AEI president Arthur Brooks on The Road To Freedom
HH: Special Friday edition of the Hugh Hewitt Show an extended conversation with the president of the American Enterprise Institute. Arthur C. Brooks is an economist. He is also a really wonderful fellow. He’s got tremendous books in his past, but his new book, The Road To Freedom, lays out in great detail and with superb energy the case that must be made for free enterprise. Arthur Brooks, welcome back to the Hugh Hewitt Show.
AB: Hey, Hugh, how are you, my friend?
HH: I’m great. I want you to begin by telling the audience who may have lived in a cave for the last fifty years what the American Enterprise Institute is.
AB: You bet. AEI was started in 1938 by a bunch of patriots from the business community who felt in the late 1930s that the free enterprise system was under attack from the government. They felt that the economic crisis of the times was trying to be used as a pretext by the federal government to curtail the free enterprise system, and turn the United States into a European-style social democracy. And if that sounds familiar to you, Hugh, it ought to, because when it comes to government threats to free enterprise, the wolf’s always at the door, and that’s why AEI still exists.
HH: Now tell people a little bit about when you came to captain it, and from which ship you arrived.
AB: I started as the president of AEI in the very beginning of 2009, right in the heart of the financial crisis, and I came from Syracuse University, where I’d been a professor for the better part of a decade. I have been teaching economics and entrepreneurship at Syracuse, and felt, you know, and when I was looking at the 2008 elections, and what was going on with the free enterprise system, that I needed to do more. And I felt that AEI was the best place to do it. It’s a 200 person strong organization with 50 full-time scholars that are just warriors for free enterprise. And there was just no better way that I felt that I could exert some leadership in the movement.
HH: Now Arthur, I’d like people to know a little bit of your intellectual pedigree. A name that will come up in the course of our conversation, James Q. Wilson, was the first guy I ever heard on a college campus lecturing a Gov 30 when I was a freshman, with wet behind the ears Ohio big eyes, and heard him lecture on bureaucracy. I was surprised then to learn he’s your intellectual mentor.
AB: Yeah, that’s absolutely right. Jim Wilson, the great man, probably the most influential social scientist of the past 100 years, and I met him when I was defending my doctoral dissertation at the Rand Graduate School in California. It’s in your neck of the woods. Jim Wilson, the great social scientist, showed up unannounced at my doctoral defense. I couldn’t believe it that he’d shown…I was so nervous when he showed up, and it was, my dissertation defense was the most boring thing ever, but he was just kind of interested in the topic. I had written a dissertation about the economics of symphony orchestras. Imagine that. You know, what a snore, right? But we hit it off, we started a terrific friendship, and he helped me tremendously all throughout my career, especially when I came out as a conservative in academia, which you know, that’s a pretty dicey business. It was a few years in, I was not tenured, yet. People started figuring out that I was some sort of right winger, and things got a little bit dodgy out there. And I called up Jim, and I said Jim, what do I do, because he had been known as a conservative icon in academia, taught at Harvard for 25 years, and then at UCLA. And I said Jim, what do I do? You know, people are giving me a hard time because I’m a conservative. And he said ah, don’t worry about it, it’s simple. You just have to be twice as productive and four times as nice as the liberals.
HH: (laughing) Well, good advice. But you also adopted for yourself, and it is manifest in the book, The Road To Freedom, an attitude towards public intellectual engagement, or to be a public intellectual that James Q. Wilson modeled for an entire generation of scholars.
AB: Yeah, he was a great man. Jim Wilson stood out as a giant in lots and lots of ways, in no small part because he was completely dedicated to truth over victory. He believed that you must find the truth as opposed to destroying your enemies politically, and only the truth will lead to lasting victories. That’s an intellectual mantra that everybody in both public and private life should abide by, and it’s, I think it’s guided my career, too, because of his leadership.
HH: Now I want to turn to The Road To Freedom: How To Win The Fight For Free Enterprise. The self-conscious modeling of the title to The Road To Serfdom, would you explain to people Hayek’s book, and the place it has in the conservative pantheon?
AB: The Road To Serfdom, if you’re going to read one book by one economist, and you’re going to do it today, it should be The Road To Serfdom. It was written in 1944, and Friedrich Hayek, the Austrian economist, had, was bouncing between Europe and the United States, and he recognized that the evils of what was going on in the mid-20th Century in Europe could happen anyplace. He talked about how the tendency towards central planning, the condensation of authority around occult-like leaders, how this was a very dangerous thing. It would hurt people’s liberty, and ultimately, it would degrade the quality of their lives. If he were alive today, I believe he would look at our current situation and he would say well, this is not the same as Europe insofar as we don’t have a knock in the night and a jack-booted thug saying give me all your money, but we’ve kind of walked ourselves down a road to serfdom. We’ve kind of become enslaved because one little compromise after another, we have acquiesced to politicians and to bureaucratic leaders who’ve sucked up more and more and more of our creativity and our income, and our freedom. You know today, 36% of all American GDP gets laundered through some level of another of American government. That’s is higher than it’s ever been outside of wartime. That’ll be 50% in the year 2038. I mean, think about that. January 1st through June 30th, every year, Americans will work exclusively to pay for a government they don’t even like. That is the road to serfdom. We need to elect a different road.
HH: So for 70 years, American has traveled in one direction, towards serfdom, with occasional, they’d get off at a rest stop under the Reagan years or something like that, and they’d pause for a while, never really went backwards, always traveled further. Along comes, now, Arthur Brooks’ book, The Road To Freedom, and it proposes to turn around and head in the opposite direction. Are you an optimist that anyone’s got the guts to make that u-turn?
AB: You know, you and I have been talking about this for the past week or so. And it’s a tough thing. We should be under no illusions that when 70 or 80 years go by and we’re going in one direction, spending more and more and more, that turning it around is going to be easy, just because a few clever scholars say hey, guess what, we’re on the road to serfdom. It’s not that easy. We have to diagnose what’s gone wrong, we have to make an ethical and moral case to turn it around, and we have to have consciously courageous political and policy action. I think I know how we can do those things, but it’s going to take leaders. It’s going to take political leaders like Paul Ryan, it’s going to take leaders in media, the voice of ethical populism and public intellectuals like you, Hugh.
HH: Well, I want to go then to two of the key points in the book, The Road To Freedom, and they’re just taken from what I have thought with my five star thing, the two most important things to know. One is on Page 94. It’s a story. It’s about a story of an economist on a drive and he gets lost. Would you explain to people the story and why you put it where you put it in the book, The Road To Freedom?
AB: Sure. So there’s an economist like me, and he lives in Washington, D.C., and he decides he’s got to get away from it all. So he gets in his car and he just starts driving out into the college. And after about 45 minutes, he realizes he’s hopelessly lost. He looks around and he doesn’t know where he is. Maybe he’s in West Virginia, he has no idea. And so all he sees is a little farmhouse on the side of the road. So he stops, gets out of his car, and he asks directions from the farmer, gets the directions. The farmer tells him how to get back to the city, and he’s thanking the farmer and turning to leave, and he notices next to the house, there’s a big field of sheep. So he says to the farmer, I’d like to make you a little wager. The farmer thinks that’s kid of amusing and says what would like? And he says if I can tell you exactly the number of sheep in your field, in ten seconds, can I have one? The farmer says that’s crazy. There’s no way you could know that. Sure. You’re on. So the economist, who’s great with math, applies a complicated set of mental heuristics, and after ten seconds, says you, sir, have 863 sheep. Now the farmer says that’s amazing. I have no idea how you did that, but I’m as good as my word, go pick one out. So the economist goes into the field, he picks out a sheep, and he’s walking back to his car when the farmer says just a second. Before you go, I’ve got a wager for you. And if I can tell you what you do for a living, can I have my sheep back? Now the economist laughs and says there’s no way you could know that. Sure, you’re on. The farmer says no, you’ll see. You’re an economist. And the economist is blown away. He said that’s amazing. How did you know that? The farmer says easy. You got all the numbers right, but you’re walking off with my dog.
