Odd Lots - Ezra Klein on the Future of Supply-Side Liberalism

Episode Date: September 8, 2022

To the surprise of many people, the Biden administration has notched some significant economic policy wins this year. The CHIPS Act represents a major piece of industrial policy aimed at bolstering the US semiconductor sector and making the supply chain more resilient. Meanwhile, the Inflation Reduction Act puts a lot of money towards a range of energy options, with a particular focus on advancing renewables. Ezra Klein, the New York Times Opinion columnist and host of "The Ezra Klein Show," has been a major proponent of "supply-side liberalism," or the idea that Democratic policy aims should focus more on building out supply-side capacity, as opposed to simply redistributing demand. On this episode, we talk about the politics and economics of this endeavor.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthaw. And I'm Tracy Allaway. Tracy, obviously, one of our themes for like years now has essentially just been all of these ways in which it seems like the supply side of the economy is like kind of broken or put under. I would say the pressure of the last two years has revealed a lot of weak points. Yeah. So I called this the choke point economy, which maybe I should have come up with a catchier title. But it was basically the idea that the extraordinary events of the pandemic had exposed the shortages or choke points in things that the economy actually really needs. Everything from semiconductors, which is kind of where we started our supply chain exploration to, I mean,

vaccines themselves, right? Some countries couldn't get enough vaccines. Others had too many. And you can expand it to tons of different things, everything from housing to health care. Right. It's kind of like this running joke of Oddlott's listeners on Twitter. Like, this is the new thing that's broken, Lenar Tracy and Joe going to do a show on it. But it also does, you know, when you have this like these myriad broken aspects of the supply chain or shortages or choke points or bottle

next. You know, it sort of like gets the question, like, is there like a bigger effort that can be made? Because you can like, you can tackle these one at a time. And of course, that's being done and private companies and governments are working on that one at a time. But is there like a broader, a broader effort that can be made where maybe government involvement, regulation, something such that we just have like more robust supply side of the economy? Absolutely. And I think over the past year or so, we've certainly seen pockets and indications of that, right? Like the Biden and administrations build back better program, the Inflation Reduction Act, all of those are to some extent aimed at increasing capacity, building out vital infrastructure and things like that.

So it does feel like there is a recognition that this is an issue, but the solutions are still kind of tricky. And even if we all agree to build more capacity, it's going to take a while. there's still going to be questions over how best to do that. It's going to be tough to identify some of those capacity constraints. Like what actually is the constraint? Exactly. You know, it's funny because for years, there was the, you know, supply-side economics in modern parlance has this very specific idea.

And I think of like the Reagan era and a bunch of people's economists who sort of made their bones in that era. But really, it just made like tax cuts. Like really, like when people say supply-side economics, they say tax cuts. tax cuts for companies, make them work a better. Right. Just make it easier for everyone to produce more. By cutting tax. Right. Now there is this sort of revival of so-called supply-side economics, a certain supply-side progressivism. We've heard Janet Yellen talk about it, which is, no, actually, supply-side economics doesn't have to just be tax cuts. It can actually be about all this,

the Chips Act, et cetera. Active efforts in which the government, in theory, can play a productive role in making more robust, resilient, and abundant supply-side capacity, which speaks to both the shortages, the inflation that we're experiencing right now, and just like, what does it mean to have an economy that just delivers more goods for the public? Yeah, and to some extent, it's almost a return to Keynesianism, right? It's about smoothing, not business cycles necessarily, but smoothing, like, the investment cycle. If markets aren't doing it by themselves, then maybe the government can step in and say, actually we need to build up this specific area of the economy or this particular piece of

infrastructure. Absolutely. So let's, our guest today is someone who I think has been very influential on building out in public this idea of like a new supply side progressivism or reclaiming supply side economics as something that's beyond just cutting taxes or cutting interest rates and actually optimistic about the role that governments can play in alleviating some of these bottlenecks and shortages and not running into all these scarcities again and just delivering more stuff, more housing, more goods for the public. We are going to be speaking to Ezra Klein, columnist at the New York Times, and the host of the podcast, the Ezra Klein Show. So a big voice on this topic. Ezra, thank you so much for coming on odd lots. Real to be here on one of my favorite shows.

Thank you. Thank you. You know, it's funny when we first talked about coming on, the pot, you coming on, podcast, it was like, well, the Democrats build back better climate plan. It's completely failed. So let's talk about where they go next. But I guess you, in saying that it completely felt, like this is like what duped Mitch McConnell and why they sort of got this done. Because the Democrats did a very convincing job, convincing the public that it had failed. And then only to turn around at the very last minute. So we had to sort of like rescrap even what we were going to talk about because the premise of our initial plan was undermined by the fact that the Democrats passed the subsection.

