Juliette Sellgren 

Science is the great antidote to the poison of enthusiasm and superstition. Hi, I'm Juliette Sellgren and this is my podcast, the Great Antidote- named for Adam Smith, brought to you by Liberty Fund. To learn more, visit www AdamSmithWorks.org.

Welcome back. Many guests on the podcast advise young people to learn from history, and I even interviewed Clemson professor Eric Daniels on that topic. But today on May 24th, 2023, I want to make good on this advice and do some history. It's going to be an interesting type of history. Maybe not what you'd think, but it's the type of history I like. I'm excited to welcome back David Henderson onto the podcast. We did a previous episode, so go check it out. I was teeny Beaty when we did that, except I'm still arguably teeny Beaty. He is a research fellow at Stanford University's Hoover Institution and the editor of the Concise Encyclopedia of Economics. He's also an emeritus professor of economics with the Naval Postgraduate School. He also is the Wall Street Journal's go-to writer for pieces on Nobel prizes and deaths and economics, which is what we're going to be talking about today. We're going to be talking about the ideas and the people that he's written about and I'm so excited. So welcome back to the podcast.

David Henderson 

Thanks, glad to be back.

Juliette Sellgren 

So before we get started, the always question, what is the most important thing that people my age or in my generation should know that we don't?

David Henderson (1.46)

Well, probably some of you know it. I think the most important thing people in your generation should know and people in all generations should know, is that the world doesn't owe them anything except to respect their rights, the right to life, liberty, and the pursuit of happiness. Basically, it’s rights to their property and that's it. So there shouldn't be some expectation that someone's going to pay for you to go to college. There shouldn't be an expectation that someone's going to pay for your medical care, and that might sound harsh, but the upside is then your resources aren't taken to guarantee those things to other people, and the world works much better when we understand that and live that way.

Juliette Sellgren 

That's a great piece of advice. So let's jump in. How did you come to be the go-to writer about important people and developments and economics? It seems like a really cool job. How did that happen?

David Henderson (2.47)

So in 1992, I think it was Gary Becker won the Nobel Prize for economics. I knew Gary somewhat well, and I knew it. His worked quite well. And at the time in my class at the Naval Postgraduate School, we started each class with a five minute discussion based on what the students were interested in, but it had to be about economics. And so sure enough, that morning that the prize was announced, someone said, who's this guy Becker? And I was able to do this thumbnail sketch of him talking about his pathbreaking work in the economics of discrimination in which he showed the discrimination is costly to the discriminator and that in a free market limits the amount of discrimination that will go on. It doesn't make it zero, but it limits it. And I thought I could have written that up. And so I started tracking the Wall Street Journal each year from then on, and here's what I noticed, and I'd already kind of noticed, but it was very systematic.

The prize gets announced very early New York time because it's over in Europe and the Wall Street Journal, they've got the unsigned editorials called Review and Outlook, and if there was any connection that they could find between that person's work and whatever policies they were pushing, they would write a review and outlook doing that. And that would come out the next day. And then the next day after that, there'd be an article by a bona fide economist laying out here's what this person got it for, here's why this is important. So I'd done a few articles for the Wall Street Journal by that point, not a whole lot, maybe five, something like that. And I contacted one of the editors there and said, look, I think I can save you 24 hours in the news cycle because I can get up early and early in those days meant 4:30 AM Pacific time, now it means 2:45 AM Pacific time, and I can see who won it in those days.

I'd go to CNN to see who won it. Now I can get online and I can tell you within an hour or an hour and a half at most, whether I think I know enough about this person to write it. And they said, fine, no downside. And so I started doing it and because I wanted to prep for this, I went through and started and looked at what I've written. I'm not going to list everyone, I'm going to just mention the years. I didn't do it from 1996 to 2022, I've done it and there are six years I've missed five because I was traveling. Two because I didn't know enough and one because I thought, I don't think this guy deserved it, but if I'm going to say that, I'd better know his work really well and I didn't. So those are the only six times I didn't do it.

