Marketcrafters: The 100-Year Struggle To Shape the American Economy — A Book Talk with Chris Hughes

Well, I'm happy to go there and anywhere else that makes sense in this conversation, but first I just want to say thanks to you Natalie for that very flattering and kind introduction. And more importantly for the past near decade of working together as colleagues and as co-conspirators in the effort to make the economy more fair and prosperous and also to Aspen for convening us today and for everybody for tuning in. So, economics, why economics? You know, my career zigged and zagged for a little while until I found economics about 10 years ago, and then I feel like I've had a home. So, as you said, I was part of the founding team of Facebook in 2004 at Harvard. I had grown up in North Carolina. My mom was a public school teacher. My dad was a traveling paper salesman. I gotten financial aid to go to boarding school and then to Harvard. We started Facebook and it exploded. Everybody was interested in it and I worked on the product and communications teams for several years. I liked it. I thought it was interesting. It was not a mission for me in the way that it was for Mark in particular, but also others on the founding team. And so I left to go work for Barack Obama, as you mentioned, for a couple years. And then I sort of wandered. I was in my late 20s. I had to be honest made more money than I could have ever dreamed. I paid off all my loans from college obviously and all kinds of things. And so I thought a little bit about venture capital. Then I worked in media for a while. But in 2016 after a lot of conversations with you and with other people, I began to focus more clearly on the question of how can we make the economy more fair? Income inequality, wealth inequality were all skyrocketing. This was right before Trump was elected. And my own story was so bizarre. You know I had worked for a few years to create a company that at that point I was still generally proud of and made more money than we could have ever imagined. And while that had worked out great for me, it also didn't feel fair. it felt like emblematic of a kind of economy where a few people get these bonanza kinds of wins and everybody else is struggling to make ends meet. So that started on a long journey first as an activist and nonprofit in the nonprofit world and then over time it's been more as a researcher and a writer. I got my masters. I began to work on my PhD. I wrote the first book. Now I've written the second. And I love economics because it's important. You know, the study of money and production and how we coordinate I think is one of the most important stories in the history of humanity and the history of the United States. And it's also very much up for grabs. It's a field that is debated and lots of people want to tell you exactly how it works. and you got to agree with most of the things in the textbooks and that's just not what I do. I'm sort of naturally suspicious and that means that I've gotten the opportunity to engage really on a first principles kind of level with a lot of economic ideas and I find that challenging and fulfilling. So that's why I do what I do. And this book went through many iterations before it landed as market crafters.

Well, a lot of the academic work that I've done is in the history of central banking and so I thought that I was initially writing a history of the Federal Reserve and the history of American central banking and that's where it began several years ago and then there was this explosion of interest in industrial policy around 2021 2022 this term that had been really banished from political and economic discourse was taking center stage very quickly and I was fascinated by that. I thought it was really important and exciting and relevant, but I also thought it was too limited because when people kept talking about industrial policy, they were using a term that most of the time was supposed to apply to like manufacturing and blue-collar kinds of labor. And what I saw there was the government supporting a particular industry because it believed that it was important for whatever political ends. That could be semiconductor manufacturing, it could be climate, it could be a lot of things. But if you look at the history of American capitalism, we do that all the time. I mean the story of finance and banking is a story where we believe that it is important. It's critical to keep prices stable, to have financial stability, to ensure maximum employment, moderate long-term interest rates, and all of those things are managed by government and particularly the Fed, but not the Fed alone, the OCC, the SEC, to some extent the FTC and other institutions. And so what I saw was something broader which a political scientist Steven Vogel had coined the term market craft several years before and that really stuck with me. And so I decided that I wanted to write a book that would combine my history my interest in a lot of the institutions of American finance like the Fed with a history of industrial policy purposefully to broaden out that term and to say that we have a long history of crafting markets towards political ends. Sometimes we're successful, sometimes we fail. But we have to be clear-eyed about that history if we're going to pull out some of the lessons for the future. And so that's what I am spending a lot of time doing these days.

