 Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I'm Trevor Burrus. And I'm Aaron Powell. Joining us today is Richard Epstein, the Lawrence A. Tisch Professor of Law at NYU School of Law and the Director of the Classical Liberal Institute. He is the author of many important books, including Takings, Private Property and the Power of Imminent Domain, and Simple Rules for a Complex World. His most recent book is the Classical Liberal Constitution. Welcome to Free Thoughts, Richard. It's great to be here. I'd like to start with a broad question. There are many types of libertarians slash classical liberals. We talk about them a lot on this show and on libertarianism.org. We have your Rothbardian deontologists and your utilitarians. If someone was to ask what is the Richard Epstein type of libertarian classical liberal, what is that generally, what kind of worldview does that encompass? Well, it certainly is a worldview which is in opposition to the two positions that you just mentioned. In terms of the hardline classical liberal position in which the sole duty of the state is to prevent the use of force and fraud, the classical liberal tradition goes much further, and it allows God to be sure of various institutions like taxation and eminent domain which are forced exchange against individuals who have committed no wrong. So in terms of the scope of government power, working out the implications of a taking's principle, private property may be taken for public use, but only upon payment to just compensation, is a huge endeavor. It's a more complicated world than the one you see in the hardline libertarian view, but it's more faithful to the kinds of enduring social institutions we have. You don't have to, if you're a classical liberal, explain the mystery of public highways and private property. What you do is you ask the question, what's the best way to finance them? How is it that you create access rights from private property to public property? How do you put the network together and so forth? And the other thing is the deontological position is always a mystery. I recently wrote a paper called Smart Consequentialism, and its purpose was to attack the Kantian mysticism associated with the idea that there are certain rights that are so inherently necessary, true, and inevitable that simply to observe them is to demonstrate and to justify them. And it's not that there aren't rights which are extremely powerful and so forth, but if you're going to try and justify them, it has to be at least in part in reference to the sorts of consequences that they generate. And once you put the word in part in there, it turns out it's very difficult to prevent the part from becoming the whole. And what that means is if you get a systematic system of consequentialism that respects the strong Kantian institution of the separation of persons, then you should be able to do the whole ball of wax. And so when you talk about the utilitarian tradition, there are two halves of it. One half is the so-called aggregate utilitarian position in which you think you could kind of treat happiness as though it's building blocks and figure out which is the largest pile and that becomes the greatest happiness. If you're in the Parisian tradition as I am, what you tend to do- Just how you mean Pareto, correct? Yeah, Pareto. That's Vilfredo Pareto. He was something of a fascist, ironically, in his political views, but he did develop criteria for social welfare, which essentially solved, I think, the problem of how it is that you go from individual preferences to social states. And there are two central notions there. One is the notion of Pareto optimality, and this means that you're in heaven, simply heaven, i.e., if it turns out you're in a Pareto optimal position, the only way you can make anyone a better office to make somebody else worse off, at which point you don't want to move from this. This ignores the problem of dynamic equilibrium in which everything is changing, but at least it gives you a conceptual frame. And then there's the notion of a Pareto improvement. Then what that says is whenever you have to compare two states of the world, if there's one which leaves everybody as well off as in the other and makes at least one person better off, then you prefer the second to the first. Now what this does in effect is it takes everybody's preferences, weighs them equally. It means that no utility monster can wipe out any other individual. And so my recent work on Kant is sort of to argue, if you're looking at his categorical imperatives explaining why everybody should be treated as an ends and not as a means, it maps very nicely into the Parisian theory in which what you're trying to do is to create worlds in which you constantly move things to the better. In my own work, however, I think that in many cases the Parisian requirement is too weak rather than too strong. And what do I mean by that? There are two basic problems that you have to face when you put together a classical liberal constitution. The one is the Parisian problem, how it is that you prevent one person from being compromised or wiped out in the name of general social improvement. That is, I think, part of the Kantian instinct. And then the other thing is suppose you have what we call loosely speaking a positive sum project. That is a situation whether you're measuring in utility or in wealth in which you're going to create large amounts of potential gain. There is now a very difficult second order question is how do you allocate the gain? Because the simple paraded rule does not answer that question. You could give it all to one person or give it all to somebody else so you could divide it in any which way. The competition over gains is in fact the source of waste. And so what you need to do is to develop rules which can limit that if you can design them. And there are two ways in which you have to think of it. One of them is you're dealing with private bargains. You let the people decide what's good in their interest and if the surplus is allocated one way or the other, you don't try to cross-examine that. The only way in which you control dominant surplus for one individual is to let a little competition come into the market which will bit it down. And so you become generally agnostic. But on the other hand, if you're using coercive government programs, you can't be agnostic about these things. And so what you tend to do is to move to a system which says, look, what we're going to try to do is to figure out how we could prorate the gains between the parties. It's a nice focal point equilibrium. And not only does it move you along a unique path, but it tends to avoid the problems of social dissipation of wealth. So your intuitive notions of fairness equals be treating equals turns out to have a very powerful functional justification once you start getting into the gains. And then by extension, it works in the losses. If there are certain kinds of social projects which inevitably have to be undertaken and now your job is trying to minimize the total losses, if you could allocate those prorata, then you avoid competition in the domain of losses and you will minimize the total size of the harm that will start to take place. So if you put this all together, it turns out that the government is going to have to do things by way of taxation and by way of regulation and by way of condemnation. And these things will be judged by the way in which force is used. And the sort of model is we wish this force to be used by the state only in those circumstances where it provides net benefits to all concern. And then you try to divide the surplus equally. Now, can you achieve this? Can I ask one quick question about this? Sure, I can ask two questions. So when we're talking about these consequences that matter and maximizing utility and minimizing harm, on the one hand, we could simply use wealth as a proxy for whatever that utility is. But that's probably unsatisfying in certain areas. So instead, you have mentioned well-being. And so what I'm curious about is how we know what well-being is, if that's the thing that this whole system is in place to maximize or at least increase, I mean, is well-being synonymous with preference satisfaction? You're asking all the right questions. First of all, do we want to use the wealth side or do we want to use the utility side? And for certain large-scale operations, the verdict is in. There is no way you can have an income tax on wealth, which is based upon utility. I mean, so you start to go around and say, well, you're happily married. We're going to tax you more. I've got a liquidity problem. I have to tell you. So you can't do that. And so what we do is we do tax either income or consumption and so forth. And the general