Jason Hartman plays us a Flash Back Friday show where he brings on economist and best-selling author, John Lott. The two discuss Lott’s book, “Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don’t.” Lott gives us answers to common economic questions and talks about whether we are moving away from free-market economies. He talks about the distrust in the current market environment. Lott illustrates why free markets are the best system for society.
Announcer 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.
Announcer 0:14
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Jason Hartman 1:03
It’s my pleasure to welcome john r Lotte. To the show he is the author of several books. One is freedomnomics why the free market works and other half baked theories don’t. And we had john recently on my holistic survival show, and we were talking about more guns less crime. And it’s a pleasure to have you back, john to talk about free market economics. How are you?
John Lott 1:23
Great, thanks for having me back on.
Jason Hartman 1:25
So nowadays more than ever, with all these this ridiculous government spending the stimulus after stimulus after stimulus? I’ll ask you about the book, too. But maybe we’ll start with some current events, and you apparently think that the stimulus actually increased unemployment. Now, a lot of people would say that the stimulus didn’t do enough or it costs an average of $300,000 for every $40,000 job it created massively inefficient as with everything, government, but you think it increased unemployment. Tell us about that.
John Lott 1:58
Right. Well, what’s the government government spending doesn’t create new spending. What it does is it moves money for where you and I would spend it to where the government thinks it should be spent. So there’s firms and businesses that would have gotten our business that now the government’s decided some other firms or some other government agency should be getting money. The problem is, is that as you move that trillion dollars or so around in the economy, you’re going to be moving around the money, the jobs are associated with that money when certain firms or businesses aren’t going to be getting the spending that they would have gotten previously, they’re not going to have the levels of employment that they would have had other places are going to get the money and they’re going to try to increase but the problem is, people don’t instantly move from one job to another, you know, it takes a while for people to find a new job and that’s where you go and you create unemployment and and people who may be losing jobs and let’s say the oil industry or coal or some other place, you know, just because you have more jobs in solar energy, they may not be perfect jobs for them people who were in those jobs. If they have to begin with those people their skills, there may not be some immediately similar job. And they may have to take a big drop and pay, it may be hard for them to accept that. And when you also combine that with these huge, long unemployment insurance benefits, it essentially says to people look, it’s hard for them to accept the reduction in jobs because the change in where the money’s going, and they’ll put it off as long as possible with the hope that maybe the type of jobs that they had previously will come back. You know, right now. We have unemployment insurance benefits that go to 99 weeks. If you look at unemployment insurance from the end of World War Two, up until June of 2008. You had range of benefits from 22 weeks up to almost 30 weeks. So we’re like more than three times with the maximum benefits have been before and it’s one reason why I also think people are taking longer to go and look for jobs than they have in the past.
Jason Hartman 3:57
You’re saying they’re taking longer because There’s a disincentive because of the government safety net, right? There’s not that much urgency,
John Lott 4:04
right? It’s not as much as there would be otherwise. But the problem is you only get this government money, as long as you’re unemployed, you lose those payments as soon as you become employed again, and that it’s almost like a tax free going back to work. And so I’m not saying people like getting 40% or 45% of their previous income, they’re actually getting more than that, when you include things like the unemployment or the health insurance subsidies that they get and mortgage payment subsidies that they can get at food stamps, and maybe
Jason Hartman 4:35
a bunch of other things. Yeah,
John Lott 4:37
all those things can mean that they can get maybe two thirds of the income that they were previously getting. And so they only get that though, as long as they’re unemployed. Now, you know, one option you could think if somebody wanted to go and help them is you could just give them a lump sum payment rather than making it so that they get so much per each week that they stay unemployed and give it to them all at once. But the Most people would understand if I gave you a lump sum all at once, and a lot of people just become unemployed, just so they could get that then they go back to work again, but at least you wouldn’t have but you still have that effect to some extent because they know if they become unemployed, they can get these benefits. I’ll give you one example. If you look over the last two months, there have been huge swings in new claims for unemployment insurance. About a month ago, they fell to a two year low people were talking about today. It looks like the job markets improving. And then all of a sudden in the last few weeks, it’s soared again back to record levels. Well, what changed in the last month? What happened was, as you may remember, about a month ago, the unemployment insurance extension had lapsed. If you filed for unemployment insurance at that time, you would only get 26 weeks so there was high claims as soon as the long term benefits lapse so you can no longer get up to 99 weeks is back down to 26. There’s about 100,000 drop in the number of new filings for unemployment insurance. And then as soon as the benefits went up, again, a lot more people file. Now, the important thing here is that it’s not just people who are already unemployed who are deciding to stay unemployed longer. These are people who are making a decision, do they enter the ranks of the unemployed? And you had fewer people willing to do that? When the when the benefits were cut?
