Building a Wealthier, Fairer Society
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the hatchback that took you cross country and back, and the minivan that tackles the weekly carpool. For the cars you couldn't live without, trust Amica Auto Insurance. Amica. Empathy is our best policy. You're listening to The Michael Shermer Show. I saw your book, what was it, excerpted or reviewed in the Wall Street Journal, I think it was.

which is how I ended up reaching out to you. Maybe that's where it was or somewhere else. Was it Financial Times? Maybe. Michael Wolff? I don't know. Yes, yes, that's what it was. Right, yeah, right.

So I thought, who is this guy? Wow, this is quite a different message from the Thomas Piketty capital in the 21st century, which set everybody ablaze about income inequality. So let's just start, but give us a little bit of biographical information. Who are you? What's your story? How did you get into studying economics in general and income inequality and wealth inequality in particular? Okay, thanks, Michael. So this is a big question, of course.

I think, you know, I come from the standpoint from being very interested in society as a whole. I mean, I'm interested in politics and how things work and also history. So I started my undergraduates in economics and in history, doing them in parallel and also did like economic history, which is like a specific topic in Europe. In the US, I think it's more like, you know, being done either within the economics or history departments.

So an academic studies research turned out to be my thing. And then so I started out working on financial markets history, but then came into understanding that welfare, you know, how people live their lives and differences in society are very important stuff. And then this is like 20 years ago.

I met up with Emmanuel Saez from UC Berkeley when he came and visited UCLA, where I was a newly graded assistant professor. And I started becoming interested in long-run trends in inequality, income distribution, wealth distribution, and also, of course, economic growth.

And since then, I've been working on these topics, different aspects of inequality, which is a very multifaceted question, topic. I think we will come back to this, which is also one of the things or one of the explanations for why we sometimes have contrasting narratives or people say different things. And I think there's a lot of misconception in the discussion of inequality in general.

I've been looking at the cross-sectional distributions of differences between rich and poor, but also the social mobility aspects, the role of inherited wealth, and so on.

Then, okay, this is how I got into this topic. So I could continue talking about why I wrote this book and so on. But let me stop there for the time. Oh, yeah, sure. Yeah, no, no, that's a perfect lead in. I really think economics is probably the most important subject somebody can study in college, for example.

I kind of wish, in fact, had I not gone into psychology and then history of science, I really should have done economics. If you really want to understand how the world works and what really matters, you know, in both campaigns on the Democrats and Republicans here in the big election, they rarely talk about the economy. Trump brings it up a fair amount. But most of the other issues, trans issues, LGBTQ, the border, Ukraine, Israel, you

These things really don't affect most people's lives. I mean, it has no effect on my life, but taxation does what I can deduct.

uh, my taxes, you know, what the capital gains taxes are, you know, my state of California, its rate of taxation, all these things affect everybody. And, uh, you know, the stock market is hugely important. And even people who think they're not in the stock market, you know what, I'm just a labor worker at some factory. Yeah. But if you belong to a union, the union has investments and they're in the stock market. Right. So, I mean, what you're doing is incredibly important. And, uh,

you know, because it really touches on everybody's lives. And so you give us a sense of what kind of science economics is. I mean, you can't run controlled experiments where you have country A has this taxation rate and country B has that taxation rate and you compare them. But you do, you can do natural experiments, things that have already happened, and then you compare them. So the comparative method for natural experiments is,

But just say, take your country, Sweden, and then you compare it to the United States. How do you do that, given how different these countries are? How do you control for other factors and all that? I mean, that's a great question. I mean, of course, this is really tough. I think the kind of the holy grail in social science in general is this, the causal identification. How do we do it? So we've mimicked...

the controlled experiment context that we've seen in science by trying to have treatment and control setups. And then sometimes in history, this is one of the beauty of history studies, is to actually find maybe policy reforms where we've had accidental experimental situations where we can look at

almost identical groups of people separated only in one particular aspect. And then we can try to isolate everything else and then to see what is the effect of this particular change or innovation or reform that affected one group but not the other, and then to follow them over time. Of course,

A lot of things happen. And over time, people learn, people move and so on. You may have policy responses following up on this first reform so that the initial effect will be diluted and changed and so on. Anyway, so that's how we discuss the causal analysis, I think, much in economics.

Taking a little bit of a step back in terms of what economics, in terms of social science, contributes with is the curriculum that we have together in terms of taking on society by simplifying matters, going down to simple models. I think psychology has a lot to do, a lot on this as well. I think even history of science, trying to really...

to simplify matters, to understand what is what, what is big and what is not. I think some of the other social sciences, maybe sociology, I don't know, maybe political science, they ask very important questions. Sometimes they lack a little bit of a framework to isolate the matters. This is what is a comparative advantage, I think, of economics, although we may be too restrictive and we may lose out on very important stuff.

And

The thing that you mentioned at last now with the institutional differences, comparing countries. So sometimes we talk about macroeconomics, so country analysis. And that's, I mean, in many cases where the important stuff is happening. So unemployment outcomes, you know, social insurance policies, economic growth, how to understand that and how to compare 10 million Sweden to 300 plus million US. Needless to say, it's almost impossible, right?

So here, either you take on basically all the countries in the world or the Western countries, which I've done in my book, and try to have these countries having relatively similar institutional contexts. So they became democracies 100 years ago. They developed educational attainment contexts where people can go to school. They have education.

you know, they've all experienced the big institutional change of the 20th century, namely the growth of government. So the establishment of our welfare states

in a relatively similar matter or fashion. So then we can at least do some comparative stuff. It will always be bound and always problematic, but at least having it within the Western world helps a lot. But then, of course, so anyway, so this is a little bit how economists try to simplify matters to kind of really distill the stuff that's really important and then do our best, basically.

Yeah, nice. Well, your book is very data-driven. Your work is very data-driven, which I really like. And yet you do end up with some policy recommendations at the end. We'll go over those big five later. But why is it in economics there are left-wing economists and right-wing economists? Why can't there be economists with no wings? I mean, you wouldn't say that really with physics or biology, I think. But you do get that with economics. So the data don't just speak for themselves always, right?

Definitely not. So I think in general in social science, we have a problem of selection to begin with. So what do we study? What questions do we ask? Should we study...

a certain outcome in a certain country, maybe we want to do that because we have a hinge on that pattern working in our interests. So all of this also has to do with, do we have a policy agenda maybe coming into the study? So social science, society and economics, this is, as you kind of alluded to, things that are intertwined with interests.

and maybe ideology and biases. And here, I think this is something that we're struggling with. On my end, I try to do this as transparent as possible. So in my book, for example, I show a lot of data. I try to talk about the pros and cons of my data,

All my figures and tables I have on my website. So people can go into my data, they can run my computer programs, and they can look for errors. And sometimes they may find them, and that's great. This is how I kind of... It's scary, but it's great. That said, so these are interests. And sometimes I think this is something we're going to come back to when it comes to the study of inequality issues.

and the role of policy and so on, the forces and the determinants driving these things. Here, I think, in my field, there has been a lot of interest and ideology confounded in the study of these outcomes. And that, I think, may be a problematic aspect, certainly for me as well, but certainly also for others. So,

So there's like no answer, but I think it's so close to the societal outcomes that we care about. So...

