I realized i didnt introduce myself. I actually put together the program for this conference. We were originally supposed to be doing this conference in may 2020 and a little thing called a pandemic put pain to that. Im delighted we have been able to do it and im very thankful for the generosity of the trust that provided the resources for us to do this. Before i introduce our final speaker for the day, i would like to also think the cato Conference Team and the building staff for all of their hard work for making today possible. They kept us well fed and watered through the day. Weve had some fascinating panels and speeches which i think really captured the essence of the tumultuous summit tumultuous political time we live in and the opportunities that brings for government policy. After this speech, right invite you to continue those conversations over drinks downstairs. Before we get to that, i am delighted to welcome Douglas Holtz eakin to give the keynote address, entitled the National Conservative threat to a free economy. He is the president and fan were of the American Action forum, one of the most prolific writers in the Public Policy space have ever come across in washington, d. C. And elsewhere. In preparation for this event, i examined his morning emails over the week before i was writing this, and in that period, he covered topics as wideranging as the jones act, any factory jobs, inflation, antitrust policy, the minimum wage and several others. Each post was critically written and dripping with insights, making doug a must read for policy walks and legislators across the political spectrum. Doug has an extremely long pedigree. He was an academic at Columbia University and then syracuse. He has served in a variety of influential policy positions. Between 2001 and 2002, he was the chief economist of the president s counsel to economic advisors, he was the sixth director of the congressional budget office, providing budgetary and policy analysis to the u. S. Congress. During 2007 and 2008, he was director of domestic and Economic Policy for the john mccain president ial campaign. After a roll with a federal commission, he was then founding the American Action form that describes itself as a centerright think tank on economic and fiscal policy issues. It is difficult to think of anyone as plugged into economics and politics and i was deeply impressed with his insights when i first saw him speak at phelpss annual conference at columbia on the dangers of socialism. I was on a panel that day alongside lena con. Giving the experience of seeing doug that day as well as the knowledge that he is out there on the front lines debating Economic Issues in the media as well as in congress, i couldnt think of anyone better to offer us concluding thoughts on the ascended National Conservative movement within and indeed beyond the republican party. Welcome to the Cato Institute and the floor is yours. [applause] thank you for providing legitimacy to what i do. I want to thank ryan and cato in general for a fantastic conference. A great set of speakers talking about the right topic at exactly the right time and you dont always get that. The pandemic did you a favor, i think the topic is right and i am really pleased to have the chance to discuss these variant of very important issues, what is the framework for economics and politics and the political economy of the United States. I have no idea what im going to say. I have struggled desperately to figure this out. But i thought as a matter of discipline, what is the threat from this nationalist conservative style of thinking and policymaking should be done relative to something, thats what economics is, a set of relative choices for im going to talk a little bit about well trodden paths which are the competitive economic model on which so many of us rely and a real bonus to speaking here is i dont do powerpoint, i dont do slides because i did my first powerpoint in front of president george w. Bush and he discovered an error and i gave a powerpoint into thousand one. [laughter] but i have everything i need on the slides. I have individual liberty, free markets, and limited government, and i want to talk about that. That is the starting point. We know how we sort of talk to people about basics of the idealized form of competitive markets. People have the freedom to choose which products they do and do not buy, and if prices are too high, they say no, and if they are low, they buy them. They may even buy them more. They continue to buy as long as that product provides value. They reveal their values with their purchases. I know how much i value to his Letters Value twizzlers because they are one of two things in my diet, i know it is seven dollars for a two pound bag, that is the marginal value. The other thing we know is, if the producer can sell it to someone at more than the cost, they can make more money by making more of it. We will just keep making more until the profit opportunity go away because marginal costs will rise. What we will find out is that that price will simultaneously affect the marginal cost of production and the marginal benefit, the valuation i place on it. That is the core of how we explain the transmission of values through the economy and the economic benefits of a competitive model. I want to talk about the politics