283. What Would Our Economy Look Like? (Earth 2.0 Series)

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[11] What if we could remake Earth?

[12] This is Megan down in Texas.

[13] My name is Andrew Short.

[14] My name is Chris Adamson.

[15] I'm just Dominique Beck.

[16] And I live in Atlanta.

[17] I'm from Romania.

[18] I'm in South Africa.

[19] What would you change?

[20] One thing I've always wanted to reboot is how we define...

[21] What I would like to change.

[22] What I would like to change?

[23] What I would change?

[24] Of course, every citizen to understand their responsibilities to themselves and to society.

[25] And if I had to choose one system...

[26] If I could change any one system, I could probably be...

[27] I would reboot the human understanding of something that I've always wanted to regroup is how we schedule education.

[28] If I could change anything would be the global mathematics system.

[29] It's got way out of hands.

[30] It's really a flawed system.

[31] If you were up to me, I would just say, okay, everybody, let's stop.

[32] Let's regroup.

[33] Let's, let's, let's shut everybody.

[34] everything down, and let's build the whole system up again from scratch.

[35] It seems like every other day, astronomers discover some new Earth -like planets.

[36] A possibly habitable world orbiting the closest star to Earth, and that's a really big deal.

[37] Finding a second Earth is not just a matter of if, but when.

[38] Can you imagine all the possibilities of having a new habitable planet?

[39] What would we do with it?

[40] Maybe we'd use it to raise all our food and harvest its precious metals and petroleum and lumber.

[41] Maybe we'd send all our criminals and political enemies there.

[42] Or maybe we'd say goodbye to this old Earth and move to that one instead.

[43] Earth 2 .0, a fresh start.

[44] What would that look like?

[45] After all our trial and error on Earth 1 .0, how would Earth 2 .0 be different?

[46] If we had a chance to reboot our civilization to build new institutions and systems from scratch, whether on a new planet or this one, what would we do?

[47] What would our political and economic and medical and educational systems look like if we weren't stuck with all the residue of the past few millennia?

[48] That, my friends, is the theme of today's episode of Freakonomics Radio.

[49] And not just today's episode, this Earth 2 .0 thought experiment is so.

[50] big and exciting, to me at least, that we're going to make a series of episodes on this topic.

[51] They'll come at you over the next several months.

[52] We'll start today with, what else, economics.

[53] We'll hear from some of the most esteemed economists in the world.

[54] Well, that thought experiment's not so far from how I think about things day to date.

[55] We ask a Nobel Prize winner what he'd do as chief economist of Earth 2 .0.

[56] Well, you know, I would turn a job down.

[57] but we press on undeterred and the question is if you knew at time t what you learn way in the future at time t plus j would you do something different and the answer is often the answer would be yes sometimes no from w nyc studios this is freakonomics radio the podcast that explores the hidden inside of everything.

[58] Here's your host, Stephen Dubner.

[59] There are at least two scenarios when a thought experiment can be a useful thing.

[60] The first is when you're hoping to navigate an unpredictable future.

[61] The second is when you're trying to reimagine the past.

[62] The thought experiment we're undertaking today, Earth 2 .0, involves both.

[63] If we had a chance to reconstruct our economic system, how would it differ from what we've already got.

[64] The reason this is a thought experiment, not an actual experiment, is that unless you're a dictator, you generally aren't allowed to simply blow up an existing system or institution and invoke your will.

[65] And the systems we've got, as much as we may be accustomed to them, aren't necessarily optimal.

[66] They've evolved over thousands of years, often quite randomly, sometimes by dictat, occasionally by pure accident.

[67] And once a given practice or custom is in place, it can be devilishly hard to change it, even if any rational person can see it's ripe for change.

[68] Why?

[69] Because of what's called path dependency, which means that once a path is worn into the ground, it's awfully hard to deviate.

[70] You can see this in examples large and small.

[71] So the first thing is, why do the British drive on the left?

[72] That's Claudia Golden.

[73] She's a labor economist and an economic historian at Harvard.

[74] Her left side of the road riddle goes back to the Middle Ages.

