Episode #367: Robert Lawson, SMU, “Initially This Whole Thing Was A Tax Dodge So I Could Go Drink In Cuba”
Guest: Robert Lawson is a Clinical Professor and holds the Jerome M. Fullinwider Centennial Chair in Economic Freedom; he also is director of the Bridwell Institute for Economic Freedom at the Southern Methodist University (SMU) Cox School of Business. Dr. Lawson is a founding co-author of the Fraser Institute’s Economic Freedom of the World annual report, which presents an economic freedom index for over 160 countries. With Benjamin Powell, he is co-author of the Amazon Bestseller, Socialism Sucks: Two Economists Drink Their Way Through the Unfree World.
Date Recorded: 10/18/2021 | Run-Time: 57:04
Summary: In today’s episode, we’re talking about some of my favorite topics – capitalism, travel, and beer! Robert traveled around the world to visit socialist countries and let’s just say the crappy beer wasn’t the only thing he didn’t like about the trip. We start by defining what true socialism is, why Sweden isn’t actually a socialist country, and look at Venezuela, Cuba, and North Korea to see what true socialism looks like in the world today. Surprise, surprise: it’s not good. Next, we discuss why socialism has a false utopian vision for the world and the reasons why this terrible idea just won’t go away.
As we wind down, we chat about some current topics in the U.S., including UBI, student-loan forgiveness, and the lack of financial education in schools.
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Links from the Episode:
- 0:40 – Sponsor: Masterworks
- 1:48 – Intro
- 2:49 – Welcome to our guest, Robert Lawson; Socialism Sucks
- 5:12 – The countries he visited (and why) while writing the book
- 6:22 – Defining socialism
- 9:09 – Why Sweden is lumped in with socialist countries (and why that’s wrong)
- 12:31 – Reasons why socialism won’t go away
- 18:12 – Bob’s memorable moments traveling around the globe
- 22:56 – Which countries had the best beer?
- 27:38 – The freest places in the world freedom index
- 29:25 – What has caused the US to slide down the freedom index
- 34:59 – The ideal model for a society in Bob’s eyes
- 37:21 – Things students are talking about in his class
- 38:50 – What Bob thinks about UBI
- 41:07 – How to get more people to be investors; How to Narrow the Wealth and Income Gap (Faber)
- 45:42 – The nature of ownership, financial literacy, and repaying student loans
- 48:34 – Whether or not financial education works
- 50:39 – Learn more about Bob; Bridwell Institute for Economic Freedom
- 52:07 – Bob’s favorite beers to drink regularly
Transcript of Episode 367:
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Meb: What’s up, friends. Today, another great show. Our guest is the director of the Bridwell Institute for Economic Freedom at SMU, and author of “Socialism Sucks: Two Economists Drink Their Way Through the Unfree World.” In today’s episode, we’re taking some time to talk about some of my favorite topics, capitalism, travel, investing, and beer. Our guest travelled around the world to visit socialist countries, and let’s just say the crappy beer wasn’t the only thing he didn’t like about his trip. We start by defining what true socialism is, why Sweden isn’t actually a socialist country, and look at Venezuela, Cuba, North Korea, to see what true socialism looks like in the world today. Surprise, surprise. It’s not good. Next, we discuss why socialism has a false utopian vision for the world, and the reasons why this terrible idea just won’t go away. As we wind down, we flip the script, and we chat about how to improve capitalism, and chat about some current topics in the world today, including universal basic income, student loan forgiveness, and the lack of financial education in schools. Please enjoy this episode with SMU’s Professor Robert Lawson. Bob, welcome to show.
Bob: Good to be here.
Meb: Where do we find you today? Tell our listeners where here is.
Bob: I am on the campus of Southern Methodist University in Dallas, Texas.
Meb: SMU. All right. Well, we’re based here in LA, and what we’re going to talk about today is a topic near and dear to my heart. You have a book, which I loved. We came to you through Perth Tolle, our good friend and former podcast alum. And the book has a very technical title, and the name of it is “Socialism Sucks: Two Economists Drink Their Way Through the Unfree World.” Came out a couple years ago. Tell me the inspiration. I want to hear a little bit about what drove you to write this book.
Bob: There are sort of a couple reasons. One is that Ben was drinking on an airplane, and sent me a text and said, “Hey, where you want to go next?” So, Ben Powell, he’s a professor at Texas Tech University, the co-author, he and I like to go drink beer in random places. And I said, “Let’s go to Cuba.” He’s like, “Man, I don’t want to go to Cuba. It’s expensive. It’s hard to get to.” I said, “Well, let’s write a book chapter up for a possible book, and if we do that, we can write it off our taxes.” So, initially, this whole thing was a tax dodge so I can go drink in Cuba. That actually is the real reason, but the other reason is that he and I are both fairly accomplished academics. He runs a big group at Tech. I run my little Institute here at SMU.
I mean, heck we’ve written probably between us 200 journal articles, academic articles, that, like, four people have read. That’s a little tiring to work so hard, writing all these papers, and then realize that very, very few people ever read what you write. Other academics do, and that’s gratifying to us, but I always said, “Heck, let’s write a book that might have a chance of being read by regular human beings.” And if you’re going to do that, well, you got to change the way you write. You got to write for the masses a little bit. And so, since we’re both high-functioning alcoholics, we figured a travel book, very Anthony Bourdain-style in writing, kind of irreverent style, and combining our travels with our alcoholic natures, and travel to some cool socialist countries. Hopefully, a book comes out of that. And it did.
Meb: It’s funny. I’d always loved Bourdain’s writings, and he actually had a quote which seems that you guys actually took to heart literally. And his quote was…he recommended, he said, “I think everyone should travel poor.” Meaning, his phrase was, like, “Don’t stay at the Ritz. Go stay at the local place, eat the local food.” You guys took it one step further and said, “We’re going to go to poor countries with this socialist mindset.” Talk to us about where you guys went. I’m a big beer drinker, and this was unironically… This is actually my wife’s hat, but I stole it because I was looking a little ragged, as most of us are in the pandemic. That’s a local brewery here in Los Angeles called “Three Weavers.” So, wearing a brewery hat. So I’m a beer guy, but tell me the countries you decided to go to, and why’d you pick them? You mentioned Cuba.
