This week’s High Noon guest is Oren Cass. Cass is the executive director of American Compass, a heterodox conservative think tank that looks at how our economy can or should be restructured to support family, industry, and the nation-state. He is also the author of a book, The Once and Future Worker: A Vision for the Renewal of Work in America.
Cass and Stepman talked about how economics and culture intertwine, the future of the right and left with regard to economic issues, and the pressures on working- and middle-class American families. They also debate a bit about the democratic accountability lines of the education system.
High Noon is an intellectual download featuring conversations that make possible a free society. The podcast features interesting thinkers from all parts of the political spectrum to discuss the most controversial subjects of the day in a way that hopes to advance our common American future. Hosted by Inez Stepman of Independent Women’s Forum.
Welcome to High Noon, where we discuss controversial subjects with interesting people. Every time, I should really pick a different tagline because every time I stumble over that. But this week we have the pleasure of chatting with Oren Cass. Oren is the executive director of American Compass, which is — and he can dispute this if he’d like — but a somewhat heterodox think tank in Washington, DC, that looks at how our economy should be restructured to support family, industry, and the nation-state. Before departing to start that project in 2020, he was a senior fellow at the Manhattan Institute and he’s also the author of a book, The Once and Future Worker: A Vision for the Renewal of Work in America. In 2012, he was Romney’s domestic policy director for that campaign while he was still attending law school. So he sort of rose up in the ranks very quickly in the DC world.
He had that position while he was still in law school. And then, Oren you kind of moved away maybe from what the typical sort of establishment position for the Republican Party was on economic issues. And to start off with, I really wanted to ask you how you changed your mind because it seems like you, and in the sort of the camp that any kind of, sort of increase in the GDP, that global trade, these were all good things for Americans, and they had only upsides. And now I think you see those things as much more a mix of positives and negatives and something to be a challenge rather than an unmitigated blessing. So how did you shift your views on that?
Well, I definitely have shifted my views somewhat. I would say even in 2012, if you go back and look at what then-Governor Romney was focused on and talking about. On an issue like trade, he was actually already quite heterodox in arguing that, that the trading relationship with China, for instance, wasn’t working at all. And something that we certainly learned about in the course of that campaign was, for instance, the ongoing opioid crisis, which at that point had already been the deadliest drug epidemic in the U.S. for a decade, and yet most people hadn’t noticed. And so I think, for me, what had been most striking in my own views was going from, once upon a time being a typical sort of college student learning economics and being taught the standard rules of free trade, but then going from there into the world of public policy and politics and seeing both.
How was that playing out in real life across the country, and how were the policy experts and economists who were teaching this orthodoxy actually coping with the problems, the places where the theory didn’t seem to line up with reality? And what I discovered, at least my impression was they just weren’t coping with it. That they still aren’t coping with it, that there has been a total refusal to acknowledge that some of the theory that people thought would hold simply has not held. And there’s a sort of attitude: who are you going to believe, my blackboard or your lying eyes? And so I think that was a real wake up for me, that what I had sort of implicitly assumed must be kind of very thoughtful, well-grounded, understanding of how the economy worked and how public policy influenced, in fact, in a lot of cases, wasn’t. It was what I’ve come to call just sort of a market fundamentalism and that the orthodoxy had kind of ossified and no one was questioning it, and yet it really needed to be revised.
That seems the case with so much of our politics and policy. That we kind of didn’t keep up with how the world changed after the end of the Cold War and that the problems arose sort of as we set astride the world in the 1990s kind of king of the world. But what specifically, what were some of the issues, you mentioned the opioid crisis, but what were some of the issues where you started to observe that disjoint between the blackboard sort of economic policy that was accepted largely not just by the Republican Party, but also by large squads of the Democratic Party? This was kind of a point of agreement between the two parties. Where did you first start noticing that this did not necessarily match up with what you saw in reality?
Well, I think there’s sort of a big picture disconnect and then lots of, kind of specific policy wonk disconnect. And the big disconnect is that economists quite formally focus on what’s called consumer welfare. Economics is done with the assumption that the goal is to consume as much stuff as possible. And frankly, to do as little work in the process of consuming as much as you can. That is how economics is designed and how the models analyze how things are going. And so I think what’s clear and probably is quite naturally obvious to everybody who’s not an economist, is that that’s not how life actually works. That simply increasing how much people can consume might be nice, I mean, I’m not someone who thinks we should all go live in log cabins, I like consuming stuff too, but that is certainly not the main or even primary measure of people’s well-being.
And on the flip side, work and actually being a productive contributor to a society is part of the puzzle. It’s something that people want and need. And so, whereas we had built our economic model around the idea of ‘it doesn’t really matter what happens to people as workers, as long as we keep consuming more stuff and as long as we redistribute to people who have been left behind, everything will be great.’ That was exactly what the bipartisan consensus said, and yet that’s clearly a terrible way to run a society. And I think we started paying the price for that at the wonkier level, when I started looking at the policies we were actually pursuing, a lot of them just weren’t working the way we expected them to do.
So trade is a clear example where the assumption was more trade for your trade with anybody and everybody was always going to be better. And that included China, even if China was an authoritarian communist non-free market, free trade would be better in part because the assumption was if they sent us lots of cheap stuff, who cares how they make it. And in part, because the assumption was by trading with them, we were somehow going to convert them into a liberal democracy over time. And obviously, none of that was true. And what we’ve seen instead is that the Chinese economic policy, when it interacted with ours, led to a terrible hollowing out of our manufacturing base and ultimately even our capacity to innovate. The free traders say, well, stuff that gets done with a lot of cheap labor will be done over there and we’ll specialize in all of these other advanced products and the new economy.
