The Answer Is Transaction Costs

The Paradox of Political Rationality: Lynch

• Michael Munger • Season 2 • Episode 21

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Why do harmful policies like tariffs keep coming back despite universal condemnation from economists? The answer lies in the dynamics of collective action and concentrated interests.

In this eye-opening conversation with G. Patrick Lynch, Senior Fellow at Liberty Fund, Mike Munger explores the fascinating world of public choice theory and how it explains some of democracy's most persistent puzzles. Lynch, a self-described "popularizer of public choice," breaks down complex economic principles into digestible insights about political behavior.

The discussion begins with the foundations of public choice theory—the application of economic reasoning to political decisions. Far from portraying politicians as uniquely self-interested, public choice simply acknowledges that all humans respond to incentives, whether in markets or politics. As Lynch explains, "It's a mistake to characterize public choice as people being just materially self-interested." Even Mother Teresa was pursuing her goals single-mindedly—the definition of self-interest properly understood.

When the conversation turns to tariffs, Lynch delivers a masterclass in why bad policies persist. Manufacturing interests receive concentrated benefits and organize effectively, while consumers bear diffuse costs. "That $70,000 job costs consumers $210,000 to $250,000 in increased prices," Munger notes. But since an individual consumer might pay just pennies more per purchase, they won't mobilize political opposition.

Perhaps most fascinating is the exploration of Elinor Ostrom's Nobel Prize-winning work on common-pool resources. Conventional wisdom suggested that without government intervention, shared resources face inevitable destruction through overuse. Yet Ostrom discovered countless examples worldwide where communities developed sophisticated management systems to sustain resources over generations.

If you've ever wondered why policies that economists universally condemn keep returning, or why small groups seem to dominate our politics despite majority rule, this conversation offers profound and sometimes unsettling answers. Subscribe now for more insights that will transform how you understand politics, economics, and collective decision-making.


LINKS:

G. Patrick Lynch:

 Shaggy Dog story: 

Book’o’da Month:    Two Books, both by William Bernstein. 

If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com !


You can follow Mike Munger on Twitter at @mungowitz


Speaker 1:

This is Mike Munger, the knower of important things from Duke University. Today's guest is G Patrick Lynch, senior Fellow at Liberty Fund. Dr Lynch has published in academic and more mainstream outlets and has written widely on problems of public policy. He sees himself as a popularizer of public choice, reducing the transaction cost of people who want to learn more about that terrific discipline. We'll be talking about public choice, the work of Eleanor and Vincent Ostrom, of Mansour Olson and about trade policy. There's some new twedges this month's letter plus book it a month and more Straight out of Creedmoor. This is Tidy C.

Speaker 2:

I thought they'd talk about a system where there were no transaction costs. It's an imaginary system. There always are transaction costs. When it is costly to transact institutions matter and it is costly to transact, to transact.

Speaker 1:

My guest this month on the Answer is Transactions Cost is George Patrick Lynch, a man I have known for a long time. Welcome to the Answer is Transaction Cost. I always start out by asking the guests to give an introduction and I leave it pretty open-ended. How did you come to this work in academics? What gave you the crazy idea of getting a PhD and writing and arguing with other people something that you've been doing now for a long time, so apparently it's going to stick and how did you become in particular interested in the problems of politics and transaction costs?

Speaker 2:

Well, first of all, thanks for having me. It's a great pleasure. You and I have known each other a long time and I think my first introduction to ideas and argument came from my dad, who was a criminal trial lawyer, and so argument and taking positions and thinking about things and thinking through the conclusions of them was something that we did a lot in our family. He was a daily Democrat I guess it's a Chicago Democrat of the 40s, 50s and 60s and 70s. Through most of his life he sort of evolved into an Obama Democrat, interestingly enough. Sort of evolved into an Obama Democrat, interestingly enough. But over the course of his life and my life with him, I found myself having to stake out positions and defend them. So that started it. And then I went to the esteemed Furman University in Greenville. You got to get it down into, hopefully one syllable, but if you have to do two, that's fine.

Speaker 2:

South Carolina, where I encountered some faculty in political science and my every intention had been to go to law school because my dad was a lawyer and I thought I would just be a lawyer. But these faculty I really enjoyed talking with them and discussing ideas and I realized that I had a lot of background and interest in politics, but my initial ideas when I got to graduate school at Chapel Hill, where you and I met for the first time, was pretty normative. It was pretty descriptive and pretty normative and I didn't really have a lot of good analytical tools. And then I ran into Bill Keech first, who was one of the early adapters of public choice out of Bill Riker and other people, which was originally, of course, came out of Buchanan and Tulloch in Virginia Tech and then later GMU, and they were promoting these ideas, they were expanding them and Bill was one of the folks who adopted those ideas and he really had a big influence. He was one of the first people I encountered in my classes. I took American institutions under him and he had a big impact on the way I thought about things and a lot of the readings helped me understand more rigorous ways to think about analyzing politics theoretically, and so it sort of took off from there and I began to realize that I was interested in asking questions that were sort of outside the mainstream.

Speaker 2:

I mean I had some research projects. I mean I started with doing work on empirical work on American elections, but then that sort of expanded into other things and I had some interest in prison stuff for a while and that sort of took me in very different directions. And then I did some work on foreign policy and I just realized I had a lot of interests and as an academic I was having a difficult time fitting in, so I ended up leaving the academy in 2001. And I came to Liberty Fund where I thought I would be for a year or two until I found something else to do, and that was 24 years ago.

Speaker 2:

And during the past 24 years I've engaged in uh, developing programming for Liberty Fund, um, and then also taking on a big writing career. I do a lot of writing for some webpages, for the Daily Economy out of AIER, written for Civitas, um, and my stuff is republished regularly in RealClearPolitics, realclearhealth, realclearpolicy. So that's sort of how I've gotten to where I am and I guess I kind of consider myself a public or a popularizer of public choice. Really that's a lot of what I try to do. So the idea of transaction cost is something that I think about a lot and try to figure out how to apply it to the questions of our day and think about politics in a less emotional, less divided way, more thoughtful, rigorous way.

Speaker 1:

What would you say are the key elements of public choice?

Speaker 2:

that maybe someone coming as an outsider might be surprised or not know. So I mean Buchanan's. You know it was funny. I was going through these interviews. Jeff Brennan did an interview with Buchanan back in the day and I was rewatching them for another thing I was doing, and it's interesting, because I think it tends to get mischaracterized. It tends to get mischaracterized as well.

Speaker 2:

Politicians are bad, you know, because of human nature is that way, and so we have to begin with and that's really not what it is we just have to start to posit politics as an arena in which self-interested people act in the same way that they do in terms of pursuing a self-interest, but it can be a very, very different self-interest. But then there's a second component to it, which is politics is exchange, and that often gets left off, and so you have to think about it as an exchange process as well, not merely a market of consumption. So you have to treat people as regular, regular people. And the problem was it's funny I was just doing a conference about the Ostroms over the weekend, and this was something that was very attractive to Vincent Ostrom because of course, he was taking on these very naive assumptions from people like Woodrow Wilson and a lot of the folks that come out of that tradition in public policy, public administration specifically, and you know, just trying to apply regular rational actor models, which Gordon Tulloch did, was one of the founders of public choice. So that's how I think about it.

