In this teleforum, Paul Rubin, the world’s leading expert on cooperative capitalism, will discuss his new book, The Capitalism Paradox: How Cooperation Enables Free Market Competition. Rubin will explain how we should think about markets, economics, and business and show how this book is an indispensable tool for understanding and communicating the vast benefits the free market bestows upon societies and individuals. Moderator Susan Dudley's review of the book may be read here.
Prof. Paul H. Rubin, Samuel Candler Dobbs Professor of Economics Emeritus, Emory University
Moderator: Prof. Susan Dudley, Director, GW Regulatory Studies Center & Distinguished Professor of Practice, Trachtenberg School of Public Policy & Public Administration, George Washington University
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Operator: Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Administrative Law & Regulation and Regulatory Transparency Project, was recorded on Friday, October 11, 2019, during a live teleforum conference call held exclusively for Federalist Society members.
Micah Wallen: Welcome to The Federalist Society's teleforum conference call. This afternoon's topic is a book review on The Capitalism Paradox: How Cooperation Enables Free Market Competition. My name is Micah Wallen, and I am the Assistant Director of Practice Groups at The Federalist Society.
As always, please note that all expressions of opinion are those of the experts on today's call.
Today we are fortunate to have with us our moderator, Professor Susan Dudley, who is the Director of the GW Regulatory Studies Center and Distinguished Professor of Practice at the Trachtenberg School of Public Policy and Public Administration at George Washington University. Professor Dudley will be introducing our author today and asking him several questions about his book. After our speakers give their opening remarks, we will then go to audience Q&A. Thank you all for sharing with us today. Professor, the floor is yours.
Prof. Susan Dudley: Thank you, Micah. I am very pleased to be here with my friend, Paul Rubin. Paul is the Samuel Candler Dobbs Professor Emeritus of Economics at Emory University. Callers may recognize his name because he's published widely, he's served as President of the Southern Economic Association, and he's just an all-around interesting person.
So we're going to be discussing his new book, The Capitalism Paradox. I really enjoyed reading it, and I'm finding myself talking to people about it and applying its insights to a lot of different observations. I think it's particularly timely because the animosity towards capitalism seems to be on the rise. Recent surveys suggest that most Democrats and millennials think socialism is a better economic system than capitalism. The democratic presidential candidates are distancing themselves from capitalism and endorsing expansive policies that would dramatically restrict economic freedom. And President Trump himself is also pursuing policies that restrict economic freedom, international trade, and immigration.
So Paul, my first question for you is given all the evidence that links economic freedom and human welfare, why is it that so many people reject capitalism and market systems in favor of greater government control?
Prof. Paul Rubin: This is a question I've been thinking about for many years. I must admit, in the past, I was worried about overregulation, but in recent years, as you just said, it's become really scary. It's become much worse, the hostility towards capitalism. And there are a lot of factors in it. I don't have a complete answer.
One thing is I think people do not really understand economics very well. People have what I call a zero-sum mentality thinking about the world, so instead of worrying about what can we do to make growth occur, what can we do to make the pie larger, people tend to think of how can we divide the pie. They assume that amount of income or money is fixed, and they look, and they say, "Well, some people have too much, so that must mean that some people have too little." So there's that zero-sum thinking which really pervades a lot of the discussion in the news these days.
And another thing I address in this book is something that we economists do wrong, I think. And I think we economists overemphasize the competitive nature of the economy. A capitalist economy is really much more cooperative than it is competitive. The heart of a capitalist economy is the transaction, and both parties benefit from a transaction. That's the essence of a voluntary exchange. And since both parties benefit, we can view the act as being cooperative. Competition plays an important role in choosing the actors because in competition, the most efficient actors are the ones that engage in transactions, but the transaction itself, the cooperation is much more efficient.
And one thing that struck me in writing this book, I did a bit of a Google search about competition and words that modify it, and I'm just going to read a few of them. For Google references for cutthroat competition, there's 250,000; for excessive competition, 160,000; for destructive competition, 100,000; ruthless competition, ferocious competition, vicious competition, unfettered competition, all have thousands of references. For beneficial competition, there were only 16,000 references. For beneficial cooperation, there were 550,000 references, and almost no negatives. So people hear that the economy is competitive, and then they think competition is bad.
