Stefan Molyneux, host of Freedomain Radio, examines the economic incentives for dentists to withhold cavity treatments, oil companies to buy up electric car patents, and other monopoly practices of the modern economy.
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| Hello, hello, everybody. | |
| It's Stéphane Le Molyneux from La Frida Manoradio. | |
| I hope you're doing very well. | |
| So, I got a question from a long-time listener, which goes... | |
| or a scenario which goes a little something like this. | |
| Steph, I was at the dentist the other day, and I heard the dental hygienist talking about... | |
| Cavity immunization. | |
| Some sort of procedure which could coat your teeth with something that would not allow, I guess, the little germs that cause cavities to create the cavities. | |
| And so I questioned her on this scenario. | |
| And I was informed that such a procedure had been developed to the best of her knowledge, but that it had been bought up and shelved. | |
| And you hear the sort of same thing about the electric car and so on. | |
| It had been bought up and shelved because fixing people's cavities, well, frankly, it was just so damn profitable that that's what the dentist wanted to do. | |
| And many years ago... | |
| I guess he's dead now. | |
| I had an uncle on my mother's side who we stayed with when we first moved to Canada. | |
| And he informed me at one point, I was I think 11 or so, and he informed me that the cure for cancer had been discovered many, many, many years ago. | |
| And yet there was such profit in the cancer curing or cancer management or cancer radiating process Business that the cure had been shelved and so on. | |
| And the question is, is this possible? | |
| And if so, how is it possible? | |
| And could this not be considered at the very least economically inefficient? | |
| Well, I would say that yes, I imagine it really is economically inefficient. | |
| If there's a cure for some dread disease or some relatively minor complaint like a cavity, that is shelved because the treating of it is possible. | |
| Well, the creative destruction of capitalism, in other words, the non-intervention of violence into voluntary economic transactions, is essential because of this very possibility. | |
| So, every entrepreneur who invests capital into a particular solution is, I mean, not even by definition, but literally heavily invested in that solution. | |
| So if you're a horse and buggy manufacturer and you're heavily invested in horse and buggies, then you're not going to be that keen on the advent of the electric car. | |
| Neither are you going to be that keen on the advent of the gasoline-powered car because it's going to strip your profits away and make you redundant. | |
| And this happens all the time. | |
| All the time in software. | |
| Someone comes up with a solution, they get heavily invested in that solution, and then somebody works to prevent the problem, which is more economically efficient. | |
| Someone comes up with great training for HTML codings, Someone else comes up with WYSIWYG editors, which means it redundant. | |
| My wife is still a huge fan of WordPerfect 5.1 for DOS. She loves the DOS. And reveal codes was a magical experience for her on a computer. | |
| And I can certainly understand that sometimes when fighting with formatting that reveal codes can be helpful. | |
| This means nothing to you younger people, but you can wiki it, I'm sure. | |
| So this is natural, this is inevitable. | |
| If an electric solar-powered car were developed, then everybody's oil-based infrastructure would be rendered relatively less valuable in a relatively short period of time. | |
| And it is precisely for this reason, the conservatism of invested capital, the inertia of of sunk costs. | |
| This is why you can't have any government involvement in the economy. | |
| You can't. | |
| You can't have coercion, what is euphemistically called regulation, which is really just the suppression of competition, particularly the smaller and more nimble competition. | |
| There's something that happens, and this is old to young as well, there's something that happens Which is a tension between experience and free time, right? | |
| So, experience in business is very important and is paid commensurably, but young people can work 80 hours a week in a way that, you know, usually decently family-oriented middle-aged guys with kids can't or can or shouldn't. | |
| And this is particularly true when the barrier to entry It's not staggeringly high. | |
| You know, like brain surgery, sure. | |
| Household plumbing, not so much, right? | |
| Factory worker, being an electrician and so on. | |
| I mean, these things, things you can pick up on the job in a year or two, for the most part, right? | |
| For most of it. | |
| Same thing, true, would be true, of course, if a lot of medical stuff as well. | |
| So, older people have a problem with the work ethic of younger people. | |
| It's not that the work ethic of older people is bad, it's just their attention is spread naturally and inevitably by competing Requirements or preferences. | |
| So this tension between investment and change, I mean you invest a couple of billion dollars in your oil infrastructure and suddenly you are very concerned about maintaining the value of that and In a free market, you know for sure that there's going to be all of this change. | |
| There's going to be all these assholes who are going to be coming out with new things and new fun toys and new solutions and things. | |
| So that's something that's natural. | |
| Now, the question is, how is this economically achieved, right? | |