And yet what we’ve seen is even in a category like what’s called advanced technology products, we’ve gone from a trade surplus to a huge trade deficit. We now rely on other countries even to make advanced technology products for us. And then you see the same thing in our education system, where we, the story went, we’re going to sort of up our game in education and get everybody to be a college graduate. And then they’ll go on to these great jobs that require a college degree. And every part of that story has just not worked. We’ve shown no ability to actually reform our education system to be one that produces more college graduates.
And in fact, we’re not producing new jobs for the college graduates we have. We are churning out college degrees twice as fast as our labor market creates jobs that require college degrees. And so in area after area like this, the story that had been told of how we’re just going to focus on economic growth, economic growth is going to make everybody better off. Anyone it doesn’t make better off, we will just provide for through redistribution. Every part of that story is just wrong. It’s wrong conceptually, and it has not played out the way people expected it to. And so we really need to change how we approach things.
Yeah. Just as, detailed aside, it’s actually worse. So ed is my sort of policy expertise as opposed to economics more broadly. And what we’re doing with this glut of college degrees is even worse than there not being jobs that require college degrees. What’s happening is the jobs that didn’t use to require college degrees are just smacking on that thing at the bottom that says, bachelor’s required. And so what we’re doing is setting a price to entry for the same wage that is often a six-figure debt. And not to mention for me on the cultural side, a requirement to go through what is essentially ideological credentialing like indoctrination, in order to get the same job that your dad would’ve gotten without a college degree, without debt, and without having to go to an ultra-left wing culturally institution like a university. But you mentioned China as being the sort of the example that really breaks down a lot of the theories that were accepted in the 90s and 2000s.
It seems like you’d have to be a real ideologue at this point to believe that interaction with the Chinese economy has somehow made them a more liberal state. I don’t hear people making that argument very much anymore. I think only the last very, very hardheaded holdouts would say that Chinese liberalization is right around the corner. It seems to me that there was this really, and I still haven’t figured out why, maybe you can explain this to me. It seems to me that when the pandemic hit in 2020, and when Donald Trump was president who had run on, even if his policies hadn’t shifted too far from the GOP baseline, he had definitely run on this idea that trade was not working out for American workers. That we need to bring more manufacturing back home.
And then we had this pandemic originating in China and crippling the whole world, both in terms of deaths and then economic crippling. And it seemed to me like the obvious thing for President Trump to do there, would’ve been to say, hey, this is why we need some of our supply chains at home. Especially in the early days of the pandemic, where nobody could get masks, nobody could get ventilators. Well, it turned out the ventilators weren’t the best way to treat people. But at the time there was all these medical supplies that we could not get because all of our global supply chains were outside of the United States. Why didn’t we use that moment to reconsider how many of our supply chains, if not just run outside of the United States, but run in countries that are decidedly our geopolitical foes or even enemies? Why didn’t that happen? It’s still bizarre to me that we haven’t had a serious conversation post-COVID about those supply chains and where they are.
Well, I think it started to happen, and maybe this is a case of everything being relative and, as you said, we haven’t shifted to some entirely different worldview as a nation. But I think if you look at how policymakers talk and some of the legislation they’ve introduced and so forth, I do think that the pandemic really was something of a catalyst for realizing our supply chains have become unacceptably fragile and that this is, again, another place where the official economic theory is just incomplete, in that the economic theory forces people — and economics, as we then translate into policy — forces people to pursue efficiency above all else. And the sort of flip side of efficiency is resilience, that ideally, you need some balance of efficiency and resilience. And that we have multinational corporations optimizing only for efficiency.
And so the idea that actually resilience is pretty important too. Resilience isn’t free; it will bring costs with it. But that those are costs worth paying is something I think that people have started to recognize to a significant degree. And so you see that in some cases with specific products. So there has been a real move to try to move PPE production back to the US. Something like semiconductors. There’s been a real focus now on the idea that we’ve managed to totally lose our lead and our scale in producing advanced semiconductors, and we really need to get that back. And so that’s something that I think there’s been bipartisan progress on. But what you’re putting your finger on — and it’s really important — is that it’s not the sort of thing that you just sort of do for a little bit or you kind of notice, you take one action on, and then you move on.
We’ve sort of dug this hole for ourselves over really 30 or 40 years and it’s going to take certainly 10 or 20 to start to climb back out. And so what America really needs is both a long-term policy that says, look, this is our goal. This is how we’re going to pursue it, and these are the policies that we’re going to put in place that are going to have some short-term costs, but we think those short-term costs are worth paying because we think the long-run outcomes, both in resilience, but then ultimately in terms of jobs and growth and innovation, are all going to be better. And I don’t think we have the leaders today who are communicating that, making the case for it, and then putting in place the policies that we would need.
Part of the story here is obviously that there isn’t really in the same way that there was, even let’s say 50 years ago, the idea of the American company. Most companies of any size are both, not just their supply chains, but doing business in the global market and including in China. And it’s hard to disentangle business-wise from the Chinese market for a lot of these companies. But I guess which came first is my question, because there definitely seems to be an ethos that for example, was not around in World War II, where you had this enormous domestic mobilization on behalf of the nation-state by American industry, by American companies. It’s really hard to imagine that happening today, in part because their profits depend so much on, say, the Chinese market, but also in part, because of the cultural aspect. Where, I mean, I don’t know, I grew up in Palo Alto, a lot of those tech companies and the people who start them, they almost regard, it would be too inflammatory and simple to say that they are not patriotic towards America.
It’s rather that they think they’ve transcended the concept of the nation-state. They truly do believe they’re global citizens. They almost view patriotic attachment, I think, as a form of jingoism, or sort of primitivism that is no longer necessary in a global world. I mean, it seems to me like this is both an economic and cultural problem. Do you think the economics of globalism have produced a class of business leaders who think this way? Or do you think that, let’s say, some cultural changes that took place in the 1960s — I mean, which one of these do you see leading the other one in terms of thinking it’s okay to go and make a ton of money in China, even at the expense of your fellow Americans?
