Russ Roberts

Russ Roberts and Mike Munger on How Adam Smith Can Change Your Life

EconTalk Episode with Russ Roberts
Hosted by Russ Roberts
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EconTalk host Russ Roberts is interviewed by long-time EconTalk guest Michael Munger about Russ's new book, How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness. Topics discussed include how economists view human motivation and consumer behavior, the role of conscience and self-interest in acts of kindness, and the costs and benefits of judging others. The conversation closes with a discussion of how Smith can help us understand villains in movies.

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0:33Intro. [Recording date: October 7, 2014.] Russ: This week's episode is going to be a little different. I have a new book out, How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness. And the ideas of that book are the subject of this week's conversation. To do the interviewing I'm going to allow--it may be a huge mistake--I'm going to let Mike Munger of Duke University, long-time EconTalk guest, be the Guest Host for this episode; and in theory, let me to do more of the talking than usual. Mike, how do you think that's going to work out? Munger: Oh, there's a new sheriff in town, baby. Russ: So this week it's a Mike at the mike, and we're all holding our breath, especially on this end. But seriously, Mike, thanks for doing this and welcome back to EconTalk. Munger: I'm looking forward to doing it. Russ: Okay. Your turn. Munger: All right. As Russ said, he has a new book that's just coming out. I was lucky enough to get a preprint. And the first question that I want to ask on seeing it, and I want to inflect this two ways. Not inflict, but inflect it two ways. Why did you write this book, Russ? And then, why did you write this book. Russ: Uh, I don't understand the inflection. Help me out. Why did I write it, and why this book? Munger: Yeah. Why does this book need to be written at this point; and why is it that you would write it? Because this is not a book--as we'll talk about in a few minutes--economists don't read this. And so, is it going to be a self-help book, or is this a book where you hope to get economists to say, 'You know, I should read that, too.' Russ: Well, I had a couple of goals, and long-time listeners will remember the 6-part series on the Theory of Moral Sentiments that I did with Dan Klein a few years back. We'll of course put up links to that; it's in our archive. But that set of interviews with Dan got me interested in the book. And I confess I had not read it at that point. I had read a few famous quotes from it but nothing more. And I had a few goals in writing this book. There is a self-help aspect to it. It does purport to give you life advance, from Adam Smith, based on Smith's ideas and applying them to modern life: how to earn respect from your peers, how to deal with tragedy and triumph, and how to interact with the tragedy and triumphs of your friends and your family; how to think about how to act with people close to you versus strangers; what makes us tick, how knowing that helps people interact and be successful in life--really find the good life, broadly defined. So, on the surface that doesn't have anything to do with economics, you might argue. I would argue differently. I would argue that economics is how to get the most out of life. It's about choices. It's about understanding opportunity cost and using your time wisely. Our time is our scarcest resource. You can't--it's the ultimate nonrenewable resource. For me, the book is in that sense an economics book. Now there is of course actual economics here and there both in Smith's book and mine, what we would normally call economics. So one of my goals was to simply take what I found fascinating ideas about life and living and work and family that are in that Smith book and bring them to the present. The second goal I had really was to redeem poor Mr. Smith, who for a variety of reasons has a reputation as a champion of greed. And I think that would have horrified him. He turns in his grave, I think, every time someone invokes Smith's name in defense of greed. Smith was very interested in the virtues, and the virtues that he emphasizes in this book are prudence, beneficence, justice. Nothing about greed in there. So I really love the idea of trying to clear his name in that sense. Finally, I think, as everybody listening to this program knows, I'm not so happy with the mathematicization of economics. And I think Smith's approach to social science generally, whether it's morality or philosophy, or what this book in many ways is a psychology book intermingled with economics--The Theory of Moral Sentiments is in many ways a mixture of philosophy, psychology, and economics. And I like interdisciplinary work--I think that's a lovely thought--but what I care more about is the methodology of narrative and humility. And I think modern economics has gone a little too far away from those lessons. And part of me wants to get us back closer to Adam Smith's social scientist and what we currently do as social science.
5:14Munger: It is interesting that that theme comes up a fair amount among people that may be seen as heterodox by "true" economists. So, Friedrich Hayek often talks about scientism, the pretence of knowledge, how in the way that we model things we're making assumptions about information and structure that we don't have. But Smith's critique, and the way that you channel Smith's critique, is actually deeper, because it has to do with the nature of people and their motivations in choosing. So, I think it's hard actually to read even just The Wealth of Nations and say that Smith thought that people were fundamentally and exclusively greedy. But the Wealth of Nations, as you point out, is more often quoted and read. It may be that the Theory of Moral Sentiments is not even usually read any more, at least not by economists. I was wondering about that, so I went and checked the citations in Google Scholar. And the Theory of Moral Sentiments has the same number of citations since 2000 as The Calculus of Consent. So, the Calculus of Consent, one of the main books of public choice, written by Buchanan and Tullock. The Theory of Moral Sentiments has the same number of citations as that. So it's not true that it's not cited. But almost none of those cites are in economics journals. Almost none of those cites, the citations, are from things where they are addressing what we might think of as being Smith's theory of choice. Now that you've read that and you are in a position to offer some critiques of economics, is it just the scientism? Or is it that we're able to--the selfishness theory is somehow simpler, and in order to understand Smith you eventually have to work? One of things that I thought was charming about your book was that you said the first time you took up The Theory of Moral Sentiments you put it down again because it starts in the middle; it's hard to read. And you were a sympathetic reader. Russ: Yeah. I had to read it for that interview; and as I say at the opening of the book, I had some second thoughts and maybe I shouldn't be doing this. I think, to get to your question: I think it's first important to distinguish between selfishness and self-interest. Smith was very, very aware of how self-interested we are. Or you might even think of it as self-centered, in the literal meaning of that word: we are each the center of our own universe. We inevitably think of ourselves most of the time. We don't think a lot about other people. But we do, occasionally; and occasionally we rise to greatness and do glorious things for other people without expectation of return. And I think that phenomenon is what motivated Smith to write that book. He and everyone in his day and I think any thoughtful person today admits that self-interest and self-centeredness are very relevant. That doesn't get you to greedy. And it doesn't rule out compassionate acts on behalf of other people, even when there's no expectation of a return of kindness. So that's big part of what motivates Smith in the book: What makes us moral? What makes us do things that we would call "the right thing"? So that's one piece that has economics built into it in some sense, because it's about behavior; it's about choice. The other part I think that we might talk about, and you can take it any direction you want because you're in charge today--but the other part is, in economics, our theory of what motivates people is called utility theory. We are agnostic, generally, about what makes people happy. We say it's whatever floats your boat. We don't say it's sports; we don't say it's music; we don't say it's money. We say it's whatever you choose. And we say that people try to maximize how much satisfaction they get from life, given that they have a fixed amount of money and unlimited wants. That's really the essence of homo economicus. That's how people look at--that's how economists are trained to think about human beings. Now, I don't want to debate whether that's realistic or not. I think most economists will concede it's not perfectly true. It's not close to perfectly true. But it's a useful framework. I'm not sure it's a useful framework any more. I've become skeptical of that from my teaching of economics. But the point I want to make is, when you ask--you don't ask Smith, but if you read The Theory of Moral Sentiments-- Munger: Well, you kind of are. You are sort of interrogating--one of the things I think is really great about this book is I sometimes felt I was privy to a conversation between you and Smith. Russ: Oh, thank you. Well, that was part of the goal. Some of that was to try to grapple with the ideas in a more conversational way, because, as everybody knows, I'm kind of a conversationalist; that's what makes this show. But the point I was trying to make is that Smith's not a maximizer. Smith's framework of human nature is not easily put into a mathematical framework. And what Smith says--and I think about this all the time, ever since I read the book, The Theory of Moral Sentiments, and ever since I wrote mine, man naturally desires not only to be loved, but to be lovely. And he says, I think in three places, I think explicitly: That's the road to happiness. To be loved and lovely. That's the road to serenity, tranquility, satisfaction--whatever you want to call it. Not necessarily partying joy, the level of exuberant exhilaration we might call 'happy'. But what Smith meant by it was satisfaction, tranquility, and serenity. And he says, to get there you don't buy lots of stuff. You don't get rich. The way you get there is to be loved and to be lovely. And that's a very different model of human nature than most economists have when they talk about what makes people tick.