Bob: Yeah. So, Cuba’s one of the countries, and that’s an obvious choice. That was the first trip, but it wasn’t the first chapter. But we ended up doing a chapter on Sweden, which is not socialist, but we wanted to talk about why it isn’t socialist, and the confusion there. And we went to Venezuela, we went to Korea, both South Korea… We didn’t go into North Korea because our wives said we couldn’t get murdered for this book project. But we went to the Chinese-North Korean border, on the North Korean border, which is way more interesting than the South Korean-North Korean border. The DMZ’s a boring tourist trap. You should never go there. We went to Russia. So, we went to Moscow and Kyiv, and we went to Georgia, the country. Went to Tbilisi and some areas around the country of Georgia, and then we ended up in Chicago, at what bills itself as the largest socialist conference in the United States.
Meb: There’s a lot in there. And I read the book. And I’m a big travel guy, and also a global investor, so this book spoke to me on a number of different levels. And there are a lot of different rabbit holes and dark alleys we could go down. We could probably spend the entire time just talking about the beer in these countries. But let’s start with a little foundation, for the younger folks, especially. Why don’t you give us a broad, what you consider being a layman’s definition of what does it mean to be socialist? Is that a definition that’s timeless, or is there a more modern 2021… You mentioned Sweden, which a lot of people would characterize, rightly or wrongly, as socialist, and so you can talk about that, but what does it even mean to be socialist, and how many of these countries are actually doing it?
Bob: Some of the young people listening might not like the definition that we use. We went with Grandpa’s definition. When I was a young student, 100 years ago, the definition of socialism meant the collective ownership and control of the means of production. So, the factories, the farms, the fishing fleets, even the people, in terms of their labor, would be organized collectively. And at large scale, that has always meant the state, so it’s not really wrong to say state ownership and control of resources. That’s what I mean by socialism. And it’s for precisely that reason that Sweden is not socialist. I mean, Volvo is a private firm, and there aren’t Swedish central planners in Stockholm deciding how many cars Volvo makes, what color they paint them, whether they put six-cylinder engines or eight-cylinder or four-cylinder engines in them.
And this is true of the Swedish farmers who grow crops on their farms. There’s no bureaucrat telling them what to grow, how much to grow, and Swedish fishermen. And we drank beer in a Duval Cafe. We talk about in the book. And we bought Belgian beer there, but whoever owned that bar wasn’t the Swedish government. It was some dude. So, its organizing principle is private property, just like here in good old U.S. of A. Now, their taxes are higher, and that’s why the beer was really expensive, and it’s a bigger welfare state than ours. You know, we have taxes here. We got a welfare state here. So, the difference between Sweden and the United States, and countries like us, is not a difference in kind, it’s a difference of degree. Their taxes are a little higher. Whereas socialism is a difference in kind. I mean, it’s, like, the thing itself is different. And the difference is that how you organize productive resources. And there really aren’t very many countries, again, at large scale, that have tried to organize the entire economy around collective ownership, thankfully. Even today, there’s not very many that are doing it. But Sweden and U.S. are just two versions of capitalism, in my book.
Meb: I was going to say, why do you think everyone puts Sweden in that category? Is it just the taxes?
Bob: First of all, Sweden’s very nice. I mean, if I was advocating something, I would love to have, like, “Oh, we’re just like Sweden.” I mean, it’s a glorious place. I mean, if the whole world became Sweden overnight, I could quit my job. I mean, I think their taxes are too high. I really would rather live with lower taxes, but let’s face it, it’s a pleasant place. And the people who live there live good, comfortable material lives. So I think that it’s a little bit of marketing. Like, if I’m trying to sell a product, let’s call that product socialism, I’m not going to lead with Mao’s Great Leap Forward, that killed tens of millions. I’m going to say, “Well, we’re really Sweden.” So, some of it is just marketing. Some of it is purely confusion. They’re identifying the higher taxes and welfare state spending with socialism, and I just think that it’s just not the word we should use.
We have word for the welfare state. The word is welfare state. We don’t need to borrow this other word that has for literally, for a couple centuries, meant state ownership of the means of production. Why are we changing definitions now? I don’t understand the need for that. If you want to debate the welfare state, whether spending should be higher or lower, we should give more money to poor people, or forgive student loans, or any of a whole host of other things, those are just policy decisions that every capitalist country has to face. But however you answer, though, doesn’t make you socialists, is what I’m saying.
Meb: So, are there any differences in definition you think at this point between the vernacular of what people say? Give us a good example of a socialist country today. You went to what, half a dozen countries, I think? Who is the picture-perfect socialist country of 2021?
Bob: Yeah. I don’t think anyone would be a picture-perfect example, but the three current examples at a nation-state level are Venezuela, Cuba, and North Korea. And we have chapters on all three. I think the one that might be a little different is Venezuela. It is the only example of socialism that was achieved through democratic means. There was not a moment in time where Mao was a democrat, a small d democrat. There was not a moment in time where Castro or Lenin were democrats. They were one-party totalitarian states from day one. Essentially every socialist country that has ever existed, except for Venezuela, Venezuela, they elected their socialism, in the form of Chavez. Chavez was, by all accounts, freely and fairly elected, at least initially. And so, that’s probably the one. And if you do hear a young socialist today, if you hear someone talking about socialism today, they’re very often going to attach the word “democratic” in front of it.
One of the points we make is that, well, there aren’t a lot of examples of democratic socialism. And the one example, Venezuela, is no longer democratic. I mean, what has happened in Venezuela since Chavez was elected and then Maduro took over in his place, Venezuela’s economy has just completely cratered, and it’s cratered because of socialism. And if they had a free election today, free and fair open election today, the voters would throw the rascals out. And the Venezuelan government, they’re not idiots. They know this. So, what’s happened today is Venezuela started democratic, but is now just plain socialism. It’s no longer democratic socialism. We talk about, in the book, the sort of idea that democratic socialism sounds good, but it’s probably a myth that it can happen, frankly only happened once, and then it didn’t end that way, a matter of a decade or two, it was done with democracy in Venezuela.
