how adam smith can change your life- extract from russ roberts podcast

https://www.econtalk.org/russ-roberts-and-mike-munger-on-how-adam-smith-can-change-your-life/

search for other smith podcasts oct 7 - 2014 Munger: All right. As Russ said, he has a new book that's just coming out. I was lucky enough to get a preprint. And the first question that I want to ask on seeing it, and I want to inflect this two ways. Not inflict, but inflect it two ways. Why did you write this book, Russ? And then, why did you write this book. Russ: Uh, I don't understand the inflection. Help me out. Why did I write it, and why this book? Munger: Yeah. Why does this book need to be written at this point; and why is it that you would write it? Because this is not a book--as we'll talk about in a few minutes--economists don't read this. And so, is it going to be a self-help book, or is this a book where you hope to get economists to say, 'You know, I should read that, too.' Russ: Well, I had a couple of goals, and long-time listeners will remember the 6-part series on the Theory of Moral Sentiments that I did with Dan Klein a few years back. We'll of course put up links to that; it's in our archive. But that set of interviews with Dan got me interested in the book. And I confess I had not read it at that point. I had read a few famous quotes from it but nothing more. And I had a few goals in writing this book. There is a self-help aspect to it. It does purport to give you life advance, from Adam Smith, based on Smith's ideas and applying them to modern life: how to earn respect from your peers, how to deal with tragedy and triumph, and how to interact with the tragedy and triumphs of your friends and your family; how to think about how to act with people close to you versus strangers; what makes us tick, how knowing that helps people interact and be successful in life--really find the good life, broadly defined. So, on the surface that doesn't have anything to do with economics, you might argue. I would argue differently. I would argue that economics is how to get the most out of life. It's about choices. It's about understanding opportunity cost and using your time wisely. Our time is our scarcest resource. You can't--it's the ultimate nonrenewable resource. For me, the book is in that sense an economics book. Now there is of course actual economics here and there both in Smith's book and mine, what we would normally call economics. So one of my goals was to simply take what I found fascinating ideas about life and living and work and family that are in that Smith book and bring them to the present. The second goal I had really was to redeem poor Mr. Smith, who for a variety of reasons has a reputation as a champion of greed. And I think that would have horrified him. He turns in his grave, I think, every time someone invokes Smith's name in defense of greed. Smith was very interested in the virtues, and the virtues that he emphasizes in this book are prudence, beneficence, justice. Nothing about greed in there. So I really love the idea of trying to clear his name in that sense. Finally, I think, as everybody listening to this program knows, I'm not so happy with the mathematicization of economics. And I think Smith's approach to social science generally, whether it's morality or philosophy, or what this book in many ways is a psychology book intermingled with economics--The Theory of Moral Sentiments is in many ways a mixture of philosophy, psychology, and economics. And I like interdisciplinary work--I think that's a lovely thought--but what I care more about is the methodology of narrative and humility. And I think modern economics has gone a little too far away from those lessons. And part of me wants to get us back closer to Adam Smith's social scientist and what we currently do as social science.
5:14	Munger: It is interesting that that theme comes up a fair amount among people that may be seen as heterodox by "true" economists. So, Friedrich Hayek often talks about scientism, the pretence of knowledge, how in the way that we model things we're making assumptions about information and structure that we don't have. But Smith's critique, and the way that you channel Smith's critique, is actually deeper, because it has to do with the nature of people and their motivations in choosing. So, I think it's hard actually to read even just The Wealth of Nations and say that Smith thought that people were fundamentally and exclusively greedy. But the Wealth of Nations, as you point out, is more often quoted and read. It may be that the Theory of Moral Sentiments is not even usually read any more, at least not by economists. I was wondering about that, so I went and checked the citations in Google Scholar. And the Theory of Moral Sentiments has the same number of citations since 2000 as The Calculus of Consent. So, the Calculus of Consent, one of the main books of public choice, written by Buchanan and Tullock. The Theory of Moral Sentiments has the same number of citations as that. So it's not true that it's not cited. But almost none of those cites are in economics journals. Almost none of those cites, the citations, are from things where they are addressing what we might think of as being Smith's theory of choice. Now that you've read that and you are in a position to offer some critiques of economics, is it just the scientism? Or is it that we're able to--the selfishness theory is somehow simpler, and in order to understand Smith you eventually have to work? One of things that I thought was charming about your book was that you said the first time you took up The Theory of Moral Sentiments you put it down again because it starts in the middle; it's hard to read. And you were a sympathetic reader. Russ: Yeah. I had to read it for that interview; and as I say at the opening of the book, I had some second thoughts and maybe I shouldn't be doing this. I think, to get to your question: I think it's first important to distinguish between selfishness and self-interest. Smith was very, very aware of how self-interested we are. Or you might even think of it as self-centered, in the literal meaning of that word: we are each the center of our own universe. We inevitably think of ourselves most of the time. We don't think a lot about other people. But we do, occasionally; and occasionally we rise to greatness and do glorious things for other people without expectation of return. And I think that phenomenon is what motivated Smith to write that book. He and everyone in his day and I think any thoughtful person today admits that self-interest and self-centeredness are very relevant. That doesn't get you to greedy. And it doesn't rule out compassionate acts on behalf of other people, even when there's no expectation of a return of kindness. So that's big part of what motivates Smith in the book: What makes us moral? What makes us do things that we would call "the right thing"? So that's one piece that has economics built into it in some sense, because it's about behavior; it's about choice. The other part I think that we might talk about, and you can take it any direction you want because you're in charge today--but the other part is, in economics, our theory of what motivates people is called utility theory. We are agnostic, generally, about what makes people happy. We say it's whatever floats your boat. We don't say it's sports; we don't say it's music; we don't say it's money. We say it's whatever you choose. And we say that people try to maximize how much satisfaction they get from life, given that they have a fixed amount of money and unlimited wants. That's really the essence of homo economicus. That's how people look at--that's how economists are trained to think about human beings. Now, I don't want to debate whether that's realistic or not. I think most economists