Episode 176 - Gene Epstein on Economics, Capitalism and Innovation
Today's guest is Gene Epstein, former economics editor at Barron's Magazine and founder of the SoHo forum debate series. We talk about his debates with socialism, the role of innovation in the economic, his experience producing these debates, and the calls for so-called "stakeholder capitalism".
Links
Soho Forum Website
Soho Forum Debates on Google Podcasts
Gene Epstein on Twitter
Related Episodes
Episode 108 on the call for adding stakeholders to boards
Episode 101 with Antony Sameroff on his participation in a SoHo Forum Debate on Automation
Episode 14 on the Economic Calcuation Problem
Transcript
Max Sklar: You're listening to The Local Maximum, Episode 176.
Time to expand your perspective. Welcome to The Local Maximum. Now here's your host, Max Sklar.
Max: Welcome, everyone. Welcome. You have reached another Local Maximum. Really fun interview today. But first of all, let me just follow up on the predictions panel that we did last week. A lot of great feedback from all of the predictions we did. But I do want to do some follow-up in the future because there were actually a lot of past predictions; predictions that we made from five years ago to today that I feel like I need to dive into more because a lot of lessons to be learned from it, particularly on crypto, on the behavior of big tech, things that we said five years ago that did happen. So I'd like to talk about that.
Currently, I'm having a big travel weekend. I was just in Long Island for a family event, a lot of fun. It is great to be going back to family events and things like that. Then I'm going back into New York City today, for work, for Foursquare work. So that's going to be great as well. Then finally, I'm going to return to New Hampshire in the middle of this week.
So our guest today, Gene Epstein, he is a resident of New York City, but I actually interviewed him in New Hampshire when he was up visiting in New Hampshire. He's a really fun person to talk to. He is a longtime economics editor at Barron's magazine. But the reason that I know him is that for the last few years, he's run a debate series called The Soho Forum, which has a lot of interesting, of course, as the name suggests, most of the time happens in Soho, but now it happens all over the place. He has a penchant for arguing, says capitalism versus socialism. He's done three debates where he represents the pro-capitalism side.
As many of you know who listened to this, I like capitalism a lot. I'm a big pro-capitalism guy. So those debates are fun to listen to. It was great to have him on. He's also been in a lot of podcasts before and is not new to the podcast circuit. So I knew it was gonna be a really fascinating, fun discussion, and certainly was because we got a lot of behind-the-scenes stuff in terms of what happens if everyone doesn't follow the rules of the debate, and what are some of the issues that have come up? What are some of the interesting things that, because they don't just debate capitalism versus socialism, they have all sorts of interesting topics. So anyway, without further ado, let's welcome our guest today. Gene Epstein, you've reached The Local Maximum. Welcome to the show.
Gene: Thank you so much, Max. I'm certainly in a great mood. My wife and I drove up to the Free State, we’re staying in Dover, Thursday. Yesterday evening, I was in the hot seat with a lot of free staters at The Shell. They watched my recent debate on socialism and critiqued it afterwards. I learned a lot, I hope I taught a few people a few things, but mainly being in the company of so many like-minded people could put anybody in a great mood. I'm happy to be with you this morning.
Max: That's awesome. I'm in a good mood, too, because, first of all, this is– I am just starting to get people to do this in person again, which is so much more fun. I feel like on Zoom, sometimes, you can only get someone on Zoom. That's okay. But I have trouble paying attention. I don't know why that is. But I'm so glad to have you here. I'm used to seeing you on stage in The Soho Forum with big crowds, and you're untouchable or whatever. But to be here in a living room in Dover, it's pretty cool. So I'm glad you came up here.
Gene: I tolerate a lot of interviews on podcasts, usually of course through Zoom, because people are often long distances away from me, from California and elsewhere. But I feel the same way, being with you on a couch, facing you. We had, at The Soho Forum, to go through Zoom to do our debates over most of the last year. I am indeed suffering from Zoom fatigue. I’m looking forward to in-person debates.
Max: Yeah, those were so much fun. You have the energy of the room. There is something that can't be— If you attend a webinar or a debate or whatever and it's just on Zoom, it almost feels like, “Ugh. There's my work sitting right there, and the kitchen is in the back, it needs to be cleaned.” It just feels like all your problems are still there.
Gene: Sure. The Soho Forum has had a two-fold mission. It's not just to host debates of interest to libertarians, one-on-one debates of interest to libertarians, but also to have a party, to have a communal experience. Because, on top of that, as you say, it's a theatrical evening. Theater belongs in a live audience.
Max: Right, yeah, yeah. So you've been doing The Soho Forum for how long? Like five years, I'm trying to remember–
Gene: I got to crunch the numbers. Started in September of 2016, which I guess now is going on five years. I had the idea because I felt that so many of the debates that were taking place were fluid in their concept. I wanted to do one-on-one debates, one versus one. I felt that the standard way in which these many debates were being conducted was usually two against two. The model usually doesn't work because—
Max: It's more like a panel.
Gene: Well it’s like a panel. Of course, just in terms of incentives to begin with, often, it was just a politician teamed up with an academician. They didn't speak or confer beforehand, so they're not really coordinated. Then nobody has to really take responsibility for the argument he's assuming. Too many sound bites because each person gets only six minutes to talk. So I went and did, with a one-on-one debate it means that if I'm debating you, you are responsible for the argument. Nobody else is going to help you. You've got to take on the full burden. That's, I think, motivates you to do your best. So that's why I wanted to do one-on-one debates.
