Ruchir Sharma, New York Times bestselling author, Financial Times columnist, chairman of the Rockefeller International, and author of the newly released book, What Went Wrong With Capitalism? , joins me to discuss his new book and why it s so important to understand what went wrong with capitalism and why we should all be asking the question: What went Wrong with Capitalism? This episode is sponsored by Noble Gold Investments, the official gold sponsor of The Charlie Kirk Show, a company that specializes in gold and physical delivery of precious metals. Learn how you can protect your wealth with Noble Gold Investing, where I buy all of my gold. Go to noblegoldinvestments.org/thecharliekirkshow and become a member today, members only. That s where you get 20% off your entire purchase of a piece of gold and a 20% discount on the purchase of any other precious metal or precious metal you choose! If you like the show, you can support the program and listen to all of our episodes for as little as $1.99 a month! You can also become a supporter of the show by becoming a patron today, which gets you an ad-free version of the program, which includes a discount on future episodes, and a free copy of the next episode, coming in at $99.95 a month, plus shipping and shipping shipping, plus a 2-day shipping offer, and an additional $5/month, shipping and handling, plus an extra $10/day, shipping, and shipping, at $20/day. This is a special offer, you get a maximum of $150,000 in the choice, and you get $100,000, you decide that you get the showing you decide it gets it all a chance to become a chance of a place like that place that starts a place that gets it starts a chance, she gets it, and she gets a product like that chance, and they get it starts, and I get it, that gets a shot of the place she s a deal like that she s $ $ $ she s that place she gets that she gets an ad, she also gets it in a place she starts a deal, and gets a chance she gets something like it starts it gets a place, she s she gets $ she gets, she says it will a little bit of it, a little girl, shes a deal and she s also a little thing like that, she becomes a promo code?
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00:01:45.000Ruchir Sharma, New York Times bestselling author, Financial Times columnist, chairman of the Rockefeller International, and author of the newly released book, What Went Wrong With Capitalism?
00:01:56.000So many dimensions to be able to explore here.
00:02:02.000So I was motivated to write this book during the pandemic when I saw the kind of stimulus that the governments in the West, in particular America, doled out.
00:02:12.000We had never seen this kind of fiscal, monetary stimulus, credit guarantees, bailouts.
00:02:18.000that were done during the pandemic. And that sort of helped me think through this, that what have
00:02:24.000we come to here? Is this really the system that we have currently? Can we call it capitalism?
00:02:30.000Or it's become so distorted now that it is beyond anything that its founders had in mind. So the
00:02:37.000book is really a deep examination of what went wrong with capitalism. And why I say it went wrong
00:02:44.000is because of the fact that today, if you look at the polls, most young Americans, particularly
00:02:50.000Democrats, say that they are not going to vote for the new government. And that's a fact.
00:02:51.000Say they would rather have socialism than capitalism.
00:02:55.000That's such a big statement for people of this country in America, which is always seen to be synonymous with the capitalist system.
00:03:02.000For them to say they would rather have socialism than capitalism just tells you how disaffected people are with the current economic system.
00:03:10.000And yet I think there's a mislabeling of it, that they're calling it capitalism.
00:03:14.000As the title of my book goes, that capitalism did not fail, it was ruined.
00:03:18.000And the examination that I did I love that.
00:03:59.000What is your working definition of capitalism?
00:04:02.000For me, that's a great question because I begin the book that way, which is I begin my book by the fact that I was born in India and I moved here more than a couple of decades ago, but I was born in a socialist country.
00:04:14.000And what sort of struck me in India was the fact that people there were given political freedom rather early, but they were not given economic freedom.
00:04:22.000So for me, the soulmate of capitalism or the key to capitalism is giving people as much economic freedom as possible.
00:04:30.000Which means the freedom to decide what they want and a sense that they have an equality of opportunity.
00:04:38.000I think that's another key definition of capitalism.
00:04:53.000But there needs to be a sense that there's an equality of opportunity.
00:04:57.000So for me, the two key definitions of capitalism is people having as much economic freedom as possible.
00:05:03.000And secondly, in terms of the fact that them having a sense that they have an equality of opportunity, even though conceding that the outcomes may be unequal, but those are driven by meritocracy and not So that is very helpful.
00:05:24.000And I believe that there is no such thing as either or political or economic freedom.
00:05:51.000So the way I describe it in the book is that it is socialism in a way for the rich, but I'd say more than that, it's socialized risk, which is that risk has been socialized.
