Understanding the Future of Capitalism, from the Great Resignation to Crypto

What does the future of capitalism hold? We explore supply chain delays, crypto, the great resignation, AI's role and the importance of immigration for capitalism with host Dorie Clark, The Wall Street Journal best-selling author of The Long Game, and Adam Posen, president of the Peterson Institute for International Economics.

DORIE CLARK: Hello friends, this is Dorie Clark, and we are here with Newsweek. This is a special series that is presented by the Government of Japan. We are going to be talking over the course of the next month, every Wednesday, about creating the economy of the future.

Today, we are here to talk about the future of capitalism. And our special guest is Adam Posen. Adam is here with us. He's an economist. He's also the president of the Peterson Institute for International Economics. And my personal favorite, I have to say I'm a little jealous of this. Adam, the Atlantic in 2012, called Adam a superstar central banker. That's pretty sexy. I'm pretty sure that's a laurel...

ADAM POSEN: That is for central bankers. That's pretty sexy. Yeah.

CLARK: Absolutely. Well, well, well deserved. And we're so glad to have you here. And if you are tuning in live to join us, we're talking the future of capitalism. This is important and exciting stuff. We would love to hear your questions and who you are. So, please feel free to type into the chatbox and let us know who you are, where you're tuning in from, and throughout the course of our conversation, we're gonna be taking your questions for Adam Posen, as well.

So Adam, really glad to have you here. There is a lot that has been happening economically. Pretty much anyone who has been an observer over the past two years of all of the chaos that the pandemic has wrought has been trying to wrap our arms around this and figure this out.

My first question, just as a starting point, it seems like in the past two years, as someone who is, we can say, an intelligent yet ignorant observer. I'm not a scholar of economics, but I am somebody who reads the paper, who watches things. I, and a lot of people around me, feel like everything is overheated now. Property prices have gone through the roof. The stock market has gone through the roof. We're talking specifically in the United States, but in many international markets, even there's been a drawback recently, but until recently, even cryptocurrency has gone through the roof.

What is happening? Are we in a bubble of everything? How do you make sense of this, Adam?

POSEN: Thanks so much for having me, Dorie, and the chance to talk with smart people like you and normal people like your viewers and listeners, as opposed to economists.

Well, I don't think bubble is quite the right word, but overheating as you use it, I think, is right. We've got too much savings chasing too few of each thing, whether it's opportunities to share in the profits that companies generate. Whether it's housing and places we want it to be. Whether it's goods and services, particularly the goods that like used cars, and that fell into shortage over the last couple of years. I think there's two big factors going on. Notice, I said it's too much savings, not too much money. That's the key point, is it's not about the fed prints money; the printer goes burr, as some people used to do a meme.

But, when we look at data on money printing, it just doesn't correlate to anything. It's just not there. But savings, we have a world in which Americans have started saving more than they used to. That started after the last financial crisis. Most of the rich countries save much more than we do, to begin with, including Japan. China saves a lot. But there aren't that many good places to put your money.

The U.S. is safer than most places, but we don't have that many great opportunities. So that ends up pushing up the value of things because there's just too few places to put all these savings. And, that's kind of sad, and that's why there's a strong argument that I support for doing more public investment. Because all these huge amounts of savings out there are driving down interest rates. And, we might as well do something useful with the money, give people more things to save it.

The second thing that's going on, obviously, is the economic reactions to COVID and all the human tragedies and disruption that went with that. It's been a process that's throughout the world, at least throughout the world that got vaccinated, that you have a reopening. And people have even more excess savings than they did, as they call it. Not everybody, of course, but a majority of people. Partly because they got government benefits, and they didn't spend as much while we were on lockdown.

So there again, this overheating word you use, this right to me. It's chasing after supply that is inelastic, meaning we want more bikes, we want more cars, we want more, I don't know, air fryers, but we're only set up to produce so many in a short time and so that bids up the price.

So that's the sense in which we're overheating. And some of it's going to work itself out. The short-term stuff already is starting to but the longer-term stuff, needing to invest all the savings we got, is still an issue.

