 Welcome to Free Thoughts from Libertarianism.org and the Cato Institute. I'm Aaron Ross Powell, editor of Libertarianism.org and a research fellow here at the Cato Institute. And I'm Trevor Burrus, a research fellow at the Cato Institute Center for Constitutional Studies. Our guest today is Megan McCartle, a columnist for Bloomberg View, and author of the new book, The Upside of Down, Why Failing Well is the Key to Success. Why write a book about failure, of all things? Well, you know, the first piece of advice that you get when you go into English class is write what you know. And failure is something that I know intimately, bitterly, and deeply, so it seemed like a good place to start. But also, you know, on the more serious note, although all my failures were pretty serious when they happened. You know, it's sort of the hidden strength of American economy, and of American society, is that we're incredibly good at handling failure. We're a nation of people who left wherever they were, because things were not working out where they were, and picked up and moved on. And it has made us an incredibly tolerant society of failure. We have a lot of institutions that are very good at picking up people who have fallen, taking often quite hideous falls, and, you know, giving them that second chance, the fresh start. So, but I think we're getting worse at it. And so, I wanted to write a book to say, hey, guys, you know, we're doing it wrong. We know how to do this. We've been doing it for 200 years. And let's go back to what made us so great in the first place, which is that we love failure, and we are good at it. Is there a sort of long sort of genesis of this idea that as you've done your public policy analysis, it just kept coming back to you that failure is the running story of everything I'm looking at? Yes. So, it started with a speech that I gave in 2003, and that I've been asked to give just a talk for an hour on anything, which is, of course, the worst sort of talk to be booked for, because you're like, anything, huh? There's a lot of anything. But, so I gave, I decided to talk about failure, and to talk about that kind of, the number of people that you read who say, oh, well, it's over, you know. This terrible thing has happened, and that's probably the end. And then when you actually read stories of business or stories of history, what you are struck by is how many people got to that point, decided it was all over, and then went on to be amazingly successful. So, I think my favorite story is probably Julius Caesar is in Spain having sort of flunked politics at home. He's in the provinces, and he's wandering around with his men, and he comes across a statue of Alexander the Great, and he starts sobbing hysterically. And his men don't really know what to do, because their leader is, you know, having a breakdown in front of them. And eventually what they get out of him is that he is so sad, because Alexander the Great at the age of 30 had conquered the Western world, and Caesar said, and look at me, what have I, I have total failure. I've done nothing. I'm going to die in obscurity, which is, I mean, not he's going to die, unfortunately, in a sad and terrible end. But I mean, before that he was the first emperor of Rome, and rose to amazing heights. Down to people like Colonel Sanders, who lost his restaurant at the age of 65. And that was actually why we have Kentucky Fried Chicken, is that instead of kind of packing it all in, he went on the road with a pressure cooker to rush, talking to restaurant tours, and said, you know, give me five cents of chicken, and I will show you how to make the best fried chicken you ever had, and the rest was history. So all throughout history there are these stories of terrible defeat and ultimate success, and at the moment when you're in the defeat, it's so easy to remember to forget that. It's also so easy to start looking around for someone to blame and to abuse either yourself or someone around you who's failed, and it's really unproductive. And so I wanted to write a book saying, hey, look, failure is just part of learning and is part of life. It is not, it is not avoidable. Some bad failures are avoidable, but the failure itself is going to come to everyone eventually. And if it hasn't, then you're doing it wrong. So I had a professor who once said, you know, if you've never missed a plane, you've spent too much time sitting in airports. I think that was Tyler Cowan, actually. I told you that before. So, you know, it's true, right? If you've never had a failure, it means that you're not taking any work, any risks, and you are spending way too much time sitting around and playing it safe. And how does this work in with markets? I mean, sort of getting to one of the first chapters in the book. Yes. This seems to be highly related to what we talk about on this show a lot, markets. Well, I mean, markets are one of the most amazing vehicles for harnessing failure and turning it into something positive, right? I mean, Joseph Shippeter, the economist, called it creative destruction, which is this process by which old firms, old ideas, old industries die and then replaced by something that's better, that's better adapted for the modern circumstance. But my favorite example, actually, of this comes from Hayek, and he talks about the fact that, say something bad happens in the world, like 10, there's a collapse in the 10 mines, so suddenly the supply of 10 is cut by 20%. And what happens through this process of negative feedback is that very, very quickly the price of 10 goes up. And people start making decisions. So, you know, someone who is using 10 to make their line of cooking pots might switch to aluminum, they switch to something that's cheaper. None of them, no planner said, wait, we've got less supply of 10, we need to make decisions about how we're going to use this. Let's get a committee, we're going to sit together and decide how we're going to use the 10 to make sure that we get the highest value of uses. It's all entirely negative feedback, right? Is that some people see that price and just say, no, I'm not going to use 10, I'm going to do something else because 10 is now scarce. But they don't even know it's scarce. They just know that the price went up and that therefore it's not profitable to do what they did. No one is making an affirmative decision. No one is, you know, sitting down and saying, this is how the world is now going to use its supply of 10. And yet it's an incredibly efficient, incredibly flexible, incredibly creative process that produces, I mean, we've tried basically every other system we can think of and nothing does anywhere remotely as good a job. And that simple system of, you know, I get a piece of information that tells me, don't do this, I make a decision not to do it. No affirmative. No, it's all trial and error and failure. Are there different sorts of failures, some of which are, say, more valuable or more of a something we can learn from and get something out of than others? Because you could fail by, you know, reaching for something good but you can't quite get there or you could fail by doing just something catastrophically stupid that you shouldn't have tried. Right. So the first thing that, you know, I do say is, look, it's not any failure, right? You don't want to jump off a cliff to find out what happens at the bottom. So what it is, is calculated risks. You want to take good risks of trying something that no one's ever done before. And in order to take those calculated risks, you need kind of personal ethic, cultural ethic, and institutions that make it easy to recover. And so that's everything from, you know, when I make a bad decision at work, I own up to it, I go to my boss and say, this was a bad decision, here's my plan to fix it. To, you know, one company that I talk to where they put failure in positive, in performance