The metaphor of competition really comes from sports, which is a zero-sum activity. There's a winner and a loser. But the economy is not zero-sum. Everyone can gain as the economy grows. And yet, people have this incorrect view. So I think two things. One is the people view the competitive economy as being negative, and secondly, the economy really isn't competitive. It's really much more cooperative than it is competitive. And if we economists were to stress the cooperative nature of the economy, I think we could alleviate at least some of the hostility towards markets if we were to try to do that.
A quick example I use is the example of Walmart. So when Walmart comes into town, if you think competitively, you say, "Ah-ha, Walmart has driven all those small merchants out of business." If you think cooperatively, you say, "Ah-ha, Walmart has done a better job of cooperating with its consumers than the small merchants. And by being a better cooperator, it's done a better job of entering the market and benefiting consumers." So that's one important theme of this book is that we should really emphasize more the cooperative nature of the economy and less the competitive nature of the economy.
Prof. Susan Dudley: Did your Google search include looking for cooperative capitalism, or is that -- would there be one side?
Prof. Paul Rubin: No, I didn't look. I guess I should have. I didn't look for that. I just looked for cooperation and beneficial cooperation, but not cooperative capitalism.
Prof. Susan Dudley: Yeah, I suspect you wouldn't see much, other than people referring to your book.
Prof. Paul Rubin: Right, which they should do.
Prof. Susan Dudley: One of the things that you say in your book -- you explain why this is so, why we have this zero-sum thinking. And you talk about our ancestors, and you have written other books that look at the evolutionary origins of law and politics. And in this book, you say political thinking was important for our ancestors, but economic thinking was not. Would you walk us through that and distinguish political thinking from economic thinking?
Prof. Paul Rubin: Well, if you read the discussion of primitive societies or societies of our ancestors, the economics was very simple. There wasn't much division of labor, not much economic growth. There was some specialization, mainly by gender and by age, but not much specialization. So there really wasn't much of an economy to understand. On the other hand, politics has always been quite important. Even if you read my colleague Franz de Waal's study of chimpanzees, even in chimpanzees, politics is important, forming coalitions and so forth. So I think if you think that our minds have evolved to solve the problems that were common to our ancestors for long periods of time, political problems were much more salient than economic problems.
And so I think that's in -- I think politics is a much more zero-sum than is economics. There's a winner and a loser. In politics, motives are important. What does the president, what does the king want? What does the dictator want? In economics, motives are very unimportant. As Adam Smith showed us with the invisible hand, even selfish motives can lead to very good outcomes. And of course, people miss that all the time. I read about the drug industry, and people say, "Well, the pharmaceutical companies are just out for profits." And of course, to an economist, yeah, they're out for profits, but their way to make profits is to make drugs that cure people. But we think of them politically. What's the motive of the companies? And we say, "Ah-ha, the motive is incorrect." So by thinking politically, we often get things wrong, and we miss some of the important features of an economy.
Prof. Susan Dudley: And you also talk about the politics' conflict, us versus them. Talk a little bit about that and why economics is very different.
Prof. Paul Rubin: Right. So in politics, as I said, there's competition as one part or another, or international politics. President Trump has unfortunately made a big deal of this, the Americans versus the Chinese and their taking our jobs. But from an economic perspective, of course, if the Chinese sell us stuff, we're benefitting because we're buying stuff and they're producing it. And the trade is what's beneficial, the trade between us and them. So it's really not a competitive situation, it's really a cooperative situation. But by viewing it as us versus them, as competitive, we get the wrong attitude.
And really, trade has two things against it. First is the zero-sum nature of the thinking, and second is the us versus them. So we think the number of jobs is fixed, and we think that they, the Chinese in this case, are taking those jobs from us, and so it's a double-edged sword. For many years, we economists had convinced others that that wasn't true. And for many years, tariffs kept going down and trade kept increasing. I think President Trump has done some wonderful things with respect to deregulation of the American economy, but his trade theories are, unfortunately, really incorrect and based on zero-sum thinking, I believe.
