American capitalism broke in the 1980s. Can it be fixed?

If you want to understand the American economy in 2018, you have to go back to the 1980s, says Washington Post economics columnist Steven Pearlstein. Back then, in response to dwindling American competitiveness, the country embraced a series of “bad ideas” that have shaped the country ever since, he said on the latest episode of Recode Decode.

“The ideas we embraced looked like they were good and they were useful, but they were wrong,” Pearlstein said.

The three most problematic concepts that he focuses on in his new book “Can American Capitalism Survive?” are: Capitalism automatically works when everyone pursues their own self-interest; the income we earn is always a good reflection of what we contribute; and making the economy more fair would impede its growth. However, Recode’s Kara Swisher asked him, didn’t those principles succeed in turning America’s economy around?

“They did make our economy much more competitive, but what I’m suggesting is now we need to make a correction, as we did in the mid-1980s, we now need to make another correction and let the pendulum swing a little bit back toward fairness and equality,” Pearlstein said.

The way to swing that pendulum back is not necessarily through government intervention, he noted. Citing the example of the #MeToo movement, he said one of the most effective tools for turning things around may be two forms of social pressure: One, from high earners to one another, and, two, from everyone else directed at corporations.

“In the 1950s, if any CEO had tried to pay himself the equivalent of $800 million, he would have gone to the country club and the other CEOs at the country club would say, ‘Cut that out, you’re making us all look bad,’” he said. “And people who are in that strata now don’t do that anymore.”

“Social media actually, apparently, makes it easier to change these norms and to shame people,” Pearlstein added. “And we need to shame someone who pays himself $800 million a year. We need to shame people who pay their employees $7.25 [an hour] and don’t give them health benefits and give them schedules so they can’t even get their childcare arranged. We need to shame those people and we need to say, ‘We won’t do business with you, we won’t work in your firms, we won’t invest in your firms.’”

You can listen to Recode Decode wherever you get your podcasts, including Apple Podcasts, Spotify, Google Podcasts, Pocket Casts and Overcast.

Below, we’ve shared a lightly edited full transcript of Kara’s conversation with Steven, recorded in front of a live audience at the Commonwealth Club of California in San Francisco.

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Kara Swisher: Hi everybody, thank you for coming on this beautiful day. I would be having oysters right now across the street, if I were you. Anyway, I’m Kara Swisher, I run a site called Recode, which is a tech site here in San Francisco, and do some columns for the New York Times and things, and I write a lot about these issues that Steve has covered. We’re gonna talk a little bit about the book, and also about how it relates a little bit, ‘cause we’re in San Francisco, to income inequality and other issues that are here — UBI and things like that.

I first want to start, Steve, give everybody a sense of what you are trying to get through with this book, because we’re at record unemployment, stock market highs...

Steven Pearlstein: Almost.

The economy is booming.

Right, so why would I write a book, “Can American Capitalism Survive?”

Yeah, exactly.

First reason was, it wasn’t my choice. That’s because that’s what the publisher wanted to call it.

Okay, all right.

Secondly, because it’s a long-term look at the kind of capitalism that we’ve had in this country for the last 30 years, and it’s been developing for the last 30 years. There’s been sort of an erosion of certain norms and laws and regulations that I think in the long run, will make our kind of capitalism the kind that people won’t want to have. If we don’t change it, we’re gonna do less well than some of our economic competitors abroad.

All right, so talk about how it got into place, and what is wrong. The main things that are wrong. Income inequality is one, or salaried...

Let me go back.

Okay.

What’s wrong is the set of ideas, which have allowed us to have incomes that become unequal, but you have to go back to the 1980s.

I’m blaming Milton Friedman, but go ahead, move along.

You’re blaming Milton? No, I don’t think we should blame ... Look, what happened in the 1980s is that our economy became very uncompetitive. This is sort of before much of Silicon Valley, just getting going. Much of our economy had become uncompetitive, and there was, I don’t know whether you remember, but there were these competitiveness commissions and we were falling behind Japan and Germany. People wondered whether we were gonna become like Britain. We’d gotten fat and happy, and we needed to make some changes, and we needed to become a little more lean and mean.

The cause of that was?

Well, the cause of that was globalization, primarily. Some tech, but mostly, it was globalization. We had a closed economy, and all of a sudden, people were buying foreign cars, and foreign-made everything. This was before China, by the way, this is Japan, this is the Philippines, that’s Korea, that sort of thing.

We did some things that were necessary and they worked, but in order to do that, we sort of embraced some ideas. This is, in some ways, a book about ideas, and the ideas we embraced looked like they were good and they were useful, but they were wrong. What were the ideas? Greed was good. That market ...

Michael Douglas, “Wall Street.”

Yeah, the Michael Douglas thing, but the capitalist system works when everyone pursues his own self-interest, maximizes his own income and as if by magic, the invisible hand somehow makes us all better off. The second thing that we embraced is the idea that market incomes, what we earn in the marketplace, was a good objective measure of our contribution, and so it was just, and they deserved that, and people shouldn’t take it away from them.

The third idea that we embraced is that there’s some sort of trade-off, that if we made our system fairer than it is now, that somehow we make the pie grow smaller. Another idea, those are the three, and it turns out that they’re wrong. That if you get too greedy you stop learning how to cooperate with each other. You stop being sympathetic with each other, and companies and societies don’t work better that way.

It turns out that there isn’t an absolute trade-off between growth and fairness. There is, if you’re on one side of the sweet spot, if you’re like France and you have too much regulation and too much equality, you may have a trade-off. We’re on the other side, and we were on the side where we have so much inequality that it’s caused political dysfunction and polarization and government dysfunction. People don’t trust each other as much. They don’t cooperate as much in the private sector as well as in the public sector, and societies don’t work better that way, and economies don’t work better that way.

These ideas that we embrace, for example, with the market income, your market income. The one I like to use, it’s not a west coast example, it’s an east coast example. Steve Schwarzman, who earned $800 million last year as head of a thing called the Blackstone Group, a private equity firm. He doesn’t deserve $800 million, and the reason he earns $800 million doesn’t reflect his economic contribution. All he does it buy and sell companies and financial assets. That’s a reflection of a lot of rules and norms and laws that we’ve set up that structure our economy, and he’s the beneficiary of those.

Right, of those particular ...

If we change those rules, he might only earn $400 million a year, so the idea that ...

You know, that’s not very much here, but go ahead.

I know that, but ...

It’s like a middle-level Google engineer.

Anyway, these ideas turn out not to be accurate.

But they’ve had success from an economic point of...

Well, they did make our economy much more competitive, and we are a very competitive economy, but what I’m suggesting is now we need to make a correction, as we did in the mid-1980s, we now need to make another correction and let the pendulum swing a little bit back toward fairness and equality.

How could we make that, when it’s never been better? We recovered from this ...

Well, first of all, I hate to go economist...

It’s not been better for everybody.

I hate to go economist on you, but productivity growth has been pretty slow for the last 18 ...

Right, so has salary growth.

