Markets for the People

Glenn Hubbard: I do think there is a vision out there that, again, isn't trying to micromanage and pick what's a good job. Or a good industry, but really says, let's give people the skills to compete in the economy that is and will be. The contrast to that is the industrial policy vision we're seeing from both the right and the left.

That effectively says, I wanna make the world 1955 again. I don't know why we'd wanna live in 1955. I mean, we've got much better opportunities today.

Steven J. Davis: Glenn Hubbard is a highly distinguished economist, academic leader, and public servant. He is a professor of finance and economics at Columbia University, where he served as dean from 2004 to 2019.

That is a very long tenure as a dean of a leading business school, which speaks to his success in that role. From 2001 to 2003, Glenn chaired the Council of Economic Advisors under President George W Bush. He is also a keen analyst and longtime observer in economic policy.

And that's just one of the reasons we have him here today. Glenn, it's really great to see you and have you on the show.

Glenn Hubbard: Thanks, Steve. Good to be here.

Steven J. Davis: So, Glenn, you have a very wide-ranging career. There's lots of things we could talk about today, but I want to focus on a recent article that you wrote for national affairs.

And it's titled Markets for the People. I'm looking at my hard copy here. I'm old-fashioned. I'd like to read things in hard copy, especially when there's lots of good content in there to absorb. So as I read your article, it's got three main parts to it, and I wanna go through each one of them.

So here's the overview, and you can tell me if I get it wrong. You start out with kind of a broad sweep review of economic policy making. And thinking about economic policy making, principally in the United States. Then you provide a critique of industrial policy as it's been practiced under the presidencies of Donald Trump and Joe Biden.

And then you offer an alternative vision, kind of that's the markets for the people part. Which is really about how can we harness markets in a productive way to advance the prosperity of average Americans. So that's kind of my overview of your article. And if I've got that right, I'd kind of like to jump in and hear your summary of the first part.

Glenn Hubbard: Sure. No, I think you got it exactly right, Steve. On the first part, we're at a sort of a political economy moment in the country that's both a challenge. That is the problem I think we experience with industrial policy, but also an opportunity for conservative economic thinking.

I offer really two historical precedents for this. One is the birth of classical liberal ideas with Adam Smith as a reaction to the mercantilist philosophy of his day. It's easy sometimes for contemporary listeners and readers to forget how radical Smith was. That he completely overturned the orthodoxy of the day.

And the mercantilist view is not that different than some of the anti-trade industrial policy views that we see today. The other historical example I gave was the birth of neoliberalism in response to a lot of Keynesian meddling in the economy. Where we have both Hayek and Friedman coming up with a different point of view.

Today I think industrial policy gives the chance for another rebirth, and that's what the bulk of the article is.

Steven J. Davis: Okay. I like the analogy to Smith and his in some sense over decades intellectual victory. He and others over mercantilism is a very hopeful take on the current period He was maybe

Glenn Hubbard: remember that took a long time.

Steven J. Davis: It did.

Glenn Hubbard: It's not the corn laws being overturned is after Smith,

Steven J. Davis: Yeah.

Glenn Hubbard: But it's Smith's ideas in economics. We all write for the file, right? We're trying to put out ideas that a policymaker will embrace. But Smith did win that war, as did Hayek and Friedman when their war and I think it's winnable.

Steven J. Davis: Again, just as a reminder for our audience, the corn laws were a set of policies that restricted imports of food and so on as I understand it. And did harm the average working person in the UK. We think there are some policies that are harming the average working American today.

So I like those that put things in broad perspective and it maybe gives you a more optimistic take on the current moment. Or at least the potential for an optimistic set of responses to the current moment. So is there more you wanna say about the broad historical sweep or should we just get, or do you want to?

Glenn Hubbard: I think that's, that's right. It's, the one thing I will say both about Smith's victory. Hayek and Friedman's victory was that they were grounded in practical problems. So in other words, Smith wasn't just articulating in the wealth of nations of the new view. He was reacting to the practical problem in the world of mercantilism.

