First, what is the most important thing that people my age or my generation should know that we don't?

I think it bears on our topic today. The most important thing that I think young people should be more aware of is how much climate change is being overhyped. I think when I taught students for a number of years and climate change was the sacred cow, it was more controversial to criticize or question or play down or have reservations about, was maybe the most controversial thing that I talked about with my students in economics. And yet it is really important. It's driving a lot of policy. It's driving fear and social change. And again, I think for younger people, a lot of them don't really understand the science behind it, the scientific community, what's in play, and most importantly, I think they are being told that it's going to be far more destructive than it likely will be.

Yeah. I'm wondering actually, as you were speaking, I thought of the fact that not understanding, right? It's this beauty that comes with specialization and all of the beauties of the market system that we have, but what comes with climate research and climate policy and all of that is this issue of we think it's super pressing, and yet it's not like health issues where at the end of the day you individually have a stake in learning about it because it is your health and your life that's on the line. And so it kind of is this fear that has this huge magnitude relative to a lot of other things that kind of goes unchecked almost.

Yeah, absolutely. I mean, it's something, I mean climate change, the challenge is that it's very prone to what we call confirmation bias. And this is true both ways. It's true when there's particularly cold, weak or cold snap and people are like, there's no climate change happening. And it's also true when you have hot spells and they're like, oh my goodness, the world's burning up or you have massive hurricanes. This storm or that storm is because of climate change. It's very easy to simply plug in whatever weather you see or experience into, oh, this sort of verifies, it makes obvious that climate change is happening or climate change isn't happening. And that's a natural way that we understand lots of things in our lives, but it's not a very good way for really understanding whether this thing called climate change is happening, what it means and what its specific role is because humans are not very good at evaluating or assessing infrequent events.

Anytime there's a major storm, it's like, oh my gosh, this is unprecedented, or this is more frequent, but we're just not very good when we don't experience something in a regular observed way. As you mentioned, health is a great counter example because health we experience every day. We observe a lot, we read about, we talk with people about, so we tend to have a very good sense of how we're feeling, what's going well, what's not going well if there's a problem. But climate change is something that is very abstract and we just attribute lots of things to it without really having much evidence or ability to connect those things when it comes to a reasoned, empirical evidence-based approach.

And what's funny is that actually there's an example that falls somewhere in the middle of those two, and I would say that that's inflation. There's a professor at UVA who, she's from Uruguay, and in Latin America, they've had a lot of inflation in the past hundred years. Every country has their own ups and downs with inflation. And so the economists there really understand the relationship between spending and inflation and uncertainty and expectations and those sorts of things and stability. And so in Latin America, it's very well understood and it is more like health, but then in the US we don't actually experience inflation as often. We have very infrequent and I would say intense hurricane-esque rather than minor health hiccups. I'm using so many different analogies here. It's starting to fall apart, but we understand way less, I think because we have so many fewer observations, because luckily we have a relatively stable system them. So I don't know. I don't know exactly how that ties in. Well,

No, I mean actually inflation is a good example and it isn't in between because people experience the effects of inflation all the time whenever they buy things. But it is also the case that people understand inflation poorly because it's easy to attribute every high price to inflation when sometimes the prices of some things are going higher because of changes in the market. And so economists have long talked about the confusion that comes during times of inflation, how much of this price has changed because of a change in the value of the dollar, and how much of this price has changed because there's a change in the real supply and demand for that good. And so in an inflationary period, it's very easy. People both experience inflation, and then they also attribute all higher prices to inflation when actually not all of the increase or higher prices are due solely to the inflationary phenomenon.

And sometimes it goes in the other direction where we don't know that something is inflation until we have enough information. And so it takes a while to identify. And so then you're like, oh, grade deflation, but it's just regular deflation, not grade deflation. So I have to ask, you're studying ESG and all this stuff, and this is your response to the first question, and yet you run a bed and breakfast. So how did you get into both of those things that seemingly have nothing to do with each other?

