Why Hate the Koch Brothers? (Part 2)

Stephen J. DUBNER: Okay. Hi, good morning. It’s Stephen Dubner. How are you today?

Charles KOCH: Hey, Stephen. Charles Koch. I’m doing fine. Great.

DUBNER: You can hear me okay?

KOCH: You bet.

DUBNER: Great.

Over the course of several weeks, I had a series of conversations with Charles Koch — C.E.O. of Koch Industries, a true-believing libertarian and a funder of perhaps the largest and most influential political action network ever. This episode is the second of two parts. In the first, we covered Koch’s management philosophy; why he started funding political causes; and what it’s like to be considered public enemy number one of the political left. We’ll start part two with something related to that.

DUBNER: This is just something I wonder: Are you friendly with Warren Buffett?

KOCH: Yes. Well, I don’t know friendly. I know him and we do a lot of business with his companies.

DUBNER: I’ve always been curious why you think the media generally just gushes over this other Midwestern billionaire despite his unabashedly uber-capitalist tendencies, right? While you’re portrayed — because you’ve gotten more directly involved in political policies and stuff — as more of a dark and plotting oil man ideologue. Why do you think that’s the case?

KOCH: Well, he’s obviously a much better P.R. person than I am. But my whole being is dedicated to changing the system, to make it more just and bring about greater individual flourishing. His is to support the current system, with some tweaks here and there, I grant you. He is no threat to anybody. Whereas all the vested interests — they go for, “What will increase my short-term profits?” When I founded the Council for Competitive Economy, part of what I tried to say, “Guys, if your success and failure depends on whether the government dishes out goodies to you, who needs you? Why not go for Bernie Sanders and have the government just take it over? You’re just the middleman.”

The only reason you should be allowed to make money and be so successful is if you’re creating value for others, if you’re helping people improve their lives. If you’re just in there manipulating the system, get rid of you.

Charles Koch argues that the biggest threats to America these days are special interests, cronyism, and corporate welfare. Which may seem strange if you think of a corporate CEO, like Koch, as a beneficiary of those things. He also argues that our political system has turned into a dumpster fire, with both parties guilty of rent-seeking and putting their thumbs on whatever scales they can find. Which may also strike you as strange, if you consider that what a political network like the Koch Brothers’ network does is — well, puts its thumb on the scale. Because he primarily funds Republicans, and because so much of that funding is “dark,” anonymous money, he is seen by most Democrats as something close to the devil — even though some of his positions, as you’ll hear today, align quite snugly with traditional liberal positions.

My overall impression from speaking with him? Charles Koch believes he’s fighting the good fight based on proven principles — and that the rest of America has been going mad, bit by bit.

DUBNER: I’d like to hear your thumbnail views on a broad spectrum of issues. Charles, what are your views on immigration?

KOCH: My views on immigration are the same as they are on any imports of goods and services, not just people. I would let anybody in who will make the country better and no one who will make that worse. That would be the same thing of people who are here illegally. If you’re here, gainfully employed, and adding value in society then you ought to stay. If you’re not contributing — and particularly if you’re creating trouble, making people’s lives worse — you need to be sent out of the country.

DUBNER: Now, to say that you’ve let in anybody who will make the country better, that could be construed — I would argue, pretty easily — as essentially a vote for open borders. Do you go that far?

KOCH: No, there needs to be screening, particularly with a giant welfare state that we have. You don’t want people [to] come here, just go on welfare and drain resources. You want people who’re going to come here, get a job, work, obey the law, be good citizens and contribute. There needs to be screening for that. Exactly how to do that and what’s effective, I haven’t gotten in the detail enough to know. Then on imports, I would let in every import except those that are dangerous like poison gas, bombs, atomic bombs and stuff. Keep all that stuff out. But all the goods and services that are cheaper, better quality that Americans want to buy, I’d let them in because it makes Americans better off and it increases innovation, just as the Japanese imports caused our auto companies to come into the 20th century.

