Most of that interview focused on Koch's donations to university economics departments and his $200 million quest to build a "Republic of Science" in the American academy. But the 90-minute discussion also wandered to inequality, politics and monetary policy, among other topics.
He also explained why he dislikes the word "capitalism" as a descriptor for the free-market policies he advocates: "It's not capital we are talking about; it's knowledge and creating well-being."
Here is a lightly abridged transcript of the interview, which is edited for length and which occurred May 3 in Wichita. It begins with an opening statement of sorts from Koch.
KOCH: When I think back on three things, there are three main characteristics and events that have determined my direction in life. The first one was my father announced early on that he didn't want his sons to be "country club bums." And for a number of reasons, I bore the brunt of that -- I have an older brother and two younger brothers. So he had me work in all my spare time. I started out picking dandelions, shoveling stalls, milking cows, building a fence -- whatever dirty job was out there. That's a big deal, because you learn things working that you don't learn in school. And I later learned that, read studies that if people don't learn to work by the time they're in their 30s, they're never very productive. So you learn discipline, you've got to show up, you've got to work diligently and efficiently even when you're tired and it's unpleasant. You've got to learn to work with others. One of my main values is, you learn this system of mutual benefit. That is, if you shirk and you try to make the other guy do more, he's going to do that to you. So if you've got a dirty job, the best way is to help each other and then you'll create this culture of mutual benefit. And then you've got to understand who your customer is and create value for them and so on.
And then, my parents worked really hard at communicating other values they felt were important, such as integrity, courage, humility, treating others with dignity and respect, and having a thirst for knowledge. My father would always say "learn everything you can and whenever you can, because you never know when it'll come in handy." And the great thing about my parents is they didn't preach anything they didn't practice. Do you have kids?
TANKERSLEY: I do. A 9-year-old.
KOCH: So you know, if what you preach and what you do are inconsistent, they will spot hypocrisy faster than anybody and do the opposite.
TANKERSLEY: It's totally true.
KOCH: So that was the great thing about my parents. They didn't preach anything that they didn't live by. Now, the problem was, for my parents, is I was born a contrarian. I was born -- for whatever reason -- I think it's in the genes. I always wanted to be different and do things differently. I was a pain in the neck. I was challenging everything you wanted me to do and challenging people in school. By the time I'd graduated high school, I'd been in eight schools. I only got kicked out of one, though. So years later I asked my father, "Pop, why were you so much tougher on me than my younger brothers?” and he said, "Son, you plum wore me out.” [laughter] I resembled that.
So those were a couple of the things that kind of set your direction. They say your genetics are going to set your direction regardless of what happens, but I think there's more to it than that. And then the next thing: I didn't think I was good at anything, didn't do well in school. And then in the third grade, I was going to a public school. And the teacher was putting math problems on the board. And I said to myself -- it's amazing how you can remember certain incidents at any age that made an impression -- I asked myself why is she putting those up when the answers are obvious. And then I saw it wasn't obvious to anybody else in the class. So I said, "Hey, I'm good at something."
And back then, they believed people were either smart or stupid, because they hadn't developed multiple intelligence theory, which I became a fan of -- Howard Gardner's multiple intelligence theory. If you've read any of my stuff, you've seen that's a big deal, and we apply that here. So from then on, I wanted to do things I was good at. And so that's -- he called that logic, mathematical intelligence. That goes to philosophy, principles, those kind of things. So your mind just works that way. So I ended up at MIT because the language there is math, much more than English. And I was so much better at math and logic than English that it was the easy way out for me. It doesn't seem that way to many people. Some of my classmates were valedictorians and much smarter at everything else than I was, but they flunked out. I remember the first physics problem was these concentric circles. Usually, you'd have an hour, and you'd have one problem. Well that's easy -- are you kidding? It's insoluble. This one was concentric circles of metal with different heat-transfer rates and then heat-transfer sources, and you were supposed to determine the change in temperature over time. I'm looking at this and saying: "Are you kidding me? I have no idea." But fortunately, no one else had any idea, so I did all right, because everyone was on the curve. So what happened, if math there doesn't come naturally, you never get to the physics or the chemistry or the engineering, so I was blessed in that, or I chose the right direction.
This is a long-winded way of getting around to education, but I think this is so important -- what's not done well at education at every level -- is helping kids find, as I discovered for myself, what I was good at. I was very lucky to find out that at an early age, which set my direction in life.
So anyway, in studying science and math there, I developed a passion for understanding principles, like I'd get into nuclear physics, atomic physics. God, I just loved it. Just the elegance of it and the order of it. So I became fascinated, and then after I left MIT, I worked for a consulting firm there, in process development, product development, and then management consulting. And that was another great opportunity. We did work for what's now Exxon, DuPont. And I'd get to go in at 24 and make a presentation on their management or economics or opportunities or something. I'm sure they're like: "Who is this kid? He doesn't know anything." Which is true, but I learned a lot through that experience. Then my father talked me into coming back to Wichita, by saying he didn't have long to live, and either I'd come back to run the company or he would sell it. He had this equipment company that wasn't doing very well. He said, "You can run it anyway you want, except the one thing that would need my approval is selling it." So instead of doing consulting, I'd get to go apply my ideas in my own thing, have my own laboratory.
So out of this and my fascination with these scientific principles, I developed a real passion for understanding the philosophy of science, the scientific method. And then I came across this idea of the Republic of Science. And if you've read any of Matt Ridley's stuff on evolution of technology -- see, that's why I enjoyed that book, because that was very similar to the thought process I went through. Scientific discoveries and innovation come from combining different existing technologies and different perspectives in a unique way.
And that's how you get innovation and discovery. It's like Newton said: “If we see further, it's because we're standing on the shoulders of giants.” The old idea that some genius pulls all of this stuff out of the air is ridiculous. As Ridley pointed out, the only way Edison could invent the lightbulb is because all the elements had been developed before. That's obvious it wasn't just his genius -- 20 others developed it at the same time. And that's true for almost every invention and discovery.