11:13Munger: That part reminded me, and you start pretty early on--as early as p. 5 you say, 'Smith helped me understand why Whitney Houston and Marilyn Monroe were so unhappy. And then why their deaths made so many people so sad.' And then, a little further on, 'He's the father of capitalism. He wrote the most famous examples, maybe the best book ever on why some nations are rich and poor. But he wrote as eloquently in The Theory of Moral Sentiments about the futility of pursuing money with the hope of finding happiness.' One of the things we do as economists is to assume autonomy. That is, people get to make their own choices. And subjectivity, where the definition of happiness is up to the individual. If we were to take this prescription seriously--and I thought we might take this up again at the end, but to foreshadow--What should economists do? What sort of models or approach to understanding human motivations could we have then, other than doing interviews or using survey? Russ: That's obviously a tough question. I want to give a two-part answer to that. I think when we're trying to deal--and this is my advice for teachers, so I'm going to go way out on a methodological limb here for people who teach microeconomics or who teach principles of economics. So, I did that for about 30 years. And when I first started teaching, I taught the theory of the consumer. Because that's a bunch of chapters in every textbook, utility theory. Which is about formalizing the idea that there are tradeoffs between different goods and the prices that those goods cost, or how I should decide how much to buy of each good. And that's--going back to an interview with Vernon Smith here at EconTalk, when I think he asked his professor--I want to say it's Leontief at Harvard, what utility was good for, Leontief said something like 'exam questions.' And I may be confusing my version of the same joke, which I used to tell. So, we'll go back to that transcript and look it up. But the point is that I think utility theory is remarkably sterile and not a particularly helpful way to think about consumer choice. And what it mainly leads to in an intermediate micro class or even a principles class is: the demand curve. And somewhere along the way I realized that the enormously complex apparatus of indifference curves and budget lines--there are a few lessons. I don't want to say there's zero. But overwhelmingly what you get out of that is you generate a demand curve. And I don't know why we wouldn't just say: Let's assume that people buy less when the price gets higher, holding everything else constant--which is what I think a demand curve is. I don't know why we spend all that class time generating that curve when it's just okay to start with that as a working assumption. So, that's the first point. That's a methodological point. The deeper point, when you said, What should economists do? The challenge here is that I push the idea that economics is an art and a craft, rather than a science. And it's easy to criticize economics the way I do and say: Oh, it's not scientific. People don't really maximize utility. The predictions are too strong. They are not borne out by the data. When we try to use the data in ways that are consistent with the theory we put too much pressure on the data that it can't withstand and its conclusions are not reliable, they are not precise. We can't estimate the elasticity of demand, for example. We can't assume a particular mathematical form of the utility function. I mean, that's bizarrely, to my mind, that's just strange. But people do that. I don't think that's very fruitful. But then the question is: Okay, so let's be more realistic. Let's, you could say, let's give economics a richer palette. Let's talk about the fact that people care about their reputation--they don't just care about how much stuff they have. Let's talk about the fact that they care about love. Let's talk about the fact that their family is often the unit at which they make decisions and not just themselves, purely individualistic. And of course Gary Becker, more than anyone, took the formal apparatus of economics and applied it, tried to apply it, to these types of non-financial purchases of goods. Decisions. And obviously he made a tremendous contribution to that. So there is some value to that formalization. But I would argue most of the time the value is coming from our intuition and common sense. And Smithian-type ideas about how people behave and what makes them tick. If you go too far in that direction you are left with psychology. You don't have a theory. You just have: every case is unique. And I think what makes the approach I'm advocating for tenable, as some sort of discipline rather than just a thoughtful person opining about human behavior, is markets. So, when you embed the choices that people make into market decisions, you get a very different set of insights that you wouldn't get if you just treat everybody individually as a mix of rational/irrational, altruistic/self-centered, etc. And again--Vernon Smith says this very well. I think he said it when I interviewed him and he said in lots of other places: 'Sure, people make mistakes all the time; sure, people aren't perfectly rational; so the "economic model" is silly and wrong. But in markets, markets discipline those decisions.' They teach people what works and doesn't work. They also punish bad decisions. They take away your money if you consistently make bad decisions. Markets provide you information to help you be wiser than you are on your own. So I think that's where I'd try to--that's the synthesis I'd like to think about. Munger: May I ask you how far on that you're willing to go? I think--you were in an economics department, business school; you won a number of teaching awards as an economist. I basically never got a job as an economist. I've been a political scientist for a long time. So, often, early in class-- Russ: Though you have a Ph.D. in economics. Munger: I do. All my original training, and a lot of the way that I think is the way that economists should think. But of course that's self-serving.
17:55Munger: So, I want to see your skepticism and raise you a little bit and see how far you'll go with this. When I teach class, I say homo economicus is a sociopath. No society composed of homo economicus could possibly survive. Russ: Yep. Munger: And the reason is, we would cheat on deals if we thought we could get away with them. So, what I want to advocate is actually--and this is a terrible thing to admit--is that Rousseau, Jean-Jacques Rousseau, was actually right about something: that the real way to understand the successful society is not to treat morals and the constraints that society puts on us as constraints, but as part of the objective function. So, what that means in more English is it's something that we want to accomplish, not something that constrains what we want to accomplish. We actually care about what other people think about us. So, on p. 186 you have a great paragraph: "We never stop to think about how it came to pass that we live in a world that's fairly decent. A civilized world. Yes, we have a legal system that legislates against the worst crimes, such as theft and murder. But our conscience keeps us on the straight and narrow." And the conscience--the way I see that is, it's not a constraint: I want to do all these bad things but I'm prevented because I would feel guilty. It actually matters that I want to be perceived, and to be lovely--in your terms. So is that going too far? Or should we put moral convictions and our sense of desire to be admired by others and be admirable into the set of objectives that people try to achieve? Russ: Well, certainly--by the way, of course, that phrase, 'lovely' is not mine; it's Smith's. But thanks for the implicit compliment. Munger: Russ, I think you're lovely. Russ: It's a lifetime struggle, to be lovely. Seriously, it's a fascinating thing to think about. One of the themes of the book is mindfulness, and the idea that you should be aware of how you are perceived by others. And Smith is very honest about the fact that we don't really want to do that. But when you force yourself to do that, it's a very powerful experience for thinking about how to be a better person, how to be more successful. Etc. Munger: Yeah. That's the self-help part. That if you can get through the barriers that you've constructed to thinking about that, not only will you understand more, but you'll be happier. Russ: Right. But it's challenging. So, I can't get the quote exactly right, but he says something like, 'Bold is the surgeon whose hand does not tremble when he operates upon himself.' And we don't like to operate on ourselves. We like to criticize others. Ourselves, not quite as much. And especially in today's world where self-esteem is so venerated and praised, the whole idea of being critical of one's own conduct, to being aware of one's flaws, is not easily accessed in today's culture. But, to go back to your Rousseau question: I'm not sure I understand it. So let me see if I can-- Munger: What Rousseau said was that in order to understand people, in order for society to work, we must inscribe the law on their hearts. So, the law is not something external: we inscribe it on their hearts. And then they'll follow it without any police. Because it's written on their heart. Russ: That's exactly what Smith's talking about. And I just want to add that what makes Smith's contribution about the power of conscience so novel is not just the point that conscience restrains bad conduct. I think that's well understood at least since Rousseau and probably before. But I think what's Smith's contribution is, is thinking about where our conscience comes from. And in Smith's conception it doesn't come from our religious upbringing. It doesn't come from our parents, you know, teaching us and modeling for us. It comes from our fears and hopes for what other people think of us. And that's his whole concept of the impartial spectator, the idea that when we choose an action we are confronting a dilemma; when we are deciding how to act we are imagining someone who is disinterested--meaning, certainly not self-interested, someone who does not have a stake in the outcome--observing us and judging us accordingly. And that's a really powerful metaphor, which is Smith's real contribution to this whole idea of conscience. But to come back to the more general point about society, I think Smith's great point, which I doubt Rousseau shared, is that the inscription of virtue on our hearts comes not from the top down, but from the bottom up. And Smith writes incredibly eloquently about how norms of civility and behavior and trust emerge from our interactions with each other. Because he argues that deep down, we have a fundamental--this is the only really--I don't know what the right way to phrase this is--idealistic side of Smith. He argues that deep down, because he says, we naturally desire not only to be loved but to be lovely--naturally desire, meaning it's hard-wired into us that we care about what other people think of us and we want to earn their respect. And so as a result, knowing that--and even not knowing it, subconsciously, I am going to let other people influence me and I will in turn influence other people with my judgments about their behavior and their judgments about my behavior. I will praise them when they do good deeds and I will look askance when they do things that are less moral. And what Smith argues is that that's what produces civilization. That's what produces a world where trust can be imaginable. Forget the fact that it's not perfect. It's not perfect. But the fact that it works at all is shocking when you think, step back and think about how self-interested we actually are. And Smith says, the inevitable interactions we have with the people around us are going to constrain us, because we care about what they think of us.
