Chris, you've been talking about reshaping the economy. What's one key idea from your book that could transform capitalism as we know it?
I think that we need institutions that can shape and guide markets toward public goals. Making people richer, safer, more economically stable, working on climate change, building semiconductors. There are many goals, but we need to get that institutional context right to shape and guide markets.
What could go right? I'm Zachary Caribel, the founder of the Progress Network, joined as always by Emma Varval Lucas, the executive director of the Progress Network. And this is What Could Go Right, our weekly podcast where we look at, yes, what could go right. And so we're going to talk to someone today who has been both deeply immersed in the tech world as one of the early forces behind the creation of Facebook, as someone who has then gone on to work in media and start nonprofits, and now has some thoughts about what the role of government in fact should be in shaping our economy. So Emma, who are we going to talk to today?
Ah, I think you gave it away. We're talking to Chris Hughes. He is co-founder of Facebook and later directed Barack Obama's digital organizing efforts. So you may know him from that life, or you might know him from his current life where he's serving as the chair of the Economic Security Project, which is a nonprofit that advocates for economic power for all Americans. And today we are talking to him from his third hat as an author and economist. We're going to talk to him about his new book, which is called Market Crafters: The Hundred Year Struggle to Shape the American Economy. Ready for that?
I am ready for that. Let us speak with Chris Hughes.
Chris Hughes, what a pleasure to have you on. What could go right?
So, you've written your second book. Here is, drum roll, please. The ultimate softball question. Please tell us what Market Crafters is about. What it argues.
The book makes the case that policymakers have the power to guide and shape markets towards political goals. Things like making Americans richer, safer, their economic lives more stable, if they know what they're doing. And there is this hidden history over the past hundred years of Republicans and Democrats alike guiding markets towards a variety of goals that I hope we'll talk about. And often they succeed. Sometimes they fail. And out of those lessons, we can forge a vision for how to make the economy work better and bring down costs and rebuild after the chaos of this administration.
I feel like we have to start any government interference in the free markets conversation with what you just said, 'if they know what they're doing,' right? Like there's always this jump scare that starts to imagine Venezuela type things. How do you get people over the nervousness of the government interfering in the so-called free market system?
Well, I wrote the book to reject that framework on its face. So, it's the framework that I've used for a long time until maybe seven or eight years ago, and it's the framework that most of us use: the idea of using the word 'interference.' A lot of other folks might use the word 'intervention,' and that language suggests that markets work just fine on their own. They're almost like natural creatures that dynamically produce abundant goods, and the state is over in the corner and sort of comes in after the fact like an emergency room to fix things when they break. That is not the history of markets in the United States over the past century. Instead, it's more akin to something like a vegetable garden. A market does have these dynamic elements which can be very creative and do occur across time and space, but they need to be cultivated. They need to be pushed in a direction, just like a plant needs certain plants need sunlight. Some need shade. Some need to be weeded. Some need fertilizer. Some need to be planted at the right time of the year. Markets need cultivation and need management. Otherwise, we just get into a kind of bailout culture. When you take a step back and look at American capitalism and the story of it, just think about how many markets we all agree are structured by the state. I mean, healthcare, pharmaceuticals, airlines, banking, now semiconductor manufacturing. The list goes on. It's well over half of the GDP, well over half of our economy, are these industries that are managed by state action. Now, each one of them has pluses and negatives for sure, but that's the whole point of the book: to get into this new framework of thinking about markets as something that are managed and dump the old interference language if we're ever going to figure out how to do it right.
So, how might we do it right? I mean, I think the challenge of these, certainly the challenge of writing history and then also writing present tense policy, is history is well, it's not clear, but it's clearer because we're able to step back from it and we have a sense of how things played out. We can see what policy decisions were made. We can try to see what their consequences are. Although that too is also difficult historically, right? Because you're never 100% sure or even close to it that you're picking the right variable to assume that that was the determinant one. That's why we keep rewriting and debating about what caused what. It's really difficult in the present to try to figure out what tweak works, and you've spent a lot of time particularly with the Economic Security Project examining what those tweaks might be. I'm using 'tweaks' as very specific policy measures, not as a pejorative that they are not meaningful. So how do you balance that kind of question of one is causality in the past, two is what it tells you about what might work and what might not, and then how do you apply that to the present? I know that's a really simple question, it's a broad question.
