My Adventures in "Socialist Country" presented by Ben Powell

– Thank you for coming to this afternoon’s event My name is Doug Irwin I’m a professor in the economics department and co-teaching Government 68: The Future of Capitalism this quarter The Political Economy Project sponsors a lot of public events I just want to highlight the next one which will be next Monday here in this room, Rocky I, at 4:30 Adam Gopnik, writer for The New Yorker, is coming to talk about his most recent book on liberalism I believe the title of the talk is Liberal Minds and Liberal Morals, and he’ll be talking about a defense of liberalism So, please join us for that if you’re at all interested Today we’re very pleased to have Ben Powell of Texas Tech University here with us to talk about his new book, called Socialism Sucks: Two Economists Drink Their Way Through the Unfree World In Gov 68, one of the things we’re trying to do is talk about different economic systems and how they work And it’s very hard, if you’ve been born and raised in the United States, to think outside of the U.S. box What alternatives are out there? He has done the unusual thing of playing economic tourist and actually going to visit some rather extreme countries, but ones that are still on the map, very important today, in terms of how you might organize your society, organize your economy So, he has different sections here Well, he’ll tell you all about the countries that he visits, from Vietnam, to China, to Venezuela, and everywhere in between The theme of the book and the tour was, of course, not just economic tourism, but testing out the beers and the local brews in various places, and that’s one unifying theme throughout the book Here’s a copy that goes to the best student question of the afternoon which he will be determining, perhaps with my input, but I’ll leave this right here as an incentive to think about a good question because we do want to have this as a dialogue He’ll speak for about 30 to 40 minutes or so and then we’ll open it up for Q&A Welcome to Dartmouth, Ben Powell (class applauding) – Thank you very much, Doug It’s a pleasure to be here and to have been visiting for the last week or so I’m pleased to be able to talk to you about this book today It just released this summer And I have at least around a dozen or so universities this fall that I’m going to be talking at about the book, but you guys are the first, which is probably bad for you because the jokes will improve, or at least get less bad, by the 12th But it also means actually you’re going to help me out because based on you I’ll start adjusting this as we go I should say something about the project overall as we get started And I think the title of the event was something more like My Travels in Socialist Countries, or something like that The book title is a little bit more provocative because I cared about selling books But we actually kind of backed our way into it The original subtitle was something like, two economists’ adventures in the unfree world, or travels in the unfree world And the publisher kept sending us cover art, and it had big, frothy beer mugs on it One even had a German beer girl in the outfit with two I’m like, your guys’ marketing team is not quite getting this because these covers look good to me There’s no “sucks” implied in these covers They’re like, oh, okay, so broken beer glasses then, and they kind of come up with this I’m like, yeah, okay, but there’s still nothing why a book about socialism and two economists’ travels that indicates why you should have beer on the front of the book So, the subtitle evolved to that It is, the book, it’s an accurate reflection of Bob and I’s travels Bob is a professor at Southern Methodist and one of my best friends And he and I do tend to drink our way around when we’re going places, and we wrote up this story as an honest account of our travels In fact, the publisher’s original description of it said that Socialism Sucks is the bastard stepchild of Milton Friedman and Anthony Bourdain And I was like, yes, that’s exactly the genre we were going for But the beer, as Doug mentioned then, it’s not just gratuitously consumed but actually then serves as a metaphor for how these different economies function, but reaches an audience in a, say, more palatable way than us usually just talking about economics so that it’s a way to describe the different economies as well So, this project started in 2016, for actually a couple of reasons One, Bob wanted to go get drunk in Cuba, and my wife didn’t really want me to just go on vacation with him And two, I wanted to figure out a way to write it off my taxes So I’m like, I got an idea for a book We’ll write up this test chapter while we’re in Cuba Because it’s a genre, this is nothing like any other project I’ve ever done All the other books, even when written for normal people, have been like academic presses This is written for, like, normal people Well, or messed up normal people, whichever And we’re like, I don’t know if we can write in this, we have to describe smells, and colors, and stuff like that That’s not what economists usually do But it ended up working out We didn’t know if we were going to end up self-publishing it or having a bestseller, so it’s worked out better than our expectations

That was kind of the fun, pragmatic reason at the start of it The intellectual reason is what was going on in 2016 is this, at least to me, was the first time I started becoming aware of the increasing popularity of socialism, particularly among young people So, Bernie Sanders had just come off his primary campaign that was very successful Of course, now it’s much more successful this time around so far But we started seeing things like this Michael Moore tweeting out that young people are in favor of socialism, which he calls fairness, instead of capitalism, which he calls selfishness This just didn’t strike me right as a college professor who not only lectures at my university but travels around and talks at tons of other universities Average college student I met didn’t seem much like a socialist They seemed like good people who see genuine problems in the world But somehow, when they’re giving answers to these questions now they’re saying the answer is socialism I’m like, that’s just not right Some people aren’t thinking about what socialism really is And some free market economists maybe aren’t doing a good enough job of empathizing with the problems that they’re point out and saying, yeah, this is right, but there’s alternative solutions in voluntary society and markets that probably could better deal with these things So, this is what motivated us to start, try to do this in a different style And it’s not just Michael Moore making up stuff The Victims of Communism Memorial Foundation survey asked young people, young, I think in this case, was like 36 and under, what’s your favorite economic system 44% said socialism, 7% said communism, 42% said capitalism You’ve seen the chapters of Young Democratic Socialists of America popping up on campuses around the country I don’t know if you have one here I forgot to look, actually Anybody know? Don’t know, okay But people have pointed out that there’s just not that stigma attached to saying you’re a socialist like there used to be, not among the younger people But it’s not just young people I don’t want to make this just like a millennial type thing If you look, The New York Times, on the 100th anniversary of the Russian Revolution did a column called Red Century For 52 weeks they ran a column in The New York Times dedicated to exploring some aspect of socialism Out of that year, I can count one column that was dedicated to the economic stagnation in the Soviet Union, maybe a handful, a half dozen, that mentioned any of the mass murders or other atrocities by socialist regimes But instead you get columns like, “Why Women Had Better Sex Under Socialism.” Which, even if true, I don’t know how we weight that against about 100 million dead bodies Actually, I’ve got some idea how I might weight it But they had other ones of Lenin’s Eco-Warriors talking about land set off for no development in Siberia, meanwhile not mentioning the horrific environmental record of the Soviet Union There was a whitewashing, if you will, of the Red Century throughout that column And then of course