Both Hayek and Friedman were also reacting to practical problems in central planning. In government intervention, in markets, in the sloppiness of corporations at the time. And that too is, I think, the perfect analogy to today, where we have the practical problems with industrial policy. Which, by the way, as you noted, doesn't have a partisan spin to it.

Both Republicans and Democrats have been doing this.

Steven J. Davis: Right, I think as impactful as Friedman and Hayek were, I think they were less sweeping in their effects than the smithing revolution. Friedman in particular was a remarkable popularizer of classical economic ideas and classical liberalism. But the actual impact on the role of the government in society was more modest than it's often portrayed.

We still do today, if you look at where things are today, and this has been true for a while. Government spending is a higher share of GDP than at any time since, I think, World War II, for very different reasons at that time. The regulatory state has just expanded tremendously over decades.

And even during the heyday of the Reagan, that was just that stalled, but it didn't really reverse. So we have this larger role for the government, both in terms of spending, taxation on the one hand. And also the just role of the government in our lives at the federal level, the state level.

Through regulations, regulatory guidance, and so on. So in that sense, Friedman and Hayek didn't really prevail.

Glenn Hubbard: Well, no, and yes. So basically, I agree with you that we have a world that doesn't look like the one they imagined. But I think particularly for the case of Hayek, in relates to the industrial policy debate.

The emphasis on decentralization, the power of the man on the spot, as he put it. As opposed to central planning and government calculations, is a very powerful idea. I mean, in the essay I mentioned to me, my favorite piece from Hayek, which is the use of knowledge. Where he makes, in a very simple way, for, at least by the standards of contemporary economic models. A very powerful point about what a price system can do.

Steven J. Davis: Yeah, no, the intellectual contribution is tremendous, and the logic, I think, is hard to escape. But I am repeatedly struck, even among our economist colleagues, about. How little force that line of thinking carries. There is this planning impulse, the idea that if somebody isn't doing the planning, it's all gonna go to heck, and that is a countervailing idea or impulse.

Maybe an impulse is better because it's not always thought out so well. So, I think we're on the same page about that, well, let's go to the industrial policy piece, particularly as it's been practiced in recent years. Give me your characterization of that and also your critique, and we'll chat about that a bit.

Glenn Hubbard: Well, it's interesting, sometimes when economists speak about industrial policy, they treat it as zero work, so industrial policy good, industrial policy bad. I think of it more as a continuum, so if you told me that you meant by industrial policy, large-scale national subsidies for basic research that could then spill over into a lot of things, I would be completely fine with that.

I actually think it's also productive to even imagine applied research centers around the country, that could aid businesses and local areas in commercializing ideas, much as the land grant college in their day. So, I think all of that is good, and there may be some very, very specific ideas related to defense, I'm thinking of China, the issues the nation faces.

But by and large, the notion that the government can remake the economy, whether it's the green energy transition, whether it's the improvements in manufacturing, I remain very, very skeptical. I think if you can either go higher, I basically research subsidies, or lower very specific, targeted things, that just makes a lot more sense.

Industrial policy as practiced in the two recent administrations, really runs the risk of both encouraging rent-seeking by business and mission creep. The fact that we have in both the Chips and Science Act and the poorly named Inflation Reduction Act, things like you need to have childcare at your facilities to get that.

What does that have to do with industrial policy? The other thing I would mention is that, odd fascination by both Republican and Democrat politicians with manufacturing as a sector. When I speak to politicians, I remind them that, when I teach students, the students want jobs, that most of them want jobs, at least that didn't really exist when I was their age.

And so, how would you imagine that a group of worthies in Washington, whether they're Democrat worthies or Republican worthies, will decide what a good job is?

Steven J. Davis: Right, let's go back to, you covered a lot there, and I wanna unpack some of it a little bit. You made an argument near the claim at the outset of your remarks there, that there is a case to be made for government subsidies for basic research, maybe even applied research, but just flesh that out.

