Brad DeLong, professor of economics at UC Berkley, OG econ blogger, and Tyler’s Harvard classmate, joins the show to discuss Slouching Towards Utopia, an economic history of the 20th century that’s been nearly thirty years in the making.
Tyler and Brad discuss what can really be gleaned from the fragmentary economics statistics of the late 19th century, the remarkable changes that occurred from 1870–1920, the astonishing flourishing of German universities in the 19th century, why investment banking allowed America and Germany to pull ahead of Britain economically, what enabled the Royal Society to become a force for progress, what Keynes got wrong, what Hayek got right, whether the middle-income trap persists, his favorite movie and novel, blogging vs. Substack, the Slouching Towards Utopia director’s cut, and much more.
Watch the full conversation
Recorded November 1st, 2022
Read the full transcript
TYLER COWEN: Hello, everyone, and welcome back to Conversations with Tyler. Today I am speaking with Brad DeLong — on his book, known as J. Bradford DeLong; on scholar.google, known as J. Bradford DeLong — but to most of us, known as Brad DeLong.
He is professor of economics at UC Berkeley. He and I went to grad school together at Harvard. He was one of the very first, if not the first economics blogger, and he, this year, has out a long-awaited New York Times best-selling book, Slouching towards Utopia: An Economic History of the Twentieth Century. Brad, welcome.
BRAD DELONG: Thank you. Thank you very much for having me and giving me an opportunity to sell books, as well as to talk to one of the smartest and most wide-ranging people I know about the political economy and similar things.
COWEN: Thank you for that. Now, if I look at the productivity and growth statistics for the late 19th century, they’re highly fragmentary. They’re imperfect.
DELONG: They are.
COWEN: What do you think the numbers are showing us? Because they don’t look that good. Is it that we don’t trust the numbers? Or is it that numbers like that are what big progress meant back then?
DELONG: I think the numbers then are what big progress meant back then. John Stuart Mill in the 1870s could think, and had some reason on his side, that there actually had not been an increase in working-class real wages across the years from 1800 to his day.
A bunch of that is distribution, but a bunch of that is simply slow growth. Things like the 2 percent per year income and productivity growth that we have grown used to since the coming of the Second Industrial Revolution, since the start of Bob Gordon’s one big wave — that really is completely unprecedented. There was nothing like that before, not in the biggest efflorescences, not in the classic British Industrial Revolution.
COWEN: If we’re trying to think about the period, say, 1870 through to the 1920s, when you have some kind of modern consumer society, what’s the best number for reflecting how big that change was?
DELONG: I would say that you’ve got to look worldwide, and that if you look worldwide, and if you take account of the fact that world population growth has now hit more than 1 percent per year after 1870, then you had something like 1.3 percent per year for average world real income growth from 1870 on up to the eve of World War I, worldwide.
And you do what I do, which is say, “Let’s take real income growth and add half of population growth and call that technology growth.” Do that and you get something like 1.7 percent per year for the global rate of increase of “technology” from 1870 to 1913, which is four times what the worldwide average was back in the century before 1870. It’s a huge shift, and it’s one of the things that makes the modern world, as we know, even vaguely possible to imagine.
COWEN: If I’m trying to understand economic statistics, and if I believe the 50 years starting in 1870 changed everything, but if I also believe the last 50 years in the West did not change everything — it gave us computers and internet, but it’s had growth rates that are probably not too far from the earlier rates — what accounts for that difference? Should we then say —
DELONG: Well, I think it did change everything. It didn’t change everything, but it changed a lot of things. There is a difference between the growth rate of wealth and what that growth rate of wealth means. You only go from having no indoor plumbing and no public health — and so having half your babies die before the age of five — to one in which infant mortality is extremely low and a genuine astonishing tragedy once.
You only go from spending two hours a day, at least, thinking about how hungry you are and how it really would be nice to have more calories right now to not having to think about that once. You only go from having your children so malnourished that the adult heights of the boys are 5 foot 3, to adult heights of 5 foot 9 or so, on average — you only do that once. We did that, and we did that mostly in the 50 years after 1870, at least for the global north.
We’re doing equal things in terms of how much we’re making since, but with possible exceptions after 2006 slowdown. But in some sense, it means a great deal less because it doesn’t impact our thinking and our family tragedies and our children so malnourished that they’re badly stunted in such an obvious and visceral way, but there have been big changes.
