Open Minds with Prof. Julia Mahoney and Prof. Joshua Kleinfeld - Part I

In Part I, Professor Julia Mahoney joins Professor Joshua Kleinfeld to delve into the complexities of governmental regulation and market power. What makes markets possible? How do institutions enable people to cooperate in a productive way? In what ways can they prohibit people from doing so? Tune in for a conversation on private power, free markets, crony capitalism, and more.
Featuring:

Prof. Julia Mahoney, John S. Battle Professor of Law, University of Virginia School of Law
Prof. Joshua Kleinfeld, Professor of Law, Northwestern University Pritzker School of Law

Episode Transcript

Speaker 1 (00:03):
Welcome to Open Minds, a freedom of thought podcast series
interviewing the people who bring courage and independent thought to
the challenges of today.

Speaker 2 (00:12):
Hello Julia Mahoney, Hello Josh So welcome to the Freedom
of Thought podcast Slash video Cast.

Speaker 1 (00:18):
Thank you.

Speaker 2 (00:19):
My name is Josh Kleinfeld. I'm a law professor at
a political philosopher at Northwestern University and at George Mason University.
And my guest today, Folks, is Julia Mahoney, who is
the john S Battle Professor of Law at the University
of Virginia. We're going to have a conversation today about
two big topics, free markets and crony capitalism and freedom

(00:42):
of thought in diverse professional worlds, from universities to law firms,
to corporations, to nonprofits to medicine. So, Julia, why don't
we start with just who you are? Can you tell
us a bit about where you grew up, what you
studied in college, what led you to law school, and
what led you to be a law professor.

Speaker 1 (01:01):
Yes, I was born in Boston, Massachusetts, and I grew
up mostly in Washington, d C. I was an American
history major in college, with special emphasis on the Founding
period and the early National period, where I learned a
lot about yes, crony capitalism, and how concerns about corruption
broadly defined, had helped animate the American Revolution, and what

(01:22):
a great concern it's been ever since the America gained
its independence from Great Britain. I was generally interested in
a lot of things and didn't know what exactly I
wanted to do. But I was quite convinced after my
study of early national sources and revolutionary and sources, that

(01:43):
law school would bring me a certain amount of analytical
training and discipline, and so it did. I started my
career practicing law in New York, and then eventually I
moved to Charlottesville and began teaching at the law school,
and I found that I loved teaching, and when an
opportunity came to apply for a job on the tenure

(02:04):
track at the University of Virginia School of Law, I
took it, and things worked out, and I've been there
ever since.

Speaker 2 (02:11):
So as I look at your career, it's a very
distinguished career, and it's a career where you've written and
taught on a wide range of topics. I mean, from
con law, constitutional law, to corporate law, to land regulation,
to medical ethics, to law and feminism. You've done it all,
but there's a theme. I think there's a theme that
ties it all together. The theme is how government regulates markets.

(02:37):
Markets require a legal backdrop. Even the freest of free
markets requires property rights and contract rights to be enforced.
In real markets require a lot more than that. Securities regulation,
anti fraud laws, bankruptcy and antitrust, and beyond your intellectual life,
as far as I can tell, centers on this web

(03:01):
of governmental regulation that makes markets possible. Yes, And I
think it's fear to say that the perspective is generally libertarian,
the perspective you bring to it. But of course any
label is pretty oversimplifying. I think what I see in
your work is a recognition that government can help or

(03:22):
hinder free markets, and you want to make sure that
in general, government or regulation helps them function at their best.
So is that a fair characterization? And could you put
some meat on the bones with an example or two?

Speaker 1 (03:34):
Yes, I mean it's right, it's I think a little
incomplete in the sense that I would also add community
to that. I've done lots of work in the so
called third sector. Lots of my projects have touched on
or directly involved the nonprofit sector and the idea that, yes,
we need to have well functioning government, and you're absolutely
right that a well functioning legal system undergirds functioning markets.

(04:00):
In addition, though, we do need this third sector to
coordinate altruistic behavior. Not that our political life isn't also
to a certain extent a coordination of altruistic behavior, And
not that markets are not important in coordinating community and
altruistic behavior.

Speaker 2 (04:17):
They are.

Speaker 1 (04:18):
But these are very, very difficult problems, and so I
pay a lot of attention to the institutions that enable
people to cooperate in a productive way.

Speaker 2 (04:28):
That's really interesting, and it's a wonderful transition to our
first big topic. So why don't we get into it?
Topic here is private power, free markets, and crony capitalism.
And I want to start with a question that perplexes
me and keeps me up at night, really does sometimes
occupy my thoughts when I'm trying to sleep. And I'm

(04:51):
a lawyer and a philosopher, but not an economist, so
I come at it with agnostic puzzlement rather than clear conviction.
But here it is. Growing up, I was taught that
in conditions of free competition. There's a certain way businesses
would operate. They would be profit maximizing. That's their raisindetra right.

(05:14):
They'd be profit maximizing, And consequently they'd be meritocratic. If
you're hiring someone to, you know, captain a ship, you
want the best captain you can get. You don't care
who he votes for in November. If you're hiring someone
to practice law, you want to skilled a lawyer as possible.
They were meritocratic. The thought would go, not because of
some ideological commitment to meritocracy, but because of just the

(05:38):
demands of profit maximization. And by the same token, the
thought was, they wouldn't care much about your private life
or about your private politics. They're not going to fire
you because of who you vote for. Why would they.
They don't care. It doesn't bear on the work you
do for them that's profitable. As to corporate politics institutional politics,

(06:01):
I think the expectation was that the corporate world would
be either non ideological or slightly or moderately conservative Republican.
So the non ideological expectation is sort of symbolized in
Michael Jordan's famous line about why he doesn't speak out
more on politics, Jordan said, Republicans by sneakers too great line.

