Name: A right wing economist makes his case | The Gray Area
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Hey, I'm Sean host of the gray area for the show this week.

I talked to Orrin Cass He's an economist and the founder of the think-tank American compass We discussed the rise of economic populism on the right and what it means or what it might mean For the future of American conservatism.

Oh, thank you for having me I want to start with a quote from something you actually wrote in 2018 because I think it does sum up what's Motivating your whole political project you write our political economy has relied upon the insidious Metaphor of the economic pie which measures success by the amount of GDP available to every American for consumption But the things America thought she wanted have not made her happy So, let's start there, what does that mean what did we think we wanted and why hasn't it made us happy Well, I do you're very perceptive to start there it's funny we were just putting together this this new book called the new conservatives That's sort of an anthology of everything We've been doing at American compass over the last five years And I actually went back and grabbed that essay and made it a prologue to the book Because exactly as you said it it is sort of a starting point certainly for the way I think about a lot of this and You know, I think in my mind What we what we saw go wrong in in our economics and in our politics is That that we did come to think of sort of consumption as the end unto itself And you know to be clear like I I love consumption as much as the next guy I think I'm not saying we should we should go back and live in log cabins But I think we assume that as as long as we were increasing consumption as long as material living standards were rising Everybody would be happy and and we could declare success and and it's important to say in in in economics from a formal perspective That is in fact how our economic models operate economists will tell you their assumption is that the goal of the economic system is to maximize consumption and And so that's where that economic pie metaphor comes from and it's something that was so widely embraced across the political spectrum Across sort of the intellectual spectrum.

I would say it was this idea that as long as you're you're growing the economy you're growing GDP You don't really have to worry too much about what's in the pie or where it's coming from you can always sort of then chop it up and make sure everybody has lots of pie and And I think it's important to say that and this is the point that that we sort of got what we thought we wanted it's important to say that that worked that that for all of the problems we have in this country if You're if you're only looking at material living standards if you're asking how much stuff people have How big their houses are whether they're air-conditioned even how much health care they consume Really at every socio-economic level Consumption is up.

We we did that and yet I think it's also very obvious that that did not achieve what we were trying to achieve that that did not necessarily correspond to human flourishing that that that did not correspond to a strengthening economy over time that it certainly did not correspond to strengthening families and communities and ultimately, it didn't correspond to a strong and healthy political system or democracy and so There's been obviously a lot of Talk about in terms of okay.

But as a starting point, I think it's important to recognize How much sort of debate or confusion there is still about that basic point?

There's still a lot of people right now this month looking around and writing about hey Wait a minute people people have more stuff than ever.

This has been successful It makes no sense that that anybody's upset.

So just to be as clear as possible When you say we didn't achieve what we wanted to achieve you mean it didn't make us happy It didn't it didn't allow us to live flourishing fulfilling lives That's right.

And and I think you know, I don't love the term happy.

I think a lot of happiness studies kind of get very Very sloppy very quickly I I do think though that there's a way in which we can define the ends that we're trying to achieve and You know, I think it's an interesting sort of element of Disagreement within our politics.

That's that's quite natural and healthy is is it is contested What are the ends that that we're trying to achieve?

But to the extent that we that we can agree on certain basic things, like I think we probably want to see Situation where you know People are are building lives that allow them to support themselves and their families that provide a stable environment for Raising kids who are then able to go on and do those same things that we see their health improving that we see life expectancy rising That you know ultimately in the macro economy we we see investment and innovation and growth and progress you know all of those things are very different from just how big is your TV and I think there was an assumption that it would just all be correlated and and you still see this point being made that well Rising GDP is correlated with all these other things.

So just focus on rising GDP and it's it's certainly true You'd rather be a rich country than a poor country, but but there's an awful lot of texture and variation therein and I think if you look at the trajectory that the United States is on and has been for the last 20 or 25 years what you see is Sort of a real decline in a lot of these capacities whether you're looking in economic terms at at investment and growth and innovation And productivity or you're looking in more social terms that had families and communities and life expectancy and pretty much However, you measure it the that rising consumption did not ultimately Correspond with the with the actual ends that I think we we for the most part want to focus on That has definitely been the trajectory to use your word and the strange thing For someone like me is that American?

Conservatism certainly in my lifetime has largely Existed to reinforce the ideology you're rejecting here, and I'm happy to see that pivot But why do you think that political right has been blind for so long to the things?

You're correctly in my opinion fighting for now.