Prof. Susan Dudley: And related to that, it is still the political thinking politics is about competition for resources while economics is about cooperation to generate surpluses. So that's your zero-sum thinking again.
Prof. Paul Rubin: Yeah, exactly right. Politics is, "Let's see what we can get," as opposed to, "Let's see what we can produce." The book called High Economics where I talk about economics of dividing up the pie versus economics of growing a bigger pie, and of course, politics is more about dividing up the pie. When you read debates about taxation, for example, you say, "This will help the rich, or this will help the poor," no one talks about, "This tax policy will lead to more growth than some other tax policy." That seems to be nothing that's politically salient to most voters.
Prof. Susan Dudley: Yeah, and it's related to James Buchanan's rent seeking versus profit seeking. In a world where politics drives decisions, you have a lot of rent seeking which does probably bring you to zero-sum outcomes, winners and losers, whereas in economics or a capitalist system, profit seeking leads to surpluses and innovation and a bigger pie.
Prof. Paul Rubin: Right. And it's actually a little worse because rent seeking probably leads to a negative-sum outcome because you're spending money on rent seeking rather than on productive things, and so that money is basically wasted. And so it's really a negative-sum game rather than even a zero-sum game.
Prof. Susan Dudley: So let me ask you, the Business Roundtable a couple months ago issued a revised statement on the purpose of the corporation. Now, I read that as I was reading your book, and I interpreted it as consistent with your notion of cooperative capitalism, and that, of course, within the capitalist systems, companies succeed by cooperating with their employees, cooperating within their communities, and of course, with their customers as well as their owners. But it has definitely faced a lot of blowback, including from people who I respect. So I'm really curious what you think.
Prof. Paul Rubin: I think it's right that people cooperate on all those terms, but I think the ultimate purpose to the cooperation is to increase shareholder returns. So even though those things are important, I think they're all subsumed if the purpose of the cooperation is to maximize shareholder wealth. And I think if you start to try to think about those other things, well, maximizing shareholder wealth leads to efficient use of capital resources, which are always scarce. And if you try to throw in other things, if you really try to do them, you're going to reduce the returns to capital, and you're going to, I think, lead to more inefficiency.
So even though the cooperation involves all those things, and I think they're all important, but I think they're all subsidiary, really, to the fundamental purpose, which I think should be the Milton Friedman view that they should all be aimed at achieving maximum returns for shareholders because that's the best way to increase them. And you can talk about them, and if they only talk about them, then it really won't affect their behavior much. But I don't know quite what it means to say that they're equally important.
Prof. Susan Dudley: Senator Elizabeth Warren actually sent BRT a letter within the last couple of weeks saying, "If you really mean what you say, you should sign onto my Accountable Capitalism Act." I don't know if any of the CEOs have done that, but one -- I'll just, in case listeners haven't been reading about it, her bill would require employees to elect 40 percent of a company's board of directors; for companies of a billion dollars or more would have to get a charter from the federal government in order to operate. And they would have a duty to create, quote, "general public benefit" for stakeholders, as opposed to stockholders. Have you looked at her platform, and what do you think about that?
Prof. Paul Rubin: I've only looked at it briefly. I have trouble reading it. But I think it would be, in general, a disaster. I mean, going to a state chartering system has led to useful competition between states. And competition is often very useful in picking actors, and it's led to competition between states to generate the kind of corporate laws that people want, which is to say the efficient set of corporate laws. If we go to a federal system, then we have a monopoly system, and if it's wrong, there's no way to correct it.
Putting workers on the board I think is harmful because that will lead to, again, inefficient use of resources. I mean, workers are very important, but they're protected by the marketplace. If someone tries to underpay his workers, the simple truth is that workers will go somewhere else. And right now, we have a tremendous economy for jobs, so it's easy for workers to move if they don't like what's happening. And I think that will provide much more protection for workers than putting them on the board.
