Freakonomics Radio - 293. Why Hate the Koch Brothers? (Part 2)

Episode Date: June 23, 2017

Charles Koch, the mega-billionaire CEO of Koch Industries and half of the infamous political machine, sees himself as a classical liberal. So why do most Democrats hate him so much? In a rare series of interviews, he explains his political awakening, his management philosophy, and why he supports legislation that goes against his self-interest.

Okay. Hi. Good morning. It's Stephen Dubner. How are you today? Hey, Stephen. Charles Koch. I'm doing fine. Great. You can hear me okay? You bet. Great. From WNYC Studios, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner. Over the course of several weeks, I had a series of conversations with Charles Koch, CEO of Koch Industries, a true believing libertarian and a funder of perhaps the

largest and most influential political action network ever. This episode is the second of two parts. In the first, we covered Koch's management philosophy, why he started funding political causes, and what it's like to be considered public enemy number one of the political left. We'll start part two with something related to that. This is just something I wonder. Are you friendly with Warren Buffett? Yes. Well, I don't know friendly. I know him and we do a lot of business with these companies. I've always been curious why you think the media generally just gushes over, you know, this other Midwestern billionaire, despite his unabashedly uber-capitalist tendencies, right? While you're portrayed,

I guess, because you've gotten more directly involved in political policies and stuff as more of a dark and plotting, you know, oil man ideologue. Why do you think that's the case? Well, he's obviously a much better PR person than I am, which is, no, but I mean, my whole being is dedicated to changing the system to make it more just and bring about greater individual flourishing. His is to support the current system with some tweaks here and there, I grant you. So he is no threat to anybody. Whereas all the vested interests, they go for, okay, what will increase my short-term profits? And like when I founded the Council of Competitive Power, what I tried to say, guys, if your success and failure depends on whether the government

dishes out goodies to you, who needs you? Why not go for a Bernie Sanders and have the government just take it over? You're just a middleman. I mean, the only reason you should be allowed to make money and be so successful is if you're creating value for others, if you're helping people improve their lives, if you're just in there manipulating the system, get rid of you. Charles Koch argues that the biggest threats to America these days are special interests, cronyism, and corporate welfare. Which may seem strange if you think of a corporate CEO like Koch as a beneficiary of those things.

He also argues that our political system has turned into a dumpster fire, with both parties guilty of rent-seeking and putting their thumbs on whatever scales they can find. Which may also strike you as strange if you consider that what a political network like the Koch brothers network does is, well, puts its thumb on the scale. Because he primarily funds Republicans and because so much of that funding is dark, anonymous money, he is seen by most Democrats as something close to the devil.

Even though some of his positions, as you'll hear today, align quite snugly with traditional liberal positions. My overall impression from speaking with him? Charles Koch believes he's fighting the good fight based on proven principles and that the rest of America has been going mad bit by bit.

So I'd like to hear your kind of thumbnail views on a broad spectrum of issues. Charles, what are your views on immigration? My views on immigration are the same as they are on any imports of goods and services, not just people. I would let anybody in who will make the country better and no one who will make that worse. And that would be the same thing of people who are here illegally. If you're here gainfully employed and adding value in society, then you ought to stay. If you're not, if you're not contributing,

and particularly if you're creating trouble, making people's lives worse, you need to be sent out of the country. Now, to say that you'd let in anybody who will make the country better, that could be construed, I would argue, pretty easily as essentially a vote for open borders. Do you go that far? No, no. I think there needs to be screening, particularly with a giant welfare state that we have. You don't want people to come here and just go on welfare and drain resources. You want people

who are going to come here and get a job and work and obey the law and be good citizens and contribute. And so there needs to be screening for that. Exactly how to do that and what's effective, I haven't gotten in the detail enough to know. And then on imports, I would let in every import except those that are dangerous, like poison gas and bombs and atomic bombs and stuff, keep all that stuff out. But all the goods and services that are cheaper, better quality that Americans want to buy, I'd let them in because it makes Americans better off. And it increases innovation, just as the Japanese imports caused our auto companies to come into the 20th century. Now, a lot of people who hear that argument that, you know, essentially the unfettered free trade argument, we want goods and services to move freely without

friction and let the market set the lowest price so that more people can enjoy stuff. That argument felt a lot better to a lot of people 10 years ago. But now there's a lot of backlash against globalization generally for depressing employment and wages here. Have you not lost any enthusiasm for globalization? Well, I'm, as I say, I'm against special interest. I'm against corporate welfare. And import tariffs and blocking imports are corporate welfare. You're saying to the American people, you don't have the right to buy a better product, higher quality, more advanced, or cheaper, because it's made in Japan as opposed to it's made in Montana. Because we've got to protect it.