Max: I'll tell you a secret. I've been doing podcast stuff for the last three years. But I've done a lot of public speaking before that, tech talks and whatever. I've never done a debate, even when it's an undergrad at Yale. I went to the political union debates. I saw them; I've never participated. I think it's got to be a totally different experience, actually being like, “Well, no one's gonna help you.” Here in an interview, if I screw up, presumably you're gonna help me, maybe. I don't know.
Gene: Of course, Tom Woods, my mutual fan and yours. When he assures people about their stage fright when they deliver a talk, as he puts it, “Everybody in the audience is pulling for you. So just recognize that they all want you to do well. So don't be nervous.” So I told Tom, “Yes, everybody in the audience is pulling for you, except if you're doing a debate.” Certainly, if you're doing so poor on the debate because half the people in the audience, maybe, more than half have their knives out for you. Not only that, there's somebody on stage opposite you who wants to contradict almost everything you say. So indeed, a debate is a very stressful activity. I've experienced the stress now, I guess, six times, I've done six debates at The Soho forum. We've done more than 50 debates. I should say to your podcast listeners, you should put The Soho Forum Debates podcast on your podcast list, The Soho Forum Debates.
Max: Okay.
Gene: You'll find over 50 debates–
Max: That’ll also go on in the show notes page here. If you do have–
Gene: Oh, that's good. Yes, no matter what he does. But we've had over 50 debates. If you leaf through them, I think you'll find a lot of people you like, Bryan Caplan, for example, who's certainly a fellow traveling libertarian, whom I greatly admire. He's participated in three debates that we've run, I've done six. So I think if you go over the list, you'll like a lot of our debates. But getting back to what you just said: indeed, I've experienced the stress of going into a debate. On top of that, it's a theatrical evening in that we do Oxford-style voting: before and after vote, you vote yes, no, or undecided on the resolution before the debate begins. Then it's recorded on our app. Then you have to vote a second time: yes, no undecided on the resolution after the debate ends. So we declare our “winner” which gives the evening a little bit of a conclusion. It's obviously not decisive. You don't necessarily have to agree with the vote, but oftentimes it does. I, myself, have found that for the most part, I tend to agree with the vote about who won, who outplayed the other one in the debate.
Max: Yeah, I feel like, though, if I were one of the debaters, I wouldn't want to think too hard about the actual vote because that would just, I would think about, “Let me get my points out and people will think about it in the long run.”
Gene: Well, yes. Although, let me add that part of the reason why I've been successful in training debates, I have to say that I guess I've done– Now, I'm losing track: six or seven debates. I lost one of the debates, and I've won the others. The one I lost, we could discuss. I think I know why I lost. I was debating Steve Moore, who had just come from the Trump White House, and he was speaking with the authority of Trump. I think that certain opportunities that I didn't take because I thought I had him on the ropes.
Max: What was the resolution on that?
Gene: It had to do with Trump's tariff policy toward China. The fact of the matter is that it was absurd on every level because the truth is that–
Max: Wait, I think I was there.
Gene: Oh my God, you voted against me!
Max: I don't remember who I–
Gene: I gained a lot of votes from the before and after, but to my astonishment, Steve gained more. But what happened was this: the position that Steve Moore was taking defending Trump, he just spoken to Trump that morning. He's speaking with great authority about the president and all the rest of it. The fact of the matter is that I was citing data and research that was so quoted in the Wall Street Journal that Trump’s– That even the basic wonkish argument against China was completely absurd.
The truth is that we are the major offender, in terms of WTO, World Trade Organization, rules, just on the simply wonkish level. We are the ones who violate what we claim China violates. We misbehave far more by– So I mixed that argument with a more libertarian argument, pointed out that the Trump administration had no right to interfere, in any case, in my right to buy from the Chinese. That if there was some overwhelming argument, fine, but there was no such argument.
So I mixed both arguments. I found that Steve Moore kept giving ground. In my conclusion, I didn't talk enough about the basic wonkish fact that Steve Moore was representing a totally fraudulent position. I think that what happened was that point was lost. A lot of people thought, “Well, he's representing the White House. There must be something to this. So I guess–” That's why I lost., But anyway, but that aside, I wanted to mention–
Max: There could have been some partisan-like, the feelings, too, I guess, I don’t know.
Gene: Partisan. Yeah, yeah. There must have been shocked. Yeah. Look, we attract a certainly, a diverse crowd. Many of the people in the audience might have been Trumpites, Trump supporters, MAGA people, Make-America-Great-Again people. So in any case, I was a little miffed that I lost. Again, Steve Moore of all people. But–
Max: Of course, nobody likes to lose. But if you debate, you said, six times—
Gene: Seven times. Six to seven.
Max: You don’t think, you're not gonna win every time.
Gene: I know. Exactly.
Max: People’ll say it's rigged.
Gene: Exactly. That's what my stepson JJ– It's good that you lost once because now everybody knows it's not rigged. But the key, I should mention, going back to what you said about putting forth your best argument, which is, of course, right, you're not going to focus on whether you win or lose, you're basically there to make the best case you can. But bear one thing in mind: you need to prepare in a particular way. You need to familiarize yourself thoroughly with what the opposition has said and written about the topic.