DUBNER: Now, a lot of people who hear that argument — that essentially unfettered free trade argument — we want goods and services to move freely without friction and let the market set the lowest price so that more people can enjoy stuff. That argument felt a lot better to a lot of people 10 years ago. But now there’s a lot of backlash against globalization generally for depressing employment and wages here. Have you not lost any enthusiasm for globalization?

KOCH: As I say, I’m against special interest, corporate welfare and import tariffs. Blocking imports are corporate welfare. You’re saying to the American people, “You don’t have the right to buy a better product, higher quality, more advanced or cheaper because it’s made in Japan.” As opposed to, “It’s made in Montana because we [have] got to protect it.” It’s like the sugar growers. We got, what, a few hundred sugar growers? And we subsidize them and protect them from foreign competition. It raises the costs of foodstuff for everybody. That isn’t going to affect my life. But that hurts some people who don’t have very much.

DUBNER: Charles, what is your thumbnail view on drug decriminalization and/or the war on drugs?

KOCH: As I forget who said, “We fought the war on drugs and we’ve lost.” People say, “God, look at people doing these drugs. It’s terrible. We’ve got to stop them.” Well, part of the terrible part is because we’ve tried to stop them. It’s just like prohibition. They tried that and what [it] did that put gangs and criminals in charge of alcohol and created a crime wave. Well, the same thing is true here. I’m not an advocate of drugs. I don’t do drugs. Never have. I’m not in favor of people doing drugs. On the other hand, this extreme criminalization hasn’t worked. Matter of fact, it’s ruined a lot of lives by turning people who really didn’t do much wrong into lifelong criminals.

DUBNER: Talk a minute about criminal justice reform or what you would even call reform within the realm of criminal justice.

KOCH: Like everything else, we need a legal system that is just, where the punishment fits the crime. And we also need a system that, if people make a mistake, learn from their mistake. They need to have a second chance rather than ruin their lives.

DUBNER: Let me ask you about climate change — causes and consequences.

KOCH: There are natural causes and then there are causes due to increase in greenhouse gases, such as CO2, being the biggest one. Not the most potent one, but the biggest one. So far, unlike the projections, it has not created catastrophes. But obviously, if the temperature continues to go up, at some point it can be harmful or even very harmful. But the question is, “What do we do about it, about whatever risk there is?” And to me, the answer is innovation. These policies that the U.S. government has, others have proposed or promulgated have been just symbolic. They have made essentially no difference. The EPA has said this. We oppose all of these because they end up being cronyism. They end up helping certain wealthy people to the disadvantaged of the less fortunate.

DUBNER: What would you propose instead, if you were setting that policy?

KOCH: I would go to permission-less innovation. This is part of this whole theory of liberation [that] allows everybody to become rich. We need to liberate innovation, entrepreneurship, and productivity. We see that a lot of progress has been made in solar. There are also huge improvements in energy efficiency and in natural gas replacing coal due to innovations. You look at all the progress in having less greenhouse gases and it’s due to innovation, not regulation. As a matter of fact, [when] they blocked the Keystone pipeline. I was going to send them a thank you letter because that was saving us $750,000 a day in crude costs. Maybe that’s not a lot of money. It’s a lot of money to us.

DUBNER: Wait, I don’t understand. How is that saving you that money?

KOCH: Because we have a refinery in Minnesota that runs on Canadian crude. Now, the marginal buyer’s on the Gulf Coast and it’s railed down there. If they build a pipeline, it will be shipped down there $3 a barrel cheaper.

DUBNER: So the pipeline is, would be bad for your business. What was your public position on that or the Koch Industries …

KOCH: We were in favor of the pipeline.

DUBNER: Because why? Explain.

KOCH: We have a luxury of being a private company and can act on principle. No one, or a lot of people don’t agree with our principles. But what we believe [in] are principles that will make people’s lives better and that’s the way we evaluate everything. Every position is to get rid of cronyism, corporate welfare and to liberate the people.

