Intro. [Recording date: April 20, 2018.]
Russ Roberts: Our topic for today is your recent Presidential Address to the Southern Economics Association. It's called "Economics and Public Administration." It's a very old-fashioned title. Public administration is something I think a lot of people don't know anything about. What do you mean by 'public administration?'
Peter Boettke: It's really the, sort of meat and potatoes of governance. You know: Who collects your garbage? who administers your schools? how do you get the roads? You know--how do you get police? And someone has to provide for that in the institutional infrastructure of society in order for the rest of us to live peacefully with one another and engage in our neighborly behavior. And somewhat--it's sort of the rule--definer and enforcer, let's call it.
Russ Roberts: And, really, in many ways what your paper is about, your essay, your Address, is the fundamental question of public policy. And, ironically, I think--not ironically, but strangely, I don't think we've talked much on EconTalk about this in a direct way. When I say 'we,' I don't mean you and me. I mean, just myself with the 625-plus episodes that we've done. I don't think I've ever had a talk with a guest that explicitly asked the question: What is the proper role for government? In many ways, that's what your, I [?] that's what your paper addresses. And, by calling it public administration, you are really talking about not just, 'Oh, government should do X.' You are recognizing the reality that, when you say, 'Government should,' it's a complex statement. It involves jurisdiction. It involves state versus federal versus local. It involves what kind of bureaucracy and what incentives might they face to implement whatever you think is the proper role for government.
Peter Boettke: Right. I think the way to think about what I'm at least trying to get the conversation back to--I do think it's a conversation that Adam Smith had; and I think it's a conversation that Hayek had in modern times, and James Buchanan. It's about the scale and scope of government. And then, once you settle that question, about the scale and scope, then the question is: 'Who?' This is your jurisdictions. And, 'How are they going to do these things?' And, when you talk to Mike Munger on your show about his book, Choosing in Groups, he has a great sort of discussion of this issue of the Who and How. And, it's a principle that I also hold to: Which is that the extent of the externality is going to determine the decision-unit that takes care of it. So, you don't need the Federal government to collect your garbage. But, it would be awful hard to have, you know, your locality be in charge of national defense. And so, how do you figure all of that out, and how do you calculate, and get reliable information to do that?
Russ Roberts: Well, you start with a quote from Smith--it's a very famous quote. It says,
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but, peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.
And that quote, which says that public policy should be peaceful; taxes should be low; and there's that key phrase: "tolerable administration of justice." Which is a little bit vague. And you try to flesh that out a little in this paper. Why don't you talk about that, and then maybe we can talk about whether that's all there is to figure out. Because obviously that's not quite all there is.
Peter Boettke: Right. But I think, depending on how you view it, you can fit an awful lot. Like, in a lot of things with Adam Smith, you can fit a lot of things in those little phrases. But I take the tolerable administration of justice fundamentally to be about the enforcement--the definition and enforcement of property rights. And the appropriate, sort of, way that we treat property rights, because once, you know, one of the first things that you learn when you study economics: Any approach to economics is that exchange is mutually beneficial. This is one of the first things that we teach, right?
Russ Roberts: Yep.
Peter Boettke: And then, as soon as we get done teaching that, we get a little further on, and then we learn: 'Oh, and by the way, you have to have somebody who defines and enforces the property rights which allow us to exchange with one another. And we normally, you know, introduce even, you know, Adam Smith's 'Night Watchman' state, you are going to have the protective state, the productive state. And what you worry about is the Predatory State; but you still need to have this protective state and this productive state. And, when you do that, you have to finance that. And so we're going to skim a little bit off of these voluntary exchanges that everyone's engaging in, in order to make sure that we pay for the--
Russ Roberts: the infrastructure--
Peter Boettke: the infrastructure that allows them to realize these exchanges. And so, it's this question where, 'What if we get that balance wrong, what happens to us?' And I think that's where Smith is talking--that's the wiggle room of tolerable. Right? There has to be some realm in here where you sort of calculate correctly and avoid having the state now become the thing that destroys the ability to create wealth rather than the thing that enables us to create wealth.
Russ Roberts: Yeah. For it's--I would call it not just the enforcement or establishment of property rights but also what we would call very, very broadly the rule of law. That is, that people are treated equally under the law--you don't have special privileges for some and not others; and that the law is understood--that you know what the rules of the game are, that they are not subject to discretion. And I think that's what, for me, is the tolerable administration of justice. And then, intolerable means--you know, it's heavy handed, it's capricious. It might favor the crony buddies, the cronies of the leader. Those are the things that interfere with the highest degree of opulence arising instead of the lowest barbarism. And, of course, those are not straightforward, laying those out. But, before we go into that in more detail, you mention the productive state, the protective state, and the predatory state. Can you describe each of those briefly.
Peter Boettke: Yes. And if I could say something about what you just said, because I think--but, the way I'm defining it in there, it derives from the work of Jim Buchanan--in the protective state is the courts and police and defense. And the productive state is the public goods, like the roads, schools--according to Buchanan.
Russ Roberts: sewage--
Peter Boettke: Yeah. These kind of things. You know--clean water, kind of issues. And then you have the predatory state, which is the redistributive aspects or rent-seeking state, where what you are trying to do is curry favor for some by exploiting others. And, the state really is a great vehicle by which people can do that. And so you always have to constrain it. But, you have to constrain it in a way that also doesn't simultaneously corrupt or destroy the ability to be protective and productive. Right? And so that's the fundamental Constitutional--
Russ Roberts: challenge--
Peter Boettke: economics interpretation of Federalist 51, where Madison says that you have to first empower the government and then constrain the government. Right? That's the--translating that into economics. And, what I wanted to say about your other point which I think is spot on, is also to recognize, though, how rare in human history it is that we've been able to get a rule of law. Most of human history, we haven't had those kind of institutional capacities. And, in fact, instead, we had government for the favored few, and exploited others. And, I really--this really hit home for me when I was a, way back when I was a graduate student and I was working on Soviet stuff. But, I started reading more general history under the influence of my main advisor, and I read Weber's General Economic History. Because, most of us, when you think about Max Weber, you think about the Protestant work ethic. And capitalism.
Russ Roberts: That's all most of us know.
