Episode 174 – Taming Inflation with Robert Hockett

Macro N Cheese – Episode 174
Taming Inflation with Robert Hockett
May 29, 2022

 

[00:00:05.790] – Robert Hockett [intro/music]

The executives are chortling about the fact that they’re able to mark up prices right now under cover of inflation, right? That they’re using, in other words, inflation as a pretext or as a convenient handy-dandy explanation to go ahead and raise prices even though factor costs aren’t appreciably rising.

[00:00:27.550] – Robert Hockett [intro/music]

With respect to jumpstarting green production and green-ification, we can do it, and we can do it really fast. But people have to understand how serious the problem is, and they have to be reminded of the how-to’s, I think.

[00:01:19.840] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.130] – Steve Grumbine

All right, folks, this is Steve with Macro N Cheese. My guest today has been a frequent guest on both Macro N Cheese and the Rogue Scholar, Robert Hockett, who has joined me many, many times and is always a wealth of information. He’s also a wealth of optimism and the opposition of my extreme pessimism, which is why I love Bob so much. But today we’re going to be talking about the Fed.

We’re going to be looking at a little bit of history, and we’re going to tackle something that I think a lot of people ignore, quite frankly, and that is production. Bob recently wrote an article for Forbes called “Prices, Preclusive Purchases, and Production: Some Forgotten Solutions to Forgotten Inflation Problems.” And without further ado, I’m going to bring on my guest, Robert Hockett. Welcome to the show, sir.

[00:02:38.180] – Robert Hockett

Hey, Steve, so great to be with you again. This is always the most informative hour of my life whenever we do this. So it’s a joy to be on with you again, especially since it’s been a little bit, about a month or so, I think, since we talked. I guess we were talking shortly after the invasion of Ukraine about some of the history there. But it’s nice to be back to Macroeconomic topics.

[00:02:58.270] – Grumbine

You and I have not done a Macro N Cheese in a very long time. Because I had you on with me at Status Coup. Then prior to that, I had you talking about the wildcat crypto on the Rogue Scholar. But as far as Macro N Cheese goes, it’s been almost eight months. It’s hard to believe.

[00:03:20.060] – Hockett

It is hard to believe, isn’t it?

[00:03:21.860] – Grumbine

Well, here we are. We’re here in the moment. So one of the things that really brought me to want to have you on, other than the fact that I just love talking to you, is inflation. And I’m noticing, sadly, some of our good friends that probably should be front and center right now not being front and center. And I think a lot of it has to do with this is an ugly time. You don’t want to be associated.

You don’t want to be the poster child while there is high inflation and the potential for painting with a broad brush with MMT. But sadly, everybody that is attacking MMT and the like, defense of deficit is doing it, regardless of whether we’re out there really defending it anyway. But it seems like we rarely have a coherent explanation, one that shuts the door forever and just moves us on to better topics.

It always comes back. So here we are with inflation, and we’ve got real inflation going on right now. And from my caveman mind, I’m thinking that this inflation based on profit margins and other things smells an incredible bit like maybe some back office executive boardroom decided they wanted to raise the percentage of ROI because I’m looking at some industries, some companies in particular, with 800% profit margins.

Amazon—333% over the last two years, profit margins…growth, not just profit. And they’re passing on these costs to us. And so let’s be fair, we’re all spinning our wheels a little bit trying to find the silver bullet to explaining this. Bob, what’s going on? You’ve written some great pieces in Forbes lately. What’s the story?

[00:05:15.370] – Hockett

Yes. Well, thanks so much. What a great way to kind of enter into the conversation. Why don’t we begin with what you just noted? Because it seems to me that that’s one of the most important factors here that tends to be underreported. Surprise, surprise, given the country that we’re in. But it’s rather convenient for people like Larry Summers and his ilk to point to labor costs as a factor of production.

And then you can then say that, well, wages seem to be doing better than they’ve done for a while. Then you can say, well, this factor of production is rising in price, and therefore prices are rising in price. End of story. Let’s clamp down on labor again. And that seems to be what people like Larry Summers are trying to encourage.

But what they leave out, of course, is that the markup, better known as the profit, is another, in effect, factor of prices, just like labor costs and other input costs are. And they don’t seem to be paying any attention at all to profits. And this is, in one sense, surprising because, of course, the one headline that you seem to see more frequently, these days, than the headline “inflation rates” is the headline about “record profits” in industry after industry and firm after firm.

And similarly, record dollar values of share buybacks, another kind of activity that tends to be engaged in only when firms are raking it in. And if you combine those two facts with a lot of really interesting undercover work that’s been done by a number of people who have been listening in on shareholder reports given by executives at various Fortune 500 companies.

This seems to be virtually almost happening everywhere, just shareholder meeting after shareholder meeting. The executives are chortling about the fact that they’re able to mark up prices right now under cover of inflation. Right? That they’re using, in other words, inflation as a pretext or as a convenient handy dandy explanation to go ahead and raise prices even though factor costs aren’t appreciably rising.

And the fact that we’ve got that undercover work showing in micro detail that this is indeed happening on the one hand, along with all the macro data showing record profits and record buybacks on the other, tells me, I think it should tell everybody who’s looking, it’s clearly telling you as well, that that’s part of the untold story of the current inflation.

I don’t want to say that that’s the whole of it. We’ll, of course, talk more about other aspects of it when we turn to production. But that particular aspect of the story, it’s amazing to me how underreported it is, given how much more important it is in determining inflation rates than do rising wages or salaries.