[75] So it's a leftover, and excuse the pun, from a distant past long ago at some point when people were riding horses and were walking along the road and they were vulnerable individuals and they carried daggers.

[76] When a rider on a horse wanted to show that he did not have a dagger in his right hand.

[77] Riding on the left of the road allowed the rider to greet oncoming riders with his right hand outstretched, hey, I've got no dagger.

[78] You're safe.

[79] Riding on the left and showing the empty right hand because...

[80] Because 85 to 90 % of the population we believe is right -handed.

[81] This, by the way, is why so many people still shake hands.

[82] We're shaking hands to say, hey, I don't have a dagger in my hand.

[83] Riding on the left side of the road, meanwhile.

[84] So that became the standard.

[85] So buggies and carts and horses and people included, walk and ride on the left.

[86] And when automobiles appeared, they also needed to conform to that standard or else they would have run into the horses and the people.

[87] So everything follows.

[88] Everything follows in Britain, at least, but not in America.

[89] Why not?

[90] So we didn't start with people on horses, with swords and daggers and stuff like that.

[91] We started later.

[92] So in colonial America, we had these carts with these oxen in the front.

[93] And there was a seat for the driver.

[94] And because people are right -handed, you needed to be on the left side to whip the rear of the animal.

[95] So this standard evolved, therefore, the reverse way, even though both standards evolved, because the vast majority of people are right -handed.

[96] Two ways of doing the same thing.

[97] Maybe one's better.

[98] Maybe not.

[99] I don't think it matters much.

[100] You can do whatever you want within your country.

[101] But once things become open, it really becomes difficult.

[102] So if Norway is doing something else and if Denmark is doing something else...

[103] Right.

[104] That could be chaotic.

[105] Standards are put in place that serve a function at one time, and they persist, even though occasionally everything around them changes.

[106] That is the peril of path dependency, that when you're locked in to a way of doing things, you're left hoping that the old solution will solve new problems.

[107] Golden has seen this in her research into how the modern labor markets can punish women.

[108] Well, job and school schedules were created for a world of a strict division of labor.

[109] There used to be a TV program called Father Knows Best, and they would leave it to Beaver.

[110] So many of the job and school schedules that existed then are still with us, and they impose disproportionate burdens on working women, and they are a major reason why women today earn less than men.

[111] Why?

[112] Well, the world of work today gives disproportionate pay to those who work longer hours, and even if they don't work longer hours, they're always.

[113] on call.

[114] They're going to drop everything to do the job.

[115] So some firms are changing, and many of the changes are occurring because male workers, as well as female workers, are putting their feet down and saying, this isn't a way to work and have a family as well.

[116] But some sectors, for For example, in finance and law, in many of the corporate sectors, are changing more slowly, if at all.

[117] So it's easy to see how our modern practices, rather than being tested and proven excellent, are built upon multiple accidents of history, which is why it's so tempting to pretend we could just start over from scratch.

[118] Okay, my name is Angus Deaton, or if you want the full formality, sir, Angus Eaton.

[119] And I'm a retired or emeritus professor at Princeton.

[120] Deaton won a Nobel Prize in Economics in 2015 for his analysis of consumption, poverty, and welfare.

[121] So our mission today, Professor Deaton is pretty straightforward.

[122] We throw out all our existing systems and institutions on Earth and build new, more perfect ones from scratch.

[123] So knowing what you know about economics, what changes?

[124] would you make?

[125] Let's just start there with the broad question.

[126] Well, I'm actually quite hostile to the question.

[127] You know, I don't really believe in this sort of social engineering that's implicit in the question and that, you know, that can very easily turn into a form of tyranny, especially when it's done in a non -democratic or non -organic way.

[128] So that, you know, I think, you know, when you ask a question like that, you think, ooh, wouldn't it be nice to have a world government or something?

[129] Well, the answer is it would not be nice to have a world government.

[130] You know, local governments can be tyrannical enough before you start.

[131] So I really do sort of believe in organic development.

[132] So rather than saying, let's throw out Earth 1 .0 and start from scratch and institute some as you disdainfully suggest some centrally planned, you know, over -economy.