Peter Boettke: Yeah. But if you read General Economic History, it's all about this issue of the arbitrary--the reason why China didn't grow was because its laws were arbitrary as opposed to general. They weren't predictable. They were, you know, at the whim of the rulers. And then he drives that home across various different areas in economic history, including the law but also the fiscal system. And then that, in some sense, is also in Birdzell and Rosenberg, which I think is a, just a fascinating book, the book called How the West Grew Rich, which was published in 1986--I think--1986 or 1987. And, Nathan Rosenberg, the economic historian. And in that book, what they do is they go through all the different competing hypotheses about why the West grew rich. And then they knock them down. You know, like, you know, colonialism, blah, blah, blah and all that stuff, and then knock it down. But then they focus on this issue of the rules being general and predictable, and equally applicable across all as like the key institutional feature that leads to the--so, the sort of takeoff period. And so I think that finding that right institutional solution--so, if you have institutional problems, you demand institutional solutions. And so, what we have to do is look at those. And one of them is, in fact, how rare it is for us to have good governance, or what Adam Smith called the tolerable administration of justice.
Russ Roberts: I want to go back to Buchanan for a minute and the Constitutional issue. This is something I think we haven't talked enough about on the program. Let me give you my take on it, which is a depressing one, and see if you agree with it, and tell me what Buchanan would have said about it, because I think you could probably tell me. I like to imagine that the United States' experiment that began in 1776 or 1789--the late 18th century--was a recognition that government needed to be constrained. And they created, the Founders created, an institutional framework for constraining government. And, somewhere around the late 18th century--late 19th century, late 1800s--and early 20th century, the constraints that the Founders put on governmental power were steadily and gradually eased. And the scope of government grew. You can debate why. But, it became tolerable the people to accept those changes. And so, we saw steady growth in government over that time period. And, I would say, a steady reduction in the ability of the Constitution to constrain government outside of two areas: speech, the First Amendment; and guns, the Second Amendment. And those are both under attack. And I just wonder if that romantic story--and I've conceded in various episodes and conversations with legal scholars--that it may be a pure romance, in that maybe what really constrained government in the early days of the Republic was that--in America--was that people didn't think it worked very well. And had experienced the tyranny, or what they saw as tyranny from Great Britain, from England. And so, they didn't have a taste for it. And after, over time, that taste changed, that preference changed. And I think most people now don't agree with you and me. They think that government can do good, in an active, pro-active way. And that the productive state should get a lot more resources. And, I'm not sure constitutions have much to do with what constrains the state. And we know that the Soviet Union had a great Constitution.
Peter Boettke: Mmmhmm--
Russ Roberts: It didn't enforce it. We know many places that don't have a Constitution that are tolerably just or have rule of law or appear to. So, what are your thoughts on that? What would Buchanan say about that? Why--what did he mean by Constitutional constraints and that enterprise of creating a Constitution? Because, I'm starting to think, maybe I miss-under--I underestimated the role of culture in human preferences. And that causationally runs in the opposite direction of what I thought.
Peter Boettke: I mean, this is a big debate in Constitutional economics. The best way to sort of summarize that in a technical way--I apologize--is that Buchanan viewed constitutions as contracts. And Russell Hardin, he argued that constitutions were focal points: whereas they reflected the evolving culture of the current people that are involved, Buchanan wanted to view them like a contract that could prevent your natural proclivities from exploiting certain situations by binding and tying your hands.
Russ Roberts: Yeah--
Peter Boettke: So that to Buchanan, the Constitution is best exemplified by Ulysses and the Sirens. And, you know, Ulysses's tying his hands to the mast. Whereas, I think, in a hardened kind of view, it's more like what the Town Assembly all comes to agree is the consensus. But, I want to make a point to you that, one of my favorite economic historians is Bob Higgs. And, Bob wrote this great book called Crisis and Leviathan. And, when I first started my teaching career, I used to teach, you know, from Bob; and, you know, I talked to him about it. And one of the first conversations I had with him, I said, 'Oh, your book is fantastic. It explains why the growth the government,' and everything. And he goes, 'Yeah,' you know, Bob's kind of a curmudgeon, and he says, 'Jonathan Hughes, you know, he was my advisor, the author of The Governmental Habit,' and he said, 'Yeah. Jonathan Hughes says: Bob, you think that today the government is all, you know, in people's business? You should have seen what they did in those damn colonial times, and the restrictions that they had all over the place on people in their local economies.' He goes, 'We've got nothing on them.' And, you know, it was sort of shocking on me, because I keep on thinking, 'Oh, there must have been this time when government didn't try to confiscate the wealth of people.' It's just sort of: We're nice referees; and I like to use sporting analogies all the time in my own head and then try to communicate to students, not always the best teaching technique, but nevertheless, I'm always thinking, you know, 'Used to be a time where the umpire literally called just the balls and strikes in the right zone.' Right? Rather than any of the kind of--and obviously, that's not true.
Russ Roberts: Even for umpires. Yeah.
Peter Boettke: Even for umpires. And so then, the question is, is: How is it that you get the system to work sometimes? And, Buchanan, ironically, is one of the founders of Public Choice. Which was, the goal was to poke or pull the veil of romance away from politics. Right? He wrote a famous paper called "Politics Without Romance," to summarize his position. At the end of his life, he kept on writing about the need for romance. The need for a kind of--what he even wrote in one series of letters that I recently went through--and Pete Leeson's actually writing a whole paper on this--which is, Buchanan called for, what he called, for what he called for, the 'sustaining of the mythology' of the Constitutional, you know, project for the public interest, because he said that: If all we ever see is in our rules of governance is a grab for one another's resources, then what's your response going to be? Your response is going to be, 'I'm going to try to grab resources before the other guy does.' And so what happens is you collapse into a rent-seeking race. And, so, we have to somehow believe that we could have a set of rules which could successfully bind people's efforts to try to grab the resources of others. And, he talks about the need for writers--you know, people, intellectuals like you and I, or whatever, to perpetuate this mythology in order to keep the American experience going forward. Otherwise, it's going to collapse. And, it's a quite challenging idea for any of us when we think about it, because we think of, you know, public choice is part of the DNA [deoxyribonucleic acid,] of an economist, rather than a footnote. And therefore, we should always be looking at, you know, who benefits, at whose expense. Right? In every kind of discussion that anyone makes. But, we rely on rule-makers, who are trying to benefit us all. Right? And so--but--are they just designing to decide the rules just for themselves, or are they trying to design the rules that will benefit all of society? And how do you square that, both analytically and then actually in historical practice? It's a tough thing.