What is the argument? Why is that aspect of industrial policy, really different in an economic sense from other forms of industrial policy?

Glenn Hubbard: Well, it's a great question, Steve. We know that, if we just let the private economy control all basic research, we're likely to have an underinvestment in basic research because no one funder of that research will appropriate all its benefits.

So, for example, when we worked on the space program or defense applications in World War II, or in today's world, nanotechnology, robotics, a lot of things, there may be applications beyond what the initial funder thought. And so, the work of the National Science Foundation, some of the agencies, like the Department of Energy, that can be very, very, very useful.

It's less fun for politicians than building new manufacturing plants or chip facilities, but I think it's far more important.

Steven J. Davis: Right, so basic research is generating innovation where most of the benefits of that innovation aren't really captured by the innovators themselves.

Glenn Hubbard: Correct, so you're generating essentially the stock of ideas that others are then free to use.

Steven J. Davis: Right, so the profit-making incentive in the private sector won't, left to its own devices, generate enough of that basic research.

Glenn Hubbard: Correct, and if you want to call that industrial policy, I'm all for it, I would have called it something else, but there's an argument to do that.

Steven J. Davis: Right, and then you also talked about the land grant colleges, which I think of, and tell me if you disagree, they were doing basic research to some extent. But they were also promoting the dissemination of research, often in the agricultural sphere at the time, so that we could accelerate the diffusion of best practices.

What came out of the base of research across different parts of the country to people who might otherwise not, farmers, in many cases, make use of that knowledge as soon as they could.

Glenn Hubbard: Exactly, the land-grant colleges did that, both in agricultural extension services, but also for manufacturing, and also were at a time to help the economy pivot from agriculture to manufacturing.

In a book I wrote a couple of years ago, I noted some of the political economy challenges with the land-grant colleges. Because actually, farmers were quite upset originally with land grant colleges because they feared they were preparing young men and women to go work in cities and factories.

But that innovation is important, and if you wanna call that industrial policy, I'm for that, too.

Steven J. Davis: Okay, so I think, just to be clear, there are certain kinds of industrial policy that you and I take a favorable view towards. But that's not mostly what happened to industrial policy in recent years.

So, what's the problem with industrial policy as it's been practiced under the last two administrations?

Glenn Hubbard: Well, I think several things, one is that we're trying to pick industries as magically good or bad for the economy, I would much rather let market forces do that. If manufacturing isn't succeeding in the US because of things we're doing, regulation, permitting, problems, a variety of issues, take those away, or corporate taxation.

There are lots of things that we could be doing, but just a fascination with manufacturing, I disagree. Take things like the Chips and Science Act, as opposed to much greater basic research spending, simply handing already profitable companies large checks. I don't think they were capital-constrained before, so I'm not sure what the issue is.

And then, as I said, the mission creep of including provisions in industrial policy financing that have nothing to do with a purported policy goal. Any idea of too many business people on airplanes to Washington trying to get more?

Steven J. Davis: Okay, so again, there's a lot there, I wanna unpack some of it.

First, you suggested that there are some things the government could do by just removing some of the barriers and impediments to business activity in the manufacturing sector or elsewhere. One that comes to mind, is Jim Poterba and others have done some pretty interesting research showing that construction costs in the United States.

Including infrastructure costs, or, say, building a new manufacturing facility and everything you need around it to make that work, US construction costs are among the highest in the world, they're even higher compared to countries like Germany. Now, my view is that much of that has to do with the regulatory apparatus we built around permitting for government-funded projects.

There are often requirements to pay prevailing wages, which often means above-market wages. So we have a number of policies. And so I wanna see if you agree with this and if you wanna elaborate on it. But in my view, we have a number of policies that really make it hard to start new businesses, especially if they are land-intensive or construction-intensive.

And manufacturing is often both.

