Michael Munger on Many Things
Jan 18 2010

Mike Munger of Duke University talks with EconTalk host Russ Roberts about many things. Listeners sent in questions for Mike and Russ to talk about and they chose ten of the most interesting questions with the idea of talking about each for six minutes. The topics are the scarcity of clean water, asset bubbles, the role of Fannie and Freddie in the financial crisis, can a business pass a tax on to its customers (or maybe even its workers), compassionate food, the study of economics, how to choose a college, the nature of cooperation in a modern economy, the humanity of non-profits, and the American Dream.

Michael Munger on Milk
Mike Munger of Duke University talks with EconTalk host Russ Roberts about why milk is in the back of the grocery store. Michael Pollan and others argue that milk is in the back so that customers, who often buy milk,...
David Zetland on Water
David Zetland of Leiden University College in the Netherlands and author of Living with Water Scarcity talks with EconTalk host Russ Roberts about the challenges of water management. Issues covered include the sustainability of water supplies, the affordability of water...
Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Jan 18 2010 at 8:58am

Ah well, I didn’t think my question would be good for a Q and A session. Still, I would love it if some time you guys would do for Say’s Law what you’ve done for price gauging, middlemen, the theory of the firm, and so forth.

Jan 18 2010 at 10:51am

Can you tax a business, or is it passed on to consumers?

The corporate income tax is optional because a corporation can become a partnership. So the corporate income tax is a tax on limited liability and I think that is a good thing. Now I also think that we could use loser pays reform in our courts but the fact that the court system has flaws is no reason to protect corporations from liability for free. I think of the corporate tax as an insurance premium corporations pay for protecting owners of corporations from personal liability.

BTW in the era of the internet, education is free it is the signal that costs.

Elaine Mayes
Jan 18 2010 at 1:16pm

I thought this was a great format; the questions were interesting and diverse. I’d like to see this on a periodic basis – perhaps every six weeks or so?

Steve Bacharach
Jan 18 2010 at 2:37pm

I second Elaine’s comment. I started listening with the Bill James podcast several months back, and I like the topics that seem less, I don’t know, “formal”? (i.e. too much about the FED bores me). Anyway, this was very interesting and Mike’s a great guy to do it with.

Jonny Anomaly
Jan 18 2010 at 3:12pm

I’m a big fan of the show, and the format was a nice change of pace, but I generally prefer the standard interview format.

A comment on the humane treatment of animals: Peter Singer and many other concerned consumers agree with Munger that the ethics of meat consumption depends in part on the costs and benefits to animals of different systems of raising and slaughtering them. Russ Roberts mentioned Temple Grandin’s cheap, welfare-enhancing innovations for slaughter. But Mike Munger lost me when he described happy cows raised in an idyllic pasture. Anyone familiar with contemporary American farming knows that very few cows spend their days blissfully chewing the cud. Most spend the vast majority of their lives in “confined animal feeding operations” (CAFOs), which are extremely unpleasant places for humans and animals alike. The conditions of preganant sows (female pigs) are far worse still. Animal suffering will never be factored into the cost of production (just as human suffering isn’t factored in when slavery is legally permitted) unless there is demand for it, or there are regulations that force farmers to do it — e.g. the new laws implemented in California.

Mike Munger
Jan 18 2010 at 4:24pm

Jonny is right, of course. I was making a simpler point: I was trying to provide an existence proof: *IF* cows were raised in idyllic pastures, *THEN* vegetarianism would harm cows.

The question was whether demand for better conditions, by consumers, might actually lead to this result. On that, I am not sure. It is very difficult for true “free range” meat to compete, because of the absence (at this point) of reliable brand names.

I’m not sure laws can do it, either. The economic benefits to cheating are enormous, and black market meat might transact, if the price differential gets too large.

“Psst, buddy, wanna buy a sirloin?”

Jan 18 2010 at 4:28pm

As long as there are guys like me who don’t care how badly the animal as treated, so long as it’s delicious and cheap, it seems unlikely that the free range more “humane” competitors will be the only game in town.

Sam Lundstrom
Jan 18 2010 at 4:47pm

I enjoyed the format, but I prefer an in depth conversation. It would be nice if you did a teaser like this every 6-8 weeks then asked us which of the topics we would be interesting in exploring in greater depth. I found myself wanting more on certain topics.

One of the more interesting points was on transaction costs. Is this something that is sometimes neglected in libertarian ideology? The government often jumps in with more regulation when we experience a large episode of unscrupulous behavior (i.e. recent excesses on Wall Street). So if we remove the regulations and the unscrupulous behavior remains, contracts will have to become enormously expensive and complex to anticipate potential immoral behavior. A free market system will struggle to endure under these circumstances.

Although he was speaking of more than just economics, perhaps this is what John Adams had in mind when he said:

“Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”

Or as one of my religious leaders recently said:
“There could never be enough rules so finely crafted as to anticipate and cover every situation, and even if there were, enforcement would be impossibly expensive and burdensome. This approach leads to diminished freedom for everyone. . . .

In the end, it is only an internal moral compass in each individual that can effectively deal with the root causes as well as the symptoms of societal decay.”

Mike Munger
Jan 18 2010 at 5:23pm

Sam L: You have raised an important point.

But….there is no government regulation of how food tastes, or of the quality of movies.

As a result, ratings services spring up, because information is useful.

Rotten Tomatoes is a perfectly good answer to the “how do I tell if movies are good?” question.

Suppose the Food and Drug Admin were abolished tomorrow. The major drug companies would have a huge incentive to (1) use their brand names to guarantee quality, and (2) pay a private third party to certify that quality.

We have Consumer Reports, for example. And Underwriters’ Laboratories, for electrical appliances.

It’s simple: lots of people want to cheat you, if they can get away with it. But they can’t make much money cheating. You can make more money by making a credible commitment to quality, and honesty.

What was the bad behavior in the financial industry? The government (1) tried to guarantee that housing prices would always rise, and (2) forced banks to make bad loans, so that more people could “afford” houses. There was explicit pressure on banks to make higher and higher proportions of loans to low-income, poorly qualified buyers. Then, (3) Fanny and Freddie resold the bad mortgages to unsuspecting third parties! Sure, greed caused the crisis, but government regulation harmed, not helped, most of us.

Finally, why in the world do you think that unscrupulous behavior is limited to market actors? Regulations are generally motivated to protect wealthy corporations, NOT to protect citizens. You can IMAGINE regulations that would help, perhaps. And so can I. But those are NOT the regulations that government imposes.

Jan 18 2010 at 5:28pm

Professor Roberts:

You ask rhetorically: “How do you teach people how to think like an economist, to understand the ‘and then what?'” Speaking for myself, I think you do an excellent job teaching others how to think like an economist. I listen to EconTalk regularly, not because I agree with everything that is said, but for what I think is a better reason — it challenges my preconceived notions and continually reminds me just how important the “and then what” question is to analysis of our society. As I think you would agree, this question is far more beneficial than the stock answers often found in the media.

In that spirit, I need to critique Professor Munger’s response to Agnostic’s question. Recognizing that time was limited, I nevertheless think his answer failed to fully consider the costs and trade-offs of large scale consumption of meat.

Initially, let me point out that I live in Montana. My great-grandfather, grandfather, and uncle were ranchers. Although I did not grow up on the family ranch, I did spend a lot of time there when I was growing up. I’m not a vegetarian and don’t have a particular axe to grind one way or the other. Nevertheless, Professor Munger’s description of the pastoral scene in the Montana meadow and his statement about how the cattle industry is so “nice” because it gives cows a chance to be “born and live their bovine life for a while” both over romanticizes the cattle industry and fails to fully consider of its externalities.

Consider for a minute the real price of that “cow and bull heaven” Professor Munger described. First, it is made possible only due to the elimination/depletion of other species from the range — grizzly bears, wolves, coyotes, eagles, and bison to name a few. The fear of brucellosis, deemed to be a direct threat to the cattle industry, motivates the controversial bison hunt in Yellowstone Park every year. Ranchers cannot and will not tolerate grizzly bears and wolves killing their herds or the spread of brucellosis through contact with bison. There are, to be sure, other causes at work, but cattle ranching has led to extreme pressure on habitat and, in many cases, near extinction of these species. Nor do I think it is too far afield to consider the near elimination of the Blackfeet, Crow, Sioux, Northern Cheyenne, and other tribes in calculating the cost of the “cow and bull heaven” Professor Munger describes. In Montana anyway, the Indians were killed and pushed onto reservations in large part to make room for white farmers and ranchers. To this day, Indians on reservations are at the bottom of all socioeconomic indicators. The cattle industry, in addition, puts pressure on water resources, results in pollution associated with large feed lots, and contributes to global warming through (sorry to be so blunt) cow farts.

Ranching is not a cost-neutral activity. It is, in the end, a highly subsidized industry that is often pursued at the expense of other economic activity. The pressure ranching puts on native species leads to the loss of tourism dollars. When ranchers exercise their water rights during dry years, streams are drained, fish die, and the tourism industry is harmed. People come from all over the world to fish the Ruby River and its tributaries, but not if they are drained for agricultural use. Cattle also help spread noxious, non-indigenous weeds, a serious problem in Montana.

My point is not to trash the cattle industry in particular or meat production in general. As I said, I come from ranching stock. But – in the spirit of “thinking like an economist” — I think it is important to point out some of its costs and externalities.

As for whether there should be more “top down” control of the agricultural industry to insure the humane treatment of animals, I doubt it is necessary or desirable. Personally, I’m sickened by the descriptions and pictures I’ve seen of the activities at large-scale slaughter houses. I avoid meat purchased at the supermarket. I get my meat either through hunting or by purchasing organic from local sources. I realize that those opportunities are not available to everyone. However, I also think “top-down” regulation would be unnecessary if we eliminated the large subsidies given the beef, pork, and poultry industries. My guess is, that if Americans had to pay the actual costs of the production of meat, overall consumption would decrease dramatically. That, rather than more regulation, would likely result in a kinder, gentler meat-production industry.

Sam Lundstrom
Jan 18 2010 at 6:08pm

Mike Munger:

thanks for the quick response. Your example seems to make sense theoretically, but what if the industries and the rating services themselves have a conflict of interest? As in the recent case of the financial ratings agencies and securities being issued by Fanny and Freddie. It seems that some entrepreneur would introduce a new, more trusted ratings agency that would correct these defects. But none did and, to my knowledge, none has.

Everyone involved with these mortgage backed securities had to know they would go south at some point, but they continued to certify and dish out shoddy products. You could say that everyone knew about the conflict so it was already priced in(as Russ often does say), but I don’t think that is true at the level of the retail investor. The retail investor trusted the pros. At some level the pros were being dishonest. And they were being dishonest on an institutional level.

