From Liberalism to State Capitalism: Markets, Power, and the Future of Policy

Welcome to Policy Chants, the official podcast of the UC Riverside School of Public Policy. I'm your host, Dorrie van. Join me in my fellow public policy classmates as we explore potential policy solutions for today's most pressing societal challenges. Thank you so much for joining us today, Associate Dean and Professor Babcock. We are truly excited to have you here on Policy Chants. As a professor of public policy and currently serving as the Associate Dean and Chair of Public Policy here at UC Riverside, your work bridges, economics and policy making with research and explaining how price and production risks shape decisions and how food, energy, agriculture, policies affect growers, consumers and taxpayers. At the School of Public Policy celebrates its 10-year anniversary, emphasizing on the theme of abundance. We look forward to hearing your perspective on current administration policies, liberalism in today's policy environment and how economic reasoning can guide future policy makers. With that, let's dive into our first question. Look at the policy choices made by current administration, including increased government spending, industrial policy and regulatory activity. How would you describe the overall economic philosophy guiding these decisions? What do you see this moment as a continuation of liberalism or a significant shift away from its tradition foundations? That's a big question to start out with. Thanks for having me. It's a pleasure to talk with you about policy. I think the biggest break with the past that this administration has brought aboard is maybe not so much with the actual policies that are being advocated, some of which are kind of a continuation of what Republican administrations have looked for in the past, but rather the biggest changes due to a change in the way that policy choices are made. In the past, the policy choices have been part of a very deliberative process. And the agencies of the federal government have relied on data, evidence, science, logic, economics, evidence that a policy will have a particular impact on society and the decision whether to go forth with it or not, although influenced by politics is generally justified or grounded in science data and facts. The administration's policies are more driven by almost the winds of one man, the president. And if you just look at his cabinet and how they treat him, they don't say no to him. And so I think it's the policy process rather than a particular policies with the exception of major changes in, for example, NATO and tariffs, and it's more on the international side where big changes have been made. But it's the lack of deliberation and reliance on science and data. I think it's the biggest change that we've seen. And you asked about liberalism. Let me just comment on that. Liberalism came out of the Enlightenment back in the '15, '16, '17, '17, '17, and our Declaration of Independence and our Constitution and our founding documents are like the ultimate achievement of liberalism in terms of power to the people, not to a king. Checks and balances, no part of government is too strong to take over the liberties of individuals. And it's the primacy of the individual in the United States, which is really the dream of what our founders wanted. And we haven't followed that exactly through our history, but the rejection of it by voters in putting, electing this administration, the idea that no one man or one party should dominate life, has been a bedrock principle of the United States. And what was kind of rejected by voters? And so we're entering in and age of anti-liberalism, I believe, and the effects of that on policy are hard to determine because what you have is policy driven by the desires of basically the president. So speaking of liberalism has historically emphasized market mechanisms alongside targeted government intervention. How does the current administration's approach compared to earlier liberal policy eras? And what economic assumptions seem to underlie today's policy framework? Yeah, you're exactly right. Liberalism and the biggest advocate for liberalism was Milton Friedman. He expoused a philosophy that the more decisions that are adjudicated, if you will, or managed by private markets. The lester was a need for government to step in and decide in favor of one party or another. So you had the anonymity and the neutrality of the market making those decisions rather than bringing the heavy arm of government into play. And I think that that was a great aspect of liberalism, the reliance on market and not on government for the protection of the constitutional, the bill of rights, the personal liberty. So when we move away from having markets decide things and empowering government to decide, the real risk is that the power of government will be taken over by someone who doesn't believe in the American founding documents. And so the philosophy of reliance on markets has its core justification of personal liberty. So that is what why we have embraced markets rather than government. With the current administration, even though they're Republicans and you normally think of Republicans as being in favor of markets and not government, this administration is a very much more activist administration. And it's almost approaching rather than a capitalist or capitalism as the guiding kind of economic philosophy that guides our growth. It's almost state-sponsored capitalism where the federal government is choosing which sectors are favored, which sectors are not favored. Much like China is we're starting to emulate China. So China has a very heavy role in deciding which sectors of the economy get credit, which sectors of the economy are favored and they've been primarily export-led sectors. In the United States now