A Progressive Vision for the Economy

Since it was founded 23 years ago, the Center for Economic and Policy Research has sought to challenge the right-wing consensus that often rules economic policymaking in Washington, D.C. CEPR co-founder Dean Baker joins Jon Schwarz to discuss his career, his thoughts on the Biden economy, and his ideas for the future.

[Deconstructed theme song.]

Jon Schwarz: I’m Jon Schwarz, a writer at The Intercept, filling in for Ryan Grim on this week’s episode of Deconstructed.

Most people with a progressive perspective are used to hearing fancy Ivy League economists tell them: Sure, it might be nice to have a country that worked for regular people, but sadly, as you can see from the lines on this graph, that is impossible. It’s just science.

Today on Deconstructed, I’m talking to Dean Baker, an economist who makes the case really convincingly that that’s just wrong, that the lines on that graph don’t have much to do with reality, and the United States could, in fact, provide a much better life for regular people. I worked for Dean long ago, just for a short time, but it was long enough to make me believe that he would be one of America’s most prominent public intellectuals, if we cared about things like the public or intellect.

I hope this episode of Deconstructed will get even more people on the Dean Baker bandwagon. We talked about many of the greatest hits of his career, including the role he played in helping thwart the privatization of Social Security by just asking super simple questions, and how he was a voice in the wilderness in the mid-2000s warning about the housing bubble — which then did burst and almost destroyed the world economy. Then we talked about some of his interesting and exciting ideas for the future. Of course, “interesting and exciting” is not a phrase that usually applies to economics, but it actually does here.

Dean Baker works at the Center for Economic and Policy Research, a progressive think tank in Washington. He’s written many books, the most recent is “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.” You can get that via his website, for free.

JS: Dean, thank you so much for coming on Deconstructed. It is great to talk to you.

Dean Baker: Thanks a lot for having me on.

JS: So I would like to start by saying why I personally get so much out of what you do. And there are two reasons: The first is that I believe the United States, like most places on Earth, is run by bullies. And some of it is straightforward, physical bullying, up to and including killing us, although by historical standards that’s, thankfully, pretty rare, at least inside of America. The bullying that they use is intellectual bullying. And what I admire is how you stand up to the intellectual bullies, just in defense of regular people. And, I think, inspire other people to think that they can stand up to this bullying, too. So that’s number one.

And secondly, in America, it’s supposed to be good to be creative. But creativity is defined very narrowly — making a movie or writing a song or something. But I’d say that you are extremely creative in a way that doesn’t get recognized because you are continually coming up with ways to use the tools of economics, some of which are very valid, to make life better for everybody. So I’m wondering, do you think this describes what you’re up to in general? And if so, what is it in your background that gave you this mindset? Can we blame your parents? Are there other people who need to be held accountable? What happened to you to set you on this path?

DB: Well, that’s very complimentary. I guess you could blame my mother. It’s all her fault.

But probably the biggest thing — I came to Washington in 1992, and began working on Social Security — and at that time, I was inclined to have more respect for the economics profession, in the sense that I assumed that the people, at least the leading lights in the profession knew what they’re talking about, that they were smart people, I’m sure they are smart people, but that they thought through the angles, and there weren’t easy ways to get them. So that you had to really do your homework, and read things carefully, and look through things 10, 20, 30, 40 times, because they had gotten all the easy ones. So it was gonna be very, very difficult.

And in the course of the Social Security debate, I was really obsessed with Social Security, because there are real efforts to cut it. This is, I’m thinking, the early, mid-90s — really it was bipartisan. You have plenty of Democrats, I’m happy to blame Republicans, but there are plenty of Democrats — Daniel Patrick Moynihan was very anxious to cut Social Security; Clinton had gone along with a plan to cut Social Security. So it was really bipartisan. And to my view, it’s a tremendously important program, both because tens of millions of people depend on it, but also because it’s kind of a model, because it’s just a great success. It does what it’s supposed to do. So if you like government, social programs, Social Security is a fantastic model: there is very little fraud, it keeps tens of millions of elderly out of poverty. So it does exactly what it’s supposed to do very efficiently.

So I thought: It’s a great program, we had to protect it. And I was determined to do everything I could to protect it. And in the course of it, I just was kind of amazed. I’ll just mention two things, they are both important, and they amaze me in terms of what the profession missed, basically, So one of the items, when I mentioned Moynihan, the way he wanted to cut Social Security was to reduce the annual cost of living adjustment. So as it stood then and as it stands now, people’s benefits are increased in accordance with the rate of inflation, as measured with the Consumer Price Index. So Moynihan got a bee in his bonnet, that oh my god, the Consumer Price Index overstates the true rate of inflation. And he got this crusade that, oh, we’re going to adjust Social Security for the true rate of inflation, not the Consumer Price Index. And that was at least one percentage point less, he had some experts come in saying one and a half, some even said two.