Sure. Well, I have a bit of an investor in entrepreneurial bent. I'm interested in financial markets. I'm interested in finance in general and hospitality as well. And so I have undertaken a variety of projects over the years from both investing and real estate standpoint. And so got the bed and breakfast, bought it years ago, 2017, fixed it up and been living and running in it for the past couple of years after I left New York. And it is separate from ESG, I mean, ESG is more of a intellectual professional pursuit, but it doesn't have direct impacts yet, although it could. And ESG, the way that it is affecting economic development and most importantly affecting energy is going to affect everyone. Me running a bed and breakfast people in their houses or apartments who use electricity or drive cars or fly in planes. What's interesting about ESG is I've studied it, is it extremely pervasive in its effects and it touches almost everything. And so maybe we're kind of moving into the ESG topic, but the bed and breakfast side is kind of a side hustle and something fun to do, live up in the mountains of 10,000 feet. So my family's really into hiking and outdoors, and it's sort of like a really, really big Airbnb in a way. So we did some Airbnb over the years before that, but now we do it more intentionally.

There is this episode of Gilmore Girls. I don't know if you've watched Gilmore Girls…

I haven't, but my wife has multiple times,

And you should watch Gilmore Girls, the fact that she hasn't bullied you into it yet. Is she really a Gilmore Girls fan? I don't know. We can ask that question. But there's this episode where they have to stay at a B&B because they go on a road trip somewhat spontaneously and realize they have nowhere to stay/slash are going to visit a friend who hypothetically owns this B&B. Long story short, they're not there. They're stuck in this B&B and they have to go birdwatching because they got trapped. And so I'm wondering, is your B&B like that, do you go birdwatching with the guests?

We don't go birdwatching. My kids will ask them lots of questions about what they do and where they're from. Some of the guests that come do go do birdwatching, but a lot of them are ultra marathoners, so they do a hundred mile foot races, a hundred mile bike races, or they come to ski from a human interest standpoint talking about Airbnb’s on the road. Another sort of unusual thing perhaps about our family is my wife is really into rollerblading, and so she and some friends did a hundred mile Rollerblade trip in New York just a couple of weeks ago. So they started up in Poughkeepsie and Rollerbladed down to New York City and stayed at some B&Bs on the way down depending on where they got to that day.

Wow, that is so impressive. That must be hard on the shins.

It can be. And me. Yeah, ankles especially, I think.

Wow. So your entire family is active and diverse in your activities. That's very impressive. Okay, maybe we should get to business and talk about ESG. What is it, why does it sound like an incomplete set of words that don't really work on their own? And when did it first come about? Why is this relevant?

Sure. Well, so ESG is this, it's an acronym. It's really a label. I'm actually writing a paper on this right now. People call it a framework, but I think it's more of a label. And what I mean by that is it was created in the early two thousands. There was a big report in 2004 that a lot of people kind of date the beginning of it too, through the United Nations and the finance community. And it's basically a reincarnation of corporate social responsibility, sustainability, the movements in the eighties and the nineties for businesses to be more community oriented, more public oriented in their activities, corporate philanthropy and so on. And what ends up happening in the early two thousands is you have these millennium development goals that the UN puts together, and they very intelligently realize if we're going to implement these goals, millennium development goals, we're going to need people in finance to help us and to be involved in the process and to use large amounts of capital to help make those goals a reality.

So Kofi Annan was the Secretary General at the time, and he called a number of big UN conferences and events, and he put together a working group of a lot of financial leaders of big firms, Goldman Sachs, BP, a couple of the Swiss banks, Credit Suisse and others. So people from some of the largest or the largest financial institutions in the world got together and they wrote this report called Who Cares Wins, which also doesn't flow very well. But the initial idea was that from a business standpoint, environmental, social and governance factors are important and will become increasingly important in the coming decades. That's kind of the premise of their paper. And the reason they make that claim is they say a lot of business enterprise value is intangible. That is to say, if you look at the market value of companies, they're often quite a bit greater than the asset value.

