James Robinson on What It Looks Like When a State is Failing

Introducing James Robinson

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1:46Bloomberg Audio Studios. Podcasts. Radio. News. Hello and welcome to a very special episode of the Odd Lots podcast taped live in Chicago. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, there's a lot to talk about when it comes to institutional failures. Yeah, absolutely true.

2:17You know, there's a lot of people, they talk about geopolitics a lot. And of course, there's multiple wars going on. But I also think that if you're in the markets these days, just thinking about the economy, you actually just have to talk about politics, politics. You really do. And so I'm very happy to say that we have the perfect guest, someone who's actually never been on the show before. That's right. But I think a lot of listeners will have heard of him because not only is he a Nobel Prize winner, he is also the author of a very famous book that you and I have probably read a couple times now called Why Nations Fail. So we're going to be speaking with James Robinson.

2:50He is, of course, a professor at the University of Chicago. Hope you enjoy the conversation. Well, Professor Robinson, thank you so much for joining us. Really appreciate it. My pleasure. Why do nations fail? No. Okay, let me ask the other obvious question right now. I'm just going to get into it. Is the U.S. a failing nation? Oh. How long do we have? I know. Okay, good. Not yet. Not yet. Yeah. Wait, I have one more random question.

3:21Do you call yourself a Nobel Prize winner or do you say, like, you're a Nobel Prize winner, right? I think it's a real Nobel Prize. Well, you know, there's some debate about that. I know. Because Alfred Nobel didn't actually specify a prize for economics. You know, and it came later on. Yeah. So, you know. It's a Nobel Prize. You're a Nobel Prize winner. I think you should just go for it. Yeah. I've got the badge. Oh, there you go.

Inclusive and Extractive Institutions

3:49All right.

Inclusive and Extractive Institutions

3:50The U.S. is not a failed state, or failed nation. Is it failing? No, I mean, you know, by failure, you know, we're really talking about economic failure, economic success. Failure is a big word. It covers lots of things. So, you know, my work is really about economics and about how societies who succeed economically do so because they create institutions, sets of institutions, kind of rules that channel people's energy, you know, in directions which are socially beneficial.

4:23You know, innovation, entrepreneurship, creativity, you know, but those energies can be channeled in many different ways. And I think what you see in the United States historically is you've had very, what we call inclusive institutions, you know, institutions, rules that have created very broad-based patterns of incentives and opportunities, economic success, you know. And poor countries, like Venezuela, say, went into decline because they created the opposite, which we call extractive institutions.

4:57So institutions that don't create broad-based opportunities or incentives. They create incentives of very narrow cliques, the chavistas, you know, and most people are just excluded from opportunities. So I think the history of the U.S., you know, has been a remarkable success story. But I think, you know, as we point out in our work, in any society, there's always challenges to inclusive institutions. You know, some people were doing very well in Venezuela out of that system. So I think, you know, there's always challenges.

5:29And there's been a history of challenges in the United States, by the way. You know, it's not a simple, you know, good guy, bad guy story. But the thrust of your work, if I understand it, is that typically in economics, when we talk about what's good economic policy, it's like, well, maybe we should have an independent central bank. Maybe we should have a tax system that doesn't penalize productivity, et cetera. And all that may be true, but all of this is downstream essentially from politics, right?

5:59Is this the idea that, like, there is no way to just, like, set up, write down a list of good economic policies if the institutions and politics aren't there in the first place to be conducive to it? Yes, absolutely. Great. That's right. I mean, I think all that, you know, that stuff about economic policy and economic institutions are all important. But the politics has to support that. Absolutely. Yeah. How did you actually develop that approach? Because when we think about economics, I mean, we often think of traditional economics as a model that says if X happens, then Y is the result.

6:35It's all very formulaic versus your approach that really emphasizes, I guess, the politics, the institutional strength. And you also emphasize, I guess, critical junctures in history where things could have gone either way.