Well, I think the two things go hand in hand, and goes back to that original economic theory that we’ve talked about in the context of China, but really underpins globalization generally, which is just that globalization is going to be good for everybody and therefore we don’t have to think about any of the tradeoffs you just described. And some of that is just sort of self-fulfilling wishful thinking, but a lot of it is what people actually really believed. I mean, if you go back, and we just did a big project on globalization at American Compass, a big piece of which was to go back and look at the rhetoric from the 90s and the early 2000s. And the arguments that Republicans and Democrats alike were making, that I think for the most part they believed, which was that globalization, the breaking down of barriers to the free flow of goods and services, capital, people, across borders, shifting to ultimately making borders as irrelevant as possible, that that was going to be good for everyone economically, and it was ultimately going to be good for the world sort of culturally and politically as well. It would bring about liberalization in places like China, it would bring about peace. You had the theory that countries with McDonald’s would never go to war with each other, and so on and so forth. And so all of that actually holds together very well as a coherent ideology. If you believe all of those things, then you don’t have to actually choose between America and China. Going and making as much money as you can in China is supposed to be good economically for people in America, it’s going to make China more liberal and democratic, and you can just, you can feel great about the whole package. The problem is, it’s not true. None of it’s true. It’s not true that going and making a lot of money in China is going to help China liberalize.
In fact, in a lot of cases, it’s to the contrary, helping to entrench an authoritarian communist regime. And it’s also not true that going and making a lot of money in China is going to redound to the economic benefit of Americans. It’s going to redound to the economic benefit of yourself and your shareholders, but the theory that, again, I think is especially prevalent on the right-of-center but was broadly advanced by the Bill Clinton style of new Democrats as well — this theory that, well, whatever leads to the multinational corporation earning the most profit is ultimately going to be good for your typical American worker — it’s just not true. There’s certainly no evidence to support it. And even if you try to kind of follow the theory and ask, okay, how does this work? You realize that there is no theory.
There’s no reason to believe it should work. And that if you trace kind of, well, where did this come from? It comes from people going all the way back to Adam Smith and the basic idea of capitalism, that people pursuing profit and their own self-interest would ultimately behave in the public interest as well. And we had a bunch of economists who just sort of assumed that that’s just always going to be true and it’s not. And Adam Smith didn’t think it would be true. If you go back and look at what Adam Smith said, he pointed out a lot of really important assumptions. You had to assume that people would prefer to be investing domestically, not overseas. You had to assume that the investments that were going to be the most attractive were also going to be the ones that led to the most production and the most employment. And yeah, if all of that’s true, then capitalism works pretty well. Under globalization, as we pursued it, capitalism is not working very well. And that’s something that economists are being very slow to acknowledge because it’s going to require them throwing out an awful lot of things they promised us. But policymakers, I think, are figuring it out and we’re, I think, moving into a new era where we’re going to pursue different strategies.
So not being an economist, but being a conservative, my baseline assumption with things economic and non-economic has always been that man is essentially a selfish creature, that it’s necessary to align production of goods or services, or any kind of, essentially, prosperity in the society with self-interest. And that designing an economy based around targets that don’t take into account the self-interest of the worker and frankly, of the capitalist, that that’s not going to work. And that was always the sort of central problem with socialism and the reason that socialism failed so many times, it was always that it fundamentally didn’t work with human nature. It didn’t reward production, therefore there’s less production and you have less to distribute, and you end up with shortages and breadlines and all the things that we associate with socialist economics.
It seems what you’re saying here though is that there is a self-interest for somebody, essentially, a way — like that self-interest and the national interests are diverging in a way. That there’s an opportunity to make an enormous amount of money that is by human nature are standards, people are going to take advantage of that, but that that interest lies in opposition to sort of national interest that we had kind of taken for granted. Is that kind of what you’re saying? That previous economists like Adam Smith had taken for granted this alignment that you would, for example, prefer to work, given your druthers, you prefer to work with other Americans in producing the stuff that you then sell. Or that it was impossible by virtue of sort of the level of technological advancement, it was impossible to move, to treat truly every worker on the face of the planet as completely interchangeable. Is that kind of what you’re saying?
Yeah. I think the way you just described the sort of challenge of aligning interests is exactly right. And that the core conservative insight that I certainly agree with and I think is 100% correct, is that you need to have the self-interest somehow aligned with the public interest, that if you just assume that people are selflessly going to behave in the public interest, the whole thing’s going to fall apart. And that, as we’ve seen repeatedly through history, when you try to build a system that way, it does fall apart. I think what conservatives have gotten wrong, and this is really sort of a late 20th-century error, is to think that alignment happens automatically. That you had this group of economists that are so often cited now, like Milton Friedman and Friedrich Hayek, who sort of said this is just a self-regulating system.
And if you just leave it alone and get government out of the way and have people just pursuing profit, that that is going to just automatically redound to the public interest. And that’s not true. There’s nothing in economics or anywhere else that says that that’s always going to be true. And so the question that I think conservatives need to focus on is, what is the set of rules that you need for a well-functioning capitalist system? What is the set of constraints that you need to put on people pursuing their self-interest to ensure that, in doing so, they also advance the public interest or the national interest? And there are some things we all take for granted that of course you need. Like you need private property. You need [crosstalk 00:25:05] contract enforcement.
Right. I was thinking of is that, of course, without the constraint of private property, you end up with what Russia was in the 1990s. You just end up, whoever, the state of nature, whoever has a bigger gun comes and takes your stuff, and there’s no incentive to produce either.
Right. And so we recognize things like that. We recognize things like, obviously, you need to prevent fraud because if people can defraud each other, then you’re likely to have a lot of strategies for making a lot of money that are not in the public interest. We even have things like intellectual property protection. We recognize that granting patents and copyrights is going to encourage people to make investments and pursue profit in ways that are going to be in the public interest that they wouldn’t pursue if those protections weren’t in place. But I think what we’re seeing, particularly in the era of globalization and also in the era of what I would call financialization, the extent to which we sort of have quite speculative investor behavior, focused on Wall Street and private equity, and hedge funds and so forth, finding a lot of strategies that generate a lot of money without actually creating anything valuable.