But it's a great question because at least I hear in what you're saying: how do we first off understand what happened in the past, and then how do we pull out implications for the present given how much has changed? And yet I think we can. I wrote the book to give us a framework to think about contemporary policy and martial history in the service of the moment. And it's a collection of 12 different stories of people and multiple moments in history where we can see market crafters, obviously that's the title, trying their best to guide and shape markets towards an end, and we can learn a lot from them. So why don't we take a concrete example. I think the Federal Reserve is a major institution in the United States with the responsibility of guaranteeing price stability, full employment, and financial stability. It was created in 1913, reimagined in 1935, but I have a chapter on in the book in the 1950s when it developed a new mandate to create orderliness in markets. And so what that actually meant was that the Fed began to use open market operations to stabilize and really set the price of short-term credit, buffer it if it went too far up or too far down by using its central institutional power. And then of course when there are real crises or panics, step in famously in 2008 but many times before. And that institution has crafted financial markets to be more stable. We had a lot more panics and a lot more chaos before that central bank existed, and on balance it's done a pretty good job despite some of the clear mistakes. And that's the kind of thing that you can get really into the weeds of Fed history, and I love doing that, but it's powerful just to step back and say, wait a second, if we have an institution with the mandate for financial stability and another for energy stability and another to make semiconductors, how is it that we can't make housing cheaper in the United States or how is it that we can't ensure that we had the technology to mitigate climate change? These are very big challenges, but so was financial stability in the system, and there is a pattern. It's a rhythm in history that I think can point the way forward. And I think history isn't going to define the present moment, but at least can point us in the right direction.
What exactly is that pattern? I mean, what are the general guidelines about what a government should do and when they should do it and how exactly it should be done?
When market craft works best, there's a clear mission, like build advanced semiconductors in the United States. Congress then creates an institution that has the responsibility to get it done, like in this case the Chips and Science Office. And finally, it invests it with a discretion to move with agility and meet that goal. So in the case of the Chips Act, it empowered the Commerce Secretary, then Gina Raimondo, to make a lot of decisions about how much of the $50 billion went to R&D and how much of it went to attract private capital to build semiconductor manufacturing plants, in addition to how to structure the office, how to run the whole process of inviting companies to apply and then vetting them and then investing the money. And the chips and semiconductor story is one of really incredible success. I mean, just several years ago we didn't have any meaningful fabrication of advanced semiconductors. And now we have five of the largest global companies that make these things either producing them here in the United States now or soon to open factories that will. And that is really remarkable change in a short period of time. And so that kind of structure, you see it, we've already talked a little bit about the Fed. We could also talk about it in the context of the Strategic Petroleum Reserve, which was created in the 1970s after several oil and energy crises. We said, wait a second, we need a buffer of oil in the United States so no country can ever create an embargo in the same way again. And so now we store hundreds of millions of barrels of oil in these underground salt caverns, not only to protect us in case of geopolitical instability, but it can also buffer the price so that we ensure it never gets too expensive. So that's an institution that Congress created. The folks who run it were invested with the discretion, and it's endured for decades and decades and is a big reason why energy crises haven't recurred. So that template, that model, recurs throughout history, and I think we can learn a lot from it.
See, you did a piece for the New York Times which is part of the book about the Fed and the role of the Fed and the vital role of the Fed as an impartial steward, which I agree. I mean, I've written a lot about the Fed over the years. There's a free market, I think, legit question about the Fed, which is some of the contemporary Federal Reserve approach is shaped by a perception that the Federal Reserve failed in 1929 through the early 1930s, that it either misinterpreted its mandate or didn't use it sufficiently. There's been a lot of debate about that historically as to whether or not that's a fair critique or whether or not it was as central to the unraveling of the economy in a way that we now call the Great Depression. But there is the pushback: the economy, this incredibly complicated multivariant thing that's largely a series of statistics that we then call one aggregate thing called the economy, has so many moving parts and so many different factors that the idea that the Federal Reserve is in and of itself the determinant is a mistake. Not because they're not well-intentioned and well-meaning and that they're not good stewards. When you say 'the determinant,' you mean of interest rates, of money supply, and money flow. Like they are one powerful input into a system. And we've seen this over the past really 20 years of the Federal Reserve's use of short-term interest rates not necessarily moving market interest rates nearly commensurate with its activities. Now, the Federal Reserve as an emergency source of capital and liquidity and backstop in times of crisis has clearly been absolutely essential. Absolutely essential in 2008, 2009, absolutely essential in 2020. But the Federal Reserve as a market crafter, I just wonder what do you think about the argument that its ability and capacity is overstated both by itself and by its detractors and its defenders?
