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Episode 362

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Published on:

10th Jan 2026

Ep 362 - Debunking the Institutional Theory of Economic Development with Erald Kolasi

** We’ll be discussing this episode on Tuesday, January 13th (8 pm ET/5 pm PT) in our online gathering, Macro ‘n Chill. We’ve invited Erald Kolasi to join us. So bring your questions. Register here: https://us06web.zoom.us/meeting/register/aYopZXEIQ9SPN9gQL2ajXQ

Steve welcomes back Erald Kolasi, physicist-economist, author, and friend of the podcast. Erald is here to do a demolition job on “institutional” development fables like Acemoglu & Robinson’s Why Nations Fail. He argues that by treating good institutions as the master key (inclusive vs. extractive) they smuggle in a liberal moral scoreboard while dodging the real motors of history: power, class struggle, imperial systems, and material constraints like energy, trade dependence, war, and ecological shocks.

To “steelman” Acemoglu and Robinson’s position, Erald uses their favorite showcase case – North vs. South Korea. He lays out their comparison of the “tyrannical dictatorship” vs the “open” society and presents their explanation for these differences.

Erald then flips the script: the DPRK outperformed for decades, then crashed not because its “institutions got worse,” but because the USSR collapsed. Cheap, subsidized energy disappeared, wrecking agriculture and triggering famine.

The pattern repeats across history. Using examples like China and Venezuela, the episode explores how wars, sanctions, resource access, and global power structures shape economic outcomes far more than abstract institutional rules. Development is a struggle rooted in material conditions and geopolitical realities, not a neutral competition between better or worse policy designs.

Erald Kolasi is a writer and researcher focusing on the nexus between energy, technology, economics, complex systems, and ecological dynamics. His book, The Physics of Capitalism, came out from Monthly Review Press in February 2025. He received his PhD in Physics from George Mason University in 2016. You can find out more about Erald and his work at his website, www.eraldkolasi.com.

Subscribe to his Substack: https://substack.com/@technodynamics



Transcript
Speaker:

STEVE GRUMBINE:

All right, folks, this is Steve with Macro N Cheese. Today's guest is a

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returning guest. He's my friend Erald Kolasi, who is a physicist and economist focusing

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on the nexus between energy, technology, economics, complex systems and ecological dynamics. His book,

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which we've covered here, The Physics of Capitalism, came out Monthly Review press back

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in February:

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om George Mason University in:

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of my favorite guests here on the program. And today we're going to take

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a trip in a unique direction. It's going to tie together with some things

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you've heard on this podcast in recent weeks. In particular, the concept of why

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things happen in one country differently than in another. We talked with Vijay Prashad

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and we talked about Antonio Gramsci and understanding why the Russian Revolution went the

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way it went versus the way that it went in Italy, why they chose

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fascism, et cetera. Well, this is going to be a little bit different because

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we're going to be debunking the institutional theory of economic development, which, by the

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way, you can find an article about this on Erald's Substack, which I strongly

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recommend, which is Erald Kolasi. So if you look him up on Substack, you'll

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find a treasure trove of phenomenal writing. I mean, just absolutely must read writing.

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That said, what he talked about in here was the essence of why one

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country has good economic outcomes and another does not. And he takes on the

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concept that if we just have good institutions, everything will go just swimmingly. Based

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on a book, a:

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A.] Robinson. And he takes on specifically some of the points that Daron Acemoglu

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brings up in the book. And with that, I will go ahead and kind

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of set the stage with a question. What is it about institutionalists, in particular,

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that reduce things down to these kind of hierarchical structures as the reason for

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the winnings and losings of various countries? And I want you all to think

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about this in the current lens- as we're watching what is happening around the

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world with China, as we're watching what's happening currently with the US with Venezuela,

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as we watch what happened in the Global South with Africa. And you frequently

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hear these kind of, "why is Africa failing? Why are they always behind?" And

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stuff like that. And I can't wait to get to the root of all

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these. And Erald is here to do that. Erald, welcome to the show, sir.

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ERALD KOLASI:

Hey, Steve, thank you for having me back. I'm so glad to be here.

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STEVE GRUMBINE:

Absolutely. So this substack, this post, it's long, folks, it's not short. So break

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out your reading glasses, get comfortable and read it because it's worth your time.

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I promise you we wouldn't be talking about it here. My goal is to

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make this stuff interesting and also to provide you with the ability to put

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your feet up, get the fireplace going, and listen and contemplate these important subjects.

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And I think that you'll enjoy this. So, Erald, help me understand.

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ERALD KOLASI:

Yeah, absolutely. So, you know, there's a really broad intellectual effort out there, and it's

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been going on for a long time now, to explain why history took so many

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meandering twists and turns for different nations, right? Why are some countries rich while others

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are poor? Why are some countries strong while others are weak? Why did Europe end

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up colonizing the Americas instead of the opposite happening, right, and the Americas colonizing Europe?

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And so there's a long intellectual tradition and different people writing about this stuff. There's

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people like [Jared] Diamond in Guns, Germs and Steel, and there's cultural explanations. So, you

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know, Jared Diamond would argue, you know, a lot of the big changes that you

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see in history and a lot of the fundamental outcomes that you see over time,

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they come down to essentially geographical and ecological dynamics, right? So the distribution of flora

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and fauna, the orientation of the continents, rainfall patterns and soil quality and things like

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that, right? So that's what Diamond would argue. You have people on the cultural school

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who would argue, well, it comes down to cultural differences between different societies, right? The

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different cultures have different values and those values then translate into behavior, right? And then

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the behavior obviously leads to different outcomes- so this would be people like Max Weber

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and The Protestant Ethic [and the Spirit of Capitalism] that, hey, northern Europe is, you know,

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richer than Southern Europe because they have a better work ethic, right? And then you

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have an increasingly popular school of thought as well, institutional economics. And this is a

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very broad school that covers many different perspectives and even ideologies, right? I mean, there

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can be people on the left that are institutionalists and even people on the right

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that are institutionalists. But the substack post that you talked about specifically addresses the book

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Why Nations Fail, written by the economists Daron Acemoglu and James Robinson, both of whom

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emorial Prize in economics in:

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actually one of the members of the cultural school, Joel Mokyr, who won it. And

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I'll criticize those ideas as well as part of the institutional school in this podcast.

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But last year it was, you know, Acemoglu and Robinson, and a major reason why

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they won it, in addition to all their academic work, their papers, their researches, is

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because of this book. So this was a very famous book. It's created a lot

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of discussions. And so what is their main thesis in this book? If I can

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just get to that. So they argue quite bluntly, that the reason countries end up

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with different economic and political outcomes is because they have different institutions. Right? So they've

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adopted different institutions, and then those institutions establish certain incentives for people to follow, and

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then those incentives guide people's behavior and lead to different outcomes. Right? Okay, so what

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do they mean by institutions? What they mean by institutions are they call it the

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rules of the game. They mean the formal and informal rules which establish incentives for

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people to follow in society. Right? And mostly in their book and in their research,

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they actually focus on the formal stuff instead of the informal ones. There is an

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older version of institutionalism by Thorstein Veblen. Veblen defined institutions as more like social habits

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and cultural customs which then again drive people's behavior in the real world. But the

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new institutionalists, they have a different idea in mind. They're more focused on formal structure.

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So things like the legal system, right- laws, tax policy, regulations, just political systems and

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political structures and how they interact with the economic system. That's what they mean by

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institution. So just a trivial example would be, you know, recently the electric vehicle tax

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credit was canceled. It ended in September of this year. And after that tax credit

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for electric vehicles ended, you had a plunge in electric vehicle sales by like 20%

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from September to October. Right? So obviously having that tax credit in place, it was

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about like $7,500 in most cases, encouraged a lot more people to buy and lease

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electric vehicles. Right? So that's an example of an institutional policy, in this case, tax

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policy, which is then incentivizing people to behave in certain ways, right- to go out

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there and buy more electric vehicles. In the Great Recession, Congress passed a first time

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home buyer tax credit. I think it was $8,500. There's some evidence to suggest that

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more people went out to buy homes after that. So these are the kinds of

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things they're talking about, right? Like, not just this, you know, I mostly focused on,

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like, tax policy, but just broadly formal structures, formal rules and structures in society which

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guide people's behavior. And they have a dichotomy between economic and political institutions. So economic

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institutions would be things like, you know, competitive markets, private property. And then political institutions

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would obviously be things like our governments and the regulations they're passing and implementing and

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how those interact with the economic institutions. One thing I do like about their theory

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is that they do bring politics into it, right? So they're happy to engage in

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political economy. That's something that has traditionally been lacking in neoclassical theory or mainstream economics

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more broadly. But the institutionalists are very happy to engage with that, right? To engage

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with politics and political economy and to see that economic outcomes, they're not just the

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mindless result of economic agents. They also involve political forces. Right? The institutions of any

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given society in any given age are fundamentally a reflection of the class dynamics of

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that society. Right? That's what I would argue. They probably wouldn't put it that way,

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but they do see this interplay, this interaction, right, between economic and political institutions. And

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so then, you know, after they talk about what institutions are, their basic thesis is

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that countries that pursue inclusive institutions, as they call them, will succeed economically and will

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have sustained economic growth. And countries that pursue extractive institutions, as they call it, they

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may succeed for a little bit, you know, so they bring up examples like the

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Soviet Union or even China now, which we're going to talk about later. But they

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say if you pursue extractive institutions, meaning that if you have a corrupt elite which

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is siphoning off wealth from an exploited population, that's basically how they define that, then

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those countries are going to stall economically. Right? They're not really going to go that

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far. They may have temporary growth, but they're not going to have sustained growth, like

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for example, they might say Britain had or the United States had.  And countries that

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have inclusive institution, their notion of inclusion is highly utilitarian, I would say. It's just

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basically setting up political and economic institutions that include as many people as possible from

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participating in those institutions. Right? So that's kind of the distinction they draw between inclusive

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and extractive institutions. And they say that once you understand these institutional dynamics, that's what

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explains the economic outcomes of history over the long run. Right? That's all you need

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to know. You don't really need to know much of anything else. They do argue

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that critical junctures which I would call, you know, things like exogenous or endogenous shocks-

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so wars, revolutions, pandemics, natural disasters. They do argue that these things can have a

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huge impact on institutional dynamics. The critical point in their book is that they seem

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to treat institutions as a fundamental unit of analysis. And critical junctures only come in

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to amplify preexisting differences among institutions. In other words, the institutional landscape is somehow magically

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set. We don't know why. That's one of the major flaws in their theory. They

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don't explain why certain institutions arise in the first place, but they kind of take

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them as a given. So there's this landscape of institutions across the world in different

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societies. And then there's critical junctures, right? Like I said, wars, revolution, natural disasters, ecological

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dynamics, things like that. And then these then amplify these preexisting institutional differences and, and

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then over time- it's almost kind of like an evolutionary theory- over time, institutions evolve to

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essentially what they are now. Right? Some countries end up with inclusive ones, some countries

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end up with extractive ones. So that is their theory in a nutshell. And I'll

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give one example, Steve, if I could steel man their theory, which I think is

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the strongest possible example you could give for the theory, and that's North and South

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Korea, Right? So Acemoglu and Robinson would say, "look at North and South Korea. They're

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on the same peninsula. So the geographical and the climatic and the ecological factors are

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very similar. Right? They're very similar. So you can't use those to explain the fundamental

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differences in economic prosperity between South and North Korea." Right? North Korea is a tyrannical

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dictatorship. Most of its people are poor. In recent history, it has struggled with famines.