And you'll remember Newton was furious at Leibniz, because he developed calculus at the same time. And he went to his death believing that he had copied him. And no, it's because all the elements were there, so it's almost inevitable that the next discovery -- as long as people are free and allowed to experiment and try new things.
So the next step is I want to apply this in our businesses. So I said, "Okay, we've got to build better information sources, better knowledge sharing, and have a challenge culture here -- that no one has all the answers." And if you're a leader at any level and your people aren't challenging you, you've got to change that or you can't be a leader here because you're not going to be using ideas, you're not going to have innovation, you're not going to fully develop your people. And if you're working in a group and you don't challenge, then you're not really doing your job.
We find that when we make an acquisition, or we have a hiring experience, that's one of the hardest things to change. If you've been working for a company where you didn't dare challenge your boss, or what's politically correct in the company, then it affects your career.
So then I decided that these principles must apply much more broadly than just in science. I started looking for the other principles on how people can best live and work together. And why? I just love principles. I could see that some of them are really useful in the company, but -- it was that combination I guess.
Because of what I learned in the Republic of Science, I said I've got to study not just things that appeal to me; I need to study all different perspectives.
So I started reading everything I could from all of these different disciplines: obviously history, philosophy, psychology, economics, sociology, anthropology, from all different perspectives. I read Plato, Rousseau, Marx, Lenin, Mao, Keynes, Hayek, Mises, Friedman, Aristotle, Descartes, I mean, you name it. And Ardrey in anthropology.
I find that's very productive, even today. Somebody challenges me; even if they're wrong, that challenge causes me to think, "Well, I didn't explain it clearly, or maybe I don't fully understand it." And one other thing -- which shows what a nerd I am -- is that … one of the early things I read was "Baldy" Harper, F.A. Harper, who had been an economics professor at Cornell. He wrote a little booklet called "Why Wages Rise." Man, did that turn me on! [laughter] I mean that's the nerdness.
KOCH: He pointed out that, okay, you can pay certain people more money and stuff but that's just going to be a transfer from one group to another. The only way people's wages are going to rise overall, or average median income is going to rise, is if you increase productivity. Because just spreading the money around -- that isn't what makes people better off; it's having more and better goods and services. So that's what we need to work on is how to increase productivity. And then everybody will be better off.
TANKERSLEY: So I'm curious: It's one thing to read a lot which, obviously, you have, and it's another to give tens of millions of dollars to advance the readings offered to students and colleges around the country. I think the basic question I wanted to start with is why? What are you hoping, what do you hope, to achieve with the giving that you've made?
KOCH: Well, as I indicated -- I was -- I've been blessed by learning certain principles and values that transformed my life and enabled me to accomplish more than I really had the ability to do or ever dream possible. And so I decided that I wanted to give as many other people as possible the opportunity to learn these ideas and transform their lives as I had. And obviously, we started teaching these principles and values here at Koch.
And the other thing is I try to hire people who will challenge and have the humility to be challenged -- is people who have basically good values. Because as Adams said in forming the country, this is a system for moral people. It won't work for -- our system here of creating value for others and having people do the right thing, exchange information, and so on only works if people have the right values.
So we won't go for the sharpest knife or the smartest guys in the room as Enron did. We hire first on values, and that's so our principles -- what we call our Guiding Principles -- are who we are as a company. They guide everything we do. And so I'd say that's -- we try to make that true in our philanthropy, too.
But anyway, so we teach these ideas here and then we've been involved -- set up -- this program 25 years or so ago called Youth Entrepreneurs to teach inner-city kids primarily the principles and techniques of principled entrepreneurship. And it's, I mean, it's so gratifying. These kids some of them tough neighborhoods -- shootings, drugs, I mean all sorts of problems -- and so they're not doing well, they don't see any point in doing this and when they learn there's a point, not everybody, but a significant portion, it transforms their lives.
And they say, “Oh, I see a purpose,” and they go from flunking to making straight A's. At graduation when some of these kids get up and talk about what it's done for them, it's amazing. But it's not just the classroom. We get a local entrepreneur to mentor them and help them and make sure they're getting not only the techniques but the values of principled entrepreneurship. So that's long-winded way -- I don't know if I addressed your question, did I? Probably not.
TANKERSLEY: Maybe you could give, I'd be interested in a little more detail on particularly when you give money to economics researchers and folks in that field, walk me through your thought process on how you select what programs you support, what sorts of things you think need advancement.
KOCH: Well, I, what my desire would be for the university portion of our educational efforts is to have every university apply a Republic of Science. And let us be open to all different ideas.
Obviously, you can teach every idea -- but the ideas that through history that made a major difference good or bad in people's lives. And the students need to be exposed to all these different ones, not just one.
So what we look at is: Okay, first of all, does the person who requests support, do they have good values? Do they have integrity? Do they have courage? Do they have courage to stick with whatever they believe and be committed to trying to find the truth of the matter rather than shade the evidence? So we look for that and then we look: Do they, okay, the area they're in, do they have the comparative advantage -- like I found mine -- do they have the talent to come up with innovations and make a contribution?
And then the other thing is are they going to be good teachers if they're teaching. Are they really going to help their students think rather than just teach them one side?
If they're teaching economics, they need to teach all the different disciplines, all the different schools in economics. They can't just teach one because then the person isn't equipped to deal with the economics profession. I don't know what Stanford was like when you went there, but they taught the full range of important schools or not.
TANKERSLEY: I feel like I've read all the major ones and learned a lot of important things.
KOCH: Yeah. So if you don't, you don't develop the ability to address problems, and you don't understand what the other guy is talking about.