I don't think that's right. I mean, the Fed sets the price of short-term credit and enforces it through, today it uses administered rates, which are kind of open market operations. So, the interest on reserve policy in the overnight reverse repo facility, which I imagine is in the weeds, but it sets those rates by the decisions of the FOMC and then enforces them. And then we can use as a crisp example: when inflation was raging in 2021 and 2022, it raised those rates precipitously, and that had a clear effect on cooling the macroeconomy in terms of affecting medium-term rates like the 10-year Treasury and other things. I mean, the further you get out on the yield curve, obviously more and more of the determination of the price of credit is by market forces, and even there, the 10-year is an expectation of what the next 10 years of short-term interest rates will add up to plus the risk premium, and so even there it's meaningfully affected by Fed decisions. And at moments in history when the Fed has wanted to be even more aggressive, it has changed the price of medium and even long-term credit, obviously in the pandemic years recently, but also Operation Twist back in 1960. So, that's not to say that the Fed has all the power. Obviously, it's there to do a dance with markets and to guide those markets towards the right price for credit, but it is a real power that is exercised on a daily basis to the tune of trillions of dollars. And I think we could argue when policy should be tighter or should be looser, but it's quite difficult to argue with the effectiveness of not just the Fed but the other central banks being able to tighten and loosen the money supply as they wish.
That was a good answer. There is a long debate, particularly in 2022, that if the Fed had done less or nothing, the inflation curve would have been remarkably the same, and that you've attributed effect to cause mistakenly. There are some strands of truth in that in 2022 and also back in the Volcker shock as well.
Because let's just take the most recent inflationary surge. The best estimates from pretty centrist econ economists like Olivier Blanchard and Ben Bernanke is that of the peak inflation of roughly 9%, at most two was caused by the Biden and Trump COVID-era stimulus. So most of that inflation was coming from supply chain bottlenecks when we just couldn't get stuff, remember when the ports were all jammed, and the rapid shift in consumer demand away from services and towards goods, homes, cars. The point is, when you have supply-induced inflationary shocks, you actually want to rely on monetary policy less. You don't want the Fed to hike precipitously. You just want to untangle those knots of those supply chains or bring online more capacity. And so, one of the key arguments in the book is that inflation comes and goes. We will have another inflationary episode. It might be this year or next year because of the tariffs. It could be 10 years from now. And if we are going to be prepared for that moment, we should absolutely embrace the Fed's tools on the demand side. But we could also have an institution that would have power on the supply side to think about how it could either make more expensive or make cheap the cost of goods that are driving the inflation. If it's energy markets, we were talking a little bit about the Strategic Petroleum Reserve. If it's housing, even if it's food. To use that as an example, in the 1930s, we did food stock buffering in the United States where for cotton and corn and wheat and even grapes, the Commodity Credit Corporation, which was part of the National Investment Bank, which I go into detail about, bought low and sold high. In other words, if there was a glut of cotton on the market or a glut of grain, it would buy in order to ensure that there was a price floor, and then if it got really expensive, it would sell to make sure it was affordable to consumers. So, this kind of reserve buffering strategy is one of the things that a lot of us talk about as being complementary to the Fed's tools to craft markets for price stability. You could do something similar with eggs in the 1940s and the 1950s. You could do it for coffee beans, which have seen their prices rise dramatically. We would need an institution to be invested with this. The Commodity Credit Corporation actually happens to still exist. It would need to get a big new investment and with a clearer mandate, and it would have to have the discretion to get it done. But there is a recipe there for a price stability that doesn't just rely on constricting credit by the central bank.
