge appears to be and how they would resolve it. But the techniques of partial truth, of what Vincent Kendrick calls Info Wars are quite effective. And at some level we need to, I think, deepen our awareness of mind science to understand the regions of the brain and what affects your perception of truth, how you might be given comfort rather than truth by a certain stimulant, and that the comfort that you experience overrides your ability to discriminate between truth and falsehood.
Those are very, very interesting questions that you’re asking, but truth is not quite so easy. I remember John Lennon singing the song, Just Give Me Some Truth. And I remember one of my friends who used to know and work around the Beatles and some of the Beatles, he said, “He used to say gimme some truth. He’d sing it on stage and then after the concert, he’d mutter things like, I just wish I knew what truth was.” And I guess that’s where I think John Lennon’s intuition is pretty close to where I sit.
Tiger Gao:
Yes. Wow. Do you think we have made progress as humans?
Rob Johnson:
I think we’ve made digress in the last 10 years. I think we’re going backwards. And I think some of the end of things with the media there was a law called the Fairness Doctrine, the polarization in politics and other things, the knowledge of how repetition and online, since you’re not dealing with someone you know face-to-face that you’ve got to deal with day after day, you’re being bombarded by hundreds of people who you only know electronically. How you process that signal to noise ratio and discern what you believe is true is a very different process now.
When you’re with a human being, there’s all kinds of elements of non-verbal communication. What poker players call a tail. You’re watching the body language of the individual to try to discern, when you’re playing poker, whether they’re bluffing or whether they’re holding a strong hand of cards and they study each other. There’s a psychologist woman from Russia who went to Harvard named Maria Konnikova. She writes for the New Yorker, who’s written a lot about this subject. And I think, I think her nuance … She’s someone I would go to with that question that you asked me, and she’d do a better job of answering it than I can.
Tiger Gao:
I see. Another thing that I wanted to hear thoughts on is, you worked with George Soros and at the beginning of our interview, we talked about uncertainty. Not knowing the unknowns of the unknowns, basically. And I wanted to hear thoughts on all the recent trends in finance that we’re seeing. I mean, not just the game stop saga, not just the rise of Bitcoin, not just the stock market has become more detached from fundamentals, but also the fact that we seem to be in another irrational, exuberance, huge boom, that a lot of people will say, “There is no way we don’t crash eventually.”
Because it is simply supported by Federal Reserve policies, liquidity, easy money, cheap capital, low interest rate, none of this is sustainable, but on the other hand, it also seems that people have such a doubt on the expert class for getting us out of this horrible situation. It seems that this has to be the new normal and this new normal has to continue for a long time. So you would be a fool to think that this will crash.
Rob Johnson:
Yeah. I would encourage people to look at George’s book, The Alchemy of Finance, because there’s no sense in which you can say everything follows some deterministic equilibrium, but you have to have a hypothesis about what’s going to change that brings the market down. And the timing of when. I had a lot of friends who were short sellers when I worked in the hedge fund business that worked with other firms, but they were my acquaintances. Jim Chanos, who’s quite famous and was involved in the Enron episode of unmasking Enron’s fraudulent positions through some of their special purpose vehicles.
And people like Jim and others in that realm used to say to me, “It’s really dangerous to short a technological innovation that has no earnings, because there’s no way you can disprove that hypothesis. That as long as people have that subjective, psychological conviction, the price isn’t going to come down. You take something like the steel industry then you say, we can look at 100 years of data on the steel industry and the PE ratio goes from five to 23. And if it’s at 28 now, you think the pendulum’s rocked way over to one side and it will probably mean revert and it’s dangerous to be there.
Well, looking at the circumstance right now, and I’m not an active speculator so I don’t want to pretend from my past that I know I have a particular insights, but I don’t see interest rates coming back up until the real economy comes back up. And the real economy will either come back up through fiscal spending on real projects, like energy transformation and a rise in wages and perhaps a rise in wages in the lower two thirds of society where the propensity to consume out of every dollar earned is much higher. So therefore, potentially a redistribution of wealth and income to a more level place would create a more resilient and stronger aggregate demand, which would allow interest rates to go back up.
And so then you might say interest sensitive sectors are going to get hurt. Other sectors are going to do well and the Fed will follow that because there won’t be an inflation danger until that aggregate demand strength is there. And so we might continue to wallow in this low interest rate environment for a very long time. But to go back to the Soros question, what’s the catalyst for busting what people are calling a bubble? If you say to me-
Tiger Gao:
It’s not very scary.
