Odd Lots - Joseph Stiglitz on How to Build Shock-Proof Supply Chains

Episode Date: July 11, 2024

Joseph Stiglitz is a Nobel Prize-winning economist known for his groundbreaking work on information gaps and risk-taking in markets. But he's recently turned his attention to supply chains and how to make them more resilient in the face of shocks like the 2020 pandemic. In this episode, we discuss why companies often hesitate to maintain extra inventories — and why this tends to be the case even during stable economic periods. We talk about possible solutions to incentivize firms to invest in larger capacity buffers and promote better long-term economic practices. The conversation also touches on industrial policy, the role of international institutions in the global economy, and strategies to ensure that economic growth benefits everyone more fairly. See omnystudio.com/listener for privacy information.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. Bloomberg Audio Studios. Podcasts, Radio, News. Hello and welcome to another episode of the AllBots podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. Joe, you did international relations at university, didn't you?

Yeah, I did. I don't remember any of it. Actually, technically at University of Texas, the major was called government, which was sort of poly-sci, international relations. I don't remember any of it at a good time, but yeah, anyway, yes. It is all a blur for me as well. Also, just to be clear, it's not because I was like parting like crazy. I didn't have much fun in college.

You know, it's just one of those sort of liberal arts degrees that you remember a few ideas from and then you move on. Okay. I don't want to make it seem like I was like, oh, it's all a blur to me because it's such a good. No, it's just I wasn't a great student. Okay, well, to be fair, I feel like one of the things about international relations is that I don't know about you, but I feel like I didn't learn very much. I basically learned how to write essays and arguments, and I don't feel like I actually internalized a lot of what's going on in the world. That said, I remember in my first year, there was one book that was on our reading list,

and it kind of blew my mind at the time. I was like, whoa. So it was globalization and its discontents by Joseph Sticklets. Do you remember that one? I did not read it at the time. I probably should have. I think that came out in early 2000, 2002. it looks like, according to Wikipedia.

And it feels very ahead of its time because now this is just such a pervasive thing. It does. And the thing that kind of blew my mind about it was, you know, I had done a little bit of international relations at my high school in Tokyo. They have a course, but most of it felt very history. It was like, you know, World War I happened and then World War II happened and then all these international institutions got set up and here are all their various names and acronyms. But globalization and its discontents was the first time I, I had read an actual, like, critical study of some of these institutions. And I thought it was so good.

I was like, oh, hey, like, these weren't inevitable by any means. And we can have a discussion over what it is they do and how they should function. Yeah. The lack of inevitability when it comes to policy choices is, I think, really important. People make decisions and things don't necessarily unfold on some path that must have always been the case. very easy to forget that. And also, you know, all of this stuff is very new. And it has it, none of these things are ancient by any strategy. You could argue nothing, nothing is really proven the test of time as of yet. And so the possibility that things could disintegrate,

that globalization could go in reverse, that institutions lose credibility, feels like these are all open questions to me. Absolutely. So I'm very happy to say that today we do, in fact, have the perfect guest on All Thoughts. We are going to be speaking with Professor Joseph Sticklitz. He is, of course, a Nobel Prize winning economist, the author of Globalization and its discontents. And he has a new book out now as well. It is called The Road to Freedom, Economics, and the Good Society. So, Professor Sticklets, thank you so much for coming on All Thoughts. Glad to be here. So I have to say your book actually featured in one of my most annoying and overconfident international relations essays. of all time, where I wrote that Stiglitz made a fair criticism of international institutions,

but he should have gone even further. Maybe in the outro, I'll spare you this, Professor, but maybe in the outro, I'll read some of it to the other Joe here, to my co-host. Looking forward to that. Yeah. But one of the reasons we wanted to have you on the show was not necessarily because of the new book, although it looks really interesting, but you also just published a working paper over at the Federal Reserve. and it's called our supply networks efficiently resilient. How did that get on your radar? It all went through the pandemic and the post-pandemic inflation. And a lot of the problems in the pandemic and after the pandemic were about supply chains.

Car companies couldn't get chips. A lot of people couldn't get one thing or another. There was a shortage of women and feminine products. diapers, all kinds of things, a baby formula. And in many of the cases, people said, well, I couldn't produce it because somebody else couldn't supply me with what I needed. And they said, well, I couldn't do it because what I was supposed to get was from somebody else. And that brought me back to work I had done earlier on the question of how interdependent we are in our economy. and we saw it in the financial system.