Meb: Why doesn’t it die out as a concept? I mean, if you look at the list of these countries, Venezuela, Cuba, both despite being beautiful countries, I’ve met residents from both, it seems fairly obvious from the participants, citizens, and outsiders that this model doesn’t work. Why has this bad idea not been sent to a retirement home and grave at this point? Why does the idea persist? And along that same thread, you see surveys where they ask young people about socialism and capitalism, and a non-trivial amount like the idea of socialism. What are your thoughts?
Bob: That’s actually one of the motivations for the book, was those very surveys, where 40%, sometimes 50% of young people will check a box that says, “Do you look favorably upon on this thing?” And they’ll check the box for socialism. And that’s an astoundingly large percentage of people, for a system that I think has been an utter failure. So the question, yeah, is why? I mean, they have an excellent marketing team, socialism. This is maybe fast-forwarding a little bit, but the last chapter in the book is our visit to the socialism conference. And it was dominated by young people. We stood out because we were sort of middle-aged people. Actually, there were two kinds of people at the conference. There were either 80-year-old leftover hippies socialists, and then there was just a bunch of 20-somethings. So we stood out because we were in the middle of those two groups.
But when we went there, the thing we discovered, kind of much to our surprise, really, was there weren’t a lot of actual socialists, in the sense that they had studied Marx, or Lenin, or, you know, the great ideological founders of this idea. They were, for the most part, young. If I was being unkind, you might call them social justice warriors. But I’m kind of a libertarian. Ben is, too, and we actually had a lot of sympathy with these young people. I mean, they were talking about racist cops, and I think there’s too many racist cops in America. And they were talking about how poorly immigrants get treated. And I kind of think that too. Ben and I are basically open-borders libertarians ourselves. So we had a lot of sympathy for the individual causes. Not every one, I guess, but a lot of the individual causes that the young people were complaining about.
The thing that kind of left me a little bit puzzled was right after they said, “We want to get rid of racist cops. We want to solve this or that problem,” they would say, “That’s why we need socialism.” I’m like, “whoa, whoa, whoa, hold on. I don’t think giving the government more power is going to make the cops less racist.” I mean, we have a lot of history with socialism, and the cops were terrible in those countries. Although I think in many cases, not every case, but in many cases, their ends were laudable, the means, there was a real disconnect between means and ends. But for whatever reason, the socialists have done a really good job of convincing people that if you care about inequality, if you care about racism, if you care about sexism, you should be a socialist, because we care about those things too. I don’t think the evidence of actual practiced socialism, in any case, has really done a good job of dealing with those problems. But for whatever reason, that’s been the thing that attracts people to their cause.
Meb: Yeah. I mean, I don’t know how much of it is confusion of the jargon, how much of it is simply a rejection of status quo, that they just kind of, everything seems to get lumped in with capitalism or free markets, and I don’t know how much of it is just… Like you mentioned, like, there’s obviously clearly a bunch of society-wide issues that sort of get mashed together. That would be kind of my feeling. But the nausea-inducing part is that somehow socialism keeps bubbling up as a potential solution, and you mentioned going to a lot of these places. Why do you think it still exists in the country? I mean, I understand that, like, the force reason. Why do you think the citizens, or the international community, or whatever, has not resolved into a outcome that these structures still exist in Venezuela, and Cuba, and North Korea? Can you make any blanket conclusions across the board, or is it unique to each?
Bob: Well, I think each country is a little bit unique. Of course, the Soviet Union was the supporting entity for a lot of these other ones. And in Cuba’s case, for example, Cuba socialism was essentially a wholly-owned subsidiary of Soviet socialism, as far as their political power, their resources, they were subsidized heavily by the Soviets. And whatever reform, whatever pro-market reform has happened in Cuba has happened after the Soviet subsidies dried up. And so, I think you could simply…the Cold War phenomenon was certainly an aspect of that. Again, the Soviets, going to the Soviets, they were very good marketers. If you look at the African countries, we got on the wrong side of history, to use that tired phrase, in a lot of African countries, because we were so afraid of the Soviets. And so, for example, in South Africa, we ended up sort of on the side of… By “we,” I mean the United States government, was more or less on the side of the apartheid government, because we were so afraid of the communists, like the ANC.
And so, a lot of the support for socialism was tied to the old Cold War. But now, when the Cold War ended and mostly had, I mean, you see China reform starting in ’78, Soviet Union fell apart, even Cuba is reforming, and Venezuela is just on a free fall. The only one that’s sort of really hard and toeing the line still is North Korea. And, of course, they really are struggling, always. The demise of socialism, though, I think, is largely because of the Soviets, which was a very powerful socialist country. It was dysfunctional in many ways, but they were powerful, and they were able to expand socialism around the country. So, that’s ended a lot.
Meb: I want to definitely move on to some other topics here in a minute, but as we still talk about kind of your world travels, reminds me of some of these old Jim Rogers books about traveling the world and investing, kind of, takeaways, which I love so much. And I put this into the same category. What were some of your favorite stories from this trip? There’s definitely some memorable moments across the board, but do any stand out as being particularly memorable, good, bad, in between, about all the experiences you had everywhere? We can talk about a couple, if you want.
Bob: Sure. There’s a couple that are really memorable. One from Venezuela. My Spanish is terrible. My Spanish is mostly “una cerveza por favor,” bar and restaurant Spanish, but we had a friend of a friend with us, and spoke Spanish. We were able to interview a couple people who were crossing on foot from Venezuela into Columbia to buy food, and there was one couple, it was Ana Maria and Paolo, and they were not peasants. They were middle class. You could tell by their dress. They even spoke some English. They told us that they had driven there, which also indicates they’re not poor people. They have a car. And they had driven from Ciudad Bolívar, which is a city on the far eastern side of Venezuela. So they told us it was a three-day one-way trip. So, six days round trip. That was the thing that was, like, my jaw dropped, and, like, wow, how bad would my life have to be, say, here, living in Dallas? And they left their kid with their family member. So, they left their child behind, they got in a car, and they drove, like, for me, it’d be like driving to Vancouver to go to the grocery store, and leave my child behind, and it’s a dangerous ride.
It was really shocking. It made me a little angry at the time. We almost titled the whole book, “I want to punch a socialist,” because that one of the things we said. I just want to punch a socialist, because I was talking… These people are really driven to these extremes. And it wasn’t like poverty that I’d ever seen. I’ve seen poverty. I’ve travelled. I mean, I’ve seen the slums of Delhi. I mean, I’ve seen some stomach-turning poverty. But this was different. This was middle class and even rich people who were driven to the kinds of behaviors that you really only see with poor people. And that was really motivating. That was a big one.
