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I'm Stephanie Flanders, head of Government and Economics at Bloomberg, and this is Trumpnomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, what on earth is going to happen next?

This week, we're actually taking a break from trump Panomics to consider the alternative.

We discuss every week how Donald Trump is changing the US and the world, and we hear quite a lot from people who think he's taking us in the wrong direction economically or sometimes politically, but we haven't spent much time on what a seriously alternative agenda of policies might look like.

Do the critics think the answer to America's economic and political problems is simply to turn back the clock, go back to Obama and Biden near a policy, or do these times call for an anti trumpnomics that's just as disruptive and radical as what's been coming out of the White House.

While the answer matters for Democrats in the US obviously, who are hoping to win votes from the president's party in next year's mid term elections and defeat Trump's candidate in twenty twenty eight for that matter.

But given that a version of Maga style populism is also building support and even in power now in many other parts of the world, not least Europe, in the UK anyone else should also be thinking about it as well.

The official Democratic candidate for mayor of New York's around Mandani.

While he has his answer an aggressive left populist agenda challenging big business, grocery prices, big oil, all in the name of tackling the affordability crisis, and most of that makes the Democrat establishment extremely nervous.

But what's their suggestion.

I'm not sure we're hearing it from them or from mainstream politic in Europe.

Well, we're going to get into this with one of my favorite substack columnists, Noah Smith, who wrote a column recently on precisely this topic, and I'm delighted to say he's joined me to discuss it on a sunny Friday morning in the first week of August.

Noah, thank you very much for joining us.

Thanks for having me on.

It still pains me deeply that you're no longer a Bloomberg columnist, but I see your substack is the second most popular substack on economics and business, which is is a brilliant achievement, and it's great that trumpnomics can still lure you on occasionally.

That column of yours that caught my eye, I think the title was should Democrats go back to Neoliberalism?

And I guess when we say neoliberalism, we mean the kind of market oriented, centrist version of progressivism that we saw under Bill Clinton and Barack Obama.

So let's start with that.

I mean, should they go back to neoliberalism?

Well, so you have to ask what does neoliberalism mean in practice?

And in practice it basically means let the free market do what it wants and then use government to sort of redistribute income, wealth, et cetera.

You know, provide public goods like building infrastructure, things like that, and then after that just let it be.

It's a fairly simple idea.

I feel like.

The degree to which this was working well is underrated.

So, for example, one thing you saw was that the US welfare state grew and grew throughout the late nineties, despite Clinton's welfare reform the two thousands and the twenty tens, with food stamps, Section eight, housing vouchers, EITC, child tax credit and these welfare programs which are either giving people the basic necessities of life or just giving them cash to buy whatever they want and doing it in a way that didn't really discourage people from working, which is pretty cool.

And so poverty in America had dropped quite a bit.

And we haven't eliminated poverty in America, but if you look at the child poverty standard with a supplemental poverty measure, for example, it had dropped just a huge amount.

Obama Care had reduced the number of uninsured people to a pretty low level, and healthcare had stopped growing as a percentage of the cost in the economy.

Actually, and college tuition it's so expensive, except college tuition has flattened out and has fallen in the last decade or so.

And economic growth has been mediocre, which means growth in living standards for the median person has been fairly mediocre since the seventies.

It's not zero.

The people who tell you that we got poor since the seventies are just wrong.

Wages definitely grew, but not at quite as great a paces before, but the rest of the developed world did worse than us, and was arguably considerably less neoliberal than us, but yet did worse on these media, income wages, living standards for the average person.

And so we're left asking what was the big harm?

ACT have problems with neoliberalism.

I think there's ways we could do better, we could improve on that.

But when we just look at the base of it, is this screaming for revolution?

Is this something screaming to be torn up?

And why?

And that's the question that I think the critics of neoliberalism have largely failed to answer.

There's a lot there, but I don't want to get sidetracked by that back because I think there's a broader thing which I think about.