I Think there's a very interesting pivot point that you see essentially around the time of the Reagan Revolution and and if you think about the coalition that that Reagan assembled It had these different elements it had the the social conservatives who I would say are sort of most closely aligned to a Sort of fundamentally conservative outlook on a lot of these questions, but then it brought to that also the the very libertarian Free market folks on the economic side and then also the kind of quite aggressive interventionist foreign policy Hawks and and what all these folks had a common was they they really hated communism and Really wanted to win the Cold War and and saw that as sort of the existential Crisis and test but what happened partly as a result is that I think you know within that coalition a very libertarian free market Mindset was then imposed on on the economic policy of the right of center Even where that was was very much in tension with a lot of other conservative values And and you saw people writing about that at the time from both sides, you know from one side Friedrich Hayek who is sort of one of the ultimate Sort of carriers of this this free market ideology.

That's literally titled why I am NOT a conservative Emphasizing that his you know, what he calls faith in in markets to sort of solve problems and self-regulate Was was very much at odds with how conservatives looked at the world and and from the flip side you had a lot of conservatives Folks like you know Roger Scruton and you'll all have been more recently Pointing out the ways that you know, certainly conservatives like markets They prefer markets as a way of ordering the economy to other options But recognizing that markets are very much in tension with other values like family and community and in some cases markets even actively Can undermine or erode the strength of those other institutions markets are also dependent on institutions If you want markets to work, well You actually need constraints you need institutional supports.

And so that tension was was always present I think that the coalition made a lot of sense in the context of winning the Cold War I made a lot of sense in a context where where markets, you know In the middle to late 20th century really did seem to be delivering on a lot of the things that conservatives really cared about But then I think that it sort of reached its expiration date and and just kind of lived on by inertia into the 2000s into this era of kind of radical embrace of free trade even with communist China and Cutting taxes even in the face of big deficits in what sense is this vision of yours?

conservative because I can imagine a  Leftist listening to this or reading your work and thinking this is just a rebranded Democratic Socialism Why is that wrong?

missing Well, I think there's there's a real disconnect both on the on the ends and on the means I think there's a very healthy contestation over what are the appropriate ends that that we're actually building toward and I think what you're seeing Conservatives now coming back to finally actually articulating a lot more effectively Is a set of actual value judgments about what we do think the good life consists of what we do think is necessary for human flourishing In a way that libertarians are entirely unwilling to write for libertarians It's sort of liberty in the market or the end unto itself and and whatever comes out of that that Something else to say about it I think if you look at you know, certainly my own view and and what you see conservatives focusing on I think there is a set of value judgments and and preferences for You know in many respects quite traditional formations at the family level at the community level Saying that it you know, it is not merely a value neutral choice Would you rather you know get married and have kids or spend more money on vacations in Greece that it is actually appropriate and necessary For the good society to say no.

No one of these things is better than the other And and more important and should be valued more highly You know, I think at the at the national level You're also seeing the it in in what is a much more robust nationalism on on the right-of-center where I think conservatives recognize The the importance of the nation and and sort of solidarity within the nation to functioning markets to a functioning society In a way that at least the modern left tends tends to resist in a lot of cases Well, look, I mean, I'm certainly not here to speak for the political left My own my own views are I think a little more complicated than then, you know neat Distinctions will allow for but and part of the issue here, right?

That is there is no Monolithic left or monolithic, right?

I mean, it's it's not as though it's that it's that neat but I I would say I do think there's a deep tradition of left-wing thought that prioritizes community and Connection and advocates for justice and fairness precisely because it promotes social stability And this is indeed a major leftist criticism of right-wing libertarianism I think there is more overlap on some of these ends than you might Then you might think or then what your comments might imply just now Well, I look I certainly don't disagree that there's there's overlap And and I think even if you sort of think of the a prior version of the right and left you could say the same Thing well, you know, everybody is sort of focusing on Growth and prosperity and and so forth.

There's there's always plenty of overlap and it's a good thing that there's agreement you you wouldn't want to have sort of two political traditions that Literally aren't agreeing on or speaking to each other about anything at all But I I do think to sort of answer the question that you you started with there are very distinct trade-offs and points of conflict between these world views and Again, I don't think that's a bad thing.

I think you want to have different perspectives, but You know when I hear people sort of ask like well, how are the things you're talking about?

