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Ketan Patel: Author "The Master Strategist: Power, Purpose and Principle" | SALT Talks #25

“Inside America there were issues that would affect the whole world. Those issues, unfortunately, were not solved inside America and burst out onto the international scene.”

Ketan Patel is the CEO and the founder of Greater Pacific Capital, an investment firm focused on India and its links to international markets, and on technology, healthcare and financials and services. Greater Pacific Capital (“GPC”) has developed a distinctive platform that invests to support value creation in businesses through the application of strategy and ideas, thematic insights and capital. Patel is also author of The Master Strategist: Power, Purpose and Principle.

The United States stands alone as a unique world power in that it achieved its status without seeking to conquer other lands. It played decisive roles in two world wars, saved the world from communism, facilitated global trade, and created and safeguarded the world’s most vital multilateral institutions. The turn of the century, marked by the 9/11 terrorist attacks, saw a notable shift in America’s stance and role in the world. “It was personal for me because 9/11 was the first working day of my move to New York. And I saw the second plane go in from my office.”

Emanating from scarring events like 9/11 and the 2008 global financial crisis was a rise in populism and an antagonism towards many of the international institutions formed in the 20th century. We will see major shifts as China and India’s economies emerge as global economic powers and assert themselves further on the world stage.

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SPEAKER

Ketan Patel.jpeg

Ketan Patel

CEO

Greater Pacific Capital

MODERATOR

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Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie: (00:08)
Hello everyone. Welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum at the intersection of finance, technology, and geopolitics. These SALT Talks are a series of digital interviews we've been doing during the work from home period with leading investors, creators, and thinkers. And what we've really tried to do during SALT Talks is to replicate the experience that we provide at our global conference series, the SALT Conference, which has provided a window into the minds of subject matter experts, as well as provide a platform for big, important ideas that we think are changing the world. We're very excited today to welcome Ketan Patel to SALT Talks. Ketan might not be a household name, like some of the other investors that you've heard on SALT Talks, but I think he'll be among the most interesting and informational guest that we'll have on SALT Talks.

John Darsie: (01:02)
Ketan is the author of The Master Strategist and he's the former head of the strategic group at Goldman Sachs. He's worked extensively in the US, Europe, China, Japan, and India principally providing strategic counsel both to public entities as well as private companies. He founded and leads the investment firm Greater Pacific Capital and with his partners they invest in high growth enterprises, making an impact locally in India and internationally in a profitable and sustainable way. He leads the firm's influential research work, which focuses on ideas and policies to engender peace, prosperity, and freedom. That work includes writings about the rise and fall of civilizations, of great power, of the changing and evolving world order, and the shape of the world to come, including mass inclusion and the eradication of slums. Especially in India, which I know is a cause that's near and dear to Ketan's heart.

John Darsie: (01:59)
Ketan also works with the UN World Academy of Art and Science, global leadership initiative, where he leads their project on leadership and the future of finance. He's a member of the Future Capital Group and leads their project on the future of capital. Ketan is of Indian descent, but he grew up in London's east end, as well as spending some time in India during his upbringing. And he actually moved to New York on 9/11, which maybe he'll touch on during the introduction. His grandfather walked on the Salt March and his parents moved to London, which was the center of great power in their early days. He is an avid practicer and practitioner of meditation. It's part of his diet alongside running, art and history, and science fiction. I know that meditation is interwoven into his mindset and his philosophy.

John Darsie: (02:48)
If you do not already subscribe to his great newsletter, I would highly recommend that you do that. You can go to greaterpacificcapital.com, the newsletter is called Sign Of The Times. And, again, I would highly recommend it to get more of the type of perspectives that you're going to hear from Ketan today. If you have questions for Ketan during today's talk, a reminder to enter them in the Q&A box at the bottom of your video screen. And now I'm going to turn over the interview to Anthony Scaramucci, who's going to interview Ketan. Anthony, as you likely know, is the founder and managing partner of SkyBridge Capital, a global alternative investment firm, as well as the chairman of SALT. And with that, I'll kick it over to Anthony.

Anthony Scaramucci: (03:28)
Ketan, I thought I was doing bad on room raider until I saw your background there. And so now John Darsie unfortunately wins room raider again on SALT, but it's one of those rough things for both of us. I want to start with your family of origin because I think you have one of the more fascinating stories and it's such a great success story. So tell us a little about your parents, and your educational process, and how you got to where you are today, if you don't mind.

Ketan Patel: (03:56)
Yeah, sure, Anthony. Hey. Look, first for inviting me. Thanks, John, for that glowing introduction. I don't know how you put all that together, but that was really interesting. Anthony, so as you said, I'm of Indian origin. I'm British, you can tell by the accent. My grandfather would've been a very young man when the British were still running the world. So they looked to Britain as the great power of their day. My grandfather walked on the Salt March. Nothing to do with the SALT Conference, or the SALT Talks, but the great Salt March, which was the independence march led by Mahatma Gandhi. As I understood it, later he was quite severely beaten during that march at some point, too. My parents moved to London for opportunity and my father was an engineer. We were fairly poor and just came to appreciate the hard work that goes into building a family. And came to appreciate and completely love the UK.

Ketan Patel: (04:58)
I grew up in London's east end, which was rough in those days. I recognize some of the waste rights and complaints now. And happening all around the world in the protests, and all the counter protests, and so on is part of my growing up. I also grew up in [inaudible 00:05:13] which is where Gandhi came from and the Prime Minister of India came from. East London, I could admit, was a tough, difficult neighborhood, but I think we learned a lot from that neighborhood. So we did well, we were one of the few that went to college from that neighborhood. I have had careers in industry, and consulting, and in banking, was lastly Goldman Sachs running this group called the Strategic Group. It was fantastic, you travel the world, you meet world leaders and country leaders as well as business leaders. And you talk about the future of the world, and their strategies, and you find the opportunities for Goldman, which were many.

Ketan Patel: (05:57)
So it was a wonderful learning experience. It was also great to leave, though, and set up my own firm was a bunch of friends and more investors. We'll get onto 9/11 at some point, which was an awful time. It was my first day really moving to New York. It was my actual first day. It made me completely empathetic to America and really care about America, and its standing in the world, and really strive to understand what the world was about. And what American power was about and why things happened as they did all over the world.

Anthony Scaramucci: (06:32)
Well, let's go to 9/11, if you don't mind, because I think this is a fascinating part of your story and I think it ties back into context that you can provide about world leaders, Great Britain, its rise, and the eventual rise of the United States after the British empire. But take us back to 9/11, take us back to your first days in New York, and tie that thread from your father's upbringing and liberation of India to where we are now in terms of America on the world stage.

Ketan Patel: (07:06)
Sure. I'm a student of this and fascinated with this topic. So what I've seen as we do the analysis and we look at 30 empires or so in history, and we're about to publish something again on this, but you see that every empire has a curve, a rise and fall. And it's something mathematically you could compute and then you could look at America and say, "When is America no longer going to be a great power?" And I think 9/11 was one of those important turning points where America in my time was the greatest power of all time. It was as far as we could see looking at history, it was the great power. And it was a morally strong power because it had saved the world in two wars, put a man on the moon, it defeated communism, it built all the international institutions we rely on today with its allies of course. It safeguarded the world after the war to look after peace, establish human rights is such an important power for force in the world.

Ketan Patel: (08:09)
And uniquely, it was the first great power not to think it had to conquer people's lands using armies, but it did conquer the world. And it conquered it through investments, through trade, through growth, through its corporations, through investment banks, but it didn't have to kill people in large numbers to do so. So it was very unique and it was clearly something that we all looked at as what we thought was the right way to live, democracy, some form of capitalism, free trade. These were things that were the cornerstones of the building of America. And 9/11 seemed to shake that up a bit, but the 20th century America was the one of raw energy, invention. Anthony, everyone looked at it and said, "This is what we want to be." And it's what lead China I think to start its reforms, of course. I've spent a lot of time in China and looking at policy in China, a little business and investing in China.

