Judge Glock joins Brian Anderson to discuss economic strategy and the consequences of government regulation on American productivity.
Audio Transcript
Brian Anderson: Welcome back to the 10 Blocks podcast. This is Brian Anderson, the editor of City Journal. Joining me on today's show is Judge Glock. Judge is the director of research and a senior fellow at the Manhattan Institute, and he's a contributing editor of City Journal. He writes about economics, finance, housing, homelessness, a lot of different issues with a perspective informed by his broader study of economic history. Judge has written a number of important stories for City Journal and his work has been featured in the New York Times, Wall Street Journal and other publications. Today, we're going to discuss his feature essay in our summer issue, which is called, “A New Supply-Side Agenda.” It takes a look both backward and forward to consider how the nation can reignite robust economic growth and innovation. So Judge, thanks as always for joining us.
Judge Glock: Oh, thanks so much for having me back, Brian.
Brian Anderson: We'll get to the specifics of that agenda as you lay it out, but why don't we begin as you begin by talking about the parallels between our current economic situation and that of the 1970s and early '80s. As you note in the essay, many of the problems we face today are similar, though they're taking different forms. So I wonder if you could just discuss for a moment, what were the economic problems of that earlier era and how would you compare them to the challenges we currently confront?
Judge Glock: So in the 1970s, you really saw an explosion of a few things that made people very distrustful of the kind of New Deal consensus that had been the dominant policymaking mode for the past 30 to 40 years. And there were some clear issues like inflation, which took off in the 1970s to an unprecedented level in American peacetime history, peaking at over 10% a year at one point, and other issues like declining productivity. Even though you had seen an incredible boom in living standards in the 1950s and '60s, by the '70s, the average American worker was producing relatively less each year in new products than they were in the earlier ages and growth was declining. The combination inflation and low growth became known as stagflation and posed something of a dilemma to the economists of that era who assumed more spending on goods and services would also always lead to more growth.
And you also saw a problem of increased dependency on government. You saw the rapid growth of the Great Society programs lead to an explosion in what at the time was known as AFDC, Assistance for Families with Dependent Children, which was the basic welfare program, as well as a host of other programs, like Medicaid. So a couple of economists, many bipartisan members of Congress and other groups realized that it was actually a lot of the federal economic policies that were creating the inflation, they were holding back growth and were leading to growing dependency and problems in America's cities and elsewhere.
Brian Anderson: And so how does that compare to our current economic situation now?
Judge Glock: Yeah, so exactly. Obviously, anyone who was listening to that maybe recognize a few of the parallels. We’ve seen the most rapid inflation since we've had in the 1970s, early 1980s since the pandemic, even though that's come down a little bit since its peak, we've obviously seen an incredible growth in different means supported welfare programs, that means programs that are defined by providing for people with low incomes, since the early 2010s. And we've also seen declining growth in productivity. We haven't seen the rapid growth we saw, especially in the late 1990s and early 2000s. And in a lot of ways, even though I tried to point out in the article that we solved many of those problems that seemed insolvable in the 1970s, 1980s, we've created new government regulations, new programs, and new policy tendencies that have been very destructive for growth and a successful productive economy.
Brian Anderson: So let's zero in a little bit on what was done to address that earlier economic crisis, the stagflationary period. Your story is really eye-opening in some of the examples it gives from half a century ago, not just the ones you've just mentioned, but the kind of stifling regulations on many industries such as trucking and the lack of consumer choice that resulted from monopolies like AT&T. These are the kind of barriers that supply-side economic policy as it was originally conceived, helped to break down. So for listeners who might not know exactly what supply-side economics was all about, what is it or how do you define it, and what were its effect?
Judge Glock: Yeah, so although a lot of the older economists that were prominent in the 1960s and '70s thought that many of America's problems were quote, unquote, "demand-side problems," that is they thought that the issue was there wasn't sufficient government spending or sufficient money printing from the Federal Reserve to guarantee that we had full employment, rapid growth and so forth, the supply-side economists said no, the main issue with the US economy is the lack of supply, the lack of provision of goods and services. That's the only thing in the long run that really matters for growth, and demand-side issues such as more Federal Reserve, money printing or more government spending can really only in the long term create more inflation.
So the supply-side economists looked at what were some of the issues that were holding back the American economy and regulations were first and foremost in that era. So I go into some of the things like the Motor Vehicle Act, which by which basically any trucker in the United States who is transporting goods across state lines would need these special permits from federal agency, the Interstate Commerce Commission, to say, "Well, mother, may I transport oranges or microwaves from Florida to Georgia?" And the government would often decide what the exact price of that should be. And if that trucker didn't have a permit on the way back, they would have what's known as deadhead, they would just have an empty truck going back. And that's obviously wasted resource and wasted time for everybody.
The Civil Aeronautics Board, which controlled airline routes and prices basically decided where everybody could fly in the United States and what airlines should fly where and what price they could fly at. And the problem there was they often kept the price so high that it was impossible for most Americans to fly, even when those flights took off, they were often half empty because the routes were determined by a government agency instead of the market. And instead of competing on price like, Southwest or some of the other airlines, they competed by offering more frills such as steaks cooked to order, and all these kind of obscenely luxurious parts of travel. They're often romanticized when people look back in the 1960s, 1970s, but whose actual effect was to exclude the vast majority of Americans who might want to fly.