It's like the sugar growers. We've got, what, a few hundred sugar growers, and we subsidize them and protect them from foreign competition, and it raises the cost of food stuff for everybody. And that isn't going to affect my life, but that hurts some people who don't have very much. Charles, what is your thumbnail view on drug decriminalization and or the war on drugs? Well, as I forget who said, we fought the war on drugs and we've lost. I mean, and people say, God, look at people doing these drugs and it's terrible. We got to stop them.

Well, part of the terrible part is because we've tried to stop them. So it's just like prohibition. They tried that. And what did that? That put gangs and criminals in charge of alcohol and created a crime wave. Well, the same thing is true here. So I think it, I'm not an advocate of drugs. I don't do drugs, never have. So I'm not in favor of people doing drugs. On the other hand, with this extreme criminalization, has it worked? Matter of fact, it's ruined a lot of lives by turning people who really didn't do

much wrong into lifelong criminals. Talk a minute about criminal justice reform or what you would even call reform within the realm of criminal justice? Well, I think like everything else, we need a legal system that is just, where the punishment fits the crime. And we also need a system that if people make a mistake, learn from their mistake, they need to have a second chance rather than ruin their lives. And let me ask you about climate change, causes and consequences. Well, I mean, there are natural causes, and then there are causes due to increase in greenhouse gases, such as CO2 being the biggest one, not the most potent one, but the biggest one.

And so far, unlike the projections, it has not created catastrophes. But obviously, if the temperature continues to go up at some point, it can be harmful or even very harmful. So the question is, what do we do about it, about whatever risk there is? And to me, the answer is innovation. These policies that the U.S. government or others have proposed or promulgated have been just symbolic. They have made essentially no difference. And the EPA has said this. So we oppose all of these because they end up being cronyism. They end up helping certain wealthy people to the disadvantage of the less fortunate. What would you propose instead if you were setting that policy?

I would go to permissionless innovation. I mean, this is part of this whole theory of liberation allows everybody to become rich. So, we need to liberate innovation, entrepreneurship, and productivity. And I mean, and we see that a lot of progress has been made in solar. There are also huge improvements in energy efficiency, in natural gas replacing coal due to innovations. So you look at all the progress in having less greenhouse gases, and it's due to innovation, not regulation. As a matter of fact, they blocked the Keystone Pipeline, which I was going to send them a thank you letter because that was saving us $750,000 a day in crude costs. Which, you know, maybe that's not a lot of money. It's a lot of money to us. Wait, I don't understand.

How is that saving you that money? Because we have a refinery in Minnesota that runs on Canadian crude. And now the marginal buyer is on the Gulf Coast and it's railed down there. And if they build a pipeline, it will be shipped down there $3 a barrel cheaper. So the pipeline would be bad for your business. What was your public position on it or the Koch industry? We were in favor of the pipeline. Because why? but what we believe are principles that will make people's lives better. And that's the way we evaluate everything. Every position is to get rid of cronyism, to corporate welfare, and to liberate the people.

Now, the public line on you, however, is that, well, everything that Charles Koch or the Koch brothers advocate, societally or politically, is just an effort to protect or extend their business interests. So, you're giving an example right now that runs purely contra to that argument, but make your best case how and why that's not so. Okay. We opposed extenders, the tax bill, which are tax exemptions, cronyist things that are passed at the end of every year, and they do it year to year so it doesn't count in their longer-term deficits. And we make a lot of money from those because they benefit us tremendously, but we've opposed those. We oppose all import tariffs. We oppose this border adjustment fee in Congress's tax bill that

would make us over a billion dollars a year. There are roughly a trillion and a half special exemptions in the tax code, and we benefit tremendously from them. We'd get rid of all of them. So to get rid of this, these special deals for special interests, which is a cancer on our society. Supposedly, all the cronyism is different estimates out of a $15 trillion economy is costing the economy, making it less efficient by $4 to $5 trillion, so 30% to 40%. And so you just think what kind of growth and productivity we would have. Plus, then you would open it up for entrepreneurs, new competition, new ideas, new innovations. And another huge contributor to this problem is this occupational licensure. So