[00:07:46.390] – Grumbine

I look at that profit margin, and I think “what is the number one task for me as a CEO or a chief operating officer?” My number one goal is to maximize shareholder value. And ultimately that could come in the form of increased sales, reduced costs. Usually, though, it has to do with the growth, quarter after quarter, year after year, looking at steady growth, and this is how markets are assessed.

Is this a good stock to buy? I don’t know. Am I going to make a lot of money at the end of the year? And so in these folks minds, they do what they have to do to maximize shareholder value. People erroneously believe that these companies are altruistic and that they’re just simply waiting to do right by the public. And maybe they’ve watched one too many Jake from State Farm commercials and falling in love with the Gecko or all the different sidekicks for these marketing campaigns, animal mascots. They’re all adorable, right?

[00:08:52.010] – Hockett

They’re so cute and cuddly just like capitalists. Yeah.

[00:08:55.690] – Grumbine

They know that if we make you love us, “these are not the droids you’re looking for.” And they’ll wave their hand. Ultimately, these companies are literally making money hand over fist. And I talked to Warren Mosler the other day, and Warren was like, “what do you expect them to do? They have an opportunity to jack up prices, jack up their profit margins.” That’s exactly what a company does in a capitalist economy, folks. Wake up! This is it, right?

And so I guess my question to you is, as we go into some of your writings here, should there not be some sort of a law on the books that companies that are given a charter to operate within the United States have not only a fiduciary responsibility or whatever you want to call it, but they also have, like, an ethical responsibility? There should be some form of “what’s in it for us to sanction your business” and you don’t feel like it even exists.

[00:09:54.550] – Hockett

I would, on the one hand, I’d love to see that, Steve, and I think lots of people would, and to some extent something like that might have been in operation before in a kind of softer form, basically alluding to some of the old social norms that might have prevailed in the 50s and 60s or whatever that might have placed some limits on what people did just out of a kind of a sense of decency.

But I don’t think it’s a good idea in general to rely on that sort of thing precisely for the reasons that Warren, I think, would have been alluding to. That it’s part of the logic or part of the structure of this mode of production and this mode of distribution that there’s just always an overwhelming incentive on the part of those who take part in that system to do the kinds of things that we see them doing.

And then if you can add to that by rewriting fiduciary obligation of the kind that is sometimes viewed nowadays as dictating that corporate executives maximize shareholder value for the shareholders, which wasn’t the old fiduciary duty. But it seems to have morphed into that over the last several decades.

When people add that as a shadow of our image of moral compulsion in addition to the individual rationality that might seem to dictate individual profit maximization, then it begins to look like it’s a fairly shallow foundation on which to rest our hopes. Given that, it seems to me that the question is, well, maybe what we should do is think in terms of partitioning the market into the market for products and services that are essentials, that will lead to a decent life on the one hand and those that are not, on the other hand.

And maybe basically take those that are essential to the leading of peaceful human lives out of the profit maximizing system altogether. In other words, just take them out of capitalism altogether. Don’t allow any profit-maximizing type firm to be a deliverer of healthcare, for example, or a deliverer of housing or a deliverer of other basic human goods, like, say, infant formula or other foodstuffs. Right?

It seems to me that might be a more promising longer term approach to that particular problem, apart from just getting rid of capitalism altogether. But if we’re not going to get rid of it altogether, what we might do is cordon off certain areas that just really shouldn’t be subject to market imperatives and to say sorry to marketeers this is a no-go zone for you.

[00:12:20.770] – Grumbine

Healthcare at one point in time, if I’m not mistaken, was a completely not-for-profit industry. And we lost that. What happened?

[00:12:30.170] – Hockett

Yeah. And so was home finance, by the way, before the 1990s, really. It was sort of for profit in the sense that private lenders did extend the loans, but the overwhelmingly greater part of the capital that was supplied and the infrastructure that was supplied to make all of that possible was publicly provided. That’s essentially what the FHA and then what Fannie Mae were all about.

But we moved to privatize that realm in the early 1990s, particularly when we made Fanny shareholder-controlled. We did the same with healthcare over around the same period, probably starting a little bit earlier, around the late 70s, early 80s. Things like, again, infant formula, foodstuffs and the like. That’s largely socialized and has been since the 1930s.

But here’s a case where we allow the private sector beneficiaries of that socialization, namely big agriculture, to profit enormously. Some people forget or maybe never even knew. And it’s pretty easy to kind of see how this would be the case when you think about it. The agricultural sector is subject, of course, to the vagaries of weather, Meteorological conditions, and so forth.

And Furthermore, it’s subject to the potential for overproduction of exactly the kind that Marx and some other political economists in the 19th century predicted. And the only way, it turned out, to keep them in business and keep them producing was for the federal government to promise to buy any of the surplus. So you and I are both old enough to remember the phrase “government cheese.”

[00:14:02.350] – Grumbine

Oh, yes.

[00:14:03.320] – Hockett

What we might tend to forget is that it still exists. There’s just billions and billions of tons of Swiss and Mozzarella and American, and then that weird mixed Reagan type cheese in caves all over the country. Right? And that’s all because of a dairy support system that’s been in place since the days of FDR. So there’s sort of an irony here.

That particular case shows the necessity for the public sector to be involved in certain key areas. Presumably one reason for saving the dairy industry wasn’t just because of some sort of capture of the FDR administration by the dairy industry, but it was basically the recognition that we kind of need an agricultural sector to feed the population, and we either socialize it in a kind of overt way or we do it in a covert way.

And of course, we’ve done it in the covert way of price supports. But it seems to me that even that we do in agriculture is preferable to the alternative of leaving it entirely to the private sector. And it seems to me that maybe we ought to be doing something similar in the realm of healthcare and housing and health insurance and education as well. I left that out before, but that’s another one that ought not, it seems to me, to be subject to the vagaries of profit motivation alone.

