Deirdre McCloskey - Economic Historian HARDtalk


Deirdre McCloskey - Economic Historian

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Welcome to HARDtalk.

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Is rising inequality a sickness that could yet kill capitalism?

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The debate is currently raging in politics as well as economics.

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President Obama says income inequality is

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the defining challenge of our time.

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My guest today thinks that is to misunderstand 300 years

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of global growth and enrichment.

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Influential economist Deirdre McCloskey focuses

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on the enduring power of innovation rather than wealth distribution.

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Is it OK for the rich to enjoy a party to

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which no-one else is invited?

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Deirdre McCloskey, welcome to HARDtalk.

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Thank you.

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Let's start with the sort of mammoth undertaking you are

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involved in to sort of chart the massive rise in material

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prosperity in the industrialised West over 300 years or so.

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What do you believe is the base cause

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of that massive rise in prosperity?

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Innovation, smart ideas, and then, behind that,

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the freedom and personal respect that became a movement in England

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and Scotland and what became the United States in the 18th century.

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I suppose the immediate question from that is, why the sudden burst

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of innovative economic activity?

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Why the new generation of ideas people coming around

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in the 18th century, 19th century?

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That is volume 3.

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You have got to make your early orders for.

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It is almost finished.

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More or less by accident, in Europe in the 16th, 17th,

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18th century, there was prepared this new equality, this new equality

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of freedom and respect for people.

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They had a go.

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So the word equality has already appeared in your thesis.

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What we see today is this raging debate about the corrosive impact

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of inequality.

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The idea that the inequality that is rising in income and wealth

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accumulation in the industrialised West is actually threatening to

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undermine capitalism itself.

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You have talked about inequality already so should I

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take it that you worry about that?

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I am concerned about the condition of the working class.

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I am not concerned about how many yachts some heiress has.

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Although, I am finding it annoying that I do

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not have a 100 foot yacht and crew!

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It is not the expenditure at the high end that cause poverty

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at the low end.

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As long as that is not the case, let them have their party.

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It is foolish but it is not the real problem.

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The real problem is poverty and the solution to that is not

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going after the rich.

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We will get to solutions in a second.

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I just want to make sure that I have understood

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your economic philosophy correctly.

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If one pictures an economic pie and slices it up, the argument right now

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is whether more and more of the pie, even if it is growing, is going to

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the rich so that, in absolute terms, the poor and even the middle class

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as well are actually getting a smaller piece of pie. I do not

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think that is actually true.

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It is asserted all over the place but I don't think it is true.

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This is where data comes into it.

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Thomas Piketty, the French economic historian, and many others, too, can

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cite figures that show that while there has been significant GDP

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growth, the middle class and, still more, the poor, have not benefited.

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Indeed, they are are no more better off

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today than they were 30 years ago.

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That is false.

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Even his own figures do not show that.

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He has done a fine book.

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He is an honest man but he is predisposed to see this

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absence of growth.

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In real terms, that is in terms that allow for the improvement of the

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quality of goods, ordinary people, ordinary, very poor people and the

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middle class have gotten better.

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Let me quote you Barack Obama himself who, in the last year,

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has said that income inequality represents the greatest challenge

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of our time.

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He said, looking at America today and seeing

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how the poor find it so very difficult to lift their children out

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of poverty, Americans have to accept that they can and must do better.

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It is not the material condition of the poor that is the main problem

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in a modern economy.

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In a rich economy like the United States or Britain, ordinary goods

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and services are, in historical terms, cheap and available.

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The problem is education, attitudes that need to be changed.

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For instance, in this country, ordinary, working class people do

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not feel welcome at university.

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That has to be changed.

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I am concerned about the poor.

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I am not concerned about the rich.

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I want to focus on the poor and how the state and interventions

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can best help the poor.

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I want to stick with the rich one time.

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It is a topical issue, thanks to Mr Piketty and others.

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Here is one more piece of data that I want to put to you.

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It is from Paul Krugman, who has coined this phrase about

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the new gilded age, which he thinks is corrosive to economic wellbeing.

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The share of national wealth enjoyed by the top 1%

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in America halved after 1900.

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It has gone all the way back up in recent times to where it was

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in 1900.

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We have got this U-shaped curve and he says that is one

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of America's biggest problems.

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I agree with Paul about 50% of the time.

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The other 50% is the problem.

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One very serious problem is that those calculations don't account

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for human capital.

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It is an immensely important part of the modern economy.

