The Economist’s Economist, an interview with *Gary Becker

Gary Becker - interview on October 28, 2010

This is an unedited transcript of the Interview

Peter Robinson: Welcome, I’m Peter Robinson. A professor at the University of Chicago for more than three decades, *Dr. Gary Becker is a founder of the Chicago School of Economics. He is a winner of the John Bates Clark Medal and of the Nobel Prize for Economics, which places him in an unusual position in the field of economics, as he has nothing left to prove to anyone. Dr. Becker publishes regularly, maintains a full-time teaching load and blogs on the Becker Posner Blog, one of the best read blogs on law and economics. Several times a year he visits us here at Stanford, where he is a fellow at the Hoover Institution. Gary Becker, welcome.

Peter Robinson: What happened? 1983 to 2008, the American economy grows – a quarter of a century of growth marred only by two brief, shallow recessions, and then beginning the autumn of 2008, a credit crisis and in the month that followed, perhaps the worst economic turmoil since the Great Depression. What hit us?

Gary Becker: Financial crisis is what hit us. We had over particularly the period in the 2000’s great expansion of credit, banks were very exposed in the housing market and elsewhere, and expansion was partly the fault of the banks and partly the fault of the government and the Fed who kept interest rates low during particularly 2004 – 2006 and Congress who urged the banks to be lending to low income groups with low credit. So, we had the Community Reinvestment Act that began actually in the 1970’s, but then the great push began in the 1990’s and then in the 2000’s to lend more and more to these groups, who really didn’t have the credit rating or the income to take any realistic scenario about long-term prices, housing prices, payback. So, you put all these things together and we did have an enormous financial crisis, then spill over and it affected the economy as a whole. So, while the financial crisis was the worst we had since the Great Depression, there’s no doubt about that. The real economy effects were among the worst, but weren’t so far worse in the 70’s and even the early 80’s and so on. You know there were others that were close to an income...

Peter Robinson: Gary, the conservative that I am, I’m perfectly – it makes all the sense in the world to me that the government was involved in this in one way or another. The Fed is too loose with money, Barney Frank and Congress is pushing credit to people who can’t afford it. But that the banks got it wrong. That they didn’t understand their own exposure, that people who were extremely well paid and in a highly competitive environment, so I feel – let’s put it this way, when Alan Greenspan testified before Congress in 2008, I felt for him. Let me just read this to you. This is Greenspan testifying, “I, Alan Greenspan, I made a mistake in presuming that the self interest of banks and others was such that they were best capable of protecting their own shareholders. The loan officers of those institutions knew far more about the risks, I assumed, involved in the people to whom they lent money than even our best regulators. A critical pillar to free markets did break down. That shocked me; I still do not fully understand why it happened.” Did you feel his shock?

Gary Becker: Well I was – I don’t know if it was shock, but I was disappointed and it's a challenge to understand what went wrong. What I think went wrong. I believe the government said, as you said that, that was a contributor, clearly significantly. But they weren’t the only ones and I think Greenspan was actually right. What I think happened was the banks and including very able people, like I once asked a very eminent banker who survived pretty well the crisis, what about the head of Lehman? He said no, as far as he knows he was a very able person, Paul I think his name was. I think the banks didn’t understand the risks that they were dealing with. They thought they were

 Peter Robinson: So, if the President had called the University of Chicago, Department of Economics and said, “Dr. Becker convene your colleagues, let me know in 24 hours what I should do, I’ll do it.” You wouldn’t have been able to tell him.

Peter Robinson: And greater than regulators appreciated. Nobody expected this.

Gary Becker: Regulators were sure they had the power to stop a lot of this. So, people were saying that we need more regulation. I always answer them, but the regulators had the power in the past and didn’t use it what makes you think they’ll use it in the next crisis, although I hope it's not so severe, but there will be further crisis in the future, no matter what we do, hopefully of a less severe magnitude.

Peter Robinson: So, Gary can I – just a summary statement on that. Did the markets fail? Your friend Richard Posner put it just this way in 2009, “Some conservatives believe that the depression was a result of unwise government policies. I believe it is a market failure.”

Gary Becker: Well, first of all I don’t call it a depression. I debated Posner on that, it was a serious recession.

Peter Robinson: He’s already pulling a fast one with that, alright.