People tend to maybe be selective and, you know, integrate their views of the world with their, you know, with their research. And that can be problematic. But it's also what also creates a lot of energy into economics, I think. Yeah. I mean, when I bring up people like Thomas Sowell, you know, oh, well, he's one of those right-wing economists. Or, you know, Thomas Pickey, oh, he's a left-wing economist. Well...

What did the data say? Okay, so I call this Darwin's dictum. Charles Darwin famously was not present at the big British Association for the Advancement of Science debate about his own book. And one of his friends wrote him a letter and said, you know, they said you should have just let the facts speak for themselves and forget all the theorizing. And he wrote back and said, how odd it is that anyone cannot see that all observation must be for or against some point of view, if it is to be of any service.

Right? So everybody's got a bias. There's some point of view, there's some theory you're writing about or testing. So you might as well just put it out right there on the page, which you do. I mean, you studied the history of science. I mean, I did it as well. I had a fantastic course at Stockholm University, learning, you know, going from, you know, the Greeks and then into, you know, the, you know, Immanuel Kant and then coming over to also, you

the more critical stances. You could have Popper. I mean, this is maybe one of my heroes in trying to have the falsifying context of doing the empirical analysis. Although then when reading Tom Kuhn's fantastic book about the structure of scientific revolutions, or Feyerabend, you're struck by the fact that the relativist notions of what is what

I think has a lot of important messages. And also, we want to put up mirrors, like who are we, where are our starting points? So I think this is certainly true for economics, but also maybe for science in some context. Yeah. Your subtitle is A New History of Wealth in the West. I like that you're

looking for a cause of wealth. There's a lot of books on poverty. What's the cause of poverty? The way I think about it, given the second law of thermodynamics and entropy, poverty is the natural state of things. If you do nothing, that's what you get. The thing to explain is wealth, and people mistakenly think the title of Adam Smith's book was on the wealth of nations. That's not the title. The title was an inquiry into the causes and, what was it, the

What is it? Origin and causes of the wealth of nations? He's looking for, you know, where does wealth come from? That's the problem to be solved.

I totally agree. That's one of the sidetracks of my book, and I think one of the things that I really want to talk about is about that creating value is something quite positive. So especially, you know, at least when we talk about value creation in the context of market economies embedded in, you know, some kind of democratic institutional context. So where people...

They freely choose to purchase a good or a service with money out of their own pocket, and they're going to pick a value which is closer to their valuation. And they will not have a value, propose a value that they think is – because they think they want it to be high, but it's just that they're going to pay for what it's worth. And that's it.

To have people creating these things in terms of firms, after all the costs to workers and cost of capital and having these services and products being sold, then they get a net profit maybe. And that's something quite astonishing. It adds value.

It adds value to society. That's actually the definition of value added. And also it adds taxes because it's going to be taxed. Profit taxation, corporate taxation is a major capital income tax. So in this context, in this literature on wealth inequality and history of wealth, there has to be something. I think also in the political debate, not least in the US, if I may, is to see rich people, successful entrepreneurs as...

you know, being a little bit of a problem. I mean, because they're rich. There's something suspective about them being rich. I think if they have become rich in some kind of market economy setting, of course, we will have regulations about market structure, maybe trust, antitrust regulation. We can talk about this in terms of AI. Should we regulate data ownership stuff and so on, which I think could be a very good thing.

However, it's inherently positive that we have these value pools coming out and expanding the size of the economic cake. So this is where the pie, which is then something positive. And historically, that's one of the messages in my book as well, is that much of what we see is that the pie

The pie has expanded in size and it has not been a zero-sum game that the successful people creating wealth has taken that wealth from others. Instead, they have created wealth, created firms, worked hard in firms and saved and then helped others to create opportunities for them as well.

Also, that could be, of course, in the form of them paying taxes on their income, on their profits, that then could finance infrastructure, educational assistance, and so on. So anyway, so yes, creating wealth is very good for society, and this is a very important point to be made, I think. I just remembered the full title, Nature and Causes of the Wealth of Nations. Yeah, that was it.

Yeah, so one of the central points of your book that I really think is important is this problem of zero-sum game thinking.

Today, that's how most everybody thinks. If Elon Musk has $50 billion or a couple hundred billion, whatever it is, that's that much less to go around for the rest of us as if it's distributed by some income czar and he took more than his fair share. You kind of hear that theme. But I think there's kind of an evolutionary logic to it. I wrote a book on evolutionary economics, The Mind of the Market, where I talked about folk economics. I started thinking about folk physics and folk biology.

Creationism is kind of a folk biology. It's what the world looks like. It looks like it was created, right? And historically, anybody, let's say 1,000 years ago or 10,000 years ago, anybody that all of a sudden got rich,

They probably did not get that rich fairly. They probably did cheat the system. They probably rigged it somehow or another. I mean, the whole idea currently of property laws and checks and balances on the insider trade and things like that are new.

You know, a thousand years ago, all of us, most of us would be dirt poor. But that guy over there, how come he's rich? Well, he probably exploited people. He probably enslaved people and stole stuff. You know, most governments were kleptocracy. So there's a little bit of a there's kind of a rationality behind being suspect of rich people.

That's a very good point. I haven't thought that closely about it. I mean, I've been thinking about it in the context of colonialism, whether we should explain the poor status of many ex-colonies as if, you know, because of them being robbed of their stuff when they were colonies. And I think that's the wrong way of looking at things. In fact, there are colonies that are no longer poor and

And why? Because they establish good institutions or, you know, looking at Southeast Asia, for example. But on that end, yes, I think we know quite little, in fact, about how people view rich people and whether they distinguish between different kinds of rich people. There are maybe a few papers separating between self-made and inherited wealth, for example, or whether you're like entrepreneur or something or so, I think.

My suspicion is that the more we understand of how you have become rich, the more accepting we will be. For example, looking at the sports stars like Mahomes in the football league or these guys, Aaron Judge or whatever, we see them score. We see them lift their teams and produce on the soccer or sports field. And we accept that they become billionaires.

So then we can go in terms of entrepreneurship, maybe having manufacturing firm owners, like making machines or cars or maybe furniture like IKEA. Ingvar Kamprad is super rich. Sweden is dead now, but we could all accept him being very wealthy because we saw the stuff. But then

It may be less so than the sports stars, but even to the farther end at the other side is the finance people who do stuff on the insurance market or the derivative market. We don't really understand the banks. And then people get suspicious and there could be a range of connotations and historical remnants about what bankers did and we had specific regulations. Anyway,

But there's a very good point, and I don't think we have the full answer for why people are suspected. Yeah, that's a good point. I think, can you see what they're doing, among the many explanations for anti-Semitism, I think, is that Jews were kind of forced into these middleman positions where they acted as brokers,

or bankers or financiers, and you couldn't see what they were doing. How were they making their money? And same thing with Wall Street traders today, right? What does that guy do? How is he worth so much money? He's just moving binary digits around on his screen. How is that helping me? I can't go buy a new car from him or whatever, right? And my favorite example of this, my best friend Michael Coles made his fortune making chocolate chip cookies. He was the founder of the Great American Cookie Company and he sold it.