[133] How would you assess overall the success of this spontaneous orderish series of economies that have evolved organically?

[134] Pretty highly, I think.

[135] I thought you were going to go somewhere slightly different, but let me give the answer to that question too, which is that I'm always a little worried when people say, you know, why can't we be more like Sweden or, you know, why does Germany succeed whereas Japan doesn't?

[136] I think what is very important, and it's part of the organic development, is that, you know, these countries are different from one another, largely, I think, because people want it that way.

[137] And, you know, for example, a health care system that works in Britain may just not work at all for Americans because tastes and habits and things that people have accepted for long time.

[138] And also their history.

[139] I mean, people go through wars often feel differently thereafter than people who don't.

[140] I mean, I don't think Swedish tastes are fixed or Scottish tastes are fixed.

[141] But I think they're real enough.

[142] And so, you know, one of the dangers of trying to come in with a template and re -engineer the world is that they often don't recognize those facts, whereas the organic growth really does.

[143] Now, where did you think I was going to go with that question?

[144] Well, sort of, you know, which country do you think would be the template for, you know, a new nation 2 .0 or something.

[145] Mm -hmm.

[146] Okay.

[147] Which country would then?

[148] Well, none, you know, the ideal country for Americans is different from the ideal country for Swedes.

[149] That's not to say each one's got its ideal country.

[150] I mean, people would like some improvement, I think.

[151] Yeah, so keeping in mind that I very much respect your desire to not blow up the system and start over, if I were to make you the, let's say, chief economic advisor of Earth 2 .0 and give you the task of writing up the kind of elevator pitch for some rules to live by.

[152] some things that you definitely want to do and some things that you definitely don't want to do.

[153] Just give me a few things on the plus side and a few things on the negative sign.

[154] Well, you know, I would turn a job down.

[155] What I would do.

[156] And it's partly because, you know, I do have a track record of turning down similar, not quite so global jobs.

[157] But, you know, I do think it's just a bad thing to do, especially at that level.

[158] And I think it would make me into a tyrant.

[159] It would breed hubris, and, you know, I'd do more harm than good.

[160] Well, that thought experiment's not so far from how I think about things day -to -day.

[161] We did find an economist who is open to our proposition.

[162] I'm Jeff Sachs.

[163] I'm a professor at Columbia University and a special advisor to the United Nations Secretary General on sustainable development.

[164] Sachs has also been an advisor to the Vatican and many heads of state.

[165] He's considered a sort of poverty -fighting superhero.

[166] He's run economic and humanitarian rescue operations all over the world.

[167] I went into economics believing that it ought to be useful, and it ought to be useful for addressing big challenges.

[168] To that end, Sacks has a clear vision of the goals that economists should be helping to achieve.

[169] economic prosperity, social fairness, and environmental sustainability.

[170] And while that's not perhaps the most abstract vision of the world, I think it's a pretty good shorthand for where we stand in the 21st century of what we ought to work on.

[171] Now, how do you actually do that in the world?

[172] You don't do it top down because everyone's circumstances are quite different.

[173] But I'm a big believer in that framework that you could.

[174] call it a moral framework if you want, but I really believe in that, that if we think together in our best mode as human beings, in the mode of problem solving, these are really solvable problems.

[175] So let's get some shared goals.

[176] Let's have them meet the morality and the ethics test.

[177] Let's do something that became anathema for some market economist.

[178] And let's hold ourselves accountable by measuring every year.

[179] What are we doing?

[180] Are we more unfair, less unfair?

[181] Which country at this moment in time that we're speaking do you feel has the best blend of politics, economics, and social structure?

[182] That's easy because three countries come up at the top of every list, whether it's happiness or sustainable development.

[183] And those are the Scandinavian countries, Sweden, Norway, Denmark.

[184] They're market economies, but there are also social democracies.

[185] They tax a lot and they guarantee access to a lot of services, health education, daycare, child care, vacation time, family support, and so forth.

[186] And in my view, they work the best on the whole planet.