One of the great stories was we were at the University…we were going up the stairs towards the University of Havana, and a young man was walking down the steps as we were walking up, and we stood out because we’re obviously not Cuban. And as he got level with us, he said, “Hey, where are you guys from?” and…in perfect English, which was very unusual, because Russian’s probably more commonly spoken than English. With all the travel restrictions of Americans to Cuba, English is not very well-spoken. We talked with the young man. He was very happy. Obama had just come on his visit. He had announced the opening of the island to U.S. travel. It hadn’t happened yet, but the announcement was made. I think they played a major league baseball game exhibition there, a spring training game.
So, it was very much abuzz, and we chatted, and he said, as he was leaving, he says, “We’re so happy you Americans are coming here, because you bring us more freedom.” He actually said that. And I thought he was going to say, “You bring us more money.” And I wouldn’t have judged him if he’d said that, because I like money as much as the next guy. But he understood, this young man understood the opening up with the United States was going to hopefully bring freedom to his island. And the big mistake we made in the book… We’re economists. We’re not journalists. So, the big mistake is we’re like, “Oh, that’s really cool. We’ll see you,” and we let him go. And we realize an hour later, of course, we should have invited them, I mean, to dinner, we can afford a much nicer dinner, I’m sure, than he probably could have gotten, and bought some beers, and we probably could have had a very nice chat with this young man, but we let that one get away from us. That fish got away.
But still, that was very memorable though, to hear this young Cuban think that the opening up to Americans is going to bring freedom. A lot of that’s been undone since Obama left, unfortunately, I think, but we take a stance in the book against the U.S. policy. I mean, it clearly hasn’t worked. It clearly hasn’t caused regime change on Cuba, on the island, and if anything, it’s given the Cuban government a rhetorical trump card they can lay down. Anytime the economy struggles, they just blame it on the U.S. embargo. So we take a stance that we should probably get rid of the embargo. This young man and Ben and I all agreed that more interaction with Americans is going to be a positive thing for Cuban freedom.
Meb: I’ve never been. You actually mentioned fishing. A couple of these places are great fishing spots. Cuba, Venezuela, Los Roques, have been high on my to-do list. Haven’t made it to any of these yet. I haven’t been to Sweden, I haven’t been to Georgia, was another one. You tell a lot of great stories, particularly Cuba. I thought that the chapter on Cuba really hit home, but some of the stories are just heartbreaking. That three-day travel, my god. I don’t know if I’d travel three days to see the Broncos in the Super Bowl. Three days just to do groceries or something. It’s just heartbreaking. Tell me about the beer. If you had to force rank, who had the best, who had the worst?
Bob: The interesting thing is that a book by Ben and Bob is going to involve beer, because that’s how we roll. And we wanted the book to be an honest portrayal of our travels, but it turns out that the beer became a very nice organizing metaphor for these countries. So, the Swedish beer was good, because Sweden’s not socialist. It was expensive because they have high taxes, but at least it was good. In Cuba, there are only two kinds. The Cuban economy does produce stuff. No one starves there, but the utter lack of variety, because the Cuban central planners in Havana have decided there’s only going to be two kinds of beer. It’s Cristal and Bucanero. They both taste like Budweiser that’s been left out in the sun, but I’ve had worse beer. Venezuela’s actually run out of beer. The beer is okay, but they’ve run out, because the government doesn’t have enough hard dollars to buy the imported ingredients.
They don’t make hops, I think. They don’t grow hops there, so they have to import it. And they’ve been times where they have not been able to allocate enough hard dollars to the beer company to buy the hops, and they just simply stopped producing beer. One of the jokes in the book is like, man, if I was a socialist dictator and everything would go to hell in a handbasket, because that’s what happens, but I would make sure the beer got made. The last thing to go down would be beer making. Even the Soviets always made vodka. The worst beer by far though was North Korean beer. There’s a lot of smuggling going on between North Korea and China. The river is not…A North Korean who wanted to escape could easily swim that river, but the problem is the North Koreans have bounties on North Korean escapees, and the Chinese people can turn them in for a reward.
And so, it’s not just a matter of swimming across the river. You got to get out of China, and that’s thousands of miles. But there is a lot of cross-border trade, smuggling, and we found some North Korean beers. And I can tell you, it… I don’t even have words. There’s no word in the English language for how bad this beer was. It tasted like industrial solvent, or, it’s what I imagine industrial solvent tastes like. I’ve never drank industrial solvent, but this is what it probably tastes like. There was an aftertaste that was in my mouth for hours. It was terrible. I was worried about my health, actually, from the North Korean beer.
The other places aren’t socialist anymore. The title of our China chapter is “Fake Socialism.” Russia, Ukraine is “Hangover Socialism.” They’re not socialists anymore. They’re kind of getting over it. Because they’re not socialists, we drank Belgian beer in Beijing that was cheaper than in Stockholm, which is funny because Belgium’s a lot closer to Stockholm than Beijing. Of course, the beer is great, and the alcohol was great in Russia, because it’s no longer socialist. The Georgia chapter, though, the country of Georgia… Now, I’ve been to Georgia 15 or 16, 17 times. Ben, that was his first trip. I’ve written books and articles about Georgia. They did a lot of reforms, but wine was the alcohol of choice to talk about there, because Georgia is the birthplace of wine. They have wine archaeological evidence that’s 6,000 years old, 4,000 BC. It’s the oldest known wine cultivation on earth. And the Georgians are extraordinarily proud of their wine and their winemaking. They have thousands of varieties that don’t exist anywhere else. They’re certainly proud of it, as they should be.
