Home » News » Liberty + Leadership Podcast – Don Boudreaux on the Foundations of Economics

Liberty + Leadership Podcast – Don Boudreaux on the Foundations of Economics

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American economist and author Dr. Donald Boudreaux is the Senior Fellow of the F.A. Hayek Program on the American Economy and Globalization at the Mercatus Center at George Mason University. He is also a senior scholar at TFAS, where he teaches Economics for the Citizen for TFAS D.C. Summer Programs. He has authored several books including “Globalization,” “Hypocrites and Half-Wits,” and “The Essential Hayek.”

In addition to teaching at TFAS and Mason, he previously taught legal studies and economics at Clemson University, served as an Olin Visiting Fellow in Law and Economics at the Cornell Law School and was president of the Foundation for Economic Education. He earned his Ph.D. in economics from Auburn University and J.D. from the University of Virginia.

In this week’s Liberty + Leadership Podcast, TFAS President Roger Ream ’76 and Don discuss the basic foundations of economics, public choice theory, how there are no solutions – only trade-offs – in economics, the comparative advantage of free trade, and why good journalism sometimes makes bad economics.  


Episode Transcript

The transcript below is lightly edited for clarity.

Roger Ream [00:00:00] Hello and welcome. I’m Roger Ream and this is the Liberty and Leadership Podcast, a conversation with TFAS alumni, supporters, faculty and friends who are making a real impact in public policy, business, philanthropy, law and journalism. Today I’m joined by Professor Don Boudreaux, a TFAS senior scholar and an economics professor at George Mason University. When Don is not teaching, he lectures internationally on topics such as the nature of law, international trade and all aspects of political economy. He also authors pieces for outlets such as The Wall Street Journal and The Washington Times and many scholarly journals. We’re going to hear more from him today about his interesting writing and his work on political economy and market economics, as well as his teaching, including for The Fund for American Studies. Don, thanks so much for taking the time from your busy schedule to chat today. I’m so looking forward to our conversation.

Donald J. Boudreaux [00:01:09] Oh, it’s a pleasure, Roger.

Roger Ream [00:01:11] Well, Don, you’ve been a long-time professor in The Fund for American Studies programs. You’ve taught a range of our students, particularly a lot of our journalism students, but many others too, and the course you teach is an interesting one. We’ve asked you to give them a basic understanding of the important principles that everyone should know about political economy and about a market economics system. I’ve had the opportunity to sit in your class, and I love the fact that on day one you outline the ten foundation stones of economics that everyone should know. We particularly impress on journalism students that knowing some economics is essential to covering any kind of topic. What are some of those foundation stones that you think it’s important for everyday Americans to understand?

Donald J. Boudreaux [00:02:02] I won’t go through all ten, but we start with the most basic and the first one, and that is we live in a world of inescapable scarcity. There are simply not enough resources, inputs, tools, consumer goods or services to go around to satisfy every conceivable human desire for them. Therefore, there must be some social process for deciding who gets what and who foregoes what and how much each person gets compared to how much other people get. There are various ways to do this. We can do it with command and control, we can do it by tradition. The way that seems to work out best- not seems, but does work out best for humanity is the market system. We allow people to buy and sell in a system of private property rights, and prices therefore emerge both for final consumer goods and for inputs, and those prices both inform and incite people to use resources in those ways that satisfy as many human desires as possible. Of course, some desires are going to be left unfulfilled, but that’s just because we live in a world of scarcity, and capitalism doesn’t cause scarcity. Socialism doesn’t cause scarcity. Just the world we live in. Once you recognize that we live in a world of scarcity, you get to the second foundation stone, and that is, there are, in this world of ours, and I steal this quotation from Thomas Sowell, the great economist: “There are no solutions, there are only tradeoffs.” If you can have more of one thing that entails – it necessarily means – you’re going to have less of something else. There’s a cost. Every benefit has a cost. There’s no such thing as a costless benefit, and the challenge is to use that system of social interaction that makes those tradeoffs as best as possible, that generates as many possible benefits for as few possible costs, but there’s no escaping costs, we just want to keep the costs to a minimum. And again, that’s what in the latter part of the course, I show what markets tend to do. The fact that markets don’t do it perfectly, of course, is a trite observation, but markets do perform that task much better than any other.

