Todd G. Buchholz
Says More…
This week in Say More, PS talks with Todd G. Buchholz, a former White House director of economic policy under President George H.W. Bush and managing director of the Tiger hedge fund.
Project Syndicate: In 2020, you argued that deregulation, corporate-tax cuts, and a more business-friendly environment in general would “help the US economy to emerge more smoothly and strongly from the COVID-19 pandemic.” That is not what happened, but the United States remains a bright spot for global growth. What, then, explains the US economy’s relative health? Are the policies you recommended still necessary?
Todd G. Buchholz: The US has outperformed other economies since the COVID-19 crisis for both good and bad reasons. A good reason highlights the flexible economy, with relatively lenient labor laws that enable businesses both to hire and to curtail employment without facing penalties or paying excessive fees. By contrast, in a country like Italy – where I sit as I write this – employers are reluctant to hire new workers for fear that they won’t be able to fire them if they underperform.
Another good reason is that US policy is still more indulgent – at least for now – of the “gig economy,” which enables individuals easily to launch their own businesses and brands, whether as Uber drivers, graphic designers, or traveling nurses. As I point out in my latest PS commentary, the gig economy makes the overall economy more flexible and pushes back against inflation.
The bad reason for the US economy’s relative health is a short-term, fiscal jolt. America’s debt profile looks downright reckless, and debt as a share of GDP has soared to levels not seen even in World War II, with excess funds being pumped into the economy. “Hot checks” give economies a short-term burst of energy, but leave future generations with giant, punishing bills to pay.
PS: You suggest in the fourth edition of New Ideas from Dead Economists that the fear that large corporations can “protect themselves from competition” and “rake in high profits” is overblown. Many US antitrust campaigns – including against tech companies like IBM and Microsoft – have, you argue, made far less difference than market competition. How should these experiences shape government approaches to today’s tech giants as they become involved in a growing number of sectors and embrace artificial intelligence?
TGB: When the first edition of New Ideas from Dead Economists came out, the White House Library asked me to give an inaugural lecture, which I titled, “Clarity, Honesty, and Modesty in Economics.” Just as generals prepare to fight the last war, government lawyers – like Lilliputians – prepare to tie down the last giant.
Consider the biggest story in finance and technology in the past year: Nvidia’s explosive growth. The US chipmaker has become not only a symbol of the rise of artificial intelligence, but an integral player in the AI domain, and just last week, it became the world’s most valuable company, though it soon fell back to the number-three spot. But would antitrust enforcers have even recognized its name a few years ago?
With Nvidia not even on their radar, regulators were prosecuting more familiar chipmakers like Intel – a company that today is humbled, hobbled, and shrunken. Under US President Joe Biden, the Federal Trade Commission has deployed lawyers equipped with novel and sometimes silly legal theories to try to beat down successful firms. Regulators should show more modesty about what they know.
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PS: China’s already “wobbly” economy will face “extreme challenges” over the next ten years, you note in your book. China owes its past success largely to Deng Xiaoping’s abandonment of the command economy in favor of free enterprise, but its current leadership appears intent on reasserting the state’s role, if not reversing course. How might this affect the global economy?
TGB: China appears to be undermining not only its own future growth, but also the world trading apparatus. China’s rapacious efforts to conquer foreign markets while protecting its domestic market from foreign competition have turned people around the world against the concept of free trade. This will not be good for China, which will face much higher tariffs and barriers to entry. Nor will it help non-Chinese consumers, who will pay higher prices for the same goods.
A few years ago, I debated a senior Chinese economic official. He boasted about the Chinese economy’s strength and global dominance, reminding me of when Nikita Khrushchev warned Western diplomats in 1956, “We will bury you.” I responded with two questions. If the Chinese system is so powerful, I asked, why won’t the government allow its people freely to exchange renminbi for US dollars? And why is it so afraid of Michael J. Fox? (China, which imposes a quota on US films, has banned the 1985 classic Back to the Future, because time travel is subversive. And I suppose it would be – if it were real!)
BY THE WAY . . .
PS: In New Ideas from Dead Economists, you cite two points on which “few economists would disagree”: the country that raises trade barriers hurts its own consumers, and the one that “keeps farm prices high” both hurts its consumers and “finds itself with a surplus of grain rotting in silos.” But US policymakers have lately embraced protectionist policies like trade barriers and subsidies. Is there a place for industrial policy – say, to support climate action – and if there is, what should it and should it not include?
TGB: I’ve met many smart, dedicated bureaucrats. But can you tell me the name of a bureaucrat in Washington, London, or Frankfurt who is more intelligent and motivated than, say, Elon Musk, Mark Zuckerberg, Satya Nadella, or Jamie Dimon?
When people laud industrial policy, they often ignore key questions, especially: who will choose which companies to subsidize, and how will resources be delivered efficiently to the chosen target? I live in California, where the idea of high-speed rail won voter support in 2008, leading the state to issue $9 billion in bonds. People imagined zooming from Los Angeles to San Francisco. But after 16 years of work and tens of billions more dollars, the government now reports that it will take another six years before the first train possibly travels from Merced to Bakersfield. Never heard of Merced? You’re not alone. It’s been a boondoggle.
So-called industrial policy should be focused mostly on education, science, and national defense.
PS: It probably is not a coincidence that you released the “completely revised and updated” fourth edition of New Ideas from Dead Economists at a time when longstanding economic orthodoxies are being challenged, with many claiming that the end of neoliberalism is nigh. Which update(s) felt most urgent, and what do you hope the new edition will contribute to such debates?
TGB: When the first edition of New Ideas from Dead Economists was released, free-market economists wore Adam Smith neckties and boasted of the benefits of trade. And, of course, those benefits are extraordinary. Even Karl Marx admitted in The Communist Manifesto that trade and capitalism “created more massive and more colossal productive forces than have all preceding generations together.” Since Marx’s time, life expectancy has jumped from about 45 years to 80. In the last 30 years, child poverty has plummeted.
But the free market is not a pain-free market, and in the new edition of my book, I give more attention to the pain and pressure that free trade brings. Some people lose jobs; some cities lose factories. We have an obligation to figure out how to help those who suffer, even as the economy grows and overall standards of living rise.
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