you’ve got Bernie still running When he says things like, democratic socialism, I favor socialism, well, what do you mean by that? Oh, countries like Denmark, like Sweden, and Norway Well, I think this confuses things for a lot of people because there’s a big problem Those countries aren’t socialist And I’m also not sure how honest Bernie is because this is the guy who went for his honeymoon in the Soviet Union, and liked it Or you can find AOC now saying stuff, she identifies as a democratic socialist I put “insert crazy quote here” as a placeholder but then I decided it was more appropriate just to leave it like that Although I will say, though, and the guy who wrote the postscript to this Heh, wrote the postscript to this We live drank the postscript together, recording it on his BlazeTV show Matt Kibbe He’s convinced me a lot of this is that a lot of the young people who were attracted to Ron Paul are a lot of the same people who are attracted to AOC and Bernie Sanders And you’ve got Ron Paul who is definitely not socialist, very free market, capitalist loving guy And then they’re the opposite But they do have something in common They both rage against the machine They rail against the establishment in DC, the cronyism, the inside I see that in common The thing is, I think people get the rage and see the injustice but don’t think through the policy prescriptions afterwards the same way So, while she says crazy stuff, I think the anger at some things is very similar to people with very different positions on good economics So, here’s the tour that we go on So we’re going to start out in Sweden, not socialism We’ll go to Venezuela, Cuba, Korea, sort of, China, Russia, Ukraine, the Republic of Georgia, and then we end back in the USSA by going to the largest socialist conference in the United States Which is, it was Socialism 2018, fittingly in Chicago It was fun, I learned a lot All right, so first, let’s just get our terms straight Socialism, what it means So, this means we abolish private property and the major factors of production and you replace it with some form of collective ownership

In practice, for any country-sized thing, this means de facto state ownership of the means of production and that you’re then going to plan your economy, because if you don’t have private property and those means of production, you don’t have markets for the means of production, which means it’s not entrepreneurs, and prices, and profit and loss, that are going to coordinate economic activity If you don’t have that market process and you don’t have a central plan, then you’re in autarchy and you’re super poor Your hippie commune ain’t going to make an iPhone, comrade So you need to coordinate across industries and workers in order to have advanced material production And a central plan is going to do it poorly, but it’s going to do it better than having no plan at all if you do not have markets to do it for you So, that’s the definition Now, the thing is, in the real world, it’s not all ones and zeros of communist, socialism I can think of these things as a spectrum Pure capitalism on one far end, pure socialism on the other end, all countries in the real world falling somewhere in between on this spectrum So, there is no purely capitalist economy where there’s no government ownership of any of the means of production And I should say, government ownership or control So, often de facto control is what matters You have private ownership but government regulations or controls that are so pervasive that you take away the decision making power from the nominal owners You have no society that’s a pure capitalist one where all decisions are private like that You have some degree of regulation And you have no society, now or in history, that was literally 100% government ownership or control of the means of production The closest you probably come is the Soviet Union during the period of war communism during the early years of Lenin’s power, which was an utter disaster, and he backtracked on it, going to the New Economic Policy which reintroduced some markets and limited scale of private ownership and business Or maybe Mao during the Great Leap Forward from the 1950s to the early 1960s The other Russian and Chinese systems at other times were collectivist and easy to call socialism, but not, they never hit 100% pure on that Just like we’re not 100% purely capitalist in the United States For government ownership of means of pr– The K-12 education system That’s got to be about, what, 90% government owned and controlled? Other industries in the United States like healthcare, they’re heavily regulated Still have markets and private ownership, to some degree, but there’s attenuations in this It’s true on both ends of the spectrum But the main thing that we’re going to care about here is is the decision making private and coordinated through markets and voluntary transactions, or through government plan And then we can look on this spectrum With that, Sweden, Norway, Denmark, they’re not socialist The major factors of production are privately owned, and they use markets to coordinate most of their economic activity My coauthor on this book is also the coauthor of the Economic Freedom of the World Annual Report which basically scores countries on how capitalist or how socialist you are Sweden comes in 27th freest on that index It’s mostly a capitalist economy Denmark scores even better, so does Norway What these countries have is a big welfare state That’s true, and it’s got high taxes, but that’s not socialism I, as an economist, actually think there’s a problem with it I think high taxes and a big welfare state are bad for a country But it’s not socialism, and it’s not going to impoverish you the way socialism does My read on the evidence of countries that adopt the big taxes and big welfare state, it slows their economic growth down It might help you achieve some other goals but your cost of that is going to be slower economic growth Sweden was dirt poor in the mid-19th century, became very laissez-faire, grew rapidly to the mid-20th century, put in a big welfare state and high taxes, growth slowed They’re now in the bottom half of OECD countries in terms of their average incomes But it’s still a nice place And guess what, there’s lots of good beer That’s a picture outside Cafe Duvel, so not very far from Belgium I love Belgian beers I was having delicious Belgian beer there Problem was, it costs a lot because they tax the bejesus out of everything But the variety and the quality is still there All right Venezuela We call this one starving socialism, unfortunately So, these pictures that you see here, and I’m going to vary between some statistics and pictures throughout the talk Top left and right next to it, that’s the bridge, if you’ve seen on the news recently, where they blocked the bridge and won’t let the aid trucks in That’s the bridge between Cucuta, Colombia, and Venezuela There’s actually two bridges in that town So, when we went down there, those bridges were open It wasn’t aid trucks that were flowing across it It was two things Or, it was Venezuelans, and they were doing one of two things Either top-right, applying to migrate and leave Venezuela, or what most of them were doing in the top-left which is going to Colombia to buy basic necessities, stuff that you see stacked up in the bottom right