And so what we’re seeing in the face of these things is that there are actually probably some other constraints that we also need. So in the context of globalization, we need some set of constraints that make sure that we don’t just offshore all of the production elsewhere. That’s not to say that we don’t like trade — trade can absolutely be welfare-enhancing — but we should want trade to be balanced. We should want to be trading things that we make here for things that people make elsewhere and that can make both sides better off. What we’ve done instead in this era of globalization is said, well, let’s just let people elsewhere make everything and what we’ll send back, it won’t be things we make here, we’ll just send back our financial assets. We’ll send back ownership of our companies.
We’ll send back owner of our real estate. We’ll send back debt, just IOUs that we’re going to pay you back someday. And that’s obviously a very unhealthy relationship. So a constraint that says trade is great, but trade needs to be balanced, I think is a perfect example of a constraint on the behavior of capitalists and on the capitalist system, that’s going to make it work better and bring that self-interest back into closer alignment with the public interest. And I think conservatives certainly need to realize that this isn’t just going to happen automatically, that the sort of libertarian just get out of the way and the market will automatically deliver great results. It’s not true, and it’s certainly not going to cut it politically. And if we keep saying that, we are going to lose to a progressive movement that’s more than happy to just have government step in. And so we need to have another set of answers that says here’s a way to actually run a well-functioning capitalist system so that we do get broad-based prosperity.
So definitely, you’re pointing to what has been called, let’s say, the realignment. There’s been a bunch of different words for it, but essentially describing the movement of voters, many of them working-class voters to Donald Trump, essentially. I don’t even want to say to the Republican Party. I don’t know how enduring that alignment will be, but getting a new base for the Republican Party when Donald Trump ran that is largely in the Rust Belt. Being able to topple a couple of those blue wall states from Democrats. And then, on the other hand, you have this movement of, at least if we were speaking two years ago during the 2020 election, I would say the movement of essentially wealthy suburbanites who had been voting Republican into the Democratic Party.
I think that picture is much more complicated now in part, because of concerns that have absolutely nothing to do with economics. The thing that both those suburbanites, college-educated women in the suburbs, and working-class voters seem to have in common is concern about the direction of the culture. Concern about what’s being taught in schools, concern about gender ideology, concern about a sexual culture, concern that could properly be characterized as sort of culture war concerns. And so it’s interesting to me, you now have a base Republican Party that, I think, is probably divided on the questions that you were talking about in the sense that folks who might be coming into the party because of let’s say education issues, they’ve done quite well under globalization.
And it’s not just the 1%, it’s more like a 20% of people who are college educated, who work in service economies, who work in some of these huge multinational corporations. They’ve done quite well under this global globalization or global economy. So I guess, how do you see these battles being fought out in a Republican Party? Which it seems to me has replaced — instead of Reaganism and the three-legged stool that sort of brought together libertarians and social conservatives and anti-communists internationally — it seems to me that the new sort of heart of overlap between the various coalitions in the Republican Party are cultural issues and not economic issues. And in fact, we’re going to have opposite views and we have both winners and losers of the global system now in the Republican coalition. So how do you see that working out for some of the issues that you’re working on?
Well, as you say, referencing the Reagan coalition and infusionism, any political movement in the U.S. and certainly any governing majority is going to be a coalition of people with different interests and people who sort of agree to defer to someone else on some topic in the interests of keeping the group together. It seems to me that what we have going on right now is there’s obviously a big push on some of these cultural issues. But I also think it’s also been the case generally for certainly decades that the sort of socially conservative preferences that the Republican party would’ve been advancing tend to be fairly popular ones with other groups as well, whether you’re talking about working-class voters generally, various minority groups. And so if you could just focus on some of those cultural issues, you could say there likely always would’ve been a majority, a quite strong one on the conservative side.
The problem is that the conservative economic message has been so unattractive to many of those groups that it’s driven them away. That if your entire economic message is going to be tax cuts, deregulation, and free trade, you’re going to lose an awful lot of voters who might agree with you on the cultural issues, but for whom that is, as an economic agenda, is just totally unresponsive to their problems and their concerns. And so I think what’s interesting about what’s going on with the realignment is you’re starting to see the prospect of having conservative political leaders who, alongside that conservative cultural message, are willing to talk differently about some of the economic issues. Now that doesn’t mean they’re sort of becoming tax-and-spend liberals and kind of promising to just expand the welfare state to kind of give everybody everything they need.
But importantly, that’s not what most voters and certainly those in the working class are looking for. What they’re looking for is an economic agenda that’s actually going to make capitalism work better so that they can find jobs that will allow them to support their own families. And so I think the compromise that you see potentially the right-of-center moving toward is one that says there’s a very strong majority that can agree on these cultural issues that will hold together if the economic agenda moves away from what has been very libertarian in the past. And so that requires a certain set of concessions from some of those higher-income suburban voters that you described. And I would say the question is, are those ones that they’re open to and ready to consider? And my own, well, my personal preferences, but also certainly my assessment of where things stand right now is that increasingly that’s something that an awful lot of higher-income folks who have done very well under globalization are prepared to consider because it’s so clear that the status quo is not sustainable.
That is that, I think, through the 90s and the early 2000s, there was a belief first that globalization was just going to be great for everybody. That financialization and everything going on on Wall Street, that that was just going to produce prosperity. And then sort of secondarily, well, if that’s not true, okay, but we have a safety net that will sort to take care of whoever’s left behind. And I think something that people have realized over the last 10 years, and I think Trump’s political success is certainly a piece of that, is that that’s just not a sustainable endpoint. That’s not where we’re going to end up. And that there are both for important moral reasons and reasons of national solidarity, reasons that even people who are doing quite well themselves should not be happy with how things are going.
