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Heartland’s Tim Benson is joined by Andrew Leigh, Assistant Minister for Competition, Charities, Treasury and Employment, and Federal Member for Fenner in the Australian Parliament, to discuss his book How Economics Explains the World: A Short History of Humanity. They chat about how ingenuity, greed, and desire for betterment have determined our past, present, and future. They also discuss why Europe colonized Africa instead of the other way around, what happened when countries erected trade and immigration barriers in the 1930s, and how property rights drove China’s growth surge in the 1980s
Creators & Guests
Host
Tim Benson
Ill Literacy, the newest podcast from The Heartland Institute, is helmed by Tim Benson, Senior Policy Analyst for Heartland’s Government Relations team. Benson brings on authors of new book releases on topics including politics, culture, and history on the Ill Literacy podcast. Every episode offers listeners the author’s unique analysis of their own book release. Discussions often shift into debate between authors and Benson when ideological differences arise, creating unique commentary that can’t be found anywhere else.
What is Heartland Daily Podcast?
The “fire hose” of all podcasts produced by The Heartland Institute, a national free-market think tank.
Hello, everybody, and welcome to the Illiteracy Podcast. I'm your host, Tim Benson, a senior policy analyst at the Heartland Institute, a national free market think tank. This is episode a 166, 167, somewhere around there. Not usually very good with the episode numbers, but, that's in the ballpark. But, anyway, for those of you, just tuning in for the first time, though, basically, what we do here on the podcast is I I invite an author on to discuss a book of theirs that's been newly published or recently published on, you know, something, someone, some idea, some event, etcetera, etcetera, etcetera, that we think you guys out there would like to hear a conversation about.
Tim Benson:And then, hopefully, at the end of the podcast, you go ahead and give the book a purchase and give it a read. So if you like this podcast, please consider giving ill literacy a 5 star review at Apple Podcasts or wherever you listen to the show and also by sharing with your friends because that's the best way to support programming like this. And my guest today from the future, from tomorrow is, doctor Andrew Lee, and, doctor Lee is a member of parliament in the Australian House of Representatives, where he is assistant minister for competition, charities, and treasury, and a federal member for Fenner in the Australian Capital Territory. Before that, he was a professor of economics at the Australian National University, and he is the author of a slew of books, including Randomistas, How Radical Researchers Changed Our World, What's the Worst That Could Happen, Existential Risk in Extreme Politics, and Fair Game, Lessons from sport for a fairer society and a stronger economy. And, he is here today with us to discuss his latest book, How Economics Explains the World, A Short History of Humanity, which was, published here in the United States in early September by Mariner Books.
Tim Benson:So, doctor Lee, thanks so much for coming on the podcast. I do appreciate it.
Andrew Leigh:It's a pleasure, Tim. Great to be with you.
Tim Benson:Oh, no problem. Yeah. Before we get into any of that stuff, though, I actually just thought of it. I should probably anytime I talk to, an Aussie, I always go out of my way, even if they didn't have anything to do with the production of it, to thank them for, Bluey, which has, basically, taken over my, son's life, and it's just a a fantastic, awesome show of that was, one of the more pleasant surprises of of, being a father was discovering Bluey and, being, engrossed in that world. So they're I mean, Bluey mania is worldwide now, and, you know, you basically go in any toy store or Walgreens or, you know, CVS Pharmacy or anything like that, and you will find Bluey merchandise, Bluey toys, Bluey DVDs, you know, all kinds of Bluey stuff.
Tim Benson:So the Bluey people are making money hand over fist, and they deserve, every single penny that they're getting because the show is fantastic. So,
Andrew Leigh:the economics of Bluey are something to behold, aren't they? It's a bit like, what Taylor Swift does for, for young women, Bluey does for young kids.
Tim Benson:Yeah. Yeah. It's just, I just love that show so much. And, so between yeah. My my son, between Bluey and, the crocodile hunter, Steve Irwin.
Tim Benson:I'm trying to think what else he's, I'm surprised he's not, he's not talking like one of you guys as of yet, but, you know, I'm not
Andrew Leigh:Well, hopefully, back to the outbacks on his, watch list too if he hasn't consumed
Tim Benson:it already. Back to that. Is that, back to that. Is that a
Andrew Leigh:Tim Tim mentions animated, movie. Is that
Tim Benson:the one with the snake? Yep. Yeah. He's in the the snake is in there. I forget the plot.
Tim Benson:I I think he's watched it once, but I was, like, busy doing other stuff, so I wasn't really paying attention. I know there's I know it's in Australia or it's in Sydney. Oh, Finding Nemo. That's another one he loves. Yeah.
Tim Benson:He's just, he's totally just engrossed in all the with you guys. You know? So,
Andrew Leigh:I'm glad to hear that the, the cultural capital doesn't just flow one way.
Tim Benson:Yeah. Yeah. Yeah. Yeah. Absolutely.
Tim Benson:Alright. Yeah. So enough Bluey talk. Although I could probably talk about Bluey, you know, all day long, actually.
