Adam Smith In The Age of The “Epstein Class” - ft. MP Jesse Norman

You should never lose sight of the idea that why do we have a market? What's the point of a market? Everyone thinks that markets are somehow objects that arose, that were handed down by Moses, they come out of human interactions, they've been willed by God or whatever. Actually, markets are human creations and they evolve in different ways. And we can, for better or worse, shape ways in which they evolve. And we don't always have to think of every intervention as a stupid intervention. It doesn't necessarily a disaster. One thing that's interesting about Smith is the number of interventions that he's prepared to tolerate in order to achieve other social goals. So he never loses the idea that what really matters is the legitimacy of the whole polity within which markets are operating. I'm Bethany McLean. Did you ever have a moment of doubt about capitalism and whether greed's a good idea? And I'm Luisa Zingales. We have socialism for the very rich, rugged individualism for the poor. And this is Capital Isn't, a podcast about what is working in capitalism. First of all, tell me, is there some society you know that doesn't run on greed? And most importantly, what isn't? We ought to do better by the people that get left behind. I don't think we shouldn't kill the capital system in the process. There is a phrase that has entered the political vocabulary in the last few months, Epstein class. It refers not only to one disgrace individuals, but to something broader, a social world of extreme wealth, elite networking, private jets, Iceland party, prestigious universities, philanthropy, politics, finance, a transactional class of insiders whose influence operates beyond normal legal and democratic accountability. Well, our first thought and concern is for all of Epstein's victims. We are not going to focus on the sexual dimension of the scandal on our podcast, but instead on the socioeconomic ones. Luigi and I disagree on the idea that there's an Epstein class. I don't think there is one, at least not in the way that people are using the term. But I do think that this scandal shows how frustrated people are with what has become the status quo. When you look at polling data in the United States and Europe, what you see is not simply economic frustration. You see moral anger. You see a belief that the system is rigged, that the rules apply differently to different people, and that access matters more than merit. And that perception, whether it's exaggerated or not, erodes legitimacy. This is where Adam Smith becomes unexpectedly relevant. We often treat Smith as the apostole of markets, but Smith was obsessed with a different problem, the corruption of commercial society by concentrated privilege. Yeah, it's fascinating because I, being a non-economist and a journalist, of course, always thought of Smith as the ultimate proselytizer for capitalism, the invisible hand, the magic of the market. But actually, he warned that merchants would seek to influence legislation for their own advantage. He distrusted chartered corporations precisely because they blended economic and political power. He believed markets could produce prosperity. but only under conditions of genuine competition, moral norms, moral norms, and institutional restraint. Talk about Anna Smith, the philosopher of sympathy, the anti-monopolist, the critic of the elite. Also, what Anna Smith can teach us about Jeffrey Epstein and the Epstein class. There's nobody better than the right honorable Jesse Norman. He is a member of the British Parliament and the author of a fascinating book, Adam Smith, Father of Economics. You're going to keep saying Epstein class over and over again just to listen to me scream, aren't you? Anyway, we are going to hear from Jesse about more than Epstein. We're going to hear about what capitalism is in the world we're in now and about his thoughts on corporate power. This is the first of several episodes that we're going to do on Adam Smith. We're approaching the 250th anniversary of the publication of his book, The Wealth of Nations. Originally published on March 9th, 1776, this book is the foundational text on economics, markets, and that invisible hand. Apologies to our listeners that I was absent from the actual recording of this episode. As everybody knows, New York City got hit by a pretty mammoth snowstorm, and that threw my travel plans into disarray. So we had Luigi handle this one by himself. So let me start with a provocative question. If Adam Smith were alive today, what would he like and what he will not like about today's capitalism? What an excellent question to open with. Of course, guessing what Adam Smith would have thought now is something of a parlor game, so we shouldn't get too distracted by it. But the fact that in so many countries around the world, we have functioning product markets in the way that we do and highly effectively distributing goods and services and generating prosperity and well-being and welfare for people, I think is something that he would regard as a magnificent discharge of some of the ideas of the wealth of nations. He would be mortified, I suspect, by some of the trade shenanigans we've seen over the last few years and by the collusion in markets and outright oligopolistic and crony capitalistic tendencies you see in different kinds around the world. And I think he'd be fascinated. He doesn't really have a theory of technology particularly in any of his writings, but I think he'd be fascinated to see how technology has changed the terms of trade for economics over the last, well, over the last 1500 years in particular. In the theorem of moral sentiments, Smith talks about our tendency to admire the rich and powerful, even when they don't deserve it. And is this a moral distortion? And we confuse wealth with virtue? Is that what we're doing now? Yes. Well, there are many aspects of his thought in that book, which are astonishingly prescient. And that is the forerunner of what we think of now as celebrity culture and all these kind of influences. Of course, it's not really surprising because he sees that happening in his own time. In the 18th century was a time where Britain was becoming a globally dominant country. And of course, goods and services, in particular luxury goods and services, are flooding into Britain. And so he could see these processes of people starting to get very excited about celebrities and rich and