we're getting the state deciding which sectors should be favored. So for example, fossil fuels. We're subsidizing fossil fuels when I teach that we should tax goods and services in the United States that cause negative externalities, for example. The biggest negative externality of fossil fuels is the loss of life. And so if you allowed markets to work or if you allowed what I would call economic theory to work that you should probably account for the cost of fossil fuels when you're deciding whether to support them or not. But those costs in the current administration don't seem to play any role at all. In fact, environmental protection agencies just announce that they're really ignore lives lost to PM 2.5 of air pollution when they're making air pollution regulations. And why is that? It's because our president likes coal. Our president likes oil, natural gas. He likes fossil fuels. He doesn't like non polluting energy like wind and solar. And so our reliance on markets is still there. It's still a market economy but very much more heavy hand of the government involved. And so it is becoming more like a state. I guess to phrase a state capitalism. I see. Thank you so much for your insight. As they follow up, so you said the government are favoring the sectors that they are favoring some sectors other than others. Just like China is doing. And for in my perspective, like China has been growing so fast and so much for the past 10, 20 years. that they've become like a big economic powerhouse. And so, of course, that growth comes with it's trade-off, which is air pollution and like, you know, bad air for their citizens. And so much more negative externalities. So do you think Donald Trump is trying to replicate what China is doing by a vastly growing its economy to maintain its number one status? And at the same time, having the trade-off of air pollution, having the trade-off of those negative externalities that you mentioned? I don't think our president fully understands the trade-off says as you described them. I mean, it doesn't register with him. What he sees, what he admires in China is the Chinese leader having what he calls absolute control over Chinese society. So through the Communist Party, they have strong control over both the economy and people's lives. A lot less, of course, the reason why China has grown so rapidly is that they'd loosen controls and started relying on markets and allowing people to emigrate to cities, get bigger, get jobs, and they allow markets. And that exploded Chinese growth. Ironically, China is their decision which sectors that they are favoring are, you know, it's what? It's green energy. It's batteries. It's solar. It's EVs. So they see that their alliance on coal is counterproductive. And they are making a huge transition. So we're not emulating China. We're going back to the age of that dirty fuel and dirty energy somehow is manly. I don't know. I can't explain it, but I just saw a graph today about California and how the vast majority, more than 50% of, on a typical day of California electricity in the middle of the day is provided by solar. And then the utility scale batteries that we, that are used to charge up during the day, continue to power our grid into the evening. That's a tremendous accomplishment that we've, that for those of us who believe that there are huge negative externalities from fossil fuel, that's a tremendous accomplishment. And that is driven a lot by Chinese manufacturing because the solar panels and the batteries are being led by China. Why in part? Because the Chinese leadership decided to emphasize green energy and solar panels and battery. So it's, it's, it's pretty interesting. But that success that I call a success because it's managing negative externalities of air pollution and climate change from fossil fuels is thought of as a weakness by our current administration. And it's thought of as a weakness because of one man. Getting back to the policy process, our state capitalism that I described earlier is really being driven by the whims of one man. I hate to say that or conclude that, but I've been teaching this since an introduction to public policy, PBL 001. I've been teaching about creeping authoritarianism and warning that we had gotten from Hungary, from Poland, from Central Europe about, you know, what, what, what is it? What are some hallmarked signs of authoritarianism? And we're seeing the signs. It's a strong man leading the, leading the government and making these policy choices based on his whims. As far as I can understand, he doesn't like wind energy, right? He tried to kill a 90% completed wind farm off the, after Northeast coast. If 90% completed was going to power hundreds of thousands of homes, he killed it. No, the liverative rational policy process would result in something like that. And why doesn't he like wind? Well, he has a golf course in Scotland. They put a wind farm off the coast within sight of his golfers and he didn't like it. So he's been against wind since then. That, to me, is not a deliberative evidence-based process by which we decide which energy sources are best for our country. I see. So many current policies or many policies in general, they usually prioritize equity, resilience and long-term investments, sometimes at the expense of short-term efficiency. So from an economic perspective, how should policy makers evaluate these trade-offs? And what risks or benefits do you think are most underappreciated in the public debate or the public talk? Yeah, before the takeover of the government by the winds of one man, our policy process was not working properly. And it wasn't, California is a case study in how the concern for the individual or concern about equity was leading to our inability to actually move forward with infrastructure investments, housing investments, long-term