Yeah, I didn't mean to rope you into my ultimately completely successful scheme to pass the inflation production act. But, you know, there has to trial damage in this kind of work. So, okay, maybe just to begin with, give us like the definition. What is modern supply-side economics or supply-side liberalism versus, you know, demand-side economics and also the supplied-side economics? economics of your, the, you know, the things that are often considered a dirty word associated with Reagan, tax cuts, that sort of thing.

Yeah, the definitional work is always a little trickier. So modern supply side economics is Janet Yellen picking up sort of some of this framing and bringing into Treasury and around the Biden agenda. And we can talk about that. But sort of before that, what I've been trying to push for a while, what I call supply side liberalism, is pretty simple. Look, I'm a liberal. I have spent most of my career.

arguing and still argue that we should subsidize us for that, do that, cash transfer, expand health insurance to more people. But liberals, I think, over decades, have become very used to looking at the economy and looking at demand-side problems, looking for where we can subsidize a solution, right? Do people need health insurance? Let's give them a check to get more health insurance. That's fundamentally Obamacare. Do they need housing? Let's give them a Section 8 voucher. Do they need schooling? How about a Pell Grant? What we're not as good at is, looking and seeing first where the problem is a supply problem. We don't have enough of the thing we want to give people or the thing doesn't exist at all because pulling technology forward to me

is a very, very important piece of supply side liberalism. And secondarily, we don't have very good language and certainly not very good attentiveness to seeing when our own policies have made a supply side choke point worse. We're, say, subsidizing something like maybe housing in very hot housing areas where we've also constrained the supply and thus we're pushing up prices for everybody. So part of this is trying to add a new lens or an old lens, maybe many people would say from New Deal liberalism to sort of modern liberalism and say a lot of the problems now are supply side problems and we need both language and policies for fixing them. So the liberal or progressive impulse remains the same, which I imagine would be characterized as some sort of more

egalitarian distribution of the fruits that the economy produces. So whether it's literal things, whether it's homes, whether it's child care and health care, like a more equal distribution of these things. The goal is the same. But we're used to talking about, well, the way to do that is checks so that someone can have a voucher for child care or something, but in a capacity constrained environment. And I, you know, one of the things that didn't get into the, IRA, I believe, was anything having to do with child care. And in theory, it sounds like, sure, you could, like, give people checks and give people more access to child care.

But without more child care facilities, without more teachers, without more people who can look after children, you're going to just run into constraints. You may not actually get the outcomes that you're hoping to see. Yeah, 100%. So, number one, I don't want to say this is simply about distribution. Okay. A lot of it is about the ability to have flourishing lives in ways where we don't currently have the thing we want to distribute. So if you think of, say, what is happening in the IRA with a lot of the clean energy infrastructure they want to build, some of that is, of course, making it easier to get things we have today.

Actually, you're really not going to be able to use those subsidies for the current generation of EVV cars. But in theory, an electric car subsidy could get you an electric car soon, though we can talk about supply bottle next there. But much of what that is doing is trying to create clean energy options. It don't really exist right now. Certainly at the level of plentitude, we need them to exist. Things like hydrogen, you know, things like next generation, you know, basically pick your next generation energy source. They're trying to least subsidize it somewhat.

So I do want to note that the ability to pull forward innovations and possibilities that would allow for all kinds of goals that I have that many, I think, liberals share. that could not be achieved now or the politics of them would not work out now, I think is an important piece of it, and it gets to things that might need to be rethought or thought through on the level of institutions

and grant science funding. But then your other piece of it on child care, I think is exactly right. And a lot of this for me, I mean, I live in San Francisco, California. I come from California. I grew up in Irvine, California. So I, to watch how liberal,

how blue California is, and how badly it fails at a lot of the basics of progressive outcomes, of making a middle-class life affordable for people, is to really force yourself to reckon with some things that have gone pretty profoundly wrong in liberal governance. And one of them is, yeah, we have looked around. We keep seeing demand-side problems and we don't see the role that some of our governance institutions and other things have created on supply side with housing in California and in New York and in other kind of richer-blue areas. being, I think, example number one, but child care being another, you can talk about higher education. We've not built a new UC in California. This is an amazing, amazing, amazing jewel of, like, the global public education system. We've not built a new UC here since the 60s, except for Merced. It is very, once you begin looking at the paucity of ambition on the supply side, it becomes a little bit hard to stop seeing it. So I'm just going to jump in real quickly and ask one of the devil's

advocate questions. You know, one of the traditional criticisms of this kind of government intervention would be that, well, why not just let the free markets do it? You know, the free markets should be efficiently allocating resources to the things that we need, like housing and healthcare and childcare and things like that. What's your response to that criticism? Wouldn't it be nice? There are places here where I do think the regulation is a big part of the solution. So I think housing has a very, very big component where if we let the market do more of the work, the market would actually respond not immediately, not perfectly, but a hell of a lot better than what we've allowed to have happen in places like, you know, Northern California.