powerful figures, even in his own time. But there are also other ideas that go alongside that, that I think are very pressing. One of them is the idea of virtue signaling, or kind of showing off, displaying your virtue ostentatiously in front of others, when that may not actually be your true moral feelings. And another one would be materialism. He has a marvelous line where he talks about the obsession that people have with what he calls trinkets of frivolous utility. Virtue signaling, materialism, celebrity culture, there's a heck of a lot in those early writings of Smith's which carry directly into our own time. This is interesting because many people identify Adam Smith with the idea that greed is good, with God and Gecko. One of the many great things about your book is that you make it very clear that this is the farthest away from the truth. Yes, Smith is in no sense a market fundamentalist in the way that we think of, let alone an apologist for greed or for exploitation in the way that people associate with Gordon Gekko or in many cases with Wall Street or the City of London. He is a believer in the value of markets as means by which people can not only trade their way to greater prosperity, but also as something that themselves reflect and reinforce a culture of mutual equalities. And so when people start to get super rents, monopoly returns, the returns that come from insider knowledge or from collusion, he's extremely rude about that. And he does so in order to protect what we would consider the benefits of free markets, because those are themselves often distortions of effectively functioning markets. And so the modern caricature of him is grossly mistaken. Now, one chapter of your book is dedicated to Smith as a crusader against crony capitalists. Can you define crony capitalists for our listeners and explain why Smith was so opposed to it, even back then? Yes. Crony capitalism is a world in which people act in a way that loses sight of the relationship between business success and, as it were, business merit. The secret, in Smith's view, to solving that problem is effective competition. People are competing with each other. By and large, they are working very hard in order to get their products and services out there. These are habits which instill in due course themselves savings and thrift and hard work and all those good, as it were, moral virtues. And so you have that, but you also have a theory of what happens when the system goes wrong. So you get insider collusion, informational asymmetries. You also get principal agent problems where, as it were, the shareholders of a company might provide money for it to go and do something, but then the managers, the agents in that company, just go off and use it for their own benefit. You know, he's also got a sense of this is a way in which markets or at least corporate activity within markets can go very wrong. So there are direct linkages between some of his thinking in the 1750s, 60s, and 70s, and our own modern time. One of the themes of your book, and I understand also of Adam Smith, of course, is that legitimacy is very important for the long-term survival of markets and the prosperity of market. That efficiency is not enough. You have to have legitimacy. And so all these scandals, all these problems are very, very dangerous because they're not just exposing a problem, they are really undermining the entire system. Yes, I think that's very nicely put. And when you have markets that are putatively efficient, it often turns out they're not as efficient as you think they are. What they're really doing is just borrowing value from different sources. I mean, the classic example of that would be some of these markets before the crash, you know, where basically debt is being chopped up and re-aggregated in ways that disguise the underlying riskiness of the assets. And it turns out that they're enormously risky assets. You thought you were getting a benefit. The investment bankers love it because they're reselling it through transactions and they're taking a benefit. But actually, it turns out to be very, very damaging to the economy. So you can have that kind of putative efficiency, which isn't real efficiency. The more general idea is that you should never lose sight of the idea that why do we have a market? What's the point of a market? Everyone thinks that markets are somehow, often they think that they're kind of, you know, objects that arose, they were handed down by Moses, they come out of human interactions, they've been willed by God or whatever. Actually, markets are human creations, and they evolve in different ways. And we can, for better or worse, shape ways in which they evolve. And we don't always have to think of every intervention as a stupid intervention, doesn't necessarily a disaster. On the contrary, there are many things that we do to make markets work better, provided we don't abuse that power, and we're careful about how we do it. That can be done very, very importantly. And there are other things which we say, look, we don't really want to apply markets to those things. And one of the things that's interesting about Smith is the number of interventions that he's prepared to tolerate in order to achieve other social goals. So he never loses the idea that what really matters is the legitimacy of the whole polity within which markets are operating. And, you know, he was a supporter of the Navigation Acts. The Navigation Acts required that all trade in the British Empire be carried in British ships. I mean, you could hardly imagine a more aggressive intervention, but he justified it on security grounds. You know, he's content with the idea that there should be severe regulation in the financial markets because he'd seen the Air Bank almost go bust in the early 1770s. And he could see that when one bank went bust, it could create a contagion that took a whole bunch of other banks down with it. So, you know, he's not naive about regulation, but the idea that a market has to be encased in some legitimating public context is, I think, fundamental to him. We know that Smith was very critical of elite getting together and conspiring against the public. How would he take the Epstein scandal and all the fallout from it? Well, I'm not sure that Epstein, for all his horrors, is that relevant because we think of Epstein as an abusive single player in a collusive networked world. But the kind of collusion that Smith is thinking about is the one