I think the answer is well, there's there's clearly clearly quite a lot of space between The things we're talking about and and certainly what the modern political left is is spending its time on and then I think the the other pieces that then I think you see a lot of distinction in terms of the means and and the kinds of policy approaches that Conservatives are more inclined to Partly based on sort of their view of what is and is not likely to work and partly based on Sort of principles around the role of government and so forth and you know the way I always put it is that I think if you if you imagine the libertarians as the group that are kind of Just trusting the market and assuming that well, whatever the market delivers is going to work I think what my perception certainly is that you are tend to hear from the left is much more a skepticism that markets Can work that that markets can do these things or should do these things and and therefore a preference for a much larger role for the state in in in addressing these various challenges and solving these problems and It seems to me that the the conservative view is is more one that you know markets are not going to of their own accord Automatically do all of these things But but that markets properly constrained and and channeled can do a lot of them and and that there are a lot of reasons we prefer market based solutions To state-based solutions.

And so as we think about trying to address a lot of these problems, we're much more inclined to ask Okay, well, you know, what would it take what institutions what constraints do we need?

And so I think as a result you're seeing now in the kinds of things conservatives are focused on Somewhat kind of counterintuitively a lot more interventions in the market intended to hopefully Get markets doing the kinds of things we want to see them doing whereas I think the agenda from the left tends much more to Be about what are the things that that the the state is going to do essentially because the market will not Yeah, I mean I look there's certainly a contingent on the left That just says capitalism is bad as though that's an answer to all our problems.

I'm not one of those people But you know, I do think there's a tendency to speak about capitalism as though It's just an economic system when in fact, it's also an ideology It's also a political morality with its own values and you know we can value family and community and these sorts of things but capitalism values profit and expansion and competition and These sets of values are often in conflict and you know The position of a lot of people on the left is not all that different from yours Which is the market itself isn't the problem the unfettered market is the problem there needs to be guardrails And that you know that role is best filled by the state, but that seems to be your position.

No Well, so, you know, I think it's maybe helpful to kind of get concrete and think about different kind of policy areas And what the implications of it would be I think, you know, one really clear example is when we think about you know, okay To the extent that we've seen really significant wage stagnation for for, you know, the median worker for the working-class You know, what are the solutions to that problem?

And I do think it's fair to say that a lot of the folks on the left Certainly the what what what I hear them saying is a critique is essentially that well, this is what capitalism does capitalism generates sort of returns for capital and In many ways is is designed and intended to Either outright exploit labor or certainly leave labor in a weakened position And that is what it does No, well, I mean I don't wanna get too far afield here again, no, this is perfect You're making my point for me that that you just take for granted Well, of course, that's the case and it seems to me that that's not the case at all that that capitalism in in the abstract is a system that works only if both labor and capital are Working productively and the extent to which either benefits or doesn't it seems to me as a function of the relative power that they have within that market And if you have a situation where capital is is highly dependent on labor to generate profit and workers have power to demand better conditions and in fact The the strategy that is going to generate the most profit is one that requires actually investing on in workers and improving their productivity It seems to me you can you can be a very productive system that that works out very well for workers as well I mean, there are many different ways to do capitalism, right?

in the right system with with the right guardrails, it's Clearly the most successful economic system invented in the history of the species I wouldn't deny that at all, which is why I'm not a let's abolish capitalism person I'm not that at all just to be clear No, and and I don't think most people certainly on the American left are let's abolish capitalism people I do think they tend to Assume that capitalism as operating in the market is not going to generate especially good outcomes for workers and That the way to address that therefore is for instance through more taxation redistribution and I think one problem certainly with with The left in America today is that there are just a number of other values that are placed above outcomes for workers Obviously the importance of addressing climate change gets much higher priority The approach to immigration and frankly a refusal to enforce immigration law has taken much higher priority I think you know at this point certainly in the way that we operate our education System and put it basically all of our eggs on the on the traditional higher education basket has the same effect and so You know, I I think at the end of the day politics on all sides it comes down to trade-offs I think it's very easy to sort of declare that we like all the good things and don't like all the bad things but what What our politics comes down to is how we weigh those different values and what trade-offs were willing to accept And I think what you're seeing today is that Conservatives where certainly they have not done a good job of this in the past are starting to Lean much further into asking.

What can we do that are going to boost the prospects for workers that are going to boost?

The the prospects for for family formation at the expense of other things.

We might like to whereas on the left, I just I Frankly, and I think this is very obvious certainly in the rhetoric of the Democratic Party There is there is another set of things that that tends to command top priority Support for the show comes from Shopify Starting a business is all about turning your ideas into reality and to see it through you need the right tools tools like Shopify Shopify is a commerce platform behind millions of businesses around the world and they say 10% of all e-commerce in the US from household names like Mattel and Gymshark to brands just getting started Like dr. Sean Ellings drillings and fillings and the gray area sole patch die for hip cats Who want to look as young as they feel?