will concede it's not perfectly true. It's not close to perfectly true. But it's a useful framework. I'm not sure it's a useful framework any more. I've become skeptical of that from my teaching of economics. But the point I want to make is, when you ask--you don't ask Smith, but if you read The Theory of Moral Sentiments-- Munger: Well, you kind of are. You are sort of interrogating--one of the things I think is really great about this book is I sometimes felt I was privy to a conversation between you and Smith. Russ: Oh, thank you. Well, that was part of the goal. Some of that was to try to grapple with the ideas in a more conversational way, because, as everybody knows, I'm kind of a conversationalist; that's what makes this show. But the point I was trying to make is that Smith's not a maximizer. Smith's framework of human nature is not easily put into a mathematical framework. And what Smith says--and I think about this all the time, ever since I read the book, The Theory of Moral Sentiments, and ever since I wrote mine, man naturally desires not only to be loved, but to be lovely. And he says, I think in three places, I think explicitly: That's the road to happiness. To be loved and lovely. That's the road to serenity, tranquility, satisfaction--whatever you want to call it. Not necessarily partying joy, the level of exuberant exhilaration we might call 'happy'. But what Smith meant by it was satisfaction, tranquility, and serenity. And he says, to get there you don't buy lots of stuff. You don't get rich. The way you get there is to be loved and to be lovely. And that's a very different model of human nature than most economists have when they talk about what makes people tick.
11:13	Munger: That part reminded me, and you start pretty early on--as early as p. 5 you say, 'Smith helped me understand why Whitney Houston and Marilyn Monroe were so unhappy. And then why their deaths made so many people so sad.' And then, a little further on, 'He's the father of capitalism. He wrote the most famous examples, maybe the best book ever on why some nations are rich and poor. But he wrote as eloquently in The Theory of Moral Sentiments about the futility of pursuing money with the hope of finding happiness.' One of the things we do as economists is to assume autonomy. That is, people get to make their own choices. And subjectivity, where the definition of happiness is up to the individual. If we were to take this prescription seriously--and I thought we might take this up again at the end, but to foreshadow--What should economists do? What sort of models or approach to understanding human motivations could we have then, other than doing interviews or using survey? Russ: That's obviously a tough question. I want to give a two-part answer to that. I think when we're trying to deal--and this is my advice for teachers, so I'm going to go way out on a methodological limb here for people who teach microeconomics or who teach principles of economics. So, I did that for about 30 years. And when I first started teaching, I taught the theory of the consumer. Because that's a bunch of chapters in every textbook, utility theory. Which is about formalizing the idea that there are tradeoffs between different goods and the prices that those goods cost, or how I should decide how much to buy of each good. And that's--going back to an interview with Vernon Smith here at EconTalk, when I think he asked his professor--I want to say it's Leontief at Harvard, what utility was good for, Leontief said something like 'exam questions.' And I may be confusing my version of the same joke, which I used to tell. So, we'll go back to that transcript and look it up. But the point is that I think utility theory is remarkably sterile and not a particularly helpful way to think about consumer choice. And what it mainly leads to in an intermediate micro class or even a principles class is: the demand curve. And somewhere along the way I realized that the enormously complex apparatus of indifference curves and budget lines--there are a few lessons. I don't want to say there's zero. But overwhelmingly what you get out of that is you generate a demand curve. And I don't know why we wouldn't just say: Let's assume that people buy less when the price gets higher, holding everything else constant--which is what I think a demand curve is. I don't know why we spend all that class time generating that curve when it's just okay to start with that as a working assumption. So, that's the first point. That's a methodological point. The deeper point, when you said, What should economists do? The challenge here is that I push the idea that economics is an art and a craft, rather than a science. And it's easy to criticize economics the way I do and say: Oh, it's not scientific. People don't really maximize utility. The predictions are too strong. They are not borne out by the data. When we try to use the data in ways that are consistent with the theory we put too much pressure on the data that it can't withstand and its conclusions are not reliable, they are not precise. We can't estimate the elasticity of demand, for example. We can't assume a particular mathematical form of the utility function. I mean, that's bizarrely, to my mind, that's just strange. But people do that. I don't think that's very fruitful. But then the question is: Okay, so let's be more realistic. Let's, you could say, let's give economics a richer palette. Let's talk about the fact that people care about their reputation--they don't just care about how much stuff they have. Let's talk about the fact that they care about love. Let's talk about the fact that their family is often the unit at which they make decisions and not just themselves, purely individualistic. And of course Gary Becker, more than anyone, took the formal apparatus of economics and applied it, tried to apply it, to these types of non-financial purchases of goods. Decisions. And obviously he made a tremendous contribution to that. So there is some value to that formalization. But I would argue most of the time the value is coming from our intuition and common sense. And Smithian-type ideas about how people behave and what makes them tick. If you go too far in that direction you are left with psychology. You don't have a theory. You just have: every case is unique. And I think what makes the approach I'm advocating for tenable, as some sort of discipline rather than just a thoughtful person opining about human behavior, is markets. So, when you embed the choices that people make into market decisions, you get a very different set of insights that you wouldn't get if you just treat everybody individually as a mix of rational/irrational, altruistic/self-centered, etc. And again--Vernon Smith says this very well. I think he said it when I interviewed him and he said in lots of other places: 'Sure, people make mistakes all the time; sure, people aren't perfectly rational; so the "economic model" is silly and wrong. But in markets, markets discipline those decisions.' They teach people what works and doesn't work. They also punish bad decisions. They take away your money if you consistently make bad decisions. Markets provide you information to help you be wiser than you are on your own. So I think that's where I'd try to--that's the synthesis I'd like to think about. Munger: May I ask you how far on that you're willing to go? I think--you were in an economics department, business school; you won a number of teaching awards as an economist. I basically never got a job as an economist. I've been a political scientist for a long time. So, often, early in class-- Russ: Though you have a Ph.D. in economics. Munger: I do. All my original training, and a lot of the way that I think is the way that economists should think. But of course that's self-serving.