Even from the time I was in the US Treasury, was you know, the last time we had a budget surplus, It was the late nineties, early two thousands, some of the latter part of that Clinton era that you talk about, And of course we thought it was all our brilliant policies.

And in the years after that, the fact that you continue to have decent growth, low inflation, policymakers, central bankers were all kind of congratulating themselves for having found the perfect policies, and some of those you could call neoliberal, but in retrospect, there's certainly a view that says they were just lucky.

There were just some profound disinflationary forces that were so porting a much higher level of non inflationary growth.

Policymakers kind of helped things along, and as you say, there were some very helpful interventions in terms of tax credits and other things.

But ultimately it was a particularly benign confluence of global and technological forces which enabled that non inflationary growth.

Rapid growth of employment particularly favored the US and that environment, the US was not penalized for continuing to run very large trade deficits, and other countries were kind of benefiting from selling a lot to the US.

But under the surface, risks were building up, particularly in the financial system, which ultimately put us on a rather different path.

But there were also things that naturally came to an end.

Trade was never going to continue to become more than one hundred percent of the global economy.

There were some things that were step changes in the global economy which the US benefited from.

They related to neoliberal but they were not going to endure.

So I guess I would just ask you on that front.

I mean, we look back at that period, but it's not clear that going back to those policies in one way or another is just going to take us back to that era, which has changed in an awful lot of other ways.

The world has moved on.

So what are the main things you see as having changed?

So, for a start, that China has gone through the expansion of the global labor force that produced a disinflationary wave and a kind of step change in the potential of the global economy that's worked its way through the China has now got a shrinking workforce, it's got rising labor costs.

There's no country that's waiting to sort of replace China, even if we continue to have the kind of open global economy that we had.

We don't know what's going to happen with technological change, but it seems that the sort of balance of policies globally now is more likely to push up prices than to push them down.

And we have these enormous investments that we would have to run to take if we were, for example, want to be serious about net zero.

I mean, I just it just it feels like there's some quite big structural changes that actually kind of make things more expensive going forward.

I know, the situation has changed, But in terms of the actual challenges we need to address, I think before we think about the optimal policies that we need to address a set of challenges, we should probably think about what those challenges are and boil them down in as simple way as possible.

So when I look at what those challenges are, I definitely think inflation right now is running at over two percent.

It's ultimately like, you know, two and a half percent, two point eight percent.

I mean, that's that's a little bit higher than we're used to.

It's a little bit higher than the inflation target.

But if you look at historical inflation in the United States, it's still pretty low.

We had those two years of inflation under Biden, but we're not having that level of inflation now.

And then as for climate change, we can talk about that how to allay climate change.

I think if you get a lot of left just critics of neoliberalism, they'll talk about climate change is the main reason why we need to throw out our economic system and pull in a new economic system, and we can talk about that, but am I getting it all?

What else is.

Another thing I would add, which I think changes the sort of policy environment pretty fundamentally is what's happened to borrowing and to the debt public debt since that era, which just constrains even the agenda for a neoliberal set of policies, Does it not?

Yes, I agree, it definitely does.

I personally think that the national debt has becoming a major problem and needs to be dealt with.

And there's only one way to deal with the national debt and the long term, which is austerity.

And in the short term you can do things like force interest rates to be lower, or force banks to subsidize your debt.

That's called financial oppression.

Forcing interest rates to be lower's called fiscal dominance.

And there's a bunch of shannigans you can do to sort of put off the day of reckoning.

But in the long term you need austerity, and austerity is two things, tax increases and spending cuts.

You must tax are people more and you must spend less to bring the budget into balance.

I'm not sure whether austerity is neoliberal or not.

I know that.

Certainly most people on the left would associate austerity and neoliberalism together.

I would not necessarily because I think I feel like neoliberalism is more related to sort of structural microeconomic policies about how we interfere in the market, more than it is about macroeconomic policies about what we do with the national debt.

