If schools can educate students in exchange for their tuition. Why can't businesses educate students in exchange for their labor? No reason. Just anti-market bigotry. Welcome to Keith's night, don't tread on anyone. And the libertarian Institute that is a quote from today's book. It is titled labor, econ, versus the world. You will have an image of it on my screen.
I know it's a little blurry at this moment, but the author is dr. Bryan Caplan of George Mason University, Dr. Kaplan. Where is the best place? Place to purchase this excellent book. Amazon.com is the best at Holy place. Links will be in the description below, Dr. Kaplan, what is Labour econ? And why is it important?
Labor economics is just the application of Economics to the world of Labor, so jobs, obviously, but also everything that people do to get ready for their jobs, education job, training, everything that impinges on labor economics, actually winds up getting counted there. So economics the family. Well, non-marital births divorce. All of this plays into whether or not people want to get a job. So all that winds up coming out of the heading of labor economics, as well for this.
We have The great Economist Gary Becker to thank he's the one who took a formerly narrowly defined field and turned it into this vast expanse that we now have. One of the if I had to summarize the general objection to this book, it might go something like this workers have less bargaining power than employers. Thus, the first rule of labor, economics is to recognize the necessity of worker, safety regulations, mandatory benefits, and minimum payments for hourly work, what's wrong with that
worldview? If anything first thing to remember is, well, what does it even mean to say that someone has less bargaining power when you're really thinking about it? Was a different from they're just not being much demand for your services. You say well Tom Cruise is tons of bargaining power well because people really want Tom Cruise, janitor doesn't have very much. Yeah.
Because the janitor seems very replaceable when you put it that way then you realize, mmm how exactly is this regulation supposed to help someone? Just because there's not a lot of demand for my services. How does this help me? When there's a bunch of laws saying, I have to be treated. Well, when people always have the option of saying I don't need to trade with you at all. All, actually, this is really the fundamental issue of Labor regulation people.
See someone not doing as well as they want. They think we just passed a law, then we can solve the problem, but there's always the option of just saying, I don't need that person. I can do without that person, and what we see in the real world is totally standard. This is not an ideological Point.
Everybody in real life thinks about the cost of Labor when they consider hiring everybody hires somebody at some point if only to go and give them a I'd or motor grass or whatever like to come and fix the plumbing and the idea that there's something ideological or philosophical about the view, that the amount that people want, depends upon how much labor is charging, it's just crazy. It's absolute Common Sense its ideology to say otherwise When it comes to regulation is the is
government intervention. The only method of sort of regulating and making sure consumers and workers or are treated will, or is there any method in the free market that people can use to sort of achieve this end of getting well-treated workers and reliable products and services. But the ultimate check upon all Behavior markets is if you don't like it, don't shop there or don't sell your labor there. This Is the main thing that workers have going for them in a
free market. Is I don't have to work here. Now, this does not mean that it is well advice for worker to scope to the boss with a list of Demands and say, do all this or else I quit. Boss is likely to say, yeah, well, I guess we could do without you rather, it's realizing that. If you're not satisfied, then you should look around for something better. You will find something sooner or later.
And that's the time when suddenly, you can say, hey, look, but maybe I'll just go to this new thing that I like better. Or maybe I'll tell my boss. I found something else if you want to keep me great. So yeah that is the main thing of course. This also just shopping around before you take a job for
professors. This is a very big deal because normally for Professor, take a job, they need to move to a totally new area and once they start working that job, it's actually an enormous burden to try to find any other kind of employment. If we look at the lies were vesser's, they're actually really sweet pressors.
Have ridiculously good deal. What's Going on, what's going on, is that before someone moves out to North Dakota, it is totally standard for them to go and talk to people already there and ask. How do you get treated here? And if the answer is poorly then you just don't move in the first place, which is, by the way, the same story behind the actual economic history of company towns.
People think of company towns is, you're just randomly dropped in the middle of nowhere, and then you have no other easy options. But the thing is, is to get someone to moved your company Town. You've got to make them think that it's a good deal. And the main way company towns, historically made people think something's a good deal was by making it a good deal. When it comes to the example of sweatshops, this is where regulatory Advocates sort of have their best example of big
company, very powerful. Nike Apple something in this area versus people with very little bargaining power. Making very small amounts of money. What's wrong with government sort of stepping in and saying, hey, you don't get to walk all over these people. They need to be treated with dignity. You're making enough money. You're still going to sell shoes. You're still going to make tons of profit, but you have to meet these minimum standards.
Anything wrong with that? Yeah, tugs wrong with it. I mean, here's the main thing to keep in mind just because someone has very low demand for the services doesn't mean that their customers can't drop them and say we can do without you. In fact, if anything you'd think that I said that's exactly when businesses would be most likely to say you're not really that valuable anyway, I guess we could figure out some other way of doing. Doing this.
So the very fact that you have a big Corporation dealing with low. Skilled workers does not mean that regulation can put improve their conditions without changing the willingness of business to hire this is critical. Now, in terms of understanding the actual facts on the ground, the main thing to know about so-called sweatshops is that normally, they pay a lot better
than native competitors. They not only offer a better deal partly is because they are trying to go and find that our workers and on top of that, they're also giving better. Job training, then local firms usually are they're going and introducing you to what is The Cutting Edge in the global Marketplace? So they aren't just going and giving better compensation. They really are investing in
human capital of the workers. Put your greatest misconception that people have about life in third world. Countries for workers, is the think that most verbal workers are employed by big multinational corporations? Nothing could be further from the truth formal employment. In poor countries is in very rare, it's almost always way below the level you would have in countries.
Like the u.s. it is normal. Actually, in the poorest countries for most people to be self-employed to have no formal employment of any kind. And if you're wondering, well, what is that? Like if you ever been interested in poor country and someone comes up to you and tries to sell hats to you on the beach. That's what life is like for most workers in the poorest countries.
