Russ Roberts

Timothy Taylor on Government vs. Business

EconTalk Episode with Timothy Taylor
Hosted by Russ Roberts
There's No Such Thing as an Ob... Talking Topsy Turvy ...

moneytree.jpg Timothy Taylor, blogger at the Conversable Economist and editor of the Journal of Economic Perspectives talks with EconTalk host Russ Roberts about the role of government and business in taking care of workers and creating economic growth. Taylor discusses the paradox that the political process seems to expect firms to take care of workers and government to create growth. The conversation then turns to a wide array of related issues including how Wal-Mart treats its workers. The conversation closes with a discussion of Taylor's role as founding editor of the Journal of Economic Perspectives.

Size:28.4 MB
Right-click or Option-click, and select "Save Link/Target As MP3.

Readings and Links related to this podcast episode

Related Readings
About this week's guest: About ideas and people mentioned in this podcast episode:


Podcast Episode Highlights
0:33Intro. [Recording date: January 12, 2016.] Russ: We're going to start our conversation talking about a recent blog post of yours on the appropriate roles for government and business. And, you made the point, echoing someone else, that we seem to be getting their roles confused. Explain what you meant. Guest: Well, the comment was based a little bit on a quotation that I've used in class and I have up on my door every now and then, from an old newspaper editor named Donald Kaul. And Kaul said, 'We have come to rely upon capitalism for justice and the government for economic stimulation, precisely the opposite of what reason would suggest.' And this is the line I like; he said, 'Capitalism does not produce justice, any more than knife fights do. It produces winners and energy and growth. It is the job of government to channel that energy and growth into socially useful avenues, without stifling what it seeks to channel. That's the basic problem of our form of government: how to achieve a balance between economic vitality and justice. It is a problem that we increasingly ignore.' And I guess what struck me about that, the reason I use it in class, is it just seems to me that often when people talk about growth, the first thing they talk about is not the role of the private sector or firms. They talk about how the government can give us growth, through tax cuts or spending increases or the Federal Reserve. When they talk about fairness and justice, they don't talk about the government doing that. They talk about how companies ought to provide fairness and justice in wages and health care and benefits and all sorts of things. So it seems to me that our social conversation about those things is topsy turvy. Russ: So, let's take them one at a time. Let's start with the government side. Right now, the economy is limping along. It's doing okay: the last job report actually was pretty good. But it's been a disappointing recovery from 2008. It was--the Recession ended but we did not get the robust growth in either output or employment that often follows large recessions. So a lot of people have been very disappointed and think we ought to do something about that. Are you suggesting that that's unlikely to happen? unlikely to be effective? Or are you suggesting it's just not possible? Guest: Sure. Well, there's a long-standing distinction between countercyclical policy, where you are doing because there is a recession, and the long term of what you are doing to build longer-term growth over a period of decades or more. That, the bounceback out of the Recession has been [?] sluggish and soggy and we never really have gotten the quick bounceback that we often have expected--people used to talk about V-shaped recessions where you sort of dropped down and bounced back. But the last few recessions have been soft and sluggish, and they've been what we call sometimes 'jobless recoveries,' where job growth has been slow to resume. So, I tend to take I think this middle-of-the-road view, that when you are in the middle of a recession, surely there is a role for the government to do some things like run a large budget deficit, do some extra spending, do some tax cuts; there's a role for the Federal Reserve to reduce interest rates; all in the name of helping to get you out of the recession. But once you are out of the recession, and now unemployment is down to 5%, I don't think the government is going to be what pushes us forward at this point. At this point, even though things aren't what we'd like to be or haven't happened at the pace we'd like them to be at, I don't think long-term prosperity is going to be built on low interest rates and high government spending. In the long run, prosperity is going to be built on the actions of firms creating new products and goods and services. Russ: Innovation obviously, or productivity are the normal places that we expect longer-term growth to come from. The growth rate--we are technically out of the Recession now for 7 years. I think the summer of 2009 was the technical end of it. And so this is the new normal. And a lot of people find it disappointing, and so they do--they want something more. Politicians are pressured to create something more. So, a lot of people argue we need to subsidize innovation or other sectors, certain sectors of the economy. What do you think of that? Guest: I of course think there's good economic arguments for the government to support scientific research, and Research and Development. But I think the underlying tough question here is what in the business literature they call core competency. You have to think about what you are good at. And what companies tend to be good at, at the most basic level, is: How do you produce something? How do you transform something? And how to tweak it and change it and deal with costs and characteristics of whatever it is you are doing in a way that you can sell it. That's what companies have as their core competency. And of course companies are sometimes tempted to do things like take advantage of people or commit fraud or emit pollution or other things. And there's a role for government in those things. But the real core competency of companies is to push[?] from that side. And the real core competency of government on the other side, it seems to me, is that it can collect money; it's good at collecting money from people who don't necessarily want to pay; it's good at writing checks; and it's good at setting up a set of rules and then at some level enforcing those rules. But it's not necessarily good, and often isn't good at all, at the process of, at an intimate small level, making stuff, changing stuff, transforming stuff, and providing services to people. So I think that the trick is to draw the line between those two. It's not that government doesn't have a role in some things like encouraging Research & Development; I actually am a supporter of the idea that we should think seriously over time about doubling our government support of research and development or more. But, when the government says, 'We're going to start--we are going to heavily subsidize a solar energy company,' it doesn't tend to work out well. And even closer examples, like, think of the TSA, the Transportation Security Administration, at the airports and so on. I would much, much prefer the old days where those were run by private companies and the job of the government was to set rules and go in there and try to beat the system and check out how well they were doing. Because now, you sort of have government enforcing government workers; and the government workers aren't going to be fired. Their administrators aren't going to be fired. So you have this situation of the government trying to provide a service. Which isn't what it does best.
8:00Russ: So, let me--I want to push back on part of that, or try to get you to clarify it a little bit or flesh it out a little bit more. Somebody actually coincidentally wrote me yesterday asking if I thought the government had an important role to play in R&D (Research and Development). And I responded with a rhetorical question which was, if you think it would do it well? And of course there's a theoretical argument for why basic research is best done by the government rather than a private firm. There's not always a return to private research that's captured by the person doing the research; and so there's an argument that it's a public good that should be provided by the government. The challenge is the incentives the government faces in providing that public good or the research and development funding. So, I certainly understand the argument. The question is: Just as there is a problem with government services being provided--they may not do it so well; the incentives are troubling; the ability to fire is difficult--politicians and administrators tend to follow incentives. And you and I might imagine a government budget that was spent on R&D that might advance the world's knowledge. But it's not necessarily going to be the case that that will actually be what the government does with the money. So, have you thought at all about how that might be structured to avoid those kind of problems? Guest: Sure. Of course. And I think that's a good, reasonable set of concerns. And I'm under no illusion that government actions when subsidies are handed out will be governed by, I don't know, some perfect Aristotelian notion of great science. It's going to happen through a political process. But that said, there are, I think, better and worse ways of doing it. There are, for example, lots of government grants are given out through competitive processes where people have to submit grant applications and they compete to some extent against each other. There's others where they set up a contest for a robotic car or a certain kind of battery or a certain kind of pharmaceutical; and the winner of the contest receives a certain amount. I think that some of the government labs have a reasonable record--perhaps a better record than I necessarily would have expected, at doing direct science. So I wouldn't rule that out, either. But I think that if you--I think that where your point really kicks in hard is, it's easy to point to certain areas of research. You know, right now it's energy technology, but sometimes it's a certain health condition or a certain health thing where for that moment, that's in the news, so that gets lots and lots of grants. And you look around and you think, 'Well, what about this other health thing? What about this other technology, other approach?' And it doesn't seem to be getting much. And I guess my answer there is: 'I'm not worried about overspending on things. I'm worried about underspending.' So I'd rather see more in some categories even if I--again, I'd like to see more in lots of categories. Russ: Yeah. The only thing I would add to that--and it's a good point--the only thing I would add is that, of course, the private sector--there are prizes already out there for, say, a better battery. If you could develop a battery that improved the life of your cell phone's battery by 50% or even 20%, you can make a huge amount of money. Guest: Absolutely. Russ: So, those prizes are out there. The question is are there prizes that aren't being offered? And then you might ask: Well, should we offer that prize, if it's not being offered by the private sector? If the natural returns aren't there. And that's always a challenge. Guest: Yeah. I think it's a really difficult question. I guess what I would say about private companies having that kind of a return is that, private companies are of course not just one company, but it's a weird network of companies. And one of the things we've seen a lot of in the last 20 or 30 years, if you go back a few decades: Giant companies like the old AT&T (American Telegraph and Telephone) or DuPont or others, used to have enormous internal R&D laboratories where they developed stuff. And over time, a lot of those companies either didn't do so well or in the case of AT&T got broken up. And so now what seems to happen is that tiny little companies come along with an R&D idea, and they are sort of funded by venture capitalists or angel investors. And what they are hoping to do is hit that home run, as you described. And if they hit that home run, then they'll be bought out by one of the big boys. And so a lot of the big companies have in a weird way outsourced their R&D. And they are hoping to jump in at the key moment when something has an appropriate proof of concept or an appropriate, you know, demonstration that it really works. And so, when I look at that network, I guess I am underconfident that that network provides a sufficient level of support for all the different ideas that might be out there. I agree it doesn't have to direct government support for those. I mean, I think sometimes there are ways in which there's tax treatment of R&D and other things that can make a real difference, too.
