EconTalk http://www.econtalk.org/ Copyright 2010 Mon, 30 Aug 2010 06:30:00 -0500 http://www.movabletype.org/?v=4.21-en http://blogs.law.harvard.edu/tech/rss Daniel Pink on Drive, Motivation, and Incentives Daniel Pink, author of Drive, talks with EconTalk host Russ Roberts about drive, motivation, compensation, and incentives. Pink discusses the implications of using monetary rewards as compensation in business and in education. Much of the conversation focuses on the research underlying the book, Drive, research from behavioral psychology that challenges traditional claims by economists on the power of monetary and other types of incentive. The last part of the conversation turns toward education and the role of incentives in motivating or demotivating students.

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0:36Intro. [Recording date: August 17, 2010.] Book argues that we have the wrong models of motivation and how we understand business and education. What has changed and what we ought to do about it? Looked at 50 years of research in behavioral psychology and in recent years a little bit in behavioral economics. What it says is that the classic set of motivators we use inside of businesses but also in schools and our families--what I call if/then motivators: if you do this, then you get that--they work pretty well for relatively simple straightforward algorithmic sort of work, work where you are turning the same screw the same way on an assembly line or stuffing envelopes or adding columns of figures in a white collar office. Evidence is pretty clear they get you to focus. Trouble is that for work that requires greater complexity, greater creativity, conceptual thinking, fair amount of evidence that says that the if/then motivators often don't work very well and can sometimes backfire. My contention is that most work in advanced economies is becoming less routine and algorithmic because that kind of work you can send overseas and automate it. As a result, kind of mismatch: using a motivational operating system, set of assumptions and protocols that's really made for 20th century work, if/then motivators, and applying it to 21st century work. Compatibility problems. Suggest we upgrade to a different approach to motivation, one far less reliant on if/then rewards, not on all rewards but a certain kind of reward, and prizes other sorts of motivators such as autonomy, mastery, and a sense of purpose. Those last three in more detail? What the research shows as I read it--don't want this to seem like it's a screed against rewards of all kinds or cry for everyone to do volunteer work and never be remunerated. Point is that research shows pretty clearly that you've got to pay people enough. If you don't pay people enough, you are not going to get motivation. But once you pay people enough--and I would argue pay people more than enough--additional units of money have relatively little impact on additional units of performance or satisfaction. What seems to matter more are these other elements. Autonomy is essentially self-direction. If you look at management--misplaced notion of management, think of it as something that emanated from nature, delivered to us from God, when in fact it's just something some guy invented in the 1850s. Gary Hamill has said this: It's a technology. It's a technology for getting compliance. That's what it's for. If you sand off the rough edges, that's what the goal of management essentially is. Don't want compliance: want engagement; and the way that people engage, people engage autonomously, through self-direction. Providing people enormous amounts of autonomy over their time at work, task, techniques, team--cool and interesting examples of companies around the world taking this very different approach to motivation through greater amounts of autonomy. Mastery: mastery is our desire to get better at stuff because we like to get better at stuff. This is why people play musical instruments on the weekend. That seems to be in some sense something of irrational behavior. Well, it's an undeniable deep source of satisfaction--musical instruments, playing chess, rock climbing. It doesn't pay people any money. Well, it depends what you are mastering. Most amateur musicians by nature of being amateurs--or playing chess on the weekend--aren't going to make a lot of money out of it. As a rational calculation of how to make money, they are better off doing something else. Curious question: biological explanation. Superficially, playing the bassoon or chess on the weekend isn't the way to sate your hunger, slate your thirst, get your genes into the next generation. Something else going on there. Would argue it's deeply innate within most people. Isn't an obvious survival benefit but presumably it may have had some survival benefit in the past that we don't know about. Plausible. Evolutionary argument more powerful than the economic argument. On the other hand--talking to someone who has a Charles Darwin doll in his office--very comfortable with these evolutionary explanations. Problem is sometimes they can be a little bit too true, a little bit too neat. Can gerrymander them to explain just about anything. People do it because they like it, get better at it. Research by Teresa Amabile, not in the book, business school professor at Harvard--shows that the single most important thing at work was the sense of making progress. Mastery, making progress inherently motivating. Finally, a sense of purpose. People tend to perform better when they do what they do in the service of something larger than themselves or at least when they see it as part of a larger whole. Some other new research by Adam Grant at Wharton, not in the book, showing that if you introduce purpose and context to a task people perform better on it, even in the absence of any economic incentives. No doubt about it. More robust building blocks for creating tasks. That said, it doesn't mean all rewards are bad; try to divide into categories: now that reward. A little more unexpected, much less contingent. Those kinds of rewards are less disruptive of the creative work. Purely contingent carrot and sticks can disrupt it.
9:16You call the chapter about it the "special circumstances." As an economist, we tend to like incentives. The book is a challenge to economic thinking. To some extent. I'm not an economist. I think it's a challenge to conventional business practices in many cases. Easy straw man to erect and knock down--won't stop me from doing it--this idea that: when I took economics, idea that at our core we are rational calculators of our economic self-interest and we make decisions based on that. It turns out--and I know you are skeptical of some of the work in behavioral economics--Human beings not uniformly rational as conventional theory would make us out to be. Agree with that. Certainly true: we care about a lot more than just money. Certainly true that the introduction of money into a non-monetary context can be jarring and counterproductive. Real issue here: part of is when economists talk about motivation they use this little phrase, which I find unhelpful to non-economists: at the margin. What we usually mean by that, when talking about motivation: we are motivated by lots of things--money, pride. Adam Smith understood it as well in The Theory of Moral Sentiments: we care about what others think of us, our reputation. We care about a lot of subtle things--autonomy, mastery, purpose. Those are extremely important. No one wants to turn a crank for a great deal of money and there's nothing on the other side of the crank. If you are desperately hungry you might, but if you cranked a crank on the wall for years and then went behind the wall and saw there was nothing, no one would say "Oh, I got the money anyway." All important. The question is: at the margin. Given a level of autonomy, mastery, and purpose, if you then add money to it, does that enhance it at the margin? That is, does a little more money make you try harder? or does it become counterproductive. The straw man part of these arguments is: if you just give people a little money, if they do their jobs and you just leave them alone. That's bad incentives. Bad management. Don't think many people run their companies that way. The question is how do you balance that delicate mix of autonomy, mastery, purpose and money. Because they all matter. Harkens back a little bit to the work of Herzberg 50 years ago: some kind of motivators are hygienic: if you don't pay people enough, you are not going to get motivation. Have to set a standard of hygiene--whether hygiene as fairness. A 1950s word. Gave example of dictator game: you and I are dividing $10 and I get to divide, you get to veto. Say, I give you $2; you say No. Lose both the two dollars; for the thrill of giving me 0 for my arrogance. Surprises some economists. Example you opened with: Wikipedia outperformed Encarta--unexpected. Economists would have said people being paid to do this would have done a better job. In some ways almost theoretically impossible. Took my first economics course in 1983 with a professor at Northwestern, Mary Alice Shulman. Terrific teacher. If I went to her and said: Bunch of people who don't know each other get together, agree to do something for free, would triumph over corporation: she would say No. Like going to a physics professor and saying I'm going to throw a ball out of a second story window and it will float into the air. Agree, and when we look at that, I think what we are seeing is the power of play. Mix of autonomy, mastery, purpose. We do lots of things for no money. What was surprising to economists or would have been in 1983 is that we wouldn't have thought of that as play. But it is play. That's why you and I blog for free. Fun. Has some implicit financial return down the road. Maybe. But tenuous. If we were purely rational calculators, we could probably come up with a way to say what is the net present value. Looks like a loser. Point about Herzberg. Phrase in book: the pay has to be market-based, decent pay relative to alternatives. A lot of really fun jobs pay less than that. Below a certain level, you get bitterness and resentment--dictator game. But once you've done that, do you not believe that effort and shirking are affected by what people are paid? Are you against merit pay? Do you think everyone should make the same at that hygienic amount? No. There have to be accountability measures. The fact that everybody should be treated well doesn't mean that everybody should be treated the same. Especially in the workplace, people are exquisitely attuned to fairness. It is more fair for someone who is a top producer, contributing a lot to the organization to make more than someone who isn't. But mistaken to say whoever comes up with a great idea will get $5000 will lead to great performance. There is a market mechanism here. Our norm of fairness is determined by what someone in a situation--my level of ability would be making at a similar place. Research that shows that high performing companies pay more than the market-clearing wage. What they are doing is paying people enough so they are not focused on the money; focused on the work. Another interpretation: the threat of losing your job is a motivator. By overpaying, you use that carrot and stick rather than an explicit contractual one. Research on loss aversion. A little of both. Silicon Valley: culture, flexibility, autonomy very high there. Was told if you have a business in Palo Alto--don't know if this is true--that has more than three employees you have to provide a shower. Give them a chance to go biking in the middle of the day. Will check.
19:41Question on the margin: Does a little money on the margin improve performance? I think the evidence is very unclear there. Depends on how the money is distributed. If you offer people--something of a sweet spot. If you do a little better by some kind of metric I'll give you a $10 bonus at the end of the month, that is obviously not going to have an effect. May even have a negative effect. But a $100,000 bonus, very motivating. Will figure out how to hit their number even if it requires taking the low road. Will even do it to hurt the company. Sales bonus very motivating--talking to someone who works 80 hours a week, would rather work 40--of course it leads to people reporting things that aren't true. Mix. Not only improves performance, but a cost. Spend money to police the system. Benefit is less. For really conceptual, creative tasks--anybody who comes up with a new idea that works in the marketplace gets $100,000--motivating in the sense it will produce activity; log a lot of hours. Not convinced they will produce anything more creative, more brilliant. That is the way our economy works. If you come up with an idea that is really successful, you get more than $100,000. Generates a lot of bad ideas, a lot of entrepreneurs who are overconfident. They don't do it out of love. They do it out of love and money. Actually think for successful entrepreneurs the balance tilts more toward love. In many cases, money operates in a slightly different way--form of feedback. Hard to prove. My view is that most successful entrepreneurs are not deeply greedy people. Bruce Yandle: I love my job, but if they didn't pay me, I wouldn't show up on Monday morning. There are some jobs we love enough, like blogging; others less pleasant. For entrepreneurs, at the margin thing. Wrote about this in The Price of Everything: most people are in it for the deep satisfactions that are not monetary, but the monetary is the signal, the score keeper. Innate drives: competitiveness to do something well, not just better but better than somebody else does. Sports. If you look at great athletes--notion of competition a little murkier--motivated to do the best they can do, to do something extraordinary. Often has the consequence of besting your opponent. Intrinsically motivating; rewards feedback. Margins: think about somebody who takes a company public and then makes a lot of money. Goes and starts another company. Marginal value for billionaires is not that great. Why do they go and start another company? Interesting. Fun. But they'd rather start a company that makes a lot of money than one that doesn't. For all kinds of reasons. Both.
25:30Underlying research in book to challenge the if/then approach. Survey of that academic history and some of the findings. Goes back to the 1940s, Harry Harlow: experiment training monkeys to solve a puzzle. Was going to reward them with raisings. They start playing with the puzzle, messing with it, figuring it out in the absence of any outside reward. Primates have biological drive, we do respond to external incentives, but maybe we also have another drive, doing things because they are inherently interesting. Controversial claim at the time. In the late 1960s, another group started taking this up, University of Rochester, experiments showed that introducing these kinds of external contingent rewards on something people enjoy doing can actually extinguish their interest in doing it. Has since refined his theory a little bit, less black and white. Behavioral economists began challenging the orthodoxy about what motivates people, more three-dimensional view of human beings. Absent in many companies, to the companies' detriment. Research first, then applications; educational part. Two types of skepticism: nature of the research and the interpretation of it. Study by Ariely in India: Rewards can be fairly large without bankrupting the budget of the researcher. Offered rewards for performance that are meaningful. $5 to jump over the table versus $5000 or $5 million. Physical tasks--throwing a ball through a hoop; and cognitive tasks. Repeating a many-digit number. Memorization; and somewhat more conceptually complicated tasks. Offered three different levels of reward: small, medium, large. Small was like a half a day's salary; large was like 5 months' salary. Meaningful amount. Found that when tasks required mechanical skill, bonuses worked as expected: the higher the pay, the better the performance. But with conceptual skill, higher reward often led to worse performance; and evidence that the most incentivized people performed the worst of all. Large difference--dramatically worse. One way to interpret that--Ariely cautious in over-interpreting it: the idea that higher rewards lead to better performance isn't uniformly true. In many cases can work in opposite fashion. Skeptical not of the results but of the interpretation. If they did it again, and found different results, they wouldn't have published it. Have to be careful. Alarm bell with academic research in general. Huge problem in research. Interesting to check the hard drives and trash bins. Seen this with friends, 20 years ago, friends in graduate school, biological sciences or chemistry; working under great master. Three students assigned to carry out same experiment: the one that came back with the result he wanted was what he went with. Affected careers. Version of confirmation bias called publication bias.
35:03But what I found disappointing: would expect rewards to be perverse and interesting would be in a case where effort mattered. Russ: mediocre golfer, but can sink a 10-foot putt. But if you put me in front of a 10-foot putt and said: If you make this I will give you a million dollars, or if you miss this, I will sever the hand of your child, I don't think I would be very good at it. Large rewards or punishment would induce fear, anxiety, make it more difficult to do the task. Trying to memorize a nine-digit number for 5 months' salary, I might do worse. Thinking about autonomy--great that workers are autonomous, but we know that autonomous workers often search the Internet. Too much, no good. Shirking is usually a problem, even in well-intentioned organizations, non-profits, fighting for a cause. Challenge to the Ariely study is it's not the right experiment. Right experiment is you've got three months to work on something and you've got to trade off working hard versus not working hard. Rewards are really important. Interpretation you would put on that: reward with stakes that high is performance-impairing because it induces anxiety. Don't have a mechanism--not like I can try harder to memorize a nine-digit number--I either have a gift at it or I don't. I only have the fear part. If you gave me a chance to do some research or find a mnemonic for it, might have a better chance. So, one is that high reward induces anxiety; the other is that the task itself is not particularly similar to the tasks people do at work, where things are often not one-shot but require time, collaboration and some degree of effort. Fair point. There is this thing--cannot remember the name of it--essentially a curve that shows if there is not enough stimulation people don't do anything, and if there is too much, people get freaked out. Sweet spot. Yerkes-Datsun? Something like that. Think that's true. A situation where someone has three months to complete a project--hiring the right people, giving them the tools they need, the freedom they need to do a great job, and paying them a healthy salary so they are focused on the job, not on the money, is a better management approach. Think there's a norm of fairness--if somebody does come up with something that ends up enriching the company, absolutely share the profits. I'm skeptical of the claim: if you do a great job over the next three months, I'll give you six months' salary is going to lead to better performance. Agree with you. Nobody likes to feel like the mouse in an experiment; or like a serf who serves the master by benevolence. Great example in the book of the ex-post reward: employee comes up with a great new product, new solution; gets small reward, lunch. Praise, compensation after the fact has the advantage of letting the bonus be adjustable, which also let's the work effort be more open ended. Would be fascinated to know how Apple treats its top engineers. Open-endedness has some kind of advantage. If people know the company treats people fairly, good performance is rewarded. Professional sports: family are Washington National fans. Professional baseball teams--people don't get paid the same amount and the amounts are known. And while it's true there are performance clauses, they are not common. The reward is basically your next contract. When baseball players are in the year before they become free agents, they actually post better numbers, once you control for other kinds of things. They try harder. Skeptical of: the coach gave them a great talk and they tried harder. They are professionals. Aren't they trying as hard as they can? Not always. Basketball--long season. Baseball: controlling for other things, the individuals do better before free agency, but their teams didn't do any better. Hard to measure. Inherent murkiness. Possible they were just going for flashier forms of success. Assumes that the next general manager didn't realize that. Next general manager is looking at the aggregate numbers; no statistical measure of unwillingness to advance a runner with a sacrifice. Manny Ramirez--won't run out of ground balls. Nature of human beings: back to the ultimatum game. People are very attuned to fairness. Executive salaries. Look at somebody like a Bob Nardelli. CEO of a large company that does really well, you get a large salary. Don't think anyone has a problem with that. The problem is if you are the CEO of a large company and you run it into the ground, you make a lot of money. Baseball players, too. People do get mad about it. Nobody gets mad about Steve Jobs making a lot of money--seems fair. Did something. Norm of fairness seems to be what prevails. Some cultural differences.
46:10Fascinating study: the Israeli daycare study. What happened in that? Group of Israeli day care centers. Rule was parents had to pick up their kids by 4 p.m. Otherwise caregiver had to stay late. To deter some parents from being late, they imposed a fine. Makes perfect sense. Posted sign that said fine for coming late, modest fine--the equivalent of $3. After the imposition of the fine, they noticed there was an increase in parents coming late. So disincentive, punishment, fine ended up doubling the incidence of lateness. Took a situation where there was no monetary role being played and introduced one. Book: money is weird. In that case, there was a Hayekian cultural norm that said it's not nice to come at 4:05 and really not nice to come at 4:20. A few people not so nice, abuse it, free ride--sometimes even enjoy it. Getting a deal. Some just make a mistake. There was a cost before--shame, embarrassment, inconvenience another person, not just any person but the one taking care of your kids. Some get pleasure from that. Change to $3--that's cheap! At the center friend takes his kids to, it's $1 a minute. If you make it $5 a minute or more--must be a substitute for shame at some amount. Might lose some customers, too. The other thing study shows is that if you take something that operates in the moral realm and put a price on it, you export it to the monetary realm--not an inherently bad thing, but it abides by a totally different set of rules. You are just buying time, like buying Cheetohs. Impose, say, $5/minute--would deter people; would have other negatives. Makes people nervous; would also incur litigation. Have to have a stopwatch. Russ, 4 kids; Dan, 3 kids. Show up at 4:01, $5/kid--but I look at my watch and say it's 3:59. Whose watch are we going to use to arbitrate this dispute? Textbook incentives or meter on restaurant table are not used for these problems. They use the raised eyebrow, disdainful look, shame. What's the perfect solution to this problem doesn't exist. In the first case, you have the sociopath, smirks knowing he is inconveniencing someone. Other case, tree falls on the parkway, never been late before. This is complicated. "A fine is a price." In this particular scenario the price wasn't high enough. Higher, might have unintended consequences. Businesses use all kinds of signals besides money. Sometimes money is the best, sometimes not. Hayekian order takes place inside companies, too. Netflix: no vacation policy. You can take as much vacation as you want, any time you want it. There are going to be some people who are free riders. There isn't abuse within that culture--emergent order and sense of values, nothing to do with money. The modern workplace, overwhelmingly by dispensing with the time clock, has made all of us autonomous. Unless you are expected for a conference call you can wander off and run errands. There is some. Also could have a tyranny there--nobody takes time off, competing. Hunch: people would look to see what the CEO or top people do.