of it. I dont think it gets appreciated well. If you think about a nation of 302 Million People all operating in that fashion, what we will learn is that, twizzlers will have a marginal value for everyone who is buying seven bucks for that bag. Everyone. All of them. All have exactly the same valuation of that. Then becomes the social value of twizzlers. We do not need a committee to put it together, we know what it is. We all agree on it. We do not have to take a vote. We all agree. It has a value. The value is a price. The value is matched by the cost of society producing it. The marginal cost is what it cost to labor, what kind of materials goes into it. There are no extra analogies so theres no funny extra matthew have to do math you have to do. Reliance on competitive markets have the tremendous advantage that we need no politics, none. We agree. It is practically shangrila because there is unanimity about how much we should spend on them, how much labor and capital should go into them and it is simultaneously the same for other products. If you think about just walking into a gas station in the United States and the range of products available just there, it is mindboggling what a market economy can produce. There is no way a political mechanism could make all of those decisions. There is not a legislation we can design that can come to agreement on so many things. The beauty of competitive markets is we do not need the politics. It is a phenomenal political mechanism. It is often not appreciated for that. When we stray from that, i think we start to appreciate the value of what free markets and individual liberties and Prophet Muhammad and profit motive have delivered to our political discourse. Think about what happens when we do not have twizzlers, think about what happens in our market model. We have something of National Importance that we all share Like National defense. We have to pick an amount. Some people want little or negative amounts of it. Other people are worried. They want a lot of it. Now we have to have politics. We have to have a way to decide. How much are we going to provide in the way of National Defense that we will all simultaneously consume . That is where the political mechanism enters. Think about how it enters. In that way of thinking where you let markets do what they can do, let them do it to the greatest extent possible and only rely on government provision when you have to, everyone is agreeing that the politics are of necessity. We all know that we have different values. We have accepted the deal that says, theres going to be some disappointment in the political outcomes. Because all of these equally legitimate values have to enter in and not all can be satisfied simultaneously. It is not going to happen. I think one of the great virtues of the socalled neoclassical consensus, which was we are going to let markets deliver everything they can and only in places where there are market failures, public goods and the kind of things markets do not handle as well we will go to government mechanisms for provision. Those government mechanisms come with an automatic legitimacy because the preferred way of doing it does not work. You have to be doing it in the government and you accept the shortcomings that produces. It may happen simultaneously and we have different this agreement. There is a legitimacy attached to that political debate because of the way we got to it. That is by and large how the u. S. Operated for a long time. It produced interestingly enough, not the midget government for the sake of it, but limited government because there were only a limited number of things you would have the government do. As a result, the limited government was legitimate by design. It was not a arbitrary restriction on what the government can do. It was the government fulfilling its role in society. I thought that was an incredibly valuable thing. It was never perfect. One of the things you left out and reading my resume, i worked in the white house in 1999. I had been at columbia teaching public finance. For those of you not familiar with courses and public finance, its all about markets, when they fail and what you can do to bring them back to optimal amounts of production. You have to be smart in fixed markets. The government is the solution. I went to the Bush White House these were republicans and they were prepared to intervene in ways that that blew my mind. The entire time i was stopped, leave it alone, you dont need to do that, the market will take care of itself. By the end i felt i was walking free to choose. It was the greatest experience in my life. I know the idealized framework i just walks through isnt literally the reality. There was the underpinnings of a consensus on the way things work toward. That consensus seems to have, i think, been lost largely because we have not done the education on what it really was. Competitive markets were not just a way to get people rich. They were a legitimate political approach to providing goods and services in the right amount and allocating the activities in the economy. I think that education has to continue. [coughs] excuse me. My concern with these other approaches that have various labels, the make America Great again label and nationalist perspective is, they begin by substituting for that value discovery