Because Venezuela essentially cannot feed or provide much of anything else to its own population anymore And what’s weird in seeing this, Bob and I, both of us have probably been to somewhere around 50 countries We’ve seen plenty of third world poverty different places This is different than that It’s probably a little bit small in these pictures but if you actually see the clothes and the luggage that people are using, these were middle class, upper middle class people, who still had some wealth, some cash of some value, that they had access to who were going there to buy basic necessities One couple that we had one of the better conversations with, they were on a six-day round trip to buy groceries Six days Three days one way, three days the other way They said they weren’t going to make the trip very many more times because it was becoming too dangerous of people stealing it from you on the way back Which, when we crossed into Venezuela illegally on that bridge, that Venezuelan checkpoint could give two damns about a couple gringos walking in They were more interested in the people lugging suitcases because the police were stealing from the people bringing the suitcases back in Apparently their wives sent them with a grocery list to check out from the people who were legitimately buying things So, what I want to say, then, about what’s gone on in Venezuela And I apologize With a brief talk here and a tour of a bunch of countries we’re going to do a little teeny snapshot of each one of these places that doesn’t do any one of them fully justice But Venezuela, I want to point out, this was a rich country You go back to 1970, its per capita income was higher than Spain It was one of the richer countries in Latin America It went through a long period of stagnation It used to also be, by the way, pretty free market 1970s, the earliest year of those economic freedom indexes, it was top 10 in the world that year in terms of economic freedom It lost its freedom slowly over a couple decades and went into kind of an economic stagnation where it fell farther and farther behind And where the poor weren’t having the same privileges as the rich in the country That’s the vacuum where Chavez comes to power in 1998 So, formerly rich country, lost its economic freedoms gradually, elects a guy who’s going to do Bolivarian socialism Notice I said elects Free, contested elections This was democratic socialism starting Jimmy Carter was one of the international observers Everybody said this was free and fair elections He got reelected, after that putting in a new constitution that gave him more of the economic powers that he’s going to later use So it comes democratically to power, and things look good For a lot of the 2000s, people say, look, Venezuela is working well That’s democratic socialism working Except the economy was hollowing out underneath What was going on is Venezuela sits on the world’s largest oil reserves And remember, government ownership or control of the means of production The state oil company was extracting those reserves while prices were high, using the revenue from that to import goodies from abroad that they handed out to the population This made it look like things were okay but meanwhile they were losing the ability to produce things themselves Eventually, right after Chavez, pretty close after when Chavez dies in 2013, and you’ve got people like Salon at that time writing columns saying it’s Hugo Chavez’s economic miracle See, democratic socialism works Thing is, as soon as oil prices came down now they weren’t Actually, not only did oil prices come down It turns out, the state’s not really good at running the oil company Production is way down as well because they don’t do capital improvements the same way They’re not earning enough foreign exchange They can’t import the food and other necessities to feed the people My colleague Kevin Grier did one of the better studies on this It’s called a synthetic control Basically, what it means is you take a basket of other countries and weight an average of them together that mirrors Venezuela’s performance Basically, you create a fake Venezuela that never gets Chavez Then you see what’s the difference in their paths It turns out, during that time when everyone said, oh look, Venezuela is doing kind of good, they should have been doing a heck of a lot better based on what their previous trends were Their incomes didn’t go up as much as it should have Infant mortality didn’t go down as much as it should have Poverty didn’t get reduced as much as it should have The only thing that they exceeded on was inequality went down by more, except it did that without incomes going up, and without poverty improving So, basically they chopped off the top without raising up the bottom That’s what you got during the successful years of Chavez And of course, today By the way, and this oil prices coming down, say, oh, well, it’s the fault of oil prices Listen, I live an hour and a half from the Permian Basin in the United States I was living there when oil prices came down Still looked pretty good This, it’s they had lost their ability to produce So now, when they’re not importing the same way, the average Venezuelan in 2017 lost something on the order of 24 pounds They didn’t all of the sudden discover Jenny Craig This is not being able to feed yourself In terms of the beer metaphor, the country ran out of beer

Now, they have beer back, and it was just temporary But they had a national beer shortage Why? Well, they have a nominally private producer, Polar, but the government planners allocate the foreign exchange to import Venezuela doesn’t make barley They did not allocate enough foreign exchange to the brewer to import barley No barley, no beer, monopoly, essentially monopoly producer, national beer shortage I don’t know about you If I were a socialist central planner, like, beer, toilet paper These are the two things that I wouldn’t screw up I mean, I would screw them up because I’m a central planner, but I’ll screw them up less than everything else So, what I want to point out here, a lesson in Venezuela One, it’s a rich country that this can happen to But two, it’s no longer democratic socialism It’s merely socialism Last year, Maduro got reelected with something like 66%, 68% of the vote This does not pass the smell test Like, we know when you have high unemployment or bad inflation you throw the bums out of office How do you get elected with 2/3 or more of the vote when your country is losing weight and you have hyperinflation? You’re cooking the books So, people who run for the state run firms are ordered to vote for him or lose their job They hand out food aid at polling places They repress opposition parties The National Assembly this January declared an interim president, as they’re allowed to by the Constitution, who has not been able to take power because Maduro uses the military to suppress it If you don’t have a large degree of economic freedom, the government then controls your livelihood and can punish dissent Because a socialism system is necessarily going to generate stagnation in the nature of the incentives and the economics in it, that’s going to have a populace that’s going to vote it office But once you’ve centralized the power and the plan you’ve given the ability to repress You lose your democratic freedoms This is why it’s not an accident that every socialist regime that we’ve seen in the world has become a totalitarian oppressive government When today’s socialists say, that’s not my type of socialism, I want democratic socialism, the word democratic is not magic fairy dust that means socialism doesn’t mean ownership or control of means of production You still have that feature, which means you’re still going to get similar economic outcomes and the tendency on the political side to lose those freedoms as well All right Let’s get a little bit lighter and more fun Cuba It’s weird to say, but yeah Cuba is, like, the softer side of socialism As in it’s at least functioning We call it subsistence socialism in the book It’s chugging along, doesn’t seem to be going anywhere The people aren’t starving, but they’re not prospering either And Cuba, of all the places that we go, Cuba is really easy to be an economist and observe just mundane economic activity because you’re free to travel wherever you want, you’re very safe from any sort of crime, and as long as you don’t talk politics with dissidents, you’re at very little risk from the Cuban government doing anything to you So you can really observe and participate in economic activities there a little bit So, let’s just do some pictures for this one, with stuff Remember, government ownership of the means of production Hotels, part of the means of production, so you have a whole bunch of government owned hotels all over Cuba Now, there’s a nice one, the Hotel Nacional That’s where the diplomats go It’s a five-star hotel We could have stayed there, but that’s not really giving it Like, the Soviets can send a cosmonaut into outer space You can have one good hotel in Cuba But we weren’t going to sandbag it and try to go to shitholes either So we asked a friend for a recommendation, and they said the Hotel Triton It’s in the suburb of Havana, right on the ocean Reasonable prices I think it was like $65 a night, something like that Which sounds cheap, but that’s not cheap in Cuba That’s a picture of when it opened, gleaming white That’s what it looks like today on the upper floors Notice how tall this building is They have four elevators You can start seeing the word on the left one where it’s going to be out of service Three of the four were out of service, which meant it was impossible to ever get the other one so you end up hiking up eight flights of unconditioned stairs with your bags, which gets you sweaty in Cuba Some pictures from the hotel Top one, panel missing in the bathroom ceiling And turns out that actually wasn’t the worst part about the bathroom because water was optional Not just hot water One morning we had no water for our hotel room Now, when you pay musicians and plumbers essentially the same wage, as the Cuban government does, guess what you get Lots of musicians, clogged toilets (class laughing) This wasn’t the only one we stayed at We also stayed at Hotel Caribe We’d been on a long drive back from Trinidad We were hot, sweaty, and pissed off We had a beer and a meal,