56:43Educational applications. Wife teaches high school math. Alfie Kohn: Punished by Rewards. Summary of his world view: by rewarding people for doing things such as learning we are actually hurting them. Don't completely buy that argument. There are situations where rewards can be pretty effective. In schools in general, though, think he's largely right. Paying for grades, standardized test scores. Paper by Roland Fryer, study of four school districts using monetary rewards for academic achievement: Chicago, New York, Washington, and Dallas. Two most expensive, Chicago and New York: if you get an A you get $100, $200. These did not work, no effect. Think he misinterpreted the results. Washington and Dallas, not paying by outcomes but by behaviors: if you come to class, turn in your homework. According to him, that worked better. People didn't have the social capital to figure out how to get an A, whereas they know how to show up in school. Result in Washington, D.C., murky at best. Even before you impose the controls, there was a negative correlation between paying and doing these behaviors. Even he says in the paper: troubling. One place where there were robust results was in Dallas: paid second-graders a dollar for reading a book. At the end of the year, clear rise in reading scores. How did they check whether people actually read the book? Gave quiz at the end. Set of books that were circumscribed, but very large; computerized quiz. Kind of grotesque. Very clear, seemed to work. One, paying kids a dollar a book, most kids read about 15 books; they paid the kids three times a year, and paid them with a check. Fascinating in itself. Second grader in my house; don't think he knows what a check is. The one area where these cash rewards worked--where the kids were younger--the money was less salient. Think what the schools did was get excited, it's reading year! Ginned things up, made it fun. Which you could probably do without the money. The one area things worked was the cheapest. Could be possible that if you take a kid whose life circumstances are so dire, few advantages, not similarly situated, behind from the get-go, there might be a way that some of these external things could kick-start an interest in learning. Plausible, haven't yet seen it. Move away from money for a minute: the Alfie Kohn part--gets entangled with your work on compensation and education 2.0--he doesn't even like praise. I've taught for 30 years; and have kids in my house. A great teacher can motivate kids just because the kids want to please the teacher. But not every teacher. Some teachers, they're gonna show 'em that they are not going to learn, that they are a lousy teacher. True of adults, too. Smithian point: we want praise. What Kohn argues is that any kind of reward, monetary or non-monetary, all hurts the intrinsic motivation, replacing it by extrinsic motivation. Wait a minute: if I motivate a kid to try reading who has never read before, even if only doing it for the money at first, might they not continue reading? Agree and disagree in part. Take a nine-year old, as a parent, give my kid reward for every book he reads--creeps me out. The kid is absolutely going to read in the short term. Will read short books. What you've done is say reading is like working at a fast-food restaurant; only a chump would do it for free. Think he's right in that regard. Doesn't mean that any kind of reward from an external source is inherently dehumanizing. Philosophical point. Praise. The way you praise is important. Research of Stanford psychologist Carol Dweck: praise for effort and strategy and not for innate qualities and not necessarily for results; not necessarily not for results. What strategy did you use and how can you improve that strategy. Got a 13-year old, 11-year old, 7-year old. Something clicked in his head about math, not something you just use in school. Likes to do the puzzles: Give me a math problem. Instead of saying so smart when he gets it right, say "Tell me the strategy you used on that." I counted by tens rather than trying to multiply it. Awesome. Motivating, healthy for a kid. Research: praising innate quality says that effort doesn't matter. Effort itself is ennobling, glorious in and of itself.
1:10:38The challenge is the other direction, kid not so good at math. Destructive thing. They shouldn't plan a career in nuclear engineering; but what is gloriously rewarding for a great teacher is the ability to take average students and give them a sense of mastery. Tell them they are bad at math they are not going to get there. Might have to reward them at least with praise. Monetary carrot might be destructive. If you praise effort and strategy rather than innate ability. "Tell me what you did." That's a good strategy; why don't we try something else. Remember you were struggling with long division; now you can do it pretty well. Comes into play in homework. If they are not good at it, it's not much fun, not play. Daniel Willingham podcast: if it seems impossible the kid shuts down; if too easy kid shuts down. Not a big fan of homework--most inane, doesn't hit that sweet spot. Math teacher: gives different kids different homework. Hard work. Calls it home learning--semantic move helpful. If homework is a way to help kids practice and see connection between effort and outcome, glorious thing.
1:14:23Interesting work on the workplace: compensation. Previous books, mix of self-employment versus corporate, top-down; right-brain versus left-brain. All three books work together. Where do you see the U.S. workplace going? A lot of things going on. Nature of work, what people do and how, is becoming more human. People looking to work as a source of meaning, inherent satisfaction. Many people work long hours because they like to work. How much happier people are when they are active rather than when they are idle. Being engaged. Yearning to do something that matters and to do it in a way that is connected deeply human. Nature of organizations often incompatible with that. Some changing, but very slow. Deep human yearnings, connects the dots between books: Free Agent Nation, remains in print, sells tens of copies every year. Traveled around the United States, interviews with people who had left or been pushed out of large organizations: "Felt like I wasn't making a contribution." Have to see some outcome. Existential desire to have some impact on the world. Promise of humanistic world of business a little closer to realization than before.
]]> Posted by Russell Roberts at http://www.econtalk.org/archives/2010/08/daniel_pink_on.html. http://www.econtalk.org/archives/2010/08/daniel_pink_on.html http://www.econtalk.org/archives/2010/08/daniel_pink_on.html Dan Pink Mon, 30 Aug 2010 06:30:00 -0500 Munger on Private and Public Rent-Seeking (and Chilean Buses) Mike Munger of Duke University talks with EconTalk host Russ Roberts about private and public rent-seeking. When firms compete for either private profit opportunities or government contracts, there are inevitably firms or people who spend resources but end up earning little or nothing. What are the differences, if any between these two forms of competition? How do they related to competitions that award prizes for discovering new technologies? The conversation begins with a discussion of a recent trip Munger took to Chile where he observed the current state of the Chilean bus system, a topic he has discussed in the past.

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0:36Intro. [Recording date: August 16, 2010.] Spent part of this summer in Chile, earlier podcast on Chilean bus system. Revisit with new observations. System now changed by government policy changes. Reprise and summarize what you'd seen happen there. What was the system like before that? There nearly 3 weeks this time and rode the bus a lot. In the mid-2000s, well after the Bachelet Presidency, Concertación, center-left coalition ruling the government, worried that the bus system in Santiago--city of about 5 million people--wasn't serving the needs of those people. They had three main objections. One: the drivers of buses were too greedy. We would recognize it now as a common pool resource problem--call it overfishing. So, a driver might see two or three blocks ahead 50 people waiting at a bus stop, and then another bus pulls up beside them. Rev their engines; what happens after the light turns green looks like Roman chariot race scene in Ben Hur where they try to run each other off the road, because the first one to get there gets all the 50 people. This was a private system run by private entrepreneurs, right? It was competitive--more than 3000 private different bus companies. Not saying 3000 private busses. Competing with each other for different levels of service and different routes. The routes were not what anyone told anybody to drive--were wherever you thought you could make money by picking up passengers. So the first problem was driver greed and competition that was destructive. And one of our themes today is going to be: Is competition always/sometimes/never destructive? In this case, they thought that competition was destructive. There were a lot of injuries, fender-benders as these busses jostled with each other to try to pick up passengers. Second problem: pollution. The busses were not very well-regulated, since they were not licensed; hard to fine all of those busses that didn't have proper pollution-control equipment. Pollution was getting rapidly bad in the basin of Santiago--like Denver and some other places, you get an inversion, particularly in the winter. It's an enclosed valley. Third thing they were worried about: profits. They were very upset that anyone was making profits because it seemed like extortion or exploitation that what should be a public bus system was making US$60 million in profits per year. I look at that and say: You mean a major metropolitan transportation system was operating in the black?! Unusual. Don't think profit-mongering is anything to laugh at. Low income people without cars being exploited potentially in the eyes of some of the politicians by these greedy bus companies profiting from their--greed. The fares were quite low. One of the things people talk about right now is that the busses would move along quite quickly and pick up a couple of passengers. They would open the back door, somebody would get in the back, and somebody would hand up their 2,000-peso note; next stop the bus driver would take it, make change, and hand back the ticket, like a hot dog at a baseball game. There was a lot of trust present in that system.
5:17Also some concern about the inefficiency of it, wasn't there? This is also an argument people make about these kind of systems that emerge rather than from the top down--routes are duplicated; obviously would be more efficient to only have one bus. There would be people waiting for a long time rather than having it be synchronized. They would say there was congestion--too many of these busses. And paradoxically people had to wait too long because the busses didn't go on the routes people would want. Didn't mention that one, find it strange: What the government saw, it was inefficient; but the government, from their perspective, a lot of these busses ran parallel to metro routes, which meant that if the metro got stopped--the metro is the subway. Beautiful subway system. A lot of redundancy in the system. If you want a system to work, you want to have backup and redundancy. What the government wanted, was a more efficient system--and they wanted a hub-and-spoke system. So the busses would pick up people in neighborhoods and go to the nearest metro stop; people would then get off the busses and go to the metro and go to their destination, get off, and take another bus. Because then you increase ridership on the metro. Quick comment: Always a question as to how important these concerns were relative to other concerns that would be less attractive. Say that busses would often stampeded toward bus stops and get into accidents--you'd want to know how prevalent that was. Those are the kinds of things a bus driver would want to avoid--yes, they'd want to get to the stop, but they wouldn't want to wreck their capital. So when we hear about these kinds of complaints, always want to hear what the ratio is: is it one a day, one a week, one a month? Did some research on that, and there were relatively few serious automobile accidents in Santiago during this period, but the number of minor pedestrian accidents was as high as Mexico City. Is that people hit by busses, cars? A lot of them were hit by busses. Really stood out. Both a time-series and cross-sectional difference. There seemed to be a problem that was largely caused by the bus system, and other kinds of increasing congestion. You could say it's increasing congestion because the country was becoming more and more affluent and there were more people with cars. Combination of roads and customs--habits of driving--hadn't adjusted. Russ there in the summer of 1977--really frightening to be in a vehicle there. Sure it's gotten worse. People then drove extremely differently than people in the United States unless you are talking about New York City. Or Washington, D.C.
8:42So, the government looked at this bus system and thought there was an opportunity to improve it. So what did they do? They genuinely were concerned that a lot of people were being harmed and that profits in particular were a bad way of doing this. So they said, let's publicize this: moved to a public bus system. Bought these enormous bendy-busses from Volvo--looks like it's got an accordion in the middle, two busses attached with an accordion, because you've only got one bus instead of four or five. Decided they should take incentives out of this. Drivers were being paid based on how many passengers they picked up--that meant that the drivers were driving too aggressively. Paid them instead based on how on-time they were. Also changed the route system to hub-and-spokes; and we'll do this all in February. February in Chile is like August in Washington, D.C. or Germany--everything closes. Summer vacation. Could lie down in the middle of the street and not have a problem. What year? 2007, implement the new policy, and the average commute immediately goes from 40 minutes to an hour and 40 minutes. The average commute by a bus rider or a car rider? By people using the mass transit system. Bad set of outcomes that surprises everybody. They really had the best of intentions, really wanted to make things better. The problem was--let the listeners think for a second. The drivers were being paid by how on-time they were. So suppose you are a driver; traffic's gotten a little worse, because since the average time on the public system got worse, people are using a substitute called private cars, taxis. So congestion goes through the roof. Illegal taxis, started driving together; a lot more cars on the road. So, you're a bus driver; you look ahead of you and see a whole bunch of people waiting at a bus stop, and they've been waiting for an hour. Do you stop? No, absolutely not! You've already missed your timeliness on that arrival point. You might be able to make it up because their assuming time at each stop to load passengers. Shoot right by them, and by the next one. Delight of the people in line! They're thinking maybe this one will be on time. Go, go, go. Mostly care about the welfare of the driver. And the whole system being well. That's a negative unintended consequence. Also, the streets in Santiago, an old city, are not really wide enough for those big bendy-busses, so accidents went up: the only way you can turn in those big bendy-busses is from the middle lane. Whether you are turning left or right, can't be in that lane. Cars pull up and just take the front bumper right off: little tiny car, giant bus, and then the fender flies. Saw it myself while there. Can't plan this without using information: decided they were going to live in the world they wanted to live in rather than using any information they had about the routes they wanted to use or the busses that operated efficiently on those routes. Other problem was the coordination between the busses and the overlap disappearing. Two problems that they did solve. It had been that the metro was operating at 80% capacity. It immediately went to 120% capacity. People hanging on the straps; fist fights. The other problem they solved was profits. It now loses $600 million per year. So instead of operating in the black, it now takes a subsidy of at least $100 for every single citizen in Santiago just to have a bus system. Not to use it; just to have it. Wanted to see if the claims about this were correct, so two years after our last podcast that I wrote about this. I rode the bus every day to different parts of town, and it would often take me more than an hour to get on. And when I did, finally, get on, it was because I'm 6'1" and weigh 250 pounds. I can swim past abuela--past grandma. Not proud of this. Saw women crying, pushed aside, little children stepped on. Incentive is: you don't get to exchange your money for a ride. What you do is exchange a small amount of money for a chance to push your way on. Saw sometimes 8 or 10 half-full busses pass large groups of people. They're furious, ready to fight. This is on this last trip? This is three weeks ago.
14:51Puzzled, two things that I find strange. Based on your analysis--of course you are an economist, you are wise, you eat right. Eat a lot. A lot of fish, tremendous for the brain, at least according to P. G. Wodehouse. Hearing your story, talked about this before, the administration was embarrassed and even apologized--very unusual. You think there would be two things you'd do right away. First, you'd get rid of that pay the bus drivers for their timeliness, and the second would be to get rid of those bendy-buses, which must be an enormously bad decision. Yes, it's hard to phase out expensive capital; hard to admit you've made a mistake. Have either of those changed? They pay the bus drivers more now in a lump sum, but everything at the margin is based still on how on-time they are. And they still have the bendy-busses because they have decided they are more efficient. That's what they bought. So, what's the public stance of the administration? Sounds like everyone's furious, still. There's a new administration. The Bachelet administration and La Concertación had a dozen policy failures like this, where with the best of intentions they said, "Let's try this." And when it was a failure, they said, "We didn't do it enough. Let's do it more." And, they lose. New administration, Pinera, center-right group, majority in Congress also; looking to change it. Problem is how to change it at the margin. It is not politically popular to go back to a fully private system. Have some ideas about that; got to talk to some officials about that. Famous book, called Curb Rights, Dan Klein and two others wrote 10-12 years ago: in it they point out that the main thing you need to prevent the overfishing of passengers is private bus stops. All you need is a private system with private bus stops. We basically have that now--the police prevent people from being picked up at anything but a real bus stop. And, licensing for busses to make sure they don't pollute. If they move to a private system with those conditions, all you'd really need is one more thing: a ticketing system that gives you monthly discounts, so it's not profitable to try to poach somebody else's passengers. Why? Too expensive to have private stops everywhere. Why the monthly discounts? The Smith Bus Company normally charges $1 to pick up a passenger, let's say? But I can sell a monthly pass for $20. Nobody else is going to honor that because they can't get money for it. Do you speak Spanish? Did you talk to individuals on the busses about it? What were their thoughts? Did they understand--tell me what the fare was relative to the past and did people understand that the difference was being made up by taxes? They thought that what was needed was more busses and better bus drivers. None of them wanted to return to a private bus system, because their memories of that were horrific. Because? Their perception, at least, of the accidents and the pollution. So, that non-marginal quantum leap, that discrete change, is impossible. No support at all. The real policy question would be improving that versus the current system. You could do some things to make the private system better, but since that sounds hard for folks to absorb, they are going to stick with the current system and hope they can tweak that. They have a taxi system where taxis can take up to four passengers at once and drop them off at different places. Hybrid jitney system. What I would do at the margin is expand that to minivans that could take 6-8 passengers. Take a lot of the pressure off. Supershuttles, like we have in the United States. Did you ride the metro? Was it super-crowded all the time? It was very crowded all the time. Really beautiful system. Very cheap, always on time. Crowded but not impossibly, except right at rush out. I could avoid that, but a regular worker can't avoid that. Had you ridden it before, under the old system? Yes. Wasn't one of your insights from the last podcasts that the duplication of the bus systems along the metro routes allowed for an excess capacity that was needed during rush hour, allowed the system to be more flexible? Must have disappeared. Because the private bus system would add routes at times when it was needed, so it reduced the peak load problem. Now it gets all on the metro or the surface roads, because a lot more people do drive now. Were you going anywhere? Sometimes just riding along to talk to people; other times going up to the University or going downtown to meet with government officials. Once you get used to a mass transit system in a city like that, it's really darn fun. Santiago's a beautiful place. Did take a long time? Not as long as driving! Driving's pretty serious. You could read.
21:54Any other thoughts on Chile, their economic system? Going to hear a lot more from the Pinera regime. Democratically elected administration. Seems to offer an alternative to Hugo Chavez's claim that Latin America can only be organized as a socialist country. Interesting to hear what people in Peru say about Chile. They say: You Chileans, you are like the Swiss. You are just different. Those institutions just don't travel well. We could not have a free market system like you have because you Chileans work too hard. What do you think? Really interesting that Chile didn't have really particularly free-market institutions till the introduction of the ideas of the Chicagos during the 1970s. Now, a lot of bad things, awful things, inexcusable things happened in Chile during the 1970s; not for a moment saying I'm going to defend them. During Pinochet. But the economic ideas that took hold then were not at all part of the Chile of the 1950s or 1960s. So it is possible to change. Can look at Chile of a kind of laboratory of the wealth that is created by free market institutions in an open economy. Interesting that that era did not poison the public against those economic policies. To the contrary: they are basically pre-disposed towards at least free market economics when it comes to trade. Will hear more down the road. Interesting time there. Will see what happens with the bus system--which was the rare private bus system in the world. Very few major cities of that size in the world that had a private bus system. A pure private bus system.
24:16Listener question--Robert Eaton (sp.?), asked about previous podcast on rent-seeking. Talk about the traditional public choice view or rent-seeking and the waste that it's caused. Is competition good? Economists tend to have a knee-jerk reaction saying competition's always good. One of the things public choice theorists did was say, well, not so fast. Depends on the incentive that align what individuals want with what happens as a result to the society. When we think of competition generally, we are thinking of competition by firms to sell their products to consumers who decide which to buy based partly on quality and reputation and based partly on price. That's where this idea of consumer sovereignty comes from, because the consumer is in charge--not in any king-like way; they make little decisions every day; but because it's a consumer-directed economy because consumers decide where resources go and who doesn't get resources. They vote with their dollars. May not be a good way to describe it: Some people have a lot more dollars, get more votes; kind of stupid because you'd only get one outcome; but that's the way it's often described. Mention that is not a good metaphor because when you vote in an election you get only one outcome. We don't just get rich people getting cars, though--we get rich people getting Lexuses and poor people getting Hyundais that work really well. In Chile, you got some people really nice busses, fairly expensive, and poor people riding less expensive buses that were really convenient to them. Not planner looking at map. So, returning: what's the analysis there? In economics, we look at competition as a pursuit of profits. A company in pursuit of profits may spend resources or even fail, but since it was in the pursuit of profits, we can say the long-run result is that consumers benefit. But suppose that the government says: I feel bad for some people; let's try to give away money. But let's try to do it correctly; don't just want to give it away--that would invite corruption. Going to say: You have to write a long proposal and describe how you are going to use the money, and when we give the money away at the end of that, the competition for money that we are giving away--which is called a "rent"--an artificial amount of prize that is going to be given away. Might want to give it away to people we think are more deserving, or might want to give it away because we think it's a matter of public policy. Might want to help someone. We've talked about a lot of examples before on different podcasts. One example: We want to give away higher wages than the market can support. Might want to give away lower price for an apartment than the market can dictate. Usually when we think about rent-seeking, the example I've always thought of: the city of Charlotte used to have a whole floor of its municipal office building whose whole job was to pursue Housing and Urban Development (HUD) grants. Study found that almost half of the money they were getting from HUD was being spent on being paid the salaries of those who were writing grants trying to get more HUD money. Relatively little going to the citizens who were supposed to be benefited. What rent seeking does is create competition for a rent, but since you have to spend some or close to all of the amount that's being given away. Paradoxically, competition for these artificially-created prizes means that you are actually giving away much less than you actually thought; and you are wasting resources, because you are giving people an incentive to compete. So, you could even imagine rent-seeking where that competition was so excessive and dramatic because the prize was so large that people would spend more money in total than the amount of the prize. Each person would not, but they'd get close, especially the more corrupt a regime is. When a regime hands out goodies--HUD grants are goodies--purely arbitrary. People are going to spend resources, flattering and cajoling people in power. Summed up across all favor-seekers; maybe not social benefit. Just reordering money toward the regime's friends. That would be purely wasteful. Economically not inefficient. Maybe adjust, not wasteful. Maybe just a transfer. People who study rent seeking would say it's not just a transfer. Transfer dissipated by the competition of the people who are going to receive it. Just suppose two sides. The people who are for it are going to be lobbyists. Great hair, really expensive suits, nice offices, speak well--this may be the highest valued use of their time. They can make $50,000-$600,000 a year, more, being a lobbyist. But their self-interest is perverse. From their perspective, they are profit seeking. They are making money. In their self-interest. Waste a lot of resources. But their self-interest is in society's perspective. Question George Stigler raised in his article: Why don't we pay members of Congress? So instead of paying them we take them out on nice sail boats, attractive young people give them drinks, backrubs. If we could give them money it would be corrupt, it would be a transfer. Instead, we have something we can't give back. In economics it's called an "all-pay" auction. Has the property that--and I have done this in class, and you may have done this in class--held up a $20-dollar bill in class: how much would you pay me for this? Whoever pays me the most gets it. However, all of you would have to pay me for all of your bids. Whatever you bid, whatever you win or not, you lose the envelope. All of you lose all of your bids. So, let's suppose 30 people in the class, each bid $1, I got $30 to give away $20. Now the winner: About got $20 for $1. You could easily bid $1.50. You could easily get more than the $20. Not so inefficient in the sense that it's a transfer. I get $30, you give away $20. Still a zero-sum game. The losses of $30 from the class as whole are divided between the $20 to the winner and then $10 to you. But rent seeking has two parts. One part: for listeners' intuition, is an all-pay auction. They have to pay all of their bids, but they don't have to pay all of it in money. Have to pay it in time, making cookies. I burn all of them--used up or used by me, trips to Vail. Not highest valued use.