13:16Russ: It's a great point though about the large firms, because it reminds me of sort of--I think of two forces at work there, which I hadn't thought of before but your comment sparks a thought. Which is: The pharmaceutical industry--pharmaceutical companies, there are very few of them; they are very large; and their R&D--there's a lot of R&D; it depends on how you define R&D--but a lot of their new products do come from smaller pharmaceutical companies. And they get bought up--not the companies themselves necessarily but the idea is certainly the rights to the new drug. And what's going on there is a couple of things. One part is I think the phenomenon that I think you're alluding to, which is: Sometimes it's just inefficient to have a large internal R&D effort, because it's just hard to monitor it; it's hard to spur it, to do great work; it gets a little bit bureaucratic. Guest: In a way it's all the problems with government, R&D brought into a company. Russ: Correct. I'm certainly capable of romanticizing capitalism and the innovative talent of the private sector. But certainly large companies can get fossilized a little bit. So, one reason for outsourcing that is that you get lots of competition among those small firms desperate to hit that home run. But the other reason is that the small firms can't compete with the larger firms in certain areas because of fixed costs--in the case of pharmaceuticals with complying with FDA (Food and Drug Administration) requirements. So, the testing requirements of the FDA are so large and so expensive, small firms can't afford it. So they outsource that part to the larger company. The larger company becomes--for better or for worse, their specialty is compliance. Guest: That's right. Their specialty is taking it to scale. Russ: Yeah. Guest: Which means, in pharmaceuticals, getting through the government barriers. Russ: And so, it's just an interesting point. I don't think--it's not all that. That's not the only reason. I do think there's this economic, what you might think of as a Coasean incentive to outsource that and to not have that be internal to part of the firm. But those two things working together in a place like pharmaceutical make is such that--I think, and I'm not 100% sure of this, and I'm sure my listeners will correct me--but I think a lot of new, innovative drugs come from smaller outfits rather than the giants. That's my impression. Or at least some do. Guest: I think it's not even just drugs, but I think lots of software things or games or, you know, technological developments in the electronic industry in general come out of smaller shops. And then they sort of work their way up. And as you say, get bought up and absorbed. And big companies in a way can be thought of as the companies that put it all together rather than the companies that start from the basic science. Russ: And they have the marketing expertise; they have the scale, as you talked about. Of course, different firms try different approaches. Apple, which has an enormous amount of cash--probably less today than it had a little while ago, but--they have a lot of cash. And you'd think they could--they have a huge internal set of software engineers and designers and other skills. And they spend a lot of money on that. But they could spend an enormously larger amount. They choose not to. They'll often buy technologies that they like. They come along. Whereas I feel like a company like Google--maybe I'm wrong about this--has a larger stock of in-house folk to transform Google's products directly. That's not 100% true. Obviously Google buys companies all the time. But there is a range of choices in this space that different companies can make. Guest: I think that's right. I don't know, you know, either company intimately. But the thing that I've been impressed with by Google is, Google also has this willingness to drop projects and cut projects and give up on things. Often in quite a public way. And I think one of the things that people worry about in big companies, it's what you were saying before about bureaucracy--that you start down a certain road and you ignore your sunk costs and you just keep chucking more money into that rabbit hole of runover[?]. And Google does seem to have an ability to at various times to say, 'Well, that's not working and we're just shutting that down.' And I admire that ability quite a bit. I think it's almost a venture-capital-like ability to say, 'Look, that idea is not working and we're just not funding it any more.' I think a lot of companies, for good reason, don't trust their internal bureaucracy to make that choice. Russ: It would be really interesting to find out how they make those decisions. They don't necessarily want to tell us. Guest: We'll know when the biographies get--in a decade or two, right? Russ: I hope. I hope.
18:18Russ: Let's turn to the other side of the equation. So, we've been talking about government and stimulating growth and some of the tradeoffs there that are inevitable. But in many ways the more interesting part of the topsy-turvy observation that we started with, that you started with, is this idea that we should turn toward the private sector, to capitalism, for fairness and justice. So, what do you think, in that quote you read--what kind of things are we talking about there? Guest: Well, I guess when I look out there for concerns, for example, about health care or about fair wages or benefits for people, there are just a wide variety of things that--you think about companies where we are always sort of telling them to do these things. You know, we are telling them to, you know, provide job training. We tell the private sector, with the housing permits, to build a certain amount of affordable housing. And to build parking spaces, and to clean up the environment. And it's not that the instinct behind those things is necessarily completely wrong. As I was saying at the beginning: I think that there is a role for government regulation of different kinds. But I guess I am often put in mind of the stories about golden geese and eggs and what happens if you don't pay attention to your golden geese. There is evidence out there, the last 10 or 15 years that the rate of startups in the U.S. economy has been steadily diminishing--not just since the Recession, but since the late 1990s. And that a smaller share of the workforce now works for smaller companies than used to, 10, 15, 20 years ago. I think that--I sometimes think to myself: If someone came along like the modern Henry Ford and had an idea for an enormous factory which would provide an enormous number of jobs to the working middle class, where could that modern Henry Ford build that factory? Would they even be able to build it? At least in any urban area in the United States? Or would they be swamped for 5 or 10 or 15 years in permits and regulations and zoning and traffic and on and on and on? And I think that we are in danger of looking at the private sector as that golden goose, that we can just tell it to do things. And what we really want companies to do, we really want them to engage in that capitalistic knife fight. We really want them to focus their energy on: how do you make things, and things better? We really want them to compete with each. We don't want them to compete on the basis of who can survive the ordeal of getting a zoning permit. And so--I think we are in some danger of making it much harder for both small companies to get started and also for the companies that we tend to glamorize--you know, the old big auto companies, the companies that had huge numbers of middle class jobs--we've made it very difficult for a company like that to keep functioning, if one did come along and was trying to grow. Russ: Yeah, it's an interesting set of points. I don't think we fully understand why the startups are declining. I think most would assume they are rising, growing dramatically--we have so much press coverage of the best ones and the most exciting ones. Guest: We see the winners. Russ: We see the winners and we assume that--we've interviewed many of the folks in that world here on EconTalk. It's exciting; we think of our country as pretty entrepreneurial in America, and it is relative to the rest of the world. But it's interesting: the data, at least--could be a data problem, and it may be a measurement problem: it's challenging to think how you measure it. But I don't think it's necessarily harder. Obviously there's a lot more regulation than there was 50 and 100 and even 25 years ago. But it's not clear to me that that stops firms from getting started. I think it's pretty easy to start a business in the United States. I think the incentive to grow it is what's challenging. And you alluded to that. I think the--first of all, a lot of the regulations don't kick in till you have a certain number of employees. So that does discourage firms from growing up to a certain point and then they have an incentive to stop. But there are plenty of firms that do grow bigger. It's just gotten sufficiently more expensive to do that and that's discouraged the size--or is it other economic factors that we've also implicitly been talking about in our discussion a few minutes ago, right? Where it just doesn't make sense to be the Ford Motor Company of 1920 any more. It doesn't make sense in today's world where transaction costs are relatively low compared to, say, 40 or 50 years ago, through the internet--that firms are much more able to be smaller, more nimble, and vertical integration just doesn't make sense the way it used to. So, it's not clear which of those effects is really driving things. Guest: I don't think we are going back to the days of Ford's old River Rouge plan, which was, what, a mile long, where you sent in iron ore at one end and cars came out the other end. I think the old [?] hugely integrated factory is somewhat behind us. But as I say--it's perhaps more of an impression than a provable fact--but when I look around at the struggles that companies have when they wish to expand and how they wish to grow, it does seem to me like a real struggle. I occasionally say something like--it's just one example; it's not a company but a project: we started and won and fought WWII in roughly a third of the time it's taking to rebuild the site at the World Trade Center. That's a big difference. And it's a big difference in social flexibility and it's a difference in ability to deploy resources in certain ways. And you could say [?] those are extreme examples--they certainly are, the pressure of war and the aftermath of catastrophic terrorism. But there's some sort of underlying message there that is true. Russ: Yeah. Interesting point. I think sometimes about--I don't know if this is the flip side of that point or a related point, but, when I was younger the argument was that government has to do certain things of certain size because the private sector just doesn't have the scope to do it. It's pretty amazing now what the private sector is capable of doing and the amounts of money that are available in capital markets now to access if they have a first-rate idea. But I'm thinking for example about the Hudson Yards Project--I don't know if listeners--I don't think we've talked about it much on this program. But Hudson Yards is the covering over of an enormous stretch of many, many square blocks in New York City of a rail yard--covering that over and building skyscrapers and apartment buildings and shopping and other infrastructure things on top of a rail yard. It's an unimaginably large engineering project. It's going to take a long time. It will probably take longer than it took to fight WWII. But it's an incredible mobilization of resources that's happening there. So there are still--and it is in the same areas, the aftermath of 9-11. It is in New York City. Having said that, it is an enormously bureaucratic project almost by definition in terms of the cooperation and permission you have to get from government--city, state, and federal government--for a project of that size. So I'm sure that is a large part of why it takes a long time.
26:39Russ: I want to move away from that point, if that's okay, and get at a different aspect of what your observation is saying. Which is that, when I look at, say, Walmart, which is a lightening rod for many people, and people don't like the wages at Walmart and they want Walmart to pay more--and it might not just be Walmart; it could be a certain type of skill set that workers have--that's what I see as a fairness issue that comes down. It's not just the mandating of benefits per se. It's what you talked about at the beginning: it has to do with the fact that 'I just don't like these labor market outcomes. I don't like that,' say some observers--they don't like that Walmart pays a certain wage, that an Uber driver only makes x dollars. I see that as sort of the issue that people are increasingly wanting to fix via capitalism rather than via government. Do you agree with that? Guest: Well, I think there's some truth to that. I guess I have two reactions to that. One is that you are reminding me a little bit of a conversation I had with an old friend of mine a few years back, a non-economist. We were talking about the minimum wage and I was trying to explain sort of an economic viewpoint of the minimum wage--in a nonpartisan kind of way. So what I was sort of saying was, 'Look, minimum wage, the extra money for that minimum wage, it has to come from someplace. And maybe it comes from hiring fewer workers or maybe it comes from more productivity or maybe it comes from cutting certain job perks or it comes from higher prices to consumers or it comes from lower wages--but it comes from some place. And so, without specifying the place, you have to understand where it comes from. And you have to think about that tradeoff.' And my friend looked at me for a long slow moment and said, 'You know, I really don't like to think of the world that way.' Russ: Yeeaah. Guest: And I thought to myself, 'That's just a perfect answer.' Because it was an honest answer and it was an accurate answer. But that sense of:' I just don't like to think of the world that way' seems to me the sort of thing you are talking about. And I guess--we're both trained as economists and so we're both almost forced by our way of thinking to think about the world in that kind of a way. And once you start thinking in that way, then it just pushes you--there's a lot of people out there--there's this movie, I don't know, maybe 20 years ago now, called Dave. I don't know if you remember. It was back in the 1990s. It had Kevin Kline, who I really like. Russ: Yup. Guest: And at the tail end of the movie--so the movie is kind of doofus ordinary guy ends up as President; comedy results. And then at the very end of the movie he has his big breakthrough, leadership breakthrough; and his leadership breakthrough was he would just pass a law and guarantee everyone a job so there would no longer be any unemployment. Russ: Genius. Guest: And I remember thinking to myself: Yeah, you know, you don't think this has ever occurred to anybody before? It didn't occur to anybody in Sweden or Japan or Germany? No other countries figured out: Oh, yeah, if we just passed that law--you just sort of think--I think a lot of people think that way: Why don't we just get rid of unemployment and give everybody a job? And of course if you think about the tradeoffs, you think to yourself: Do you have to take the job they offer you? Do