Chris, thank you very much for joining me today. I want to kick off with asking you about your fabulous book Market Crafters. Yes. You give us the whole title because I read it on my Kindle. So I don't have it. I've posted the cover prompt. It's in the other room. You got to get your prompt. But it is called Market Crafters. The title is Market Crafters: A 100-Year Struggle to Shape the American Economy. Right. So just tell us what is a market crafter and what's the premise of the book and why did you write it?
So we have this long-standing myth that folks on the left and right share, that markets are usually free and self-regulating. And the point of government, at least when it comes to economics, is to be sort of like the emergency room. When things don't go well, here comes the market, you fix it up, you bail out a bank, you give somebody unemployment insurance, and off you go back into the market. I've been working on economic issues for about a decade now, as an activist in some cases, but really as a researcher, an academic. And what you see in the history is that that just isn't true. What's actually more true is that there are policymakers in government who are shaping markets, crafting markets, channeling all those private sector entrepreneurial energies towards public goals, often making Americans richer, making us safer, making our financial lives more stable. A lot of the time they're successful, sometimes they fail. I wrote the book to first off just surface these stories so people know what's actually happening, but also to pull out some of the lessons for contemporary public policy debates where we go from here on the other side of the insanity of Trumponomics.
Well, I want to sort of ask you about the end of your book, which you closed right last year before Trump 2.0 begins. But what I think is so interesting about what you write is how actually the sort of rising stars on the right, as in Marco Rubio, Josh Hawley, JD Vance, those last two from Yale Law School graduates, actually agree about the importance of market crafting. With Lina Khan, Jake Sullivan, Brian Deese, on the left, they seem to be in agreement. Is that a fair?
Well, there are a couple things in there. First off, market craft is a way of harnessing markets for public goals. So it's not good or bad in of itself. It's sort of like tax policy or industrial policy or competition policy. These are all ways that we can organize or manage an economy, sometimes for good reasons, sometimes for bad reasons. And even how we define good and bad is rolled up in our politics. So when we start talking about where do Marco Rubio and Lina Khan or where do the Republicans and the Democrats agree, I think it's really important to be clear that they diverge on what they're building for a lot of the time. But I do see significant overlap in the how question. On both sides of the aisle, there is a newfound realization that markets need management to work for people, that we don't work for markets, markets work for us. That's literally a line in Marco Rubio's most recent book. It is something that Josh Hawley says both on the campaign trail, in op-eds in the New York Times, and in the Senate, and it's something that JD Vance believes axiomatically, as his support for Lina Khan shows. That's a really different Republican party than the one from the George W. Bush years where the conventional wisdom was just let markets do their thing, that's the key to prosperity. Now the modern Republican party is saying that's not going to go well on its own. I think on the right, the big things have been the rise of China and the pandemic. And on the left, it's those two things of course too, but also the Great Financial Crisis and climate change. The combination of these events has pretty much changed the way that we talk about economics and I think has birthed a new framework for us to use. Even though what JD Vance and Marco Rubio want most of the time is to lower taxes for the rich, to have more billionaires as we can see this administration is pursuing, or across-the-board tariffs where we tax everything and raise costs for American families. This is not my politics, and they are putting the state at the center of their story of how the economy should work, and that is very different.
Is there anything that Trump this time around is doing that fits into that mold? I mean, there is a sense that free trade is considered a bad thing right, I think on both sides. So in that sense, the tariffs are probably in line, but maybe not the way he did it.
For me, when you craft a market, you have to have a goal, and then you have to marshal public policy in service of that goal. So ironically, in Trump one, there was a clear goal: let's make semiconductors here in America, not in Taiwan, because you don't think that's safe. And we can see that we need to onshore advanced semiconductor manufacturing if we want to have the leading military that we want to have. That was a Trump idea that then in the Biden administration gained extra steam and got over the finish line in the form of the CHIPS and Science Act. Congress had a clear mission: let's make chips here at home. It appropriated $50 billion to the Secretary of Commerce and gave the department pretty wide discretion to use that as they saw fit. They made a ton of investments. And now we have five of the world's leading advanced semiconductor manufacturers here in the United States either making the chips or about to make the chips. TSMC is making the chips for the cutting-edge next iPhone here in Arizona. So that's a market craft. What is not a market craft to me is taxing all goods in the form of tariffs. What's the goal of that? They might say to bring back manufacturing jobs. It's like, okay, then why are we tariffing avocados or Barbie dolls? When it's broad and it's not targeted, that's not crafting a market. The impulsivity makes it more like market crashing than market crafting. So I do not see market craft in this administration. But that's not to say it's a partisan thing. Half of the characters in the book that I write about are Republicans, many of whom are very successful at crafting markets. It's just not what's going on in this one.
