Theories of Everything with Curt Jaimungal - Edward Stuart on Capitalism vs Socialism vs Communism

Episode Date: August 26, 2020

Edward F. Stuart is a Professor Emeritus of Economics at Northeastern Illinois University, where he teaches courses in international economics, the economics of the European Union, comparative economic systems, European economic history, and macroeconomic theory. 0:00:00 Introduction to Prof. Edward Stuart 0:01:11 Difference between Socialism, Social Democracy, and Communism 0:03:53 Social democracy vs Welfare State 0:04:32 What is State Capitalism? And does that characterize China? 0:08:05 Is China "successful" economically, because of Capitalism or Communism? 0:12:50 Does Stalin and his regime deserve praise for raising literacy rates, health care, employment, etc.? 0:20:30 What about Mao? (same question as above / before) 0:23:23 What South vs North Korea says about Capitalism vs Communism 0:34:39 Why North Korea will collapse economically and politically imminently 0:35:50 Not "real" Communism: Why equality doesn't happen in Communist societies 0:40:03 Difference between economic collapse, and a Depression 0:41:03 The conditions for Depression (and how it relates to the current US predicament) 0:54:22 The current US tariff's on China as it relates economic growth / protection 0:59:23 Is the US economy currently headed toward another Depression? 1:01:51 Why printing money doesn't always lead to inflation 1:04:15 Hyperinflation and how to paradoxically solve it 1:08:14 "Communism has killed 10's of millions?" True. 1:09:41 "Capitalism has lifted more out of poverty than any other system?" Partially true. 1:13:55 Can slavery be blamed on Capitalism given Capitalism needs voluntary exchange? (+ an economics joke) 1:19:30 What is "black envy" vs "white envy"? And does Marxism lead to "black envy"? 1:29:21 What are Edward Stuart's biggest differences with Richard Wolff? 1:30:58 Where you can find more from Prof. Edward Stuart 1:31:33 Bonus: Economics vs. PhysicsPatreon *NEW*: https://patreon.com/curtjaimungal Twitter: https://twitter.com/bluthefilm

Communism has caused tens of millions of deaths. Now, is that true or false? Yeah, it's true. The Ukraine famine of the 1930s, the... Would you say that that was a result of communism, though, or whether... Yes. No, that was deliberate policy of the Stalin government. I'm here with Professor Edward Stewart. Professor, why don't you tell the audience a little bit about yourself and what you're up to these days? All right. I was born and raised in Houston, Texas, so I'm a native Texan. I teach here in Chicago at Northeastern Illinois University. I'm mostly retired, but not retired from traveling,

taking students to Europe and teaching an occasional online class. And my main interest is comparative economics, a subject of my Great Courses series on capitalism versus socialism, series on capitalism versus socialism, and with particular emphasis on the former Soviet Union, Eastern Europe, and Western Europe. Great. There's a few terms that need delineating because many people mix them up, such as social democracy, socialism, communism. Why don't you go through those three and disentangle them? All right. It might be easier to start with the most extreme first, and that's communism, especially as practiced in the Soviet Union and its former satellites in Eastern Europe, and to some extent, it still exists in places like North Korea and, for all intents and purposes, Cuba. Full communism means the government ownership, the public ownership of all means of production

and all economic resources except labor, and a central plan that directs all of the production and distribution of goods and services within the economy. Socialism, social democracy means more social control of the economy, but has some room for private enterprise and also has some room for political diversity. Under Soviet-style communism, there's really only one political party and one political direction, and it's very centralized and non-democratic. So to contrast former Eastern European countries, and to some extent, Kurt, we still have a little bit of that going on right now in Belarus. What's happening in Belarus is that, to some extent, is a kind of a descendant of Soviet communism. The government still owns almost everything in the economy,

and there is one political party and essentially one political ruler, Mr. Lukashenko, who is under some, shall we say, protest right now. And so that's complete ownership and centralized political non-democratic control. Social democracy, socialism that exists in Western Europe and Scandinavia means that the government has a large role to play in the economy and may own some parts of the economy, but there's large scope for private enterprise and political contest, and also some role for market institutions and market decision making. And how does social democracy and socialism differ from the welfare state? Probably in the degree of ownership and social control. A welfare state, which we could describe

to some extent as the United States or Canada Canada means that there's mostly private enterprise, in fact, preponderant private enterprise, but a lot of social redistribution and social safety net. probably the least intrusive into a market economy and the least concerned with ownership of economic resources. When I hear people describe China, sometimes they'll call it state capitalism. What is state capitalism for the people who are listening? who are listening. Yeah, that's kind of a change mixtures that's hard to, it's impossible to categorize. Because in one sense, it has the hallmark of the Soviet economy in that there is one political party and centralized leadership and no political contest or political democracy. However, unlike the Soviet Union, there is a relatively large private sector in the Chinese economy that produces goods and services for profit, and the owners earn profits, and in some cases, into billionaires. The difference between, say, the Chinese economy and, say, the Swedish economy or the French economy is that the French economy has guaranteed

property rights and political contest, so that the people that own Louis Vuitton, Moet, Hennessy, for example, President Macron doesn't have the power and certainly beyond the realm of French politics for him to unilaterally expropriate the owners of that company and re-transfer the ownership back to the state. That doesn't happen in China. Xi Jinping and the Communist Party of China has the ability and the power to immediately socialize or take away the property of any so-called Chinese capitalist. So the state is more important in China than capitalism. So it's a kind of a hybrid and state capitalism to some extent is a misnomer. State capitalism is probably a better description of Nazi Germany, where there was one political leadership, one political party, no democracy, but the government of Hitler wasn't about to and probably couldn't nationalize Mercedes-Benz or Volkswagen or E.G. Farben or any of the capitalists

that essentially put Hitler into power. Then what would you describe China as, a mixed economy? I would describe it as limited communism, right? Because the state, the Chinese government, still owns a large proportion of the Chinese economy and still directs the Chinese economy, either directly through state ownership of enterprises, most of the big industrial enterprises, the steel companies, the coal companies, the power companies are owned by the Chinese government. government, or there are directions instituted through the People's Bank of China, the Central Bank of China, and to whom it lends money and to whom it doesn't lend money. Those aren't made on the basis of monetary policy or profit and loss. They're made primarily on the basis of directions from the standing committee of the Communist Party of China. When you talk to people who are more on the capitalist leaning end of the capitalist versus socialism,

sorry, versus communism spectrum, they'll tend to say that to the degree that China is successful, it's because of their capitalistic tendencies, their free market proclivities, and then the deleterious aspects are because of the state. And then when you talk to the people who love communism or love socialism, they'll say, actually, capitalism is what's wrong with China. And to the degree they were successful, it is because of their redistribution of wealth or their more state-controlled properties. What do you say? What do you think? What do you see? Kurt, you've just described why comparative systems is a great subject for four and five hour