(06:24):
The other expectation is kind of captured in these expectations
of the seventies and eighties and nineties, that wall streeked
that the Chamber of Commerce, that big business and even
medium and small business would all be in favor of
less regulation of business, lower taxes, less redistribution of wealth,
fewer worker protections, that broadly they'd be on the side

(06:47):
of republican conservative initiatives and against more redistri redistributionists kind
of progressive initiatives. And that was part of this larger
expectation of the Ronald Draaken Milton Friedman era that free
markets would translate to a free society, that the invisible

(07:10):
hand would lead not just to prosperity, but to political freedom.
So the picture was that the state is the source
of oppressive power, and the market is the solution to
the oppressive power of the state. So you minimize the state,
you maximize the market. Thereby you maximize individual freedom. That's
a big picture standing behind this, But reality doesn't seem

(07:33):
to be conforming to these expectations, and you can look
and see it in a hundred directions, and I want
to take a few minutes here to lay out the
evidence and then we'll get into our conversation. So start
with the financial sector. These are companies that own and
trade in stocks and other securities, and they're some of
the largest and wealthiest companies in the world. You think

(07:55):
of you know Goldman Sachs, Well, you think of for example, Blackrock.
Black Rock owns a large portion of all of the
stock in the world. It has ten trillion dollars in assets,
and it encourages slash compels firms that it owns to
commit to various environmental, social, and governance causes what's called ESG,

(08:18):
which in corporate speak is the equivalent of diversity, equity
and identity DEI in university speak. Well, look at the
professional sector, law firms and hospitals. For example, my conservative
students in law school are terrified of being outed at
their law firms because they think, I think correctly, that

(08:38):
they're get passed over for work, or get passed over
as partners, that their professional prospects were being pinged if
they're exposed, and there's evidence of that. The most famous
is probably Paul Clement. Paul Clement is the former Solicitor General,
which for those of our listeners who don't know, is
sort of the biggest position you can have as a lawyer,
and he's one of the most successful lawyers of our general.

(09:00):
He was working for Kirkland and Ellis and he took
a case to the Supreme Court. It was a Second
Amendment case. He was defending gun gun companies. He won
the case and then got fired for winning. Hospitals. I
know of a major hospital. A friend of mine is
a doctor there. They had a mandatory training on implicit bias,

(09:24):
and as they were leaving, a doctor was overheard to say,
I'm so sick of all this woke stuff, and he
was suspended and investigated for racism on account of that remark. Oh,
you look at big tech. There are studies of political
contributions by the workforce and big tech companies. At Netflix,

(09:45):
ninety eight percent of employee contributions go to democrats, ninety
eight at Navidia, it's ninety three. At Adobe, it's ninety three,
at IBM, ninety at Google Slash Alphabit it's eighty eight.
At Microsoft, it's eighty five, At Apple it's eighty four. Essentially,
all US tech companies valued at one hundred billion or more,

(10:08):
are the employees are giving ninety percent or more of
their money to democratic candidates. It one turns to the
media sector, including social media, and so I'm thinking here
about tech based media like Twitter and Facebook, but also
traditional media like book publishers and newspapers. The picture gets

(10:31):
even more extreme and in some ways more disturbing, because
these companies have a special role in democratic speech. They're
actually like the instrumentalities by which speech is communicated. Just
like planes, trains, and automobiles move people around, these companies
move ideas around. They move speech around. Well. When the
Hunter Biden laptop story broke in the New York Post,

(10:58):
the story was about Hunter Biden having corrupt or and
savory dealings with foreign governments and Joe Biden being possibly involved,
and Joe Biden was at that time just a few
months away from the election that would make him president.
Twitter blocked the story. If you tried to tweet it,

(11:19):
your tweet would fail. This is Twitter before Elon Musk
bought it. So that's quite directly interfering with the transmission
of information with speech, and it's entirely partisan. It's essentially
election interference by a private corporation on behalf of one
party's candidate for president, and it wasn't just Twitter. Facebook

(11:39):
hid the material. The Washington Post and New York Times
disparaged and then buried the story. Subsequently, the story turned
out to be true, and some of the companies, like
the New York Times, printed retractions of their former statements,
but it was too late. The election was won. Or
you've got the story of the Trump deplatforming. Twitter deplatformed

(12:05):
a former president with forty million or so Americans listening.
And what I find interesting about that it's almost impossible
to explain from a profit motive. I mean, after all,
their business depends on having lots of people following influencers
or well known tweeters. You know, that's the business. Trump

(12:26):
was big business, forty million followers, but they deplatformed him.
There was This is where the story gets even more interesting.
There was an effort then to create a new Twitter,
a competitor with Twitter. That effort depended on Amazon server
servers under Amazon's control, and Amazon's spiked. They wouldn't sell
their server space to the competitor to Twitter, which is

(12:48):
also fascinating because it's so difficult to explain from a
profit motive. I mean, the obvious thing to do if
you can become a major competitor to Twitter is to
do it. There's also evidence in this vein from Amazon's
handling of disfavored books. A book came out on the
origins of the BLM or Black Lives Matter movement, and

(13:10):
Amazon prevented ads from being placed on behalf of that book.
Books came out on transgenderism, and Amazon either deshelved them
or attempted to shelve them right before the House vote
on the Equality Act. Returning to our most traditional media
of all, just standard book publishers, there are a plethora

(13:30):
of books by historians responding to and critiquing the sixteen
nineteen project, and the book publishers are refusing to publish them,
mostly because they're employees. They're often their entry and mid
level employees are protesting the book so vigorously that the publishers,
Penguin and the like just give in and say we're
not going to deal with this. So this is interesting

(13:51):
because all of this is how free speech works on
the ground, and you're seeing it blocked by these companies.
Looking beyond big tech and the professions and the financial
sector to just for profit corporations. Generally, what you see
is a lot of companies taking sides in the cultural wars,
even where their customers can be expected to be on

(14:13):
the other side. So I'm thinking here of like nfl
or Walmart or Target or Gillette or Martha Stort or Budweiser.
All of them have taken prominent positions on the progressive
side of the culture wars nowithstanding the fact that they
can anticipate that some large portion of their customer base

(14:33):
won't like that. Disney might be the most interesting example.
So Ron DeSantis, Florida governor at the time, prohibits classroom
discussion of sexual orientation at the elementary school level. Disney
denounces his position, and Disney ends up in a war
with DeSantis over this cultural war issue. It might be