Roger Ream [00:04:38] If I could stop you for a minute, Don, that second foundation stone about tradeoffs seems to be what in some sense separates those with a collectivist mindset from those who are more liberal. By liberal I mean those who want to maximize freedom, and it somewhat separates people from their legislators, their congressmen, those in power who think there aren’t tradeoffs, that we can just spend money on everything as we’ve been seeing and budgets go up every year, deficits go up every year, and it’s almost as if they feel there are no consequences.

Donald J. Boudreaux [00:05:11] To steal another point from Thomas Sowell, I don’t know if I have the quotation correct, but it goes something like this: “the first rule of economics is that there’s no free lunch or reality’s not optional. The first rule of politics is to deny the first rule of economics.” It’s true. Unfortunately, you don’t win office by – too seldom do you win political office by telling people that they can’t have everything they want because you’ve got other candidates telling people: “Oh, no, no, no, you can have everything you want,” and usually it’s done, of course, by promising to take resources away from mysterious rich people and oligarchs. One of the foundation stones that I do mention in the list of ten is that people operating in the political sector as voters, as politicians, as bureaucrats, as judges, they are no different than people operating in the private sector, as entrepreneurs, as consumers, as workers. The difference is not in their personalities, it’s not in their motivations, not in their intentions, the difference is in the constraints that they face. In the political sector, you too often get to spend other people’s money. You too often get to make decisions for other people. In the private sector, you’re spending your own money or money voluntarily entrusted to you. And therefore, the constraints on behavior in the private sector are much, much more tightly aligned to reality than are the constraints in the public sector. The constraints in the private sector compel you to use resources in ways that likely truly are going to be beneficial. The constraints in the public sector are not like that. If I can spend your money without your permission, then I’m very likely to spend that money excessively and unwisely because I don’t lose if I make a bad choice. If I get to spend your money on dinner rather than my own money, well, I’m going to order the top-of-the-line steak rather than the hamburger that I might otherwise order if I’m spending my own money.

Roger Ream [00:07:22] So, in other words, in the private sector, you have much more of an incentive for good stewardship of resources, of what you have said as foundation stone two, very scarce resources.

Donald J. Boudreaux [00:07:32] If we don’t have good institutions to foster that good stewardship, then because our world is one of inescapable scarcity, then resources are going to be wasted and the overall amount of prosperity available for ordinary men and women to enjoy, is going to be a lot less. That’s what happens when you waste resources.

Roger Ream [00:07:53] I remember something Walter Williams often said in many of his talks to our students, and no doubt in his lectures generally was, I think, a quote from H.L. Mencken that an election is an advance auction on stolen goods. And that touches on what you were saying, which is public choice economics, of course, developed first by your colleague Jim Buchanan, who won a Nobel Prize, and his colleague, Gordon Tullock. How, as public choice has loomed larger at George Mason, I know in economics and your career, what’s the state of public choice economics now? Has it become more mainstream among economists?