Russ Roberts: Yeah; I remember his--I think it was January 1st, 2000, Wall Street Journal essay called "The Soul of Liberalism," where Buchanan argued for trying to retake the moral high ground. I would even call it the spiritual high ground. And, I think the free market movement--I'll call it the classical liberal movement--has lost--he was correct, and we haven't fixed in the 17 years, 18 years since he wrote that piece--we don't have a lot of romance.
Peter Boettke: But can I--let me make one more analytical point.
Russ Roberts: Yeah, sure--
Peter Boettke: And then an intellectual, historical, evolution point. I agree with you. I think, you know, what you just said is right--is that, what he's trying to do is trying to reclaim the soul of the liberal project. And I think--and his argument is that we economists have been a little blind by focusing on the ruthless efficiency of the market--
Russ Roberts: yep--
Peter Boettke: rather than, let's say, on the doux-commerce thesis about the market, which is something you could get very romantic about--
Russ Roberts: 'Doux commerce' meaning sweet commerce.
Peter Boettke: Yes. Meaning, turning strangers into friends. That kind of stuff.
Russ Roberts: Empathy--
Peter Boettke: Yeah. I do think that Hayek captures some of this in the Law, Legislation, and Liberty project. In which he begins the whole project by pointing out that the Constitutional project of the Founding Fathers was noble and inspiring, but in the end it must have been judged as a failure because it succumbed to the very factions that it sought to break. And so, then, the question is: What do we do in response to that? And, part of the way to see Hayek's answer, in Constitution and Liberty and in Law, Legislation, and Liberty, is for him to sort of try to fix, in theory, what, you know, what Madison, and Hamilton, and Jay, and all of them kind of missed in their effort, earlier. And so that's why he has, like, these weird kind of things in the 3rd volume of Laws, Life, and Liberty[?] where he's talking about like a random law, and then, you know, a 15-year term--because he's trying to figure out a way that you could both empower the state but then constrain the state. But, for me, what I think is not so much his particular answers, but the evolution of his ideas. And I tend to think of this also with Friedman, as well as with Buchanan: That, one of the ways for us today isn't to look for them for answers, but to look for them for the questions that we have to kind of pursue answers for. Because, if you think about Hayek--let's use a very mundane example, which is money. Right? So, how do I have monetary policy that actually works? You've had lots of conversations on your program about what the monetary authority should do. Right? In the face of this or that or the other thing. And so, Hayek, at one time in his career, argued for, basically nominal income targeting. He had other aspects of his career where he argued for other aspects of monetary policy. And then, because of the frustration, in each and every one of those efforts, he ended his career by arguing for denationalization of money. That wasn't something he--
Russ Roberts: Meaning, private money.
Peter Boettke: Yeah. That wasn't something he started with, right? That was something he ended with, because of his frustration. And I think, actually, if you look at Milton Friedman, you know, you also see a similar evolution. I mean, a lot of times we just, you know, look back on Milton Friedman and we say, 'Oh, Milton Friedman believed in the k% rule, or something like that, right?' But if you actually look at--
Russ Roberts: A steady--pick a fixed growth of--
Peter Boettke: Yeah. But if you look at his argument, he actually changes drastically throughout his career, his position. And I'm always reminded of this passage that he has in Capitalism and Freedom, where he says that, if we give--this is in reference to the Central Bank--he says, 'Any policy where a sincere error,' so, not a malicious error, 'a sincere error by a few can threaten the entire system is a policy we can't afford.' And I don't think, you know, that's an idea that James Tobin or Bob Solow ever crossed their minds. Right? Because that's--they're not getting the downside risk aspect, which Friedman is bringing up. They have a different view of the downside risk, which is: What if we don't get the policy--what if we don't do the policy in a pro-active way? Then the system is going to have an economic collapse. Rather than that the political system will generate economic consequences that are dire. And so I--in the paper that we started talking about, I introduced this thing about the tacit presuppositions in political economy, which is the way that people view optimism and pessimism about private ordering or about public ordering. And I would argue that, if you think in those terms, you'll find out that, you know, someone like Keynes or Samuelson--they were very pessimistic about the market ordering itself through entrepreneurship, but very optimistic about the experts in government doing the right thing. Whereas, someone like Hayek or Buchanan is much more confident about the entrepreneurial responses--today's inefficiencies generate tomorrow's profit opportunity. But, they are more pessimistic about the government being able to guide that process, and whatnot. And I think that if we peer underneath of what the different arguments are, we see this, what Schumpeter called a pre-analytic cognitive act or vision about whether or not they are optimistic or pessimistic. Again, I think that's one way to understand these debates within the history of economics.
Russ Roberts: Yeah. I think that's true. I think about it, in my own case--it forces you to think about it, where you are in that spectrum. And I do tend to overly--I'm overly optimistic, perhaps, about the ability of bottom-up solutions to fix things. And I'm not so optimistic about top down. But I certainly concede that there are things that bottom up can't fix, and that top down do better. And in many ways I think that is the central question. You know, government should do the things that we don't do very well ourselves. And then we can debate about what those things are, and how to get there from here.
Peter Boettke: Right. But I've--[?] kind of laughing, as a flippant kind of example, I always, you know, use this to the students, because, you know, I played sports all through college, and then I worked actually in the sports field when I got out of college, or it was before I went to graduate school. But then, when I was in graduate school, I literally stopped training. Which was, you know, like I used to run every day, 2 miles every day, and lift weights, and do all the kind of things like that. But I just stopped doing it, because I was now studying books. And then I put on weight. And I always said to the students, I said, 'Yeah, I was a little too optimistic about Julian Simon.' Because, I always thought Julian Simon's argument is that the greatest resource is the human imagination. And I always thought, 'Oh, yeah; they'll come up with a pill some day, and I'll just take the pill; and then I'll get back to how I used to look'--
Russ Roberts: We're gettin' there.