And, you know, no one seems to mind that he made a lot of money making chocolate chip cookies. It just seems like a nice thing to do, right? But, you know, other industries, they don't, you know, I made my money in oil. Oh, hmm. That doesn't sound as, I don't know.

I think that's true. And also maybe it also have bearing on how people think about redistribution, taxing capital. And I think it has bearing also on the labor market. In fact, CEOs being, are they adding value or middle managers? I don't know.

I think in that context, I mean, what are you worth? Or what am I worth on the labor market? I don't know. But my best guess, at least, would be what someone else would be willing to pay me out of his or her private money. So that would be the best guess for what I'm worth at this point. And I think...

With that in mind, any kind of freely contracted stuff on the labor market is a good basis for what you're worth. I think it's a little bit less so in the public sector when you're dealing with other people's money. I mean, then it's a little bit different, a little bit weaker. But still, some of these are still unexplored questions.

And also there's some line, intuitive line that people draw of how much is too much. Everybody thinks it's okay for the CEO to make more than the average worker, but how much more? So my friend John Mackey founded Whole Foods and then sold it to Jeff Bezos.

His policy, conscious capitalism, he calls it, is he set the boundary at 19 times the average worker of Whole Foods that the CEO would make. Not him, because he paid himself a buck a year or whatever. But that seemed about right to him. But like Disney, the guy makes 500 times more than the average worker. And most people think, you know, that just feels too much. Maybe 10 times, okay. 500 times, no, that just seems too much. Where's the line?

That's a very good point. But on the other hand, here, once again, we don't have theories spelling out what is the right level of inequality or what is the right level of distance between CO and janitor salaries and so on. And yet,

It's a very relative thing. I think there are tons of funny anecdotes out there that you could bring up. For example, there's a book by Robert Frank, a Wall Street journalist called Richestone. And one of the greatest episodes where he's golfing with this super rich guy on that guy's private golf course in this mansion with people being hired and working there and so on. And after the golf round...

journalist Robert Frank asks this owner, so how does it feel to have all this? I mean, you're so rich. How does it feel? And this guy answers like, well, you know, rich, I'm not really that rich. A lot of this money is tied up and so on. Last week I had my friend coming over and doing the same golf round as you did today. And afterward he just took up his checking account and then said like, okay, I like this place. I want to buy it. Name the price. I mean, that

guy, he was rich. So it's a very relative notion of what is too much and too little. And I'm actually suspecting in this context of wealth inequality and the research on wealth and wealth inequality, you sometimes hear people

phrases or wordings about extreme wealth or wealth is exploding and excessive wealth and excess profits. I mean, some of these concepts have bearing on model frameworks, but many of them don't, like over-indebtedness. I mean, some of these concepts

So there's a risk about being very exposed-ish in this context. Like what happens, I mean, beforehand, we don't know who's going to become rich. People take risks and most people fail. Many entrepreneurs go bankrupt, right? But some succeed and some become very successful, maybe because of super hard work and so on and talent and all that, but sometimes also luck, right? I mean, this is...

But still, what is too rich in that sense? Or excessive success and so on? I think really we should be very pragmatic about this. And also, these things change, right? So we don't talk about this BlackBerry stuff anymore or Nokia mobile phones or Motorola mobile phones. I mean, global companies with rich owners. And all of a sudden, you know, things change. New things come up. And all of a sudden,

Those guys aren't that rich anymore because they were out-competed by others. So I think that's one of my lessons as well from society and also from studying history. Creating wealth is something very positive, and we should be very happy when it's being done because it's going to lift many people, many others. Not mechanically, but as a whole.

Yeah, Robert Frank makes that point about the hedonic treadmill where no matter how big your house is, if somebody has a bigger house, you feel like you don't have enough. And that will never end.

Exactly. Walter Journal, Robert Frank is another guy. Oh, different Robert Frank. Yeah, there's this Cornell professor, Robert Frank, who's written several of these fantastic books, When I Take All Society, what have you more, You Have the Falling Behind. And also one of my super favorite books that I always recommend is called Success and Luck.

where he really talks about the role of luck and also how many successful people systematically want to downplay the role of luck in their lives, right? Because we all feel that we've been super, you know, hardworking and really deserving of our success. But, you know, we were born in a rich country, right? And, you know, there were stuff in life when we were maybe lucky, I don't know.

Anyway, you know, these are these are remember Obama's famous speech. You didn't build that. And, you know, conservatives heads exploded. He was just making the point, well, you know, you drove to your job on public roads. You went to a public school. You know, there's a lot of infrastructure that the government provides, like the Internet and the military and police and everything.

you know, third world countries, they don't have a lot of that. You know, you just got lucky you were born in America. I take it even further than that in the sense of, you know, you were born maybe intelligent or not, you know, you didn't choose that, you don't choose your parents or even temperament, you know, people that are high in conscientiousness, high in openness to experience and,

take bigger risks and they're more creative. And then they put in the work needed to make it happen. You don't choose any of those personality characters. Those are mostly heritable, right? And then, you know, then there's the chance you zigged instead of zagged. And you went to this party, you met this person that was doing a startup and you became his partner. You know, you might've gone the other way and that wouldn't happen.

And so in the end, of course, you make choices and you have free will and there's some agency there. But I think, yeah, people tend to downplay the role, not just of luck, but contingency and all the other things that happen that you didn't choose.

I think that's a huge topic, the role of, for example, the equality of opportunity. So I have chapter 9 in my book where I look at the role of inherited wealth when analyzing and understanding wealth inequality and wealth inequality trends over time and so on.

So I think inheritance is an important aspect, signals what makes people successful. And also, I think we know very little about the role of, for example, inheritance taxation for people.

for founders or entrepreneurs and their interest in building their companies because there are basically no such studies out there looking specifically at that. The tax literature right now on inheritance taxation comes from a very skeptical point of view of there's a lot of tax planning and so on, but I think much of that misses...

this value creation once again among these firm owners, some of which want to leave something after for their children. And those values, the products and services that they create, the taxes that they pay, the people that they hire, will by far outweigh the inheritance taxes that they may need to pay

And in fact, the cost to society of having too high inheritance taxation would actually become quite big if we're not careful. And actually, there's some studies of this. I think the main lesson from the inheritance

See what I did there?