reviews as a positive. They want to see not that you're about the company, but that you tried things that didn't work, because if you didn't try things that didn't work, you weren't trying enough stuff, new stuff. As the owner said, you know, we can sit around and just perfect the product forever and ever, rather than pushing it out there and seeing, but the problem is we're not the customer. And so what we like, there's no way to know until we push it out there. But it's also things like bankruptcy law. And American bankruptcy law is incredibly generous and that's often criticized. In fact, I was interviewing one expert for this book on a completely unrelated topic and just randomly, in the middle of our interview, he starts making fun of the American bankruptcy system. He's like, what, you can just go into a judge and be like, I can't pay. And he's like, okay. Now, this guy was Scandinavian. This is not, you would think, right, it's the consumer, poor consumer. No, the Scandinavians are actually really tough on bankruptcy. It follows you around more. Oh, it's hard to get. It's actually, you can't even declare bankruptcy. Or it's very hard to declare bankruptcy unless your creditors agree to it. And the tax people almost never do, which makes it functionally impossible unless you are so completely insolvent and destitute that you're never going to have any money again for the rest of your life. So all of those things. The other thing is that you really have to distinguish and actually I spent a whole chapter sort of building a taxonomy of the different kinds of mistakes you can make because it's really important to distinguish between, first of all, between an accident, which is just something bad that happened. And, you know, I knew a woman who got into a car. Her car just stopped responding to her when she was driving along the highway at 60 miles an hour. And she spun out and amazingly she went across the divider and got hit by four or five cars and walked away with like a bruised knee. But you know, there's no lesson to be learned but there's nothing she should have done differently. They just happened. Then there are mistakes. And those are things where you're doing something wrong but nothing bad happens. And that happens a lot. Think about the number of times that you have gotten distracted while you're driving or, you know, forgotten an appointment and then I turned out the other person had forgotten it too. There are all sorts of mistakes that you can make where nothing bad happens but something could have. And then there are failures and that's when you do something that you shouldn't do and something bad happens. And then there's catastrophes where you do something that you shouldn't do and something really terrible and irreparable happens. And that's, you know, something like killing a patient in surgery or something where you've done something really dumb and because you did that, someone lost their life. And the reason you want to think about separating those is that it tells you how to respond and we spend way too much time, just humans in general, looking at the outcome instead of the process. And what you really need to know is the process. What you need to know is not did my car spin out but did my car spin out because I was playing on my cell phone and what we tend to do is we look at the outcome instead of what someone was doing and we assume that if someone got a bad outcome it was because they did something wrong. And so I have a friend who has tongue cancer and the number of people who have asked him if he smoked is and assumed that he must have done something to deserve this, right? Unemployed people who people just get angry at them when they're like, no, really, I'm networking, I'm setting my resume, I'm doing everything I can because I was unemployed for two years is that we just assume if you have a bad outcome it must be because you have done something to deserve this because we're so uncomfortable with the thought that there are accidents in the world, they happen. And the problem with that and on the other side of nothing went wrong there for everything's fine which is why people in hospitals don't wash their hands enough is that statistically, if you're looking too much at the outcome and not at the process, you're actually getting a lot more bad outcomes but you can't see it because causality is complicated and if you don't wash your hands, you don't kill every patient. You kill one in 1,000 patients or one in 10,000 patients because you don't have that direct causal link. Feedback loop, yeah. Yeah, that sort of goes to your eight brain and says, hey, stop, not working. Well, they also can't trace it back like it was that guy. That guy introduced the infection. Yeah, you'll never know. I mean, one of the most amazing achievements if you think about it is just epidemiology. Is this ability that we developed in the 19th and 20th century to find complicated causal chains where many people who drink from this pump get cholera but not everyone and so maybe it's miasmas coming up from the Thames and that's a great story that's told in a great book about which the name is now escaping me so I shouldn't have even mentioned it. You can figure it out later. Yes. So this sounds like it might have actually affected this taxonomy of failure. Has it affected how you go about your life at all? Oh, absolutely. And actually, the other taxonomy that I did affects it even more which is this breakdown. I talked to this medical sociologist named Charles Bask who was really seminal and sort of figuring out how doctors make mistakes and how they correct them. And he has a really interesting taxonomy of what kind of different processes produce errors. So he divides errors into four categories. One is judgment error. It's like you just didn't diagnose the patient, right? Happens to everyone. One is a technical error where you're just maybe not that good at surgery yet or giving injections. Again, happens to everyone who's in training. But then the third category is normative errors and that's where say you haven't gotten a good enough history from your patient or you try to cover up a mistake that you made. These are errors that show that you're not committed to the process, right? You're not actually trying to get it right. And the fourth category is actually possibly the most interesting, it's quasi-normative error. So these are things that aren't inherently in themselves wrong. But like you have one, you're under one surgeon who does a procedure a certain way and doesn't like to do it a different way. Now other surgeons might do it that way, but as long as you are training under this guy, it is an error to do it the way that he doesn't. And that's again because you're not committing to the learning process and to submitting yourself to the procedural judgments of the profession that you're in. And you see this all the time with things like plagiarism, right? So I know a fair number of people who get out of college and will go into say tech. Look, my boss plagiarized this description of some product. He's not getting graded on it. The client doesn't care, right? On the other hand, I also see people who get into journalism and any journalist organization has to be really vigilant for young people coming out of college who don't understand that, no, really, you cannot take three paragraphs. You can't take a sentence. You can't take anything. If you take it, you got to credit it. So, you know, those are things where in context it can be right or wrong, but the context matters a lot. And if you are doing it wrong in the context, then you're likely to get kicked out of your profession. I'm curious about this idea of blaming people for bad things happening. So the tongue cancer example of, you know, we want to assign blame even if there isn't any. But the kinds of failure that sounds like you're