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Going Big! with Kevin Gentry
No Free Lunch: Veronique de Rugy on Debt, Freedom, and the Fight for Growth
01:03:51
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- [00:00]
Veronique Darouji
There are a lot of aspects of the debt that people don't actually. They don't see the consequences. I think a lot of people think that in a way, it's a free lunch, right? There will always be people willing to lend the federal government money for stuff, and especially when interest rates were really low. It did seem that rather than pay for it with taxes, which people don't like, you know, you put it on the federal credit card, you know, and you can. You can. And you can basically get away with spending a lot of money and not really paying for it. There's this notion that there's a free lunch. And of course, you and I know there's no free lunch first, even when interest rates are low, right? The more you grow the debt, even with low interest rates, the more interest payments you have to pay. And that's expensive. So the debt, Debt is expensive, but people don't really see this.
- [00:58]
Kevin Gentry
Welcome to the Going Big Podcast. I'm your host, Kevin Gentry, and this is the place where we celebrate bold moves and big ideas. Each week, I sit down with inspiring leaders, entrepreneurs, and change makers who are making a significant impact in their careers and in their communities. Whether you're looking to level up your leadership, pursue your passion, or just get inspired to take your next big leap, this is where those stories come to life. Now, if you're listening on iTunes, YouTube, or anywhere else you tune into podcasts, be sure to hit that subscribe button so you'll never miss an episode. Now let's dive in to what it means to truly Go Big. Greetings, ladies and gentlemen. I have a question for you right out of the block. Is our economy holding you back? Are government policies that affect the economy standing in the way of you Going Big? Well, our guest today is Veronika Ruji. I'm so pleased to have Veronik with us. Veronik is the George Gibbs Chair in Political Economy and a senior research fellow at the Mercata center at George Mason University. She's also a syndicated national columnist, but she is certainly one of the most influential voices around in the world today, in my judgment, when it comes to matters of economic freedom and limited government. And she. Whether she's testifying in Washington, on Capitol Hill, or wherever she may be, on television or in her writing, she offers a voice of incredible clarity about the problems that we face coupled against the opportunities we would have if we really were able to realize greater freedom. And she has a compelling personal story of her own. Just so glad to have you, Veronique. I just Want to ask right out of the blocks, just focused on this same issue. How concerned should we be about the size and scope of the American national government or just government in general in the United States today?
- [03:14]
Veronique Darouji
Well, thanks for having me. And you're starting with a small, teeny, teeny, teeny question.
- [03:19]
Kevin Gentry
Exactly.
- [03:20]
Veronique Darouji
Right there. Listen, it's all a matter of preference, right? In my opinion, and I think in the opinion of the founders and as a man, we should be extremely concerned. And it's not just a question of the size of government. And then there are questions about how you measure the size of government. Some people, conservatives, I think, make the mistake very often not thinking that you measure the size of government by the taxes that you pay. I actually think that you measure the size of government by the spending. I agree with Milton Friedman. And it's not just the spending that we're spending currently, which is almost $7 trillion, and it's the size of the spending that we've committed to, whether we have money to pay for it or not. And so in that respect, that should actually really worry us. It should really. And then of course, that's for the size of government, but there's a scope of government, and that is measures. All the ways that the federal government, the state and local governments, all of the different agency, regulatory agencies, actually interfere in your life. And that is really like a big area of concern. This is, in my opinion, through regulations, through all the ways that government intervened in our lives, we actually have committed to stagnation. It explains a lot of the lack of ability, building stuff, the fact that we could do things in the past like building highways and rebuilding bridges really quickly, and we can't do that anymore. It takes for a long time. That really is another area that should really concern us.
- [05:18]
Kevin Gentry
Well, let's unpack that a bit more. So this is. You've already set the table very well. You know, a number of guests that have had before, Don Boudreau, former senator Phil Graham, have referred to hockey stick of human progress that, you know, for 2,000 years, prosperity was flat and things were pretty dismal in the world until really around the time of America's founding boom, things shot up opportunity, and then this extraordinary growth occurred that has had this blessing of prosperity that has brought people to a whole new place in terms of health, living quality in multiple ways, personal attainment, educational attainment, et cetera, et cetera. So health help us understand the consequences of federal spending or government growth more. You touched on it a bit. First of all, what are the Consequences of the debt that we face today. We've been talking about debt for decades, and I fear that it's kind of like kind of hurricane warnings and weather forecasts. Sometimes after a while, you kind of tune them out, and it doesn't seem like it has really crimped things badly. What are the consequences, in your judgment, of the federal debt and how concerned should we be about it?
- [06:38]
Veronique Darouji
Well, we should be really concerned about it, and we should be all the more concerned about it. But we're about to make it even worse with this one big, beautiful bill, even though there are provisions that I think are extremely important for growth in this, but because it's basically it's canceled by other provisions that are way worse and that are kind of. And there are so many more bad provisions compared to good provisions. So first, let me set the stage for the fact that actually in the first place, government spending in and of itself is always very distortive, no matter what form it takes. And there are forms that are more distortive than others. But in large part, it's not just because it's paid for with debt or with taxes. It's like very often, often the act of the government intervening in a particular market for a particular thing in and of itself gets in the way of growth and innovation, which is really what drove. One of the things that Deirdre showed is like the hockey stick was the product of change of behavior and perception about innovation, and it drove that tremendous economic growth that we've seen. But government intervening and spending money creates all sorts of distortions. Government transfer, even for things that we may support, like welfare payments and things like this, tend to create disincentive to work, tends to break down families, tends to have all sorts of behavior. Government spending in areas like subsidies, right. They tend to actually create distortion by shifting capital away from uncertainty, subsidized product towards subsidized product independently of the merits of these programs. And I could go on and on and on. So government spending is a problem. And then when it's paid to it.