Speaker 2:

I think about it as so why are people doing these things? Because they're not angels. I mean, we know that, and if men were angels, no government would be necessary. Publius tells us that. So you have to assume that people are regular old people and that institutions influence outcomes and influence behavior, and then you have an exchange piece to it. That's how I think about it.

Speaker 1:

So you mentioned two of the many people characterized public choice as a three-legged stool, starting with what Buchanan unfortunately called behavioral symmetry. He should have called it motivational symmetry. That is, people are motivated in the same way. They're mainly self-interested. However, in different contexts they might behave differently. So people might not behave the same in politics as they do in markets, because the incentives might be different. But in both cases the underlying motivational assumption is that they're trying to do what they see is best for them. Now they may be concerned about other people, and that actually goes both ways. I may have charitable impulses in a commercial system and so I try to take care of other people. I try to do things. So people might be less self-interested than the traditional assumption is in homo economicus or economics, and they might be more self-interested than the traditional public interest theory of politics. And then you mentioned the second leg, which is politics as exchange, and that, uh, the. It's a two-part video that buchanan and Brennan did, and in it Buchanan says that if you leave out the politics as exchange part, then either you're an anarchist or you're just not a very good political scientist.

Speaker 1:

People enter into these arrangements for mutual benefit, and there's many, many mutual benefits to be have. There are such things as public goods, there are such things as internalizing externalities. So cooperating is really important. But then the third thing is methodological individualism, and that was something that was really important for Ostrom and it is something important, I know, for the work that you have done. You have pointed out in a couple of publications that I've seen that traditionally the big concern for many people on the— I guess you'd call them classical liberals, let's just say classical liberals the big concern for many people who are classical liberals is the excessive power of majorities in a democracy, and so we'll need something like a Bill of Rights, some sort of restriction on what people can do. Public choice teaches us and Mancer Olson taught us that a really big problem, a sort of unexpected problem, if you haven't thought about it is the enormous power of concentrated minorities in a democracy, which seems paradoxical. Can you explain how that fits into public choice?

Speaker 2:

So well, yes, I can, can we? Actually? I did want to back up to the first thing you said, because I think this is important. So we're electing a new Pope, right? And I want to talk about that motivation piece because I you know, you and I have both lived in Washington. We both worked in Washington. My first academic job was in DC. It's a mistake also to characterize public choice as people being just materially self-interested. That that's the pure motivation. The Pope was behavioral. You know individualism. Behavioral individualism had a particular view about what the world was and pursued that goal relentlessly. That is a form of homo economicus, I think, properly understood right that people are self-interested and act according to that interest. That does not mean you have to be selfish, and I think that's an important distinction that people have to realize. There are tons of people who work in government who think they're doing very, very good work and they are pursuing the goal of feeling good about themselves or making themselves happy in some way. So that's important.

Speaker 1:

Well, can I give an example? I often use this in class. I asked who most famously may have been the most self-interested person in all of history, and the answer is Mother Teresa. Because she was so focused on helping the poor so they would try to have her in some large city. They'd prepared a nice place. There was a dinner for a bunch of people that worked in the community. She said, no, I'm going to go out and I'm going to sleep on the street and I'm going to live among these people.

Speaker 1:

She had what public choice people, economists, people would call a utility function. She had a set of goals. Now, these goals were altruistic, but that's still what was motivating her, and she was a single-minded promotion. That's all that selfishness means in public choice. So you're right to stop me and say let's go back. All that motivation means is that people are motivated by their goals. Now, there's nothing that says those goals are egocentric or narrowly self-interested. They could be public interested, and there are plenty of people. Torquemada in the Spanish Inquisition probably thought he was benefiting the people he was burning at the stake.

Speaker 1:

So a whole lot of government officials probably honestly believe that the things that they're imposing on people through coercive force are for their own good.

Speaker 2:

So one of the most interesting public choice moments that is in the film Caddyshack, where Ted Knight is speaking to the young caddy who's trying to brown nose up to him to get the scholarship, and he says to him. He says, son, I've, I've sent boys younger than you through the lecture. Chair didn't want to do it, felt like I owed it to him, you know. So that's the same approach I'm doing. I'm doing you a big favor, you know I mean I'm doing what, and the short term doesn't look so good, but in the long run you're going to be better off so um the minority interest.

Speaker 2:

So, uh, so mancer olsen, uh, who probably doesn't get like all the credit he deserves, I was, I guess it's a little surprising. Well, we could at some point, I guess I'd love to. Uh, well, that's probably more of a gossip thing than anything else, but you know why? Why was it jim and not gordon, but mancer olsen? You know one of the early pioneers in this stuff, and he was at Maryland, if I'm not mistaken, right? So there was a group of people at Maryland, kind of a critical mass of folks, and he was one of them and he talked about collective action problems. And collective action problems have a long, long history in philosophy, and we were discussing this over the weekend because Lynn Ostrom basically won her Nobel for addressing perhaps the most famous collective action problem of all, the tragedy of the commons, or one of the more famous ones. And he kept picking at this idea about why it was that there were certain groups that would get stronger representation, more robust representation than majorities. And, of course, the long history of democracy, right beginning in Athens, is the fear of majoritarianism and the fear that strong majorities can unfortunately roll small minorities and that you need to build minority protections and things.

Speaker 2:

What Olson found was very, very different. What he found was, if you take a look at the costs of organizing interests, it's much more difficult to organize large interests because they're diffuse and it's hard to get them engaged. But it's much easier to energize groups that are smaller, particularly if they have got a very, very powerful interest in a particular policy. So there is a reason why people who support manufacturing industries are big supporters of tariffs, for example, because they are the direct beneficiaries of those tariffs. That doesn't mean that we, the majority of the consumers, are the beneficiaries. We are going to pay the price for their protection.

Speaker 2:

That means that it's a lot easier to organize the elderly and that's why AARP is such a powerful constituency, because AARP is a very effective organizational tool. But the elderly have got a lot of time on their hands, they've got a lot of resources, they're retired, they're getting, you know, direct benefits from the government and they organize because they really want to protect those interests. Consumers and the sort of society at large have really really high organizational costs and relatively diffuse benefits really really high organizational costs and relatively diffuse benefits. So that the costs of the, the, the costs of the, the, the costs that come along with having those minorities getting a lot of political power are diffused. So you have diffuse costs and concentrated um interest and that's you know. That's basically what Olson found was that these minorities get better treatment from government because they're they can. They can organize, lobby and be effective doing that and large diffused interests and large groups have and be effective doing that and large diffused interests and large groups have a more difficult time doing that.