I did a lot of work on financial interdependence. Do you remember when Lehman Brothers went down? Of course. I've heard of it. That looked like the whole banking system was going to go down. We were all very interdependent. And the question then was, was this a one-off? Or was there something systematically wrong, systemically wrong,

with the way our economy was organized that led firms to make decisions that led the economy to be insufficient resilient. And going back to the book, Globalization and Discontents, one of my discontents with that book was I didn't give the view, my views about what could be done. And I wrote a sequel called Making Globalization Work. And in that sequel, I discussed some aspects of this issue. I pointed out that Germany had become excessively dependent on Russian gas. And, you know, it may be that President Bush looked in the eyes of Putin and said, he's somebody I can trust.

A lot of other people looked at his eyes and came to other conclusions. And whether you did or not trust Putin, it was a risk. And putting all your eggs in that basket was just a mistake. So the question was that I wanted to pose more generally was, are markets efficiently resilient? So when it comes to, I mean, the pandemic hit, everyone sort of woke up to the fragility of our supply chains and experience shortages of various things for probably for many people, least in rich Western countries for the first time in their lives. And so then we say, okay, we want to have more buffers and more inventories, more resilient supply chains.

That being said, this type of shock seems to, I don't know, you could say once in a century type of thing. And there's an argument to be made perhaps that companies should not be designing systems or you're over-optimizing or you're going to be overly inefficient if you're thinking about once-in-a-century type of shocks. But in your paper, you talk about how some of the lessons from the pandemic are generalizable to non-crisis times as well. So can you explain a little bit the sort of theoretical argument that you make, that it's not just about these mega-shocks, but that a persistent feature across the economy is this underinvestment in supply chain resilience. That's right. I mean, it's basically that firms don't think about the consequences

of underinvesting and capacity for others. They may take the price distributions as given, but their independent actions actually change the price distributions. And they change them in ways that basically they're free riding on others. But when they all are free riding on others on the fact that somebody will have built that capacity, there's a problem of under capacity. So that in a nutshell is the argument that if each firm says, well, if I need it, I can always get it from somebody else and they all go around doing that. In the end, there won't be enough capacity, is like a public good that we all benefit from. And there's a general proposition in economics that there will be underinvestments in public goods. Here is something I always wanted to ask

a Nobel Prize winning economist. But when you're modeling something like firm behavior and the tendency to over or under invest, how do you actually go about doing that? That's a very good question. The way we do that is, is complex. We like complexity on this show and detail. So feel free. So the basic idea is you hypothesized a world in which you had somebody sitting up there, coordinating various activities, looking at saying, okay, I know there's going to be shocks. I want to make sure I don't want to over invest. As you say, you don't want to build capacity for once in a thousand year. But I'm willing to pay something because some big shocks are really going to have very, very negative consequence. And so I can solve for the level of capacity that is desirable for the shocks, given a reasonable assumptions about how big. different shocks are going to occur with what probabilities. And then I ask, will decentralized markets, each firm maximizing its own profits,

lead to the same solution that's somebody trying to coordinate it all? The basis of a modern market economy is decentralization. Each firm goes ahead and does a thing and add a society. Smith had this idea that individuals in the pursuit of their own self-interest lead as if by an invisible hand to the well-being of society. That concept is really fundamental to economic reasoning, but Adam Smith didn't actually test whether it was true. He just asserted it. And what we can do with modern, more complicated models is to say, well, in these more complicated situations where you have these shocks and you are responding to the shocks,

will the lack of coordination lead to a problem? And the answer is yes. And that's where the free riding comes in. And that's why the way we model it, we compare what a decentralized outcome would look like, worth one where, say, somebody is aware of, you know, the need for greater resilience than each individual would. Let me give you one example where this has played out an important way. We have a lot of capacity and oil and gas, but we have to draw on the strategic oil reserve that the government has created to help stabilize it even more.

So we as a country have realized that the markets are not the solution by themselves and have put a lot of oil into these strategic reserves, which we take out when there's a shock where we need it, and we then, when times are normal, we will refill it. So that illustrates. The other extreme that our economy went to where you can see where it was not resilient enough, is we had just in time inventories. I don't know if you remember that idea. Yeah.