bar conversations late into the night that never reach a conclusion. And the answer I say to that, being a good professor, is that they're both right. I think that in some sense, what China had to do initially was to achieve its independence from Britain and the colonial power in Japan that occupied it, educate the population, improve the basic infrastructure. But then in 1978, as I talk about in my great courses, Deng Xiaoping began the process of allowing some kind of market forces to operate, initially with regard to agriculture, but then eventually let Chinese business people exercise their entrepreneurial or capitalistic, if you will, talents and build up very impressive industries. I will say, Kurt, the Chinese had a little bit of an advantage over the Russians because when the Soviets took over in 1917, Russia really wasn't

a capitalist economy and there were no real Russian capitalists. It was a feudal economy run by the Tsar and the Orthodox Church. The Chinese have the benefit of the Chinese diaspora, the Chinese business people all over Asia, in India, in Indonesia, in Vietnam, in the Philippines, and to some, even in the United States. So there was a kind of entrepreneurial knowledge, a kind of business acumen that the Chinese state, the People's Republic of China, could draw on in terms of human resources. And my view of economic development is that the most important resource in any success story in economics is people, right? You can have all the machines and all the gold and all the silver and all the whatever, trees and water, but if you don't have a people that are motivated and educated, then you won't have any economic development. So the Chinese state kind of laid the foundation for a Chinese economy. And then the entrepreneurial talents of the indigenous Chinese and the Chinese diaspora were responsible for turning China into an economic powerhouse. And I must admit, I've taught in Beijing on three separate occasions, and the Chinese have always been, for thousands of years,

very, very favorable to education and to learning. And so there's a kind of a native drive that's deep in their history for learning and education, which is pretty much absent in my homeland. I see. Okay, so there's two advantages, entrepreneurial attitude as well as a prizing of education. You also mentioned one time before that communism was in China for much less of a time than it was in Russia, which is like 70 years ago. The Chinese revolution under Mao happened in 1949, and Deng Xiaoping began his reforms in 1978. And Deng Xiaoping began his reforms in 1978. So that's less than 30 years of pure communism.

Whereas in Russia, the Soviet Union started in 1970 and didn't end formally until Christmas Day of 1991. 74 years of a really, really anti-growth economy in lots of ways. I'm going to be a little bit polemical here. In the socialist subreddits, I don't know if you follow them on Reddit, but they like sometimes to praise Mao and to praise Stalin or at least defend them. And part of the reason is because they dislike capitalism and the people who are supporters of it so much that, and those people hate Stalin and Mao. Okay. You get the idea. One of, or here's a few, someone was saying this, well, when it comes to Stalin, he deserves like obviously some hate because of what he's done, but also some praise because here's a bullet point list. He's turned an illiterate peasant society into a full nuclear superpower in just 15 years, raised the living standards of his people, raised the employment rates, raised the literacy rates,

raised life expectancy, eradicated poverty and homelessness, eliminated food scarcity, gave his people free education, free healthcare, free housing, free electricity. Okay, that was quite a few bullet points. I know you have it on your end as well. Why don't you go through them almost one by one, take them as a collective to be communist and tackle them? Yes. One of the questions in Soviet studies, and that was one of my specialties in grad school at the University of Oklahoma, is to try to separate Stalin from Soviet communism and the system that was put in place originally by Lenin and Trotsky and Bukharin and other leaders of the Soviet Communist Party, most of whom Stalin ended up eliminating. And to ascribe agency to Stalin himself gives him way too much credit.

way too much credit. Yes, there was employment, full employment, but a large part of that full employment was prison labor, the gulag system. And most economists... Sorry, do you mind repeating that? It just cut off. Yeah. A large part of the full employment instituted by Stalin was prison labor, the gulag system that Alexander Solzhenitsyn so graphically illustrated. And all economists will agree that prison labor, slave labor is the most unproductive kind of labor. So the full employment… Why is that? Just because they're not motivated or they're disagreeable people to begin with? Yeah, they're motivated to do as little as possible, right? To be as unproductive as they possibly can.

To do the minimum to avoid sanction or worse. Is there not a way that you can incentivize them by saying, if you are a great producer of whatever it is, you have a lesser sentence or you get better treatment. Yeah, but that only goes so far. That's not the same kind of incentive that you get for a private person having individual satisfaction or group satisfaction that he or she voluntarily achieves. So, yeah. Right, right, right. Okay, so now we're getting back to Stalin's regime. Education, again, one of the great successes of the Soviet system

was its math and science education, more or less, although the Stalin system distorted education tremendously. The biology development was distorted by Lysenkoism. If you haven't heard of Lysenko, Lysenko was Stalin's pet biologist and really destroyed the field of Soviet biology by insisting on kind of cockamamie, hair-brained theorems of heredity and environment. And speaking as an economist, Soviet economics was not only worthless, but anti-growth because you had to believe in Stalinism. Kind of an eclectic view of economics. The same thing with sociology, history, anthropology. It was all in the service of the state. So while primary and secondary education in the Soviet Union was pretty good, higher education was abysmal.

Same thing with health care. Yes, you had free health care, but for the common person, it was pretty awful in the sense that it was hard to get, right? Why was it hard to get? Well, because there were not many physicians for ordinary people. The only real good physicians were assigned to treat Communist Party members. And physicians, one of the real problems with the whole Soviet economy is that, yes, everybody was guaranteed employment and guaranteed a salary, low salary. There was very little incentive for anybody to produce anything or to provide any service. So if you were a physician in a local clinic, you got a salary no matter how good you were as a physician, how many people you treated or how many people you didn't treat.

So if you were, let's say, a mother and your daughter had some kind of illness, like a bad cold or a flu, then the only way to get care and immediate care was to have some kind of bribery. One of the things that the Soviet economy generated was a whole system of bribery and favor doing to get around the planned nature of the economy. And Stalin also contributed to the death of tens of millions of Soviet citizens, first in the Ukraine famine of the 30s, and then in his disastrous leadership at the beginning of the Second World War when he either executed or imprisoned most of the Soviet generals and made the mistake of stupidly trusting Hitler and the Molotov-Ribbentrop Treaty, whereby the Nazis pledged not to invade the Soviet Union.

And when the Nazis did invade the Soviet Union in September of 1941, at first Stalin refused to believe it and essentially hid in his dacha. And fortunately, there were a couple of Soviet generals left, especially General Zhukov, who managed to create some kind of defense, but not before the Ukraine was occupied by the Germans. The Germans went through Belarus and laid siege to Leningrad and Moscow and killed at least a million Soviet soldiers in Stalingrad in 1942 and 1943.

So the legacy of Stalin is mainly dysfunction and blood and genocide against his own people. Okay, what about Mao? Now, some of the defense against Mao or for Mao is that he lifted hundreds of millions of people. He was a follower of Stalin, and so there was a – in the great leap forward of the 50s, there was mass starvation, probably in and careers of millions of scientists and intellectuals, the kind of people you need to build a modern, efficient economy. Probably the one positive thing I would subscribe to Mao is that he got rid of the Chinese addiction to opium. One of the horrible things about British colonialism is that the British carried out a military invasion of China to force the Chinese to buy opium that was being grown in India so that the British could earn some funds to pay for the tea that they were buying from India.