KOCH AIDE: It might be helpful to illuminate the question if you could walk through a specific example. Perhaps in the '60s when scholars first started coming to you. What did that look like? Who were the people who had those ideas and values that --
KOCH: Well, one of the first ones to come to me was Rich Fink, and he was at Rutgers, and he wanted to set up something called the Center for the Study of Market Processes. He said at this center, we're going to teach all the different views, but the one that's not being taught is about market processes, so that's going to be what's new there. But we make sure that these students are going to be exposed and understand all these disciples.
And then I think Tyler Cowen was one of his students, and Tyler is a pretty good example of that. He makes sure he understands all the different schools. And one of the ones that I learned the most from was Don Lavoie. You ever heard of him? He was terrific. He got me going on hermeneutics -- you've probably studied hermeneutics a little.
TANKERSLEY: Just a touch.
KOCH: Yeah, well that's a touch. That's why it appealed to Don, because he was an iconoclast who always wanted to explore in different ways, so he'd offend everybody, kind of like I do. I have something to offend everybody.
TANKERSLEY: But just to be clear, when you talk about reading all the schools, you mean you want students to read Hayek and Marx?
TANKERSLEY: And Keynes and Friedman.
KOCH: I did. That's kind of my bias is that I created this Republic of Science for myself, and that's what's enabled me to do what I've done. And so it's logical that I would think if it was good for me and it helped me that this is critical for somebody's transformation. To not just be narrow and have some prejudices.
And this is a problem with universities. It shouldn't be a place of comfort. It should be a place of discomfort because you want to disabuse these kids of whatever prejudices or preconceptions they have when they come. You're trying to get them to think and develop, not be a Johnny-one-note.
TANKERSLEY: Do you think universities were not, or are not, on the whole doing a good job of teaching the full spectrum, in particular in economics?
KOCH: I don't know in particular in economics, but overall, no, they're not. Anytime students shout down a speaker who says something different, this is not good. And "safe zones" to express your opinion? That's the opposite of the Republic of Science.
TANKERSLEY: Do you -- in some ways by funding places like Mercatus, are you counterbalancing an overly Marxist or liberal curriculum in departments?
KOCH: Well, what I don't know about counterbalancing, but we're trying to give students the opportunity to be exposed to a full range of ideas so they can think and decide for themselves. Which ones, and when, and there may be merit in a whole bunch of different ones -- surely there are -- so they can decide what methodology to use.
And that's what hermeneutics teaches is that progress comes from being exposed to different points of views because there's no point of view that is right for all situations and all times. And even if it's superior to the others, you can enrich it by drawing on others or thinking: "Why is that wrong and how do I improve my approach? How do I come up with a better approach?" So that's essential for innovation just like it is in technology.
TANKERSLEY: How do you know if you're succeeding in helping to foster a Republic of Science? What sort of metrics do you look at to see if you're successful?
KOCH: Well one thing is: Are the universities more open? To what extent have they adopted something like the Chicago Principles? Like -- what did Hutchens say? -- that the essence of a university is free and open inquiry, and when it loses that it is no longer a university. And so to the extent universities are adopting the Chicago Principles or the Republic of Science, which are just different ways of expressing similar things. So that is one.
Then another: How many of the kids who go through there are transformed? And what I mean by "transformed" is lead then accomplish more than they ever thought possible -- and let -- and are able to lead fulfilling lives. Where they fully develop their abilities to make a contribution and get satisfaction out of it.
And then the third one: Are they coming up with innovations? How to make people's lives better, how to help people improve their lives.
So those would be three general tests that I would look at.
TANKERSLEY: By innovations, do you mean policy innovations?
KOCH: Could be. Anything that will help people improve their lives.
TANKERSLEY: Because sometimes work that is done in the centers you help support is used as the basis of legislation. For example, a lot of state legislatures cite work from Mercatus and other places for that. Is that a positive feature of what they're doing? Is that just something that happens? How do you view that?
KOCH: No, it depends on the legislation. If the legislation helps people improve their lives, then that's great because that's the ultimate goal of all of this. See, my view on well-being and fulfillment comes from Maslow and positive psychology, and that is that you're satisfying three sets of needs.
First need is physiological and safety needs: Got to satisfy those first. And the second is you got to satisfy your community needs because we're social animals, and if we don't have that, we're empty and we don't have people to share knowledge and bounce things off of, and challenge ourselves. And then the third is the idea is to find a calling.
Based on your particular comparative advantage, your unique aptitudes and to understand what those are, fully develop them, in a way that makes a contribution. Then you have fulfillment. And when you have those three things, you have what I call “well-being.” You have a life of meaning.
TANKERSLEY: Does it, when you find those people, those talented people, and you help them along their way, and they produce research -- economists or other faculty members -- and they come to a conclusion that doesn't necessarily match up with the conclusion that you would have come to, does that bother you?
KOCH: [Laughter.] No, that's great. That's what we want. We want a marketplace of ideas, right?
We want the challenges. I mean, I don't have all the answers. I have a lot of questions. And I have some basic principles. But, I mean, look at it. I've been working at this for 50 years, and we've made a lot of progress, but in other ways, we haven't made very much, and we've got a lot to learn -- I mean I do. As the old German saying: You get old too soon and smart too late. [Laughter.]
TANKERSLEY: What are the big areas you think we still need to learn about?
KOCH: How do we have a society that maximizes peace, civility and well-being for everyone? How do we have a system of individual rights in which people succeed by helping others improve their lives? We're a long way from that. So what, I mean, we got more to learn than we know, to me. So we need better ideas.
TANKERSLEY: And why do you think that we haven't come further on those ideas? What's holding us back?
KOCH: I think we've had some faulty frameworks at work. I mean, we have one framework of control, that is, people aren't capable of deciding for themselves, of running their own lives, so those philosopher kings or queens should be making decisions for all of us. And regulating us. You see that everywhere. And then we have another framework which is more pragmatism. Let's just keep trying things.