And that even if they just want to be completely selfish, realizing that, actually, this does not have a happy ending for them if they keep kind of pushing down on the gas pedal this way. And so I think what the realignment should hopefully mean is that you end up with a definition of conservatism that is much less libertarian and much more focused on a combination of both conservative cultural concerns. And then a genuinely conservative economics that is interested in the national well-being that recognizes that efficiency at all costs and consumption at all costs is not a sensible approach, and therefore that doesn’t go the direction progressives want but does seek to impose some constraints on the economy in ways that are going to produce a more broad-based prosperity, and ultimately produce a country that even those who are doing very well economically right now would be much happier living in.
Yeah. I think that realignment is really going to be pushed along by the, you can say that the corresponding realignment culturally of American companies. Whereas they could once rely on the GOP for pro-business policies and kind of play both sides in terms of swinging in on the cultural issues on the left, and then relying on the Republican Party on economic issues. I do think that is coming to an end, at least vis-a-vis Republican voters. We’ll see what happens with Republican politicians, but I think the sentiment towards American business on the right is very, very different than it was five years ago. And that’s largely not, I think for a lot of Donald Trump’s sort of swing working-class voters, that sentiment has been there for a long time for economic reasons and all the reasons that you cite.
But in terms of the, let’s say the Reaganite typical Republican voter, these companies are pushing that voter sort of away from pro-business positions as well, because of the way that they’ve engaged in cultural politics. But let’s talk about the pressures on, not just the working class, but on let’s say the fat and middle class that America has always depended on. You list three pressures, economic pressures on the typical American family that are really kind of at the top of the budget-busting list. Those are cost of education — meaning higher ed, mostly college tuition — health care, and housing. Can you talk about how those things, those three sectors are kind of pushing on the ability to provide in a middle-class way, in a way that sort of has always been the American dream for a lot of people in the middle and then in the working class?
Yeah, sure. I think when you look at what’s happened to the sort of the budget of the typical middle-class household, economists have a lot of fights over, well, how should we measure inflation? How much have costs gone up? Have wages really kept pace with costs or not? All of which, again, is very oriented to this basic economic frame of how much are people consuming. If we can say people are consuming more stuff than they used to, if their iPhones are better than the old flip phone, than the old landline, if the flat-screen TV is getting bigger, then surely people are doing better than ever. And what you see when you start to look at what actually matters to people, first of all, it’s certain baskets of stuff.
So things like education and housing and health care just have an incredible influence on people’s well-being that goes beyond the value of the consumption. And the way that those things have evolved over time, what I would say is most sort of distinctive about them is they’re really influenced by inequality. The right-of-center for a long time has sort of tried to poo-poo the cons, the idea that inequality even matters. Why should you care how someone else is doing as long as you yourself aren’t doing any worse? And what you realize when you look at these three buckets you just mentioned, is that, actually, inequality has a huge effect on them. That when it comes to housing, everyone’s sort of bidding against each other for, in a lot of cases, the same housing stock, to be in the same communities.
And that is, as inequality goes up, you end up with a sorting effect, which is one type of person that can afford to live in one type of community, all goes and lives in that community and everybody else feels shut out of it. And that, whereas in prior generations, you would literally have the CEO living in the same town where the workers lived, that’s not really true anymore. And so that creates a pressure on, somewhat, people’s budgets and even more so people’s lives that I don’t think we’ve accounted for properly in, at least for the many years where we were sort of trying to claim that everyone was doing really well. You see the same thing in health care, where the cost of health care is driven by those most expensive treatments at the very high end.
So if you think about how much your health insurance premiums are going up, they’re not actually going up because you’re consuming a lot more health care than you used to. In fact, the typical family, let’s say their health insurance premium is now $20,000. It’s not because they’re consuming $20,000 worth of care in the year. They’re probably consuming more like $1,000, $2,000 of care, but they’re paying the $20,000 a year because if they are the family that need that million-dollar treatment, the insurance company’s going to have to pay for it. And on the one hand, I guess it’s nice to know that if you need the million-dollar treatment you’ll have access to it. But for the overwhelming majority of the families that don’t need the million-dollar treatment, it doesn’t feel like they’ve got anything.
It just feels like they’re paying the premium. And so that’s another place where economists would say, no, no, look how much better off you are. You have access to that treatment if you need it. But the typical family would say, but I don’t need it. I just have to pay. And so they feel that incredible pressure. And then I think education, when you look at what’s happened to college tuition, you again see the same thing where the way that our economy and our society has evolved, there’s now this extraordinary pressure to get the college degree and to go to the best college that you can because of the way the sort of social sorting function that it provides.
And you see this college tuition being driven up to crazy levels by these kind of high-end perks and everything that now is part of college in America that has nothing at all to do with getting a good education. And yet the typical pathways that one might have taken to go find a good job that allows you to support a family are being cut off. We have continually reduced what we allocate to non-college pathways. And we basically say, if you go to college, here’s this extraordinary package of government benefits for you. And if you don’t, here’s nothing.
And yet coming out the other end, the jobs aren’t there to justify what families are being asked to spend, the debt they’re being asked to take on. And I think it’s really left the typical family certainly feeling a lot more pressure. How do we save for this? How are we going to cover the cost of this? Without a whole lot to show for it. And so in all of these ways, what all of those things have in common are something that your typical sort of upper-income professional household would say, this is great. We’re really glad we’ve made these tradeoffs and we’re really glad with how things have turned out. But your typical middle-class family, at the middle of the income distribution really sort of get all the pressures and stresses and they’re not seeing the benefits.