On the other hand, there are things for the market that won't do it. So I think clean energy being a big example. Now increasingly over time, you have enough market signals being sent that there is a lot of investment in clean energy. But it took a long time and we're nowhere near where we would have wanted to be in terms of the market, deciding that, you know, ruining the planet is actually a bad thing for long-term, for long-term profits. So that kind of thing is not nearly as punished as one would hope it to be. I actually think a huge amount of the shift towards industrial policy and the Democratic Coalition,

the shift towards believing that the government does need to be able to set long-term goals, does need to be able to infuse the productive policy and direction of the country with the values of the polity comes from watching the market's failure on climate. So one difficulty of this kind of of this way of looking at the economy is it doesn't give you a one-size-fits-all policy solution, a little bit unlike the old supply-side economics, Reagan era supply-side economics, where you just sort of wandered around looking for taxes to cut and companies to deregulate. There are places here where you need to deregulate the private sector, places where you need to deregulate the government, places here where you need to spend more, places here where you actually need to

spend less, it's much more playing bottleneck detective and asking what is something we wish we had more of or simply wish we had altogether, right? It's something where we really should be investing a lot of money and trying to make some kind of technological breakthrough or make something affordable that is not currently affordable. And then trying to ask what is standing in the way. And that answer, very frustratingly, is extremely different for different things. As I began doing this work and I'm working on a book in this area. You really have to look at different case studies. And you can't extrapolate across the entire range from them.

They just begin to, over time, accumulate to a sense of a way of looking for a problem as opposed to a singular way of again and again solving a problem. So this is really key because, you know, whether we're talking about, all right, the old supply side, just cut as many taxes as you can. The sort of traditional progressive demand side is, well, where there's a group of people who have inability to access something, cut a check. And both of them may have their roles, but the solutions aren't clearly as simple when we're talking about something as sprawling as lack of supply-side capacity.

And your term bottleneck detective is good. In all of these things, we talk about them all the time on the show, you know, it's like, okay, we seem to have gotten bad at chips manufacturing. lot of people waiting, you know, last year we saw dwell times at the port of Los Angeles reach weeks because we didn't have port throughput. It's like one thing after another. And as you say, they're all very different. But is a good bottleneck, are there certain broad principles that a good bottleneck, bottleneck detective could have that would start to like, you know, a general theory, perhaps, of being a bottleneck detective, such that you start finding these and

identifying good solutions in a timely, in a good rhythm. Yeah, I think so. That brings up a lot. So let me say a couple things quickly. So one is one dimension of this is outcomes people actually want, right? When people organize to stop dense development from coming into their community, that isn't some accident. They actually want the outcome we're getting. Now, we may say that as a as a political system, as a polity, as the state, as opposed to the city. We don't want that. And we're going to try to pull the responsibility or pull the voice away from them. But that's a case where you're looking at, we have many, many, many, many, many institutions meant to raise up different voices, particularly though not only marginalized voices. A lot of this comes out of a sort

of a liberal counter movement in the 60s and 70s, you know, your Ralph Nader's, your Rachel Carson's, etc, that was correctly responding to a period, not just in American politics, but in liberalism, where the building really was quite heedless, where the needs of communities really were run over, where people really were dumping toxic poisons into streams and into waterways and into the air with no real look at what it might mean. And so a lot of institutions, a lot of nonprofits, a lot of statutes were passed to make it easier for people to jump in front, to be conservative about it, to jump in front of these mechanisms and you'll stop. And now at a time when we need to do things really fast, say, to decarbonize those exact same

problems, I'm sorry, those exact same solutions have become today's problems. So part of it is looking for, you know, what I think of as institutional crust, right? Where do we have long running processes that were maybe passed correctly, we're maybe passed with all good intentions, or maybe passed and even solve the problems they are meant to solve, but have now become captured for other reasons. One piece I did that I think is a good example of this is in New York, in I think it's 2019, they passed congestion pricing, which is like the most pro-environmental idea you can possibly have.

You're going to tax cars coming into New York City, and you're going to move that money over the MTA. And congestion pricing has been held up now for four years in environmental review. Because, and I've spoken to the Biden administration, and I've spoken to the players in New York about this, and everybody wants to get it done. And what you'll hear is like, well, we're just afraid we're going to get a lot of lawsuits. And so we have to do this, you know, very, very lengthy environmental review with all these meetings to protect ourselves, which is fine on some level.