Peter Boettke: because of technological innovations: 'Everyone's having this problem of putting on extra pounds, so, Julian Simon forces will fix it.' And, some of these things, you can't fix. And so, you start thinking: 'Wow. Maybe there really is, like, problems of short-sightedness in decision making and things like that. I don't think the government is a better decision-maker for you on that. But I do think that there are real problems in the world, and it's a mistake for us to deny them. There is poverty, ignorance, and squalor. There is exacerbation of policy, ignorance, and squalor through, I think, bad policy. But, there also is poverty, ignorance, and squalor that needs to be eradicated. And how that's going to happen is going to be a very jagged and--you know, a jagged process. It's not going to happen, like, overnight, that it gets fixed.
Russ Roberts: I want to come back and add a footnote to my earlier point, reacting to what you just said a little before. And then I want to come to your jagged squalor/poverty problem. Your statement quoting Friedman about the actions of one person could destroy the system and that's a bad system--and it reminded me of a theme that I've heard from Arnold Kling a few times. And I realize now is really embedded in Taleb's, Nassim Taleb's work. And, the way, Kling puts it is: In think about the next financial crisis, you don't want to try to create a system that won't have a financial crisis. And that, in fact, what you want is a system that when you have one, it isn't so bad. And it's interesting that humanly, I think we think about the former. My analogy, my metaphor for this is that the forest fire. So, you have--you know, fire is bad. So, you put out every fire. And when you do that, you do allow the accumulation of small pieces of tinder and other stuff that normally would get destroyed by these other fires, to build up to a point where a fire comes along that is a devastating. The Yellowstone Fire is, being an example of that, where probably caused--the size of that devastation was probably caused by the mistaken idea that we should obliterate every fire. Never let it spread. And I think that's the--we have a similar mistaken view of financial crises. Financial crises, every once in a while, if they are not so bad, it's not a bad thing. What you want to avoid are things like the Great Depression and the Financial Crisis of 2008, which have devastating effects on long-run growth, at least it appears, so far; and destroy, maybe, faith in the political system because of the rewarding of cronies on Wall Street and the bailouts and the one-sided bets they were able to place. But, the way I think about it with Taleb is, you know, Taleb's point is that you shouldn't just look at the expected value; you've got to look at the worst-case black swan. And it's so hard to anticipate that. So, I think what happens is decent people trying to figure out is decent people trying to figure out how to cope with the potential for crisis, say, 'Well, we should worry about how bad it will be. But it won't be any worse than this,' not realizing: Yes, it can be. It can be a lot worse than this. And, I think the whole idea of Taleb's Antifragile and the point that I think Kling is making about having the system be resilient even though imperfect--I think that's the right way to think about it. And I think those are very deep ideas. I just wanted to mention those.
Peter Boettke: No, I think--can I--
Russ Roberts: Go ahead--
Peter Boettke: Because I think Arnold Kling's work on the Crisis and what was necessary to come back really does cycle back to my Public Administration point, because the key issue that he has is that this is a recalculation moment. Right? What has to happen is resources--the recession or the downturn is the moment of great recalculation. You are reallocating resources, reallocating labor: you have to go through that. And so the real question is, you have to get back to the coordination of economic activities through time. And what the Crisis was, was a malcoordination issue. And so, how do you get this ease of adjustment, and what does government have as a positive role to play in that process? And the problem is, is that a lot of the policy tools that we rely on, what they do is they provide short term relief at the expense of long term economic growth. And so, they kill the goose that lays the golden egg, in the desire to fix a short run problem at the moment, that actually doesn't allow for an appropriate recalculation. And, so, Kling--you're right--Kling and Taleb are very, very important in all this, because how do we think about building systems that, through time, become more resilient? Right? That's the whole point about Antifragile--it's not just robustness. It's that you become stronger because of the tearing-down today, but yet, do we become more fragile in the future? To me, I think of the three pressing problems that I think of as facing the American economy, and I don't know that they still have been addressed in an adult manner. Which is, you know, basically the fiscal gap: like, what are we doing on our public finances? What are our obligations in the future, and what is our ability to pay for it? And I'm very influenced in this regard by Laurence Kotlikoff. So, I think this fiscal gap is quite extreme, and that that's going to call for some serious measures. But, Kotlikoff's not the only one. Vito Tanzi and his book on government versus the market--he was the lead economist at the IMF [International Monetary Fund].
Russ Roberts: John Taylor is worried about it. There are a lot of people who are worried about it.
Peter Boettke: Yeah, right--Boskin and Taylor just had that whole piece on this. And so, I think this issue of the fiscal gap is huge. The endgame strategy of the Fed--what's the Fed going to do with all the extraordinary measures that it's adopted since the Financial Crisis--how is that going to get back to ordinary times? And then the third one is the kind of structural inequalities that emerge because of gumming up the labor market. And so, in some sense this is what you were talking about with Glaeser on joblessness, or an earlier time with Casey Mulligan on the redistribution recession. And so, if you put all three of those together and recognize that they are consequences of decisions that have been made, they are decisions that were made, you might want to argue, in the best of intentions; but the long run consequences of them are devastating. Sorry--that's hyperbole. Potentially devastating.
Russ Roberts: Yeah. You know, the--my favorite example--this is, I think it's Time Magazine, in the 1990s had a cover of--it was Greenspan--who else was on the cover? It will come to me in a minute. But the title was 'The Three Who Saved the World.' Because they'd bailed out Mexico and avoided this crisis. But that, of course, is--Larry Summers was one of them. Greenspan, Summers, and I forget who other--Rubin, I think--Robert Rubin, who was Secretary of the Treasury. I think the claim was, 'Oh, phew!' They steered us over a different abyss, by telling banks that when they made bad bets, they'd get their money back. And at the time it was considered a great success, because we had guaranteed these new loans that allowed Mexico to pay off all the past loans that they had taken that were not going to get paid off. And, the guarantees never got invoked. So, "it didn't cost a penny." But in fact, of course, it did. It cost the expected bad behavior in the future.