You want to talk about modes of production. You want to be an orthodox Marxist in following, not so much Marx, but Friedrich Engels, and you say there’s a huge jump between feudal society and the commercial societies of the gunpowder empires, between 1000 and 1650 or so.
Then there’s another equal jump between the gunpowder empire commercial societies and the steam-power societies of 1870, but the Second Industrial Revolution beasts of 1910 or so are a different animal, too, as are the mass-production societies of 1960, as was the global value chain society of 2000. Right now, we’re well onto an info-biotech economic revolution.
Now, the underlying technology-driven forces of production are continuing to change, and are continuing to change a lot, but in some sense, we think it means less simply because our needs are biologically much less urgent.
COWEN: Why did German universities so blossom in the 19th century? It seems like a quite astonishing record. Even just Göttingen for mathematics, taken alone — it’s hard to believe, right?
DELONG: It is an absolutely astonishing thing. Not something that I would have expected back before 1800, not something I really have a great deal of understanding now. It certainly is a wonderful and marvelous thing from the perspective of what a society just beginning to crawl out of the Malthusian agrarian age decides to do with its wealth, with its time, with its focus — not paralleled, not equaled anywhere else. Not even the land-grant colleges and the private universities of the US could do it.
COWEN: Nor France, right?
DELONG: There are reasons that my great-great-grandfathers and great-great-uncles went to Germany for graduate school.
COWEN: What do you think of the common view that England, in some way, fell behind Germany in the late 19th century?
DELONG: The fact that in 1913, the largest British electrical manufacturing firm is the English subsidiary of the German Siemens — that speaks a lot. The fact that Britain is still richer, at least in any comprehensive GDP accounting, is, I think, in large part because Germany is dragged down, because when we speak of Germany in this sense, we’re meaning the Ruhr and the Rhineland largely, and some of Silesia and some of Saxony as well.
It is absolutely marvelous that you would expect the country that is the most industrialized and that has at least the most advanced universities in 1800 to have an enormous comparative advantage in driving forward technology and in maintaining its place as the industrial-technological leader — and yet not.
COWEN: What was Britain doing wrong those years then?
DELONG: Well, there are the standard arguments that were applied to Holland before and that are applied to the US today: financialization, rent-seeking, an over-mighty state taxing the economy in order to accomplish geopolitical goals. For Britain, it does seem to have been an unwillingness to focus the attention of society on pushing engineering forward. Once you start to lose the concentrations of the communities of engineering practice, it’s quite easy to lose more, and it’s quite easy to get yourself into a vicious spiral.
Now, I would always talk about how Americans and Germans would be much more willing to invest in enterprise, and that in Britain, you really did not have the growth of the large intermediaries, like the Deutsche Bank on the one hand and the J.P. Morgan partnership on the other, that saw themselves as being in the business of intermediating information — intermediating information between people who had money that they needed, whether they wanted to save and invest, and people who had ideas that they needed to deploy.
The rationalization and routinization of that through investment banking, universal banking in the years after 1870 played a substantial role. I was never really able to nail that down to my full satisfaction, but that was always my guess.
I would have to say, we really do not know, but that it does tell you how quickly, within one or two generations, what we think of as technological leadership and technological supremacy can ebb away as a matter of position in leading sectors, of the sheer mass of engineers engaged in communities of engineering practice, and also the educational system certainly played a big role.
Germans were being trained to manipulate molecules in organic chemistry while Britons were being trained to write verses in the style of Macaulay, which would be the poems that the Romans would’ve written if they had been Scots, as a focus of their educational system.
COWEN: What do you take to be the best understanding of the 17th-century Scientific Revolution, if indeed you view it as a 17th-century revolution?
DELONG: I always think Joel Mokyr is absolutely magnificent on this. I think he understates the role that having printing by movable type played in creating the community of scientific practice and knowledge seeking.
There’s one thing that happens that is extremely unusual. Back before 1870, there’s no possibility at all that humanity is going to be able to bake the economic pie sufficiently large that everyone can have enough. Which means that, principally, politics and governance are going to be some elite constituting itself and elbowing other elites out of the way, and then finding a way to run a force-and-fraud domination and exploitation scheme on society so that they at least can have enough. When Proudhon wrote in 1840s that property is theft, it was not metaphor. It was really fact.