00:06:07.000Everybody, whether it's got to do with the rich, it's got to do with the middle class or even the poor, a sense that no one shall bear any risk, that everyone is going to be protected by the government in some form or the other.
00:06:37.000Yeah, because that's something which I mentioned in the book, that every time we have a crisis in this country, there is a sense that if we don't act, we will have another Great Depression.
00:06:51.000If you don't mind, I can step back here and put this in context as to how far we have come over 100 years, where last year, at the first sign of trouble, the government was out there trying to bail out a bank that catered mainly to rich depositors in Silicon Valley.
00:07:09.000A hundred years ago, it was the opposite.
00:07:11.000The impulse of the government was to do absolutely nothing.
00:07:16.000That approach seemed to work in America right up until 1929 when you had the Great Depression.
00:07:22.000Now, a strength taken too far becomes a weakness.
00:07:25.000We had the Great Depression because we ended up in terms of You know, try to liquidate that cycle as that famous term went off the Treasury Secretary back then, which is that liquidate, liquidate, liquidate.
00:07:36.000And that became a pejorative term because it led to the Great Depression.
00:07:39.000But now we have Silicon Valley Bank at the other extreme, where one mid-sized bank of rich depositors is about to go bury up for mistakes they made.
00:07:47.000And the government feels compelled to intervene.
00:07:51.000And the fear is that if they don't intervene, you'll have another Great Depression.
00:07:54.000So that's the kind of like 180 degrees that we have come and the analogy I use in the book here that it's a bit like the same culture of pain management that for every small injury the people here want to administer some sort of an opiate like Oxycontin or something.
00:08:14.000So what happens is that you get hooked into having opiates and you have an opiate crisis.
00:08:19.000I think the economic system has now come to resemble something similar, which is that every time
00:08:23.000there is even the slightest pain, we want to administer government stimulus
00:08:38.000In the book, as I detail, the single most serious consequence of this has already played itself out, which is the fact that productivity growth in America has fallen from 2.5% or so, which we averaged for a very long period of time, to now barely 1%.
00:08:53.000So productivity growth in America, and much of the Western world for that matter, has collapsed in the last three or four decades.
00:09:02.000As we have destroyed the creative, destructive fiber of this economy.
00:09:08.000That is so deep, and we see a deeper societal illness that manifests economically, where we don't want any sort of pain, any sort of difficulty, so we must turn on the money machine almost immediately.
00:09:22.000The book is very smart for the entire hour.
00:09:25.000It is What Went Wrong with Capitalism by Ruchir Charma.
00:09:30.000And you mentioned that capitalism was ruined.
00:09:34.000Yeah, so as I said that in terms of that, you know, we tend to look at just government spending as a share of GDP as an example of the expanding role of government, you know, and that's expanded significantly from 3% of GDP in the 1920s, right up to nearly 40% of GDP now, massive expansion.
00:09:51.000In the book, I speak about how capitalism has seen now a culture of bailouts which never existed before, the number of regulations being instituted by government every year, the micromanagement of the business cycle, the mission creep of the US Federal Reserve.
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00:11:22.000Yes, so as I was saying, Charlie, that if you look at the culture of, like in America, and I add the analogy to the pain management one, Which is that every decade, if you look at it, the role of the government has increased.
00:11:34.000So one very important aspect I'm going to speak about here is this culture of bailouts.
00:11:38.000One thing which, frankly, even for me was surprising as I was researching for this book, was that America never believed in bailouts.
00:11:46.000That right up until the 1970s, if some company got into trouble, or even if some New York state or city got into trouble, the sort of Attitude of policymakers was fine, figure it out on your own, this is America, we don't bail out especially private sector companies out here.
00:12:05.000And there were a couple of bailouts tried in the 1970s and there was a lot of pushback from Washington on bailing out private sector companies.
00:12:12.000And then in 1984 you had the first big bailout really of a financial institution here which was Continental Illinois.
00:12:20.000And that started, I think, this culture of bailouts.
00:12:23.000After that, it's got bigger and bigger.
00:12:24.000Then you had the savings and loans crisis.
00:12:36.000And then, as we sort of said, that even something like SVB, the government feels compelled to bailout.
00:12:42.000So we have gone from one extreme to another with no culture at all of bailouts
00:12:47.000to now the culture where we've got to bail out every company at the slightest hint of trouble.
00:12:52.000And the precedent that sets is very dangerous because then the average American feels
00:12:57.000if that rich company or that big cat is getting bailed out, Why am I not getting more assistance?