CLARK: Yeah, I think this is such an interesting point, Adam. Obviously, one of the most visible trends to the average consumer over the course of the past couple of years has been the massive supply chain shortages.

I recently bought a new place. I've been trying to order patio furniture. I'm, you know, calling up my orders. They say, oh, maybe you can have it in July. Maybe you can have it in October. This seems ridiculous for somebody who has grown up in contemporary American culture where I'm used to getting it tomorrow. Not that I'm an impatient person, but it seems absurd to me that lawn furniture is now taking 35 weeks to arrive.

What what is going on with all of this? We heard early on, oh, it's just that people are out with COVID, so there's not enough workers. People have colds. But don't worry, they'll come back. But it seems like now this has created a crazy tripwire. How long do you anticipate supply chain problems lasting? And, what is actually going on here? This can't just be people calling in sick?

POSEN: No, it's not people calling in sick, although that has happened for a while. I think you're right, Dorie. And this is actually a different form of inflation when you're paying the same amount for a product, but you're waiting six,12,18 months for it. Or, you don't have the full choice of the product you want. You have to pay the same or more to get something that isn't exactly what you want.

And we've all got stories about that with around Amazon Prime or shopping at Target or going for furniture. And I think what is happening is, again, there's this transitional period where we built up this demand. And what's happened isn't that we're producing less than we were pre-COVID, but the demand is outstrip that. So it's not that these talks about shortages is really the issue. I mean, for certain specific goods, it is. But overall, it's just that the demand is more than we can meet.

And some of that, again, is self-correcting. I don't know if you or your viewers have heard of this, but there's what's called the bullwhip effect or the ketchup bottle effect. You know, when you're trying to get ketchup out of the bottle, it doesn't come out and doesn't come out, and that goes blar, and the huge amount comes out.

That's what happens with goods markets. People are running at maximum production. But after a while, they end up investing more, expanding production, hiring more workers. And, so then you end up with a floor. So, you'll have your pick of outdoor furniture in six to 12 months.

The other thing that's going on again—sorry to always make it short-term/long-term, but usually that's a good way to think about this—is that we had a structural change starting about 25 to 30 years ago. Following on the success of Toyota, notably, and other manufacturers about what was called just in time inventory. They would keep just enough supplies in order to be able to meet their needs on a given day, but they wouldn't back up a lot of alternative sources or a stockpile of extra inputs. Interestingly, even though people are inspired by Toyota, Toyota didn't do that to an extreme the way some others did. They maintained a network of suppliers. They were ready to ramp up stockpiling.

But anyway, there is a correction accelerated by COVID and accelerated by China/U.S. tensions of big companies deciding okay, I got to stockpile some more inventory is just a case I run short. I have to have more than one supplier. I have to have suppliers who are not in China. And again, that's going to fix itself. But, we had gone too far in this sort of very lean, lean way of doing production.

CLARK: I think that's such an interesting point, Adam. Thank you for that. We are here on behalf of Newsweek with Adam Posen. Adam is the head of the Peterson Institute for International Economics, and we are talking about nothing short of the future of capitalism. So if you are tuning in here and you have questions about the economy, about anything related to macroeconomics, microeconomics, the money in your pocket, let's bring it. Feel free to type it into the chatbox for Adam Posen. We're lucky to have the opportunity to learn from him and begin to get a little bit more of a sense of some of the factors, some of the hidden factors, that are shaping our lives and professional careers today.

If you're enjoying this conversation, make sure you tune in every Wednesday during the month of February. This is a special series about creating the economy of the future sponsored and presented by the government of Japan. We're going to be here at 12:30 Eastern every Wednesday during the month of February.

Now, Adam, one of the things that I'm curious about, obviously something that has dominated a lot of headlines—again, it's a U.S. phenomenon, but also many other places globally are experiencing this as well—is the so-called great resignation. We learned that just yesterday, stats came out that I believe was 43 million Americans quit their jobs in 2021, which is an unprecedented statistic. It seems like every month we're breaking records; people are leaving their jobs. And, I'm curious about your perspective.