There was a debate that I'll mention actually. Ben Powell is a professor at Texas Tech, who's written a lot of good stuff about immigration, he debated, now, I'm forgetting the name of his opponent. But he did not read his opponent’s book on immigration, he wasn't familiar with his opponent’s arguments. He made some good arguments, but he wasn't, in the limited time available, able to pinpoint and specify where he thought his opponent went wrong. So his arguments were blunted too often. He lost a couple of points.
So my point is that: it's not just that you need to make your best argument. You need, as I did in my socialism debate recently with Ben Burgess; Ben Burgess had published a few things, not a book, but at least published articles. I read them thoroughly. Then I subjected myself, it was a little bit painful, to listening to him, especially in this debate with David Friedman, where the certain facts came out about his real position on socialism. So that I knew precisely what he thought, and I could bring that to light.
You have to do that particular homework, subject yourself to what —and I say subject yourself because sometimes it's a little painful to do so— to what your opponent has written and said about the issue going into the debate. It's like being a lawyer. You don't want to be surprised by anything. Hopefully, not surprised by anything, although, of course, you always will be a little bit surprised. But you want to minimize that. That's the key to preparation: familiarize yourself as best you can thoroughly with what your opponent has said about the issue and written about it
Max: So you must get a lot of proposals for, “We should have a debate on this. We should debate on that.” Which proposals end up on the proverbial cutting room floor? How do you determine, how do you say, “Oh, you know what? This is going to be a good one.”
Gene: Whatever grabs me in the tuchus; no, I'm kidding. Yeah, no, really. We did a debate on abortion. For example, I thought this woman had a good argument. I had a woman who was against abortion. I had Walter Block, who was, well, that simplifies things about the–
Max: Walter Block is always a fun one.
Gene: He's always fun. I had Walter twice. Walter is the only one who I allowed to violate the basic principle that we don't allow character assassination in our debates. If somebody, if he started assassinating the other person's character and it gets a little bit too serious, I will step in and say, “Look, character assassination is not allowed. It's not a logical argument. Your opponent may be a reprobate and a depraved human being. But we're here to listen to the argument. Is there an issue here?”
Max: “No, no, I'm just looking. Okay. I’m just keeping a straight eye on it. Just to make sure there's no problem.”
Gene: Walter Block debated Nick Gillespie of reason on whether to vote for Trump. This was–
Max: I was there, too.
Gene: This was just prior to the election in which Trump won. The first one. Yeah, just prior to November of 2016. I knew that there was an issue between them because Walter had been accused by the New York Times of being pro-slavery. I actually said in my initial introduction, that to accuse Walter of being pro-slavery is like accusing the Pope of being an atheist. I thought I cleared that decks from that absurd accusation.
He, Walter, felt that Nick Gillespie, in his own writings, had not absolved Walter sufficiently of this accusation. So Walter being very prickly, and Walter, whom a guy whom I love and admire greatly, I should say, had sued the New York Times. He was really just a little bit nuts on the set. So in his conclusion, in summary, he called Nick a depraved human being. I allowed that because it was this kind of funny, but so we've had different problems with–
Max: Yeah, that was a little bit strange as someone who came to the debate. It was an entertaining debate, I learned something, but then they started going after it just personally, it's like there's some bad blood here. I don't even know what it is. Honestly, I don’t care.
Gene: Well, that's great. You took the right attitude. That was Walter’s failing because Nick tried to shake hands with Walter, and Walter refused to shake hands with him. Again, I'm criticizing Walter and holding him up for ridicule. For example, here he is, a libertarian, who does not believe in the libel laws. The vast majority of us libertarians do not believe in the libel and defamation laws. There are a few who do, I gather, but I think they're absurd. I agree with Murray Rothbard that you can't own people's minds, their opinion of you is their opinion of you. As a practical matter, most of these cases that are brought are brought by powerful people against weaker people.
It's very rare that you and I are defamed by the New York Times, and we can't strike back because we're so obscure, all those stories that really don't aren't even empirically valid. Here, Walter is, a rock-ribbed libertarian, suing the New York Times for libel. Then he settles with them for money. The New York Times apparently got Walter to agree not to reveal the nature of their settlement. So he didn't even get any intellectual truth out there.
Walter’s rationale was, The New York Times is backed by the government, so he's suing the government. Why am I knocking Walter? Walter is a great and funny guy. He certainly has got such a lively mind. He's written on such a whole range of issues, very imaginatively, that I think he's a great guy to have in The Soho Forum, and I'm very fond of him personally.
Max: Yeah, the one that– Well, this was maybe before The Soho Forum, but I think when people asked me, the first one I went to, I talked about the Hamilton debate at that time, I would–
Gene: That's right, Max. The backstory is that I–
Max: That was a fun internal debate. I learned a ton from that when–
Gene: I would say that there are– The backstory on that, to get to the point about, is that I was managing the events for a monthly series called Junto, named after Ben Franklin's Junto, financed by a philanthropist named Vic Niederhoffer. I wanted to make it, I hosted it–
Max: I feel like Vic Niederhoffer, I feel like he’s from my hometown of Weston.