34:19One of the reasons I don't regrade homeworks. It was a 5-point question and my answer was really close to yours and you only gave me a 4. First starting, would weigh it. Justice requires they should always get a voice. Decided homeworks would be a small percentage of the grade. Alternative is you will lobby me, beg. There are people in the class who have dignity, too. Wastes a lot of time and has distributional content. Rewards the grovellers and the people who can't appreciate the law of large numbers. There are a lot of homeworks; when I give you a 5 when you deserved a 4 you are not going to come back. It's not free to regrade. Rent-seeking problem we have raised asked a question I've become fascinated with: How do you tell? Find somebody who is going out and investing their time, trying to get better at something--is it profit-seeking or rent-seeking? Often say people acting in their own self-interest are led by an invisible hand to serve society. We know society is not served. Theft. Often misdescribed as a 0-sum game. Someone takes your television--one more for you, one more for the thief. May be immoral and despicable. The problem with that is that it's not a 0-sum game; it's a negative-sum game. If I think you might break into my house, I will put locks on my door, perhaps have a weapon; put TV in place harder to find it; and you will work on skills of breaking in. All that extra stuff is the net cost of crime. The Coase theorem, which I'm a big fan of in profit-seeking settings, is actually dangerous when it comes to theft. Guy goes by my door, knocks, says, "I was going to break into your house, was going to break the window, probably would have gotten $5000 worth of your stuff but I could only have fenced it for $800. So I thought I would come by and talk to you today. Let's split the difference." Well, no. There'd be a line of people doing that. The Coase solution doesn't work when property rights not specified at all. It's my stuff not yours; Theft is not allowed. Robert Eaton, listener, said: Imagining when mp3 players first came out. Apple, with their i-Pod. Clearly the other two firms making them didn't do as well. Go out of business altogether. It's obvious that Apple's a big success; not obvious that the gains by Apple more than offset the losses by the other two companies. Implicit prize--not a government prize, goodie lobbyists are going after--but music, a bunch of firms compete. Might have been 7-8 firms in reality; some might still be in business. All of the wasted resources, research. Wouldn't it be better for the government to have chosen: Here's the standard; we're going to have this kind of mp3-player. When VHS was competing with Betamax--two different sizes, two different standards. Sony, their own standard for cassette tapes. A lot of people ended up with cassette players that were useless. Hours at Sony, all for nothing. What about the MBA: think of all the kids bouncing basketballs instead of studying economics. They say they have some chance of making the MBA. Very few people make it. Isn't that a giant waste to society? All those hours practicing, books saying it isn't talent, it's effort. How do you tell the difference? Rents are artificially created. The only feedback you get is the creating party's decision to award it. So all the competition is likely to dissipate more than the total value. In the case of the MBA, we get an overall improvement in the level of play. Yes, it's a shame that a lot of people waste their time. In the case of technology, we get improvements we couldn't have dreamed of. If the government had chosen one standard, that would be it and new entry would be foreclosed. The fact that one of them encourages new entry, new products, justifies it. There's a reason Schumpeter called it creative destruction. There is a lot of destruction in profit-seeking. If that's all you look at, might be easy to conclude we are better off with regulation. Other thing missing: the knowledge problem that Hayek identified. We don't know in advance the best technology. When Amazon came along, it lost money year in and year out. It's their money. The investors took their chances. Amazon's now a profitable business. They don't compensate the other firms that tried to enter the digital marketplace. But it's not really true that nothing good came of the other firms' efforts. Those efforts pushed Amazon to find the most effective ways. Those ways were discovered; nice piece by Buchanan. Not only not known but not knowable. We can't know in advance. Apple tried the Newton, hand-held device to help you run your life, take notes. Perfect product except that nobody wanted to buy it. The Palm Pilot, superseded by the Blackberry. That creative destruction, that swirl--no one knows how it will come out in advance or if even should come out.
44:57Isn't it interesting that the risks are being taken by capital, not by consumers. Some consumers take small risks. If you are an early adopter, might by a product that doesn't last long. Mostly for the benefit of consumers. Other point: go back to those HUD grants. If the government's handing out $25 billion in 250 different Congressional districts and in each of those districts people are struggling to write the most attractive grant, the one that looks the most appealing, most political appeal to the grant-hander-outers, does it really matter who gets the grants? If it literally doesn't matter then the whole thing is a waste. If it does matter, could say there is a countervailing force in the way of benefit. In the case of the private market, Corfam shoes, product you didn't have to shine, but didn't breathe. Market fixed it: don't keep putting money into it. Feedback. With grants, you generally don't get feedback. If the government's handing out goodies and it doesn't matter then it's all waste. In the private sector, that doesn't last very long. Is there ever a case where rent seeking might be justified? Yes. It's when it's difficult to internalize the public benefits of a new discovery. The British government set up a contest to solve the problem of calculating longitude. Ships running aground. Latitude they'd been able to solve. Two ways you could do it. One is if you could get sightings on the stars and the other if you had accurate time-keeping--need a clock. Two different avenues to try to calculate. Whoever did it wouldn't be able to capture the full private benefits of this public good. Bounty of 20,000 Pounds--huge fortune equivalent. A lot of people worked on it for more than 40 years. The money was given out--a few times. It advanced something that really was a public good. But it's not obvious that you want to set up rent-seeking contests just for the sake of giving away the prize. Result needs to be that the research itself has a public benefit. Longitude, by Dava Sobel, book.
49:19We've kind of glossed over the issue of magnitude. Easy to say the mp3 player Apple came up with is a delightful device; but it doesn't prove that it didn't lead to investments by other firms that outweighed those benefits. Taken that for granted. Longitude example helps you see it: government prize motivated people to come up with something probably a great investment. Could imagine private companies offering prizes that are totally mistaken, totally wasteful, dead ends. What's different between the two are the incentives about the size of the prize. True that longitude measuring saved a lot of lives. But you could pick a prize that's too big. Desirable social ends--as opposed to the HUD grants that probably produced a lot of dog museums; teapot museum. Longitude was a bargain. But you could imagine a prize so large that even though the outcome was a boon, all of the resources thrown in by the losers offset that. Happens constantly. England, France, Spain, titles of nobility weren't worth very much, but were highly valued. Competition was for something you could use to get people to do almost anything. Most of the time the government is in a position to set up these contests where the value they are giving away is very valuable. But what they are spending on it is going to be tremendously wasteful to the society. No social benefit to setting up all these titles of nobility. Nothing like longitude. Benefit itself is relatively small. What the private sector, profit system does--example in Russ's book The Price of Everything, of a battery that lasts a lot longer. Travel, even when home, challenge of keeping all devices fully charged--shaver, Kindle, phone, computer--one reason I don't have an iPad because I don't want another charger! Love Kindle because it lasts so long on a charge, over a week. Benefit from longer-lasting batteries; but that prize sitting out there implicitly designed by the market place--the magnitude is set by how much consumers really want it. More or less accurate feedback. Would still be consumer surplus. I wouldn't capture the full value of it. But I would capture an enormous portion. And the value is correlated. Whereas in a government contest, the government just has to guess. Don't have enough information. No knowable. Sometimes too low, sometimes too high. If it became known that Mike Munger was continually auctioning off $20 bills in his class, if it was found he was taking money from his students. If you do it every day, you are a Congressman. The student who puts in a $100 bill if he wants a good grade shows how corrupt the process can be; how quickly it could become corrupt. Had a friend, Michigan legislature in the 1970s. At beginning of session they would put maybe 20 bills in the hopper, legislation on a particular industry. As soon as they received compensation from that industry, the bill would be removed from the hopper. Serious? Absolutely. Just understood. Liberal Democrat; says in retrospect it was a little embarrassing, but that was just the way things worked. You set up these competitions. That one was pretty efficient: specifically sectoral, so those are just transfers. Clever enough to say if there's a rent-seeking competition, we'll lose the money. Want to be able to have the direct payment, in this case in the form of a campaign contribution. But you can't do that--it appears corrupt. So instead, get handsome lobbyists and trips to Vail. Extortion, not so much rent-seeking. You just hate liberty to call that extortion. Other thoughts? Reiterate: the difference is feedback, not the absence of waste in private markets because clearly markets do waste things. Not long after VHS won, people don't even have video cassette recorders--they have DVDs. Very wasteful. But feedback: value is correlated with the size of the public good. In rent-seeking, it's not. Also, imperfect or unknowable information. No alternative way to get to the Blu-ray player. Can't skip ahead 20 years. Demsetz: the Nirvana fallacy, idea that we could somehow at 0 cost get to some kind of outcome. Hope you have a year of great productivity. Gonna stay off the busses for a while.
]]> Posted by Russell Roberts at http://www.econtalk.org/archives/2010/08/munger_on_priva.html. http://www.econtalk.org/archives/2010/08/munger_on_priva.html http://www.econtalk.org/archives/2010/08/munger_on_priva.html Mike Munger Mon, 23 Aug 2010 06:30:00 -0500 Kennedy on the Great Depression and the New Deal David Kennedy of Stanford University and the author of Freedom from Fear talks with EconTalk host Russ Roberts about the Great Depression and its political and economic relevance. Kennedy talks about the economic policies of Hoover and Roosevelt, and how the historical narrative was shaped and evolved over the decades. The conversation concludes with Kennedy's thoughts on the nature and value of history.

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0:36Intro. [Recording date: August 3, 2010.] Great Depression to present, economic and political situation; nature of history. One view of the Great Depression, 1930s, is that Hoover stood by doing nothing as the economy collapsed, paralyzed by his free market principles; Roosevelt came to the rescue with the New Deal, saved the economy and democracy. What's true or false about this view? That view does capture a lot of our folkloric understanding of that passage in our history. The fact is that Herbert Hoover was the legatee of the old early 20th century progressive tradition. He cast his first presidential ballot for the Bull Moose Party of Theodore Roosevelt in 1912. Served in Woodrow Wilson's party as the wartime food administrator. Sought by both parties as a progressive presidential candidate; in 1920 ended up declaring himself a Republican. Very much inherited that progressive era impulse to try to use the power of government to solve social and economic problems. Part of the Progressive agenda was to built governmental institutions that were on a scale that equaled what the economy had become since the Constitution was written in the 18th century. Interestingly, Hoover's very first act as President in 1929 after his inaugural in March, well before the Depression had appeared on the horizon was to call a special session of Congress--emergency session, quite out of the ordinary. Purpose was to address what he regarded as the chronic, by then nearly decade-old depression in agriculture. The agricultural sector had been deeply depressed since rural commodity markets recovered after WWI. What we know historically is the Great Depression--the onset is usually dated to the stock market crash of 1929--that was old news in the American countryside by 1929 because virtually all farm prices had been drastically depressed for the decade. Just one sign of his Progressive instincts--really wanted to use whatever power there was in the Federal government to address these problems. When the Depression came, first thing to remember is that nobody in the first months or even the first two years of that event knew what they were witnessing was what we know as the Great Depression. If we think of our current Great Recession as a black swan--a phrase that is now almost a cliche--the Great Depression was the biggest, baddest black swan ever. To this day, regarded as the singularity in economic history; nothing really approaching it. History remembered backward but lived forward; people can't see into the future. Hoover and his contemporaries thought they were witnessing yet another of these cyclical downturns in the economy. They'd had a severe one in 1920. Hoover had been Secretary of Commerce in the earlier recession, 1920-1921, and he had taken the lead in using what power the government had, wasn't much but it had some, to persuade employers to maintain payrolls and not lay off people, reduce hours but not fire people, maintain demand and consumption in the economy. That recession was turned around relatively quickly, at least in the industrial and urban sector; not in the agricultural sector. Hoover had good reason to believe that this was another crisis on that scale and of that general nature, and that remedies he'd tried as Secretary of Commerce would be effective. So he jaw-boned; called industrial and financial leaders in and tried to persuade them to liquify the banking system, maintain payrolls. Leaned on the banks to create an emergency loan fund. Encouraged private banks to come together and create a pool to bail out their weaker sisters. Which they'd often done in the past. J.P. Morgan had led initiatives of that kind in the 1890s and early 1900s. These were relatively well-proven methods for dealing with an ordinary downturn in the business cycle, and Hoover took the lead. Widely regarded in the press in 1930 and even 1931 as the lead figure in the battle against this economic downturn. As we know, benefit of hindsight, the thing got away from him terribly; became a much grander, greater bigger catastrophic crisis. He proved inadequate; but so did Franklin Roosevelt. Roosevelt inaugurated in March of 1933; eight years later the unemployment rate is still 15%; it was 25% when he came into office, yes, some improvement; but getting rid of the Great Depression, down to 0 unemployment, getting the economy fully working again eluded him until WWII came along. The standard history was Hoover was a failure and Roosevelt a big success, on strictly economic grounds is distorted on both sides.
6:41When the economy worsened sharply, in 1931 and 1932, Hoover got more aggressive. Sometimes made mistakes, as did Roosevelt; but he was very aggressive, certainly for his day, in terms of tariff policy, which backfired for him. What was the mix of political and economic thinking Hoover had in mind when he supported that? In that same emergency session of Congress that Hoover called to deal with the chronic agricultural crisis, Congress ran away with the agenda and enacted the Smoot-Hawley tariff, which Hoover to his discredit did sign. But he didn't like it, didn't initiate it. Cut across the grain of what he believed was the root cause of the Depression itself, the disruption of international trade, international capital markets, international exchange rates in the great disruption that was the aftermath of WWI. The biggest single difference between Hoover and Roosevelt in terms of what had actually caused this crisis was the Roosevelt chose to believe that this was an all-American crisis and it should be addressed within an all-American context. Hoover believed, and I think most economic historians would agree with him, that this was a global crisis, an international crisis. Required some kind of international address. Hoover tried several times to get Roosevelt to get on board with that kind of analysis. During the inter-regnum between Roosevelt's election and his inauguration, an extraordinary 5-month period, the government was essentially headless, lame duck period. United States like every other country proceeded to go its own way on nationalistic, autarkic grounds to try to deal with the crisis. As an historian, why do you think that caricature of Hoover is the only picture they have of him> At the end of the day, cannot avoid the conclusion that Hoover's was a failed presidency. He failed rather spectacularly to get a grip on the major issue of the time, which was the onset of the Great Depression. There are some other reasons. The Democratic Party hired a publicist, in 1932, Charles Michelson, to demonize Hoover. Michelson very successful. First negative campaign. Not even close. Back to Jefferson. Very effective, forever left this impression in the general public of Hoover as this mossback, do-nothing, laissez faire conservative who would not budge in the face of this crisis. As time went on, Hoover got more crotchety and curmudgeonly in his later years and set in his ways, said a lot of impolitic things that even contradicted his earlier beliefs--added to this caricature of him as this irretrievable, troglodytic conservative.
10:44Roosevelt, although the economy did quite well in his first administration, unemployment spiked again in 1938, what we would today call the double-dip. They called it the Roosevelt Recession. What were Roosevelt's political prospects at that point? In 1938, he was not as popular as he ended up being, certainly after his death. No, and the even that seems to mark the significant decline of his charmed political popularity occurred almost immediately after his second inaugural in January of 1937, when he announced this plan to augment the membership of the Supreme Court--the so-called court-packing plan. Though it might be too much to say that's what caused him to lose popularity, people seized on that to oppose any further augmentation of New Deal experimentation. Significant conservative block emerged in the Congress in 1937-1938, rallied around the court-packing plan. Roosevelt begins to look like a two-term president; had never been a third term president. Polling was an even more inexact science in that day; but with the best polling data that we have seen pretty strongly suggest that had it not been for the great crisis of WWII in 1939-1940, particularly the surrender of France in June of 1940, that Roosevelt might well not have won election to a third term. People didn't want to change horses in mid-stream. Masterful leader in wartime. Disagreements with his policies as an economists, but effective as a leader in war. Among the reasons why even to this day WWII is so enshrined in our collective memory as the good war, not the least of which is because of the way he fought it, defined it to the public, it's objectives and purposes, and the means he used to get the victory. His memorial in Washington, D.C., which is extremely large in acreage, covers a lot of ground, a low monument, tried to capture all the different parts of his administration. He's shown in a wheel chair, which in his life he was careful not to be seen in. He is not smoking--but he was an ardent smoker. There's a great quote about his pacifism--he was eager to take America into war, and he certainly wasn't a pacifist--great quote about the evils of weapons. "I have seen war, I hate war," referring to a whirlwind inspection tour he made of the Navy to the Western Front; saw war from a great, sanitary distance. Of all the presidential monuments in Washington, D.C., it's the least about a person; all about an era. Historical context. Amusing: think the Jefferson memorial built during one of the Roosevelt administrations; the quotes chosen for it seem to be suggestive of a flexibility of the Constitution. Roosevelt built that particular memorial to serve his political ends; same with modern politicians.
16:08Stereotype of Roosevelt has since been supplanted among pundits at least by the New Deal not as effective--it was the war that got us out of the Depression. What is your take? Among historians, there is no headline that the New Deal did not end the Great Depression; that it took WWII to do that. This has been understood clearly since the 1930s. So much recent scholarship has this air about it that now it can be told; badly mistaken, presumes ignorance. Deeper story; try to develop a thesis. I think I can make a case that Roosevelt's top priority was not ending the Depression as soon as possible. His top priority was to use this moment of political, sociological, ideological disruption to accomplish reforms that he had thought well before the Great Depression came along were necessary to make modern American life viable. Single word that sums up. Social Security Act. Unmistakably the touchstone and core of everything he wanted to accomplish: take the risk out of old age, mortgage lending, securities trading--or at least reduce the risk in all these sectors; and to make American life across the board for individuals and institutions more predictable and less susceptible to these wild ups and downs that had been characteristic of the American economy since the early 19th century, since the United States had entered the early industrial revolution era. He got a lot of that accomplished. Small amount that grew. He established the Securities and Exchange Commission, passed Unemployment Insurance, created Fannie Mae, created the Federal Housing Authority--worked well for half a century. Have to keep in mind what his real priorities were; ending the Depression in a hurry was not one of them. There is a document that goes a long way toward convincing me I've got this right: Roosevelt's second inaugural address, January 1937, where he says something extraordinary in the annals of presidential speeches. Been re-elected for the second time. Begins by talking about the progress about getting out of the Depression since he took office in 1933, boasting as you would expect about his accomplishments. Then he says "These times of returning prosperity could be portents of political disaster." Truly astonishing thing for a president to say, for prosperity to be politically disastrous. It's then, immediately after that, is when he gets off this line that many people know, without the context: "I see one-third of a nation ill-housed, ill-clad, ill-nourished." Not talking about the transient victims of this Depression. Has just painted a picture where things are improving. Sees this one-third that is still left out of the core of national life, chronically in trouble; those are the people he's trying to lift into the mainstream of American life, and he's afraid that if the economy improves too quickly, he won't get that finished. Think he had a more ambitious agenda than people give him credit for. Theme runs through Democratic presidents; just like Ronald Reagan has become the person the Republican nominees have to pay homage to, Democratic politicians use a similar theme to this day, the haves and the have-nots. Democratic leaders since Roosevelt's time that there is so much potential volatility that it is the job of government to stabilize things, buffer people against the workings of the free and unbridled market; whereas the Republican party is the party that wants to unlock and release entrepreneurial energy, less concerned with stability and security. Don't talk about it as much; seem to be interested in creative destruction though don't often do much about it.
