John Allison on the Leadership Crisis and the Free Market Cure
2015-01-08 · Guest: John Allison (Former CEO of BB&T and head of the Cato Institute) · 53:06
The Leadership Crisis and the Free Market Cure
Bob Zadek interviews John Allison, former CEO of BB&T and head of the Cato Institute, about his book The Leadership Crisis and the Free Market Cure. They discuss how government intervention and subprime mortgage mandates caused the 2008 financial crisis, the philosophical divide between statism and individualism, and the moral necessity of rational self-interest and long-term thinking to solve the nation’s looming entitlement crisis.
Topics: Financial Crisis, Leadership, Free Markets, Statism, Individualism, Altruism, Self-Interest, Entitlement Reform, Education Privatization, Cato Institute
Speakers: Bob Zadek, John Allison
Introduction [00:00]
Bob Zadek: Hello everyone, welcome to the Bob Zadek Show for Sunday at 9:00 AM. We are the only live libertarian talk radio show on the air all weekend. I am so happy to be with you again. 800-345-5639 is the number to have on speed dial to join my conversation at any time. We are the show of ideas, and what wonderful ideas they are. Ideas, not attitude. Thanks so much for listening.
In 2012, John Allison published The Leadership Crisis and the Free Market Cure. John Allison was CEO of BB&T—I believe they were the 10th or are the 10th largest bank in America. John was a firsthand witness to the alleged financial crisis in the 2007 and 2008 period. John has since left the chairmanship of BB&T to join the Cato Institute as its leader. John has been generous enough to give us an hour of his time this morning to discuss the book. The book, it’s fair to say, assimilates the collective wisdom of Aristotle, John Locke, Thomas Jefferson, and Ayn Rand. How much more could you expect from a book than that? John, welcome to my show this morning and thanks so much for being with us.
John Allison: Thank you, Bob. I’m glad to be with you.
Defining the Leadership Crisis [01:34]
Bob Zadek: Now John, your book is The Leadership Crisis and the Free Market Cure. There’s an “and” in the title, so there are two issues: the leadership crisis and the free market cure. First, the leadership crisis. In the title of your book, what leadership crisis are you referring to, and what are the manifestations of that crisis?
John Allison: Bob, I think there has been failed leadership in business and failed leadership in government, both of which contributed to the recent financial crisis. I think that leadership comes from a lack of clarity of personal values and principles, and that unfortunately, we continue to move in the wrong direction. We select leaders, certainly in the governmental sphere, who don’t have an integrated set of values consistent with human flourishing. And so I think unless us as individuals and our leaders in organizational contexts and at the societal level get clear about our values and have values consistent with human flourishing, then we’re going to continue as a country to move in a generic sense in the wrong direction.
Bob Zadek: Now, you mentioned leadership crisis both in business and in government. Now, since you were a firsthand participant in the sense that you witnessed it all occurring of the alleged financial crisis—now I say “alleged” financial crisis because crises that are almost intentionally made, or people should have anticipated the natural results of their actions, it’s not in my mind a crisis. It was predictable, I dare say inevitable, given the policies at the time. So tell us specifically what the leadership crisis was both in business and in government that caused the alleged financial crisis.
John Allison: Well, the primary cause of the financial crisis was government policy. We don’t live in a free market in the United States; we live in a mixed economy—a mixture of a lot. By industry, technology is largely unregulated and has done well. Financial services is the most regulated industry in the world and the one we had the biggest problems in.
If you look at the economic correction, it was caused by government policies which incented people to purchase homes that they shouldn’t have purchased and was financed by the Federal Reserve printing—artificially printing and expanding the monetary supply. The subsidy to housing goes back a long period of time, but it became exponential because of the focus starting with Bill Clinton and other governmental leaders to force Freddie and Fannie Mae, these giant government-sponsored enterprises, to have at least half their loans to subprime lenders. And when they failed, when Freddie and Fannie failed, they owed $5 trillion and had $2 trillion in subprime mortgages and they dominated the subprime market.
Bob Zadek: And the important takeaway from what you’ve just said—the important takeaway is there are many people, Paul Krugman among us, among them, who have blamed, who have indicated the financial crisis was the failure of markets. That of course is utterly absurd. There were no markets involved. It was simply humans responding to a government stimulus the way a plant leaf turns towards the sun. There was nothing free market about the crisis at all. It was the total absence of the free market because if the free market were operating, the subprime loans would never have been made in the first place.