and there was a hotel right next door This is right down the street from the central government building Bob’s like, we should just get that hotel room And I’m like, if it’s as bad as the other one, I’m like, don’t do it He’s like, I’ll check it out I think the air conditioning just tricked him Because the other one, that’s the bag that came out, the glass that came out of the sanitary bag, the hole that was in the towel You can see the bolt missing on the toilet which makes it really fun because the seat just slides randomly off on you And they left the soap from the previous guest (class chuckling) Contrast Little over a decade ago, I think about a decade ago, they legalized casa particular People who can rent out their own apartments You can actually do this from the United States via Airbnb Now, internet isn’t very pervasive in Cuba, but Cubans all have relatives who live in Florida And the relatives who live in Florida put pictures up By the way, your credit cards also don’t work in Cuba, but they do work in Miami And the relatives take payment, and you can arrange the sale in You can also just walk around and find them They’re plentiful This was a two bedroom apartment in Central Havana You can see the two bedrooms there, a little kitchenette, the living room Everything was neat, well maintained The person met us there on time Oh yeah, the government one, I didn’t even tell you, they didn’t have a record of our reservation so we had to pay twice Originally we paid through a British website from abroad This is just incentives of private property versus collective ownership The Cuban hotels suck because no one gives a damn The casas that people have property rights, to a limited extent, but property rights, and their profits from renting it out, thus they reinvest some of the revenue to maintain the capital and attract customers Difference of incentives Notice, same exact service being provided, accommodation to stay Same people doing it, same place One big difference The incentives of the economic system operating Also, by the way, note, when I said it’s not zeros and ones So, government ownership of the means of production is predominant in Cuba, but there’s still some carve outs of some sort of private ownership, or private control rights over flows, at least, of some things Ah Let’s play a game Top-left picture Students only This is a commercial street in downtown Havana What’s missing? – [Student] I would say signs and advertisement – Yeah, signs and advertisement I don’t know what’s there In fact, the way Bob and I did this is, like, we’d walk around, get hot, stop, drink, do again, and just keep doing this from like 12:00 PM til midnight The first, like, 8:00 AM to 12:00 PM sucked But after that I was just chain smoking and drinking the rest of the day and it was more tolerable But that strategy was actually hard there because you walk up to a street corner, and you look down Is there any place I can stop and get a drink there? I don’t know How am I going to find out? I guess I got to walk all the way down the street and look at each storefront This is not poverty Go to any poor country around the world There’s plenty of signs Whoever produces beer in the country makes signs and gives them away to any other restaurant just to indicate that you can get their beer there This is nobody giving a damn Government ownership of the means of production If you’re not a private store that makes profits by people going there, why do you care if customers find you? Don’t bother Next picture, top right That’s a well stocked convenience store in Central Havana What’s wrong with this picture? Hm – [Participant] There aren’t a lot of options – Not a lot of options That’s well stocked, but there might be two dozen, if we’re lucky, distinct items So it’s like, that’s cola at the bottom, but it’s all the same I called it commie cola That wasn’t the real name But each one of those packages, there’s no variety The socialist planners tell you you’re going to get equality but what they deliver on, if they deliver at all, is a lot of sameness, bland sameness Contrast that, I stopped on my way up here today at a gas station in rural New Hampshire and the variety was great I mean, you had all the national beers were there but then there’s Free Flow IPA from Otter Creek Brewing in Vermont Never heard of it Variety was there The entrepreneur had an incentive to put things where I might want them, and someone else had an incentive to brew a tasty IPA that I can drink during my talk because I wrote a book with drinking in the subtitle (class laughing) All right Bottom two pictures These are private restaurants So they, over time, have legalized some private So they have government restaurants, government ownership of means of production They also have some private restaurants It used to be they couldn’t serve meat or seafood, and you could only seat like 12 people The number has gone up of how many people you can seat and there’s no more restriction on meat and seafood They have the right incentive, just like the casa owners They try hard And at first they seem okay

The government ones, by the way, are godawful The last night we went into it Well, I’ll explain in a moment They’re trying, in fact, some of them even had modern stainless steel kitchens that you’d expect to see in a restaurant here But what seemed good at first, after even a few days you start to notice it all tastes the same All the different restaurants have about the same 12 to 18 items on the menu And they’re all bland Cuban food in Cuba sucks Cuban food in Miami is delicious A Cuban sandwich that’s delicious in Miami is a crappy ham and cheese in Cuba The difference isn’t the Cubans The difference is the economic system that they operate under And in this case, both have an incentive to try but one deals with the state supply chain for ingredients As a result, they have no variety for their inputs so you get the same blandness in that as well So, real quick on cars Cars in Cuba So, I intentionally picked a modern car in this picture, but you can see the quintessential classic 1950s American car in the background They drive a bunch of 1950s cars that are held together with popsicle sticks and bubblegum We have an embargo on Excuse me, we Doug and I do not have an embargo on Cuba The U.S. government has an embargo on Cuba But it’s not a blockade There’s no U.S. government ships preventing Kias from going in They keep using those old U.S. cars, and other older but not as old cars that were imported before, because the Cuban government severely rations how many imported cars they’re going to let into the country Now, I told you that the hotel room and the casa Oh, the casas were like $50 a night There was one I got for $25 a night that was great Want to take a guess on what a 1950s U.S. car goes for in Cuba, in dollars? And keep in mind, average incomes in Cuba Income statistics are BS in a socialist country, too, because we don’t have market prices But somewhere on the order of $2,000 to $3,000 per capita, probably Yeah – [Participant] 30,000 – You’re in the right direction Less than that for the 1950s ones, but 15,000 for something that maybe someone would pay four grand for, three grand for, in the United States, which is much richer, in