21:57Another theme about the cause of the Great Depression: the role of inequality. Insecurity: economic life has always been risky, probably riskier for many Americans in the 1930s. There is a common argument made that inequality was a cause of the Great Depression itself. What do you make of that argument? Where does it come from? It's in a lot of high school text books. The argument that inequality or imbalance--the term in the 1930s--was the root cause of the Great Depression in the United States is a theory that was given a lot of currency in the 1950s, especially by writers like John Kenneth Galbraith and Arthur Schlesinger. Reading that stuff now you can see easily and transparently how those writers were trying to use a certain narrative about the Depression and the New Deal to establish their own political agenda in the 1950s and 1960s when the War on Poverty and the notion of economic inequality was front and center. Not to say there wasn't any inequality in the 1930s and before--there was plenty of it. The premise that underlay both Hoover's and Roosevelt's attempts to try to restore health to the agricultural sector, which was way bigger than it is today, was that there is this chronic imbalance in American society. Farmer aren't making enough income to buy the product of the output of American factories and cities and industrial workers, and if we can restore some kind of balance we'll put the whole economy on more prosperous and sustainable footing going forward. Something to that but if you dwell on that explanation we miss something very important. All explanations of the Great Depression that dwell too exclusively inside the house of the United States are going to get the thing wrong, because this was a global catastrophe; struck the entire world economic system. We have some share of the responsibility, but not totally. This is where Hoover at some philosophical analytic level had it right. The proper remedy for this crisis had to be international in character. If you look at what happens in the world after 1945, the end of WWII, what does the United States do? It steps forward and creates a new international order, with institutions in it that didn't exist before--the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade, which becomes the World Trade Organization. Conscious and deep realization that the international environment had to be better integrated, better monitored, better managed; more institutional structure if the world was not to go south again. Certainly monetary policy, which is tangled up in the gold standard and exchange rate regimes that were in place before the war and after the war, different; recognition that that played a crucial role that it was a global event. Don't think we fully understand monetary policy, but we know some things we didn't know then.
26:01Parallels between those times and these. More phone calls, questions. History lived forward; no idea. Relevance of the 1930s for now? Until a couple of years ago, most people thought the Great Depression about as relevant historically as the Peloponnesian War. Situate ourselves today at a relatively comparable point. The natural thing people have been doing for the last year or more is to compare Barack Obama to Franklin Roosevelt. And Hoover to Bush. Two failed Republican presidents and here come these aspirational, charismatic Democratic presidents. Comparison suggests itself. But if we date the onset of the Great Depression from the stock market crash of October, 1929 and the onset of this crisis from the collapse of Lehman Brothers in September 2008, then the proper point of comparison is not now and the spring of 1933 when Franklin Roosevelt became president. It's some date in 1931--roughly two years into the crisis, when things looked like they do not--things getting a little better. Things looked a little worse but not dramatically; they didn't look worse than the onset. The real slide, descent down the chute into the pits of economic hell came at the end of 1931. If we want to be responsible about this historical comparison, we should compare comparable points. That means we really don't know if we will see a second round. One difference is monetary policy--the Central Bank in 1931 was pretty lost and helpless. Ben Bernanke is a lot more aggressive--may turn out problematic--but some difference there. The collapse of the banks in the Great Depression was a disastrous set of consequences--1931. Nothing like the Troubled Asset Relief Program (TARP); the bank bailouts, nothing that matches the bailouts of Freddie and Fannie and GM. Both administrations have clearly learned. Bush and Obama: lessons, government had to punch early and hard if there's going to be any possibility of avoiding a catastrophic downturn. On balance, we're unlikely to have as big a crisis as before because we have learned some lessons from history. Another point: international scene. What passed for a mechanism of economic regulation, monitoring, equilibration in the 1930s was the gold standard; and virtually everybody abandoned it. So the one thin mechanism that worked to integrate the world economy was kaput. In 1931, Britain goes off the gold standard; we go off shortly thereafter. Today, much more densely international environment with functioning institutions that work to keep the world more or less in synch. We also have a history, last 50-60 years, of pretty substantial economic cooperation. Informal but still-powerful things like the G-8 and the G-20; we've developed habits of economic cooperation that were not there in the 1920s and 1930s. Talk by Jean-Claude Trichet, head of the European Central Bank, all about how closely he and the other Central Bankers in the world, including Chairman of the Fed, Ben Bernanke, had consulted on a daily basis as this crisis was gathering steam. We live in a world that understands the character of its own interdependence.
32:03You talked about the necessity that both Bush and Obama recognized a strong government counterpunch. Yet about 800 yards from here, John Taylor's office over at Hoover is outspoken critic of both the Bush and the Obama interventions. There are similar respected voices coming out of Harvard--Alesina, Robert Barro. We have this feeling that when Roosevelt intervened so creatively for his time that everyone just said Yeah, we've got to try this. Only kooks and people who saw Roosevelt as a Red stood up to him intellectually. Was there much of an intellectual backlash against Roosevelt's policies? The systematic articulation of a critique against Roosevelt and his policies really awaited the end of WWII and the post-war period--works like Friedrich Hayek's The Road to Serfdom, and later Friedman's Capitalism and Freedom. There's a kind of inchoate political polemical opposition, but largely lost to memory because minority. A big element of modern-day conservatism of the Republican Party really crystallizes at that moment in the 1930s when elements of the party take on being against big government. That was not as well-identified a position before the 1930s. Government gets bigger. There was opposition to Roosevelt, but confined to inchoate minority. If the blogosphere had been invented, Fox News, Roosevelt would have had as hard a time as Obama had getting his stuff through maybe. Talk about the political skills of Roosevelt. Economic success a mixed bag, but political skills important. Roosevelt was, in his time, a great communicator. Mastered the fairly new medium of the radio. Radio had been around for about a decade; Hoover had campaigned on the radio, 1922, 1938. But Hoover, Coolidge, Harding never really figured out how to use the medium in a way that was really effective. Roosevelt did. Fireside Chats were a stroke of political communications and public relations genius. Cultivate a sense of intimacy. Anecdote: At Roosevelt's funeral in 1945, as the funeral cortege was making its way through the streets of Washington, D.C., there was an old man weeping. Someone asked: Did you know the President? Old man replied: No, I didn't know him; but he knew me. Tells something about the way Roosevelt related to the public at large; mechanism of the radio. A lot of method to this, too--not just moments of inspiration. For example, the great immigrant communities that entered this country in the late 19th century and early 20th century--southern and eastern Europe--differed culturally from earlier Anglo-Saxon, north European immigrants. Their political loyalties were not very well set. Didn't vote as much commensurate to their numbers. Vote tended to be up for grabs. Roosevelt understood this; here was a constituency that he could mobilize and attach to the Democratic Party for a generation. That's the core of the New Deal coalition that dominates national politics well into the 1960s, 30-year long political cycle at least. Built on labor, trade unions, ethnic communities that really entered the political scene in the 1930s under Roosevelt's tutelage. Number that tells us how calculating and shrewd: The three Republican presidents who preceded Roosevelt--Harding, Coolidge, and Hoover--over their 12 years in office, appointed exactly 8 Catholics to the Federal Bench. In Roosevelt's first 8 years in office, he appointed over 50 Catholics. Not an accident. Deliberately reaching out to the communities. It worked. Reciprocal, joke that used to circulate in the 1950s and 1960s, was that the Episcopal Church was the Republican party of prayer. The Catholic communities found their way into the Democratic party and stayed there. And Jews. Changed after that. George W. Bush was the first Republican to get a majority of the Catholic vote since Roosevelt's day--election of 2004. That coalition eventually unravels. Think of Catholics as being associated with immigration, but Poles and Italians, magnitude was a new phenomenon.
39:23Recent podcast with Daniel Okrent about Prohibition. You talk in the book about what Prohibition did to the Democratic Party; how Roosevelt took advantage of it as it ended. Democratic Party had been extremely ineffective, lost preceding elections, and Prohibition was one reason. Repeal of Prohibition had a lot of appeal to various segments of the Democratic Party--complicated political issue, appeals to different people in different ways. Ethnic groups on their way into the Democratic Party, old-world drinking habits; Prohibition prevented them from exercising cultural rights and practices. A lot of bad feeling through the 1920s in those communities. On the conservative side of the Democratic Party, the business wing, there were those who felt that if we could bring back the excise taxes on alcohol, it would reduce the pressure for higher marginal income tax rates. Convergence of interests. Adds up to a sufficiently large bloc that we get rid of Prohibition. What did Roosevelt do to sustain it? Also put his weight behind the efforts of trade union leaders like John Lewis to build the trade union movement. Something less than 10% of the non-farm workforce was unionized going into the Depression. About what it is now; and a lot of that is government unions. By the 1950s, unionization about 50%, the high point. Development that begins in the 1930s. Roosevelt's strategy: attach the passions and interests of those interested in strengthening the labor movement. A lot of overlap between those labor institutions and the ethnic and immigrant communities we've been talking about. Overlapping strategies. Takes a while for the political payoff of this to play itself out. Gestured to the African-American community about its interest and friendliness. Some substantial and concrete items in that. Not many blacks were voting in the 1930s--most still lived in the segregated South and did not have voting rights. But it starts to turn the black vote to the Democratic Party, where it remains ever since; since WWII, 90% or so of blacks have voted for the Democratic Party. Great historical reversal--the Republican Party was the party of Lincoln, emancipation. Martin Luther King's father voted Republican, for example. Want to put Lyndon B. Johnson (LBJ) in that sequence at all? Johnson ideologically very much in this genealogy we've been talking about. Godfather of it all is Franklin Roosevelt, who commits the Democratic Party to more stability for more people, safety net or floor for more people. Home-ownership goes up from about 40% in the 1920s to over 60% by 1960. Major social accomplishment. Lyndon Johnson in that same vein. Signature accomplishment was that of Medicare and Medicaid. Unfinished business from the New Deal, indeed from the Progressive era; in the Bull Moose Party Platform in 1912, some form of universal health care. Instructions to the drafting team, came up in the Social Security Act of 1935: original instructions were to come up with a plan for old age insurance, unemployment insurance, and universal health care. Roosevelt early on concluded that if he kept the health care in it he risked sinking the whole bill. So he excised them before the hopper. Johnson clearly in that vein, said: I used to think of Franklin Roosevelt as my Pappy. Other great accomplishment that Lyndon Johnson is known for is signing into law the Civil Rights Act of 1964, Voting Rights Act of 1965--first time since Civil War that the government bestirred itself in a meaningful way in the name of racial inequality. Johnson knew something Roosevelt didn't: Once the Democratic Party got attached, or any party, to that issue, it was going to lose political strength in the South. Story: when he signed it in 1964, he turned to one of his aides and said: I believe we have just lost the South for the next generation. Turned out to be absolutely accurate. South goes Republican. Interesting question is whether the economic security parts of those administrations, the whole philosophy, will merely have had a good run that has to be adjusted; much harder to change them to repair them. Interesting political times. Fannie and Freddie, which worked well for decades, they now are so weirdly ensconced in our housing market that politicians won't even use the words "Fannie" or "Freddie." We don't have a very flexible political system. Moves slowly. We are not alone in this; a lot of societies have over-committed themselves. Hard to grasp, but we are not the worst off; could put a number to that. The percentage of our GDP that goes to taxes at all levels, city, county, state, Federal, is about 30%. Most of the developed, Western countries: in the 40%-50% range. To this day we have a much smaller public sector than other industrial societies. Yes, we have problems, but more soluble and somewhat lesser scale than places like Germany, France, Italy, Britain. They've got other challenges.
48:28Parallel: immense fight today over the narrative of what caused the current crisis. May turn out to be a relatively small economic tragedy; may be much larger. We don't know. Already economists are fighting to see if they can get their story--government's fault, the markets' fault. As an historian, interesting? Believe we are hardwired to understand the world in comprehensible stories. Understood since Herodotus, Thucydides. Contest over the narrative is perfectly understandable kind of contest. How they will play out not clear. Unbridled offenses of the private sector or meddling encroachments of the public sector--don't think we fully know yet. John Taylor, colleague: heart of John's argument in his highly polemical book about this, about how government caused and exacerbated the crisis--his basic argument is the original sin--the first crime--was the action of the Fed under Alan Greenspan in commodifying credit, making credit so easy for so long that it became just another commodity. You could argue that what we are witnessing is a familiar history of commodity crises, except the commodity just happens to be credit. Could be. If he were here he would say it's not a polemical work--it's a work of economic science. Skeptical of economic science, though respect John a great deal. So do I.
50:38General question of history and narrative. What works have influenced you as an historian? Reflect on why I became an historian in the first place--may be self-glorifying imperative--like figuring out how things work, how the world works. I think narrative is the way we do this; how we communicate with each other; how the world works and how we understand it. Crafting artful narratives that map onto the world and are convincing--that's the task of the historian. Weave and craft those kinds of stories. Complaint of students: History is just one damn thing after another. If it were that simple, my working life would be a lot simpler. Greatest influence on me: my undergraduate teacher, and as chance would have it, chairman of the history department at Stanford when I was hired to teach here many years later--David Potter. Extraordinary teacher, human being. Course on The American Character. Not a traditional history course--try to understand whether the question: Is there such a thing as a national character? was even a legitimate question. Interrogating its own premises on a daily basis. Finding responsible statements is the kind of question that has kept me going. When I wrote Freedom from Fear, was very conscious that I was working with a small slice of American history, but I adopted a conscious practice when writing that book of whenever I reached for a metaphor, or an analogy, always reached for one out of the American inventory. Rarely if ever reached for one from somebody else's historical experience. Trying subtly to make the point that there were deep structures to American history; repetitive events--not exactly repetitive--but in a stream of behavior that is characteristic of our American society over time. Russ: worry about own biases. Romance about history, misplaced about economics, maybe history as well: We are just trying to figure out what happened! Just trying to study the data! How do you keep your biases at bay? Time worrying if your narrative is right? Is right a meaningful question? Historians notoriously argue with each other. If we didn't have those arguments there would be no such thing as the professional or academically based study of history. It's on those grounds of argument that the real grounds of intellectual argument lie. A lot of inert facts that explain themselves--history would be like a telephone book, a timeline. It's finding patterns, proper context where the real art comes into the historical analysis, and maybe some science, too. An account that's right, that can never be argued with again--rare; suspicious about any work that attempts to make that claim. Elected representative government--mostly a Democrat, sometimes vote Republican. Bias I'm conscious of. Must inform my work, but not unaware when that starts to exert its influence. Tempting to play to your friends--you know what an audience is going to find appealing. How does the historian, given a lot of plausible narratives--how do you choose among them? Literally structuring a book with this much detail--tumultuous 15 or 20 years, could have been much longer book. How do you choose? Conscious choice to focus on those things that endured, that had consequences in history. A lot less in my book than the Civilian Conservation Corps, National Recovery Act, than in other books--very short shelf life, colorful stories but not what deeply affected the nature of society going forward. Deliberate choice not to lay much emphasis on popular culture. Colorful stuff, fun, movie plots and figures that made the headlines and never recurred again--not much consequence for the larger society.
59:26A lot of bemoaning that Americans don't know much history; current generation, anything before three years ago. What are your thoughts on how important history is for high school. Daughter, world history exam; couldn't answer the first economics question on discovery of gold in the New World leading to productivity increases or decreases among workers. What do you think about the teaching of history at the high school level? A society whose members don't know their own history is like an individual that loses his own memory. Don't know who you are unless you have some memory of who you've been, where you've come from. Past is the only sector of human history from which we have any data. We don't have any data from the future. If we want to study human behavior, we have to look to the past. Pleasantly pleased: publishing industry, several best-selling books on 200-year old political figures. Served on test development committee that wrote the Advanced Placement (AP) exam; teach summer workshops to high school history teachers. In the 1990s, over 100,000 students took the AP history exam. Today, over 400,000. Tells us something about the effort that is being made at the high school level around the country. Picking World History exam, happened to have seen the question; American History exam equally. Do you think it's useful that the last history class Americans take is in high school, as opposed to college? Some states--Texas--cannot get a degree without one year in courses in history. Community colleges, public in the Texas system.
]]> Posted by Russell Roberts at http://www.econtalk.org/archives/2010/08/kennedy_on_the.html. http://www.econtalk.org/archives/2010/08/kennedy_on_the.html http://www.econtalk.org/archives/2010/08/kennedy_on_the.html David Kennedy Mon, 16 Aug 2010 06:30:00 -0500 Laughlin on the Future of Carbon and Climate Robert Laughlin of Stanford University and the 1998 co-recipient of the Nobel Prize in Physics talks with EconTalk host Russ Roberts about energy use and the future of the earth's climate. Drawing on his forthcoming book on energy, Laughlin predicts that we will continue to use cars and planes and electricity long after coal and petroleum are exhausted and speculates as to how that might play out in the future. The conversation concludes with discussions of other concerns of Laughlin's--the outlawing via legislation and taboo of certain forms of knowledge, and the practice of reductionism rather than emergence in the physical sciences.

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0:36Intro. [Recording date: July 27, 2010.] Recently wrote article in the American Scholar called "What the Earth Knows." Cover of the issue had a more provocative title: "The Earth Doesn't Care If You Drive a Hybrid." Could be dispiriting to some, encouraging to others. What was your argument? The scales of the earth are so long, that all it cares about is whether you burn up all the coal and oil. It doesn't care if you take 200 years to do it or 300 years to do it. If you are concerned about the earth instead of yourself you would have to bring your carbon consumption down to 0 on the scale of people. Whether that's likely to happen is another conversation. Should we worry about climate change? Obviously you should worry about it some. It's one of the many things you have to worry about, like keeping your job, whether your kids are okay. The rather provocative title and subtitle of the piece were imposed by the editors of the Scholar, who saw an opportunity and took it. The original title was "Geologic Time," a chapter excerpt from forthcoming book, When Coal is Gone. The premise of this book is that you go in your mind to a time about 200 years from now or so, when nobody burns carbon out of the ground any more, either because they banned it or because it's all gone. Or it's inaccessible economically? Same thing--it's too costly. It's functionally exhausted. Then you ask: What happened? Are there still soccer moms? Do people still drive cars? Airplanes? Do the lights turn on? Is there enough food to eat? Very concrete engineering questions. Interestingly, when I lay the whole premise out in front of students, they usually come down on the conservative side, even those who are very concerned about climate. Ask: Will people drive cars? They say sure. I ask Why? They beat around the bush for a while: It's because you need them. You need to transport food. About the fifth or sixth person gets it: Because people want them! If you go anywhere in the third world and have a conversation with a taxi driver, it's always the same conversation: What he cares about is cheap gas; doesn't get paid enough. Don't need to go to the third world for that. Then start down the road: If you are going to have cars, how are you going to power them? Talk about the technical means. What's likely to be the pricing of these technical means? The ones that are technically trained get it right away: hydrocarbons, which we burned today have the greatest energy density possible of all fuels. Things that have carbon in them. Will people fly airplanes? Usually people say yes for the same reasons. Well, how are you going to make the airplanes fly? Battery. Batteries are pretty heavy. Oh--you can't have airplanes unless you have hydrocarbon fuels. You could in theory do it with hydrogen, but it's highly dangerous, noxious fuel. Quantum-mechanically, we know the energy content of those fuels is optimal. There will never be anything that beats them. Additional factor: for all the bad rap that carbon has, it's the only industrial pollutant that isn't poisonous. Plants need it to grow. You can easily figure, working backwards from the problem, that we will never go into a post-carbon era. Even when all the coal and oil are gone, human beings will still use carbon-based fuels, even if they have to make them. Excellent starting point for working backwards toward the climate problem, because one of the shibboleths is knocked out: that carbon is bad.