- [08:38]
Kevin Gentry
Just to put a fine point on that. So you're essentially saying, number one, government spending distorts the normal marketplace by reallocating resources in a way that the market wouldn't want to do, and it crowds out some of those resources and keeps them from more productive uses. Then also, as you pointed out earlier, you have the regulatory burden. The function of government creates all these regulations, duplicative regulations, all this red tape, and it stymies activity because things are standing in the way of you doing stuff. And then on top of that, there's the burden of the debt.
- [09:16]
Veronique Darouji
Yes. So government spending can be paid in two ways, actually three ways. Eventually inflation could actually be a way to end up taking care of the debt. But taxes, which taxes are distortive too, right? So you have the spending itself that has distorted effect. And the way we pay for them with taxes also has distorted effect, creating, depending on the taxes, this incentive to work Again, this incentive, some of the taxes are designed precisely to prevent people from doing certain things or to try to actually shift capital in one direction or another. But the other big one is debt.
- [09:58]
Unknown
Right?
- [09:59]
Veronique Darouji
And so people tend to think, a lot of conservative thinks, as long as taxes are low, everything is fine. But it's not true. Actually. We have an enormous. Now we know a lot of things about the fact that debt in and of itself up to a certain point basically will create, we'll slow down the economy, right. In addition to actually crowding out some of the private investments because there's a competition in the capital market, right. And some of the people, investors who are looking for capital banks may decide to lend to more government debt funded programs than others. So there's a competition and private investment can end up being crowded out by public debt. For instance, if investors decide that it's better to buy debt rather than actually invest in the economy, that creates distortion too. And then eventually, as if the slower economic growth is not a problem enough, there is always the moment where the gap basically between what a government can legitimately claim it can raise in terms of revenue minus the spending and interest payment on the debt becomes so big, what we call primary deficits are so big that investors start wondering whether they are going to be in fact reimbursed eventually and wonder whether there's a possibility that they're going to be reimbursed with money that's like, that's been inflated, basically. And that's when they start worrying about this. Then inflation rises. And you have inflation today.
- [11:59]
Kevin Gentry
Got it. All right, so you've been. And the reason I have you on the Going Big podcast, because you've gone big with respect to raising the alarm about the consequences of unchecked federal spending and, and growth. My next question is, why do you think from all your experience, is it so challenging for the people to really understand the negative consequences of all this? I think we get, you know, we don't want to pay more in taxes, whether it's sales taxes or property taxes or income taxes, we don't want to do that. Because we can spend the money better than the government can. It's hard. If we experience government red tape, if we experience it going to get our driver's license at the hated DMV or dealing with a post office or the Social Security office or anything like that, we want to go crazy over that. We know that government doesn't do that stuff well, and we can also experience it when we want to develop our property or sell something or whatever it may be. But still, it doesn't seem like people fully grasp the negative consequences. Am I right or am I wrong? What's your thought and why do you think that is?
- [13:12]
Veronique Darouji
Yeah, so you're, you're right. And there. Because there are a lot of aspect of the debt that people don't actually, they don't see the consequences. I think a lot of people think that in a way it's a free lunch, right? There will always be people willing to lend the federal government money for stuff. And especially when interest rates were really low, it did seem that, you know, rather than pay for it with taxes, which people don't like, you know, you put it on the federal credit cards, you know, and you can basically get away with spending a lot of money and not really paying for it. There's this notion that there's a free lunch. And of course you and I know there's no free lunch first, even when interest rates are low, right? The more you grow the debt, even with low interest rates, the more interest payments you have to pay. And that's expensive. So the debt is expensive, but people don't really see this. And then there's always. It means that you face an interest rate risk, which for the longest time, all the time I've been in the US until 2021, people couldn't conceive that interest payment on the debt could go up because interest rates had been so low. But look at where we are now. Interest rates have gone up and we pay much more in interest payment. And unfortunately on a very big debt, a small amount of interest payment, a small increase in interest rates can create a big blossoming of interest payments. But people still don't see this that much.
- [14:59]
Unknown
Right?
- [14:59]
Veronique Darouji
But so for the longest time they didn't see that risk. Now we see it and they still managed to ignore it because the government still has the ability to roll over this debt and to actually even borrow for these interest payments. We are seeing signs of cracks, but I think most people don't see this. They don't see that the debt is expensive. They certainly don't see the impact of the debt slowing down growth. And the thing that they certainly do not see and don't understand, which is one of the things I keep repeating now all the time. All the time, all the time, is that if you want to cut taxes while raising spending, hence borrowing money, what you're doing is you're committing to higher future taxes. And people don't see that cost of the debt.
- [15:52]
Kevin Gentry
No. It's amazing. Thank you. And you know, I use as an example, particularly recently, you know, the American military, our defense systems are the strongest in the world by far. And we've seen the results of that even recently. And we spend a lot of money on that, but we're actually spending more money servicing the debt than we are on our national defense. Imagine if we as individuals were spending that great of a percentage of our normal spending on interest payments to credit cards and mortgage and everything else just on interest. It's crazy. And of course, as you say, it's just kicking the can down the street. You have to deal with it at some point. All right, I'd like to turn this.