it's not just big business. Locales and states require all this testing, schooling, fees, and stuff for people who start with nothing. And they say it's safety. Oh, yeah, that's right. Hairbraiding. Yeah, you need 1,500 hours of schooling. I mean, this is absurd. Now, I think a lot of people listening to you talk, especially on certain issues, immigration, even the way you talked about climate change, drug decriminalization, criminal justice reform. I think a lot of people hearing that, even a lot of Democrats, even progressives hearing that, a lot of what you're saying would sound pretty palatable to them on the topics, on the issues. And yet, if you were to ask most Democrats or progressives, again, to name their number one enemy, it's probably you and your brother David. So in your mind, why is that? You plainly feel as if you're sending a series of messages and acting on a series of beliefs that you feel are really valuable. And yet, even to those who, in your mind, would benefit greatly from them, which is to say everybody, I guess, the way you describe it, you're cast as a villain. Well, not everybody. The special interests would be less able to exploit everybody else. Well, that said...

But we find people from Democrats from all over who will work with us. We work with the Obama administration, particularly on criminal justice reform, also on occupational licensure. We've worked with a number of Democratic governors on occupational licensure. But I'm telling you, these special interests are so strong. Are you suggesting that it's the special interests then who drive the Democratic and progressive and even journalistic agendas like a Jane Mayer at the New Yorker to paint your endeavors as evil? Or is this something that's arrived at more organically? Well, I think that's both. I mean, it all starts with the belief that virtually everybody is capable of learning, contributing, and leading a successful life if they're given the freedom and opportunity to do so.

So I would reform the education system, communities, business, and government to better enable that to come about. Now, if you believe, as for example, Hillary does, that those in power are so much smarter and have better information than those of us great unwashed out here have, that we're either too evil or too stupid to run our own lives, and those in power are much better, have what Hayek called the fatal conceit and William Easterly called the tyranny of experts, that they can run it for us. And when Hillary was pushing HillaryCare, she said as much, that if people are left to decide their own health care, they won't spend enough. And so the government needs to do it. Besides, the government will do it better. So that is a great divide. So when we talk about the kind of reforms that you would propose,

I'm curious, isn't it a little hubristic to assume that you do know what's best for society? So persuade me of your, I guess, level of confidence that if you could reform things as you see fit, that it truly would. I'm not saying work 100 percent. Nothing's 100 percent, but that it truly would work. Well, I mean, I don't know. As I said, you asked me about how to do immigration exactly. No, I think there's a principle here. There are basic principles. You know, as I said, quoting Newton, if I see for others, because I'm standing on the shoulders of giants, what has worked through history? What, starting in the 17th and 18th century, caused the standard of living for the first time in history to explode?

Caused the U.S. to be 30 times the per capita income in the whole world, 10 times. What, in just since 1990, has caused the number of people in extreme poverty to drop from 2 billion to less than 800 million? And when you go back through history, it's through liberation. It's by applying the principles in the Declaration of Independence. That is, everybody is born equal with certain unalienable rights, and governments are instituted to secure those rights. And if you look at our history as a country, we became the most successful country in the world because we followed those to some extent. And where we violated them have come all of our tragedies and injustices, whether

that's slavery, whether that's exterminating Native Americans, whether that's denial of women's rights, denial of rights to immigrants, particularly groups like the Chinese and the Irish, and civil rights. Now, when you say God policy, I do not know what detailed policies, but I think I know enough principles to know what works because they've worked universally through history. I mean, for example, division of labor by comparative advantage, creative destruction, the rule of law, the benefits of trade. These kind of principles we know, and we know from psychology that people are not happy when you just give them stuff. There's this concept of earned success, what Aristotle called eudaimonia. That is, you have human flourishing when people fully develop their abilities and use them to do good. It's what my father called the glorious feeling of accomplishment. So there are all these principles

that have proven true throughout history. You have the same objective, and you debate it, and you learn from each other, and that's how innovation comes about. And so that's part of it, is to not get sucked into hubris. I got all the answers. I've got eternal wisdom and know the exact path for all time. No, I'm out here experimenting, fumbling around, trial and error to try to find a better way. Finding a better way did not include supporting Donald Trump in his run for president or Hillary