DUBNER: Now the public line on you, however, is that, “Everything that Charles Koch or the Koch brothers advocate societally or politically is just an effort to protect or extend their business interests.” You’re giving an example right now that runs purely contra to that argument. Make your best case how and why that’s not so.

KOCH: OK. We opposed extenders, the tax bill, which are our tax exemptions, cronyist things that have been passed at the end of every year. They do it year to year so it doesn’t count in their longer-term deficits. And we make a lot of money from those, because they benefit us tremendously. But we’ve opposed those. We oppose all import tariffs. We opposed this border adjustment fee in Congress’ tax bill that would make us over a billion dollars a year. There are roughly a trillion and a half special exemptions in the tax code. We benefit tremendously from them. We’d get rid of all of them.

DUBNER: Yeah.

KOCH: So to get rid of these special deals for special interests … It’s a cancer on our society. Supposedly all the cronyism is — different estimates — out of a $15 trillion economy is costing the economy, making it less efficient by $4 to $5 trillion. Thirty to 40 percent. You just think what growth and productivity we would have. Plus then you would open it up for entrepreneurs, new competition, new ideas, new innovations. Another huge contributor to this problem is this occupational licensure. It’s not just big business. Locales and states require all of this testing, schooling, fees and stuff for people who start with nothing. They say it’s safety. Oh yeah, that’s right. Hair braiding. You need 1,500 hours of schooling. This is absurd.

DUBNER: Now, I think a lot of people listening to you talk, especially on certain issues — immigration, even the way you talked about climate change, drug decriminalization, criminal-justice reform — even a lot of Democrats, even progressives hearing that, a lot of what you’re saying would sound pretty palatable to them on the topics, on the issues. And yet, if you were to ask most Democrats or progressives to name their number-one enemy, it’s probably you and your brother David. In your mind, why is that? You plainly feel as if you’re sending a series of messages and acting on a series of beliefs that you feel are really valuable. And yet even to those who, in your mind, would benefit greatly from them — which is to say everybody, I guess, the way you describe it — you’re cast as …

KOCH: Well, not everybody. The special interests would be less able to exploit everybody else.

DUBNER: Well, that said…  

KOCH: But we find people, Democrats from all over who will work with us. We worked with the Obama administration, particularly on criminal-justice reform, also on occupational licensure. We work with a number of Democratic governors on occupational licensure. But, I’ll tell you these special interests are so strong.

DUBNER: Are you suggesting that it’s the special interests, then, who drive the Democratic, progressive and even journalistic agendas — like Jane Mayer at The New Yorker — to paint your endeavors as evil? Or is this something that’s arrived at more organically?

KOCH: Well, it’s both. It all starts with the belief that virtually everybody is capable of learning, contributing and leading a successful life if they’re given the freedom and opportunity to do so. I would reform the education system, communities, business and government to better enable that to come about. Now, if you believe, as, for example, Hillary does, that those in power are so much smarter and have better information than those of us great unwashed out here have, that we’re either too evil or too stupid to run our own lives and those in power are much better — have what Hayek called the fatal conceit and William Easterly called the tyranny of experts — that they can run it for us.

And when Hillary was pushing Hillarycare, she said as much — that if people are left to decide their own healthcare, they won’t spend enough and so the government needs to do it. Besides, the government will do it better. That is a great divide.

DUBNER: When we talk about the reforms that you would propose, I’m curious: isn’t it a little hubristic to assume that you do know what’s best for society? Persuade me of your level of confidence that if you could reform things as you see fit, that — I’m not saying work 100 percent, nothing’s 100 percent — but it truly would work.