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Conservative alternative actually looks like what you want to do Differently now that we have the diagnosis, right?

These are the problems you're reacting against What is it that you want to do to fix this?

What is your conservative project look like?

Well, there are lots of things and I think you know, generally speaking When we think about we break it into kind of two big buckets one that is focused on on a lot of these broader Macroeconomic issues You know, how is the economy functioning?

And and then the other one is is the much more kind of micro op economic issues that are focused much more on You know, what are the supporting institutions that that are helping people to succeed in these markets?

and and so I guess you know, we can talk through both of them if I were to start on kind of the Market side and the question of sort of how do we actually get back to productive markets?

Where we start from certainly is and you know I'll go all the way back to Adam Smith and he has this concept of the invisible hand and it's I think actually very Unfortunate metaphor because it sounds magical Right, like what invisible hand that that sounds like like just that takes care of everything And if you actually look you only use the term once in the wealth of nations uses the term once and he uses in a paragraph That actually is about all of the requirements if What you need if you want the invisible hand to work and and what he says is first of all You need people he's assuming that that people are going to prefer domestic to foreign investment and he's assuming that the thing that is going to generate the most profit is expanding output and employing as many people as possible and His point is if those two things are true If people who are trying to make a lot of money a want to do that Domestically and be want to do that by investing in growth and employment then People pursuing their own interest will also advance the public interest.

It's I think that's true it but it's it's not magic, it's almost a truism and What it gives you I think is still even today a very helpful road map to Thinking about markets, which is to recognize that the whole project here is to align private and public incentives and if the things that are going to earn people a lot of money are Also things that are going to be good for workers good for the country Then the system will work really well.

And so the question is what are the policies you need?

I totally agree with that if I'm a leftist, I'm an Adam Smith Leftist, I think the theory of moral sentiments is just as important a book as the wealth of nations Right, but well to be clear and like also love the theory of moral sentiments This is even just within the wealth of nations.

This is what he's actually talking about And so I think it's then very straightforward to actually look out across the last, you know, 30 years and say, okay Well, what are the ways that sort of broke?

What are the ways that the ways to make a lot of money are no longer?

The ways, you know things that actually we think are going to be good for the economy good for workers good for the nation One obvious one in my mind is globalization that the moment we released the constraint on There is an advantage in investing domestically and said actually if there's more money to be made shutting down your factory and opening one in China Have at it.

We we entirely lose the right to expect that markets are actually going to deliver on the things we care about I think a second one is is what we call financialization which refers to just the sort of Metastasizing role that that financial markets play in our economy To be clear financial markets are very important.

The idea of allocating capital efficiently is vital to capitalism, obviously But what our financial markets have become is sort of an end unto themselves where the most money to be made in our economy is made Essentially trading piles of assets around in circles doing financial engineering figuring out ways to get more cash out of existing operations Ideally while cutting them down in a lot of cases and so again If you say well the the place where the top Students from the top business schools are going to go and for that matter the top engineering students from the top engineering schools is Not to starting new businesses and creating new products and making people more productive It's to starting hedge funds and seeing who can set up their office Closest to the trading floor to front-run each other by a millisecond in their trades You lose the right to expect that people pursuing profit is going to generate good outcomes to the economy The the third area I would mention here is and this is one where I think there's certainly a lot of interesting Overlap at the left is is the idea of industrial policy and just the recognition that you know The way that the economy has evolved is is one in which generally speaking sort of making big capital Investments in physical assets that take a long time to pay off has become a lot less attractive than like raising venture capital money to make an app and The fact that there's a higher return on capital making the app Has no correlation to which activity is actually more useful to the society And so if we actually think that that making things matters if we want to do more manufacturing If we want to have those kinds of jobs You are going to have to have some sort of policy that actually Either rewards that kind of investment or discourages the other kind of investment.

Well, this gets at a question I have and I know it's a question a lot of people have because one thing you notice when you listen to a lot of economic populist on the right is When they talk about the kind of world they want to live in they usually point to that Mid-century economy where there were all these manufacturing jobs and that was the foundation of the economy But that world is gone and I'm not saying there aren't industrial policies that can improve the situation, but we're not going back To that world.

We're not undoing Globalization, so it's not clear to me what the 21st century version of this economy looks like.

We're talking about the world of AI and the Internet.

It's a service economy We're not all going to be working on assembly lines in Detroit or Cleveland, right?

Well, I feel like you sort of just strung together a lot of assertions there are some of which I agree with entirely and some of which I don't think follow at all and so just to try to sort of Untangle those a little bit.