John Allison: I totally agree with that, Bob. It was government incentive that created the crisis. Now on the other hand, the reason I say that a number of business leaders failed—as you said, despite the incentives, there were a lot of indications that the kind of lending being done was irrational. A number of CEOs of large corporations, large financial institutions, didn’t take the steps they could have to protect their own institutions even though the incentives were pushing in the wrong direction. And they failed from a leadership perspective, I think because they didn’t take a long-term perspective. They evaded the facts.
For example, even though we had to fight against the government tide, my company BB&T didn’t have a single quarterly loss during the financial crisis. We were hurt by the financial environment, but we didn’t have a single quarterly loss. So it was government that caused the crisis, and a number of business leaders didn’t have the intestinal fortitude and the courage to take a long-term perspective and therefore their companies got in trouble.
Bob Zadek: Although, while their companies got in trouble, ultimately the shareholders came out just fine because of the bailouts. So one can argue in a rather perverse way that the leadership crisis or the leadership failure among the large financial institutions wasn’t such a failure after all if they assumed there would always be a bailout and the government would, as we like to say, socialize their losses.
John Allison: That’s true for some of the institutions. Of course, some of them like Washington Mutual, the shareholders got wiped out. So it depended on the circumstances. That’s one of the problems with what I’d call “crony statism” is you see that Citigroup got saved and Wachovia failed, and for no rational reason except that Citigroup had a lot more political contacts than Wachovia did. So there’s a huge amount of injustice that went on in that process.
Bob Zadek: Well, it was random. It was arbitrary. And it was all decided politically, not based upon the market valuations and the management strength of the institutions. When you have political decisions made, it is by definition arbitrary, with political goals in mind, not market goals in mind.
John Allison: Right. And to the degree that there was a crisis, it was artificially created because of what you just described—the fact that they did let Wachovia fail and they did save Citigroup. They let Lehman fail and they saved Bear Stearns. So there was no rationality to the decision-making. So what would have been a natural economic correction—an artificial crisis environment was created by the arbitrary way decisions and the, frankly, the lack of rule of law. There was no rationality and no predictability, and markets can’t handle when government decision-makers with enormous power are making arbitrary decisions.
Bob Zadek: You know, you said an interesting point just now. You said markets can’t handle it when government exercises power. John, in my non-radio life, I am a creditor. I make business loans, as you have done for most of your life. And one of my own private business lending rules is I won’t make loans to a business where its success or failure is dependent upon political decisions, because I can underwrite a credit decision; I can’t underwrite irrationality in the legislature. So I just won’t make loans in those areas because, as you have just said, the market cannot anticipate and underwrite political decisions. We only can underwrite economic and business events.
John Allison: That makes total sense because political decisions are arbitrary and are driven by non-economic factors and there’s no way to predict how that will go.
Statism and the Common Good [08:18]
Bob Zadek: So we had the leadership crisis. Now, the second after the conjunction in your title of your book is The Free Market Cure. What is the free market cure that will hopefully turn the economic life of our country around?
John Allison: Bob, let me give you some context, and this will get to your question, but it’s a background context. I believe there’s a fundamental philosophical fight for the future of America going on today. On one side are the statists, and on the other side are the classical liberals, libertarians—the camp that you and I are in.
Bob Zadek: Explain “statist.” The audience may not be familiar with that term.
John Allison: Okay, let me talk about the statists for a second. The statists are people that believe in big government. They believe that government can solve all problems. They fundamentally believe that the average person is stupid and that they, in the pursuit of the common good, need to make sure that we make good decisions.
Bob Zadek: In their pursuit of their vision of the common good.
John Allison: Their vision of the common good. They are elitist power-lusters. Interestingly enough, they’re on both the left and the right. On the right, they usually want to control your personal life. They want to tell you whether a gay person can be married or you can smoke marijuana. On the left, they just want to take all your money. The most visible statists today are the progressives who are trying to reconceive America where a group of elitists from top universities—or universities that are ranked high, whether they’re really good universities or not—are going to help make sure we all do the right thing.
And you mentioned their view of the common good. Here’s the fact: the whole idea of the common good is an oxymoron because there’s nothing, practically speaking, that’s equally good for everybody. Some things are good for me, bad for you; good for you, bad for me. And a lot of things are maybe even they’re all good for all of us, but they’re unequally good. So what happens when you put out this idea “we’re going to act in the common good” and therefore individuals don’t matter, but it’s only the group that matters? You get group warfare. So it becomes what’s good for the unions, what’s good for the taxi drivers, what’s good for my business. And that’s exactly what’s happening in the United States today. We have a group warfare where no individual really has any right; it’s the groups that have rights. And that’s exactly when the power-lusters show up to decide which group gets what and allocate resources and incentives.