KOCH: Well. I mean, I don’t know, as I said. You asked me about how to do immigration, exactly. No. There’s a principle here. There are basic principles and, as I said, quoting Newton, “If I see further, it’s because I’m standing on the shoulders of giants.” What has worked through history? What, starting in the 17th and 18th century, caused the standard of living — for the first time in history — to explode? Caused the U.S. to be 30 times the per capita income in the whole world, ten times? What, just since 1990, has caused the number of people in extreme poverty to drop from 2 billion to less than 800 million? When you go back through history, it’s through liberation. It’s by applying the principles in the Declaration of Independence — that is, everybody is born equal with certain inalienable rights. Governments are instituted to secure those rights.

If you look at our history as a country, we became the most successful country in the world because we followed those to some extent. Where we violated them have come all of our tragedies and injustices, whether that’s slavery, whether that’s exterminating Native Americans, whether that’s denial of women’s rights, denial of rights to immigrants, particularly groups like the Chinese and the Irish and civil rights. Now, when you say… God, policy. I do not know what detailed policies. But I know enough principles to know what works because they’ve worked universally through history. For example, division of labor by comparative advantage, creative destruction, the rule of law, the benefits of trade. These principles we know, and we know from psychology, that people are not happy when you just give them stuff.

There’s this concept of earned success, what Aristotle called “eudemonia.” That is, you have human flourishing when people fully develop their abilities and use them to do good. It’s what my father called the glorious feeling of accomplishment. There are all these principles that have that have proven true throughout history. You have the same objective, you debate it and you learn from each other. That’s how innovation comes about. That’s part of it, is to not get sucked into hubris. “I got all the answers. I’ve got eternal wisdom and know the exact path for all time.” No. I’m out here experimenting, fumbling around, trial and error to try to find a better way.

“Finding a better way” did not include supporting Donald Trump in his run for president — or Hillary Clinton. Koch compared the choice between Trump and Clinton as having to choose between cancer and a heart attack. So, coming up on Freakonomics Radio, what’s he got to say about the Trump Administration?

KOCH: I’m not into ad hominem attacks. What we’re doing with this administration — as we did with Obama and we’ve tried to do with all the others — is find areas we can agree on and work with them on that and then oppose them where we disagree.

That’s coming up, right after this.

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Here’s what Charles Koch, half of the Koch Brothers, had to say about Donald Trump a few months before the 2016 election. “I’m sure he’s a fine fellow underneath, but when you look at our guiding principles, you see that his guiding principles are in many ways antithetical to them and a great many of his policies are antithetical.”

DUBNER: You famously did not back Donald Trump in the 2016 election, but here he is as president. You did support Mike Pence, the current V.P., when he was running for president in 2012 and you funded his gubernatorial campaign. In addition to Pence, there are a number of Koch allies — I guess I’d call them — within the Trump administration: Marc Short, the White House director of legislative affairs who previously ran the Freedom Partners network; Mike Roman, the White House’s director of special projects and research who used to run the Freedom Partners competitive-intelligence team, basically oppo research; and Mike Pompeo, from your state of Kansas, now head of the C.I.A., received enough Koch funding that he’s been called ‘the Congressman from Koch’; there is the E.P.A. chief Scott Pruitt, whom the left considers an enemy of the environment itself. But considering the election didn’t get your guy in or didn’t get in a guy or gal that you wanted —

KOCH: We didn’t have a guy or gal.

DUBNER: Right. Considering you didn’t back anyone in the election, I’m curious —

KOCH: Well, we backed some senators, congresspeople and governors, but no one at the presidential level.

DUBNER: Right. In terms of the White House, I’m curious to know how you think things are turning out now.

KOCH: Well, I wrote about that. I don’t know whether you saw the op-ed I did for The Washington Post.

DUBNER: Yeah, I did.

KOCH: That pretty well sums it up. But it’s like all presidents. The last one I really liked was Calvin Coolidge because he did some great things. So that’s been a while. But it’s the good, bad and the ugly —

DUBNER: My impression is that you were very fond of Ronald Reagan, at least in retrospect, no?

KOCH: Well, Ronald Reagan, that’s an interesting case because I agree with a lot of the philosophy he articulated, as you can tell.

DUBNER: Yeah.