The Importance of Politics

6:47I think, you know, it's really I was trained as an economic theorist, you know, and when I finished my PhD in 1992, I just I had this kind of epiphany. And I realized I just I was very interested in these problems, particularly of developing countries. And I realized I just didn't understand anything. And the first place I sort of so I just needed to start immersing myself in some sense. And the first place I did that actually was in Colombia, interestingly enough. And when I got to Colombia, I realized I have no way of understanding what's going on here.

7:22And I just had to kind of back up and start asking myself, why do things happen the way they do? And then then the politics just looms incredibly large. I think about Venezuela. How can you understand the economic trajectory of Venezuela or all those mistakes without understanding the politics of Chavez and Chavismo or even before that? You know, so. Yes. So all of this makes a lot of sense. And I find it very intuitive. But I also have an issue with, I guess I would say there's maybe a certain non-disprovability issue that I think about, which is that you say, okay, here's a rich country like Britain and the U.S.

8:00They say they must have good institutions. And then here are some countries that are poor, Venezuela, et cetera, Argentina. Yeah. And you say, oh, they have bad institutions. But if we're only looking at the outcome, how do you actually establish sort of, I guess, a priori, that that is the actual thing? Let's say you didn't know anything about the economy. You were looking at something about a country, but you were not given privy to GDP growth, anything like that. Are there other ways to know whether that country has good or bad institutions?

8:31I mean, you know, what we got the Nobel Prize for, me and my collaborators, was sort of trying, sort of establishing empirically this connection between institutions and economic development. But, you know, that's a hard question to ask. You know, you could look at life expectancy. You can look at infant mortality. You know, I think when you look at most failing countries, failing economically, yeah, they do badly in terms of income per capita, but they do badly in terms of most socioeconomic outcomes also.

9:02You can even look at nightlight. You know, the most famous photograph we have in our book is the Korean Peninsula at night. It's getting brighter, the North Korean Peninsula. It's getting a little brighter.

9:14Maybe the presidential palace in Pyongyang. You know, there's a wave pool. You need, you know, you need to, you know. You've mentioned Venezuela a couple of times.

Colonial Origins in the Americas

9:23Can you just apply your framework for us to Venezuela under, I guess, Chavez and Maduro and then Rodriguez now? Well, I think, you know, that comes into path dependence, as you mentioned. Like, I think, you know, if you look at the history of the Americas, if you look at this economic divergence between North America and Latin America, you know, that's very deeply rooted in history. It's rooted in the way very different types of societies got created in the colonial period. You know, in Latin America, you see societies based on coercion of indigenous people, on slavery, you know, and that created hierarchy.

10:00You know, it created very extractive institutions. And that led to poverty. And, you know, I think, you know, if you look at the United States, of course, that's a complicated picture. The U.S. South had what we would call extractive institutions. Yeah. But for us, you know, and, of course, the South until very recently was poorer than the rest of the country. It was less urbanized. There was less industry. But, you know, the key thing is that when the U.S. institutional framework got kind of definitively set up, you know, with the Constitution, it's really the, you know, it's the North that somehow really created that, you know.

10:35So there were compromises. Actually, can you explain? This is a little bit of history because when they landed in the U.S., they were hoping to replicate the extraction of South America. It didn't work the same way. Why? Yeah, I mean, that's a fascinating story that with the Jamestown Colony, the origin of the Jamestown Colony, you know, the colonists came with a model of how you colonize the New World, which is actually completely based on the Spanish conquest of Latin America. It's just that you couldn't – there were no indigenous people to exploit in Virginia.

11:06And, you know, there's a whole sort of farcical early history where the English settlers tried to, you know, try to set up a model exploiting indigenous people. And, you know, in the meantime, they didn't bother planting any crops, and two-thirds of them starved to death because their model was we don't work. You know, we exploit the indigenous people. And when that model crashed and burned, then they had to kind of experiment with other types of models, including let's get – we need to get British people to come here. So how do you get them to come? Then they created a much more inclusive set of political and economic institutions because they realized, you know – of course, this was before the slave economy takes off.

11:44They realized that, you know, to have a viable economy here, we need to get people to come. And so then there's this institutional transition, you know, and Virginia creates this legislative assembly with universal male suffrage, which is a sort of unprecedented innovation. There are some market stories where you want every detail.

