Episode 65. Property Rights and the UCLA School of Economics with David Henderson
"Capitalism and Freedom in the 21st Century" Hoover Podcast Episode Transcript
Jon Hartley and David Henderson discuss David’s career as an economist, the role of property rights and market competition in economic growth, as well as the UCLA School of Economics, Armen Alchian, Harold Demsetz, and the New Institutional Economics.
Listen to or watch the full Capitalism and Freedom in the 21st Century Podcast episode with David, which is hosted at the Hoover Institution Economic Policy Working Group.
Jon Hartley: This is the Capitalism and Freedom, the 21st Century podcast, an official podcast of the Hoover Institution Economic Policy Working Group, where we talk about economics, markets, and public policy. I’m Jon Hartley, your host. Today, my guest is David Henderson, who is a research fellow at the Hoover Institution, and an emeritus Professor of economics at the Naval Postgraduate School.He’s also an editor of the Encyclopedia of Economics. Welcome, David.
David R. Henderson: Thanks, Jon.
Jon Hartley: So great to have you on, and really want to talk about your amazing career, in economics and in communicating economics to the public, which I think you do so well. I want to start with where you grew up. Like me, you grew up in Canada, you grew up in Manitoba, Canada.
David R. Henderson: Yeah.
Jon Hartley: How did you first get interested in economics and make your way to study at UCLA with Harold Demsetz, who’s, you know, a legendary figure in study of property rights, the Nirvana approach? Tell us more about your early life and how you got interested in economics.
David R. Henderson: Okay, so like you, I grew up in Canada. I grew up in two small towns in Canada that you’ve never heard of, and I went to the University of Winnipeg. I started when I was 16, because I’d skipped a grade, and my birthday’s in November, so I was about a year and a half ahead of most people. And it was a 3-year degree in Canada, and there’s a reason that matters. I was a math major, and I was really good at it. I ended up winning the gold medal in math at the University of Winnipeg at graduation. Math didn’t grab me, though, in any really fundamental way. And so what… anyway, my first year, I read The Fountainhead by Ayn Rand. And it just… I was obnoxious for 6 months, you know? Kind of thinking you should be self-interested about everything, and my mother wants me to go get milk for her, and I say, that’s altruistic, you know? But anyway, I got past that. And started reading more of what she was recommending, people like Ludwig von Mises, and so on. So I… while I was doing math part of the day, I was educating myself in other parts, reading Henry Hazlitt, Economics in One Lesson. And I started feeling comfortable enough with the economic reasoning that I got in arguments with my calculus professor, my favorite professor there, who was a British socialist. And I remember one time. I kind of backed him into a corner, pleasantly, but he said to me, David. You won this argument. But I’m an econ… I’m a calculus professor. why don’t you go to the economics department and see how they handle your arguments? And I thought, you know, you’re absolutely right. Now, this happened in my second year, and as I said, it’s a three-year degree, so I didn’t start an economics course until my third year. And at University of Winnipeg, it was the whole year, you did one course starting in the fall, and writing your exam in May. And I knew halfway through. That whatever I wanted to be in life, it was not an economist, because it was so boring. We learned the Keynesian Cross model, we learned about perfect competition, where everyone produces the same thing, no advertising, no differentiation, it just sounded… perfect competition sounded boring to me. And then my libertarian club that I joined. had… we used our whole annual budget on hiring someone from the University of Chicago. We tried to get Milton Friedman, we couldn’t afford him, and we were recommended to try Harold Demsetz. And he gave 3 talks in 2 days. And it just opened my eyes to what you could do with economics and be at a good school, namely University of Chicago. So he had one talk in which he talked about how property rights can help solve the problem of pollution. he talked about how free markets raise the cost of discriminating on racial grounds, making it expensive to discriminate, and therefore causing less of it than if you don’t have free markets. And this was just so exciting to me. And I calculated, I must have spent between 10 and 15 hours with him, both in the talks, at lunches, driving him to the airport, and we drove him to the Winnipeg Airport. And he turned to me and said, you ought to come to Chicago and get a PhD in economics or business. And with my typical Canadian humility, which wasn’t put on, I said, I don’t know if I’m good enough. And he said, you’re good enough. And what I learned later was that if you didn’t think… if he didn’t think you were good enough, he said that too, I heard from other people. So anyway, That’s what got me, kind of, in that direction. I went down to visit him. two weeks after graduating in May of 1970, he recommended that I get all the past issues of the Journal of Law and Economics, so I did. And I was gonna start at the University of Western Ontario in the fall of 1970. Because that was recommended to me as the best kind of undergraduate program. I wasn’t going to get a degree, just a year of advanced undergrad courses, and maybe a grad course or two. And, Then something pretty awful happened that summer. My brother was 22, I was 19, and he committed suicide. And I didn’t want to go anywhere. I just wanted to stay around my friends, so I contacted the University of Western Ontario, explained the situation, could I come down a year later, and since they weren’t giving me money or anything, that was fine. And then I spent from 8 to 12, every morning. working my way through back issues of the Journal of Law and Economics, and that was just eye-opening. And every time I read an article by someone I thought was really good, I wrote the person’s name. and where the person was. And 5 coli… universities kept coming up. Chicago, UCLA, Duke University of Virginia, and VPI, which is now Virginia Tech. I applied at all of them, God accepted all of them. And, UCLA gave me the best offer. So, I ended up going to UCLA. By then, Demsetz had moved to UCLA. Anyway, that’s how I got into it.