In Soviet times, the Moscow central planners, they’re not idiots in Moscow. I mean, they knew the Georgians made wine. So they imported Merlot, and Cabernet, and Chardonnay grapes from France. They planted thousands of acres of vineyards. They made millions of gallons of really awful French-style wine in Georgia, in Soviet times. And they shipped… I mean, if you were Bulgarian, you drank Georgian wine. If you were Estonian, you’d drink Georgian wine. Georgia was the place the Soviets made wine. Well, after the Soviet Union fell apart, and all those companies failing, all those vineyards went belly up, because no one wants to buy Georgian Chardonnay. But what’s happened since the Soviets left is the Georgians have been bringing back their old varieties and their old winemaking style, and today, it’s a huge export business for them, and it’s becoming a tourism business too. I’m not really a wine snob, but I like wine as much as the next guy, and if you like wine, Georgia’s a place you should visit, because they make a very small amount of wine, but what they make is just unlike anywhere else.
So, the revitalization of the Georgian wine market was like the metaphor for the country. And the country’s done very well since they’ve left the Soviets. In my day job at SMU, I work on something called the “Economic Freedom of the World Index,” an index. And Georgia, which, again, was Soviet Republican as late as 1991, they were ranked fifth in economic freedom, in the whole world, last year. So they’ve really embraced free markets in Georgia. And wine is a good way to tell that story.
Meb: Let’s stay on that topic real quick. Tell us a little bit about this work you’re doing on the rankings. This is the top five. What goes into it and what are some of the freest places to be?
Bob: Yeah. So, I’ve been working on this Economic Freedom of the World Index since I was in my 20s. We try to score countries on how capitalist or how free market they are. I’ll gather a lot of data. It’s mostly boring data-grubbing, World Bank, IMF, PricewaterhouseCoopers data on taxes, and inflation rates, tariff rates, and all that stuff. Anyway, we put it all into my computer, we turned a magic crank, and it spits out rankings, or ratings. And so, top two have always been Hong Kong and Singapore. And there’s a lot of attention on Hong Kong right now, but they’re still a number one in our ranking. They don’t have any tariffs there. The top tax rate’s 15%. It’s a very free market place. And in the Hong Kong skyline, Hong Kong Harbor, is not fake. It’s real capitalism there. And then it goes to New Zealand and Australia, I think, and then the United States, I think, is sixth on the score. And then you go all the way down. We have 165 countries in the most recent report. Venezuela is dead last. We don’t rank Cuba and North Korea. We don’t have any data…
Meb: I was going to say, lower than North Korea?
Bob: They’re not even good enough to have data. They’re not in the World Bank or IMF or anything like that. So our data-driven index can’t rate them. So, basically, it’s a scale of capitalism, from Hong Kong to Venezuela, and a hundred and what, 63 countries in the between. It’s become a very useful tool for scholars who are studying these, because we have data back to the ’70s. So if you want to try to understand why some countries are growing and some other countries aren’t, this indexes gets a lot of use by scholars. But, of course, it also gets a lot of use by…the media pays attention. Some politicians even pay attention. We hope. At least that’s our hope. I don’t know if it’s true, but I think they do.
Meb: The U.S. is high. But what are some of the things that caused the U.S. to slide down out of the top five? Is it just that some of these other countries are just a little more idyllic when it comes to certain metrics you guys use, or what’s, like, the … ?
Bob: Yeah. At the end of the day, that’s it, but we had always been third. So, it was always Hong Kong, Singapore, U.S. for a long, long time, from ’70, ’75, all the way up to 2000. And then, starting in 2000, and we have annual data after that, so 2001, 2002, all the way up to today, we found that the U.S. scores began to fall. And I think, I’m sitting here within almost visual sight of the George W. Bush Presidential Library. I blame W. a little bit. The reaction to 9/11 was a reaction that involved a fairly massive shift of power from the private sector to the public sector. Government spending went up to fight war on terrorism, actual wars in Iraq and Afghanistan, regulations in a lot of different areas got, in the name of wars on terrorism and such, the regulation capital. International trade regulations got more severe, finding capital flows to fund terrorists and things like that.
And fighting the war on terrorism may be a good idea, may be a bad idea, but whatever, it certainly involved an expansion in the role of government in the United States. And then, of course, the financial crisis in 2008 and ’09 only added fuel to that fire. And so, the U.S. actually slid us down into the low 10s. I think they were as low as 14, and we’ve kind of crept back up to 6. The one area that was a little bit surprising though is that we have an area of our index that measures the legal structure and property rights. It’s basically how efficient the courts are at enforcing contracts and things like that, and that took a big hit in the middle 2000s. It’s recovered a bit now, but it took a big hit. And I think that financial crisis, and the reaction to the financial crisis in the late 2000s, was a direct assault on property rights in the United States.
I mean, we basically ignored bankruptcy law in the reorganization of General Motors and Chrysler. Not to put too fine a word on it, we screwed the bond holders. And that was banana republic stuff, to me. I mean, that was the kind of thing you expect to see. Because we have a wall that determines how we handle corporations that are in bankruptcy, and we threw that wall out the window during the financial crisis. We did it in a very political way, to reward some people who were friends with the government, and penalize, basically, bondholders. So, the U.S. ratings took a hit for that, and we’ve recovered a little bit on that. That memory eventually wears off, but that’s, bigger government, basically, since Bush came in, and Obama made it worse. Trump didn’t make it any better, really. I don’t think Biden’s going to… We’ve clearly gone from being really in the contention for the very top to now just another one of the market-oriented countries, like England, or the UK, and Australia. You know, we’re just another one of them, and we’re bouncing between six and seven, eight every year.
Meb: It’s a fun list, because if you look at the top 20, it’s kind of universally looks like amazing places to either A, visit, or B, live. There’s some fun names that Mauritius, number 11. Is that even how you say it?
Bob: Yeah. That’s right.
Meb: Armenia, also in the top 20. Malta is a fun ranking. Guatemala, even in the top, well, 32. I was going to say top 30. So, let’s flip the coin a little bit as we talk about, all right, all these socialist countries. Do you think they just eventually just…the end game is inevitable? Do you think it’s just, like, a, something in a world of the internet and transparency, it’s just a matter of time? Do you think there’s a catalyst for how this ends?
Bob: I think so. I think there’s a reason they failed. I mean, the Soviet failed. I mean, they all haven’t gotten rid of their communist parties. Like, China still has a communist party, but they’ve gotten rid of the socialism. Same thing in Vietnam. If you’ve seen pictures of the capitol of Cambodia, it looks like Shanghai. I mean, it’s just skyscrapers now. I mean, it’s Cambodia. I mean, this is Pol Pot and the Khmer Rouge. I mean, they’ve all given it up. The three holdouts are Castro, and he’s kind of limping. Venezuela’s in absolute free-fall. It has to crash-land. It will crash-land. Hopefully, it crash-lands fairly softly and people don’t die in the streets. I’m fairly pessimistic about how that ends. I think the most likely scenario in North Korea, even, or in Cuba, is something along the lines of what has happened in China.