So you look at the plant, the equipment, the stuff that if a company were to liquidate everything at own, sell all its assets, that would come out to a certain number, but the market value of that company tends to be much larger than that. Or another way people book value that book value or the value of their assets. And so this intangible, what is this intangible related to? And these people argue, well, it's related to how well companies handle environmental social governance topics, how well they handle risk, how well they innovate, and how good their business practices are, and do they treat their employees well? And a fairly kind of oriented framing, but you can see even in the initial report that they're starting to stretch what could be considered in the interest of a business. They're using the language of stakeholders, which we can talk about stakeholder capitalism, which is trendy, but also I think deeply destructive in a lot of ways of the market system and business. But that's where it came from. It's a reincarnation of, again, not social welfare, reincarnation of corporate social responsibility, these movements for sustainability, more pro-environment stuff. And it's all kind of coalesced under ESG. And so now what we have is this umbrella term that is everywhere and people, it's now broad enough that anything that people care about, they can find some way of labeling E, S, or G.

I don't know if I would say it's silly. What's interesting is that the words generally sound okay, they could be good. It's difficult to understand what it really means. It's kind of like the way the word progressive to describe the left sounds good because progress, but you have to ask yourself, what is the end point of that? What does that really mean? What is intended by? So maybe the sustainability aspect of environmental is more clear because we kind of talk about that as a society more often than social is super vague, and I guess environmental is quite vague, but governance, governance of who, governance of what towards what does it generally mean even though you can I guess, describe anything using those words.

Yeah. Well, there's two parts to it. So I think that what a lot of people don't realize is I think there's a deep kind of bait and switch that's been done with ESG and the bait is the use of categories or criteria that clearly impact how well businesses do. What is your employee retention? Do you have a safe workplace or are people getting injured all the time? Is your management accountable to your board and is the board independent? And do shareholders have a lot of input into the company? Do you think about using energy efficiently? And are you aware of community dynamics that affect your potential labor force or the perception of your company and people's willingness to buy your product? All of those things are important for running a business. Well, if you want to be profitable over time, you need to have skilled workers and not have to just hire new workers all the time.

People are always leaving because unhappy. You need to not have conflicts of interest that compromise your decision making at the board level or the executive level. You want to think about your energy costs and make sure that they don't blow up in your face. You want to think about the kinds of materials you use and how to use those materials more efficiently. All of those things are good business practice and have always been good business practice. But what the ESG advocates have done is they've taken those business practices that we've long recognized as good solid business practices, ways of assessing risk and managing human capital and all these things. And they've said, okay, these are all part of ESG, and so you need to do ESG because you need to do these things to be profitable. And so there's nothing to see here. People ESG is just good business, and this is why it's very popular in a lot of business schools.

The problem comes in as more progressive ideological goals are imported. So to give you an example, I just mentioned how board independence is good, having accountability, not having conflicts of interest is good for holding management accountable. That's important for corporate governance. That's under the G category. But now you have major organizations, the advisory proxy agencies, the NASDAQ, that when they say governance, they mean you must have a woman on your board or a minority person on your board, period, full stop right? Now. How is that good business practice, right? Some people say, well, you get more variety of opinion or diversity is good, but they actually, that has not been proven or shown at all. And what has happened is you've gotten many ESG advocates to become militant, not about the sound business practices that improve profitability and shareholder value and benefit society. They've become militant about their progressive ideological goals, and they've put it under governance or under social or under environment and use that to penalize companies that don't follow their ideological goals.

What's a little odd to me is that how do you measure that? How do you put a number, I guess, to so many different things and then group them into one category? So having a woman on your board, but then also using renewable energy. Those two things are a measured in very different ways, but how does it feed into these metrics that are used and what do the metrics actually tell us?

That is the key question. Like I said, I'm working on a paper right now called disaggregating, ESG, because you're right, again, this is a label that has been sort of thrown together as an umbrella term to advance lots of social and ideological goals. And so I don't think there is any real internal logical consistency to why these three categories have to fit together. You can always tell the just so story, and there's a lot of just so stories in ESG, but you're absolutely right. I mean, so one kind of example of this that was really prominent in the news just a couple of years ago was S&P put together an S&P 500 ESG index. So S&P 500 is the 500 largest companies by market cap. And what they did is they basically took a subset of those companies based on their ESG scores and created the S&P 500 ESG index that was 300 some companies.