Speaker 1:

So he called it the exploitation of the large by the small, and it seems kind of outrageous. It might be useful to think in terms of an example. So often when we think in terms of groups, when we think in terms of sociology or public policy, we'll call it cost and benefits. So there's a policy which, if we implemented this policy, would create benefits of $100,000, and it'll cost us a million dollars to implement it. That's clearly a stupid policy, however. However, suppose that the $100,000 goes all to voters and large interest groups that are entirely within one state and the million dollars is spread over all 50 states, meaning that it's $20,000 per state. So the one state, the congressional delegation, the members of the Senate they're pretty happy to organize and lobbyists will approach other people to say you know, if you can help us out, maybe we can log roll, maybe we can get this through, and each of the other states is only paying $20,000. And so the difficulty is that you said both of them, but I want to emphasize the two parts. One is the size of the group itself, because the larger the group, the easier it is for someone to say you know, if I don't do anything, the group will still accomplish this and it's called the free rider problem. And the free rider problem is a consequence just of the size of the group itself. Consequence just of the size of the group itself.

Speaker 1:

If there's two or three of you, you'll notice. If someone's not there, personal sanctions and the sort of thing that Adam Smith and other talks about way back means that we're going to be able to police ourselves. We have two, three, five members, 50 members, you know, 48 shows up. That's pretty good, well, but I'm pretty sure that 48 are going to show up. So I'm not, and that's 47. And then it unravels and pretty soon there's four and we got nothing.

Speaker 1:

And so the other thing is how concentrated the benefits are. And each individual and this is why what you said about Ostrom is important each individual is comparing the benefits they expect from acting collectively and they're comparing that to the costs they anticipate to them for acting collectively, and that's exactly the problem of the commons. So can you say something more about the commons? What actually is the problem of the commons and why is it that individuals appear to act irrationally? That's the thing that I've had a lot of students tell me. Commons can't really be a problem because people aren't acting rationally. No wait, sweetie. The problem is they are acting rationally.

Speaker 2:

Yeah, yeah. So I guess at least I thought, because I was a political theory minor that John Locke sort of was not the originator of this, but sort of the popularizer of this problem. Right, so, as much, as as much, as good, right, so you. So there is, imagine, a commons, there's a bunch of something in it acorns or I don't know whatever nuts from a tree and uh, this commons has certain characteristics that make it difficult to police or control access in or out of it. Nobody owns it, so it's not privately held property, because the private held property solves the problem. You own it and you protect your rights over it. But this is shared property, and the difficulty and it's open access, and the difficulty is that when you go in, you can't stop people from overexploiting it, and so the lock improviser says as well, you can take out of the commons, you can take as much as you yourself can eat, but leave as much behind for the next person. Well, getting the enforcement mechanism for that is very, very difficult. So, as time goes on, more and more people identify these kinds of problems. Hume, had some issues with this about how you, as you just said, the organizational problem, getting rid of defection, is a huge issue as well and it problem getting rid of defection is a huge issue as well, and it comes back to scale right in the 70s I believe in 60 or 70s.

Speaker 2:

This guy, garrett harden, uh, writes a famous piece in nature I believe it was 1968, 1968, thank you and he the the title of the article is the tragedy of the commons and he says, basically, this is a problem with common pool resources and it's a problem with our world in general and we're going to have this depletion of all these resources because they are not. They cannot be managed without top-down control, government control. That's the only solution to overcome the tragedy of the commons. Because people act, will act in a self-interested way, they will over exploit the commons and those resources will be depleted, uh, without any opportunity to spread them out more fairly or more evenly, and this will lead to all sorts of problems.

Speaker 2:

Lynn Ostrom and her husband, vincent, were really interested in these kinds of questions. Vincent had dealt with water rights and water resources for many years. In his first work in Los Angeles they were at UCLA together. They moved to Bloomington and they were increasingly interested in these sorts of questions with regards to policy provision and Lynn began collecting data to try to determine whether or not there really were all these tragedies of the commons. She took the question which had really only been posited formally and empirically. I mean formally and theoretically, it really hadn't been tested empirically.

Speaker 1:

And it was obviously a problem with no solution, because Harden just said there is no solution. If people act this way, it will always fail.

Speaker 2:

Well, the dominant strategy in game, theoretically speaking, is to defect. So, but that is just that's game theory.

Speaker 1:

And to defect means. In this case, in your example, I take as many nuts as I can, because if I leave any, the person behind me will take them all. There's no reason to leave any.

Speaker 2:

Yeah, cooperation is not the dominant strategy in the simple matrix right. It's basically a prisoner's dilemma problem or a sort of modified version of it. So that's what you're left with is this conclusion. But no one had ever gone around and said is this really how the world is? And so Lynn Ostrom started to do that. She started to go all over the place and saying, okay, here's a comment.

Speaker 2:

What happens and what she found was that there are all sorts of really interesting management schemes that local communities typically, or small groups, try to implement with varying degrees of effectiveness. But they try to put up rules to deal with these sorts of problems. So they'll try to close off access, except for a small group of people. They will try to punish defectors who do not, who either try to steal the resource or do not live up to their responsibilities. They will try to manage the protection of the commons and, typically speaking, they have some pretty effective tools. And she wrote this book and I know that your former colleague at Duke, who was the fellow who was involved in editing, involved with reviewing the book when it first came out in Cambridge, was it not somebody? I thought it was somebody that you knew, I just don't remember.

Speaker 1:

I'm sure you're right, I don't remember.

Speaker 2:

Well, you told me the story, but I may have made it up in my head, I may just be making up conversations that we've had over the years. We've had a lot of them. But you had a situation where she went out and she just discovered that there were a lot of examples, dozens and dozens and dozens of examples of people.

Speaker 1:

I was assuming that you were not actually messing with me. I realize now you were. Yes, I edited a book where I made the claim that Eleanor Ostrom no, that was well played, that was well played. I got to say that was well played. I will never believe you again and I hate you. But yes, that was me, you were just. You were throwing me a softball and I fell over. No, I just yes, I. I. I edited a special volume of the obscure journal public choice and in it I compared lynn ostrom to the darwin of institutions.

Speaker 1:

she went around the world in her uh, academic beagle looking for the strange beaked finches of the institutions world, because each of these institutions is adapted to its environment, and it's sort of surprising, because whoever thought of that? And the answer is wouldn't it be amazing if a group of people lose year after year? So again, god, there's none, there's none of this left. I wonder what happened? Oh, it's the same thing as last year. So they try something. It doesn't work. They try something else. It does work, and it looks like genius. Because it turns out that if you have a repeated version of this Prisoner's Dilemma game, with relatively few people and something that doesn't move around, it has to be lobsters, not cod. But if it's something that's relatively fixed and you can control access to it, a set of rules will emerge spontaneously, and that means that this is not an unsolvable problem, and so what Lynn did was come up with a set of conditions that made it more or less likely to be solved yeah, it's not.

Speaker 1:

And I still hate you. By the way, some guy at duke let the record show.

Speaker 2:

He said some guy at duke so, um jeez man, you get old. I mean, it takes you that long to pick up on this, yeah thanks very much really the gray hairs are not the only thing, mike, mike.