classical liberal preference on that is you try to make it proportionate to wealth so as to avoid the conflicts over surplus in the matter that I talked about. It's just a classic application of the pro-rata rule. And if you do that, it will have all sorts of desirable consequences. Namely, since everybody has skin in the game, it will tend to reduce the willingness of people to create various kinds of public benefits if other people are going to have to bear their full cost. So that's it. But now when you get to these private contracts that I talked about, I mean, is there a relationship between well-being and preference satisfaction? And the answer is surely yes. The question is how tight is it? And so the basic instinct is you have two people, each with a wealth-defined set of endowments, and they wish to engage in an exchange. And you follow the Hobbesian insight that you will make the decision as to whether or not you surrender what you surrender is worth less than what you receive. And I will make the same decision. And if we both can do our sums correctly, what will happen is each of us will pronounce ourselves better off than before and be ready for either consumption activities or further exchanges with other people. So you want to use the objective manifestation of preferences as the guide, because otherwise you then have to meddle very, very deep. But it's like every. On that point, because the objective manifestation of preferences, presuming that they engage in this exchange so they must feel better off, is the reason, I mean, that's often wrong. Yeah, and I was about that. Yeah, is the reason that we want to stay away from that because the alternatives are worse? Always. I mean, first of all, do you have robust beliefs that people have stable preferences? And the answer is no, but in some settings, yes. And so you do in an area in which you want to have strong and rapid exchanges. You can never allow intraceptive introspection or regret to upset them. So if you want to go on to an exchange, you have to understand there's no backsees in that game to quote the famous phrase from a bargain for Francis. I don't know if you remember that book. I learned that in the playground. Yeah, but no backsees. I mean, it becomes the rule of finality. But when you start talking about contracts, in some cases, you're not in exchanges. And when you are in exchanges, what you do is you have entry tests in order to get there. So you have to pass a certain examination. Because the fundamental rule is if you wish to have rapid and almost simultaneous exchanges over large quantities, everybody has to be a professional. And you can't allow amateurs into that particular road because they will gum everything up. And one of the big mistakes of the securities law in many cases is to insist that the small investor be able to compete with the large guys. And 50 years ago, that was plausible. But once you start getting quantitative methods and machines in there, no small guy can survive. And so you tell him, all right, you want to play, play. But you have to play by the other rules. Otherwise, invest in a mutual fund and let somebody manage your money who actually knows what he or she is doing. And that is probably the better way. But one of the fields that I teach is medical ethics from time to time. And the model of rational behavior simply does not work with six people facing their last illness and family difficulties of all sorts. And what you realize is you have to slow down the situation and diffuse the authority. And you start getting doctrines like informed consent. You can't do something to a patient until you tell him or her exactly what's going to happen. Half the time, they don't understand because they really are in compromised positions and their mental faculties are down. And so you start bringing in the relatives. If the relatives can't do the stuff, you get an ethicist at the hospital who's going to sort of stand proxy and so forth. And so if you actually look at the common law, it's very good on this point. It understands that for normal situations, the robust assumption of self-interest and manifestation of preferences works quite well. But when you have people in compromised circumstances, the doctrines of undue influence take over. And they use that phrase and it's very useful. Undue means excessive. It's certainly involved with the possibility of fraud and other kinds of misconduct. But it's also, the person is vulnerable and so therefore suggestions can have undue weight, excessive weight with them. And so you have to be able to counter that. And the answer is one of two things. One is you have to act like a fiduciary to the person, which is inherently difficult to do. Or you tell the person you have to have independent advice so that when you deal with a business transaction, you're represented by somebody who can take your interest better than others. And so you don't wanna get yourself into this position in which everybody is perfectly rational all the time because you only discredit the way in which people look at you because they've seen too many counter instances in the world. What you want to say is we can tell you arenas where the strong self-interest assumptions work very well indeed and we can make institutional arrangements for those cases where they don't work. And we've done this for hundreds of years that nobody has said when the doctrine of influences, undue influence developed systematically in the equity courts in England and around the 18th century and so forth, people said, aha, socialism is at the door. I mean, it just wasn't what was happening in those kinds of cases. There are many, many settings where this takes place. The first course I ever taught in law school was estate planning and it turns out that's not the right title. Estate planning deals with the way in which the money goes back and forth. The new term is a little bit softer but actually strangely more accurate. Sometimes they call it elder care. And what they mean by that is it's just not the wealth transfer that you're worried about. It's durable powers of attorney, for example, whether or not institutional care is gonna be needed, what kind of do not resuscitate orders you put or put not into place when the critical care situations and so forth. I mean, in the end we all die, sadly, as it may sound, and it is sad, but there are ways to go which are better and ways that go to worse and what you're trying to do is to ease the transition for those who have to part this world and for those who are left behind grieving over their loss. And we put these things into place and if you're gonna be a classical liberal or a libertarian, you don't wanna be dogmatic about infinite confidence of all people in all places. The first thing you do before you pronounce generalization is you sniff around the world and look at various kinds of areas, see the way in which things have been traditionally done. It's not that you accept them slavishly but you then ask the question of why are they doing this and once you talk to them and figure out the answer you could say, you know, this is another one of those cases where the people in the business for a very long time know more about that particular business than I do. So my job is to learn from them about the particulars and then build it back into the general theory because I'm a theorist, I'm not an empirist. But as opposed to the idea that someone would say, well, what we need, cause you said, well, we have a tradition of dealing with different types of choices where people may be less than rational which is a huge amount of discussion like, for example, labor law, coercion, things like this. Well, that's why you don't want that discussion. Yeah, so the wrong, let's say that someone would say, well, we need a government department that comes in. Right, well, let me stand in between the... So a conservative, like a Birkin conservative might say, we can assume that people are rational actors but we're also beings that grew up in this body of cultural knowledge that goes back thousands of generations and that it's not just that there's undue influence but we can act out of, say, ignorance about consequences in the sense that Aristotle thought that moral teaching was lost on the young because they simply don't have the life experience to make the right decisions and so we need to basically force them to make the right decisions until they know why. So does this admit a role? Do you have children? I do. Do you use the word force? No, but I'm putting myself in the mind of the conservative mindset, so say something like... Or the progressive mindset. Prohibiting drugs where you would say, look, people make these decisions but we know from enormous cultural experience that