EconTalk Host Russ Roberts on Key Economic Concepts for Founders

Russ Roberts: Welcome to the podcast!

Craig: Hey, great to be here.

Russ Roberts: So, you, for those who don't know, are the host of Econ Talk, a research fellow at Stanford's Hoover Institution, and the author of several books, including "How Adam Smith Can Change Your Life."

Craig: So, to start off the podcast, I want to talk about one of your previous episodes—the one with Jonah Goldberg. You pulled out a passage from his book, "The Suicide of the West," where he wrote, "Capitalism cannot provide meaning, spirituality, or a sense of belonging. Those things are upstream of capitalism." I really enjoyed your conversation, and I kind of want to talk about it in the context of startups. So, what are your thoughts on this: meaning, spirituality, and a sense of belonging in regards to creating your own company?

Russ Roberts: Well, in a previous life, I was at a business school, and one of the things I did there was to connect MBA students with entrepreneurs. We had something called the Hatchery, and entrepreneurs would come in front of the students to present their ideas. The job for the students was to write a business plan for that idea. Meaning, the course today, I met with a lot of entrepreneurs because, obviously, we couldn't take everyone who was interested. I got to find out what they were interested in and what they cared about.

And one of the things that was very moving—and I actually stole this and fictionalized it and put it in one of my books—was the non-financial motivation that founders have. Obviously, there's a financial motivation; if you're not going to make money, you're probably not going to get investors, and it may not keep your attention. Eventually, you won't be able to pay your workers, so you do have to make money and think more than you spend to have a viable business. That's a beautiful thing.

But I was struck by how much people care about what I would call the spiritual part of it. I have a memory of an entrepreneur who started a software company. I remember him—I don’t know if he choked up or teared up, but he definitely had an emotional moment when he said to me, "You know, I wish my dad had seen my company," because his dad had passed away. He said, "I wish my dad had seen what this product is." Then he stopped and was brought up short, and he said, "Not even like my dad."

I thought, well, that's one of the deepest things I've ever heard, right? This incredible primal desire—first of all, to please your father or make your father respect you. Earn the respect of your father. But the role of a startup, or anything you create—not just a startup—anything you create, the mark you make on the world that you want your parents to see is way beyond, I think, the monetary part of it. The money counts, but obviously starting a business, creating something that can sustain employees and pay them is debt.

It's the world in your own way—that's just the way we make our mark, and I think that's a really beautiful thing. I think it's phenomenal that in America, it's relatively easy to do, and I think that's important and part of what makes America what it is.

Craig: Was that your intention behind Econ Talk—to make your own dent?

Russ Roberts: Just before I answer that, I want to go back to the Jonah Goldberg quote about extreme capitalism. I think it’s bizarre how capitalism bears the burden of human nature. People say, "Assume that you mean that assistance is based on greed," and a Milton Friedman thing. He'd say, "Oh, as opposed to what? What system doesn't have greedy people in it?" Every system may be not greedy, just at least self-interested.

But to go back to your question, when I first started podcasting in 2006, I was invited—before I started, I was the reason I got into it. Somebody invited me to be on their podcast, and I asked them how many people would listen. I figured it’d be 80 to 100. He said about two or three thousand. I thought, whoa! If you told me that at two o'clock tomorrow afternoon we’re going to be in a large theater and there are two chairs on that stage, and you can sit in one and chat, and these two thousand people, 2,500 people are going to be interested in what you have to say. Now, some of course are going to leave, but the oh yeah, 10% or 20% through.

Because they’re allowed to leave without you seeing them in the podcast rule, but they’re going to start. They're going to come and buy a ticket or reserve a space. This is what a download really is. I would have said, "I did sad, so I’m in. Okay, I’m coming. I’ll be on your show."

Okay, and then I realized maybe I can do this. I didn’t think I’d want to do it every week. That seemed like a horrible job, but eventually I realized that if I didn’t do it every week, I’d have trouble attracting listeners. I don’t know if I could do it every week, and as the audience grows, basically you're hanging out in what started as a theater or auditorium, then became a basketball stadium, and right now for Econ Talk, it’s a football stadium of listeners every Monday morning. That just blows me away. It’s moving to me; I feel blessed, privileged, and honored to be able to do it.

It has this strange piece to it, which is that my listeners know me pretty well. I have 700 hours of material, of which I’m probably 300 of the 700 hours, there’s a guest, usually, almost always. I don’t talk the whole time, but I talk maybe a little less than half the time. So somebody who’s been listening from the beginning, of which there’s a non-trivial number, have hung out with me for 300 hours. That’s, you know, one way to think about that is it’s—let’s see, it’s—I don’t know, it’s a lot of road trips of a venomous sea, but I don’t know them. They’ve hung out with me, but I haven’t hung out with them, so that’s a strange beautiful poignant aspect of this business.

But the bottom line is, to answer your question, the chance to hang out with those people every week is exhilarating to be, and it’s wonderful, wondrous. I love it.

Craig: To go off on the side for a moment, I have the same experience, and it’s often much more focused because at YC we have this thing called Demo Day. Right, because you did an episode with PG and Sam, and they talked about it.

So before Demo Day, we have this thing called Alumni Demo Day where people have gone through the program come and see the companies demo. Invariably, someone will come up to me in the bathroom while I’m at a urinal and pat me on the back and say, "Hey, Craig, really loved the podcast." Maybe not right now, but it’s like you’re their buddy, and they’ve been...

Russ Roberts: Yeah, exactly.

Craig: And it’s cool. I’m very happy with it.

Russ Roberts: Yeah, and so, you know now you're seven—what episode do you just release?

Craig: Six ninety-something, we're close to 700. Most seven hundred episodes deep. I’m kind of curious if it’s possible for you to summarize these key concepts that you’ve talked about. Because, I mean, I haven’t gone back to Episode one, so I don’t know what it was in the beginning. But you have a pretty wide spectrum of guests.

Russ Roberts: So all of our stuff is, in large part, related to technology in some way. A lot of startup founders listen. Where are there like two or three key economic concepts that you could kind of impart onto a startup founder after almost seven hundred episodes of Econ Talk?