Speaker 2:

So I hope this is video. I really hope you post the video. So yeah, she doesn't even. I mean, I think when I look at the Ostroms it's not even like they're doing theory building per se. They're collecting information, factors and they're sort of compiling things, and they are and they're they're judging the frequency which, with these characteristics, show up in the different institutions. The institutions have the size and scope that we just talked about to try to overcome a lot of these problems. Policing is a lot easier with the small group a piece of it. Um, they are typically fixed.

Speaker 2:

But you know, what's also very interesting about this is that she also rejects, um, this, the kind of notion that it's you should just privatize everything, right. She puts herself firmly between what she calls, you know, kind of more libertarian or more private property solutions and sort of top-down gargantua, which I think is still one of the best names that Vincent Ostrom put in an article, with Charles Thibault and Warren, I think. But they called these top-down public administration models in cities gargantua because they were just these gigantic institutions. Now, I'm a big Godzilla fan and I'm pretty sure Godzilla actually battled gargantua in a movie in the 70s to a standstill, but those characteristics are fairly similar throughout. A lot of these, a lot of these examples, and she's got I guess I was talking to Paul Dragos about this this weekend at my conference, but he thinks there are, I'm pretty sure there are hundreds and hundreds of examples, if not more, if not thousands of examples, of these common management, of these management schemes that that manage these common pool resources, and so it's really a testament.

Speaker 2:

I think to well, first of all, that you need to do empirical testing, but you know, to me, a lot of the power of public choice is that they give you these analytical models and then you have to go through and you have to see, first of all, you know, how do we flesh this out. And I think she did it in a way that was really interesting, because she really showed the power of institutional arrangements as being critical to getting it right, um, as they can be effective in certain instances and not in others, and she talked about some that don't work. The lobster fishermen are a really great example, because you have these gangs, um, that that basically go around, they police their, their beds, where the lobsters are, uh they, they burn the boats of people who poach. You know they enforce the and they're not technically property rights right Because nobody really owns them, but they're almost like club pool resources.

Speaker 2:

Buchanan wrote a lot about this stuff too. When you get it down to a small scale, the management becomes a lot easier and a lot more manageable. So in some ways it's a solution not only to the tragedy of commons problem, but it's a solution as well to the Mancur Olson challenge of how do you overcome these kinds of problems. You need to organize small scale groups in order to handle the particular challenge.

Speaker 1:

Well, and so that approach to institutions, where it might not be a top-down solution but it might be an emergent solution to a transaction cost problem, is one that is very rich. We talked a little bit earlier on about I think I'm not sure that this is true, but it might be that Ronald Coase would not get tenure today, since Ronald Coase wrote relatively few things, but some of them were pretty good, and there were two in particular that sort of changed the way we think about institutions. So the first one, famously, was a question about if firms are so great. Forgive me, the first one was the question if markets are so great, why are there firms? Economists talk about markets and price being the way that we organize things. Well, if that's true, why are there firms? Well, the answer is transaction costs. And then, in 1960, he asked a question. Well, we all understand that.

Speaker 1:

Pigou said and I think he mischaracterizes Pagu a little bit we all understand that Pagu claims to have shown that externalities, which are uncompensated costs or benefits on a third party as a consequence of two people transacting. So the result is that there are uncompensated costs or benefits. That means that there's no way to internalize those without government action. Well, yes, there is. It's just that the answer is transaction costs. So if it's a small enough scale, you can internalize an externality.

Speaker 1:

In some ways, the Ostrom work is an extension of that. There's a kind of an externality that inheres in common pool resources, because you get overfishing, you get overuse and each of us takes more than we should and more than we actually want to, but it's because we can't stop other people from doing the same thing. It's a transaction cost problem. Is there a way that institutions can solve this? Well, all of this is a setup to the question that I had wanted to ask to you, because there seems to be kind of a mystery, and the mystery is that, no matter how many times the idea of tariffs in particular and trade barriers in general is attacked and, I would say, debunked by economists, it not only returns, but it returns with a vengeance. Why is it that tariffs have made a return, certainly in the United States, but actually in the whole world? Now, partly in response, what is the argument against tariffs and why is that argument failing?

Speaker 2:

Well, the argument against tariffs is pretty straightforward. Is that argument failing? Well, the argument against tariffs is pretty straightforward is that, you know it's a it's, it's essentially a. It's a I mean it's a tax because goods cross an arbitrary line that people just drew. There's no rhyme or reason behind it.

Speaker 1:

But the people on one side are good people and the people on the other side are bad people, so let's assume that that's true. All of my neighbors, the other citizens, we're good people, so, hell, I don't care. If we impose costs on outsiders, that's fine. In fact, we can just get them to finance our lavish lifestyle.

Speaker 2:

Yeah, they're going to pay all the taxes and fees and everything.

Speaker 1:

Yeah, so that actually you've just made Trump's argument. That's not the argument against, that's literally his argument, for we're going to impose those costs on other people.

Speaker 2:

I don't think you saw the piece that I wrote that came out last week for Civitas, on what I, if I were asked what the Trump administration should do that was consistent with Trump's policies, and I said well, of course I support free trade, which I do. I'm a reasonable person. Tariff economics sort of flat earth drunk uncle economics, where you know you believe in these theories that nobody in their right mind in the I mean, if the idea, the idea that tariffs are bad, stretches from Paul Krugman to Milton Friedman. That's the economic, that's the breadth of the ideological support for these policies. The only people who don't are people who are essentially, I think, beholden to ancient ideas about top-down controls. Somebody said to me the other day the only economists in the world who believe in tariffs are actually lawyers at Yale Law School, because they just want to run the world and they're doing a pretty poor job of it at the moment.

Speaker 1:

Well, but what then is the argument against tariffs? You started at a good place, and that is.

Speaker 2:

I went off the rails, as I sometimes do, so I think, if you want to return back to the idea of concentrated interest and diffuse costs, that's really where it is, I think, the reaction. So it's interesting. As you know, my initial research in political science was on econometric models of elections, but I also did some case studies and I spent a lot of time reviewing newspaper accounts of 19th century US elections, and this was back when tariffs. This is the golden age that Trump harkens back to.

Speaker 1:

Or in Cass, the economic advisors. They all tout the fact. Tariffs allowed the US to grow and they were the main source of revenue. So we can get rid of the income tax, Pat, why do you hate America?

Speaker 2:

So many reasons, so many reasons, mike. It's just I don't even know where to begin. I don't know if you saw Rosie O'Donnell actually did leave America. That was reported in the New York Times. I personally feel like I don't know how our country can survive, please, okay, so why do I hate America? I didn't know this was going to be one of the questions. So when you read these accounts, they are actually fairly robust policy debates, but they all boil down to the same thing, which is that they're targeting a specific voter block. So if you read newspaper accounts from the Democratic Party, so newspapers were very neatly divided along partisan lines during this period so you could really crystallize what the appeals were right, two different groups. So if you look at Democratic newspapers and this was kind of regardless of location the argument's pretty straightforward and it is your costs as a consumer will rise, that these tariffs are expensive and they will cost you money.