And so what happened to the 1970s and '80s is you really had a broad bipartisan coalition look at these regulations and say, "Hey, this is actually driving up inflation. This is driving up consumer prices, at least in the sectors where these regulations are operating." You had strange bedfellows like conservative economists and Ralph Nader and Senator Ted Kennedy who took on the Civil Aeronautics Board and basically blew up the entire regulatory system, made that agency a dead letter and eventually abolished it. And these sorts of things happened in sector after sector, in trucking and in banking and in other areas. And AT&T was eventually broken up and a lot of the state and federal regulations that had made it a monopoly and the biggest corporation on earth at that time, and led to our eventual explosion of choice in telecommunications, including obviously different types of cell phones and even internet communication. So there really was a huge bipartisan reaction against those absurd regulations of the era. And it had real success.
Brian Anderson: Well, it really unleashed a lot of economic growth that lasted for a better part of two decades, I would say, right through the Reagan administration and the Clinton years.
Judge Glock: Exactly. A lot of the declining productivity you saw from the 1960s to 1970s began to reverse in the 1980s, in the 1990s. You really saw a takeoff in the 1990s and early 2000s. But that began to itself reverse in the mid 2000s, the early part of the first decade of the 21st century. And since then, we've seen the return to continual low productivity and low overall economic growth. And that's somewhat surprising when you consider all of the wonderful technological innovations we've seen over the past 20 years, obviously everything from recently AI to the proliferation of the internet, to cell phones, smartphones, etc.
And I argue, and many other economists have argued that one of the explanations for this is the increasing explosion of new regulations, not like they had back in the 1970s or eighties often where it was these price and quantity regulations where you had to go to government bureaucrat for any sort of economic decision you made, but a lot more of these pettifogging little regulations about how strong your building had to be, how many sprinklers you needed in it, what percentage of workers should take some sort of training and so forth. And those have kind of proliferated very incrementally until we have now a much larger regulatory state than we even did.
Brian Anderson: You call these forms of social regulation?
Judge Glock: That's right. And so the old kind of regulation was known as economic regulation. That's the government bureaucrat says, "Here's the price you can sell a good at and here's how much of the good you can sell." That's the trucking regulation, that's the airlines, that's even a lot of what the banking regulation was pre-1980. There's less of that today. Now obviously, you've seen an efflorescence of proposals about price gouging and other sorts of absurd price gouging lawsuits or laws that would prevent people from charging more when there's shortages in some sector or some such.
But in general, we've not returned to that era of price and quantity economic controls that we saw in that earlier time. But that doesn't mean we don't have regulations. We do have these social regulations which are health, safety, environment, wellness, equity issues. All of these things individually aren't that burdensome. But in the aggregate, you totaled up and you have, again, a state by many measures say the number of pages in the code of federal regulations is multiple, at least one or two, or about two times as large as it was in the 1970s.
Brian Anderson: And we've also seen a pretty steady growth in government spending really an explosion since Covid. So I think you note that by the late two thousands, maybe by 2008 or 2009, domestic spending as a percentage of GDP was back to where it was in the pre-Reagan years. And it has certainly grown dramatically since as a response to the financial crisis, and then of course, Covid. And even by recent standards, the Biden administration's spending has been staggering. And you mentioned price gouging, the Vice President, Kamala Harris, who's now the Democratic Party presidential nominee, of course, has offered some policy proposals that suggest anyway that she'll be keeping the spending spigot open and also is contemplating some of these more economic regulations if what we're reading is correct. So I wonder what's your take on the Harris economic agenda? And it seems very far removed from the original inspiration behind the supply-side successes of the Reagan and Clinton years?
Judge Glock: Yes, we've definitely seen in a sense a bipartisan move away from the economic consensus of the 1970s, '80s and early '90s that deregulation was a substantial problem for the government, that government spending often had negative consequences, especially in areas like welfare and including for those recipients of government spending, which led to the bipartisan compromise in the 1996 Welfare Reform Act. And since then, just we've seen more and more moves away from that. But obviously, we've seen it most starkly on the Left and in the Democratic Party, which under its new nominee, Kamala Harris, has talked about broad sorts of economic regulation that hark back to that earlier economic regulation era. And we've seen the return of an explosion in government welfare and social service benefits.
Now, that was never one of the greatest parts of the supply-side success story. All Reagan really managed to do was slightly limit the growth in government spending during his time as office and slightly reduce the domestic side of government spending as a percent of GDP. Since that era, there was a gradual growth, and especially since Covid, where you've seen up to 25% of all our economy go through the federal government. And while back in the 1950s, you could have as high as half of all federal spending be defense, now it's a small fraction, much less than 20% of all spending. So we've grown the size of the government massively and an increasingly small proportion of that is defense or international spending. And much more of that is these government handout programs such as Medicaid, food stamps, the Affordable Care Act, subsidies and so forth.