Juliette Sellgren 

It's very thoughtful of you to not criticize before you know enough. This actually funny, I interviewed John Cochrane yesterday.

David Henderson 

And?

Juliette Sellgren (5.55)

His piece of advice at the end was essentially along the lines of don't criticize something that you're not an expert in until you know more, because you're probably wrong in some aspect, even if your critique is somewhat valid.

David Henderson 

And I would alter…

Juliette Sellgren 

That you're doing just that.

David Henderson (6.14)

Yeah, I would alter that a little. I don't think in many of these cases I haven't been an expert, but I've understood it well enough to evaluate. So I would just tweak his statement a little. I'd say don't criticize something you don't know really well. But yeah, that's very tweaky.

Juliette Sellgren 

Yeah, same gist kind of.

David Henderson 

Yeah.

Juliette Sellgren (6.38)

So listeners, as we've kind of alluded to, this episode is going to be kind of different. We've planned ahead a little bit. We're going to cover three late economists, three Nobel laureate economists and three of Mr. Henderson's favorite economists of all time. And I wanted to start with who he most recently wrote about, which is Robert E. Lucas, who was an economist at Chicago. I kind of had this idea with my mom and we kind of were thinking about it because my dad wrote his dissertation at Chicago under Lucas. So maybe I just want this to be true, but I feel like there might be some potential intellectual lineage in the work. So can you tell us a bit about Lucas and his major contributions to economics?

David Henderson (7.26)

Yes, and by the way, he won the Nobel Prize in 95, the year before I started this. So the piece you're writing about is the obituary essentially that I wrote about him. I wrote for him last week. They didn't use my title. I liked my title better, although it was kind of clunky because, and I've forgotten the exact wording, but emphasized just kind of his towering intellect plus his incredible humility. Those often don't go together, but in his case, they did. And when I started, of course I had to write very quickly, and so I hardly read anything else by anyone before I wrote because I was one of the first. But when I read other people's stuff later, I said, yes, I was right. Although that didn't show up in the article, there was this humility he had that everyone really talked about. He wasn't full of himself.

So basically he really kind of reinvented macroeconomics. Macroeconomics when he came along with his first major article on this in 1972 was essentially Keynesian economics. Monetarism had made some dents, some big dents under Milton Friedman, but it still wasn't dominant the way Keynesian economics was. And what he pointed out is essentially that if in your model like the Keynesian model, you have people acting as if they never learn, there's a problem with that. People do learn. And so he argued that people have what he called rational expectations. Now, rational expectations doesn't always mean correct expectations. What it means is people learn, they look at what the government does, what they expect the government to do based on past behavior, and then they act accordingly. Then what that led to his 1976 article, which is now called the Lucas Critique, where he looked at major econometric models based on the Keynesian model with sometimes hundreds of equations and said, look, this explained behavior in the past, but precisely for that reason, it's not going to do well at predicting the future because people learned what the government did in the past.

So that's his major thing, and that's really what got him the prize. Now, there are other things he did too that I highlighted. One was this 1988 article about economic growth saying why should we think different about a country like India than a country like United States aren't the same policies that lead to economic growth here, growth relevant to India? And he had this famous line that I quoted and so many people who wrote about him, quoted it also. He said, once you start thinking about that, it's hard to think about anything else. And the idea is what if we could get 4% annual growth in India, and in 30 years India's a relatively wealthy country, and it was that kind of thinking that was just so great about him.

Juliette Sellgren 

Yeah, a big thing. I feel like you can almost tell his passion in the way and what he wrote about it and how he talked about it.

David Henderson (10.46)

Yeah, no, that's right. That's right. And yeah, by the way, I met him only once. I was visiting Chicago in 2007, I think it was, and I'm the kind of person, I did this when I was 19 and I knocked on Milton Friedman's door. I'm the kind of person who would just go knock on someone's door and say, can you talk? And he was very welcoming, and we talked for about 15 or 20 minutes. So right there, that's the something about, I mean, who am I? I'm a guy at the time, I'm 56, and it's not like I'm burning up the economics journals. And so that was just kind of neat about him.