Gary Becker: A depression I would call what happened in the 30’s, which was somewhat at five to ten times as severe, so we have to put it in perspective. It was bad, but not that bad. It was – elements of market failure in the financial sector, not in the economy as a whole, most of the markets performed very well. Productivity was high. Productivity continued to be high. You look at measures of productivity after the crisis erupted – productivity in the American economy continued at a high level and that’s why people say output started growing pretty well, but employment didn’t because the difference is the growth and productivity. So, productivity continued to do well. So, not a general failure, but I would say within the investment bank, commercial banking sectors it was certainly a failure. They didn’t perform very well. That’s what I would mean by a failure.

Peter Robinson: Alright Segment II. Trying to fix it. February 2008, President George W. Bush signed into law one hundred and sixty-eight billion dollar stimulus package – this is almost entirely tax rebates. October, 2008, Bush signs into law the Emergency Economic Stabilization Act, a major component of which is the seven hundred billion Trouble Asset Relief Program or TARP. Grade the Bush Administration’s response to the crisis.

Gary Becker: Well, well mixed I always say, I am a teacher I use A, B, C, and D. He wouldn’t get an A. But I wouldn’t give him a C either. I would give him somewhere in the B, B- partly because it caught everybody unaware and so, how to react to it – we weren’t prepared in reaction to it, whether with Bush or anybody else in power. I think we weren’t prepared.

 Peter Robinson: Otherwise, right.

Gary Becker: We might have told him something, but I don’t think we would have had it perfect. I don’t think we would have had it perfect. First of all, it wasn’t clear. I will say for myself, it wasn’t clear to me initially how much the financial difficulty, which eventually became a crisis, which spilled over into the real economy. These sometimes are financial problems and the real economy doesn’t suffer so much. And for a while it looked like that was going to be the situation in the United States. That was uncertain. In terms of overall things that the Bush Administration did, I think – I generally believe tax cuts are good. I think they are better than government’s increased spending, so if I had to say which stimulus do I prefer, I certainly prefer the tax cuts that the Bush Administration did than the stimulus package that the Obama Administration eventually did.

Peter Robinson: Let me just get that out. February 2009, President Obama signs into law, seven hundred and eighty-seven billion dollar American Recovery and Reinvestment Act, which we all refer to casually as the Stimulus Bill. That’s now up to something like eight hundred billion dollars. Two intriguing facts about that to me; by August 2009, only about a fifth of that had been spent. As we take this, only two-thirds has been spent.

Gary Becker: Well first of all, it's long been known in the business _____ [00:09:59] literature that fiscal stimulus in terms of government spending are bad countercyclical policies because they take very long to get implemented. You have to first decide on the amount, how is it going to be spent, and so on. And no government has a whole backlog of projects that they can immediately implement. So even though you think fiscal stimulus in principal are a good idea, we know they don’t work out very well because of the long lags in getting them spent. And you saw that in this episode. Secondly, the program with the stimulus package that was passed was that it was directly. It was mainly not so much a stimulus package, even through that’s what it was called, but it was an attempt to reorganize parts of the American economy in terms of the sectors that Congress and the President believed were under funded, not too little employment or too much unemployment, but under funded. They really wanted to see it expanded. That’s true why they supported the energy program within the alternative energy sources. They supported higher education and supported educational programs. They supported R&D. Some of those may have been worthwhile, but it had very little to do with stimulating the economy, because these weren’t sectors that had much unemployment.

So, let’s say you increase research on wind power. Well you are going to draw people who were doing research or engineering from other activities. These weren’t unemployed people. Unemployment is still as in all recessions, heavily concentrated among the low-skilled, the low-educated people. The educated people, the college graduates have really quite low unemployment. The long-term unemployment, which is a serious problem when you deal with unemployment, is concentrated among the less educated, low-skilled. The stimulus package wasn’t addressing their needs. So, I thought at the time that it would be failure. I still think it's a failure. It's not easy to get hard evidence to evaluate what the effect of the stimulus on unemployment and so on. A lot of the claim that it created X-many jobs is complete nonsense. They were counting anybody who was employed by the stimulus, without saying well what would they have been doing otherwise.

 th Century, he always if we have a financial crisis you need a very proactive Fed. They should be buying assets, creating money, and that’s what they are doing, creating money, creating bank reserves, which will hopefully create money and putting pressure on interest rates. So some of that I think was desirable and important to do. Now, was it all desirable and you mentioned like six or seven different things that they did...probably went too far on the TARP program. They shouldn’t have done as much. On low interest rates – probably desirable to push interest rates down to some extent and to buy bonds. Unfortunately, they create a lot of excess reserves in banks and now we are well over a trillion dollars worth and they may go higher with QE2 and that didn’t stimulate much bank lending. So, the question I would ask is with all these reserves that banks have now, why aren’t they lending more. That to me is really the important question.