[00:15:20.650] – Grumbine

So you’ve written two articles recently, one on what the Fed must do to tame prices, commodities in general. And then you wrote the more recent one you put out on the 13th, out of Forbes, (that) says “Prices, Preclusive Purchases and Production: Some Solutions to Forgotten Inflation Problems.” Take us through the two articles so that we can kind of walk through that.

[00:15:48.050] – Hockett

That sounds great, Steve. Thanks so much. So maybe I’ll introduce it by contextualizing at first relative to what we were just talking about, the markup of the profit margins. So while it is true, it seems, that price gouging and excessive profit taking is a huge component of inflation right now, and it is indeed a larger component by far than any rising wages or salaries.

It is nevertheless the case that in order for that form of swindling or gouging to have become possible in the first place, there has to have been some sort of publicly visible change in price phenomena, right? In other words, there has to have been some kind of inflationary, beginning, in order for those CEOs to start taking advantage of it, using it as an excuse to raise prices even higher in order to raise shareholder value or raise profits for the firm, or what have you.

And so, in a way, one way of looking at these two pieces that you kindly noted, is as diagnosing that underlying problem. What is the fundamental or core source of the problem that then some of these profiteers have taken advantage of basically to exacerbate? And it seems to me that we can basically partition the class of inflationary pressures into three components or subclasses.

On the one hand, there are shorter-term causes; primarily those, I think at the moment, are basically rooted in uncertainties about where supplies of various things are going to go in the face of war, in the face of climate change, in the face of other forms of political instability. And that uncertainty tends to lead to lots more speculative activity on the commodity markets and on the associated derivative markets.

And that speculative activity leads to a great deal of price volatility. And so what you have there then is, you’ll see just immense price spikes with respect to certain commodities, including fuelstuffs and foodstuffs on Sundays. And then later in the same week or later in the same fortnight, you’ll see sudden drops of those prices and then sudden rises again.

In that area, it’s the volatility in the immediate or short term realm, it’s the volatility that’s the problem. And that particular problem, I think, then calls for its own specific solution that we’ll get to in a moment. In the more medium term, let’s first think of the medium-term and the long-term together under one rubric. We’ve both been hearing this phrase or this term “supply chains” quite a bit lately over the last year and a half or so.

And in one sense, that’s welcome because it has the word supply in it. And of course, people really haven’t talked about supply in American economic discourse for quite some time. And the last time they did, it was on the part of a bunch of ridiculous so-called “supply-siders” of the Reagan persuasion, who were ridiculous for specific reasons that we can get into. But one problem with that phrase is, it itself lumps together two distinct things, right?

On the one hand, you have to have the production of that which is to be supplied, and then on the other hand, you have to have the delivery of the supplies. And the phrase supply chain seems to lump those two things together. It kind of amalgamates them or conflates them, and for some purposes that’s fine. Right? But if we really want to be careful about coming up with well-targeted solutions to the inflation problem that actually address it, then we do have to disaggregate.

And if we disaggregate between the production on the one hand and the delivery on the other, then we can say that the delivery problems, that the delivery piece of that, is a more medium-term problem. And that is that we know that there have been various warehouses have temporarily shut down. Container ships were in short availability for a time.

There’s been a shortage of truckers and other delivery personnel in the US for a little while here, largely stemming from the pandemic. But basically a lot of delivery muck-uppery, you might say, that’s occurred over the last couple of years. And you can think of that as a medium-term, then, determinant or component of the inflation problem. And then finally, turning to the longer-term one, there’s the production matter.

The US is just not a very productive country, in the sense of the word production that you and I have been talking about, anymore. It once was, of course, but we’ve largely basically exported all of our productive capacities. Or maybe I should say, profit-maximizing capitalists over the course of the 1990s and early two thousands basically outsourced all of our productive capacities.

In order basically to exploit cheaper labor, in some cases slave labor, but oftentimes, at least, massively underpaid and under-provided-for labor, in other jurisdictions across the world. And in many ways, that was the essence of Clintonism and Bushism. And that’s a long-term problem that basically was already afflicting us, many of our economic difficulties, even before the Pandemic in 2020.

Indeed, I would argue that the underlying source of the 2008 crash itself was precisely this longer-term production problem. Which manifests then in the long term wage depression problem, a long-term gutting of the middle-class problem, and so forth. That longer-term problem is still with us, and we haven’t solved it. So I haven’t even begun really to address it seriously.

So these two pieces that you kindly reference, try to sort of disaggregate them, the “inflation problem” into those three broadly-understood components, the shorter-term, the medium-term, and the longer-term, and then propose specific remedies for each.

[00:21:27.310] – Grumbine

You look at China and forget the production side of this. Just think about the transport, getting the goods and services through the chains. They have their one belt, one road initiative that I believe has really catapulted them into a leadership role in supply chains. Their ability to get goods and services where they need to be to the people that they’re doing business with is unparalleled.

They have an amazing setup. That said, one of the concerns I have out of this is, as we talk about in somewhat romantic terms of bringing production home, there’s an element that is, in my opinion, never discussed or rarely discussed. And that’s something that we offshore to China as well, and that’s waste disposal.

[00:22:17.920] – Hockett

Oh, yeah.

[00:22:18.700] – Grumbine

And so as we bring production back home, kind of as a result of some geopolitical crap going on right now with Russia and Ukraine, I think it’s important to note that one of the oft-forgotten things is the filth of production.

[00:22:34.420] – Hockett

Oh, yeah.