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Addy. That's A-D-D-Y-I dot com. Inheritance taxation literature is that many countries take away, they abolish the inheritance taxation because it doesn't give much money. There's a lot of exemptions and deductions so that we don't hit family firms too hard. And at the end, we don't really know how to value what's going to be inherited. And then countries...

Just abolish these taxes altogether. Well, there was that book, Farewell to Alms. Greg Clark. Greg Clark, yes. He's great. That was a great book, but it really showed, I think it was just in England, just the surname as a proxy for the transference of wealth.

Yeah, exactly. So that's, you know, having the transfer source of IQ, basically. Yes, right. Yes, right. No, that's a great book. Yeah, yeah, yeah, yeah. So, oh, well, so when you were talking, I was reminded of the comedian Chris Rock's riff on the difference between being rich and being wealthy. Have you heard this? No.

No, I haven't. It's really funny. So this is in the day when Shaquille O'Neal was the highest paid NBA player playing for the Lakers. I saw him live, actually, at Staples Arena when we were at the UCLA. Oh, when you were at UCLA. Nice. Yeah, that was 20 years ago. But they had this really great team. Anyway, Chris Rock's riff was, you know, a difference between rich and being wealthy. Shaq is rich. The guy who signs his paychecks, that guy's wealthy. Yeah.

Yeah. I mean, so that's one of the things. I mean, I think in the academic literature, looking at economic inequality, it was for a long time, you know, talking about what you mentioned before, a focus on poverty. So how to help the poor, what is the role of redistribution and so on. They didn't care much about the rich. So when the first studies, I mean, Simon Kuznets, this Russian-American scholar,

economist looking at long-run series on top income shares. And he wanted to study the patterns of economic development and the role of how different sectors evolve differently and so on. But as time went by and also the societies grew richer, we started understanding that we need to know more also about the top of the distribution. And then, I mean...

These are, you know, that's where the money is, right, to some extent. But also, you know, a lot of the tax payments come from high-income earners and capital owners. And also then we need to know what is being, you know, what is...

successful activities in the market economy and so on and so forth. So, you know, distinguish between rich and wealthy. I mean, this is part of this kind of wave, I think, maybe to understand, you know, niblations within the top and also to understand that they may differ quite a lot, which I think is scientifically interesting, but could also have a lot of policy relevance. Yeah.

So you mentioned Thomas Piketty's Capital in the 21st Century. I think of that as like Stephen Hawking's book, A Brief History of Time. Everybody talks about it, but nobody reads it, and those that read it don't really understand it. It's actually pretty, you know, it's actually not too difficult. Sorry. Could you summarize his thesis and contrast it with what you're arguing in your book?

Yeah, I mean, so just let me say, it's actually, it's very thick and they make jokes about it being the least read book around or like, I don't know. But I think it's actually, when you get down to read it, it's not that difficult to read, in fact. So what Thomas does is to try to understand the law of emotion of capitalism. The title, of course, is, I turned directly to Karl Marx, his three books on capital from the 19th century.

And what Thomas does is to try to establish empirically that we were, we start, you know, his analysis is starting in the late 19th century, basically, you know, during industrial revolution in the Western world, basically. And then,

going through the 20th century. And he wants to say that capitalism is a brute thing that creates incentives to accumulate wealth almost boundlessly. And it's also going to, without any bounds, it's going to create inequality. And that was also, according to him, what we saw in the 19th century. But then something happened. What happened? Well, we had

the world wars of the 20th century. So they came as a huge shock to capital, changed a lot. Factories were destroyed. So we had like physical destruction of capital that hit the capital owners, meaning the rich. And so there were two of these giant blows during the 20th century. Along with them also came rising taxation, specifically capital taxation and progressive taxation.

So that also diminished the holdings of the rich and kept it low, especially in the Pozo era. And this is what created the equalization of the 20th century, which we can see in the data. And then this equal state came to an end around 1979, 1980. What happened then? Well,

Thatcher and Reagan. And then they set off neoliberal backlash, reverse policies, lower taxes, deregulating markets. And what we've seen since then is simply the beast coming back. We've unleashed some of these capitalist forces. So we see mounting capital values and also exploding inequality. That's, I think,

A very rough and maybe, of course, very un-nuanced view of what Thomas has done in that book. But it's a great achievement in so many aspects. But this would be the very brief notion, I think, or narrative. Yeah. And then your thesis is that home ownership and pension investment enabled the middle class or the lower working classes even to rise up the scales.

I think, you know, with all respect to what Thomas Dunn, I've been so inspired from his work. So I think there are a few things missing. I think some of these things are very crucial to understand what's happened. One is the fact when we just look at the laws of motion in capital accumulation, where did the capital come?

grow? And was it really that the equalization of the 20th century came about by drawing down the top, so lowering the top of the distribution and then creating equality by that, you know, in these shocks to capital and the capital taxation? In fact, looking at what happened was that we see not so much capital decrease amongst the rich during the 20th century. Looking at the first half of

the real average wealth in the top group didn't decrease a lot, in fact. But it didn't grow a lot either. It stayed almost zero for quite some time. But what did change was a build-up of wealth from below.

So we see saving and especially the saving and new wealth and also capital gains in the lower classes, the workers, the middle classes. And this is something that happens throughout the 20th century. And what's happened since 1980 is that

Yes, we've seen then capital growth in the top, but this did not come at the expense of capital growth or wealth growth among the middle class. In fact, both the middle class and the top groups have increased their wealth holdings in the recent decades now and leading up to now 2020.

But it's just that in some countries, especially the US, the rich guys and the successful entrepreneurs have just been so successful and had the fastest wealth growth we've basically ever seen. And this is due to technology and so on, globalization. So now this is just like looking at capital changes, capital ownership changes. But then

What can explain this, and this is another big, I think, addition that is needed, is that we had institutional changes in the 20th century that allowed ordinary people to start saving. So I think the first more groundbreaking one was democracy. So democratization coming in the 1910s, 1920s. So universal suffrage. So everybody got to vote. Of course, there were still, you know,

structures, right? But this had a huge impact, not only on the political system in terms of democracy and democratic rights, but also on what kind of policies that came out. So educational attainment, so we had educational reforms, opening up schooling to more people, especially higher education, professional training. So we had a new class of professionals growing up

And labour markets were also more structured, became more structured. We had labour laws, maybe reducing the maximum amount of hours worked per day, making the labour, you know, the working place a better place to be. And both the, you know, the education and the more structured labour market conditions made workers more productive. And

This explains why they started saving. For the first time, they could start, you know, save some of their income instead of just consuming it. And the first thing that they saved for was a home. That we see in all Western countries. We see home ownership rates going up very, very dramatically from maybe 20, 30 percent in the first half of the 20th century to 20.