Andrew Leigh:But,
Tim Benson:so the book itself. So what, what made you wanna write this book? What was, the genesis of it? And then you you mentioned in the book there, you know, 3 things you you you really set out to accomplish with the book. What were those?
Tim Benson:What are those things?
Andrew Leigh:I as an economics professor, it always struck me that e can the biggest insights from economics actually came in 1st year. The things we taught students then around, scarcity, around trade offs, not making the sunk cost fallacy were pretty straightforward concepts, concepts I could happily explain to my noneconomist aren't. And yet many people were turned off economics because they saw it as being too complicated. I even tried a book for noneconomists that told the story of our discipline, how the discipline developed, was the story of of capitalism, how markets emerged, and then also tried to use the tools of economics to shed light on some of the big questions, like why the North won this the US Civil War or, why it is that, taller people earn higher wages, to use a few of the tools of economics, to shed light on things that people might think of as as non economic.
Tim Benson:Gotcha. Alright. So I guess let's start at the beginning with, prehistory and, you know, what, how do we even get to the point, you you know, how do we get to agriculture? How do we get to the point where there even is a an economy, a world economy of of of any sort? How did how did farming, mark a turning point in that world economy?
Andrew Leigh:Well, humans have been around for a few 100000 years, and for the vast majority of that time, we've been hunter gatherers. Settled farming emerges in in what's known as the fertile crescent, in the area of, Middle East, which has, good soils, regular flooding, and a set of crops which lend themselves to being domesticated. In those areas, communities discovered that they could, plant crops, tend them, and, get bigger output than they would if they were just roaming from place to place. They could also then afford to fence in animals and to to get the benefits that come from specialization, which is pretty hard when you're a hunter gatherer. Pretty much everyone's occupation in a hunter gatherer community is food finder, whereas, when you've got settled agriculture, that allows you to have people who are, experts in, in building pot in making pots or building houses and the like.
Andrew Leigh:What's striking though about the agricultural revolution, Tim, is it doesn't really lead to a big increase in per person living standards. If anything, people seem to be a little bit shorter and their diets were less varied. What the agricultural revolution enables is a big increase in the population, but it doesn't drive up living standards or life expectancy of the period. And that's very different from the industrial revolution that, we might come to later.
Tim Benson:Right. Yeah. Because you basically your diet, if you settle on one area, especially at a time when, you know, trade routes and things haven't really developed, then you're basically stuck eating, you know, whatever is in your, you know, your general area. So, you know, if you were a hunter gatherer or whatever on the move, you know, you're gonna find you're you're gonna have a more varied diet, and, you know, I can certainly see how that or, you know, probably even a more protein rich, diet as well. That's probably why you're you know, you see this, you know, the stunting of growth after the, after the agricultural revolution.
Andrew Leigh:Yeah. That's a great point. And so diets, contain less meat after the agricultural revolution, more kind of, starchy grains, but you don't get the mix of nuts and berries. One of the other things that happens is you start to get urbanization, which means a lot of people crowded together with pretty unsanitary conditions
Tim Benson:Mhmm.
Andrew Leigh:And disease spreads much faster through those communities, than it did when people were in smaller tribes roaming the savanna.
Tim Benson:Sure. Alright. So, one thing I actually thought was interesting, I didn't I haven't really thought about much other outside of the context of the American South, you know, in the antebellum period before the civil war. But why did the the great ancient civilizations, you know, Egypt and Greece, Rome, etcetera, you know, they left these, tremendous, you know, monumental works and these works of engineering, like the Roman aqueducts or, Roman roads or what have you. But why did they not pay closer attention towards developing labor saving devices, devices that make work easier to do and quicker to do?
Andrew Leigh:Well, one of the things about, labor saving devices is you don't really need them if you've got plenty of labor. And so in civilizations like the Roman Empire, you have huge, share of the population who are enslaved people. So in in that environment, a lot of the, inventions are for tinkering and toys rather than for in making labor more productive. That changes as, as labor becomes more scarce and the the cost of labor go goes up. But in these civilizations, you get, some significant breakthroughs, the mathematics of the, the Greeks, the aqueducts of the Romans, but somewhat less than you'd expect, if, if labor had been more costly.
Andrew Leigh:One of the classic examples is the water driven windmill, which, sorry, the, water watermill, in order to Right.
Speaker 1:To Right.
Andrew Leigh:Drain. Water, watermills are invented, in the latter period of the Roman Empire, but barely used. And it's not until, the, about, 1100 AD that you start to get, water mills proliferating through Europe.
Tim Benson:Mhmm. Yeah. I was also, it reminded me of the I was you're an economist, so you've probably heard the story, the the probably apocryphal story, but the other one about Milton Friedman when he's visiting, I believe it's communist China, and that, you know, they're building a dam or something like that, and they have all these workers out there with, like, shovels and, you know, building the dam. And, you know, Milton Friedman's like, Well, you know, why don't you just get some earth movers and, you know, you could do this much quicker and much more efficiently? And and the answer from the communist official or, you know, whoever's running the project is, well, you know, we don't do that so we can employ more people this way, you know, employ more of the peasantry and and and give them jobs by giving them, you know, by not having the earth movers.