HH: (laughing) I love that. Now tell people what that illustrates.
AB: We are the economist in the free enterprise movement. Man, we’ve been getting all the numbers right. I can tell you about fiscal consolidation and balanced budgets. I can talk to you about GDP growth and the OECD tax rate averages and all that stuff. But I’ve been walking off with the dog. I haven’t been telling you what really matters. I haven’t been talking to you about why free enterprise should matter to you and your family, and to our country, and to your kids and grandkids, and people who haven’t even been born yet. I haven’t been making the moral case for free enterprise, and that’s the reason, Hugh, I believe we’ve been losing this fight.
HH: And that is the reason behind The Road To Freedom: How To Win The Fight For Free Enterprise. That’s why I’m spending two hours with Arthur Brooks today talking about the book in detail. We will take some bypasses, we’ll get off into a couple of frolicking detours as we say in the law, but at the end of it, I hope I will have accomplished one thing, which is to persuade you to go to Hughhewitt.com and click on the book, The Road To Freedom, and get a whole bunch of them. It’s beautifully written, it is easy to read, it is current, it is the moment for the book. We need to win the argument. We need to prepare the battlefield for argument as they say in the military. They prepare the battlefield to win the battle. In this case, to win the election, you’ve got to prepare the battlefield for the argument. Arthur Brooks has done that in The Road To Freedom.
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HH: The second data point I wanted to make sure I got to, Arthur, early in the program so people will put it in their memory and remember it, it comes from Page 154. It’s not the high, overarching, arcing principle of the book, which I’ll come to in a moment, but just a data point. And I read from Page 154, “A group of American Enterprise Institute economists recently looked closely at 21 developed countries’ attempts to reduce deficits. Economists call this fiscal consolidation from 1970-2007.” Would you tell people, Arthur Brooks, what the result of that massive study was?
AB: Yeah, we started off that study, and it was actually, when I say we, I mean a bunch of AEI’s best economists, Kevin Hassett from, who taught at Columbia University, Andrew Biggs, who’s doing the best work on public sector pensions. These are our really senior guys. And they said you know what, I bet America maybe can learn from other countries that have gone through fiscal crises in the past. Crazy idea I know, right? We should look at what other people have done around the world. They looked at all of these countries over a whole bunch of decades. Some of them had to fiscally consolidate. That means basically either raise more money or spend less money because you can’t borrow anymore. You’re in a big debt crisis. How did they solve the problem? Some of them spent less money, some of them raised taxes. Who succeeded and who failed? Well, the average country that failed, that means that they didn’t fiscally consolidate, they didn’t solve their debt crisis, in many cases, they defaulted. One went bankrupt. Those countries basically solved their crisis in a 50/50 fashion. Half the money to balance their budget came from raising taxes, the other half came from cutting spending. The countries that succeeded, now this is the really interesting ones, the ones that got out of their crisis, this is countries like Finland in the mid-1990s, that had a huge crisis, way worse than ours, and they did spectacularly well, what did they do? The countries that succeeded relied 85% on spending cuts, and only 15% on tax increases, and the absolutely most successful countries were the ones that actually cut taxes and cut spending even more than they had to. Now that’s a really big deal. That says you can cut the spending to close your deficit gap, but let’s go even further than that and lower taxes to try to stimulate our economy and get out of the way of entrepreneurs. That’s the secret. That’s the winning formula.
HH: This is why I find this so important, is that emotionally, it carries the wallop that we can fix this. It doesn’t make the case, yet, for why we should fix it, and the way that we’re going to propose and you argue for eloquently how we should fix it, but that it can be fixed is I think very important for people to recognize. Others have been in this set of problems, and they have emerged from it.
AB: That’s right. That’s exactly right. It takes courage, it takes hard work, it takes people who are willing to stand up in the case of kind of difficult public opinion, but we have some of those leaders. It’s amazing, you know, I look around the country when I go to places like the Republican Study Committee, which contains most of the new Republicans that were elected in the Tea Party wave of 2010, I mean, those guys are fighters.
HH: And you also write the reason this works is that cutting entitlements can have an immediate, positive impact on the current economy. It bolsters confidence, and it attracts capital growth and jobs. It’s a signal, isn’t it, Arthur Brooks?
AB: Oh, for sure. For sure. Look, we are the reserve currency of the world. People are eager to buy our debt. But that’s not going to go on forever. Not every other country in the world is going to be a disaster area. Sooner or later, we’re going to have to pay the piper for our fiscal irresponsibility unless we start getting our house in order. If we do that, then we will be the place that everybody flees to when they’re worried, when they’re afraid about their own macro economies. And the only way we’re going to do that is to actually start taking entitlements and spending seriously.
HH: Now Arthur Brooks, here’s our biggest problem. Information asymmetries, about what works and what doesn’t, The Road To Freedom, look, I’m going to discuss it here for two hours, I’m sure other radio talk show hosts will have you on. You might get a gig on CNBC. Someone might talk to you in passing at Fox. But you know, you’re not going to get this kind of allocation of time on CNN, on NBC, on MSNBC. They’ll be mocking you if they say anything at all.
HH: So how do we defeat the information asymmetries that puts forward horrible, terrible, bad Keynesian debunked theory?
AB: Well, the answer to that is it turns out, we know. And it comes from a whole bunch of brain science and social psychology that’s been going on for about the past ten years. And basically what it says is that you have somewhere between five and ten seconds to make your argument if you want to get people’s attention, particularly if they don’t agree with you. And what are you going to do with those five to ten seconds? You’re going to have to start with the moral case for what you believe. Now this is super hard for guys like you and me, Hugh. I mean, it’s really hard, because you and I look at the facts and data all day long. We say are you kidding me? We’re running the economy over a cliff. You’ve got to cut spending. You’ve already lost the audience. You have to talk about morally why the free enterprise system is best, and you’ve got five to ten seconds to do it. That’s the only way, particularly in this age of short attention spans and quick media hits, that we’re going to start winning.
HH: And so how do you frame that, beautiful setup, it’s like we’re playing rehearsed tennis here, the most important part is those ten seconds, or that elevator pitch that is based on a moral appeal. Make it, Arthur Brooks.
AB: The free enterprise system is the only system that allows us to earn our success. It’s the only system that is truly fair in terms of rewarding merit, not spreading the wealth, and it’s the only system that can lift up the poor around the world by the billions.
HH: That is very succinctly put. Expand on it a little bit more slowly with each of the points, you made three, a little bit more in detail.