24:28Munger: What I think is so great about that insight is not just that it works as well as it does, but I don't think you could have a society unless people thought of themselves and each other that way. So, what's interesting about Smith's insight is that he actually foresaw something that later biologists have made an argument for as part of something that humans are adapted for in evolutionary terms. For a kind of cooperation that's considerably more than you would get by modeling people as homo economicus. And so, Vernon Smith and others, over and over again, have found that we are kind of natural cooperators. There's plenty of situations where you can get us to not to cooperate. But what's interesting is that we often will--and we can make up stories about that. But Smith actually has a really great story about it. It's a metaphor--it's the impartial spectator. But it actually gets you a lot of the results that we've since come to, by completely different means. And so, when you talk about the stories that people tell--on your p. 64 and 65 you have a football coach who quits because he wants to spend more time with his family. Politicians always do that: there's a sort of unspoken deal where if I want to fire you, but you agree to announce you are going to spend more time with your family, I'll say that--[?] and he's a good family man; he quit. Russ: And my claim in the book, of course, is that somebody who works, let's say, over 100 hours a week, 110 hours a week, watching football film--kind of hard to argue they are family oriented. Because that's what it takes to be a successful football coach. Munger: They take a new job [?] Russ: Yes they can. Exactly. Munger: Well, but you also say, I go to--I have a problem with my plumbing and it depends who I ask what the solution is going to be. So, one guy wants to put in new pipes. One guy wants to use the snake. And in each case, it's the stuff that they actually sell. But it doesn't mean that they are bad or malicious. They actually think that those things work. And if nothing else, they've persuaded themselves that that's the right thing for you to do. So, human beings are pretty good at detecting dissembling. Fibbing. And so the best salesman is going to be someone who actually believes. Russ: Yeah. Munger: So, you can explain at the same time these two things: People are making an argument that appears to be self-interested, but actually believe and have persuaded themselves and are trying to persuade you, that it's the right thing for you to do. And so, the problem that we may have is recognizing that, and most importantly, recognizing it in ourselves. That these things that we know to be true--so your description of your reading of econometric essays, you know which ones are correct and well-conducted by the fact, by the conclusions. So it's confirmation bias. Russ: Yeah, exactly. That's a, um, Smith makes you think about that, and of course that's an issue I've been thinking about for a long time now--from the work of Taleb and Jonathan Haidt, and others. It's very hard not to fool oneself. What I find absolutely fascinating is given how much time I think about self-deception, I still fool myself all the time. Well, not all the time. But it's not zero. And you'd think--I'm pretty sensitive to it. And yet, I can find myself loving a study, still, that I know is flawed when I step back and think about it. Just because it comes to conclusions I love.
28:30Munger: I wonder if we could talk for a second about evolution. As you may know, there's a field now called Experimental Philosophy--which I just think is a wonderful phrase. Because if there's anything that's not experimental, it should be philosophy. But what people are interested in is a kind of philosophy of mind: why it is that people think the way that they do. So, there's an interesting question: Why do we have emotions? In biological terms, what is adaptive about having emotions? Human beings are more emotional than most animals. Russ: A lot more. I think. Munger: Well--[?] we laugh. And so Mark Twain said that human beings are the only ones who laugh--or should. Because watching each other, the foibles of each other, maybe laughing helps us deal with that rather than think of it as being hypocrisy. But one of the things that emotions do is provide the public good of norm enforcement. And if I see you behaving badly, I should just think, 'Ach, he's behaving badly.' But if I try to correct him, he'll yell at me, I'll get hurt; he probably has some reason where he can explain it in his own mind. And yet, more often than you might expect we'll confront even strangers who we think are behaving badly. So, is there something that--might it be that I perceive you acting badly and I think that your impartial spectator is defective? And so I try to stand in for it. Russ: Yeah, yeah. So, a couple of things. First of all, Smith, writing before Darwin--although he influenced Darwin greatly because of his understandings of competition--but Smith writing before Darwin didn't think about evolution. He talked about the 'author of nature.' Which was God. I had an interesting discussion with Dan Klein about how much of a religious person Adam Smith is. But certainly the emotions you are talking about are hard-wired. They are not, mostly--there are obviously things we learn culturally about how to respond to all kinds of things, but the underlying emotions are hard-wired into us. And now, I'm the guest, and I've lost my train of thought. So, what was your--see, when I'm the host and I lose my train of thought, I edit it out. It's fabulous. And I could still edit this out but I won't. I'm going to let you rephrase the last part of that question again and remind me what you were asking. Munger: Well, I go up to someone, and when I yell at them, in effect what I'm saying is their impartial spectator is defective. Russ: Yeah. So, one time, more than once actually, and maybe you can relate to this, other listeners--I've been in a public place with my children. And I've been reprimanded by a stranger for their behavior. I will say this happened--the two times that are most vivid to me, they both happened on the Coasts. And maybe this is a Coastal phenomenon. So, I was on Cape Cod when my kids were little on a summer vacation and my kids were running up and down the sand dunes. Which, of course, every child--and many adults--want to do. And somebody stood up and said--screamed, yelled, on the beach, 'Whose children are these?' I looked up from my book, and said, 'I guess they're mine.' 'How dare you allow these children to desecrate this natural environment?' So, I apologized; and I mentioned to the kids that dunes are somewhat fragile; it's probably best to not run on them. And I got them off. Another time we were over in Big Sur, at Julia Pfeiffer State Park, which is one of the most beautiful spots on the face of the earth. And there's a lookover where you can see, an overlook, where you can see this gorgeous waterfall falling onto a beach; and look in the other direction, there's great stuff to see. It's a very famous spot. You can find images of it on the web. I think I've got the name of the state park right. So, my kids--one of my kids is carving some word--not a bad word, just some word, maybe just a shape--into the bark of a tree. Munger: With a knife. Russ: Well he didn't have a knife. I think he was just using a stick maybe. I don't know what he was doing. Munger: A stick or a stone. But he effectively did tear up the bark. Russ: He was defacing the tree. And a person came up to me; and when I went over to talk to my kids; I think the word that she said was 'horrific.' I think she said, 'This is horrific.' Or 'horrifying.' And I wanted to say two things. I just apologized and said to my child, stop. My son. But I wanted to say, 'No. Genocide is horrific. Bark on a tree, not horrific.' And the second thing I wanted to say was: There are about 80 or 1000, I don't know, a big number of people who have already marked the bark of the tree. I don't argue that that makes it okay to then add to it. But it's possible that the tree is sustainable in its life without this little extra piece of bark still, because I'm not sure it's decision. And maybe a different tone would be appropriate. Etc. So, having said that: Most of the time, in my life--or not most of the time, but many times in my life, it's very hard to judge other people publicly, or even sometimes privately. So, one of the things I concede in the book is, I think in Smith's day, which is the mid-18th century--in Smith's day, being judgmental of others was easier. For better or for worse. We live in a much more tolerant age. And when people do things that are immoral in our day, most of the time, a lot of the time, people just shrug. And they say, that's not my business. And, I shouldn't judge another person. I think people are very uncomfortable playing the role of the partial spectator, the actual spectator, with their friends and colleagues at work, etc. Smith's mechanism for culture and civilization, which is the critical remark that raised eyebrow, the 'I'm not going to go to his parties any more because he's not a nice person'--I think that's less common today. Or at least I feel that it is. I feel it's much harder for us. You know, somebody will brag to me about something they did to get a good deal, say, at the grocery or on the web. And I look at that behavior sometimes and I think, gee, I think that's immoral. I understand it's legal, but I think it's immoral. I find it difficult--sometimes I say it--but oftentimes I say, well, I'm just going to ignore that. I'm not going to jump in with praise for it, like the person is asking me to--wow, that was clever. But I just--you know. And the other example is a joke that's in bad taste. It's very hard to say, that isn't funny to me. I've said it, when people tell jokes that I think are cruel or inappropriate--cruel, mainly. But it's hard. And our culture doesn't encourage it in the way I think it did in Smith's time.
35:45Munger: Nonetheless, we are more likely to do it than we would if we were just purely reason motivated, because if you confront someone they're going to think less of you, probably not going to be persuaded. Now, in your case you did defer in the two cases about the children, but you were thinking, oh, please, come on. So, what I think is interesting is there's kind of a black box. And the contents of it are socially constructed. So it's different in different societies. Russ: Absolutely. Munger: What all human beings--all human beings have an emotional reaction if whatever the contents of their black box are, are violated by someone else. We can make excuses for ourselves. So, in some societies, if people cut in line, the norm of the line is not very strong. But I had a time, and I think we've talked about this before on EconTalk--I was standing in line; a young woman cut in front of me. When I tried to confront her, she said, If you say one more word I'm going to call the police. Russ: Slightly different, yeah. Munger: I was so upset--the point is, she was costing me 20 seconds. All I had to do was say nothing. I was so upset I almost couldn't sleep that night. It took me hours to fall asleep. I was thinking, 'I should have said, this, I should have said this.' Why? That's crazy. Just let it go. But I couldn't. I was unable to. So, we have an emotional response--we are suffused with a cocktail of chemicals that actually put a sort of bright mark in our brains of that memory. And it's much stronger than it should be if we were just reasoning creatures. And so the power of that emotional--it's kind of a subsidy or inducement to provide the public good of norm enforcement means that people are more likely to try to take into account other people's reactions, because they are more likely to react than they would be if they were just homo economicus. So, if I may, one more example: When I was in Germany, I'm crossing the street against the light, and this little tiny grandmother tries to beat me with an umbrella. She wasn't hitting me hard, but she was beating me, saying 'Kinder murderer, kinder murderer'. So she meant I was a murderer of children, because children might see this and then they might cross when there was a car. And so you must not disobey the rules. These rules must be obeyed. And if not, little grandmothers will come out of the woodwork to try to beat you with umbrellas. So, that emotional response is, I think, some of what Smith intuited without any of the evolutionary apparatus that we now look back with. Russ: Yeah, or the neuroscience and brain research that we're doing. I want to footnote what I said earlier, as you made me realize I'd overstated. When I said it's hard to be critical, you make the correct point: it's a black