Oh, yes. Very well. And it was the idea that it was more efficient to wait until you needed a part or you needed. Then you call it up and you and send it over. Well, it saved on inventory costs. But it assumed that everything in the logistic network, was working. Parks were working, ships were working, and of course, we've had a number of events that show, well, that's not true. We've had wars like in the Middle East, and we had the pandemic

where there were logistical nightmares. And just in time, those companies that relied on just in time inventories were in big trouble and showing that our, and with big consequences for our economy, our economy wasn't resilient, and we experienced inflation as a consequence of that. That was a social cost that individual firms didn't take into account when they were making those calculations. But on just in time, you can argue that the economy or society as a whole suffered because of those decisions, the tendency to be as efficient as possible. But a lot of the individual companies were rewarded by shareholders or profits for being as efficient and just in time as they could possibly be. And I guess there's that tension between individual rewards for being extremely

streamlined versus negative externalities for the whole of the economy and society. How do you square those two things? You talk about it in the paper. You're precisely on point there that that this is the tension that what is rational for the individual maximizing or firm, maximizing its profits, is not efficient for society. There's another aspect of that that I should emphasize that markets are often excessively short-term. So when you say they're maximizing their profits, they're not really maximizing long-term profits. A lot of that, just time was maximizing short-term profits. And then when you can't produce, you lose a lot of profits. And they didn't take that fully into account. Part of the reason for this is we don't

really have good prices for risk. You know, there's a lot of discussion today about one of the reasons why we have too much pollution, too much carbon climate changes that we don't charge for carbon emissions or other forms of pollution. So there isn't a price associated with certain negative externalities, pollution is one, and there's not a price associated with or a reward with risk. So the firms that don't rely just in time aren't rewarded for their avoidings of the risk, and particularly if the stock market is too short term. Figuring out what to do about that is really difficult. One of the things is to try to encourage firms to take more long-term decisions

and rewarding more long-term behavior. Taxes affect that. fact that you can get, if you get more favorable treatment on capital gains, if excelled long term, can encourage people to hold onto investments long term. And that will encourage more long-term thinking, as opposed to the short-term thinking that being so dominant and so much of the market economy. 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.

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So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts we're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. You know, one of the criticisms, obviously, of a sort of taking a view of what the ideal distribution of outcomes or the ideal supply chain from the perspective of a planner is planners don't know everything and planners get things wrong. And you mentioned, you know, the strategic petroleum reserve and of course oil is an input into almost every aspect of

the economy. And so, yeah, it kind of makes sense for the government to have this buffer stock of oil. How do you systematize the identification of these areas? Because presumably the government is not going to have an SPR equivalent of literally every product that exists. But how would you go about thinking identifying the key areas in which through some policy measure, we want to encourage the buildup of greater inventories, less reliance on just in time and so forth? Let me first point out, you're absolutely right that this is a systemic problem. And that's why it began by emphasizing encouraging long-term thinking, for instance, by using the tax system to encourage long-term holding on shares so that the people who hold the shares aren't just trying to think about how I make a buck today, but what's going to be good for the company over the next 10, 10 years, 15, 20 years. So that's part of getting better risk-taking, systemically built into the system, balancing the cost and the benefits.

There's another way that is important is changing corporate governance. One of my colleagues at Columbia pushing an idea called loyalty shares, where if you hold your shares longer, you get proportionally more votes. so that it says in the governance of corporations, those who are long-term investors, should have more say in what the firm does rather than the guy who comes in, the day trader or even the short-term trader is trying to make an arbitrage profit. Now, on the specific question of how do you identify particularly strategic sectors, One way you do that is, again, this is a little bit complex, but you have a matrix that shows how various inputs go into each output of the economy. It's called an input-output matrix.

And in an input-output matrix, you can identify where a perturbation, where a shock might ripple more through the system. example would be some final products that are used by consumers are not an input anywhere else in the system. And a problem in those industries is of no consequence for the system. Oil is obviously very consequential. Basic primary goods tend to be consequential. Steel, aguminum logistics we were talking about. You have to think not only about goods, but services. If you can't move from one place, another, trucking, airlines are very, they go into absolutely every industry because every industry has goods moving from one place to another.