So you got all these economists out there, and it was really very much consensus within the profession. There were a few outliers. But the overwhelming majority of economists weighing in on this were saying: Yeah, it overstates inflation, one percentage point, maybe more, but one percentage point. I won’t go through all the gory details, but one of the points that I was making, and I was trying to put together the case arguing the other side without many allies, but one of the points I was making is: OK, let’s say that’s true. Let’s say the Consumer Price Index overstates the true rate of inflation by one percentage point — pick a different number, if you’d like, but make it one percentage point. Well, what that means is that real wages, real income, they’ve been rising by one percentage point more rapidly than we thought. And if they’d been rising more rapidly, that means that we were poor.

So just to ignore compounding, just the simple arithmetic, if you go back 30 years, and the Consumer Price Index overstated the rate of inflation by one percentage point a year for 30 years, then we go back 30 years, we’re actually 30 percent poorer than if we just looked at the data. And what you could show is that in the fairly recent past, most of us would have been living in poverty. The median household income in, say, 1960 — I’m looking back from, say, 1995 — the median household income in 1960 would be below the 1995 poverty level. That didn’t seem to make a lot of sense.

Going the other way: If, in fact, incomes are growing one percentage point more rapidly than we thought, well, then our kids go out 20, 30 years, they’re gonna be way wealthier than we ever could have imagined! Because it’s very hard to raise income growth by a percentage point a year. So I was making this point, which is, to my mind, simple arithmetic. It’s definitional. And I was finding economists were looking at me with blank faces, like: What are you talking about? And I’d be talking to them — not deliberately — but like they were third graders. I’m just going: One percentage point! That means we had one percentage point more income growth. And that will continue.

Anyhow, the fact that I had such a hard time convincing economists at elite universities, that this has to change how we look at the world, how we look at the past, how we look at the future, it was just mind boggling to me — I couldn’t believe that this is anything other than you say it, and they instantly understand it. And, again, I don’t know whether it’s motivated reasoning. They’re not stupid people, I don’t think any of them are stupid people. But they were so entrenched in their way of thinking and their desire, I’ll say, to cut Social Security, they really, I think, to this day, many of them did not understand you can’t just change the Consumer Price Index, say it’s been overstating inflation by a percentage point, and not have a totally different view of our recent past and what we think about the future. So that was one item.

The other one was there was this big effort — again, it was bipartisan — to put Social Security money into the stock market. Now, the Republicans all want to have individual accounts. They wanted to privatize it. So instead of paying into Social Security at 12.4 percent, we only pay in maybe 7.4 percent, we take our other five percentage points, put it into a stock fund, and it would be managed by their friends on Wall Street. Needless to say, they would get a lot of money. So that was their plan.

The Democrats, on the other hand, said: Oh, we’re going to make social security much better off. We’re going to take the trust fund, we’re going to put much of the trust fund into the stock market. Now, one of the things I was looking at was at that time, the stock market was very high, as it is today. And they were saying that we’re going to get the same stock returns that we did historically, back over 50, 60, 70 years. And they said the stock market gives you 7 percent real returns, if you look at a long period average, a 10-year, 20-year average gives you 7 percent real returns.

So I said: Well, that doesn’t make sense to me because the stock market’s very high price-to-earnings ratios, in other words, are very high. And we have projections of profit growth in the Social Security projections. So that’s not to say that they’re right or anything, but we want consistent projection. So if we think that that’s how much profits are going to grow, and we’re looking at projections for Social Security, we should also use those same projections if we’re looking at what stock returns are going to be. And what I did, again, very simple arithmetic, I just said: OK, if we’re gonna get 7 percent real returns and profits are only growing 1.5 percent a year — and that’s what their projection showed, it might have been 1.7, I’d have to double check that — but, in any case, under two, how are you going to get 7 percent real returns per year?

And I showed that you either have to have a story where they’re paying out more than all their profits as dividends, and no one thinks that makes sense, or, alternatively, you’d have price to earnings ratios of like 200 or 300 to one, and no one thinks that makes sense. And again, this was just simple arithmetic.

But again, I had a hard time. I was arguing — people like Larry Summers are going, Oh, 7 percent real returns. Most prominent economists in the country — Martin Feldstein on the other side, 7 percent real returns. I was going: There’s no way you could do that. It doesn’t make sense. So there too, there was nothing complex about this. It was about as simple as it could be. But they were so set in their ways; they didn’t want to look at it. They didn’t want to say: Oh, yeah, maybe we can’t get 7 percent real returns. The numbers won’t add up. So those two together, led me to believe that — again, I’m not questioning their intelligence, I’m not in the business of doing IQ testing — but there are a lot of very low-hanging fruit where they just don’t want to think about it.

