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Constructing Partitions or Bridges? Financial Growth and Technological Change, with Glenn Hubbard


Constructing Partitions or Bridges? Financial Growth and Technological Change, with Glenn Hubbard


The Full Transcript

Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast for Resources for the Future (RFF). I’m your host, Daniel Raimi. Today, we talk with Glen Hubbard, dean emeritus and Russell L. Carson Professor of Finance and Economics at the Columbia University Business School, and a member of RFF’s Board of Directors.

Glenn is out with a new book called The Wall and the Bridge: Fear and Opportunity in Disruption’s Wake, that lays out a vision for economic policy in the United States in the face of populist rhetoric and rapid technological change. The book covers a wide range of topics, and in today’s episode, Glenn and I will discuss the lessons that the book offers for the energy transition. The book and the conversation are full of insights, so stay with us.

Glenn Hubbard, from Columbia University and Resources for the Future, welcome to Resources Radio.

Glenn Hubbard: Thank you. Thanks for having me.

Daniel Raimi: So Glenn, you are a little unusual as a guest on our show, in that most of our guests are focused exclusively or primarily on energy and environmental issues. And although much of your work is not explicitly focused on the environment, you have a really important interest in it—of course, your connection with RFF and environmental topics. So, can you tell us a little bit about to what you attribute your interest in environmental issues—whether it started as a kid or maybe later in life?

Glenn Hubbard: Sure. Actually, my earliest research as an economist was in energy and environmental economics. My main field in economics is public economics—so it was a subset of that—but that’s not what drew me to environmental economics. It really was two things in childhood: one was scouting, the constant love of the environment and preservation, and the other was faith and elements of stewardship, which I have always felt environmental stewardship to be a moral responsibility. And even though I’m an economist, that definitely colors the way I think about the environment.

Daniel Raimi: Yeah. That’s great. That’s really fascinating. And where did you grow up? Where were you doing your scouting?

Glenn Hubbard: I grew up in the middle of nowhere, a little town called Apopka, Florida. If you took the state of Florida and threw a dart right at the middle, you’d hit me. It’s a town that’s near Orlando. When I grew up, a couple of stoplights, not a lot there, mainly agriculture, but I enjoyed it.

Daniel Raimi: That’s great. Well, we’re here today to talk about your new book, which is called The Wall and the Bridge: Fear and Opportunity in Disruption’s Wake. It’s a really fascinating book. I was able to read an advance copy, and it makes so many important arguments and touches on so many important issues. Can you give us a thumbnail sketch as to why you wanted to write this particular book, and what walls and bridges represent?

Glenn Hubbard: Sure. I was concerned and am concerned as an economist, about the inability or unwillingness of our political system to address structural change. As an economist, I know that the growth and dynamism that we celebrate in our economy is like the head side of a coin. And the flip side, the tail side, of that coin is disruption and dislocation. Adam Smith knew that, 250 years ago or whatever, when he wrote The Wealth of Nations, when he argued against mercantilism in favor of openness.

In today’s world, I saw the problem that we’d seen technological change and globalization bring so many benefits in our society and around the world, but also a lot of dislocation. And I felt that not just politicians but economists, too, were focused only on the upside without noticing the downside. If you think where we are right now in the economy, with big shifts in artificial intelligence and machine learning, and importantly from RFF’s perspective, the adaptation we need to do to combat climate change, we’re going to have further wrenching transitions, and we need to figure out how to have a just transition.

Daniel Raimi: Yeah, absolutely. We’re going to talk explicitly about those energy and environmental issues in a couple minutes, but first, starting off with that broader economic lens, looking across the economy, can you tell us a little bit more about—just explicitly: What do walls represent? What do bridges represent? And how do they translate into economic paradigms?

Glenn Hubbard: Walls, I think of as going back to Smith’s original attack on mercantilism. A wall tries to imagine that you can protect something—a firm, an industry, an economy, a way of life, without regard to the loss change that that wall represents. Walls can be physical. They can be anti-immigration, anti-technological advance, or anti-progress. Bridges are, like the name suggests, something that takes you to somewhere or back from it. And taking you to somewhere would be preparing people for success in the economy that is and will be. I think of that as preparation or opportunity.