you have to take the pay they offer you? Can they make you move? How do private sector employers react to these jobs? What would the cost be of it? Can you fire people? It's on and on and on. But as my friend said: 'I just don't like to think about it that way.' So I think that's really an important thing to think about. It illustrates sort of a deeper problem or point that comes up with the profit sector and the government sector, which is this question of budget constraints. I guess I became familiar with this through the work of Janos Kornai, the Hungarian economist who wrote a lot about what he called 'soft budget constraints'--meaning when government ran enterprises in Hungary back in the old days, if a company was, you know, doing poorly, the company didn't go broke; it didn't lay off workers; it didn't cut pay. It didn't even reduce output. It had a soft budget constraint. So, basically, it asked the government for more money. In a way, the company in that world became sort of like college students--their notion of a budget constraint was asking someone else for money. And it's true that money runs out at some point; but it can take a long time. And you can get really focused on asking for more money instead of altering your behavior in one way or another. Companies--for-profit companies--for better or worse, they face--they have to make their costs balance out. And Walmart doesn't have a soft budget constraint. Walmart can't just lay out money and not see it show up somewhere else in the company's financial statements. And we can have a reasonable argument over what rules make sense and what rules don't make sense and who would actually bear the cost, and would there be this reason, would there be that reason. I'm open to that argument. But I'm not open to the argument that you can just sort of snap your fingers and make the money appear. It comes up in a bunch of ways. It comes up in wages; it comes up in, say, when people talk about the corporate income tax: 'We just make the corporations pay.' The money has to come from someplace. Russ: One of the most important lessons of economics is that who sends in the check for a tax is not necessarily the people who pay for it.
33:06Russ: But I want to come back to your point about: 'I don't like to think about the world that way.' Because I think that's a very deep insight; and I think as economists there is a tendency to look down on that attitude. And I wanted to try to be empathetic to it rather than sneer at it. I sneered at it when I was younger. I was like, 'Come on. That's ridiculous.' But I think it's a very human, deep part of us. My version of that story--I have more than one, unfortunately; I only tell one; I don't know if I've shared this with listeners or not, but it's very related to your point. But I was at a point, and my wife foolishly mentioned that she shopped at Walmart for something. She had bought something at Walmart. And this was greeted with horror by some of the people at the table. And one of them said, 'You shop at Walmart?' Because obviously that would be unjust--it would be wrong to shop at Walmart. And then I, mischievously, with a straight face, though, not openly, but I have to confess I had some mischief--I said something like, 'Well, we always try to shop at Walmart because we want to increase the demand for workers with lower skills.' I believe that. It's not--I don't always try to shop at Walmart. And we actually don't shop often at Walmart: it's far away here, because here in Montgomery County outside of Washington, D.C., the city government has made it hard to try to start Walmarts. That's related to your other point: it's very hard to permit a large store in Montgomery County. It's expensive. Guest: And a retail operation. Think if it was a manufacturing operation emitting something. Russ: Yeah. It's expensive in time as much as money; and it forces businesses to coddle and pander to lawmakers here, city council members. But the point is, I made that remark; and I believe it. I believe it's true that shopping at Walmart is good for workers with low skills. But I [?] that's an unusual viewpoint. And the person who didn't like shopping at Walmart responded to it in a very educational way for me. She could have said, 'Wow, how would that work?' Because that's not what she thinks; and that would have been interesting. She cares about workers, and I think that would be of use to her worldview. But instead she said, 'I don't have to listen to this.' And she got up from the table. Which is a different response. And that's your friend's response. It's like, 'I don't even want to go there. I don't want to think that that's possible.' For a whole bunch of reasons. Some of them I don't like, some of the reasons. But some of them, I have to confess--there's an argument there, which is: You and I, and people trained in economics see the world as expensive--that there's costs; that there are, as you say, the money has to come from somewhere. That's kind of takes the fun out of it. It's realistic--we think; and I think it is. But it's--I understand how unpleasant it is to be confronted. It's like someone holding--it's like walking around thinking you are a really attractive person and then every once in a while someone says, 'Oh, by the way,' and they hold up a mirror, and you go, 'No, no, no. I don't like to think of the world that way.' And there's something beautiful--to give the argument its due, there's something beautiful about thinking the world's more beautiful than it actually is. But I would argue it's not so helpful in designing public policy. Guest: Yeah. I think there's a couple of things behind that feeling. I agree it's worth--when a feeling is widely held, it's worth being as sympathetic toward it as one can, because you need to figure out where it's coming from and what's going on. Russ: Yeah. Guest: It's interesting to me when, for example, when Steve Jobs died, there was sort of this outpouring of, I don't know, emotional support for the man and his life's work. And what's interesting about that was, Steve Jobs was, you know, as ruthless a capitalist as there's been. Russ: Yeah. Guest: And at that moment, though, it was okay that he was a ruthless capitalist-- Russ: And really rich-- Guest: and never gave any money to charity. It was sort of celebrated for a little while. And I just thought: that's interesting; here's a moment--when Sam Walton died, I don't know if there's the same feeling of, 'Wow, he revolutionized something.' And a certain kind of praise. And I think some of that is, for lack of a better word-- you're referring to this as, well, it's kind of a class thing. One of my undergraduate economics teachers, I remember when people talked about buying cheap goods at places like Walmart, he used to say, 'Everyone has a right to buy inferior merchandise.' And I remember having to go home and think about that for quite a while. But, you know, his point was: not every place needs to be the sort of place I would shop or the sort of place I would go or the sort of thing I would do. And that's at either end--upscale, downscale, or in between scale. So the heterogeneity of what's offered in markets, the extraordinary level of variety, is something which is, to me, it's amazing, it's remarkable, it's highly attractive. I think for some folks that level of variety makes them crazy. They sort of look at certain things and they say, 'Why should that be that way? Why can't everything be this other way?' Or Walmart--it's kind of, 'Why can't everything be like Costco?' is often the comparison that you hear. And you think, 'Well, because they are really different operations.' Russ: Yeah. And I love Costco. I love Costco, I have to confess. But I don't delude myself into thinking that everyone who works there is gloriously happy. As opposed to the oppressed slaves at Walmart. I think they are both very attractive choices for certainly people who want to work there. And I think they are both pleasant places to shop. And I don't judge anyone who shops there.
39:22Russ: But the version of this that I think--to get back to your more serious economic point, which I think is very relevant--is that, if you are listening out there and you don't like the fact that some people at certain companies don't make much money, or you think they should make more, whether it's your local coffee place or a national chain of some kind, your question of 'Where does the money come from?'--I always think of it, I ask it a different way. It's like: 'I understand their desire to make their lives better, the people that you are worried about. Why would you make the people who are currently employing them pay for that? Because that encourages them not to do as much of it.' That's the problem that I have; and I think that's an unpleasant--for what I think is a reality. Guest: I agree with that. I think more broadly what I struggle with, and this goes back to the original point, is about the separation between production and distribution is something that economists have been struggling with one way or another for a long time. When you look at a production situation and you say, 'I dislike the distribution of outcome or income that results,' it's something where, again, I think this goes back at least to John Stuart Mill's 1848 book, where there's one book on production and another book on distribution. And he always sort of said that difference was the big change in the book. He liked to argue that production has sort of a physical character, like a physical wall--you are putting things together, you are making a good or service. And distribution is the outcome of human institutions and human decisions, to at least some extent. And so, I'm actually pretty open to various things. There's a proposal[?] a few years back by Ed Phelps--Ned Phelps--about dramatically increasing the earned income tax credit in a way that people who work at places like Walmart, instead of being paid $10 bucks an hour, they'd get $10 bucks an hour from Walmart and they might get another $10 bucks an hour from the Earned Income Tax Credit. And he proposed spending an extra $100 billion dollars a year for something like that, on that kind of a wage subsidy for low-income workers. But it's to your point. If you really think that's a valuable thing to do, why would you load that on the company? Why wouldn't you say, if it's an important social thing to do, let's have the redistribution we want to have but let's do it through the government? Which after all, it's core competency is collecting money and writing checks. And it's capable of doing that in a way which lets the production side operate the way it wants to operate. And do what its core competency is, of transforming goods and services. So I just think that--you can't 1000% separate production and distribution--but I just think that whenever you have a distribution problem, it's useful to think about, 'Well, do I care about that enough to, I don't know, pay higher taxes for it?' And if you don't, maybe you don't care about it enough to enact it. Telling somebody else they need to do it is a problem.
42:35Russ: That gets us to the political economy of this; and going back to the original observation we started with about this topsy-turvy of expecting government to do one thing and expecting the private sector to do the other. And I think in this case, government--I'm going to get away from that word for a second--politicians, actual human beings with decision-making faculties--it's clear why they like blaming the producers for distributive problems, because then they don't have to use scarce tax money for that purpose. So, I understand the natural incentive they have. I guess the question is: What do they spend the rest of that money on? What are they saving it for? Right? One argument would be: they don't get enough credit, political credit. The Earned Income Tax Credit, for example, that you mention--it's going to be hard for a politician--after that's there for a while, maybe it's hard for them to get the credit for it. Whereas the stuff that they save the money for--we'd have to think about what that would be--maybe that has a bigger political payoff. But that's clearly the case. Because that's what they do. I think they are pretty good at what they do--staying in office. And responding to those incentives. Guest: No, but I think that's right. And I guess I--you know, it's always true: when you look at what does the Federal government do, it's sort of fair to say that the Federal government is, it's a health care operation; it's a retirement operation with Social Security; it's defense; it's interest on the national debt. And everything else is not very big. It's just not. And so when, I sort of say, casually, well, we should do more on Research & Development, or I say casually, 'Well, so maybe we need to really think, substantially about more of cash redistribution, if that's our goal'--those are definitely things that are to some extent outside of what the government has seen as its basic, core responsibilities. I think the political economy of it is, as you say, it's obvious. It's always nice to make a pronouncement that the problem should be fixed by someone else. And it's even better if you can pass a rule or a law that says the problem should be fixed by someone else. And you don't have to--doesn't have to be on the budget. That's the attraction, I think, of, you know, protectionist trade legislation; it's the attraction of requiring, you know, car fuel economy. It's the attraction of all kinds of things. And you just sort of tell people what they ought to do. And, when you do that you are then in this world where you are interfering in the production side of things for distribution-type reasons. And without really taking costs and benefits into account. And it's--in some cases it works out okay. But it's a constant danger to keep an eye on. Russ: Yeah. And the other part of it, of course, is it's fairly politically dangerous to take money away from people, compared to, say, giving money to people, as a way to earn support. So if you wanted to institute an anti-poverty program at the scope that the Earned Income Tax Credit might lead to, you'd say, 'Well, here's how I'm going to fix that. I'm