Jason Hartman 6:25
Yeah, yeah. Well, it’s just that old thing. What gets rewarded gets repeated. I mean, it’s so obvious and so frequently expressed, it’s, it’s amazing. So in the first chapter of the book, freedomnomics, you asked the question, are you getting ripped off? Are people getting ripped off?
John Lott 6:40
I don’t think so. I mean, I think Surely there’s fraud that occurs and mistakes, but I think the thing is, actually how rare it is. I mean, there have been some people, whether it be michael moore or others who seem to think that corporations are committing fraud left and right all over the place like you go back a few years, when we had Enron and a couple other big financial scandals, people could point to four or five companies that were involved in that. But when you think of the fact that we had like 12,000 publicly traded firms, to me, the fact isn’t that these horrible things happen because they obviously do from time to time, but how relatively rare they are. And the question to focus on is why you have the huge vast majority of companies not engaging in the fraud that occurs. It’s obviously important to those who are defrauded in the small number of cases where it does occur. But I think there’s a bigger question that one has to ask and that is, why is it as rare as it is?
Jason Hartman 7:39
That’s a pretty good question you pose because I have traveled extensively and I’ve the 58 countries I’ve visited many are our former communist in Cuba, it certainly is still communist. And what’s interesting about that is that if you want to see fraud on a massive scale, and if you want to see backdoor dealings, and pay payoffs and all you have to do is look at any sort of big socialist communist government or right here in the good old US of A, every time a new government regulation occurs, people find a way to beat the system. And a perfect example that everyone is familiar with, to some extent is rent control. When rent control is initiated, whether it be in the Socialist Republic of Santa Monica, San Francisco, New York, wherever it instantly creates a black market and a gray market and people pay each other off to get into rent controlled apartments, and they move out and let someone else sit there, let their friends sit there and lease it to preserve the rent control deal and all kinds of crazy motivations occur. Right,
John Lott 8:37
right. Well, you have someone like Charles Randall having for rent control apartment. Oh, yeah. But no, I mean, you essentially induce people to go and break the law. So you have key money under the table money there. But you know, the consequences of those things is that since they can’t charge people the prices that they that would clear the market, then we go and have other ways to do it. Maybe I go and give the apartment to nice elderly quiet women who weren’t going to damage the place as opposed to young kids, you know, they may be discriminated against. Because why? Why should I take the risk with them that they could do something wrong to the apartment, if I can’t, you know, I could charge them a higher price, if it was non rent control, but since I can’t do it, I go and make decisions, who’s going to get the apartment on something other than that, but you also have the fact that the apartments may not be kept up as well as they would have previously. I’m not going to make sure the refrigerators fixed or other things because I lower the quality since I can’t go and raise the price of the product that’s there. And and you have shortages, people aren’t going to go and build as many as they’re going to be before but you mentioned the fact of former Soviet Union communist countries. I mean, it was rampant the fact that people when they would get products, they wouldn’t work. And what is it that makes it so firms have an incentive, you know, against not perfect, but why do they have the end center that they do. And the big thing that companies faces, if they don’t give you the product that they promised, you’re not going to go and buy products from them in the future, you know, they’re going to get reputations that are going to make it so people aren’t going to go and trust it. If, if bear aspirin sold sugar tablets rather than real aspirin tablets, the price would fall it would, you know, be more like some no brand generic name Joe greens, you go to the store, there’s a reason why certain brands can charge higher prices than others because they’re also conveying something to you, but the quality of the product that’s going to be there, you don’t have to pay it. If you don’t trust them anymore. You’re not going to pay if you look at what happened to Tylenol prices or others when there was scares about contamination that may have been occurring with those products. And those are real losses to those companies and it really catches their attention.