Jon Hartley: Wow. And, Armen Alchian, was there at that time.
David R. Henderson: Yeah, and I kept writing his name down, so when I was in my second year. at the University of Winnipeg, I read this article he’d written called “The Economic and Social Impact of Free Tuition”, and it was just so beautiful, just such good reasoning, and he laid out how, the idea of subsidizing people to college… to go to college doesn’t make sense when the fact that they can go to college means they’re already kind of going to be in the upper rungs of the income distribution. And his analogy was, if an oil… if someone’s sitting on a patch of oil. and doesn’t have the money to drill, you don’t give him the money. At worst, you lend him the money, because he’s gonna be a wealthy guy once he drills. So your brain is like the patch of oil. And I… and so there was this… There was this commission to look into what they should do about university financing. And I just wrote it out, not even using a typewriter, just wrote out that argument, quoting him, also putting it in my own words, and submitting to this committee why they should be charging us higher tuition and not subsidizing us. So that was my first attempt to kind of lay out some economic reasoning.
Jon Hartley: Well, that’s fascinating. I know… at some level of UCLA has been, in many respects, a home for many Chicago School economists. At one point, I think they were calling it “Chicago West”.
David R. Henderson: Yes, Chicago West. When Sam Peltzman, who I went to visit when I first got there, because I… he was there last year before he went back to Chicago, he had a bumper sticker on his door, the University of Chicago at Los Angeles.
Jon Hartley: Oh, that’s great. That’s so funny. Yeah.
David R. Henderson: Yeah.
Jon Hartley: Well, I know many other, legends of… economics legends have been through there as well. Certainly, you know, Hoover’s, very own, John Cogan, as well as, now past John Raisian and, and Eddie Lazear. Eddie Lazear, attended as an undergrad, and, John Raisian and John Cogan were there for their PhDs. Many Hoover luminaries have been through UCLA as well. well. So I’m just curious, what… if you could define, like, you know. what, did they mean? You know, what were the ideas about property rights that folks like Harold Demsetz and Armen Alchian were coming up with. Explain, like, what exactly, you know, is the Nirvana Approach coined by Demsetz, and what exactly does that mean?
David R. Henderson: I’ll start with Alchian, and then go to Demsetz. So, the way I once summarized Alchian’s work is, you tell me the rules, and I will predict behavior. And so, you know, you tell me the particular property rights regime or absence of property rights, and I will predict behavior. And one of the things that was so great about Alchian is that… you know, the profession had become pretty mathematical by then. I went there in 72. And he didn’t do that. He could do math, he was good at it, but he thought you could be rigorous with words. And I learned that when he graded me, how I would just use words very loosely, and he would kind of write in the margin, no, that’s, you know, you don’t want to minimize this and maximize that, because you can’t do those at the same time. You know, stuff like… and so he just… that was just a great thing to learn from him. Demsetz was along the same lines. Demsetz wrote a piece in the AER Papers and Proceedings. It would never be published now, called “Towards a Theory of Property Rights”, and it’s one of the most read articles in the AER. And… you know, it’s just all about how, in Canada. when the various Indian tribes were catching beaver, and they didn’t, you know, they want to make sure they didn’t… someone didn’t encroach on them, and they had a kind of property rights set up. So he did all of that stuff. Also, there was this book on the UCLA economics school that I did with a fellow economics… a fellow graduate student at UCLA. And it was published by Fraser Institute. And I pointed out that if you look at the timing of this article he wrote, where he talked about what happens when you have things in common, it preceded by a year. the famous article, Tragedy of the Commons, by Garrett Hardin. It’s the most read article in Science Magazine ever, and and so anyway, he beat him by a year, but he didn’t come up with that term. So it’s just those kinds of insights that… and so Demp says it’s the same thing. You tell me the rules, you tell me the property rights, and I will start predicting behavior.
