05 Oct Capitalism and its Critics (with Mike Munger)
00:07 Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burris.
00:09 Aaron Powell: And I’m Aaron Powell.
00:10 Trevor Burrus: Joining us today is Michael C. Munger, Professor of Political Science at Duke’s Sanford School of Public Policy. His new book, a collection of essays, is called Is Capitalism Sustainable. Welcome back to the show, Mike.
00:21 Michael Munger: It’s a pleasure to be back on the show, thank you.
00:23 Trevor Burrus: It’s a… Wide‐ranging topics covered in your book, but as I was reading through it, I kept having this quote pop in my head from the filmmaker Michael Moore, which is something like, “we need to replace capitalism with democracy.” On one level that seems stunningly ignorant because it’s talking about replacing an economic system with a political system, but I also think it’s important that we really listen to what that kind of statement is saying. So what do you think someone like Michael Moore means by that? Is it something we should try and unpack?
01:00 Michael Munger: Upton Sinclair, the muck‐raking writer and novelist, famously said that the ownership of tools is a means of democratizing the workplace, unless the tools are really specialized and expensive, and in that case, it turns into a way of controlling the workplace, and I’ve always thought that that was interesting. What he meant by democratizing was to claim that people have control over their own work. Now, if I work in a factory and the tools are owned by the owner of the factory, I have very little say over how I spend my time, and my alternative is not to work at all, I can’t take my tools and go somewhere else.
01:42 Michael Munger: So I believe that Michael Moore actually comes pretty directly from the Upton Sinclair tradition, and that is what he means by democracy, is some way of having more widely shared ownership and control of the means of production. I think that’s the most charitable way of reading it, because as you say, otherwise it just seems dumb because one’s a political system, one’s an economic system. I actually think that he has a point and that the notion of… One of the things that I favor, for example, is permissionless innovation in people trying to design their own workplace, so in some ways I agree with Michael Moore.
02:23 Trevor Burrus: What is capitalism in this reading, or is it different than free markets?
02:29 Michael Munger: Yes, so in this reading, free markets are the use of prices and voluntary exchanges to direct resources towards higher value uses, and the idea is that unfettered markets produce a kind of discovery process, prices are signals of the opportunity costs of resources. The advantage of that morally is that it gives me an incentive to be concerned about other people, so if I go to buy some toilet paper and I’ve already got quite a bit, but I look and the toilet paper is pretty cheap, I say, “I’m going to fill up my shopping cart,” but if the price is high, it says, “Worry about the person behind you or the person who’s walking to the store that you can’t see, leave some for them.”
03:17 Michael Munger: So the market system uses prices and voluntary exchange. Capitalism is a system of the allocation of the gains from markets, and the thing about capitalism is that we’re always having to explain why it is that the people who shower before work make a lot more money than the people who have to shower after work because they sweated all day. So the owner of the company, he doesn’t sweat at all, maybe he’s a little bit worried about his stock prices, but he’s in air‐conditioned comfort, so one of the paradoxes is that capitalism seems to take the market system and to pervert it in a way where the people who work don’t make money, and the people who don’t work make all the money.
04:04 Michael Munger: Now, the claim is, the justification for capitalism, is that the productivity of capital and the immediate availability of liquidity to mobilize forces of labor is what produces the consumer products that we all depend on, so capitalism is… The big distributional consequence of capitalism is that consumers get a lot of consumer surplus, that is people would pay much more than they actually are required to pay for water or cell phones, all the things that we buy. So the big argument in favor of capitalism is that consumers benefit. It is true that workers may be harmed, and it does seem like capitalists, often, some of them go bankrupt, but the distributional consequences are what people are objecting to.
04:53 Aaron Powell: Now that we’ve distinguished markets from capitalism, how do we situate a lot of the traditional left critiques of, I guess, both within that. So the left looks at capitalism and identifies what it imagined to be problems, with distributions running in the wrong direction, or being unequal or unjust or bosses having too much power and so on, and they blame those on markets. They say markets are the source of these problems. Are they correct in that? So are the things that they have identified, are they a necessary consequence of markets?
05:34 Michael Munger: I think there’s two parts to the answer. I’ve participated in a number of debates recently about whether capitalism or socialism is the better system, and it seems like many people on the left have some litany of complaints about markets, and then at the end, just say, “And therefore socialism.” But at the risk of parroting my good friend, Pete Beckey, you always have to say, “Compared to what?” These are two imperfect systems. So for us to say markets have distributional consequences that maybe we are unhappy with or that seem unfair, that violate some of our sense of justice, I think you have to remind yourself that there is no relationship that is more abjectly unequal than that between the ruler and the ruled. And in a socialist system, the degree of inequality is, if anything, even greater. You’re depending on the good will of the people that are managing the resources that are productive, so the things that we use to make things. If those are owned by the state, I don’t see how that’s obviously better than having it owned by a relatively small number of capitalists who at least compete against each other.