What does this elite consist of? Well, it’s a bunch of thugs with spears, the people who have convinced the thugs with spears that they’re their bosses, and their tame accountants, bureaucrats, and propagandists. Which means, most of the time, when you have a powerfully-moving-forward set of people thinking about ideas, whether the idea is true is likely to be secondary to whether the idea is useful to helping me keep my place as a tame propagandist in the force-and-fraud domination and exploitation elite machine.
This is a point I’ve stolen from Ernest Gellner, and I think it is very true. Yet, somehow, the Royal Society decides, no. The Royal Society decides nothing except through experiment — what we are going to demand that nature tell us, or tell one of us, or at least someone writes us a letter saying they’ve done the experiment about what is true. That is a miraculous and completely unexpected transformation, and one to which I think we owe a huge amount.
COWEN: Where does that impulse come from, of the Royal Society? It seems not an accident that it’s in England — the same era when you’re developing rule of law, constitutional thought, some theory of the rights of man, other stranger movements.
DELONG: Right. I don’t know. As I go looking back, starting around 1600, the intellectual air starts to smell different. You have Tommaso Campanella writing in The City of the Sun about how there has been more technological progress in the past century than in millennia before. He then ruins the effect by saying this is a result of the astrological influence of the moon and Scorpio, which as a theory of a technological progress we would find rather lacking in many ways.
You have Francis Bacon saying that the world has been utterly transformed by the compass, by movable-type printing and gunpowder. The utopia he goes on to paint is one in which there is indeed Salomon’s House, a bunch of scientists devoted to uncovering the secrets of nature to the enlargement of the human empire and to the effecting of all things possible.
That utopia, or cornucopia at least, is on our future and is going to be because we’ve figured out how to use our minds to understand things, rather than because we’ve managed to recover a golden age, or because some theological being has come to our rescue, or because we’ve finally figured out the right static social order. That’s unusual.
I got to trace it to what happened between 1500 and 1600, which was the discovery of the New World, the subsequent Columbian exchange, the great reduction of the prices of carrying goods across the world as a result of the first globalization. That and the tinkering culture of Western Europe meant that, in 1600, you could look back and, for the first time in history, really say, “Wow, things are a lot different than they were even 100 years ago.”
In fact, we know more than anyone in the past ever did. In earlier ages, you look back and you see monuments of at least some ancient civilization that look pretty impressive to you. By 1600, no.
By 1600, the idea that knowledge was a possible thing that humanity could grab for was in the air, and as you say, it all concentrates in England. It all concentrates in England, or maybe better to say it all concentrates in a circle 300 miles around the port of Dover, because Hume and Smith and the other Scottish Enlightenment people head for London fairly quickly in order to get inside the circle and get inside the discourse.
That is a wonderful and marvelous thing to have happened. I think it is a systematic change from the House of Wisdom in Baghdad in 900, or from the empirical and metaphysical and alchemical researches of the researchers of the Song Dynasty. As I say, we’re very lucky it happened.
COWEN: What do you think of the original Paul Romer view that across the very long run, growth rates simply rise?
DELONG: Something bad seems to happen after the year 150, right?
DELONG: Up until the year 150, I think you can say yes. Although whether you can actually back that up with numbers you can semi-believe in really depends on what you see of the population evolution of humanity toward the end of the Bronze Age.
There’s a fight between the Hyde people who think that Bronze Age empires were much more populous than others did, who think that the big increase in human settlement population and technology before the year zero came in the late Bronze Age with the Hittite and the Babylon and the Egyptian empires of the time. The rest of us tend to think that we see an acceleration with the coming of classical civilization as a whole in the Axial Age. I’m on the Axial Age side, but it’s disputed.
After 150, though, things really do fall off a cliff, both in terms of the sophistication of high society and also in terms of the rate of increase of human population, at least Eurasia-wide. It’s not just that the Romans vanish from Britain, and it’s not just that the Latin language frontier gets pushed back so that it’s out of Britain completely and is moved 200 miles into France, as one elite succeeds another.
It’s that there’s an enormous destruction of the mechanisms that were pushing ideas forward in the western, but also in the eastern Roman Empire, in Persia and in India, which are subject to repeated, fairly disastrous barbarian invasions, and the successor states never get back to the level of infrastructure and other investment and putting forward ideas about manipulating nature.
In the fall of the Han Dynasty in China, and the Warring States period, and in the subsequent Tang Dynasty that you look . . . It isn’t until the Song arrive, and people start once again doing serious selective breeding with rice, that it looks like the rate of technology advance gets back in gear. I can’t convince myself that between 800 and 1500, the rate of growth of world technology was any greater than in the age of classical Persia and Greece and the coming of Han China, even though the population in 800 was three times what it had been when classical Greece started.