Bob Zadek: And those decisions are made politically, not based upon any market valuation or any individual decision. It’s made politically and mostly independent of any democratic process. So not only do the statists make decisions, but they do so for reasons of, if you believe the theory of public choice, they do so in a way to preserve their own power, not because it really meets some objective test of goodness.
John Allison: Well, and there really isn’t an objective test of goodness for 300 million people in America. You just can’t do it. There’s not an equal impact on any decision. That’s why you need the Founding Fathers’ ideal of life, liberty, and the pursuit of happiness. Each individual’s fundamental, unequivocal right to their own life. Each individual’s right to the pursuit of their personal happiness. Each individual’s right to the product of their labor—if you produce a lot, you get a lot, including the right to give it away to whoever you want for whatever reason you want to. And if you think about that moral prerogative, it demands personal responsibility. It says you are responsible for your own life and simultaneously you get to own your own life. You get to have control of your life. And in that world, then the role of government is simply to protect individual rights. Now that’s actually a very important role, but it’s a very limited one. It’s to keep me from using force or fraud to take what you’ve earned and to keep you from using force or fraud to take what I’ve earned. So government doesn’t save all of us from what some elitists think are good for us, but we’re allowed to be free and to pursue our happiness as long as we don’t violate the rights of other people.
The Role of Government and Coercion [13:17]
Bob Zadek: And of course, when you have—what makes government special, the reason government is a special institution as opposed to business or individuals or a voluntary association is government is special because it is the only institution that is authorized to use coercion, force, and take away your liberty. So government is very special, and therefore to the extent that you allocate power to government as opposed to power residing in individuals, you’re allocating power to the only institution that can coerce you to do something you might otherwise not want to do. So when we talk about government being the solution, bear in mind we are talking about government armed with weapons and jails, and as opposed to other institutions. That’s what makes government suspect. They and only they can take away our liberty, and that’s why we must be stingy about giving power to the government.
John Allison: No question about that, Bob. And government is dangerous. Throughout history, next to old age and disease, government has killed more people than any other cause. Hundreds of millions of people—far more than terrorists and far more than the mafia. Governments have slaughtered hundreds of millions of human beings throughout history. They’re very dangerous people. We need government to protect our individual rights so we aren’t fighting each other with guns, but it needs to be very limited because it’s extraordinarily dangerous. And the more power it has, the more power it abuses.
Bob Zadek: This is Bob Zadek and I’m talking with John Allison, CEO of the Cato Institute. John has written The Leadership Crisis and the Free Market Cure, a must-read. The book explains and sets out a roadmap for how an individual ought to organize their own personal life and their own decisions, and how a business leader ought to organize the institution he runs, and frankly, how a government official ought to organize their life. It is, as I said in my introduction, an assimilation of Aristotle, John Locke, Thomas Jefferson, and Ayn Rand. 800-345-5639 to join my conversation this morning with John.
Altruism vs. Rational Self-Interest [15:58]
Bob Zadek: Now John, you spend some portion of your book helping us understand the false choice of, or the choice between altruism—a Randian concept of course, not she didn’t invent it, but she speaks about it quite a bit—altruism and self-interest. Self-interest of course gets a bad rap in many aspects of society today. It seems to have a negative connotation when it should have a profoundly positive connotation. Help us understand the issues of altruism and self-interest and how those concepts help us organize our own lives so that we can live, as you talk about it in your book, a life well-lived.
John Allison: Bob, at kind of a fundamental level, I think this is the most important question that people have to answer for themselves. First, altruism is not benevolence. Benevolence is a good thing. Altruism is “other-ism.” It says that everybody’s important but you, right? You don’t matter. You don’t have a right to your own life. Now if you think about that implication—and I’m going to tie these two together—there are only “yous.” There’s only you, you, you, you, you. So if no individual has a right to their own life, if everybody is supposed to be these sacrificial animals, then there is no individual good. There’s only this collective, somehow defined by somebody else. And if I’m not willing to defend the right to my own life, then how do I defend the right to somebody else’s life?