AB: You bet. Number one is earned success. You know, when our founders were writing the founding documents, you’re really an expert on this stuff, as you know, I’m a big fan of your program. I hear you quoting the founders, and you really do this eloquently. And you and I both know that those guys were not materialists. Those guys were moralists. You know, you don’t ask people to struggle and maybe die for an experiment, asking them to do so on the basis of property alone. You ask them to do so on the basis of something more transcendental. And that’s why the moral covenant came from our founders in terms of life, liberty and the pursuit of happiness. That’s like a completely new age promise, but it was something that Thomas Jefferson, and they say Benjamin Franklin felt contained enough moral weight that it could provoke Americans to struggle and maybe die for this experiment. So what is the pursuit of happiness? It’s not the pursuit of money. We know that. We’ve got tons of data on this that money beyond the level of poverty doesn’t buy happiness, hardly at all. It has to be something else, and that something else is what we call earned success. Earned success is the belief that you’ve created value in your life, and value in the lives of other people. And if you believe you’re creating value, it doesn’t matter if you count it in money or souls saved, or kids not going to bed hungry, or cleaning up the environment or whatever floats your boat, if you believe that you’re earning your success, I’ve got the data that show you will be among the happiest people in America. People who believe they have earned their success, it doesn’t matter how much money they have, are happier than people who don’t believe this. They spend less time feeling sad, they’re more satisfied with their lives. And that’s the reason that a system that allows people to earn their success, define their destiny, work harder, get ahead, keep the rewards of what they do to match their skills with their passions? That’s the free enterprise system. And that’s reason number one that the free enterprise system is a moral imperative, not an economic alternative.
HH: Reasons two and three after the break, America. I’m talking with Arthur Brooks. He is the president of the American Enterprise Institute. His brand new book is The Road To Freedom: How To Win The Fight For Free Enterprise. I have linked it at Hughhewitt.com.
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HH: Two and three, Arthur?
AB: The second is fairness. You know, we hate talking about fairness. If you go back to the writings of St. Milton Friedman, you know, he said never talk about fairness, because it’s a subjective concept. Milton Friedman said stay away from the whole idea. It’s childish to talk about it. Well, no. Milton Friedman was a genius and I’m not, but that’s actually just not right. We have to talk about fairness, because people crave fairness. Everybody does. There’s a lot of research on this from the social psychology literature. I have this great friend names Jonathan Haidt, he’s a professor at the University of Virginia, and he’s written a bestselling book called The Righteous Mind, that some, I’m sure you’ve seen, and I’ll bet you a lot of your listeners have…
HH: Oh, he must be very mischievous, given his arguments that you quote in The Road To Freedom, but go on.
AB: Oh, yeah. He’s really mischievous. That’s for sure. And he talks about the fact that it doesn’t matter what your politics are – left, right or center. Everybody says that the moral basis of a good system is that it is fair. So that’s sounds like a killer for us, right? Right, Hugh? Like…
HH: The 1% and the 99% – how can that be fair?
AB: Exactly right. And you know, Obama’s State of the Union speech talked about fairness nine times. His Kansas speech, 14 times he talked about fairness. Every single time he said fairness, he was talking about income redistribution.
AB: That’s the problem. He defines it wrong. We don’t have to lose this argument. We can win this argument by actually taking the game to politicians who are talking about redistribution. They’re defining it wrong. So the answer to President Obama or any other politicians who says we need to spread the wealth, and that will make life fair, everything from that nonsense of the Buffett rule to we are the 99%, you say you know what? I want fairness, too, but you defined it wrong. Real fairness means rewarding merit and hard work, and creating an opportunity society. And only one system is going to do that.
HH: yeah, the perfect illustration you came up with is for students, and I’m grading Con Law finals right now, Arthur.
AB: Yeah, yeah.
HH: And so if I were to take points from the person who has 250 points out of a possible 300, and simply give them to people who have 100 points out of a possible of 300, everyone would recognize how unfair that would be, given the year’s worth of work that went into the three hour final exam. Ditto the bar, ditto your students in Econ. It’s a brilliant illustration.
AB: Yeah, well, you know, it’s funny. I actually did that one time when I was teaching economics.
AB: So when you’re teaching economics to graduate students, you know, they’re really smart, but they’re almost always on a liberal persuasion. And so we talk about the income distribution, and income inequality and all this stuff, just like the way the president talks about it today. And they’ll say you know, it isn’t fair that some people have gotten so rich while other people haven’t gotten, haven’t gotten their share of the wealth, whatever that means. And so I said okay, okay, back up here. What I’m going to do, and I proposed this seriously, is about halfway through the course, we’re going to talk about who gets the points in this class, just like you talked about a second ago, Hugh. Now about halfway through any course, and I mean, you’re a law professor, I was an economics professor, but it’s the same. Everybody, all the kids are smart. The difference really is how hard they work in a class.
AB: And everybody knows it, including the laggers, right?
AB: Everybody knows that’s going on. So you say okay, halfway through the class, I’m going to take the students in the top quarter, and I’m going to take a quarter of their points, and I’m going to redistribute them equally to the people on the bottom quarter. Now you should have heard the howls. The people even on the bottom quarter, those guys were saying that’s not fair. That’s idiotic. And they’re right. And I said so what’s so different between this and the income distribution? Look, I know we’ve got to, we need to create a social safety net. I know we need to do something so we’re not having starving people, and stepping over people who have nothing, but that’s completely different than redistributing goods and services simply to get more equality. I think it made the point.
HH: It certainly did. Okay, very quickly, before we’re out of time, the third argument.
AB: Poverty, lifting up the poor. I want to help the poor, too. Let me give you a little scenario that you, me and most of your listeners have been in. So you’re sitting around the Thanksgiving table, and this is the real battle that each of us is going to fight next November, not the election. It’s around the Thanksgiving table to win the hearts and minds of our family members. And they turn to you, because you’re a big free enterprise guy, and they say Hugh, so this free enterprise system you’ve got, I don’t think it’s so great. I don’t think it’s so great, because I think you’re just trying to give tax breaks to millionaires, you’re hurting the poor, and guess what, I just met a little girl who lives with her mother in the car. What are you going to do for her, right? And you or I will say well, I’m going to unleash entrepreneurship. I’m going to cut corporate tax rates, right? And you’re right. And she had nothing but platitudes and anecdotes, but the person who said that about the little girl in the car, she wins the argument. She wins the argument, because you know what? The poor are more important than our tax rates. People know that in their heart. We better have an argument.
HH: When we come back from the break, we’re going to present that argument from Arthur Brooks, president of the American Enterprise Institute, author of The Road To Freedom: How To Win The Fight For Free Enterprise. It’s linked at Hughhewitt.com.
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HH: When we went to break, we were talking about the third reason why the moral case for free enterprise can be made, and that is it is good for the poor. And we were talking about the little girl living homeless in the car, Arthur. Continue on.