Gene: I’m sorry, what?
Max: I feel like Niederhoffer is from Weston where I grew up. I'm not sure.
Gene: I think you're right. Yeah, he certainly lived in Connecticut. So I was doing that. Then usually it was just an interview I did or a speaker. But then I decided to do some debates. Vic didn't like the debates, but he gave me pretty much of a free hand. I had Michael Malice debate Tom Woods on the issue of Hamilton being a supporter or a hero of liberty. I think it was basically that.
Now that's a perfect example, I think, of a debate where it's a little bit too semantic to really make up your mind. It depends on whether the words that are used are too open to different kinds of definitions to truly be the kind of objective debate you might want, as in the case of where I debated Steve Moore on Trump's cockamamie actions against China.
But the point is that kind of debate, where you might end up agreeing with both sides, where in a way, is subjective as the way it come out, it still could be fun, it still can be informative. That kind of debate where the words that are being used are a little bit too squishy for you to really make up your mind and really decide who's right and who's wrong. But it was still fun.
Max: No, no. I liked that the debaters liked each other. Then two things I remember were— So this is like 2015, maybe 2016. So Michael Malice spent half of his intro basically putting up Trump tweets that weren't real Trump tweets, but they were photoshopped and being like, “Tom Woods. What a loser.” It was tweets that he wrote as Trump. Then, but I feel like– You got into more of the nuances towards the end, well, what did Madison believe that was different from Hamilton. How is Madison different from Adams or Jefferson? It's like, “Oh, okay. Actually, this is really interesting stuff.
Gene: Well, right. So to some degree, it's a makeshift kind of conflict, but if you're interested in the topic itself, you can learn a few things. It could be entertaining, so deep. I'm all for that kind of debate. When, for example, I had a Walter debate of the abortion issue, they are, too.\. It's inevitable that reasonable people can disagree about the issue, and that it's subject to too much interpretation to really be an issue that you can resolve at the end of the day, as in the case of my socialism versus capitalism. We have to be a lunatic to walk away thinking that socialism is still preferable.
Max: Most people in New York– Well, I don't know if most people think about socialism versus capitalism, but I feel like I'm in the minority being pro-capitalist in tech, at least. Well, yeah. I don't know. It's odd. There's kind of the corporate liberal capitalist version, the moderate Democrat that might be in charge of a lot of these companies. But I don't know. They haven't really had their opinions hashed out as much as we have, for example.
Gene: Well, I think part of the problem is that the socialists are often used to just critiquing and attacking capitalism and never really being forced to come forward to talk about what they propose as an alternative. Now, as we economists say, one of the key questions is always compared to what. Life is– As Thomas Sowell, a genius I greatly admire, the economist Thomas Sowell said that there really are no solutions with respect to social and economic issues, there are only trade-offs.
Of course, if there are trade-offs, that means that one thing can be much better than the other, but does consist of trade-offs, and not true solutions. Because in the social world, nothing can truly be solved. There will always be problems in whatever situation you set up. But in the case of the socialists, they don't often come forward.
Capitalism is put on trial and indicted and as compared just vaguely with some sort of notion that we could all love each other and get along fine. Isn't it very nasty that bosses, sometimes, blow out employees or that people get fired or whatever else? That's all very nasty. Therefore, capitalism is condemned. But in my debates with socialists, I have them–
Max: You've done three?
Gene: I've done three, so.
Max: I'm interested in why you keep coming back to them.
Gene: It was just kind of a comedy. It's just one thing led to another. What happened, initially, was that I found that the debates that were being conducted about capitalism versus socialism were of the sort that I mentioned. Last night, for example, I quoted when I spoke before the Free Staters about my debate. I quoted Joseph Schumpeter, the great economist who said, and I'll quote him again, “Capitalism stands its trial before judges who have the sentence of death in their pockets. They're going to pass it whatever defense they hear. The only success victorious defense can possibly produce is a change in the indictment.”
That's, of course, what you're talking about. You just put capitalism on trial and compare it with some sort of vague utopia, and capitalism is going to be put to death. What happened was that a number of years ago, when was it? 2015? 2016? The Jacobins, as they call themselves, they are a bunch of socialists. They published Jacobin magazine, challenged a couple of people that reason to a debate about capitalism versus socialism.
It was held in a large hall in New York City, with Bhaskar Sunkara, being one of the debaters and the socialist side, and Vivek Chibber, a professor at NYU, much older guy, being the other debater, Again, capitalism was put on trial. They defined capitalism in their own cockamamie way. They didn't define socialism. No need to define socialism because after all, we've got capitalism.
So let's evaluate capitalism. Again, this was before capitalism's hanging judges. What do you guys want to put forward as an alternative? How would that work? Do you really imagine that capitalism, in its practical manifestation, is going to be perfect? Do you think it's going to just produce a heaven on earth? Of course not. But what is the alternative? What do you want to put in his place? They were never asked to do so.
Well, they didn’t– Vivek Chibber, who is a professor of sociology, he just groused that “You've got. You're forced to work under capitalism. You have no alternative but to work. Yeah.” I wanted the other side to say, “Vivek, what? Nobody's gonna work under socialism? We'll all just gonna sit home? We’ll starve if we don't work.” So you’ve indicted capitalism because you have to so, therefore, I just decided, think I was running The Soho Forum at the time, that I've got to correct this ridiculous trend.