But on another level, when your environmental bills are blocking pro-environmentalist policies, you have to begin to ask what has gone wrong there. And so another place I just look at is affordability. When you have a big affordability problem, and I think we know where we have very big affordability problems, we have them. in many areas in housing. We have them in childcare. We have them in higher education. We have them in health care. I think that is a place to begin looking for supply side problems as well. Now, you'll get different ones in different spaces there. But I think just in general, and we can talk about this more broadly, I think just affordability crises should be a signal that something has gone wrong. If there's a reason we can't produce more of the thing, well, okay, like fair enough. But a lot of

those things, we know there's no, you know, it's not like the only way to get more child care centers is to get more lithium out of China, right? I mean, we have like the technological means to set up a daycare. If there aren't enough daycares, then the question of why becomes very salient and should be an answerable question. I just had a vision of a daycare with all these little toddlers like driving tiny electric vehicles around. That's cute. And that's why they need the lithium from China. I'd like to see my son driving. This is a future liberals want. I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world.

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That's the Bloomberg Law podcast with me, June Grosso. Subscribe today, wherever you. you get your podcast. Okay. I just want to pause and dwell on that timeline aspect of it for a second, because I think this is really important. And, you know, Joe mentioned this idea that tax cuts can be an attractive policy solution because, you know, they're pretty one size fits all, the same for cutting people checks. Like, those are fairly simplistic answers to sometimes complicated problems. But when you talk about increasing investment and building out capacity, it does feel like the timeline starts to look very different.

Like the speed at which you can do that versus just cutting a check or reducing taxes is vastly, vastly different. So how do you overcome that? Because especially in an inflationary environment, you have people who really want to see things that are going to have an immediate impact versus waiting two or four years for new housing supply to be built out or something like that. So this becomes a cliche example if you use it enough, and I probably have. But I think it's always worth remembering that it doesn't have to be that long.

We built the Empire State Building in about a year. We built the New York Subways in, if I'm remembering the number, the early New York Subways in about four. It takes us longer than that now to open a bathroom in a subway station. So there is a delta, a pretty tremendous delta, between, what we've been able to do as a poorer country with worse building technology, what other countries that are poorer and have worse building technology than us are able to do and what we're able to do.

Now, some of that is reasonable, right? We want to build things more safely now. We want to build things up to higher code now. And some of it you have to ask, is it really serving us? So part of it is asking this question of are we, our timeline is simply too long. Now, I think, Tracy, you're also getting at something a little bit separate than that, which is within the horizon of political accountability. How quickly can you execute a policy that you may get rewarded for?

And that's a hard question, although I would have thought two years ago, in a way, it was a harder question than I think it is now, not because you are able to build more quickly now, but because my estimation of how much reward there is for tax policies basically has gotten pretty far down. So I think the expectation among the Biden administration, and to be honest, my expectation was the child tax credit, which was a very simple, like, direct, like here's a check policy, would be very popular. And it would create a feedback loop of its own popularity, which would lead to its extension. It did not do that. It just did not do that. And if you go over the past couple of years, it's actually very hard to find big tax side policies that seem to have created

a very strong political feedback effect. Certainly the Trump tax cuts in 2018 didn't do all that much for Donald Trump. You know, we can argue about the stimulus checks in the CARES Act and in the subsequent, you know, acts two, but it certainly doesn't look like it saved anybody's bacon exactly. So I actually find this worrying for a bunch of other reasons that I think there is a very, very, very, very tenuous connection now between the policies either side passes and political and the political feedbacks, rewards, or accountability for them. The real exception is being when you make a policy highly salient

through a very big repeal fight like Obamacare. But in general, it isn't clear to me that politicians are getting obviously rewarded for the tax-led policies either. So, you know, he may as well try to do a good job. Well, you know, speaking of policies, let's just pause right here because we did have two pretty extraordinarily big pieces of legislation passed in the last, I don't know, two months, basically. And you are the original wonk and you made your career because you're extremely good at sort of taking these big policy things and writing about them

and talking about them in a way that people can understand. So these two bills, chips and IRA. Someone comes to you, says, Ezra, like, what's in these bills? What do they do? What are they going to do for me? How are they going to expand supply side capacity? Why do you give us like this short Ezra Klein summary of these pretty extraordinary legislative accomplishments that up until very recently people thought there was no chance of this administration getting. Sure. And I think we should actually put the infrastructure bill in here too. Sure.

Great. So if you take the three of them together, what you have is about $450 billion in climate investment. Roughly $350, $3.75 in the IRA. It's really weird to keep saying the IRA. I know, I know. the Irish, and then a fair amount more in the infrastructure bill. And then Chips has a bunch of, you know, we're going to set up an agency, interagency process, a kind of department here. We're going to give a direction. But they don't actually authorize the money for it. Or rather,

in technical terms, they authorize the money, but they don't spend the money. The other ones are actually like, here's a check. One tricky thing about these bills is none of them do one thing. As a wonk, I find them very, very hard to explain, there is no central architecture, but the main thing has happened. I know, right? Well, I've moved on. Oh, yeah, yeah. It's much easier. But I would say there's been a huge move in climate policy.