people who undertake using, say, hard drugs later come to regret it and so therefore there's a place for government as the embodiment of moral wisdom, call it, to step in and say, look, we're gonna prevent you from making this decision and you'll thank us later. It's a parade of, it's not, it stopped that transaction. Let's go back. We're talking about vulnerabilities. I stress vulnerabilities towards the end of life but there are also vulnerabilities towards the beginning of life and guardianship relationships are generally there and interestingly enough, there is no government in the natural law tradition so the guardians tend to be parents of people whom the parents appoint if they're unable to serve and they're supposed to take that function and of course it's extremely difficult to do so because there's always gonna be cases where it seems easy and then there gonna be lots of cases as kids gets older where there's a conflict. The kid is absolutely confident they know what to do and somehow or other you don't say it and you could try to have a standard for guardianship which says when a child reaches suitable age maturity and judgment they're free to make their own decision and then try to litigate whether 14, 15, 16 or 17 is that for any kid? Or what you do is say, now this just does not work. The way the law will do it is it will set 18 as the age and what the parents should do is if they have any sense when the kids are 14, 15 and 16 is to slowly play out the string and the rope so that people get more choices and they can make the transition easily. But that of course is why life is hard because sometimes these things start out and it works smoothly because there's a lot of coincides of interest between parents and child and then what happens is you get some really neglectful parents, you get some really bellicose children and it may well be that some other institution is going to have to come in. The legal standard on this can be stated in three words. It turns out to be whether or not it's abuse or neglect. Trying to explicate both of those terms particularly the second one is an entire field of law. So what you're doing as a classical liberal thinker is you first understand what the boundary problems are and then you recognize that the transitions are gonna be difficult and if you do that then you can avoid some of the sort of endless dogmatism that's sometimes associated with hard line libertarians thought where everything turns out to be evil white or black. It turns out in a world of these transitions everybody probably goes through two of them in the normal lifespan and each of them has its awkwardness is associated with it and the theory about institutional adaptation is you're trying to figure out ways collectively and individually on how you do this and the first move I said parent rather than state is a Hayekian decentralization move because different parents with different strategies will do different things so common mode error will not blow you up in the way on which would on the other situation and then you use the word force and I tweeted you a bit about that and the reason is is we all of us who've been parents understand that force is the last resort that there have to be lesser modes of example and persuasion and argumentation otherwise it turns out the family becomes a prison and you can't survive that either and so what you do is in effect you sort of spend a huge amount of time in trying to teach and you know you do it in different ways in the Epstein household my wife was always on the effective side you know getting along talking listening and so forth I was always the teacher well it's now time to do the violin how about a little bit of math and so forth you know and you know it's not as though either alone is going to be sufficient or that each of us did only one but not the other but it's very clear that parental instruction on both moral and on various subject matter items is an extremely important part of that mix and the basic rule is that forces always understood to be in the background but if it's used too frequently then it's a disaster and as we said the compromise position is a modest version of what you might call false imprisonment known as the time out you have to go to your room for an hour and cool down and then we can come back and talk about all this stuff and you know that's a command that's not a request and so forth but it gives them chance for reflection and it's a kind of a punishment which they can ask it were worked their way out of so there are a lot of things about that So kids are total introverts in which case sending them to the room is a blessing but then they're not going to be the ones who are going to be hitting and killing those sorts of other kids but no I mean a classical liberal tradition has to worry about this and it's interesting if you remember and go back and read Locke I mean he has chapter five on of property and then I think the next chapter is on parenting So what can we learn about government Is there a question about interposing government in free choice for drugs on a conservative side or interposing government in free choice on say choosing a doctor, getting a license you're not allowed to just choose any So what can we learn from the parenting situation and the use of force about government? Essentially what happens is parents have a commonality of interest with respect to children and what you learn about government is by virtue of the fact that it's distant and impersonal and subject to bureaucratic imperatives is that you're very reluctant to substitute government in for private choice unless there's a manifest failure in the private choice system which is what drives an abuse and a very narrow conception of neglect associated with this and that this is in fact the correct way to do it and so when you start thinking about education it may well be that public financing is necessary if you're worried about inequalities of wealth I'm not on these points and I'll explain in a second but if so you certainly don't wanna create public school monopolies which can be taken over by particular groups you wanna have open entry by any and all sorts of people some based on religion, some based upon techniques some based on shared philosophy or some based on expertise like I wanna run a music and art school and I'm gonna do that I don't wanna take people with tone breath and things of that sort and you let these things spread out Now the question is do you need public support for this and you know one of the things that I think has to be remembered is that literacy in the United States in 1840 was virtually 100% and public school systems were nowhere to be found Well what is it? It turns out if you don't have state provision the cost of private provision is much lower because it's an unencumbered non bureaucratic situation and if you wanna think of what the modern equivalent is it's the homeschooling movement which starts out as a homeschooling movement mom and dad teach everything and then it kind of evolves somebody says well you know we cannot have homeschooling and still have a baseball team and so families in the same neighborhood get together for some purposes and not others and then we say you know it would be better since I know math if I teach that to your kid and you teach English to my kid and what we do is we have a kind of a swap and barter type situation and then somebody says you know if you think about this for a while here's an instructional manual which will start to tell you the way in which you might want to sequence learning in this particular field and now these things start getting distributed and slowly through increments there's this whole network that comes up by way of support for the homeschooling parent and when you put all of those things together what happens is it becomes a viable alternative to the monolithic public school but was it was it was viable in the 1840s in part because the opportunity cost to women of homeschooling was quite low because they didn't really have opportunities to earn outside the home but in our modern society where they would be giving up careers and often highly paid careers is it as much of an option? Well it's grown hugely as a movement and so clearly something is odd there and you know in fact I think that's wrong because modern society at least in an unregulated situation also gives you infinite amount to flex time and flex space so you don't have to go into the office and work 40 hours a week at a desk you could work at home and as the kids are doing your homework you could do your correspondence on email and so forth with respect to your job and so the ability to integrate these things given the flexibility of technology means it's there and that's why