So that’s kind of the approach I’ve had the last quarter-century: that I shouldn’t assume that they’ve thought through all the angles, and there’s no easy pickings there. Because, very often, they haven’t thought through the angles. And there’s a lot of very simple things in front of their face that they’re not seeing.

JS: Yeah, and since I witnessed the Social Security battle up close involving these people on this issue — so people understand: Traditionally, what you would like to do is buy low and sell high, right? But because the stock market was so high in the late 1990s, this was a situation where they were recommending that everybody buy high. And how could you get the historical returns if you’re buying in the stock market at these ridiculous heights of that moment?

And I specifically remember Martin Feldstein — people probably don’t know who he is, if you’re a normal human being — but in the economics profession, certainly my understanding is that he is the top of the tippy-top. He’s as fancy as you get. And you wrote this letter asking people to explain how you could get the 7 percent returns, and send it to a million different people. The only one who responded, as I remember, was Martin Feldstein. And he was incredibly condescending, and said something along the lines of: I think it would be good if you stop wasting everyone’s time with this simple mistake.

And, in fact, he was the person who was wrong. You very politely wrote back to him. And, as I recall, he never responded, because he realized, in fact, that he’d been wrong and incredibly condescending. And that’s what I have in mind in terms of talking about you and intellectual bullies. Like that was his approach. He was wrong. He wanted to bully you into silence, and he failed. And I’ve always admired that. And I think people should follow you and the work that you do, because you are so good at that.

DB: Well, thanks. And yeah, no, I remember that well. [Laughs.]

For people not familiar with Martin Feldstein — you’re right, normal people wouldn’t be — he passed on about five or six years ago. But he was a professor at Harvard for many years. And he was also the head, the president, of the National Bureau of Economic Research, which is tremendously important in the economics profession, because if you’re a National Bureau of Economic Research Fellow, that means you could have all your working papers put out by NBR. And they’re circulated to all the top economists or MBR fellows. So it’s an enormous stepping stone. And I’ll just say not getting into details here, you could find good liberal economists who were NBR fellows, but there definitely was affirmative action for conservatives, I’ll just put it that way. And I don’t think that was accidental.

The other thing Feldstein did, which I give him credit for, very devious, he taught the intro econ class at Harvard for decades, and this was the sort of thing most Harvard professors don’t want to do they want to do their research, they don’t want to be bothered with freshmen, sophomores asking stupid questions. Well, it was very clever, because here are all of these bright, ambitious kids at Harvard, and they’re interested in economics. Well, they get Martin Feldstein! And you either stay in economics and you’re likely to do Martin Feldstein-type economics, or as I’ve known many people, they go: That’s disgusting, I’m gonna take sociology, I’m gonna take history — whatever, and he chases them out of the profession.

So it was very clever of him. And he really played an enormous role in shifting the economics profession to the right over the ’80s, the ’90s, and into the first decade of this century.

JS: Yeah. And I think we shouldn’t let this moment go by without also recognizing one of his other accomplishments, which is that he was on the board of AIG, which people may remember was the insurance company that helped destroy the world economy in 2007 and 2008 with credit default swaps. So he was there supervising that as well. He did a lot in his life.

DB: That’s right. And I’m sure he made lots of money on that board. He played a starring role in the film — I’m drawing a blank on it now. Anyhow, it was a film about the crash. And he was asked: Did he have any regrets? And he paused for a moment. And then he goes: No regrets. (In his role as a director, that he hadn’t said anything.)

JS: Yeah. And so I think that, apart from the specifics of Martin Feldstein — really, what I learned from following this along, as you were working on it, was, what you’re talking about. Is that at the very top of U.S. society, the people who are supposed to be the smartest, the people who are the most sophisticated, are absolutely blind, to what they’re doing.

And I helped to fact-check the book that you co-wrote about Social Security, which is called “Social Security: The Phony Crisis.” And what I came to believe was that every political issue in the United States is like Social Security. It’s all lies and nonsense, for the most part. Everything is a phony crisis.

And, in fact, having learned that was one reason why in 2003 I bet someone $1,000 that we were going to invade Iraq and find no weapons of mass destruction. Because it followed the exact same template. It was a phony crisis. It was convincing on the surface, but if you poked it a little bit, it immediately collapsed. And so I would encourage people to understand that, that you can just nudge these things just a little bit, and like the entire edifice collapses into dust.

DB: Yeah, well, I think that’s very much true. And yeah, I remember the lead-up to the war very well. But, to be honest, I never thought we’re going to invade, I actually thought Bush, I thought this was about getting him through the 2002 elections, because his popularity had plummeted — and we were in a recession, of course. And I had assumed that this was about getting them through the elections, having a good 2002 election, and then he was going to, after being all belligerent and everything, he was going to say: Oh, it was all about getting the inspectors back. And actually, as you and I know, Saddam Hussein never threw the inspectors out. But, whatever! He would say: It’s all about getting the inspectors back, we had to convince them we were prepared to invade. And that led him to back down, and then he could declare victory. And everyone would be happy. I’d be happy! [Laughs.]