AB: So here’s the basic truth about how the poor are helped. If you go back to 1970 and compare 1970 with today, you’ll find that the worst poverty in the world, that is to say, living on a dollar a day or less, has decreased by 80%. 80% around the world. I mean, nobody knows this, because it’s great news, and the New York Times is not saying hooray for capitalism. They say oh, the world is full of gloom and doom, right? So 80%. Why has poverty decreased by 80%? Has it been the unbelievable success of the United Nations? Or the incredible success of U.S. foreign aid or the International Monetary Fund or global socialism? Of course not. The real reason is because of globalization, because of free trade, because of entrepreneurship around the world. In short, it is because of free enterprise. Free enterprise has lifted hundreds of millions of people, billions of people have been lifted out of poverty by free enterprise. You know, you look at China, and you go back to 1980. China has, since 1980, as one country, been responsible for 75% of the reduction of world poverty. 600 million Chinese have been lifted out of poverty. And the way that they have is not because of their communist dictators. That’s held them back. It’s because of trade with the rest of the world. China has increased its trade with the United States since 1980 by 1,000% per year.
HH: It’s remarkable.
AB: That is literally saving hundreds of millions of lives. If you love the poor, if you are a good Samaritan, you must support free enterprise.
HH: There’s also a very subtle argument in here. That is the collective argument for free enterprise. But you also make the argument at the individual basis that free enterprise transforms individual souls. “The hard evidence clearly shows that free enterprise is the best system for encouraging moral action on the part of individuals,” and later on, on Page 83, “People who believe in redistribution are more likely to treat someone uncharitably in subtle ways. For example, they’ll be late for professional appointments. People with collectivist views have a more liberal view of what is acceptably late to arrive for a meeting. Wealthy liberals don’t pay extra to the government when that opportunity is offered.” In other words, free enterprise not only collectively lifts, it individually transforms, Arthur Brooks.
AB: It’s true. It’s absolutely true. You know, free enterprise, when people believe in it, when people believe that it is their responsibility to get ahead by their own earned success, this leads them to behave more charitably. This is a really big deal in my own personal ideological transformation. You know, I’m from the West Coast. I’m from Seattle, and from a liberal family. And I literally never knew anybody who had any positive views about the free enterprise system. I had never met anyone who had voted for Ronald Reagan back when I was a kid. It was really quite something. But I came around to the views that free enterprise is really good for the individual soul when I started looking at the behavior of people who stood for capitalism, how they actually behaved. Did you know that if you look at the difference between people who think we should redistribute more income and people who think we should redistribute less income, those who believe that we should redistribute more, if they gave blood simply like people who think we should redistribute less income, the blood supply would increase by 40% overnight.
HH: It’s remarkable. That’s really remarkable. Okay, but here’s the quick response. Someone’s going to say Bernie Madoff, argument over.
AB: Yeah, well, you know what? Bernie Madoff is an example of what you get when you have corporate cronyism that’s made possible by the big, overweening nanny state government. You know, those of us who love liberty, who believe in the free enterprise system, we need to stand up and say we don’t believe in corporate cronyism. We denounce corporate cronyism, because it’s just, it’s nothing more than a co-dependent wife of statism. It’s the same phenomenon. These are both threats to liberty. Bernie Madoff is an example of not having free enterprise. Bernie Madoff is an example of the kind of cronyism that you see all just shot through this government, and exactly what’s wrong with the current system.
HH: Explain that a little bit, because that’s not immediately obvious. It looks like he’s simply a Wall Streeter moving money around and looting, Gordon Gecko on the loose, and we finally caught up with him. He looks like, in the eyes of the media, the personification of capitalism and free enterprise.
AB: We have a system today in America where people who have really poor values, and who are dishonest, they’re not called to account. We have a system of regulation, where the government basically says if it’s not illegal, it’s permissible. If we don’t catch you, it’s okay. This is what happens when we impoverish our culture by saying that we have to leave all important moral functions to the government. It’s a really big problem when we basically say if you can get away from something, and the government doesn’t see you, there’s no moral responsibility of other individuals to catch up with you. That’s the fruit of socialism. That’s what comes around when we basically say we’re not going to work together as private individuals to improve our culture, to improve our economy. So a guy like Bernie Madoff, sure, he’s absolutely, he’s morally corrupt. I’m glad he’s in jail. But he would have prospered utterly under socialism. As a matter of fact, socialism had tons of guys, Soviet socialism, it was all Bernie Madoff, as a matter of fact. He exists in capitalism because, or what we call capitalism today, is because Americans have been lulled into a complacency about their own system, and we’re unwilling to call each other to account.
HH: Are you saying that the SEC hinders the working out of moral behavior in the marketplace?
AB: Sure can. You know, the SEC is important. I mean, these regulatory agencies do need to exist. We don’t want to zero…my view is we can’t zero them out. But there are a lot of things that they can’t keep up with. There’s a lot of behavior that the government just can’t see. So who is responsible when you and I see something that’s unethical and dangerous, maybe illegal on the street, and there’s not a cop there? Do we say well, if there’s not a cop there, there’s nothing we can do about it? No. We have a responsibility, Hugh. We take matters into our own hands, sometimes. We call each other to account. When the SEC basically is trying to crowd out all these other mechanisms that have led the United States through its vast history of success, to it suppressing these things, I mean, remember Alexis de Tocqueville wrote Democracy In America, and he talked about the vast ungovernable frontier. And people treat each other ethically and honestly, precisely because the government is not there to suck up the oxygen, to act as the ultimate moral arbiter. We have to be very serious about remembering our own responsibility.
HH: I’ll be right back with Arthur Brooks. Dr. Brooks is the president of the American Enterprise Institute. His new book, The Road To Freedom linked at Hughhewitt.com.
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HH: It’s a short segment, Arthur, so of course I’m going to put a huge subject on the table. You and I share a Roman Catholic faith, and the bishops of the leadership of the American Church are overwhelmingly left leaning in matters of economics. Why is that, given the work that you have in The Road To Freedom that shows the more free enterprise, the more generous the society, and indeed, the greater the amount of support for the Church itself?
AB: Yeah, you know, it’s…economic liberalism is basically just simplistic thinking. It’s people who typically haven’t thought through a lot of issue. So they say if somebody’s poor and you given them some more cash, they’re going to be less poor. Now you and I both know that’s nonsense. You and I both know that you can create dependency, and ultimately create a great evil in somebody’s life, and make them poor and keep them poor longer. But the first order of fact, the simplistic understanding of this thing is you’re going to help them. The American bishops are not trained as economists. They’re not trained as policy analysts. As a general group, there’s not been enough deep thinking about these issues, number one. Number two, a lot of these guys were brought up in the 60s and 70s. These were guys who were brought up during the movement of American collectivism. And so the result of the matter is you see the same thing among the American bishops that you see on American college campuses. You go up to any sociology professor, at even a good university, and you ask him what do you think about income redistribution, you’re going to find out it’s a basic, simplistic leftist. It’s off the shelf thinking is what it comes down to. It drives me nuts completely, because when you contradict that, they’ll question whether or not you’re a good Roman Catholic in good standing sometimes. It’s very uncomfortable, but it’s our duty, it’s our duty as Christians, my belief is, as people who ultimately as lay people who guide our communities, to stand up and say what we think is right for the rest of the people.
HH: A minute to the break, AEI is making a push to take that message to college campuses. Tell people about that, and how they access that.