It’s a one-party state, someone’s going to see the light and start to reform. We’re seeing hints of that in Cuba now. And I’m not in favor of totalitarian one-party states, but I suspect that the fastest way for a reform which will help a lot of people’s lives in Cuba and North Korea will be for them to have their own government just sort of do the reforms like China did. They won’t get a democracy right away, but at least if they get some kind of market economy going, if you unleash some private enterprise where people start enterprises, start businesses, trade with the outside world freely, if you start doing that, at least people’s lives will get better. I mean, they’re not going to live these just horribly poor existences that they currently live. And then, you have to then after that hope and pray that eventually they get their free speech. I don’t think that’s an automatic transition though. I think it’s something that you can go a very long… I mean, it doesn’t look like China’s one-party state is on the rocks, or on the ropes at all. They’re not really worried about a political threat to their power.
Meb: Well, let’s flip the script a little bit and talk about, I mean, what is sort of, “ideal” being the wrong word, but what do you see as a great model? Is capitalism sort of what you perceive to be as, like, the ideal setup, as a professed libertarian? Or whatever the ideal is. If it is that, how can we improve it? What are the cracks in the system that you think, as far as policy or ideas that would make it more idyllic? What’s your takeaway?
Bob: I’m kind of an ideological libertarian. I’d like to see a much more expanded role for private initiative. And in markets, that means private businesses, but in social settings, it means private initiative in other ways. Social help agencies, charities, and all kinds of things. I just would like to see that realm expanded, and relying on a tax, spend, bureaucrat, civil service, rule-and-regulation kind of approach minimized. On the other hand, I’m not a utopian. I don’t think that markets bring perfection on Earth. I think they do a better job, but we will always have problems. There will always be some people that struggle, and we want to help them, and there’ll be inequality and if that’s a concern, that will exist. That’s one difference between, like, socialists and capitalists, I think. Hardcore capitalists like myself, we actually don’t sell a utopic vision, whereas socialists do, and that’s, going to your earlier question about why socialism is so popular, part of it is that they sell a very utopian vision. Give us the power, and we’re going to…the land of milk and honey, and we’ll get rid of racism.
Capitalism, we don’t sell that. We simply say, “Hey, I think private initiative is a better mechanism for solving our problems.” Whether the problem is how to get food on the table or have a roof over my head, or how to help that poor guy down the street who doesn’t seem to be able to help himself. So, I’m kind of a soft libertarian in that sense. I’m also realistic. We’re never going to not have government. We’re always going to have a government. And we’re going to have a lot of bad rules and regulations. And to me, the battle is just minimizing that damage, frankly. Keeping the state in its proper role. If it has a role, it’s going to be pretty limited. Pave the roads, have the cops arrest the robbers, have the courts enforce the contracts, but keep that government kind of constrained, and then pretty much let people figure it out. Let our own initiative. Civil society is underappreciated these days.
Meb: Sounds altogether reasonable. As you look back in the past year, the pandemic was sort of this economists’ crazy test case of totally weirdness, some of what we’ve seen before, but in more modern times. But as we come out of it here in late 2021, you guys doing in-person with some students now, or do you, as you talk to the younger folks, what’s on their mind? What are the conversations? What are they worried about? What are they excited about? Is it just everything crypto all day? What’s the thought?
Bob: The students, we are back pretty much full time. Of course, I’m at a fairly expensive private university, and our business model is to charge $50,000-some to, frankly, fairly wealthy kids, mostly, and online education was not something we knew was going to fly very long. We did a little bit of it last year. So, we’re back to normal, but I teach MBAs also, and that’s a very peculiar slice of the student population, so I can’t really generalize too much. I did teach undergrads today, though, and I can tell you, we had a really good conversation about this book. So, we talked about democratic socialism, and there were, even at SMU, there were obviously quite a few people in the room who were very enamored with Bernie Sanders and democratic socialism. And I tried to softly nudge them in the direction of suggesting that those things aren’t the greatest ideas, but even here, it’s definitely an issue. Again, SMU is a strange place. It’s like USC in LA, so it’s not exactly a representative college population.
Meb: So, what else is on your brain as you think about the world in general, as you think about economics, and just where we sit in the 2020s? Anything got you scratching your head? Are you thinking about universal basic income as an experiment? What are you writing? What are you working on?
Bob: Like everyone else, I’m all of a sudden an inflation watcher. I just made a real estate… I sold a house and bought a house, and in the process, came away with a little bit of money, and I stupidly didn’t borrow enough. I should have leveraged the heck out of the house, figuring I should take the bank’s money today, which is worth a lot, and pay them back over the next 30 years with money that’s going to be not worth a lot. But I stupidly didn’t borrow enough on the new house. But one of the things that I’ve talked to Ben about for the book is that there’s some interest in the publisher about a revised and expanded edition, maybe a paperback. There have been some changes in Venezuela, some changes in Cuba we could update, and then, I wanted to do a chapter on the universal basic income.
Now, it’s not really socialism. The example I wanted to look at was the permanent fund in Alaska. Alaskans get this free check every year from the oil money. It’s basically a basic income. I mean, the check has gone down a little bit over time, but it’s still, like, $1,500 per person or something like that. It’s a good amount of money. You know, family of four, it’s six grand. It’s meaningful money. I’ve heard… I don’t actually know for sure on this, but I’ve heard that when the checks come out, and they all come apparently on one day. I don’t know why they don’t spread it out over 12 months, but they apparently release these checks… Everybody gets their checks at the same time. And I gather that in Fairbanks, which is in the interior, I gather every crazy person from the countryside comes to Fairbanks and just blows their check and it’s a great party. I kind of want to go to Fairbanks on the day the checks come out and just watch the party. And I think it could be a fun chapter, but also could be a little bit instructive about why I’m a little bit worried about the basic income idea. If you’d given me free money when I was 18 years old, oh, my goodness gracious.