[187] Of course, not everybody, not even all economists, agree with Jeff Sachs' assessment, he is pushing for a highly regulated and curated market economy, regulated and curated typically by a central government, whereas others advocate for minimizing the role of government.

[188] I am unapologetically in favor of free markets.

[189] That's Brian Kaplan.

[190] He's a professor of economics at George Mason University.

[191] I think free markets not only work well, but they're also just the fair and just way for people to deal with each other.

[192] This brings us to a central question for Earth 2 .0 economics.

[193] Should we rely on free markets and Adam Smith's famous invisible hand or a more visible hand?

[194] And if the latter, just how visible should the hand be and whose hand is it?

[195] People often think about free markets as being unfair to the poor or unfair to, you know, probably especially the poor.

[196] What I would just say is if you really look at the regulations that really change the world a lot, like immigration restrictions.

[197] They actually are a case of governments trying to stop the poor from bettering their own lives.

[198] My view is the single greatest loss of the world right now is the fact that most of the world's talent is trapped in poor countries where they can barely, they can only operate at a very small fraction of productivity.

[199] You know, basic fact is if you let one person from Mexico into the U .S., their productivity doubles or triples overnight, let someone in from Haiti, productivity goes up by a factor of 10 at least.

[200] So, I mean, just going and keeping someone in a country that is dysfunctional means that you are wasting all that talent.

[201] Because of immigration restrictions, of course, people generally don't move.

[202] And contrary to many people, these laws are actually very strictly enforced, which is pretty obvious if you just look at how much people pay to get smuggled in from one country to another.

[203] If, you know, someone doesn't spend years worth of their income in order to cross a border if it's easy to cross the border.

[204] As Brian Kaplan sees it, these constraints are.

[205] like driving on the left side of the road, a product of path dependency.

[206] I see the national identity as being maybe the most potent force in the political world, and yet it's all sort of based upon this illusion that what happened a few hundred years ago determines what we are today.

[207] Kaplan's point forces us to take a step back momentarily from talking about the economics of Earth 2 .0 and thinking about basic geopolitics.

[208] I asked Jeff Sachs about that.

[209] So, Jeff, let's assume that in Earth 2 ,000.

[210] 2 .0, there are still borders and countries as we have now.

[211] Maybe there won't be, but let's assume that for a minute.

[212] What are your thoughts on global economy versus existing national independent economies?

[213] I think we want a globally connected economy.

[214] Adam Smith said that then every part of the world could help to meet the needs of other parts of the world, but we also need borders because countries are not just economies, they're societies, but we need a part of the world.

[215] We need a partially open borders in that people should also be able to move, but not to swamp other countries.

[216] So I'd like to see a world in which there's general prosperity.

[217] In general, people would like to stay in their home country.

[218] That's their home culture, language, ethnicity, religion, and so forth.

[219] But we also have openness to the world.

[220] We certainly don't want a dissent into kind of rabid, crude, crass nationalism.

[221] That could get us all killed, by the way.

[222] It's interesting.

[223] If we think of Adam Smith as the forefather, the godfather of modern -ish, classical -ish economics, I mean, obviously there's a lot of morality in Smith, but I feel like modern interpretations of Smith often don't acknowledge the morality.

[224] So I guess I'm just asking you to teach me a little bit about the moral dimensions that were present in the early writings about modern economics.

[225] It's a very fascinating and very important moment.

[226] And in a lot of ways, modern economics embodies a vision of human nature and an approach to ethics that is a simplified and, in my view, deeply flawed reflection of that because in economics, the first thing you learn is people have tastes.

[227] tastes are what drive them don't ask about their tastes they're maximizing their tastes and markets help them to do that in a variety of ways and morals well that's your business and I think this is a huge disservice to the truth about human nature first of all because tastes aren't just there and people change and they have a deep social connection, and there are purposes and meaning to life that are beyond those tastes as consumers that economists hold dear.

[228] And while all of that may be pretty highfalutin if you're trying to estimate a demand curve for soap and may not be too relevant if you're trying to ask what's good in a society, then the starting point of modern economics seems to me to be the wrong place to start.

[229] Right.