And this goes actually a little bit to the question of letting the market work. You go back to, you know, 2010 and 11 when they were doing Waxman-Markey, the big cap and trade bill. The theory for a long time was we were going to price the externalities of carbon. As such, the market would then begin sending signals across the entire market so that the response from both government and consumers and private companies would be to begin investing much more in clean energy and infrastructure for clean energy and products that use clean energy and less in things that they use of fossil fuels. For a bunch of reasons, there's been a big movement away from that. And so now what they're trying to do in the IRA and to some degree in the bipartisan infrastructure bill is, is they're trying to sort of wander around with checks, with tax rebates, with tax credits, and say, look, like, if you can set up domestic, and this is actually pretty important because they are putting a lot into the bucket of not just trying to create clean energy infrastructure and supply chains and product chains, but create them in America.

If you can create enough of this chain here, like, we will give you a tremendous amount of, you know, subsidies or will be guaranteed purchasers or whatever it might be. So they're basically just trying to spend their way to a very, very, very large decarbonization, both push, but also industry in America. I really think you have to understand what Biden is doing here as also an idea about the future of the economy. And I've been thinking about how will we know in 10 years of this work? One way to think about it is, well, we'll know because we will have gotten, you know, I think the estimate out of the group in Princeton and others is about two-thirds of the way to. the Paris climate, are targeted under Paris climate. I think another way, though, that I think, you know, if it doesn't happen, we're all going to have to answer for it a bit, is, is there a really strong domestic next generation battery manufacturing sector in America? They're putting a lot of money

into that and some other things like that. And if those industries don't build up here, then that'll be a real, you know, that'll be a real point for the people who say, you know, you can't use industrial policy to create these kinds of industries. That's one layer of this. The bills do a bunch of other things. It should be said. So there's a huge amount of tax policy in the IRA to pay for not just the climate investments, but also to just pay down the deficit a bunch to make Joe Manchin and to some of Christian Cinema happy. I would want to bone up on that more before I talked it through right here. And then there's obviously a fair amount of extension of Obamacare health insurance subsidies. Chips is primarily a little bit to the side of this. Chips is, it comes out of competes and the,

I think it was called the Competition and Innovation Act, this huge Christmas tree kind of legislation for every R&D idea and domestic manufacturing idea anybody in Congress had. That eventually got whittled down to primarily being an idea about reconstructing domestic semiconductor manufacturing and innovation with the idea being these are such a critical component of both the current and the next generation economy, that to be dependent on other countries for them, particularly other countries either that don't like us or that could be easily invaded by countries that don't, that we have a complicated relationship with, like say Taiwan, is a critical national security, not just failure, but vulnerability.

And so I think CHIP sits a little bit differently, whereas the IRA, I think, is very much like a supply-side progressivism bill, right? We're going to invest hugely in the supply side of this very, very, very central to progressivism now goal, which is decarbonizing the economy and slowing climate change. Chips is very much a national security. You know, the two parties can still somewhat come together to try to pass anti-China or compete with China kind of legislation. And there, too, a little bit like batteries are going to be a really big test for the IRA, whether or not we're able to create the semiconductor capability and industry in America is going to be a little bit.

a really big test of whether or not it is possible for this kind of industrial policy to work. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations. organizations. But they usually

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normally when I think of large scale investment or infrastructure spending, things like that, I think of China. And China has sort of a mixed record on success on that front. And my favorite example of this is the swine fever epidemic, where a huge, huge chunk of China's supply of pigs got wiped out by this pandemic. And then the government intervened and said, we have to rebuild our herds. And then they rebuilt them so quickly that they had too many pigs. And we had a bunch of pig farmers and pig farming companies that ended up going bust. And so if you look at the supply of China's herd of hogs, as I do regularly, it's just

it spikes and then it troughs. We all need hobbies. Right. And then it spikes and it troughs. So for them, It's been very hard to smooth that particular cycle. And so I guess my question is, like, how difficult is it to calibrate this kind of supply-side intervention? And how do you ensure that you don't contribute to a boom that then ends in a bust? I think you might. I have two thoughts on this. One, it goes back to something you were saying at the beginning, Tracy, about this in some

ways being a rediscovery of Keynes. People, you know, post great recession, thought a lot about Keynes in terms of smoothing business cycles. But I in many ways think of the central contribution of modern monetary theory to tart discourse being the rediscovery and the central and central focus on the old Keynes quote, whatever we can actually do, we can afford to do, which I might have slightly wrong in memory. But after that, all my new Keynesian friends, you know, you're Larry Summers and Jason Furman's and everybody said, oh, yeah, we've always. believe that. And I thought, well, you never, never mentioned it, actually. It was not something you all said. But to take, to open up that quote a little bit, there are things we want to do that we cannot currently do. We either don't have the capacity. We don't have the market. We don't have the manufacturing skill and the supply chains. We worry those chains are going to be vulnerable to future