And there was this big controversy back in, I think 2021 when they dropped Tesla from the ESG index, but they had ExxonMobil and they had a few other fossil fuel companies on there. And Musk of course was furious about this. And a lot of people are scratching their heads of like, well, wait a second. I mean, this is the pioneering electric vehicle company that's really trying to cut emissions dramatically and really revolutionize how we think about transportation from a fossil fuel emission standpoint. And now they're not on the ESG index. And what the ESG folks said is, well, yeah, they're doing that, but they don't have other good social practices or governance practices. So there have been allegations that there is some racism in one of their plants, or there are allegations that their auto drive system has led to some accidents. And so that's not good on the social side.

And this is what I find really humorous, they say, and on the environmental side, they don't have a clear plan for reducing their emissions. What mattered was having a written plan of some kind companies get for having a written plan and penalized for not having a written plan, even though it's not that hard to see that Tesla is very significantly trying to reduce its emissions and emissions in general. And so anyway, they were scored much lower on this ESG composite score because the S&P kinds of hangups that the people at s and p had and therefore scored them lower on. And so then the question is, well, what are you investing in when you invest in the ESG index, you think you're investing in sustainability and reducing emissions reducing, and yet Tesla is not in there. Fossil fuel companies are in there, and some of the traditional auto companies are in there because they have better social and governance, they have more written plans that get them a better score. And so that's the question people are asking of like, what is it you're buying when you buy ESG? And I would argue that what you're purchasing to be a little tongue in cheek is you are investing in being sanctimonious, right? You're investing in, well, these are just good things, right? We just care about diversity. We just care about being nice to employees. We just care about this, that, or the other social cause or governance trend. And that's what ESG is. When you look at the index at the S&P index.

I want to pick up on something that you mentioned earlier in relation to this, and I might butcher the exact wording, so correct me if I get this wrong, but when you said that kind of these questions about what is the difference between the value of the assets a company has and then their market value might be not exactly the right way of saying that in economics. I think the way that we describe that gap is that's the future potential of a company. That's how much consumers and people in the market believe that these companies are going to continue to thrive and grow. And so it seems, I don't know exactly how to reconcile this with the idea that, okay, well, maybe on the one hand we believe diversity is good, but does diversity mean profitability And where does the problem come in with diversity and profitability and long run sustainability of a company, not earth sustainability necessarily, or even if that's what you're considering, how do we kind of reconcile this, I guess, idea that as classical liberals, it's important to have principles into not just consume whatever, just because consumerism isn't necessarily great, but also where is that line maybe?

Well, that's a fair question. I think my own view, and I think this is a very Hayekian approach to it, is I don't know if it's easy to find a specific line. And that's why we need to allow companies to take different positions. And that's traditionally what capitalism and free enterprise and private property are about. It's this idea that, you know what? We don't have to agree about everything. We can have differences of opinion about what products people want the best way to manage and hire new workers about how much to invest in this new technology or that new technology. The difference of opinion is important because the world is complex and we don't have perfect knowledge or anything close to it. And one of the deeply troubling things about this ESG movement, as I mentioned earlier, is it is in many ways very top down.

It came out of a UN report and a lot of ESG is really tied to the sustainable development goals. So the millennium development goals in 2000, and then the sustainable development goals are the new instantiation, and there's a lot more of them. And ESG is this vehicle for promoting these sustainable development goals. And again, on the surface, these goals are not necessarily bad. They're very high level, eliminate human slavery and promote, take care of, make sure there's drinking water, clean drinking water and better health, and all these things are fine. The question then becomes, well, what do we make companies do in pursuit of those goals? And are we going to make them do the right kinds of things? So another way, I don't know if you've studied development economics much yet, but if you look at development economics, it's story after story of well-intentioned grand plans to make over farming in Kenya or to root out malaria in Malawi through providing lots of mosquito nets or this, the millennium villages that Saks was involved in.