describing is the valuable ones. The ones that we ought to at least encourage the behavior that may lead to them or celebrate them are the ones more where you're taking the calculated risk and it doesn't pay off. But in that case, it seems like there's maybe two issues there. One is that it was your fault in the sense that you didn't have to take that risk. You chose to do this. But also if we don't know what the riskiness is ahead of time, it's not necessarily unreasonable to say you failed and you probably couldn't have succeeded because we haven't succeeded in that. So you are to blame here. So let's complicate this a little more as we've got some new categories. And now we're going to do the... We're complexifying, which is that most failures are a mix. Most failures consist of I tried something I didn't know how to do and then I did something that wasn't a good idea in that context. So for example, I wouldn't call this a failure, but when I went rock climbing, I once got stuck. But I was climbing a somewhat too hard for me climb with two guys who were both better climbers than me, but also just had a lot more upper body strength than I did. And so I got stuck halfway through and basically had to sort of move over to a ledge and rappel down because there was no way for me to... I got into a point in the rock phase where I could not do anything basically except sort of side-off sideways and rappel. So it was a failure. Now later, it became clear to me that there were probably other things I could have done to get out. You make mistakes. First of all, if I had climbed it a different way in a different approach, I probably could have made it to the top, but I was following two guys I should have known. I was watching them kind of muscle their way. I should have known that I was not going to be able to do what they were doing. But also I was doing something good, which is trying a climb I'd never done before. And so it's a mix of you try something you didn't do and then you make mistakes. And in general, in a risky world, you want to err on the side of kind of assuming the best of people. Not saying, oh, well, you didn't make mistakes or those mistakes don't matter. But say like making mistakes is part of how we all learn about stuff. I mean, I don't know about you guys, but I did not spring full-blown from the head of Zeus. Knowing how to be a good wife and a good friend and a good kid and employee and so forth. Like there was a lot of me not being so good in any of those roles and kind of having to figure it out. But it's good that I was trying to do all of those things. And similarly, so you say, yes, it was necessary to learn. They were important things to try. You also, though, have to acknowledge the failures that were judgment error within that process that were your own judgment errors that could have been done better and that should be done better in the future. Let's go back to talk about, because you mentioned this in the beginning, whether or not we're getting worse at dealing with failure. And we could be doing that in two ways. And maybe we are institutionally worse. And maybe we're also teaching bad things about failure. And you write in the book a little bit about children and failure and how they're being taught. And that seems to have gotten a little bit worse and embracing it and knowing how to deal with it correctly. Yeah. So the metaphor that I chose for this, which I actually think is a really important metaphor, is the child's jungle gym. When I was growing up in New York in the 70s and 80s, jungle gyms were made of metal. They got burning hot this summer. And they were eight or nine feet tall. And kids fell. And every year their kids had broke their arms and so forth. And there were seesaws and slides and so forth that were high. And then kids would fall off them sometimes. And that happened. And so what they did was they ticked them over concrete and they took those out. First they put padding under them. And I think the padding was generally a good idea. But then although it turns out that even that's not clear, that the soft surfaces may just result in different kinds of injuries rather than fewer injuries. But I'm willing to go with the padding, right? But then they took them out entirely and they made everything basically two to three feet tall. And it's all got, it's all boxed in so that you can't fall off of it. But if you have a toddler, it's totally boring for any child who is over the age of three or four. And what it turns out is that there's some neuroscientists are saying, look, you're actually stunting kids' development. First of all, kids who have fallen are actually less likely to be afraid of heights than kids who haven't, which is funny to me, but it makes sense. If you've done it, it stops seeming like the most terrible, horrible thing that could ever happen to you in the entire world. But more than that, like this sense of climbing and achievement, these are really important things that kids do with physical risk that helps prepare them for other kinds of risk in the future and also for kind of physical mastery of their space. And so by stunting kids and keeping the playgrounds low so that they couldn't possibly fall, we've also deprived them of the ability to climb high. And I'm amazed like, you go to Riverside Park where I grew up, you don't see kids in the trees because their parents won't let them, which is shocking to me. We spent all of our time in the trees. Kids don't climb trees anymore. We don't want them to ever get to the point where they could have an issue. And then it extends to things that aren't physical, to things that are school and life. I interviewed, I was doing a book talk and a 15-year-old girl came up to me and said, oh, look, I understand this is really important, but I'm in an international baccalaureate program and only 5% of us are gonna get 4.0s and I just can't afford to take a class that I wouldn't get an A in. And I was like, my God, America, you are doing it wrong. You're 15 years old. When are you gonna be able to take some rest when you're picking your assisted living facility? I mean, what? Well, that's one way to handle failure poorly is to just not want to do anything where you might actually fail. But there's the other way that we could handle failure more poorly than we have in the past, which would be just our response to failure when it occurs. Are we getting worse at that as well? We are. There's some ways in which we're getting a little better at it. We've done some liability reform, maybe not enough, but certainly the liability picture has gotten, I think, better. Trevor, you might have different opinions about this, but in my opinion, I think it has gotten somewhat better over the last 10 years. On the other hand, things like bankruptcy, we've gotten worse. We had this concerted effort to reform the bankruptcy law to make it much harder to declare bankruptcy. Even though there wasn't really a lot of economic evidence, this was a huge problem. Bankers thought it was a huge problem, which is fair enough, but when you look at – if you think about this as an economist, right, if bankruptcy is too easy, what do I expect? I expect that banks are going to be – the big problem I'm going to see is that banks are going to want to make loans because they're too worried that people are going to take out loans, spend money irresponsibly in default. Well, we did bankruptcy reform in 2005, and I think we can all agree that in 2005 the one problem America did not have was that bankers were just not willing to make loans. We were fixing a problem that we didn't have, and the one reason that's a big problem is that it turns out that easier bankruptcy is correlated with more entrepreneurship, because for two reasons. The first is that it's easier to become an entrepreneur, which is very risky. Even if you're really good, you get a