- [16:35]
Veronique Darouji
Let's not forget, right, that one of the big problem with the financial crisis had to do with all the people who had borrowed a lot of money on variable interest rates. And all of a sudden, interest rates go up and they're underwater for houses that they decided they were better off defaulting on and dumping, which was something that I think wasn't something people would have done in the past. And then it was done in scale that was big enough that it caused a lot of problems. So now imagine this with the federal government, where we have this enormous amount of debt. Interest rates are higher. We have spent the last 15 years shortening the maturity of our debt. I'm going to give you a number. A third of our debt as a maturity of less than a year, 18% of our debt as a maturity of less than three months. So it means that in the next year, we're going to have to roll over over $10 trillion of debt. And if interest rates were to go back up even further than they are, it could really quickly become a problem.
- [18:00]
Kevin Gentry
Right? No, I mean, we all remember these stories. I remember we had a neighbor in 2007 who sold their house at the high point of the market. I think they got like 40 bids for their home as soon as it went on the market and somebody bought it that they just. It couldn't. It was beyond their means. But they were, you know, loaned the money at these low rates, variable rates, and Then of course, when stuff hit in 2009, 2008 and 2009, there was just no way they could pay for it. And who knows what has happened to this poor family since then because of just the, you know, the default and everything to go through in that situation. All right, well, we got, we could talk economics all day. And I want to come back to some of these points, but let me take it more to a little bit more personal route for you first. My question is, Veronique, when did you first learn that these ideas about policy really could have such a relevance to the real world? What kind of caught your attention? Because you've clearly devoted your life to talking about policy, educating people about it, informing them, and raising concern where you see it.
- [19:10]
Veronique Darouji
So it's, obviously it was gradual, but I was raised in France and I didn't care about politics. I didn't really care that much about policy. All I had cared about was that I could tell, like in most conversations, I didn't agree with any sides. I was kind of like, this doesn't seem right.
- [19:30]
Kevin Gentry
So you naturally contrarian, is that what you're saying?
- [19:32]
Veronique Darouji
No, I'm not naturally contrarian. I mean, I'm a libertarian in a world where most people in France was either a socialist or kind of a weak, weak, weak version of right wing, which is still left in France.
- [19:48]
Unknown
Right.
- [19:49]
Veronique Darouji
But I kind of like, I was like, you know, I just don't agree with these guys. And then when I was in college, in my third year of college, complete by complete, I mean, I was, by pure luck, I stumbled into a microeconomics class with this professor who's a libertarian and started actually making a lot of sense. And he was talking about economics in a way, and applying it to the real world. And I thought, until now, that was my third year, until now I had done economics. But in France, it's mostly taught, unfortunately, I think as the same way it's taught in a lot of places with lots of math, where you don't see the connection to the real world. And so with this professor, it really kind of like blew my mind. It just kind of opened my mind about the fact that economics is the tool to understand the world. But then there's also this philosophy out there that is actually something that makes a lot of sense to me compared to the nonsense I would hear all day long. And then I pursued a PhD in economics. You know, I can't say that I pursued a PhD in economics because I knew exactly what I wanted to do with it. I just, it was kind of like I. It made sense for me to do it. And then I came to the US and that's when I discovered the world of policy, which doesn't really exist. Didn't exist in France, really. I mean, this think tank world now exists, but it's not as vibrant as the US And I just remember thinking that all the things that I loved, you know, like economics and kind of trying to understand the real world and, and the classical liberal ideas, you could actually kind of use all of this and get paid for it. And so that's kind of how. So it was this gradual, like, process.
- [21:44]
Kevin Gentry
That's awesome. Well, a little bit more on that. So. And I'm with you. I, you know, I was oriented towards free enterprise in the United States, but it wasn't until I started studying economics in college that I had a libertarian professor as well, who. It just began to make sense. I mean, he bet us all at the time that oil prices would go down because of what was happening in a variety of things. And it was counter to the view, but he was just basing it on supply and demand. Well, Veronique, first of all, not everybody listening understands the term libertarian or even classical liberal. Classical liberal is kind of a more European term. There are a few people who use it, but we associate liberal mostly with more progressive policies. What does it mean when you say you're more libertarian or libertarian or classical liberal, or sometimes maybe people say free market. I know conservative is a different, related, but different term. Hayek talked about why I'm not a conservative. It's very confusing. What do you mean when you say you're libertarian?
- [22:48]
Veronique Darouji
It means that basically I'm free market. On economic issues, I want a government intervening, with very, very few exceptions, in the world of economics and on social issues, I would also prefer the government not intervening.
- [23:08]
Kevin Gentry
So essentially what you mean, and this is what others have shared too, I interviewed Tom Smith and he essentially said a minimal government, maximum personal liberty and opportunity.
- [23:21]
Veronique Darouji
Yes, exactly. Across the board.
- [23:23]
Unknown
Right.
- [23:25]
Kevin Gentry
You saw logically that that made sense, but I think it is worth noting that certainly Since World War II, most of Western Europe overwhelmingly has been more oriented towards socialist economic policies. We might argue that's why they've been so stagnant. There have been some bright spots from time to time, like Margaret Thatcher and others, but not a whole lot. We had Alexander Pesey on the Going Big podcast. He's trying to bring about some changes in France, but he's really up against some powerful forces. It's a little bit different than The United States, but not that much different. There is, as Thomas Jefferson predicted, the natural tendency of government to grow at the price of liberty. How do you see the world today? Is that an accurate assessment? Do you see some areas in the world where they offer more hope, or are you concerned about overall how government continues to grow?