Peter Boettke: Yeah--one last thing on that, to put a fine point on that. Also, look at Stiglitz's discussion in Globalization and Its Discontents about capital controls. So, he complains, in that book, that during the Asian crisis--what was that, 1997, right?--during that time, people didn't listen to him even though he was in a position of power. And, the country should have put strict capital controls so that people couldn't get capital flight. And, it is true that if you put those controls on, you wouldn't have seen the capital flight. Right? But, what you should ask, is: What's going to happen to foreign direct investment 20 years from now because you put those capital controls on? And he never asked that question. So, it's short run relief at the expense of long term economic health. And that I think creates this real problem, because, again, in politics, much of the desire when we give power to the state is to concentrate benefits on the well-organized and well-informed in the short run and disperse the costs on the unorganized and ill-informed in the long run. And that creates a whole conflict between doing good policy and doing good politics. Because, good politics is to give those short run reliefs, because you don't have to pay at the moment in the ballot box for the long run costs.
Russ Roberts: That's the skin in the game--that's the skin in the game, Taleb's point. For sure.
Russ Roberts: I want to shift gears a little bit. I want to read a quote from the book that I loved. So, I'm going to tell you how much I love it, and then I'm going to tell you what I don't like about it. But it's a beautiful summary of, I think, your philosophy and to some extent, I think my philosophy about economics generally. You say the following:
We are imperfect beings living in an imperfect world, bumping into each other and bargaining with one another in the hope of finding rules that will enable us to live better together. We strive to turn situations of potential conflict into situations of cooperation so we can realize mutual benefits. Smith's tolerable administration of justice emerges when the rules of the game are those that enable individuals to pursue productive specialization and realize the gains from peaceful social cooperation.
I said about economics: really about, I call it, political economy. That's exactly--the world is a complex place; it's really hard to figure out what the best rules are; but we know what the goal is. The goal is to figure out the rules that let people do their own thing as best they can. And, that's what--you know, Hayek's extended order of cooperation is about. It's what Smith's invisible hand is about. And, what makes this essay, I think, so appealing--and I think what makes your worldview and I hope mine, appealing, at least to me--is a realization, appreciation: this is not anarchy. It's not government as zero. You need government, or at least government works well doing a lot of things that enable the invisible hand to work--that enable specialization and cooperation and mutual exchange to work. My question for you, is: There seems to be a good chunk of the American people who aren't benefiting from the gains from peaceful social cooperation. Who aren't pursuing productive specialization, either because they can't, or they don't know how to. The so-called 'underclass.' It just--there seems to be a group of people who aren't part of this great flourishing that is around us. Now, I don't think that problem is as big as most people think it is. You know that, Pete; and I think you're on my side, there. I don't think it's like everybody but the top 20%, or everybody but the top 1%, or the median person, or the middle-income person. I think a lot of people who have shared in the prosperity. But, if you are a poor kid growing up in the inner city or in the rural area of Ohio, West Virginia, where economic life is bleak--what do we have to offer those folks, those of us with our worldview? What do we--what's our selling point? How do we market freedom and economic liberty to people who don't see it helping them very much?
Peter Boettke: I mean, that's a huge question.
Russ Roberts: That's my squalor/jagged point.
Peter Boettke: Yes. I know. And it's one of the reasons why I might agree with all the particulars of my colleague, brilliant colleague, Bryan Caplan's book on education. But disagree with a certain message of it. Not that I think that the Federal government should be financing education and all the other stuff. But, I view education, however it comes to you, as potentially transforming of people's lives. And, it doesn't just begin with initial conditions. So, it's not just: whether or not you are smart to begin with, then you'll be able to, like benefit from education. It's that education can give people different--part of education in a broad sense is to give people different visions about what they can achieve in their lives. And I think education can be transformative. And so, I think of this is issue, is that, we have a real difficult time. I spend too much time, probably, diagnosing why it is that we got in this situation. As opposed to how we can get out of it. But, I think understanding how we got into it, which I would argue--and this is, of course, contestable--is that we have turned more and more to the state, and the idea that impediments are from the outside rather than right in front of you in the mirror. And that what we need to do is get the state out of the way and allow people to, through civil society--for example, you know, I view that a lot of the fixing of the problems of poverty, ignorance, and squalor will fall on basically mutual aid societies: Churches, other kinds of nonprofits that work with people, help with job relocation, and issues like that. I was very influenced by a man named Richard Cornuelle, who has, on Liberty Fund's site a Portrait [Intellectual Portrait series, audio/visual interviews]--so your listeners can go watch what Dick was up to. And I was part of a project with him for many years, because--to put the technical economics of this--not technical, but funny economics--is that Keynes supposedly at one time said, 'Look, you can't make a fat man skinny by tightening his belt. You have to make a guy skinny; and then his belt is less.' He was talking about the budget. And all of these things. And so, if we are worried about taming the Leviathan, one of the things we need to do is, we need to cut all the fat out of government, and instead turn some of these programs to address these very, very pressing social issues over to non-governmental organizations. Like, mutual aid societies and non-profits, including churches and whatnot in our society. And, I think, one of the things that they, when you are closer to those kind of issues, they very much concern themselves with trying to be uplifting of the people that are in dire circumstances and giving possibilities for the future, as opposed to leveling. So, it's not trying to take resources from some and level you with someone else. It's to give you the capacity so that you can in fact be your own self-governor over your own life, your own architect of your own life. And, education is at a key of doing that. Obviously, primary education; but then--and again, it doesn't necessarily have to be the state, and all the other things. But I think we need to have this kind of view about education that it can make even the most, least-advantaged among us, give them the basic capacities to be able to benefit from the marketplace. And live in caring communities. And, yeah, and so, that is my mix of, like, Adam Smith and Tocqueville.