Donald J. Boudreaux [00:08:34] Unfortunately not. There was a study done just a few years ago looking at introductions to economics textbooks, and surprisingly few of those textbooks, even ones written by economists who are friendly toward markets, very few contain much if any public choice economics. The attitude still seems to be that the state, at least democratically elected states, are capable of being apolitical and hyper responsive to the public interest, and that’s just a myth. Economists are very fond of pointing out that markets fail. Markets, of course, can fail, but somehow too many economists who are not intimately familiar with public choice assume that, well, when we turn over to the government the power to correct the failure that the government is going to act apolitically and with full information. Neither of those assumptions is valid, or at least they must be substantiated rather than just assumed. And so, public choice as a research program, I think is still thriving. As you mentioned, Jim Buchanan won the Nobel Prize in 1986 because of the role he played in founding Public Choice Scholarship. And it’s still a thriving research program we have here at George Mason still the Center for Study of Public Choice. But I am dismayed that so few economists today are aware of it or pay much attention to it. It’s an unfortunate fact, and it’s also something of a mystery. I think it takes a lot of the fun. Public choice, in a way, takes a lot of the fun out of being an economist, because part of the fun I think a lot of people get for being an economist is you can identify real or imaginary market failures and you can propose your favorite government interventions and politicians and pundits and intellectuals listen to you. But if you know public choice, then that fun is kind of taken away because the public choice says: “you’ve identified the market failure, but you’ve also identified a reason why government can’t be relied upon to correct that market failure. So, take your proposal and deep six it or put it in the circular file, because it’s not going to work.” Because it takes away economists’ ability to make lots of public policy recommendations, they don’t like public choice.

Roger Ream [00:11:06] Yeah, they like to make the recommendations and then stop and assume that that’s the answer, that the regulations will solve the problem. In the news right now, of course, as we’re recording this of the failure of two banks, Silicon Valley Bank and Signature Bank. I’m sure a public choice analysis would be very interesting because we have piled on regulation after regulation after regulation, hired tens of thousands of regulators and imposed Dodd-Frank and a host of regulations on these banks. And yet we see the failure. We see regulators obviously ignoring it and disincentives for managers and shareholders, and now we’ll hear people saying: “oh, what we need is more regulation.”

Donald J. Boudreaux [00:11:50] Yes. The bank failures point to one of the most foundational insights of public choice, and that is the political time horizon is not very long. The political time horizon extends basically to the next election, and very often in life there are things that, if there is no tomorrow, well, act in a certain way today, but given that there is a tomorrow, you have to act in a different way today. No one uses their fine dining room furniture as firewood. You go outside and you grab firewood, even though it’s a little more tedious to do so. So, in the case of the bank failures, of course, we can today save the unfortunate depositors of Silicon Valley Bank from not getting all their money by having the government print more money or having the government borrow money in order to repay them. And that looks good today, and that makes people grateful today, but what people miss is the future consequences. Most notably, this practice of bailing out these banks willy-nilly creates moral hazard. Once a bank believes that government is going to bail it out, then it has less incentive to arrange its risks and monitor those risks in a prudent way. You get a lot less prudent bank management, financial management, and eventually that will cause greater risks and dangers to the banking, to the entire financial system than if there were no bailout today. But the politician today, elections next year or two years from now, well, “Let’s bail out the bank now, get the kudos today and we’ll worry about the future consequences either after the next election or after someone else is in my seat down the road.”

Roger Ream [00:13:45] In 2008, I think that was the year, I found a passage from Ludwig von Mises, another great economist, quoted by David Israel Kertzer, an intellectual biography he wrote of Mises. And it was exactly to that point that if you bail out bankers and don’t let them pay the consequences of their mistakes, then you’ll have more bank failures in the future, and I send it to The Wall Street Journal, and they ran it as their Notable & Quotable.

Donald J. Boudreaux [00:14:13] I think I remember that.

Roger Ream [00:14:15] I’m thinking this week of digging it out again and sending it back to them to run again. Maybe it’s something they have to run every ten years.

Donald J. Boudreaux [00:14:21] This is one of the important reasons to – which what I do mostly in my career is teach basic introductory economics. These lessons are timeless. Most of them go back to the time of Adam Smith 250 years ago. None of them, for an economist, is very sexy. You know, they’re not cutting-edge research, not cutting-edge ideas, but they’re foundational, they’re fundamental. In my view, the biggest source of problems in public policy is not that most people are unaware of the latest cutting-edge research in economics or financial management. It’s that most people are unaware of the basic foundational facts of economics, such as that we live in a world of inescapable scarcity, meaning that there are no solutions, there are only tradeoffs. And the fact that the people who in public office are human beings, just like the people who are CEOs and accountants and workers at private companies. Human beings don’t change their stripes just because they get a nice title and because they win their office through an election. They’re still flesh and blood human beings subject to all the temptations and imperfections and knowledge constraints that every human being faces and will always face.