order to restore That guy in the front that doesn’t even exist in the United States, that’s more like 30,000 because it might have disc brakes, or potentially even air conditioning Restrict supply enough, price goes up All right Korea So, we spent some time in South Korea Wonderful place But we promised our wives we wouldn’t get imprisoned or killed while writing this book It’s also the case that I direct the Free Market Institute and Bob directs the O’Neil Global Center on Markets and Freedom We’re not going to be real popular to give a visa to from the North Korean government So, the way we decided to deal with this is we traveled in South Korea And then you can see a little bit from the DMZ, but because it’s the DMZ there’s not as much to see there We went up to Dandong, China, on the northern border And Dandong is the major trade city with North Korea there, across the Yalu River from it, and we traveled up and down the Yalu River a bit to look in, and then to talk to people on the Chinese side to the extent we could Although, I still regret this, we missed out on the best opportunity on that because we had a Chinese fixer who was with us who had worked for BBC and was introduced by a mutual friend And there was actually a strip club in Dandong, China And I’m like, we got to go in there Bob’s like, that’s a bad idea And I’m like, no, it’s a great idea And the fixer is like, no, no, not safe, this is not good I mean, one, it would have just been huge man points as an accomplishment But more, really, the real reason that I wanted to go in is a lot of the North Koreans who sneak out end up working, in some fashion, in the sex industry on their way getting smuggled out of the country, or sometimes getting trapped and not smuggled, so it would have been a better chance to interview people You know if you’ve seen the story from Yeon-mi Park on her journey for freedom and describes the trials that she went through getting out It would have been an opportunity to be able to talk to people more But anyhow, you can see, I mean, we were a couple We were 100 yards off the North Korean shore which also led to weird things like Bob looking and saying, look at the Chinese Navy presence in this river, and me saying, yeah, thank god I didn’t think I’d say that But here’s what I want to show you Some of you are familiar, have seen this before, in terms of the economic development of South Korea versus the North The satellite image at night just showing the absence of light or economic activity in the North Well, you also see this from ground Actually, the lighting in here isn’t very good on this This top-left picture, you can see the lights in Dandong You can see on the left side kind of three arches That’s the bridge headed across the river, that’s lit up, and then you can see darkness on the other side Same picture in the morning, you can see those same three arches, and you can see a city of 300,000 people on the other side of the river that’s virtually invisible at night

So, we’re starting to run a little bit shorter on time here (class laughing) That was supposed to be a nice contrast Like on that side you see Chinese skyscrapers, other shoulder, you see that house that was in the picture two slides ago Like, a couple hundred yards of separation That’s not a natural occurring thing That’s the difference in policies between two countries And the difference between North Korea and China is less extreme than, of course, North Korea and South Korea This is where you have a great natural experiment Post-World War II, North Korea, if anything, was richer than South Korea Entire peninsula gets decimated during the Korean War GDP per capita, to the extent you can believe these numbers, roughly on par by 1960 after U.S. and Russian aid go into the country after the Korean War South Korea today, of course, high average incomes It’s top 20 in economic freedom Life expectancy shoots up, infant mortality down Everything is wonderful And by the way, Belgian beer can be had in South Korea cheaper than it can be had in Sweden that’s right almost next door to Belgium North Korea today, to the extent you can believe it, under $2,000 per capita income About three million people starved to death in the 1990s No place on Earth do you get one people, one language, one culture, one history, one small geography, with such differences in economic outcomes like that where the most significant difference between the two is one has collective ownership and control, and the other does not China, we call this one fake socialism, because it’s a Communist Party that runs the country, but they’ve reformed the system so much that it would now be a mistake to call it socialism So, the banking sector is largely still socialized There are still state-owned industries But the lion’s share of the economic output of China now comes from private firms It used to be socialist In fact, under Mao it was one of the most socialist regimes that ever occurred But the reforms starting in 1978 with Deng Xiaoping, I’d say up through today, but I’d say really more up through about a decade ago, have transformed it into a crony capitalist economy I think there’s problems with crony capitalism But when you compare it to what was going on under socialism, it’s a big improvement And go into any major Chinese city, you’re going to see major international brands, commerce and markets, private ownership And a lot of the thing in China is, in Bob’s Economic Freedom Index is the biggest improver since 1980, in Asia, in terms of its economic freedom score But that’s national level policy which really understates it because a lot of the reform in China has been at the local level, and in particular, enterprise zones in major cities that they’ve created that have greater economic freedoms than other parts of the country This one’s in Shanghai That’s the kind of iconic skyline that you see in Shanghai But this is looking the same way So this is actually old Shanghai on this side of the river, which is the side I took that picture from on the top Across the river was the slum That’s across the river now In early 1990s, that across the river became the largest free trade zone with also better financial freedoms, too, in China, and it boomed Average incomes today are close to $20,000 per person on the other side of the river right there South Korea is a dramatic success story That’s about a generation and a half to go from pre-industrial to first world status That was 1990 It’s like a blink of an eye that it’s happened there in China I’ll skip the hellish history of it I think some people are– Some people just don’t know the magnitude of it During the Great Leap Forward, Frank Dikotter’s new book, he had better access to the archives, is probably the best estimate that’s out there now Puts it at about 45 million unnecessary deaths during that time period And this is when they really collectivized agriculture, collectivized land, forced labor The reform process I’ve already talked a bit about but the one part I want to say, migration I gave a talk on migration last week here The income differences between rural China and cities in China are often as big as the income differences between Latin American countries and the United States You lose some of your state welfare benefits when you move in China, but you’re essentially free to move from the rural area to the cities, and hundreds of millions of them have And a lot of that big economic growth we’ve seen in China has been migration driven If we had greater freedom to migrate between countries we’d see some more of that growth like that here in the United States too, possibly Still a scary police state While I was there I was invited to speak at the Unirule Institute Unirule Institute has been independent free market institute in Beijing since the early 1990s that’s advocated for greater economic freedoms and reforms When I spoke there with Bob and a couple other people,