00:13:05.000Why am I getting laid off or why are my wages not rising so sharply?
00:13:09.000Why is the government spending billions in that explicitly or implicitly?
00:13:13.000So that leads to this sense of unfairness and also this culture of bailouts has led to a lot of deadwood being kept alive in the economy.
00:13:22.000One of the aspects I get into the book is the zombification of capitalism, which is that the number of zombie companies in America today is very large.
00:13:31.000It's a company that for three years in a row has not earned enough money to even cover its interest payments or service its debt.
00:13:39.000So it's forced to keep going back to the market to raise capital and so the number of zombie companies in America barely existed again in the 1980s.
00:13:48.000Today by some measures 20% of all companies in America listed are
00:13:56.000classified as zombie companies. Now this is a term that became popular in Japan in the 1990s. The
00:14:02.000American media including the New York Times and all were sort of lamented saying that Japan does it but
00:14:08.000no in America we don't do this kind of stuff and here we are today with nearly 20% of American
00:14:13.000companies that can be classified as zombie companies. So these are the consequences of this
00:14:19.000bailout culture and of protracted policies which are of easy money that the Fed pursued that we have
00:14:25.000so much dead wood floating in the system Yeah, and so, is it too harsh to say that you cannot have it both ways?
00:14:32.000You cannot have a prosperous, capitalistic society or framework without allowing companies to fail and allow companies to have to go through difficult periods.
00:15:11.000So that's really what it comes down to, which is the fact that if we want capitalism, then we have to allow risk to be taken.
00:15:18.000Because by not doing so, we have to also understand what the adverse consequences are.
00:15:21.000That's what I try and say in the book, that a lot of people, You know, speak about the debt and deficits and the crisis hasn't come about despite all the fair mongering about debt and deficits.
00:15:31.000And I say, yeah, that's one aspect of it.
00:15:33.000But what about the decline in productivity that's taken place?
00:15:36.000What about this feeling where most Americans think that the system is rigged and the system needs to be torn down and they're not happy with the economic direction in which the country is moving?
00:15:46.000So I think we have to recognize that the average American is not happy with the system.
00:15:51.000That's what's feeding also this anti-establishment Hey everybody, Charlie Kirk here.
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00:17:11.000Was that just a coincidence or were they put there intentionally?
00:17:14.000Well, I think they were put there intentionally because, as I said, that the book starts all the way, you know, with the battles between Hamilton and Jefferson and stuff.
00:17:23.000But really, it's a history of capitalism over the last hundred years.
00:17:28.000And I think that these are four very significant figures over the last hundred years.
00:17:36.000Like about FDR, I think that everybody would agree that he obviously started the expansion of the state in a pretty significant way.
00:17:42.000Nixon also did a lot to intervene in the economy.
00:17:46.000And Biden, of course, has completely taken it to a different level in terms of the expansion of the government under him.
00:17:54.000I guess the more provocative figure, like there is Reagan.
00:17:58.000And why I chose Reagan was because of the fact that I grew up as a big fan of Reagan because I thought that he gave America much more economic freedom and brought them back from the brink in the 1970s when the economy was engulfed in taxation.
00:18:15.000But a closer examination of Reagan's track record really suggests that he did not slow down the increase or expansion in government.
00:18:24.000He changed the way it was financed, which is that Before the 1980s, America would rarely run a budget deficit.
00:18:33.000After that, Reagan did cut taxes, fair enough.
00:18:37.000But then, he did not do anything to restrain government spending that kept on going up under his watch as a share of the economy.
00:18:44.000And eventually, even some taxes went up when he was in power.
00:18:48.000And even the regulatory state kept on increasing.
00:18:51.000So a closer examination of Reagan's track record Suggests that he was not somebody who brought in any revolution in small government as the people today like to portray him as, but really someone who was very much part of this expansion of government that has carried on on a relentless basis over the past century.
00:19:15.000So I want to talk about the role of the central bank, because we've been talking mostly on the fiscal side, but I want to talk on the monetary side.
00:19:25.000What role in your book do you give the central bank in ending American capitalism, or at least ruining it or destroying it?
00:19:36.000I think that's played a very significant role, but it's very much part of the holistic picture, as I said, about pain management.
00:19:42.000So if you look at the role of the central bank, there are two or three things worth pointing out.
00:19:46.000One, again, very significant event that took place was back in 1987.
00:19:52.000We had the big stock market crash in October of 1987.
00:19:56.000And then a Reagan appointee, in fact, Alan Greenspan, Cut interest rates to try and rescue the stock market.