mechanism called competitive markets, then just saying this is what we value. This is what is important to this country. We have already seen that out there in the world there are going to be old, young, men, women, minnesotans, very strange, ohioans, a huge array of differences. This country should be celebrate d for its differences, its most amazing characteristic. And if there are one set of values to pursue, by definition the rest are not legitimate and that immediately sets up a very bad political dynamic. Because if you are told you are illegitimate, you do not want to participate in the process that has declared your views illegitimate and you dont respect for people who have declared your views illegitimate. The starting point for my concern is this notion that there is a set of values. And the issue of who gets to pick . Whose values get picked. Those are national values. This is the scientific accomplishment by ken arrow when he won the nobel prize. There isnt any legitimate way to pick and a system of fashion among all of the taste and preferences in the population. What youre going to end up with is a dictator. What we see too often is the language and behavior of this way of thinking about the governments role in the economy as highly dictatorial. And highly, as a result, frightening to those who were raised with a deep love of the freedoms and democratic principles of this country. That set of beliefs i think is a very dangerous way to do business. It leads to some other things that we see all the time and decry but they are almost inevitable. It is going to be the case that any such approach to running a country is going to have a huge amount of industrial policy. The market signals are not valuable. They are wrong. There are one set of values that is right. We have to override the market, we have to pick what is going to happen. There is no longer a consensus. It is obvious anyone would pick a lot of twizzler production, that is easy. There is tremendous amount of industrial policy that will flow straight out of us. And protectionism, that is obvious. That overriding of the market is inevitable in these systems. Theres no respect for what it does. The market discovers values, the values have been discarded as unimportant in this framework. We do not need markets to do that. That comes with it a couple of other corollaries. Number one, youre not going to get Efficient Government policies. People like me do not like to distort prices. We do not like taxes distorting prices. We dont like subsidies distorting prices. That is distorting someones values. The inefficiency of policy will be irrelevant. Any nationalist conservative approach will have the biggest loss triangle you are never going to see. This is the way in which the left and extreme right at this moment are agreeing, they are behaving in the same way. Second thing that will happen is, theres no particular cost to taking the taxpayerss money. You need the money and industrial policies. You are going to have a very large government. There will be no natural stopping for the government. Pointthere is no legitimate limited government in this framework. It will get more and more inefficient. As a result it will be a threat to any sort of sustained rise in prosperity. A sustained growth in the economy. That is inevitable given the foundations of how this world thinks about things. So what comes with industrial policy and a lack of respect of taxpayer money . A lot of cronyism. Cronyism always leads to corruption. The government, which may have been seeking to represent the nation, but in the end has no legitimate set of values to do so will harm the growth of that nation. It will then also destroy itself with corruption and inefficiencies. The good news here is there is a drinks reception after i am done. [laughter] number two, whatever this force is, however it arose, and the notion that populism just isnt good for the populace has not been recognized but it is a fact. It has a selfdestructive piece to it that will end this path on its own. I am not saying it is all fine. But it is important to understand angst for what they are. I think that is what we have. It is a very bad idea for me to talk while there are drinks out there. There are some people who made the correct but premature decision not to listen, and we will join them. My message stays really simple there is a political legitimacy to doing business with individual liberty and free markets and it is an efficient way to do things. It has a lot of technical merit from an economic point of view. But its political characters are what i think is the most important feature. It is the things being taught and nurtured over time. These recent movements has none of those things and things in my view. Its interesting that a con woman has turned out to be such a threat to the markets in the United States, some of these trade policies have been counterproductive and selfdefeating. That is all going to be true. The larger threat is it will destroy our politics. It d legitimizes people in an arbitrary fashion that is unacceptable in the United States, it undercuts a genesee in the process, and it profoundly corrupts in the end. I am sad to see its specter land on these shores. I think ryan and cato for the chance to say this. I think all of you for listening and i wish you