So has salary growth. I’m not sure I love all those statistics, I agree with them all, or that they’re all that accurate, but over the long term, there’s something going on that isn’t all that positive. The fact that the inequality is so much, is one indication. Another indication is a lot of ...

Look, if you’re a country that borrows $750 billion a year from the rest of world in order to increase your consumption — not your investment, but your consumption, which is what we do — and we do it year after year after year, you can have a pretty good economy going, but it’s fake. It’s a mirage. You can’t keep doing that forever, and we get all these bubbles.

We had a bubble in the ‘80s S&L. We had the tech and telecom in 2000, also the Asian financial crisis, and we had 2008. Each of these is a bubble, and then it bursts, and then a bubble, and then it bursts. When the bubble is full, the economy looks great, and then when it bursts, everyone realizes that it was a mirage.

Right, right.

We’re not doing as well as we think we are.

As we think we are.

Right now.

Right.

We’re not, and this one’s gonna burst too.

Okay. I want to talk about that. Why? Okay, you have these things in place. The main thing that you wrote about was income inequality, the differences between a Steve Schwarzman or anyone else. I do want to bring in tech people, because that’s a different kind of capitalism.

It is a different kind of thing.

Explain the difference, because it’s equity. Jeff Bezos is at $164 billion because ...

Does Jeff Bezos deserve $164 billion? In an economic sense he did, and he did create something that created a lot of value for a lot of other people, and I’m not just talking about his shareholders, I’m talking about all the people that bought stuff from him, at a cheaper price. His firm has been productivity enhancing, and I don’t feel so bad about the fact that he’s rich. I don’t feel so bad that J.K. Rowling is one of the richest people in England. She wrote books, people want to buy her books, it’s a pretty simple transaction.

But you have to ask, in a lot of companies, when there’s a pile of money that’s profits, you have to say who deserves those profits? Should it all go to the shareholders and the executives, or should it be shared more widely with the company? You’ve got companies here that are local, some of which are popular these days, some are not, Google, Facebook. I don’t think anyone would say that the super profits that they earn — we can talk about that, why they have super profits — but they do, and they do share them with their employees and they do treat them well. They don’t overcharge their customers. It’s a little hard to figure out who their customers are, but ...

The Russians, but go ahead.

Okay. They don’t overcharge their customers, and in many ways they’re good corporate citizens. It’s a little hard to get, for me, to get all upset about those companies putting aside privacy issues ...

You’re the only person who doesn’t hate tech, but go ahead, move on. This week.

It’s different than a company like Caterpillar, which is doing very well, earning good profits, not the kind that you earn out here, but good profits, is paying its executives high, and is trying to crush its union. That’s different to me.

In the old days, real old days, people might remember there was this company that was leading, a leading tech company, IBM. Secretaries at IBM got paid twice as much as secretaries elsewhere. The people who ran IBM didn’t run it and say, “You know what? Our company is doing great, but we’re only gonna pay our secretaries and janitors what they’re paid in every other firm, and if they don’t like it, we’ll hire somebody else.” They didn’t say that. That’s the way a lot of companies behave today, the way I just described, even though they’re doing well. That’s the source of a lot of the inequality in the country.

I want to say that that was the source of a lot the inequality up to about 2005. Since then, the character of the inequality has changed. It’s the inequality between people who live in San Francisco and people who live in St. Louis, between the companies that are located here and the companies that are located in St. Louis, so the gap that’s widened since 2005 is between, just to give an example, the secretary here and the secretary there, or the chief executive here and the chief executive there.

Right, right.

Where you live and what kind of company and industry you work in is the kind of inequality that we’ve had in the last 10 or 15 years, it’s called within-group inequality, as to between-group inequality.

Right, so let’s talk about the CEO’s salary, which is always a hot topic among journalists, they love putting the lists up. They’re ridiculous, and then whether they “earned” that, whether they deserve that. You’re saying Jeff Bezos may deserve that $164 billion because he’s created all this value.

I don’t think people actually begrudge Bill, I don’t know, maybe around here they do. In the east coast, people don’t begrudge Bill Gates his millions. He invented something.

Right. No, I get that. We’re talking about the CEO salaries, because there’s a few CEO salaries that are pretty high here. Larry Ellison, I’m thinking, there’s some others who always end up in the top ranks. First of all, it’s this CEO salary problem, and we’ll get to the unions in a second, the union issues.

Those [salaries] have gotten out of line comparatively with the whole company essentially, which is what you’re saying, which is an old thing. People have always been concerned about that.

Right, because it’s a market that is not a competitive market. Most other markets, I’m an engineer or I’m a journalist, okay, I get paid as much as I can get them to pay me, and when do they stop raising my pay? When they think they can get someone as good or almost as good for something less. That’s not the way CEO pay is set.

It’s not like the board of directors says, “Well, I don’t know. Can we get someone as good or almost as good as Larry Ellison for half as much?” The answer to that is, of course you could, but they don’t ask that question. They don’t think of it that way, they think of, “Okay, what do the other CEOs have, and our company is a certainly an above-average company, so he should get paid above average.” Well, if everyone has to be paid above average, then the average just keeps moving up. It’s the Lake Wobegon problem.

They don’t think about it, and they also say, “Well, this person is so important, the whole company depends upon him, there’s no other person who’s so important.” Well, anyone who works in companies knows that actually, there’s a lot of people who are important in the company, and there’s only so much to see.

That’s actually a tech thing. The Jesus complex among tech.

Believe me, Steve Schwarzman thinks that only he can run the Blackstone Group, except that people are starting things that are as successful as his all the time, who don’t have his experience and don’t pay themselves that much, and they seem to do very well. It’s just not true, as you say, that there’s only one messiah here and I’ve got it. It is the sort of arrogance of the people at the top, that they think that they’re basically irreplaceable.

How do you change that, CEO salaries, essentially — and CEO and top executive salaries, ‘cause it’s the whole group of them?

It’s hard to change because it’s largely cultural. Again, it largely stems from bad ideas, because there isn’t good competition in that market, so I don’t know whether you change it. Frankly, it’s not the biggest problem in the world, but I think you change it by right. If you ask people, they think it’s ridiculous. If you ask the big shareholders, they don’t think it’s ridiculous. It’s only when big shareholders begin to think that it’s ridiculous that it will stop.

I do have one proposal in the book, which is this. There are certain tax treatments for paying basically bonuses and stock options and restricted stock to executives. We might say, okay, you can continue to have that favorable stock treatment, but only if you have at least as much money set aside for some sort of employee profit-sharing plan. A lot of companies out here already do that, so they would pass muster that way.

They have to, in order to keep ...

There’s a lot of companies outside of tech where ...

Because they’re not competing for the talent. They couldn’t lose them in a second.

Right. They had the attitude, as I said, that if I can hire a secretary for less, or any other front-line employee, then I’m gonna do that. They don’t deserve to essentially enjoy productivity gains that we realize. They don’t deserve to enjoy the fact that we had a great year. That all that money goes to the shareholder, maximizing shareholder value. That’s the big curse. That’s what’s changed since the 1980s is this mantra of maximizing shareholder value.