Juliette Sellgren 

So who are some of the other late economists that you've written about who you find particularly important?

David Henderson (11.32)

Well, there are a couple, and now this is more kind of people who taught me directly. There were two, so I was a math major at the University of Winnipeg in Canada, and we spent my libertarian club, spent our whole annual budget one year in 1970 on getting one economist to come to town, give three talks, a guy named Harold Demsetz at the University of Chicago, and he's the one who turned me on to economics, I mean, really turned me on. I was reading people like Ludwig von Mises and Friedrich Hayek, and that was great, but he just applied it more to particular things in the world, how you could use property rights to not solve, but to make pollution less bad. He laid out the idea that it turns out came from [Gary] Becker, which is when discrimination is costly, that limits the amount of discrimination will go on, and certain kinds of government regulations actually increased discrimination by reducing the cost of discriminating.

And so he laid all that stuff out and I was just hooked. And I wrote a whole chapter called Hooked on Economics in my book, The Joy of Freedom: An Economist’s Odyssey, talking about the specific things I learned. And I would actually, I taped all his lectures and I think they're somewhere up in my attic, and I would just play 'em over and over and even start talking like him. When it came time to go to graduate school, he'd gone to UCLA, I applied at a number of schools, including UCLA, I got the best offer there, and I went there and learned more from him. So he's definitely one. Now, let me tell you the specific thing. Well, there's so many specific things he's known for. One was his idea about the evolution of property rights, which was one of the major articles. It was listed as one of the top 20 articles in the American Economic Review in the last a hundred years.

And it's basically laying out how you don't always need government to define property rights. Sometimes they come about naturally. He talked about, well, we call them Indians, I guess in Canada sometimes called First Nations people who were trapping beaver that they would sell to the French people, the French fur traders. They'd sell their pelts, and so they needed property rights to separate one tribe's area from another, and they developed them versus in the American West where things were so wide open, they didn't need property rights. So he laid out how property rights come about naturally. His other thing was what people call the Nirvana fallacy. He said he called it the Nirvana approach. And under it, there were three fallacies. Anyway, the Nirvana approach is that you don't compare actual markets with actual government. You compare actual markets with ideal government, and often the ideal government's going to win. So it has the bureaucrats know everything, they do everything. They never work just basically according to their own. And so you get this absurd kind of result that all these government interventions are going to work. And he said, no, you compare actual markets with actual government. And that was still, you can look up the Nirvana fallacy, which really ought to be called the Nirvana approach according to Demsetz. But you can look that up. There's a whole writeup from Wikipedia. So that's one.

Another one is my other professor at UCLA, and I think I learned more from him even than from Dem sets. And that was a guy named Armen Alchian. He co-authored a textbook, Alchian and Allen's University Economics. And when I got there, I was a TA for a microeconomics course, and they used that textbook. They really shouldn't have because it's a very subtle book for 18 year olds. But because I was always worried that someone in my TA section would ask a question in the back of the book Sunday afternoon evening, I went through every question making sure I could answer them. They never asked a single question about that, but I learned a ton of economics that really stood me while the rest of my career. So those are two major ones.

Juliette Sellgren 

This is kind of a very niche piece of advice I'm about to ask. Would you recommend buying and reading said book?

David Henderson (15.57)

I would. Now, here's the neat thing. They did an update. He had died, William Allen was still alive, I think, but I'm not sure what bigger role he had, but a guy named Jerry Jordan, who was an Alchian student, was involved in it, Liberty Fund put it out. It's very low priced and it's called Universal Economics. Now I've got to warn you, I still haven't read it. I have my own autograph copy of University Economics and I look at that, but I've heard very good things about Universal Economics, and it's very easy to find.