Gary Becker: And that’s the real test. So, I think most of that stuff is worthless. It will take a while before we really are able to evaluate, but my own belief has been that it was a failure. They spent a lot of money and didn’t do much in terms of creating jobs.

Peter Robinson: Gary you mentioned that you prefer tax cuts. Here’s a provocative formulation by Art Laffer, who lives for provocative formulations, “The Federal government has spent somewhere around 3.6 trillion to stimulate the economy. My suggestion would have been to declare a Federal tax holiday, no income, no corporate profit tax, no capital gains tax, no payroll tax, no Federal taxes at all, which would have reduced Federal revenues by 2.4 trillion annual. Can you imagine where employment would be today?” Is that shear impishness or is there something to it?

Gary Becker: There’s something to it. I mean I wouldn’t go along with the full implications of what he’s saying. I think we need it to help the banks, one of the sources of the problem. I don’t believe that an attempt to help the banks was a mistake. I think we needed to help the banks and the bank balance sheets were in terrible shape and a lot – Goldman and others would not have survived is something wasn’t done on the bank investments. I think we need some direct help to the investment banking. On the other hand, I do believe that tax cuts are the right way to attack, not only a recession like the serious recession that we had, but also – and what I would consider the really the primary problem for the US economy – how can we spend up the long-term rate of growth? Given that we have this debt, given that we have the entitlements coming up, that the economy will grow enough and we can keep spending from growing quite as rapidly – if we can increase the rate of growth of the long-term rate of growth of the economy by one-half of a percent per year, I think we can handle most of our debt problems pretty well and yet have a much better economy. So, tax cuts are important in achieving that goal. We have too high of corporate income tax. We should not raise the marginal tax rate on higher income people. We need to do a bunch of other changes that would be necessary. So, in that sense I agree with Art on it that we could have done without any attempt to help the banks – banking sector – I think no, I don’t we could have.

Peter Robinson: The Fed. The Fed’s response to the crisis - Ben Bernanke helps engineer the takeover of Bear Sterns by JP Morgan, supports the seizure of Fannie Mae and Freddie Mac and agrees to the eighty-five billion dollar rescue of AIG, helps Treasury Secretary Hank Paulsen convince Congress to approve the TARP, and since then the Fed had kept interest rates close to zero and engaged in the purchase of mortgage bonds, driving down the long-term rates and swelling the Fed’s balance sheet to some two trillion. You grade that.

Gary Becker: Well, some of things I think were desirable and some not so, if you ask _____ [00:15:31], who was my teacher, not one of the great economist ever, but certainly in the 20

 The Wall Street Journal, recently “President Obama could do more for the economy than Fed Chairman Ben Bernanke by declaring a three-year moratorium on new taxes and new regulation.”

Peter Robinson: So, there’s no – the banks have more than a trillion dollars on their books in excess of their legal requirements.

Gary Becker: Right.

Peter Robinson: And yet their not lending. So, we know the problem is not a lack of liquidity.

Gary Becker: Absolutely.

Peter Robinson: We know that and is Bernanke now – he’s signaled that he intends to keep interest rates low. He gave a speech earlier in October, suggesting that he is willing to go on buying mortgage bonds to keep long-term rates down. Is that foolishness – misdirected effort?

Gary Becker: I wouldn’t support the QE2...

Peter Robinson: QE2 is the....