06:50 Michael Munger: The second thing that is the problem with the leftist critique, and I think what you said, Aaron, goes right to the heart of this, they want to manage prices. Well, if you manage prices, you lose all the benefits for markets that they say they wanted to concede. So prices are actually the main argument because it gives you a signal of the relative value of resources. No system can operate without some measure of the opportunity cost of resources. So if you say, well, markets are fine, I’m only worried about capitalism, but then you go to say, and we’re going to manage prices, you’ve given up the farm, that system has… Actually, let me put it this way, there are no examples. There is not one example of an economy that uses fully managed prices that has come close to solving the problem of poverty.
07:41 Michael Munger: Capitalism solves the problem of poverty at the expense of increasing inequality, but socialist systems that manage prices or have state ownership of the means of production may have less inequality, but it’s because they have so much poverty. So if you care about poverty, you’re stuck with the problems of capitalism. There’s actually no alternative, it’s not a choice between two systems, there’s no alternative.
08:06 Trevor Burrus: I want to ask about a quote that you have early in the book: “Folks on the political left claim they believe capitalism doesn’t work. The real problem is exactly the opposite, the political left thinks that capitalism is robust and in fact indestructible.” Can you unpack that, please?
08:21 Michael Munger: It always surprises me how people on the left say we can solve the problem of poverty, all we have to do is increase prices, particularly… Forgive me, increase taxes, particularly things like the corporate income tax. Well, if you look at countries that arguably have solved their poverty problem, many of my friends on the left are big admirers of the Scandinavian countries. So Sweden in particular in the mid‐1990s went to the edge of socialism, looked over the edge and said, that’s terrible, we’re not going to do that. So what they did was they cut their prices, their taxes on corporations, and they have a redistributive welfare state that seems to solve some of the problems of poverty, but the way they do that is to have a relatively sensible of taxation.
09:12 Michael Munger: Sweden has much lower corporate income taxes than the United States, about half, they do have a much larger welfare state, but saying we’re going to use unfettered markets to fund the reduction in poverty that comes from a welfare state is a whole lot different than saying we’re going to redistribute the actual ownership of the means of production. So the quote that you mentioned, the part of the book where I make that argument, we act as if we can pack on more regulations, we can pack on more taxes and capitalism will just keep right on humming along. And in fact, this has really been quite an example during the COVID pandemic, I’ve actually heard a number of radio commentators on the left recently say, well, clearly the pandemic shows that capitalism can’t work.
10:07 Michael Munger: Well, it can’t work if you make exchange illegal, if you shut down all of the opportunities that people have voluntarily to make money to help each other by providing goods and services. I agree, if you make capitalism illegal, it can’t work. The people on the left just think that capitalism automatically happens, they go to the grocery store and all of this stuff magically appears, when in fact, there’s a really complicated set of spontaneously emergent micro‐orders that are decentralized that are operating in the background, but we cannot assume that those things operating in the background will continue in the face of increases in regulation and taxation, they’re actually quite fragile.
10:53 Aaron Powell: It makes me think kind of a critique of conservatism that what they want to, what’s supposed to be conserved is the way that things were when I was growing up, but each of us, the march of generations means if we actually held to that we would be conserving the second century AD. And that there does seem to be, yeah, this notion that we take the world as given, and it’s really frustrating because it gets people, I think especially when the world is really good, and we’re recording this in the middle of a pandemic, when the economy has crashed and unemployment has sky‐rocketed, but by and large, our lives in the United States are pretty good, they’ve gotten substantially better over the last 100 years, but when people are just used to that baseline, they assume that you can muck with it or I think there’s a tendency to not even see… To see the problems but not see how good things are.
11:58 Aaron Powell: How do we address that, that kind of problem, because it makes it, it makes it really hard to argue. On the one hand, you can be Pollyanna‐ish about markets and you’d be like, nothing bad comes out of markets, but that’s not a convincing argument and it’s not true. But on the other hand, if people assume that the kind of markets and the lifestyle they have now is the baseline, then all they’ll focus on is the bad stuff, and it’s hard to convince them of the good stuff, ’cause that’s just what they’re used to and it’s not as acute. So is there a way to push back on that, to kind of sell markets in that environment?
12:32 Michael Munger: Well, the way that you pose the question is exactly the right way to think of it, and I’m interested in the way you framed it, and that is, there are many conservatives now that are questioning markets. And it is perfectly possible to say we’re worried about excessive consumerism and the anomic properties where we’ve lost our sense of connection to societies, clubs or to the nation. So we had Patrick Deneen from Notre Dame University in last year, who had written a book, a criticism of liberalism both on the left and on the right. So his claim is that liberalism, whether it’s a conservative or leftist view, the problem is it, the problem with it is that it puts too much on the individual and ignores the responsibility that we all have to the state.