So there’s a big interruption of the Romer story from 150 to 1500. Afterwards, it seems to me, it’s not so much two heads are better than one, but rather, we find and make much better institutions in fairly discrete steps.
COWEN: If we take your answer, which I largely agree with, it seems to me strikingly non-Malthusian. In the book, you seem much more a Malthusian, that the problem over the very long run is simply the ebbs and flows of population.
DELONG: Well, say you have technological progress of 5 percent per century worldwide before 1500, which supports maybe an average century in which human population grows at 10 percent. Then after 1500, you can say that that triples, and say one-third from the fact that you actually now get globalization because you now have ships that can actually sail rather than having to break-bulk at eight different spots along the way, and one-third from the Columbian exchange itself, and one-third from the tinkering and innovative and Royal Society culture in Western Europe.
So that after 1500, worldwide, it’s not 5 percent per century for technology. It’s more like 15 percent, and so you see population growth rates of maybe 30 percent per century worldwide. But 30 percent per century is still a Malthusian economy. It’s got to be a somewhat richer one. You have to be somewhat richer so that your population can grow at 30 percent rather than 10 percent per century. Still, half your babies die. Still, life expectancy is 30. Still, you’d expect living standards to increase on average by just enough to support the 30 percent per century population growth rate, rather than the 10 percent, but it’s still a more Malthusian economy.
The interesting question is, what happens between 1770 and 1870, when it looks like we get our global rate of technological progress up to almost half a percent per year, which means that a 1-percent-per-year population growth rate could eat all that up in terms of smaller farm sizes offsetting better technology? But you do have an upper class whose living standards are being transformed by new inventions, and you do have a doubling of humanity’s technological capacity every 70 years.
Even though it is still the Charles Dickens, John Stuart Mill, “we’re not going to get anywhere unless we get a handle on our population growth” problem. Is that 1770-to-1870 global economy still a Malthusian one?
COWEN: Moving ahead to the 20th century, as you well know, Keynes predicted a kind of leisure society would come to the West reasonably soon, and people still work quite a bit.
DELONG: Like now.
COWEN: Yes, now, earlier than now. What exactly did Keynes get wrong in your opinion? Obviously a very smart man.
DELONG: Yes. I really do not know. I’m tempted to follow Richard Easterlin and say that modern economic growth is not a triumph of humanity and technology over material want, but of material want over humanity and technology.
I now have an 18-month-old laptop, and I find myself annoyed that it’s not as fast as another laptop I could get. I’m using a slightly — well, not a slightly improved — I’m using a significantly improved process of turning sand into something that can come dammed close to think with parts four nanometers on a side in the most complicated human manufacturing and division of labor process ever accomplished.
So complicated that in fact, there are only two productive organizations, each of which is absolutely essential for it, one of which is the one in the Netherlands that makes the extreme ultraviolet machines, and the other one is the one in Taiwan that knows how to actually use the extreme ultraviolet machines to carve paths for electrons to flow in stone made of sand.
Most of the time, I should be aware that materially, I’m very quite sated. When I do spend a lot of money on a dinner out and on a bottle of wine, I have a nagging worry that suppose I were to take this money and buy 20 McDonald’s gift certificates and go down to a local childcare center and hand them out to harassed single mothers who are having difficulty making ends meet. Wouldn’t the smiles on their faces be better, make me happier than actually drinking this stuff? It’s a question.
Yet, as you say, I work pretty damned hard, and I work pretty damned hard in large part because I like my work, but also because I am somewhat of a status-seeking individual. It’s something like Liaquat Ahamed’s review of Slouching towards Utopia in Foreign Affairs this morning — the idea that someone as smart and accomplished and as knowledgeable as him thinks I actually belong in his company. That really does send me over the moon.
Is that a bad thing? Is that me living my best life? Would Keynes say that I am no longer in the kingdom of necessity, that in fact, I have outgrown the community of those hagridden by the vices of avarice, usury, and precaution — which we pretend are virtues because they’re socially useful — and I’m now living my best life wisely unwell? Or would I be better off simply taking things off and going down and hanging out at my cousin’s place in Malibu?
COWEN: Was Schumpeter correct about the bureaucratization of the large business firm?