Tim Benson:And so Milton Friedman's response in return is like, okay. Well, then why not just give everybody spoons instead. You know? You can so so you could, you know, ploy restoring. Yeah.
Tim Benson:Yeah. So you can employ much more people, if you give them spoons, you know, to dig with instead of shovels. But, anyway. Oh, a little bit. This is found in June.
Tim Benson:There's a little, in the book, there's these
Andrew Leigh:I don't
Tim Benson:know if you call them sidebars or, inserts that are into the chapters, but then, are sort of related to the, to the chapters themselves, but a little bit separate. So, I guess you call them sidebars or inserts or something like that. But, anyway, there's, one in there I found interesting was the, the economics of religion. Could you speak a little about that? What are what are, what are the the economics of religion, or how does that work?
Andrew Leigh:Yeah. So, I mean, one of the notions of the economics of religion is that, competition really matters. So if you look at the period of the pre Abrahamic religions, Judaism, Christianity, and Islam, they all emerge, at a time of intense religious competition. You also see differences in, churchgoing rates that have to have to do with religious competition. So North America has traditionally had higher rates of churchgoing than Scandinavia.
Andrew Leigh:North America has far more vibrant competition between different faiths than Scandinavia where there tends to be a a state religion. So competition can, can not only help explain why you, you you see different, behavior in the market for cars, but also in the in the market for faith as well.
Tim Benson:Gotcha. Alright. Oh, this is interesting. The the black death or the the bubonic plague, how did the, how did the black death provide a dramatic, illustration, dramatic example of economics in action?
Andrew Leigh:Yeah. So the Black Death is, a massive hit to, to to Europe. You've got something something in the order, of, of of half of the, the the population, in, a city like Cairo, 3 quarters of the population in Florence, and overall, the European population falls by about a third. That immediately leads to scarcity among workers, and, European real wages double. Then you've got the, the effect on, land rents with fewer people to, to rent the land.
Andrew Leigh:Suddenly rents decline, and that changes the power balance in Europe. Feudalism is already on the on the wane when the Black Death comes along, but the Black Death effectively kills off the last of feudalism because workers become more valuable, land becomes less valuable, and, and the the peasants are able to, stand up for themselves. And you can see the improvement in living standards, Tim, as, it can meet consumption increases, beer production increases, which is one marker of living standards in in that era, and farmers then respond by shifting their production towards more land intensive agriculture rather than labor intensive agriculture. They behave the way you'd expect given the change in relative prices. Workers are costlier, so they, they look for crops which require, less manual labor to harvest them.
Tim Benson:Right. Yeah. So if you were a peasant and if you somehow made it through the black death, you were in a you were in a pretty good spot or or or or relatively, you know. I mean, I'm sure being a peasant in the middle ages was just pretty much sucked all around, but, you know, you had a your life would have been, or your earning power would have been drastically better, you know, post black death than pre black death. So everyone you might have know have been dead.
Tim Benson:You know? But but, you know, you were you were sitting pretty at that point. Yeah.
Andrew Leigh:Absolutely. Better to be born a century after the Black Death and the century before it.
Tim Benson:Sure. Yeah. Also this, also, I guess, talk about the specialization, the birth of specialization, and the importance, to the world economy of specialization.
Andrew Leigh:Yeah. So we often think about, specialization in terms of what what each of us do. You're a wildly successful podcast host, and so it makes sense for you to focus on being a podcast host in case someone else to cut your hair. For most of us don't, fix our own cars. We don't, brew our own beer.
Andrew Leigh:We don't make our own wine. We pay other people to, to do those things, and then we focus on what we're good at in the labor market. And so too for a country, specialization can improve prosperity. Countries differ in natural endowments in terms of the, the skills of workers, and therefore some countries are are better at producing particular products. If we if countries are able to focus on what they do comparatively better, then we can raise world living standards.
Andrew Leigh:And this insight led to the creation of the Bretton Woods Institutions after World War 2, and the steady reduction in trade barriers, which is part of the reason for the rapid economic growth, that came in the decades after World War 2. At times when the world economy has been more open to trade, we've benefited from the specialization that nation nations engage in.
Tim Benson:Right. Alright. So moving along, I guess, into the age of sale, and how did the age of sale really, dramatically change, the world economy?
Andrew Leigh:Yeah. So you've got some significant changes in, shipping technology that come just in the period, before Columbus and Degama set sail. You've got, sturdier ships. You've got better hulls. You've got different rigging design that allows the ships to go further, and that enables these extraordinary, voyages, which help to open up trading routes, and to, to build prosperity.
Andrew Leigh:Columbus, of course, didn't have a great idea of where where he was going. He thought he was charting a passage to India. So when he, hit what are now known as the the West Indies, he, he thought he was just west of India. As, anyone with a globe in front of him will know, the West Indies are, in fact, nowhere near India, and, and he was on his way to, to reach the Americas. That then opens up significant trading routes, to the benefit of Europeans and and to the massive detriment of native peoples, whose populations plummeted through disease disease flowing through.