(14:56):
that both of them wound up losers in that Disney
depends for its special tax status on the government of Florida,
which DeSantis headed, and might have alienated some customers. DeSantis
took some hits too, But the bottom line is, why
did Disney want to get into a fight like that?
What was the profit motive? And that's just the public

(15:19):
face each side. Behind the scenes, it's even more extreme.
You look at Coca Cola, for example, Coca Cola at
one point published a statement that it would only work
with law firms that have a certain number of African
American partners, and it secured collaboration with a number of
other corporations and started to essentially insist that law firms

(15:40):
partner more African Americans in order to get Disney's business
or Coca Cola's business. Rather eventually, that initiative was defeated
because it was so manifestly illegal, but it's widely suspected
that that sort of thing continues, just in a quieter fashion.
Turn from there to universities, and I think the instinct

(16:03):
is to overlook how powerful universities are. There's a lot
of joking about academia and sort of presenting it as trivial,
but in fact, if you just look at universities like
any other corporation, the first thing that pops out is
they are immensely wealthy. Harvard, Yale, Princeton, Stanford, these are

(16:24):
multi billion dollar organizations. The next thing that pops out
is they're very large. They have tens of thousands of employees,
and hundreds of thousands of students, collectively millions of students.
The third thing is they're very famous brand names. Harvard
and Yale, those are as famous as any brand names
in the world. Travel the world and you see Harvard
and Yale sweatshirts and T shirts because the brands are

(16:47):
well known. Unlike other corporations, universities certify members of the
educated class. You know, Coca Cola doesn't decide whether you
or your children end up being five figure earners of
six or seven figure earners. But Harvard and Yale and
Princeton and Stanford do. They do have that role of
certifying who gets to be in the elite of society.

(17:08):
They also educate members of the educated class. So how
do you think? What do you think about every public
school teacher in America passes through the university system. This
is a tremendous influence on ideas, and they are overwhelmingly
on the left. And the evidence here is, well, we're
both creatures of the university, and we know very well

(17:30):
how overwhelming the left wing orientation is in universities. One
study of the highest ranked sixty six liberal arts colleges,
there was a study rather a fifty one of those
sixty six fifty one of which they could get data,
so essentially call it the top fifty twenty five of

(17:52):
them had no Republican faculty at all. And those that
did its tokenism, it's one out of one hundred, one
out of four hundred, it's two out of a thousand,
those kinds of numbers. Now, I don't say all this
just to get conservative blood boiling. I want to get
in an analytical question. I think we've learned something from

(18:15):
recent history. Actually, we've learned two things from recent history. First,
we've learned that the market is not politically indifferent. It's
not conservative, for sure, and it's not exclusively profit oriented. Instead,
it's highly political, it's highly unified. It's left leaning or

(18:35):
just left wing, and it's ready to act on those
political preferences, even where doing so is not profit maximizing,
even where it's apparently costly. They're ready to sacrifice some customers,
They're ready to sacrifice some profits. They're ready to get
rid of some otherwise productive employees in exchange for other

(18:57):
goods identitarian or ideological god. And the second thing we've
learned is that the state isn't the only source of
a press of power. I think private power today is
a greater threat to freedom than public power. So all
of this has been building towards a big question. This
is the one that perplexes me and keeps me up
at night. And I think it's a perfect question for

(19:18):
you as someone who studies the interface between law and markets.
Is this the free market? Is what I've just described
how the free market really works? Maybe our Ronald Reagan
Milton Friedman expectations were just wrong. That isn't how it works?
Or is this not really the free market at all?

(19:41):
Is this some market distortion that I don't have a
name for, or maybe I do. Is this crony capitalism?
A lot of it?

Speaker 1 (19:50):
Yes, So get back to the nineteen eighties and what
the realistic expectations were. We understood that there was a
lot of sclerosis just stick with the in the United
States economy for the moment, a lot of sclerosis in
things like airlines and trucking and so forth. And even
before Ronald Reagan took office, there were some very serious

(20:12):
initiatives to right size regulation in a lot of industries.
The regular administration continued those initiatives, but in terms of
actually making the government significantly weaker in terms of quote deregulation.
It didn't accomplish that much now it was still under

(20:33):
It was also understood back in the nineteen eighties that
we did not understand competitive markets perfectly and that there
were some things in particular that needed a lot more work.
Anti trust was one of the big big questions early
nineteen eighties.

Speaker 2 (20:53):
Could you define antitrust for ours as listeners.

Speaker 1 (20:56):
Anti as in having a robust league framework that will
ensure that competitors and marketplaces do not engage in activities
that ineffect squelch competition. This has been a perennial problem.
Getting back to the founding era of the United States,
one great, great, great concern was monopolies and crony corporations.

(21:23):
Look at the bank debate over the Bank of the
United States, for example, especially the First Bank of the
United States, and you see a lot of anxiety that
there will be a corporation twenty percent owned by the
United States government that will in effect then be like
well a vampire squid, right, will have too much influence,
will in effect allow for a kind of oppression, as

(21:45):
you just put it, by a nominally private institution that
is connected very strongly with the government. So this notion
that one danger of government is that it will give
special privileges to private parties that will then use these
special privileges obtained from the government to engage in oppression.

(22:09):
That was one of the motivations for the American revolution.
American the American Revolutionary generation looked at the British Empire
and said, this is what is going on. That's what
they often meant when they talked about corruption, that the
government in essence creates rents and then distributes favors. And
then what do we have a whole lot of private

(22:30):
entities who have monopolies or some other kind of special
privilege with enormously detrimental effects for freedom.

Speaker 2 (22:37):
Can I just stop you there? So is the Founders
spoke about corruption? Was that something on their lips? Absolutely
when they talked about corruption. My model of corruption is
there's a government official and you pay off the government
official in exchange for some favor. Yes, it's quid procro corruption.
Are you speaking of that kind of corruption or something

(23:01):
akin to it?