going to make Social Security means-tested'--which I personally believe it should be. I think it's absurd that we give rich people the benefits that--and then there's redistribution built into Social Security--put that to the side--I don't think it's strange that rich people have lots of savings and get paid substantial amounts by the government. And people will say, 'But they earned it. They put their money in'--well, that's kind of a sham and a hoax. [?] Guest: [?] Russ: Yeah. [?] I think most of us who are blessed and fortunate enough to be financially successful would be very happy to give up some of our Social Security benefits that we have been "promised". They've already gone out the door, our money--it went out to pay for all kinds of things, not Social Security, but that was put in a lockbox--sorry. And so, I think that would be a good thing. But politically, that's not a good thing. I think politicians would be very vulnerable to the charge that they don't care about old people, if they cut Social Security benefits in any way, even if it was just for the rich. Now that may change. I think when budgets and demographics are such that will be the first thing that gets cut. But I think one of the reasons that the status quo is so powerful is for that reason. And it's very hard to innovate and use money for new things at the government level. Guest: Yeah. I think that--to me, the other part that I struggle with is that--there's direct redistribution of this sort that you and I talking about: what you pay for people who are on Social Security or what sort of a wage subsidy you give for low-income workers or low-wage workers. The other approach the government can take, presumably, is to take more seriously the notion of its having a role in training; having a role in mobility and helping people get from one place where maybe there aren't so many jobs to another place where there might be more jobs. And to some extent--I know I keep coming back to this--but lots of people, almost all the new job growth in the economy, happens because of these small, startup businesses that get started and grow. So I think that thinking more seriously about--you know, skills that folks need and how businesses can be not loaded with too much before they are ready to handle it; how people can geographically get from the neighborhood or the city or even the state over to some other place where there are more opportunities. I think that one of the difficulties that sort of pushes this worry about inequality and wages and other things is this sense--and I think it's a legitimate and real sense--that some people, a large number of people, are just trapped. They don't have the skills; they don't have alternatives for jobs; they don't--you know, they don't have the ability to move or relocate. And if you get a lot of people after a long, slow, sluggish recession who feel that way, there's a real feeling that--it's a legitimate feeling--that part of the American bargain, the bargain of 'There will be disruption but there will also be opportunity,' sort of feel like we're getting all the disruption and none of the opportunity. So I guess the question is: Can you, in a slow way, and it's not a quick fix, rebuild some of the opportunity feeling of that [?] Russ: Yeah. Well, that's a big issue. And I think the issue there is--a lot of it has to do with our education system, it's inflexibility; and it's one of the areas where I think government is too involved in the production side of things. But that's a long conversation for another time. Guest: Sounds good.
49:37Russ: I'd like to switch gears, though, and spend our remaining time talking about your role with the Journal of Economic Perspectives. We've been talking about you blog--it's The Conversable Economist. I recommend it strongly. It's one of the least polemical blogs that I know of that's still interesting. Most people get people to come to their blogs by yelling and screaming. And, Tim, you don't do that. I respect that a lot. It's just a lot of thoughtful economics on a very wide range of topics, including Dickens, secular stagnation, the sharing economy--just the last few weeks, the kind of topics you've been writing on. So, I encourage listeners to go check out your blog. But I want to talk about your role with the Journal of Economic Perspectives. For listeners who don't know, talk about what that journal is and how it's changed over the last 30 years you've been doing it. Guest: Sure. So, a non-academic--I mean, I know this, but most academic journals are places where professors send their most recent research; and then it's evaluated by other professors, who are called referees. And then the referees sort of say, 'Print it,' 'Don't print it,' or 'Revise and resubmit it.' Russ: Peer review, as it's often called in the newspaper. Guest: Peer reviewed, is the word. And so, back in the 1980s there was a sense that that model, while it's useful in a lot of ways--and there are now almost a thousand peer-reviewed journals in economics--it wasn't working for a lot of the members of the American Economic Association. Because a lot of them, although they might have published some stuff earlier in their careers, they sort of moved on; and now they are teaching, they are writing, they are doing other things; but they are not really aiming at the peer-reviewed journals in the same way that they were earlier in their research careers. There was also a sense that economics, like everything else, has gotten hyper-specialized. And so economists who specialize in, I don't know, International Trade, would have a really hard time if they had to read--if they had to sit down and read the most recent research in Environmental Economics, or in some other area--Industrial Organization Economics or Monetary Policy. Because the mathematical and statistical tools get so specialized. So the notion was to have one journal which would not be peer reviewed. Instead, we ask the people to write. And instead of saying, 'What's your most recent research?' we say to them, we invite people who have been active in a certain area and we say, 'What do we know in your area of research that we didn't know 5 or 10 years ago, and what should we be thinking about, looking forward?' So we are looking for more of an opinionated essay. And so that's a very different model than most academic journals. And my specific job is, that when you ask a bunch of research economists to write an opinionated essay, sometimes they have a really hard time switching formats. And so, I'll get something and the first paragraph will look good, and then the second paragraph will say, 'The easiest way to understand that point is with the following simple mathematical model.' And four pages of equations will follow--quite literally. And so, I hit the Delete key, and I say, 'Why don't we try and say it this way?' And so, I rewrite and revise everything that goes into the journal. So that's most of my job; and sort of, you know, making sure that we've got enough people invited and that the flow of articles keeps coming. Russ: So, talk about how that experience has changed. When economics today is very different from 1986--I just happened to see a chart that the amount of empirical articles in economic journals has grown dramatically in the last, I don't know, few decades. I remember when the Journal of Economic Perspectives was started--part of it also--you mentioned two of the reasons. I think part of the reason was economics had become very theoretical. And this was a place for people to do economics, to write about economics, that wasn't as theoretical--not just because of the specialization; just because that's not all of economics: it isn't just theory. But economics has changed a lot. So, how has the journal changed over these 30 years that you've been involved? Guest: Well, I would say, in a funny way, because I've been enforcing a similar standard most of the time: the Journal has changed less than the rest of economics. It's interesting, for example, that if you look back at the leading research journal in economics, the American Economic Review, articles now are on average almost three times as long as they were, in page count, 30 or 40 years ago. They are also much more likely to have lots of co-authors rather than being single-authored papers. They are much more likely to have lengthy appendices. As you are describing, a lot of them are--there are more likely to be detailed empirical studies. And part of any empirical study is, you explain in the paper what you did; but then, as you go through the referee process, the referee will say, 'Well, what if you did it this way? What if you did it that way? Would it make a difference if you tried this? What about if--?' And so you try all those things. But you don't want to put them all in the paper, or the paper would be a thousand pages long. But you can put them in a big appendix somewhere. Russ: Smaller print. Tighter spacing. Guest: That's right. So, I would say that a lot of the other academic journals have changed dramatically in what an article looks like. Another concern that has often come up in the academic journals--I mean the peer-reviewed economic journals--is that it's taken longer over time for the process of referee reports and peer review to happen. Russ: Yeah. Guest: And so, often what happens now is a paper is pretty much ready to go, and it will be posted somewhere as a working paper on a website; and then it has to go through these last rounds of little changes, and little updates, and little tweaks, and little additions--the appendix, and try this, and try that. And then by the time the paper is actually published, it might literally be 3, 4, 5 years later. And so people learned about the paper on the website in the working version; and in a way, they don't even really pay attention to when it's actually published. Because they know it will have been tweaked and changed, but the changes usually aren't important enough to worry a whole lot about them. And so, again, the thing that made this journal different is we, oddly enough--we are an academic journal, we have, you know, as you might imagine, the slow turnaround times: we ask someone to write, and they write us a draft in 6 months or 9 months, and it takes us a couple months to work on it with them and get it turned around; another few months to get it in print. So, from the original idea to publication for us can often be 12 or 15 or 18 months. But that puts us way ahead of a lot of most academic journals, in terms of turnaround. And I've kept[?] the articles and the journal as pretty much the same length as they were 30 years ago. We haven't tripled in length. Because we invite people, we don't tend to end up with these group authors, of seven different people were in a research project and so they all need to be authors. We tend to have, you know, one or two or, sometimes a few more authors. And so, I guess the fun part of it for me, and it's something I learned about myself a long time ago, is that I have what I call a grasshopper mind. You know, I hop from thing to thing. And the Journal has enormous variety. And I love the variety. The variety really keeps me going, weekend- and year-to-year. I guess I should mention, the American Economic Association, the publishers of the Journal, has made it freely available online. So if you want to check it out, you can go to the website, which is Or you can just google Journal of Economic Perspectives. You'll find it quickly enough. But both the current issues and all the previous issues back to 1987 are freely available online. So you can just sort of scan through, see if there is anything of interest to you. And if I've done my job right, you have some background in economics--not paper/technical, but you are not going to freak out when people talk about supply and demand. You should be able to get a reasonable amount out of the articles. Russ: Yeah. The only thing that I'd like to hear you comment on is that I understand the challenges of editing economists' writing. I did some of that myself. I've been there. And I feel like--and I'm just curious to get your perspective--I feel like we're in the golden age of economic communication. So, again, for listeners who don't know the journal, we're talking about, it's very accessible. It's written in everyday English, it doesn't have as much jargon as a peer-reviewed article would have. And, I assume there are a lot more people capable of writing attractive articles that the amount of work in theory that you have to do to make it accessible, for the audience you'd like it to reach, has gotten a little bit easier, maybe. Is that true? Guest: I don't think it is, actually. At least not from the chair I'm sitting in. I don't know exactly why that is. I sort of wondered over time if it would get easier or harder. But maybe I just have short-term memory. We ask for articles that are roughly in the range of 7 or 8000 words of main text. And you know, this week I've been working on an article where the first draft came in at 15,000 words of main text; and half of it was equations. And I just sort of think to myself, when I get something like that: I've been doing this 30 years; you haven't figured this out, what we are looking for and what we want? But I guess it seems to me that year after year, I continue to get articles that really need a heavy hand in editing. I think it is true because of the web and because of the many different publication outlets that economists who are a little more gifted exposition, have more outlets than they used to have. And there are more places you can turn for sort of a summary of something or an overview of something. And I think that's right. But most of the people we are inviting to write are the hard-core research economists who have been doing research in this area for quite a while. And when you take those people out of their comfort zone and start saying, 'Write an explanatory essay,' an awful lot of them find it very difficult to do. They are not unwilling, mind you. Once I suggest stuff, they are often quite happy to go with it; and they are often quite pleased with the result. But, it's really clearly not what they do. And so, I feel that every day of my working life.