Craig: I normally would say I have no idea, but I actually do have an idea. The reason I have an idea is not for me, but from those founders that have talked to me and said, "I love Econ Talk." And I’d say, "Thank you," and then they’d say, "It’s really helped me with my business." I never would have imagined that—I had no inkling—was shocked and surprised and taken aback and curious.

For me, almost everything I do, I try to have a mix of entertainment and education. There’s a sweet spot between those; you know what works best or what works better than others. If it’s too entertaining, you don’t learn anything. If it’s too educational, nobody listens. Sometimes the challenge is to find that sweet spot.

But the idea that it would be useful to somebody running a business never crossed my mind; it literally would never have come to me until I hung out here in the mmm-hmm—it’s Stanford in the summers. I interact with people with startups and VCs and others, and they tell me that they find Econ Talk helpful. So I asked why, and one of the answers that I hear, I think, there are a couple of answers.

Some are there are some basic economics concepts that are useful. And I should say that, you know, when I started Econ Talk, the idea was standard view economist about the research. That’s not what it is anymore. It’s every once in a while, blue moon, it’s an economist sorry about the research. But now it's basically: the show should really be called what Russ Roberts is interested in, which changes over time.

I got tired of talking about Bitcoin and monetary theory and what caused the financial crisis of 2008. I did, I don’t know, 25 or 30 episodes on that topic of the financial crisis, and I’ve learned what I think I can learn from it, and I don’t care if there’s a really great book on it now that summarizes a bunch of stuff. I’m probably not going to talk to them because I kind of—I’m not going to learn enough from it to go through the effort of reading it. The same is true with monetary theory and Bitcoin; I kind of have a rough idea of where we stand, and it’s—the answer is there’s a lot we don’t know, and when we get a little closer, I might do it again. But I’m not going to do anything for a while, even though everyone tells me I’ve got to interview so-and-so because he really understands something. I don’t doubt it.

But okay, I made—so, you know, in the early days, it was very economics-focused, and there are some basic economic ideas I think are very useful in business.

The idea of opportunity cost, the idea that when you do something, you can’t do something else—that’s a good thing for a person in business to know. It sounds trivial; it’s not in practice. It’s easy to forget that. When you hear that in a podcast, they go, "Oh yeah, that’s a useful thing to remember." The idea of comparative advantage, the idea that there are things that are too expensive for you to do for yourself that you should pay someone else to do for you—every founder has to deal with that issue.

When do you hire a director of marketing? When do you hire an accountant? When do you hire an HR director? When do you etcetera, etcetera? So those are, you know, tough trade-offs, and thinking about that I think is useful because I think—I wouldn’t be surprised if a lot of founders have what I would call a control problem.

Giving up control is very challenging for a lot of people, especially founders. So being forced to think about that is probably good. But I think that the most interesting thing that people have told me they found useful is the idea of emergent order: the idea that certain things can solve themselves under the radar and that there are forces that work to solve problems even when you don’t explicitly try to control them.

That just is not a natural idea; it’s not the way we’re taught. There’s good reasons not to teach it, right? Most things you want something done, you do it yourself. I always use the example of the dishes—the dishes won't do themselves; someone's got to get into the kitchen and do the dishes. The garbage doesn't take itself out; you've got to roll the garbage to the curb, etc., etc.

But there are a lot of problems that get solved that you don’t have to worry about. Like, oh, if a lot of Chinese kids move into cities and start using pencils in school because they’re not on a farm anymore, and now there’s not enough pencils to go around, how are we going to have pencils in America? Because the Chinese are going to have them all, and I’m going to show up at Staples and say, "Could I have a dozen pencils?" They’re going to say, "What do you mean? Come back in a year; the Chinese got all of them this year." Yeah, that doesn’t happen, and you don’t lose sleep over that, and that’s an amazing thing.

I did a poem called "It’s a Wonderful Loaf," and it’s animated online, and it’s about the phenomenon that in a major city, everybody goes to bed at night not worrying that when they wake up, is there going to be food for everybody? Who’s in charge of that? Answer: nobody. Nobody’s in charge. If you like whole wheat bagels, you don’t have to send a letter to City Hall saying, "You know, I just felt we're not getting enough whole wheat bagels this year. Can you make sure next year you plant more wheat?"

There are a lot of problems that solve themselves, and that’s generally of interest in the world of public policy. But in a business, it’s also useful because there are problems that your culture can solve. There are things you can outsource; there are things you can—in essence, somebody told me I didn't—I was going to hire; I was going to expand my headcount, and I realized I don't have to do that.

Rent—that, to me, that’s an obvious idea, and it is obvious, everybody understands that. What this economic concept of emergent order—the idea that there are certain things that are self-regulating or they control themselves—forces you to think about it in a different way, and I think that's wonderful that anybody finds that useful on a broader general sense.

But you know, most of what I do is not useful; it’s just interesting. It’s what I try to do: I try to get smarter. In theory, being smarter is useful, but…

Craig: For you, found on that, yeah, right. And so when it comes to communicating these ideas and whether it’s to, you know, your children or friends or listeners, what are effective methods for actually teaching it in such a way that someone truly understands it and can put it to use?

Russ Roberts: So, I used to spend a lot more time thinking about some aspects of that because it’s very easy to teach a class and give an exam when you’re in the classroom, which I was for 30 years. It’s very easy to teach a class, give an exam, and convince yourself that the students have learned something when in fact they’ve all learned almost nothing.

One of my favorite teacher evaluations I got was, I got a one out of five, and the student said, "Professor Iris is a horrible teacher. He expects us to apply the material on the exam to things we’ve never seen before." Of course, that was the whole goal of the class. I mean, what’s the point of learning to tell me things I can explain to you?

Right? I mean, it’s just memorization, right? So that’s not what we’re trying to do here: what we’re trying to do is teach you how to think. Economics, when it’s well taught, should be about giving you a lens to understand the world. So the challenge is how do you convey material in ways that are memorable and that you can internalize and then apply to things that aren't just the example you got?