where all of the producers get together to fix the markets and the prices. And you can argue that's going on in financial markets, but it would be a slightly separate further point to the way in which Epstein has been behaving. Of course, Smith is very, very strong on the evils of slavery, both the economic evils and the moral evils. And so trafficking of human beings would be something that he would have despised. And he certainly criticized it severely and very much in advance of his time during his own lifetime. But I think the wider point is the few gang up against the many. He doesn't cast this really in terms of elites versus masses. He doesn't have a kind of Rousseauian view that, as it were, the ordinary human being is necessarily morally preferable or not to others The idea of elites is a kind of 19th and 20th century idea in the way that we think about it now But the idea that the few could get together to rig the system against the many in different forms is absolutely part and parcel of his thinking And, of course, there are famous quotes. But the institution that most embodied that for him in his own lifetime, of course, was the East India Company, which he saw as both a thoroughly pernicious organization in its own right, and also a token for a certain kind of morally bankrupt and economically bankrupt style of economics, which he called, well, which we think of as mercantilism or the mercantile interest in his own time. You correctly pointed out that, of course, Exprim is a criminal and we don't want to enter into his specific crimes that are terrible, all our sympathies to the victims. But I think that at least in the United States, the revelation associated with the Epstein files brought up a little view of the operating of ultra wealthy people in a way that is quite remarkable, so much so that many people have used the term Epstein class. Do you agree that these files reveal the existence of an Epstein class? And if so, what are the characteristics of this class? Well, I haven't been through the Epstein files in any detail. I've looked at some stuff and I've read the papers like everyone else. So I can't say whether or not that it represents a class as such. I mean, I think the thing that's been so upsetting in relation to this particular scandal, it's not just the horrific abuse and exploitation involved, but also the idea that one individual could in his little black book have presidents and CEOs and others and be playing them off against each other and potentially, in some cases, blackmailing them or using them for his own purposes. And that feels to me like something that is particularly shocking because it kind of crystallizes a worry that people have always had. I mean, there's always been a worry. I mean, there's been a worry for a long time. I don't need to tell you, many, many decades that the whole world was basically being run for an insider group. And you occasionally hear people say there are only a thousand people who matter in the world and they all go to the World Economic Forum and all this kind of stuff. And there's a kind of anti-elite globalist rhetoric which feeds off that. And you can see why it feeds off that because you get Epstein and suddenly it looks like you've got an incarnate expression of this form of abusive networking. Of course, the fact that he's using sex and trafficking in order to make his number with these famous people and recruit them to what he's doing, whether they know it or not, is completely horrific. Now, Smith is very sanguine about the role of markets in allocating resources and allocating resources by price and competition. But we see in the real world today that networks, and particularly elite networks, allocate a lot of resources through access. If capital start to operate more through networks than through competition. Is it still capitalist in this sense? I think that's a really profound and important question. If the effect of networks is to suborn competition or divert it, or as you say, compete for it ex ante, then it's hard to see that you would get the benefits that come from the leaning effects and the attempt to defeat people the marketplace from that. But the really interesting question to me is not just how does this happen and where and in what markets, but also how will it be further enabled by AI and the proliferation of technologies which allow those kinds of often invisible insider network relationships to be built. Just yesterday, Peter Mendelsohn, who was a former UK minister and former ambassador of the UK to the United States, was arrested on suspicions of misconduct in public office for allegedly passing confidential government information to Epstein during the 2008 banking crisis. Now, Adam Smith constantly warned about merchants seeking to influence legislation, but does this arrest prove that Smith's deepest fears that the wealthy elite aren't just networking, but actively hijacking the state apparatus for commercial advantage? Well, I mean, as you said, it fits into that picture very nicely. I think there were some particularly unpleasant personal facts about the way in which Mandelson seems to have behaved. And again, he's breaking all kinds of rules. It's not like the system is encouraging or allowing him to do that. He's breaking all kinds of rules, moral and legal, in order to do that. So I think we need to distinguish between how a system is supposed to operate and what happens when it's being misused. And Mandelson is misusing a system for his own advantage and for the advantage of people he wants to get in with. And of course, that's deeply deplorable. Now, looking from this side of the pond, we envy a bit your side of the pond because it seems that the system in the UK seems more accountable. Even the government seems to be on the brink as a result of some of the wrong choices they made versus in the United States, everything seems to be hash-hash and not discussed. So what features of the two institutional system give you this advantage? Let's be clear. I don't think our system has lots of weaknesses. I don't think it's by any means something to be regarded as optimal. But in politics, it has a couple of huge merits. And you can see this. I mean, in Britain, if someone files the wrong kind of expenses claim for relatively trivial amounts of money, that's the end of their political career. I mean, that's just gone, done. You know, if they're using parliamentary letterhead to write to people for purposes of