I don't know what it means to create value for stakeholders besides stockholders. It's just, again, creating value for stockholders leads to benefits to stakeholders to everyone because it leads to more wealth in society, and greater wealth in society can be used for all the kinds of things that we might want. I happen to live in Sarasota where there are a fair number of wealthy people, and we have great public amenities because people contribute money to theatres and roads and all kinds of things here, all because people have made money in the market system, and they use that money in all kinds of ways. We have the Gates's and Warren Buffett giving away billions of dollars a year of money that they have made in the market system. So I think we get the things that she wants, but we get them in a much better way than we would get them by government.
Prof. Susan Dudley: So what do you say about people's concerns about income inequality and that the levels of incomes for the poor and middle class can be so different from, say, the people in Sarasota?
Prof. Paul Rubin: I think then we're back to zero-sum thinking. If total incomes were fixed, and someone like Bill Gates is rich, then if total incomes were fixed, if we were in a zero-sum world, that would mean that he got rich by making someone else poorer. But of course, he did not. He got rich by developing computer systems that we all use and that make us all hugely better off.
And it's true rich people get rich basically by being productive. We economists have a theory that earnings are based on productivity, and I think that's right, and so that people who are rich are rich because they do something productive. And we're seeing right now, because the economy's doing so well, we're seeing median incomes go up, incomes of workers going up, so inequality would go down.
But I don't think a worker -- I really don't care about inequality. I don't care that Bill Gates is richer than me. I care about what I can do with my money and how much money I have, and I think that's the natural thing for an economy. So I think the publicity that talks about inequality is reinforcing a zero-sum view of the world, saying, "They're rich; you must be poor." And I think that's completely wrong and harmful to really emphasize.
Prof. Susan Dudley: Is the fact that that is so appealing, does that also reflect on our hunter-gatherer brains and the way we evolved because we do tend to compare our situation with someone else's. And so the relative income or wealth matters, even though as you say, maybe it shouldn't, because we're all doing better as a result.
Prof. Paul Rubin: I think that's right. I think in a hunter-gatherer world, incomes were relatively equal, and people had duties to -- not duties, but it was efficient to share resources, for example, to all get together and hunt big game. So in that world, if you became rich, it probably was because you were doing something wrong, you were shirking your duty or grossing too much resources. So I think we still have that kind of mentality a little bit, and so when we hear of the rich, our hunter-gatherer brain comes in and we say, "Ah-ha, he must be doing something wrong." And so we still have that way of thinking about things.
But I think we can learn not to. And I think if people -- if we realize, again, if we realize the economy is cooperative rather than competitive, then we would say, "Well, Bill Gates is rich because he did a really good job of cooperating with consumers and cooperating by developing Microsoft and all the benefits that have come from Microsoft." And similarly with Steven Jobs and most of the other multi-billionaires we see out there have really done something useful, and we think about -- we like the useful things they've done, but we don't realize that the returns they have, the money they have is because they have done such useful things.
Prof. Susan Dudley: And my guess is that, say, Senator Sanders or Warren or Representative AOC would all say, "Yeah, yeah, we get that, but still, they don't need that much money."
Prof. Paul Rubin: They do pay taxes. They probably don't need that much money, which is why they're giving it away. Bill Gates and many others have signed this 50 percent pledge where they agreed to give half their wealth to charities, and in a sense, they have to. When you've got a billion dollars, you can't spend it. There's no way you could spend a billion or five billion dollars, and so there's nothing to do with it but give it away. And that's, in fact, what many of the wealthy are doing. So I believe they're probably much more likely to do an efficient job of giving it away than the government would be if it took it and tried to give it away.
Of course, Senator Warren has proposed a wealth tax, and wealth taxes just don't work. Several countries have tried them, and they don't work. For one thing, rich people can put their wealth in forms that are hard to value. Just think about a rich person dying and the estate tax, and it takes many accountants and lawyers and maybe a few economists five or ten years to evaluate the estate so they can figure out how to tax it. If we're going to do that every year with every rich person, we would be spending way too much resources simply evaluating things and not really getting nearly as much money as we would expect to get from it.