Andrew Leigh:And then you had the, triangular trade beginning to emerge, in which, ships would, pick up, the enslaved people in Africa, take them across to, labor intense to colonies producing labor intensive goods such as sugar and cotton, bring back those those products to, Europe, and, take manufactured goods back around back around the triangle. And, and you have, huge numbers of, of people and huge amounts of goods being trafficked in this, this era of sale.
Tim Benson:Yeah. No. One of those other, sidebars I thought was really interesting, I actually had heard of this before, is the, the tulip bubble or the the the tulip mania that happened in Europe, around this time. Tell her the story of the, the tulip bubble because it's it's really, it's really interesting.
Andrew Leigh:So the tulip, tulip mania emerges, when tulips come across from the Ottoman Empire in the mid 1500, and then botanists discover that they can grow tulips, and infect them with the mosaic virus and create petals streaked with a second color. This, the epicenter of this trade is, is the Netherlands. And during the 1600, the record price for a a simple Augustus tulip bulb, was, the modern equivalent of 16,000 US dollars. You then have a, a massive massive crash, not quite as big as as as has been suggested. Prices fall around 2 thirds to 4 5ths over a 5 a 5 year period.
Andrew Leigh:And the tulip market is largely insulated from the rest of the financial sector, so you don't see a a complete collapse of the, the Dutch economy at the time. It really is the, the tulip bubble going going bust. But it's a reminder that, the value of a product is what other people are willing to pay for it.
Tim Benson:Right.
Andrew Leigh:And if you've got a Semper Augustus bulb in 16/24, it was worth an awful lot more than it was in, 16/20/26.
Tim Benson:Yeah. So who were these people in 16/24 buying $16,000 tulips? I mean, other than royal houses or, you know, maybe like the Rothschilds or the Medicis or somebody like that who, what is the market for a for a, you know, a a a 5 figure tulip?
Andrew Leigh:Yeah. So they're largely the producers at this stage, so the bulbs need to be, planted planted in summer. So producers are looking to buy the very best bulbs so they can produce them and sell them off. The the, the consumers are coming in on the, the the, once the tulips have, have have bloomed. Yeah.
Andrew Leigh:So it's, it's it's a kind of an insider's market, which is, which is going wonderfully well until, of course, it goes Until
Tim Benson:it's not. Right? Yeah. Yeah. Alright.
Tim Benson:Alright.
Andrew Leigh:I'm the person you're holding the bulb.
Tim Benson:Yeah. Exactly. You don't wanna be that guy. Alright. So the industrial revolution, we get to that.
Tim Benson:You, words, remarked in the book that really the best way to think about the industrial revolution, is to sort of understand it or see it as not just one, you know, monolithic revolution, but a set of interlocking revolutions. Could you, explain that what what is meant by that?
Andrew Leigh:Yeah. I mean, this is an insight of, the English economist, Robert Allen, also the American economist, Robert Allen, talking about what's going on in England, and he points out that there's not a single thing that, explains why the industrial revolution kicks off in, in Britain in the late 1700, but there's a there's a set of factors. Highly productive agriculture means that fewer people are required to produce food. There's an urban revolution, and so, the UK is is particularly urbanized at that time. That in turn fuels a commercial revolution, so there's these dense social networks in London, Manchester, and other English cities.
Andrew Leigh:You've got strong, network of banking, good laws, plenty of imports and ex exports. And then what, one one economist described, as a wave of gadgets sweeping across Europe. A whole lot of little inventions, the spinning jenny and the coal fired steam engine among them, just enabled by tinkerers everywhere. This, this character this characteristic of the periods that, entrepreneurship was encouraged, and the private property networks meant that if you came up with a good invention, you could be fairly likely to be able to commercialize it, not have the government steal it.
Tim Benson:Right. Yeah. So that, you know, leads to, as you mentioned in the book, the importance, you know, the the vitality to the, industrial revolution of, strong institutions, and that's something that, you know, is not just sort of to the the industrial revolution. Like, the properly functioning economies really, rely on, you know, these these, institutions, you know, you know, stable institutions to to make sure that an economy is, is stable itself.
Andrew Leigh:Absolutely. And so you see, in the Lotus Nobel Prize, Duran Acemoglu and co authors have have talked about the importance of institutions, but I wanna touch on that a little bit in in How Economics Explains the World. Their thesis in part, is that good institutions came in colonies where the disease risk was relatively low, In parts of, of Africa where, half the colonists were dying within the 1st year from malaria, colonists didn't tend to stick around. They engaged in extractive industries rather than things like building railways, and the countries have, not done as well as countries where the natural disease risk was lower, where colonial development was, less exploitative and more focused on building institutions, and where the physical infrastructure and the legal infrastructure is better.
Tim Benson:Yeah. Right. And one other, sign of the times with this with all the the development of all these new technologies, that really reshaped the world, during the industrial revolution. You have people who push back against these, these technologies. You know, the most famous example being, you know, the Luddites in England.
