Mm-hmm.

Like, like AI, finance and banking is a dynamic industry where we need to balance innovation from risk, and it's also true that when things go wrong in banking, they can spill over into our, all kinds of other kinds of companies, just like we're seeing with AI.

And so in finance and banking, we have something called supervision where we have government folks who embed inside the firms themselves, not to like check a box to make sure that somebody complied with the law.

They are actually part of the process.

So in the AI context, they would be embedded as the models are being developed, as they're being tested, when they're deployed, after they're deployed, to ensure that they're safe and that they're not, you know, jumping out of their, uh, sandboxes or the, the, uh, testing environments that we talk about.

So I think that we should stand up an office of AI supervision that would do exactly that.

Sure.

I think we should want it to advance so that we can do things like cure cancer and, you know, uh, have all kinds of innovations to, to fight climate change.

Can you flesh that out for us?

Yeah.

When I was in college at Harvard, I took an economics class and I hated it.

It was one of the hardest classes that I took.

It was the professor? It wasn't the Act 10 class that a lot of your listeners may know and that Jason Furman now teaches and Greg Mankiw taught before this.

This was like a lefty Act 10.

It was taught by Stephen Marglin, who was what we call a heterodox economist thinker.

So tell us his story.

What do you see on the personal side? Is it relevant that some of these people, uh, seem to want to go beyond what sometimes the responsible financial decisions might be?

Yeah, I mean, I think a lot of these guys are drunk on this vision of the future, that their technology and their companies are gonna change everything.

I think they're gonna change a lot.

It's changing my life, and it's changing a lot of people's lives.

But it's up to us to figure out where the actual reality is and what we want these technologies, uh, to do.

You know, a lot of these folks will talk about mass unemployment coming.

Everybody's gonna lose their job because of ChatGPT.

Mm-hmm

I was just gonna say, yeah, start with, um, when you started working in the store too, when you were running cross country and track.

Sure.

I mean to, I guess start at, at the original question, and then I'll backtrack a little.

You know, the, the transition is ongoing, certainly.

Like, my parents are still very involved, and that's a gift, because we wouldn't be where we are today without them.

So having them to lean on is, is still huge.

You know, they're up in North Carolina right now, but that doesn't mean they're not still jumping into important meetings and, and, you know, handling, uh, things offsite.

[laughs]

What do you think it is?

Yeah, exactly.

I think we've got to take a step back.

This is rule by deal, and it's not going very well, and I'll tell you why.

So a lot of people are trying to figure out what all these private deals are.

You know, two weeks ago, it's nuclear power.

Before that, it was MP materials.

I don't know

You know, it's a bit of a gray area, I suppose.

Offshore dollars is the much easier term to describe these things.

Euro dollars is the more technical one.

why don't we just sort of explain what these things are and why they matter.

So the issue in the 1960s was that there was increasingly a glut of dollars, too many dollars in circulation, causing lots of investors and other global central banks to be worried that the United States would not be able to convert those dollars to gold if for some reason the countries demanded redemption.

And so The Johnson administration in the 60s can see this problem happening.

And so in order to decrease the flow of dollars outside of the United States into foreign economies, to keep them inside the American economy, first they try a tax on the issuance of foreign bonds or other foreign securities in the United States.

I mean, what was this alternative?

Speaking outside earlier that day, while the storm that likely hit the plant passed through the area, Hughes said the work is never boring.

I haven't had a lot of jobs, but it is f- by far the most interesting job that, uh, that I've ever had.

And so, you, you, you have to like it.

You have to kind of care.

But now Hughes is learning about a new threat on the horizon: hackers.

It's kind of scary that I am the only door between, you know, the Iranians and, uh, and, and our water system, you know? It, it kind of makes me a little nervous.

I don't really have the background to be fending off foreign entities, you know?

And yet, for whatever reason, and I'm curious what you think the reason is, we have not seen that.

That was the hope.

But I think it's true that the markets reflect the conventional wisdom.

And right now, I think the conventional wisdom is that Trump's team is a lot of talk and not a lot of substance, first off.

And then secondly, it seems pretty clear that this firing is illegal.

And I think markets expect that there'll be a preliminary injunction at the district court level and at the Supreme Court level.

will hold it up.

But the question at hand is whether or not the next decade we'll see the big tech players that dominate the AI names be classed as publishers in legal frameworks or indeed just common discourse in a way that obviously Facebook and other social media platforms weren't? Because a machine that they own and developed are telling you things, are the owners of that machine responsible for the content? They

There are others who say, "No, no, no, that's the wrong thing." What, y- given what you've written, where do you think the Democratic Party should go?

I think we gotta make a case that we gotta shape markets to bring down costs, get wages up, and also future-proof against climate change, the threats of AI, and all of these things.

That adds up to what I call market craft, and that is, as you were saying, the big picture history of American capitalism is that we have incredibly dynamic markets that, uh, uh, generate all kinds of productivity gains, and the state often shapes and points those markets in a certain direction.

If you think about finance, banking, pharmaceuticals, healthcare, aerospace, I mean, we go through market after market that isn't, quote-unquote, "free" just magically working on its own, but is in partnership to make sure that, you know, it's working for the public good.

Is he doing it the right way?

No, he's not crafting a market.

I mean, this is economic policy by impulse, by whim.

I mean, just, they say that they wanna bring American manufacturing back, and so they're tariffing avocados, and Barbie dolls.

So how do you do you take away any broad rules from from the book about when market crafting is good and when it's bad or what makes it go wrong and what makes it go right and create the kind of markets that we want?

Well, market crafting isn't good or bad any more than tax policy is good or bad or competition policy is good or bad.

I mean, these policies can be pointed in the direction of different sort of normative political goals.

From where I sit, I think having a... healthy citizenry that can live long and ideally fulfilling lives.