And Chairman Mao and the Chinese Communist Party got rid of opium addiction and opium sales. Now, they did it, obviously, with a police state and military dictatorship and capital punishment and so forth, but they did rid the Chinese economy of its opium problem that was created by the British colonial powers. Did Mao lift hundreds of millions of people out of poverty? That's one of the bullet points that I have from the social subreddit. Probably not. He lifted, lifted may not be a right word. He guaranteed a certain amount of food. The Chinese expression is the iron rice bowl, that every Chinese family was guaranteed a minimal amount of food,

primarily rice. family was guaranteed a minimal amount of food, primarily rice. So he might have cured some starvation in most of the parts of China. In order to do that, he essentially did what Stalin did in Ukraine, which is mandatorily requisition rice crops from rice-growing regions and redistribute it to the cities and the northern parts of China and created starvation in the rice-growing regions that he had expropriated their crops from. When talking about capitalism versus socialism, you also mentioned that the North Korea versus South Korea is like a comparative economics professor's dream. Now, it's not a double-blind test because it would be strange if you didn't know which country you belong to. Right.

But you have a control. It's just not blinded. So I'm curious. Tell us about it. And you have a control group because the Korean Peninsula, prior to the 1950s, was essentially one country and one culture. The other comparative systems professor's dream experiment was East Germany and West Germany. It was essentially one country, one culture. one country, one culture. And the really good thing about both the East Germany, West Germany comparison and North Korea, South Korea, is that when they were divided into communist and non-communist, the communist part was the rich part. So in 1949, when Germany was divided into communist East Germany and liberal capitalist West Germany, East Germany was the rich part. And the same thing with North Korea. North Korea, at the time of division, North Korea was the rich part and South Korea was the poor part. and South Korea was the poorer part.

In Germany, the region around Berlin and Leipzig and Dresden and those parts of what had been Prussia, that was the industrial part of Germany. That's where the German war machine came from. And the western part of Germany, especially southern Germany, Bavaria, I sometimes insult my German friends, Bavarians, as the hillbillies of Germany. They were rural, they were poor, they were Catholic, they were illiterate, all of those things go together. Catholic, they were illiterate, all of those things go together. Really, until the post-war 1940s, when the U.S. Army came to southern Germany, and the Marshall Plan, and the Conrad

Adenauer government, and the beginnings of the EU lifted southern Germany out of poverty into the terribly, terribly wealthy part of the world that it is today. South Korea, the same thing. In the 1950s, South Korea specialized their major product, fish paste and T-shirts and hair. That South Korean women would grow their hair, cut it off and send it to Japanese women for wigs. And that's what South Korea produced. And North Korea had steel mills and lumber mills and textile mills. And it was the rich part.

So that was a nice conclusion. To jump in that that's to say that because generally wealth begets wealth when you have two states that are similar except for wealth and then you follow them across time and that flips then and obviously only one trait was different yeah and the only trait was the system right right right now but if it went the other way where the wealthier state became wealthier, then that would say less because you're unsure if it was – Yes, exactly. If North Korea had stayed wealthy, then the people who believed in communism would say, well, it's because of communism. But you could say, well, it's also because they were wealthy to begin with. The beauty for a comparative systems person is that you impose two different systems and the capitalist system was imposed on the behind part. It was like you started a race and the winner was the guy who started 10 yards behind.

You'd have to say that he was a better runner. Okay, so then does that make it decisively clear that capitalism is as a whole better than communism? Yes, I would say yes. What about socialism? Now, let me go back, Kurt, because South Korea is a great example of state capitalism. One of my favorite economists these days is a Korean economist who teaches at Cambridge. His name is Ha-Joon Chang, and he's written several books on economic development. And he's also written a kind of primer on economics called the ABCs of Economics. on economics called the ABCs of economics.

And from him, I learned the real story of the South Korean development. And it wasn't private enterprise, free market capitalism. All of a sudden, there was no regulation, no government, and these industries just developed out of entrepreneurial zeal and private enterprise. The South Korean government in the 1950s and the 1960s had a real, you could say, Hamiltonian, Alexander Hamilton, economic plan. And that plan was to use tariffs and quotas, economic protection,

and state-directed development of food. So the South Korean government told the Samsung company that they couldn't make fish paste anymore, that that was not going to be their primary product. That's hilarious that Samsung used to grow vegetables or it was a food company. Yes, and a very primitive company. And the leadership, to some extent a military dictatorship in South Korea, said, no, you are going to make electronics, simple electronics. And we will protect you. We will put tariffs and quotas against Japanese electronics, German electronics, American electronics.

against Japanese electronics, German electronics, American electronics, and we will invest in, the Korean government will invest in education by producing engineers and scientists and metallurgists and so forth, and that's what you will do. The South Korean government told the same thing to Kia and Hyundai, that you will start to produce cars, And we will protect you from Japanese imports. We didn't protect them from American imports in the 50s and 60s, because Americans were making horrible cars. From Japanese imports and German imports.

And the original Korean cars, the Kias and the Hyundais and the Daiwos, that were produced in the 70s and 80s, were terrible. You wouldn't want to buy them. But South Korean consumers had to buy them because they had no choice. And eventually, as we know, Samsung and Kia and Hyundai and LG, LG was actually two companies. It was Lucky was making electronics and Gold Star was making home appliances. And the South Korean government told them to merge and to realize economies of scale. And so LG now produces television sets and TVs, but also home appliances as well. When you say the government told them to merge, are you saying that they incentivized them to merge or actually mandated them to merge? And if they didn't, they would go to prison. They did both. Exactly.

They said we will – the Korean government ran the monetary system, so we will lend you money to build an electronics factory. We will not lend you any money to make fish paste, and if you make fish paste, we'll put prohibitively high taxes on it so nobody will buy it. threatened to send them to prison, but the U.S. government controls at its power, the Korean government forced, for all practical purposes, a change of direction for the large South Korean conglomerates that now dominate their economy. Now, how did North Korea fare? Well, the difference between Samsung as an automobile producer, and I'm not sure North Korea produces automobiles, but the people at Samsung, if they did a good job, earned profits, right? And had big incentives. The people that work in a real communist enterprise, no matter what they produce or not produce, they get the same money.

All they have to do in a communist economy is meet the quota for that month. One of my favorite stories in my Great Courses course is about the Soviet shoe factory, right? That it's given a quota of producing 10,000 shoes. So it produces 10,000 size 10 left shoes, right? Because that's the easiest thing to do, to produce one size, one half, and one color. So the capitalism – That's a true story that actually happened? Oh, it happened in all kinds of Soviet enterprises. And they don't get penalized for that? No, they don't get penalized.