Roger Ream [00:15:50] Now, let me ask, and this is maybe one of your foundation stones, but talk a little bit about the idea of comparative advantage in international trade. It seems like there has been a consensus among economists that dates to David Ricardo, probably Adam Smith, and earlier than that, that trade between people, even that goes across national borders, is very beneficial economically, that it raises living standards on both sides of the transaction, on both sides of the border. Yet opposition to free trade has been rising in this country, I think, and especially among many people who call themselves conservatives. Why is it that comparative advantage seems to be such a difficult concept to grasp, and that people continue to call for protectionist measures?

Donald J. Boudreaux [00:16:39] It’s a good question. I’m fully sure of the answer. If you talk to most Americans and you say: “Is it good for people in Virginia to be able to trade freely with people in Maryland and Michigan?” Of course, no one wants the state of Virginia or the state of Maryland or Michigan to have the power to obstruct our citizens’ ability to trade with other Americans in different states. You talk to many of those same Americans: “Well, is it good for Americans to trade with people in Malaysia and Myanmar?” They say: “Oh, I’m not sure. It’s very different.” For the economists, it’s not different. Putting aside national security concerns, which are a real issue – and the vast majority of opposition to free trade has nothing to do with national security – it’s based on the belief that somehow if we Americans trade freely with people in foreign countries, particularly with people in low wage foreign countries, somehow we are harmed by that. Well, no one in Manhattan, New York, thinks that he or she is harmed if they trade with someone in Mississippi, where wages are a lot lower than in Manhattan, New York. But somehow people think that if Americans trade with people in Malaysia where wages are lower, that somehow, we are harmed. Comparative advantage explains why we have no reason to believe that we’re going to be harmed if we trade with people in low wage countries. Comparative advantage, along with the insight that wages are determined by worker productivity – we American workers are paid high wages, not because American employers are especially magnanimous by world standards; we American workers are paid high wages because we American workers are very productive. We’re productive because we have a lot of training. We’re productive mostly because we have a lot of tools, capital goods, inputs, a good infrastructure, a good legal system to work with. That makes each worker productive. And so employers, in order to get the employees they have to build wages up. When we trade with workers in low wage countries, those workers get paid low wages, not because their employers are mean or because those workers are being exploited; they get paid low wages because they’re not very productive. They’re not very productive because they don’t have a lot of capital goods to work with. If people say: “well, should high wage Americans be afraid to trade with low wage workers?” Most people go: “oh, yeah, that’s going to be a problem.” But if you say: “should high productivity American workers be afraid to trade with low productivity, foreign workers?” People say: “well, no,” because why would you be afraid of a low productivity worker trade? But low-productivity worker is just another way of saying low-wage worker. Now back to comparative advantage. What comparative advantage shows is that even though some workers get paid lower wages because of lower productivity, that doesn’t mean we can’t gain but by trading with them. So comparative advantage basically says if someone can do something, some tasks at a lower cost and you can do it in terms of what you would forgo to do it, then it’s better for you to rely upon that other person to do that task and for you to spend time doing what you do best, and then trading with that person to do that task. One of the great insights of economics, and even though I’ve studied economics for 45 years, going on 50 years since I was an undergraduate, is just the beauty of trade. If you look around at what you consume every day as an ordinary American, the food you eat, the automobiles you drive, the consumer electronics, the housing and offices that you use, none of us creates these things personally. Each of us everyday benefits from the knowledge and creativity and innovation and effort of literally hundreds of millions of people from around the world. All you do is serve as president of TFAS. All I do is teach basic economics. And yet you and I can enjoy all these things that we couldn’t possibly produce. That’s true for everyone in the world. Trade is specialization. Trade is a process that allows each of us to convert that which we do best. What I do best is teach economics. What you do best is serve as president of TFAS. And we do that, we get paid income and then we convert the value of what we do best into whatever we want, the food for our tables, furniture for our homes, consumer electronics, medical care, electricity, instant communications. It’s an amazing system. It baffles me that so many people fail to understand and appreciate just how fortunate they are to live in 2023 in a modern economy. This is not to say that things are perfect. They’re not perfect. But perfection is a ridiculous standard, they don’t have to be perfect. They work incredibly well. You flip the switch, the lights go on; you press the button, the toilet flushes you; you get in your car, and it moves. You need fuel, the service station is open, and it has gasoline to sell. You feel pain, you go to the doctor, and you get medicines to usually make it go away. We live in a remarkable world of human cooperation. To focus on the relatively few and insignificant imperfections, I think, is to miss the point. But again, it’s not to deny the imperfections. Some of these are worse than others. Some of these are more obviously avoidable than others, such as bank runs that are made more likely by government policy that encourages moral hazard. But just overall, I wish more people would spend time reflecting on what a remarkable world we live in, how fortunate we are to live in this world that works so remarkably well.

