EconTalk |
Robert Frank on Success and Luck
Apr 11 2016

Success and Luck Is your success in life your own doing? Robert Frank of Cornell University talks with EconTalk host Russ Roberts about his latest book, Success and Luck. Frank argues that we underestimate the role that luck plays in our success and makes the case for a progressive consumption tax as a way to improve even the welfare of the wealthy.

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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.


Matthew Whited
Apr 11 2016 at 9:26am

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George P. Burdell
Apr 11 2016 at 10:53am

Surprised to see that Frank went to my alma mater, Georgia Tech. Clicked on the link to his website… you need to updated it. It is missing the H in HTTP.


[Fixed. Thanks! –Econlib Ed.]

Apr 11 2016 at 1:02pm

I am about half way through the podcast so this may end up getting addressed later.

A few points. The elephant in the room about wasteful spending is healthcare and the military, not pork barrel spending. And there is an awful lot of corruption in this area: far more than anyone cares to admit because its impolite to attack sick people. Those who do are burried by an avalanche of straw men.

He brings up the need to have social security(which i agree with) on the grounds that otherwise, the savings will be spent on houses to avoid bad schools. Wouldn’t a more direct approach be to fix the location based education system instead?

In fact, its almost completely unaddressed the issues of public choice. I feel like mike munger must be listening to this and shaking his head.

Despite huge expansions in welfare, nutrition programs, job retraining, and generally more generous safety nets; we see the same persistent pathologies liberals bemoan. Despite having by far the highest per capita spending on education and health care, these areas are somehow underfunded. And their answer always seems to be, “if only we could get another 100 billion, the problem would be solved.”

Poor people aren’t stupid and they respond to incentives. Public choice is a fact of life. Its why foreign aid is a spectacular failure(except for the few vested interests). One would think liberals would see this evidence and conclude, its not a revenue problem but an implementation problem. Sending more money down a lousy system achieves nothing.

Yet they don’t.

[Broken HTML fixed–Econlib Ed.]

Walter Clark
Apr 11 2016 at 1:18pm

Toward the end, the discussion was on how those who are most rich merely want to continue to be special and taxing all of them allows the same order of who is most special.
Several Questions for Economists:
– Aren’t those at the top also the ones that do a large amount of the investing?
– Isn’t taxing what they spend on conspicuous consumables going to also affect the way they invest?
– When they have less, won’t they become more conservative investors?
– And finally, aren’t the high risk investments the source of innovation that increases the standard of living for everyone?

Apr 11 2016 at 1:39pm

Robert Frank
Problem: individuals are irrational consumers.
Solution: give money to government.

The problem is that collectives, especially in the US, are less rational than individuals. Read Phillip Howard. We still pay farmers to not farm! The idea that if all the Ferrari owners traded those for spending $100k + better roads + Porsche, seems plausible, until you realize governments have much more money than in the old days, and all that goes to new rights, institutions (eg, health care, education).

Like looking at spending and school performance, the data do not show giving more money to government helps any of these problems. My local government in Minnesota needs to spend more on roads, but they keep building light-rail boondoggles.

Frank also ignores the fact that most technologies started out as playthings of the rich. If we tax those harshly, productivity would be hurt a great deal, and over time, as Robert Lucas notes, GDP growth is key.

Apr 11 2016 at 5:05pm

Thank you Russ for another excellent Econtalk podcast. I haven’t laughed so much in a long time, it was hilarious!

Listening to Frank try every tortured liberal argument in the book to plug his new book ($26.95 for a slightly longer version of the easily Google-able same article that he has been writing for years) was an enjoyable experience. Every factless, innumerate liberal canard and high school debating trick was on display in all of their glory. Since it is fun to punch holes in these arguments, let’s get started (this is going to be a long one, so get comfortable):

– Frank dismisses bad luck because of a study saying that we may not remember good luck as well as we remember bad luck. But memory isn’t the issue, luck is the issue. One would think that luck is at most evenly distributed (with a strong argument to be made that due to entropy, bad luck should be vastly greater than good luck). So whether you remember it or not, luck affects everyone generally the same. It is what you DO with that luck that matters, and certanly not nearly as much as the hard work discussed. Even Frank stipulated that it may be only a percent or two of your overall success.

– So Frank didn’t die. Yet, 98% of people in his situation do, and a large percent that live contribute less than they did before. So at least 99% of people in that situation suffer from bad luck (my estimates above may be wildly conservative!). Bastiat must be rolling over in his grave at an economics professor that is unable to see the unseen example right before him.

– Coincidentally, at my first company, a rising divisional CFO died of the same cause playing tennis. Do we compensate his family for being unlucky?

– So based on purely anecdotal, non-quantifiable, cherry picked stories, he concludes that the rich need to pay more taxes. Hmmm, how does he know that the rich have not ALREADY paid that proportion of whatever luck that they have had in taxes? Which of the many tax increases was it that didn’t include luck?

– Many Democrats have used this “winners of life’s lottery” gambit to soak the rich, including Obama. If success is characterized as being due to luck and not hard work, it is easier to justify taking additional monies. Unfortunately for them, saying it doesn’t make it true.

– Some quick Googling shows that Ferrari sells 2,000 cars per year in the US at an average of $300K each. That’s $600M in total US revenue. If half of that went to infrastructure spending in the US, it would move the needle by less than 0.1%. Sorry, that’s not going to fix many potholes and under our current political system, would certainly be earmarked for another light rail boondoggle as above. Dreaming earmarks and cronyism away doesn’t solve the problem.

– Of course, the neat “unintended consequence” is that because Ferrari doesn’t sell $150K cars and the US is one of their largest markets, they would quickly go out of business. If one defines luxury cars as over $100K, say goodbye to Tesla, Porsche, Mercedes, Bentley and Lambo as well.

– New Zealand may have better roads than the US, I don’t know and can’t find a quantifiable analysis. However, the comparison of the US with many of the liberal utopias (NZ, Sweden, Norway are some of the usual suspects) ignores that they are a fraction of the US size and typically have a longstanding, homogeneous culture. They also tend to have significantly lower standards of living (except Norway, which is an oil based economy). Now, if people vote to make themselves significantly poorer in order have better roads, then fine. But the US has voted to make itself poorer over the last decade via larger government and we aren’t spending any more on roads. Frank held up roads as an example, knowing full well that a tiny fraction of the additional taxes that he is proposing would go to those roads.

– Frank asserts that we have the resources to provide increase health care spending to the poor. We don’t. We are $19T in debt and on an accrual basis, we have tens of trillions more in unfunded liabilities. All due to government, not private, decision making and resource allocation.

– Blaming people who want to escape the cesspools of (almost universally Democrat run) inner city schools is not an irrational choice and usually a very wise investment. Advocating a forced savings plan (if it worked as Frank described – which it wouldn’t) would only continue to prop up these schools. Since they have refused to change their failed educational ideology for decades, the only way to force change is to abandon them via mobility. Trying to prevent that is only relegating poor inner city children to the same fate. (BTW, I do not entirely blame the schools, so I think that the reference to “where they were born” is not a causal factor, family values remain a major influence.)

– Throughout the discussion, Frank repeatedly assures us that he knows what rich people should do with their money better than the people that earned it. Such hubris is endemic to the liberal mindset. (And I am not sure who is spinning faster here, Smith or more probably Hayek…). Sorry, he doesn’t possess the combined knowledge of 330M people making their own decisions.

– The fault of the income tax is NOT in its complexity. There are simple theoretical ways to fix that. The liberal promise to greatly simplify and reduce income taxes in return for a consumption tax is selling snake oil. Consumption taxes are ALWAYS on top of income taxes and the rates ALWAYS increase. Just as the income tax started at 1% and originally peaked at 3% and FDR promised “a dime a week, it will never go higher” for SSA, they keep pulling that football as the electorate keeps trying to kick it. A quick Google search shows that in Germany, the VAT was introduced at 10% and is now 19%, in France, 13.6% to 20%, in the UK, 10% to 20%. In Sweden it is 25%. All still have income taxes.

– Tax policy is the main sellable power of government. The returns on targeted contributions to affect this policy are astronomical. Politicians and rentiers will never give up this power.

– Besides, isn’t Yellen doing backflips to try and INCREASE consumption when a consumption tax would logically only decrease consumption? Of course, like most liberals, Frank assumes that the sheep will always stand to be sheared and won’t change their behavior when even more fleece is required.

The overall theme of this podcast was not luck or taxation, but the repeated examples of Frank’s hubris in deciding how much we should spend for cars, how much carbon we should use (I could fill up a few more pages on that one), how big our houses should be, how much of our money the government should let us keep AFTER taxes, where our children should go to school, and how he and the government understand economics better than Adam Smith (or maybe more accurately, Hayek). This hubris is unfortunately rampant on the left and they never seem to recognize it.

David Nickum
Apr 11 2016 at 6:29pm

Hi Russ
Great podcast as usual. Your comment about ice caps increasing is not correct. Please dig a lot deeper into the science so you don’t make a statement as fact when the science doesn’t support it. You did partly cover yourself when you said one was decreasing and one was increasing. But your guest is more correct than you on this matter.

Timothy Wright
Apr 11 2016 at 10:21pm

Great podcast! I find it very interesting when the guest has a different opinion than Russ.

I would like Robert Frank to explain how we could get a better government. I understand his desire to make the world a little fairer and agree with him that it is not. There is a lot of luck of the draw, starting with the parents.

However, I struggle with how to make it fair. I am a little skeptical that there are good governments that spends money wisely. Money corrupts, gets skimmed off, programs become stagnant. Just look at the public schools in the USA. It is not clear that other places like Finland have better schools. I don’t think they are funded better than the US.

What about public choice theory? If humans are irrational and need help, what about the humans that run the government? What helps them to be rational?

Apr 11 2016 at 10:51pm

Ok Finished it now:

I still hold what I said above; though the end of this podcast prompted me to post something I’ve thought a lot about.

Frank argues that a higher progressive consumption tax would lead to higher savings. And that in turn would lead to more investment and higher future consumption.

This leads to the following: What is the optimal savings rate? If we saved 99 percent of the money and consumed 1 percent, the rate of return on savings would be essentially 0; no one is consuming new products so why even invest in creating them?

But then, is Frank assuming a higher consumption tax arbitrarily set will lead to a better outcome than say a flat consumption tax? In essence, is profligate arms race consumption going to push us away from the optimal savings rate and a progressive consumption tax will push us closer to that? I’m not sure how anyone can claim this empirically, so its purely a guess.

I could buy his argument(and I honestly do); but that doesn’t mean I’m right and as a matter of principle, we ought to ere on conservative decision making when we have no clue. Thus, I’d prefer a flat consumption tax along with carbon and land value taxes. (to say nothing of the additional cronyism and rent seeking that will occur with the additional revenues).

Does anyone else have any ideas about what they think the optimal savings rate ought to be and if this should be achieved through a progressive consumption tax?

Ken Barber
Apr 12 2016 at 12:11am

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Brian Mason
Apr 12 2016 at 4:08am

A sound start with luck being a part of every outcome then degenerating to “you didn’t build that” so we’re going to take it and it won’t cost anything.

Affordable health care, education, good roads … Greedy capitalists have reduced the cost of cell tech by a factor of 9,000 in the last 25 years. Government enforced contract and tort but did not otherwise “help” at all. So $100,000 cancer cure -> $11.11. Again, humans accomplished this on this planet recently.

Frank went on and on about good government. He put forward several ways for government to take more, and we won’t give up anything!, but did not offer one way to discipline government.

The “winner take all” economy so government should take and transfer more is just the zero sum fallacy gussied up a bit. Farmers went from 80% of the US population to less than 2% last century. Yes, if government(with ample funding that Frank argues for) prevents people from creating more and better work then we will suffer – except for government.

Frank’s “big idea” is just silly: we can fund government by taking from the wealthy and it will only change the sticker price on mansions! No need to give up anything just drop a zero or two on a few big ticket items! He warned in an earlier podcast about a money on the table argument. What about people who build and service mansions, people who “consume” by investing in startups…

One of the ways government spends our money is killing 200,000 looking for WMDs that never existed and 100,000s more building a stable democracy that hasn’t materialized. OOPS!

Apr 12 2016 at 4:49am

Luck plays a huge role in life. Physicists tell us all about the role of chance in the universe. I’m on board with that. The rest of Frank’s arguments are less convincing. In fact, his opening New Zealand example is arguably self-refuting. Frank was in New Zealand and its infrastructure testifies to how nice things can be when governments spend more and people are less selfish. Guess what? New Zealand ranks #3 in the world in the Heritage ranking of countries by level of economic freedom, vs. the U.S. at number 11. Its highest personal tax rate is 33% (US 39.6%); highest corporate tax rate is 28% (US 40%); its grade for fiscal freedom, a measure of the oppressiveness of its tax regime, is 71, vs. the U.S. at 65.6 (higher is better). Could it be that New Zealand is so nice because it’s one of the economically freest countries in the world and has an enlightened (and light) tax regime? How great is the infrastructure in socialist Venezuela?

More generally, affable as Frank is, he has trouble accepting that taxing and spending by real-world governments is never near as optimal as in an economist’s prescriptions. Public employees are as human as the rest of us, but lack the incentive structure to make sound decisions because they’re spending someone else’s money. Can a colleague lend Professor Frank some of the classics from the Public Choice literature? Russ?

Matthew Whited
Apr 12 2016 at 7:50am

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Apr 12 2016 at 10:39am

I like Robert Frank and I want to agree with him and I like a progressive consumption tax but I think he is badly off on Education and infrastructure.

I just read that USA infrastructure is good, better than it has ever been.
AND middle of the pack for the industrialized countries. That matches with my experience also.
AND anyway transportation is only 3% of the federal budget doubling spending on it would not be that big a deal.
AND further more, roads should be paid for with the gasoline taxes and airport with usage fees to the airlines.

Frank and I really disagree on education. I think school spending should be cut in half. Spending above 1965 levels seems to not have much effect.

Related excerpt:

The achievement decline cannot be blamed on inadequate spending. Between 1960 and 1995, annual per pupil spending in the United States rose from $2,122 to $6,434 in inflation-adjusted 1995 dollars.3 By 1999, the United States was spending an average of $7,397 per K–12 student. Spending in other industrialized countries averaged $4,850. Only Switzerland, at $8,194 per pupil, spent more than the United States.4 In industrialized countries, student scores on the Third International Mathematics and Science Studies tests are uncorrelated with spending. Though per capita U.S. spending is high and the academic achievement of its fourth-graders is above average, its eighth-graders score in the middle of the pack, and twelfth-grade achievement is consistently among the lowest of the countries studied.

Even Franks example:

and if they do that and I don’t do that, then my kid goes to the school with a metal detector out front.

That is bad students not bad schools. I went to schools with metal detectors and they were good schools with some bad students. You cannot get away from bad students! In the “bad school” that I went to teachers would bend over backwards to help any student who showed a little interest I think because so few students did.

Here is a related blog post by me.

Also I think we could get to a progressive consumption tax by removing the cap on the IRA and removing the penalties for early withdrawal and taxing people on any earnings not put in the IRA plus any withdrawals from the IRA.

Finally we USAers are a great and wild and diverse lot. We are not all northern Europeans and the northern European model does not even work so well in Italy, Spain, Portugal and Greece. My mothers family is from Sicily and they brought with them a little of Sicilian attitudes and paranoia. Those attitudes seems to hang on through the generations. Those types of attitudes make the northern European model not work. As it seems to not even work so well for Arabs in Belgium and France.
I say considering the mix of people we have the USA does incredibly well. Much better than the Northern European model would work here. Continued immigration may eventually make it fail even in Northern Europe.

Mark Crankshaw
Apr 12 2016 at 10:44am

It was precisely in Ithaca, NY on the campus of Cornell University that my hatred, mistrust, and relentless scorn for the Left was born. I could never tell who was more insulated, coddled and sheltered from reality: the sandal-clad faculty that still believed they were still living in the 1960’s (and stridently believed that their left-of-center politics were young, fresh, and ‘hip’) or the wealthy spawn of equally left-of-center limousine liberals who made up a disproportionate percentage of the student population. Cornell University, like many wealthy elite schools, was (and no doubt still is) a hotbed of militant political correctness, filled with self-righteous (and equally intolerant) ‘social justice warriors’ hell-bent on ‘fixing’ the world by means that would occur only to ignorant, insulated, coddled, wealthy persons completely sheltered from reality.

Robert Frank is actually a moderate voice in the spectrum of the Cornell University politics. No doubt, he believes that he is a voice of reason and deliberation. Compared to the leftist dross that usually passes for political ‘thought’ on campus, I would be inclined to agree. That said, however, I believe that he is misguided, self-serving, and the result of his policy prescriptions would be disastrous to the working people of this country.