DELONG: I would say in the very long run, no. In the medium run, definitely yes. You look at the Apple TSMC as not yet a duomonopoly. It’s not yet the combination of WinTel, but it’s kind of getting there in its sphere, and it’s an extremely taut and low-bureaucracy organization when you look at the entire value chain. You take a look at Google, and it also looks to be an extremely taut, unbureaucratic value chain.
You look at the old Twitter. Yes, the old Twitter apparently was highly bureaucratized because nobody could get approval to ship anything. Whatever you think Elon Musk will do of Twitter — which in my view is, he’s most likely to simply light it on fire and burn it down — it is going to be an experiment in which he takes the organization that had become extraordinarily bureaucratic and seriously shakes it up, possibly to the long-run public good.
DELONG: He’s wonderful.
DELONG: Well, his approach is the huge kind of approach, is the largest scale. I’m looking at the 20th century, which is a considerably smaller-scale thing, so what I’m most interested in is all the things that Joel Mokyr talks about, all the things that Greg talks about, all the other stuff that gets you up to 1870. Then you wave your hands and say, “The story continues.”
Well, in this book, I’ve taken the position — and I’m about 70 percent sure I’m right — that really, no, the story doesn’t continue. That, say, from 1770 to 1870, you have about half of a percent per year, on average, of steady technological progress, but one-third of that comes because the last set of glaciers served as bulldozers and scraped all the post-Permian rock off of a good chunk of northwest Europe, leaving all the stored sunlight in the form of coal right there on the surface for you to pick up and then use to power steam engines.
About one-third of that comes from the second globalization, allowing you to pull all the manufacturing of the world into the districts in which manufacturing was most productive and efficient. By 1870, the really cheap coal was pretty much gone, and you’d already pulled in all the manufacturing. That leaves you with the underlying rate of invention and innovation, which is about one-sixth of a percent per year — the things discovered, developed, deployed, and diffused in the world economy.
That one-sixth — that only supports population growth at the rate of one-third percent per year as farm sizes grow smaller with higher population. One-third of a percent per year — that’s just 10 percent a generation. That’s a steampunk economy in which you ran out of the coal, and you’d already globalized the manufacturing, and you just had invention at kind of the early 19th-century steam engine pace. That produces a steampunk economy that looks pretty damn Malthusian to me.
But instead, we had the one big wave, as Gordon calls it. We had the sudden jump up so that we get our 2 percent per year productivity and real income growth after 1870. It’s that 2 percent, together with Schumpeterian creative destruction revolutionizing the economy to double human technological competence every generation — that wild ride from 1870 to today. That’s the story I want to tell. That’s a story that Greg misses because Greg is simply viewing it from too high an altitude.
COWEN: When I read Hayek’s Constitution of Liberty, I see a thinker who favored a social welfare state, single-payer health insurance, and vigorous application of antitrust law. You paint Hayek as for laissez-faire, so what gives?
DELONG: Well, there’s Hayek, and there’s Hayek, and there’s Hayek. There’s a difference between things that von Hayek wrote and things that von Hayek is supposed to have written and, in some sense, that people wished that he had written. I’m really using Hayek in my book as a hook on which I can hang a set of ideas, and Polanyi as a hook on which I’m hanging another set of ideas.
Yes, Hayek had moods in which he said, “Of course, we’re not barbarians. Of course, we have single-payer universal healthcare.” He also had moods in which he said that fishermen, who only have jobs because they can sell their fish into the world market, who want to complain about how the market is not rewarding them justly, should simply shut up and soldier.
There’s the Hayek who very much values the Western traditions of liberty, and there’s the Hayek who rails against permissiveness as the chief enemy of human civilization. Then there’s the Hayek who wants —
COWEN: Isn’t it the collectivist impulse, and not permissiveness?
DELONG: It depends from place to place. There’s the Hayek who actually likes democracy and discussion and sees freedom of thought, and there’s the Hayek who thinks that you need a Lycurgan moment in order to destroy socialism and reestablish the constitution of liberty, which is primarily economic liberty, on its own foundation, on solid foundations, and his hopes that Augusto Pinochet would be that kind of guy from Chile.
COWEN: But he was right about that, right? Chile is today a democracy.
DELONG: Well . . .
COWEN: They did make the transition that Hayek had predicted. No?