13:27 Michael Munger: The solution that conservatives have now actually kind of harks back to Montesquieu in a way, and that is we need a more powerful government, so that we will do the right thing and serve each other and serve our country. So for some reason, conservatives just assume that they’re going to be in charge and that we can create this new system and we will go back to this bygone age that may never actually have been where we all cared about each other, we were in bowling leagues, we all went to church. And what surprises me, I’m Catholic as it happens, what surprises me about that is the fundamental claim of Christianity is that faith to be salvatory has to be authentically voluntary. So the idea that we’re going to put together a system that forces people, basically a theocracy, which I worry that people on the conservative side are coming close to, the reaction against decentralized permissionless innovation, where people get to choose the means and the ends of their own life is endangered at least as much from the right as from the left.
14:45 Michael Munger: So I agree with the point of your question, Aaron, I don’t know a very good way to push back on that, because that comes down to basic values and an assessment of the cause and effect relationship that we see in the way that society works, not just markets, but in the way that society works. So I tend to favor decentralized voluntary groups, thinking that people are the best judges of both what they want to accomplish and the means to accomplish it. But there are many people right now on the left and the right that are questioning what until now had been a basic tenet of liberalism.
15:26 Trevor Burrus: Going back to… We were talking about the price system. One of the things I thought was interesting during this pandemic time, and you write about this in different ways throughout the book, being properly appreciative, if not surprised by markets and the way they work. There’s a part of the book where you talk about, I think they’re blue flip‐flops for a $1.89 that you found somewhere, and pestering your kids, saying, “Isn’t it amazing that there are blue flip‐flops?” But that’s one thing that happened in the pandemic, at least in the early months, where suddenly, going to Aaron’s question too, you’ve taken a grocery store for granted and you’ve taken the fact that there’s always toilet paper in the grocery store, and there’s a meat supply chain that’s not going to be interrupted, and there are all these discussions of supply chain, so suddenly people were worried about this. And I was hoping that maybe they would conclude that markets were pretty good from that, I’m not sure they’ll get from that, but we did see this sort of weird disruption in this amazing entity that we take for granted.
16:22 Michael Munger: What I thought was interesting about the response, it went in stages. So in late March, everybody that I knew at Duke was all saying, “Oh, you want the government now, don’t you? There’s no libertarians in a pandemic.” And then within a month, those same people who were complaining about arbitrary and frankly silly state restrictions on things like reciprocity, so the ability to have people, nurses come from another state without being licensed by North Carolina or people who worked in various service industries not being able to move around. So I would say that in a pandemic, nobody is anything but a libertarian, everybody is a libertarian, because what it does is throw into stark relief the difficulties that we normally don’t find that inconvenient because markets are robust enough to work around them, but in a pandemic, when you’re facing scarcity, the fact that some of these aren’t available and some things aren’t available, and you ask why… Well, some medical devices weren’t available because they were having trouble getting licensing from the FDA.
17:34 Michael Munger: Well, these are ventilators that we know work, but there was a hold‐up on ventilators. There was a hold‐up. There was a very nice story on NPR, on Planet Money, about the fact that testing kits in the United States were far behind those in other countries. The United States and South Korea both had their first COVID-19 cases on the first day, January 20th. South Korea immediately licensed and enlisted the aid of private labs and they started to do contact tracing. It took the United States nearly two months of messing around with bureaucracy and not using the immediate mobilizing power of the market to come up with anything like the same kind of quality of testing kits, which were already actually available.
18:20 Michael Munger: So I would say that… What I have tried to argue is that in a pandemic everybody is a libertarian, precisely because you start to see the pinch points that normally we don’t worry about because markets can work around them, and you ask, why do we have these regulations in the first place? They never made sense.
18:42 Trevor Burrus: You chose the title Is Capitalism Sustainable for the collection. What do you mean by that? Is it in an environmental sense or is it can it continue? Why did you choose that title?
18:55 Michael Munger: Well, as you know, people don’t get to choose the titles for their book, the publisher always chooses one they think is ambiguous and evocative.
19:01 Trevor Burrus: True, true.
19:03 Michael Munger: In this case, I did approve. And the reason is that sustainability is kind of a buzz word, it’s true, but I became interested and I actually found myself more and more doing something that I used to accuse people on the left of doing. So for example, I would say, “I don’t see how you can be in favor of socialism, it doesn’t make any sense. You look at Venezuela and clearly socialism doesn’t work, it’s collapsing.” And they would say, “Oh, no, that’s not right. Venezuela, that’s not real socialism.” Well, maybe, but the things that socialism requires, state ownership of the means of production, substantial control over prices and the management of the availability of consumer goods, those lead to a failed totalitarian state, always.