Rob Johnson:
… they’re going to stay with accommodative, monetary finance for the next day, next decades, excuse me, then you’re not going to want to get off the train, especially when bond yields are like one and a half percent.
Tiger Gao:
Yes. Which is already seen as too high these days.
Rob Johnson:
Yeah. So I don’t know. Your question is a good one. I’m not in the cockpit. You do much better to get my former colleague Stanley Druckenmiller or Louis Makken or others to be on your podcast and explore these issues. But I do think that notion that Soros has, we don’t know the future, then you got to tell me what you know that the rest of the world doesn’t and when they’re going to find out so it will catalyze a change in their perceptions which sends the market down. And I don’t have that hypothesis and I’m not studying it closely enough to give you one. But that’s the process I would have followed had I still been in the business.
Tiger Gao:
It’s very hard to do hypothesis testing especially when the underlying distribution is shifting, as you said.
Rob Johnson:
Yeah.
Tiger Gao:
When you do not know what the actual probability of distribution is per se. So yeah, this is the radical uncertainty.
Rob Johnson:
You can be right about the outcome, but you can be wrong … What is the old saying John Maynard Keynes said? The market can stay wrong longer than you can stay solid-
Tiger Gao:
Than you can, solid, exactly.
Rob Johnson:
And …
Tiger Gao:
Which is why short sellers get burned all the time, because they may be right eventually, but they couldn’t stay solvent.
Rob Johnson:
Yeah.
Tiger Gao:
It seems INET is somewhat connected with Silicon Valley, in some way. I mean, you mentioned P.M. Anani is leading operations in San Francisco. You guys certainly do very interesting research related to tech innovations and productivity and so on. So I guess this is a very general question about what values you see Silicon Valley’s contributing to the society right now? Whether we are in a great technological stagnation that some people would say, whereas Eric Weinstein would say, we’ve been innovating so much in bits and not the quantum or, yeah.
Rob Johnson:
Well, I think first of all, I see a tide raising. I’ll quote my friend and professional colleague, Rohinton Medhora who runs the Center for International Governance Innovation. Has been a partner with INET through his founder, Jim Balsillie being one of our founding donors. And Rohinton asked a question. We were at a meeting at the Vatican just before the pandemic, last February with Pope Francis and his team. And Rohinton, I’m paraphrasing said essentially, why do we have a food and drug administration where you trial the drugs, you make sure they’re safe before you put them out there but with large scale social transformation of technology, they go out there and they can do good, or they can do damage, but we don’t test them, evaluate them or preauthorized them.
I think there are a lot of people who are frightened right now of the, what I call, natural monopoly, the increasing return structure, which creates tremendous concentrations of power in the governance of information and perceptions by people like Google and Facebook. And so there is a lot of movement of afoot. INET has produced some research reports on antitrust enforcement. There was a lot of concern about the relationship between the service they provide, say, Facebook connecting with all your high school friends and the data they collect, which can be used for marketing or intelligence and espionage without you knowing. And I think that we were in the middle right now of exploring what Rohinton might’ve called the social ramifications of these successful market structures. And are they doing good or harm?
We mentioned earlier in this conversation, the social dilemma. The quality of the information environment, the quality of democracy, the ability to separate commerce from cyber security in the multilateral relationship between the United States and China. The ability to monitor hacking. All of these things have very, very profound social implications and I think we’re still at the infancy of trying to understand how to harness them for social purpose. In a place like the United States where the, what I’ll call fetish of individual rights and freedom, meaning the freedom to do what you want, but doesn’t include the freedom from it being done to you by others, we have to reinvision what is the balance and what are the ramifications.
I think the displacement of work associated with automation and machine learning has productive potential, but the history of the United States, say since 1970 is not inspiring in what you might call the adjustment assistance for people and regions and professions who are being displaced by innovations. And some of the social despair and discord that we’ve talked about in this conversation are now on a scale and a breadth that is quite daunting. It is part of the rage and the despair that we are grappling with.
So I do think that the, what you might call deeper questions of what is the purpose of a society and how can technology be channeled, shaped, governed to be aligned with that sense of purpose is a very important mission in the coming decades. And the capacity of governance to actually understand when I go to the seminars that we hold in the Presidio gatherings for INET, it’s fascinating for me to learn how much these people from Silicon Valley around the table understand about the structures and what they’re doing relative to the people in Washington.