Speaker 1:

Because it's a tax. It's basically a sales tax.

Speaker 2:

It's exactly what it was Now.

Speaker 2:

The economic theory wasn't really developed enough and robust, but they could see it and in particular because the Democratic Party during this period was partisan, politics in general is much more regional, although the cities kind of mixed it up because you had people coming from different groups. But among rural interests the tariffs were incredibly expensive because it meant that manufactured goods were going to be more expensive, whether or not they were domestic or otherwise, because the domestic protection was going to increase those costs and their export costs were going to be higher to get to sell their agricultural products overseas. So there were really tremendous costs for, um, for agricultural interests and they were opposed to tariffs. Uh, most of the appeals from the Republican party, which was the party of tariffs during this period, was directly to the the working person right, this is raising your wages, right Now. They left out the part about their wages had to be higher because their costs were higher, because the tariffs were driving these things up. But behind all this is the kind of backstory of the people who are paying for all this stuff.

Speaker 1:

are the owners of these large manufacturing firms and by this stuff you mean the lobbying, the ads, the statements. So the money was behind the political power that said and here's why tariffs are good it was even more blunt than that, and we're talking about the 1890s.

Speaker 2:

Or you just bought politicians. I mean what? This was not a period. This was well before any kind of. I mean, there was some muckraking journalism that went on, but this, this was back rooms, you know, smoke-filled rooms during conventions, picking people. There was a lot more kind of blatant stuff. State capitals, in particular, were for sale during this period. I mean, there was tons of corruption. We tend to think that the Teapot Dome scandal cleaned all this stuff up. There were still problems throughout the 1880s, 1890s, early 1900s. So, yeah, moneyed interests were very, very powerful in politics and they were pushing these interests because they would receive the benefits as well and tariffs do create benefits.

Speaker 1:

You're saying tariffs do create benefits.

Speaker 2:

If you pick up the Wall Street Journal today or you pick up Bloomberg and you take a look at any of these leaders of business who are saying, no, tariffs aren't that bad, I'll bet you a dime to a dollar that they have a business that will benefit directly from these tariffs. So they are involved in negotiating with the administration to get tariffs to protect them. I don't think it's at all coincidental that Elon Musk, who makes his cars in the United States, was there while Trump was showing off one of his cars I think it was the ugly truck, but I don't remember which one it is and saying, yeah, no, tariffs aren't. Yeah, okay, tariffs aren't all that. For cars, they're a great idea. I mean, there's a big benefit for Tesla, as an American-made car, to say, well, foreign cars should be tariffed or should be, you know, taxed at a I don't know what. Is this tariff going to be? 10%, 15%, I guess 15%. So you're going to make my competition 15% more expensive? Sure, I'll go for that. And then you put an American flag behind you and you say this is great, you know, we're going to. We're going to go for this stuff. So I think it's got a bunch of appeals, it, it it's going to give you a lot of support from people who are going to provide you with the financial resources to run for office.

Speaker 2:

There's a natural group tendency and a natural patriotism that comes with the nationalism, the idea that the you know big bed Chinese are cheating and you know they're horrible. So that's very attractive to people. I think if you're not real well informed about it and you get these arguments that there are asymmetric rules or that people are manipulating their currencies we're not Now, that's not true Then all of a sudden you have this sort of good versus evil in, you know, in sort of in-group, out-group argument that goes with it. You know there are a lot of reasons why people are drawn to this stuff, but I think the biggest reason and I think the press has actually been pretty good about this is look at the swing states and we're basically running elections over what a half dozen states, maybe eight states now, and in places like Michigan and Wisconsin and Ohio there are still here in Indiana there's still manufacturing interests. Actually, indiana is a fairly large manufacturing state and tariffs are popular here. You know people who believe.

Speaker 2:

Now, people who work at a Subaru plant, you know I think they have mixed feelings about this sort of stuff because it's become we've become such an interconnected global economy now that it's really difficult to determine what made in America means, and that, I think, is an interesting thing. But this in-group, out-group stuff matters. You take a look at a Subaru or a Toyota. There's a percentage of american made on the sales slip in the window. You know you're not buying a japanese car, you're buying a car it's basically made in ohio and indiana and that doesn't at least assemble. That was around before all this tariff stuff happened so.

Speaker 1:

But you you've admitted, you've openly admitted tariffs have benefits. Why do you oppose them?

Speaker 2:

for the same reason that I think you have to shrink the regulatory and tax and spend power of the government is that those abilities, that power grows and grows and grows until it starts to deal with, starts to confront the same problem that Mansur Olson originally identified, which is we are all going to end up paying that $20,000 per state to give that million dollars to a particular state and there's this just churning of money. It's not a productive use of government resources. It's not a way to resolve any of these problems. It's not a way to raise money. It just ends up costing more money and it's counterproductive for the economy. It makes it more expensive for consumers. It limits the extent to which you can have creativity in markets. You don't get the same opportunities. It becomes very expensive to start certain businesses, less expensive to begin others.

Speaker 2:

And, just empirically speaking, if you take a look at the explosive growth in global economic terms since we've lowered tax or since we've lowered tariff burdens, really throughout the 20th and first part of the 21st century there's been a boom. Uh, you know, we've taken billions of people out of poverty. Uh, we've grown wealthier. The entire world has grown wealthier. Uh, we've made huge technological advances. Life expectancy continues to expand. I just don't see why we're turning to a 19th century. A 19th century policy that has very little theoretical basis has been widely discredited by economists and students of politics who are thoughtful and rigorous, why we should return to these things other than to benefit Mr Trump's friends and supporters.

Speaker 1:

You're clearly a globalist. You just said that it had benefited a bunch of countries in the world, including ours. Well, the question is do the costs of tariffs exceed the benefits of tariffs to the United States? I don't care about all these other people Don't the costs of tariffs? They're much smaller than the benefits of tariffs. Look at all the jobs we're creating. That's what we should care about.

Speaker 2:

Well, here's the thing. First of all, number one I've often said that you are a great American perhaps one of the greatest Americans.

Speaker 1:

See, now I know the truth. You embarrassed me for being an old dotard. Go ahead.

Speaker 2:

Sure, I think, among the list of all great Americans, you are in the top 100, certainly Maybe even the top 80. But you know, you're up there. You're definitely up there.

Speaker 2:

I am an unrepentant, I'm a paleo-liberal, I am not merely a neoliberal or a classical liberal, I am an old-school liberal and I think, first of all, I wouldn't even put it in empirical terms I think interrupting the trade between two individuals just because there's an arbitrary line across some sand is a ridiculous standard to use when trying to apply any form of taxation and it's a violation of my property rights. Frankly. I mean, I don't know why I cannot exchange in trade with an individual, regardless of where she is. If she is in Guatemala and I want to buy her coffee and I'm here in America and I buy it at Costco, I don't understand why I should pay a tax for it to cross over state lines. I'm already paying taxes on the sale of this thing and I pay taxes on the income that I use to purchase it with. There's no reason for me to have to pay a tax simply because it crosses the line. And it's not economically efficient either for a broker.

