The Well-Read Investor

Economist Arnold Kling on Talking Across the Political Divides

This week we have Arnold Kling on the show to discuss his book The Three Languages of Politics: Talking Across the Political Divides. Now in its third edition, it’s a short little guide to navigating ideology and tribalism in today’s politics.

Politics is of tremendous importance to investors—it defines the rules by which we operate, individual and company alike. So we must pay attention to politics as it has meaningful impacts to entire economic systems let alone individual industries. But when it comes to how markets move we have to leave ideology at the door. Markets do well and poorly through time with Republicans and Democrats alike in power; favoring one side or the other leads to investing mistakes. What matters ultimately is what politicians do, not what they say. There’s always tons of talk about grand ideas and huge programs—but the truth is they rarely come to fruition in the way lofty rhetoric envisions on both sides. Even more, politics is a global issue for investors, not just a US one. So thinking critically about not just your own ideology, whatever that might be, but out the nature of these conflicts in general is of great usefulness.

Ok, we’re on Spring Break! We’ll take a couple weeks off and come back to you in May with more challenging and exciting authors to make you a well-read investor. Until then, we wish you a wonderful and healthy spring, and as always, may all your reading profit your mind and your money. Take care.

This week we have Arnold Kling on the show to discuss his book The Three Languages of Politics: Talking Across the Political Divides. Now in its third edition, it’s a short little guide to navigating ideology and tribalism in today’s politics.

Politics is of tremendous importance to investors—it defines the rules by which we operate, individual and company alike. So we must pay attention to politics as it has meaningful impacts to entire economic systems let alone individual industries. But when it comes to how markets move we have to leave ideology at the door. Markets do well and poorly through time with Republicans and Democrats alike in power; favoring one side or the other leads to investing mistakes. What matters ultimately is what politicians do, not what they say. There’s always tons of talk about grand ideas and huge programs—but the truth is they rarely come to fruition in the way lofty rhetoric envisions on both sides. Even more, politics is a global issue for investors, not just a US one. So thinking critically about not just your own ideology, whatever that might be, but out the nature of these conflicts in general is of great usefulness.

Ok, we’re on Spring Break! We’ll take a couple weeks off and come back to you in May with more challenging and exciting authors to make you a well-read investor. Until then, we wish you a wonderful and healthy spring, and as always, may all your reading profit your mind and your money. Take care.

Intro

Mike Hanson (00:09):

Hello everyone today is April 14thth 2021 and welcome to another edition of the Well-Read Investor, the podcast that profits your mind and your money. I’m your host Mike Hanson.

This week we have Arnold Kling on the show to discuss his book The Three Languages of Politics: Talking Across the Political Divides. Now in its third edition, it’s a short little guide to navigating ideology and tribalism in today’s politics. Whatever your political views, I think you’ll find this discussion enlightening and helpful, much as I did.

A little bit more on Arnold Kling. He worked at the Congressional Budget Office and the Federal Reserve Board in the mid 70s, got his PhD in economics from MIT, worked at the Federal Reserve Board in the 80s, and Freddie Mac in the 90s. Since then he’s been an active teacher, writer, and blogger on today’s most salient issues. He’s written many books, and of those I also recommend Specialization and Trade, which is an easy to read guide to basic economic ideas.

Politics is of tremendous importance to investors—it defines the rules by which we operate, individual and company alike. So we must pay attention to politics as it has meaningful impacts to entire economic systems let alone individual industries. But when it comes to how markets move we have to leave ideology at the door. Markets do well and poorly through time with Republicans and Democrats alike in power; favoring one side or the other leads to investing mistakes. What matters ultimately is what politicians do, not what they say. There’s always tons of talk about grand ideas and huge programs—but the truth is they rarely come to fruition in the way lofty rhetoric envisions on both sides. Even more, politics is a global issue for investors, not just a US one. So thinking critically about not just your own ideology, whatever that might be, but out the nature of these conflicts in general is of great usefulness.

We had Arnold on the show to at a minimum help our listeners to rise above the shouting across the aisle for a moment and look at the issue from a more dispassionate view, one that might help investors make better money decisions predicated on politics.

Either way, Kling is an interesting thinker who can be both enlightening and challenging. And that’s what we love around here. So, enjoy this conversation with Arnold Kling!

-Interview-

Mike Hanson (02:53):

Arnold, thank you so much for being on the program. I've been a reader of your work for many years, but today we're going to talk about the latest edition of your book, The Three Languages of Politics, but first, thanks for being here.

Arnold Kling (03:03):

Oh, it's great to be here.

Mike Hanson (03:04):

The first thing I want to ask you about before we even get into your work is that you've had several books now over the course of your career that have been more like longer essays, I would almost say, and they're right to the point and they're very impactful and powerful. Tell me a little bit about  the reasons for those decisions. Why would you write a shorter book versus a longer one?