all nothing but a prosperous future. Thank you. [applause] there is still a good amount of time for questions. There will be roving microphones around so weve got plenty of time for questions. I will take one from russ at the front. Thank you. You make a very compelling case, but im going to try to put my National Conservative hat on and ask you a hard question if you dont mind. You described your freemarket model as idealized and the National Conservative would say yes exactly, it bears no relation to our real economy. We have had republican president s and republican governments for a long time promising to return us to this freemarket. It never happened and we have started to suspect it is not going to. In the meantime, we have these big Tech Companies. It always comes back to them. They have developed a monopoly over the marketplace of ideas. Asset managers on wall street, a handful of them, exert a powerful influence over all of the publicly traded companies. This combination has produced an environment where there is an ideological monoculture where if you are a politically unfavored group or industry, they will cut off capital flows to you. They might take your paypal account away. Essentially they are a de facto regime in partnership with the federal government. And that this new reality is such a threat to freedom that we have to accept it instead of trying to go back to this reaganite vision of free markets. How would you respond to that . There are a couple of things about that vision that i think are worth thinking hard about. The first is that it is ultimately an empirical question as to whether there is disproportionate market power in the hands of Tech Companies or Asset Managers or in general. And we hear this a lot, we do. I will present to you the data, we collect a lot of data in the United States, senses of manufacturers, of retailers. We do an enormous amount of Data Collection and my colleague collected all of the data back to 2002 up to 2017, they do it every five years, and if you say the revenue earned by the top four firms in almost any metric and you look industry by industry over that period, you will find no increase in concentration of the United States economy. The factual assertion that the u. S. Is now riddled with monopolies who are dictating to consumers, neither was true in 2002, and isnt true now. Nothing has changed. The way we talk about has changed and the policies we are proposing has changed but the data hasnt changed, so that makes me question the diagnosis and the proposed solution. The second thing is, among solutions, weve never gotten the federal government to the scale, scope that i would prefer that is a reality, there are differences out there and i think it is important for us to respect. But when we find market power is usually the result of the government. If you want to find monopoly power in the u. S. Economy, you will find some place where the interest of someone in the private sector and government coincide. The number one thing to do is not to pay any attention to the incumbents, not to focus your fire on them and say what is good and bad about them, dont even learn their names. Kill them. Allow entry and let them fail. The most important thing america does is let things fail. Thats what we do better than anyone else. If you stop letting things fail, you stop having a market economy. The solution to all of this stuff is not dictating behavior of incumbents, the solution is making sure incumbents dont have a choice but to listen to the customers or they are gone. Great. Next question, yes we will go on that side. Sorry, ive got the microphones running around. Thank you. I have a question on your thoughts on cryptocurrency, deregulation of regulation of cryptocurrency. It seems like the ultimate monopoly in that case is the government and the currency and they own that and nobody protects a monopoly better than a government. And first and foremost not a cryptocurrency expert and i want to be really honest about that. Now, as of this moment, there is nothing that is genuinely a cryptocurrency. You look at the standard definitions of money, currency, stored value, unit measure, nothing general acceptability none of them fit this. Cryptos are at the moment a boutique asset class that have some highly idiosyncratic risks renting from those that appealed to those who wanted to bet on the nfl when they were not playing to very sophisticated measures. If you look at the data, most of the big money is very sophisticated investors. That makes me think at the moment this isnt a particular threat. These are wellheeled, knowledgeable investors using a different set of highly idiosyncratic risks to add actual return to their portfolios. It doesnt seem like a protection matter yet. And they are not held in any significant way on any Financial Systemically important balance sheet. They are nothing like the people of the subprime mortgage a decade and a half ago. So i think they are Kim Kardashian cares so of course we should care. [laughter] but i dont think they are a big economic issue right now. There is more chatter about it banned substance. It than substance. Nigel. Young people appear to have rejected free markets. Why do you think that is and what can be done to reverse it . It is my fault. [laughter] honestly, i think there is there has been