Rana Foroohar and Mark Blyth on Democrats Trying to Please Too Many Money Masters at Once

Yves here. I hate to have to make a couple of qualifying remarks about an otherwise excellent discussion of how the Democrats have made promises to too many constituencies, particularly Big Finance and top professionals, and will soon go through elaborate exercises to try to pretend that they aren’t betraying some interests to deliver to others.

I’ve mentioned before that Paul Jay has developed a misguided obsession with BlackRock, when it is far from the most powerful financial firm. Goldman, with its astonishing alumni penetration of top level government positions in the US and abroad (Mario Draghi, Mark Carney, William Dudley and Neel Kashkari as as central bankers; Bob Rubin, Hank Paulson, and Steven Mnuchin as Treasury Secretaries; Gary Gensler, admittedly a bit of a turncoat, as head of the CFTC; John Corzine and Phil Muphy as New Jersey governors; I’m sure I missed plenty). The idea that a former BlackRock official Brian Deese becoming head of the National Economic Council confers some sort of outsized influence is quite a stretch…particularly since former Goldman President and Chief Operating Officer Gary Cohn held the same post in Trump’s administration.

Similarly, any of the top private equity firms has vastly more power than BlackRock. Even though BlackRock manages more money, it has an arms-length, virtually nil influence relationship with the companies whose shares are in its funds.

By contrast KKR stated in one of its annual reports in the mid-2000 that it would be the fifth biggest employer in the US through its portfolio companies. Given that private equity has only grown as a share of global equity since then, it’s extremely likely that Blackstone, Carlyle and KKR each through their portfolio companies are among the top ten employers in the US.

All of these private equity firms hire and fire the executives of their portfolio companies and dictate which law and accounting firms they use; they could reach in and fire any employee if they chose to (say they found offensive remarks on Facebook or Twitter). Private equity collectively is the biggest source of fees to Wall Street (their rich merger and acquisition and financing fees dwarf the skimpy stock and bond trading fees a BlackRock pays¹), the biggest source of fees to white shoe law firms, and I am told, since the early 2000s, also pay more than half the fees of top consultants McKinsey, Bain, and BCG

By contrast, Larry Fink, the CEO of BlackRock, has extremely little direct influence over any of the public or late-stage VC companies in which BlackRock invests. Nearly all shares are held in index funds, which means BlackRock’s overriding concern is index replication at the lowest possible cost. It can’t buy or sell shares to make a point. BlackRock does not hold large enough stakes to appoint directors, let alone hire and fire executives or employees.

And BlackRock’s promotion of ESG, as in environmental, social and governance investing? BlackRock is very late to that party. CalPERS and CalSTRS were true believers long ago; CalPERS famously dumped tobacco stocks at the worst possible time, right before the Federal-state settlement. CalSTRS pressured Cerberus to dump its holdings in gun maker Remington in 2015. A party with inside knowledge of BlackRock told me that the big reason BlackRock suddenly became a vocal advocate was that it hoped to win the mandate to take over CalPERS private equity portfolio. Recall that Bloomberg publicized in late 2017 that that was CalPERS’ plan, despite BlackRock’s lack of meaningful private equity experience. BlackRock was indeed on a short list of firms invited to propose over that Christmas/New Years holiday. BlackRock staring making a full throated defense of ESG investing, which is near and dear to the board’s heart, in early 2018, with CalPERS Chief Investment Officer Ted Eliopoulos at Larry Fink’s side during the press conference. The effort to hand off CalPERS’ portfolio to an outside party and have less control and pay even more fees fell apart under press scrutiny, led by this website.

Another smaller sour note was Mark Blyth depicting Republicans as representing extractive, old economy industries. Top expert on political money in America, Tom Ferguson, says that’s simplistic. While oil and fracking company donations are strongly Republican, of the four biggest private equity firms, the heads of three (KKR, Blackstone, and Carlyle) are established heavyweight Republican donors. Industry insiders report that private equity firms press portfolio company executives to donate in line with parent company preferences. Apollo, as more of a real estate firm, gives to both parties, as do most developers, since they always need friends in office. The arms industry skews Republican. The health care industry gives heavily to both parties.

By Paul Jay. Originally published at TheAnalysis.news

Paul Jay

Hi, I’m Paul Jay. Welcome to theAnalysis.news podcast. Please don’t forget we have a year-end fundraising campaign on with a matching grant from a generous donor. If you donate a buck he’ll match it for a buck. If you donate monthly, he’ll multiply it times 12 and match that. All told, he’ll match up to ten thousand bucks. So, if you haven’t donated already or if you want to raise your monthly, now’s a good time to do it.

President-elect Joe Biden’s cabinet and senior team is taking shape, and so far, it looks a lot more like Barack than Bernie. In fact, it doesn’t look like Sanders at all. That shouldn’t be a surprise. But some of the appointments seem downright meant to send a dismissive message to the Sanders/AOC camp. Looking at the stock markets, Wall Street seems pleased.

Two key economic posts went to people who are more or less on the opposite side of the Democratic Party from Sanders. Neera Tanden, the president of the Center for American Progress, will be the director of the Office of Management and Budget. Matt Taibbi writes that Sanders is the ranking member and perhaps future chair of the Senate Budget Committee, so every time Bernie even thinks about doing committee business, he’ll be looking up at Neera Tanden. David Sirota writes, “She is the single biggest, most aggressive Bernie Sanders critic in the United States of America.” BlackRock veteran Brian Deese will serve as Chief Economic Adviser as head of the National Economic Council. BlackRock is the largest asset management company in the world, with over $7 trillion under management. Together with a few other large asset management companies, vote the shares that control 90 percent of the S&P 500. They don’t run these companies, but they sure get to say who does.