Comments and Sharing

TWITTER: Follow Russ Roberts @EconTalker

COMMENTS (34 to date)
Buzz writes:

Any plans doing a show on guaranteed minimum income ?

And just a side-note: Google's willingness to cut projects and give up on things is a very double edged sword, especially if you want to have business clients. For example discontinuing Google Fi (a cellphone service) would be a minor inconvenience, and annoying because the phone I bought for it might not be the best for other services. However as a business decision maker I shy away from using services, like Google Cloud Platform, that are not one of the strategic products of a company and thus can be discontinued or slowly obsoleted.

Nonlin_org writes:

How about the government as a Referee like in sports? Why does the government need to be a Player at all - even in R&D?

The job is easier and all you need to worry about is being fair to all - there's no pressure to win and no blame when losing. You get less money too, but it's honest money.

Buzz writes:


The government makes the rules, so it picks winners and losers even without being a Player. Like this podcast says, it is really a player in 4 areas: health care, social security, defense and debt. It could get out of the first two. Doubtful if it will, because people have an expectation of stability with those services.

Matthew writes:
Apple, which has an enormous amount of cash--probably less today than it had a little while ago, but--they have a lot of cash.

Apple posted Q12016 record quarterly revenue of $75.9 billion and record quarterly net income of $18.4 billion. Apple's cash position is now $216b.

That's nearly $40 per diluted share. AAPL was trading at $95 when I posted this comment.

jw writes:

Yep. And the $216B of cash that Apple has amassed over the last decade would be enough to fund the federal government for . . . less than three weeks.

Scott Campbell writes:

What about the fact that governments extort their funds takes what they want and then magnamously passes on what little is left. Which is none so they print what they want to give away reducing the net value. Why not leave the, higher value, money in the pockets of the tax payer for a greater effect? I would like to listen to a podcast about that.

Ben writes:

I really enjoyed this - I think it's one of the better 'thinking like an economist for non-economists' episodes (along with the 'milk at the back of the store' ep with Mike Munger).

That said, I think the 'core strengths' argument has its limits. Choosing to do business with someone is a moral as well as financial decision. Capitalism may be amoral, but the individuals who transact within a capitalist framework are not. The two are not so easily separated.

Which is why so many non-economists want to shun Walmart and sweatshop-made products. I think that's a valuable instinct, I just wish people took it the next step and considered what the alternative is (or, where the cost lies).

If Walmart shut down, it's not like some business would suddenly emerge to soak up the unemployed and pay them more; that's a 'money on the table' argument. If that business could exist and attract those workers with a better deal, they'd exist now; they don't need Walmart to fail to become viable.

Mark Crankshaw writes:


Choosing to do business with someone is a moral as well as financial decision. Capitalism may be amoral, but the individuals who transact within a capitalist framework are not. The two are not so easily separated.

The ultimate irony lost on these 'non-economist' is that, although capitalism (free trade without political interference, the private ownership of capital) is amoral, all possible alternatives to capitalism (which would imply political interference with trade, political control of capital to the exclusion of individual control) can easily be seen as immoral. All those alternatives, and everything political, involves political coercion through the threat of violence. Seems immoral to me (and to many millions of others)...

The tendency of 'non-economists' towards emotional rather than rational judgments on a subject they are abjectly ignorant of is a not a valuable instinct but rather a dangerous instinct. Several hundreds of million people were killed just in the 20th century due to those dangerous instincts while billions of those ignorant "non-economists" (with ideas much like the anti-Walmart crowd) looked the other way or cheered on the carnage...

Mark Crankshaw writes:

Tim Taylor said:

One is that you are reminding me a little bit of a conversation I had with an old friend of mine a few years back, a non-economist. We were talking about the minimum wage and I was trying to explain sort of an economic viewpoint of the minimum wage--in a nonpartisan kind of way. So what I was sort of saying was, 'Look, minimum wage, the extra money for that minimum wage, it has to come from someplace. And maybe it comes from hiring fewer workers or maybe it comes from more productivity or maybe it comes from cutting certain job perks or it comes from higher prices to consumers or it comes from lower wages--but it comes from some place. And so, without specifying the place, you have to understand where it comes from. And you have to think about that tradeoff.' And my friend looked at me for a long slow moment and said, 'You know, I really don't like to think of the world that way.'

Russ Roberts said:

And the person who didn't like shopping at Walmart responded to it in a very educational way for me. She could have said, 'Wow, how would that work?' Because that's not what she thinks; and that would have been interesting. She cares about workers, and I think that would be of use to her worldview. But instead she said, 'I don't have to listen to this.' And she got up from the table.


A perfect illustration of why my bile has and always be directed towards those on the Left. I often disagree with those on the Right, but it's been my experience has been that those on the Right will offer up a reasoned argument. Those arguments may be based on assumptions I may consider fallacious, but they will at least state why they support such-and-such a position when confronted with a contrary argument.

My experience with arguments with those on the Left are often more like the emotionally charged non-arguments above. I disagree that these are rational arguments but instead are attempts to side-step arguing or avoid defending their ideological position (which, in the case of the woman who harrumphed from the table, they are obviously deeply emotionally wedded to). I have found it very typical of Leftists to resort to leaving the room, assume that the ideological fantasies they hold are true simply because they hold them, engage in emotional tirades and outbursts, or begin malicious name-calling ("Racist!" "Fascist!" and other such nonsense) in an effort to avoid, shame or silence anyone with views that contradict their own.

Their (very effeminate, imo) viewpoint is (typically): I am morally "good" and therefore "right" and you are morally "bad" and therefore "wrong". When confronted with facts that undermine their ideological preference or compelling arguments that counter them, many Leftists will get all emotional and mentally "shutdown". Not exactly a very persuasive "argument" to me at least...

Buzz writes:


That sounds like a lot of confirmation bias. I know people who you could never accuse of being "on the Left" who shut down completely when topics like immigration or Muslim faith is brought up. And on a party level, would you argue with the statement that right now there's way more blind anger on the Rep side than on the Dems ? Very few people enjoy others pointing out their cognitive dissonances regardless of what their views are.

Mark Crankshaw writes:


Well, Buzz, that sounds like a lot of confirmation bias.

My assessment is based on my own personal experiences while living a couple decades in Ithaca, NY and Arlington, VA and encountering (and arguing with) a few thousand lefties in public political forums. It is possible that those leftists I've encountered in person (and on blogs and on other social media) are not a representative sample. But, statistically speaking, it's not probable.

As for "shutting down" by those not "on the Left" concerning immigration and Islam, I personally haven't encountered that. On the contrary, when those topics have come up with those not "on the Left" I've run across, rather than "shutdown", I've heard them articulate, at length and quite clearly, that they don't favor immigration for a host of economic, political, social and cultural reasons and they find Islam, particularly radicalized Islam, problematic for a series of security, political and cultural reasons.

Admittedly, my conversations with people "not on the Left" about those particular issues are predominately with those in the UK rather than the US. However, these political arguments against immigration, particularly illegal, undocumented immigration as well as radicalized Islam are detailed quite clearly by a host of US and European political parties that are not "on the Left" so I know those arguments, quite substantive arguments, are being made by a lot of people out there. I don't see any real reason for anyone to "shutdown" over those issues. I'll have to take your word that this is common in the US for those not "on the Left"...

I would, of course, argue against the idea that "there's way more blind anger on the Rep side than on the Dems".

That sounds just like a quintessential shutdown tactic very much along the ones I described before. This variation: I am leftist, I am not angry (except when I am), and therefore I am "right". You are not leftist, therefore you are "blindly" angry (except when you aren't), so you are "wrong".

The word that gives you (and the Left) away is the word "blind" in the phrase "blind anger". The intended implication here is that those who are in "blind" anger are irrationally and unjustifiably angered. Could it be that Reps have more (or at least as many) legitimate political grievances as Dems at this time given the current social, political and economic climate? I suggest that may be true, in which case your proposition that "there's way more blind anger on the Rep side than on the Dems" may be a tad inaccurate. I think there's plenty of quite justifiable anger to be found in both major US political parties as well as all throughout Europe across the entire political spectrum...

I heartily agree that few people, right, left or otherwise, myself included, like pointing out their own cognitive dissonances. I am, however, not enamored with those who absolutely refuse to do so...

Margaret writes:

Social Security is already means tested. First of all after you reach a certain level of income up to 85% becomes taxable as ordinary income. Secondly our monthly payments are being reduced this year based on our 2014 tax return. Here is the statement from the SSA on my husband's notice:
$48.70 deduction for the income-related monthly adjustment amount based on your 2014 income tax return. And $12.70 for prescription drug coverage income related monthly adjustment amount based on your 2014 income tax return.

Miller writes:

To Buzz:

I agree with you on the confirmation bias. I always bring up my parents as an example when talking about rationality versus irrationality. My parents can sometimes make some really good arguments, when my father talks about forced charity versus voluntary, my mother when talking about over-testing, (being a school teacher). But my father has a blind spot when talking about our country as a whole and its place in the world, thinking we're the greatest, no matter what, and often reverts back to arguments about America being the best based on his religious worldview. He is less interested in talking about cause and effect and historical events than he is in talking about good versus evil. In fact, he wishes he could just get on television and call out the problems in the world for what they are, good versus evil. I attempt to explain to him that that won't get him (or the world) very far, and he shuts down completely.