[230] Well, you're implying or stating in a subtle way.

[231] way, that not all tastes are created equal, and that if you assume that, as many economists do, then you're ignoring the potential downstream effects of an economy that may promote certain tastes that are maybe less pro -social than others, right?

[232] Exactly.

[233] And I go back to my favorite philosopher Aristotle, whose view was that we aim for happiness and we achieve happiness through the cultivation of virtue.

[234] And that that's a hard work.

[235] It means learning, studying, striving for excellence, becoming a good person within society.

[236] It's not just you have a utility function.

[237] You have to work at it.

[238] You have to think about it.

[239] You have to cultivate it.

[240] So that's a standard idea in moral reasoning of almost every sort in human history except for modern economics.

[241] Only modern economics says, you are what you are and leave me alone.

[242] But having been working at this now, studying this for 45 years, I came to realize that what I thought was wrong, you can't avoid the deeper questions in my view.

[243] You have to get back to the questions of human nature.

[244] Are you seen as, I don't mean to imply that you're a traitor to the fraternity of economists, but are you seen as a little bit soft.

[245] in the head for thinking that morality should have such a prominent role in economics?

[246] I've been thought about as soft in the head in the following way.

[247] You know, part of my solution for extreme poverty is take money from rich people and give it to poor people to help them do things.

[248] And for a long time, a lot of my fellow economists, as I'm sure you know, said, you're cheating, sacks.

[249] You know, what is this?

[250] You know, there are budget constraints.

[251] You can't just take that and give them health care, give them bed nets and so forth.

[252] You know, your ideas are flaky because by the time somebody gives the money for this, it's going to get stolen for that, and the bed nets are going to get way laid into a black market, and it's never going to do any good.

[253] And that's all good debate for kind of objective behavioral observation.

[254] How do things work?

[255] Can we make systems work?

[256] But the question, should we care about that, that I find a moral question and one that, you know, I'm sure that I, certainly with libertarians, I have a big disagreement.

[257] But to me, this is a part of where the economics profession is just weird because we're now, we're not living in a world like the world of Adam Smith, even in 1776, much less the world of Aristotle, where everybody was poor.

[258] we're living in an incredibly rich world.

[259] We're living in a world in which people don't have to die of their poverty.

[260] And the fact that we can't figure that out, that that is a moral call on us, to my mind, is really a failing of our moral insight, not a failing of economic technique per se.

[261] Coming up on Freakonomics Radio, we will get into some of these economic techniques, which ones are worth porting over from Earth 1 .0 to Earth 2 .0?

[262] and which ones to kill off?

[263] I wish I knew the answer to that.

[264] Today, we have embarked on a thought experiment that we will revisit over several episodes, over several months.

[265] It's called Earth 2 .0.

[266] If we had the opportunity to reboot our planet and create new systems and institutions from the ground up, how would they be better, or at least different, from what we've blundered our way into through trial and error?

[267] We asked you, our Freakonomics radio listeners, what you think is particularly ripe for reinvention Before we get back to our discussion on economics, let's hear some of your ideas.

[268] One thing I've always wanted to reboot is how we define adulthood in America.

[269] When you turn 16, you can legally drive a car, but you can't consent to have sex in the back seat of it.

[270] There's sort of arbitrary milestones, and they don't account for the fact that people have different levels of maturity.

[271] They're really mature 17 -year -olds and really immature 25 -year -olds.

[272] So what I'd like society to do is to treat adulthood the same way it treats marriage, as a contract between individual, in the state.

[273] The first institution I would like to give a serious restart is the academia, where a typical professor wears four hats, the researcher, the teacher, the advisor, and the bureaucrat slash politician.

[274] As one rarely excels in all four domains, this system tolerates mediocrisy and pushes talented people out.

[275] The system I would change if I could change anything would be the global mathematics system, from a decimal -based system to a duodecimal or dozenal -based system.

[276] I believe more people understanding basic math concepts.

[277] can only better society, but people struggle now because a base 10 system is hard and pretty messy.

[278] You can't even divide by three evenly.

[279] A base 12 system is a much cleaner system, which means more concepts of division and multiplication would be understood faster by more people.