Tanden and Deese will be two of the strongest voices advising Biden on his economic policies. All this as the Covid pandemic spreads out of control across much of the country and the world and tens of thousands sink into poverty or deeper poverty.

Now joining us are Rana Foroohar, who is a business columnist and associate editor at The Financial Times. She’s also CNN’s global economic analyst. Her books include Makers and Takers: The Rise of Finance and the Fall of the American Business and Don’t Be Evil: How Big Tech Betrayed Its Founding Principles. And Mark Blyth is a political economist at Brown University. He researches the cause of stability and change in the economy. And, as he says, why people continue to believe stupid economic ideas despite buckets of evidence to the contrary. Thank you both for joining us.

Rana Foroohar

Thank you.

Paul Jay

So, Mark, why don’t you kick off with what you make of these two appointments that I mentioned. What does it mean for the progressives like Bernie and AOC who really fought very hard to elect Biden and now seem to be more or less out in the cold?

Mark Blyth

I’d actually like to hand this one off to Rana, to be perfectly frank. I think she knows a little bit more about the people involved than I do. And honestly, I just want to hear what she thinks about this before I opine anything.

Rana Foroohar

[Laughs.] All right. Well, I feel I’m being set up somehow here, but I’m going to go for it anyway. You know, I’m not as pessimistic as some people on the left would be about these appointments. And I’ll tell you why. Let me let me start with Janet Yellen, who I actually know pretty well and really trust. Now, Janet is a middle-of-the-road person in the sense that, yeah, she’s a labor economist, she’s certainly shown herself willing to go to the mat for working people. You know, she kept rates pretty low in the wake of the great financial crisis, in part because she wanted to try to help the fight for 15 [i.e., a $15/hour minimum wage] actually at the bottom. Of course, the risk is that you brew up asset bubbles, and that’s always the line that the Fed has to watch.

I think at Treasury, it’s going to be interesting to see if she’s able to use stimulus — and that’s a whole ‘nother topic, whether we can get any stimulus through — and how she uses it and how she works with the Fed to make sure that that money starts to get to the right places. And that’s where I think that you’re going to see some use of her chair role at the FSOC, the Financial Stability Oversight Committee, which, you know, Trump basically ravaged. I mean, he got rid of the Office of Financial Research. He rolled back whatever Dodd-Frank regulation he could. Yellin can now do something very different. And there are other appointees, people like Gary Gensler, who used to be the head of the CFTC [i.e., the Commodity Futures Trading Commission] under Obama. A very tough cop on banks. You know, he could get SEC [i.e., the Securities and Exchange Commission], let’s say. You could start getting some strong regulators in and you might see a Biden administration redo of what Trump did with executive orders and rulemaking. Now, I’m getting a little wonky, but I want to set that stage because I think if you get a strong Treasury secretary with a bunch of strong regulators underneath her, that really matters.

Now, let’s go to some of the other appointments. Neera Tanden. [Sighs.] Neera Tanden is, I would certainly say, problematic for the left. I mean, she’s very corporatist-Democrat, very middle-of-the-road, very Clintonian. But she may also be a sacrificial lamb. You know, I think it’s fascinating that she’s going to face a tough time from Republicans who don’t like the fact that she was such a vocal critic of Trump, but also a tough time from the Sanders-Warren wing of the party who don’t like the fact that she’s a Clintonian Democrat. So, wouldn’t it be interesting if her name had been put out there as sort of an appeasement and then she doesn’t end up getting confirmed? That could that could well happen. And then who would be in that position?

Paul Jay

And an appeasement to who?

Rana Foroohar

An appeasement, maybe, to the progressive wing. I mean, maybe you’ll get in somebody different who is a little lower-profile, you know, maybe a little bit more pro-labor. I mean, Neera was going to get a top job. She was going to get at least a nod for a top job. There’s no way — I mean, she represents the money wing of the party. Is she going to get confirmed? I don’t know.

I am pretty pleased, I’ll be honest with Heather Boushey in particular and Jared Bernstein. You know, I mean, yeah, Bernstein in particular has experience in the Obama administration. But these are people that fight for the working class, and I think that they’re going to do that.

BlackRock? [Yuck noise; then a laugh.] You know, maybe I’ll leave Mark to take that one on. I mean, that whole BlackRock-ESG thing, you know, all I remember — was it two or three years ago that Larry Fink at Davos said, “We’re going to grade companies on things aside from their share price.” And then all the companies got kind of excited and nervous and said, “Well, what will we be graded on?” He’s like, “We don’t know, but we’re going to get back to you on that.” And then they’ve been working on this. Presumably that’s been Deese’s job for the last two or three years. I don’t know what the metrics are. I mean, do you, Mark?

Mark Blyth

No, I don’t think anyone does. And in fact, it’s actually really hard to do those metrics if you are going to do them seriously, which is what the Bank of England is trying to do at the moment. So, to me, it was just an Onion headline. I mean, it was perfect: “Biden Appoints BlackRock to Think about Economy on Behalf of Little People.” But I mean, that’s basically the Onion headline that was written on that one.