Juliette Sellgren 

I'm asking because in part because I'm TAing next semester for intro principles for Micro and then macro the next semester, and I'm a little worried I understand it, but it's a little worrying sometimes because what if I can't answer the question?

David Henderson 

Oh, I've got the answer to that. You know what you do if you can't answer the question, you say what you do, I don't know, but I will check and next week or whenever we meet next, or even if you give me your email, I will get back to you. That's what you do.

Juliette Sellgren 

Yeah. That seems like a pretty safety net of a response of you can never go wrong by admitting you don't know. Yeah.

David Henderson 

Now, let's say that they asked 10 questions and on eight, and you say, I don't know. That's a problem, right? Yeah. But my guess is… 

Juliette Sellgren 

Hopefully I was hired because I can answer more than that. But…

David Henderson 

Yeah, I think that's right. And actually the questions undergraduates have are generally really basic where you probably can answer them right now. Can I ask you, do you know what textbook you're using/the professor’s using?

Juliette Sellgren 

So for Micro, it's the Colander Economics textbook.

David Henderson 

Okay. That's not a bad book.

Juliette Sellgren 

Yeah, no, I read it when I took intro. It did me well, and then I don't remember what the other one is called, but I have that one also.

David Henderson 

Yeah, I'd say just before the thing, go through the questions in the back of each chapter and do what I did with Alchian and Alan's textbook. Just be ready. That way,

Juliette Sellgren 

Even if they don't ask, it might be worth it.

David Henderson 

Well, it is worth it. You just learn. You learn by teaching. That's one of the ways you learn, at least.

Juliette Sellgren 

Yeah. And if you ever find those Demsetz tapes, send them my way. I would like to watch them.

David Henderson 

Well, it's not watch, remember, this is 1970. Yeah, listen, right? 

Juliette Sellgren 

Yeah, yeah, I'm showing my age. Alright, let's move on to some Nobel laureates. You haven't just written about economists or Austrian economists, but instead you've written about a wide variety. Who are your favorites that you've written about?

David Henderson 

You gave me time to think about that, and I know you said three. Can I go for four?

Juliette Sellgren 

Oh, totally.

David Henderson 19.05

The first couple I wrote about a guy named [James] Mirrlees and his first name will come to me, a British economist and a guy named William Vickrey, an economist at Columbia University or New York University. I've forgotten which Columbia, I think, who won it in 1996. And that was the first time I wrote. And what I liked about Mirrlees, and I admit I liked him for his bottom line and his honesty, not necessarily because I totally understood his very complicated math model, but he was an advisor to the Labor Party, which is fairly pretty left wing and especially was left wing in those days. And he wrote an article on the What's the Optimal Tax Rate taking account of what economists called the dead weight loss from taxation and a number of other things, and taking account of you might want to redistribute a little. And here was what he found.

And this was just the shocking thing. And that was the top tax rate ought to be no more than 20%. And so here we are. It would every major country in the world, every major developed country in most undeveloped countries have a marginal tax rate well above that. And he said he was surprised by his own finding, but he published it. The other one was Vickrey whom I mentioned. And so in those days when I had to research without really having access to the web, and the web was really in first phases, I had to go to the articles I have in my cabinet and books and so on. And I had Vickrey's textbook, and I remember writing in my downtown office that I rented and rushing into school at 6:00 AM to find the Vickrey book. And one of the things he'd written about was how you could have tolls and pay for roads that way. What you could do is have people not have to slow down and put money in the hopper, but have these things that could read this little tag in your car and charge you. People are going, yeah, right here we are. Everyone your age understands that, right? We've had that for at least 15 years now in major parts of the country where it can just read your thing and charge you later. And so that was one of the neatest things about victory that I liked.

Juliette Sellgren 

Wow. I can't believe he thought that up before that was really a thing. Yeah, I feel like economists are like, I don't know what will happen. Just let it happen and it will surprise you. But this guy actually predicted it.