[00:22:35.330] – Grumbine

We see the environmental racism that takes place with disposal of waste in poor communities, in their backyards. And are we prepared to find out what it’s like to repurpose production domestically? And I think climate crisis and inflation is part of it. But I think that’s what I’m afraid of is that as we start talking about how to mitigate this, the one thing that will get lost in that shuffle is the environment.

[00:23:09.580] – Hockett

Yeah, I think that’s obviously very, very critical, Steve, and I’m so glad that you’ve reintroduced it right here, because this is a very good moment to point out, or to say a bit more about, what we ought to mean when we talk about production at all. In particular, when we talk about re-shoring production or reviving production in various countries that have been in the process of outsourcing it for a long time.

So one of the motivators, of course, in addition to exploiting cheap labor abroad, one of the motivators for a lot of the outsourcing of production was also to evade environmental standards and regulations and various environmentally protective measures to which firms at home were sort of subject to. And so re-shoring, among other things, is going to involve, first of all, resubjecting those firms, those businesses, to existing environmental law and the like.

But it also is going to involve something more proactive than that, I think. And this is essentially what the Green New Deal has been all about from the get-go. The thought that we’ve had, you and I and others who have been instrumental in making or conceiving and laying out and planning the Green New Deal, it’s all predicated in significant measure on the notion that the industries of tomorrow are going to be significantly different from the industries of today.

Both with respect to their own environmental footprints, and with respect to what it is they actually produce, much of which is itself going to be meant to be environmentally friendly, productive mechanisms or equipment itself. If we think about, for example, production for consumption on the one hand, and production for production on the other hand, in other words, the production of the means of production, machine tools and the like.

Seems to me that, first of all, when it comes to producing for consumption, we’re going to have to be producing in ways that are much less environmentally damaging than has been the case over the course of the 20th and even a lot of the 19th century. But it also seems to me that in order to be able to do that, we’re going to have to be producing, massively, the means of clean producing.

So, solar, battery, hydroelectric, geothermal, and then also we’ll have to be producing carbon capture capacity, which is beginning to develop fairly rapidly now, too. And so we can think of them broadly as the industries of tomorrow that we don’t want to re-shore the production of whale oil lamps or kerosene lanterns or whatever.

Ideally, what we want to be doing is re-shoring production partly by just starting entire new industries, or at least massively expanding clean industries of tomorrow that are currently in an incipient state. And the cool thing about that is if the US and other countries, including China, get really serious about that, then they’ll be able to produce this kind of stuff in such quantities that then they can make it cheaply or even freely available to less wealthy countries so that then their own industrializations or productive revolutions can be much cleaner and greener than our own were.

[00:26:17.990] – Grumbine

So going back to your article, where are we at this moment? We’re calling this Putin’s inflation. I think we actually import 3% of Putin’s gas. Even though we may not like Putin it feels like maybe it’s a scapegoat. It feels to me like we need to peel back some of the scapegoating and get to facts.

[00:26:45.650] – Hockett

Yeah, I totally agree with that, Steve. So first of all, as you and I talked about last time, Putin seems to be scapegoated for a lot. (Grumbine: Yes.) And in particular a lot of NATO sins and a lot of US sins. So scapegoating him for inflation as well, in one sense, is kind of par for a rather unfortunate course, as we talked about before.

But in addition to that, another thing that’s problematic about it is, it treats the short-term, what I previously differentiated as the short-term inflation problem, as if it were *the problem*, the entirety of the problem. So it’s true that there is immense price volatility right now in commodity markets, including, in particular, fuel markets and foodstuff markets, or what we might call foodstuffs and fuelstuffs.

We don’t really have to say that that’s Putin’s fault. We can simply say that that’s the fault of the fact that there’s a war there right now, and we can leave to one side who’s to blame for that war. Which this is a war, again, in connection with which the US is anything but innocent. But leaving that to one side, and just looking at why the war itself would lead to some short-term difficulties, it’s because of course, Ukraine is the bread basket of Europe and the center of European fueling.

Basically, lots of the fuel, both in the form of natural gas and in the form of Petroleum. Also, to some extent, some other fuels that Russia has supplied to much of the world has kind of gone through the Black Sea, has gone through Ukraine, has gone toward eastern and central Europe via Ukraine or via routes that are very close to Ukraine.

And so the fact that there’s all this chaos and destruction happening in that particular vicinity does lead to some concern about whether global fuel supplies or food supplies might be constricted in some way or constrained in some way, whether more crises might be ahead. But again, what that’s doing is causing volatility in the prices of those things. It’s not actually occasioning a shortage as of yet and maybe never will.

And so there, instead of calling that Putin’s inflation, it seems to me we ought to call it war-induced price volatility and then treat that as a short-term piece of the broader inflation problem. The solutions that are available to that are kind of obvious, and they are discussed in those two pieces that you mentioned. To start with, the preclusive purchase idea.

It would be very easy, for example, for the US Strategic Petroleum Reserve to buy fuels on global markets when the prices drop precisely in order then to get them while they’re cheap and then make them cheaply available to Americans anytime, basically, if it looks like prices are ever going to be increasing here domestically.

Furthermore, there’s a mechanism through which the US Strategic Petroleum Reserve can coordinate these activities with its counterpart reserves in other jurisdictions. We actually have an International Energy Agency that functions as a coordinated body for all of the different countries’ own strategic fuel reserves, and so they can basically replicate together, via that structure, something a lot like what JM Keynes proposed at the end of the Second World War under the rubric of what he called a global commodity store.