7:10Come back to the future in a minute. Lay out the arguments in the American Scholar about the role of geologic time in helping you think about this and why you are more sanguine about the consequences than most people are. Why a thousand years of excessive carbon in the air is nothing to be deeply worried about--that's the way you frame it in the article. Isn't exactly--that's the rather conservative spin that the editor put on the title. First piece of the answer is the earth is extraordinarily old. The amount of rain that typically falls in NYC is about a meter; the amount of rain that's fallen since the industrial revolution began is about 200 meters--the size of Hoover Dam. The amount of rain that's fallen since the time of Moses is enough to fill up all the oceans. The amount of rain that's fallen since the ice age ended is enough to fill up all the oceans four times. Since the dinosaurs died, enough to fill up the oceans 20,000 times, or the earth once. You know because you experience rain how long it takes to get a square meter of rain--about the size of a dog. Talking about filling up all the oceans 20,000 times--that's a long time. Based on radio-dating the earth, the earth is a good fraction of the age of the universe old. The time scale of people is irrelevant to the earth itself. If you are going to think scientifically about the problem, you must separate the issues of the earth from the issues of people. Different time scales. Care a lot if we don't have food in one generation--on my plate. Other side of the Grand Canyon. But that's an issue for me, not the earth. All of the events of carbon will play out in about two centuries from now. That is a flash of geologic time. Less than a millisecond. The earth will go on. Human species is part of the earth. Civilization is not going to stop, then, either. It's going to go on in some form. Might not be a nice transition to this long-term situation. Can predict there will be people around for a lot longer than the crisis itself. The future spreading out before us is vastly longer. True the earth will still be here; neat seeing all the lights from space, very blue. Earth might persist, worry about what will happen on the earth. Let's make clear we've digressed to the issue of climate. Not in my book. Want to defer to the Intergovernmental Panel on Climate Change (IPCC). I do not want to get into a conflict with those guys. I want to be a problem solver. The life won't all be gone. That's just nonsense. When you have these grand questions, hard to do at first. Actually not difficult. The lever arm of what people are doing to the earth now is much smaller than what has happened to the earth in the past for reasons we don't know. We're talking about maybe raising the sea level by maybe a meter. There is no evidence, yet, for any elevation of the sea levels, but let's say for the sake of discussion the sea levels go up by a meter. 20,000 years ago, the sea level was 130 meters lower than it is today. The reason is that all that water was locked up in ice over Scandinavia and Canada. Measurements with carbon 14 in the muds and ocean that tell you exactly how much water was locked up in the ice caps--beautiful experiments, checked those numbers. But 100 times bigger than what we are contemplating. Something happened that caused these Pleistocene ice cycles. Nobody knows what that is, but it was a gigantic climate effect. If you go farther back, middle of the Jurassic was a very warm period, earth kind of jungly. Life at the poles as well as at the equator. Record is much deeper, so errors of interpreting larger. But Pleistocene clearer. Why did that happen? Nobody knows. Sun got dimmer? What you do know is something happened that people didn't cause--there weren't enough people on earth. At the beginning of the Pleistocene, no people at all.
16:24Bottom line: earth has had a lot of climate swings; life of various kinds; fairly resilient system overall. The plants that won and didn't become extinct, crow and say great system. Meteor ten kilometers wide hits the earth can make life tough for the larger creatures; unpleasant. Life by its nature is adaptable. Could people adapt to this warming? You don't know until it happens; but humans are the most adaptable form of life on earth. They live in the poles, with the penguins, on the great plains. They live in Chicago! Philadelphia. L.A. People are very adaptable, so the good money says humans will do pretty well. Other species might have a tougher time of it. They've done it before, numerous times. Oregon in the Oligocene, a little after the dinosaurs died--eastern Oregon was wet. Know because we find all these redwood debris. But then the Cascade ranges came up and made a rain shadow and those plants are no more. So what did those plants do? The ones that were growing in that area died; the ones growing in other areas didn't. The way plants migrate is the ones in the bad place die and the ones in the new place don't. Other species might have a tough time of it. Zoologists--worry about enumerating life on earth, loss of diversity. Hard to measure but highly believable that human population is doing a number on the species count of the earth. My own guess is that's true and if we are going to worry about anything, that's it. Biodiversity due to population pressure and habitat? Well, there's a lot of things you do. People are worried about the Amazon jungle going. Why? Because they are farming it. Cutting down trees just like the Europeans did when they came to America. The trees are gone, using insecticides, building homesteads; not so good for jaguars and parrots. That is an issue of geologic time. Worry about the arc of the earth. Amount of heating due to carbon profligacy much less severe than speciation problem. Losing species is forever.
21:11A lot of folks are a lot more worried about the impact of whatever number of degrees it is on the adaptability of species and the biodiversity issue. Why do you think that is? Your saying they're inflexible, small amount of variation forecasted relative to the historic record. Most people don't feel that way. Very concerned about it. What do you think their argument is? It's a powerful metaphor. The integrity of the earth is at least in part a religious principle. Certainly built into Western religions. Eastern religions more complicated, but appears to be built into those, too. Leaving your campsite the way you found it strikes chords in people that have nothing to do with logic or science. Deeply in us. Not wrong either. When I go camping, that's what I do; and when I die I want my ashes to go in the ocean where they'll do some good, so I don't clutter up the ground with a lot of myths. People are not really talking about the science of the earth; talking about the metaphor of not harming things. Very understandable. The reality is that humans harm things. Our mere presence harms things. Life is a balance between the harm you do on the one hand, and the need to do a little bit of harm to live. Absolutist position not completely correct. One end of a spectrum. Tradeoffs. The easiest way is to not go camping. But I like to go camping, so I do; I use a little resources and I put it back. As best you can. The boundary condition of the fact of fossil fuel use is that it's a historic accident. Comes to us from Europe. First of all it's an accident that it's in the ground in the first place. But it's an accident that our present-day prosperity is built upon it. Cannot wave a magic wand and stop using the resources without causing mass damage, either through starvation or just plain war. Serious stuff. Like you bought a car and then you discover it needs new pistons. Expensive job, when you get done the car will run just the same as before, so you put it off. But you can't put it off forever because then it won't work any more. So then you have to go and fix it. Kind of like Medicare. Today, working pretty well. Medicine has some profound problems with it. Want the next guy to deal with it. Since it's so fundamental, the retooling will be very unpleasant. Economic instability while it happens. Have to worry about managing that. Let's suppose for the sake of discussion that you don't do anything. Wait for the oil crisis to come. Everybody's always predicting that there will be an oil crisis, but actually, this time you sort of know. The reason you do is because the energy information agency (EIA) has revealed that the amount of new strikes of oil, big as it is, including big Brazil ones, is not enough to offset the declines in U.S. production. The United States used to be an oil-exporting country, blessed with huge oil reserves. The new sources are not enough to counteract that, so the draw on Middle Eastern reserves is going up. That means you can calculate when the crunch time is just for the Middle East resources alone. When it hits zero, then you are going to get price instability.
27:40Mysterious. On way into coming in this morning, heard on radio caller: wind turbine in front yard might be ugly and might offend your neighbor. Quick to say it would be beautiful because it would be sustainable. Not sure what it could sustain with the current technology of wind turbines. Isn't it possible that as the amount of carbon diminishes--and the amount of reserves has risen for a long time. In 1970, when scientists were forecasting the end of carbon by 2000, when 2000 came along, even though we had used a lot more carbon between 1970 and 2000, we'd found so much more--hard thing to measure--but eventually, earth is a finite place: isn't it possible that our effectiveness in using carbon will rise, as it has? We're more energy-efficient than we were 50 years ago. The amount of GDP we can get per BTU has gone up dramatically. Isn't it possible that we'll find ways to power our electricity, cars, planes so that a gallon of gasoline goes much farther than it did before and reduce that pressure you are talking about on Middle East oil fields? What you are asking me is a speculation about what will happen in the future and supplies in the future. The best answer I can give you--I looked at this question very carefully when writing this book, and it wasn't easy because the oil industry is vast and those guys know much more than I do; very hard to assess what's true and what's not--my best guess as to the true situation is that the Middle East reserve problem is real. The Middle East is not the major source of oil imported into the United States--our major source is Canada. Also, the reserve numbers are way off, at least the BP ones because they didn't include the oil sands of Venezuela, which are vast. So they understate the true reserves. Aren't there sand shale fields somewhere else, too? There are other sources around but the really big ones that you can really say the problem is off by are Venezuela. Cheerful thought. Love Venezuela. The Middle East reserves are being drawn down, so something will happen when it hits zero. It might not be the end of oil, but it's a good guess that there will be price fluctuation like crazy when that happens. Something economically occurs at that point, and that point is roughly sixty years out. At current drawdown rates. Maybe some improvement in technology will improve the drawdown rate. All I can tell you is it's gone up--monotonically. China's grown, India's grown. China's got to worry about having fuel supplies for an economy that's growing madly. Same for the Indians. China's growing faster. Human nature--every one of those people is going to want a car. Technical constraints: my guess is no. You can get more bang for the buck with fuel, but fuel is so cheap that it doesn't pay to conserve it. As long as that's the case, the technologies that might get another 20% out of fuel aren't relevant. Russ: But as the sixty years--or maybe 100 or 40--pass and we get closer to economic zero, as the carbon-based fuel gets scarcer its price will rise, and those technologies that are not economic today will become viable. Laughlin: Exactly. Russ: Don't think that prices will fluctuate wildly--think they will grow steadily. Laughlin: The people I know on Wall Street, all ex students, are all thinking that the first sign isn't price going up like crazy, it's price fluctuating like crazy. Why? Because there's a buy response. Like the business cycle. People want to buy when it's cheap, and then when they don't buy, there's a crash, and so on. The oil supply is very inelastic. We had a recession and the price level tanked--giant amount of supply and no demand. I will defer you to economic experts for that. Russ: Don't think there are any. Laughlin: If it's your money and you are placing the bets, that makes you an expert. The technologies for replacing oil, to make gasoline, already exist. It's not that you need to do fundamental research. The main pieces were invented before WWII. The Nazi government made gasoline--not very much. Russ: They had lost access to their oil supplies. Laughlin: No, this is all WWII history. Germany has had and still has an oil problem.
35:31Laughlin: At any rate, you ask, why don't you make your gasoline right now? It's too expensive. So what you expect to happen is a price crossing. Right now the prices don't cross. Why? Because it's cheap. Well, it's more than that, it's basic economics. Now this is a theory I'm telling you. The energy business is cut-throat. The reason gasoline is relatively cheap is because all those companies are trying to kill each other. Russ: It's a beautiful thing, competition. Laughlin: It is a beautiful thing. Their nightmare is that synthetic fuel plants get built, because once they do--the feed stocks to them are cheap. The entry barrier to making synthetic fuel is the plant, the capital cost. So you don't want your competitors building those plants. How do you defend against that? Low prices. This is classic J. D. Rockefeller thinking. Russ: Not sure it's true, but it's one view. Not sure it's a strategic plan, just may be that they think it's the best thing to do. Laughlin: Let me come back to that. Case in writing this book that is a gorgeous. The plants in question are already built. First of all, the Germans did it. The South Africans built one, diesel fuel, called Sasol, made synthetic fuel and still makes it. Boutique diesel fuel, expensive. When in northeast Asia, learned that numerous companies had quietly been building pilot plants near Chinese coal mines--want to learn how to do it, be ready, waiting for the prices to cross. The environmental argument, or not subsidizing the building of the plants is that carbon footprints double. Carbon footprint of a synthetic is bigger, so people who are Green don't like it. To make gasoline out of coal you need hydrogen, get the hydrogen from water, and getting water costs energy. So, you have to burn some of the coal to get the energy to make the hydrogen, and then you burn other parts of the coal to get the gasoline. How are we going to run out of coal then? Let me get to that. My own guess is a price crossing--reason in: I don't think governments anywhere have the willpower to do what it takes to get the prices to adjust artificially. Maybe they don't even have the means; it's physically impossible; but we've had numerous cases both in this country and Europe governments have tried to modify the carbon fuel prices by taxes, and when they get a little bit too high, the truckers go on strike; and that's the end of that. Happened in England--the government said, "We are not giving in to these people!" and then they gave in. You asked about running out of coal; is that going to happen later? How are we going to power these synthetic fuel plants without coal-based electricity? The way I think it will come out is that there will be first a crossing to coal, followed 150 years later or so by a crossing to other carbon sources from plants. Why? Because, assuming that governments don't have power to stop price competition, they can't stop the price crossing either. So the demand for fuel will be voracious and the energy companies providing it will be obligated to get the carbon of the fuel from the cheapest source. Anybody who doesn't use the cheapest source will get wiped out of the saddle, like going extinct. Obviously, if you could pass the right laws, you might just skip that step and go right to the long term one. But my guess is no government is strong enough. They usually don't pass the right laws anyway. Could get close. Long list of reasons why you think that might happen. First price crossing is to coal simply because it's cheapest. Second one: when the coal runs out, you've got to have carbon fuels because planes won't fly without that; why do you need carbon? Because it's so good. Where is it? It's all in the air, so you have to get that. You can do it with a factory, or you can do it with plants. My money says it will happen with plants because they're so great. They've been honing their skills for six hundred million years and they know how to do it. Good at it, tailor made to take carbon out of the air--all you do is add water and sunlight. Probably a new branch of agriculture will spring up to provide the feedstock. The capital costs will already have been made: the plant that makes fuel out of coal--meaning the factory--is the factory that makes it out of grass clippings. Once the factories have been built it's fairly easy to switch them over from the fossil source to the non-fossil one. But that would enslave the plants!
42:51It's an interesting scenario. More than a scenario. It's going to happen with 100% certainty and the reason why is they can't make airplanes fly without carbon. Let's go back to the question you asked: What about all the carbon coal in the ground running out--couldn't you just pass laws to stop that? Here's where geologic time matters. If you make cap and trade cut down on your carbon use, your coal use, by 20%, that merely extends by 20% the time it takes to use it up. That doesn't make any sense. You have to reduce it to zero. Russ: The only argument really that has any water, which doesn't float for me, is it's immoral to use the coal; we should leave it where God or nature put it--which is under the ground. So if people tell me we shouldn't use plastic bags, I always say: plastic bags are made out of oil, the oil came out of the ground; we'll put it back in the ground in the form of plastic bags. It's really not so horrible. Laughlin: The immorality of using the coal is just fascinating. Tests how moral people actually are when you push them to the wall. I have a chapter in this book about the California energy crisis. Russ: Book is not out. Forthcoming book. Laughlin: California crisis is contemporary, but so extensively reported that you can see clearly what happens when people don't get their energy. They go crazy! They chop off the head of the governor, even though the governor was not responsible for the problem. They become irrational. Apropos of asking the students: in the future will the lights go off. Then we talk about this history; boy, they really won't--politically impossible. People don't like reading in the dark. When we were in that crisis, no one talked about saving the earth or the ecology or the blue sky. Only get my lights back on. Get my air conditioning. Moral argument is fictitious. Metaphorical argument. In real morality, as in Greek tragedy, you have to make a choice; and you make the choice, moral choice, when you do the tough thing. In my experience, most people will never do the tough thing. They are so unbelievably weak; and especially true with left-leaning people who haven't thought through the numbers very clearly. Say: When you cut down on the coal use, you are burning more natural gas, because that's where the energy comes from. That puts carbon in the air, too. Well, it turns out, that doesn't compute. Because the idea that energy is conserved and you must have it from somewhere. For most people, it's kind of a tax you put on someone else--you just order them not to burn coal anymore; and then they will and everything will be fine. But everything won't be fine: they'll just burn more natural gas. Find myself musing sometimes that maybe the Russians are secretly behind it because they have so much natural gas. When I was in Germany last month, that conversation was very shrill because Germany is a big coal-burning company. No nukes, don't want nuclear power. Talked to Minister of Scientific Education; she was telling me how they had put caps on coal, and I said, "Doesn't that mean you are going to have to pay the Russians more for natural gas?" She says yes, that's a problem, and then changes the subject. The Russians are pretty good business people; probably saying "Go, Greens, go!" I feel obligated now to tell you a story, apropos of conspiracy theories. There was one I documented in this book that actually came out in the Wall Street Journal, summer of 2007. Bio-fuels. At that time, there was in Congress a law that has now been signed into law, called the Energy Independence Act of 2007. There was a provision in it that the government--the air force--should procure a large fraction of its fuel from nontraditional sources by, I think, 2030. A big fraction, like 20%. Then, the WSJ reporters noticed that a coalition of Greens and big oil put a rider on that clause which was that the ultimate fuel so-procured must not put more carbon into the air that petroleum distillates would have. Enormously amusing. You see, to do that, would knock out the coal companies. There is only one thing in this world that the big oil companies are afraid of, and that's a big coal company, because the coal companies can do it. You want to stop using foreign oil? They can do it. So, you want to stop those guys; pals with the Greens: require that you not put more carbon in the ground; then no government subsidies to build the plants, then no competition for you. Bootlegger and baptist coalition here--podcast: high-minded, morality, Greens, form coalition with the not-so-high-minded oil companies. Not the first time. People get taken advantage of.
50:35Other work--two of your books that are in print, first, The Crime of Reason, where you argue that there is an increasing sequestering of knowledge--that there are areas of the intellectual enterprises that have been off limits either by legislation or because they are taboo, because they are perceived to be dangerous. You include in there nuclear weapons, biological understanding--where people are worried about the weaponization of smallpox, plague, anthrax, etc.--cloning, and even intellectual property. How worried are you about this problem and, on the ground, what are you worried about? You are a professor here at Stanford, you get to teach "whatever you want." Not literally--you'd get in trouble if you taught your students how to make a suitcase nuke. Not just from the University. True that if I'm an inquisitive mind and I'm one of your students, I don't know if you'd know how to make a suitcase nuke, but if you did and I wanted to know it, you probably wouldn't tell me. What are you worried about? 'Cause it's a worrisome book. The broad-brush answer is that I've lived through the industrialization experience, which is the off-shoring of electronics, microchips, to the Far East. In fact, I spent two years in the Far East doing administration at university partly in response to this problem. If that's where it went, that's where you go. Through thinking about that and things related--what's happened to machine tools? what's happened to cars? what's happened to chemical processing, oil industry and so forth? Manufacturing going overseas. I realized that something had happened in the 1970s which was very profound and which has long-term implications for our country. Very insidious, actually. Back in those days we collectively we collectively made a decision that it would be okay to send making things abroad. We were going to be an information society--term "information age" got coined at that time. You are going to be the smart people, know things, tell people how to make stuff. Give them the capital. Then they'll make things. We don't have to do anything, just manipulate people. Roll camera forward. Digital Millenium Copyright Act--making it illegal to understand things--"decrypt" things. From a programmer's point of view there's no difference between decryption and understanding--they are the same thing. Programming then is language, not a secret technology, not a thing but a concept. That law and the strong increase in the power of the patent laws very depressing for people working in private industry, particularly at lower level, because they see that their aspirations to get this technical knowledge and become rich with it are blocked by the fact that this knowledge is owned by somebody. You will see on the Internet a lot of talk that is kind of radical--the Congressmen are in the pocket of big business. In allowing the allowing more aggressive patenting of intellectual ideas. That's not the situation at all. It's that the people in Congress are desperate to make those ways of making your living that still exist in the country. Pulling every lever they know how to including making goofy laws because it's the 11th hour. One by one you are losing things that people use to make a living. So you are suggesting that the increased scope of patent laws is a response to the flow of jobs and knowledge overseas? Yes. Why are you worried about that? That was my take on it. And also I read it. The same goes for the patent laws. Knowledge for the sake of itself is not very useful to us; we want things that are owned by us; that someone else learns them and takes them and we can prosecute them, it's against the law. Now what's the problem? What I figured out is that it's actually quite fundamental and obvious--it's elementary economics. If you live in the world where knowledge is the currency, there must be less of it. Why? Because no one will pay for something you get for free. So, in the Jeffersonian ideal world, everybody's a farmer and they write letters to each other--they exchange information but they charge you for corn. The world we have increasingly grown into, is where we have to have secrets. That's how you make your living. Making a living is not nice--I'm not going to give you the thing unless you pay for it. My measure of of success is whether I can shoehorn a very large amount of money out of you for this thing. The way economics works is that process isn't solid unless you really want to give me the money. The amount of paying you have to pay is a measure of how valuable the thing is that I'm giving you. So, in the information world where information is the economy, there has to always be paying in exchange of information; has to always be money exchanged. There has to be something scarce. That means that strewing the world with enlightenment can't be. So, knowledge can't be free any more. Not only that, but the sense of the law is it's not just acquiring knowledge--it's if you go and acquire it yourself, you are violating the law. In some cases that is a criminal act. Learning things of technical value is theft, and that means that the whole idea of just learning stuff and bettering yourself doesn't make any sense if the thing itself is valuable, owned by someone else.