And most of these, or really all of them generally fail because they lack local knowledge and incentive alignment. But what we see in some ways is we see the mindset of the international development community trying to run finance and business everywhere. And again, the international, the political economy connection here is that international development was pushed largely through UN and affiliated organizations, the World Bank and so on. And so it's not surprising that the same set of institutions that pushed lots of different misguided international development programs that failed, and now they're pushing ESG for their sustainable developments. It's not surprising that we would see similar kinds of problems in terms of not recognizing the importance of incentives, not recognizing the importance of, as I mentioned earlier, differences of opinion experimentation. What they want is they want what concerted, unified push and agenda by everyone because to quote the title of [F.A.] Hayek's final book, The Fatal Conceit, they have this fatal conceit that they know exactly what should be done and how it should be done. And there will be dire consequences, especially in the climate arena, dire, dire consequences if we don't follow these very high level plans that are being worked out through ESG criteria that are kind of being regulated by governments or that are being pressured socially or through large asset managers who really bought into this agenda and the companies that they have in their portfolio.

A clarification question really fast, who's sustainable development goals? 

It's the United Nations. So in terms of who put it together, I don't know which people they got together to put the sustainable development goals together, but it's the sustainable development goals

And what enforcement power do they actually have? Or is it more just people that buy into it individually?

Yeah, that's an excellent question. So as far as I can tell, they don't have a ton of coercive enforcement power or almost none at all. What they have instead is they have sort of cultural and reputational power or capital that they use to try to push this. And so what they've, they've done really well is they've cultivated some of this intentionally, some of it unintentionally, but they've cultivated a global elite class. And who is this elite class? It is high level bureaucrats in governments. It is leaders of hedge funds or large institutional management companies. It is academics and faculty at top academic institutions. And what is the about this elite? Well, they get together at these major conferences to discuss climate. So you have the climate conference that happens in a year. Every year you have the Davos World Economic Forum conference that happens every year.

You have other kinds of summits and events. And these events are where the elites of lots of different institutions around the world meet and gather. They fly to, they are part of this. They're making big, big plans to solve the world's problems, and they're connecting with other elite people like them who have lots of status, lots of wealth, lots of influence, and you build this kind of international elite culture. And now the UN is one of the focal points for creating that kind of elite culture. And so the things that they prioritize or they recommend, or when they create new task force or spinoffs, which they've done a lot of ESG, the ESG movement is full of NGOs and nonprofits, many of them international, many of them sponsored or spun off by the UN. And they just apply a lot of social pressure, cultural pressure, and they've also focused on people who are gatekeepers, if you will.

And so to take the very common or well-known example of BlackRock and Larry Fink, once Larry Fink buys into ESG, you have the leader of a company that manages something like 10 trillion of assets. You don't need to persuade a billion people to go along with what you're doing. You don't need to persuade a million people to, if you can get a couple Larry Finks of the world or people like him to buy into it who run major institutional investment firms or who are gatekeepers like the shareholder proxy companies or large governance bodies, the SEC or the European Parliament or whatever major government body talk about, if you just persuade a few key elites, they can implement a lot of this without you having to persuade lots of people and without you being kind of the UN or people at these international NGOs without you having to raise a finger to force anyone to do anything.

So I think what's complicated for me, and this has become more clear as you've answered this question, is that it's complicated for me because it's not government and I just generally take a stand. It's easy to, because we have so many examples of that being problematic and not working towards even the ends and the intentions that are set out for. But I think it's similar to government in a lot of ways, in the sense that it's a bureaucratizing force order. It doesn't work really with the way that we conceive of problem solving and human nature and innovation. So in a way, it's like the opposite of cancel culture where it's a similar mechanism. Maybe it's pressure, it's a cultural pressure, but it is forcing this, I don't know, view or action that is not emergent. I think. 

So I don't know. Yeah, it's interesting. It's like a buy-in culture instead of a cancel culture. But you're right. In some ways, I think I would say two things. One, even though it doesn't start with any particular government per se, it is very political. The UN is a political kind of body. It doesn't have as much enforcement, but it is supported by governments. And so there is very much a strong political dimension to what does this, and it's also a very non-market kind of phenomenon. And this is something I've written about a little bit, that the people at the World Bank or at any of these various NGOs, they're not really producing goods and services for consumers. They're not competing in a market. They're not subject to the pressures of a market competition innovation. They are very insulated. They don't have to answer to customers, they don't have to answer to voters.