Prof. Susan Dudley: So let me just ask you, one of the things I found interesting in your book was your notion of horizontal competition but vertical cooperation. And you said of all the millions of firms in an economy, a firm will compete with a small number and cooperate with the rest so that cooperation is much more common than is competition. Could you just talk to us a little bit more about that?
Prof. Paul Rubin: Yeah. Well, think about, say, the auto industry, which is, I think, an example I use. There are maybe now a dozen auto firms competing with each other, but each of those firms hires huge amounts of inputs, huge amounts of labor. It sells to consumers, it buys electricity, it uses highways. In a way, every transaction in the modern economy ultimately involves millions of people, and every vertical trend -- and they're vertical arrangements. All of them are vertical. They're hiring or they're selling. I give the example of a worker. A worker probably may compete with another dozen workers for a job, and so they're competing with them, but they're cooperating with all the other workers in their firm and in the economy and in the marketplace, so there's a limited amount of competition, huge amounts of cooperation.
I mean, by vertical, you can really think of the entire economy as going into any simple transaction as you think about capital and building machines that are -- I usually think of buying a Coke. You have the Coke machine, which is built by machines, which have been built by other machines, and there's electricity involved, and there's the banking system for the credit card or the currency that's used. So any transaction involves a huge amount of other entities all behaving cooperatively, and only a few other competitive entities, a few similar firms that you're competing with. But you're cooperating with everyone else, which is why I say cooperation is much more common in the economy than is competition.
Prof. Susan Dudley: Actually, the auto is an interesting example because the auto companies actually -- they were concerned that fuel economy standards issued during the last administration were too strict, that they wouldn't be able to meet them. But now they're saying, "Oh, but don't reduce them too much. We still want you to regulate us." What do you think about that behavior?
Prof. Paul Rubin: Firms often want -- large firms especially want regulation because, basically, it harms small firms. I was once at a meeting where a congressman was saying, "Well, we're talking about privacy." But he said, "Well, we've got all the players involved. We've got Microsoft and Apple and Facebook and Amazon, all the players involved." And I said, "Yeah, but the people you want to get involved are the new guys that aren't even in the market yet." And all the big firms have an interest in keeping those guys out, so they can use the government as a method of controlling competition and reducing the possibility of new cooperators. And I suspect something like that is going on in the auto case as well. It's trying to make it harder for new people to enter the marketplace.
Prof. Susan Dudley: Yeah, so cooperating with the government regulators maybe isn't the type of cooperation that you're arguing for.
Prof. Paul Rubin: That's exactly right.
Micah Wallen: Without further ado, we'll go to our first caller.
Jim Haynes: Good afternoon. My name's Jim Haynes. I'm a member of The Federalist Society, and I'm very glad that we're having this particular teleforum. I wanted to ask Professor Rubin and Professor Dudley to think about a contemporary view which is, to put it very simply, that what we call the global economy is moving away from market freedom and is becoming more and more a matter of government control and national champions like Airbus, and also that economics is becoming a tool or a metaphor for simple political questions like great power competition.
And we may not like it, and we may wish that we were back in the 1960s, but we're not. Things have changed over the decades, and that in response to this, the only thing that we can do in the United States is to essentially visualize our own economy as a survivor of cooperative market capitalism. That is to say because we have one system of laws, because we have a continental economic system, because we are generally a relatively unified, homogenous society and culture that we can continue to stand by values that Professor Rubin and Professor Dudley and Adam Smith and Milton Friedman would all recognize, even though the European Union, China, and other global economic powers are really moving in a different direction, if not the opposite direction. Do you think that there's any basis for saying something like that?
Prof. Paul Rubin: That's an interesting question. It does seem like that's happening to a certain extent. But we should keep in mind that if we can maintain free markets and free international markets, which we aren't doing as well as we could, but if we can maintain free international markets, those other guys could do whatever they want and they will be -- basically, if they've become protectionists, they will be hurting their own people much more than hurting us. Again, the purpose of an economy [inaudible 27:13] goods for consumers to consume, and if China keeps their prices low, they're really benefitting American consumers more than they're harming them.