We could basically treat fuel as one such commodity, which of course, it always has been, and have the IEA coordinate activities that basically replicate the kind of thing that Keynes proposed. We can do the same thing here in the States, and other countries can do the same through their counterpart agencies, through the USDA. This is our Agriculture Department.

The Agriculture Department can also purchase stuff when it’s available cheaply, with a view then to continue sale to Americans cheaply if prices spike and other countries’ counterparts to the USDA could do the same. And it wouldn’t be that difficult to put in place really quickly a collaborative mechanism pursuant to which the various agriculture departments worldwide coordinated in the way that the Petroleum reserves do.

That’s the idea of preclusive purchase. It’s something that we’ve kind of forgotten about because it hasn’t been salient in recent decades, partly because inflation itself hasn’t been salient in recent decades. But as noted before, under that, when I mentioned government cheese, we do it and we still do it, right?

Obama himself has actually used the agricultural price support mechanism one time during his administration, and Trump used it one time during his in October of 2020. So that’s still there. We’ve just forgotten about it, and we can continue to use it, and we can even kind of expand and generalize the use of it basically as a long-term price modulator that will lessen the price spikes by capitalizing on the price dips.

And then you get a smoothing, which is what economists and actuaries would call price-smoothing. And it’s just basically the opposite of volatility. It’s the way you collar volatility itself. That, it seems to me, is the way to deal with the short-term inflation problems that are being occasioned by uncertainties that have been generated by the war itself.

The commodity collaring suggestion in the other piece that you suggested is the financial market counterpart of that. So what I’ve been talking about up to this point is the literal buying of the actual physical stuff, the grains, you buy the wheat, you buy the corn, you buy the soybeans. Anytime those prices are low, buy them then. And then you can sell them cheaply when prices would otherwise be spiking.

But in addition, you can also use the commodity markets to push in the direction of greater smoothing of price movement, or basically to take the volatility out of those markets by buying commodity derivatives that reference the commodities themselves as underlying. And in that connection, it strikes me as being remarkably significant that the Chicago Fed this year has been putting in place a trading floor that is in every way the counterpart of the New York Fed’s trading floor.

And the New York Fed trading floor or trading desk is basically used to modulate interest rate movements. Basically, it’s a particularly important price, the price of money rental. So part of what Fed open market operations conducted in New York are about, it’s really basically about keeping the money rental rate within a particular band, ie collaring it.

Making sure interest rates don’t go too high or too low. So it keeps them in that band. And it does that by engaging in Treasury securities transactions with big dealer banks that are located in New York. Now, the fact that Chicago is putting together a similar facility now in Chicago itself is especially important because, of course, as you know, the Chicago Merc Exchange just is the big commodity derivative exchange.

So it suggests that the Chicago Fed has in mind at least the possibility of working to collar those commodity derivative prices. And if you do that, that has effects, of course, on the underlying prices as well, Right? The prices of the actual commodities. And if you were to combine or join an effort of that kind, on the one hand, with actual purchases and sales of the commodities themselves of the kind that I mentioned under the rubric of preclusive purchasing a moment ago, then you’ve got everything you need.

You’ve got complete coverage to guarantee a narrow band within which essential commodity prices fluctuate so they don’t go too high or too low. “Too low” meaning that the suppliers go out of business, “too high” meaning that people who are hard hit or people who aren’t wealthy can’t afford them. I think that’s the way to do the short term inflation problem.

And again, that short term problem has been exacerbated, of course, by the uncertainties of the war, but it’s not the whole problem. And again, whether it’s Putin’s fault or NATO’s fault is a different question. You and I, of course, know where we fall on that one.

[00:34:53.370] – Intermission

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[00:35:44.530] – Grumbine

Looking at the WTO and the IMF, they have some pretty harsh language in terms of countries using protections and the fact that they’ve got to agree not to protect their industries and their own domestic production and leave it wide open for predators, basically. Does the US have to suffer under those things? It seems like a lot of the rules on the international stage preclude anyone from being able to subsidize or protect domestic production as part of this neoliberal world global finance capital approach to things.

I’m trying to better understand the relationship because what you’ve just said sounds to me like we’re building buffers in that protect pricing while reading about these structural adjustments the rest of the world has to succumb to in order to get bailouts, to get the kind of foreign reserves they need to purchase things because they don’t create them domestically.

[00:36:55.300] – Hockett

Yeah. So I don’t think you’re off-base or at the margins at all, Steven. I think you’re, characteristically, right at the core of it, again. The arrangements that we’ve been operating under since the end of the Second World War are a bastardized version of what Keynes himself proposed at Bretton Woods and elsewhere. In the same way that a lot of contemporary economists who call themselves Keynesians are more in the nature of what Keynes’s disciple Joan Robinson referred to as bastard Keynesians, right?

So you basically had two visions that were in competition at Bretton Woods. Keynes’s vision was one that basically sought to put in place global arrangements that secured a maximal degree of national autonomy for every country that would be a part of the arrangements. And that would include maximal monetary autonomy so that you could basically conduct your monetary policy internally without having to worry about global financial conditions.

And also so that you could conduct your national industrial policy without regard to global industrial or global trade relations. And then, what you would try to do is, you would try to maximize the degree of liberality when it came to cross-border trade as consistent with, or as constrained by, the more important imperative of national autonomy. And that was the idea.

The US at the same time put forward what it advertised as a friendly amendment to the Keynes-type proposals. It was actually quite radically different, and I think reflective of where the US was right then, along with the US’s regular short-sightedness. Right? So as the war was winding down in ’44 and ’45, the US accounted for 60% of global productive capacity.