But anyhow, he did invade. He had other intentions there. And of course, the story about weapons of mass destruction was a joke, as we know.

JS: So let’s then move forward a little bit, past Social Security, past the Iraq War, to the gigantic housing bubble, and how that eventually came to create the biggest recession since the Great Depression in the 1930s. And you were there at the time. And what were you saying about it? And what were you warning people about?

DB: Well, we had just been through the stock bubble. And this is, again, one of the things that isn’t fully appreciated. We actually had a pretty bad recession in 2001. I just saw on Twitter some economists saying: it really wasn’t much of a recession. We went four years without creating jobs. That’s the only time that had happened since the Great Depression; it happened again with the Great Recession, after the collapse of the housing bubble. Point being though, that bubbles collapsing, when they’re driving the economy — and the stock bubble was — they have serious repercussions. It’s not easy to replace that demand.

So I was writing, beginning in 2002, going like: Well, houses are really driving the economy now. Is this a bubble?

And it’s kind of funny, because what actually convinced me was Alan Greenspan gave testimony on this, I think it was April 2002, and he gave reasons as to: Oh no, the house prices, this is justified by the fundamentals — and none of the reasons he gave made any sense.

So again, it’s one of these things: If you have good reasons, like if you really have evidence of weapons of mass destruction in Iraq, you present the good evidence, you don’t present nonsense. So here’s Alan Greenspan, chair of the Fed, he has plenty of economists working for him, and the reasons he gave as to why the run-up in house prices made sense didn’t make sense. So I was very convinced at that point that we had a bubble. And, of course, the bubble kept growing — kept growing way longer than I would have expected, in large part because we had such bad financing, the flood of subprime, and all-day loans. All day loans, I won’t get into details here, but all day loans were even worse than the subprime in many ways. But, in any case, that kept the bubble going through 2006 into 2007. And to me, it was very evident, when it burst it was going to be really, really bad news.

Now, of course, we had the financial crisis, which was, to my view, kind of inevitable fallout. I mean you have all these loans backed by the value of houses, and houses lose half their value, which they did in many years, some cases 60, or even 70 percent. But in any case, nationwide, they lost about 30 percent — more than 30 percent — you get a lot of bad loans. And naturally, the people holding those loans and their books are going to look really, really bad.

But to my view, the most important thing was that the bubble was driving the economy. And you could see this. I mean, it wasn’t like you needed some magic crystal ball. You just looked at the quarterly GDP accounts — residential construction usually is around 3 percent of GDP, 3.5 percent — it peaked at almost 7 percent of GDP. So putting that in today’s dollars, if you had 4 percentage points of GDP, let’s say — that’s a little bit of an exaggeration, but just for simplicity — four percentage points of GDP would be $900 billion a year in annual demand. Everyone was celebrating the bill, the IRA just passed and signed by President Biden: That was $700 billion over 10 years. This is $900 billion over one year.

The other part of the story was there’s a huge surge in consumption because people were borrowing against their homes and spending it. People would take advantage of the fact that they had a home that they’d bought for $200,000, it was now worth $400,000. So they would borrow against that additional equity: They’d use it to take a vacation, maybe they’d remodel their home, maybe they’d pay for their kids’ college — it wasn’t necessarily a wasteful thing to do. But the problem was, if the price fell back to $200,000, you suddenly were underwater in your mortgage.

So that consumption also disappeared. And that was the basis of the Great Recession. We saw a massive fall-off in demand that could not be easily replaced. Now, if we had a big enough stimulus — sure. And people would say, I’d have arguments with left Keynesians who would say: Well, we could just spend more! Which we could. But the politics wasn’t there, as we know.

So basically, to my view: We’d gotten ourselves in a situation where the collapse of the housing bubble guaranteed that we would have a severe recession, which of course we did. And again, it also gave us the financial crisis. And that was one where the Bush administration originally with the TARP, but then the Obama administration followed through, they acted to protect the banks. And we end up with an even more concentrated banking industry after the collapse of the bubble than what we had before.

JS: And now I should mention that the same thing that was true with Social Security was also true with the housing bubble in the sense that in 2005, I interviewed a guy named Greg Mankiw, who is a professor of economics at Harvard, just like Martin Feldstein. He is almost as fancy as Martin Feldstein. He had been the chairman of the Council of Economic Advisers in the George W. Bush administration.