I got the sense in the last chapters, which obviously are about our generation. I'm older than you, but I think Marco Rubio and I are probably contemporaries. But you had spent quite a lot of time with some of those players, particularly I got the impression you knew Brian Deese pretty well. And the floating cameo appearances of Larry Summers. Talk to me about that because he starts off in the book, he's there obviously in the chapters about the financial crisis and Lehman. In fact, don't you bring him in when he's a seven-year-old child?
Yes, actually the first time he appears. You are a very astute reader, Vicki. He appears in an early chapter that's about the first Black Fed governor who teaches at Wharton, where I'm doing my PhD, and a young Larry Summers comes up to Bremer afterward, and Bremer remembers it and it's in his papers. Obviously that small Larry Summers becomes eventually the Treasury Secretary and the director of the National Economic Council and all these things. But yes, that's his first appearance.
You write very well, Chris. I can't always tell what you think. But there are some fascinating scenes. I love the scene when Larry in 2010 calls Elizabeth Warren into the Bombay Club and sort of says you can choose your lane, whether to be an insider or an outsider, and Elizabeth Warren chooses the outsider lane. But then 10 years later, he makes a speech saying his days of government are behind him, he's going to be in the outside lane. He's been sometimes critical of what Lina and co have done. And yet not. What's your sort of big takeaway?
I think it's mostly critical. But he was supportive of the IRA and some of the policies at the end of the day. So for those people who haven't taken a look at the book, the last third of the book is about how do we go from what many call the Washington consensus, free markets are great, to the moment that we live in now. In order to tell that story, I trace the genealogy of two characters primarily: Brian Deese, who is a lesser-known figure who was the director of the National Economic Council for Joe Biden, and I also tell the story of Lina Khan. Larry Summers is particularly relevant to Brian's story because Brian starts out as effectively a Summers protégé. He is on the Obama campaign in 2008 and then joins the National Economic Council to work for Larry in 2009. Brian is tasked with overseeing the auto bailout. The lessons that Brian takes from that are very different from the ones that Larry takes. For Larry and that crew, that's the emergency room view. The markets had failed. Government needed to be there to prevent further damage, but then once they're recapitalized, off they go. Brian learned something else: that we can't be bailing out these companies again and again. We have to be crafting these markets to be resilient, to work in a way that means they're going to be strong and not constantly collapsing, which means pushing them to keep up with the times and with international competitiveness. The short version is he goes from being the proverbial kid in the room, in his 20s, to then being the boss. In the Biden administration, he becomes the director of the National Economic Council and he's really the most influential voice of the entire administration on economic policy. Janet Yellen as a Treasury Secretary has a different focus. It's really Brian behind the scenes who is working to architect the entire program. You see an approach that says the government has an opportunity and a responsibility to shape markets to get more clean energy investment, to get more of those semiconductors made at home, to build infrastructure, and also to ensure that markets are competitive and fair. He becomes, in my sense, the leading light of that outlook. And of course, there's Larry on the outside throwing rocks, very aggressively criticizing Brian and the administration's economic policy both publicly on Twitter, on Bloomberg, and also privately. Though I think they continue to be friends, they see it as respectful roles where they're each saying what they have to say. That clash is emblematic of the bigger clash of these sets of ideas: on the one hand, markets are going to fail, you've got to be ready to help out when they do; on the other, we don't have to use that logic, we can craft them to make them work better. That contrast is the key storyline.
I knew very little about Brian Deese. I think the human story that you told about him I found very interesting. There's a very sweet anecdote about Lina than they know about Brian a lot more, and there is a rather charming story with Obama about Fiat or Chrysler, where he's nervous and he pipes up and means to say something about 40 miles to the gallon, and instead he says if we get this right, American cars will be able to go 40 miles an hour. It's just a total slip-up which he doesn't even realize at the time. But it's a pretty important meeting and everybody laughs, and Obama writes about it in his memoir because everyone liked Brian and respected Brian and saw him as a bright light, an up-and-comer who would have a major impact on the world. Then you fast forward 15 years and there he is doing exactly that.