Well, what did Emerson say? I had him in my -- I quoted him in my first book. If you have methods without principles, you're going to have trouble. But if you develop methods based on principles, then you can make progress. So just keep trying things, without really understanding the underlying fibers of well-being, or peace or civility, then you're just going to stumble from one disaster to another. And that's the first rule for anybody who controls -- first, do no harm. Because, they sound good, “Okay, I'm going to help this and that.” But you've got to look at the secondary consequences and the effect on the culture.
So I think that just these faulty paradigms at work. And so the way to start it -- the first -- and this of course is my inclination, anyway, because I love to try to understand first principles and be guided by that. But then, enrich them, because they won't last forever, just like everybody thought Newton had all the answers. And you probably read that, in the last of the 19th century, Harvard and others were discouraging people from going into physics because we have all the answers. And right after that, of course -- we have -- all this stuff is thrown out the window. And now we have whole new answers.
TANKERSLEY: Well, this is something Polanyi writes about in the "Republic of Science." He says we shouldn't be directing what understudied areas should get more research. We shouldn't be bending some grand committee to bend scientific research toward the common good. That we need to just let the best ideas win out.
TANKERSLEY: Do you ever worry that by choosing projects to fund, you inevitably bend the gravity of research toward questions that interest you?
KOCH: Well, we're not bending it. This is a spontaneous order. People come to us with their ideas. We don't tell them, "Are you kidding?" I'm going to tell Tyler Cowan what he's going work on? Don Lavoie? I mean, it doesn't work that way, and that violates my principles, such as the Republic of Science. No. It goes to comparative advantage and passion. I mean, if they have a passion for doing something, and we say, “No, no, no, you got to work on,” now, what's going to come out of that? It's not very promising. And so it doesn't make sense, so that's not our methodology. Our method -- at least here in the company -- is to apply a Republic of Science.
TANKERSLEY: So, if a really promising Marxist scholar pitched you on something, you might fund that?
KOCH: Well, if we thought it would contribute to knowledge and well-being. I mean, we've supported, probably Marxists. We've supported, other than pure -- I don't know exactly what pure is, because I don't believe in a plumb line. I believe in the exchange of ideas, so [turns to aide] -- I don't know, what's you're, you're more in it, day to day, than I am, for sure.
KOCH AIDE: I think you probably talked to a number of people, and if you haven't, have probably been in touch with people who you would be, probably surprised --
KOCH: What do you hear that we do?
TANKERSLEY: So I've talked to a lot of folks -- for example, I saw, at a big economics conference in San Francisco this year -- I watched Alex Tabarrok from Mercatus, really smart guy, stand up and give a paper about regulation and entrepreneurship. And he said: “I built this great data set of federal regulation and its impacts on industries, tested it against how much entrepreneurship has been happening over time in other industries. Fully expected to find a relationship, and I didn't. I didn't find any -- it doesn't appear from this data set that there -- and that surprised me, but I'm reporting it because I think it's important.”
TANKERSLEY: I'm assuming, from what you said earlier, you don't have a problem with that finding.
KOCH: No, we're trying to find the truth, because right, how do we make people's lives better unless we find the truth of what works and what doesn't.
TANKERSLEY: But the other thing that people have told me -- so I talked to Dean [David] Rasmussen at Florida State, who said that they've had a very positive experience with the programs that you helped them set up. But he likened it to a music department with a, being asked by someone who wanted to fund a Beethoven chair. If they really wanted a Stravinsky chair, fine, but there's no money for it. But if they wanted a Beethoven chair, and there's more interesting work to be done in Beethoven, then they would do, they could add a Beethoven chair. And he said, we want Beethoven, so it works for us.
But I asked him, and I'll ask you, do you worry that you could end up with too many Beethoven chairs that way, and not enough Stravinsky chairs?
KOCH: Well, no. What I want to see is the marketplace of ideas, and so, I mean -- and it goes in flows. People are interested in certain ideas, in certain periods, and then that moves, and okay, now people are more interested in studying this, and there is no perfect balance, and how would you know what the perfect balance is? I mean, what does it mean to have too many Beethoven chairs and too few Stravinsky chairs? I mean, that's kind of a value judgment that isn't really based on humility. We don't know what the optimum number is, so let people figure this out on their own. People are more interested in Beethoven than Stravinsky? Great! Why would that bother me?
TANKERSLEY: I'm really interested in your interest in, over the last 25 years, in the way that you view events and the economy. Is there anything that's happened, especially in the last 15 years, this time which has been very difficult for a lot of working Americans. Is there anything that has changed in terms of how you think the economy works based on the evidence that's come in?
KOCH: Well, I don't know about the way -- I mean, I like to think that I try to learn something every day -- and change my views, modify my views as I learn. Who is it that said, "Foolish consistency is the hobgoblin of little minds"? I try not to go there, too far. But, uh, yeah, I think our biggest problem in society is we're headed more and more toward a two-tiered society. That is, creating welfare for the wealthy and destroying opportunities for the disadvantaged, so those two interrelated areas are what we're working on the most, to try to move that.
The other thing that's happening is that, as Polanyi said, the ideal is to not only to have a Republic of Science and Technology but to have it in economics and the body politic as well. And so in both those, we're getting further and further away, just as in many of the universities, we're getting further away, and in education, and in science. So that's, overall, getting away from the Republic of Science and having equal rights.
Like, I go back to the Declaration of Independence, and what a marvelous document that was because we were the first country in history to be founded on, people have rights. Not the divine right of kings, not the emperor's a god, or idolized, or we have to do what the dear leader says. And, expressly, that it's a system of equal rights, and then governments are instituted to secure those rights.
Now the tragedy, now well, and just the extent to which that was applied in this country is what made us the most successful country in the history of the world. The tragedy was that it wasn't consistently applied. Like it wasn't applied at all for blacks and Native Americans, and what a tragedy that's been. And not only for them but for the country as a whole. It was only partially applied for women and for certain immigrants such as the Chinese. And it wasn't applied to get rid of corporate welfare and cronyism. People who had special connections got special deals from the beginning.