- [24:21]
Veronique Darouji
I'm concerned about how government continues to grow, but I want to be an optimist and I kind of like, I think this is kind of from the top. I arrived in the US at the heyday of the classical liberal moment in America right at the end of the 90s. We'd had the Reagan revolution. It seemed that Republicans at least were committed and conservative, were committed to, to believe in free market or to say that they believed in free market, what they were doing when they were in power. You know, those are different things. Even though. But they were like at the margin. There was kind of, you know, free trade was, was widely, kind of. There was a consensus on trade widely held, even on both sides. Exactly. Yeah. Yeah. And so was, you know, was. Immigration was. I mean, it was. And it was a pretty peaceful time. So I kind of like, I thought this was America. Like this certainly kind of made me like, want to stay here, but I also kind of. And I think that compared to that time, things have deteriorated for sure. I mean, the Republicans and the Democrats are more alike on a lot of things, especially on economic issues.
- [25:46]
Kevin Gentry
They spend a lot of money.
- [25:47]
Veronique Darouji
Yeah, exactly. They spend a lot of money. Even a lot of Republicans now who are kind of therefore higher corporate income tax, some of them are even for higher marginal income tax rate on rich people, you have very little, you know, talk of small government is a thing of the past. There are very also little talk. And this is what I think is a real problem when we talk about taxes. Very little talk about actually tax reform. Not just lower taxes, just tax reform. What is the right tax base, how it should be structured to raise the revenue you needed, which required actually to cut the spending too. But to have the taxes, the tax system, the least distortive possible. None of this. We, we have. And then of course, their resurgence of, of populism and, and protectionism in the US Is really quite shocking.
- [26:50]
Kevin Gentry
Well, let's talk a little bit more about that. Let's, let's talk a little bit more. But first, you were born and raised in France. You were educated in France. You've, you came to the United States. You're now an American citizen. Why did you decide to come here?
- [27:04]
Veronique Darouji
Because, Because France was everything I disliked I mean, it was just a big statist country with big government and really no intellectual movement at the time that actually represented the ideas that, that I, that I believed in. Meanwhile, when I was visiting the US Right, There were think tanks, there were actually free market. There were some that were even libertarians. And I was, this is where I need to be. I want to be here. This is like there are people that are just like me, right? And what was also interesting and that maybe is specific to Washington and to, is that there was an actually intellectual discussion about, about ideas. It was a world. I mean, there's just, just a lot of people who are in the, in the ideas business and, and people take ideas seriously and there's just these conversations that are taking place and I just really wanted to, to be here. And as I said, I happened to come at a time where things were really great. I wish I had realized how great it was because, you know, our kind tend to kind of complain about how it's not perfect, right? Like, you know, like that, like right now wouldn't I want to. Oh boy, how much would I want to go back to a world where basically free trade is the consensus? This, I would love to do this.
- [28:34]
Unknown
Right.
- [28:35]
Veronique Darouji
But instead there was some complaining about the fact that there were still trade barriers, which I think is a good thing to complain about. But man, in retrospect, these were the good days.
- [28:47]
Kevin Gentry
Well, let's talk a little bit more about that, too. I recently interviewed Jim Pearson, as you may know, and from his perch at the John M. Olin foundation from roughly 1985 to 2005, and then in other roles, the Simon foundation, now the Thomas W. Smith Foundation. He's really invested in people, in the ideas, and we really saw the consequences of very generous philanthropists who shared that vision, who shared the principles, principles of the, of the founders of the country in opportunity, in individual liberty and rights, and saw this opportunity to achieve so much more by investing in these ideas. And you've chosen in your way to invest in these ideas. And I want to, I want to dig into that a bit more. But you mentioned trade and the consensus around free trade. Very concerning. There's a lot of discussion. I think the media doesn't really fully understand what's going on. Some people are saying, well, we have to punish the other countries that are either prospering too much somehow that's vision at the expense of us, or that they are playing games, what have you. You have some pretty strong views about free exchange. And I interviewed your colleague, Dom Boudreau. Just a few weeks ago. What should we be doing? How should people who are watching the political discourse today around trade, how can you help them understand it better? What are we getting wrong and what should we understand differently?
- [30:22]
Veronique Darouji
It's a really good question. And so trade. I only started working on trade issues because of Don Boudreaux, but also because of President Trump in 2016.
- [30:34]
Unknown
Right.
- [30:34]
Veronique Darouji
Until now. Until then, I wasn't doing any trade policy. And it was kind of interesting learning in the last eight years or whatever, nine years about trade and realizing all of the stuff that are kind of counterintuitive, like a lot of the stuff we believe actually is not just belief, but a lot of the real world is counterintuitive compared to the superficial belief that people have. So, for instance, it is easy to think that if you put a tariff on goods coming from abroad, people, foreigners are the one paying the tariff.
- [31:12]
Unknown
Right.
- [31:13]
Veronique Darouji
And that somehow what you're doing is protecting your producers.
- [31:18]
Unknown
Right.
- [31:18]
Veronique Darouji
It's. But of course, this is completely ignoring the fact that actually it's a tax by tariffs or attacks on American consumers that a lot of this, the idea that somehow there's a difference between producers and consumers, as if every producer isn't actually a producer, isn't a consumer, which it is.
- [31:42]
Unknown
Right.
- [31:45]
Veronique Darouji
So it's like when you start looking into trade issues, you realize a few things. So tariffs are a tax. Producers or consumers, most of what we import are inputs that are consumed by those producers in their function of consumers, in their role as consumers, into domestic production. Imports and imports are linked to one another in part because these inputs that we buy abroad, we put in production, some of it which is exported, but also those dollars that we send abroad by buying stuff always come back to us, in part to buy our exports, but also to invest in the country and to buy our government debt. So all of this are things that are not. That are counterintuitive, that people don't get.