Most of the brokers advising their clients were following the instructions of upper management. I suppose you could say that the managers of these investment firms were betting on the fact that they would be ultimately bailed out. I’m not so sure. I think in many cases they didn’t care. Their incentive packages were such that they made huge salaries and bonuses along the way that didn’t depend on whether their firms lived or died. That to me seems like unscrupulous, unregulated behavior that the independent ratings agencies did not address properly.

Now don’t misunderstand me. I’m not implying that government is even capable of regulating these things well. I have no illusions that unscrupulous behavior is limited to ‘market actors’.

I completely agree that the government’s perverse incentives played into the problem. I’m not sure its the whole story. Perhaps free markets can only handle a certain level of greed and corruption before they too break down.

Mike Munger
Jan 18 2010 at 6:47pm

Sam L: That’s fair. I only want to argue that it is an open question whether government helps or hurts, in most real world situations.

On the other hand, a government that lets Bernie Madoff get away with obvious theft for 5+ years, after it was clear things were not right? Or a government that lets a guy get on a plane, even though he had no luggage, bought a one-way ticket, with cash, and the guy’s own dad said “watch him”?

I do not want to say that greed is good, don’t get my wrong. It’s just that greed is easier to control in a market setting, SO LONG as government does the police power job assigned to it. Saying either “all government” or “all markets” is a false dichotomy.

Doug Milam
Jan 18 2010 at 7:28pm

Regarding HUD, this article is essential reading:


Was the motivation to lend to low-income borrowers really to achieve a measure of social justice?

Russ Roberts
Jan 18 2010 at 10:51pm

Sam Lundstrom,

As usual, life is complicated. Finance is particularly complicated. A lot of people argue that the ratings agency were corrupt–after all, they were paid by the people who issued the securities.

Everyone knew that was the arrangement, so most buyers (not all) knew to be somewhat skeptical of the ratings.

But the bigger point is a subtler one. Starting in 2002 for commercial banks and 2005 for investment banks, there were special leverage opportunities for AAA and AA rated assets. The government essentially blessed a cartel of the ratings agencies and gave them the power to certify an asset for 60-1 leverage. That is, you only had to spend $1.60 for every $100 of AAA and AA rated assets. You could borrow the other $98.40.

There is more to the story (and I’m writing a long essay on the topic) but the bottom line is that the role of the ratings agencies was not exactly a market phenomenon of a private sector certifier with the opportunity for an entrant to step in if things were poorly done.

I’m not sure if many naive investors got burned. My dad, for example, holds Fannie Mae bonds. He should have been wiped out. But he, like the Chinese government, didn’t have to worry about whether the AAA rating was real. The US government bailed out my Dad.

T L Holaday
Jan 18 2010 at 11:16pm

Would Mike Munger be comfortable arguing that a life in chattel slavery is better than no life at all? Certainly during the period when government took a hands-off position on slavery, many human mothers killed their infants rather than permit them to be raised as slaves.

Why does your “existence proof” not extend to the case where human beings would be raised in idyllic conditions, and subsequently butchered as a delicacy?

CAFOs are horrific. Neither you nor Roberts mentioned them. Adam Smith writes in The Theory of Moral Sentiments

That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility.

“Seeing the unseen” is a good part of thinking like an economist; the suffering of food animals is not simply unseen, it is concealed.

In effect, you dodge the question. Instead of answering “There is no known example in history of cruelty to animals being alleviated by market forces; it has always been a consequence of law, just as slavery has never been ended by market forces, and always by legislation,” an answer incompatible with libertarian dogma, you change the subject to “what if seven billion people could derive 80% of their calories from four cows and a happy bull living in the Garden of Eden?”

Jan 18 2010 at 11:18pm

Enjoyed the conversation. Always enjoyable listening to Russ and Mike talk. Also, the link to “Lesiure…” was very interesting. Thanks for providing another excellent week of intellectually stimulating thoughts for us to consider. All the best.

Sam Lundstrom
Jan 19 2010 at 1:08am

that is an interesting point about the bond ratings agencies. I did not know the government regulated leverage ratios according to bond ratings. I look forward to reading your essay. It will be on Cafe Hayek I assume?

The larger question I am trying to raise, however, is whether there comes a point where even markets cannot manage self interest effectively. Can we imagine a society where people are so utterly immoral, and have so little trust in each other that the costs associated with contract creation/enforcement render the market system unworkable? Legal philosophers have long recognized that the rule of law will only work if the majority of people obey the law not out of fear of punishment, but because they want to do what is right. Policing (of laws or contracts)only works as a last line of defense.

If it is a possibility, are we going through such a transformation ourselves? And if so, how do we combat it? Why do the morals of a society decline en masse?

Anyhow, thanks for another great podcast Russ. It got me thinking as always.

Jan 19 2010 at 3:11am

Thanks for taking my question. I think Russ is right that most consumers of “compassionate food” buy it for moral reasons.

But there is the better taste of animals raised on what they’re evolutionarily adapted to, like cows eating pasture rather than a grain like soybeans. Slate ran a blind taste test among steak lovers, and the grass-fed steak destroyed the others, and it was much less expensive than they were to boot! I can’t give enough praise to Organic Valley’s pasture butter (it comes in green foil).

So maybe the animal rights people should focus more on the taste / quality to get others on board. By eating the tastiest animal products, we are led by an invisible hand to encourage the most humane living conditions for those animals.

(I don’t even mean how they’re killed, but more how they live — whether they have room to roam, a diet they’re adapted to, etc.)

Mike Munger
Jan 19 2010 at 7:30am

TLH makes a fair point: exactly the same utilitarian reasoning could be used to justify slavery. And, of course, it was, routinely. Prisoners taken in war were given the “choice” of execution or life as a slave.

BUT–I hope the comparison is facetious, because it is absurd. Here’s why.

Humans would exist without slavery. In fact, we are jointly and severally better off.

Cattle would not exist without human carnivores. Cattle depend on humans who want to eat them, or milk them, for their bovine survival.

So while the reasoning is similar, the comparison is nonsense.

There are two differences:

1. Not all humans were slaves. The utilitarian canard was used to create a class of free, and a class of slaves. I am trying to justify the existence of cattle, ALL of whom would be raised for human consumption. They have no capacity to live on their own.

2. If the “existence proof” is not true, then there is no hope for the humane-treatment-as -brand-name approach. That is, if one believes that the exploitation of animals is prima facie evil, it hardly matters that the conditions might be “relatively humane” (even if we could agree on what that means). And the slavery example proves it. Slavery cannot be humane, no matter how pleasant the conditions. Freedom is the condition we want for humanity.

But, TLH, would you seriously advocate for immediate freedom for all cattle? And even if they were set free, cattle would cease to exist within 15 years if we stopped eating them. Would you then lead an “endangered species” crusade, to save the cattle?

Jan 19 2010 at 8:20am

Sorry to turn this page into a veggie debate, but Mike, doesn’t your argument against make the assumption that life in slavery (at least for a cow) is better than non-existance?

You call TLH’s comparison absurd because the alternative to human slavery is freedom (a good thing better than slavery), while the alternative to animal slavery is nonexistance (a bad thing worse than slavery).

But what if I do advocate the non-existence of cattle (free them and let them die or sterilize them) under the belief that non-life is superior to slave life? Would I be logical in my views?

Also I did like the Q and A, a lot. Of course there were topics I wanted to hear more of, but I understood the point of the timer: A little bit is better than none. I liked the suggestion about voting to hear more of a certain topic.

Jan 19 2010 at 8:22am

“doesn’t your argument against make the assumption”
should be
“doesn’t your argument make the assumption”

Mike Munger
Jan 19 2010 at 9:56am

domo arigato, Mr. autodidakto!

Of course one can argue that the life that cattle, or sows, live is worse than never living at all.

my only claim is that it is POSSIBLE that there exists a life, a different life, where living reasonably well and then being humanely butchered is better than not having lived.

I hunt, and eat quite a bit of deer meat, for just this reason. As David, above, notes, hunting (assuming that the kill is as humane as possible) may satisfy the “good life, then eaten, is better than no life.”

Perhaps “existence proof” is a term of art that is not commonly understood. I am only claiming that it is an open question whether eating meat makes cattle worse off. It MAY, if cattle are raised and slaughtered in horrible ways. But it might not, if cattle are treated respectfully.

Obviously, this proves nothing about the world. When I said I had “converted” two vegetarians, all I converted them to was the concession that eating meat might be good for cattle, under some other regime of ranching. They did NOT decide to start eating meat, because the existing form of ranching does not satisfy their ethical concerns. Not even close.

Look, folks, I had six minutes! Chill….

Chip Morris
Jan 19 2010 at 10:12am

I thoroughly enjoyed the conversation with Prof. Munger, and also the format of the “hour”. Please continue periodically.

Russ Roberts
Jan 19 2010 at 11:09am

T L Holaday,

Market forces have never alleviated cruelty to animals? Free range eggs? Grass fed beef? And what about the vegetarian movement and the array of vegetarian choices the market provides? Not from the government. It’s the government that subsidizes farmers and distorts our choices.

On slavery, most or all modern slavery (like most or all modern genocide) comes from the government and the government’s monopoly on force and weaponry.I agree that market forces don’t do much to fight slavery or genocide–it usually takes a government fighting another one or repealing evil legislation.

Robert Wiblin
Jan 19 2010 at 11:20am

Should the government stop me from causing suffering to a small child (lock them up in a boring tiny space, killing them before they grow old, etc)? What if they had a genetic abnormality that meant they would never grow up but rather would remain a child forever?

If you accept that abuse should be illegal in that case, and you are not a speciesist, it is impossible to see why exactly the same protection should not be afforded to animals.

Logic of the larder arguments made above are discussed in detail here: http://www.qalys.org/animal-welfare.pdf

Jan 19 2010 at 11:31am

Liked the format for occasional use.

Two reasons:

1) I felt because you asked for questions (on Twitter and Cafe Hayek) and then picked the best submissions, it gave your listeners more of a stake in the show. Good to do every once in a while to address listener questions in a fun way. Plus it gave me a sense of what other listeners were curious about.

2) Breeding ground for later shows. For a few of the questions, the early reaction is a want of more. This want could have been preexisting or sparked during the show. But it is a feedback loop that could give you an idea for a later full show on a topic no one might have thought worthwhile beforehand.