Russ Roberts: I love that. I mean, that's my vision, too. And I get mocked for it a lot, because people tell me it's impractical. And there's free rider problems with raising money for those mutual aid societies, or for philanthropies that would help students. Even in today's world, where we have free education, there are wealthy people giving away millions of dollars to try to get people out of it through private scholarships and scholarships--
Peter Boettke: If you go back to the theme of public administration, the key question, I think, if you take that paragraph that you read, from there is that: What does that then mean for the guts of the structure of government that's in there? And so: How are we going to best deliver that? So, are we going to have--imagine we live in a world, again, like I said, imperfect: so, we have erring entrepreneurs, but we also have bumbling bureaucrats. So, right? So, where are we going? It's not like I'm saying that entrepreneurs are always perfect. All right? But I'm also not willing to say that bureaucrats always do the right thing all the time. And so, the question is, is that if I'm in a world of erring entrepreneurs and bumbling bureaucrats, how am I going to organize the governance system such that I can best address or give the best chance of addressing these social tensions? And, to me, this leads to a kind of very, sort of set of conditions--I don't lay it out in there, in here; but in other places that follow the kind of Weingast idea about decentralized or polycentric governance structures, right? Where, you don't want to have economic regulation at the highest levels because you want to have competition going on to discipline the efforts of the government to be able to regulate the economy as a whole and you want to have--at the same time, you want to have something at the central level which provides, for example, a common market. Right? And so, you know, you don't have internal protectionism kind of things going on. And these kind of questions all become very important about how you unleash the creative capacities of mankind. So, to go back to reading, you know, Hayek's chapter--I think it's the second chapter in The Constitution of Liberty on the creative powers of a free civilization--that's always been the most, going back to Buchanan, that's always been, to me, the most romantic discussion, ironically, about what a free civilization can deliver for us. Because, we can't tell you what it is. Right? But, we know that we're going to maximize the opportunities for things to come about, which, today, we don't even have, can't even imagine are going to be there. Right? And so it's even beyond flying cars, right? We have no idea--like, this seminar that we're having today, our discussion, in the future we might be all, you know, a whole auditorium with holograms of all of us there, be enabled to actually say hello to the different readers and experience that. And, even if you think about this, this podcast that you have and what you've done so brilliantly with it since 2006--I remember when it started you had Milton Friedman on, right?
Russ Roberts: Yep.
Peter Boettke: And Milton Friedman is the best communicator of economic ideas in your and my lifetime, I believe--
Russ Roberts: I agree--
Peter Boettke: And, but nowadays--and so he was a unique talent. And it required such a unique talent to have the reach that he did. But nowadays--
Russ Roberts: even I have the reach. Yeah.
Peter Boettke: Amazing reach. Right? An amazing reach. And done such an amazing job of teaching people economics. And I think this was really, really key--people can laugh at me about this but I think it's really key, because after the Great Depression, within a generation it became the common knowledge of even those practicing economics, let alone the public, that the market was the reason for the Great Depression. And that narrative was something that people wanted to push after 2008. But yet, it hasn't become the narrative.
Russ Roberts: It's one of the narratives. But it doesn't dominate.
Peter Boettke: It doesn't dominate. For every narrative that does that, there's another person viewing "Fear the Boom and the Bust," right? And these kind of things. And so, millions of views of that--who could have imagined?
Russ Roberts: It's a reference--
Peter Boettke: Would Milton Friedman have imagined that he could have had, you know, his lectures on Free to Choose, you know, at the time that he was doing it, or let's say, even more relevant, the Capitalism and Freedom lectures, that they could have been seen by millions of people at their computer? He never says [?]. So, I think that technology and the free society and innovation and all that is just so powerful. And Hayek captures it by saying that we have to have this infrastructure which permits that. And so it's like Munger's talk with you recently on permissionless innovation. And what are the rules that give us that?
Russ Roberts: In case there are any listeners who haven't seen, "Fear the Boom and Bust," the first rap video of Keynes and Hayek I did with film-maker and economic thinker John Papola, we'll put a link up to it. But thanks for the plug, Pete. I really appreciate it--
Peter Boettke: No, but not only that: If you actually go back and look at the content value, not just of the rap, the words and the rap, but then what followed up when you did all of the stuff on economic stories, you know, where you actually explain in detail what the debate was? I mean, educationally that was available that only used to be available behind libraries that required people to have, you know, 8 years of school before they could read the triangles.
Russ Roberts: Yeah. That's amazing.
Peter Boettke: It was amazing. So, yeah.
Russ Roberts: I want to pick on something you said, pick up on something you said--I might pick on it, too, actually--because I think it's really something I've always been bothered about, and I'd love to get your reaction. You made, at one point, an argument for decentralization, bringing decisions down to the local level where there would be more competition rather than at the Federal level. Right? Did I get that right?
Peter Boettke: Yeah. Yeh.
Russ Roberts: And, Taleb makes that point about Switzerland, the canton system, and that there's much less national policy done. And, I'm a big fan of that. I think it's a great idea. I've always wondered, though--the problem is, it seems to me--and I have a new take on it, so, see what you think of this. Nobody pays much attention to local politics. Now, one argument is it's because, 'Well, it's not so important.' If it were important, then people would pay more attention to it. I think it's pretty important even today, that state legislatures--I'm not sure I can name too many people in my state legislature other than a guy who lives around the block from me, and I just happen to know he's in the state legislature. So, it's a little weird. And, I suspect part of the reason that it doesn't get the attention it might deserve is because they are not celebrities. They are local. And, we have this, unfortunate love of celebrity--which Smith identified in The Theory of Moral Sentiments. And, so it's pretty old. It's a real problem. And we glorify and put on a pedestal national politicians. I don't know if we--and I think that's a bad thing. But, I'm not sure even we get to the attention level and citizenship required to be good local citizens. What do you think about that?
Peter Boettke: I think the demands that are often put on to have a self-governing democratic system do put an awful lot of demands on us as citizens that we might not want to do. Right? And, in fact, we have to always fear when we don't do this. So, we have a fear, a Tocquevillean fear, of democratic despotism. And we tend to think of that in terms of an overarching central government that's engaged in too much of--you know--but we can also overlook the problem that we face with local tyrannies. Any of us who belong to any kind of thing that is a homeowner's association realizes that there's a lot of meddlesome preferences out there.
Russ Roberts: Yeah--
Peter Boettke: Right? That get involved. And, you know, how do we deal with that? And, I don't know if you remember, in the movie--this is a funny reference--but in the movie, The Patriot, when Mel Gibson originally doesn't want to join the revolution, his answer to the people telling him he has to join the revolution, he says, 'Why would I trade one tyrant 5000 miles away for 200 tyrants one mile away?' Right?
Russ Roberts: He's on to something there--
Peter Boettke: Yeah. So, he's on to something. But what that does is I think it just means that we have to build this sort of vigilance of what it means to be--part of what we have to do is get people, again, to recognize the burdens of being a self-governing citizen that's responsible as a co-producer of the neighborhood that they live in. Now--
Russ Roberts: No, that's for sure. Actually, I think about--
Peter Boettke: And that's a tough, tough thing, because we all have lives to live. I don't want to go to a meeting to talk about whether or not someone can have a wrought iron fence or a wooden fence, you know, or anything like that.