[280] The institution that I believe desperately needs to be overhauled is the modern legal system.

[281] I believe it is unnecessarily elaborate.

[282] It looks down upon simplicity and is far removed from the understanding of common people.

[283] The financial incentive for doctors to provide expensive tests and procedures which may not be in the best interest of the patient.

[284] Like any first -year student of economics or Freakonomics would know, a misalignment of incentives can cause major problems for any system.

[285] I think there's an institution that badly needs an overhaul and it's democracy itself.

[286] Everyone says the system is broken but I would say that it's simply antiquated.

[287] and that the advances of artificial intelligence can bring a solution.

[288] All right, maybe we'll look at some of those ideas in future episodes.

[289] For now, let's get back to Earth 2 .0 economics edition.

[290] So far, we've been talking about the tension between free markets, guided by the invisible hand.

[291] I am unapologetically in favor free markets.

[292] And a more hands -on approach, guided by governments.

[293] They tax a lot, and they guarantee access.

[294] to a lot of services, health, education, daycare, child care, vacation time, family support, and so forth.

[295] So let me ask you a question.

[296] What share of the current global population do you think lives in extreme poverty?

[297] Go ahead.

[298] Pick a number.

[299] Also, would you say that number has gone up over the past few centuries or gone down?

[300] By a lot or by a little?

[301] That's really something that very few people actually know.

[302] If you do surveys, it's maybe 10, 12 percent of the population that actually knows that the share of the world population living in extreme poverty has decreased.

[303] That's Max Roser.

[304] He's an economist at the University of Oxford.

[305] So if extreme poverty has decreased, how bad was it a couple hundred years ago?

[306] If we go back 200 years, then we have basically the entire world population living in material conditions that we would call extreme poverty by the standards of today, so 80, 90 percent of the world population.

[307] But still even in the beginning of the 1980s, more than 40 % of the world population live in extreme poverty.

[308] And today?

[309] And today they're roughly 10 % of the world population still living in extreme poverty.

[310] And that's, of course, a tremendous achievement.

[311] But it still means that 10 % of the world today live in extreme poverty.

[312] And the name extreme poverty is really appropriate.

[313] It is a very, very low poverty line.

[314] So it's for sure, reason to be complacent about that.

[315] And there's still a lot of work to be done.

[316] So yes, there's still lots to be done.

[317] And while the share of people living in extreme poverty has fallen to around 10 percent, 10 percent of a population that has ballooned to 7 plus billion is a lot of people.

[318] That said, it would be foolish and ungrateful to deny this massive economic progress, which is why some economists like Nobel laurea, Angus Deaton, don't really like our thought experiment of rebooting the economic system.

[319] Well, I'm actually quite hostile to the question.

[320] I really do sort of believe in organic development.

[321] But that doesn't mean there aren't plenty of problems to address.

[322] Here are some of the ones we'll be talking about on this episode and next week on part two.

[323] Our tax system is scandalously inefficient.

[324] I think of immense transaction costs as a market failure.

[325] So I think one crucial policy, would be an unconditional basic income.

[326] So I'm very strongly against the universal basic income.

[327] We are not paying a living wage to people who take care of children.

[328] It's just the kind of thought that needs to be suppressed because it leads to a world of poverty and misery.

[329] I've been focusing much more about issues of rent -seeking.

[330] That's Angus Deaton again.

[331] It seems to me that in an economy like America's today, we have whole sectors in which rent -seeking is very deeply embedded.

[332] The health care sector being perhaps the most obvious one in which, you know, we have a health care system in the United States, which is not very well set up to save lives or to keep people healthy, but which does make a lot of people very rich.

[333] It is incredibly expensive.

[334] And, you know, I think we're in a terrible place as far as that is concerned right now.

[335] Unless you're an economist or kind of econo nerd, the phrase rent -seeking, I found, means almost nothing to you.

[336] So I'd love you to talk about it, just define it for a moment.

[337] And then I'm really curious to hear from you whether you feel it is an inevitable byproduct of a certain kind of economy or a certain kind of economy -slash -political setup.