investments that actually made life better for everybody. People began to believe that, so what we did, so part of the hallmark of a liberal society is rule of law. And our nation has become a nation of lawyers. And the environmental movement really taught our nation how to say no to what I would call abundance. And because what it did is it gave activists from the neighborhood to the country, almost veto power over big projects like rail projects, transmission lines, housing projects. And because of the rule of law, we wanted a deliberative process that I described earlier. And we've taken that to the extreme of giving so many veto points to moving forward that we quit being able to function as a society in making kind of policy choices that are moved society forward. We got stuck. And I believe that that was one reason I believe that the voters rejected liberalism. It's because liberalism was failing because we took it to such an extreme of giving so many people, so many veto points over what I would call progress. I'll give you an example. State of California can't build houses. And so the young people don't want to live in California because the price of housing is too high. The climate's great, but the price of housing is too high. So we're losing well-educated young people. Another example is the water project that the state senator Newsom is trying to push through. It's the tunnel that goes under the delta. Well, we've given the Bay Area veto power over that because that's just the way California does things. And so going back to the comparison to China, I don't particularly think that all of that investment that China did in high-speed rail is actually economically justified, but in fact they built it. They've China is a country of engineers. They're not a country of the rule of law. We're a country of lawyers giving lawyers veto power over what we do and we're not a country of engineers. We don't build things like we used to. So in some sense, the idea of equity and empowering people has gone overboard in terms of not being able to come to some reasonable political consensus about building things that make our life better. So you're answered your question a little bit differently than maybe, but this is the thought that came to me when we're talking about long and short term. And I think the short term is we've emphasized that too much and we haven't emphasized the long-term ramifications of empowering so many veto points over our long-term investments. So for our next question, so seeing how like these policy effects, all these policy choices take effect, what real world impacts are you seeing, anticipating for producers, consumers and institutions? And what do you think economic incentives are being reshaped in meaningful ways? It's hard to predict under the current administration what policies are going to be adopted because they change so rapidly. So today it was announced that we have a free trade agreement with Argentina. Argentina? Free trade when he's attacking Europe and Japan and South Korea and Canada? Well, what can possibly explain a free trade agreement with Argentina? Other than the Argentina president that has embraced Trump. And so it's very hard to think about what is going to go forward when policy process is at the whim of really of the priorities of one man. But it's pretty clear that the tariff policy that he likes so much has created a large amount of uncertainty in the investment world. And so that investment is trying to-- profitable investment now depends not only on economic fundamentals, but on is this favored by Washington or not favored? And so instead of markets and finance determining it, it's markets, finance, and even more so politics than it ever has been in the past. That's one area of uncertainty and less reliance on market fundamentals for investment purposes. The other big question mark is the policy choices, how it's going to affect each of us, is the tearing apart of a degradation of our alliances with long-term alliances being Canada, the UK, the EU, the OECD, which is the collection of Western democracies. That system of being able to count on each other is being blown up. I think that that is going to have much longer-term ramifications for daily life in the United States than we realize if that continues. Getting Canada mad at us and denigrating Canada and NATO and threatening to attack Denmark. That's a hallmark that this administration-- and it could be the people that vote for him-- want to see a return to spheres of influence, Russian sphere, the western sphere, the Chinese sphere of influence. That could be calamitous because we saw what happened when the last time we had spheres of influence was blew up in World War I and then World War II. And that was just calamitous, millions of people dead. And so I think that that's the biggest danger, if you will, of this change in priorities of moving away from liberalism into what I call authoritarianism. I see. So in response to the shift and this current administration policy choices and its effects, how is the UC Riverside School of Public Policy adapting its curriculum to help students analyze its current administration and all that's happening right now, policy making, particularly in the role of economics and in evaluating liberalism and market intervention and policy effectiveness? Yeah, over the last three to four years, we have decided that policy undergraduates and graduate students need more training in ability to use data to make arguments. And so what that is called is bringing evidence to bear, whether or not it's an advocacy role, an analysis role, in a policy formulation role, is that when you rely on data, evidence, and science, that you're more likely to have a more well-informed policy process, a set of policies that actually achieve the objective that you want to