And so this is not, as you mentioned, the idea of emergent. This is not a sort of competitive emergent movement in a way. I mean, there is an emergent element to it in that there are sort of spontaneous order elements to the movement. I kind of described it as an ecosystem, but there's also a lot of planning too at very high levels that kind of shape some of the structure that spontaneous order takes. But the other thing I'll say too is that even though in its origins, it's not necessarily being pushed by specific national governments initially, it's being pushed by them now. And so ESG very much is a government issue. And so the European Union, for example, has tons of ESG regulations and legislation that are driving their economy into the ground. I mean, the European economy has not really grown for 10 plus years.

And a big part of that is because they are hamstringing their economies with various ESG requirements. They are preventing energy development. Their energy costs are going up. It's hard to get energy. They're destroying their farming sectors because they're very critical of fertilizer production, which tends to be energy intensive. They are going after livestock for their emissions. They are requiring massive reporting by companies about their whole supply chains and how well people in their supply chains are living like to the nth degree. So Europe has gone very far down governmental ESG, and it's been really bad for them. And the US has started down that road in a number of ways, but there's also been a ton of pushback in the US that we didn't really see as much of in Europe.

I think that's a fundamental difference between the cultures. I was just in Europe for a while, and the amount of group think, and not in an accusatory way, just like a purely descriptive, there is not innovative or divergent thought. There's just no room for that. It's not cultivated. And I think honestly, I came away kissing the US soil because it was amazing to me just how much we take for granted, even as people who are very defensive of maintaining diversity of thought, we kind of take for granted the fact that it's already inculcated into the way we teach and the way we are as a culture, and of course we need to protect that. But coming back from Europe and realizing that we have more of that than I thought was a really optimistic experience, I think. 

Yeah. Well, it's interesting just on that observation, Europe is the epicenter of ESG. I mean, they're the ones who are really pushing it and came up with it and are driving it. And if you think about the leader of the role economic forum, blanking on his name at the moment, but that's not going to come to me. But he wants the rest of the world to be like Europe. This idea of, well, nobody's going to rock the boat and we're all on the same page and we're just going to be very humanitarian. And I think ironically, I mean this is the deep irony. I haven't written this about this exactly yet, but I mean SG, I should write, maybe I'll write it. Op-ed, when we're done talking here, ESG is like the new imperialism coming out of Europe. So Europe, European S colonized all over the world, and they're like, oh, sorry, that wasn't good.

We're really sorry about that. And now, ESG, which is meant to be their way of atoning for this in some ways is actually a new kind of imperialism because who cares the least about EG stuff? It's developing countries, not just China, but India, parts of Africa. They're not so interested in cutting off energy development or trying to improve human resources. They are very interested in improving their lives and their economic opportunity and the economies of their countries. And ESG is really, it's become very antithetical to that. It is not good for economic growth over time.

Yeah. Well, so that was going to be my next question. I would say it wouldn't be so much of a problem. I think if in the end it actually did turn out to be profitable if it did turn out to even further the ends of its goals. I remember reading this paper, I do not remember where this was a few months ago, but there is actually some sort of economic evidence towards the fact that divesting from companies that pollute, actually make them pollute in worse ways and more because they have less money and resources to innovate, which usually tends to be greener and actually more sustainable because that's actually what growth brings us is better and more efficient things, which tend to be more sustainable. So who is this affecting and how would it affect the average American if this came to fruition? Because it doesn't seem as though it's would be good for a developing country or even a country that has people living below the poverty line. And that's just necessarily, we can tell just from economics, there can never be 0% of anything. There's going to be some poverty everywhere. We want to alleviate that. But doesn't it kind of seem like it would make it worse and more expensive to live?

It does, absolutely. And this is really on the energy front, the push for renewable energy and not that renewable energy is bad. I mean, the subsidies are inefficient in our transfers, so that's not good. But it's not that it's bad to have solar panels or window things, but the attacks on fossil fuels is really destructive because what we're facing, there's this dream that various ESG advocates have. You see them when they talk about something called the circular economy where they're like, oh, we're just going to reuse everything and we're just going to kind of not grow and not shrink, just status quo. And they're just completely naive that somehow, oh, we're not going to increase how much energy we use as a country. That's just wrong. That's just not going to happen. They're going to get run over by the AI revolution, right? The AI technology that's exploding right now with the production of data centers is one sign that demand for energy is going to rise and rise and rise.