Just sort of desperately trying to eke out an existence running their own business, but not really knowing what to do most people. You're not cut out to run their
own business. And in poor countries, we do see the sad spectacle of people who really don't know what's going on trying to run a business and generally doing quite poorly at it in those countries formal jobs of any kind of Highly prized but formal jobs with the multinationals are almost always the very best jobs in those countries. The regulation is a way of encouraging firms to not go there in the first place or to close up, right? Meaning you do that and you'll yeah.
In like main thing to realize is still channels that would do almost all of their business, almost their own employment in rich countries, not poor ones. If you ever tried running a cup business in a poor country, if you ever thought about how hard it would be, it's hard because things are just so screwed up their actual multinationals usually prefer to work in rich countries. If there weren't much lower wages in poor countries there be almost nothing to recommend
doing it there. So even if I see business as this evil profit-seeking predatory dog-eat-dog mechanism, I should still support it because it even helps the people who I'm claiming to speak on behalf of even though I've never met any of them and see that they obviously choose the job. So you're saying they're still a reason to support to oppose regulation if you support the poorest workers on the planet.
Yeah, if you're really worried about the poorest workers in the plan, Is me trying to figure out how to get a lot more multinationals to open up in poor countries, you should be looking for ways to get their careers and really you should be looking for governments that put multinationals at ease and say, we love you guys, we want as many of you here as possible.
Normally you get in the real world you have domestic businesses that are trying to keep multinationals out so that they can continue running the businesses. Well below the normal level efficiency and also as a result paying their workers quite a bit less than they would be getting. Ting if they could work for multinationals. So yeah, I mean, you know, the main thing you have in mind is that the way that you make life, better for people say, giving
them more options, not less. When you regulate multinationals or keep them out, you were just taking options off the table and it turns out if you really go and compare with the options, are these are the best options multinationals are the best companies to work for the best places to be employed in the poorest countries. So yes, you really should be feeling like this is the best that's available. It really is. What is the hedonic treadmill and how does it apply to labor economics?
Great question. And donut treadmill is. Basic fact about human happiness that for most parts of your life. At first, they if they improve first, you feel happy, but then you start to take it for granted and eventually it's like it never happened. Same thing for many bad things that happen to you at first, your say, oh this is my toe, so terrible. My life is over, and you get used to it and stops bothering you. I often talk to people about getting a granite, countertop people.
Sell is so great, so lovely. But after a month, do you really
sit there stroking? The granite and saying, I love you, Granite such, great Granite - thing goes for most luxury products and so on. Now, many people look at this and say, is this really a very anti economics point is, it comes down to happiness, is not nearly as dependent upon material well-being, as most people believe, looks like we yeah, it's a little bit more complicated because you don't get impatient, varies a lot with the exact kind of good.
There are some kinds of goods they can like Granite, where you don't got, a tation is very quick, and very reliable. There's others where not so much anyway why this is relevant for labor economics there, a lot of people argue for regulations saying look all right. Fine is true. The labor market regulation does cause some unemployment. That's unfortunate but it does raise the compensation for all the people to keep their jobs. So as long Is it that too and
even losing their jobs? All the other people getting them, that's good for them. And on the, in the end, it winds up being worthwhile and my response to that is no, because the thing that people are likely to get used to pretty quickly are the extra luxuries. The other thing, what is hard for people to get used to something that people do not hedonic? We adapt to. Well, at all is idleness unemployment.
A lot of work saying that the sheer fact of being employed causes an enormous harm, human happiness. Even if you Make up all the loss and earnings with unemployment. Still you will see that people are unemployed feel unhappy on average because they just feel useless, their lives are meaningless. They are part of anything. One of the parts of human happiness. The people adjust to the least is the social world, right?
Do you have a people around you that you like being with when people unemployed it's very isolating, these feel like there's no one around you know companionship no nothing that you're part of So what I say in the book is that actually, if you are going to have a wiser view about human wellbeing, this is does not mean that stricter labor market. Regulation is a good idea. Yeah.
It does raise wages for the lucky ones with jobs but the important thing to remember is those changes in earnings are pretty ephemeral, but on the other hand, the harm of unemployment is very durable. People who feel miserable being employed for many years. Whereas most luxury products you really do, get use them pretty quickly. Lee. What is labor elasticity and why does it matter Lee well? So I think you mean love labor, demand, elasticity, and labor demand.
Elasticity is one of the most important technical Concepts that bores almost everyone to tears. It comes down to this. The act of Labor demand at a point, is the percentage change in the quantity of Labor that we employed divided by the percentage change in? Which all right. So if there is a very large change in the wage when there are issues very large change in the amount that employers want to hire.
When this when there's a small change in the wage that you have very highly elastic, labor demand elasticity, right? And this is a circumstance where if you were graphing, this would roughly mean like depends upon the scale but roughly mean that you've got very flat labor demand in this scenario, you need to be very concerned that almost any regulation.
Any activity could cause mass unemployment on the other hand, you can also have a low liberal and elasticity which means that when you raise wages a lot them only be a very small change in the quantity of Labor that people consume should say. It's percentage of this all percentage terms. So percentage change in the quantity divided by percentage
change in the price. Now again if this seems very technical and I can imagine almost everyone, hearing it is not going and taking out some paper and writing and writing things down right now. And as I said, in one of the pieces that I wrote, I just went and searched all Twitter. And there were like 100 uses per year on the entirety of Twitter.
And yet, this is the variable that you really need to take a strong stand on. If you are specially supportive labor market regulation, you need to be very convinced that this number is that this number is actually small, but you need to believe. This is a small number that you could raise wages a while, you would have a large percentage change in the wages. I would not lead to any noticeable percentage, change in the amount of Labor.
