Intro. Out of ordinary: Russ is guest, Arnold Kling is host. Prepublication copy of the book, works better as a novel, page-turner, gave to wife, eyes teared up at end; gave to youngest daughter, liked it. Book delves into spontaneous order, will try to avoid spoilers by talking about first chapter, which is online. Seems to anticipate the day's news. Florida, tropical storm Fay. Fictional frame, try to tell story to demonstrate the economic concepts. Main character, Ramon Fernandez, Cuban-American refugee, tennis prodigy, scholarship at Stanford. Lights go out over dinner with girlfriend over an earthquake. Go from store to store looking for batteries, flashlights, milk, etc. Everything twice as expensive. Campus protest, price gouging. State of In advance of tropical storm Fay, Florida warned retailers not to gouge. One book theme: role of prices in helping people cope with natural disaster, sudden increase in demand relative to supply. Munger podcast, North Carolina. We understand the advantage of low prices, but have harder time understanding the advantage of high prices, one of which is solving the problem: who should get goods when there isn't enough to go around? Second role: encouraging future supply and holding of inventory by retailers. Retailers don't want to raise prices if they can avoid it. High prices play a role in creating social order, harmony after a disaster.
In Chapter 1, two stores: one politically correct, keeps prices steady and runs out; other, fictional big box company raises prices but has goods in stock. Teacher character, asks Ramon, which is the better store? Ramon doesn't like either choice, wants a better way. Yet, in Florida, there was a warning issued not to raise prices, ordering stores to be the one that doesn't raise prices. Hayek quote, urge to take the ethos of the family and spread it more widely, where when there isn't enough to go around, parents allocate using love, using knowledge of which kid had more; natural egalitarian and informed situation. From p. 18 of Hayek'sThe Fatal Conceit:
Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within the different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e. of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do,we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings,we would crush them. So we must learn to live in two sorts of world at once. [italics original]
We like the idea of a town making decisions similarly. But anywhere larger than a neighborhood there isn't enough information. Flood that hit St. Louis a decade or so ago, porch building prices had doubled. Carpenters were busy rebuilding after the flood. High price signaled unintentionally to let the carpenters and the wood go somewhere else. If asked to release a carpenter, would probably say yes. Harder with fourth gallon of milk. Sometimes high price may mean someone won't get the first gallon, and that the carpenter will get rich. Wife: Why don't more people believe this? Why do people hate price gouging so much that they want to punish price gougers? Willing to have inferior outcome if you get rid of the profits from distress. Also partly that people haven't really thought about it; and thinking about it as if it is within a family. Intuition, emotion from family life.
Why choose to use fiction? Why not a textbook? Can't seem to write a normal book. Appealing to write in fictional form. Spontaneous order is a hidden form of order in our daily lives, and revealing it through a story is effective, doesn't lend itself itself to equations and charts; untextbook oriented. Insights of Hayek and Adam Smith have been lost in the current classroom atmosphere. Not bite-sized chunk. Also, people like stories. Passing on of knowledge and a form of entertainment. EconTalk is not a standard interview, but conversational; similar in these books. Dialogue, easy to listen to, something about learning process, talk and listen at the same time. Robert Frank podcast, problem solving. Any influence from Ayn Rand? Dominate the niche of economics fiction, but it's a very small niche. Aren't many people who do it. Jonathan Wight; Marshall Jevons (pseudonym conflating Alfred Marshall and William Stanley Jevons), mystery novels; Ayn Rand. Michael Crighton, tell story and educate. Didactic fiction. Rand, cardboard characters but books are page-turners, telling a story that has an economic lesson; sometimes characters stand back and give a lecture. Disappointing: a lot of people find her appealing because she opens a door on the pursuit of happiness; economic lessons, public policy lessons less successful, perhaps because of her skepticism about altruism and fellow-feeling. Most people care about more than just themselves. Rand feels disdain for that. Left-wing, anti-economics narrative: capitalists are bad; politicians trying to rein them in are good; Rand comes up with the opposite story, politicians bad, capitalists heroes. Incentives. Good-guy, bad-guy story, more powerful as fiction but maybe not economics.
Spontaneous order. Podcast theme, Hayek's "Use of Knowledge in Society," price system as a marvel. Prices do stuff, they send signals. Adam Ferguson, things that are the result of human action but not human design. Doing dishes, raking lawn: you want this done but you have to do it yourself. But also whole category of stuff that comes from order but not intended, yet comes from human action. Econlib essay: language. No one decided that "google" is a verb, but to google somebody is a verb. Who decided it? Prices: who decides what the price of the house is? Seller; but really the market. We fall back on saying "the market sets the price," but that's not terribly informative. Book: the prices in turn create an order that is quite extraordinary. Weaver of dreams. If life were static, people would get better and better at making the things people like. But world is not static. People decide to change careers, etc. Who is in charge? No one out there to weave the dreams together. Graphite, Leonard Read's "I, Pencil," coordination without a coordinator. Chinese, countryside, graphite for fishing reel. People really prefer to think there is a designer. Franklin Roosevelt let people know he was in charge. People don't walk out of freshman economics course with a sense of spontaneous order is that professors are anxious to get to the model where the government can fix things. Counterarguments: Markets fail, language problem; governments fail, better clerk should bumble than the boss who is far away from the floor; truth to that, but more to it. We are handicapped by our notion of what markets are and what they do and what governments are and what they do. Sometimes government intervention in markets makes the world better; but we have lack of appreciation of what the clerk is capable of and how that process unfolds. As a profession, economics has just scratched the surface of these decentralized processes, how markets work and what they actually do. Shirts, apples; health care, education. Natural response is that if it's complicated, there's got to be an expert. It's not that in markets no one is in charge, Kling healthcare podcast. Within the firm, each organization is striving to please the customer, but no one in charge of the whole process or of the process across processes. Not just Chinese pencil demand; but also graphite demand.