00:20:03.000That was a very significant move there because it really sort of meant that the central bank was telling you that on the way up, you can go out and party and make as much money as you want.
00:20:14.000On the way down, if the market crashes, we'll be there to rescue you.
00:20:19.000And the term which became very popular, if you may recall from that era, was the Greenspan put.
00:20:24.000This idea that That he or the Fed would always be there to protect the downside.
00:20:31.000And on the upside, they'd make some noises about irrational exuberance.
00:20:35.000But on the upside, the entire focus was that we have no idea whether this is a bubble or when to intervene on the upside.
00:20:42.000So we restrict our intervention to the downside.
00:20:47.000It led to this perverse outcome where for the markets it became very much almost a one-way street and risk was socialized.
00:20:57.000And after that we've seen the expansion take place much more dramatically.
00:21:01.000Most controversially was the actions during the global financial crisis where the Fed intervened heavily in the markets.
00:21:08.000It did something called quantitative easing.
00:21:10.000But to me, Even if that was justified, because even in the midst of a crisis, what was far more troubling, and I've documented that in the book in detail, was what it did in the 2010s.
00:21:21.000That long after the crisis was over, the central bank kept on buying assets, kept on driving financial markets higher.
00:21:29.000And it did so by explicitly saying that it wanted financial markets and asset prices to go higher because there would be a wealth effect felt in the entire economy.
00:21:38.000Unfortunately, that wealth really concentrated in the hands of just a few people,
00:21:43.000particularly like the billionaires and the people at the top.
00:21:46.000And once again, it led to this feeling of inequality feeding through the entire economy.
00:21:53.000So the role of the central bank too, has expanded significantly from not just managing
00:21:59.000in terms of consumer price inflation, but in terms of how it interacts with financial markets,
00:22:05.000its mission creep, and that its involvement runs very deep.
00:22:09.000There are some arcane sections of the market, like what happened to the repo market in 2019,
00:22:17.000which a lot of academics have written about.
00:22:18.000Once again, the Fed's hand was all over it.
00:22:21.000And obviously in the pandemic, the Fed was incredibly involved
00:22:25.000to the extent it was buying corporate paper of AAA credit, such as even Berkshire Hathaway
00:23:15.000And what it does, unfortunately, it creates people who blame capitalism for their financial uncertainty and difficulty when you're arguing it's not actually capitalism at all, which is totally correct.
00:23:30.000And so, if you were to put forward a policy agenda to go about solving this, what would that look like?
00:23:38.000Well, first again, as I say in the book, the first step to a cure is to diagnose the problem correctly.
00:23:43.000So by laying out this history, backed by data, backed by these anecdotes that I've cited in the book, the first thing is to bust the myth that the Biden administration and other people have put out there that we're in an era of small, or we had been in an era of small government, and here we are to change that and to increase the role of government to fix all your problems.
00:24:06.000And so the first thing is, let's bust that myth.
00:24:09.000We have never had an era of small government The government has been expanding as a continuous march over the last hundred years or so, and that has accelerated only in the last three to four decades.
00:24:22.000So there is no case for a bigger government when the problems have already been caused by too much government.
00:24:28.000And if you look across the pond in Europe, we find that the problems are even more severe there because capitalism and state interference have far more distorted capitalism out there.
00:24:40.000So that's the first point to understand.
00:24:43.000But as far as some of the fixes are concerned, I fear, Charlie, that unless and until we have a physical crisis where the government literally runs out of money to do any of this, or its credibility is such where it's not able to guarantee and do these kind of bailouts, the government will just keep on doing what it's been doing.
00:25:03.000If it has to stop somewhere, I'd say one of the most important things, and this is where I hope that someone like President Trump pays more attention to, is the Regulatory state.
00:25:14.000Even he came to power promising that we have to change the regulatory burden and for every regulation we introduce, we will withdraw two.
00:25:24.000Instead, by the end of his term, the number of regulations that were introduced were as many as the Obama administration had done.
00:25:32.000So I'd say that that's something which I wish he would sort of deal with in a more disciplined way, that we need to reduce the regulatory burden in this country.
00:25:45.000You know, I stumbled upon again some very interesting research as part of my book, which I put in there, that as per some research, the average worker spends 16% of his or her time dealing with Legal compliance courses, attestations, or other sort of courses at work which are merely complying with regulatory requirements.
00:26:11.000Can you believe that 16% of the time that an average worker spends goes in that?