geopolitical shock. And so there is a real effort here, I think, not to smooth out, right? I mean, as you say, China had a pig industry, right? They did have hogs. We just don't have a lot of the capacity we want to have. And so the theories to build it. Now, I do think the worry, which is similar, is we'll build the wrong things. You know, we'll put all this money into EVs, but it turns out everybody's going to be on e-bikes, you know, or something. And so the government will, in picking its, you know, winners, have actually picked up a bunch of losers.

And this gets to something else. And I talk a lot about supply side liberalism. But there's a lot of pickup for this idea on the right. And a lot of people on the right like to say, yeah, like, you know, finally, liberals are taking the supply side seriously. And there's a pretty deep critique and for me a pretty deep frustration towards my conservative friends who on the one hand want a government that plays a more serious and I think risk-tolerant role in backing up and accelerating the frontier. expanding the frontier of the supply chain. And on the other hand, they have themselves created an unbelievably risk intolerant, terrified of its own shadow government. So whether you're thinking about, you know, things like the loan guarantee program that everybody knows for backing Cilendra,

but that also was an incredibly important lifeline to Tesla, or you're thinking about things like the incredibly heavy level of peer review and consensus-oriented decision-making at the NIH or the NSF, which I think of as pretty big problems for a bunch of things I care about. But these places are terrified of funding things that then members of Congress on the right get up and say, what a stupid thing. These are shrimp running on treadmills or whatever it is. A lot of science looks weird. We need a government. The role government should be playing in a lot of these areas is to be investing in things that might fail. To your point about the government earlier, I'm sorry, the market earlier, there are things the market does really well. And the market

is really, really, really good at betting on things that are pretty likely to turn a profit. And there are places where maybe we need to deregulate or places we need to give a little push or make things a little bit easier. But in general, you know, if you didn't do anything on electric vehicles right now, the market is moving in that direction, maybe a little slowly, you know, compared to what we would like, but it is definitely moving in that direction with, of course, we should say a huge amount of government help up until now. But there are things that are just too risky.

There are things that just, you know, if they paid off, it would be unbelievably great. But they very likely won't pay off. And we need a government able to make a lot of bets like that and absorb not just financially a bunch of failure. But, and this is a much harder part and the part where the right plays a very toxic role, it needs to be able to politically absorb a bunch of failure. If you spend all this money and you don't get any big failures, right? You spend all this money and you do all this backing up of things and you bet on all these technologies. And there's nothing we can say at the end of it. Hey, like, that really didn't work out. Like, you really picked wrong there. Then we have way, way, way, way aired on the side of making overly

safe bets. You really want a bunch of things where if one of the 15 pan out, it's transformative, as opposed to 15 things where 14 of the 15 obviously pan out. And as such, the market could have done it just fine. The market has never, as far as I know, funded a shrimp running on treadmills, Startup, which is an obvious market failure and a clear reason why we need the public sector. I believe I'm not, I believe I'm pulling that from something real. Maybe it's, if I remember. Maybe there are all these things. There are all these congressmen who give awards for dumbest.

No, I know. I remember like there used to be like the cow farts one. But I think that's actually a big of, you know, you know, here's a question. And I don't, you know, where I feel like you probably uniquely positioned to answer for us, which is within the Democratic Party, you know, there is a lot of reservation, particularly on the left, I think, towards chips, even though it's about public investment. The idea, like, private companies theoretically are going to benefit a lot from it. You know, where it's like, are they going to use this money for stock buybacks, et cetera? And so, like, within the Democratic Party right now, it's not like everyone has suddenly become supply siders.

And that sort of old school, do it on the demand side is pretty strong. How would you rate, you know, where the center of the party, I don't mean center isn't centrist, although maybe implicitly it is, but the center of gravity within the Democratic Party, which you're much more plugged into than we are in terms of like taking on the supply side framing to problems. I have found on a bunch of these issues that there is more interest and less resistance than I expected, but also in a funny way, less eventual. pick up. So I thought a lot of this stuff would cause, frankly, a lot more blowback. Like, I've been very critical of things like the National Environmental Policy Act to the California Environmental Quality Act, the Clean Air Act to some degree, things that are very central parts of the environmental movement legacy in this country operating today that are now being wielded against clean energy or, like my favorite example. In Minnesota, they banned,