That’s partly because we mobilized massively in order to do more production in a big way. But it’s also partly because all of our competing economies’ industrial infrastructure had conveniently been blown up. Right? Had been destroyed by bombing and the like. Right? So when the war was coming to an end, the US sees the world as like “opportunity knocks, man.”

We’ve got a bunch of markets out there, a lot of places that will buy our stuff and they can’t produce it for themselves. So let’s maximize the degree of liberality that characterizes cross border trade so that people will buy our stuff, since we’ll be the only people making stuff. And Furthermore, let’s maximize the role that the dollar plays in the global economy and not worry about the fact that the dollar might one day be too strong and be harmful to US producers and so forth.

And of course, because the US held most of the cards as the war was winding down, the US version of this plan prevailed. And that was the neoliberal order that you just referenced. I think that was a huge mistake. Needless to say, it was short-sighted, even if you were a selfish nationalist, which you and I adamantly are not.

But even if you were that, it would have been a stupid thing to do, because it would be crazy to think that in the long run, the US is going to continue to account for 60% of global productive capacity. I mean, the last we checked, the Japanese could be quite productive, as could be the Germans, as could be the Chinese, as could be the Russians, as could be pretty much everybody. Circumstances, right?

So there was a kind of weird jingoism, or even maybe racism of some sort, some form of triumphalism reflected by racist attitudes or something that maybe led people to overlook the fact that even if you were pursuing your self interest, the enlightened way of doing that would have been to go to Keynes route. But even leaving that to one side, it’s just not even a good thing to be hoping for.

Why should you want to be the world’s only producer? Or why should you want your country, that accounts for, whatever it is, 2.5% of the world’s population, to account for 60% of its production? That’s just kind of shitty, right? Why do you want to be like, “we’re, number one, mine’s bigger” or whatever? It’s an ugly way of thinking and being…

The other thing with it, and even apart from those two concerns, is the fact that that kind of neoliberal vision treats or takes as its unit of analysis, when it comes to an economy, the global economy. And so it’s indifferent to nation-states or national autonomy or to the interests that peoples might have in determining their own destiny rather than having it determined for them by the structure of global production.

And so, yeah, if it’s globally more efficient, in a purely quantitative sense, to dump all of the toxic waste in Africa, as Larry Summers advocated in 1993 when he was the chief economist of the World Bank, of all things, and then to locate all of the factory production in a couple of locations in China, and then all of the olive production in Greece or something.

Well, then let’s do that, because “that’s the global economy, man.” But never mind the fact that maybe some Greeks would rather not be olive growers and some Africans would perhaps not want to live among toxic waste and some other people might want to produce stuff and not just leave it all to China or to Germany or someplace. And so that was ridiculous, too.

And I think that we’re finally, at least the realization that that was a fool’s errand, in addition to being morally pernicious and ugly, is finally gaining at least a little bit of traction. And I hate to have to credit Trump with anything, but Trump did foreground that in a way that others had not been doing, other than Bernie to a degree. But Trump has made it respectable, even among some Republicans.

He just was not capable of doing anything about it. All he could do is grouse about it or talk about it, because he’s basically, I think, just not compos mentis, right? He just doesn’t have the capacity. He doesn’t have agency, really. But the fact that it’s now to some extent being adopted or that view is to some extent being affirmed by more sane people and people who are able to do things as well and able to be effective, I think is a good sign.

The only real question is whether it happens fast enough. But what the end state, it seems to me, ought to be that we should be striving for is every nation’s capacity to enjoy a balanced economy with all of its citizens as owner / producers, rather than an immiserated proletariat who can sell only their labor, who can only rent their labor to capitalists in order, even, to eat. That’s just crazy. That shouldn’t be the case in any country. And we should have a world where it’s not the case in any country. Seems to me.

[00:43:23.710] – Grumbine

Absolutely. I like the way you frame that. You’re speaking of the socialist part of Steve’s mind that appreciates…Anytime we dive that direction, I feel all warm and fuzzy. I do want to bring up something. We kind of touched on it earlier, but you are a legal mind, an economic mind, a policy mind. I’m a project manager.

And the things that I focus on are timelines and deliverables and making sure that dependencies are met, that we understand downstream stakeholders and how different things impact what we’re trying to accomplish. And you’ve got a timeline in front of you. Four years ago, the IPCC gave us twelve years to mitigate the carbon in our environment so we don’t have the worst of climate change catastrophic outcomes.

And so that was four years ago. We have eight years, and third-party voters, guys who want a third party. Guess what? You’ve got eight years now to mitigate climate crisis with your plans for your Vanguard third party. (We) support you, but we got eight years. You’re on the clock. Go. How are you making this happen? How are you building your party? How are you getting people in office?

How are you passing legislation? And how are we mitigating this climate crisis? You don’t have an answer for me. Okay, next, Democrats. You keep sideswiping Progressives. You keep eliminating the people that are fighting for the environment. You are still suckled into capital. And you’re doing every neoliberal thing that happened post World War II to stop old Uncle Joe from taking over the world.

You’re still at it. Nothing has changed. You’re red-baiting. You’re doing everything that Ronald Reagan did. Lord help us. We’ve got no Champions. I look at the Republicans and I just shake my head. Mussolini would be proud of you guys. Objectively, I see no Avenue with a third party. I see no Avenue right now with the Democrats. I see no Avenue with the Republicans.

The people have been so propagandized and their ability to do anything meaningful… It’s like the Tyrannosaurus Rex Vestigial arms. I look at our society today, short of a miracle intervention by God or something coming back and doing for us. Well, we can’t rely on capital. Capital needs to make huge money on this.