Again, do you think this is a long-term trend? Is this people that are just getting a little twitchy after two years of a pandemic, and they want a change? Or what do you think is happening? Is this actually a fundamental shift that we're seeing in the workforce?

POSEN: It's a really good question. And it's one that matters to a lot of people, Dorie. So again, I'm grateful to you and Newsweek for bringing me in contact with your viewers. It is like a lot of other things—that great resignation is something people talk about as though it's global. But, our perceptions are changed because the U.S. is an extreme case. And, most other countries, most of the high-income countries, European, Japan, Korea, Canada, Australia, are not seeing quite the same thing. I think that's instructive because part of what happened is if you look at what happens if you look at the labor markets, the workers over at the U.S. and aggregate, for the last couple of years—we saw this enormous jump in unemployment, of course, at the start of COVID, despite the big government spending on the programs. This was because the U.S. system was set up, and even when we extended all these very worthwhile new programs, you mostly got access to those programs, to the benefits, if you made yourself unemployed. Businesses, even though there were supposed to be loans tied to keeping people in their jobs, in reality, businesses still had an incentive to shrink their workforces or to push people as temporary.

If you look around the rest of the world, the rest of the high-income model to get Europe, Japan, Canada, Australia, UK, they went a different path. Sometimes it was legislative. Sometimes it was just practice. But essentially, they all put more emphasis on keeping people in jobs. You could get your benefits even if you stayed in your job and we're only working part-time. They incentivized, in a better way, companies to furlough workers but keep them affiliated. And so what that shows is their unemployment goes up, of course, but it comes down from a much, much lower level. And, we were talking about the difference between 20 percent and 8 percent or 10 percent.

So a whole bunch of people, particularly people in low-income service jobs in the U.S.— so delivery people, home health care aides, people in retail, people in hospitality—they got over sort of the hump the scariness of saying, okay, what happens if I look for a new job? I can't look for a job. Well, how do I feed people? How will I do it? They were forced to look at that. Even if they weren't unemployed for even a short period, they saw people around them becoming unemployed. In the U.S., there was a genuine big shift.

People are re-evaluating what economists call the reservation wage, the package of pay and benefits that have to be met, and work conditions that have to be met to make it worth it, to stay in a job, to go to work. And that's right. That's the right thing for people to be doing right now, I think, because the U.S. has been bad about that for a lot of our lower-income workers. But what it means is the great resignation is an order of magnitude being five or 10 times as big in the U.S. as it is in our other countries. And that's due in part to this different approach we took to how to bridge people through the COVID recession.

CLARK: It's a really interesting perspective, Adam. Thank you for sharing that. Again, we're here with Adam Posen. He is an economist. He's the head of the Peterson Institute for International Economics.

Now, you were mentioning just a moment ago, Adam, the difference between the U.S. and other countries and how they handle this. I have happened to know from your bio that you received the Order of the Rising Sun from the government of Japan for advancing U.S. and Japanese relations and also advancing the Japanese economy in general. And so I'm actually curious if you are looking at the International cross-section, advice about things that you think that Japan, for instance, is doing right, that you would like the U.S. to maybe take a page out of their book.

What are some of the things that are lessons that you wish the American economy could learn from what Japan is doing?

POSEN: I think there are some things. I mean, the honor from the government of Japan was a huge thing for me personally, but what I'm about to say isn't just because they patted me on the head. There are some very fundamental things that I think the U.S. can learn from Japan. But I have to start with the caveat, not everything you want to learn from Japan. And there are things that suit Japan that don't suit the U.S. But there are, I think, two really critical things where Japan, like the U.S., going back to the success savings idea, has been coping for a couple of decades now, with a world where there's low returns on a lot of assets or the assets that are available get bid up because people are scared and don't want put their money elsewhere. And, they have an aging society, which the U.S. has less so, but we have.

This combination leads to a situation of relatively slow growth compared to the way it used to be. And despite all the talk about asset inflation, that's actually a reflection of relatively low risk-taking. Because if people were more willing to invest in risky assets or move their money, there would be a shortage of money in the treasuries, in the stock market index, because people are taking more risk. And they're not.