Ketan Patel: (09:06)
The 21st century was so different from the 20th century America. You had 9/11, then the global financial crisis, then you had the rise of populism in America, but also [inaudible 00:09:19] in America first. Which to most of us felt like America alone. America trying to break up the EU by encouraging Britain to leave the EU and only offering the deal if they did the trade. America internally divided a horrible ratio denied, too, and now the performance on the pandemic. Now, you can't trace it all back to one event or any event, really. These are changes that sweep over time and they're part of probably the natural cycle of rise and fall of great powers. It was personal for me because 9/11 was the first working day of my move to New York. And I saw the second plane go in from my office. And so it's very poignant. Goldman just said to me you can move back to London or to anywhere else you like and I thought that was wrong.

Ketan Patel: (10:16)
And so I said, "No, I want to stay because we should decide how we live and not the people that did this." So it was an important moment.

Anthony Scaramucci: (10:28)
Well, in your writings you talk about, and I want to see if I get this right, a quadrennial leadership. Is that the right way to describe it, quadrilateral leadership?

Ketan Patel: (10:40)
Yeah, [crosstalk 00:10:40]

Anthony Scaramucci: (10:40)
Quadrilateral leadership. And so you're basically saying there are four powers right now that are tugging on the world in terms of the restatement of the world order. And I was wondering if you could describe that to our viewers and listeners.

Ketan Patel: (10:58)
Sure. So the world has changed and the pandemic has actually highlighted a lot of weaknesses of American system. And we should come back to that, but those lay the ground for so many changes, the change in the relationship between America and China is accelerated by that, the change in the relation between China and the rest of the world. The rise of India at this time is quite significant and especially in the context of the importance of Asia. Again, topics we can touch on, but the quadrilateral powers are fascinating because there are now really four power blocks that really determine where the trade is, where GDP is, where the populations are, where the consumption power is, and so on. So something like 50% to 60% of the world's population, really 70%, actually, of GDP, of [inaudible 00:11:59] land, of all consumption, and the world's industries lie between these four major power blocks.

Ketan Patel: (12:06)
And about 40% of world trade lies with these four, too. So if anyone's going to set the rules of engagement, it's going to be set by the interaction between these four powers. America's had a period where it's managed to call the rules of engagement, and been the one leading the way, and people have been happy to follow, but in the 21st century that changed. And I think it changed with 9/11, but also with more importantly probably with the global natural crisis. And the pandemic in particular has exposed so much of our American system that I think it could be one of the most important turning points in some ways, where people look at America and do not think that America was vulnerable in that way. And so it may be the moment at which the world began to really question the idea of America as the world leader.

Anthony Scaramucci: (13:02)
So let's address that because you've got two Americans on the call with you. We've grown up unfortunately or fortunately in an American centric world, at least from our perspective, but both of us have also traveled the world and we see the way the world sees America. And so take us through your thought process. How did the world see America after World War II? How did the world see America, say, in the 1990s when our old boss, Boss Ruben, was secretary of the treasury? How does the world see America today? And so take us through those time slices in your observation as a global citizen.

Ketan Patel: (13:48)
So as a global citizen, I'd say, firstly, just like both of you, having worked, lived in America, I find myself empathetic, compassionate to America. And as I look across, even before the world wars thinking what was the nature of world leadership, I think America's been a benevolent leader. It is shaken what people thought you had to do to run the world. Because of its innovation, and its enterprising nature, and the nature of its trade, and the relationship its built as this great emerging empire, I think World War II was a moment where it rose to help the world through two of the most important crises in the world. And then as the ideological baffle continued after that war with the Soviet Union, it demonstrated its economic, political, social system, if you like. It was the most powerful system in the world.

Ketan Patel: (14:45)
And it presided over, therefore, a long battle of wits, really. And much more, of course, but wits with the Soviet Union and won. And so all of us grew up I think on this phone call, certainly between the three of us on this panel, of people who saw America as the leader who showed the way. And I think China, all my time in China, I saw China looking at America, saying, "That's what we want to be." And the way to get there is to open up, embrace trade based on the comfort we have. Then open up more of our industries, open up to investment, begin even democracy experiments, which they did, and plot a path to becoming something more like America. And so that was the values of America were the values that the world embraced. Particularly I think at the end of the last century and the beginning of this. And I think that was the cornerstone of what everyone thought was America. At some point, it was clear, though, that that wasn't the only America and America was also in a transition.

Ketan Patel: (15:57)
And inside America there were issues that would effect the whole world. Those issues, unfortunately, were not solved inside America and burst out onto the international sitting. And people saw that America was strong enough to elect a Black president, President Obama, and in some ways put the rest of the world to shame, that no one else had managed to do something so profound as to say anybody could make it regardless of color, or creed, and so on. So we looked at that and thought, "Wow, it seems like that can happen in America." It's a long way away from the rest of us. And then how that then transpired, and where it led to, and the election of the current president for everyone to say, "Wow, that country's different from what we thought." And so if you look at the statistics and there is so much good research done, some of the best is actually done by Pure Research, which is American.

Ketan Patel: (16:54)
More than 50% of the world have favorable opinions still of America. It's very consistent through presidencies. I think it's 54%, but 62%, nearly 70% do not have confidence in the current president and disapprove of America's position on trade, on climate change, on building walls, and so on. So the values of America are beginning to be quite fundamentally questioned. And then you lay on top of that the pandemic and then people start to wonder whether America is actually capable of leading the world. And, again, stepping right back, if we said the world was posed a test, and it was posed to every single country, no matter how small, or how big you were, or how rich, or how poor, how educated or uneducated, whether you were in the north or the ... It didn't really matter, every country gets the same test. Every leader in every country with their leadership group and their system have to figure out how to pulse two parts of the test.

Ketan Patel: (17:59)
You've got to keep your economy going as much as you can and you've got to save lives. And when we do this call, America comes pretty much towards the bottom of the lead table. I mean, that's unheard of. America saved everybody in all these wars, in every crisis. How can America not save its own people economically and from dying? It's just not tenable to imagine that the world power could end up in that place. And I think this is the shock and the dismay of people around the world, that America is so internally divided, and is so populist, and reject some of the tenants of what is great leadership internally and externally. It has not managed to come top of the lead table, when everyone looked to America to lead. I think once you get used to not being led, though, things change. And I think things change potentially forever. And so this is I think the important challenge that America now faces, that in its last great crisis, this one we're in now still, America so far has not managed to lead.

John Darsie: (19:11)
Tone, I'm going to pivot to Asia for a moment and start with China. So you touched on China briefly and for all of our audience's sake, we talked about some of the work you've done internationally, but you have particularly strong relationships in China as well as in India. And obviously you're based in London and you are well schooled on Europe, as well, but when you talk about the power struggle between the US and China, is it a zero sum gain? Is it a winnable struggle for the United States, both from an economic and philosophical governance perspective? And if it is a winnable struggle, what does victory look like for the United States and how do they do that?

Ketan Patel: (19:51)
So it's a tough one now because America began to fight on the recognition that China was a threat to its leadership most probably during the George W. Bush, continued over the Obama era, continued and stepped up during the Trump era. But China has had a decade, decade and a half. And particularly one America was spending time on two wars in Afghanistan and Iraq. China almost had a free reign to go around the world and tie up natural resources, to book relationships to build ports, to freely do that while the superpower's occupied. So the rise of China has been relentless and tying up natural resources and relationships in the absence of real competition has been also relentless. And it's not done from the perspective necessarily of China wanting to run the world. I think it's because recognizes 1.3 billion people, that's a lot of mouths to fill.

Ketan Patel: (21:00)
To feed that many people, to keep stability, to continue their progress, they have to go around the world and take lots of resources and assets. And so if you look at China under communism, it would've had a GDP per capita of $1,000 and then there was a period between 2000 and 2006 where they were already opened up, had entered the WTO, were going through rapid growth, and America recognized pretty much probably as the British did when they were looking at America. They recognized that it was another country that you need to help. And you hop into the system, and you train them in the system, and how it works. And in that period, China doubled its GDP per capita. And then in the late period leading up to the end of the first decade of this century, it was hitting close to $5,000, $6,000 per capita. So it was already doing a really good job.

Ketan Patel: (21:58)
And then in the [inaudible 00:21:59] period, it's gone from $5,000 or $6,000 to nearly $10,000 per capita. Now, America's at $60,000 to $70,000 per capita on average, which masked a lot of people who are nowhere near that, but if that's the average, just as China's [inaudible 00:22:16] a lot, China's probably a hyper power at $25,000 because they're 1.3 billion people. So it's got four times the population of America. To have them on an average of $25,000 means that you're more than a superpower. You have a superbly crafted machine that can weight everything in its favor in terms of trade, economics, probably a good contender to replace the dollar. It's already begun an experiment with an electronic version of the R&B.