Clinton. Koch compared the choice between Trump and Clinton as having to choose between cancer and a heart attack. So, coming up on Freakonomics Radio, what's he got to say about the Trump administration? Oh, I'm not into ad hominem attacks. I mean, what we're doing with this administration, as we did with Obama, and we've tried to do with all the others, is find areas we can agree on and work with them on that, and then oppose them where we disagree. It's coming up right after this. Here's what Charles Koch, half of the Koch brothers, had to say about Donald Trump a few months before the 2016 election. I'm sure he's a fine fellow underneath, but when you look at our guiding principles,

you see that his guiding principles are in many ways antithetical to them and a great many of his many ways antithetical to them and a great many of his policies are antithetical. So you famously did not back Donald Trump in the 2016 election, but here he is as president. You did support Mike Pence, the current VP, when he was running for president in 2012 and you funded his gubernatorial campaign. So in addition to Pence, the current VP, when he was running for president in 2012, and you funded his gubernatorial campaign. So in addition to Pence, there are a number of Koch allies, I guess I'd call them within the Trump administration. Mark Short, the White House Director of Legislative Affairs, who previously ran the Freedom Partners

Network. Mike Roman, the White House's Director of Special Projects and Research, who used to run the Freedom Partners Competitive team, basically oppo research. There's Mike Pompeo from your state of Kansas, now head of the CIA, received enough Koch funding that he's been called the congressman from Koch. There's the EPA chief, Scott Pruitt, whom the left considers an enemy of, well, the environment itself. But considering the election didn't get your guy in or didn't get in a guy or gal that you wanted. Well, we didn't have a guy. We didn't have a guy. Right. So considering you didn't back anyone in the election.

Well, we backed some senators and congresspeople and governors, but no one at the presidential level. Right. So in terms of the White House, I'm curious to know how you think things are turning out now. Well, I wrote about that in, I don't know if you saw the op-ed I did for the Washington Post. Yeah, I did. And so that pretty well sums it up. But it's like all presidents.

Well, the last one I really like was Calvin Coolidgeidge because he did some great things. So that's been a while. But it's so it's my impression was you were fairly fond of Reagan, at least in retrospect. No. Well, Ronald Reagan, that's an interesting case because I agree with a lot of the philosophy he articulated, as you can tell. But Bill Simon told him when he was elected. Bill Simon, by the way, was Secretary of Treasury under Nixon. He told President Reagan, he said, Mr. President, I totally agree with your philosophy.

But if you want to get any of it implemented, you cannot staff your administration with the old Ford, Nixon hacks. And then that's in large part what Reagan did because he didn't really care that much about administration and didn't get into the weeds and all the special interests he'd have to overcome to make his philosophy a reality. So the government grew a little slower under his first administration and grew just at the same rate as other administrations in his second term. And you will find that virtually every president after Coolidge, that that's been true, whether Democrat or Republican. Where it's done a little better, there's been a little more restraint, is when we've had divided government. That said, not a divided government now and a president that you didn't support,

as you wrote in the Washington Post, you praised the president's, quote, thoughtful approach to regulatory reform. You like his pick, Neil Gorsuch, for the Supreme Court. But then you talk about some of the counterproductive measures, including the broad travel bans, discouraging free trade, and a tendency toward rhetoric that too easily divides Americans instead of uniting them. See how diplomatic I am? I'm guessing a few other people might have got their fingers on those sentences before they went to the Washington Post or no? No, no, I'm not into ad hominem attacks. Obama, and we've tried to do with all the others, is find areas we can agree on and work with them on that, and then oppose them where we disagreed. We've opposed this tax bill. We've opposed this immigration. We oppose them on these anti-trade moves. You've opposed the tax bill on what

grounds? Because there are some pieces of it that I'm sure you're in favor of. We've opposed it on this border adjustment fee, subsidizing exports and punishing imports. And as I said, it will allow us to raise our prices and probably reduce our taxes at the same time. So it will enable us to increase our profits by over a billion dollars a year at the expense of working Americans. Now, what kind of policy is that? It makes no sense. In other words, as a CEO, Koch would be an idiot not to play the game by the existing rules.

But as a person, Koch thinks the rules are idiotic and that they've been set up to reward a relatively thin slice of the population to which he happens to belong. So it's easy to see why his political opponents accuse him of blatant self-interest when, for instance, the Koch political network has punished Republican candidates who promoted green energy. He, after all, is an oil man from way back. But it's also easy to see why he thinks this accusation is shallow, motivated as much by the self-interest that he's accused of. After all, he's already worth some $50 billion and he's 81 years old. Is he really chasing a few more billion in fossil fuel profits? Or does he truly believe that too much of the momentum behind something like green energy comes from interested parties who advance their cause less by innovation and free markets and more by political gamesmanship. Let me ask you this.