box and what's in the box varies by society and by time. And the more I think about it, the environmental issues are clearly examples where people are very comfortable criticizing other people. Forget the sand dunes and the redwoods--I don't think they were redwoods but they might have been in Big Sur, which, I love redwoods, too--but the point I want to make-- Munger: That's horrific. Russ: Yeah. It is horrific. It was so horrific. You can't believe it. But the point I want to make, take away a little bit of the emotion now: I want to look at littering. Littering is something that-- Munger: It's a perfect example. Russ: that when I was a little boy, in the late 1950s, early 1960s, everybody littered. That's what you did. You were driving down the road--we've probably talked about this but it bears repeating--you tossed your popsicle wrapper out the window when you were driving down the street. Munger: Yeah, it was sticky. It was not going to keep in the car. Russ: Yeah. And you threw stuff down on the road or the street all the time. And that ended through peer pressure. That ended--yes, there were some public campaigns; there were ads; there were billboards; there were fines. But those are really--of course the real test is that I would never litter on a deserted highway driving by myself. It's not just that my wife's going to frown at me; it's not that my kids are going to tease me. Munger: All those things are true, but even if they weren't. Russ: They are. But even by myself, I'm not going to do it. And I've absorbed that norm--through some actual spectators and then through the norm of the impartial imaginary spectator, I basically said I'm not going to do this; this is not who I am. I'm not a litterer. Even though it does of course create jobs for people in a very Keynesian way of picking up the litter. But that's an example where people are incredibly judgmental. Another example would be smoking. It's not okay to smoke in most of the circles that I'm in. This is just fascinating. When I was a little boy--and again, we're in the 1960s now--my father smoked. You go over to somebody's house, there are ashtrays around. You lit up a cigarette when you wanted to, just like you'd open a soda when you want to or take money out of your wallet. It was just the normal human[?] thing people did all the time. Now, the idea--could you imagine being at a dinner party at someone's house and just taking out a cigarette and lighting it? It's a faux pas of enormous proportions. Munger: We would be horrified. Everybody else would be horrified. Russ: You can't even ask. It went from light up whenever you want to 'Do you mind if I smoke, is that okay?' 'Oh, sure, go ahead.' To, 'Excuse me, I have to go outside.' 'Where are you going?' 'Oh, I have to smoke and of course I can't do it in here.' That evolution--again, there was some top down pressure on it, but most of it, a lot of the enforcement and evolution, that norm about smoking, came from actual spectators; and then on top of that, afterwards, an imaginary spectator. The example I give in the book of a similar phenomenon is corporal punishment--striking your children when they misbehave. My parents cuffed me--I never got a whipping. But I was cuffed from time to time. Right? Munger: Oh, yeah. Russ: Not often. But I was. And I always assumed being a good parent--because I liked my parents, I respected them; of course I would strike my own children to keep them disciplined. I've never hit my children. I've wanted to. I confess that in the book; my editor said: Don't put that in; that doesn't sound good. But it's true, and I don't mind putting it in. Munger: An illustration--you wanted to and didn't. Russ: Yeah. Munger: And you probably wouldn't. Even if you'd been by yourself and just the kids and they might not have really blamed you--you didn't do it because eh, that's not right. Russ: I just decided it was wrong. And that, again there are plenty of people who still strike their kids. But in my circles, that just isn't done. And that's interesting that that evolved without any top down--it just emerged. Obviously I think Smith helps us understand that. I think markets help us understand it. But what's interesting for Smith's insight is that it doesn't take place through the normal prices that we think of in markets. It takes place through emotional prices. It takes place through people glaring at you in the supermarket if you smoked or littered or hit your kid. So you can hit your kid still in America--not too much. But you can still give your kid a little bit of a whack. And if you do that in public, in certain supermarkets you're going to get glared at; and in others, I think, people would applaud. It's dependent on geography, time, place, etc. But those norms are, as you say, they are emotionally driven. And what gets put in the black box of what I am emotionally, viscerally "a-rationally, irrationally" react to, comes from the people around me. Munger: Yeah. The experience--in my own thoughts about what's right and wrong--but it's a recursive process. And it can change. It changes slowly, but it can change.
43:43Munger: So, what I wanted to ask about is altruism. I want to make sure that the listeners understand that Smith's not talking about what we might call altruism. You have sympathy. You do have sympathy for others--I feel bad when the people in China die in the earthquake. But it's much less than me worrying about my own little finger in the Wealth of Nations. Russ: No, it's in The Theory of Moral Sentiments, actually. Munger: That's in The Theory of Moral Sentiments. So, I'm more worried about the prospect of losing my little finger tomorrow morning--which would be pretty bad: I know I have to go and they are going to chop off my little finger--that would be pretty awful. And I can't do anything about the millions of people, doesn't have to be Chinese--people somewhere far away. One difference is now I can see it on television, so maybe it is more real. I do feel a little bit--it's not so abstract; I can see pictures of children. I wanted to ask about altruism, and what you would think is the kind of level of importance that Smith would have. Because this story about the impartial spectator could be self-interest properly understood: I live in a group; the esteem of that group is important for my flourishing, for my children to have a family name where other people trust us. And so it's a broader kind of conception of self-interest. Is there any actual room for altruism in Smith? Russ: Yeah, there is. It's just it's not very big. He says--here's the quote. He says--he's talking about--I'm glad you brought up the earthquake because it's so important. People quote that passage and they say Smith's hard-hearted; he thinks we're awful people because we care more about our little finger than we do about millions of people dying in an earthquake. And of course he's correct that I would sleep much less well the night before a minor surgery than I would after an earthquake that killed thousands or millions of people very far away. And maybe even somewhat close. But his example was a little bit of a reductio ad absurdum. So, millions of people dying far away, I might express some sadness; I might give some charity to the Red Cross to help the people. But I can sleep like a baby that night. But knowing I have surgery tomorrow, I can't sleep even though it's my little finger. The punchline of the story is coming up. The punchline is: Even though you feel that way, if you had a chance to save your little finger by killing millions of people, you wouldn't think about it for a second. Because it's too horrific--to use the correct word there. And the question is: Why? And Smith's point is that it's not because you are a wonderful person, the altruist we're talking about. It's because--and it's not because people would think less of you. He's really saying that you've internalized the lessons of people thinking less of you. You realize through living, through going through life, through dealing with other people, that you are small relative to the rest of the world, and that your life is not as important--is no more important--even though it feels like it is, it's no more important than someone's life in China. And Smith's very much a universalist; and it's a wonderful, correct way to think about the world. And for you to take the lives of strangers to save a piece of your life is just--it's just wrong. And you wouldn't countenance it. You wouldn't think about it. You wouldn't imagine actually executing that plan, because you would think so little of yourself afterward. Munger: You wouldn't even imagine yourself as being able to imagine it. Even at one removed. I wouldn't consider that. Russ: So he says--this is a great quote. I love when he says: "It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love." What he's saying there is, we have some altruism, but it's a feeble spark. It isn't the main driving force of why we do the right thing. What makes us do the right thing is we want to think well of ourselves. We want to be loved--by 'loved' he meant respected, admired, honored, thought well of--and we want to be lovely. And by that he meant decent, respectable, honorable, good. And he's saying, deep down that's what we want. Now, we have to fight against the fact that we mainly like ourselves. Because we don't have much--it's a feeble spark that works in the other direction. And so what makes that feeble spark active, the reason that we do generous things and the reason that we don't do horrific things, is because we imagine thinking about what other people think of us. And of course then, in fact we get the result of what other people think of us when we actually choose to do bad things or virtuous things. Now, I just want to make one side note. We talked earlier about Gary Becker and the utility function: My first published paper in economics was putting altruism in the utility function. I built a model which was based on Gary Becker's work of saying we don't just care about our own happiness; we care about what other people consume. So, poor people make me sad. And so that motivates me to give to charity. And that's the way an economist looks at charity. An economist looks at charity and says, there's a price to charity, which is that I have to give up my own consumption; and in return I get the satisfaction from helping other people. And I'll just presume that that's there. Smith had a richer conception of what motivates charity and our behavior. And it's not just the form of self-interest once removed that you are talking about--oh, if I give to charity people will think highly of me, and then I'll be happy. It's also just--it's the right thing to do. And I am motivated at times, not to do a lot but to do some things to help others simply because I want to see myself as someone who does the right thing. Munger: And what's so great about this explanation is that it recognizes the, I think, perfectly correct observation that yes, we actually have a spark of beneficence and we would do it to help people; but it's not very big. What makes things work is having this additional impulse. And it's not just to have others think well of us, but to be able to think well of ourselves. Russ: Yeah. Munger: And that's the whole extra thing. There's a famous story--Richard Alexander, University of Michigan, evolutionary biologist, who was just a fierce opponent of any kind of group selection or altruism, had this ongoing argument with one of his colleagues: There's no altruism anywhere in the animal kingdom; it can't exist; the gene is selfish, just like Richard Dawkins says. So, one day--it was a spring day; the colleague is walking along the sidewalk and he sees an earthworm. So, he says, Aha. He picks up the earthworm and he puts it in the grass because it would have died; it would have gotten mashed