you have so many people who do it and you know the fathers who are working full time in the traditional model they may come home and they'll do something after work as well and so I don't think in effect that this is a dead model and if you're right about the point it's not a reason to ban anything it's just a ground to predict that it would be less successful and then you'll get something like the charter school movement which will work on pretty much the same basis of the voucher movement. The point that I meant about the homeschooling is that if in fact you allow this thing to grow organically as it often does the cost becomes sufficiently low that it turns out the need for public subsidy is reduced and in fact ironically start throwing the public subsidy in then you have to inspect to see that the money has been sent to the proper purposes and so slowly what starts to happen is it becomes more costly to do this sort of thing at which point the subsidies now become much more necessary than they would otherwise turn out to be. So I mean I don't think at this particular point you can go back to a world in which you sort of ban all forms of public education and so forth but it does suggest that decentralization and privatization is the way to go and that if you do that the level of coercive subsidies that are demanded through taxation and otherwise will start to shrink because the private forms will be cheaper cost providers than the public ones. They won't have a duty to hire unions for example and they won't have to spend the cost on collective bargaining. Well why is it that unions hate charter schools? We know what the answer is. They're more efficient competitors and so in the typical fashion if you put them out of business by state regulation or you lose market share and hence union dues and we know what the imperatives are if you're on the union side which is why it is that the public co-option problem is extremely dangerous and that decentralization turns out to be one of the answers and to get back to the book for a second on classical liberal constitution a large part of what the book is doing about on federalism is to figure out what stuff can be decentralized to the state and basically all forms of general productive labor can be done so like manufacturing, agriculture, mining and the like but what things have to be kept open at the federal level and that tends to be interstate transactions of one sort or another where you're worried about the common path being shut down and balkanized by given state action. Yeah, before we get to that, I wanted to speak because I think we had a good little segue there because we were talking about when should the government interpose itself between free choices that are generally considered to be Pareto optimal and what when so with parents and children into schooling and what's the difference between government and parents and then we get to the constitution and before we get to things like the commerce clause I wanna talk about the philosophical shift and one of the lines you write in classical liberal constitution is that the greatest challenge to the original constitutional plan comes not from the inevitable and salutary historical adaptations but from a conscious reversal of conscious reversal of philosophical principles on the proper role of government. Can you talk about that change and then how that change created a constitutional corruption of kind of inner putting the government in between the choices of people? Yes, of course I can. I mean, if you go to the original constitutional stuff it was driven in it by a political theory which started with some estimation of individual psychology, then tried to work out the voluntary interaction and then tried to go to the question of statecraft. So, you know, both Hobbes and Locke for example very much into personal psychology, personality formation and so forth. And essentially what these guys thought was that most people were relatively self interested but not exclusively so in part because of the family situation and in part because of what Hume called in his wonderful phrase there was a form of confined generosity. Meaning you're willing to help somebody else a little bit but not a huge amount. And what you try to do when you form statecraft is to channel the self interested impulses into productive fashion and to exploit the confined generosity to create the social ethos which will allow this thing to come together. So, you build a government out of hope to some extent and skepticism on the other and it turns out that it becomes a limited government. And then the question is what's the techniques for running the limitations? And well, the first of these techniques is that you don't allow one person to have the keys to the doors themselves. So, it's called separation of powers and you consciously create three branches of government which different functions and sometimes they cooperate, sometimes there's an exclusive here, sometimes there, sometimes there's a check and balance. And essentially the theory is that if there's a strong social imperative, you'll get very strong popular sentiment in favor of it and the procedural obstacles will not stop the thing from happening. If on the other hand there's a great deal of division among some particular coercive measure, separation of powers is a rough way of weeding out the bad systems because they won't get sufficient supermajority support to do things right. Then you have the layer question, federal and state. This is not a uniform question because small countries federalism makes absolutely no sense and you need other forms of division but in the United States where you had a bunch of colonies that were accustomed to doing business with the crown, essentially Washington is the replacement for George III and we're familiar with working federalist kinds of arrangements and then you have to have an allocation of function. And the last piece of this at least on the government side is there to some extent a way in which you want the federal government to define, give not direct control over states but to have the ability to limit the ways in which states deal with their own citizens. And this turns out to be the struggle over the 14th Amendment. If you go back to the original Constitution it was a devil's bargain in one sense because to keep the system alive you had to preserve the institution of slavery or there's no deal. And so we have very explicit provisions that protected the fugitive slave cause and the three fifths cause and so forth but it's also should be understood that other things were designed to protect slave institutions in the state including the commerce cause and the privileges and immunities cause. The commerce cause says, you know, you got to open stuff up to commerce everywhere and if you start doing that it means you can't discriminate against things that are made by slave states when they ship it across state lines and this was well understood at the time as being a feature of the union. They couldn't stop it from moving into interstate commerce and they could not through Congress abolish slavery on the individual state. And the privileges and immunities cause is exactly the same thing. Citizens of one state can go to sell their goods in another state. It means that a Northern abolitionist state could not discriminate against a Southern state which has slave practicing institutions. Now it turns out when you get rid of slavery these protections actually extremely important for keeping a free society but they were always tainted by what's going on in terms of the historical origin. Then you add in all of the guarantees of individual rights which again are anti-concentration arguments. The takings clause is designed to make sure that we don't get a wreckage coming out of selective government action which wipes out one person for the benefit of others or wipes out one group for the benefit of another and that goes back to the Parisian principle that I talked about earlier. We develop out of nothing essentially a doctrine of unconstitutional conditions which is determined well there's gonna be something that you want and we're gonna condition on something you don't want you're willing to take both i.e.'s positive sum to you but you should not be able to impose the condition. What do we mean by that? Simple case, yes I can use the public highways I'm told so long as I agree to waive my constitutional right to free speech. We don't allow those kinds of bargains. The reason we don't allow them is people will take them and it may well be in the individual case it's perfectly rational to give up your freedom of speech but if everybody turns out to do it you now have government through waiver which turns into a tyranny and so