You take someone like Jeff Bezos. For years, Jeff Bezos said, “Screw the shareholder.” His stock went up. Every time he said it, the stock went up more. Again, these are more the exceptions that prove the rule.

Google did the same thing, they all did.

Google did the same.

Facebook, they all do what they feel like, because they set up their companies where there’s a single controlling shareholder.

It’s not just that. They earn rights. They earn rights. They are to some degree natural monopolies, and they won their monopoly, in most cases, fair and square, but they are natural monopolies. The world doesn’t really want 18 different social media networks, because then you can’t necessarily talk to whoever you want to talk to. The world actually doesn’t want a million different search engines, they want one that benefits from the fact that everyone goes through it, and the machine learns every time you make a search and it becomes a better search engine.

These things are, for economic reasons, naturally monopolies. In the old days, back in the 19th century and early 20th century, we regulated them. We said, “Okay, the electric company, we’re gonna regulate your profit and your prices.” I think we’ve learned that we don’t have to do that all the time, although now, we’re thinking maybe we need to do something about these natural monopolies, to maybe make sure that they don’t prevent the next challenger from their monopoly from coming along. For example, bad idea to let Facebook buy Instagram.

Right.

Instagram might have challenged Facebook, might have been the new Facebook. We didn’t know that at the time, maybe they did, but we didn’t know that at the time. When one of these companies comes along, to me, at least the No. 1 step is to say, “You know what? You can’t buy anyone anymore.”

Now, they can’t.

Well, we should have said that to Facebook and Google a long time ago, and if we had, I think we would have more competitiveness going on, more challenges. The challenges are not, a company that does A challenges the monopolist who does A. The challenge is a company who does B, has a total different approach to solving a problem ...

That’s right. They all compete with each other, it’s a ...

The challenge to displace one monopoly with another monopoly, a serial monopoly is what’s gonna, but is it the kind of competition?

Actually, it’s not serial monopoly, it’s an interesting thing, Steve ... You may not know this, but I was a young, young, young reporter at the Washington Post, and Steve was my boss. He doesn’t even remember being my boss, but he was.

I remember you were there, I don’t remember I was the boss at that point.

Yeah, but you were, and you did a fair to middling job. No, I’m kidding. No, you did a good job in the business section of the Washington Post, and we covered the Microsoft job, part of the time there, and had Bill Gates in a number of times. That was the big monopoly trial. Now, each of these companies — and we’ll get back to the solutions we need for these problems you’re talking about — but each of these companies now, Amazon, Facebook, Google, I’m just gonna use those three, ‘cause Apple’s off to the side, and there’s plenty of ... They don’t have the same kind of market power.

Each of those, to me, they’re like, and you could sort of add Netflix in there a little bit kind of, but not really, ‘cause they’re all Hollywood, are like semi trailer trucks going down a three-lane highway, and no one can get past them, and they’re not competing with each other, and they’re monopolies, but it’s hard to imagine the government being able to regulate any one of them.

I don’t think we need to get to that, but for one thing, one of the things that government does when they do regulate is to regulate the prices. What’s the price of Google? There is no price, so the economics of these things are so different that we want to be careful about it. We don’t want to use the old tools and bring it to the new economy.

Right. They’ve been talking about it.

One thing we could do right now is say, “You’re just not gonna buy your way into any industry. You can go into it, perhaps, but you can’t buy your way into it.”

What’s the difference though? Amazon’s started to sell microwaves, and everyone in the microwave business is vomiting right now, essentially.

Right. We might stop them, but we might … what we might say...

You can do chairs but not microwaves?

What we might say to Amazon, if you wanted to be, it would take aggressive antitrust, is to say, “Look, you can run your own platform to sell your own things, but you can’t also run the platform for all the other sellers to run. You have to decide what business you want to be in.”

“You’ve got too much information.” Right.

Do you want to be the platform for all sellers? In which case you can be in that business, or you can be in the book business and whatever else you think you’re selling. You can’t be the retailer who hosts all the other retailers. Decide which business, or we’ll break it up. We broke up Standard Oil. We could break up Amazon that way.

Right, interesting. All right, let’s get back to your book. You don’t think the salaries will change? There’s no mechanism?

Well, it’s just not the CEO salaries that are the important ...

It’s bringing up other salaries, or giving them equity, or ...

The last 20 years have been very good for Kara Swisher. They’ve been very good for Steve Pearlstein. There’s a lot of people, there’s lawyers and doctors and engineers. They’ve been very good for 10, 15, 20 percent of the population, it’s not just the CEOs. And they’ve been not so good for a lot. That gap has widened, and as I say, the people in St. Louis have not done very well vis-a-vis the people in San Francisco.

Right. To me, sometimes it feels like, at the very top, you have the top people who made the most money, and some people at the very top are obscenely wealthy. It’s numbers that are just mind-boggling when you think about it.

Right. They don’t know what to do with the money.

Then, at the very bottom ... They do, actually. I know they do a lot of things with the money.

Yeah.

One of these moguls, I was at their house and their kid has seven playhouses. Any of which I’d live in. You know what I mean? They’re all different. One’s modern, one’s country. I was sort of like, “Seven? Why seven? Why not six or four?” Anyway. They have plenty to do with their money, but they did employ people to build them, I guess.

So, you have people at the very top. And then at the very bottom you have people sort of mired in drug addiction, the education system has let them down, nutritional problems. Nutritional problems are very significant in terms of ... Lack of early education, jobs that they either don’t want to do or can’t do because of the drug addiction.

Then in the middle, you have lots of people. These people in the middle who know ... the ones at the top, they lean into the future. The ones at the bottom are terrified of the future and should be. The ones in the middle want to lean into the future, and yet know it’s terrifying. We’re not pulling them up into, at least the top isn’t pulling them up. And they know, for their children they’ve got to get better education, but they’re also let down by the education system, they’re also let down by the nutritional system, all kinds of things.

And they’re not sharing in the prosperity that every day, at their work, they’re helping to create.

That’s right.

And there’s a lot of misallocation that goes on in this process. So, let me start with one concept, which is we used to say — and this is another thing that the market fundamentalists say — look, we shouldn’t worry about inequality of income, all that matters is equality of opportunity. That sounds very American, right?

Mm-hmm.

And we all, sort of, we like that thing. But the truth is that you can’t have equality of opportunity. Now, I’m not going to get all social science-y on you, but let me just say that what we know from social science is if you take any two random people out in the street and you compare what they make, the difference in what they make can, more than half of it can be explained by the fact of who their parents were. That is the genes that they inherited ...

Right.

The personality that they inherited, you’d be surprised how heritable personality traits are. And the third thing is the upbringing, particularly their early years, I’m talking about 0 to 4, all those matter a lot in terms of your success in education and your success therefore in life.