Speaker 1 (23:01):
But not exactly this kind of this definition of corruption
is much broader, but the terms corrupt and corruption are
everywhere in the revolutionary and early National caread.

Speaker 2 (23:12):
When they speak of corruption, they're concerned.

Speaker 1 (23:14):
About quid pro quo corruption too. Of course, the standard
you go to a government official and you bribe him
so he gives you a building, a permit, or something
like that. But corruption had this broad meaning of a
rotten society, one in which there wasn't a level playing field,
one in which all men were not able to behave

(23:35):
as if they were created equal, which, of course the
Founding generation thought all men are created equal. But in
a society where the government is distributing special privileges and
so forth, picking winners and losers, then it really people
are not able to identify and develop their talents.

Speaker 2 (23:54):
So what would be an example of corruption, in the
view of the found generation, as they looked at the
British Empire, what would be an example of their vision
of corporate corruption?

Speaker 1 (24:06):
A government granted monopoly. And there were a lot of
government granted monopolies. And even though the United Kingdom in
the sixteenth and seventeenth and eighteenth centuries was a place
of extraordinary dynamism, it was also a place of a
lot of sclerosis and frustration, because many who had great
ideas and wanted to form firms and compete with existing

(24:30):
firms simply could not do so. So, thinking more about
the nineteen eighties, there was an understanding that antitrust, which
was a concern not only at the time of the founding,
also throughout the nineteenth century. You think about the concentration
that occurred in a lot of sectors of the United

(24:50):
States economy. In the late nineteenth century, the so called
Gilded Age monopoly, again as a concern, came to the fore.
The result was major statutes, including the Sherman Anti Trust Act,
that were very broad and were intended to give the
government the power that the government would need to ensure
that private power didn't get out of control.

Speaker 2 (25:12):
But by the.

Speaker 1 (25:13):
Nineteen eighties there was a lot of frustration with the
anti trust framework and how it had been enforced, with
many pointing out, and I think often with excellent reason,
that the anti trust laws themselves had been used as
a way for private interests who had influence over the
government to convince the government to use the anti trust

(25:34):
laws to beat up on their competitors. And so the
government stepped back in the nineteen eighties from vigorous anti
trust enforcement. It's not that anti trust enforcement went away,
of course not, but it stepped back and that may
have contributed some to the concentration in certain industries that
you referred to.

Speaker 2 (25:55):
Just now.

Speaker 1 (25:57):
The other factors too, though I emphasize the Affordable Care
Act passed in twenty ten, the Dodd Frank Financial Reform
Act passed in twenty ten. Also, those laws, I argued
at the time were blueprints for additional concentration in the
health and financial industries, respectively.

Speaker 2 (26:18):
So this is fascinating, but I'm a little skeptical. So
if I may, I have a skeptical question. So one
part of the picture that you're painting for us, I
think is that anti trust enforcement was reduced and that
led to consolidation. Could carry US industries.

Speaker 1 (26:36):
Could be a factor, could be a fact I can't
let me, could be a factor.

Speaker 2 (26:41):
Let me spell it out, and then we'll talk about
how much of a factor it is. The idea is
anti trust enforcement was reduced that contributed to more consolidation.
And indeed we've seen a lot of consolidation in quite
a lot of industries, in airlines and in retail selling
and so on. That led to concentration of market power

(27:02):
and then the picture is firms could indulge their ideological
preferences because they didn't face as much threat from competition.
If you have a large pool of the market, you
know what a customer is supposed to do. They either
don't use this good or service whatsoever, or they use
one that's produced by a political rival, because they don't

(27:25):
really have a choice. The thing that makes me skeptical
is that doesn't explain why the firms themselves are populated
by people of at least at the top, who are
so much on one side of the political division. I mean,
it might explain why if you have a firm, if
you have a Republican firm, it expresses itself in Republican ways.

(27:45):
If you have a Democrat firm, it express itself in
democrat ways. It doesn't explain why every tech firm valued
at more than one hundred billion is ninety percent or
more democrat.

Speaker 1 (27:57):
Well, there are a couple of things going on. One
is that firms that are protected from competition will often
engage in various kinds of slacking. And you're right, virtue
signaling or some kind of expression of beliefs might be
one aspect of that slacking. But It's very important to
note that not all CEOs lean one way or the

(28:18):
other politically. I suspect that a lot of CEOs who
are Republicans are a little bit quieter these days for
various reasons. I'm not suggesting that the idea that some
firms are protected from competent from the vigors of the
competitive marketplace is a perfect explanation, but I am suggesting

(28:41):
it might be a factor. In addition, because government has
remained so powerful we can explain. Again, I don't know
for sure, but it gets over the plausibility hurdle, at
least for me, the possibility that a number of firms
are attempting to please government. Because the deregulation quote unquote

(29:02):
of the nineteen eighties, as I just mentioned, was not
a massive reduction in government power. In particular, ideas that
the constitution provide robust protections for economic liberty, thereby significantly
limiting the regulatory power of government, those ideas never got

(29:23):
much momentum in the nineteen eighties, and so we remain
a nation where the state governments have very broad police powers,
under which state governments can engage in heavy regulation of commerce,
and a world in which the United States government has
also very strong powers, in particular under the Commerce Clause,

(29:47):
they can regulate vigorously, and they do. And so what
I see is that for profits firms very often are
eager not to be on the bad side of the government.
And if they believe and again this is something that
I have heard expressed, we cannot know for sure whether
or not it is true or not. But if those
who are running profit seeking firms have concluded with some

(30:11):
reason that one political party, one major political party, is
more likely than the other to engage in vigorous regulation
of the economy, that it just so happens, is more
likely to benefit their supporters than their opponents, well, then
a lot of what you've just described makes eminent sense.

Speaker 2 (30:33):
Well, another skeptical question. I think it's clearly true as
you say that we have a lot of government involvement
in business, that there's just a lot of regulation. I
think about you know, pharmaceutical companies, and they're acting in
the shadow of FDA approval. Their whole operation depends on

(30:53):
FDA approval, and that means they're constantly subject to sort
of regulatory oversight. Same with any kind of securities firm. Really,
any business whatsoever is pretty much operating in the shadow
of regulatory approval.