Roger Ream [00:24:13] So, comparative advantage would persuade us that I should continue to hire you to teach economics rather than go into the classroom myself and teach economics to our students?

Donald J. Boudreaux [00:24:25] Absolutely. And here’s one of the remarkable comparative advantages. It may be that you are by far a better economic professor than I am, but if you are an even better administrator of TFAS than I would be, then yeah, you should put me in the classroom and you should keep doing what you’re doing. It works out well for both of us and for our students and for TFAS employees and TFAS donors.

Roger Ream [00:24:51] Well, one of the concerns people have with free trade is that it’s hollowed out our manufacturing sector in some way. And of course, if you look at manufacturing output, as I’ve learned to do, thanks to you and your work, while it kind of leveled off and maybe dipped a little during COVID’s lockdowns, we continue to manufacture far more, the value of manufacturing output is higher than any country in the world, and it continues to grow every year. And yet we’re doing it with fewer people, which is a good thing, I think, because, as you said, people as workers are more productive. They use machines and now AI, I guess, and things like that. Should we be concerned that we have fewer people in manufacturing and fewer jobs in manufacturing?

Donald J. Boudreaux [00:25:38] No, no more than we should be concerned that we have fewer people in agriculture. When the Declaration of Independence and the Wealth of Nations were written in 1776, between eight and nine Americans worked in agriculture. Out of eight, nine out of ten Americans worked in agriculture. If we still had the same agricultural technology today as we had then, it would require eight of ten Americans to work in agriculture. You and I wouldn’t be doing what we’re doing. If we’d be alive at all, we’d slaving away on a farm, toiling away on a farm. Today, only about 1% of American workers, maybe it’s slightly higher, but 1.5% of Americans work in agriculture. The same thing has been happening in manufacturing over the past 50 years. That’s becoming ever more automated. So, as you point out, manufacturing output in the United States is near an all-time high today. It hit an all-time high just before the Great Recession, as in all recessions it dipped and then it leveled off a little bit in the 2010’s for a variety of reasons. And then it’s going back up again. Of course, it fell during COVID, it’s going back up, and soon it will be an all-time high again, I’m sure. Industrial capacity in the U.S. is at an all-time high, the measure of what we are capable of producing. So, the several fallacies that that are repeated so frequently that they were just taken as a matter of course, as being true, and they’re simply false. It’s not true that we don’t make things anymore: we make a lot of things, we just make things with a lot fewer workers. It’s not true that we don’t export any more. We export a lot. It’s not true that our manufacturing or industrial sector has been hollowed out. Industrial capacity is at an all time high. What is true is that we Americans don’t “make,” and I’m putting “make” in quotation marks, and I want to explain that in a moment – we don’t “make” final consumer goods anymore. What we make are the inputs to consumer goods. We make the intellectual property, we make the ideas for the processes, we make a lot of the tools, we make a lot of the machines, we make a lot of the advanced equipment that is very often exported to foreign countries in which the final consumer goods are made. If you go into a Target today and you buy some bathroom towels, they might say “Made in Turkey” or “Made in Malaysia.” All that means is that final assembly occurred in that country. You have no idea where the cotton came from, you have no idea where the advanced loom came from, that could have been made in Italy with American made parts. As Dan Ikenson, who used to work as a trade analyst at Cato, put it a number of years ago, and this is a beautiful point and it’s absolutely true: “one of the things that distinguishes today’s globalization from the globalization that hit its peak just prior to World War is that today these ‘made in’ labels – ‘made in America,’ ‘made in Turkey,’ ‘made in Guatemala’ – they don’t mean anything. The proper label,” as Ikenson points out, is “made on Earth.” We have such a complex system of global supply chains today that almost everything that’s manufactured contains ideas, contains inputs, contains supplies, contains processes from all over the world.