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I'm going to come back to that and explain why that happened. Where South Korea

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is, you know, generally a prosperous nation, right? It's a liberal democracy, competitive multi-party elections,

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rule of law, an independent judiciary, free markets and competitive markets and you know, a

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lot of technological innovation. It's a technological powerhouse. Look how different they are even though

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they're right next to each other. Right? I mean, geographically, they're right there. Ecologically, it

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doesn't seem like there's much difference there. Right? So why would they be so different? 

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Same thing, when they attack the cultural school through this example, they would say, "how

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can cultural differences explain the fundamental political and economic differences between North and South Korea?

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I mean, they speak the same language, they have the same historical legacy." Right? Once

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upon a time they have the same cuisine. Right? Now, I'm sure they eat different

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things, but the point is they come from the same historical and cultural legacy. So

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how can that be an explanation for why they're so radically different? So I think

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that's the strongest possible example that they could give in support of their theory. And

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they would say, "well, the reason why they're different is because South Korea adopted inclusive

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economic and political institutions." And I mentioned some of them already, right, like competitive elections

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and multi-party liberal democracy and so on, you know, free press. Whereas North Korea is,

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you know, a cloistered tyrannical dictatorship where the education system just teaches you communist propaganda

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all day long. People don't really have any economic opportunity. You have to go join

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the army for 10 years after you finish school. You kind of have to do

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just what the government tells you. Right? You don't really have any opportunity. So they

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contrast the institutional frameworks between the two countries and they say, clearly the answer is

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South Korea has adopted different institutions. And so that is sort of like their grand

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explanation, not just for this example, but I think for the broader outcomes of human

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history. Right? It's that nations that adopted inclusive institutions succeeded. Those that adopt extractive institutions

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have failed. So I'm going to pause right there and get your take on it.

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And then I'm going to get into what I think are some of the main

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problems with our thesis. Right? Because I certainly don't agree with it and I think

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they leave out a lot of important things.

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No, absolutely. I appreciate this. I think to myself, coming from an MMT perspective and

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also a socialist perspective, you know, I look at what is the definition of success.

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You know, I'm also a project manager. So when I start a project, I'm asking

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myself, what will make this project successful? And you have to have some idea of

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how to categorize success. And so when I think about how would you define any

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of them as successful or not successful, it comes down to whose class interests are

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being represented? It's not a 360 degree view of who's winning and losing. It seems

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to have a very distinct kind of we represent the ruling elite, we represent this

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group of people's interests, and this other group of people are kind of left in

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the background. And I think this is kind of universal. I think you can look

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at the United States and people, if you look in aggregate at outcomes and institutions

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and thought and the way rules are set up, you've got a handful of people

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that really, really do fantastic. In spite of having so many opportunities to choose different

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kinds of cheeses and have a different soda pop every other day. And they get

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to change what kind of car they drive, and they get to pick the colors.

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And my God, they got so much freedom. Right? That's a fake institution right there.

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But it's an institution the US claims is there, but in reality, it represents the

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ruling class. And you can see that very clearly. It's not in the Constitution. "The

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rich should be the richest and the poor be struggling so that they can provide

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services for the rich." You know, there's nowhere it says that, but that's the outcome.

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So how do you measure an institutional arrangement with an outcome? I mean, I hear

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people literally talking constantly about how "well this administration has failed." I'm like, "well, wait

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a minute, hold on. What was the grade you were giving them based on- what? 

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Are you talking about the people they're serving, which are the ruling elite. The ruling

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elite seem to like what's happening quite a bit." When you think of stratification and stuff

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like that... I guess my point is, is that when you look at outcomes and

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you're trying to tie them to institutions and you are imposing what you value, your

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values, to say, "oh, well, this is a failed institution." I think it's naive. I

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think that there is an element missing as to who is creating the institutions, who

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is creating the common sense, who is creating the hegemony of thought, and who is

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building out those quote, unquote "rules" and so forth. And they look to see who's

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winning and who's losing and whose interests are being served. You know what I mean?

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Like, to me, it seems like shotgun scatter with the way people see these things.

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They're judging it through their own personal lens as to whether or not these institutions

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have succeeded or not. I fundamentally find the lack of tying it together with power

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maddening, honestly.

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Yeah, I mean, you're absolutely right. You're pointing to a fundamental issue of how do you

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want to define success for nations in the first place? Right? And there's no magically right

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answer there. And you could look at different metrics to evaluate sort of national success. Right?

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Most economists, like Acemoglu and Robinson, they're really focused on GDP per capita. And I'm going

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to play by their rules as I go back and analyze North and South Korea and

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show the reason why they turned out the way they did has virtually nothing to do

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with their different institutions. Not that the institutions don't matter, but they're not even like the

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top two or three factors that matter. So you're absolutely right. You can question what makes

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national success in the first place. For example, Cuba has like 6 or 7% of America's

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GDP per capita. But Cuba's life expectancy is roughly on par with that of the United

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States. It's only like slightly below it, right? I mean, but it's almost right there. So

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the point is, for me, and I think this is kind of a digression, but for

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me, a lot of biophysical metrics matter a lot more when you're trying to analyze the

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state and health of a society. Right? How long are people living? The literacy rate, health

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outcomes, how many people are living with chronic diseases? So it's not just how long are

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people living, but what is their quality of life while they're alive? Right? If you live

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for 80 years, but you live with chronic diseases for that whole 80 years, then you

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struggled a lot in your life. So to me, these biophysical indicators are more important than

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the financial indicators. But I will say, Steve, in my attempt to demolish this theory, I'm

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going to play by their rules. So I'm going to focus on GDP per capita and

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all the financial indicators they care about. I'm going to leave aside that other stuff for

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the most part. So I want to revisit North and South Korea and see through a

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concrete example, and then I'll delve into some other history why the institutional theory of economics

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is just fundamentally wrong. So if you look at North and South Korea and their historical

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development starting from around the middle of the 20th century, they were roughly on par just

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fter the Korean war, from the:

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lly. That's right. By the mid-:

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orea. It's not until the late:

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:

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GDP, real GDP growth is about 6%. Now, South Korea's over those 30 years is about

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7, 8%.   So it's higher, so it's better. But clearly North Korea was doing pretty

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well. I mean, an average 6% growth rate for 30 years, that's not bad. Again, it's

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not phenomenal. You can find better examples, but it's pretty good. So clearly, when North Korea

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was a tyrannical dictatorship, as it was throughout the Cold War, it had a fairly easy

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time generating high growth rates. And so the question is, what happens in the '80s and

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especially in the '90s, where North Korea's economy just completely collapses, and they have a famine

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and roughly a million people die. Why do things go so badly? Is it because of

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institutional changes? Did the institutions suddenly get worse? Well, no. I mean, North Korea in the

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'90s still had the same corrupt dictators that it had in the '50s, right? The fundamental

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system didn't really change. Right? The political system was still tyrannical. The economy was still controlled

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by the government. Everything was nationalized. Nothing fundamentally changed there. So how come North Korea was

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doing so well from the '50s to the '80s, and then it just crashes in the

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'90s? And the reason, of course, if you know your history, is because the Soviet Union

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collapsed and North Korea was heavily dependent on Soviet economic aid. Heavily dependent. The majority of

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its foreign trade volume was actually with the Soviet Union. It got a lot of its

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oil from the Soviet Union. So in the '80s, when Gorbachev comes to power in the

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late '80s, he basically pulls back a lot of foreign aid. So as he pulls back

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the Soviet imperial project, he pulls back on the Brezhnev doctrine. He says he's not going

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to intervene militarily in Eastern Europe. He starts pulling back a lot of financial aid, including

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from North Korea. So North Korea used to receive a lot of heavily subsidized oil from

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the Soviet Union, and obviously that was a huge boon to its economy. Right? That's one

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of the fundamental things that powered its economic growth, was getting cheap energy from the Soviet

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Union. So in the '90s, the Soviet Union collapses, all of that cheap energy goes away.

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And oil and fossil fuels, they're critical inputs in the Haber Bosch process, right, which converts

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nitrogen to ammonia. And ammonia is a fertilizer for crops. So that's how we get the

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vast majority of the fertilizer in the world, which is so critical for agricultural productivity. You

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get it by converting nitrogen and hydrogen and combining them into ammonia. And fossil fuels are

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a critical input into that process because you need to generate high temperature. So you need

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to burn a lot of fossil fuels. You need to get the hydrogen in the first

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place. So methane and other hydrocarbons are a big source of that hydrogen. So think about

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it. You know, North Korea's oil imports dry up because the Soviet Union collapses. So their

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fertilizer production collapses. Industrial production also collapses. But the fertilizer collapse is what's important here. The

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fertilizer production collapses, agricultural yields plummet, and that leads to a famine in the mid-90s. Right?

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So that is what happened causally. It had nothing to do with the institution. It's North

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Korea had an exogenous shock to its economic system, which caused it to absolutely tumble economically.

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And then that led to a terrible famine, like I said, in which about a million

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people died. And North Korea didn't have a lot of foreign currency, so it didn't have

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dollars just stashed in its pocket. And it could go to Saudi Arabia and say, "give

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me your oil." And so the result was that its oil consumption plummeted when the oil

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imports plummeted, when the cheap energy ran out, the oil consumption plummeted, fertilizer production plummeted, industrial

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production plummeted, the economy plummeted. And that is the fundamental reason why North Korea today is

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poor and South Korea is rich. Now, institutions are important here in the sense that the

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North Korean government could be choosing different developmental paths right now if it wanted to open

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up its economy more and things like that, that probably would generate a little bit more

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economic growth. There's no doubt about that. So no one is denying that institutions, in some

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sense, aren't important. But the point is, the fundamental difference between North and South Korea is

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not because they have different institutions. It's because they were part of different imperial systems, and

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those imperial systems guarded them in different ways. One imperial system collapsed, and so North Korea

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ended up collapsing. The other imperial system, South Korea and the United States, did not. Right?