Eric H
Jan 19 2010 at 12:42pm

I would add the following to Russ’s response to T L:

1) The market has not only contributed to the alleviation of animal suffering but created a level of animal comfort approaching luxury. As of 2007, Americans spent $41 billion on their pets. I recently saw an add for “appetizers” for dogs and cats. Appetizers! The range of pet foods available today is huge. The likelihood that Fido will eat a more balanced meal is probably higher than it ever has been.

2) A relatively free, wealthy society not only spends more on pets but gives more to animal protection groups and shelters.

3) The market for grass fed beef is growing.

An aside: Mike, I think it’s odd to argue that a deer or cow would prefer living to non-existence, and odder still to offer that as a justification for your hunting and meat consumption. Such an argument implies that these animals have a soul that exists independently of their bodies. Since I’m an animal person, I think it’s best to treat animals humanely–sort of like they had a soul–but I temper whatever qualms I might have about killing and eating them by regarding the current arrangements as merely the best we can do with what we’ve got.

There is no way–right now, at least–we can know if animals do or do not have souls, and therefore it seems illogical to offer a pro-life argument to defend your deer hunting and meat eating. From my standpoint, as someone who has raised by hand his own pet Hereford bull, and watched dozens of steers shipped off to market, I wholeheartedly agree with your position that livestock existence would be miserable or impossible without private ownership. But I leave it there, because to argue that an animal actually prefers life to non-existence is to effectively argue against the consumption of animals all together: how can you justify killing a creature with a soul?

Jan 19 2010 at 2:56pm

Let me second Sam Lundstrom (select and expand) and JakeRuss for his reasons given above. In the future, you could even take 5 questions and 12 minutes for more time per topic — knowing that we’ll never be satisfied, of course.

Speaking as a bi-ped like other greats, I have found Munger/Roberts to be fun and interesting every time so far. I saw today’s podcast heading and was excited to hear what was coming. Your discussions,as David said, always help me think like an economist.

As for the American Dream, I have never bought into the notion that it’s about the next generation. It’s quaint and might make us feel like better people to say that, but I believe it’s largely that each person wants to live in a freer-than-not social and economic society and America has historically provided one of the (if not the)best frameworks for that kind of life.

Finally,the Dictator 99/1 discussion was interesting and scary. It is a reminder that things are fragile and that there is no reason we couldn’t continue to move from being a 50/50 trusting society (and transaction costs are lower)to the 99/1 cynical one (“so sue me”). Law and regulation can only go so far. There are, after all, no rules that we must continue to behave collectively as we have been and entropy seems more likely a path than a return to civility and unity. It also seems like the road we seem to be taking is, like a financial bubble, subject to a tipping point. And that would be disruptive and tragic. To add to Sam’s quote from John Adams, remember the words of Franklin when asked what the Constituional Convention had given the American people: “A Republic, if you can keep it.”

Jan 19 2010 at 3:56pm

I much prefer the in-depth interview format. Econtalk is one of my favorite shows in any medium precisely because it’s long and Russ doesn’t always shy away from technical aspects. I love it when in the usual format you can hear Russ thinking out loud. Here the back-and-forth was too pat.

The long format of course also allows Russ and his guest to explore many corners of their topic, which is so much more illuminating. This was just not that interesting.

Michael Pruitt
Jan 19 2010 at 4:02pm

I’m just a simple country-man, trying to do the best I can. I’m no Chicago economist (nor a big-city lawyer), but…. I’ve not always been this way.

I once was a person who lived in the city and said, “Everyone knows that cows don’t spend their days blissfully chewing the cud.”

And then I moved to the country, and started to actually listen to what real farmers said.

When I though of the motivations and incentives of imagined farmers, I thought possibly those were people who didn’t know about economics nor ethics. I told myself they were simply doing what needed to be done, just so they could get by.

When I stopped just imagining what farmers wanted, when I started to see farmers as real people, these new friends and neighbors, that’s when I began to actually see their wants and their needs.

I began to understood they wanted to do the best they could to give they animals what the animals needed. My friends –like their fathers before them– are people who truly enjoy life, and they make a nice profit giving animals an idyllic place to chew cud and scratch feed.

My friend Kurt surprised me shortly after we first met — I am slightly embarrassed to admit to the depths of prideful ignorance that led to the surprise of discovery. Kurt has a ~500 acre farm, and has excellent economic insights into the “business” of animal husbandry.

Kurt seemed a little hurt when I said “I’m surprised at how humanely you treat your livestock!”

“Buddy, look,if I was just wanting to make a quick buck, yeah, I’d probably do that ‘big business’ thing. Treating animals that way, though, like they’re walking pieces of dead meat? That just ain’t right. I was brought up better than that.”

“Mike, listen, that ain’t my property out there. Not my livestock, no sir. All them head of cattle, and, yes, that damned chicken house — all of that belongs toyou.”

“So, they’re mine? I can drive off with a goat in my drunk?”

He gave me a wink as he answered my question. “Well, yeah, on paper they’re mine. But that’s just a ‘not a thief’ card I can hand to my conscience. Lets me sleep at night. See, me and the animals get to stay together just for a short while. Some day soon, you’ll be at Wal-Mart, Winn-Dixie, or Piggly-Wiggly, and you’ll decide to take them back home with you.”

The funny thing about this way of looking at life — “knowing” what things actually like, yet “pretending” that there’s some other way — it MAKES SENSE! I take far better care of things I borrow than things i own.

Here’s a win-win-win: “My” food that 1) was animal that once lived on Heaven-on-Earth Farms, 2) actually tastes better than the big-business alternatives, and 3) is more profitable for the farm due to their lower economic costs. Talk about “doing good is its own reward.”

If you want to believe that you can make a lot of money by following the practice of giving cows heaven on earth, take a listen to Nappa chef Dan Barber’s talk from 2008’s Taste3/TED, titled“A surprising parable of foie gras”.

If you are not certain about this issue, you probably shouldn’t watch this. Watching this will inevitably lead to self-awareness and the eventual discovery of how wrong you’ve been about everything, so, yeah, don’t watch it.

If you are already safely convinced and content in your knowledge of our agri-business of animal cruelty, will you please watch this and point out what I’m missing? I can’t see it.

Saving the best for last:
Russ, THANK YOU for being such a great teacher! I have learned so much from you. I have one question, though. It’s like, I see you wandering around with a box under your arm, and the box is labeled, “The Way to Teach” You wonder out loud, “What shall I place inside this box of economics teaching? What is the way to teach economics?”

The box you’re holding already has something inside it and it really works.

Russ, I used to hate baseball. Now, though, when I hear the crack of a bat. I think of you. And then I smile (if not laugh out loud) as I notice that in that moment, wherever I am, I am thinking about economics.

Do you really not know what you already have? I guess that even if you do, it’s still nice to be reminded once in a while.

Russ, thanks for truly professing the economics of life.

Sam Lundstrom
Jan 19 2010 at 4:27pm

Eric H:
Is a pro-life argument necessarily founded upon the presumption that the creature in question has a soul? And if that is the basis, how do we even know that humans have souls outside of religious faith? And if it is simply a matter of faith, why is it less rational for one to believe animals have souls than humans? There are probably legitimate ways to attack Mike’s argument, but this approach seems a bit odd to me.

Rob Evans
Jan 19 2010 at 5:20pm

Hello from Argentina.

I always enjoy listening to Munger and I liked the experimental format. Please do it again.

Oh, and do keep the egg timer. Low tech is the new black. 😉

Jan 19 2010 at 5:42pm

Excellent podcast. I really enjoyed the format; however, may I suggest 12 minute segments in the future.

Your piece on: Can you tax a business, or is it passed on to consumers, was very interesting. I was curious about why if corporations just pass on the tax either up or down stream, do they devote so much money to defeating measures to raise corporate taxes? It seems they would be doing a disservice to their shareholders.

Eric H
Jan 19 2010 at 5:51pm


I don’t think a pro-life argument applied to humans requires us knowing whether or not a fetus has a soul, or has been “ensouled.” I just think it’s funny to say that a deer or a cow would prefer existence to non-existence. How on this earth could someone know what a not-yet-corporeal deer would prefer?

Talk about interpersonal–ahem–interspecies comparisons of utility!

Jan 19 2010 at 8:21pm


Outstanding, I agree with many of the other commentors that the one topic interview is where you should keep your emphasis, but for me this was great for three reasons. 1. It was great looking at all the good questions that all of your listeners proposed on Cafe Hayek. 2.It made me consider what I would want to ask, even though I did not in this forum, it did make me think. 3.Finally it was good to go over so many topics quickly. I picked up on the first and second theory of price equilibriaum and know that I will be looking that up.

My 1 line responses:
1. fresh water today $0.10. I see no shortage, but when it comes time the others technologies will be implimented.
2. I was completely impressed, more people need to hear this.
3. I wonder what price people would pay me to change my behavior.
4.Multipliers, the average multiplier must be the average GDP growth plus 1. Try 1.03 to 1.02 recently.
5. My opinion is even the Taylor rule is a hedge and counter to markets. It charges a lower interest rate than market rates today.
6. It is highly embedded in the extensive communication that inspires cooperation.
7. Chicken or Egg. Are personal taxes paid by corporations?
8. What kind of signals do podcasted learners send?
9. Well answered. I think that there is value in those that hold the line and those that challenge.
10. It is the good life that we lead that can lull us back into the fray. Those market forces don’t go away.

Justin Bowen
Jan 19 2010 at 8:29pm

I have to second the opinions of those who’ve spoke highly of this podcast and of the show in general.

Like Steve, I have found myself somewhat less interested in the recent podcasts about the Fed and the financial crisis. While they do include a great deal of good information, there were just too many of them on the same subject in such a short span of time. I realize that the financial crisis is certainly the hot topic of the day, but I would simply like to be able to hear more of what I became accustomed to over the past couple years of listening to this show, which is shows about common topics done from a “fresh” viewpoint.

I also agree with Sam. I think too much of a good thing can ruin that good thing. This show definitely left me wanting more. I would absolutely love to hear more shows in which guests provided the same kind of insightful views on common subjects (Mike’s comments about the fresh water problem immediately made me think of the seen and unseen (he definitely did a good job of exposing some of the unseen consequences of the water policies of this country (or perhaps they were only unseen to me))).

David wrote about his having learned how to think more like an economist by listening to your (Russ’) show. I, too, have had the same experience. Not only have I been exposed to a new way of thinking about old problems just by listening to your guests, I’ve furthered my own education by reading as much as I can of the supplemental materials that you link to in the “Readings” section of each podcast (the Bruce Yandle podcast about the tragedy of the commons and the role of the common law in protecting the environment spurred me to do my own research into how private individuals and businesses have protected the environment).