50, 60, 70%, 80% by the end of the 20th century. This is due to workers becoming richer from their work, their incomes are increasing. And this is because they're much more participating in society thanks to these institutional changes. And then as people's lives started improving, they also started living longer.

especially during the post-war era. And what happens when you live longer and what do you want to save for? Well, old age, right? So retirement. So then we see a second booming in household saving and wealth building, namely in the pension systems. So the funded pensions grow faster

And that grows up until our days, right? And that was like the finance part or financial system addition to all of this was first the development of the banking system providing mortgages to normal people, being able to basically service workers with house loans. And then during the 1980s onwards, we got a fantastic financial innovation, the mutual fund system.

that allowed normal people like you and me, not being experts in the stock market, but we could basically make investments, get a high return at low risk. And that is something that has benefited the pensioners a lot in our pension savings. And we talked about wealth growth. I talk about wealth growth.

Today, we've seen a shift in the composition of who owns the wealth in society, the private wealth. So, you know, the homes and the pensions 100 years ago, they comprised maybe 20% of total wealth in society. Today, they comprise 75, 80% of all wealth. So 80% of all private assets, including, you know,

Tesla, including, I don't know, Amazon and all that, down to the smallest banking account of some person, you have 80% being either homes or pension funds, more or less. Ordinary people's savings. And this just shows you that

No, we haven't seen the exploding wealth inequality that there's like we're back to the 19th century raw capitalist era. No, we're at a totally different state with the democratic capitalism where people are participating, they are owning, they have incomes and so on. And this is what I write about and try to show and explain in my book. Yeah, and you did very nicely with a lot of data. So back to the taxation of the super rich.

as not the cause of rising the working class and middle class up higher. I'm just reminded of what in the 1950s, I think the upper highest tax bracket was 90%. So 90% of whatever you make above whatever it was at that time, it'd be the equivalent today of probably $300,000 a year.

You know, the government's just going to take it. But, you know, of course, the uber rich have lawyers and accountants that can help them move that money around. Well, OK, I just won't draw. I won't pay myself that. I'll take it somewhere else. I'll have a car or I'll put it offshore in some other account that can't be taxed and so on. Is that is that the reason why? Because because pulling down the rich doesn't even work, even if you even if you pass laws to say you're going to do it. No, I think, you know,

I don't think that has anything to do with why we've seen this equalization of the 20th century. In fact, you know, we talked about, you'd mentioned offshore wealth. So that's, of course, one potential candidate that there is a column shift. So we, all empirical people, we're kind of very wary of the columns that we need to always cover, you know, the same columns over time. And

So one candidate would be that the rich people move their wealth out of our jurisdiction down to some tax haven. In fact, there is some now new studies showing that this has happened, but not to the extent that it could at all explain or offset the equalization. So the amounts are, you know, to 30%.

to some extent big but not relative to what we've seen in our domestic economies so yes if we add the offshore wealth to the rich people in our rich societies wealth inequality increases a little bit but it doesn't change the big narrative so that does not do it but

But, you know, of course, we should have tax systems that work. We should have tax bases that are providing tax money without distorting incentives and efforts too much. Right.

So this was, I think, what people talked about in the 80s of having broader tax bases and maybe lower marginal tax rates. Because what we saw, you mentioned 90% marginal tax rates. This we saw both from the labor markets, top taxes for wage earners, but also for

inheritance taxation, for example, or estate taxation. The problem is that people start behaving big time. And what happened in the 70s, people behaved so much that they stopped doing things. And our Western economies stopped growing totally. I mean, we got, you know, we've lived after the Second World War, we could, you know, use our

catching up forces from Germany and the global international corporation to help growth happening even with high regulations. But in the 70s, that just didn't work anymore. We were stuck with our high taxes and extensive regulations. And

And what it did was it killed growth. It killed our industries. So a lot of industries just vanished. So the textiles industries, the shipbuilding industries, they vanished. Sweden was, you know, country hit really hard. The car industry, car manufacturing, I mean, US, you know, so Japan, you know, the Japanese car manufacturers just flooded in doing better and cheaper cars, right? And this is because we were so bad. And we try to help our industries by industry policies, right?

And that didn't work that time. It just helped these industries becoming even less productive. And the policies were like printing money and supporting people. That created inflation. So we had stagnation and inflation, the stagflation. And this is what actually happened.

The Reagan people and also the Thatcher administration saw, but also not only them, I mean, social democrats in Sweden also deregulated and started talking about lower taxes in the 80s. Many other Western European countries did that. So no, we cannot tax away the rich. We do not want that.

Except for the fact, you can look at socialist commando economies. There they did stuff like that. They expropriated wealth and they killed off incentives. So by brute force, we saw that that would be what's going to happen. It's going to just be devaluation of the economies. So I don't think we want to go down that route anymore.

Yeah. Frank. So you have three of your five policy recommendations at the end are discard zero sum game thinking. We've discussed that. Support individual homeownership and advocate for pension saving securitization. OK, let's let's look at those two a little bit more. So this is my favorite example here is apparently the U.S. government wants me to own a home because I get to deduct the interest on the mortgage of my home.

And it wants me to drive an electric car because they paid me money to buy one. Not anymore in California because everybody has one. And I get to drive in the diamond lane by myself. So these are the kinds of things that nudge that Dick Thaler and Cass Sunstein called libertarian paternalism. People have to make choices. We know from behavioral psychology that most people are bad at making rational choices.

So, you know, when you get hired by a company, here are the list of pension plans and health care plans you get to pick. So that's your libertarian. You get a choice. But we're nudging you into picking one of these. This one's slightly higher risk. This is lower risk. You pick. But we're going to make you invest in your future and your retirement and your health care right there. Is that the kind of thing you're thinking of that governments can do?

Yeah, a little bit. I think we should be a little bit wary of how far you go there. But I mean, setting the defaults is apparently quite important. So people may have a tendency to under-insure. We may be myopic. We may discount hyperbolically. And I think...

And in that context, I think it's fair to have this kind of starting point that Seinstein and Taylor talked about. But, you know, I think some of this is also about collective structures in terms of maybe trade unions setting up structures for having pension plans being set up with the companies or the employers. So

So let me be clear about the stuff that I've been talking about so far in terms of the forces of equalizing wealth has been in the context of these funded pensions, where people have an account, fund account with their name on. We also have the pay-as-you-go pensions, like the drawing rights on future income streams. These are not money today. These are just promises.

They turn out to be also very important in this total contract, I would say, because they're tax-financed, meaning that people can't save privately enough, maybe as much as they want, because they're taxed in order to pay for today's pensioners. But in response, they get pension income and they grow old.

So, people have tried to capitalize the value of these future pension incomes into a value or wealth today and see what happens to wealth inequality if people had saved privately instead of being taxed to pay for today's pensioners. And it turns out

When we look even at the historical pattern, this is magnifying wealth equalization over the 20th century by an order of magnitude. So the top percentile wealth share, even in the US, is actually cut by almost half by this. It's a huge amount. So Martin Feldstein was one of the first to point this out in the 1970s, calling this social security wealth equal.