Speaker 1:

So that's interesting because it does mean that you then have—because that's not what Paul Krugman would say. Paul Krugman is happy to have the government do that, but Paul Krugman also opposes tariffs. So there may be that there's a set of reasons. Why is it that Paul Krugman opposes tariffs?

Speaker 2:

Well, paul Krugman, as I understand it. I try to avoid reading Paul Krugman whenever possible.

Speaker 1:

Paul Krugman was an excellent economist until he decided to work for the New York Times, which he no longer does.

Speaker 2:

He no longer does that anymore because the New York Times wasn't resistance enough for him. Yeah, they submitted him.

Speaker 1:

So it is not just. I see your argument. Your argument is a good one, that the ability of individuals to negotiate exchanges is, since a voluntary exchange makes both parties better off. We want as many of those as possible, and once the government starts to interfere with that, it is likely to cross over into the zone where the problem of collective action that Mansour Olson talked about is going to mean we're going to get a bunch of bad things that the state is going to do. So let's just not have the state do anything. They can't interfere with voluntary private exchange, that's fine. What would the argument from people like Paul Krugman be?

Speaker 2:

Well, as I understand it, there's a comparative advantage piece to it correct that you've got. So you've got specialization in these particular areas and I think this is one of the areas where it really breaks down. So I don't know if you've looked at a lot of the arguments lately about sort of manliness on the MAGA right and the argument that you need to get people away from these frou-frou jobs where they're just sitting at home and working on their computers and tapping away and living in their parents' basement. You have to get them out actually building things with their hands.

Speaker 1:

Fire and smoke. There needs to be fire and smoke.

Speaker 2:

There does. There needs to be at least the possibility of losing digits or a hand, or you need to get some sort of incurable, horrible, like I don't know black lung or something like that in order to have a real manly job. So, yeah, so there are a bunch of pieces to this tariff argument, but one of the key ones is for some reason, old-fashioned values are dying, and one of the old-fashioned values was that people worked with their hands. They did these sorts of things because we've exported all that stuff to China. Now that's a hotly contested position by people throughout the econ policy world, because you can produce all sorts of data that suggests that American manufacturing has actually become a much bigger component in our economy, and now does it produce the same jobs? Become a much bigger component in our economy, and now does it produce the same jobs? It does not, because, in the same way that we are that we are finding that there's resistance, intellectual or otherwise, to the idea that, um, you know, mechanization and automation are provide for more efficiencies, it does not produce the same level of jobs. It's. But to me it's very much akin to the argument that imagine a farmer who has to hire 200 people to handpick their crops, their corn crop, rather than use a combine. I mean, a combine is a much more efficient way to do that and you free up that labor to do other things.

Speaker 2:

These tariff arguments that we have to get people involved in these industries because there's a cultural or a social piece to it, is a bit like asking them if they still ride horses and, you know, use wooden teeth rather than go to the dentist. I mean there are just. There's been progress that's been made in the world that we have to embrace and live with, and there are lots of reasons people don't work in factories. Adam Smith there's this guy, adam Smith, who talked about factories and I believe there were pins being made.

Speaker 1:

Right, but that was more jobs, that was an increase in jobs. That's what my man, oren Kass, wants.

Speaker 2:

Yeah, but he's not going to well. First of all, your man, oren Kass, who is, I would say, in the Great America list, is really in the bottom like tenth percentile he's not a Great American.

Speaker 1:

He looks in the mirror. He sees a Great American. Don't hate him.

Speaker 2:

He does, but he's looking in the wrong mirror. He's looking in the wrong mirror. He's the guy at the end of Raiders of the Lost Ark who looks in the armor.

Speaker 1:

That's just wishful thinking on your part. So what you have said and it is certainly an interesting point suppose that what you mostly care about, what you think the economy should do, is to create jobs. Capitalist economies are terrible at that. Capitalist economies are constantly looking for ways to destroy jobs. The whole world has lost jobs to productivity, and so I ask and I've documented this, but I'll ask my students the question what country in the world lost the most manufacturing jobs between 1990 and 2010? The answer and it's not close is China, because China used to have. It was in 1990, a factory in China was a thousand people with sewing machines, and now it's seven people with an entirely automated system, and it produces a million times as much stuff. Now, 993 people lost their jobs. That's terrible, except that they found other jobs.

Speaker 1:

So the argument that Paul Krugman wants to make is that comparative advantage means that the United States faces a make-or-buy decision. We should make those things that we can produce more cheaply, and then we should buy things that other countries produce more cheaply. And if that means that in industries that are inefficient, where we can buy things more cheaply somewhere else, those jobs should be wiped out and those people need to find better jobs. Now, that's kind of heartless, because it means that if you live in a county in northern Alabama that used to make socks, and now all the socks in the world are made in China, it's very difficult for those people to find new jobs. Maybe their children will, but you're 55 years old, you went to high school, so we seem to have done a poor job of selling this idea.

Speaker 1:

Much of the benefit and you said it, I just wanted to make sure that it is clear to the listener the benefit is the people who lose their jobs in industries that can be produced more stuff can be produced more cheaply somewhere else and they find new, more productive jobs because of comparative advantage. That's actually something that doesn't always happen, correct? That's what I'm trying to say yeah, I think that's 100%.

Speaker 1:

Yeah, it takes a while.

Speaker 2:

Well, so this is one of these, and you know I so, as you know, I work in sort of classical liberal circles and libertarian circles and I think the biggest miscalculation that or maybe it wasn't even a miscalculation, maybe it was just we're going to push this as far as we can go, but apparently there was a period where we ran the world. I was unaware of it while I was part of it, but there was a giant cabal of us libertarians.

Speaker 1:

Well, you're a white male libertarian, so you're a three-time leader.

Speaker 2:

Yeah, I got many strikes against me, but uh, but uh, and old too, which my daughter reminds me of on a daily basis, but there was a profound, I think, uh, misunderstanding or failure to recognize the political ramifications of globalization and the liberalization of economies, and it was going to displace a lot of people. Um, and Trump identified that, as a political entrepreneur, as one of his most effective strategies, and I think he's leveraged it to the hilt. There's no doubt that there's displacement. And here's the interesting thing you know you identify China. Look at Mexico.

Speaker 2:

Okay, so few countries have benefited more from free trade and globalization. On the kind of aggregate level right Salary increases, stable currencies, job creation it's been a boom for Mexico. Without question, nafta was one of the best things that happened in Mexico and one of the best things that happened to Canada and one of the best things that happened in the United States actually. But it did displace people and it was more difficult for people in rural areas, which have been very backward and underdeveloped in Mexico historically, and the power asymmetries between local authorities and nationalities. There's a lot going on in Mexico, but on the aggregate, it benefited. The thing is that it did benefit a lot of elites in a very public way, who were the owners of these large businesses. But they did hire a lot of new folks and a lot of people did really well. Along the frontera, along the border, there were boom towns that grew up right where people were very, very well off and those benefits were gained. But there were losers, and those losers were organized and they became unhappy with what they viewed as wealth disparity, which was not all fake. There were pieces of it and the disparity card was played very effectively in the United States, certainly between people who were tech billionaires and people who were not. The fact that we were all better off did not ameliorate the problem that some people saw people as way, way, way, way, way better off, and that didn't seem fair or just, and so that riles people up. It makes them unhappy.