Jason Hartman 10:50
Sure, yeah. No question about it. That’s really hard to measure. When you look at the rent control issue that we discussed a moment ago. It’s very hard to measure when these guys gray areas of like, because it’s rent controlled, the landlord might not maintain or improve the property as they otherwise would. But you get a bunch of these people in an ivory tower that analyze something without ever seeing it or knowing the market, you get these third party interests that just they don’t know about the transaction and they don’t live there. It’s hard to measure, isn’t it?
John Lott 11:20
Right? Well, that’s one of the benefits of letting consumers make decisions for themselves because they can judge what they value and what they don’t say they see. They see the quality right there to make those decisions. There are certain quality issues that may be hard to go and demonstrate to a third party. I go to a store and the food doesn’t taste the way I like it to taste. I know that myself, it may be hard for me to convince a judge or some bureaucrat that the food doesn’t taste the way I expected it to taste. But you know, there are things that we can measure. One of the things that I’ve looked at before, is the impact that firms face when when they commit fraud. And we often think of the fines and criminal penalties and civil fines that companies may face when they commit fraud. But it turns out that that’s only a very small portion of the penalty that they really face. The big penalty that firms face is is the fact that people won’t buy their products in the future. So when you see a firm accused of fraud, that you can look at the drop in the stock price of the company. And you can compare it to the fines, the criminal and civil fines that they end up paying. And it turns out that those penalties only represent about 5% of the drop in the stock price. The rest of the stock price is due to the fact that customers aren’t willing to go and pay the prices for those products that they had in the past. And that’s about a 20 fold time bigger penalty that companies face in the ones that the government imposes.
Jason Hartman 12:55
Now, I think that area gets a little bit murky, and here’s why. What you’re probably referring to is fraud or damage to a reputation that is readily obvious to a consumer. So for example, Perrier, water and they had that benzene and I think a couple of people died or whatever it is like that where there’s direct damage to consumer. But I’ve seen a lot of these companies. Well, Ford is a great example. But that’s damaged the consumer. I’ll bring that one up in a second. But a lot of these companies will really have regulatory issues or regulatory fraud where they sort of just put into their business plan. We’re gonna pay some fines this year, but it’s worth it to pay the fines. There may be no real impact, but the government just wants to hold them up and collect money. But the one example where it’s consumer wise and reputation wise is of course, the very famous Ford Pinto with a with a gas tank that blew up and that was just horrific. They just did the math and thought, Gosh, we can save $1 a car and we have a couple of lawsuits. It’s worth it. I mean, that’s,
John Lott 13:57
they did the math wrong. But you did the math wrong, isn’t it? Just a pure somebody who’s taught in business schools. You know, the thing is, what they did on the law side is they only looked at the legal penalties that they faced. They didn’t consider the reputational loss. And so, you know, they just said, What’s if we go to court, how many court cases are we going to have? And what’s going to be the civil penalty that we’re going to face punitive damages or other penalties that we’re going to face? And that’s the calculation that they did. If they had, you know, as we’re just saying, that’s just a small portion of the penalties that these firms face if they had thought about the reputational penalty for the firm. I don’t think they would have made the decision that they did in that case.
Jason Hartman 14:38
Yeah, yeah, the reputational penalty. I mean, think about it. What was that that Pinto thing note 3040 years ago, and I’m bringing it up now.
John Lott 14:45
It sticks with you. But it also tells you how relatively rare those types of things are. But yeah, I’m not saying that firms don’t make mistakes from time to time in terms of trying to figure out what products they should make or not. But the thing is, It’s interest to me again, it’s how relatively rare those mistakes are, particularly if you compare it to the type of Soviet Union or communist or government run systems that you were talking about.