I've got to set up a debate in which the other side is forced to come forward with what they want as an alternative. I actually initially invited Vivek Chibber, who is a professor at NYU, was really close by, to appear. I actually doubled the honorarium once he initially said no, but he kept saying no. So then I challenged Bhaskar Sunkara. I had read Bhaskar’s article about what he wanted for socialism: how would socialism transform society. He would basically take out of the free market everything—all the capital allocations, all the labor allocations will be run by the government.
Max: So I couldn't be an investor in companies if I wanted to, right? I couldn't buy up. Well, apparently, he's gonna want us to stop buying up cryptocurrencies. But I don't know how you can do that.
Gene: But you can keep your Kenny Loggins records. That was his article. Can you keep your Kenny Loggins with you? You keep your personal effects. They keep making this book.
Max: Keep my toothbrush.
Gene: Keep your toothbrush. Maybe, you can keep your car. I think you can keep your car.
Max: But I can’t Uber? I can’t use it for Uber.
Gene: Uber will never exist because it would have to apply for financing from the government. You're not going to undermine the taxi cartel. It was all clearly just a ridiculous idea. I lost my temper with Bhaskar. I think I misbehaved.
Max: I remember that. Yeah, I was there.
Gene: Yeah. That was a dumb idea for me to lose my temper because he was clearly so obviously on the ropes. But when he got up there, and he said, “Well, profits.” I said, “Learn some economics, Bhaskar.” I misbehaved as a debater. But I beat him in terms of votes. But then I thought, “Well, I better make amends for this and keep my cool the next time around.” So I decided I'll debate it, I’ll grant him a minute. That was Richard Wolff. Did you attend that one?
Max: No, I didn’t attend that one. I couldn’t go to all of them.
Gene: Well, Richard Wolff had written a major book on socialism called Democracy at Work: A Cure for Capitalism.
Max: So I bet you had to read the whole thing.
Gene: Yeah, I read the whole thing. I summarized his book. Then I found that he, that when he got up to respond, because he initially, he took the affirmative. I always take the negative. All of the debates I've done, I've taken the negative. He got up and made his case. But then I quoted his book, what he wanted, again, the same old story. Then he got up, and he said that he'd forgotten what he'd written in his book. A book is like a child. So he didn't exactly put up much of a fight because, again, he was no longer defending his book.
So he started to speak vaguely about this and that, and again, I had him on the ropes. But it was a little bit too easy. Although I kept saying to people afterwards when I was interviewed about the debate, I said, “Look, Richard Wolff is the ultimate. He's the great eminence of socialism. He's been called by the New York Times as our most important Marxist economist in the country.” So if I beat him, isn't that an end to it? Well, I felt maybe not. Because he had been so passive. That's when I decided, well, I'll do a third one against— What's his name?
Max: Ben Burgis.
Gene: Ben Burgis, yeah. So anyway, so that was recently. Ben Burgis at least put up the biggest fight of all. But then again, I was able to tease out not just that Ben Burgis wants the government to take over all of finance, 98% of finance anyway. He’ll leave a few bucks to crowdfunding.
Max: That was an interesting one because he kept saying, well, he won't allow Kickstarter. He's like, “No, no, yes, I will.” Then you make the point, “Well, okay. If it's the only one that's allowed, then it becomes a trillion-dollar industry, they might start having second thoughts about that. The argument is a few steps. It's hard to–
Gene: Well, thank you. Yeah, exactly. I did make that point. Thanks for remembering that. I have just forgotten. He got up. He said, “No, he debated my friend Bhaskar, and Bhaskar told him, “No, he will allow Kickstarter, and Gene—” So that was a mistake on my part. I didn't realize that they would allow these few bucks. But then, as you said, I responded and said, “If that's the target of Kickstarter, it would probably be worth $5 trillion. Because we'd all say, well, that's the loophole, we can invest in Kickstarter.”
But because I could have further added what Ben Burgis revealed when he was debating David Friedman, that Ben Burgess not only wants the government to dominate virtually all the finance, 98% of finance, and finance only worker-owned companies, but he wants to outlaw wage and salary employment. That again, that just really got ridiculous.
We discussed it, of course, last night, I could have made perhaps put a finer point on the fact that we're talking about 140 million people, nearly 90% of the workforce that works as wages and salary workers. Many of us would want out, many of us would want to just sign on as a wage and salary worker. He clearly will have to jail a lot of us. So that really got brutal, what he wants.
Again, that's my long-winded answer to your question, which is, why are many people sympathetic to socialism? Partly because it's difficult to out these people, you have to do some research to ask them, what are you really proposing? Of course, my major argument, as you know, is that most of what they're proposing is perfect.
I won't belabor it any further, but simply stated, most of what they're proposing, worker-owned companies and co-ops, is perfectly achievable under capitalism if workers really want it. That, I think, is a key point to make, and they won't resort to that way of doing things because probably they know in their hearts that workers are not ultimately interested in worker co-ops anyway.
Max: Yeah, so I have two follow-ups. One is, the one I want to get to second, but I want to put it out there because it's just that we know it's coming is like, “Okay, a lot of people these days don't debate for socialism directly. They say modified capitalism.” Let me get to that.
