Milton Ezrati joins City Journal editor Brian Anderson to discuss the Trump administration’s trade negotiations with China and the “Green New Deal” proposed by newly elected Democrats in Congress, like Rep. Alexandria Ocasio-Cortez (D-NY).
Proponents of a Green New Deal claim that the plan will prevent damage from climate change. The scale of the proposal is massive: its goals include expanding renewable-energy sources until they provide 100 percent of the nation’s power and eliminating greenhouse-gas emissions for industry and agriculture. To pay for it, Ocasio-Cortez recently suggested a 70 percent income-tax rate on top earners, which Nobel Prize-winning economist and New York Times columnist Paul Krugman described as “reasonable.”
A March deadline is approaching for the Trump administration’s trade negotiations with China. With officials preparing for the next round of talks in Washington, Ezrati discusses the implications for the American and global economies.
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. His latest book is Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live.
Photo by Peg Hunter via Flickr
Brian Anderson: Welcome back to the 10 Blocks podcast. This is your host, Brian Anderson, the editor of City Journal. With a new wave of Left Liberals and even self-proclaimed democratic-socialists coming into Congress, the so called "Green New Deal" has become a rallying cry for Progressives. While details of the plan remain somewhat vague, we know its primary goal is to fight climate change and move the country to all renewable energy sources. Proponents of the Green New Deal, like the newly elected Congresswoman from the Bronx, Alexandria Ocasio-Cortez, or AOC, as she's often referred to, see the "Green New Deal" as part of a broader social justice agenda, which seeks a dramatic redistribution of wealth. To talk about the Green New Deal, among other topics we'll be joined on the show today by Milton Ezrati. Milton is a nationally regarded economist. He's had a successful career in the financial industry, retiring as the chief economist for investment manager, Lord Abbett in 2015. He now serves as chief economist for Vested and always has unique insight on what's going on in the global economy. Our conversation begins after this.
Brian Anderson: Hello again, everyone, this is Brian Anderson, editor of City Journal. Joining me on the show today is Milton Ezrati. We already introduced you to begin the show, but Milton has had a long career in the financial industry, he's been a regular writer for City Journal on economic themes and he's also the author of most recently "Thirty Tomorrows," a book on trends shaping the 21st century. Milton, thanks very much for joining us.
Milton Ezrati: It's a pleasure to be here.
Brian Anderson: The last time you were on the 10 Blocks podcast was this past summer with my colleague Seth Baron. You talked about President Trump, President Trump's push to change our trade relationship with China. Do you want to give us an update on what you think is going on? Their recent data show that the Chinese economy is experiencing a major slowdown in its growth rate.
Milton Ezrati: Well, it is. It's hard with the official statistics because the Chinese make them up. But other indicators, a lot of anecdotal evidence and some indicators from Chinese provinces suggests that their economy is suffering. They're also losing a lot of industry. A part of it is just the maturation of the Chinese economy. Wages are rising, so Chinese producers are going overseas to places like Cambodia and Vietnam because the wages are lower. Effectively, these countries are doing to China what they did to us. But more than that, because President Trump has put tariffs on Chinese goods, a lot of these Chinese manufacturers are moving to these countries to avoid those tariffs. So they're getting kind of a double hit in China.
Brian Anderson: What's your view on or prediction on how these negotiated trade deals are heading? Um, especially in the case of China, some of the recent turbulence in the financial markets has been blamed on uncertainty around the trade docks. Lately, there seems to be some more optimism that they're heading toward a positive resolution, but, but it's, it's hard to say. What's, what's your take on it?
Milton Ezrati: Well, it is the Chinese leadership do not want to yield to anybody. They've billed themselves to their own public and the world as a major world power. And you don't bow, even to the United States in that case. However, they are under tremendous economic pressure and Trump, whether he planned it this way or not is a large cause of that. There are other things going on, but they are under tremendous pressure. One statistic strikes me about this is that China is less than 10% of US exports to the world. The United States is one-quarter of all Chinese exports to the world. So if that is interrupted, they suffer considerably more than the United States. For a while they were meeting Trump dollar-for-dollar on the tarrifs, but they ran out of things to tax effectively because two reasons. One is because there's so little that we export to them relative to their exports to us. But the other thing is about 30% of Chinese imports are components from the United States, are components for their electronic assembly, which is a major export, so they can't tax that. They can't put tariffs on that. So they are in a bind. Their backs are against the wall. Neither their wall nor Mr. Trump's wall, but their, their backs are against the wall and they want a deal very badly.
Brian Anderson: So for the US, I guess the, the outcome would be greater access to the Chinese market, more goods sold there, um, and ideally an improvement in Chinese behavior with regard to stealing technology, things like that. Right?
Milton Ezrati: I think the second is, is more important in this deal and Trump would like greater access, but a lot of that is economics and it works against the United States. I think what he wants is two things, or at least what they're telling me. The Council of Economic Advisors is saying they want, he wants to Chinese to allow more people to set up in China without necessarily having a Chinese partner, and of course he wants to Chinese to give assurances that they're not going to steal technology and other commercial secrets. The problem is they've done this before and it was a lie.