19:51 Michael Munger: Well, I got to thinking about it, and a capitalist system in a democracy rewards rent seeking at the margin more than it does the honest pursuit of profits. And what I mean by honest pursuit profits is I have to invest in new products, I have to hire engineers, I have to think of ways to make new things that are better and cheaper, or I can hire lawyers and lobbyists which will increase my profits. Well, my stockholders would prefer more profits, they may not care what the source is. So suppose that I’m a manager and I say it is legal but immoral for me to hire lobbyists to get the government to give us subsidies and restrict competition in our industry, and so I’m not going to do it, I’m going to pursue honest profits. Well, there’s a competitive market for managers, if I won’t do it, they’ll find someone who will. That’s in the logic of capitalism itself, it’s not something outside. Suppose that those stockholders don’t do that, some corporate raider looks from outside and sees that my stock price is 10% or 15% lower than it would be if we pursued the legal but moral course of securing rents, such as subsidies and protection from competition.
21:06 Michael Munger: So the corporate raider can go to a bank and borrow money against the increment to the stock price that will result from the pursuit of lobbying, and again, that’s within the logic of capitalism, so mergers and acquisitions and a competitive market for managers within the capitalist system drive capitalism towards cronyism. And if that’s always true in a democracy, the only policy prescriptions are either that we have a dictatorship like Singapore, which presumably we’re not proposing, or capitalism always has a tendency towards cronyism, which means capitalism is not sustainable.
21:47 Michael Munger: So the paper that Mario Villarreal‐Diaz and I wrote, the title of it was The Road To Cronyism, and we were riffing obviously on Hayek’s Road To Serfdom. Now, it’s not that there’s no turnarounds on this road, but there is an inherent tendency in capitalism towards cronyism, and democracy enhances it, that means that capitalism is not sustainable in a democracy, and those of us who defend markets need to take that part of the argument from the left seriously. Cronyism is not the opposite of capitalism. It is something that capitalism turns into in a political system that allows freedom, and we should be worried about that, we should credit that as legitimate criticism.
22:32 Aaron Powell: Do competing firms act as a check against that? So the concern about on, say, a pure socialism side is the state, the state trucks away towards authoritarianism because it keeps aggregating more and more power towards itself, but states within their geographic area that they control don’t have any competition, there’s no one competing for the state, with the state for that power, it’s the only actor in town and it’s just taking more. But with cronyism, cronyism is ultimately zero sum. If my firm gets the subsidies, your firm loses out, or if my firm gets the contract or the grant, your firm loses out. And so you’ve got multiple firms competing, and does that competition make it harder for the cronyism to grow past a certain level? Because the bigger it gets, the more people will be competing for the pie and try to knock each other down?
23:32 Michael Munger: In some industries, competition does control this pursuit of profits, but there’s two things that I think are important to remember. One is that the state is not a passive bystander in this process, the state is actively soliciting rent‐seeking proposals, and it may be at the industry level. So if you look at the structure of the American agriculture industry now, it is dominated by a relatively small number of large corporations, all of which benefit from the fact that we give enormous subsidies to agriculture. The sugar industry has only… At the level of growing has a very small number of firms that get enormous subsidies, so I would say that there is a life cycle where early stages of an industry, the competition that you’re talking about is enough to discipline firms, but as the industry matures, their opportunities for increasing return by more investment in the pursuit of honest profits decline.
24:48 Michael Munger: So in the book, there’s a graph, it’s a simple graph, so that you have the first dollar return to lobbying and you have declining returns from the pursuit of honest profits. So for example, Microsoft for decades didn’t have a single lobbyist, now Microsoft has its own building on K Street. At some point, you pass the point in the life cycle of the industry where competition is… There’s enough gains in competition that the winners, that the hard workers still say we’re better off without the state, ’cause once you embrace the state, it’s hard to let go, people recognize that, but at some point, at least one of the firm says, you know, we’re not doing that well. If we hire lobbyists, if we invest in the pursuit of patents that actually have no real content, but that will allow us to extend the unique position we have as producers of this product, then we can for five years, for six years, sustain ourselves as being profitable, we can prop up our stock price.
25:55 Michael Munger: So it seems to me that in addition to competition, you’re right, competition is enough, we would also need a dynamic system where permission‐less innovation encourages the creation of new products. And so if you look in the last 20 years, the places where there’s not cronyism is the places where innovation has taken place about new forms of communication, social media. And so for Uber, Uber doesn’t have very good relations with the state because they’re new, Uber doesn’t have that many competitors, but Uber is still at the point where they’re better off investing in better service and lower price than they are in seeking help from the government. That may change pretty soon.