By this point, when I talked to him, he had left. He had gone back to Harvard. And so, again, it’s 2005, the height of the housing bubble. I asked him about that. I asked him if he had any concerns. And he refused to even accept the premise — the idea that there was a housing bubble. And he was outraged at the idea that mere humans could say that there were such things as financial bubbles, that we could disagree with the market, that the market was not providing the correct value for everything. And I mentioned some of the things that you’d written. And he really sputtered and was very, very angry about this. And he said: Well, so if this guy Dean Baker thinks this, why doesn’t he just sell his house?

DB: Yeah, well, I did sell. I had a condo in Washington, D.C. that I did sell in May of 2004, which turned out to be very close to the peak of the market for that particular area. I mean, I was not expecting to get the peak. My wife is also an economist, and we would have felt like idiots if we were holding on to a condo that had basically tripled in value since we bought it, I think it was eight years earlier, back like ’97. So we would felt really stupid if we had held on to it and its price plunged. So that was our reason for selling it: We didn’t want to feel really stupid. And as I say, we did happen to get very close to the peak, which wasn’t our expectation. It was just self defense.

But yeah, we did act based on what we thought to be the case. I should also say, [laughs] for better or worse, I got my 401K money out of the stock market in I think it was March of ’98 — I wish I could have said March of 2000, which was the peak, but in any case, I do act when I become convinced of something like that, I do put my money where my mouth is. I don’t have that much money, but that’s part of the story. I don’t want to see it disappear, because there I am saying: This is a bubble, this is a bubble — and then it collapses and I go down with everyone else.

JS: Yeah. And so you took the action that made sense, as I understand it. You sold your condo, and then rented until the bubble collapsed and then bought again.

DB: Yeah, and then President Obama was nice enough to give me a first-time buyer’s tax credit, because if you hadn’t owned a home for three years — in our case, it was about five — you were eligible for, I think we got $8,000. Horrible policy, just to be clear. I argued against it. I wish they hadn’t done it. But, in any case, they want to give me 8,000 bucks, I’m gonna take it. [Laughs.] Anyhow, yeah. So that was the story.

[Musical interlude.]

JS: So let’s come up to the present day: The incredible malfeasance of the people who run the United States — intellectually, morally, financially, in every way — what do you think is going on in the economy right now that people do not understand, that is not being portrayed accurately?

DB: Well, there’s been this real effort in the media to just trash the economy under Biden. I’ve really never seen anything like it. And just to be clear, I understand a lot of people have a hard time. Just — let’s use a little common sense here: 10 percent of the population, roughly, is in poverty; take another 10 percent, they’re not much above it. So you could say 20 percent of the population at any point in time is struggling.

So if I want to show you someone who’s got a kid, two kids, are working part time, maybe they’re working full time, they’re trying to pay the rent, they’re trying to put food on the table, you could find millions of people in that boat anytime you want. So you could pick the very best years of the economy in my lifetime. So let’s say 2000, everyone thinks that was a good year, and it was: There were 20 million people who were struggling to put food on the table. 2019, before we had the pandemic, again, a comparatively good time — again, tens of millions of people struggling to put food on the table. They aren’t typically front and center in the news. The media has decided to put them front and center in the news. That’s a choice by the media. That’s not reflecting economic reality.

And the points I’ve been making have been actually people at the bottom have done comparatively well. So if you look at wages, I’m picking restaurants and hotels, just because it’s the lowest-paid sector. I understand not every low-wage worker is in restaurants and hotels, but it’s a low-paying sector. If you want to work in it, it probably isn’t that hard to get a job in restaurants and hotels right now. Their pay is up over 20 percent over the last two years. That far exceeds inflation.

So when we hear these stories: Oh, people at the bottom are really hurting. Yeah, there are tens of millions of people at the bottom that are really hurting. Is it worse off today for them than it was in 2019? Well, for most of them, actually, probably not. If they have a really bad job, if their boss is a jerk, they could quit and get a new job. And we have that in the data. So they keep telling us how much people at the bottom are hurting. That’s not reflecting the actual situation of people at the bottom — which again, I recognize tens of millions are really hurting. But the point is, they didn’t say this in 2019. They didn’t say that in 2000. That’s the choice of the media.

So you have a lot of people who are actually doing pretty well, in the scheme of things, again. You give someone who’s earning, just at the poverty line, a 10 percent wage increase, say in excess of inflation, they’re still doing poorly. I recognize that. But that’s not the way the media ordinarily talks about the situation. So that’s one part.