| Let's say that there's a cure for cancer that's floating around. | |
| And now, of course, I mean... | |
| Managing, treating, curing cancer under existing methodologies is, I mean, I don't know, I would guess a trillion-dollar-plus business worldwide. | |
| So, it's a lot of machinery, a lot of expertise, a lot of doctors, a lot of hospital procedures and all that, finely tuned to these particular existing chemo, surgery, radiation-based treatments. | |
| So if there was a pill that cured... | |
| I mean, I don't think there... | |
| Well, there's a pill that cures cancer. | |
| There was some 60 Minutes I saw some while back where I think a guy got little bits of metal to embed only in the tumor and then passed some radio waves through the heat up and killed the tumor. | |
| Anyway, so if something like that comes along, it's not very likely to be adopted by people who have all that sunk cost, right? | |
| Of course. | |
| And the reason for that is that Most people borrow to invest in capital improvements. | |
| I mean, if you're Andy Grove, who I, former, I don't think he's still, but former head of Intel, and you need $10 billion to build a factory, you don't reach into your piggy jar and check into your couch. | |
| You go get it, either stocks or bonds or investments or whatever it is. | |
| You will go and get the money to it. | |
| And so you have to pay that back, either in dividends or interest or something like that, pay back the principal at some point. | |
| And so you have a tough time competing in the new thing because you're still paying off the old thing, whereas somebody who's come up with the new thing doesn't have the existing debts to pay off on equipment that is increasingly becoming obsolete. | |
| And of course, they can develop a new workforce to deal with all of the existing stuff, and they don't have to retrain. | |
| You may have to train, but you don't have to retrain and have split focus while people are dealing with old customers and new customers, salespeople, and so on. | |
| So new companies have an advantage in a new paradigm over old companies, older companies. | |
| And naturally, of course, older companies will raise... | |
| The specter of, quote, concern for the consumer, you know, healthcare, electronics, cars, whatever, right? | |
| And they will generally attempt to use the government to restrict. | |
| So they'll buy up patents, and we'll get to patents in a sec. | |
| They'll buy up patents, they will raise the specter of safety and protection of patients and so on. | |
| And, I mean, with the SSRI debacle, right, the Imaginary, well, the radical, dangerous pills for imaginary illnesses. | |
| You've got unicorns! | |
| Here, take this shotgun to the foot. | |
| There's no real way that anyone can claim the big concern over patient health. | |
| So, they use the government in an attempt to block the new thing coming to market, because it's harder for them to compete, because they have to pay off all their existing... | |
| Debts, which the new company probably has R&D or something like that, but less of it. | |
| And the R&D is in an asset that is increasing in value, whereas the investments you have in cancer treatments when a cancer prevention or instant cancer cure is coming along, those investments are declining in value. | |
| So... | |
| There's an advantage. | |
| It's dinosaurs versus the nimble mammals when the temperature is changing. | |
| Dinosaurs are big and strong but not very adaptive. | |
| Mammals are small and nimble but can adapt much more efficiently and in some ways even possibly relative to the dinosaurs to new and changing conditions. | |
| So, this kind of creative destruction is happening all the time. | |
| And this is why people say, well, there were oscillations in the economy In the 19th century in America, before there was central currency and so on, and okay, there was manipulations, there were state banks, and there was fluctuations in the gold price, and there was, of course, a massive set of radical inventions throughout the 19th century. | |
| Steam engines, factories, I mean, you name it, there was all the stuff going on in the 19th century with radical changes in technology happening all the time, constantly overturning stuff. | |
| As I've mentioned before, Rockefeller saved the whales, right? | |
| Because people used to use whale oil to light their lamps. | |
| And when he came up with kerosene, saved the whales. | |
| Don't get a lot of robber barons, right? | |
| He was the green piece of his time. | |
| But it was win-win for the whales and people. | |
| So there's not going to be stability in a free market. | |
| And to be honest, the instability in the free market is kind of annoying at times. | |
| I mean, it's challenging and it's exciting, but I remember quite well the anxiety that came when I was in a field, in the software field, and a big new competitor came into the market. | |
| I remember being quite alarmed by that, quite upset by that, and vowing to work harder and do better and so on. | |
| And that was all very helpful. | |
| Very helpful. | |
| To the consumer. | |
| I mean, it was annoying to me at times, but it was very helpful to the consumer. | |
| Because, of course, there is a tendency to, you know, if there's no competitors, if there's no chance of other people taking away your market share, well, you become a government-style monopoly, and it's pretty rough for everyone concerned. | |
| So, how is this going to be achieved? | |
| How is this efficiency going to be achieved in a free market? | |
| The first thing to recognize, of course, is that, let's say it's a cancer pill. | |