Yeah You're certainly right that the modern economy in the economy of the future is going to look very different from The economy of what is you know, increasingly a century ago The kinds of jobs are going to be very different.

It's going to be a relatively more services focused economy That doesn't at all mean that there's no undoing of globalization or certainly scaling back the excesses of globalization It doesn't mean that we can't have a much healthier industrial economy with more of those kinds of good jobs It doesn't mean that those kinds of jobs aren't still very important to the Foundation of local economies and the health of those service economies So the reason that our manufacturing sector has atrophied the way it is is not because we've become a services based economy and people don't Want a lot more manufactured stuff it's because we embraced a policy approach that said well, we're just not going to make the stuff and The second reason that's really important to focus on is because it's really important Remember that the theory of globalization was not and the theory of trade generally going all the way back to Adam Smith is not We stop making stuff someone else makes the stuff instead The theory is supposed to be and this is implicit right in the word trade We will make some things that we are best at making and others will make things that they are best making and we will trade the things we make best for the things they make best and If that had happened and to the extent that that does happen, I think trade can be fantastic But what we've gotten instead and where globalization has gone wrong Is this model that simply says we will not make any of the stuff and by the way We don't get the stuff imported for free.

What we send back is assets We send back the future claims on our economy in the form of debt in the form of equity in the form of real estate And so, you know Warren Buffett made this point back when we were first starting to do this in the early 2000s that this was Doubly foolish we were both hollowing out our capacity today and mortgaging the farm for the future and so You know, I've now sort of gone on a bit in an attempt to kind of untangle the things you were saying but I would kind of play that back to you and say like Is any part of that wrong does any part of that not seem, you know?

Consistent with how you would think about it because if that is right then the whole like well, we're not gonna reverse globalization It's a services economy is it's just sort of a non sequitur.

It doesn't speak to the problems we have or the solutions We have available.

No, I was just saying I Just don't know what?

That world is gonna look like I'm not saying that we can't have a better economy without you know recapitulating that you know, the Economy of the 1950s and 60s or whatever.

It's just it's just gonna look very different Absolutely, but why but it doesn't seem to me to be hard to envision.

I mean We we know all sorts of stuff that we make we know stuff lots of other really developed economies make I mean put China To the side as as a sort of relative to the size of their economy.

We have almost as big a trade deficit with Germany Right.

I mean we see, you know in a Germany a Korea Taiwan we see, you know Highly developed economies with very high levels of productivity with very good jobs in their manufacturing sectors That don't run massive trade deficits that in fact run trade surpluses and and I don't think anybody's saying well The u.s.

Has to kind of become an export let economy and you know run giant surpluses.

Why can't we either make more of the stuff that we consume here or be making stuff for export?

To trade for more of the stuff that we import the burden of proof is almost in the wrong place The better question would be why on earth isn't that what's happening?

How much pain do we have to suffer to to bridge from this world to that world?

I mean Do you think that Americans simply?

Need to consume fewer goods at higher prices.

So long as those goods are made in America I mean, do we just have to take a little bit of economic pain as we undergo this transition?

I In the transition and so I don't want to minimize that and we can come back to what what that looks like I do think it's important to say that as a long-term matter This is better You know One of the most shocking statistics that that I always highlight for folks is that it's not just that productivity growth is slowing in manufacturing Productivity growth in our manufacturing sector has actually been negative for a decade We've we've literally been getting worse at making things you need more American labor in a factory today Then you did a decade ago for comparable output that that shouldn't be possible in a capitalist economy That's crazy.

And so the alternative, you know people look at that and they say like, oh, well, we're really bad at manufacturing If you like insisted on doing a lot of that, that would be really painful But but that's a bizarre static analysis If we actually made this a priority and we're investing in it and and committing to Building that sector.

That's not what investment and productivity in the sector would look like at all And so I think we should have a lot of you know On one hand confidence that that a more balanced economy would be a stronger one in the long run And we should also be really Focused on the costs that we're bearing now Right because it's not like well by doing things this way everything's awesome by doing things this way We do have a lot of cheap stuff but I would suggest that that actually it's right now that the American people are bearing a lot of economic costs of bad choices and We do that there.

I don't think people like that trade-off.

I Just want to be as concrete as possible.

I don't want to talk about the economic pain in abstract terms What kind of pain are we talking about for how long on whose shoulders will it fall and This this element of sacrifice here, right if we're going to ask people To give up certain conveniences certain comforts certain privileges in some case For the sake of some greater good, what is that greater good?