Ketan Patel: (22:52)
So this is a serious contender to run the world. And, again, looking back in history, in the wake of every major empire was another great power rising steadily under its wing, ready to take over. And America was that for the British and China potentially is that. Now, you asked a very important question. Can you slow that down? Can you stop it? Can you thwart it? America demonstrated it could do that to the USSR. Could it do it to China? I think it could do because there are clear fault lines in China's political system, its economic system, its over indebtedness. There's an internal divide between the haves and haves not. And of 1.3 billion people maybe only a third, less than that maybe, have actually experienced this great wave of China's rise. And during the pandemic, China's failed to build on the trust that it was slowly trying to build.

Ketan Patel: (23:48)
And so whether it's Europeans, Australia, India, people have spoken out and said we don't trust China. I actually don't think that's good for the world. One way to do this in terms of the way forward would be to find the win-win, where China slowed down a little bit, America was still the older brother helping China to figure out the system. Allow the value to align, which may take two or three decades. And at some point, you have a sharing of power. It seems unlikely that's going to happen. And so there's another way, which is the way that America has tried before, where you exploit the fault lines of a rival and you see if you can break up or divide that country. I think that's going to be very difficult, too.

Ketan Patel: (24:39)
So it's more likely that we end up at a sharing of power between America, China, India, which is rising, again, very rapidly, and Europe, and the EU, rather. So four big power blocks and America's a natural ally for the EU and a natural ally for India. And so in that quadrilateral system, there's three powers that are probably very aligned. Unfortunately not in the last four or five years on the basis of their values and so that needs some serious reselling.

John Darsie: (25:12)
You touched on India and that's a natural transition. Why is India's growth so important for the United States and for the world? And how does it fit in the context of the rise of Asia generally?

Ketan Patel: (25:26)
Sure. I'm going to start again with China on that because if you look at China's growth what you find is China under communism took 50 years almost to get to a trillion dollar economy and then seven years to get to $2 trillion, five years to get to $3 trillion. And all of us look at that and we say of course it's because it's communism, it's autocratic, it's top down. They were bound to do it. It's not in 15 years ago, it's really in the reforms that they did it of course. You look at 20 years ago and you look at India and you say of course they can't do that because of democracy, but here are the numbers. So India under post independence took 50 years while it was still a socialist country, to get to a trillion dollar economy. Same as China's 50 years through communism, seven years to get to $2 trillion. And this is the year where it's set to cross $3 trillion. The pandemic slowed that down a little bit, but [inaudible 00:26:25] turned into five years. So the same curve, so why is that?

Ketan Patel: (26:30)
And I think that's because India for different reasons has urbanization, has a population that's, again, very enterprising, a massive consumer base, massive financial inclusion, about 300 million people opened bank accounts just in the last four years, five years. And so India becomes another massive growth driver of the world. That makes it very important, but I think also importantly if it is a massive growth driver, it is an economic force, then there is another economic force in Asia next to China. Now, unfortunately what that also does is you saw the power of the world move, John, from Europe to America and we see it moving to Asia because you have two countries there that represent nearly three billion people by 2050. And already it's edging in that direction, but Asia is 50% of the world's population. In terms of global GDP, purchasing power, share of trade, world output energy consumption, it's already 40% to 50% of all those things.

Ketan Patel: (27:41)
And by 2050, the projections say 50% to 60%. And it's also by 2050 expected at 50% of therefore foreign investment, financial assets, and military spend. So the access is moving, the big question mark for America would be how do you ally now with the rising powers, given that you've been really the older brother of those rising powers. India's an easy and natural one and long standing relationships with India. Certainly we see so many Indians in America that are successful and you see so much trade between the two.

Anthony Scaramucci: (28:19)
Ketan, can you talk just a little bit about the mega trends that you're seeing in the context of that power structure? And what it means for business and what it means for geopolitics?

Ketan Patel: (28:32)
Sure. So, Anthony, I think we're at a very privileged and unusual time. We're in the transition of great powers. Now, if you take a big sweep of history, and I know that a number of your presidents in the past have spoken about the arch of history and where it's going, but if you really take that and say where are we today and why does it feel so uncomfortable, I think one of the reasons is we're in the transition of real civilizations, from industrial civilizations to an information age civilization. We all grew up with our parents working in factories and our children were working technology, and finance, and services. And so this is a massive transition of just employment, work ethic, knowledge basis. And no wonder it feels uncomfortable because when that happens of course the old power structure hangs on. The manufacturers, the political powers are allied to the land and to production hangs on to power and there's a conflict.

Ketan Patel: (29:31)
So one of the great forces of change is of course that. I think the second is that in the transition, the number of people have gone up. So around the second world war there would've been about two and a half billion people in the world. Today there's seven and a half billion. By 2050, nearly 10 billion. So we have a need to strip more and more resources from the planet. And without enough invention, reinvention for lack of those resources or an access to something else, we're asset stripping the planet. So of course this is an area where you go from it was 6.2 billion I think at the beginning of the century. By 2050, we add another 40% more people. So we're going to asset strip the planet unless we make massive breakthroughs in science.

Ketan Patel: (30:23)
A third big factor is the carbon age is doing everything it can in terms of our ability to create value. Now it needs something else and that isn't probably just solar. There's something else. And at every point of the chance in history of civilizations, there's a breakthrough in energy sources. So it may be something solar, it may be something nuclear that isn't uranium, but something more functional. Something that allows us to put a man or a civilization on another planet that isn't the moon. It's another planet, but it's something much more functional and that happens at every point when civilizations change. I think the fourth is the flow of mankind almost into one culture because the internet, for the first time, we're all connected. Completely connected realtime through the internet. People are watching this in any part of the world they choose to. We communicate with each other through social media, we get our news from social media.

Ketan Patel: (31:19)
We get so much value creation out of social media and on the internet. So we're moving to one culture whether we like it or not. And people will hold back and say, "No, I'm peculiarly not a global citizen, I'm just this." But you're that and a global citizen because of the internet. And then finally we're potentially in the transition of the US is the sole great power to the natural cycle of history of the US sharing the power. Or if it doesn't manage that well, another power taking over. And I've got to say, as somebody who's worked and lived, and has so many friends in the US, and is studying this for so long, there isn't a natural other country to take over. America has this system of enterprise, it has enough of the moral code that is shared by the majority of the world. So there isn't somebody naturally taking over. America will almost have to throw it away and I think populism does that. Populism is very nationalistically micro and it throws away power.

Ketan Patel: (32:18)
And so we're in that stage in history and these are some of the macro challenges. And I'll give you some of the business ones, too, in a moment, but please interject.

Anthony Scaramucci: (32:29)
No, but I just want to follow up on the populism thing because in 1963 Teddy White asked Jacqueline Kennedy what was on the President's bed stand the week that he died. What was he reading? And it turned out it was the Guns Of August by Barbara Tuckman and it rose to become a very big bestseller. And I read it in college and the Guns Of August talks about the systemic rise of nationalism in Europe, which led to the Guns Of August, the advent of the first world war. And the [inaudible 00:33:06] of rhetoric and the reasons why nationalism caught fire. Now, you and I study history, a lot of the things that are going on globally were happening, let's say, 1915 to 1935. And there seems to be a vacuum of leadership around the world, where leaders, instead of explaining what's happening from a historical context and moving populations away from this nonsense are acting like thermometers, Ketan. They're putting their finger up in the air, they're measuring the heat, and then they're reflecting back the heat to their populations.

Anthony Scaramucci: (33:47)
One, do you agree with that? Number two, is there a way to change that? Is there a way to dent history and prevent this rolling catastrophe from happening?

Ketan Patel: (33:59)
So, Anthony, I know you love reading history, so I get completely where you're coming from. I would say this, that despite the prosperity, the peace, and the freedoms created since the second world war, which as I said America's been an enormous part, the EU's been an enormous part, and Asia has followed that lead, we also credit enormous inequity. So there's a real gap between people in the world, between countries, but also within countries. Between those that are real beneficiaries of the fruits of progress and those that are not. So our financial and capital model is not delivered to enough people. Let me just throw out some numbers. So today we have seven and a half billion people. Two thirds of those people are not real participants in the banking system. So it's odd because here's also the numbers a little bit more. So about a billion of a seven and a half billion don't have any bank account whatsoever. Another billion only access credit using their credit cards. So there's some sort of participant.