what you learn is that freedom of contract is not an ideal when you're sitting with a government monopoly out there and this whole doctrine is designed to protect individuals from making deals that in fact are in their own interest to do so and that's to preserve this corporate of surplus and that's why the doctrine develops so you get all of this stuff together. Now you come and you get the progressive ears and what's the change in times? Well the villain of the piece I think probably the worst president of the United States in terms of his long-term philosophical influence as well as his short-term behavior. I guess Woodrow Wilson. You got it right. Roosevelt was a second generation guy and was actually a little bit more pragmatic in many ways than Wilson who was a very dogmatic Princeton professor and arch-segregationist amongst other kinds of things and his attitude was in the modern times government expertise, administrative awareness and so forth means that we have to bring the German model into the United States and strong centralized authority finds that traditional views of separation of power and federalism are a mere irritation that we have to overcome and exactly what the program he tried to do so the first progressive movement took place in 1913 when he takes office and it has many unpleasant features to it segregation of course is one of them large state aggregation of powers is another and so you start seeing the Clayton Act and the Federal Trade Act coming forward and so forth with really comprehensive government powers then they exempt unions from the antitrust law under the Clayton Act because they're my friends not my opponents and their collective actions are always benign even if they're in violation of as it were the Sherman Act. So you get all of that. He's the one who remember runs the Palmer raids he's president, Schenke and Abrams are the free speech cases that come up. Eugene Debs. James Debs gets thrown into jail for a speech he makes at the Socialist Annual Convention and the conviction is upheld and Debs is pardoned by Harry Doherty the Attorney General and the Warren G. Harding. I mean, you know, so this monolithic model is there. I might add that many progressives were really very attracted by the whole eugenics movement which was very big at that particular time and it reached its apotheosis in 1927 when Oliver went to homes on what one might say was a very bad day. Describes three generations of imbeciles as being enough and then engages in forced sterilization. So Wilson was somebody who was so confident about how this thing would go that he knew who the good guys were and the Constitution was now an obstacle. And so what you have to do is to figure out ways that you undercut it. And, you know, there are many willing people in the Eastern elite institutions like Harvard and so forth in Columbia and Yale at the time were all too eager and what do they do? They chop away at every part of the structure. Well, respect the separation of powers. That's not a problem. We'll create independent or not so independent administrative agencies. We'll give them the power to prosecute, the power to form rules, the power to judge. They can pretty much run the show because they're run by experts. And of course, these are the most politically riven and corrupt institutions in the United States. The three to two majority flip-flop problem is enormous. And my view is even today- You mean three to two on like a BORB idea? Yes, like the NLRB has three Democrats and two Republicans. And of course they tend to divide on party lines which shows you the lie to the expertise notion. This is all bias and you look at the stuff they're doing. It's typical contract dispute negotiation. And their expertise turns out to be being lousy contracts lawyers. That's their expertise of this stuff. They can't do this stuff. Or you take the FCC and well, they're lousy property lawyers and so forth. The famous, there's a wonderful kind of contrast. You get, you know, Felix Frankfurt who is one of the spokesmen of this movement, a high IQ, wildly overrated guy. And in 1943, he's faced with the question as to whether or not administrative delegation to the FCC to allocate frequencies in concern with the public interest convenience and necessity, whether it does allow the state to do more than be as Frankfurt called a night watchman to simply make sure there's no physical interference across frequencies. And he says, of course it is. They not only do they have to set the rules in a row but they could determine the composition of the traffic is what he said. It's the same here that Hayek writes virtually a year before. Hayek writes the road to serfdom and which he says, you know, the great genius of a highway system is if you put this thing together and run it well with entry and exit ramps, you can have a highly efficient system even if nobody knows the purpose for which anyone at any particular time wants to go on the highway. You set the rules of the road and then the traffic will figure out what it should carry and so forth. Those are two radically different distances and Frankfurt was profoundly and alterably wrong with respect to this. His method to find out what public interest and convenience and necessity did was never satisfied. You run these hearings and it's just, it's a kind of a situation where somebody says, well, I'm absolutely wonderful because I'm big. And somebody else says, I'm absolutely wonderful because I'm small. And somebody says, I'm absolutely woke will be wonderful because I give you a local perspective. And somebody says, I'm absolutely fabulous because I have a national point of view. And so, you know, you put these attributes together and there's no way in which you could make marginal trade offs if you just sold the frequencies off or gave them away. People could then subdivide them in ways in which you would figure out through market experimentation where the national was more important and local news was more important than music and so forth. And so, this is a huge retardant that takes place with the kind of hubris which starts right with our friend Woodrow Wilson. Now, who was the guy who put this into effect? It was Herbert Hoover. I mean, Hoover was a progressive. I mean, the Federal Communications Act. The Federal Radio Act in 1927 was certainly one of it. The other thing he did that year is he put together a model zoning statute which he couldn't then act given the understandings about the Commerce Clause, which was assumed to disappear. And zoning became an ordinary part of the world in 1930. Then they had about 45 states or 30 states doing it. By 1940, it was all over. And the Supreme Court in a case called You Good, it was a Republican Sutherland who said, oh, isn't it wonderful that we zone out people whom we don't like from our particular kinds of neighborhoods? What do I mean by that? Well, there's a famous sentence in there in which he says, you have a home area with single family homes. We don't want these parasites, i.e. apartment houses, moving into our neighborhoods. He uses the word. It's not Epstein who uses that stuff. And if you're a believer in the classical liberal constitution and you watch everything going completely south in all of these cases, what you come to the conclusion is you're not going to try and fix the system by massaging some of the points, changing the burden of proofin and rational basis test, and so forth. This is dectares on the Titanic stuff. What you have to do is to talk about these two visions and say, one of these guys got it right and the other got it wrong. So on the right and wrong, so in 1918, the Supreme Court, in an older version of the Congress clause, a more limited version of it. Cameron Dagan Hart? Yes. They make a decision that says that the Congress does not have the power to prohibit items made by child labor from moving in interstate commerce. On one view, this is a complete free market fundamentalism run amok that's not caring about the social effects of legislation, just allowing these things to go through and not thinking that the government has any power to do anything about it. How do you respond to that? Oh my God. Cameron Dagan Hart is one of the three or four most important commerce clause cases. And it was 5-4, Holmes as usual was in dissent, Holmes as often was wrong. And let me see if I can explain what's going on here because this is the unconstitutional conditions problem come again. Holmes' attitude, and he was a literalist on this, is these are goods in interstate commerce. Congress could regulate interstate commerce and end the story. But what's the regulation to be slightly more precise about it? The regulation says that nobody is allowed to ship into interstate commerce any goods made