Jason Hartman 15:09
Those systems are polluted with disgusting backdoor dealings and fraud Everywhere you look, your book, in many ways seems to be a response to Freakonomics. And when you talk about reputations one of the famous examples and Freakonomics is about the real estate agents not really serving the client because they want to turn deals quickly. Can you address that one? What was addressed in Freakonomics and what your responses to that?
John Lott 15:34
Sure. I mean, my book does deal with some of the things and some freakanomics it’s more kind of kind of a run through of the research that I’ve done in my life over the last 25 years of being academic, but one of the comparisons that Freakonomics makes is that they say that real estate agents are like Ku Klux Klan, people where they prey on the fear of customers in this case, scare them into taking deals that really aren’t in the customer’s interest making it so that they sell the house quickly and at a lower price than they would have been wise to sell it otherwise. And one of the pieces of evidence that they bring up is some research that they had done that they really don’t explain in the book is they had looked at housing prices in one city. And they claimed to find that realtors when they sold their own house got about $3,000 more for the house. And when they sold a house for a client, who was who was hiring them to sell it. And they took that as evidence of a type of fraud that was occurring by the real estate agents. And the point was to look at they said, Look, if you get a 6% Commission on that, you only get a tiny portion of the increase in the value of the house. And so it’s that’s the reason why they want to sell it quickly. And I would argue, you have to look at what realtors get paid is more than just the commission. They get paid in terms of referrals in the future. They get paid in terms of whether or not you come back to them to try to sell your house when you do started to move those things matter a lot to to realtors is much more than the 6%. And if somebody feels, finds out later that they could have sold their house for more feels that you try to put pressure on him in order to try to sell it quickly so that the realtor could just move on to the next house that’s going to make them reluctant to go and trust you people have like these companies have reputation realtors have reputations, and they have to care about whether or not people think that they did a good job or not, it’s more than just the 6% that they get right now. And to me when you’re talking about on average houses that were going for about $300,000 in their sample $3,000 doesn’t sound like a big difference. Because, you know, these are realtors who every day of their lives. They’re looking at houses, they see good deals, they decide, you know, it’s not just you or me who may be looking around for buying a house. We look for a couple weeks and we buy a house. These guys may be looking for years before they find To house that they think is a great deal. And then they go and buy it themselves. It’s kind of like whether a doctor, you imagine he might be better at figuring out what disease he has or knowing what questions to ask or knowing what doctors might be the best one. I’m not going to be surprised if a doctor ends up getting better quality healthcare than I do. Because he’s gone to medical school for a lot of years. So it’d be surprised if he didn’t
Jason Hartman 18:24
when you bring this up, john, it’s kind of like everybody has a long impression that’s been around for you forever. Is that for police officers off duty, and they’re going a little fast and they get happen to get pulled over by another police officer? Are they going to get a speeding ticket? Probably not.
John Lott 18:40
You know, there’s benefits from being in the job, every profession as a doctor may get better health care, but he’s not going to be as good as buying and selling houses as a realtor is but you know, it’s not like they’re getting some unusual profits from doing if they’re just getting a return to spending eight years in school. You know, you or I could spend Eight years in school, and they’ll also be better at diagnosing our medical conditions too, if we want to do that, but it’s very costly, takes eight years to go and do that. And so it’s not like they’re getting some some unfair advantage. They’re just getting a normal return to the efforts that they put in there. And I think claims about virtually all firms going committing crimes all the time, kind of analogous to the realtors or broader claims they make. I don’t know how you can judge something like that. I’m sure there are lots of crimes that aren’t reported that we never find out about. But the only way you can make the types of claims that are may in the Freakonomics book, as if somehow they had a good measure for how many crimes are there and I don’t find evidence of that. I think people generally if they’re defrauded, have a fairly good incentive to go and report that they’re defrauded financial fraud, for sure. You know, you have billions of dollars it could be at stake for any large firm, and people have a strong financial incentive institutions do too. To figure out when those types of things take place. One of the other areas I think that has to be considered is when you look at the massive, massive volume of commerce that occurs in a country the size of the United States, for example, I mean,
Jason Hartman 20:15
just there’s more commerce here than probably anywhere in the world, maybe China’s after us. But you should really look at this on almost like a per capita basis. When you evaluate other statistics, you look at crime per capita, you look at income per household or per capita. And that’s the way this should be evaluated. I mean, as a consumer, I hardly ever feel like I get ripped off. I mean, it happens occasionally. But most if I’m dealing with a business and it’s a retail product, a store, they all take stuff back if I don’t like the product if the products defective. Yeah, I find by and large, it’s sort of surprising how how well companies stand behind their their good name, right? Well, it’s because they have a good name and they want to have you come back or they don’t want you to go and tell your friends that they’re bad, but they don’t have Consumer Reports or somebody else go Or nowadays, they’ve got more power than ever. They don’t want to have it showing up on a social networking site like Yelp, Facebook, Twitter, etc, right? No, exactly. Yeah, no question. Why is it john that, after all of this, it is just been proven over and over that government doesn’t work? I’m just gonna say it. Why is it that we still have these people out there who think of government as some sort of Nirvana that it’s like this Savior and it’s gonna solve all of our problems in it. There’s no example in history. Every example in history shows clearly that when government becomes larger, it becomes by nature more oppressive and more invasive, and more burdensome on its citizens.