personal gain, you know, people have been tossed out of parliament for doing that. So, you know, the standards are very, very high. I mean, there's a lot of scandal because people do at the margin of 650 MPs and 850 Lords, and some people do stupid things. But the standards are different. The thing that makes it work in Britain, I think, is the kind of closeness of the whole experience. There's a marvelous thing you can do in the House of Commons, which I always do with my constituents, which is while we're in guests, American guests, I walk them up to the lobby, central lobby where lobbying was invented. We go up to the desk and I show them a little thing called a green slip. A green slip is a bit of paper which a constituent can ask for an immediate interview with their MP right then and there, or an excuse and reason as to why the MP cannot attend them in the lobby at there and that moment. I mean, I have been green slipped. I mean, I've been an MP for 16 years. I've been Greenslip on four or five occasions. And in every occasion, I've either gone to the lobby immediately to talk to my constituent, or I've sent a note to say, I'm sorry, I'm in the chamber, or I'm in a committee or something like that. Can you imagine that on Capitol Hill? I mean, you could attach a $3 million check, and you might get some attention from some of the staffers. But the idea that you could summon your member of parliament. So there is a closeness and an immediacy. And our system with 650 MPs for 650 million people roughly means there's roughly 100,000 people in each district and 75,000 voters. Everyone more or less, you know, they either know their MP or they can get to know them quite quickly if they want to, or they know someone who knows them. That exercises a tremendous disciplining effect. And when it's working properly, it's very positive because you can build a reputation knowing that your constituents will hear about it and talk to each other about it and they might help you in future. And that sets the right incentives for people to do the right thing and against people doing the wrong thing. Speaking of a potential solution, how do you see that we can build institutions that can monitor and check, in general, the influence of the powerful, but more specifically, this network power that operates outside the formal lobbying procedure? Because especially in the United States, I don't know the UK, but we have a number of rules that formalize what lobbying is and you have to disclose, but then a lot takes place outside of it. How do we keep that in place? I'm not sure that the ingenuity of lobbyists won't always be outstripping the capacity of lawmakers, many of whom may want to please those lobbyists themselves. And, you know, we are very lucky. One of the benefits of a parliamentary system, it's one of the things that people tend to miss, and I actually write about this in my earlier book on Edmund Burke, is that well-whipped political parties, political parties which have, as it were, an internal structure which takes a platform created before a general election and makes it into a policy platform which MPs are pre-committed to and therefore will support, that is actually a tremendous force for cleaning up politics and preventing pork-barrel coalitions from emerging in a way that you see, I'm afraid, endemically across Capitol Hill. And it's famously true that there'll be lots of many, many examples. And Robert Kerr has lots of examples in his biography of Lyndon Johnson of moments where Johnson gets legislation through by bullying some set of senators or congressmen and then making sure that others get the defense spending they want or the electrification spending they want or the water spending they want. and those coalitions get put through. And we tend to think those things are being put through by adventitious coalitions of interests rather than coming out of a body of agreed policy. And in whipped parties, and the Conservative Party and the Labour Party and other parties in British politics are in that sense whipped. That's not a bad thing. That's actually in many ways quite a good thing. Now, I think the point about how you deal with the cases that you're talking about is, I think the test is always how insulated is this human being from another real human being. If they're surrounded by flax, handlers, entourages, seeking to control the questions they face, that's always a sign in my book that those people are seeking to purchase or to achieve a kind of reputation that they might not be able to achieve if they just answered questions in an open way from people putting them in the normal course. Now, I mean, I remember American friends of mine when Tony Blair first went over to stand beside George W. Bush. And W. was by no means as stupid as people try to pretend in this country, and certainly his detractors in America. He was in many ways quite a smart guy. But he was not a natural parliamentarian, as it were, linguistically facile. Blair is just chatting away and schmoozing everyone, chomping everyone. Why? Because he's grown up in an environment in which those skills have been forced from him. Direct accountability has been forced from him every single week in part. He's got to stand up and take questions. He has no idea what the guy's going to ask him or woman's going to ask him. He's just got to deal with that question. And so he's had to engage with that. And that creates certain skills. It doesn't make you a better human being because, of course, we know Blair is in many ways a rather questionable human being in Britain. I mean, I don't think there's much doubt that he took Britain into war in Iraq on a false premise. But it is quite interesting that the habit of accountability is the closest we've come to trying to break through those carapaces and protective shells that people put around themselves. And I just think that's potentially quite a useful way of thinking about when power is being abused or potentially is subject to misuse. And people are trying to prevent themselves from being called out on it. You mentioned protective shelves. There is an entire infrastructure of protective shelves from the white shoe law firms to the bespoke wealth managers, private bank, et cetera, et cetera. How do we make sure that this service sector does not become a protector of illegal activities and they don't use the attorney-client privilege to create more opacity and make people less accountable. I mean, this is