One way you do that is conversation. So I think a great podcast can do that. It can help you hear the back-and-forth of a conversation rather than a monologue, which is what a book is. A book is a lecture; it’s a monologue. A conversation replicates maybe your own thinking processes and makes it more likely that the lesson will go in. Another way you do it, of course, is just through trying to work out the implications of an idea that aren’t so obvious—what those implications are, what are the unintended consequences?

One of the most important lessons of economics that we talked about on Econ Talk is the idea of “and then what?” You can tell me what’s going to happen if you put this policy in place, but then what are the next set of consequences that come from changing incentives the way you’ve done them through, say, a price control or a tax or subsidy or tariff?

It’s easy to see the first round direct effects; the harder thing to see is the indirect effects. That’s what economics—and when it’s well taught—should sensitize you to that way. I mean, the other lesson is most things are just forgettable, so you've got to convey things in ways that are memorable. I try to do that through narrative; it’s why three of my books are novels.

It’s why I wrote, co-wrote two rap videos and wrote that poem I mentioned because what I was trying to do there, among other things, was rhyme. It’s much more easily memorized, and I was hoping to create ways for people to communicate using quotes from those efforts.

I’ll give you an example at the end of "The Fight of the Century," which is the second rap video I did—this was proposed by the filmmaker—we have the line talking about capitalism: “Give us a chance so we can discover the most valuable ways to serve one another.” And to me, that’s the romantic, idealized version of what capitalism can be.

There’s crony versions of that where instead of trying to figure out what makes value to you, my customer, I get the government to keep out a competitor or to get a special payment. There are all kinds of ugly versions of capitalism; I could defraud you, I could lie to you, I could deceive you. It’s hard to do, yeah, if I have competition. It’s going to be a lot harder. But when it works well, that’s what it does; it gives you a chance to discover how to serve—we serve one another, and that’s pretty amazing.

But that is a pedagogical device that rhymes. My kids know that by heart; that’s useful. That doesn’t mean you understand it just because you can spit it back to me, right? There’s a lot there; there’s a lot there, sir.

So, to fully understand that you'd have to think through what the consequences of that idea and concept are. But that’s another piece of it: how do you convey it in a way that people can remember it, that people are going to have it in front of their minds, not back up on?

So much of it is also repetition, and you know it has to be your most quoted Adam Smith line—“Men desire not only to be loved but to be lovely,” right? And it’s just like burned into my ears now—that’s my brain.

There’s also an Econ Talk drinking game, which you can buy. I don’t get any money from it, but it’s a fan-created thing. Okay, it’s very charming. It’s things I say all the time. What makes me happy is it’s a long list—that’s one of them.

Yeah, every time I say that, you know, you drink. I can’t remember, but those things I deliberately say them a lot, and one of the reasons I do is that I’d like that to be burned into your mind as a listener.

Of course, the guest has never—maybe never heard it before. So I also want the guest to hear it for the first time.

Craig: Right. You know, my other favorite quote is Hayek's: "The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

Russ Roberts: That’s a powerful idea. Most people—it never crosses their minds, so it’s an awkward quote. It’s not that good; I almost butchered it, and I’ve said it a thousand times, so it’s not an ideal quote, but it’s pretty good, and it gets it something.

And you're right; repetition is important. But then with your book "How Adam Smith Can Change Your Life," you basically—I mean, my intuition of it was, here's this incredibly valuable text; it's not well known, and it's also not Adam Smith's Theory of Moral Sentiments, right? And it's also not necessarily incredibly easy to parse. Correct?

So you kind of took it upon yourself to read—I jest it—and put it back out there in the world. What was your main objective with the book? What were the ideas you wanted to communicate aside from a few things?

Russ Roberts: You know, one is just to honor Smith, who wrote this book that nobody reads anymore, and I think it’s full of insight. There’s a certain tragedy there that people only think of "The Wealth of Nations" when they think of Adam Smith, and in particular, they have a caricatured version of "The Wealth of Nations" in their mind that "greed is good."

That’s not what that book is about; it’s a total misunderstanding of it. The book's an exploration of the power of self-interest. It’s not greed—you can be self-interested without being greedy, and you can be charitable when you’re self-interested; that’s all kind of obvious, sir.

But his first book, "The Theory of Moral Sentiments," from 1759, is all about the virtue of not being greedy and why anyone's not greedy. White people aren't self-interested all the time; why do they ever do anything benevolent? Why do they ever think about other people when they go through the world? That’s really interesting.

It turns out it’s not obviously interesting; it’s "how do you mean, who cares?" Yeah, people are nice. But I think Smith had about a zillion insights into how we interact with others, and as I read the book, I realized that there was a lot of wisdom here that people weren’t grasping, that they’d missed a chance to know.

So that was, you know, my main goal was to take some of Smith's ideas and apply them to modern examples from business, from family to family, and your daily interactions with the people in your circle of friends, associates, intimates, colleagues.

In particular, I think if I had to say, well, you know, is there a central idea? That quote you gave: "Man naturally desires not only to be loved but to be lovely."

I love that Smith didn’t just mean romantic; he meant respect and honor, etc. And lovely he meant worthy of honor, respect. Thinking about that as an aspect of a central part of human nature is incredibly powerful.

It gives you insight into why people do some weird things in your life; you’re like, "Why are they so..." and the answer is, "Oh yeah, man actually desires not only to be loved but to be lovely."

So we care about our self-respect; we care about the respect of others. Remembering those two things doesn’t come naturally to most economists, and I think so reminding people that probably the greatest economist who ever lived was really focused on not just money.

The next part of that was Smith says, "Well, how do you get to be loved?" And the answer is, "How do you get people to pay attention to you? How do you get to be honored? How do you get to be respected?"

And I said, "Well, there are two ways. One is fame, wealth, and glory—fame, wealth, and power." That’s money, power, things; yeah, okay. We all know that; those people we pay attention to. You know, I think Donald Trump has all three.