Ketan Patel: (35:12)
They're paying the 24%, 26% APR interest. Two billion people have a bank account that they've never, ever borrowed from. 3.6 billion people have not gone or not used a bank account physical or any payment system from their mobile phone. So two thirds of the world are not participants or the endpoint beneficiaries of the industrial revolution, of formal employment, and of the financial system that all of us on this call are a beneficiary of. At some point they were going to say not good enough. Now the temptation is to imagine those are all in poor countries. And 85% to 90% of the two thirds are. Let's say you look at a population of a country, it does actually go like that, but 32% of Americans also fall in that category of don't have a bank account, have a bank account they've never used, have managed to get some credit at a usury rate.

Ketan Patel: (36:13)
So that's not right. You can't have a third of Americans not participating in a system. So they were ripe for three things that happened simultaneously. One is, as I said, the backdrop is we're transitioning civilizations or we're transitioning jobs. They're not going to have a high quality job. Number two, the social media connects us all. And number three, populism. So if you have a confusing scenario, you have a lot of people who are unhappy, and you have leaders who see the opportunity to be popular rather than be right, that the truth doesn't matter, but you only tell people what they want to hear. And that gets you enormous power. Then there's always going to be some people who are going to rise to that bait and all across the world people have, particularly in the west, but it is in lots of place. And social media allows you to spread confusion where opinion supersedes expertise. All the fruits of the industrial revolution, we were seeking a better explanation for how the world works to solve problems.

Ketan Patel: (37:24)
With social media, with populism, the truth is masked by opinion. Now, we'll get through that phase. I'm confident we will. And when we do, of course the scenario will get better. But in the transition, until we solve for it, we are where we are. And so today's peace, prosperity, and freedom is under threat from this way of governing.

John Darsie: (37:49)
Ketan, you talk about peace, prosperity, and freedom, and that's really what most of your policy work is centered around. And I want you, if you will, to draw upon your experience growing up in London's east end. We're obviously grappling with a lot of social issues and social divisions in this country, but it's not unique to the United States for certain. In London, there's a different mix of ethnicities and there's race issues, as well. Could you just talk about, again, your experience growing up in the east end of London and how you think socially the United States, London, and elsewhere we can start to create that more integrated global society, where we have fewer inequities, based on things like race and religion.

Ketan Patel: (38:30)
Sure. That's a tough one and a painful one in some ways. So I grew up at a time when Britain was in the aftermath of not being an empire and there was a feeling still of entitlement. We ran the world, feeling was still alive and well. And with the influx of immigration from across the old far flung places of the empire, it also fed, of course, some resentment and the rise of the far right. And there were politicians who were very capable of making sure they threw fire on that and causing problems, lots and lots of problems. And so I would say that the politicians that played on fear, that's what I saw was very dangerous, because there was a fear of the loss of your job. And you know this and I know this because we run businesses. You either grow the revenue line or you keep complaining about the cost. Complaining about the cost is all about the fear. It requires somebody of imagination to grow the pie so that all of us can participate.

Ketan Patel: (39:37)
And so what I saw was the fear was played on. When the politicians played on the fear and played on our differences, in a very practical sense the implication is unfortunately that immigrants are bad. And the consequence is children get beaten up in playgrounds. I would guess since you started to talk about your country or certain people in your country started to talk about Mexicans being bad people, Mexican children are getting beaten up in playgrounds. I mean, the consequences are real and they effect children. And they effect their parents on the streets and it causes hatred and violence, but it takes real leaders not to fall into that way of leading, but to embrace the system. And it's not to say that people shouldn't have borders that they control. Of course you do. You control your border for many, many reasons, but that way of politics was what I saw growing up. [inaudible 00:40:35] was broken, though, in the UK and it was broken because the UK joined the EU and there was influx of Europeans who weren't colored mostly.

Ketan Patel: (40:44)
So people stopped seeing immigrants as always being colored and they saw immigrants of all colors, but lots of white immigrants. And it changed the UK dramatically, but it changed I think the big cities even more. So there was a lot of prosperity. The UK was part of the great trading block just next door. It led to enormous diversity, but also it reversed lots and lots of the hatred and divisions that were there. Unfortunately it came back during the Brexit, where hate, again, became acceptable, politicians again used disparaging language towards minority groups, white and colored. And it's very sad to see, I'm afraid, John. And what I saw was every time you have a politician who thinks that their job is to just lead a faction rather than lead the whole, you have this problem. And the way ahead, I think in some ways, is ever so simple and yet seems ever so illusive right now. It's someone who represents the people, all the people, not just their faction.

Ketan Patel: (41:52)
Here we are today, where politicians are calculating which states am I going to win, what cities do I need to win, can I get a margin on 1% or 2%, just an extra few thousand votes, just in three centers or five. How awful is that, where we've sunk to that, when actually there was a time, and I think it still is the time, for people to say I lead everybody. And we're here to lead the whole population. That's what we need to see in America in the next election. You see somebody step up who says I'll lead you all regardless of whatever you believe, regardless your position, the old industries or the new, whether you're rich or poor. We're here for everybody. And I think the US's problem is you're not united. And the United Kingdom's problem is we're not united. Those are the things we need to solve, really.

John Darsie: (42:46)
Ketan, we're going to leave it with that inspiring message. Thanks so much for joining us. We could talk for two hours about all the different issues facing the world and how to address them. And I hope we'll have a chance to have you back not only at one of our in person SALT conferences, but maybe on a future SALT Talk as well to follow up on a lot of what we talked about. And maybe early next year in 2021 we'll be on a path to maybe leadership that's a little bit more unifying. That would be our hope, so thanks so much for joining us.

Ketan Patel: (43:16)
Look forward to it.

Anthony Scaramucci: (43:17)
It's great to have you on, Ketan. And we'll see you soon. I've got a ton of questions for you, but for some reason every time I leave a call with you I learn more, but I'm also optimistic. I think we can settle these things. I'm confident that we can find that bridge to build things. And thank you again for joining us and we'll see you soon.

Ketan Patel: (43:39)
Thank you very much for inviting me.

Zachary D. Carter: Author "The Price of Peace" | SALT Talks #11

“The strength of the economy should be thought of in the actual resources you have, not in terms of monetary numbers and government spending.”

Zach Carter is a Senior Reporter for HuffPost and the Author of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. After reading Keynes’ The Economic Consequences of Peace, Zach realized there was more to the economy than dollars, deficits and numbers. Keynes presented social theory and the idea that a national economy could enable a broader social vision.

Keynes was a philosopher first and an economist second. On the difference between Republicans and Democrats, Zach says it’s what they decide to spend money on. Both sides now agree that governments must help fuel spending.

Do deficits matter? “Deficits can matter. But there will be a certain point where all resources in society are mobilized.” Faith in the future is essentia to democracy, regardless of your political position.

LISTEN AND SUBSCRIBE

SPEAKER

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Zachary D. Carter

Senior Reporter

HuffPost

MODERATOR

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Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darsie (00:07):

Welcome, everyone back to the SALT Talks. My name is John Darsie. I'm the managing director of SALT, which, as many of you know, is a global thought leadership forum and networking platform at the intersection of finance, technology and geopolitics. SALT Talks are a series of digital interviews that we've been doing during this work from home period, to provide our audience a window into the minds of subject matter experts and to provide a platform for big important ideas the same way we do at our global SALT Conferences, which some of you have attended in Las Vegas, Abu Dhabi and Singapore.

John Darsie (00:39):

Today, we're very excited to welcome Zach Carter to SALT Talks. And Zach is a senior reporter at HuffPost. But most topically today and the impetus for him coming on the SALT Talk today is that he's the author of a fantastic new book called, The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. In addition to being the author of that book, he's a frequent guest on television, and radio and his work has appeared in The Washington Post, The New Republic, The Nation and The American Prospect among other outlets. He began his career at SNL Financial, which is now a division of S&P Global. He was a banking reporter there during the 2008 financial crisis and he had a feature story called Swiped: Banks, Merchants And Why Washington Doesn't Work For You which was included in the Columbia Journalism reviews compilation of best financial or business writing for 2012.