not going to make anyone popular, but you have to have legal structures and enforcement which make that problematic and difficult to do. And that's very difficult in a democracy because these people are very rich and very well insulated, and the resources that are available to public agencies are not just limited because those organizations that they're fighting can try to exercise political influence over them. But, you know, it's, you know, who in Britain today would be very hard to say, look, we're going to spend 10 million pounds on a prosecution designed to prevent a certain kind of activity, which we think is abusive. People would not unreasonably say, well, you better have a very high chance of winning that case because that's 10 million pounds that otherwise you could be using to build a school or help people in some other way. So clear laws, mechanisms of public shame and proper public enforcement, really the only mechanisms we can use and occasional spring cleaning through elections is I think those are the only mechanisms we have to try to make sure that people do behave in the right way. And one of the things I think that is so sad is that, and you can argue this both ways, is that we do seem to have lost this sense that somehow, even if you weren't doing the right thing, you knew what the right thing was. You sometimes think people these days are saying, well, you know, people are the same. There's no smoke without fire. They're all awful. And therefore we can suspend having to reach a judgment or having to exercise a criticism And I think that terrible I think if you lose your independent judgment as a human being whether in a democracy or not you lost everything Speaking of public enforcement I sorry to report I don know how the UK works on this dimension. The Crown Prosecutor is appointed by whom or is elected? No, no, there are no elected judicial or legal positions in Britain because of the risk of political interference. Director of Public Prosecutions is a chosen individual selected for their expertise in the law, generally a senior barrister, and they have the status of a senior civil servant and they come in and serve for a period of time to run the Crown Prosecution Service. And those are the people who decide for criminal cases whether a case is going to be brought. As my accent and name give away, I come from Italy. And growing up in Italy, I found like crazy that in the United States, attorney generals are elected, at least a state attorney general. They need to raise money for the elections. And that clearly makes very clouded their judgment. And even the federal attorney generals are appointed by the president who is elected and so is directly linked to the political system. So I fear that one of the problems the United States is facing these days is the politicization of justice in a way that makes it difficult to go back. Because, of course, what now the Democrats are dreaming of is to prosecute President Trump. And so it's going to be a cycle in which each group will prosecute the other without any sense of real justice. I mean, yes. And as always with these most difficult dilemmas, it's a conflict between two values that people, and people may want both of them. They may want the value of justice against someone they think has behaved unjustly or criminally, but they all may also want the value of ending the cycle of recrimination and reestablishing public institutions on a more independent and politically neutral footing. So those things, again, that's a genuine dilemma, and it's going to be one that's going to be with certainly in America for a while. In Britain, we don't have the same level of politicization. Of course, there's always a danger of the quiet lobbyists kind of handshake or pat on the back. But we've just had a tremendous scandal actually with David Cameron on the green seal as to whether or not he was lobbying on behalf of this guy who was running a business that went bust. You know, we have periodic, lots of, you know, we have a tremendous amount of kind of moral outrage at some of the ways in which these people in positions of power behave. In many ways, that's quite a healthy thing, right? You want that. If you lose that sense of outrage, then people are somehow becoming inured to bad behavior. And, you know, again, there are other countries, you know, we've just seen in France, you've seen a president of the United States, of France, sent to jail. So, you know, it's, I don't think all hope is lost yet, Luigi. No, no, I agree. But it's very important, because my understanding of the UK is the prosecution against Cameron is not seen as an attack of labor against Tory, it's seen as an act of justice. And I think that, unfortunately, in this country, we've lost that. Going back to Adam Smith, I think that's a fundamental trust we need to have in institutions for markets to work properly. Yes. And of course, not all institutions are the same. And in our modern era, in this kind of Wikipedia, AI, chat GPT era, we tend to think of things as just self-validating or justifiable in the terms that they can present themselves to us. And it's more a Burkean thought, it's more an Edmund Burke thought than an Adam Smith thought, although they had a remarkable degree of overlap in many ways in their views. But the idea that institutions earn their crust by the way in which they behave over a period of time, and they encode a degree of wisdom and degree of knowledge, and you need to go back into their history to understand where they come from and what habits and what virtuous patterns of behavior they somehow spring from, that's an idea that's almost lost from public deliberation. Speaking of, you're a Tory member of parliament, but in your conclusions, you actually cite Robert Monk's and saying that corporations are externalizing machines. Yes. So I would like you to, first of all, elaborate what that means and how do you reconcile, at least in the United States, conservatives are seen as protector of business and firms. How do you see yourself? Well, I should, as you know, Luigi, I should begin with a declaration of interest, which was that Bobby Monks, the late Robert A.G. Monks, was my godfather and a very beloved figure and a massive influence on my whole life and way of viewing the world. And indeed, my first job was going to work for him in setting up institutional shareholder services, which was an attempt to bring questions of accountability through shareholder power