Gary Becker: The second quantitative easing – that’s what they QE2. I wouldn’t support that now. I think the banks – it's going to create more bank reserves, it's not going to create lending. I think you have to think the lending problem from a different direction and maybe the outcome of the election in a few days will in that regard. I think businessmen in particular, with the potential borrowers and investors got frightened by a lot of legislation that was being passed and being proposed by the new Congress and by the President. We got frightened by the Healthcare Bill and I think it's a bad bill for a variety of reasons. It will raise the cost of business, particularly small business – they got frightened by that. They got frightened by the talk of increasing taxes on higher income – what they call high rich people, but higher income people. They frightened by the discussions of a tax on carbon. They got frightened by the discussion that we’re going to tighten up on anti-trust policy and investigate business more closely. They got frightened by the attempt on discussions of consumer protection, which was embodied in the Financial Reform Act. They got frightened by Obama’s continual discussion of those billionaires and we’re going to be against billionaires.

I met with some businessmen recently, some dye hard old democrats, very wealthy people who said this time they are voting for the republicans. I mean the attacks on business...given all that I think business has been hesitant about hiring more and expanding in that kind of environment. And I think if I had put a single – my finger on a single factor in my judgment was most responsible for the fact that we didn’t get more lending. I think you didn’t get a big demand from small and medium-sized businesses that they wanted to expand in this environment and I think that’s been a really major problem for the United States and until we correct that problem, I think we are going to have a slower recovery.

Peter Robinson: Gary, your friend, economist Allan Meltzer wrote in

Gary Becker: Well certainly no taxes, I agree. The only regulation I would like to see imposed that would raise the capital requirements on banks, particularly on the “too big to fail banks.”

 The Wall Street Journal. You said, “It's a bad Bill. Healthcare in the United States does have a number of weaknesses. This Bill doesn’t address them. It's going to increase health costs, not contain them.” Increase costs, why?

Peter Robinson: I see.

Gary Becker: If we have higher capital requirements, so they can’t expand as much as they did during this situation. Now we’ve always had capital requirements, so this isn’t saying so let’s start regulating something we didn’t regulate. I think there were insufficient – so that would be the one regulation I would like. On the other hand, I would like to take away some of the additional regulations that’s embodied in the Financial Reform Act that gives a lot of discretion to regulators. The regulators were bad during this crisis, what makes one think they can be any better. So you want rules.

Peter Robinson: Right.

Gary Becker: Not discretion. So, we have a simple rule about capital requirements, that I would have, but I would at the same time – not simply in any other regulations – I mean I don’t know of any others that I would want, but reduce some of the regulation that we have. Take away some of the power from the regulators.

Peter Robinson: I can recall having dinner with Milton sometime in the 90’s when the economy was doing very well and Milton was particularly cheerful because of the grid lock in Washington. We have a democratic President who wants to give money to his people and republicans in Congress who want to give money to their people and they won’t let each other do that – if republicans win in a major fashion – we are recording this a week before the election – do you expect the economy to improve?

Gary Becker: Yeah, I agree with Milton. I mean...

Peter Robinson: Grid lock will come back help us – grid lock will save us.

Gary Becker: Generally, neither party has done too well – I mean there are exceptions to this rule – but certainly for those of us who believe small government, lower taxes, less regulation like myself, grid lock can often be useful in the sense that you make it more difficult. You don’t make it impossible, but you make it more difficult to greatly expand the role of the government and I think that’s good for the United States. It's good for most economies, but given the situation that the United States is now in, it is certainly good for the United States.

Peter Robinson:  Healthcare. This past spring, just after the passage of the new Healthcare Legislation, let’s call it Obamacare...I interviewed you for

 bad way. Instead of giving them a minimal catastrophic healthcare plan, which is one that could make some sense, we required them – not just gave them – we required them to have a pre-generous plan and we raised the poverty level for which they would get subsidized by the government from simply the ordinary poverty level to like three times the poverty level. I don’t remember the statistic now in my mind, but it was something like that. That’s going to be a big force expanding overall medical spending.

Gary Becker: Well, there are number of things in the Bill that are cost increasing and I will start with one major one. We had forty-five million people who didn’t have health insurance. Many of these were young people or sick people who couldn’t get – well there were a few of those, but many were young people who made a calculation that they did pretty well...okay, we brought them in. Now, there are ways to bring them in that I might have supported, but we brought them in a very

 Peter Robinson: Gary whether the republicans win or not in the election, it's fact that we have heard over and over and over again during the Healthcare debate will remain a fact. We spent about 17% of our GDP on healthcare. And the next most costly healthcare system – that of France and then Switzerland comes third – are both about 11%, dramatically lower. What’s going on?