Russ Roberts: But there are people who will.
Peter Boettke: Yeah. There are people who will. But yet, at the same time, if you look at, like Robert Nelson's book on private neighborhoods, we have had an explosion of private neighborhoods in the last generation. Which include, like, the provision of local public goods. That the neighborhood association--so it's a private provision of a public good--and they maintain it and keep it. So we have moved in this direction. But we still delegate a lot of authority to these local people. And then if you throw into that also things that a cosmopolitan sentiment might find, you know, problematic--like, some localities might have very perverse mores about them, and not have the openness to others and whatnot that we tend to glorify today as part of what it means to live in a open society, and whatnot.
Russ Roberts: Yeah. I've used the example before, in Irvine, California: You can't leave your garage door open during the day. I think you can't paint your house certain colors, in certain places, for sure.
Peter Boettke: Right. But whether or not that's better than the other thing--so, you know, again, I think revisiting, for just to the readers here, revisiting Adam Smith is always fascinating on these, because he dealt with so many of these issues for his own time. I understand we don't live in the same time as him. But if you read him, the general principles of, say, for example, in Book 3, where he's dealing with violence. Right? And, how is that--
Russ Roberts: about The Wealth of Nations--
Peter Boettke: Right. Yeah. Sorry. The Wealth of Nations. How we have to curb the predatory capacity of states and violence. But yet at the same time we also have to curb the private violence. Right? As Smith says, it's only under the civil magistrate that we're able to sleep at night--that we're not being, you know, subject constantly to violence. But then you look at the 5th Book of the Wealth of Nations, where he then gives his advice to the statesman--right? He gives him--he's trying to bound them by rules: like, he even uses--in taxation he gives us maxims of taxation--not tax policy. Right? He says, 'This is what taxes should look like.' And there are rules. There are rules about the tax system. And he's worried about the juggling tricks: you know, you are on deficits, accumulate debt, and deface the currency, so we've got to get off of that juggling tricks. And so, Smith says in there, that governments ancient as well as modern having engaged in these practices. And that's because, as, to mention Jonathan Hughes again, his title, which I think is a wonderful title, it's called The Governmental Habit, which is the history of how government has practiced these things. And, that doesn't mean we have to like get rid of governance. Because, we need governance to be able to realize the great benefits of exchange and whatnot, and specialization and exchange. But, at the same time, government can also be the great curse that truncates our possibilities. And so, how do you--so, as I said before, I think reading Hayek and Friedman and Buchanan, you don't have to necessarily look for their answers, but the questions that they raised are so fascinating, and a continuation of the questions from Adam Smith, that it just should excite the minds of the next generation of, 'How is it that you wrestle with this problem of economics and public administration?'
Russ Roberts: Yeah, it's a great point, about questions and answers, and also a great point about maxims versus details and specifics, right? It seems to me that there is a human temptation--and this comes back to your earlier point about optimism versus pessimism in the private versus the public sector. You had late-night college debates or debates at cocktail parties or bars where you are trying to talk about big picture stuff: you'd propose something, and someone would shoot it down and say, 'Well, what about x?' And x would be like one person might go hungry. And one person going hungry is not good. But, people go hungry. They go hungry under every system. It's so hard to remember that. It's so hard to remember that every system is imperfect, whether it's a government or a private-entrepreneurial solution, or strategy, or some kind of implementation of some vision. They are all imperfect. And, I think that's why you have to keep in mind that Kling/Taleb point about consequences. Of course it's imperfect: you just don't want it to be disastrous. And the opportunity to throw the bums out is what I think is--and to experiment and tinker and use trial and error--is such an unromantic, unappealing, but crucial piece of good public policy. And it's so hard for politicians to sell it.
Peter Boettke: You don't have much of a placard when you have as your motto, 'Don't let the perfect get in the way of the good.'
Russ Roberts: Yeah. My version of that placard is, 'Maybe.' It's like, 'Oh, great.'
Peter Boettke: So, I think, yeah. But that in some sense is actually what our problem in the 20th century is, is that a large part of our effort was to substitute what we thought was the perfect for the good. And, that creates this kind of, you know, like the Thomas Sowell point about the anointed and other kinds of issues with the progressives. And I think one of the important things for economics, economic science, is that to some extent, the demand for economists is a derived demand. And, if our final product is public administration--that, you know, we are supposed to serve--there is a big difference between public administration as conceived of as bureaucratic management of an economy or democratic governance. The way I put it in the paper, borrowing from the Ostroms is: The difference between governing over or governing with. And then: What kind of economics? If we are governing with, economics is supposed to be a tool for social understanding--and that's it. If we're supposed to govern over, then economics has to be a tool of social control. And, this determines so much in my pet history here, you know, of the way that economics evolved from Adam Smith to Paul Samuelson, is that economics transformed because public--the nature of what we conceived of public administration--transformed. And so, if you were an Adam Smithian in the time of Samuelson, you would have been scoffed at. But, the reality is, is you were a Samuelsonian in the time of Adam Smith, you would have been scoffed at--as arrogant and a man of conceit, and whatnot. But, by the time you came to Samuelson, if you are a Smithian--like Hayek--you are scoffed at as, you know: You are a relic from a previous age. And so, I want to see this relationship between public administration and economic science because it influences the way we practice economic science. And I want to see if we can change our vision of public administration--then, how much does that open up the science of economics and the art of political economy to be different than the way that it is currently practiced? And I think--well, anyway, I'll leave it at that. But I think that that's kind of fascinating, if you think about that in light of the kind of debates and resistance in debates that you've had over statistics and prediction. Because, if I view statistics as a tool of social understanding, they're just one piece of a lot of forms of evidence that I might rely on. And I would never go to the barricades for just that. I'm just trying to figure stuff out. And I need to kind of know. Like, in your debate with Glaeser you had a wonderful conversation about figuring out actually, you know, what is the percentage of people that are jobless? What is the change in the joblessness rate? All that stuff. That had nothing to do with control. That had to do with whether or not [?]--
Russ Roberts: figuring out what's going on.