Glenn Hubbard: I completely agree with that. If we were to have a manufacturing czar, he or she shouldn't be just focused on getting some new plants in Ohio or wherever else you want to put it. But more, what are the barriers? So to give a tangible example, there have been articles recently about the failure of the Inflation Reduction Act to spend its largesse fast enough.

Why? Because of some of the issues. You mentioned regulation, and permitting. It's just hard to even get the money out the door, even if you thought the spending was worthwhile. Economists have been focusing on this more. You mentioned Jim Paterba, I would also add the work that Ed Glaser is doing on construction.

We've really got to start worrying about this, particularly if we're trying to increase our ability to, let's say, supply more electricity in the country for AI data centers and other things. We've got to get to permitting reform. So you can ask some of these questions, but you don't need a micro-managing industrial policy to answer.

Steven J. Davis: Well, that's a key thing. So you reduce the regulatory barriers to undertaking economic activity in the vision that you and I are sketching out here. But it isn't the government making the micro-decisions about which particular businesses will prosper and so on.

Glenn Hubbard: Correct.

Steven J. Davis: That's the key distinction.

Glenn Hubbard: Correct. I mean, we know that winner-picking by, let's say, the Department of Energy in Democratic and Republican administrations hasn't gone so well. But if we simply said, let's make it very efficient to build new energy facilities or electricity facilities, the market will make it happen.

Steven J. Davis: Right. I wanna add one more example to the one you gave, and I think back to the fiscal response to the global financial crisis in the United States. And in the wake of the housing boom, there was a time when the unemployment rate among construction workers was 25%, extraordinarily high.

These are skilled workers for the most part. So there was an economic argument that had a lot of appeal at the time and which made a lot of sense at one level said, you know what? This looks like a good time to really have a big push on infrastructure investment.

Why? Aggregate demand has collapsed because of the financial crisis. The bust in the housing sector means there are all these unemployed construction workers. Wouldn't it be better to put them to use, engaged in building or maintaining, and repairing public works instead of paying them on the unemployment bills? So that made a lot of sense.

And that was part of the package that was responded to, that was passed by Congress and signed by President Obama to deal with the crisis. But then, lo and behold, and even President Obama said something to this effect later, he discovered, you know what? We don't have any shovel-ready projects, so why didn't we have any shovel-ready projects?

It's because we built up this permitting and regulatory system since the days of, say, the WPA in the 1930s. It made it essentially impossible for us to repeat that same kind of undertaking in response to a massive shortfall in aggregate demand and this huge number of unemployed workers.

So even the government's own ability to manage the macroeconomy is hindered by the things we've been talking about.

Glenn Hubbard: I completely agree, and I would commend to your listeners as well the work that Philip Howard has done in a series of books on government red tape from the administrative state really slowing down almost everything from healthcare to education to construction.

I think there are other problems with the Obama-era stimulus that we can come to if you want, but I do think you put your finger on it. There were never shuffle-ready projects.

Steven J. Davis: Right. So I think one way to put this point is, even if you are someone who favors, as many economists do, an active government hand in trying to stabilize economic fluctuations and do it in a productive way.

The way our regulatory state has evolved is really an impediment to, that's a Keynesian vision, at least at the aggregate demand management level. Even there, that is undermined by the way our regulatory state has evolved. At least that's my view. So tell us a bit more. I wanted to add the second part of your remarks to the previous question you talked about.

I think you made the point, I may not get it exactly in the same words, the government's not necessarily great at picking winners and losers among individual businesses or individual industry sectors. And that's one way that one reason we want the government to set the stage for economic prosperity, but not really try to do the picking of the winners and losers.

I think that's right. But there's another point that I would add that I see is at least as important in this kind of argument, which is even if the government were just as good at the private sector as the private sector, and picking economic winners and losers. Perhaps because the government might put different weights on various outcomes, the government's lousy at getting out of bad economic decisions.