- [32:40]
Kevin Gentry
Until it shouldn't be that counterintuitive. If a locality imposes a high restaurant tax, the restaurant's not paying the tax and covering for it.
- [32:50]
Veronique Darouji
Yeah, exactly.
- [32:51]
Kevin Gentry
We're paying for it as the customers. If a sales tax is increased, it's not the big bad producers, whatever that means, are going to have to pay that. That we're having to do it. And of course it limits our choices. And the people who have the least resources to buy these things, their choices are limited even further.
- [33:14]
Veronique Darouji
Yeah, but there are things, though, like I. That changed a little bit that, that made me understand Things even better when I learned them. So as I said, the first one is the fact that most of what we import are inputs. There's stuff that we use in our productions. I didn't know that. I kind of like had. I thought we were just importing, you know, garbage disposal and toasters.
- [33:37]
Unknown
Right.
- [33:38]
Veronique Darouji
And the vice president seems to believe this because he claims that we've traded with free trade. We've basically sacrificed domestic jobs for cheap toasters.
- [33:49]
Unknown
Right.
- [33:49]
Veronique Darouji
But most of what we import are inputs, so it's not at all what we think. The other thing is that.
- [33:55]
Kevin Gentry
You mean like minerals or it could be. Or other natural resources or it could be intermediate goods.
- [34:05]
Veronique Darouji
Exactly. Yeah, exactly. So all of the stuff that you are going to use one way or another in producing things.
- [34:12]
Unknown
Right.
- [34:14]
Veronique Darouji
But also, for instance, like steel, we import a lot of specialized steel, but it doesn't mean. And mostly because that's not the kind of steel that we produce in the U.S. but still, 70% of the steel consumed in the U.S. is American steel.
- [34:29]
Unknown
Right.
- [34:29]
Veronique Darouji
So if you don't know all of these things, then you can actually fall for the, for the kind of like we have to protect still in this country, which is, by the way, something that is almost as old as this country, as the country itself. And so the, and the other thing I just learned, actually within the last year, which I didn't realize, and it changes a lot of the way not. I mean, it basically gives me a more exhaustive picture of the real world we live in. It's like half of what we import are and a third of what we export are between related parties, between multinationals.
- [35:10]
Kevin Gentry
Which I didn't realize, like automobile manufacturers are just back and forth, back and forth.
- [35:14]
Veronique Darouji
Back and forth, back and forth, exactly. So Forrest is like claiming that you're going to put a tariff on everything in order to encourage companies from settling and starting producing in the US Right. Even if there was some value about that, as opposed to have a global economy where you produce wherever it is the most advantageous to produce. Best allocation of capital there. Let's even assume that it's better. I mean, you're making this very, very hard because BMW, which has an enormous plant in South Carolina.
- [35:59]
Unknown
Right.
- [36:00]
Veronique Darouji
And it's been there for over, you know, since I think since the, the 90s and has. And it's the highest export value in automobile is BMW in the US Right. They import stuff from across the world in order to. So that BMW produced in the US are the same as the BMW in Germany and same as the one produced wherever in the country. But what it also means is not only for instance, we'll import the engine from Germany, but a lot of what they produce here through a supply chain of over 300 suppliers which are in the country is also exported to other BMW around the world. And so it means that any tariff policies that claim that somehow is going to make it easier or encourage people to invest here just totally misunderstand what the reality about these international producers of anything, whether it's automobile is one that people use all the time, what on the ground it means. And so it, and it makes it look, you may immediately realize it's not a good idea. I didn't know a lot of that stuff. I had to learn it.
- [37:36]
Kevin Gentry
Well, it's complicated, it's not easy to understand. And that's why I think we're so susceptible to these crazy arguments. Well, let me ask you one though. There's certainly a prevailing view that cheap Chinese imports or cheap imports from other countries like China, but we'll pick on China in particular, devastated American manufacturing. And that's why we're in this terrible position. Please respond to that.
- [38:03]
Veronique Darouji
So we like this. So there are several things. It's like the employment side of things, right? It's like manufacturing is now a very small, in terms of employment is probably 8% of our GDP, I think. And we were told that this is because we let China into the wto and well, you know, that is not true. Actually the reduction of employment, of manufacturing employment in the US started after Second World War. And it's actually kind of in nominal terms. It actually people peaked in the 70s and it went down from productivity, right?
- [38:47]
Kevin Gentry
You just don't need people to do these things.
- [38:50]
Veronique Darouji
So 2 3rd, 2 3rd of the job reduction that we've seen in manufacturing employments is actually, is, is, is labor saving technology and innovation. And by the way, this is a trend that we've seen everywhere, including in China and including in countries like Germany that had a trade surplus US Right, That's. So this is a trend, this is a trend we've been through before with agriculture where there was a time, right, where we were like over half of the country was employed in agriculture. And because of technology investment and improved men in productivity, the share now of farmers, I think is like people working in agriculture, I should say is like less than a percent, I think of the workforce. And it doesn't mean that these are not kind of painful transition for the people. But there, ultimately there's adjustment that happened and the people who were working in These type of jobs end up working in higher productivity jobs elsewhere. And so there's that, but then there's also.