| That you either take and it prevents cancer or you take when you get cancer and it cures it. | |
| I mean, this is way more economically efficient. | |
| Now, economic efficiency is one of these really tough things to work on in your head because it certainly is economically efficient, but the economic value is heavily dispersed while the economic losses are heavily concentrated. | |
| So, if we repeal taxation, then all the tax lawyers and tax accountants lose massive amounts of human capital. | |
| I mean, it just vanishes immediately. | |
| Like, the same way if everybody stops believing in astrology, then all of the con artists who pretend to be astrologists are going to lose a huge amount of their accumulated value and capital, which is why they, of course, work so hard to defend it. | |
| Same thing, of course, with religion, even to a much greater degree, to a greater extent. | |
| Everybody who adapts to a coercive system, and this includes science, everybody who adapts to a coercive system has a vested economic interest in expanding and maintaining that coercive system, while at the same time denying that it's coercive, right? | |
| Because a coercive system only works if people think it's not coercive, which is why so much energy gets invested into pretending that things aren't coercive, that in fact are coercive. | |
| So it is economically efficient, right? | |
| So, sorry, I'm just going to go with something that's not quite so impossible and abstract as a cancer cure. | |
| Let's just say that you can get a coating on your teeth that means you'll never get another cavity. | |
| Well, I'm not entirely positive that would be good for your health. | |
| I mean, first and foremost, maybe people will then say, hey, great, I can't get cavities, you need all the sugar that I want. | |
| Well, okay, so less cavities, more diabetes. | |
| I'd rather have cavities than diabetes. | |
| I don't know. | |
| It's possible. | |
| But let's say it is economically efficient. | |
| And, you know, qua teeth, it certainly is, right? | |
| Assuming it's not too expensive. | |
| Let's say it's $2,000, or let's say $1,000 to get your teeth coated so you never get cavities. | |
| Well, how much do we spend on cavities over the course of our life? | |
| A couple of grand, maybe? | |
| I don't know. | |
| Last time I had cavity was 15 years ago? | |
| I don't know. | |
| But... | |
| We spend some amount of money and there's discomfort and risk, of course. | |
| And, of course, when you get those kinds of problems in your teeth, you're swallowing all that bacteria. | |
| It's not good for your heart and other organs and so on. | |
| So, it's better, right? | |
| Let's say that the cost of cavities over the course of your life is $5,000 to $6,000. | |
| And for $1,000, you can get a treatment which prevents you from ever getting a cavity. | |
| Well, so you gain... | |
| A couple of thousand bucks from this treatment, along with all the intangible benefits of not having a... | |
| I mean, even if it's the same price, you're going to do it, right? | |
| Because that way you don't have to go to the dentist or get drilled. | |
| So, there's lots of non-monetary but valuable benefits to that. | |
| So, you are going to gain a couple of grand from this process. | |
| But the dentist is going to lose tens of thousands of dollars a year. | |
| See, this is the problem. | |
| Over the course of your life, you were going to gain a couple of thousand dollars, but the dentist... | |
| So you have plus a few thousand dollars incentive to pursue this and to have it there, but the dentist, of course, has minus hundreds of thousands of dollars over the course of his career or more in opposing this, right? | |
| So it's like the opposite of the public choice theory. | |
| You know, where if you get a subsidy, you get lots of money, whereas the subsidy costs the taxpayer only a couple of bucks. | |
| It's kind of the inverse of that in the free market. | |
| So, the dentists do have an economic incentive that is going to be in the hundreds of millions of dollars collected to prevent this from coming to market. | |
| Now, the consumers have a lot more to gain from this coming to market, but each individual consumer stands to gain a lot less Then the losses to the dentist, right? | |
| You gain a few thousand, each individual dentist might lose hundreds of thousands of dollars over the course of his or her career. | |
| So there's an imbalance of incentives. | |
| And this is why you can't have a state. | |
| This is why you cannot have a state. | |
| When you have a state, of course, what you get is patents, right? | |
| And one of the ways in which the dentists would deal with this is they would offer the guy who's developed the cavity prevention force field, they'd say to him, look, we will give you $50 million for your patent. | |
| And then, of course, they will I actively pursue anyone who does anything similar to the patent and they will make sure that the patent never gets developed. | |
| I mean, some of them will, some of them won't. | |
| Don't get me wrong. | |
| There'll be some dentists who are like, no, it is better for our customers. | |
| That's what I want to do. | |
| But there is an economic incentive, right? | |
| And this is not, I mean, virtue. | |
| There's no particular economic incentive for something like charity, and yet people give hundreds of billions of dollars a year to charity, and there's no economic incentive to have children, but people have. | |
| From what I can see, there's lots of people around who've had children. | |