Now, I am pretty far on the left, (the extreme left), meaning no government at all if we can help it, but I personally am always willing to utilize arguments gleaned from years of listening to Econtalk. Whether this includes The Tyranny of Experts, Tragedy of the Commons, The Right Kind of Nothing, Spontaneous Order, Euvoluntary Trade, the study of incentives, etc, it doesn't matter. But I am definitely willing to admit that many of the people on the left are irrationally optimistic about the kind of world that can be created through sheer willpower, and these simple trains of thought can guide them back to reality. I once found myself reading some leftist blogs and declaring myself a bleeding heart liberal, and then found Econtalk and declared myself a libertarian/anarchist.

What terrifies me sometimes is when I see people on the right use these arguments though. I saw Charles Koch on television not too long ago using The Tyranny of Experts as a way to try to get the government off of his back. He offered no context, subtext or explanation, he just threw out this phrase and expected the viewers of his interview to just gobble it up as if he was some kind of super-genius. And in fact, (sorry Russ), I have heard you make arguments for not doing anything about global warming or oil consumption based purely on market fundamentalist theories. Basically, "Let it happen, the market will adjust." Listen, I am perfectly willing to admit that that may be a good idea in some ways, but it seems a little frightening to let the market run amok with rampant consumerism, and heat up the planet, and then also expect it to save us after it heats up too much.

Moving on......Listen, my problem with Wal-Mart and every other corporate behemoth in this country boils down to a few things, (and I worked at Wal-Mart for two years):

1) They are way too hierarchical and punish everyone in the corporate pecking order so that everyone a step above whatever position you hold can get a bonus.

2) They fire people in order to reduce costs and rehire them at lower pay.

3) They influence people through scripted meetings not to think for themselves and to not organize.

4) Your pay is not tied to your performance, the stock price is

5) Your pay is tied to your obedience as an indentured servant to the company, measured in time, less on effort, forcing you to stay tied to the company for years and years.

6) Capital versus labor is, in fact, zero sum.

On a further note, I'm going to be extremely, extremely blunt. Drug usage at Wal-Mart is very high. They don't test very often and many of the overnight workers are on one thing or another. Owing to the unique setup of suburbia and the fact that many of them live at home with their parents and don't have to pay rent, they have far too much disposable income as it is. Personally, they really should be a prime demographic to be incentivized into going to college, and I'm just not entirely sure outright paying some of them more money would be a good idea. Many of them would use it for good things, but many of them would spend a lot of it on drugs.

This is the cold hard reality, people. I'm just telling you how it is there.

Buzz writes:

Did my last comment get withheld ?

[There are no comments of yours in the spam area currently. Please use email for this kind of question in the future. Thanks.--Econlib Ed.]

Robert Swan writes:

Another great interview. I've always thought there was a role for government and Timothy Taylor has captured it well -- it's to try to provide better justice than a knife fight. That accords well with my view, though it leaves the tricky problem of quantifying "justice" yet to be solved -- by government presumably.

The TSA example was excellent. The old problem of who guards the guardians.

Something not explored was defence contractors. AIUI they are private in name only and receive lots of government "welfare". Justice would actually be better served if there were more of a knife fight going on.

Loved the examples of people rejecting the realist's view. It is funny that, rather than perceived injustice motivating them to try to make things better, they close their eyes. The ground they're standing on isn't quite as morally high as they'd have us believe.

Mark Crankshaw: I'm in general agreement with you, but I'd rate scorn as an emotional response too. Fact is we're emotional animals and we're that way for a reason. But just like height or weight or skin colour, there is no ideal emotional level.

Miller: Your item 5 is ridiculous. Indentured? Anyhow, I hope your reality has become warmer and softer since you left Walmart's employ.

Hmmm. Have I appointed myself mirror holder? That's an even worse job than bearer of bad news!

Miller writes:

Well, what I mean by that is that all the money that you accrued in your hourly pay rate over the years instantly disappears once you leave. This gives people an immense amount of fear about leaving. You might as well be tied to a ball and chain, if you are old enough and have a family to support.

Miller writes:

And believe me, Wal-Mart doesn't like paying these people that extra money and would gladly fire them at any opportunity. Like I said, based on hard experience, Wal-Mart will not re-instate your pay upon leaving, whether for a year or even a week.

Mark Crankshaw writes:

@Robert Swan

I'd rate scorn as an emotional response too. Fact is we're emotional animals and we're that way for a reason. But just like height or weight or skin colour, there is no ideal emotional level.

I quite agree. However, in the context of presenting an argument in favor or against any particular political, philosophical, or ideological position I suggest that there might indeed be an ideal emotional level if one wanted to be persuasive or to be taken seriously. One could weep uncontrollably while watching an emotionally charged film, or at the death of a loved one and there are indeed substantial differences in the human population with respect to such an emotional response. However, weeping uncontrollably remains, at least in my view, an inappropriate and ineffective method of argumentation in favor of or against any political, philosophical, or ideological position.

That said, I believe, and I quite agree with you, that it is quite natural and quite legitimate to lace a coherent rational argument with a little emotion. I just have particular scorn for those who present solely an emotional response without any coherent and rational actual-argument parts in an effort to shutdown or shut out contrary arguments.

I've always thought there was a role for government and Timothy Taylor has captured it well -- it's to try to provide better justice than a knife fight.

I actually don't agree with Taylor's metaphor. I think government provides "justice" (a highly ambiguous and malleable concept) through a political process that resembles a knife fight (since politics invariably is a "might makes right" proposition). I would say (and strongly believe), therefore, that government provides exactly the same amount of justice as a knife fight.

Mark Crankshaw writes:


Now, I am pretty far on the left, (the extreme left), meaning no government at all if we can help it

Hmmm. By this definition, I would be placed into the extreme left. That's fine, as long as Bernie Sanders, Hilary Clinton, Francois Hollande, the UK Labour Party, the Marxists, the Marxist Feminists, the Fabians, the Social Democrats, SYRIZA, Die Grünen, the GDR, and on and on are placed on the far right with Nazi Germany and the Soviet Union (where they quite naturally then belong).

And in fact, (sorry Russ), I have heard you make arguments for not doing anything about global warming or oil consumption based purely on market fundamentalist theories. Basically, "Let it happen, the market will adjust." Listen, I am perfectly willing to admit that that may be a good idea in some ways, but it seems a little frightening to let the market run amok with rampant consumerism, and heat up the planet, and then also expect it to save us after it heats up too much.

I do not believe this is a fair representation of Russ's viewpoint. I do not believe that he fits the pejorative label of "market fundamentalist". The market, consisting of billions of individuals involving trillions of transactions is not omniscient, omnipotent, nor is it infallible. It's human, after all. However, it does have adjustment mechanisms and has shown that it can harness the incentives (often quite selfish, narrow and short-sighted) faced by billions of fallible people and produce results that have allowed humanity to thrive as never before. The ONLY alternative, political direction and control of the economy by a centralized authority, has not. Despotic central control of the economy through government fiat has always been with humanity, prosperity has not. The only reason the worlds governments (most of whom are parasitic, nasty and corrupt) are tolerable at all, is because they have not (yet) throttled the free market. They can take their centralized control and authority and stick it, as far as I am concerned.

But neither is he a "political/socialist fundamentalist". Basically, "Any problem can and will be solved through social and political planning". Listen, I am perfectly willing to admit that that may be a good idea in some ways (maybe), but it seems a little frightening to let the political class run amok with rampant socialist planning, confiscate trillions of dollars globally through taxation, and then also expect it to save us after the confiscated tax dollars are misspent, misdirected and mis-allocated to buy votes in the next election cycle (or in the case of Russia and China, to fill the coffers of Validmir Putin and his acolytes or stuff the bank accounts of apparatchiks in the CPC).

Yossi Tarkoviz writes:

In a perfect world (or say Europe), reason would indeed suggest relying on capitalism for economic growth, and on government for justice.

In our own world, this podcast spent around 40 minutes stating as a matter of fact that we should not demand justice from firms, even conjuring up some financially illiterate straw men to prove the point.
Despite obvious lessons from public choice theory, there was no mentions of "capitalists", "rich people", or "CEOs". It's just firms and businesses making decisions and facing obstacles like government regulations.

And as soon as the other side of the coin came up, the conversation was quickly moved to a technical discussion about economic blogs. Three minutes, no more, most of them spent on reminding us that there is no such thing as "government", just selfish politicians that want to stay in office.

So people learn that when you give firms a free pass on social justice related issues, the conversation ends. And once you remove the constraints, any resulting injustice or abuse will be ignored.
And since giving firms more freedom is now the only way to achieve growth that can be discussed, politically powerful people can safely move the conversation to demanding growth from the government.

The separation of concerns is just a rhetorical trick it seems. Freedom for firms was the goal. Justice is impossible to achieve, impossible to define, or in fact perfect as it is, just give firms more freedom and hope for the best.

Robert Swan writes:

There is a paradox in your two responses. On the one hand, Walmart exploits its employees by giving them benefits which lock them in to their jobs ("golden handcuffs" would be the term, though might sound a bit grand for Walmart). On the other hand, Walmart would prefer not to give their employees these benefits -- so they'd rather not exploit their workers in this way?

I live in Australia, and have only visited Walmart on occasional visits to the US (Colorado ski areas). Seemed a decent enough store, and the staff seemed cheerful enough. Perhaps it varies from place to place.

Anyhow this "down with Walmart" topic is tangential to the interview. What should you expect from Walmart but the justice of a "knife fight".

Mark Crankshaw:
Quite agree that there are emotional levels outside an acceptable range. It applies to both tails though, and I have occasionally received criticism for being too clinical and, in my clinical way, I believe they are right. I hasten to add that I'm not a "Vulcan" by any means: I weep, I worry, I get angry, but there's a logical thing in my head that tries to counterbalance all these things. I suspect it's the same with everyone, but the balance strikes at different places.

On the role of government though, your explanation didn't show a disagreement. I didn't say (and I don't think Taylor did either) that government achieves better justice than a knife fight, but that the right role for government is to do just that. What governments actually achieve is another thing altogether. I believe both your and my governments make a lot of noise about improving social justice but they seem largely to be redistributing injustices.

Yossi Tarkoviz:
I'm wondering if we listened to the same podcast. I didn't run a stopwatch, but I was left in no doubt that government's role was to, as you put it, "demand justice from firms" (other places too). Given that government is meant to represent the people, who do you think should do the "demanding"?

As you said at the end (and I said too in a comment) "justice" is pretty hard to nail down. Nevertheless, it seems to me that you are in no doubt that you know injustice when you see it. Maybe there's a place in government for you.