And so if we keep that in mind, we could let the rest of the world do what it wants. And it wouldn't be good for us, but it wouldn't hurt us nearly as much as it would hurt them. When the E.U. keeps out American firms, for example, they're just penalizing their own consumers. And that's something that's sad, but it's not something that really affects American consumers all that much. And so I think you're right. We should maintain our current system and hope that the rest of the world understands its benefits. But if they don't, that's more their problem than our problem.
Jim Haynes: But if we are a free market surrounded by predatory nation-states looking to assert and increase their political power through economic and, of course, military means, how do we protect ourselves except by doing what President Trump is, in fact, doing in imposing tariffs?
Prof. Paul Rubin: Well, again, predation is a very funny thing. If they're predating by selling us stuff at below costs, that's really to our benefit and their harm. Military's a separate thing, but to be militarily powerful, you have to be, first, rich. And of course, we're still the richest economy there is, so we can afford whatever military stuff we have to do.
But in terms of predation and things like predation, if they're selling us stuff cheap, then we should take advantage of it and buy it cheap. It really is our benefit, even though I think President Trump unfortunately doesn't understand that, but he should. The Chinese don't understand it, but they're enrolled in a very different economic system which doesn't care much about consumers, ultimately.
Prof. Susan Dudley: Paul, are there things that we haven't talked about that you think are worth emphasizing?
Prof. Paul Rubin: We talked about the zero-sum -- an important thing is the zero-sum [inaudible 29:24] thinking. Since this is a Federalist forum, I thought there's a couple things about the legal system I'd talk about. For example, I think lawyers, at least in their litigation function are much more focused on the competition than maybe many others because a trial is, at least in the short run, is a competitive sort of thing. It's really a zero-sum thing in the short run, who wins and who loses. And so lawyers may miss the cooperative nature of transactions.
Transactional lawyers may understand them but talk a lot about negotiation. And the purpose of negotiation is, first of all, to get a better price, but also to figure out which party can do a job most efficiently. So they may negotiate back and forth who will do which function in a contract, and that's a way of figuring out the efficient form of the contract. What Richard Posner has shown is that even though in the short run trials may be zero-sum, in the longer term, trials will set precedents. And if it's done right, then the precedents will be economically efficient and will lead to efficient future transactions and efficient future rules so the law can become efficient. Even though it appears to be competitive in the short run, it can become efficient or cooperative in the longer period.
And I talk about different kinds of contracts. I talk about capital contracts, for example which can be very, very complex and appear to be one-sided, but in fact can be -- lawyers talk about bargaining power a lot, but economists don't talk much about bargaining power. We think of the world as being driven by markets and a contract may look one-sided, and so people may say, "Well, that benefits the seller because he has more bargaining power." But in many cases, a buyer, for example, may want a one-sided contract because it enables him to promise that he will perform some function.
So I think the reliance by lawyers on bargaining power is a short-run thing, and really, it's much more market. Markets are more important than bargaining power in determining the terms of a transaction. So that's one thing that's in the book that might be relevant then.
Prof. Susan Dudley: Yes, I actually did find that very interesting. And you had some specific examples, as I recall, that the party to the contract that may look as if they're the ones with the weaker hand, in fact, it's benefitting them because they are able to demonstrate that they will fulfill the contract.
Prof. Paul Rubin: Right. If I'm a new firm in the marketplace, I may want to convince others to hire me. And one way to do that is to make very strong promises, what will happen if I don't fulfill the contract, a large penalty, for example. And I may want to do that because I want to convince others that I'm likely to fulfill the contract. So if you just look at the simple terms, you may say, "Ah, it's one-sided." But in fact, it's a result of a decision on both parties to try to make sure that the contract will work. So I have some examples of that as well.