So if you have an interruption in those industries, you have real consequences. Now, there are further questions you then need to ask. Some of these you don't have to worry about. They're pretty steady, but some of them are more vulnerable. So you would not only look at what I first talked about is sort of a centrality, how important are the functioning of the economic system, but also you have to also then look to some notion of vulnerability, the nature of the shocks they face, the reliability of those particular places.

And your choice then is to either get a, reliable supplier or to create strategic reserves. One of the reasons we wanted to talk to you about this is because a lot of your work focuses on the social benefits of different economic systems and analyzing the relationship between the two. But how do you build political consensus for something like this? You know, you're talking about maybe additional subsidies for incorporating additional capacity or some sort of tax benefit, things like that. How do you get people on board for these types of ideas? Well, part of the answer to that is specific events have a way of bringing certain things home.

You know, when I began my research in certain areas, it's often motivated by a particular event that happening someplace in the world. But for instance, I saw a lot of supply chain problems when I was chief economist of the World Bank working on the East Asia crisis. And we think of it often as a financial crisis, but it was also an early version of a supply chain crisis. And that's what really started me thinking about that. It's almost 30 years now, thinking about how to model that, how to ascertain how do you think about those kinds of interdependencies? And I looked also at the financial interdependencies. And I wrote a lot about those financial interdependencies, the fragilities, the dangers. Very little on the financial side, people didn't pay much attention to it until 2008.

And Lehman Brothers went on. And an event like that brings it to the public. attention. And now Congress passed a law trying to create agencies that look at systemic financial interdependence. Well, the pandemic has had the same thing on the real side, on supply chain resilience, on economic resilience more generally. So the answer to your question is, as long as it's remote, as long as it's happening somewhere else the long way away, it's very hard to get attention. But the work that we do means that we're better prepared when those events happen, like the pandemic and like the inflation that followed the pandemic and the war, the Ukrainian

war, people, then politicians wake up and say, you know, we got to do something about this. And then we get the Science and Chips Act. If we get legislation moving us along this way and analytic work gets more attention. You sort of anticipated my next question. But when you look at the Chips Act, which subsidizes domestic production, domestic research of various sorts, or when you look at the Inflation Reduction Act, which tries to do a lot of that except on the energy side. How closely do these pieces of legislation dovetail or align with your vision of what resilience planning would look like? And, you know, one of the criticisms is, you know, it's all carrot and no sticks, that there's a lot of subsidies, et cetera, but there's no sort of

disciplining of capital, so to speak. Like, when you think about your latest paper and what the optimal policy solutions, how close are we and what are some of the other any drawbacks to how we went about those two big pieces of legislation? They were important pieces of legislation because they put this topic on the agenda. They began moving the country in the right direction. You know, there's an old joke about you don't want to see how sausage is made and what goes into it, what we get out of our political machines sometimes is not ideal. It's not what I would have written. But if you ask me, is it better than nothing? I say it's way better than nothing.

These were major achievements in a context of a politically fraught world where it's hard to get anything done. So let me begin by saying that they were really important pieces of legislation. They moved us a lot in the right direction of greater resilience. It would be tragic if we hadn't done that. No, I don't think they are the ideal mix of carrot and stick. You know, I talked before about more fundamental changes in our structure of our economy to encourage more long-term thinking, like changes in corporate governance and changes in our tax legislation.

I think that, you know, those are more fundamental things that we need to do. but I would have put more weight on science. I, you know, it disturbs me that we are subsidizing a company like Intel after it paid out tens of billions to its shareholders. It could have taken that money and invested it. You know, it didn't need public money if it hadn't sent all that money back to their shareholders. So it disturbs me that that, that, When they make profits, they are privatized.

We're taxing them at very low rates. And one of the presidential candidates wants to lower the rates still further. All those things disturb me. But do I want the country to be exposed to a shortness of chips in the future? If events unfold in a way that we can all imagine, but hope won't happen, I think it would be criminal not to put the country in a position where it's better prepared to handle that kind of a crisis. Just on this note, there's another tension that seems to arise from, I guess, more active industrial policy of recent years and also the green transition. I guess there's an issue where maybe one country is trying to do the right thing for its economy and its population.

by, for example, encouraging more electric vehicles. But then that ends up having negative consequences for other countries. For instance, you know, the people in Chile who maybe have to mine the copper that goes into the batteries for EVs. How do you solve that particular tension? That's a, again, a very interesting tension. To me, and this go back, let me relate this to the previous question. When we think about the environment and the green transition, there, I think we should be using more of the stick with the carrot. That is to say, we should have a carbon price. When you pollute, you impose costs and others. It's just like any other cost you impose on others. You should pay the price. And that's why I'm a strong advocate of a carbon price. It's not the only instrument. I think we need regulations. I think we need public investment. But a carbon price is important.