26:42 Michael Munger: And so as long as you have new firms producing new products in a dynamic economy, that will provide enough competition to prevent this turn towards cronyism. But all industries, I’m going to claim, all industries eventually mature to the point where the first dollar return to lobbying exceeds the marginal declining return to the investment in producing better products, and at that point, they become cronyist.
27:10 Trevor Burrus: You discuss, of course, throughout the book, profits in different ways, which is a bad word for people, but sometimes it seems like people might worry that you’re putting too much meaning into the word profit, or profit doesn’t encapsulate enough of our values. For example, in the area of recycling, that if you say it’s not profitable to turn glass into cullet so you can make more glass with it, but if you’re a proponent of recycling, they would probably chafe at this idea and say, well, that’s exactly the point. Saving the earth may not be profitable. So is that an over‐use of a concept of profit when it comes to something like recycling and environmental concerns?
27:52 Michael Munger: Well, let’s recall that in a properly functioning market system, the reason why we want prices as the consequence of a discovery process is that prices reflect the opportunity cost of resources. Now, the argument for environmentalists is that because they’re externalities, prices do not reflect the full opportunity cost of resources and the state should intervene, either imposing corrective taxes or regulating in some way. Now, profits are the result of me engaging, I go out and I sign contracts, voluntary contracts with a number of input suppliers, and the input suppliers all are happy to sell me their product because they’re voluntary exchanges, so I pay money out and then I go and then I sell it in output markets to consumers, and the consumers are happy to buy the product, and they’re paying a price less than it costs me to produce it, so I’m making my input suppliers happy because I’m paying them more than the value of the resource I’m buying, and consumers are happy to purchase it from me because they value the iPhone that I’m selling less than it costs me to make it.
29:07 Michael Munger: If I have money left over, that’s called profits, and profits are the reward for me making all of those input suppliers wealthy and making all those consumers happy. Now, if you just look at the amount of profits that an industry is making, that’s pretty misleading, ’cause it’s hard for us to measure the producer surplus of inputs or the consumer surplus of buyers. A lot of people are made happy from buying these products. Now, for recycling, the problem is that prices may not work, particularly when it comes to valuing the amount of space or damage that we’re taking up in landfills. And so I actually was really interested, and when I first started to go down this rabbit hole, I would interview people. Well, how expensive would recycling have to be for it not to be worthwhile?
29:58 Michael Munger: And I actually got one very earnest young woman in a small town in New England who was the Public Relations Officer of the town, and she says, “Oh, it doesn’t matter how much recycling costs, recycling is always cheaper.” Well, gosh, that’s hard for me to understand because, in fact, what you’re saying is that I have a way of testing whether something is a resource or not, so I hold something in my hands and you don’t know what it is, but we want to figure out with 20 questions whether it’s a resource, and you say, will someone pay you for that? Well, if someone will pay me for that, it means that someone else has a value greater than zero for it; if that’s not true, it’s not a resource, it’s garbage.
30:44 Michael Munger: So that’s step one. If it’s garbage, now we have to face the question of what is the cheapest way to dispose of it, given that we recognize we want to take into account the cost of damage to the environment, so… Oil, used motor oil. If I pour used motor oil on the yard, that does damage to the environment that I’m not paying for. If I take some glass and grind it up and mix it with asphalt or the sand that’s in my yard, that doesn’t do any harm to the environment. The externality of disposing, for example, of glass is very low. So there was a mythology that the United States was running out of landfill space, and it actually was the result of the Islip garbage barge where they couldn’t find a place to put this garbage, but the studies of that said, wait, we have fewer and fewer landfills in the United States. That’s right, we were closing a bunch of landfills that weren’t safe. However, the landfills that we were building were 10 or 100 times as large, and they were protected by a rubber barrier at the bottom and an impermeable layer at the top, they were capable of… We actually have more landfill space now than we had in 1970.
32:00 Michael Munger: Let me say that again, we have more free landfill space now than we had in 1970, there is no shortage of landfill space in the United States. So where comes the cost that people are imagining that markets are not capturing when it comes to recycling? So the city of Baltimore famously announced just this past January, that for the past seven years, they had been… They had been taking glass from the recycling bins, they take it to the recycling facility, they put the glass into bags, they carry the bags to the landfill, so they’re trucking it twice, picking it up twice, handling it, trucking it twice. And the people were outraged saying, well, we wanted to recycle glass, and Baltimore said two things: First of all, it’s too expensive to recycle glass. Now, what does that tell you? It means that this is not a resource, people will not pay you for the glass, it is garbage. Second, it is cheaper to put it in the landfill than it is to find other uses for it.
33:07 Michael Munger: So the difficulty that I have with people who think there’s a moral imperative for recycling are losing sight of the fact that the justification for recycling is to reduce the damage to the environment. Baltimore was increasing the damage, increasing, he said, his voice rising with indignation, increasing the damage to the environment for the sake of satisfying the moral imperative of recycling. And when asked about this, the Baltimore official said, yes, that’s right, but it’s good for people to get into the habit of recycling, and therefore it was justified.