The people want item and again, if you're like well you're still falling asleep. So look, you can't fall asleep. If you think regulations, good idea, you got to have a very specific belief about this or else what you're doing is clearly harmful, even from your own point of view. I do have a piece where I tracked down estimates of what
this is, right? And a pretty standard estimate is something like negative .25, which basically says that if you can push wages up by 4%, Is reduce the quantity of Labor that people want to hire by about 1%, alright? And you're like, hmm. All right, is that I lat? Well, it basically means that if you've got say unemployment at 7% the you could get rid of it if wages would just fall by 12
percent, right? And if you remember that three percentage points of unemployment is really difference, between it being super hard to get a job and super easy. So it's kind of thing where when you appreciate it's like wow. All right, it's not that huge of a deal to have a world of Full Employment right now.
Of course we have such low levels of employment doesn't seem relevant but you know, sooner or later and yeah, probably not only my guess is after the election unemployment is going to be going way up. When it comes to discrimination, you had an observation regarding illegal immigrants. What is what is important for us to understand about discrimination? If we look at the case of illegal immigrants. Yeah. Great question. All right.
If you just think about all of the groups of workers in American society that people feel comfortable complaining about, so comfortable that you would just loudly talk about it standing in line at the grocery store without looking over your shoulder to make sure you're not offending. Somebody like almost no one is going to go and start complaining about Chinese workers or black workers or gay
workers. And yet, people will at the grocery store audibly go and say these goddamn illegal immigrants right now, what do we learn from this? What we learn that there is a quite high level of negativity towards illegal immigrants. A lot of People do not feel good
about them. They are unhappy with them on a pretty deep level and yet and yet, if you were to go and tell people well given how much people dislike illegal immigrants, we don't really need government to do anything about this because obviously employers are human beings, they won't like illegal immigrants either and therefore they won't hire them. If you imagine making this argument in the derision that you would receive, You'll Think, of course, employers will go and hire them.
They're out of there. Just trying to make money. Money. I actually agree with that. They say, hmm. Well, if that's what you think, if you think that even a group of people that is, widely despised will still have very little trouble getting jobs because employers are after money, then what is this a about all of the other kinds of discrimination that people worry about? What does this say about the actual necessity for having any discrimination laws?
They say it gives us a pretty clear answer which is that discrimination laws are actually at most use Best useless because they are stopping people from doing something that they don't really want to do which is to go and hire less qualified people when they could hire more qualified person.
If you most employers, it's not that they sit around saying God, I love illegal immigrants, those soul of the earth, it's more like I can get a better worker for a lower wage if I go and hire illegal immigrants, so though it kind of bothers me, leaves a bad taste in my mouth. I'll do it anyway and we should expect that people would have a very similar attitude for any
other. Of the people think is being discriminated against except of course milder because illegal immigrants being probably the most despised group are getting the. We're getting the worst evil eye and yet even that is not enough to prevent them from getting
work. And on top of the evil eye, I think there has to be legislation in Arizona because on the front of so many businesses, you'll see we enforce this standard know it, we don't hire illegals because this law says if we you know hire them, it's what we get furniture instead of it has been a Federal Regulation since I believe 1986 that said that actually imposes fines on employers for hiring illegal workers. And then there may be Additional state level sanctions as well.
Yeah, this goes back to basic idea of the economic discrimination, which is, if you really want to have discrimination, has to be government required. It's not enough for government to say you can discriminate, if you feel like it, if you want discrimination, your government to say, You must discriminate whether you like it or not. That's obviously what's going on with illegal immigrants? Where the government says you better? You better or you be harshly, punished, you better put up
these signs. There's going to be finds that could be jail time. We're Watching you big brother is watching you. But again, if you think that that's the kind of thing necessary to ensure discrimination against illegal immigrants, then you'd think something similar, it would be necessary to get discrimination against women or blacks or gays in my own view, is the real world. Right now is one where there is government enforced discrimination in favor of black
slacks women and gays. I'd such the that employers are in fact, nervous, if I hire people solely on their merits, I'll get in trouble because People will say that, my work face. Remember, force is not sufficiently diverse and get mad at me, and, of course, not just mad. The law will come down upon you. There was an interesting moment in the debate between Jimmy Carter, and Ronald, Reagan in 1980.
Where Carter says, what we need to do is start enforcing the Equal Pay Act because at this time women get about 65 cents on the dollar for every dollar that a man makes and then like the next day, I heard, Amy Schumer, I've at the Oscar saying, they hired three women to host because it's still cheaper than one man. Now, Lies the average person actually believes that this is true.
That literally a man and a woman work, the same job, create the same value, same effort and they pay the man a dollar in the woman gets between 60 and 80 cents. For every dollar, first of all, what is the intellectual response to that? Is that true or false? Second how is this scam been pulled off for decades, right?
There's something really bizarre about this because if this is true, then every employer in the country entry should be able to make an enormous profit by firing all their mails, replacing them with equally qualified women for lower, pay, and pocketing the difference right now. I suppose that's logically possible that could occur, but it is a pretty amazing get-rich-quick scheme that any dummy could understand. This is not saying we have to go and take the logarithm of something.
And in order to go and make more money, this is just saying a fire all your men, replace them with women and you'll make tons of extra money. Like that is what I will let the with us. Is really saying, in terms of the data, what we actually see is that if you simply go and compare single childless, men and women, with the same level of skills, same same education level. They look the same on paper that the earnings of the two groups is virtually the same and has been for a long time.
This is without even making a lot of other adjustments such as well. Women with college degrees are really the same as men with college degrees because men are a lot more likely to do stem, were you?
Unreal useful skills and women are a lot less likely to do stem and instead learn something that you don't ever need to know for any practical purpose in terms of how this scam has been going on. Well there's the scam of paying women weigh less than their worth and I'll say there's just not much sign that scan has been going on.
I get more looks more. Like what has happened is women were really low paid when women really though, scaled and as women have increased their skills, their pay has gone up if you think of the scam as making a lot of false accusations. Nations against employers for discriminate against women when they're not. Well that's can probably is preserved by the level of intimidation in our culture.