Speaker 1 (31:06):
It's not just the FDA for pharmaceutical firms. Remember that
approximately half of the healthcare dollars spent, very roughly, are
spent by government, And so if you are running a
pharmaceutical firm, you have to understand that the government is
one of your biggest customers, if not your biggest.

Speaker 2 (31:24):
Cost through Medicare and Medicaid exactly. Yeah, Now there's no
point taking.

Speaker 1 (31:28):
Other things too, So you would tremendous.

Speaker 2 (31:31):
Government in the healthcare business and significant, if only slightly lesser,
involvement in other lines of business. That said, how do
you make the last step that this very leftward orientation
of the firms is on account of their trying to
please government. I mean government switches pretty regularly between federal excusee.

(31:55):
Republican and Democrat on the national level and on the
state level. A lot of the states are and some
of them are blue. So it's divided. The government is divided,
politics is divided, but the firms seem more like a
lobby group on the progressive side. I mean, they're rather
unified relative to government itself. So I would think if anything,

(32:15):
government would tend to make them less left wing than
they are.

Speaker 1 (32:18):
Well, two things. First, if it is correct, as many
have argued, and again this gets over the plausibility hurdle.
If it is correct that one major political party is
committed to more vigorous regulation, then it makes sense for
many who run for profit firms to be more nervous

(32:40):
about the political party that is more enthusiastic about regulating
the economy than the political party that has as one
of its most important guiding principles less regulation of the economy.
So to me, that's not hard. Second is the role
of ideaology, And here we come to your expertise. You

(33:03):
are the person in this conversation who has studied ideology
much more than I have. This fire in the minds
of men, as Dostoevsky put it is absolutely a factor,
I think in every society everywhere, and we certainly have
seen some fiery ideas. I would say, catch on ones

(33:23):
that if you're pointing out that the holders of these
ideas appear to be, or at least some of the
holders of some current ideas seem to be at least
some of the time, engaging in behavior that is not
at least from some perspectives in their own long term
best interest. I agree with you, And it's always interesting
when one sees that, or thinks one might be seeing that.

(33:45):
It's always interesting to ask why. So maybe I'll turn
the question back on you, I mean, why do you
think that we see this? I will note that some
of this is self correcting. I've been watching the corporate
America very carefully during this the ESG investing, for example,
which has in ESG initiatives. We have seen a retreat recently,

(34:10):
both in ESG investing and in companies themselves talking about
their ESG initiatives in fact, and part of this is
I think that maybe some of the fervor has worn off.
It's also the fact that it's become clear that some
of these actions were not promoting corporate the corporate mission

(34:30):
of most importantly, creating value for shareholders and in a
reasonably competitive economy, and we do have a reasonably competitive economy,
it will occur to people running for profit firms that
they cannot cannot engage in more than so much of
this sort of behavior that is not ultimately benefiting their shareholders.

(34:52):
Now universities have much more ways to indulge this.

Speaker 2 (34:58):
Sort of behavior from competitive pressures. But may I just
return to a theme here, So I want to drill
down a little deeper because of my feelings of puzzlement
and my uncertainty about whether what's going on is the
free market doesn't behave as expected or experiencing some distortion
in the free market. The picture that you've you've emphasized

(35:25):
that this is multi factor, and I want to note that,
but you've emphasized to some extent the desire of businesses
to please government, right, And they're so regulated, so thoroughly regulated.
They're trying to please government, and they sense that one
party is more willing to regulate them than others. And

(35:47):
the picture is that the leadership and the businesses themselves
are not deeply ideological or of divided ideologies, but they're
trying to sort of please a master who is more ideological,
or who presents her an ideology to a risk that
isn't my picture of the people involved. I know a

(36:07):
number of the people who make my conservative students scared
at law firms. I know some of the people in
the hospitals, I know some of the people in finance.
I think you do as well, and They're not just
trying to please some outside influence. That's not what's moving them.
They are, in fact the executive set within their various businesses.

(36:33):
They're the doctors, they're the leading administrators, they're the law
firm partners, they're the consulting firms, managing directors. They're people
of influence within their various for profit institutions, and they
strongly believe in certain values and they're using the power
at their disposal to promote those values. They're not doing

(36:54):
it to please government, notwithstanding the fact that they themselves
are more uncertain or agnostic or on the other side moderate.
They're doing it because they believe it. I feel like
that part's being minimized is how we got personnel in
the leadership side of our major corporations, or the skilled

(37:15):
labor side of our major corporations. That was largely on
one side of the political aisle. But believe what you say.

Speaker 1 (37:22):
Believe it, and it's very interesting to me that you
can't define it. And we are living in a world
where there have been enormously fast shifting, fast shifts in
the goals and mission of the Democratic Party, maybe the
Republican Party too, But this is complicated to me. So,

(37:44):
for example, take free speech. Free speech, for a long time,
I'm oversimplifying obviously was identified as a quote left wing cause,
and then in our lifetime we saw a flip, so
that now anyone like us who goes around extolling the
benefits of free speech and freedom of thought is immediately identified,

(38:07):
at least in many eyes, with the right. So when
you see people who are willing to change their commitments
just because this is now the thing to do, I'm
not sure that what they're doing is expressing any values
or principles or even strong convictions. They are possibly just

(38:32):
going along to get along. They're ambitious people, man, that's fine,
And so it turns out that in order to rise
in an organization, it's better to have these beliefs. It
turns out they have these beliefs. It has not surprised
me at all that when things got a little bit tough,
and when it became apparent that it might be a

(38:52):
bad thing for profit seeking firms to engage in a
bit of the behavior that you were just describing. Is
an excellent example. What we see is the corporation actually
step back a bit. Disney is looking to my eyes,
anyway less politicized these days, we'll see. I'm watching carefully.