Jon Hartley: That’s fascinating. I know that this was sort of also a big, really critical to what I would say is the, you know, founding of new institutional economics. which, you know, folks like Daron Acemoglu and others are, I think, part of, and just arguing, you know, how much property rights, having good property rights, is essential for economic growth. And it’s interesting, you know, how many others, I guess, have gone through UCLA over the years, whether it’s, you know, Jerry Jordan, who became president of the Cleveland Fed. I think, Bill Sharpe, you know, the Sharpe ratio, he, he went through, UCLA…
David R. Henderson: Mr. Williams got his PhD a couple years ahead of me. We didn’t overlap. He left just, you know, months before I got there. So yeah, there were a lot of… a lot of heavy hitters. Could I get into the Demsetz and the Nirvana.
Jon Hartley: Absolutely.
David R. Henderson: So he wrote an article in the Journal of Law and Economics called “Information and Efficiency: Another Viewpoint”, and what it was, was essentially a critique of this piece by Kenneth Arrow, where he basically was saying, you know, Kenneth Arrow was using what he called the Nirvana Approach. You look at problems with the free market, and then you say, therefore we need government, but you don’t examine how government works. So people now call it the Nirvana Fallacy, but it was really the Nirvana approach, and it consisted of three fallacies, according to Demstitz. The grass is greener fallacy, the people could be different fallacy, and the free lunch fallacy. And he laid out how Arrow did all of… committed all of those fallacies in his famous article. So that was… that was huge, and that was one of the ones that we highlighted in our Fraser book on the UCLA school.
Jon Hartley: That’s fascinating. It’s amazing how, at some level, economists have been become so obsessed with market failure, and at some level, kind of forgotten about government failure, and I think at some level, you have to sort of balance those two out, but I think it… in Economics 101 classes, I think very, very few actually teach any concept of government failure, or, you know, what if you overcorrect for these externalities? What kinds of dangers, what if you can’t really measure social marginal cost? What, what happens from the government intervention, that, That’s, maybe overdoing it in response.
David R. Henderson: And what happens if the government officials don’t have the right incentives? And the way I’ve often put it, and this is quite in line with Demsetz, is, okay, you laid out how incentives in the free market can lead to bad results. When I’m not taking account of negative externalities, I over-pollute, etc. You forget to even look At the incentives that government officials have. And so, it’s just like… it’s just basic. You know, George Stigler, who picked up on… he was a colleague of Demsetz’s at Chicago before Demsetz was at UCLA, And George Stigler said, you know, when you’re looking at free markets versus government, it… most peop… most economists are… kind of like the judge in a beauty contest who sees contestant 1, and that’s it, and on that basis, gives the award to contestant 2. In other words, you aren’t even examining the way… the way government works, so that was a big thing with Demp sets.
Jon Hartley: Well, that’s quite something. So, I want to get back to some of your career, and you were a professor at University of Rochester, and you also were part of the Cato Institute very early on. I think a lot of people aren’t…
David R. Henderson: may not realize that the Cato Institute actually started in San Francisco on the West Coast. I mean, tell us about.
Jon Hartley: Some of those, early days, and, and what it was like being an economist. At, you know, at a time that was still before the Reagan Revolution, you know, free markets, you know, wasn’t totally… Something that I’d say was maybe fully embraced by the GOP at that point. I mean, the Nixon presents, you know, saw, you know, a lot of different things, from price controls, to you name it, you know, which is very, very different from. sort of the, I’d say the free market policies of the Reagan administration. I’m curious, what was that time like for you? And you obviously also went to serve in the legendary Reagan CEA that many others had worked in, including Hoover’s very own John Cochrane, as well as Paul Krugman and Larry Summers, and Marty Feldstein was the chair for part of it. As well as, Bill Niskanen. Tell us about, that sort of early career in economic policy for you.