So all of those violations of what the Declaration of Independence expressed, have led to the problems we have today. So, the sins of the fathers are visited upon the sons for seven generations, or much longer. Forever.
And so I'd like to see a rebirth of the country -- go back where there's equal rights for everybody, as I said, and that people succeed to the extent that they help other people improve their lives. To lead toward a society that maximizes peace, civility, and well-being for everyone.
TANKERSLEY: What do you think went off the rails? What happened that you think created that widening two-tiered [system] that you described with the welfare for the wealthy and lack of opportunity for other folks?
KOCH: Well, for one thing, we have to blame the business community. The business community, [sarcastically] this is tough to satisfy your customers. I mean they are disloyal, ignorant, who constantly want something better, and if you don't, they leave you. This is horrifying; we've got to stop it. And then these disadvantaged people, I mean, they can't do anything, so we give them some stuff, and we don't want them coming in our businesses and bringing new competition and taking away our customers, so we've got to stop that, and then we don't want anybody doing anything that's unsafe, so we got to kind of put the lid on innovations, because every new thing, we're not quite sure how that's going to work out.
KOCH AIDE: You're saying that's what's in the mind of the cronyists?
KOCH: Well, no, I'm beyond -- well, it's in part cronyists. But then it's cronyism in education, like, K-12, a lot of it, these institutions are being run for the benefit of the bureaucracy and the teachers rather than the students. And the schools and universities should be run -- how do I help each individual fully develop his or her capabilities and understand what they're good at, what they can be successful at, and teach them the values and principles that will enable them to make a contribution and be successful? So, we have cronyism there, too. It's everywhere. So, I mean, that's huge, but I think it starts when you start out violating your principles, then, that's what I said, this pragmatism, or whatever, it gets worse.
TANKERSLEY: It strikes me that so many Americans feel that they can't do the thing that they are best at. Whether it's, they worked in a factory with their hands, and now that job's not here, or they studied a particular discipline, or they can't start the business they want to, because for whatever reason, entrepreneurship has declined over the last few years.
KOCH: I mean one thing, you asked about the banking system, I mean the regulations are making these big banks bigger and bigger, and the community banks are being wiped out. Like, in the last several decades, the five biggest banks have gone from 16 percent market share of deposit storage, to over 50 percent. And thousands of community banks who provided the financing for people getting started are wiped out. And then the regulations are such that they're having a hard time. I mean, like mortgage lending -- boy, if you don't do it just right, then you push that on this poor person. They don't have to repay you, and so banks go out of that.
So I mean, the whole trend is either for the system of control, and the problem is that one intervention -- they don't look at the secondary consequences, so then that needs a new intervention, and that creates other secondary consequences. I mean, it's like, I hate to always pick on George Bush, but he meant well and I think has good values, but he forgot that a market system is not a profit system, it's a profit-and-loss system. And when you take away that discipline, you just tell people: "Well, you will gain, but you won't lose. We'll protect you against loss. It's a crazy thing. So look at what he did on housing. It was already there, but he built it up further, so the average inflation-adjusted price of houses doubled historically, and the speculation and corruption went crazy because it was largely guaranteed against losses.
I was visiting with someone after this, and he said, he was telling me that he was buying this vacation home, in Arizona, and so he went to this mortgage broker and said, “I'd like to borrow this much,” and the mortgage broker said, “Oh, you can borrow a lot more than that” -- “Oh, okay” -- and so when he got all the final documentation back, the mortgage broker had put another house on the lot than what was really there. “Well, I let them [unintelligible] your house, than what was really there.” I mean, that kind of stuff was rampant. And then, so that was ignoring basic principles on what makes people's lives better and what makes the system work. And then we compounded it by, saying where we got this mess now, from the collapse of the housing boom, which helped, and there was also, to a certain extent, in autos, because they were subsidizing those in a big way.
So, we created this Great Recession, and then everybody who got in trouble, we've got to bail out. Okay, well then we have a deal -- if I get in trouble, all of the poor and middle class are going to bail me out, so once again, it just compounded this corporate welfare and violated the principle of profit and loss.
TANKERSLEY: So you would have not done the bailout?
KOCH: No. I wouldn't have done any of it. But the problem is you get to a certain point and the eggs are scrambled, and it's your job unscrambling them. Let's stop scrambling the eggs.
TANKERSLEY: Has Obama been worse than Bush was on those principles?
KOCH: Yeah, I think he's built on it. I mean, as I've said, Bush was -- I think we just keep adding, and that's our problem. We almost never subtract. We keep adding these boondoggles, and these violations of the basic principles of equal rights -- certain people have more rights than others -- it's like "Animal Farm." The pig says that we all have equal rights, but some have more rights than others.
TANKERSLEY: A couple of, to go back to the academic side of this really quickly -- the big critique I hear from your critics on campuses -- there are two. One is that they see the foundation's grants as being in opposition to academic freedom. How do you respond to that?
KOCH: How? Somebody comes to us and wants us to support them? Wait -- so we support three professors out of 500, and that's destroying -- are you kidding me? The opposite is true. They're the ones campaigning to UnKoch our campuses and stuff. We're not saying, “UnMarxist our campuses.” Fine, bring it all on. Let a hundred flowers bloom. We love it. That's what we want. So I, so this is, they've got to know it's not true.
TANKERSLEY: So why level the charge if you don't think, if they know it's not true?
KOCH: Well, they want to get rid of us. I think in part because they have a hard time answering. I mean, how do you say, “We don't want the Republic of Science. We don't want an open” -- as the University of Chicago says -- “we don't want free and open inquiry.” But then you see, when they're out demonstrating against anybody who has a different viewpoint, that's their model. So I just think, in a sense, it's a compliment. They can't compete with the ideas, so they try to shut them down. I mean what alternative do they have?