Sorry to complicate things, but that's the background and what the Harvard Economist Larry Summers called secular stagnation several years back. For all these controversial statements, I think on this, he was very insightful and very right. This is a common problem across the high-income world right now.

There are two things that Japan is doing right in response to that, and which I, in a small way, contributed to and encouraged, which is why I got the recognition you kindly mentioned. The first is Japan has finally started doing a lot of public investment. In the 90s, when they were running big deficits, they weren't doing public investment. They were just running deficits. Since roughly 2003, and especially since two prime ministers ago, Prime Minister Abe at the end of 2012, they've been doing more public investment.

As I tried to say at the start, in a world of low-interest rates and low high-risk aversion, there are useful things you can do with the money, where the return is higher than what the government's paying out. They're trying to do that now, the Biden administration. I think one of the best parts of their agenda is this attempt to get through public investment, we begin physical infrastructure bill. There's more to come if the Congress will pass it. I think that's a good thing because it maintains demand and employment and helps your prospects for the future since the money sitting around anyway.

The second thing Japan has been doing that I think we can learn from is again, under the leadership of Prime Minister Abe, starting in early 2013, they pursued a policy of what's called "Womenomics." The basic idea was Japan had one of the lowest labor force participation rates of women, adult women, prime-age women is what economists call them in the world. This included very skilled women as well as less. Japan has almost parity in terms of females versus males going through university. But, 10 years after university, complete disparity in pay and how many people.

So the Abe government did a bunch of things, including providing more flexibility in the workforce, more support for childcare, more support for medical leave to look after family members. And not enough, but a little bit in the tax code to make it fair for second earners in a family. They got an enormous response, depending on how you count it, between 3.5 million and 4.5 million women rejoined the workforce since 2012. The entire workforce in Japan is 55 million roughly. So, it's a huge jump. That and these women are generally, on average, more productive than the average worker in Japan before this. It's been a huge benefit to the economy as well as to social justice.

To me, that's another thing where the U.S. can learn because the U.S. people don't like to recognize this, but the U.S. has had declining female labor force participation for over a decade. We've had declining labor force participation in general. All these countries, including Japan, but even places like Italy, Australia, places that historically had low female labor force participation, they're overtaking the U.S.

Even, you know, supposedly sclerotic Europe with all these social benefits and weird ways, laziness and all these things Americans used to talk about, average female labor force participation is lower, excuse me, is significantly higher and has been for several years. And so that's just a wasted resource, as well as being unfair. That's one element of the "Build Back Better" package, as it's called, the Biden administration put out there. I don't agree with all the elements, but that element, that set of policies, I think could be enormously helpful, which Japan and other countries demonstrate.

CLARK: Adam, thank you very much. That's a really fascinating perspective. Again, we're here with Adam Posen. He is an economist. He is the president of the Peterson Institute for International Economics. And we're talking about how to create the economy of the future. Now, Adam, I love this. Again, if you're tuning in live, please type in let us know who you are—where you are chiming in from. We'd love to hear from you and take your questions for Adam Posen.

A comment came in which I feel like, you know, a fair number of people might just feel this way, Adam. Ersin says capitalism is bad. Sharing is good. But I happen to know that your perspective is a little different, that you believe, and please elaborate on this, that when many people feel qualms about capitalism, they feel like capitalism, that's terrible. It's not necessarily capitalism, per se, that they're having a problem with, but how capitalism is playing out and some of the specific policy choices that have been made. Can you talk a little bit more about this and perhaps help us redeem capitalism?

POSEN: Thank you for just summarizing that perspective so well, Dorie. I really appreciate it. I mean, that is my view. And more importantly, I think the view the evidence supports. It's not... there is a way forward where capitalism is—not perfectly— but largely put in service of society and largely beneficial to people. And the inequalities are not so outrageous. Basically, that's the outcome you get in Western Europe and much of Eastern Europe, in Canada, in Australia—the U.S. is an extreme outlier. There's very little way to overstate this.