Tim Benson:I mean, I mean, you know, they basically lend their name to anybody who, sort of, you know, doesn't go along with technological changes because they have a, their livelihood is invested in the technology that is, or the prior technology that is likely to be replaced than that. So but, that's one thing that's sort of, we see this scare all the time anytime that there's some new, big invention or thing that's on the I know we're we're hearing a lot about it now with artificial intelligence, or, or, you know, even containerization, which we can talk about later. But, you know, we we had this, you probably heard about in Australia, this, you know, strike, this longshoreman's strike in the East Coast of the United States, and these longshoremen were, you know, seeking certain protections against automation, and, you know, they've been the longshoremen's union has been, you know, opposed to, any sort of technological advancement that might theoretically, you know, even lose one union member its job. So if if the longshoremen's union had gotten its way, you know, 40, 50 years ago, none of the ports on the East Coast would have any sort of containerization.
Tim Benson:They'd still all just be doing it by, you know, I don't know, rope and pulley and whatever. Anyway, so technological change, does it cause mass employment overall? Well, in the
Andrew Leigh:in the sectors in which it affects, it can certainly cause job losses. So I my first, job when I was in university, my first part time job was working at a, a law firm in the early 19 nineties, and at that stage, they had typing pools, a group of, of of people who were, all women, who were engaged to, type out the dictation of the lawyers. The advent of computerization completely destroyed the typing pools, and I know of no law firm these days that has a, a typing pool. So too for the impact, on the, on the Luddites of, the, the machinery that they were fighting, it was indeed costing jobs in those, those sectors. So the you can see why, why there is a concern among workers when a a mess a significant labor saving technology comes along.
Andrew Leigh:On aggregate though, these technologies haven't caused mass unemployment. Indeed, both the United States and Australia are now in what economists would call, full employment. A pretty remarkable situation with relatively low, unemployment by historical standards for both our countries, despite fairly rapid technological advances. We're gonna look at the next technological advance and say, well, maybe this one will be different. But, so far, we haven't hit a technology, that, takes all the jobs.
Andrew Leigh:What we've seen is technologies that cause labor demand to shrink in one particular sector, but it also to grow in other sectors, and I'm hopeful that'll be the case for artificial intelligence.
Tim Benson:Yeah. I'd be more worried about AI, basically killing us all before it takes all of our jobs. You
Speaker 1:know, like, I've
Andrew Leigh:been a big
Speaker 1:fan of the
Tim Benson:world makers.
Andrew Leigh:I didn't know any other technology where, if you ask the experts working on it, what is the chance that when AI capacity exceeds human capacity that humanity will end? The average answer is 5%. Given that we know that AI capacity will exceed human capacity at some stage in the next 100 years, 5% seems a, a pretty high risk. So I argue in how economics explains the world that, we could, take out a bit of an insurance policy against that, through better safeguards around artificial intelligence to ensure that we don't have unaligned artificial intelligence
Speaker 1:Yeah.
Andrew Leigh:And therefore that we get a future that is less like Terminator and, more like Star Trek.
Tim Benson:Right. Right. Yeah. Yeah. The 5% thing, it it's funny.
Tim Benson:It's reminds me of, that scene in the the film Oppenheimer where, Robert Oppenheimer and Leslie Groves, the the guy who's running the Manhattan Project, they're talking about the, or or Oppenheimer sort of just, like, casually mentions to Groves that, you know, there is the very small, like, theoretical, you know, possibility that, you know, once they let off the the Trinity test, that it just starts this chain reaction that just basically ends life on Earth. And, he's like, but, you know, with the the, you know, but the the chances of that happening are, you know, the you know, near 0. And, you know, Leslie Groves is like, well, I would, you know, I would prefer 0. Yeah. You know, that's sort of the same thing with with, with AI.
Tim Benson:It's like, oh, it's a there's a 5% chance that it'll, you know, wipe us all out. And it's like, 55% is not, you know, that's not that's not, like, 0.5% or, you know, or 0.0005%. 5% is chancy. You know?
Andrew Leigh:You wouldn't get on a plane with a 5% chance of crashing.
Tim Benson:Hell no. Absolutely not. Yeah. Anyway alright. So, Beyond AI.
Tim Benson:Alright. So this is also the time or oh, yeah. So we're in the industrial evolution at this point. So this is the point in time where England is gonna adopt the corn laws. So why don't you talk a little bit about, I guess, the, the debate between, around the corn laws, and then, go ahead and and tell us, just exactly why tariffs, sucker in a really in a really, really bad idea.
Andrew Leigh:So, the the corn laws are a, tariff on grain exports to protect local farmers imposed in by Britain in 18 15. And the result is that it it, after the corn laws are put in place, British wheat cost twice as much as Dutch wheat. And one of the, the early economists, David Ricardo, it makes his name through the his, his fight against the Corn Laws. He's a successful stockbroker, and, and somebody who, serves serves in parliament after having, effectively, bought bought his seats, in in the in the British parliament, but then writes about the value of, of trade and open markets to the British economy. And although he dies before the Corn Laws are repealed, the repeal of the Corn Laws is is traced in large part to his intellectual legacy.