I’m glad that you know much more about these people and know these people more than I do. I agree with you on Boushey and Jared Bernstein. I think they are really, really crucial appointments. Also, I think it’s gone through for Mesra Bahadran [phon.] as well. I believe that that’s the case. So, yeah, there are progressives in there.

But again, it’s a question of, well, what do people expect? I mean, remember the phone call at the end of the election whereby the Georgia people were screaming at the progressives and the progressives were screaming at the Georgia people: “If you ever say socialism again, we’re going to die. Look what happened in Miami.” The progressives turn around and say, “If it wasn’t for our foot soldiers, you would never have got anywhere in Arizona. You would never have got anywhere in Georgia. You would never have got anywhere in Michigan.” And both of those things are simultaneously true. So, you have a party which is basically trying to kind of square that. Now, the way that humans normally square two irreconcilable truths is called “hypocrisy.” [Laughter.] But that’s what we do. That’s the institutional thing we do when we go, “Well, that’s true and that’s true. What do we do now? Ah, shit: let’s make something up.” Right?

And the Democrats, unfortunately, find themselves in the position of structural hypocrisy. Now, that means that you either kind of give the right wing of the party some things and you give the left wing some things, whatever. And I guess that’s what they’re trying to do. But, you know, what’s the counterfactual? That basically we’re going to jeopardize Warren’s position in the Senate at a time when the Senate balance is very crucial and we’ll make her Treasury secretary just to make sure she doesn’t get confirmed. I mean, what would be the point in doing so?

Rana Foroohar

Totally.

Mark Blyth

I think that they’re really between a rock and a hard place. Hopefully, not a BlackRock and a hard place. Ba-dum-dum. [Laughter.] But I mean, that’s the one that really did shock me. I mean, honestly, my grading on this for these things is, like, “How close to an Onionheadline?” That was an Onion headline.

Paul Jay

The deputy secretary that just was announced today is also a former BlackRock guy.

Mark Blyth

Yeah, but it’s a bit like Goldman ten or fifteen years ago when everybody figured out the revolving door. I mean, there is this talent pool problem. So, Democrats recruit from the Ivies on finance, and really bright people from the Ivies who didn’t want to be professors or lawyers twenty-five, thirty years ago all went into finance. They know where the money is. And then they go work for the Democrats. That was non-problematic until 2008. Goldman has fallen out of favor. Now it’s these big asset managers.

And, you know, to turn to the appointment of Tanden for a moment, I believe it’s still the case that the conference room on the top of the Center for American Progress is called the Eric Schmidt Conference Room.

Rana Foroohar

[Laughs.] I’m sure.

 

Mark Blyth

So, you know, I would say there’s a bit of an indicator there on that one about what’s going on. So, yeah, I mean, you know, those people are part of the party. Those people raise money. Those people spend money on behalf of the party. They have a stake in it, too, and they get their bit, I guess. It’s just unfortunate when the Onion headline becomes the reality.

Paul Jay

I think the thing with Tanden is she was so aggressive against Sanders that there’s other people that usher in money to the party that could have been selected. But she has such identification with being the attack dog on Sanders that it seemed rather provocative.

Rana Foroohar

But if you think she’s not going to actually get confirmed, then why not put her up? It’s perfect. You know?

Paul Jay

You may have a point there; I agree. If that’s her fate, then maybe she’s a bone in that way because apparently the Republicans hate her as well.

Rana Foroohar

Yeah, exactly. No, I think she may have just been the sort of weird sacrificial lamb. I mean, it is kind of hard to imagine Biden being that cagey, but maybe Jake Sullivan is? Who knows.

Paul Jay

Well, maybe the overriding issue here is obviously the pandemic. The Covid crisis is getting worse. The economy is starting to close down again. Thousands, tens of thousands of people that have never been in poverty are sinking into poverty. And of course, if you were in poverty when all this started, it’s far worse. And you’re starting to hear rumblings from the Republicans about austerity. What does this Biden economic team sound like when the drum beats of austerity are coming, which has got to be the most insane thing one has ever heard in such a moment.

Rana Foroohar

But we knew this was going to happen because this is what the Republicans always do. This is the Republican playbook, basically, for the last 20 years. I mean, essentially since Reagan, too: come in, run up deficits, cut taxes.

You know, I was arguing the other day. My husband and I were watching The Crown. Mark if you’re on Twitter, if you would share this: I have this kind of odd admiration in some ways for Thatcher relative to Reagan, because at least she was a real conservative. You know? She did both sides of things. Reagan basically cut taxes and ran budgets up. And then that has been the playbook for Republicans ever since. Then they leave it to Democrats to be the ones — I mean, they’ve been incredibly clever about this. And I hope actually, I hope that Biden’s comms [communications] people will somehow find a way to message this and say, “Gosh, guys, you know, thanks for leaving us with this huge deficit. We’re going to find some productive ways to grow ourselves out of it. And here’s what they are.” They can’t just be in this position once again of being portrayed as the fiscally imprudent party.

Mark Blyth

I agree with everything. So, I wrote a book a wee while ago called Austerity: The History of a Dangerous Idea, and a dangerous idea is defined as one that is immune to empirical refutation. And this is just it. It doesn’t matter how many times you show it doesn’t work, it doesn’t matter how many times you say that the state is not like a household. Mark Blyth doesn’t get to issue its own dollars. Mark Blyth can’t owe himself money. It doesn’t matter. It’s: “Debts! The debt! The national credit card is maxed out!” They do this stuff time and time again.