Brian Anderson: Right.
Milton Ezrati: Um, so he needs some kind of assurances.
Brian Anderson: Turning to the domestic scene we have, as I mentioned in the introduction, a new group of Progressive Democrats coming into office. One of the things they're calling for is a Green New Deal." You've written about that for us at City Journal. Do you want to give our listeners a breakdown of the plan such as it is, as you understand it?
Milton Ezrati: Well, Ocasio-Cortez, AOC, as you said in the introduction, it's a lot easier. She really doesn't have a plan. She has a long list of aspirations. It's hard to argue with the aspirations and it's hard to judge them because there's nothing detailed. The only plan she has advanced is the idea to have a select committee in Congress that will make a plan around her aspirations and report out, at least in her bill they were to report out in January in 2020. They have an uphill battle because her list is long and ambitious, but it's just a list of aspirations.
Brian Anderson: One of the things that Ocasio-Cortez, has endorsed is a 70%, I think marginal tax rate. And even Paul Krugman has written a column saying that this is entirely reasonable. Can you talk a bit more about that, whether that would indeed be reasonable? What kind of an effect that, that kind of a tax rate might have on the US economy?
Milton Ezrati: Well, it's interesting. Just as a start, her aspirations, what she wants to spend the money on and how she wants to spend the money is a lot vaguer than her plans to get the money. Which I think is curious. But, um, the, she said this rather casual on a news program, although she has endorsed her own casual statements since Krugman loves the idea and he promoted it. She has alluded to the fact that the United States had a 70 percent tax rate in the sixties, seventies and early eighties. Actually, we had a higher tax, marginal tax rate even earlier in the fifties. It was 92%, I believe. And Krugman has supported it with three arguments. One is that it's easier for rich people to pay taxes then poor people, which is irrefutable. Of course it's easier for them, that's why we have a progressive tax code.
Milton Ezrati: But it's really beside the point. The point is what it does to incentives for people to work, for people to expand business, for people to innovate, which is the lifeblood of economic growth. Krugman has dismissed these, but there are a lot of academic studies that at the very least say it's ambiguous and many say it is, is an impediment. And we've just seen, the response of markets and business to the tax cut we got just recently that it does have an effect and if they reverse it and raise that marginal rate, it will have the adverse effect.
Brian Anderson: Elizabeth Warren has started concretizing some ideas for her presidential run as well as perhaps you could address, what's your sense of her plan is going to look like or her agenda?
Milton Ezrati: Well, she actually has given more detail than AOC, which makes it a little easier to talk about her plan. What she effectively wants is a federal corporate charter that will insist that companies consider interests other than just the shareholder, labor and the community as well. What she doesn't detail in her plan is who would adjudicate conflicts in those interests. Um, she also hasn't address the federal or the federalist implications because right now corporations are chartered by states and each state has its own idea of how a corporation should be chartered. This would just wipe that away completely except for the smallest of firms
Brian Anderson: You've written about, for City Journal in the past, the entitlement spending problem in the US is a major trend and kind of inexorable one. This isn't going to go away and rising entitlement payments are locking up more and more of the budget every year. How do you see that progressing? Do you think we have the political will to tackle the problem? And where's it going to wind up?
Milton Ezrati: Well, not in this Congress, we don't have the political will and aren't from either the Republican or the Democratic side. It's growing and there is nothing built into the budget process that can stop it except a piece of a major piece of legislative reform. Congress votes on the discretionary part of the budget, not the entitlements. They were written into law and they grow every year. They grow because, part of it is healthcare and healthcare costs continue to rise and they grow because the population is aging and more people are retiring and demanding their retirement benefits, and of course with age comes healthcare demands. So it, it continues to grow. What I think is significant is that over the last 10, 20 years when it is grown much faster than the rest of the budget, it has been funded by cuts in defense spending, relative cuts, not that defense spending is lower than it was 20 years ago, but as a portion of the budget, it has continued to shrink. Unfortunately, I don't have the exact numbers in the front of my mind, uh, but it's unlikely that defense spending can continue to shrink, certainly not at the rate, relative rate that it was shrinking in the past, which means that this relentless growth in entitlements is going to start to bite elsewhere in the budget.
Milton Ezrati: So everyone in Washington, Democrat, Republican, Progressive, Old-Fashioned Conservative, talks about the need for infrastructure. There is no money for this and every year we wait we'll have less money, relatively.
Brian Anderson: So addressing this entitlement challenge would be probably the biggest and best thing we could do for the long-term growth of the economy?
Milton Ezrati: Yes. Now that doesn't mean people have to be put out on the street either. Our system is not the most efficient in the world.
Brian Anderson: A lot of work to do there. Milton, thank you very much. Don't forget to check out Milton Ezrati's work on our website, www.city-journal.org. You can follow him on Twitter @MiltonEzrati. We'd also love to hear your comments about today's episode on Twitter @CityJournal. Lastly, if you like our show and want to hear more, please leave ratings and reviews for 10 Blocks on iTunes. Thanks for listening and thanks again Milton for joining us.
Milton Ezrati: Pleasure. Thank you.