So I just wanted to say this because this is an important part of also the growth of government context of the Western world of the 20th century. So we started taxing and providing a lot of welfare institutions which are not part of the standard wealth inequality analysis. But if so, but if we would, wealth is actually much more equally distributed than the official statistics tell us. But then on the

on the nudging towards or like setting up a funded pension savings. Yes, I think it's good also that we have maybe a little bit more reliance on funded pensions for the future. Why? Well, it has to do with demography. So we tend to have a larger share of older people being supported by a smaller share of working people. So this is kind of a human capital offshoot that...

is a potential problem for the pay-as-you-go pension system in the future. So that would be another reason for wanting to have more funded pensions in these mutual funds where we actually see what we have and we can balance up having capital market investments, balancing up this demographic drift. Anyway, so these are kind of some of the policies that I propose. Yeah.

Yeah, I was just writing a piece yesterday about the upcoming election, telling everybody to chill out. And I was looking up when Obama took office, the Dow Jones Industrial Average was 7,900 and change. When he left, it was 19,000 and change. It's just astonishing, you know, what can happen in eight years.

And then now, let's see what it is. I think it was 42,000 this morning. Here, I'll check my phone. I can look it up and see whether it's green or red. If it's red, I don't look. I tend not to want to look at it. Oh, it's green. 42,071. Yeah, lots of green. Yay. Yeah.

So here's your point. I think this graph you have in your book nicely captures that the one. Yeah. So the bottom one is the top 1% have really gotten richer. But the key number there is the bottom 90% have gotten even richer. So the way to say that is, yes, the rich are getting richer, but the poor are getting even richer than the rich are getting richer.

Yeah. I mean, I think that's some of the astonishing facts that just come out when looking at wealth. And, you know, and Michael, this is astonishing also when you see that these patterns look almost the same in all the Western economies that we have out there. And, you know...

And the expansion of ownership amongst ordinary people has been so dramatic over the 20th century and has been such a success for our societies. So our societies being the market economies embedded in the democratic context, right? And also having institutions that were established during the 20th century to include

ordinary people in these economies by allowing them the right to vote, allowing them the right to get educated. And yes, we can improve matters. There are still poor people out there, people struggling. You know, inflation has...

made people suffer and so on. And we have people becoming unemployed and so on. So a lot of challenges. I mean, not to mention some of the very big challenges with climate stuff, which I also want to talk more about. But anyway...

With that said, we have also a group of really successful people building these companies. You talked about Whole Foods, Elon Musk, that guy created, talking about climate, electrical vehicles that has kind of revolutionized our car industry globally, providing transport which is environmentally friendly. And yes, he has become super rich, but you know,

I would gladly let these people become super rich, you know, even when I understand how much value they created, not only to themselves and their companies, but also to society as a whole. I mean, and this Musk guy, you know, talking about Starlink, you know, his role in OpenAI.

Seriously, I'm doing it now. See what I did there?

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We should be happy to have such, you know, now I'm not talking about his political stuff, you know, lately I've followed it closely, but still, but we have so many of these people, and we have them in Sweden, we have them in France, we have them also, I think, mounting also coming from developing economies, and I want to see more of that, and this is something...

We should inspire these upcoming countries to have much more of that. Yeah, and a technical point there, when they say Elon's the richest person in the world, well, that depends on the stock price of Tesla, right? Because that's where most of his wealth comes from. So he doesn't really have the money until he liquidates some of his stock or maybe borrows against it or something like that to start a new company. So a lot of that's just on paper.

Absolutely. Michael, that's another of my policy conclusions, right? In terms of tax and capital, which I think is important. Why? Well, capital is one of the income sources in the economy. We need taxes so we can tax labor, but we should also tax capital because, you know, to the extent that we want taxes. That said, all taxes and capital are not equally good. And I think in the case of...

Elon Musk's wealth or people's wealth as of the stock exchange market value. This is not a good, you know, now I'm talking about the wealth tax or the tax on unrealized capital gains, which we sometimes hear about. I think it may be. I don't know. I still haven't understood if Kamala Harris has officially endorsed those proposals, but

I, on my end, and I've written a little bit on different types of capital taxation. I have a survey paper called How Should Capital Be Taxed in the Journal of Economic Service. And it's a very clear conclusion that, well, a wealth tax is not a good idea practically. It's difficult to really...

to use in practice why well because the value of the tax base is so difficult for business assets so we could have taxes on we could have listed companies uh that could fluctuate in value from one year to another i mean during 2022 i think the stock market price of tesla dropped by what 70 or something uh and yet at the end of that year uh he you know masker you know would have need to pay

to pay tax on maybe last year's end of year tax value. Startups, some of them have great prospects expected to generate a lot of profit, but not yet. So they have a huge market value potentially, maybe making their owners liable to a wealth tax, but there is no cash flow in these firms. But even if there were, we want these cash flows to be used productively. Right.

So the liquidity problems for business asset owners and also the economic growth costs to society by taxing wealth as such or unrealized capital income, I think is

totally outweighing any benefits coming from some tax revenue. Instead, capital income taxes, so we have the corporate tax. So that's one way of basically taking out some of the value that the firms are creating, maybe also to tax foreign ownership and so on. There are some reasons for why we want to tax corporate profits. We could also take out, when the owners take out money from their firms, like in dividends, let's have a dividend tax.

or when they realize capital gains, when they sell shares in their corporations, we could tax that as well. Of course, there's other problems with realized capital gains taxes. You have lock-in effects and so on. So we have to be sensitive of how to tax capital, but we should tax it and we should tax the capital income, not the stocks. So would an example of this be, say, when I sell some Apple shares and I made $10,000 today,

I have to pay capital gains tax of 15% to the federal government. And since I live in California, I have to pay 10% income tax. So I'm losing 25% off that 10,000. I'm getting, I end up with 7,500. Is that, is that an example of what you're talking about? Yeah, that's exactly. So that's a tax on the realized capital gains. I mean, uh,

I think another realized capital gain would be if you sell your home with a profit. Here's another question of how we should do this. We know the lock-in effect could be for real. We don't also want to tax inflation. So we may want to have an adjustment for inflation during the holding period, in addition to also the improvements and stuff that you make on your home.

But yes, so this is one way for society to get some tax income, tax revenue to fund infrastructure investments or whatever, or redistribution. And I think capital owners are on average...

better off economically or socioeconomically, which is another motivational ground for why we want to have capital taxes. And it could actually be that if we have some of these capital taxes, they could allow us to reduce

wage or labor taxes, labor income taxes, because they can be even more destructive for the economy. Because we really want people not only to do their best in their working place, but we also want the youngsters to have aspirations, to see, I want to make a very strong professional career. For this, I need to study hard. I need to work hard.

So if we could maybe balance off maybe some labor income taxation to

reasonable, motivated capital income taxes, that could be a good deal for society. Yeah. This is another funny personal example here. I've lived in my current home for five years and my realtor buddy who sold it to me said, "Jermar, I could get another million dollars for your home if you sold it right now." It's like, "Yeah, but the old house I had also went up by a million. In fact, every house in Santa Barbara went up by the same amount. So what am I gaining?"