Speaker 2:

In Mexico, they turned to a guy named Manuel Lopez Operbrador, who was called AMLO that's by his short name and he's a right-wing populist very much like along the lines of Donald Trump, whose active goal he doesn't say it quite like this, but he basically is to sort of destroy the modern economy. He would like people to return to the land, he would like people to return to simpler lives and that's very evocative and it has this sort of claim among people. I don't think the supporters of these policies actually believe this stuff. Maybe some people do. I don't think a lot of people do. But you know the reaction, the disenfranchisement of certain people, the dislocation piece. It did have an effect and it helped political entrepreneurs organize in a lot of different places all over the world.

Speaker 2:

But that's exactly what Olson would have predicted. What Olson would have predicted is Nate Carlson would have said okay, so where are these small, concentrated interests that we can bring together in a coalition against these policies and really turn the tide and make people who have, you know, been more, have benefited more from these growth policies, pay us directly? And that's really what's happening now is that those of us who are going to have to pay these tariffs, those of us who are going to pay for the decline in equity markets, the decline in weight, well, inflation is going to be one of the big problems that's going to be associated with it, although in a slightly different way than monetary inflation, but still it's going to be there.

Speaker 1:

Prices are going to go up Price increase, a big, pretty substantial, nearly across the board price increases. It's not monetary.

Speaker 2:

People need to make a finer distinction between sort of monetary inflation which is the core problem right now, because we've got $3 trillion plus in debt that's debilitating and the price increases. So those are two different things. But all that stuff is going to be paid by us in a form of some direct benefits to the owners of these manufacturing, the direct beneficiaries of these tariffs, but the presumed sort of secondary beneficiaries.

Speaker 2:

Who's the old guy in Alabama Now how he's going to benefit from this? Because he's not going to go back to work in this factory. He's not going to go work on a farm. He's not going to go build things. He's not going to go back to work in this factory. He's. He's not going to go work on a farm. He's not going to go uh, you know build things. He's not going to go back to work, but he's going to. He's going to have that beneficiary feeling of having supported Trump and made America the place where stuff is made again. And you know, even if those, even if a lot of those people who work in those factories are going to end up being illegal Mexican immigrants who will still come into this country. That's just kind of a happy accident for everybody. Go ahead.

Speaker 1:

The big difficulty, and the reason why this fits so neatly into the Mancer-Olson collective action problem transaction cost politics that you've talked about is that there are real benefits from tariffs. It is likely, particularly if Trump will stop messing around and actually choose a set of tariffs and stick with them, if there's some credibility that these tariffs are going to exist three years from now. 10 would be better, Because if you're expecting new investment in US plant and equipment and it's based on the fact that these tariffs are going to keep foreign products from coming in, you'd like to have some assurance it's not going to be changed as soon as there's another presidential administration, but let's suppose that happens. That's going to create quite a few benefits in the sense of investment, construction jobs and new jobs working in these factories.

Speaker 1:

The big problem is that empirically, it appears that the increased prices to consumers is a crooked integer multiple of the total benefits of the job. So we have a new job making socks and it pays $70,000 a year because the tariffs are so high. Well, if you add up all that I did this once people buy an average of four pairs of socks per year. Really, yes, yeah, Well, now that's across many people, but everyone in the United States that's how many socks we bring in and how many we sell is 1.2 billion socks per year.

Speaker 2:

Now a lot of people. It's 350 million now.

Speaker 1:

Yeah, it's close to four pairs of socks per person man, woman and child.

Speaker 2:

My daughter definitely buys. She burns through socks a lot. She's got to be on the front end.

Speaker 1:

Also, when one disappears in the dryer you have to throw the other one away.

Speaker 1:

That $70,000 job costs consumers $210,000 to $250,000 in increased sock prices. But the difference is the price of a pair of socks goes from $0.90 to $1.50. I'm not going to go out on the street and carry a sign for $0.60. In fact, if I buy four pairs, I'm not going to go out and carry a sign for $2.40, my entire yearly amount of sock purchases. But the person who's going to get a $70,000 a year job. They might very well vote based on this. So a lot of people are going to be upset about the small price increase that results from tariffs, be upset about the small price increase that results from tariffs. The big comparison is that each job that pays X costs 3X or 4X in terms of increased consumer prices. It's a terrible policy in every respect, except politics. It's just that politics are how we decide these things.

Speaker 2:

So when you, we were talking about the definition of public choice and I think this is something, if Jim Buchanan were still alive he would really be emphasizing this here that it is not merely that individuals act in their own self-interest, it is not merely that you must apply models of human nature in politics, it is that you must understand exchange and that if you understand those public goods as exchangeable tariffs are, tariffs fit cleanly into that category. And then you combine it with the fact that these minority interests can, as you, as you pointed out, there there's their tariff, their prices that you might not necessarily notice, Right?

Speaker 1:

You say dang, that price has gone up, and then you have lunch.

Speaker 2:

Well, it, prices have been going up for three years, right? So it's like this is just another one of Now. People, I think that you know if you also pointed out about the stability piece as compared to say, okay, this is simply what the tax rate is going to be. I think that that's a different set of issues about the president that I think are outside the scope of what we're talking about here or outside the scope of what we're talking about here. But you could certainly pursue a policy that said something like yeah, we're going to try to increase foreign investment in the United States to promote manufacturing in any number of ways. That wouldn't necessarily involve wildly shifting tariffs that, on the one hand, one day, are said to be here to do this one thing and then two days later, are said to be, well, just a negotiating position.

Speaker 2:

So you have no idea how to predict these things. I mean, we both have experience in Latin America. I go down multiple times a year and if you go to a place like Argentina, people actually you know hoard inventory, and the reason why is because they have to account for annual inflation that frequently exceeds 100%. It's not efficient to do that and there are all sorts of coping strategies. People have to write contracts in particular ways because you have to assume that there's a complete erosion of certain kinds of things through inflationary policies and if you can't reliably contract for multiple years, it is incredibly counterproductive for an economy. We're bordering on this now and again. As you correctly point out, this isn't so much about the tariffs. The tariffs are problematic enough from the standpoint of the politics behind it, the economics behind it. But if you have instability in an economy, that's in many ways even worse and that's incredibly problematic and scary. But that's sort of far afield from what we want to talk about today.

Speaker 1:

Well, those are the points that I was wanting to get across. Is there anything else you would like to say about tariffs? And also, I'd like to ask if someone wants to learn more about your work, what you're currently working on and what you've published lately. Where would they look?