John Lott 21:46
Well, I think part of it is the fact that the economy seems so complicated that you almost think you have to have some central bureaucrat planning everything that’s there. It’s one way to make sense of what’s going on and in fact, The opposite is true. The very fact that the economy is so complicated that you have so many prices that you have hundreds and hundreds of millions of customers out there who have their own demands, and they’re the only ones that really know what they want in different products. It makes it impossible really, for any central organization to really know all the incentives or all the different trade offs that are there. The Miracle thing about the economy is that people get a profit for figuring out what others want and figuring it out quickly. During the healthcare debate. President Obama many times would talk about profits and how private companies couldn’t compete with nonprofits, he would claim because they had these costs and then they had to add profits over on top of it and that customers were paying for these additional profits couldn’t be further from the truth. You know, there’s a reason why we don’t have computers and cars and airplanes and everything else run by nonprofit companies. It’s not These profits put the profit companies that advantage, what it does is it creates an incentive for them to figure out what their customers want, produce a better quality product and do it at a lower cost. The cost of profit companies are actually lower than nonprofits. And the reason why they’re lower is because the fact that they can make those profits causes them to concentrate their efforts and work much harder to figure out how to reduce the costs, then you would have for the nonprofit’s that are there in the nonprofit, despite getting huge tax subsidies from the government aren’t controlling any industries. And the reason why they’re not is because they can’t compete with the for profit companies that have these bigger incentives to go and give the customers what they want at a lower price.
Jason Hartman 23:48
Let me take a brief pause. We’ll be back in just a minute.
John Lott 23:54
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John Lott 24:01
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John Lott 24:21
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John Lott 25:01
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John Lott 25:16
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John Lott 25:35
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Jason Hartman 25:54
When the attitude inside of government and the attitude inside of many Not for profit companies is this I can sum it up I think is when it’s everybody’s money. The attitude is it’s nobody’s money and they just don’t care. Nobody cares as much as the shopkeeper. And this was illustrated to me so clearly on a visit to Prague in the early 90s, shortly after just a couple years after the Berlin Wall had fallen, and communism was basically over for the most of the world, fortunately, and I remember I was out to dinner with this, this young girl there, she was probably 21 years old. And I was talking to her and I just said, How could you tell when it was switching over and there was some private ownership and so some state owned stores? I said, How could you tell which stores were which? And she said just so innocently, but it’s so obvious. She said, Well, you just knew because when the store was privately owned, the person cared,
John Lott 26:56
right? No, I mean, it makes a big difference there when you have your own money. stake in Milton Friedman had a statement similar to yours he said you just don’t spend other money people’s money as carefully as you spend your own when somebody else is paying for it, your do all sorts of strange things. Look at the way Airbus has run despite getting the government subsidies there. They have huge inefficiencies. You have part of the companies owned by England parts owned by the Spanish government’s part by the French government part by the German government. So what did they do when they build the new super gumbo liners they have? jobs have to be apportioned in the different countries based upon the share ownership that the different companies have. So these huge giant wings for the airplane are built in England. fuselage is built in Germany, the tail section is built in Spain and everything’s put together in France. You have to have the huge wings brought down along the rivers in in England, and when they get to a bridge, they have to go and cart the the wind kick The barge, bring it around on the land to the other side of the bridge and then put it back on the barge and then go down to the get to the next bridge, a couple of the last chief executives for the company have when they’ve resigned have complained about the huge inefficiencies there. But when you have government ownership of things, they do other things other than trying to produce the product at the best price,
Jason Hartman 28:23
they have to dole out favors to certain groups that support them to their constituents. Right.