12:17Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets – fast. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

12:40This is the Bloomberg Tech Minute brought to you by ChachiPT. Now with ChachiPT Work, I'm Carol Masser. Just when it seemed American car buyers had left electric vehicles for dead, there are new signs of life in that corner of the auto market. Bloomberg's Kara Carlson and Gabby Coppola report that Tesla and Rivian each posted better-than-expected EV sales for the third quarter. Executives at Hyundai and Ford say dealers are asking for more battery-powered inventory to sell as customers come back. Even some lower-volume models from Toyota and GM's Cadillac brand are gaining momentum.

13:13Dealers have also sold through much of that excess inventory, going from about a 180-day supply of EVs in early 2026 to 78 days' worth in August, roughly in line with industry stocks of vehicles with combustion engines. It all points to EV demand that's beginning to stabilize after last year's boom and bust tied to the cancellation of generous U.S. tax credits for EV buyers. EV sales have stabilized at close to 6% of the U.S. market this year, according to researcher Cox Automotive. To be sure, many automakers continue to report weak year-over-year EV sales, and a demand boom for new EVs has not materialized.

13:50Instead, shoppers are snapping up gas-electric hybrids, as well as used EVs, which can be had for prices similar to their conventional counterparts. That's the Bloomberg Tech Minute, brought to you by ChachiPT. Get started at chachipt.com slash work. Available with all paid ChachiPT plans.

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14:43Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. Fees may apply to Chase Business Complete Checking Accounts. The $500 offer is available for new business checking accounts with qualifying activities through 1-21-2027. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A. Member FDIC. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working.

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Venezuela and Political Transitions

16:01Just going back to Venezuela. So with Rodriguez now, like how would you, is that system still an extractive system? Absolutely. Yes. Say more. And we're not doing anything about it. And we should be. Yeah. Well, this relationship that now U.S. and Venezuela have or Marco Rubio and Rodriguez have, what is, is there an interesting parallel in history? Is this an unusual relationship? Like, I, I think it's not so unusual.

16:32Okay. You know, I mean, I think if you look at the history of U.S. relations with Latin America, you see similar things, you know, you know, U.S. in the past occupied Haiti and, you know, Hispaniola and, you know, so, so there's the United Fruit Company. It's not ridiculously anomalous. No. This is going to be a devil's advocate question. I just want to make that very clear before I say it. But is there a path where accountability to the U.S. for Venezuela could lead to more domestic democratic accountability?

17:09In, in, in Venezuela? Yeah. You know, I, you know, I, I think it's very difficult for, for any outside power to sort out these problems, you know, in some sense. Like, what my research shows is that, you know, countries that make a transition from more extractive to more inclusive institutions, they do it because they find a way themselves or they sort it out themselves. You know, like Chile, you know, like Chile, for example. So, you know, Chile is by far the most successful economy in Latin America. It has the best functioning institutions.

17:39That was the Chileans that did that, you know. So I don't think the U.S. can really solve that problem in Venezuela. You know, I think they could probably not exacerbate it. But, but, but, but, but I don't, I'm not sure that they're able to solve that, that problem. And I think it's an interesting question. You know, so I wouldn't say, you know, I wouldn't say Latin America is the way it is because of the way the United States. Sometimes it's interacted in a very dysfunctional way, but I don't think the United States is responsible for the problem. That's much more deeply rooted historically.

18:10You know, you have a very big fan these days. The new president of Syria, I believe, who used to be a jihadi not that long ago, is now, like, Mr., like, neoliberal, like, going and, like, speaking at, like, I don't know, like, the Atlantic Institute in Brookings. And he's like, I read Why Nations Fail and stuff like that. First of all, that's, what's that like?