by any company if it or its affiliates at any point in its operations uses child labor under 14 years of age. And North Carolina had a child labor law at 12 years of age. And this is what's happening. If you can basically condition the shipment of goods into interstate commerce on what you do prior to interstate commerce, the game is over. What's the benefit that you get from running child labor between, say, the ages of 12 and 14? Well, it's clearly positive in some sense. Otherwise you would not do it. And it's also a state which thinks that it's OK for you to do this, in part because they may be under sufficiently hard-pressed circumstances that it gives them a comparative competitive advantage in the international market to be a little softer on child labor. Now what happens is the only way you can do this is to give up access to interstate markets. Well, if you're in the furniture business and you're in North Carolina, you're probably selling 90% of your goods out of state and you're wiped out. So essentially, you either capitulate or not. Well, you can always ratchet up the consequences on the interstate side so as to essentially dominate everything on the interstate side. It's a classic use of the commerce power as monopoly power with an illicit extension. And Justice Day, who wrote this opinion, understood that homes did not. And you just start thinking about the way in which you go, you cannot ship into interstate commerce. Any goods which turn out to be made with environmentally sensitive issues, i.e. fossil fuels. I mean, you can now start to do that. You can stop it. So what you have to do is to limit the doctrine to those cases where the things that you ship into interstate commerce are apparel to interstate commerce. So you can ship goods into interstate commerce in containers which are likely to break in shipment and spill pollution all over the landscape. So the basic theorem, and it is a theorem, is you can stop with the use of the commerce power, the shipment of things into interstate commerce if the consequence that you're trying to prevent occurred. You could then punish it, i.e. the leakage of the fuels on the ground. And one side understood it. The progressives did not. And in Derby against the United States, good old Justice Harlan Fitzstone had no idea what was going on about this thing. Overcomes it because he's convinced that all these labor statutes, the Fair Labor Standards Act in particular, are only designed to protect workers, quote-unquote, completely naive. So then the American experience, to some extent, is the experience of a failure of the Constitution to create a government that is actually limited. I mean, we've just told how these things, even a government of laws is ultimately a government of men. And if the men want to go about undercutting these limits. So this loops back to when we were talking at the very beginning about the contrast with, say, other kinds of libertarians, who take the Rothbardian anarchists. I mean, part of their argument is, you say you want limited government, but you can't have limited government. Once you have a government of any kind, we kick off this process of growing government that keeps aggregating more power to itself. And unfortunately, it seems the public wants it, too. I mean, the public opinion seems to run to a government that takes more to give away more goodies, or as we're watching on college campuses to a government that cracks down on kinds of speech and association we don't like. So is there a way to actually institute a government that would be limited outside of hoping that classical liberal ideas have persuasive power? Let me give you the alternative. Suppose you decide, yeah, this is always gonna be subject to vulnerability. It did take 150 years for it to kind of subject itself to serious collapse. So it's not as though it didn't stop. You don't have a government, somebody will put one in its place. And those guys will be much worse than the framers. So I think all things considered, you wanted to take a sound structure which is subject to deterioration and then try to maintain it as opposed to have no structure and then let the enemy put in a system which is gonna be beyond bad and so forth. And then the second question is, has it all failed? And the answer to that question is no. I mean, what is so clear about it is that the judges are themselves schizophrenic. And in at least two areas, they tend to believe in competition as an ideal. One is they are very astute at stopping state barriers to interstate trade and competition under the so-called dormant commerce cause. This actually is a judicial invention because the founders did not actually understand how passive the federal government would be in removing state barriers to international trade or national trade, which is what the commerce cause was in part about. And this was a judicial creation and it is held not perfectly, but 85% durable, which I think is a great achievement given all the possible ways that you could go wrong. And so they see the breakup risk and the balkanization risk. They don't see the monopolization risk by the federal government. And of course, all the great cases that expanded the scope of the commerce power, most notably the decisions on labor and on agriculture were in favor of a progressive model in which there was a democratically appointed group which then set the prices in terms of trade for a cartel. The agricultural statute works exactly the same way as the labor statute. Farmers get to vote on total output and then the government implements the quotas which separates it first by state, then by county, then by farm. Like the raisin cartel. And that's like the raisin cartel or like Wicked and Filbert. No, it's actually the raisin cartel is a state cartel with external effects on other states. The agricultural cartel, since grain has grown everywhere, is a nationwide cartel. Horn, it's just the state of California with a huge control over the market taking advantage in the export market just the way that happened in Montana with one of the coal severance cases where they had huge dominance in certain kinds of minerals and it allowed them to extract from people elsewhere. And the Supreme Court on some of these cases has been very bad and it was very bad on the raisin cartel. There was a case in 1943, a very bad year, Park of E. Brown, in which what happened was it was the raisin cartel and somebody wants to attack them on the Sherman Act that these guys are cartelizing and it was Justice Stone again clueless on this point who said, well, this is not a problem because it's a state organized cartel. And of course to somebody like myself, wait a second, you got it backwards. Private cartels, if you don't enforce them will tend to degrade by cheating. Public cartels can be maintained forever. You're telling me that the Sherman Act wants states to create permanent cartels as an implied exception and this proves that the argument that state power is more important than economic principles and what makes it peculiar grotesque is that this is a cartel selling in the export market to other states. So it essentially, the federal government is allowing one state to extract rents through cartels from everybody else. It was a very bad day in American Constitutional. I think that's the case, the American Agricultural Marketing and Investment Agreement Act in 1937, but the first line of that act is nothing in this lodge will be conserved to violate the Sherman Antitrust Act, which is usually a bad sign. Of course, but it's not, well, they say that. They don't really mean it in some sense because the whole scheme is a cartel. Roosevelt was extremely smart on this particular point because he was viciously anti-monopoly, as was Thurmond Arnold. And the basic point was monopolist of big guys and taken after large corporations fall strongly within the progressive tradition, whether or not they have market power. And so the progressives essentially thought that size rather than monopoly was the dominant issue, which meant that they had a convenient whipping boy. But cartels are in fact at least as great and maybe a greater danger, particularly if they're state-sponsored and cartels are much less efficient than monopolies because they have distributional constraints. They have to allocate some portion of the production to all farmers, some of whom are highly inefficient. And a monopolist would shut down the inefficient outlets when it does its production and keep only the good ones going. And so you get this cartel and politically a cartel is stable because it could get widespread support from farmers and agricultural states whereas a monopolist doesn't have the votes. So cartelization is economically a disaster but politically a winner