Against someone that says, what I'm saying, people are afraid to say this kind of stuff for fear of having their heads, bitten off, obviously by women themselves but also by male feminists and sympathizers and not just on the left. These are things that people say when they want to go and win votes from moderates, anyone with a mom? Like they'll like doesn't like hearing this kind of thing. Right. And yet the evidence is very
strongly. That it's true in an Ideal World. We just wouldn't have to bring it up everyone. We take it for granted and no one would be mad about it. The problem is when people start flinging false accusations against the entire business world, really, what can you do? Other than say, look, this doesn't make me sound good, but I'm not mad about anything but nevertheless, the story just does not check out. It doesn't check out in terms of Common Sense and it doesn't
check. in terms of the numbers, I've had this conversation with one of my relatives and every time no matter what I say, it's just an intellectual exercise for me at this point because she's never coming over. But no matter what I say, she'll just be like, I was reading Walter blocks explanation in 1963. I think and defending the undefendable. I go. This is how far back the LIE goes and she'll just chill.
Just listen. And she won't interrupt me, she goes, but how could they keep saying it if it wasn't true? So, I I love your your explanation. It just it seems like maybe I'm too sensitive. There's a lot of self-censorship to you know you'd actually get yelled at very often people could actually be nice 90% of the time and yet the one chance in 10 that a person is going to bite your head off will leave lead very psychologically normal. People not to say stuff it's
like, well I say what's true? And they don't mind. I don't really get anything, but I say what's true and they do mine. Then I get my head bitten off, so I'll just keep my mouth shut. What? Exactly? And it am I too? Am I looking into it too much to think that it's sort of vilifying men? I don't mean to throw this victim card, but if I were to say these, the thing about Asians is they earn is white CERN, you know, 80 cents for
every dollar and Asian earns. If you look at the average income and the average Jew earns a dollar for everything. So not a Western European Ernst. I mean that is I would not want anyone saying that about any group, isn't there a little vilification there? Well what I would say is it's mostly the tone yeah right look at this is this is just the way that life works. You can say two sentences and how you're using the same sentence, two different ways in one way. No, normal person.
Wouldn't it would take anything amiss? And another one people will be very upset. It's electone, is it matters a great deal? So if you know, someone says Jews are earning a dollar fifty for every Our a gentile earns just in the were just in the pronunciation of the word Jews. That's one where people will flip out and someone's gonna get mad and rightly.
So, yeah, don't excerpt me on the other hand, if you just say, and we will juice on a dollar fifty for every dollar Gentiles learned can say it in that way, and then I'd say, like, no, sensible person would think that you would any negativity about it. They would just say, all right, that's interesting. Why is that That then you could talk about it. Say, well, there's a lot of
reasons. We'll know what's going on, you like only a messenger here and maybe I don't really know, but I'm not going to find out better because someone is breathing down my neck for saying something that offends the most high preventable person in the world. And that's what I like so much about this book is it's not just a straightforward, great communication mechanisms it.
It's like you really value the readers time, which I feel like, I don't get that with a lot of authors straight to the point. And then on to a new topic, and every little article, what are there? Like, 30 or 50 chapters in this thing? Your productivity. Yeah, yeah. So I learned something and every little chapter and my time is appreciated. I'm not going anywhere with that. Besides the fact that People should buy the book and thank
you. Well, I got seven more books in this series coming out eventually. So eventually I want a lot of your time Keith but in any one sitting I don't need much. That's good. What? One of my favorite articles is involved, you discussing social desirability bias, two quotes here, the key economic Point, Banning Resorts saves no Mexican children from Hunger. Banning Resorts would rather call Cause Mexican children to be hungry by depriving their parents of the best jobs, they can get.
You go on to say at this point, it's tempting to and those, let's just have a dialogue about this. The demagogues have their view economists have theirs. Let's try to reach a consensus to this. I at once a dialogue we don't need no, stinking dialogue. Why would you not want to have dialogue with someone who just wants to consider the possibility of regulating
Resorts like this? The problem with a dialogue is that some views are true but they just sound really bad and other views are false, but they sound really good. And when you have a dialogue between those views, The View that is wrong. Generally wins out. I've been you multiple debates, we're just realized there's really no winning this debate because the true position to sounds. So awful it would be debate about really is person, X too fat.
There's only one answer that sounds good, which is, no, of course not, they're great. The way they are, doesn't matter how the person is actually doing. There's still this problem of. Hmm, I sound like a real jerk. When I say this right? You know, there are many areas right now. We're regulation is very low. And yeah, if you just imagine a dialogue, there's almost no doubt where it would come out if we had a big dialogue about pornography, The arguments in favor of pornography, do not
sound good. There's like, well, a lot of people really enjoy it and it's the best job option for the workers. I wouldn't want my kid doing it, but there's a lot of jobs that wouldn't want my kid doing. Alright, that's the case for a the case, against just give every horror story, every awful thing that you can think about every really like, yeah. We're like just imagine like these. There's this horrible kind of. There's that horrible kind of porn. What kind of a world are we living?
It in like who's going to win the debate? Obviously the person who goes and list, 100 horrifying, forms of pornography is going to crush it in the eyes of the audience and yet the arguments in favor. Pretty good. Actually and the other stuff is mostly just inflammatories, like well, yeah. This isn't sound too good. Yeah, but still with a bunch of people and Charlie, the people were delivering, it don't seem to mind.
Like, how is this, my business doesn't sound like a good argument, but it's a good argument. Bernie Sanders and Alexandria. Cascio Cortez were in the headlines this week for speaking to Amazon workers, who are trying to unionize. I hate to say workers as though entrepreneurs and investors. Don't work, such a lie. So Bernie and AOC are talking to these people. And Bernie's big point you are up against a guy worth a hundred
and seventy billion dollars. One guy has all this money piled up. So when it comes to I want to take his First, when it comes to one guy, having a hundred and seventy billion dollars and these other people earning $15 an hour. What is wrong with? Oh gosh, we have to sacrifice one guy and redistribute his wealth boohoo. We could help so many other people. What's wrong with that way of
thinking. Wow, we just to start the fact that the customers really rich does not mean that his labor demand elasticity as low as to go back to that previous technical concept, but to put it in simpler terms just because you're rich and could easily afford something, doesn't mean that you were going to ignore the price. There are plenty of Rich sheet people in the world.