A bridge is also coming back—reconnection. So that if, for some reason, your line of work or your skills are disrupted by technological change, globalization, or any other structural factor, there’s some mechanism that helps you get reconnected. Classical economists really emphasize mass participation—everybody in the same boat in the economy. That’s what enlightenment thinkers were focused on: the idea of mass flourishing. The more neoliberal interpretation of economics in recent decades has been a little bit more narrow. And I’m trying to put the liberal back in neoliberal.

Daniel Raimi: That’s great. So, when we think about bridges in particular, I think we can all imagine what some of the walls—both physical and metaphorical—have been in recent times. But when you think about bridges, what are some of the most important bridges that you think policymakers in Washington today can start building to allow for that economic growth and prosperity, even as the world changes rapidly around us? Are there specific policy interventions you have in mind?

Glenn Hubbard: There are, and it may be useful to step back a second and look at times in which our country has done that successfully in the past. So, one example I spend a lot of time on in the book is, in the middle of the Civil War, President Lincoln establishes land grant colleges through the Morrill Act with Congress. And the land grant colleges are very useful in that—in that day, agriculture was the old economy; nascent manufacturing was the new economy. It was the explicit goal of President Lincoln and the Congress to help that adaptation. The land grant colleges were a mass supply shock, if you will, the ability of the economy to provide education to more men and women than ever before. And it allowed local customization: what you did depended on the area of the country. And the land grant college then permeated through the local business community and economy.

Another example of success going forward in time was the G.I. Bill of Franklin Roosevelt. Same idea. There were now many people returning from war to a different economy than the one they left. How were we going to help them succeed? In today’s economy, ask yourself, What institution is best able to establish and reestablish skills? In my judgment, it would be community colleges, and we need—á la the spirit of the old Morrill Act—a large-scale block grant for community colleges. And I talk about some work I had done with other economists on designing such a block grant. I would note that’s very different then the calls today for free tuition from community colleges. That argument, whatever its merits, does nothing to give resources to community colleges, which is the real problem.

A second thing we need is to think harder about support for low-wage work. You can’t ask people to climb the ladder of labor market success if they’re not even on the ladder. And our current programs—like the Earned Income Tax Credit, that try to support work—are not bold enough in my view.

I also think we need to give some aid in certain ways to communities. Economists used to be very skeptical of that. We always had the view that we would just move people to jobs. The so-called “Go West, young person” mentality of Horace Greeley from some years ago—that’s not how our economy is working today, and we really, really need to help communities in transition. So, I outlined those series of interventions, some of which are rethinking the way we think about what economists would call ‘social insurance’ in the labor market, and others are thinking about preparation, but all with an idea of tying more people to productive work in times of change.

Daniel Raimi: Those are great responses. And we’re going to come back to that idea of investing in places relative to investing in people, in a few minutes.

But now I’d love to transition and talk explicitly about the energy system and some of the changes that we are seeing, and that we are likely to see, in the decades ahead—especially as the need to confront climate change becomes ever more urgent. When you hear folks in the federal government or at the state level or in advocacy talk about the need to address climate change, the discussion is often framed around jobs and creation of green jobs. Based on the arguments in your book, I suspect you’re a little bit skeptical of that focus on green jobs when thinking about climate change. So, I’m curious if I’m correct to think that you’re suspicious about that green jobs framing? And if so, if you can just explain why you think that might not be the most fruitful approach?

Glenn Hubbard: I am skeptical. But it doesn’t mean that I’m skeptical of the idea that we need to do a lot to combat climate change; we do. But I’m skeptical of that argument.

There will be some new jobs as we develop new technologies and industries, just like there always are—but, by the way, we’re also going to take away some old jobs. It is not an overstatement to say states like West Virginia could be very significantly affected by adaptation toward different energy mixes.

The right answer, it seems to me, is to prepare people for a whole set of new jobs.—some of which may be in new energy and environmental areas, but some might be in healthcare or other sectors of the economy. I would rather us do that than talk about walls of protecting people.

I use a metaphor in the book of Youngstown, Ohio, where I’ve taken groups of students for a few years. And in Youngstown, politicians every four years would come to the city and say, “I can make it like it was. I’m going to restore the world.” I get nervous when we tell Coal Country, “It’s going to be fine,” or “We’re not going to adjust the fossil fuel mix in the country.” We need to do those things, but we can’t do those things and just tell those people, “Imagine green jobs.” We need to imagine a much richer theory of just transition.

Daniel Raimi: Yeah, I think that’s totally right. And much of the work that I’ve done on energy transition comes to some of those very same conclusions.