| But we're just talking about the sort of bald-faced economic incentives. | |
| Now, in the absence of a patent system, it's really, really tough. | |
| To prevent these kinds of things from being developed. | |
| So even if this guy comes along and says, oh yeah, I've developed this cavity force field, anti-cavity force field, say, well, I'll give you $50 million to never bring it to market. | |
| Well, okay, so you've dealt with that one guy, but the technology and the knowledge is out there. | |
| And that's a problem. | |
| Now, this is a very unrealistic situation, because this kind of thing would not be developed and tested on people and found to be safe by a guy in his basement, one guy. | |
| So you have to look at a collective on both sides, and that changes the equation really radically and to the benefit of the consumer. | |
| So, for instance, the guy who's got an idea for the anti-cavity force field, he probably needs... | |
| At least tens of millions of dollars to develop this thing. | |
| Now, he's not going to have that in his pocket. | |
| He is going to want to get investors, right? | |
| He's going to want to get investors. | |
| Even if he does have that money in his pocket, he probably wants to spread the risk because you don't know if it's going to succeed or not, you don't know if it's going to be safe in the long run or not, and also he's going to want to have some legal shield between himself and any potential problems that arise from his product that you put in people's mouths where they chew and swallow. | |
| What if it reacts negatively to semen? | |
| That's a big problem for the gay population, for the female population, and for the incredibly flexible population. | |
| So, he's going to need a whole bunch of investors. | |
| Now, anybody who invests in a company is fully aware of the buyout possibility. | |
| And they may be okay with the buyout possibility, but they may not be okay with the buyout possibility. | |
| So, they may develop this solely to get bought out, with no intention of bringing it to market, but solely with the goal of being bought out by the dentists and preventing it from coming to market. | |
| However, the reality is that anybody who invests knows that the aggregate value is going to be greater of bringing the anti-cavity shield to the consumer than it is to sell it to the dentist. | |
| Because the economic value is greater. | |
| So anybody who's into making a lot of money is going to want to bring this thing to market. | |
| The other thing, too, is that people get involved, particularly in the healthcare field. | |
| Think of the number of charities that are set up because someone's mother died of breast cancer or somebody's father died of prostate cancer or something like that. | |
| People get pretty passionate about this stuff. | |
| If you've got a healthcare situation going on... | |
| A lot of people are going to get involved in it because they have personal, passionate motivations for finding a cure. | |
| Literally, someone's loved uncle might have died of a cavity, right? | |
| I mean, tooth rot and heart attacks, whatever, right? | |
| And so, don't underestimate the degree of passion that people will bring to certain investments, particularly medical investments. | |
| So, if they want to make money and if they have a personal stake in the matter, then they're going to want to bring this to market. | |
| Now, if I am that kind of investor where I want to make the most money and I also want to have a personal investment and bringing this cure to market for whatever reason, then I'm going to make sure that in my investment, in the contract between management and the original investors, there's a no buyout clause, right? | |
| We are not going to take... | |
| Money to suppress the time to market and the achievement of the market of this device or this procedure or this process. | |
| We're not going to do it. | |
| Because I'm just going to be aware. | |
| The dentist is going to hate this. | |
| The dentist is going to offer to buy us out. | |
| But we're not going to do that. | |
| We are not going to engage or enter into any contract with anyone who's going to suppress The consumer-facing marketing of this product. | |
| I mean, that would just be something you'd put in place at the beginning. | |
| Now, if you were in a bidding war as an investor with other investors and the other investors wanted to sell this to the dentists, then you would actually be able to bid more because you would expect a larger return, right? | |
| Simply because the aggregate net benefit economically to society Of this cavity prevention shield is far greater than the dentist's loss. | |
| And so, if you're focusing on the profits, then you can bid more. | |
| As an investor, you can invest more and you will be able to raise more money and you will be able to invest more because you will be getting more returns than somebody who's going to sell out to the dentist, who's going to make less profit. | |
| Now, selling out to the dentist is a shorter-term strategy But you will make more money in the long haul by getting this stuff to the consumer. | |
| So what this means is that once you get that the person who's developing this product is not just a guy in a basement, but is a whole bunch of people, then you have a fundamentally different equation. | |
| Again, assuming no state and assuming no patent, like no way of physically, forcefully preventing other people from developing the same thing. | |
| It's that once... | |
| The investments have been made, and you would probably keep this pretty quiet at the beginning, but once the investments, because you wouldn't want people competing, right? | |