on the sidewalk. And he runs to Richard Alexander's office and tells Alexander about this: I got my finger so sticky; this you have to admit was an altruistic act. And Alexander says: 'Yes, it was, until you told me.' If you'd just done it and not told me, I might concede that, but you didn't. So, we really do care that other people see us as being good people. Russ: Absolutely. And that's a beautiful story. Except of course what it misses is that, if he had knocked on his door and he hadn't been in, he still would have been happy to have not stepped on the earthworm. Right? Munger: Yes. Yes. So, I think Alexander is wrong, but he's right about the essential point. Russ: He's on to something. Munger: It's not pure altruism. It's that it might be enough that the colleague would be able to think of himself, 'Aha! I'm an altruist; I see myself as an altruist.' Not so much that he is. But what he bought for himself by getting his hand sticky was the right, the licensing to see himself as being a good person. Russ: Maimonides, the great medieval Jewish philosopher and thinker, talks about the different levels of charity, of helping other people. And the highest level is helping someone get off of charity by teaching him a trade or craft or finding a way for them to work. The lowest level is for me to give you money and I know who you are and you know who I am. The highest level below finding a person a job is anonymity. I give you money--I think it's I don't know who you are, but certainly you don't know who I am--I don't get to bask in your gratitude or unease that I'm helping you. You maintain, I think, a different level of dignity. So people do give anonymously; not just that the donor, recipient, doesn't know, but no one knows. Or almost no one knows. Sometimes literally no one. And of course I think--is that a higher level? I don't know. But there is something somehow more admirable about not taking some of the glory and letting that not be part of the equation. It's interesting. I've never thought about that before. It actually reminds me a little bit about some of the conversations you and I have had about profit-seeking: somebody who does a good deed and makes money at it, certainly the making money doesn't seem to reduce the value of the deed. It's still a good deed.
53:15Munger: I think what's so important about what you just said is--Richard Alexander, or a biologist would say, 'But you put it in the black box.' By writing it down and saying it's the highest principle, you still know. If you had donated but it was truly anonymous and you didn't know you had donated, why would you do it? It actually matters that you know. Russ: Yeah, that's true. Munger: So, Maimonides wrote it down, put it in the black box: This is the set of things that you get to feel really good about yourself, if you do; and in fact it's one of the highest. And so you think, I'm a good person, because I did this. Russ: But of course Maimonides--this is going off track a little bit but I think it's such an important point--Maimonides wasn't just interested in the alleviation of poverty. He was; he thought that was a great thing. But he's also interested in character refinement. And I think one of the flaws of policy in the modern world, ironically, is that we look at material outcomes as the only thing that counts. That's certainly an economist's score card. So, it doesn't matter how the poor get their money, whether they earn it, I give it them, the government gives it to them. And I think in reality those three are very different. And similarly, if I help my parents and I overcome the free riding problem with my siblings, and I overcome the issues of parent-child relationships and I help sustain them in their old age, that's somehow the same as you helping my parents through Social Security. And I don't think those are the same. I think that part of being a human being, being a good human being, is overcoming your self-interest at times. And doing it through private, voluntary action is very different than coercive taxation. And I just think we've lost that, totally. And that's, I think, sad. Part of the reason we've lost it is the economic methodology that we were talking about earlier. Munger: Sure. Yes. Because once you start thinking in terms of utility--so in the Christian tradition, particularly in the Protestant Christian tradition, the important thing about faith to be salvatory is that he be authentic. And that means it has to be voluntary. So, it can't be coerced. And so, Roger Williams, when he found-- Russ: By definition. I can't force you to believe something. Belief can't be coerced. Munger: I can't[?] force you to act as if you believe it. And so, having rules about attending church on Sunday, not drinking--those rules actually protect you from having to think this through and do it voluntarily. And so you are actually condemning people to hell, because they are not able to develop their character and do it voluntarily on their own. The establishment of Rhode Island, the reason that they argued for toleration--you have to allow people to sin for them to have any hope of being saved. Because their faith has to be authentic. Which means that there has to be the possibility that they do something else.
56:24Munger: That raises the possibility of evil. We don't have much time left, but I did want to ask what Smith's view of evil is. And the reason I wanted to ask was that I'm a big fan of movies. And one of the things that I think makes for a good movie villain is--there's two bases of attraction. There's two sweet spots. One is, a movie villain who is incomprehensibly evil and where there's no sympathy, but does it in a way where they otherwise feel fairly human. Or, someone that you are actually pretty sympathetic to and you understand their motives, and then you are horrified at the fact that you are sympathizing with this villain. So, if Adam Smith were a consultant, if we could bring him now and Quentin Tarantino's going to have a movie where he has a truly horrifying villain, how might we think about this absence of sympathy as something that when we confront it--this is someone who is not governed by an impartial spectator, this villain. But they have to be aware of the fact. They can't just be autistic or mentally incapable of understanding. They fully understand the social norms they are transgressing by killing or torturing. And yet do it anyway. Is that why? My real question is: Is that why we find movie villains so horrifying, is that they are violating what Smith tells us is actually the nature of people? So, when I look at Javier Bardem's character in No Country for Old Men--so, the guy who was the Russian killer, he was just chaos. He was able to kill completely without compunction. And yet he had certain rules that he followed. I don't know if you've seen the movie; some of the listeners have probably seen the movie. He used dice or random chance to decide who would live or die, which is completely different. So--this was a long intro for what's really a pretty short question: Can we use what you've discovered about Smith to help us understand why it is that we find effective movie villains so horrible--is it that absence of an effective impartial spectator? Russ: That's fascinating. There's a third type of villain you didn't mention, which is the redemption villain. Right? The movie where the movie opens--very common theme--where the villain starts out as a villain and then through some set of lessons is transformed into a good person. Those movies sell like hotcakes when they are done well, because there is something deep inside us that wants to see that transformation. Which is fascinating when you think about it. Munger: Yeah, it's an affirmation of these Smithian values. Russ: Yes. And on the pure evil thing--I think you're right. I don't have much to add to your analysis, which is why that long intro was totally worth it; I'm not going to cut a second of it, Mike. I should just mention, by the way--people have asked me, guests always ask me, Are these edited? There's basically no edits to EconTalk. It's just our conversation. The only things I edit out are obscenities, which occasionally get muttered by a guest. If I can find a way to save the train of thought. A sneeze or a cough. Or losing the train of thought which I do--happens to me about once every two episodes. And so, these are not edited. I didn't edit out any part of that intro. And it was utterly fascinating. What I want to add to it is that Smith actually in a number of places in the book--and I don't write much about this; I didn't find a good place to write about it--but he writes a lot about what grabs our attention as viewers of drama. And I think he says, a drama about a man who loses his leg is a lot less interesting than a drama about a man who loses his mistress. And that's interesting in and of itself. But that's not your question. But I think you are right. I think that someone who does not respond to the normal norms--my version of this would be the Joker in the Batman movies-- Munger: Absolutely. Russ: I actually can't enjoy those movies. Friends of mine love them. I just--after the first one, Batman Begins, which I thought was marvelous, the second one, which is I think The Dark Knight, the second one, I found it--I couldn't watch it. I actually walked out of it about three quarters of the way through. Munger: Really? Russ: Yeah. Well, I have to confess: I was with my daughter, and I could see she wasn't enjoying it, either. Whether I would have walked out on my own, I don't know. But I found that manipulation of the audience through the threat of--this guy will do anything; there's no degradation he's not--he's capable of any degradation. I find that deeply--maybe that's my black box, that I find it so disturbing. That I don't want to look at it. I do think there is a--it's a version of what you've pointed out, I think, a version of a horror story. Munger: Oh, yeah. All the other things are-- Russ: We like to be scared. Munger: [?] ephemeral[?]. It's really that person's lack of soul that's the horrifying thing. The stuff that he does, sure, that's bad; but that's just histrionics. The reason I thought it was such a great movie was that the figure of the Joker to me is an iconic figure of human evil. Russ: Yep. Munger: And I didn't see it as manipulative. I saw it as insightful. And the reason--that was actually the closing part that I had for this question: Heath Ledger committed suicide. Russ: Yeah, it's horrible. Munger: And in May of 2013, his father released parts of his diary. And in the diary, Ledger talks about having to confront the sort of raw edge beyond which you are not really human any more. Even though you are human in form. And so that, in some ways--obviously he had maybe other difficulties--but confronting what you just said you walked about: He couldn't walk out. Russ: Yeah. Munger: He killed himself. Confronting that day after day was just too much for him. Russ: Yeah. I don't think it helped. I don't know if it was the cause but it certainly didn't help. Munger: Yeah. He had other difficulties. But in his diary, he did talk about it over and over again, which I thought was interesting; so that your walking out--you didn't have to stay. It's not effective for you in the sense that: oh, this is a movie villain; I'll have more popcorn. Russ: Yeah. Exactly. Munger: So, Smith is on to something there that's so deep. Well, really all I wanted to say was I thought that this affirmed, on the negative side, the things that we had been talking about--the positive side--about Smith's insights into human nature. Russ: Yeah. That's a great point. Munger: That is more than all I had hoped to get through. It was a great pleasure to be able to talk to you about this book, Russ. Russ: Mike, thanks for being part of EconTalk. Munger: Thank you.