John Darsie (01:35):

Anthony got a hold of Zach's book and read it a couple of weeks ago and reached out to Zach who graciously agreed to join us. And I think we're in for a fascinating intellectual discussion today about John Maynard Keynes, the ideas that he espoused and how his life affects our lives today. So Zach, thanks so much for joining us. I'm going to turn it over to you and Anthony for the interview.

Anthony Scaramucci (01:58):

All right. Well, Zach, I appreciate you being on with us. I mean, the great irony of this talk is, it was preceded by a great endorsement of your book by Jerome Pal. He didn't exactly say it was your book, but he's basically espousing Keynesian economics for the last hour and a half on CNBC. And so I want to hold the book up, because I know you've got it behind you, Zach. But this is the book, Money, Democracy, and the Life of John Maynard Keynes, The Price of Peace. Zach, it's a fascinating book. I guess for our listeners and viewers, I'd like you to tell us a little bit about your background. You told me it took you four and a half years to write the book, why did you want to write the book, and then we'll talk a little bit about professor Keynes and how we are still living with his legacy.

Zach Carter (02:46):

So as John mentioned there, I used to be a banking reporter at a trade publication called SNL Financial that is now part of S&P Global, and I was there, frankly, I was not terribly excited to have this job in 2006. I thought the idea of being a journalist covering banking from a place in Central Virginia was not the most exciting job you could have. But I learned an awful lot about how the financial system works over the course of that enterprise. And of course, in 2008, the financial system essentially collapsed.

Zach Carter (03:21):

And in that moment, everything that I had been told about how markets were supposed to work, about how supply and demand was supposed to reach an equilibrium seemed to fall apart. And people who had been telling me that supply and demand would always reach a prosperous equilibrium, started reaching for the government for very large infusions of cash to save the financial system. And frankly, to be clear, I think if you had not saved the financial system in 2008, we would not be living in the United States of America today. The collapse would have been absolutely catastrophic.

Zach Carter (03:55):

But it was very clear to me that there was an intellectual sea change that was underway at that moment, and people started talking about John Maynard Keynes, just sources that I would talk to on the phone. And these people did not talk about John Maynard Keynes a year, 18 months prior to the crash. And so I went and started reading John Maynard Keynes. As an undergraduate I studied philosophy, I studied politics, I did not study economics. So I learned economics on the job, as a banking reporter from people in the financial system.

Zach Carter (04:27):

And frankly, I think that's a good way to learn economics. Because the financial practitioners, the people who are actually doing it, every day, economists are one step removed from what's actually going on in the world, and that can be a valuable perspective, but particularly in the crash, watching the way people changed their minds about something. I mean, in politics, I've been covering politics for several years since, people almost never change their minds. But in the financial crisis, you could see people in the markets change their minds about the way they believed the world work.

Zach Carter (04:57):

And so I started reading John Maynard Keynes. And first the first book I tried to read was The General Theory of Employment, Interest and Money, which is a terrible, terrible book to read. It is just written like... It's like a pretzel covered in thorns. It's awful. And so I got a couple of chapters in and I just said, "I'm going to try something else." And I tried The Economic Consequences of the Peace. And that book, it's like reading a big stick of butter. It's just beautiful. It's a wonderful, wonderful read. It's much more consistent with Keynes's broader body of work and his writing style than The General Theory is.

Zach Carter (05:32):

And I realized, reading that book, there's a lot more going on here than just dollars and deficits and money and numbers. There's a whole social theory, there's a whole idea, not only of what a national economy is supposed to look like, but what international cooperation is supposed to look like. And economic policy wasn't this technical mathematical thing. It was the thing that was supposed to embolden and enable this broader social vision. And so I became totally obsessed with Keynes and the book is the byproduct of that.

Anthony Scaramucci (06:05):

Okay. So let's take people back for a second, and I don't want to cut you off because I really want you to elaborate on this. But I want to give all of our viewers who may not be as familiar with John Maynard Keynes, a brief synopsis. So he was a legendary economist. And he wrote about the Versailles Treaty, which you elaborate in the book, and he wrote that the wartime reparations that were being imposed upon the Germans were not sustainable, unlikely to be paid back and would cause social and political unrest in Germany.

Anthony Scaramucci (06:40):

And so that was a big hullabaloo in the West because they were trying to extract damages from the aggressor Germany in the First World War. But Keynes was really trying to point out that if you do that, you're going to set them up for nationalism, you're going to set them up for a specter of dissociation from that alliance that you're talking about. Of course that happened, but in the ensuing years, we were touched with the Great Depression. And you go into that, you can explain why that happened.

Anthony Scaramucci (07:11):

A combination of bad monetary policy, a lot of what Liaquat Ahamed said in the Lords of Finance, but there was John Maynard Keynes standing for the principle that the government needed to prime the pump. And the government needed to replace aggregate demand and deficits, frankly, were not going to be that big of a deal. As you, Stephanie Kelton and others pointed out, they have been sustainable for generations. They've been sustainable for thousands of years in our civilization. And so now I want to bring it back to you. It's John Maynard Keynes. He's living in the early 1930s, espousing these theories, which we're using today, but go ahead.

Zach Carter (07:51):

Well, just remember, he eventually comes to support deficit spending. But in 1919, when he's seeing the Treaty of Versailles and been horrified by it, he's still a very conventional 19th century economist. He thinks that they need to do widespread debt relief in order to allow markets to work their magic. That supply and demand will come into equilibrium and there will be a prosperous natural outgrowth of the post war world, but only if these terrible war debts and the reparations that are assigned to Germany, at the end of the war are limited. He thinks these things, they're just unpayable.

Zach Carter (08:33):

So he's not this revolutionary economic thinker at the beginning of his career. And he makes his career in large part pursuing this particular social vision. He thinks there is this world of international harmony and cooperation. I think it's largely a naive view of the way the late 19th and early 20th century international economies functioned, but it's a beautiful vision. I mean, he was talking about people exchanging ideas and culture across different national boundaries and that trade and finances is a vehicle for cooperation, growth and social harmony. It's a way to eliminate war in particular.

Zach Carter (09:15):

And so he loses that key political battle in 1919. He does not succeed in eliminating war debts or reparations from the Treaty of Versailles. And he basically loses every single political battle that he fights, particularly in Britain, from 1919 until about 1941. But he becomes, around 1929 enamored with this idea of deficit spending. He says, "Look, we have huge debts everywhere," because the war debts aren't going away. Everybody's still in debt from the war in 1929. But there are all of these problems that need to be solved.

Zach Carter (09:51):

And so before he has this very sophisticated economic theory that he develops in The General Theory in 1936, he just recognizes there's a political necessity for rebuilding to occur. Governments just have to start doing things because the private market is not doing anything. And if nobody does anything, the economy is not happening. It's not functioning. We've talked about the Great Depression in the United States, like something that got kicked off in 1929, sometime after the stock market crash. But in Britain, they were in a double digit unemployment situation from 1919, all the way through to the Second World War.

Zach Carter (10:27):

So for Keynes, this is just an astronomical political crisis. And they have these enormous strikes that are happening in the streets. In 1926 there's a general strike, where basically all of the labor unions just unite and say, "We're not going to work anymore." And that is devastating to Keynes. He's very politically conservative in that he's afraid of change. But a lot of his policy ideas, I think, end up being quite radical in that they're new ideas designed to facilitate the conservative political goal that he has in mind, that goal of social stability. So eventually we get to the '30s and he starts talking about deficits, by necessity. Everybody is in debt, and we've got to do something. So let's go for it.

Anthony Scaramucci (11:11):

So let's talk a little bit about that conservatism that you're mentioning, because as you point out in the book, a lot of the conservative economists were ridiculing him. You mentioned Ludwig von Mises an economic, I believe it was a publication just lighting him up about these non classical theories of economics. And there are many conservatives that tune into these podcasts and are listening and they have this feeling, this Adam Smith, laissez faire feeling except it's a little bit like Mike Tyson zag, "Everybody has a plan until they get punched in the face," and then everybody goes hard left and starts massive deficit spending. So I want you to put at ease the conservatives that are listening in on this and explain to them why their theories are wrong and why John Maynard Keynes is right.

Zach Carter (12:05):

Well, both von Mises and Hayek had a much deeper understanding of economic history than John Maynard Keynes did. He did not study economics as a young man, he studied mathematics. Cambridge didn't have an economics program until 1903, I believe, and he graduated in 1902. So there were economics courses, but you couldn't major in economics there. And so Hayek and von Mises have this much deeper and longer knowledge about the economics profession. And I think, to some extent, this ends up hamstringing them when they get to the depression because the rules that are supposed to apply suddenly don't apply anymore.

