My Conversation with Benjamin Friedman

Here is the audio, transcript, and visual. Here is part of the CWT summary:

Benjamin Friedman has been a leading macroeconomist since the 1970s, whose accomplishments include writing 150 papers, producing more than dozen books, and teaching Tyler Cowen graduate macroeconomics at Harvard in 1985. In his latest book, Religion and the Rise of CapitalismBen argues that contrary to the popular belief that Western economic ideas are a secular product of the Enlightenment, instead they are the result of hotly debated theological questions within the English-speaking Protestant world of thinkers like Adam Smith and David Hume.

Ben joined Tyler to discuss the connection between religious belief and support for markets, what drives varying cultural commitments to capitalism, why the rate of growth is key to sustaining liberal values, why Paul Volcker is underrated, how coming from Kentucky influences his thinking, why annuities don’t work better, America’s debt and fiscal sustainability, his critiques of nominal GDP targeting, why he wouldn’t change the governance of the Fed, how he maintains his motivation to keep learning, his next big project on artificial intelligence, and more.

Here is one excerpt about religion:

COWEN: If we think of the most influential advocates for capitalism in the mid–20th century, there’s Hayek, I would say Keynes at most phases of his career — maybe not all, Milton Friedman. They seem to be largely secular rather than religious. If we look at theologians — while there’s a great diversity of views, on average, they seem to be left-leaning. So why is it the religious thinkers lean towards socialism, and the economists are quite secular?

FRIEDMAN: I think there’s a part of the story that you’re missing, and that has to do with the coming together at mid–20th century in America, of religious conservatism and economic conservatism. I think the catalyst that brought them together was the existential fear of world communism. Here we are — call it 70 years later, and it’s difficult to put ourselves back in the shoes of Americans in the 1950s, but that was a real fear.

Communism, at least as advocated at that time, had a unique feature of being simultaneously the existential enemy of lots of things that we hold dear. It was the enemy of Western-style political democracy, but it was also the enemy of Western-style market capitalism, and importantly for purposes of this line of argument, it was the enemy of Western-style religion.

I think the religious conservatives and the economic conservatives realized that they had an enemy in common, and they took the threat seriously, and this led them to come together.

And about macro:

COWEN: Pandemic aside, if, on average, G is greater than R, can’t we just grow our way out of the debt? As you mentioned, now borrowing rates are negative in real terms, right? Economic growth, on average, is positive, so just keep on plowing straight ahead. Let the clock tick.

FRIEDMAN: There are two parts of the sustainability question, and you hit one of them correctly. If your economy is growing in real terms faster than the debt, then you can grow your way out of any debt. But there’s another side of it, and that’s how rapidly are you taking on new debt?

Let’s take your question seriously and say we’re going to put the pandemic aside. In the year before the pandemic — we’re talking about the government’s fiscal year 2019, so ended September 30, 2019 — none of us had talked about pandemics yet. In that year, the US government spent $4.5 trillion, and it only took in, in revenues, $3.5 trillion.

That $1 trillion deficit, even at a time of a fully employed economy and, of course, before the pandemic hit, that was nearly 5 percent of our national income — even though our economy was growing nicely, more rapidly than the rate of interest that the government was paying on the debt, we were on the other side of the equation, adding new debt so rapidly that the debt-to-income ratio was going up instead of down.

So simply pointing to the so-called R-minus-G factor, I think, is a very incomplete way to look at the question of sustainability.

Recommended, and here is Ben’s new and very interesting book Religion and the Rise of Capitalism.

 

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