These things aside, I would love to hear a podcast about the fresh water problem. As I mentioned before, I found his views on the fresh water problem very insightful (even if they aren’t new). After listening to him talk about the problems with our water system and the water systems in places like China, I realized that the fresh water problem isn’t, as he noted, due to a shortage of fresh water, a lack of means to turn salt water into fresh water (the main barrier to turning seawater into fresh water (which the sun does naturally and at no cost) is cost; as with oil, we’re never going to run out of fresh water because economics will take over and provide for alternative means of getting fresh water), or the means to dispose of human waste products efficiently and in a way that’s safe for the environment (bacteria are Mother Nature’s way of turning waste into something that is essential to all land-based life: soil) but rather to the social and political arrangements that are propping up the systems that are already in place. A more-in-depth podcast (perhaps with two or three guests from different fields (an engineer, sanitation specialist, and economist?) who can each weigh in on the subject using their specialized knowledge) or several podcasts on this subject would probably be very entertaining.

Glenn Kasten
Jan 19 2010 at 10:31pm

Great podcasts – but stay with the longer format. Both of you have a lot to say on these topics and I’d like to hear it. The time limit stops you just when you’re getting warmed up.

Robert Wiblin
Jan 20 2010 at 2:11am

Munger: would you rather become a battery hen or pig in a factory farm, or instead just cease to exist. You say that it’s very hard to see how one could say that the animals are better off to never have lived, but the answer to the question above is very non-obvious to me.

Remember that animal farms take more resources to produce a certain amount of food than plant farms, probably displace wild animals. It’s quite possible that wild animals live lives that are worse than nothing, so if that’s the case it would be welfare improving to eat meat if the animals in the farms live better lives than the wild animals.

We also have to consider the good we might do by spending the extra money we put towards meat on something else.

Arne Fischmann
Jan 20 2010 at 3:19am

Regarding the fresh water problem, there is a turn to it that most people do not recongnize:

If you are a vegetarinan you probably use 2000 – 3000 l of water for daily food production (for non-veggies it is more like 5000 l / day). Still this is a minor point concerning fresh water, because most of it is used for energy-production (somewhere in the 10,000 to 20,000l/d/person). On the “Sceptics guide to the universe” they had a nice point about this several weeks ago: they asked if US freshwater usage has decreased or increased in the last years. And in fact it has decreased in the last few years simply because the efficiency of most power plants (and with it the freshwater usage) has increased much more than the private use of water has increased.

And the format was really excellent.

Jan 20 2010 at 10:44am

I enjoyed the podcast. I agree with someone above, it seems like a good survey format for every month or 2 to touch on some subjects and see what gets digged up and then these topics can be discussed and branched off of on future podcasts.

As always, thanks Russ and Mike for an enjoyable and educational episode.

Jan 20 2010 at 11:25am

At the end of the podcast you touch on government regulation and voter sentiment. I disagree with Mike that the message of the 2008 election was that voters wanted more government. I think the message was that voters wanted change, which is what Obama promised. However he didn’t live up to that promise and we got more of the same, back room deals, ultra-partisan politics and government by ideology. Yesterday’s loss of the 60th senate seat will hopefully clarify the message to Obama and his fellow democrats.

Jan 20 2010 at 2:53pm

Enjoyed the Podcast. I was thinking about other Econtalk guests uniquely qualified to do the same format.

For some reason, Richard Esptein was the first that came to mind. He’s got such a diverse legal background with expertise in virtually everything from roman law to evolution… it seems like Epstein would be great at this format.

I just don’t know if you could restrict him to six minutes!

Jan 20 2010 at 3:04pm

Hey Russ,

Just wanted to say I am a fan of the shows you do with Mike Munger, no matter the topic.

Jan 20 2010 at 4:27pm

I enjoyed the Q & A, please continue them.
In your discussion about water, it turns out that 70% of water is used for irrigation (from the Economist) and to grow a kilogram of wheat requires around 1,000 liters. But it takes as much as 15,000 liters of water to prduce a kilo of beef. Most of the 2 billion people to be added by 2030 will be city dwellers and they use more water then rural folks.
Please talk about the economics of sustainability of resources when talking about things like water and food in the future.

Jan 20 2010 at 5:09pm

I loved the format but wonder how many guests could provide such interesting insights across so many topics.

But overall I definitely support more variety shows and and variety guests.

Jan 20 2010 at 6:24pm

I became a vegetarian in 1998 after reading a short defense of animal welfare/rights in Nozick’s “Anarchy, State and Utopia.”

I could not refute Nozick’s arguments and Munger’s utilitarian defense of eating animals falls well short.

Predominately all animal production today is accomplished via factory farms. This system has been able to substantially reduce the cost of animal products, at the expense of animal welfare. The result is that from the moment an animal is born until the moment it is slaughtered, it experiences nothing short of systematic and repeated torture. The slaughtering process can be the least of an animal’s concerns.

I wonder if Munger supports dog or cock fighting on the grounds that while the dog or rooster may be severely harmed or tortured, having lived such a life is better than having lived none at all.

It is awkward to be both a supporter of markets and a vegetarian. I am allied with libertarians on markets and I am with the left on animal welfare issues. A strange mix.



Jan 20 2010 at 7:27pm

I liked the podcast format. Nice change of pace to discuss broad topics in short time frame. Good change/alternative to switch to occasionally, and great person to start off.

Jan 21 2010 at 4:06am

Question for future Q&A: Why does the birth rate fall in developed economies and can the developed economies remain so with the falling birth rate?

arc of a diver
Jan 21 2010 at 6:43am

I agree with those who would like to see this format again from time to time and also limit it to 6 or 7 questions. 7 is biblical, so go with lucky Vegas 7!

I also appreciated past shows where a guest might talk about a longer topic and then switch to a 25 minute topic like oil. Russ Roberts could sometimes ask guests ahead of time if there is a secondary topic they would like to bring up, and maybe he does this.

Jeremy Weltman
Jan 21 2010 at 8:51am

Really enjoyed this podcast – far more interesting and to the point than others recently. It also enabled me to listen in 6 minute chunks without losing the discussion. More please!

John Strong
Jan 21 2010 at 9:43am

Mike Munger, are you still reading the comments section?

If so, would you please provide a reference to an academic study that supports your claim that the people who come from tribal societies are prone to use less cooperative zero-sum strategies when they play the Dictator Game?

Jan 21 2010 at 3:52pm

I liked the format of the discussion…

I agree with some other comments that the discussion points weren’t always backed up with statistics. But I consider this more like an informed opinion discussion.

I disagree with you about people preferring corn fed beef, and suggest reading Omnivores Dilemma by Michael Pollen. It will change your view on beef preferences.

Overall, I thought the podcast was very thought provoking and would like to see this expanded to perhaps a third commentator.

Jan 21 2010 at 4:18pm

2 PhDs (one a novelist)
0 people who know how to pronounce potable

Scott Packard
Jan 21 2010 at 11:22pm

I have one comment and one question.

Your dialogue about the opportunities our form of government provides people is something both my wife and I also believe. It’s tough to see opportunity you are given when you only have lived in the one system your entire life, however. I think one of the things you’ve been trying to point out with your, say, last 6 months of podcasts is the value of our current system and that it is not guaranteed to be there, as a mountain that will be there from birth to death. It is, with its faults, a better system than others in the real world.

My wife has immigrated from Vietnam, penniless when she arrived because of several robberies by Thai pirates. The rations she received from the UN system? It ended up being rotten fish and inedible rice (both the obvious: the good rice is sold on the open market and the unsellable and unstealable is what’s handed out, and what you said in an earlier podcast: foreign aid seldom gets to those who you think it goes to).
She sees the opportunity here and has interesting insights from both a pre- and post-communist government perspective as well as the ability to see some of the alarming socialist changes in the last year. She’s lived the life. She also enjoys your and Mr. Munger’s embrace of the market system.

The question (since we’ve been allowed some silliness in the comments section): Do you have a URL for the Youtube video you mentioned, of the guy who has models that prove the housing market crashing could not have caused a world recession, and he thinks his models just need another chance?

Russ Roberts
Jan 22 2010 at 6:56am

Scott Packard,

Thanks for sharing your wife’s story.

The video is here: http://www.youtube.com/watch?v=iO7sWdnSYHU

The first five minutes capture what I was talking about. I may have exaggerated a bit but it’s clear there’s some attachment to the theory despite the evidence.

Robert Kennedy
Jan 22 2010 at 10:58am

Not sure if I liked the format, at least in it’s current form. For several of the topics, I felt a little cheated when the bell went off. I wanted to hear more. Maybe cut the # of questions down to 5 or 6 and therefore given 10-ish minutes per response.

That said, I did like the basic notion of briefer discussions on multiple topics. Just not as brief as this version!

Jan 22 2010 at 1:52pm

Dittos to Scott Packard.

I have a very similar story. My wife is also from VN and we met while we were students at Santa Clara (HT Dan Klein).

During the 80s, when the Russians were assisting the VN government realize its socialist utopia, people were literally starving in the streets. As a child, my wife’s relatively wealthy family had to hide their food trash (fish bones, chicken parts, etc.) since discovery often led to being robbed or mugged.

It is interesting now that the VN people generally have a positive view of the Americans despite the war. Their view of the Russians on the other hand is a very different story.

Jan 23 2010 at 7:38pm

Just wanted to say I really enjoyed the format. It’s a nice change up and I think it’s something to try every now and again

Ray Gardner
Jan 23 2010 at 10:10pm

Liked the format a lot. Perhaps going forward there could be a regular Roberts and Munger podcast every 4th or 6th week or something since you guys seem to be a good team at this sort of thing. It wouldn’t always have to be the same exact format, but where you two get together to discuss either suggested topics, or perhaps something that is hot in the news at the time.

Two points that stood out to me: Prof. Roberts mentioned how to get people to think like economists, and something to the effect of there being better ways than college to spend one’s time if education were really the goal.

I foolishly passed on a scholarship years ago, and didn’t realize the magnitude of the mistake until I was married with children. The career paths still looked promising enough so I chose to forego the expense and difficulty of being a working adult student.

So I wind up working with people who have their MBAs, but who lack any real intellectual curiosity. (They don’t read for pleasure, they’re not well informed in their opinions, etc.) We’re all in management, but at this sub-executive level. They’re not sharp enough to bridge that gap, and I’m not allowed to go any farther without a degree. (I’ll currently fixing that. And I’m aware of how that sounds, but so be it.)

Point being to the observation in the podcast that a college degree and a genuine education are not necessarily the same thing. A vast majority of my coworkers that hold a masters degree are the intellectual equivalent of the high school counselor from Mike’s story. Conversely, those genuinely bright people with the same degrees soar past the others on their way up the ladder.