The director might get replaced or there might be more directions. The director might get replaced or there might be more directions, but yeah, that's a lot of the output. It reminds me of the monkey paw where you have to be careful of exactly how you word what you wish for. It's like I want to become rich, and then you just become money yourself. You've become money yourself. Yeah. Well, and that's one of the reasons why communist central planning systems break down is that it's – in the Soviet Union, if you told one factory to produce 10,000 size 10 black boots and another factory to produce 10,000 size 10 right boots, then everybody's going to get boots. And if you have no shoes, no matter what size you are, you're happy to get a size 10, right?

Maybe you're a size 3 or a size 11, but having boots is better than going barefoot, right? But once you get a certain level of development, and for something as complicated as a little transistor radio, right? There are different components that have to fit together and it's really hard to plan complicated production. So you need some kind of incentive. It could come from the state.

It could come from private enterprise profits. That's what drove drives. Samsung, LG, Kia, Hyundai. The Japanese did the same thing with their automobile industry. cars that were exported were horrible. But the Honda I drive today, I always tell my students, dollar for dollar, Japanese cars are the highest quality per dollar that you could possibly buy. Okay, so now in North Korea, you also mentioned that you believe it's going to have an economic collapse at some point. Yes, and a political collapse, because they all do. It's just essentially a straight line projection, right? You would have predicted, you would have been accurate to say that at some time in the future, Belarus would have a political crackdown or an explosion, and that's what's happening, right? Same thing did happen in China in 89 in Tiananmen Square, and it will happen again, right? It may not happen in Tiananmen Square. It may

happen in Hong Kong, but at some time in the future, China will have some kind of a political upheaval or an explosion, and the same thing will happen in North Korea. The wants and desires and wishes of the population will be so antithetical to the wishes and desires of the very, very small ruling elite that the system will break down. And you say ruling elite, but as far as I know, communism is supposed to be a system where everyone is equal.

And you also mentioned that in the Soviet Union, the doctors had favorable service to the people who are members of the political party. Right. But then isn't that real communism? No, that's not. Yeah. No, real communism is kind of like real free enterprise, right, where there's no government and there's no monetary system and everybody is a voluntary trader. That exists maybe in heaven or hell, I'm not sure, but it doesn't exist on earth and never will. But in the oft-quoted phrase of George Orwell, we're all equal. Some are more equal than others, right?

So that in the Soviet Union, for example, the leadership up until the Gorbachev administration, the leadership were very old men, right? And it was a very small number. It was in the Politburo, 12 or 13. And those people exhibited almost complete control over the entire economy and the entire society. Same thing is in Belarus, the same thing in North Korea, more or less the same thing in China china the same thing in cuba cuba will have a some kind of a of a political revolution at some at some time in the future who knows when um how do you

go ahead you think the cuban system is doing um in some senses what's your evaluation of it because some people will say it's great there's free health care there's no homelessness right people have homes people have education people the literacy rates are one of the highest in the world and actually the literacy rate is is the achilles tendon of of dictatorial regimes because when people get they can read and they and they can realize that they don't live in paradise right at the yes there's free healthcare, but it's – But that would only be if they're able to see what's happening in the outside of the world like East Germany did for West Germany. So given that Cuba doesn't have freedom of press or freedom of – not freedom of information, freedom – There are tourists. There are relatives of Cubans that live in Chicago, right? And there's the internet these days. It's almost impossible to keep a place completely isolated, except if you're North Korea.

Yeah, but even there, right, there are smuggled in cell phones. And so, yeah, North Korea is probably, in some sense, Kurt, it may be the last, but also it could be one of the sooner implode just because the system is so dictatorial and so dysfunctional. And so the most brittle, you would say. The advantage for Xi Jinping and the leadership of the Communist Party is that since 1978, a billion Chinese, somewhere between 100 million and 200 million have done rather well, right? Still half of the population still lives in what may be called near poverty, right? Very, very substandard housing, not much access to medical care, very limited access to jobs and nutrition. access to jobs and nutrition. So it's not a weak system, but there's a relatively large part of the population in China that's well off and if not supportive of the current communist Chinese government, at least accepting of it. And what's the difference between an economic collapse and a depression? Depression simply means that economic activity declines.

The system doesn't disappear. Collapse means the system is fundamentally changed. So when East Germany collapsed, the government-owned East German enterprises all disappeared, and McDonald's and Burger King moved in. I remember being on a subway in East Berlin right after the fall of the wall, and the Ninja Turtles were advertising Burger King. How soon afterward? One month. The wall came down in November the 9th, 1989,

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What are Galbraith's conditions for depression? Yeah, that's one of the books that I talk about in the Greek court and one of the books that when people ask me, well, what should I read about economics and especially the stock market and collapses and things like that, I always recommend Albrace's The Great Crash, right? Which is his analysis of the 1929 stock market crash. And still to my slightly biased view, the best analysis of why the stock market crash of 1929 occurred and why the subsequent Great Depression was so serious. So his five, and some of them we still have. No, but some of them. Sorry, some of the five we still have, you said. Yes. Yeah.

Well, I'll differentiate which ones we have and which ones we don't have. The first thing he mentions is gross wealth and income inequality, which obviously we still have. Just to butt in, were they able to measure the Gini coefficient back then? And is it comparable to what it is today? That's a good question, Kurt. Well, they could have measured the Gini coefficient because Corrado Gini invented it in the 1930s. Well, so they couldn't have, right? Can we do an analysis like a record? Yeah, yeah, we can do it now. You can use tax records and income statements and wills and so forth. In fact, Kurt, that's just on a

sidelight. That's one of the real advances in economic history research, is that there are now really, really good sources of micro data that economic historians are using to analyze the 16th and the 17th centuries, especially in the British colonies of North America and looking at things like wills and baptismal records and church records and some tax records. And so there are Gini coefficients for pre-revolutionary America in the 1700s, right? So the Gini coefficients for the United States have just hit what they were, just hit in the last year or so, what they were in 1929, right? And the reason that wealth inequality is so damaging and so predictive of stock market crashes is that the more money you have, the more risky you can afford to be,

right? If you have $100, you really can't afford to lose anything because you need all of that to pay for food, clothing, and shelter. If you have a couple of billion dollars, you can gamble three or four million in a risky stock. And if it goes bust and turns into zero, you're really not going to be harmed that much. So one of the things that extremely wealthy individuals do is they have a much higher appetite for risk, for junk bonds, for mortgage-backed securities of questionable value. So the country becomes more risky because those with wealth take more risks? It's not because of the perception of injustice from those who are on the lower end of the income distribution having riots and overturning the system? And the people at the lower end of the income distribution?