The trick, as well as messaging the way that Rana just said, is to turn around and say it doesn’t matter. And I’ll give you an example to help you do this. Every now and again, I give talks to the U.S. Navy. Don’t ask why; I’ll have to kill you. [Laughter.] And I went into a room once, and it’s a whole bunch of, you know, relatively senior military officers and also civilian counterparts. And I said, “Right. So, the main constraint on the U.S. Navy getting the toys it wants is the budget deficit and the debt.” The debt at this point was $16 trillion or something like that. I said, “If you could halve the national debt with a single pen stroke, if you could sign it away, would you do it?” And every single one of them said yes. I said, “Congratulations, ladies and gentlemen. You’ve just destroyed half of national savings.”

That’s what it is, right? Nobody forces you to buy a Treasury bond. And yet there seems to be insatiable demand to the point that ten years out, the payback is negative. You get less back in ten years than you put in now and people are still buying them. So, you just basically have to keep on the “this is a bullshit problem” rather than say, “Gee, thanks for running up those deficits,” because that implies it’s a problem and it’s landed on our lap. You actually have to go one step further and say, “No, no: this is a bullshit problem. Let’s sort this out once and for all.”

If you then look at public opinion, the Covid pandemic — this is one of the strategic mistakes that the Democrats made, I think, in the election — the Covid pandemic and beating Trump over the head with that was always number three. Number one is the economy. But I’ll tell you what, the national debt is never more than number seven. So, if the Republicans want to make their main thing the national debt, let them. It doesn’t really matter. People are not lying awake at night worrying about the national debt. They never do. They don’t know what it is.

Rana Foroohar

That’s a good point, particularly in the midst of a pandemic and the aftermath of a pandemic, which is going to be the next two to five years of, you know, massive tech-related job dislocation. All the things that we knew were going to come in the next fifteen years. And we’re sort of like, “Gosh, we should probably retrain for a 21st century workforce force at some point. We should probably reinvent secondary school and tertiary education at some point.” Well, that’s all now going to be: boom! It has to be done. And I think you’re right, Mark, that it will be very difficult, and particularly for that 30 percent that Trump got, that was the poorest part of the country. It’s going to be tough to sell them on, that this is a good thing. Good time to tighten our budgets, boys.

Paul Jay

Mark, Rana, what are you both hearing from Wall Street? Because when I listen to Bloomberg Radio, I’m hearing, like, hedge fund CEOs and others all saying kind of what you’re saying, don’t worry about the deficit right now. Spend as much as you got to spend to stop this depression getting deeper. I mean, is that a reflection of where Wall Street’s at? Because if it is, then it may not matter what the Republicans say because they’re not going to want to defy some of the preponderance of Wall Street opinion.

Rana Foroohar

I would say that there’s a there’s a short-term and then a kind of a mid-to-long-term opinion. The short-term opinion is, you know, I think pretty much the opinion that any sane person has, which is that we’re going to need some stimulus. You know, we’re going to have a massive second recession. We’re going to need some help to get out of it.

After that, it starts to get more interesting. I think we’ve mentioned this on this show before: you see two bets in the market, stocks and gold. And gold, of course, is the bet that there will at some point be a reckoning. If not runaway inflation, you’ll simply see a devaluation of the dollar and a collapse in US stocks that will be essentially about a loss of trust in America. It will be about not so much even the Biden administration, but just our whole political machinery. Have we actually tipped over into oligopoly? Are we Zimbabwe? Are we, you know, the Weimar Republic? Well, OK, then at some point, history tells us, your currency will collapse and investors will go elsewhere.

Now, the answer, of course, has always been, where else can they go? You’ve got the dollar. There’s no digital Mark Blyth bitcoin currency available for purchase, although I would purchase some, Mark, I just want to tell you, if they were there.

I think that this is where I might diverge a little bit from some progressives. I do worry a bit that we’re at an interesting point — frankly, a healthy point — for the global economy, whether there are more games in town [other than the US dollar] or there’s the beginning of more games in town. You’ve got China saying, “You know, we have our own ecosystem. We want to be separate from your supply chains by 2035. And we’re also going to insist that all of our trading partners use digital RMB.” That’s slowly but surely going to create a pull away from the dollar. Who the heck knows what’s going to happen in Europe? Will they get their act together? But if they do, then the euro will potentially strengthen relative to the dollar. You’ve also got crypto emerging in fascinating ways. I mean, PayPal allowing people to trade Bitcoin? That’s kind of interesting. I think a lot of big-deal investors I know now are looking at Bitcoin as something that’s not going away. Now, would I want to have Bitcoin bonds with no central bank underwriting them? Yeah, not so sure. What I’m trying to say here is that the world is not flat. And I think that the dollar is no longer going to be the only game in town. That’s not a problem right now. It may not be a problem in five years, but it will be a challenge at some point.

Mark Blyth

So, I’ll just, as usual, amplify that and take it in a slightly different direction — actually, no: it’s the same direction, it’s just amplifying it. So, I was forever the biggest dollar bull, right? Every asset in dollars. What’s the point in being anything else? I get paid in the global reserve asset. Sod you. Dead straightforward. And then I started to do exactly what you’re saying: I started to rethink this because it’s not just the case that there’s nowhere else to go. The really big one here is central bank digital currencies. And there are lots of good reasons for having them. There’s a proposal in the Fed for the digital greenback. Everybody’s doing this in part because Libra (remember that one?) scared the bejesus out of the central banking community, because if you really had that, then you lose control of monetary policy. But also, because the surveillance state in China wants to know what every transaction is on so they can award you social credit points.