So to govern something, in other words, you don’t want to throw the baby out with the bath water. You got to be able to understand what the good of it is and what the bad of it is that needs to be restrained. That involves understanding the technology and understanding having a vision or a metric of what social purpose is so you can align the technology with social purpose. And I don’t think that at this juncture, we have matured in ways that allow that and to say whatever a tech entrepreneur wants to do, they can do because of individual freedom is an randy kind of fantasy which-
Tiger Gao:
And I guess-
Rob Johnson:
I guess …
Tiger Gao:
Yeah, please-
Rob Johnson:
At the other end of the pendulum is authoritarian control of everything and stifling of innovation that could be helpful, or people fighting over intellectual property rights and so the better thing can’t be discovered using litigation to intimidate people so that you can take them over at half the price of what their innovation is worth. If you’ve got deep pockets, they’re all kinds of things happening in that realm that are very, very profound potentially on the quality of life. And I think we have to understand that.
On the POS side, I’m very curious about removing what you might call the barriers to education. I went to MIT. I understand that the electrical engineering curriculum that I experienced is available online for certification all throughout India. That may have some very powerful equilabrating alleviation of poverty, creating knowledge-intensive human capital in places that couldn’t afford to pay the tuition. So I think it’s not all good or all evil, but to me it feels as a society, we have to redefine what we want. And it’s almost childish to just focus on individual rights in light of the lessons we’re learning. And we have to understand the ramifications of these innovations and we need to channel them in constructive direction.
Tiger Gao:
It’s really interesting that you brought up the people can learn how to code example because right now you can just get certified by Google by going through the courses and you can get a job there or something that is equivalent as a college degree in computer science or data science, sorry. And so I guess, this is going back to the very beginning of our conversation, which is the discussion on Michael Sandel and the tyranny of meritocracy in some way. So does that mean credentialism will be increasingly more obsolete as we democratize this thing? So in other words, what is the point of having another … It seems that the only solution out of this current elite thought bubble of Princeton or whatever, is that you either, significantly reform, where you simply democratizes this to such an extent that they no longer exist.
Rob Johnson:
Well, as you know there’s both Steve Jobs and Bill Gates did not finish college and they did okay. I think if you’re talking about what’s you might call vocational tools, that’s a different thing than what you might call building the soul of society. There is what I would refer to as a humanities, arts, civics, meaning understanding the institution, society, and the ramification. Philosophy and all the things that should nurture the curiosity of most every citizen. Probably should start in high school or junior high school.
I have a daughter right now in sixth grade who’s reading the Iliad and the Odyssey and writing poetry about it and she’s a very gifted student, but I think those parts of what I’ll call soul development are very important. I think the vocational skills, which are related to the credentials and the career development and the economic security that one might achieve are a different category. And I don’t know quite how to organize education so that all of these things are what you might call that in proper levels, brought to bear for the young people of tomorrow.
Tiger Gao:
Mr. Johnson there’s simply too many other themes we can dive into, but perhaps I should consciously, gradually wrap up with one last big, big theme I wanted to hear your thoughts on which is the future of capitalism in some way. Because you mentioned this randy view of Silicon Valley, which a lot of people say is this Schumpeterian creative destruction view of Silicon Valley, you leave them alone, let them create values and if they can sell a software, that’s adding value to society. That kind of view, you don’t seem to think that that’s the future of capitalism, certainly not the future of capitalism.
Well, I think there’s a balance here. I do not think that Silicon Valley sprung up out of the imagination of a handful of entrepreneurs. I think it was guided by DARPA and the NSA and the military industrial complex. And has many side effects that weren’t related to the initial agenda, that those gifted entrepreneurs and so forth imagined and are now developing and implementing. I think the space program had many side effects. So I guess what I’m saying is I think there’s a role for the state as a catalyst. It’s not a pure free market individual phenomenon. That’s a fantasy. Watch Adam Curtis’s documentary, was it All Wrapped up or All Caught Up In Machines of Loving Grace? And it’s about the libertarian fantasy that took ’60s counterculture and whole earth catalog marketing materials to this notion of freedom of technology.
But I think that the sense of the future of capitalism is whatever the structure, the state, the private sector, how assets and other things are taxed or not, whether the nation state can protect you, or whether in a global system there’s enough sensitivity at the level of global governance to take care of concerns. I think these are all very, very stressful dilemmas to consider. They’re stressful because I don’t see any easy answers. I do think that there’s a lot of which, I might call, unintended benefit in some creative destruction, but I think if it’s unbridled and facilitates a tremendous concentration of wealth, income and therefore political power, it can times do more harm than good.
I think we will see if we succeed, the state playing a very substantial role in energy transformation so that we meet the climate change before an ungodly emergency overwhelmed society. I think the state will have to play a role just as, I’m being silly, if the Martians attacked us, we would have to have a war preparation vis-A-Vis the UFO’s. In World War Two, we had war preparation led by the administrations. Seth Klein, Naomi Klein’s older brother, has written a book called the Good War about the analogy between war preparation by the Canadians who joined World War II before the United States, a couple of years before, and the need for the country of Canada to organize itself for energy transformation, because they are a big fossil fuel producer.