How is he misguided? Moderate socialists like Robert Frank typically fall for the same set of logical fallacies. The first is that the political world will conform to their personal fantasies about how the policies they advocate will be implemented. They give little thought or weight as to how their policy prescriptions will be exploited, manipulated or deformed through the political process. In their Pollyanna political world, this is always just a remote possibility—for those of us in the real world it is the norm. They then insist that it is only a matter of will, merely a simple choice, to overcome a myriad of public choice obstacles that will inevitably deform the policies he advocates into an unrecognizable political form (and always in a form far, far less attractive than the idealized form in their imagination).

Second, they will point to some foreign small homogeneous country that doesn’t share our violent history, troublesome demographics, unwieldy size, or individualist culture and claim that if (New Zealand, Denmark, Sweden, Norway, etc.) can do something better than we can (without, of course, demonstrating that this ‘better’ is ‘better’, or actually scalable and at what cost), then by god so can we if we simply wanted to.

Of course this is precisely the type of idea that the Left rightly criticized the neo-cons for when they insisted that American-style democracy can be imposed into the Middle East by toppling the repressive authoritarian regimes currently in power. At least the neo-cons actually had a military plan to accomplish this quixotic misadventure, all the Left has is a hand-wave and a hope. The United States is the home to massively dysfunctional and failed cities like Detroit, the US has more drug addicts than the entire population of Denmark, the US has more mentally deranged homeless than the entire population New Zealand, the US has crime ridden ghettoes, prisons filled to capacity, chronically failing public schools, simmering race and ethnicity problems and a host of other social and political problems too numerous to mention that New Zealand or Denmark do not have and never have had. So what’s the plan to make this scalable, cost-effective and for all this to work? Only a rhetorical hand-wave…

How is he self-serving? The question to ask is cui bono? Who would benefit quite handsomely by enacting high taxes (ostensibly on the ‘rich’ but inevitably on ‘anyone making more than 50K’)? You don’t have to look far, Professor Frank. You and your fellow tenured professors that live very comfortably from your leafy homes with a nice view of Cayuga Lake. Taxing the ‘rich’ means higher pay for college professors, more benefits, more junkets, longer sabbaticals, bigger support staff, less office hours, and on and on and on. And the direct cost and additional tax burden to be borne by the Cornell University faculty and administration by taxing the ‘rich’? Why, none! I am confident that Professor Frank has defined the ‘rich’ as people making a shade more than himself and defined the ‘rich’ such that people such as himself and his colleagues are not asked to part with an additional penny. The cost of living in Upstate New York actually allows Professor Frank et al to live very, very, very well on a salary a fraction that would be needed to accommodate the same lifestyle in NYC, SF or LA. So why not soak the ‘rich’ using a national benchmark, eh? Taxes on the ‘super rich’ would certainly not hurt Professor Frank’s bank account. Knowing the Cornell faculty as I do, as soon as extra revenue accrues to the government by taxing the rich, the Cornell faculty will immediately demand higher wages, more generous benefits, and junkets to Switzerland (or some other place they have always wanted to visit…and all at taxpayer expense).

Why would the result of his policy prescriptions be disastrous to the working people of this country? First, unlike Professor Frank and his colleagues, the majority of working people do not directly get the generous publicly funded benefits that accrue to college professors at elite universities. The socialist will, at this point, invariably claim “but the taxpaying public get the benefits indirectly”. That indirect benefit is very, very thin gruel indeed compared to the sumptuous banquet on offer to those who directly benefit. Second, the majority of working people are not sheltered from the cost of the imposition of taxes even if imposed on the ‘super rich’. Our major universities have been able to parlay generous subsidies to higher education into ever increasing pay and benefit packages, year in and year out, for over half a century. While the ‘super rich’ may be the initial victims of a ‘progressive’ tax scheme, there are, unfortunately, secondary victims.

When the ‘super rich’ are taxed they may indeed decrease their ‘consumption’ thereby making those non-rich who are paid for that ‘consumption’ worse off. Even worse, the ‘super rich’ have considerable market power—they aren’t super-rich for nothing. If the ‘cost’ of production increases for the most successful producers as an economic class because of an increase in individual taxes, then it is very likely that they will pass this cost on to their clients (who will then pass this cost on to their clients) or move income into non-taxable vehicles (to the benefit of a politically and economically ‘lucky’ few). It won’t be long before middle class consumers see an increase in their cost of living combined with a decrease in job opportunities. Those sheltered in the Ivy-covered elite universities can pump the tax payer for increases in wages far in excess of those price increases, the majority of tax payers cannot. Since tax revenue is funneled to disproportionately to powerful voting blocs and political interests (for example health care, education, and military), those middle class workers outside of those politically powerful industries will be forced to compete against those who do get the public subsidies and politically directed outlays to buy decent housing (and access to decent schools), forced to compete with ever-diminishing paychecks and ever-increasing bills and prices. I don’t really care about what kind of car the ‘super rich’ buy, these policies will make it difficult to buy gas for my modest car.

As for the ‘luck’ argument, I am not buying it. The people in this country are not my friends or family. They are merely economic and particularly political competitors. The political arena in the US is a no-holds barred free-for-all bar fight, where blocs of voters coldly and calculatingly care not a whit who they economically harm as long as they can get their piece of political pork. Politicians routinely and unscrupulously victimize the politically weak to benefit the politically organized and/or powerful. No one in the sports world relinquishes championships because their opponents are ‘unlucky’ or because they have an inherent advantage. Why should politics (or “society”), a much more barbarous, violent and nasty arena than sports, be any different? And who would like you to ‘unilaterally disarm’ politically? Your opponents, of course.

David Zetland
Apr 12 2016 at 11:34am

Interesting podcast. I agree that Frank seems to miss the problem of BAD government spending while Russ misses the good kind!

The consumption tax idea is kinda silly, as it’s not less complex AND it does nothing about offshoring/corporate consumption, etc. My preference is for a property tax (highly progressive) and basic income (fewer people chasing jobs for money).

On the former, see:

On CC and sealevel rise, Frank is indeed right to talk about losing sleep. How about 2-7m (not 1m) of sealevel rise by 2100. That’s goodbye Miami (obviously) but also large parts of LA, NYC, etc.


Cowboy Prof
Apr 12 2016 at 11:41am

Several Observations:


I’m reading Smith’s ToMS now and came across this passage in Part III, Section I, Chapter V. “What is the reward most proper for encouraging industry, prudence, and circumspection? Success in every sort of business.”

If we consider “luck” to be an ever greater portion of success, what happens to these (bourgeois) virtues?


Did I hear Frank make a case for criminal profiling at about the 45 minute mark? And did I hear Russ agree?!

To wit: “this idea of smart policing: You can’t watch every potential criminal, so you focus on the most likely people to commit crimes, and you tell them, ‘We’re watching you 24-7. The moment you step out of line, you are going to get hammered.'”

Isn’t such profiling a decidedly un-progressive (for Frank) and un-liberal (for Russ) method of promoting social order? Are we on the slippery slope to “Minority Report”?


Did I catch Frank lamenting about how poor the roads were in his locale early in the podcast, and then later champion how well-functioning his local government is? How to reconcile this?

Apr 12 2016 at 12:34pm

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Cowboy Prof
Apr 12 2016 at 12:43pm

One other question for Prof. Frank.

Implicit in the discussion was his argument that government is needed to correct the disadvantages befalling upon people do to bad luck (and supposedly to take away from those who had too much “good luck”).

But how do we know how to do this? Who determines who has been unlucky? Who determines how much success has been determined by hard work as compared to good fortune? And how? I can only imagine that the mechanism for determining this would be a crude examination of overall outcomes (e.g., income levels).

I would imagine that Prof. Frank does not want to disincentive the bourgeois virtues of hard work, frugality, and prudence … but do we run the risk of creating policies to balance out luck that deter individuals from embracing these characteristics?

Apr 12 2016 at 4:20pm

Great podcast as usual.

I agree with Prof. Frank that there are foreign countries with better run governments. I think that government efficiency needs to be #1 on the agenda for proponents of big government. If the majority of Americans feel the government is worth what we pay for it implementing these additional taxes will get much easier. At present it doesn’t appear that increased spending in a number of programs is yielding improved results. Fix that first, then go about increasing revenues. Maybe a topic for a future podcast?

That is not to say that his consumption tax is a bad idea. It is certainly an interesting thought!

Kurt Luckenbill
Apr 12 2016 at 5:25pm

Another great Podcast, but I have one quibble.
You stated that Social Security has a slight redistribution all element, in fact the redistribution aspect is very significant.

Social Security uses a benefit formula that is extremely progressive. SS calculates your Average Indexed Monthly Earnings based on your 35 highest years of inflation indexed taxed earnings. So immediately there is a penalty for people who work more than 35 years.

Then SS replaces 90% of the first $856 per month, 32% from $857 through $5,157 and only 15% above $5,157. This may or not be fair, but it is certainly very progressive.

Martin Delson
Apr 12 2016 at 5:47pm

Russ, as an addendum to the post by Kurt Luckenbill, you should recognize that Social Security benefits are in fact indirectly means tested, in that a greater amount of one’s SS benefits are taxed as one’s other income increases.

As an example, assume a person has $20K in SS benefits and no other income. None of that $20K SS income is taxed.

But if the person has $30K in other income, then $5K of the SS income is taxed, so the person’s total taxable income is now $35K. If the person has $40K in other income, then $12.8K of the SS income is taxed. And with $50K of extra income, then $20.8K of the SS income — the maximum amount is capped at 85% — is taxed, so the person pays taxes on $50K plus $20.8K, or on $70.8K of income.

The person still receives some SS income, it’s true, but the amount received is effectively reduced as the person’s other income increases.

Michael Robertson
Apr 12 2016 at 6:24pm

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Brian Frantz
Apr 12 2016 at 7:08pm

Thanks as always for the podcast, Russ, I always enjoy them.

I liked some of Frank’s points (specifically, that we downplay the role of luck in our success to the detriment of society, and a consumption tax in theory at least would be more equitable and produce better incentives). But his main thesis seems patently unworkable, and not just because of the difficulty in making government work better.

The idea that we can just tax the rich more with no consequences because success is all relative misses the economic role that their spending plays in the economy. Maybe he’s right that we could tax the rich an extra 10%, which would make all the rich have that much less to spend, which might not end up hurting their happiness because they’ll still be just as successful compared to their peers (and may even be able to buy the same things at lower prices). But if they’re spending 10% less, that reduces demand for goods and services which shrinks the economy. Which means the 10% they were making and giving to the government is now harder for their employers to afford, which negatively impacts salaries or employment, which eventually reduces the amount the government receives. So it’s self-defeating in the long-run. I’m not saying the net benefit is necessarily zero (obviously some taxation is justifiable and sustainable), but his point that it’s basically free money that we can suck out of the economy with no consequences seems obviously absurd.

Apr 12 2016 at 7:27pm

This podcast certainly raised my blood pressure and I was disappointed in our knight of classical liberalism, Russ (seriously though, Russ you have been doing an awesome job and I thoroughly enjoyed listening to the podcast for the last 8 years).

From the mid-discussion, Prof. Frank seems like he knows what is best for you, me, and everyone else regarding taxes, savings, and retirement. And then criticizes us for not respecting our government. People do make mistakes and errors, but does this really justify a loss of freedom?

I have begun resenting this creeping parentalism and authoritarianism that is growing throughout our culture and we don’t have an renowned advocate for freedom to combat against this, like Milton.

Jim S.
Apr 12 2016 at 10:53pm

I just started listening to your podcasts a couple of weeks ago and have probably listened to 8 or 10 so far. I am a self-identified progressive, bleeding heart new world style liberal (perhaps the type of person that inspires “hatred, mistrust, and relentless scorn” in Mark Crankshaw above). I don’t know, since I didn’t read his comment after he started with that line. I do find your discussions with people with opposing viewpoint more interesting than when you have people on that you are in agreement with. You do a pretty good job of trying to represent the progressive arguments when conversing with a conservative and/or libertarian guest, but it is a play acting effort on your part that doesn’t have the depth that a true believer would bring to the discussion. There is always the tendency to make a straw man type arguments, or over simplified arguments when trying to represent views that we don’t agree with and I hear that in your interviews with like-minded guests. When you interview someone like Robert Frank it seems to me that you do a better job, since the discussion is a real reflection of differing views. I do very much appreciate your courtesy and respect you show to your guests.
I am a 64 year old retired engineer with a strong interest in economics. I know that you have said that you have lost interest in macroeconomics, but there is a topic that I would be interested in. The best macroeconomic period I saw in my working career was the late 1990’s. I’m sure Scott Summer and other market monetarists would say it was largely due to correct monetary policy. I’d like to hear that argument using that period as an example of good policy and also at the same time hear if other schools of economics have differing opinions. I discredit the “tech bubble” explanation, since that was a quite small sector of the job market and to me (as a progressive) the key sign of optimum economic conditions is a very strong job market. I’d like to hear a discussion of why the late 1990’s was such a good economic period and why it did not last. Do you ever do interview with two guests of opposing or differing views in the same week covering the same topic from two different viewpoints?

Apr 12 2016 at 11:56pm

This was a fascinating topic to explore, I just wish both Russ and Robert were a bit more focused on specific arguments and detailing how they are operating. The podcast came off more as a conversation between two economists of differing ideas discussing whether these were good or bad ideas in isolation. I think I am going to put the blame more on Russ as the potency of the luck discussion would be pretty effective means of causing an argument which would be interesting to hear.

I could see it playing out as:


Robert- Luck causes huge upsides that are not reflective of actual skill or control on of those that are well off. Given this, it is appropriate that a least a portion of these luck yielded benefits be returned to the structures which create the context for luck like this to really have an upside. Further, a marvelous way to do that is by curbing consumption above a limit that might be reasonably set. In this way we do not deincentivize making of money generally, or even normal spending, but rather specifically target the spending that is a result of these crazy, luck driven windfalls. Further, doing it this way would mean that those paying the most taxes would not even feel worse! By making sure that they relative benefit of expenses is equalized across broader areas of spending, people will be more sensitive to the relatively more unique expenditures they do make. This is also in line with findings that greater expenditure is often uncorrelated with satisfaction. Thus we have a 3 for 1: A correction for luck, a less painful and complicated taxation system, and the funding necessary to support those who are particularly unlucky.

Russ- I do have some comments about the separation of luck and skill for the purposes of taxation, but your point is well taken. There certainly is luck involved in most success, we may not know how much, but it is most likely involved somehow. Assuming we take your argument about luck and the evidence supporting as granted, I am still not sure I would agree with your recommendation. Suppose we can figure out the amount of spending that would be perfectly correlated for the amount of “luck”, as you put it, that the person is a beneficiary of. Why would you presume that the best way to ensure the greater good of the money would be to provide it to an inefficient government? Ultimately that money would have a smaller impact on the greater good than should these individuals, who you admit are very likely smart and hardworking, apply that money in the way they best see fit. The best way to appropriately account for luck is not to guarantee the wasting of that money.


I think that the conversation we did get was pretty shallow, when there is a couple of really challenging ideas for a classical liberal like Russ to work through. You should do a Joe Rogan podcast move next time and just lock the two of you in the same studio for three hours. That might allow you to get over the ideological topics quick enough to get to the meat.

Side Note:Please continue to get more lefty or centrist economists on to talk about some of the fundamental differences you have with them. I think it really is a more interesting conversation that helps me to better locate the strength of my own positions.

Thank you for the wonderful show Russ!

Apr 13 2016 at 3:23am

Robert Frank talks about people spending money on houses to get their kids to better schools. One way to solve that problem is the introduction of school vouchers. Then poor parents can send their kids to better schools.

Also, regarding the high trust in governments in Europe I would say that there is a large differnce between countries like Greece and Italy on the one hand and Finland and Sweden on the other.

Comparing the federal government in the US with a small country in Europe is not the correct comparision. The correct one is to compare with the EU which is extremely ineffecient with low trust amongst people in Europe.

Lauren Landsburg (Econlib Ed.)
Apr 13 2016 at 8:30am

@Jim S.

Thanks for your questions and suggestion about Russ doing interviews from different viewpoints.

For a few interviews Russ has done with multiple guests of opposing viewpoints even on the same day, you may want to check out:

There are many interviews Russ has done over a 2-3 week period that are of opposing viewpoints. Sometimes two guests with opposing viewpoints have schedules already in place and so can’t be scheduled back to back. Check the EconTalk Archives by Date for many topical themes in quick succession by representatives of differing views.

Why good times last or don’t last–be they in the late 1990s or the late 1800s or the Great Depression in the 1930s or the Great Recession starting in 2008, or any other time when there are business cycle-like or financial-cycle-like booms or busts–well, there are a lot of opinions and pontificators but very little evidence and almost no agreement on the causes or solutions. Check out, perhaps, the EconTalk Category page Financial Crisis of 2008 for some discussions you may find of interest.