to corporate America in the 1980s and thereafter. So I think accountability is fundamental. And we know, and Bobby wrote in many books, including his book, Corpocracy and others, what happens when unaccountable power is excised by private institutions. And, you know, you get enormous self-enrichment and you get abuses of various different kinds of shareholders' funds, but also you get abuses of suppliers and abuses of clients and customers. So I don't regard that as having any, as it were, particular orientation at all across British politics. I mean, in British politics, the left tends to be pro the state and the right tends to be pro-business, but that's absolutely not about giving big business a free pass. It's about encouraging capitalism in its best form to operate. And by that, I mean effective functioning competitive markets and non-self-enrichment and non, as it were, elite networking expropriation and non-exploitation of asymmetries of information and power with consumers and with other players. And, you know, if we get more of that, then we prosper. And if we get less of that, then we fail. But certainly as a conservative, the core conservative instinct in my Burkean Smithian view is the instinct to preserve what is of value in one's society. And there are many things that are not of value. And injustice is not of value. And corporate abuse of power is not of value. And so those things are both heavily subject to potential criticism. If you're enjoying the discussions we're having on this show, then there's another University of Chicago podcast network show you should check out. It's called the Chicago Booth Review Podcast. What's the best way to deliver negative feedback? How can you use AI to improve your business strategy? And why is achieving a soft landing so very hard? The Chicago Booth Review podcast addresses the big questions in business, policy, and markets with insights from the world's leading academic researchers. It's groundbreaking research delivered in a clear and straightforward way. Find the Chicago Booth Review podcast wherever you get your podcasts. I really liked what he said about the core of crony capitalism, that people are acting in a way that loses sight of the connection between business success and business merit. And I think that broadly that does make Adam Smith incredibly relevant to the times that we're in now because when that connection gets broken, when people can't see that there's a connection between success and merit, then we start to lose legitimacy. And legitimacy is a really important word. I almost think for all the focus right now on affordability, maybe the word of this year should actually be or the word of our time should actually be legitimacy. I completely agree. As an economist, I generally don't look very much at the term legitimacy, but over time, I got sensitized because at the end of the day, a lot of the actions we do from paying taxes to comply with police orders, et cetera, is voluntary. And we do it if there is legitimacy. Without legitimacy, there cannot be a government. One of the things that Jesse Norman makes very clear in his book, Smith is very clear, without government, there is no market. So the government is integral to the formation of a market economy. Because I've been thinking a lot about this foundational moral aspect of capitalism that it needs to have in order for it to function, I was also really struck by the point he made about the smallness and closeness and immediacy of the British system. And that it perhaps works better in some ways because people aren't insulated from other real human beings. And I loved his idea of the people being surrounded by handlers and the carapaces and the shells that people put around themselves in order to protect themselves from being called out. And that's increasingly the way our world works. And I think that is the way in which there is this very dangerous billionaire class because there are so many people who can protect themselves against the immediacy of other people. And when you no longer have the immediacy of other people, that changes the moral framework in which people operate in a way that I think is really dangerous. I agree. And I love this green slip idea that I didn't know about. It seems a very simple but effective way to make people accountable. Yes, it does. And I think if we had that throughout corporate America and throughout our world, it would be a healthier place. I think about that a lot. I know it's a little bit tangential, but a lot in the world of journalism because old school journalism used to force the immediacy of another person. Because if you were going to write something about anybody, particularly something critical, you had to call them and you had to tell them and you had to give them a chance to respond. And so much of what is wrong now is that people just sling mud at other people without accountability. And free speech requires, just like free markets, requires a level of accountability on the other side of it. And if you don't have to call someone, if you can just post whatever nasty thing you want to say on social media without actually having to say it to the person's face and get their response, you're going to say a lot of ugly things that you wouldn't have to say without immediacy, without the green slip, right? Absolutely. There is another form of a green slip that is disappearing in America, which are shareholder meetings. Shareholder meetings is a way in which everybody, because you just need to have one share that doesn't cost very much. So you need just to have one share and you can go to a shareholder meeting and ask questions to the CEO and the CEO has to answer that. Many of these meetings are moving online with the question prearranged. And so there is not the social shaming aspect of a CEO ask a question in front of an audience and having to answer the question in front of the audience. Yeah, that's really interesting because that's problematic in so many ways. And it also, in the end, is not good for CEOs either because people have to remember how to be challenged or they forget how to ask themselves hard questions, too. So there are also multiple layers about that. Yes, I think that what is fascinating, for those of you who don't know, Justin Norman is a Tory, so a conservative member of parliament in Britain. But he worked early on in his life in the institutional service to make cooperation more accountable. And he has a healthy