So they have both demand and supply side challenges. So I think people like Mariana Mazzucato and Bill Janeway are contemplating these interactions, and that has something to do with the viability of the system and the potential for what we might call a mixed capitalism to succeed. But I think at the end of the day, the one thing I would say and this comes from my work at the Union Theological Seminary, markets and capitalism are a tool, not a deity. They are a means to an end. In service of society when used appropriately. And to deify them allows their abuses to unfurl to a degree that should never be tolerated. But to allow an ideal log to stifle them, authoritarian control is also dangerous. We will need very sophisticated leaders just to strike the balance between those two pressures.
Tiger Gao:
Which is saying that the market is not the society and market value is often very different from societal and social value. And we have to be mindful of that. And when markets and capitalism are embedded within a functioning political system and society and democracy, it will do a lot of good. And if broken it could do a lot of harm.
Rob Johnson:
I would encourage you to have your listeners and my listeners go to the BBC website and listen to my friend, Mark Carney, the former governor of the Bank of England’s reflectors of this year. There’s one on COVID, there’s one on climate, he’s working with the UN as a special emissary on climate. But the first one is, I think, the title is market economy versus market society. The market economy works as a tool embedded in something that has values, that govern it, but market society is where market values become the value structure. Then it’s an inversion between means and ends. But Mark is very deeply studied going back to Adam Smith, David Hume, and others through Ricardo and John Stuart Mill and up to the present in that 55 minutes, you can learn a lot. And I’d encourage you to explore his thinking-
Tiger Gao:
Absolutely.
Rob Johnson:
… right now.
Tiger Gao:
To kind of conclude, what would be one contrarian thought that you hold that many people around you, even at INET or many of your intellectual peers do not agree with?
Rob Johnson:
I think at INET there’s a great deal of focus on this question of the inseparability between politics and economics. And what I’ve said in this conversation is the commodification of social design. The moral legitimacy of capitalism is being embedded in a democracy, then when it captures governance and can buy policies. For instance, when the financial sector through its campaign contributions can have itself deregulated maintain budget austerity, so that when you need a bail out, you have contingent fiscal capacity at your disposal.
You’re allowing that sector to subsidize itself at the expense of the public. That’s just a hypothetical … I don’t think it’s entirely hypothetical, but I’m saying it’s just an example. This pertains to many different sectors. If the fossil fuel industry is not brought to the social challenge, then we’re in real trouble in terms of life on earth. And maybe a few people with a billion dollars in stranded assets can use that money to get on a spaceship with Elon Musk and go to Mars, but the rest of us experience hell. So I think it’s that relationship between defining a moral social vision, debating it so that it’s not dogmatic or authoritarian and having the institutions that can guide society in that direction.
I think about things often, like how much civil servants get paid in America? Compared to Singapore, they’re paid a pittance. They sometimes have to go to work for the people they regulated so their kids can go to college. That’s not serving the American people. So I live in America, but then the concerns are worldwide. But I think if you said to me, where were my concerns identifying social unsustainability, identifying financial fragility, identifying environmental challenges is one dimension, but that political economic nexus is where they will be solved or not solved.
And I think that’s where a lot of despair arises now because they don’t see the system of governance and direction and formation of priorities as being wholesome broad-based or sustainable.
Tiger Gao:
So for the purpose of my show, which is Policy Punchline, we always ask our guests at the end, what their punchline is. So I guess this will also go on your show, but I-
Rob Johnson:
Yeah, okay. That’s fine. Let’s go with your-
Tiger Gao:
… guess nobody has ever asked you what your punchline is.
Rob Johnson:
Yeah. Well, I’ll give you a punch line for your show first-
Tiger Gao:
Please.
Rob Johnson:
… and then my show.
Tiger Gao:
Yes.
Rob Johnson:
My punchline is that the situation is daunting. It has to be diagnosed, but we can’t afford despondency and despair and hatred doesn’t help. My punchline for you is that I’m inspired and more hopeful when I meet someone like you, who has humility and curiosity and vitality. A bunch of people like you are the kind of thing, and I’m not saying they all have to go to Princeton. We’ve talked about that, but people with your spirit and your unyielding curiosity, and your humility and your sense that something’s got to happen, is a blessing for us all.
Tiger Gao:
Thank you so much for those kind words Mr. Johnson. You are way too kind.