Gene: Well Bernie Sanders likes socialism.
Max: Yeah, but also like, so I actually think going from the beginning, you gave that Schumpeter quote, and I think I may have misinterpreted it the first time that I heard it. What was the quote again?
Gene: “Capitalism stands its trial before judges who will have the sentence of death in their pockets. They're going to pass it, whatever defense they hear. The only success victorious defense can produce—”
Max: So he's talking about critics of capitalism. I thought, when I first heard that quote, I thought it was about a company could go out of business if they don't treat their customers right or something like that.
Gene: Well, thank you. I didn't realize. He already wrote a book. He wrote Capitalism, Socialism, and Democracy. I'm glad I cleared that confusion up. No, he's just talking about the critics of capitalism, that they are so unreasonable that indeed, they just put– As I put it the other night—
Max: They compare it to perfect.
Gene: They have a criminal trial against capitalism. You're guilty of all these sins, I bet. As I said, I want a civil trial: who gets custody of the economy, capitalism or socialism? The socialists have to make that case just as much as the capitalists have to about who gets custody? What do you propose? What do you want?
Max: Right. I feel like sometimes all human error is attributed to capitalism, whereas it's just human error. The question is, well, which system is going to more likely have human error over time?
Gene: Precisely, yeah. You have to, as you indicate, obviously, so much of what we call the evils of capitalism is simply the evils of social trends, the evils of human beings, the misdeeds of human beings. We, human beings are going to misbehave, there will be evil in the world. What's the best system for channeling human wishes and incentives into the best outcomes? Clearly, capitalism is by far the best alternative.
Max: So, there's also been a lot made about the role of innovation in a capitalist economy versus in a socialist economy. Well, I know Schumpeter had a lot to say about that. What do you say about— a lot of people listening to this podcast are interested in technological innovation, interested in change. What do you see as the argument for innovation, whether it's better under capitalism? Or what is the role of innovation in the economy? Let's talk about that. Why is it important?
Gene: When it comes to economic progress, to paraphrase Vince Lombardi about winning being the only thing, innovation is not just one thing. It's the only thing. Innovation is the only thing with respect to achieving economic prowess.
Max: So it's not just like, “Hey, we're running an economy. Maybe every once in a while you come up with an innovation. That's great.” But that's not the main thing. You're saying, “No, that's the main thing.”
Gene: It's the only thing. Why is it the only thing? It's the only thing because oddly enough, it was supposed to have been some kind of great intellectual achievement on the part of Nobel Prize winners like Robert Solow is his name, who was the guy who supposedly taught us how important innovation is. Yet, all you have to do is sit under a tree on a couch and think very simply about this mental experiment.
Suppose it's 1750 in America. We have slow-moving sailing ships and windmills, and pot-bellied stoves, and certain kinds of agriculture that uses the plow, uses animals. That's the nature of our technology. Now, suppose that there is no innovation. There's all the wonderful supply side, economic growth that supply-siders talk about, plenty of capital investment. All that's great, but it's capital investment in the same old stuff: slow-moving sailing ships, oxen-driven plows.
Max: It might get a few more ox.
Gene: A few more oxen, a few more windmills. All of that is great stuff. It's going to help. But where's it gonna get us? Obviously, nowhere. If the population increases and overwhelms the land, we might start going hungry. Clearly, the only thing, not just the main thing, the only thing that made for economic progress since 1750 is innovation, is, of course, obviously, ships that were moved not by ice but not by wind, men by sail, but by coal, and by oil. All of the innovations that have occurred since 1750.
I use 1750 because it's the easiest case. But you could freeze innovation at 1850 in America or 1950. When you think of that, we’re indeed in 1990, when you think about all the things that happened, that have transformed the world and that have made all the difference in terms of enhanced productivity and economic growth. So, again, all you have to do is subtract innovation from any moment in history, and then it becomes readily apparent that innovation is not just the main thing. It's the only thing.
Max: So how would it be different if you were debating someone who was saying, “Well, no. I'm not a socialist. I'm a capitalist. Sure. But some things are just not good for capitalism. Maybe certain industries like healthcare need to be socialized. There needs to be redistribution. I think, corporate boards, they represent the shareholders, their fiduciary to the shareholders.
Yeah, that's great. Shareholders are important, but I just think we should broaden it more. We should have representation for the customers and the employees on the board. So who could be against that?” I feel like that's the argument they get. It's a harder one because it feels like– Would you think it would be harder to argue against someone who is arguing for the mixed economy? Let me put it that way. That seems to be the mainstream opinion right now.
Gene: Well, I guess it would be harder, in a way. Maybe, in a way easier. It would be a very different argument, certainly, because, of course, these people like to insist “No, no. I believe that there should be no private ownership of the means of production. I'm not a socialist.” As you say, you certainly can't get them on that issue. You can't get them on the argument that the Iron Fist of government should control all the economy. You’re right about that. But let me–
Max: Because they can credibly say, “I'm not going to ban Kickstarter, I believe them.” Well, the socialist, “I don't believe–”
Gene: Well, that's true. Well, look, all of the venture capital, and then I could ban that either. Obviously, Ben Burgis would ban all venture capital, would ban any investment that's going to invest. As I said, Steve Jobs would probably shoot his mouth up before the state-run bank and say, “No, I'm going to employ people, what the hell do you think? I'm the one who works 20 hours a week. They all work for me. They will get the hell out of here.” You are going to go to prison if you try doing that. So, of course, it's absurd to think in those terms, with respect to what Ben Burgis wants, but getting to what you just talked about.