Arnold Kling (03:24):

Part of it is I'm just terse, you know, for better or worse. I actually think nowadays it's better, people have such information overload and I think people who try to indulge in fancy writing. I mean, I don't enjoy it as much. I just want to say, get to the point.

Mike Hanson (03:41):

How much reading do you do day to day given your work?

Arnold Kling (03:45):

Oh, I do a lot. I think I average more than one book a week and I also read a lot online and, I try to actually be pretty careful about if I'm in the middle of reading something saying at the margin, is this the best thing I could be reading now? Or should I switch to something else?

Mike Hanson (04:03)

It is kind of a funny thing. I mean, I know that especially in today’s information age, it really is about choosing and pruning more than it is about including anymore. You have to really be choosy. So let's talk a little bit about your career as well. You've had a very interesting career. In addition to all the writing, would you tell our listeners just a little bit, going back from your beginnings and on through some of the experiences you've had, including at Freddie Mac and the FED and so forth?

Arnold Kling (04:25):

I got my PhD in economics at MIT. That was not a good time to be on the academic job market. And I was very fortunate to get a job at the federal reserve. I stayed there six years moving around laterally. I don't think it was a good fit for me in hindsight. Then worked at Freddie Mac and that was a really nice fit, I think I helped them and I learned an awful lot about business. It was a period where Freddie Mac was in the process of going from what I call sub Dunbar, which means it had fewer than 150 people to super Dunbar, which is  way over 150 people. And I think companies really change as them y get past that point. So it was just a very, interesting time to be there.

Mike Hanson (05:18):

Why weren't you a good fit at the fed or why wasn't the fed a good fit for you?

Arnold Kling (05:21):

It's very structured, very conformist and I just rebel against that. And so, Freddie Mac had my ups and downs and I was in a particularly down period and the internet was just about to become  released to the sector. And I just fell in love with it, decided I wanted to try to set up a business on it. And it was not the most brilliant time, but I kept at it, got a combination of luck and unusual behavior on my part. In terms of timing, we had the perfect timing to sell it, which was 1999. I always tell students that if you get a chance to sell an internet business in 1999, you should do that. That's my advice to your investment audience. And so since then I've been kind of just being this idle intellectual writing. I did high school teaching for 15 years and but then when I started to have grandchildren born, I decided that I wanted to prioritize giving time to them. And so I backed out of the teaching.

Mike Hanson (06:19):

I do want to get back to teaching, but I want to ask you very quickly. So selling internet business in 1999, how similar or dissimilar does today feel to you? Do you see similarities?

Arnold Kling (06:29):

The internet is way different. Okay. I'll just say that, it's nothing like what we expected to be, nothing like what it seemed to be in 1999, but the frothiness in stock markets does seem to me quite similar.

Mike Hanson (06:45):

Now, let's talk a little bit about the Three Languages of Politics, which is in its third edition. First of all, what is the conceit of the three languages of politics? What are the three language?

Arnold Kling (06:55):

Let me give you three words: oppression, barbarism, and coercion, presumably you react negatively to all three of those words. You may even think that they're approximately the same thing. So the concede as you will is that there are three political tribes, progressives, conservatives, and libertarians. I'm trying to break libertarians out from other conservatives, and the each one of them, it turns out, gets emotionally attached to their opposition to one of those three beds. So the progressives get emotionally attached to their opposition, to oppression, oppression, being defined as a group of people who abuses another group of people who abuses and suppresses them. And when I talk about language, I'll say when a progressive really wants to demonize you, they will try to make it sound like you are on the side of the oppressor.

Arnold Kling (07:57):

And you're against the oppressed. And for a conservative that same kind of emotional reaction is civilization versus barbarism. So if a conservatives is trying to denounce you though accuse you of being on the side of barbarism, and if a libertarian is trying to denounce you they’ll accuse you and the being in favor of status, coercion, calculus, the ultimate monopoly on legitimate use of force as the government. And so that's the source of coercion that libertarians most worry about.

Mike Hanson (08:33):

You go to some lengths to separate out conservatives and libertarians,  I always found that to be effective because it, at least in my view, it really is the case that a libertarian for example, will have certain desires or beliefs that'll cut across both of those and so on. But so you tend say this is their core value, and it's what tends to drive..