And we can’t, unless we take all children away from their parents when they’re born and send them to state schools, we can’t equalize that. So, we can’t say that all that matters is equality of opportunity and that’s what we need to work on. We can work on that more than we have, and we can make it more equal, but we can’t rely on that. At some point, we need to say, if you’re uncomfortable with the inequality of the distribution of income, you have to deal with that directly.

So that’s one thing I wanted to lay on the table here because that’s one of those other ideas that we embrace that’s wrong. What about the middle class, what about the poor? The poor is a tough problem, and we’ve solved some of that by giving people money.

And fewer people are in poverty, right, all across the globe?

Well, fewer people are in poverty now than in the 1950s.

Right, but it’s plateauing.

We brought it down during the Great Society, but then it sort of plateaued.

Plateaued, right.

So, if we want to deal with that, first of all, we have to understand that some of that is inherited, and we’re never going to deal with it. And so, one way to deal with that is to give them more money, and we can redistribute.

But the other thing, obviously, is to deal with the distribution of income within firms, and say maybe we should pay people more and maybe the reason we don’t is they don’t have unions anymore because companies got really good about breaking unions. Or maybe we should have a higher minimum wage, or maybe we should have mandatory paternity and maternity leave and maybe we should have a public program of daycare that’s free to people who are poor.

All right, let’s go through each of those. Those are the critical things. This first one was, maybe we should distribute more.

Well, we should.

But they don’t.

What I would suggest is some version of UBI, there are a million ones. Mine happens to be called, would be classified as a negative income tax, so I would ...

That’s already — Earned Income Tax Credit.

Well, it is like that. What I would call it is a dividend. I would say as citizens, we all share in ownership of this country, which has huge resources, but one of the biggest resources is our system. Our economy and our political system. And we all deserve to share equally.

So, I would send a check to every person in the United States for $3,000 on the same day every year. Or send it to their bank account. And everyone gets it. And then for people who are working, I’d send them another $3,000. Now you might ask, well why do I distinguish between people working and not, and the answer is because the politics requires that. I’m not sure morality requires it, but the politics require it.

“I’m working, why should I give the $3,000 to that lazy …?”

Right. Then what I would do is I take that money away from people who earn, I don’t know, earn more than the median income or 110 percent of the median income, or something like that. I’d start to take that away with higher tax rates. Now you say, well why would you do that? Why give it to them on one hand to take it away from the other? Because it would reinforce this notion that we’re all citizens, we’re all equal, and we’re all into this together.

And here’s what I would do in addition: I’d say everyone gets this dividend, that’s the good part. But the other part of it is we all have a responsibility to each other, and we all have a responsibility to do three years of public service sometime in our lifetime. Could be when you’re young. Could be when you’re old. Could be when you’re between jobs. Lots of different times. But to reinforce this idea that we’re all in it together and we’re all responsible for each other.

That feels like Israel, a little bit. But that’s a government. That’s an army.

Well, can I just say Israel, there’s a lot about Israel that I don’t like in terms of the way they treat some people who aren’t Israeli citizens and their neighbors. But there’s a lot about Israel that’s good. And that’s a good part of Israel. And by the way, I might point out, it’s a very entrepreneurial country.

Actually, it is. What’s interesting is that the commonality, you’re talking about a commonality of purpose.

Yeah.

That everyone was in the army or everybody was in something. They share a common thing.

Right. And another thing that’s gone on is this sorting.

I agree.

Which you know about, the big sort. That rich people tend to live with rich people. And their kids tend to go to school with each other and they vacation with each other.

Yeah, I’ve noticed that.

There’s not as much mingling of classes as there used to be. That’s a problem that we might at least, in a small way ameliorate, if we all do public service together, we might do it with people who aren’t like us. Whether it’s AmeriCorps or the Peace Corps or the army or other things we might come up with.

Although, you know, God forbid someone gets out of the army for a bone spur, for example. Keep up, everyone.

So, the middle class, I have to say that I take some exception with the idea that the middle class has gone away. The middle class hasn’t gone away.

Just less well off.

It just depends how you want to define...

It’s less well off. It’s poorer.

It’s not even clear that they’re that much poorer. And this I sort of ... Some conservative commentators have a point. When I was growing up, people didn’t have marble countertops. Everyone didn’t have their own bathroom. They didn’t all have air conditioning. Their cars didn’t all have power windows. We didn’t have a TV set on every floor. A lot of middle-class families have those things now, and the reason is because they’re so much cheaper. And so, when we say that the income of the middle class hasn’t gone up, there’s two problems with that: No. 1, we always adjust those figures for inflation, but if we mismeasure inflation then we mismeasure income. And I think that’s part of the problem.

The second is we are making a problem by confusing statistics. When we say that the middle hasn’t gone up, what we mean is the people who are on the middle, in the middle 20 years ago, earn X. And the people who are in the middle 20 years now today earn about the same as X. And we say these people haven’t gotten a raise. But they’re not the same people.

Overall, and if you do a different ... that’s sort of looking at share of national income and median income in groups that change, if you were to actually do longevity studies and look at individual people and what happens to them, in fact, their income has gone up. First of all, they get older, and when you get older your income goes up. You go up in the ladder and you go up in the company. So, that’s one thing that happens. You get more experience and more talent and you get paid more. But if you follow them, their income has gone up.

Okay.

There’s a compositional change. Remember, there are people coming into the economy all the time.

Right.

And they kind of tend to come in at the bottom, and that has the effect of pushing everyone up on their rung of the ladder. So, statistically, you can’t say that we haven’t gotten a raise in 20 years. Some people haven’t, but a lot of people have.

So, I’m going to go back to the distribution.

Okay.

How do you get companies to do that? They do it, because here they have high salaries and the people demand it and there’s a limited amount of talent.

Right.

And so they get that.

Right.

That’s along with kombucha shakes and fresh massages and stuff like that. Like, they get all the stuff that they get.

So, you can change things like union rules and minimum wages.

Talk about union, because the hollowing out of unions, I agree with you, has been ...

It’s been bad, but let me just say, remember I said this started in the 1980s? Well, one of the reasons it started was that unions got piggy and they made companies uncompetitive. They were paid too much. They were too successful. And the result of that was that jobs went overseas and unions were broken. So, they overplayed their hand.

Now, of course, we wish we had them back, in the private sector. They still are something of a factor in the public sector. But in the private sector, six percent of employees are unionized. So, we need to bring back a different kind of unionism.

So what would that look like?

It would look more like a company-by-company worker organization that has some role ...

Company by company? Okay. So there is not group ...

It’s not like the international unions where ...

Right. Truckers, or ...

I think it probably is more company-by-company. It’s more collaborative.

With management.

With management. I don’t think it would, I don’t think we want to get back where they start dictating work rules.

Like in Germany. Germany is ...

A little more like Germany, but there are some people like Elizabeth Warren or Bernie Sanders that want to say, “Every company must do this.” I tend to resist that sort of one-size-fits-all, we need a regulation that makes every company do it. Anyway, we can change union ...

So a stronger...