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They were the immediate winners of the Cold War. And South Korea, as a result, has

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done very well. So that's the reason why their strongest case study is wrong. I want

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to take a broader historical look, though, and just explain what are some of the other

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sort of long historical arcs, some other big issues with their theory. So a common line

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of criticism against them has been that the dichotomy between inclusive and exclusive institutions is too

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naive and simplistic. Think about all the thousands and tens of thousands of societies and tribes

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and tribal confederations and nations and kingdoms and duchies and empires that have existed throughout human

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history. Right? How can you classify all of that rich variety and all these different developmental

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trajectories with two categories? It's kind of silly. I mean, Steve, it's as silly as if

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I said, "take all of the colors that you see in the world and only describe

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them with two words." Right? You know, warm and cold. So you can't use the words

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red or blue anymore. Or green. I've taken those out. You can only say, if I

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see red, and you ask me what color that is. Well, it's a warm color. Oh,

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okay. You know, England in the 17th century had inclusive institutions, while the Glorious Revolution came

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in just magically. So it's this highly naive binary distinction which completely ignores the incredible richness

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and variety of people's actual experiences in history. That's been a common line of criticism. Another

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common line of criticism is that inclusive and extractive institutions are often fundamentally entangled together, Steve.

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So they bring up Venice in the Middle Ages and the Commenda contracts. Right? So these

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were contracts where basically two people would establish a joint venture. One would be the traveling

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partner, they would go on the ship and go on the voyage. One would be a

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sedentary partner staying behind in Venice, but they would put the upfront capital for the venture.

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Right? And they say this was a major reason for the upward social mobility in Venice

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sort of in the High Middle Ages. Okay, so that's fine. But what were the Venetians

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trading a lot of in the Middle Ages? Well, they were trading slaves. Venice was one

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of the absolute central actors of the slave trade in the Mediterranean world during the Middle

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Ages. So you can argue, well, the Commenda contract itself, or the Colleganza, as the Venetians

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called it, that itself was really inclusive, sure, but it depended on a wider system of

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extraction. So was it really inclusive? What do we mean by inclusive and extractive? The broader

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criticism here, of course, is colonialism and imperialism. A lot of people have attacked this book

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for being apologetics, basically, for colonialism and imperialism, because so much of European economic growth, especially

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in the second industrial revolution in the late 19th century, was heavily dependent on extracting raw

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materials and commodities from the colonies. Right? Through imperialism.

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STEVE GRUMBINE:

Yes.

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Think about rubber, right? Rubber was a critical early component in the auto industry. Most early tires

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were made out of rubber. Well, where did the rubber come from? Well, it came from the

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Congo and Southeast Asia, but predominantly from the Congo. And the Belgians ruthlessly exploited the Congolese people,

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led to one of the worst genocides of modern history there actually, millions of people ended up

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dying. And if your listeners are interested in finding out more about that, you can read the

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book King Leopold's Ghost. Be warned, it's pretty rough. So the point is, all of these things,

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you know, rubber and later oil and, you know, nickel and manganese and even copper. So many

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of these critical inputs for industrial production, some of them came from Europe, at least up until

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the middle of the 19th century. But by the late 19th, early 20th century, a lot of

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this stuff is just coming from the colonies, right, and from the imperial system that the Europeans

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have set up. Cotton is another great example. Right? Britain used to import a lot of cotton

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from the southern United States. That was the slaves picking the cotton, right? Then after the Civil

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War, transitioned to Egypt and India. Again, those were part of the British imperial system by the

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late 19th century. So the point is that if you have a very myopic lens of history,

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you can say what's happening over here is an inclusive institutions. But if that inclusion is based

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on the suffering of hundreds of millions of people around the world, then are the institutions really

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inclusive? That's what it calls into question. It's like, what do you mean actually by inclusive and

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extractive? And so that gets back to the criticism of the first point is how different is

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this dichotomy, kind of simplistic, naive and silly? And another major mistake that gets to me- I

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really want to hone in on this because I think it's really important- so, the importance of

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exogenous shocks and factors in not just amplifying preexisting institutional differences, but in creating- in creating institutions

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in the first place. One of the examples they bring up in the book is the Magna

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Carta. And they say the barons, the English barons, they stood up to King John and they

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gn the Magna Carta in June of:

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little bit about what was in the Magna Carta. And I was reading that and I was

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laughing to myself and I was like, do you actually know why the Magna Carta was signed?

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It was signed because King John had been at war with the French for over a decade.

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the war ended disastrously in:

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Battle of Bouvines In July of:

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France, as many historians call it. John himself was defeated in the western theater of the war.

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So it just all collapsed. John limped back to England later in the year. The barons were

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on the verge of revolt. Why? Because he had squandered their time and money on a losing

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effort. He had been taxing them for the past decade, you know, relief taxes, which were taxes

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on inheritance. So when somebody inherited property, the king would take a tax out of that. He

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ews, he had a one time tax in:

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movable goods, right? So crops and livestock and things like that, just 8%. So people were really

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pissed at John by:

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lost the war in the end. So essentially he was in a position of weakness that's why

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he was forced to sign the Magna Carta, otherwise they were just gonna dump him, basically. And

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the funny thing is, after he signed it, he completely reneged on it and went back on

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word. So he signs it in June:

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Innocent III, one of the most powerful secular popes of the Middle Ages. He writes to Innocent

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saying, I did it under duress. I didn't mean to do it. They forced me to do

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it. Please cancel this. And so the Pope writes back, yep, Magna Carta is cancelled. After that,

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the barons revolt. So there's a full revolution against John and they actually invite the French to

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come over. So Philip II's son, Louis, he comes over and invades England. So French army invades

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England. By:

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nd then basically, in October:

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John does the single greatest thing he ever did in his life. He finally dies. He finally

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dies and then the barons, they turn against the French. They support his son, Henry III, who

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goes on to reign for, like, most of the 13th century. So they support his son, the

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h, the French are defeated in:

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was the immediate aftermath of the Magna Carta. Right? That's the sort of the historical context behind

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it. And the overall point there is that even if you want to say, well, the Magna

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passed by Henry I in the year:

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well, sure, that's true, but why did Henry I pass that charter? Oh, it's because of the

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Norman invasion and all of the political and economic problems that the invasion caused in the subsequent

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decades. So even that, it's not an example of a preexisting difference being amplified. It's war and

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exogenous shocks creating new institutions in the first place. Why? Because these exogenous shocks, whether you're talking

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about pandemics like the Black Death or war or other natural disasters, they shuffle the deck. Right?

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They change the ruling classes. And as the ruling classes are changed, when new ones come into

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power, they have different priorities. They want to pursue different institutions. Right? Remember, institutions are fundamentally a

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reflection of the ruling classes.

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STEVE GRUMBINE:

Yes.

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Those classes that have power will then establish the institutions that they want in society.

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Right? That is how the Magna Carta should be seen, how the Charter of Liberties

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should be seen, how anything should be seen. I'll give you another example that I

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like. Public education, right? Why do we have public education? Well, there was a point

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in human history where we didn't. Governments in Europe for most of their history were

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not involved in funding or organizing education. That was the role of the church. The

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church, private individuals, patronized education a lot as well. But that's who did it. Governments

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themselves mostly spend money on war. So then why do they do it? There's the

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30 year war in Europe in the 17th century which leaves the German states devastated.

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And after that war, a lot of German states start saying to themselves, hey, we

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kind of need to inculcate certain standards in our population, in our public. We need

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them to be more loyal to us and things like that. And so these are

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the first embers of public education, right? But even then it wasn't really funded by

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the state or organized in any coherent way by the state. It was still mostly

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private, wealthy individuals and the Church. Prussia in the 18th century does put in some

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compulsory schooling laws. So you know, kids five to like 13, they have to go

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to school. But again, it's not really enforced and it doesn't, you know, make much

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of a difference in most people's lives. What really changes the game for public education

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is the Napoleonic Wars. So in:

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leads this rapid, you know, almost blitzkrieg like campaign against the Prussian army, defeats them

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in a few weeks. The military maneuvers start in early October and by late October,

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the French are marching through Berlin. In the following year, Napoleon defeats the Russians. And

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at the Treaties of Tilsit in:

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just absolutely decimated by:

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in Prussia have lost their credibility, right? So the conservative Junker classes, the landowning aristocracy,

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they've lost a lot of their credibility because they've just suffered this massive national humiliation.

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And as a result a lot of reformers come along, right? So there's a bit

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of a reshuffling of the class dynamics in Prussia where the reformers like Scharnhorst in

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the military and like von Humboldt for education start to have a lot more power,

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right? And so von Humboldt in particular, he implements a lot of major reforms that

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essentially form the cornerstone of the modern K12 system. So this is when Prussia decides

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to adopt not just compulsory education like they've done earlier, but they actually decide to

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enforce that. They actually decide to fund it, you know, to have state funded education.

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That's something vastly different than what was before the State even establishes sort of like

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national curriculum standards and national professional standards for teachers. Right? So all teachers have the

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same competencies and capacities. Kids are learning the same things. The government sort of wrests

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control from education from the church, right, and from private individuals. And so this is

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sort of the major birth of the modern public education system. It happens because Prussia

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was absolutely humiliated in the Napoleonic wars and decided to implement a lot of major

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reforms to its society. Later in the 19th century when you have American reformers like

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Mann going to Prussia in the:

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very impressed. They came back, they imported a lot of those ideas, right? And so

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a lot of what started in Prussia then spread all around the world. And essentially

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that is why we ended up... I mean, I'm cutting a lot of the historical

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details for the United States, obviously, but the point is, that is how we ended

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up with modern public education. It was in response to a national humiliation from the

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:

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Napoleonic Wars. Right? And so the broader point there, Steve, as I've been saying, is

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that these exogenous shocks, they don't just amplify preexisting differences among institutions, they can also

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create new institutions in the first place. Right? Including inclusive institutions, the exact same kinds

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of institutions that Acemoglu and Robinson care about. And I can't think of a more

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inclusive institution than modern public education- universal, compulsory, modern public education that includes millions and

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millions of children for free. Right? There are very few things that are more inclusive

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:

ERALD KOLASI:

than that. And the point is that system, there was a point in history when

435

:

ERALD KOLASI:

that system just did not exist. And then it existed. Right? So it was born

436

:

ERALD KOLASI:

for the first time. And why was it born? Basically, it was a response to

437

:

ERALD KOLASI:

war. And so that war then scrambled the ruling dynamics- the ruling class dynamics in

438

:

ERALD KOLASI:

Prussia- gave more power to the reformers over the conservatives. And so because they had

439

:

ERALD KOLASI:

more power, they were able to implement their vision for public education and for a

440

:

ERALD KOLASI:

lot of other areas of Prussian life, which ultimately helped Germany out. But especially public

441

:

ERALD KOLASI:

education really was one of the biggest, if not the biggest, reforms that was made.

442

:

ERALD KOLASI:

And that reform then reverberated around the world. Right? So this is one thing they

443

:

ERALD KOLASI:

fundamentally get wrong, right? They never really explain where inclusive institutions come from. They kind

444

:

ERALD KOLASI:

of just assume they're there sort of in these kind of initial conditions, and then

445

:

ERALD KOLASI:

these critical junctures and shocks come along like wars, like natural disasters, and then they

446

:

ERALD KOLASI:

amplify these preexisting differences. But the point that I'm making is that no, these shocks

447

:

ERALD KOLASI:

can create them in the first place. Once you're willing to accept that argument, then

448

:

ERALD KOLASI:

you really can see the importance of fundamental background factors like ecological and geographical conditions.