And I’ll take that over to the issue of acting in one’s rational self-interest. And I think we have to define it that way because, as you said, “selfish” has been kind of redefined, and it’s really been redefined around a false alternative. And the false alternative is to take advantage of other people or self-sacrifice, neither one of which make any sense. In fact, a lot of people think that selfish is about taking advantage of other people. Here’s the irony: taking advantage of other people is not selfish; it’s self-destructive. First, if you try to fool Tom, Dick, and Harry, pretty soon nobody’s going to trust you because they’re going to tell Sue, Fred, and Wally and you’re not going to be trusted. And if you’re not trusted, you’re not going to be successful and you’re not going to be happy.
On the other hand, the idea that’s so common in our society that we all have to self-sacrifice is a very destructive idea. A question I ask college students—and I’ll ask your listeners to ask this question to themselves, and particularly if you have children or grandchildren, ask yourself how you would like your children or grandchildren to answer this question. And here’s the question: Do you have as much right to your life as anybody else has to their life? Of course you do. Why would you believe anything different than that? And just like the concept of altruism, if you don’t have a right to your life, then I don’t have a right to my life and I don’t have a right to—nobody has a right to their life. And that’s when the collective statist power-lusters show up because you’ve—if you aren’t willing to defend your right to your life, then you can’t defend anybody’s right to your life and the statists have won.
So the issue of rational self-interest is important in terms of your personal happiness—if you’re not willing to pursue your own personal happiness, you can’t be happy, right? And if you don’t feel like you have the right to try to earn the right to be happy, you can’t be happy. But by giving up your right to your life, you’re effectively giving up the right to anybody’s right to their life.
And the dichotomy is really false too because there is a proper moral code, and I think many people intuitively understand this, but they don’t get it in terms of what they hear at church or what they hear at school or in the press. And that moral code is we’re fundamentally traders. We fundamentally trade value for value. Life is about trying to figure out how to get better together. When I was running BB&T, our goal was genuinely to help our clients be economically successful, and we wanted to make a profit doing it. We wanted to figure out how to get better together. There are only two stable relationship conditions: win-win and lose-lose. Whenever you get greedy and you set up a win-lose, your partner’s going to get bitter and you’re going to have an unsuccessful relationship. And ironically, whenever you get self-sacrificial and you set up a lose-win, you’re going to get bitter and you’re going to end up in a lose-lose relationship. So life is about figuring out how to create win-win relationships. So you should ask what’s in it for me. That’s a fair question.
Self-Esteem and Integrity [20:51]
Bob Zadek: On the subject of—we’re going to go to break in a second, John—but on the subject of what’s in it for me and self-interest, there is my favorite Adam Smith quote, and we’ll end—we’ll go to break with this quote. Adam Smith observed, and I’m quoting: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” It is only when people are motivated by their self-interest do all of us collectively benefit. And that is simply, as John pointed out, the issue of voluntary exchange between us. The freedom to make decisions about our own property and our lives, which operate in a profound way to the collective benefit of society. This is Bob Zadek, I’m talking with John Allison, CEO of the Cato Institute and author of The Leadership Crisis and the Free Market Cure. 800-345-5639. We’ll be back in 60 real short seconds.
Bob Zadek: Welcome back to the Bob Zadek Show for Sunday at 9:00 AM. I’m your host, Bob Zadek. We are the only live libertarian talk radio show on the air all weekend. The show of ideas, not attitude. 800-345-5639 to join my conversation this morning with John Allison. John is CEO of the Cato Institute, America’s leading libertarian free market think tank. John was formerly chairman and CEO of BB&T, then and probably still the 10th largest bank in America. It was a bank that never suffered a quarterly loss even through the dark days of the alleged financial crisis. John has written The Leadership Crisis and the Free Market Cure. John was privileged, if that’s not a somewhat cynical word, to witness the financial crisis firsthand as the leader of one of the most important banks in the country. John witnessed firsthand, was in on the meetings and on the conversations and the recipient of the communications by government, by other CEOs trying to deal with the alleged albeit government-made financial crisis. And John has been generous enough to share the wisdom that he acquired during his life as a free market capitalist and banker with us this morning.
Now John, you talk in your book about the importance of self-esteem, and the phrase you use that always, whenever I read your words or hear your voice and you talk about the Aristotelian “life well-lived”—that’s a core part of the message you want to share with us, and please share it with our friends out there this morning.