So none of those sectors are, could even remotely be called sort of libertarian capitalism. Those are all heavily, heavily regulated, in some cases, government-controlled sectors. In each case, housing notoriously especially in American cities is very, very heavily regulated. Development is suppressed in most American cities. It’s difficult to build more. And I’m not even saying that that’s always a bad idea. Like obviously it’s a good thing for Manhattan that they kept Central Park, which would otherwise be very expensive real estate and condos. But nobody would call housing sort of a wild west capitalism. And similarly, in health care, obviously we have Obamacare, but even before that, for decades and decades, our insurance system is heavily, heavily regulated and intertwined with government. Same thing with the education system. Part of the reason, as I’m sure you know very well, part of the reason of the tuition increases is because government makes so much “free money” available in loans and essentially subsidizing the entire university sector.
I mean, with the exception of a handful of universities at the top with multi-billion-dollar endowments whose, the degree, the value of the degree is just for social sorting reasons largely. I think what you referenced is so incredibly sort of worthwhile, but almost every university under that, the vast majority of the American universities, they’re dependent completely on the lifeblood of student loans, at first subsidized by the government and now wholly just — most of the vast majority of those loans are made directly through the Department of Education. So none of this is sort of wild west capitalism. These pressures one could say, if you were a liberal on the libertarian side, you could say, well, government has entered all of these and screwed it up. And that’s why, and in fact, these government interventions did hurt people on the lower-income side, much more than they hurt the people that were already doing well and could therefore bear the cost.
So I agree with that to an extent; I think you’re exactly right that public policy has played an enormous role in causing the problems in all three of these areas. I think the problem with the libertarian critique is that another thing that these three areas all have in common is that they are areas where government will inevitably be heavily involved and where we want government to be involved. So if you think about the sort of things you just described where government is involved, obviously, I think there are a lot of problems with our land use policy, but we have to have land use policy. I guess you’ll find you’re a libertarian who will say, we should just get rid of zoning and whatever else. And let’s just have sort of a free-for-all subject to 16th-century British common law, but generally speaking, that’s sort of not a widely held view.
And so we have to figure out how to do land use policy well. The same thing goes for health care. Health care is not and never can or will or could be a free market. There are huge issues that go to cost and affordability, that go to all of the problems, just the market failures in insurance markets generally, that mean that you have to have government policy here. I mean, to your point, if you go back to before Obamacare, where prices were certainly rising at least as quickly as they have since Obamacare, of course you had Medicare and Medicaid. And again, you can find the libertarian who would say, well, let’s just get rid of Medicare and Medicaid and tell everybody to just buy their own private insurance, and if they can’t afford it, then they get nothing or they go look for charity.
But I think in addition to being an extremely unpopular argument to make, I think that’s wrong and that we can do better than that. And so you’re going to have to have policy involved in regulating health care and healthcare insurance in particular and in helping to provide it to people who otherwise couldn’t afford it. And then I think, when you look at education, completely agree with you about the mistakes we’ve made in how we subsidize universities. And if it were up to me, we would just cut that almost entirely, but it’s important to keep in mind that the vast majority of our spending on education is not at the university level, it’s the K through 12 system. I mean, we spend in this country 15 to $20,000 per kid every year on their public education.
That’s more than we spend on them when they get to higher ed. And of course they’re in it for many more years. And so again, you could have the libertarian view that I guess would say, well, let’s just get rid of public education. And again, in addition to being extremely unpopular, I would say that’s quite unwise, that we do want and need a public education system. And that as you get people transitioning into adulthood, there’s an enormous public interest in helping to support that transition and fund the skill development. That for instance, employers for a lot of reasons well documented by economists, aren’t going to invest in themselves. So in all these areas, I agree to a significant extent with the libertarian critique of why costs have exploded.
What I strongly disagree with is where the right-of-center has tended to stop the discussion, which is to say, just sort of, ‘so there.’ Like ‘ha, we’ve shown something that’s bad, and please applaud for our criticism of it. And no, we don’t have any answers for how we could do this better beyond to just sort of say infeasibly that we shouldn’t do it, which isn’t a good idea and is also a huge loser politically.’ And so what conservatives need is actually answers for ‘how should a public education system look? How should we regulate the healthcare system? How do we want land use to work?’ And that’s something that right-of-center policymakers, think tanks, have just been, I think to some degree, absent on for a very long time. And saying that, as an example, at American Compass, we’re trying to do a lot of work on because we actually need conservative solutions to the problems of the 2020s, not just flipping back through our 1980s booklet of tax cuts and trying to figure out which one to apply.
So I guess the way that I think about all of those sectors, housing may be slightly different because it’s so complicated and I don’t even pretend to think about how to unravel some of the problems. But it seems like in both health care and education, particularly in K-12, it’s kind of the problem that we started out this podcast talking about, it’s a problem of incentives. So there is no incentive to spend the $800 billion a year that we invest publicly into K-12 education in a way that actually aligns with what families think their kids need. There’s no incentive to do that because there’s no market mechanism.
And again, so I don’t think you have to think about these things as a pure libertarian to say, yeah, if you’re going to keep making a salary for doing, alternatively doing very little work or advancing your sort of social cause or whatever makes you feel good at night, when you have no check from the “customer,” even if customer is not necessarily the way we think about education or maybe ought to think about education. When there’s no check between the people who are actually receiving the service and the professional fortunes and personal interests of the people delivering it, that’s when you have a complete breakdown of that service.
Where you can charge endless amounts of money, but because it’s laundered through the government, that money is going through the government and then back out to the schools, nobody is sort of in charge. There’s no incentive to actually deliver something good for the money, because there’s that disconnect. Similarly, in health care. In health care, it seems to me there’s actually a more fundamental problem with a totally free-market libertarian system, which is simply that you have no negotiating power as a customer on the sort of delivery end if you are in an emergency — which is why we have insurance at all, because you don’t want to be in the position of negotiating for bullet removal from your arm. That at that point, you have absolutely no ability as a customer to demand value for your money.