One of the great virtues of the private sector, the profit and loss motive, is if you're losing millions of dollars in some business activity, you stop doing it. And in the public sector, that's just much harder. The decision-making process is much slower. Big spending programs naturally create their own constituencies for their continuation.

So it's not just that the public sector is not so good at picking winners and losers, but they're really lousy at retreating from the losers.

Glenn Hubbard: Steve, you put your finger on something that's extremely important. I make it in the piece as well, that this inability to walk away from losers is a huge problem, and we've seen it in many aspects of public programs, and there's no reason to believe industrial policy won't be littered with that.

Steven J. Davis: Yes, exactly. And so there's a corollary to this observation, which I think is also important to put on the table. Even the best-designed, most on-target forms of specific industrial policy that really work exactly as they were intended when they come online, the world changes over time.

And a policy that may have made a lot of sense in one year may not make much sense five or ten years later, but it's very hard to get rid of once it's there. One of my favorite examples of this is the I won't get the exact years right, but in the aftermath of World War II, there was a subsidy program created for the producers of mohair wool, which came from a particular kind of sheep.

And the thinking sounded sensible at the time. Well, if we have to fight a major war again in cold climates, our soldiers need to have well-insulated garments so they won't freeze to death while they're trying to carry out their military mission. Of course, along came synthetic fibers, and all of a sudden, nobody wants mohair wool, that is heavy and bulky, and maybe he doesn't dry as quickly, and so on.

But that subsidy program continued for decades.

So there's an example of a program that maybe it made sense at one time to subsidize this industry, to have some spare capacity, but the program greatly outlived its usefulness, and there are just hundreds, if not thousands, of government programs that fit that description.

Glenn Hubbard: I agree, and there is a cautionary tale there about how to design industrial policy. So let me give an example. Operation Warp Speed during the Trump administration did not pick a producer. It did not pick a particular vaccine. It provided purchasing subsidies and got the speed of innovation much, much, much faster.

And the government doesn't have an ongoing commitment, so we can't do this. And again, if you want to call that industrial policy, I think in some cases it makes sense, but it's a lot different than the government saying, we're going to enter the vaccine business.

Steven J. Davis: Right, and something else which you emphasized in your article about that particular episode, there was a very well-defined and kind of naturally time-limited objective of the policy.

Get the vaccine for this particular virus or family of viruses. Get that done. That's the goal. So you could assess success, and you knew when you were done. And as you've stressed, it was done in a way not to promote a particular company or a particular solution. Let's just subsidize the activity of trying to find a vaccine that works against this virus.

So I agree with you. That was an example where industrial policy did make sense, partly, again, going back to something we said earlier because there were enormous public benefits to getting a vaccine out quickly. But there's no way that the innovator is going to capture more than a tiny share of those benefits within the United States and globally.

Steven J. Davis: Okay? So that's a great example, actually, of an industrial policy that did make a lot of sense. We've kind of talked now about what's wrong-headed, in our view, about much of the industrial policy as it's been practiced in recent years. But you also sketch out a positive vision.

This is underlying the title of the piece, markets for the people. So flash that out. What's the positive vision of how to harness markets in a productive way, using economic policy to advance prosperity for average Americans?

Glenn Hubbard: Well, it's a great question. The neoliberal revolution was focused in large part on sort of markets simply as a mechanism.

Classical liberals had a broader take on it. So Smith himself began by emphasizing competition. That was the touchstone that made his whole economic system work. But the same Smith who wrote the Wealth of Nations also wrote the theory of moral sentiments, where he talked a lot about mutual sympathy, which I think, in today's words, we would call empathy, having everybody in the same boat.

So I suggest in the piece, that if Smith were here today trying to think about this as an addendum to competition, would be the ability to compete. So again, rather than intervening and saying, this job is good, this job is bad, much more support for the ability to compete.

So in the piece, I talk about community colleges, which are the foot soldiers of this. Austan Goolsbee and Melissa Carney and I have some very specific proposals on how community colleges could respond to a block grant to increase the supply of their services. Supports for work so that you get more, particularly young men and women in the labor force and accumulating human capital on the job.