they were having a conference on Ayn Rand and Austrian economics, and I was like, this is cool I’m like, I’m in Beijing and I’m getting to talk about this with a bunch of Chinese academics That was, I think, a Friday night Saturday morning the conference was supposed to continue We weren’t part of it anymore But I got an email from the friend who had introduced us to them, saying, I hope you didn’t go to the conference today The Chinese government shut it down They chained the doors to the building, had thugs there to beat up people trying to go in, and the founder of the institute, who was in his 80s, was put under house arrest for the day That was 2017 Unirule just shut its doors last month because the government ceased giving it authority to exist I’m skipping, rush, so let’s just talk about a success story before we wrap up then So, former republic, former Soviet Republic of Georgia Here’s a country where you get essentially no economic reform for over a decade after the fall of the Soviet Union And this actually we talked about before I’m not sure that this is much of a crisis, but this is just a leadership change that had different ideas Saakashvili becomes president He’s educated in, I think a lawyer from Columbia University From Columbia University And he basically has some Washington Consensus type ideas about reform and growth But he appoints this guy, Kakha Bendukidze, who is a very wealthy person, at the time in Ukraine, but who’s basically a libertarian capitalist, to be his finance minister And says, go ahead and reform the economy So this doesn’t start– Rose Revolution is 2004 He gets into power and starts making these economic reforms They put in a 12% flat income tax, eliminate bunches of other taxes and reduce rates So, most economic indicators in Georgia start improving pretty quick The one that doesn’t is unemployment Unemployment goes up to something like 36% because he fired entire bureaus at once He just went through it It’d be like walking into the Department of Agriculture today and being like, all right, all of you are fired Actually, what he did, this was really kind of cute He’d go to some of the bureaus and he’d call for everybody to come into a central room like this, and he’d ask his assistant to count how many people were in the room The assistant would count, and then he’d say, how many does it say work here? There’s 100 people in the room It says 600 people Okay, now only 100 people work here Everybody else is fired And would do that repeatedly In fact, my favorite one is he fired the entire country’s traffic police in one day All of the traffic police, gone And the joke is in Georgia that crime went down (class laughing) because they were super corrupt and they just pulled you over to extract bribes In fact, today, this is a police station in Georgia When they build new police stations they make them of glass to signal transparency They came down really hard on this regime, on corruption, which I want to say is mostly a good thing in the context of these reforms as they had to break the cycle But ultimately they were very harsh on people in their punishments for very mild acts of corruption and that grew resentment that eventually got the president out of office, probably Unions are legal, but they have no special privileges that any people don’t have on their own They put in something called the Economic Freedom Amendment which keeps deficits below 3% of GDP, debt below 60% of GDP And if you want to pass a new tax, you have to ask for a popular referendum The government can’t put it in place itself So basically he handcuffed the next government when he was leaving office And they renewed it When we were in Georgia they were debating the renewal and we got to debate some local professors on that But they ultimately renewed it They cracked the top 10 in economic freedom in the world Something that was unranked before 2004 because you couldn’t even get data out of them Dramatic transformation Country’s booming Incomes are up It’s still very poor, about $8,000 per capita But actually using that same synthetic control approach Grier and Lawson did a paper together on Rose Revolution It’s about 40% higher than what would be expected otherwise in terms of the incomes And in terms of the booze, also great success The Soviet central planners were commies, not idiots, so they figured out that warm Georgia could make wine better than, say, Siberia So, Georgia made wine for the Soviet Union, but they did it on fertile farmland and they used international grapes that you’d be familiar with, Merlots, Cabernets, and such That’s all gone because they mass produced swill So, once they got economic freedom they tore that stuff up, went back to indigenous Georgian grapes, names of which you’ve never heard of and I can’t pronounce, and old school winemaking practices Where is that previous picture? Down there in the bottom this is actually in somebody’s house And this goes down to clay vats that are below ground And they crush the grapes, leaving the stems and the skins on, even on whites,

and let it ferment there and then extract it So there whites are like a golden color It’s very different than any white wine that you’ve had in the United States, probably And it’s delicious And it’s booming Exports to the United States were up 50% year-over-year last year from the Georgian wine industry So, again mirroring what’s going on in the economy So, to wrap up, then We end up back in the USSA, attend the Socialist Conference And didn’t really argue with people at all I just asked them all, what brought you here? What does socialism mean to you? What are you interested in? And the summary of what I learned from them is, basically, half, maybe more than half, aren’t really socialists Point blank, ask them, do you want to abolish private property and replace it with some sort of state or collective ownership, nope So, what concerns you? And then it’s usually an issue, pick it, whether it’s environment, immigration, gender issues, income inequality, pick some issue They see an injustice, and actually, most of these things when they say them, I’m like, yeah, I agree with you That’s not right And then they say, so socialism’s going to fix that I’m like, socialism means, like, big government control of the economy I don’t think that’s a good way to– Even if that would fix your problem, the host of other problems you’re going to get with that are going to be awful And in often this case, I actually don’t think it’s going to fix your problem It might make it worse Then there’s a minority of them, but still significant, who really do mean collectivize the means of production, but they want it to be socialism from below, or democratic socialism, and explicitly say, no real world socialist system is what I talk about because I want democratic socialism And they miss this connection between collectivizing the means of production and losing your political freedoms in the bargain But mostly good, well intentioned people who I think we need to do a better People like me need to do a better job talking to them and recognizing the problems that they see And saying, well, there’s better ways that we can do this to reform our own system that don’t equate to jumping on to something called socialism without really understanding it I’ll also say that the hotel, and this is the beer taps on the other picture there, you see a green one with a big fist and a red star on it That’s Revolution IPA Revolution is a brewing company It’s the largest independent beer bottler in Illinois And all of their beers have commie logos of some sort, and memorabilia But the irony is that this privately owned company that was making beer that was being sold at the Socialist Conference makes a greater variety and quality of beer than all of the socialist countries in the world combined (class chuckling) It’s differences in the incentives So, I’ll wrap up with, the book has done really well We made it all the way up to number five on Amazon, like, overall So, by far the best nonfiction selling on Amazon that day And my own personal thing that I thought was cool, for almost continually since we’ve released this summer it’s been the number one book in the category of socialism simultaneously with the number one category of beer (class laughing) Wasn’t a life goal, but it is an accomplishment So with that I’ll end there and take whatever questions you might have By the way, Professor Irwin said the best question gets this book for free, but the rest of you, fear not I have books with me that I’ll happily sell you for $20 (class laughing) if you ask crappier questions (class laughing) (class applauding) – [Professor Irwin] The floor is open Only students are eligible for the free book so you have to judge the best question by – Luckily, I don’t discriminate against older people who have $20 bills (class laughing) Yes – Quick question with your approach to deciding which beers to drink, as weird of a question as that sounds Because you mentioned that you were drinking Belgian beer in different places, and I was wondering if you were trying to Like, I know a lot of countries have a national beer brand And I was wondering if you were analyzing both the ability to get foreign beers in these various countries, and the quality of the national beer, because that would be two different measurements of just how well the economy is functioning and the ability to have variety – Yeah, that’s a great question So, yes, we did both And maybe I could have emphasized some more of it in the talk So, Cuba, you’ve got two types of beer, Bucanero or Cristal And one of them is like 4.5% alcohol, one’s 5% alcohol They both taste like a Budweiser that you left out in the sun too long You have very low penetration of any foreign beers available there Contrast that with China, the Tsingtao beer, I don’t think it’s very good I mean, I can drink it But you go to any major city and you’ve got places that have a wide variety We found a Belgian beer bar in Dandong