David Henderson (21.48)

Yeah. He thought it could work. And by the way, this textbook in which he talked about this, I dunno if I have it handy. It was written in the 1960s, so it's not just in 1996, he said that it was sometime in the late 1960s, he said that, by the way, there's one little sad thing about it. They cannot give the Nobel Prize posthumously. The person has to be alive when they just made the decision and announced it. I don't know if he was really excited or what, but he was driving about three days later from New York to somewhere else, and he had a heart attack and died. And I just feel so sad. I mean, here's the culmination, just, I mean, actually Milton Friedman made clear, this is not the culmination of my life, but for some people it is. And I could just imagine it was the next one on my list. I have to go way later to 2009 when a woman named Elinor Ostrom, one people called her Lin, by the way, and I met her at a couple of conferences. So you've probably heard, and I'm guessing a number of your listeners have heard of the tragedy of the commons. Is that a fair thing? Can I take that as a given or should I lay that out slightly?

Juliette Sellgren 

Maybe give a little recap.

David Henderson (23.17)

Okay. The tragedy the commons is, you can get a very valuable resource, but because no one owns it, people have very little incentive to save it for the future. And it gets overused. And one of the most reprinted articles ever from Science Magazine is The Tragedy of The Commons by Garrett Hardin. I had Garrett write a version from my Fortune Encyclopedia of Economics, which later became the concise Encyclopedia of Economics. But by the way, I co-authored a book on the UCLA school. We talked a lot about Demsetz and Alchian among others, and one of the things I discovered was that Demsetz had come up with the idea a year before Garrett Hardin. He just hadn't called it that, and that was in his property rights article. 

Juliette Sellgren 

Wow. That's kind of like math too. A lot of that happens.

David Henderson 

Yeah, go ahead. Go ahead. You mean,

Juliette Sellgren (24.18)

Yeah, I guess it makes sense that that would happen in any sort of area of knowledge work and academia, but I just thought, oh, well, in math, they just all kind of have the same idea at similar times. And whoever, maybe not the first person who comes up with it, but the person who gets associated with it because they've popularized it or phrased it nicely or were discovered first for some reason it hadn't occurred to me. That happens outside of just math.

David Henderson (24.48)

Yeah, well, in fact, in economics, yeah. There's an economist who I knew quite well named George Stigler who won the Nobel in 1982. He was a buddy of Milton Friedman, University of Chicago and had a great wit. And he said he'd come up with Stigler's law. And Stigler's Law is a concept in economics, is never named after the person who discovered it. But Lin Ostrom said, wait a minute, that tragedy, the commons is not the end of the story. Are people just going to be dumb and just go on doing that? Or could they get together? Could they figure out some way of almost quasi property rights where they use social ostracism, for example, to go after the people who were abusing it? And what she did, she didn't necessarily do many of these studies herself. She just looked around the world and found all kinds of studies of people doing just that and said, you know what?

And in fact, if I had it to do again the Garrett Hardin article, maybe I do have it to do again because he's dead, but I feel funny doing that. But it should have been maybe titled The Tragedy of the Unmanaged Commons, because that's really what it is. People figure out ways of coming up with property rights. And one of her famous examples, and I highlighted it in my article in her on the Wall Street Journal, was elephants in Africa- that if you look at where they have just tough poaching laws, and that's it, the number of elephants tends to fall because it's very hard to enforce. Whereas if you look at countries where sometimes the poaching laws are much more lenient, but they allow the people in a certain area, the locals to cash in on the elephant hunt, stuff like that, elephant populations are growing. I mean, one thing people here sometimes don't realize is in Africa, elephants are huge rats that can destroy crops. And so the villagers don't like that, but if you can cut them in on some of the huge gains from the hunters and so on, then it's very different. And so that was one of the neat insights she had. And again, she didn't discover it. She just said, Hey, I'm going to look around at the world and see what people do. And that's what she found.

Juliette Sellgren (27.13)

The thing that inspires me so much about her is the fact that she doesn't do, she didn't do the blackboard economics. She was out in the world using things that you might never, ever consider to use as an economic case study, as an economic case study, because that's what it could be. And that's just a toolkit you can apply, right?