I mean, I was just talking about the difference in how we ran our unemployment policies and benefits during COVID. And the difference in how we enable or don't enable women to work and work in the modern era. And, of course, along racial lines and economic lines, the U.S. is just frankly, more unjust than then other countries. Some people would say this is worth it because we have a freer, more dynamic market.

But, the evidence over the last 20 plus years is that A) we don't have a free or more dynamic market. A lot of people have documented both on the right, and the left just how much our companies are concentrated in monopolies and oligopolies how inflexible our workforces are compared to some of these other places. But also, we are not sacrif...it's not a trade-off, because there's a lot of other countries that are much more open to international trade and competition than the U.S. and have been opening up even more, and they've still got some legit decline in inequality. But they're able to more than offset it through government programs in the U.S. there just isn't support for that.

And, you know, there's an argument that's been made by historians and economists that, frankly, it's part of the legacy of slavery and institutionalized racism that rural white people don't want to vote for programs that benefit everyone universally or benefit their perception disproportionately people of color, urban people. And there's a lot of evidence, sadly to say that seems to be a big part of it. Anyway, the main point is it doesn't—capitalism doesn't have to look like what we see in the U.S. It doesn't have to look like what Charles Dickens wrote about the late 19th century. It can if we let it, but it doesn't have to be that way.

CLARK: Interesting. Thank you for that perspective, Adam. So something that is on the minds of many people, we're seeing headlines about this. This is in the news, in a way that it literally has not been for 40 years is inflation. And a question came in related to what we were talking about a few moments ago. With regard to the great resignation, Josh was curious, are we going to see a lasting change to wage levels as a result of the great resignation? Do you feel like inflationary pressures on wages are here to stay, or what's your take on all of this and why prices seem to suddenly be going through the roof in a way that they haven't since the late Carter, early Reagan administration?

POSEN: Yeah, it's true. It's 40 years. Basically, 1985 was the last time we had really peak inflation, and the fed had to tighten a lot to get rid of it. So I think what's going on here, again, is one longer-term thing, but mostly a short. In this case, it's a much more shorter-term thing. We started the conversation talking about overheating. It's just as my colleague at Peterson, Jason Furman, has put it, if you're building a fire, you don't throw all the logs on at once.

We have this really big extra fiscal stimulus package with the $2,000 checks to everybody that came out in January/February of last year. And that was a time when the economy was already recovering and starting to move forward. We had already done a lot of spending. Even though I'm a huge advocate of public investment, that was neither a great use of money and it was too much too short a time.

I think relating to that. And this, I emphasize even more than the overspending, though, is that we were in this period—like other countries—of transition, that great resignation here, but just in general, you were suddenly seeing a huge jump in demand for goods in particular. Not so much services, because people weren't yet out in public as much. And they there's what, because called inelasticity, the supply just couldn't ramp up that quickly. So, you were in this temporary period of labor shortage, good shortage, and a lot of energy being put in. And that combination meant the inflation you got for a given amount of, let's call it overheating, was much more than we would normally expect.

On the wages point, which your listener rightly raises, I think the keyword is leveled. We are seeing a meaningful jump in the level of wages, particularly for lower-income service workers in the U.S. You see McDonald's and Bank of America and Walmart, just to pick a few names of major employers who are de facto raising the minimum wage to $15 or more, even though we haven't legislated. And, there's very strong evidence already that when they do that, that pushes up the maybe the minimum wage of other companies, including small businesses around them, because they have to compete for labor.

There is a meaningful jump here. But I don't think it's the sort of an ongoing cycle set to say, because once you leave Joe's Cafe to work for McDonald's, or once you leave... you shut down your shop to go to work for Walmart, or whatever it is, you're joining a non-unionized workforce. You're joining a big company, and they give you these new benefits and higher wages to get you in the door and keep giving them to you, presumably, but it's not like you have a lot of bargaining power once you're on the other side of the door.

It's not like a year from now you're gonna say, oh, I'll walk, because it actually is difficult and traumatic. I mean, teens go in and out of jobs, but most people from their early to mid-20s through their 50s and 60s prefer to stay put, for good reason. They shouldn't have to, we should make it easier for them to switch jobs, like portable health insurance, but most people prefer to stay put.