The state of California will gain because I pay 1% property tax. So if I sell my house and buy another more expensive, I'm going to be paying that much more in property tax. So why would I do that? Yeah, but that's a good point. That's a good point. I mean, some countries actually have an exemption for primary housing for realized capital gains. France, for example.

Sweden doesn't. But I see your point. In Sweden, you can actually roll over your realized capital gain if you buy another home, which is more valuable than what you sold it for, your first home. Then you could basically have a latent tax debt. But, you know, yeah, I mean, it's a good point. And I mean...

It points also to the problems with capital taxation. I mean, there are always problems with taxes. They create distortions. So the challenge for tax economists is to find the mix of taxes that has the least total cost to society.

But there would always be distortions and inefficiencies with these taxes. So one of them is what you pointed. Yeah. Can you explain just as a technical point on your data collection? How do you know how wealthy people are? I mean, when I was reading your book, I thought, yeah, how much wealth do I have? I had to kind of look things up and check my stock in my house value and what's my mortgage again. And you have to kind of do that calculation. I have an income tax that you could get my income tax.

But how do you know what people's wealth is? That's a good point. And I think I also discuss it and I try to emphasize that this is not so easy sometimes. So, for example, in the U.S.,

We don't know for everyone. The main source for wealth data in the US at the household level and when it comes to wealth inequality data is the Survey of Consumer Finances, which is run by the Federal Reserve Board. They basically ask people. So they would ask you, they have like a long list of questions, and then you would be able to check your accounts and so on and make an assessment of your home value.

So the mortgages, the financial assets are pretty clear, with one very strong exception, a big exception, namely unlisted firms. So firms that are held and not being traded on any stock exchange accounts.

We don't know their value. So this is a challenge for any wealth inequality estimation, but of course also a huge challenge for any wealth tax institutions. So if you want to tax wealth, you may want to tax the richest guys, and many of them have their corporations outside of the stock exchange. But how big

values do we have there? We don't know. And this is a huge problem for any wealth tax. And one of the reasons why the wealth taxes have been crumbling because they don't work in practice because of this.

So for some countries, I mean, Sweden, for example, when it comes to a property, we have regular, you know, recurrent tax assessments with data on, you know, the properties of your home, like how big it is and, you know, the address and so on. And then you may also have data on transactions in the neighborhood, etc.

But yeah, well, what can I say? At the end of the day, there is some guesstimation here. We have error bands and we should be very... So if we have similar levels over time,

Even though we have different people and levels are still similar in the macro and also in the maybe inequality estimates, that's kind of reassuring that we're not just jumping all over the place. But at the individual level, it can be very problematic. Yeah, you had this quote here from...

Oh, from JFK, a rising tide lifts all boats. I was just in this conference in South Korea in Seoul where Arthur Laffer was also speaking. I didn't even know he was still active. And he was still pitching his Laffer curve and that trickle-down economics and that lower taxes actually generates more wealth for everybody and so on. What are your thoughts on that?

on that. That's a very good, I think it's, Laffer is a classical name. I think the Laffer curve is for real. So it basically says that, so if you have a 0% tax rate, you will get 0% tax revenue. And then you, as you increase your tax rate, you will start getting tax revenue. But only up until some point where the curve is

starts leveling out and you have a maximum level. And after that, if you continue increasing the tax rate, you would get these behavior responses. People stop working and maybe doing other things. And when you go up to 100% tax rate, nobody would work, basically. And then you would be back on 0% tax rate. So that is the Laffer curve.

People and Vice Institute, Jacob Lundberg, one of my researchers, he has a great paper on estimating Laffer curves for different countries using quite a small set of data, but very consistent, showing whether the countries are

at the lower part of the Laffer curve, we actually could increase tax revenue by raising marginal taxes. Or if they are on the wrong side, they should lower. And if they lower tax rates, they would actually increase tax revenue. Sweden is actually one of the examples of that. So I think Laffer, I mean, actually, he emailed me a few years ago and we have been emailing a little bit since then. But I think that intuition is very strong there.

When it comes to trickle-down economics, let me just say that I don't know where that phrase comes from. But the idea is that these people in the top, their successes will help others to bloom.

I think, you know, looking at history, so in Northwestern, you have Joel Mark, one of the greatest economic historians around, having done stuff on historic technology. He basically states that, you know, the history of economic growth is ultimately about technological development. I mean, we have...

combustion engines, electricity. We have innovations on telecommunication. We have now AI and so on. These are things that come out of great people's minds and efforts that has helped a lot of people improve their lives. That's one form of

a trickling down of efforts to other people in society. It's not mechanical. It may require, and I think it actually does require, these inclusive institutions that I talked about before. Democracy, educational reforms that allow people to

be part of human capital generation. You would also need social insurance, safety nets, and so on, so that people can take risks and fail. And if they fail, they won't starve to death, right?

In that context, you know, we will have trickling down effects that, you know, are going to lift people. And lifting, this comes back also to JFK's thing about lifting the boat. If it was he who said it, I think you usually say it, but I mean, we can't really show it. Talking about, you know, history of science or like, you know, the quotations of where they come from. But basically, rising tide lifts all boats. I mean, this is about economic growth benefiting people at large. And there, I think...

Looking at poor people today and compared to 100 years ago, I sure would want to be poor today and not 100 years ago or even 50 years ago. So it's just simple as that. So even the lowest part of the income distribution has such a much better life today than it had 50 years ago or even 20 years ago. Looking at the 80s...

like infant mortality rates have kind of plummeted by 90% since 1980. Unbelievable. Yeah. Yeah, Max Roser's Our World in Data is one of my favorite sites for fact-checking those sorts of things. You know, now the biggest problem of poor people is they're fat. That was never the case in the past, right? And almost everybody has a cell phone.

Yeah, no, that's, you know, I mean, that's one of the questions that people struggle with, how to think about, you know, should we let people behave? I mean, this is, you talked about nudging, people get fat, should we have taxes on fat or on sugar? Or should it be that, you know, people can add, you know, maybe the new situation is that they can behave as badly as they want, and then they take the Ozempic pill, and then they lose weight. I don't know. And also they take the Prozac to become happy. I don't know.

Well, you economists are always talking about sin taxes, right? So you tax cigarettes and you tax alcohol. I mean, taxes is – sin taxes, yes. Taxing alcohol, I mean, this is one of the motivations for taxing people, to overcoming taxpayer resistance. Another is you can earmark. Oh, we're going to raise the tax and they're going to spend it on –

kindergartens or on going to have a car toll and then going to finance car road improvements and so on. Sometimes it works. Most of the time, there's this like one bag of money with government and nobody really keeps track of where certain tax revenue comes in and where it goes out. So we should be very careful about all earmarking arguments around.