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COMMENTS (28 to date)
rhhardin writes:

Demand curves quantify out all the motivation that gives understanding in economics.

Start with disagreement about value and keep it in the argument and you'll make obvious every policy error modern governments make.

We trade when we disagree about value; the nation's wealth rises by the amount of disagreement.

Specialize and trade is the surest way to produce disagreement over value - the specialist values his output at much less than his customers. And hence division of labor produces wealth.

You can continue to see that at every turn until you draw a demand curve. Then the insight disappears.

On morality, Emmanuel Levinas puts it prior to ontology in a nice exposition _Totality and Infinity_. Morality stabilizes objectivity and makes objectivity possible, rather than the reverse.

You don't even get to math before you have morality.

Morality he figures starting with the appearance of the face of the other.

It's not so much, as Russ has it, what others think of you, as what you think of yourself.

And what you do creates you.

Elsewhere, on Messianism, taking religion as the poeticization of ethics, he asks who is the being who takes on the suffering of the world but the being that says "me." Everybody is the messiah.

rhhardin writes:

On caring more about your finger operation than millions dying in an earthquake: it's evolutionary. People are built to care about stuff in their neighborhood, which has survival value by getting neighbors aid.

The trick of soap opera news is to bring every disaster in the world into your neighborhood so that you'll tune in and watch, stroking the give-aid impulse.

All of which leads to really bad public policy debates and choices.

On school shootings, for example, or NOAA's tornado budget.

Mtipton writes:

Lovely conversation. Saw Russ's ReasonTV interview, enjoyed this a lot more and probably convinced me to buy the book. Given the complexity of human nature most a philosophers attempts at encapsulating it fall short. I think Smiths conception is rich, deep, sophisticated and highly accurate . Knowing thy self, seems a key corollary to living a good life, seems like this book does a good job of helping you do that.

Glenn Alan Mercer writes:

On the last part, about evil, etc. I am as sure as I have ever been that the following is not original with me: but isn't "evil" the exact inverse of "good?" And if the ultimate marker of goodness is the highest form of altruism (i.e. giving away all your wealth without knowing to whom it goes and without disclosing yourself as the giver, and without even getting a "warm feeling" about doing this -- as Kant argued), and the highest form of altruism is exceedingly rare... then isn't pure evil also exceedingly rare? If a person is good mostly because she or her wants to be seen as good, and wants to adhere to internalized standards of good, and if these feelings are responsible for 90% (I am guessing) of good behavior, then doesn't the same in the reverse apply to evil? Thus isn't 90% of bad behavior due to wanting to be seen as powerful, or cruel, or feel oneself has power over others, or is feared by them, etc.? Leaving as pure evil the final 10%, where evil is done purely out of force of will, without caring whether it inspires fear or hate in others, and without caring if it makes one feel superior or not?

Thus pure evil is very rare, as rare as pure altruism, and marked by the same traits as pure altruism, but in reverse: the truly evil person gets no particular joy from his or her misdeeds, and cares nothing for how he or she is perceived.

Unfortunately, then, the purely altruistic and the purely evil are differentiated only by which moral code they have chosen to follow...

(Sorry for this half-baked rambling, but it is your fault Russ and Mike, you let the philosophical camel's nose into the economics tent, when you threw evil into the mix!) (grin) Can we get back to safer ground now, like why hotdogs come in batches of 10 and buns in batches of 6? (grin again)

Michael Byrnes writes:

Great podcast! (Although Munger... while insightful as usual, perhaps could have done a bit better in yielding the floor...)

I'm about halfway through the book and so far I have found the book to be very interesting and this discussion of it insightful.

Russ mentioned something in passing that piqued my interest - that Darwin was strongly influenced by Adam Smith. This is something I had never thought about before, but it makes such obvious and perfect sense that (as a biologist) I am a little disappoited in myself for not making this connection. Has anyone written about Smith's influence on Darwin - I'd be interested in reading more about it.

This episode also made me think of a couple of recent Planet Money episodes.

One was a story about a guy who inadvertently filled in the wrong number in a contract and did not realize it until it was signed and executed - a mistake that, by the letter of the agreement, could have cost his firm tens of thousands of dollars. The guy thought he would be fired after he told his boss, but when they called the other party he didn't demand the extra money, he just laughed and agreed to sign a new contract. Would Adam Smith would have approved of the guy (for being up front and honest about his potentially costly mistake), his boss (for not firing him on the spot), and the other party to the contract.

The other was a about how it has been difficult to raise money for Ebola because it was such a distant problem, even though that money could be used in part to prevent a more global epidemic that might affect us more directly (too late for that now). This episode also touched on the hot water the Red Cross got itself into after 9/11 when it tried to reallocate money that had been given after 9/11 (I think for families of 9/11 victims) to other urgent (to the Red Cross) causes. The uproar this caused seemed somewhat like the earthworm story - the donors wanted to see themselves as people who supported the families of the 9/11 victims, and they were upset when it leaked out that their donations might have gone to some other charitable cause.

Greg G writes:

I am only part way through the book but I have read enough to be able to recommend it enthusiastically. The skills that Russ brings to the table as an economist, a writer and most of all as a teacher, make this a book almost anyone could profit from reading.

Like Michael Byrnes, I was struck by the part of the interview where Russ pointed out Smith's influence on Darwin. Like Michael this was something I had never thought about before but which seems to me perfectly obvious now that Russ has pointed it out.

I do have one question for Russ. You say, "The second goal I had really was to redeem poor Mr. Smith, who for a variety of reasons has a reputation as a champion of greed."

It seems to me that Smith is (and should be) just about the most universally respected economist in history. He is an icon. At least since the fall of communism, I don't remember ever seeing him directly blamed for the greed that some people think is encouraged by capitalism.

I suppose it is possible to see an implied criticism of Smith in criticisms of capitalism but I have never seen anyone make the explicit connection between Smith and the "greed is good" caricature of capitalism. Russ, were you assuming an implied criticism of Smith by modern critics of capitalism or do you have some more explicit criticisms of Smith in mind from popular culture?

Keith Vertrees writes:

Extra credit assignment #1, part 27: compare and contrast Kant's Categorical Imperative, Rawls's Veil of Ignorance, and Smith's Impartial Observer.

Just kidding.

Loved the podcast, and the book is on the top of my pile. I liked Mike's little detour at the end about evil and specifically evil in movies (which, like Mike, I love). No Country For Old Men is one of those movies that breaks barriers, uncomfortably, and Anton Chigurh is perhaps the most disturbing character I have ever seen. Now I know why. I wonder what would happen if someone told him his behavior was horrific?

Thanks for the podcast, guys!

Daniel Barkalow writes:

I'm not sure that anyone self-aware would be able to distinguish the desire to have self-respect because of one's actions from unmotivated altruism. Furthermore, I think that charity has to be (or at least should be) sufficiently considered to allow the donor to judge whether it is actually providing benefit to the recipient, and our innate way of coming to a conclusion about the effects we see is whether we feel good or bad about doing it. The only questions that could distinguish are nuts, like "Would you consign millions of people to death if you are misunderstanding this question and you would actually be saving them?" or "Would you still do good deeds if you were a sociopath and didn't feel any better about yourself for doing them?"

Furthermore, I don't think you can really separate moral individuals who are motivated by the desire to feel that they do good deeds from homines economici who like to watch football games, aside from that self-respect is an even more popular taste, and one that it is more useful to society for individuals to have. So you can just say that there's a lot of demand for self-respect, and the supply is very different from material goods, and the standard market doesn't work but culture does the price discovery instead. Of course, satisfying the demand for self-respect produces a supply of somewhat arbitrary other assets with little regard for the demand for those assets.

In any case, I liked this podcast a lot, and look forward to reading the book.

Yavor writes:

Michael Byrnes, what other podcasts do you listen to (or blogs do you read)? I too am a fan of Planet Money and obviously this podcast and I am always on the lookout for other great ones so please share....

I wish Mike and Russ went more into the "motivation versus outcome" tension that is sometimes present in situations involving morality and/or self interest/altruism.

Some people believe this is one of the key philosophical differences between liberals and conservatives - liberals are preoccupied with one's intent and empathy (caring, sharing, subsidizing) while conservatives are more concerned with outcome (tough love, incentives, moral hazard etc.) and less with intent (remember Smith's self-interested butcher providing safe, cheap meat without necessarily loving his customers). That's partly why the bottled water (or was it ice?) customers from one of Munger's previous appearances disliked the "price gougers" even though the latter served a beneficial role in the scarce goods distribution. Is self-realized (or even incidental or subconscious)enlightened self interest not as "pure" as the more "selfless" variety of altruism?

If altruism became evolutionarily "hard-wired" due to its conferring of a fitness advantage, is it really selfless? Maybe altruism is valuable as a CREDIBLE signal of ability and willingness to be cooperative and other-regarding. That would make it a form of advertising...