And if you take the price of something and you raise it a lot, even a rich, she person real cheap person who is Rich will say, well, I can live without it. I don't need it. Thinking about my dad, my dad is loaded but he literally wears Rags really does. He wears t-shirts that are ripped like a 18 inch rep? And he just walks around like that he doesn't care. Like could he afford? I'm going to get new t-shirts.
Of course, my dad could afford 10,000 new t-shirts, doesn't mean that he's going to ignore the price when he decides whether he wants to go and get new t-shirts. The same goes for any business. The fact that they totally could Afford. It doesn't mean that they will be insensitive to the price. And that question about sensitivity, the price is really the pragmatic one for whether you want to go and push for more. Second point is that even though a person can be worth billions?
And yes, you could say, hey at this point would be really easy to go and just expropriate them hand out their stuff to a bunch of people. Need it more and that would be great in the problem is that this hat leads to very bad incentives, over the longer, run in such a world Who would ever want to amass that kind of money in the first place? I did a world where no one can become a billionaire.
No one wants to work hard. Not to become a billionaire like or course also in the real world, people try to figure out ways to own billions without officially owning billions and there's plenty of ways of doing that. My you'll say well, look, will you just think about the Catholic church? I'm I did my favorite part. My favorite caricature of a see, someone living very well in the Vatican is oh, I don't do anything to church. Owns at all. All right.
So similarly, you can just have the wealth, the owned by the business and not be officially owned by the owner, and then he can still live super well without in fact, legally, being in possession of it. So that's another very easy way that people can get around it. But, yeah, like it comes down to imaginable, where no one can go and become a billionaire. What is this due to the efforts of people to go and come up with new ideas and do new things and improve things.
Again, the idea that no one needs More than a billion. It's like, Yeah, Boy, sure no one needs more than a billion. No one really needs under thousand. You can survive on way less than that. Doesn't mean the Mone money is not motivating. Not only to the individuals concerned, but all the people who are in what we can call a tournament, the tournament to become really successful. This is I don't think that I talked about in library Converse of the world.
There's something in labor you can call tournament theory. That says that one reason for having high salaries for top, people isn't just a motivate. The top people is to motivate all the people who think they have a shot. Shot at becoming that top person in the same way that the prize and athletic contest. It motivates more than the winner and motivates all the losers, too, because you don't know who's going to be the winner for sure until the end,
Do you see that? There is a complete lack of not sure if appreciations the right word but recognition as to what the innovator entrepreneur investor actually does. Because it's as though they say this, as though, one day, you know, things were falling from the sky Bezos, got 170 billion. I could have gotten it just as easily but he sort of got this
as a result of happenstance. If you had to explain to people People the value of say the entrepreneur or the value of the planning that goes on behind the scenes managing, what would you say to that person? I would start by looking at other cases that have nothing to do with business because people have so much resentment have been to get about business. It's hard to start there, I would say. So, what do you think about the people that made the Moderne
covid vaccine? You think they did something really good? What they did impressive good? Anybody have done that or only some people I do. You think there were a lot of other smart people who are trying really hard, who just didn't make it. I think I can pretty easily get yes this to all these kinds of questions and then say, all right well, so why is it so hard for people to actually come with a vaccine? Well, you need a lot of knowledge. You need Insight, you need diligence training.
You need some luck to, of course, put that all together. It's a very hard for me. Laughs for figuring that thing out this a great to know why? Because it's an intellectually extremely difficult task. So. Okay, how about making McDonald's? Is that something any dummy could do? Right. Hmm. Well, it's just Burgers, isn't it? It's not just Burgers. There's a lot more in McDonald's than just Burgers a lot more than just going and setting up
one restaurant. You go and watch a movie like the founder about the creation McDonald's, you realize. Wow, there's actually an enormous amount of intellectual effort that goes into making one successful restaurant. Now, the official theme of that movie, by the way, was that the guys who really All the ideas got ripped off by a sit by me or salesman who showed up realize that a good idea and then rip
them off. But if you watch the movie with a more reasonable mindset, you realize, look, they're the guys who could the first McDonald's, they did a lot of great ideas but they were terrible in marketing, terrible, and scaling, and Ray Kroc was great. At those other things. He took some other ideas that people had, which were not his own and he combined them with a bunch of other critical.
Cool ideas. And even he actually was not make money in four years, he needed to spend a lot of time tweaking that formula until finally hit Pay Dirt for every person like that. There's a lot of other people that are really smart and try really hard and never succeed. This is something where you just have to go and try a lot of ideas out, a lot of people if you trying in tandem to get the success, the reused to there were a whole lot of vaccine
ideas. They got tried bunch of them succeeded there's a you don't hear about the losers but no doubt there were many Losers, that just failed. You might say, we're the losers weren't? They just too smart. I don't know. Probably, they weren't quite as smart. Maybe they got lucky. Maybe they had some other advantages, but the important point is that running a successful business is actually extremely intellectually
demanding. It's not something that anybody could do. Furthermore, it's not is in some one way, one important way it's much harder than science, which is the ones you figure out a scientific result, it stays true forever. Once you figure out a great business model, it does not stay. Great forever. Very quickly, other people may be borrowing your idea, improving your idea, you might only have months or maybe a few years you're lucky of using your
idea. Before the whole world has copied you and then improved and you're left in their dust. Yeah it would see you. My are you old enough to remember Blockbuster Video? Yeah, that would go every week Blockbuster Video. I still remember the whole country was Blockbuster sprouting out with these giant optimistic signs. We grow again and then they vanish into nothingness. I get one point.