Yeah. I'll try my best. So you know many of my friends do vegetable gardening and love it. It's a source of respite and pleasure. And for me my father had a vegetable garden growing up. I grew up in Hickory, North Carolina. We lived in a house that had a yard, but my dad tilled up a third of the yard. And for me, gardening was just the pits. It was the worst. Like on summer evenings when I want to be inside watching TV or reading, I had to go out and stake the tomato plants or, you know, harvest the green beans or deal with the squash, you know, all this stuff that at least I as a kid of six, seven, eight was not that interested in doing. However, all that time did lodge in my memory. And so when I was thinking about what kind of metaphor I could use to talk about how markets work, the one that I kept circling back to was the idea of a garden. And it was for a few different reasons. The first is, you know, gardens are places of the natural world where there are organic forces that seem to be propelled by their own logic. So you know the lifeblood of the system is the outdoors and things grow and there are also places where we acknowledge that growth and then we point it in a certain direction. We harvest all that energy towards a particular kind of production. And so in some kind of free market fantasy, you might walk through the woods and just hope that you find some blueberries that you can eat or you know some tomatoes that are growing that you can eat. But no, the history of humanity is we say no, we want those tomatoes. We like those tomatoes. We're going to take them. We're going to plant them in the garden. We're going to make sure that we have the right amount of shade or the right amount of sunshine. We're going to make sure that they have water, maybe even fertilizers. And because we do all this work to manage and harness those organic forces, what do we get? A lot more tomatoes. And you know, we can in fact be innovative and even invent new kinds of tomatoes or engineer new kinds of tastier or nutritious food. And that metaphor of sort of organic forces that may seem uncontrollable but then are harnessed towards human ends, things that can produce abundance, can produce more food than our ancestors could have ever dreamed of. That metaphor I think sticks with markets because markets too there are these cross-historical trends in markets. you know, property law, stable currencies, exploitation of labor. There are these trends, some of which are good, some of which are very much not. And we can recognize that and still say, but wait a second, we want markets to work for us. Capitalism is something that we can shape and harness so that it works for people. People should not be working for capitalism. And so that metaphor made it into the introduction of the book. and it stuck with me. I think it's great. And I'll make sure to lay it out to my kids when we garden in the future.

Well, I think really until about 2016, 2017, I would have talked about the power of I think I don't know if I would have said free markets, but I would have talked about markets as if they were organic forces that come first. That markets work this way or that way. And then government is there to intervene to sort of it's the metaphor there is something like a stream rolling down a hill and government shows up to put a dam in or to change something that's naturally occurring and that metaphor is one I use and I think it's one that is continues to be pervasive not just on the right but on the left so you know when I was writing the book I was determined not to use the word intervene at any point And so by the end I did a little control F just to make sure in the manuscript I had not because it's a sticky idea you know and it's one that when we grasp for the language that's what we find but I think it's a really dangerous one because it does suggest that markets are just fine on their own. It makes no observations about the things that make markets work in the first place. you know, the basics of property law, contract law, a stable currency, investment capital that can be developed and deployed. All of which rely on government on public policy even in the most libertarian kind of scenarios. Markets require government. And then what I see when I look at the history of American capitalism is something even more robust. Like if you go through some of the major markets in the United States, banking and finance, health insurance, pharmaceuticals, airlines, cars, defense production, semiconductors. I could keep going on the list. Every single one of these industries has been managed by policy makers for a hundred years. And so there is the idea that there's a free market where government comes in afterward and then moves things around is not empirically true. And yet that is still such a pervasive idea that we keep using we keep coming back to linguistically. And that's one of the big reasons why I wrote the book is to first off just make it clear that markets are often managed and crafted and then to explore well if we're going to do it like a lot of those industries I just mentioned aren't going so well you know health insurance pharmaceuticals etc. So let's talk about when it works and when it fails so that we can do it better.

Those are great questions. I think the myth of the free market is particularly useful for the most powerful market actors, which tend to be capital holders in a lot of cases because markets are often dominated sometimes by private actors and sometimes by public actors. And if you can get enough people to think that markets are somehow self-regulating magically organizing dynamic structures. You have made the case that government should be less active and thus those who are most benefiting from that particular market order will stand to benefit even more. And you know depending on the market, depending on the cost of capital, depending on the level of investment that needs to happen, you can have markets that will move into a kind of naturally oligopolistic or monopolistic kind of arrangement. And the idea that that is the result of free market tendencies can enrich a lot of people in a very meaningful way. Now even in that story there is still an important asterisk which is what I call the emergency room and we can see this super clearly in finance and banking. Even people like Alan Greenspan who I spend a good chunk of time with in the book who believed that government was often the problem who was a deregulator. He also had a market craft which we can talk about towards financial innovation which he believed would exert market discipline and make the markets more stable. Even Greenspan became so well known for his emergency room actions what many people might call bailouts or structured interventions. He did it in 1987. He does it famously with Mexico in the early 90s, then with long-term capital management in 1998. We can go through a long list. Even in the libertarian fantasy of the free market, there's still the state coming in to help capital holders when the emergencies come. And so that mythology that story has been particularly enduring and worked very well for those who had the most resources and the most power. And obviously the one I'm trying to offer is one where we say uh-uh guys we need to structure the market first in a way that makes it work for more people that prevents those kinds of emergencies and bailouts in the first place. But the only way that you can follow a preventative regimen is if you understand that markets need management and structure in order to work well and in order to be stable, which I think we're closer to that set of ideas now than in 2007 when Greenspan stopped being or 2006 when Greenspan stopped Fed chair.

