The Chris Voss Show - The Chris Voss Show Podcast – How Economics Explains the World: A Short History of Humanity by Andrew Leigh

Episode Date: September 22, 2024

How Economics Explains the World: A Short History of Humanity by Andrew Leigh https://amzn.to/3zvqNiy “If you read just one book about economics, make it Andrew Leigh's clear, insightful, and remarkable (and short) work.” —Claudia Goldin, recipient of the 2023 Nobel Prize in Economics and Henry Lee Professor of Economics at Harvard University A sweeping, engrossing history of how economic forces have shaped the world—all in under 200 pages InHow Economics Explains the World, Harvard-trained economist Andrew Leigh presents a new way to understand the human story. From the dawn of agriculture to AI, here is story of how ingenuity, greed, and desire for betterment have, to an astonishing degree, determined our past, present, and future. This small book indeed tells a big story. It is the story of capitalism – of how our market system developed. It is the story of the discipline of economics, and some of the key figures who formed it. And it is the story of how economic forces have shaped world history. Why didn’t Africa colonize Europe instead of the other way around? What happened when countries erected trade and immigration barriers in the 1930s? Why did the Allies win World War II? Why did inequality in many advanced countries fall during the 1950s and 1960s? How did property rights drive China’s growth surge in the 1980s? How does climate change threaten our future prosperity? You’ll find answers to these questions and more in How Economics Explains the World.About the author Andrew Leigh is the Assistant Minister for Competition, Charities, Treasury and Employment, and Federal Member for Fenner in the Australian Parliament. Prior to being elected in 2010, Andrew was a professor of economics at the Australian National University. He holds a PhD in Public Policy from Harvard, having graduated from the University of Sydney with first class honours in Arts and Law. Andrew is a past recipient of the Economic Society of Australia's Young Economist Award and a Fellow of the Australian Academy of Social Sciences.

You wanted the best. You've got the best podcast. The hottest podcast in the world. The Chris Voss Show. The preeminent podcast with guests so smart you may experience serious brain bleed. The CEOs, authors, thought leaders, visionaries, and motivators. Get ready. Get ready. Strap yourself in. Keep your hands, arms, and legs inside the vehicle at all times, because you're about to go on a monster education roller coaster with your brain. Now, here's your host, Chris Voss. Hi, folks. It's Voss here from thechrisvossshow.com. Welcome to the big show, my ladies and gentlemen. For 16 years, over 2,000 episodes, we've been bringing you the Chris Voss Show. We bring you the most amazing people who share with you their minds, their souls, their learnings, their education,

the things they learned from their cathartic moments in life to make your life better, and they're going to educate you to be smarter. And if you're not, go back and listen to the podcast over and over until you are. Go to Goodreads.com, 4chatschrissvoss, LinkedIn.com, 4chatschrissv chris fuss chris fuss one in the tiktokity and all those crazy places on the internet we have an amazing young man on the show with us today his newest book is hot off the presses september 3rd 2024 it's called how economics explains the world a short history of humanity and a brief and powerful economic history with timeless lessons. Perfect for fall 2024.

Learn how markets mold society. Welcome to the show, Andrew Lee. Thanks, Chris. Great to be with you. Thanks for coming. We really appreciate it. And you've done a lot of stuff with your life. You are the Assistant Minister for Competition, Charities, and Treasury and employment, and a federal member for Fenner in the Australian parliament,

in the down under, as we like to call it here, or the outback, as we like to, we have the steakhouse as the outback that you guys don't have there. It's kind of weird how that works. I know, right? It's kind of weird. There's an outback steakhouse in the United States, but not in Australia. I think there should be a market explanation for that.

Yeah, there should be. That sounds like some fraud, maybe. I don't know. I'm just kidding around, folks. Don't sue me for those blooming onions. Do you guys even do blooming onions in Australia? Is that even a thing? The only time I've eaten a blooming onion is in an Outback Steakhouse in the United States.

So it's an export-only product. That's hilarious. He holds a PhD in public policy from Harvard, graduated from the University of Sydney, first class honors arts and law. He is a recent recipient of the Economic Society of Australia's Young Economist Award and fellow of the Australian Academy of Social Sciences. Welcome to the show, Andrew, again. Gibboushire.com, where can people find you on the interwebs, sir? The modestly named andrealee.com. It's my parliamentary website, and then I'm also on all your favorite social media platforms.