(39:13):
They seem to have i think taken some big hits
potentially from having gone in an overtly ideological direction. I
think it was unwise, and they seem to be thinking
better of it. We've seen similar developments with other with
other for profit firms, and so I'm not suggesting that

(39:37):
everything that you discussed you just described the causes you
concern is obviously self correcting, and the problems that you've
just described are going away. But we certainly have seen changes,
significant changes in the last year or two. And I
haven't even gotten to Twitter, which now is to me anyway,
an extraordinary platform where a lot of ideas are permitted,

(40:00):
and where I am seeing people put out all kinds
of very important, fascinating ideas and get Oh sure they
often get a lot of abuse or a lot of
denunciation and so on and so forth. But you know what,
I'm seeing lots and lots lots of ideas generate responses
that are constructive engagement, both supportive and also skeptical. I

(40:23):
think this is wonderful.

Speaker 2 (40:28):
Can you define crony capitalism for our viewers? And let's
turn to that. Now, let's really focus on what is
crony capitalist.

Speaker 1 (40:36):
I would say it's probably a bit of a misnomer
in all candor, because I would say crony capitalism is
not true capitalism. Crony capitalism is when there is a
nominal market. You're not told that the government owns the
means of production and that the government controls the distribution
of goods and resources. But you are told, in effect, yes,

(40:56):
there's a market, but it turns out that the market
is so dominated by the government or by those who
are closely connected with the government, that in fact there
is very little competition.

Speaker 2 (41:11):
And it's called cronyism, crony capitalism, cronius because of the
relationship between business leaders and political leaders. It's sort of
like the only way you can succeed in business is
to know the right governmental figures. And there's a sort
of cooperative relationship where people leave government for business positions

(41:32):
where they get rich, and leave business positions for government
where they make sure that the regulatory apparatus favors their friends.
And there's a sort of revolving door relationship that make
sure that this unity is maintained and particularly tends to
stifle competition from upstarts who are from outside the social

(41:52):
world of the business slash politics elite.

Speaker 1 (41:55):
That is essential to stifle competition. If competition's not stifled,
the whole doesn't work. So I would prefer cronyism or
even corruption, although as you point out now, corruption usually
means quid pro quo. But I like the definition of
corruption as used in the late eighteenth and early nineteenth century.

Speaker 2 (42:11):
So you could call it like corruption broadly defined. You
could call it crony capitalism, or you could just call
it cronyism. It's about the relationship between government and business.

Speaker 1 (42:20):
Yes, I guess chron and I prefer cronyism because again,
it's not capitalistic, although it wears the shell of capitalism, right,
it's in effect that the market has been hollowed out,
but that the garment, the exterior garment of the market,
is being worn. And then people on the left will

(42:43):
often say, perfectly understandably, you see, markets are not actually
delivering what people need.

Speaker 2 (42:49):
I have a funny anecdote about this, moderately funny. When
I was when Obama was elected the first time, I
was about a year out of law school. All of
these friends and you know, fellow recent graduates of law
school flowed into the administration and stayed there somewhere between
four and eight years, you know, depending on how their

(43:11):
careers worked out, And almost all of them exited to
the big finance firms. It didn't matter what their prior
background was. Many of them knew nothing about economics. They
had done, you know, low stuff they had done like
constitutional law in the Obama administration. But they all exited
into hedge funds, private equity firms, and similar kinds of

(43:35):
financial firms with they immediately made seven figure incomes. And
I remember thinking this doesn't make any sense. I mean,
they don't have any of the relevant training, and wondering
for the first time in my life, is this crony
capitalism or whatever we want to call it.

Speaker 1 (43:51):
It makes complete sense by your own description. If what
these firms, these financial firms need, are people who can
assess and monitor political risk. Political risk is never absent.
I would never suggest that, even in the freest of markets,
that there is no political risk. And in my work

(44:14):
on takings and the Fifth Amendment and the power of
government to regulate property and to actually flat out take
property through the operation of eminent domain I work a
great deal with concepts of political risk. But how much
political risk there is and how much attention financial firms

(44:35):
have to pay attention must pay to it depends upon well,
how things are going in politics. And when I see
a number of people whose expertise is identifying, assessing and
monitoring political risk get jobs at big finance firms, what
that suggests to me is that big finance now thinks

(44:57):
that it is facing serious political risks and it needs
to staff up to deal with them.

Speaker 2 (45:03):
And that's what my friends tell me. Actually, they say
that there's other people who are partners at the firm
because they do the number stuff and they're there to
talk to people in government. It's not even like assess
political risk in the sense of like reading the newspaper
and making judgments. It's talking to people in politics to
reduce political risk.

Speaker 1 (45:21):
I guess you could say they're assessing it too. Yeah,
their conversations assess and reduce and it raises, of course,
very difficult questions because, as you point out, this can
give firms a powerful competitive advantage if they have on
staff people who routinely talk to government and are getting
material non public information from government. We have in our

(45:46):
securities regulation regime. We have tried very hard. It of
course is impossible to do perfectly, but we have tried
very hard to make financial markets a level playing field
or a level ish playing field, such that those who
hold material non public information about particular firms will be

(46:09):
severely limited in their ability to trade on it and
make money from those trades. But we are in an
era where still those who have access to political players
will be able to collect material non public information and
make money off it. I think that is something that
we need to think about very seriously. How are we

(46:32):
going to limit this?

Speaker 2 (46:34):
So, if I could bring it back to the question
that motivated a whole discussion, the thing I just can't
figure out is, you know, we're Reagan and Milton Friedman
and Margaret Thatcher and the other you know, leading ideas
people and political people of that era just wrong about

(46:55):
free market leading to a free society, leading to political freedom.
In fact, free markets can easily lead as they have
to sort of political denomination by our corporate by our
profit sector, for profit sector or is this not really
the free market?

Speaker 1 (47:13):
I say, this is not anything like what one would
call a free market. These there highly regulated markets where
there are opportunities for the strong players to work with
government in order to frustrate competition. I think the pronouncements
of Market Thatcher in particular have actually aged extremely well,
except for one, the one where she said there is

(47:35):
no such thing as society. I understand what Market Thatcher meant.
She was trying to call attention to the fact that
ultimately how well things go depends on all of us
as individuals, and no single individual in a society can shirk.
A society is made up of individual people who need
to be on balance making good decisions. But in saying that,

(47:57):
she I think made people forget about the importance of community,
the importance of non market institutions to the wealth, to
the functioning of markets, forget about the half of Adams,
the part of Adam Smith that emphasized moral development and virtues.