I’m not sure if he’s really wealthy; we’re not—there’s someone certainly about that; he’s definitely famous, and he’s definitely powerful, and he’s probably wealthy. So, if he stops by today, I use him as an example when I’m giving a lecture.

I always say, "If Donald Trump walked in the room, you’d stop paying attention to me. I don’t care whether you liked him or not or whether you voted for him or not or whether you hate his guts or love him; he's famous. He’s wealthy and powerful, and those kinds of people command a room, period.

A poor, forgotten, pitiful person is ignored—not just, oh, he’s not going to get as much attention as Donald Trump; it’s like that person doesn’t exist. Yeah, you see that—you know, we’re in San Francisco; you see that with homeless people.

That’s alright; when I give people money, I do try to look them in the eye. I do try to tell them, "Have a nice day." It’s not much, but it’s better than ignoring them. But the point is that we strive to be paid attention to, and the natural way we strive to do that is through fame, power, and money.

I think Smith says, of all people, Adam Smith, the first economist, says, "That’s a bad path." It’s tempting. A lot of people follow it. Don’t. The better way to be loved—that is, the better way to be respected and honored and praised is to be virtuous and wise.

And that’s a funky path; that’s a hard path, and it’s not the glittering path. That’s what he says; the glittering path is the fame, power, and money thing. But he says, "Be careful; go down that path. You can just—I’m going to get some things you’re going to regret. It’s not going to make you happy."

So I thought that insight coming from an economist was really important and really sad that people think he can always about making money and only making money, and that’s just not true, let alone Adam Smith’s rip. Right? Exactly, yeah, the opposite, right?

So those were my goals.

Craig: And, you know, to me, it’s also kind of a pillar of at least what Econ Talk has become; there’s a lot of that human element in relation to the economy.

Russ Roberts: Yeah, I interview people who have interesting things to say that I think I can learn something from but increasingly who have things to say about aspects of daily life that are not just financial—although financial is fine and I like interviewing people in business who let me and let listeners get access to a world that they know wouldn’t see.

So, you know, I interviewed Lisa Turner, who is an organic farmer, because I wanted to know what that’s like. I interviewed Alex Guarnaschelli, who's on Chopped and runs a high-end restaurant in New York City called Butter. What’s it like to run a restaurant every night?

You know, just one thing I remember from her is that when she told her dad that she wanted to be a chef, he said, "Okay, just remember, you’ll never spend Christmas or Thanksgiving with your family." Like, oh yeah, I guess that’s true; if you want to be a chef, you’ve got to give that up. So that’s cool.

Those kinds of insights that, you know, I love—that’s a small part of the program, but I love whenever I can do that. The woman who cuts my wife’s hair or the guy who sold my car, you know, trying to pull back the curtain on things you might not normally have access to—it’s really fun for me.

But I’m also interested in people who have ideas about things that are outside what people would normally call economics. And so I thought about changing the name, because it’s not so much Econ Talk anymore.

Craig: And there were a lot of people I think who go, "Oh, we can talk. Alright, I’m not gonna like that."

Russ Roberts: I don’t know; it’s a tough one.

Craig: Yeah, it’s okay. I have to change my Twitter handle to Econ Talker.

Russ Roberts: I found that an interesting choice, like you didn’t have your own Econ Talk handle.

Craig: It’s all its handle. Now it’s too late.

Russ Roberts: Yeah, exactly!

Craig: Alright, so you’re obviously quite popular on Twitter. Even here now, Russ Roberts—you have a bunch of questions sent in. One related to this: Steve Oedema asks, “Russ Roberts has emphasized the limits of only looking where the light is when it comes to studying well-being. How can economists incorporate the aspects of well-being that aren’t easily quantified?”

Russ Roberts: This is a recent theme. It’s interesting, I think, that he—that listener sees it as I’m going through lately. I’ve been thinking about the fact that we focus on things we can measure.

So the metaphor he’s talking about there is the idea of the drunk who’s under the lamppost looking for his keys. The sober person comes along and says, "Let me help you. What do you—lost your keys?"

After a while, he can’t find them, and the sober person says to the drunk, "You sure you lost them here?"

"Oh, I don’t think I lost them here, but the light’s where the light's best." So we tend to look where the light is best, where we have data—what we have data on.

But what I’ve started to realize lately is that it’s not just we look where the light is; the stuff that’s not under the light—we forget about it. It’s not just like, "Oh, it’s hard to see, and I’m not sure what it is and how big it is and whether it’s small or large."

It’s "I only look where the light is," and I just—I don’t know. So the metaphor I use for this now is if you have—or if you have a hammer, everything looks like a nail. It’s not just that; it’s that you only see nails.

It’s not like you go, "If it looks like a nail, I’ll try to hammer it down." It’s like everything’s a nail, and a cloud—I don’t know about clouds because they don’t remind me about nails at all. So I don’t think about clouds, so I think there’s a challenge in economics that we focus on things that are measurable and forget—not just focus on them; we forget about the non-measurable.

And, you know, there are a lot of examples when I start talking about this. An example would be, say in medicine.

In medicine, people are kind of focused on a 1-0: live-die, live-die. How about quality of life? Oh, well, that matters; of course, that matters. Sure, of course, that matters. But when it comes down to it, curing the disease or putting the cancer in remission—even if it means you have a horrible life while you’re under the treatment and you die pretty soon after that, people call that a victory. It’s not a victory to me.

Yeah, probably a mistake, but we get very focused on that outcome: alive or not alive. And so in economics, we focus on things that can be quantified with dollars. The things that can’t be, like dignity, which we’ve been talking about lately on the program—getting it’s not ganas. That’s like, "Oh, I understand; I can’t measure dignity."

So I have to kind of weigh that in a qualitative way. It’s that dignity is forgotten. The only thing that matters right now in America is inequality or how much income you have, and if it’s too low, we worry about that. The idea that it’s high but you don’t have any dignity or, you know, we give you a check to replace the lost income because you’ve been displaced, saved by technology—that’s just as good.