TANKERSLEY: Well, the other critique that they level is that this is, that you are promoting policies that are beneficial to you financially. Freer markets help the business side, so promoting them academically is in your business interest.
KOCH: Are you kidding me? That's why there's so much corporate welfare, because they all want a free market? No, I started in the late '70s an organization called Council for a Competitive Economy. You're probably --
TANKERSLEY: I'm familiar.
KOCH: You've heard about that. I got Milton Friedman to be chairman of my advisory board for a while, and I'd send these letters out to business people, and the typical letter I'd get back, “Boy, I agree, I think we need a more open economy, more free enterprise, but it doesn't work for my company. I remember one, who was a jeans manufacturer, and he said all that, but he says: “But if I had to compete with all these foreign manufactures, I'd go out of business. And then who would make the uniforms for our boys when we go to war?”
So that's when I saw Rich Fink, and I said: “Rich, this isn't working. Do you have a better idea?” And he says: “Yeah, we can't depend on business people. We have to reach the citizens and show them they're the ones getting screwed by this stuff. So,” he said, “I'll take a leave of absence from George Mason [University], if we can change it over to Citizens for a Sound Economy.” So that's -- he left, and set up that to appeal to citizens. And so then we were able to accomplish some things.
TANKERSLEY: You know, it strikes me because, you talk about business, and I've spent a lot of time talking to business leaders over the past few weeks. They're very frustrated with the current political environment.
KOCH: No kidding. They caused it. No, I mean they blame the unions and others, well, the business community's much bigger, and they're the ones who are pushing this. Who's pushing all this occupational licensure? It isn't just big business, it's the local -- God, we shouldn't be doing this.
Mark Holden, our general counsel, sent op-eds around communities around the country. We got more hate mail on that than anything. We can't just let anyone in our business, you know? We're interior decorators, or we're yoga instructors or something. We've got to keep these people out. I mean, they won't be safe or they won't know what they're doing. Well, how about letting the consumer decide?
TANKERSLEY: Do you -- when you look at the political moment right now and the populist anger in particular -- people who are angry about free trade, people who are angry about immigration, in some things, very basic principles of free markets -- what do you think has happened?
KOCH: I think, and I'm reminded of a Dickens quote that opens "A Tale of Two Cities" -- It's the best times, it's the worst of times. It's an era of wisdom; it's an era of foolishness -- so we have the most fabulous opportunity with technologies out there, if we had permission-less innovation and to make people's lives better, in every dimension, and yet we're doing all this crazy self-defeating stuff and we have no Republic of Science and in the political -- it's just name-calling and shouting, and mischaracterizing what the other person stands for.
Have you ever read Schopenhauer's "Dialectics"?
KOCH: He described all of this, and what'd we have? Thirty-two or something dialectical tricks? And that is what we are seeing. And, I mean, that is what he said. He said two people sit down and have a discussion, and they both say they are after truth. Well, they're not. They both want to win the arguments. So they add how many attacks and stretch what the other person is saying out of what they mean and all these others. And that's what's going on.
TANKERSLEY: Do you think that a Donald Trump presidency would be dangerous on these fronts?
KOCH: You know, the good and the bad news is that politicians rarely do what they say they are going to do when they campaign, so who knows? But yeah, just his tenor and insulting of people is just beyond the pale. I mean, have these debates and the way they are and the way they talk about each other's body parts -- my God! It's staggering. If I hadn't seen it, I wouldn't believe it. If someone had said this is what's going to happen, I would have said "You're crazy!" and "That would never happen."
TANKERSLEY: Did you have higher hopes for the discourse this time around?
KOCH: Well, we -- the ones who came to us and wanted our support, we asked the -- we told them here's what it'd take to get our support: First of all, you've got to be like Ronald Reagan, and you've got to compete on "I'm going to do a better job of making people's lives better." And then you can't get into tearing others down. And of course, it started just the opposite. So we told them all, we can't. I mean, this violates everything what we all stand for, what you represent in these debates. So we can't support you.
TANKERSLEY: Do you wish you had intervened differently given how it's turned out?
KOCH: How could we have intervened? We tried! We tried. We talked to them. We talked to some of them multiple times. But they had all the answers. They didn't have a lot of humility, and they certainly didn't seem to be interested in the Republic of Science in politics.
TANKERSLEY: I did want to get back to the Republic of Science debate that is happening right now at George Mason, over the law school. It's been a big controversy, you know, the idea of naming it after Justice [Antonin] Scalia. Are you surprised by how that has played out?
KOCH: No, I mean everything is controversy now. Of course, that wasn't our suggestion. I've always believed in the saying that "there is no limit to what you can accomplish if you don't care who gets the credit." So, the name -- you notice we don't go around trying to get stuff named after us. I mean, once Don Lavoie was the Charles Koch professor at George Mason. That's because I love Don Lavoie because he was such an iconoclast and such an independent thinker. And I learned a lot, I mean he taught me a lot. So I was proud to have him hold that position, just a tragedy that he died at such a young age.
TANKERSLEY: Do you feel like you are making progress, though, in other areas like criminal justice, where you have been fostering this debate for a long time?
KOCH: Right. On the policy side, that's our idea: to build alliances, to build the Republic of Science, right? In a policy area where we can find people with very different ideas but we agree on an issue. So we will work -- it's like Frederick Douglass said: "I will unite with anyone to do good, and no one to do harm." Sometimes it gets harder to find anyone to unite with, but that's what we do.
We hope we can find more people across the board to unite with on fighting this corporate welfare and occupational licensure that [Obama senior adviser] Valerie Jarrett has told Mark Holden that they are interested and they think it is way overdone even though they agree with some of it. But the problem is that it's at a state and local level. I mean, what are there? Over 1,000 occupations now that some community or some state has all these restrictions on, which makes it very difficult when people don't have anything to go into? But, that is our model, and to work more at the state and local level in that regard, because it is so tough to crack anything at the national level.