great idea, you're a smart, good manager, you're more likely to fail than not. It's easier to do if you're not worried about losing your house and having your wife and kids out on the street. It's a little sexist example, but in fact most entrepreneurs are men. They're not all by any means, but they tend to be men. And the other reason is that once someone has failed, they have an okay chance of succeeding the next time around. And so if you shackle them to that old debt, you don't get the second company that they would have founded that would have been successful. Do they have a better chance? Do entrepreneurs who have failed once succeed more than people who haven't failed before? Yes, it's not that there is no correlation. Someone who has been successful, founded one successful business, has a better chance of founding a second successful business. The next most successful are people who have founded an unsuccessful business, and the least successful are people who have never done it before. That said, even the people who've done it once before successfully only have about a 30% success rate the second time around. So it's actually, it's kind of a crapshoot. Even if you've proved you can do it, it doesn't mean you can do it again a second time. And you know, conversely, about 20% of people who have started business and failed the second time around they succeed. So I mean, Colonel Sanders is a great example of that. He started, he did what he did because his first business failed. So that you don't want to have a system that makes the Colonel Sanders impossible, which is what we're moving towards. When we hazard a guess as to why, and that this seems to be one of the interesting questions, right, what is it about the last, I mean, let's just say post-war period probably would be a general, but maybe even it goes back 200 years. Maybe kids on playgrounds in 1815 were playing with spikes or something. But we have a general guess of maybe why the society's become more risk averse. I would hazard a guess that politics itself is risk averse. So that could possibly be an explanation. But let me just add to that question. Is it, we can give a reason, but the reasons might be different, right? So we have risk averseness in the jungle gyms and our kids, and then there's risk averseness with changing bankruptcy laws. And are they related or are they unrelated? Well, I mean, there's a couple reasons. So first of all, as societies get richer, they become more risk averse, right? Like one of the things that you buy with your money is safety, whether that's buying insurance or anything else. So that's just going to be a normal process. We have fewer kids. And I don't want to say that any parent ever consciously was like, well, we've got to back up. But as you have fewer children, if you have one or two children, you tend to focus more on them. But we don't have drastically fewer kids than we did in, say, 1970, but we are drastically more productive of them. We used to be. So I think there's a few things. I mean, one was the change in liability law, which again, I think Trevor can speak to, that started in the 40s, where we just started expecting someone other than you to bear a lot more responsibility for bad things that happened to you. And in some cases fairly, I mean, you can argue about the, but there are certainly some aspects of that that were fair. The second thing that happened is that the world itself has become more risky for a certain kind of middle-class person. So in the sense of in 1950, there was a huge economic job opening for people who went to college and so forth. So if you basically went to college and could breathe, you could get a good job in 1950 and basically count on not being fired from that job for the next 35 years. That is an exaggeration, but it's not a terrible. You know, union jobs were safer. The economy was closed, and so it was protected from a lot of the competitive forces that have emerged over them. The reason that we stopped protecting it was in fact that that model failed in the 60s and 70s and 80s, so it had problems, I'm not saying there was this healthy end, but from the personal perspective, that feeling that I can just send my kid to college and then I'm done, right? I've sent my kid to college and now they have everything that they need to do better economically than me. And that was true for our parents, or true for my parents' generation, that once their parents had something in college, they were sad. For my generation, that was a little less true, and for the kids coming out now, that's really not true. There are still a lot of college kids who do fine, but that sense of like it's just basically a guarantee to a stable job in the middle class has gone away, and as that has happened, we've gotten more and more and more competitive over a small number of slots at elite schools, which are still seen as this guarantee. And then graduate school, which is a, you know, especially for kids who didn't go to an elite school the first time around, but graduate school is also becoming this sense of, college is too easy now, we have to add yet another layer of education on to get the guarantee. But the third thing is, I think that just that there's a ratchet effect. You know, I observe this in my friends who are parents, which is that when I was in school, my best friend rode the crosstown bus by herself to school in first grade. In Manhattan. In first grade? Yeah, I mean, she was literally getting on the bus and a walker put her on the bus, and then she would get off the bus right at school. Still impressive though. Yeah, my sister rode the subway to her school in Brooklyn, which was an hour away at nine. I was allowed to, I went, did all my own shopping once I was in middle school. My mother would give me her Macy's card and I would get on the subway and I would go to Macy's. But I walked to school by myself in fourth grade through housing projects, and that was normal. Everyone did that. I would have died if my mother had shown up at school. As parents are like, they've got to be basically supervised every waking moment of their lives. And they hate it. My friends hate it. They hate having to spend all of this time making sure that their children are never unsupervised. And yet, they're terrified not to do it. And you would think from the way they talk that the attrition rate in our generation was like 30%. Whereas actually, no one I grew up with has died. We all rode without seatbelts. We rode in the back of the station wagon facing the wrong way. My dad, my grandfather used to pile us all in the back of his pickup truck and take off down the road at 25 miles an hour. And none of those things are allowed. And the problem is that basically when you're thinking about your kids' safety the norm of the group gets set by the craziest mother. Because you're buying kind of regret insurance. And I would do this too if I had kids. I would be like, well, I don't really think organic baby food is going to actually keep my kid from getting cancer, but just in case. So I have to make it from scratch. Or baby motes are. Exactly. Well, I don't know that it works, but just in case. The problem is that if you let your kid get on the subway by themselves is Lenora Scanazi, the head of this movement did. And then got screamed at. And then something happened that won in a million shot. You would never forgive yourself. And so we figure out what's safe by looking at what people around us are doing. Which is why drunk driving was accepted for so long that texting while driving, which is just as bad as drunk driving, is basically accepted and drunk driving isn't. You know, whatever the group norm is, you figure. And so the crazy person says, well, my child is not allowed to eat anything that casts a shadow and also like has to spend four hours playing the violin, but in this special suit so that