Now, they are going to happen. Those two things are going to happen. And in response there probably will be a digital greenback, because if you want to fight a recession, all this nonsense about haggling in Congress and sending people paper checks is just nonsense. Wouldn’t it be better if you basically had a Treasury direct account with a reverse flow? That’s a digital greenback. It goes straight into your bank account, no questions asked. It shortens the recession way cheaper than QE, etc. [i.e., quantitative easing]. So, suddenly there’s all these forces pushing in one direction.

Now, Europe becomes an interesting fulcrum here. Here’s why. Had Trump won, Europe would have been scared and it would have done more to get its act together, both fiscally and politically. Now that Biden’s in they’re like, [unclear, but the idea is: “The pressure is off.”]. So, you can see this. Basically, the rule of law linkage that they were trying to beat up Poland and Hungary with: that’s going out the window. Merkel is not going to use any special instruments to get around them, blah, blah, blah. So, Europe’s back to business as usual. They have the capacity but they simply don’t have the will to issue debt. Because they really are just a bunch of small open economies, relatively speaking, they can’t run the deficits necessary to issue the type of volumes through having large imports that you do with the dollar. That’s what gives dollar liquidity its global footing.

Does China have that? China has one weak point. If you open up its capital accounts fully, all the investor class in China wants to leave. They’d rather be in Vancouver. And we know this because in 2015, nearly a trillion dollars left the country when they loosened up. So, they can’t really flood the market unless it’s digital renminbi, right? And that’s why those digital currencies are going to become really important, and that stuff can move real fast.

So, you know, I think you’re exactly right. And people are not focusing on this. This is where you could see dollar weakness. And to return this back to the conversation of the deficit, politics, etc., etc.: it’s not about what Wall Street thinks in the following sense. Think about Brexit. There isn’t a single part of British industry or finance that thinks this is a good idea. And yet the political classes have spent six years wrapping themselves up in it as the economy craters. The Republicans have basically become a kind of financial death cult because what they represent are all the declining sectors: steel, coal, extraction, forestry — all the heartland, red-state industries like farming, etc., etc. (That’s not declining but the other ones are.) If you take the resources of the future map of the states that have the most scope for a carbon tax and take the 2020 electoral map, it’s a perfect fit. So, essentially what the Democrats represent to these states — forget Wall Street for a minute — is a mortal threat to their carbon-based business model and way of life. And the Democrats have no real way of selling that to them other than, “Yeah, we really are out to get you.” So, I think that’s why the Republicans react in the way they do to anything the Democrats are doing. It’s a mortal threat to their business model. To hell with Wall Street.

Rana Foroohar

I just want to follow up on the point that Mark was making about the importance of cryptocurrencies and how many cryptocurrencies there might be, central bank-issued or otherwise. This makes me think that there are going to be a lot of very interesting geopolitical alliances that could now happen. Trade deals between, say, not the U.S. and Europe, but California and Europe, because maybe Californian regulation and their ability to use crypto to satisfy GDPR [Europe’s General Data Protection Regulation] requirements are going to allow commerce in a way that say, you know, the entirety of the US can’t get around. This is going to keep happening all over the world. And it’s going to be an interesting, fascinating spaghetti bowl — I hope it doesn’t get too messy — of currencies and trade. We are just not going to reset to old-school globalization, I don’t think. I think that’s something I feel quite, quite sure about.

Paul Jay

Let me get back to the issue of what concerns me about the Biden cabinet. It doesn’t disappoint me, because I didn’t have any great expectations. Biden is who Biden is and the balance of forces are what they are. And so, this wasn’t going to become the Bernie Sanders-Elizabeth Warren cabinet. I thought he might have thrown a bone and maybe there still will be one. But I’m not surprised if there isn’t, either.

What concerns me is the climate issue. John Kerry may bring it a name, but he doesn’t bring a bold vision. The Biden climate plan, as announced, is heavily dependent on carbon sequestration and carbon cleaning, none of which is proven to be very effective. And we are running out of time.

We’ve been emailing back and forth, the three of us, in the last few days. Mark accused me of publishing stuff that’s so pessimistic that he feels like buying a tent in New Zealand. I offered that when we build the Canada wall, we try to get Rana and Mark through the wall with a special dispensation for guests of The Analysis. And he can help grow mangoes north of Kingston, Ontario.

But, all that being said, the situation is so urgent. This net zero target by 2050. We just ran a piece — I think that’s what triggered Mark.

Mark Blyth

Yes.

Paul Jay

“Net zero” just can mean anything. And the problem with net zero is you can build in an expectation that you’re going to clean carbon out of fossil fuel. But it’s not happening. Most of the scientists I’m seeing from the IPCC and otherwise say, of course, you want to clean carbon out of the air as much as you can. Regenerative agriculture. You know, a zillion trees. But that’s all in the context of phasing out fossil fuel sooner rather than later. The Biden plan doesn’t really call for phasing out fossil fuel, except maybe decades from now. If the science I’m reading is correct, we don’t have decades. I’m not saying it’s overnight, but it’s got to be sooner rather than later. Doesn’t this concern both of you?