But if you want to call austerity neoliberalism, that's one more reason to take a second look at neoliberalism.

Because I agree that the debt is a problem.

You probably don't want to call it austerity, right, I mean, it's fiscal control, fiscal rigor deficit reduction.

You know, we can call it whatever we want.

But I think austerity is a good is a good name because you have to be austere.

You have to you know, you get less stuff.

You can't have your tax cut, you can't have your spending program.

And people have to know that the debt is out of control, and so there's a limit to the amount of goodies we can get.

And I think that to people's credit.

In the late eighties and early nineties, we had that moment where people embraced austerity.

I remember, I don't really remember, but I've gone back intook but everyone in the nineteen ninety two election, Ross Perode, Bill Clinton, and even Georgia shelb Bush was talking about the need for deficit reduction, and we had this big deficit clock up on the outer wall of a big building in New York.

Everybody was talking about the debt, the debt, the debt, and people were willing to accept spending cuts and tax increases to stop that national debt.

Because we were willing to accept austerity.

We didn't use the word austerity.

We just said cut the deficit.

And maybe that's what we can say, cut the deficit, but that's what we need.

And so I don't know whether you want to call that neoliberal or not, but we do need it.

We don't need to get tied up on labels.

The reason I was pushed back in a bit on austerity, and obviously is partly because I was sitting in the UK when it was discussed in the nineties.

It was not called austerity.

When it was called austerity post global financial crisis, it was associated, particularly within UK, a conservative agenda which the same cuts would not have looked the same under a labor government.

But I'm also reminded also in the nineteen nineties but when Sweden, for example, the Social Democrats were having to get on top of their debt situation.

I was always struck by the way they talked about it, which was about this is about having the fiscal independence to do the things we want to do progressively.

And as long as I'm beholden to the global bomb market, i am not free to do the progressive social democrat things I want to do.

So if we do this hard work, it is actually a progressive policy because then you're not beholden to anyone and you can actually do what you want to do as a government.

And there was a sort of an aspect of that with the Clinton agenda as well.

I think the broader point is the things that we're talking about.

You know, austerity is one thing we would probably both agree that you would also want to move away from the kind of protectionist agenda if you're following this kind of line of alternative policies, more neoliberal policies, you know, free trade or free trade would.

Be part of that.

But does the alternative to Trump have to find some way to tap into the populist mood while still being consistent with these policies, or do you think it's just a contradiction that we just have to persuade people that there's no need for populism because everything was doing fine before.

Well, Americans and people in some other countries too, are angry.

And there's this idea that a lot of people have that if people are angry, what you need to do is you need to change your economic system.

And I think this idea comes fundamentally from the industrial age and from Marxism and the fact that for a long time, conditions for the working class are very bad under industrialism, and the idea was that this was making people mad, and that we need to change our economic system to make people less mad, and that when we implemented things like unions, weekends, child labor laws, labor standards, fair states, et cetera, people got less mad.

And I think that was a major through line on a story in the twentieth century, the story of class conflict, and class conflict resolved through social democratic means as an alternative to communism, which was not an effective solution.

You can tell that sort of potted story of the twentieth century.

It's certainly not the only thing that was going on, but it was certainly a big part of what's going on.

But now I think that when people are getting mad in developed countries, we instinctively reach for that same story.

We instinctively reach for a repetition of that twentieth century story.

We say people must be mad because they don't have enough stuff, they're economically deprived.

But I think that by and large that's not true.

I do think people do get mad at economic things.

I think people were mad about inflation.

We got two years of you know, five to eight percent inflation under Biden, and I think people were mad about that, and they were right to be mad.

But I think that overall the anger that you see how is to do with a lot of things that don't look like what people are mad about in like nineteen twenty five.

They're mad about social things.

They're mad about the fact that they feel like their race, their religion, their gender, et cetera.

Is getting discriminated against because they have people yelling hate at them on social media, and they have government policies that they feel are discriminatory towards them.