AB: Well, we have been involved in a program that we call the Values & Capitalism Program, and people can find out about that by going to www.aei.org. Our Values & Capitalism Program is currently focusing on about 40 college campuses nationwide, but we’re expanding very rapidly up to about 100. We started with Christian schools. We started with not even Catholic schools. We started with Evangelical schools, places that are having active discussions about the ethics of capitalism, and trying to inflect those debates. We’re moving now toward non-religious schools all over the country. And the results are very exciting. We’ve been doing debates, you and I have talked about the debates that I’ve been doing. I’ve asked your advice on how I can be a more effective debater on these issues, because you’ve done it a lot, and for a long time. We’re creating curriculum, we have monographs on many of our subjects that we’re injecting into college curricula. And we’re identifying campus leaders, and bringing them to AEI for free enterprise boot camp.
HH: And I hope that every one of them leaves that boot camp with The Road To Freedom, Arthur Brooks’ brand new book. It is linked at Hughhewitt.com.
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HH: Arthur Brooks, there are some things with which I disagree. In this hour, you know, I’ve got four pages of notes, and I’ve gotten through three quarters of one page. And so I’ve been, I’ve been transfixed by your explanations, but I must get to the disagreements, so let’s go there first.
HH: As a matter of policy, do you believe it’s right to allow for the deductibility of charitable donations?
AB: As a matter of policy, I think it is right. And the reason I think it is right is because basically, the way our, the social contract between Americans and their government was to say we’re going to have a government. We’re going to provide some public goods and services. But as a free people, we get to decide what some of those public goods and services are going to be. Americans get to collaborate in the decision. We’re not going to leave it all to bureaucrats who are politicians and unelected bureaucrats who are going to say you need X, Y and Z, now pay up. No, on the contrary, some of it is going to be something that we direct ourselves. It’s a collaboration between us and our government. So it’s not that we’re getting some sort of tax loophole here. Simply, the government is saying when you pay your taxes, I’m going to take a little bit less of your money as long as you’re giving that, and a lot more than that, to some charitable purpose where you’re designating it toward the public good.
HH: So it is okay, though, at least in some cases, to use the tax code to promote other types of behavior other than the raising of revenue?
AB: In this case, some people look at it and say yeah, we’re promoting a certain kind of social behavior. It’s a kind of social engineering. Others say we’re just not going to get in the way of those things as much. We’re going to get in the way of them, because we still have to pay taxes, and if we didn’t have taxes, we would have higher personal incomes, and we could do what we want with it. So you look at it either way. But basically, what we say is that is involved in the tax code. We’re going to take a little bit less away from people as long as they agree to make good public investments.
HH: Now I think it’s a very defensible case, because one of the things that the charitable deduction accomplishes is the accumulation of social capital. A) Do you agree with that? And B) Would you explain to the audience what social capital is? It’s a crucial, crucial concept.
AB: Social capital is the stock of trust and coherence in a society. It’s really hard to measure. I mean, this is a completely amorphous concept that we’re talking about here, right? I mean, how do you measure the amount of trust in your community? Well, there are indirect ways that you can do that. There are scholars that are dedicated to figuring out which communities have a lot of trust, and which communities don’t have very much trust. But when communities have a whole lot of trust, when people are taking care of each other voluntarily, when they’re not just depending on the state, when they’re looking out for their neighbors, those are by far the best communities to live in. Those are the ones that we want to live in. I love my neighborhood. You know, I don’t talk to every single neighbor every single day, but if something’s wrong with one of my kids, if they see one of my kids doing something that’s just not right, I’m going to hear about it, because we have a whole lot of trust. If you live in a neighborhood where people don’t know each other and don’t care, it’s terrible. All kinds of terrible things can happen. So social capital is the difference between living in a nice place, and living in a terrible place.
HH: Now I think the charitable deduction helps build social capital by encouraging the behaviors which are often seen, indeed they’re indivisible from social capital and contribution to charity. Do you agree with that, Arthur Brooks?
AB: I do, and now, there are a lot of kinds of charitable giving that don’t build up trust in the community, because you’re giving to organizations outside your community. We have people all over the country and all over the world that give to the American Enterprise Institute, and that’s actually not directly touching their neighborhood. But it is touching their souls. They will become better neighbors, because they are givers. There’s a lot of research on this, number one. Number two, money’s not the only one way to give. And the way that a lot of Americans give, of course, is with their time, is volunteering. For volunteering, you do have to touch things that are closer to you, so this has a really direct link to the stock of social capital, and the livability, the quality of life in communities.
HH: Now I’ve come in the back door, but the argument about social capital, with which we agree, then is extended to an area where we don’t agree, and that is the single greatest driver of social capital, in my view, is property ownership, specifically home ownership. So if we are willing to engage in tax engineering to benefit charities, we ought to be doing the same thing, and in fact, have been doing the same thing, for home ownership. And that’s why your neighborhood works, largely because people own the houses in which those families and communities are bound up.
AB: Yeah, no, I understand the argument, and it’s a really smart argument. The problem is we’ve gone too far. We’ve induced people through the tax code, and with all kinds of public policies, to get into more house than they can afford, and for too many people who can’t afford to buy homes, to buy these homes. There’s a balance in everything, Hugh. You know, you can have people who shouldn’t be buying homes, because it’s a stupid financial decision, and you’re going to lead to a housing crisis and a bunch of busts. But at the same time, of course, we do want people to own their property. What we want is for people to be under the right circumstance in the culture of ownership. And I think that the tax code, the way that we’ve dealt with our monetary policy that’s led to interest rates that have been too low, a lot of different kinds of public policies have induced people to make housing decisions that are just really bad for this country.
HH: But the mortgage interest deduction, which is a social compact that extends back decades, has in fact induced tens of millions of Americans to buy homes, which have benefited communities. You advocate in The Road To Freedom the abolition, or at least a substantial impairment of that. And I think by doing so, not only will you dry up a vast reservoir of social capital, you will embitter tens of millions of Americans who relied upon the government’s promise in so doing. I think it’s the only thing I deeply disagree with in all of The Road To Freedom. And it’s an AEI twitch. You folks are twitchy against the mortgage interest deduction. It’s horrific public policy to tamper with it.
AB: Well, you know, the one thing for sure that I mean I agree with you on, Hugh, is that we can’t just suddenly say hey, guess what, home mortgage tax deduction, it’s all gone, because that truly is breaking a social contract. That’s part of breaking the contract with the American people, and we can’t do that. For one thing, it would throw the real estate market into disarray, and people would lose billions, trillions of dollars in housing value. You can’t do that to Americans. So if you do get rid of this type of policy, it has to be over a long time. It has to be over decades, so that people can adjust, and people can make their decisions on the basis of an evolving policy. So I agree with you that actually just getting rid of it right now? That’s a bad idea.
HH: Well then, we might not disagree, because if indeed it was a century long adaptation, where you’re lowering the interest deduction by a half percent a year over 50 years at the same time you’re lowering the income level that qualifies for it. But the things I’ve seen out of Team Romney and out of AEI are actually quite radical in their initial limiting of what they call the upper income housing. And anyone who understands the housing market, it will destroy it. It will have that chaotic impact. Are you, are your scholars working to prevent that? Are they aware of the danger, because I have been representing homebuilders for 20 years, and we all know what the danger is here, it’s such a fragile market.