they don't get carpal tunnel, right? Whatever it is, everyone is going to be doing that both because of the competition for college and because there's this, you don't want to be the parent who didn't do it and then something bad happens. Would you say the 24-hour new cycle is a product of that? A huge contributor. I was in New York during the 8-ton pots thing, which was the 6-year-old child who was abducted and killed, it looks like. I'm not sure they ever found his body, but I mean the consensus is that he was killed shortly after he was abducted. It's a tragic case, but what I don't remember actually is parents saying oh my god, well obviously now my child, but it ratcheted a little bit and with each news case and the problem is that humans aren't wired quite right for the modern world, right? We assume that if we see something in the news a lot it must happen a lot. For example, if you ask parents whether their child is more at risk from a gun in the home or swimming pool, they assume obviously a gun because think of all the children who get shot on the news, but every child who gets shot ends up on the news gets to drown in swimming pools, which is by the way, 100 times more likely to kill your kid than a gun in the house. People are getting a little more worried about swimming pools, but the level of emotional intensity is way different because they see all of the shootings on the news but a kid drowning in a swimming pool doesn't feel like news it just feels like something really sad that happened to someone you know. How have the statistics of kids actually getting hurt changed over time because even if it's the case that things weren't that dangerous and we were letting kids do all this stuff and things still aren't that dangerous but we're letting them do less, you would still expect to see some decline and injuries from accidents and whatever. There's been a huge decline. Part of it is things like I'm not sure that liability should have put them out of business, but I'm not sure how to have bought them as a parent. Do you remember Jarts? Oh yeah, yeah. Lawn darts. But that's a little bit overblown too because we have these stories about these things. They were so dangerous but I don't know that they actually were dangerous but I'm not sure I would buy them either I might look at them and say well, I'm not sure I trust my children with spears yet. Wait until they're 13 and old enough to go out into the forest and wait for their wolf totem to come. I can remember as a kid my brother and I in the backyard at my dad's house shooting our bow and arrows. Straight up an arrow. It's amazing to me that I lived past childhood sometimes. I grew up in Manhattan so one of our favorite activities I have no idea why was to go into the basement play room which had no windows and was completely dark turn off the lights and rollerskid around until of course I broke my nose doing this but I could have fractured my skull, right? And our parents I don't know that our parents knew or maybe they just thought yeah, of course my kids rollerskid around the basement in the dark. Yeah. Kids are more resilient than people think. Accidents to children have gone way down and in part that's I don't want to say that there's no tradeoff at all but the tradeoff is pretty small because in fact a lot of the reason that kids are dying less is that healthcare has gotten way better. Starting in the Vietnam war we got a lot better at dealing with trauma and so things like the overwhelming killer of children is car accidents. So if you were worried about basically anything else and still putting your kid in a car four times a day then you are worried about the wrong things. And that's sort of basically true at all levels until you get into your 50s is that the thing that's most likely to kill you is getting on the road in a vehicle. Well that seems like the one of the tradeoffs we're talking about here because we would like to say well if you want to live in a changing dynamic innovative world you're going to have to embrace failure and figure out how to deal with it. There might be some people who just simply are like well I don't want to live in that world. I want to live in a safer world with a more mediocrity less dynamism and that's my preference. So maybe that's actually what's happening with I think Europe has tended to think that way about less dynamic, more safe in terms of socioeconomic status in terms of safety nets for missing out on opportunities so maybe that's just a preference change. Well as I say I think some of that is natural and good. So seat belts in cars whether or not they should be mandated a good invention that has saved many lives and we are richer and so it's easier to install seat belts in all of our cars. All of these, our cars just have a lot more amazing stuff in them and that's because we're rich and technologically advanced and so we have safer cars now. We lose a lot of that then because people get antilequed brakes and think that they've got some sort of crash protection system that is going to protect them if they go 90 miles an hour in the snow but still you get richer, you buy more safety but I think that the part of the problem is that a lot of that safety is illusory and I like to say there's nothing as dangerous as perfectly safe and you think about something like the Titanic. The Titanic is a perfect example but you think about something like the housing market in 2005 so the dynamic of government guarantees and people thinking that they had found a sure thing. You could save a retirement while also enjoying granite countertops right now by refinancing and pouring the money into renovating your house. And basically no risk was the idea. Exactly. You found a no risk proposition that, I mean there's this thing in economics called the Great Moderation and the idea was that the central bankers had gotten so good at their jobs that it basically just was not possible to have something like the Great Depression again. We were so smart and the problem is that the bankers and the homeowners and the regulators were all getting the same bad signal from the market, which is that if you have 20 years of house price increases, which is broadly what we had 15 to 20 years everyone gets the same bad signals the regulator gets the signal that they're really super smart because their defaults are dropping and everything's awesome defaults do drop because as long as you can always sell the house for more than you paid for it, you never have to default on your mortgage. So bankers get the the idea that they have found a risk-free way to make money by extending loans to people with worse credit and who don't meet normal income criteria and people get the idea that they found a risk-free way to save for retirement and when everyone thinks just when everyone thinks that nothing can possibly go wrong is the point at which you have prepared no backup plan and you've built up a whole lot of imbalances and you are preparing to get whacked in the head and this is true. Famous last words, nothing can go wrong. So one of the things in bankruptcy court that I saw is I went to Memphis Bankruptcy Court Memphis is the bankruptcy capital of the world for interesting reasons I go into in the book and I went down to look at their bankruptcy courts for a week and one of the things that the judges told me is that a sizable group of people they are seeing are doctors and lawyers not for the normal reasons which is most people who declare bankruptcy are just they got really sick and they can't work anymore or they're really poor and it's hard to keep the budget in balance when you don't have very much but they get doctors and lawyers who basically live right up to their income because they figure look I'm a law partner I'm a doctor, I can't possibly I've got a guarantee and you know I can make I can make this money for as long as I