DELONG: I’m with Maggie Thatcher on this, that definitely other roads in keeping with British constitutional traditions, I believe she wrote, can achieve all that is good about such goals. He’s a complex guy who got crankier and crankier with age, and he was a genius with respect to seeing . . .
When I want to annoy my left-wing friends, I want to say that if they want to learn how to truly crowdsource anything, they need to look at Hayek. That what they’re pushing for is a central plan system in which someone at the top orders everyone around as if they were robots, and does so at no information. Or a bureaucracy in which a bunch of people have written the rulebook that requires everyone else to be a software bot when the rulebook only covers one-third of the possible cases.
Or a market with private property and contract and individual initiative, so that all of the decision-making is pushed out to the periphery of society, where the information and the brains really are, and how you automatically solve the problem of incentivization as long as you manage to successfully align market prices with social values.
There is no better way for harnessing the eight-billion-brain anthology intelligence of humanity to achieving the social goals we all want, other than to organize a well-functioning market system. That is a basic and serious truth.
The problem, though, is the kind of align prices with social values and the fact that in a real market, the only rights that matter are property rights. Unless you are very, very good at making the distribution of property rights in accord, so that the people who control those property rights are issuing orders to the market that accord with what you believe utopia requires, then you get yourself into huge trouble.
Plus, you have to take care of all the externalities — the information externalities, the direct externalities, the macroeconomic externalities, and so forth.
COWEN: If today we were to rerun a new Julian Simon versus Paul Ehrlich bet, which side would you take?
DELONG: I would definitely take Simon’s side.
COWEN: Why Simon?
DELONG: We are extremely inventive. There are eight billion of us. We can talk. We’re very, very smart collectively, and so if the problem is to figure out how we can use resources in order to support productivity, we are highly, highly likely to find a way. That problems of environmental catastrophe and pollution and so forth are problems of externalities in the proper management of commons. They aren’t problems that natural resources that are physical objects are suddenly somehow going to become scarce.
The only example I seriously know about this is the extinction of the spice silphium in the Roman Empire. I still do not understand how it could have possibly happened because as silphium got scarce, for one of the many latifundistas of imperial Roman Italy to have established a silphium plantation would’ve seemed to be a very obvious thing to do.
COWEN: What is your current view of the middle-income trap? You’re on an optimistic note.
DELONG: China looks like it’s falling into it. You’ve long known about the resource trap, right?
COWEN: Do you mean from having too much oil?
DELONG: Yes, that you get a society where the returns to engaging in positive-sum, kind of, let’s win-win, figure out how to cooperate productively — if you’re a young man or woman on the make — are less than the returns from figuring out how to join some force-and-fraud, exploitation and domination machine, which in the modern age is usually powered by foreign demand from someone elsewhere who is richer: the drug lords in Latin America and the United States, the oil lords in the Middle East and the European Union, and so forth.
The middle-income trap looks to me a lot like that thing expanding its reach. That governmental technology of appropriation improves along with other technologies, and so there comes a point where it’s better and easier and more comfortable for yourself to try to join the other government regimentation machine than to be out there in the entrepreneurial and positive-sum machine. My understanding of the middle-income trap is that that’s where it comes from, and it seems scarily persistent.
COWEN: But Ireland breaks out, right?
DELONG: I used to argue that divergence worldwide was largely the result of internal and external colonialism plus Lenin. If you were externally colonized, your colonizer really didn’t care about your economic development. If you were internally colonized by, say, an elite that regarded the rest of society as its prey and thought it was separate because they were descended from the conquistadors of Castile, they regarded the rest of the country as not just their prey, but the acquisition of knowledge and social power by the rest of the country is absolutely dangerous.
You combine that with Lenin’s extraordinary success at organization, and his pupils and their theological belief that the market must be damned to hell forever, and you get almost all of the divergence that we’ve seen since 1870.
Then, in the generation after World War II, I could say, well, failure to converge after the end of colonialism — that’s because they destroyed state institutions, and building a state is a complicated thing. You have to reward your friends in order to maintain control and establish — like Henry VIII stole the monasteries. Stealing entrepreneurial wealth is a good thing to do if you’re trying to maintain a stable state, and things will settle down.
Then I could say, well, African retardation — there are special problems of sub-Saharan Africa related to long-run destruction of social trust and so forth.