The union movement needs to reimagine itself and reenergize itself, but what it is, is employees need to get together at individual firms and say, “You know what? We’re not going to take this anymore. And we want to sit down with you and talk.” And we have this union law that says you have to follow this exact procedure. You have an election, and if half the people do, then you’re the exclusive bargaining unit, and it’s a very rigid kind of formula that was very good for the industrial era. It’s not good for now.

Right.

So, we need to change that. But we can’t even have a conversation about that these days in Congress.

And what do workers, what leverage do workers have in these, especially in areas when they can replace you?

Well, workers, first of all, they have moral suasion. And particularly if they’re reasonable and if they come together and they say, “We want to work with you, but here’s why we’re unhappy.”

Right.

Okay? “And by the way, if you don’t listen to us, we may walk out together.”

Yes, but then in some ...

”Or we may start our own company together. Or we may actually go through this route that they have in the NLRB and you’ll be stuck with the union. So please don’t make us do this. Please treat us respectfully.”

Right.

And to the degree that people are better-educated these days and they’re more professional, there are more professional jobs, and to the degree that the professionals in the firm want to feel good about representing also the nonprofessionals in the firm.

Right.

I think that that can work.

Interesting. I mean, again, it works, again, in Silicon Valley, but they don’t want to work for drones, “I don’t want to work for ICE,” I want to like, we have the ...

Look, we worked in a newsroom and we technically had a union, but that was sort of a joke. On the other hand, if the senior and the more influential people in the newsroom went in and saw and say, “You can’t treat people like this,” whether it’s what you’re doing with hours or how much you’re making us write, or you’re letting some people in who aren’t really paid a living wage. If we had said that to them, I think they would have had to respond to that. And it wouldn’t had to have been the union.

So, then it’s not an organized ...

It’s not an organized, it’s not always threatening, “If you do this, we’re going to go out on a strike.” I just...

Right. So, you don’t think they need a hammer to ...?

Well no, I don’t think they need a hammer. But look, in Silicon Valley, if the employees get together and say, “We could go out and start our own firm.”

That’s what they do.

And well they do that, but they say, “We don’t really want to do this. We’d like to work here, but you can’t treat us this way.”

Right. That’s because there’s a scarcity of talent here.

But I think it could happen in a lot of other places. Can it happen in a low-skilled McDonald’s franchise?

All of a sudden, yeah.

I think that’s hard.

Right.

But I wanted to get to another point, Kara, which is I don’t think actually government is going to be the key here.

Meaning, overhauling union rules?

The problem with, well, whatever. It’s union rules or antitrust rules or tax rules, I think you can use those to tilt the system a little bit toward fairness. But in the end of the day, it’s a matter of social norms. And this is one of, I think, the most important points of the book. There was a time in this country where companies would not have behaved that way because it just would have been socially unacceptable.

Absolutely.

Okay. The employees wouldn’t have accepted it. The community wouldn’t have accepted it. And the customers wouldn’t have accepted it.

100 percent.

Okay? And we got away from that. And we need to reestablish social norms so that customers and employees say, “We don’t want to work for a company like that, and we won’t work for, we don’t deal with a company like that.”

It’s fascinating, because that’s sort of a tall order these days, isn’t it?

Well, it’s a tall order, but let me just ask you: The #MetToo movement? What that’s about is a change of social norm.

Yes, right.

And it happened pretty damn fast.

Yeah.

And the other day, Amazon, the company we’ve been talking about-

$15...

Announced that they were going to now be paying their, they pay $15 and hour to employees that they had in many cases been paying a lot less than that.

Yeah.

And they had been resisting the idea that they were being unfair. And all of a sudden, after resisting this idea, they’re going to pay $15 an hour, which is pretty ...

That’s because they see Washington coming.

Well, but see, they see unions coming, maybe they see Washington coming.

They don’t care about that.

But here’s another thing: I think what happened is that there were customers, probably upper-middle-class professional customers who care about these things, who say, “You know what? I’m not going to deal with Amazon anymore because of that.” They were getting pushback from customers.

And here’s another thing I bet they were getting pushback from: Young talent. I’m not talking about people who work in the distribution centers. But talent at the executive level who said, “I don’t want to work for a company like that.”

See, I don’t agree with you on that one. I think Jeff Bezos is a very canny person who could care less what anybody thinks.

Well he may care less, but if he’s an executive who’s saying, “I’m having trouble getting computer programmers.”

I think he was worried about regulation.

Well he was, but you don’t think he’s worried about people, computer programmers who could go anywhere?

No, because he lives in Seattle, he has more control. I’m just telling you ...

Well I tell you, he did not enjoy the fight that he had ...

In Seattle. He did not.

In Seattle, and the political impact ...

I think he sees around corners and he sees them coming for him. And so his buying the Washington Post wasn’t quite enough, so he ...

Well, but ...

And this ridiculous circus around ...

You don’t think there were people in Seattle who said, “I don’t want to work for that company anymore?”

Uh-uh, no.

Okay.

All right. What I do think is that they’re about to announce this new headquarters, for example.

Yeah.

And I think many people are onto the fact that it’s a ridiculous goat rodeo of a circus. Like, there’ll be 170 cities that were never going to get this thing they were offering.

Right. And then we’re going to get it in Washington, right?

You’re going to get it in Washington, that’s right. That’s where it’s coming. Because he has a nice house there in Kalorama, it’s really ...

Well, that may be the reason. I actually don’t think he should put it in Washington, to be quite frank because ...

Well, he likes it there.

Well, he likes it, but I think he should put it in Baltimore.

Oh. Interesting.

Which would be close enough to the house in Kalorama.

Okay. All right. Good.

But it’s a city ...

So, he can take his ...

It’s not so expensive and it has a lot of problems.

It may be Baltimore. He, I think ...

Well, Baltimore’s is not even a candidate, is not a finalist.

Well then, it will be Maryland and Virginia.

You don’t think it’ll be the District itself?

I don’t, he needs a Republican. Anyway, we can go on. It’s a long story. I’m writing a column in the Times about this.

Okay.

All right, anyway, let’s ask some questions from the audience. We’ve got about 26 minutes left. “Is Steven Mnuchin a good treasury secretary?”

No, he’s a nincompoop.

Okay. Can you explain “nincompoop?”

It’s a technical term.

I got that.

Here’s the No. 1 reason: He hasn’t been able to attract a talented group of people at the Treasury to do some very important jobs. And he’s just a kissass. And he hasn’t had the slightest idea what he’s doing.

Yeah. Well he’s not going to Saudi Arabia, this week. He’s not, he just, they’ve said.

But he was waiting to get instructions on ...

He was.

From the White House.

I know that.

Can I just tell you, good treasury secretaries don’t wait to get good instruction on that from the White House.

Right, exactly. Right.

They tell the White House what we’re going to do.

Because this is a gang that is “Profiles in Courage” over there now. I mean, come on. “You’re so good at what you…” Did you see that one, this cabinet meeting?

Yeah. I mean, was that embarrassing or what?