17:55	Munger: So, I want to see your skepticism and raise you a little bit and see how far you'll go with this. When I teach class, I say homo economicus is a sociopath. No society composed of homo economicus could possibly survive. Russ: Yep. Munger: And the reason is, we would cheat on deals if we thought we could get away with them. So, what I want to advocate is actually--and this is a terrible thing to admit--is that Rousseau, Jean-Jacques Rousseau, was actually right about something: that the real way to understand the successful society is not to treat morals and the constraints that society puts on us as constraints, but as part of the objective function. So, what that means in more English is it's something that we want to accomplish, not something that constrains what we want to accomplish. We actually care about what other people think about us. So, on p. 186 you have a great paragraph: "We never stop to think about how it came to pass that we live in a world that's fairly decent. A civilized world. Yes, we have a legal system that legislates against the worst crimes, such as theft and murder. But our conscience keeps us on the straight and narrow." And the conscience--the way I see that is, it's not a constraint: I want to do all these bad things but I'm prevented because I would feel guilty. It actually matters that I want to be perceived, and to be lovely--in your terms. So is that going too far? Or should we put moral convictions and our sense of desire to be admired by others and be admirable into the set of objectives that people try to achieve? Russ: Well, certainly--by the way, of course, that phrase, 'lovely' is not mine; it's Smith's. But thanks for the implicit compliment. Munger: Russ, I think you're lovely. Russ: It's a lifetime struggle, to be lovely. Seriously, it's a fascinating thing to think about. One of the themes of the book is mindfulness, and the idea that you should be aware of how you are perceived by others. And Smith is very honest about the fact that we don't really want to do that. But when you force yourself to do that, it's a very powerful experience for thinking about how to be a better person, how to be more successful. Etc. Munger: Yeah. That's the self-help part. That if you can get through the barriers that you've constructed to thinking about that, not only will you understand more, but you'll be happier. Russ: Right. But it's challenging. So, I can't get the quote exactly right, but he says something like, 'Bold is the surgeon whose hand does not tremble when he operates upon himself.' And we don't like to operate on ourselves. We like to criticize others. Ourselves, not quite as much. And especially in today's world where self-esteem is so venerated and praised, the whole idea of being critical of one's own conduct, to being aware of one's flaws, is not easily accessed in today's culture. But, to go back to your Rousseau question: I'm not sure I understand it. So let me see if I can-- Munger: What Rousseau said was that in order to understand people, in order for society to work, we must inscribe the law on their hearts. So, the law is not something external: we inscribe it on their hearts. And then they'll follow it without any police. Because it's written on their heart. Russ: That's exactly what Smith's talking about. And I just want to add that what makes Smith's contribution about the power of conscience so novel is not just the point that conscience restrains bad conduct. I think that's well understood at least since Rousseau and probably before. But I think what's Smith's contribution is, is thinking about where our conscience comes from. And in Smith's conception it doesn't come from our religious upbringing. It doesn't come from our parents, you know, teaching us and modeling for us. It comes from our fears and hopes for what other people think of us. And that's his whole concept of the impartial spectator, the idea that when we choose an action we are confronting a dilemma; when we are deciding how to act we are imagining someone who is disinterested--meaning, certainly not self-interested, someone who does not have a stake in the outcome--observing us and judging us accordingly. And that's a really powerful metaphor, which is Smith's real contribution to this whole idea of conscience. But to come back to the more general point about society, I think Smith's great point, which I doubt Rousseau shared, is that the inscription of virtue on our hearts comes not from the top down, but from the bottom up. And Smith writes incredibly eloquently about how norms of civility and behavior and trust emerge from our interactions with each other. Because he argues that deep down, we have a fundamental--this is the only really--I don't know what the right way to phrase this is--idealistic side of Smith. He argues that deep down, because he says, we naturally desire not only to be loved but to be lovely--naturally desire, meaning it's hard-wired into us that we care about what other people think of us and we want to earn their respect. And so as a result, knowing that--and even not knowing it, subconsciously, I am going to let other people influence me and I will in turn influence other people with my judgments about their behavior and their judgments about my behavior. I will praise them when they do good deeds and I will look askance when they do things that are less moral. And what Smith argues is that that's what produces civilization. That's what produces a world where trust can be imaginable. Forget the fact that it's not perfect. It's not perfect. But the fact that it works at all is shocking when you think, step back and think about how self-interested we actually are. And Smith says, the inevitable interactions we have with the people around us are going to constrain us, because we care about what they think of us.