It’s probably not true; it’s probably not just as good. Even though, I mean, if you ask somebody, okay, you’re making $45,000 a year now, and this technology’s going to come along and take you out of your job. You’re not going to be able to do it anymore. But I’m giving you a check for $45,000, which according to a really bad economic theory says you’ll be just as happy because you can buy just as much as you did before. And of course, we all understand, right—that those aren’t the same.

That I might lose my dignity; the inability to support my family has changed. You could say, "I’m still supporting them through the check that I’m receiving," but most people would say that’s not the same. If given a choice, they’d prefer to work, even though work is unpleasant often.

So, how do you remember to keep that in mind? I think what happens is that we don’t. So the question, which is a fantastic question, is “Can you read the last part again?”

Craig: What that would add, Steve asks—

Russ Roberts: So Steve asks, “How can economists incorporate the aspects of well-being that aren’t easily quantified?”

Russ Roberts: So what we tend to do is say, okay, we’re not measuring dignity; we need a variable for dignity, right? So let’s go out and ask people how much dignity they have, and we’ll grill it on a scale of one to five.

I’ve got a big argument on Twitter a few months back on happiness from having children, okay? And there’s a lot of surveys about whether people who have children are happy or not, married people happy or not, single people happy or not. And I said, most of that is meaningless. And why did I say that?

That’s not so interesting; right now, I’ll talk about it if you want, but somebody said, “Meaningless? There’s a lot of patterns in that literature that could be fruitful to look at; you know how happiness varies with income, how happiness varies with marital state, whatever.”

And I said, you know what? Those are really there—is some meaning there. What they tell you is how people respond to surveys about happiness. Those are not the same thing.

They might be the same; there might be similar; they might be identical even, but I wouldn’t assume that is my starting point. It’s a different thing. So the temptation, first of all, to ignore things that aren’t quantified, and then to say, okay, now I’ve got to quantify some unquantifiable things—is very natural, and it’s probably a mistake.

When I think of course—now, what right when somebody said to me “well, I suggested that a survey about parents’ feelings of satisfaction about having children versus parents who married couples or couples who don’t have children and their level of happy to say on a scale of 1 to 5.”

It’s not so meaningful; in fact, it could fool you into thinking you understand something you don’t. So one of the responses I got was, “Well, more information is always better.”

My view is: No, it’s not! It often is; I’m very pro-information; I like data; I like evidence. But there is evidence that’s not data. That’s very hard for people in 2019 to remember.

There are things we understand about the world that don’t come from a survey, that don’t come from some quantified things. So in the case of children, if you said to man, “You know, my wife and I are trying to decide on children—what’s the best data on that?”

And I said, “Wait! I’m not sure there’s any good data on that, but there’s evidence on it. Just not data.” What do you mean?

So the answer would be, “Well, you know, I’ve read some books; there’s some novels.” That’s what fiction is about. Fiction isn’t just to pass the time or distract you; it’s that it tells us something about the world that a great thinker put in the form of a narrative.

I talk to people; I have conversations with people who have kids and don’t have kids, who have kids, and ask what their satisfactions are. Now somebody’s satisfaction from children or somebody’s satisfaction from being single may not apply to you. You understand that the data often struggle to make that distinction.

They assume, oh, it’s going to apply to everybody. Right? It probably won’t. So you’ve got to make some non-quantifiable assessment of how meaningful that information you’ve gathered is for you—that includes almost every decision you’re making in your life.

Right? Whether to go to college, what to major in, who to date, who to marry, who not to, etcetera, etcetera, what to have for dinner tonight? Oh, oh yeah, okay, but a 4.5—oh, I forgot; I’m a vegetarian; this barbeque restaurant is not for me. Those are the easy ones.

The hard ones is most of life rules; this is the current paradigm, right? So you look online like, "I want to find this metric." But for almost all of time before it was "my neighbor has two kids; let me ask him: what do you think?"

Actually, you know, what it was through much of time? Having kids is what people do. So I’m gonna get married; yeah, I’m gonna have kids. Now everything’s out of the grabs.

Yeah, you don’t have to get married; you can be totally—you’re not going to be stigmatized. You can have kids in marriage or not marriage; you could have kids through a test tube or through a human being.

Yeah, there are so many choices, right? And a lot of the traditions about how to deal with that uncertainty are out the window, which is a really interesting part about being alive right now.

Right? A lot more freedom, a lot less guidance. But in the old days, what you didn’t look it up? You didn’t try to figure it out; it was what you did.

It was a—it came in the air you breathe—it was just considered normal. Now it’s not normal. It’s whatever, you know? It’s up to you, which is very cool and challenging.

I have a couple of thoughts related to this. So first of all, just to touch on that— you used the example of Warren Buffett’s son in your book.

I know that was a great one. Peter, yeah. So I forget there are 80,000, 90,000 dollars in Berkshire stock, which would have amounted to 100 million, I guess, of the same record. He was given the stock, and he had a choice.

Yeah, his dad said something like, “This is your gift; you won’t get anything else for being—”

Right! It’s a fabulous gift; it’s very generous—$100,000, 80, whatever it was—you can keep it, hold on to it, let it grow. It may not; it may fail, or you can cash it out.

He cashed it out, lost the chance to let it sit and accumulate to whatever millions and millions of dollars—which wasn’t guaranteed, right? Was it guaranteed?

Instead, he sold it, financed going—I think into the music business, and settled a successful career as a musician. He’s not many people have never heard of him, but he’s had a very meaningful and satisfying life.

And you’ve got to ask the question: did he make a mistake? Right? No! I mean, he wouldn’t say so.

I don’t think he would, but he could be lying to himself. But again, you have to ask yourself, there are people who would call that a mistake. And for them, they should have held it, done something else, and cashed out the money 20 years later and ridden the wave, and that would have been fine for them.

The others who would have sold it and gone into music school would have been the last thing they do. Yeah! And everybody has to do what’s best for themselves.

But now, in the context of someone starting a company, obviously you know, companies like Facebook are in the news around unintended consequences.