John Allison: Bob, I think that most people will get this, although they don’t think about it. The purpose of life is what I call human flourishing. It’s really the pursuit of happiness in that Aristotelian sense of a life well-lived—hard work, blood, sweat, and tears happiness. Not having a good time on Friday night, but having a good time on Friday night’s fine sometimes, but it’s deeper than that. When you’re 80 years old, you look back and say, “Man, that was tough, but I’m glad I did it.” And to pursue that kind of happiness, you have to have genuine self-esteem, not the fake stuff they talk about in school today unfortunately. But genuine self-esteem, which has to be earned. Really, you earn self-esteem based on your self-confidence in your ability to live and be successful given the facts of reality. Therefore, nobody can give you self-esteem. You can’t give anybody self-esteem. You can’t give your children self-esteem. Promoting a child that hasn’t mastered a grade lowers their self-esteem; it doesn’t raise it.
And interestingly enough, one of the most important ways that you raise your self-esteem is living your life at integrity with your own values. So you have to have a rational value system that’s integrated, and your psychology, your subconscious, rewards you when you live at integrity with your own values. So self-esteem is really the foundation of happiness, and it’s earned by living your life well. But you also have to believe you have the right to be happy, or at least the right to earn the right to be happy, and that’s why you have to believe that you have the right to the pursuit of your happiness in order to have high self-esteem.
Bob Zadek: And self-esteem—those words of course are hyphenated, used side-by-side quite often. And unfortunately, the word “self” in self-esteem sort of gets lost in the phrase. Self-esteem, as John has pointed out, means your opinion of yourself. Therefore, it cannot be instilled in you. It cannot be inseminated like an injection against smallpox. It has to be acquired to be true self-esteem. It’s got to be acquired from within. Therefore, you have to be able to put your head on the pillow at night and say to yourself, “This was a good day,” more importantly, “This was a good life.” You can’t be repeating that because somebody else told you that, therefore you’re repeating it in rote. And John, I’m sure you have been pained as I have been at what’s going on in the grade schools, where there is so much effort to protect and to raise and instill self-esteem artificially, where you have events, competition where there are no losers and no winners—everybody gets a trophy. That cheapens self-esteem and dilutes it to the point of causing it to disappear.
John Allison: I think it’s anti-self-esteem. Children aren’t stupid; they understand what they’ve earned and what they haven’t earned. And giving people artificial rewards when they haven’t earned anything reduces the concept of earning. So there are very, very few people that don’t have some strength, that can’t do something well, but very few people can do everything well. And so what you really want to do as an individual with your children is be very objective about their strengths and weaknesses and don’t pretend when they don’t have a strength, but look for the things they can do well and help them reinforce those things because that’s how they raise their real self-esteem. So unfortunately, the school system has done a lot of damage to real self-esteem by the artificial rewards.
Short-term vs. Long-term Thinking [30:35]
Bob Zadek: In your book, you spend a fair amount of time on the dichotomy of short-term versus long-term views, both personal views and worldviews. And that of course was quite important to you as you managed the affairs of a complex financial institution such as BB&T, and it’s important, as you point out in your book, when managing one’s own life. Help us understand how our society emphasizes to its collective detriment short-term goals and individuals, and how much more important it is for the long view and how damaging it is to only look at the short term.
John Allison: Bob, it may have been a problem throughout history, but it’s certainly a very prevailing attribute of our current society that people are looking for immediate rewards. Well, that’s okay as long as those immediate rewards are based on something that will be beneficial in the long term. But in the long term, there is no free lunch. We get the consequences that we’ve earned based on the facts of reality. We can’t wish reality away. And you see many individuals unfortunately that get to be in midlife and realize they haven’t saved for their retirement, they haven’t taken the right kind of care of their body, they’ve not exercised, they’ve not studied and learned and thought. They haven’t done the kind of things that promote their long-term happiness. But you can’t wish away how you treated yourself when you were 25, 30 years old. You have to live your life realizing that in today’s world, the vast majority of people will live to 80 years old or older, and you need to think accordingly and make decisions accordingly.
At the societal level, I mean, the unfunded liabilities under Social Security and Medicare and Obamacare and government pension plans are over $100 trillion. It’s a society that’s been living for the short term.
Bob Zadek: $100 trillion?
John Allison: $100 trillion. And how are we going to pay all that? In reality, we can’t. We’re going to default in one way or another on some of these obligations, and that’s because we were living for today and not really wanting to pay the consequences for what we were committing to do.
Bob Zadek: Now you spoke at Cato in I think 2012, and you used some scary words. You said something like—and I may be unfair in my paraphrasing—you talked about the almost mathematical certainty of bad things happening by perhaps 2025 or 2030. Those are years if we don’t change our ways. Did you really mean that?