24:28	Munger: What I think is so great about that insight is not just that it works as well as it does, but I don't think you could have a society unless people thought of themselves and each other that way. So, what's interesting about Smith's insight is that he actually foresaw something that later biologists have made an argument for as part of something that humans are adapted for in evolutionary terms. For a kind of cooperation that's considerably more than you would get by modeling people as homo economicus. And so, Vernon Smith and others, over and over again, have found that we are kind of natural cooperators. There's plenty of situations where you can get us to not to cooperate. But what's interesting is that we often will--and we can make up stories about that. But Smith actually has a really great story about it. It's a metaphor--it's the impartial spectator. But it actually gets you a lot of the results that we've since come to, by completely different means. And so, when you talk about the stories that people tell--on your p. 64 and 65 you have a football coach who quits because he wants to spend more time with his family. Politicians always do that: there's a sort of unspoken deal where if I want to fire you, but you agree to announce you are going to spend more time with your family, I'll say that--[?] and he's a good family man; he quit. Russ: And my claim in the book, of course, is that somebody who works, let's say, over 100 hours a week, 110 hours a week, watching football film--kind of hard to argue they are family oriented. Because that's what it takes to be a successful football coach. Munger: They take a new job [?] Russ: Yes they can. Exactly. Munger: Well, but you also say, I go to--I have a problem with my plumbing and it depends who I ask what the solution is going to be. So, one guy wants to put in new pipes. One guy wants to use the snake. And in each case, it's the stuff that they actually sell. But it doesn't mean that they are bad or malicious. They actually think that those things work. And if nothing else, they've persuaded themselves that that's the right thing for you to do. So, human beings are pretty good at detecting dissembling. Fibbing. And so the best salesman is going to be someone who actually believes. Russ: Yeah. Munger: So, you can explain at the same time these two things: People are making an argument that appears to be self-interested, but actually believe and have persuaded themselves and are trying to persuade you, that it's the right thing for you to do. And so, the problem that we may have is recognizing that, and most importantly, recognizing it in ourselves. That these things that we know to be true--so your description of your reading of econometric essays, you know which ones are correct and well-conducted by the fact, by the conclusions. So it's confirmation bias. Russ: Yeah, exactly. That's a, um, Smith makes you think about that, and of course that's an issue I've been thinking about for a long time now--from the work of Taleb and Jonathan Haidt, and others. It's very hard not to fool oneself. What I find absolutely fascinating is given how much time I think about self-deception, I still fool myself all the time. Well, not all the time. But it's not zero. And you'd think--I'm pretty sensitive to it. And yet, I can find myself loving a study, still, that I know is flawed when I step back and think about it. Just because it comes to conclusions I love.
28:30	Munger: I wonder if we could talk for a second about evolution. As you may know, there's a field now called Experimental Philosophy--which I just think is a wonderful phrase. Because if there's anything that's not experimental, it should be philosophy. But what people are interested in is a kind of philosophy of mind: why it is that people think the way that they do. So, there's an interesting question: Why do we have emotions? In biological terms, what is adaptive about having emotions? Human beings are more emotional than most animals. Russ: A lot more. I think. Munger: Well--[?] we laugh. And so Mark Twain said that human beings are the only ones who laugh--or should. Because watching each other, the foibles of each other, maybe laughing helps us deal with that rather than think of it as being hypocrisy. But one of the things that emotions do is provide the public good of norm enforcement. And if I see you behaving badly, I should just think, 'Ach, he's behaving badly.' But if I try to correct him, he'll yell at me, I'll get hurt; he probably has some reason where he can explain it in his own mind. And yet, more often than you might expect we'll confront even strangers who we think are behaving badly. So, is there something that--might it be that I perceive you acting badly and I think that your impartial spectator is defective? And so I try to stand in for it. Russ: Yeah, yeah. So, a couple of things. First of all, Smith, writing before Darwin--although he influenced Darwin greatly because of his understandings of competition--but Smith writing before Darwin didn't think about evolution. He talked about the 'author of nature.' Which was God. I had an interesting discussion with Dan Klein about how much of a religious person Adam Smith is. But certainly the emotions you are talking about are hard-wired. They are not, mostly--there are obviously things we learn culturally about how to respond to all kinds of things, but the underlying emotions are hard-wired into us. And now, I'm the guest, and I've lost my train of thought. So, what was your--see, when I'm the host and I lose my train of thought, I edit it out. It's fabulous. And I could still edit this out but I won't. I'm going to let you rephrase the last part of that question again and remind me what you were asking. Munger: Well, I go up to someone, and when I yell at them, in effect what I'm saying is their impartial spectator is defective. Russ: Yeah. So, one time, more than once actually, and maybe you can relate to this, other listeners--I've been in a public place with my children. And I've been reprimanded by a stranger for their behavior. I will say this happened--the two times that are most vivid to me, they both happened on the Coasts. And maybe this is a Coastal phenomenon. So, I was on Cape Cod when my kids were little on a summer vacation and my kids were running up and down the sand dunes. Which, of course, every child--and many adults--want to do. And somebody stood up and said--screamed, yelled, on the beach, 'Whose children are these?' I looked up from my book, and said, 'I guess they're mine.' 