David Henderson 

Yes. And so you'd already known about some of this work, I gather.

Juliette Sellgren 

Yeah, a good amount.

David Henderson (27.42)

That's good. That's good. Well, in fact, I'm glad you mentioned Blackboard economics because one of my favorites, so you also asked me to list three of my favorite Nobel Prize winners, and none of 'em are ones I wrote about because I didn't start this until 1996. But the three I came up with are Hayek, Friedman, Hayek, Milton Friedman, and Ronald Coase. And I just, what your thing remind me of is Ronald , Ronald Coase won the award for basically two articles. One he wrote in his twenties and one he wrote when he was about 50. And he didn't write that many articles, but he didn't ever write an unimportant article. So anyway, but he had disdain for what he called Blackboard economics. And you mentioned that term, term and blackboard economics means you sit in your armchair, sometimes it's called armchair economics, you sit in your armchair or you go to the blackboard. If you're going to the blackboard, you're probably writing some kind of equation and you say, here's the way the world works without ever looking at how the world works. And so he had this great line, and I found it when I was preparing this morning. He said, if economists were asked to study the horse, they wouldn't go and look at horses. They'd sit in their studies and say to themselves, what would I do if I were a horse?

That's just perfect. And so let me give an example where that was really relevant. He wrote a famous article called The Lighthouse in Economics, and what he did was he went to various people writing about the lighthouse and saying, well, of course you have to have government provide lighthouses because anyone passing by gets the benefit of the light, whether or not the ship pays for it, so it's going to be very hard to charge for it. And he said, well, let's look and see who provided lighthouses. And in Britain, lighthouses were privately provided and made money. They do that well, often there were enough ships using it that also came into the nearby port. Now, it did involve government, because government might be there to take the customs to charge the tariffs, but they also would say, Hey, you use the lighthouse, you're going to pay X amount.

So it's not saying there's no government intervention, but it does say you can have private for-profit provision of lighthouses. And so the amazing thing is sometimes how often people who point this out and have the data, have the evidence don't have much effect on mainstream thinking. So one of the textbooks I used when I taught a course that had a big element of public financing at the Naval Postgraduate School was a book called The Economics of the Public Sector by an economist named Joe Stiglitz, Joseph Stiglitz, who co won the Nobel Prize in 2001. The picture on the cover of the book is of a big lighthouse. The implication, and it's kind of in the book too, is, Hey, we have to have government provide lighthouses. So Coase's work was at least a couple of decades before that, and yet it had no impact on Joe’s thinking. And so you see that a lot. Joe Stiglitz is the ultimate in the Blackboard economists.

Juliette Sellgren (31.23)

Yeah. I took a class last semester on public choice, and so Coase was a big one for us with the paper where he writes about the butcher and the doctor or something, and one of them is making noise, and one of them has to listen to the patient's heart. And so there can't be noise. And it felt crazy at the time. But then you kind of read this paper and you realize that he essentially existed in the world and just observed, and then kind of came back and did the blackboard stuff, but not even in the way that your typical Blackboard economist would. 

Juliette Sellgren 

But you could tell he really used his observations of real life scenarios to figure this out.

David Henderson (32.15)

And what you're referring to is this famous article, the other one that won on the Nobel Prize, The Problem of Social Cost in 1960. And again, his point where there was this famous economist named Arthur Pigou who said, well, when that happens, we have to impose the optimal tax. And Coase is saying, well, what about people get together and people negotiate? Which by the way, reminds me of one of my stories. This brings us back to Bob Lucas, Bob Lucas, and I don't know if this ever changed. Bob Lucas smoked very heavily. There was another colleague he had who was kind of a friend of mine when he was at Rochester later back at Chicago named Bob Barrow. And Bob Barrow hated smoke, hated cigarette smoke, and in these days, we're talking eighties, nineties, you could smoke. It's hard for young people to believe it. You could smoke in hallways and so on. So Barrow didn't like people coming into his office and smoking. So he had a big sign in his door, no smoking comma, except for Bob Lucas. And the idea is this is very Coasian, barrow's saying, look, I gained so much from talking to Bob Lucas that I will put up with the smoke. And so again, it's just a beautiful illustration of how private property rights handle things, but also it's just kind of a neat story.