And I think about Jason Hickel at the Degrowth Movement and I think about ecological economics and all the important systems that they’re putting forward. But there’s no one to implement those systems. The Academy isn’t taking them seriously, not seriously enough. And the scientists that are putting forward this information. So I’m countering this against the inflation narrative.

I know you want to focus on the Azov battalion and Putin, and whoever your fantasy football team is. We got more than one problem to solve, and not (in) five years, but right now. How do we take that idea of a balanced economy, which sounds great in theory, but address these cataclysmic things. The movie Don’t Look Up ended with a bunch of people holding hands around the table as the asteroid smashed into them. Because what do you want to do? There is no guarantee this has a happy ending, right?

[00:46:54.250] – Hockett

Yeah, I think you’re right, Steve. It’s easy enough to feel despairing when one looks at the rate of change that we’ve been told is necessary in order to avert disaster, on the one hand, and then the actual rate of change currently underway, on the other hand, and then maybe on the other third hand, when one looks at party structures and the way politics seem to work in the countries that most need to change things, it’s hard to see a happy ending.

It’s hard to see how you even would get there and what we can do now to ensure that, or even render it more likely than not. But in a sense, what I’ve done is I placed a bet here. I’ve been pursuing the course, it seems to me, the most likely to work, even though I recognize that it’s certainly not certain to work. And the thought here is that if you can somehow convince even capital, that the way to make the really big money is to be basically at the front end of the industries of tomorrow.

And then massively through public action, not just private, but through public investment, public procurement policy, public mandates and requirements and so forth, ensure that you just haven’t got off a large, heavy, massive production of solar panels and windmills, of batteries, of EVs that don’t actually put more carbon into the air than they take out (in the actual production of them and so forth,) if you can somehow convince them that there’s a new industrial revolution about to happen, and it’s a climate-cleaning one, and they get on board with it, then there’s at least some hope, it seems to me.

And there I find the 2nd World War mobilization especially instructive. I’ve been throwing this particular story out a fair bit of late, but I don’t think it’ll be alienating for me to throw it out one more time. When the Germans rolled over France in a mere six weeks in the late spring and early summer of 1940, everybody was freaked out because they assumed that there was going to be another three or four year stasis on the Western Front, just like in the first war trenches facing each other, nothing happening.

And so the fact that the Germans just rolled them over in like six weeks, we thought, “Holy shit, we’re not ready for this.”  And so, like a day later, FDR called a special session of Congress, and he says, look, we’re going to have to be ready. So we have to produce. And he says, I want 50,000 warplanes being produced at the end of this year.

And we’re already halfway through the year, Steve. And the previous year’s maximum of production was barely 3000. So he’s saying, let’s leverage up from 3000 to 50,000 in less than a year. And let’s also do the same thing with tanks and warships and cargo ships and so forth. And everybody thought, “man, what are you smoking?” I mean, he was insane. You can even find the headlines.

People just saying, “that’s never going to happen. What’s he been smoking?” But by the end of that year, we were actually producing that stuff at the rate not only of 50,000 per annum, but 60,000. And there were very specific measures that were taken to make that happen. And it involved, again, a kind of public-private collaboration, but where the public was clearly in the driver’s seat.

So the public sector builds the factories and then leases them cheaply to the companies. The public sector builds housing around the factories so that the moving workers will have a place to live. It builds schools so that the moving workers’ kids can go to school. It builds health care facilities. The public sector did all of that. And then it also put in place these expedited mechanisms.

And of course, it created agencies to run these mechanisms to deal with labor problems. And so basically, it was incredible. The FDR administration says, if you people are paying Blacks less than whites for the same work, or if you’re paying women less than men for the same work, you’re violating the rules. And if we have to, we will take over the factories. And I can show you photographs.

I’ve got some right here of the actual federal military personnel carrying capitalist executives in their chairs out of the factories, removing them from their places of business, and taking over the administration of the factories where they didn’t follow those particular rules. So he said, we’re going to be massively productive. We’re going to let the private sector do what it knows best.

We’re going to have the public sector do what it does best. We’re also going to require certain forms of basic fairness and justice. And if they don’t play ball, then we’re just going to say they forfeit their right to be involved in this, and we’re going to take it over. And of course, these capitalists complained about it. Called it abuse, and said, he’s being like Stalin. But Roosevelt could say, well, that’s on you.

And it sure beats Hitler, doesn’t it? And people said, yes. And now I don’t want to suggest that all of it was perfectly successful and that there were no screw ups or that there were no racists or sexists in the federal government, but t  he basic structures were the right structures. And it seems to me that the same structures, if replicated now, would work even better, precisely because it’s not quite as respectable to be overtly racist or sexist as it was then.

People still do it, of course, it’s still awful, but it was even worse then when it came to typical norms that prevailed among lots of people. And yet we managed to overcome that with the right structures in place. And so I think if we did a comparable thing to that, with respect to jumpstarting green production and greenifcation, we could do it and we could do it really fast.

But people have to understand how serious the problem is, and they have to be reminded of the how-tos, I think.  that’s kind of what a lot of these Forbes articles that I’ve been putting out over the last maybe year and a half have been about. They’ve been basically about all those how-tos, because the more envisageable or imaginable the how-to, I think the more likely it is that we actually do it.

[00:52:44.410] – Grumbine

Let me ask you a final parting question.

[00:52:47.160] – Hockett

Sure.

[00:52:48.730] – Grumbine

The concept of the end of history, that capitalism—we’re at the height of it all. This is it, baby. There is no more. This is where the history books stop. It seems to me like that’s an oxymoron, because I feel like it’s the end of history because it’s going to end the planet as opposed to something else. You made mention that if we could end this system, great. But if we can’t, then at least we can try to not make the necessities profit-driven.