Meb: A hundred percent. Same way.
Bob: I would not be where I am today.
Meb: It’s funny. I was trying to Google and see what the day is, because I will totally come join you for it, as long as it’s not… Well, I would say as… I wouldn’t say as long as it’s not in winter, because I want to go skiing up in Alaska in the winter, so almost at any point, I would love to go out there. All right. Economist hat, you can put on your feedback for my idea. So, I wrote an article last year, and I’m a huge free markets capitalist guy. And so, I’ve spent the last decade, one of my ideas is just trying to, how do we make capitalism more inclusive? And I go the opposite direction as to most people. I say, “How do we get more people to be investors, and understand this concept of being an owner?” And you’ve seen a big shift recently, in, over the past decade, a lot of celebrities, athletes, musicians, where, across the board, when they make big money, it’s through business, not their career.
So, yes, like MJ is a great example. He made plenty of money from endorsements in his career, but you start to make the big money on a lot of the business ownership. Anyway, as I was talking about universal basic income, I said… And this was when Yang was talking about it. I said, part of the U.S., American sort of ethos, it feels like, is this enterprise, hard work, this concept, and welfare, understanding the concept, is totally useful for people with really hard times, disadvantaged situations, but I was, like, it just needs a little bit better marketing.
And to me, Alaska has an interesting concept, which is, like, “Hey, we have this shared resource. We should all benefit from it as residents of this state.” And so, coming up on this concept of, like, almost the “Freedom Dividend,” is what I had described as, like, give it a little better marketing, where you somehow tie it to, whether it’s GDP, whether it’s some investable component… Market cap of the stock market’s harder, because that involves speculation, and can go all over the place. But almost is like, “Hey, look, we’re all in this together.” Whether you do it as a baby dividend, you’re born here, you get a check that you can’t spend, and maybe it sloughs off a certain amount of dividends or income. I don’t know. It feels like there’s something a little more palatable about that, where it’s like we’re all in this… We want to cheer for capitalism. We want to cheer when Amazon hits a trillion market cap, as opposed to everyone getting really angry about it. Is there anything there? Is that a terrible idea?
Bob: No. I mean, I think there is something there. I mean, again, I kind of outed myself as a bit of a skeptic on basic income type ideas, but the current welfare state’s a mess, and in a very technical sense, it’s a mess because of what economists call marginal tax rates. You get certain points in the income scale, that if you make $10,000, then all of a sudden you make $10,001, your Medicaid goes away, for example. I don’t know what the number is, but the point is we have a lot of things in our system, in the current welfare system, that are designed actually to push you away from enterprise, and towards your living room couch, quite frankly. It’s inexcusable, and there’s got to be a better way, and I think what you suggest is that that other way is if you can replace a lot of the really bad kind of welfare programs we have, and then, the marketing of it, yeah. Tie it to GDP. That’s a great idea.
I know someone that wants to tie congressional salaries to GDP. So if the GDP goes up and you get paid more, and if you have a recession, your pay goes down. I love that idea. But yeah, to the extent, there are a lot of, again, it’s a market…trying to get people more invested in the marketplace, literally vested, in the case of an actual investment, but maybe more vested in a more broad sense, is certainly a good idea. I mean, I think 401(k)’s have done that a lot. And I’m not a huge fan of these, sort of, guys day trading in their basements, to be fair, perfectly fair. I think a lot of these people are going to regret it, but at the same time, it’s hard to turn someone who day trades into a socialist. At least you understand that, hey, that …
Meb: They might be once they lose all their money. It should be socialized losses. So, it’s funny because, like, the same thing… This is another one of the, we had, like, five points in this article. Another was on the retirement side, it’s so needlessly complex, and it’s tied to your job. I said, you know, Australia has this, like, universal retirement, where the default is you have to invest, like, 10% of your salary in retirement. And you talk to everyone in Australia, and they love it. It’s just simple. It’s just like so complicated. A lot of these ideas, they have brushstrokes, in my mind, of being interesting, and it just all comes down to incentives. How do you get people to behave in a way where the incentives line up? Because if you just pay them to sit on the couch, they will. But if you come up with the right incentives, they cause a positive outcome that seems like a win-win for everyone. Anyway, off my soapbox.
Bob: I’m with you there. I’m going to sound very old-fashioned, but I don’t know if you want to talk about the forgiving student loans, but the other hot topic, basic income, the other one is, if you don’t think we should forgive student loans, you’re apparently some kind of evil ogre. I think we need an old-fashioned virtue here. Pay your bills, people. I mean, no one had a gun to your head telling you to take out loans so you could go Bryn Mawr and major in French literature. I mean, pay your bills. It’s an old-fashioned virtue, an old-fashioned ethic. Apparently, we have a lot of people now just think, “Oh, no, we shouldn’t have to pay that back.” I’m like, “Well, no, wait a second.” People are going to say, “Okay, boomer.” And that seems to be the standard response to that kind of statement that I made, but my goodness, talk about absolutely, desperately poor people. People who are really struggling and they…that’s one thing, but we’re talking about people who went to Bryn Mawr, and I realize they’ve got $100,000 of debt and they’re struggling to pay it back, but my gosh, you’re not living in the gutter. You’re working at Starbucks. It’s fine.
Meb: My offshoot, that I really struggle with, and as a professor, you spend all this time educating students, and so, my number one was always, and this one usually creates a fair amount of pushback, is I often bemoan the lack of education in the public school system about money. Forget personal finance, just anything money, investing, day-to-day related, and it’s like 10% of high schools teach anything related to money and finance. And so, to me, it’s always like we should start teaching money in, like, elementary school, in some format of it that’s relatable, because you get an 18-year-old who’s a bowl, a soup of hormones, who doesn’t understand anything about debt and money, and you can see why they made stupid decisions, because their parents, half the time, are as bad or worse. I 100% agree with you. I just wish there was a bigger foundation for getting people educated to understand how money works.
Bob: Well, it’s funny. I run the Bridwell Institute for Economic Freedom here, and we have a little program that works on curriculum for school teachers. And Texas has a mandate to teach economics, and part of that mandate is to teach personal finance. And we have a little curriculum we developed on personal finance, and it’s very much, very old school. It’s save a little bit, and it’s even, like, little basic things. Like, if you don’t drink a soft drink at dinner, over the course of the year, it adds up to, like, $500. That’s $500 you get in your savings account if you just drink water when you go out to eat. But I tell you, it’s been shocking at the pushback we’ve had from teachers.