Speaker 2:

So if you want to know more about what I am writing, my primary home is I am a senior fellow at the Liberty Fund, but I'm also a contributing editor at Law and Liberty, and Law and Liberty is one of Liberty Fund's web properties where we focus on liberty-related issues in legal and political all things legal and political and my writing. That's my primary home. So if you want to take a look at more of the stuff I've read, or more of the stuff I've written, or read some of the stuff I've read, I will put up several in the show notes and also a generic link to Law and Liberty.

Speaker 2:

Yeah, I mean I've been written. I've written quite a bit on COVID policy over the years. I've written quite a bit. I like to think of myself as a popularizer of public choice, and so that's I've written quite a bit sort of using basic public choice principles to try to illuminate the way we think about different political outcomes, and that's that is probably the best place to begin looking. And then I do.

Speaker 2:

I am on social media, but I do not use it very frequently. But I am on X if people want to look there. I frequently post the stuff and Lauren Liberty frequently posts stuff that I publish. I think the only other thing that I was going to mention that I have been thinking quite a bit about lately in terms of this stuff and I just wanted to throw it out there is this notion of institutional fragility and how we have to rethink and reimagine institutional arrangements over time, and the instability piece that you just mentioned reminded me of it, because it's really hard to know if you ask somebody right now and I don't know in political science anymore is Congress scholarship still even a thing?

Speaker 1:

As far as I can tell, it's prohibited.

Speaker 2:

Yeah, I mean, I think it's because it doesn't do anything Like. It's unclear to me what Congress does anymore.

Speaker 1:

Oh, so you don't mean. The research doesn't do anything.

Speaker 2:

You're going straight to the Congress, doesn't do anything yes, well, you know now that ken strepsley's, I think, retired officially. Is he retired or is he still? You know there's no point.

Speaker 1:

He is retired. I I went to his zoom retirement party and we and we talked about playing golf at park city that was a great, a great weekend.

Speaker 2:

uh, no, but I I think that I think that we really need to. I mean, honestly, I think that we're going to have to have a reckoning at some point about, uh, curtailing executive power and dealing with the shifting four-year uh blizzards of executive orders. Um, and I know that people on the one side talk about it in terms of what Trump is doing and he's out of control. I don't disagree with any of that, but if you take a look at the other side of the coin, it's equally problematic with what goes on when Democrats get in the White House, and it's got to be stopped.

Speaker 1:

And I think that that is probably the point. So that's the research. Question, though, is why is Congress allowing this Congress the dog that is not barking in the night is a phenomenon to be studied. I think that that's something that's hard to explain well, I it is.

Speaker 2:

it is weird to me and it I mean I guess it goes back to the incentives of re-election. So the incentives of a congressional member are not are to get re-elected. Yeah, and it's much easier to get re-elected when you are appearing on newsmax or or msnbc or fox or whatever, and you know, or CNN, and just blathering and collecting money for it rather than actually legislating. So there are no workhorses anymore, um, and the show horses don't do anything, uh, and so the there's no point. And, and you know, they don't write budgets anymore. There, there aren't, aren't big spending bills, I mean, there's just there's no coordination or organization anymore. It just seems to me to be very, very random, and I just always assumed it was because of the incentive of reelection, but I'm not really sure. And it's something that I think some smart people in political science might want to take up, because I'm curious about it.

Speaker 1:

Well, there are pendulums and it is true that in the last 10 years the study of Congress has been kind of a backwater. There's been some good work in it, but it's kind of a backwater and I think it's partly because Congress doesn't actually do anything and it's not very interesting to write a paper saying nope, still not doing anything. I looked again and not doing anything.

Speaker 2:

Yeah, I mean, it wouldn't be a hard paper to write every couple of years though.

Speaker 1:

Yeah, well, okay again, this is a little too close to home to you describing my career.

Speaker 2:

Yeah, you know what I love academia Mike.

Speaker 1:

Yeah, thanks very much. I want to thank you, pat Lynch, for having been a guest on. The Answer Is Transaction Costs and I look forward to reading more of your work on this and other subjects, so thanks.

Speaker 2:

Mike, thanks for having me. It was a lot of fun.

Speaker 1:

Whoa. That sound means it's time for the twedge. I have three dumb jokes about transaction costs this month. First, did you hear that Donald Trump decided that he was going to put a tariff on pencils? He decided it was time to draw the line on trade. Second, australia has found a way to generate infinite GDP. First, they export boomerangs. Third, the so-called moth joke.

Speaker 1:

The moth joke I'm actually not going to tell, I'm just going to tell the punchline. I've heard a number of people tell it. It takes five or six minutes to tell and then it has just a dumb ending. This is actually an example of a shaggy dog story, and shaggy dog stories are the of them actually is transaction costs. You make the joke so long and then the punchline is so dumb that people want to hit you or throw things at you. In this case, a moth goes in to a podiatrist's office and the podiatrist asks the moth well, you know what can I do for you? Why are you here? And the moth launches off into a story that would make Job, the biblical man who was punished so much, say that the moth had it worse. Horrible things have happened to this moth. Well, after many minutes of this, the podiatrist finally asks well, okay, but why did you come to see me? And the moth said oh, your light was on.

Speaker 2:

I think that's the worst thing I've ever heard.

Speaker 1:

How marvelous this month's letter If a pallet of bricks is worth the same as a stack of two by fours, let's say $100 each. I use dollars and you use euros, and let's suppose that the dollar and euro have a one-to-one exchange rate. But then on day two the dollar drops in half so that it takes $2 to buy one euro. Isn't my stack of bricks now worth 200? So it doesn't really affect my ability to buy your two-by-fourss. We've halved a lot of those savings with all this dramatic currency swing. It's true that's a problem in its own right, but shouldn't the price of goods reflect the underlying value, so that how much of some arbitrary currency you exchange for them is irrelevant? Well, how then does a currency war affect trade? Thanks, and it signed Currency War. I'm skeptical. That's your real name there, listener. Well, notice that there's two different kinds of exchange here and they have two different ratios of value. Ratios of value One is that the bricks and the two by four happen to be in amounts where they exchange equally, at least for right now, because they're equally valuable as building materials, and then the relative price of one changes. You don't say why, but it is true that if the value of my dollar is now, it'll buy half as much as it used to. Then it will cost me 200 instead of $100 to acquire either the bricks or the two by fours. Well, what that means is that, unless my wages have changed, I have to work twice as long to acquire the same things, and so that's why our currency war matters. If someone is artificially depressing their currency, they're actually imposing a cost on their own workers who are going to buy things, but they make their products cheaper abroad, and that is something that many people I don't happen to share that concern, but many people are worried. They feel exploited if our consumers have access to cheap products. But thank you, currency War. That's an interesting question.

Speaker 1:

For the book of the month. I have two books, both of them by William Bernstein. First was published in 2004, the Birth of Plenty how the Prosperity of the Modern World was Created. Second, also by William Bernstein, was published in 2008, a Splendid Exchange how Trade Shaped the World from Prehistory to Today. Those two books I recommend together. If you're interested in the history and the implication and value of trade. Those two are a great place to start. Well, the next episode will be released on Tuesday, may 7th. We'll have a new topic, some letters and, of course, a hilarious new twedge. All that and more next month on Tidy C.