TANKERSLEY: Do you feel like you have succeeded with the donations you have given so far?
TANKERSLEY: By whatever metrics you put on yourself.
KOCH: Donations in anything?
TANKERSLEY: Particularly in academia. In the ways you are trying to foster this Republic of Science.
KOCH: Absolutely. When I started in this, I really got -- well, part of the thing that got me going was after I read "While Wages Rise" and had a peak experience reading "While Wages Rise" just because, wow, I can understand, I can find these principles and then apply them. And that was a great thing with a lot of these principles. I had my own laboratory here at the company to try them. If it had been a public company, I would have been fired long ago. I didn't know how to apply them in a company. Of course, an organization is a different entity than a society, and so you can't just take the mechanics and transpose them here. You have to ask what are the benefits? Now how do I, in an organization, how do I create the benefits this is creating over here?
KOCH AIDE: Your experience with "Baldy" Harper.
KOCH: Oh, yeah. So after I read that book I wanted to meet him, and I met him, and that's how I got involved in the Institute for Humane Studies to help kids. And then as I would meet them, they would come to me and ask for scholarships and stuff, so I started doing that, and then professors would hear I was doing that and would ask for support, so I started doing that, and then I set up the [Koch Foundation] to do it and we started building up the foundation.
But back then, you would try to have a seminar on some subject. We would be lucky to find half a dozen professors in the country who were interested in discussing ideas of a free society and well-being because collectivism and Marxism was a really big deal back in the '60s. So you look at now, at the thousands of professors in the country interested in these ideas, so we have made a lot of progress. Not as much as I would like, because now a lot of universities are going backward, from a Republic of Science standpoint.
TANKERSLEY: Harvard just had some polling out last week that says young people, even conservative young people, are less likely to identify as capitalists, or to identify with the idea of capitalism today than they even were five years ago.
KOCH: Well, I don't like the idea of capitalism anyway. Because it's not capital we are talking about; it's knowledge and creating well-being. Because I mean, that gets people on the wrong track when it's capital and how we allocate capital -- no. How do we create the Republic of Science here? How do we have a system of mutual benefits where people succeed by helping others improve their lives? So I don't like that at all.
TANKERSLEY: Did you read Piketty's book on capital when it came out a couple years ago? The big inequality book?
KOCH: No I read several reviews of it, but I didn't read it.
TANKERSLEY: Do you worry at all about inequality as a discrete phenomenon from mobility?
KOCH: Yeah, I worry about it when it is caused by corporate welfare. It's like we treat employees here. We want to reward you not only monetarily, but including the value you create here, because we want you to create more value. We don't want to put a ceiling on it because we don't want you to put a ceiling on the value. And that's what we want in society. If somebody is doing more and more to make other people's lives better, have them make all they can, if that's what drives them, because that's what we want.
If they make it through by rigging the system, then that's horrible, and that's a good part of the disparity we have. Whereas the median income -- which I think is a much better metric on well-being than GDP, hasn't gone up in the last decade -- and productivity has barely moved. And I think it is because of this corporate welfare and the Fed. So what we see happening is that because of that combination -- free money to big companies like ours or established companies and the difficulties in getting permits to do something new with all of the handicaps on innovation -- that rather than going in and investing in increasing productivity, it is investing in buying other companies.
So we are just moving the chairs around and spending huge amounts of money rather than having them go in making people's lives better.
TANKERSLEY: I'm so glad you brought up monetary policy. [Laughter from aides.]
KOCH: I did that as a favor!
TANKERSLEY: What should our monetary policy look like today, and how should it have been different over the last ten years?
KOCH: Going back to the Fed, If we are going to have a Fed, it should not fall into the tyranny of experts with the a fatal conceit that a few wise people can determine interest rates. Interest rates should be driven by the market, and people's time preference, and we see these boom-bust cycles.
Here's my idea on monetary policy and increasing the money supply. I told you I would give you this about chocolate. Let's say I am a chocoholic and I eat tons of chocolate a day. A hundred thousands of tons a day. I have this craving, but I can't afford it, so I get a printing press, and I start printing money, and I print billions and billions to buy chocolate. So I create this boom in the chocolate industry, so stores are running out of chocolate. So they have demand, so chocolate makers expand. Cocoa growers expand. You create this great boom. But now the feds arrest me and shut me down. And now there is a depression in the chocolate industry. That's what happens with the monetary policy. Then of course we have to bail them out to keep them going rather than let them go broke -- so we waste even more resources.
So we create these boom-bust cycles by manipulating the money supply and the interest rates and directing it where it went in. And that is what happened with housing: pushed into housing combination of easy money plus all the regulations, and we created this boom-bust cycle, and corruption, because corruption goes with it, because you don't have the same discipline. So we've got to stop all that.
TANKERSLEY: So would you rather have a Gold Standard or something like that?
KOCH: That's possible, or we could just have the Friedman rule: increase it by an appropriate amount. The problem is, to have prices fall would work fine if we didn't have all these built in rigidities on downward prices, because then things don't adjust, and that's how we have recessions and depressions, is prices and costs don't adjust together and they get out of whack, and we end up with dislocations.
TANKERSLEY: So something like a Taylor rule?
KOCH: That isn't quite as good as a Friedman rule, because it still gives them some discretion, but some rigid rule so they don't use their great wisdom and hubris to think they know better than the market how everything should be done.
TANKERSLEY: What gives you optimism looking ahead on this particular economic issues?