[338] I wish I knew the answer to that.

[339] Those are great questions.

[340] I had the opportunity to talk to a bunch of cardinals in Rome, and I talked about rent -seeking and crony capitalism.

[341] It was very brave.

[342] And there were people were just falling around hysterically laughing, that, you know, I would dare to say this.

[343] But it was quite safe, in fact, because the translators just translated as something nonsensical.

[344] And I'm sure they had no idea what I was talking about at all.

[345] But, I mean, another term for rent -seeking is crony capitalism or more precisely directly unproductive activities.

[346] And so what rent seekers do is they go to government and they get special favors like monopolies or protection from people who would compete against them or especially high prices for their products or rules that say no one can bid down their prices of their products.

[347] So they get protection from the market.

[348] So it's this sort of anti -market thing.

[349] And in a rent -seeking society, you know, if you're running a business like, say, a pharma company or something, you could invent new drugs, which would make people live longer and, you know, make you worthily rich.

[350] Or, you know, you can go to Washington and beg for special favors, and that's often a much more profitable activity.

[351] But it doesn't provide anything for anyone.

[352] And, you know, Mansor Olson, who was an economist and political scientist, He wrote a very, very wise book about how this would bring down capitalism in the end, and that as societies got richer, these groups would form whose main purpose was simply to enrich themselves at the expense of everybody else.

[353] And, of course, that reduces economic growth, and it also causes the political system to be captured by rich people.

[354] And so, you know, if we could wipe out rent -seeking at a stroke, we would reduce inequality to buy enormous amount because a lot of the people are really rich are rich because of rent -seeking, not because of stuff they invented.

[355] And, of course, it's complicated because the inventors turn into rent -seekers very quickly if you don't watch out.

[356] Can you talk about what you see as the kind of sane blend of open markets and government regulation?

[357] Maybe there's an example from today where you think there's a good symbiosis or maybe from history, maybe even antiquity.

[358] I really don't know.

[359] And I wish, I mean, if you could recommend me a good book that treats that question, I would love to read it.

[360] But, you know, I've read a fair amount, but I'm not sure that that question has been that well answered.

[361] And it's also these rent -seeking and crony capitalism ideas are not that widespread in economics.

[362] or maybe again, I'm missing it.

[363] It sounds, my interpretation, I may be misinterpreting it.

[364] I seem to hear you say that rent -seeking is an inevitable result of an economy or a political economic system that grows so rich and prosperous in fat that there's plenty of people who can come in and extract some of that fat without anybody really being able to do anything about it.

[365] No, I'm not, I don't believe that, I don't think.

[366] I mean, you could take, say, Sweden that's as rich as we.

[367] are very close and has a very large government.

[368] And there's lots of regulations.

[369] So you would have thought this would be an opportunity for more rent -seeking.

[370] But people in Sweden trust their government and don't seem to think it's being undermined this way.

[371] And it may be worse in the U .S. because people mistrust government.

[372] I don't know.

[373] I really don't have a well -developed hypothesis here.

[374] You've got to respect and appreciate Angus Deaton for not pretending to know the solutions to hard problems like rent -seeking.

[375] The fact is that economics, as much as it considers itself as science, is often not very scientific.

[376] If it were, there'd be a clear answer to a straightforward question like, what's the best way to stimulate growth?

[377] I have no idea.

[378] I don't know how to stimulate growth.

[379] That's Abhijit Banerjee.

[380] I teach economics at MIT, and I'm a director of the Abdul Latif Jamil Poverty Action Lab.

[381] When Banerjee says he has no idea, how to stimulate growth?

[382] I'm not sure there are many very clearly identifiable good things we could do.

[383] I know how to destroy growth.

[384] North Korea knows how to destroy growth.

[385] I think what we can do is avoid disasters.

[386] I think having an underclass that's resentful and excluded is a disaster.

[387] I think the real, you know, salient issue of today is income distribution.

[388] And I think if we did not do something about income distribution, we just continue this promise that, you know, in the long run, it's all going to be good for you.

[389] You just have to bite your lip and bear it.