Embarrassing is a kind terms for what that was. Anyway, “what’s the impending bubble we should be concerned about?” What is the bubble? Is it a housing bubble? Stock market?

Well, it’s stocks and real estate and also it’s financial assets. Mostly, it’s a bubble in corporate debt. And I don’t think you necessarily wanted me to go into that ...

Yeah, that’s not ...

But there’s been a huge bubble in corporate debt. And do you remember, we had these things where they took the mortgage loans and they packaged them?

I do.

And they sliced them and diced them?

Yes.

Well now that’s not such a big market anymore. But there’s now a huge market and growing in business loans of all sorts and corporate loans that are packaged and sliced and diced, and the quality of the loans has gone way down, and the amount of indebtedness that a lot of companies have has gone way up. And these loans are variable-weight loans. They started out very low because interest rates were low. As you may have noticed, interest rates are coming up.

Yeah.

And so, when the interest rates are reset, these companies are going to have trouble keeping up with these loans, let alone paying them back. And we’re going to have a lot of debt defaults.

Right.

There’s also a huge bubble in public debt, not just U.S. treasury debt, but the debt of local and state governments. We may have a few state government essential bankruptcies going on. So, we’ve got a lot of restructuring that’s coming. And that says nothing about if the Chinese economy starts to tank.

Which it is.

Or we have problems in Europe and with the euro again, which is very possible. All of this stuff is way overpriced. When you say debt is overpriced, most people say, “What are you talking about?” But this debt isn’t just held by a bank. It’s bought and sold. And these instruments that are bought and sold are way overpriced.

Thank God I have bitcoin. Anyway, should the ...

Well bitcoin is another thing. The federal ...

You know, I had bitcoin. I did a story on it when it started. And I bought ten bitcoin. I put it on one of those hard drives and I lost it.

Well, that’s a bubble that burst. And that’s a massive bubble ...

Well, that’s a Kara that’s a stupid idiot, but go ahead.

The person in me, you know.

Yeah.

And by the way, do you understand that all of these things, whether it’s bitcoin or whatever ...

Blockchain.

Were bought with borrowed money that was cheap? When the Federal Reserve tried to get us out of that long recession, they printed a lot of money and they threw it into the banking system. Most of it sat there and did nothing. But what was borrowed tended to be borrowed from people who bought it to speculate in financial instruments like bitcoin, like real estate, like all these debt instruments that I was talking about.

Yeah.

And it’s heavily leveraged.

Yeah.

So, if those things start to go down in price, the people who bought it that would borrow money have to sell it in order to pay back the loan, and when they get into foreselling, foreselling forces more foreselling, forces the price down, we’re not going to like the way that looks when it starts.

That’s probably when I’ll find my hard drive with the bitcoin in it, right when it goes to the bottom. “Should the government have bailed out banks after the 2008 crisis?”

Yes. Look, they didn’t bail out the banks. They bailed out the banking system. And they bailed out the banking system because we’re all better off as a result of it. A lot of innocent people would have been hurt. They would have lost their jobs, their homes, their savings, who had nothing to do with causing this problem if the banking system had gone down. And by the way, the government got its money back. So, when you use the word “bailout” as people do ...

Yes, they were bailed out, but we cleverly bailed them out in a way that got all of our money back. Is it a bad precedent? Sure. Did some people get their money saved that otherwise wouldn’t have, who were responsible? Sure. But on balance, the world is better off because they did that.

And I think the third question is, did nobody go to jail? “How does taxation fit in as a method of regulating or controlling affecting extremely high salaries?”

Well, because you can change the tax law. Let me give you an example: When companies spend billions, as they are now, record amounts of billions of dollars to buy back their shares, it’s a tax-advantaged way of getting basically the profit of the company to the shareholders in the form of, basically, their shares are worth more. Okay?

But we could treat that as the equivalent of a dividend and tax them at the moment in which the shares were bought back, tax all shareholders for the increase in the value of their shares. Treat it for tax reasons as a dividend. And we might say to companies, “Okay, if you have a profit-sharing plan that we think meets the criteria with your frontline employees, we’ll let you treat a share buyback as a capital gain. But if you don’t have one, well, we’re going to treat it as a dividend.” So that’s a way to nudge them in that direction. Use the tax code to nudge them in that direction.

Now, we could also have a tax code that’s more progressive than it is. So what would I do? The first thing I would do, you know, Congress got rid of the estate tax. A terrible idea. But it’s politically controversial, so here’s what I would say. First thing is that there’s a little loophole in the tax code that all rich people know about, which is if your shares have appreciated a lot and you die, then you don’t have to pay the capital gains tax on that. At death, the people who inherit those shares inherit it at the new basis, and they start out wherever it is when they inherit it. And that capital gains tax is never paid.

As a first step, we should just say that at death, you have to pay the capital gains tax. No, it’s not an estate tax, it’s just an unpaid capital gains tax. That would raise almost as much as reinstating the estate tax.

That said, you’re dead.

That said, you’re dead, but your heirs should pay the tax that you unfortunately didn’t live to pay.

Yes. Get around to pay, right. “How do you rate California’s tax system? Would it work in other states?”

I don’t know enough about California’s tax. You have high taxes here.

Yes we do.

But you also have higher incomes. So I would say that you shouldn’t ... There is no one-size-fits-all. And I wouldn’t try to take and impose it on Alabama. I think that would be a bad idea.

All right. “Can capitalism thrive without constantly expanding population? And related, how will the aging of society impact American capitalism?”

I don’t know how to answer the second one. People in Japan worry a lot about population shrinking.

And old people, too.

I don’t actually worry about that that much. But it seems to me that our country has always ... Our model has been based on growth. Some of that is productivity growth. Some of it is people moving around. You know, we move to other parts of the country. And some of it is immigration. I don’t know why we’d want to screw around with a model that’s worked well for us for more than 200 years. What’s the purpose of that?

You might want to have an immigration system that encourages certain kinds of people to come as opposed to other kinds of people. We could have a conversation about that. But the idea that somehow we’ll be better off if people who want to come here don’t come here, I don’t know, that’s loony.

Do you imagine this is a logical argument they’re making?

What the logical argument would be?

There is none.

Well, the people who are at the bottom think that all the immigrants have to be people who are going to compete with them for low-skilled jobs.

Or they’re bringing in drugs. I was talking to somebody who was ... A reporter who was just visiting a shrimp fisherman in Louisiana. And they asked what the biggest problem was and he said “terrorism.” And they were like, “You’re not under siege from ISIS in any way.”

Certainly not in Louisiana.

Not on a shrimp boat, for sure. And what his idea of terrorism was is that he couldn’t hire people to work on the shrimp boat because they were opiate addicted. And the opiates came from Mexico. And so he thought the cartels had created the drugs which had created the opiates which means he couldn’t hire people. So he thought the cartels were terrorists.

Well, people think crazy things.

And they’re buying into the Donald — that’s why it had so much resonance with him.

Well, 10 percent of people believe in UFOs, so you have to start with that.

Although that one I followed a lot more quickly. I also believe in UFOs.