Rana Foroohar

Well, let me jump in first. I want to say I think we’ve got to be careful because —

All right, stepping back, if Obama had a lot on his plate when he took over, I mean, Biden has got literally the entire planet on his plate and climate is the biggest deal. But to go to what Mark said, a very smart point that Mark made earlier about fossil fuels being the Republican’s business model and their only game plan. Well, guess what? A lot of those Trump voters were coal miners and folks that worked in fossil fuel-related industries that are unionized. And they look — and this is where it gets complicated — they look and they say, “Gosh, you know, fossil fuel jobs pay 50 percent above the American median. Those clean tech gigs pay two bucks above average.”

P.S.: This is, like, something that drives me crazy. I hear all these Europeans talking about their socially conscious business models, and then I see these Scandinavians treating the U.S. like their own private China and sending these clean tech jobs over. They’re nonunionized, you know. I mean, we are literally part of the outsourced labor force for these European companies that would have to pay $35 an hour for these jobs. So, that’s a trade issue. And I hope somebody’s paying attention to that because that should definitely be one of the chits that Biden should call in since Europe wants a new trade deal.

But he has got to bring the industry and but more importantly the labor that works in the industry along with him. That’s why he’s soft-pedaling it right now, I suspect. What I would like to see happen is a much more hard-hitting plan to move, in the course of five years, these coal miners into retrofitting solar panels and the highest-quality windows — which, by the way, if we literally just put on better windows and doors and turn the lights out in America, we would cut 50 percent of emissions. So, like, you know, that could solve a lot of unemployment and some emissions issues right there. That’s what we need to see articulated right now. How are we going to get the people working in the fossil fuel industry into jobs in clean tech and make that economically viable?

Mark Blyth

Now, let’s add to that that the Biden campaign effectively decided to exclude the American working class from its coalition. So, you’ve got a bunch of people who have good reason over multiple electoral cycles not to believe a word the Democrats say because it all goes to the coasts and it all stays with people like them. They never come here. Ohio used to be solidly, solidly blue. Now that’s just over, right? So, elections are decided by — what was Pennsylvania ultimately? Twenty-one thousand votes?

Rana Foroohar

Yeah.

Mark Blyth

So, let’s have a huge, bold plan that scares the bejesus out of everybody who isn’t sitting in Boston in a post carbon economy job. Because that’s essentially what that is. So, there’s an imperative, and I’m not denying the imperative, but then there’s the way that we’ve set up our societies to deal with conflicts over ends and to deal with conflicts over distribution. Both of them are fraying. And when you have the ability to basically block, which is the Republican’s superpower, and then you have the Democratic ability, which — I’m not sure they have a superpower but if they do have a “superpower,” it’s to build fractionalized coalitions that don’t convince any of its own members that they’re serious, I don’t see how you go forward with that.

Rana Foroohar

The Democratic superpower is contempt.

Mark Blyth

Yes. I think that when we deal with America as it really is and its way of adjudicating values and dealing with conflicts, we’re just massively ill-equipped to deal with a carbon transition. It’s not the imperative. It’s like telling somebody who’s lost their legs because they smoked and they’ve got diabetes that they really shouldn’t be doing that. They don’t give a shit. They’ve lost their legs and they’ve got diabetes. Of course, they’re going to have another cigarette!

Paul Jay

I mean, it’s kind of obvious the only thing that can and should be done is to guarantee the current wages of fossil fuel workers until they can transition to jobs with similar wages. You can see the kind of money that’s being thrown at the economy when they want to, except most of it went to defend assets instead of going to ordinary people. It’s obvious, right?

Mark Blyth

So, why not do it?

Paul Jay

Because then they really have to get serious about phasing out fossil fuel and they don’t want to piss off the fossil fuel companies.

Rana Foroohar

Yeah.

Mark Blyth

Or more importantly, that’s socialism, because the market no longer dictates wages.

Paul Jay

And that is my next question. We’re clearly a mixed economy, but without more socialism and central planning, there’s no way out of the climate crisis. And not just central planning to save the stock market and assets. Because there’s tons of central planning. Obviously one of the biggest pieces of central planning is the Pentagon. But all that being said, there’s no way out of this crisis without it. But if BlackRock’s in their ear, that ain’t what BlackRock wants to hear, even though BlackRock gets how serious the urgency is. Larry Fink had this whole thing where he was telling the companies they invest in, “You’re going to have to have accountability. You’re going to have to have some green measurement.” Except the green measurement didn’t mean anything. All you had to do was measure. It wasn’t that there was a bar you had to hit with the measurement. You just had to measure.

So, it’s not like they don’t know. If you read BlackRock’s documents, they almost come up to the edge of saying, “We can’t do it without the government making us do it.” But of course, they don’t want to say that because they don’t want that kind of government intervention.

Rana Foroohar

You know, it’s interesting that you say that. You’re making me think of a few months ago, actually, during the primary season, I was looking at Elizabeth Warren’s industrial policy plans and Marco Rubio’s industrial policy plans. There’s not that much air between them. It’s really interesting. A lot of Republicans are — well, not a lot, but the economic nationalists are kind of walking right up to that line and they’re not using the third-rail terms, but they’re essentially saying, “Shit, we are –”  Sorry, I don’t know if I can say that on this podcast, but…

Paul Jay

Oh, yeah. You can say more than that.

Rana Foroohar

Oh, really? Fantastic! I didn’t realize I was so unleashed. Boy, I’m going to get much naughtier. [The economic nationalists] are saying that you are going to have to have some coordination.