John Lott 28:27
Right. And so and we see that now with, you know, General Motors, many times, you know, whether whether it was going to move its headquarters to Warren from Detroit, or the placement of certain plants that they might close down, or other types of decisions that they were making politics enter into that makes them have higher costs than they would have otherwise. You know, if you want to go and do social policy, have everybody paid for but what happens is so much as the government decides, we’ll get it for cheap by making businesses pay for this and when they own it, if he comes very hard to see all the types of social policy things they’re doing. But a lot of the current economic problems that we have are due to the government trying to make firms pay for, you know, their large guests. So, for example, on the mortgage regulations that we’ve had, where banks were forced against their will to make loans to customers who they didn’t think could pay them back the Community Reinvestment Act. It’s what you’re right. Well, it’d be one example. And then there are other things that the Federal Reserve did during the 90s. And you had Fannie and Freddie, which would essentially force banks to take loans where there was zero doubt, or the Federal Reserve would say, you could be charged with discrimination if you ended up not including welfare payments, or unemployment insurance is income for individuals, you know, normal lender would say, you know, if you’re getting welfare now, and there’s a limit to how long you’re going to get that I don’t know your ability to go and pay off in the future. The government said banks have to count that. And, you know, it’s not like banks just had something against people who were on unemployment insurance, you know, they’re taking a risk, they want to make sure that they can get the money back. But you put things in here where you don’t require a down payment. That’s fine as long as prices go up and housing, but as soon as they start to go down, you have a lot of people who will just walk away from their houses at that point, because they have no reason to stay there. You know, the amount they owe is greater than the value of the house. And so we get the government officials say, well, we have the social policy, we want lots of people who can’t afford to buy homes to buy them, we’ll just make the companies have to pay for it. And they don’t think about the long term consequences of kind of making other people’s pay. People pay for the benefits that they want to take credit for going giving out. It’s something that we see all too frequently with the government.
Jason Hartman 30:53
One of the things that you didn’t mention yet that I think you’re fully aware of and will agree with is that it’s very Hard to count what is never there and give you an example. I took a visit to Moscow and we went out into the countryside and went to Star City. And that is sort of their Houston the head of their space program or Cape Canaveral equivalent, like their their NASA and we saw where they trained the cosmonauts, the Soviet astronauts where they ran their space program. And I’ll tell you, john, it was mind boggling. It’s how primitive It was. It was so amazingly primitive. I just couldn’t believe it. And the people I was with couldn’t believe it either. In all the innovations that never occur under this government as Nirvana type of life, this socialist type of world, those can’t be counted, but their cost is incredible.
John Lott 31:49
We see this type of opportunity cost all the time. You look at the stimulus package that we were talking about earlier. We see the jobs that are created, we don’t see the jobs that are lost. Because the government’s taking money from that part of the economy to give to something else, when the Obama administration when they want to count jobs created, they just say, well, we paid so much money. And we can see that, you know, these government agencies hired so many more teachers or whatever it is, it’s there. And so we’ll count those as jobs created. But the real question is, what’s the net number of jobs? Not that you can grow the government side and make the private sector shrink? I mean, everybody understands that, but it’s just I hope they do, but it’s something that’s completely left out of these types of discussions. We, you know, there’s so many times where also where you see this with with regulations. You know, one thing you see over time is is accidental deaths of all types fall over time. And, and one of the simplest things it’s done is people say, Well, look, we passed the safety regulation and look, the number of deaths for these types of accidents have declined. The thing is, they would have fallen anyway me go Back to 1900, a little bit after when we started collecting actual death rates by type of accident and everything’s falling over time, you’re going to always get a lower average, after any point in time you would have picked there. And just to pass a law and say that, therefore, all those lives saved are due to the regulation is often not the case. In fact, sometimes these types of rules actually have perverse impacts. It’s just we don’t think about what the alternative would have been even without these types of rules people, if they get wealthier, value safety companies like producing safer products, they would have produced them anyway. In many of these cases,
Jason Hartman 33:40
non equivocal Of course, let’s just finish up with voting rights and voting wrongs.