Secondly, one of the weaknesses in the American Healthcare systems is that it is too employer-based. Employers get subsidies for providing insurance. We are one of the few countries in the world that have mainly an employer-based insurance system. Instead of sort of taking that away, which would have been the right approach to do it, we expanded. In fact, we have this system where we are taxing small businesses, if they don’t institute healthcare. Now, I hear from small businesses they prefer to pay the tax and are doing it, because they would have an expensive plan that they will be liable for. But that’s another cost increasing one.

We did very little, if anything to reform Medicare, other than maybe having a lot of rationing and so on in Medicare. What we should have done is made individuals responsible for larger out-of-pocket share of their total expenses, at all levels, including Medicare levels. Switzerland, my favorite example; Switzerland has on average 30% of the total medical expenses are out-of-pocket – that is they are paid for by the individual, either in terms that they take a big deductible or they have a big co-payment. The US average before the passage of the Bill was around 12%. The Bill doesn’t change it in any significant way. So, these are three major...

Peter Robinson: So, the point is that between 12%, which is what we pay out-of-pocket and 30 some percent, which is what the Swiss pay out-of-pocket, the Swiss have an incentive to shop around ask the questions you ordinarily ask in a market, which is what’s the price, what’s the quality, how good is this doctor, how good is that hospital. That’s the point?

Gary Becker: Yeah and one additional point. Do I need this treatment or don’t I need this treatment. Let’s say I have a cold I have to go see a doctor or do I want just self-medicate? There are a lot of things that individuals can do.

Peter Robinson: For a five or ten dollar deductible – you’ll go.

Gary Becker: Yeah, right.

Peter Robinson: If you are Swiss and it's going to cost you fifty bucks, you may think...hmmm.

Gary Becker: You won’t go. A lot of people – much of the – obviously there are serious illnesses and people are going to go under either basis. But a lot things are discretionary and you want to make people make the calculation...I’m not spending your money, I am spending some of my own money, is it worth it for me to do that? And that the calculation we make people make in other areas and they should make much more of that in the healthcare area.

 aspects of the Bill – is that for these forty-five million people who are being brought under and provided with healthcare – you can scale back the fraction of those people who have their care subsidized. You can scale back the magnitude of the minimal care that you are providing – cover catastrophes – what a lot of people would like to be protected against. So, if I have no health insurance and I get cancer and I go to the emergency room and I get treatment and I have to stay in the hospital – the tax payer is paying for all that, right? So, you want people to have some catastrophic care, so you try to push in that direction and then you say only the people who have really low incomes will be the ones who are subsidized, other people will have to pay for it themselves. That would have I think, a beneficial effect in reducing the amount spent and give you a little bit more efficient system.

Gary Becker: Well, there are a couple of things that are going on; one we’re giving people access to treatments that they don’t get access to in France and Switzerland. So, an older person now, you can – we say well they are putting a big value on their life. Now the French and the Swiss and a number of other countries are pretty callous when dealing with older people. They say, well you don’t have that long to live and you know...

Peter Robinson: So, we actually get something for the extra amount.

Gary Becker: I think we do. I think we do. I think there are a lot of strengths in the American system. We’ve been the major innovator...they write off, particularly countries like France – they write off innovations produced in the United States and we’re paying for that. So, you look at most of the R&D in the medical area...

Peter Robinson: ...after the war right through to the present time, what’s happening here.

Gary Becker: What’s happening here. So, we’ve been the major innovator. Because of the restrictions in Europe, a lot of the research of drug companies are based in Europe, but they sent their research into the United States for a variety of reasons. So, we’re producing a lot of the innovations and we are giving greater access to the new drugs and so on. Well that’s expensive to do it. Is it worth the money? A lot of it is worth doing in my judgment. I think people are willing to spend a lot for even small improvements in their life expectancy. Small reductions in the probability that they are going to die in the next year or so – that’s expensive, but we’re doing that.

Our system, as I said is not perfect. I mentioned that we should get rid the employer-based healthcare. We should have people paying a bigger out-of-pocket share – it would be a mistake to say everything about the American system is bad and that’s why we’re spending so much. We are allowing people, we are giving people access to a variety of treatments that they cannot get access as readily in other countries. And I think a lot of that is good.