And I do think there is a role for narrowly focused, place-based aid.

Where you have regions that have chronic problems. You may need place-based aid for a variety of reasons. People aren't as mobile necessarily as economists sometimes imagine them to be. So I do think there is a vision out there that, again, isn't trying to micromanage and pick what's a good job or a good industry, but really says, let's give people the skills to compete in the economy.

That is and will be the contrast to that is the industrial policy vision we're seeing from both the right and the left that effectively says, I want to make the world 1955 again. I don't know why we'd want to live in 1955. I mean, we've got much better opportunities today.

Steven J. Davis: Right, so I'm sympathetic to that. The community college piece, I think, is the easiest piece in the sense that we're closest there already to having an infrastructure that works, so we can make it better. You talked about providing people with the ability, the capacity to compete. I like that, but I put more emphasis on children.

So you talk a little bit about this in the article, but not so much. Maybe it's just you've talked about it a lot elsewhere. But getting our public school system in reasonable shape and some parts of it are but in much of the country, the public school system is just grossly inadequate in terms of preparing students to live productive lives as participants in the market economy.

That's part one. And then I want to get your reaction to this because it's not something you touch upon. But we had Melissa Carney on this show several weeks ago, and Melissa, as you know, has been writing a lot about the demise of the two-parent family and what that means for children.

And the gist of it is it's possible to grow up in a one-parent household or even a household with no biological parent and succeed. But it's a lot harder. It's a lot harder. And there are millions and millions of children in the United States who grow up lacking the advantage of a two-parent household and, and lacking the ability to go to a good public school.

Well, talk about pre-market investments or lack of pre-market investments, to use the economic jargon here, it's really tough to compete in the modern market economy. If you grew up in a dysfunctional family and you went to a lousy public school. That strikes me as more important than the things you talked about. We've got to fix those problems.

Glenn Hubbard: Yeah, I completely agree. I hadn't touched on as much, particularly because public education is a largely state and local issue in the United States. In terms of federal policy, though, there are things we could do that could encourage voucher programs and competition which can break the public school monopoly.

I was in a proposal or set of proposals called a grand bargain. That's on the bipartisan policy center website. Any of your listeners want to take a look? And we have a whole section there on education reforms. They're largely going to be reforms at the state and local level. In terms of Melissa's very important work, she has talked, And at the Smith Richardson Foundation, where Melissa and I are both on the grants advisory committee, we have funded some studies of what interventions work.

So, for example, are there things for conflict resolution help and partners? Are there ways to keep men and women together in marriage or even in cohabitation relative to what we have now? But it's very, very important. In part she notes its economics, it's just the money situation of the two-parent family is very different, but in part it's cultural.

But the presence of both parents really provides a much more nurturing environment for the child.

Steven J. Davis: Yeah, no, that kind of twofold theme came out very clearly in our conversation. It is partly about economics, but there is a cultural aspect to it that transcends economics. And I'm forgetting the name, but Melissa did mention some interesting work by sociologists and anthropologists on more conflict resolution within marriages and couples.

Helping people learn how to do that so that their marriages are more successful. That's something that economists have seen as outside the scope of their domain. But my conversation with Melissa did make me think, that's an important part of what it takes to rebuild healthy families, which will have tremendous benefits for children over the long term.

And I don't know whether economists should get into that business or not, but at least in terms of policymaking, we ought to think about, and this is not an area that I've thought a lot about. So I wanna step gingerly here. But these problems extend to providing a nurturing environment for children, extend beyond the narrow economic.

Glenn Hubbard: Certainly, and I think economists have borrowed from other disciplines more in recent decades the whole launch of behavioral economics, for example. So I see no reason why economists can't use our techniques of randomized controlled trials of things to try to investigate interventions that we see suggested in other disciplines.

So, I think there's value we can bring to policymakers or to funding agencies as to what works.