18:39I'm waiting for the call. You know, he hasn't called me yet. Hey, this is, let's say he does call, he's like, I really like your book, but now I got to, like, put some of this institution building into practice. Is there a model for, like, okay, let's build some durable, inclusive institutions that he could reach for? Is there another country where it's like, you know what, follow their playbook? That worked. Yeah, I mean, I think that that's very complicated, you know, because I think, you know, what our research shows and, you know, the way we've approached this is, you know,

19:09if you want to compare all these different countries and today and historically, you need a sort of, you need a concept which is sort of flexible enough to cover a lot of details. You know, if I talk about inclusive and extractive institutions, of course, the details of those things are very different. But if you're in the business of actually advising Syria, which I'm not in this business of advising Syria or anywhere else, actually, you know, then all the details become – If he's listening, your phone line is open. I'm, like, you know, what I'm happy to do is, you know, people want to talk to me and they want to ask me questions about what I know and what models might be helpful for them.

19:47I'm happy to engage at that level. Okay. But, you know, to do anything useful for Syria, you'd have to understand the details of the politics and the institutions and the society, and, of course, I don't. Well, this kind of gets to one of the criticisms from your famous non-fans, which was Bill Gates. So Bill Gates wrote a book review of Why Nations Fail, and he kind of criticized you for explaining why strong institutions matter but not explaining how to actually get them.

20:17What's your response to that particular criticism? Well, you know, institutions are – you know, like, they're an outcome of a sort of political equilibrium, I would say, you know. So, you know, our research has been about trying to describe those equilibria and trying to describe sort of historically why some parts of the world got into the situation that they did. And, you know, and so changing them, like, that's something completely different, you know. Like, you know, so we tried to describe historically why societies changed and how they changed.

20:52But, you know, the idea that there'd just be some lever that you pull in Syria, that seems a bit kind of simplistic to me, you know. So I – you know, I – you know, he has a very simple view of the world, I suppose. You know, he sort of thinks – he thinks like an engineer, you know, but social systems are not like, you know – they're not like computer programs.

Institutional Trust in the US

21:15So we started off with, like, the very aggressive loaded question, is U.S. failing and, you know – And now we return to it. No, no, no – well, no, yes, kind of. We look at the United States these days, and people are certainly, like, you know, setting aside failing. There are institutions, like, people are worried about the future of an independent central bank. People are worried about, like, is our voting system going to be durable and so forth. Like, like, are there patterns of this?

21:47Does this look like anything familiar when you look across the country of, you know, across the landscape of failed nations? I mean, you know, I think there's lots of problems in this country, honestly. You know, for me, President Trump and all of that is – you know, he's a symptom of people's discontent. You know, if you look at data on people's trust in institutions in this country, it's absolutely horrifying. You know, so there are real problems here. A lot of people are very unhappy with what's been going on, you know, with their opportunities, with the societies.

22:18And in some sense, you know, you could think of this as a big failure of inclusion in this country. I mean, if you don't have a college degree, you know, which is the sort of narrow majority of people in this country, you know, your income is no higher than it was 50 years ago. It's absolutely astonishing. So that's a failure of inclusion. So there are problems with institutions, and they need to be addressed. And I think he's a symptom of there's problems, and we need to solve these problems, and we need to figure out how to solve them. I'm not sure that he actually has a solution. But, you know, in some sense, you have to recognize there's a problem to come up with a solution.

22:52And, you know, I don't think President Biden really sort of understood that, you know, and now we see it. And, of course, it's a bit nerve-wracking, you know, because part of this, you know, is a challenge to institutions, for sure. But then you could say, well, institutions aren't working, so let's figure out how to make them better. You mentioned inclusion just then, and part of your framework is this idea of if political power is broadly distributed or not. What if you get a system where everyone gets a vote, but their political choices are, like, ultimately determined by campaign finance and lobbying and who controls the media and the narrative that's being spinned?

23:34How does your framework apply to, I guess, what people would call democratic capture?

Democracy and Economic Capture

23:38Yeah, I mean, you know, I think, you know, so I've done a lot of research on this question of, you know, the impact of democracy on kind of public policy and economic growth. And, you know, what we find, I think the evidence is overwhelming that democracy is associated with better public policy, more inclusive public policy, more spending on education, and higher rates of economic growth, you know. But that's not to say, you know, that there's democracy varies enormously, you know. There's lots of different sorts of democracies, and some democracies have worked very imperfectly.