'How dare you allow these children to desecrate this natural environment?' So, I apologized; and I mentioned to the kids that dunes are somewhat fragile; it's probably best to not run on them. And I got them off. Another time we were over in Big Sur, at Julia Pfeiffer State Park, which is one of the most beautiful spots on the face of the earth. And there's a lookover where you can see, an overlook, where you can see this gorgeous waterfall falling onto a beach; and look in the other direction, there's great stuff to see. It's a very famous spot. You can find images of it on the web. I think I've got the name of the state park right. So, my kids--one of my kids is carving some word--not a bad word, just some word, maybe just a shape--into the bark of a tree. Munger: With a knife. Russ: Well he didn't have a knife. I think he was just using a stick maybe. I don't know what he was doing. Munger: A stick or a stone. But he effectively did tear up the bark. Russ: He was defacing the tree. And a person came up to me; and when I went over to talk to my kids; I think the word that she said was 'horrific.' I think she said, 'This is horrific.' Or 'horrifying.' And I wanted to say two things. I just apologized and said to my child, stop. My son. But I wanted to say, 'No. Genocide is horrific. Bark on a tree, not horrific.' And the second thing I wanted to say was: There are about 80 or 1000, I don't know, a big number of people who have already marked the bark of the tree. I don't argue that that makes it okay to then add to it. But it's possible that the tree is sustainable in its life without this little extra piece of bark still, because I'm not sure it's decision. And maybe a different tone would be appropriate. Etc. So, having said that: Most of the time, in my life--or not most of the time, but many times in my life, it's very hard to judge other people publicly, or even sometimes privately. So, one of the things I concede in the book is, I think in Smith's day, which is the mid-18th century--in Smith's day, being judgmental of others was easier. For better or for worse. We live in a much more tolerant age. And when people do things that are immoral in our day, most of the time, a lot of the time, people just shrug. And they say, that's not my business. And, I shouldn't judge another person. I think people are very uncomfortable playing the role of the partial spectator, the actual spectator, with their friends and colleagues at work, etc. Smith's mechanism for culture and civilization, which is the critical remark that raised eyebrow, the 'I'm not going to go to his parties any more because he's not a nice person'--I think that's less common today. Or at least I feel that it is. I feel it's much harder for us. You know, somebody will brag to me about something they did to get a good deal, say, at the grocery or on the web. And I look at that behavior sometimes and I think, gee, I think that's immoral. I understand it's legal, but I think it's immoral. I find it difficult--sometimes I say it--but oftentimes I say, well, I'm just going to ignore that. I'm not going to jump in with praise for it, like the person is asking me to--wow, that was clever. But I just--you know. And the other example is a joke that's in bad taste. It's very hard to say, that isn't funny to me. I've said it, when people tell jokes that I think are cruel or inappropriate--cruel, mainly. But it's hard. And our culture doesn't encourage it in the way I think it did in Smith's time.
35:45	Munger: Nonetheless, we are more likely to do it than we would if we were just purely reason motivated, because if you confront someone they're going to think less of you, probably not going to be persuaded. Now, in your case you did defer in the two cases about the children, but you were thinking, oh, please, come on. So, what I think is interesting is there's kind of a black box. And the contents of it are socially constructed. So it's different in different societies. Russ: Absolutely. Munger: What all human beings--all human beings have an emotional reaction if whatever the contents of their black box are, are violated by someone else. We can make excuses for ourselves. So, in some societies, if people cut in line, the norm of the line is not very strong. But I had a time, and I think we've talked about this before on EconTalk--I was standing in line; a young woman cut in front of me. When I tried to confront her, she said, If you say one more word I'm going to call the police. Russ: Slightly different, yeah. Munger: I was so upset--the point is, she was costing me 20 seconds. All I had to do was say nothing. I was so upset I almost couldn't sleep that night. It took me hours to fall asleep. I was thinking, 'I should have said, this, I should have said this.' Why? That's crazy. Just let it go. But I couldn't. I was unable to. So, we have an emotional response--we are suffused with a cocktail of chemicals that actually put a sort of bright mark in our brains of that memory. And it's much stronger than it should be if we were just reasoning creatures. And so the power of that emotional--it's kind of a subsidy or inducement to provide the public good of norm enforcement means that people are more likely to try to take into account other people's reactions, because they are more likely to react than they would be if they were just homo economicus. So, if I may, one more example: When I was in Germany, I'm crossing the street against the light, and this little tiny grandmother tries to beat me with an umbrella. She wasn't hitting me hard, but she was beating me, saying 'Kinder murderer, kinder murderer'. So she meant I was a murderer of children, because children might see this and then they might cross when there was a car. And so you must not disobey the rules. These rules must be obeyed. And if not, little grandmothers will come out of the woodwork to try to beat you with umbrellas. So, that emotional response is, I think, some of what Smith intuited without any of the evolutionary apparatus that we now look back with. Russ: Yeah, or the neuroscience and brain research that we're doing. I want to footnote what I said earlier, as you made me realize I'd overstated. When I said it's hard to be critical, you make the correct point: it's a black box and what's in the box varies by society and by time. And the more I think about it, the environmental issues are clearly examples where people are very comfortable criticizing other people. Forget the sand dunes and the redwoods--I don't think they were redwoods but they might have been in Big Sur, which, I love redwoods, too--but the point I want to make-- Munger: That's horrific. Russ: Yeah. It is horrific. It was so horrific. You can't believe it. But the point I want to make, take away a little bit of the emotion now: I want to look at littering. Littering is something that-- Munger: It's a perfect example. Russ: that when I was a little boy, in the late 1950s, early 1960s, everybody littered. That's what you did. You were driving down the road--we've probably talked about this but it bears repeating--you tossed your popsicle wrapper out the window when you were driving down the street. Munger: Yeah, it was sticky. It was not going to keep in the car. Russ: Yeah. And you threw stuff down on the road or the street all the time. And that ended through peer pressure. That ended--yes, there were some public campaigns; there were ads; there were billboards; there were fines. But those are really--of course the real test is that I would never litter on a deserted highway driving by myself. It's not just that my wife's going to frown at me; it's not that my kids are going to tease me. Munger: All those things are true, but even if they weren't. Russ: They are. But even by myself, I'm not going to do it. And I've absorbed that norm--through some actual spectators and then through the norm of the impartial imaginary spectator, I basically said I'm not going to do this; this is not who I am. I'm not a litterer. Even though it does of course create jobs for people in a very Keynesian way of picking up the litter. But that's an example where people are incredibly judgmental. Another example would be smoking. It's not okay to smoke in most of the circles that I'm in. This is just fascinating. When I was a little boy--and again, we're in the 1960s now--my father smoked. You go over to somebody's house, there are ashtrays around. You lit up a cigarette when you wanted to, just like you'd open a soda when you want to or take money out of your wallet. It was just the normal human[?] thing people did all the time. Now, the idea--could you imagine being at a dinner party at someone's house and just taking out a cigarette and lighting it? It's a faux pas of enormous proportions. Munger: We would be horrified. Everybody else would be horrified. Russ: You can't even ask. It went from light up whenever you want to 'Do you mind if I smoke, is that okay?' 