Steven J. Davis: Right, right. So I wanna hear, give me your broader thoughts about how to take this markets for the people idea and make it sell. I am constantly struck, I don't know if you are.

In the current moment, by how unsuccessful in some sense economists of your persuasion and mine have been in recent years in touting the virtue of markets. And why you ought to try to use policy to harness markets in a productive way. I don't feel like we as a profession have done a great job at that.

Glenn Hubbard: Well, I agree. I think there's some things that aren't our fault and some things that are our fault. So, one of the issues I think that we confront, I wrote a book a couple of years ago called The Wall and the Bridge, and the basic argument was this related to the conversation we're having.

Growth and disruption are like a coin with two sides. So, there is no model of economic growth that doesn't also have disruption. There's no such thing as a kind of nice little log-linear growth, that's not the way the world happens. And so the problem with disruption is it brings political response, and political responses can be one of two things, walls or bridges.

And by walls, I mean something that tries to guard against technological innovation, or trade, or something like that. And a bridge is helping people actually cope with that world. The problem is the wall fits on a bumper sticker. Build the wall, I don't like foreigners or this technology is bad.

Whereas the bridge, all that we're talking about with community colleges and basic research and all this, it's a little bit harder. So that's probably not our fault, but it's definitely out there in the world. What is our fault is to go back to a comment I made earlier where economists often speak religiously on either side about zero ones on industrial policy and things like that.

Rather than using loaded words, let's ask ourselves, what is a politician trying to accomplish? And let's use ways and harness the power of markets to help him or her accomplish that. Whether it's a center-right politician or a center-left politician I think we could be much more useful.

And I think we have to call out people who are selling nonsense. So there is nonsense on both the right and the left about industrial policy and about manufacturing. And most economists just snicker in their offices, but we need to get out there and say, no, you can't do that.

But by the way, you can accomplish the goals by doing this. So I think there's more-

Steven J. Davis: Well, you have certainly been out there over much of your career, so we can't fault you for not being out there on that front. And I've done way less than you in that respect.

But I wanna get you to give me a concrete example. You made the following argument. Look, we ought to figure out how to state in language that resonates with a politician, how they can promote, develop, and advance sensible economic policies. But give me a concrete example.

Glenn Hubbard: Yeah, I'll give you an example that is now a couple of decades old, but hardwired in my head, and that's Bush and steel tariffs.

So when I was Bush's economic advisor, I was the only one against the steel tariffs. It's amazing to talk about this, but business people around the table in senior positions and even some economists whose names I won't mention didn't give the president a hard time. I gave him a very hard time and very ineffectively.

So what I told him was, the tariffs are bad because you think you're protecting steel jobs, but of course, steel is just an input. And so think of all the other jobs. I showed him a map of job losses around the country, and then I showed him a picture of a declining share of a particular industry in the labor force.

And he said, yes, that's the manufacturing I wanna protect. And I said, Mr. President, I just showed you agriculture, 1900 to 1940. I just didn't label the chart, do you wanna put them back on the farm? He told me I intellectually won the day. He said, your comments were the best, but I'm not gonna do it.

And I said, why? And he said, because you didn't tell me how to help those people, you don't understand, Glenn. I went to Wheeling, West Virginia on the campaign trail and I told them I was gonna do something about it. So going back to the thing we could have said to him, you can do play space day, you could do.

There are lots of things you could be doing, but instead, if we get on our high horse and just say tariff bad without trying to solve the problem, we're not that helpful.

Steven J. Davis: Right, right. So you've mentioned place-based aid more than once in this conversation, so let me pick up on that. I see place-based aid as in principle well designed economic policies that can help, but it's tricky.

Glenn Hubbard: Yeah, but there's good new work here. So, Tim Bartik is probably the economist who's done most of the best work here. What he advocates is sort of subsidizing the provision of business services.