Well, the same thing is true in foreign countries that are mining the lithium. They need to have environmental taxes and environmental regulations to make sure that the fallout, the negative fallout consequences are very limited and that they're fully compensated for those negative consequences. And that all should be built into the price of our electric vehicles, our EVV. We shouldn't be imposing costs and others. We should take that total cost on board. It's part of the cost of travel, part of the cost of having a car. So to me, the right way to do it, and I think the honest and the moral way to do it is to make

sure that there are environmental taxes and regulations all the way along. I'm Francie Lacquan, an award-winning journalist, and I've got a new podcast. Leaders with Francine Lacroix from Bloomberg Podcasts. I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious who are these people as leaders. I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision.

Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts. I haven't read your... Well, I didn't read the first one either. But I will. But I haven't read the second one making globalization work. So I don't know the full contours of the argument. But, you know, one of these sort of concerns among some of the U.S. reindustrialization initiatives right now is that they have this de-globalizing effect. Part of it is, of course, by design, the U.S. wants to be less dependent perhaps on Taiwan or

China for certain things in high tech. But it also creates tensions, you know, with European friends and allies about things like subsidizing autos, and there have been complaints from there. You know, is there a tension between sort of good globalization, harmonious globalization, and attempts at resilience, which almost by definition would, I think, have this sort of inward-facing effect and withdrawing from the rest of the world a little bit? There is attention. Part of the problem is that the international economic argument, architecture, WTO, was created in a time in which a certain set of economic ideas, sometimes

called neoliberalism, predominated. And it didn't take into account so many things. It was actually a very flaw theory. One of the things it didn't take into account is risk. It didn't take into account what I call, we call endogenous technology that we can actually change, invest in, and create new technologies. So it circumscribed industrial policy, and that meant that developing countries had a harder time catching up with the developed countries. Many of the developing countries viewed the architecture, the WTO, as a way of keeping them down. There's an influential book called kicking away the ladder, you know, the U.S. had grown by taking ideas from Europe. And now that we are where we are, we want to take away the ability of others to catch up, including through industrial policies.

Well, we're in a new world now where the U.S. is, after 40 years, are telling everybody not to engage industrial policy, is now saying, yeah, we're going to do it too. but the developing countries can't do it on scale. And so what I've been advocating is that we still have to keep the principles that were there in the forming of the trade rules, which is trying to keep a level playing field. And the question is, how do you do, how do you keep a level playing field? It's very hard.

But one of the ways you do that is, sharing technology, particularly for protecting the environment. So if the U.S. developed a new green technology through industrial policy and gave it a competitive advantage over other countries, it should share some of that knowledge, at least, with the developing countries to keep a moral level playing field. Otherwise, we're back in the law of the jungle. One of the other things I wanted to ask you, again, as someone who's work off, dwells on the social benefits of particular economic systems. How should we measure the success of a particular economy? Because one of the things you often hear is like, okay, well, US GDP

has been doing phenomenally well in recent years, at least relative to other countries. But on the other hand, we're dealing with a decreasing life expectancy and things like that. And one of the reasons I asked this question is because I got off the phone with my mom. yesterday and she's embarking on her annual six-week holiday as someone who's employed in continental Europe. And that sounds nice. That's not something that U.S. workers have. So how should we be measuring what an economy should be doing for people? I'm glad you asked that because that's a question. I've done a lot of research. I did a book called mismasuring our lives, why GDP doesn't add up, where I tried with a group of, I was a chair of a co-chair of an

international commission on the measurement of economic performance and social progress. And our commission concluded very strongly that GDP was not a good measure of well-being. It was a measure of market output, but that's not the same as well-being. We delineated ways in which there were major deficiencies. we advocated that there's not a single measure that could capture anything as complex as ourselves or what makes us well off or our society. But we should have a dashboard. And you name several of the things.

