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Russ Roberts - Free Market Politician

Trade and innovation are about finding ways to do more with less to create prosperity for everyone, Russ Roberts says.
Russ Roberts - Free Market Politician

Russ Roberts - Free Market Politician

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Show Details

Show 1711: Russ Roberts - Free Market Politician
Air Date: March 12, 2017

 

Transcript

Rob McClendon: Well, Russ Roberts visited the state courtesy of the 1889 Institute, a nonprofit based on the principles of limited government and free enterprise. And I spoke with him before his talk to OSU students.

Rob: Is the most free market politician, do they tend to become ar-Keynesian more controlled economy once elected and in office?

Russ Roberts: I love it when somebody says, “Well, if you were president what would you do?” And I say, “Well, if I were president,” as an economist, and I would say, “Well, if I were president, I wouldn’t be an economist anymore, I’d be president.” And I’d be subject to the same political forces that they’re subject to, which is helping the people who helped them get elected, helping people they think will help them get elected down the road. So naturally they tend to often sacrifice their principles whether they come from the left or the right, whether they’re free market or interventionists. And once they get in office -- for example, someone like Ronald Reagan was a great believer in free trade, did a lot of protectionist things that weren’t free trade oriented once he was president. He talked a great game, but when push came to shove he often would favor, say, the U.S. car industry over Japanese imports. So it’s very challenging to be immune from those temptations. And, of course, there’s always a story to tell. Oh, yeah, well, that was different, that was a special case. But somebody like Alan Greenspan is an incredible example. People think he’s a libertarian, a total free marketer and Iran devotee. Well, he did like Iran when he was younger. But when he was head of the central bank, he mainly did things that helped banks. Not coincidentally, because they are the people who kept him, tragically, I think, kept him in power. So when it came time to decide between his principles and the banks, he always chose the banks. To take an example, he was in favor of bailing out Mexico, which was really, in the late 1990s, that was really a bailout of the banks that had invested in Mexico and were going to lose their shirts. They should have lost their shirts. They made a bad investment. But Alan Greenspan said, you know, we have to protect Mexico, and there’ll be too much chaos. So suddenly he wasn’t a free marketer, just in that case. But anytime he had a decision like that, he often would choose intervention even though he was a so-called free marketer.

Rob: Let us talk a little bit about the market force that led up to the recession that began in 2008. There’s that feeling that sometimes there wasn’t enough regulation in place. And that’s the reason why we fell into that recession, because of the collapse of the banks.

Roberts: Yeah, a lot of people say we deregulated through, we repealed Glass-Steagall, things that separated banks, investment banks from regular banks. And there’s some truth to that. Unfortunately I think the bigger mistake we made is that we, it’s not that we took our hands off the industry, it’s that we also put our hands on and the way we put our hands on led them to be very inprudent with other people’s money. So for example, going back to 1984, Continental, Illinois, a bank was bailed out. Their creditors were all taken care of, and we did see a series of those kind of decisions that the federal government made over the time period between ’84 and 2008, which led some people to believe that if they made a bad investment they’d get their money back anyway. That made people less careful with how they spent their money. So my problem with the way we regulate Wall Street -- you’ve got a choice. I love a free market system, but that means, when they make a bad investment, they lose their money like the rest of us do as individuals. I make a bad investment, I buy a stock that goes broke, I lose my money. I don’t go to the government and say, “Hey, can I get my money, can I have a do-over?” But for some reason, and we understand the political incentives, when the banks made a mistake, we said, oh, yeah, we’re going to give you a do-over. We’re going to get your money back. We’re going to make sure creditors get a hundred cents on the dollar. So what that did over that time period is that reduced the willingness of people to be prudent. It encouraged them to be risky. When you subsidize risk-taking, guess what? You get more of it. So capitalism should be a profit and loss system. But when you have what we have now, which is closer to socialism for banks, that’s nuts. So either make them, either nationalize them, make it utilities, which I’m against, but don’t pretend you have a free market if everyone’s willing to make a bad choice you bail them out. Because that’s the worst of all possible worlds. That encourages them to be reckless with my money as a taxpayer ultimately on the line. And I think that’s the biggest mistake we made. We have crony capitalism for that industry instead of the real thing. And that’s, it’s a terrible thing.

Rob: Do you believe that free market economy, a free market economy, could actually work in practice and not just in principle?

Roberts: Well, I think it would work in practice. I think in practice it works in a lot of areas where we let it work. There’s some sectors that of course we regulate heavily, subsidize heavily, manipulate heavily, those would be sectors like education, like health, energy to some extent. Other sectors we don’t do anything for, they’re on their own, they work pretty well. I’m not an anarchist, I don’t think you should have no government. Obviously you want government to be a system of courts and contracts. We have a wonderful culture in the United States which we’re blessed with of risk taking, encouraging people to trust one another, which makes our economy better than it otherwise would be, it’s a phenomenal thing. But where do we need government to have a heavy hand is the question? And my answer to that usually is not very many places. I think the system works pretty well when you leave it alone.