Apr 13 2016 at 8:52am

Maybe I missed something in the podcast or maybe I should just buy the book.
There is no such thing as luck. Looking back on something that happened and attributing that portion of reality to the idea represented by the word “luck” is no more valid than claiming Nostradamus predicted that same event hundreds of years ago.
If I see yesterdays winning lottery numbers in a cloud today, can I claim bad luck because I didn’t see the same cloud two days ago?

Angelo Fibo
Apr 13 2016 at 10:54am

[Comment removed. Please consult our comment policies and check your email for explanation.–Econlib Ed.]

Greg G
Apr 13 2016 at 11:38am

Jim S,

Welcome to the EconTalk community. I often disagree with Russ but I don’t think I’ve ever heard anyone who makes a better effort to be fair to those he disagrees with.

The best podcasts often are the ones where he disagrees with his guests. After this many podcasts I’m sure it’s not easy to come up with a great new guest every week. They do a really good job of that in my opinion. There is lots of stuff in the archives you might enjoy.

You may have the wrong impression of Mark Crankshaw. He protests way to much about his hatred of “THE ” left. No matter how much he hates “THE” left (a lot it seems) he is almost always nice to individuals. And the site is closely moderated to get rid of any real personal attacks anyway.

Daniel Barkalow
Apr 13 2016 at 12:23pm

I think what was intended by “Luck is the residue of design” is that in a situation where that are a large number of independent trials and probabilities not within a couple of percent of 0 or 100, your overall outcome tends toward the underlying probability that reflects your preparation, rather than to an arbitrary outcome based on chance. Of course, that doesn’t matter in the situations the podcast discusses, where a small number of trials dictate the outcome, but it does apply to a baseball season.

I think it’s an important quote from a public policy perspective as well, since that’s again a case where, although each individual’s life is dictated by a small number of trials that have large effects on their life, there are many individuals, and a design that improved the odds a bit (if we could reliably find such a design) would make a lot more people lucky.

Apr 13 2016 at 1:03pm

@jim s.

Welcome. And happy to have people of all disciplines and view points.

In regards to your comment: the 90s were a golden era, but its incredibly hard to disentangle cause and effect. My personal opinion was it was a combination of good monetary policy, deregulation opening new avenues for entrepreneurship, and most of all: globalization.

You didnt ask this specifically, but i think the majority of the listeners are generally lean to the side of classical liberalism. If theres one commmon critique we have for “progressives”, its that they rarely consider the unintended consequences of their actions. If you impose high taxes, it will distort behavior. If you make welfare more generous, it can lead to dependency. It still may be a good idea to do it, but you rarely hear the potentiL downsides. In this podcast, Frank assumes good government will benignly allocate the money to crumbling roads and bridges. This never happens in practice and theres a vast literature on why.

Apr 13 2016 at 1:50pm


On SSA, I did a calculation just a few years ago that an average income person with an average lifespan essentially gets a 65th birthday present from the government of a check for $250,000. (Back then, I had to use an imputed interest rate, with a rate of zero, the total is larger.) That represents the net present value of their SSA benefits over their lifetime net SSA contributions. So yes, SSA is HIGHLY redistributive. It is not and never has been the “insurance” program that it was sold as. There is no lockbox, there is no money in your “account”, it is all a mirage. Also, people don’t understand that SCOTUS has already ruled that there is absolutely no requirement for the government to pay SSA benefits. They can legally reduce it or stop it at any time.

Cowboy Prof,

Thank you for reminding me about this portion of the podcast. Firstly, NYC tried this with “stop and frisk”. It was highly effective and in my opinion completely unconstitutional. Eventually, it was stopped due to its legal issues. Also, we don’t have the police force to focus on a small group of criminals. Our police forces are stretched and rely on the illusion of policing. They typically don’t have the budgets for the “as seen on TV” high tech surveillance. No matter the case made for universal surveillance, it is almost always used after the fact. It does not prevent crime, but occasionally helps catch bad guys.

This was well know even in our founders time. The case of liberty vs security was debated and they came down on the side of liberty. Government will never make you completely secure but by relinquishing liberty, it can make you completely insecure.

Kent J. Lyon
Apr 13 2016 at 2:09pm

Dr. Frank says that taxation destroys wealth. He notes that if taxes are raised, and everyone has to pay them, then the value of goods will decrease for everyone since everyone has less money. The value of that dwelling with the view will decrease. He seems to think this is a good thing. Make everyone less affluent. Exactly how does that help the economy, society, or wealth creation. Then property tax revenue to government, or revenue to government from even a progressive consumption tax, will decline, and, in order to stay even, government will increase tax rates again, thus reducing wealth further, etc, etc. A surefire way to make everyone less affluent until everyone is poor. He also leaves out that savings and investment can be done with the money the government doesn’t confiscate. Recent history has shown that the Keynesian multiplier is less than one (Romer) and may even be negative, so that whatever money the government takes out of the economy will perforce not be spent as efficiently as in the private sector and will reduce wealth. Government basically produces two things: a drag on economic growth and moral hazard. Providing even essential services for those who cannot afford them leads to dependency and waste and economic harm for all.
Dr. Frank seems to see humans as perverse animals in need of government correctives. His view of the human is narrow indeed.
Added to all of this, he is poorly informed on such things as climate change, to the point of bigotry and ignorance, which affects how one assesses his overall view. Why is a flat consumption tax not better than a progressive consumption tax? A progressive consumption tax violates equal protection. Also, as Russ points out, any progressive tax is intended for social engineering rather than revenue generation. Please spare us the marxist lite view of taxation, Dr. Franks. I see that as truly an evil of government coercion for collectivist purposes that is inimical to human liberty. Dr. Franks seems very unconcerned about human liberty. He seems to think it is useful as a delusion to guide one’s life but that humans shouldn’t ever be allowed freedom in actuality. A truly perverse view, devoid of redeeming social value.

Apr 13 2016 at 3:20pm

Since we are a little off topic on best kinds of Econtalks, I have always found the talks from the left – left field that is – have been the most eye opening. Taubes, prison economies, Broadway, art museums and athletic agents. The one that I have recommended the most was the Frito Lay guy.

Stay eclectic!

Apr 13 2016 at 3:51pm

Great interview. So Statist.

Russ was was almost crying with laughter.

Russ: There’s so many reasons I’m not going to like that. And this conversation is only the smallest of those. The selection bias problem is my bigger problem with it.

Guest: Yeah. Maybe it’s not a causal effect. Russ: Exactly.

Russ: But, so, let me try to restate what I’m trying to say, and then I want to move on if you don’t have anything to say in response that’s TOO LOGIC-DEMANDING for the attacking of my argument.

Some seriously subtle put-downs there.

William Bruntrager
Apr 14 2016 at 2:46am

Frank’s “big idea,” that increasing marginal tax rates on the highest earners does nothing to change their resource consumption, brought to mind an old post from Steven Landsburg, “The Man Who Can’t Be Taxed.”

If it’s true that the rich will not change their consumption, and yet the government *will* change what it does, namely, use more resources to repair roads or provide other services, then those resources have to come from somewhere. The question is, who was using those resources before and now will not be able to do it because they are used by the government?

Frank argues as if the government using more resources is free because the rich will compete for status in the same ways, but if that’s true, then where are the resources really coming from?

Mark Crankshaw
Apr 14 2016 at 9:38am


Why, thank you, Greg, for the kind words. While I make no attempt to be nice on this forum, I am legitimately attempting to limit my “attacks” to attacks on philosophical and political ideas rather than attacks on persons and to provide my reasoning as to why I attack these ideas (and not others). In my view, “good” people can and do have “bad” ideas and “bad” people can and do have “good” ideas (where “good” and “bad”, in my view, are merely simplified subjective mental constructs about others that only exist in the mind on the mental constructor).

I am eager to engage with those who disagree with my philosophical and political positions precisely because I believe those positions are both subjective and highly personal (rather than objective and universal). One’s political, philosophical and social mental architecture is the unique product of one’s environment, one’s social conditioning, one’s unique place in history, and one’s own unique personal tastes, character, and temperament. Other people have been influenced by other environments, other social conditioning, other places in history, they have their own tastes, character and temperament. Influences I can never possess, that lead to philosophical and political positions to which I will never arrive.

That said, what I am ultimately “attacking” is the claim that any political, philosophical, and social position is objectively or universally desirable. They are not, nor can they ever be. I am very careful while attacking the Left (or anyone else) to add “in my view”, to emphasize the concept that these philosophical and political positions are, in my view and in the view of millions of others, both subjective and viscerally repellent and therefore neither objectively nor universally desirable. I attack those historical philosophers (and modern proponents) on the Left that stridently insist that their ideas are objectively and universally desirable, viciously impugn those who disagree with them as moral or mental degenerates, and then insist that their ideas should be politically imposed on the rest of us by force on the erroneous basis that their ideas are, in fact, objectively and universally preferable (and those mental/emotional ‘defectives’ that disagree should be ignored). It is precisely that tendency within Leftist thought and leftist political action that leads me to hate.

Still, in my view, one can hate the ideas and not hate the people that hold them. Take, for instance, history’s favorite whipping-boy, Adolf Hitler. I don’t hate Adolf Hitler, nor do I consider him “evil” (whatever that is supposed mean) or “insane”. His rather abusive environment, his unique social conditioning, his unique place in history, his own unique personal tastes, character, and temperament led him to a series of political and philosophical ideas that I personally find viscerally repellent, deeply flawed and highly malignant. Those ideas (at the time shared by many millions of others around the world) led to the National Socialist political movement for which I unapologetically feel nothing but contempt, hatred, and fear. In my minds eye, National Socialism will always be equated with death camps, malignant authoritarianism, and the economic and social devastation of War. Adolf Hitler was a piteous and misguided soul, the toxic product of his unique time and place in history. While I don’t hate the man, I do hate the collectivist, militarist, nationalist and socialist ideas he held and I hate the political product that resulted from those ideas.

Russell (not Russ Roberts)
Apr 14 2016 at 11:04am

jw captured, with this one statement that I quote below, what bothers me most every time I hear Frank talk:

– Throughout the discussion, Frank repeatedly assures us that he knows what rich people should do with their money better than the people that earned it. Such hubris is endemic to the liberal mindset. (And I am not sure who is spinning faster here, Smith or more probably Hayek…). Sorry, he doesn’t possess the combined knowledge of 330M people making their own decisions.

Mark Crankshaw
Apr 14 2016 at 11:27am


I am a self-identified progressive, bleeding heart new world style liberal (perhaps the type of person that inspires “hatred, mistrust, and relentless scorn” in Mark Crankshaw above).

And perhaps you are not.

As I said earlier– I am a hater of ideas rather than people. For example, I also have hatred, mistrust, and relentless scorn towards organized religion. This does not imply I feel hatred towards the billions of people on this planet that are religious adherents (no matter how “fundamentalist” they may be or how fervent their adherence is to their “faith”). In another time or place, I may have been one of them.

However, my own feelings towards religion are driven by my conviction that all religions are frauds, that all religions have at their root an authoritarian, manipulative, and politically and economically exploitative kernel. From this subjective starting point, my emotional and intellectual assessment of religion is stained by the numerous atrocities committed in the name of religion or directly committed by religious institutions. It is stained by the incestuous and malignant relationship that has always existed between Church and State, by my distrust of and antipathy towards concentrated economic and political power. It is stained further by my extremely negative assessment of the complex set of interconnected philosophical and political positions and ideas taken by the myriad of religious institutions that have existed around the world throughout history. The more I study and examine the evolution of these ideas and the institutions that fostered them, the deeper my animosity grows.

Likewise, I am a student of the evolution of Leftist thought and the philosophical underpinnings of Leftist thought. I find it so grotesque that it fascinates me. The philosophical basis of Leftist thought stretches at least back to Plato. Does human society (collective, nation, State) exist to advance the interests of the individual? Or does the individual exist to advance the interests of society (collective, nation, State)? An intellectual battle has been seething for millennia over these fundamental philosophical issues, and leftist thought has clearly taken the Platonist (that is, the latter) side. I vehemently disagree with the initial supposition.

One can follow this line of thought, and with it the common thread of authoritarianism and paternalism I find so revolting, right through the French Revolution, Marx, Owen, Saint-Simon, Fourier, Bakhunin, Proudhon, and Lenin. American “progressivism” follows from the same intellectual, authoritarian and paternalistic lineage.

Into this authoritarianism and paternalistic lineage, the American “progressive” movement added a dose of loopy 19th century theology. Morally self-righteous “social reformers”, impatient to wait for “God” to produce “Heaven on Earth”, jettisoned “God” and substituted the “State” as ready a replacement for their quixotic crusade.

The State, the “progressives” asserted, would usher in a “New Paradise” replete with a “New Man” to populate it, a new society devoid of all the vice, political corruption, economic inequality of the old. Prohibition, the New Deal, and the Great Society duly followed, each a promise to better an evil, decadent, exploitative society solely through legislative will and political imposition. Progressives are alchemists who believe that a government, drawn exclusively from abjectly morally “fallen” men (their attribution not mine), can be magically transformed into a virtuous institution that, by passing laws, can change the nature of man simply by fiat.

Communists claim you can perform this magic with communism, “progressives” through progressive social democracy. It is a faith-based claim that, as far I can see, has no basis in reality. On the contrary, in my view, the world is as rotten as it ever was, though perhaps rotten in different ways than before. My view of the intellectual proponents of communism, socialism, or “progressivism” is that they are poisonous snake-oil salesmen. You are free to disagree, I won’t hate you for that…

Apr 14 2016 at 11:37am

Using Prof. Frank’s own logic, if all tax-paying Americans are incentivized to save more via his progressive income tax, wouldn’t the rates of return on those investments decrease significantly in the long run, thereby blunting the positive effect he says he wants to create?

I’m assuming that we won’t be trusted to choose our own investments in this tax scheme; we’ll be presented with ‘safe investment options’ to put our money. No doubt one of those would be ‘safe bonds’ – there’s only so many of those to go around, so as demand for those instruments increases, the price rises/rate of return decreases.

Likewise the effect on money market funds, which I’m assuming would be another ‘safe investment option.’ We’re already reading that the Fed has considered negative interest rates…you’d have to think that, all things being equal, a huge influx of cash into money market funds paying 0.25% interest rates would cause that rate to decrease (even go negative?) in the long run.

Greg G
Apr 14 2016 at 1:42pm


>—“That said, what I am ultimately “attacking” is the claim that any political, philosophical, and social position is objectively or universally desirable.”

Claims to objectivity or universal desirability are in no way exclusive to “the” left. (By the way, the scare quotes are meant to indicate that the left is nowhere near as monolithic as you seem to think it is.)

Claims of objectivity and certainty cut across the political spectrum. Claims to objective metaphysical truth can easily be found on the political right as well. The political right tends to be more religious and, as you well know, religions usually make the greatest claims to universal objective correctness.

One of my favorite things about the approach Russ takes is that he is keenly aware of the fact that no one has access to true metaphysical certainty and we are all subject to our biases.

For an example of a similar approach from the left consider the work of Richard Rorty. Rorty made attacking the idea of human access to objective metaphysical truth his life’s work. And yet he was very much a man of the left. His point was that, even in the absence of such objectivity and certainty, we have to make decisions anyway. We can and should advocate for what we believe in based on the best evidence we can produce. A public policy doesn’t need to be “universally desirable” to be preferable to the alternatives which may be worse.

Mark Crankshaw
Apr 14 2016 at 2:29pm


The best macroeconomic period I saw in my working career was the late 1990’s…I’d like to hear that argument using that period as an example of good policy and also at the same time hear if other schools of economics have differing opinions…I’d like to hear a discussion of why the late 1990’s was such a good economic period and why it did not last.

I’ve long held an alternative view. I believe that it was not policy (good or otherwise) that was responsible for the seemingly buoyant macroeconomic performance in the late 1990’s in the US (and throughout the Western world). Rather much of the fluctuations in the economic conditions of the latter half of the 20th century in Europe, the US, and other places like Australia, Canada and New Zealand owed more to the effect of demographic pressures primarily from the effects of the “baby-boom”.

The baby-boom is commonly defined as that mass of individuals born between 1946 and 1964 in Europe and the major countries of the English speaking world. This “boom” was immediately followed by a baby “bust” (of which I am a part).

It follows then, that this mass would start to enter the work force between the ages of 18-22 and, due to the enormous pressure to find employment for this large mass, there would be rising unemployment from the period 1964-1986. That’s exactly what happened.