a lack of education, Public Education about what are market economies, what are their virtues, and what other failures . They are not perfect, there is no question about that. Because we were not explain how they worked, all we were saying is they worked, markets work. And so my son, today is his birthday. He is 37 years old. You roll the clock back, he is in the formative part of his life when the financial crisis, Great Recession hit, im on the campaign trail with john mccain and i tell him to say things like the fundamentals are sound and we will get through this. They look around and think these people are nuts. Everything in the world is falling apart. Then they say markets work. The bond market thing isnt working, the Housing Market didnt work. And so we did a terrible job of educating a generation in the sources of their prosperity. We took it for granted, we didnt educate them and we are paying the price for it. I really believe that to be true. We have heard a lot today of various kind of underlying gripes or problems that National Conservatism purports to be responding to, whether it is the hollowing out of support the supposed hollowing out of the manufacturing sector, give leaders in the federal government taking issues like Climate Change more seriously than the Opioid Epidemic and other things. If we are being the most charitable, where do you see genuine gripes with our government policy perhaps might have let down people, National Conservatives, that they are trying to appeal to . As a lifelong republican and conservative, i think we offered nothing to a large swath of lower to middle class americans whose economic prospects had disappeared. We offered them nothing in the way of an alternative to being forgotten and that was wrong. It is a lesson i take to heart deeply. Can you hear . Ok. I think there was that, i really do. The early waves were clearly visible to me in 2007 in the republican primaries, i didnt fully understand it that was there already. And the political strength of that population grew over time because they deserved a better deal. We left them behind and i think that was wrong. There is a second piece that is just sort of genuinely the functioning of government. You know, i have been here 20 odd years, i am a certified swamper and the federal government has ossified in a way that is incredibly frustrating i think to everybody and troubling to me. In the late 80s and early 90s, the Information Technologies revolution created this phenomenal whitecollar job loss it was on the cover of all the magazines, the middlemanagement, to take the data, right memos about it, give it to their superiors, and Information Systems made them obsolete. The manager can get astray from the taylor, and a whole layer the retailer, and a whole layer of employment would away. It was frightening to people. We now have a federal government that never did that, they have a gazillion paper pushers writing memos and we have terrible Retail Service in the federal government. We never reinvented the government in the way we should have to deliver Government Services and do things. That is a problem in every agency that needs to be thought about and the opportunity comes with the retirement of the baby boom generation and a whole cohort of federal agency employees. On top of that, and this is the real breakdown, this phenomenon that congress on a their basis has ceded authority to the administration. And a ministration comes in, they dont really know much about the government and they have to cede authority to the civil servants. It is a recipe for disaster because you have now given up the democratic representation of ideas that is in the congress, that is who we elected, to people who are there because they like that topic. It is a real problem and im so pathetic to people who want to fix that. When you put it together about the ones in a decade or once in a century crises like the pandemic on top of that dysfunction is a recipe for all sorts of dangerous ideologies. Weve got time for a few more questions. Im going to try to get to people who havent asked a question so far today. I think this gentleman in the middle. I get that people have been saving the hard questions. Save the best for last. Thank you for a wonderful presentation. Scream at it. Thank you for a wonderful presentation. My question, the fed, do you think the fed is basically damaged has basically damaged free market functioning creating these vast financial bubbles and rescuing them with starting the cycle all over again with massive money creation . So i think the fed has been lessthanperfect. I dont know if i want to characterize it in quite such apocalyptic terms. It has been the case that the world has changed on us, and i dont think we recognize it. When i was trained in economics between 80 and 84, and in the 20th century, Business Cycles were income events. They were called the inventory cycle. The notion was the inventory starts piling up, you doll back production, lay some people off, you get the first downward spiral and ultimately you have to do production and you get the reverse cycle and those were income flows. And we thought about mitigating this from an income flow point of view and discretionary tax cuts and ui fell into that. Without letting us know, business decided to change. We had the dotcom