On thinking like an economist, the podcast is a great tool. In decades past, what would have been the options for people like me to really delve into such matters as are discussed here and on the blog? Look how influential Milton Friedman was, and imagine if he had an outlet such as the internet and how that influence would have been magnified.

John Dennison
Jan 23 2010 at 10:42pm

First I like the format change. Some diversity is always good. Love the show have been listening for many years.
However, when Mike said there are no economists that have explained the boom-bust phenomenon inherient to capitalism i screamed. I was travelling on a bus in Argentina and I screamed, literally, so that everyone turned and looked at the gringo, “MINSKY”. Hyman Minsky is the only economist that has accurately described the self destructive investment stages inherent in the nature of capitalist growth. Please if this is forum open to all ideas, just as least mention Minsky and the post-keynsians.

Also the anaylsis of the real value of a college education was the best i have ever heard. Having just graduated 6 months ago i wish someone had told me this 5 years ago.

Thank you and keep up the great work you are helping students of all ages,

Joss Delage
Jan 24 2010 at 4:00am

This was a good show. I enjoyed this format, and I think you should do something like this every month or every other month.


Paul Richter
Jan 24 2010 at 12:43pm

The description of the Dictator game instantly brought back memories of my first few days in Hanoi, Vietnam, in 1997. Trying to buy bottled water from a street vendor who was blatantly asking for twice what I knew others were charging. I tried to negotiate (admittedly for just 20 cents), but the vendor just wouldn’t, couldn’t bargain, as if the concept were alien to her. As I gave up and walked away, she appeared to have a smile of victory, I with no water and she with no money.

Jan 24 2010 at 3:32pm

I enjoyed the format too, nice change of pace. At the end of each segment I was disappointed it was ending–which tells me you guys are good!

Good comments this week, though I started to skim the ethics-of-eating-meat entries after a while. Good going Floccina, fresh insights!

My wife teaches English to immigrants, and with very few exceptions they are rabid supporters of America’s open, market-based, opportunity society and are not fans of the current drift to increased statism. And guess what, all of them, even those who arrived in the past year during the recession, have jobs, often more than one. And whether the jobs pay $10/hour or whatever, they manage to save. In class they literally say on a regular basis, “thanks God I was able to get here.” One recent Iraqi immigrant does two shifts a day as a parking lot attendant, and he is not atypical.

Jan 24 2010 at 3:52pm

One more thing, about the “economic way of thinking.” I was an English major who was smitten by the insights of econ 101, which unfortunately I didn’t take until my senior year. On one show a while back Russ said, as I recall, that it was a both sad and puzzling that in this, the wealthiest country the world has ever known, no one learns over the course of a typical education why or how we got that way. You’d think that among all the foundations and think tanks out there, someone would come up with an actionable program to teach the most important lessons of economics at a level that, say, fifth or sixth graders could understand. Getting it accepted by the education establishment–ah, there’s the rub.

Mike Munger
Jan 24 2010 at 4:47pm

John Dennison:

I had two classes from Hy Minsky in grad school, and studied with him for a while at Wash U.

Perhaps this is a silly distinction, but I don’t think that Hy really EXPLAINED the cycle. But he did descibe it very accurately, and I should have given him some credit. Mea culpa.

John Dennison
Jan 24 2010 at 6:35pm

I just finished my undergrad so i dont presume to have a complete grasp on postkeysian instability theory but i think if Minsky accurately describes the actions of investors which inevitably leads to boom and bust investment cycles, which i believe he does(or at least better then neo-classical rational investor model does). Then he has explained the root causes of bubbles: the same behavior that ´rational investors´ show in vernon´s bubble experiments. Or perhaps i am just missing you distinction.

On that theme I would love to hear a show on minsky´s financial instability hypothesis. Perhaps on similarity´s with Austrian business cycle. James Crotty of UMASS amherst is particular well spoken on the matter, at least on Minsky. I should be honest and just say that anyone from UMASS Amherst or the levy institute with anyone from George Mason would be a great discussion.

Jan 24 2010 at 8:42pm

Yes, I would be very interested in a podcast on Minksy. I’ve heard his name many times but all I “know” about him is that he explains that by the nature of things good times turn into boom times which turn into busts which turn into etc. It does seem awfully plausible given recent history that if people feel optimistic they take more risks which feeds the enthusiasm of the day which feeds the optimism… ‘Course i could look him on on Wikipedia too, but I wouldn’t learn as much as from a podcast by Russ and Mike.

Jan 25 2010 at 4:26pm

Very disappointed with the answers.
– Was this the Rush Limbaugh show?
You and Mr. Munger clearly are really Blind to any real reasons for the subprime mortgage collapse. Hint, it wasn’t “the government” but Corporate Fraud. Ritholtz has done an extensive analysis of the fraud that went on in “Bailout Nation”.
Black has shown the underlying mortgages were nowhere near the quality of the AAA rated securities they were packaged as. Now, in the real world, that’s FRAUD, and it’s not “government failure”, unless it was the failure of the government to monitor this kind of innovation in fraud.
– There you go again with your anti-global-warming BS. Yes, 20 years ago 90% of scientists did NOT believe GW was real. Today, 99% do. Secondly, this is a National Security Issue, which is why the CIA is showing us photo’s of the Antarctic Ice Melts. Visual Evidence, we don’t need to read any more crackpot theories, paid for by the Coal Industry. How much money has the coal industry put into AGW BS? $100’s of millions of dollars? They could have built some pretty large wind-farm’s with that kind of money.
– So, is the Economics “profession” merely the Economic Propaganda arm of the Capitalistic System? Because that’s what it looks like.

As a RINO, I too took comfort in the Republican Myths, but you know what? You loose money, and the nation is collapsing around us by not seeing, and reacting to, the real world.

Jan 25 2010 at 4:32pm

And let me add.
You got your conservative Supreme Court with Mr. Bush, and they have given corporations the ability to Totally Control the Electoral Process. Do you imagine this is really going to turn out well?

In other words, the party that FEARS One World Government, has given Corporations the ability to make that happen. There’s no clearer way to DESTROY a Democracy, then to let the richest and dumbest, least innovative Corporations Buy the Government they want.

Watch the SMEAR Campaign and PROPAGANDA Machines run as never before, and when you’ve finally had enough, your tiny voice AGAINST your corporate overlords will NEVER be Heard.

Thanks for Destroying America.

Jan 25 2010 at 4:50pm

And lastly,
DRUDGE has a headline

$12 Trillion Dollars
– Caused by the Bush Administration, and the Obama Administration attempting to stop a US DEPRESSION.
– Where where YOU and the Tea Baggers while Bush Ran Up This Deficit?

Frank Howland
Jan 26 2010 at 8:21am

I liked the format because it raised interesting issues, especially those around vegetarianism (as has been picked up in the comments).

I’m concerned however by the depth of cynicism in the conversation, particularly in part 9. It seems to me that if one accepts your world view, then we really ought to trust no one, including of course the two of you. What basis do you think there is, if any, for trusting people like economists, scientists, politicians, public figures of any sort, in general people one does not know personally?

Also your seeming contempt for Keynes is rankling (maybe I am misinterpreting the remarks about confusing Keynes and Smith). My sense is that your dislike for him is based on choosing sides in an ideological cat fight and that you are blind to his many charms and insights.

Ed Siffring
Jan 26 2010 at 10:26am

In the question about choosing a college, I appreciated a number of things. Mike’s value added, signaling, connections bit is a great economics answer. And I liked Russ’ analysis of our students’ lack of writing skills.

A couple points of disagreement, though:
First, Russ very briefly touched on how a choice of major is important and Mike seemed to agree.

I believe the choice of undergraduate major, in most cases, is basically irrelevant. Educators are one of the notable exceptions to the “major doesn’t matter” rule, so I expect you to answer as you did. Away from the ivory tower you find most people end up doing something unrelated to their undergraduate major.

What does matter is whether a college student learns how to learn, so when in a few years they realize they need to move in a different direction they will have the ability to learn new ways of solving problems.

And from another point of view, while you want all your Econ grad students to arrive prepared, you don’t want them all to have the same preparation, do you?

Second, Mike appropriately chided his son’s counselor for the math advice, and talked about the “liberal arts mindset” which caused it. In my experience our students are not advised with a liberal arts mindset, but with a ‘get a job’ mindset. That advice comes from their families and the high schools are just reflecting the norms of society.

My experience here in the center of the nation might be different than both of yours, but I think it’s more common than not when you are at a distance from DC or Durham.

I don’t believe the value of an undergraduate education lies in it’s preparing a student for their first job, rather it lies in the way it prepares them to contribute for a lifetime.

So, “what can you do with that major” is a poor question, whether asked by students or parents.

SJC in Detroit
Jan 26 2010 at 1:04pm

Like others, I’d like to see this format periodically, but only with someone like Prof. Munger who can succinctly say something interesting and informative.

And like one other poster, I thought “potable” was mispronounced but you got me to look it up.

Jan 26 2010 at 2:20pm

I love the podcast, but I didn’t enjoy this format especially. I think the strength of the podcast is that it delves deeply into a particular topic with a person who is an expert in that area. I like the slow, deep pace of the normal podcast.

While I am here, I personally would enjoy some podcasts focused on Hayak’s ideas. They are frequently referenced in the podcast, but I haven’t found a podcast that lays them out all at once.

Jan 26 2010 at 5:01pm

John, did you read anything about the Supreme Court decision? The 5 least qualified judges just gave US election law away to be manipulated by Foreign Corporations and Foreign Entities. Country’s like Russia, China and Saudi Arabia now have free rein to spend any sums they care to to buy the politicians they want.

Did you know FOX is foreign owned, AU and Saudi money. Do you know you’re being bought out by FOX. Does Saudi money want Global Warming Solutions? No, so you’re not going to hear that on FOX.

Many of your readers seem to characterize the Obama health plan as “Socialist”. Again, a Rush Limbaugh talking point, and it shows your audience is a bunch of PhD’s who don’t spend one minute investigating issues. The Obama health care plan was a Huge Giveaway to the Healthcare industry.

If you’re going to talk about healthcare, where’s your solution to RESCISSION and Pre-Existing-Conditions? The “right” wing simply IGNORES the Real Problems in the System.

By it’s DEFINITION Insurance is at least a Collective, whereby the members POOL their premiums to pay for only the currently sick. An Insurance system ONLY needs a Manager. It doesn’t need a CEO, and Shareholders, to suck all the reserves out of the system so that there’s no money for coverage.