Like, it wouldn’t surprise me to find them in Shanghai and Beijing, but Dandong? Awesome, okay, cool Yeah, it’s not just what they produce themselves Because, listen, I’m originally from Massachusetts I don’t want to drink any Massachusetts wine, but I have no problem having a great variety of good quality wine when I’m in Massachusetts because they import it from everybody everywhere else But you don’t see that the same in the other countries And by the way, the Korean beer, the North Korean beer is godawful Bob and I drank one of them on camera with someone doing an interview, and we couldn’t get through it I’m not the type of person who doesn’t finish a beer I’ve had to change my words because when I go into a bar, if I see taps and I see something I haven’t had I’ll be like, oh, I’ll try that, and they bring me over a little shot glass I’m like, no, no, no, I meant it like a man When I say try it, give me a glass I will drink it all And if I don’t like it, I’ll switch after The North Korean, I couldn’t make it through What Bob said is, he said if he lived there he guessed he could drink it, but he’d hope it killed him before the state does (class chuckling) Other questions Yeah – So, you mentioned inequality towards the end of your talk Was just wondering if you think it’s an issue And if so, if democratic socialism isn’t the answer, what do you think is? – I think I think inequality is a symptom of something that’s a problem To me, inequality per se is not the problem It’s how it’s generated So, I’d want to think about barriers to mobility, barriers to success, barriers to realizing your dreams, ambitions, however you want to pursue them And it might be that you pursue goals that make your incomes wildly unequal with other people, but if you’re free to pursue your passions and ambitions and you get the outcome you want and desire but it’s income inequality, I’m fine with that But when I think about things that prevent people from doing that, and generate the inequality, that’s where I think So, things like occupational licensure in the United States It’s becoming widespread Arizona licenses rain dancers How are they ensuring quality with this? Don’t know It’s pervasive across states, now a number of occupations being And then the other states don’t recognize it But that means when one part of the country is being successful and another country is stagnating, it’s harder for people to move There was a study, I think it said if you worked in a licensed occupation you were something like 30% less likely to move between U.S. states That’s a big barrier to people adapting to an economic system in order to keep generating income that makes things unequal in the end That’s by far not the only one, but I’d think about other things that are like that The way that we regulate housing and make housing completely unaffordable so that your unequal incomes then matter a lot for people trying to live on either coast of the country I live in Lubbock, Texas It’s going to remain affordable because they let you build new homes And because the land’s flat and you can just keep building on it But they don’t limit the permissions California severely limits their permissions What’s scarce in California isn’t buildable land, it’s permission And I think that makes the inequality of incomes there worse because your cost of living is jacked up so much by it So I would think about things like that Because I think the young socialists who say, incomes are getting more unequal, does it matter? I’m like, yeah, I think it does, but let’s talk about real ways to get at helping people Yeah – What’s the best example that you encountered in your travels of entrepreneurial spirit in a clever way under socialism? So like a hustler, or someone basically being clever in a black market I think there’s always some interesting examples from socialist countries of people’s entrepreneurial spirit – Hair sellers Venezuelans who lack the money to buy the necessities in Cucuta, Columbia, there were entrepreneurs in Cucuta In fact, I talked with one, it was an interesting conversation, on the bridge They were yelling out for people to sell their hair (participant speaking indistinctly) Yes, and they use them to make hair extensions If you’re a Venezuelan who just had hair but no money you could go and sell your hair I read about it before, so when I heard them doing it I went up to them And my Spanish is very bad I grew up playing basketball with Puerto Ricans and took one class in high school But I still try But I had a guy from the PanAm Post who was with us then too, and so then he started to try to translate because when I asked, she just kind of laughed at me and said she didn’t want my hair (class laughing) I’m like, come on Red hair is scarce where we are right now But apparently it’s also not in demand. (chuckling) But what I was trying to get from her was the price And it varies And it was like, long, high quality hair could get you as much as 70 bucks But normal was 20, 25 bucks, I think, if I remember correctly Which doesn’t sound like much, but in terms of what you could buy for supplies that was a non insignificant– That might be minimum wage earnings for a week

or something like that I’m spitballing that actual number Yeah, that might be the most interesting Yeah – So, you started the talk by stating that the younger generation is more likely to favor socialism over capitalism And I guess I’m just wondering if you have discovered any, or can plan any mechanisms that have allowed or prompted socialism to be so glorified among the younger generations And if you think that people’s opinions would change if they had the opportunity to travel to these countries – Okay, so, definitely yes on the second part of this And hopefully, if they just read the book that will be a poor substitute On the first part, and it’s just the evidence, I’m only seeing a little bit of it and it’s not in the book at all, but actually there’s a difference between millennials and Gen Z where it becomes less popular with Gen Z I wonder how much of this goes with the significant number of millennials coming of age, or coming to economic activity, at the time of the Great Recession and equating that with capitalism rather than that being a bad version of crony capitalism, a lot of what went on there I think there’s something to that That’s not science This is casual empiricism that I’m suspicious of there Then I think with everybody, just if you grew up post-Cold War era I think there’s something to that as well You wanted to (participant speaking indistinctly) – Right It’s also consistent with who was at that Socialism Conference If you grew up during the Reagan years, or if you came of age in the ’80s or ’90s, you were not at the Socialism Conference It was people under 35 and ex-1960s hippies who are now in their 70s Not entirely, but basically Yeah – [Participant] So, a lot of people that are very critical of capitalism, to me, the most compelling argument is that income inequality is really, such drastic income inequality is unhealthy But when we look at the countries that