All the social media platforms. So give us a 30,000 overview. What's inside your new book? So How Economics Explains the World is the story of how the discipline of economics developed and the story of how we can understand the world through the lens of economics. I aim to update the story of economics so it's not just the dead white males like Adam Smith and John Maynard Keynes but also weaving in some of the extraordinary women economists such as Claudia Golden. I aim also to tell the story of the world through the lens of economics explaining why we should have known from the outset that the allies were going to win World Wars I and II, and the North was going to win

the Civil War over the South, just because the sheer disparity of material resources was so great. I aim to look at how economics can provide insights into understanding sport, understanding beauty, understanding religion. Economics is a broad and interesting discipline. It's much more than stock markets and the gold price. It's also a set of tools that can be used to understand the world. And so you outline all of that stuff so people can figure it all out. Absolutely. And so the book starts with the agricultural revolution,

that moment in which humanity moves from hunter-gatherer societies through to settled agriculture. It leads to a big increase in productivity, which translates not into increased living standards, Chris, but into an increased number of people. So we see a massive explosion in the human population at that period, but the number of years people live, the quality of the diets, aren't that different under settled agriculture

than they were under hunter-gatherers. That's a different story that will happen with the Industrial Revolution later on. And why did you think it was important to put this book out now? I think economics is often regarded as being terribly complicated and ordinary people can't wrestle with it. What I wanted to do is to make clear to people that the best insights of economics are the ones we teach our first year students.

Think about markets as being an equilibrium. Understand how supply and demand work. Recognise the sunk cost fallacy. Let bygones be bygones. And when you're making decisions, look on the margin. Think about the impact of one more of something rather than the average. These sorts of tools can be useful not only in making economic decisions, Think about the impact of one more of something rather than the average.

These sorts of tools can be useful not only in making economic decisions, like if you're a CEO deciding whether to open a new plant, but can also be useful in your personal life. Should I stay at the bar and have one more drink or should I head home? Well, economics can provide an answer to that too. That or is your wife waiting at home and she's going to be angry if you keep staying at the bar? That'll change the costs and benefits as well, right? If there's someone waiting at home, then the benefits of going home are higher.

If there's not, then maybe the benefits of staying at the bar are a little higher too. Also, I don't want to put too much emphasis on the present and emphasis on tomorrow. Public health decisions can be made better if we try and focus on future impacts, not just on how things make us feel today. That's probably a mistake that a lot of people make in today's society where they're focused on, I want to feel good and buy stuff. And maybe those aren't the best decisions. Smoking, speeding, obesity, too little exercise, all of these things are explained in part by behavioral economics. But economics has some tips and tricks that can help you try and ensure that you're making decisions that maximize long-term benefits.

Sometimes that's regulation. Sometimes it's also a little bit of encouragement. Making sure that, for example, you have incentives to do exercise in the morning by having your shoes by the door and so you don't stop yourself from going out and miss out on those long-term benefits of an early morning run. So you've written quite a few books. How many books do you have? You have so many. It depends on how you count the co-authored and co-edited ones

but somewhere between ten and a dozen. I've enjoyed writing books since I moved from being a professor to being a politician. It turns out that in academia, there's actually much more emphasis among economists in writing articles. Books have been declining in value pretty much since Adam Smith wrote The Wealth of Nations in 1776. But in politics, there's a desire to communicate well. And one way of reaching a broad audience like yours, Chris, is to be writing books rather than articles. And it keeps the mind sharp too, as well.

Absolutely. As you know, from being a regular reader and someone who engages so deeply with so many authors. Yep. Yep. It makes all the difference in the world. Tell us a little bit about yourself, more of your background and your words. How did you grow up? What influenced you to take down the road you did? How did you get into politics and study and everything else? So I grew up in a comfortably middle-class household with parents who'd been steeped in Methodism, now the Uniting Church in Australia, a notion that a life of service to others is a life well lived. We had a lot of conversations about poverty and inequality and globalisation around the dinner table.

And so I was always interested in the world. And the way in which that interest first manifested was by studying law. I loved law. I worked for a judge on our high court, the equivalent of your Supreme Court. But in the end, I felt like the economic framework of incentives was more useful than the legal framework of rights for the problems I cared about. So I went over to

Harvard, studied a PhD for four years and came back thinking like an economist. That's what everyone does. They come to America and they learn how to do stuff and then they go home. It was like drinking for a fire hydrant, Chris. It was a wonderful experience. I met my wife. I met many of my best friends. And it changed the way in which I think about many of the big problems in the world. Then I had half a dozen years as a professor at the Australian National University and entered Parliament in 2010.