24:11They could be corrupt. They could be clientelistic. They could be captured. I, you know, and I, so I think, like, you know, I do tend to think that there are, those are issues, you know, like the enormous amount of money, you know, hundreds of millions of dollars that's thrown into these elections, you know, is a problem. You know, for me, like, the biggest problem with inequality is actually the way it spills over into the political system rather than, you know, just in terms of the economy. Do you think oligarch is a good word to describe?

24:42You know, a lot of people refer, they talk about Elon Musk and oligarchs. It's become like a thing in the discourse. Is that a useful term for when we look at the influence of money or extremely wealthy individuals who maybe are politically active, et cetera? Do you find the sort of oligarch framework to be illuminating? I'm not sure it is, you know, because, you know, the funny thing about Elon Musk is at the end of the day, you know, he's made all of that money through innovation, you know. And I think people admire that.

25:14You've got to admire the guy. You know, he's just so ambitious and driven, and he's producing stuff that people want. And that's distinct from what we would classically call, like, when we use the word oligarch. Yeah, I think, you know, when people start talking about oligarchs in Russia or oligarchs in, you know, Latin America or whatever it is, they think about people who've made their fortune by, you know, currying favor with the government or through monopolies and things like that. So it has this pejorative connotation that I'm not sure.

25:45I don't think it's good for society that Elon Musk can freely pour hundreds of millions of dollars into elections. But I think you have to recognize the way the wealth was made. Actually, now that we're talking about Elon Musk creating stuff and subsequent wealth, can you talk about, I guess, industrial capacity?

Industrial Policy and State Capacity

26:03So this is a big topic in the U.S. The U.S. wants to build up certain industries, certain strategic industries. We seem to be in competition with China for doing things like semiconductor fabs and that sort of thing. In your framework, how do you sort of clarify, I guess, a government that wants to build capacity in a good-faith economic, maybe, you know, democratic way so that the gains flow to everyone versus an autocratic or oligarchic state where the wealth accrues to a select few?

26:35Well, you know, I think there's good arguments for having, you know, various sorts of industrial policies, for instance. And, you know, you see, I mean, there's a lot of economists who say, oh, you know, we can't, you know, the United States can't do that. We can't build up all this industry. But actually, you know, the fact of the matter is, you know, if you look at a place like South Korea, South Korea created from scratch amazingly competitive industry, like shipbuilding industry. You know, Hyundai hadn't built a rowing boat, you know, in the late 1960s.

27:06And then it started, you know, so it went from nothing to create. So, you know, why couldn't the United States do that? Of course it could, actually. So, but in order to do it, you need to be immensely serious. You need to plan, you need to have strategy. I don't see that. How do you ensure that you don't do that in a corrupt way? So, for instance, you know, right now the U.S. government is taking a lot of stakes in different companies. I think it just announced yesterday it was taking 4% in global foundries.

27:37And that might be fine, but some people might also worry that maybe the process is corrupt in some way. Maybe we should better understand, like, which companies go up for a government contract bid and that sort of thing. How do you make sure it's fair? Institutions. Okay. Say more. Just say that it's institutions. Leave it at that. But which institutions? Which institutions should we most be worrying about, actually? That's a question I'm going to ask you. Yeah, I think accountability about, you know, that's really about the process through which this is done, how contracts are allocated.

28:13You know, that process. You know, I think in the Korean example, that, you know, that was not happening. When that started, you know, that was done under this sort of military government. You know, but it was a very different context. You know, it was a geopolitical context where there was this contest with North Korea. You know, it was, like, very pressing, you know, for the Korean military to do these things. But it was only sustained because that transition occurred in Korea in the 1980s towards much more democratic, accountable governance.

28:44Like, then you see economic growth is even faster. And, you know, I think that's – so, you know, I think one thing we point out in Why Nations Fail is all sorts of things can happen in a transitory way. You know, the Soviet Union even did well, you know, transitarily. Yeah. But you have to sustain it. Then the institutions become really important.