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All these are concerned with physical and financial capital.

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Most people earn their income from their brains, not their backs.

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It is very wrong to say that capital has become more concentrated

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since 1900.

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It has gotten much less concentrated.

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The fundamental standard of comfort, equality and the standard

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of comfort has improved since 1800, 1900, not gotten worse.

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One of the reasons why there is a lot of contention and dispute about

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the data and the meaning of the data is because it is becoming more

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and more apparent that a lot of the wealth owned by the wealthiest in

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Western society is actually off the radar. It is part of a globalised,

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offshoring, financial, sophisticated economy which means it does not

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necessarily get taken into account for tax purposes in the nation state

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and all that sort of thing.

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The argument of Krugman, Piketty and others is that this has

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to be addressed.

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One of the fundamental problems is that the rich have dominated

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the political system to a point where the tax system, the political

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game itself is dominated by the interest of the most wealthy.

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I don't think that is true.

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US politics is money politics.

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In the last presidential election, there was an attempt to buy

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the election by the very rich and it failed.

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They did not succeed.

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They were certain that they were going to be able to throw

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Barack Obama out of office.

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Surely the message is that the big-money backs both sides.

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Neither Democrats nor Republicans represent anything

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but the interests of big money.

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It has always been so.

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It is the golden rule.

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Those who have the gold rule.

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In journalism and academic life, we must lean against that.

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So you would argue that capitalism today is as vigorous, dynamic

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and destructive - creative and destructive - as it has ever been.

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Yes.

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It is crucial to include the rest of the world.

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If we focus only on old Europe and the United States,

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as these calculations do, we will miss that in China

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and India, economic growth is going at 7-10% per year in real terms.

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I would say that is another argument against your...if

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I can put it this way, your economically liberal, University

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of Chicago, economic philosophy.

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You cannot tell me that the success of Chinese capitalism is based on a

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pure adherence to market philosophy.

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Purity is not attainable.

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Pure capitalism, pure socialism.

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China is state-managed capitalism.

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It works.

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We must not be comparing perfect capitalism and perfect socialism.

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We must not be comparing outcomes.

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What has happened in China and India is massive doses of the market.

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In both countries, the state is still powerful.

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Managed by the state and with massive interventions

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from the state.

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Yes, interventions and different forms of capitalism but the outcome

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is, with the introduction of more market freedom, both of these

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countries have grown astoundingly.

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That is available to countries I know and love well.

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It includes South Africa and Brazil.

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When they see it as well, the world will become as rich

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as the United States.

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You were talking about the way that the focus needs

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to be not on the distribution of wealth and inequality but

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on the baseline prosperity or otherwise of the poorest.

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If I may continue the thought, the argument is that what is

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happening to the poor and the rise in inequality is directly and

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relevantly corrosive of economic efficiency because we are not

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maximising in Western economies the education, the social

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and economic care of our poorest and, therefore, the potential that

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they represent is being lost.

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I agree.

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I think that it is scandalous how bad the schools are

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in large urban areas in the United States and Britain and,

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for that matter, France.

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The solution is not more socialism.

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Surely the solution, they would say, is to use redistributive tax to

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spend more on educating the poor, on giving them fair opportunities.

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I am very willing to be taxed to pay for superior education.

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I am all for it.

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I am not prepared to be taxed for a state-provided education.

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That is the distinction.

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In Sweden, in the 1990s, they introduced private academies.

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A substantial number of children go through them.

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It has been very successful.

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I am willing to pay through the market to make schools work.

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They do work, in fact, in large parts of Britain

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and the United States.

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I think it is wrong to say that schools and the provision for

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the poor are worse than they were.

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They are not.

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They have improved.

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If you look at Sweden, they looked at precisely the

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difference between the economies of Scandinavia, and parts of Western

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Europe and the United States.

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They concluded that more unequal societies are unhealthy societies,

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and a whole array of different measurements, from the number

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of people in prison, suffering from stress and anxiety disorders,

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those failing in their education...

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I don't think that has anything to do with inequality,

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in my own country, it has to do with these awful laws against

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recreational drugs that we have, and an attitude that you find on the

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conservative side of all countries.

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Jail them, that will solve things.

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It is not as a result of capitalism, but a result of the power

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of the state.

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Used inappropriately.

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A monopoly of violence...

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With respect, the power of the state is higher

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in Finland or Sweden or Norway, than it is in the United States.