Chris, how do you differentiate between economic policy, something like Trump's tariffs, versus market craft? Could you spell out the difference?
Market craft, when you've got a goal and you are shaping and guiding a market towards it. What Trump is doing is like the opposite of that. The tariffs, I mean tariffs are a little bit like taxes. You can have a tax policy to make it cheaper to build solar panels, or you could just lower everybody's tax rates. The first is a market craft because you're trying to achieve a goal of clean energy production. The second is an economic decision that affects all markets. So the same thing goes with tariffs. You could imagine a tariff policy which said, we want to support domestic electric vehicle production, and so we're going to put a tariff on EVs from China. They're dumping them in markets. Ideally, you would want to work with foreign powers like the EU and the United Kingdom and others to coordinate a similar kind of trade policy. And then you would pair that with an industrial policy to make sure that you're actually going to see the innovation that's going to make EVs cheap in the United States. That would be a kind of market craft that would use tariffs along with other things to create more abundant and cheap electric vehicles. This is like tariffs on everything. He says sometimes it's about bringing back manufacturing, this vague mandate, but then why do we have tariffs on avocados? It's just so not to mention the obvious impulsivity of it: one week it's on, one week it's off, one week it's 145% on China, next week we don't know. The uncertainty of it. So, it's not a market craft by any means, and it's chaos, and we're going to have to be clear about that, I think, if we want to do something more precise and better on the other side.
Let's pivot to the world of technology, which you know interestingly one of the things buried in the chaos of what DOGE has done and kind of what is going on, if anything coherent is going on in the first 100 plus days of the second season of the Trump show, is the belief that government could make better use of data. That one of the reasons government is inefficient, i.e., is not being an effective market crafter, is because it doesn't use its data effectively. This is kind of brought into focus by the Silicon Valley group around Elon Musk and David Sacks and all these others who are saying, look, there's all this inefficient use of data in government. If we made better use of data, we would do a better job running the government. Not a dissimilar argument by the way that was made after 9/11 when people were saying there was all this information within various intelligence agencies in the government, then they weren't sharing it with each other, and the FBI didn't know what the CIA was doing, and they didn't know what local police was doing, and they started to create a kind of a unified database of terrorism threats and activity to inoculate us against further attacks. That was an early version of that. A, is that accurate? And B, do you want government to have better data systems, more integrated systems, the IRS sharing with immigration, sharing with state department sharing? And then what do you do about the dangers of control enhancement by having that data integration?
Let me speak for myself. I want more effective government. And I think effective government means using in a responsible fashion all the cutting edge technologies that can help get the business of government done. In some cases that might mean you need to hire some new folks like data scientists. In some cases it means you could streamline government and have fewer folks doing this work. The thing that I think is really important to understand is that DOGE is not doing that. It may have 'efficiency' in the name, but that is not its actual described activity. And a really crisp example is we had Direct File, this technology tool from the IRS that made it easy for Americans to file their taxes with just a few clicks online. It had been worked on for years by a lot of different folks. Obviously, H&R Block and companies that file your taxes didn't like it, lobbied against it. But Direct File was wildly popular. You had hundreds of thousands of people this April filing their taxes using it. New technology making, in theory, government more efficient and making a better experience for the taxpayer. They canceled it. Why would you cancel a program that makes it easier to file your taxes if you actually care about government efficiency? There's no evidence of fraud or technology problems or it went down. It's like, could you have a clearer example of how the stated mandate and then the reality are in two separate places? So I think we all deserve and want a government that's more effective and more efficient, and we could get there in a completely inadvertent fashion. The inefficiency of the federal government about data does have the unintended consequence of making it harder for the government to control things.
One of the things about market crafters is it requires an element of government coordination, capacity, capability, and efficiency. I'm just asking about some of these unintended consequences issues because one thing that we've seen certainly out of China, and I'm not saying we're just going to be on the spectrum to China, but we have seen that in a world of technology data efficiency centralized in an executive can be an element of profound social control.