I’m wondering if you can reflect for a moment on the politics of all of this? I mean, touting job creation, touting walls, touting protection of a certain class of worker, or a certain way of community being—right? That certainly seems to have very strong political valence in the United States. And other arguments that might be a little bit more abstract, harder to grasp onto—I imagine that might be where you would put the argument that you’re making. I’m curious how you think about the politics of this, and I know you’ve wrestled with this at the very highest level. The book starts off with a conversation or a briefing you make to President George W. Bush that covers some of the same ground. So, I’m curious if you can just reflect on the politics for a moment?

Glenn Hubbard: Well, the politics are very important. And the reason I tell the Bush story is—I think I learned more from President Bush in that episode than he learned from me. I gave the standard Econ 101, and I would call it Econ 101 plus answers. I showed him maps of job losses downstream from what he would want to do. He reminded me, however, that he hadn’t heard anything from me about noticing or protecting the people and communities that he was trying to do. In other words, he was very much focused on a politics that I at least had missed as an economist.

I think today, part of the problem is economists tend to look at these as individual issues: let’s do this policy here and this policy there. To have salience in a big campaign for somebody, let’s say, running for president, you need to have an agenda that something bigger is possible.

And in econ speak, I would default to the ideas of mass participation and mass flourishing. I’m sure a politician could do a better job than that. And then the question is, What are the big ideas, like Lincoln’s land grant colleges or Roosevelt’s G.I. Bill, that really make that flesh? I think it’s good economics, but I also think it’s good politics. If somebody were entering in 2024, whether he or she is a Democrat or Republican—doesn’t matter—I think there’s a lane to be had for somebody who says, “I can really help you get to the world that’s going to be.” Because I think it’s easy to characterize these previous attempts at walls—however good they sound or make you feel for 90 seconds—as a failure.

Daniel Raimi: Yeah. So, let’s go back to this energy transition question for a moment. And I suspect you’ve already touched on some of these issues, but as you know, we at RFF are doing lots of work on energy transition topics—the equity implications of that transition for workers and for communities and for other stakeholders.

Do you have any guiding principles that you would suggest, as policymakers in DC and perhaps elsewhere think about the energy transition and the types of policies that are needed to enable folks who may be in the current fossil energy workforce to find success in a future job—whatever that job might be?

Glenn Hubbard: Well, first is a shout-out to the work that you’ve been leading at RFF. I think it is incredibly important—not just in terms of economic policy, which is RFF’s knitting, as it were, but also in understanding the politics of the situation.

I would think a first principle is to notice. I remind people in the book of my favorite episode of the entire financial crisis, which was the Queen of England, of all people, going to the London School of Economics and asking a bunch of economists, “Why did nobody notice? How could it be that something as big as the financial crisis happened and you guys and gals didn’t see it?” The same thing about these big transitions. When we talk only about, “Let’s put a price on carbon,” or “Let’s develop this technology or that technology,” it’s as if we’re not noticing the disruption that would happen for millions of people and communities.

Fortunately, there is a way to deal with that. It is a form of bridge. It is the very work you’re trying to do at RFF. And, as you have chronicled before, there are many programs we’ve tried that have been successful in this regard. There are also many programs that have not been successful. And we need to figure out what works, and which institutions can work, and bundle that.

I would suggest that a second principle is to try to talk about that first, before we even talk about the disruption. I used to have an image in my mind about growth policy—that we need to speed up the boat, and then the theory is that the rising tide will lift all boats. Now I think we need to get more people in the boat before we speed it up. And I think the same thing is true here. The more we can talk about the transitions, we lay the predicate for what is to come. I think, for example, Canada did a better job than France in recent years, in pivoting in policy, by talking about transition before talking about major changes in prices that would be effectively higher carbon prices. I think there’s a lesson there for us, too.

Daniel Raimi: Right; yeah. Thinking back to the gilets jaunes, or yellow vest incident there.

Glenn Hubbard: Yeah.

Daniel Raimi: Another question that comes to mind, that I’ve kicked around with colleagues and am curious about your view on—this goes to the point you just made a moment ago about trying to get ahead of the energy transition issues. Whereas some other previous economic shocks were not anticipated, or not widely anticipated, one of the theories that I have is that the energy transition and the displacement that is likely to come from it is, in a lot of ways, easier to predict. It’s much more foreseeable than something like the financial crisis, or maybe the disruption of steel production in the United States because of China’s entry into the WTO, which you chronicle in the book in lots of great detail. Do you think that’s right? That the energy transition and the disruptions that come with it are somehow more predictable than some of the other big transitions we’ve faced?