Peter Boettke: Yeah--figuring out what things are going on. Whereas, if I'm doing macroeconomic policy and stabilization policy, I need those statistics to be fine instruments of control. Otherwise, I'm going to get the policy--like, no one goes there and says, 'Eh, I'm just going to give it my best chance.' Right? And so, economics got transformed into this tool of social control, as opposed to a tool of social understanding. And I think if you look through various different thinkers that you've discussed and try to think about where they fall in that spectrum, it's a quite fascinating way to think about it, with Hayek being probably the most extreme of economics is just a tool of social understanding, to Milton Friedman, say, for example, who was very active in trying to figure out what would be the right policy conclusions, right? To someone like Keynes, who had great faith that he knew what the--or Keynesians, at least--had great faith that they knew exactly what the right policy mix was going to be.
Russ Roberts: Well, Stigler and Friedman had that distinction, right? Friedman wanted to change things; and Stigler sought that--was bemused because--
Peter Boettke: Actually, yeah; Stigler would be in Hayek in that regard.
Russ Roberts: Yeah. You just--this is just a circus to watch. Why would you think you could actually change what the performers are doing?
Russ Roberts: But, I want to--let's close with this. I want to come back to something you said about citizenship, and I want to apply it to economists. You said something really interesting about: Citizens need to rethink their role. Or that it's expensive. It's a time-consuming role, to be a good citizen, and it's hard. We have lives to live. And I think that's absolutely correct. I'm going to tweak that a little bit. I think part of our problem right now in America is that politics is a form of entertainment and tribalism. It's a way to express ourselves, to express our identity. And we're not so concerned with truth. And I get that. And it's unlikely to change. But I think we might make a dent in it a little bit if we make people aware that how they behave on Twitter and Facebook and what they believe affects how they vote, and it affects how their neighbors vote; but it also affects how their neighbors treat each other. And that's what I think we are starting to put at risk here in America, is that the level of tribalism and anger and intolerance and so forth--I just notice[?] are being produced not by the fact that, 'My evidence is better than yours.' It's that, 'My team is better than yours.' And therefore it must be the case that I'm right and you're wrong, and you're dangerous. Which is just--that's not going to work in a democracy for very long. And I think people need to realize that that's dangerous in and of itself. So, I want to make a related argument for economists. You know I agree with you that we're useful for social description more than we are for social control. We're better at understanding the world rather than manipulating it. And yet, we're lonely. There are not a lot of people who agree with us. And one of the reasons, of course, is that it's more fun to believe the alternative and be able to believe that the levers work; and then you could maybe get to move the levers. I have episodes with Luigi Zingales and Paul Pfleiderer on the fact that economists have trouble seeing themselves as the way we look at everybody else--which is: incentives matter, and rewards influence behavior. We treat ourselves--our profession generally sees itself as "scientific" and just out for the good of mankind. And I think it would be good to have a little more self-awareness, that it's more complicated than that. And yet, these kind of critiques that you offer and that I've offered, and others, they don't resonate much. But, I think our best bet is not to convince our fellow economists that they don't know as much as they know, but maybe to convince them that hubris is dangerous. In and of itself.
Peter Boettke: Yeah. On the general status of the world today, it's almost, Russ, as if the whole world has moved to the Yankees versus the Red Sox, or Duke versus North Carolina. And, you know, those things are entertaining--you'll know this book--a few years ago, something about the hate, about the North Carolina/Duke rivalry. And it's a whole book about how beautiful it is to hate, between the two. Because, this has been one of the greatest rivalries in college basketball, and whatnot, and that's not what our politics should be. And yet it is entertaining. And so it has become what our politics, and especially with social media, this has become low-cost way to entertain ourselves. I read a book recently by a professor--I can't remember her name--at the U. of North Carolina; she wrote a book called Twitter and Tear Gas. And it's about the impact of social media on social movements. And her argument is basically that when the March on Washington took place in the early 1960s, it took them 10 years to organize that. And in the process of doing that, they developed these close personal ties--lots of social capital. And therefore they were able to translate that into political action relatively quickly. Whereas with more recent events like the Occupy Wall Street or the Black Lives Matter or the Women's March, they were able to organize through social media but they don't develop the thick social ties; and so they are unable to translate it into politics. So we might be having a lot of fireworks but very little impact of a lot of this. But, it changes the nature of the way we interact with each other in a very, very wrong way, I think. Because, we divide ourselves up into silos. We only talk to those people that agree with us, rather than disagree with us. And, as a result we can't bridge the social divides that we need. And, in order for us to be able to have the kind of democratic society as Buchanan and Tullock talk about in The Calculus of Consent, we have to make sure that these divides are not translated as permanent winning coalitions for one side versus another side. Because, if that's the case then you simply reject the process. And so, there has to be some way in which we can work all of this out. And I think that that's--if we, economists, can contribute to that. Now, let me say one thing, in this Address that we started talking about, I tried to relate--one of my strategies in writing it was to relate to all of my teachers who have been the President of the Southern [Southern Economic Association]. So I became, you know, someone after a line of teachers starting with Buchanan, and Tullock, but also Robert Tollison--
Russ Roberts: Southern Economic Association--
Peter Boettke: Southern Economic Association. And Tollison's Presidential Address was all about the point that you were just making with Zingales, which is that we economists have to always be in the model. We're not outside the model, you know, somehow from on high, dictating. But, instead, we're part of the model. So, one, that means we have to take into account the incentives that we have, and the information flows that we have; but it also means, what? That we are part of the equilibrium. Meaning that our efforts aren't as completely, like Stigler in some sense wanted economics only to be a tool of social understanding; and he also was cynical about economists wanting to do good or whatever. But, at the same time, there's a kind of efficiency, always, and lack of hope for change. And Stigler's teacher, who influenced Buchanan--Knight--always used to say, 'If a situation is hopeless, you are saying that the situation is ideal.' Obviously, we don't live in the ideal world, so therefore it's not hopeless. But how is that change going to come about? We have to be part of the ongoing conversation with our fellow citizens about the scale and scope of government, who is going to do what, and how are they going to do it. And if we can produce an aid in that process and listen to others' answers to us, we'll probably go forward and be able to tackle those big problems that Hayek, Friedman, and Buchanan left for us to kind of play with and work with and think about.
Russ Roberts: The author of Twitter and Tear Gas is Zeynep Tufekci. I don't know if I'm pronouncing it correctly, but the last name is T-u-f-e-k-c-i. First name is Zeynep. My guest today has been Peter Boettke....