So getting back to this market solution, subsidizing an infrastructure that works, if you want a case study of something like this, as the steel industry early on was getting into trouble, Trouble. If you compare, let's say, Youngstown, Ohio, which was largely a failure in dealing with it, with Pittsburgh, which was largely a success.

What happened in Pittsburgh were university leaders, and wealthy business people. The government got together and said, what can we do to change the business environment of Pittsburgh? If we're not gonna be a steel city, what can we be? That kinda thinking is important, and Tim has worked on that. There's also some good work that Ed Glaser and Larry Summers have done on linking place-based aid to areas where you've had chronic long-term unemployment.

So, I think economists used to say, well, why are we doing place-based aid? Why don't you just help people move? But I think there's more to it than that.

Steven J. Davis: Let me say three things in response to that. First, as your Pittsburgh example illustrates, the right solution or the right response in terms of reinvigorating the business environment is likely to be highly place-specific.

Glenn Hubbard: Yeah.

Steven J. Davis: this is not gonna be a one-size-fits-all handed down from the federal government. So to the extent that it's civic, local civic, and business leaders coming together to figure out, look, how can we put the local economy on a sound economic trajectory that's a lot more appealing to me than some kinda grand plan at the federal government level?

Second, it's worth saying, and I think you agree with this, but you can tell me if I'm wrong, that some of the barriers that keep people stuck in places that are declining are itself a consequence of public policies. In particular, the fact that many of our economic assistance programs are tied to your state of residence.

And it is difficult and sometimes impossible in the short term to replicate the social assistance that you would get if you moved somewhere else. So, you're in a declining area, but you're collecting unemployment insurance benefits, getting other benefits from local government organizations and local charities. If you go move somewhere else to look for a job kinda on your own for a while.

So that I think it's worth thinking about whether there's some way that reciprocity agreements across states, for example, could facilitate easier mobility. And the third thing I wanted to say is, in many cases, declining economic trajectories kind of goes hand in hand with declining physical and property security.

And so, I think about Chicago, which is where I've spent most of my adult life, and now I'm here out in the Silicon Valley area, quite a contrast in terms of how secure do you feel in your person and your property as you walk around on the streets and so on, and much of Chicago is a place where people don't feel secure.

Ken Griffin, his exit from Chicago for Florida was partly about this, and I certainly felt that way in the wake of the pandemic. When I think about my own family, I lived in downtown Chicago in one of the safest parts of the city, but it wasn't as safe as it had been.

So, I do think part of the economic revitalization and one of the basic functions governments need to provide is to make people feel safe and secure in their person and in their property. And we are failing to do that in many core urban areas in the United States in recent years.

Glenn Hubbard: I completely agree. It's back to this theme of what can you do at the government level to help make markets work. Just making sure that the market infrastructure is fine, in addition to security that you have quickly moving in fair courts. There are all kinds of roles for the state in making the market work.

Steven J. Davis: Yeah, and I think it's, I know this. But it's worth reiterating. And this is part of the classical liberal vision of the role of the state. It's not that the classical liberal vision says that there should be a no state or a shrunken state. There are essential functions to be played by the state, the government at the national and state, and local level.

And if the government doesn't play those roles, a lot of these other economic policy levers are not likely to be very effective.

Glenn Hubbard: No, that's right. I mean, sometimes people look at or characterize Smith as a night watchman, state or laissez-faire. It's not really fair reading of the wealth of nations.

They're powerful roles for the state in the public good, in policing competition. There's a lot there.

Steven J. Davis: Right. Glenn, think, look, I, unless you want to say a few other remarks, I wanna wrap this up.

But I wanna thank you for your ability to put these public policy, pressing public policy issues in a broad historic and economic perspective, and draw out some basic principles that would serve us well as we approach economic problems and economic policy making.

I really appreciate it. So thank you very much.

Glenn Hubbard: Thank you, I've always felt that much of what economists do in the policy process really is just reminding people of Econ 101.

Steven J. Davis: Well, you do it well. So thanks so much, Glenn, really appreciate it. All right, take care.