| There'd have to be probably a gag order kind of thing on the investors saying, like, you can't talk about this because we don't want other people to get the same idea. | |
| So, as the dentist group who want to buy this thing out, you would be fully aware that probably hundreds and hundreds and hundreds of people would have pretty intimate knowledge of this anti-cavity shield. | |
| They'd have a pretty good idea of how it worked. | |
| As part of the way of avoiding the buyout scenario, of making sure the product got to market, you would distribute with gag orders, right? | |
| You would distribute The process to all of the investors, to everyone who was a significant investor and who signed the contract saying we ain't going to sell out and stuff like that. | |
| You would distribute all of the intellectual capital, all of the stuff that had been developed. | |
| So for the Dentist Association to come and try and buy out, who would they buy out? | |
| Because there's not one person who controls this. | |
| There are literally hundreds, if not thousands, of people who have intimate knowledge of this process. | |
| Because you can't use the state to enforce a patent, you would then have to pay every single person off who had this, and you'd have to make sure that you got every single person, even one person you missed or who didn't sign, you wouldn't be able to pay them off. | |
| What that means is that you would not be able to pay them off. | |
| I mean, you pay the first guy off a million dollars. | |
| The second guy is like, oh, I want 1.2 million because suddenly I'm more valuable, right? | |
| Because someone else is not doing it. | |
| And then the last guy knows that he can charge $100 million because he's the last guy who's got the knowledge of how to produce this stuff. | |
| And so he's going to know, right? | |
| I mean, you don't just get to... | |
| It's not like buying oranges, right? | |
| It's six bucks for 12 oranges. | |
| Well, each orange is 50 cents. | |
| It's not like the 12th orange is more expensive because the oranges aren't bidding, right? | |
| They're just inert. | |
| But anybody who's got value... | |
| I made this argument on four free market myths debunked a couple of years ago that buying up companies is not... | |
| If each company is valued at $100 million, there are five companies, you don't get them for $500 million. | |
| Because by the time you get to the fifth company, they're charging way more because they know they're the last company to be sold to give you a monopoly, which is hugely valuable. | |
| So it's going to be functionally, practically, economically, logically impossible for you to buy everyone off... | |
| In an economically efficient fashion to prevent this stuff coming to market. | |
| The knowledge is going to be dispersed with the necessary gag orders so people can't discuss it outside of that. | |
| And they won't want to because once you get investors, they don't want to spread the news of what they're investing in if competition is possible because that will lower the value of their investments. | |
| You put gag orders in, but there's a strong economic incentive to not talk about whatever you're investing in to reduce the possibility of competition. | |
| So, in this situation, there are a couple of key things. | |
| The first is that the dentist can't rush to the government and say, this stuff is dangerous. | |
| You know, we've heard from our patients, and the government's like, oh, I've got to go to review, we're going to put it in a human test lockup for the next 10 or 15 years. | |
| Well, no, this would be up to, you'd have to get this certified by whatever third or fourth or fifth party agencies would be the most reliable and believable and honorable, according to the consumer. | |
| They would have to verify for the safety of this shield, this anti-cavity shield. | |
| So you couldn't scare the government into restricting this stuff. | |
| You couldn't get it banned from the marketplace because you're just a bunch of dentists, right? | |
| You're not, you know, all-knowing ninjas of infinite power. | |
| So, none of that would be possible. | |
| And because there's not a patent system, you couldn't buy up the patent from someone or some group and thereby be able to exclude every single person from attempting to be able to get this stuff done, to be able to create this stuff. | |
| So, even though there's a strong economic incentive for people to buy up, like for the dinosaurs to buy up the productivity of the mammals... | |
| In a free market system, in a stateless society, this is not possible. | |
| It's not possible economically. | |
| Now, that doesn't mean that people can't be crazy, can't act irrationally. | |
| They certainly can. | |
| I mean, anybody can do anything they want, which is, of course, this very possibility means that we shouldn't have this situation or this scenario. | |
| And the best that you can do is obviously promote that which is voluntary and therefore virtuous, or at least has the potential for virtue, and to recognize that without centralized coercion, the possibility of generalized economic efficiency, | |
| which is that which is best for society as a whole, not for any particular concentrated group of economic incentives like the dentist versus the consumers, Not having a centralized agency of coercion is by far the best chance that society has of achieving that. | |
| And once you start to throw a state into the mix, you get all kinds of mess that occurs from there. | |
| So thank you so much for listening. | |
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