- [39:56]
Kevin Gentry
By the way, that's a great illustration. I remember my father talking about he worked behind a plow pulled by a mule and that somehow made it virtuous. And I'm not, that's not a criticism, but there's this sort of romanticized view. Well, I certainly prefer a tractor. And we all, it's funny because I think most Americans kind of get the advancements in agriculture. We see these, you know, huge fields in the Great Plains where these massive combines and things are just harvesting extraordinary amounts in record time. And now with drones and other things, they can do so much innovation that makes it so amazingly efficient and productive. And yet we also still have this strange romanticized view that a manufacturing plant should have thousands and thousands of people punching widgets into things when it's not, it's not practical any more than any other advances in technology would be.
- [40:53]
Veronique Darouji
And you, what's interesting is like if you go to a steel mill now, it's clean, it's all automated, it's not dangerous like it used to be. It used to be dangerous, dirty and like, and it used to be low pace. Like manufacturing jobs are actually fairly well paid. I think the average, the there is, if you, if you look at namm, there's like they, they have fact sheets and I was surprised it was like somewhere between $80,000 and, and $100,000 for the, for the average wages. And it's like enormous.
- [41:26]
Unknown
Right?
- [41:26]
Veronique Darouji
And but so, but that's on the employment side. But there's also the other talking point that we don't produce anything in the US anymore. And that is just simply not true. You just look at the data and it's just simply, it is simply not true. What we do is that we. So first we are a service economy, right? So trade is 20% of our economy and manufacturing I think for employment is about 8%. I think as a share of the GDP it's 10%, I think. But, but what we produce is high value stuff. And so for instance, like for all the complaints about the iPhone, if you remember the complaint about iPhones should be produced in the US all the stuff that is produced in China is actually really low value stuff. It doesn't mean it's important, but it's first off, I mean it's kind of cliche, but that Americans don't want to do because it's low productivity type of jobs that wouldn't be well paid. And because we don't pay anyone that little, we can't do it in the US honestly. But also it's very small. When you break down the value of an iPhone, let's say $1,000 iPhone. I think the part I've seen from the money, the share of the value produced in China is roughly $60. When the value produced in the U.S. the design, some of the chip design, the marketing and all of this stuff is somewhere between 400 and 600 dol.
- [42:59]
Unknown
Right.
- [42:59]
Veronique Darouji
And so this, and just look at the value of how much we produce in the US and it's at an all time high. And so it's just that we don't produce this. We don't have the romanticized jobs that people have in mind. Now it doesn't mean that the accession of China to the WTO wasn't like a shock in some sectors.
- [43:29]
Unknown
Right.
- [43:30]
Veronique Darouji
But they're also the ones that ended up adjusting and in the end producing even more jobs.
- [43:36]
Unknown
Right.
- [43:37]
Veronique Darouji
And to the extent that they were.
- [43:38]
Kevin Gentry
Adjusting more jobs in the United States even.
- [43:41]
Veronique Darouji
Yeah, yeah. In the, in the United States, yes. And the, the thing that's kind of, that's, that's overlooked. So if you look at manufacturing jobs as a shareholder of the economy, you can't tell where the China shock happens.
- [43:56]
Unknown
Right.
- [43:57]
Veronique Darouji
But it is true that there are areas of the US that have been where the adjustments haven't happened in the way that usually happens where in a place where unemployment goes up, then it goes back down either because people change jobs or move places and change professions that often these are problem of adjustments and they're not just adjustments to shock created by trade competition. They're actually these places that have adjustment problems often created by government barriers and disincentive to work. They happen for economic shocks too. We saw them after the Great Recession. We saw the same phenomenon happen.
- [44:46]
Kevin Gentry
Let me ask you a question related to that. But I just want to put a point on this and thank you for dedicating so much of your life to increasing and understanding about this stuff. It's complicated. You know, I think we can kind of get that for the most part paying for a lot of big government is bad and big government is bad, but it's easy to be seduced into some of the things somehow the government would produce better for us. And people on have difficulty understanding there is no such thing as a free lunch. I do think there is difficulty understanding the consequences of the federal debt or at least feeling the pain of those consequences. But when it comes to trade, boy, it's a real tough thing. And people are susceptible to these arguments, just as we're seeing today. But here's one question related to that. And then I want to move back to a better subject. You mentioned Europe and France. Western Europe is kind of dying for a variety of reasons. And I would argue a lot of it is because of the consequences of growth of government and socialist policies. But I understand that, for example, in a country like Poland, which is a little more free market, Poland's GDP now is perhaps even greater than the uk Is that correct? Give us some positive notes about, about, you know, the South Koreas of the world and the Philippines and the Vietnams and the Polands and the Hungaries and the. In Chile and Argentina today or whatever. How can give us some hopes.
- [46:18]
Veronique Darouji
I was going to say, you know, like when we were asking about the hope that I have. I mean, there are countries getting it right. Like Javier Milei in Argentina is actually stunned. Stunned me because not only is he kind of gone about implementing a lot of free market reforms really quickly, like, it's not perfect. Obviously he has to deal with. I think he didn't have. I mean, he had obviously a very small majority in whatever. Like it was very hard, right. But not all the thing that has been astonishing to watch from a distance is that kind of while poverty on paper went up originally, it's gone down dramatically. It's like all the things that you and I know, all the things that we know on what happened when you actually free and let people free to innovate and you remove government rules and you remove government subsidies and you remove tariffs. He removed a lot of tariffs, actually. We see them live in Argentina, so. So Argentina gives me a lot of hope. And I cannot go into detail with Poland, but I saw this, actually I saw a tweet by Dominic Pino this week about Poland who said, who would have known 30 or 40 years ago that Poland would make it to become the incredible economic powerhouse that has become relatively to what it was. And it's, it's all because of free market policies that have been implemented. And by the way, the same can be said about China, right? There's a great book by Ning Wang and Ronald Coase.