John Allison: Well Bob, mathematically, unfortunately, Medicare alone consumes the gross national product of the United States in 2030. And the reason for that is the retirement of the baby boomers, and as the baby boomers get to be about 80 years old, your medical expenditures go exponential. So our whole gross national product would go to pay Medicare if we don’t do something different. Now, we will do something different. The question is will we do something rational and good for our long term, or will we do something political? And the real risk is in the face of that kind of—somebody’s going to have to make some choices here. We cannot fulfill the obligations we’ve made. We don’t have the resources to do it. Then are we going to move towards bigger government? I mean, oftentimes countries move towards some kind of totalitarian style—not necessarily maybe it’s a democratic totalitarianism like in some parts of the world—to fix those kind of problems. We need to move really soon. That’s the challenge. And short-term spending is not the issue; it’s dealing with the entitlement programs.
Libertarian Solutions [34:56]
Bob Zadek: And how the Cato Institute and you personally have a libertarian orientation, and what are the lessons of libertarianism that directly would speak to these problems, and how would a libertarian approach to governance alter the possibly dismal prospects for our country in the next decade or so?
John Allison: Well, we would radically reduce the role of government. We would radically reduce government expenditures and we would radically reduce regulation because we think that has a huge negative impact on economic growth. So we can solve part of our problems simply by reducing the amount of resources that go to government in the short term, reducing the amount of regulations, and that’ll spur a faster growth rate. That alone won’t fix all of our problems. We’ve got to take on Social Security and Medicare and Medicaid.
In the case of Social Security, we’re convinced the solution is: okay, people at a certain age, let’s just pick 50, we’re going to have to pay because it’s too late. But if we could allow people under that age to go into the equivalent of a more like a 401(k) plan, that would create a huge amount of capital that would spur growth and pay for a lot of the deficiency in Social Security.
In terms of Medicare, we again—people over a certain age—for people under a certain age, we just get rid of Medicare; it’s gone. And we’d go to a free market in medicine. But people over a certain age, we’ve got an obligation to. Here’s what we would say: let’s go to a voucher system. So we give you a certain amount of money and then let you negotiate your medical services. The problem with our whole medical system is there’s no price competition. If you go to a doctor, he has no idea what it costs and you have no idea what it costs, so you don’t have price mechanisms. In most areas where there’s price competition, quality improves and price falls. That hasn’t happened in medicine because there’s no price competition.
Bob Zadek: John, there’s one interesting aside that I’ll offer. This is a small point, not a big point, but in a rather perverse way, Obamacare has built what I’ll call a mini free market in healthcare, and here’s what I mean. One of the complaints about Obamacare—but I find it to be a plus—is that a lot of the plans have greatly increased the amount of the deductible before healthcare kicks in, before insurance kicks in, up to $5,000 and $6,000. Well, that means that for $5,000 or $6,000, the patient, the taxpayer, is paying their own money. And therefore, they get careful. So Obama has in effect sent us back to, in a small degree, a free market, and I dare say that has contributed to the somewhat flattening of the healthcare cost increase. It has flattened out, and I think—no empirical data to support it—that the high deductibles are contributing to that.
John Allison: Well, no question deductibles do create discipline and do control costs. And the problem with health insurance we have in the United States is it’s not insurance. It’s a payment system. Think take your car insurance. I think maybe I’ve used my car insurance two times in my life, or my homeowners I’ve never used, and I use my medical insurance quote every month because it’s not insurance. In a free market, people would expect to pay normal medical expenses, they would care about them, and the prices would fall. And then you would have some kind of catastrophic coverage for something really serious that costs $25,000, $50,000. And you’d have much more market discipline, and that’s how markets would solve that problem. So Obamacare may have helped a little bit in that, but in a real free market, there’d be a dramatic different view by the average purchaser of the medical services, which would drive down the cost and improve the quality as it does in every other field.
Bob Zadek: And what’s interesting, John, is as we explain what a libertarian political environment would look like, it is consistent with your principles that you—the values you talk about so much in your book about self-reliance and individual taking care of oneself—is that all of these what seem to be economic cures are also have a moral component. That is, in your description of healthcare, an individual makes their own economic decisions about whether to buy a cure or not and what cure to buy and what doctor to use. So your economic solution is totally consistent with the value component and the principle component of libertarianism.