Governments responded this pressure by loose fiscal and monetary policies, leading to inflation. High unemployment and inflation, stagflation, did in fact occur. Starting from 1986, this employment pressure would begin to subside, reaching is nadir at the time when the baby busters began to enter the labor force (the depth of the baby “bust” was 1976-1980, so this employment pressure nadir would have been reached starting in 1994 and ending in 2002).

Like wise, generally one’s income and productivity at its maximum at age 40-45, after which that cohorts productivity and income begins to drop (as more and more of the cohort leaves the labor force for health-related reasons). Thus the maximum income and productivity of the boomers would have been maximized from about 1986-2009. Why did the economic buoyancy of the late 90’s end? The boomers got older and less productive as we all eventually do.

This type of analysis can also be applied to other demographically driven attributes such as crime rates. Crime rates are highest for the population aged 18-30– for boomers this would be the period 1964-1994, the height of the boom was 1958, so the height for crimes rates would be 1976-1988. As the boomers aged and were replaced by the much less numerous busters, the demographic responsible for most crime would dramatically shrink leading to plummeting crime rates beginning in 1994. That all did indeed happen.

Economic and social policy and criminal justice policies are not politically coordinated throughout the US, Europe, and the English speaking world. Those countries did, however, share the same demographic profiles. The economic and crime rate patterns for all those countries followed the same trend and at exactly the same time. Why then credit (or blame) policymakers?

I have long dreaded the end of this narrative: the pressure of wave after wave of boomers entering the labor force produced a severe economic stutter in the form of stagflation. What will be the effect of wave after wave of boomers leaving the workforce, reducing their productivity to nil, and then collecting publicly financed “benefit” in astronomic and unprecedented numbers?

I see economic storm clouds ahead…

Mark Crankshaw
Apr 14 2016 at 3:17pm


“Claims to objectivity or universal desirability are in no way exclusive to “the” left.”

I quite agree. The major problem I have with the American “right” is its support for the largest, centrally-planned, politically directed (i.e. socialist) program ever created by man: the US military.

“His point was that, even in the absence of such objectivity and certainty, we have to make decisions anyway. We can and should advocate for what we believe in based on the best evidence we can produce. A public policy doesn’t need to be “universally desirable” to be preferable to the alternatives which may be worse.”

Who is this ‘We’? Unfortunately, what Richard Rorty means by ‘we have to make decisions’ in practice is that the politically powerful make the decisions and push the policies that advantage them and I am forced to live with the adverse results of their decisions. There is no ‘We’. ‘We’ is a fiction manufactured by authoritarians to exploit their fellow man. I have no desire to have a political relationship of any kind with Richard Rorty. No means no, Mr. Rorty–hands off!

My problem with that philosophy is not the advocating for what they believe in based on the evidence they produce. I’m willing to listen to reasonable people with reasonable ideas. It is the shrill insistence that this belief be politically enforced through violence and intimidation over the determined resistance of people who find their “evidence” unconvincing and strongly and sincerely believe their policies are worse than the alternative. True, that’s not exclusive to ‘the’ Left, but it is definitely a tendency of a large swathe of those who identify themselves on the Left. Mr. Rorty can ask (really nicely) if I would volunteer to cooperate in some way–but if I am not interested, I don’t appreciate his reach for the metaphorical gun (political force). Visit North Korea to see just how shrill this insistence can be.

This level of subjectivity and uncertainty, in my view, warrants extreme caution in imposing public policy against the expressed will of others. The minute you need a gun to enforce a public policy, I am quite sure this extreme caution and deference to the subjective preferences of others has not been used. As you are well aware, I am against the concept of the State because the State is the primary vehicle used by people who use no caution whatever in imposing their political will on others. Rorty’s position opens the floodgates for those who have no hesitation to trample on the interests of others based on some flimsy and subjective conception of what is “better”…

Greg G
Apr 14 2016 at 4:31pm


Yes, it’s true. The existence of governments relies on the potential for the use of force. The same is true of the existence of private property. I think both can be justified. And for the same reason. We have a lot of human history to demonstrate that the places where both were firmly established have been the places where we have seen the greatest freedom and prosperity and the least violence and coercion.

The “we” who I refer to are (in this case) the citizens of this country. Like it or not you are a member of a social species and that means you will have to make many compromises with others you disagree with. That’s not fiction. That’s reality. Constitutional democracy has the best record historically for promoting relatively more freedom and relatively less violence and coercion. Anarchy has a terrible record in that regard.

By the way, I wasn’t particularly recommending Rorty’s politics. I was just using him as a vivid example of a leftist who makes no claim of access to objective truth.

Apr 15 2016 at 8:09am

@ Robert Frank

I generally agree with the idea of a progressive consumption tax.

You refer to houses as an example of competitive consumption, but I think many people see there home as a their single largest investment. How do you resolve this tension?

Apr 15 2016 at 9:24am

I always enjoy listening to Dr. Frank.

In advocating luck Dr. Frank seems to be trying to get a godless people to accept what god-believing people regularly do – that everything we have is a gift from God and therefore we have no special claim on it. This may be why in almost all metrics of VOLUNTARY giving and service religious people far outstrip the non-religious. Somehow, ignoring the rationality or irrationality of religious beliefs, I don’t think stochastic processes pack quite the moral punch of believing in God but I wish him luck in his efforts.

Others have beat this to death, but Frank’s view that people are crazy status seekers as individuals but collectively become rational is contradicted by easy observation. Collective groups also compete with each other (with other peoples money) on purely over priced status symbols! In my area the schools are over funded – how do I know? – because they compete with each other by building high school stadiums nicer than many small colleges. Each community needs a bigger video display, more seating, nicer grass. Collectively they are competing for status. How about competing for the olympics or sports teams, “collective” decisions where more and more is spent by governments for nothing more than status (they say its investment, I am sure high end car buyers also have their rationales). IF anything, status seeking by collective means is far more costly than individual status seeking. Maybe we could tax all the governments so they had less money/power to use for status symbols and refund it to citizens who feel they are overtaxed and have home repairs that have been neglected in their tax pinch.

Which brings me to my next point, well made by others. Telling me the government needs more money for X is like telling me the ocean needs more water and the Sahara needs more sand. So much money is running through governments that anything you perceive not getting done is purely from collective choices and not a lack of funds. If you want government to have more money than first you need to show me it can take care of its obligations now (not that New Zealand can, but that Detroit can). But as others have detailed, politics is a vicious fight for power and other peoples money. That is not a weird US perception, that is the clear understanding of anyone who has seen it in action.

Governments are punitive towards their citizens in the US – so why would I trust them. When the Federal government was “shut down” what services were closed? Things that would hurt private citizens and make the news. Our leaders are clearly scornful of us and treat us and the “services” we “pay” for as pawns in their power plays. But you go ahead and tell me how we should trust people like that. A second example – I lived in Minnesota and they were having some budget battle. So what got shut down? The libraries. A tiny slice of the budget that would hurt middle class families and make them complain for the fight to end. Again, our “leaders” view us with scorn and disdain unless we are collectively organized and able to have a voice, otherwise they have no problem denying us “services” in their games. I should trust these organizations with more money or impute virtue to them?

The taxing always starts with the super rich and always ends with people who have a little more than the person begging us to soak the rich. Certainly it will include me in the end, so I would prefer not to have new taxes because while status seeking governments build stadiums I have home repairs that have been neglected!

If you want more money for the government, first show me they can use it more efficiently and in less redistributive ways to specialized voters classes or groups. Then, we can talk about if they really need it.

Mark Crankshaw
Apr 15 2016 at 11:31am

@ GregG

The “we” who I refer to are (in this case) the citizens of this country. Like it or not you are a member of a social species and that means you will have to make many compromises with others you disagree with…Constitutional democracy has the best record historically for promoting relatively more freedom and relatively less violence and coercion.

I understand your argument and I still disagree with it. I may be social, but this sociability is limited and cannot be scaled up to millions, let alone hundreds of millions of people without numerous negative side-effects. Our species is naturally sociable, but only within numerically small communities. It is the Roman Empire size of modern States that is not natural, it is clearly a political and social imposition by the politically powerful over a politically subjected mass.

During the Roman Republic, one could have said the same thing as you have. At that point the Roman Republic had “the best record historically for promoting relatively more freedom and relatively less violence and coercion.” True. We can call that historical period Pax Romana. The Roman Republic, even after it degenerated into the Roman Empire, maintained that peace for centuries. However, the Roman Republic had serious flaws, shortcomings, and malignancies that eventually led to its’ dissolution.

Could not the human species do better than the Roman Republic? History has demonstrated to my satisfaction that it can. Perhaps you are correct, Constitutional democracy like the Roman Republic before it, is the best form of governance we have at the moment. However, this type of governance is ill-suited to polyglot, multi-cultural Nation-States of hundreds of millions. Nations of such enormous proportions are perfectly suited to restrain freedom, engender violence (see Belfast, the Basque region of Spain, or Corsica in France for current Constitutional democratic illustrations just in Europe), and to promote coercion over political minorities.

The Constitutional democracies of the Western World have the same serious flaws, shortcomings, and malignancies as the Roman Republic and pretty much for the same reasons. I contend that we can do better than Pax Americana.

Trying to accommodate many, many various political interests, especially when those interests are in direct conflict, becomes increasingly difficult as the size of a polity increases. At some point (a point most Western nations reached long ago, in my view), the hopeless task of accommodating this political chaos must be abandoned and the polity will become authoritarian, where a small elite will impose its political will on the vast majority through political force.

The Roman Empire was the embodiment of this tendency, even though it maintained the remnant institutions of the Republic for centuries (i.e., the Roman Senate). In my view, this process is well underway in the Western World today. The democratic institutions have remained intact, yet the governments of the West have become authoritarian, with only the veneer of popular political control remaining (though ‘popular control’ has always been severely circumscribed even in Constitutional democracies).

So if we had this conversation 1900 years ago, you could rightly argue that the Roman Empire “has the best record historically for promoting relatively more freedom and relatively less violence and coercion” and “Long Live the Emperor!” and I could rightly reply that we can do better than the Roman Empire and “Down with the Emperor and down with the Empire!”.

Anarchy has a terrible record in that regard.

Again, I understand your argument (and I’ve heard it a thousand times) and yet I still disagree.

The premise of this statement is underlain by the Jean-Jaques Rousseau view of State formation. The States that we see around the world are the product of and reflect the choices of the “ruled” population. “We” form a government to solve “our” problems and to maintain “our” freedom and “our” prosperity. Ergo, where we see “anarchy”, this is because the “un-ruled” population has chosen to forgo a State. As all examples of “anarchy” are horrible (point to Somalia on a World map), therefore choosing “anarchy” and forgoing a State inevitably leads to disaster. I think that’s how the argument is generally delivered…

However, if your starting point is the Franz Oppenheimer view of State formation you arrive at a sharply different conclusion.

Oppenheimer contends that the historical record shows (rather than Rousseau’s fantasies) States are formed exclusively through violence: a small politically powerful group subjugates a much larger subject group for the purposes of political plunder. The States that exist (at present and through out all time) are a product of and reflect the choice only of the “ruling elite”. “They” form a government to solve “their” problem (they want stuff and want others to provide it). The subject class is “free” (or often not) as long as they “stand and deliver” what the ruling class wants. This may or may not lead to prosperity (in some States it do, some States it doesn’t). A dairy farmer may want healthy and productive cows so that his revenue from milk production is maximized. Likewise a ruling class may want a healthy and productive subjects so that their revenue is maximized. Or they may make a class to the slaughterhouse…

Therefore, wherever “anarchy” exists today, it is precisely those parts of the world over which a parasitic ruling class has been unable to subject the native population. The hapless subjective population has no more say about the “anarchy” than the do about its absence. If there is anything to plunder, this “power vacuum” will inevitably lead to political conflict as two or more parasitical parties battle over the political plunder (see Syria). You are right in that this situation isn’t pretty for the subjected classes being fought over.

This does not mean that “choosing” to forgo the political depredation that is necessitated by the formation of a State would lead to an economic or social disaster. Were mankind to get to the point that political parasites (political “leaders”) were no longer necessary, would that lead to disaster? I think not. For centuries it was argued that without a single individual, a King (Emperor or Czar), with absolute control over the State, that disaster was sure to follow. I don’t think that’s ever been true. Perhaps statists are committed to the same fallacy? I think they are…

Brian Donohue
Apr 16 2016 at 3:53pm

Very interesting Russ.

I found Frank’s description of his parenting messages a little bit jarring, but ultimately revealing.

His view of fierce competition for a limited number of spots is alien to how I approach the conversation.

I tell my kids to reach within themselves, to develop their talents and abilities, to find some way to be useful to others. Be thankful you weren’t born a poor farmer in Bangladesh, because then it may not matter how hard you work. Count your blessings. That’s it.

See the contrast between Frank’s “red in tooth and claw” worldview and my much less rivalrous one?

It’s funny because I’m inclined toward a laizze-faire economic system and Frank wants something more orchestrated.

Greg G
Apr 16 2016 at 6:47pm


>—“In my view, this process is well underway in the Western World today. The democratic institutions have remained intact, yet the governments of the West have become authoritarian, with only the veneer of popular political control remaining”

So when exactly was this period when before the process of deterioration got underway and things were so much better in the Western World?

I don’t put any stock in Rousseau’s theories and I doubt very much that many people you view as modern leftists could even describe them accurately.

Sure, governments had their start as subjugation of the masses by the powerful and wealthy. In many places those governments eventually evolved into relatively much more benign forms. Those places where governments evolved with relatively more respect for individual rights tended to become the most prosperous, powerful and resilient. I agree we should not assume that process cannot be advanced.

If your theories are right and less government means more prosperity and human flourishing then we should see an evolution towards that in the places with the least government. I don’t see that happening and you aren’t describing that either.

Marx also thought we would “get to the point that political parasites (political “leaders”) were no longer necessary.” You both have unrealistic views of human nature.

Mark Crankshaw
Apr 17 2016 at 9:23am


So when exactly was this period when before the process of deterioration got underway and things were so much better in the Western World?

A process of “deterioration” was never implied nor was the contention that “things were so much better”. The exploitative nature of human political structures is a constant. Governments everywhere have always had the intention of imposing their authoritarian will on their subjects. However, as a solo monarchical system became no longer tenable for the ruling classes of Europe because of the risk of violent revolution (England in 1648, the US in 1776, France in 1793) it was necessary for the ruling elites to create faux institutions of popular political control (parliaments). Bismarckian Prussian authoritarianism was the father of all of our “welfare state” programs as well as serving as the template for western “education”. The purpose was always to preserve the power structure and to “transform” the masses into a politically useful form.

The intention of “modern” governments was to give the appearance of popular political control while maintaining the existing oligarchical political super-structure intact. Even the USSR under Stalin maintained this pretense in the form of the Soviet Duma. A very transparent example today: North Korea has an assembly and compulsory voting.

What has changed is the technological ability to enforce this authoritarianism into more and more facets of human life. The 20th century was the nadir of human history in this respect (though the 21st may yet surpass it). The ruling classes of previous centuries had always had the ability to brutalize their subjects, wage war (brutalize the subjects of others), to enforce rigid conformity to their whims, and to confiscate the property of the subjects. It was only in the 20th century that governments had the ability to do so on a colossal, continental and industrial scale. A rigidly authoritarian system like the GDR was only possible with the technological ability developed quite recently. Do I think, therefore, that things were “better” in the past? No, it’s always been rotten, but just in different ways.

What hasn’t changed is the oligarchical character of political systems. The only difference between the political systems that you wouldn’t probably defend (Vladimir Putin’s Russia or China) is small latitude of degree. In Russia or China, effective political control rests in the hands of a few thousand people. The 99%+ of the hundred of millions of Russians and billion of Chinese have little effective political control. In the West (the US, UK, France, Germany, etc.) effective political control rests in the hands of a few thousand more (maybe), however, like Russia and China, over 99% of the population has little effective political control.

What tepid political control the mass of the population has is precisely in those areas that the ruling elite has no financial or political interest in. In 19th century America, for example, the distribution of power was the same but the sphere of areas that the US government had no interest in was greater. Hence the US government in the 19th century had not the means or desire to impose its authoritarian will on its subjects (no drug busts, border control, taxation, etc.). Does that mean I want to revert back to the 19th century because it “was better”? No. I am simply stating that technology is a double edged sword: it has definitely made the world a better place to live, but at the same time, it allows governments more ability to exploit, control and brutalize.

I think you have the causality backward. “Better” governments didn’t make the technology and the society that developed them more prosperous. Rather, governments, intent on exploitative war, developed some technology while individuals outside of the government created most of the advances in medicine, transportation, and industrial production that made our society much more prosperous, which made the dead-weight exploitation of the State less onerous for the populace of the West.

Sure, governments had their start as subjugation of the masses by the powerful and wealthy. In many places those governments eventually evolved into relatively much more benign forms.