449

:

ERALD KOLASI:

Right? And especially when ecological conditions change, like when a pandemic comes along and fundamentally

450

:

ERALD KOLASI:

transforms a society and how society works. Right? Like Covid came along, and then a

451

:

ERALD KOLASI:

lot more people started working from home, and that suddenly became acceptable for a long

452

:

ERALD KOLASI:

time. So that's just a minor example, but you get my point. Right?

453

:

STEVE GRUMBINE:

A great example, though.

454

:

ERALD KOLASI:

Yeah. So that is something that strongly undermines their theory. It's just that human society

455

:

ERALD KOLASI:

is embedded in a broader natural world and embedded in the broader planetary biosphere. And

456

:

ERALD KOLASI:

so it interacts with the planetary biosphere. Human societies, of course, also interact with other

457

:

ERALD KOLASI:

human societies. And those exogenous interactions, either trade or war or other things, can also

458

:

ERALD KOLASI:

affect the internal dynamics of society. That, I think, is where they make a huge

459

:

ERALD KOLASI:

error. They're so focused on the internal institutional dynamics of a society that they ignore

460

:

ERALD KOLASI:

the profound exogenous external factors that can affect the internal evolution of those institutional dynamics.

461

:

ERALD KOLASI:

Right? Like. And again, I gave a major example earlier when the Soviet Union collapsed

462

:

ERALD KOLASI:

and that dragged down North Korea's economy profoundly. So let me pause right there and

463

:

ERALD KOLASI:

get your take on that, because I know I spoke for a while, so.

464

:

STEVE GRUMBINE:

It's great, though. You're the star here for this. But as far as

465

:

STEVE GRUMBINE:

it goes, I mean, a couple things are jumping out to me when

466

:

STEVE GRUMBINE:

you said they just act like, yeah, it was just always there, kind

467

:

STEVE GRUMBINE:

of like these always, never statements. This thing was just there. And then

468

:

STEVE GRUMBINE:

it wasn't. Hey, this is like going to grad school. I know this

469

:

STEVE GRUMBINE:

is kind of different, but, like, I remember when I sat down in

470

:

STEVE GRUMBINE:

my first finance class, they tried to explain how money comes to be,

471

:

STEVE GRUMBINE:

and it was just like, wow, they sell bonds. Well, where do they

472

:

STEVE GRUMBINE:

get the thing to do that to begin? You know, and they never

473

:

STEVE GRUMBINE:

had answers for any of these questions, I mean, at all. And I

474

:

STEVE GRUMBINE:

couldn't understand why that was. But in reality, a lot of these narratives

475

:

STEVE GRUMBINE:

that we go through do not take a dialectical perspective of understanding how

476

:

STEVE GRUMBINE:

things come to be. And I think this concept of institutions is really

477

:

STEVE GRUMBINE:

important because a lot of people think we're just going to vote these

478

:

STEVE GRUMBINE:

institutions in. They don't realize that...  You know, I think the vast majority

479

:

STEVE GRUMBINE:

of these institutions come as a direct result of some significant shift, not

480

:

STEVE GRUMBINE:

only in ruling class dynamics, because it's certainly not brought on by the

481

:

STEVE GRUMBINE:

desires of the working class. It's brought on by the ruling elite and

482

:

STEVE GRUMBINE:

whoever the ruling classes of that time, which you have been repeatedly bringing

483

:

STEVE GRUMBINE:

to the fore in this conversation. That, to me, I think is really

484

:

STEVE GRUMBINE:

important. I think it helps level set expectations through normal, acceptable institutional channels

485

:

STEVE GRUMBINE:

for change. Coming to the United States, momentarily, I think we all got

486

:

STEVE GRUMBINE:

shocked when Biden was stymied with the PRO Act because of the parliamentarian

487

:

STEVE GRUMBINE:

and other things like that. I mean, when the ruling class doesn't want

488

:

STEVE GRUMBINE:

something to happen, it just doesn't happen. And no amount of hand wringing

489

:

STEVE GRUMBINE:

by the voters, so to speak, is going to change that. The voters

490

:

STEVE GRUMBINE:

have to do something different to make those kinds of shocks occur, to

491

:

STEVE GRUMBINE:

create the conditions by which change happens. Anyway, I just thought of that

492

:

STEVE GRUMBINE:

as you were going through it. It is a marvel how we eliminate

493

:

STEVE GRUMBINE:

or ignore the base conditions that create the environment for these kinds of

494

:

STEVE GRUMBINE:

institutional arrangements.

495

:

ERALD KOLASI:

Yeah, yeah, absolutely. What it highlights is, I think, one of my fundamental critiques against

496

:

ERALD KOLASI:

sort of the new institutionalists and a critique that other people have made as well,

497

:

ERALD KOLASI:

which is that yes, institutions are important, but they're not fundamental. At the end of

498

:

ERALD KOLASI:

the day, it's not really the institutions that truly matter. It's the people in power,

499

:

ERALD KOLASI:

right? It's who holds power. And those who hold power will try to establish the

500

:

ERALD KOLASI:

institutions that are concordant with the power they want to exercise in society. Now, of

501

:

ERALD KOLASI:

course, there can be resistance to that as well. So no one has infinite unlimited

502

:

ERALD KOLASI:

amounts of power, right? Not our current president, not any other president, not any future

503

:

ERALD KOLASI:

president, not the worst tin pot dictator in the world, right? No one has unlimited

504

:

ERALD KOLASI:

power. And I'm glad you mentioned sort of the dialectical dynamics. Always when the ruling

505

:

ERALD KOLASI:

classes in any society try to establish their power, they will encounter various levels of

506

:

ERALD KOLASI:

resistance, right? Sometimes, as Marx and Engels say, that resistance can come out in the

507

:

ERALD KOLASI:

open, you know, the form of revolution and rebellion and things like that. Sometimes the

508

:

ERALD KOLASI:

resistance can be more hidden or let me just say, you know, more subdued, right.

509

:

ERALD KOLASI:

In the form of protests or strikes or other various activities at work that are

510

:

ERALD KOLASI:

meant to kind of sabotage capital. But the point is there is that resistance there.

511

:

ERALD KOLASI:

And when you do have these exogenous shocks that impinge on societies, right. That, you

512

:

ERALD KOLASI:

know, influence how those internal Dynamics evolve, then those who are providing resistance to the

513

:

ERALD KOLASI:

ruling classes can sort of get a leg up. Their position can be strengthened, and

514

:

ERALD KOLASI:

maybe if it rises to the level of, you know, a revolution or something like

515

:

ERALD KOLASI:

that, they can actually take over. Right. Like the many revolutions we've had in modern

516

:

ERALD KOLASI:

times, a lot of them were caused by exogenous shocks.  For example, there is a

517

:

ERALD KOLASI:

paradox in that Lenin and many other socialists were against World War I. And yet

518

:

ERALD KOLASI:

World War I is the fundamental reason why the Bolsheviks came to power in Russia.

519

:

ERALD KOLASI:

Yep, because World War I is what led to mass starvation in Russia. You know,

520

:

ERALD KOLASI:

the breakdown of the Russian army, you know, mutinies, and then, of course, a lot

521

:

ERALD KOLASI:

of the protests and the strikes and the fighting on the streets. So kind of

522

:

ERALD KOLASI:

the broader collapse of social order in Russia happened because of World War I. And

523

:

ERALD KOLASI:

olsheviks to come to power in:

524

:

ERALD KOLASI:

they formalized that later in:

525

:

ERALD KOLASI:

get the point, right? Which is that really what matters is who has power and

526

:

ERALD KOLASI:

how do they choose to exercise that power. And then the institutions are sort of

527

:

ERALD KOLASI:

a downstream effect from these broader class dynamics situated within the context of historical materialism.

528

:

STEVE GRUMBINE:

You know, you and I got together as a result of modern monetary theory

529

:

STEVE GRUMBINE:

and the work of this podcast. I appreciate your support all these years, and

530

:

STEVE GRUMBINE:

just the number of times you've come on has been amazing. But if you

531

:

STEVE GRUMBINE:

understand the MMT angle, you understand that it is based strictly in that institutionalist

532

:

STEVE GRUMBINE:

framework, understanding institutions, maximizing institutions, altering institutions through representative democracy in their mind. But

533

:

STEVE GRUMBINE:

I would push back that I don't believe we have seen evidence of people

534

:

STEVE GRUMBINE:

voting their way to any of these changes. In fact, as I will bring

535

:

STEVE GRUMBINE:

up until I lose my voice, Gillens and Page have suggested that that is

536

:

STEVE GRUMBINE:

just a laughable idea, that public opinion actually is what changes the nature of

537

:

STEVE GRUMBINE:

legislation and institutions. And as we've seen coming out of COVID the shift in.

538

:

STEVE GRUMBINE:

People talked about the great Reset. I think we could just say the great

539

:

STEVE GRUMBINE:

institutionalist reset. Right. Like the new institutions coming out of the crisis of hegemony

540

:

STEVE GRUMBINE:

that the COVID pandemic brought about. And you could see in China, China has

541

:

STEVE GRUMBINE:

done laps around the United States over the last, I don't know, 50 years

542

:

STEVE GRUMBINE:

or so in terms of bringing up quality of life, bringing up the kinds

543

:

STEVE GRUMBINE:

of institutions, if you will, that enable the people of China to lead fuller

544

:

STEVE GRUMBINE:

lives. I mean, they don't lack for health care, they don't lack for education.

545

:

STEVE GRUMBINE:

They don't lack for a great many things that people in the United States

546

:

STEVE GRUMBINE:

would be just mind blown if they didn't have to worry about. Can you

547

:

STEVE GRUMBINE:

talk a little bit about China and institutions and how this plays in the,

548

:

STEVE GRUMBINE:

the work that you're critiquing?

549

:

ERALD KOLASI:

Yeah, absolutely. I'm so glad you brought this up. You know, Acemoglu and Robinson, in their

550

:

ERALD KOLASI:

because the book came out in:

551

:

ERALD KOLASI:

and by then China was already a well known growth story, right? A major growth engine

552

:

ERALD KOLASI:

for the world economy. So they kind of have to say something about it. And so

553

:

ERALD KOLASI:

they cover recent Chinese history over the past 70 odd years or so. They talk about

554

:

ERALD KOLASI:

Mao, and in their view, Mao was just an abject failure and didn't do anything right.

555

:

ERALD KOLASI:

And then they talk about the institutional reforms that Deng Xiaoping made and how those institutional

556

:

ERALD KOLASI:

reforms, you know, like opening up special economic zones, how those institutional reforms then set China

557

:

ERALD KOLASI:

on a trajectory of world beating growth rates for the rest of the 20th century and

558

:

ERALD KOLASI:

the early 21st century. Then basically they say that, look, China has had amazing growth, but

559

:

ERALD KOLASI:

it's still fundamentally built on extractive institutions and these kinds of extractive societies, they can have

560

:

ERALD KOLASI:

growth for a while, but they can't really innovate. You know, China's mostly a copycat. It

561

:

ERALD KOLASI:

just takes everything from everybody else and eventually the growth rates are going to collapse and

562

:

ERALD KOLASI:

China's going to stagnate. So that's, if you will, loose predictions, I'll put it that way.