They feel or they feel loss of status in society.

They feel just a general lack of comedy, lack of nationhood, etc.

From all the screaming on social media that happens, even if they don't identify that as the culprit.

But that's, you know, they feel like they're countries against them.

Immigration people are super mad about and we could talk about immigration as a neoliberal policy if you want, But I think the reason people are mad about immigration is not fundamentally economic.

Immigrants don't hurt the native born workers, and when people say they do, I think it's a proxy.

It's what they're really upset about is the fact that immigrants are changing their culture.

Immigrants are changing their sense of what the nation is all about, and all this social stuff.

And there's this thing called the politician syllogism.

It says something must be done, this is something, Therefore, this must be done.

Trump's people have.

This attitude, certainly with respect to Trump's economic policies.

They say, we don't like the way America is going.

We have to do something.

Trump flails around and just attacks everything in sight.

They say, Okay, that's something.

Something was done, and it was done by someone that we perceive to be on our side, to you know, to be on our team in the Great American Culture War, and he did a thing, and therefore that thing must have been good.

I think we see it in polls that even when people give the president a lot of the benefit of the doubt even on the economic things, even when he says he's going to bring business back to the US or he's going to prevent jobs from going and then he brings in tariffs that actually make it harder to grow manufacturing in the US.

You find that they know there's these overwhelming forces acting against them and even against Donald Trump, so they'll just give him credit for having tried, because nobody else was trying.

Just thinking back on the powerful argument you make about people thinking they need to respond economically to challenges that certainly political challenges that have cultural and social routs, and the sort of how counterproductive it is to be thinking you have to have a whole new economic plan to respond to things that are actually not economically routed.

So I guess one simplistic way of thinking, Okay, what's the implication of your analysis is on the economics front, a party or politicians who want to be a realistic alternative to Trump or the thing that will come after Donald Trump, you wait for Trump andnomics to implode economically because all that flailing around will ultimately show itself to be futile.

And you concentrate on the cultural distrust that you face, and you stick to that, and implicitly your economic policy is that you're going to go back to Democrat policies circa I don't know middle of Obama's term.

It's a simplification.

But does that make sense?

Well, what's wrong with that?

Yes, that's pretty good.

But then I think that instead of saying, Okay, guys, neoliberalism work, let's go back to that.

I say that because it's provocative.

I want to make people think about that.

You know, you spent ten years saying that, like, neoliberalism has failed and we need something else.

How true?

Is that really?

Reevaluate that baseline bedrock assumption that you had.

Did that just come out of the Great Recession?

Was it just a sort of a knee your twentieth century response to twenty first century problems like reevaluate that?

And so that's why I said that.

So, first of all, I do believe.

That there's lots of things we need to do differently than we did in the twentieth century.

For example, we need to focus much more on building more housing, on making easier to build.

Land use is the great economic issue of our times, I think, and making housing cheaper and more abundant has got to be a big goal, and that's not something we focused on in nineteen eighty five or nineteen ninety five.

Maybe in two thousand and five we focused on it by building out some exerbs.

But then in.

Terms of densifying our cities, making transit that works just allowing building everywhere.

We've reached the limit of sprawl in terms of how far people are willing to commute.

We now need to densify the suburbs and build duplexes and small apartment buildings and things like that can house a few more people in the suburbs.

And yet when you look at what works on housing affordability, allowing more housing to be built, which is a neoliberal policy, is effective, it doesn't necessarily solve the whole problem.

I mean, you have a demand shift of people moving to big cities and wanting to live in big cities because they're nicer.

Young people and young higher earners move in, and that's a demand shock that raises prices, raises rents because you have all this new demand.

But if you accommodate that demand by building a ton of housing like Austin has been doing, then you relieve a lot of that pressure and you prevent a lot of displacement of existing people, and you accommodate those shifts.

If you want to call that a neoliberal policy, I'm happy to do that.