And all of that, by an abundance of economic evidence, deters work. It deters work, the taxes that that leads to also deter work and the deficits that creates when the taxes are non-imposed prevents people from investing because every dollar that goes into a government bond to pay for a social service benefit is not going into a new factory, is not going into a new worker training center or some sort. So unfortunately, that return of a big government spending mentality and a regulatory mentality is definitely honkered at both parties at this point. But most especially, obviously you've seen it on the Left and they show no signs of letting up.
Brian Anderson: I'd like to just sketch out the supply-side agenda you call for now. I'm not sure if either party would fully embrace everything about it, but you note in your piece that Americans, in your view, still have the same entrepreneurial spirit that they showed in decades past. We just need to remove, you write, the new barriers holding it back. So assuming that there is political will in the votes to put into action a new supply-side agenda, what would it look like? And do you see any activity on the part of the Trump campaign or the Harris campaign to embrace any aspect of this?
Judge Glock: Yeah. Well, one of the areas where you've seen an increasingly vocal demand from the Republican Party for supply-side efforts is in reform the federal regulatory state or the administrative state. And Trump, during his term of office, even though he didn't technically reduce the size of the regulatory state in terms of measures of its total cost, which now again total in the trillions of dollars a year, he basically imposed the fewest regulations of any president in modern history, again, in terms of its total new imposed cost. So there has been movement, especially in the executive branch and especially among some parts of the Republican Party to limit the power of regulators. And that involves actually the President taking control of this proliferation of government agencies such as the EPA or OSHA, which deals with occupational safety and health, and try to limit their proposals of new regulations and implementation of new regulations.
But in general, you have to do more than just that. You would, to have a truly supply-side agenda, you would have to have the government willing to control the biggest drivers of spending, which are right now these entitlement programs which have been growing to the vast majority of federal spending, I mean spending that's basically on autopilot and includes most importantly federal Medicaid, Medicare and Social Security. And I haven't seen much willingness to take those on, but if you could have some sort of caps that control the growth of that or make sure they're limited to people just in need of actual social services as opposed to being handed out to many people who already are fairly well off and don't need any extra government support, you could certainly at least control the growth and allow the rest of the economy to catch up.
And now the other thing that we have to do is even though the Federal Reserve has done a decent job in the past two years on fighting back on the very inflation that it created and has helped reduce that high inflation rate, it's still far more involved in the economy than it was before the pandemic or even then in the 1980s or '90s, basically the Federal Reserve now, and in fact much of the Federal Government act as a giant lending program that supports mortgages, that supports the federal deficit itself. And they have a massive balance sheet now in the over $8 trillion that really distorts federal and other funding. Back in the day, the Federal Reserve just saw its job as to kind of manage the amount of money in the economy. Now, the Federal Reserve thinks it should control interest rates, and the federal government thinks it should support mortgage payments through it's now totally federally owned Fannie Mae and Freddie Mac or almost entirely federally owned.
And that government control the financial sector, even if it does not create the same inflationary demands, even though that was part of the explanation for our inflation, all that money printing and federal finance, it does certainly exacerbate those problems and takes the federal government's focus away from merely keeping the purchasing power of the dollar stable, which is what those old supply-siders in the '70s said should be the Federal Reserve's only real job, just making sure money next year is worth about what it's worth this year. And unfortunately, because of all the different programs it's implementing, they've gotten further and further away from that. But to rallying the Federal Reserve and some of those government lending and guaranteeing agencies that have been storing the financial sector, that'd be another big part of the supply-side agenda.
Brian Anderson: And what about energy, Judge, freeing up American energy production, that would fit into this scenario too, right?
Judge Glock: Absolutely. And one of the biggest burdens to more energy production in America is obviously the EPA and the general increase in environmental rules. Now, the explosion of fracking has definitely transformed the story in a way nobody thought possible. In 2005, say, when the US was the largest oil importer in the world and produced substantially less than, I believe it was about 5 million barrels of oil a day. Now, by some measures, we're the greatest oil producer on earth and the oil production continues to grow. But a lot of the environmental movement and a lot of the people who want to administer the EPA or currently administering the EPA think this is a disaster and we need to corral energy production and limit again.
But what we've seen is if you allow these entrepreneurial forces to take hold, you could have huge benefits like we saw in the oil sector. And that involves removing a lot of those regulations and making sure that fossil fuels, which will, for the foreseeable future, be an absolutely essential part of our energy mix, are allowed to continue to be produced and allowed to continue to grow as a proportion of all the energy being produced.
Brian Anderson: That's a very clear overview, Judge. Thank you so much. The essay is called “A New Supply-Side Agenda.” It's in our summer issue. You can find it on our website, and you can find Judge Glock's other work on the City Journal website as well. We'll link to his author page in the description. You can find City Journal on X @CityJournal and on Instagram @CityJournal_MI. And as always, if you like what you've heard on the podcast, give us a five star rating on iTunes. Judge Glock, always great to have you on 10 Blocks.
Judge Glock: Thank you so much for having me.
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