bubble that burst, equity wealth lost, a financial event hammers the real economy, and then the financial crisis, the Great Recession, the housing bubble is about 7 trillion and it is all debt, so highly leveraged, those through the entitled Financial System in ways that were transparent. Enormous recession. Our fiscal tools havent changed so we dont know how to fight this. We had to cede it to the fed, we like financial stability, because if that falls down, we have a recession, so dont let that fall down. That gets them into a different place where they are worried about not letting things fail. You get to that they are making up policies, quantitative easing, forward guidance, and many other things we have seen recently on the fly. The particular way to judge their effectiveness. We find ourselves where we are now. Right now they are trimming their portfolio, which they expanded by 5 trillion in the pandemic, and they have never done that we dont know what the impact will be. What will the fallout be . We dont know. I think there is good reason to be concerned about how much we have relied on the fed, and their capacity, even a wellintentioned fed, they are in a really hard position right now. Im worried about how it plays out. Next question, this gentleman here in front. There is a microphone coming to you. From things you laid out here, what would be next steps to make things better . I am a big believer in Public Education. The truth is, i have lived my adult life on the notion that that informed policymakers make better decisions. There is no empirical evidence that is true but i am staying at it. But i really think we need Public Education. I am deeply concerned about the character of, say, president ial elections and what has gone on. Its not like i was in the best campaign ever, i can tell you lots of reasons why i wasnt, but 2008, were serious tax plans, health plans, serious identification of National Problems and ways they should be dealt with that got thinner in 2012, nonexistent in 2016 and nonexistent in 2020. We are not having a debate about the issues. Those are americas teachable moments, that is one americans who are busy doing things that are far more important like raising families and going to work and going to church, that is when they stop and say ok, what are the people what did the people who are going to run the show inc. Is an important problem . Those are teachable moments but there hasnt been anything on that. The budget problem, if you think about it, my old boss george w. Bush, his statement on budgets is essentially we have to win a war against global terrorism at all cost. The Obama Administration said theres nothing wrong with it. The Trump Administration said nothing. For the 20th century, the most important educator has not said to the American People we have a problem, the problem is the federal budget, it is threatening your future. That is a fact. No one has told him. If you go to fix it and change Social Security or Something Like that, it will be viewed as an ad hominem attack because they have been told this needs to be fixed here. That is the number one thing for me. You have to level with the people about the problems or you cant fix computer the truth telling has not or you cant fix them. The truth telling has not occurred. On that optimistic note, we will close proceedings today. Doug, thank you for your time. We really appreciate it. [applause] [indistinct conversations] cspans washington journal, everyday taking your calls live on the air on the news of the day, and we will discuss policy issues that impact you. Tuesday morning, we discussed president bidens pardon for people convicted of simple Marijuana Possession under federal law. Then, the decision by opec plus to restrict production, its effect on gas prices, and the biden administrations response. Watch live at 7 00 eastern Tuesday Morning on cspan, cspan now, or free mobile video app. Join the discussion with your phone calls, facebook comments, Text Messages and tweets. Tonight, members of the u. N. General assembly reacting to russias annexation of parts of ukraine and other developments in the war. Then a debate for iowas third Congressional District between a democratic representative and a republican. That is followed by another debate with an idaho republican senator and his two challengers, a democrat and an independent. Cspan is your unfiltered view of government. We are funded by these Television Companies and more, including charter communications. Broadband is a force for empowerment. Thats why charter has invested billions building infrastructure, upgrading technology, empowering opportunity in communities big and small. Charter is connecting us. Charter communications supports cspan as a public service, along with these other television providers, giving you a front row seat to democracy. Russia is facing global condemnation for recent missile attacks in ukraine that killed more than a dozen people and left nearly 100 injured. The u. N. General a sibling convened to discuss the attacks and russias recent annexation of ukrainian territory. The attire a simile is possibly days away from adopting a resolution that would label the annexations as illegal and call for the immediate withdrawal of Russian Troops from ukraine
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