146 – Michael Strain on the Current State of the Economy, the Green New Deal, and Populism on the Left and Right

Episode Summary

Executive Summary: Michael Strain argues that the U.S. economy is fundamentally healthy in the near term—jobs, wages, incomes, and prices look solid—but faces slower-burning challenges from demographics, weak productivity, globalization, and social fragmentation. He is optimistic about technological progress, but sharply critical of populist policy responses like MMT, steep wealth taxes, and the Green New Deal, which he sees as economically distortive and politically dangerous.

Main Topics: Current U.S. economic health (Priority: 5/5): Strain says the economy is in good shape on basic indicators: incomes and wages are rising, jobs are available, inequality is flat or slightly down, and prices are stable. He distinguishes these near-term strengths from deeper, slower-moving structural issues. Long-run headwinds: demographics, productivity, and labor force growth (Priority: 5/5): He highlights declining fertility, retirements, low labor force growth, and weak productivity as the main constraints on future growth. Immigration—especially high-skilled immigration—is presented as an important offset. Populism and the political aftermath of the Great Recession (Priority: 5/5): Strain links Trump-era and left-populist politics to the anxiety created by the financial crisis and slow recovery. He cites his research suggesting economic shocks hardened social attitudes in distressed regions. Critique of the Green New Deal and policy extremism (Priority: 4/5): He argues the Green New Deal exemplifies a broader shift away from incremental policy toward maximalist, ideological proposals, comparing it with changes in minimum wage, healthcare, and immigration debates. Rejection of Modern Monetary Theory (MMT) (Priority: 5/5): Strain dismisses MMT as impractical and politically unworkable, arguing fiscal authorities cannot reliably time taxes/spending to control inflation and warning that its logic could legitimize reckless spending. Taxation of the rich: marginal rates and wealth taxes (Priority: 5/5): He opposes very high marginal income tax rates and wealth taxes, arguing they reduce work, saving, investment, entrepreneurship, and compliance feasibility, while also raising normative concerns about punitive taxation. Buybacks, corporate taxes, and capital allocation (Priority: 4/5): Strain defends stock buybacks as an efficient way to return capital when firms lack productive investment opportunities, saying the cash is reinvested elsewhere rather than being 'sitting in a vault.'

Key Arguments: The U.S. is not in broad decline: core labor-market and inflation indicators are strong, and living standards are far higher than in past decades. The real risks are long-run and structural—aging, falling fertility, weak productivity, and social dislocation—not immediate recession-like weakness. High-skilled immigration should be expanded to help offset demographic drag and support growth. Populism on both the right and left is partly a reaction to the Great Recession and the political anxiety it produced. Economic shocks can harden preexisting social attitudes, especially in areas exposed to Chinese import competition. MMT is analytically confusing, operationally unworkable, and dangerous as a political justification for open-ended spending. A 70% top marginal tax rate and wealth taxes would distort behavior, reduce savings/investment, and create major enforcement problems. Tax policy should raise revenue efficiently and fairly, not punish disfavored groups such as billionaires. Buybacks are not inherently harmful; when firms have no good projects, returning capital to shareholders is better than inefficient overinvestment. Capital returned to shareholders is not idle—it is redeployed through markets to other productive uses.

Data Points: Top marginal income tax rate proposal: 70% - Discussed as a proposed rate on very high incomes, which Strain opposes Income threshold for 70% rate: $10 million+ - Initial threshold mentioned for the proposed top marginal rate Alternative threshold discussed: $400,000 - Strain said concerns become much greater if the 70% rate started this low Wealth tax rate: 2% - Proposed rate on net worth above $50 million in Elizabeth Warren’s plan Wealth tax rate on billionaires: 3% - Proposed rate on net worth above $1 billion Wealth tax threshold: $50 million - Starting point for the proposed wealth tax Wealth tax threshold for higher rate: $1 billion - Threshold for the 3% rate Corporate tax / returns example: 5% annual return - Used to explain why a 3% wealth tax can imply a much larger tax on capital income Equivalent capital income tax: 60% - Approximate effective tax rate Strain derived from a 3% wealth tax on a 5% return Federal minimum wage comparison: $7.25 to $9.00 per hour - Obama-era proposal contrasted with more recent $15/hour politics Later minimum wage discussion: $10.10 per hour - Obama’s eventual increase from the original proposal Potential political promise examples: $2,000 per kid per year - Cited as one of the expansive proposals enabled rhetorically by MMT-like thinking Green New Deal comparison: $15 per hour - Used as an example of the growing ambition of policy proposals CB0 debt-interest projection horizon: Next 10 years - Strain cited the CBO horizon when discussing debt service pressures Federal spending comparison: Interest payments projected to exceed military spending - CBO projection used to illustrate the political importance of deficits and debt Historical recession reference: Great Recession - Central shock Strain links to populism and hardened social attitudes Historical pattern in study: 1870 to 2014 - Referenced study on extreme politics after financial crises

Pivotal Quotes: "the socially optimal amount of pollution in the United States is no pollution? Every little hand went up... Well, then none of you think that the optimal amount of pollution is zero." — Michael Strain: Describing the college economics lecture that first got him interested in marginal reasoning "That just doesn't seem like it would work." — Michael Strain: His core objection to MMT’s claim that Congress can time taxes and deficits to manage inflation "we should be empowering people of lower income. You want to empower the working poor. You want to empower the working class." — Michael Strain: His normative case against punishing the rich through punitive taxes or wealth taxes

Implications: Listeners should expect continued policy polarization around debt, taxes, climate, and inequality. Strain’s view implies durable growth depends more on productivity, innovation, and labor-force expansion than on redistribution or debt-financed programs.