59:35Counterpoint at large. I worry a little bit about the profusion and scope of patent law on intellectual property. Open-minded, don't know. But in this world we live in, where knowledge is hoarded, secretive--because only scarce knowledge has economic value--yet I walk around and people are attending and acquiring knowledge, the pace of innovation is pretty healthy. We don't know what the alternative world would look like, but it's not like we live in a world where we are stuck. How would you answer those points? The first one, I have politically incorrect answer: the business model. The man who writes that he doesn't care if you drive a hybrid, even if that's not his title, is immune to worries about being politically incorrect! Did put that in there because if everybody drives a Prius it just takes 10% longer to use up all the oil. Attending elite universities is not education--it's access to the peer group. There's a lot of truth to that. The actual education you get is pretty generic. If you were really diligent, you could open books and read it. What you are really selling is access to other students and to colleagues. Gateway to certain things--that's what you charge for, can't charge for knowledge. Does that hearten you? We've found a way? That's the way it is. Would prefer a world where people pay professors giant amounts of money to strew knowledge and enlightenment around to people who need it. But that's not the world we live in, so I make my way as I can. Talking as contrarian as I can, but there is a simple idea here: People who tried to repeal the laws of economics failed. The pace of innovation has increased: As far as I can tell, there is no evidence, at least technically. Quite the opposite. Concrete examples. You probably have a little flash drive, a little thumb drive. This is the technology that destroyed the film industry. This technology is Japanese, based on something invented at Intel called an EEPROM which I worked on as a student. The problem was that EEPROM's couldn't be erased electrically; needed ultraviolet light to do it. A very famous engineer working for Toshiba invented a way to do it. One thing led to another and the film industry was gone. You mean camera film? Yes. Great world! Love the digital world. Another example: blue diode. When I went to school we all learned you couldn't make blue diodes because the energy gap of silicon wasn't big enough. Nobody told this guy, so he just did it; now we have blue LEDs all over the place. What's good about a blue diode? Technical detail: allows you to replace incandescent lights with diodes, which you couldn't do before because they were too red. Other reasons, but that's the big one. The really famous example is the flat panel display, which was an utterly brilliant Japanese invention. What they invented was a process. Have to get the flow of your product through processing so that you get a very tiny loss per step. The invention was the process. Everybody said you couldn't do that. So now the cathode ray tube which used to be our television--nobody knows what they look like any more. Vanished off the face of the earth. There are innovations in automobiles: where are the most innovative automobiles? Japan. Son little: Here's the earth; show me where cars come from. There's a lot of software. I-phone. We're not dead, but in the hard-core stuff, the capital of innovation is Japan, not America. Whether that will continue is anybody's guess. Japan's ex-colonies, South Korea and Taiwan, are now doing to it what it did to us. The flat-panel displays that you buy are not made in Japan. Increasingly made in China. Almost all the flash memory doesn't come from Korea any more--from China. Cheap pots and pans now made in China. Bicycle made in China; textiles, North Carolina, discussion about textile industry and where innovations happen. Not in Raleigh. The innovations idea is partly untrue; how much, have difficulty gauging. What do I care if they are made in China or Japan or Taiwan or South Korea instead of Raleigh? I get to use them. Nice that Steve Jobs, American, if I like the i-phone. All I can tell you is that this is playing out now and we'll see. Better than any theories. Maybe it's true you can do without all that manufacturing capability. However, this is not what we are talking about. What we are talking about is innovation and American innovation. I think American innovation is not nearly as great as the proponents say it is. Because they are not telling the truth.
1:09:03Want to talk about your other book before we leave: A Different Universe: Reinventing Physics From the Bottom Down. You suggest, reading the summary, that we ought to be taking a different path in our thinking about the physical world; ought to be thinking about emergence--which is a favorite topic of this program in the economic sphere--rather than reductionism. What do you mean by that? And where do you think we ought to be going? I mean the same thing you do. There are things that happen in systems that you don't manage because you don't understand them. That this should happen in economics or government is obvious--everyone knows this. What is not so obvious is that it happens at the most primitive levels of nature as well. The call for a new way of thinking is slightly hype. I do have a real problem with ideologies, especially in science. It's supposed to be expunged of them; of course it isn't. One of those ideologies turns out to be that you can understand all things by taking them apart. Discovered it slowly working with very practical things like transistors and magnets and chemical reactions and so forth. The belief is easier for people to swallow than the facts. Part of the impetus for writing this book: there are these industrial things that happen that really matter. This is an ideology problem run amuck, detrimental to your well-being. Such a great insight--see it in any child, wants to take things apart to get down to the basics. That's what we've been doing in physics for how long now? Long time. In real physics, you do both: the first law of physics is: Never argue with the data. It turns out that physics is really about law, not about reductionism--about quantitative relationships among measurements that are always true. And law in physics seems a self-evident thing--religious principle. Lightning comes down from the sky and that's the way it is. Much Newtonian law is just that way, roots in religious thinking. But there are other kinds of laws that are made. Example: Rigidity. Here's this pin: it's rigid. Proof: suppose you are up in a plane at 30,000 feet eating peanuts. You know the plane won't fly apart. Why? It's a law. Where does that law come from? Rigidity of matter. Made of little atoms. Obviously absurd, but also experimentally wrong, because if you take a small bunch of atoms and do nanoscience on them you'll find they are not rigid. Quantum mechanics, kind of squishy. So in fact rigidity is a law of nature that is like a pointillist painting, like a painting of Monet, get up close it's meaningless little dots; back more, it makes more and more sense, becomes perfect. Organizational. In physics we like primitive things. Superconductivity: ability of electric currents to flow perfectly. Same story: chop it down to a few atoms you discover it doesn't work. Or superfluidity in helium--same story. Emergent law. The whole has properties that are not visible from the parts. Could have used other parts and the behavior would have been the same. Occurs a lot in physics; fancy name for it, universality. Physicists feel more comfortable mathematicizing the behavior than thinking of it as a physical phenomenon. Field theory says it's so. The mathematics works because it happened. All the errors in the equation vanished away because the behavior is universal, doesn't depend on details. Can take wrong equations and solve them and get the right answer. Standard model of elementary particles--understanding of the vacuum--has things in we talk about in reductionist terms, emergent: Higgs boson, now under investigation and concern. That is like a sound wave. Entire idea of space as empty Newtonian nothingness is actually refuted by the body of experiment we have, which shows that it's filled up with all this stuff; and the stuff is elastic--that's what gravity is. Why it's as simple as it is at the scale of people, no one knows. Just have to postulate it. So, you know for sure it's organizational, quantum mechanical organizational. That's always what happens when you take something apart that's organized itself: when you try to find out its secrets you find out it's way more complicated. You don't need to know all that stuff. Whole being bigger than sum of parts is common in nature. Book: this is the origin of all law, not just some of it. Meaning that all the physical laws we know of are emergent. So that the experiments work only because we are approximating? No, it's because when you do the experiments slow, at long length scales, the properties become universal, like rigidity; and that's a law. And then the little pieces out of which it's made don't matter any more, so you can just postulate them away as a practical matter. The idea that law is something that's always true could be a little shocking. Cultural tradition. Book is about that: the origin of law in the natural world. Totally radical? No, it's not. Everybody knows it's so, but not built into the simple language we use.
1:19:45Cultural: why cultural discomfort with that? Because I have lived and worked in parts of the world where the culture is different, and I've become very cognizant of the fact that Judeo-Christian roots powerfully influence everything that happens in this country and in Europe, Canada. People like to think of themselves as beyond all that stuff, but ain't so. Bred in the culture you live in. That story about the whole being greater than the sum of the parts, universality of law, inability to observe at a macro level the micro reality--you could flavor that with Judeo-Christian understanding. There's a certain divinity to that if you want to put it that way, fundamental mystery there. Sure you could. Our religious traditions are complicated. We think of them as Hebraic. But they're not completely. A big chunk of them that are Greek, Greek stoicism. The Greek traditions have atomism in them and they have emergentism in them also. What happened in the early Christian days is that those ideas got amalgamated with Jewish religion and as a result we have little bits of that in our culture. If you open up the Bible, at the beginning you will find there isn't any emergent anything. It's top down. The law is what it is. Scary, fearsome thing--if you don't obey the law it will be extremely bad for you. Different from let's have a committee meeting and make a law. Both of those traditions are there, even in Christian culture. The oral law in Judaism is a committee; came out of the Sanhedrin, group of wise men who made the law real on earth, took control of it. This is another conversation. Living in Asia a long time, Confucian place, different ways of looking at things. The idea of the one correct thing is missing. To a Western person, it makes perfect sense that there should be one correct thing, not two. If there are two, you get upset. One of them must be wrong. In Confucian cultures, that world view is called monism, and it's pejorative. It means you are a child if you think that way, you want to have fights all the time. The key to peace is to have more than one true thing--you have yours and I have mine. Not saying that one is better. I'm definitely a moralist as a scientist--won't tolerate wrongness. In the body of the logos is an invention when it comes to the application of it into the laws.
]]> Posted by Russell Roberts at http://www.econtalk.org/archives/2010/08/laughlin_on_the.html. http://www.econtalk.org/archives/2010/08/laughlin_on_the.html http://www.econtalk.org/archives/2010/08/laughlin_on_the.html Robert Laughlin Mon, 09 Aug 2010 06:30:00 -0500 Brady on the State of the Electorate David Brady of Stanford University talks with EconTalk host Russ Roberts about the state of the electorate and what current and past political science have to say about the upcoming midterm elections. Drawing on his own survey work and that of others, Brady uses current opinion polls to predict a range of likely outcomes in the House and Senate in November. He then discusses the role of recent health care legislation in the upcoming election as well as Obama's approval ratings. The conversation concludes with Brady's assessment of how Congress might deal with the demographic challenge facing entitlement programs.

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0:36Intro. [Recording date: July 26, 2010.] Three months from election in 2010. What is the mood of the electorate? One way to answer that question is to do an average, but think the mood varies by political party. Republicans are not happy; most of the Tea Party members, who are Republican, are upset about government spending. Democrats, still pretty happy with the President; 80% approval rating among Democrats. All-important Independents are where the mood has changed. Independents are growing in number, past year and a half, about 40% or so. Very unhappy with what's been going on in the country; unhappy with health care, with taxes, with spending; their mood more closely approximates the Republican mood than the Democratic mood. When you talk about their mood, basing these observations on survey data? Correct, average across 15-20 polls that are good and surveys here at the Hoover Institution, commissioned, YouGov Polimetrix. Digression on the Tea Party: anything stable about their preferences or more fluid? Think of the American electorate as divided along an x-axis that is traditional liberal conservative on the economy, and then another axis that's vertical, social conservative. YouGov Polimetrix: surveying the same 100 people, a panel, traced over time. About 7% traditional liberal, on the left side and socially liberal; about 9% that are economically and socially conservative; 24% or so who are economically conservative. Bottom line is that the bulk of the American public is sort of in the middle--neither too liberal on economics, nor conservative; and they're not too liberal or too conservative on social matters. Those are the voters that are going to decide the election. They are somewhat sympathetic to Tea Party concerns about too much government spending, but they are not to the extreme that the Tea Party is. Don't know what someone who identifies with Tea Party says about social issues. What we hear about are the economic issues, the spending issues. If we just ask the question--without defining the issues--are you sympathetic to the Tea Party movement? Turns out that's not so high; more unsympathetic than sympathetic. But the people who are somewhat sympathetic to it, the main issue driving it is taxes and spending.
4:57What do you think is going to happen in the House in this mid-term election coming up in November? Traditionally--based on the data--the White House loses seats in that mid-term election, correct? While we have data that goes back on those elections quite a while, prefer to start time series post-WWII--modern period of Congressional elections. On average, Democratic presidents in their first term have lost about 30 seats; Republican presidents in their first term have lost about 16 seats. But one of the reasons for that discrepancy is that over the time period from 1946-2010, the Democrats have controlled the House more. Bigger sample. When you average that out, the average loss is about 22-23 seats. But there is a lot of variance in that. Put together models to try to predict these things. Why is it that incumbent presidents lose seats from their party's delegation? What do we know about that? Take as fact--of course they are going to lose seats--but how much? Sometimes they would lose less, like John F. Kennedy only lose 4 House seats. Then in 1998, Clinton and the Democrats gained seats; and then in 2002, Bush gained seats in the House of Representatives. So we have had cases where that has not happened. The traditional explanation was that in a presidential election year voters who weren't strong party-identifiers would come out and vote--marginal voters would be induced to vote by all the hype of the election. Those are the voters most likely to be affected by short-term factors--so, the economy's bad in 2008; Obama and his party get a boost because he's the beneficiary of the bad economy. Then in the off-year election those are the very people who stay away because there is no hype; so the result was the sort of normal party affiliation came back. That explained things up until about Reagan's second victory and then Bush's win. That explanation seemed all right because the Democrats could control the House of Representatives--that was the normal party affiliation; Republicans would occasionally win Presidencies because of short-term factors benefiting them. At a certain point, about 1988, the Republicans continued to win the Presidency and the House. Explanation switched to: Democrats have a natural advantage in the House because they are willing to do the sorts of things to take care of the district. Then the 1994 election came along. An outlier--Republicans won big; and then they controlled the House 1996, 1998, 2000, 2002, and 2004. So, we don't have a very good explanation. One explanation is: Who votes in Presidential versus the off-year. A second is that the President goes in with very high expectations--unrealistic. Changing politics in Washington--going to be a breeze in two years. Core supporters fall away. So, if you look at the New York Times, Paul Krugman, Maureen Dowd, others have been after Obama for not being passionate enough about what happened in the Gulf of Mexico; cap-and trade failure; the war, continue to be involved and with increased troops in Afghanistan. So, the explanation is some of the juice goes out because nobody could live up to those expectations. The combination of all those things, so on. Don't think there is a good explanation that accounts for it.
10:09What do you think is going to happen this time? Democrats going to lose quite a few seats. The way people normally think about it if they want to predict the loss for the President's party in the House, mid-term elections: run pretty straight-forward regressions where you put in how many seats do you have versus if you have more you could lose more; some people put in the state of the economy; some people put in the President's popularity; are you at war. Whole series of right-hand side variables; run the regression over time, some back to 1900, some to back to 1946. Best ones if you are using survey data are what's the President's job approval rating and the generic: If the election were held tomorrow, who would you vote for? Republican or Democrat. When you look at those for this particular election, people are predicting anywhere from 30-55 seat loss for the Democrats. Big range. Our numbers are not just looking at the national average, but samples in key districts: 28 minimum to as many as 50. So the Democrats could lose control of the House--depends on what happens. Think present models of Presidential election years are much better because in those you've got economists like Ray Fair, looks at real income, back to the 1880s, thanks to data set Christina Romer created. The prediction is: the incumbent's party, depending on whether he is or is not running, will win or lose the Presidency depending on how the economy is doing. Period. That's the butter model. Over time they've added guns to it: the Korean and Vietnam War, the two years that really don't predict that very well are 1952 and 1966. So the bottom line, the guns and butter model, which kind of makes sense: electorate holds the President responsible for the state of the economy and responsible for whatever foreign wars you are in. But in a Congressional election year you are looking at 435 elections, and while on average you'd think those things would wash out, really the number of swing districts is about 60, 70 max because of the way they draw the districts, the incumbency factor. There are a lot of seats that are not really up for grabs. So you are running this regression and you've got maybe 360 seats that are fixed; so running the regression over maybe 435 is messing up predictions. I think those models are better than not having them, but on Congressional elections, always try to go back and look at some of the districts. Really running over 70-80 districts. Final thing: What's supposed to account for this mid-term loss: you've got public opinion polls on the generic ballot: what about the President's job approval, what do you think about Congress? You can't predict elections before 1946 because there are no polls. The generic ballot data begin in 1946. Better measure, not included, is party identification. The way political economists have conceived party identification is it's sort of fixed. One point of view is you learned from your parents and that stayed with you. That's changed now: we know people do change their party affiliation based on events. Voters don't really switch from Republican to Democrat or Democrat to Republican. They use Independence as a half-way. In this particular election, Republicans went down starting around 2005, and the number of Democrats went up--encouraging people to say the Republican Party may go out of existence. Now what's happened is the Democrats have fallen, the number of Independents went up, and Republicans have not gained. Very unusual. Data we're collecting right now, back to 1937 on party identification, this period looks a little unusual. Normally when one party gains, the other party loses; now both parties are losing and Independents are gaining. If we knew more about party ID, prior to the elections, that's probably going to be a pretty good predictor of how the President's party is going to do because they'll be moving--maybe becoming Independent. Along with the state of the economy, helpful for predicting events.
18:03State of the economy: Economy is not very good; in July now, will get the July job report in a week and a half; three or four left before the election. Most people assume there's not going to be improvement; could get worse before the election; not going to be dramatic improvement before November. Over the next three months, member of Congress and the President to the extent he's out on the hustings--speaking publicly on political issues. Corn fields--that's husk. Issues on the economy are going to be horrible. They can talk about health care reform, which they passed--not so popular. Financial reform--none of which will actually be in place. They can talk about the prospective benefits of it. President is already out saying the economy is better than it would have been. Seems to be a tough sell. What will be the Democrat's argument that it would have been worse? Other tack they try is: we got out of this mess from Republicans; don't want to give them back the keys to the car. Searching around. If the election is a national issue like the economy, then the Democrats will lose more seats. Their best chance is to cast doubt among the electorate about what the Republicans would do. One way to do that is to blame it on Bush and the Republicans. Not cutting it. When we poll on it, Democrats believe that but Independents, no longer. Independents believe it's Barack Obama's economy; and the Republicans always did. Obama had a 42% approval rating to 38% disapproval among Republicans--lasted about 3 weeks in January when he first came into office. The Democrats are going to have to make the Republican Party the issue, because we do know the Republican Party is not seen in a favorable light--about the same approval ratings as the Democratic Party, about 26-27%. Talk about you can't say No to everything. What about the Senate? Fewer seats up for grabs. Four sure seats that in my view will go to Republicans, currently Democrat: North Dakota, Indiana, Delaware, and Arkansas. But a couple of seats that Republicans might lose: 8 seats that are tossups--Democrats could lose in Missouri, for example. Would say that they'll pick up 5-6 seats, not enough to get the majority. Everything would have to work perfectly for them to get the majority. Could happen. Events could worsen in the world. House elections: if you look at the generic poll, we had data back to 1946; within three months of the election there are only two times, other than right now, that the Republicans led--one, because of several polling problems on the generic ballot, Democrats do better on that poll. The only two times was before the 1946 and 1994 elections. Those are the two major victories. Even when they control the House in 1996, 1998, 2000, and 2002 and 2004, every one of those the generic ballot on Congress showed the Republicans behind. The fact that the Republicans, when you average across the polls, are up about one and a half, two points in the general poll is probably a pretty good sign for them. In those polls are they typically looking at a cross-section of the American people, a cross-section of registered voters, or a cross-section of likely voters? All three. The best site on this for your listeners is Pollster.com--what they did was put together a bunch of people who know political polling. They took 20-25 polls they believed to based on relatively scientific principles and created a moving average among them. On the interactive one you can click off and see any one poll; and they are then taken exactly that way. Occasionally you'll hear that the generic ones are way ahead for Republicans--but the day I see them, they're always pretty close to even. The folks creating those polls are looking at likely voters, and likely want to tout Republicans. The data we have from YouGov Polimetrix, just completed more polls, show Independents and Republicans much more motivated this year than Democrats.