So I think we're seeing a one-time level shift. We're seeing an improvement in the wages and working conditions of people who were in bad jobs or bad conditions, but it's not something that's the start of some ongoing redistribution to lower-income workers. You need to do a lot more in the society to make that happen.

CLARK: Thank you very much. We're here with Adam Posen. Adam is an economist. He is the president of the Peterson Institute for International Economics. And, we are having a discussion today brought to you by Newsweek. This is part of a special series presented by the government of Japan where we are talking about the future of capitalism.

Now, Adam, I have to ask you the question that's on everybody's mind: cryptocurrency, NFTs, what's the deal? Or is everything gonna happen... is the Peterson Institute soon going to be paying you in Bitcoin or ether? Inquiring minds want to know.

POSEN: No, I mean, as I think has been reported all over the place, a lot of NBA players, the new New York Mayor, a bunch of people decide I want to be paid in Bitcoin, and they decided that just in time to get a 50 percent cut in what that was worth in really dollar spending terms. Just the basic idea is Bitcoin, to some degree, is like the Game Stop's or AMC Theater's stock bubble, and here I do use the word bubble. I mean, it's people chasing these things because they assume they'll be able to sell them for later price that's higher and no inherent reason beyond that.

I think the other thing that's going on with Bitcoin is that there's a high—basically, the same people who distrust the government, for good and bad reasons, mostly bad reasons, or unjustified reasons—let's put it that way—are the same people who distrust authority, who distrust vaccinations. It's not perfect, but the same groups of people are particularly vulnerable to saying, well, I want a currency that's out from the government. And what goes with having currency that's out from the government is—yeah, there's this tiny risk, the government's going to try to expropriate you in some way, or that you're subject to inflation, which we're now having, but not terrible, and it's going to be over pretty soon.

And on the other side, you've got this incredibly large risk of volatility in the value of Bitcoin and or other cryptocurrencies. I don't mean to single them out, although why not? And, just, you know, all the stories that are true about people who lose their password or lose their USB drive, or whatever. I mean, there's a reason why all of the civilized world moved to government currencies—because even though they're not perfect, it's far superior to these private, crazy currencies. And so, whether you're doing it because you're doing it as a speculative bubble, or you're doing it because you mistakenly think you can't trust government currency, it's a bad idea. So anybody who's listening, sell.

CLARK: That's pretty definitive. All right, laying it down. Adam Posen. Thank you very much. All right. He is he's bearish on the crypto.

So, Adam, I wanted to follow back up. We have some viewer interests here in pressing a little bit further on the inflation question. And Rebecca was chiming in, and she's curious: I often hear that we're getting used to higher prices. So those prices will stick around? Do you think that that is going to be true? Because you know, the wages are going up? So it's just everything going to level up? And even out? Or what? What's your perspective about all that?

POSEN: Sorry, I just had trouble following the last bit of it. So So could you repeat that please?

CLARK: Yeah, of course. Of course. So per Rebecca's point, she is curious. You know, we're just getting used to these higher prices, it seems like, and so it seems likely, perhaps, that they will stick around. Once the prices are raised, they're probably not going to be lowered. But does it mean that everything will sort of sort out in the end as the wages go up too? Is it just that we're no, we're kind of turning the ratchet, and it'll be even? What do you think?

POSEN: Thank you. And thank you, Rebecca, for the question.

I think it's unfortunately not going to work out quite even-Steven. On the one hand, there are going to be specific goods and services, maybe not in time for your outdoor furniture, Dorie, but you know, the ketchup bottle is there. There are going to be things that are over-supplied soon, or that we have excess capacity and making sooner, and prices will, for some of them, go down. One of the things we've seen over the last 20 years is that there is some downward motion in prices, not in everything. But you know, things that Amazon can sell or Walmart can sell you, do sometimes, they move it down. So I think on certain kinds of goods, basically a lot of what used to be called white goods, large consumer purchases, possibly including autos, we're probably going to see some downward movement.