Blockbuster was an incredible Innovation and then it turned into a dinosaur in not even a generation and like, 10 years, it went from being the main people place where people were getting were able to choose movies to the Dustbin of history, and it'll actually very demanding task. And one more someone who's smart enough to start it, still dependently was not smart enough to transform it to adapt to changing conditions. That's That's what business really is. Like, whatever I have done
anything business. See my admiration for people were actually running successful. Businesses goes up another time another notch because it's likely you'll officially I'm smart. I've got fancy credentials. I got a lot of connections and yet even going and selling a book of my own. He's actually very hard. Very discouraging. Just imagine how hard it is to do something really well. Yeah, it's like it would those guys they got something. Something that I had at least not demonstrated.
Maybe if I devoted my whole life to running businesses, I could do it. But then again maybe not. Maybe I could give it my very best shot and totally fail. I'm grateful that other people do that. So I don't have to I think that's so important because if you look at right after Karl Marx and the Communist Manifesto says, look at all these great things capitalism has done for us just in the last 100 years. Josh, think of how much better.
It's going to be once the workers are calling the shots as it like the greatest example of static thinking, you've ever you've ever come across? It's like, if we drastically changed the primary, decision-makers things will continue in on their current trajectory that Just so shocking to read. I had to read it. Like, I checked two copies to make sure that line was translated correctly. Yeah, that is a bizarre part of
the book. I mean, it's essentially reverse, empirical, reasoning of saying, you know what's going to be the best system ever. The system that didn't create all this incredible progress, you don't. System is going to be terrible. Is going to be seen to be terrible real soon. The system that did deliver. Like, wait a second Carl, you know, the best predictor of future success is. Past success. The best way forward is to stick with the system that has worked
so far. Not to go and dismantle it in Fire and Blood and then trust in the promises of people who, as far as we know Karl Marx, never even visited a factory in this whole life. Angles did of course, he was a factory owner when we talk about, how should this economic issue be approached. A lot of people will say, well, we have to look at the studies, and look at the research now, I really appreciate people who take the time to do this.
My question is, do studies give tyrants too much leeway. For example, you might look at something and say, okay, it's good. So what we need is for the government to fund more of this good stuff. It's really bad. Well, government needs to step in and improve this under almost any scenario of you see this big Magic Money printing machine. As having no - downside is, is empiricism a way to sort of just open the door to tyrants who control the media, who will spin any study any way they want.
Ultimately, I don't think so. Here's the thing, you have to ask, well, what would the media be doing? If there was no empirical work, they shut up. No, they would not shut up. What politicians do if there was no academic research on any of the topics they want to talk about? Would they shut up? No, they would not shut up. They would just make stuff up or engage in. Poetry. Think the of the real story of almost all empirical academic research, is that it's irrelevant to the real world.
It's basically a way for professors to go and get their dream jobs for life. It's a way to establish an academic pecking order. It is true that doing this kind of research is one of the better ways of getting a high-ranking position as Actually in a democratic Administration, but once you're in that Administration, nobody cares about your studies, all they care about is that you're on the right team and you need to seem smart and say what people higher
up want to hear? It's really what's required. So, yeah, I think that the actual relevance of empirical work for making the fruit for creating tyranny is pretty darn low. You know, if you just think about something like covid, like, you did Empirical research on covid, actually. Cause the enormous overreach Action to covid. I don't think you can fairly say
that, you know why? Because the over reaction happened before, there's any evidence in really like there was like wheezing of the of the world economy was shut down before there was barely time to do any actual barracks. And then what happened? Well, the empirics that were done were of the among the lowest quality you can do just the observational study writer an often worse often. It's like, here's a paper showing that this policy works. Why we? Model.
What a model is to empirically tested, it's not just a model and then say this model justify something, you can always come up with a model of anything. So that's pretty ridiculous. What was not done during covid, as far as I know in any country so we have UK is finally done a little bit but during the serious period nothing was done. Is a voluntary human
experimentation? Let's go and actually show you how go, you know so we will your voluntary, paid you a human experimentation and in particular paying people to go and do things that are dangerous Yes, of course, vaccines were voluntarily tested on people, but only in a highly inefficient way where you didn't give them vaccine and then you wait three months and see where they got covid. There's a much better way of doing it.
Which you can the vaccine, and then you deliberately expose people to covid and see whether the vaccinated people were deliberately exposed. Who you Suzie? Oh, Sue was a, whether whether to vaccinate people will be exposed or less like a developer or not. And then you got an immediate measure this way. You could know about vaccine efficacy and a month, instead of
three to six months. I'd say this is a case where I think empirical work would have actually been a big improvement over was done like good, empirical work and the same thing. Like I think it would have been great if we done real empirical work on masks ones, where we actually randomly selected, some people with masks some of that out and then put them in a room with a lot of covid.
And saw what happened? That would have been a way back, big Improvement. And again, honestly, I think that the most likely outcome would have been the mass, don't work very well. And in perhaps, the experiment wasn't done because people, feared the truth.
Well yeah well but we need to do something and then if it turns out the masks aren't really very good and the end probably if the mass could come out saying that mask wearing reduces infection by 1% people would have said just said, well if it saves one life, that's good enough and even then it would have mattered but I think it probably would have been helpful for quelling. The true hyperbole follow you. Like you want you, you want to have mass death in schools and that kind of nonsense.
Yeah. So overall empirical work. Greatly overrated by people who do it because they just think That it's much more influential the real world than it really is. Although I mean, if you really talk to them, there's there's there's not even with a miracle researchers, this, a disconnect where they said, well we why do we need to do this o because it's so important to answer these questions. Yeah. But who actually in politics listens? Yeah. Well, I guess kind of, no one
whoops. So anyway, that's what are the with the active researchers think? Anyway, it's it's so it's overrated by them but I think it's about to go and blame it for what's wrong with the world. I think that's mostly pretty. Be silly. Bad stuff is going to happen regardless because people just want to do bad stuff. Yeah, and even the CNN dr.