you went to where the government really runs a lot of it, the corruption is rampant and there’s no real check on the government Whereas in capitalism the government can be a check on the rich and powerful So, why do you think there’s a disconnect there between people that are very anti-capitalism and they’re saying the government should have all the power, but they’re not understanding that when the government is the end-all, be-all, then corruption is rampant How do you explain that? What’s the best way to extend that to – Rhetoric versus reality, right Socialism preaches goals of equality, but you end up with two-tier systems where the government and the ruling elite live well, and the normal person does not But it starts with what sounds like noble goals And I think it’s the appeal of the sound of it without thinking through what’s the political economy of how it’s actually going to operate and function Yeah – (mumbling) if the Georgia situation was actually a miracle and they may be able to improve their country, then why isn’t it very obvious to these countries that are obviously suffering to just adopt a model that is similar and just (speaking indistinctly) – I don’t think there’s a universal answer to that Professor Irwin and I were talking a little bit at lunch today about Because part of the answer is it’s often not in the interest of those people who have power to let such reforms happen So they live well and are going to be displaced and not be better off if reforms happen What we were talking about is things like crisis that break political equilibria Then often it’s a bit of an accident of history of who’s there with the right ideas Sometimes it’s standard interest group politics stuff But other times, the right people at the right time, which is really what I’d call the Georgia one Bob is the real expert on Georgia He’s been there something like 17 times now And I grilled him on this a bit because the Virginia political economy kept coming through Well, what was the interest group formation? How did it align (mumbling) And he’s really, like, there was no ideological shift in Georgians There was no real He’s like, the guy walked around with roses to show that he was peaceful and he was not going to be corrupt He got elected, and he got the right finance ministry That was basically his answer to Georgia I wouldn’t be looking for North Korea making a transformation like that any time soon – [Participant] He was holding his hand up for much longer, so I’ll let him go first – [Ben] So we’re doing this Soviet style, we get in line? (class laughing) We could use a market I’ll take a buck from whoever wants to go first – This might be a bit out of the scope for your book But looking at your experience in Cuba, how do you think socialism relates to the digital world? Obviously Cubans have kind of gone through the private sector with Airbnb,

or like casas particulares, but with services So how do you think that plays into (mumbling) emerging from the private sector in the digital space? – I think the bigger tension is in China, right, because you have political repression there but in an economy where they care about still having booming economic growth And so there’s a tension between these two things If you limit access to information and internet you’re going to not do as well in the growth thing that you might care about, but you need that for your political suppression That’s where the bigger tension Cuba, I don’t know if they give a damn about economic growth I mean, the place is still using 56k dial-ups, and not very often All right – [Participant] Was there anything that you came across in your travels that challenged your expectations of what you were expecting from either socialism or capitalism? – Not so much in the system, but maybe the particular manifestations of it I think what was striking with Venezuela was seeing that it wasn’t poor Venezuelans that were making it to the border, that this is what happens to upper middle income people, middle income people That was fairly striking The question we got in Georgia a lot that was very good, and it’s not surprising to me as an economist but it’s a good question of how a normal person perceives this, is they’d hear talks by Bob and I, because we’ve lectured at universities when we were there too, about economic freedom, and how Georgia is doing great, and how it just causes prosperity Then they’d say, but we’re still poor And we’d be like, yeah, because growth compounds over time You can’t go from being poor to being rich like (snaps fingers) that Unless you migrate across borders, then you can do that But in your own country it’s got to compound I mean, that wasn’t surprising to us It’s a great place to go to work because it is booming, but it is still like Eastern Europe was maybe circa, at least Czech Republic circa 2000 or something like that Going to Czech Republic now, you might as well go to Western Europe It’s not that much different Going to Georgia is still different It’s still very much in transition, and it’s very safe That said, I hope we get to a world where there is no tourism of, oh, you can see a place that’s different because it hasn’t grown yet I’d like them all to succeed and grow – [Participant] You mentioned welfare How do you feel about the Andrew Yang, or UBI in general? – That UBI is a horrible idea I don’t think it’s actually good for someone’s character, honestly But when it comes to specific proposals in the United States, any UBI that would be big enough to deal with poverty cannot be a UBI The arithmetic doesn’t work – Kind of like the proposal from the United amendment the crowdsourced constitutional amendment, the United amendment It’s more focused on people who need the income – As soon as we’re focusing on people in need, which I agree is what we should be doing instead of everybody, then we’re not doing universal basic income Because the whole attraction of universal basic income is everybody gets that income no matter what so you don’t get any of the bad incentives where if I do more I earn less type thing, and you’re not looked down upon for being on the dole because everybody gets the same thing Just to do it to everybody makes it really, really expensive Which means the number that you can actually give everybody is enough so that the person who is only getting UBI isn’t getting out of poverty So, I think I’d like to, instead of I think UBI is just something that people talk that there’s no probability of it happening in the United States I’d rather think about, I guess back to your question, about how do we get barriers out of the way for people getting out of poverty – [Professor Irwin] We’re just about out of time, so we have time for one last question – [Ben] Yes, sir – [Participant] How do you think socialism and automation can play a role with each other? And what do you think the governments I guess, do you think governments should restrict automation in order to keep workers employed? – No Whether it’s automation, whether it’s technological change, whether it’s changes in trade flows, our economy is innovating and advancing, and to do that you always have to be able to destroy jobs What we want to do is make the labor market as flexible as possible to let people get re-employed and back to work That locking anything in place is a recipe for stagnation That would be bad for us And I do think, though, that when you talk to So, young people overwhelmingly in post-socialist countries are happier making a transition to capitalism You can find old people who say, I like the old system better And the older you are when you’re displaced, the harder it is to re-employ as productively This is true for older workers in the Midwest in the United States when we trade with China more, who get unemployed It’s also true for older people in the Soviet Union

who worked under that old system then getting re-employed in a market economy I think those two things are related So, with that, I’ve got a candidate for the winner – [Professor] Okay, you have a book right there, so – Yours was the question about the hair, right? – No – Yours right there Okay, I knew it was right there Are you okay with that? – Absolutely – Otherwise the beer question right out the gate I almost threw you the book then All right, well thank you all very much (class applauding) Thank you