China and Extractive Growth

29:01Well, let's talk about China because they – obviously the economy has grown extraordinarily. You said, like, you know, generally speaking, democracy is good, but it's not always great and there are ways it could go wrong. Like, what – how would you describe the institutional preconditions such that China has seen such extraordinary growth over the last few decades? Well, you know, I think if I look at the economics, then, you know, China has flourished because it made this transition from extractive to inclusive institutions.

29:33You know, it's not the genius of the Communist Party that did that. But what are the inclusive – people would say, what – China has inclusive institutions? So, like, what are the inclusive institutions? I think there's two things to separate here. One is the economics and one is the politics. Okay. So the politics is sort of unreformed. You know, we would say that's extractive institutions. So the paradox is, you know, how you have that with inclusive institutions. I think, you know, the whole history of the Chinese transition from 1978 is the, you know, is the Communist Party kind of detaching itself from the economy to allow entrepreneurship, to allow business to start.

30:10And, you know, so how is that combination possible? And, you know, what our theory says is that, you know, there's many instances of that historically. You know, even the Soviet Union, for example, grew very rapidly for 50 years. You know, so we would say, you know, that's a sort of anomalous – it's a kind of – we call that extractive growth, you know. And it'll go off the rails, you know. And it'll go off the – I don't know how it will go off the rails. You're making a call here. Absolutely, yeah. So, you know, and I think the reason – the basic reason for that is obvious, which is power tends to corrupt and absolute power corrupts absolutely, you know.

30:45And you don't have to go very far back in Chinese history to see that.

30:52This is the Bloomberg Tech Minute brought to you by ChachiPT. Now, with ChachiPT Work, I'm Carol Masser. Just when it seemed American car buyers had left electric vehicles for dead, there are new signs of life in that corner of the auto market. Bloomberg's Kara Carlson and Gabby Coppola report that Tesla and Rivian each posted better-than-expected EV sales for the third quarter.

31:26Executives at Hyundai and Ford say dealers are asking for more battery-powered inventory to sell as customers come back. Even some lower-volume models from Toyota and GM's Cadillac brand are gaining momentum. Dealers have also sold through much of that excess inventory, going from about a 180-day supply of EVs in early 2026 to 78 days' worth in August, roughly in line with industry stocks of vehicles with combustion engines. It all points to EV demand that's beginning to stabilize after last year's boom and bust tied to the cancellation of generous U.S. tax credits for EV buyers.

32:00EV sales have stabilized at close to 6% of the U.S. market this year, according to researcher Cox Automotive. To be sure, many automakers continue to report weak year-over-year EV sales, and a demand boom for new EVs has not materialized. Instead, shoppers are snapping up gas-electric hybrids, as well as used EVs, which can be had for prices similar to their conventional counterparts. That's the Bloomberg Tech Minute, brought to you by ChachiPT. Get started at chachipt.com slash work. Available with all paid ChachiPT plans.

32:31Running a small business takes everything you've got, but with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, they provide products and guidance built to help you thrive. Right now, earn $500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires January 21st, 2027. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence.

33:07Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. Fees may apply to Chase Business Complete Checking accounts. The $500 offer is available for new business checking accounts with qualifying activities through 1-21-2027. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A., member FDIC. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working.

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35:05then you get this elite that basically stimmies creative destruction of industries. So you don't get as many, I guess, as much evolution in the economy as you would otherwise. And for that reason, in the book, you say that you think eventually China's growth is going to slow down. I mean, we're here in 2026. It's below 5% in the first half of 2026. But, like, you know, 4.6% or whatever is still pretty good. What would make you think that you were wrong in that creative destruction argument? Yeah, I mean, that's a good question.

35:40I mean, you know, I tend to think I'm wrong all the time. You know, I don't admit it in public. No one's listening to this. This is not being recorded. I mean, I think, you know, like, obviously, you know, China is culturally very different, you know, from Western societies. So I think, you know, an interesting line of thought is to say, you know, maybe there's just something culturally different about China, you know, about the history of the state. You know, there's no history of accountability, you know, in China.