Obviously, we want material consumption as part of it, what we call GDP. But health is another in terms of health. The U.S. has a lower life expectancy than in almost any other advanced country, and one that's lower today than it was a number of years ago, in spite of the fact that we're doing the best research in this area. We value our leisure, as you say, Europe really value their leisure. We value security. That's why we have Social Security. One of the things that we clearly have gotten wrong in many cases is we say, oh, be more efficient for the economy, get our GDP, if we kept back on Social Security. Well, if you kept back in Social Security, you make people

more anxious, more uncertain. So what if GDP goes up a little bit? People are all worried about what's going to happen in the last third of their life. You know, that's Pennywise and pound foolish, as they used to say. So to me, well, is really what we ought to be focusing on. There are a number of groups that have attempted to measure in various ways, well-being. And interestingly, the United States, while we are close to the top on GDP per capita, are not at the top, anywhere near the top, on well-being in almost any of these studies. So we're recording this July 1st just yesterday. There was an election in France in which the nationalist party or the right wing party did really well. There seems to be this trend. And you could say with Brexit and Trump and, you know, various things going around the world of countries, voters specifically seeming to reject internationalism, free trade, whatever you want to call it in various flavors. And I'm sure there are numerous causes. And we could debate that. our cultural, whatever. But what do you see happening when you look at these things? Is it, has there

been a failure of governments and rich countries to deliver the benefits of economic growth to citizens? Like, when you look at this and this sort of rejections of some of the last 40, 50 years, what do you see happening? Very much. I think the dominant economic framework of the last 40 years, which is neoliberalism, you have left neoliberalism and right neoliberalism, but it was basically neoliberalism. It failed. GDP didn't even grow faster. It grew more slowly after 1980 when it became the dominant doctrine. Growth was slower.

Most of the growth that did occur, went to the very top. There was morning security, less well-being as we've been talking about it. And there's a mini-rebellion going on. Unfortunately, it's a rebellion that is grounded in anger, but not analysis. So the easy answer to why things haven't done gone well is others. Americans might complain about unfair trade agreements. We hadn't signed those unfair trade agreements. If we weren't paying more than our fair share,

if we didn't have those immigrants. And it plays out in different ways in different countries, but it's basically the same blame others, rather than looking inward and say, you know, we didn't get our economic philosophy, our economics right. And that's really one of the central messages of my new book, The Road to Freedom,

the right wing, people like Hayek and Friedman said that if you only had unfettered markets, forget about negative externalities, forget about positive externalities. Everything works out fine. The market is, you know, worship at the, at the market, everybody's going to be better off. Growth will be higher. Trickle down economics will make sure everybody will be the same. We were duped by a failed economic philosophy. And what makes me, you might say, almost angry about this thing is that at the time it went into ascendancy, to say, with Reagan in 1980, we'd already proven that those ideas were wrong. We'd already shown, we talked to earlier today about how economists analyze the economy.

And we've shown that unfettered markets do not deliver on societal well-being. And we explained why. And they ignored all that. Now we have 40 years of evidence of seeing why that's true. What I try to write about in this book, The Road to Freedom, they thought this free enterprise would lead to not only more efficient markets, but also to political freedom. But the growth of authoritarianism

is seen most in places where there's not too much government, but too little government and where government hasn't done enough. So my claim is it was this neoliberalism wasn't really freeing, as it claimed, was bringing us

exactly in the wrong direction. It strikes me, though, that we're kind of living in a time where analysis doesn't matter that much. And it seems like rhetoric has a much bigger impact, at least when it comes to some of the economic themes of recent years. So it feels very sort of nihilistic to ask this question. But for instance, when you write a letter with a bunch of other Nobel Prize winning economists criticizing Trump's proposed economic agenda. does it matter at all? Like, do we think that the people who will vote for Trump are going to listen to Nobel Prize winning economists? And does the, you know, accuracy or the strength of your argument here actually matter? With some people, and I hope with increasingly more people, but certainly with some people, the, you know, the debate in that particular context that has arisen is, Who's going to be better for the economy? Who was better for the economy? Some of this is just facts, looking at what happened to wages. But what really people care about is what's going to happen in the next four years.