Minnesota, Minneapolis, banned single-family zoning. And that policy got an injunction based on environmental review. Like, they can't move forward on their ban of single-family zoning because it didn't go through enough environmental review. Like, it's just crazy making. People have been more receptive to that, though not that interested in doing anything about it. I think of this is more of a problem of attention and what gets people into liberalism, you know,

kind of liberal or democratic politics. And to some degree, even how the machinery of government is set up, then I think of it is really a very tough ideological fight. So this is something I'm sure you guys ran into. But I was really struck over the last, you know, it's called 18 months as inflation got worse and worse and worse, talking to members of the Biden administration and just really realizing how much they were having to try to retool themselves bureaucratically, institutionally, to just understand. the productive side of the economy, where you weren't trying to do efforts of macroeconomic stabilization. You weren't just trying to kind of ask what are the big trends, but you're actually having to kind of figure out the ports. And the people who got charged with figuring out the ports, like, that had not been their job. There was no person who that was their job. And like,

they had that information streaming in in a very usable way. And like they had a bureaucracy well set up to do something with it. So to some degree, there is simply a mismatch, I think, in the motivations and and structures of the Democratic Party, and also for that matter, the Republican Party and some of these problems. In health care, for instance, which I know very, very well, the amount of organizations, groups, nonprofits, people, talent that has gone in for decades to the question of how do we get more people health insurance is really, really traumatic. The amount of people who got into that to go to war with the American Medical Association over how many doctors we accredited every year and what kinds of regulations we have on other qualified practitioners like nurse practitioners

so we could expand primary care such that prices would fall on that. Nobody's in it for that, right? They're in it to get health insurance to poor people, not to fight with doctors who are actually their friends on a bunch of these issues. And so it's more about that. If you say this, you're not exactly against it. I mean, the fact that we have capped the number of residency slots and there was actually this big fight from the AMA years ago and others.

to convince politicians that we had a problem with doctor oversupply, and now we've a problem of particularly primary care under supply. It's not that people disagree with you. It's just, you know, it's like a company trying to do something it wasn't set up to do. It doesn't really know how to do it. The right people aren't that interested in it. It's coalition splitting work as opposed to coalition uniting work. So the problem isn't so much like the counter argument.

The problem is almost like the argument has nowhere to go. Like, it's not well structured in the congressional committees. So I've actually found that to be to be more of the difficulty here. So I realize we've been very focused on U.S. policy for obvious reasons. But the problem of underinvestment is not exclusive to America. And in fact, you know, one thing we've learned over the summer is that it very much applies to places like Europe with their energy supply and energy policies and things like that. what accounts for that underinvestment in Europe? Like what is the condition that is, I guess, common to both the U.S. and places like Europe

when it comes to underinvestment? Because when you look at Europe, you can't just say, oh, it's, you know, Democrats and Republicans fighting and they can't agree on anything or, you know, we can't agree on how to fund it and things like that. Europe already has a slightly different approach when it comes to that. And yet, they also seem to have struggled over the past decades. I don't know how to think about the question of underinvestment as both a sort of macro and international phenomenon. And I mean that in the sense of, I'm not sure how useful I think underinvestment is as a

concept. So some countries in Europe have done a lot more to invest in, you know, green energy than we have. Some countries in Europe have invested a lot in nuclear energy, you know, like France over time, you know, and some have been obviously like Germany going in the opposite direction. So one thing is I think it is worth looking at the sort of. of differences that are exploitable there. Something has been very, very helpful when thinking about infrastructure build is that, you know, lots of countries in Europe do rail, train, bridges, etc. We can actually look at per kilometer costs and it's not perfect, but there are people

who've been doing this like Alan Levy. And you can really see judge unbelievably large differences in how much things cost. But within that, I do think there's probably a consistent issue. of simply rich society is becoming affluent enough, that things are broadly good enough, that what people want is not actually all that much change. And a lot of, say, infrastructure build is, among other things, a lot of disruption. I mean, it's all great to talk about infrastructure in your head. Yeah.

And then they're ripping up all the streets near my house, and it's an unbelievable pain in the ass. Right. Like, nobody actually likes it when infrastructure is being built near them. And similarly, you know, I go back and forth on this old book by an economist named Mansor Olson. I think it's called The Rise and Fall of Nations or the Rise and Decline of Nations. And I think it's published in the 70s, if I'm not wrong. And it's a classic in public choice economics. But it, you know, he's basically trying to explain why are Japan and Germany, which were bombed out during World War II, growing so much quicker than the UK and some other countries.