But you know the thing is ...

John Podesta.

Why aren’t Democrats and the business community making an affirmative case for a steady legal immigration?

The question “why aren’t Democrats” is a very long one. That’s the problem. “What’s better than capitalism?”

Better capitalism. We can have better capitalism.

Better capitalism, which is what you talk about.

As you know, no one would ever mistake me for a socialist.

No. What do you think of this movement in this country?

It’s like a poll result; it’s a good indicator of how capitalism has lost its appeal. And it has a bad odor to it. Do you know that more than half of millennials actually say they don’t support capitalism? And 57 percent of Democrats in a recent Gallup poll said that they look favorably on socialism. Now I’m not sure they know what socialism is, but I think it’s a pretty good indication that people aren’t all that happy with our system.

And it’s not just the people who are losing from this system. There’s a lot of people like me, maybe like you, who are successful and are doing fine by this system who also don’t like it. Who feel that it’s lost its moral legitimacy. And I think that’s what we’re picking up in all of these things.

I think you only have to look on the streets of San Francisco to get that. That’s why you see what’s happening here.

In terms of the homelessness?

Yep. I think you’ll see it all over the country. But we’re always pioneering things here, unfortunately.

Okay.

Right? Like it’s amazing. But you’re going to see it. I’ve just noticed it in Washington recently, and Los Angeles and Hawaii. And it’s just everywhere.

“How do we deal with America’s shrinking middle class?” You said there aren’t ... especially young people and the student loan problem. Free college.

I think much too much effort and attention is put to, No. 1, making sure everyone goes to college and to the student loan problem. It is a problem for a lot of young people from the perspective that they have, their loans look overwhelming. But we know that because of their college degree — whether that’s deserved, by the way, or not, whether they learned anything in college or not, and I say that as a college professor — they are going to earn more over their lifetime. That makes that a fine investment.

One of the things that used to be in firms, remember I talked about sort of sharing in firms? One of the sharing that used to go on in firms in the old days was that the older employees essentially subsidized the young employees. Because the young employees were basically worthless.

Thanks, Steve!

It takes two or three years ... No, it takes two or three years to learn how to do your job, okay? And we paid them more than they were worth when they were young, and then we paid them less than they were worth when they were older. There was more equality, okay? There was more equality of pay. Now we don’t do that, because there is no loyalty and people don’t stay with the firm long enough. So you have to sort of pay everybody what they’re worth at the time that they’re working with you.

So right now, young employees are paid less and so they don’t see how they’re going to pay off this debt. But what happens now is that that upward slope of salaries is steeper. And so if you wait until you’re in your mid-30s and 40s you’ll be able to pay it off. But it doesn’t seem like that now to them.

So you obviously don’t believe in free college or free tuition.

I don’t believe in ... Free college is the worst way to go, it seems to me.

I just interviewed Eric Garcetti about free community colleges.

My thing is, and it makes me really popular on campus at George Mason University, is to say we charge too much for college because it’s a very inefficient way to educate kids and we need to learn to use, for example, technology to lower the cost of instruction.

Right. There’s some companies out here that are doing those things.

Well, I know, but you should ... Believe me, I work on a campus, and do you know the resistance of the faculty to this idea?

Too bad.

Pardon?

Too bad.

Well, if you’re a college ...

Remember Washington Post resisting the internet?

I understand. But look, I’m for all the people who want to do this. But faculties basically control the place and they have their own self-interest at heart.

Yeah, they’ll die. Okay.

Not fast enough.

A lot of people don’t die fast enough. I just gave an interview where ...

You know what the average age of faculties are?

I know.

It’s appalling.

Appalling? What is it?

Well, because people hang around and ...

What is it? What’s the age?

I’d say it’s in the 60s.

Oh, interesting. Okay.

This is universities with tenure. I’m not talking about community college. I’m talking about universities with tenure.

Of course. “Is ever-increasing economic growth sustainable, environmentally?” Ha, good question.

Yes.

Why?

History tells us it is.

Yeah.

You have to do it right. You have to use technology to reduce ...

100 percent.

But the idea that ... Remember, people, the zero population, well we can’t because the world can’t ... “We have to have no population growth because otherwise there won’t be enough resources” and all that. Technology always solves those problems.

Yeah, I was just actually at a meeting yesterday with some venture capitalists and there’s a new technology they’re working on that ... You know how tomatoes taste terrible when you get them at the store because they’ve been picked too early and they’re hard as rocks and things like that? This allows them to ripen ... This technology ... It’s a thing, a wrap without chemicals so you don’t have to use chemicals to do it. It’s a certain kind of wrap that they’re putting on it that you can ship them ... They’re working on it with avocados, because avocados are so expensive.

And they go bad so quickly.

They go bad so quickly. And you wrap it and they don’t go bad for much ... Like three times the amount of time. Which is really interesting, because I think it’s 40 percent of food is wasted getting from the farm to the store. And so this could cut that drastically and get you better food at the same time, which I thought was super-interesting. And I thought, “Wow, that would ...”

You know, to get here from Washington, you have to fly over the country. Anyone who things we’re running out of room ...

Right, that’s true. That’s a fair point. In any case, it was really interesting. It was really interesting. All right, “could you please discuss the rapidly mounting deficit resulting from the tax bill?”

Well, it’s going to be a problem. And the reason it’s going to be a problem is not because we are going to burden our children with this debt. Government debt, at least the federal government debt, is never repaid, it’s just rolled over. So your children and your grandchildren will never have to repay it. Just as you never repaid the one from World War II.

The problem is the interest on the debt, okay? We’re taking on all this debt when interest rates are low. When we roll it over the interest rates are not going to be so low and interest rates are going to start to take more and more of what we pay in taxes. It won’t be very long before the interest takes more than Medicare.

And then you’re going to have to make hard choices. You’re either going to have to raise your taxes, which means you’re going to have less money to spend on other things, or you’re going to have to cut services. One way or the other. But this is going to be a problem, and the crunch is coming in about three or four years when this high level of debt will be financed at high interest rates.

I’m just curious, do you imagine, because it’s in the news right now, what’s happening with Saudi Arabia right now will impact the global economy... Because they are ... Here this place is awash in toxic Saudi money right now.

Well, the rest of the world is awash in Saudi money, too.

That’s what I mean. So what’s going to happen with this?

Well, the world is awash in Saudi money. And if Saudi money doesn’t go one place, it’ll go another place. And if it goes another place, the money that would have gone in the other place will go to this place. Money is fungible. I would not say that is a global macroeconomic problem.

Okay.

And if the Saudi money wasn’t coming here, some other money will come here that would have otherwise come here if the Saudi money wasn’t here. So I wouldn’t ...

But that’s ... The amounts are so different. I mean you have Singapore money, you’ve got Russian money, you’ve got Chinese money. I was at a dinner party; they listed all the dirty money.

Of all the things that you hear in the tech community you have to worry about, not having access to global capital is pretty far down on my list.

Got it, got it. But the other night at dinner all these entrepreneurs were making ...