But, if the “Capitalists” can come together and solve their Industry Created Problems: Rescission and Pre-Existing-Conditions, plus covering AMERICAN’S who cannot afford insurance I hope they start that conference Tomorrow.

Over Analysis
Jan 26 2010 at 8:39pm

The Q&A format was tantalizing, and I appreciate the change of format once in a while. Prefer in depth, but a now and then intellectual carousel of new ideas is remarkable to behold.

Mr. Roberts mentioned from about 40:00 to 42:00 the idea that implicit trust is necessary to keeping transaction costs low. He suggested that this trust has been eroded in recent years with the bailout being an example of a force of erosion. This, as Mr. Munger suggests, is an excellent observation.

This trust erosion runs counter to the increase in trust over a few hundred years if one uses the Caribbean pirate constitution discussed in an earlier podcast as a step toward increasing trust. Or, does one need to discard the FDR years of waffling laws as a counter argument.

A podcast that concerned this invisible public good would be appreciated. Perhaps in conjunction with a review of the International Corruption Index.

Mike Munger
Jan 27 2010 at 8:00am

Ed Siffring: I think there is a huge difference between “choose a major, get a job!” and “majors are irrelevant.”

I do agree that trying to choose a major based on immediate monetary value is a mistake. And we DID say that one has to go to college until you learn how not to be jerk (which is why Russ and I are essentially STILL in college, by the way!).

But I am a big fan of the liberal arts. Going to college should change your life, not your job prospects. Students who major in “_______ Studies”
or some form of “Interdisciplinary Indignation” are wasting time, and rotting their brains.

“Be careful” to me means major in one of the sciences, or else Philosophy, Math, English, or History. Economics is also a fine major if you take courses that are historical and theoretical.

Niels Rot
Jan 27 2010 at 8:05am

It is almost a pity there are so many comments: can’t read them all. Maybe you should allow comments in Podcast form, so I can take them along whilst excersizing 🙂

I think the last point you raised was extremely interesting: that it seems that at least a section of the population is not seizing the opportunities that are available. I am no fan of happiness economics at all, but the fact that there are “decreasing happiness returns to income” seems to be an accurate one, as it is verified by other studies. Could it be that it is nowadays so “easy” to get a job which satisfies basic necessities, that people do not feel the need to develop themselves further anymore? That they prefer watching tv over learning, and thus get stuck in a lower segment of society? It could be the result of a human response to our increasing welfare. This would mean that many of the relative poverty problems in western societies are highly structural and that we would have to look for other solutions. Markets might not work then anymore above a certain income level… Would love a podcast on this topic.

BTW Russ: this is another great project of yours too: Spreads like a rapid fire through FB http://www.youtube.com/watch?v=d0nERTFo-Sk
Did you write the lyrics ;)??

Jan 27 2010 at 10:34am

Mike Munger argues that animal lovers should like the meat industry because is causes many more animals (like cows and chickens) to be born thant would have been otherwise. Initially, that seemed reasonable to me.

But using the same logic, we should all encourage the commercialized breeding of humans to harvest their organs. These would be humans that would not have been born otherwise. Isn’t it better that they were born, even if their lives were short?

I know this is a ridiculous example. I’m just making the point that utilitarian arguments do not always apply when discussing the creation and destruction of life. For animal lovers, that includes the lives of animals.

Marco Antonio Muscari
Jan 27 2010 at 12:47pm

Dear Professor Roberts,

I’m a brazilian judge who loves Economics.
Since 2008, I’ve been listening to your podcasts. Wonderful!
About your interview with Professor Munger, I liked very much that format: lots of interesting topics and very dinamic. Try it again.
Best regards,

Mike Roberts
Jan 27 2010 at 2:19pm

Near the end of the podcast, when you were trying so desperately to convince people to work and strive; and gosh – you still can achieve the American Dream if you just believe… this is mostly happytalk baloney. And the kicker was the nonsense about “our market” not being Grab-What-You-Can, Zero-Sum-Game. It seems you’ve not been paying any attention to anything that’s actually happening.

American Hero
Jan 28 2010 at 4:59am

Maybe it’s true that actors in the market try their best to persuade you to give them your money. Usually this is by providing something the customer wants. But I guess not always, at least for a short time the customer can be fooled or tricked. But compare that with the power of government to simply decide and take what they want by force. Who do you trust to be working on your behalf or in your interest?

David Beckworth
Jan 31 2010 at 12:06pm

Some folks choose to be vegetarians because of health reasons rather than animal treatment.

Don Venardos
Feb 1 2010 at 10:27pm

We constantly hear that the demise of the down payment requirement was a leading cause of the housing bubble, however, Navy Federal Credit Union one of the nations largest and most conservative financial institutions has for many years offered (and continues to)low/no down prime mortgages. No bailout required. I posit that the down payment is irrelevant and it is the easy credit that caused the problem.

Russell Wood
Feb 2 2010 at 9:35am

Russ and Mike,
Thanks for a great podcast, and thanks for using my question (value of college).
In general I like the format, did not like the egg timers, and didn’t care about a few of the questions. The best parts involved Mike’s ability to portray the economic way of thinking. After all of Russ’s great work this the past year, I didn’t need another 6 minutes on the financial crisis.

Regarding the apparently controversial topic of humane ranching, I must be the odd man out. I am researching and seriously considering switching to grass feed, free range, humanely harvested food. If I switch it will be 100% based on my acceptance of the health benefits. The treatment of the animal is moot, except to the extent that it makes me healthier by not creating the bad chemistry in the end meat.

Feb 2 2010 at 10:23pm

On the format: I enjoyed the variety of topics and hope you do this again, but no need to use this format for every podcast.

On Question 5 and “Signals”:
I am a first-time homeowner who purchased in 2003 (i.e., near the peak of the housing market). It was reinforced to me by what seemed to be everyone (friends, media, realtors, lenders, government agencies) that home prices will never fall, and this actually sent two signals:
1. buying a home is a prudent investment
2. buying a home would be more difficult later as prices would continue to rise the longer I waited to purchase.
I “rationally” chose to purchase sooner before prices increased beyond my means. I was out-bid on almost 20 houses that all sold for much more than the asking price.

Not only did the guarantee of ever-increasing home values signal and encourage the mortgage securities market, but it also seduced home buyers who otherwise would not have purchased until housing demand softened and prices declined.

John Ratelle
Feb 3 2010 at 6:05pm

I like the format and agree with many listeners comments. I travel for work and sometime in a car for hours at a time, so this has put some sanity into my travels. Keep up the great podcasts!

Feb 4 2010 at 7:03am

“Can you tax a business, or is it passed on to consumers?”

Russ, I read the linked article, which is quite helpful, but had one quibble. It’s reasonable that a tax a a good with an inelastic supply is not passed to the consumer. The examples given were alcohol and cigarettes. So far so good, but there are other, more reasonable goods to tax that also have highly inelastic or perfectly inelastic supply curves. These include radio waves, natural resources (in part), and land. Why no discussion on these?

Anyway, I love the podcast and I think this was an excellent discussion. I would love to hear you talk sometime about taxing land in particular. I understand there is a bit of a tradition in economics about this connected with the names of Albert Jay Nock, John Stuart Mill, Adam Smith, Henry George, and, of course, the Physiocrats. Seems relevant to any discussion about the question “where bears the burden of a tax”.

“In my opinion, the least bad tax is the property tax on the unimproved value of land” – Milton Friedman

Feb 7 2010 at 8:16am

Keep up the great work! This was a nice change of pace, and I hope you will do it again.

T L Holaday
Feb 10 2010 at 1:15am

Russ writes

… [M]ost or all modern slavery (like most or all modern genocide) comes from the government and the government’s monopoly on force and weaponry.

There was no effective legal limit on the force American slave holders could use against their captives, and no legal limit on the weapons American slave holders could possess.

“Some Negroes are determined never to let a white man whip them and will resist you, when you attempt it; of course you must kill them in that case”.

The slave holders clearly did not recognize a government monopoly on the use of deadly force, and could use any weapon their cruelty could devise.

Does this mean that American slavery was not “modern” slavery?

In the 8th February 2010 podcast, Russ enumerates the paths to prosperity as (a) hit the other guy on the head and take his stuff and (b) specialize and trade. Omitted is “hit the other guy on the head and take him.” I think it is because Russ is such a nice guy that the most wicked crime he can imagine is robbery; but a brief review of the lives and personal economies of George Mason and his contemporaries might prove revelatory.

John Strong
Feb 11 2010 at 9:07pm

Professor Munger, you indicated during the podcast that people who come from tribal societies are prone to use less cooperative zero-sum strategies when they play the Dictator Game. This made a lot of sense to me, because my experience in countries that do not have developed market economies is that people do NOT trust strangers as readily as Americans and Western Europeans, and this does seem to hurt economic performance.

However, I just saw a talk by Herbert Gintis on YouTube.com that paints a different picture of several hunter-gatherer societies.

  • The Ache of Eastern Paraguay typically offer 40% – 50% in the Dictator Game, with a lot of outliers well above 50%. And almost noone rejects the offer.
  • The Au and Gnau of Papua New Guinea, another group of hunter gatherers, typically offer 30% – 70%. They do have a higher rate of rejections for the higher offers, because gift-giving creates an unusually strong sense of indebtedness in that culture.
  • The Lamalera whale hunters of Indonesia reliably make offers of 50%.

According to Gintis, you get different results when people from agricultural societies play the Dictator Game, because peasant farmers are less egalitarian than hunter-gatherers. Nevertheless, the way people play the Dictator Game does not seem to be strictly correlated with how dominant kinship ties are.

Feb 11 2010 at 11:45pm

I enjoyed the podcast, I think you should not feel the need to have strict time limits — have some questions ready, and when you feel it’s time to move on to the next topic, then do so. Why cut short some interesting conversation?

Comments are closed.