John Lott 33:46
Sure. A lot of research on a couple different issues here one puzzle that’s all always kind of most a lot of academics for literally decades has been why governments around the world start to grow when they did, it’s basically about a 50 year period of time from around 1900, to about 1950, where country after country in the world, you know, would have been the same size for literally hundreds of years as a percentage of GDP, the government spending, all of a sudden we start to shoot up. So for example, in the United States, our government spending is percentage of GDP was about two from the beginning of the Republic, up until near about World War One was about two to 3% of GDP, you know, go up during a war go up above that, but then after the war was over and come right back down, after World War One, it didn’t go back down to where it was before and just start growing. Basically, a lot of people think that the federal government started growing in the 1930s, it actually started to grow at about the same rate during the 1920s. And, but it wasn’t just the United States, different countries in different years. During that period, time would start to grow and so One thing that I just noticed kind of accidentally one time was that the timing for when these countries started to grow just happened to correspond to when women were given the right to vote in different countries. And the nice thing about the United States is that with the different states, some states gave women the right to vote prior to the 19th. amendment in 1920. And you could see that as soon as women were given the right to vote in these different states, the government spending would start to go up real per capita government spending and taxes would more than double in a state in the 10 years after women were given the right to vote and it would keep on going up and move very proportionately with the percentage of women who voted when you gave women the right to vote. Not all of them voted right away.
Jason Hartman 35:48
So I’m dying to know what your your theory is about that.
John Lott 35:52
Well, there’s just one other piece of evidence I just pointed out first, and that is, there are two types of states you have those states that voluntary gave women the right to vote, and those that were forced to do it. And the really neat thing about us is that, you know, because possibilities, there’s just something else that’s going on that just cause you know, you’re liberal, you give women the right to vote and you want larger government, or is it the fact that you gave women the right to vote because the bigger if it’s just the women being given the right to vote, you should see an increase in government spending in both the states that voluntarily gave women the right to vote, and those that were forced to do it. And that’s what you find. In fact, it’s very similar pattern and, and you can explain a lot of the growth in government for about the next 60 years, almost 55 years, because it takes about that long before women end up voting at the same rate as men doing this, as women make up a greater percentage of the voting population. You can see increased growth. Now basically, what’s happening is I think women basically rely on government more for protection. And you can see this over a woman’s lifetime, women start out being much more liberal than men. Young women are more liberal, when they get no question about it, about half the gap between men and women disappears when they get married and have kids about half the remaining are about 75% of the original difference disappears. But when women with kids get divorced, they become much more liberal than they were to begin with. And that’s whether they support more progressive income taxes or more social programs or whatever really changes a lot over that time. So it’s kind of like when women are married to men who are more likely to be hit by the higher marginal income tax rates. They’re against higher marginal income tax rates, but when they’re on their own, and particularly having take care of kids, their incomes don’t vary as much as men, they tend to be lower, they become much more in favor of progressive income taxes. So I think that’s part of it. What’s basically happens, you can explain the growth in government till you get to the 1960s with just a greater percentage of women voting and then what happens is that big increase in divorces
Jason Hartman 37:59
then it really becomes more liberal because you’ve got a lot more single moms. Right? You’re right with kids. Makes sense. Yeah.