KOCH: It's the technology, everywhere. We believe innovation comes from recombining existing technology and different perspectives in innovative ways. You look at software and what it's doing, with Uber and Airbnb -- we've gotten in that area in information technology to create smart products and smart processes here, to make our plants safer. Georgia-Pacific is working on the bathroom of the future, have it be a better experience, lower cost, lower energy consumption. We decided biotechnology was at a point where we could make economically make chemicals biologically using CO2 and hydrogen as raw material. We've had some breakthroughs there -- we're just to the laboratory scale, so we have a long way to go. And then agriculture and education, I mean just if you allow all the technology there, what you can get on the Internet there, and be more tutors, and help guide the kids and let them have the best teachers in the world … and medicine … being able to remote diagnosis, if you just allow innovation and have the FDA not make it almost impossible to develop a new drug, that costs a fortune and cost create this huge structure of pricing. Anyway, across the board is this potential.
So I think we can grow -- rather than median income be stagnant, I think it could grow 6 or 7 percent per year.
TANKERSLEY: So you totally disagree with Tyler Cowen's Great Stagnation idea?
KOCH: Oh, no, because innovation doesn't come from one big thing, it comes from a piece at a time, from combining existing technology. We have in a sense a stagnation, in all those areas where we have cronyism and political correctness and the precautionary principle. Get all of those together, then yeah, you have stagnation, and that's what we're seeing.
TANKERSLEY: Do you still have the potential to be surprised or has your mind changed on big things, and the specific example I was thinking of is: Could someone produce a piece of research that could convince you that carbon regulation is necessary to heed off disastrous global warming?
KOCH: Yeah. If we apply the Republic of Science here and use the scientific method rather than of trying to shut down and shout down and punish anybody who wants to enter into debate about it. And not do it through corporate welfare. Look at what's happened. What's being done is symbolic, even under their own thing. It's not reducing CO2. Not approving the Keystone pipeline -- so the oil is produced -- now it's shipped by rail and shipped to China, rather than by pipeline. So that's symbolic. And making wood pellets, subsidizing making wood pellets, I mean, we're back in medieval times, we're going to burn wood. And shipping them to Europe. How is that reducing CO2? And we're going to put a tax on natural gas, on BTUs, here, so we'll be making less chemicals and fertilizer here, and more in China, where they make it out of coal gas, and per unit of production they have five times the CO2 emissions, per unit of production. So these things don't make sense.
And then these agreements on limiting CO2 -- well I liken it to, if you're at a poker game, and you don't know who the pigeon is, you're it. And we're it. So we're going to regulate the hell, make our -- particularly the poor -- worse, stifle the economy by having less reliable cheap, abundant energy, and make it more expensive.
[Aide interrupts to say interview has run over the determined time]
KOCH: I need to finish this point -- and China and India are going to do what they're going to do anyway. And none of this makes any difference, but we've just hurt ourselves, even under their theory. And their theories aren't working very well, because they keep predicting all these catastrophes that aren't happening. And if they start happening, or they get evidence, and they'll enter into a debate rather than shut down anybody who has questions about it or wants to challenge any aspect of it, then I get a lot more sympathetic, yeah. If we're all trying to find the truth of the matter, then I'm all for that. I'm for applying the republic of science on climate, as I am on anything.
TANKERSLEY: Do you think it's a problem the market can solve, without governments?
KOCH: I think it will, just like we're doing all these things [at Koch Industries]. We're investing heavily in biofuels, in biotechnology, in information technology, to do this. Why do we do it? Because we think through innovation we can make it competitive, better than competitive. And that's the way to go. And like, Bill Gates is raising billions to go find it -- that's the way to do it, is through innovation. So it's win-win, rather than, more cronyism, which so far, all it does is enrich a few people and hurt the average and particularly the poor.
KOCH AIDE: There's a lot of varying reports on what Charles's position on climate change actually is. So I think it would be a good opportunity to just --
KOCH: Yeah, I say that a lot of what is done by the climate lobby is anti-science. But there is some science behind it. Like, there are greenhouse gases, and they do contribute to warming. But if you look at the last, say, 160 years, the first 80 of that period, they went up about four-tenths of a degree. And now, the second 80 that CO2 has increased by, what, 30 percent or something, it's gone up five-tenths of a degree. And there's been in the last 30 or 40 years, there's been no real increase in storms or bad weather. So, let's use the part that's real science and then apply the republic of science to the rest of it.
And then I'm onboard. If there's some risk here that this could be bad, I don't want that.
Every policy -- and by the way, what you read about us, if you assume the opposite is true, you will bat a higher average. But every position we take is, by trying to answer the question, will it make people's lives better or worse? And are we applying the scientific method?
TANKERSLEY: To ask one last thing on the election, people have been making a lot about your comments on Hillary Clinton --
KOCH: Yeah, but they've been taking them out of context!
TANKERSLEY: So could you contextualize them for me? What were you trying to say there?
KOCH: What I'm trying to say is that we're not for, or I'm not for, Republicans or Democrats. I couldn't care less about the party label. In fact, I agree with George Washington's concern about parties: They become an end in themselves, rather than being committed to helping people improve their lives. So what I was trying to say, if Hillary had policies that would more likely make people's lives better than Republicans, I'd be for Hillary. I'm for whoever will do that. I couldn't care less.
TANKERSLEY: Do you think there's a chance that that could be true in this election?
KOCH: Well, there is a chance, but it's highly remote. There's always a chance, right?
TANKERSLEY: I'm surprised you've haven't brought up debt at all. How worried are you about debt?
KOCH: Well, if you take the unfunded liabilities, then we're bankrupt. Because it's, what, over $100 trillion by some estimates, and the net worth of everything in the country is $80-some trillion. So something's going to have to happen.
But to talk about doing serious cutbacks to entitlements, that's out of order. The first thing we have to get rid of is entitlements for the wealthy, and at the same time, open up the economy to the disadvantaged. You can't start taking away benefits if people don't have any opportunities.
TANKERSLEY: So entitlement for the wealthy, what does that look like?
KOCH: All the corporate welfare, yeah, it goes from cash payments to debt, to regulations on the competitors, to restrictions on trade, to mandates. You name it, anything so that business doesn't have to do a better job of creating value for others -- they can just get the system in their favor.