Neil Chilson: Hi. Yes, this is Neil Chilson. And Professor Rubin, I'm very exited to read your book. And I joined a little bit into the call, but I was curious if in your book, or if you could maybe riff on this if it's not in your book, you talk about the types of competition -- or I'm sorry, I should say cooperation that we think are good and the types of cooperation that are bad. You already brought up the example of cooperation perhaps with your competitors in order to have regulators do things that cement the market power of your companies. And obviously, these types of questions are really hot right now, given all the questions around antitrust and big tech in particular. And so I was wondering if you might talk a little bit about how we distinguish good cooperation from bad cooperation in the capitalist context.
Prof. Paul Rubin: Cooperation between competitors is often inefficient. If you read economics textbooks, in fact, you come away with a view that cooperation is a bad thing because the main kind of cooperation they talk about in, at least, principles textbooks is cartel-like cooperation where firms cooperate to form a cartel and overcharge consumers, the kind that the antitrust law deals with. And I think those are generally inefficient and should be penalized one way or another. Although, again, we sometimes underestimate the extent to which there are incentives for cartels to break down of their own weight as people cheat. But nonetheless, those kinds are inefficient.
As I say, the sad thing about the way we teach economics is when a student gets done with the economics course, he may think cooperation is a bad thing because the only cooperation he's really read about is cooperation between competitors to cartelize the market. We economists really don't talk about the cooperative benefits of exchange as much as I think we should, and I think that's a very neglected topic in teaching economics. But I think it's very, very important to realize that most things are cooperative and not competitive.
Speaking of teaching economics, I have a bit of a digression in the book where I talk about the way we teach economics. Going back to Susan's initial point about students being socialist, I think we economists are partly to blame for that. These people who are socialist are our students, and I think we haven't done -- the economists who teach economics haven't done an adequate job of explaining the benefits of the market. I think as economics becomes more and more mathematical—which is good; I'm not criticizing the mathematics—but as it becomes more mathematical in the research, it's also becoming more mathematical in the teaching.
And we turn off many students who might be interested in economics and might learn about the efficiency of markets, but they don't take the course because it's not there. At the graduate level, it's even worse. I always have students who are very interested in economics and often have very good economic intuition, and they want to get a PhD, but I have to tell them that unless they do a lot of math, there's no real place that they can get a PhD in economics and get a job in economics.
So even though I think the research that we do is useful and valuable, and even very mathematical, I think we should still maintain some level of ability to teach intuitive economics, teach people. And I say we should teach them the simple economics of socialism and why it's a very inefficient system. And our courses are designed not to do that sufficiently, which is why we get -- I think AOC was actually an economics major somewhere, and yet, she's apparently a dedicated socialist. And I think that's sad that one can go through an undergraduate economics program and come away with that. So I think there's something that we're doing wrong there.
Prof. Susan Dudley: All right. And this may be a short one, but there's -- we're hearing a lot of talk now about regulating the social media giants on antitrust grounds, concerns that they're not protecting users' privacy. And I think your conversation with Neil about contracts, etc., made me think of this. What do you think about that and the contracts that we who use Facebook and other social media, are we being taken advantage of, and what should be done? Are they too big?
Prof. Paul Rubin: I don't think they're too big. We saw -- no one mentions the example, but Google, which is not a small company, tried to go into the competition with Facebook with, I forget the name of the program, but it failed. So I think there's sort of natural monopolies. I don't worry so much about them. I've written about privacy, and I don't find it -- people were trying to find out what I want to buy so they can sell it to me. I don't mind that. I think it can be helpful.
I am a little worried about the ideological homogeneity of them. And people say that sometimes they exclude conservative thinkers or one class of thinkers. And I know some of the websites I read, which may be extreme, but nonetheless, I find them useful. And some of them are being challenged as being too conservative or too politically -- too hateful, and so some of them are being blocked out. And there is apparently a tremendous homogeneity of beliefs among the people that work for these companies, and I find that more concerning, but I don't know what to do about it. But I don't find the antitrust issues to be terribly important. I don't find the privacy issues to be terribly concerning myself.