I see no real pathway that allows us to survive capitalism without it becoming more and more draconian just because of the nature of how we evaluate success. And with that in mind, it’s a perpetual growth model. There is no such thing as a qualitative growth. There’s only quantitative growth. And I look at different ways of measuring what success means, and I feel like there is no real meaningful way of maintaining a capitalist structure, with these incentives and these belief systems in place, and survive.

I don’t see how it’s possible. Help me understand, is this the end of history? What might a better transition look like? Inflation aside, what does that balanced economy that you spoke (of), what would that look like if we were able to get rid of the system?

[00:54:28.530] – Hockett

I think I can see a few possibilities. Steven, again, I don’t want to seem to be saying that I think these are guaranteed in any sense or even more likely than not. But I think there’s at least some prospect for them. So I’ll offer them on that basis. So first, let’s assume that we do rescue the planet, maybe by the means that we were just talking about that somehow or another, we actually do manage to change the focus of production in manners that are at least eco-friendly, even if not justice-friendly, or not friendly to other values that we have.

Then the next question would be, okay, so let’s say we’ve won that one. We’ve saved the world in that sense. What would have to happen next? It seems to me that there’s a way to lever or redirect quantitative thinking or maximization-speak in some more healthy directions. So here’s one. As you know, there’s been all sorts of interesting medical research underway that is showing that human lifespans and what they are increasingly coming to call not lifespan, but health spans can grow.

We’re discovering the mechanisms of aging and of deterioration of bodily functions and organs and so forth, so that it’s now a realistic prospect that people might be living to 200 or 300 years of age with high quality of life, because you extend the life simply by extending the duration of healthy functioning itself so that 200 becomes the new 40 or something or 200 becomes the new 35 or whatever.

Now imagine if that became a national project or something, and you were to say “let’s target health spans,” or if lifespan is easier than we’ll call it lifespan, let’s target average lifespan and let’s see if we can grow it and grow it and grow it and do all the kinds of research and development and production of the requisite technologies and drugs or therapies or whatever.

That would be a quantitative way of thinking. That wouldn’t necessarily be a destructive or crazy thing, but actually might be a salutary health thing. Another possibility: as you know, we tend to look at GDP and we talk about GDP as an aggregate, and people are constantly referencing GDP growth rates as benchmarks. China has an 8% per annum growth rate, and (the) U.S. used to have 3.5%, and now it’s 1.8%.

Well, a really interesting exercise—I’ve done this over the last couple of years with some research and with the help of some really great research assistance—if you actually disaggregate GDP, or let’s use national income, which is almost the same thing, but it also lends itself more readily to what I’m going to suggest. What if you disaggregate the national income into deciles or quintiles and look at the growth of the national income for the bottom quintile or the second quintile or the third, or what have you, or deciles?

It turns out that pretty much every other developed country in the world has a much higher GDP growth rate, so to speak, below the top decile than we have. In other words, if you were French, you would be much better off right now relative to where you were 30 years ago than if you’re American, unless you are one of the richest, unless you were Bill Gates or fucking Tesla guy, that Musk  guy.

But like leaving those sociopaths to one side, everybody else basically does better growth-rate wise, if they’re French or if they’re Japanese or if they’re German. And what if, then, we were able to work a change in the kinds of focal points that the economic press, or the financial press, or just the press more widely, look at. What if they were looking at indices, in other words, that actually matter, that actually measure things that matter, rather than things that really don’t, or that if they do, they do only very indirectly and circumlocuitously.

It seems to me that that could significantly change the course of development and of history as well. And in fact, I’ve got this long-term project underway. I call it “the new indices project,” where you basically just work to develop new indices that actually track stuff that kind of matters to human well-being, rather than that fetishistically looks to see “what’s that big number there? Is a bigger or smaller?”

It seems to me that those are some paths that are worth taking. In other words, we don’t have to abandon the idea of quantity over quality, much as I would like to do that, but that we could even retain quantity as a kind of focal point in policy discussion if we were actually  stuff that matters rather than stuff that doesn’t. And I think we can do that.

Seems to me we can do that. And that might not be a cure-all or anything and it might not even make things enough better to make living continue to be worthwhile. But at least it seems to me that there’s some prospect there and that might be a promising Avenue to kind of push further down.

[00:59:18.610] – Grumbine

Very good. Bob, I want to thank you so much for joining me, and we could go on for hours, but I really appreciate the time. We will have to have you back on better than every six months. It’s kind of lame. We have to do better than that. We got to bring Bob back better.

[00:59:37.570] – Hockett

Hopefully he’s getting better with each iteration.

[00:59:41.530] – Grumbine

Anyway, tell folks where we can find more of your work.

[00:59:44.860] – Hockett

If they were just to Google my name and SSRN, that’s short for Social Science Research Network, or Google my name and Forbes, they’d find a lot of stuff that way. Quite a few other things come out in things like The Hill or Bloomberg or whatever, but the bulk of it comes out either through Forbes or on my SSR page. So that might be a place to look. And thanks for asking for that. And also please feel free to share my contact info with anybody who might inquire because I’m always happy to be in conversation with your listeners and people who are part of our society of well meaning blokes.

[01:00:21.310] – Grumbine

Very good. Absolutely. All right, folks, this is Steve Grumbine with my guest, Robert Hockett. And this is Macro N  Cheese. And as you all know, we’re out of here.

[01:00:34.390] – Hockett

Thank you, Steve.

[01:00:40.910] – End credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit Patreon.com/realprogressives.