And you can't just try to replace existing fossil fuel with renewables because that existing level of energy production is far too low to sustain the kinds of demands that are out there. And so what we're seeing though is as there are major pushes to shut down fossil fuel development, we see energy prices rise. And again, you see this in Europe. Europe's energy prices are much higher than in the US and California's energy prices are much higher than in all the other states because they've gone further down this road. And so energy prices, energy is really fundamental because not only do you use it when you turn on your light or turn on the heat or cook if you have a gas stove or a microwave or whatever, but energy is what you use to get around. Whether you travel by train, plane, or car, energy is used to bring products from one place to another.

So transportation is built around energy manufacturing requires energy farming, and a lot of people don't realize this. Farming requires a lot of energy too, from the tractors to the fertilizer, to the storage drying of grain, transporting. And so if we get the energy question wrong, if we are myopic, and this goes back to what we started with, if we are myopic about what we've got to cut fossil fuels to zero as quickly as possible, it's going to cause energy prices to rise and rise and rise, and that's going to cause the price of other things to rise. And it falls again, as you alluded to disproportionately on four people who are, instead of spending 10% of their income on utilities are going to spend 15%, 20%, 25% on utilities and food and these other kinds of things. And this is what frustrates me about a lot of the people who push ESG, whether they're people on Wall Street or at top academic programs, it doesn't matter that much to them.

If their utility bills go up 50 or a hundred bucks a month over time, it doesn't matter that much to them. If their food goes up a hundred or 200 bucks a month over time, I mean, if you're making six figures or multiple six figures, it's not a big deal. And so saving the planet's worth that. But if you're a taxi driver, you're at work retail, you are starting out more unskilled work, those things begin to matter a lot. And if you're in a developing country, it matters even more. So there is very much a development problem when it comes to ESG, and the social and governance stuff also creates its own kinds of inefficiencies. But I think it's less of the main problem than this throttling of energy.

I think the other thing is we haven't fully figured it out yet. And if we don't allow experimentation, it's more than just, and you got at this earlier with not wanting a streamlined idea of what environmental looks like or even what social work governance looks like. You don't get that competition of like, well, what works? What you get is what you have in Europe where they turned off the freaking Eiffel Tower at 10 30. I wanted to see it lit up and it was turned off. What? I mean, first world problem as hell, right? But you go and it's like, okay, that doesn't make any sense. I was walking around with my friends and they were like, why? I can't remember. Oh, why doesn't anywhere have a washer dryer? It's not just that it's a small place. It's not just Paris. It's like other parts of France, other parts of Germany. Well, Germany is maybe a little less like this than France, but they don't have the ability to have washer dryers in their house because it's so expensive. And that is just bonkers to me because no one gets it. It's a culture shock, but it's like an economic culture shock.

Well, and again, this is going back to what I would say for people in your generation. People think that this is really going to save the planet. And as you look at it, you kind of really can question, well, how much inconvenience are you going through? What's the difference being made? Especially when India and China are not that concerned about climate change, they're concerned about other things, and as long as they're concerned about other things and they're building coal power plants, there's no tomorrow, it doesn't really matter that much how much Europe or the US reduces its emissions. It's kind of almost a moot point because there's so much more emissions being created, especially by China. But in the future, I think more so by India and other parts of the world too, it's not just those two. They're just really big ones. And so yeah, you can sacrifice a washer and a dryer and be poor and have food be more expensive and feel like you're saving the planet. And what's sad is that, again, I think most of this is not really moving the needle even a little bit.

Yeah. Because the thing is as let's say coal becomes less utilized by these other countries, it will just become cheaper to use. So if you're willing to pollute, that's fine. That's good for you actually. But I don't know. In a way, we're removing ourselves from the equation. It's like not using your free speech to actually speak and add to the dialogue. It's just removing yourself entirely from the conversation is what it seems like, because then you're letting other people run the show.