AB: Oh, sure. No, absolutely. So if you look at the work of Alex Pollock, or Peter Wallison, or Ed Pinto, who are housing specialists here at AEI, they’ll tell you, you can’t throw things into disarray like that. You just can’t do it. It’s not right for the government to set up a system, people, I mean, it’s the single biggest investment that people make usually in their lives. It’s the biggest stock of wealth in their lives. And you’re going to decrement the value of that stock of wealth immediately? You can’t do that. That’s crazy. That’s basically just like taking money out of their savings account. It’s not the right thing to do. So our scholars who are doing work on this, and I would urge you to look at Peter Wallison and Alex Pollock in particular, they’re talking about how this, if it’s going to be done, how it can be done gradually in a way that doesn’t hurt Americans. And this is what policy makers are hearing from us.
HH: All right, a different day, we’ll continue that conversation, because I do follow Peter’s stuff, and I think he’s wrong on a number of things, but that’s a different conversation. Let’s go back to The Road To Freedom, because I think we argue, we don’t disagree much on the need for social capital. I want you to emphasize a little bit about charitable giving, back to that, how that’s a leadership quality. That is really something, charitable giving is something that we ought to look for as a placeholder, a marker of people who have genuine leadership competency.
AB: Yeah, this is something that just blew my mind, and it’s just literally, Hugh, it’s changed my life, because I was writing a book in 2006. I talked a little bit about it in The Road To Freedom, and I wrote a whole book about it in 2006 called Who Really Cares? And in that book about charitable giving, I was looking at these experiments that were being conducted in England where people were asked to publicly give to a fund. And people who they didn’t know were watching their giving decisions. They could keep the money for themselves, or they could give it away toward the community. And in the second phase of the experiment, they were asked, the group was asked to elect leaders. It turns out that in 81% of the cases, groups would elect a leader that they didn’t know only on the basis of how much that person had given to charity in the first phase of the experiment. The biggest leader, the biggest givers were almost inevitably elected as the leaders of these groups. All this research shows us that giving is seen as a leadership quality. Servant leadership is something that Christians talk about a lot, and it’s not just a theory. It has empirical backing.
HH: And that empirical backing is on display in The Road To Freedom, the new book by Arthur C. Brooks.
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HH: Arthur, one more disagreement with you, and that is really one of emphasis, not a category. On bipartisanship…
HH: You’ve got a bit of pox on both their houses in The Road To Freedom. And I believe there’s a tipping point where we really have to separate out the parties. We really have to say no, there is a genuine, deep, qualitative difference between Republicans and Democrats at this point in our history, even though Republicans have been complicit in some of the major mistakes of the last fifty years. They are so much better right now, we have to recognize that as a governing principle. I think you disagree with that. You have the floor.
AB: Well, I sort of disagree with that, Hugh. My basic point is it’s not right to trust somebody because of their particular party. The worst thing that can happen to conservatives is they have unbelievable victories in November, and they stop paying attention. That’s exactly what’s happened periodically throughout history. And if that’s the case, then when we’re looking going forward, we’re deciding what the new right is going to be, leaders all over the country. A lot of people are listening to us right now who are community leaders. They’re very involved in their communities. These are the leaders who are going to define what the American new right is going to be. Is it going to be the free enterprise movement? Or is it going to be Republican apparatchikism? Is it going to be basically Republicans who are almost indistinguishable in the way that they vote on most things with Democrats? That’s happened in the past. So when I say a pox on both their houses, look, it’s maybe it’s too much hyperbole. But when we look back over the years, we look at the wages and price controls of the 1970s, that wasn’t some leftist. That was Richard Nixon. When we look at a lot of the policies that happened even during the George W. Bush administration, we say that was Republican Congresses that passed policies that we would associate typically with big spending Democrats. We have to be very careful about how we trust. We have to hold both sides to account. That’s my main point.
HH: I do agree with that, and I do believe, in fact, I’ve had this argument with Conor Friedersdorf of The Atlantic, who also worries about bait and switch on a national, grand scale. But I believe that while there is a chance you can hold the Republicans to account, there is no chance that you can hold the Democrats to account. So it’s sort of like taking a bungee cord that is too long, that’s the Democrats, and one that might be just, just short enough to save your life. You never pick the one that’s too long. You always pick the one that might just work, Arthur Brooks.
AB: No, that’s, of course, that’s true. And we have to hold Republicans to account in full faith that we can have a good effect. We also have, incidentally, to think about over the next three and four decades, how we believe the Democratic party should change. I mean, giving up on it and trying to utterly vanquish and obliterate the Democrats, I think ultimately is not a very productive goal. And part of the reason for that is if you look over history, the parties tend to change a lot. I’m not convinced that there’s nothing that can be done beyond euthanizing an entire major political party. I think that some good can be done, and we have to think creatively how we’re going to reach everybody, people who are independents like me, Republicans holding them to account right now, because they’re the best hope in many of the free enterprise arguments. And Democrats who, you know, I’ve met a bunch of reasonable Democrats who say yeah, I agree with you, I agree with you on these issues, and they need to be fortified. They need to be strengthened.
HH: I’ve met a lot of lovely, wonderful, wonderful Democrats. My closest friend in the world is a Democrat, a senior Bill Clinton aide, as a matter of fact. However, none of them have a lick of sense when it comes, not one of them has any ideas on the matters of economics that makes…Joe Lieberman on national defense? You betcha. Homeland Security. So I, I’ll reserve my disagreement. Let’s get to the next key thing. You have a section in here which I love called the key facts, and I want to run through the five that you identify. Government spending as a percentage of gross domestic product is soaring. That’s a fact. The tax system that we have is already very progressive and getting more so. That’s a fact. The tax and regulatory burdens of the federal and state governments are skyrocketing. That is a fact. The national debt is growing steadily. That is a fact. And this one, people will not believe, but it’s true. You prove it in The Road To Freedom. Economic growth has fallen for five decades. Why are these five facts so crucial to know, Arthur Brooks?
AB: Because they show that we’re already Europe. You know, in every single one of these cases, government spending as a percentage of GDP, through the roof. We’re spending the same amount of our GDP on government as Spain. Spain, which is in a financial crisis. Spain, which is falling apart. Spain, which has 25% unemployment, 52% youth unemployment, which is basically on its way to becoming a developing nation again. We spend the same amount of our GDP on government. They have the Spanish Socialist Workers Party has been in power for two-thirds of the years going back to 1980. And we’re just like them. We like to pretend that we’re different. Or look at the progressivity of taxes. Everybody thinks that we have much less progressive taxes, and in Sweden, France and Norway, they must have much more progressive taxation. That’s wrong. And the reason is because 51% of Americans have no federal income tax liability at all.
AB: Not to mention the fact that the top 5% pays almost 60% of the federal income taxes. That’s progressive.
HH: Yup. The fact that our tax and regulatory burdens are skyrocketing, a couple of weeks ago, Cass Sunstein, the head of the Office of Information and Regulatory Affairs at OMB, a non-advice and consent, probably the most powerful non-advice and consent position in the government, other than chief of staff in the White House, said not to worry, President Obama’s been cutting the regulatory burden, everything is just great. How did you react to that, Arthur Brooks, in light of what you write in The Road To Freedom?
AB: I say show me the money, man? I mean, show me the data. Show me the evidence that you’re actually cutting. It’s not what I see. The evidence I see says just the opposite. And if you look forward, it gets really scary. You know, people don’t quite realize that probably the most insidious piece of legislation that’s come down in the past three years is Dodd-Frank.