So the syntaxes can also have a lot of, we talked about paternalism, what is good for others. And sometimes we would have bureaucrats or politicians deciding what is good for others. And maybe they can if they listen to the right experts. But there are tons of examples also when this wasn't as good as we think. I mean, and there have been many.

many of those examples. Well, other examples, you know, if I make a donation to charity before the end of the year, which I got to do, you know, I get to deduct that off my income tax. I get a break for being married. I get a break for having a kid. So somebody in the government said, we want our people to be homeowners, to be married, to have children, to give to charity.

I think so. I mean, that's one of the challenges that I struggle with a little bit in how to think about these constructive policies. So when it comes to tax systems in general, I think one rule of thumb that I typically have is that the more deductions that you have in the tax system, the more behavioral effects and potentially the more distortions that you will get. And especially you will also maybe get unintended effects. So you want people to...

to get more kids by having deductions for children. But then it may be a bad pro-child policy. It may just be very costly and may lower the revenue so that you can't spend on good research for improving or infrastructure on kindergartens or whatever you have to promote childbearing. So...

If I were to advise governments, I would reduce forcefully the number of deductions that you have. In Sweden, when you have the tax returns, annual tax returns declarations, it's all filled out. And it's basically, I think now maybe half of all taxpayers simply say yes and send a text message and then they have handed in their tax return. All is set.

So we have very few deductions, but then hopefully allowing us to have a lower overall tax level because we save costs, we get more effective or efficient taxes from that.

Yeah, I don't know. By the way, at this conference where Arthur Laffer spoke, he also pitched his support for Trump and then got hammered by all these people saying, how can you support Trump? You're a pro free market capitalist libertarian kind of guy. Tariffs are the worst thing for this. And then his response was that Trump doesn't really believe in tariffs. He just uses tariffs as a way, as a cudgel to get people to the table to bargain with him.

I don't know. But what do we know about tariffs and how they affect domestic industries? I think we know quite a lot. I think those people studying that are quite skeptical in general. I think there's like both – there are several effects happening. I think –

you would shield off domestic industries from external competition and that would potentially give you a situation where you have worse firms surviving and providing not as good products as you want to have and these products would also be more expensive than what you want to have. So sheltering off firms from competition,

lowers the social value of these firms to society and the consumers are the ones paying the price. The firm owners, they may benefit because they don't like that much competition. Nobody likes to be competed with.

So maybe some of these firms have workers that would also be happy in the short run because they think that would save their jobs. But of course, over time, the purchasers or the consumers would notice that these firms provide worse products and then they would move away from these products anyway. So I don't think that would solve anything in the even medium run.

Another effect of tariffs is that it worsens the international arena for communication between countries. It increases tensions between countries. And we know that these tensions are not good. I mean, we know that cooperation is good for overall welfare. So trade is good for overall welfare. We know that specialization and so on.

And we know that historically, we saw that in the 1930s, when countries started doing tariff wars against each other, beggar their neighbor policies, that didn't go to a nice place. It ended up in the Second World War eventually. So people stopped trusting in each other, stopped communicating,

tit-for-tat policies. So I think the case against tariffs is very strong. So there's one favorite example that some trade economists may have is to shield or to shelter infant industries. So young industries not yet big enough to survive in the international market. And historically, there are cases where, I mean, Southeast Asia is typically

pointed at as an example of that. But in the Western world, I think tariffs is not the way to go. And I hope that that will not be the policy of the US after the

presidential election. Yeah, I agree. I remember in the 80s when the Harley-Davidson motorcycle company was about to go under, and Reagan passed a huge tariff on foreign motorcycles, Yamaha and Honda mainly. And it was like, I thought you were a big pro-free market guy. How does it affect me? It doesn't matter to me whether Harley-Davidson goes under. I just want a motorcycle. But the idea was we have to protect our workers or our industry. Yeah. Sometimes I think pragmatic politics is about

maybe not always doing the best policies in all dimensions. I mean, sometimes you need to take a step back to be able to take two steps further. I mean, climate policy is one of those cases. I think overall, we need to lower emissions big time and fast. And that said...

we need political support for these policies. That may allow us to lower gasoline taxes, to get the political support amongst the broad parts of the constituency, even though the gasoline tax would be a way to reduce consumption of gasoline and emissions, reduce emissions. But we also want these voters to feel relatively okay with their lives. That's

So such a policy could actually, you know, maybe bridge their support for the big packages on the climate. And then so I think it's kind of a kind of pragmatism that I would like to see more of in policymaking.

All right, last question, big question. I often imagine what it would be like if I were the head of a poor third world developing nation. I was the prime minister or president or dear leader. Before I depose myself, I'd bring in people like you and political scientists to go, okay, I want to make my country rich and prosperous and happy and have all those metrics like countries like Sweden has. What should I do?

All right. So, you know, what do you, what do you, you know, okay. Set up a democracy. You got to have a military, you got to have a constitution, you got to have trade, you got to have this level of tech. You know, what, what would you recommend? Oh, wow. You know, I mean, of course, setting up a democracy, I think would be great to have like a checks and balances, good checks and balances in the constitution. So that we know that ruler can't just like offset the rules at any time, maybe a U S constitution. I don't know, you know, with three parts, I don't know. But,

I would – I read a book called The Mystery of Capital, Hernando de Soto, this Peruvian economist, talking about the chartering of property assets in the economy to formalize ownership.

And this allows people to make better use of that ownership. So if you can have a chartered ownership of your land lot or your house, that would allow you to take a mortgage, maybe a startup loan for a firm and maybe sending your kids off to finance your kids and going to university.

So I would like also to make a property rights reform. This would then require, of course, the legal context of secured property rights.

But anyway, so that would be very important. Another one would be to open the economy for foreign capital, for foreign people, but mainly foreign capital. Potentially you would be a poor country with a lot of labor, a lot of human people, but you would not have as much capital. So we would want to have capital flooding in, having investments, maybe then building infrastructure,

And of course, along with this, we want to start taxing, having low and flat taxes. Maybe looking at the Baltic states, Estonia, Latvia, Lithuania, after the fall of communism, they installed taxes that were quite low, 10%, 15%, 20%, and flat, no progressivity.

that has been quite successful in generating tax revenue that could start building the administration and government and creating a trust for the system so that it's not about just trying to rip off the firms that are successful.

So anyway, if you would come that far, having a constitution with democracy, property rights, insured and chartering of property to the population, having openness, allowing capital to flood in and trade to happen, and then to start taxing in order then to start being able to finance educational reforms.

I think we would be on the right track. Nice. Very nice. All right, Daniel, that's great. Here it is again, Richer and More Equal. Get it and send it to your congressman and senator. Everybody should read this book. I think people just have no idea because it's happened just slow enough. You don't really see it, maybe on a decadal level or centuries time frame. But, you know, the effects are real. I mean, you know, the average person like me, you know, can have a much better life than I would have if I was born 200 years ago.

I totally agree, Michael. Thanks for inviting me. And, you know, Skeptic Society, it's a great thing. Thank you.