John Allison: That’s absolutely true. In my book, I argue for a set of values for individuals: a sense of purpose, commitment to rationality, commitment to earning happiness through rational self-esteem. And I think many people would agree with these individual values. And then where we seem to fall apart is we don’t seem to be able to take what we think is right for us as individuals and convert it to what’s right in a business and, most importantly, to convert it to what’s right in society. I doubt there’s anybody listening to this show that would take a gun over to their neighbor’s house and say, “Look, I want half your money because I’m going to give it away and I’m going to take 10% for me. I’m going to give it away to people that deserve it; you don’t deserve it.” People just don’t do that. But somehow it’s okay for the government to do that, which is exactly what government does. So somehow people lose their ethical connection to what they would think is right for them and somehow it’s justified at a group level.
Bob Zadek: That’s a very important point that you made in your book, and I’m so delighted that you brought it up. You point out that individuals have—seem to have one standard of behavior when they are acting alone, but that standard of behavior disappears if they’re acting collectively, i.e., through government. And please expand upon that, because it’s one of the core lessons of the book.
John Allison: You know, Bob, I think you can even take regulations. How many people, if they were in personally, if they were personally making that decision, would tell you how to run your life, right? Would tell you whether if you’re gay or not you could be married or not? If that was me individually. Or whether you could smoke marijuana or not. Or whether you could make a loan to Joe or not, or you had to make a loan to Joe or not. Or that you had to have a license to be a hair—to do hair care or to be a home decorator, on and on and on. I would say that 95% of regulations, as individuals, we wouldn’t impose those kind of constraints on the lives of other people. We just wouldn’t do it. We would feel like it was—I don’t have the right to do that. But somehow when we get in a group, it’s okay.
Bob Zadek: And the group being government.
John Allison: Yeah, when we get in government, it’s okay to take a gun and keep other people from doing things that they want to do that doesn’t hurt anybody else, to take away other people’s liberties. It’s a really strange phenomenon, and I don’t know why people don’t make that connection.
Bob Zadek: And coercion is such a profoundly negative word. There’s nothing positive about the word “coercion.” Yet when government is the—I’m going to have to invent a word—the “coercer”—there’s probably no such word—it somehow gives it a gloss that makes it legitimate. But coercion is always offensive and always suspect, and why are we so comfortable to allow government to do so collectively? It’s almost like—I flash back to that novel about these young boys on an island—was it Lord of the Flies?
John Allison: Lord of the Flies, is that the one?
Bob Zadek: Yes, of course. Acting collectively, they somehow—you can hide behind collective behavior and somehow feel it’s okay when you would never dream of acting that way individually. It gives you sort of in a bizarre way moral cover to do bad acts if you do so collectively.
John Allison: There’s no question about it. And it’s interesting because we kind of know that and yet we ignore it in relation to government. We know a lynch mob is a bad thing, right? And the individuals in the lynch mob, I doubt any of them, even if they had the physical strength, would go hang people, right? But collectively they go hang people. And there’s just a strange disconnect from the values that we most of us would accept as individuals and the rationalization and justification to do very destructive things using force, denying other people their rights when we do it collectively. And that’s one of my arguments in the book is, “Hey, if you believe this is right for you as an individual, how could you possibly believe that doing the opposite is right for us as a group? How could you possibly make that intellectual leap?”
Bob Zadek: That to me in the book was frankly an eye-opener. I never had—as soon as I understood that concept, a lot of what I believed made even more sense is that somehow—and I don’t know the dynamic, I don’t know the intellectual or the emotional dynamic that allows us to behave badly collectively, and indeed how we can vote for policies that create bad behavior when we could not dream of doing so individually. It’s like delegating somebody else to do bad acts so somehow you don’t have to do the bad act acting alone.
John Allison: That’s so true, Bob. And one of my goals in the book is to ask people to think about it. First, think about your own values and do you agree with the values I’m presenting here, which I think most people would argue with parts of it, but most people would agree with the fundamental values I present in the book. And then say, “Okay, now why wouldn’t that apply—you do that in your business? Is that how you run your business? Do you think that’s what’s happening at the societal level? And how can you rationalize unethical behavior at the societal level which you would never rationalize at the individual level?”
Closing [46:14]
Bob Zadek: Now John, we have only regretfully—and this is painful for me even to say—we sort of are running out of time. It truly is. But because it is so recently in the news and because it is so relevant to so much of the principles in your book, give us the John Allison reaction to Obama’s announcement that he—and it’s not really a formed-out plan just yet—but his concept of two—you’re going to love this question—what about the two “free”—and I use the word “free” in profound quotation marks—two free years of community college education to any qualifying American? There’s a softball question for you, John.