00:26:16.000That is enormous and that's such dead weight for the economy.
00:26:19.000by some estimates that's cutting productivity growth by half for the average worker
00:26:24.000when they're spending 16% of their time just doing these kinds of courses, which are such a burden.
00:26:31.000So I think that one big fix that the American economy needs is to dial back this regulatory state
00:26:38.000with 3000 new regulations being introduced every year over the last 20 years.
00:26:43.000And the total number of regulations that have been withdrawn
00:27:03.000...is the administrative state has become a law-making body.
00:27:06.000When it was never supposed... I mean, never supposed to be that way.
00:27:08.000The administrative state shouldn't exist in its current form at all.
00:27:10.000The process of which federal regulations are drafted and then put into effect is unconstitutional and it is... it is very... it is at odds with free market capitalism.
00:27:23.000The Chevron deference decision is something that we got to keep our eyes on.
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00:28:36.000So Ruchira, I want to ask you, do you have hope that American capitalism can be saved?
00:28:43.000I remain very optimistic on the long-term prospects of America just because it's still the country which everyone wants to come to, right?
00:28:51.000As that old sort of slogan that I used to remember, when people used to protest against American occupation anywhere abroad, they used to say, Yankee, go home, but take me home with you.
00:29:02.000So I still feel that that is something which is there.
00:29:06.000But having said that, I am very concerned about what's going on today and very concerned about the way that the state just keeps on expanding and what it has done to undermine The American brand of capitalism and how the average worker is feeling so disaffected in America today.
00:29:39.000Why do only 35% of Americans today feel that they're gonna be better off than their parents
00:29:45.000compared to the original concept of the American dream, when 70 to 80% of Americans felt
00:29:51.000that they'd be better off than their parents.
00:29:53.000So I'd say that we need to get the balance back.
00:29:56.000Now, while there may be no going back to 19th century-type laissez-faire capitalism, but we need to get the balance back.
00:30:03.000And the balance back needs to start with the retreat of the regulatory state, drawing the line on bailouts, caring more about asset price inflation, such as the increase in property prices, and also not running these debt and deficits until we hit the Day of Reckoning.
00:30:23.000If we continue to borrow money at the current trajectory, it is remarkable.
00:30:28.000I want to just follow up on one thing.
00:30:30.000Did you say American productivity is going down?
00:31:06.000So which is that you have technological progress, you know.
00:31:09.000So the way to frame the question is that despite this incredible technological progress, including the internet in the late 1990s, now AI, why is productivity growth not Picking up, why is it going down?
00:31:22.000Now remember, the very good comparison is here, that in Europe, productivity growth is even lower than that of America.
00:31:29.000That's because Europe doesn't have the technological prowess that America has.
00:31:33.000So yes, the technology we have is helping us at the margin, but it is not being able to offset the drag coming from increased government intervention and the role of the state, which is corroding capitalism as a whole.
00:31:46.000So I think that the whole picture needs to be looked at, that these are different moving parts.
00:31:51.000If you were to say, in the last 50 years, in the post-World War II era, where American capitalism was most alive and was at its healthiest place, when would that be?
00:32:02.000No, I think it's been a steady deterioration.
00:32:04.000So that's my point, that there's been no point in time.
00:32:07.000I think it's been a steady deterioration that's taken place now.
00:32:10.000under place, you know, like I'd say in the 1980s and 1990s, we did see some, you know,
00:32:16.000like in terms of restraint under Reagan, we saw some spending restraint and the only time
00:32:23.000we've run budget surpluses was in the late 1990s. You know, when the last 50 years,
00:32:29.000there have only been four years in which America has run a budget surplus.
00:32:33.000Before that, in the previous 200 years, America almost always ran a budget surplus.
00:32:38.000So I'd say that I can point to those eras which were relatively better, but this is a constant march of the state which has undermined capitalism over time.
00:32:47.000In fact, I have a whole chapter On where capitalism, I think, is still working well.
00:32:52.000And my Exhibit A there is Switzerland.
00:32:55.000It's among the top 20 economies in the world.
00:32:58.000It is the richest country in the world today by per capita income terms.
00:33:02.000It ranks amongst the highest in the world in terms of economic freedom and also the fact That it's government as a share of its economy is smaller than that of the United States.
00:33:14.000So it's possible to have this trifecta of being one of the happiest countries in the world, one of the richest countries in the world, and yet having a state that is well managed and efficient And small rather than something which is overburdened.
00:33:30.000So I'd say that those examples are great.