Zach Carter (12:48):

However you look at the Great Depression in the 1920s and 1930s, at some point, markets should have been able to clear whatever dumb decisions governments were making. Rational individuals maximizing their own economic potential should have figured out a way for supply to reach equilibrium with demand and lead to an equilibrium in which there was sustained high employment. And that just did not happen in Britain.

Zach Carter (13:15):

And so, the thing about Keynes is he looks at economics from a more philosophical perspective than I think Hayek and von Mises did. He was fundamentally a philosopher, first, a social thinker first, and then an economist second. He's always using economics to try to pursue these other social goals. So I want to say to the conservatives here, if you are upset with John Maynard Keynes, because you think that he's pursuing social goals that you don't agree with, you are correct, that is, in fact, something that he was doing.

Zach Carter (13:48):

But it is also the case that essentially every single government since the Great Depression has pursued the ideas of John Maynard Keynes in some variety or other. Everyone runs big deficits when we get into a crisis, it always happens. Even Ronald Reagan after the big monetarist recession under Paul Volcker, in the early 1980s, started ramping up government spending for the military in order to try to win reelection in 1984. He eventually sacked Paul Volcker in favor of Alan Greenspan, in order to get some more help from the Fed, frankly, in a very traditionally Keynesian way.

Zach Carter (14:28):

The difference between the Republicans and the Democrats on this and I think even the difference between Democrats and Keynes is what they decide to spend the money on. We have always spent enormous sums of money when we get into crises and we've also spent much larger sums of money since the Great Depression just as a standard baseline of how the government functions. Before the Great Depression the government spent two or 3% of GDP on its operations. Since 1960s we've been hovering around 20%. You move a couple of percent up, a couple of percent down, that is a significant change. I think Keynes would have wanted more of that.

Zach Carter (15:06):

But the fact is Keynesian thought in the sense of using the government to supplement aggregate demand, it is not a controversial theory in government, between Republicans and Democrats, when they're actually governing. It's just how the world works. So if you're worried about adopting Keynesian ideas, because you think that it's going to cause some crisis or move the economy out of kilter, you have to grapple with the last 80 years.

Anthony Scaramucci (15:33):

Well, I think that's well said, and I want to take you back to the original gold standard, which we lifted in 1933. And then John Maynard Keynes himself worked on the Bretton Woods treaty in 1944. But then there's August 15th, 1971, where Richard Nixon pulls the pin on gold. And there's this theory, and so I want you to address that and then the second part of the question is, let's go from 1971 to today because conservatives would say, "Well, we took ourselves off the gold standard, we had that rapid inflation in the '70s that needed to be tamed by Volcker and that these strategies are incredibly inflationary and that deficit spending actually harms the middle class and the lower middle class, because if you're devaluing the dollar, their wages can't catch up. So it's a two parts. So let's go to '33, '44, '71. And then that last piece there.

Zach Carter (16:33):

So Keynes's issue with the gold standard by 1933 is not anything about gold in particular. He just thinks that the economic order of his day is forcing countries into a deflationary crouch. If you are losing gold under the gold standard, if it's flowing out of your country because people are losing confidence in either your financial situation or your economy is just not doing well, then you have to do something to retain gold. So typically it was raising interest rates, that was how central banks dealt with that, and the gold would flow back. But by raising interest rates, you caused high unemployment.

Zach Carter (17:14):

And there was this famous quote from Keynes in 1923, where he says, "In the long run, we're all dead." And this has been interpreted in various ways by different people throughout time. But the basic point is that if you have a social revolution, in the meantime, while you're waiting for the scales of the Adam Smith economy to balance eventually, that doesn't help you any. You still have a social revolution, and that is a problem. So Keynes says that we have to do something. We have to find some way of managing the economy to prevent these really terrible social outcomes in the short term, while we're waiting for the economy to balance. And the long run could be a long time. It could be 90 years, it could be nine years, but however long it is if we have a revolution in the meantime, that's going to be a problem for somebody like Keynes.

Zach Carter (18:04):

So in the 1930s, he sees the gold standard, this real transmission mechanism for austerity and for social revolution. As one country has a run on its currency, it backs down and gets into this crouch. And it never really works. The deflationary positions never actually... The strategies don't actually prevent the financial crises from going full bore and from wrecking these currencies. So country after country keeps going off the gold standard, but they do that, as one country has a problem. And then investors look to other countries say, "Well, who's the next weakest thing?" I think people who lived through 2008 and saw people looking from bank to bank from Lehman, to Morgan Stanley, that sort of thing understand that kind of thinking that happens among investors.

Zach Carter (18:52):

So when you go off gold in 1933, there's a new world and it's very chaotic, and it's not particularly prosperous. I mean, we have the Great Depression. And in 1944, this is the Bretton Woods Conference, is the attempt to create a new system among different countries to cooperate on economic policy, on finance and trade. And to create a new system that is not going to force countries into these deflationary crouches whenever they get into trouble. It works, it doesn't, but in 1971, the United States blows it up.

Zach Carter (19:31):

And look, the inflation era of the 1960s and 1970s, there's a reason why people are critical of Keynesian economics at this point in time. There's a lot of spending that's happening among governments. Keynesians don't have a particularly good explanation for why the inflation is taking off. There's the oil price increases, which happens because of a lot of foreign policy decisions in the Middle East. So that's part of it, but inflation really is taking off. And it totally discredits Keynesian thinking in the 1970s.

Zach Carter (20:06):

I don't have a great explanation for why the 1970s inflation happens. I don't have a great explanation for why we don't have any inflation right now, even though people have been calling for hyperinflation since 2006, I think. I think the certainty that the economics profession develops every three or four years as news theories take hold is often quite illusory. But with Keynes, you have this very flexible mind, somebody who is attached not only to deficit spending, he liked deficit spending, because he saw it as a political necessity. But he never wanted to be remembered as a deficit therapist. He wanted to be remembered as this guy who was trying to prevent war and deprivation. Who was trying to promote prosperity and international harmony.

Zach Carter (20:59):

And the tactics that he was willing to use, the improvisational attitude that he had towards economics, I think is an unusual spirit within the profession. He didn't claim to have this deep knowledge about the way the world works on some deep down in the ether of reality. He was someone who was willing to change his mind when circumstances changed.

Anthony Scaramucci (21:23):

Well, there's an extension of Keynesianism now called Modern Monetary Theory. Your friend, Stephanie Kelton, will be doing a SALT Talk with us next week on her book, The Deficit Myth. I know you're going to be with her tomorrow. We should publicize that, it'll be tomorrow, the bookstore Politics and Prose, one of my favorite bookstores is hosting a podcast with the two of you. And what time is that going to be Zach?

Zach Carter (21:49):

7:00 PM Eastern Time.

Anthony Scaramucci (21:51):

7:00 PM, Politics and Prose. So find them on a bookstore in Washington DC. But in Stephanie's book, which I read in preparation for this, and for my SALT Talk with her next week, she really believes that this is the Galileo Moment. She really believes. I mean, she really says that Modern Monetary Theory is like a [panicist 00:22:12] discovering that the earth is actually rotating around the sun as opposed to being flat and the center of the universe according to some of the religious experts. And so she really believes that this massive deficit spending is a great equalizer and is almost a tonic to help the lower and middle class. And so I'm just wondering what your thoughts are on that, you now being the Keynesian expert?

Zach Carter (22:41):

Sure. I have a great deal of respect for Stephanie, and that's why we're doing an event together tomorrow. But the big shift that she's talking about is the focus on real resources, the actual productive capacity in the economy. How many people you have who can be put to work, what they are skills are, how many resources you have, how many farmers you have, how many miners you have, how many tons of coal you have in the ground. Probably not great for The Green New Deal kind of stuff, but the actual resources you have in your economy. That's how you should think about economic policy. You should not think about it in terms of the monetary numbers that we attach to government spending.

Zach Carter (23:27):

So the numbers that we talk about when we talk about debt and deficits and whether or not we can afford things, her point is just that, I mean, I don't think I'm putting words into her mouth here. Because I've talked to her many times. But her point is that if we have the stuff, if we can actually do it, then we can afford it. The amounts that we have on our ledgers and on our accounting books, those may not be irrelevant, but they're not important to the question of whether or not we can afford to do something.