Yossi Tarkoviz writes:

Robert Swan:
My point is that when someone says "reason suggests that we rely on business for economic growth and not for justice", there are two possible ways to interpret this claim.

The first is that we should indeed rely on businesses to compete ruthlessly, innovate, increase productivity etc. It is up to the government to make sure businesses don't disrupt public goods, exploit various groups, create races to the bottom, disrupt the political system and so on.

The second is that there is no such thing as justice, or that justice is in fact the same as the market outcome after you remove government interference. Removing constraints on businesses as much as possible while protecting property rights, old and new, is in fact the just thing to do, and while outcomes are unpredictable, they can post-fact be declared just.

With this podcast, I feel that Russ in fact pushes forward the second interpretation, while the rhetoric suggests the first. For example, the lady that "didn't want to listen to this" is portrayed as someone who fails to grasp that growth is the core competency of businesses.

So there is a vague mention of government being best suited for helping keep the system just, suggesting the first interpretation, but this is just so that the more justice minded listener won't decide that "she doesn't have to listen to this".
As soon as you agree that Walmart coming to your town is a good thing because Walmart is efficient, and any affected workers can be compensated in some way - the conversation moves elsewhere. Maybe to the fact that justice is so hard to define, and how hard to measure everything is, and maybe there is some sense in which this is the best possible outcome since this is the market outcome, etc.

Just to quote a bit from the transcript:

And if you get a lot of people after a long, slow, sluggish recession who feel that way, there's a real feeling that--it's a legitimate feeling--that part of the American bargain, the bargain of 'There will be disruption but there will also be opportunity,' sort of feel like we're getting all the disruption and none of the opportunity. So I guess the question is: Can you, in a slow way, and it's not a quick fix, rebuild some of the opportunity feeling of that [?]
Russ: Yeah. Well, that's a big issue. And I think the issue there is--a lot of it has to do with our education system, it's inflexibility; and it's one of the areas where I think government is too involved in the production side of things. But that's a long conversation for another time.
Guest: Sounds good.

Mark Crankshaw writes:

@Yossi Tarkoviz

In a perfect world (or say Europe), reason would indeed suggest relying on capitalism for economic growth, and on government for justice.

Surely this is said in jest. I will be spending this upcoming summer in Europe, and in a country that is, by this definition, quite far from perfect (Greece). The Greeks never relied on capitalism for economic growth (and, lo and behold, they have none) and their government has never dispensed justice of any kind (and has seemingly has never even tried to).

Is the UK in Europe? France? Italy? How about Russia? I've visited Russia pre-Putin and post-Putin and have yet to see any signs of "justice" sprouting up there anywhere.

My impression of Europe, having lived there and through travelling there quite extensively and quite often, is that their embrace of capitalism is rather tepid, their economic growth spotty and often sluggish, and their justice about as good as here in the US (my those French and German banks are doing quite nicely though thanks to the EU politicians and bureaucrats in Brussels). Don't get me wrong, if I were rich and a native-born "insider" I would much rather live in Europe than here in the US. However, Europe (and the European model) has long been great for affluent "insiders" and not so great for the non-affluent and "outsiders". Which might account for the migration patterns of the past 400 or so years...

@Robert Swan

I didn't say (and I don't think Taylor did either) that government achieves better justice than a knife fight, but that the right role for government is to do just that. What governments actually achieve is another thing altogether.

I agree that isn't much of a disagreement (more akin to a quibble). In my view, government is simply incapable of providing better justice than a knife fight. Thus the government has no role (right or otherwise) with respect to achieving better justice than a knife fight.

As a metaphor, suppose I have a car but that this car has no engine, no wheels, and is stuck up to the door handle in mud. One could argue that the "right role" for the car is transportation. I would argue that such a car has no role whatsoever with respect to transportation but rather it is a 3000 pound piece of junk that isn't going anywhere any time soon. That's also my assessment of government with respect to its role (right or not) of providing justice better than a knife fight: it's metaphorically speaking a 3000 pound piece of junk that can't be budged one millimeter, and a very, very expensive one at that.

Trent writes:

I found the best part of the podcast to be the roles of government and business, and what problems arise when either one tries/is asked to take on a task that they don't do well.

It reminded me of one of Hayek's points that you can't run a family like a government....can't run a government like a business...can't run a business like a family, or you'll run into significant problems. Those institutions emerged/evolved over time to meet certain needs, and I don't think you can ask one to take on the role of another without encountering problems. The particular discussion of why anyone would expect businesses to help with the task of redistribution (via a high minimum wage) and not expect problems (e.g. disconnects in production) was enlightening.

Seth writes:

@Buzz -- Are you sure the Koch wasn't simply referring to one of his favorite books, "The Tyranny of Experts" by William Easterly (who, btw, was featured on an EconTalk podcast)?

The 1st thing that pops up on a Google search of "Charles Koch" and "Tyranny of Experts" is an interview of him with Megyn Kelly where he refers to the book.

Several links also turns up him referencing the book.

Don Rudolph writes:

The comment:
"I don't like to think of the world that way."
Reminds me of discussions about religion. A religious person does not like to consider the possibility of a godless universe, so all debate stops. I think economic beliefs are as valid as religious beliefs. I understand why someone wishes to be religious but I don't understand how you make the leap from wishing a thing was true to believing a thing is true.

Robert Swan writes:

Yossi Tarkoviz:
A double barrelled claim (government bad at economic stimulation; capitalism bad at justice) doesn't demand equal time for each barrel. But I'm having bother understanding which part(s) of the claim you have a problem with. Perhaps you could outline how you would have preferred the conversation to have developed?

Mark Crankshaw:
I don't disagree about government failings, but government (an -ocracy of some sort at least) has been an emergent phenomenon, with us since tribal times. Personally I don't see this as necessarily a bad thing -- total anarchy doesn't seem any more attractive than totalitarianism. But bad government is bad, and the tough question is how, practically, to navigate a path to better government. Once again it falls afoul of my bugbear: comparatives. To define "better" you need some function to turn all government's complexities into a single number. Tricky.

Mark Crankshaw writes:

@Robert Swan

I don't disagree about government failings, but government (an -ocracy of some sort at least) has been an emergent phenomenon, with us since tribal times.

I quite agree with all of your points. To me, terms like "government", "capitalism", or even "justice" are much like a Rorschach test. When discussing such concepts, the discussant by necessity must project onto such terms a coherent and highly simplified "story" because the concept involved is so staggeringly complex. As a human, naturally I do the same.

When I look at the blob captioned "government", I see something thoroughly alien, dangerous and very, very ugly (much as I see the overwhelming bulk of mankind).

My "story" is very much influenced by Franz Oppenheimer's "The State" wherein he details the origins and evolution of 'The State' over the past 10,000 years from a global perspective. 'The State' has, according to this quite plausible account (at least to me), arisen independently around the globe, following a common series of stages, and basically taken the same universal hierarchical and exploitative form (for example, ancient Egyptian government and the Mayan style of government arose independently but arrived at the same highly hierarchical and exploitative structures).

The essential nature of 'The State' is exploitation by a politically and militarily powerful minority over a weaker majority for the sole purpose of political plunder (as described by Oppenheimer as the 'political means'). The other aspects of government (law, order, stability, providing an environment that leads to economic prosperity) are merely the conditions necessary to facilitate political plunder. States have in the past (and some will continue to do so) forgone the provision of those other aspects but never the plunder. Most modern States have concluded that their provision is a necessary precondition to sufficient political plunder.

As I see it, there is a distinction between 'rules' and 'rulers'. The State provides 'rulers' intent on political plunder and it often does provide 'rules'. I agree that a society without 'rules' (from laws to mere social convention) isn't any more attractive than totalitarianism. But do we actually need 'rulers'? And if so, how powerful should they be? How much political plunder is acceptable in exchange for the admittedly beneficial preconditions of this plunder? To me, these are very reasonable questions to ask.

I happen to like law, order, stability, prosperity as well as the freedom do live as I please as long as I harm no one else. However, I would like to dispense with the 'rulers' and to cut their level of political plunder to zero. Could we have 'rules' without a behemoth nation-state and its' 'rulers', replete with a parasitic exploitative ruling class and destructive military caste? Do we actually 'need' the nation-state and its 'rulers' which invariably fashion laws and institutions to their exclusive benefit, passing laws that create an un-level playing field tilted in their favor? I agree that government is an emergent phenomenon and I fervently hope we can displace the archaic nation-state and dispatch their 'rulers' in some arrangement whereby the 'rules' remain. I fear, however, that humanity will suffer with 'same as it ever was...'

jw writes:

Mr. Taylor,

Understanding that you strive to be non-belligerent and after reading your blog, I am still surprised to find that you consider the federal programs for crisis management was “about right”. The trillions in general deficit “stimulus”, $800B in TARP, trillions in Fed QE, all have consequences. Risk was socialized, cronies handsomely rewarded, moral hazard greatly increased, and as with all debt, it has to be repaid, defaulted or inflated away (default in slow motion). It does not appear to be having, or will have, any greater success than the failed Japanese experiments before it. The entire world seems to be ignoring the old “definition of insanity” meme.


The offended by Walmart lunch guest probably had an iPhone and an iPad (Apple’s market does skew that direction), but if she had any modern phone or computer, it was either made at Foxconn or a similar manufacturer in China. Foxconn City, their largest of more than a dozen super factories, is larger than the Ford River Rouge plant mentioned in the podcast. The employees went on strike to increase their $1.50/hr wages with no benefits, no SSA, no healthcare and the CEO broke their strike by threatening to replace them with robots if their wages ever got to $2/hr. He is replacing them with robots anyway. Suicide nets are outside of every dorm and in each staircase.

But as you rightly point out, she was still allowing those Chinese workers to increase their standard of living over what they were able to make on Chinese farms. She was doing exactly what your wife was doing by shopping at Walmart, it was just one more step globally removed. A bit of advice, stay away from the economics of her shoes…

On the comments:


My thinking was exactly along those lines as I was listening to the podcast. Morality is relative, and although it is correct to say that capitalism IS amoral (not immoral), it is also correct to say as you do that it is far more moral than the alternatives. In a capitalistic transaction, both sides voluntarily agree to transact and both are served. In a socialist transaction, there is no such requirement for consent. In redistribution, there is zero morality accredited to the state in taking other people’s money and giving it away, and it is immoral to take money from people, which results in a net negative morality, no matter what socialist politicians think of themselves. On the other hand, an act of personal charity is moral as you are making a voluntarily sacrifice.