achieve. And it consistent with the idea that the policy process is informed by rationality. I'm not saying the policy process is rational, because you have to have politics, and you have to have the people willing to go along with policy choices. But the policy process is a marriage of politics and political science and data science analysis and rationality. So it's kind of a mixture of what people want in policy, but also what's achievable and at what cost. And so what we've done in designing the curriculum is to make sure that we keep the politics part integral to policy, because that's never going to go away. But we're buttressing up the data analysis and the economics analysis portion. So in our undergraduate program, we now have a basically a three-course sequence in data analysis. We now require a computer programming, we require a math course, and we require students to take upper division policy electives that are their major requirements, that emphasize the marriage of politics and data analysis. At the graduate level, we've added a data analysis course, and how do you provide evidence? How do you design a-- called research design? How do you design data collection in order to answer a policy question? And then we've added another economics course to our curriculum. So what we're trying to do is enable policy students to be better able to-- to grab data, make persuasive arguments based on rationality. However, I know, and I teach-- we all teach that it's not just rationality in science that dictates policy. It's also politics. So it's really that. And our tenure anniversary that our dean Mark Long has decided to the theme of it is abundance. Because even before this current administration, we were running out of abundance. That is, we didn't emphasize the idea that the size of the pie is a good thing for people, that building housing is good for society, that building transmission lines to interconnect different regions of the United States in a grid, lower costs, and increases resiliency. We didn't realize that. And so I think that under our dean, that the theme of the School of Public Policy is more-- let's build-- let's adopt policies and analyze policies that lead to more efficient and abundant society. Yeah, thank you so much for your answer. And thank you so much for the insight on how the UCR School of Public Policy is changing and adapting its curriculum to the current situation and how it's preparing a more well-rounded and more equipped like graduate to advocate for policy. So looking ahead, do you think that the public policy major should integrate more economics and political science into its curriculum in order to help these students be well prepared to make an argument and also understand the current policies and the current, like the most current administration choices, whether it's economic policy or foreign policy. And so my question to you is basically, what do you think is the most crucial aspect of making a well-rounded student? So you mentioned its data analysis, its economics, its political science. So out of those three, what do you think is the most important, like focus point? At the undergraduate level, I believe that a liberal arts education that includes economic science, statistics, data analysis, computer science is whatever students should aspire to. I've really made it. Now, I know students don't like to hear that. There's some of the humanities and some of the pure science. But at the undergraduate level, when we're talking about policy, I think a well-lived undergraduate liberal arts that emphasizes what we just talked about, economics, data, political science, sociology, ethics that we have in our curriculum, and knowledge of geology, biology is the best preparation. At the master's level within our MPP program, I think that's where you focus more on the actual data analytics and the economics. So while I'm an economist and think every undergraduate, and almost every undergraduate does, take at least one course in economics, I think a broader education at the undergraduate level is best. So at the master's level, I think an emphasis on economics, on how the world works. How do you make trade-offs? How do people judge whether or not green energy is better than fossil fuel energy? That's a trade-off that people have. And economics is all about valuing trade-offs. And economic efficiency is all about, let's not waste valuable resources. I think every public policy student needs that. And at the master's level, they need some better analytical economics and analytics, and they need data management and statistical. methods to be able to differentiate cause and effect. And so that's a bifurcated answer at the undergraduate level versus the graduate level. At the undergraduate level for a public policy major, I would encourage everyone to take more economics than we require. We take require one course. But we are offering now a cost benefit analysis course. Professor Schwabbe is going to do a cost benefit analysis. We have an economist teaching economic environmental policy. And so there are places where the public policy major more interested in economics can get it at the upper division level. So also looking ahead, do you believe the trajectory of current policy making points towards a long-term expansion of liberal economics government, a hybrid model that blends market and state roles, or a rebalancing toward markets? And what does that imply for students preparing to become future policy makers? I wish I knew. I don't believe that Americans, if they understood the strong arm of government role in a state capitalism, that they're going to support it. They rejected President Biden's big push for state capitalism that tried to direct investment towards green energy, towards equity, towards environmental justice. All the hallmarks that President Biden