You, having talked to so many people over the course of Econ Talk, what would you advise to a founder in terms of thinking about these unintended consequences of their product? Like basically looking where the light is, not into the future.

Russ Roberts: That’s a great question. I think what’s interesting—I don’t know if this is fair—I’ve started thinking about this in the last year just because of the nature of the conversation around these companies.

It’s like you want to take Mark Zuckerberg aside and say, "You know, Mark, you had a really good run—fantastic run. You’ve created a product that is really, in many ways, magnificent."

You can see that part. By the way, when Facebook took a hit from the—what was it called? Cambridge Analytica?

They put out a series of ads on TV and wherever else they did that basically said, "You know, remember how Facebook used to be?" And they’re very romantic, and they’re very idealistic; they’re very beautiful. They’re set to the right music, and they’re very moving.

I enjoyed watching the ad just for the emotional kick. But you want to say—you want to play that for Mark and say, “Mark, that was then; this is now. You’ve lost that.”

But why? Why have you lost it? Why can’t you be content with what Facebook is now, or even when it was three years ago, which was fabulously productive and profitable?

The answer, of course, is that the stock market doesn’t feel that way. The stock market includes many people who bought it recently, who didn’t get to enjoy those romantic idealistic times—they expect future growth.

And that’s a treadmill; that’s the hamster wheel that, you know, I think many founders get stuck on. And by the way, it’s not just founders; the human challenge of more is so hard.

You know, I see it in the opposite world in the nonprofit world, where a mission-driven organization that wants to save people’s lives or make them more meaningful or feed the homeless loses its focus because they get interested in collecting more money, even though—

Yeah! In fundraising, where a donor will make a gift for some funky piece of the business that they care about that is really off mission, but the CEO of the corporate—of the nonprofit goes, "Money!"

And it’s a nonprofit, remember? It’s not a profitable—not the fact that it’s called nonprofit; it has a mission that is very distinctive. That’s not bottom line, and they don’t—they can’t help themselves; they go off mission.

So I think that’s a human problem; it’s not just a founder’s problem. But it is interesting that, you know, it comes up in a number of ways, the way we’re talking right now is through the way the stock market and our investors have expectations that may be different from yours, the founder.

Then the founder starts easily convincing themselves that, "Oh, those are my expectations too," because they want to take the money, and they want to be successful as seen in the eyes of others, and that’s very human.

But the other part is the transition from your company to somebody else’s company. And I think when you start a company, there are three things that, to me, have very similar emotional payoffs: starting a company, writing a book, and having a child.

Right? They’re all something you did that you feel was part of the creative process, and you have an immense irrational amount of pride in the idea that someone would say at the age of six, "You know, I think I could do a better job raising your kid."

Would it be okay if I—I’ll pay a lot of money? Never! Well, not never. Every once in a while, people do give up their children for adoption, obviously. But they tend not to do it for a large payoff.

No, they might because I can’t afford it, but keeping—taking care of the child, we understand that. But in general, people don’t think, "My kid could do better with another parent." I would just shut up about it—it doesn’t happen.

The idea of saying, "You know, I wrote the first half of the book, but I think I’m not good at endings," yeah, you’re like a closing pitcher.

Yeah, I’m going to bring in Mariano Rivera and let him finish it off. Right? Never! Almost never. Okay, people punch up scripts—

Not totally true; movies are different, right? And they don’t like it, by the way. Yeah!

One of my favorite favorite favorite books of all time is “Adventures in the Screen Trade,” which is by William Goldman, the scriptwriter who wrote Butch Cassidy and the Sundance Kid, and more even more effectively, The Princess Bride.

He’s a wonderful, wonderful writer, and he talks in that book—one of my favorites—he tells a million phenomenal stories in there, and it’s a great read; it just passed away in the last year; I recommend the book tremendously.

We talked about it going to the debut for like a famous movie—the night he remembers which one—so he shows up for the screening, and he gets to the party or the premiere, and the guy says, "Who are you?"

And he says, "This is your nonetheless.” "I’m William Goldman." The guy says, "I don’t see an E.L.I.S.A." He says, "I’m the screenwriter."

He goes, "I don’t see on the list." Because they have no prestige, so they are treated really poorly. The idea that you would take somebody who has created something, finished it, and now we’re going to say, "I’m sorry, we’re going to throw it out or throw out the last half," or we’re going to change the ending—that’s just brutal.

And we have—there’s no rationality there, right? You can’t say, "Boy, well, they have different skills than I do; they do a lot better." I was really good at this first part, but this next part is way out of my comfort zone; I can’t handle it.

Well, let’s let somebody else. Use that. It happened with Apple. I mean, Tim Cook is still criticized for not being creative, right? He’s like, oh, he’s the operator.

And then the—I forget the name of the next guy that people are saying, oh, this guy might be the heir apparent for Apple. And like, but he’s also not creative.

And now Jony Ive is out, and—

Yeah, it’s over.

So it might be, actually. But I think this idea of very few people have the self-awareness to say, "I’m not the right person for the job at this point."

And the reason—what I’m suggesting here, this long rambling set of thoughts on startups, children, and writing is the emotional part of that ownership is so far beyond—of course, back to your first question, it’s not about the money.

But I can convince you rationally that this next person is going to take it to a whole new level. One of the answers is, I don’t need a whole new level, right?

You know, if you said to me, I could take your daughter and turn her into the greatest tennis player of all time, it’s like, "That’s not my goal; that’s your goal."

So I think the other issue, of course, for founders is growth. And the idea that, you know, I’m kind of content with what I have; this is pretty great.

I love the hamburgers that this restaurant produces, but if you want to be Ray Kroc, you’ve got to dream a little bigger than that. And we understand that when you take on investors, you get expectations about that, and that’s part of the game.

Craig: Well, it depends on your investors. Yeah, that’s true!

Russ Roberts: Okay, so we still have more questions. I want to get to as many as we can. Anthony Y asks a question about the show—he says, "Has a guest on Econ Talk ever like basically encourage him or made you change your mind on a topic?"