They have evolved, however, what is “benign” is obviously in the eye of the beholder. I believe Noam Chomsky has a very different view (quite in line with many of the leftist “thinkers” I have encountered). The West isn’t benign in their view at all. I heard that loud and clear ad nauseum. Take the US for example. The US, just to be formed, was responsible for ethnic cleansing of tens of millions of Native Americans and waging a aggressive war over territory with Mexico. The US government has, at some time or other, simply seized territory in the Caribbean and Pacific. It has toppled the leadership of various governments (Iran, Chile, and Iraq to name a few) and killed millions of Vietnamese, Iraqis and Afghans just since I have been around.

I actually agree with Chomsky and Marx on a lot of things (I actually do believe that old Karl had a better grasp of human nature than do you). I just don’t believe in their “solution” to an obvious problem.

If your theories are right and less government means more prosperity and human flourishing then we should see an evolution towards that in the places with the least government. I don’t see that happening and you aren’t describing that either.

Again, I don’t see it that way. Those places that are the most prosperous (Singapore, Hong Kong, various small European states) to tend towards the least scope of government. These countries tend to have a very small military, no State directed industries, to be economically and socially lightly regulated, and provide few barriers to trade. The most economically backward countries spend a lot on military, the State is a big employer and owner of industry, to be economically and socially heavily regulated, and provide enormous barriers to trade. The US, home to places Detroit, St. Louis and Baltimore, in contrast is rather spotty in its prosperity. Most truly prosperous countries would be ashamed to be host to such dysfunctional and impoverished communities.

Greg G
Apr 17 2016 at 10:37am


>—” yet the governments of the West HAVE BECOME (emphasis added) authoritarian…”

That was the thing that caused me to think you were implying there was a much better time BEFORE the process of becoming authoritarian happened. If I understand you correctly, you really meant to say they started authoritarian and stayed that way.

I would be more inclined to say that they started authoritarian and many realized a better way to stay in power might be to give their citizens a much better deal in terms of government being very significantly more of an honest broker in many areas. Of course people with political power want to stay in power. Doing a better job is one of the best ways to do that.

Most places in the world are never going to be city states for many reasons (but primarily geographic and ethnic and cultural ones). Successful modern city states receive the protection of larger states.

I appreciate your intellectual honesty in admitting your view of human nature has more in common with Marx and Chomsky than me. Humans don’t just exploit each other in political ways. There are many types of power, including certainly economic power from owning a huge amount of private property. All forms of power can be exploited. In a constitutional democracy it’s easy to exploit power a little. It’s harder to exploit it a lot because that exploitation can be exposed and used to defeat you. Political power is diffuse.

Marx had a view of human nature that was so far off that Communism failed literally everywhere it was tried despite the fact that it was tried over vast sections of the globe. He too thought the state could fade away.

That failure pales in the comparison to the failure of anarchist ideas to catch on. Communism was quite in fashion for a while. Anarchism never was and we see no sign it ever will be.

Apr 17 2016 at 11:23am

Russell (nRR),

While I appreciate the compliment, many will recognize my comment as just a simplified version of Hayek’s Pretence of Knowledge speech.

It is even more applicable now than when it was delivered 40 years ago. When all of the Fed’s vainglorious QE and ZIRP monetary policies and politicians’ Keynesian borrow and spend fiscal policies eventually go horribly wrong, and they will, no one who claims to be an economist should be able to say “we didn’t know” – although they will.

Apr 17 2016 at 12:26pm

No one seems to have responded to Dr. Franks singular “Big Idea”. He posits that those with money will not notice increased taxation. That it will not affect their behavior. Arguable of course but lets assume true.

It is easy for Frank to imagine Billionaires not noticing but there are not many of them. Certainly the average one percenter will notice and change behavior. So the Big Idea is in fact a small one if one at all.

The unfortunate fact is that taxing those who won’t notice will not generate enough revenue. To get the kind of revenue that the Frankinist central planners need will require taxing deep into the middle class. And believe me, those people will notice.

Apr 17 2016 at 1:03pm

Without the benefit of Econ 101 at Cornell (or anywhere else for that matter), I am befuddled by the Frankinist argument. Apparently some consumption is more worthy than other. There is not just one big GDP but rather a pecking order where certain consumption must meet the standards of Frankinism. Unworthy consumption includes things such as expensive cars, weddings, big houses and nice shirts. More specifically unworthy consumption is that which is done to impress or stand out. This is a particularly egregious form of consumption and the Frankinists will seek to eliminate it by taxing these consumers until they cease this profligate and unworthy consumption.

And what of the corresponding producers? What of the autoworkers, wedding planners, construction workers? Are they also unworthy? I guess if the consumption is unworthy then the production must also be because eliminating the consumption will eliminate the production.

But not to worry, the Frankinist central planners will redistribute the taxes of the unworthy consumers to the unemployed wedding planners et al.

What possible justification could Frankinism have for such actions. Well apparently when people seek to standout, they all do it and then, you know like at football match no one benefits. (Yes, thats the best he could come up with).

So all those who bought expensive cars and weddings and so on have contributed to some sort of collective problem. I thought they were contributing to the GDP but no, because their consumerism was tainted by the need to impress, we don’t want it. And of course I assume it doesn’t end with Beamers, even iPhone consumers who bought the latest model to impress their friends have caused some sort of collective problem according to the Professor. Of course all I see is millions of happy consumers using their IPhones. And I suspect there are similar numbers of happy producers somewhere as well. But, according to the Frankinist Manifesto, this must stop.

It is not clear where the lines should be drawn as to what is worthy and what is not, but that is what the central planners do.

Mark Crankshaw
Apr 18 2016 at 11:20am

Of course people with political power want to stay in power. Doing a better job is one of the best ways to do that.

So is rank political patronage a la Detroit and the corrupt mismanaged hell-hole I work in (aka Washington DC). Politicians like the late Marion Barry maintained office not by doing a “better job” but by funneling tax payer money into political patronage make-work jobs (along with cash in paper bags) to the powerful Democrat machine within the District. As long as he did that, the party elite put him on the ballot where the local election was merely a rubber-stamp.

Works like a charm in hundreds of thousands of precincts within Chicago, LA, St. Louis, Cleveland, DC, Buffalo, NYC, Philly, Miami, etc.,etc.,etc. You say: “It’s harder to exploit it a lot because that exploitation can be exposed and used to defeat you.” And the Bronx, DC and Detroit are ugly illustrations of where there is massive incompetence, exploitation, and corruption for at least 50 years with no subsequent political defeat.

Large blocs of voters continue to return the same party to power (often for generation after generation) in precisely those garbage strewn crime ridden jobless parts of the country that are politically the “worse run”.

Anarchism never was and we see no sign it ever will be.

I can completely agree with that quote by changing only one word: “Anarchism never was and I see no sign it ever will be.”

I happen to see lots of signs where you probably do not. That’s fine with me, I can live with that. My hope does not depend on changing the minds of the living (they may be hopelessly lost), but on changing the minds of the still yet to be born.

Religion and statism share much in common in this respect. There was a point in European history where one could justifiably claim that “wide spread atheism never was and we see no sign it ever will be”. And yet…fast-forward a few centuries and the Churches of Europe have been reduced to dusty museums and historical relics for tourists to gawk at.

My anticipation of the “withering away of the State” stands in sharp contrast of that of Marx. There will be, in my vision, no violent political revolution just as there has been no violent religious revolution in the West that has brought about “the withering away of the Church”.

With religion, the faithful were never converted, they never renounced their beliefs. Instead the fervently religious just simply died, and the religion that played such a key part of their lives and society–being merely a mental construct, merely mental architecture– that fervent religious faith died with them.

Each time that mental architecture was attempted to be transmitted through religious indoctrination to the next generation, it was done in a less fervent way. The seeds of doubt slowly crept in such that each new generation encountered an ever greater split in the authority of the older generations: some desperate to maintain the faith, others being skeptical of or indifferent to religion, and others still completely hostile to religion. Eventually those seeds of doubt bore fruit and the Church in Europe has begun to wither away.

You may yet be right, Greg, maybe all mankind can look forward to is statism. As O’Brien stated in 1984: “If you want a vision of the future, imagine a boot stamping on a human face – forever.” Perhaps you will be proven correct. I’m afraid, however, that both of us will go to out deathbeds not knowing how this will eventually play out.

Remember what you are defending, Greg. The State is nothing more than a tenuous, fragile series of thoughts. Humans may wave colored rags, play ‘dress-up’ in shiny costumes, and erect stone monuments to the State, but in the end, the State remains merely an idea of how to manage a society. Ideas are extremely perishable.

To me, what you are proposing is the End of History, that we have already reached the pinnacle of the human conception of how to run a society. I respectfully disagree. I still have hold out hope that we can move beyond this retrograde stone-age relic of an idea of having rulers the same way as we have begun to dismiss religion and the fantasy of deities and the supernatural. I believe we need neither god nor rulers.

Do I think that the living can be converted? No chance. There is a point after which the indoctrinated human mind becomes fixed, calcified and rigid. Most of mankind today are the walking intellectually dead. But the seeds of doubt regarding the State have been sown and I’m confident they will eventually bear fruit. If the diminution of the State doesn’t benefit mankind, fair enough, then maintain the State. If “anarchy” or some other non-statist conception does, then mankind may yet get there. The real battle, the place that this debate will be won, is the future…

Michael Pollmeier
Apr 20 2016 at 8:47pm

One of my favourite episodes so far. I’m from europe and generally lean more towards Robert’s arguments, which I sometimes find underrepresented in podcasts from the states.

I’m glad that even though (or specifically because) you are standing on two different sides of the fence, you keep on inviting Robert to have these great arguments. It made me go back and download all the other episodes between the two of you and loving it.

Robert Swan
Apr 21 2016 at 6:54pm

Enjoyable podcast as usual, and I’m late to the party as usual.

Luck is surely a factor in many successes and failures and plenty would agree that it can be counted as unjust. I have long felt that there is a law of injustice — akin to the law of entropy — that whatever you do to try to balance it out will increase the total. In spite of its high-minded motivations, the proposed consumption tax won’t selectively punish the lucky and reward the unlucky — its broad brush equally punishes the hard-working and rewards the lazy and, as our host often says, incentives matter.

One of the learned works of Cleese,Jones et al might have some bearing on the pitfalls of redistribution (skip to 8.55 for the one minute executive summary).

I’m not all that clear how Prof. Frank’s consumption tax would work. Tax the difference between declared income and the increment in savings he said. Depends on what is counted as “savings”. Ignoring the “under the mattress” option, which seems an obvious pitfall, what is made of, say, an index fund investment: savings or expenditure? Either way seems to lead to a perverse outcome. If it’s savings, a big drop in the market looks like a big expenditure and the consumption tax kicks in. If it’s expenditure then you’re taxed for the act of investing, and get a tax deduction for cashing out. Maybe I’ve got the whole thing by the wrong end, but it’s hard to see how it would lead to drop in the country’s injustice index.

I have a simple hypothesis for why NZ and Denmark, etc., have broadly good outcomes and general satisfaction with their respective governments despite those governments being relatively interventionist. They are all *small* governments; maybe not in a per-capita sense, but it’s the absolute size that really matters.

The Mark Crankshaw/Greg G discussion has been entertaining. FWIW, I agree with Greg that some sort of government is an inevitable by-product of a free market. As he said, it is not enough simply to assert property rights; rule writers and rule enforcers will be needed. And I’m in favour of such roles — it’s the empire-builders that need to get the boot.

[broken url fixed–Econlib Ed.]

Greg G
Apr 22 2016 at 10:50am


>—“I agree with Greg that some sort of government is an inevitable by-product of a free market.”

I don’t think I characterized it as a “by-product” above but I probably should have and I think you are right that it is.

Throughout history – and all around the world – we observe capitalism and constitutional democracy growing together in a symbiotic relationship. When one gets bigger, the other usually tends to get bigger.

Libertarians argue that this is because government is parasitic on capitalism and a larger host permits a larger parasite.

I am much more inclined to think you simply won’t get the kind of risk taking with large amounts of capital necessary for capitalism to thrive without the rule of law and the predictability and stability of larger government than we saw in the pre-capitalist era.

Neal Flask
Apr 22 2016 at 8:01pm

Like @JimS I am on the liberal side and I find it disheartening that the libertarians on this forum blindly believe that “liberal” automatically means BIG government.

You know what we think?
1/ We think that perfect “free-market” doesnt exist anywhere in the world and it is a figment of your imagination. So, please stop using free-market conditions as a strawman for your arguments.
2/ Without a government, rule of law you will have companies exploit environment, labor, etc. to become monopolies. I have learned that this is a challenging concept for my libertarian friends to wrap their heads around but after having built multiple successful companies in Silicon Valley this is how we “capitalists” think.
3/ For every Detroit that you use as a strawman, I can talk about a Theranos or VW or industries like Tobacco. So, I would recommend that you prove your point with data rather than anecdotes your point of view.
4/ Libertarians think that most people on welfare are leaches, exploiting the system. Do we have data to prove that? The last I heard is about 10% of welfare can potentially be categorized as “Fraud”.
5/ People on welfare are lazy – they have fridges, dishwashers, HBO, etc. These are common themes that keep surfacing over and over. Do you have data to prove that this is in fact true or are these just continuation of strawman arguments?
6/ Contrary to your beliefs, liberals like me dont want to give out freebies. We also want to fix the system but we want to be thoughtful about it. We want to make sure that people and more importantly children can break out of shackles of poverty and be given opportunities that people like me and my kids have.

Anyway, the list is long and I can keep going. I am not saying that we on the left are correct or you are wrong. All I know in my gut that there is a middle path to most of the issues we keep raising. I want to see us talk about a MIDDLE path. It can’t always be that the solution to something is bigger government or no government and make it a free market then everything will be awesome??

As much as I enjoy listening to Russ and these great minds here. I am tired of hearing one side talk or the other. Where are the intellectuals that actually focus on PRAGMATIC solutions that will see the light of day? Please invite those folks to these podcasts and make it less about right/left.

Robert Swan
Apr 22 2016 at 9:29pm


Sorry about that. I thought I was following your reasoning but must have inadvertently mixed in some of my own. At least it was an idea you could agree with.

A couple of points on the capitalism, constitutional democracy “symbiosis”:

  • I don’t think that constitutional democracy is a given. China has recently embraced capitalism. It’s certainly something to watch, but it’s not clear to me that it’s on an inevitable path to democracy.
  • symbiotic/parasitic is not a black and white thing. The symbiotic government that helped the economy grow to a point may gradually turn parasitic and impede further growth.

I don’t see this as necessarily a bad thing, it’s just a form of negative feedback — the more or less universal mechanism to promote stability. Stable, but not necessarily optimal.

On your last point, the government is certainly larger today than we saw in the pre-capitalist era, but it’s also larger than it was in the (intra-)capitalist era. Is it more helpful today than it was 30 years ago? Than 60?

I don’t have the foggiest idea how you measure how close an economy is to optimal, but it’s reasonable that smaller economies give inefficiencies fewer places to hide. In recent decades here in Australia, as in the USA, the federal government has been steadily adding to its purview. I would like the federal government to be pared back to the natural federal functions: defence, immigration and top law court, all other functions returned to the states. I have a feeling the USA would benefit from the same treatment. Not holding my breath on either front.

Apr 28 2016 at 7:30am

Neal Flask,

1. Perfect free market economies do not exist anywhere in the world, your straw man to infer that they do does not mean that every economy isn’t a continuum between non-existent extremes. However, nearly perfect government controlled economies DO exist (Venezuela, Cuba, N. Korea) and they are universally disasters. The argument is always about which direction on the continuum that we are headed, not the extreme. We are currently headed in the wrong direction. Remember, every new government rule, by definition, means less liberty.

2. Silicon Valley produces many successful companies, but to overcome the wage and regulatory pressures of CA, they must be either very profitable or have a story that they can sell as being very profitable someday (or rely on government handouts like Tesla). There are many more failed companies there that could not overcome these obstacles.

3. Government failure is rampant and space in comment sections is limited. Being within the sphere of the CA media, it is understandable that you are rarely exposed to such realities, but is it easy to educate yourself on the other side of the spectrum.

4. Another false stereotype (and I cannot speak for libertarians). However, IF 10% of all redistribution is wasted, that is more than half of our deficit. It adds up.

5. Again the strawman. People in poverty in the US are relatively wealthy compared to the rest of the world. This is not the result of being lazy, but of poor incentives and a very generous redistribution system. For instance, the average living space of a poor family in the US is larger than the median earner in most European countries. I’ll do the Googling for you here, see Rector (and then actually read his research).