And I've sort of tried to be a bit of a professor within the Parliament, doing a little bit of writing, trying to engage with big ideas ideas bring more of that kind of the intellectual engagement into the world of power and we need more of that here in america we need more smarter people who use their brains and stuff we seem to have a lot of just really rich people and and then we we seem to have i don't know some real goofro-offs over here we probably make an entertainment for you folks outside the united states to watch us i mean one of my one of my great heroes is general patrick monaghan the senator from new york who moved from being an academic into being a senator and he made a huge impact on american public

policy never never ran for the white house but was always in there in discussions, particularly about poverty and welfare reform. One of the early thinkers about the impact of family structure on the economic disadvantage and really showed that you're able to keep a foot in both camps. If you can do a bit of that, then it's a joy to be able to work in the world of ideas and in the world of power. Let's see some of the examples that you have in the book out. Why did the Allies win World War

II? You had mentioned that it was financially obvious they were going to win. I don't want to put words in your mouth. Absolutely. The difference in resources at the outset is massive. And it's really only the fact that Hitler is so much more tactically effective on the battlefield that turns World War II into a six-year war rather than just a year or two. Rommel's extraordinary strategy with his tank command routes many better resourced allied foes. But ultimately, Hitler can't push back against the sheer weight of resources that's marshaled against him. On the Russian front and also the United States entering the war, it just makes a huge impact. And in the end, the power of resources grinds down the Axis powers. And, you know, it's much the same story of World War I, a war which in principle probably

could have been shorter, given that there was a massive difference at the outset. These were not finely balanced conflicts, Chris. I mean, there is just a hugely disproportionate difference in the resources available to the Allies in both World War I and World War II. Yeah. And so, but it probably didn't really change the game until we stepped into the war. The resources that we had were just so vast.

Absolutely. I mean, there's a range of counterfactual histories that look at what would have happened if the United States hadn't ended World War II. Some suggest that it would have just been taken longer for the Allies to win. Others, that it could have led to the success of Hitler. It was much more finely balanced without the entry of the United States.

Wow. Yeah. It's a good thing we stepped in. I mean, it would have been interesting if the whole world would have been like, I don't know, the Japanese and the Germans. And it would have just been us on our little island here of our continent, you know, going. It really was the destiny of the United States, you know, coming out of a couple of decades of isolationism and protectionism, the high tariff walls, the immigration barriers. Suddenly, the United States steps in to save the world from fascism and then puts in place the Marshall Plan that helps to rebuild Germany and Japan and turn them into the economic powerhouses that they become over the coming decades. And so much of that prosperity then flows back to the United States.

So those post-war decades are periods not only of strong economic growth for the United States, but also broadly shared prosperity and which wages are rising as fast on the factory floor as they are in the corner office. You talk about how property rights drove China's growth surge in the 1980s and how that affected different things. You talk about climate change threatening our future prosperity. You want to dig into either of those stories as an example to tease out to readers? So the reforms put in place by Deng Xiaoping in

1978 really are pretty remarkable. He allows the experiments of a small Chinese village of private property to flow right across the country. The 1978 reforms were sparked by a small group of peasants who decided that they would secretly and illegally move to a private ownership system. And they're found out because the output increases multiple times of what it was before. No one rats, it's just that there's so much more production that everyone can see that they must have gone to the private property model. And then when that's taken up across the country, you get this huge increase in living standards. This is well before China's entering the global trading system. It's just the benefits of allowing people to keep what they earn.

As one Chinese peasant put beforehand, under the old system, you work hard, you don't work hard, you get the same. Under the new system, you work harder, you get more. And that's really a huge benefit to so many Chinese who went to bed hungry in their millions in the 1970s and then had essentially eliminated widespread hunger a couple of decades later. Climate change is interesting to economists because it's our biggest market failure, an area in which prices in the market system don't capture all of the costs. In this case, carbon pollution, wherever it's produced around the world, is driving up temperatures and causing adverse impacts from changes in cropping to more deaths due to extreme heat. Now, we need to deal with

that through mechanisms that require countries to come together to boost clean energy output and to slowly ratchet back the amount of carbon pollution going into the atmosphere. Yeah, I was just talking with someone who's doing some revolutionary insurance stuff here in California earlier today on another show. And one of the problems we're having here in America is in, you know, you guys have had bad wildfires too, I should say, but we've been, our situation between wildfires and floods and hurricanes, we have insurance companies just literally just pulling out and making, you know, it's hard to get insurance on homes in California and Florida. And it's because of climate change and people, you know, insurance companies are