The answer is yes. I think that’s a very interesting question because I used to talk a lot on the program—not quite as much as I do now. I don’t talk about it quite as much as I used to, but I used to talk a lot about the fact that there’s very little academic research that changes people’s minds, right?

And people don’t go, "Oh, oh, you did a study! The minimum wage. I’ve always been against it, but now I guess I’m for it," or vice versa. "I’ve always loved the minimum wage; I guess it’s an awful thing." No one study does that; there are a lot of reasons for that, some of which our studies are hard; they’re all flawed; they’re all imperfect, and you can always find something to dismiss about a study.

But that’s interesting, right? If they’re not decisive. So I think what that question’s getting at is, you know, is there ever an hour in your life where you went, "Oh my gosh, I’ve looked at this wrong the whole time?" And the answer is occasionally.

I think more interesting for me, I ask a variation on that question. You know, are there things you learn from Econ Talk that were radically different than what you knew about before?

It’s not so much a change in my mind. I have feelings about and ideas about uncertainty and randomness and probability that I’ve learned from interviewing Nasim Taleb and reading his books, yeah, seven times a day.

People complain that he’s rude on Twitter, and I try to be civil, and why the heck am I doing talking to him? Why am I giving him a platform?

The answer is I’ve learned a lot from him. He’s not evil; he’s just a little rude sometimes, maybe you’re tough. Or if he was evil, I wouldn’t interview him. I don’t think, but he’s not evil at all, and he’s a nice guy, actually, in many ways, and he’s really smart and different—and more importantly, he got me to see things that even some things I already understood.

But I internalized him in ways I hadn’t before. So that would be one example where—did I know that there’s uncertainty in the world? Yes, I did. Did I know that it’s hard to think about probability? Yes, I knew that too. Is random just tricky? Uh-huh, but he gave me a whole framework for seeing those issues I didn’t have before.

I think it’s a little bit of inside baseball, but I had a guest on Paul Flater, who was in the business school at Stanford, and he said, "I wrote a little paper that’s going to come out."

I think he wrote to publish it; I just wrote to start a conversation where he said, "You know, when you build a model, and then you go out and it has implications, and you go out and test the implications, we call that science. That’s part of science."

In economics, a lot of people do that, and they decide that if the implications turned out to be true, that means that the assumptions of the model captured reality. That’s not true.

So for example, let’s say it’s a rainy night. A truck driver in the mountains has to go around some dangerous curves. I’m going to assume that the truck driver is solving a set of differential equations related to friction and speed and acceleration to decide how fast to drive and where to turn.

The answer is that’s a pretty good model—that would get most truck drivers that would capture what they do. It’s not what actual truck drivers do. You wouldn’t be that stupid to think that because you’ve assumed that the truck drivers are really good at math.

You understand that that’s a model. I don’t think plants yearn for sunlight; I don’t think that they yearn for it, but they do act as if they do; they turn well in or toward the Sun.

Another example of this is robots don’t know how hard to squeeze something—humans are amazing—yeah, I’ve never crushed a coffee cup in my life, correct? Robots can’t figure out a correct.

Why do you mention that? Because it’s on my mind in terms of artificial intelligence; people are often talking about training robots to do certain tasks—no problem.

So there are things—the implication that robots, when they don’t crush the cup, understand or they are like people? No, no! They’re not like people.

They’re not doing what people do. We see this with autonomous cars. Most people think autonomous cars drive the way humans do; they don’t, evidently so far.

Mainly, they are more like a train on a set of rails than the way I interact in an intersection. Okay? We get that; everybody knows that.

What’s the inside of that? The inside of that is that in economics, a lot of people leap to the conclusion that they’ve captured something about the real world.

So I would give you just an example: there are actually people who think that because the minimum wage does not lead, in measurement, to people losing their jobs—that fell in the blank—that businesses aren’t competitive when they’re dealing with low-skilled labor; they could exploit them and pay them whatever they want.

That does not follow. The example I used on Twitter that nobody responded to, so I might want to cut this crack—it was one of my favorite things in the last few months—is that somebody on Twitter speculated kind of as a joke; it was Noah Smith, who I follow. He’s a very interesting economist.

He said, "I wonder if dating apps give you a bad match because that way you won’t get married, and you’ll keep using their app?" That was his poll—he hit a poll, and a surprisingly large number of people either for fun or actually believe that’s what they do. They give you a bad batch.

Okay, so I said: I raised the following speculation—suppose you believe that’s true. Your model of the world is that dating apps are deliberately designed to do a bad job so that you will not get married, and that way you’ll keep using their app.

Okay. Let’s say now you start using this dating app. How are your dates?

Yeah, they’re not that good; you know. "I’m really not that happy with who they’ve set me up with." Oh, that—that’s evidence that my model of their behavior is correct.

That would be a kind of a strange thing to do because you don’t really have a personal—you don’t have a baseline. It’s really hard to match people up, so you don’t have a baseline to figure out whether that’s what’s going on.

But secondly, to really confirm that you wouldn’t know something—I mean, you’d want to find a memo, right?

Right, you’d want to find code, right? But to just assume that you’d learn something about their behavior because of your measured crude measure of how the outcomes would be—it would be a weird thing; it kind of stood all the time.

And I realized I do that. So when I had Paul on to talk about that, I realized, oh my gosh, I thought that I’ve kind of had him; I could assume that’s correct in a certain way for a long time, and so that forced me to change her mind.

Not a very interesting thing, maybe.

Craig: No, I think that’s a great takeaway. Has Nasim Taleb convinced you to deadlift?

Russ Roberts: For a while at one point in my life, I was. I was—I think he was starting to go to a gym, and I wrote him because he does answer my emails, which is—

Yeah!

Russ Roberts: And I said, "Are you still lifting? Is it a good thing?"

He said, "Yes." I thought, okay. I received, by the way, it’s a very interesting human problem in a world of uncertainty where you know that data is imperfect.

One way to respond to that is we look for authority, right? And he’s an honest man, in my view, maybe frightened.