Glenn Hubbard: I think, as a transition, yes. Its consequences, though, strike me as still quite uncertain.

Just another example that I gave earlier: artificial intelligence is something that I think could have absolutely wrenching effects in the labor market, but I can’t really foresee how all that turns out. I think we need to use the predictability, to use your term, of both of those—to really get policy in gear now, while we have the chance.

We should be preparing people in communities even before a policy happens. I, for example—and I suspect you—wish we’d already put a price on carbon. We haven’t, but I think we ought to be preparing people and communities for that eventuality, in advance. And then I think it makes, ultimately, the policies we need to do, more politically feasible.

Daniel Raimi: Yeah, I agree. It’s such a tricky web to weave when we put all these things together, because the consequences are difficult to predict, even if the broad trends are pretty evident.

So, going back to this issue of places and people: One of the biggest challenges of the energy transition is that the places today where fossil fuels are produced and consumed in industrial quantities—they’re often quite rural, and these sectors can play a really large role in the regional local economies. So, I’m just curious if you could say a little bit more about the mix of policies that the federal government should consider when we think about supporting places, communities, cities, counties, and stuff like that, versus people, through policies such as lump-sum transfers or relocation assistance, or other supports that can be used anywhere. Can you talk a little bit about that?

Glenn Hubbard: Sure. For places, I think you’re looking to facilitate a transition to a new employment mix and a new business mix. So, the way I think of it, as with the land grant colleges imagined all over the country, were a set of applied research centers whose job is dissemination of new things—which, by the way, was one of the early functions of the land grant colleges, both to agriculture and to manufacturing. And then, imagine more targeted block grants to areas where long-term job loss is a present problem or a likely future problem.

To look at examples in the past, the fact that a community may seem to have a weaker employment base today doesn’t necessarily argue for disaster. Massachusetts is an example I give in the book: between the 1920s and the 1960s, as textile mills went away, Massachusetts businesspeople came together and said, “Look, we’re not going to tell people we’re bringing the mills back. We’re going to do something different.” Pittsburgh is another example: after World War Ⅱ, when the handwriting was already on the wall for the steel industry, Pittsburgh began making a series of changes. To me, place-based aid can facilitate that by partnering with local educational institutions that were important, both in Massachusetts and in Pittsburgh, and with local businesspeople.

Daniel Raimi: And do you think—from an energy transition perspective—do you think that ends up meaning that the federal government should look to provide additional support to fossil fuel communities, in ways that may not be available to parts of the country that are less dependent on fossil fuels for employment and economic activity?

Glenn Hubbard: I think it might, but I wouldn’t describe it as just to fossil fuel communities—I would describe it to communities that are going through disruptive technological change. It wouldn’t matter whether we’re talking about from foreign competition, or the development of an entirely new technology that transforms work, or in this case, the move of energy away from a fossil fuel mix to some other mix. To me, that’s the right thing to do. I think if we call it transition aid because you were in fossil fuels, that does run more of a political risk, even though the transfer itself is the right thing to do.

Daniel Raimi: That’s really interesting. One other question that is pretty adjacent to what we’ve just been talking about is the approach that some policymakers have increasingly taken, in which they argue for something that’s a little bit more of an explicit industrial policy, where the federal government, or perhaps state governments, have targeted spending at targeted parts of the economy. In this case, it might be clean energy where there’s interest in funding for regional hubs of technology, such as hydrogen or carbon capture or other emerging technologies. I’m curious what you think of that approach of federal dollars targeting specific technologies in specific places?

Glenn Hubbard: I’m more skeptical of that. There’s an old Latin expression that in English is translated as, “Who watches the watchers?” So, who picks the industry, the technology, the area? To me, just like in general, when you think about the federal government in science, we typically think of the federal government as being an engine of basic research, and then others will develop applications of that research.

I think we can go a step further here, since we’re talking about more applied problems, to imagine the federal government locating applied research centers with an eye toward new technologies in energy, but with perhaps no bias as to which technology it is. So, I would be more skeptical of that approach.

Daniel Raimi: Yeah, that’s interesting. I mean, I think in the Department of Energy today, there certainly seems to be more of an emphasis on deployment, especially of early-stage technologies, pilot technologies, and so on, rather than the more traditional focus on research and development. So, it sounds like you might be a little bit more skeptical as we move on that spectrum from research and development toward more deployment-focused activities.