- [48:06]
Kevin Gentry
Called.
- [48:07]
Veronique Darouji
It's a small book. It's called How China Got Rich or something like that. And it talks about all the free market reforms. Unfortunately, in 2012, you know, they ended up stopping and reversing a lot of these, but they're still living off like basically the great proceeds and benefits of free market policies. So there are bright spots in the world. I will say, though, none of these countries have the founding documents that the US Has. None of them have the constitutions that are our Constitution and its principles of, you know, it's a majority, it respects the majority, but it protects minority. It actually, in order to be able to get things through, you have to expand your majority. There's just a lot of beautiful things in our Constitution. The protection of our rights, which is really unique. That Bill of rights that we have is utterly unique. Our understanding of the First Amendment, free speech, freedom of association, is quite unique in the world. And I think that this is ultimately what will always be missing from these countries, that if you don't get the underlying laws, these are actual laws, like.
- [49:39]
Unknown
Right.
- [49:39]
Veronique Darouji
The rest. Doug Boudreau actually beats into me that what Congress does is not. They're not lawmakers, they're legislators.
- [49:47]
Unknown
Right.
- [49:47]
Veronique Darouji
They don't do law in the sense of that. Hayek talked about law, legislation, and liberty. But our Constitution is such a thing. And if you don't get that right, ultimately whatever progress you make could be jeopardized. It's hard enough for us, but my hope is that the US won't forget. Like, we're coming up on the 250th anniversary of this country, and I'm hoping that this is going to be a moment for everyone to remember what this country, why this country is such an incredible experiment and successful experiment overall.
- [50:30]
Kevin Gentry
Well, and it happened to some degree in 1976. It helped, frankly, usher to some degree what happened with Reagan in 1980, when we celebrated the bicentennial and there was a reawakening around the power and consequences of the founding. But you make a great point. It's just so frustrating. I mean, any rational person, I think, can look at the world and say, okay, prosperity is a good thing. It makes people healthier.
- [50:59]
Veronique Darouji
Unless you're an environmentalist. So, prosecutor, there are people on the left who actually think it's not good, but.
- [51:06]
Kevin Gentry
Oh, well, that's a different subject, I guess. But you can look at countries, you know, you look at Chile, while they didn't have, at a point, the political freedom that we would enjoy, they had the economic freedom that drove this extraordinary prosperity. We saw that in different Asian countries, like South Korea, which used to be a very, very poor country. We see it from time to time. We certainly saw it with Thatcher in Great Britain turning around that dying situation, giving them a little bit more lifeblood. And then, as you noted, the power of the leadership of Ronald Reagan and we enjoyed the consequences of those policies for nearly 40 years, really, until the era of Joe Biden and the inflation that came as a result of even more government spending. Well, here's my question related to that. And then I have two closing questions. Veronique. So we've talked a lot about what's bad we want to get away from, but what more good would happen if we truly were to cut back the size and scope in government and increase opportunity and freedom.
- [52:09]
Veronique Darouji
This is an excellent question. So, as I said, I think America and the political system has made a choice as chosen stagnation as opposed to growth. With all of this precautionary principle, all the regulations that require acting for permission before being able to invest and innovate and do all of these things, it actually has paralyzed the country. It's like when you think about it, we used to be able to fly between Paris and the US in four hours. We don't anymore. And then there are people who are trying to bring back the supersonic, but there are so many regulations that are preventing this from happening. We used to be able to build bridges and subway stations really quickly and the interstate highway and build all sorts of things really quickly. And now it's really, really, really, really hard. So if we removed all these regulation and took a step back, not only would we actually free the supply side and the innovative and the innovation that actually this country's people has demonstrated their incredible ability to innovate, but it would create abundance. Resources are always scarce. It's a good thing because it means you have to allocate them to their highest value. So there seems to be a paradox there, but actually when the government takes a step back, you actually allow that decision to happen without the bias of government directing resources to what are more politically convenient or politically preferred. And you create abundance. Abundance is like a way of talking about economic growth. Economic growth is not just a source of wealth. It's not just that it lifts all boats and it actually benefits lower income people the most. We want economic growth, we don't want stagnation. We really want vibrant growing economy because it brings more than growth. It brings all the stuff that we like. It brings tolerance, it breeds tolerance, it brings a lot of the health side effects. Growing economies are more respectful of minorities and it tolerates different religion, it brings pluralism, it brings all sorts of things that we like. And in fact, I will say that these populist mentality and regime that have actually kind of emerged and trends have emerged everywhere around the world, but in the Us, in a kind of a shocking way, is probably the product of the fact that we've had a slowdown in economic growth the last 20 years. And when growth slows down, even in countries that remain richer, you get a lot of trouble. You get a lot of.
- [55:22]
Kevin Gentry
Yes, that's replete in history is. And again, you would think that we would understand that if we had more freedom, people would understand we'd have more prosperity. So we need more freedom. But when prosperity starts to wane, the populism sets in. You're exactly right. Veronique, I want to close on two questions I always ask. And by the way, you've done a great job giving us a sense for how we could go big as a country and go big as a people. Go big individually with greater freedom and a government. Please go ahead.
- [55:54]
Veronique Darouji
I forgot to say regulation is one thing.
- [55:57]
Unknown
Right.