And here’s where it gets interesting: Mark and Paul, you can tell me I’m being Pollyannaish. But, you know, I too speak to folks at places like the Navy Postgraduate Institute, and I’m fascinated by the overlap between security hawks, defense hawks and the AOCs of the world. I mean, you know, I literally just got through doing a war game where it was clear that green stimulus could help rebuild the industrial base and put a lot of Trump voters back to work in ways that would both secure our economics and our politics. That would be good for national security. I mean, it is really fascinating when you’ve got a general saying basically the same thing that AOC is. Now, we just have to make people understand that those things are not inconsistent with each other. And also: “socialism,” “capitalism”? They’re just different ways of regulating the markets in different people’s interests. I mean, that’s what it comes down to. And we just have to figure out which interest groups are we talking about here?

Paul Jay

Well, that’s a hell of a statement because that’s what it’s all about, the conflict of interest between the BlackRocks of the world and everybody else.

Rana Foroohar

But I mean, the markets are regulated for them right now. As you said, we have socialism. It’s for them. We need to have it for a broader group.

Mark Blyth

Yeah, I think there’s a slightly bigger problem lurking in the background. I think we’ve spoken about this before. For the past forty years, the administrative state, Bannon’s bête noire, of the United States has been hollowed out. I believe it was the case that part of the reason the Florida unemployment system crashed was because they couldn’t actually deal with the workflow, given they were running 486DX computers from the 1980s. It used to be the case that these were well-paid job; these are highly skilled. You thought about the FDA, you thought about several of the independent agencies: really, really smart people, career scientists, etc. They’re leaving in droves, and they have been doing even before the Trump administration because Congress won’t pay for it.

Think about the fact that the IRS is down 20 percent on its budget and it spends I think 25 percent of its audits are basically EITC [Earned Income Tax Credit] people. Billionaires don’t get audited. It’s as simple as that. So, we have an astonishingly dysfunctional, counterproductive state which is incredibly weak and fragile.

And now we’re going to tell it to do a Green New Deal. That scares the shit out of me, because nothing will delegitimate that faster than the failure of those state institutions. If you want to go down that road, you’re basically signing up to a kind of high-tech green Stalinism a la Xi. And also, let’s be perfectly frank that the other way to think about this is the giant hockey stick of carbon doom is really all going to be determined in East Asia and South Asia, because that’s where the people are. That’s where the growth is. It’s all about those parts of the world growing faster than us and trying to get all the same stuff that we have that’s ultimately going to determine this.

It’s not actually even the United States that’s the biggest emitter anymore. It’s China, then it’s India, coming up. Add that whole area together it swamps Western Europe, which has been on the decline. They’re going to decline even further. None of this is within our control. It’s arrogant of us to assume that it’s within our control. Well, what I do worry about is: “We just need a plan. We just need the right people doing this massive project in the United States.” Really? I mean, central banks are filled with reasonably competent people and they can’t even agree on what inflation is anymore. And we’re going to take something as complex as, like, literally the biggest energy transition in human history. And we’re going to try and do it with 486 computers and a bunch of people who hate it. That really scares me.

Paul Jay

Aw, come on. That’s an exaggeration.

Mark Blyth

Is it? No, really, why is that an exaggeration? Why?

Paul Jay

Well, first of all, was there some fantastic state in the 30s when Roosevelt did it? I know it’s a more complicated economy and all the rest, but they created these things and they brought in talented people. There are tons of talented people.

Mark Blyth

They built those institutions for the first time at a time when you could basically take ten thousand male bodies and put them in tents in the middle of the desert and tell them to build a dam. It’s a pretty straightforward project. Decarbonization is leagues more complex.

Rana Foroohar

Well, but wait, there’s a third way here. And in fact, I think it’s the more historically appropriate way, which is that you think of it not as, all right, we have to have a top-down, detailed government structure about how to decarbonize the economy that balances the needs of myriad interest groups across the world. How about just: all right, we have a we have an unemployment problem. We have a burgeoning debt problem, which depending on our politics, we may or may not care about. I personally do. There are only three ways to deal with those sorts of problems. Grow your way out of it, austerity, or monetize the debt. I don’t want austerity at this moment. I don’t want monetization of debt because I think it will eventually collapse the economy.

So, how do you grow your way out? Well, history tells us the best way to have what my source and friend Bill Janeway would call a shared productive bubble is for the government to say we are going to support X new transformative technology — the railroads, the Internet — and then we’re going to subsidize it with basic federal research, but we’re also going to put a floor under it. We’re going to do land grants. We’re going to basically make the private sector comfortable that this is the future. And regulation is going to support that. We’re not going to tell you exactly how it’s going to play out, but we’re going to make it clear that there’s a floor here. And then, boom, we’re literally off to the races, off to building train rails, off to building the commercialized Internet. That could be done with clean tech today. And that would be a smart thing to do.

Mark Blyth

Hear, hear!

Rana Foroohar

Woo-hoo! I got an unadulterated, like, “yes” from Mark. I love it.

Mark Blyth

I totally agree with that. I think that the way that we think about this in the United States is utterly peculiar. The only way we can talk about decarbonization is by reference to a bunch of industrial experiments, most of which if you include the first part of the New Deal, were a total disaster which happened 90 years ago. That’s the only thing that we can talk about? I mean, this is the country that basically put people on the moon. This is the country that basically has invented most of the tech that’s kept us going for 40 years. And that has been a public-private partnership. It’s never been done by the state. This idea that, like, we need the state to do this is historically just not true. The United States doesn’t do this. It’s never done this.

Paul Jay

You can’t think it’s going to happen in the marketplace without the state.