David R. Henderson: Well, I want to start by talking about, how I decided that I wanted to do more popular writing and less academic writing. I was at University of Rochester. And I was doing academic articles and having trouble getting them published, because I was trying to top 5 journals. Shouldn’t have done that, but anyway, I did. And, I remember I was on a call with a friend of mine one day, and I was talking about this article, this academic article I was working on, and then I told him about this piece I’d done on the minimum wage for Libertarian Review. And he said, David, I want to point something out to you. When you talked about your minimum wage article, you sounded like the young, vigorous, excited David I’ve come to know and love. When you talked about your academic work. You sounded like an 80-year-old man who’s about to die. And I sat with that for a week and thought, you know, he’s right. And a friend of mine named Roy Childs, who was editor of Libertarian Review, we were talking on the phone a week or two later, and he said there was an opening at the Cato Institute for a policy analyst, so I applied for it, I got it, I was not a very good bargainer, and that’s a whole story about the wage I… the salary I accepted. But anyway, it got me writing every week. for a general audience. And then I went back to kind of thinking about Alchian. It’s like, how do you write clearly and accurately for a general audience, even to underst… even to explain kind of complicated points? And I got pretty good at that. And so I was writing… I was applying… I was, every once in a while, submitting things to the Wall Street Journal and not even hearing back from them, or hearing back that it was a no. You know, that’s when you sent things in letters, you remember letters? how you sent them. Anyway, But also, I should go back to one other thing, because this is all kind of setting the stage for how we decided to specialize in writing for a general audience. Finis Welch, who was this famous labor economist at UCLA, he’s the one who John Cogan and John Raisian studied under. I didn’t, but I was sitting in his… Labor economics class, and he one day asked us to guess the number of readers, number of… the average number of readers of a journal article in an academic journal. And we started at 100, and worked our way down, and finally the answer was 4. And I went home that night and said, do I want to spend my life writing articles that four people will read? Let’s say I’m 3 times the average quality, so it’s 12. Let’s say it’s a nonlinear relationship, so it’s 30. Like, still. So that was actually when I started submitting articles to the Wall Street Journal when I was a graduate student, and I kept getting rejections. But anyway, that set the stage. So, Reagan gets elected, and there’s a whole story there about… so, okay, when I was… when I was the editor of Policy Analysis, I wrote a, a defense of all these deregulating economists, people like Murray Wiedenbaum. Because the… the Village Voice had a really scurrilous attack on them, and I wrote a… my editorial was titled, “A Reply to the Voice”. And I sent copies to every… every economist who was pushing deregulation, just so they would know someone was defending them. And Murray Wiedenbaum wrote back a nice note. He was like Mr. Deregulation at the time. So one day, I’m driving home, I quit Cato and ended up teaching at Santa Clara University. I’m driving home from Santa Clara to San Francisco. And I find out on the radio that Wiedenbaum’s just been chosen as the chairman. So I get home, I call his office to remind him who I am, because I want to be a senior economist. And, they say he’s gone home for the day, so I just called the St. Louis phone book, 314-555-1212, and got his number at home, called him, and this is funny, it’s funny in a funny kind of way. his wife answered, and I later became kind of friends with her, but she answered, and I said, I heard Marty’s going to be the Chairman of the Council, and she goes, he is? So, he had… he’d accepted without telling her. That’s like… that wouldn’t work in my marriage, but anyway. So, he called me back, and then he said, yeah, he’d be back in touch, and then… they were dealing with the budget and tax policy. He had no time to be back in touch. Meanwhile, Cogan, John Cogan, we talked about, had become Assistant Secretary of Labor, and he hired me to be one of his assistants. That’s how I got closer to Cogan. It’s also how I got closer to John Raisian, who became a very good friend when we… because we knew each other in graduate school, but he was a year ahead of me, and, you know, we didn’t know each other well. Anyway, so I went there, and then once I was there, Wiedenbaum invited me over for an interview for Senior Economist, made me the offer, and I was going to be working under him and Bill Niskanen. Bill Niskanen was one of the members, but then Murray quit in July of… 1982, I was coming in in August, so he