Speaker 2 (48:17):
Okay, so I should. The thought here is, you know,
if you're a friend to individual freedom, if you're unhappy
with what's happening in our for profit corporate realm, Ideologically,
the answer is not to turn away from free markets.

(48:37):
The answer is to recognize that we don't have a
truly free market, which is to say, a truly competitive
market and to try to restore a genuinely free, genuinely
competitive market with less government involvement, less cronyism, and so on.

Speaker 1 (48:53):
Yes, exactly. Think a lot about the promise of information technologies,
including AI. Think a lot about antitrust and how to
craft a better antitrust regime, things of that sort. Not
to suggest that markets have been tried and have failed.

Speaker 2 (49:10):
I just have one more question before we wrap up
this first hour of our talk together. It's along these
same lines, but it's more concrete. Let's say someone gets
fired from their law firm because of their tweets? Is
that a kind of tyranny? Should we classify that as
a kind of tyranny? Doesn't? In asking that an associated question?

(49:35):
Does it matter what the tweets say? Yeah, certain things,
Yeah you should get fired for saying that, But other
things you shouldn't. And it's a question of line drawing.
It seems to me that it's in these market relations.
Will you worry that like this tweet or even this
position at my PTA meeting will get me fired from
my job. That's where people encounter power. They don't encounter

(49:59):
power because of the old image of the police knocking
at the door and disappearing you. They encounter power in
those market relations where they worry about expressing who they
really are because of its professional effects. And likewise, is
it and should it be lawful for a private firm
to fire you because say you oppose the trans movement

(50:22):
or oppose the Black Lives Matter movement as a movement.
Is allowing firms to have that kind of control over
their employees consistent with free market values or is it
antithetical to free market values?

Speaker 1 (50:36):
Well, there is always going to be a line drawing problem.
You're absolutely right. It's possible that political convictions could be
added to the list of qualifications and attributes for which
firms can't fire their employees. There have certainly been a
a i'd say, not a strong movement, but a bit
of a movement.

Speaker 2 (50:56):
Right.

Speaker 1 (50:56):
There's some municipalities, for example, that have protections the civil
rights laws for political affiliation. That's certainly a direction that
we could go in. I think ultimately, though, there have
to be discussions that are honest and thoughtful in a
society about where that line is drawn. If an employee

(51:17):
is tweeting out threats to kill other employees, that is
a problem, and of course that's going to result in firing.
We have lived in it. We are now living in
a society where, at least in recent years, there have
been examples, and you mentioned some of them, where people
have been fired or been deprived of professional opportunities for

(51:37):
things that seem fairly trivial. Now there's been enough publicity
about this and so few people support it that this
actually might be self correcting. We might have seen, in
other words, the acme of the cancellation movement, and we
might be returning to a comer, commer environment. If we

(51:58):
continue on in an envitce where it seems that a
lot of people are afraid to engage in reasonable discussions
in a reasonable way because of cancelation, then we're going
to have to think more about what we can do
in terms of both changing laws and in terms of
how we will change our society.

Speaker 2 (52:18):
You know, I was in high school the first part
of college in the nineties, and I remember the movement
that is now called the woke movement was then called
political correctness and identity politics, and all around me I

(52:42):
heard that this movement has reached its acme and it
will now recede. There are self correcting forces that will
slow it down. Alan Bloom's famous book Closing of the
American Mind was about the power of this ideological movement,
and it was written in I believe it's copyright data

(53:03):
is in nineteen eighty seven. That sounds right, And everyone
thought it had sort of crested and would recede, but
it didn't. Kept going. And then as I was, you know,
graduating from college in the very early two thousands, I
was told the movement has crested, it will now recede.
It just continued getting stronger. And then I remember in

(53:25):
law school in the mid two thousands, I was told
it was crested, it will now recede it. And now
I'm just hearing again, you know, maybe with COVID or
with Trump or something or other, it is crested and
now we're received Always there are these self corrective mechanisms
that I cited. Never in my life have I seen it.

(53:47):
I'm a middle aged man now and I have been
interested in this phenomenon from my entire life, and I
have heard predictions about the cresting and self correcting and
receive eating and they've never come true. Now, I guess
twice a day. A stopped clock is right, right, But
maybe the analogy isn't to a pendulum that self corrects

(54:09):
back to center. Maybe the analogy is to a snowball
rolling downhill where it just gathers steam and it's continuing.

Speaker 1 (54:16):
So it's your explanation, because I view you as an
expert on ideology and the grip that it has on people.
Is this what you think is going on?

Speaker 2 (54:26):
I think that there is a a class consciousness what
marks termed a class consciousness, And essentially, the people who
have gone to prestigious schools and even semi prestigious schools,

(54:46):
who have joined the educated classes and gotten the kind
of jobs at the heights of our institutions that come
with those educations share a common ideological orientation and overwhelmingly
so and have shown that power comes from being at

(55:09):
the heights of these institutions. Now, some of these institutions
are governmental, and so you have this class consciousness in
many of our administrative agencies in our state and federal
government units. But these institutions are also non governmental. They're
for profit, they're not for profit, they're corporate, their law firms,

(55:30):
their hospitals there, whatever they are. But you have essentially
the same class consciousness in all of them. And I
think that class consciousness. First of all, it's passionate, it's
held with religious fervor by some, and as you pointed out,
with a sort of more casual this is what will

(55:51):
get me ahead conviction by others. But the combination is
such that you have all of the people in not
all the overwhelming majority of the people at the positions
of institutional leadership, sharing a common set of ideological or
political convictions, largely on the progressive side, and they reassert

(56:14):
themselves like fraternities. They pick future members, and they control
who future members can be. If you want to get
a job at the hospital, you have to be hired
by the people who are who have jobs at the hospital. Now,
the doctors that administrators likewise, the law firms likewise, the
universities likewise, the government agencies. So the population. It doesn't
self correct, It reinforces itself over time and gets ever

(56:37):
more extreme. And I don't believe there is any self
corrective mechanism that will lever work. I think the only sorry,
just to finish this thought you did ask, I think
the only mechanism is majoritarian power, democratic power, versus institutional power.