33:48 Aaron Powell: The argument for recycling ties into, to go back to the title of your book, that the sustainability question, and one of the broader critiques of capitalism that I see, I think is pretty common, is that it’s unsustainable in that it… Capitalism, we have a capitalist class that owns these businesses and they make their living and grow their wealth by getting us to buy more and more stuff. So if I’m being a bad participant in a capitalist economy, if at some point I say I’m satisfied and I don’t need anything more. And so Apple every year has to try to convince me that I should upgrade my iPhone, I should buy more, so we’ve got that drive and we’ve got the cultural pressure, we’ve got advertising and so on. But that is divorced from both what we actually need, so there’s the, we’re being encouraged to buy things that we don’t need that aren’t actually making us happy, putting us into debt and so on, but there’s also the sustainability prong of it, which is we can’t keep growing forever, there’s a finite number of iPhones that can be manufactured out of the available resources in the world, and so if Apple has perfect success of always convincing us to buy the next iPhone, eventually the world is going to run out of resources and capitalism will have to collapse.
35:11 Aaron Powell: Is there any truth to that? Should we be at all worried about the relentless march of growth and buying more, given that we live in a world where resources are finite, and as you just said, if recycling doesn’t pay, then that glass is not going even at high cost back into the pool.
35:34 Michael Munger: The interesting thing about that argument, which I do often hear, is that we should actually invert it: The solution to that problem is capitalism. And the reason is, if we start to run out of something, the price goes up, and you saw this happening with whales and whale oil in the 19th century, so there was a shortage of whales because of gross over‐fishing, and you could say capitalism was causing that, but it also provided the solution in the sense that once whale oil prices started to go up to reflect the increasing scarcity of the irresponsible over‐fishing of whales, people started looking for alternatives, people cut back on the use. And so they started looking at this stuff that was seeping out of the ground in Pennsylvania, all of the early oil fields were in Pennsylvania, petroleum fields were in Pennsylvania. So if you have scarcity, if you start to run out of something, the price goes up. If the price goes up, three things happen: Consumers buy less, producers make more and entrepreneurs find substitutes.
36:41 Michael Munger: So far from being a contradiction in capitalism, price is the only conceivable answer to the very legitimate problem that you just raised, so we have way too much stuff, we have way too many cars parked. What do we see? We find that, and this, I’m now talking from my previous book Tomorrow 3.0, about the sharing economy, we’re seeing permissionless innovation and apps resulting in the commodification of excess capacity. We have plenty of stuff, we just need to be better at sharing it, and the sharing economy allows us to share it and to make money. If I have a car and a few minutes and you need a ride, we can take an Uber. If I have an apartment, my son lived in New York, he was getting a PhD at NYU. He went to Berlin to study for a while, he rented out his apartment in New York City for more than he was paying for his apartment in Berlin.
37:31 Michael Munger: So the commodification of excess capacity is the capitalist response to the fact that we have too much stuff. And having too much stuff, if prices are allowed to do their work, prices will go up and three things will happen: Consumers will buy less, producers will make more, and entrepreneurs will create substitutes, which means we can never run out of anything. So the Julian Simon bet, the famous bet that he made with Paul Ehrlich, said, we can never run out of anything, and allowed Paul Ehrlich to choose the things he thought we were going to run out of; not only do we not run out of them, the prices of all those things actually fell, so that’s even harder.
38:16 Michael Munger: So it wasn’t to the… Julian Simon was saying more than, we won’t run out of stuff… That’s true. In a capitalist economy, you can never run out of anything, in a capitalist economy, you can never run out of anything as long as the price system is functioning well. But what actually happened was in the case of the Simon‐Ehrlich bet, prices actually went down because producers made a whole lot more of the stuff. So this is actually something I feel pretty strongly about because, Aaron, I do often hear this objection, capitalism is the only hope, that government cannot solve this problem because it is not willing to do the things.
38:54 Michael Munger: Suppose you think the environment’s a problem, we have a problem with global warming, what should we do, we should immediately impose a large carbon tax. We don’t have the political will to do that, so the prices are not going up, people are not using less oil and carbon‐based fuels, producers are making as much as they want, and entrepreneurs have no reason to invest in green energy because the government refuses to do what the capitalist system would do if this were a price, so we cannot rely on the state doing what capitalism is capable of doing if we start to run out of something. So this is something I feel very passionately about. Capitalism is the only solution, we have to get prices right.