In the overall economy, though remember, 80 percent of the economy (roughly) services and a slightly lower percentage is services in the average households consumption basket—what they use—so medical care, education. These things are very unlikely to see a decline in prices.

Now, will wages catch up fully? Probably not, because as we were just talking about, workers aren't as powerful bargainers in general as they were, say in the 70s. And there's good and bad to that, because if workers automatically catch up with every price shift, then it feeds on itself, and you just keep getting more price shifts and more wages and what pressures are more wages, and you don't want that. But you do want real wages on average to rise because as long as the economy's been improving and productivity, there's some money there that should be going to workers.

Right now, we have charts about this on the Peterson Institute's website that were just updated with the latest data. If you look at the last 15 to 18 months, real wages, meaning wages net of inflation are down slightly, they have been going up, but now they're down because inflation has gotten so high. I think what's likely to happen is both wage inflation and price inflation are going to flatten out over the next year and a half, assuming the fed does what they say they're going to do, which is raise rates. And people will be left, probably on net about where they were a couple of years ago.

But again, it's gonna vary a lot by what kind of work you're doing, whether you were able to switch jobs and get a boost. How dependent are you on paying for private school? But at the average level, it's going to be not quite a wash, but it's going to be roughly a wash.

CLARK: Thank you for that nuance. That's really helpful.

POSEN: Sorry, go on so long it that's another word for nuance.

CLARK: No, this is great. This is why we love having you.

We're here with Adam Posen from the Peterson Institute for International Economics. And a question that always seems to come up, Adam, hand in glove with discussions of capitalism, is inequality. And so one of our viewers watching this is Klaus. Klaus says, hi, former European here. What is the fix for the inherent tendency of capitalism to increase inequality? Is there anything that can work anything?

Klaus is dying for an answer here? Adam, we would love to get your perspective.

POSEN: There are things. The first and biggest thing is you can affect so-called after-tax inequality—pretty much almost as much as you want. So and this is the difference between a European welfare state, which you know, as a former European, from an American, it's not perfect. I mean, I don't know which country you're from, but I've lived in and done a lot of work in Germany, for example. And clearly, there has been some rise in inequality, even in Germany, which has a lot of transfers and taxes, but in growth and guns, and as they say in Germany, basically, overall, you can offset a lot of what the inequality capitalism does by providing people with public services by right like health care, by having a progressive tax code, by having inheritance taxes, if not wealth taxes. It can be done. You can close an awful lot of the gap.

Japan is another example of this. They have seen inequality rise somewhat in the last few years. The new prime minister has just made some statements that he really wants to directly address that. And the main tools you've got are transfers, social welfare programs, taxes. Now the problem is—if you overdo that, you end up with some distortions and some disincentives to work—some misallocations of capital. These tend to be exaggerated, in my view. If you go back to Denmark, or the Netherlands, circa 1985, you're in worlds where, you know, taxation rates were extremely high and minimum benefits were extremely high, and therefore a lot of people didn't want to work.

Anyway, that's there. You have to think about it. But that's generally not a binding constraint—generally, you can do a lot. The trickier part is people, a lot of people don't—this is particularly true in the U.S., but I think a lot of places—don't want to be dependent on the government. Or it's not the same to them to say, okay, after taxes and transfers, I live a pretty good life, but I'm only making one-tenth or one-hundredth of, you know, the white guy from Harvard up the street—wouldn't be up the street in the U.S., probably it would be in a different county, but anyway, that's harder to deal with, frankly.

Sometimes people try to sell that they have an answer to that. And unfortunately, that, unlike other things, we don't have, I think, a good answer. So most—let's call them center-left economists like me—sort of say we have to keep trying to figure out something to that. There are people who talk about, well, we got to provide more good jobs. As I tried to argue in an article that came out in foreign affairs last March/April. That's sort of misleading because A) you can't always do it, and B) that really tends in practice to be code for we want to keep the angry white males who do things with their hands protected in a way that single women and people of color are not. And, I'm sorry to call it out that way, but that's the record. That's what's happened repeatedly throughout the Western world and in Japan.