Roger Ream [00:29:10] Yeah, I remember seeing, I think it was in The Wall Street Journal, they had a piece about the iPhone and where all its parts come from. They’re sourced all over the world – Japan, Korea, Taiwan, probably China, elsewhere, and it’s all assembled and put together, but the value of all that is much less than what of course, they sell the phone for, because what’s not taking into account in the production of the iPhone is the Apple stores that sell them, the cost of labor of those employees, the transportation of the phone, the profit in advertising and all the other costs that go in that are covered in the sale of an iPhone, and very little of the final thousand dollars you pay for an iPhone or $800, whatever, is going to someone in China.

Donald J. Boudreaux [00:30:01] Yeah, the iPhone ultimately is a product of the mind of Steve Jobs and the brilliant people he surrounded himself with. And precisely because lower wage workers were available to help build these things, that made the value of Steve Jobs’ idea greater. It very well may have incited him to come up with that idea. If you can’t bring your idea to fruition to make it profitable, then you have less incentive to come up with good ideas. One of the benefits of having low-wage workers today in other countries for Americans is that they inspire American entrepreneurs to come up with ideas more than they otherwise would that can then be put into practice to buy these lower cost means of production abroad. Several years ago, probably 2010, I did a video for Reason, Nick Gillespie helped put it together. We looked at the value of the different component parts in a Jeep Cherokee and I think a Toyota Camry. Toyota car and a Jeep car. The Jeep final assembly was here in America, the Toyota’s final assembly was in Japan, but if you looked at the actual value of the components, the Toyota Camry was more of an American car than the Jeep Cherokee was.

Roger Ream [00:31:33] Well, one more thing about trade, and then we’re getting close to running out of time. So, I want to touch on a few other things, but we passed over the national security concern, and I thought I’d at least bring that up because there are a lot of people worried about China and the potential of China threatening its region or even threatening the United States as it grows in power. How would you respond to those concerns about national security? Do you put some limits on trade if it’s items that may help them in from a military standpoint? Or do you continue to pursue a policy that since we’re both mutually benefiting from that trade, that it’s not to China’s advantage to trade with us?

Donald J. Boudreaux [00:32:20] So, I don’t think it can be ruled out that there would be some trade restrictions that would be worthwhile under the national security exception. In every case, it’s a matter of detail, and we just have to hope that we have sensible people in office who will make those decisions wisely. The problem with the national security exception is once you admit it, then every producer wants to claim that it’s producing something that’s vital for the national interest and public choice economics as it’s tempting for politicians to say: “yes, yes, you’re vital for the national interest.” You have to be aware of that problem.

Roger Ream [00:33:01] I’ll give you an example of that. I recall in the 1980s, the necktie industry testified before Congress that they needed protection from international competition because neckties were part of the military uniforms of many officers.