want and then they get sick and then suddenly you can't be a doctor anymore and they've lived right up to their income. Everything is you know they got a mortgage that matches their income and car loans and everything and they lose it all because they didn't prepare for the fact that even if your job is extremely safe as a surgeon's job is there's still a small chance that something can go wrong and the problem is that when it's extremely safe you don't prepare for that small chance because no one around you is preparing you're in much worse shape than you would have been if your job were a little riskier and you'd save more. You've laid out a lot of reasons of why we are drifting in this direction of not handling failure well and being super risk adverse but the problem with a lot of reasons leading to this is it's awfully hard to fix things so how would we start getting back into embracing failure in the right way? The first thing it's sort of like AA right the first thing is admitting you have a problem and no it's a joke but I have to say writing this book changed my thinking about a lot of things that made me much more effective about handling failure and both in anticipation and after it's happened and not because I developed nine simple exercises to make you rate it's actually literally just reading the research and thinking about it understanding this is how the universe works. Well that would seem to even undercut you can't your book can be nine simple exercises to avoid failure because that would be a recipe for failure. Exactly it isn't it wasn't a matter of like doing some sort of mental trick it's literally just understanding oh right I've seen this I've seen how this works I've seen the studies that show for example that you know understanding failure as a way to grow rather than something that's just a failure worth as a human being that those people have better outcomes they take more risks they do better when they fail and so forth just knowing that has made me more able to be willing to take risks and to pick myself up after it's it's happened and on through so I think the first thing is just saying okay look this is part of it and then you have to say okay how do we encourage failure how do we plan for failure whether it's in your life as parents as businesses as an economy and you know the government level how do we encourage it how do we plan for it and how do we recover because you know the lots of there are lots of books about taking risks and how great it is but it's not just enough and this is one where I think that libertarians you know and and free market people in the 90s really didn't do so well with things like Russia and privatization where you thought oh well we'll just get rid of the government and then markets it's not true what happens after you fail matters a lot having the right institutional and cultural norms in place are what make the difference between good failure and bad failure and so you know having something that embraces it smartly not just encouraging people to do any moronic thing to see if it works a little bit of that as long as it's not devastating but understanding like never saying you know failure is not an option failure is always an option failure is not an option no it is I swear let's get it understanding it's an option preparing for it you know and then checking checking in regularly to say is this working it's something the government is like the worst at right there's nothing as immortal as a temporary government program because there's never any mechanism for actually saying okay well we tried that it was a good idea it turned out it didn't work and we're going to stop now the mechanisms are always for just keeping the thing going for ever and ever and ever there's a one thing that was that I wanted to see in your book that I missed which was apocalyptic ellipticism and zombies this question that I'd always thought about why is apocalyptic literature zombies or something like that becomes so prominent in the last it's always been somewhat prominent but especially in the last 15 years but I have a theory that there's a widespread belief that the world is fragile based on and I think it's based on a high specialization that people have no idea how the world is actually working so they look at it and they say well something makes those things happen and people say these things like well isn't someone in charge of that there has to be someone there who's in charge of making sure that that works and that seems to be like a bad attitude for dealing with failure you know there's this deep deep human distress of things that are non explicitly planned right like it's just I mean anyone who you know an advocate for free markets knows this just trying to convince people that no like you don't need a plan for it that this incredibly resilient flexible institution is going to figure out what needs to be done and do it and similarly you know with cultural stuff right is that we're always on the verge of the long night dark night of fascism and politics we're always about to enter the you know the end of the Roman era and with neuro fiddling you know in fact culture and markets politics however imperfect the results they give us and I'm not arguing that any of those three ever give us perfect results they're actually surprisingly resilient governments don't fall that often cultures usually figure out how to heal themselves and do what they need to do and markets figure out how to work around big problems without anyone getting in there and being like you know as Adam Smith said I think there's a lot of ruin in the nation but like there's this just deep human resistance the idea that that's true one of the things I find fascinating about apocalypticism is that it's always like roving packs of horrible men on motorcycles for some no one ever uses like a bicycle there was on horses or motorcycles but they're always like beheading people and kidnapping them and so there's none of what you actually kind of see in real situations where there's been a breakdown which is phenomenal resilience of civil society as people group together not to go and pray on each other but to form bonds and get stuff done and you never see that in apocalyptic or like the one hero group does it right but like that is a general human tendency it's not something special and that's why humans are great that goes back to the overprotectiveness of children stuff because that's the attitude largely behind that is that every person out there except those in our little band of heroes is the beheader on the motorcycle or bullies who is trying to go deal with the bully that would seem to be better there can be a bullying problem but sometimes the kids would stand up and say hey just a couple of weeks ago we were at a hotel with a bunch of family and tried to send our five-year-old daughter down the elevator by herself to the lobby so she could meet her aunts and this old couple in the elevator stopped her and turned her around because and then chastised my wife and me because you know you never know people could steal your daughter and it just seems to be like we have convinced ourselves that everyone else is the band of zombies or the evil people What are the odds that the guy who wants to kidnap your daughter happened to get in the elevator for the four seconds that no this is totally the one that really struck me was a slate columnist who wrote about coming upon two girls who'd been left in a car by themselves and you know they're like playing on their iPads or whatever and it was not particularly hot but he was super worried and I was kind of with him until he mentioned that they were looking to be about 12 and 9 I was like they can unlock the car and get out they're not going to sit there and slowly bake to death while like it was totally like what were you thinking the stories about children