Now I’ve run out of excuses for why middle-income and other traps persist. Maybe the fact that I’ve run out of excuses is combined with the fact that we’ve actually seen substantial convergence in the world since 2000. On the other hand, the coming of Xi Jinping’s new imperial China, and the coming of Narendra Modi and what looks a lot to me like national Hinduist India — those make me think that perhaps the middle-income trap will continue to be much stronger than I would wish, or than I had hoped five years ago when I was in the mood of I’ve run out of excuses.
COWEN: Now, you served in Treasury under the Clinton administration. Let’s say you’re called into the UK, and maybe you have been.
COWEN: The Truss regime [conversation recorded November 1st, 2022] tries a mix of spending hikes and tax cuts, and markets don’t like it. You’re asked for advice. There’s probably a recession coming. Is it that you actually recommend austerity? What is it you tell them to do right now?
DELONG: Oh, boy. That’s a good question. That’s a hard question. I confess I was surprised by the fact that the fiscal theory of the price level suddenly showed up outside of Whitehall and camped out and set up its tent —
COWEN: I understand.
DELONG: — in such an impressive way, and it’s the problem. Is the fiscal theory price level really true? Or have we had the wrong group of people in charge of money in financial markets?
COWEN: Their debt-to-GDP ratio — it’s only at 80 percent, right? Which is —
DELONG: Yes, that is the people who have . . . Milton Friedman hoped that noise traders would lose money and go away, simply because they were being irrational. It was Larry Summers who pointed out that rational people don’t maximize expected wealth. They maximize utility. As a result of that insight of his, I actually have had a good career in economics, which I might well not have had otherwise, being as scatterbrained as I am.
But I think that insight is much deeper. It’s not just that there’ll be a lot of noise — noise trading will be persistent — it will be that the largest and most influential financial players will be people who have not only taken positions that are overly risky in a beta sense. They will be overwhelmingly people who have massively failed to diversify and who have been very lucky three times in a row and who, as a result, think that they’re absolute geniuses.
We’re selecting for a market in which the celebrity participants, at least, are people with positively bad financial judgment, prone to bubbles and enthusiasms, and relatively right-wing in their politics because the right wing will offer them low taxes.
The great and good financially of Britain have been told for 15 years that “austerity is an important thing to have, so that’s why you need to have us [Conservative Party] rather than the Labour Party in control.”
As near as I can see, the result has been a Britain that’s 10 percent poorer as a result of a failure to make public and private investments over the past decade and a half, and another 10 percent poorer because of the disaster of Brexit that was never supposed to happen. It was just supposed to demonstrate that Boris Johnson was on the side of the little people of England.
Maybe the fiscal theory of the price level was only there because they believed what Cameron had told them, and that maybe you could actually bull through this. If I were advising Liz Truss, I would say, “Go back and tell the European Union it was all some horrible mistake. We’ve come to our senses.”
COWEN: But they wouldn’t take them back at this point, right? They can’t credibly commit to staying in all the time.
DELONG: They can’t credibly commit to staying in, but still, they can . . . It is the only obvious thing to do to massively raise British total factor productivity, is to get back into the European Union quickly. Otherwise, I do think you need a substantial boost of public investment. It would be very nice to take advantage of the forthcoming recession to actually get it done. When private spending sits down, public spending should stand up.
There needs to be a long-run plan to definitely finance it, given that, as John Maynard Keynes said, the animal spirits of investors depend very much on investors’ attitude toward and confidence in the soundness of the government. And a hatred of investors for Léon Blum or the Labour Party is a powerful factor that must be taken into account.
I would indeed say that a Conservative government that makes incredibly promised substantial future wealth taxes to keep the deficit under control in the future is the right road forward to Britain. I do not see how the Conservative Party, as it’s currently constituted, can make such long-run promises, and I certainly do not think that those whose credibility is needed for Britain to avoid a very nasty inflationary spiral over the next 10 or 15 years would trust the Labour Party at all.
We’re likely to find that . . . Well, it happened to Léon Blum, or it happened to François Mitterrand. Attempt to move left and find yourself having to tack right very, very quickly.
COWEN: What’s your favorite novel?
DELONG: Favorite novel — I would still say it’s Thomas Mann’s The Magic Mountain, but I’m not sure whether that is actually my favorite novel or whether that is a novel that reminds me of one of my favorite times. Is there a real difference between them?
COWEN: Yes. What is your favorite movie?
DELONG: I’d have to say I’m a sap, and I still have to say that I admire Casablanca extraordinarily much. I wish my favorite movie were the Seven Samurai, but when I’m sitting down, even when I’m not exhausted and actually want to watch a favorite movie, I do find myself turning to Casablanca, so by revealed preference.