[390] That's what we were telling the poor for 40 years now.

[391] And it's going to all be better because we know what it is.

[392] And again, we're giving them the same recipe, which is basically we're going to do a few things like, you know, bully some companies to not move abroad or something.

[393] But then most of it, we're going to give tax cuts to the rich.

[394] We're going to get maybe some growth.

[395] But the big picture of it is that, you know, even if we raise growth rate from 3 % to 4 .5%, we're not going to change the big problem of a massive unequal income distribution.

[396] This points, once again, to a central conflict among economists and others.

[397] How to strike the balance between free markets and a more paternalistic state between creating opportunities for everyone without tamping down the incentives to innovate and work hard.

[398] Jeff Sachs, as we've heard, is firmly in favor of a helping hand more than an invisible one.

[399] Part of my solution for extreme poverty is take money from rich people and give it to poor people to help them do things.

[400] That is, he wants to address an economic failure by exploiting our collective economic success.

[401] We're just phenomenally rich.

[402] It's unbelievable.

[403] And we therefore have solved in the macro average sense, what John Maynard Keynes called the, quote, economic problem, meaning we don't need extreme poverty.

[404] We don't need suffering from deprivation anywhere in our world.

[405] Meanwhile, Angus Dieton, while hardly opposed to alleviating suffering, sees financial.

[406] aid as a slippery slope, especially on the national level?

[407] Well, I don't think we should be spending large amounts of money inside other people's countries, which is not to say, that's not an argument.

[408] It's against aid.

[409] It's just, I think it was Jagdish Baguadi who coined the term that, you know, we should be giving aid for Africa and not aid to Africa.

[410] And, you know, it's very, very difficult.

[411] But smaller countries and much of Africa, You know, it gets the better part of all of government expenditure comes from abroad.

[412] And then that means the government is basically in hock to the donors and need not pay much attention to its own people.

[413] And it sort of converts governments into rent seekers, as it were.

[414] And, you know, even if you start out with good leaders, you know, opening up this giant fire hose of money in their country, that's a much easier trough to feed at than actually setting up firm.

[415] and entrepreneurs and actually doing something.

[416] And even if you start with good leaders, they're likely to turn into bad leaders.

[417] And if you start with bad leaders, basically you're forming an alliance with them to exploit their own people.

[418] And, you know, we've seen that over and over again.

[419] But, you know, just so that I don't go down an entirely negative way, we could spend a lot more money in Washington, D .C. or in London, on researching diseases that don't really affect Americans very much, you know, malaria, for instance, but which do make life miserable for millions of people around the world and where we could make their lives a lot better.

[420] So, I mean, I accept the obligation.

[421] I really do think if people are suffering, we all owe an obligation to do something about that if we can, but we don't have an obligation to hurt them in the name of making ourselves feel a warm glow.

[422] Big sigh.

[423] It looks like life on Earth 2 .0 won't necessarily be any simpler than on 1 .0, at least as far as economics is concerned.

[424] Still, we're going to keep this conversation going next week, and we will get more granular.

[425] We'll talk about the future of work.

[426] That not only did something great for the employees, it also set a standard for other businesses there.

[427] We'll talk about the future of taxation.

[428] Well, the main problem is, that we exempt so many things from income taxation, that we end up taxing only a small part of income.

[429] And we'll talk about the future of economic problem solving.

[430] Anytime you're trying to analyze a complex problem, just forget all the other stuff at first and just say, well, what does this do to the productivity of mankind?

[431] That's next time on Freakonomics Radio.

[432] Freakonomics Radio is produced by WNYC Studios and Dubner Productions.

[433] This episode is produced by Stephanie Tam.

[434] Our staff also includes Shelly Lewis, Greg Rosalski, Christopher Worth, Merritt Jacob, Eliza, Lambert, Allison Hockenberry, Emma Morgonstern, Harry Huggins, and Brian Gutieres.

[435] You can subscribe to Freakonomics Radio on iTunes, Stitcher, or wherever you get your podcast, and you can keep up with everything we're doing at Freakonomics .com.

[436] Thanks for listening.