6. Everyone wants utopia, but no one wants to pay for it. Unfortunately, resources are limited and the math requires hard choices to be made. Liberals do not seem to want to make these hard choices, so they elect politicians who are more than willing to promise the mathematically impossible. (RINO’s are also complicit.)

Earl Rodd
Apr 28 2016 at 11:03pm

It hard to take Mr. Frank seriously in economics given his proposal for a consumption tax. While I am in favor of shifting tax from income to consumption, his way of doing so could make the tax code 200,000 pages instead of only 70,000 or so. He never talked about how to measure “savings”. This could be as complicated as measuring income! You can’t measure “net worth” since that includes capital gains/losses. Backing out consumption from the difference in income and additions to savings is just absurdly difficult. Another missing piece is that such a consumption tax gives visitors a tax free experience. This might be good, but at least it should be talked about!

Earl Rodd
Apr 28 2016 at 11:09pm

Robert Frank mentioned that polls show the people in some countries (among them New Zealand and Australia) like their government services more than in the US. But this is silly on the face – few of them (like us) have lived elsewhere to have anything to compare to! A two week visit does not suffice to make Mr. Frank (or anyone) ready to make such assessments. I lived in Australia for 9 years, as an permanent resident working for an Australia company (well an Australian subsidiary of a multinational). What I learned over time is that while Australians may answer a pollster positively about their government (and there are things they do well – we should study them more), I knew many Australians who, after spending extended period on US assignments, longed to stay in the US. They saw the higher pay/lower prices are worth far more than the lesser government services!

May 1 2016 at 11:19am

A Wall Street Journal article this week reminded me that the inheritance tax is now 100 years old. Originally 10% on everything above $50K (inflation adjusted to now $1M), it is now 40% on everything above $5.4M.

Frank’s proposal indicates that the government can no longer wait for you to die to confiscate your savings.

Greg Wilson
May 5 2016 at 5:40pm

I am on the conservative side, but like Neal Flask I think real answers lie somewhere in the middle. Conservatives and liberals each have strawmen, and they make weak central arguments, but great headlines.

All this said, I really struggled listening to Robert Frank, as his inaccuracies piled up and the frequency of strawmen grew in numbers. I like to learn from thoughtful and intelligent liberal perspectives that focus on reasonable solutions. Robert Frank possessed none of these.

Comments are closed.