'Oh, sure, go ahead.' To, 'Excuse me, I have to go outside.' 'Where are you going?' 'Oh, I have to smoke and of course I can't do it in here.' That evolution--again, there was some top down pressure on it, but most of it, a lot of the enforcement and evolution, that norm about smoking, came from actual spectators; and then on top of that, afterwards, an imaginary spectator. The example I give in the book of a similar phenomenon is corporal punishment--striking your children when they misbehave. My parents cuffed me--I never got a whipping. But I was cuffed from time to time. Right? Munger: Oh, yeah. Russ: Not often. But I was. And I always assumed being a good parent--because I liked my parents, I respected them; of course I would strike my own children to keep them disciplined. I've never hit my children. I've wanted to. I confess that in the book; my editor said: Don't put that in; that doesn't sound good. But it's true, and I don't mind putting it in. Munger: An illustration--you wanted to and didn't. Russ: Yeah. Munger: And you probably wouldn't. Even if you'd been by yourself and just the kids and they might not have really blamed you--you didn't do it because eh, that's not right. Russ: I just decided it was wrong. And that, again there are plenty of people who still strike their kids. But in my circles, that just isn't done. And that's interesting that that evolved without any top down--it just emerged. Obviously I think Smith helps us understand that. I think markets help us understand it. But what's interesting for Smith's insight is that it doesn't take place through the normal prices that we think of in markets. It takes place through emotional prices. It takes place through people glaring at you in the supermarket if you smoked or littered or hit your kid. So you can hit your kid still in America--not too much. But you can still give your kid a little bit of a whack. And if you do that in public, in certain supermarkets you're going to get glared at; and in others, I think, people would applaud. It's dependent on geography, time, place, etc. But those norms are, as you say, they are emotionally driven. And what gets put in the black box of what I am emotionally, viscerally "a-rationally, irrationally" react to, comes from the people around me. Munger: Yeah. The experience--in my own thoughts about what's right and wrong--but it's a recursive process. And it can change. It changes slowly, but it can change.
43:43	Munger: So, what I wanted to ask about is altruism. I want to make sure that the listeners understand that Smith's not talking about what we might call altruism. You have sympathy. You do have sympathy for others--I feel bad when the people in China die in the earthquake. But it's much less than me worrying about my own little finger in the Wealth of Nations. Russ: No, it's in The Theory of Moral Sentiments, actually. Munger: That's in The Theory of Moral Sentiments. So, I'm more worried about the prospect of losing my little finger tomorrow morning--which would be pretty bad: I know I have to go and they are going to chop off my little finger--that would be pretty awful. And I can't do anything about the millions of people, doesn't have to be Chinese--people somewhere far away. One difference is now I can see it on television, so maybe it is more real. I do feel a little bit--it's not so abstract; I can see pictures of children. I wanted to ask about altruism, and what you would think is the kind of level of importance that Smith would have. Because this story about the impartial spectator could be self-interest properly understood: I live in a group; the esteem of that group is important for my flourishing, for my children to have a family name where other people trust us. And so it's a broader kind of conception of self-interest. Is there any actual room for altruism in Smith? Russ: Yeah, there is. It's just it's not very big. He says--here's the quote. He says--he's talking about--I'm glad you brought up the earthquake because it's so important. People quote that passage and they say Smith's hard-hearted; he thinks we're awful people because we care more about our little finger than we do about millions of people dying in an earthquake. And of course he's correct that I would sleep much less well the night before a minor surgery than I would after an earthquake that killed thousands or millions of people very far away. And maybe even somewhat close. But his example was a little bit of a reductio ad absurdum. So, millions of people dying far away, I might express some sadness; I might give some charity to the Red Cross to help the people. But I can sleep like a baby that night. But knowing I have surgery tomorrow, I can't sleep even though it's my little finger. The punchline of the story is coming up. The punchline is: Even though you feel that way, if you had a chance to save your little finger by killing millions of people, you wouldn't think about it for a second. Because it's too horrific--to use the correct word there. And the question is: Why? And Smith's point is that it's not because you are a wonderful person, the altruist we're talking about. It's because--and it's not because people would think less of you. He's really saying that you've internalized the lessons of people thinking less of you. You realize through living, through going through life, through dealing with other people, that you are small relative to the rest of the world, and that your life is not as important--is no more important--even though it feels like it is, it's no more important than someone's life in China. And Smith's very much a universalist; and it's a wonderful, correct way to think about the world. And for you to take the lives of strangers to save a piece of your life is just--it's just wrong. And you wouldn't countenance it. You wouldn't think about it. You wouldn't imagine actually executing that plan, because you would think so little of yourself afterward. Munger: You wouldn't even imagine yourself as being able to imagine it. Even at one removed. I wouldn't consider that. Russ: So he says--this is a great quote. I love when he says: "It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love." What he's saying there is, we have some altruism, but it's a feeble spark. It isn't the main driving force of why we do the right thing. What makes us do the right thing is we want to think well of ourselves. We want to be loved--by 'loved' he meant respected, admired, honored, thought well of--and we want to be lovely. And by that he meant decent, respectable, honorable, good. And he's saying, deep down that's what we want. Now, we have to fight against the fact that we mainly like ourselves. Because we don't have much--it's a feeble spark that works in the other direction. And so what makes that feeble spark active, the reason that we do generous things and the reason that we don't do horrific things, is because we imagine thinking about what other people think of us. And of course