Arnold Kling (08:53):

Let’s be careful about that. I don't think it's a core value, in that because that makes it sound like I've really captured everything about these tribes. When I say languages, I mean that this is a particular language they use and the way they use it most is to demonize people who disagree with them. My view of politics, and this has really grown over the over the years with each new edition, is that a lot of political rhetoric has nothing to do with trying to persuade somebody who disagrees with you. It has everything to do with trying to demonize someone who disagrees with you in order to in effect close the minds of people on your own side. it isn't enough to say to somebody on our side, you and I are basically right. Here's a logical reason. I want to go so far as to make it sound like the other side is just out to cause harm, that they're just terrible, dangerous, awful people. And that's what a lot of where the political rhetoric comes in. f I had it to do over again, I would call it sort of the three rhetorical tools of politics.

Mike Hanson (10:07):

Taking your points into account, it's the lens through which people tend to see in a core sense, whatever political viewpoint they're taking on whatever specific issue is that right?

Arnold Kling  (10:16):

It is the language that resonates. It's the language that they will fall back on when they're trying to achieve closure on an issue. It's just sort of settle it once and for all, and to say, no, there's no reason to listen to the other side.

Mike Hanson (10:35):

Would you, I mean, would you agree or not agree with the statement that it's a lot of this is in some sense about nullifying ambiguity in a highly complex world?

Arnold Kling (10:44):

I would agree with that, especially rhetorically.

Mike Hanson (10:49):

And so, given the state of things in social media, has that had a good or bad effect on all this?

Arnold Kling (10:54):

In a variety of ways, yeah, social media has made things worse. A formulation that has come to me really since writing the book. I talked before about this Dunbar number and one way to think of that is we have a an intimate world where, it's below the Dunbar number. We know our families, our neighbors, our coworkers, and there's a remote world where historically we didn't really know people, but the remote world included celebrities, politicians, athletes, whatever. And the remote world, when I was growing up where you saw remotely, they were on television or in magazines and the intimate world, people you you've met in person, you saw them in person every day.

Arnold Kling (11:43):

Now both worlds are on your phone. So especially if you're like a teenager, your friends are trying to act like celebrities, on the screen. And at the same time, you can flip the finger and you encounter the tweet of a president of the United States. I think this social media has created a lot of confusion about the what's in the remote world and what's in the immediate world. And so people's emotions I think, are heightened about the remote world. They're much more heightened about politics than they would have been without social media, because you react the way you would react, If one of your friends were bothering you or someone in your family. Even though you re you react just as strongly to a strangers tweet as a friend's insult.

Mike Hanson (12:36):

Yeah, it is. It can certainly be true. Now, I know your book isn't necessarily prescriptive, but do you see any improvement or way out of this at the moment?

Arnold Kling (12:46):

Ideally people who know better, would behave better. Politicians wouldn't go on to Twitter. People  would recognize, and this is a little bit of what my book is trying to do, recognize when you're being pulled in an emotional direction, especially by people on your side. So, you know, I lean somewhat conservative. I'm not entirely libertarian, but when I read a typical Victor Davis Hanson column, just using the civilization barbarism rhetoric, I try to push that away. I said, okay, well, he's using this rhetoric. He's trying to pull me, let me just filter that a little bit. Maybe he's got a point, maybe he doesn't, but I'm not going to immediately fall for that. And if you were a progressive, you should try to filter out people who are trying to manipulate you along the oppressor oppressed axis. And if you're a libertarian, try to filter out people who are trying to manipulate you on the Liberty coercion access.

Mike Hanson (13:44):

Now, we tend to talk about these issues as if they're only United States issues, but do you see this as a global feature?

Arnold Kling (13:51):

I don't claim that the description of the three tribes fits as well overseas. What a lot of people have noticed is because American media is so pervasive in the world, people in the world, they're caring about American racism and things like that.

Mike Hanson (14:12):

You're an active blogger. You are constantly writing about the current economy and acting, and you're in active debates with people like Tyler Cowen, and others. And I was reading your piece on inflation vis-a-vis Cowen. So let's just talk about a few issues. Do you see inflation coming over the course of the next several years?

Arnold Kling (14:28):

So the most likely outcome is that inflation would stay low, but I think there's such a significant chance that inflation will take off that in my personal portfolio decisions. I'm, and this is partly because of my age, I'm at an age where I'd rather not lose anything. I'm trying to be very protective against inflation. The way I put it is if we don't get inflation, it won't be for lack of trying.

Mike Hanson (14:56):

So is it a supply issue to you?

Arnold Kling (14:58):

I take a view that inflation takes a lot of effort to get going the best way to get it going is for the government to lose control of its ability to finance its spending without printing money. If you're really looking for a country that has inflation potential look for a country that is having trouble meeting its government spending needs with taxes and borrowing.

Mike Hanson (15:30):

So I take it. You're not a big fan of modern monetary policy. Is that fair?

Arnold Kling (15:34):

I agree with one little aspect of it, which is that it doesn't differentiate strongly between government debt that pays an interest rate and government debt that pays no interest. I-E money. I think that's actually a reasonable insight.