AB: I mean, we love to bash Obamacare, and Obamacare’s pretty bad. But Dodd-Frank, that’s where the danger is, and the reason is this. Dodd-Frank, it doesn’t do that much directly. But what it does is it appropriates millions and millions of dollars to set up regulatory bodies of unelected, unaccountable bureaucrats that we will never see in the indefinite future. That’s how you turn the United States into France. I mean, Hugh Hewitt could be elected president of France this week, and it would still be a socialist country, and the reason is because the place is run by socialist, unelected, permanent bureaucrats. That’s what Dodd-Frank is doing to us. That’s the new regulatory environment. That’s the future of America.
HH: Now what’s interesting, Arthur Brooks, is that is a real problem. To turn that around would require probably a resurrection of the non-delegation doctrine, but at a minimum, Congressional seriousness of purpose when it comes to cabining the agencies. That’s an enormous regulatory agenda. That’s a rewrite of the Administrative Procedures Act and many other things. Do you see that in the offing?
AB: It’s hard to do, but, and there are two cases in which we can get it done. One is that we continue down the road that we’re on, where we’re systematically, with America, and when I say we, I mean the American people are systematically electing fighters, people who are willing to say the status quo is no good, tear it up, I don’t even care if I’m a one-term guy. And when look at the members of the Republican Study Committee, the Tea Party conservatives that were elected in 2010, I’ve never seen such a fearless group. It’s just amazing.
HH: What do you think of Mitt Romney and his team of advisors and the platform which is not yet fully revealed, but what is emerging?
AB: What I’m seeing that’s actually not making its way into the press, because of course, the nuance is never going to make it into the press, except for a few outstanding examples like your show. It’s actually getting into some detail not all of which is going to be really popular, but which will do some very hard things. I’m more encouraged as the weeks go by.
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HH: Arthur, in the book, you make an argument about how to reveal the American experiment within the mess that we’ve got. And I was put in mind of the academy in Florence where The David is. But on the way in, on either side, there are these enormous blocks of sculpture that Michelangelo was showing how sculpture emerges from block. It’s in there. You just have to take it away. And they’re amazing, amazing pieces of work. You appropriate that analogy, and you say our challenge right now is to cut away the dross and get back to what the genius of the American experiment was. Expand on that for the audience.
AB: You bet. You know, I have a background in the arts. I made my living in classical music for twelve years as a matter of fact before I came into this line of work, before I became an economist. And one of the really interesting things when you look at art in China versus the United States, for example, is when you talk about art with Western artists, they typically will talk about a blank canvas that they need to fill up. When you talk to Eastern artists, they have the view much more like Michelangelo did, but in sort of every realm of art. It’s in there somewhere. You just have to take away the parts that aren’t the piece of art, so that you know, there’s an old joke. How do you chisel a horse and rider out of a piece of marble? The answer is take a piece of marble and take away all the parts that don’t look like a horse and rider. Simple, right? But basically, this is what our job is today. We’ve been treating public policy and policy reform, and getting better government as if it were a blank canvas, just throw more junk onto the canvas, more colors onto the canvas. And it’s horrible. I mean, our tax code is 17,000 pages long, we have horribly convoluted regulatory environments that, you know, 2,000 [page] plus bill for Obamacare and Dodd-Frank. That stuff is just throwing more and more and more paint on the canvas. We need to take things away such that we can find what the founders intended. What the founders intended was really pretty simple, as a matter of fact. I mean, there were certain functions for government. It was relatively well-delimited, and the thing that was complicated, the thing that was beautifully nuanced, was the realm for you and me to live our lives as free individuals. That means we need to take lots of stuff away. That’s the answer, not put more in.
HH: And the difficulty with that, of course, is the media in which we live, and it’s an undeniable reality, that if you say we need to shrink the EPA, the media will say you want to poison us. If we say the Housing and Urban Development Agency is out of control and needs to be dismantled and given to the states, they will say you want to throw poor people onto the street. How do you work around a system that magnifies and distorts every effort to get back to the principle of subsidiarity and to the effectiveness of a genuine social safety net, not a giant state?
AB: The way we need to talk about these fundamental reforms is to say if we don’t do these things, if we don’t reform entitlements, if we don’t unwind these vast federal bureaucracies, we’re going to be like Europe. And if we do that, you know who gets hurt? The poor are going to get hurt. If we don’t fix Medicare, if we don’t cut not just the rate of growth, if we don’t fundamentally change it, you and I are still going to have medical care. We’re going to be fine when we retire, because we’re lucky people. The people who are going to get really messed up are the poor people, the little girl in the car. And that’s not fair. That’s not fair, and that’s not ethical.
HH: Now the perfect example of this is when Romney said I like to fire people who don’t do a good job for me. They cut off the who don’t do a good job for me. They take the I like to fire people, they expand it from health insurance companies that aren’t providing service, and they apply it to everyone in life. That is a hard, almost impossible mountain to climb, isn’t it, Arthur Brooks?
AB: Yeah, except that we’ve got a special secret key that we can turn in this lock, and that is in your first five seconds, you better say what your punchline morally is. Your moral punchline is I want to help the vulnerable. That’s the reason I want to take the government back from the brink. That’s the reason I don’t want a debt crisis. That’s the reason I don’t want to go broke. You say I want a country that’s truly fair. That’s the reason I don’t want to spend my kids’ future. You say I believe everybody, including the poor, deserve to earn their success. That’s the reason I don’t want these public sector unions running everything. In other words, you can start with the spinach. You can start with the tough medicine, or you can start with the moral significance, and that’s what you have to do. You get five seconds. You have to lead right out of the cannon with the moral case. Then, you get to all your policy.
HH: If you dropped a glass on the floor, on a hard floor every time you heard someone make the argument the wrong way, how many glasses would you have dropped?
AB: It would be deafening, absolutely deafening.
HH: (laughing) I thought so. It would be shattered glass to the knees.
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HH: Arthur, economics to me are like a field is to a sufferer from hay fever in spring. And so I get all twitchy and sneezy, and I react badly. But you cover monopolies, externalities, public goods and information asymmetries rather easily. And I like the book for that reason. And I want to focus on the cost of a taxi medallion in New York City – $696,000 dollars.
HH: Why is this in your book? And what’s it show us?
AB: If you decide you want to have a taxi in New York City, that sounds great. I mean, what’s the cost of it? The cost of it, you’re going to have to work twelve hours a day, right? Wrong. The cost of it is paying almost $700,000 bucks just for the right to drive a cab around, and then add the cost of your gas and your time and insurance, and everything on top of it. So who are you paying it to? And the answer is you’re paying it to the Taxi Commission. You’re paying it to a market in which these medallions are sold. The reason it’s so expensive is because we limit the supply. The reason we limit the supply is we want to give monopoly profits to a particular industry that’s heavily taxed. It’s collusion, collusion between an industry and the government, and they’re colluding against the citizens. This is always, always, always what happens. Somebody’s always got some sort of angle in the government, and it’s always against the citizens.
HH: Now I was curious about that, because in the back of my mind, once they have those medallions, why don’t they come out in the rain? You and I both know that you can’t get a cab in New York when it rains. It’s impossible. Why isn’t there an entrepreneur who will come out in the rain with their medallion?