and cars which are terrible and you know but they happened to children who were too small to unstrap themselves from their car seats and open the door or children who are you know sort of challenged and don't understand get themselves in a car and can't get out they do not happen to 12 year old girls and that level of just having escalated what is a risk to small infants not a large risk but a risk that you know it would be nice if more parents would buy there are devices that can basically alert you if there's motion in the car after you leave it so it would be nice if more parents would buy that device and put it in and not say to themselves this can't happen to me because one of the things you learn, I almost wrote about this in the book and it was too sad is that it can happen to anyone it's literally most of the parents this happens to they've had just a processing fault because they're stressed and tired and they think they've already left the kid off at daycare and every parent says well I couldn't do that I'm careful and it can happen to anyone if you learn nothing else from this podcast learn that if you have an infant there are devices that you can buy that will put a motion sensor in your car and you should do that because it is possible to forget your kid in a car seat even if you are the most attentive, loving, wonderful parent in the entire world but that said starting to get concerned about 12 year olds in cars is totally insane totally out of proportion it's the same thing is that we extrapolate small risks which are real risks and which it would be good to try to figure out how to make them even smaller into huge risks that threaten every child in America so given this mentality which is growing and the new cycle is still going and Facebook feeds are still showing you horrible things and with the occasional upward the whatever but then we I don't think we're diminishing that everyone seems to think that the world is getting worse in many ways crime rate that most people think they've gone up even they've drastically gone down and then we often create institutions usually government to try and make sure that this horrible world that's going down the drain is stopped and failure will be stopped by this so Dodd Frank is a really good example so is it inevitable that or not maybe not inevitable but is it the course we're on right now that we're going to keep trying to make institutions that prevent failure and what we believe prevent failure but actually make things worse and is there anything we can do to kind of turn that around? Well let me end on a note of hope the last chapter of my book is about punishment and I wanted to do that because I spent the entire book saying look failure is hard to predict, it's multifactorial forgive as much as you can stop worrying about blaming people so much and look for ways to help them get back on their feet but it's also true that people really do things that are wrong it's not true that most of the people who are in prison are just there for nonviolent drug offenses most of the people who are in prison have done something that we all pretty much agree is wrong they have attacked people, they have stolen they have done things that we're not okay with that said there are also human beings and human beings make mistakes and they can stop making mistakes and have valuable lives and so we should also care about not imprisoning people unnecessarily and unfortunately we really went off the rails in the 70s for a couple of reasons the first is that crime was going up a lot we're not sure why that was some argue that it's civil rights rules that sort of changed the way policing operated and some people think it was lead which I find fairly compelling actually is that leaded gasoline may have been a real culprit in this not all of it but some of it but that coincided with a liberalizing urge on the left to say criminals are victims of society therefore we should not punish them we should probation and so forth and the combination of that and justices who were ruling without I think really good systemic attention what was going to happen the combination of all of that was to create a bunch of people who thought that liberals were stupid pansies who didn't understand that criminals are bad and need to be punished and so what happened was that we then went way overboard in the other direction there were people there were murderers who were getting off with very little punishment dangerous people who then went on to kill again and that was a problem but we then just incarcerated 2.2 million people so a couple things first of all we are figuring out with a combination of monitoring and things like hope probation 24-7 sobriety ways to keep people who are doing things that are generally wrong drunk driving from doing those things prison is criminogenic you send someone to prison you are more likely to get a criminal out recidivism rates are higher when people go to prison than when they stay out so keeping people out of prison, discouraging recidivism keeping them working a net benefit to society instead of a net cost to society and the nice thing is that people all over are coming to recognize that this is a better approach that law and order conservatives also say this is really expensive and 2.2 million is too high and liberals I think are getting a little less sort of well everyone is a victim of society and therefore we shouldn't do anything to these people I think we are building a consensus towards punishing as a way to rehabilitate people and in some cases there are people who just cannot be in society there are psychopaths and they will kill anyone they are not a huge number of people I don't think that we necessarily need to make their life particularly unpleasant in prison but they can't be around other people they are not safe but for most people that we want punishment as a way to get people back into society on the path to being productive citizens rather than punishment as a way to express that what you did is wrong and to hurt you as much as possible for having done it some pain because pain is how you learn not to do things but not crippling pain that is going to basically generate a lifetime criminal who can't do anything else and I think that we are changing we are getting new approaches that are working in experiments controlled experiments but also we are changing our psychological approach to it and we are becoming more willing to say not that crime is okay because it's not but crime the fact that crime is okay does not mean that therefore the rest of your life is forfeit and we are going to destroy it that we are going to punish you but in a way that hopefully will use restoration as the most likely outcome rather than a kind of slim possibility which is what it really has been for the past 20 years and is that what we do for other bigger institutions like financial institutions or are those lessons not being learned you know I think the financial institutions are really interesting and difficult so I'm alone almost alone, I'm alone libertarians anyway in supporting the FDIC and thinking that there are some things that are worse than moral hazard right we tend to worry a lot about well if you bail people out they will just go do their dumb thing again and that's true, they will right if you reduce the cost of doing something dumb people do more of it but in cases like bank runs a lot of people get hurt who had nothing to do with it right like in the Great Depression a lot of people who had never put money in a bank got thrown out of work and you 25% unemployment so there are institutions that again give a little bit of flexibility by putting some forgiveness into the system and I think in general those are good institutions although they have to be very carefully designed institutions if you look at what happened to the welfare population in