in many cases. And that was the genius of Roosevelt. And you just look at these statutes, one after another from the 1930s, they were cartel manufacturing. What do you say the genius of Roosevelt, the genius for political survival? Okay, you're not supporting the cartels. No, I mean, and you know, there's a long libertarian classical liberal debate as to whether or not private cartels should be enforced. The answer most people have is no. Then there's a question of whether or not you want to chase down cartels by antitrust law because they could survive in secret over which there's an immense dispute. But there's nobody who's serious about this who thinks that the job of the state is to create the cartel and then to enforce its mechanism. You get the horn opinion and Justice Roberts stucks all matters of first principle in the case. But at least he puts a dent into the cartel and has given some language which is very useful in attacking cartels in other contexts if the case ever gets to that. But the fundamental difference between the progressive and the classical liberal is as follows. On economic matters, the classical liberal understands that state monopolization and even private monopolization are a danger and they're willing to take steps against it. But they will protect competition against government regulation because that's always gonna get you to some kind of an optimum. The Woodrow Wilson guy says, well, some days I like constitutional competition. Some days I like monopoly. Monday, Wednesday, and Friday I do this. Tuesday, Thursday, and Saturday I do the other thing. Sunday, thank God, is a day of rest. But if you actually watch what's happening there, they're completely agnostic about all of this stuff. All they believe is that the legislature should decide the question but they never tell you what the legislature should decide. And this becomes completely self-destructive and you get this huge situation. You get the Motor Vehicle Act. You get the FCC. You get the Civil Aeronautics Board. It just goes on one agency after another designed to deal with a cartel allocation. And so they then have to develop a political story that this is really very wonderful. Self-expression of a certain kind of group. Internal expertise. Whatever it is that they talk about, it turns out to be terrible. The difference between Roosevelt's age and ours is we have a president who's very progressive, extremely mischievous, totally uninformed about how these things work in my view. But there's at least a learned opposition on the other side. And look, if Cato really believed that speaking could not possibly influence policy, this conversation would never be taking place. It does take place and we make a difference. Sometimes the difference we make is simply slowing down the rate of decay. But even that turns out to be a benefit and in some cases it may be you could reverse the flow. And in the United States today, I was at the Federalist Society meeting yesterday and you listen to these state governors starting to talk about what it is that they want to do. And they've obviously been to Cato Academy in one sense or another. They tend to be basically relatively hands-on, pragmatic guys trying to figure out how to attract markets with a system of low taxes and stable criminal laws and so forth. They're willing to reform prison systems and things like that instead of saying, well, libertarians don't have anybody in jail. Let's not worry about this kind of problem. And they were by and large pretty impressive in terms of the way in which they directed it. And you can see the impact. There are now 32 Republican governors and 18 Democrat governors. And you even see Republican governors in places as God-forsaken as Illinois where I live. And Bruce Rauna actually understands what's going on. The Democrats understand that he's in danger. They're doing everything they can to undermine him. But it is now the case that you could get Republican governors in Democratic states because they understand that Democratic governments will simply give away the form to their favorite constituency starting with the labor unions. But then we see the question on your panel at the Federal Society yesterday. We see this emergence of sort of the Bernie Sanders idea and one of your co-panelists had sort of said that the Introduction to the National Labor Relations Act reads like a Bernie Sanders pamphlet basically saying, I had actually written down here, the inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract and employers who are organized in the corporate or other forms of ownership tends to aggregate concurrent business depressions by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries. We seem to be where at least some people are finding this to be incredibly persuasive now. Maybe things are going the right way but we're pulling back in a dangerous sense. There's no question that the great difficulty in America is not that people are muddling through. It's that people like Bernie Sanders and Hillary Clinton, I daresay, actually think that that sentence, which is wrong on every particular, should be regarded as the incarnation of truth. At the same time, the classical liberals are going back and saying that this is simply an excuse for something else. So if you pick apart some of the components and say, now, how is it that it turns out that free markets lower wages and therefore reduce purchasing powers? Well, the answer is the wages in a competitive market are lower than a monopoly raised at the first time but if the competitive market is more productive, wages will move up with productivity. And so therefore the thing that you want to do is to have wages move up in the competitive market, which is durable, rather than in a monopoly type situation. Why is that? Because the monopoly workers get increased purchasing power but those people who are excluded from the unions by one rule of another find their wages depressed. If you're trying to figure this as an agronomic phenomenon you can see that the sentence is just wrong. Increasing the purchasing power of some if it results in the reduction of the purchasing power of others does not increase the aggregate amount of wealth. And so therefore what you suggest is a prolongation of a depression by virtue of the fact that total demand is going to be down because of the inefficiencies of the overall structure. They start talking about companies where they confuse there the size of a business with the issue of whether you have any kind of market power and you could have a very large company which has a lot of small competitors in multiple areas it's not going to be able to dictate wages or prices or anything else. It's going to be faced with competition. You could be an effective competitor if you're one tenth the size of a firm or even one hundredth of the firm because that large firm is in 80 different markets and it turns out that they have only a small amount of their resources developed to the area in which you the small company to vote all of your area and you could wipe them out. So this kind of crazy methodology and take a third point they start talking about stabilization. The moment you start hearing that you know exactly what they mean. Stabilization is that we fix prices regardless of market circumstances through cartel legislation so that if it turns out prices are high and demand is low what you do is you get these huge surpluses and then you do the only thing you could do in the New Deal you either burn them or you put them in warehouses and let them rot or you try to find a way to ship them overseas in American bottoms because you can't do anything else to secure the particular imbalance. So stabilization is rigidity, ignorance of changes in supply and demand stuff on both sides of the market and it's a recipe for social disaster. Now the fact that this is very well crafted is extremely comforting but that is economically illiterate is I think highly disturbing and when you start seeing people like Bernie Sanders say that this is what he's about what you realize is that ultimately he's a completely uneducated man which in fact he turns out to be. Now how do you respond to recent calls? I mean this all kind of goes in together with the corporate forum and labor unions and where we are now. Inequality, when people talk about the 1% inequality what is your general response? Well first of all if you start looking at the 1% it's a very heterogeneous group. 