The other part again, talking about inflation, they’ve gotten a little bit better. But you know, there’s been this tendency to blame Biden, his recovery package. And you have some villains here. Larry Summers, my old pal — I’m saying that half cryptically — I know Summers. We get along, sort of. But in any case, he’s been very much: Oh, that plan was so horrible, this and that. Well, you have the same inflation — England’s over 10 percent. The European Union, it’s about eight and a half percent, I have to check the latest number. They’re the same as the U.S., some cases higher, some cases lower. The idea that somehow this is all Biden, his horrible recovery package, that’s nuts! I mean, just nuts. So the idea that he should be blamed for this, that really doesn’t make sense. It’s sort of like if we had an area that was devastated by a hurricane and flooding. And then we suddenly went to the mayor or governor and said: What’s going on here? You have all these people without housing? Well, there’s kind of an obvious explanation for it. And that’s pretty much the story here.

So I think that’s what’s being missed. And really, on the one hand, obviously, there’s electoral implications. We have an election coming up in the not-distant future. But the other issue is the Federal Reserve Board has been raising rates to combat inflation. And if it’s combating inflation, that isn’t caused by an overheating economy. In other words, it’s caused by the pandemic shutdowns, by disruptions associated with the war in Ukraine, then it’s gonna be throwing a lot of people out of work for no good reason. And that’s a very, very big deal in my book. So they’re talking about people hurting now: Well, if we raise the unemployment rate two or three percentage points, we can have a lot more people hurting. They’re not going to feel better.

JS: Yeah, and for me, it’s impossible to miss the class conflict aspect of this because one thing you see — especially in business reporting, in the Wall Street Journal and other places like that, is how eager sort of the employer class is to smack people down, who now have leverage that the business class feels they do not deserve. And unemployment is only 3.5 percent — as you said, all the things that are great from the perspective of if you’re a regular working person. There are all these jobs available, if your boss is treating you like crap, you can quit and go someplace else. The Wall Street Journal recently had an op-ed by a business guy that was headlined: “A Rude Awakening Is Ahead for Young Employees: A Recession Will Hand The Bargaining Power to Their Bosses.”

DB: Yeah, it is kind of striking that we see these two things side by side. And at least relatively few people in the media seem to capture that, that on the one hand, you can’t tell a story where: Oh, things are so horrible, workers are quitting their jobs all the time — meaning that they have the option to take better jobs. And then at the other hand, that, Oh, things are so bad for these low paid workers, those don’t go together. So either could be true, but they can’t both be true at the same time. I’ve often said in my debates that: I’ll give you whichever position you want, but I’m going to hold you to it. So if you want to tell me that oh, these low-paid workers, there’s no discipline, they could just quit their job: OK, fine. That’s what you think. Don’t then tell me how bad things are for these low-paid workers. Those don’t go together.

JS: And so, beyond talking about the past, and the present, let’s just make sure to talk a little about about the future and how you envision how the future could be, because as I said, you are continually creatively suggesting ways to use the tools of economics to make things better for regular people. And there are two in particular that I’d like to ask you about: One is your concept of artistic vouchers, as you call them. And what would these be? And what is the rationale for them?

DB: Well, I’ve looked at copyright and patents. I don’t know if your next question is gonna be on patents; I won’t go into too much. We can come back to it. But I looked at copyrights and patents as interferences with the market. And it’s just kind of mind-boggling to me how many people, including economist-type people talk about these as being the free market. And they’re quite explicitly not. These are government-granted monopolies. Now, of course, they serve a purpose. So in the case of copyright, the idea is we give you a copyright, you write a book, you make a movie, you make a record or record music, no one else could copy it without your permission, they have to pay you. OK. So that means that you get a return.

1. So that’s a policy. That’s a government policy. And it’s a clear intervention in the market, so we can decide whether it’s good or bad, but the fact that’s an intervention of the market is not really debatable.

Now, I’ve been looking at the decline. Well, two things, one, a lot of abuses associated with copyright. I mean, there have been issues where the Girl Scouts, I remember them as the campfire girls, were sued because they sang copyrighted songs around the campfire and apparently they weren’t paying the copyright holders. So I mean, you can find all sorts of things like that: absolutely nutty, nutty things where people are trying to enforce copyrights. So you find all sorts of abuses associated with copyrights.

But the other is that you’re actually getting much less money through the system, and it’s much more concentrated. So I’m sure Taylor Swift does very well, Bruce Springsteen is doing well, but there’s actually very few recording artists who get much through the copyright system.

Also, newspapers, as we know, newspaper revenue has just tanked. So it’s about one-tenth, I’d have to go back and check the exact numbers. But relative to GDP, it’s about a one-tenth of where it was, say 30 years ago. And that’s obviously because of the internet. You can get so much over the internet. So my view was: Can we think of an alternative way to support creative work? And that’s where these artistic freedom vouchers, whatever you want to call tax credits, where that would come in. So we pick some sum, let’s say: $200. We say everyone in the country has $200 that they could use to support creative workers of their choice. They can give it to a local newspaper, they can give it to someone who records blues music, they can give it to an organization that supports the blues music — a condition of getting the money is you’re not eligible for copyrights. OK? So you’re not eligible for copyright protection for a significant period of time. I put in five years, you could argue seven, you could argue 3 — the idea is we don’t want someone to make a name for themselves in this system, and then run out and say: OK, I’m the next Taylor Swift. I’m gonna get really, really rich. So if you make it five years, you could do that. But then you have to go five years without getting money from the system before you could actually get a copyright.