So I can give you a partial good answer and not a full reassurance, we can do a lot to make sure people's quality of life is pretty equal. We can do a lot to make sure that post-tax and transfers their income is decent. We cannot—and we should do more on the wealth inequality front, particularly through inheritance taxes and real estate taxes. But, we can't fully fix it. You have to accept that, at least so far, nobody's come up with a system where if you try to do it pre-tax and equality, you can find a way of doing it, which isn't protecting certain incumbent privileged people or interfering enormously directly into day-to-day life.

CLARK: Thank you very much for that, Adam. That's a really helpful frame to be thinking through Klaus' question.

So we're coming into the denouement of our interview. We've got about four minutes left, so we have time for one or two more questions. We have been here with Adam Posen, economist and head of the Peterson Institute for International Economics. We've been part of a series talking about creating the economy of the future, which is presented by the government of Japan. And, if you want to make sure you never miss one of our special Wednesday sessions during the month of February, you can tune in go to DorieClark.com/LinkedIn. You can follow me there, you can make sure to tune in. And of course, follow Newsweek on LinkedIn or your social network of choice so that you can make sure you never miss one of our episodes that takes place every Wednesday at 12:30 p.m. Eastern.

Adam, I have an important question for you. So is all of this going to actually be a moot point because all of our jobs will be taken by robots and artificial intelligence? What is your view of this? There have been some apocalyptic predictions that have come down the pike? Do you think that AI is going to eat all of our jobs? What's the verdict?

POSEN: No. I fear sometimes that AI will eat us, literally, when I see those films of, you know, the robot dogs who can dance and leap onto tables and cavort about. But no, I mean, again, 80 percent of our workforce is services. And, while some of it can be somewhat automated, and there's a lot of health care, where we could benefit from automation, there's a lot of things that are about human interaction, and be it teaching, be it, be it what we're doing right now, be it forms of creativity, be it forms of personal service.

So the more realistic threat is, do we worry that we exacerbate inequality, building on you and Klaus we're just raising because essentially, the robots replace a certain class of people. It's not necessarily just people with high school educations. There are certain things like in medicine where we don't need as many doctors if we do automation. But do we end up with a world where those people have no choice but to essentially do low-paid service jobs? And I think we can work on that. There are alternatives. There are ways of channeling and helping workers. And one of the things again that the U.S. can learn from others, in this case, Japan also can learn from Europe, and Australia, is what's called active labor market policies, which do a better job—not a perfect job, but a significantly better job—of helping people who lose jobs, find new ones.

CLARK: I like it. That's great. Adam, thank you very much. My last question for you. If you were the world's czar, let's say we invented a job. What would be your wish for improving the global economy? If you had a magic wand and could make one wish about the way that things could be done that you think would improve global economic conditions for everyone, what do you wish that governments or people would do?

POSEN: Let there be a lot better, more fairly monitored migration and guest workers across countries. That's the single biggest thing out there. It doesn't necessarily put out of work workers in the rich countries, and in fact, helps them. This is another example from Japan, although sadly, they've gone back on it over the last couple of years. But for a while in the 2010s decade, Japan was opening itself up to immigration in a way it never had before and to guest workers, and they benefited from it. And we've seen this around the world. It's the biggest win-win we could run. I realized the politics of it right now in the U.S. and in some other places are terribly toxic. But on the economics, as well as the justice, the single biggest thing we can do is create a system for migration and migration workers.

CLARK: That's fantastic. Thank you so much. We have been here with Adam Posen. He is an economist. He is the head of the Peterson Institute for International Economics. We have been talking about the future of capitalism and how to create the economy of the future. This is a special Newsweek presented series. You can tune in next Wednesday, same bat time; it's 12:30 Eastern, 9:30 a.m. Pacific. And thank you to the government of Japan, who is our presenting sponsor.

Adam Posen, thank you so much for joining us.

POSEN: Thank you so much, Dorie. And, I'll be tuning in next week too.

CLARK: Thank you and take care, everyone.