skepticism about power of corporations. When I asked him about how does he reconcile this with his conservative views, he was completely unapologetic. And he said that, yes, the conservative party is more pro-market than label, but he's definitely not pro-big business in a way that I would like our conservatives here to remember. So I actually thought that Jesse was more, thought more in accordance with me, but you can disagree with that. But when he said that Epstein, for all the horrors, that he's not actually all that relevant to any kind of larger discussion. And that's what I think, too. So I'd like to hear from you if that's what you thought he said and why you disagree with that. I think you're right. He was clearly on your camp. That doesn't change my opinion. You're both wrong. Now, let me explain, because maybe this is such a loaded term that people might kind of misinterpret it. But I'm not saying that this proves that all rich people or all elite behave in this way. But I think that the side effect of this tragedy, because it is a tragedy, is to give a glimpse to a world that normally we don't observe. While this is not the entire world, it's actually a pretty strong network of people that touch a lot of people in America. And so you see how this network works. And let me make an analogy. Maybe this is a reason why I feel so strong about it because it reminds me a lot of the mafia Okay In Italy the part of the mafia that kills people is fairly limited It is in the background. It is one of the strength of the system. But there are a lot of people who interact with the mafia, and they will be horrified by what the mafia does. But they still interact with the mafia and get a qui pro quo with various rings of the mafia system. It seems to me that this is not that dissimilar to the Epstein class, in the sense that there was a ring of people, we don't know how extensive, but there was a ring of people doing terrible things. And that is a tragedy and a crime. And I don't want in any way minimize this. But from an economic point of view, I am fascinated and worried about the rest, about the broader network that, exactly like a mafia, has this crime in the back, but it's not so visible that people don't see it and they kind of interact. So I think that that's kind of my view. It's funny because you're being less quantitative, I think, in this case, whereas my old math major brain is part of what is leading me to disagree with you. Just the sheer numbers of it. Yes, there were a lot of people, influential people in Epstein circles, but there are just so many more who weren't and who weren't anywhere near it. And I can't make the analytical leap from saying that because Larry Summers was involved, that means all of Harvard was somehow corrupt in making decisions that the institution otherwise wouldn't have made. I can't say that because Jess Staley at JPMorgan Chase was involved that that somehow means that all of JPMorgan Chase is corrupt and is part of this class. And I think part of the reason, and it may just be that this information hasn't come out yet. Well, there are two things here. Part of the reason for me is that I still don't see, putting aside the, not putting aside, the absolutely horrible nature of Epstein's sexual crimes, I don't see what anybody did that they wouldn't have otherwise done that had major implications in the world because they were doing a favor for Epstein, because they were being blackmailed by him, because they were part of this circle. I don't see anything profound that happened. And so I think that makes me skeptical about how much Epstein mattered. And I think I also have this philosophical, what he did was so terrible. Why do we need to make it worse? Why do we need to make him have meaning and keep talking about him and make him this person who somehow shaped our world when what he did and the impact he had on the lives of his victims was just so awful in and of itself? It doesn't need to be beyond that because there's no more than that. So maybe we'll end up being an agreement because maybe something will come out in the files that shows, to me, one of the uninvestigated aspects of this is this that a friend sent to me that Senator Ron Wyden was all over, which are the money flows that still have not been properly investigated. And if you can show me money that went from somebody to do something that they otherwise wouldn't have done because of Epstein and that something being something that had a profound impact on the nature of our world, then I'll agree. But without that evidence, I just I can't get there. And I refuse to implicate everybody, say, who touches Harvard in the Epstein network, because where does that stop? If you went to Harvard, are you part of the Epstein circle? I don't know. I completely agree with you. I don't want to criminalize everybody. However, we do see some allegedly criminal activity besides the sexual ones being done, like Peter Madison has been arrested because he was passing state secret financial state treated for financial profits. Okay. Now, when people do this kind of activities, they're extremely careful of not being caught. So when you catch one, it's a little like the cockroaches. You see one, there are a lot more. And we know, people don't like to mention it, but Rajat Gupta, this phenomenal, iconic figure that was the first foreigner to lead McKinsey. And everybody thought of him as this godlike figure. was doing insider trading, for Christ's sake. Okay? That's a pretty stunning thing. And this is like a former minister in the UK, ambassador to the U.S., implicating something like this, in addition to all the allegations of sexual crime to former Prince Andrew, there are also some accusations that he leaked state secret too. So here there are two prominent figures in the UK doing that. And I think that that is one thing. The other is, to some extent, the hypocrisy of many people involved that profess to be populist, anti-elite, and then engage in the worst of trade deals. as the emails about Steve Banner helping COP getting seat in the Augusta club, golf club. And by the way, mentioning with derogatory terms, the people that he cultivates as his electoral base. We all think that politicians are hypocritical, but seeing them in this light is pretty stunning. It's similar to when Hillary Clinton mentioned the world deplorable. Why everybody makes such a big deal of an off-the-cuff comment is because people suspect it all the way