AB: Well, the key thing is virtually all the medallions are already out there. The problem is that the demand for taxis go way up as soon as it starts to rain. And what would happen in a normal market is that you get way more taxis. Basically, you get people who slap a medallion onto the front of their car, and say I’m going to pick somebody up, because this is a profit-making opportunity. And that would serve the public interest best. But of course, you can’t do that, because that would be illegal, and you’ll have the secret taxi police after you, and you’ll get yourself thrown in jail.
HH: All right, let’s talk about the non-solvable externality. I am an endangered species lawyer.
HH: They really do exist. There are a few of them. Now they are overstated, they are subspecies which are not endangered that are, you know, it’s a whole bunch of bureaucracy. But occasionally, you will find an endangered species that is genuinely endangered. The trouble is we assign an infinite value to every single species that becomes endangered. How do you deal with a system like that?
AB: Well, the way that you deal with a system like that is requiring some sort of cost/benefit analysis. You know, we do cost/benefit analysis in our businesses every day. You and I run businesses. And we’re thinking about should I invest in this or should I not invest in this? And you think what will I get, and what’s good about that, and what do I have to pay out? The trouble is when you have government bureaucracies that only look at the benefits of doing something without looking at the costs. This is one of the big problems with government. They’ll say hey, look, there’s some benefit from protecting the snail darter, or some species. And look, if there’s environmentalists listening, I know I’ll get hate mail at this point. But I don’t know anything about the snail darter. But the point is, you don’t just look at the benefits of protecting that species that most people haven’t heard of. You also have to look at the costs of doing so, the human costs, the cost to industry, the cost of the prosperity of people. That’s the stuff you have to be thinking about as well, and government is never encouraged to do that.
HH: Now we don’t talk much in The Road To Freedom, you do not spend a lot of time on the Department of Defense, and the necessity of the public good that is a vast and expensive military.
HH: And I’m glad that you don’t, but give some people who are out there leaning in, that want to hear a conservative say you’ve got to cut the Defense budget, why you don’t spend a lot of time urging that.
AB: Well, I don’t spend a lot of time in urging that, because it’s such a big topic. It’s a whole book. And it in fact is probably a bunch of work I’m going to be doing this year with a couple of AEI scholars, talking about how we understand culturally and economically what we should be doing with the Defense budget. But one thing to keep in mind, Defense truly is a public good. Defense is not just any sort of other crazy government boondoggle. It’s not like the lottery, it’s not like the Department of Housing and Urban Development, which is getting stimulated in some way to build an apartment building in somebody’s district. The Department of Defense, the Army, the Navy, the Air Force, the Marines, etc., that’s a public good quintessentially designated as such in the Constitution. That’s something that’s very important to remember. That’s the first thing that government is supposed to do, is to provide for the public defense. Now that said, that’s something we have to take very seriously as a core function of government. Does that mean we should wall it off? Does that means we should never look at waste, fraud and abuse? Of course not. Of course not. But we do have to look at it as fundamentally different than stupid so-called shovel-ready projects that stimulate the economy. That stuff has got to get cut.
HH: Last question before, in the penultimate section here, is that we say we love free enterprise, but does our culture actually transmit that value in the media and in the entertainment that it absorbs?
AB: Yeah, it doesn’t always. I mean, it’s actually, there’s a little bit of irony. We love, we act according to the principles of free enterprise, which is why people in entertainment and media can make vast sums of money. I mean, people vote with their dollars. And they vote for the movies that they like, and the television shows that they like, and I listen to you practically every day on my way home from work, because I like it. That’s my dollars voting. I’m listening to the commercials that are coming onto your show. That’s really an important, important thing. But at the same time, it’s those, a lot of the very people in media and entertainment, particularly on the left, who are subtly and not so subtly subverting the principles of free enterprise, and that’s a really worrisome thing. At best, it’s hypocritical. At worst, it’s acting against the public interest.
HH: You know what’s interesting, Modern Family is the most successful comedy out there. There are two very successful entrepreneurs. Jerry is a real estate entrepreneur, and Jay is a building supply entrepreneur. They are both extremely successful and likable characters, first time I can remember that in a long time, Arthur Brooks.
AB: Yes, fantastic. I love the show. It’s completely hilarious, and it does have these sort of good values of a family that’s functional, and you know, Dad works. Weird. Mom stays home.
HH: Yeah, and they make money.
AB: I know.
HH: And they make money.
AB: I know, they make money, and there’s absolutely zero embarrassment about the fact that the entrepreneur, the real estate salesman and the lawyer, who are the three bread winners in that show, that they’re all doing great. They’re all driving more than two cars. I mean, it’s fantastic.
HH: Well, that’s some good news on the culture front.
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HH: I want to thank my guest, Arthur Brooks, for the past two hours of enjoyable conversation about his wonderful new book, The Road To Freedom: How To Win The Fight For Free Enterprise. I want to finish, Arthur, on Pages 36-37. You write, “Whenever you ask entrepreneurs about their success, they spend a great deal of time describing their hardships – early failures and bankruptcies, missed Little League games, endless nights without sleep. They talk about almost losing their homes, and the strain all this put on their marriage. I asked Bernie Marcus,” you write, “why entrepreneurs always recall the sacrifices when they talk about their path to prosperity. For him, he told me, sacrifices were central to his later earned success. Failure, anxiety in lean years weren’t just necessarily evils. They were lessons to learn, and tests to pass. There was no substitute for them.” That’s probably the central message of The Road To Freedom, Arthur, applicable to individuals and societies.
AB: Yeah, it’s true. You know, if we’re going to earn our success, man, there’s got to be success, but it’s got to be earned. Getting handouts is not good enough. It’s not morally right. All of us can remember cases in which we had some sort of success, but in the back of our minds, we wondered did I really earn that, and it’s not sweet. It’s not something that gives us happiness. All the data show this. If you look, for example, at lottery winners, they’re unhappier six months after they win the lottery than the day before they won, and they’re permanently unhappier. If you look at people on welfare, they spend 25% more time feeling sad about their lives than people who are equivalently poor, but who work. If you look at people who inherit a lot of money, you find that literally zero joy can be attributed to the money that they inherit, even large sums. And people who inherit large sums often wonder for the rest of their lives whether their success is earned. The moral imperative of the free enterprise system is treating each of us as dignified individuals, capable, willing and able to earn our success.
HH: Arthur, do you think people, anyone believes that lotto statistic, that people aren’t happy after? Do you think anyone believes that? I know it’s true, and it’s been proven, but do you think the audience believes that?
AB: It’s crazy, Hugh. I mean, it’s funny. You know, there’s this party game where you go around, you don’t know each other, and so you’ve got to break the ice by saying if you won the lottery, what would you do. Have you ever played that? And people say you know, I’d move to California, I’d quit my lousy job, you know, I’d become a poet, etc, etc, always good things. Here’s what they never say. Man, if I hit the lottery, I’d start off by buying a bunch of stuff I don’t need, and then I think I’d marry someone who doesn’t love me. And then you know what I’d do? I’d start an alcoholic spiral.
HH: (laughing) It’s a wonderful bit of data. It’s one of the reasons why, among many, The Road To Freedom is so engaging. Earned success and the moral case for free enterprise is at the heart of this book. Arthur Brooks, thanks for joining me, tremendous effort, and long may it spread, and quickly may it spread.
End of interview.