- [55:58]
Veronique Darouji
But there's a tax side effect to abundance. Right. We are going to need a lot of capital to allow that. Construction and innovation and all stuff. So we need to get that right. But if we don't get our debt under control, if we don't reform the driver of our debt, that's Social Security, Medicare and Medicaid, which are exploding right now, we are going to have our debt problem. Our fiscal unsustainable path we're on is probably the biggest threat that we face today. So we really need to do this. And if we do all of these things, we'll be golden. So sorry.
- [56:41]
Kevin Gentry
All right, so here are the questions I like to ask. The first is, I mean, you've done extraordinary things, especially since leaving France. Come to the United States. Congratulations on becoming an American citizen. Looking back on a younger version of yourself for the benefit of us. Just looking for some advice. What would you have done differently?
- [57:05]
Veronique Darouji
Well, it's hard to tell because, like, the best thing I've done was to come here. I mean, there's just come here, this country, it is the land of opportunity. I mean, think about it. For someone like me, I barely spoke English. I'm in an industry that actually requires to speak English and write English well. And yet I've managed to succeed in part with the help of a lot of people around me. Including you.
- [57:33]
Unknown
Right.
- [57:33]
Veronique Darouji
I mean, because the American people was unbelievably generous, not just with their money, but with their time. And they take actually helping others very seriously. I think that's part of the charter of, of, of. But what would I have done differently? You know, I don't know. I, I would have, you know, I think actually I. I just had lunch with one of the, one. The of of our interns here at workatus, and one of the things I told him, I said, I regret that I actually never got an experience in government. I never went to Congress. I stayed in the think tank world. I went and worked at AI, which was kind of a little bit for a libertarian enemy territory on some fronts. But ultimately we were all very. If we were friends. But I've never kind of. My. My path is not very diversified, and I actually think for young people, it is kind of. It's a good thing to try out different things, if only to figure out what you want. But also because our modern brains have an ability to kind of leverage knowledge across a lot of things. And when you've tried a lot of things, sometimes you can utilize knowledge you've acquired in a particular industry and apply it to an industry in a completely different industry and actually produce, like, very good, very good results. Very good, like, be innovative. In fact, I think a lot of the innovators are people who've basically tried a lot of things and are able, like chefs were able to kind of mix together things that are like no one would have thought of putting together. So I think that would be my advice for young people. It'd be like, I wish I had tried jobs in government. I wish I tried working for the private sector. Because in a way, it means that, for instance, if things go badly, I could have actually not failed. Well, I can't go to the private sector now. I would have had an experience. So I think it's not a bad idea to try different things.
- [59:54]
Kevin Gentry
Awesome. All right, the closing question, Veronique, is to leave us with some. Some words of inspiration to think about going big, that we could challenge ourselves, how we can each think about doing more and better in our own lives, living a life of purpose and meaning. You've done extraordinary work. You've raised two wonderful daughters. One recently graduated, I think, for the University of Virginia. Another is a rising third year at the University. To Virginia.
- [60:21]
Veronique Darouji
Yeah.
- [60:21]
Kevin Gentry
What, what, what do you share with people today to say, you know, keep encouraging us to think about going big.
- [60:32]
Veronique Darouji
Have children? I mean, seriously, this is the most humbling and best thing I've ever done in my whole life. Like, I mean, are we talking young people or are we talking everyone?
- [60:46]
Kevin Gentry
Anyone who's listening. We have people listening for around the world, 24, 7.
- [60:50]
Veronique Darouji
Young people have children. Just have children. This is first. You can't know how awesome it is to have children until you have children. Like, there's an aspect of how great it is that you only find out on the job. Like, literally it's just like. And then basically do with them all the stuff you want to do. Don't, don't bother with all the kind of, oh, I have to kind of make them do math from the time they're two. No, it's not just like, do fun stuff with your kids, have fun with them. They'll be fine.
- [61:23]
Unknown
Right?
- [61:23]
Veronique Darouji
You've given them already everything you, the most important thing, which is your genes. So, you know, it's, have children, have fun with them. Just, but, but for, for everyone else, just like never give up. It's never like there are moments like it feels like, you know, it feels like if you truly believe in the American project, if you truly believe in free market, if you truly believe in the power of free market to basically empower really literally everyone and actually produce more wealth than anyone could have actually conceived of, an innovation that will make all of our lives better. It can feel a little kind of dark right now because you have so many people talking about how the US Is terrible and how we'd be so much better off it were back in the 1950s and you know, and all like, you know, screwing iPhones and stuff like this. And so it's kind of like sometimes you want to give up, but just don't give up. Don't give up. And kind of. Because this just. I really believe that like, like everything else, like 80% of the negative stuff that is said about the US is said by like 20%. And there's actually lot many more of us that actually love this country and it's worth defending. So just never give up.
- [62:50]
Kevin Gentry
Well, Veronik Darouji, it's always great to be with you. Thank you for all that you do your syndicated columns. We can check you on so many different ways. The Mercatus center at George Mason University just thank you and thank you for offering these words of encouragement today for us all to be challenging ourselves to keep going big.
- [63:08]
Veronique Darouji
Thank you for having me.
- [63:10]
Kevin Gentry
Thanks for tuning in to the Going Big podcast. I hope today's conversation left you feeling energized and ready to tackle your biggest goals. Don't forget to subscribe and leave us a review on iTunes, YouTube or wherever you listen to podcasts. It really helps spread the word and it gets these inspiring stories out to more people. You can also find more content, resources and updates at our website, goingbigpodcast.com Remember, the only limits are the ones you don't challenge the limits that you impose on yourself. Keep pushing, keep growing, and above all, keep going big. See you next time on the Going Big podcast.