We got frightening league of his fans; some unnecessarily honest, and I thought, you know, he would not lie to me that deadlifting is still working for him.

Now, it may not be good for me; it may only work for him, but I’m going to try that. I’ve done some weightlifting; I would call it deadlifting, but I did some interval training with weights that did almost nothing for me except improve my ability to do certain weightlifting at the gym.

Right? I was very—just dispiriting. I didn’t—but I really wanted to do is get better at bringing in the water jugs from the curb—the heavy big gallon—I don’t know how many gallons it is, thanks for my water cooler at home.

And then getting my suitcase into the upper—you know, dragging it or wearing it and then putting it into the bin that didn’t change at all.

I got really good at curling weights at the gym—or, you know, whatever that rep thing was, but now Samud says that you shouldn’t have been using those machines. You should have been deadlifting bar.

Literally, deadlifting—yeah, barbells. Yeah, I didn’t do barbells; I didn’t do Nautilus; I was doing, you know, things that simulate—I would—I forget what it’s called now.

Maybe I was doing Nautilus; can’t remember. Anyway, but I don’t eat squid.

But with black ink, yeah.

Craig: What is that?

Russ Roberts: I don’t know.

Craig: Okay, so I have like one final question related to Econ Talk bingo. So you often quote one of my favorite talks ever, which is “This is Water,” by David Foster Wallace.

So this was like 2006-2007, Kenyon College commencement, and you quote one line in particular, which is “Everyone worships.”

I love this talk so much. My question to you is: what do you worship?

Russ Roberts: So I’m going to digress for a talk a little bit about that quote because what does he mean by that?

What he means is—I think—is that the reason I love it so much is that I think we all have a desire to be part of something larger than ourselves—something that’s transcendent.
In history, that’s typically been religion, but it’s not the only thing; it’s not even close.

For some people, it’s the sports team. For other people, it’s their political party. And I think understanding that that is a very powerful human urge related to tribalism and this transcendence urge that I think people have is very cool and very insightful and helps me think about things a lot.

The next part of it, he talks very powerfully about, he says, "You know, a lot of people mistakenly worship—" It comes back to our Adam Smith conversation earlier.

They mistakenly worship beauty, and your beauty will fade; they mistakenly worship money, and their money won’t.

Does not give you true satisfaction—he suggests worshiping one of the things that are tried and true—one of the religious says, pick a good religion, you know, pick a religion.

But so it’s a—you know, it’s a statement that we all have religions; it’s what it really is about. For some, it’s, you know, something called religion that people have called religion for a long time, Christianity, Judaism, Islam.

But for others, it’s the New England Patriots religion, or it’s NASCAR religion, or it’s yoga religion, or it’s vegetarianism, or it’s being a particular political party, and those are a mixed bag in my experience because we tend to have trouble accepting the beliefs and tastes of people outside our religion.

It tends to—it’s hard not to have it promote self-righteousness, so the challenge is to worship something instead, and be respectful of what other people worship, which I just failed right now because I just said there are some things people worship that aren’t good.

So anyway you ask, what do I worship? I think I worship—I’m a religious Jew, which is on the Econ Talk drinking game, no, because I do mention that occasionally.

Yeah, that’s why I don’t eat the squid. I ate it when I was younger before I was religious.

Oh, it’s delicious! I’d be a huge plankton squid guy in a different person, different paths. I find, you know, for me, religious worship is deeply meaningful, and I mention it partly because I think people who are not religious have a—I would say a strange misconception about what a religious life is like, that it’s about certainty.

Once you have religion, you know if they doubt anything, you have all your questions answered, and you could just go about your business and do what God wants you to do. It doesn’t work that way for me; it may work for some religious people; I’m open to the possibility.

But for me, my interest in practice in Judaism is a way that I cope with the mystery of life, the awe of life, the wonder of life, the things we don’t understand: why the salmon comes back to the same place it was born; why the human heartbeat starts in the womb; why we love one another; why we hurt people we love.

These are all things that I think are unanswerable, or at least mostly unanswerable so far, and religion helps me experience that—not just how to think about it, but experience it in a different way.

So I suppress religion, but I—your question is a great question. I want to think about the other things I worship that aren’t religion.

I really like human striving. I really like—one of the reasons I think I’m a sports fan and I like almost every sport at some level of seriousness, is the drama of human effort and failure, and the poetry that is a very beautiful thing.

I say the other thing I worship is probably human creativity, which is ironic, since I think a religious life is about getting outside yourself in a way from putting human beings at the center of the universe and putting something larger.

But I, you know, I still think that the human enterprise is deeply moving. I recently saw Apollo 11, the documentary on the mission to the moon, and you know I got goosebumps through the whole thing.

It’s not a particularly dramatic or well-done, in my view—it’s not particularly—the narration and the arc of the narrative is slow at times.

It’s not expected; it’s not what I expected. Okay? And I found myself, though, still with like goosebumps through the whole thing because it’s a ridiculous thing that we put three people inside a little tiny thing and shot them 240,000 miles away.

That would be an amazing thing just to land on the moon, but that we thought we’d get them back and that we did, and that they stoically were pretty cool about it the whole time instead of being terrified.

It’s showing; it’s just an incredible human achievement. It’s, you know, to me it’s—you know, I think e to the i pi is minus 1 or +1. It’s like what? That’s true when people figured it out.

And I just probably misquoted it, and we’re not pausing here; I’m not gonna google it, but sure doesn’t matter.

Those kinds of human discoveries just make me—they make me move me incredibly!

And a great piece of art, I—you know, I love. And so, sports, art, human creativity generally, and, you know, the other thing—I’m just going to say, even though it’s no—it's a weird thing, but human dignity in the face of suffering and death: our desire to confront that in our pitiful human way. It kind of pulls together both my interest in religion and my, you know, honoring of human human action.

It’s just there’s something about being alive that’s—appreciating that great drama is a beautiful thing.

Craig: That’s great!

Russ Roberts: Well, I think that’s a great place to stop. So thank you so much for coming in.

Craig: Thanks for having me, Russ!