Sorry, the reason why I say that is that the Gini coefficient is highly correlated with the amount of crime in a given region. Crime isn't necessarily correlated with systemic change or political revolutions. I see, I see. It's correlated with crime. The other end of the wealth distribution is poor people in order to have to borrow money, have to get loans, have to take out payday loans or title loans on their car or their motorcycle. Or as in the case of the U.S. Great Recession of 07-09, working-class people took out home equity loans. took out home equity loans. And when they start- Sorry, I'm just going to butt in. Every time that I miss a word, it might not be missing for the people who are listening. It might just be that my headphones got cut off, but I heard you just

say home equity loans, correct? Yes. Home equity loans are what middle-class and working-class people in the United States in the early 2000s used to support their standard of living. It's what they used to pay rent, to buy cars, to buy television sets, appliances, to take vacations, right? But when those kind of people lose their job, they default on their loans. They default on their loans. Yes, right. They can't pay them back.

And so the bank or the finance company that lent them money collapsed. It was bankrupt. That's the first thing, the first cause of the stock market crash is that a lot of wealthy people put money into very risky investments. is that a lot of wealthy people put money into very risky investments. The second thing that Galbraith talked about is the corporate structure. Corporate structure? Right, the nature of corporations, the ownership, the issuing of stock. One of the things that didn't exist in 1929 was the Securities and Exchange Commission. That wasn't instituted until Roosevelt's New Deal in 1943. The Securities and Exchange Commission regulates, sometimes well, sometimes not so well, the financial reporting and the information at publicly traded corporations

disseminate. So, for example, as I think I mentioned in my Great Courses course, the only company that I actually own stock in myself is Starbucks. So as a stockholder, I get an annual report. It tells me how much money they make, what their expenses were, and how much money they have in the bank. And I have a pretty good feeling that those numbers are mostly accurate. Now, I think for Starbucks, they're mostly accurate because of Howard Schultz, the founder and the CEO. But even if he wasn't a good guy.

They're mostly accurate because of Howard Schultz? Yeah, the CEO. He's a good guy, right? But even if he wasn't a good guy, the Securities and Exchange Commission, on pain of imprisonment, audits those reports and makes sure they're accurate. So when you buy stock in Starbucks or Google or whatever, you're relatively assured that they're reputable companies and what they say they're doing, they're doing. Now, there are lots of exceptions to that. Companies that have contracts or the regulation is very lax, as it was in the early days of the george w bush administration um in the 1920s there were

companies issuing stock that the only thing the company had was the paper that they issued stock on and they had all kinds of fictitious um assets um and mr ponzi there really wasn't behind the ponzi scheme, was selling real estate titles to land in Florida that he didn't own. So people were buying real estate in Florida that didn't exist. Right? So that kind of corporate criminality was widespread in the 1920s. Okay.

So you said that Galbraith's first condition is the genie cult. Wealth inequality. Economic, right. And then the second is corporate structure. Corporate structure, lack of regulation. Okay, lack of regulation. Now, it seems like today we don't have that. We have regulations.

Yes, exactly, which is one of the things that's going to prevent kind of the stock market crash a la 1929. We'll still have stock market volatility and certain stocks will collapse for economic reasons, not for criminal reasons. For example, right now, Kurt, that's just a scratch. That's not a sign. When people ask me about what stocks to buy, the first thing I say, Kurt, is that if I really knew what stocks to buy, I'd be on my yacht in the Mediterranean. I wouldn't be here in Chicago in my little two-bedroom apartment. But in general, these days, because of COVID, right, airline stocks, hotel stocks, cruise line stocks are not the thing to buy.

Not because the cruise lines or the airlines have done anything criminal or misrepresenting. Their business is just bad. The vicissitudes of life. Yes, exactly. The third cause, according to Galbraith, was the lack of regulation of banks and the lack of limitations on what banks could do. In the 1920s, banks themselves could buy stock. And so if banks were taking my money in deposit, buying stock in a worthless corporation, and that corporation disappeared, then my money disappears too. There was no federal deposit insurance corporation. The Federal Reserve had very, very weak supervisory powers. And so today we have deposit insurance and active monetary

regulation by the Federal Reserve. Okay., we're still on point number two, that is the corporate structure. Point number three, banking structure. I see, I see. Corporate and banking structure. Yeah, and of those two, the banking system is more important than individual corporations. Because if a bank goes and not just one corporation is hurt or one group of stockholders or employees the entire economy that that bank served so banking supervision is very important and it's one of the reasons why than the united states and one of the reasons that canada Canada had a much better experience than the United States in the Great Recession.

One of the reasons that Canada what? Had a much better experience during the Great Recession in 1709 because Canadian banks were much more regulated and limited in terms of their mortgage lending. American banks who were lending all kinds of money and buying mortgage tax securities when real estate crashed in the United States in 07, and the banks would have crashed also, and there would have been bank runs without the Federal Reserve and without our Federal Deposit Insurance Corporation. So banking structure is critical, right? The fourth cause of Galbraith, and this is one that we have today, are large balance of payments, deficits, and international debts. And is it worse today than it was back in 1929? No. It's a little bit less serious, but unlike 1929, when the United States was running a big trade surplus, right now the United States is running a big trade deficit, and a lot of U.S. government debt, corporate debt is held by Chinese, Japanese, Germans, countries that have

large trade surpluses. And those trade surpluses and deficits cause unemployment in the United One of the, I think one of the key variables that explains the Trump election in 2016, and this has been done by political scientists and economists using census data and Federal Reserve data, those counties in the United States that had manufacturing that was adversely affected by Chinese imports voted 80 to 90 percent for Donald Trump. So small towns, rural areas, medium-sized cities that had one or two businesses that were put out of business by Chinese imports, those were the places and are the places that are the most Trump-favorable parts of the American electorate. And so that kind of political division still exists.

Right. Now, to take a quick aside, you mentioned that in South Korea and a few of the other Asian tigers, they had protection on the infant industries in the form of tariffs. Now, do you see what Trump is doing with tariffs on China as akin to that? Do you see it as salutary? No, because the U.S., these aren't infant industries. These are declining industries. So protection on things like steel, right, in the United States.

Steel industry is not an infant industry. In many ways, it's a declining industry. And also, we're in a much more complicated economy. Steel isn't just something we produce in the United States, it's also something we use, right? So manufacturers in the United States who produce appliances, who produce automobiles, who produce aircraft, use steel. So putting the tariff on steel makes their costs of production higher. And so, yes, there may be a few steel jobs that are taxed on tariffs,

but there are lots of manufacturing jobs that disappear because automobiles and appliances and aircraft are cheaper other places where they don't have tariffs on steel, right? places where they don't have tariffs on steel, right? And plus, what always happens is that in this day and age where there's much more communication and knowledge, when we put tariffs on Chinese products, the Chinese put tariffs on our products. When I was an undergraduate in the When I was an undergraduate in the 60s taking my first international econ course, my professor, Professor Saylors, always loved to tell stories about the chicken war. And the chicken war was between the United States and the European Union. It wasn't a war of chickens? It wasn't chickens fighting chickens, no.