And it gets worse than that because not only do we feel like we're doing our part to save the planet by hamstring, the economy and reducing energy production, but what that means over time, not only are China, India going to buy up coal that becomes cheaper and use it, but also any kinds of industries that are more energy intensive over time, energy intensive industries will leave Europe and they'll leave the US and they will go to places like China and India where energy is cheaper. And so what we're doing is we're really exporting a lot of our emissions. We're not actually reducing them. So it's like, well, we're not going to do heavy manufacturing here. We're not going to manufacture fertilizer here in the Netherlands because that requires a lot of energy and we don't want to do that. It's like, okay, well then other countries that are going to produce more pollution when they produce their energy are going to produce fertilizer instead. And what have you gained here other than feeling good about yourselves? And it's one of the frustrations of studying this topic.

And it's funny, I don't know. I is a half-baked thought, so take it for what it is. These are the same people that are like, we shouldn't consume from these places that use sweatshops, but what we're doing is we're basically creating sweatshops. That's what it looks like to me, is if you're outsourcing the polluting, they're going to do it for cheaper and then I guess could still hold them to a certain standard. But it seems like it opens the door to all these other things that they're against the people who tend to give this narrative of the way we should be behaving.

Yeah. Yeah. Maybe. So it's kind of an interesting point. I hadn't really thought about this, but I suppose you could say that ESG is in as much as it's applied to industrialized countries and not really applied or used in non-industrialized countries, is a form of economic development for these other countries. 

And you kind of see humanitarian aid. 

It is, although it's actually maybe it's more effective because decentralized in terms of which countries produce stuff, it's just extremely much more costly to people in developed countries. But I mean, is it any surprise, right, that China's manufacturing has exploded over the last 15 years? I mean, so we are looking at ESG a lot in the past couple of years, but it's been around for almost 20 now, and I think you can say what people complain about the hollowing. To change your point slightly, people complain about the hollowing out of manufacturing in the US and the rise of manufacturing in China. Well, environmental policy, energy policy is a part of that. It's not the only part, but it's a part of that Europe as well, right? Manufacturing has been leaving Europe for a long time. Germany was kind of the last holdout, but even they've been struggling as their energy prices have risen, and now with the pipeline gone, they're really hurting because this is another kind of strange thing is that so many of the environmental movement, people refuse to advocate nuclear, which is sort of the obvious route to go if you're concerned about emissions, as you should be pushing as much nuclear power plant development as possible.

But they tend to be hesitant to do that. And Germany was shutting down their nuclear plants for more than a decade before the war between Ukraine and Russia broke out.

Yeah. It's funny how then economics prevails, and nuclear is not in again, but it's less out because of that. There's a new slogan, great power rivalry, abandoned ESG for the sake of foreign policy aims. 

There you go.

Very funny. Well, thank you so much for this. I've learned so much, and I know my listeners will as well. I have one last question for you, which is, what is one thing that you believed at one time in your life that you later changed your position on and why?

Well, so coming out of college, I was basically convinced that the market could solve every problem. And the answer to every problem was more markets, less regulation, deregulation, more voluntary exchange. And I still love markets, and they're the way to go for sure every time, but just discover that there are lots of challenges and problems in the world that even markets are not going to really solve perfectly or all the time. So I just have more of a, I guess as I've gotten older, I've seen you have to sometimes caveat a little bit of markets are good and we should go that direction, but we also just need to be careful not to over promise. Like, Hey, this problem is created by government and there would be zero problems if the government weren't involved, right? It's sort of like there'd be less problems or potentially a lot less problems, and so we should move towards markets.

But I think, again, I've changed my mind or maybe just become a little bit less naive of recognizing what markets can offer, which is a lot, and that's really important, but it's not really everything. And so you just got to be careful not to offer everything and say markets will just do it, or volunteer exchange will just do it because there's lots of challenges in the world and there's lots of imperfect information, and just human nature is what it is. It's not a perfectable system, and this is a criticism for the Roth Bardy and ANCO capitalists out there. It's more of a criticism too for the utopian ESG or progressives who just want everything to be perfect. But anyway, so I've changed my views a little bit on how I talk about markets over the years.

Once again, I'd like to thank my guests for their time and insight. I'd also like to thank you for listening to The Great Antidote Podcast means a lot. The Great Antidote is sound engineered by Rich Goyette. If you have any questions, any guests or topic recommendations, please feel free to reach out to me at Great antidote@libertyfund.org. Thank you.