39:39 Trevor Burrus: Is that… There was one thing, example that struck me, and I maybe get some of the facts wrong, so if I’m wrong about this, imagine a hypothetical situation, but in the late ‘80s, I believe, there was a huge craze for a fish called orange roughy, which was the… I remember, specifically, ’cause I was a kind of picky kid eater, it was the first fish I liked, and everyone was eating orange roughy, and there was a huge… And eventually, they discovered that, unbeknownst to them, they had fished down the orange roughy population who reaches sexual maturity after like 100 years, and so there was this big problem of destroying this population. And somehow, which again, the story I’m not getting straight, but it could have been possible that the profit‐seeking corporation could have pursued this orange roughy until it just disappeared, and it was just gone, and then that resource would be gone via the capitalist system, it seems at least possible on that level.
40:33 Michael Munger: I used a weasel word. I said, if the price system can operate. The problem is that for pelagic fish like the orange roughy or open ranges, like the tragedy of the commons. The problem with the tragedy of the commons is shared ownership, collective ownership, which is exactly what socialism wants to impose. Capitalism, it’s true, does require exclusive private ownership, but this is a problem that we can solve, Trevor, and the reason is that we now can do genetic engineering. Remember, why was it that cattle on the range in the West had brands. Fences were too expensive, and so they roamed all around. So we put a brand on the cow and then we had a cooperative agreement, everybody would return the cow that had a brand on it to the owner.
41:24 Michael Munger: Well, if we had genetic markers for certain types of orange roughy and we had a way of tracing orange roughy genetically, so that only the people who owned the orange roughy would be able to sell them, then you couldn’t have pirates coming in and taking them. The problem that we had was there was no individual ownership of the places where you could find orange roughy. The result was that people would come in and take as much as they could, so it’s the standard difficulty with open ranges or with the tragedy of the commons, it’s true capitalism can’t solve that problem.
42:00 Michael Munger: That’s a state failure. The state failure is the inability to assign and defend property rights. If you have private property rights, and so that’s the extension to my claim that I would make, if you have well‐defined private property rights, we can never run out of anything. We can run out of things where the states, nations, fail to define private property rights, but that’s a government failure, not a market failure.
42:27 Trevor Burrus: It’s interesting too, ’cause this goes back to the recycling point to some extent, because at different times it makes sense to recycle things depending upon the market.
42:36 Michael Munger: Oh, absolutely, I am an avid recycler, I always… In fact, if I see someone throw away an aluminum can, I will pick it up and take it home and recycle it, so aluminum cans and corrugated cardboard, we should… I’m making air quotes, we should recycle because prices are telling us those actually have value. I am not harming the environment by recycling aluminum cans or corrugated cardboard, I am harming the environment by insisting on recycling glass just to make myself feel good. It’s appalling that people want to buy for themselves the moral licensing of recycling a couple of wine bottles so they can drive an SUV.
43:19 Trevor Burrus: But it’s also… I remember the… We were talking about the Julian Simon example. I don’t know, maybe 10 or 15 years ago, there was suddenly a copper shortage and people were stealing copper from houses and reclamating on from appliances and stuff, and it was an interesting thing where I said, I don’t really understand copper markets, but if they let the prices run freely, this will probably solve itself, and I bet we won’t run out of copper, because it suddenly made sense for people to come and strip copper and recycle it in some way.
43:49 Michael Munger: Right, and before… Copper is a difficult thing because we may not have… It is difficult to increase the supply of copper, and there may not be very many good substitutes for it because it has the electricity, but when you say people were stripping out copper, in many cases, these were abandoned buildings. I actually think that at some point the price of plastic is going to go up because we may have a shortage of fossil fuels, which means that plastic will now have value. I think people are going to strip mine the large landfills to recover plastic, which they will then be able to sell, so it is responsible, in fact, for us to bury plastic in landfills, not burn it, but varied in landfills so that future generations will have a source of energy.
44:38 Aaron Powell: We talked about consumerism, and we talked about the recycling can never cost too much because there’s value in doing it, like that argument…
44:49 Michael Munger: It’s a moral imperative, yes, it’s a moral imperative.
44:53 Aaron Powell: You mentioned Patrick Deneen, and tying these together, if I can make an attempt to do this, it seems like one of the objections to capitalism, and it’s not one that’s often stated explicitly, but it seems to drive a lot of other kinds of objections to capitalism, is capitalism is ultimately a system about figuring it out what people want, and then giving it to them at a price they’re willing to pay for it, that’s the mechanism. And a lot of times, people end up wanting stuff that you yourself don’t want, or they don’t want stuff that you want, or they want stuff that you don’t think that they should, or they don’t want stuff that you think they should want, and capitalism is the system that enables all of that, like misplaced, wanting. And so with Deneen and the national conservatives, a lot of their objection is when you let… Liberalism and free market capitalism enables people to lead these lifestyles that I find distasteful.