Juliette Sellgren (33.43)

Yeah, I like that. So I guess what's so great about all this writing that you've done and all that you've kind of put together and encapsulated nicely for people like me who are interested in the history of economic ideas to find is that you must have a lot of interesting takes or understandings of debates that go on in the economics community. So recently I've been thinking about, well, math, economics versus not super math, economics kind of blackboard versus not blackboard, but also a little different, I think. I guess from your position, what do you think about the use of math and economics given that you've observed these economists who have been super math driven and some who have not been at all?

David Henderson (34.41)

Yeah, I think it's way overdone. There's a famous quote from Alfred Marshall, the great late 19th, early 20th century economist in Britain who said, do the math, then make sure you understand it in words, then burn the math. And that's a bit extreme. I wouldn't burn it. But the point is that you should always know what you're talking about and be able to express it. And by the way, that's one of the things I liked about Arman Alchian, when I took his class in my first quarter at UCLA, I would write something and he would grade it and he would say, no, this is wrong. And it was like where I'd said something imperfectly, I'd say, so-and-so wants to minimize the cost. And he'd go, no, if you minimize the cost, you're doing none of it. He'd say they want to them and just those little things.

And the way a friend of mine put it, a guy named Fred McChesney who since died is Arman Alchian was the ultimate in showing that you could be completely rigorous in words. And so in his class, the picky, what seemed picky at the time and turned out wasn't at all, was just how he would insist on you saying it. Exactly. And not just approximately and not just loosely. And so you can be completely rigorous with words, which is why there's a term people use, and I hate. And people even quote on my side of the blackboard economics issue, use it. And that is intuition. Well, you've got really good intuition. No, you've got really good understanding. It's not intuition in the way that term, in the sense that term literally means from my understanding of intuition.

Juliette Sellgren 

Can you expand on that a little bit?

David Henderson (36.41)

Yeah. So you don't need, take the most simple example. I think you don't need to have an equation for a demand curve to know that when the price goes up, the quantity falls. You don't even have to have an equation to know that if there are a lot of substitutes, when the price goes up, the quantity falls a lot. And so those kinds of things, that's not intuition. That's just clear cut understanding.

Juliette Sellgren 

Yeah. My simpler version of that is that I recently hanging around, economists have gotten corrected for calling things that I feel like buying an investment. They're like, that's not an investment, that's consumption. And I'm like,

David Henderson 

Yeah, that’s verbal rigor. That is interesting that you called it an investment. You sound like Bill Clinton, when he was pushing all these spending programs in his first term in office, he always called 'em investments, and they sound an awful lot like consumption, buddy. So that's interesting. I'm glad someone corrected you.

Juliette Sellgren 

Yeah, no, and I've been correcting people since. It's like a econ bug. I just can't stop being like, that's consumption.

David Henderson (38.01)

Yeah. I remember there was this guy, when I had this car I really cared about, it was a 1992 Sica gt [?]. It was just, I love this car, and I would hire a guy to detail it. And in those days, I was paying him 50 bucks in the mid-nineties, fifties is a lot of money, and we became kind of friendly, if not friends, and he was talking about whether to expand his business. He said, I got $700. I can buy this really good equipment, or I can buy a parrot. I thought, wait a minute, buddy. One's an investment and is true. Parrots live a long time. So you could argue that's an investment in long-term consumption. But anyway,

Juliette Sellgren 

I just found that it would take some career pivoting in order to make the parrot truly an investment, I think.

David Henderson 

Right, right, right. Yeah.