So to my view, this is a very nice, simple system. The analogy I use is the tax deduction for charitable contributions. So I want to make a charitable contribution, I just write down on my taxes that I gave $1,000, $2,000 to whoever. In fact, they don’t even ask. If I’m audited, I’d have to verify that. But I just say: OK, I’m taking a $2,000 deduction. Now, most people itemize, so they don’t get that deduction, but whatever. So it’d be treated the same way, but it’d be a credit, so if I’m a low-income person, I don’t pay $200 in taxes, I’d have a credit. At the receiving end: I’m a blues musician, I would simply register with the IRS, I play blue blues music, that’s what I do. So the IRS doesn’t look and say: Oh, are you a good blues musician? They just have a record, just like they do today. So people register as a religion, they register as a charity feeding homeless people, whatever it might be. The IRS doesn’t assess; they don’t say: Oh, do you do a good job? They just say: OK, that’s what you do. Now, in principle, you can be audited. And if it turns out, you say: Oh, you’ve been distributing food to homeless people, but there’s no record of that, well then fine, you’ll be charged with fraud.

But basically, people just register. And the nice thing about the enforcement mechanism here is, let’s say, I think I’m a real clever guy. And I get hundreds of thousands of dollars through the system for five years, and then I go, and I’m gonna hit the really big time and take out a copyright. Well, the problem is, I’ve been registered in this system. So it’s 2022-2023, and I’m taking out a copyright. So everyone goes: Wait a second, you were in the system, we’re just going to copy your music, and then I go: No, I’m not even going to try to enforce the copyright.

Well, when I try to enforce the copyright, they just go: You’re in the system, and then the judge laughs at me and goes: find something else to do with your time. So I think this would be a great way of both supporting a lot more creative work, and democratizing it. So everyone would get their $200 or whatever the sum is, and they could support creative work — and I’m putting newspapers in this, too — that they think are valuable. So it won’t be just the case — I mean Bill Gates might want to give $10 million for this or that, and this doesn’t prevent him from doing that. But what that means is that people who don’t have a lot of money could support creative work that they think is valuable.

JS: Yeah. And so people, I think, generally don’t think about the fact that we have tried to support creative work via copyright for hundreds of years. But it’s never been a system that worked very well. And now we could do it in a way that is possible because of new technology. And if it is $200 a year, that’s really significant in terms of creating a middle class of people who are doing creative work. If it is a $200 a year, that means if you just were able to get 500 fans who liked you so much that they wanted to give you all of their $200, like you would be making $100,000 a year like that would really change the equation of how people are able to be creative in America overnight. And you’d see this explosion of creativity, I think, that is kind of latent in America. I mean, America is full of super duper weirdos, who have all kinds of strange talents. And all of a sudden, they would be able to make a living with those talents. And I just think it’s one of the most exciting and sort of promising ideas that there could be and I think it also has, you know, obviously a natural constituency of weirdo, creative types.

DB: Yeah. I think it would hugely transform creative work, and it would just change the dynamics. Again, I don’t think anything happens overnight. But if you got this, you envision what goes on now with Hollywood, with their movies, a blockbuster movie, they’re gonna spend $100 million, $150 million, $200 million with the idea that they’ll get that back, because all these people are gonna go out and spend their — I haven’t been to a move for awhile — 10 bucks, 12 bucks, whatever it is, and maybe they will! But if people are in the habit that all of this stuff’s now available free, and I recognize most people think most of it’s crap, and maybe most of it will be crap, I don’t know. But a lot of it will be stuff they like. So they might be much more reluctant to go out and spend $10-$12, whatever Hollywood wants them to spend for the latest blockbuster.

And I don’t care. I mean, I’m not a diatribe against whatever the latest [blockbuster is]. I’m just saying: Give people choices. And what I love about this, you get this thing, oh, the market versus the government: Copyright is not the market. Copyright is government intervention in the market. So I’m talking about a different way in which the government is going to intervene in the market to support creative work, and, to my view, a better way. But there is no market story here. If you want a market story, get rid of the copyright altogether, and then see how much creative work you will have. That would be a market story. But if you have copyright, if you have the government giving out a monopoly, that’s not a market story.

JS: And so lastly, as I say, you have a ton of really promising ideas of how we could make the world better. But let’s just talk about one that is along the same lines, which is how could we get better and cheaper drugs?