To begin with, just let's take the last thing that you mentioned, which is how a corporation is run. If it is indeed a corporation, it's not the only alternative. It gets back to my particular hobby horse that we tend to confuse capitalism with the manifestations of capitalism that we find any one time. It is true that the conventional corporate model that represents the shareholders tends to be the dominant mode in the economy that we do have. Except, of course, the small businesses and single proprietorships, and even co-ops are very common as well.
Even that doesn't capture capitalism, specifically. But the point about defining capitalism is to say that all it is, all it consists of, is operating in free markets with private property and the means of production being protected by law, the right to private property and the means of production being protected by law. It says absolutely nothing about how firms are structured, or indeed whether we even have firms, we might have just individuals just transacting with each other and subcontracting out different things.
Max: It probably changes based on what innovations come out. Certain types of firms might make more sense, certain types might make less sense.
Gene: Precisely. As I say, even if we do have firms, we have many more independent contractors. We did and on top of that, of course, to get back to my hobby horse about what Ben Burgis wants, there could be worker co-ops. So, therefore, capitalism says nothing about the structure. So, therefore, if to take the easiest case that you just cited, if you want, if you're proposing a corporation that has equal representation, the people from the neighborhood, and the workers, and whoever else, make sure that Jews and the Gypsies are also represented on the board, whatever you want. Let a hundred flowers bloom.
If you think that model works best, put together a company that works that way. It will be a showcase. It will inspire others to do the same damn thing. Capitalism is a series of trials and errors. Now unlike socialism, if it fails, then it will be, maybe, a worthy experiment to show that wasn't such a good idea. If it succeeds, then maybe it was. Clearly who I have no direct opinion about that. Except, of course, I do have this objective view subject to experiment, that it's probably best that we have the kind of management situation that we do have, where the managers in charge usually have a fair amount of stock in the corporation. They have a very direct stake in its success.
Max: I have stock as an employee.
Gene: Yeah. So you have some stake in the success, but those who own the corporation now, often a more direct stake. We can get into arguments about the supposed separation between ownership and control, which is an old argument–
Max: So I have a little ownership. I have zero control, other than if I'm working there, I have access to management. I could talk to them.
Gene: You do. Aside from that, you have hopefully what most workers do have, which is the right to quit, the right you take your business. If they don't please you, if they don't pay you enough, if they abuse you, then you might start looking for another job. If you run an organization, you're often fearful of losing some of your best people. So you want to stay on their good side. People who work for a company often don't recognize that they are being accommodated in certain ways because they don't want you to quit, they don't want you to leave. But getting back to the point; you set up a framework, you said medical care, I forgot what else–
Max: Just the usual suspects. Libertarian answer is always that the people say the roads need to be socialized. Somebody wrote socialist–
Gene: Frankly, a joke now, who will build the road? Yeah, well, obviously. Well, because we could go over a lot of that. I was, I mentioned–
Max: Doesn't sound that scary, having government run the roads. I think it would be better if they didn't. But that's a whole–
Gene: Well, no, indeed. You remind me of my argument that I would rather we have a government basically running the money supply. If it was a forced trader, I'd rather that they dominate the shoe industry. Stay away from money, but I'll give you shoes because the shoes will pinch. But we can at least make sandals in our basements. But they would really ruin the shoe industry. But at least they won't do that much harm to our feet. We could protect our feet from them.
Max: Better yet give them hats. My feet can get a little– They can hurt if I don’t have them.
Gene: If you give them the roads, they'll mismanage the roads in all kinds of obvious ways. There'll be potholes and the roads, and there'll be roads to nowhere. There'll be crazy ways they price the roads, which create needless traffic jams. But better that we give them the roads than we give them the money supply, because that's where they really do harm.
But the point is that I thought you wanted me to address some of these arguments. One of them, of course, having to do with this idea of experimenting with how we manage corporations. Again, it's so little understood apparently, that the mode of capitalism we have now is not necessarily the only way to go. If there's a better way to go, trial and error and innovation and good ideas will find the way for us. Because if those people do well, others will imitate them.
Capitalism is a much, far more flexible arrangement than people imagine. I guess part of the inflexibility has to do with the crony capitalist system, where the corporations that succeed often tend to dominate government and achieve monopoly positions for themselves. That tends to produce stagnation and stasis. But capitalism is a constantly dynamic system that experiments with new ideas all the time.
Max: Right, so let me see if I get this. So you're talking about, there's so many modes of corporate governance we can do, that is a form of innovation in the market, just like corporate culture. It's a form of like, it's an intangible that companies have, and you can experiment and do better. But when you have a law, let's say a federal government, all the boards have to have these types of people on it. That's obviously more of a problem.
Gene: Absolutely. Then, of course, you remind me of the age-old argument about the government giving the corporate structure the right to limited liability. We have the government, in certain cases possibly mandating certain structures that corporations have to adhere to. As you indicated, the idea of mandating it seems like a bad idea on its face, it's intrusive. It may not allow for creativity and experimentation.