KOCH: But Bill Simon told him when he was elected — Bill Simon, by the way, was Secretary of Treasury under Nixon. He said that he told President Reagan, “Mr. President, I totally agree with your philosophy. But if you want to get any of it implemented, you cannot staff your administration with the old Ford/Nixon hacks.” Then, that’s in large part what Reagan did because he didn’t really care that much about administration and didn’t get into the weeds and all those special interests he’d have to overcome to make his philosophy a reality. Government grew a little slower under his first administration and grew at the same rate as other administrations in his second term.

You will find that virtually every president after Coolidge that that’s been true, whether Democrat or Republican. Where it’s done a little better, where there’s been a little more restraint, is when we’ve had divided government.

DUBNER: That said, [it’s] not a divided government now and a president that you didn’t support. As you wrote in The Washington Post, you praise the president’s, quote, “Thoughtful approach to regulatory reform.” You like his pick, Neil Gorsuch, for the Supreme Court. But then you talk about some of the counterproductive measures including the “broad travel bans, discouraging free trade and a tendency toward rhetoric that too easily divides Americans instead of uniting them.”

KOCH: See how diplomatic I am?

DUBNER: I’m guessing a few others might have got their fingers on those sentences before they went to The Washington Post or no?

KOCH: I’m not into ad hominem attacks. What we’re doing with this administration — as we did with Obama and we’ve tried to do with all the others — is find areas we can agree on and work with them on that and then oppose them where we disagree. We have opposed this tax bill. We oppose this immigration, we oppose them on these anti-trade moves.

DUBNER: You’ve opposed the tax bill on what grounds? Because there are some pieces of it that I’m sure you’re in favor of.

KOCH: We’ve opposed it on this border adjustment fee subsidizing exports and punishing imports. As I said, it will allow us to raise our prices and probably reduce our taxes at the same time. It will enable us to increase our profits by over a billion dollars a year, at the expense of working Americans. Now what kind of policy is that? It makes no sense.

In other words, as a CEO, Koch would be an idiot not to play the game by the existing rules. But as a person, Koch thinks the rules are idiotic, and that they’ve been set up to reward a relatively thin slice of the population. To which he happens to belong. So it’s easy to see why his political opponents accuse him of blatant self-interest — when, for instance, the Koch political network has punished Republican candidates who promoted green energy. He, after all, is an oil man from way back. But it’s also easy to see why he thinks this accusation is shallow, motivated as much by the self-interest that he’s accused of. After all — he’s already worth some $50 billion, and he’s 81 years old. Is he really chasing a few more billion in fossil-fuel profits?

Or: Does he truly believe that too much of the momentum behind something like green energy comes from interested parties, who advance their cause less by innovation and free markets and more by political gamesmanship?

DUBNER: Let me ask you this: Forget about the fact that you are a political bête noire for a lot of people. Also for a lot of people, when they just hear a discussion about the belief in free markets and a libertarian view generally, there are a lot of people who just don’t believe it. There are a lot of people who think that free markets and what goes along with them encourage a winner-take-all mentality, corporate corruption and the exploitation of employees and consumers. I don’t know how much of a silo you live in. I assume that a lot of the people that you spend a lot of time with agree with you. What do you say to someone who disagrees with you to their very core and try to persuade them to hear you out?

KOCH: Well, I hope I’m not in a silo because as we partner with people and look for partners who disagree with us on most everything. We’ve done that in criminal justice reform, occupational licensure, in Stand Together where we work with community organizations who we believe are really trying to help the communities solve their problems and better themselves. We work with teachers, administrators, professors who don’t agree with us on a lot of things but we find an area we can work together. We follow Frederick Douglass’s philosophy: “I will unite with anybody to do right and no one to do wrong.” My philosophy on partnerships is you need three things to have a good partnership. You need to share vision, values and bring complementary capabilities. On vision, you don’t need to have exact vision of a free society.