and I overlapped for only a few weeks. That was another interesting story. I had left the Labor Department on a Friday. My wife-to-be had moved from Santa Clara, where we’d met. She was an English composition lecturer. And, we’re planning out our next week of vacation before I start that job. And I get a call from Murray, and he says he’s talked to Marty Feldstein, his replacement, and Marty has asked him to invite all the people he’s made offers to not to come. Well, I’d been a summer intern at the Council of Economic Advisors in 1973 under Herb Stein and Nixon, and so I knew the kind of the gentleman’s rules, which is the person making the offer, it’s good no matter who comes in and replaces him. So I said to Murray, could you please tell Marty I respectfully decline his invite? I’m coming. So I got there, and overlapped with Murray for 2 weeks, and then Marty came in. And so, it kind of worked out. Well, that was another thing, like, I… I looked around, and I knew he was bringing in Paul Krugman, he was bringing in Larry Summers, and I thought, well, they’re not health economists. And I looked around, there was no one doing health economics, it seemed to me. And I hadn’t done it, but I’d read a lot of it, and I liked it. So I spent 2 weeks just boning up on health economics to be ready to make my pitch to Marty. And so, I would, you know, I’d… there was a health economist named Joe Newhouse, everyone’s heard of, and I’d read his work, and I’d call him up to ask him a question about it, and he’d take my call, because I’m calling from the Council of Economic Advisors, and I could tell by the way he answered, that was not a dumb question. And so anyway, Marty, the day after Labor Day was his first day, and he had all of us in this little room, maybe these, like, 12, 15 senior economists, junior economists like, John Cochrane and Greg Mankiw. I mean, you know, all these people that turned out to be heavy hitters. And, Marty said, I want you to go around the table and say your name and where you came from. And I thought, you know what, I’m gonna… I’m gonna take a chance here. So, when it got to me, I said, David Henderson, Labor Department, and I’d like to be the health economist. And I see Larry and Paul just kind of whispering and laughing, like, who the hell’s this guy? I go back to my office. An hour later, I get a call. The chairman would like to see you. It was his… it was Marty’s secretary. And I went down there, and marnie says, I hear you’re somewhat of a health economist. And I thought, do not over-promise. I said, well, two weeks’ worth, but I’m a fast learner. And he goes, you got it. So, I was the health economist under.
Jon Hartley: what was it like, I guess, you had people like Paul Krugman, Larry Summers, I mean, I’m sure there were probably others around, maybe Greg Mankiw came later and…
David R. Henderson: Well, he was there as a junior. He was there as a junior, yeah.
Jon Hartley: I mean, was it… clear that these folks were all pretty ascendant, I guess, in macroeconomics at the time, and…
David R. Henderson: Paul Krugman was already known for the work that helped win him the Nobel Prize, which is the monopolistic competition thing. Like, I think it kind of… the way I think he posed the question is, why is it, when we talk about specialization across countries, why is it that Sweden produces cars, and the United States produces cars, and Japan produces cars? Like, what’s this specialization thing? And he had this whole model, and that was… that was part of… And people knew about it, and so… I had a friend who was a fellow UCLA graduate a couple years ahead of me, Ted Freck, who visited me, and we were in the cafeteria, and he looks over, and he sees Paul, and he gives me a nice summary of what Paul had written, you know, and so yeah, and everyone knew Larry was really sharp. Very different personalities, by the way. Like, Paul kind of kept to himself. Larry was… outgoing, if you want to go into his office and talk about something, he was very welcoming in a way that St. Paul wasn’t. But, anyway, so… it was an interesting group. One thing, by the way, Marty and Bill did not get along. And so, the… health economics was fine, that was Marty, but Marty made me an offer to stay a second year, and I wanted to accept because I could always say, no, no, he didn’t just inherit me, he wanted me. So I accepted. And then Ben Zycher, who’d been the energy economist, left. And I… and I asked if I could take on that portfolio, because energy was dialing down. Reagan had done the good thing by adding the price controls, and I felt like I can handle both, and Marty and Bill said yes, and it was on that issue Where I was answering to both of them, and I had to learn how to do that without getting in the middle and getting both of them disliking me, and I think I ended up doing that pretty well.
Jon Hartley: That’s fascinating, and what a time to be there during the Reagan CEA, and…
David R. Henderson: Yeah.