That's what I first thought. I thought, oh, my God, we're going to have some bloody chickens and some real feathers flying. But the United States, believe it or not, still is a major exporter of frozen chickens. And a lot of chicken farmers in Europe were upset because they were being harmed by the chicken import. So the European Union put a big tariff or a quota on, I forget which, on U.S. chickens, right? So the chicken farmers in America went to the U.S. government and saying, we're being harmed by the European Union discriminating against our chickens. And the U.S. government put tariffs on Danish cheese and French wine, right? We always pick on French wine. So there were arguments back and forth, and eventually it got settled somehow. The Europeans agreed to buy a few more American chickens, and we agreed to buy a few more pounds or kilos of Danish cheese. So the problem with tariffs these days is that they always generate retaliatory effects.

And I always, when I teach courses in international trade theory, students always bring up the point, well, tariffs will protect American jobs. And yes, they'll protect some American jobs, but the corollary is that they'll also cost some American jobs. And yes, they'll protect some American jobs, but the corollary is that they'll also cost some American jobs as well. And that gets me to Galbraith's fifth point, which we don't have today, fortunately, and that is a much better knowledge of international economics. In the 1920s, with the stock market crash, there was a belief that the federal government should always balance its budget and the Federal Reserve should only do policies that restrict the money supply and fight inflation. So when the Great Depression started in 1929, the federal government faced taxes and cut spending. Sorry, repeat that. The Great Depression started in 1929, they raised taxes and cut spending.

Sorry, repeat that. The Great Depression started in 1929. The U.S. federal government raised taxes and cut spending to balance the budget. And the Federal Reserve decreased the money supply, which, of course, all of those things do nothing but make a difference. which, of course, all of those things do nothing but make a difference. What happens when there's a recession or a depression is that the money supply should increase, interest rates should go down, the federal government should cut taxes and raise spending, and expand aggregate demand to compensate for the declines in private demand. and expand aggregate demand to compensate for the declines in private demand. And all of that knowledge we owe to John Maynard Keynes and his followers. It was Keynes who, in the general theory in 1936, laid out perfectly the theory for counter-cyclical monetary and fiscal policy that most all governments around the world these days

use to fight um recession and depression and to try to control inflation on the other end so do you see the american economy is going or headed towards a recession a great recession akin to the 1929 um i'm a little bit worried, Kurt, these days because when COVID first hit in March, the Federal Reserve did and still does execute very beneficial and intelligent monetary policy. And Congress, the U.S. Congress, in an amazing display of speed and intelligence, passed what was called the CARES Act. Sorry, the CARES Act? Yeah.

And that provided for the $1,200 checks that went out to everybody, the expanded unemployment benefits, the subsidies to businesses, and all of that expanded unemployment benefits, federal spending, federal outlays in the United States, those are all set to end either this extended or replaced, then there is a fear that the United States could go back into a more severe recession than the one we're already in. And is it going to end, or do you see signs of it being extended? I don't see signs of it being extended. I see signs of the Republican Senate and the White House. Sorry, you see signs of the Republican leadership in the Senate and the White House, not agreeing on much of anything in terms of what the next fiscal policy should be. So unless they can come to some kind of an agreement, then they won't be extended and times will be tough for millions and millions of Americans, tougher than they are now. Now, forgive me for this somewhat rudimentary and maybe a sophomore question. I'm just a foolish physicist. Think of me as that. Okay.

Does not the distribution of money, let's say $1,200 checks to virtually everybody, then lead to inflation a few months, if not years down the line? Probably not for all kinds of reasons. One is the inflation occurs mainly when the simple formula is when there's too much money chasing too few goods, meaning that production is at a maximum and there's still an increase in the money supply occurring. The main problem in the U.S. economy is not that there's insufficient production. There's insufficient demand. There are all kinds of factories that are shut down, restaurants that aren't operating, hotels that aren't occupied, airplanes that aren't having passengers.

So the additional money will simply fuel production that should be there. There's not going to be shortages of airplane seats or food or hotel rooms or anything else that might be in demand. Okay. Well, it sounds like that there's less of a demand in certain sectors, but there's greater demand in some sectors and no change in demand in other sectors. So when people get money, if they spend where there already is high demand or where there's no change in demand, then it doesn't go towards...

It actually grows to a little bit. I mean, there's a little bit of price pressure in the US right now. I'm not sure about Canada. My guess would be the same thing. There's a little bit of price pressure in grocery prices, right? So people are not going to restaurants, so restaurant prices are either going down or not going up. But grocery store prices, because of the increase in demand, are going up.

But people aren't, at least after the initial wave of hysteria and stockpiling, people aren't spending a lot in grocery stores. They're just buying the necessity. So there's not some huge increase in demand for food at grocery stores. There's mostly people can afford the necessities, and that's all they're buying, right? When it comes to hyperinflation, you mentioned that you just cancel the currency. That'll lead to a depression, but then that also leads to a decrease in the

prices. Now, why the heck are you canceling a currency when there's hyperinflation? And then second, when you say there's a decrease in price, to me, you need a currency to evaluate a price, but you just canceled it. So I'm unsure how that happens. Okay. Best example, I'm in Bucharest in Romania in 2001, right? And the new Romanian government is printing money like a bandit, right? Just printing money and printing money and printing money. And the inflation rate is 100 or 200% a month, right? My first meal in Bucharest, I get the check and it's for 600,000 Romanian lei. And I go, oh my God, this is terrible. And then I realized that I'm getting 25,000 Romanian lei to the dollar. So the check is really about $14. That's for me and the guy who glommed onto me as my personal driver and city guy. So we had a very lovely meal and wine and cognac and what have you.

Incredibly cheap. Incredibly cheap and literally baskets full of money, right? That's pretty much worthless. So what the Romanian government essentially does, and the Yugoslav government did this, or the governments in the constituent republics, Soviet government did it in 1998, is they just cancel the money. They say the money that was issued 10 years ago or dollar bills or whatever that have this date on them, they're no good anymore. Even the money that's in the bank that's virtual? There's no virtual money in those kind of economies. It's all paper money, right? That's no good, right? And so whatever money you have in your little hand, right, it's not worth anything. So that money goes away, right? You

either wallpaper your bedroom with it or light cigars or use it for bookmarks or whatever. This sounds horrible because people were saving. Right. I have some leftover Russian rubles that were issued in 1993 that were nullified in 1998. So fortunately, I don't have very many. But when I lived in Russia in 94, I accumulated some Russian rubles from 1993, and now they're no good. So for those of your listeners who somebody's going to pay you in Russian rubles, you want to check the date of those 1993 that it's post 1998. So yes, it's very harmful, especially for ordinary people who don't have access to don't own gold mines or silver mines or factories or what have you. So the money is canceled and the government issues a new currency, has new pictures on it. And instead of maybe a hundred million of these

pieces of paper, they only issue a million, right? So what used to cost 25 000 now only costs 25 because that's the the ratio of the amount of old currency to the amount of new currency so you're able to exchange your old currency for the new currency no you just have to start from scratch start from scratch right you get if you're working or let's say you're a student and you get a little bit of instead of getting 50 000 of the old currency now you get 50 of 50 of the new currency right okay i'm gonna give you some broad platitudes and you can tell me what you think of them okay communism has caused tens of millions of deaths. Now, is that true or false in your estimation? Yeah, it's true. We talked about that. The Ukraine famine of the 1930s, the chairman...