You just need your surgery or you’re going to die. So it seems to me that both those things have incentive problems. We have no price transparency, largely in our medical system. We have all this government regulation that requires that every insurance program cover everything like restless leg syndrome. Cover all of those things — that deal that you were talking about that your typical working or middle-class families says, well, I’ll never, I’ll maybe never need the million-dollar surgery.
It’s not the million-dollar surgery that’s actually driving up the cost. It’s the fact that we expect every visit to the doctor to be covered by insurance. That every minor condition or minor thing that are, in fact, not the one-in-a-million chance, because that, I don’t know, that’s the kind of insurance I had before Obamacare, was that one-in-a-million insurance. I had a high deductible insurance plan that covered absolutely nothing of my day-to-day expenses. I paid for those in cash, to the extent that I needed them, but I was covered if I got hit by a car or got cancer. That’s illegal; you can’t have that kind of insurance anymore.
Well, I think you’re certainly right about the incentives in both of these markets being somewhat broken. On the education side, I think it’s a little bit maybe oversimplified to say that there are no incentives there. I mean, our public schools are under the most local control, really, of any public service in the country. So your typical public school is answerable to a school committee of people who live in the town, and their budget has to be approved by the voters of the town and local officials every year, in ways that the people then see showing up directly in their taxes, in kind of a directly linked way that you see almost nowhere else.
So it’s not the same as a pure market set of incentives. And you could argue to what extent you think the market incentives would be more effective. But I do think there’s certainly a lot more going on in the system with people who do have relevant incentives in a lot of cases. And I think, conversely, if you were to sort of try to envision the inverse and say, well, we just want market forces at work here. I think you’d have a different set of issues. Which is, yes, maybe public education would deliver, or I guess it would be fairly privatized education at that point, would deliver exactly what the customer, which is what they would be at that point, whether we want to call the parents customers or not, might deliver exactly what the customer is shopping for. But of course, there are a lot of things that we want public education to do. If we think all the way back to why we have public education in the first place, why we fund it, why the American founders thought it was so important —
Only one, but yes.
Only one American founder, really: Thomas Jefferson.
I mean, there was a huge debate. I mean, there was a huge debate between Thomas Jefferson and Ben Franklin about whether we should, and this is publicly funding education, not government-run education. I mean, there was a big debate about it and Ben Franklin thought it should be entirely privatized, by which I mean no public investment whatsoever. But I think you might be idealizing, speaking about sort of theory on the theory level of economics versus how globalization is actually impacting people. I think you might have overly theorized in terms of how the democratic control and local control mechanism actually works in public schools. I mean, the reality is those elections are often held off-cycle. It’s not unusual to see 4% turnout in school board elections. And then even beyond that most school policy is not set through the school board anymore.
Like a lot of the things, for example, that parents are worried about now, like some of this gender ideology stuff, that’s set by district bureaucrats who don’t ever have to stand in front of an election, even a 4% election. And that’s what we’re seeing, is that actually, you can have these huge movements of parents who are showing up to school board elections and have policy in the schools change very little if at all. That mechanism is I think perhaps less functional than you think it is. Although I take your point. I don’t want a completely privatized education system, but the reason that I would say I don’t want that is because I think like Thomas Jefferson, the purpose of the education system in the United States or in a Republic is actually civic knowledge. And I can’t say that our current system is delivering on that central sort of public good as opposed to what the “customers” want.
Well, and I think that’s exactly the point that I was trying to make when it comes to civic education. For instance, whether you’re talking about specifically teaching civics or more generally the function that that public education is intended to serve in terms of sort of stitching together a nation, in some sense. I mean, you need some institutions in a nation that’s going to provide common experiences and values and bring people together in various ways. And done well, public schools I think are an important part of that picture. So again, my point is not to defend the system as it exists now, it’s to say that I think conservatives need to be in the game of describing what a more effective system would look like, both to deliver on these things that we’re talking about here. And then also to deliver on the actual preparation of people for productive adulthood, both as citizens of their communities and as workers in the economy.
And so, as an example, if you think about the various forms of apprenticeship and job training, there are very sophisticated systems that a lot of countries in the developed world employ that we simply don’t have. We just said, well, we’re going to try to send everybody to college. And that’s a very bad policy choice, but the alternative to that is not the absence of a policy choice. It’s actually going to have to be doing public policy work to figure out how we can actually provide good on-ramps into the productive economy.
I know we’re coming up on the end of our hour here, but I can’t let you go without asking you what you think about essentially the bureaucratization, that I sort of referenced in passing with the school thing. The fact that we have so many, often, well-paying jobs, they have credential barriers, meaning they require a college degree. Sometimes they require post-graduate work, but they are in things like administration compliance, HR. So I’m not limiting this to sort of government public jobs. I’m saying, even in your typical large corporation you have an enormous number of people who are drawing high salaries in fields that are sort of professionalized and essentially in one way or another involve pushing paper around.
What do you see, because one of the things that we didn’t really touch on, probably my fault, because I went into the education care because that’s my background. But it seems to me that one of the biggest problems in how we set policy in all of these areas, whether it’s health care or education, or housing, is that there’s a substantial amount of self-dealing going on. Not by the terrifying 1% of billionaires, but by let’s say a 20 or 30% of sort of professional economy Americans. I mean, Burnham calls them the professional managerial class — whatever you want to call that class of people — people who are, largely, have gone through to not only have college degrees, but probably have college degrees from, let’s say the top 20% of schools. They have, oftentimes they’ve grown up in those neighborhoods that you discussed in turn of housing that are separated out, socially separated out from the rest of the country. And it seems to me, those people have an enormous power to set policy in a self-dealing way. And to give you one example of what I’m talking about, I mean, student loan forgiveness seems to me to be the classic example of this.