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Podcast Episode Highlights
0:36Intro. [Recording date: January 12, 2010.] Unusual format: solicited questions on Twitter (EconTalker) and Cafe Hayek; picked 10 most interesting, will try to get names right. Will do six minute answers; bell will go off, must finish sentence.
1:44Craig Morgan: Story on National Public Radio about fresh water scarcity threatening mankind. Peak Water. Water is scarce and an important resource. Different from Peak Oil. We don't use up water, just make it temporarily icky or it evaporates. Good desalinization tool called the sun; brings water up out of the ocean and deposits it over land. Scarcity; separate two things: potable drinking water and storm runoff. All cities in the United States and Europe; heavy rain causes runoff and goes directly untreated into rivers. We can't manage all the runoff. We treat water as if it were garbage. Human feces is toxic waste; tiny amount can make a large quantity of water not only unusable but almost a bio-weapon. Take clean potable water and combine it with human feces and then spend billions trying to treat it. Rose George book, analyzes sanitation all over the world. Some cultures are fecal-philic and some are fecal-phobic. China and Southeast Asia use human feces for fertilizer; has a lot of nutrients, though it also contains e-coli and things that are deadly. India and the United States flush it away. Both wrong. The problem is not scarcity of water; the problem is we haven't dealt with the problem of human waste and keeping it separate. Pretty good job in the United States. We pour water into it! Our sanitation system works well, but our water system does not. We have shortages. Richard McKenzie podcast: southern California, not much rain, no shortage of Mercedes and Jaguars but they don't rain either. In poorer societies, struggle to deliver clean water through the public sector. Can the private sector do better? Should focus on sanitary handling of human waste; could deliver clean potable water. A public good would be getting rid of human waste--public sector could deliver that service. Water is a commodity; private systems could deliver that. Rose George book: talk about waste treatment. What mistake? Gold standard is a ceramic toilet inside your house that uses water-born sanitation. We try to approximate that. In China, a number of places are using dry biological systems that also produces a clean methane gas you can cook with. Never touches the water. Bell goes off. No reason to take it away from the house. Want to control odor and contact with germs.
8:12Question 2, from Stephen and TX Sur [sp?]. Bubbles in our current economy. Can we identify bubbles? do something about them? Neoclassical economist. Adam Smith; correction, animal spirits talked about by John Maynard Keynes--group psychology. Used example: investing doesn't have much to do with fundamentals but more like a beauty contest where your objective was not to say which person was the most beautiful but which person everyone else thought was the most beautiful. Nothing about underlying fundamentals; just group psychology. Want to think that's just wrong, but it turns out that Vernon Smith and Charlie Plott, neither of whom would be associated with Keynes, have been able to replicate something like bubbles in laboratory experiments. Thousands of people who didn't know each other at computer terminals all over the world, supposed to buy and sell derivatives on an underlying asset which had a certain value and would fluctuate. They all knew that the value of this asset would go to zero at time 30--a month from now in the experiment. What would happen to the value of the option? For at least 5 or 6 periods after everyone knows the value of the asset has gone to 0, there is still trading in these options. Not surprising that people want to sell them; what's surprising is that people buy them. Why? Thought they could still make money and they were right until they were the last ones holding it. Ponzi scheme, chain letter. But Ponzi scheme seems like a fraud; in this experiment everybody knew the value of the asset was zero. Something like animal spirits might actually count in these kinds of bubbles. They play some role; we don't have a theory of animal spirits, though. For those who want to put bubbles at the center of investing, who want to get rid of the efficient markets hypothesis and bring behavioral economics and bubbles in as the default, pretty empty box. What an Austrian economist might call an asset inflation; wrong signal about the cost of funds, interest rates too low. Taylor Rule, podcast: Fed Funds rates were less than half that suggested by the Taylor Rule, sending a signal to investors that they could make a lot of money in housing; but it was artificial. At least as good an explanation as animal spirits. Way too much money in the housing stock, misallocation of resources. The Fed made it very cheap to borrow. It seems that everybody's really good at identifying a bubble after it's broken; not many people very good at identifying it before. Even the housing bubble--we artificially increased housing prices. Subjectivist with regard to pricing. Keynes's insight--price partly depends on what you think others will pay for it. Prices do seem to return to fundamentals. Bell.
14:25Question 3. Agnostic asks: There has been an explosion in compassionate food--grass fed beef, free range eggs, pastured cows; little stories about treating animals nicely. Bottom up rather than top down regulation by the state. Arguments with vegetarians, who say it's exploitation of the animals. Better if animal had not been born. Cattle and chickens not so great as pets. Montana, mountain meadow, five beautiful cows and one extremely happy looking bull. Cow and bull heaven; somebody was paying for them to be there, designed it, because they want to sell them for profit. People might pay more for happy cattle, taste or health benefits. Or just don't want to be cruel. Peter Singer utilitarian argument--it's not obvious that it really is true that had those cows never been born that they'd be better off. Just the fact that at the end of their life they go into an abattoir--slaughterhouse for the SAT students--when they kill them cows, maybe they do it in a kosher way, allowing people to keep kosher. Paradox: if I am a vegetarian.... Suppose you really value the quality of life of animals, trying to decide whether to be a vegetarian or not. Have to say you favor a capitalist system that delivers meat to consumers because you care about animals. Nice that they are born and live their bovine life for a while. Couldn't live on their own; they would disappear quickly if there were no market for their meat. Strong opinions on this show; defend the vegetarian view: I'm not a utilitarian; all I'm saying is that I as a human being don't have the right to exploit animals. Totally happy with a world with fewer cows. Don't even have the right to bring them into the world to use them as an object for my pleasure. Have converted two utilitarians to eating free range meat. Have to look into the actual conditions; unnecessarily cruel. Why isn't there a middle ground--take cattles' lives with respect and then eat them. Temple Grandin, autistic woman self-described, developed ways to treat animals with more compassion as they enter the abattoir, with little or no increase in cost. Didn't answer the question: top down versus bottom up. Regulations would just raise costs. If what you did was, as an entrepreneur, find a way to appeal to more customers so they would pay more for better treatment. Some people find a difference in the taste because of reduced chemicals released in the frantic final minutes of a cow's life. Bell. Atlantic article about food and about Alice Waters, written by Caitlin Flanagan.
21:27Question 4: Viking Vista [sp.] asks: What is the biggest deficiency in the study of economics today? More and more in a direction where they are studying economics instead of markets; more like a subfield of applied math. Adam Smith, when he wrote the Wealth of Nations, was interested in what causes wealth, but it was a subsidiary question. His earlier book The Theory of Moral Sentiments, was about when is it moral to act in your own self-interest? Under what circumstances can you build a society where people working in their own self-interest make other people better off is an important question; but modern economics doesn't look at either of them. Tends to look at the simplified invisible hand problem: can we show that with what economists call the first and second welfare theorems we actually come up with a competitive market at work. Assumptions we make in order to prove those theorems are absurd. Assumptions about competition, information, nonlinearity--decreasing returns to scale. Adam Smith--pin factory example: if you divide the tasks into 18 different tasks, you get a whole lot of pins; and you get trade and exchange. But that's increasing returns to scale. Economics should be about entrepreneurship, increasing returns to scale, and the way people go over the mountain and find ways to trade with their neighbors. Instead, economics now studies static situations. Old joke: guy comes out of a bar and sees someone on his hands and knees looking for something under a streetlight. Asks to help; guy looking for his keys. Asks where last seen; guy points over into the dark and says over there. So why not look there? The light is better here. Too painful. Economics looks in the place where the light is best, but markets are the place that's dark. Different question: Mike finished grad school, got job--what proportion of understanding gained post-graduate school? Lucky to be at a place that was Chicago-school-oriented. Advertising for eyeglasses and licensing restrictions. Read that literature, Alchian, Demsetz. Learned more, distrustful. First job at Federal Trade Commission; looked at airlines, trains. Like a post-doc. Learned, but because not an economist. For Russ, about 50% or more since grad school at Chicago; couldn't have understood then, not sure how to teach it in an undergraduate education. How do you teach people how to think like an economist, to understand the "and then what?" Mysterious. Bell. Biggest challenge in teaching undergraduates is that we have to give them a grade; hampers education. We only give out questions where we think we know the answers; otherwise hard to grade. Most interesting conversations with economists at lunch: why to sell cars is there such a strange price discrimination? CarMax pops up, different way of doing it. Both exist. We don't know the answer to that.
28:21Question 5: David Williams. To what extent did Fannie Mae and other government-backed debt have in creating the financial crisis? Try to compare different costs. Crisis couldn't have happened without Fannie Mae and Freddie Mac--they were necessary but perhaps not sufficient. Government set a trap baited with three kinds of tasty cheese. We subsidized downpayment, terrible idea, reducing the skin in the game that people had in their own house and takes away the power of the signal about whether the person can manage finances in life. Second, artificially low interest rates. Third, guarantee of permanent price increases. Secretary Paulson in 2006 said that any decline in housing prices was a market failure and government would act--that's what government does--to prevent that. If you think housing prices are always going to go up--first rule of finance is that if anything is known to be going to happen, it's happened already. Fannie Mae and Freddie Mac, created 1938 and 1970 respectively; job called intermediation, find people who want to borrow money and get them together with people who want to loan money. Bigger packages. Problem with mortgages is they are illiquid--don't trade very well as assets. Risky to get the loan too far away from the house, so you have information about it. Big change between 1994 and 1997: definition of a "loan that was conforming." Conforming loan: one with 20% down and a 30-year ceiling on time for mortgage repayments. Dropped both of those: nothing down, 100% of your income could be devoted to your mortgage. Fannie Mae would still buy it at par value. Sisters of Mercy Orphanage could buy it as if it weren't a risky asset--government certified. Reason this happened: Housing and Urban Development (HUD) created mandates for Fannie and Freddie to give something back; they were making a lot of money. Wanted social justice; required them to devote a certain proportion of their business to those with low income. Started to raise that proportion between 1994 and 2006--Clinton administration initiative that the Bush administration embraced. Fannie and Freddie's lobbying effort respected as one of most powerful on Capitol Hill; making a lot of money from loans; government implicitly guaranteed the value of those securities. People kept pouring money into. At one point, $20 billion in new packages every quarter; even more than that. Housing had been a good hedge against inflation; bought a house, stayed in it for 30 years, and after it was paid off it appreciated at about the rate of inflation. American Dream. Once we started pouring all this money in, we destroyed affordable housing because the average price went up, just between 1997 and 2004--up from $150,000 to $250,000 in real terms. Looked like a bubble. Bell. Wasn't animal spirits, though animal spirits played a role because once prices start appreciating like that it can be rational to be exuberant about them; what stoked the fire was bad government policy. Trap. If we can get more people in houses they'll be better off--unless they default.