Matter of fact, I don’t even agree with myself. I change my opinions. To find anybody who agrees 100 percent on a vision of society, I would be in a silo. I’d be totally by myself. But all we need to do is have the same vision for that particular problem or that issue. We’re big supporters of United Negro College Fund and the Thurgood Marshall College Fund. We disagree on a lot of things but we agree that these kids, the ones that we’re supporting, are remarkable human beings. All they need is the opportunity and freedom to do something and get the mindset that they can accomplish something.

DUBNER: In a case like that, what would you disagree with them on? United Negro College Fund, for instance.

KOCH: Well, it may be on how the welfare state should work. Those kind of things. Whether some of the government programs are helping him or hurting them, how the education system would be organized. But on teaching, the various ideas we’ve been talking about on self-transformation, they totally agree. That’s what we’re working with them on.

DUBNER: You’ve been more successful than the vast majority of people over history in the business realm. But if your primary goal of your activism is to unite people, I hate to say it, but you’ve not been very successful in that realm, right? I don’t think many people would disagree that we’re particularly not just divided but really caustic in the way that we talk to other people or talk past other people who may have different views from us. Do you think that that is just a state of the human animal, that we like to divide ourselves into conflict-based tribes and whatnot? Or do you see examples from history, or are you otherwise encouraged to think that that unity that you want really is possible?

KOCH: Let me, if I might Stephen, challenge you on that. We haven’t united people who don’t really know what we stand for or what it is to work with us. We have our support programs at over 300 universities. We found ways to unite with every administration, with many governors and local officials of different parties. So this works. Believe me, if we had no success or were making no progress, I’d be happy, at least, to completely change my approach. I’m not real fond of just banging my head against the wall.

DUBNER: Charles, you strike me as a pretty realistic fellow. So I think you’d agree there’s no such thing as a utopian government or society. It’s just not going to happen. But when you look around the world at a society or culture that you think is as close to good as we’ve gotten, something that aligns with the way you see society and governance working, what are your favorites?

KOCH: Well, I just recently got this Human Freedom Index done by a number of institutes around the world. This is not just economic freedom but it has both economic and personal freedom. If you look at the top countries, they start with Hong Kong, Switzerland, New Zealand, Ireland, Denmark and then Canada. Unfortunately, the U.S. has dropped to twenty-third. There are a lot of great things about the U.S. But we’re increasingly headed, under both Republicans and Democrats, toward a system of control, dependency and cronyism that’s pitting individuals and groups against each other and destroying opportunity and progress. What I look at is, to what degree are the great bulk of people liberated and injustice is eliminated? Even Hong Kong, Switzerland, New Zealand, all of these have problems.

None of them are perfect. As you say, they’ll never be perfect. Human beings are fallible.

DUBNER: Would you rather live in any of those countries — Hong Kong, Switzerland, New Zealand, Ireland, Denmark?

KOCH: No, because we have this two-tiered society here. I happen to be in the favored tier. But for a lot of people this system isn’t working. That’s our number one objective to get rid of the cronyism, the lack of opportunity for a large portion of the population. That’s the main focus of our efforts.

Coming up next time on Freakonomics Radio: Harvard president Drew Gilpin Faust recently announced she’ll be stepping down next year. So we will bring you an interview we did with Faust a couple years ago in which she discussed, among many other things, being the first female president of Harvard.

Drew Gilpin FAUST: There were plenty of people who accused me of being a token appointment or alleged that I was a token appointment.

That’s next time, on Freakonomics Radio.

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Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Shelley Lewis. Our staff also includes Stephanie Tam, Christopher Werth, Merritt Jacob, Greg Rosalsky, Eliza Lambert, Alison Hockenberry, Emma Morgenstern, Harry Huggins, and Brian Gutierrez. We had technical assistance in Wichita from Torin Andersen and Jon Cyphers, and we also had help this week from Sam Bair. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts. You can also find us on Twitter, Facebook, or via email at radio@freakonomics.com.