around, and then they get a glimpse. And then, wow, this is really, really hard. And unfortunately, I would like to believe that the Epstein group is like an isolated phenomenon with no application, but I'm not so sure. So I'll give you that. The revelations in the UK, if those are the tip of the iceberg, if the cockroach theory is right, and there are more to come along those lines, I'll rethink my position on this. The Augusta stuff with Steve Bannon is gross. I don't see that Augusta matters beyond rich billionaires thinking that they're more important than they are because they got admitted to Augusta. That doesn't feel to me, seem to me like the sort of thing that is actively shaping the world that we all live in. I totally agree with you about this disregard for a lot of the little people or the rest of society on the part of a billionaire class, broadly writ of the wealthy and powerful that is increasingly disconnected from the rest of society and really doesn't care. And that's becoming all the more extreme in a world of AI where people don't even need people who want to work for them in order to take more and more of the wealth of our society. And I think this is a huge problem. I just don't know how much light Epstein himself sheds on it. And I think this monomaniacal focus on the Epstein class is if that's the way those people communicate risks, missing the larger issue, that this is a much bigger issue, and it may not be at all the way Epstein may or may not tell us anything about this bigger issue. But what I'm saying is, why does Steve Bannon feel the need of doing a favor to cop? I don't think he's out of kindness, he expects a favor back. And so this gives you a sense of how there is a sort of system of exchanges of favors that are clear by a person like Epstein. And I'm sorry, think about the godfather in the movie. Don Corleone is clearing all these favors. and, you know, he's kind of occasionally killing people, but very, very sparrily so. But he's a reputable person and he has all this in stuff with politicians. Can I interrupt? Please. Get a word in edgewise. So I don't dispute that people in Epstein circles were trading favors with each other. I'm just not sure how much those favors mattered in the broader play of the world. I don't really care if Steve Bannon got Brad Karp into Augusta. I don't want to be part of Augusta, and I don't think that really matters to the course of the world. I think that matters to a bunch of egotistical billionaires who need to be part of a club, and I don't care. So that's what I mean by seeing these favors that were done having a broader impact beyond that. And that might have been happening. I just don't see it yet. At the cost of showing too much my knowledge of The Godfather, you remember that... I know The Godfather, too. Good. So you remember the scene where The Godfather is pushing for an old singer to be into a program or an opera. And because the director is not willing to do it, the director wakes up with the head of his horse in the bed. So you say, I don't care about opera, right? I don't care about the fact that one or the other is singing. It's not changing the world, but it's part of a gift exchange that is pretty ominous in my view. And that is my concern because, honestly, the gift exchange is really undermining the system of markets. But is it? So that's where I'm going to still disagree with you. Is it? Is it a gift exchange that doesn't matter or is it a gift exchange that is undermining the structure of markets as it pertains to Epstein, the Epstein circle specifically? I agree. There is this broad gift exchange and this broad disconnection from the world that is actually undermining everything about our society. So I agree with you broadly. I just am not sure how much light Epstein himself, what happened with Epstein sheds on this broader issue. So I guess you could argue that it – I mean, I see your point, but then I don't want it to be focused on Epstein himself. I want to have this conversation more broadly about the favors people do and just remove this monomaniacal focus on Epstein. Maybe we don't disagree as much as it seems like we do. I'm just not sure how relevant Epstein is to all of this. I agree with you there is this broad exchange of favors in the world that might be undermining a lot of our systems. I just don't know that Epstein showcases anything about it. I think that maybe you're right. It is not Epstein himself, but I think it is the glimpse we can have through it that is relevant. And it does impact markets. So take Peter Mendelsohn's sort of leak of information and possibly former Prince Andrew's leak of information. Is this like a canary in the mineshaft or is just an exception? I think that this is where we disagree. I don't think that's quite right. So at the risk of belaboring the point, I don't think that's quite right because I don't think that the world is operating in this beautiful, perfect, wonderful way where everybody who says they're concerned about people actually is concerned about people and that Epstein is the exception and people communicate with each other in a lovely way that we would all like to see. I don't agree with that at all. I think our world is being profoundly corrupted by people with too much money who are too disconnected from the rest of society. I just don't know that how the members of Epstein's circle communicated with us tells us anything more broadly about how that world is working. So I'm not in the camp that says, oh, it's all perfect and beautiful, except for this ugly little glimpse into Epstein. I just don't think that that has much to do with these broader issues. I care a lot more about what Trump has been doing with crypto. I care a lot more about what's going on with semiconductors and the deals that Trump is cutting with various companies. There's a lot more that I think sits outside of this that I think really does matter to our world. And I just don't know that I think Epstein is a diversion from the things that really matter. Sebastian Berka, Andy Shee, and Brooke Fox. Don't forget to subscribe and leave a review wherever you get your podcasts. And if you'd like to take our conversation further, also check out promarket.org, a publication of the Stiegler Center, and subscribe to our newsletter. Sign up at chicagobooth.edu slash Stiegler to discover exciting new content, events, and insights. We hope you'll join our community again at chicagobooth.edu slash Stiegler.