like, we're not, we're not insuring this stuff anymore and people are like who does and they're like i don't know have fun with that they're creating a company that's doing some of that to try and fix some of it absolutely we're seeing it with the price of insurance in northern queensland which is a part of australia that's most exposed to hurricanes. Also, wildfire losses, bushfire losses are growing in Australia. It used to be that Australia was able to share resources with California in fighting some of these extreme wildfires. Now we don't do so much of that anymore because the wildfire seasons in both countries have gotten longer

and they now overlap. Both countries need those water bombing planes for more months because of more extreme weather events. Oh, wow. So thereby goes more economic whatever. And of course, a lot of people don't, you know, they don't teach some of this stuff in school. And of course, you putting it in the book where it's in a format where people can see how the dots connect. Because I remember in school they would teach me math, and I'd be like, how the hell does this apply to me?

I couldn't see real-world examples of math. Until I became in the real world, of course. So it's good that you've put this down so that people can figure it all out. Yeah, and what I'm trying to do with How Economics Explains the World, Chris, is to bring it into examples where people will be very familiar with. So if you want to understand why basketball is more exciting now than it was a couple of generations ago, don't look at the kind of norms in the system, look at the changes in the rules. The three-point rule and the shot clock have made the game more exciting.

So too, we see changes in other areas of the economy where more resources have gone to those who are at the very top of the distribution, the so-called superstar labor markets. And that's been a big driver of inequality. The story of economics touches all of our lives, but there's also some consistent threads. The value of specialization,

the understanding of marginal cost thinking, the benefits of recognizing how countries can gain through international trade. So anything we haven't missed that we should ask you about on the book and some of the stuff you have in it? I mean, we talked before about the agricultural revolution. I guess it's worth saying a little bit about that next big revolution, the Industrial Revolution. It kicks off at exactly the same time Adam Smith is writing The Wealth of Nations in 1776. James Watt files his patent for the steam engine in the same year. And this is a fascinating revolution, Chris, because where the agricultural revolution just led to more bodies, the Industrial Revolution led to higher living standards. Really, for the first time in human history, living standards started to take off.

Children lived better lives, longer lives, and ate better food than their parents. And that process continues right up to today. Technology has played a huge part in improving living standards. And one of the challenges for economists is how to ensure that the benefits of those technologies are broadly shared. It took a while for the Industrial Revolution to flow through to wages, and the challenge for many economists is to see that when we have artificial intelligence

going through a whole lot of workplaces, that we can get the benefits to workers' wages from that new technology. And in the book, do you give us any sort of insight in the future, or maybe things we should be doing in the future to be more prosperous or keep being prosperous wherever we're at in the business? Economists are always a bit cautious about making forecasts. There's a lovely line from Paul Samuelson where he says, give them a date, we'll give them a number, but don't give them both. Otherwise they can check you. So we're a little cautious about predicting which particular occupations are

going to rise or fall, whether tomorrow's growth rate is going to be up or down, what's going to happen to the price of the dollar. We can be fairly sure that education is going to continue to pay off because education is complementary to technology. So the more skills you've got, probably the better you'll do. We know that artificial intelligence, like other general purpose technologies, has huge potential to revolutionise living standards, but also some small risks as well. Just nuclear technology, just bioengineering, there are risks of artificial intelligence having a catastrophic impact on humanity. So economists think about how we take out insurance, how we make sure that those catastrophic risks are as small as possible, and so we can enjoy the large benefits that will come

from significant adoption from artificial intelligence. It should be an interesting read. People can learn so much more and see how the world was made based upon economics and why it's important. And the one thing we always say on the show the one thing man can learn from his history is a man never learns from his history but if man would get around and start learning about his history which is a great reason there's wonderful books like yours on the shelf then we can maybe change the future and be better people as human beings thanks chris it's a real pleasure to chat about how economics explains the world and so much more. Really appreciate the chance to appear on your podcast.

Thank you. Give us your dot com so people can find you on the interwebs, please. AndrewLee.com, A-N-D-R-E-W-L-E-I-G-H dot com. And thanks for tuning in. Order up the book wherever fine books are sold. How Economics Explains the World, a short history of humanity, a brief and powerful economic history

with timeless lessons perfect for fall 2024. Learn how markets mold society. Out September 3rd. Thanks to Andrew Lee for being on the show with us today. And thanks to our audience for tuning in. Be sure to be good to each other. Stay safe. We'll see you guys next time.