Graduate school: MIT vs. Chicago. At MIT, Kling didn't hear about any of these ideas. Mostly math. Idea is that economist's job is to point out ways in which markets go awry so as to help designers and leaders fix them. At Chicago, articles on the reading list but not much time spent talking about them. George Mason U. But the ideas go back to Adam Smith, Ferguson, Darwin, biology; ideas seeped out of economics and haven't seeped back in yet. Spontaneous order, emergence--in biology literature sometimes don't even know that economists are familiar with the idea. As if in biology you had people trying to accommodate people thinking man is the product of God's design rather than as the product of evolution. Economics courses ultimately try to do that when they talk about need to try to design a better health system. Skepticism about Darwin. Emotional, spiritual; but also doesn't seem as easy to grasp. Easier to think about a designer based on our daily lives, organizing your desk. But if you want to have lots of pencils next year, better not to have anyone in charge. Afterword of book: market believers often deeply religious or deeply atheistic, aggressively believing or aggressively disbelieving. You can be a believer in God and still believe in undesigned economic system and vice versa.
Influence future leaders or the public? First book,The Choice,Dick Gephardt, blue-collar St. Louis district, ran for President, protectionism. Readers suggested getting him to read the book but he pursues his own self-interest and his constituents have an interest in minimizing imports. Not a good idea to try to influence politicians per se. Fantasize bottom up; people might influence their leaders then. Teaching. Part of it is beautiful and fun to share it; helps us understand the world a little bit better. Catharsis. Hope that some people will like the knowledge for whatever purpose. Pessimism about political process, lose-lose for libertarian end of things. Overwhelming narrative that things work better when a good guy's in charge. Solace in the fact that the system works well. Intense electoral campaign coming up. Maybe not as important as it appears. Go about our lives anyway, even with plenty of bad legislation and bad laws. Huge portions of our lives are relatively unaffected. Huge element of theater in an election, designed process or emergent process? Designed to convince people that they are participating and these things really matter. Perhaps the are degrees of freedom after they are elected are pretty small.
Would you ever write a book where there are villains? are they just misguided? Neither. Teachers' union or their opposition to educational reform. "My Mom's a teacher and she's a good person," is typical gut response. Lots of congressional staffers met through Mercatus Center, etc. All decent human beings. Constraints have been set up, emerged not designed, that are complicated and are not always conducive to a first-rate education. Interesting book to write is that of a decent human being or idealistically struggling with a world that is not always just. "The Wire," HBO series, brutal show, drug dealers and drug war in Baltimore, violence, language; utterly fascinating as an economist is the incentives the police face. Many of the people are just trying to do their job, but the constraints they face often are at odds with getting rid of drugs. Public choice. Politics and government as an emergent order. Government order is viewed as unconstrained: we can do whatever we want to do as a government. But in fact it's emergent. "We've decided in the United States to have a mixed system or to have a system of low tariffs." But Kling's pointed out that we should lose the "we." Political decisions are not like where we are going to dinner. They are a soup, stew, cacaphony that is not what any one composer wrote. Politicians are individuals; political decisions are the results of individual decisions.The Welfare State Nobody Knows, U.S. vs. European welfare states. You'd never design the mortgage interest discussion, same with Social Security. Would world be better or worse with more constraints? Earmarking seems like a good thing: add a little thing here or there, don't want to have a whole vote for every little thing. If Congress could do one thing a year, everyone would pay attention to it. Virtue of hodgepodge.
Another novel in the works? Might not be a novel. Why do people get afraid of certain things economically. Writing about income, how standard of living has evolved over the last century, technology and growth. Shortcoming of economics textbooks and courses. Kling: "Economics 2.0". Misunderstanding of well-being. Movie or TV version? "Talk to my agent and I don't have one." Visual for economic education. Important as economists to find ways to communicate, more novels, movies, folk songs. Lending library, no one there. Desk for donations; books were catalogued and orderly. On wall there was a note: "We really appreciate your donations but we don't want any of this: No outdated books, No periodicals; first thing listed was No textbooks--they are never checked out." Heyne'sThe Economic Way of Thinking,now co-written--no one these days curls up with a textbook. Movies, cartoons, YouTube.