Peter Robinson: When I interviewed you in the spring you said, “Repealing this Bill will be very, very difficult.” Now, even is republicans win at the upper end of what some predictions now suggest they might win, they won’t have the two-thirds votes in either that they’ll need to override Presidential veto. As a practical matter, they won’t be able to repeal Obamacare. So, what should they do? We could end up not just with grid-lock, but with an extremely ugly grid-lock in which republicans dedicate themselves to thwarting and blocking and shrinking Obamacare at every step, while the democrats accuse them of being Simon Legree and stingy....so what...this is a question where probably economics shades into politics. But if you were advising the republican leadership with regard to Obamacare, what would you tell them to do?

Gary Becker: I think you can make changes. You are not going to repeal Obamacare. That’s the thing you have to accept. And when the crunch time came, probably a lot of republicans wouldn’t vote to completely repeal Obamacare. But you can push it back in various areas. For example; you can try – I mentioned one of the I think mistakes of the Bill, weaknesses of the Bill, the cost raising

 The New York Times just a couple of days ago, “Economies that have experienced a severe financial crisis, generally do not heal quickly. America needed a much stronger stimulus program than it got. And maybe voters will have second thoughts about handing power back to the republicans who got us into this mess and give Mr. Obama a second chance to turn the economy around.”

Another thing you can do, which I didn’t mention before, you can allow people in one state to buy insurance from companies in other states. Nothing in the Bill speaks of that issue. That’s something I think maybe you could get the President to go along with. I think he would that. So, there are a few other things that I think you could do. So, I would say, let’s not think of it. If I were running in the Republican Party, which thankfully I am not, I would say, let’s not think of throwing the Obamacare out, let’s see if we can make it work, significantly better. So, maybe if I keep doing this, maybe we end up with something that is better than we had before. That’s the way I would go about it.

Peter Robinson:  Gary. What is to be done? Growth is still sluggish, housing prices in many markets are still sinking, here in California as many as a fifth of home owners are under water on their mortgages. Unemployment is still more than 9% and a similar situation remains in much of Europe. Let me give you two policy prescriptions and you choose, how’s that?

Gary Becker: Okay.

Peter Robinson: The British government, the new British government intends to eliminate it's structural deficit of more than 11% of GDP in just five years. Government departments will see their budgets cut by an average of almost 20%, half a million government workers will lose their jobs. That’s one.

Here’s two. Let me just quote him to you...economist Paul Krugman writing in

 policies would increase the rate of growth of the economy. I think cutting back a lot of the government sectors would increase the rate of growth of the economy. I think cutting back some of the taxes – and I am not an expert on British tax structure – but cutting back some taxes would increase the rate of growth in the economy. I think if you can grow the faster, which will include some cut backs in government spending or certainly slowing down the rate of government spending. If you can grow the economy faster, that’s the way you are going to get out of this financial and fiscal crisis. And the British are more along the right direction then people who speak about a second stimulus.

So, on the one hand a model of austerity cut – on the other hand, Paul Krugman saying, we didn’t spend enough, we need more stimulus and we need it fast. What does Gary Becker say?

Gary Becker: What I really said, I didn’t think the stimulus package worked, so I don’t see that a second stimulus is going to work any more, so no I don’t support a second stimulus package, I didn’t support the first one. In terms of the British approach, the cut back – I would try – if I was in Great Britain, I think a strong case could be made for trying to cut back government spending, but not do it at the same time that you are raising taxes very heavily. So, you try to get the economy growing and I wouldn’t directly worry so much about the fiscal situation, but I worry about what

 touch, is this consistent with my experience? What have I gotten out of the stimulus package? They said they are going to reduce unemployment by almost two percentage points, we’re only down by like a half of a percentage point from the peak unemployment...its really very disappointing. So, I think if you trust your common sense, you can’t fully understand the arguments and the differences and these aren’t 100% settled. But if you say, what looks like a more sensible policy. We trust the private sector to get us out of this and to grow us faster or we trust the government to grow us faster. And I think most Americans believe and I think they are correct in that belief, that the private sector has shown that it performs better overall, not a 100%, but better overall despite the mistakes in investment banking, a lot better overall than the public sector does and that’s why country after country in world – like China and Brazil and even Russia and India for sure – have been pushing their economies more toward the private sector, not against the private sector. Because they have learned that experience.