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Podcast Episode Highlights
0:33Intro. [Recording date: March 22, 2016.] Russ: Now, Success and Luck is a short book, which I view as a plus, not a minus. And in many ways, despite its length, it's sort of your magnum opus because it combines a lot of themes that you've written about over the years. And a lot of them, we've talked about here. So, I'm looking forward to our conversation today. I want to start, if you can, with your story about a very lucky experience you had on a tennis court. Guest: Yeah, well, one of the themes in the book, as you know from having just read it, is that people tend to overlook the fact that they are often the beneficiaries of chance events or luck that plays out in various ways. I don't think I've been as vulnerable to that kind of cognitive shortcoming because I've been hit over the head so hard with various examples of luck in my own life. One of the ones I recount in the book is an episode, it was mid-November 2007. Tom Gilovich, my collaborator here at Cornell, wonderful guy, a psychologist I've known 3 or 4 decades now, he and I were playing our usual Saturday morning tennis match. It was in the second set; I'd won the first set; I was up 2-1 in the second-- Russ: But who's counting? Guest: But who's counting? Exactly. And during a changeover in the second set, Tom later told me, I complained to him of feeling nauseated; and then the next thing he knew, I was lying motionless on the court. I'd fallen off the bench. He knelt to investigate; he discovered I wasn't breathing; I had no pulse. He called out for somebody to call 911. And then began working on me. He flipped me onto my back and then started pounding on my chest, the way we've all seen it done on TV and in movies, but hardly any of us, including Tom, have ever been trained to do. He told me later that after what seemed like a long, long time, he got a weak cough out of me, which was encouraging. But then seconds later I was out again--no breath, no pulse. And he was beginning to give up hope when in through the door of the tennis center burst an EMT (Emergency medical technician) crew. The ambulance had arrived. They had all their equipment. They ripped my shirt off. They put the paddles on me. They took me immediately to our local hospital there: they put me on a helicopter and flew me to a bigger hospital in Pennsylvania where they put me on ice overnight. And I'm here. I had suffered, doctors later told me, an episode of sudden cardiac death. Another term for it is sudden cardiac arrest. But you really are dead when it happens. The question is whether you'll stay dead. And in my case, I didn't stay dead only because that second ambulance happened to arrive so quickly. And, in Ithaca, where we were playing was about 6 or 7 miles out of town. The ambulances are despatched from the far other side of town. How did this ambulance get there so quickly? The answer is pure dumb luck. By happenstance, two auto accidents had occurred near the tennis center where we were playing; they despatched two ambulances to those sites. One of them, it turned out, didn't have any serious injuries, and that freed up the second ambulance to peel off and come just a few hundred yards to get to me. And, except for that, I'm not here today. The doctors told me 98% of the people who suffer sudden cardiac death in the field don't ever survive and regain consciousness. They told me, you don't want to see the few who do recover because they suffer from all sorts of infirmities too grim to mention. And for 3 or 4 days after the event, my family later tells me, I'm speaking nonstop gibberish from my hospital bed; but then on Day 4, I wake up with a clear head. And two weeks later I'm playing tennis with Tom again. So, yeah--luck has been a big feature in my own life. That's one of many dramatic stories that have confronted me. But the more general principle is that luck happens in subtle ways. We are often not aware of it; we don't take it into account very much when we construct our life narratives. And there are some negative consequences of our failure to appreciate the fact that when we do succeed it's often in part because we were very fortunate. Russ: Well, I'm fortunate that you were revived that day, as well; as well, I hope, our listeners are. We've been the beneficiary of that luck, or whatever it was. It's interesting--you mention that you are not a religious person; you didn't see it as the hand of God. But you do act as if it were the hand of God, right? You felt you had to do something to convey the importance of that moment. Guest: Yeah. I have many religious friends--unlike many of my nonreligious friends, I feel no contempt for them whatsoever. I think-- Russ: A small, select group, you know. If you think of such things as examples of divine intervention, that's totally okay with me. My mother would have thought of it that way. I never would have been comfortable looking at things that way. I think it was just a happy accident that I made it through. Russ: Without going into Tom Gilovich's theology: it must have been a very powerful experience for him, as well. Russ: Yeah. Yeah. He said, when you hear the interviews with heroes at rescues, at accident scenes, they say, 'Well, I didn't even think. I felt I needed to act in a certain way.' And he tells that story, too. But yeah--I'm really grateful I was playing tennis with him and not any other number of potential partners I can think of, who would have panicked and wouldn't have thought clearly about what's the best thing to do next.
7:21Russ: Your book in many ways is about the way we perceive ourselves. It's as much a psychology book as it is a philosophy book or a public policy book. It's all three, really. You don't mention much about bad luck. So, the story you just told was a story of good luck. We have bad luck--unfortunate things that happen to us--and I think we do notice those pretty much and do use them often to explain things that didn't work out the way they did. Do you have any thoughts on that? Guest: Oh, for sure. Bad luck is part of the story, too. And you're right: it's completely asymmetric in terms of our ability to recall examples of good and bad luck. Tom Gilovich has actually written about this: he talks about the distinction between headwinds and tailwinds--he uses that metaphor. So, go do a Google search on the term 'headwinds' and you'll see all sorts of vivid images pop up: people try to keep their umbrellas from blowing over in strong winds, people on boat decks leaning at 45 degrees to keep from being blown overboard. The idea of headwinds is a very simple psychological concept. And when you are riding into a wind on a bike or running into a wind on a road race, you just are very aware of the fact that you are working against a handicap. Once the course turns around and you've got the wind at your back--oh, that's great. You notice it; you feel it; but pretty soon that slips completely from your consciousness. You are not really aware of the memory that you had of the wind at your back, and you didn't have to overcome any obstacles; things were going your way. So, yeah, I think it's a huge asymmetry. And when we--suppose you've succeeded. You ask yourself, 'Well, why am I so successful?' The obvious answer is that you are really smart and that you are hardworking, because almost all successful people are both of those things. They've been working their butts off for 30 years; they've been solving hard problems every day. Those are the things that are going to spring forth in memory when you think of why you got to where you got to. The tiny little episode where you had a mentor in the 11th grade that kept you out of trouble or some little break where you got the promotion and an equally qualified co-worker didn't--those things don't stick in memory quite as much. Russ: Yeah. It's certainly true. And one of the--even though I don't agree with most of the policy proposals in your book--as you won't be surprised--I do think the book forces you to think about gratitude for things you had that you had no control over: where you are born, who your parents are, some of those teachers. Maybe we'll talk about later--plenty of bad teachers, too. That's the unlucky side. Or whatever you want to call it. but certainly I think any person who honestly assesses their own success, to the extent they are successful, has to concede that there were parts of that success, perhaps even very large parts, that were not under their control. That were not their own doing. Yes, as you point out, there's often a lot of hard work to go with that. And those are the things I think we tend to think of; those are the things we are proud of. We don't like the idea that we're successful, say, because we are tall or good-looking or born in the United States or whatever it is. And I think that's absolutely, psychologically I think that's true. And I think we are going to talk about why that is.
11:09Russ: But let's start with the point that just psychologically: what are the imports--what's the import of this asymmetric with respect to luck versus our own ability? Guest: You know, I think it's good that people take pride in the fact that they are talented, that they worked very hard. It's not easy to work hard. That's almost implicit in the term: 'hard work' is hard. And you've got to get out of bed in the morning when you might not feel like it; you've got to tackle not just the tasks you really like to do but lots of unpleasant ones, as well. So, feeling proud of yourself for the fact that you worked hard: that's a good thing. Because pride is a motivator. It helps get you out there to confront the obstacles that, if you don't confront them, you are not going to succeed. So, yeah: this is not a human pathology, that I think we tend to remember why we succeeded in the ways that we do. But there are some negative consequences to it. I think people do not spontaneously tend to remember the lucky breaks they enjoyed along the way. What's interesting, you know, is that if you prompt them to think about that--I've given talks in bright Red political districts: Cornell sends me out to talk to alumni--and it's amazing how the flint-eyed entrepreneur will come up and start telling me stories after the talk of some break he enjoyed that, except for which, he'd be dead. I've got a very hardline college classmate, close friend, who has been a very successful entrepreneur. He's nearing retirement now. And he's fought government regulators his entire career. He's angry at them. He's been sending me notes about--oh, he got struck by lightning once on a golf course; there was somebody who knew what to do on the scene or else he wouldn't be here. He got hit by a car when he was 3, growing up in Alabama, and by chance the impact caused his arms to wrap around the upright member that were on the car bumpers back in the 1940s, and so he was dragged along without being thrown under the wheels for 2 or 3 blocks, until people on the side of the street could get the motorist's attention and get him to stop. And now he's talked to me about public investments in infrastructure and education that he can support. So I think reminding people to think about the fact that they might have had a break along the way, that's a very useful step for them. And, as you say, it doesn't seem to make them unhappy in any way. Not only that, it makes them feel a greater sense of wellbeing. There's a huge literature on gratitude now that shows that it completely defies our economist's concept of scarcity: we say that the more you want of something, the more you have to give up of everything else. Yes, in general, maybe; but in the realm of human emotion, that's not always true. And if you experience gratitude, you don't give anything up from doing that. It makes you happier; it makes you healthier; there are all sorts of, kind of, miracle side-effects experiencing the emotion. And everybody ought to look for ways to get more in touch with it.
14:35Russ: But the insight that I really like that you haven't mentioned yet is this idea that, as you mentioned before--that certainly people who are successful look at their own hard work; they look at their own efforts. And they forget about the fact--the part you haven't mentioned--is that they forget about the fact that there are a lot of other people who worked hard, and smart, and who are skilled--and they don't succeed. Guest: Exactly. Yeah. That's the clear fact on the table: If you'd only look carefully at it, you'd see it without any difficulty. Being smart and hard-working--you don't want to say that they are sufficient for success, by any means. There are so many smart, hard-working people who don't succeed. They are not even necessary for success--although most successful people have those qualities. But you can look at lip-synching boy bands, some of these derivatives traders--there are a lot of people who got spectacularly successful without being really particularly talented or hardworking. But that's the exception. Russ: I thought about Tom Brady, who was drafted very low in the NFL (National Football League) draft, when he came into the National Football League, and is famous for working hard. And I'm sure if you asked him about his success, whether he would tell you or not, but I suspect he's proud of his work effort. And he should be. It's obvious that he's very devoted to his craft. But he was fortunate in many ways to come into a team that had a very intelligent coach, a very successful coach who saw his promise, put him into a game and kept him in the starting role. Which many coaches wouldn't have. He's on a team with a great deal of stability, because of its owner. And it's a great team. Partly it's a great team because of him. But it's partly a great team that he's been lucky to be associated with. And we certainly know many great quarterbacks who weren't successful--and many great quarterbacks who didn't even make it even though worked, probably, very, very hard. And that part's harder for us to accept as successful people. We like to think it's both necessary and sufficient. It may not be. I just want to mention Walter Oi. Did you know Walter? Guest: I did. Russ: So, Walter's a labor economist, very creative economist. I was his colleague at the U. of Rochester. And Walter lost his eyesight at a very young age--I think in the middle of graduate school. And he told me the following story when I was his colleague. He said that he had a fellow student who said, 'Walter, you know, you've got a handicap; you're blind; and you managed to overcome it, which is amazing.' He said, 'I have a handicap, too. I'm lazy. And I can't seem to overcome it.' So, it's an interesting--we think often of our hard work as our own doing. But part of our hard work, our ethos and our ability to focus and concentrate and make sacrifices--some of that's genetic and some of it's nurture; and how much of it is our own self-will? It's very hard to know. Guest: Yeah. I think that's such an interesting issue. It clearly is genetic. Some people are born with no impulse to get going in the morning. They just don't have that. Other people have it in spades. I like to think that I might have won some prizes if I had the industry that my wife was born with. You know, she gets up in the morning and she's just a dervish at her tasks. I'm much lazier than she is. But I think it's important that you not think of it that way. I mean, there are parallels to the classical discussions on free will here. Russ: Absolutely. In your book, you think about that. Guest: So, yeah. You want to think that it's your responsibility to work hard, don't go bitching about having been born without an inclination to work hard. How hard you work is partly up to how much determination you summon to work hard. And if you think that's all predetermined, you are going to say, well, a cork in the river might as well sit back and watch what unfolds. That's not the best way to attack your life. You want to assume that you are the captain of your fate. You are not the captain of your fate; but it's a much more adaptive posture to assume that you are and attack it that way. Russ: It makes the movie better, too: you know, my movie of my life. I like to think I'm scripting it. Of course I'm not. To some extent--it's a deep philosophical question, as you say, as to how much of that is true. And we're not going to settle that. And we're not even going to talk about it any more, probably. But I do want to mention Branch Rickey. I think I have this right. I think it's Branch Rickey who said that luck is the residue of design. He certainly--that claim--it disagrees with yours. Guest: I'm not even sure I understand the claim. Why don't you tell me what you think he meant. Russ: I think he meant--he was the baseball-- Guest: Yeah, I know who he is-- Russ: Yeah, I'm just telling the audience. I didn't mean to say you didn't know who he is. You know Walter Oi; you know Branch Rickey. Of course. Branch Rickey is an important figure in sports who brought Jackie Robinson, the first African American, into the game of, the white side of major league baseball. When he said, 'Luck is the residue of design,' I think he was saying that hard work in practice is what comes first. And then what's left over, yeah, there's some--there's a little bit of my outcome that's random variable perhaps, but it's really just a small piece. It's the residue. It's what's left over and it looks, I think, relatively--that's the way I've always interpreted it. Maybe I'm not interpreting it correctly. Guest: Well, small or large, what about the people who work hard and who are talented, who fail. Russ: Yeah. Branch wasn't thinking of that. Guest: In the market that we have going forward, it's going to be more and more one with that structure. There's going to be a task to be done, technology will enable the person who is best at doing that task to serve almost the entire market for it. And then there's a huge shoot-out to see who is the best person it is at doing that task. And the talent distribution is very dense. The winner will almost invariably not be the most talented person in the contestant pool, because the talent ceiling gets all bunched up. There are lots of talented contestants who are near the maximum of talent a person could have. And among those, the person who has the most talent won't be any luckier or less lucky than the average contestant in the whole enterprise. And among the other nearly as talented people, there will be some who will be incredibly lucky. And even if luck accounts for 1% or half of 1 percent, that's all it takes to make the lucky the winner and the unlucky guy the loser.
21:59Russ: So, that metaphor is one you're associated with--you've worked on, written on, maybe even coined the phrase, with Phillip Cook, the winner-take-all economy. Sherwin Rosen--Ed Lazear, also--worked on that question, along with many others, of course. And the way I think of it--and tell me if this is a fair summary; and I think it was useful for me in trying to think about your ideas. So, in our economy today, being the best has a bigger kick, for a bunch of reasons, than it had before. And as a result, it's a bigger prize. And that encourages lots and lots of people to enter what is effectively a lottery. A lottery in the sense that it's not purely random: You have to have a certain minimum level of talent, and maybe a very high level, to compete for the top prizes--say, the best golfer or the best entrepreneur in this area, or the best singer, the best actor or actress, or one of the best. But the prizes are so large that more and more people enter the lottery. But of course being the 15th best tenor or the 15th best tennis player doesn't pay nearly as well as being the best. And to enter the lottery you have to work hard and have a lot of talent. But that's not sufficient. You probably won't win. Only one or a few can win, and the rest are just relegated to a much lower status and much lower income. Is that a fair summary? Guest: Yeah, no, that's a very artful summary. Russ: So, that's the reality of our modern economy. To some extent. I don't think it's as ubiquitous as you do. But I want to talk about the downsides of that, which you talk about in the book. So, one of them comes from Nicholas Kristof, that people are oblivious--not only do they overestimate their own skill, but they are much less sympathetic to people who don't succeed because they presume that they have not tried hard enough or are just not skilled enough. And that's not necessarily true. So, talk about what the consequences of that are. Guest: You know, I think going forward one of the challenges is going to be: How does everybody manage to live what society regards as a suitable existence? If the GDP (Gross Domestic Product) goes more and more purely for meritocratic reasons to people at the top of the income distribution and less and less everywhere else, then I think the conditions of life gradually get more difficult for people further down in the queue. And it's not a matter of us not being able to provide medical care for people who need it, of not being able to provide quality schooling for everybody: We have the resources to do that. These technologies create enormous amounts of new wealth. It's going to be a question of whether we are willing to support the tax payments needed to fund activities like that. And I think the barrier that we've been facing is that if you have the illusion that you succeeded entirely on your own--you are talented and hardworking full stop[?] rather than if you see yourself as talented, hardworking, and fortunate--then there's clear evidence that you become stubbornly determined to hold onto every possible nickel that comes your way in the marketplace. And that's made it increasingly difficult for us to repair basic infrastructure, to fund access to schooling. When I graduated from college I got a degree from an excellent state-supported institution, Georgia Tech. I came from a family without much money. I had zero debt when I graduated. That's not possible for anybody today. The kids are graduating now, the kids with debt, have an average of $32,000 in debt when they get out of a 4-year school. And the music programs in the schools are getting canceled: you can have them in after-school special sessions if you pay a fee. That excludes the low-income kids, too. Athletic programs: they are getting closed down. You can pay a fee and get coaching. So I think if we are willing to share some of the largesse that comes our way, if we are talented, hardworking, and lucky then we'll have a much better society to live in. That's the basic picture that's supported by all the evidence that I've seen.
26:46Russ: Yeah. Of course, I've seen some other evidence. Guest: Yeah. Let's get into that. Russ: But I don't--some of it's evidence. There are two things I would say to that. We've talked about this before, and I could keep talking about it, because I find it utterly fascinating, and I hope listeners enjoy hearing about it. The problem for me is, you paint a sad picture of America's infrastructure, public education, charging for athletic programs, music. And some of that--I don't know whether it's good or bad to charge for things. Some of me says that's not the worst thing in the world. But the point I want to make here is that budgets are bigger. It's not like we've had these draconian cutbacks in the size of government at the Federal level; I don't think it's true even at the state and local level. So I'll tell you a story to capture my pessimistic view of this. You painted a very nice picture. I like it. Here's my pessimistic story. My son, on Spring Break, decides to go to South Carolina. And he borrows our family car--in a gesture of good will on the part of his parents. And two weeks go by; and yesterday I received a letter from the Washington, D.C. police department that my car--I thought it was me at first but it was my son--my car had been seen speeding on I-295. And as a result the owner of the car, me--which will be my son, in fact--owes $100 for that speeding violation. So, I thought, 'Boy, that's depressing. That's going to bother him.' Then I open up the second piece of mail, from the same source: I thought maybe it's something about how to pay it. No, it was a second fine: 5 minutes apart from the first one, he had violated another camera. And as a result he owed an additional $200. So, he had $300 . When I told him, the first thing he did was he got online and he found that the camera with the $200 fine was the Number 1 revenue source from speeding cameras, at least, probably the D.C. area, maybe just D.C. I think he said there'd been--it had raised millions of dollars, which now his $200 or $300 contribution, $200 contribution from that camera and another $100 from another, would be joining it this year. The numbers he had seen were from 2012. So, tell me this: When I talk to him about it the next time, should I say, 'Yes, it's depressing. It's true that $300 is a large sum of money for you, and it certainly changes the cost/benefit calculus of the vacation you had.' And I'm pleased to say that he doesn't want to charge his fellow riders; though if any of them are listening, they can certainly--they are welcome to help him out. But I don't think they owe it to him, unless they egged him on. And I see, by the way, a photograph of the road: it's a 6-lane divided highway; it looks like the speed limit should be 55 or 65; it's actually 50. He was caught going 62 at one point and 71 in the other. Which puts him in very good company, with the tens of thousands of other people who have been caught by those cameras. So should I tell him, 'Oh, don't feel bad. Washington, D.C. is really falling apart,' which I think is somewhat true. This is where you and I agree. 'It's sad how many things could be improved by Washington, D.C. Take solace from the fact that your $300 will be well spent toward a good cause.' Can I say that to him with a straight face? Guest: You know, I don't like speed traps, either. Russ: I'm putting that to the side, Bob. I'm asking you--where's the money going? Guest: Washington, D.C. does need money. I don't think that's the best way to raise it. But can he pick himself up, dust himself off and move on with equanimity? Sure he can. Russ: But can he do it knowing that his $300 is going to be making the world a better place? That's what I'm really asking. Guest: Let's hope that it does make the world a better place. Russ: What are the odds? Guest: What are the odds? Well, look. Come on. Russ: Let's say they're small. Guest: The government budgets are pretty big. Every year we read stories, well-documented ones of fraud and abuse. But as a fraction of the total, those numbers are very, very small. There are bridges to nowhere, Republicans vote for them, Democrats vote for them. You've got to be vigilant to get rid of projects that shouldn't be built, absolutely. But when you look at the government budget as a whole, basically the percentage that's accounted for by fraud and abuse is minuscule. By and large we underprovide basic goods and services in the public sphere in this country compared to almost every other developed country. One of the examples I use in the book, and it's a very effective one for me, is the odd situation where you have people at the top of the income ladder spending, $2-, $3-, $400,000 dollars extra to get a slightly higher performance car, and then driving it on roads that are riddled everywhere with foot-deep potholes--so, a Ferrari F7 Berlinetta with a V-12 engine, so it's a great car, $333,000--because we underfund the public sphere. We have that car driven on terrible, jouncy roads that damage suspensions and brakes and other automotive equipment to the tune of something like $300 per vehicle per year on average. So, we have that. You could by, instead, a Porsche 911 Turbo--that's a terrific car, if you've never driven one. It's nearly the equal of the Ferrari. It costs less than half as much--$150,000. And if you spent that much less on the high-end car you'd have more than enough money to have the roads be mirror smooth. So, who is happier, somebody who is driving a Porsche on mirror-smooth roadways, or somebody who is driving a Ferrari on roads riddled with foot-deep potholes? That's an easy question. Russ: It is. I agree with you on that. More or less. I just don't think--I think that hides what's really the source of the problem. Which is that I don't think--and by the way, I think the roads, at least where I live--I live in Montgomery County, Maryland outside of Washington, D.C.--the roads are in actually pretty good shape. They are repairing them constantly with my dollars. I always wonder whether they are over-repairing them. Because it enriches-- Guest: If you lived near me, you wouldn't be asking that question. Russ: Well, that's interesting. You live in a colder climate. Right? Potholes are a bigger problem. Guest: Yeah. It's a harder problem, I agree. Russ: So it's probably a bigger problem there. But I would also argue that Washington, D.C. has more potholes than Montgomery County per square mile, perhaps. Let's say that's true. Would you argue that that's because Washington, D.C. "doesn't have enough money in its budget"? And there, I think the answer is No. The problem is not that they don't have enough money. The problem is that they spend it poorly. And that process takes away my incentive to be as giving with my money as you would like me to be, through the tax system. I don't--I'm a classical liberal. I'm a very-small-government person. I'm not an anarchist. I'm a small-government libertarian or classical liberal. And I'm happy to pay some taxes. I understand that you'd get things that are valuable. But most of my tax money doesn't go to the things that you and I would agree on. It's a long list. Or at least wouldn't be angry about. It's the stuff that's in the list that we would be angry about that takes away my political impulse to support your solutions. Guest: You know, look: I'm not going to argue with you that we have always responsive and efficient government. That's clearly not the case. I will note, though, Russ, that if you travel to many other countries on the planet--I've just come back from two weeks in New Zealand--you see a dramatic difference in the public spheres in other countries from what we see here. And I think if you take surveys of citizens--which a group called Transparency International does do every year--and ask people: 'How do you feel about your government? Are the officials corrupt? Do you feel you get good value for your tax contributions?' the citizens of New Zealand, of Canada, of the Nordic countries, about 10 countries that year after year are at the top of that list--they've worked hard; they've built responsive governments. You don't get a responsive government for nothing. It's an institution that has to be built and nurtured. And they've done that; and they've been reaping enormous benefits from it. We, in contrast have been bashing the government, saying government is not the solution, it's the problem. And so smart people, maybe they don't think government service is an honorable thing even to get involved in. You've got to accept, as you obviously do, that there are legitimate things for government to be doing; and then say, 'Let's try to do them right.' And work on the institutions.