Well, so let's go back to what in the short term definitely caused this switch, which is the financial crisis, which for me was like going down memory lane when you opened with Hank Paulson and the infamous story about him deciding not to take sleeping pills on the most important weekend in terms of the economy, September 2008, deciding the fate of Lehman Brothers. I was really fascinated to read this, not least because I'm in talks with the BBC about possibly going back and revisiting my book, The Devil's Casino, about what happened to Lehman and going back and talking to ideally Hank and Dick Fuld about their view of it. Now we're 20 years. I bet they would tell you the same thing though. I think you got to talk to the Fed staffers who were told no. Anyway, I don't mean to cut you off.
No, no, no. I got that. I got the sense that you sort of believed there was daylight between Alan Greenspan's view of what the government should be doing. Obviously Alan Greenspan was no longer a Fed chair by then, but we were riding high on his philosophies about how it's in the market's self-interest to regulate itself, not what can go wrong. He loved derivatives. He was very much behind all these financial instruments. That idea went on for decades. And what could go wrong except that we have the subprime mortgage crisis and credit default swaps. I'm just going to give a plug to my college roommate, Blythe Masters, very important role she played at JP Morgan, and Gillian Tett who then wrote about Blythe and introduced Gillian to me, and I introduced Gillian to her husband. What can I tell? It's almost a smaller world than Yale Law School. But go back because I very much get the impression from you that despite Alan Greenspan's bullishness about free market, if he had been in charge, the outcome would have been different regarding Lehman.
I think there are so many important figures here, and this really was a hinge moment of history, a critical juncture. That weekend when Lehman imploded was one of those. It's why I spend a whole chapter on it, not only because of the events themselves, but what they say about the shift in political economy. Leading into that period, Alan Greenspan is the Fed chair for 20 years, widely beloved, respected. He oversees a period of low to moderate interest rates and consistent growth, and he's called the Maestro. By the way, when he says goodbye just months before the financial crisis, someone at the big goodbye party raises their hand to ask some direct and probing questions, and Larry Summers says, 'How dare you?' because there is a sense that Alan has gotten virtually everything right. So what was Greenspan actually about? We know mostly the deregulatory story. He wanted financial markets to work better. I think that's an important story, and even though I'm skeptical of it, he did have a cogent theory behind it. Greenspan believed that when financial markets became more efficient, they actually got safer because it enabled investors to have more information about what was going on, so they could identify risk points that could be worked into prices. There was this axiomatic belief that efficiency was important, and the best way to get efficiency was to innovate. So Greenspan has a market craft where his goal is not just to get government out of the way, but to use the central bank and other pieces of the government to encourage financial innovation. That includes not just faster trading, but also credit default swaps and special purpose vehicles. Each one of these things actively needed government to say yes, that is a good idea. I track each one of these public policy changes because Greenspan is championing them as the advocate of financial innovation. Everybody knows how that story ends with the great crash of 2008. Greenspan had just previously retired, so it's left to his successor Ben Bernanke and Hank Paulson to oversee the response. But then comes the real irony. In Greenspan's tenure, when things had gone south, he had worked with the other institutional partners to support financial institutions to have orderly wind-downs. People even named it the Greenspan put. You generally believe that the Fed would be there to prevent collapse in financial markets. Then Hank Paulson is in the chair, and Hank's approach is more purely libertarian. Somebody has to fail. We've bailed out Bear Stearns in the spring. We just did Fannie and Freddie. Now Lehman is threatening. There was already bad blood between Paulson and others, a human component. Eventually on that Sunday when the Barclays deal falls through, they say there's no plan B. There was a plan B. There were actually several different plan B's that the Fed internally had developed, even for Lehman, but that were made available to Goldman and Morgan Stanley. My point is not to say we should bail out all the banks. I do believe there are ways to have structured wind-downs in an orderly fashion, like happened with the largest hedge fund in the world a decade before, Long-Term Capital Management, in the Greenspan era, that would have prevented the scale of the crisis. On Sunday they refused to bail out Lehman. By Tuesday there's so much chaos in the market they bail out AIG to the tune of eventually a hundred billion dollars plus. Then it just keeps going for all the other major banks. That was a pivotal moment because of the inputs that Greenspan had led the way for, and then this 'somebody has to pay' approach that wasn't pragmatic and wasn't in line with Greenspan's own approach to market panics and crisis.