563

:

ERALD KOLASI:

Right. Because they also hedge their bets that they say, well, we don't really know what

564

:

ERALD KOLASI:

could happen. But based on their theory and what they write in that chapter, that's kind

565

:

ERALD KOLASI:

of what they're thinking about China, right? That it's fundamentally an extractive dictatorial society that's going

566

:

ERALD KOLASI:

to run out of steam. That was written 13 years ago. That hasn't happened obviously to

567

:

ERALD KOLASI:

this point. Right now, China's standing and position of strength relative to the west is higher

568

:

ERALD KOLASI:

than at any point in history. So, so far what they were sort of loosely predicting

569

:

ERALD KOLASI:

hasn't happened. But I do want to talk about China more broadly because I think there's

570

:

ERALD KOLASI:

a lot of cognitive dissonance among Western elites, including people like economists like Acemoglu and Robinson,

571

:

ERALD KOLASI:

when they talk about China. So on the one hand, people want to credit people in

572

:

ERALD KOLASI:

the Western world, especially want to credit China's amazing success to free market capitalism. Look, they

573

:

ERALD KOLASI:

allowed for a private industry to come in and foreign investment and you know, the government

574

:

ERALD KOLASI:

doesn't control everything anymore, like under Mao. And that's why they succeeded. Right. And in part,

575

:

ERALD KOLASI:

this message is meant for domestic audiences. It's a way of selling neoliberal free market capitalism

576

:

ERALD KOLASI:

to domestic audiences. It's basically saying, look, the way China did it is by becoming more

577

:

ERALD KOLASI:

like us. That's how they did it, guys. Like, they became more like us. So therefore,

578

:

ERALD KOLASI:

we don't need to really change anything in our system, because this is how everybody does

579

:

ERALD KOLASI:

it. Right. Anybody who has economic success, this is the path. Right. It's neoliberal capitalism, privatization,

580

:

ERALD KOLASI:

austerity, free trade, you know, the whole works.

581

:

STEVE GRUMBINE:

Right.

582

:

ERALD KOLASI:

So part of that message is meant for domestic audiences. On the other hand, Steve, you

583

:

ERALD KOLASI:

may have noticed that Western elites increasingly are talking about China in antagonistic terms. Right? And

584

:

ERALD KOLASI:

there's, you know, Trump, the trade war in his first presidency and launched kind of another

585

:

ERALD KOLASI:

trade war, which is sort of going nowhere in his second term as well. Right. So

586

:

ERALD KOLASI:

on the one hand, Western elites are also highly antagonistic towards China, and they want to

587

:

ERALD KOLASI:

make it into essentially the big bad wolf in a new cold war. And so there's

588

:

ERALD KOLASI:

this kind of tension, this dissonance there. China, on the one hand, is a tyrannical dictatorship

589

:

ERALD KOLASI:

where people don't have free speech and they can't do anything. But on the other hand,

590

:

ERALD KOLASI:

they're like us, guys. It's free market capitalism, and that's why they're succeeding. So there is

591

:

ERALD KOLASI:

that fundamental tension in the way that people in the Western world talk about China, that

592

:

ERALD KOLASI:

where do you put the emphasis on how much are they like us versus how much

593

:

ERALD KOLASI:

are they really different? And I'm going to get to that part. But first, I want

594

:

ERALD KOLASI:

to kind of go over the way Acemoglu and Robinson covered recent Chinese history, starting with

595

:

ERALD KOLASI:

Mao. And when we talk about Mao, especially when right wingers talk about Mao, the two

596

:

ERALD KOLASI:

phrases out of their mouth are always the Great Leap Forward and the Cultural Revolution, as

597

:

ERALD KOLASI:

if that's all that happened Under Mao. Under 27 years of Mao's rule, the only things

598

:

ERALD KOLASI:

that happened were the Great Leap Forward on the Cultural Revolution. Now, those two things I

599

:

ERALD KOLASI:

want to emphasize were horrible, terrible mistakes. The Great Leap Forward was Mao's attempt to rapidly

600

:

ERALD KOLASI:

industrialize China. It ended in disaster. Millions of people died from famine. Yes. The Chinese government

601

:

ERALD KOLASI:

says part of it was made worse by natural disasters like droughts and severe floods in

602

:

ERALD KOLASI:

certain part of the country. And that is to some extent true. But most historians acknowledge

603

:

ERALD KOLASI:

that it was a man made disaster. Right. So the Great Leap Forward was a man

604

:

ERALD KOLASI:

made catastrophe. And the bulk of the blame lands in Mao's lap. Now when Acemoglu and

605

:

ERALD KOLASI:

Robinson talk about Mao, they almost portray him as like an absolute tyrant with absolute power.

606

:

ERALD KOLASI:

That's kind of literally what they say, like all power was concentrated in Mao and you

607

:

ERALD KOLASI:

know, he led the country to disaster. What they don't understand is that that claim is

608

:

ERALD KOLASI:

just fundamentally false. There were various factions within the Communist Party that wanted different things, right?

609

:

ERALD KOLASI:

So there was, you know, the old guard, you know, leftist Communists like Mao. There were

610

:

ERALD KOLASI:

more reformers like Deng Xiaoping and Liu Xiaoqi. And when the disaster struck in the Great

611

:

ERALD KOLASI:

Leap Forward, the reformers had the upper hand, Right. Mao actually lost the title of chairman

612

:

ERALD KOLASI:

of the PRC in:

613

:

ERALD KOLASI:

the reformers, right? So Mao for about seven years was sort of taken away from China,

614

:

ERALD KOLASI:

from the economic management of China, right? So he wasn't making any more decisions about what

615

:

ERALD KOLASI:

and how much to collectivize and things like that. Right. It was the reformers that had

616

:

ERALD KOLASI:

the upper hand during that time. And so this reflects various power struggles happening within the

617

:

ERALD KOLASI:

Communist Party, which Acemoglu and Robinson don't say anything about. They kind of just like brush

618

:

ERALD KOLASI:

that aside as if Mao was again, was an absolute tyrant with total power, which is

619

:

ERALD KOLASI:

n Mao, of course, in the late:

620

:

ERALD KOLASI:

Cultural Revolution to claw back some of the power that he's lost in the previous few

621

:

ERALD KOLASI:

years. And he does that, you know, he imprisons Liu Xiaoqi and some others, but at

622

:

ERALD KOLASI:

the same time, he also doesn't go back to what he did under the Great Leap

623

:

ERALD KOLASI:

Forward. He himself learned a lot of his mistakes. And there are actually many reforms in

624

:

ERALD KOLASI:

economy that happened in the:

625

:

ERALD KOLASI:

point there is that they miss these sort of internal political dynamics within the Communist Party

626

:

ERALD KOLASI:

and how the Communist Party had a lot of internal discussions and disagreements about what is

627

:

ERALD KOLASI:

the best path forward. Right. It wasn't just a monolithic vision from Mao that somehow predominated.

628

:

ERALD KOLASI:

Different people held power at different times throughout Mao's rule. But the other thing I want

629

:

ERALD KOLASI:

enk's success later on in the:

630

:

ERALD KOLASI:

on what Mao had done, right? So in the 27 years that Mao was in charge,

631

:

ERALD KOLASI:

China's life expectancy nearly doubled. China's population nearly doubled. Chinese steel production, I think increased sixfold,

632

:

ERALD KOLASI:

right. From the early:

633

:

ERALD KOLASI:

first time in its history under Mao. As the historian Maurice Meissner emphasizes, when Mao came

634

:

ERALD KOLASI:

lgium's. And then by the late:

635

:

ERALD KOLASI:

China was making jet fighters and tractors and, you know, marine missiles and all these kinds

636

:

ERALD KOLASI:

of things. Right. So it's a fundamental transformation that happened under Mao. A lot of people

637

:

ERALD KOLASI:

in the Western world aren't told these things because, again, it's everything is Mao bad. Right.

638

:

ERALD KOLASI:

And it's amazing how you go to Beijing and his picture is right up there in

639

:

ERALD KOLASI:

the Forbidden City. The Chinese people must be idiots to think that this guy who only

640

:

ERALD KOLASI:

did bad things is basically their George Washington. Right. And so, you know, what are some

641

:

ERALD KOLASI:

gs that Mao did? Well, in the:

642

:

ERALD KOLASI:

eases, including smallpox. By:

643

:

ERALD KOLASI:

first countries in the world to have practically eradicated smallpox.

644

:

STEVE GRUMBINE:

Amazing.

645

:

ERALD KOLASI:

And if you don't know why that's a big deal, consider that in the 20th century alone, smallpox is

646

:

ERALD KOLASI:

estimated to have killed up to 500 million people. Just in the 20th century alone, that's roughly the equivalent

647

:

ERALD KOLASI:

of all the human beings that have died in all the wars that humanity has ever fought. Right.

648

:

STEVE GRUMBINE:

Amazing.

649

:

ERALD KOLASI:

That's what smallpox killed in the 20th century alone. And Mao's push for a mass

650

:

ERALD KOLASI:

vaccination campaign against smallpox is the fundamental reason why. Why it was eliminated in China.

651

:

ERALD KOLASI:

And think about the untold tens of millions of Chinese lives that saved. And the

652

:

ERALD KOLASI:

reason why that's important, too, is because the who, the World Health Organization, even though

653

:

ERALD KOLASI:

it couldn't operate in China at the time, it was sort of observing from a

654

:

ERALD KOLASI:

distance what was happening. It was observing from a distance what was happening. It noticed

655

:

ERALD KOLASI:

this success, at least this claimed success. It couldn't verify it live, but it assumed

656

:

ERALD KOLASI:

that a mass vaccination campaign would work. And the major evidence for that was sort

657

:

ERALD KOLASI:

of what happened in China. And as a result of that, the WHO made a

658

:

ERALD KOLASI:

huge international push, Steve, in order to eradicate smallpox worldwide. And so that's when that

659

:

ERALD KOLASI:

happened in the:

660

:

ERALD KOLASI:

declared that smallpox had been eradicated from the world. And that is probably the single

661

:

ERALD KOLASI:

greatest public health victory in human history. And Mao was at the center of that.