Of course, if all parties acknowledge its role as a signal, is it always perfectly credible? When all parties are aware that the alleged altruist may end up benefiting himself in some way (even if that way is unknown to the observer who may well suspect it exists), the signal loses some of its credibility. Would the altruist remain altruistic when incentives are not aligned or his act could not be observed? There is a fundamental mistrust towards self-interested individuals or businesses whose incentives happen to be aligned with the well-being of their patrons, customers, receivers of aid etc. This alignment casts doubt on the credibility of the altruism. Would they be as selfless if the alignment were to disappear? If not, then the signal is what game theorists call "cheap talk" or a "cheap signal."

Maybe that's why humans developed emotions - as a way to send convincing (aka more "expensive" signals) or to obscure their own cold rationality from themselves and/or from others. This way credibility is substantiated (even to themselves which makes them better "actors" - to the point that it really can be experienced as authentic). Moreover, emotions by virtue of their very nature, are "costly" - we experience them physiologically and physiologically and that experience is hard to tolerate very easily or hide from others (by evolutionary design?). It is also hard to mimic ....

On the utilitarian calculus aspect of fingers and faraway deaths - maybe it's not completely random that a Scotsman would be ambiguous or conflicted over the apparent (to him) "dilemma." Northern Europeans came up with the liberal ideas of the Enlightenment as well. Could it be that there is some evolutionary shaping or pre-selection involved? Genetically homogeneous groups in harsh and cyclical climates (for example ...the true reason may be pure chance or unrelated) whose members cooperate would have better survival and more developed traits like trust (to this day, Northern Europeans score the highest on social trust indices) and impartial observer-type self-monitoring and self-enforced fairness.

Once developed, this underlying trait can presumably be the foundation for a whole worldview moral philosophy with similar feelings for far-away people (something that would not have been possible in the evolutionary past). At almost no previous point in history before the Enlightenment did people profess remotely similar concern for someone far away and/or unrelated.
Quite the contrary - constant small scale warfare and exclusive regard for one's immediate family and clan (often to the detriment of others) has been endemic and considered normal, honorable, and righteous. Even the historical Jesus was reportedly an ethnic zealot primarily concerned with his fellow Jews and the universalist Christian principles most of us now subscribe to were posthumously developed to have more populist appeal as to enable the growth and franchising of the religion.

European cultures and their offshoots were the first to legitimize and popularize the idea of moral universalism (lately this has even been extending towards other species) whereby a life is a life is a life (or a job is a job is a job). Brian Caplan is a perfect example of this ethos - he advocates unrestricted immigration as it will result in the most benefit to most people globally.

These ideas are spreading (for better or worse) through cultural transmission (or a meme evolution as Dawkins might have said) but have a long way to go to completely displace the idea that allegiance and affinity is and should be expressed through concentric circles at whose middle the respective individual and his family stands and at whose periphery the geographically and genetically least-related to him reside. A protectionist, a sectarian, a racist, or a nationalist displays this ethos (the concentric circles are not always based on genetics or proximity but but there is a fairly large overlap). He is not necessarily selfish - rather he distributes his loyalty and munificence more preferentially and in a more biased manner.

Excuse the long and messy comment, found the episode exciting...

Mark K writes:

Very interesting and enjoyable podcast, but I have to question Russ's suggestion that our conscience can or should be internalized from the social judgment of others. Slavery and segregation come to mind as institutions where norms were clearly reinforced in a deeply unjust direction. If one's peers are materialists, should one accept materialism? Shouldn't we still reject the "looters" morality even if they greatly outnumber and condemn us?

Point being, while we as humans naturally care about the opinions of others, shouldn't we reject that feeling in favor of a rational assessment of how a situation accords with our values?

I'm not an objectivist, but I think Rand had it right that a rational moral framework is better than a socially derived one.

Michael Byrnes writes:

Mark K wrote:

"Very interesting and enjoyable podcast, but I have to question Russ's suggestion that our conscience can or should be internalized from the social judgment of others. Slavery and segregation come to mind as institutions where norms were clearly reinforced in a deeply unjust direction."

I don't think Russ would argue otherwise. He notes that we have a tendency to fool ourselves and must constantly work to overcome this tendency. Also, that the "impartial spectator" does not stop many of us from trying to choose the fame and fortune path to recognition. In other podcasts he has emphasized that not all emergent phenomena are good or desirable.

It would be interesting to hear his response to this point, but I don't think his argument is that the "social judgment of others", whatever it might happen be, defines our moral code.

rhhardin writes:

Radio Japan reported long ago now that the custom in Japan, when one side is unhappy with how a contract is working out, that they renegotiate the contract.

So long as there's a surplus, each side should get some.

Rather than ruining your counterparty.

Greg G writes:

Yavor,

If you are looking for the best economics podcasts you have done well to zero in on Econtalk and Planet Money. They are head and shoulders above the rest in my opinion. Freakonomics is often also worthwhile.

I found the rest of your comment interesting and thought provoking but quite confused. I think you have it backwards to ask "why humans developed emotions." I am not a biologist but I'm pretty sure that any biologist would tell you that emotional reactions developed long before rationality in our evolutionary history. They developed as an economical heuristic to produce actions which tended to promote survival and reproduction.

Of course these emotional responses may fail to do that. Evolution is limited by the preexisting biology and the mutations available to work with. Building a more accurate response only improves evolutionary fitness if it is worth the opportunity cost in resources used.

Whether or not rationality will really promote the long term survival of our species is very much an open question. We are a young and fragile species in evolutionary terms. The development of nuclear and biological weapons raises the question of whether or not our rationality has already begun to outrun its evolutionary survival value. Most evolutionary biologists would be far more likely to bet on bacteria for long term evolutionary fitness.

Discussions of selfishness and altruism in evolution are easily confused by different definitions of those terms. I think you will find that biologists tend to think of them in terms of whether they promote co-operation or work against it. Evolutionary biology deals easily with the problem of evil that so vexes religion.

Evolution equips us with the ability and the inclination to co-operate most of the time. It accomplishes this by equipping us with what we usually refer to as a conscience and making this conscience somewhat flexible with regard to peer pressure. For the cases when that won't serve to promote survival and reproduction, evolution equips us with the potential to do evil.

It is worth remembering in this context the fact that Smith's friend David Hume famously said "Reason is, and ought to be, the slave of the passions." Reason never had a better friend than David Hume. What he meant was that we do, and should, use our reason to defend the values that matter to us most.

In this he anticipated much later neurological research which showed that moral decisions are made in the emotional centers of the brain. Rational defenses of those decisions are produced a bit later in the parts of the brain devoted to rationality.

Yavor writes:

Greg,

Thanks for your response. I do already have Freakonomics on my podcast list as well :)

Even though emotions have a deeper evolutionary past than humans, I tend to agree with what was stated in the podcast - that humans have more profound and complex emotions than other animals or earlier hominids. Those have surely evolved more recently - think of righteous anger or indignation, moral repulsion, sense of humor (which has an emotional component even though it is not strictly speaking an emotion), shame, unwavering loyalty to an idea, the impulse to punish defectors even at a cost to oneself etc. They may have used the raw material of evolutionary old emotions but I consider them to be new and qualitatively different.

Like you, I think that reason rationalizes emotions and further that the two are inextricably intertwined and that any dichotomy between the two is likely false.

Mark K writes:

I should have included the quote from Russ:

"I think what's Smith's contribution is, is thinking about where our conscience comes from. And in Smith's conception it doesn't come from our religious upbringing. It doesn't come from our parents, you know, teaching us and modeling for us. It comes from our fears and hopes for what other people think of us."

I agree that what others think of us can greatly influence our actions and conscience. However, given that such influence can lead us very much astray (e.g. slavery or "looting"), shouldn't we reject it as best we're able?

Doug Tree writes:

On podcasts: I highly recommend the BBC podcast "In Our Time". It's not an econ podcast, but I like it almost as much as I like econtalk.

Matt Taylor writes:
"There's no altruism anywhere in the animal kingdom; it can't exist; the gene is selfish, just like Richard Dawkins says."

Dawkins does not say that altruism can not exist because the gene is selfish. He says that altruism does exist because natural selection acts at the level of gene rather than the level of the individual. Any gene that encourages behavior that increases the likelihood of the genes survival will be selected for. Hence the "selfish" gene.

A gene that would cause a person to put themselves at risk in order to help somebody else could be selected for as long as there was some likelihood that the person helped shared that gene. The act just has to increase the likelihood that the gene will be passed on, by whom does not matter.

Michael Byrnes writes:

Mark K. wrote:

"I agree that what others think of us can greatly influence our actions and conscience. However, given that such influence can lead us very much astray (e.g. slavery or "looting"), shouldn't we reject it as best we're able?"

Would that it were that simple. Roberts does acknowledge this limitation at length in the book, but...

I think that he (and Smith) were not just making normative claims ("this is how the world should work") but also positive ones ("value judgments aside, this is how the world actually does work").

In other words, we can't just reject that the opinions of others influence our actions and conscience... because that is how we are wired.

Certainly in history there have been (and are still) a lot of negative effects of bad and destructive norms, but it is hard to say that the bad has outweighed the good, and harder still to say that some alternative approach, were it possible to adopt one, would be better.