I think for the US I would say let’s see what we can do to make the economy grow faster. If we grow faster, we will handle the fiscal problems present and future from the growth of entitlements and will, I think ultimately reduce unemployment.

Peter Robinson: So, what you’re saying is that that is actually a very important point for republicans – for the people who are going to be in charge soon – cutting spending is not the end, it's a means and you may want to proceed at a different pace from what you have in mind, because the end is growth.

Gary Becker: That’s correct.

Peter Robinson: Now, the Paul Krugman – here’s why one reason I tossed him at you was because he holds a Nobel Prize – there are layman – I’m a layman here – and I say to myself, now wait a moment, we had Reagan enact – let’s call it broadly speaking the Friedman Program or the Chicago School program of limited government and tax cuts. We have twenty-five years of growth and now, Paul Krugman, Robert Reich, Larry Summers, it's as if Milton Friedman had never been born and John Maynard Keynes had never died. So, how is a layman to understand what is taking place in your profession?

Gary Becker: Not easy. Not easy because Paul Krugman did some important work in economics, so his Nobel Prize certainly had merit. He did a lot of work in international trade, not on stimulus packages.

Peter Robinson: For economists it's a serious standard...

Gary Becker: He was a serious economist, he was. He’s not doing serious work anymore, but he was very serious and again Larry Summers is an excellent economist, I know him very well. Robert Reich – you know he wasn’t really an economist...

[Cross talking]

...and it's hard for any population, when economists don’t agree on issues. I think it's very difficult...

Peter Robinson: It's not a disagreement of emphasis, it's a disagreement of fundamentals.

Gary Becker: I don’t know what Larry Summers would say if he was not in the government and so on. Paul Krugman is not in the government, so he is saying what he believes. I think economy – what I trust with the American people is that they have always had a lot of common sense and yes they can follow all the technical arguments from the economists. They give it a common sense

 God and Man at Yale, which had been published fifty years earlier and Buckley placed the locust of the status impulse at Yale half a century ago in the Department of Economics. And what I had discovered at Dartmouth, my alma mater here at Stanford, that first rate Economics Departments cannot be first rate Economics Departments, without a heavy emphasis on free market economics. So, I congratulated Milton Friedman, far be it from me, but I congratulated him on having lived to see a major victory. And Milton would not have any of it. He said, “We may have won an intellectual victory, but there is no evidence that there’s been a victory in practical politics at all. The government continues to grow and grow and grow.” Now, he was speaking at a time when republicans controlled both Congress and the Presidency. Do you – are you as grim in your view as that?

Peter Robinson: Gary, let me close with a story. You knew Milton Friedman very well. I was privileged to be an acquaintance. Let me tell you about a dinner I had with Milton, just eighteen months or so before he died. I had read Bill Buckley’s book,

 and that’s a matter of concern. Much of that growth occurred after Milton died, so I am sure he would be quite concerned about that and I am concerned about that.

Gary Becker: No.

Peter Robinson: That there is such disjunction between...you’re not, alright. Cheer me up.

Gary Becker: Because I think – I mean the thing you look at from a global perspective – that style of looking at a global perspective – there’s no question that the world, if you look at the last thirty years or so, has moved strongly in the free market direction. China started it's reform in 1978. There were no private sectors. Now private sectors is more than half of the employment in the Chinese economy. State sector is still important and there are lot’s of problems, but –

Peter Robinson: But zero to more than 50%...

Gary Becker: India started reforms in 1991, when the private sector was thwarted...by point by restriction on what they could do. Now, the most robust part of the Indian economy is the private sector and it's going on. Brazil – even under _____ [00:39:48] comes out of a trade union, kind of a socialist background, continued to promote more or less the private sector. Even Russia, certainly went away from communism and so on. So, if you look at the world from a whole, I would say Milton Friedman should have been...my – his ideas or the free market ideas and more generally, have been extremely suggestive. Now, it is true that if you look at the Western economies, Europe and the United States, there has been no significant roll back in government. On the other hand, if you look at – until this crisis – that the share of spending that went to the federal government was pretty flat at 20% on the GDP, wasn’t growing. Now it's grown quite rapidly in the last few years