DB: Yeah, well here, too, it’s a comparable story. You I think that to my staff, convincing economists that if the Consumer Price Index overstates inflation by a percentage point, then income has been growing one percentage point more rapidly than we thought and presumably will continue to — there’s very little appreciation of how much we spend on prescription drugs, because of patent monopolies. We’re gonna spend about 530 billion this year on prescription drugs. It’s about 2.2 percentage points of GDP. That’s about 70 percent of the military budget — that’s a rough figure, but somewhere in the ballpark. In other words, it’s a huge, huge amount of money. Now, suppose we snapped our fingers and we got rid of patents and related protections, because there’s other, similar protections. But we’ll say we get rid of all those protections. So all drugs could be produced as cheap generics tomorrow, so anyone in the world could produce them. Meeting safety standards, I’m not trying to get around safety standards, those are important. We’d almost certainly be spending less than $100 billion a year. Drugs would be cheap. So we’re talking about a situation where you’d be saving somewhere around $400 billion a year. That’s just an incredible amount of money. And take that over a decade, we’re talking about over $4 trillion. That dwarfs anything we ever argue over.

And the other side, which I think is every bit as important, in making drugs cheap, you change the whole equation for medicine. So you have situations today, let’s say someone’s 80 years old, basically in good health, they have cancer, and there’s a new treatment that’s likely to keep the person alive in good health, but it costs $250,000 a year. So you go: OK, well the guy is 80 years old, should we require the insurance company, or maybe it’s Medicare, whoever might be, should they spend $250,000 a year to keep someone alive who probably doesn’t have that long of a life expectancy anyhow? And you could argue that maybe it’s a tough choice, maybe it’s not, but that’s at least perhaps an arguable issue. You go: OK, wait a second, it doesn’t cost $250,000 for the drug. That’s what they’re charging because they have a patent monopoly. What does it cost to manufacture and distribute the drug? Well, that’s most likely less than $1,000. It may even just be a few hundred dollars.

So if you go: OK, so we got this guy who is 80 years old, and are we going to spend $1,000 a year to keep him alive? You won’t even ask the question. It’s stupid. So we’ve made this horrible problem for ourselves, by having patent protection driving up the price of drugs, in some cases 1,000-fold above what their free market price would be. And we don’t realize that, again, you have people saying: Oh, leave it to the free market. The free market doesn’t have the patent monopoly. That’s a government intervention. And again, as with copyrights, it has a purpose. We give an incentive to drug companies to invest in developing new drugs. And they do. But there are alternative ways to finance that. And again, it’s very clear, the mRNA vaccines are a great example: the vast majority of that research on mRNA technology was supported by the National Institutes of Health.

The Times had an article about this woman — and I think her name is Karenina, I think she’s Hungarian, she’s worked in the U.S. — who said she never made more than $60,000 a year. I’m not saying that’s all she should make. I’m just saying this woman was obviously interested in science, committed to what she was doing, and did incredibly important work that was funded through the National Institutes of Health. Then when it actually came to developing the vaccines, Moderna, of course, took the lead there. Well, how did they do it? Well, the government paid them! We paid them $450 million to develop the vaccine given where they were with the technology. And then we paid another $450 million to do the Phase 3 testing, the large-scale testing that determined it was safe and effective.

So the idea that somehow we couldn’t apply that as a more general model, that we’re going to pay for the research upfront, and then anyone who wants to could manufacture the drug anywhere in the world — again, subject to the safety, we’re going to make sure that we’re getting safe drugs, the drugs that they’re selling are, in fact, what they’re supposed to be selling, and they don’t have contaminants. That’s very important. But the idea that we have to pay these ridiculous prices: That is absurd. It’s a problem we create for ourselves, and we don’t have to do it.

JS: I encourage everybody who heard this to, first of all, follow Dean on Twitter @Dean Baker13, read his book “Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer,” which he has just made available for free, putting his money where his mouth is.

Listening to economists — and being an economist, I imagine — does not have to be a mind-breaking nightmare. It doesn’t have to be boring. It doesn’t have to be confusing. It doesn’t have to be full of mystification. It actually can be, when you explain it, completely clear, easy to understand for people who do not have PhDs, and actually exciting. Like, it makes you think: Boy, the world really could be a much more interesting and wealthy place in ways that are not necessarily measured by economists, just measured in human happiness.

So thank you for all the work that you’ve done. And as I say, everybody should be paying attention to what you’ve said in the past and what I assume you’ll be saying in the future.

DB: Well, thanks a lot. I like to think we make progress here and there, and I think we do sometimes.

JS: Alright, Dean. So thank you so much for your time, for coming on the show, and hopefully here at The Intercept we will talk to you again sometime.

DB: Sure. Thanks a lot for having me on.

[End credits music.]

JS: That was Dean Baker, and that’s our show. You can find lots and lots more of his work at DeanBaker.net.

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