Speaker 1 (56:54):
Yeah, that sounds right. And what you've described is a
classic class consciousness that will protect them from petition. What
you're describing is in effect a world where those who
don't know how to conduct themselves, who use the wrong word,
who don't have the right credentials, will not be able
to be in the mix for a lot of very

(57:16):
desirable jobs. I mean, so it's just a classic ruling class.

Speaker 2 (57:20):
And the idea class is the perfect term.

Speaker 1 (57:23):
And the ideology then there really doesn't seem to be
much of one.

Speaker 2 (57:27):
There is one, but you're right, it's somewhat flexible. It's
the ideology of the ruling class. You're adopt it in
order to be part of the class.

Speaker 1 (57:34):
And where the ideology changes, as by your description anyway,
the beliefs of these individuals will change. So I think
you're absolutely right that for something like that, democracy is
the only answer.

Speaker 2 (57:47):
So this is interesting. So when let's say the problem
is defined as an ideologically unified ruling class, and a
ruling class rules in different domains. It rules in government,
it rules in for profit corporations, it rules in other
nonprofit institutions, just rules. Right, when I think about the

(58:10):
solution to an ideologically unified ruling class. I think about
the lawmaking power of democratic majorities. You think about that too,
But you think about another thing too, You think about competition.
I mean, how do you break a ruling class. You
break it with competition. And so the question then would
be what policy interventions would make society more competitive so

(58:34):
that you can't be just sort of a member of
the ruling class in virtue of the combination of your
credentials and your ideology. Is that fair?

Speaker 1 (58:42):
Well, one thing that I think can be enormously helpful
we are already seeing, which is the removal of degree
requirements for a number of jobs.

Speaker 2 (58:51):
Yeah.

Speaker 1 (58:51):
I think that is huge. It was a very big
mistake to move away from the idea that employers should
be able to hire someone who hasn't been to college,
or maybe hasn't been to and give that person a chance.
So when I see a step back from the degree
requirements that had become so common, particularly the bachelor's degree,

(59:12):
I think this is excellent. I also think you need
to have more competition in for profit firms and more
competition in the in the nonprofit sector, especially universities, which
we can talk about more in the second half of
our program. If we have more real competition, then that

(59:32):
will in effect put pressure on those who run these
institutions to find talented people who are not and not
just replicate themselves.

Speaker 2 (59:42):
I have this crazy policy idea, and I wasn't planning
to ask you about it in this interview, but I
want to just throw it out there because it's so
apropos of our conversation. I just want to see how
you react. Let me put this out not as a
firm like we should do this, but as a sort
of a thought experiment. What if we made it it

(01:00:02):
among the things you can't discriminate on the basis of
right we have race, and national origin, and sex and
disability and so on. If we added to the things
you can't discriminate on the base of pedigree, that is
to say, where you graduated from, so you can't favor,
legally can't favor. And let's assume we can make it
impossible someone with a Harvard degree over someone with my

(01:00:25):
hometown when my mom was a professor University of Alaska,
Fairbanks degree. You just can't. What you can do is
give them and in fact, you're required to do this
by law. We can imagine, to the extent possible, give
them both a test for performance, and if the UAF
computer science programmer can outprogram the Harvard computer science programmer,

(01:00:47):
that person is entitled to the job, notwithstanding the difference
in their degrees. Or like with law firms, if the
law firm has to have them write a memo or
write a legal brief and has to evaluate them and anonymously,
and the person who can write the better briefer memo
gets the job over and that will force the pedigreed

(01:01:09):
institutions to actually train their people better or lose in
a competitive marketplace. What do you think?

Speaker 1 (01:01:16):
It's an interesting idea. It's it would I mean, you
would of course have the response that that's just one
short behavior sample as opposed to a degree from a
challenging place that presumably reflects a lot more work. But
it's interesting if.

Speaker 2 (01:01:34):
We have doubts about that premise that the challenging place
really is more challenging. I can tell you, as someone
who has taught at a number of universities, the great
inflation at elite schools is unbelievably rampant, and they're not
genuinely more challenging than the non elite schools.

Speaker 1 (01:01:51):
So I would all things being equal, I would like
to impose fewer, not more requirements on employers if they
if this, if what you say is true, the employer
should be able to figure out for themselves that they
need to change course. And I have heard anecdotally about
employers who are less, far less impressed with degrees from
fancy schools than they used to.

Speaker 2 (01:02:14):
But maybe this is where we part ways, because I
think the solution is to use democratic power to impose
pro competitive requirements on the private sector. And it sounds
like you would really rather avoid legal requirements.

Speaker 1 (01:02:30):
I would not have that as my first choice. I
think that there are just a staggering number of requirements
that many businesses have to comply with, and that that
in and of itself puts a very very very strong
thumb on the scale in favor of the sorts of
people you were just describing, who are members of what

(01:02:51):
you identify as a ruling class, and they are selected
for membership in part because they are so familiar with
this world of intense regulation. And someone who just shows up,
who isn't used to, who doesn't think about how the
government works, doesn't understand how government officials will save view

(01:03:14):
and application to do business and so on and so
forth is at a big disadvantage. I would like to
roll things back, not to get rid of, of course, very
important health and safety regulations. I believe that governments must
have powers to order society, and that those powers are
going to be strong in some areas, particularly health and safety.

(01:03:37):
But all sorts of regulations that are hard to navigate
are the friend of those who know the rules and
come from pedigreed backgrounds, et cetera, et cetera, and the
enemies of those who are trying to get somewhere in
this world.

Speaker 2 (01:03:55):
Julia, thank you so much. We'll continue in our second hour.
That was absolutely fascinating for me and I hope brothers, oh,
thank you.