Andrew Leigh:He's not quite as sparkling a writer as as Adam Smith, whose book, The Wealth of Nations, has been published in 17/76. But Riccardo is is nonetheless a powerful advocate of of that notion that I talked about before, that countries can can each benefit if they're able to specialize in what they do best, and trade between one another.
Tim Benson:Alright. Very well said. Alright. So, this is around the time as well that the the corporation as an entity is really gonna, take off as something that's going to, I guess you could say, dominate the world economy. So, the importance of the corporation to the world economy, both, both good and bad.
Andrew Leigh:Yeah. So corporations let you do a few things. Things. One is, specialization. So, if, if I've got a lot of money and you're a brilliant entrepreneur, then you can focus on your entrepreneurship, and I can invest in your venture.
Andrew Leigh:One of the other things is, to ensure that, the amount that I lose as an investor doesn't exceed what I put in. So the 1855 Limited Liability Act of the United Kingdom, makes sure that if a company collapses, creditors can take all its assets, but they can't then go after the investors personally. So you limit the downsides and therefore encourage the benefit for all of society in me investing in your venture. You can also, pull risk as well. So as in in, as as a, an investor, I might choose not only to invest in your company, but in 9 other companies like it, meaning that, that my portfolio of 10 companies is is less risky than it would be if I had to put all my eggs in one basket, as you often had to do, as an in investor, yeah, prior to corporations.
Andrew Leigh:Yeah.
Tim Benson:Oh, I actually just remember this. I was gonna ask you this earlier, but, forgot. So, I thought this is a really interesting story. The the impact on humanity of the modern mirror, which is invented in 18/35, it's basically been all downhill ever since, hasn't it, that once once we started this, you know, narcissistic, you know, gazing in at ourselves, seeing how we, you know, truly look, it just hasn't it's just been, you know, straight just declined since then. Yeah.
Andrew Leigh:Well, Tim, I mean, we do just take it for granted that we can see our image anytime we want these days. But, it's not until 18/35 when a German chemist called Justus von Liebig invents the modern mirror. He deposits a thin layer of silver onto glass. And as as the historian Stephen Johnson points points out, before mirrors came along, the average person could go through their entire life without seeing a really accurate portrayal of themselves. They get a distorted glance of of what they look like in a pool of water or in a polished metal, but no one painted the portraits of the everyday person, and so people really didn't get a sense as to what they looked like.
Andrew Leigh:The, the mirror creates, a more self centered world, which in turn helps to fuel capitalism, and the market system. And indeed, you could well argue that, the invention of the mirror creates demand for more mirrors.
Tim Benson:Sure. Yeah. I don't know. It's, I think that's one of those Pandora's box inventions that the you know, I mean, I'm I'm I'm sort of joking about it being the the downfall of humanity, but, you know, you can you can see the line from from the mirror to the, you know, the smartphone and the the selfie and all that sort of stuff. But,
Andrew Leigh:Yeah. It's it's gotta it's gotta have fueled into individualism to some extent. Sure. Made people feel more that the world was about themselves rather than being about their family and their and their community.
Tim Benson:Right. Oh, one more thing too. This was, interesting. One of those other, sidebars in the book. The, the the, in so for artistic types or people who who work in sort of creative endeavors, the there's the the conceptualist, and then there's the experimentalist.
Tim Benson:And, the difference, you know, what is what is a conceptualist? What is an experimentalist? You know, what is the difference between the 2, and how are they how do those 2 groups sort of, their, their art is is shaped by whether they are, you know, one or the other?
Andrew Leigh:So there's a fabulous economist at the University of Chicago called David Gelwinson, who divides creatives, as you as you say, Tim, between, conceptualists who are driven by a single breakthrough idea and experimentalists who tend to produce through a process of trial and error. Conceptualists tend to make their best work young. Experimentalists tend to make their best work later in life. So, Picasso, Raphael, and Vermeer are conceptualists, and their most valuable work is their the work they do at a young age. Rembrandt, Michelangelo, Cezanne are experimentalists, who do their their best work later on.
Andrew Leigh:And then what's lovely about, the, the typology that David Gelmpson comes up with is he then applies it to a whole other, realms. He talks about novelists, conceptualists, James Joyce and Herman Melville, the experimentalists, the old masters, Charles Dickens and Virginia Woolf, or then even to movie directors. So Orson Welles is a conceptual young genius. Citizens Kane's directed when he's only 26 years old. Clint Eastwood is an experimental old master, who only becomes an important director when he's in his sixties.
Andrew Leigh:So it's another interesting application of economics, to an area where I think many people would have thought economics had nothing to say.
Tim Benson:Yeah. Right. Absolutely. And one of those other sort of things people, when I realized, since you've actually written a a whole book about this, talk a little bit about the the economics of of sports or or sports as, you guys in the Commonwealth, call it. What, you know, what can we learn, from, you know, professional sports that can help us understand, you know, economic behaviors more broadly?