was trying to achieve, they rejected that at the ballot box. They didn't know maybe they were rejecting it. Maybe they were responding to inflation. But they rejected that strong arm of government putting investments into those areas. I think they're going to reject the Trump administration, doing the same thing of trying to direct capitalism. I just think Americans are going to reject state capitalism. I don't know what will replace it, though. I doubt it's going to be more reliance on free markets. That has gone-- there are no advocates for free markets anymore, hardly in the United States. You don't have the Democrats advocating for free markets. You don't have Republicans advocating for free markets. Nobody is advocating for letting markets decide. It's not clear to me what's going to happen. I wish I knew, but I simply don't. So you're saying both parties are going towards a threat to where it's more government intervention and less market-based policies. And so do you think that-- because in economics, people assume that people are not rational. And so therefore, it requires government intervention to fix those markets that have those negative externalities or those markets that are weak, for example. The current administration is putting tariffs on a certain amount of goods and services in order to protect the local businesses. And so do you think that market-based policy will be better in the long run, or do you think that government intervention to help those markets that still need help to steer them back into the correct course? And so which one do you think that is better for the long run? Economists have studied the proper role of government in the economy for a long time. And economists recognize that there's market failures. So markets don't take into account externalities. Markets under-provide public goods when you have buyers and sellers with different information sets that markets don't work efficiently. Economists also know that government plays a crucial role in allowing markets to function. The government sets the rules of market transactions. It sets the legal system and protects property rights. So there's a fundamental role for government in a market economy that is a market economy won't work without a lot of government intervention. I believe that Joe Biden and Donald Trump and presidents have passed have sometimes used that language of economists of market failures to justify of very large state interventions and that weren't justified by economic theory and market failures. And it could be that politicians who are most interested in getting re-elected and getting elected-- that's their number one goal-- if enough Americans reject the idea of strong government intervention, I can see that from the Democrats now are starting to see what they call the checkers come home to roots. They were advocating for strong government intervention in the economy. But when it's taken over by a leader that they oppose, they see that empowering the government to make such strong decisions can be-- can undercut their own personal liberty. So it could be that Democrats are back from the brink and are going to start advocating for more classical liberalism. I don't know. This whole idea of abundance, in some sense, is a sign that Democrats know that their model of what the government should do wasn't giving people what they wanted. And it could be-- I don't know-- that Republicans that are in lockstep with a leader that has his own views of state capitalism that they are also going to say, well, we didn't-- I thought we were the party of strong personal liberty. I thought we were the party that was pro-second amendment, that was pro-constitution, pro-first amendment. I thought we were the party of free speech. And we were the party that advocated for strong controls against illegal government coercion and searches, the Fourth Amendment, and the Fifth Amendment takings without a due compensation. But the current-- so the Republicans were used to be known for that. The current government is violating those basic tenets of what it meant to be a Republican. So you're seeing some backlash from Republicans, too. Against the idea that a strong federal government is something that works for society. So this is my optimistic sign that you see Democrats rejecting the strong state capitalism that wasn't justified by-- that it could lead to counterproductive results. And maybe you're seeing the Republicans say, well, how can we support a president that doesn't seem to really like gun rights for all Americans that supports illegal search and seizure, that doesn't support free speech when it's Democrats that are speaking out against his policies. So I'm hoping that we get a backlash against both ideas, because you got to remember, I'm a classical liberal. I support politicians, so that's my bias. And you can probably see it through on this podcast, because I believe that people left the loan for the most part with some exceptions, but market failures is a big one. That the government can do more harm than good. And so it could be that we're seeing enough backlash from both that we might see emergence of a consensus that maybe a strong central government is not working for society. I see. Thank you so much for your answer. My next question is, so since the current administration and the president Donald Trump is a business person, do you think that he's creating policies that allow business to thrive more in the United States? No. No, it's the opposite. He's creating uncertainty. He's creating rather than making business decisions based on business principles, which are profits and shareholder returns. He's making businesses cow-tow to him, making businesses, making investments that are not necessarily driven by peer economics or peer financial considerations, but rather for political