Donald J. Boudreaux [00:33:15] Yeah, we can’t have our officers having a necktie shortage. So, yes, I admit the national security exception, but keeping in mind some exceptions to the exceptions are also important, such as the one you and I just mentioned. I’ll just mention two in the interest of time. Once you protect an industry from competition for whatever reason, you very likely make that industry less innovative, both in terms of keeping its costs down and keeping its output as modern as possible. So, if we protect the U.S. steel industry, for example, from competition based on national security, which may be a wise thing to do, but recognize that a cost of that is that now U.S. steel producers have less incentive to keep their costs down, they have less incentive to devise new and improved products, which could wind up hurting our national security in the future. A second consideration to keep in mind is that, and we have a lot of empirical evidence on this, the more countries trade with each other, the less likely they are to go to war with each other. As my friend Tom, your friend too, Tom Palmer, once said: “It’s just bad business to kill your suppliers and to kill your customers.” If we reduce our trade with China, one downside of that is that it actually increases the likelihood of belligerence between the two countries. How to make that tradeoff is very difficult, a practical challenge, but because increased trade does reduce the chances of belligerency, recognizing that when we reduce trade for whatever reason, one of the costs of that, one of the downsides of that, is that we increase the likelihood of a hot shooting war.

Roger Ream [00:35:23] Well, Don, I want to ask you about two more topics. One is your book “The Essential Hayek” published by the Fraser Institute, I believe. Hayek is very important to you as an economist. You have a blog called “Cafe Hayek,” which I recommend to everyone listening that they go to Cafe Hayek. You put new content just about every day there, could be a good insight, quotation, and also you have responses to economic illiteracy that you find in the daily papers or you hear from correspondents. So, it’s a great site. But could you just say for a minute why Hayek is important?

Donald J. Boudreaux [00:36:11] So, Hayek was an Austrian economist, born in 1899, died in 1992. He won the Nobel Prize in 1974, it was a big deal. I fortunately was introduced to his work when I was an undergraduate, and it’s difficult to summarize all that Hayek means to me, but Hayek taught me the reality of the enormous complexity of the modern economy. He counseled humility in our attempts to understand that complexity in any detail. So, as an economist, I can understand general principles of supply and demand, comparative advantage, which are important to understand, but I’m just an economist sitting in my office in Fairfax, Virginia. I have no idea how to run a shoestring making factory or a steel making factory. It’d be highly presumptuous of me to suppose that if I look at some data, some statistics, or do some theorizing with my pen and ink or on the computer, that I somehow can gain sufficient knowledge about the way the economy works to recommend that government intervene in the economy. Hayek had a very sophisticated appreciation of the limits of individual human knowledge in addressing economic issues, and that’s complemented by Hayek’s most famous academic article, his 1945 article “The Use of Knowledge in Society,” where he showed how the market price system allows each of us to share the knowledge of millions of others by prices rising or falling depending upon supply and demand. Basically Hayek taught me humility. I encountered Hayek’s work as an 18- or 19-year-old first, and it’s good if you’re 18 or 19 years old to learn the importance of humility.

Roger Ream [00:38:24] Well, our students at TFAS classes are fortunate to have you as one of their professors during the summer. Hopefully you’re teaching them as well to have humility. I think you are through the work you do in teaching economics to avoid having hubris, to think that an economy can be centrally planned from the top down. Can you comment a little on your experience with teaching our students?