Zach Carter (23:59):

And I think that's an important point. And frankly, I think it goes all the way back to Keynes. He has this very important essay that comes out in 1941, I believe maybe 1940, called How to Pay for the War. And it's about how the British government is going to deal with these massive, massive expenses that are going to be required by World War II. And he basically says, "Look, this is about mobilizing our resources. Every other question that we have is about what society we want to live in after those resources are mobilized. Do we want to sell debt so that the investor class makes a lot of money and becomes wealthy and gets interest payments hereafter? Or do we want to raise taxes on the investor class so that they have less money in here now?"

Zach Carter (24:44):

The point is that these questions end up being about distribution ultimately. That scarcity of resources, which is the basic underlying premise of economics, certainly in the Austrian tradition, but really throughout much of the Anglo Saxon tradition as well, is maybe not the real problem. The real problem maybe about distribution. And I think Stephanie has really keyed into something important there. And I think that's really... Honestly, when the MMT people start talking about sophisticated Federal Reserve operations and the relationship between the Fed and Treasury, there are moments when they lose me. I get lost. It's very technical and complicated. But I think the basic point that scarcity is not the key factor and that the monetary numbers about deficits are not what matters, it's real resources in the economy, that strikes me as correct. And it seems to me to flow directly out of John Maynard Keynes.

Anthony Scaramucci (25:40):

Well, she certainly makes that case in her book and we'll address that next week, and I appreciate you bringing it up. I guess, what often happens to me, Zach, with clients, I'm out making a presentation, somebody raises their hand and says, "Hey, are you worried about the deficits? Are you worried about the long term accumulation of deficits?" And again, conservatives, von Mises others, what would they say? They would say, "Well, the deficits have a tendency to crowd out. You have interest payments on the budget that are going towards those. And then governments have to monetize that debt in some way."

Anthony Scaramucci (26:16):

Let's look at our own government for a second, in 1971 $35 an ounce for gold, today it's $1700 an ounce for gold. A conservative economist would make the case that our money was devalued by 98% over that two generational period of time, totally fine for people that have assets because the assets denominated in dollars, they go up in value. That $1 million beach house is now 10 million. But again, for people that have wages, and I saw this in the 2016 campaign, when I was campaigning with then candidate Trump, we had people really struggling.

Anthony Scaramucci (26:52):

And I remember being on the campaign plan, I did an analysis of what my dad, my dad was a blue collar worker. He was a crane operator, he was an hourly worker in a union. And I did the calculation for then Mr. Trump, I looked over to see if my dad in 1976, if he was doing the same job, same union 2016, his wages are down 26 and a half percent. So it's a broad question. But do deficits matter? Are they going to come back to haunt us? Are they impairing the ability for middle class people to get ahead? Is it hurting their wages? And what do you say about their grandchild?

Zach Carter (27:31):

Well, I think deficits can matter. Certainly, if you believe Stephanie, there's a certain point in which all of the resources in society are mobilized, and there's just nothing more to produce. And so at that point, you start seeing inflation. And when you start seeing inflation, that can be a social problem, not only for the investor class, but for working people. I don't think we're there.

Zach Carter (28:03):

When I think about the question about the grandchildren, though, your grandchildren want you to have a job, so that you can have a fulfilling life and pass good things down to them, whether it's money, or learning, or culture, they want you to be able to have a full life. They're not thinking, "My goodness, it's my grandparents who are stealing from me every day." They're thinking, I mean, I have a 10 month old daughter now. So I think about this all the time.

Anthony Scaramucci (28:34):

Congratulations.

Zach Carter (28:34):

Yeah, thank you very much. What she wants is for daddy to be employed so that daddy can have a job and afford to buy her toys and books and teach her things. She wants to have all the ingredients of a good life. This is essential to Keynesian thought.

Anthony Scaramucci (28:48):

Let me push back.

Zach Carter (28:49):

Go ahead.

Anthony Scaramucci (28:49):

Let me push-

Zach Carter (28:50):

Sure.

Anthony Scaramucci (28:50):

... back for a second though, are we mortgaging her future? Because that's a big issue. That's a big statement that people make, "Well, we're mortgaging our children's future to pay for our goods and services today."

Zach Carter (29:02):

What happens to my daughter if I lose my job? What happens to her if I don't have any money? If I can't pay the bills? The idea that we're mortgaging her future to make sure that her parents are employed, I think is very silly. Her future gets much, much worse if her parents are in a terrible financial situation.

Anthony Scaramucci (29:19):

Okay. So now you sound like John Maynard Keynes. And you do make the point in this amazing book. What you're basically saying is that we have to solve for today, and that if we can create the right economy today, we get an amazing amount of innovation, an unleashing of growth. And people that think the way I am positing right now are thinking too linearly. In fact, we have this exponential opportunity if we can set the economy up right today. And so that the future for your daughter or my children, is going to be so much different. And I would point out to people just think about where we were in the '80s with peak oil theory. I was sitting in a classroom Zach, in the middle '80s where people told me, "Well, we're running out of oil. By 2010 there'll be no oil." And they left out the exponential, technological growth that took place under heavy deficit spending to lead to this abundance of oil now.

Anthony Scaramucci (30:16):

We could question a bit that impacts on the environment. But the point being, I think the point that Keynes would make, you would make, it's a very interesting intellectual comment is if you fix today, we won't have to worry about tomorrow because we'll unleash unbelievable amounts of growth in the process, and make people's lives in the future way better than ours today.

Zach Carter (30:38):

Keynes had a very different framework for understanding economics than I think most economists who have followed him have adopted. His view is that it's not scarcity of resources that dominates our condition as human beings, it's uncertainty about the future. And if you can find a way to deal with uncertainty... Ultimately, there's no way to cure uncertainty. But if you can give people a reason to believe that tomorrow will be better than today, each step of the way, you have a much better chance of securing the type of social harmony that he always wanted to see.

Zach Carter (31:15):

And so his economic policy is designed to make people believe that tomorrow will be better than today. And look, that is a difficult thing to secure when things are bad. I know that right now we've got the pandemic, we've got unrest in pretty much every single American city. But Keynes lived through this too. He lived through the First World War, the Great Depression, and the Second World War, those were catastrophic things. And he never lost that faith in the future.

Zach Carter (31:42):

And I think that's a pretty essential belief that you have to maintain if you're going to live in a democracy, regardless of what your economic position is. And so whether you're an Austrian or a Keynesian, that faith in the ability for people to solve problems collectively, I think is a pretty essential way of understanding the world.

Anthony Scaramucci (32:01):

I think it's very well said. Before I turn it over to John Darsie, I have one more question. And when I read this in your book, I was like, "Okay, this is fascinating. I'd like you to explain this to our viewers and listeners." Keynes really felt that it wasn't normal for human beings to be on a trajectory of peace and prosperity. He felt that they needed a political system to help guide that and we needed, as a culture and sociologically mechanisms in the political system to further that. I was wondering if you could elaborate on that, and explain that to our viewers.

Zach Carter (32:37):

Sure. One of the lessons of The General Theory is it's not just about deficits and debt as we've been discussing this entire event. He thinks that society is, if you don't have political leadership, it tend towards, not only you can call it an equilibrium, but it's a socially dysfunctional equilibrium where you have high unemployment. And if you take a step back from the economic language, what he means is there's a lot of social unrest. That you have social breakdown. So you need some political leadership in order to sustain the idea of harmony in politics.

Zach Carter (33:13):

And he gets this from being a political philosopher, frankly. He's not just a guy who wakes up one day and reads Adam Smith and thinks, "Okay, let me start moving some equations around." He's very, very steeped in enlightenment liberalism and in these basic ideas of what makes people function, what makes society healthy. And one of the guys he likes a lot is Edmund Burke. And he thinks Edmund Burke's ideas about social stability are really important. He disagrees with Burke on whether or not democracy is fuel for social instability. He thinks that Burke, maybe there's something there, but so far, he says democracy has not embarrassed itself on its trial.