Jon Hartley: You know, through, you know, there are a couple amazing tax reforms, That, you know, brought marginal rates down substantially, and, was the one change to the business tax code, really, in 30 years, and it wasn’t until the Tax Cuts and Jobs Act of, of 2017 that the U.S. was able to cut the corporate tax rate again. I want to just talk a little bit about, you know, your interest in getting into, you know, communicating economics to the public. I know we talked a little bit before about shifting from, you know, writing academic articles, which maybe a few people read, to. you know, writing more, more for the public. I mean, I think you were very early in, you know, communicating, to the public online, and, and, you know, you’ve been involved with. EconLog, you have a Substack now, you have the Concise Encyclopedia of Economics, which you’ve been working on for a long time. I’m curious, you know, what piqued your interest in these various groups, and how did that all start?
David R. Henderson: So, it really started with writing for Fortune. When I was at the Council of Economic Advisors, Ed Meese was a, you know, major figure in the Reagan administration, and he asked either Bill Niskanen or… or Marty, I can’t remember who, as a favor, could… could he kind of assign one of his senior economists for a few hours to help him with this speech he was making, critical of industrial policy? And I thought, yeah, I’m very critical of industrial policy. And when I started researching it, I went, oh my god, like, I’ve learned so much. And one of the big things was what I ended up calling the myth of MITI, that MITI, the Ministry of International Trade and Industry in Japan, didn’t plan the economy that much, and to the extent they tried, they failed. And so I wrote some of these things up for Ed Meese’s office, and I thought, this would be a great article. And meanwhile, I was talking to the Washington Bureau Chief for Fortune. whom I’d met at a conference a few years earlier, and he said, when you get an idea, write up a couple of paragraphs, and I did. He sent it up to New York, and they said, yeah, let’s get David… let’s get Henderson to do this, this piece on it, and they offered me an amount of money I’d never heard of. This is in 1983. They offered me 3 grand. With a 10% kill fee, $300. So, kill fee meaning if they don’t use it, because they don’t know who I am, and a two-week deadline. I thought, don’t bargain about money, bargain about time. So I asked for 3 weeks. And I just kept writing and rewriting and honing. Again, I got the economics, I got the facts, the whole thing was, make this sucker sing. And the first two paragraphs were so powerful, and I… I don’t know, I don’t think I can kind of quote them, but I can kind of… okay. In 1954, a small Japanese electronics firm asked the Ministry of International Trade and Industry, MITI, for permission to buy $25,000 in U.S. dollars in order to buy technology from Western Electric. MITI turned it down. The company tried again. MITI turned it down. The third time, it approved it. They bought the technology, it was the transistor, and the company, Sony, went on to great, you know, great profits, something like that. And so, I said it really well, but I really… and I remember when the fact-checker couldn’t find that. I went, oh my god, there goes my paragraph. So I tracked down the executive at Western Electric, who was way beyond retirement, who had made the deal. And I showed her, no, here’s what he said, and you can call him. And I saved that paragraph. And anyway, so that’s what kind of led me there, and then we were moving out here to the Naval Postgraduate School, and to be able to ever afford a house, I needed to write 4 to 6, book reviews or whatever for Fortune every year. And I made a deal with Dan Seligman, he was a great, great editor, and and so I did that for a few years. And then in 1990, time. Time and Warner merged, became Time Warner, and they wanted to do a joint project, some kind of encyclopedia of economics. And they asked Dan Sullivan, he was very economically literate, very good writer, and he said, I can’t do it. And they said, well, who can? He said, David Henderson. They said, who else? And he said, no one else. So they contacted me, he contacted me to tell me, so by the time the editor at Fortune, a woman named Ann Morrison, called me, I’d had two weeks to really think it out and outline, and when she called me, I just core-dumped. I just told her everything. She goes, well, we’re looking at one other proposal, but I think this is it. And so, anyway, that’s what led to… led to it, and… I got really good people in there. I got Paul Krugman, I got Larry Summers, I got James Tobin, and I wanted it to be mainstream, even if it’s a little bit of a free market kind of tint to it. It’s the kind of things that economists across the board, except sometimes in macro, could agree to. And I think it was very successful in that respect. And then it sold really well for that kind of book, over 10,000 copies, and closer to 15. But that’s not the kind of book Warner Books should have, and so it probably would have sold 30 if it had been the right publisher. Anyway, the rights reverted to me, and then later on, Liberty Fund came along and said. How about… We put it online. And then how about you do a second edition? So we called it the Concise Encyclopedia of Economics first edition, and then the new edition, which was way more work than I expected, was the second edition. So that’s kind of how that worked out.