Sometimes you can have the government actually promote housing, so like Singapore, the government goes out and builds a bunch of houses on the land that it owns.

We can do that, we absolutely should do that.

But most land is privately owned in urban areas and settled areas, and so that means that allowing construction on private land is a big deal, and government has to do things to support it, like build transit right or at least allow transit, facilitate transit, to make it easier for people who have like apartment buildings to get around without having to drive everywhere.

Congestion pricing in New York, There's things like that.

But then ultimately you've got to let people build housing.

Is that a neoliberal policy if you want to call it that, Sure, it's an abundance policy.

But I think the way things evolve back toward neoliberalism is simply looking at what Trump does and say and saying, look, that didn't work, Let's cut these tariffs.

It's not like you say free trade is great.

I love free trade.

You instead say these tariffs suck.

Let's get rid of that.

It's hurting people.

Point to the thing that's causing pain and make it go away.

And so I think national debt it's bad, let's get rid of it, not get rid of it.

But it's not making worse.

Anything we can.

You mentioned the abundance agenda.

I mean, that's obviously the thing that's kind of lurking in many of these conversations.

The book by Ezra Kline and Derek Thompson, which was kind of an initial manifesto for a different way for progressives to think about the road ahead.

Although it's been endorsed a little bit by Zoramum dany I would say is quite different from what he's suggesting for New York.

But the big point that that book makes is that some of the places where government works least well have been run by democrats for years.

And your column you talk about a kind of need for a combination of neoliberalism and a development state that you see in East Asia places like a poor you're thinking about that on a state level as well.

I mean, is that a place for democrats to prove competence.

Yes, Democrats have run states and cities poorly, and progressive ideology does lots of things that make people poorer at the local and state level.

You look at the places that are building the housing and that are having more efficient public services.

These are run by Republicans.

That should be unacceptable for people who think that big government is the answer.

Big government is good.

We need big government liberalism back, and we need to make it work.

We need to make it effective.

We need to stop paying ten times as much as other countries do for infrastructure for public services.

We need to allow housing to be built, and not just housing.

We need to allow shops.

We need to allow people to open small businesses.

We will make small business people just go through insane amounts of red tape to open small businesses.

We need to let them.

We need to get away from the idea that tolerating public disorder is a form of war welfare, and that we're reducing harm for poor people by allowing them to do fentanyl in the street and realize that's not actually helping poor people, and that failing to arrest shoplifters, the people who just loot stores, that's not a form of wealthy distribution.

This is not robin hood.

This is bad for poor people.

It's destroying poor neighborhoods.

Progressive governance has failed on so many fronts, so dramatically.

Texas is building more solar power, wind power, and batteries than California by mile.

That's unacceptable, even though California has a lot more people who it needs to deliver electricity to.

It's unacceptable that a red state, simply by reducing regulation, you know, clean green energy is out building California in those energy technologies by a mile.

So what I'm saying is progressive governance has failed at the state and local level, and it needs to improve, and then we need to recognize and deal with that failure instead of simply denying it and trying to look for someone to blame.

I guess one pushback or at least a dissonance of what we're saying.

You know, we really dumped on California and the dysfunctionality of the government there, But it does also produced some of the companies that you've just talked about that were associated with the biggest innovations in AI and in technology.

Tesla managed to establish a pretty successful company in California to left you know, most of the most successful companies of our era, certainly the most important ones, have come from that supposedly impossible state.

So something was going right in California.

Well, California is a very strong network effect where Silicon valleys in California.

So tech companies all move there because that's where the engineers are, and the engineers moved there because that's where the companies are, and they all moved there because that's where the financiers are, and the financiers moved there because that's where the companies are.

And so there's this big network effect, right, But they.

Managed to build those factories, you know, Tesla managed to build a big factory there initially.

True, that's true, they did, although it was already built.

It was the new Me factory.

They took it over.

They couldn't have built that factory new Oh yeah, that's interesting.