Let the cooperation structure themselves the way they want to. If investors like it, the investors will invest in it. If they don't like it, the corporation won't get any money. If investors like it and it fails, it will become a showcase for failure. Experimentation is important to innovation. As innovators like you know that success is the product of a thousand failures. We have to keep failing, we have to keep going bankrupt in order to achieve an understanding of how success works. So all of that is true. But now we have had for a long time, something that Ben Burgis the socialist thinks is terrible, and some libertarians often dislike as well, which is that the government allows a corporation to set up a legal system of limited liability.
Of course, it's a good idea because, and it has indeed lead to constructive investment, because if you and I are going to invest in the company, we don't want to have unlimited liability for everything that it does. Because we don't clearly, a corporation will have some difficulty attracting investors, if they are taking on unlimited liability as part owners in the company. This has been criticized. I know that Rothbard has actually specifically defended it. But anyway, I'm not even sure I totally like his argument.
If you did not, you don't really need— my clincher about this is that you don't really need the government to dictate this. You can get private agreements that say that if I invest in the company, the company accepts, gives me unlimited liability via private agreement. There could be insurance companies that will, even if you don't have that, you could have companies that could be in the business of taking on the liability that the investor doesn't take on. There are all kinds of arrangements for that.
I mentioned that because of course, it's been a big argument. It's been a hot button with respect to corporations, we can't deny that limited liability is a good idea. The only thing that doesn't seem to be well understood is that there's so many different ways for the market to have worked out a system of limited liability. It doesn't just have to be the government bestowing it upon us. So I just wanted to resolve that particular issue. Yeah.
Max: All right. Cool. Well, thank you very much for this interview today, Gene. I just want to end, are there any last thoughts on what we talked about today? Also, where can people find out more about you and about The Soho Forum?
Gene: Well, there are so many last thoughts, so many things I haven't been able to say today.
Max: I would have guessed. I would be shocked if you said I'm done now. I don't really, but that’s about it.
Gene: I'll have to censor myself because I don't even know if your listeners have lasted this long with me. I hope they have. I began by saying that if you are a podcast listener, and of course, the many tens of thousands of people who listened to your podcast, clearly are, then you want to put on your list: The Soho Forum Debates podcast. There, you'll find more than 50 debates. You've sat through reminiscences on my part and Max's about many of these debates, you can listen to them all. They're all accessible. I've done several others that we didn't mention. There are several other really good ones that I recommend, but no time to do that. But leaf through the list of about over 50 debates at The Soho Forum Debates podcast.
Also, I want to announce that we are returning to New York City. We've been driven out. We've had Zoom debates. Many of them have been pretty good that I'm suffering from Zoom fatigue. I'm not going to do another Zoom debate for a while. Maybe, not for hopefully–
Max: Maybe not ever.
Gene: Look I occasionally have to be– If you can get some guy in Moscow to debate some guy in New York, and you can't get him. Maybe, we'll do a Zoom debate. Someday we'll do a Zoom debate again, but only someday. We are going to return to New York City because hopefully the city's opened up. That's where I live. It's named after SoHo, South of Houston, where Max used to live. We have a definite planned for October 4 that will be the neoconservative William Kristol debating the Great Scott Horton on foreign policy.
Max: Oh, shoot, I think I bought a ticket for that, like years ago.
Gene: Well, what do you mean, shoot? If you have a ticket, you can come. If you want to return to New– You used to live there, Max, you could probably find your way to New York. We'll give you the address, you could probably find the venue. We haven't decided on a venue yet. We, actually didn't even advertise. We just announced it, and we very quickly sold nearly 800 tickets to it. We're looking for a pretty large hall in Manhattan to have it. I had to coax Bill Kristol, who's been very nice. I want to tell everybody, you might not like Bill Kristol for what he stands for because he is a neocon, almost the father of neocon, a foreign policy, but he's been very cooperative and very nice guy. Please, do not assassinate his character on Twitter because I don't want to alienate him. I want him to show up for a nice, polite debate on–
Max: My audience is not going to do that. They're not gonna assassinate character. Well, I don't know who's listening.
Gene: People have been saying nasty things about him, please don't. Okay. That's October 4th in New York City. Max, I hope to see you there. I hope to see all your many thousands of listeners. They're on October 4 in New York City. Now I can shut up for good, Max. Thanks for having me.
Max: Gene, thank you so much for coming on the show. All right. Wasn't that a lot of fun? So it was funny that you mentioned that foreign policy debate with Bill Kristol and Scott Horton. That's one of those where I have issues with the way both of those people debate, and so I'm hoping they call each other out. So yeah, this will have all the relevant stuff up on the show notes upcoming in the next few weeks. I'm finally, I think I’m going to be talking about design. I'm going to talk to, I'd like to talk to, I'm not gonna say who it is because I haven't done the interview yet.
But there's someone in my social media who's written a really great book on design, all types of design. Obviously, design is something that we have to do as engineers as well, or at least we have to interface with designers. That is going to be a great one perhaps, particularly if you're thinking about stuff more along the lines of upgrading your professional skills, or just thinking about how to get things done, or how the world works, really interesting stuff. So stay tuned for that. Have a great week, everyone.
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