1% essentially includes people in the United States whose family income is say about 350 or $400,000 depending upon year. It also includes people with $10 million a year or more and it includes Mark Zuckerberg and his $26 billion. I mean you know I'm in the top 1% thank heavens. I don't think that I have a lot in common with Mark Zuckerberg. I don't have a fleet of private jets. I mean you know I carry my own bags through the airport, I eat at McDonald's. I mean I'm an ordinary guy in that sense so there is in sense just it's a label which ignores huge amounts of heterogeneity. The second thing is the question is where does the top 1% get its wealth from? And the standard label story is they take it from everybody else. And so it's 1% up, everybody else down. Then you start looking about it and what you discover is that these guys essentially had an idea that they can process, multiply and commercialize. Call it Facebook, call it the laptop, whatever it is, the iPad, phone. And what they do is they generate huge amounts of wealth for other people which make their dollars go further and they take a relatively small slice of it for themselves. And so if you see that somebody has earned a billion dollars, the first thing you think is the only way you could get that billion dollars in market transactions is to create nine billion dollars in net benefits to the consumers who purchase the particular goods in question and you then say thank God that this particular fellow turns around there because he's made everybody else better off. The second thing you say is he's got a million dollars, a billion dollars a year in income. You know, he may like fine wine but he can't spend a billion dollars on himself. And so what do you do if you get that kind of money? You sign the Buffett pledge and half of it gets redistributed anyhow by private parties who know what they're doing instead of by a government who turns out not. So you want people to understand about this is the people who have that kind of wealth unless they're bandits or government agents of one form or another get it because they've contributed greater power to other people and you should look upon them and say thank you. And then when it comes to their civic duties, you ask the question, all right Mr. Gates, you got this money, what are you gonna do with it? Well, he does two things with it. He plays bridge, that's fine, doesn't hurt anybody. And he forms the Gates Foundation and he gives large portions a bit away. So you're trying to figure out how the full cycle works. You can not only look at the amount of income that's earned, you have to look at the way in which it's distributed and who gets the next benefit of this and sure enough, if you go back to the University of Chicago where I taught for many years, I was the brainchild of a guy named Harper and also John D. Rockefeller who turned out to fund William Rainey when he did this other thing. Okay, I'm supposed to get upset at Rockefeller because he had a billion dollars and founded the University of Chicago Spellman College Rockefeller Institute and contributed to God knows how many other charities and if he doesn't do it, his kids will. So I don't think you should do this. What about their political influence? Well, we know what their political influence is is that it is not sufficient to withstand the power of in a democracy of the electorate when it gets angry in terms of its votes. So the top 1% or the top fraction of it may have 20 or so percent of the wealth give or take. It pays 40% of the taxes. These guys were as good at politics as you would think. They would have 20% of the wealth and they pay 5% of the taxes. Now it turns out there are some tax gimmicks which are not recorded in these things which are utterly inexcusable but all the people who are after this don't know so little about taxation, they don't know the gimmicks. I know the gimmicks. I teach taxation at one point and you should change all those particular gimmicks on the stepped up basis of death and the partnership allocation stuff and the fake depreciation allowance on borrowed capital. I said that real fast, nobody understands what I'm talking about but that's the point. I could sit down in 20 minutes and explain it to you how these things have been developed and the great racket that you get from people like Barron Buffett is he talks about the rates of tax on taxable income. The real issue is whether or not they're unrealized capital gains that never get taxed so that the rates don't matter. That's where the wealthy make their money. It's not gonna be on the rates. It's gonna be on the vehicles that they use to organize these kinds of system and as a good libertarian, if you believe in proportion of taxes, nobody should be able to shelter a high income in that particular form and then on the other hand, their attitude is look, you're milking me on everything I take out of the system. If you had a flatter tax, you could do it. Now as a theorist, I'm a straight flat tax man. You earn two cents and the apical, or the five cents and the apical rate is 20%, you pay a penny. This is not gonna sell politically, but here's the truth. I can make the following compromise. Give me a two tier system, both flat. The first one's zero. Basically, it's gonna have to stop somewhere around 60 or $80,000, otherwise you can't raise the revenue and then that second tier is flat. So you've got progressivity a little bit and so forth. All the rich people essentially will now know that the flat tax structure that they face for all their marginal decisions will improve their growth potentials and making rational choices and you have some redistribution at the bottom. It's perfectly stable and then you can move that boundary line. That was the theory of the 1986 tax more or less by Reagan and it's the correct theory if you're taken to account both the sort of strong social impulses on the redistribution side and then affect the needs for productivity and the interesting thing about it is even though this thing does have some redistribution, if you talk to serious people of sufficient wealth, their attitude is one of relief rather than one of anxiety. So we can do this, we can do what we need to do with helping things out. We don't wanna be dogs in the manger's. In fact, long before income tax, there was a huge amount of what we call a discharge of imperfect obligations. People would have amount of money and they'd give it to churches and homes and so forth to take care of folks and it actually worked and that's why if you look at Rockefeller, you know, he gave it away, you know. Johns Hopkins was a rich man. Leon Stanford was a rich man and the university got the money because his son died at a very young age and he had to do something with the money and decided to create one of the great research institutions in the world. I mean, if you really wanna treat the rich people as though they're demons and ogres be my guest but the guy who's really being petty is you. I mean, my attitude towards these people is I thank them for what they've been able to contribute to society. I hope that they use the money in a socially responsible fashion but the last thing I'm gonna do given their successes to tell them how it is that they want to spend their money or be upset that they're not doing it and so at the meantime, at the bottom, we gunk up the labor markets with regulation after regulation and sure enough, the position of the median income person goes down under Obama by six or seven percent. That's a big number because it should be a six or seven percent increase. So what you're doing is you're talking about a series of labor policies that make no sense and the way in which you justify silly things in the labor market is that you point to the fact that there are rich people out there who invented Facebook or iPads or whatever it is that happens to be the thing at the moment and listening to that at that conversation, it showed me the utter intellectual bankruptcy of the labor movement. They could never quite focus on their own defects and what they try to do is to divert the constant, the whole discussion to something which is irrelevant to their position and yes, inequality is in fact a serious problem and the way to solve it is to remove the barriers to improvement that poor people face in the form of government regulation which is announced to be their help. It's to get rid of union monopolies in schools so that kids of poor background can in fact get a decent education and it is said, happy and sad, that all of the real supporters of the charter schools turn out to come from the broadly speaking libertarian movement. None of it comes out from the politically active people on the left and that is in fact the greatest condemnation you could have made because it shows that their concern for humanity is really a disguise in many cases for the self-interest and perpetuation of union monopolies. Thank you for listening. Free Thoughts is produced by Evan Banks and Mark McDaniel. To learn more, find us on the web at www.libertarianism.org.