25:00Filibustering. If Republicans pick up a few seats, the filibuster-proof seating of the Democrats will disappear. New phenomenon? Haven't a majority meant you could get things passed in the Senate? You have to have at least 60 votes in the Senate. Is filibustering on the rise? Don't think there is any evidence it is on the rise. If you look at polarized voting--use hands, hard to show. In Congress, many ways to measure it. Imagine if you had on your left hand, fingers are most conservative Democrats, elbows the most liberal; on the right hand opposite. Let them fall over each other, you have it. For those not following on the video [joke--there is no video]--Dave's got his elbows on the armchair; one hand up in the air--the far left guys; other hand in air. Fall toward the middle, can overlap. Two distributions falling. Could be bi-modal with no overlap, Could be bi-modal with a little overlap. Or could overlap so it seemed something like a normal curve. After the 11938 election until the 1960s, not finally till the 1980s, the Senate and the House to a certain extent, votes were often dominated by a conservative coalition of Northern Republicans and Democrats. That pattern began to disappear in the 1960s. By the second term of Ronald Reagan, very little overlap of the parties. Filibuster not used less--used more in a partisan sense now. For a while it was used--government might want to increase grazing rights. Senators from Idaho and Montana filibuster that. Or on Civil Rights. But now the filibusters are all Republican, or all Democrat. So, health care, cap-and-trade which failed yesterday because there are a large number of Democrats from coal states who are not going to vote for that. But in the current world, might say there are two slightly centrist liberalist Republican Senators from Maine; and Arlen Specter, who now is no longer Republican from Pennsylvania. So you have to get all the Republicans. Why has that partisanship gotten so ideological? American political history: the period that stands out is not the no-overlap, but the post-war period when there was some overlap. Normally there is partisan politics, polarized. What drives it now is there are relatively serious issues. In spite of President Obama's claim to bring about bipartisanship. Take what to do about global warming or energy. If you believe that a real solution about what to do about energy is that entrepreneurs, when you put money in there, will invest in it and make new resources, then they'll do it; versus if your view is that entrepreneurs won't do that, then your view is the government should step in and regulate these things. Don't see where's the compromise there. Flip a nickel? Let's regulate half the economy, or try $20 billion instead of $40 billion--compromise but not helpful at all if you think only regulation will work. On health care, same sort of thing--extent to which the government is going to control and regulate that. Facing serious issues. Can we afford all the unfunded liabilities?
32:38The President has faced steadily falling approval ratings from his bright opening. Going to be some loss in the House; don't know how big it will be. What do you expect to happen in the 2010-2012 period? My expectation is that if the economy continues downward, which could easily happen--or if it reverses its modest improvement--the President will change his position. He does not come across as much of a compromiser, partly because he only had to push through health care which was not popular. What are his prospects in 2012? Will he get the nomination if the economy has a double-dip? Think the odds of there being a serious Democratic challenger to the first black president is not likely. Would have to be really pretty bad. Second, after they got health care through, thought they were done. Agenda on air, water, cap and trade gone. Financial reform was one where the Republicans--if you look at polls, about 75% of Americans blame banks; don't think all the money should have been given to the banks; and pressure on Republican Party to respond was pretty high. Knew they were going to get a finance bill, good or bad. Think the Democrats will lose seats. Two scenarios--they lose about 35 seats, not enough to lose control; lose 6 seats in the Senate--whatever agenda President Obama had has no chance of passing. That actually is the worst-case scenario for his re-election. Why? Because then the Democratic Party is fully responsible for the economy, for everything. Alternative is Republicans win the House or Senate. In 1994, which Bill Clinton lost the House of Representatives, that was the first time they'd lost the House in 40 years. Tsunami, Brookings--how could Clinton win now? Clinton looked and was demoralized. But the Republicans overplayed their hand, and Bill Clinton didn't draw a spine; all he did was veto what he could, and it worked; took credit for things that were popular--welfare reform. Elected overwhelmingly. 1946: looked like Harry Truman was dead; was so bad, Senator Fullbright proposed that Truman resign--no Speaker of the House, no Vice President--to give someone else a chance at the Presidency--that's how bad shape Truman was looked at. But he did win in 1948. Truman campaigned on the Do-Nothing 80th Congress. Strange in 1994 how poorly the Republicans dealt with being back in the House. So euphoric, Contract for America, sure that everything had changed. Most people are center-right on the economic dimension; social conservative more centerist, more central. Clinton looks like a centrist. Truman retained power. Both cases Republicans overplayed. Can't make much with two cases; but have to make most of what you've got. Or economy could turn around. Not by 2010 election. Reagan, 1982, lost about same percentage of seats as current prediction for Obama; but economy turned around and his ratings came up; trounced Mondale. Any list of Republicans do pretty well against the President, but they don't have to defend anything.
41:31Health care. Spoke about a year ago; basic polls finding people liked their health care; others didn't get any or much, but they weren't paying very much for it. Those results sustained all the way through the conversations about it, but the House still voted for it. Policy did not get majority support; does not get majority support now. What are your thoughts on why Congress seemed to leave the standard models of self-interest? Think they actually followed the self-interest model. Democrats were faced with the following choice: no bill, in which case they would be accused of not governing. All remembered 1993 when they failed to even get the bill out of committee, how badly they got beat. The costs of the bill don't really start till 2016. There are some short term costs to old people, Medicare Advantage; but major effects are not till after the 2010 election, and not till after the 2012 election. So the Democrats made a bid: the real costs of this bill aren't coming down; if we pass it, we'll get a short term burst of press coverage saying we've achieved something here; and then we can go back and defend having done this. Versus having failed once again to produce a majority. John Cogan: they got down to the Cogan Rule of 10--if you've got 10 votes, you can buy 'em. They did buy them in the Senate. Got enough goodies to hand out. Were going to make it deficit neutral; calling it a deficit reduction. The weekend of the Brown victory in Massachusetts, we sampled--Dan Kessler and Doug Rivers--sampled 11 states that had competitive Senate races; just went back in two weeks ago in July and will go back again in October on health care issue. Results show Obama did get a little bit of a pickup--about 3-4 points, health care is better, after they got it passed. Some growth in support. Two questions we focused on: with the passage of this bill, what do you believe will happen to your health care? 70% said a. it will get worse and b. it will cost more. Before and after the bill passed. When you ask their vote intentions, they are more likely to vote against a Democrat who supported the bill. There's no cabal: Pelosi comes from a pretty liberal district. Reid is in serious trouble. House had already passed it; just barely lost on the public option. They had a liberal majority for the bill. The Senate was the question. Reid became convinced that if he failed and didn't get a bill, he wouldn't get elected. Politicians always thinking about how they'll run against me--if he didn't pass it, let's get somebody in here who will get something done. His chances, having passed it, are better, but not very good. Nevada is one of two states where 50% actually approve of the health care bill; given the unemployment rate--pretty correlated with what your job status is. Don't think he hurt himself with that. Will there be folks in favor of repealing, or is that just going to be talk? Pretty dumb--isn't going to happen. No matter how many seats the Republicans win, they are not going to be able to override a presidential veto. Would be overreacting. In 2006, when the Democrats won control of the House, first time in 12 years, there was a lot of pressure on Nancy Pelosi to impeach the president, turn back the Bush tax cuts; handled membership well, balanced off pretty well.
49:31Certainly going to campaign on the negative aspects of the health care bill. Strange about the health care legislation--the status quo was not sustainable. In run-up to those votes, Obama opponents would put up a chart of how horrible health care organization would look, how complex it would be, as if the current world is some nirvana of simplicity. Current world heavily regulated. Real or apocryphal: Tea Party, don't want the government touching their health care, as if the current health care is some free market paradise. Government pays for most people's health care. Hard to imagine what the health care world is going to look like. Maybe in some states more approval; but if against it, what could they be for? What could be proposed that would be passable, preserve people's right to choose their own doctor, and spend other people's money? Not a sustainable position. What's going to happen over the next 20 years on that issue? Debate over health care on all sides not good. Democrats want to ration it--of course, it has to be rationed in some way, but is it going to be rationed by a market where people get choices, or by a government as it is in Great Britain? Believe better with freedom, unlike most political scientists. Problem: Republicans have proposed no solutions. Since 1930, with Roosevelt, the issue of health care, government trying to take risk out of our lives--to a certain point not a bad thing. But we've made too many promises to too many people and can't afford it. State children's health program, Bush's Medicare prescription drug act, etc.--in each case, emphasis has been an increase in entitlement and rights, increase in coverage. Now about everybody's covered, and it's time to pay the bills. Congress can't pay the bills, can't tax. If it's going to work, will ultimately take away the deduction for employers who give it; going to have to be innovative solutions that let markets work; let insurance programs work--either going to look like that or it's going to look like Great Britain. None of the European countries have solved the health care problem either. Dutch system is one I admire--markets in there in some ways.
54:50Political problem: we've made a lot of promises we can't keep. Seen that playing out in Greece; threat of it elsewhere, Spain. In those situations, reality check. Hard to imagine those responses in the United States. Our system moves very slowly. Hard to have radical change. How are individual politicians going to deal with the fact that they are going to have to take away stuff from people? They are really not good at that. Even today, in July in 2010, when a huge part of the population is worried about deficits--rightly or wrongly--no political mandate to cut spending. There are ones who want to have a Value Added Tax; ones who invoke the Laffer curve and say we can keep cutting taxes. Where is the resolved? How might it happen that we will cope with this by taking stuff away from people? Fundamental question. Two parts. One: Europeans face the problem we are going to face. They have lower population growth, higher welfare; they have made some changes. Don't know whether those Parliamentary systems are better than we are dealing with this. Germans pretty impressive on cutting back benefits. Is the United States unqualified to do this? Japan, no democracy where electives are elected short term has not faced up to this. Don't know many cases where they take something away from people that they've given; and sustainable. In California, you do have cuts in state employees, 10% or so. Assumption in the United States is you grow your way out of it. Maybe there is someone out there with the next Internet innovation, energy at 3 cents. But in lieu of that, which we can't predict, few politicians talk straightforwardly that you'll have to give things up. Chris Christie in New Jersey seems to be doing it. Some talking like that. Andrew Cuomo in New York appears to be campaigning on it. First in states, governors will innovate. If conservatives are right--if you can get that spending under control--economy ought to grow. Short term, not sanguine about the prospects of making real decisions. Deficit reduction commission, Erskine Bowles, delivered supposedly harsh message, government austerity, government spending at 21% of GDP, which would be an all-time high. It's 25% now, but GDP very low. Historically 19-20%, peacetime. Democrats seem happier about spending; Republicans, in practice doesn't seem to be much different. Speculate on who Republicans might nominate? Obama's going to get the Democrat's nomination. Don't think it will be Sarah Palin or Mitt Romney. Think it will come out of the states and state elections. In 1998, Governor Bush in Texas; women's vote and Hispanic vote in Texas.
]]> Posted by Russell Roberts at http://www.econtalk.org/archives/2010/08/brady_on_the_st.html. http://www.econtalk.org/archives/2010/08/brady_on_the_st.html http://www.econtalk.org/archives/2010/08/brady_on_the_st.html David Brady Mon, 02 Aug 2010 06:30:00 -0500 Robert Service on Trotsky Robert Service of Stanford University's Hoover Institution and the University of Oxford talks with EconTalk host Russ Roberts about the life and death of Leon Trotsky. Based on Service's biography of Trotsky, the conversation covers Trotsky's influence on the Russian Revolution, his influence on policy alongside Lenin, his expulsion from Soviet Union in 1928 and his murder in 1940 by Stalin's order.

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0:36Intro. [Recording date: June 22, 2010.] Trotsky: Elusive figure for many of us in the West; involved in the Russian Revolution in 1917, eventually broke with Stalin, was exiled, and later murdered on Stalin's orders. Book is vivid portrait. What kind of a man was he and what was his impact? Trotsky by any standards a remarkable man. Committed revolutionary from his late teens onwards. He had a whole basket of talents; recognized early on that he was a great orator in the making and he worked at being an orator, public speaking, at a time when his colleagues didn't think that was a great asset to have. Other great talent he had was as a writer; by any standard he was one of the great political writers in the 20th century. Only person who comes near to him in the quality of his prose is Winston Churchill. He was a good editor; very, very good organizer. Downside is that he was vain; he was exceptionally arrogant, and fairly cold. People around him have to serve him. Often true of geniuses. Mercurial figure. His health was never very good. Needed cosseting; parents, wives. He put revolution before everything. Lived, breathed the revolution. Would have sacrificed himself in the revolutionary cause. Risked his life in many ways for that cause. More so than Lenin and Stalin, who never put themselves in the way of danger; but Trotsky definitely did. A bit of a daredevil--escapes from first Siberia and then from the north of Russia. Vivacity about him. And he wrote about these escapes with great panache. Never lost an opportunity to do a bit of writing, earn a bit of money, and put it to the revolutionary cause. Also like Churchill. Trotskyists who assume that when he wrote about himself it was a mirror of reality--he sculpted everything to fit the statue he wanted to put up of himself.
4:50As a revolutionary--not just the Russian Revolution, but an ideal, a world revolution, a world devoted to a socialist, Marxist economy; a world where the Proletariat were in charge. He wasn't content with just Russia doing this. He wanted a dictatorship in Russia; was almost eager for it to be installed by state terror. He thought of Russia as just being the first country in the world that would have such a revolution; thought in the short term the important thing would be to spread it to the rest of Europe and to North America; and then the rest of the world would follow suit. He lived by this. Got into a bit of trouble with fellow revolutionaries, who said sometimes we must look after Mother Russia. He had conflict with the Nationalists; also had conflict on strategic issues, the use of the Russian army. Two abortive revolutions in Germany, one of which he opposed the use of aid to but the other he was an enthusiast for in 1923, where there was a real possibility that much of Europe would go socialist or communist. He thought that from the end of the 19th century onwards, great industrialized countries were "ripe for revolution." He thought the ripest country of all was Germany. Didn't have as much confidence in Russia or Ukraine, from where he came, as in Germany. In that respect, he was like the other Bolsheviks in Russia--really looked up to the Germany working class, Germany proletariat. Often thought of as having assumed that the Germans would simply make the revolution by themselves; but because he had this global perspective, he always quietly assumed that the Soviet Red Army would have to become involved. The German middle classes were determined to see off the revolution than had been the case in Russia. Their army was not as demoralized as the Russian army was in 1917. Trotsky, all through the 1920s, made it the assumption that there would be a revolution in Germany; it would be a better revolution than in Russia; but it would still need Russian help. That would mean that there would be another European war, because the British, French, and possibly the Americans would get involved on the other side. Would be carnage again; but out of this would come a perfect European revolutionary, multinational state.
9:27He was onto something, although it didn't happen in the way he expected. He was a great writer; also a prolific writer. Also, frequently prescient. Some hubris, but some he understood the trends of history. One could argue that Europe has many of the features of a socialist state, without the dictatorship, without the violence, without the state control of the Russian system, but certainly Europe has gone much closer to a socialist ideal. May not last. Wouldn't go quite that far, but it is certainly true that the European states built up their welfare mechanisms partly in reaction to the Russian revolution that the Communists undertook. There was fear that the Communists might be right; that the workers of Europe might throw out their governments and might overturn capitalism. A lot of the governments of the larger powers--Germany, France, Britain--built up social insurance, health care measures so as to see off this threat. Happened in the United States as well, when in the 1920s Roosevelt had feeling that there had to be some means of depriving the Communists of opportunities for anti-capitalist propaganda. After the first world war, Europe was in a mess. The Americans withdrew. Food relief, coordinated by Herbert Hoover, philanthropist--if he had died in 1923, he would have been remembered just for that. Remembered well in Holland and Belgium to this day. But then Europe was in a mess. The Socialist parties all had splinter groups that were being attracted to the Communist party of Russia. Communist parties became disciplined, centralized, and put themselves at the disposal of the Communist International. Trotsky said these parties can now be used much more readily than before to quicken the pace of transformation. He urged the rest of the Soviet Communist leadership to take risks and make revolutions. And there were some, short-lived: Germany, Hungary. Bulgaria, northern Italian cities in ferment in 1920. Every reason to think something might burst out and be durable. Didn't happen because, firstly, everyone knew what was coming; so if you were a priest or shop keeper or factory worker, or just a member of the factory workforce who believed in God, who believed in private property, who didn't want the country to be savaged, then you knew what was coming and you knew what you had to do about it: to be more resolute in staving off Communism than the Russians had been in 1917. Reactionary movements, opposed to Communism, reaction to Communism, became very widespread in Europe. By the 1930s, democracy itself was a minority phenomenon. One of the reasons for this was the determination of the anti-Communists to see off Communism. Price of that was the removal of democracy; prepared to pay that price. October Revolution in Russia was a disaster; had this effect of giving an opportunity for Fascism and for very far-right politics to take a grip on countries. Result of all that was the second world war. And a terrible, 70-year run for the Russian people. Russian friend in St. Louis: How are you doing? Fine, like all Americans. They have a lot of experience with hardship.
16:59Going back to the Revolution and thinking about the pre-Revolutionary period: in the pre-Revolutionary people what was so striking about Trotsky was his confidence that a revolution was inevitable. A lot of ideologues have a certain overconfidence--like entrepreneurs really, a lot of faith in their own company and their ability. He was very much that way. Talk about what happened in 1905 and the abdication of the Czar in 1917, which created a provisional government led by Kerensky before the Bolsheviks took power. When Trotsky was growing up, the agricultural sector to which his father belonged was on the rise. His father wasn't an agricultural worker--he owned a farm; very successful. Somebody ought to write a biography of Trotsky's father--spectacularly successful Jewish farmer in the south of what we now call Ukraine. Really an economic hero. Mention Jewish and his being a farmer--the Russians were very worried about the role Jews would play and they sent a lot of them in Ukraine in hopes they would become more Russian and less Jewish, which they did. Hoped they would become successful farmers, and very few of them did. Not a Jewish tradition. Why should anybody living in a town, suddenly dumped in the countryside, become a successful farmer? Most of them failed. But Trotsky's father succeeded; renting land from Poles, Ukrainians. Gave his young son a good education because he could afford it. Trotsky grew up with a fixity of purpose that many youngsters who had a rebellious streak had in those years. Looked around and saw poor peasants; Russian factories in Odessa, hub of Russian imperial economy, great cereal export port--fed Germany. Joke--that stopped in 1917, when they had a 7-year stretch of bad weather, Bukharin, Paul Gregory podcast. Modernizing their economy rather fast. A lot of people had always had a hard time, and some had a harder time because of the pressures of the modernization that was taking place. Turned to revolution: the only way all these problems can be settled, get rid of the oppression--Czarism was a political dictatorship, no trade unions, no legal political parties, no free press--had to submit things before they were published. Combination turned a lot of people into revolutionaries. What's remarkable about Trotsky is that he doesn't just become a revolutionary--he becomes a Marxist, extreme kind of revolutionary; and doesn't just become a Marxist, but an extreme kind of Marxist. Big changes can come in our country not over decades but overnight if we only establish some kind of workers' dictatorship, because Tsarism under the Romanov imperial family is weak. We the Marxists can lead the workers when we get one sniff of a chance. In 1905, after a peaceful demonstration of workers outside the winter palace of the Imperial family, when the Czar Nicholas II wasn't in residence, police and troops fire on the peaceful demonstrators on a Sunday, soon to be known as Bloody Sunday; and all hell gets let loose. Workers rise up; peasants seize the pasture lands of landlords in the forests; the non-Russians rebel. For a year and a half it looks as if Tsarism would fall, Nicholas II would be out. Workers set up their own councils in St. Petersburg; and one of the great revolutionary leaders of that council, that Soviet as it is in Russian, is Leon Trotsky, come back from exile, back from Switzerland. Knows he has his chance, knows he is a great speaker; everybody knows he's a great writer; his chance had come. So he gives a few good speeches and gets arrested. November of 1905. Then put on trial. Gives another big speech. Understands the drama. Sent into exile again, within the country--Russia is big enough that you don't have to kick people out of the country; you can exile them inside the country. Even though he had a record of escaping from Siberian exile already, they send him back there again. He bribes a drunken sleigh master to take him across the snowy wastes and back to St. Petersburg. Reunites with his wife and children, and he's off to Vienna, where he stays, predicting revolution. Saying: We failed that time, another time will come. Utterly convinced that the workers can take power, keep power, never share it with anyone, maintain a revolutionary administration which will deny civil rights to the enemies of Marxism permanently and somehow this revolution will spread itself to the rest of Europe and then all around the world. Will bring down the European empires, the American government; and once the industrial powers have fallen, not long till the third world will fall.