And you take the kind of model of the economy and brought consensus among our Nobel Prize community that, you know, Trump has a, he doesn't have a model. I mean, that's not what he does, but it's a zero-sum view of the world that if somebody else gains, I lose, very different from the way economists analyze the complexity of our economy. And we look at what he proposes and say it's really not good for the economy in any dimension. And so the answer is, I hope it affects some people, some of the undecided voters, will say, you know, there's something to what these Nobel Prize winners have said that should make them worry about another Trump presidency. I just have one last quick question, but I want to follow up on something you said earlier. I had never heard that there was a supply chain element to the Asian financial crisis.

And I thought that was interesting. And since you're here, what was that element? What was that? The element there was that many firms went bankrupt because they could not. get credit. And the financial system collapsed. Firms couldn't get credit. They collapsed. And then the firms that they were either suppliers for or buyers of collapsed. And so you had a real side bankruptcy cascade that corresponded to the financial crisis that got all the attention. And so it was interesting about at one point, almost half the firms in a couple of the countries were in the state of bankruptcy.

They couldn't pay what they owed. The whole economy froze. So that was an extreme version of a supply chain meltdown. I have one more question. And it's actually following up on a previous interview that you did with Tyler Cowen that came recently. But he asked you about the YIMBY movement. So this idea of making it easier for people to build in certain areas, maybe deregulation, deregulating some zoning, stuff like that. Somewhat surprisingly to a lot of people, I think you came out and said that you weren't a fan

of Yimbieism. And I think some people were confused because your new book is very much about the idea that one person's freedom can create negative outcomes or externalities for other people's freedoms. So, you know, the obvious example of that is maybe something like guns in America where one person's freedom to run around with an assault rifle creates dangers for the people around them. But going back to the building aspect, is it possible that one person's freedom to live in a low density area impinges on other people's free? to have access to affordable housing? How do you square those two things?

I mean, zoning is all about trading off freedoms. Absolutely. So I'm a very big committed to zoning. And maybe I may have misunderstood the question. But the point that I would make is that one has to very carefully balance the consequences to each of the groups that are going to be affected. And that's something that has to be done at a local level. I can't tell you, you know, in general, I think there are environmental benefits of higher

and social benefits of higher density. Other people prefer lower density. But those density decisions interact. Low density means people have to transport more. So finally, I think it's important as part of our whole community structure. that we have green spaces. And how you mix those various needs, green spaces, low density, high density, is something that one has to be very conscious of how one person's freedom affects the other

person's unfreatment as well. So you're absolutely right. That is the framework that I want this to be talked in about. So I didn't think there's any simple answer, any panacea in answering it. it really depends on this particular community. And then one more very broad question as we come to the close of this discussion. But over time, is there anything that has really surprised you about the behavior of corporations or the people operating them? Like some big realization that you have now versus, say, when you first embarked on studying economics many decades.

up? Well, I think what surprised me for a while was that so many American CEOs seem to embrace for a while that it wasn't just maximizing shareholder value, but also caring about the workers, their customers, the community, the environment. That was an idea. It was very strong in Europe. But a couple years ago, the business roundtable, basically, most of them endorsed this kind of idea. I've been a little disappointed that there's, in spite of very publicly endorsing it, some of the business leaders have now, when they get a little criticism from some southern governors about being too woke, they've backed off of that commitment to, I think, a broader sense of well-being. They are important units in our society, and I think they have important responsibilities.

The CEOs have important responsibilities, not just to match my shareholder value, but to look at all these other stakeholders that are affected by what they do. All right, Professor Sticklitz, thank you so much for coming on All Thoughts. really appreciate your time. That was a fascinating conversation. Well, thank you very much. Joe, there was so much to pick out of that conversation. So first of all, I know I asked the other Joe. I asked him about like, how do you build political consensus for these types of things? And at first, I wasn't really satisfied with the response of like, well, things happen. Because ideally, you would start doing this before things happen. But on the other hand, now that I'm thinking about it more,

it is true that there are things that are taking place now or being talked about that would have been considered absolutely radical just a few years ago before the pandemic. So things like more strategic reserves of certain items or things like price caps on gas in Europe. Like that was a totally radical idea before Russia's invasion of Ukraine. Yeah. And look, like Dodd-Frank did happen. That's true. The Chipsack did happen. The Inflation Reduction Act did happen. It would be nice if somehow, you know, all of these things were done pre-crisis. But, you know, that's much harder. And so maybe, you know, the process of history is something bad happens. And then you try to rectify it. And, you know, I guess that's just how history goes. Yeah, I guess we have to be sad.

satisfied with that part of it. I mentioned that essay that I wrote. Oh yeah, you're going to read more to it? Yeah, you want me to read it to you. I don't, so I, I, I've had the same email account for like years and years and years. So I just typed in sticklets and I looked at what came up. And this was from my IR 301 class, I think it was called. And undergrad? Yeah. Yeah. Okay. So this was at the London School of Economics. And basically, for people who are familiar with British University, They make you write a bunch of essays throughout the year. And then at the end of the year, you take an exam in which you also write essays. But the exam is the only thing that matters. None of the stuff that you do during the year actually matters.