You have, essentially, people who hold student loan debt for the most part are already coming from middle-class to upper-middle-class families. Often, they have professional degrees, not even just bachelor degrees, they have law degrees or MBAs. And yet we are talking about transferring an enormous amount of wealth to these people, essentially through student loan forgiveness. And that seems, it’s kind of wild to me that the left proposes this because it’s obviously by the numbers wildly regressive. You’re taxing everyone to give money to essentially not the top 1% because they pay in cash, but let’s say the top 20%.
Do you think that this kind of self-dealing to this professional class is a huge part of how you look at the problems domestically and how we’ve distributed our resources and made policy decisions? Or do you think that the sort of global economy and the incentives within the global economy, which one of those, and maybe it’s both, I’m not asking you to choose, but how do those things interact, and which one is actually creating more pain points for, let’s say the typical American family?
Well, I think the answer can certainly be both. And I think, as you put it with respect to pain points, that’s probably exactly the right way to think about it, which is that there are different types of pain points. So I think if you’re asking about sort of what has happened with the general trajectory of the U.S. economy, the way that so much wealth has become concentrated in certain industries, in certain regions for a narrow set of people with a particular set of skills, those things I think are driven by very sort of macro trends, the globalization and the financialization that we’ve talked about.
I think there are other pain points if you’re looking at, particularly sort of more cultural trends, for instance, where that’s self-dealing and the sort of rise of the managerial class is a central phenomenon. And one thing I would say, just as initial matter: I think it speaks to the point I was making about public education, which is that we have different mechanisms for governing things in a society. We have market forces, we have political control, we have this sort of weird hybrid administrative state. And who is actually sort of wielding power at any given point in time isn’t always entirely clear nor is it necessarily the case that, well, if you just left things up to market forces, you’d get a better outcome.
In fact, you can leave things up to market forces and end up with some woke corporations doing a combination of offshoring jobs to China while protesting democratically enacted legislation at home. And so I think when you say, well, why has that happened and what would you do about it? I think in my mind, there are two things that are very important: one is recognizing that these things take time to happen, and they take time to unwind, and that democratic accountability, while it’s certainly imperfect and inefficient and slow, also can be quite powerful. And I think we’re seeing that — you referenced it in public education as an example — it is a slow, messy, often frustrating process, but when a public institution oversteps its bounds too wildly, the people actually can and do speak up and you start to see corrections happening.
And I think that’s something we’re going to see in public education in a way that is perhaps easier to address than what you see with woke corporations. I mean, at the end of the day, what voice does the average American have in the way corporations behave? They can shift their meager spending elsewhere if they want, but in some respects, there is a lack of democratic accountability. So that’s one observation that I think we have to think about, well, what are the forces that are acting and how do we want them to act? And then the second point is that to the extent that we are talking about the market and the way that things have evolved, one thing that we’ve really lost and we should want to regain is what I would call worker power.
And I don’t mean worker power in the sense of like, get everybody into a big labor union necessarily. But if you think about historically in America, the working class or the working middle class, the non-managerial class, had a certain amount of solidarity and political and economic power that they could wield. And something that we’ve lost partly as a result of that globalization and financialization, but also as a result of cultural shift, is I think we’ve lost that counterbalance. And it’s something that I think conservatives should really focus on, given conservative interest in institution building generally, in thinking about what are the non-government, non-legal ways that things happen and get enforced in a society. We should want to see relatively more power held by your typical American households.
And so that’s something that policy also has a large effect on. And we talked about it a little bit in the education context, in terms of deprioritizing college degrees and college pathways. I think there is, in terms of labor policy, labor reforms that we need so that workers can organize more effectively in ways that allow them to represent their interests. And then it does partly also come back to questions like globalization. If you pull back from globalization and say, actually, capitalists and managers in America, you’re going to have to find a way to work with the American workers you have here. You can’t just go look somewhere else. That’s another really important shift. And so I think striving for a better balance of power in that respect will be good for the nation generally and for addressing some of the problems that you’ve been raising.
I think you’re saying that they can’t be allowed to completely escape the negotiating table. And in that, I definitely agree. I think, as a conservative, I have somewhat mixed feelings about small-d democratic power. I share some of the founders’ misgivings about mob rule. But it strikes me that from education to a lot of the other sectors and the global economy more generally, what is missing here is a balance of small-d democratic power that seems to have tipped both because of the global economics that you describe and because of the expansion of bureaucracy, managerial sort of jobs, and the administrative state has to seem to wane in power domestically as well. So definitely agree with you that we need to find a way to rebalance those things because the way that we’re dealing with it doesn’t seem to be a good trajectory.
Yeah. And maybe just to sort of bring things around back to where we started, it’s just really important to emphasize that economists can’t see that. I don’t mean that economists individually can’t see it, but economists as practitioners of economics can’t see concerns like small-d democratic power. If globalization or whatever set of policies you’re pursuing is going to concentrate power in a very small group of people, but in a way that comes with a lot of economic efficiency and a lot of cheap goods, economists are going to say they’ve done their jobs and we are more prosperous than ever. And if we want to care about these other things, then we have to tell economists, thank you. Those are useful insights, and something will take into consideration, but they can’t be the whole story.
So homo economicus is not all we are; it’s part of who we are, but perhaps not the whole. Oren Cass, thank you so much for spending the time on High Noon today. It was great to speak with you and you can find more of Oren’s work and his colleagues’ work at American Compass, and you can also, I think they just wrapped up a really interesting sort of symposium where they had a bunch of people writing in on various proposals and an essay that Oren wrote to kick it off, so that you can find that all on American Compass. Is it americancompass.org?
That’s where to find it.
So thanks again for coming on High Noon, Oren.
This was great. Thank you for having me.
And thank you to our listeners. High Noon with Inez Stepman is a production of the Independent Women’s Forum. As always, you can send comments and questions to [email protected] Please help us out by hitting the subscribe button and leaving us a comment or review on Apple Podcast, Acast, Google Play, YouTube, or iwf.org. Be brave, and we’ll see you next time on High Noon.