Donald J. Boudreaux [00:38:51] What’s great, as you said at the beginning, most of the students I teach are journalism students. They aspire to be journalists. I don’t believe there is a group of students that is even as important for a good, and I do fancy myself at least a good principles of economics teacher, to get in front of because far too much journalism today, it may be good journalism, but it’s lousy economics. I’ve really enjoyed talking to the students, teaching the students. Economics, when done well, is naturally interesting and exciting and eye opening. I just try to convey that, and I’ve had more than one student over the past – I think I first taught for you guys in 2010, so this is going on, I think, now my 14th summer that I’ll teach for you. I don’t know how many, but several students each year tell me either by email or personally: “wow, I’ve never thought of that, I didn’t see that until you showed it.” And again, it’s not me. I’m just doing what any respectable principles of economics teacher would do, but it’s gratifying to know that a young person who otherwise might never have been introduced to the fact that we live in a world of inescapable scarcity, or that public choice is a thing that people in the public sector are no different than people in the private sector, it’s gratifying to see young people’s eyes opened to these very simple but incredibly important and too often overlooked realities. And we’re not going to get to everyone. Unfortunately, not every student goes through TFAS, and not all the ones who do go through TFAS absorb it as well as the others, but we’re getting to more than we otherwise would and we have to be grateful that we can do that. I do believe that it makes the world a better place than it would otherwise be.

Roger Ream [00:41:13] Well, I really appreciate what economist Paul Haynes said, who has been an inspiration to our high school division at the Foundation for Teaching Economics. But he wrote somewhere that you should teach introduction to economics, not as if it’s the first course someone will take on their way to a Ph.D. in the field, but like it’s the last course they may ever take in economics, and that’s how you approach it in the courses you teach for our students. That’s how so many of our faculty approach it, where they’re giving this bedrock understanding of these foundation stones of economics. And one of our graduates is David Muir, who’s the anchor of ABC Evening News, and he reflected in 2017 at our 50th anniversary about the impact of TFAS programs on him. He said it was the economics course he took there that was so important to him because very few journalists have any economics or any economic understanding. So, it is very valuable.

Donald J. Boudreaux [00:42:09] Yeah, and way too many economics courses in college are unfortunately by economists who don’t get it. They’re taught by economists who fancy themselves as teaching these students as if it’s the first course they’re going to take on their way to a Ph.D., as you said. I teach it as if it’s the only course they’re going to take, and my attitude is, I think of myself as an inoculator. I’m there to inoculate them against some of the worst fallacies that might otherwise cause them intellectual brain damage. And if my inoculations work, then I’m doing my job.

Roger Ream [00:42:53] We probably need a program that offers boosters every few years for them, but since you mentioned inoculation, I have to say, we didn’t have time to talk about COVID. You’ve written a lot on that. That’s been very good. We didn’t have time to dig any deeper into the works of Hayek, which I would like to have done, and about the time this is being released, we will have held a wonderful program for our late dear friend Walter Williams, who was a colleague of yours at George Mason and lectured regularly at our programs. But we’ll leave that for perhaps a follow up podcast in the future. We’ve run out of time, but thank you very much, Don. Don Boudreaux is my guest today. It’s been a pleasure talking with you and thank you for all the common sense you’ve offered us today about economics and the economic way of thinking.

Donald J. Boudreaux [00:43:42] Well, thank you, Roger. Thank you and your colleagues at TFAS for what you do and continue to do.

Roger Ream [00:43:46] Thank you for listening to the Liberty and Leadership Podcast. Please don’t forget to subscribe, download, like or share the show on Apple, Spotify or YouTube or wherever you listen to your podcasts. If you like this episode, I ask you to rate and review it. And if you have a comment or question for the show, please drop us an email at podcast@TFAS.org. The Liberty and Leadership Podcast is produced at kglobal Studios in Washington, D.C. I’m your host Roger Ream and until next time, show courage in things large and small.


About the Podcast

TFAS has reached more than 46,000 students and professionals through academic programs, fellowships and seminars. Representing more than 140 countries, TFAS alumni are courageous leaders throughout the world forging careers in politics, government, public policy, business, philanthropy, law and the media.

Join TFAS President Roger Ream ’76 as he reconnects with these outstanding alumni to share experiences, swap career stories, and find out what makes their leadership journey unique. With prominent congressmen, judges and journalists among the mix, each episode is sure to excite your interest in what makes TFAS special.

If you have a comment or question for the show, please email podcast@TFAS.org.

View future episodes and subscribe at TFAS.org/podcast.

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