And also the secret to getting a good score, this is a pro-life tip, is just to be as over-confident as possible when you're writing these things. So that is exactly what I've done here. I've done no empirical research, but I have all the answers to the world's thornyest problem. student having done no empirical research but expressing supreme confidence that they have the

world figured out. I've never, I can't even imagine it. Yeah. So I'll start with the question for the essay was, do global economic institutions reflect the interests of a global community? And blah, blah, blah, blah, blah, further down in my intro, this paper will seek to argue that global economic institutions do not reflect the interest of a global community for two reasons. First, the idea of a global community is one that so far exists only. only in the minds and papers of international relations academics and the occasional idealistic UN bureaucrat. Given the continued gap between rich and poor states and the divergent interests which result

from such a gap, a global community, a concept which implies some sort of shared norms and interests seems far-fetched, if not impossible. Given this problem of vocabulary, we might get to the heart of the question by altering it slightly to do global economic institutions reflect the interest of all the states in the international system or perhaps a majority of them. This line of reasoning will largely follow the arguments made by economists such as Joseph Sticklitz, though it will go further by blaming the so-called embedded liberalism which underlines modern economic institutions for the current bias within them rather than its misapplication. So there we go. I knew more than Sticklets. Why don't you just

publish that on the Oddlots blog? It's like, you know, no one reading that would think that's weird, they're like, hmm, this is, this is very insightful. No one would notice that it's any different than any of the other pundits who write all that stuff today in 2024. You know, I have a worse one than this, which is like a Nietzschean interpretation of international relations, which I think was the first essay that I ever wrote when I was at college. And I think I just got really excited about the idea of being able to write whatever I want, basically. It sounds great. I don't, in retrospect, like I wish I.

had taken, like, I did well in college. I did fine. I got pretty good grades. But I don't really, what I don't remember having done is actually thinking like, oh, I want to gain like a real deep understanding and come out of school with like some knowledge of how the world works. I remember like wanting to get good grades. But man, I kind of wish I had written some essays like that. Or maybe I did, but I just like don't remember any of them. I'm sure I wrote essays. I just have no memory of any of them. You didn't keep anything? They were probably on some Yahoo email address that I've lost access to by, you know, the moment I switched to Gmail. I mean, I will say, so we did international political economy as part of international relations.

And I learned a lot from that, but I do regret in hindsight, again, going back to the idea of hindsight being perfect, I wish I'd done more economics. But, oh, well, it was a pleasure, I must say, to speak to Professor Sticklitz after all these years and basically get to go back and ask all the questions that I probably would have asked him as a student. Totally. Also, I like want to read a bunch of those books now. Like maybe at some point I'll just do the full. Well, he's probably written dozens of books. So I doubt I'll read all of them. But some of the ones like that he described, I really want to read that one about the failure of GDP or GDPism. And like because we know this is sort of an issue that there isn't really one good way to measure the economy, et cetera. And I understand in the vague sense, but I'd like to read a little bit more of that. Obviously I should globalization and to contents sounds like a very timely book for 2024. No, you know what? I will summarize that one for you. The milk subsidy chapter still lives rent-free in my head. I'll summarize that for you. You read the follow-up on how to fix globalization and then you summarize that one for me. That sounds good.

It's a vision of labor. All right. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wisenthal. You can follow me at the stalwart. Follow Professor Stiglitz. He's at Joseph E. Stiglitz. And check out his new book, The Road to Freedom Economics and the Good Society. Follow our producers,

Carmen Rodriguez at Carmen Erman, Dachel Bennett at Dashbot, and Kel Brooks at Kel Brooks. Thank you to our producer, Moses, Ondom. For more Odd Lots content, go to Bloomberg.com slash Odd Lots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics 24-7 in the Discord.

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