Meb: What’s the main argument?
Bob: These kids, they’re too poor to make good decisions, or too… They don’t want to say dumb, but that seems to be what I hear. Too dumb to make good decisions. It’s like, “Whoa…” It’s very shocking, especially when it comes from school teachers, they, “Aww these kids. They’re never going to be good money managers. They’re never going to get out of debt.” Like, wow. I think, A, that’s insulting, but if it’s even a little bit true, it’s depressing. But I don’t think it’s true.
Meb: The thing that drives me nuts is the number one argument I hear, and this is from professionals, often, and it drives me nuts, is “financial education doesn’t work.” And I say, look, let’s say theoretically, that was even true. It’s not, but let’s say it’s true. That’s either a failure of the curriculum, you’re teaching just dumb stuff that doesn’t either resonate, or it’s some obscure, abstract theory, as opposed to something relatable, so the problem is the curriculum, or, B, the delivery. Like, you’re a terrible teacher, I’m sorry. And in on a world of setting it up in a way that it can be solved, and we’ve done a number of podcasts on this topic. So I’m bullish on the opportunity…
Bob: I saw a high-school-level curriculum, wasn’t ours, of personal finance, and they were talking about mortgage-backed securities, and tranches and… I mean…
Meb: Dude. Come on.
Bob: What the heck is this about? It was basically like a dumbed-down college textbook, which is, I guess, fine if you’re a finance major at SMU, you should learn that stuff. But if you’re a sophomore in a high school, and probably not going to college, you don’t need to know about mortgage-backed securities. You need to know what a savings account and a CD is. You need to know how compounding works, basic things, but it was basically… So, a lot of the curriculum that you see in high schools, it’s just dumbed down and very inappropriate college curricula.
Meb: I think the way you frame it, and again, going back to everything’s about narratives and framing, I say, you should call the course something like “money and freedom.” People get excited about our money, wealth, and freedom. People get excited about that. You talk personal finance, and you start doing some really complicated time value of money calculations and stuff, that’s just really, like, abstract, but you’d be like, “Look, this is how you buy a house. This is how you become a millionaire. This is what you…” Anyway.
Bob: No, I think everyone should know how to calculate the 12th coupon payment on a 30-year corporate bond. I mean, whatever.
Meb: And if you were to rank the 20 idiotic courses I took in high school that never used again, money and freedom would’ve ranked higher than all of those. Like, there’s so many that are absolutely useless, and enough of my rant. But, professor, this has been a blast. If you want to follow your writings, check you out on the web, see what you’re up to, where do they go? Any good places?
Bob: Use the search engine, the one that starts with G, and type in Lawson SMU, and you’ll get there. I mean, it’s no reason to memorize any URLs. I don’t even have a fancy website. But, again, I’ll put a plug in for the Bridwell Institute for Economic Freedom. We are the home, the academic home, to not only the Economic Freedom of the World Index, we have a state index. So you can rate California, which is terrible, by the way, versus Texas, which is much better. You should move to Texas.
Meb: Who’s the top three?
Bob: Usually it’s Idaho, and Texas is in the top three, typically. It’s got to be a no income tax state, because that really is a driver of that index. We even have a city index. So, Dallas, Houston, LA, Wichita, whatever. We are the academic home for…and anyone’s in the Dallas area, we do a lot of public events. People can show up and we’ll usually give you a drink and a hors d’oeuvre, and some hopefully not boring speaker…
Meb: Awesome. Not surprisingly, it’s probably a lot of locations that are seeing the influx of immigration across states the last year or two, seems like a one-way highway out of this parts, down to Austin, and to Florida. Idaho, I mean, if you ever seen Napoleon Dynamite, I don’t know how do you not love that place? That’s like number one on my fishing to-do list, is to go down the Salmon River, so, I’m a big fan of that place. You got to answer this. Give me your… It doesn’t have to be a rank. I give you a chance to give a couple answers. In your top five beers, what do you got? Any favorites?
Bob: I have to confess, I drink Miller Lite more than any single beer, but that’s because I drink a lot. And…
Meb: It’s easy when you’re drinking water.
Bob: NFL Sundays start at noon. Well, here, they start at noon, actually 9:30 when they have a London game. They don’t end till, like, 11:00 at night. So it’s a Miller Lite for me on those days. But I do have a soft spot for, Matt Kibbe, good podcast guy, he has convinced me that I like these real hazy, double-hop, dry-hopped IPAs. And I don’t normally like IPAs, but these don’t have that sort of pucker up sweetness that some of them do. So, the dry-hopped, I really like those. Brand-wise, I don’t really have one that’s better than the next. I don’t know.
Meb: Despite some of my friends classifying me as a beer snob, which is not true, I am completely at home and happy having a Miller Lite or a Bud Lite on a hot day. Some of the, like, lite Japanese beers, even a Korean Hite is a solid beer to have with food. One of my buddies in college was a bartender, and they have the taps of all the lite beers, so, Bud Lite, Miller Lite, Coors Lite, and he’s like, “Meb, the big secret was they were all Miller Lite.” No one could tell the difference between the biggest distributor of Miller Lite on the East Coast … because you know how you can get the samplers one time, and my friends, we were trying to settle the argument that, they said you couldn’t tell the difference between a Bud Lite and Miller Lite, Coors Lite, and a Budweiser, I think what it was. Half the people got them all exactly right. So I think you can tell a big difference.
Bob: There is a difference. I mean, I don’t get uptight. If the bartender pours the wrong one, I’ll still drink it.
Meb: Yeah, yeah, yeah. Totally. And the hazy IPA is funny, because I have a friend here who is 100% convinced that something in the hazy won’t give you a hangover, and I can personally attest to that being absolutely not true.
Bob: That’s not true. There’s no alcohol that won’t give you hangover. I’m sure of it.
Meb: Professor, it was a blast. We’ll add links to the show notes. Thanks so much for joining us today.
Bob: All right. Thanks, Meb. It was fun.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us firstname.lastname@example.org. We love to read the reviews. Please review us on iTunes, and subscribe the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.