36:11You go back 2,500 years, you know, you don't have anything like that. You know, there's a very different notion of state and society in China. So I think, you know, you could imagine that there's something anomalous culturally about this that keeps it going, you know. But I still think, you know, absolute power corrupts absolutely. It's going to go off the rails. It's just a matter of time. But, you know, it's like it's interesting, though, because, for example, a few years ago, they had the big crackdown on big tech companies.

36:42And, like, Jack Ma was, like, put in his place, et cetera. This, from the outside, and I'm very unreliable here because I consume a lot of Chinese propaganda on, like, Instagram and stuff. So I just think everything's going amazing there, you know. Just China, Maxie. This looks like a political system that's anti-capture, that's maybe avoiding capture more than a democratic institution. That the business, that you can get very rich in China, but you cannot, it's not easy for the successful businessmen to have much political influence.

37:16Yeah, yeah. And, you know, China does have these advantages, you know. Like, I mean, for example, this obsession with meritocracy in China. You know, I see that, you know, teaching Chinese students. You know, if you ask about where are they from, you know, you see this immense sort of social mobility in China. You can get ahead in China. Anyone can get ahead. And, you know, that's very cultural also. You know, that's been for 1,000, 2,000 years they've had this examination system getting on for, you know, where, you know, people got to the top and they worked for the, you know, the elite were meritocratically chosen.

37:51Now, the British elite, they're just a bunch of, like, demobilized warlords, you know. You know, the creative destruction thing reminds me, I wanted to ask you at least one AI question. Oh, yeah, yeah. Probably more than that. But so the creative destruction argument is that if you have, you know, elites, incumbents in power, they're going to block new things because they want to protect their own sources of wealth. In a place like the U.S., if a local community votes against a new data center, is that democratic empowerment or is that creative destruction?

38:30And how do you tell the difference between the two? Yeah, I mean, I think that's... Sorry, not creative destruction, blocking. Just destruction. No, I think economic destruction. I think that's, you know, that's... People are rightfully anxious about the consequences of AI for their jobs and their incomes and standard of living. You know, for me, the whole, you know, there's an interesting analogy between what's happening, I think, what's going to happen in the Industrial Revolution. You know, if you look at the Industrial Revolution, the mechanization... In Britain, for example, the mechanization of, you know, cotton spinning, weaving, you know, what was the impact of that on weavers' wages?

39:08They tanked by two-thirds. You know, their wages fell by two-thirds. You know, what was their reaction? The Luddites, you know, they got hammers and they tried to smash up the machinery, you know. And so isn't that what's happening now? And I think the analogy to falling wages is probably pretty apt also, you know. If you think about that fact that I was talking about earlier about what's happened to people without a college education, the evidence suggests that the biggest factor explaining that is the diffusion of computers, computers displacing relatively unskilled workers.

39:43So, you know, we're still trying to recover from that. And now we're faced with AI. Well, I'm sure, you know, speaking more of AI, you know, in the last several weeks, there's been, like, this sense of dread and despair that's come over the math community because of these breakthroughs and probably math professors at University of Chicago, some of your colleagues. Like, would you be surprised if we had something that truly resembled a big neo-Luddite movement in America or in the modern world? Yeah, I'd be surprised.

40:14I mean, I, well, aren't we still the same people, you know, like, have we changed? Yeah, I don't know. It's a good question. It's hard to know what it's going to accumulate into. I mean, I, you know, I think there's going to be, you know, science fiction aside, you know, there's going to be big improvements in productivity like there was in the Industrial Revolution. You know, it's how you spread the, how you spread that benefits to society that's going to be sort of critical.

40:42I don't know. That's a good question. Yeah. I read an interesting paper of yours in prepping for this, which is talking about the sort of, like, maybe it's like the economist obsession with stamping out market failure. So there are things that economists don't like. Like, they hate rent control. They hate, many of them think that, like, you've got to be really careful about, like, not setting minimum wages too high. Union power, like, maybe some of that, like, isn't optimal.