662

:

ERALD KOLASI:

Right. That's something that most people in the Western world, I bet you do not

663

:

ERALD KOLASI:

know about Mao. So. So, you know, once you take Also, literacy rates and education

664

:

ERALD KOLASI:

rates skyrocket under Mao. Mao made education a really big deal, and that was important,

665

:

ERALD KOLASI:

both towards improving health, towards training future generations of industrial workers. Because if you can't

666

:

ERALD KOLASI:

read and write, you can't operate like basic machinery, things like that. You're not going

667

:

ERALD KOLASI:

to be useful as a worker. Right? So all of these fundamental things, the raising

668

:

ERALD KOLASI:

of educational standards, improved health outcomes, greater industrial production organization, these things started under Mao,

669

:

ERALD KOLASI:

with the United states in the:

670

:

ERALD KOLASI:

profoundly helped Deng in the:

671

:

ERALD KOLASI:

capital, the foreign investment coming into China. Chinese exports to the United States later skyrocket

672

:

ERALD KOLASI:

s and:

673

:

ERALD KOLASI:

nation status, so it faces a lower tariff regime than a bunch of other countries.

674

:

ERALD KOLASI:

So Chinese exports start rushing to the United States, foreign capital comes in. That also

675

:

ERALD KOLASI:

helps enormously with China's economic growth rates. But again, a lot of that early legwork

676

:

ERALD KOLASI:

was done by Mao. Mao was the one who agreed to normalize relations with the

677

:

ERALD KOLASI:

United States. And, you know, Nixon obviously, you know, deserves credit here on our side.

678

:

ERALD KOLASI:

Nixon and Kissinger, even though I'm not a fan of Kissinger in general, that was

679

:

ERALD KOLASI:

obviously a huge move in the Cold War, right? It was one of the central

680

:

ERALD KOLASI:

moves of the Cold War. And an important reason why we ultimately won it is

681

:

ERALD KOLASI:

normalizing relations with China. So the point is that so much of Deng's later success

682

:

ERALD KOLASI:

depended on what Mao had done. And from the 50s, a lot of people think

683

:

ERALD KOLASI:

that China's economic growth somehow started under Deng. Nothing could be further from the truth.

684

:

ERALD KOLASI:

China was already growing fairly rapidly under Mao. From the 50s to the 70s, average

685

:

ERALD KOLASI:

real GDP per capita growth in China was about 4% under Mao. Again, it would

686

:

ERALD KOLASI:

be faster under Deng in the 80s and the 90s. So that's absolutely true. It

687

:

ERALD KOLASI:

would be faster. And there's no doubt that a lot of the institutional changes that

688

:

ERALD KOLASI:

Deng made helped produce some of those faster growth rates. But the point is, the

689

:

ERALD KOLASI:

Chinese economy was already growing under Mao. It grew enormously over the 27 years that

690

:

ERALD KOLASI:

Mao was in power. It made a lot of fundamental changes and transformations which set

691

:

ERALD KOLASI:

the stage for the future success that China has now had. Right? And the other

692

:

ERALD KOLASI:

important thing about China is that it's really sort of a dagger in the heart

693

:

ERALD KOLASI:

of the institutional theory. It's the major counterexample that everyone points to, because what people

694

:

ERALD KOLASI:

like Acemoglu and Robinson want to say is that economic growth is all about having

695

:

ERALD KOLASI:

a good liberal democracy in effect. Right? Privatized austerity, neoliberalism, that whole vision of the

696

:

ERALD KOLASI:

world, that's what it comes down to. And China, of course, provides an alternative developmental

697

:

ERALD KOLASI:

path. It's like you don't need all of these institutions and all of these structures.

698

:

ERALD KOLASI:

You do need some level of competent government, sure. But you can get massive economic

699

:

ERALD KOLASI:

growth if that's what your goal is. And that's a separate question of whether that

700

:

ERALD KOLASI:

should be your goal. Right. There's a broader issue, but if that's the rules you're

701

:

ERALD KOLASI:

playing by, like you're trying to maximize economic growth, it's not clear that having liberal

702

:

ERALD KOLASI:

democracy with again, allegedly competitive multi party elections and allegedly independent central banks, allegedly independent

703

:

ERALD KOLASI:

judiciaries and all of that, it's not clear that that necessarily is the best model.

704

:

ERALD KOLASI:

You know, one baseline distinction between capitalism and socialism is that capitalism is an economy

705

:

ERALD KOLASI:

dominated by private property, right? And socialism is an economy dominated by public property. And

706

:

ERALD KOLASI:

if you look at China, it's an economy that's dominated by public property, right? So

707

:

ERALD KOLASI:

at Last as of:

708

:

ERALD KOLASI:

If you look at companies where the state has any kind of stake, even if

709

:

ERALD KOLASI:

it's not necessarily a majority stake, you'll find that those companies represent something like 70,

710

:

ERALD KOLASI:

80% of total assets and capital in the Chinese economy. China operates under a Leninist

711

:

ERALD KOLASI:

principle, almost under the new economic policy, where the state has seized control over the

712

:

ERALD KOLASI:

commanding heights of the economy. So think about critical industries like energy, finance. So the

713

:

ERALD KOLASI:

top four biggest banks by assets in the world are all Chinese, and they're all

714

:

ERALD KOLASI:

owned by the Chinese government. And the healthcare, you know, defense, right? All of these

715

:

ERALD KOLASI:

major dominant sectors, the Chinese government has enormous ownership, right? Owns so many of the

716

:

ERALD KOLASI:

dominant companies that produce China's things. I mean, can you imagine the American government having

717

:

ERALD KOLASI:

the courage to nationalize Lockheed Martin and Boeing? I wish they would, Steven. If I

718

:

ERALD KOLASI:

were in power, that's one of the first things I would do. But that's not

719

:

ERALD KOLASI:

happening here. Right here we let our current capitalists be private and then we let

720

:

ERALD KOLASI:

them overcharge us to no end. So the Pentagon's budget keeps bloating just so we

721

:

ERALD KOLASI:

can pay Lockheed and Northrop Grumman some more money. So it's a very different vision,

722

:

ERALD KOLASI:

right? The people who say China's capitalist and things like that depends on what you

723

:

ERALD KOLASI:

mean by capitalism. Right. And Steve, you know, we can play games with definitions all

724

:

ERALD KOLASI:

Day long. Right. But if you're just looking at standard baseline definitions, the Chinese economy

725

:

ERALD KOLASI:

is more socialist than capitalist. I would say yes. That doesn't mean that it doesn't

726

:

ERALD KOLASI:

have strong capitalist elements. Of course it does. China also has big tech. China also

727

:

ERALD KOLASI:

has Alibaba and Baidu and Tencent and all of these major big tech companies. Yes,

728

:

ERALD KOLASI:

sure, they're private. But the point is, structurally speaking, the Chinese economy is dominated by

729

:

ERALD KOLASI:

the decisions that the state makes.

730

:

STEVE GRUMBINE:

Absolutely. Can I just jump in momentarily because this is really, really important. We

731

:

STEVE GRUMBINE:

just did a book club here recently on State and Revolution. And for folks

732

:

STEVE GRUMBINE:

that can't allow their precious eyes to glance at prior revolutionary thinkers that maybe

733

:

STEVE GRUMBINE:

don't line up with your Bill Clintons and Obamas to according. Okay, but for

734

:

STEVE GRUMBINE:

those that have the intellectual integrity to read theory and go back and look

735

:

STEVE GRUMBINE:

at this stuff, State and Revolution talked about the quote unquote withering away of

736

:

STEVE GRUMBINE:

the state, the eventual withering away of the state, the withering away of a

737

:

STEVE GRUMBINE:

lot of these institutions, withering away of class distinctions and so forth. But it

738

:

STEVE GRUMBINE:

doesn't start there. And they go to great pains explaining that. And when I

739

:

STEVE GRUMBINE:

think about where China is, it is obviously not the automated luxury gay space,

740

:

STEVE GRUMBINE:

you know, communism or whatever. Okay, it's not that. But what it is, is

741

:

STEVE GRUMBINE:

on that trajectory of any kind of capitalist element is merely allowed to exist.

742

:

STEVE GRUMBINE:

It's allowed to exist and could easily be unallowed to exist because the state

743

:

STEVE GRUMBINE:

functions as an arm to support the state, to make the body politics survive.

744

:

STEVE GRUMBINE:

And they allow certain people to be wealthy as long as it serves the

745

:

STEVE GRUMBINE:

interests of the state. But they are not afraid to make something illegal or

746

:

STEVE GRUMBINE:

to make a law that really stops some negative externality dead in its tracks.

747

:

STEVE GRUMBINE:

Like we act like, well, free market. We've got to allow everything just to

748

:

STEVE GRUMBINE:

play out the way ever it plays out. And that's winners and losers. That's

749

:

STEVE GRUMBINE:

the nature, nature of the markets, baby. And we love it. You know, And

750

:

STEVE GRUMBINE:

I say this because I have grown to despise. I don't know if that's

751

:

STEVE GRUMBINE:

the right way. Yeah, no, it is absolutely the right word. I'm going to

752

:

STEVE GRUMBINE:

despise the Biden bot that ignored his baiting during the State of the Union

753

:

STEVE GRUMBINE:

where he called China our number one enemy. And he talked extensively about these

754

:

STEVE GRUMBINE:

terms like in bad guy, good guy, axis of evil. You can almost hear

755

:

STEVE GRUMBINE:

Bush saying evildoers. And it made me so enraged to think about the fact

756

:

STEVE GRUMBINE:

that they have spent all their time allowing capitalists to get rich and not

757

:

STEVE GRUMBINE:

take care of infrastructure, not take care of making sure we have the best

758

:

STEVE GRUMBINE:

and brightest and most educated population. And instead China has said, you know what,

759

:

STEVE GRUMBINE:

hold my beer, we're going to take care of this. And they have done

760

:

STEVE GRUMBINE:

that. And instead of going around the world bombing people, I'm not telling you

761

:

STEVE GRUMBINE:

that they're wearing halos, but I'm telling you they're not wearing forked tongues and

762

:

STEVE GRUMBINE:

hooves either. I mean these guys are doing what they believe is in the

763

:

STEVE GRUMBINE:

state of China's best interest. So when they talk about socialism, it's with Chinese

764

:

STEVE GRUMBINE:

characteristics is all these components where they allow these things to happen, but they

765

:

STEVE GRUMBINE:

could shut them off immediately. Can you imagine shutting off private wealth accumulation in

766

:

STEVE GRUMBINE:

the United States? Can you even imagine the institutions that we've created in this

767

:

STEVE GRUMBINE:

country, allowing the people to thrive without having precarity on their backs, when in

768

:

STEVE GRUMBINE:

fact they are so ideologically locked into the idea that they must have workers

769

:

STEVE GRUMBINE:

in precarity for their version of capitalism to survive. And as an anti capitalist

770

:

STEVE GRUMBINE:

and an MMTer and a guy who fancies himself historically and you know, theoretically

771

:

STEVE GRUMBINE:

interested, curious, very much traveling down that path. It's no wonder we are in

772

:

STEVE GRUMBINE:

a country that is so bastardized and so fundamentally dog eat dog, no haven

773

:

STEVE GRUMBINE:

for the raven, just why has it got to be this way kind of

774

:

STEVE GRUMBINE:

thing, right? And reality is it doesn't have to be this way. That is

775

:

STEVE GRUMBINE:

what fundamentally happened during the Bolshevik revolution when they showed everyone there's another possibility.