Mike Hanson (15:54):

Conversely to that, what are some things that you see as optimistic features for the economy global economy?

Arnold Kling (16:01):

So if I were trying to make an optimistic case. I think it would have to be that there's some technologies that are going to mature more quickly than people than people expect. So one possibility would be something like augmented reality. I keep saying that, I can't believe that Zillow hasn't come out with an app that lets me walk down the street point my phone at a house and get the Zillow estimate for its for its price. It's kind of a weak augmented reality, but there's just tons of potential for that. The COVID situation has probably accelerated a lot of technological innovation. Here we're meeting and using technology that we would have never used a year ago. And all sorts of people are working remotely and who knows how quickly biotech will mature. it turns out we had a vaccine back in January, I would have said that's impossible.

Mike Hanson (17:01):

Now, a similarly short book you wrote called Specialization in Trade it's kind of a primer and in economics in general, do you see trade today as heading in the right direction? Do you worry about the state of trade? Everyone always talks about the U S and China, but trade is such a global phenomenon. Do you see that moving in the right direction?

Arnold Kling (17:20):

Yeah, I think it's probably more unstoppable than people would give it credit for. I expect international trade to revive especially  if we can get the COVID fears behind us, I think that there's too much to be gained from it. The one change I think we'll have is we'll see companies at least think about making sure that their supply chains are not just the most efficient they can be, but also are a little bit more robust. So if something goes wrong somewhere, they're able to re rearrange their supply chains. They might sacrifice a little bit of profit for robustness. That'll kind of be up to the incentives provided by the shareholders.

Mike Hanson (18:07):

Yeah. That will be very interesting to watch how it unfolds. So to wrap things up, what is next for you? Are you writing anything new in terms of books? What's on your horizon?

Arnold Kling (18:16):

I'm doing something weird, do you know anything about fantasy sports?

Mike Hanson (18:21):

A little, although I don't do much of it myself. I’m an investor, Arnold.

Arnold Kling (18:27):

Yeah. I like to say I actually, you know, during the baseball season, like I'll spend half an hour a day looking over what my fantasy baseball team's doing and I'll go months without looking at my stock portfolio.

Mike Hanson (18:41):

Probably a good idea .

Arnold Kling (18:42):

Could be. But anyway, I have concocted this idea of a fantasy intellectual teams, where people would draft public intellectuals. I have some scoring methods. The purpose of it is I'm looking for leverage points for what has gone wrong with like our, especially our academic culture, our journalism culture or political culture. And I think the traditional status gain status hierarchies in this country have been gamed, they've been around too long, have gotten stale. And so kind of the wrong people are getting high status. And so the idea of this fantasy intellectual teams is try to come up with a different way of creating a status hierarchy for intellectuals. So that people who I think are, not as well-known and certainly don't have the, the prestige in the mainstream media that I think they deserve, would kind of climb up to the top of this fantasy intellectual team story. And maybe that would get some attention we'd start to come up with better prestige hierarchy in that world.

Mike Hanson (19:49):

That's a fascinating idea. I called dibs on Thomas Sowell here and now. And but I have to ask you, since you brought up baseball who's going to win this year?

Arnold Kling (19:57):

The best team got better, didn't they? Didn't the Dodgers get better?

Mike Hanson (20:02):

That’s what I think!

Arnold Kling (20:04):

Kind of scary. Yeah.

Mike Hanson (20:05):

Well, Arnold, thank you so much for taking the time to do this. This was great to talk to you about your books, but very interesting to hear about some of these other concepts and we really appreciate your time.

Arnold Kling (20:14):

Thank you very much.

-OUTRO-

Mike Hanson: (20:27):

That was our talk with Arnold Kling. Here’s a fun fact: the intellectual rankings system he mentions in our talk just came out, and it’s pretty interesting and certainly controversial. Personally, ranking thinkers isn’t really my style, but, as with any well-constructed list, what you get out of it are some areas you might be blind to or just missed. There are certainly some names in there I’m less acquainted with, so I’ll be checking them out. You can find the entire list at arnoldkling.com. Thanks again to Arnold for stopping in to speak with us.

Ok, we’re on Spring Break! We’ll take a couple weeks off and come back to you in May with more challenging and exciting authors to make you a well-read investor. Until then, we wish you a wonderful and healthy spring, and as always, may all your reading profit your mind and your money. Take care.

-DISCLOSURE-

Investing in securities involves the risk of loss. The content of this podcast represents the opinions and viewpoints of Fisher Investments, and should not be regarded as personal investment advice. No assurances are made we will continue to hold these views, which may change at any time, based on new information, analysis or reconsideration. The opinions and viewpoints of podcast guests are not necessarily those of Fisher Investments. Copyright Fisher Investments, 2021.

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