One of the major challenges of our age is that there are a lot of words everyone uses as if we’re all talking about the same thing but actually mean entirely different things. Case in point: “capitalism” gets thrown around a lot but it means something totally different to the Chicago School of Economists, Behavioral Economists, the Austrian School of Economics and to Adam Smith. Today, Hunter interviews Peter Schiff one of the most prominent voices in the libertarian movement, a word that has so many different meanings that it’s hard to criticize as a whole. We can, however, look at what one man believes in this interview. What and how does Peter Schiff think?
Well, I’ve got to say that I don’t think that Peter Schiff’s worldview makes much sense either internally, with what we know about human thinking, the historical record or what Adam Smith and America’s Founding Fathers taught. In short, I don’t think the cargo cult Peter Schiff is proposing will deliver prosperity for humanity. It will, however, deliver prosperity for him.
In any evolutionary system, parasitism will emerge as a strategy and the same is true in human societies. You can create a following peddling a plausible-sounding worldview and then extract both money and political power from your followers. Usually, people think of this behavior only in terms of religion but, in fact, you can do it any arena. It applies to self-help. It applies to financial advice. It applies to political promises that gain you power but are so out of touch with reality that they have no chance of delivering your followers prosperity.
So, let’s look at what I took away from this. Firstly, there’s where Peter and I agree. Wall Street has severe problems. It has lost touch with capitalism and confused self-interest with short-term greed that will line the pockets of bankers while destabilizing society as a whole. And I’m quite sure that Peter can help his followers make money by shorting the market. However, in that sense, he is little different from the people he criticizes. He profits while potentially destroying the system that allows him to profit.
America’s Founding Fathers believed in checks and balances. Nowhere is this laid out more clearly than in Federalist Paper 51 where James Madison writes “Ambition must be made to counteract ambition.” The key lies in setting the ambitions of men against each other. You make people compete and check each other’s behavior. In the same way, the free market is not about a free for all. As Adam Smith, Capitalism’s Founding Father wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” And one of the things that merchants of drugs or ideas like Peter will do if left to their own devices is peddle things that enrich themselves while harming the people to whom they sell. Ambition must be made to counteract ambition.
As I mention in this podcast, one of the reasons why the FDA was given increased powers was because of the case of Eben Byers. At the time, one of many patent/quack medicines was Radithor. It was water filled with radium. People drank radioactive water which was marketed as “Perpetual Sunshine.” Eben Byers’ doctor prescribed it to him (in part because he was getting kickbacks) and Eben Byers ended up becoming riddled with cancer and with holes forming in his skull. He became so radioactive that he had to be buried in a lead-lined coffin. As The Wall Street Journal titled an article about his death “”The Radium Water Worked Fine until His Jaw Came Off.”
Now, Peter Schiff had never heard of this story. As far as I can tell, he never bothered to try and understand why the FDA or any other government bureaucracy was founded. As I explained to him, I understand that too much government regulation is a problem. That’s why I brought Luigi Zingales on to talk about A Capitalism for the People. It’s also why I’m such a huge fan of Hernando DeSoto’s Other Path. However, I don’t know that no government regulation is the answer because that is simply removing the checks and balances. Further on in Federalist 51, James Madison pretty much nails it:
“The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.”
It’s hard to top that. Checks and balances and checks on that. So, if Peter Schiff believes the FDA has grown too large and wants to figure out how to check it, then I think that’s a great conversation to have. Instead though, when I tried to engage Peter in a conversation about what was the proper role of government–or what was the baby and what was the bathwater–he said, “There is no baby!” He doesn’t understand why the FDA was founded and he just wants to throw it all out.
How to describe such a man? Well, he’s certainly not very wise and if he’s not very wise then maybe he’s a fool.
Structuring a society is a complicated and fascinating challenge. You have to recognize (as the Founding Fathers of both the American representative democracy and capitalism did) that whatever holes you leave someone is going to come in and try and exploit them.
There is a hole in American public life that has been counteracted by the failures of the educational system and the media and people will come in and try and exploit the hopes and fears of the general public with plausible-sounding ideologies that potentially destroy the goose that lays the golden eggs: our society.
While Peter repeatedly tries to blame America’s government for the problems of the American people, in a democracy both power and responsibility ultimately rest with the people. The fault, dear friends, lies not in our Senators, but in ourselves. And there are many holes and problems with Peter’s thinking. If he can’t even spot the problems in his own thinking what makes him think that he can understand all the intricacies of modern medicine? Arrogance. Peter overestimates his own intelligence.
I used to do that too but I’ve come to realize that I’m not that smart. Modern society is complex and that is fantastic. There are people who sit around all day trying to cure diseases that I haven’t even heard of. And there are people whose job is to check the claims of all those people. That’s the FDA. Ambition counteracting ambition. It’s all very Founding Fathers-y. As someone who has spent the last twelve years doing a pretty deep dive of the neuroscience, psychology, culture, economics and political science, I can tell you that evaluating everyone’s claims is a lot of work and I can tell you that there are a lot of people who put themselves forward as authorities on these things who clearly haven’t read most of the things they claim to be authorities on. My ambition is to counteract their ambition. I want to lay out the material clearly enough so that you can decide for yourself what to believe.
I don’t have the time to also go through all the research on what drugs are safe, the science of climate change, vaccinations, nutritional information, what car to buy and on and on. I need to rely on others for that. Some of that will be done by the free market and some of that will be done by the government, but, frankly, I’d rather have it done by both. I’d rather have the ambition of one counteracting the ambition of the other. Removing one source of accountability when you don’t even understand why it was put in in the first place is dumb. Can we just say it? Peter’s ideas are dumb. They may make him money. They may make you money in the short-term. But if society collapses you’re fucked. The end of the world as we know it isn’t fun. It’s hell on earth.
Markets and societies are held together by trust and responsible citizens use their voice to try and create a society with increasing levels of trust. They don’t profit by spreading mistrust. There are problems with government and with Wall Street and we should be respectfully challenging the thinking of everyone to try and make those institutions work better. Peter isn’t doing that. But he can always change his mind. I hope he will.
As of our interview though, I find his thinking to be little different than that of the Wall Street investors he rails against. It’s clear on the failings in the thinking of others and very unclear on its own failings and it is an ideology that narrow-mindedly serves his interests at the larger expense of society.
Is Peter malicious? I don’t think so. He does, however, strike me as oblivious. That can always change. We’re all oblivious to many things but there is a chasm of difference between people who mostly seem interested in promoting their own view like Peter and those (like Yascha Mounk in episode 228) who are interested in serving the people by constantly trying to find the flaws in their own thinking.
You’ll make your own decision. I can just pull back the curtain and help you see what’s behind all the jargon and rhetoric. Peter Schiff doesn’t think in terms of checks and balances. He thinks in terms of throwing out whatever’s in the bath because he thinks there is no baby. In my reading of Adam Smith, Peter Smith is not a capitalist. He doesn’t believe in the free market. He believes in anarchy. To which I say:
“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.”
The people must control the government and to do that they must be well-informed and that means recognizing false prophets who profit from their false doctrine. What is Peter Schiff? Well, I’ll leave that up to you to decide. Are the beliefs he’s promoting as solutions to America’s problems going to make things better or worse? And to really answer that question, you need to read widely. You need to manage your own feelings about the government and the market. And you need to recognize that institutions develop to solve problems and that when those institutions become problematic, you’d better first understand why they were invented before you simply throw them out.