Juliette Sellgren (38.53)

So another question kind of along this vein, and this one maybe is less straightforward, has less of an easy answer, is, where do you think economics should go slash where is it underdeveloped or where do you think it's going?

David Henderson (39.11)

Well, unfortunately, I think it's going in the wrong direction and has been for some time. So I taught at the Naval Post graduate school for 33 years and a few times a year I'd have a very promising student. Now they're in the Navy or they're in some part of the military, so they're going to go on to their Navy career. So it probably wouldn't work anyway, but sometimes some of them would be towards the end of a 20 year career and thinking about what they wanted to do and saying, well, I'd love to get a PhD in economics, but I can't handle the math. And it wasn't that they couldn't handle calculus or linear algebra. It was topology numerical analysis. And it's like, really? That's a way to keep people out of economics. And so what's happened over time is that a lot of people have gone into economics who don't have a real feel, interest or understanding of economics, but they can do math well, and that shows up in the journals, and so that kind of thing. So I think it's gone in the wrong direction for approximately 40 years, and it's still going in the wrong direction.

Juliette Sellgren 

That’s a long time. It’s not looking good for my future.

David Henderson 

Yeah, and well, here's the thing. Your future being maybe getting a PhD in economics and being an academic, I still think. So you probably have interviewed Bryan Caplan, right?

Juliette Sellgren 

Yes.

David Henderson (40.44)

He got his PhD at Princeton, which was highly mathematical, and he's never put it in these words, but my sense is he held his nose for four years and just said, I'm going to get the PhD. I'm going to go where I can get a good job doing stuff I want to do. And there are those niches. So I would say we should talk again probably offline about that. And I know you're in this milieu with Mercatus where there are lots of good people around, can give you advice often better than I could give you. But I would just say don't make a big decision yet about that in the negative direction.

Juliette Sellgren 

Are you at all, what do you think needs to happen to regain its humanity almost?

David Henderson (41.38)

I would say one thing is just somehow figure out ways of not requiring so much math and maybe even teach people how to write and put more emphasis on writing and being able to express things clearly. And again, I don't see how you do that. I mean, I guess one thing would be to reduce the amount of government spending. I think government spending just amplifies that, but I don't think that in itself is enough of a solution. It's a very tough problem.

Juliette Sellgren 

I think we'll figure it out though. All right. I have one last question for you. What is one thing that you believed at one time in your life that you later changed your position on and why?

David Henderson 

Okay, I thought about this. Can I give two?

Juliette Sellgren

Yeah.

David Henderson (42.31)

Okay. So a friend of mine, I had these incredible mentors when I was at University of Winnipeg as a math major, and one of them gave me for Christmas or my 18th birthday. They're very close in time, I've forgotten, which gave me a copy of Friedrich Hayek’s, The Road to Serfdom. And I started reading it and I couldn't stand it. He was too nice. It's like he was so, here's what these people think and here's why I think they're wrong. Even he even dedicated to the socialists of all parties. And it's like, why are you being so nice? You ought to smash him. And then I picked it up like six months later, and in that time, I'd already developed as someone who didn't want to smash people. And so then I really appreciated it. So this has become really who I am since roughly 18 and a half, is someone who wants to reach out and try to talk to people who disagree with me and not smash them.

And so that was an idea I had, but I got rid of it relatively early. The other one is back then when I became a libertarian and then a few years later became an economist. I called myself a limited government libertarian. I didn't believe in anarchism. I still don't believe in anarchism, but what I also don't believe, I used to believe you could have a limited government and it wouldn't expand, and I just don't see it the way a friend of mine put it who is an anarchist. When I was laying out anarchism and when I was laying out limited government, he said, yeah, limited government is fine. I once had a little lion cub. It grew into a big lion. And so I don't know how to box in government. I don't know how to do that. I mean, I've got ideas, but nothing is a sure thing.

Juliette Sellgren 

Once again, I'd like to thank my guest for their time and insight, and I'd like to thank you for listening to the Great Antidote podcast. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at the great antidote@gmail.com. Thank you.