41:13But as you point out, like, these, maybe these are, like, the least worst outcomes. Can you talk a little bit about maybe some of the sort of monomaniacal obsession with economists of getting rid of these and how they can be costly?

Economics, Unions, and AI Research

41:26Yeah, I think the problem there is economists don't understand the politics of these things. Yeah, say more about that. You know, I mean, you know, there's an economic argument for having trade unions if you have monopsony power. You know, if employers have market power setting wages, trade unions can actually increase employment. But, you know, leaving that aside, I think if you look at, you know, think about Western European societies where trade unions have played important political roles, like in Scandinavia. They've been enormously important in creating and sustaining inclusive political institutions.

42:00So you can't think about the economics without thinking about the politics. I guess that's a lot of our research. So, like, you get rid of the union and maybe you get a brief uptick in GDP, but then a couple years later everyone is alienated and then it all falls apart. Well, I think that's part of the mess we're in now. You know, it's not just about the diffusion of computers, but also de-unionization, that, you know, the sort of elimination of unions in this country. That's also part of what's created this sort of alienation, it seems to me.

42:31We're going to have to insert the monopsony box into this episode. It's very an ongoing joke we have on the podcast. Whenever anyone says monopsony, we're supposed to have a sound effect. I don't know if we actually do it because I never listen to the post-edited versions. We can't listen to our own voices. It's too painful. I said that completely independently.

42:50Just in terms of interesting research, is there anything you're working on now using AI that would have been impossible before you could deploy large language models? Absolutely. Tell us why. Give us a preview. So one project we're working on is, so one of the things that we're sort of fascinated with at the moment is just trying to understand the role of kind of ideas in politics. You know, like, I mean, you know, economists and even political scientists tend to focus very much on sort of material interests.

43:24But I think ideas, like your notion of, like, how the world should be and what's a legitimate way to organize political authority, and that's very important, you know, we think. So what we're doing is basically using AI to sort of, you know, we've digitized enormous amounts of works of political philosophy, and we're using that to look at the impact of philosophical ideas on action in 17th century British politics.

43:54So you might say, 17th century British politics, why the heck are we doing that? Well, that's the era of Thomas Hobbes and John Locke and some of these immensely important works of political philosophy. So we're trying to understand how did those arguments affect the way people acted and argued and behaved. So that would have been impossible without AI. I'm really excited about this stuff. I think, like, the opportunity to sort of, like, use basically quantitative approaches on huge bodies of text and score them on various dimensions is, like, a very exciting aspect of AI.

44:29Yes. No, I agree. I mean, you know, I tend to think – I'm trying to think of AI as something that complements me and makes me more productive. And, you know, I hope that's generally true. All right. We have one minute left. Oh, gosh. Why do nations fail?

44:47Because they create extractive institutions. There's still a minute left. We didn't even – we don't minute. What should we be watching out for in terms of the U.S.? In terms of? The U.S. Yeah, what should we be looking out for? Well, I think we should look at how the election goes next month and how properly things are conducted. And also, I think we should look at whether people try to undermine the kind of, you know, the sort of – you know, undermine – I don't know what the right word is – the veracity of the election.

45:22I think what we've seen in this country in the last few years is enormous attempts to undermine, you know, elections. You know, there's very little evidence, for example, in this country that elections are improperly done or they're fiddled or they're fake or they're whatever. So I think this language attempting to convince people of that is very damaging to the institutions. Professor Robinson, thank you so much for coming to OddLots Live. It was fantastic. That was another episode of the OddLots Podcast, recorded live in Chicago.

46:05I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armand, Dashiell Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more OddLots content, go to Bloomberg.com slash OddLots for the daily newsletter and all of our episodes. And you can chat about all these topics 24-7 in our Discord, Discord.gg slash OddLots. And if you enjoyed this conversation, then please leave us a positive review on your favorite podcast platform.

46:37If you're watching the video, then please like or leave a comment, or better yet, subscribe. Thanks for watching and listening.

47:07We'll see you next time.

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