26:04Prediction was aided and abetted by the lack of zeal with which the Czar and the police force treated their enemies. Clearly the repressive nature of the Czar, while clearly repressive, did not have the terrorist side. Could have killed their enemies. Tactical error, mark of some humanity, or incompetence? Mixture of a lot of things. If you were sent to penal servitude, then it was grim. If you were sent to administrative exile, when you were out there in Siberia you could get yourself a part-time job; and you were given a stipend by the government. So it wasn't a grueling set of conditions that we are familiar with, with the Soviet Gulag. if you take the Russian empire and its population and compare it with the size of the police force, then actually the United Kingdom had 7 times more policemen than the Czar. The reason they didn't have as many as he might have wanted was that he didn't have the resources. This was a poor country. Big country, very hard to police. Nicholas II was no wooly liberal but he didn't have the resources and he hadn't had the time to build up his bureaucratic apparatus policing. Police were so badly paid that everyone assumed they were easily bribed; and they were easily bribed. These revolutionaries, if they wanted to get out of Siberia, could always bribe a policeman; and then they told their stories as if they were acts of derring-do. Some were, but most of the time it was the rustle of the ruble note and they got a ticket on the train, Trans-Siberian railroad. If you were from a wealthy family like Trotsky's you could live in Vienna and Geneva. He worked as a journalist in Vienna.
29:261917: Provisional Government initially that falls to the Bolsheviks. What was Trotsky's role there? Trotsky didn't come back to the Russian Revolution until May of 1917 because he was stranded in New York. Had to get a transatlantic liner across to Scandinavia. When the liner pulled into the port of Halifax the British didn't take kindly to him because they heard rumbled what kind of policies he was likely to promote back home, not just revolutionary dictatorship but withdrawal from the war. Which England in 1917, if Russia withdraws, Germany makes it tougher for the Allied forces. Well known about Trotsky because he had been writing for New York newspapers in this vein. He gets bundled off the liner and strip searched brusquely. He remembered it for the rest of his days--sense of personal propriety and never in Tsarist prisons been handled quite as roughly as he said the British naval establishment applied to him. Gets back home, down to St. Petersburg--Petrograd as it was then called. Changed the name because it sounded a bit German. The British royal family were the Saxe-Coburgs until the first world war, and then they changed their name to Windsor. There was a liberal provisional government that was committed to fighting the war on the Allied side--after the abdication of the Czar, who had been pulled down by worker demonstrations in the crucial city, the capital, Petrograd. Tolerance of the new cabinet of liberals because they promised civic freedoms. But economy was collapsing; chaos, food shortages; deaths of soldiers on the Eastern front. When Trotsky came back to Russia, circumstances could not have been better for a lunge at power. Although he had his disagreements with Lenin, leader of the Bolsheviks, for years before 1917, he joins Lenin in the Bolshevik party and becomes a Bolshevik. The two of them work out a policy for seizing power. Workers' Councils as a blind behind which they would put the party in power. Kerensky, a moderate socialist, didn't have the garrison behind them to enable them to resist the seizure of power on October 25, 1917. And suddenly the world hears the news that the first socialist state has been proclaimed. Reforms undertaken in agriculture, industry; and over the following year, this one-party state is installed. Also a terror state, also a state that will introduce a preventive censorship, so the building blocks of what became the Soviet Union are already being laid in very strong cement in 1917-1918.
35:14Talk about that terror. The ruthless disposal and treatment of ideological enemies--and some economic enemies eventually become part of that. But what do you mean by that? Think for most uneducated--self included--think of Lenin as not Stalin. Stalin was a murderer of enormous proportions, one of the one or two worst of the 20th century. Lenin was of course somewhat ruthless, had a revolution to carry out; unlike his predecessor Kerensky, he was not loathe to use violence. How much violence was there? We know a lot now. No excuse for people not having known it before. Historians often did take this gentler view of Lenin and Trotsky than they did of Stalin. But terror is a system of dealing with your political or economic opponents outside the law and applying the most brutal methods of oppression to them. That was going on from the start, from the first year of Soviet rule onwards. Lenin and Trotsky as much as Stalin later supplied the orders and they also supplied the intellectual rational for what we being done. Trotsky wrote a book called Terrorism and Communism where he said that state terror was a good way of starting off a revolutionary dictatorship. Effective in quickening the revolutionary schedule, getting rid of problems physically before they got out of hand. Don't talk about it much in the book. In early days of the Revolution, Trotsky's got many different roles, but one is that he's in charge of the Red Army. Weird thing, because he's the sort of intellectual type; he's anti-military, anti-war all through his youth. Has to use the army, because there is a civil war being fought. He kills a lot of people who don't fight well. Not much detail on that. There was a lot of terror--KGB. Trotsky wasn't part of that organization. He didn't physically sign many of the death warrants. Who did? Felix Dzerzhinsky, Pole who was in charge of the political police, the Cheka. What Trotsky did do, though, was set the policy, form the intellectual rational for it. Never going to get reconciliation between the party of the proletariat and the party of the middle classes. Interests are completely divergent; violent struggle inevitable, might as well get yours in first. That together with his undoubted role as an inspirer combined to give him a reputation as a rather romantic figure, like Garibaldi. Entirely overlooks the role he played as one of the architects of one of the most gruesome state terror dictatorships of the 20th century. We shouldn't romanticize him. Hard, hard man. Professorial, goatee, handsome man; and he knew it. Had the military uniform specially made for him; Trotsky train decked out so he could throw down the gate and speak. He loved revolution and being in the midst of the fighting. But that should not allow us to romanticize him. Never understood his responsibility. When Lenin died in 1924 and struggle for succession took place between him and Stalin, and when Stalin won and made the dictatorship even more ruthless and millions of people died, Trotsky never looked back and said he might have helped create the conditions for this, for this scale of terror. That we know of. Looked at all these scraps of paper--you can read the drafts, see what he is crossing out when he gets things published, when he has second thoughts. Never regretted setting up the Revolution; that was the glory period. Never saw that, much as he was a victim--assassinated in 1940, in Mexico City--that there was a connection between the extra-judicial murder of himself and the kind of thing that he had condoned back in 1917-1919. The ends justify the means when they are your ends.
44:28Leaders: it's very rare that anyone with an historical legacy admits fault. The strategy most take is: I was right and I'm going to find evidence that proves it. Psychologically difficult for a human being to say my life was a lie. But what is unforgivable is for his followers not to ask those questions. 1917-1924 period. Under the impression that there was a Revolution, the Bolsheviks triumphed, Lenin is the new head of the government; dictator until he dies in 1924, Stalin new dictator. But Lenin was not the only person in charge in this period--dominant figure but there is a whole group of people who are interacting. The power hierarchy is fluid. How was the government actually working? It took a year and a half for the system to clarify. Within that year and a half, the Soviet regime became a one-party state. Inside that state, the party was essentially the government. Big change. There had been no one-party state anywhere. No model. Figuring it out as they went along. Shocked the world at the time. But that party was disorganized. How was it going to run the economy and politics if itself it was a mess? The party turned back to its pre-Revolutionary doctrines of centralism, discipline, hierarchy and it achieved a change in itself steadily so it was able to fit itself out. The Soviet Empire covered one-sixth of the earth's surface; roads and rivers and rail system didn't reach all the parts they needed to reach. The peasants often revolted; the workers often went on strike. The very people in whose name the revolution had been made were a problem. Took years for the one-party state to regularize its relationships. At the top of that party, all kinds of interests; no single leader in a formal sense. Lenin the dominant leader. When Lenin died, still a lot of contention at top of party as to which pair or trio of leaders--no one thought there would be a single leader. What will emerge next as the ruling system? Lenin wanted a collective leadership--didn't think anyone fit to take over from him. Wrote a last will and testament--a briefing paper on his fellow-revolutionaries critiquing them. Suppressed. Became clear Lenin had been prescient, at least about two things. One was that Trotsky would make a bid for power. Second that Stalin quietly would exercise a lot of power and be in position to take power. Trotsky wanted an emphasis on European social revolution; didn't think the Russian Revolution would amount to much without a Germany revolution. Stalin wanted to pursue the new economic policy of Lenin, which gave a certain amount of room for private trade. Still a one-party state, still severely regulated economy, but Stalin wanted a breathing space; Trotsky didn't. Dust-up between the two of them was not just a personal dust-up; policy too. By 1927, Trotsky had lost--underestimated the pockmarked Georgian, didn't speak French, awful table manners, smoked a pipe in the house, swore at his wife, swore at Lenin's wife as well. Not alone in underestimating Stalin. Stalin had a lot of talents, very fluent writer, did speak Georgian and Russian; had edited Pravda; had been training to be a priest. Trotsky was a snob, as many intellectuals are.
53:44Unending fight over ideology, hair-splitting that runs from 1918 through the 1920s. A lot of their squabbling, impression of a faculty meeting. Boys at play. Preening, ego, fighting over things that are not so important. But some of the things were important--international, economy. In 1917-1923, state control, uncertainty about how it was going to turn out; big country, government couldn't run it in 1920 out of Petrograd. But they did to a lot of things, found themselves in a lot of messes. One Hayekian issue: mix between agricultural prices and industrial goods prices. They "got it wrong." What happened? Although they made concessions to the peasants in 1921, they still held the commanding heights of the economy. Had all the big factories, foreign trade, and the banks; and they had the planning mechanisms to enable them to set the prices coming out of their factories. They charged, in real terms, three times more for the industrial products coming out of the state factories than had come out of those factories years before. They were gougers! They didn't have the sense to see that the peasants could do other things with their grain. They could eat more bread; feed more to their livestock. Pictures of cattle or pigs in the 1920s--they are not skinny like before 1914; they are fat and healthy. The other thing they could do with their cereal was turn it into vodka; or keep it in the barn. Enraged Trotsky, who was quite an economic prognosticator. He said: The period of appeasing the peasantry has to stop, because they are going to have us by the throat forever. So what we've got to do is change the whole basis of the economy, so that the peasants, who are 85% of the population don't work on their own farms. All the farms brought together, run by the state; we'll give them fertilizers and tractors, we'll train the peasants, take the proceeds; they'll be grateful to us because we've given them fertilizers and tractors. We'll turn the Soviet countryside into a rural, industrial zone. Others, even among Bolsheviks, said you must be joking. These people had revolted in 1917, 1918, 1919, 1920, 1921. The only reason we've got them stabilized now is that we've given them the right to trade their grain. We've got to keep making concessions to these people because the towns and cities are going to starve. And Trotsky said No: we must go for them, persuade them about the glorious future that awaits them if they agree to be collectivized. Opponents said you'll have to use force; Trotsky said education, propaganda will do it. Did he really believe you wouldn't need force? No. Stalin ended up doing in the 1920s what you had to do. All sectors of the economy--everything to be state-owned, state-planned. Can't see anything in the writings of the Bolsheviks that said how this central planner was ever going to have enough information, quickly enough, and be able to process it to run a whole economy like that. Acted on a wing and a prayer, work it out as they went along. That was Hayek's argument early on: one that it wasn't practical, and the other that it would lead to despotism. Right on both counts.
1:01:32Post-Lenin period. Paul Gregory podcast, Bukharin's relationship with Stalin. Your book has a slightly different perspective on Bukharin--when he was younger. From Paul's book we learn that Bukharin and Stalin were allies; from your book, Bukharin not quite the soft intellectual. In the post-Lenin period, Trotsky finds himself allied with Kamenev and Zinoviev. On the other side are Stalin and Bukharin. They ruthlessly pushed the other three out. What happens? Get us to Trotsky's descent. The left opposition, which became the united opposition. Nomenclature, they were very fussy about that sort of thing. The left opposition agreed that there had to be a faster pace of transformation and a more definite commitment to spreading the revolution beyond Soviet frontiers. The ascendant majority inside the leadership led by Stalin and Bukharin said that no, while we must maintain at home, while we agree about a lot with the left opposition, we don't want to take risks; don't want the revolutionary transformation to be pursued at the moment. Battle Royal behind closed doors; Stalin and Bukharin won. Threw Trotsky and others out of the leadership, out of their homes, out of the party. Political death--not a player any more. They said that if the defeated oppositionists came crawling back and recanted everything they had stood for, then they would be readmitted to the party. Kamenev and Zinoviev agree to humiliate themselves; Trotsky didn't. Sat out in Kazakhstan until 1928, then moved to Turkey in 1929. Was confident he would come back to power; thought Stalin and Bukharin stupid, would mess up the economy, would not be able to coordinate the political system. When Stalin collectivized the peasantry in 1929, Trotsky thought, well on the whole that's probably what he ought to be doing, but always a danger that that very right-wing Bukharin might come back to power and then there will be a counter-revolution. Bukharin more open to prices, markets. Between Bukharin and Stalin there were differences, too. All Bolsheviks. All believed in the one-party state, in state terror, in the ideology state, society as a resource, mobilizable by the political leadership in whatever way the leadership felt like. Differences among them not so significant as the similarities. Core of my work. But they felt differently among them. How many angels can dance on the head of a pin? Bukharin underestimated Stalin; in Gregory podcast, Bukharin makes the fatal error--turned out to be fatal, not just a bad night of talking. Allows Stalin later to brand him as anti-party. Everyone knew Stalin was bugging everybody, but still stupidly talked in their houses and their dachas. Everyone knew the Cheka, forerunner of the KGB, was following them around, yet they still traveled around the country and passed messages to each other. Stalin knew the main story he needed to know, mainly that they despised him and wanted him out. If you are vengeful, ruthless, cunning, well-organized, then you put the party and the police off the lead and you go for them. You ruin their careers. Missed a trick with Trotsky because he kicked Trotsky out of the country, eventually went to Turkey, France, Scandinavia; and then no country would have him at all because of Soviet diplomatic pressures in the 1930s. The only place that would have him was Mexico, which was where he spent the last 3 years of his life. Why do you think Stalin had him killed? When it happened, did everybody know it was Stalin? Stalin did not brag about it. How do we find out at the time that it was Stalin? It was said at the time by everybody who didn't like Stalin that Stalin had done it. Would have to be credulous person not to think the Soviets had done it. The killer himself, Ramon Mercader, always claimed he was a disappointed Trotskyist who had turned against Trotsky after meeting him in Mexico City and finding that he had feet of clay. Went through years of prison in Mexico till he was released in the 1960s and was spirited back to the Soviet Union, which he didn't like. He asked to leave. By then he was fated as a Soviet hero. Everyone knew Mercader had killed Trotsky on Stalin's orders. But over time this was denied by the Soviet Union and the killer; but everyone knew; many leads. Why Stalin bothered, interesting question. So many police resources put at his disposal; two attempts on assassination in 1940. The Trotskyists, particularly the American Trotskyists--Trotsky relied on the American Trotskyists--sent down an electrical system, alarmed himself in the villa where he ended up living. The Mexican police supplied a force outside of the building. Guard towers built in case of an armed assault on the villa. If you go around it today, it's just as it was in 1940. Still has the rabbit hutches Trotsky tended. He was a farmer's boy. Didn't have a lot of money by then. Trotskyists from the United States--he had to entertain and feed them. Very practical man. But stupid man. He let this man come into his study who he'd barely known, wearing a Macintosh, in which he not only has a huge dagger--seen pictures [hands spread two feet apart for those listening]--and a huge ice axe with part of the handle hacked off. Sunny afternoon, middle of Mexico City. These Trotskyists have all these sophisticated methods, and still they let him in; and Trotsky talks to him--alone! Alone in the study. While Trotsky is poring over the manuscript that Mercader had brought him in to have a look at, Mercader gets to his feet and makes his choice of weapon, reaches into his pocket, and plunges the ice axe into the head of Leon Trotsky, who takes a good 24 hours to die. Very brutal death.
1:13:55So, Trotsky lives long enough to see the rise of the Gulag, though limited public knowledge of it. People certainly understood that Stalin was a very evil man who tried and executed all his political opponents. He lives long enough to see the rise of Hitler. He sees no other revolutions on the horizon on that point, though China is yet to come. In his last years, what was he writing about, thinking, as he saw these world events happen? He thought there was going to be a second world war. He did make a few predictions that were right. He saw the possibility of a Nazi-Soviet pact. And Trotskyists tend to praise him in an excessive way for this. But actually, quite a number of people foresaw the second world war, though not the Nazi-Soviet pact. What Trotskyists fail to remember, though, is that when the winter war from 1939-1940 occurred and the USSR invaded Finland--a fact that is little known--Trotsky was in favor of it. American Trotskyists--young men, some of the brightest intellectuals in the 1930s at that stage--read that this was what Trotsky was recommending and said: This is Stalinist imperialism. Trotsky has gone over to the other side. Wrote to him imploring: Finland is a neutral country, disgusting aspect of the alliance between Germany and the USSR and we will not have anything to do with it. And he came back at them with a vengeance: You whippersnappers in New York, you understand nothing. He gave such a rigid statement of Leninist philosophy--of the theory of the one-party state, the one-ideology state--and such a bland interpretation of Stalin's foreign policy that he more or less broke the Trotskyist movement up.
1:16:48Striking--in Bukharin we saw the same thing. They worshipped the party. Strange, romantic idea. And they worshipped the USSR and couldn't bring themselves to question basic aspects of the previous 20 years. Would have been like wishing away their lives. Hard to do. But when you are in a hole, stop there. They could have just kept quiet. Ultimately they had this servile attitude for the need for the party always to be right, couldn't be wrong against the party. Stalin inevitable? No. Had Trotsky been a better infighter--he liked speaking and running things but it seemed like he didn't like the maneuvering that is necessary for a one-political-party state rule. If he had somehow won or his allies more effective, would he have turned into a Stalin? Don't think he would have turned into a Stalin as a personality; something deeply disordered about Stalin's personality. Wasn't mad; Stalin had a gross personality disorder; thoroughly wicked man. Had Trotsky mounted to power, would still have been a one-party, terrorist, one-ideology state; and he would have had to face up to the implausibility of his policies in regard to the people he wanted to rule. Don't believe, with his record in the civil war, with his record on brutal force, that he wouldn't have used brutal force on the peasants as well. Might not have been quite as intensive a terror as under Stalin, but there would have been state terror. He would have had to come out of the closet; would have had to say: I am in favor of using massive runs in favor of pursuing my ideological views; and I'll do this for a generation and I hope that will change society for the better. Same as Lenin and Stalin--Lenin, Stalin, and Trotsky are blood brothers. Huge romance about the maleability of the human enterprise; given a generation or two people would become used to this and would become better people. Trotsky really did believe that with this communist revolution, people would be transformed. Whereas in the past the great thinkers and writers had come from the upper and middle classes, when the communist revolution took place, there would be a great liberation of the talents and there would be hundreds of Darwins. Thousands of Aristotles, perhaps millions of Shakespeares; would be a paradise of mankind. Something close to a religious faith. Stayed with him right to the end. But this is a man who has blood on his hands. Some of the bloodiest killers wrote poetry.
]]> Posted by Russell Roberts at http://www.econtalk.org/archives/2010/07/robert_service.html. http://www.econtalk.org/archives/2010/07/robert_service.html http://www.econtalk.org/archives/2010/07/robert_service.html Robert Service Mon, 26 Jul 2010 06:30:00 -0500