Glenn Hubbard: I am. There is a gap, of course, between basic research that the federal government has traditionally played a large role in and picking literal technologies. I think there is a middle ground, as I mentioned earlier, of trying to locate applied research centers around the country that could have a flavor of suggesting developments in new energy technologies, but without picking a particular technology and saying, “We’re going to put hydrogen in this city, and we’re going to put some renewable in another city.” That, to me, raises again the “Who watches the watchers?” question. And I don’t know on whose expertise that would rely.

Daniel Raimi: Right. My familiarity with that phrase comes from comic books and the series The Watchmen, and the wonderful HBO adaptation of The Watchmen that came out in recent years.

Glenn Hubbard: Mine comes from high school Latin, but I just can’t quite remember. It’s something like, “Quis custodiet ipsos custodes”—but yes: “Who watches the watchers?”

Daniel Raimi: Yeah, it’s a crucial question. So, one last question before we go to Top of the Stack, which is, again, in the same vein of topics: The current administration, and some other advocates and researchers that I know, make arguments for investing in manufacturing supply chains for specific technologies; in particular, clean energy technologies, like critical minerals, that we know are going to be important in the future. To what extent do you think it’s a useful expenditure of federal dollars to try to locate some of these supply chains in the United States, rather than depending on foreign supplies from China or other nations?

Glenn Hubbard: Well, of course, the easy principled answer is if there is a bona fide national security reason, we should do that. The problem becomes, too many things quickly glom on to the words “national security.” I think a lot of businesses themselves learned they had made mistakes in supply chains, that they weren’t as resilient as they wanted, and I expect that market forces will make them more resilient. But I do think where there’s a critical area, there is a way of trying to improve supply chains in the United States. I don’t know that it requires a lot of federal investment, but it might.

Daniel Raimi: Yeah. Really interesting. Well, these are such important topics, and it’s really great to discuss them with you, Glenn. You have such a broad range of expertise. I, again, want to just recommend the book to people; it’s called The Wall and the Bridge: Fear and Opportunity in Disruption’s Wake. We will, of course, have a link to it in the show notes, so people can check it out and get a really wide-ranging take on economic change, technological change, and how we might be able to adapt to it in the future.

So, let’s close out today’s episode, Glenn, with the question we ask everyone who comes on the show, which is to recommend something that you’ve read or watched or heard recently. It can be related to the environment or even just tangentially related, but something that you think is really interesting and that you’d recommend to our listeners.

Glenn Hubbard: Well, I think a recommendation that’s interesting to me—and it may be off the beaten path for some of the recommendations you get—is a book called Storm. It’s a short book. It’s by George Stewart. It was actually published in 1941. I read it reading through a series of New York Review of Books, books. And the idea of Storm is really the immensity of nature. It talks about an enormous storm that is coming through the Pacific and then hits California and much of the West Coast. The unpreparedness, the damage that it wreaks, and just the awesomeness of nature and our ability in some ways to cope and our inability in others.

I think the book itself is a nice metaphor for the power of nature. And it’s written in a haunting way. I think anybody who picks it up won’t put it down. Storm, 1941, probably unusual. You probably get a lot of more typical Uninhabitable Earth recommendations, but I’m going to stick to Storm.

Daniel Raimi: That’s fantastic. We try hard to get a wide range of recommendations on the show. And so, that sounds really fascinating. We’ll have a link to it in the show notes, so people can check it out.

Well, one more time, Glenn Hubbard from Columbia University and RFF, thank you so much for writing this really fascinating book and for coming and talking to us on Resources Radio. We really appreciate it.

Glenn Hubbard: Thank you very much for having me.

Daniel Raimi: You’ve been listening to Resources Radio. Learn how to support Resources for the Future at rff.org/support. If you have a minute, we’d really appreciate you leaving us a rating or a comment on your podcast platform of choice. Also, feel free to send us your suggestions for future episodes. Resources Radio is a podcast from Resources for the Future. RFF is an independent, nonprofit research institution in Washington, DC. Our mission is to improve environmental, energy, and natural resource decisions, through impartial economic research and policy engagement.

The views expressed on this podcast are solely those of the podcast guests and may differ from those of RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals. Resources Radio is produced by Elizabeth Wason, with music by me, Daniel Raimi. Join us next week for another episode.


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