Rand’s Franciso D'Anconia says it best:


You are correct in stating that simply “shutting down” is not necessarily an indicator of a valid argument. However, there are others who could expound for hours on illegal immigration and Muslim faith and extremism, so you not knowing or Googling those positions is also not a valid argument.

As for the current political situation, after eight years of Obama, wide eyed anger is indeed rampant on the right. That it is not also rampant on the left is a testament to the allure of political power over the Constitution.


You do not have any understanding of capitalism (or global warming modeling errors). Regarding your Koch comments, unfortunately, there is never enough time for everyone to provide complete context for their views on TV or podcasts. It is up to you to research that what you did not understand.

Regarding your Walmart quote: “And believe me, Wal-Mart doesn't like paying these people that extra money and would gladly fire them at any opportunity.” Walmart recently DID pay people extra money. And as predicted by Russ and many, many other economists, they also had to fire many others to afford it. Walmart provides an increased standard of living to millions of people through very low prices for staples at very thin profit margins. Any increase in costs MUST be offset somewhere else.


Anarchy is a utopian concept with no real world meaning. Since the dawn of man, we have been organizing into groups and the very rare, tiny experiments with anarchy have all quickly failed. But even in its ideal state, it would be a right wing concept, as individual liberty would be maximized, so Miller is wrong. Luckily, this leaves Sanders, Clinton, socialism, communism and fascism back on the left where they belong.


“Social justice” is a vague term that is used to justify whatever the user wants to do (generally with other people’s money in the last century or so). It is meaningless.

Now, the government does have a role in dispensing justice, as defined by its members via laws. But as MC points out, they accomplish this just about as messily as capitalism accomplishes growth. Neither is without major flaws. The only problem is that the more we humans try and make these two basic systems more complicated and complex, we are instead making them increasingly messier and less efficient.

Gary writes:

A question that may be able to extend the Wal-Mart examples in a very educational direction is, “If Wal-Mart is such a poor employer, why do people work there?” I can give an example that might have shamed the lady that got up from the table in Russ' example. A few years back a Wal-Mart opened near our home. Shortly before the store opened my wife went to her usual beauty salon. During the visit one of the young ladies that worked in the salon told my wife she was quitting and going to work at Wal-Mart because the pay was better. It is quite possible the lady that got up from the table is a customer of similar mom and pop establishments that pay less than Wal-Mart. It is difficult for customers to know what pay employees receive. For example, I recently read an article in our local newspaper that illustrates this. The local franchise owner of a national restaurant chain is being sued for forcing the wait staff to share their tips with the kitchen staff. I knew tips were an important part of servers’ pay, but I didn’t realize the extent to which it is true. The hourly wage paid by the franchisee for wait staff is $2.13/hour.

Robert Swan writes:

Mark Crankshaw:

"... the freedom to do as I please as long as I harm no one else. "
"... But do we actually need 'rulers'

I think we inevitably end up with rulers. If you start with the constrained freedom you describe, you have person A deciding whether or not his actions will harm person B. Person B might have a different opinion on the matter. Sooner or later a conflict will arise that is going to need an arbiter. Then rules get written (here comes the legislature). Then people are needed to interpret the rules (the legal system).

These seem to me to be useful functions, and, rather than view it as "plunder", the cost of their administration can be seen in the same light as a retailer's markup. The problem is that government has grown vastly beyond these useful functions, making it much more costly, and less focussed on the core functions. We have ended up in the daft situation where the structures put in place to help minimise harm are themselves causing harm.

The Rorschach test, as you put it, certainly comes into it. If the legislature justifies each law by the prevent harm to others constraint, on the one hand, you could stop well short of outlawing narcotic drugs; or you could press on, legislating maximum soft-drink size and beyond.

I don't have an answer for it. As I said, it is a tricky one. Quickest way to get rid of excess government would be civil war, but I'm reasonably patient; rather than follow Somalia's lead, I'd hope to take a more evolutionary path. Have to admit that about a 180° turn from the way they're headed would seem like a good start.

A pity to hear that you have such a negative view of mankind (its "overwhelming bulk" at least). I'm happy to report reasonable success with my own universal motto: "keep expectations low". Nearly all my surprises are on the upside. Perhaps we can get a law passed to mandate "hopeful pessimism", that should make everybody happy.

Mark Crankshaw writes:

@ Robert Swan

Sooner or later a conflict will arise that is going to need an arbiter. Then rules get written (here comes the legislature). Then people are needed to interpret the rules (the legal system).

I have no doubt that human interaction is, by nature, fraught with conflict. However, my contention is that there is a significant logical flaw within the nation-state model of "justice". While A can conflict with B, and C can theoretically arbitrate between them, what happens if A or B conflicts with C and C is the arbitrator? What if C is an aggressor against A or B and remains the arbitrator?

As a metaphor, consider professional sports. In most professional sports, a match or game is officiated by an arbiter (or set of arbiters) in the form of a referee(s). The referee, a non-player with no stake in the outcome of the game, is bound by a detailed set of fixed rules and is tasked with interpreting those rules in a fair and impartial way. As an ardent football (soccer) enthusiast, I wouldn't want to forgo either the referees nor the rules as I feel that this would negatively impact my enjoyment of football matches.

Where the metaphor breaks down with respect with political conflict is that, in sharp contrast to professional sports, political rules are not fixed and the referees (political arbiters) are actually players in the game with a huge stake in the outcome of the game, and they are rarely impartial and often unfair, and usually are so with relative impunity.

As I see it, the reason that the nation-state has been with us (and will probably always threaten humanity) is that there is a tremendous incentive for certain players (particularly those with very a heavy stake in the "political" game) to capture the role of arbiter, and then exploit that arbitration role for political, financial and social gain. I simply don't think that the nation-state exists because is the best, most efficient, most logical or fairest let alone only way to go but rather it remains in place as an archaic holdover simply because it best suits those who have the ability to exploit that political and legal arbitration.

In recent centuries humanity has actually some progress towards arresting the exploitation that results abusing political arbitration. This has been primarily done by increasing the number of arbitrators(monarchy to democracy, for example), thus providing competition between arbitrators and harnessing the conflict between arbitrators to the benefit of those subject to their arbitration. The question remains, do we actually need an 'ultimate' arbitrator, or does this lead to an 'ultimate' exploiter? Could we get the same results (or even better) without an 'ultimate' nation-state arbitrator and instead seek to increase the number of arbitrators and rely on competition between the interests of arbitrators to keep political exploitation in check?

The analogy between free-market versus central planning in economics should be obvious. From my viewpoint, the free-market isn't Utopian, but simply provides a better set of incentives than non-free markets. So it is with political arbitration, the smaller the size of the state, the more arbitrators, the better the resultant form of justice.

Robert Swan writes:

Mark Crankshaw:

To your last point first. I agree they are analogous, but that doesn't help much because my view (posted nearby) is that central planning itself emerges in markets in just the way that governments emerge in societies.

Putting that aside for the moment, I'd like to see your sketch of the better way of dispensing justice. It works like the free market I gather, so there must be parallels of some sort for currency, suppliers and consumers. If it's not separate and you're expecting the (ideal) commercial market to dispense justice, how do you see it attending to (e.g.) the needs of the child born blind or crippled?

Your sports metaphor sets me thinking of a couple of things. Firstly, it's pretty common to see playoffs where A beats B, B beats C and C beats A. Because the last was the grand final, C is the champion. Is this just? The other thing was a quote, wish I remember who said it, that "The reason we watch sport is to see injustice". It's a bit of an overstatement I think, but a good kernel of truth. We love to see the underdog get up, and it would get pretty boring if the better team always won.

Back to my view: I see our interactions (commercial or social) as fractal in nature. At all levels -- individuals, groups, companies, towns, government departments, state governments, national governments -- deal-making and negotiation goes on. And, while it's not a perfect mathematical relationship like the Mandelbrot Set, the higher level deals are often the result of a synthesis of what has been going on at the lower levels. An equilibrium may appear to be struck for a while, but suddenly, and for no obvious reason, we find things have changed and we're on the march again. Right at the moment it does seem we're headed downhill when we'd rather be on our way to some broad sunlit upland.

A discouraging picture for economists if I'm right. They find themselves lumped in with the meteorologists: good at predicting when things are stable; utterly clueless when things get messy -- just when accurate prediction is most wanted.

Greg Silverman writes:

I have listened to every Econ Talk podcast, and, they rarely make me angry. I have had an open mind and Russ has influenced my thinking, and, made me more skeptical of government intervention than I thought I would ever be. However, the Timothy Taylor episode did make me angry and motivated to comment.

First, when Tim Taylor rhetorically asked where the money to pay for a higher minimum wage would come from, the only source he did not mention is profits. All other economic factor are supposed to flexible, but profit margins should be sticky? Let some of the money come from that.

Then, employers and economists never mention it, but, they must consider with skepticism the claim that workers are not paid a living wage. After all, the workers keep coming back day after day, they are not dying off, so, it is puzzling to to them to hear this. They do not acknowledge that government is making up the difference between their wages and the true cost of living with various transfer payments. And, the important point is that government is subsidizing their cost of labor with these payments as much as they are giving a benefit to workers. If a dollar or five dollars, or whatever would make wages living wages would price these business out of the market, the question should be, why should government subsidize businesses whose goods and services are not worth their total cost of productions to their customers? If a business lobbied the government to pay ten percent of their electricity bill because they could not stay in business without it, their request would be easily rejected. But, by rejecting a higher minimum wage they are making the same claim on the taxpayer.

Finally, Tim and Russ agree that government should pay for the social goods they impose on business. That the difference between wages paid and incomes needed should be pushed so far away from employers that it should be in the form an earned income tax credit or a negative tax rate, spreading these cost as far away from the business that need the labor as possible. But, is this reasonable? Government mandates that food service business meet food safety standards, should the government pay their costs for soap, should they bill government for the hours of labor spent keeping their facilities clean and hygienic? Should government reimburse business for the cost of food they must throw away because they bought contaminated food or allowed it to spoil by their own management practices? Most, if not all states, require drivers to buy liability insurance as a social good to protect the people they might injure. Should government remove this requirement and pay all damages instead. No, obviously, no.

Comments for this podcast episode have been closed
Return to top