then, in fact we get the result of what other people think of us when we actually choose to do bad things or virtuous things. Now, I just want to make one side note. We talked earlier about Gary Becker and the utility function: My first published paper in economics was putting altruism in the utility function. I built a model which was based on Gary Becker's work of saying we don't just care about our own happiness; we care about what other people consume. So, poor people make me sad. And so that motivates me to give to charity. And that's the way an economist looks at charity. An economist looks at charity and says, there's a price to charity, which is that I have to give up my own consumption; and in return I get the satisfaction from helping other people. And I'll just presume that that's there. Smith had a richer conception of what motivates charity and our behavior. And it's not just the form of self-interest once removed that you are talking about--oh, if I give to charity people will think highly of me, and then I'll be happy. It's also just--it's the right thing to do. And I am motivated at times, not to do a lot but to do some things to help others simply because I want to see myself as someone who does the right thing. Munger: And what's so great about this explanation is that it recognizes the, I think, perfectly correct observation that yes, we actually have a spark of beneficence and we would do it to help people; but it's not very big. What makes things work is having this additional impulse. And it's not just to have others think well of us, but to be able to think well of ourselves. Russ: Yeah. Munger: And that's the whole extra thing. There's a famous story--Richard Alexander, University of Michigan, evolutionary biologist, who was just a fierce opponent of any kind of group selection or altruism, had this ongoing argument with one of his colleagues: There's no altruism anywhere in the animal kingdom; it can't exist; the gene is selfish, just like Richard Dawkins says. So, one day--it was a spring day; the colleague is walking along the sidewalk and he sees an earthworm. So, he says, Aha. He picks up the earthworm and he puts it in the grass because it would have died; it would have gotten mashed on the sidewalk. And he runs to Richard Alexander's office and tells Alexander about this: I got my finger so sticky; this you have to admit was an altruistic act. And Alexander says: 'Yes, it was, until you told me.' If you'd just done it and not told me, I might concede that, but you didn't. So, we really do care that other people see us as being good people. Russ: Absolutely. And that's a beautiful story. Except of course what it misses is that, if he had knocked on his door and he hadn't been in, he still would have been happy to have not stepped on the earthworm. Right? Munger: Yes. Yes. So, I think Alexander is wrong, but he's right about the essential point. Russ: He's on to something. Munger: It's not pure altruism. It's that it might be enough that the colleague would be able to think of himself, 'Aha! I'm an altruist; I see myself as an altruist.' Not so much that he is. But what he bought for himself by getting his hand sticky was the right, the licensing to see himself as being a good person. Russ: Maimonides, the great medieval Jewish philosopher and thinker, talks about the different levels of charity, of helping other people. And the highest level is helping someone get off of charity by teaching him a trade or craft or finding a way for them to work. The lowest level is for me to give you money and I know who you are and you know who I am. The highest level below finding a person a job is anonymity. I give you money--I think it's I don't know who you are, but certainly you don't know who I am--I don't get to bask in your gratitude or unease that I'm helping you. You maintain, I think, a different level of dignity. So people do give anonymously; not just that the donor, recipient, doesn't know, but no one knows. Or almost no one knows. Sometimes literally no one. And of course I think--is that a higher level? I don't know. But there is something somehow more admirable about not taking some of the glory and letting that not be part of the equation. It's interesting. I've never thought about that before. It actually reminds me a little bit about some of the conversations you and I have had about profit-seeking: somebody who does a good deed and makes money at it, certainly the making money doesn't seem to reduce the value of the deed. It's still a good deed.
53:15	Munger: I think what's so important about what you just said is--Richard Alexander, or a biologist would say, 'But you put it in the black box.' By writing it down and saying it's the highest principle, you still know. If you had donated but it was truly anonymous and you didn't know you had donated, why would you do it? It actually matters that you know. Russ: Yeah, that's true. Munger: So, Maimonides wrote it down, put it in the black box: This is the set of things that you get to feel really good about yourself, if you do; and in fact it's one of the highest. And so you think, I'm a good person, because I did this. Russ: But of course Maimonides--this is going off track a little bit but I think it's such an important point--Maimonides wasn't just interested in the alleviation of poverty. He was; he thought that was a great thing. But he's also interested in character refinement. And I think one of the flaws of policy in the modern world, ironically, is that we look at material outcomes as the only thing that counts. That's certainly an economist's score card. So, it doesn't matter how the poor get their money, whether they earn it, I give it them, the government gives it to them. And I think in reality those three are very different. And similarly, if I help my parents and I overcome the free riding problem with my siblings, and I overcome the issues of parent-child relationships and I help sustain them in their old age, that's somehow the same as you helping my parents through Social Security. And I don't think those are the same. I think that part of being a human being, being a good human being, is overcoming your self-interest at times. And doing it through private, voluntary action is very different than coercive taxation. And I just think we've lost that, totally. And that's, I think, sad. Part of the reason we've lost it is the economic methodology that we were talking about earlier. Munger: Sure. Yes. Because once you start thinking in terms of utility--so in the Christian tradition, particularly in the Protestant Christian tradition, the important thing about faith to be salvatory is that he be authentic. And that means it has to be voluntary. So, it can't be coerced. And so, Roger Williams, when he found-- Russ: By definition. I can't force you to believe something. Belief can't be coerced. Munger: I can't[?] force you to act as if you believe it. And so, having rules about attending church on Sunday, not drinking--those rules actually protect you from having to think this through and do it voluntarily. And so you are actually condemning people to hell, because they are not able to develop their character and do it voluntarily on their own. The establishment of Rhode Island, the reason that they argued for toleration--you have to allow people to sin for them to have any hope of being saved. Because their faith has to be authentic. Which means that there has to be the possibility that they do something else.