And he comes to this argument that is wrong in a bunch of its particulars. now that we have a longer time series on it, but it's clearly right in its general thrust that stable affluent societies build up these very, very thick networks of interest groups that are trying to get their bit of pie. I think he misses that they also get a lot of actor networks that they're not just trying to redistribute money to themselves, but also just are trying to get their values instituted in society, even when that would be bad for their bottom line. But we have a lot of that, you know, where people are trying to fight for the way they want a community to be, as opposed to what their housing, you know, values could actually be. He talks about complex

agreements as countries become, you know, again, more affluent, more stable. They begin to become very, you need a lot of complex negotiations between different players who, due to their longevity, due to their power, due to sort of move towards more small-dea-democratic processes, have a real hold in the system. And so being able to negotiate these incredible, increasingly complex negotiations becomes a core thing that you're rewarding people for, and a lot of your talent goes into those areas, as opposed to say engineering. I think it's Patrick Collison of Stripe, who has made the point that if you're really into high-speed rail in America, you're just not going to be very productive.

Because there just isn't a lot of high-speed rail being built. And even though they are still working on things like the California High-Speed Rail Initiative, it's really, really slow. It's really expensive. Like, we've made a lot of engineers here unproductive. and it's a big pain to be an engineer working on these things. I'm just flooded now with people working on domestic infrastructure projects who want to tell me about how miserable their lives are. Whereas, like, working on crypto up until a couple months ago was super fun because nobody told you no and everybody just shoveled money on you.

So I do think something it's probably consistent. You know, whatever the, I think the reason I'm a little skeptical of underinvestment sometimes is that there's what our investment could be getting us at its current levels and what it is getting us. But nevertheless, like there is clearly a, these societies are all turning dials in a billion different ways against building, against risk. And it just becomes sludgy. And then, you know, you're a young person thinking about where to go and like where to make your mark. And it's like, you know, you go into these mediator industries like, you know, corporate law and management consulting and finance as opposed to the actual building stuff industries. And that stuff, you know, cycle after cycle, you know, begins to have a real effect. act. I think there's the second episode of late where the conclusion is we had to kill this

crypto thing so people can work on something productive. Ezra Klein, it was so great to have you on. We're out of time, but we could actually go for a long time. And as all the good conversations, all our best conversations give me like five ideas for episodes, including we got to talk more about environmental review and we got to talk about old environmentalism versus new environmentalism and all this stuff. So great to have you on the show. Really appreciate you coming on odd lots. Thank you. I love being here. So should we do a spin-off, the bottleneck detectives? That would be a fun show. Like a TV show, maybe. That would be a great name for a TV series or even a podcast series. So yes, yes, we should do that. It had like some like

haunted, you know, sort of like mysterious music. Like the Scooby-Doo kind of aesthetic. Yeah, yeah. I think that'd be really fun. We're wandering around with like big magnifying glasses. Looking for supply side constraints. Okay. On a serious note, there was a lot that I found interesting in that conversation. But I did think Ezra's point about the government being willing to finance and support failures. Yeah. And politically absorbed failure.

Yeah. I thought that was really interesting. And also, can I just say that that shrimp treadmill study is a real thing. And there is a video of the shrimp running on the treadmill. And I have to say they move kind of like I do on a treadmill, which is which is, which is, to say reluctantly, extremely reluctantly. But yeah, that doesn't exist. We got a splice in some of the video for the video version of this episode.

You know, something I was thinking that I thought was very powerful is like this idea of there's a lot of openness to some of these supply side ideas, but whether that openness actually turns into action is a very separate question. And, you know, just we're recording this August 24th. Yesterday we had the New York primaries. and one of the candidates in New York 12, and maybe he never had a shot of winning anyway, but one of the candidates in New York 12 made a point about,

like, repealing the Foreign Dredge Act of 1906 was one other things. Clearly an odd lots fan. Clearly an odd lots fan. Saraj Patel, who maybe we should have on at some point, talk about that. But it was interesting because it's like, that's not a big vote mover. You know, and I, granted, he didn't make that like the centerpiece of his campaign, but it does seem to, you know, get more.

take home more of your money, tax cuts, et cetera. The language exists. To Ezra's initial point, the language of these sort of like taxes or vouchers that exists. What is the political language of talking about dredge capacity? Right. I think that's a really important point, which is that, you know, Ezra mentioned that info-gathering idea that all these politicians in D.C. have had to suddenly get up to speed on things like the ports over the last couple of years.

But then it's also the voting population, right? Like all of these people are suddenly going to have to form opinions on things like the Foreign Dredge Act. And how do we actually do that? The voters are not. It seems. Unless they all listen to the odd ones. It seems tough. But on the other hand, you know, if the pitches, this is something that can help the economy and push down prices, then maybe that's a simplistic way into it.

Yeah, a lot there. Are we going to leave it there? Let's leave it there. Okay. This has been another episode of the Odd Thoughts podcast. I'm Tracy Allowway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest, Ezra Klein, on Twitter at Ezra Klein.

Follow our producer, Carmen Rodriguez, at Carmen Armin. And check out all of the podcasts at Bloomberg under the handle at podcasts. Thanks for listening.