You know, when I was finishing this book, I talked to a politician who was like, "I like these ideas, Chris, but market craft is never going to work on the stump." Like that. It's just not It's too heady. It's too intellectual. And I said to him, "Yeah, I know that's not the idea. The idea is that you as a policy maker and other economists influential folks media etc can understand this as a key foundational observation for future policymaking. It would never it need not just as you you wouldn't run on like you know competition policy or tax policy or industrial policy on the stump. In competition policy, you would instead talk about corporate power and how it's harming the voters that you're trying to court and what you're going to do about it and how you're that particular story or market." So what I'm trying to say is I think market craft is relevant to everyone because how we craft markets matters enormously and it need not be the kind of thing that we're all chatting about around the Thanksgiving table. But now when I talk to politicians these days and try to think about well what's the upshot of market craft for the moment that we're living in now I think that some of the key urgent concerns that Americans have are around the cost of living and there it's very clear that state action can craft markets to at least stabilize prices for housing, food, healthcare, child care if not even bring them down. And so as much as I wouldn't recommend running on a market craft agenda in 2028 per se, I would say, hey, we can shape housing markets to make it easier to build, make it cheaper to build, and to build faster. And we can go through modular housing construction fund, zoning requirements, all the different ways that we can craft those markets to get that done. So I think it's key and critically important that policy makers and politicians understand the history of market craft so that they have the confidence to be able to say we just we don't have to like just lean back and accept markets as they are. We can shape them to make them better.

Yeah. And it can apply. I mean housing is a topic that is partially because of its centrality and the abundance agenda that people in policy world have been talking about recently but it's obviously been an urgent problem for Americans for years now particularly after the runup in costs that came after the pandemic and I think a lot of politicians including Democrats did not understand the urgency of this as an issue. But that's a useful one to think about how to craft those markets. So in the book I go back to the 1930s when housing market craft really began with the creation of Fannie Mae and a set of policies that made it much easier and cheaper for Americans to buy homes. America has the 30-year mortgage which was pioneered in the New Deal era. We had the National Investment Bank called the Reconstruction Finance Corporation that created a market for these mortgages so that someone could loan to somebody in Denver to build a house and a banker in New York could buy it. And once you make it more liquid, you make it cheaper. And over the course of 30 years, suddenly housing became much more affordable to a lot more folks. And of course, the more houses you build, the more jobs you have. And the story goes. So that market was very intentionally crafted in that period. And then I think lots of people know now about the history of zoning and how government has crafted cities in a way that sometimes has worked well sometimes has become too sclerotic. But then you zoom forward to today and I think we need to have an urgent question about how we can craft housing markets to meet the housing shortage that we have. I mean the estimates are that we need somewhere around 4 to 5 million new housing units to be built and with interest rates as where they are now relatively high there's not a lot of building happening even in places like California where a lot of the zoning rules have been reformed as the abundance folks make a lot of hay out of. So what do you do? I think you have to have something like a housing construction fund that creates a structure that ensures that the rates that multifamily developers, those who build dense housing, can have so that when rates go up, they have a more stable rate and when rates come down, they have a more stable rate so that they know that it's going to be affordable. So, the math works for them to build. I think, and by the way, some of the estimates on that mean that you could build over a million housing units just through the creation of a $50 billion fund, which sounds like a lot, but in the context of the full federal budget, which is several trillion dollars. Yeah, it's pretty affordable given the urgent need. You could have an industrial policy for modular. You know, modular is the kind of housing where it's built off site and then you bring it on site and the fabricated parts are used to build very very quickly and half of the homes in the Nordic countries are built this way. We could do that in the United States. There are challenges to it. One of the biggest is the lack of private capital that's moving into that. Public dollars can attract those private dollars. So, I'm saying all of that as a way of gesturing towards the important need to think about how can we craft markets, housing markets to bring down prices and to boost supply. And we can use that kind of framework for housing. We could use it for eggs and commodity prices. You can use it for care. you can use it for a lot of these things to get to an agenda that is at the end of the day somewhat simple and direct and speaks to the needs that American families have.