Lena, when has come out and said that masks are little more than facial decorations at this point, you basically have to get the vaccine if you want anything, so two years of Lies. Yep. No apology. Just just run over the body and just keep driving. There are some mercy cheese with ink with the, I think least lean a little bit in the direction of does a little bit. But yeah, well I don't like five or ten percent that would still
be my guess. Ultimately, I think I've read the summaries the studies and read the studies themselves but I'll say that puts me in the top 1.1% terms of how much potential people who pay to actual evidence. But is he a like five to ten percent? This is not worth it for the for risk of this kind. It's crazy. The book is labor. Econ vs. The World essays on the world's greatest Market. More questions for you dr.
Gatlin. Thank you for your patience with me in the year 1800 versus the year of 2020. To adjusted for inflation wages have risen. In that time we've seen a lot of unions. We've seen a lot of labor laws, we've seen the government involve itself in education. Therefore, this we know is the method of getting low wages to become higher investments in the population and unions coming together to Lovely, bargain for higher wages. True or false false?
What's true? Is that some of these things might have some small effect, some of the time that's very different from giving these regulations government policies credit for anything close to the whole thing. Here's the knockdown bulletproof argument. Look if we just went and divide it, all of the income in the world in 1800, by all the people it would have been a pittance
compared to what we have today. So clearly the main thing that is mattered is increasing productivity per worker, it can't be anything redistributive. It can't be anything where we're taking money from business to work or Rich to poor the math for that totally does not add up. We have greatly increased production per person. So anytime there's a law that is re distributive. You just can't give that more than a most at the moment you can't give it any more than a
tinier. A share of the credit almost all the credit just goes to increase production in terms of whether these These laws have had any positive effect at all for workers, this is where you really need to go and consider them one by one. And look at first of all the basic Theory, common sense. But also the numbers for something like unions. Here's the main thing that we can say, unionization Peaks around. Let's see. I want to say around 1950 and then it's been falling ever since Yeah.
Well there were a whole lot of fantastic years for for wage growth long before unions for anything noticeable. And there were a whole bunch of great years for wage growth as unions were on the decline. And that's just what we see. All right, so the idea that unions are somehow. Crucial look, if they were crucial wages, should have been going down since 1950. They went up, right? So, that's pretty crazy. Right? For things like education, that's one where I do have.
Book on this and I say that just to understand what's going on. Step one is you have to look at what schools really teach and when you realize that what most schools spend their day on as nothing to do with real life, the idea that education has been an important part of increasing the size of the pie or raising productivity per worker is just crazy. Most of the day is not spent on literacy or numeracy is spent on else. Yeah. Spent on arts and crafts and music and history.
He and his poetry just a bunch of stuff that has nothing to do with almost any kind of actual production. So the idea that that was important is pretty crazy. In my book, I go over a lot more of the details. What was going on? We really can see is that when people who desperately want to find that education is crucial for economic development. Look at the numbers. They struggle to find the effect. They struggle to find it. You know, Haiti desperately
poor. And yet he is now as educated as France was and like 1960. I just going and put it having kids sit in chairs and be talked at is not the path to economic progress. And you know what is the path and really learning by doing is what's critical? I say again get those multinationals in to go and get them to bring you up to the frontier of the modern world of business. That's what you really want. Yeah. Hmm. I love how you make that point in.
Just one quick sentence at the beginning of the book, it's increased production and competition. Like, I just love The calling them dogmatic is, you know, belittling. But it's just these one sentence answers that, hey, we've been given one in one sentence answers from their side for so long. It's about time. We get some push back here. My favorite really? Like here is one thing that's really crazy. Look, the any of the minimum wage is important for Rising wages.
Look, only a very tiny, share, the workforce earns, minimum wage. You think that lawyers are making more money because there's a minimum wage for the janitors in the same building. Obviously, the vast majority workers are getting paid way above the minimum, so the mineral couldn't possibly matter for them. I'd it's more complicated saying is the minimum wage has it helped anyone but the Eichmann to give it credit for much of what actually happened is, just off the wall.
One of my favorite sentences in this book page 149. Suppose you could have a Princeton Education Without The diploma or a Princeton diploma without the education. Which would you choose? What are the implications of
that question? Hmm. Yeah, and I don't remember, they said it there, but one of the things I often add-on is. So if you want, if you even have to think about this question, you agree with me, because my point is not that the answer is clear, but that it is unclear, which means that the effect of having the pure effect of having the diploma without the education, people already think
that it's big. The point in the background is this a lot of, the reason why education pays is not the e-learning useful job skills and school. It's that you get a stamp on your forehead or what economists, call a signal. This doesn't matter very much from the point of view of the individual workers like well if I want to get a good job, who cares, whether I learn skills in school or was I just get the stamp on my forehead, which allows me to get the job. But from the view of society, it
matters immensely. A society can prosper if the work force becomes more scaled Society, cannot Prosper because the work force becomes more stamped. If everybody has more stamps, the result is this credential inflation where you need more stamps, even to not get your application thrown in the trash for a better job. I like that point about credential inflation because it explains the downside of something like subsidy. So you have two quotes here, insofar as the signaling model
is right. However, government support for college impoverished Society by sparking a credential list arms race. You then continue on the next page. If one laborer gets more irrelevant education, he outruns the competition but if the whole labor force gets more irrelevant, And education societies time and money goes down the drain. What can credential inflation? Teach us about the subsidies.