36:28Russ: Well, I have no doubt that there are cultural differences, along with many, many other factors that could make differences in how our government--our government in America--performs relative to other countries, as well as how we perceive it--which is not the same thing. But your particular two weeks in New Zealand gave you some taste of New Zealand's public services. It may be a more complicated picture. The question then is, how do we get there from here? You quote Elizabeth Warren's famous speech that "There's nobody in this country who got rich on their own." And then she talks about all the infrastructure that helps people be successful, our roads, our schools that trained us, the police and firefighters who kept the factory safe for that entrepreneur. And yet, the problem I have with that is that if that's what governments did--except for the education; I'll put that to the side--but if government stuck to what it does well--roads, police, fire, the courts, most of which, by the way should be provided at the local level, to me, not the Federal level, and are provided at the local level--then that we be okay. We would like government. The problem is when government does things it shouldn't be doing, of which there's a much longer list. And I would even include things--here's--I appreciate your challenge of my government-bashing as contributing maybe to the source of the problem. But I would say that people on the more interventionist side who, say, support Social Security for everybody rather than just for poor people--do you think that hinders the fact that we insist on taxing everybody and giving everybody back some money when they get older? Do you think that hinders our budgetary ability to do things that are more important? Guest: Of course it does. Russ: So, you are in favor of means-testing Social Security? Guest: The original formula was set up be Roosevelt felt that was the only way to get political buy-in for the system, if people felt that it was not a welfare program; that it was a program that everybody had a stake in: You contribute, you get money back. I think that if we had the political messaging strength to persuade people that no, that's a necessary step when you are trying to launch a program, maybe, to think of it that way; but that now it would be much better to view it as a support program for people who are especially in need, or better still, to have a savings program that everybody participates in--that's the only real way that people are going to retire with enough money to sustain themselves at a comfortable standard. That would be much better. Russ: Okay. I'm glad we agree on that. I prefer none at all. But if we are going to have one, I think the right way to have it is to certainly help the people who are the poorest and not give--and there is a slight redistributional element in Social Security, if you live long enough to get it. So, we should mention that. Guest: Well, if you just rely on voluntary savings, that sounds terrific. But, first of all, people aren't very good at anticipating the future and dealing with it. So, set that problem to one side. Even if they had perfect foresight and no self-control problems, still there is the collective action problem: If I've got some savings, what do I do with it? Well, I could nurture it and live comfortably in retirement when the time comes. Or, I could do as my neighbors have done, which is to take the money out of those accounts and use it to bid for a house in a better school district. And if they do that and I don't do that, then my kid goes to the school with a metal detector out front. So, I'm going to spend those savings as sure as I'm breathing rather than see that happen. The only way you can get that money protected for retirement is say, 'It's just off limits until then.' Russ: I think there are a lot of other aspects to the problem, and solutions to the problem. I think there are voluntary--cooperative, charitable help we could give to the elderly, as we used to when Social Security didn't exist or when it was smaller, at the state and local levels for old people.
40:48Russ: But I want to segue to this issue, which I know is dear to your heart, which is the progressive consumption tax. We'll talk about that in a second. It's another area we more or less agree on, by the way, which is always pleasant. But I want to stop in the middle here and talk about parenting. What do you think I should teach my children about these issues? About luck and success? What are the implications for parenting? Guest: That's an issue I take up indirectly in the book. There is some paradox here, obviously. Duncan Watts said the thing that you need to do is envision yourself as the captain of your fate; that's the only way you can construct a successful life. But to construct a successful society you need to recognize that people are not in fact in the end the captains of their fate; that there's a whole lot more to the story than that. And so I think I would stress to my kids, as I did do, that you don't wait for somebody else to do it for you. It's up to you to make yourself break out from whatever pack you are trying to compete with. It's not luck. It's your effort and talent that are going to settle who wins and who loses. So, yeah, I think that's the attitude you need to bring to those fights. But, you should also try as best you can to inculcate in them a sense that if things turn out badly for people, it's not necessarily because they are evil. Most of the bankruptcies we see in the United States are because of medical catastrophes--people who get some serious illness and the bills mount up into the hundreds of thousands of dollars or more, and they file for bankruptcy. That's not being a bad person. That's just bad luck. Russ: For a minute there I thought you were going to get into Presidential politics. We'll put that to the side--we're in March of 2016, when you mentioned bankruptcy. Let's talk about an aspect that I don't think you talk about much in the book, which I would call the elasticity of desire, or the elasticity of grit, or the elasticity of labor. So, for me, when I think about these issues, philosophically the question is how much room is there for self-control, self-discipline, self-application? Thinking about my own children, I would want them to work hard. I wouldn't deceive them; I do think it's important to be honest in terms of the risks and the possibility that good work and hard work is not always rewarded. It isn't. And life isn't always fair. And I think you should tell your kids that. But I think--you think about the bigger picture and get into some of these issues--and you refer, you talk about not just bankruptcy but criminals--people who grow up in a bad part of town, they are more likely to be put in jail, just from, it seems, where they were born. Guest: Right. Russ: The question would be: How much would it be different if we didn't incarcerate people? Would it change things? Would more people be criminals? Would more people try to avoid jail if we were harsher, etc.? And similarly with taxation: how much do people respond to these taxes, just to: they're going to work hard anyway? I think those are the key questions we don't have a lot of information on. Guest: Yeah. And there's exciting research on that coming out. What we know in the-- Russ: It's exciting, Bob--I expect it supports your position. But go ahead. Guest: in the crime domain, for example. What we know now with much greater certainty than we knew 30 years ago is that it's the probability of a sanction, not the severity of it that really governs the choice about whether to break a rule. And so the draconian sentences, the harsh punishments--those aren't the deterrents. It's knowing that if you do wrong, you are likely to pay a price for doing wrong. Mark Kleinman's got a great book out, When Brute Force Fails. It's just all about this idea of smart policing: You can't watch every potential criminal, so you focus on the most likely people to commit crimes, and you tell them, 'We're watching you 24-7. The moment you step out of line, you are going to get hammered.' So that gang just--not because they want to go straight but because they know it's going to be too costly not to--they start cleaning up their behavior. That frees up the police to focus on the second-worst gang. And so their behavior cleans up. And they work their way down the list. There's so much more we can do now with criminal sanctions applied smart than the old brute force way. The economists always used to think it was the expected value of the punishment--the severity times the probability--that mattered. It's really not that at all. Russ: Yeah. I'm sympathetic to that, actually. I'd like to think that's true. And we've talked about that on here before, I think emotionally we have trouble with the idea of a small probability of being caught with a very high punishment, even though it might have the same expected value, there's something disturbing about 99 people getting away with a small crime and one person being executed for it. It seems unjust. It is unjust, in my opinion.
46:27Russ: What about labor supply? Do you think we understand much about how people respond to higher tax rates? Guest: I think we're beginning to get a pretty clear picture there, too. California just raised its top marginal income tax rate, for example. This was after years of budget disaster--the prize jewel of the nation's public education system, the UC university campuses were just being sold down the river to make up for budget shortfalls in the state. They raised the top tax rate. The predictions were dire: Everybody's going to move to Oregon or Washington or Nevada. Hardly anybody moved. Here's the thing: If you are rich, and the tax rate on you goes up, what's the effect of that? Well, now you have less money to spend on the things you wanted before. Normally when that happens, that's a bad thing. So, if you have a house fire or a divorce or your business has a bad year; you have less money, you are less able to bid for a house with a good view or choice slip at the marina or whatever it might be. It's very different when you and other people like you have less money. I think this is my one big idea in life. Somebody asked me, 'What's your big idea?' And I had to think, 'Do I even have one?' And if I have one, it's this: That when you are rich, and you and others like you have less money, there's almost no consequence of that. You can put extra dollars into the public sphere--make better roads, better schools. And you and others like you will have less money. That means the penthouse apartment with a view of Central Park is going to fetch a lower price at auction than before, but it's going to end up in exactly the same hands as before. Russ: So the allocative [?] Guest: It's just a cognitive error to think that taxes are going to hurt as much as you think they will. That's because you translate higher taxes as meaning, 'I'll have less money.' And most of the time, when you have less money it does hurt. But it doesn't hurt when you have less money and others like you also have less money. Russ: Well, it's a very clever idea. I don't know if it's your best idea, Bob. But I concede its cleverness. And it is in the running. And I see why. The problem I have with it, of course, is that while that's true about the slip at this marina, nearby, and even at a lot of marinas nearby, or a set of a particular style of housing--houses with a view, as you say--your point is that: Well, there's a limited number of houses with a view. And therefore, to put it in economic jargon, it's inelastically supplied; perhaps close to vertically supplied. And so there's very little allocative inefficiency for lowering the amount people bid on: the same people are going to get it as before. That's the everyday way of saying what I just said. Guest: Right. Russ: And I agree with you. I think that's true for certain kinds of goods; and those goods are the goods that rich people and other human beings use, perhaps, to compete in nonmonetary ways--for prestige and respect and status. Guest: Don't even think of it in those terms. Think of it as you want something special. And 'special' is just a relative concept: you know, 'I want something that excites me, stands out from what I'm used to.' And you get the same set of results if that's the motive. And I think everybody wants something special. Russ: I think they might. But there's a lot of things that are special in my life that I don't keep from anybody else because they are supplied very easily at relatively low prices and low cost for additional items. Guest: And they don't remain[?] special for long. Russ: Yeah. No, I agree. Well, it depends what you mean by 'special,' I guess. Right now I have on a very expensive shirt. And I'm thrilled that I have the income to afford it. No one sees it, almost no one--I work at home--or gets to admire it. You can't imagine how beautiful it is. But my wife loves it, and I like it, too; and it's a pleasant thing. I didn't spend, you know, $100 for it. But it's a relatively expensive shirt and I'm happy that I have the ability to splurge on this shirt. It's nice. Guest: No, but the point is you like it because it stands out in some meaningful way from what you consider to be the norm for shirts. Russ: Yeah, but I'm not lording it over anybody else. Guest: No, no. That's the point. This isn't about lording it over other people. When--the average American wedding now costs $31,000--it's not costing that much, 3 times as much as in 1980 because people want to lord their fancy wedding over everyone else. It's just because the standards that define 'special' now have escalated to that point. Russ: Yeah. I think that's just because we're really wealthy and I don't see that in the way you see it: it's just a mindless or wasteful competition. I just think it's really nice to have an even grander wedding. Although that happens to be something I don't expect to splurge on. Let me give you a simpler example. I drive a car that is much more mundane than the car I could afford. And why? I don't have to have a fancy car. There are many of my friends who drive fancier cars than I do; that are literally fancy cars. That are "expensive cars". I find my specialness somewhere else. I don't know why you think that the virtues of a higher lifestyle mean, necessarily, that it's all wasted and an arms race to match everyone else. Guest: They don't all mean that. But what we do know is that average couples are spending $31,000 now, and that hasn't made anybody any happier than when they were spending $10,000. In fact, there's a new paper out; you'll enjoy this: People who spend more than $20,000 are 12% more likely to divorce per year than people who spend between $5,000 and $10,000 on their wedding. Russ: There's so many reasons I'm not going to like that. And this conversation is only the smallest of those. The selection bias problem is my bigger problem with it. Guest: Yeah. Maybe it's not a causal effect. Russ: Exactly.
52:54Russ: But, so, let me try to restate what I'm trying to say, and then I want to move on if you don't have anything to say in response that's too logic-demanding for the attacking of my argument. I'm just trying to say that I understand your point about boat slips and the highest penthouse view and the beach house. Those are things that are very limited in number. There are many, many special things in life, wonderful things in life, glorious things in life, that aren't limited. And so more and more people having them is a good thing. It's not some wasteful competition that we can get rid of and it's not going to make any difference. I don't think it's all about relative status. That's all. It's a question [?] in my mind. Guest: Well, the progressive consumption tax, which you say you'd like, really hammers people with high rates. And that's really the wrong way to frame it. Russ: Bad for [?] Guest: I would say a rich guy would want to be hammered with high rates on consumption levels beyond a few million a year, because those kinds of consumption are almost purely positional, whether there's any inherent physical limit or not. There's no limit, what you can spend on a wedding. You can hire the Beatles--or Paul McCartney. You can have 8 million roses rather than 4 million. You can just spend as much as you like. And as people spend more and more, the standards that define adequate--did the family recognize what an important occasion this was--they inexorably tend to escalate. And that's not in your interest if you are a rich person. So if California has a progressive consumption tax and you live in New York, that's a reason to move to California. You don't want to spend more on a mansion or a wedding for your kids. You want to take that money and spend it on your business or something that matters to you, not just idle escalation of the standards that define adequate. Russ: Yeah. I don't think that argument is working so well. And I disagree with you about--well, at least I'm agnostic about whether people are leaving California because of their higher tax rates. They seem to be. Maybe they shouldn't be. And you can respond to that in a sec, but I don't want to miss this point, before we turn to the progressive consumption tax, which is next, and then we'll close on that. But, Bob, I see you as a preacher. And it's a side of--that preaching side, I have the same side. I try to teach my kids not to over-value fancy things, like having the biggest or the best or the fastest--unless they give them explicit pleasure. So, 'Don't buy a fancy car to show off. That's a fool's game.' Adam Smith wrote a whole book about it, The Theory of Moral Sentiments. I wrote a book about that book. And that book is a preaching book: It's saying, 'Don't be over-fooled, don't over-value the things that are dross in this world, the things that are material and not necessarily the ones that give life meaning--usually not things that give life meaning.' I think we're on that same page. The difference is, I want to fight that fight at the private, voluntary level, whether it's through religion, whether it's through the kind of preaching that I think you do. I don't want to force, to have the government do that. And one of the reasons--there are many reasons--is, I don't like what they do with the money. And so, respond to that. Guest: Yeah. This gets back to our earlier exchange about building a responsive government. If you were really challenged to make a list of things that the government spends that you think they shouldn't be spending money on, and then challenged as a politician to get rid of those programs, you'd have a sense of what the problem is. The Bush Administration, when the deficits were growing in the early 2000s, realized they had to cut spending. What did they cut? They cut the Department of Energy's program for rounding up poorly-guarded nuclear materials in the former Soviet Union. These are materials that the terrorists were eager to get their hands on. They were guarded by infrequently-paid soldiers who drank too much. The facilities had low fences, easily breached. We should have been spending more money on that program, not less. But when you put pressure just to cut, what do you cut? You cut the things that people can't complain about--you know, these programs exist because of the arguments you make. There are constituencies for them. The concentrated interests can make their voices heard. It takes a very good government to resist that kind of pressure to spend money on wisely. And that's the challenge we face--is to build that kind of government. And we know from experience in other countries that it's possible to build a government like that. I know, from watching our local government, that it's possible to build a government like that. We have just an unbelievably responsive local government here where I live. And it's not because it happened. It's because people stepped up. You know, they worked hard to build that. Russ: Well, I encourage our listeners who are economists and political scientists to think about the institutional reasons why our government might not work as well as others, and why some parts of our government work better than others, whether it's state and local versus federal or other differences. I think that's a really important research agenda. And I think we don't know much about it. So, I don't disagree with your main point, though. I think it would be great if government were better. And I certainly don't have a desire to bash it for its own sake. So, I'll accept that criticism if I'm guilty of it.
58:58Russ: Let's talk about a progressive consumption tax, that I said I agree with in the following--let me say--well, why don't you lay out what it is, and I'll tell you what I like and what I don't like. Go ahead. Guest: Okay. Administratively, it's very similar to the current income tax system. The difference is you report how much you increase your savings during the year. That's the additional piece of information you report to the tax authorities. So they've got your annual income; they know how much you've increased your savings during the year. And the difference between those two numbers, your income minus your savings, that's your spending for the year. You don't have to keep track of your receipts or total everything up. You just calculate your consumption as the difference between your income and your savings. And then there's a big standard deduction--let's say, $30,000 for a family of four. That gives you your taxable consumption--income minus savings minus $30,000--and you pay tax on that. Rates start low. They escalate slowly. But then once you get up into $1, $2, $3, $4 million dollars a year of spending, the rate on the next dollar can go as high as we choose, without really causing any real negative effects. And that's again because most of the things people spend money on at that level are extremely positional in character. If the [?] you take is that your car seems special, well, if it's the best car out there, it's going to seem special whether the amount of resources that went into building it were a million dollars or ten million dollars. It's a completely relative concept, special. Russ: I drive a Honda Accord. I view as special, without having it having to be special to other people's special cars. I love that it has some of its features, which my car--even a trivial thing like keyless entry, I still get pleasure from it-- Guest: Well, it's special relative to the car you drove two years ago. Russ: Yeah. And so that part's where I'll agree with you. Guest: The car you drove two years ago would have knocked the socks off people in 1930. Russ: Absolutely. And there is a tradeoff between--innovation doesn't always make us happy. You know I agree with you on that. But I think it's an important human urge, to make things better. Guest: Oh, I agree. Russ: And I think the momentary pleasures we get from those improvements count even if they don't lead to great life satisfactions. Guest: And we would still get them. Russ: Maybe not as much.
1:01:29Russ: Let me talk about what I agree with. What I agree with is I'd love to have a consumption tax, instead of an income tax. I'd love to have a simple tax rather than a complicated tax. I spent, unfortunately, a few days to do my income taxes--and I pay someone to do them on top of that. But just getting things organized plus the fact that I earn income in different states, from where I speak, as I'm sure you do, too--it's a very unpleasant thing. And if I did my own taxes, it would be extremely unpleasant. Guest: Even more unpleasant. Russ: Because I'd have to master a very, very complex set of rules. So, I would pay a lot more--I'd be happy to pay more in taxes for a simpler tax code. Which is I think an area we agree on. And I wish it were based on consumption rather than income. And, if it's going to--I'd prefer a proportional tax for incentive reasons I've talked about before: I don't think it's healthy that people with low incomes pay nothing for tax. Or very, very, very little. I think it's fine--I don't mind paying more than other people, even maybe more than even proportionally. But it does set up some political incentives that maybe are not so healthy. I worry about that. And I think the effects of that still remain to be seen. But that--how high that marginal tax rate should be, say, in the multi-million dollar consumption area--we can disagree on that. But I think that's much less important than the consumption part of it, rather than the income part and the simplicity of it rather than the complexity part. Guest: So, where do we disagree? Russ: I don't view the tax system as a useful way to engineer our socials relationships--say, about my status relative to yours. I want government to do what I think it should do well, and let the private voluntary efforts be left over to do other things well. And so, I would want a much smaller government. I don't need a 90% or a 60% marginal tax rate; and I don't need a 25% average tax rate, or a 40% if we include state and local, to do what I think government should do well. And that includes defense, and a few other things. I think we could spend a fraction of what we are spending. And my preaching is encouraging people to be open--opening their imagination--to the possibility that would be a better world. And you are going in a different direction. In a way, we are on the same page. The question is which produces more human flourishing. I think our current system, which gives too much money into the hands of centralized spending, reduces human flourishing relative to what it would be if we relied on more voluntary efforts and allowed people more freedom to spend on what they want. Guest: You know, I think it's the very fact that we have freedom to spend on what we want that has pushed us into the corners that we find ourselves in, much of the time. You, the Adam Smith invisible hand presumption at least on the part of the modern day acolytes who offer it, is that if individual s spend their own money, they know best what pleases them. So, 'You can rely on individuals--maybe they'll make mistakes occasionally but way better than government bureaucrats to decide how to spend their money.' That's rhetorically a very powerful statement, but it's just at odds with what we know about how humans behave. Look, when individuals decide what's in their interest to do, sometimes we get great results from that, but there's no presumption that would get good results from that. Everybody stands up to see better at an event. Well, nobody sees any better than if everybody had remained comfortably seated. There's just no beginning presumption that if it's in your interest to do it, that it's in our interest that we all do it. And so, if I can take a riskier job, you might want to use norms of prudence to govern workplace safety. But I don't think those are powerful enough to do the job we want done. If you allow me to take a riskier job for higher pay, I'm going to do that, because, or at least I'll be tempted to do it, because one of the payoffs I'll get from that is I'll be able to afford a house in a better school district. But then you'll want to do it, too. Because if I move up, that means you move down. And so you'll take a riskier job, too. And if we all take riskier jobs, it's the metaphorical equivalent of all standing to see better in an arena. Nobody sees any better than before. All we succeed in doing is bidding up the prices of the houses in better school districts. Still half of all kids end up going to bottom-half schools, exactly the same as before. So, I don't think private norms and preaching and incentives can solve many of the most pressing problems that we face. You know--too much carbon in the air. If you want to have a sleepless night, read the latest reports on the melting of the polar ice caps. You know, the reason people put too much carbon in the air is that it's free to put it in the air. And you can have norms to discourage them. I'm in favor of that. But I think without a stiff carbon tax, we're not going to get where we need to get on that. Russ: I actually thought that the ice was growing at one of the poles. Do I have that wrong? Guest: Uh, the overall level of the ice on the earth is receding very sharply. The sea levels are rising way more rapidly than even the most pessimistic forecasts years ago. Russ: I'm not sure that's true. The last two years--there were very dire predictions three years ago about ice caps. And then, the last two years, at least two of the last three maybe, have been, were surprisingly large in growth. I was going to give you the last word there, till you said that. But I just want to--but that isn't where I want to end. I don't want to end on my factual question about that. I would argue that those are--if indeed the world is warming in a disastrous way, that is a collective action problem that's going to be very difficult to solve through private action. There are private incentives that push us to reduce waste. Right now, I think we produce less carbon last year than the year before, for the first time in a long time. We put less carbon into the atmosphere, less carbon dioxide. Which is kind of amazing. And even though most of the world has gotten quite a bit richer. And that of course is partly due to private incentives to save on energy--which are always going to be there. But the real question again I think comes down to these questions of the standing up problem--whether we are competing in essentially what is an arms race for private consumption and wellbeing. And we disagree there. But I'll let you have the last word. So, go ahead. Guest: Yeah. I think it shouldn't be a matter for us to argue about. This thought experiment: Here's World A, all the rich people have 50,000 square-foot mansions; World B, they all have 100,000 square-foot mansions. Where are people happier? The rich people? I think that people in the 50,000 square-foot mansions would be happier. Running a big mansion is a pain in the butt. And the only reason you need one that big is that people like you have them. And you have to entertain in a certain manner and so on. If everybody had 50,000 that would be better. Do you disagree? Russ: Uh, I disagree a little bit. Not over 100,000 square foot mansions are better than 50,000--I think you are right: the marginal gain there might not be worth it, and there is a competitive status aspect to it. Maybe. I'm willing to concede that, maybe, on houses. But it's hard to decide when a house is too big. And I think where we fundamentally disagree--and I really enjoyed the conversation--is what proportion of material life falls into that category versus categories where everybody can have more of something that gives them more pleasure. And it's not a pain in the butt. It's actually nice to have some of the things we spend our money on. They are not more problems to maintain. It doesn't mean that the same people get the same number: Actually, everybody gets more of them. There's more cellphones for everybody. It's not just like the rich people get the best ones and we stupidly compete to get the best one. Lots of people get the best one, not just the top 1 or 5 or even 25%. And they get better. And that's great. Guest: Okay. So we'll end on this: If we had a steeply progressive consumption tax, consumption would decline as a share of national income, gradually, if we phased it in gradually. Investment would grow. The two sectors would move in the opposite direction, in terms of share of GDP. Over time, greater investment would mean greater growth in productivity in growth in income, so that in the new steady state, the absolute consumption path would be higher under a progressive consumption tax than under the current trajectory. So, all the things you get pleasure from, you would get even more pleasure from if we had that tax. Russ: Well, that's why I like a consumption tax. Guest: Yeah. Exactly. So. There you have it.

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