56:24	Munger: That raises the possibility of evil. We don't have much time left, but I did want to ask what Smith's view of evil is. And the reason I wanted to ask was that I'm a big fan of movies. And one of the things that I think makes for a good movie villain is--there's two bases of attraction. There's two sweet spots. One is, a movie villain who is incomprehensibly evil and where there's no sympathy, but does it in a way where they otherwise feel fairly human. Or, someone that you are actually pretty sympathetic to and you understand their motives, and then you are horrified at the fact that you are sympathizing with this villain. So, if Adam Smith were a consultant, if we could bring him now and Quentin Tarantino's going to have a movie where he has a truly horrifying villain, how might we think about this absence of sympathy as something that when we confront it--this is someone who is not governed by an impartial spectator, this villain. But they have to be aware of the fact. They can't just be autistic or mentally incapable of understanding. They fully understand the social norms they are transgressing by killing or torturing. And yet do it anyway. Is that why? My real question is: Is that why we find movie villains so horrifying, is that they are violating what Smith tells us is actually the nature of people? So, when I look at Javier Bardem's character in No Country for Old Men--so, the guy who was the Russian killer, he was just chaos. He was able to kill completely without compunction. And yet he had certain rules that he followed. I don't know if you've seen the movie; some of the listeners have probably seen the movie. He used dice or random chance to decide who would live or die, which is completely different. So--this was a long intro for what's really a pretty short question: Can we use what you've discovered about Smith to help us understand why it is that we find effective movie villains so horrible--is it that absence of an effective impartial spectator? Russ: That's fascinating. There's a third type of villain you didn't mention, which is the redemption villain. Right? The movie where the movie opens--very common theme--where the villain starts out as a villain and then through some set of lessons is transformed into a good person. Those movies sell like hotcakes when they are done well, because there is something deep inside us that wants to see that transformation. Which is fascinating when you think about it. Munger: Yeah, it's an affirmation of these Smithian values. Russ: Yes. And on the pure evil thing--I think you're right. I don't have much to add to your analysis, which is why that long intro was totally worth it; I'm not going to cut a second of it, Mike. I should just mention, by the way--people have asked me, guests always ask me, Are these edited? There's basically no edits to EconTalk. It's just our conversation. The only things I edit out are obscenities, which occasionally get muttered by a guest. If I can find a way to save the train of thought. A sneeze or a cough. Or losing the train of thought which I do--happens to me about once every two episodes. And so, these are not edited. I didn't edit out any part of that intro. And it was utterly fascinating. What I want to add to it is that Smith actually in a number of places in the book--and I don't write much about this; I didn't find a good place to write about it--but he writes a lot about what grabs our attention as viewers of drama. And I think he says, a drama about a man who loses his leg is a lot less interesting than a drama about a man who loses his mistress. And that's interesting in and of itself. But that's not your question. But I think you are right. I think that someone who does not respond to the normal norms--my version of this would be the Joker in the Batman movies-- Munger: Absolutely. Russ: I actually can't enjoy those movies. Friends of mine love them. I just--after the first one, Batman Begins, which I thought was marvelous, the second one, which is I think The Dark Knight, the second one, I found it--I couldn't watch it. I actually walked out of it about three quarters of the way through. Munger: Really? Russ: Yeah. Well, I have to confess: I was with my daughter, and I could see she wasn't enjoying it, either. Whether I would have walked out on my own, I don't know. But I found that manipulation of the audience through the threat of--this guy will do anything; there's no degradation he's not--he's capable of any degradation. I find that deeply--maybe that's my black box, that I find it so disturbing. That I don't want to look at it. I do think there is a--it's a version of what you've pointed out, I think, a version of a horror story. Munger: Oh, yeah. All the other things are-- Russ: We like to be scared. Munger: [?] ephemeral[?]. It's really that person's lack of soul that's the horrifying thing. The stuff that he does, sure, that's bad; but that's just histrionics. The reason I thought it was such a great movie was that the figure of the Joker to me is an iconic figure of human evil. Russ: Yep. Munger: And I didn't see it as manipulative. I saw it as insightful. And the reason--that was actually the closing part that I had for this question: Heath Ledger committed suicide. Russ: Yeah, it's horrible. Munger: And in May of 2013, his father released parts of his diary. And in the diary, Ledger talks about having to confront the sort of raw edge beyond which you are not really human any more. Even though you are human in form. And so that, in some ways--obviously he had maybe other difficulties--but confronting what you just said you walked about: He couldn't walk out. Russ: Yeah. Munger: He killed himself. Confronting that day after day was just too much for him. Russ: Yeah. I don't think it helped. I don't know if it was the cause but it certainly didn't help. Munger: Yeah. He had other difficulties. But in his diary, he did talk about it over and over again, which I thought was interesting; so that your walking out--you didn't have to stay. It's not effective for you in the sense that: oh, this is a movie villain; I'll have more popcorn. Russ: Yeah. Exactly. Munger: So, Smith is on to something there that's so deep. Well, really all I wanted to say was I thought that this affirmed, on the negative side, the things that we had been talking about--the positive side--about Smith's insights into human nature. Russ: Yeah. That's a great point