776

:

STEVE GRUMBINE:

And the world said, oh my God, oh my God, what do we have

777

:

STEVE GRUMBINE:

to do? They did a couple minor reforms. You know, FDR comes in, they're

778

:

STEVE GRUMBINE:

trying to save capitalism by oh yeah, we're gonna soften the edge. We gotta

779

:

STEVE GRUMBINE:

chamfer these edges here a little bit. We're gonna rounding bit error here. Whatever

780

:

STEVE GRUMBINE:

they did not in any way shape or form put the people first. It's

781

:

STEVE GRUMBINE:

like food stamps. You know, everybody thinks food stamps are about feeding people. It's

782

:

STEVE GRUMBINE:

about ensuring the industry doesn't tank. These are things that are automatic stabilizers for

783

:

STEVE GRUMBINE:

industry. The secondary purpose of them is to make sure people have food. The

784

:

STEVE GRUMBINE:

primary purpose is to make sure, regardless of the economy, that there's industries, those

785

:

STEVE GRUMBINE:

staples for national defense, whatever, they make sure that they don't drown by ensuring

786

:

STEVE GRUMBINE:

that there is a cash flow to keep them going. And because of institutions,

787

:

STEVE GRUMBINE:

we've gotten to the point where we're penalizing the poor and pointing at them.

788

:

STEVE GRUMBINE:

How dare you get food stamps? It's like, you jerk, you Ideological fool. China

789

:

STEVE GRUMBINE:

doesn't suffer from that. China doesn't have any of those sorts of things. Everybody

790

:

STEVE GRUMBINE:

I talk to that's in China, I'm sure everybody has a complaint about everything.

791

:

STEVE GRUMBINE:

You could have the best wife in the world, you'd still complain about them.

792

:

STEVE GRUMBINE:

But when you look at the difference between the United States and China, people

793

:

STEVE GRUMBINE:

are thriving. They're educated, they don't have to wonder if their cancer is going

794

:

STEVE GRUMBINE:

to bankrupt them. They don't have to wonder about housing, they don't have to

795

:

STEVE GRUMBINE:

wonder about anything. Education's free, you name it. And I just find that the

796

:

STEVE GRUMBINE:

basics, the basics of life are not commodified. They're free of charge. They are

797

:

STEVE GRUMBINE:

in fact free from the profit motive. They are free from the capitalist impulses

798

:

STEVE GRUMBINE:

and the state ensures the outcomes. And I think there's proof positive that the

799

:

STEVE GRUMBINE:

institution of free market capitalism is a fricking lie. Anyway, that's, that's my take.

800

:

ERALD KOLASI:

There's a lot of great thoughts in there, Steve, and I just wanted to follow up on some of what you

801

:

ERALD KOLASI:

said. The first thing I want to say is that China does of course have, you know, its own problems, many

802

:

ERALD KOLASI:

problems. The cost of living is outrageous. The welfare state isn't very strong. For example, China doesn't have a national insurance

803

:

ERALD KOLASI:

system for a retirement pension plan. It's the different provinces that administer that. So it doesn't have something like our Social

804

:

ERALD KOLASI:

Security. And as a result, Chinese people save a lot of money. So the savings rate in China is way higher.

805

:

ERALD KOLASI:

That's why they launch a lot of debt fueled investment. That's why they rely so much on debt for growth, is

806

:

ERALD KOLASI:

because they don't have as much internal domestic consumer spending as they want. They have ecological problems and things like that.

807

:

ERALD KOLASI:

So I just want to be clear as we're having this discussion that China has plenty of problems too. There is

808

:

ERALD KOLASI:

no society on earth that doesn't have a lot of problems, especially right now where we are in late stage capitalism.

809

:

ERALD KOLASI:

But having said that, a lot of what you said is absolutely true as well.

810

:

STEVE GRUMBINE:

Right.

811

:

ERALD KOLASI:

So China right now has a higher life expectancy than the United States for the first time in

812

:

ERALD KOLASI:

history. That's something that the Soviet Union never achieved over us. Steve, a typical baby in America could

813

:

ERALD KOLASI:

always be expected to live longer than a typical Soviet baby. But now a typical baby in China

814

:

ERALD KOLASI:

can be expected to live longer than a typical baby born in the United States. That's a fundamental

815

:

ERALD KOLASI:

difference and a huge quality of life improvement over in China relative to here. Right. And there's just

816

:

ERALD KOLASI:

so many other ways. I think, like, yes, inequality in China is pretty bad. The Gini Index has

817

:

ERALD KOLASI:

been rising, especially for income, but it's not as bad as in the United States. So there's a

818

:

ERALD KOLASI:

lot of, like, indicators like that where China, I think, is doing very well. Again, it speaks, I

819

:

ERALD KOLASI:

think, fundamentally to their developmental path. And I wanted to say something about the power of capital in

820

:

ERALD KOLASI:

China. So you were talking about how in America we can't impinge on private wealth accumulation. That is

821

:

ERALD KOLASI:

one thing that the Chinese government does a lot, as you were pointing out. So crypto. Crypto is

822

:

ERALD KOLASI:

big in the United States right now, and it used to be big in China, but then the

823

:

ERALD KOLASI:

Chinese government banned bitcoin mining completely. That's where a lot of the bitcoin miners transferred from China to

824

:

ERALD KOLASI:

the United States because the regulatory environment was lax.  In China right now, crypto is basically dead for

825

:

ERALD KOLASI:

profit. Private education is another area where the Chinese government just basically banned it. Like, they've literally just

826

:

ERALD KOLASI:

banned for profit, private education. Again, hard to see something like that happening here in the United States.

827

:

ERALD KOLASI:

Right? But it goes to the point that you're making, which is that, yes, there are a lot

828

:

ERALD KOLASI:

of wealthy, corrupt capitalists in China, but a lot of them are also under the close leash of

829

:

ERALD KOLASI:

the state. Right? And if they do something stupid, you can't have like an Elon Musk figure in

830

:

ERALD KOLASI:

China, because if somebody comes out like that thinking, I'm just going to dominate over society and do

831

:

ERALD KOLASI:

what I want, you get your ear pulled by the Communist Party and then you're told what to

832

:

ERALD KOLASI:

actually do, right. Before it goes to your head. So a figure like Elon Musk or Jeff Bezos,

833

:

ERALD KOLASI:

somebody like that can never arise in China to dominate society. You can have the Jack Mas that

834

:

ERALD KOLASI:

are really wealthy. That's fine. You can have billionaires. China has plenty of billionaires. But they don't have

835

:

ERALD KOLASI:

the same kind of institutional power in society that our billionaires have over here, because our billionaires have

836

:

ERALD KOLASI:

basically been given free rein to just do what they want. In China, they're much more closely controlled

837

:

ERALD KOLASI:

by the state, both what they do and what they say. So those are just some examples, I

838

:

ERALD KOLASI:

think, to reinforce your point and to reinforce the broader argument that we're not destined to stick to

839

:

ERALD KOLASI:

neoliberal capitalism. We don't have to do this. That is the choice that our elites have made so

840

:

ERALD KOLASI:

far over the past few decades anyway. But this doesn't have to be the choice that we make

841

:

ERALD KOLASI:

going forward. Right There is. And There are alternative visions and futures available to us, but we need

842

:

ERALD KOLASI:

the power of imagination to think of them. And then we need the political will and more importantly,

843

:

ERALD KOLASI:

the organization to actually get it done. And then in the future, if there's an exogenous shock that

844

:

ERALD KOLASI:

comes along that can push the system along, that could also help get things done. But the point

845

:

ERALD KOLASI:

is, we are not destined to stay on the current path we're at, right? Never eternalize the present.

846

:

ERALD KOLASI:

History is dynamic. Things can change. And there are countries out there, like China, that have shown that

847

:

ERALD KOLASI:

alternative developmental paths and trajectories are possible if we're willing to dare to seize the moment.

848

:

STEVE GRUMBINE:

I know we're coming up to a close here, but I wanted to bring

849

:

STEVE GRUMBINE:

one thing up that we had kind of talked about offline that I think

850

:

STEVE GRUMBINE:

is really important. I was bringing up the arrangements that happened in Zimbabwe, and

851

:

STEVE GRUMBINE:

you said, you know, I think a big better depiction of this could be

852

:

STEVE GRUMBINE:

in Venezuela. And with Venezuela being right in the crosshairs of Trump's foreign policy

853

:

STEVE GRUMBINE:

bullshit that he's doing right now, I was wondering if maybe you would talk

854

:

STEVE GRUMBINE:

about the Venezuela situation a little bit from this perspective.

855

:

ERALD KOLASI:

Yeah, absolutely. Again, what the institutionalists would say is that Venezuela is a terrible socialist country.

856

:

ERALD KOLASI:

And, you know, that's why the economy has tanked. That's why millions of Venezuelans have fled.

857

:

ERALD KOLASI:

It's all because Maduro's corrupt or Chavez was corrupt, and socialism is bad. And, you know,

858

:

ERALD KOLASI:

they're subsidizing everything. Everything's free, et cetera, et cetera. So that line of argument. So here's

859

:

ERALD KOLASI:

what actually happened. After Chavez died, Maduro comes to power, and then things are okay for

860

:

ERALD KOLASI:

a little bit. But then around:

861

:

ERALD KOLASI:

because a huge chunk of the government's budget comes from oil exports, Right? So most of

862

:

ERALD KOLASI:

Venezuela's foreign trade is from oil exports. Its economy is fundamentally dependent on oil exports because

863

:

ERALD KOLASI:

that's how it gets dollars into the economy. And Venezuela, like many other South American countries,

864

:

ERALD KOLASI:

has what I would call de facto dollarization in many corners of its economy. Meaning dollars

865

:

ERALD KOLASI:

are widely used for normal economic transactions. Right? Like if you wanted to stay at a

866

:

ERALD KOLASI:

hotel somewhere or something like that, dollars are accepted. That's true throughout much of South America

867

:

ERALD KOLASI:

and Latin America. And again, that's a consequence of American imperialism over the past century. So

868

:

ERALD KOLASI:

the point is, Venezuela is very dependent on oil exports for bringing dollars into the economy

869

:

ERALD KOLASI:

and for stabilizing the exchange rate between its local currency and the dollar. So oil prices

870

:

ERALD KOLASI:

crashed in:

871

:

ERALD KOLASI:

United States. So the United States started producing a lot more oil and natural gas. So

872

:

ERALD KOLASI:

that led to a supply glut in the global economy. And that was matched with a

873

:

ERALD KOLASI:

e Xi Jinping came to power in:

874

:

ERALD KOLASI:

to reorganize the Chinese economy. Again. He was more of a leftist ideologically closer to Mao

875

:

ERALD KOLASI:

than to Deng. So he thought China was growing too fast. It was leading to a

876

:

ERALD KOLASI:

lot of imbalances in the economy. And that's when Chinese growth rates start coming down from

877

:

ERALD KOLASI:

like 12, 13% to more like 6, 7, 8% under Xi. Right. So that's a massive

878

:

ERALD KOLASI:

change that he really gets going in just a couple of years. There's declining demand for

879

:

ERALD KOLASI:

oil in China. There's a supply glut from the shale revolution in the United States. Oil

880

:

ERALD KOLASI:

prices crash in:

881

:

ERALD KOLASI:

dry up, right? Because its oil exports crumble. And so it's getting far, far fewer and

882

:

ERALD KOLASI:

far fewer dollars. And that leads to inflation, right? Because the dollar, it's a dual currency

883

:

ERALD KOLASI:

regime, in effect. So if one currency becomes very scarce, what tends to happen in those

884

:

ERALD KOLASI:

situations is people start using more and more of the other currency of the remaining currency

885

:

ERALD KOLASI:

to get the scarce currency. And so it leads to a lot of inflation, right? And

886

:

ERALD KOLASI:

it leads to a recession. And then what makes the situation worse is Trump 1.0 comes

887

:

ERALD KOLASI:

to power in:

888

:

ERALD KOLASI:

like Jeffrey Sachs have estimated they've led to like 40,000 deaths. And that was a while

889

:

ERALD KOLASI:

ago, right? This estimate was a while ago. Who knows? Who knows now? So they impose

890

:

ERALD KOLASI:

this brutal sanctions regime. It becomes much harder for Venezuela to conduct trade with other countries

891

:

ERALD KOLASI:

as a result of this regime. It becomes even difficult to import medicine. Right? Something so

892

:

ERALD KOLASI:

basic because again, a lot of companies don't want to export to Venezuela because they're afraid

893

:

ERALD KOLASI:

of running afoul of US sanctions, even though the sanctions are not formally targeted at Venezuela

894

:

ERALD KOLASI:

as a country, it's more like the regime. Nevertheless, it has these kind of knock on

895

:

ERALD KOLASI:

effects around the world where a lot of Western companies just don't want to do business

896

:

ERALD KOLASI:

with Venezuela anymore. So Venezuela's international trade dries up. It's harder for it to export its

897

:

ERALD KOLASI:

oil. The sanctions hurt with that. So oil production and oil exports plunge even more. So

898

:

ERALD KOLASI:

the economy enters a huge depression. That's when millions of people flee again because of a

899

:

ERALD KOLASI:

situation that was made worse by American policy. And where do a lot of those millions

900

:

ERALD KOLASI:

of people end up Fleeing? Right here to the United States. This is a common theme

901

:

ERALD KOLASI:

with imperialism. Right. The right simultaneously loves imperialism but hates immigration. However, imperialism often leads to

902

:

ERALD KOLASI:

unwanted immigration. When we overthrow the governments of other countries, we destabilize those countries, People end

903

:

ERALD KOLASI:

d to Guatemala as well in the:

904

:

ERALD KOLASI:

government. There was a massive three decade civil war that followed. Hundreds of thousands of Guatemalans

905

:

ERALD KOLASI:

ended up fleeing to the United States. Time and time again in Latin America, the same

906

:

ERALD KOLASI:

thing happens. We destabilize the country, the economy collapses, people flee to the United States. Anyway,

907

:

ERALD KOLASI:

so the point is, that's what happened with Venezuela. Again, it's not fundamentally social. Is that

908

:

ERALD KOLASI:

instant institutions bad? There were a lot of exogenous shocks which crippled the Venezuelan economy. So

909

:

ERALD KOLASI:

that's again, falling oil prices. That was the first shock Venezuela could have weathered that really.

910

:

ERALD KOLASI:

The bigger shock was the huge sanctions that came in in the first Trump administration. And

911

:

ERALD KOLASI:

then now, of course, Steve, as you know, there is a quote, unquote pressure campaign to

912

:

ERALD KOLASI:

try and topple Maduro. We don't know where that's going to go, if it's going to

913

:

ERALD KOLASI:

lead to a full blown war, if there's going to be sort of a coup or

914

:

ERALD KOLASI:

something else, or who knows. But the point is there is a massive American effort now

915

:

ERALD KOLASI:

to overthrow the Venezuelan government and that's going to produce a lot of chaos and instability

916

:

ERALD KOLASI:

as it always has. And so fundamentally, once you understand what happened in Venezuela over the

917

:

ERALD KOLASI:

past few decades, you realize that again, the central part of the story isn't the institutions,

918

:

ERALD KOLASI:

isn't socialism, capitalism. It's all of the exogenous shocks and factors that are impacting the internal

919

:

ERALD KOLASI:

dynamics of the Venezuelan economy and the political system.

920

:

STEVE GRUMBINE:

And who's in power via external source. I mean, one of the things that

921

:

STEVE GRUMBINE:

I guess as we close out that I think is really important, that I've

922

:

STEVE GRUMBINE:

gotten from this is a lot of the things that we hold on to

923

:

STEVE GRUMBINE:

as just people, our false consciousness. I don't know if I'm saying this correctly,

924

:

STEVE GRUMBINE:

but I'm just going to say it plainly. I mean, the things that we

925

:

STEVE GRUMBINE:

think we know and the reasons why things are the way they are, the

926

:

STEVE GRUMBINE:

way we, we just envision them, are not really rooted in truth. I mean,

927

:

STEVE GRUMBINE:

a lot of the stuff that we think we know, we find out that

928

:

STEVE GRUMBINE:

these things are institutions brought on by the power elite, they are thoughts, they

929

:

STEVE GRUMBINE:

are concepts, they're ideas that cloud the material reality that underlies them. And we

930

:

STEVE GRUMBINE:

just assume that TINA narrative, "there is no alternative," because it's terrifying, it's bigger

931

:

STEVE GRUMBINE:

than us, it's beyond what most people can wrap their brains around. And ultimately

932

:

STEVE GRUMBINE:

the people in power make decisions. They begin their PR campaigns, they spread propaganda,

933

:

STEVE GRUMBINE:

they change narratives using that media arm that, what I think five billionaires own

934

:

STEVE GRUMBINE:

all the media. And so in terms of deeply entrenching institutions or even shifting,

935

:

STEVE GRUMBINE:

they've got all the tools and power to do it. So if we flip

936

:

STEVE GRUMBINE:

this on its head and it was the working class that had control of

937

:

STEVE GRUMBINE:

those things, that it had control of the state, that it had control over

938

:

STEVE GRUMBINE:

the institutions and stuff, it would look very, very differently. We can't say for

939

:

STEVE GRUMBINE:

sure, you know, what it would be because you saw the difference that happened

940

:

STEVE GRUMBINE:

in Russia. We had a very different outcome than we did say in Italy.

941

:

STEVE GRUMBINE:

Gramsci was very clear on that. Your final thoughts on this as we go

942

:

STEVE GRUMBINE:

out? I just. I wanted to throw some of that out there, get the

943

:

STEVE GRUMBINE:

juices flowing for further work.

944

:

ERALD KOLASI:

Thank you so much. And I think this is such an important discussion. I think my final thoughts

945

:

ERALD KOLASI:

would be, you know, as a. As a materialist myself, always remember that history is. Is dynamic and

946

:

ERALD KOLASI:

full of opportunities, and it doesn't just end right now. So there's a vast horizons of possibilities that

947

:

ERALD KOLASI:

are open to us in the future. And I think what people need to do is to think,

948

:

ERALD KOLASI:

to organize, see where we can apply pressure points in the system. And eventually down the road, a

949

:

ERALD KOLASI:

lot of big changes are going to come. They may not come as fast as we want them

950

:

ERALD KOLASI:

to come. That's often what's frustrating about history, right? But the thing is, whenever you have a critical

951

:

ERALD KOLASI:

juncture, as the institutionalists call it, or a shock or a revolution, or whatever you want to call

952

:

ERALD KOLASI:

it, revolutions can often undo in a few hours what has been building up for a thousand years.

953

:

ERALD KOLASI:

So never forget that. The power of a radical break with the past and how we can alter

954

:

ERALD KOLASI:

human history. And that's some of the examples that we've been covering in this conversation, Steve. And I

955

:

ERALD KOLASI:

hope people take some inspiration from that going forward.

956

:

STEVE GRUMBINE:

Fantastic. All right, folks, my guest Erald Kolasi is an amazing mind. He's an author and

957

:

STEVE GRUMBINE:

he runs a substack that I highly recommend. It's under his very name, Erald E R

958

:

STEVE GRUMBINE:

A L D Kolasi K O L A S I and his book. Real quick, plug

959

:

STEVE GRUMBINE:

your book one more time for everybody because I want them to get this book.

960

:

ERALD KOLASI:

pitalism. Came out earlier in:

961

:

ERALD KOLASI:

It's about complex relationship between human societies and the natural world and

962

:

ERALD KOLASI:

how they affect each other. So yeah, thanks so much.

963

:

STEVE GRUMBINE:

Absolutely. All right folks, my name is Steve Grumbine. I am the host

964

:

STEVE GRUMBINE:

of Macro and Cheese. This podcast is a part of the non profit

965

:

STEVE GRUMBINE:

Real Progressives. Real progressives is a 501c3 not for profit. All of our

966

:

STEVE GRUMBINE:

work is funded by you. Donations. And those donations are at least as

967

:

STEVE GRUMBINE:

long as this institution exists, tax deductible. So please consider becoming a monthly

968

:

STEVE GRUMBINE:

donor to our work. You can go to our website, realprogressives.org, go to

969

:

STEVE GRUMBINE:

the donate section. All of the platforms, from the recording platforms, to replacement

970

:

STEVE GRUMBINE:

parts for the equipment, to all the different things that we do with

971

:

STEVE GRUMBINE:

webinars, you name it, all of that costs money. We desperately need your

972

:

STEVE GRUMBINE:

support. You can also go to patreon.com real progressives. And of course we

973

:

STEVE GRUMBINE:

have our own substack Real Progressives. And we would love for you to

974

:

STEVE GRUMBINE:

become a monthly donor there as well. With that, on behalf of my

975

:

STEVE GRUMBINE:

guest, Erald Kolasi, myself, Steve Grumbine, we are out of here.

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Could you interview Lyn Alden? I found her book Broken Money really informative. She’s not an MMT person, but I find different perspectives valuable.
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Listened to 31 Aug ep 292. I'm no MMTer, but this ep was compelling. Pls have show w smart person who disagrees like M. Hudson or R Wolff.
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Macro N Cheese
The MMT podcast for the people!
A podcast that critically examines the working-class struggle through the lens of MMT or Modern Monetary Theory. Host Steve Grumbine, founder of Real Progressives, provides incisive political commentary and showcases grassroots activism. Join us for a robust, unfiltered exploration of economic issues that impact the working class, as we challenge the status quo and prioritize collective well-being over profit. This is comfort food for the mind, fueling our fight for justice and equity!
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Steven Grumbine

Steve is a lot more than just the host of Macro N Cheese, he's the founder and CEO of two nonprofits and the “less is more" project manager! He uses his extensive knowledge of project management, macroeconomics and history to help listeners gain a vision of what our future could look like.