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Wilkinson and Pickett, the academics who wrote this book, they concluded

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that on so many different socio- economic measures, they were better

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and healthier places to live.

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I am not against social democracy, in places like Scandinavia, I am

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quite familiar with Sweden, I have lived a long time further south in

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Holland, and they work quite well.

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But the problem is, most states are not competent to do

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social democracy well.

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Italy, no Italian would suggest that it would be a good idea to give the

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Italian state more money or power.

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Although some states of the United States are capable, others, like

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my own, Illinois, they are not.

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So, I think it depends where you are.

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It is not a universal feature of social democracy,

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on the one hand, for every market.

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-- a free market. On the other, it depends on the culture.

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It is interesting, you have nuanced it in that way.

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If I may, I want to turn this conversation to be more personal.

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I want to stay with economics and history but reflect

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on your own life journey as well.

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As my mother says, do not do anything more interesting!

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Well, there have been a few people who have had a more interesting

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back story than yourself!

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You have been a highly-respected economist for a long time.

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For a lot of your career, you were Donald McCloskey, a male

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economist, and now you are Deirdre McCloskey, a female columnist.

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-- economist. You have said some interesting things.

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You said, as a young man, I learned to be

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a standard issue male academic.

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Now, I am much more female in my approach to economics.

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Can you explain that for me?

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I am more concerned about the poor, and the condition of the world

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on children.

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And, a great future depends on the spread of market,

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and not corrupt governments.

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And, I am more clear, I got a lot clearer about love, that L-word that

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makes a lot of men uncomfortable.

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I do not read a lot of economic textbooks

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where the love word comes up!

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You have to read my books!

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Why should the love word come up?

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You have to read my books!

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Why should blog someone like you, I go back to

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your university background, and it is the primacy of the markets,

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markets do not factor in love.

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They do, they work through love, as does your studio.

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Every enterprise in a capitalist economy works

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through solidarity, love, simply...

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Common courtesy.

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Greed is part of it, self-interest as part of it.

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My point is that any economy, socialist, capitalist, however you

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wish, that is a mixture of the virtues of love and hope and faith.

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On the one hand.

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And, the virtues of prudence, which it is.

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Prudence, which, by itself, is called greed.

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When it is in tune with justice, courage, temperance, and love,

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it works pretty well.

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It is not as if there is a greed is good, I do not believe

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that greed is good, I agree, that was the theme of the University

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of Chicago when I was there.

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A long time ago, I have to say.

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That is a foolish and boyish view of the world.

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Do you believe, reflecting on your own life and

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intellectual experiences, that that was very much a male-driven agenda?

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Absolutely, it is the soccer playing and ice hockey playing view

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of the world, we are out there to compete, and to get a good soccer

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team or an ice hockey team, you need an immense amount of cooperation.

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Any enterprise, they have to have both.

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And, in fact, you can think of capitalism

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and free markets that I admire.

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You can think of them as huge systems of cooperation.

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Cooperation is often used by socialists and Democrats,

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to counterpoint the competition word, that dominates capitalism.

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They make a mistake.

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The market itself, that is a way of persuading sweet talk.

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Some remote person, to supply the material that makes this glass.

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And, it is cooperation, what more would you call it?

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We finish and reflect both new ideas and your personal story.

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Do you believe, when you look around economic management on politics

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and the world today, that it is still way too male orientated?

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That the sort of economics approach you are bringing to the table are

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not reflected in policy-making?

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They aren't, and the problem is the economists.

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The economists and the calculators, as it was famously said.

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They say that greed is good, and all that matters is the bottom line.

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But, in actual functioning, real enterprise, all of these

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virtues have to be in play.

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So that it does not turn into vice.

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So, I think that we need a rethink.

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A rethink of market economies.

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We do not want to throw them away, they are fantastically valuable to

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help the poor.

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They are so much larger, in effect, then any redistribution that we can

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do.

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Since 1800, incomes per head, in places like Britain and the United

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States, they have not increased by a factor of 20 or 30, that helps

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poor people a lot more than five, ten, 15% redistributions.

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It is 2900%, versus 15%.

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Your contention is that it can have a market-based, market driven

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capitalism with a human face?

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Yes, I call it humanomics.

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We will leave it with that word!

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Thank you, Deirdre McCloskey, for being on HARDtalk.

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Guess who's... back.

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Back... again.

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Dara's... back.

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Tell... a... friend.

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Now... this looks... like... a job... to me...

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so... everybody... just... follow... me...

0:24:420:24:44

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