John Allison: It is. As a libertarian, I’m for the privatization of schools. I think we ought to have for-profit private schools that would be unregulated and the market would discipline education. I think education in the United States has failed by any kind of objective standards because government runs the school systems, which means they do not innovate, they are not creative, and they don’t teach people how to critically think. And the decline of the middle class is primarily because our public schools are not teaching our middle-class kids how to be critical thinkers in a world where critical thinking is incredibly important. I don’t think that in a free market—if you want to subsidize students, that’s fine with tax credits or vouchers. That’s not what I would prefer, but I’m fine with that. But let the market provide students with the kind of education that allows them to be critical thinkers, and competition would force that. There’s a Sam Walton out there that would radically reform education if he didn’t have to compete with hugely government-subsidized schools. And so I’m for not expanding the subsidy for public schools and I’m for the privatization of education. And by the way, Bob, I think it’s going to happen, not because the public schools want to go away, but because I think there’re going to be better market solutions through the internet that are radically superior to community colleges. And I think that’s going to happen in the next 10 to 20 years, and that’s my one hope to cure a lot of other problems because if we could do a better job of helping people to think rationally, our whole world would be better in every context.
Bob Zadek: And of course, the Obama message was it’s going to be “free” education. The word “free” is so seductively false. Oh my goodness.
John Allison: Yes, he constantly offers to give all this stuff away as if nobody had to pay for it. It’s like he’s going to forgive all the student loans as if nobody had to pay for it. So if you forgive a student loan, that means that somebody else pays the loan. The loan doesn’t go away. It’s an amazing worldview. It’s so detached from reality it’s hard to even consider it seriously, but the press obviously considers it seriously. They just drop the context and say, “Oh, it’s free.” Well, okay.
Bob Zadek: And of course, the danger of anything being free is if something is free, it is devalued. And therefore, no one values it very much. The recipient of the education doesn’t value it because it’s free and doesn’t work very hard to take advantage of it because it’s free. Hey, it’s free goods, and therefore it cannot be worth very much at all. And it’s like giving somebody what they used to call “social promotions.” You get promoted only because you have a pulse, not because you have earned the right to be promoted. It’s the same thing. It’s a devaluation of something that should be highly valuable.
John Allison: And it’s also when it’s free, it means it will be wasted by definition, right?
Bob Zadek: Of course it will. Now John, we have only two minutes left, and please tell us about the mission of Cato and how you go about doing the magnificent work that you guys do over there in Washington.
John Allison: All right. Our mission is to create a free and prosperous society based on the principles of individual liberty, free markets, limited government, and peace. We really believe in limited government. We think the government ought to stay out of your pocketbook, but we also think it ought to stay out of your bedroom. We pursue this work through lots of intellectual study. We publish lots of policy papers. We have 150 seminars a year. We publish books. We educate students. We do a lot of public outreach. On an average day, our scholars are in and have 50 major media hits in the Wall Street Journal, the New York Times. We’re not conservatives; people get us wrong. We are advocates of free markets, but we’re advocates of free markets; we’re not pro-business. We’re pro-freedom, pro-free. We’re not like the Chamber, which is pro-business. We’re pro-free markets. We don’t think you should subsidize businesses any more than you subsidize individuals. And we’re not liberals because we do believe in free markets, but we also—but we do agree with liberals on a lot of issues like people’s right to—government shouldn’t be in the marriage business and you don’t lose your right to marry because of your sexual preferences, and people that are adults get to do bad things for themselves as long as they don’t hurt anybody else. Maybe marijuana’s bad for you, maybe it’s not, but as a free person, you get to make that kind of choice. So we really are advocates of liberty.
Bob Zadek: And I should also mention you have lots of free but very valuable daily blogs and publications that anybody can subscribe to at no cost. And I would not dream of starting my day without reading my email of Cato at Liberty.
John Allison: Cato.org— both of those websites have tremendous amounts of free, very valuable information.
Bob Zadek: And I invite the audience—it is a wonderful way to start your day. Open your email box in the morning with a cup of good coffee and just reading about what’s going on in the world of free markets and liberty, all compliments of John Allison and his colleagues at the Cato Institute. John, thank you so much for giving us an hour of your time. John’s book is The Leadership Crisis and the Free Market Cure. It is a must-read to help you run your business and organize your life. John, you are truly inspirational and thank you so much for the hour of your time.
John Allison: Thank you, Bob. I enjoyed it.
Bob Zadek: Have a good day.
John Allison: You too. Goodbye.