Would you say that that was a result of communism, though, or whether... No, that was deliberate policy of the Stalin government to starve the Ukrainian population in order to feed the Russian population. One of the arguments these days is enmity between Ukrainrad and Leningrad and so forth, and created mass starvation. There are some really good new books on that, one by historian Anne Applebaum, who documents and goes through the statistics that establishes that the deaths from the Ukrainian famine were somewhere above 10 million. Okay, here's another phrase or another sentence. Capitalism has lifted more people out of poverty than virtually any other economic system. Probably true, right? But done so at great cost, lives as well as opportunity that most people, I'd say the majority of people in societies that

move from feudalism to capitalism benefited, right? But you'd have to say the children that were put to work in the textile mills of Birmingham and Manchester, England, probably didn't benefit from capitalism. But their great-great-great-granddaughters and grandsons probably did. The development of – we have this discussion in the United States right now, a very important discussion around the Black Lives Matter movement. Capitalism in America was essentially financed by slavery. Yes, capitalism in America created industrial jobs, created a manufacturing center, a transportation center. The initial investment, the initial funds that paid for that came from the export of cotton from the South to England,

to Germany, to the Netherlands. And with the money that was earned from cotton exports, then northern manufacturers could buy capital equipment and technology from the English and the British and the Dutch. So that American capitalism lifted people in the working class

and the middle class into a decent standard of living, but at the lives and the freedom of millions and millions of African Americans who literally paid for it. Right. Now, is there a way of measuring the amount of deaths caused by capitalism in the same way that some people spout off deaths caused by communism? Sure. Yeah. And that's part of the discussion of reparations and slavery in the United States. And probably deaths might be a bit too strong, but you would have to say life expectancy. One of the, actually the book that I use in my European economic history course looks at life expectancy in Europe in the 15th and 16th century, dramatically reduced life expectancy for most of the population.

Because in the 600s, 700s, 800s in Europe, people lived and people were farmers, agricultural producers, lived outside, right? In the 1400s and the 1500s, when urban societies and urban capitalism was being developed, had people getting close together and they didn't wear masks and they didn't social distance and they bred plague and typhus and cholera and dysentery and died relatively young, right? And that life expectancy increase really didn't happen until the end of the 19th and the beginning of the 20th century, that capitalism eventually, But with social democracy and the provision of clean water and public health programs raised people out of disease and death at an early age. Okay, now, if you remember, think of me as a foolish, someone who just has a physics and math background.

Okay. Part of what... Kurt, I should tell you a joke among economists, right? Economists have physics envy, right? So there's a joke that if you're really bad, and if you believe in reincarnation, right? So if you're a really bad economist, when you die, in the next life, you will come back as a sociologist. If you're a really good economist and you're highly educated and technically proficient, when you die in the next life, you'll get to come back as a physicist, right? All right, cool, cool. Well, maybe I was a good economist. I don't know. Yeah, yeah. There you go.

Maybe it was a bad one. part of the problem that i had when i was making this previous documentary called better left than said about the right versus left or extreme left what delineates moderate left from extreme left is of definitions in math that's my background it's like definitions are clear cut right here's what a topology is here's what a fiber bundle okay yeah there's no ambiguity now when it comes to what what defines socialism what defines communism what defines marxism it's right it's amorphous it's indistinct however when it comes to capitalism there does seem to be generally more agreement and it seems to be even from the left and the right it seems to be centered on three that i could find it was like private property profit motive and voluntary exchange yes most

people would agree on that now given that that's what capitalism is defined by, can we say that the child labor and the slavery is part of capitalism given that children can't consent, so there's no voluntary exchange, and slaves are not voluntarily being slaves? I mean, that would be strange if some voluntarily said, let me be a slave. Yeah. So then can those ills be attributed to capitalism or some bastardization of capitalism instead?

And if you really believe in a free market economy, then you should be able to sell your children and buy and sell slaves. And you should be able to form criminal gangs. Right. Criminal gangs and – right. Okay, so then is it true that those ills that you mentioned, which are slavery and the decrease in life expectancy for the slaves as well and child labor, is that a result of capitalism or something else? And what would you call that something else? I would say that's a result of the early developments of a market economy of a capitalist economy. That's part of its origin, right?

Maybe its original sin is that, yes, there were many, many people that suffered in the beginnings of capitalism, in the factory system, in resource extraction. Just think of what coal miners went through before there was any kind of safety legislation or protection from all of the diseases that they got from their occupation. And the capitalist mine owners resisted any kind of regulation because they said that's government interference and that's socialism and that's, you know, you're restricting my rights as a mine owner

to tell the workers that, you know, have agreed to work for me. The problem is if you're the mine owner in some hill part of West Virginia and you're the only employer, then your employers don't have a – your employees, excuse me, don't have a voluntary choice to make for the exchange of their labor. If they're not coal miners, then they don't eat. They don't live. argument that i hear plenty from the those on the extreme end of the left and even the left generally is that you say you have freedom but you don't have the freedom to not work because and you don't have a freedom in the amount of jobs that you can choose from given that if you don't choose from one of these select few because you have a certain amount of intelligence or expertise or whatever and then there's the whole question of is that there's the what the question of what wealth inequality and equality and the opportunity quality that obviously in a country is as economically unequal as the United States. There are certain people, certain part of the population is born with lots of freedom.

Right. They have the freedom to go to an excellent college. They have the freedom to get to an excellent college. They have the freedom to get excellent healthcare, excellent nutrition, excellent housing. And then there are people born not too far from where I am here in the city of Chicago who were born with no opportunity for a decent education, decent healthcare, decent housing, decent nutrition, health care, decent housing, decent nutrition, minimal protection from crime. And so you can't say that freedom is an absolute or freedom is something that should take precedence over any other kind of social policy or economic policy. Yeah, there's actually two different types of freedom and i think that part of the whole discrepancy between the left and the right when both are saying we

just want more freedom if they're using different kinds of freedom yeah so there's positive negative i don't know if you've if you're right yes so one is like just for the people listening one is positive i believe it's positive is positive someone has a gun to your head you're like i don't have that so i have positive freedom yeah the negative freedom is is that you have more choices or that you freak from even social conditioning right like the expression of your complete individuality if that even exists okay you spoke of physics envy let's talk about that black envy versus white envy yeah in russia can you donate to the audience what those are yeah and that's and that's one of the reasons why for russia especially it's it's been a very difficult

transition to some kind of a market economy some kind of a of a commercial economy to use Adam Smith's phrase, because under feudalism and under communism, any kind of transaction was almost always a zero-sum game. If I got something, it means you didn't, right? One of the hardest things, when I was teaching in Russia, one of the hardest things I ever tried to explain, and I was never really successful in doing this, was explaining what… Around what year was this that you were teaching in Russia? 1994.