Zach Carter (33:55):

So he believes that people can come together to solve problems. But he does believe that somebody has to do the solving of the problems. And that is political leadership. And without political leadership, you not only have all the social unrest, you can't have things like markets. They need some political foundation to exist at all. So people can disagree and dispute what rules we want to have when we create these markets, but they are fundamentally a product of the state itself. And the state he has... I mean, there's a lot to discuss here. But he has a fairly benign view of the state. He sees it as an expression of the democratic will much like the philosopher Jean-Jacques Rousseau did.

Zach Carter (34:38):

So he believes that this is the only way for people to come together and express their beliefs about how they want to be governed, is through the government. And he believes that markets and all the economic underpinnings of society that we take for granted are actually byproducts of the state itself. So that means ultimately, that governance and that intervention in the markets is inevitable. And the question is what kind of interventions we want to have. And people have been disputing that ever since.

Anthony Scaramucci (35:06):

Listen is fascinating. And I think it's just a reminder to people, I'll take them back to their eighth grade social studies, Solon who invented democracy in Athens, he basically went to the other aristocrats, and said, "Hey, if we're not careful here, there's going to be a rebellion and an uprising. We need to figure out a way to include all people of economic strata." It was men at that time. Now it's all people in this great, wonderful diversity. We have to include everybody. And so we have to try to make the system is fair as possible. Otherwise, there'll be just haves and have nots, Zach, and we don't want that. And I think that's one of the reasons why we're faced with issues of populism and nationalism now. But you wrote an amazing book.

Anthony Scaramucci (35:50):

I want to turn it over to John for some questions from the audience if you have a couple of more minutes for us, but I want to hold the book up again, it's amazing, available on Amazon and other places. I like buying my books from a local bookstore. I just try to help out the community. But this is a great book, Zach. John, do you have questions for Zach Carter?

John Darsie (36:09):

Yeah, we have several audience questions. And Zach, thanks again for joining us. The first one pertains to politics in the United States. The Republican Party has become known as the party that's concerned about deficit spending more so than the Democratic Party. We talk about increases in deficit spending, being a left leaning policy, but if you really look historically, at conservative presidents like Nixon, Reagan and Bush. They have been the ones that have ballooned US deficits, while Clinton was the one who balanced the budget. And President Obama, now in hindsight, it appears that his lack of spending post the 2008 crisis constrained the acceleration of the recovery. Could you elaborate on that observation and share your view of whether you think a Biden administration, I know the Sanders team has Stephanie Kelton as a economic counselor. But do you think the Biden administration understands that issue and has the appetite to spend aggressively if he wins in this election?

Zach Carter (37:11):

Well, let me start with the Biden question. I mean, frankly, Biden is a total black box to me. I think he sometimes comes out and talks about how he wants to do something like an FDR New Deal style program, and then other times he sounds like he's an Austrian. I think Biden's is just trying to get through this election, and we're going to learn a lot about what the direction of the Biden administration will be when he names his vice president. That is going to be a sign to people about what kind of administration he really wants to run. I think he's been talking out of both sides of his mouth for much of the campaign since he basically secured the nomination, trying not to lose a lot of those Sanders supporters, but also trying not to alienate the suburban moderates who he feels like are part of his base.

Zach Carter (38:03):

And I don't think he knows what he wants to do. I think he's going to figure it out. He's a guy who's capable of changing his mind. He voted for all of this bank deregulation stuff in the 1990s, as part of the Clinton administration. He was very enthusiastic about it. But in 2016, when he was looking back on his career in politics, he said to, I believe, it was Jake Tapper that he thought his vote for the repeal of Glass-Steagall was the worst vote he ever made. So he's capable of changing his mind. I just don't know which way he's going to change it going forward. And I think predicting the future is an extremely difficult thing to do in politics at this juncture. This is a very, very uncertain time.

Zach Carter (38:43):

About Republicans and Democrats and deficits. I mean, what you said is basically right, everybody, with the exception of Bill Clinton, since 1932, has been running up larger and larger deficits. It's just a fact of life. Whether or not those deficits are good for America, the thing about economic disputes is you can always find statistics to fit your particular worldview. The empirical questions, they're very difficult to decipher. So some people could say, "Look, the deficits caused inflation in the 1970s, they caused a recession in 1992." Other people... I tend not to find that stuff terribly persuasive. But I can point to a different set of data that says deficits don't really make that big of a difference for the United States, particularly since the age of gold is over.

Zach Carter (39:38):

I do think it's the case that the Democratic Party is more committed to what we would traditionally call fiscal responsibility than the Republican Party is. They seem to think that it's a point of honor to reduce the deficit in ways that the Republicans don't when they're in power. I think Nancy Pelosi has been very clear about this. I'm not particularly excited about that as somebody who's traditionally been affiliated with the Democratic Party. I wish they weren't so committed to deficit reduction. I think it ultimately ends up hurting the people who they want to help. But we will see what happens in the Biden administration. I think it's a very uncertain time. And I think ideologically, everything is scrambled right now. The Republican Party, there are voices in the Republican Party right now who are talking about running big deficits to help working families. That was not happening a few years ago. And we'll just see what happens.

John Darsie (40:33):

The next question came from the chat. It's about whether there seems to be a resurgent interest in the ideas of people like Keynes and Karl Polanyi. Is that a sign that our ideas about free markets and how they work is fundamentally changing?

Zach Carter (40:49):

I do think so. I mean, think 2008 was a really big moment intellectually in the history of ideas for not only the United States, but the Western world more broadly. This idea that markets were self-correcting things, that supply was going to balance with demand and reach a prosperous equilibrium, I mean, you got to account for what happened in 2008. It was a total disaster. And I think the criticisms of the Obama administration that followed, that they were not aggressive enough in responding to that suggests that the government needs to be involved in the management of the economy, whatever you do.

Zach Carter (41:30):

So the idea of the free market is something that's separate from the government, rather than something that is managed by the government and interacts with the government in some way. I think that is changing. We do not really accept the Milton Friedman idea that there's a free market that exists out there in the state of nature and the government moves in after the fact and intervenes across it. I think that has changed. But it doesn't necessarily... Just accepting that difference doesn't actually help you decide what the policies are that need to be made in that reality.

Zach Carter (42:08):

So people like me who were deeply concerned about economic inequality are going to advise a different set of policies than people who are concerned about other factors. But that gets us to a basic political struggle. You can't just say, "Look, the equations add up this way. This is what the numbers say," you have to actually start talking about values and beliefs. And that is what democracy is for.

John Darsie (42:34):

And one final thought as I plug your book one more time. Zach's book is The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. I had a chance to read it as well. It's fantastic. What's your next book going to be about, Zach?

Zach Carter (42:46):

I have got to keep that under wraps. I am talking with my publisher right now. And we have exciting things on the way but that's all I can say.

Anthony Scaramucci (42:58):

Well, we caused you to blush on our SALT Talk webinar. You could be the first blusher Zach, I caught the redness in your face there.

Zach Carter (43:06):

I blush easily Anthony.

Anthony Scaramucci (43:08):

All right. Well, that's good for me to know. Because I'm not the type to ever embarrass people. So I'll keep that on the down low, Zach. But in any event, I appreciate. Any parting thoughts of wisdom that you would like to share with us before we sign off?

Zach Carter (43:22):

Sure. Look, I think Keynes was deeply naive in a lot of ways. I think he made a lot of bad mistakes politically, he was a goofball throughout his life. But I think his faith, in our ability to solve our problems together as a society, I think is a faith that we cannot afford to lose. That is an essential belief, whatever your political perspective is, whether you call yourself a conservative, or a left-wing socialist or whatever, you have to believe that we can deal with the problems that are facing us. Because if you stop believing in that you end up with a future that's far worse than it needs to be. And I think that was a very wise and difficult thing for Keynes to maintain throughout his life, but I think it's very admirable.

Anthony Scaramucci (44:08):

Well, don't knock being a political goofball or being naive Zach. Some of us may be that. Some of us even on this SALT Talk may be political goofballs. But in any event, we appreciate your time. It was a phenomenal book, I really recommend everybody. I do believe, as we were talking about before we opened up the line to others, the Lords of Finance written by Liaquat Ahamed, 10 or 11 years ago had great influence on people like Dr. Bernanke and it became the, to use the metaphor, because it's appropriate the gold standard, contemporary book for that moment, I do believe your book is going to be that one for today. So congratulations, Zach, wish you the best with the book and hopefully we'll get you to our SALT Conference when we get it back up and running. But thank you again.

Zach Carter (44:56):

Looking forward to it.