considerations. So you got to remember where Donald Trump and business intersected. He was a real estate developer, and that has its own type of business. He didn't really make anything. He developed real estate and put his name around. So the idea that we have a businessman doing pro-business things in the White House is just wrong. So since you talked about how all these decisions are being made on the whims of one person, I feel like there's going to be a lot of disconnect and distrust between people in other countries. How do you-- what approaches can be made to make sure later on trust and there's a more of a connection between people and countries, especially also because you talked about how there's a more reliance on fossil fuel. Since we're taking a step back and not-- focusing on greenhouse, like green energy. How do you think we can like go back to that to help like our environment and also like our country? - In part because of China showing the way forward in terms of low cost ability to manufacture batteries and EVs and solar panels and wind turbines that the strict, if you just based on financial considerations, green energy beats out fossil fuels. So in the long run that will happen. Regardless of the externalities. So I'm optimistic on that. I think that the Trump anti-green energy is gonna stall the United States but not the rest of the world. And so the United States is gonna be left behind by that transition. With regards to how do we go back to what having international friends and allies, I'm not optimistic that we are gonna go back. From what I've been reading, Japan and South Korea are seriously thinking about bolstering their own national defense because they don't think the United States is reliable ally. They're thinking of getting nuclear weapons. Why not? Israel has nuclear weapons and countries are low to attack Israel because they have nuclear weapons. So the Europe and Asia have primarily relied on the United States for defense. And that is being blown up as we speak. And I'm not sure how you put that back together. So even if you were to the American public rejected Trumpism, I'm not sure the American public is gonna support the United States being the defender of the, quote, defender of the free world in terms of the Western democracies. I mean, that even though the benefits of that policy to the United States have been tremendous since World War II, our economic growth in the United States has been the envy of the world. We're growing faster than Europe. We are standard of living is higher than Europe, higher in Japan, higher in South Korea, higher than Canada. And in part because we have a more open society, we're a more, we've supported liberal democracies. We've allowed other countries to prosper and we prosper right along with them. It's been a positive some game. The post-World War II alliance structure, positive some for the world. The Trump administration and the Biden administration to a lesser degree started buying into that the world, it's a zero, more of a zero some game. That if South Korea wins, we lose. That if Europe wins, we lose. And but that was not the guiding force behind the post-World War II alliances, that it was a positive some game for everybody. So I'm not sure how we go back to that world. I don't think we're going to. And but I'm not a foreign policy specialist, but I think it's hard to reverse what we've started. - Thank you so much. So for the last question, we always ask of our guestists. If you could change one thing in the world right now, what would it be like no cost, no negative externalities, if you could do one thing right now, what would it be? - Well, the first thing that comes to mind is to change state law and to encourage planting of native plants for landscape around urban and areas. The reason for that is I'm a big advocate of the natural world and native plants in California are the foundation for insect vitality, birds, mammals, the whole natural ecosystem. And as we're destroying, as climate change transforms the native landscape in California, a greater reliance on those plants that support that the insects and the birds and the mammals has got to come more from urban areas. And because native plants are drought tolerant, they grow without much care. And you see it here, if you noticed up at the hub area, there's the native plantings that are just up on the upper level of the hub area. Those are all in California and native plants that thrive with almost no water, little upkeep, you got to trim them a little bit, but they support a tremendous ecosystem. And so if I had one thing to do, I would change policy to encourage people not to import in plants like palm trees and high-biscuits plants and plants that aren't native to California, I would see landscaping, get rid of the lawn, start planting sage, get rid of the lawn's plant toy on. And I think the world would be a much better place. - Well, thank you so much for your answer. And I think that is a great way to NL podcasts. Thank you so much for spending time with us. And it was so insightful talking to you and all of the policies about the current administration and as well as how the School of Public Policy is adapting its curriculum to be to produce a better and more rounded student as we graduate. So thank you so much for coming on Associate Dean and Professor Babcock. It's a truly wonderful time that we had here today. Thank you so much. - Thank you. - Thank you for listening to Policy Chats, the official podcast of the UC Riverside School of Public Policy. If you enjoyed today's episode, be sure to follow us on Instagram at UCR_SPP. To learn more about our program and upcoming episodes, visit svp.ucr.edu. For the video version of this episode, check out our YouTube channel at UCR School of Public Policy. Until next time, stay informed and stay engaged.