35:12Question 6: John Strong. It has always seemed to me that a social order with free competition requires a high order of cooperation, much higher than a social order where competition is restricted. Makes you think about what is meant by cooperation. Two different kinds of cooperation. One is that I act in a way that advances your goals because of the way the system is set up. Get used to this tacit coordination or cooperation; still get what we want. Another kind of cooperation is where we have a meeting where we assign people tasks and all go out and do them because we care. Families cooperate that way--sometimes; tell son to mow the lawn and sometimes come back and he'll be gone. Mancur Olson, free rider problem. Two really different kinds of cooperation. Experimental literature: dictator games. Two of us; I go first. $100 on the table; I'll suggest a split--I get $60 and you get $40. You go second; you either veto or you accept. If you veto, we both get $0. If you accept, we get the deal I proposed. Rationally, should accept $40; should even accept $99/$1 rather than $0, and I know that. So the prediction for an economist is that everybody always proposes $99/$1 if they go first and everyone always accepts if they go second because $1 is bigger than $0. Lo and behold, that's not what you find. People will pay a price for fairness. Second person: will I pay $1 because the first person's being such a jerk? Will I pay $2? In Western Europe, United States, Canada, where people are used to markets--if you put them in an anonymous setting they propose 60-40 or 50-50, something close or an even split. If you go to a society that depends on that second sense of cooperation, families, clans, they always propose 99-1 and the other guy will always say no. Weird thing is, sometimes you see that three or four times. They both get zero and stay there because they are not used to impersonal cooperation. Impersonal cooperation is what markets are. Difficult to get into people's minds, but once it's there you get more cooperation. Other factors that may cause those results to differ. Digress: if you go to countries that did not have market-based systems like the former Soviet Union, hear a lot of stories of semi-market behavior where people don't have much trust. Guy plans conference in Soviet Union and right before it's about to start he's told he doesn't have as many rooms as promised. But I had a contract! So, sue me. In America that doesn't happen very often; people would feel like a jerk to be that opportunistic. In societies that are top down or corrupt, they struggle with that level of trust. Worry it's disappearing, especially in light of the bailouts. Play by the rules of the game and end up a sucker. Fragile. Rule of law isn't what sustains capitalism. Bell. Legal system is for last resorts.
41:42Basic economics question, Question 7: Dave. Can you tax a business, or is it passed on to consumers? Complete answer was done by Alfred Marshall in his Principles of Economics. Simple answer: Depends on two things. If it's a tax on income--suppose we tax the profits of the business. Looks like it shouldn't have many distorting effects, like an excess profits tax. After the fact, we are just going to take a little slice. The more you make the more you take. You don't really deserve it; but you have enough incentives. But it encourages overcapitalized production in the sense that instead of declaring profits, the company is going to plow all its money back into robots, conference chairs for its executives, maybe overpaying its executives. So one of the reasons we have robots instead of workers is that the United States has relatively high taxes on corporations. So, who pays the tax on corporate income? Workers! It increases the wages of a few skilled workers, but it reduces employment. It drives companies overseas. Doesn't it make the workers who remain more productive? Yes; the few people who remain are better off, making higher wages; relatively skilled. Corporate income taxes hurt unskilled workers. Second kind of tax: ad valorem, or per unit, tax on the sale of products. Marshall: If a tax impinges on anything used by one set of persons in the production of goods, to be disposed of to other persons, the tax tends to check production--you can get less of it. Shifts a large part of the tax to consumers and a small part back to production. So, unless what is called perfectly competitive--for example, wheat. A tax on wheat would be entirely on consumers. If you put a tax on cigarettes, which is not perfectly elastic, some of that is going to be passed on to consumers. It's only the ones in between where the producer pays any of the tax at all. The distinction is between who pays the tax, who writes the check--the business writes the check--and who pays the check. Generally, it's paid by consumers or by labor. The incidence--the impact of the check--is rarely on business. Technically, it depends on the shapes of the supply and demand curves. One of the values of a formal education in economics. Russ's notes. Cheat and skip off this question: Russ has never seen American Idol; has seen the you-tube of Susan Boyle on the British version; has seen Simon Cowell; leaving the show, rumored that he makes $36 million. Wife thought he made about $600,000. Fascinating--no one seems outraged about that, but people are outraged about Wall Street bonuses, which are enjoying our taxpayer money. He's also enjoying our money--people who watch the show buy the products, which results in his higher income. Market process versus one that is rigged. Incidence question: we don't actually pay Cowell anything. We pay the producers of products, who buy advertising from television companies who buy shows from people like Cowell. The actual incidence of income is different from who pays. Just like for taxes: the person who writes the check--you don't really care who writes the check. Bell.
47:56Question 8: Russell Wood. How would a free market economist advise his own child about the value of attending college? Mike: older son a sophomore, younger son a senior in high school. Three aspects: value added--education; signaling--this is the sort of person I am, I'm college educated; and the kind of college you go to sends a signal about that; third is connections--the people who are in your dorm that you are listening to, meet important people from your state at Harvard. Another thing in parentheses: people go to college to learn how not to become a jerk. Mike took longer than most people--went to college and then got Masters and Ph.D. Why people go to graduate school--takes them longer; nothing productive to give society. Germany has figured out it's cheaper to pay people to study than to pay them to go back to work. As long as they are in school, they are not unemployed; cheaper for the state. Colleges offer different mixes: do you care about the education, the signal, or the connections, and in what mix? There are a lot of ways to cut costs if you look at private colleges, very expensive; a lot of value as signals, lots of connections, people you want your son or daughter to hang out with. No single answer. Which is better, chocolate or vanilla? Part of it depends on taste, on objective. A free market economist would advise his child to think about what I want to get out of this; and how much do I want to pay for it? If you are constrained on money then taking AP courses or courses during the summer makes a huge difference. Can go to a top college; can get in and not spend very much money by trying to economize on the time spent there. Russ at George Mason, state school; Mike at Duke, private school. Russ attended North Carolina as an undergrad, public; Chicago as graduate school, private. Two things to add to list: more important what you study than where you go, some places really good for a particular subject, most okay for most things. Deeply important is the ability to write. Advice: communicating, written, verbally; even PowerPoint. Resume: being at a State school it's really easy to say it doesn't matter where you go; but true based on other experiences. Both compromised in answering this question. Paper: how little time students spend studying today compared to 40-50 years ago. Many better ways to spend your time if your goal is education? People are emphasizing the signaling and connections part. High school where you could take the equivalent of three years of college calculus. Bell. Guidance counselor then said to son: You don't have to take any math in college; you can do other things. Called and said he had pretty clear talents for math; why would you tell him that? Guidance counselor said I didn't take any math and I turned out okay. A lot of the people we have advising our students are not focused on engineering, science, creating new things; view of college as a finishing school, learn to play the piano and sing. Component called "fun"--does take up most of what has been liberated by the reduction in studying habits. Nature abhors a vacuum.
55:21Question 9: Marina. Thoughtful email, gist of it was: There are many charities that collect money from donors to fund cures for diseases, problems, etc. They tend to focus on a particular strategy for curing a particular disease. If a maverick comes along who has a different approach--long shot, mavericks usually wrong, but occasionally right. Ulcers, originally thought to be caused by anxiety and worry; turns out there is a bacteria. Ridiculed, mocked--could be wrong, but could be a threat. Charities care about power and money like everybody else. Ironic: they are humans. One of the first insights of public choice: there is no moral transubstantiation just because someone leaves a market firm and goes to work for the government or a nonprofit. Says they care about people in their mission. Thomas Kuhn, Structure of Scientific Revolution--there's going to be a lot of resistance to new ideas. Some might just be that the existing ideology is a sunk cost, an asset. Human beings going to say they are not so sure about that. Marina in her question gives examples of people not just objecting but going on the attack, spreading rumors. Competing fund-raising source. New entry, private firm may have to be stuck with a competitor. Any relevance to University of East Anglia trove, that suggested that perhaps scientists involved in global warming studies were attacked--people who disagreed with the idea of global warming? Might be just from science, truthiness, truth that transcends mere science; they know that what they want is right; might be a little inconvenient for now. Big harm in public relations' sense; need to suppress facts. Difficult to explain why when the temperature should be going up, it is actually going down. Noted economist on you-tube video: his model suggested there wouldn't be a global crisis if the housing market tanked, not ready to give up on that yet. Digression: strange how cynical we have become. Culture so focused on cynicism, irony. Watch old newsreels and ads; changed. Parts of citizen that haven't grown yet. Cynical about government, but not their Senator. Cynical about business, but not science because romantic illusion about scientists. Have to have some inherent naive trust in some class of human beings. President Obama. Want to trust people. Interesting that we don't make more mistakes than we do. Bell.
1:01:56Question 10: Russ asks Mike. Economy is not doing very well. Ten percent unemployment, falling labor false, so drop from 10.2% to 10% was because some people gave up and stopped looking. Lots of challenges on horizon--massive deficit, growing debt, promises for government entitlement programs, apparently dysfunctional political system, list goes on. Yet optimistic about the future. Will your children have a better life than you will, have a better standard of life than you? Is our future dark or bright? One thing that has made America successful is: what is the American Dream? Central creation myth, not the political one but the economic and family one: if I work hard and provide an education and a house for my children, they will be better off than I was. So the reason I am going to work hard and sacrifice, give time and read to them, is that they will be better off. The world over time gets better. Immigrants certainly believe in it. Do Americans believe in it? Many native-born Americans believe it, sacrifice, work two jobs, send kids to school, whereas they couldn't in their home countries. Evidence on social mobility: less upward social mobility than there was even 20-30 years ago. People are born to a particular class-income percentile; more than used to be stay in or fall from that same percentile. Change in education--people don't work as hard because they don't see the benefits. Suppose you live in Detroit, jobs you depended on either aren't there or disappeared when someone is 56. Shaking that optimism. Russ: data on mobility tricky. Relative versus absolute: may be stuck within same quartile, decile, or quintile, but all moving up. Russ: Shocked at how hard children work in high school relative to how hard I worked. Dumbing downs, but lots of homework. American Dream easier than ever if you graduate from high school and go on to something serious, you will thrive. Immigrants who do that move way up. Most of the mechanisms are still there. Interesting distinctions: in some ways easier than ever before to achieve something like the American Dream; if you work hard, so many opportunities. Computers, cars cheaper; better off than parents if you just work for it. But many young people don't work for it. Divide into two cultures.
1:08:25Close with a different point. Email us if you like or don't like this format. What makes America special is not its success, but the extraordinary opportunity it gives people to pursue their dreams, whatever those dreams are, vegetarian, musical, entrepreneurial, loud, adventurous, quiet. Give people the opportunity to choose their path in life. Book, Price of Everything: there is no weaver of dreams. No one whose responsibility it is in a capitalist system to make sure everything fits together; yet in America it fits together harmoniously. Dreaming and creating. Rising role of government in deciding who wins and who loses; in America till recently much less privilege. Worry. Blame not government, but voters. Rule of law. Interesting: informal institutions, market, educational. We want to mess with it; that gets rid of its genius. Claim on other side is we have to mess with it because only the elites get their chance. Data suggest otherwise. The more regulation, the more likely to shunt people into positions they have already occupied. How do we get voters to be more interested?