Andrew Leigh:Yeah. I mean, professional sport for economists is often a a laboratory for thinking about, how people make snap judgments. Nice research by, the University of Michigan economist Justin Wolffers shows that, NBA teams tend to give more fouls. The referees tend to give more fouls against, players of an opposite race, which is consistent with other work in psychology suggesting that when we have to make snap judgments, racial prejudices can come to the fore. Economists worry a lot about competitive balance and about the way the the factors that lead some sports to be less predictable, whereas others just have a, a long run at the same same team winning year after year.
Andrew Leigh:And, economists also think about the way in which sports can be, an environment in which we can understand, incentives. So for example, if a golf tournament has a really big first prize and a much smaller second prize, you tend to see better performance by golfers in that tournament, than if the first and second prizes are quite close.
Tim Benson:Alright. Okay. Alright. So moving on, and, actually, we're getting pretty close to how long I said I'd keep you. So, I guess let's, get more into the the present day and, sort of the, you know, sort of the pressing issue of the day or so inflation targeting and, you know, the concept of central bank spending, have they, have they been a success overall, would you say?
Andrew Leigh:Absolutely. So economists differ on lots of things, but one of the things we, we agree, to a great extent is that central bank independence, does make a big difference in allowing, in keeping inflation low. So New Zealand, pioneers this, requiring a central bank to keep inflation between, 0 2%, and other countries very quickly follow suit. Canada, the United Kingdom, Australia, and the the combination of central bank independence and inflation targeting, really does take us away from a world in which, double digit inflation had been commonplace, to a world in which, inflation tends to be low and stable. So even given the, the inflation breakout that we've seen in the the post pandemic years Yeah.
Andrew Leigh:In, the the work of central banks has has quite quickly brought that back under control. Now and you can see this, Tim, in inflation expectations. So throughout this period, the the thing that central banks have been most worried about, is that, the market would start to expect the inflation was going to be outside their target band, and that never happened. In, in all each of these advanced countries, when you surveyed market participants and said, what do you think inflation is going to be in 3 years' time? They gave you an answer within the, the central bank's target band, which speaks to the, the benefits of, central bank independence, and in and the inflation targeting regimes that have really been put in place right around the world.
Tim Benson:Yeah. But, you know, how did everyone miss the, the inflation that that happened sort of post pandemic, and there was something that sort of seemed to, take everybody by surprise, you know, a little bit? How did how did all the economists miss, that this inflationary period was going to was going to occur?
Andrew Leigh:Yeah. I mean, I think a little bit of it is, demand side, but mostly, it's the kind of supply side challenges. People didn't end anticipate the war in Ukraine. Putin's illegal annexation or invasion of Ukraine
Tim Benson:Sure.
Andrew Leigh:Really played havoc with a whole lot of markets. Ukraine's a big grain producer, and the impact on energy markets were also very substantial. You then had a a big run up in container costs, and all of these kind of supply side, factors, played into, to to very strong inflation. What's what's impressive though is the way in which it's come back, relatively quickly. Now you compare this to the inflation surge in the 19 seventies.
Andrew Leigh:It took, well over a decade to get back into control. This inflation surge really has been brought back brought back and, you know, and control within a couple of years, which is a testament to the, the central banks and to the institutions to give them the the independence to do their job.
Tim Benson:Yeah. I remember talking to my dad a couple years ago about, you know, when, you know, he and my mom bought, you know, their first house in, I don't know, you know, the early, you know, like, 1980, 1981, something like that, 82, whenever they bought our house. And he was like, yeah. Interest rates on the oh, and he's like, everyone's, you know, bitching now about, you know, having, like, a 7% or an 8% interest rate. It was, like, the interest rate on, like, when we, first bought the, you know, the house I grew up in was, like, 13% or something like that.
Tim Benson:You know? Something astronomical. Yeah. So, anyway alright. So then just sort of wrapping up, I guess, the the, you know, market failures, and, you know, we see these from time to time.
Tim Benson:Why is it why is it essential to address market failure or market failures for economies to prosper? And I guess, you know, in the same way for, people to, trust economists. You know? You know, why why do we really need to take action to address these market failures in one place? Whole host
Andrew Leigh:of market market failures, and some of it goes back to Adam Smith's work Adam Smith's work in the Wealth of Nations. He noted that there was a natural tendency towards monopolization, and that if you didn't have good regulations of, of firms, then cartels might develop in which producers set prices well above the cost of production, harming consumers. We also have the, the challenge that, when there's a recession, people naturally hold back and, refuse to spend because they're they're nervous that, that they will need their savings in order to support themselves. So the growth of the social safety net and the, institutions that have encouraged, Keynesian fiscal stimulus helped break us out of that cycle of unemployment that was so ruinous during the Great Depression. And then there's the the market failures that come through through, negative externalities, situations in which markets don't fully price in costs.