Forget about the fact that you are a political betenoir for a lot of people. Also for a lot of people, when they just hear a discussion about the belief in free markets and a kind of libertarian view generally, there are a lot of people who just don't believe it. There are a lot of people who think that free markets and what goes along with them encourage a winner-take-all mentality and corporate corruption and the exploitation of employees and consumers. So what do you say to someone who, you know, I don't know how much of a silo you live in. I assume that a lot of the people that you spend a lot of time with agree with you. So what do you say to someone who disagrees with you to their

very core and try to persuade them to hear you out? Well, I hope I'm not in a silo because, as I think you know, we partner with people organizations who we believe are really trying to help the communities solve their problems and better themselves. We work with teachers, administrators, professors who don't agree with us on a lot of things, but we find an area we can work together. So we follow Frederick Douglass' philosophy, I will unite with anybody to do right and no one to do wrong. And my philosophy on partnerships is you need three things to have a good partnership. You need to share vision, values, and bring complementary capabilities. And on vision, you don't need to have exact vision of a free society. Matter of fact, I don't even agree with myself. I change my opinions. And to find anybody who agrees 100%

on the vision of society, I would be in a silo. I'd be totally by myself. But all we need to do is have the same vision for that particular problem or that issue. So we're big supporters of United Negro College Fund, the Thurgood Marshall College Fund. And we disagree on a lot of things. But we agree that these kids, the ones that we're supporting, are remarkable human beings. All they need is the opportunity and freedom to do something and get the mindset that they can accomplish something. In a case like that, what would you disagree with them on? United Negro College Fund, for instance? Well, it may be on how the welfare state should work on those kind of things, whether some of the government programs are helping them or hurting

them, how the education system would be organized. But on teaching the various ideas we've been talking about on self-transformation, they totally agree. And that's what we're working with them on. You've been more successful than the vast majority of people over history, obviously, in the business realm. But if your primary goal of your activism is to unite people, I hate to say it, but you've not been very successful in that realm, right? I mean, I don't think many people would disagree that we're particularly not just divided, but really caustic in the way that we talk to other people or talk past other people who may have different views from us. ourselves into conflict-based tribes and whatnot? Or do you see examples from history? Or are you otherwise encouraged to think that that kind of unity that you want really is possible? Let me, if I might, Stephen, challenge you on that. We haven't united people who don't really

know what we stand for or what it is to work with us. I mean, we have programs, our support programs at over 300 universities. And we found ways to unite with every administration and with many governors and local officials of different parties. So this works. Believe me, if we had no success, we're making no progress, I would have at least completely changed my approach. I'm not real fond of just batting my head against a wall. Charles, you strike me as a pretty realistic fellow. So I think you'd agree there's no such thing as a utopian government or society. It's just not going to happen. But when you look around the world at a society or a culture that you think is as close to good as we've gotten, something that aligns with the way you see society and governance working, What are your favorites? Well, I just recently got this human freedom index

done by a number of institutes around the world. This is not just economic freedom, but it has both economic and personal freedom. And if you look at the top countries, they start with Hong Kong, Switzerland, New Zealand, Ireland, Denmark, and then Canada. And unfortunately, the U.S. has dropped to 23rd. There are a lot of great things about the U.S., but we're increasingly headed under both Republicans and Democrats toward a system of control, dependency, and cronyism that's pitting individuals and groups against each other and destroying opportunity and progress. And so what I look at is to what degree are the great bulk of people liberated and injustice is eliminated. And even, I mean, Hong Kong, Switzerland, New Zealand, all of these have problems. None of them are perfect. As you say, they'll never be perfect. Human beings are fallible. Would you rather live in any of those countries, Hong Kong, Switzerland, New Zealand, Ireland, Denmark? No, because we have this two-tiered society here,

and I happen to be in the favored tier. But for a lot of people, this system isn't working. And so that's our number one objective, to get rid of the cronyism, the lack of opportunity for a large portion of the population. And that's the main focus of our efforts. Coming up next time on Freakonomics Radio, Harvard President Drew Gilpin Faust recently announced she will be stepping down next year. So we will bring you an interview we did with Faust a couple years ago, in which she discussed, among many other things, being the first female president of Harvard. There were plenty of people who accused me of being a token appointment or

alleged that I was a token appointment. That's next time on Freakonomics Radio. Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Shelley Lewis. Our staff also includes Christopher Wirth, Merritt Jacob, Greg Wazowski, Stephanie Tam, Eliza Lambert, Alison Hockenberry,

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