SaveyourSelf writes:
I am a couple of chapters in to Russ’s new book. The book is not what I expected--less argument and more philosophical contemplation. Russ has a nice writer’s voice. His thoughts and ideas flow smoothly. There are lots of good quotes.
P. 12 “One thing I’ve learned from Economics is to be skeptical of advice from stockbrokers…Saving you from losses isn’t as exciting as promising you millions, but it’s still pretty valuable.”
I see a parallel to this frequently in medicine, especially among young people. Advice like, “Wear your seatbelt” or “Wear a helmet” or “Don’t do drugs” are frequently…underappreciated…when compared with alternatives like: “Taking risks is exciting” or “I want people to know it is me riding the motorcycle” or “Doing drugs is required to fit in.” I wish there was a better way to communicate to young people that avoidance of catastrophe in the long run is more valuable than being attractive to the opposite [or same] sex in the short run.
P. 25 “So if the milk of human kindness is in such short supply, why aren’t we more outrageously selfish, more sordid? Smith’s answer is that our behavior is driven by an imaginary interaction with what he calls the impartial spectator-a figure we imagine whom we converse with in some virtual sense, an impartial, objective figure who sees the morality of our actions clearly. It is this figure we answer to when we consider what is moral or right.” P. 28 “The impartial spectator is the voice inside our head that reminds us that pure self-interest is grotesque and that thinking of others is honorable and noble…”
I agree with the presence of the impartial spectator, but disagree that its functions are derived from anything other than self interest. Caring about what others think is still an exercise in self-love. Consider that “survival” is the master virtue. All other virtues derive their meaning and value from it. The impartial spectator is an important tool because it allows individuals to guess at the opinions of others. The opinions of others matter because those opinions can influence their actions and those actions—or lack thereof—can have a direct influence over personal survival. Assault and theft and adultery, for example, can reduce life expectancy whereas sharing and building and trading can increase life expectancy. Influencing the actions of others towards the latter and away from the former is a very real exercise in self-preservation.
P.31 “Smith believes…that our moral sense comes from experiencing approval and disapproval from others. As we experience those responses, we come to imagine an impartial spectator judging us.”
That’s pretty deep. It suggests the impartial spectator is an abstraction of past experiences or perhaps the recognition of common patterns in past experiences.
P.33 “Smith is telling us a way to find serenity. Wag more, bark less.”
Great quote! Makes me laugh and smile every time I read it.
Mike F writes:

The Maimonides/Roger Williams discussion toward the end of the podcast was interesting. Roberts and Munger only explicitly acknowledged the downside regarding our society conducting income redistribution to generate more egalitarian outcomes. They missed that a nice feature of our current system is that it maintains the anonymity of donors and recipients thereby allowing maintenance of the altruistic nature of the transaction (no gratitude to burden you.) They only mentioned that since it isn’t voluntary, you have no hope of being saved. I guess the question that society has to wrestle with is how much hell you are willing to inflict in the here and now in the interests of improving the character of our citizens.

Sean Gilligan writes:

The movie villain that came to my mind during the discussion is Kevin Spacey's Frank Underwood from House of Cards.

When Frank Underwood breaks the fourth wall and speaks to the audience he's justifying his actions to his twisted version of Smith's impartial spectator. His running commentary helps define him as one of the most compelling and intriguing movie villains ever.

MTipton writes:

To anyone that is interested in moral questions, check-out Richard Epsteins – “Good and Bad Contracts How Consequentialism Helps Define Moral Theory” on YouTube. It’s pretty dry, buy you’re on EconTalk so I am assuming you can handle it . Not that EconTalk is not super fun at times, but you know what I mean. As a consequentialist libertarian that happens to be an atheist I am always trying to figure out morality, like most libertarians I am attracted to the idea of natural rights and deriving morality from adherence to those principles, they make sense right? Don’t hurt people and don’t take their stuff seems pretty basic. At the same time I am a ‘consequentialist’ so I definitely care about the outcomes, the kind of society that results under different systems/rules, to me this is the test and the most important. How does human flourishing do under these rules and customs? If it was the case that we rationally came up with a set of principles and when those principles were enforced and promoted the society broke-down, poverty increased, opportunity got reduced, that would be a grounds for me in re-examining our principles and rules. As an Econtalk listener I’ve also been influenced by Hayek’s thoughts greatly, specially his emphasis on limits of knowledge and spontaneous orders. And even though Hayek is not presented as a Burkean because he is not, a lot of his ideas about religion, the market and government institutions are very Burkean. So this has made me more respectful of religion and institutions and obviously skeptical about our ability to rationally shape them from the top down. So Edmund Burke is a defender of existing institutions you could say, a way of understanding the why, is through Hayek’s lens, social institutions like the church, government and markets are actually living and breathing organisms that are an integral part of allowing civil society to exist. Hence giving us the ability to live our lives. So we ought to be respectful and thankful about our traditions, and very careful and humble about our ability to change them radically. So where does that leave you? How about things that clearly not working or clearly wrong about our society? Do we just live it alone because we don’t know how to change them? Well both Burke and Hayek were reformers. They didn’t want to see society in stasis. So the prudent approach if you agree with the evolutionary and organic nature of social institutions is a marginalist approach, one of gradual improvements. If you listen to Richard Epstein you’ll see this is his conclusion. Hayek/Burke are basically a vaccine against any form of radicalism, I think anarchists left/right would benefit greatly from getting familiar with the main ideas of these two man, they had great insights. I am not sure Burke would have been palatable to me without first reading Hayek’s ‘Fatal Conceit’. When a lot of libertarians see the worst acts of evil historically like those surrounding Fascism and Communism they tend to think of them as arising mainly from violations of individuals rights, and this is obviously true, killing people, stealing, unfair imprisonment etc, most societies see as evil. Another way of seeing it would be through the Burkean/Hayekean lens, you could take Burke’s criticisms of the French Revolution and apply them to these two examples, it’s not just that they violated individual rights that made it monumentally horrible is that they tried to radically REMAKE society. So it wasn’t just an assault on individuals that was the problem but an assault on society itself, it’s values, traditions and social institutions. Back to Epstein, so in some way’s Epstein integrates the truth in all these ideas; he kind off calls his approach Kantian Consequentialism, so you assess the beneficial nature of a rule/law not by looking at its results on a particular individual a given point in time, but my looking at the kind of society it brings about when it’s systematically applied throughout time. He also emphasizes that our rules should facilitate win/win transactions and above all oppose rules that result in NEGATIVE sum transactions, that make society worse off.

Alan Clift writes:

Was curious what 'though it should be praised by nobody' means in Smith's

'He desires, not only praise, but praiseworthiness; or to be that thing which, though it should be praised by nobody, is, however, the natural and proper object of praise.'

Does it mean no one might actually praise them?

Michael Byrnes writes:

Alan Clift,

My guess would be he means "to be the natural and proper object of praise, even if he is praised by nobody".

I don't think he's saying that praise is bad or that being praised for something renders that action non-praiseworthy.

I think he is maybe implying that, whether one is praised or isn't praised is irrelevant, what matters is "to be that thing which is the natural and proper object of praise".

Arde writes:

I don't think this was a very good episode because of the host. Mike Munger talks too much. The interviewer should give more chance for the guest to speak. His questions are too long, involving different threads of thought. Sometimes the questions are not clear. I learned little about the book. The episode was more about Mike Munger and much less about Russ Roberts's book. Mike Munger states his views about good or evil or whatever and then Russ Roberts reacts to this while also trying to refer to Adam Smith if possible. That being said, I think that Mike Munger is an interesting guest and I hope to hear him in the future episodes. But, being used to high standards of interviewing set by Russ Roberts, I did not enjoy MM as a host.

Ron Crossland writes:

I appreciated the philosophical questions, the discussion of those questions, and the acknowledgement of conflicts that arise when adhering to one view of economics. Smith's thinking has had a profound impact on the world.

The discussion of human biases toward altruism, reciprocity, kin selection, cooperation, reason, selfishness, power seeking, etc. could all benefit from a much deeper appreciation of other fields of knowledge. For example, all fields of human understanding are being challenged by what we are learning from rapidly advancing neuroscience research.

The thought experiment I posit is this: In what ways would Adam Smith's views alter if he were alive today, was in his 40s or 50s, and had studied not only economics, but history and neuroscience? I imagine he would refine and alter nearly all of his views and contend with many of the comments posted here. It would be great to see the changes in his thinking after enjoying over 200 years of knowledge his own enlightenment contributions helped produce. He might contradict himself on more than a few points.

Michael Munger writes:

"Arde" is certainly right. I'm not a good host. It's not surprising that I'm not as good as Russ, because Russ is a GREAT host. But I'm not even adequate. Interesting to have to confront one's shortcomings.... But now I know!

In fairness, in the first year or so some people criticized Russ for talking too much. But now he's really fantastic.

I'll practice on my wife. She likes it when I listen to her. "Yes, dear...yes....yes, dear, that's right. Can you say more about that, dear?"

Phil writes:

For whatever it's worth, my wife picks up earthworms in the street and drops them in the grass while we're walking. I just asked her if she would pick them up if I wasn't with her. She said "Yes."

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