Andrew Leigh:Pollution is the biggest of these, and so institutions are developed that ask firms, to, to pay the cost of polluting, or put limits on their, their pollution, ensuring that we get, much cleaner cities than we have now. And I think the best, hope for addressing climate change is what's happened with urban air pollution. Pollution, as cities around the world used to around the advanced world, used to be much stinkier and more polluted, 2 2 generations ago than they are today. We've cleaned up our cities, and they've grown far more prosperous, so the the goal with climate change is to achieve the same thing, strong economic growth, the decarbonization that they're in the process, and checking those, those temperature rises.
Tim Benson:Gotcha. Alright. So, I guess we'll go to the the normal exit question that, everybody gets on the podcast. You might have talked about it a little bit already, but, you know, what's the what would you like the audience to get out of this book, or or what's the one thing you'd really want a reader to take away from the book having read it?
Andrew Leigh:So if there's one insight from, from economics, Tim, it's the notion of trade offs. That's the cost of doing one thing is typically, not doing something else. If someone asks you to, to, help them out on a Saturday afternoon, you should naturally think about what else you'd be doing at that time. If your boss asks you to, put more time into a different project, then you should think about what it is that you're going to be doing instead of that. Trade offs are really fundamental to economics.
Andrew Leigh:And then in terms of, the discipline itself, how economics explains the world is just aiming to open the eyes of non economists to a discipline that is endlessly interesting. We've talked today about the arts and sport. The book also delves into crime and wars. There's so many ways in which economics can illustrate, what's going on in the world. You don't need an economics degree to read the book.
Andrew Leigh:Indeed, it's written for people who don't have one. It's really just a, rollicking romp through, a couple of millennia of world history through the lens of economics, my favorite discipline, and perhaps when you finished yours too.
Tim Benson:Yeah. There's really a lot of, a lot of information packed into into this little book. And, I mean, it is a, you know, it is a for the listeners out there, I mean, you can't see the book. I mean, you can, you know, Google it or look at it on Amazon or whatever. But, but it's a, you know, on the smaller side, purposely so.
Tim Benson:You know, it's not a a giant home. It's not meant to be, but, you know, something that could practically almost fit in your pocket. But if you're, you know, if you're looking for sort of one book to really just, give you the, sort of sketch, you know, world history and and, the development of economics and the development of markets and, how we got to where we are, this is definitely a book to consider, especially, you know, say if you have, I don't know, a grandchild or a child that might just be entering high school or or something like that, a teenager that, you know, they're gonna be introduced to, economics in their in their studies in school. If you wanna give them a little background primer or something like that, it's just the perfect, perfect book, for something like that. So, highly, highly recommended for, everybody out there.
Tim Benson:Once again, the name of the book is How Economics Explains the World, A Short History of Humanity, and the author of the book, doctor Andrew Lee. So, doctor Lee, thank you so so much from, for, you know, coming on the podcast and from the future, to do this podcast with us, and thanks for putting up with me, in my, foggy brain here. We're recording this. It it was, started at 6 o'clock in the morning my time here in Florida. So, you know, 6 o'clock in the morning is not usually normally a time when I'm awake, but, you know, with the difference in the time, all the different I don't even know how many time zones apart we are probably.
Tim Benson:Like
Andrew Leigh:Most of them, I think.
Tim Benson:Yeah. We're most we're we're we're apart by most of the time zones. So, anyway so thanks for putting up with me and, my, you know, foggy brain. Thanks for coming on to the podcast and doing this, and, thank you so much for, you know, taking the time out of your, busy life. You know?
Tim Benson:And, I mean, you are actually, I think you are the first I think you might be the first actual politician
Speaker 1:Wow.
Tim Benson:That we've had as a as a guest on the show. Yeah. Yeah. Yeah. Well, most of them don't write you know, I mean, most of the books they write are, you know, shit.
Tim Benson:They're campaign books or something like that. So so I'm not really interested in those. But yeah. So, thank you so so much for taking the time out of your schedule. I know you're busy, and, thank you so so much for taking the time out of your life to, actually, you know, write the book itself so that we could all enjoy the, the fruits of your labor.
Andrew Leigh:Pleasure, Tim. Thanks so much for the conversation.
Tim Benson:Oh, no problem. And, again, if you like this podcast, please consider leaving us a 5 star review and sharing with your friends. And if, you have any questions or comments or you have any books, recommendations for, you know, something you'd like to see on the podcast, you can always reach out to me at tbenson@heartland.org. That's tbens0n@heartland.org. And for more information about the Heartland Institute, you can just go to heartland.org.
Tim Benson:What else? Oh, yeah. We do have our, Twitter x, Twitter account. You can reach out to us there. I don't even really know why people say x.
Tim Benson:It's just gonna be Twitter forever. But, yeah, so you can reach out to us there. It's at illbooks@illbooks. So same thing. If you have any questions or comments or anything like that, feel free to give us a follow there.
Tim Benson:And, that's pretty much it. So, thanks for listening, everyone. We'll see you guys next time. Take care. Love you, Robbie.
Tim Benson:Love you, mom. Bye bye.
Speaker 1:Our best things in life are free, but you