COWEN: Do you think there’s any novel or movie that is really quite good for understanding economics? Or is the seen-versus-unseen distinction too much of a distortion, that in novels and in movies there’s too much intent and not enough invisible hand?
DELONG: Oh, I would actually say Red Plenty. I would say Red Plenty by Francis Spufford is a wonderful novel about economics.
COWEN: What’s your favorite video or computer game right now?
DELONG: Oh, I don’t have a favorite computer game.
COWEN: Civilization? Gone?
DELONG: I don’t dare. Yes. As I say, the fact that in late 1993, I had to decide between being a Civilization addict and a deputy assistant secretary of the Treasury. Do you know, at least if I’d managed to figure out how to win consistently at god level in Civilization, I might feel I had accomplished more than I did at the Treasury. I might not.
But I microwaved the disc and have not played a video game since. That’s not something I trust myself with.
COWEN: Does UC Berkeley have the right amount of intellectual diversity?
DELONG: If it were the only Berkeley, I would say yes. I would say that an American educational system that has even 20 places in which I’m as far right on the faculty as I am at UC Berkeley would not be a terribly healthy situation, and I think we’re in that situation.
COWEN: How much has religion influenced your political and economic views, if at all?
DELONG: I would say formally and consciously, not. The problem is that I know too much about the genealogy of a great many ideas I hold to be very dear. I would say —
COWEN: And you think they’re Christian, or —
DELONG: — unconsciously, absolutely enormously.
COWEN: What from Christianity or elsewhere do you think you’ve drawn upon the most?
DELONG: I might say you should ask Rabbi Hillel to teach you the entire Torah while standing on one foot. That what is hateful to others, do not do to them. Or maybe Bill and Ted: Be excellent to each other and party on, dudes.
COWEN: So, Kantianism, but filtered through a religion.
DELONG: Except I would say religion is filtered through Kant and emerges as Kantianism. I would say that it comes from elsewhere.
COWEN: He had his own Pietistic background, right? That’s probably not a coincidence.
COWEN: The history of this book — if I understand it correctly, there’s a director’s cut of this book hidden away somewhere. Is that correct?
DELONG: I have not yet managed to assemble the director’s cut. There’s a cutting room floor. It has 600 pages, including index and so forth. There are another 400 pages that exist in disorganized form. Then there are the notes and quotations and outlines for another 500 pages.
COWEN: Will we ever see them?
DELONG: Maybe I’ll manage. The Lord willing and the creek don’t rise, yes. The question is, which part should I add to and come out next? Should it be the one that’s really about industrial research labs and modes of production since 1870? Should it be the history of the Malthusian world? Should it be the parallel to The Unbound Prometheus? Should it be very much the Schumpeterian industrial creative destruction book? People can vote. Send me emails with your votes.
COWEN: [laughs] Last question: what else might you be planning in addition to possible sequels?
DELONG: Oh, to write? I would say that possible sequels is pretty much all that I’m planning right now.
COWEN: Substack — you’re going to stay on Substack, go back to blogging, do more on Twitter? There are other choices, right?
DELONG: Substacking is blogging, except that Substacking is blogging where you have explicit permission to send things to people’s email inboxes, and also to have a rather large tip jar.
COWEN: Is Substack or blogging better? Substack — the post seems longer to me; blogging — it seems shorter and more about scrolling. Which do you prefer?
DELONG: I thought blogging was more fun. I like being a squirrel. I think if you believe Ezra Klein that we need to be more Gutenberg-ish, because the social-media audio-visual world is really one in which you have to declare who are your enemies in order to get listened to, and that that really is not a healthy foundation for a public sphere.
I think I have a moral obligation to help Hamish and company put Substack forward in the future, and that it would be nice if they succeed in their long-run project for world domination.
COWEN: Brad DeLong, thank you very much. Again, everyone, the new book is Slouching towards Utopia: An Economic History of the Twentieth Century.
DELONG: Thank you very much, Tyler, for inviting me. Please read and think about and criticize the book. Criticize the book, please — harshly and mercilessly — because that’s about one of the few ways I’m going to learn things in what’s left of my life, is to read incisive and merciless critiques of my book. I definitely do want not to stop learning things.
COWEN: I think you’re too hard on Hayek. That’s my critique for today, but Brad, thank you very much. I look forward to seeing you next.