I know this because I know people were trying to replicate this and building factories in California.

Now, a network effect is a powerful thing, and it functions a bit like oil, you know, because you're essentially making your money from land, except instead of something that's under the land, it's simply the Land's location.

You can kill a network effect, It's very hard.

You have to make incredibly bad policies.

But what California has been doing with its ineffective policies, it has been tapping the network effect tax in effect, taxing that network effect and exploiting it and using it for very inefficient forms of redistribution.

And you've seen housing prices go through the roof and California not accommodating that by building more housing to house people.

So the new people push out the old people, and people are fleeing the state of Californian drows.

Yes, you've got all these great companies coming out of California.

You know what else is coming out of California residents, and so they're moving, They're moving to Texas, they're moving to places where housing is cheaper because California did not accommodate the influx of people that came to work in those knowledge industries, those clustering industries.

And so you've seen California refused to tax property and so have to do a bunch of taxes on businesses that are not tax stuff that are suffering, and those costs get passed on to people.

California is very unaffordable in many ways, and.

People are leaving.

Yes, it's good to have like Google and whatever whatever come out of the state, right, it's good for the national economy, But people from California are actually not staying there, and ultimately people are voting with their.

Feed I'm reminded a bit of the old joke about the guy in the Latin American country that's had multiple coups and populist governments, and he says he dreams of a time when people will be on the street with the banners saying moderation or death, and reading your columns say we need fewer ideological crusades and populist cludges and more competence and capacity.

But is that exciting enough in this era?

Is that a strategy that's going to get people elected?

You know what, do we want competence and capacity?

When do we want them?

Now?

Do people want excitement?

Well, they've got used to that, so that action, that sort of action all the time.

I think we're not living in a revolutionary era where people are thinking of bright hopes for the future.

It's not excitement.

It's not the hope of this shining utopian future that's driving policy, and I think that you do get times when people are driven by those positive future visions, and those are times of rapid economic growth, growth and living standard abundance, when people are confident.

When people are feeling confident, they want those positive visions of the future.

They believe in them.

Right now, people are angry, and yes they're angry mostly about cultural issues, but also a lot of the things being done by people who get elected because of cultural issues are bad on the economic front, and people will get mad.

People are mad at the Biden administration because of inflation, and so people are going to get mad at the Trump administration because terists are stupid.

People get mad at progressive governance that fails at the city level.

So do I think this is going to excite people?

I don't know.

I think what it can do and what it should do is harness anger.

I don't need utopia to want to avoid dystopia, all right.

I want to stop the pain.

Why is Trump hurting us?

Why is he canceling research into promising cancer cures?

Why is he hurting us manufacturing by making it impossible for them to use their supply chains.

Why are manufacturing people getting laid off?

Right?

Now, why are workers getting laid off?

Why are we being hurt?

We should be angry at that.

We should be angry.

I don't think like some kids in the Sunrise movement, like sitting around talking about utopia, is actually the electorate.

The electorate is mad.

They're not sitting there envisioning you know, luxury space, communism or whatever.

They're actually simply sitting there thinking like why did my prices go up?

Gar I'm angry, and so then like why is this grocery store?

Why are these groceries a little more expensive?

I'm angry and so harness that anger against the people who deserve the anger, which is maga at the national level and stupid progressive governance at the local level.

Throw the bums out and get something that works.

I'm excited to not be hurt anymore.

Now, A Smith, thank you very much, thanks for having me on.

Thanks for listening to Trump and Noomics from Bloomberg.

It was hosted by Stephanie Flanders and I was joined by the economic blogger Noah Smith.

This Trumponomics was produced by Moses and Sasadi and Tala Amadi with help from Amy Keene and special thanks to Rachel Lewis Chrisky and John Ring.

Sound design is by Blake Maples and Sage Bowman is the head of Bloomberg Podcasts.

To help others find Trump and nomics, please rate it and review it highly wherever you listen to it.