John Lott 38:07
And you know, a lot of that, I think is due to the changes that we’ve had in Divorce Laws when you you move from asphalt to no fault divorce because what used to happen when you had at fault divorce is that if you know a guy wanted to go and marry a secretary, he essentially had to get the approval of his wife to go and have the divorce. He couldn’t just say, I want to I want a divorce. And the wife thing could say, well, you know, I’ve made all this investment in the home, I’ve stayed home, I haven’t had a career, you’re gonna have to pay me a lot to let me let you out of America. Now what’s happened when you’ve had no fault, he no longer has to get the approval, the wife for the divorce. What happens is he can just decide to leave rather than him having to essentially pay her off to be granted divorce. She almost has to pay him to stay in the marriage. So women, when they would make much bigger investments in the home and the children stay at home, making sure the home runs properly. They have a big risk when you have no fault divorces, because they can essentially be held up for all that investment the man, he’s been investing his career, and he’s can leave at that point. And so what that did was, I think you also can explain to some extent, women moving more into the workforce and having fewer kids, because, you know, it’s very costly to stay at home and raise lots of kids. And they risk by doing that now being much more likely to be held up by the husband if the marriage were to break down. And the fact that women aren’t investing as much in the home and the husband isn’t either means that you’re more likely to get higher divorce rates. I mean, just take the simplest example that if you have zero kids or you have For Kids, where are you more likely to get a divorce, temptations, financial problems, whatever arise over time. If you have no kids, you know, it’s much easier for you to go and leave the marriage than if you have this big investment in each other in terms of number of kids that are there. So I think there’s just a lot of unintended consequences over time for these things to happen. But I just give you one or two quick examples here. They’re shorter that the basic point that I try to make in the book is that how much of the world you can explain with just the simple notion that if something’s more costly, people will do less of it applies to crime applies to all sorts of voting things. One example with voting is when you had the secret ballot, what do you think happened to the number of people who voted when you move to a secret ballot, more people voted? fewer, you had a 10% drop and the rate at which people voted when you move to a secret ballot?
Jason Hartman 40:55
Why would that be? Well, I would think the opposite
John Lott 40:58
Well, the reason why one of the reasons Why they moved to the secret ballot is because people were getting paid before to vote for certain ways. And if you don’t have a secret ballot, I can see how you’re voting. And so I can pay you off. If it’s a secret ballot, just because you tell me you voted a certain way, right? I don’t know what you’re doing. Yeah. Okay. So I, I can’t pay off. And so people were getting paid to vote, in many cases, not every place, but there was a substantial number, particularly in certain areas in the country, where they would get rounded up and paid, you know, the Tammy halls, Tammy halls and other places to go and vote. And you would see, particularly in those places, but across the country as a whole a drop in voting as soon as people were paying them off, couldn’t monitor whether they were how they were voting.
Jason Hartman 41:47
So john, this is a really interesting discussion. First of all, tell people where they can get the freedomnomics book and help us wrap our head around the whole concept if you would.
John Lott 41:56
Sure. Well, the book is available on places like Amazon dot Come probably some bookstores that still have it. But the notion is, is that you can take this idea that if something’s more costly, you’ll do less of it, the greater the return, you’ll do more of it. And you can explain all sorts of things you know, like why airline ticket prices vary on how close you are to win the flight is going to be taking off for why full service. The difference between full and self service gasoline varies by the the grade that you’re going to be by, or you know why you pay more for dinner than lunch at different restaurants. You can also use it to explain crime, you know, just higher penalties make it more costly for criminals to commit crime. You can make the more costly in many different ways from letting individuals defend themselves with a gun to having a higher arrest rates by police. You can explain the rate at which people report things to the police. More important crimes that police are more likely to solve get repaired. Much more frequently to police than crimes that aren’t as poor and that they’re not going to spend the time and resources to go and try to solve the greater the return to report it, the more likely people are to report it to the police. And that changes over time to in different ways. So there are lots of things that people look out there. You know, voting fraud can be explained often by just changes in the costs of engaging in those types of activities. But it’s just this one notion I try to show can explain a lot of the world that we see around us.
Jason Hartman 43:29
Yeah, well, that’s a great point. All right, john, our lot. Thank you so much for sharing the freedomnomics concepts with us today. We really appreciate having you on the show.
John Lott 43:37
Oh, no. Thank you very much.
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