Jon Hartley: Well, that’s amazing, and, you know, to your credit, I mean, working with, people like Ed… Ed Meese, is… it’s amazing, because he… Really transformed, the conservative legal movement. He, the Reagan DOJ in the OLP, when he was Attorney General, you know, he, was really, began this process of, hiring or appointing, originalist judges, and, I think that was a huge turning point, certainly for the conservative legal movement. And, there’s a great book, a recent book, called The Meese Revolution by Gary Lawson and Steve Calabrese that documents and details all this. But that’s really when the conservative legal movement started to get into gear, and it totally makes sense that he’d be interested in an economist like yourself, helping to write a speech on industrial policy, which again is very timely and, and relevant, again, today. Well, I really want to.
David R. Henderson: Can I add one more thing about that? Because I got going on industrial policy, and I don’t… I’m not… I don’t want to take too much credit, but I do know that there was this discussion of whether we should have a chapter on industrial policy in the 1984 Economic Report of the President, which was the major thing we put out. And I remember arguing strongly for it, and… and we ended up doing it, and I wrote… big hunks of that, of that chapter. Yeah.
Jon Hartley: That’s fascinating. I guess… in terms of arguments against… I mean, industrial policies, obviously, in the news again today, and I’m curious if you have any sort of thoughts. I mean, obviously, many economists are critical of industrial policy, you know, because of these arguments of picking winners and losers. One challenge with some of these arguments is if some sort of, policy case or defense, national security case that trumps, you know, economic concerns. I mean, there was a time when, you know, the U.S. didn’t trade much with the USSR, so why they called the USSR “the Second World”. And, they called Africa and emerging countries the third world. The so-called free world was the first world. They didn’t really trade or communicate between the first world (US and developed allies) and second world (USSR), right? And of course, you know, that might not be in the best interest, but there may be national security concerns why one may want to do that, why one may want to use government subsidies to reshore chips and so forth. But, you know, apart from that, you know, I think at some level, I think for the folks that want to really get on industrial policy, I think one challenge there is, that… I don’t think there’s necessarily, enough ideas that I think people have to even subsidize. Yeah, I mean, at some level, you know, one could make the case that, industry subsidies would be superior to simply just tariffs for… I think that there’s some reasons why one might want to do that, just so you’re not increasing prices on your own, your own population. But, I’m just curious, you know, I’ve always thought that maybe education policy is the best industrial policy or human capital policy, but I’m just curious, what your thoughts are, now, given that industrial policy is, kind of reignited this, the interest of, of, of economic policy people, I’m curious where you stand on these sorts of arguments, and what your… what your favorite arguments are.
David R. Henderson: So… The industrial policy being pushed in the early 80s is a very different… a very different motive from the policy being pushed now. In the early 80s, there was this idea that the government could choose winners, that somehow they could make good decisions, and that’s why the myth of meaty was so important in offsetting that view, that it was a myth. So you had Mondale, who’d made it a major part of his campaign in 1984 against Reagan, and I saw him… I saw Mondale coming, and that’s another reason I was pushing for having this chapter. This is how we can help our president and be saying things that we believe and that are important. So, now it’s more… because… and it wasn’t about national security, not really. Now it’s a different kind of argument, it’s a messier argument that somehow we need to subsidize, as you say, say, computer chips or whatever, in order that we don’t depend on certain supply chains that are… that could be at risk in a conflict. And that’s a messier one, and it’s… I still don’t think the government has really good information, or really good incentives, so I would still argue against that kind of industrial policy, but it’s a different argument. I mean, the argument is the same, but I’m arguing against a different thing.
Jon Hartley: Yeah, absolutely. And that’s, That’s a great historical context to… or comparison to draw. Well, David, I really want to thank you for coming on. It’s a real honor interviewing you, learning about the history of property rights, Harold Demsitz, Arminalk, and their thinking at UCLA, what your journey has been like as an economist, as an academic, as a policy maker, as a communicator. I really want to thank you for coming on. This has been a real honor.
David R. Henderson: Well, you’re welcome. Can I also just push for a minute my substack? DavidRhenderson.substack.com, and I call it, I blog to differ. And anyway, so, it’s been a real riot doing that for about the last year and a half.
Jon Hartley: Well, thanks so much, Dave, for coming on.
David R. Henderson: Thanks.
Jon Hartley: This is the Capitalism and Freedom in the 21st Century podcast, an official podcast of the Hoover Institution Economic Policy Working Group, where we talk about economics, markets, and public policy. I’m Jon Hartley, your host. Thanks so much for joining us.