Caller 3: Professor, I heard your answer to an earlier question which seemed to miss at least half of the equation with the Chinese, which is not just that they sell us things cheaply, but they make barriers to us selling things to them, they seal intellectual property, and so on. You don't believe that that's a serious impact on this country in an economic sense? We're running up a huge debt with them, and I believe that's what the President is trying to counteract here. Am I missing something?
Prof. Paul Rubin: The intellectual property issue is, I think, an important issue. I'm not sure that the tariffs are the way to counteract that, but that may be what he's trying to do with these tariffs. Traditionally, tariffs are used -- and if you listen to him, he sometimes talks about them taking jobs and so forth. And there, I think it's a mistake. If we are aimed at having them honor intellectual property, then I think that is a -- to the extent that they're taking our intellectual property without paying for it, that would reduce the incentives of our firms and inventors to create intellectual property because they're not getting the full return on it. So I think there is something to be said about that.
You're right, I didn't talk about that. I didn't talk about it in the book either, but I think we would like to maintain the value of our intellectual property. And I don't know quite what to do about it. I mean, China is, apparently, a very widespread violator of intellectual property, and I don't know what we can do about that. It may be -- I don't think a tariff is the best way to do it, but perhaps it is. Perhaps there's no other alternative.
Caller 3: But what about their tariffs and other trade barriers that they've erected to us selling to them? That doesn't concern you?
Prof. Paul Rubin: No, that doesn't concern me. That just means they're harming their own consumers more than they're harming us. They're denying their consumers the right to buy our stuff. Our producers would like to sell to them, and it would be good if they could, but the Chinese are really harming themselves more than they're harming us by erecting those barriers.
Caller 3: Well, I guess you and I just completely differ on that point.
Prof. Paul Rubin: Well, we tend to view international trade in terms of benefits to producers, and we say, "Well, we want to be able to sell." But really, the benefits of international trade are reduced prices to consumers. The stuff we sell to the Chinese is really the cost that we have to pay for getting stuff from them. So if we don't sell them as much stuff, that may be bad for our firms, but it doesn't hurt our consumers much. It hurts the Chinese consumers much more.
Prof. Susan Dudley: Well, I'm curious, Paul, given all this, and you said your thoughts have even changed as you wrote the book. Are you optimistic that capitalism can survive despite its increasingly negative reputation as immoral and all those other adjectives you gave us at the beginning?
Prof. Paul Rubin: Well, as you said, when I started writing the book and started even thinking about this topic, I've been writing about it off and on for a few years, my thought was we have too much regulation. But as I wrote the book and as the world has changed around me, I am now more concerned about the survival of capitalism. I mean, I have a new book coming out called Student's Guide to Socialism where I try to explain the long-term effects of socialism on someone's life.
But Joseph Schumpeter, the great economist, talked in his book Capitalism, Freedom, and Society, talked about how intellectuals and descendants of rich people would push towards a non-capitalist economy, towards a socialist economy. And I'm scared sometimes that we're really moving in that way. I think if we adopt socialist policies, this country will become a -- I don't think it will be Venezuela, but it could certainly move in that direction.
And what's amazing is you just have to look around the world. You look at Venezuela, you look at North Korea, you look at East Germany, you look at the Soviet Union, and wherever there's been socialism, it's been a disaster. Sanders talks about the Scandinavian countries, but they've given up on socialism. In many respects, they're more capitalist than we are, and they get angry at Sanders because they say, "We're not socialist countries. We've given up on that. We tried that, and it didn't work." So I've come to the conclusion that if we talk about democratic socialism, which Senator Sanders talks about, the only advantage of democratic socialism is that the people can ultimately vote out socialism when they find out that it doesn't work.
But I don't understand why we would want to move towards a system that has been a complete, universal failure everywhere it's been tried. And as I say, I blame economists a little bit for not having taught that sort of thing to our students, so they've come away without realizing how bad socialism has been wherever it's been tried. And I'm sometimes afraid that we're going to move in that direction here.
Prof. Susan Dudley: On that pessimistic note, Micah, I turn it back to you.
Micah Wallen: All right. And on behalf of The Federalist Society, I would like to thank both of our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at email@example.com. Thank you all for joining us. We are adjourned.
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