Mark Blyth

I didn’t say it was, but you were saying that it was the state without the marketplace.

Paul Jay

No, I wasn’t.

Mark Blyth

[Laughing.] Yes, you were.

 

Paul Jay

I don’t see it’s historically possible right now to think that you can get that kind of government-institutional planning in this political environment. Do I think it’s theoretically possible? I do, because I see it in Canada. I see what’s publicly owned here, and I see the Public Liquor Control Board of Ontario.

Mark Blyth

Oh, God, no. Please, please; no, no. [Laughter.] Your selection is awful.

Paul Jay

Why’s that?

Mark Blyth

My God, your selection of wines is truly — oh, no, no, no, no. That’s absolutely true. Nope, nope, nope. Done.

Paul Jay

They’ve done a study: there’s been a study comparing the publicly owned Liquor Control Board of Ontario to what happened to privatization in Alberta and the selection of wines in Ontario kills Alberta.

Mark Blyth

I live in Providence. And trust me, it’s better than what’s in your public shops.

Paul Jay

We will do a test. [Laughter.]

Mark Blyth

Yes, we will.

Paul Jay

We will have to do a drinking test because this kind can only be settled by actually swallowing the stuff.

Mark Blyth

I agree.

Paul Jay

You bring two or three of your best. I’ll bring two or three from the publicly owned.

The point is there are publicly owned institutions all over the world. Even state-owned hospitals have in the United States had better mortality rates than privately owned hospitals.

Mark Blyth

You lost me at wine shops.

Paul Jay

Well, we’ll make up for that.

Rana Foroohar

Mark, if you keep fighting with Paul, I think you’re going to end up squatting in a tent on Peter Thiel’s property in New Zealand.

Paul Jay

Yeah, really.

Mark Blyth

Yeah, that’s true. I take it all back. [Laughter.]

Paul Jay

The other thing that the state could do if we had a progressive government, which we’re not getting any time soon, because the people’s movement is way too weak, is that you can buy this expertise. God, you could buy Cox, you know, a competitor to Wal-Mart, you could buy Amazon. Just lots of expertise that you could gain if you nationalized one of the banks, which people have called for when the banks are collapsing. Even Soros called for that in ’07, ’08. I mean, you can get that expertise if it’s not in the government. Now, I’m not saying expertise isn’t a problem. Certainly, it is. But how much expertise is needed to create the means for retrofitting buildings and having contractors all over the country out doing it? It doesn’t have to be a direct government employment plan, but it could be, to train people to retrofit buildings.

I don’t think we should overcomplicate investment in windmills, investment in solar. A lot of progressive economists have called for, you know, the government actually buying fossil fuel companies so they can plan an orderly phasing out of fossil fuel. I don’t know that any of this is politically possible, which is why in our emails, I’m pretty damn pessimistic about where this all goes. But I don’t think it’s impossible if people could elect that kind of a government.

Mark Blyth

Sadly, we don’t have the kind of government. So, we then have to have a plan B. And I think the plan B is what Rana is talking about.

Paul Jay

The tent in New Zealand?

Mark Blyth

[Laughs.] Yeah, the tent in New Zealand. No, that essentially you have to basically put a floor under the transition costs for the private sector. Pretty much all the stuff we do, we do through this thing called the private sector. And that encompasses everything from me putting solar panels on my roof and selling it back to the grid (If I’m allowed, right? That’s an issue.) all the way through the non-profit sector and charities right to the most rapacious capitalist business.  This is the private sector. Ninety percent of our economic activity takes place there. No one actor there can bear the risk of the transition. They’re just not big enough. The only way to do it is to socialize the risk. That’s the real meaning of socialism: to socialize the risk. And if you socialize the risk of the transition, they will leap across it because this is the greatest investment opportunity of the 21st century.

 

When I talk to finance audiences I call this the covered option of all time. Here’s what I mean by this. If nobody invests, we all die. Symmetrical pay-off. If you invest in just one or two of the right things, you will basically be as rich as whoever you want to be, and we might not die. So, massive asymmetric payoff. If everybody invests because the costs are socialized, we will get somewhere and it will be a massive payoff.

The socialism part here is about the costs of the transition. And if that includes ownership structures, trust me, I’m in favor of certain forms of public ownership and new forms, distributed forms, a whole lot. Citizens’ wealth fund? Sign me up. Right? But the key thing here is what socialism means is incentivizing and insuring those costs so that that transition can be made. If you don’t do that, that’s where we’re standing. That’s standing on the edge of the cliff as the cliff collapses.

Paul Jay

Yeah, I agree with all of that. I think we all agree on that. And I think, you know, if some of the left does not agree with that, it’s completely unrealistic. We are not going to get to a climate solution without socializing the risk, including for the fossil fuel companies and other investors, because there just isn’t time. I mean, you know, if we had a hundred years to evolve this, maybe you could get to something that doesn’t require it. But we don’t have the time for anything else.

Mark Blyth

Oddly enough, like Rana, I’ve also been in those conversations with senior military people and found myself thinking that they’re not that far away from AOC. Except that if you tell them that, they still want to reach for the revolver. [Laughter.]

Paul Jay

Right. All right. Thank you both for joining us. And thank you for joining us on theAnalysis.news podcast.

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¹ On top of that, any big fund manager like BlackRock will go to significant lengths to lower fees to improve net returns via what is called “netting” or “internal crossing,” as in matching buy and sell orders within its funds to reduce the number of trades it has to run through Wall Street firms to the bare minimum.