Was explaining to them the concept of a Pareto optimal transaction. That's a fancy phrase. That's any transaction where you benefit and I benefit, where both of our utilities rise. So when I go into my Starbucks every morning, I follow a partner's heart with $2.50, and Starbucks happily accepts it, and they give me a grande whole milk misto, which makes me much happier than holding on to the $2.50. So we both benefit from the exchange, right? Russians, ordinary Russians had no experience with that. No,

no experience. Their parents had no experience. Their grandparents, their great grandparents. But even with bartering, is there not that operator improvement there? But they didn't really even barter. They were, if the 90% of the Russian population until the revolution were serfs, were peasants, right? And they were given a certain amount. And anything more than they expected, that meant the landlord got less, right? Or if one group of peasants got more, it meant the other group of peasants got less, right? So it was very much a static economy, right?

Holstoy writes about this in Anna Karenina a lot. I had to buy a copy of Anna Karenina when I was in the Soviet Union because one of the things the Soviet Union made you do... Sorry, sorry, hey, just cut off. At least for me, you had to buy a copy of Anna Karenina. Yeah, well, I had to buy something because when I was in the Soviet

Union in 85, the Soviet Union, they made you buy Soviet currency when you went in, but you couldn't take it out. So I had all these Soviet rubles, and I didn't know what to do with it. And on the last day in Moscow, I found a bookstore, right? And the bookstore had a copy of Anna Karenina, and I hadn't read it. And my knowledge of Anna Karenina was that it was all about violent, right? It was about Anna Karenina having an affair with Count Vronsky and so forth.

So I bought it. There's no sex and violence in Anna Karenina, but there are hundreds and hundreds of pages about serfdom and social issues and economic progress and all kinds of things like that, which turns out to be, at least for an economics professor, just as exciting as sex and violence, right? That's a horrible thing to admit. So the Russian soul that went through feudalism and orthodoxy and so forth had no knowledge of voluntary exchanges or market exchanges. And so having an economy where people make a profit means that to the Russian, they're taking advantage of somebody, right? And so that generates black envy. Black envy is if somebody does better, I want them to do worse. Right. So if two Russian farmers. Right. And one of them has two cows and the other one only has one cow. Right. And I'm envious of my neighbor who has two cows. I'm jealous. And so if I have going to try to figure out how to get another cow myself so that I don't diminish his success, but I try to equal it, right?

Or at least get on some kind of a par, right? For most of Russian history and for the initial decade or so after the fall of communism, there was lots of black envy. So if somebody in a Russian town had a successful little shop, right, quite often that shop would be firebombed or looted or somehow destroyed because that person was rising above everybody else in the village or the town. That's black envy. Every society has some of that, but in Russia, it was in some ways the predominant cultural value with regard to quality and inequality. with regard to quality and inequality. Now, is black envy something that you find pervasive in communist societies? Yes, right.

Do you think that's because of the underlying Marxist philosophy, that it somehow promotes or says that... It promotes an ideal of equality, It promotes an ideal of equality, but the people in the society see that there's cognitive dissonance between the ideal and the actual nature of society. The people that run the communist society, Mr. Lukashenko in Belarus, in Minsk, Mr. Brezhnev in the Soviet Union, they actually, they're not equal. They live much, much better, right? When East Germany collapsed, one of the real big scandals was how well the East German Communist Party leadership had lived. There was a compound outside of Berlin that had a special hospital, special grocery stores, special cinema, special swimming pools. And many of the East Germans who had internalized this belief that we're all equal, that that's what separated us from those greedy capitalists in West Germany, is that in East Germany, we had solidarity, and everybody else was more or less equal. Certainly, some people got a little bit more.

Doctors got a little bit more than truck drivers, but it was a difference of maybe the doctors got 400 marks a month, and the truck drivers got 350 marks a month. But when they saw how well the leadership of the SED, the East German Communist Party, had been living and how hypocritical they were, then that was one of the East Germans invalidated their belief in communism. And most of those people went from believing in communism to believing in Ronald Reagan and Milton Friedman, that any kind of social control was bad. So we're going to go to the opposite end.

And now would you classify Germany as extremely capitalistic or mixed? Mixed, but in some ways rather capitalistic because most of the resources, most of the productive resources in Germany are owned privately. in Germany are owned privately. BMW is owned privately. Porsche is owned privately. And there are large numbers of German companies, small manufacturing companies, retail companies, so forth, that are privately owned,

often by individual families who are extremely wealthy. But there is much more of a, what the Germans call it, sozialmarktwirtschaft. They call it what? Sozialmarktwirtschaft. It's all one word. Germans pull everything together and make one word out of seven or eight. So they call it a social market economy, which means that every German citizen has health care, has education, has some minimal standard of living. But the

income inequality in Germany is quite significant. Right. Something I was thinking about is people like to praise Sweden. And when you look at Swedeneden's trading partner the largest is germany and so if some people say who are on the left end will say that it's because of sweden's socialistic policies that they're so wealthy or that they have such high standards of living but they're predicated on on a large part to some other nation which is capitalistic like germany so it's not like you can view them in a vacuum. Right, right, yeah.

What are your biggest differences? I'm going to be talking to Richard Wolff soon. And what are your biggest differences and disputes with Richard Wolff? Probably more favorable to markets and private enterprise for at least a certain sector of the economy, consumer goods and services, and less favorable to outright government control or government ownership. I think there are certain things that governments ought to own,

like in the United States, the Postal Service, right? to own, like in the United States, the Postal Service, right? And probably public health care. I think the American health care system is much too capitalistic and much too private enterprise and needs to be much more socialistic, if you will. needs to be much more socialistic, if you will. But on a spectrum of left to right or social democrat or kind of liberal capitalist, I'm probably closer to liberal capitalist.

So if you had one question for Richard Wolff, I'll take this and I'll ask him, what would it be? If you were advising newly elected President Biden, right, what would be the first social or political policy or law that you would enact? Fix the American economy. Great. Professor, where can people find out more about you um they can go on the great courses uh repeat that once more i don't know if it's me that's cutting off i think it's i think it's my uh the great courses all one word dot com uh. And they'll find my video course on capitalism versus socialism.

And then it also has my email address and website. And so it's the best place to go. Professor, thank you so much. Have a great day. My pleasure. And the problem with economics and the problem and the reason that economics can't be physics is that lots of things in economics you can't measure, right? There are some things you can measure, but there are lots of things you can't measure. Freedom you can't measure.

Individuality you can't measure. Quality of life you really can't measure. You can get proxies for it, but physics you can measure energy, you can measure momentum, you can measure mass, you can measure all those kinds of things. Economists have lots of numbers, but they're all approximations.