46:06 Aaron Powell: And so I guess it feels like a lot of the critiques of capitalism are at their heart about distaste regarding the desires and wants and lifestyle choices of others. How do we argue against that? How do you address an argument for free markets when I know that if we let people buy what they want, they’re going to buy silly, dumb stuff.
46:38 Michael Munger: There is an interesting and sometimes undefended premise underlying liberalism and classical liberalism, and usually economists just give this kind of brief consideration and say, oh, well, preferences are subjective, and that means that people are the best judges of their own welfare, and what I like may not be what you like. Well, that’s actually a pretty important point, and what actual moral philosophy of liberalism would say is not that this is subjectivism, but that this is autonomy. This is self‐ownership. So the underlying assumption is autonomy and self‐ownership, I am in charge of myself and I am allowed to be in charge of myself and make my own choices. The alternative to that is that somebody else is going to make my choices for me, and usually the people who are opposed to autonomy, and I said this before, they secretly believe that they’re going to be the ones who are in charge.
47:44 Michael Munger: So I asked Patrick Deneen, “So what’s going to happen if Hillary Clinton is president?” He’s going, like, “That can’t happen. Our side has the better argument, we’re going to win.” If you put all the power to make choices for consumers in the hand of one person or a group, the competition to be that one person or that group is going to consume so many of the resources of the society through rent seeking, you have created an artificial position where I get to decide for everyone. Now, all of us, maybe not Trevor, but all the rest of us, secretly believe we should be in charge, and that we should get to choose for everyone else. But most of us, since we’re more than 14 years old, recognize that position is unlikely to be offered to us, and so we choose the second best position, which is, since I’m not going to be in charge, I’m going to say that no one is in charge and we’re going to have a presumption in favor of autonomy. Now, maybe you draw the line and say, no heroin, people don’t get to choose to have heroin, but maybe marijuana, probably alcohol, almost certainly coffee and maybe Diet Coke.
49:03 Michael Munger: So at some point, most of us are going to agree, yeah, those are things that individuals get to choose. So I think that people who defend markets need to take this notion of autonomy much more seriously as being a substantive but defensible premise of their position. And here’s the reason why I think it will work, because many of the same people who say, we’re going to take away the ability of capitalism to produce stupid stuff, if you ask them, alright, are there people that you’re not going to allow to vote? Oh, no, everyone should get to vote. Really? So you’re defending autonomy when it comes to voting, when people are rationally uninformed, when they don’t know much about the alternatives, but you’re not going to let them make their own choices when it comes to breakfast cereal, where they’re the only ones who are responsible for it. That doesn’t make any sense to me. If you have questions about autonomy, it should come at the level of democracy. I’m worried that not everybody knows enough to make the right choices when they vote, and when I say that, you recognize what a terribly dangerous position that is. You don’t want anyone in charge of deciding how other people get to vote.
50:15 Michael Munger: Well, I don’t want people in charge of deciding what I get to buy, and in fact, the autonomy over, and my self‐ownership over what I get to buy is much more defensible than the presumption of the autonomy of everybody in a democratic system, ’cause it’s just true, many voters are not paying much attention, that’s dangerous to the system, but we correctly say the alternative, which is someone is in charge of deciding what people want, is even worse.
50:46 Trevor Burrus: So things don’t look really good right now for libertarians, free market advocates, capitalists, we got democratic socialists on the left and national conservatives on the right. What do you think supporters of capitalism should be doing better to maybe get out of this morass that we’re seemingly going into?
51:08 Michael Munger: I may just be an incurable optimist, but… So I’m going to quote someone that I didn’t agree with, but then come back to a point. So at one point, some American soldiers, it was an officer, he was a major, was being introduced, was being interviewed on CNN in Baghdad, and they said… The interviewer said, “There’s so many different factions, it’s hard to know who’s on what side, how do you make sense of this?” And the major said, “I have come to the conclusion that what we should do is give all sides better weapons, better training and seal the borders for a year, then we’ll come back and whoever survived that’s who we’ll deal with.”
51:48 Michael Munger: So I would say that the current political situation is a conflict between people that are so egregiously mistaken that neither Bill Clinton nor Ronald Reagan would have agreed with. Both Bill Clinton and Ronald Reagan agreed on a bunch of things about here is the way that the society should operate, there’s certain basic premises. So the very far left and the far right, I say give them better weapons and better training and come back in four years, so I think we’re in for a hard time, I think that’s right. However, they’re going to, both of them are going to prove their incapacity to govern, and if we can just maintain a flickering remnant of here’s an alternative that has stood the test of time, that in many nations, classical liberalism has been a compromise between people killing themselves over religion, people killing themselves over politics, we’re going to allow freedom of speech, we’re going to allow freedom of religion, and we’re going to encourage tolerance of people who disagree with us. I think that this is going to be a great opportunity.
53:10 Aaron Powell: Thank you for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple Podcasts or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at www.libertarianism.org.
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