Yeah, well subsidies are a great way to get more credentials latian, you just to get an idea about how bad this is in 1945. The average American over 25 had about 40 less years of education. How many for you for Less years, right? So basically right here with a high school degree back then was like was about what a college degree is. Now it's set you apart not enormously apart but it put you in about the top quarter of the
population, right? In terms of Education which meant that many managers, many people with high status jobs, just at high school degrees in those days. Those all the you needed when people have looked at individual occupations, what they found and get a lot of this work actually comes from quite left-wing sociologists who are just empirical. So once again, you don't do not be quick to dismiss the empirical work for understanding
the world. It's not going to change policy and Shelly. But in terms of improving, understanding useful, anyway, what they found is the large majorities rise in education has not been reflected in people, doing higher, tech jobs, or space-age, type jobs, or information, or Information, Age type jobs.
A little that the main thing that's happened though is that jobs that have existed since 1945 and again, probably since the year 45 BC or just done by more Highly Educated workers, it's now very common for waiters nice, restaurants, have college degrees for Uber drivers to have Judge agrees for cashiers to
have college degrees. This would have been almost unheard of in 1945. But when there's a lot more people have the degrees with the stamps in the forehead, this raises, the competition means that employers can afford to be picky. And say, why should I go and interview someone to work in my fancy restaurant? Who hasn't even got a college degree?
So, if we look at the downsides of subsidies, if I run a class and instead of having, you know, people either by their way, in or getting, any means through a voluntary method, if the state then subsidizes free college like the military's free government pays for it. It now I have a ton of students who otherwise wouldn't have been there. Good. You might be giving people opportunities. But the downside I'm thinking, are these people going to be as passionate?
I'm getting a lot of people, so I might have to decrease the criteria for what an a would give someone. So I have to lower the credentials. So now everyone is getting a worse off education so I could find a bigger common denominator. I mean, how many professors are going to say? Well, the I'm not changing the standards, everyone in the class has failed. Are their professors, that will do that, just to prove a point, maybe in math or physics.
There's a few people like that. That's sort of the last Bastion of absolute standards even there. I don't really believe it except for an occasional true. Eccentric mean, I do think that the definitely the typical Professor is as much as much better off because of this regime, because it means they have a job. And in the end, if it weren't without the subsidies there, just what those positions wouldn't exist and then they have to have a real job. Well, I don't want a real job.
You know, like how many real jobs are there? I could just go and take an hour out of my afternoon to go and talk to you about this book, right? How many jobs are there where I could get paid to write this book? Very few but because of all the subsidies the system is swimming in money. And then these opportunities exist, important to remember. There's a big distinction what's good for buying Captain? What's good for the world? I don't think that public.
Subsidization of higher education is good policy. It's terrible policy but I'm honest enough to say it's made my life a lot better and maybe I would have been one of the lucky few. You who would be at Harbor or something, but probably not and then I'll be stuck at have to do this as an invocation rather than as my calling. And is there anything to the concept of changing who the producer is accountable to? So, if I go to the restaurant,
hey, this food is disgusting. Hey, the waiter was rude. I'm very likely to get a positive response from any restaurant that I've been to with, I mean, microscopic exceptions because I the customer have the leverage but if their money instead came from the state, then I wouldn't have Leverage, they'd say well in four years vote for a different guy who's going to appoint someone restaurant commissioner.
So they could then improve its. So it's almost like what makes this so bad subsidizing things decreases. The quality is you're increasing the amount of distance between the producer and the consumer. Is there anything? Here are my just taking on things that I already don't. Like, there's definitely something there but it's more but it's actually more complicated than all that. Here's the thing. If it's the government, Really just hands money to the producers.
Then your story is great if the government hands money to the consumer and then the consumer can spend it the way they want. Then it's less clear, why? The these producers would be so unresponsive because they still need to get the customer to spend their money there in order to get it right? So for example, the alike with food stamps, the way the food stamps work is you give them to a customer who then takes them
to store. The government is the ultimate person that pays for it, the ultimate Oreo the ultimate payer. And yet if the customer is unhappy, with the way the grocery store treats them, they can still complain or take that, take the food stamp someplace else. But then you go and take a look at college and you see hey, like even private schools actually seem to be highly unresponsive to what customers want. Let's just say that my kids college.
They recently denied my request to be able to stay in my son's room overnight. They previously granted it but this time they said no and wise as well we just decided not to Grant any rain, any of these, any more for the rest of the year. Why like why are you treating a so shabbily? Like, what's the problem? Like my dad wants to stay with us. Really like, we're two board. Brothers were roommates. We want him here and yet you're just saying, no and we pay to be
here. We pay for the storm. Why are you? Why do you act in this horrible way? Right? And with and what I can say honestly, is that what higher education most of the CEOs, least a lot of the subsidy they get? For example from student loans, they do come from a student who could take the student loans to
go someplace. Else. And yet, they still are stubbornly pigheaded, Lee horribly unresponsive to what students actually want and what's going on. See part of it is that they have a lot of these schools have giant endowments such that they could just, they could lose a ton of a ton of customers and everything would be fine for it because they could, they could basically stopped charging tuition and still never got a business. Just live off the interest, the
richest schools? Are that rich, right? So partly, they've just been given, too many. Donations, that allow them to be oblivious or rude or just very rude and insulting to the people that are officially their customers. So there's that think another part of what's going on, honestly, is that the main customers are children and children are very confused about what's going on in the world and you are not good advocates for
their own views. So there today, tend to actually just accept whatever they're given, this is the way that children are so yeah. I mean, I don't think that you can really understand pathologies of hi. Education, without realizing that, the main customers our
children. Right? And similarly, I don't think you understand the pathologies of case 12 without realizing the main customers are not students that are there are there, the parents and the parents on the one hand, if you're running a private school, the only you need to be very concerned about some kinds of things, especially stuff that upsets mom's. But on the other hand, there's a lot of other stuff where you can do whatever you want, because
Mom's, you don't care. And the kids are not the ones that pay the tuition. The book is labor. Econ vs. The World essays on the world's greatest Market link will be in the description below. Dr. Kaplan always a present pleasure. Thank you. Thank you very much Keith. This was very, very this was great fun. You see you thank me for my patients but no patience is required because this is a thrill. Thanks a lot Keith,