That's a pretty important political goal.

And I think most Americans feel that the current health care system is, I'm trying to use a vanilla term to not get the expletive warning on the podcast things, that health care markets are extremely challenged and troubled.

And so I think we have to ask, why is that? And if you zoom out and take the long historical view, in all the research that I did, I think there was a pretty clear, enduring answer.

So if market crafting is a path that we want to take or embrace, how much do we want to have invested in individuals and how much do we want to have invested in institutions and what are the limits on individual power?

How, from your perspective, did Bill Simon get us through the winter of that first oil crisis in the early 1970s?

Yeah.

Through careful market craft is the answer.

So Simon was actually the hardest person for me to write about in the book because, you know, you spend a lot of time going through these folks' letters and papers and memoirs, and you feel like you get to know them a little bit as people.

And he was a libertarian's libertarian.

Particularly late in life, he wanted nothing to do with what he would call an activist.

government.

deploy, if you were market crafter in chief right now, where would you deploy effective market craft in this moment to steady the ship of our economy

Why do you think America works so hard to pretend that they're not?

Hmm.

It's a complicated idea, you know.

Um, I find that even on this...

I've been talking about the book for a couple weeks now, and people really don't like government.

I get it.

A lot of time government isn't working.

Right.

Right.

... who wants someone to finally get inflation under control.

Volcker comes into the building, he's just a few weeks in, they're doing some marginal rate hikes and the markets balk.

They think that he's not gonna be strong enough.

So he decides to effectively tear up the rule book that the Fed has abided by since its beginning.... and throw out a kind of mandate for orderly, well-managed, stable money markets, and say, "We're not gonna target interest rates at all.

We're gonna do something different," get reserve targeting.

The details of it don't really matter.

The COVID response was a response to the 2008 financial crisis.

So what do you mean first by market crafters, and what are the positive lessons here in your book?

Mm-hmm.

Yeah.

Well, market craft is a long-term historical practice when policymakers guide or harness markets to make Americans richer-

richer-... safer, or more economically stable.

And the thing that I think is so important to understand at this moment in time is we're coming out of 40 years where economists and experts have told Americans, "You've just got to sort of take what the market is giving you.

Markets self-regulate, they're chaotic, you don't have to worry about it, you just have to take it." And that's led us to lower wages, higher prices for everything from housing to care, and immense corporate concentration.

Um, it seems like the market problems kind of baked in a, a, an early system that was very hard to reform.

(laughs)

It'd be great if I had a couple more.

Um, but so I'm not actively using social media, so it's harder for me to weigh in on that.

But I am, I, I do think that there is this lurking desire to partner with government in some cases in craft markets, and so there's a very crisp example.

It's not from one of the current billionaires, but, um, there's this guy Robert Noyce, which some of you may have heard of.

He was one of the co-founders of Intel, grew up as a son of a Congregationalist minister in a, a family in Iowa.

Ends up going to MIT and then invents the integrated circuit, which is a fundamental part of the semiconductor, makes gobs of money, and after years of that, guess what happens in the, in the mid-1980s? Japan.

I guess, familiarize ourselves with things like Bretton Woods, Eurodollars, capital controls in our current climate?

Do you see that unable to continue in this certain, uh, sort of less predictable moment? Or do you see that as continuing to chug along in a healthy way that does lead to, uh, some sort of evolution?

It's certainly on shaky ground.

That's for sure.

I, I think the story of American technical leadership is also one where we see private sector innovation as a critical engine of growth paired with public sector decisions.

So I'll give a crisp example.

We've all been talking about semiconductors and chips for the last few years, and that's, uh, been incredibly important in bringing back advanced semiconductor manufacturing in the United States.

However, the real story of how to support high, the high-tech industry in the US starts more in the 1980s with Reagan-era industrial policy.

Do you think that that is the appropriate policy in terms of limiting the (laughs) amount of information? Or do you think that, as someone who's worked in the tech industry, the more cooperation and open in transfer of information, the more innovation (laughs) and the more people can kind of get ahead?

How would you

describe it? It's the dance between the private sector and the government.

So I make the case that policymakers have often harnessed and guided markets toward public goals in order to make Americans richer, safer, their lives more economically stable.

And there's a hidden history.

of us doing this from the 1930s all the way to the present.

It's a Republican project as much as it's a Democratic project and we're going to have to pull out some of the lessons from that if we're going to rebuild on the other side of the chaos that's happening right now.

Let's talk about the chaos.

Do you see that unable to continue in this certain sort of less predictable moment? Or do you see that as continuing to chug along in a healthy way that does lead to some sort of evolution?

Market Crashers.

No, but I mean, there are ways to think about the problem that critical minerals... lot... 90% of critical minerals come from China and there w- would be a way to think about stockpiling those, making public sector investments to mine those minerals here at home.

And ironically, JD Vance and some other folks in the party were talking about those kinds of ideas as recently as last year.

Of course, now they're all loyal soldiers just, you know-

Is this an instance where an intervention could take place that could remediate or, uh, help ease the crisis that we find ourselves in now?

Yeah.

I mean, the irony of Greenspan, since you mentioned him, is that he's got a rap as a deregulator, and he did do all kinds of deregulation.

The guy was also singularly obsessed with financial innovation.

How important do you think government spending as it relates to universities, science endeavors and things like that compared to the quote unquote true private market where there's no government money at all?

It's incredibly important.

I mean, the universities are a major engine of research and development.

And as you've seen over the past half century, the overall public investment in R&D has gone down.

And a lot of that has shifted to the universities as being the engines of doing that.

Now, for me, at least in the context of my research, what I find is even more powerful is when government institutions are doing that kind of R&D, making those kinds of investments for political goals.

So something like the CHIPS Act.

practical reality may be no different.