Right, because they were thinking literally what ...

Well, no ...

I’m getting the money from this guy here, well where else am I going to get it? They can’t even imagine. But trust me, someone will find it!

No, I get it. They were debating how dirty the money could be. Like they were making a list of the dirty; so Saudi was at the top of dirty money. And I think Singapore was at the bottom. So they’re going to move to the Singapore people.

Yeah, well...

I’m serious, this was a discuss at dinner. I was horrified and I wanted to shoot everybody in the head.

Well, let me just give you an example. The money could come from ... There’s a lot of money that Americans now put in U.S. Treasury bonds, okay.

Not as big as the Saudi money. I’m just saying, the Saudi money is-

Well, the Saudis could go buy U.S. Treasury bonds; no one will know who’s buying it.

That’s right, that’s a good point.

And the money that used to go into Treasury bonds can now go into Silicon Valley.

Steve, you should get into global finance. Okay. To hide all the money. Anyway. And all I said is, “It’s all dirty money so just take it.”

“Large middle class used to anchor stability in moderation.” This is the question: “How do we grow it enough to counter our extreme polarization?” Because really, a lot of it is about the haves and the have-nots right now.

Well, yeah. And I think it would be useful if the people in the middle were feeling prosperous, because they wouldn’t be voting for people like Donald Trump. So how do we do that? Well, I think we’ve talked about all the ways that we can do that. I don’t think we need to give them a tax cut.

You think that’s the only reason. I think they came for the feeling not prosperous and stayed for the racism.

Oh, I think probably different ones came for different reasons.

All right. But what do you imagine in the next go-round? I’m sorry, I just have a million of them. What do you think’s going to happen in the next one? Because the economy’s never been more healthy right now. So is that going to continue?

They don’t actually ... If they were feeling that way, then the Republicans would be very happy because it would be showing up in the polls. They’re not feeling that way. So one of the worst things is for people who don’t think they’re participating in the prosperity to see prosperity and see they’re not participating in it. It’s worse than if the economy wasn’t prospering.

I see. So you think that continues, those feelings of nonparticipation?

Apparently, because if they were feeling that way, then they would be voting Republican this time.

Well, many think it’s just women who have just had it. That’s what all the stories are written about.

I don’t think so.

Last question. We have just a few more minutes. And they’re all sort of together, so I’m going to read them all together: “Is capitalism shortsighted?” “What goals should we have to improve this?” “What’s wrong with capitalists?” “Arguably, capitalism is working for them. How will they be convinced to change?” And “it seems our desires are unsatisfiable, what can we do about it?” And “what is money?” No, I’m not going to answer that question. But it seems our desires are unsatisfiable, what can we do about it? Those are all kind of linked.

Okay, well, I don’t know how to answer ... Our desires are unsatisfiable ... I don’t ...

That’s the human condition. Okay, so that one ... Sorry. Don’t be human? Be a robot?

Go back, what’s an earlier one?

“What’s wrong with capitalists? Arguably, capitalism is working for them. How will they be convinced …” How do you convince people to change these practices you think are toxic?

I think it has to be through social norms.

Shame.

I’ll tell you a little story. In the 1950s, if any CEO had tried to pay himself the equivalent of $800 million, he would have gone to the country club and the other CEOs at the country club would say, “Cut that out, you’re making us all look bad. And you’re going to make socialists out of people; stop doing that.” And people who are in that strata now don’t do that anymore.

No, they say, “Give me some.”

Right. There needs to be a difference in the norm so that people say this isn’t right. And you know, people do say that. For 30 years, we’ve been told to ignore our moral instincts. That you have to ignore that, because in order for our economy to be competitive again you have to ignore your moral instincts. And we have to now feel free to say ...

How does that happen?

Follow my ... How would it happen? Because ...

How? Because all I could say is because Twitter, because Donald Trump, because ...

No. It happened for a lot of reasons. It happened because of corporate takeovers that let Wall Street dictate how companies are run.

But how do you get it back? I’m just saying, it just seems to have gotten worse.

How has it gotten worse? I don’t know. How is it that we did #MeToo? How is it that that changed? It just happens. And actually, I don’t like social media, I’m not on any social media. But social media actually, apparently, makes it easier to change these norms and to shame people. And we need to shame someone who pays himself $800 million a year. We need to shame people who pay their employees $7.25 and don’t give them health benefits and give them schedules so they can’t even get their childcare arranged. We need to shame those people and we need to say “We won’t do business with you, we won’t work in your firms, we won’t invest in your firms.”

Then how do you shame politicians into giving parental leave or past saying the really true things? It’s got to be the companies.

If you change the norms, the laws will follow. If you try to change the laws to change people’s norms, that’s not a way to go. You can’t do that. You need to change the norms first. We decided as a country that discrimination on race was not acceptable, and then the law changed. It wasn’t that the law changed and then the norm changed.

Social norms are real important to how society works. But it’s actually real important to how a market economy works.

So where does that start, with people or with companies?

I can’t tell you. It’s somewhat magic. But it does start with people.

“It’s somewhat magic.”

People saying I’m going to trust my norms and I’m going to start behaving that way. And I’m going to demand the people in my society who I deal with behave that way.

Final question. I’m thinking of one or two companies that do that. I’m thinking Patagonia, some others. Think of a company that’s doing that.

Well, there’s a lot of companies that do it, to varying degrees. Remember, we reason for these things from very individual cases. You know, there’s nothing ... You know what a dictator says, there’s nothing like a good hanging to get people to behave. We need to have hangings. We had a hanging of Harvey Weinstein.

Were you just in Saudi Arabia or something?

We had a hanging of Harvey Weinstein and look how behaviors changed. We need to identify some companies that are bad actors. I’ll give you an example. A company that says I’m going to move my headquarters to the Bahamas so I don’t have to pay any taxes in the United States. To the government of the United States that did the basic research for the company, that educated its scientists, that protects its intellectual property, you’re not going to pay taxes to that? Well, that company needs to be shamed in a way that Harvey Weinstein was shamed and shut down. And after that, you won’t find too many companies that are going to say that again.

Now interestingly, that’s something Donald Trump was trying to do with Ford and other companies that were doing that.

Well, you know what? Donald Trump, when he started out with this thing about ... The Carrier thing. Which was a disaster, I mean, it was phony. But if he had actually done something real like that, that would have been great. Because he just shamed them into doing it. He didn’t pass a law, okay? That is exactly what we need, moral leadership from people to reestablish moral norms. That is exactly what’s needed. But unfortunately he didn’t follow through with that. And in fact, in the case of the taxes, he gave them all a tax cut.

We noticed.

Rather than identifying some companies that were doing what were called tax inversions and shaming them. But I wish he had stuck on the course he started with, because we haven’t heard much about that since, have we?

No, we haven’t. We have not.

That was why he was elected. Because people thought he would do that. But then he didn’t do that.

What a surprise. Anyway, thank you so much. Steve Pearlstein’s the best.

Thank you.

This article originally appeared on Recode.net.