the 1990s it was just continually growing and growing faster than it was sort of reasonable and welfare reform really changed that and took a lot of people out of poverty and got people working and on that ladder the incentive design was bad and it was enabling people to make what was really a perfectly rational short term decision which is that entry level jobs are not fun definitely less fun than welfare welfare is not fun welfare is terrible these women were not living high on the hog but entry level jobs are frustrating and if you haven't done it you haven't had to show up it's really difficult and so if you make it easy to not put up with the difficulty and kind of get on that ladder to getting a better job then you're going to see people who make those short term decisions that are bad long term decisions but completely understandable in terms of the incentives that they're actually facing in the short term and so you have to be really careful about how you design those things but I do think that some forgiveness in the system is actually really valuable You talk about a lot of failures in this book but is there one that's your favorite? Oh yeah, it's a movie I think a lot of some listeners will have heard of it at least if there is old as I am so in the middle of the 1990s this guy is making a movie it's already supposed to be a big budget movie but it's a water movie and it runs wildly over budget I mean it's north of 200 million and the press is just gleefully it was so obvious that the set washed away it was just serial disasters have you ever had a flood in your bathroom you know water is not good for construction so you can imagine what it does to temporary set construction it goes wildly over budget it's a police date which in the movies is a very bad sign and ends up having to be released instead of as a summer blockbuster as a Thanksgiving movie which is not what it's supposed to be it's a big everyone wandering around this huge water based set and the journalists are just already having a field day like six months in and even at this point the producers are saying things like well what if we just lost like a hundred million dollars I bet we could sell that to the studio and even the director actually said that he knew that by the week before the release he was just like I knew we were going to lose tens of millions of dollars and that was going to be it which just goes to show you really can't see anything because Titanic turned out went on to be the biggest box office hit until James Cameron made another movie Avatar that surpassed it and I tell this story it's funny because most people at least who are old enough to remember the 90s think I'm talking about Waterworld and in fact like the parallels are really amazingly close and in fact Waterworld in some ways looked more likely to succeed so they did not slip their date they made their July release date which is a big deal because basically teenage boys drive a lot of movie sales and so you want to get in the summer when they're off and they'll just go over and over again to see it with their friends also like they didn't have any big they had Waterworld had Kevin Costner Titanic it's hard to remember now had Kate Winslet who had made a couple movies no one had heard of and Leonardo DiCaprio who at the time was mostly famous for his portrayals of the mentally challenged and there was no reason to think this movie was going to be as successful as it was no one did think that the movie was going to be as successful as it was until it came out and in fact even when it premiered no one even noticed it's premiered in Tokyo but it caught on with teenage girls tween girls they just went like 90 times they bring all their friends and bring their parents their grandparents people are having Titanic in weddings and so forth I do kind of now wish we'd had a Waterworld wedding but the one we had was really very nice and you know that that capture and you think oh I can predict that there's all these great elements but actually you know there's a guy named Duncan Watson sociologist who says we think that we can but that's what we end up doing is just describing the thing right you can name oh it had a big set and there is the disaster and a romantic love story I mean there's lots of romantic love stories out there the movie was like an hour too long I mean there's all of this stuff where if you describe it ex-ante be like this movie is going to be Waterworld which is what the press thought because Waterworld had happened the year before and instead it was Titanic it's really really difficult to know I mean there are things you can do that are there are some movies you know aren't going to succeed right so a movie just about like a mobi teenager staring at his wall for two hours probably not although I guess that really describes catcher in the ride but that you think you can pick but then in fact an enormous amount of markets is just throwing things out you think about New Coke right I mean they did more market testing than any company had ever done in history and they nearly took down the company with this product and it just turns out the market testing is not a substitute for you know giving someone a four ounce sample of something is not a substitute for if I put this on the shelves and take coke away are you going to take this home and drink it and the answer to the first question was yes I will tell you that I like this the answer to the second question was no I will bombard your company with letters saying you are the most evil person ever give me back old coke you know the final thing I would actually say is that New Coke did something really dumb and really smart the really dumb thing that they did was decide that giving people four ounce samples in the supermarket parking lots was the same thing as finding out whether this product was a good idea there was no reason that they had to take old coke off the shelves but they did the second thing that they did though was that they listened and they recovered right they didn't what you see a lot of times is that people in that situation start arguing with the universe they start saying well but theoretically this product is great and they you know they did a little bit of that where initially they thought oh this is good publicity all of these people telling each other how terrible our product is but they actually turned around pretty quickly they retooled their production lines and pulled new coke off the shelves really fast and in doing so inadvertently actually created a new constituency for coke because people once they remembered oh yeah I love coke and they went back and started drinking it they actually it actually ended up being long term good for the company but it was long term and people often tell that as like you know they're crazy like a fox they did not do this deliberately it's really clear they didn't but also like the reason it was good for the company was they were so fast is that they said wait we made a horrible mistake and they didn't get into the internal like who's gonna go over the cliff for this and let's spend six months fighting about that they said okay this was bad dumb idea let's fix it they failed well they failed well and that's it's hard to do it's hard for companies to do that especially a big company like Coca-Cola but you know I was giving it like to argue with the universe the information the universe is giving you I guarantee is accurate so do not argue with it recognize it and incorporate it in your plans and move on thank you for listening to Free Thoughts if you have any questions or comments about today's show you can find us on twitter at Free Thoughts Pod that's Free Thoughts P-O-D Free Thoughts is a project of Libertarianism.org and the Cato Institute and is produced by Evan Banks to learn more about Libertarianism on the web at www.libertarianism.org